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Management’s Discussion and Analysis
Six months ended June 30, 2012
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
IDENTIFICATION
Donnybrook Energy Inc. (“Donnybrook” or the “Company”), is a Western Canadian based growth oriented
petroleum and natural gas (“P&NG”) company listed and posted for trading under the symbol “DEI” on the TSX
Venture Exchange (“TSXV”).
Donnybrook has offices based in Calgary, Alberta, and Vancouver, British Columbia, Canada. The registered office
rd
of the Company is 1900, 520 – 3 Avenue SW, Calgary, Alberta, Canada T2P 0R3.
The presentation and the functional currency is the Canadian Dollar.
This Management’s Discussion and Analysis (“MD&A”) of the financial and operating results of Donnybrook should
be read in conjunction with the Company’s unaudited Condensed interim Financial Statements and related notes
for the six months ended June 30, 2012 and the audited financial statements of the Company for the year ended
December 31, 2011 (the “Financial Statements”) prepared in accordance with International Financial Reporting
Standards or “IFRS”.
The information contained within this MD&A is current to August 9, 2012.
Q1 2012 Three months ended March 31, 2012
Q2 2012 Three months ended June 30, 2012
Q3 2012 Three months ended September 30, 2012
Q4 2012 Three months ended December 31, 2012
NON-GAAP MEASURES
In this document “Funds flow from operations”, “Funds flow from operations – per BOE”, “Net revenues”, “Net
G&A expense”, “Net G&A expense – per BOE”, “Total depletion, depreciation and amortization – per BOE”,
“Operating expense – per BOE”, collectively the “Non-GAAP measures”, are used and do not have any
standardized meanings as prescribed by IFRS. They are used to assist management in measuring the Company’s
ability to finance capital programs and meet financial obligations. Funds flow from operations refers to cash flows
from operating activities before net changes in operating working capital.
Non-GAAP measures should not be considered in isolation or construed as alternatives to their most directly
comparable measure calculated in accordance with IFRS, or other measures of financial performance calculated in
accordance with IFRS. The Non-GAAP measures are unlikely to be comparable to similar measures presented by
other issuers.
ABBREVIATIONS
bbl – barrels
bbls/d – barrels per day
mcf – thousand cubic feet
mcf/d – thousand cubic feet per day
NGL – natural gas liquids
BOE PRESENTATION
Where amounts are expressed on a barrel of oil equivalent (“BOE”) basis, natural gas volumes have been
converted to oil equivalence at six thousand cubic feet per barrel and sulphur volumes have been converted to oil
Page 2 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
equivalence at 0.6 long tons per barrel. The term BOE may be misleading, particularly if used in isolation. A BOE
conversion ratio of six thousand cubic feet per barrel is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. References to
oil in this discussion include crude oil and natural gas liquids (“NGLs”). NGLs include condensate, propane, butane
and ethane. References to gas in this MD&A include natural gas and sulphur.
OVERVIEW
As at the date of this report, the Company holds 46 gross sections (11,914 ha), 22.91 net sections (5,869 ha) of
petroleum and natural gas rights prospective primarily for Montney liquid rich natural gas resource development
in the Deep Basin area of West Central Alberta. The lands are located at Simonette (33 sections gross; 16.5
sections net), Resthaven (5 sections gross; 2.66 sections net) and Bigstone (8 sections gross; 3.75 sections net). A
non-convertible gross over-riding royalty (“GORR”) varying between 1.5% and 2.0% is payable on the Company’s
participating share of production on a portion of the Company’s land located in the Deep Basin.
The Company also holds various, non-core, non-operated, minor working interests in Central Alberta.
The Company’s capital program has focused on land acquisition and horizontal drilling directed at the Montney
formation in the Deep Basin, West Central Alberta. This high liquids content formation has provided attractive
rates of return in the current natural gas price environment. The Alberta Government’s current five percent
royalty rate on initial production from new petroleum and natural gas wells and the Alberta Natural Gas Deep
Drilling Program further support the economics of the Company’s ongoing development and exploitation of
unconventional tight gas reservoirs.
Recent activities at Simonette, Bigstone and Resthaven are discussed below.
Simonette
At Simonette, Cequence Energy Ltd. (“Cequence”), as operator, drilled and completed the Company’s third
Simonette Montney horizontal well at 1-11-61-27 W5M (“Simonette Hz 1-11”) on a jointly held section (50%
Donnybrook/50% Cequence) located in the southeast portion of the Company’s 33 section (16.5 net) contiguous
land block which was production tested in mid-February 2012 and was tied-in and put on production in Q2 2012.
Total net production to Donnybrook at Simonette is currently approximately 250 BOE/d.
Bigstone
At Bigstone, Donnybrook has 8 gross (3.75 net) sections of P&NG rights located approximately 35 kilometres (22
miles) east of the eastern edge of the Company’s Simonette acreage block.
The Bigstone Hz 15-32-60-22 W5M (50% working interest) well was drilled in December 2011 and January 2012
and was completed and production tested in February 2012. The reservoir encountered is comparable to the
Montney interval that was successfully completed in the Donnybrook Hz 14-29-60-22 W5M Bigstone discovery
well (25% BPO; 50% APO) drilled and completed in Q4 2011.
The installation of surface facilities, including 3 phase separators, line heaters, tanks, measurement and monitoring
equipment and construction of a 1.6 mile 8 inch pipeline to tie-in to the Delphi Energy Corp. (“Delphi”) operated
gas gathering system has been completed. The 03-29-60-22 W5M site of the facilities is the same surface location
used to drill the DEI Bigstone Hz 14-29 and Hz 15-32 wells; both of which are now being produced through the
facilities. The pipeline carries condensate, natural gas and natural gas liquids from our facilities to the Delphi
system tie-in point in 01-19-60-22 W5M. Production from the wells commenced in June and July 2012 with
current combined gross production estimated at 2.4 mmcf and 130 bbls of condensate per day (222 BOE/d).
Page 3 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
Donnybrook’s Bigstone Hz 15-32-60-22 W5M well (50% working interest) commenced production on July 16 and
has been producing natural gas, free condensate and NGLs which will be extracted during processing. The 15-32
well had technical problems during the completion and only 6 stages of the planned 23 stage frac were completed
successfully. The well is currently producing and the initial production rates are encouraging. The current fluid
production includes both load fluids and free condensate, as 100% of the load fluids have not been fully recovered
to date.
In February 2012, Donnybrook entered into an agreement to pool its Bigstone Montney P&NG rights held by the
Company and its partners in section 28-60-22W5M with the Montney P&NG rights held jointly by Trilogy Energy
and TAQA North in the adjacent section 33-60-22W5M for the purpose of drilling an extended reach horizontal
well on the pooled lands. The DEI Bigstone Hz 13-33-60-22 W5M commenced drilling in March 2012 from its
surface location at 4-28-60-22 W5M to a total measured depth of 5,336 metres with a 2,590 metre horizontal
length. Completion and testing operations are underway and test results are expected in August/September 2012,
subject to weather related delays. Donnybrook holds an undivided 25% working interest in the pooled lands and
participated as to a 25% working interest in the drilling of the DEI Bigstone Hz 13-33-60-22 W5M well.
Donnybrook has informed its partners that it has surveyed four new drilling locations and is planning to commence
drilling the DEI Bigstone Hz 5-26-60-23 W5M (50% working interest) extended reach horizontal well on the west
side of the Bigstone acreage block in Q4 2012/Q1 2013.
Resthaven
At Resthaven, the 11-27-61-02 W6M (70% working interest) horizontal Montney well was drilled and cased in Q1
2011 and completed with a 12-stage slick-water fracture stimulation program in Q2 2011; and the frac clean-up
was suspended and the well was shut-in due to the on-set of break-up. During the abbreviated frac clean-up, the
well had only recovered 30% of the frac fluid. The Resthaven 11-27 well has recently been production tested in-
line intermittently at rates of 1 mmcf/d and 60 bbls/d of condensate. The line pressure in the gathering system
that the 11-27 well is tied into is running at high line pressures which is affecting the 11-27 well’s ability to flow
consistently into the gathering system.
At Resthaven, Donnybrook has 5 gross (2.66 net) sections of P&NG rights located 8 kilometres (5 miles) west of the
western edge of the Company’s Simonette acreage block.
CAPITAL EXPENDITURES
The Company has funded the activities at Simonette, Bigstone, and Resthaven in part from its $12.0 million bought
deal financing completed in November 2011 and the completion of its spin-out of certain non-core assets to
Donnycreek Energy Inc. (“Donnycreek”) (TSX.V: DCK). The spin-out provided Donnybrook with approximately $2.2
million of cash in November 2011 and approximately $2.3 million of cash in February 2012. These funds, together
with net cash on hand, have the Company well-positioned to carry-out its 2012 capital expenditure program. See
also 2012 Capital Budget below.
Donnybrook continues to monitor the financial performance of its properties in the current natural gas price
environment to ensure that they remain economic.
Page 4 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
SELECTED QUARTERLY INFORMATION
The following selected financial data has been prepared in accordance with IFRS and should be read in conjunction
with the Company’s financial statements. All dollar amounts are in Canadian dollars.
Basic & Diluted
Earning/(Loss)
Fiscal Quarter Ended Net Revenue Finance Income Income (Loss) Per Share
June 30, 2012 $ 537,699 $ 29,460 $ (293,794) (0.01)
March 31, 2012 $ 374,010 $ 40,951 $ 1,972,451 0.01
December 31, 2011 $ 283,291 $ 31,078 $ (246,306) (0.01)
September 30, 2011 $ 306,816 $ 50,378 $ (655,597) (0.01)
June 30, 2011 $ 466,923 $ 26,092 $ (39,980) (0.01)
March 31, 2011 $ 388,762 $ 31,214 $ 525,439 0.01
December 31, 2010 $ 105,788 $ 12,412 $ (598,969) (0.02)
September 30, 2010 $ 69,545 $ 6,822 $ (321,564) (0.01)
June 30, 2010 $ 85,161 $ 2,079 $ (1,070,723) (0.02)
SECOND QUARTER 2012 FINANCIAL AND OPERATIONAL RESULTS
Donnycreek Energy Inc. Right to Purchase
On November 4, 2011, Donnybrook spun-out certain non-core petroleum and natural gas assets (the “Transferred
Assets”) to Donnycreek by means of a plan of arrangement pursuant to the Business Corporations Act (Alberta)
(the "Plan of Arrangement").
As part of the Plan of Arrangement, Donnycreek had a right to purchase any land, wells, facilities and associated
title documents and petroleum and natural gas rights within 5 miles of the Transferred Assets for 90 days following
the effective date of November 4, 2011. On February 1, 2012, Donnycreek exercised its right to purchase and
concluded the purchase of certain West Central Alberta area petroleum and natural gas rights from the Company
for a purchase price of approximately $2.3 million.
Page 5 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
Production Summary
The following information summarizes the Company’s petroleum and natural gas activities for the three and six months
ended June 30, 2012, and 2011:
Three months ended June 30, Six months ended June 30,
2012 2011 2012 2011
Total volumes
Natural gas (mcf) 133,324 58,677 200,643 108,462
Natural gas liquid production (bbl) 754 335 1,097 647
Crude oil (bbl) 3,068 1,251 5,652 2,497
Total production (boe) 26,043 11,365 40,190 21,221
Daily production averages
Natural gas (mcf/d) 1,465.1 645.0 1,102.4 599.0
Natural gas liquid (bbl/d) 8.3 4.0 6.0 4.0
Crude Oil (bbl/d) 33.7 14.0 31.1 14.0
Boe/d 286.2 126.0 220.8 118.0
Average prices
Natural gas selling price ($/mcf) $ 1.82 $ 4.19 $ 1.82 $ 4.09
Natural gas liquid selling price ($/bbl) $ 44.91 $ 72.57 $ 51.68 $ 70.32
Crude Oil selling price ($/bbl) $ 85.67 $ 99.91 $ 86.30 $ 95.31
In addition, net overriding royalties resulted in average equivalents of 12 BOE per day for the six months ended
June 30, 2012 (June 30, 2011 – 41 BOE per day).
Average production increased in both the three and six months ended June 30, 2012 compared to the three and
six months ended June 30, 2011 as a result of the wells put on production at Simonette and Bigstone. Simonette
Hz 1-22-61-27W5 was drilled late in 2010 and put into production in mid-February 2011 and Simonette Hz 1-22-61-
01W6M was drilled in the summer of 2011 and put into production in November 2011. As well, Simonette Hz 1-
11-61-27 W5 began production in February 2012.
Also, in the second quarter of 2012, Hz Bigstone 14-29-60-22 W5 was put into production in June 2012.
Page 6 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
Net revenues
Three months ended June 30, Six months ended June 30,
2012 2011 2012 2011
Natural gas $ 242,258 $ 245,620 $ 364,998 $ 443,639
Natural gas liquid 33,860 24,311 56,691 45,496
Crude oil 262,849 124,988 487,744 237,993
Net overriding royalty 21,295 107,874 45,866 190,540
560,262 502,793 955,299 917,668
Royalty expenses (22,563) (35,870) (43,590) (61,983)
Producing and operating expenses (380,087) (115,508) (597,645) (169,895)
$ 157,612 $ 351,415 $ 314,064 $ 685,790
While total volumes of production increased by approximately 56% on a BOE basis in Q2 2012 compared to Q2
2011, overall net revenues declined due to decreased average selling prices in Q2 2012 compared to Q2 2011 for
natural gas, NGLs, and crude oil as well as increased production costs on a per BOE basis. Natural gas average
selling prices decreased from $4.19/mcf in Q2 2011 to $1.82/mcf in Q2 2012. NGLs average selling prices
decreased from $72.57/bbl in Q2 2011 to $44.91/bbl in Q2 2012. Crude oil average selling prices decreased from
$99.91/bbl in Q2 2011 to $85.67/bbl in Q2 2012.
Other revenue
Finance income (interest income) was higher at $70,411 for the six months ended June 30, 2012 compared to
$57,306 for the six months ended June 30, 2011 as the Company had more cash on hand to invest in interest
bearing financial instruments.
Producing and Operating Expenses
Three months ended Six months ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
($) ($/BOE) ($) ($/BOE) ($) ($/BOE) ($) ($/BOE)
Net operating expense $ 380,087 $ 14.59 $ 115,508 $ 10.16 $597,645 $ 14.87 $ 169,895 $ 8.01
Total net operating expenses as well as net operating expense per BOE have increased significantly in Q2 2012
compared to Q2 2011.
The increase in total net operating expense in 2012 compared to 2011 is due to the Company having production at
Simonette Hz 1-22-61-27 W5M, Hz 1-22-61-01W6M, and Hz 1-11-61-27 W5M as of June 30, 2012 compared to
2011, when the Company had only the Simonette Hz 1-22-61-27 W5M well along with the Delia-Michichi wells
which were spun-out to Donnycreek in November 2011. The Delia-Michichi wells accounted for approximately
40% of the total net operating expense for the six months ended June 30, 2011.
As well, the Hz Bigstone 14-29-60-22 W5 well began production in June 2012.
On a per BOE basis, net operating expenses have increased as properties in the Deep Basin area of West Central
Alberta have significantly higher costs associated with operations compared to the Delia-Michichi area of Alberta.
Also, the Company’s working interest is significantly greater in its current properties compared to its previously
held minor interests in Delia-Michichi.
Page 7 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
General and Administrative Expense
Three months ended Six months ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
($) ($/BOE) ($) ($/BOE) ($) ($/BOE) ($) ($/BOE)
Gross G&A expense $ 331,437 $ 12.73 $ 291,786 $ 25.67 $ 707,727 $ 17.61 $ 532,436 $ 25.09
Overhead recoveries $ (146,107) $ (5.61) $ (33,021) $ (2.91) $ (271,796) $ (6.76) $ (97,326) $ (4.59)
Capitalized G&A $ (60,450) $ (2.32) $ (30,750) $ (2.71) $ (143,350) $ (3.57) $ (61,500) $ (2.90)
Net G&A expense $ 124,880 $ 4.80 $ 228,015 $ 20.06 $ 292,581 $ 7.28 $ 373,610 $ 17.61
Donnybrook’s net general and administrative (“G&A”) expense decreased to $292,581 for the six months ended
June 30, 2012 compared to $373,610 for the six months ended June 30, 2011. For the six months ended June 30,
2012, estimated production volumes (and net royalty income) averaged 220.8 BOE per day which equates to net
G&A expenses equivalent to $7.28 per BOE compared to the six months ended June 30, 2011 for which estimated
production volumes (and net royalty income) averaged 117.2 BOE per day which equates to net G&A expenses
equivalent to $17.61 per BOE.
Differences in G&A expenses during Q2 2012 compared to Q2 2011 were as follows:
Audit and accounting fees of $24,982 for Q2 2012 were lower compared to $47,354 in Q2 2011 due to the
additional audit and accounting requirements related to the implementation of IFRS effective January 1, 2011.
Filing and listing fees of $19,550 for Q2 2012 were higher compared to $9,302 for Q2 2011 due to increased
filing fees related to annual filing requirements and fees with provincial securities commissions in British
Columbia, Alberta, Saskatchewan and Ontario.
Insurance fees of $60,583 were higher in Q2 2012 compared to $14,608 in Q2 2011 due to additional
Operator’s Extra Expense policies and coverage the Company obtained for its P&NG assets and activities.
Investor relations of $17,533 were lower in Q2 2012 compared to $30,279 in Q2 2011 when the Company had
been actively raising funds to further its acquisition and development of E&E assets and petroleum and
natural gas properties.
Legal fees of $37,735 for Q2 2012 were lower compared to $41,655 in Q2 2011 when additional legal services
were required in 2011 for the Plan of Arrangement.
Office and administration for Q2 2012 of $82,765 was higher compared to $80,808 for Q2 2011 due to
increased personnel and employee compensation as a result of increased operations and activities of the
Company.
Rent for Q2 2012 of $18,020 was lower compared to $22,699 for Q2 2011 as in 2012 the Company maintained
less office space than in 2011.
Share-Based Compensation
There were no options granted in Q2 2012 or during the six months ended June 30, 2012. However, there were
4,133,500 options granted throughout Q2 2011 to Q4 2011 which increased the stock-based compensation for Q2
2012 due to a larger number of options vesting during Q2 2012 compared to Q2 2011.
Page 8 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
The fair value of vested share options granted and amended to directors, officers, employees and consultants is
broken down as follows:
Three months ended Six months ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
Directors, officers and employees $ 204,679 $ 145,143 $ 387,849 $ 304,518
Consultants 29,937 5,193 63,093 19,446
$ 234,616 $ 150,336 $ 450,942 $ 323,964
Depletion and Depreciation
Three months ended Six months ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
($) ($/BOE) ($) ($/BOE) ($) ($/BOE) ($) ($/BOE)
Depletion and Depreciation $ 123,749 $ 4.75 $ 125,039 $11.00 $ 182,487 $ 4.54 $ 187,385 $ 8.83
Due to an increase in the reserve base used for depletion, there was a decrease in depletion and depreciation per
BOE for Q2 2012 compared to Q2 2011.
Income Taxes
Deferred income taxes arise from differences between the accounting and tax bases of the Company’s assets and
liabilities, which, substantially, relate to the premium recovered on flow-through shares within the meaning of the
Income Tax Act (Canada) (“Flow-Through Shares).
As at June 30, 2012, the Company had a total net deferred tax asset balance of $nil (December 31, 2011 - $nil) due
to the uncertainty of realizing potential tax deductions. IFRS requires that a deferred tax asset be recorded when
the tax pools exceeds the book value of assets, to the extent the amount is probable to be realized.
As at June 30, 2012, Donnybrook has approximately $35.5 million (2011 - $29.8 million) in tax pools available for
deduction against future income as follows:
Rate % June 30, 2012 June 30, 2011
(000's) (000's)
Intangible resource pools:
Canadian exploration expenses 100 $ 10,341 $ 7,651
Canadian development expenses 30 4,058 310
Canadian oil and gas property expenses 10 4,221 5,273
Foreign resource expenses 10 11,591 11,591
Undepreciated capital cost 6 - 55 1,901 564
Capital losses 100 25 25
Non-capital losses (expire through 2032) 100 3,425 4,394
$ 35,562 $ 29,808
At June 30, 2012, the Company has met its commitment to incur the necessary qualifying Canadian exploration
expenses by December 31, 2012 in relation to its Flow-Through Shares issuances.
Page 9 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
Decommissioning Liabilities
As at June 30, 2012, Donnybrook has recorded decommissioning liabilities of $439,661 compared to $362,796 at
December 31, 2011, for future abandonment and reclamation of the Company’s properties. The liabilities have
increased a result of fair value accretion of the existing liabilities and additional liabilities estimated on the future
abandonment and reclamation of its Bigstone and Simonette area properties.
Three months ended Six months ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
($) ($/BOE) ($) ($/BOE) ($) ($/BOE) ($) ($/BOE)
Accretion expense $ 24,545 $ 0.94 $ 10,511 $ 0.92 $ 19,213 $ 0.48 $ 5,514 $ 0.26
LIQUIDITY AND CAPITAL RESOURCES
As a petroleum and natural gas business, Donnybrook has a declining asset base and therefore, relies on ongoing
development and acquisitions to replace production and add additional reserves. Future petroleum and natural
gas production and reserves are highly dependent on the success of exploiting the Company’s existing asset base
and in acquiring additional reserves. To the extent Donnybrook is successful or unsuccessful in these activities,
cash flow could be increased or reduced.
Donnybrook plans to focus on growing petroleum and natural gas production from its portfolio of existing and
emerging resource plays in Western Canada. Donnybrook remains highly focused on key business objectives of
maintaining financial strength and optimizing capital investments attained through a disciplined approach to
capital spending, a flexible investment program and financial stewardship. Natural gas prices are primarily driven
by North American supply and demand, with weather being the key factor in the short term. Donnybrook believes
that natural gas represents an abundant, secure, long-term supply of energy to meet North American needs.
Donnybrook’s results are affected by external market and risk factors, such as fluctuations in the prices of
petroleum and natural gas, movements in foreign currency exchange rates and inflationary pressures on service
costs.
The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions
and the risk characteristics of its underlying assets. The Company considers its capital structure to include
shareholders’ equity. To maintain or adjust the capital structure, the Company may, from time to time, issue
shares or adjust its capital spending.
There were no changes in the Company’s approach to capital management from the previous period.
On an ongoing basis, Donnybrook will typically utilize three sources of funding to finance its capital expenditure
program: internally generated cash flow from operations, debt where deemed appropriate and new equity issues,
if available on favourable terms. In addition, Donnybrook may adjust its capital expenditure program depending
on the commodity price outlook and competitive nature of the Canadian petroleum and natural gas industry.
Liquidity risk is the risk that Donnybrook will not be able to meet its financial obligations as they fall due.
Donnybrook actively manages its liquidity through daily and longer-term cash and equity management strategies.
Such strategies encompass, among other factors: estimating future cash generated from operations based on
reasonable production and pricing assumptions, analysis of economic risk management opportunities, and
maintaining sufficient cash flows.
Page 10 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
Donnybrook generally relies on operating cash flows and access to capital markets to meet its additional financing
needs, fund its capital programs and provide liquidity. While Donnybrook completed on March 18, 2011, a $5.025
million offering on a bought deal basis, and on November 15, 2011, completed a $12 million offering on a bought
deal basis, there can be no assurance that future debt or equity financing, or cash generated by operations will be
available or sufficient to meet these requirements or for other corporate purposes or, if debt or equity financing is
available, that it will be on terms acceptable to Donnybrook.
Credit risk is the risk of financial loss to Donnybrook if a customer or counterparty to a financial instrument fails to
meet its contractual obligations, and arises principally from Donnybrook’s trade receivables from joint venture
partners and petroleum and natural gas marketers.
A substantial portion of Donnybrook’s accounts receivable are with customers and joint interest partners in the
petroleum and natural gas industry and are subject to normal industry credit risks. Donnybrook sells substantially
all of its production to purchasers under standard industry sale and payment terms. Purchasers of Donnybrook’s
natural gas, crude oil and natural gas liquids are subject to periodic internal credit review to minimize the risk of
non-payment. Donnybrook has continued to closely monitor and reassess the creditworthiness of its
counterparties. This has resulted in Donnybrook reducing or mitigating its exposures to certain counterparties
where it is deemed warranted and permitted under contractual terms.
Donnybrook may be exposed to third party credit risk through its contractual arrangements with its current or
future joint venture partners, marketers of its petroleum and natural gas production and other parties. In the
event such entities fail to meet their contractual obligations to Donnybrook, such failures may have a material
adverse effect on the Company’s business, financial condition, results of operations and prospects. In addition,
poor credit conditions in the industry and of joint venture partners may impact a joint venture partner’s
willingness to participate in Donnybrook’s ongoing capital program, potentially delaying the program and the
results of such program until Donnybrook finds a suitable alternative partner.
2012 Capital Budget
In 2012, Donnybrook continues to focus on its liquid rich Montney resource plays. The results of our drilling and
completion activities remain positive and our production rates and capital costs are consistent with expectations.
The size and scale of our program helps provide certainty of supply for our drilling, completions, and facilities
requirements.
Donnybrook’s capital budget for 2012 of approximately $14 million includes the drilling, completion, equipping,
and tie-in of wells in two of Donnybrook’s core areas; Simonette and Bigstone, Alberta. The 2012 capital budget
consists of completion and tie-in of one horizontal Montney well at Simonette; drill, completion and tie-in of two
horizontal Montney wells at Bigstone, the tie-in of two previously completed horizontal Montney wells at Bigstone
and the surface facilities and sales pipeline at Bigstone.
Donnybrook continually monitors its capital spending program in light of the recent volatility with respect to
commodity prices with the aim of ensuring the Company will be able to meet future anticipated obligations
incurred from normal ongoing operations with funds flow from operations. Donnybrook has the ability to fund its
2012 capital program by utilizing cash flow, current working capital and to the extent necessary, additional equity
issuances.
Page 11 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
Funds Flow from Operations and Funds Flow per BOE
Three months ended Three months ended Six months ended Six months ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
($) ($/BOE) ($) ($/BOE) ($) ($/BOE) ($) ($/BOE)
Petroleum and natural gas revenue $ 560,262 $ 21.51 $ 502,793 $ 44.24 $ 955,299 $ 23.77 $ 917,668 $ 43.24
Other income $ 29,460 $ 1.13 $ 26,092 $ 2.30 $ 70,411 $ 1.75 $ 57,306 $ 2.70
Royalties $ (22,563) $ (0.87) $ (35,870) $ (3.16) $ (43,590) $ (1.08) $ (61,983) $ (2.92)
Producing and operating expenses $ (380,087) $ (14.59) $ (115,508) $ (10.16) $ (597,645) $ (14.87) $(169,895) $ (8.01)
Exploration and evaluation expenditures $ (57,354) $ (2.20) $ (4,467) $ (0.39) $ (90,595) $ (2.25) $ (37,296) $ (1.76)
General and administrative expenses $ (124,880) $ (4.80) $ (228,015) $ (20.06) $ (292,581) $ (7.28) $(373,610) $ (17.61)
Funds flow from operations $ 4,838 $ 0.19 $ 145,025 $ 12.76 $ 1,299 $ 0.03 $ 332,190 $ 15.65
The change in funds flow from operations was the result of an increase in production and operation expenses as
well and general and administration expenses combined with a decrease in petroleum and natural gas revenues
due to decreasing sales prices.
Net Income and Funds Flow from Operations
Three months ended Three months ended Six months ended Six months ended
June 30, 2012 June 30, 2012 June 30, 2012 June 30, 2012
($) ($/BOE) ($) ($/BOE) ($) ($/BOE) ($) ($/BOE)
Funds flow from operations $ 4,838 $ 0.19 $ 145,025 $ 12.76 $ 1,299 $ 0.03 $ 332,190 $ 15.65
Less: Share-based compensation $ (234,616) $ (9.01) $ (150,336) $ (13.23) $ (450,942) $ (11.22) $(323,964) $ (15.27)
Less: Depreciation, depletion and amortization $ (123,749) $ (4.75) $ (125,039) $ (11.00) $ (182,487) $ (4.54) $(187,385) $ (8.83)
Accretion expense $ (24,545) $ (0.94) $ (10,511) $ (0.92) $ (19,213) $ (0.48) $ (5,514) $ (0.26)
Deferred tax recovery $ 84,278 $ 3.24 $ 100,881 $ 8.88 $2,330,000 $ 57.98 $ 670,132 $ 31.58
Net income (loss) $ (293,794) $ (11.28) $ (39,980) $ (3.52) $ 1,678,657 $ 41.77 $ 485,459 $ 22.88
Working Capital
The Company has working capital of $3,875,362 at June 30, 2012 compared to working capital of $8,693,711 at
December 31, 2011. Working capital was greater in 2011 as the Company raised net proceeds of approximately
$5.025 million from a private placement in Q1 2011. There was no equity financing in Q1 or Q2 2012.
The Company’s sources of cash during the six months ended June 30, 2012 were:
1) proceeds from Donnycreek’s exercise of its right of purchase on certain exploration and evaluation assets in
the amount of $2,307,097 in relation to the Plan of Arrangement;
2) petroleum and natural gas revenues of $955,299; and
3) finance income (interest income) of $70,411.
Donnybrook actively manages the pace of its capital spending program by monitoring forecasted production and
commodity prices and resulting cash flows. Should circumstances affect cash flow in a detrimental way, the
Company is capable of reducing capital investment levels.
Page 12 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
Capital Expenditures
Donnybrook’s total capital expenditures for the three and six months ended June 30, 2012 and 2011 are
summarized as follows:
Three months ended Six months ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
Property and equipment
Land and property acquisitions $ - $ - $ - $ -
Geological and geophysical - - - -
Drilling and completions 429,377 336,991 546,105 1,834,313
Facilities and equipment 137,801 97,779 211,307 185,689
Other - 6,165 1,815 11,772
$ 567,178 $ 440,935 $ 759,227 $ 2,031,774
Exploration and evaluation assets
Land and property acquisitions $ - $ (38,734) $ - $ (88,322)
Geological and geophysical 60,450 48,750 127,100 97,500
Drilling and completions 2,139,028 2,269,781 8,015,303 6,587,745
Facilities and equipment 847,579 69,533 1,816,477 85,290
$ 3,047,057 $ 2,349,330 $ 9,958,880 $ 6,682,213
Total capital expenditures $ 3,614,235 $ 2,790,265 $ 10,718,107 $ 8,713,987
Share Information
The Company is authorized to issue an unlimited number of common shares without par value and an unlimited
number of preferred shares. As at June 30, 2012, there were 193,636,066 common shares issued and outstanding.
There were no common shares issued during the three or six months ended June 30, 2012. See also Outstanding
Share Data below.
OUTSTANDING SHARE DATA
As at June 30, 2012, the Company had the following securities issued and outstanding:
Number Exercise Price Expiry Date
Common shares 193,636,066 n/a n/a
Share options 5,750,000 $0.125 June 21, 2013
Share options 5,025,000 $0.200 August 24, 2013
Share options 2,250,000 $0.400 December 21, 2013
Share options 4,008,500 $0.500 July 27, 2014
Share options 125,000 $0.500 November 24, 2014
Fully Diluted 210,794,566
As at June 30, 2012, there are 193,636,066 common shares and 17,158,500 stock options issued and outstanding.
Page 13 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
RELATED PARTY TRANSACTIONS
The following is a summary of the related party transactions that occurred throughout the six months ended June
30, 2012 and 2011:
1. Trading transactions
Management fees of $nil (2011 - $30,000) were paid or accrued to a company controlled by a director.
Rent, office and administrative expenses of $27,080 (2011 - $29,441) were paid or accrued to a company
controlled by a director and an officer;
Accounts payable and accrued liabilities as at June 30, 2012 includes $67,792 (December 31, 2011 - $44,999)
owing to Donnycreek for net P&NG income for production properties in which they have a working interest
but where registered ownership has not yet transferred.
Trade and other receivables as at June 30, 2012 includes $360,734 (December 31, 2011 - $90,965) owing from
Donnycreek for general and administrative expenses, as well as capital and operating expenses for P&NG assets
in which they have a working interest but where registered ownership has not yet transferred.
All related party amounts are without significant terms or conditions.
2. Compensation of key management and personnel
The remuneration of directors and other members of key management personnel during the three and six
months ended June 30, 2012 and 2011 were as follows:
Three months ended Six months ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
Salaries $ 61,200 $ 64,500 $ 202,400 $ 129,000
Share-based compensation 203,167 123,524 390,310 252,706
$ 264,367 $ 188,024 $ 592,710 $ 381,706
i. Share-based payments are the fair value of options granted to key management personnel.
ii. Key management personnel were not paid post-employment benefits, termination benefits, or other long-
term benefits during the three and six months ended June 30, 2012 and 2011.
CONTRACTUAL OBLIGATIONS
From time to time and in the normal course of business, the Company enters into agreements to transport and
market P&NG production. In addition, the Company has entered into agreements with third parties that provides
employees with access to specialized computer software and information including production and reserves data,
geological data, accounting systems, and land management systems.
At present, the Company’s only obligations with a term longer than 12 months is for office services support which
commenced March 1, 2012 to February 28, 2014 at a rate of $5,400 plus applicable taxes per month.
Page 14 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
OFF-BALANCE SHEET TRANSACTIONS
Donnybrook was not involved in any off-balance sheet transactions in the six months ended June 30, 2012 and
2011. The Company has certain fixed term lease agreements, including primarily office space leases, which were
entered into in the normal course of operations. All leases have been treated as operating leases whereby the
lease payments are included in operating expenses or G&A expenses depending on the nature of the lease. The
lease agreements do not provide for early termination. No asset or liability value has been assigned to these
leases in the statement of financial position as of June 30, 2012.
RESERVES DATA AND OTHER PETROLEUM AND NATURAL GAS INFORMATION
Our independently prepared reserves and assessment and evaluation of our petroleum and natural gas properties
effective December 31, 2011 have been prepared in accordance with mandated National Instrument 51-101 -
Standards of Disclosure for Oil and Gas Activities of the Canadian Securities Administrators.
BUSINESS OUTLOOK
Capital expenditures for 2012 are expected to be funded from cash on hand, cash flow from operations and
potentially from additional equity issuances (see 2012 Capital Budget; Liquidity and Capital Resources sections).
FINANCIAL REPORTING UPDATE
Accounting Policy Changes
The Company had no accounting policy changes during the six months ended June 30, 2012.
New Standards and Interpretations Not Yet Adopted
The Company will be required to adopt certain standards and amendments issued by the IASB as described below.
Accounting standards issued but not yet effective:
a) Effective for annual periods beginning on or after January 1, 2013
• Joint arrangements
In May 2011, the IASB issued IFRS 11 – Joint Arrangements (“IFRS 11”), which supersedes IAS 31 –
Interests in Joint Ventures and SIC 13 – Jointly Controlled Entities – Non-Monetary Contributions by
Venturers. IFRS 11 is effective for annual periods beginning on or after January 1, 2013, with earlier
application permitted. Under IFRS 11, joint arrangements are classified as joint operations or joint
ventures based on the rights and obligations of the parties to the joint arrangements. A joint operation is
a joint arrangement whereby the parties that have joint control of the arrangement (“joint operators”)
have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is
a joint arrangement whereby the parties that have joint control of the arrangement (“joint venturers”)
have rights to the net assets of the arrangement. IFRS 11 requires that a joint operator recognize its
portion of assets, liabilities, revenues and expenses of a joint arrangement, while a joint venturer
recognizes its investment in a joint arrangement using the equity method.
Page 15 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
• Fair value measurement
In May 2011, as a result of the convergence project undertaken by the IASB with the US Financial
Accounting Standards Board to develop common requirements for measuring fair value and for disclosing
information about fair value measurements, the IASB issued IFRS 13 – Fair Value Measurement (“IFRS
13”). IFRS 13 is effective for annual periods beginning on or after January 1, 2013, with earlier application
permitted. IFRS 13 defines fair value and sets out a single framework for measuring fair value which is
applicable to all IFRSs that require or permit fair value measurements or disclosures about fair value
measurements. IFRS 13 requires that when using a valuation technique to measure fair value, the use of
relevant observable inputs should be maximized while unobservable inputs should be minimized.
• Financial statement presentation
In June 2011, the IASB issued amendments to IAS 1 – Presentation of Financial Statements (“IAS 1”) that
require an entity to group items presented in the statement of other comprehensive income on the basis
of whether they may be reclassified to profit or loss subsequent to initial recognition. For those items
presented before tax, the amendments to IAS 1 also require that the tax related to the two separate
groups be presented separately. The amendments to IAS 1 are effective for annual periods beginning on
or after July 1, 2012, with earlier application permitted.
b) Effective for annual periods beginning on or after January 1, 2015
• Financial instruments
The IASB intends to replace IAS 39 – Financial Instruments: Recognition and Measurement (“IAS 39”) in its
entirety with IFRS 9 – Financial Instruments (“IFRS 9”) in three main phases. IFRS 9 will be the new
standard for the financial reporting of financial instruments that is principles-based and less complex than
IAS 39. In November 2009 and October 2010, phase 1 of IFRS 9 was issued and amended, respectively,
which addressed the classification and measurement of financial assets and financial liabilities. IFRS 9
requires that all financial assets be classified as subsequently measured at amortized cost or at fair value
based on the Company’s business model for managing financial assets and the contractual cash flow
characteristics of the financial assets. Financial liabilities are classified as subsequently measured at
amortized cost except for financial liabilities classified as at fair value through profit or loss, financial
guarantees and certain other exceptions. In response to delays to the completion of the remaining phases
of the project, on December 16, 2011, the IASB issued amendments to IFRS 9 which deferred the
mandatory effective date of IFRS 9 from January 1, 2013 to annual periods beginning on or after January
1, 2015. The amendments also provided relief from the requirement to restate comparative financial
statements for the effects of applying IFRS 9.
The Company has not early adopted these revised standards and is currently assessing the impact that these
standards will have on the financial statements.
CRITICAL ACCOUNTING ESTIMATES
The reader is advised that the critical accounting estimates, policies, and practices as described herein continue to
be critical in determining Donnybrook’s financial results.
The reader is cautioned that the preparation of financial statements in accordance with IFRS requires management
to make certain judgments and estimates that affect the reported amounts of assets, liabilities, revenues and
expenses. Management reviews its estimates on a regular basis. The emergence of new information and changed
circumstances may result in actual results or changes to estimates that differ materially from current estimates.
Page 16 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
The following discussion outlines accounting policies and practices that are critical to determining Donnybrook’s
financial results.
Trade and other receivables
Trade and other receivables are recorded at the estimated recoverable amount which involves the estimate of
uncollectible accounts or amounts.
Petroleum and natural gas reserves
Reserves and resources are used in the units of production calculation for depreciation, depletion and amortization
and the impairment analysis which affect net income. There are numerous uncertainties inherent in estimating
petroleum and natural gas reserves. Estimating reserves is very complex, requiring many judgments based on
geological, geophysical, engineering and economic data. Changes in these judgments could have a material impact
on the estimated reserves. These estimates may change, having either a negative or positive effect on net earnings as
further information becomes available and as the economic environment changes.
Depreciation and depletion
Depletion of petroleum and natural gas properties is provided using the unit-of-production method based on
production volumes before royalties in relation to total estimated proved reserves as determined annually by
independent engineers and internal reserve evaluations on a quarterly basis. Natural gas reserves and production are
converted at the energy equivalent of approximately six thousand cubic feet to one barrel of oil.
The costs of acquiring and evaluating unproved properties are excluded from depletion calculations.
Recoverability of asset carrying values
The Company assesses its petroleum and natural gas properties, including exploration and evaluation assets, for
possible impairment if there are events or changes in circumstances that indicate that carrying values of the assets
may not be recoverable, at least annually.
The assessment of any impairment of property and equipment is dependent upon estimates of recoverable
amount that take into account factors such as reserves, economic and market conditions, timing of cash flows, the
useful lives of assets and their related salvage values.
Donnybrook’s assets are aggregated into CGUs, for the purpose of calculating impairment, based on their ability to
generate largely independent cash flows, geography, production profile and infrastructure of its assets. By their
nature, these estimates and assumptions are subject to measurement uncertainty and may impact the carrying
value of the Company’s assets in future periods.
Decommissioning liabilities
Provisions for decommissioning liabilities associated with the Company’s drilling operations are based on current
legal and constructive requirements, technology, price levels and expected plans for remediation. Actual costs and
cash outflows can differ from estimates because of changes in laws and regulations, public expectations, prices,
discovery and analysis of site conditions and changes in clean up technology.
Page 17 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
Share-based compensation
The fair value of share options granted is measured using the Black-Scholes option pricing model. Measurement
inputs include share price on measurement date, exercise price of the option, expected volatility, expected life of
the options, expected dividends and the risk-free rate. The Company estimates volatility based on historical share
price excluding specific time frames in which volatility was affected by specific transactions that are not considered
to be indicative of the Company’s expected share price volatility. The expected life of the options is based on
historical experience and general option holder behavior. Dividends were not taken into the consideration as the
Company does not expect to pay dividends. Management also makes an estimate of the number of options that
will forfeit and the rate is adjusted to reflect the actual number of options that actually vest.
Income taxes
Related assets and liabilities are recognized for the estimated tax consequences between amounts included in the
financial statements and their tax base using substantively enacted future income tax rates. Timing of future
revenue streams and future capital spending changes can affect the timing of any temporary differences, and
accordingly affect the amount of the deferred income tax asset or liability calculated at a point in time. These
differences could materially impact earnings.
Other estimates
The accrual method of accounting requires management to incorporate certain estimates including estimates of
revenues, royalties, capital, drilling credits, and operating costs as at a specific reporting date, but for which actual
revenues and costs have not yet been received. In addition, estimates are made on capital projects which are in
progress or recently completed where actual costs have not been received by the reporting date. The Company
obtains the estimates from the individuals with the most knowledge of the activity and from all project
documentation received. The estimates are reviewed for reasonableness and compared to past performance to
assess the reliability of the estimates. Past estimates are compared to actual results in order to make informed
decisions on future estimates.
BUSINESS RISKS
Donnybrook’s exploration and production activities are concentrated in the Western Canadian Sedimentary Basin,
where activity is highly competitive and includes a variety of different sized companies ranging from smaller junior
producers, intermediate and senior producers, to the much larger integrated petroleum companies. The
Company’s principal activity of petroleum and natural gas exploration and development is considered to be
inherently risky. Donnybrook is subject to a number of risks which are also common to other organizations
involved in the petroleum and gas industry. Such risks include finding and developing petroleum and natural gas
reserves of economic costs, estimating amounts of recoverable reserves, production of petroleum and gas in
commercial quantities, marketability of petroleum and gas produced, fluctuations in commodity prices, financial
and liquidity risks and environmental and safety risks.
Some of the most significant risks being:
1. Substantial expenditures are required to explore for P&NG reserves and there is no assurance that the
Company will discover economic reserves;
2. The junior resource market, where the Company raises funds, is extremely volatile and there is no
guarantee that the Company will be able to raise funds as it requires them;
Page 18 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
3. Although the Company has taken steps to verify title to the P&NG properties it has an interest in or is
earning into, there is no guarantee that the property will not be subject to title disputes or undetected
defects;
4. The Company is subject to the laws and regulations relating to environmental matters, including
provisions relating to reclamation, discharge of hazardous material and other matters. The Company’s
exploration and development activities including those conducted by partners and/or operators are in
compliance with applicable environmental protection legislation. The Company is not aware of any
existing environmental problems related to its properties that may cause material liability to the
Company;
5. Under applicable regulatory requirements, the Company will be required to identify and disclose any
proved petroleum and natural gas reserves, estimated quantities of crude oil, natural gas and natural gas
liquids. This geological and engineering data demonstrates with reasonable certainty the estimated
quantities of crude oil, natural gas and natural gas liquids, which will be recoverable in future years from
known reservoirs under existing economic and operating conditions. However, the process of estimating
petroleum and natural gas reserves is complex, requiring significant decisions and assumptions in the
evaluation of available geological, geophysical, engineering and economic data for each reservoir, and as
a result, such estimates are inherently imprecise. Actual future production, petroleum and gas prices,
revenues, taxes, development expenditures, operating expenses and quantities of recoverable petroleum
and natural gas reserves may vary substantially from the estimations from year to year. Any significant
variance in the assumptions could materially affect the estimated quantities and present values of
reserves. For example, a material drop in petroleum and gas prices, or a material increase in applicable
taxes, will require management to reassess whether known reservoirs can continue to be reasonably
judged as economically productive from one year to the next. In addition, the reserves may be subject to
downward or upward revisions based upon production history, results of future exploration and
development, prevailing petroleum and gas prices and other factors, many of which are beyond our
Company’s control. Actual production, revenues, taxes, development expenditures and operating
expenses with respect to the reserves will likely vary from the estimates presented herein, and such
variances may be material; and
6. In general, production rates from petroleum and natural gas properties decline as reserves are depleted.
The decline rates depend on reservoir characteristics and vary from steep declines to the relatively slow
declines characteristic of long-lived fields. Should one or more of the above risks materialize or should our
underlying assumptions prove incorrect, our actual results may materially differ from our current
expectations.
In order to reduce exploration risk, Donnybrook employs highly qualified personnel, either directly as employees
or indirectly when contracting for services, who have demonstrated the ability to generate quality proprietary
geological and geophysical prospects. Our philosophy of focusing on a limited number of geographical areas
allows us to develop a high level of technical and managerial expertise in each area. To control the cost and pace
of development, we acquire high working interests in each prospect and operate wherever possible.
Donnybrook has retained an independent engineering firm that assists the Company in evaluating recoverable
amounts of petroleum and natural gas reserves. Values of recoverable reserves are based on a number of variable
factors and assumptions such as commodity prices, projected production, future production costs and government
regulation. Such estimates may vary from actual results.
The Company mitigates its risk related to producing hydrocarbons through the utilization of the most advanced
technology and information systems. In addition, Donnybrook strives to operate the majority of its prospects,
Page 19 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
thereby maintaining operational control. The Company relies on its partners to maintain operational control in
jointly owned properties that Donnybrook does not operate.
Donnybrook is exposed to market risk to the extent that the demand for petroleum and gas produced by the
Company exists within Canada and the United States. External factors beyond the Company’s control may affect
the marketability of petroleum and gas produced. These factors include commodity prices and variations in the
Canada-United States currency exchange rate, which in turn respond to economic and political circumstances
throughout the world. Petroleum prices are affected by worldwide supply and demand fundamentals while
natural gas prices are affected by North American supply and demand fundamentals.
Donnybrook may enter into commodity price and interest rate hedging strategies to add a degree of certainty to
cash flow. As at June 30, 2012, Donnybrook has not entered into any derivative or hedging contracts.
Exploration and production for petroleum and gas is very capital intensive. As a result, the Company relies on
equity markets as a source of new capital. Funds from operations also provide Donnybrook with capital required
to grow its business. Equity is subject to market conditions and availability may increase or decrease from time to
time. Funds from operations also fluctuate with changing commodity prices.
REGULATORY RISK
There can be no assurance that government royalties, income tax laws, environmental law and regulatory
requirements relating to the petroleum and natural gas industry will not be changed in a manner which adversely
affects the Company or its shareholders. Although the Company has no control over these regulatory risks, it
continuously monitors changes in these areas by participating in industry organizations and conferences,
exchanging information with third party experts and employing qualified individuals to assess the impact of such
changes on the Company’s financial and operating results.
SAFETY AND ENVIRONMENT
Petroleum and natural gas exploration and production can involve environmental risks such as pollution of the
environment and destruction of natural habitat, as well as safety risks such as personal injury. The Company
conducts its operations with high standards in order to protect the environment and the general public. The
Company’s insurance program is consistent with industry practice to protect against destruction of assets, well
blowouts, pollution and other business interruptions. Donnybrook maintains current insurance coverage for
comprehensive and general liability as well as limited pollution liability and Operators Extra Expenses coverage.
The amount and terms of this insurance are reviewed on an ongoing basis and adjusted as necessary to reflect
current corporate requirements, as well as industry standards and government regulations. Donnybrook has a
Corporate Emergency Response Plan and Health, Environmental and Safety manuals and procedures in place and a
Pipeline Operation and Maintenance Procedure Manual.
LEGAL, ENVIRONMENTAL REMEDIATION AND OTHER CONTINGENT MATTERS
The Company reviews legal, environmental remediation and other contingent matters to both determine whether
a loss is probable based on judgment and interpretation of laws and regulations and determine that the loss can
reasonably be estimated. When the loss is determined, it is charged to earnings. The Company’s management
monitors known and potential contingent matters and make appropriate provisions by charges to earnings when
warranted by the circumstances.
With the above risks and uncertainties the reader is cautioned that future events and results may vary
substantially from that which Donnybrook currently foresees.
Page 20 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
ADVISORIES REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this MD&A and in certain documents incorporated by reference into this MD&A,
constitute forward-looking statements and information (“forward-looking statements”). These statements relate
to future events or the Company’s future performance. All statements other than statements of historical fact
may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use
of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”,
“potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. These statements
involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ
materially from those anticipated in such forward-looking statements. The Company believes that the
expectations reflected in those forward-looking statements are reasonable but no assurance can be given that
these expectations will prove to be correct and such forward-looking statements included in, or incorporated by
reference into, this MD&A should not be unduly relied upon. These statements speak only as of the date of this
MD&A or as of the date specified in the documents incorporated by reference into this MD&A, as the case may be.
The Company does not intend, and does not assume any obligation, to update or revise these forward-looking
statements except as required pursuant to applicable securities laws.
Forward-looking information and statements are included throughout this MD&A (and the documents
incorporated by reference herein), but are not limited to, statements pertaining to the following:
the used of net proceeds from financings completed in 2011;
drilling inventory, drilling plans and timing of drilling, completion and tie-in of wells;
plans for facilities construction and completion and the timing and method of funding thereof;
productive capacity of wells, anticipated or expected production rates and anticipated dates of
commencement of production;
drilling, completion and facilities costs;
results of various projects of Donnybrook;
Donnybrook’s growth strategy;
the effects of the adoption of International Financial Reporting Standards;
the tax horizon and taxability of Donnybrook;
supply and demand for petroleum, natural gas liquids and natural gas;
the performance and characteristics of Donnybrook's petroleum and natural gas properties;
Donnybrook's acquisition strategy, the criteria to be considered in connection therewith and the benefits to
be derived therefrom;
the impact of Canadian federal and provincial governmental regulation on Donnybrook relative to other
petroleum and natural gas issuers of similar size;
weighting of production between different commodities;
the quantity and quality of the petroleum and natural gas reserves;
projections of commodity prices and costs;
expected levels of royalty rates, operating costs, general and administrative costs, costs of services and
other costs and expenses;
expectations regarding dividends;
capital expenditure programs and the timing and method of financing thereof;
treatment under government regulation and taxation regimes; and
economic environment in 2012
Page 21 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
The Company’s actual results could differ materially from those anticipated in these forward-looking statements as
a result of the risk factors set forth below and elsewhere in this MD&A:
the Company’s ability to access capital;
the ability of management of the Company to execute its business plan;
general economic conditions in Canada, the United States and globally;
industry conditions, including fluctuations in the price of petroleum and natural gas;
governmental regulation of the petroleum and gas industry, including environmental regulation;
fluctuation in foreign exchange or interest rates;
liabilities inherent in petroleum and natural gas operations;
geological, technical, drilling and processing problems;
the uncertainty of estimates and projections relating to production, costs and expenses;
unanticipated operating events which can reduce production or cause production to be shut in or delayed;
the ability to locate satisfactory properties for acquisition or participation;
failure to realize the anticipated benefits of acquisitions;
failure to obtain industry partner and other third party consents and approvals, when required;
stock market volatility and market valuations;
competition for, among other things, capital, acquisitions of reserves, undeveloped land and skilled
personnel;
competition for and inability to retain drilling rigs and other services;
rights to surface access;
the need to obtain required approvals from regulatory authorities; and
other factors considered under “Current Economic Conditions” in this MD&A and other risk factors identified
in the Company’s Annual Information Forum and other documents incorporated herein by reference.
These factors should not be considered exhaustive. Statements relating to “reserves” or “resources” are by their
nature forward-looking statements, as they involve the implied assessment, based on certain estimates and
assumptions that the resources and reserves described can be profitably produced in the future. With respect to
forward-looking statements contained or incorporated by reference in this MD&A, Donnybrook has made
assumptions regarding: future exchange rates; energy markets and the price of P&NG; the impact of increasing
competition; condition in general economic and financial markets; availability of drilling and related equipment;
availability of skilled labor; availability of prospective drilling rights; current technology; cash flow; commodity
prices; production rates; effects of regulation and tax laws by governmental agencies; future operating costs and
the Company’s ability to obtain financing on acceptable terms. In addition, forward-looking statements in
documents incorporated by reference herein may be based on additional assumptions as disclosed in such
documents. Readers are cautioned that the foregoing list of factors is not exhaustive.
The above summary of assumptions and risks related to forward-looking information has been provided in this
MD&A and the documents incorporated by reference herein in order to provide readers with a more complete
perspective on Donnybrook’s future operations. Readers are cautioned that this information may not be
appropriate for other purposes.
The forward-looking statements contained in this MD&A and the documents incorporated by reference herein are
expressly qualified by this cautionary statement.
FINANCIAL OUTLOOK
Certain information set out under the heading “Net revenues” is “financial outlook” within the meaning of
applicable securities laws. The purpose of the financial outlook is to provide readers with disclosure regarding the
Company’s reasonable expectation as to the anticipated results of its proposed business activities for 2012.
Page 22 of 24
DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
Readers are cautioned that this financial outlook is based upon numerous assumptions and may not be
appropriate for other than indicative purposes.
Current Economic Conditions
Recent market events and conditions, including disruptions in the international credit markets and other financial
systems and the deterioration of global economic conditions, have caused significant volatility to commodity
prices. These conditions persisted throughout 2012 and 2011, causing a loss of confidence in the global credit and
financial markets and resulting in the collapse of, and government intervention in, major banks, financial
institutions and insurers and creating a climate of greater volatility, less liquidity, widening of credit spreads, a lack
of price transparency, increased credit losses and tighter credit conditions. Notwithstanding various actions by
governments to address the global financial crisis, concerns about the general condition of the capital markets,
financial instruments, banks, investment banks, insurers and other financial institutions caused the broader credit
markets to further deteriorate and stock markets to decline substantially. These factors have negatively impacted
company valuations and will impact the performance of the global economy going forward.
P&NG prices are expected to remain volatile for the near future as a result of market uncertainties over the supply
and demand of these commodities due to the current state of the world economies, instability in North Africa and
the Middle East, OPEC actions and the ongoing global credit and liquidity concerns.
Royalties and Incentives
In addition to federal regulation, each province has legislation and regulations which govern royalties, production
rates, and other matters. The royalty regime is a significant factor in the profitability of oil and natural gas liquids,
and natural gas production. Royalties payable on production from lands other than Crown lands are determined
by negotiations between the mineral owner and the lessee, although production from such lands is subject to
certain provincial taxes and royalties. Crown royalties are determined by governmental regulation and are
generally calculated as a percentage of the value of the gross production. The rate of royalty payable, generally,
depends in part on prescribed reference prices, well productivity, geographical location, field discovery data,
method of recovery, and the type or quality of the petroleum product produced. Other royalties and royalty like
interests are, from time to time, carved out of the working interest owner’s interest through non-public
transactions. These are often referred to as overriding royalties, gross overriding royalties, net profits interests, or
net carried interests.
Occasionally, the governments of the western Canadian provinces create incentive programs for exploration and
development. Such programs often provide for royalty rate reductions, royalty holidays or royalty tax credits and
are, generally, introduced when commodity prices are low to encourage exploration and development activity by
improving earnings and cash flow within the industry.
2012 GUIDANCE
Donnybrook continues to remain optimistic about its future prospects. Donnybrook is opportunity driven and is
confident that it can continue to grow the Company’s production base by building on its current inventory of
development prospects and by adding new exploration prospects. Donnybrook will endeavor to maintain a high
quality product stream that on a historical basis receives a superior price with reasonably low production costs.
Donnybrook will continue to focus its exploration efforts in areas of multi-zone hydrocarbon potential.
Throughout 2012, Donnybrook will continue to be active in its core resource plays, Simonette, Bigstone and
Resthaven, utilizing horizontal drilling multi-fracturing technology.
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DONNYBROOK ENERGY INC.
Management’s Discussion and Analysis
Six months ended June 30, 2012
DIRECTORS AND OFFICERS
David Patterson Director and Chairman
Malcolm Todd Director, Chief Executive Officer and President
Robert Todd Chief Financial Officer
Murray Scalf Director and Chief Operating Officer
Randy Kwasnicia Director
Ken Stephenson Director
Colin Watt Director
ADDITIONAL INFORMATION
Additional information relating to Donnybrook is filed on SEDAR and can be viewed on their website at
www.sedar.com. Copies of information can also be obtained by contacting Robert Todd, Chief Financial Officer at
Donnybrook Energy Inc., Suite 300, 5704 Balsam Street, Vancouver, British Columbia, Canada V6M 4B9.
Further information relating to the Company is also available on its website at www.donnybrookenergy.ca.
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