Operations:

Bonterra Oil & Gas achieved record production volumes of 5,305 barrels of oil equivalent (BOE) per day for the first quarter of 2009. This represents a raise of 16% over the previous quarter and 22% over the year-ago quarter. This increase is because of the company’s successful capital development program and the acquisition and consequent optimization of the Silverwing Energy Inc. (Silverwing) properties in the company’s new core area of Northeast British Columbia. The Silverwing corporate acquisition closed in November, 2008.

Bonterra Oil & Gas has been successful in reducing operating costs by over 9% in the first quarter of 2009 compared to the earlier quarter as a result of a focused assessment of its operating costs and raised production volumes. Operating costs are expected to remain lower than in previous years because of further field optimization and reduced costs of services.

As part of the capital development program, Bonterra Oil & Gas successfully drilled and placed on production its first operated Cardium horizontal well in the Pembina area of west central Alberta (25% working interest). The well’s first month production (February, 2009) averaged about 250 barrels of oil per day. It is at present producing about 145 barrels of oil per day and 85 MCF per day of solution gas which is being conserved.

Bonterra Oil & Gas has a very large land position in the Pembina field with a major amount of undeveloped land with similar reservoir characteristics to the above horizontal well. Working interests range from 25 to 100% and with the recent Crown royalty credit announcement by the Alberta government, Bonterra Oil & Gas plans on drilling further horizontal Pembina Cardium oil wells to further assess the play as well as continuing with its selective vertical Pembina Cardium wells.

Bonterra Oil & Gas 2009 capital program is now anticipated to total CAD20 million. This has been raised from CAD15 million due to the Alberta government’s recent royalty and incentive programs, Bonterra Oil & Gas strengthened financial position, improving commodity prices and encouraging drilling results. Drilling is expected to begin late in the second quarter with the majority of the drilling expenditures anticipated to be incurred during the third and fourth quarters of 2009.

Maintaining Financial Strength

Consequent to the quarter-end, Bonterra Oil & Gas entered into a new syndicated banking facility effective April 29, 2009. The maximum borrowing amount of the new facility has been raised to CAD120 million from CAD100 million and comprises of a CAD100 million syndicated revolving credit facility and a CAD20 million non-syndicated revolving credit facility. The terms of the new facility gives that the loan is revolving until April 28, 2011 and is subject to an annual review and has no fixed payment requirements.

Also consequent to the quarter-end, Bonterra Oil & Gas entered into a bought-deal private placement financing where it will issue 890,000 common shares at a price of CAD16.85 per share for gross proceeds of CAD15 million. The underwriters also have an option exercisable prior to the closing date to increase the size of the offering up to an further 178,000 common shares at a price of CAD16.85 for further proceeds of up to CAD2,999,300 which would increase the offering to CAD17,999,300. This transaction is expected to close prior to May 31, 2009.

This further strengthens Bonterra Oil & Gas financial position and provides raised flexibility for the company to fund its 2009 capital development program and carry on to pursue further acquisition opportunities as they become available. Besides, Bonterra Oil & Gas will carry on to seek new ways to strengthen its financial position through cost reduction initiatives, low-cost production optimization, project reviews and exploring and implementing operational efficiencies across its business.

Strategic Acquisition:

Bonterra continues to diligently assess additional opportunities to grow its reserves and production through strategic acquisitions. Subsequent to the quarter-end, the Company entered into a letter of intent to proceed with a proposed plan of arrangement to acquire all of the issued and outstanding shares of Cobalt Energy Ltd. (Cobalt).

Cobalt is a junior oil and gas exploration and production company operating in western Canada with production of about 85 BOE per day. Cobalt’s main assets consist of a 43.18% working interest in the company’s above-mentioned horizontal well and additional lands with Cardium horizontal well potential in Pembina with working interests ranging between 25 and 43.18%. These lands are operated by Bonterra Oil & Gas.

The board of Cobalt has unanimously approved the proposed transaction and, subject to receipt of an independent fairness opinion, intends to suggest that the shareholders vote in favor of the proposed transaction. Cobalt has agreed to pay a non-completion fee not to exceed CAD400,000 to Bonterra Oil & Gas under certain circumstances.

Commodity Prices

During the first quarter of 2009, the continued and major weakness in commodity prices impacted Bonterra Oil & Gas financial performance. Average realized prices for crude oil declined 22% quarter over quarter and 47% from the first quarter of 2008 while average realized prices for natural gas declined 26% quarter over quarter and 38% from the same period in 2008. This resulted in significant declines in revenue, net earnings and cash flow from operations.

Crude oil prices have been improving in the second quarter while natural gas prices have continued their decline. Bonterra Oil & Gas currently anticipates that crude oil and natural gas prices will not change significantly from the current levels for the remainder of 2009. As a result, commodity prices are expected to continue to considerably and negatively impact results compared to 2008. The price declines should be partly counterbalanced by increases in production volumes and a decrease in operating costs and royalties.

Cash dividends paid to shareholders totaled CAD0.36 per share in the first quarter of 2009. This represents a monthly dividend of CAD0.12 per share with a payout ratio of 74% of funds flow during the quarter. The board of directors and management will continue to monitor dividend levels, payout ratios and capital expenditures on a monthly basis and adjust the amount if necessary. However, the monthly dividend level has been set at an amount deemed appropriate to both balance capital development requirements while providing investors with a maximized and stable cash payment. If current commodity prices are sustained or increase, Bonterra Oil & Gas should be in a position to increase dividends.

Production:

Barrels of oil equivalent (BOE) are calculated using a conversion ratio of 6 MCF to 1 barrel of oil. The conversion is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead and as such may be misleading if used in isolation.

Production volumes for the first quarter of 2009 were a record for the Company. Added production related to the Silverwing Energy Inc. (Silverwing) acquisition (about 650 BOE per day), Bonterra Oil & Gas’ fourth quarter of 2008 drilling program comprising the start of production from the company’s first Pembina Cardium horizontal well and new gas wells drilled and optimization of existing wells on former Silverwing properties (totaling about 250 BOE per day). These additions more than offset Bonterra Oil & Gas average corporate production decline of about 2% per quarter.