Blaze Energy Ltd by cuiliqing

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									MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010



Description of the Business

Blaze Energy Ltd. (“Blaze” or the “Company”) is an independent exploration and development company
pursuing conventional oil and natural gas reserves production in Western Canada. The Company also
earns third party processing and marketing income, as well as overhead recoveries, from its facilities
operations. Blaze is based in Calgary, Alberta and was incorporated under the Business Corporations Act
(Alberta) on April 20, 1995 at which time it commenced operations.

Reader Guidance

This Management's Discussion and Analysis (MD&A) is dated and based on information at August 10,
2010. This MD&A has been prepared by management and should be read in conjunction with the
unaudited interim financial statements for the three and six month periods ended June 30, 2010 and 2009
and the audited financial statements for the year ended December 31, 2009, together with the
accompanying notes, for a complete understanding of the financial position and results of operations of
Blaze. Readers should be aware that historical results are not necessarily indicative of future
performance.

Where amounts are expressed on a barrel of oil equivalent (“boe”) basis, natural gas volumes have been
converted to equivalent barrels of oil using a conversion factor of six thousand cubic feet equal to one boe
unless otherwise indicated. This conversion ratio of 6:1 is based on an energy equivalent conversion
method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Boe figures may be misleading, particularly if used in isolation.

The financial information presented has been prepared in accordance with Canadian generally accepted
accounting principles (GAAP). All amounts are stated in Canadian dollars.

Forward-Looking Statements

Information provided herein contains estimates and assumptions which management is required to make
regarding future events and may constitute forward-looking statements within the meaning of applicable
securities laws. Management’s assessment of future plans and operations, capital expenditures,
methods of financing capital expenditures and the ability to fund financial liabilities, expected commodity
prices and the impact on Blaze, expected changes in royalty rates, and the timing and impact of adoption
of International Financial Reporting Standards (IFRS) and other accounting policies may constitute
forward-looking statements under applicable securities laws.

Although the Company believes the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will be realized. The use of any of the words
“anticipate”, “believe”, “continue”, “estimate”, “expect”, “forecast”, “may”, “will”, “project”, “plan”, “should”,
and similar expressions are intended to identify forward-looking information. These statements are
subject to certain risks and uncertainties and may be based on assumptions that could cause actual
results to differ materially from those anticipated or implied in the forward-looking statements. The risks
associated with these forward-looking statements include, but are not limited to, the following:

    •   Fluctuations in the Company’s natural gas, natural gas liquids and crude oil production
        levels for any reason;
    •   Blaze’s ability to successfully market and transport its crude oil and natural gas products;
    •   Volatility in market prices for natural gas, natural gas liquids and crude oil;
    •   Operational risk associated with operating sour natural gas wells, pipelines and
        processing facilities;
    •   Changes in foreign currency exchange and interest rates;
    •   Uncertainties associated with estimating reserves;
    •   Inaccurate assessments of the valuation of acquisitions;
    •   The inability or failure to realize the anticipated benefits of acquisitions;
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010



    •   Delays resulting from or inability to obtain required regulatory approvals;
    •   Competition for capital, asset acquisitions, undeveloped lands, skilled personnel, drilling
        rigs and other services;
    •   Unexpected events that are inherent in the oil and gas industry such as: geological and
        geophysical problems, drilling problems, completion and tie-in problems, pipeline and
        mechanical failures, environmental issues;
    •   Well production and decline rates;
    •   Successes in the finding and development of reserves;
    •   Changes in the general economic conditions in Western Canada, Canada, North America
        and Worldwide;
    •   The effects of weather and climate conditions;
    •   The ability to obtain financing on acceptable terms;
    •   Competitive actions taken by other companies;
    •   Actions taken and policies created by governmental or regulatory authorities including
        changes to tax laws, incentive programs, royalty calculations and environmental
        regulations.

Furthermore, the forward-looking statements contained in this MD&A are made as of the date of
this MD&A and the Company does not undertake any obligation to update publicly or to revise
any of the included forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required by applicable securities laws. The Company’s
forward-looking statements are expressly qualified in their entirety by this cautionary statement.

Non-GAAP Measures

Blaze management uses and reports certain non-GAAP measures in the evaluation of operating
and financial performance.

Funds flow from operations and funds flow from operations per share, which represent earnings
and earnings per share before depletion, depreciation, accretion, stock-based compensation,
future income taxes, asset retirement costs incurred, non-cash gains and losses on sales of
assets and write-downs, are used by the Company to evaluate operating performance, leverage
and liquidity. The following table reconciles cash flow from operating activities, the most directly
comparable measure calculated in accordance with GAAP, to funds flow from operations:

                              2010                             2009                           2008
                         Q2           Q1     Q4           Q3          Q2       Q1        Q4           Q3

($000’s)
Cash flow from
  operating activities   (132)    (1,104)    1,598       3,479         632     (936)     5,531        (82)
Changes in non-
  cash working
  capital                2,819       2,843   (400)      (2,198)       1,308    1,881    (3,429)      2,957
Asset retirement
  costs                       1        16     155              -           -        -         -            -
Funds flow from
  operations             2,688       1,755   1,353       1,281        1,940     945      2,102       2,875

Upstream operating netback is calculated as average unit sales price less royalties,
transportation costs and operating expenses. Midstream operating netback is calculated as
revenue from the following third party sources, less related operating costs: gathering,
processing and transporting natural gas and natural gas liquids, contract operating, road use
services and lab analysis services. Total operating netback is calculated as upstream operating
netback plus midstream operating netback plus other income. Corporate netback is calculated
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010



as total operating netback less general and administrative and interest expenses and current
income tax.

Upstream operating netback represents the cash margin for every barrel of oil equivalent sold
and is a common benchmark used in the oil and natural gas industry. There is no GAAP
measure that is reasonably comparable to upstream operating netback.

Net debt plus working capital, which is current assets less debt and current liabilities, is used to
assess capital efficiency and financial strength. There is no GAAP measure that is reasonably
comparable to net debt plus working capital.

The above measures do not have any standardized meanings prescribed by Canadian GAAP and
therefore may not be comparable with the calculation of similar measures for other companies.




                                                -3-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010



Financial Results

Selected Quarterly Information

                                       2010                              2009                         2008
                                  Q2           Q1       Q4       Q3          Q2       Q1        Q4           Q3

Production
Natural gas (mcf/d)               1,612        1,841    1,361    1,684      2,273     1,139     963      1,298
Oil and NGL’s (bbls/d)              402          406      244      269        240       251     330        264
Total (boe/d)                       675          717      471      550        619       441     491        480

Total boe                        61,387       64,555   43,310   50,572     56,340    39,699   45,142    44,171

Financial
(000’s, except per share
  amounts)
Petroleum and natural gas
  revenue                         3,108        3,346    1,950    1,759      1,888     1,527   2,274      3,914
Processing, marketing,
  transportation and other
  income                          1,529        1,366    1,289    1,650      4,466     1,237   1,669      1,227


Funds flow from operations        2,688       1,755     1,353    1,281      1,940      945    2,102      2,875
  Per share – basic               $0.28       $0.14     $0.11    $0.11       $0.16    $0.08   $0.17      $0.26
              – diluted           $0.27       $0.14     $0.10    $0.11       $0.15    $0.07   $0.17      $0.25

Total operating netback (2)       3,436        2,711    1,747    1,714      2,250     1,038   2,271      3,054

Capital expenditures             15,090     7,941  5,501         1,780      5,551     5,621    2,230       97
Net asset dispositions                -   (14,228)     -             -          -         -        -    1,618
Shares outstanding - basic        9,671    12,355 12,355        12,355     12,355    12,355   12,355    11,079
                     - diluted   10,015    12,826 12,687        12,665     12,630    12,606   12,616    11,317
Total assets                     71,911    52,326 52,061        48,481     55,190    41,706   34,999    35,158

Per unit information (1)
Natural gas revenue
  ($/mcf)                          4.40         6.27     6.31     3.09       3.98      5.92    7.07          8.82
Oil and natural gas liquids
  revenue ($/bbl)                 67.30       63.13     51.72    51.72      48.71     40.72   54.24     117.90
Oil equivalent revenue
  ($/boe)                         50.63       51.83     45.03    34.78      33.51     38.46   50.38      88.62
Upstream operating
  expenses ($/boe) (2)            16.99       10.58     20.32    14.03      18.96     16.25   23.03      18.09
Upstream operating
  netback ($/boe) (2)             42.63       31.69     15.87    18.52       7.47      7.99   24.65      53.92

  (1) Prior period figures have been restated to reflect the fact that the Company is now reporting its
      natural gas price in $/mcf instead of $/GJ.

  (2) Prior period figures have been restated to reflect the fact that the Company includes revenue from
      contract operating, road use and lab analysis, formerly included in Other income, as Processing,
      marketing, transportation and other income and because the Company no longer charges itself
      overhead on gross operating costs incurred.

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MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010




Acquisition/Disposition Activities

In June 2010, the Company completed two acquisitions, purchasing producing petroleum and natural gas
assets and related infrastructure assets in the Brazeau River area, increasing the ownership percentage
of assets the Company already partially owned in addition to other assets in the Brazeau River area.
The infrastructure and proved plus probable reserves acquired, for which the Company paid $4,400,000
and $9,240,000, respectively, is expected to add 350 BOE/d and 150 BOE/d, respectively to the
Corporation’s existing production base as well as open up additional business opportunities management
has identified in the area.

In March 2010, the Company purchased producing petroleum and natural gas assets and related
infrastructure assets in the Brazeau River area, increasing the ownership percentage of assets the
Company already partially owned. The infrastructure and proved plus probable reserves acquired, for
which the Company paid $4,400,000, is expected to add 75 to 100 BOE/d to the Corporation’s existing
production base as well as open up additional business opportunities management has identified in the
area.

The Company disposed of certain non-core non-producing petroleum and natural gas properties in
January and February 2010. These properties were sold for total gross proceeds of $14,216,000. In
accordance with Accounting Guideline 16, these properties were assigned a carrying value of $8,841,625
and classified as assets held for sale at December 31, 2009. A gain of $5,374,375, was recognized in
income for the three month period ended March 31, 2010 as the overall rate of depletion and depreciation
changed by more than 20% as a result of the disposition.

Petroleum and Natural Gas Revenue

                                  Three months ended                      Six months ended
                                        June 30,                               June 30,
                             2010       2009     % Change            2010       2009    % Change
($000’s)
Natural gas                   646         823         (21.5)         1,686        1,429         18.0
Oil and NGL’s               2,462       1,065         131.2          4,768        1,986        140.1
Total                       3,108       1,888          64.6          6,454        3,415         89.0

Petroleum and Natural Gas Prices

                                  Three months ended                      Six months ended
                                        June 30,                               June 30,
                             2010       2009     % Change            2010       2009    % Change
Realized Sales Prices
Natural gas ($/mcf)           4.40        3.98         10.6           5.40        4.38         23.3
Oil and NGL’s ($/bbl)        67.30       48.71         38.2          65.20       44.64         46.1
$/BOE                        50.63       33.51         51.1          51.25       35.56         44.1

                                  Three months ended                      Six months ended
                                        June 30,                               June 30,
                             2010       2009     % Change            2010       2009    % Change
Benchmark Prices
AECO 5A ($/mcf)              3.69          3.45         7.0           4.19         4.18         0.2
Edmonton Light ($/bbl)      75.46         66.16        14.1          77.89        58.16        33.9

Total petroleum and natural gas revenues for the three and six months ended June 30, 2010 have
increased by 64.6% and 89.0% respectively. Results from the Company’s 2009 capital program
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010



increasing volumes sold, higher average pricing for oil and NGL’s and a shift in the Company’s production
mix away from natural gas and towards more valuable oil and NGL’s were the primary reasons for the
increases in total petroleum and natural gas revenue.

The Company’s natural gas revenues are largely determined by the AECO Hub prices which are
influenced by several factors including North American supply and demand, weather conditions and
forecasts, storage levels and transportation, gathering and processing capacity constraints. Periodic
imbalances between supply and demand for natural gas are common and can result in volatile pricing.
Currently, all of the Company’s natural gas production is sold at the daily AECO price. Prices received for
future production will be determined by the Company’s marketing arrangements and overall commodity
market conditions.

Production

                                  Three months ended                       Six months ended
                                        June 30,                                June 30,
                               2010      2009    % Change             2010       2009    % Change
Daily Production
Natural gas (mcf/d)           1,612       2,273           (29.1)      1,726        1,709           1.0
Oil and NGL’s (bbls/d)          402         240            67.5         404          246          64.2
Boe/d                           675         619             9.0         696          531          31.1
Production Mix
Natural gas                    40.4%       61.2%          (34.0)       41.9%        53.7%        (21.9)
Oil and NGL’s                  59.6%       38.8%           53.6        58.1%        46.3%         25.4


Production for the three and six months ended June 30, 2010 was 9% and 31.1% higher than production
for the comparative three and six months period ended June 30, 2009. The increased production is a
result of the Company’s 2009 capital program and an acquisition which closed during the three month
period ended March 31, 2010. Production for the three month period ended June 30, 2009 was high due
to flush production from a well that was brought on in April of 2009.

Royalty Expenses

                                   Three months ended                       Six months ended
                                         June 30,                                June 30,
                              2010       2009     % Change             2010       2009    % Change

Total royalties ($000’s)      (552)        399            (238.3)        65          963          (93.3)
As a percent of
  petroleum and natural
  gas sales                  (17.8%)      21.1%           (184.2)       1.0%        28.2%         (96.4)

Royalties as a percentage of petroleum and natural gas revenues for the three and six months ended
June 30, 2010 were 184.2% and 96.4% lower than for the comparative three and six month periods of
2009. The Company accrued $1.4 mm related to gas cost allowance credit adjustments for the 2009
calendar year and the first six months of 2010 during the three month period ended June 30, 2010. Had
this amount not been recorded, the Company would have reported crown royalty expense of
approximately $848,000 and $1,465,000 for the three and six month periods ended June 30, 2010. As a
percentage of petroleum and natural gas sales, the Company would have reported 27.3% and 22.7%.
Adjusted royalties as a percentage of petroleum and natural gas revenues would have therefore
increased by 29.3% for the three months ended June 30, 2010. The reason for this increase is that in Q2
2009 there was flush production from a well that attracted incentive royalties of only 5% as it was brought

                                                    -6-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010



on stream after April 1, 2009. The proportion of incentive rate wells to regular rate wells was therefore
higher than in Q2 2010. Adjusted royalties as a percentage of petroleum and natural gas revenues would
have therefore decreased by 19.5% for the six months ended June 30, 2010. This is due to the 5%
incentive royalty rate for wells brought on production on or after April 1, 2009 which was in effect for all six
months of 2010, but only for the second three months of the six month period ended June 30, 2009.

Royalty rates in subsequent periods may fluctuate based on future reference prices relative to average
wellhead prices, types of royalties (crown vs. freehold) and the proportion of new production additions
qualifying for royalty holidays.

Processing, Marketing, Transportation and Other Income

                                  Three months ended                          Six months ended
                                        June 30,                                   June 30
($000s                       2010       2009     % Change                2010      2009     % Change

Processing, marketing,
  transportation and
  other income              1,529        4,466          (65.8)          2,895         5,703        (49.2)

The Company earns various types of income from third parties through its ownership and operatorship of
the Brazeau River Complex. The Company processes, gathers, markets, and transports natural gas,
natural gas liquids and crude oil. The fees charged for these services are based largely on capital and
operating cost recovery models. In addition to cost recoveries, the Company recovers overhead which is
based largely on the dollar amount of invoices paid in the period. The Company also provides contract
operating, road use and lab analysis services. The fees for these services are based on contract
operating hours worked, kilometers of road used or number of lab tests performed.

Processing, marketing, transportation and other income for the three and six months ended June 30,
2010 was 65.8% and 49.2% lower, respectively, than it was for the comparative three and six month
periods ended June 30, 2009. The decreases have occurred because in Q2 2009 the Company incurred
an estimated $1,475,000 of operating costs related to a turnaround that occurred in Q2 2009 at the
Brazeau River Complex. These costs are fully recoverable from third party producers and therefore the
Company accrued midstream revenue for this amount which is anticipated to be collected from third
parties upon completion of a thirteenth month adjustment for the 2009 billing year in the second half of
2010. In addition, in Q2 2009 the operating cost overhead recovery was approximately $900,000 higher
than Q2 2010 due to the fact that the Company incurred significant turnaround operating costs on behalf
of users of the Brazeau River Complex. Finally, the Company earned approximately $600,000 more
contract operating revenue during Q2 2009 as a result of increased hours spent on the turnaround of the
Brazeau River Complex.




                                                      -7-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010




Operating Expenses

                                   Three months ended                        Six months ended
                                         June 30,                                 June 30
($000s, except per
  boe)                     2010         2009       % Change         2010          2009     % Change

Upstream operating
 expenses                 1,043        1,068              (2.3)     1,727        1,713            0.8
Midstream operating
 expenses                   710        2,637             (73.1)     1,411        3,153          (55.2)
Upstream operating
 expenses - $/boe         16.99        18.96             (10.4)     13.71         17.84         (23.2)

Upstream operating expenses per BOE for the three and six month period ended June 30, 2010 have
decreased 10.4% and 23.2% compared to the three and six month periods ended June 30, 2019
respectively. The Company completed a plant turnaround at the Brazeau River Complex in Q2 2009
which caused operating costs per BOE to be higher than Q2 2010.

General and Administrative Expenses

                                   Three months ended                        Six months ended
                                         June 30,                                 June 30,
($000s, except per
  boe)                     2010         2009       % Change         2010         2009      % Change

G&A expenses (gross)      1,087         898              21.0      2,660        1,769         50.4
Stock-based
  compensation              148           62        138.7             185          91        103.3
Allocated to capital       (180)        (166)         8.4            (348)       (315)        10.5
Upstream overhead
  recovered                (406)        (462)        (12.1)         (820)       (1,103)      (25.7)
Net G&A expenses            649          332          95.5         1,677           442       279.4
Net G&A expenses per
  boe                     10.57         5.90             79.2       13.36         4.60       190.4

G&A expenses are reported net of overhead recoveries from upstream properties and amounts allocated
to capital. Upstream overhead recoveries represent the recovery of G&A expenses on upstream Blaze-
operated properties and correlate to actual upstream operating and capital expenditures in the reporting
period. G&A expenses allocated to capital projects represent salaries and other costs directly associated
with property acquisition, exploration and development activities.

Gross G&A for the three and six months ended June 30, 2010 was 21% and 50.4% higher than gross
G&A for the three and six months ended June 30, 2009, respectively. The most significant reason for the
increases were because the Company spent approximately $300,000 during the three months ended
June 30, 2010 and $490,000 during the three months ended March 31, 2010 related to legal defense for
actions brought forth against the Company in 2007, 2008 and 2009. Had these expenses not been
incurred, net G&A expenses per BOE would have been approximately $5.69 per BOE and $9.45 per BOE
for the three and six month periods ended June 30, 2010 respectively.




                                                   -8-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010



Depletion, Depreciation and Amortization

                                   Three months ended                       Six months ended
                                         June 30,                                June 30
($000s, except per
  boe)                     2010         2009       % Change         2010        2009       % Change

Upstream DD&A               673          582             15.6       1,745         979           78.2
Midstream
 depreciation               249          249                -        498          498                -
Upstream DD&A -
 $/boe                     10.96        10.33             6.1       13.86       10.19           36.0

Charges for upstream DD&A for the three and six months ended June 30, 2010 were 6.1% and 36.0%
higher on a per BOE basis than for the three and six months ended June 30, 2009. The increase for the
six months ended June 30, 2010 compared to the six month period ended June 30, 2009 is due to a
higher depletable base, the Company’s increased production rate in 2010 and to a $156,000 one-time
charge related to computer software.

Accretion

                                   Three months ended                       Six months ended
                                         June 30,                                June 30
($000s, except per
  boe)                     2010         2009       % Change         2010        2009       % Change

Upstream accretion           91           45             102.2      157           86           82.6
Midstream accretion          25           25               -         48           49           -2.0
 Total accretion            116           70              65.7      205          135           51.9
Upstream accretion -
 $/boe                      1.48         0.80             85.0      1.25         0.90          38.9

Accretion of Blaze’s asset retirement obligations is calculated using the Company’s credit-adjusted risk-
free rate of 7.5%. Overall accretion expense will continue to increase each period as the obligation
increases as wells are drilled and facilities are installed.

Interest Expense

                                   Three months ended                       Six months ended
                                         June 30,                                June 30
($000s, except per
  boe)                     2010         2009       % Change         2010        2009       % Change

Interest                    301           41         634.1          327            52        528.8
Interest - $/boe           4.90         0.73         571.2          2.60         0.54        381.5

Interest expense is incurred on the Company’s revolving credit facility. The Company recorded $177,500
in loan renewal and application fees when it renewed its loan in the three month period ended June 30,
2010. In addition, the Company had more debt outstanding throughout the three month period ended
June 30, 2010 compared to the three month period ended June 30, 2009.




                                                   -9-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010




Gain on Sale of Property and Equipment

                                  Three months ended                        Six months ended
                                        June 30,                                 June 30
($000s, except per
  boe)                     2010        2009         % Change        2010           2009         % Change

Gain on sale of
 property and
 equipment                   -           -                     -    5,374            -            100
Gain on sale of
 property and
 equipment - $/boe           -           -                     -    42.67            -            100

A gain of $5,374,375 was recognized in income for the period ended March 31, 2010 as the overall rate of
depletion and depreciation changed by more than 20% as a result of the Asset Disposition on January 8,
2010. In connection with this sale, the Company disposed of non-core non-producing petroleum and
natural gas properties for proceeds of $14,216,000.

Income Taxes

Presently, the Company does not expect to pay current income tax in 2010 or 2011. This estimate is
based on existing tax pools, planned capital activities and current forecasts of taxable income however,
several factors can affect this, including commodity prices, future production, corporate expenses and
both the type and amount of capital expenditures incurred in future reporting periods.

Estimated income tax pools available at June 30, 2010 are as follows:

                                                                   Annual Deduction
                                                                     Available (%)               ($000s)
Canadian oil and gas property expenses                                     10                         -
Canadian development expenses                                              30                     2,159
Canadian exploration expenses                                             100                    16,124
Undepreciated capital costs                                                25                    13,528
Non-capital loss carry-forwards                                           100                     1,005
Financing costs                                                            20                       265
                                                                                                 33,081

Net Earnings

                                    Three months ended                          Six months ended
                                          June 30,                                   June 30,
($000s, except per
  share amounts)             2010        2009         % Change          2010         2009        % Change

Net earnings                1,432            721            98.6        5,507            877      527.9

Weighted average per
 share - basic               0.14            0.06          133.3         0.49            0.07     600.0
         - diluted           0.14            0.06          133.3         0.47            0.07     571.4


                                                    -10-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010



Net earnings per basic and diluted share were 133.3% and 100% higher respectively, for the three and six
months ended June 30, 2010 compared to the three and six months ended June 30, 2009. The most
significant reason for the increase for the three months ended June 30, 2010 is because the Company
accrued $1.4 mm related to gas cost allowance credits for the 2009 calendar year and the first six months
of 2010.

Cash Netbacks

The Company’s overall operating and corporate netback are as follows:

                                            Three months ended               Six months ended
                                                  June 30,                        June 30,
Total Netback ($/boe)                        2010          2009              2010          2009

Sales price                                  50.63            33.51           51.25           35.56
  Royalties                                   8.99            (7.08)          (0.52)         (10.03)
  Operating expenses                        (16.99)          (18.96)         (13.71)         (17.84)
Upstream Operating Netback                   42.63             7.47           37.02            7.69
Midstream Operating Netback                  13.34            32.47           11.78           26.55
Other income                                  0.89             -               0.91            -
Total Company Operating Netback              56.86            39.94           49.71           34.24
  G&A expense                               (10.57)           (5.90)         (13.36)          (4.60)
  Interest expense                           (4.90)           (0.73)          (2.60)          (0.54)
Corporate Netback                            41.39            33.31           33.75           29.10

Capital Expenditures

                                            Three months ended               Six months ended
                                                  June 30,                        June 30,
($000s)                                      2010          2009              2010          2009

Land and lease retention                        -             122                -             306
Geological and geophysical                     78             576               54             630
Drilling and completions                    1,024           4,529            4,138           9,298
Facilities and equipment                      755             324            1,184             938
Property acquisitions                      13,098               -           17,339               -
Other                                         135               -              317               -
Total capital expenditures                 15,090           5,551           23,032          11,172
Dispositions                                    -               -          (14,228)              -
Net capital expenditures                   15,090           5,551            8,804          11,172

In June 2010, the Company completed two acquisitions, purchasing producing petroleum and natural gas
assets and related infrastructure assets in the Brazeau River area, increasing the ownership percentage
of assets the Company already partially owned in addition to other assets in the Brazeau River area.
The infrastructure and proved plus probable reserves acquired, for which the Company paid $4,400,000
and $9,240,000, is expected to add 350 BOE/d and 150 BOE/d, respectively to the Corporation’s existing
production base as well as open up additional business opportunities management has identified in the
area.

In March 2010, the Company purchased producing petroleum and natural gas assets and related
infrastructure assets in the Brazeau River area, increasing the ownership percentage of assets the

                                                  -11-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010



Company already partially owned. The infrastructure and proved plus probable reserves acquired, for
which the Company paid $4,400,000, is expected to add 75 to 100 BOE/d to the Corporation’s existing
production base as well as open up additional business opportunities management has identified in the
area.

The Company disposed of certain non-core non-producing petroleum and natural gas properties in
January and February 2010. These properties were sold for total gross proceeds of $14,216,000. In
accordance with Accounting Guideline 16, these properties were assigned a carrying value of $8,841,625
and classified as assets held for sale at December 31, 2009. A gain of $5,374,375, was recognized in
income for the three month period ended March 31, 2010 as the overall rate of depletion and depreciation
changed by more than 20% as a result of the disposition.

Drilling Activity


                                              Three months ended                 Six months ended
                                                    June 30,                          June 30,
                                               2010          2009                2010          2009

Gross wells drilled                              -                3.00             2.00             5.00
Net wells drilled                                -                2.07             1.35             3.81


We drilled two wells in the first quarter of 2010, 14-36-048-14W5 and 16-24-047-16W5. We perforated
and flow tested the 16-24 well and we’re waiting on the results. Access has been restricted due to
surface conditions that have been extremely wet making it impossible for heavy equipment to safely
access the site. It’s likely we’ll delay completing the 14-36 until Q4 2010 when the surface freezes.

Two of the wells drilled in 2009, 12-17-046-14W5 (WI% - 73.5%) and 11-21-046-14W5 (WI% - 85%) have
now had their tie in issues cleared up and should be on-stream by mid September 2010. The 10-30-046-
14W5 (WI% - 80%) did not encounter any natural gas so this well will be used for water disposal
purposes in the future.

As of August 4, 2010, we have completed a Nisku re-entry (WI – 65%) and are encouraged by the results.

Liquidity and Capital Resources

The Company’s revolving demand credit facility was increased to $40,000,000 on June 29, 2010 from
$20,000,000 at April 22, 2010 of which $5,618,095 was drawn at March 31, 2010 and $29,861,090 was
drawn at June 30, 2010. The next annual review is set for May 31, 2011 or later at the sole discretion of
the lender. All other terms of the credit facility have remained the same as the non-revolving credit facility
in place at December 31, 2009.

The nature of the oil and natural gas industry requires significant cash outlays to fund capital programs
necessary to maintain and increase production and proved developed reserves and to acquire strategic
oil and natural gas assets. Blaze intends to fund its future capital program and all other commitments
through a combination of internally generated cash flow, debt and equity. Funding alternatives chosen by
the Company will be influenced by the capital market environment for equity, the cost of debt and the
nature and amount of capital expenditures being incurred.

Blaze’s net debt plus working capital deficit was $22,163,411 at June 30, 2010, $1,667,198 at March 31,
2010 and $808,786 at December 31, 2009. The change in working capital is primarily a result of planned
drilling expenditures, asset acquisitions and asset dispositions that occurred during the year. The
Company’s working capital position is a result of normal operating conditions in periods when the

                                                     -12-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010



Company incurs significant capital expenditures relative to revenue. Management anticipates that
positive funds flow from operations earned from capital invested will improve the working capital position
of the Company in future periods.

Outstanding Common Shares

On June 14, 2010, the Company issued 366,981 stock options with an exercise price of $2.50 and a term
of 5 years. One third of these options vested upon issuance. A further one third vests on the anniversary
date of issuance. The final one-third vests on the second anniversary date of issuance. As at June 30,
2010, none of these options have been cancelled and none have been exercised.

Pursuant to a March 2, 2010 Issuer Bid, the Company repurchased and cancelled 2,684,464 of its
12,355,170 outstanding Class A common shares for $8,053,392 ($3.00/share) on April 19, 2010. The
number of outstanding shares was reduced from 12,355,170 to 9,670,706.

On February 20, 2009, the Company issued 20,000 stock options with an exercise price of $1.50 and a
term of 5 years. One third of these options vested upon issuance. A further one third vests on the
anniversary date of issuance. The final one-third vests on the second anniversary date of issuance. As
at March 31, 2010, none of these options have been cancelled and none have been exercised.

On August 26, 2009, the Company issued 60,000 stock options with an exercise price of $1.50 and a
term of 5 years. One third of these options vested upon issuance. A further one third vests on the
anniversary date of issuance. The final one-third vests on the second anniversary date of issuance. As
at March 31, 2010, 5,000 of these options have been cancelled and none have been exercised.

Commitments and Contingencies

1) The Company enters into natural gas gathering, processing and transportation contracts in connection
with its role as Operator of the Brazeau River Complex. In addition to regular contracts that may be
terminated by either party on 30 days notice, the Company has entered into one longer term contract as
follows:

            The Company purchased a joint venture partner’s share of the Brazeau River Complex with
            the agreement of a fixed processing fee effective as of the date of sale and continuing for the
            life of the sellers wells, which currently produce approximately 31.5 e3m3/d, with a 12%
            decline annually.

2) In March of 2010, as a result of a joint venture audit, the Company was given notice of a claim in
respect of all joint venture partners relating to amounts billed by the Company during 2008. Management
has reviewed the claim and adjusted the likely amount payable. Management believes all other amounts
with respect to this claim are not valid and accordingly, has not accrued for them as at June 30, 2010.

There were no other changes during the three and six months ended June 30, 2010 to the contingencies
and commitments as disclosed in the annual December 31, 2009 financial statements.

Related Party Transactions

The Company rents office space and two vehicles from a company controlled by Directors and Officers of
the Company. All transactions between these companies are measured at the exchange amount agreed
to by the parties and are conducted on normal commercial terms.




                                                   -13-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010



Subsequent Events

1) Letter of Guarantee

    As at July 29, 2010, the Company entered into an additional irrevocable Letter of Guarantee
    outstanding in the amount of $496,000 expiring July 29, 2011. This amount reduces the total amount
    available under the Company’s revolving credit facility. This Letter of Guarantee has an annual
    renewal fee of 2% of the face value.

Industry Conditions and Risk Factors

The business of exploring for, developing, acquiring, producing and marketing crude oil and natural gas
results in the exposure to several risks and uncertainties, some of which are beyond the Company’s
control.

Operational risks include exploration and development of economic crude oil and natural gas reserves,
reservoir performance, safety and environmental concerns, access to cost effective contract services,
product marketing and hiring and retaining qualified employees. Management attempts to mitigate the
risk through employing experienced, qualified personnel for operational work, and obtaining as much
expertise as possible in all areas of operations. High operatorship provides the Company with the ability
to perform its operations under its strict safety standards. Blaze maintains an insurance program
commensurate with its scope of operations to protect against loss.

Estimates of economically recoverable reserves and the future net cash flow generated from the reserves
are based on a number of factors and assumptions, known and unknown risks and uncertainties that
contribute to the possibility that estimated reserves may vary from actual future production. The
Company’s reserves at December 31, 2009 were evaluated by independent reservoir engineers and
approved by the Board of Directors. This report has been used by the Company in calculating depletion
for the period ended June 30, 2010 and for ceiling test calculations at June 30, 2010.

The Company is exposed to financial risks in the form of fluctuating commodity prices, interest rates and
the U.S. dollar exchange rate. The Company actively monitors these risks and may use financial
instruments to manage its commodity price exposure.

Fluctuating commodity prices caused by world economic conditions may have an impact on individual
property economics and the Company’s ability to raise capital. The Company mitigates this risk by
diversifying its core business to include midstream operations as well as upstream operations. Fixed
price natural gas gathering and processing contracts allow the Company to maintain a base level of
positive cash flow. The Company further mitigates this risk by operating more than 95% of its assets and
by contract operating the assets of other companies. Operatorship allows Blaze to have direct control
over its costs and ensure that only necessary expenditures are made in a low commodity price
environment. Contract operating assets allows Blaze to maintain another base level of positive cash flow.

Future Accounting Pronouncements

International Financial Reporting Standards

In January of 2006, the CICA Accounting Standards Board adopted a strategic plan for the direction of
accounting standards in Canada. As part of the plan, accounting standards in Canada for public
companies will converge with International Financial Reporting Standards (“IFRS”) on January 1, 2011,
including accounting and presentation for the 2010 comparative period. Although not currently publicly-
traded, the Company intends to voluntarily adopt IFRS on the same time frame.

Although IFRS is principles based and uses a conceptual framework similar to Canadian GAAP, there are
significant differences and choices in accounting policies, as well as increased disclosure under IFRS.

                                                  -14-
MANAGEMENT'S DISCUSSION AND ANALYSIS
Blaze Energy Ltd.
August 10, 2010



The International Accounting Standards Board has issued amendments to IFRS 1, ‘First Time’ Adoption
of International Financial Reporting Standards relating to certain amendments and exemptions to IFRS 1
relating to full cost oil and natural gas accounting. These amendments permit companies to apply IFRS
prospectively to their full cost pool of capitalized exploration and development expenses, with an initial
impairment test, at the transition date. The Company will then be required to adopt a form similar to
“successful efforts” method of accounting for oil and natural gas on a prospective basis. The Canadian
Association of Petroleum Producers (“CAPP”) and the Small Explorers and Producers Association of
Canada (“SEPAC”) have published an “Information guide on Adoption and Implementation of
International Financial Reporting Standards” for the Canadian upstream oil and natural gas industry.

The transition from current Canadian GAAP to IFRS is a significant undertaking that will materially affect
the Company’s reported financial position and results of operations. The Company is currently in the
process of assessing differences between Canadian GAAP and IFRS, determining accounting policy
choices, and identifying changes to processes and internal controls over financial reporting, required
system changes and corporate governance changes. The Company expects to have its changeover to
IFRS implemented by the fall of 2010.

Internal Controls Over Financial Reporting and Disclosure Controls and Procedures

There were no changes in the Company’s internal control over financial reporting during the period ended
June 30, 2010 that have materially affected, or are likely to affect, the Company’s internal control over
financial reporting.




                                                  -15-

								
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