Advantage Announces 1st Quarter Results 2009



    (TSX: AVN.UN, NYSE:   AAV)

    CALGARY, May 14 /CNW/ - Advantage Energy Income Fund ("Advantage" or the
"Fund") is pleased to announce its unaudited operating and financial results
for the first quarter ended March 31, 2009.

    
    Financial and Operating Highlights

                                                  Three months  Three months
                                                      ended         ended
                                                     March 31,     March 31,
                                                       2009          2008
    -------------------------------------------------------------------------
    Financial ($000, except as otherwise
     indicated)

    Revenue before royalties(1)                    $   122,950   $   188,505
      per Trust Unit(2)                            $      0.86   $      1.37
      per boe                                      $     44.64   $     62.52
    Funds from operations                          $    55,591   $    94,618
      per Trust Unit(3)                            $      0.38   $      0.68
      per boe                                      $     20.19   $     31.37
    Distributions declared                         $    17,266   $    50,021
      per Trust Unit(3)                            $      0.12   $      0.36
    Expenditures on property and equipment         $    52,643   $    66,903
    Working capital deficit(4)                     $   128,455   $    35,375
    Bank indebtedness                              $   615,438   $   563,500
    Convertible debentures (face value)            $   214,328   $   224,587
    Trust Units outstanding at end of period (000)     145,203       139,273
    Basic weighted average Trust Units (000)           143,691       137,599
    Operating
    Daily Production
      Natural gas (mcf/d)                              117,968       125,113
      Crude oil and NGLs (bbls/d)                       10,942        12,281
      Total boe/d at 6:1                                30,603        33,133
    Average prices (including hedging)
      Natural gas ($/mcf)                          $      6.52   $      8.23
      Crude oil and NGLs ($/bbl)                   $     54.54   $     84.83

    (1) includes realized derivative gains and losses
    (2) based on basic weighted average Trust Units outstanding
    (3) based on Trust Units outstanding at each distribution record date
    (4) working capital deficit includes accounts receivable, prepaid
        expenses and deposits, accounts payable and accrued liabilities,
        distributions payable, and the current portion of capital lease
        obligations and convertible debentures



                           MESSAGE TO UNITHOLDERS

    Montney Development Program at Glacier on-track

    -   For the three month period ended March 31, 2009, the Fund's capital
        program amounted to $51.9 million net and included the drilling of
        9.6 net (11 gross) wells at a 100% success rate. Total capital
        spending in the quarter included $40.6 million at Glacier,
        $5.0 million at Martin Creek, and $0.7 million at Nevis.

    -   Glacier capital investment included drilling 3 net (3 gross)
        horizontal wells and 2 net (2 gross) vertical wells during the
        quarter. Two new Montney horizontal wells were brought on-stream at
        combined rates of 8 to 10 mmcf/d at the end of January 2009.
        Facilities work involving the expansion of compression facilities and
        our pipeline gathering system was completed at the end of the quarter
        and has taken our overall facility capacity to approximately
        25 mmcf/d after commissioning the expansion in the second quarter of
        2009. The remaining Montney wells drilled in 2008 and the first
        quarter of 2009 will provide sufficient production deliverability to
        keep the facilities near capacity for the remainder of the year. New
        wells brought on-stream after March 31, 2009 will qualify for the
        Alberta royalty incentive program which results in a 5% royalty rate
        for one year or 0.5 bcf of gas production. The development program at
        Glacier is on-track and design work is underway to increase
        production to 50 mmcf/d in 2010.

    -   At Martin Creek, 3.6 net (4 gross) wells were successfully drilled
        and have been brought on-stream before the end of the quarter to help
        offset declines during the remainder of the year. Production is
        currently at facility capacity.

    -   At Nevis, activity focused on increasing battery capacity and
        preparatory work for new Wabamun light oil and Horseshoe Canyon coal
        bed methane wells. This program may be drilled during the remainder
        of 2009.

    Strong Hedging Program and Operating Cost Reductions Mitigates Lower
    Commodity Prices

    -   Our hedging program contributed a gain of $23.3 million to funds from
        operations which helped to partially mitigate a significant reduction
        in commodity prices.

    -   Operating costs for the three months ended March 31, 2009 was
        $13.08 per boe, a decrease of 11% (16% on an absolute cost basis)
        from the fourth quarter of 2008 and a decrease of 2% (11% on an
        absolute cost basis) when compared to the same period in 2008. An
        aggressive optimization program through 2008 is beginning to
        demonstrate positive benefits and we will continue to seek
        opportunities to further improve our operating cost structure. We
        also anticipate that service and supply costs may decrease further
        during the remainder of 2009 due to the reduced activity in the oil
        and gas industry.

    -   Significantly lower average natural gas and crude oil prices resulted
        in a 41% decrease in funds from operations to $55.6 million for the
        first quarter of 2009 as compared to $94.6 million for the same
        period of 2008. Funds from operations on a per unit basis decreased
        44% to $0.38 per Trust Unit compared to $0.68 per Trust Unit for the
        three months ended March 31, 2008.

    -   Average daily production for the three months ended March 31, 2009
        decreased 3% to 30,603 boe/d compared to the fourth quarter of 2008.
        This decline was due to 1,100 boe/d (73% natural gas) being curtailed
        since August 2008 at our Lookout Butte property as a result of an
        ongoing third party facility outage. Cold weather related production
        issues also impacted production during the month of January 2009.
        Production decreased 8% when compared to the same period of 2008.

    -   Natural gas production for the three months ended March 31, 2009
        decreased 6% to 118.0 mmcf/d, compared to 125.1 mmcf/d for the same
        period of 2008. Crude oil and natural gas liquids production
        decreased 11% to 10,942 bbls/d compared to 12,281 bbls/d for the
        three months ended March 31, 2008.

    -   The Fund declared distributions totaling $0.12 per Trust Unit or
        $17.3 million during the three months ended March 31, 2009. On
        March 18, 2009, the Fund announced it would discontinue cash
        distributions.

    Strong Hedging Program

    -   Advantage's hedging program includes 56% of our net natural gas
        production hedged for 2009 at an average price of $8.09 per mcf and
        48% hedged for 2010 at an average price of $7.46 per mcf. Crude oil
        hedges include 46% of our net crude oil production hedged at an
        average floor price of $69.38 Cdn per bbl and 26% hedged for 2010 at
        an average price of $67.83 Cdn per bbl. Details on our hedging
        program are available on our website.

    -   For the remaining three quarters of 2009, Advantage has 54% of our
        net natural gas hedged at $8.17/mcf.


                              Approximate
                           Production Hedged,     Average        Average
    Commodity               Net of Royalties    Floor Price   Ceiling Price
    -------------------------------------------------------------------------

    Natural gas - AECO

      April to June 2009           53%         Cdn$8.17/mcf    Cdn$8.17/mcf
      July to September 2009       54%         Cdn$8.17/mcf    Cdn$8.17/mcf
      October to December 2009     56%         Cdn$8.17/mcf    Cdn$8.17/mcf
      -----------------------------------------------------------------------
      Total 2009                   56%         Cdn$8.09/mcf    Cdn$8.09/mcf
      -----------------------------------------------------------------------
      January to March 2010        62%         Cdn$7.64/mcf    Cdn$7.64/mcf
      April to June 2010           53%         Cdn$7.53/mcf    Cdn$7.53/mcf
      July to September 2010       38%         Cdn$7.27/mcf    Cdn$7.27/mcf
      October to December 2010     38%         Cdn$7.27/mcf    Cdn$7.27/mcf
      -----------------------------------------------------------------------
      Total 2010                   48%         Cdn$7.46/mcf    Cdn$7.46/mcf
      -----------------------------------------------------------------------
      January to March 2011         6%         Cdn$7.25/mcf    Cdn$7.25/mcf
      -----------------------------------------------------------------------

    Crude Oil - WTI

      April to June 2009           48%         Cdn$62.40/bbl   Cdn$69.40/bbl
      July to September 2009       48%         Cdn$62.40/bbl   Cdn$69.40/bbl
      October to December 2009     50%         Cdn$62.40/bbl   Cdn$69.40/bbl
      -----------------------------------------------------------------------
      Total 2009                   46%         Cdn$69.38/bbl   Cdn$74.92/bbl
      -----------------------------------------------------------------------
      January to March 2010        26%         Cdn$62.80/bbl   Cdn$62.80/bbl
      April to June 2010           26%         Cdn$69.50/bbl   Cdn$69.50/bbl
      July to September 2010       26%         Cdn$69.50/bbl   Cdn$69.50/bbl
      October to December 2010     26%         Cdn$69.50/bbl   Cdn$69.50/bbl
      -----------------------------------------------------------------------
      Total 2010                   26%         Cdn$67.83/bbl   Cdn$67.83/bbl
      -----------------------------------------------------------------------

      -----------------------------------------------------------------------
      January to March 2011         9%         Cdn$69.50/bbl   Cdn$69.50/bbl
      -----------------------------------------------------------------------

    Looking Forward

    -   On March 18, 2009, Advantage announced that our Board of Directors
        had approved conversion to a growth oriented corporation and a
        strategic asset disposition program to increase financial
        flexibility.

    -   The corporate conversion will be subject to two-thirds Unitholder
        approval as well as customary court and regulatory approvals,
        anticipated to be completed on or about June 29, 2009. The conversion
        will enable Advantage to pursue a business plan that is focused on
        the development and growth of the Montney natural gas resource play
        at Glacier.

    -   The Fund has retained advisors to assist with the disposition of
        properties producing up to 11,900 boe/d of light oil and natural gas
        properties located in Northeast British Columbia, West Central
        Alberta and Northern Alberta. The net proceeds from these sales or
        other oil and natural gas property sales will initially be used to
        reduce outstanding bank debt to improve Advantage's financial
        flexibility. Advantage may also draw down its credit facilities in
        the future to redeem certain of the Fund's convertible debentures.
        Proposals are anticipated by mid May 2009 and the selected assets
        will be available in four distinct packages varying in size from
        approximately 1,600 to 5,400 boe/d of production.

    -   As another step to increase Advantage's financial flexibility and to
        focus on development and growth at Glacier, we discontinued payment
        of cash distributions with the final cash distribution paid on
        March 16, 2009 to unitholders of record as of February 27, 2009.
        Going forward, Advantage does not anticipate paying distributions or
        dividends and will instead, direct cash flow to capital expenditures
        and debt repayment.

    -   We will provide updated guidance subsequent to the results of our
        asset disposition program and our corporate conversion.


    MANAGEMENT'S DISCUSSION & ANALYSIS
    

    The following Management's Discussion and Analysis ("MD&A"), dated as of
May 14, 2009, provides a detailed explanation of the financial and operating
results of Advantage Energy Income Fund ("Advantage", the "Fund", "us", "we"
or "our") for the three months ended March 31, 2009 and should be read in
conjunction with the consolidated financial statements contained within this
interim report and the audited financial statements and MD&A for the year
ended December 31, 2008. The consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
("GAAP") and all references are to Canadian dollars unless otherwise
indicated. All per barrel of oil equivalent ("boe") amounts are stated at a
conversion rate of six thousand cubic feet of natural gas being equal to one
barrel of oil or liquids.

    Non-GAAP Measures

    The Fund discloses several financial measures in the MD&A that do not
have any standardized meaning prescribed under GAAP. These financial measures
include funds from operations, funds from operations per Trust Unit and cash
netbacks. Management believes that these financial measures are useful
supplemental information to analyze operating performance, leverage and
provide an indication of the results generated by the Fund's principal
business activities prior to the consideration of how those activities are
financed or how the results are taxed. Investors should be cautioned that
these measures should not be construed as an alternative to net income, cash
provided by operating activities or other measures of financial performance as
determined in accordance with GAAP. Advantage's method of calculating these
measures may differ from other companies, and accordingly, they may not be
comparable to similar measures used by other companies.
    Funds from operations, as presented, is based on cash provided by
operating activities before expenditures on asset retirement and changes in
non-cash working capital. Funds from operations per Trust Unit is based on the
number of Trust Units outstanding at each distribution record date. Cash
netbacks are dependent on the determination of funds from operations and
include the primary cash revenues and expenses on a per boe basis that
comprise funds from operations. Funds from operations reconciled to cash
provided by operating activities is as follows:

    
                                             Three months ended
                                                  March 31
    ($000)                                    2009        2008     % change
    -------------------------------------------------------------------------
    Cash provided by operating activities $   41,879  $   81,593       (49)%
    Expenditures on asset retirement           2,577       4,965       (48)%
    Changes in non-cash working capital       11,135       8,060         38%
    -------------------------------------------------------------------------
    Funds from operations                 $   55,591  $   94,618       (41)%
    -------------------------------------------------------------------------
    

    Forward-Looking Information

    This MD&A contains certain forward-looking statements, which are based on
our current internal expectations, estimates, projections, assumptions and
beliefs. These statements relate to future events or our 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", "would" and
similar or related expressions. These statements are not guarantees of future
performance.
    In particular, forward-looking statements included in this MD&A include,
but are not limited to, statements with respect to average production and
projected exit rates; areas of operations; spending and capital budgets;
availability of funds for our capital program; the size of, and future net
revenues from, reserves; the focus of capital expenditures; expectations
regarding the ability to raise capital and to continually add to reserves
through acquisitions and development; projections of market prices and costs;
the performance characteristics of our properties; our future operating and
financial results; capital expenditure programs; supply and demand for oil and
natural gas; average royalty rates; and amount of general and administrative
expenses. In addition, statements relating to "reserves" or "resources" are
deemed to be 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.
    These forward-looking statements involve substantial known and unknown
risks and uncertainties, many of which are beyond our control, including the
effect of acquisitions; changes in general economic, market and business
conditions; changes or fluctuations in production levels; unexpected drilling
results, changes in commodity prices, currency exchange rates, capital
expenditures, reserves or reserves estimates and debt service requirements;
changes to legislation and regulations and how they are interpreted and
enforced, changes to investment eligibility or investment criteria; our
ability to comply with current and future environmental or other laws; our
success at acquisition, exploitation and development of reserves; actions by
governmental or regulatory authorities including increasing taxes, changes in
investment or other regulations; the occurrence of unexpected events involved
in the exploration for, and the operation and development of, oil and gas
properties; competition from other producers; the lack of availability of
qualified personnel or management; changes in tax laws, royalty regimes and
incentive programs relating to the oil and gas industry and income trusts;
hazards such as fire, explosion, blowouts, cratering, and spills, each of
which could result in substantial damage to wells, production facilities,
other property and the environment or in personal injury; stock market
volatility; and ability to access sufficient capital from internal and
external sources. Many of these risks and uncertainties are described in
Advantage's Annual Information Form which is available at www.sedar.com and
www.advantageincome.com. Readers are also referred to risk factors described
in other documents Advantage files with Canadian securities authorities.
    With respect to forward-looking statements contained in this MD&A,
Advantage has made assumptions regarding: current commodity prices and royalty
regimes; availability of skilled labour; timing and amount of capital
expenditures; future exchange rates; the price of oil and natural gas; the
impact of increasing competition; conditions in general economic and financial
markets; availability of drilling and related equipment; effects of regulation
by governmental agencies; royalty rates and future operating costs.
    Management has included the above summary of assumptions and risks
related to forward-looking information provided in this MD&A in order to
provide Unitholders with a more complete perspective on Advantage's future
operations and such information may not be appropriate for other purposes.
Advantage's actual results, performance or achievement could differ materially
from those expressed in, or implied by, these forward-looking statements and,
accordingly, no assurance can be given that any of the events anticipated by
the forward-looking statements will transpire or occur, or if any of them do
so, what benefits that Advantage will derive there from. Readers are cautioned
that the foregoing lists of factors are not exhaustive. These forward-looking
statements are made as of the date of this MD&A and Advantage disclaims any
intent or obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or results or otherwise,
other than as required by applicable securities laws.

    Corporate Conversion and Asset Disposition

    On March 18, 2009, we announced that our Board of Directors had approved
conversion to a growth oriented corporation and a strategic asset disposition
program to increase financial flexibility.
    The corporate conversion will be subject to approval by at least
two-thirds of the Fund's Unitholders as well as customary court and regulatory
approvals, anticipated to be completed on or about June 29, 2009. The
conversion will enable Advantage to pursue a business plan that is focused on
the development and growth of the Montney natural gas resource play at
Glacier, Alberta. The conversion will have the added benefit of removing the
uncertainty surrounding the upcoming changes in Canadian tax law whereby the
government will begin imposing taxes on income trusts on January 1, 2011.
    The Fund has retained advisors to assist with the disposition of
properties producing up to 11,900 boe/d of light oil and natural gas
properties located in Northeast British Columbia, West Central Alberta and
Northern Alberta. The net proceeds from these sales or other oil and natural
gas property sales will initially be used to reduce outstanding bank debt to
improve Advantage's financial flexibility. Advantage may also draw down its
credit facilities in the future to redeem certain of the Fund's convertible
debentures. Proposals are anticipated by mid May 2009 and the selected assets
will be available in four distinct packages varying in size from approximately
1,600 to 5,400 boe/d of production.
    As another step to increase Advantage's financial flexibility and to
focus on development and growth at Glacier, Advantage has discontinued payment
of cash distributions. Going forward, we do not anticipate paying dividends in
the immediate future and will instead direct cash flow to capital expenditures
and debt repayment.
    Given these business developments, historical operating and financial
performance may not be indicative of future performance depending on the
magnitude of the asset disposition process and pending approval of the
corporate conversion.

    
    Overview

                                             Three months ended
                                                  March 31
                                              2009        2008     % change
    -------------------------------------------------------------------------
    Cash provided by operating
     activities ($000)                    $   41,879  $   81,593       (49)%
    Funds from operations ($000)          $   55,591  $   94,618       (41)%
      per Trust Unit(1)                   $     0.38  $     0.68       (44)%

    (1) Based on Trust Units outstanding at each distribution record date.
    

    Cash provided by operating activities, funds from operations and funds
from operations per Trust Unit have decreased significantly for the three
months ended March 31, 2009 as compared to the same period of 2008 due to
considerably lower revenue. Lower revenue was primarily caused by severely
depressed commodity prices and a slight decrease in production. The first
quarter of 2009 has seen a worsening of the global recession, which has
resulted in drastic reductions in commodity prices from lower demand and
perceived excess supply. This challenging environment has continued into the
second quarter of 2009.
    The primary factor that causes significant variability of Advantage's
cash provided by operating activities, funds from operations, and net income
is commodity prices. Refer to the section "Commodity Prices and Marketing" for
a more detailed discussion of commodity prices and our price risk management.

    
    Distributions

                                             Three months ended
                                                  March 31
                                              2009        2008     % change
    -------------------------------------------------------------------------
    Distributions declared ($000)         $   17,266  $   50,021       (65)%
      per Trust Unit(1)                   $     0.12  $     0.36       (67)%

    (1) Based on Trust Units outstanding at each distribution record date.
    

    Distributions for the three months ended March 31, 2009 are lower in
total and per Trust Unit compared to the same period of 2008 as a result of
decreases in the distribution declared per Trust Unit. For the majority of
2008, including the three months ended March 31, 2008, we paid a monthly
distribution of $0.12 per Trust Unit and reduced the distribution to $0.08 per
Trust Unit effective for the December 2008 distribution paid in January 2009.
We further reduced the monthly distribution to $0.04 per Trust Unit for the
February 2009 distribution paid in March 2009. As commodity prices weakened
throughout these periods, we reduced distributions to more appropriately
reflect the current price environment. On March 18, 2009, we announced the
discontinuance of future distributions, consistent with our strategy to reduce
debt and convert to a growth oriented corporation that will focus capital on
our Montney natural gas resource play at Glacier, Alberta. Going forward,
Advantage does not anticipate paying dividends in the immediate future.

    
    Revenue

                                             Three months ended
                                                  March 31
    ($000)                                    2009        2008     % change
    -------------------------------------------------------------------------
    Natural gas excluding hedging         $   56,860  $   89,994       (37)%
    Realized hedging gains                    12,386       3,710        234%
    -------------------------------------------------------------------------
    Natural gas including hedging         $   69,246  $   93,704       (26)%
    -------------------------------------------------------------------------
    Crude oil and NGLs excluding hedging  $   42,744  $   96,104       (56)%
    Realized hedging gains (losses)           10,960      (1,303)     (941)%
    -------------------------------------------------------------------------
    Crude oil and NGLs including hedging  $   53,704  $   94,801       (43)%
    -------------------------------------------------------------------------
    Total revenue                         $  122,950  $  188,505       (35)%
    -------------------------------------------------------------------------
    

    Natural gas, crude oil and NGLs revenues, excluding hedging, decreased
significantly for the three months ended March 31, 2009, as compared to 2008.
This is primarily the result of lower commodity prices from the ongoing global
recession that has reduced demand and increased perceived supply. Realized
natural gas prices, excluding hedging, decreased by 32% while realized crude
oil and NGL prices, excluding hedging, decreased a substantial 50%. As a
result of our commodity price risk management program, we recognized natural
gas and crude oil hedging gains of $23.3 million for the three months ended
March 31, 2009. The Fund enters derivative contracts whereby realized hedging
gains and losses partially offset commodity price fluctuations, which can
positively or negatively impact revenues.

    
    Production

                                             Three months ended
                                                  March 31
                                              2009        2008     % change
    -------------------------------------------------------------------------
    Natural gas (mcf/d)                      117,968     125,113        (6)%
    Crude oil (bbls/d)                         8,677       9,851       (12)%
    NGLs (bbls/d)                              2,265       2,430        (7)%
    -------------------------------------------------------------------------
    Total (boe/d)                             30,603      33,133        (8)%
    -------------------------------------------------------------------------
    Natural gas (%)                              65%         63%
    Crude oil (%)                                28%         30%
    NGLs (%)                                      7%          7%
    

    The Fund's total daily production averaged 30,603 boe/d for the three
months ended March 31, 2009, a decrease of 8% from the same period of 2008.
Total daily production for the quarter was 3% lower compared to the fourth
quarter of 2008, mainly due to natural declines and a slow recovery from cold
weather conditions that caused brief production outages in late December.
Production of 1,100 boe/d at our Lookout Butte property in Southern Alberta
remained shut-in during the first quarter by an extended third party facility
outage that began in August 2008 at the Waterton gas plant where a significant
modification project is underway. Original estimates provided by the third
party indicated a potential outage of approximately 55 to 75 days. However,
current information now indicates that the gas plant may be down until June 1,
2009. Additionally, we drilled a number of wells during the current quarter
but delayed production until after March 31 such that we could benefit from
the new 5% Alberta royalty rate available on such wells for the next twelve
month period.
    On March 18, 2009, we announced the intention to dispose of properties
producing up to 11,900 boe/d of light oil and natural gas properties located
in Northeast British Columbia, West Central Alberta and Northern Alberta. The
net proceeds from these sales or other oil and natural gas property sales will
initially be used to reduce outstanding bank debt to improve Advantage's
financial flexibility. Proposals are anticipated by mid May 2009 and the
selected assets will be available in four distinct packages varying in size
from approximately 1,600 to 5,400 boe/d of production. Assuming asset sales of
approximately 10,000 to 11,900 boe/d of production are completed, we expect
production of approximately 20,000 to 22,000 boe/d from a focused asset base
(60% natural gas, 40% oil and natural gas liquids).

    
    Commodity Prices and Marketing

    Natural Gas
                                             Three months ended
                                                  March 31
    ($/mcf)                                   2009        2008     % change
    -------------------------------------------------------------------------
    Realized natural gas prices
      Excluding hedging                   $     5.36  $     7.90       (32)%
      Including hedging                   $     6.52  $     8.23       (21)%
    AECO monthly index                    $     5.64  $     7.13       (21)%
    

    Realized natural gas prices, excluding hedging, were significantly lower
for the three months ended March 31, 2009 than the same period of 2008 and
decreased 25% from the fourth quarter of 2008. The 2007/2008 winter season in
North America caused inventory levels, which had been high prior to winter, to
decline to approximately the five-year average resulting in stronger prices
during early 2008. However, the second half of 2008 and the first quarter of
2009 experienced significant softening of natural gas prices from higher US
domestic natural gas production, mild weather conditions and forecasts, and
the ongoing global recession that has impacted demand. These factors have
resulted in much higher inventory levels that continue to place considerable
downward pressure on natural gas prices. Unfortunately, these conditions have
also continued beyond the first quarter of 2009 with AECO gas presently
trading at approximately $4.25/GJ. Although we continue to believe in the
longer-term pricing fundamentals for natural gas, we are concerned about the
current pricing and economic environment that has the potential to extend for
a considerable period of time. The global recession could delay the recovery
of natural gas pricing longer than anticipated. While the current pricing
situation is quite weak, some of the factors that we believe will support
stronger future natural gas prices include: (i) significantly less natural gas
drilling in Canada and the US projected for 2009, which will reduce
productivity to offset declines, (ii) the increasing focus on resource style
natural gas wells, which have high initial declines, and which are becoming a
larger proportion of the total natural gas supply based in Canada and the US,
and (iii) the potential demand for natural gas for the Canadian oil sands
projects.

    
    Crude Oil and NGLs
                                             Three months ended
                                                  March 31
    ($/bbl)                                   2009        2008     % change
    -------------------------------------------------------------------------
    Realized crude oil prices
      Excluding hedging                   $    44.94  $    88.15       (49)%
      Including hedging                   $    58.97  $    86.69       (32)%
    Realized NGLs prices
      Excluding hedging                   $    37.54  $    77.25       (51)%
    Realized crude oil and NGL prices
      Excluding hedging                   $    43.41  $    85.99       (50)%
      Including hedging                   $    54.54  $    84.83       (36)%
    WTI ($US/bbl)                         $    43.21  $    97.96       (56)%
    $US/$Canadian exchange rate           $     0.80  $     1.00       (20)%
    

    Realized crude oil and NGLs prices, excluding hedging, decreased 50% for
the three months ended March 31, 2009, as compared to the same period of 2008
and decreased 19% from the fourth quarter of 2008. Advantage's realized crude
oil price may not change to the same extent as WTI, due to changes in the
$US/$Canadian exchange rate, and changes in Canadian crude oil differentials
relative to WTI. The price of WTI fluctuates based on worldwide supply and
demand fundamentals. There has been significant price volatility experienced
over the last several years whereby WTI reached historic high levels in the
first half of 2008, followed by a record decline in the latter half of the
year, the result of demand destruction brought on by the current global
recession. There has been a modest recovery subsequent to the first quarter of
2009, and WTI is currently trading at approximately US$58/bbl. The impact from
this decrease in WTI will be somewhat mitigated for Advantage due to the
strengthening US dollar relative to the Canadian dollar. As with natural gas,
it seems evident that the global recession will likely prolong depressed crude
oil prices through the coming year. Regardless of this significant decrease,
we believe that the longer-term pricing fundamentals for crude oil remain
strong with many factors affecting the continued strength including (i) supply
management and supply restrictions by the OPEC cartel, (ii) frequent civil
unrest in various crude oil producing countries and regions, (iii) strong
relative demand in developing countries, particularly in China and India, and
(iv) production declines and reduced drilling due to the lower price
environment.

    Commodity Price Risk

    The Fund's operational results and financial condition will be dependent
on the prices received for oil and natural gas production. Oil and natural gas
prices have fluctuated widely during recent years and are determined by
economic and, in the case of oil prices, political factors. Supply and demand
factors, including weather and general economic conditions as well as
conditions in other oil and natural gas regions, impact prices. Any movement
in oil and natural gas prices could have an effect on the Fund's financial
condition and performance. As current and future practice, Advantage has
established a financial hedging strategy and may manage the risk associated
with changes in commodity prices by entering into derivatives. Although these
commodity price risk management activities could expose Advantage to losses or
gains, entering derivative contracts helps us to stabilize cash flows and
ensures that our capital expenditure program is substantially funded by such
cash flows. To the extent that Advantage engages in risk management activities
related to commodity prices, it will be subject to credit risk associated with
counterparties with which it contracts. Credit risk is mitigated by entering
into contracts with only stable, creditworthy parties and through frequent
reviews of exposures to individual entities.
    We have been active in entering new financial contracts to protect future
cash flows and currently the Fund has fixed commodity prices on anticipated
production as follows:

    
                               Approximate
                            Production Hedged,     Average        Average
    Commodity              Net of Royalties(1)   Floor Price   Ceiling Price
    -------------------------------------------------------------------------
    Natural gas - AECO
      April to June 2009            53%          Cdn$8.17/mcf   Cdn$8.17/mcf
      July to September 2009        54%          Cdn$8.17/mcf   Cdn$8.17/mcf
      October to December 2009      56%          Cdn$8.17/mcf   Cdn$8.17/mcf
      -----------------------------------------------------------------------
      Total 2009                    56%          Cdn$8.09/mcf   Cdn$8.09/mcf
      -----------------------------------------------------------------------
      January to March 2010         62%          Cdn$7.64/mcf   Cdn$7.64/mcf
      April to June 2010            53%          Cdn$7.53/mcf   Cdn$7.53/mcf
      July to September 2010        38%          Cdn$7.27/mcf   Cdn$7.27/mcf
      October to December 2010      38%          Cdn$7.27/mcf   Cdn$7.27/mcf
      -----------------------------------------------------------------------
      Total 2010                    48%          Cdn$7.46/mcf   Cdn$7.46/mcf
      -----------------------------------------------------------------------

      January to March 2011          6%          Cdn$7.25/mcf   Cdn$7.25/mcf
      -----------------------------------------------------------------------

    Crude Oil - WTI
      April to June 2009            48%         Cdn$62.40/bbl  Cdn$69.40/bbl
      July to September 2009        48%         Cdn$62.40/bbl  Cdn$69.40/bbl
      October to December 2009      50%         Cdn$62.40/bbl  Cdn$69.40/bbl
      -----------------------------------------------------------------------
      Total 2009                    46%         Cdn$69.38/bbl  Cdn$74.92/bbl
      -----------------------------------------------------------------------
      January to March 2010         26%         Cdn$62.80/bbl  Cdn$62.80/bbl
      April to June 2010            26%         Cdn$69.50/bbl  Cdn$69.50/bbl
      July to September 2010        26%         Cdn$69.50/bbl  Cdn$69.50/bbl
      October to December 2010      26%         Cdn$69.50/bbl  Cdn$69.50/bbl
      -----------------------------------------------------------------------
      Total 2010                    26%         Cdn$67.83/bbl  Cdn$67.83/bbl
      -----------------------------------------------------------------------

      January to March 2011          9%         Cdn$69.50/bbl  Cdn$69.50/bbl
      -----------------------------------------------------------------------
    (1) Approximate production hedged is based on our assumed average
        production by quarter net of royalty payments; however, this will be
        impacted by the magnitude of our asset disposition program.
    

    For the three month period ended March 31, 2009, we recognized in income
a realized derivative gain of $23.3 million (March 31, 2008 - $2.4 million) on
settled derivative contracts. As at March 31, 2009, the fair value of the
derivatives outstanding and to be settled was a net asset of approximately
$65.4 million (December 31, 2008 - $41.0 million net asset). For the three
months ended March 31, 2009, $24.4 million was recognized in income as an
unrealized derivative gain (March 31, 2008 - $61.2 million unrealized
derivative loss) due to changes in the fair values of these contracts since
December 31, 2008. The valuation of the derivatives is the estimated fair
value to settle the contracts as at March 31, 2009 and is based on pricing
models, estimates, assumptions and market data available at that time. As
such, the recognized amounts are not cash and the actual gains or losses
realized on eventual cash settlement can vary materially due to subsequent
fluctuations in commodity prices as compared to the valuation assumptions. The
Fund does not apply hedge accounting and current accounting standards require
changes in the fair value to be included in the consolidated statement of
income and comprehensive income as an unrealized derivative gain or loss with
a corresponding derivative asset and liability recorded on the balance sheet.
These derivative contracts will settle from April 2009 to January 2011
corresponding to when Advantage will receive revenues from production.

    
    Royalties
                                             Three months ended
                                                  March 31
                                              2009        2008     % change
    -------------------------------------------------------------------------
    Royalties ($000)                      $   16,080  $   33,881       (53)%
      per boe                             $     5.84  $    11.24       (48)%
    As a percentage of revenue,
     excluding hedging                         16.1%       18.2%      (2.1)%
    

    Advantage pays royalties to the owners of mineral rights from which we
have leases. The Fund currently has mineral leases with provincial
governments, individuals and other companies. Royalties have decreased in
total for the three months ended March 31, 2009 compared to the same period of
2008 due to the decrease in revenue from significantly lower commodity prices.
Royalties as a percentage of revenue, excluding hedging, decreased compared to
the first quarter of 2008. Effective January 1, 2009, the Alberta Provincial
Government implemented a new royalty framework for conventional oil, natural
gas and oil sands and Alberta royalties are now affected by depths and
productivity of wells and commodity prices. Given our production profile and
the current commodity price environment, our royalty rate has decreased as
compared to prior periods. Additionally, our royalties were positively
impacted during the current quarter as we received a $1.4 million annual
adjustment related to our 2008 Alberta natural gas crown royalties. We expect
the royalty rate to be in the range of 17% to 19% for 2009 given the current
environment.

    
    Operating Costs
                                             Three months ended
                                                  March 31
                                              2009        2008     % change
    -------------------------------------------------------------------------
    Operating costs ($000)                $   36,031  $   40,272       (11)%
      per boe                             $    13.08  $    13.36        (2)%
    

    Total operating costs decreased 11% for the three months ended March 31,
2009 compared to the first quarter of 2008 which resulted in a reduction in
operating costs per boe by 2% for the period. When compared to the fourth
quarter of 2008, total operating costs decreased 16% and operating costs per
boe decreased by 11%. An aggressive optimization program through 2008 is
beginning to demonstrate positive benefits and we will continue to seek
opportunities to improve our operating cost structure. We further anticipate
that operating costs may decrease in the remainder of 2009 as the slower
economy may reduce the cost of services and supplies. In 2009, the Fund also
entered into fixed price power hedges whereby 2.0 MW have been hedged at an
average fixed price of $63.33/MWh from April to June 2009 and 2.0 MW have been
hedged at an average fixed price of $75.43/MWh from March to December 2009.

    
    General and Administrative
                                             Three months ended
                                                  March 31
                                              2009        2008     % change
    -------------------------------------------------------------------------
    General and administrative expense
     ($000)                               $    7,380  $    7,232          2%
      per boe                             $     2.68  $     2.40         12%
    Employees at March 31                        165         163          1%
    

    General and administrative ("G&A") expense for the three months ended
March 31, 2009 was comparable to the three months ended March 31, 2008. Total
G&A for the quarter included the recognition of $1.3 million of unit-based
compensation expense related to Restricted Trust Units ("RTUs") granted to
employees by the Board of Directors in January 2009. A total of 171,093 Trust
Units were issued to employees for the first one-third of the grant that
vested. The remaining two-thirds of the RTUs granted will vest over the
subsequent two yearly anniversary dates with corresponding compensation
expense recognized over the service period.

    
    Management Internalization
                                             Three months ended
                                                  March 31
                                              2009        2008     % change
    -------------------------------------------------------------------------
    Management internalization ($000)     $      964  $    2,491       (61)%
      per boe                             $     0.35  $     0.83       (58)%
    

    In 2006, the Fund and Advantage Investment Management Ltd. (the
"Manager") reached an agreement to internalize the pre-existing management
contract arrangement. As part of the agreement, Advantage agreed to purchase
all of the outstanding shares of the Manager pursuant to the terms of the
Arrangement, thereby eliminating the management fee and performance incentive
effective April 1, 2006. The Trust Unit consideration issued in exchange for
the outstanding shares of the Manager was placed in escrow for a 3-year period
and is being deferred and amortized into income as management internalization
expense over the specific vesting periods during which employee services are
provided. The management internalization is lower for the three months ended
March 31, 2009 compared to the same period of 2008 because one third vested
and was paid in June 2007 with an additional one third vested and paid in June
2008.

    
    Interest on Bank Indebtedness
                                             Three months ended
                                                  March 31
                                              2009        2008     % change
    -------------------------------------------------------------------------
    Interest expense ($000)               $    4,916  $    7,766       (37)%
      per boe                             $     1.78  $     2.58       (31)%
    Average effective interest rate             3.3%        5.6%      (2.3)%
    Bank indebtedness at March 31 ($000)  $  615,438  $  563,500          9%
    

    Total interest expense decreased 37% and 31% per boe for the three months
ended March 31, 2009 as compared to the three months ended March 31, 2008. The
interest expense decrease is the result of lower interest rates as bank
lending rates have declined significantly in response to rate reductions
enacted by central banks to stimulate the economy. We monitor the debt level
to ensure an optimal mix of financing and cost of capital that will provide a
maximum return to our Unitholders. Our current credit facilities have been a
favorable financing alternative with an effective interest rate of only 3.3%
for the three months ended March 31, 2009. The Fund's interest rates are
primarily based on short term Bankers Acceptance rates plus a stamping fee.

    
    Interest and Accretion on Convertible Debentures

                                             Three months ended
                                                  March 31
                                              2009        2008     % change
    -------------------------------------------------------------------------
    Interest on convertible debentures
     ($000)                               $    3,969  $    4,187        (5)%
      per boe                             $     1.44  $     1.39          4%
    Accretion on convertible
     debentures ($000)                    $      682  $      720        (5)%
      per boe                             $     0.25  $     0.24          4%
    Convertible debentures maturity
     value at March 31 ($000)             $  214,328  $  224,587        (5)%
    

    Interest and accretion on convertible debentures for the three months
ended March 31, 2009 has decreased compared to 2008 due to the maturity of the
9.00% and 8.25% debentures occurring on August 1, 2008 and February 1, 2009,
respectively. The interest and accretion per boe for the quarter was slightly
higher as our production was lower for the three months ended March 31, 2009
compared to the same period of 2008.

    
    Depletion, Depreciation and Accretion

                                             Three months ended
                                                  March 31
                                              2009        2008     % change
    -------------------------------------------------------------------------
    Depletion, depreciation and
     accretion ($000)                     $   69,922  $   76,880        (9)%
      per boe                             $    25.39  $    25.50           -
    

    Depletion and depreciation of fixed assets is provided on the
"unit-of-production" method based on total proved reserves. Accretion
represents the increase in the asset retirement obligation liability each
reporting period due to the passage of time. The depletion, depreciation and
accretion ("DD&A") provision has decreased 9% for the three months ended March
31, 2009 compared to 2008 due to the slightly lower production. On a per boe
basis, DD&A has remained constant.

    Taxes

    Current taxes paid or payable for the quarter ended March 31, 2009
amounted to $0.3 million, compared to $0.7 million expensed for the same
period of 2008. Current taxes primarily represent Saskatchewan resource
surcharge, which is based on the petroleum and natural gas revenues within the
province of Saskatchewan.
    Under the Fund's current structure, payments are made between the
operating company and the Fund transferring income tax obligations to
Unitholders and as a result no cash income taxes would be paid by the
operating company or the Fund prior to 2011. However, the Specified Investment
Flow-Through Entity ("SIFT") tax legislation was enacted on June 22, 2007
altering the tax treatment by subjecting income trusts to a two-tier tax
structure, similar to that of corporations, whereby the taxable portion of
distributions paid by trusts will be subject to tax at the trust level and at
the Unitholder level. The rules are effective for tax years beginning in 2011
for existing publicly-traded trusts. Canadian generally accepted accounting
principles require that a future income tax liability be recorded when the
book value of assets exceeds the balance of tax pools.
    On March 12, 2009, the Government of Canada enacted legislation reducing
the provincial component of the SIFT tax from 13% to 10%, resulting in a
future income tax reduction of approximately $8.9 million for the three months
ended March 31, 2009.
    Under Canadian GAAP, the future income tax impact of the planned
corporate conversion, which is anticipated to be completed on or about June
29, 2009, is to be recorded in the fiscal period that the conversion occurs.
    For the three months ended March 31, 2009, the Fund recognized a total
future income tax reduction of $11.8 million compared to $22.7 million for the
same period of 2008. As at March 31, 2009, the Fund had a future income tax
liability balance of $44.1 million, compared to $55.9 million at December 31,
2008.

    
    Net Income (Loss)
                                             Three months ended
                                                  March 31
                                              2009        2008     % change
    -------------------------------------------------------------------------
    Net income (loss) ($000)              $   18,890  $  (24,122)     (178)%
      per Trust Unit  - Basic             $     0.13  $    (0.18)     (172)%
                      - Diluted           $     0.13  $    (0.18)     (172)%
    

    Net income for the three months ended March 31, 2009 was $18.9 million,
as compared to a net loss of $24.1 million for the three months ended March
31, 2008. Although the first quarter of 2009 presented major challenges
relating to the commodity price environment that adversely impacted revenues,
we were able to deliver significant results that contributed to our net
income. Advantage had implemented a very successful commodity price risk
management program that resulted in $23.3 million of realized derivative gains
and $24.4 million of unrealized derivative gains. The unrealized gain on
derivatives is due to continued poor commodity prices as compared to the
prices per the open derivative positions. The recognized amounts are not cash
and the actual gains or losses realized on eventual cash settlement can vary
materially due to subsequent fluctuations in commodity prices. The Fund does
not apply hedge accounting and current accounting standards require changes in
the fair value to be included in the consolidated statement of income and
comprehensive income as an unrealized derivative gain or loss with a
corresponding derivative asset and liability recorded on the balance sheet.
These derivative contracts will settle from April 2009 to January 2011.
Through ongoing optimization efforts, we were also able to reduce operating
costs and plan to continue these positive efforts. We also recognized
significant benefits from the lower Alberta royalty rates, reduced interest
rates on bank indebtedness, and a future income tax reduction from a lower
provincial component of the SIFT tax.

    
    Cash Netbacks

                                  Three months ended      Three months ended
                                    March 31, 2009          March 31, 2008
                                  $000      per boe       $000      per boe
    -------------------------------------------------------------------------
    Revenue                    $  99,604   $   36.16   $ 186,098   $   61.72
    Realized gain on
     derivatives                  23,346        8.48       2,407        0.80
    Royalties                    (16,080)      (5.84)    (33,881)     (11.24)
    Operating costs              (36,031)     (13.08)    (40,272)     (13.36)
    -------------------------------------------------------------------------
    Operating                  $  70,839   $   25.72   $ 114,352   $   37.92
    General and
     administrative(1)            (6,083)      (2.21)     (7,093)      (2.35)
    Interest                      (4,916)      (1.78)     (7,766)      (2.58)
    Interest on convertible
     debentures(2)                (3,969)      (1.44)     (4,187)      (1.39)
    Income and capital taxes        (280)      (0.10)       (688)      (0.23)
    -------------------------------------------------------------------------
    Funds from operations
     and cash netbacks         $  55,591   $   20.19   $  94,618   $   31.37
    -------------------------------------------------------------------------
    (1) General and administrative expense excludes non-cash unit-based
        compensation expense.
    (2) Interest on convertible debentures excludes non-cash accretion
        expense.
    

    Funds from operations and cash netbacks decreased in total and per boe
for the quarter ended March 31, 2009 compared to the first quarter of 2008. As
compared to the fourth quarter of 2008, cash netbacks decreased 16% from
$23.90 per boe for that period. The lower cash netback in total and per boe is
primarily due to much weaker crude oil and natural gas prices that adversely
impacted revenue. However, as a result of our successful commodity price risk
management program, we were able to recognize significant gains on
derivatives. Royalties also decreased during the current quarter as would be
expected since they are significantly based on commodity prices. Operating
costs, which had increased steadily over the 2008 year, have decreased
modestly as we begin to realize benefits from our ongoing optimization
efforts. We also realized modest benefits from lower general and
administrative expense and interest expense.

    Contractual Obligations and Commitments

    The Fund has contractual obligations in the normal course of operations
including purchases of assets and services, operating agreements,
transportation commitments, sales contracts and convertible debentures. These
obligations are of a recurring and consistent nature and impact cash flow in
an ongoing manner. The following table is a summary of the Fund's remaining
contractual obligations and commitments. Advantage has no guarantees or
off-balance sheet arrangements other than as disclosed.

    
                                             Payments due by period
    ($ millions)                   Total     2009     2010     2011     2012
    -------------------------------------------------------------------------
    Building leases              $   9.4  $   2.9  $   3.9  $   1.5  $   1.1
    Capital leases                   5.7      1.6      2.2      1.9        -
    Pipeline/transportation          4.8      2.3      2.0      0.5        -
    Convertible debentures(1)      214.3     82.1     69.9     62.3        -
    -------------------------------------------------------------------------
    Total contractual
     obligations                 $ 234.2  $  88.9  $  78.0  $  66.2  $   1.1
    -------------------------------------------------------------------------
    (1) As at March 31, 2009, Advantage had $214.3 million convertible
        debentures outstanding (excluding interest payable during the various
        debenture terms). Each series of convertible debentures are
        convertible to Trust Units based on an established conversion price.
        All remaining obligations related to convertible debentures can be
        settled through the payment of cash or issuance of Trust Units at
        Advantage's option.
    (2) Bank indebtedness of $615.4 million has been excluded from the
        contractual obligations table as the credit facilities constitute a
        revolving facility for a 364 day term which is extendible annually
        for a further 364 day revolving period at the option of the
        syndicate. If not extended, the revolving credit facility is
        converted to a two year term facility with the first payment due one
        year and one day after commencement of the term.


    Liquidity and Capital Resources

    The following table is a summary of the Fund's capitalization structure.

    ($000, except as otherwise indicated)                     March 31, 2009
    -------------------------------------------------------------------------
    Bank indebtedness (long-term)                                $   615,438
    Working capital deficit(1)                                       128,455
    -------------------------------------------------------------------------
    Net debt                                                     $   743,893
    -------------------------------------------------------------------------
    Trust Units outstanding (000)                                    145,203
    Trust Units closing market price ($/Trust Unit)              $      3.07
    -------------------------------------------------------------------------
    Market value                                                 $   445,773
    -------------------------------------------------------------------------
    Convertible debentures maturity value (long-term)            $   132,221
    Capital lease obligations (long term)                              3,612
    -------------------------------------------------------------------------
    Total capitalization                                         $ 1,325,499
    -------------------------------------------------------------------------
    (1) Working capital deficit includes accounts receivable, prepaid
        expenses and deposits, accounts payable and accrued liabilities, and
        the current portion of capital lease obligations and convertible
        debentures.
    

    Advantage monitors its capital structure and makes adjustments according
to market conditions in an effort to meet its objectives given the current
outlook of the business and industry in general. The capital structure of the
Fund is composed of working capital (excluding derivative assets and
liabilities), bank indebtedness, convertible debentures, capital lease
obligations and Unitholders' equity. Advantage may manage its capital
structure by issuing new Trust Units, obtaining additional financing either
through bank indebtedness or convertible debenture issuances, refinancing
current debt, issuing other financial or equity-based instruments, adjusting
or discontinuing the amount of monthly distributions, suspending or renewing
its distribution reinvestment plan, adjusting capital spending, or disposing
of assets. The capital structure is reviewed by Management and the Board of
Directors on an ongoing basis.
    The ongoing global recession has significantly impacted the ability to
raise capital although there have been recent signs of improvements. Despite
this situation, the Fund continues to generate funds from operations
sufficient to fund our operations and a reduced capital program. Management of
the Fund's capital structure is facilitated through its financial and
operational forecasting processes. The forecast of the Fund's future cash
flows is based on estimates of production, commodity prices, forecast capital
and operating expenditures, and other investing and financing activities. The
forecast is regularly updated based on new commodity prices and other changes,
which the Fund views as critical in the current environment. Selected forecast
information is frequently provided to the Board of Directors. This continual
financial assessment process further enables the Fund to mitigate risks. The
Fund continues to satisfy all liabilities and commitments as they come due. We
have an established $710 million credit facility agreement with a syndicate of
financial institutions; the balance of which utilized at March 31, 2009 was
$615.4 million. This facility will be subject for renewal again in June 2009.
The Fund additionally has several convertible debentures that will mature in
2009, whereby we have the option to settle such obligations by cash or through
the issuance of Trust Units. Management has budgeted for a capital program of
$100 to $130 million for fiscal 2009, as it is important to bring on
additional production to offset natural reserve declines and to grow the Fund.
Management has significantly reduced the capital program from 2008 and will
continually monitor our capital expenditures and make adjustments as needed in
order to remain self-sufficient within our funds from operations through the
foreseeable future.
    The current economic situation has also placed additional pressure on
commodity prices. Crude oil has dropped from a historic high in 2008 to
approximately US$58/bbl. The impact from the decrease in WTI will be somewhat
mitigated for Advantage due to the strengthening US dollar relative to the
Canadian dollar. Natural gas prices that had been improving early in 2008,
have now declined due to the ailing economy as well as increased inventory
levels from strong injections and mild weather. Natural gas has dropped with
AECO gas presently trading at approximately $4.25/GJ. The outlook for the Fund
from prolonged weak commodity prices would be reductions in operating netbacks
and funds from operations. Management has partially mitigated this risk
through our commodity hedging program but the lower commodity price
environment has still had a significant negative impact. In order to
strengthen our financial position and balance our cash flows, the monthly
distribution has been discontinued to repay debt and focus capital spending on
our Montney natural gas resource play.
    In summary, we have implemented a strategy to maximize self sufficiency
such that funds from operations will satisfy our capital program, reduce debt,
and meet other expenditure requirements. We do not anticipate any problems
satisfying obligations as they become due. A successful hedging program was
also executed to help protect our funds from operations. As a result, we feel
that Advantage has implemented adequate strategies to protect our business as
much as possible in this environment. However, as with all companies, we are
still exposed to risks as a result of the current economic situation and the
potential duration. We continue to closely monitor the possible impact on our
business and strategy, and will make adjustments as necessary with prudent
management.

    Unitholders' Equity and Convertible Debentures

    Advantage has utilized a combination of Trust Units, convertible
debentures and bank debt to finance acquisitions and development activities.
    As at March 31, 2009, the Fund had 145.2 million Trust Units outstanding.
During the three months ended March 31, 2009, 1,263,158 Trust Units were
issued as a result of the Premium Distribution(TM), Distribution Reinvestment
and Optional Trust Unit Purchase Plan (the "Plan"), generating $5.2 million
reinvested in the Fund and representing an approximate 17% participation rate
(March 31, 2008 - 1,006,673 Trust Units were issued under the Plan, generating
$9.6 million reinvested in the Fund). As at May 14, 2009, Trust Units
outstanding have not changed from March 31, 2009.
    At March 31, 2009, the Fund had $214.3 million convertible debentures
outstanding that were immediately convertible to 9.2 million Trust Units based
on the applicable conversion prices (December 31, 2008 - $219.2 million
outstanding and convertible to 9.5 million Trust Units). During the three
months ended March 31, 2009, there were no conversions of debentures (March
31, 2008 - $25,000 converted resulting in the issuance of 1,001 Trust Units).
The principal amount of 8.25% convertible debentures matured on February 1,
2009 and the Fund settled the obligation by issuing 946,887 Trust Units. As at
May 14, 2009, the convertible debentures outstanding have not changed from
March 31, 2009. We have $29.8 million of 8.75% debentures that will mature on
June 30, 2009 and $52.3 million of 7.50% debentures that mature on October 1,
2009. These obligations can be settled through the payment of cash or issuance
of Trust Units at Advantage's option.

    Bank Indebtedness, Credit Facility and Other Obligations

    At March 31, 2009, Advantage had bank indebtedness outstanding of $615.4
million. Bank indebtedness increased $28.0 million since December 31, 2008 as
a significant portion of our 2009 capital expenditure program was incurred
during the first quarter. The Fund has a $710 million credit facility
agreement consisting of a $690 million extendible revolving loan facility and
a $20 million operating loan facility. The current credit facilities are
secured by a $1 billion floating charge demand debenture, a general security
agreement and a subordination agreement from the Fund covering all assets and
cash flows. As well, the borrowing base for the Fund's credit facilities is
determined through utilizing our regular reserve estimates. The banking
syndicate thoroughly evaluates the reserve estimates based upon their own
commodity price expectations to determine the amount of the borrowing base.
Revision or changes in the reserve estimates and commodity prices can have
either a positive or a negative impact on the borrowing base of the Fund. The
next annual review is scheduled to occur in June 2009. There can be no
assurances that the $710 million credit facility will be renewed at the
current borrowing base level given the present commodity price environment. On
March 18, 2009, we announced our intention to dispose of certain assets. The
net proceeds from these sales or other oil and natural gas property sales will
initially be used to reduce our outstanding bank debt to improve Advantage's
financial flexibility.
    Advantage had a working capital deficiency of $128.5 million as at March
31, 2009. Our working capital includes items expected for normal operations
such as trade receivables, prepaids, deposits, trade payables and accruals as
well as the current portion of capital lease obligations. Working capital
varies primarily due to the timing of such items, the current level of
business activity including our capital program, commodity price volatility,
and seasonal fluctuations. We do not anticipate any problems in meeting future
obligations as they become due given the strength of our funds from
operations. It is also important to note that working capital is effectively
integrated with Advantage's operating credit facility, which assists with the
timing of cash flows as required. The increase in our working capital
deficiency is due to the additional inclusion of $82.1 million in principal
amount of convertible debentures that mature during the remainder of 2009 and
are classified as a current liability. We have $29.8 million of 8.75%
debentures that will mature on June 30, 2009 and $52.3 million of 7.50%
debentures that mature on October 1, 2009. Advantage has capital lease
obligations on various pieces of equipment used in its operations. The total
amount of principal obligation outstanding at March 31, 2009 is $5.3 million,
bearing interest at effective rates ranging from 5.5% to 6.7%, and is
collateralized by the related equipment. The leases expire at dates ranging
from December 2009 to August 2010.

    
    Capital Expenditures

                                                        Three months ended
                                                             March 31
    ($000)                                              2009          2008
    -------------------------------------------------------------------------
    Land and seismic                                $    1,667    $    4,170
    Drilling, completions and workovers                 37,612        36,744
    Well equipping and facilities                       13,297        25,598
    Other                                                   67           391
    -------------------------------------------------------------------------
                                                    $   52,643    $   66,903
    Property dispositions                                 (759)          (91)
    -------------------------------------------------------------------------
    Total capital expenditures                      $   51,884    $   66,812
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Advantage's exploitation and development program focuses on areas where
past activity has yielded long-life reserves with high cash netbacks. We are
very well positioned to selectively exploit the highest value-generating
drilling opportunities given the size, strength and diversity of our asset
base as evidenced by our success at Glacier, Nevis and Martin Creek. As a
result, the Fund has a high level of flexibility to allocate its capital
program and ensure a risk-balanced platform of projects. Our preference is to
operate a high percentage of our properties such that we can maintain control
of capital expenditures, operations and cash flows. Advantage's acquisition
strategy has been to acquire long-life properties with strong drilling
opportunities while retaining a balance of year round access and risk.
    For the three month period ended March 31, 2009, the Fund spent a net
$51.9 million and drilled a total of 9.6 net (11 gross) wells at a 100%
success rate. Total capital spending in the quarter included $40.6 million at
Glacier, $5.0 million at Martin Creek, and $0.7 million at Nevis. Glacier
capital spending included 3 net (3 gross) horizontal wells and 2 net (2 gross)
vertical wells during the quarter. Two new Montney horizontal wells were
brought on-stream at combined rates of 8 to 10 mmcf/d at the end of January
2009. Facilities work involving the expansion of compression facilities and
our pipeline gathering system was completed at the end of the quarter and has
taken our overall facility capacity to 25 mmcf/d after commissioning the
expansion in the second quarter of 2009. With the facilities work completed,
our Montney wells drilled in the fourth quarter of 2008 and the first quarter
of 2009 will utilize all available capacity. The development program at
Glacier is on-track and design work is underway to allow production to be
increased to 50 mmcf/d in 2010. Our new wells brought on-stream after March
31, 2009 will qualify for the Alberta royalty incentive program which results
in a 5% royalty rate for one year or 0.5 bcf of gas production. At Martin
Creek, 3.6 net (4 gross) wells were drilled and have been brought on-stream
before the end of the quarter to help offset declines during the remainder of
the year. At Nevis, activity focused on increasing battery capacity and
preparatory work for new Wabamun light oil and coal bed methane wells which
may be drilled during the remainder of 2009.

    Sources and Uses of Funds

    The following table summarizes the various funding requirements during
the three months ended March 31, 2009 and 2008 and the sources of funding to
meet those requirements:

    
                                                        Three months ended
                                                             March 31
    ($000)                                              2009          2008
    -------------------------------------------------------------------------
    Sources of funds
      Funds from operations                         $   55,591    $   94,618
      Increase in bank indebtedness                     27,291        16,074
      Property dispositions                                759            91
      Decrease in working capital                            -         2,035
      Units issued, net of costs                             -           (42)
    -------------------------------------------------------------------------
                                                    $   83,641    $  112,776
    -------------------------------------------------------------------------
    Uses of funds
      Expenditures on property and equipment        $   52,643    $   66,903
      Distributions to Unitholders                      23,481        40,302
      Increase in working capital                        4,620             -
      Expenditures on asset retirement                   2,577         4,965
      Reduction of capital lease obligations               320           606
    -------------------------------------------------------------------------
                                                    $   83,641    $  112,776
    -------------------------------------------------------------------------
    

    The Fund generated lower funds from operations during the three months
ended March 31, 2009 compared to the same period of 2008, due to a sharp
decrease in commodity prices. Consequently, our bank indebtedness increased as
a result to assist with the timing of first quarter cash flow requirements.
The major use of funds during the first quarter was expenditures on property
and equipment whereby we spent approximately 50% of our entire 2009 capital
budget. As a result, we will see less capital expenditures over the remainder
of the year. Distributions were lower in the first quarter of 2009 as we
reduced the distribution level given the current commodity price environment
and subsequently suspended all monthly distributions indefinitely, in order to
maintain our budgeted capital program including significant investment at our
Glacier Montney natural gas property and to repay bank indebtedness.

    
    Quarterly Performance

                                   2009                    2008
    ($000, except as
     otherwise indicated)           Q1          Q4          Q3          Q2
    -------------------------------------------------------------------------
    Daily production
      Natural gas (mcf/d)        117,968     120,694     122,627     123,104
      Crude oil and NGLs
       (bbls/d)                   10,942      11,413      11,980      11,498
      Total (boe/d)               30,603      31,529      32,418      32,015
    Average prices
      Natural gas ($/mcf)
        Excluding hedging     $     5.36  $     7.15  $     8.65  $    10.33
        Including hedging     $     6.52  $     7.61  $     7.55  $     9.18
        AECO monthly index    $     5.64  $     6.79  $     9.27  $     9.35
      Crude oil and NGLs
       ($/bbl)
        Excluding hedging     $    43.41  $    53.65  $   107.96  $   110.15
        Including hedging     $    54.54  $    61.67  $   100.02  $   101.34
        WTI ($US/bbl)         $    43.21  $    58.75  $   118.13  $   124.00
    Total revenues
     (before royalties)       $  122,950  $  149,205  $  195,384  $  208,868
    Net income (loss)         $   18,890  $  (95,477) $  113,391  $  (14,369)
      per Trust Unit
        - basic               $     0.13  $    (0.67) $     0.81  $    (0.10)
        - diluted             $     0.13  $    (0.67) $     0.79  $    (0.10)
    Funds from operations     $   55,591  $   69,370  $   93,345  $  103,754
    Distributions declared    $   17,266  $   45,514  $   50,743  $   50,364


                                   2008                    2007
    ($000, except as
     otherwise indicated)           Q1          Q4          Q3          Q2
    -------------------------------------------------------------------------
    Daily production
      Natural gas (mcf/d)        125,113     128,556     115,991     108,978
      Crude oil and NGLs
       (bbls/d)                   12,281      12,895      10,014       8,952
      Total (boe/d)               33,133      34,321      29,346      27,115
    Average prices
      Natural gas ($/mcf)
        Excluding hedging     $     7.90  $     6.23  $     5.62  $     7.54
        Including hedging     $     8.23  $     6.97  $     6.35  $     7.52
        AECO monthly index    $     7.13  $     6.00  $     5.62  $     7.37
      Crude oil and NGLs
       ($/bbl)
        Excluding hedging     $    85.99  $    73.40  $    69.03  $    61.84
        Including hedging     $    84.83  $    70.40  $    68.51  $    61.93
        WTI ($US/bbl)         $    97.96  $    90.63  $    75.33  $    65.02
    Total revenues
     (before royalties)       $  188,505  $  165,951  $  130,830  $  125,075
    Net income (loss)         $  (24,122) $   13,795  $  (26,202) $    4,531
      per Trust Unit
        - basic               $    (0.18) $     0.10  $    (0.22) $     0.04
        - diluted             $    (0.18) $     0.10  $    (0.22) $     0.04
    Funds from operations     $   94,618  $   80,519  $   62,345  $   62,634
    Distributions declared    $   50,021  $   57,875  $   55,017  $   52,096
    


    The table above highlights the Fund's performance for the first quarter
of 2009 and also for the preceding seven quarters. Production during the
2006/2007 winter was steady until we experienced a decrease in the second
quarter of 2007 due to several facility turnarounds at that time. The Sound
acquisition closed on September 5, 2007, and significantly increased
production for the third and fourth quarters of 2007. Production has gradually
decreased through the first half of 2008 due to natural declines, wet and cold
weather delays, and facility turnarounds. Production increased modestly in the
third quarter of 2008 as new wells were brought on production and most
facility turnarounds were completed. During the fourth quarter of 2008 and the
first quarter of 2009, production again decreased as we experienced freezing
conditions from early cold weather in December and a slow recovery from such
cold weather conditions. An extended third party facility outage has continued
into 2009 and it is expected that the outage will not be completed until June
1, 2009. Financial results, particularly revenues and funds from operations,
have increased through to the second quarter of 2008, as both commodity prices
and production steadily increased over that timeframe. However, revenues and
funds from operations slightly declined in the third quarter of 2008, as
commodity prices began to decline in response to the financial crisis that
materialized in the fall of 2008. This trend worsened in the fourth quarter,
as a full global recession set in, and commodity prices continued on a
downward trend. We experienced a net loss in the third quarter of 2007 due to
a significant drop in natural gas prices realized at that time, amortization
of the management internalization consideration and increased depletion and
depreciation expense. Net income increased in the fourth quarter of 2007 due
to the full integration of the Sound acquisition and moderately improved
commodity prices. Net losses were realized in the first and second quarters of
2008, primarily as a result of significant unrealized losses on commodity
derivative contracts for future periods. Commodity price declines in the third
quarter of 2008 gave rise to significant unrealized gains on these same
derivative contracts, and in turn the Fund reported record high net income. We
recognized a considerable net loss in the fourth quarter of 2008, a combined
result of falling commodity prices and an impairment of our entire balance of
goodwill. In the first quarter of 2009, the global economy showed no clear
sign of recovery and commodity prices, particularly natural gas, were weak in
comparison to prior quarters. However, Advantage was still able to recognize
net income as we recognized both realized and unrealized gains on our
derivative contracts and moderately lower expenses, including operating costs.

    Critical Accounting Estimates

    The preparation of financial statements in accordance with GAAP requires
Management to make certain judgments and estimates. Changes in these judgments
and estimates could have a material impact on the Fund's financial results and
financial condition.
    Management relies on the estimate of reserves as prepared by the Fund's
independent qualified reserves evaluator. The process of estimating reserves
is critical to several accounting estimates. The process of estimating
reserves is complex and requires significant judgments and decisions based on
available geological, geophysical, engineering and economic data. These
estimates may change substantially as additional data from ongoing development
and production activities becomes available and as economic conditions impact
crude oil and natural gas prices, operating costs, royalty burden changes, and
future development costs. Reserve estimates impact net income through
depletion and depreciation of fixed assets, the provision for asset retirement
costs and related accretion expense, and impairment calculations for fixed
assets and goodwill. The reserve estimates are also used to assess the
borrowing base for the Fund's credit facilities. Revision or changes in the
reserve estimates can have either a positive or a negative impact on net
income and the borrowing base of the Fund.
    Management's process of determining the provision for future income
taxes, the provision for asset retirement obligation costs and related
accretion expense, and the fair values assigned to any acquired company's
assets and liabilities in a business combination is based on estimates. These
estimates are significant and can include reserves, future production rates,
future crude oil and natural gas prices, future costs, future interest rates,
future tax rates and other relevant assumptions. Revisions or changes in any
of these estimates can have either a positive or a negative impact on asset
and liability values and net income.
    In accordance with GAAP, derivative assets and liabilities are recorded
at their fair values at the reporting date, with unrealized gains and losses
recognized directly into net income and comprehensive income in the same
period. The fair value of derivatives outstanding is an estimate based on
pricing models, estimates, assumptions and market data available at that time.
As such, the recognized amounts are not cash and the actual gains or losses
realized on eventual cash settlement can vary materially due to subsequent
fluctuations in commodity prices as compared to the valuation assumptions.

    International Financial Reporting Standards ("IFRS")

    In February 2008, the Accounting Standards Board of the Canadian
Institute of Chartered Accountants confirmed that publicly accountable
entities will be required to adopt IFRS effective January 1, 2011, including
preparation of comparative financial information. Management has engaged its
key personnel responsible for financial reporting and developed an overall
plan to address IFRS implementation. The initial stage of the plan involved
staff training and ongoing education. Key personnel received professional
education on IFRS accounting principles and standards, both in general and for
the oil and gas industry in particular. Review of changes to IFRS has been
incorporated into existing processes of internal control over financial
reporting. A preliminary project plan for IFRS implementation has been drafted
and will be subject to ongoing revision as there are developments. As well,
appropriate operating personnel have been engaged, as necessary, to determine
how to implement the requirements of IFRS into the Fund's manual and
information systems that collect and process financial data. We expect to have
continual discussion with our external and internal auditors throughout the
process regarding IFRS and implementation.
    The most significant change identified will be accounting for property,
plant and equipment. The Fund, like many Canadian oil and gas reporting
issuers, applies the "full cost" concept in accounting for its oil and gas
assets. Under full cost, capital expenditures are maintained in a single cost
centre for each country, and the cost centre is subject to a single depletion
calculation and impairment test. IFRS will require the Fund to make a much
more detailed assessment of its oil and gas property, plant and equipment. For
depletion and depreciation, the Fund must identify asset components, and
determine an appropriate depreciation or depletion method for each component.
With regard to impairment test calculations, we must identify "Cash Generating
Units", which are defined as the smallest group of assets that produce
independent cash flows. An impairment test must be performed individually for
all cash generating units. The recognition of impairments in a prior year can
be reversed subsequently depending on such calculations. It is also important
to note that the International Accounting Standards Board ("IASB") is
currently undertaking an extractive industries project, to develop accounting
standards specifically for businesses like that of the Fund. However, the
project will not be complete prior to IFRS adoption in Canada. We have also
identified a number of other areas whereby differences between Canadian GAAP
and IFRS are likely to exist for Advantage. However, currently we are
concentrating on the accounting for property, plant and equipment and will
evaluate these other areas in due course and develop more detailed plans to
address the identified issues.

    Disclosure Controls and Internal Controls over Financial Reporting

    Disclosure controls and procedures have been designed to provide
reasonable assurance that information required to be disclosed by the Fund is
recorded, processed, summarized and reported within the time periods specified
under the Canadian securities law. Advantage's Chief Executive Officer and
Chief Financial Officer have concluded, based on their evaluation, that the
disclosure controls and procedures as of the end of March 31, 2009, are
effective and provide reasonable assurance that material information related
to the Fund is made known to them by others within Advantage.
    Advantage's Chief Executive Officer and Chief Financial Officer are
responsible for establishing and maintaining internal controls over financial
reporting ("ICFR"). They have, as at the quarter ended March 31, 2009,
designed ICFR or caused it to be designed under their supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
Canadian GAAP. The control framework Advantage's officers used to design the
ICFR is the Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations.
    Advantage's Chief Executive Officer and Chief Financial Officer are
required to disclose any change in the internal controls over financial
reporting that occurred during our most recent interim period that has
materially affected, or is reasonably likely to affect, the Fund's internal
controls over financial reporting. No material changes in the internal
controls were identified during the period ended March 31, 2009 that have
materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
    It should be noted that a control system, including Advantage's
disclosure and internal controls and procedures, no matter how well conceived
or operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system will be met and it should be not be expected
that the disclosure and internal controls and procedures will prevent all
errors or fraud.

    Outlook

    On March 18, 2009, we announced the intention to dispose of properties
producing up to 11,900 boe/d of light oil and natural gas properties located
in Northeast British Columbia, West Central Alberta and Northern Alberta. The
net proceeds from these sales or other oil and natural gas property sales will
initially be used to reduce outstanding bank debt to improve Advantage's
financial flexibility. Proposals are anticipated by mid May 2009 and the
selected assets will be available in four distinct packages varying in size
from approximately 1,600 to 5,400 boe/d of production. Assuming asset sales of
approximately 10,000 to 11,900 boe/d of production are completed, we expect
production of approximately 20,000 to 22,000 boe/d from a focused asset base
(60% natural gas, 40% oil and natural gas liquids).
    Industry supply, servicing and maintenance costs increased through much
of 2008 driven primarily from higher crude oil and natural gas prices. Also,
there were significant increases from electrical power costs, processing fees,
steel and chemicals. We initiated an aggressive optimization program in 2008
and are beginning to see benefits in terms of cost reductions and
efficiencies. We expect to see some further easing of operating costs as the
lower commodity price environment is expected to remain for a sustained
period.
    Advantage's funds from operations in 2009 will continue to be impacted by
the volatility of crude oil and natural gas prices and the $US/$Canadian
exchange rate. Additional hedging has been completed for 2009 and 2010 to
stabilize cash flows and ensure that the Fund's capital program is fully
funded. Approximately 56% of our natural gas production, net of royalties, is
now hedged for the 2009 calendar year at an average fixed price of $8.09/mcf.
Advantage has also hedged 46% of its 2009 crude oil production, net of
royalties, at an average floor price of $69.38/bbl. For 2010, we have hedged
48% of our natural gas production, net of royalties, at an average fixed price
of $7.46/mcf and 26% of our crude oil production, net of royalties, at an
average fixed price of $67.83/bbl.
    We will provide updated guidance subsequent to the results of our asset
disposition program and our corporate conversion.
    Looking forward, Advantage's high quality assets combined with a
significant unconventional and conventional inventory, strong hedging program
and excellent tax pools positions us well to create value growth for our
Unitholders.

    Additional Information

    Additional information relating to Advantage can be found on SEDAR at
www.sedar.com and the Fund's website at www.advantageincome.com. Such other
information includes the annual information form, the annual information
circular - proxy statement, press releases, material contracts and agreements,
and other financial reports. The annual information form will be of particular
interest for current and potential Unitholders as it discusses a variety of
subject matter including the nature of the business, structure of the Fund,
description of our operations, general and recent business developments, risk
factors, reserves data and other oil and gas information.

    May 14, 2009


    
                      CONSOLIDATED FINANCIAL STATEMENTS


    Consolidated Balance Sheets
                                                     March 31,   December 31,
    (thousands of dollars)                             2009         2008
    -------------------------------------------------------------------------
                                                    (unaudited)
    Assets
    Current assets
      Accounts receivable                          $    68,149   $    84,689
      Prepaid expenses and deposits                     10,734        11,571
      Derivative asset (note 10)                        66,230        41,472
    -------------------------------------------------------------------------
                                                       145,113       137,732
    Derivative asset (note 10)                          10,835         1,148
    Fixed assets (note 3)                            2,149,751     2,163,866
    -------------------------------------------------------------------------
                                                   $ 2,305,699   $ 2,302,746
    -------------------------------------------------------------------------

    Liabilities
    Current liabilities
      Accounts payable and accrued liabilities     $   124,049   $   146,046
      Distributions payable to Unitholders                   -        11,426
      Current portion of capital lease
       obligations (note 4)                              1,721         1,747
      Current portion of convertible
       debentures (note 5)                              81,568        86,125
      Derivative liability (note 10)                     5,366           611
      Future income taxes                               17,750        11,939
    -------------------------------------------------------------------------
                                                       230,454       257,894
    Derivative liability (note 10)                       6,332         1,039
    Capital lease obligations (note 4)                   3,612         3,906
    Bank indebtedness (note 6)                         612,008       584,717
    Convertible debentures (note 5)                    129,221       128,849
    Asset retirement obligations (note 7)               75,198        73,852
    Future income taxes                                 26,398        43,976
    -------------------------------------------------------------------------
                                                     1,083,223     1,094,233
    -------------------------------------------------------------------------

    Unitholders' Equity
    Unitholders' capital (note 8)                    2,087,858     2,075,877
    Convertible debentures equity component
     (note 5)                                            9,155         9,403
    Contributed surplus (note 8)                           893           287
    Accumulated deficit (note 9)                      (875,430)     (877,054)
    -------------------------------------------------------------------------
                                                     1,222,476     1,208,513
    -------------------------------------------------------------------------
                                                   $ 2,305,699   $ 2,302,746
    -------------------------------------------------------------------------

    Commitments (note 12)

    See accompanying Notes to Consolidated Financial Statements



    Consolidated Statements of Income (Loss), Comprehensive Income (Loss)
    and Accumulated Deficit

                                                  Three months  Three months
                                                     ended         ended
    (thousands of dollars, except for               March 31,     March 31,
     per Trust Unit amounts) (unaudited)              2009          2008
    -------------------------------------------------------------------------

    Revenue
      Petroleum and natural gas                    $    99,604   $   186,098
      Realized gain on derivatives (note 10)            23,346         2,407
      Unrealized gain (loss) on derivatives
       (note 10)                                        24,397       (61,186)
      Royalties                                        (16,080)      (33,881)
    -------------------------------------------------------------------------
                                                       131,267        93,438
    -------------------------------------------------------------------------

    Expenses
      Operating                                         36,031        40,272
      General and administrative                         7,380         7,232
      Management internalization (note 8)                  964         2,491
      Interest                                           4,916         7,766
      Interest and accretion on convertible
       debentures                                        4,651         4,907
      Depletion, depreciation and accretion             69,922        76,880
    -------------------------------------------------------------------------
                                                       123,864       139,548
    -------------------------------------------------------------------------
    Income (loss) before taxes                           7,403       (46,110)
    Future income tax reduction                        (11,767)      (22,676)
    Income and capital taxes                               280           688
    -------------------------------------------------------------------------
                                                       (11,487)      (21,988)
    -------------------------------------------------------------------------
    Net income (loss) and comprehensive
     income (loss)                                      18,890       (24,122)
    Accumulated deficit, beginning of period          (877,054)     (659,835)
    Distributions declared                             (17,266)      (50,021)
    -------------------------------------------------------------------------
    Accumulated deficit, end of period             $  (875,430)  $  (733,978)
    -------------------------------------------------------------------------
    Net income (loss) per Trust Unit (note 8)
      Basic and diluted                            $      0.13   $     (0.18)
    -------------------------------------------------------------------------

    see accompanying Notes to Consolidated Financial Statements



    Consolidated Statements of Cash Flows

                                                  Three months  Three months
                                                     ended         ended
                                                    March 31,     March 31,
    (thousands of dollars) (unaudited)                2009          2008
    -------------------------------------------------------------------------
    Operating Activities
    Net income (loss)                              $    18,890   $   (24,122)
    Add (deduct) items not requiring cash:
      Unrealized loss (gain) on derivatives            (24,397)       61,186
      Unit-based compensation                            1,297           139
      Management internalization                           964         2,491
      Accretion on convertible debentures                  682           720
      Depletion, depreciation and accretion             69,922        76,880
      Future income tax reduction                      (11,767)      (22,676)
    Expenditures on asset retirement                    (2,577)       (4,965)
    Changes in non-cash working capital                (11,135)       (8,060)
    -------------------------------------------------------------------------
    Cash provided by operating activities               41,879        81,593
    -------------------------------------------------------------------------
    Financing Activities
    Units issued, net of costs                               -           (42)
    Increase in bank indebtedness                       27,291        16,074
    Reduction of capital lease obligations                (320)         (606)
    Distributions to Unitholders                       (23,481)      (40,302)
    -------------------------------------------------------------------------
    Cash provided by (used in) financing
     activities                                          3,490       (24,876)
    -------------------------------------------------------------------------
    Investing Activities
    Expenditures on property and equipment             (52,643)      (66,903)
    Property dispositions                                  759            91
    Changes in non-cash working capital                  6,515        10,095
    -------------------------------------------------------------------------
    Cash used in investing activities                  (45,369)      (56,717)
    -------------------------------------------------------------------------
    Net change in cash                                       -             -
    Cash, beginning of period                                -             -
    -------------------------------------------------------------------------
    Cash, end of period                            $         -   $         -
    -------------------------------------------------------------------------
    Supplementary Cash Flow Information
      Interest paid                                $     8,247   $     8,566
      Taxes paid                                   $       375   $       154

    see accompanying Notes to Consolidated Financial Statements



                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    March 31, 2009 (unaudited)

    All tabular amounts in thousands except as otherwise indicated.

    The interim consolidated financial statements of Advantage Energy Income
    Fund ("Advantage" or the "Fund") have been prepared by management in
    accordance with Canadian generally accepted accounting principles
    ("GAAP") using the same accounting policies as those set out in note 2 to
    the consolidated financial statements for the year ended December 31,
    2008, except as described below. The interim consolidated financial
    statements should be read in conjunction with the audited consolidated
    financial statements of Advantage for the year ended December 31, 2008 as
    set out in Advantage's Annual Report.

    1.  Business and Structure of the Fund

        Advantage was formed on May 23, 2001 as a result of a plan of
        arrangement. For Canadian tax purposes, Advantage is an open-ended
        unincorporated mutual fund trust created under the laws of the
        Province of Alberta pursuant to a Trust Indenture originally dated
        April 17, 2001, and as occasionally amended, between Advantage Oil &
        Gas Ltd. ("AOG") and Computershare Trust Company of Canada, as
        trustee. The Fund commenced operations on May 24, 2001. The
        beneficiaries of the Fund are the holders of the Trust Units (the
        "Unitholders").

        The principal undertaking of the Fund is to indirectly acquire and
        hold interests in petroleum and natural gas properties and assets
        related thereto. The business of the Fund is carried on by its
        wholly-owned subsidiary, AOG. The Fund's primary assets are currently
        the common shares of AOG, a royalty in the producing properties of
        AOG (the "AOG Royalty") and notes of AOG (the "AOG Notes"). The
        Fund's strategy, through AOG, is to minimize exposure to exploration
        risk while focusing on growth through acquisitions and development of
        producing crude oil and natural gas properties.

        The original purpose of the Fund was to distribute available cash
        flow to Unitholders on a monthly basis in accordance with the terms
        of the Trust Indenture. The Fund's available cash flow includes
        principal repayments and interest income earned from the AOG Notes,
        royalty income earned from the AOG Royalty, and any dividends
        declared on the common shares of AOG less any expenses of the Fund
        including interest on convertible debentures. Cash received on the
        AOG Notes, AOG Royalty and common shares of AOG result in the
        effective transfer of the economic interest in the properties of AOG
        to the Fund. However, while the royalty is a contractual interest in
        the properties owned by AOG, it does not confer ownership in the
        underlying resource properties. Any distributions from the Fund to
        Unitholders are entirely discretionary and are determined by
        Management and the Board of Directors. We closely monitor our
        distribution policy considering forecasted cash flows, optimal debt
        levels, capital spending activity, taxability to Unitholders, working
        capital requirements, and other potential cash expenditures.
        Distributions are based on the cash available after retaining a
        portion to meet such spending requirements. The level of
        distributions are primarily determined by cash flows received from
        the production of oil and natural gas from existing Canadian resource
        properties and are highly dependent upon our success in exploiting
        the current reserve base and acquiring additional reserves.
        Furthermore, monthly distributions we pay to Unitholders are highly
        dependent upon the prices received for such oil and natural gas
        production.

        On March 18, 2009, Advantage announced the Board of Directors had
        approved conversion to a growth oriented corporation and a strategic
        asset disposition program combined with suspension of the monthly
        distribution to increase financial flexibility. The corporate
        conversion will be subject to approval by at least two-thirds of the
        Fund's Unitholders as well as customary court and regulatory
        approvals, anticipated to be completed on or about June 29, 2009. The
        conversion will enable Advantage to pursue a business plan that is
        focused on the development and growth of the Montney natural gas
        resource play at Glacier, Alberta. The Fund has engaged an advisory
        firm to assist in the disposal of light oil and natural gas
        properties located in Northeast British Columbia, West Central
        Alberta and Northern Alberta with proposals anticipated by mid May
        2009. Going forward, Advantage does not anticipate paying dividends
        in the immediate future and will instead direct cash flow to capital
        expenditures and debt repayment.

    2.  Changes in Accounting Policies

        (a) Goodwill and intangible assets

        In February 2008, the Canadian Institute of Chartered Accountants
        ("CICA") issued Section 3064, Goodwill and Intangible Assets,
        replacing Section 3062, Goodwill and Other Intangible Assets and
        Section 3450, Research and Development Costs. The new Section became
        effective January 1, 2009. Management has implemented the new Section
        and there was no impact for the financial statements of the Fund.

        (b) Recent accounting pronouncements issued but not implemented

            (i) International Financial Reporting Standards ("IFRS")

            In February 2008, the CICA Accounting Standards Board confirmed
            that IFRS will replace Canadian GAAP effective January 1, 2011
            for publicly accountable enterprises. Management is currently
            evaluating the effects of all current and pending pronouncements
            of the International Accounting Standards Board on the financial
            statements of the Fund, and has developed a plan for
            implementation.

        (c) Comparative figures

        Certain comparative figures have been reclassified to conform to the
        current period presentation.

    3.  Fixed Assets

                                                  Accumulated
                                                 Depletion and     Net Book
        March 31, 2009                   Cost     Depreciation       Value
        ---------------------------------------------------------------------
        Petroleum and natural gas
         properties                  $ 3,354,098   $ 1,208,966   $ 2,145,132
        Furniture and equipment           11,638         7,019         4,619
        ---------------------------------------------------------------------
                                     $ 3,365,736   $ 1,215,985   $ 2,149,751
        ---------------------------------------------------------------------


                                                  Accumulated
                                                 Depletion and     Net Book
        December 31, 2008                Cost     Depreciation       Value
        ---------------------------------------------------------------------
        Petroleum and natural gas
         properties                  $ 3,299,657   $ 1,140,710   $ 2,158,947
        Furniture and equipment           11,572         6,653         4,919
        ---------------------------------------------------------------------
                                     $ 3,311,229   $ 1,147,363   $ 2,163,866
        ---------------------------------------------------------------------

    4.  Capital Lease Obligations

        The Fund has capital leases on a variety of fixed assets. Future
        minimum lease payments at March 31, 2009 consist of the following:


        2009                         $     1,640
        2010                               2,200
        2011                               1,925
        -----------------------------------------
                                           5,765
        Less amounts representing
         interest                           (432)
        -----------------------------------------
                                           5,333
        Current portion                   (1,721)
        -----------------------------------------
                                     $     3,612
        -----------------------------------------

    5.  Convertible Debentures

        The balance of debentures outstanding at March 31, 2009 and changes
        in the liability and equity components during the three months ended
        March 31, 2009 are as follows:

                                   8.25%       8.75%       7.50%
        ---------------------------------------------------------
        Trading symbol           AVN.DBB     AVN.DBF     AVN.DBC
        Debentures outstanding $       -   $  29,839   $  52,268
        ---------------------------------------------------------
        Liability component:
          Balance at
           December 31, 2008   $   4,859   $  29,687   $  51,579
          Accretion of discount        8          75         227
          Matured                 (4,867)          -           -
        ---------------------------------------------------------
          Balance at
           March 31, 2009      $       -   $  29,762   $  51,806
        ---------------------------------------------------------

        Equity component:
          Balance at
           December 31, 2008   $     248   $     852   $   2,248
          Expired                   (248)          -           -
        ---------------------------------------------------------
          Balance at
           March 31, 2009      $       -   $     852   $   2,248
        ---------------------------------------------------------

                                   6.50%       7.75%       8.00%       Total
        ---------------------------------------------------------------------
        Trading symbol           AVN.DBE     AVN.DBD     AVN.DBG
        Debentures outstanding $  69,927   $  46,766   $  15,528   $ 214,328
        ---------------------------------------------------------------------
        Liability component:
          Balance at
           December 31, 2008   $  68,807   $  44,964   $  15,078   $ 214,974
          Accretion of discount      184         150          38         682
          Matured                      -           -           -      (4,867)
        ---------------------------------------------------------------------
          Balance at
           March 31, 2009      $  68,991   $  45,114   $  15,116   $ 210,789
        ---------------------------------------------------------------------
        Equity component:
          Balance at
           December 31, 2008   $   2,971   $   2,286   $     798   $   9,403
          Expired                      -           -           -        (248)
        ---------------------------------------------------------------------
          Balance at
           March 31, 2009      $   2,971   $   2,286   $     798   $   9,155
        ---------------------------------------------------------------------

        During the three months ended March 31, 2009, there were no
        convertible debenture conversions (March 31, 2008 - $25,000 converted
        resulting in the issuance of 1,001 Trust Units).

        The principal amount of 8.25% convertible debentures matured on
        February 1, 2009 and the Fund settled the obligation by issuing
        946,887 Trust Units.

    6.  Bank Indebtedness


                                                      March 31,  December 31,
                                                        2009        2008
        ---------------------------------------------------------------------
        Revolving credit facility                  $   615,438   $   587,404
        Discount on Bankers Acceptances                 (3,430)       (2,687)
        ---------------------------------------------------------------------
        Balance, end of period                     $   612,008   $   584,717
        ---------------------------------------------------------------------

        Advantage has a credit facility agreement with a syndicate of
        financial institutions which provides for a $690 million extendible
        revolving loan facility and a $20 million operating loan facility.
        The loan's interest rate is based on either prime, US base rate,
        LIBOR or bankers' acceptance rates, at the Fund's option, subject to
        certain basis point or stamping fee adjustments ranging from 0.00% to
        1.50% depending on the Fund's debt to cash flow ratio. The credit
        facilities are collateralized by a $1 billion floating charge demand
        debenture, a general security agreement and a subordination agreement
        from the Fund covering all assets and cash flows. The credit
        facilities are subject to review on an annual basis with the next
        renewal due in June 2009. Various borrowing options are available
        under the credit facilities, including prime rate-based advances, US
        base rate advances, US dollar LIBOR advances and bankers' acceptances
        loans. The credit facilities constitute a revolving facility for a
        364 day term which is extendible annually for a further 364 day
        revolving period at the option of the syndicate. If not extended, the
        revolving credit facility is converted to a two year term facility
        with the principal payable at the end of such two year term. The
        credit facilities contain standard commercial covenants for
        facilities of this nature. The only financial covenant is a
        requirement for AOG to maintain a minimum cash flow to interest
        expense ratio of 3.5:1, determined on a rolling four quarter basis.
        The credit facilities also prohibit the Fund from entering into any
        derivative contract where the term of such contract exceeds two years
        or the aggregate of such contracts hedge greater than 60% of the
        Fund's estimated oil and gas production. Breach of any covenant will
        result in an event of default in which case AOG has 20 days to remedy
        such default. If the default is not remedied or waived, and if
        required by the majority of lenders, the administrative agent of the
        lenders has the option to declare all obligations of AOG under the
        credit facilities to be immediately due and payable without further
        demand, presentation, protest, or notice of any kind. Distributions
        by AOG to the Fund (and effectively by the Fund to Unitholders) are
        subordinated to the repayment of any amounts owing under the credit
        facilities. Distributions to Unitholders are not permitted if the
        Fund is in default of such credit facilities or if the amount of the
        Fund's outstanding indebtedness under such facilities exceeds the
        then existing current borrowing base. Interest payments under the
        debentures are also subordinated to indebtedness under the credit
        facilities and payments under the debentures are similarly
        restricted. For the three months ended March 31, 2009, the effective
        interest rate on the outstanding amounts under the facility was
        approximately 3.3% (March 31, 2008 - 5.6%).

    7.  Asset Retirement Obligations

        A reconciliation of the asset retirement obligations is provided
        below:

                                                  Three months
                                                     ended       Year ended
                                                    March 31,    December 31,
                                                      2009          2008
        ---------------------------------------------------------------------
        Balance, beginning of period               $    73,852   $    60,835
        Accretion expense                                1,300         4,186
        Liabilities incurred                               340         1,526
        Change in estimates                              2,283        16,564
        Liabilities settled                             (2,577)       (9,259)
        ---------------------------------------------------------------------
        Balance, end of period                     $    75,198   $    73,852
        ---------------------------------------------------------------------

    8.  Unitholders' Equity

        (a) Unitholders' capital

            (i)  Authorized

                 Unlimited number of voting Trust Units

            (ii) Issued

                                               Number of Units      Amount
        ---------------------------------------------------------------------
        Balance at December 31, 2008               142,824,854   $ 2,077,760
        Distribution reinvestment plan               1,263,158         5,211
        Issued on maturity of debentures               946,887         4,867
        Issued pursuant to Restricted
         Trust Unit Plan                               171,093           939
        Management internalization forfeitures          (3,155)          (65)
        ---------------------------------------------------------------------
                                                   145,202,837   $ 2,088,712
        ---------------------------------------------------------------------
        Management internalization escrowed
         Trust Units                                                    (854)
        ---------------------------------------------------------------------
        Balance at March 31, 2009                                $ 2,087,858
        ---------------------------------------------------------------------

        On June 23, 2006, Advantage internalized the external management
        contract structure and eliminated all related fees for total original
        consideration of 1,933,208 Advantage Trust Units initially valued at
        $39.1 million and subject to escrow provisions over a 3-year period,
        vesting one-third each year beginning June 23, 2007. For the three
        months ended March 31, 2009, a total of 3,155 Trust Units issued for
        the management internalization were forfeited (March 31, 2008 - 4,193
        Trust Units) and $1.0 million has been recognized as management
        internalization expense (March 31, 2008 - $2.5 million). As at
        March 31, 2009, 529,854 Trust Units remain held in escrow
        (December 31, 2008 - 564,612 Trust Units).

        During the three months ended March 31, 2009, 1,263,158 Trust Units
        (March 31, 2008 - 1,006,673 Trust Units) were issued under the
        Premium Distribution(TM), Distribution Reinvestment and Optional
        Trust Unit Purchase Plan, generating $5.2 million (March 31, 2008 -
        $9.6 million) reinvested in the Fund.

        The principal amount of 8.25% convertible debentures matured on
        February 1, 2009 and the Fund settled the obligation by issuing
        946,887 Trust Units.

        (b) Contributed surplus

                                                  Three months
                                                     ended       Year ended
                                                    March 31,    December 31,
                                                      2009          2008
        ---------------------------------------------------------------------
        Balance, beginning of period               $       287   $     2,005
        Unit-based compensation                            358        (1,256)
        Expiration of convertible debentures
         equity component                                  248           229
        Exercise of Trust Unit Rights                        -          (691)
        ---------------------------------------------------------------------
        Balance, end of period                     $       893   $       287
        ---------------------------------------------------------------------

        (c) Unit-based compensation

        Advantage's current employee compensation includes a Restricted Trust
        Unit Plan, as approved by the Unitholders on June 23, 2006. The
        purpose of the long-term compensation plan is to retain and attract
        employees, to reward and encourage performance, and to focus
        employees on operating and financial performance that results in
        lasting Unitholder return.

        Although Advantage experienced a negative return for the 2008 year,
        the approved peer group also experienced likewise negative returns.
        As a result, Advantage's 2008 annual return was within the top
        two-thirds of the approved peer group and the Board of Directors
        granted Restricted Trust Units ("RTUs") at their discretion. The RTUs
        were deemed to be granted at January 15, 2009 and was valued at
        $3.8 million to be issued in Trust Units at $5.49 per Trust Unit.
        Unit-based compensation expense of $1.3 million has been included in
        general and administration expense for the period ended March 31,
        2009 and 171,093 Trust Units were issued to employees in January 2009
        for the first one-third of the grant that vested. The remaining
        two-thirds of the RTUs granted will vest over the subsequent two
        yearly anniversary dates with corresponding compensation expense
        recognized over the service period. Since implementing the Plan in
        2006, the grant thresholds have not been previously met, and there
        have been no RTU grants made during prior years and no related
        compensation expense has been recognized.

        (d) Net income (loss) per Trust Unit

        The calculation of basic and diluted net income (loss) per Trust Unit
        are derived from both income (loss) available to Unitholders and
        weighted average Trust Units outstanding calculated as follows:

                                                  Three months  Three months
                                                     ended         ended
                                                    March 31,     March 31,
                                                      2009          2008
        ---------------------------------------------------------------------
        Income (loss) available to Unitholders
          Basic and diluted                        $    18,890   $   (24,122)
        ---------------------------------------------------------------------

        Weighted average Trust Units outstanding
          Basic                                    143,691,270   137,599,070
          Management Internalization                   302,058             -
        ---------------------------------------------------------------------
          Diluted                                  143,993,328   137,599,070
        ---------------------------------------------------------------------

        The calculation of diluted net income per Trust Unit excludes all
        series of convertible debentures for the three months ended March 31,
        2009 and 2008 as the impact would be anti-dilutive. Total weighted
        average Trust Units issuable in exchange for the convertible
        debentures and excluded from the diluted net income per Trust Unit
        calculation for the three months ended March 31, 2009 were 9,335,706
        (March 31, 2008 - 9,846,967). As at March 31, 2009, the total
        convertible debentures outstanding were immediately convertible to
        9,234,106 Trust Units (March 31, 2008 - 9,846,252).

        Escrowed RTUs granted in January 2009 have been excluded from the
        calculation of diluted net income per Trust Unit for the three months
        ended March 31, 2009, as the impact would have been anti-dilutive.
        Total weighted average Trust Units issuable in exchange for the RTUs
        and excluded from the diluted net income per Trust Unit calculation
        for the three months ended March 31, 2009 was 542,807.

        Management Internalization escrowed Trust Units have been excluded
        from the calculation of diluted net income per Trust Unit for the
        three months ended March 31, 2008, as the impact would have been
        anti-dilutive. Total weighted average Trust Units issuable in
        exchange for the Management Internalization escrowed Trust Units and
        excluded from the diluted net income per Trust Unit calculation for
        the three months ended March 31, 2008 was 559,073.

    9.  Accumulated Deficit

        Accumulated deficit consists of accumulated income and accumulated
        distributions for the Fund since inception as follows:

                                                      March 31,  December 31,
                                                        2009        2008
        ---------------------------------------------------------------------
        Accumulated Income                         $   218,301   $   199,411
        Accumulated Distributions                   (1,093,731)   (1,076,465)
        ---------------------------------------------------------------------
        Accumulated Deficit                        $  (875,430)  $  (877,054)
        ---------------------------------------------------------------------

        For the three months ended March 31, 2009 the Fund declared
        $17.3 million in distributions representing $0.12 per Trust Unit
        (March 31, 2008 - $50.0 million in distributions representing $0.36
        per Trust Unit).

    10. Financial Instruments

        Financial instruments of the Fund include accounts receivable,
        deposits, accounts payable and accrued liabilities, distributions
        payable to Unitholders, bank indebtedness, convertible debentures and
        derivative assets and liabilities.

        Accounts receivable and deposits are classified as loans and
        receivables and measured at amortized cost. Accounts payable and
        accrued liabilities, distributions payable to Unitholders and bank
        indebtedness are all classified as other liabilities and similarly
        measured at amortized cost. As at March 31, 2009, there were no
        significant differences between the carrying amounts reported on the
        balance sheet and the estimated fair values of these financial
        instruments due to the short terms to maturity and the floating
        interest rate on the bank indebtedness.

        The Fund has convertible debenture obligations outstanding, of which
        the liability component has been classified as other liabilities and
        measured at amortized cost. The convertible debentures have different
        fixed terms and interest rates (note 5) resulting in fair values that
        will vary over time as market conditions change. As at March 31,
        2009, the estimated fair value of the total outstanding convertible
        debenture obligation was $180.1 million (December 31, 2008 -
        $191.2 million). The fair value of convertible debentures was
        determined based on the public trading activity of such debentures.

        Advantage has an established strategy to manage the risk associated
        with changes in commodity prices by entering into derivatives, which
        are recorded at fair value as derivative assets and liabilities with
        gains and losses recognized through earnings. As the fair value of
        the contracts varies with commodity prices, they give rise to
        financial assets and liabilities. The fair values of the derivatives
        are determined through valuation models completed internally and by
        third parties. Various assumptions based on current market
        information were used in these valuations, including settled forward
        commodity prices, interest rates, foreign exchange rates, volatility
        and other relevant factors. The actual gains and losses realized on
        eventual cash settlement can vary materially due to subsequent
        fluctuations in commodity prices as compared to the valuation
        assumptions.

        Credit Risk

        Accounts receivable, deposits, and derivative assets are subject to
        credit risk exposure and the carrying values reflect Management's
        assessment of the associated maximum exposure to such credit risk.
        Advantage mitigates such credit risk by closely monitoring
        significant counterparties and dealing with a broad selection of
        partners that diversify risk within the sector. The Fund's deposits
        are primarily due from the Alberta Provincial government and are
        viewed by Management as having minimal associated credit risk. To the
        extent that Advantage enters derivatives to manage commodity price
        risk, it may be subject to credit risk associated with counterparties
        with which it contracts. Credit risk is mitigated by entering into
        contracts with only stable, creditworthy parties and through frequent
        reviews of exposures to individual entities. In addition, the Fund
        only enters into derivative contracts with major national banks and
        international energy firms to further mitigate associated credit
        risk.

        Substantially all of the Fund's accounts receivable are due from
        customers and joint operation partners concentrated in the Canadian
        oil and gas industry. As such, accounts receivable are subject to
        normal industry credit risks. As at March 31, 2009, $11.5 million or
        17% of accounts receivable are outstanding for 90 days or more
        (December 31, 2008 - $14.2 million or 17% of accounts receivable).
        The Fund believes that the entire balance is collectible, and in some
        instances we have the ability to mitigate risk through withholding
        production or offsetting payables with the same parties. Accordingly,
        management has not provided for an allowance for doubtful accounts at
        March 31, 2009.

        Liquidity Risk

        The Fund is subject to liquidity risk attributed from accounts
        payable and accrued liabilities, distributions payable to
        Unitholders, bank indebtedness, convertible debentures, and
        derivative liabilities. Accounts payable and accrued liabilities,
        distributions payable to Unitholders and derivative liabilities are
        primarily due within one year of the balance sheet date and Advantage
        does not anticipate any problems in satisfying the obligations due to
        the strength of cash provided by operating activities and the
        existing credit facility. The Fund's bank indebtedness is subject to
        a $710 million credit facility agreement. Although the credit
        facility is a source of liquidity risk, the facility also mitigates
        liquidity risk by enabling Advantage to manage interim cash flow
        fluctuations. The credit facility constitutes a revolving facility
        for a 364 day term which is extendible annually for a further 364 day
        revolving period at the option of the syndicate. If not extended, the
        revolving credit facility is converted to a two year term facility
        with the principal payable at the end of such two year term. The
        terms of the credit facility are such that it provides Advantage
        adequate flexibility to evaluate and assess liquidity issues if and
        when they arise. Additionally, the Fund regularly monitors liquidity
        related to obligations by evaluating forecasted cash flows, optimal
        debt levels, capital spending activity, working capital requirements,
        and other potential cash expenditures. This continual financial
        assessment process further enables the Fund to mitigate liquidity
        risk.

        Advantage has several series of convertible debentures outstanding
        that mature from 2009 to 2011 (note 5). Interest payments are made
        semi-annually with excess cash provided by operating activities. As
        the debentures become due, the Fund can satisfy the obligations in
        cash or issue Trust Units at a price determined in the applicable
        debenture agreements. This settlement alternative allows the Fund to
        adequately manage liquidity, plan available cash resources and
        implement an optimal capital structure.

        To the extent that Advantage enters derivatives to manage commodity
        price risk, it may be subject to liquidity risk as derivative
        liabilities become due. While the Fund has elected not to follow
        hedge accounting, derivative instruments are not entered for
        speculative purposes and Management closely monitors existing
        commodity risk exposures. As such, liquidity risk is mitigated since
        any losses actually realized are subsidized by increased cash flows
        realized from the higher commodity price environment.

        The timing of cash outflows relating to financial liabilities are as
        follows:

                               Less than    One to      Four to
                                one year three years  five years  Thereafter
        ---------------------------------------------------------------------
        Accounts payable and
         accrued liabilities   $ 124,049   $       -   $       -   $       -
        Derivative liabilities     5,366       6,332           -           -
        Bank indebtedness
          - principal                  -     615,438           -           -
          - interest              11,759      23,518           -           -
        Convertible debentures
          - principal             82,107     132,221           -           -
          - interest              14,637      12,005           -           -
        ---------------------------------------------------------------------
                               $ 237,918   $ 789,514   $       -   $       -
        ---------------------------------------------------------------------

        The Fund's bank indebtedness does not have specific maturity dates.
        It is governed by a credit facility agreement with a syndicate of
        financial institutions (note 6). Under the terms of the agreement,
        the facility is reviewed annually, with the next review scheduled in
        June 2009. The facility is revolving, and is extendible at each
        annual review for a further 364 day period at the option of the
        syndicate. If not extended, the credit facility is converted at that
        time into a two year term facility, with the principal payable at the
        end of such two year term. Management fully expects that the facility
        will be extended at each annual review.

        Interest Rate Risk

        The Fund is exposed to interest rate risk to the extent that bank
        indebtedness is at a floating rate of interest and the Fund's maximum
        exposure to interest rate risk is based on the effective interest
        rate and the current carrying value of the bank indebtedness. The
        Fund monitors the interest rate markets to ensure that appropriate
        steps can be taken if interest rate volatility compromises the Fund's
        cash flows. A 1% increase in interest rates for the three months
        ended March 31, 2009 could have decreased net income by approximately
        $1.0 million for that period.

        Price and Currency Risk

        Advantage's derivative assets and liabilities are subject to both
        price and currency risks as their fair values are based on
        assumptions including forward commodity prices and foreign exchange
        rates. The Fund enters derivative financial instruments to manage
        commodity price risk exposure relative to actual commodity production
        and does not utilize derivative instruments for speculative purposes.
        Changes in the price assumptions can have a significant effect on the
        fair value of the derivative assets and liabilities and thereby
        impact net income. It is estimated that a 10% change in the forward
        natural gas prices used to calculate the fair value of the natural
        gas derivatives at March 31, 2009 could impact net income by
        approximately $12.3 million for the three months ended March 31,
        2009. As well, a change of 10% in the forward crude oil prices used
        to calculate the fair value of the crude oil derivatives at March 31,
        2009 could impact net income by $8.7 million for the three months
        ended March 31, 2009. A change of 10% in the forward power prices
        used to calculate the fair value of the power derivatives at
        March 31, 2009 could impact net income by $0.1 million for the three
        months ended March 31, 2009. A similar change in the currency rate
        assumption underlying the derivatives fair value does not have a
        material impact on net income.

        As at March 31, 2009 the Fund had the following derivatives in place:

    Description of
     Derivative         Term           Volume                  Average Price
    -------------------------------------------------------------------------

    Natural gas - AECO

      Fixed price  April 2009 to     9,478 mcf/d               Cdn $8.66/mcf
                    December 2009
      Fixed price  April 2009 to     9,478 mcf/d               Cdn $8.67/mcf
                    December 2009
      Fixed price  April 2009 to     9,478 mcf/d               Cdn $8.94/mcf
                    December 2009
      Fixed price  April 2009 to    14,217 mcf/d               Cdn $7.59/mcf
                    March 2010
      Fixed price  April 2009 to    14,217 mcf/d               Cdn $7.56/mcf
                    March 2010
      Fixed price  January 2010 to  14,217 mcf/d               Cdn $8.23/mcf
                    June 2010
      Fixed price  January 2010 to  18,956 mcf/d               Cdn $7.29/mcf
                    December 2010
      Fixed price  April 2010 to    18,956 mcf/d               Cdn $7.25/mcf
                    January 2011

    Crude oil - WTI

      Collar       April 2009 to     2,000 bbl/d   Bought put Cdn $62.00/bbl
                    December 2009                   Sold call Cdn $76.00/bbl
      Fixed price  April 2009 to    2,000 bbls/d              Cdn $62.80/bbl
                    March 2010
      Fixed price  April 2010 to    2,000 bbls/d              Cdn $69.50/bbl
                    January 2011

    Electricity - Alberta Pool Price

      Fixed price  April 2009 to          2.0 MW              Cdn $63.33/MWh
                    June 2009
      Fixed price  March 2009 to          2.0 MW              Cdn $75.43/MWh
                    December 2009


        As at March 31, 2009, the fair value of the derivatives outstanding
        resulted in an asset of approximately $77,065,000 (December 31,
        2008 - $42,620,000) and a liability of approximately $11,698,000
        (December 31, 2008 - $1,650,000). For the three months ended
        March 31, 2009, $24,397,000 was recognized in income as an unrealized
        derivative gain (March 31, 2008 - $61,186,000 unrealized derivative
        loss) and $23,346,000 was recognized in income as a realized
        derivative gain (March 31, 2008 - $2,407,000 realized derivative
        gain).

    11. Capital Management

        The Fund manages its capital with the following objectives:

        -  To ensure sufficient financial flexibility to achieve the ongoing
           business objectives including replacement of production, funding
           of future growth opportunities, and pursuit of accretive
           acquisitions; and

        -  To maximize Unitholder return through enhancing the Trust Unit
           value.

        Advantage monitors its capital structure and makes adjustments
        according to market conditions in an effort to meet its objectives
        given the current outlook of the business and industry in general.
        The capital structure of the Fund is composed of working capital
        (excluding derivative assets and liabilities), bank indebtedness,
        convertible debentures, capital lease obligations and Unitholders'
        equity. Advantage may manage its capital structure by issuing new
        Trust Units, obtaining additional financing either through bank
        indebtedness or convertible debenture issuances, refinancing current
        debt, issuing other financial or equity-based instruments, adjusting
        or discontinuing the amount of monthly distributions, suspending or
        renewing its distribution reinvestment plan, adjusting capital
        spending, or disposing of assets. The capital structure is reviewed
        by Management and the Board of Directors on an ongoing basis.
        Advantage's capital structure as at March 31, 2009 is as follows:

                                                              March 31, 2009
        ---------------------------------------------------------------------
        Bank indebtedness (long-term)                            $   615,438
        Working capital deficit(1)                                   128,455
        ---------------------------------------------------------------------
        Net debt                                                     743,893
        Trust Units outstanding market value                         445,773
        Convertible debentures maturity value (long-term)            132,221
        Capital lease obligations (long-term)                          3,612
        ---------------------------------------------------------------------
        Total capitalization                                     $ 1,325,499
        ---------------------------------------------------------------------
        (1) Working capital deficit includes accounts receivable, prepaid
            expenses and deposits, accounts payable and accrued liabilities,
            and the current portion of capital lease obligations and
            convertible debentures.


        The Fund's bank indebtedness is governed by a $710 million credit
        facility agreement (note 6) that contains standard commercial
        covenants for facilities of this nature. The only financial covenant
        is a requirement for AOG to maintain a minimum cash flow to interest
        expense ratio of 3.5:1, determined on a rolling four quarter basis.
        The Fund is in compliance with all credit facility covenants. As
        well, the borrowing base for the Fund's credit facilities is
        determined through utilizing Advantage's regular reserve estimates.
        The banking syndicate thoroughly evaluates the reserve estimates
        based upon their own commodity price expectations to determine the
        amount of the borrowing base. Revision or changes in the reserve
        estimates and commodity prices can have either a positive or a
        negative impact on the borrowing base of the Fund. On March 18, 2009,
        we announced our intention to dispose of certain assets with the net
        proceeds from these sales and other oil and natural gas property
        sales initially utilized to reduce outstanding bank debt and improve
        Advantage's financial flexibility. The amount of the borrowing base
        will be impacted by the magnitude of the dispositions and the
        resulting effect on reserves. Advantage's issuance of convertible
        debentures is limited by its Trust Indenture which currently
        restricts the issuance of additional convertible debentures to 25% of
        market capitalization subsequent to issuance. Advantage's Trust
        Indenture also provides for the issuance of an unlimited number of
        Trust Units. However, through tax legislation, an income trust is
        restricted to doubling its market capitalization as it stands on
        October 31, 2006 by growing a maximum of 40% in 2007 and 20% for the
        years 2008 to 2010. In addition, an income trust may replace debt
        that was outstanding as of October 31, 2006 with new equity or issue
        new, non-convertible debt without affecting the normal growth
        percentage. As a result of the "normal growth" guidelines, the Fund
        is permitted to issue approximately $2.3 billion of new equity from
        April 1, 2009 to January 1, 2011, which we believe is adequate for
        any growth we expect to incur. If an income trust exceeds the
        established limits on the issuance of new trust units and convertible
        debt that constitute normal growth, the income trust will be
        immediately subject to the Specified Investment Flow-Through Entity
        tax legislation whereby the taxable portion of any distributions paid
        will be subject to tax at the trust level.

        Management of the Fund's capital structure is facilitated through its
        financial and operational forecasting processes. The forecast of the
        Fund's future cash flows is based on estimates of production,
        commodity prices, forecast capital and operating expenditures, and
        other investing and financing activities. The forecast is regularly
        updated based on new commodity prices and other changes, which the
        Fund views as critical in the current environment. Selected forecast
        information is frequently provided to the Board of Directors.

        The Fund's capital management objectives, policies and processes have
        remained unchanged during the three month period ended March 31,
        2009.

    12. Commitments

        Advantage has several lease commitments relating to office buildings.
        The estimated remaining annual minimum operating lease rental
        payments for buildings are as follows:

        2009                                                     $     2,896
        2010                                                           3,878
        2011                                                           1,471
        2012                                                           1,072
        ---------------------------------------------------------------------
                                                                 $     9,317
        ---------------------------------------------------------------------
    

    Advisory

    The information in this release contains certain forward-looking
statements. These statements relate to future events or our 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",
"would" and similar expressions. These statements involve substantial known
and unknown risks and uncertainties, certain of which are beyond Advantage's
control, including: the impact of general economic conditions; industry
conditions; changes in laws and regulations including the adoption of new
environmental laws and regulations and changes in how they are interpreted and
enforced; fluctuations in commodity prices and foreign exchange and interest
rates; stock market volatility and market valuations; volatility in market
prices for oil and natural gas; liabilities inherent in oil and natural gas
operations; uncertainties associated with estimating oil and natural gas
reserves; competition for, among other things, capital, acquisitions, of
reserves, undeveloped lands and skilled personnel; incorrect assessments of
the value of acquisitions; changes in income tax laws or changes in tax laws
and incentive programs relating to the oil and gas industry and income trusts;
geological, technical, drilling and processing problems and other difficulties
in producing petroleum reserves; and obtaining required approvals of
regulatory authorities. Advantage's actual results, performance or achievement
could differ materially from those expressed in, or implied by, such
forward-looking statements and, accordingly, no assurances can be given that
any of the events anticipated by the forward-looking statements will transpire
or occur or, if any of them do, what benefits that Advantage will derive from
them. Except as required by law, Advantage undertakes no obligation to
publicly update or revise any forward-looking statements.


    %CIK: 0001259995




For further information:

For further information: Investor Relations, Toll free: 1-866-393-0393,
Advantage Energy Income Fund, 700, 400 - 3rd Avenue SW, Calgary, Alberta, T2P
4H2, Phone: (403) 718-8000, Fax: (403) 718-8300, Web Site:
www.advantageincome.com, E-mail: advantage@advantageincome.com


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