Bonterra Energy Income Trust Announces Solid Second Quarter Results



    CALGARY, Aug. 12 /CNW/ - Bonterra Energy Income Trust (the Trust or
Bonterra)(www.bonterraenergy.com) (TSX:BNE.UN) is pleased to announce its
financial and operational results for the three months and six months ended
June 30, 2008.

    
    HIGHLIGHTS
                                     Three Months Ended    Six Months Ended
                                           June 30             June 30
                                        2008      2007      2008      2007
    -------------------------------------------------------------------------
    FINANCIAL ($000, except $ per unit)
    Revenue - realized oil and gas      34,398    23,462    64,891    46,064
    Adjusted Distribution Base(1)       21,352    11,695    39,410    24,824
      Per Unit - Basic                    1.25      0.69      2.32      1.47
      Per Unit - Diluted                  1.24      0.69      2.31      1.47
    Cash Distributions per Unit           0.84      0.66      1.54      1.32
    Payout ratio                           67%       96%       67%       90%
    Net Earnings                        12,912     5,371    23,716    13,033
      Per Unit - Basic                    0.76      0.32      1.40      0.77
      Per Unit - Diluted                  0.75      0.32      1.39      0.77
    Capital Expenditures and
     Acquisitions                        2,543     1,699     8,964     9,324
    Total Assets                                           153,247   139,432
    Working Capital Deficiency(2)                           57,147    49,595
    Unitholders Equity                                      46,612    51,920
    -------------------------------------------------------------------------
    OPERATIONS
    Oil and NGL's
      Barrels Per Day                    3,024     3,074     3,088     3,150
      Average Price ($ per barrel)      101.69     67.60     94.31     65.02
    Natural Gas
      MCF Per Day                        7,272     6,663     7,206     6,567
      Average Price ($ per MCF)           9.61      7.40      8.97      7.46
    Total Barrels per Day(3)             4,236     4,185     4,289     4,245

    (1) Adjusted distribution base is not a recognized measure under GAAP.
        Management believes that in addition to cash flow from operations,
        adjusted distribution base is a useful supplemental measure as it
        demonstrates the Trust's ability to generate the funds necessary to
        make trust distributions, repay debt or fund future growth through
        capital investment. Investors are cautioned, however, that this
        measure should not be construed as an indication of the Trust's
        performance. The Trust's method of calculating this measure may
        differ from other issuers and accordingly, it may not be comparable
        to that used by other issuers. For these purposes, the Trust defines
        adjusted distribution base as funds provided by operations before
        changes in non-cash operating working capital items excluding gain on
        sale of property and asset retirement expenditures.

        The Canadian Institute of Chartered Accountants (CICA) published
        recommendations regarding disclosure of a measure called Standardized
        Distributable Cash. Please refer to page 9 of this report for the
        reconciliation between adjusted distribution base and standardized
        distributable cash.

    (2) Includes 100 percent of debt.

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

    Report to Unitholders

    Bonterra Energy Income Trust (Bonterra or the Trust) is pleased to report
the operating and financial results for the three months and six months ended
June 30, 2008. During the quarter, the Trust once again realized several new
milestones on the heels of a record-setting first quarter mainly due to the
sustained strength in both crude oil and natural gas prices, relatively stable
production levels and cost controls.

    
    Key successes included:

    -   Record-level revenue from oil and gas sales during the second quarter
        of 2008 of approximately $34.4 million, a 12 percent increase over
        the previous quarter and a 47 percent increase over second quarter
        2007.

    -   Net earnings increased 140 percent to an all-time high of
        approximately $12.9 million in the second quarter of 2008 compared to
        $5.4 million in the second quarter of 2007. Net earnings also
        increased 20 percent quarter over quarter.

    -   Bonterra's adjusted distribution base was approximately
        $21.4 million, an increase of 18 percent over first quarter 2008 and
        83 percent over second quarter 2007.

    -   Cash distributions to unitholders increased to $0.84 per unit during
        the quarter compared to $0.66 in the second quarter of 2007; a payout
        ratio of 67 percent in 2008 compared to 96 percent in 2007.
        Subsequent to the quarter end, Bonterra increased the distribution to
        $0.32 per trust unit for both the July and August payments. This
        represents the fourth increase during 2008. The January, 2008
        distribution was $0.22 per unit.
    

    The continued strength in crude oil and natural gas prices can be seen in
Bonterra's average realized price of $101.69 per barrel for oil and natural
gas liquids and $9.61 per mcf for natural gas during the second quarter of
2008. This represents an increase of 50 percent and 30 percent, respectively,
when compared with the second quarter of 2007.
    As a result, Bonterra's cash netbacks also increased to a record level of
$55.34 per barrel of oil equivalent (boe) in the second quarter of 2008
compared to $45.67 per boe in the first quarter of 2008 and $32.09 in the
second quarter of 2007. The increased netbacks were mainly a result of the
aforementioned strength in commodity prices which more than offset increased
royalty expense and a higher realized loss on risk management contracts during
the quarter.
    Bonterra's exposure to the higher prices was offset somewhat by its risk
management program. Bonterra has entered into commodity hedging contracts on
approximately 28 percent of its 2008 production. Realized risk management
losses for the first six months of 2008 were approximately $5.4 million. The
risk management contracts will all expire on December 31, 2008. In light of
the exceptionally strong prices Bonterra is receiving for production coupled
with the reduction in the payout ratio, management and the board of directors
have reassessed the hedging policy and decided that in the near term the Trust
will not enter into further risk management strategies.
    Bonterra intends to continue providing superior value to unitholders by
paying stable, or when appropriate increase or decrease distributions while
executing a conservative and targeted development program. Bonterra's current
distribution level of $0.32 per trust unit is expected to be sustainable as
long as prices average Cdn $115 per barrel of crude oil and Cdn $9.50 per mcf
of natural gas and production is sustained at a rate of approximately
4,450 boe per day.
    As the Trust produces its oil and gas assets, it is essential to invest
capital to not only offset natural production declines but grow production and
reserves. Bonterra's decline rate is among the lowest in the energy trust
sector. This not only highlights the top-quality nature of the asset base but
also allows the Trust to spend less capital to replace and increase production
while paying out a higher portion of its adjusted distribution base.
    Daily production decreased slightly in the second quarter of 2008 to
4,236 boe per day when compared to first quarter 2008 levels of 4,343 boe per
day. Production levels have been historically lower for the Trust in the
second quarter versus the first quarter each year. This is mainly due to over
85 percent of wells having restricted access during second quarters due to
spring break-up and restricted road access. During the quarter, Bonterra was
unable to complete wells, tie-ins and timely repairs which negatively impacted
production. In addition, the operator of a natural gas plant where 40 percent
of the Trust's Pembina production is processed conducted their annual
turnaround during the month of May resulting in approximately 300 mcf per day
of natural gas being shut-in.
    However, this did represent a slight increase when compared to the second
quarter of 2007 where 4,185 boe per day was recorded. For the first six months
of 2008, the Trust incurred capital expenditures of approximately 8.5 million
on its development program. Key activities included drilling:

    
    -   10 Cardium oil wells (8.1 net) and 1 shallow gas well (0.1 net) on
        operated lands; and
    -   3 Cardium wells (0.4 net) on non-operated lands;
    

    The Trust's success rate is 100 percent on its 2008 drilling program. In
addition, 16 Cardium wells and 2 natural gas wells were tied-in during the
first half of the year. The remaining 4 Cardium oil wells were tied in
subsequent to quarter-end. The final natural gas well is expected to be
completed and tied in prior to the end of the third quarter this year.
    In view of the higher commodity price environment and current
expectations, the Board of Directors has deemed it appropriate to increase the
full year capital budget by 25 percent to $25 million. Bonterra's development
program is typically most active with the commencement of its summer drill
program. The balance of this year's program is expected to begin in the third
week of August and include drilling 17 Cardium wells (approximately 14.5 net)
prior to year-end and 3 to 5 shallow gas wells.
    Bonterra has historically grown production and reserves by developing its
own properties rather than through acquisitions. However, Bonterra's
conservative capital structure and strong balance sheet positions the Trust to
capitalize on any future opportunities should they arise.
    In the second quarter of 2008, the Trust's net debt as a percentage of
annualized adjusted distribution base was approximately eight months.
Management and the Board are of the opinion that by limiting debt levels to
approximately one year adjusted distribution base or less, the Trust will be
well-situated to make strategic acquisitions. In addition, this provides
Bonterra with the flexibility to fund its development program from cash flow,
the exercise of employee trust unit options and additional bank loans if need
be without having to issue further equity.
    Bonterra will continue to assess all future acquisition opportunities. As
well, the Trust is continuing to evaluate the options available to it in
response to the federal government's legislation change to the taxation of
Canadian trusts. The board and management are currently considering whether to
continue as a trust until the end of 2010 when the tax structure will change
or whether there may be advantages in converting its structure earlier.
Bonterra expects to have greater clarity regarding a longer-term solution
within the year.
    We wish to thank both the Board of Directors and staff for their efforts
and hard work during the first half of the year. The record-level operating
and financial results recorded would not be possible without a unified and
focused effort. As the Trust moves into the second half of 2008, it will
continue to execute the long-term strategy to maximize unitholder returns
through prudent financial management while conservatively growing the Trust
with a targeted exploitation and development program.

    
    Forward-looking Information
    ---------------------------
    
    Certain statements contained in this press release include statements
which contain words such as "anticipate", "could", "should", "expect", "seek",
"may", "intend", "likely", "will", "believe" and similar expressions, relating
to matters that are not historical facts, and such statements of our beliefs,
intentions and expectations about development, results and events which will
or may occur in the future, constitute "forward-looking information" within
the meaning of applicable Canadian securities legislation and are based on
certain assumptions and analysis made by us derived from our experience and
perceptions. Forward-looking information in this press release includes, but
is not limited to: expected cash provided by continuing operations; cash
distributions; future capital expenditures, including the amount and nature
thereof; oil and natural gas prices and demand; expansion and other
development trends of the oil and gas industry; business strategy and outlook;
expansion and growth of our business and operations; and maintenance of
existing customer, supplier and partner relationships; supply channels;
accounting policies; credit risks; and other such matters.
    All such forward-looking information is based on certain assumptions and
analyses made by us in light of our experience and perception of historical
trends, current conditions and expected future developments, as well as other
factors we believe are appropriate in the circumstances. The risks,
uncertainties, and assumptions are difficult to predict and may affect
operations, and may include, without limitation: foreign exchange
fluctuations; equipment and labour shortages and inflationary costs; general
economic conditions; industry conditions; changes in applicable environmental,
taxation and other laws and regulations as well as how such laws and
regulations are interpreted and enforced; the ability of oil and natural gas
trusts to raise capital; the effect of weather conditions on operations and
facilities; the existence of operating risks; volatility of oil and natural
gas prices; oil and gas product supply and demand; risks inherent in the
ability to generate sufficient cash flow from operations to meet current and
future obligations; increased competition; stock market volatility;
opportunities available to or pursued by us; and other factors, many of which
are beyond our control.
    Actual results, performance or achievements could differ materially from
those expressed in, or implied by, this forward-looking information and,
accordingly, no assurance can be given that any of the events anticipated by
the forward-looking information will transpire or occur, or if any of them do,
what benefits will be derived there from. Except as required by law, Bonterra
disclaims any intention or obligation to update or revise any forward-looking
information, whether as a result of new information, future events or
otherwise.
    The forward-looking information contained herein is expressly qualified
by this cautionary statement.

    
    Financial and Operational Discussion
    ------------------------------------

    Production
    ----------
                                      Three months ended    Six months ended
                             June 30,   Mar 31,  June 30,  June 30,  June 30,
                                2008      2008      2007      2008      2007
    -------------------------------------------------------------------------
    Crude oil and NGLs
     (barrels per day)         3,024     3,153     3,074     3,088     3,150
    Natural gas (MCF per day)  7,272     7,139     6,663     7,206     6,567
    -------------------------------------------------------------------------
    Total BOE's per day        4,236     4,343     4,185     4,289     4,245
    -------------------------------------------------------------------------
    

    Barrels of oil equivalent (BOE's) are calculated using a conversion ratio
of 6 MCF to 1 barrel of oil. The conversion is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead and as such may be misleading if
used in isolation.
    Production volumes for the second quarter were affected primarily by two
factors. Firstly, spring breakup prevented timely repairs on the Trust's
producing wells. This is a normal occurrence as over 85 percent of the Trust's
wells have restricted access during the second quarter of each year. Secondly,
the operator of a natural gas plant where approximately 40 percent of the
Trust's Pembina production gets processed conducted their annual turnaround
during the month of May resulting in an average of approximately 300 MCF per
day (50 BOE per day for the month of May) of natural gas being shut-in.
    The Trust drilled 10 gross (8.1 net) Cardium oil wells and 1 gross
(.1 net) shallow gas well in the first six months of 2008 on its operated
lands. In addition the Trust participated in the drilling of 3 (.4 net)
Cardium wells on non-operated lands. As at June 30, 2008, Bonterra had 4 gross
(4 net) Cardium oil wells and 1 gross (.1 net) natural gas wells and 3 gross
(2.5 net) coalbed methane wells (CBM) drilled but not on production. During
the first six months of 2008, the Trust tied-in 16 gross (10.8 net) Cardium
wells and 2 gross (2 net) natural gas wells. The Trust completed and tied-in
the remaining Cardium oil wells in July. The natural gas well is anticipated
to be completed and tied in prior to the end of the third quarter.
    It is currently expected that the summer drill program will commence
during the third week of August. It is anticipated that a total of 17 gross,
approximately 14.5 net, Cardium wells will be drilled prior to December 31.
Bonterra is also pursuing the possible drilling of 3 to 5 shallow gas wells in
2008. Based on current expectations the Trust is increasing its 2008 capital
drilling budget by $5,000,000 to $25,000,000.

    
    Revenue
    -------

                                      Three months ended    Six months ended
                             June 30,   Mar 31,  June 30,  June 30,  June 30,
    (Cdn $)                     2008      2008      2007      2008      2007
    -------------------------------------------------------------------------

    Revenue - oil and gas
     sales (000's)            34,398    30,493    23,462    64,891    46,064

    Average Realized Prices:
    Crude oil and NGLs
     (per barrel)             101.69     87.20     67.60     94.31     65.02
    Natural gas (per MCF)       9.61      8.32      7.40      8.97      7.46
    -------------------------------------------------------------------------
    

    Second quarter realized gross revenue of $34,398,000 was the highest
single quarter revenue ever recorded by the Trust. The increase in revenue
over prior periods was primarily due to higher commodity prices. Included in
revenue is a realized loss on risk management contracts of $5,381,000 for the
first six months of 2008 ($815,000 gain in the first six months of 2007). In
addition, the Trust also recorded an unrealized loss on risk management
contracts of $7,025,000 for the first six months of 2008 (first six months of
2007 - $439,000). All fair value adjustments related to outstanding risk
management contracts are recorded as adjustments to net earnings.
    During the first quarter of 2008, the Trust reassessed its hedging
policy. With the disposal of the Trust's interest in the Dodsland properties,
which had production volume of approximately one barrel per day per well and
operating costs per barrel in the mid $30's, as well as the reduction in the
payout ratio from the high 80 percent to mid 60 percent range, Bonterra has
decided that at least in the near term it will not enter into further risk
management contracts. The Trust will however maintain the existing risk
management agreements until they expire. Kindly refer to Note 10 to the
attached interim financial statements for details of outstanding risk
management contracts. As at June 30, 2008, the fair value of the outstanding
risk management contracts was a net liability of $10,109,000 (December 31,
2007 - $3,085,000).

    
    Royalties
    ---------

                                      Three months ended    Six months ended
                             June 30,   Mar 31,  June 30,  June 30,  June 30,
    ($ 000)                     2008      2008      2007      2008      2007
    -------------------------------------------------------------------------

    Crown royalties            4,263     3,613     2,389     7,876     4,545
    Freehold royalties, gross
     overriding royalties and
     net carried interests     1,056       731     1,479     1,787     1,901
    -------------------------------------------------------------------------
    Total royalty expense      5,319     4,344     3,868     9,663     6,446
    -------------------------------------------------------------------------
    

    Royalties paid by the Trust consist primarily of Crown royalties paid to
the Provinces of Alberta and Saskatchewan. The non-Crown royalty figure for
the six months ended June 30, 2007 includes a prior year royalty charge
adjustment of $800,000.
    The majority of the Trust's wells are low productivity wells and
therefore have low Crown royalty rates. The Trust's average Crown royalty rate
is approximately 11.2 percent (2007 - 10 percent) and approximately
2.5 percent (2007 - 2.5 percent) for other royalties before hedging
adjustments. Bonterra continues to expect an average combined royalty rate of
approximately 13.5 percent for the balance of 2008.
    The recently announced Alberta royalty amendments will result in a higher
average royalty rate for Bonterra in 2009 and beyond. The Trust currently
estimates that the new legislation will increase the average Crown royalty
rate by between 4 to 6 percent (15-17 percent of gross revenues). The new
royalty rates vary by prices as well as productivity levels.

    
    Production Costs
    ----------------

                                      Three months ended    Six months ended
                             June 30,   Mar 31,  June 30,  June 30,  June 30,
    ($ 000)                     2008      2008      2007      2008      2007
    -------------------------------------------------------------------------

    Production costs           6,089     6,317     6,556    12,406    12,137
      $ per BOE                15.79     15.98     17.21     15.89     15.80
    -------------------------------------------------------------------------
    

    Continued high commodity prices have resulted in service cost increases
in the 5 to 10 percent range on a year over year basis. The Trust continues to
monitor costs as best it can, but given the high commodity price environment,
it expects costs per BOE to remain in the $15.50 to $16.00 range for the
remainder of 2008.
    The Trust's production comes primarily from low productivity wells. These
wells generally result in higher production costs on a per unit-of-production
basis as costs such as municipal taxes, surface leases, power and personnel
costs are not variable with production volumes. The high production costs for
the Trust are substantially offset by current low royalty rates of
approximately 13.5 percent, which is much lower than industry average for
conventional production and results in high cash netbacks on a combined basis
despite higher than industry average production costs.

    
    General and Administrative (G&A) Expense
    ----------------------------------------

                                      Three months ended    Six months ended
                             June 30,   Mar 31,  June 30,  June 30,  June 30,
    ($ 000)                     2008      2008      2007      2008      2007
    -------------------------------------------------------------------------

    G&A Expense                  855       877       527     1,732     1,091
      $ per BOE                 2.22      2.22      1.42      2.22      1.44
    -------------------------------------------------------------------------

    The increase in G&A expense year over year was due to increased employee
compensation of approximately $575,000 as well as increases in other
professional service costs of approximately $100,000. Offsetting a portion of
the increase was increased cost recoveries of $26,000 from related
corporations (see Related Party section).

    Interest Expense
    ----------------

                                      Three months ended    Six months ended
                             June 30,   Mar 31,  June 30,  June 30,  June 30,
    ($ 000)                     2008      2008      2007      2008      2007
    -------------------------------------------------------------------------

    Interest Expense             650       799       744     1,449     1,441
    -------------------------------------------------------------------------
    

    Increases in average outstanding debt balances in 2008 over 2007 amounts
were offset by an approximately one percent drop in borrowing rates. The
quarter over quarter decrease was due to slightly lower interest rates as well
as reduced debt balances. Increased cash flow resulting from record crude oil
prices coupled with the Trust's lower payout ratio resulted in a reduction of
approximately $6,000,000 in the Trust's debt in Q2 from Q1 2008. With spring
breakup during the second quarter, restricting Bonterra's capital programs,
and continuing record commodity prices the Trust anticipates reduced debt
levels for the third quarter of 2008 increasing thereafter as the Trust
continues with its fall and winter drill programs. Bonterra is currently able
to borrow at rates between 4.35 and 4.75 percent per annum.
    The Trust's net debt as a percentage of annualized second quarter
adjusted distribution base was approximately eight months (67 percent). The
Trust believes that maintaining debt at or less than one year's adjusted
distribution base (calculated quarterly based on annualized quarterly results)
is an appropriate level to either take advantage of future acquisition
opportunities or provide flexibility to develop its infill oil, shallow gas
and CBM potential from its cash flow and additional bank loans. Thus, it
should not be necessary to issue additional trust units.

    
    Unit Based Compensation
    -----------------------
    
    Unit based compensation is a statistically calculated value representing
the estimated expense of issuing employee unit options. The Trust records a
compensation expense over the vesting period based on the fair value of
options granted to employees, directors and consultants. During the quarter
29,000 employee unit options were issued with an estimated fair value of
$115,000 ($3.95 per option) using the Black-Scholes pricing model. If no
further options are issued approximately $548,000 of compensation expense will
be expensed during the remainder of 2008, 2009 and 2010.

    
    Depletion, Depreciation, Accretion and Dry Hole Costs
    -----------------------------------------------------
    
    The Trust follows the successful efforts method of accounting for
petroleum and natural gas exploration and development costs. Under this
method, the costs associated with dry holes are charged to operations. For
intangible capital costs that result in the addition of reserves, the Trust
depletes its oil and natural gas intangible assets using the
unit-of-production basis by field. The Trust believes that the successful
efforts method of accounting provides a more accurate cost of the producing
properties than the alternative measure of full cost accounting.
    Provision for depletion, depreciation and accretion was $7,010,000 and
$6,786,000, respectively for the six month periods ending June 30, 2008 and
June 30, 2007. The increase in the depletion amount was due primarily to
increased production volumes and a marginal increase in the average cost of
reserves.
    The Trust continues to replace production declines with reserves from
newly drilled wells. The Trust has capital costs of approximately $6.10 per
proved BOE of reserves based on the December 31, 2007 independent engineering
report.
    All wells drilled during the fourth quarter of 2007 and first half of
2008 have been successful and therefore no dry hole costs were recorded during
2008.

    
    Taxes
    -----
    
    Future income tax expense for the first six months of 2008 decreased by
$2,590,000 compared to the first six months of 2007. Until June 2007, the
Trust had been tax effecting the reversal of taxable temporary differences at
a nil tax rate on the assumption that the Trust would make sufficient tax
deductible cash distributions to Unitholders such that the Trust's taxable
income would be nil for the foreseeable future and the tax burden would have
continued to be with whomever received the monthly distribution. The new
legislation limits the tax deductibility of cash distributions such that
income taxes may become payable in the future. This resulted in a one-time
adjustment to 2007's future income tax expense of approximately $3.8 million.
    The Trust has estimated its future income taxes based on its best
estimates of results from operations and tax pool claims and cash
distributions in the future assuming no material change to the Trust's current
organizational structure. As currently interpreted, Canadian Generally
Accepted Accounting Principles (GAAP) does not permit the Trust's estimate of
future income taxes to incorporate any assumptions related to a change in
organizational structure until such structures are given legal approval.
    The Trust's estimate of its future income taxes will vary as to the
Trust's assumptions pertaining to the factors described above and such
variations may be material.
    Until 2011, the new legislation does not directly affect the Trust's cash
flow from operations, and accordingly, the Trust's financial condition.
    Currently, taxable income earned within the Trust is required to be
allocated to its Unitholders and as such the Trust will not incur any current
taxes. However, the Trust operates its oil and gas interests through its
100 percent owned subsidiaries Bonterra Energy Corp. (Bonterra Corp.) and
Novitas Energy Ltd. (Novitas) and these corporations may periodically be
taxable.
    These corporations pay the majority of their income to the Trust through
interest and royalty payments which are deductible for income tax purposes.
The current tax provision relates to a resource surcharge payable by the
Trust's subsidiaries to the Province of Saskatchewan. The surcharge is
calculated as a flat percent of revenues generated from the sale of petroleum
products produced in Saskatchewan. The provincial government of Saskatchewan
has reduced the resource surcharge rate to 3.1 percent on July 1, 2007 and to
3.0 percent on July 1, 2008.
    The Canadian taxable portion of distributions for each taxation year is
calculated on an annual basis and is reported by February 28 of the following
year.

    
    Net Earnings
    ------------

                                      Three months ended    Six months ended
                             June 30,   Mar 31,  June 30,  June 30,  June 30,
    ($ 000)                     2008      2008      2007      2008      2007
    -------------------------------------------------------------------------

    Net Earnings              12,912    10,804     5,371    23,716    13,033
    -------------------------------------------------------------------------
    

    Net earnings increased to an all time high of $23,716,000 in the first
half of 2008 from $13,033,000 in the corresponding 2007 period. Revenue
increases due to increased commodity prices and production were partially
offset by increased loss on risk management contracts (both realized and
unrealized) as well as increased royalty expense. The Trust's quarter over
quarter net earnings increased $2,108,000 due primarily to increased commodity
prices.
    The Trust continues to return in excess of 35 percent of its gross
realized revenues in net earnings. The Trust's low capital costs combined with
a low debt to adjusted distribution base ratio all contribute to the high
return. Bonterra's higher than industry average per unit operating costs are
more than offset with its low royalty rates resulting in one of the highest
cash netbacks in the industry (see cash netback).

    
    Comprehensive Income
    --------------------
    
    On January 1, 2007, the Trust adopted the new GAAP accounting standards
regarding the accounting for financial instruments. On adoption, the Trust
increased its investment in a related party by $1,836,000 for the fair value
of this investment. Other comprehensive income for the first half of 2008
included a decrease in the unrealized gain on investment in a related party of
$164,000 (2007 increase of $628,000) net of applicable income taxes.

    
    Standardized Distributable Cash
    -------------------------------
    

    Compliance with Guidance

    This Management's Discussion and Analysis is in all material respects in
accordance with the recommendations provided in CICA's publication
"Standardized Distributable Cash in Income Trusts and Other Flow-Through
Entities: Guidance on Preparation and Disclosure".

    
    Definition and Disclosure of Standardized Distributable Cash


                                                                  Cumulative
                                                                Amounts from
                                                                   Inception
                                                                    of Trust
                                             Six           Six       (July 1,
                                    Months Ended  Months Ended      2001) to
                                         June 30,      June 30,      June 30,
    ($000)                                  2008          2007          2008
    -------------------------------------------------------------------------

    Cash Flow from Operating Activities   36,742        26,178       255,017
    Less adjustment for:
      Capital expenditures                (8,964)       (9,324)     (103,462)
      Financing restrictions caused
       by debt                                 -             -             -
    -------------------------------------------------------------------------
    Standardized Distributable Cash       27,778        16,854       151,555
    -------------------------------------------------------------------------


    Definition and Disclosure of Adjusted Distribution Base (Formerly Funds
    Flow from Operations)

                                                                  Cumulative
                                                                Amounts from
                                                                   Inception
                                                                    of Trust
                                             Six           Six       (July 1,
                                    Months Ended  Months Ended      2001) to
                                         June 30,      June 30,      June 30,
    ($000)                                  2008          2007          2008
    -------------------------------------------------------------------------

    Standardized Distributable
     Cash - per above                     27,778        16,854       151,555
    Adjusted for:
      Capital expenditures                 8,964         9,324       103,462
      Gain on sale of property                 -             -         1,089
      Changes in accounts receivable       4,837          (599)       10,413
      Changes in crude oil inventory         (87)          (65)          166
      Changes in parts inventory             (11)          (24)         (201)
      Changes in prepaid expenses          1,058           454         1,556
      Changes in accounts payable and
       accrued liabilities                (5,042)       (1,429)       (3,179)
      Asset retirement obligations
       settled                             1,913           309         4,442
    -------------------------------------------------------------------------
    Adjusted Distribution Base(1)         39,410        24,824       269,303
    -------------------------------------------------------------------------
    (1) Adjusted distribution base is not a recognized measure under GAAP.
        The Trust believes that in addition to cash flow from operations the
        adjusted distribution base is a useful supplemental measure as it
        demonstrates the Trust's ability to generate the funds necessary to
        make trust distributions, repay debt or fund future growth through
        capital investment. Investors are cautioned, however, that this
        measure should not be construed as an indication of the Trust's
        performance. The Trust's method of calculating this measure may
        differ from other issuers and accordingly, it may not be comparable
        to that used by other issuers. For these purposes, the Trust defines
        adjusted distribution base as funds provided by operations before
        changes in non-cash operating working capital items excluding gain on
        sale of property and asset retirement obligations.
    

    Working Capital Policies

    The Trust, excluding current portion of debt, maintains a consistent
level of working capital. All items of working capital are generally turned
over every 30 to 60 days. Excluding minor variations due to payment of bonuses
and property taxes, there are no reoccurring items that would cause a seasonal
impact in working capital.

    
    Analysis of Relationship between Standardized Distributable Cash,
    Distributions, and Investing and Financing Activities

                           Six Months
                                Ended   Year ended   Year ended   Year ended
                              June 30, December 31, December 31, December 31,
    ($000)                       2008         2007         2006         2005
    -------------------------------------------------------------------------

    Standardized Distributable
     Cash                      27,778       32,133       14,346       23,413
    Distributions(1)          (26,211)     (44,648)     (47,281)     (38,949)
    Increase (decrease) in
     bank debt                 (4,442)      12,043       25,202       11,717
    Proceeds on exercise
     of employee unit options   4,490          993        5,161        2,823
    Issuance of units (net of
     costs of issue)                -            -            -         (259)
    Non-cash financing and
     investing working capital
     adjustments               (1,615)        (521)       2,572        1,255
    -------------------------------------------------------------------------

    (1) Includes the distribution declared in July in respect of June
        operations and excludes the January, distribution as it was in
        respect of December operations.

    The only unfunded operating transaction of the Trust is its asset
retirement obligations. The Trust has the following estimated timing of
expenditures for asset retirement obligations:

                                                                Expenditure
                                                                  Expected
    Year                                                           ($000)
    -------------------------------------------------------------------------
    2008 (including expenditures incurred to date)                     2,227
    2009                                                                 250
    2010                                                                 175
    2011                                                                 563
    2012                                                                 856
    -------------------------------------------------------------------------
                                                                       4,071
    -------------------------------------------------------------------------
    

    Definition and History of Productive Capacity and Strategy

    Bonterra's primary objective is to continue paying distributions to its
Unitholders. This is accomplished by developing and growing its reserves from
which cash flow is generated. The Trust defines Productive Capacity
Maintenance as the maintaining of the Trust's proven plus probable reserves.
The Trust follows a policy of internal development as its primary method of
planned growth. Bonterra has a significant inventory of undrilled Cardium oil
infill drilling locations as well as several shallow gas opportunities on its
lands or through farm-in agreements. It is management's view that the
calculation of the amount required for Productive Capacity Maintenance is the
amount of reserves produced in the relevant time period multiplied by the
Trust's finding and development costs for proven plus probable reserves. For
this purpose the Trust believes that the use of a three-year average rate is
reasonable given fluctuations in annual costs due to market conditions.

    
                           Six Months
                                Ended   Year ended   Year ended   Year ended
                              June 30, December 31, December 31, December 31,
                                 2008         2007         2006         2005
    -------------------------------------------------------------------------
    Proven and probable
     reserves at beginning
     of period (BOE's)     27,320,000   26,476,000   23,870,000   19,711,000
    Reserves added due to
     acquisitions (BOE's)           -     (421,000)      16,000    2,393,000
    Reserves added due to
     capital expenditures
     (BOE's)                       (1)   2,806,000    4,082,000    3,100,000
    Production during
     period (BOE's)           781,000    1,540,000    1,476,000    1,334,000
    Increase in productive
     capacity (BOE's)              (1)     845,000    2,606,000    4,159,000
    Reserves per unit
     (fully diluted)        1.55(1)(2)        1.62         1.57         1.46
    Productive capacity
     maintenance
     requirements          $8,642,000  $17,043,000  $17,472,000   $9,205,000
    Capital expenditures
     for the period        $8,964,000  $19,300,000  $38,348,000  $56,703,000
    Capital expenditures
     in excess of
     maintenance
     requirements            $322,000   $2,257,000  $20,876,000  $47,498,000
    Cost of increased
     productive capacity
     (per BOE)                     (1)       $2.67        $8.01       $11.42
    -------------------------------------------------------------------------

    (1) The Trust does not update reserve information quarterly.
    (2) Assuming no other additional reserves in 2008.
    

    Financing Strategy

    The Trust maintains a strategy of limiting its debt levels to
approximately one year adjusted distribution base. Bonterra has a long-term
goal to retain between 20 to 25 percent of its adjusted distribution base to
finance its capital maintenance expenditures. Over the past years, this level
of retention of adjusted distribution base, along with the exercising of unit
options and modest increases in its bank loans has proven to be sufficient to
maintain the productive capacity of the Trust. To the extent additional
capital expenditures are incurred to increase reserves, the Trust anticipates
financing them through proceeds received on exercise of employee unit options,
equity placements or from its line of credit.
    Periods may exist where the cost of replacing reserves exceeds the level
of funds withheld. However, the Trust with its long life reserves and
relatively low debt levels compared to other income trusts, has the
flexibility to increase or decrease its capital commitments depending on
commodity prices and costs of development.
    It is management's strategy to finance the costs of reclamation as well
as potential income taxes (commencing in 2011) resulting from the recently
enacted income trust tax law from the adjusted distribution base. Management
is reviewing various organizational alternatives and operational strategies to
mitigate the impact of the new tax.

    Compliance with Financial Covenants

    Due to the relatively low debt levels maintained by the Trust, the
Trust's loan agreements do not contain any debt covenants other than that the
debt is payable upon demand.

    
    Per Unit and Ratio Disclosures

                                                                  Cumulative
                                                                Amounts from
                                                                   Inception
                                                                    of Trust
                                             Six           Six       (July 1,
                                    Months Ended  Months Ended      2001) to
                                         June 30,      June 30,      June 30,
    ($000 except $ per unit)                2008          2007          2008
    -------------------------------------------------------------------------

    Standardized Distributable Cash       27,778        16,854       151,555
    Per weighted average unit               1.64          1.00          9.64
    Per fully diluted unit                  1.63          1.00          9.59
    Cash distributions(1)                 26,211        22,309       230,510
    Payout ratio                            0.94          1.32          1.52
    Adjusted Distribution Base            39,410        24,824       269,303
    Per weighted average unit               2.32          1.47         17.25
    Per fully diluted unit                  2.31          1.47         17.13
    Cash distributions(1)                 26,211        22,309       230,510
    Payout ratio                            0.67          0.90          0.86
    -------------------------------------------------------------------------

    (1) Includes distributions declared in July 2008 and 2007 in respect of
        June 2008 and 2007 operations, respectively.
    

    On a go forward basis, the Trust plans to maintain the payout ratio in
respect of Standardized Distributable Cash at a level between 110 to
120 percent to facilitate a debt to cash flow level of less than one year and
to not incur current tax (excluding Saskatchewan Resource Surcharge). This
will be attained through controlling costs of capital replacement, by
examining lower cost methods of reserve replacement as well as increased cash
flow from wells currently producing.

    Tax Attributes of Distributions and the Trust's Assets

    See discussion under Taxes.

    
    Cash Netback
    ------------
    The following table illustrates the Trust's cash netback for the six month
periods ended (the 2007 netback includes one time charges to royalties as
described above in this report):

                                                        June 30,     June 30,
    $ per Barrel of Oil Equivalent (BOE)                   2008         2007
    -------------------------------------------------------------------------
    Production volumes (BOE)                            780,644      757,485
    Gross production revenue                             $90.02       $59.73
    Realized gain (loss) on risk management contracts     (6.90)        1.08
    Royalties                                            (12.38)       (8.51)
    Field operating costs                                (15.89)      (15.80)
    -------------------------------------------------------------------------
    Field netback                                         54.85        36.50
    General and administrative                            (2.22)       (1.44)
    Interest and taxes                                    (2.18)       (2.11)
    -------------------------------------------------------------------------
    Cash netback                                         $50.45       $32.95
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The following table illustrates the Trust's cash netback for the three
month periods:

                                                        June 30,    March 31,
    $ per Barrel of Oil Equivalent (BOE)                   2008         2008
    -------------------------------------------------------------------------
    Production volumes (BOE)                            385,468      395,176
    Gross production revenue                             $99.66       $80.62
    Realized gain (loss) on risk management contracts    (10.43)       (3.46)
    Royalties                                            (13.81)      (10.99)
    Field operating                                      (15.80)      (15.98)
    -------------------------------------------------------------------------
    Field netback                                         59.62        50.19
    General and administrative                            (2.22)       (2.22)
    Interest and taxes                                    (2.06)       (2.30)
    -------------------------------------------------------------------------
    Cash netback                                         $55.34       $45.67
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Liquidity and Capital Resources
    -------------------------------
    During the first six months of 2008, the Trust incurred capital costs of
$8,964,000 (2007 - $9,324,000). The Trust and its partners drilled 13 gross
(8.5 net) Cardium oil wells and one gross (0.1 net) shallow gas well in the
first half of 2008.
    The Trust currently has plans to drill a total of 30 gross (23 net)
Cardium infill oil wells in 2008 and 5 gross shallow gas wells. Total capital
costs of approximately $25,000,000 are budgeted for 2008. It is anticipated
that the entire 2008 capital expenditures will be funded from cash flow and
funds from the exercise of employee unit options. Should it be necessary, the
Trust will use its financial facilities to cover any shortfall.
    The Trust, through its operating subsidiaries, has a bank revolving
credit facility of $69,900,000 at June 30, 2008 (December 31, 2007-
$69,900,000). The credit facilities carry an interest rate of Canadian
chartered bank prime.

    Sensitivity Analysis
    --------------------
    Commodity prices have fluctuated significantly over the recent past. The
following table updates the cash flow sensitivity for movements in the
commodity prices of $1 U.S. WTI for crude oil, $0.10 per MCF AECO for natural
gas and $0.01 fluctuation in exchange rates. These figures have been updated
from December 31, 2007 to include commodity price hedges entered into during
the first half of 2008.

    
                                                                   Cash Flow
    -------------------------------------------------------------------------
    U.S. $1.00 per barrel                                        $   692,000
    Canadian $0.10 per MCF                                       $   181,000
    Change of Canadian $0.01/U.S. $ exchange rate                $   587,000
    -------------------------------------------------------------------------


    The TSX does not accept responsibility for the adequacy or accuracy of
    this release.


    BONTERRA ENERGY INCOME TRUST
    CONSOLIDATED BALANCE SHEETS

    As at June 30, 2008 (unaudited) and
     December 31, 2007
    ($000)                                                2008         2007

    Assets
    Current
      Accounts receivable                               15,412       10,575
      Crude oil inventory                                  648          792
      Parts inventory                                      121          132
      Prepaid expenses                                   2,388        1,330
      Future income tax asset (Note 5)                   2,986          913
      Investments in related party (Note 2)              3,828        4,014
    -------------------------------------------------------------------------
                                                        25,383       17,756
    -------------------------------------------------------------------------
    Property and Equipment (Note 3)
      Petroleum and natural gas properties
       and related equipment                           196,243      187,288
      Accumulated depletion and depreciation           (68,379)     (61,805)
    -------------------------------------------------------------------------
    Net Property and Equipment                         127,864      125,483
    -------------------------------------------------------------------------
                                                       153,247      143,239
    -------------------------------------------------------------------------
    Liabilities
    Current
      Distribution payable                               5,474        3,724
      Accounts payable and accrued liabilities          13,967       12,291
      Derivative liability                              10,110        3,085
      Debt (Note 4)                                     52,980       57,422
    -------------------------------------------------------------------------
                                                        82,531       76,522
    Future Income Tax Liability (Note 5)                10,741        7,595
    Asset Retirement Obligations                        13,363       14,904
    -------------------------------------------------------------------------
                                                       106,635       99,021
    -------------------------------------------------------------------------
    Commitments (Note 9)
    Unitholders' Equity (Note 6)
      Unit capital                                      95,528       90,590
      Contributed surplus                                2,254        2,140
    -------------------------------------------------------------------------
                                                        97,782       92,730
    -------------------------------------------------------------------------
      Deficit                                          (54,037)     (51,543)
      Accumulated other comprehensive income (Note 7)    2,867        3,031
    -------------------------------------------------------------------------
                                                       (51,170)     (48,512)
    Total Unitholders' Equity                           46,612       44,218
    -------------------------------------------------------------------------
                                                       153,247      143,239
    -------------------------------------------------------------------------


    BONTERRA ENERGY INCOME TRUST
    CONSOLIDATED STATEMENTS OF UNITHOLDERS' EQUITY

    For the periods ended
     June 30 (unaudited)            Three Months               Six Months
    ($000)                       2008         2007         2008         2007
    -------------------------------------------------------------------------
    Unitholders' equity,
     beginning of period       48,136       57,646       44,218       53,359
    Comprehensive income
     for the period            12,577        5,017       23,552       13,661
    Adjustment of opening
     accumulated comprehensive
     income                         -            -            -        2,380
    Net capital contributions   4,210          234        4,490          705
    Unit based compensation
     adjustment                   279          185          562          403
    Distributions declared    (18,590)     (11,162)     (26,210)     (18,588)
    -------------------------------------------------------------------------
    Unitholders' Equity,
     End of Period             46,612       51,920       46,612       51,920
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    BONTERRA ENERGY INCOME TRUST
    CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT

    For the periods ended June 30
     (unaudited)
    ($000, except $ per unit)       Three Months               Six Months
                                 2008         2007         2008         2007
                                          (Note 11)                 (Note 11)
    -------------------------------------------------------------------------
    Revenue
      Oil and gas sales        38,412       23,237       70,272       45,249
      Realized gain (loss) on
       risk management
      contracts                (4,014)         225       (5,381)         815
      Unrealized gain (loss)
       on risk management
       contracts (Note 10)     (4,636)       1,313       (7,025)        (439)
      Royalties                (5,319)      (3,868)      (9,663)      (6,446)
      Interest and other            9           12           22           33
    -------------------------------------------------------------------------
                               24,452       20,919       48,225       39,212
    -------------------------------------------------------------------------
    Expenses
      Production costs          6,089        6,556       12,406       12,137
      General and
       administrative             855          527        1,732        1,091
      Interest on debt            650          744        1,449        1,441
      Unit option based
       compensation               279          185          562          403
      Dry hole costs                -            9            -          476
      Depletion, depreciation
       and accretion            3,516        3,284        7,010        6,786
    -------------------------------------------------------------------------
                               11,389       11,305       23,159       22,334
    -------------------------------------------------------------------------
    Earnings Before Taxes      13,063        9,614       25,066       16,878
    -------------------------------------------------------------------------
    Taxes (Note 5)
      Current                     142           84          253          158
      Future                        9        4,159        1,097        3,687
    -------------------------------------------------------------------------
                                  151        4,243        1,350        3,845
    -------------------------------------------------------------------------
    Net Earnings for
     the Period                12,912        5,371       23,716       13,033
    Deficit at beginning
     of period                (48,359)     (37,009)     (51,543)     (37,245)
    Distributions declared    (18,590)     (11,162)     (26,210)     (18,588)
    -------------------------------------------------------------------------
    Deficit at End of Period  (54,037)     (42,800)     (54,037)     (42,800)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net Earnings per Trust
     Unit - Basic                0.76         0.32         1.40         0.77
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net Earnings per Trust
     Unit - Diluted              0.75         0.32         1.39         0.77
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    BONTERRA ENERGY INCOME TRUST
    CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

    For the periods ended June 30
     (unaudited)
    ($000, except $ per unit)       Three Months               Six Months
                                 2008         2007         2008         2007
                                          (Note 11)                 (Note 11)
    -------------------------------------------------------------------------

    Net Earnings for the
     Period                     12,912       5,371       23,716       13,033

    Unrealized gains (losses)
     on investments (net of
     income taxes; three months
     ended 2008 - 25,
     2007 - (61), six months
     ended 2008 - (22),
     2007 - 109)                  (335)       (354)        (164)         628
    -------------------------------------------------------------------------
    Other Comprehensive Income
     (Loss)                       (335)       (354)        (164)         628
    -------------------------------------------------------------------------
    Comprehensive Income        12,577       5,017       23,552       13,661
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Comprehensive Income Per
     Trust Unit - Basic           0.74        0.30         1.39         0.81
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Comprehensive Income Per
     Trust Unit - Diluted         0.73        0.30         1.38         0.81
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    BONTERRA ENERGY INCOME TRUST
    CONSOLIDATED STATEMENTS OF CASH FLOWS

    For the periods ended June 30
     (unaudited)
    ($000)                          Three Months               Six Months
                                 2008         2007         2008         2007
                                          (Note 11)                 (Note 11)
    -------------------------------------------------------------------------
    Operating Activities
      Net earnings for the
       period                  12,912        5,371       23,716       13,033
      Items not affecting cash
        Unrealized loss on risk
         management contracts   4,636       (1,313)       7,025          439
        Unit option based
         compensation             279          185          562          403
        Dry hole costs              -            9            -          476
        Depletion, depreciation
         and accretion          3,516        3,284        7,010        6,786
        Future income taxes         9        4,159        1,097        3,687
    -------------------------------------------------------------------------
                               21,352       11,695       39,410       24,824
    -------------------------------------------------------------------------
      Change in non-cash
       working capital
        Accounts receivable    (1,636)          60       (4,837)         599
        Crude oil inventory       (55)          79           87           65
        Parts inventory            (3)          16           11           24
        Prepaid expenses       (1,113)        (502)      (1,058)        (454)
        Accounts payable and
         accrued liabilities    2,171        2,326        5,042        1,429
      Asset retirement
       obligations settled       (186)        (261)      (1,913)        (309)
    -------------------------------------------------------------------------
                                 (822)       1,718       (2,668)       1,354
    -------------------------------------------------------------------------
    Cash Provided by
     Operating Activities      20,530       13,413       36,742       26,178
    -------------------------------------------------------------------------
    Financing Activities
      Increase (decrease)
       in debt                 (5,933)       1,766       (4,442)       9,222
      Unit option proceeds      4,210          234        4,490          705
      Unit distributions      (13,116)     (11,162)     (24,460)     (22,638)
    -------------------------------------------------------------------------
    Cash Used in Financing
     Activities               (14,839)      (9,162)     (24,412)     (12,711)
    -------------------------------------------------------------------------
    Investing Activities
      Property and equipment
       expenditures            (2,543)      (1,699)      (8,964)      (9,324)
      Change in non-cash
       working capital
        Accounts receivable         -          729            -          993
        Accounts payable and
         accrued liabilities   (3,148)      (3,281)      (3,366)      (5,136)
    -------------------------------------------------------------------------
    Cash Used in Investing
     Activities                (5,691)      (4,251)     (12,330)     (13,467)
    -------------------------------------------------------------------------
    Net Cash Inflow                 -            -            -            -
    Cash, beginning of period       -            -            -            -
    -------------------------------------------------------------------------
    Cash, End of Period             -            -            -            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash Interest Paid            650          744        1,449        1,441
    Cash Taxes Paid                90           93          368          183
    -------------------------------------------------------------------------


    NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    ------------------------------------------------------

    Periods Ended June 30, 2008 and 2007 unaudited

    1.  SIGNIFICANT ACCOUNTING POLICIES

    The accounting policies and methods of application followed in the
    preparation of the interim financial statements other than described
    below are the same as those followed in the preparation of the Trust's
    2007 annual financial statements. These interim financial statements do
    not include all disclosure requirements for annual financial statements.
    The interim financial statements as presented should be read in
    conjunction with the 2007 annual financial statements.

    The Trust adopted Section 1535 "Capital Disclosures", Section 3862,
    "Financial Instruments - Disclosures" and Section 3863, "Financial
    Instruments - Presentation". All the above Sections were required to be
    adopted for fiscal years beginning on or after October 1, 2007. As a
    result, the Trust has added Note 9 providing the required disclosures
    regarding the Trust's objectives, policies and processes for managing
    capital and the significance of financial instruments for the entity's
    financial position and performance; and the nature, extent and management
    of risks arising from financial instruments to which the entity is
    exposed.

    The Trust also adopted Section 3031 - "Inventories", which replaces
    Section 3030. This section is harmonized with International Accounting
    Standards and provides additional guidance on the measurement and
    disclosure requirements for inventories. This new standard did not have
    an impact on the Trust's financial statements.

    Accounting changes

    In February 2008, the CICA issued Section 3064, "Goodwill and Intangible
    Assets", replacing Section 3062, "Goodwill and Other Intangible Assets"
    and Section 3450, "Research and Development Costs". Various changes have
    been made to other sections of the CICA Handbook for consistency
    purposes. The new section will be applicable to financial statements
    relating to fiscal years beginning on or after October 1, 2008.
    Accordingly, the Trust will adopt the new standards for its fiscal year
    beginning January 1, 2009. This standard establishes standards for the
    recognition, measurement, presentation and disclosure of goodwill
    subsequent to its initial recognition and of intangible assets by profit-
    oriented enterprises. Standards concerning goodwill are unchanged from
    the standards included in the previous Section 3062. The Trust does not
    expect that the adoption of this new Section will have a material impact
    on its consolidated financial statements.

    2.  INVESTMENT IN RELATED PARTY

    The investment consists of 689,682 (December 31, 2007 - 689,682) common
    shares in Comaplex Minerals Corp. (Comaplex), a company with common
    directors and management. The investment is recorded at fair market
    value. The fair market value as determined by using the trading price of
    the stock at June 30, 2008 of $5.55 per share and at December 31, 2007 of
    $5.82 per share. The common shares trade on the Toronto Stock Exchange
    under the symbol CMF. The investment represents less than one and a half
    percent ownership in the outstanding shares of Comaplex.

    3.  PROPERTY AND EQUIPMENT

                                   June 30, 2008          December 31, 2007
    -------------------------------------------------------------------------
                                        Accumulated              Accumulated
                                      Depletion and            Depletion and
    ($000)                       Cost  Depreciation       Cost  Depreciation
    -------------------------------------------------------------------------
    Undeveloped land              316            -         316             -
    Petroleum and natural gas
      properties and related
      equipment               194,872       67,624     185,947        61,105
    Furniture, equipment
     and other                  1,055          755       1,025           700
    -------------------------------------------------------------------------
                              196,243       68,379     187,288        61,805
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    4.  DEBT

    The Trust, through its operating subsidiaries, has a bank revolving
    credit facility of $69,900,000 at June 30, 2008 (December 31, 2007 -
    $69,900,000). The terms of the credit facility provide that the loan is
    due on demand and is subject to annual review. The credit facility has no
    fixed payment requirements. The amount available for borrowing under the
    credit facility is reduced by the amount of outstanding letters of
    credit. Letters of credit totalling $355,000 (December 31, 2007 -
    $355,000) were issued at June 30, 2008. Security for the credit facility
    consists of various fixed and floating demand debentures totalling
    $79,000,000 over all of the Trust's assets, and a general security
    agreement with first ranking over all personal and real property.

    The credit facility carries an interest rate of Canadian chartered bank
    prime. Cash interest paid during the six month periods ended June 30,
    2008 and 2007 for these loans was $1,499,000 and $1,441,000,
    respectively.

    5.  TAXES

    The Trust has recorded a future income tax liability and a current income
    tax asset related to assets and liabilities and related tax amounts:

                                                        June 30, December 31,
    ($000)                                                 2008         2007
    -------------------------------------------------------------------------
    Future income tax liability related to assets
     and liabilities:                                    12,584       11,517
    Future tax asset related to finance costs:              (46)         (79)
    Future tax asset related to corporate tax losses
     carried forward in the subsidiary companies         (1,797)      (3,843)
    -------------------------------------------------------------------------
    Future income tax liability                          10,741        7,595
    -------------------------------------------------------------------------
    Future income tax asset related to current portion
     of derivative liability                              2,986          913
    -------------------------------------------------------------------------


    The Trust's subsidiaries have the following tax pools, which may be used
    to reduce taxable income in future years, limited to the applicable rates
    of utilization:

                                         Rate of Utilization
    ($000)                                       %                    Amount
    -------------------------------------------------------------------------
    Undepreciated capital costs             20-100                    16,899
    Canadian oil and gas property
     expenditures                               10                     1,620
    Canadian development expenditures           30                    30,651
    Canadian exploration expenditures          100                        93
    Income tax losses carried forward(1)       100                     7,084
    -------------------------------------------------------------------------
                                                                      56,347
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (1) Income tax losses carried forward expire in 2026 ($215,000) and 2027
        ($6,869,000).

    The Trust has the following tax pools, which may be used in reducing
    future taxable income allocated to its Unitholders:

                                         Rate of Utilization
    ($000)                                       %                    Amount
    -------------------------------------------------------------------------
    Canadian oil and gas property
     expenditures                               10                    13,555
    Finance costs                               20                       195
    Eligible capital expenditures                7                       336
    -------------------------------------------------------------------------
                                                                      14,086
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    On October 31, 2006, the Canadian Federal Government announced a proposed
    Trust taxation pertaining to taxation of distributions paid by publicly
    traded income trusts and this was enacted by legislation in June, 2007.
    Previously, distributions paid to Unitholders, other than returns of
    capital, were claimed as a deduction by the Trust in arriving at taxable
    income whereby tax is eliminated at the Trust level and tax is paid on
    the distributions by the Unitholders. The June, 2007 legislation results
    in a two-tiered tax structure whereby distributions commencing in 2011
    would first be subject to a 31.5 percent tax at the Trust level and then
    investors would be subject to tax on the distribution as if it were a
    taxable dividend paid by a taxable Canadian corporation. The tax rate was
    subsequently lowered to 29.5 percent in 2011 and 28 percent in 2012 and
    thereafter.

    On February 26, 2008, the Minister of Finance announced that instead of
    basing the provincial component of the trust tax rate on a flat rate of
    13 percent, the provincial component will instead be based on the general
    provincial corporate tax rate in each province in which the income trust
    has a permanent establishment. Under the proposal, the Trust would be
    considered to have a permanent establishment in Alberta, where the
    provincial tax rate in 2011 is expected to be 10 percent. This would
    result in an overall tax rate to the Trust of 26.5 percent in 2011 and
    25 percent thereafter.

    Prior to June 2007, the Trust estimated the future income tax on certain
    temporary differences between amounts recorded on its balance sheet for
    book and tax purposes at a nil effective tax rate. The entire balance of
    the future income tax liability reported related to assets and
    liabilities and related tax amounts held through the Trust's 100 percent
    held subsidiaries. Under the legislation, the Trust now estimates the
    effective tax rate on post 2010 reversals of these temporary differences
    at the above mentioned tax rates. Temporary differences at the Trust
    level reversing before 2011 will still give rise to nil future income
    taxes.

    Based on its assets and liabilities as at June 30, 2008, the Trust has
    estimated the amount of its temporary differences which are estimated to
    reverse post 2010 will be $14,303,000 (December 31, 2007 - $14,496,000)
    resulting in an additional $4,022,000 future income tax liability. The
    taxable temporary differences relate principally to the excess of net
    book value of oil and gas properties over the remaining tax pools
    attributable thereto.

    While the Trust believes it will be subject to additional tax under the
    new legislation, the estimated effective tax rate on temporary difference
    reversals after 2011 may change in future periods. As the legislation is
    new, future technical interpretations of the legislation could occur and
    could materially affect management's estimate of the future income tax
    liability.

    The amount and timing of reversals of temporary differences will also
    depend on the Trust's future operating results, acquisitions and
    dispositions of assets and liabilities, and distribution policy. A
    significant change in any of the preceding assumptions could materially
    affect the Trust's estimate of the future income tax liability.

    6.  UNIT CAPITAL

    Authorized
    The Trust is authorized to issue an unlimited number of trust units
    without nominal or par value.

    Issued                                                Number      Amount
    -------------------------------------------------------------------------
    Trust Units                                                        ($000)
    Balance, January 1, 2008                          16,928,158      90,590
    Issued pursuant to Trust's unit option plan          179,000       4,490
    Transfer of contributed surplus to unit capital            -         449
    -------------------------------------------------------------------------
    Balance, June 30, 2008                            17,107,158      95,528
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The number of trust units used to calculate diluted net earnings per unit
    for the period ended June 30:

                                    Three Months               Six Months
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Basic units
     outstanding           17,025,803   16,911,916   16,982,068   16,905,494
    Dilutive effect of
     unit options             185,533       50,735      102,363       32,600
    -------------------------------------------------------------------------
    Diluted units
     outstanding           17,211,336   16,962,651   17,084,431   16,938,094
    -------------------------------------------------------------------------

    The deficit balance is composed of the following items:

                                                        June 30,     June 30,
    ($000)                                                 2008         2007
    -------------------------------------------------------------------------
    Accumulated earnings                                176,472      135,439
    Accumulated cash distributions                     (230,509)    (178,239)
    -------------------------------------------------------------------------
    Deficit                                             (54,037)     (42,800)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Trust provides an option plan for its directors, officers, employees
    and consultants. Under the plan, the Trust may grant options for up to
    1,710,700 (December 31, 2007 - 1,693,000) trust units. The exercise price
    of each option granted equals the market price of the trust unit on the
    date of grant and the option's maximum term is five years.

    A summary of the status of the Trust's unit option plan as of June 30,
    2008 and December 31, 2007, and changes during the six month and
    twelve month periods ended on those dates is presented below:

                                June 30, 2008          December 31, 2007
    -------------------------------------------------------------------------
                                        Weighted-                 Weighted-
                                         Average                   Average
                                        Exercise                  Exercise
                             Options      Price        Options      Price
    -------------------------------------------------------------------------
    Outstanding at
     beginning of period    1,177,000       $27.59      721,500       $26.55
    Options granted            29,000        39.09      553,000        28.11
    Options exercised        (179,000)       25.09      (53,500)       18.56
    Options cancelled               -            -      (44,000)       27.92
    -------------------------------------------------------------------------
    Outstanding at end
     of period              1,027,000       $28.35    1,177,000       $27.59
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Options exercisable
     at end of period         408,500       $27.48      530,000       $26.63
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The following table summarizes information about unit options outstanding
    at June 30, 2008:

                           Options Outstanding           Options Exercisable
                   ----------------------------------  ----------------------
                                  Weighted-
                                    Average Weighted-              Weighted-
    Range of             Number   Remaining   Average      Number    Average
    Exercise        Outstanding Contractual  Exercise Exercisable   Exercise
    Prices           At 6/30/08        Life     Price  At 6/30/08      Price
    -------------------------------------------------------------------------
    $23.35              113,500   0.7 years    $23.35     113,500     $23.35
    24.20-27.50          19,500   1.9 years     25.65           -          -
    28.30-28.75         825,000   1.3 years     28.47     275,000      28.75
    32.00-33.75          40,000   1.4 years     33.55      20,000      33.55
    38.80-39.20          29,000   2.6 years     39.09           -          -
    -------------------------------------------------------------------------
    $23.35-$39.20     1,027,000   1.3 years    $28.35     408,500     $27.48
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Trust records compensation expense over the vesting period based on
    the fair value of options granted to employees, directors and
    consultants. The Trust granted 29,000 unit options with an estimated fair
    value of $115,000 ($3.95 per option) in 2008 and 553,000 unit options in
    2007 with an estimated fair value of $1,494,000 ($2.70 per option) using
    the Black-Scholes option pricing model with the following key
    assumptions:

                                                           2008         2007
    -------------------------------------------------------------------------
    Weighted-average risk free interest rate (%)            2.9          4.7
    Expected life (years)                                   2.5          2.3
    Weighted-average volatility (%)                        29.2         27.2
    Dividend yield                    based on the percentage of
                                      distributions paid to the Unitholders
                                      during the period


    7.  ACCUMULATED OTHER COMPREHENSIVE INCOME


                                                       Other
                                         January 1, Comprehensive    June 30,
    ($000)                                  2008    Income (Loss)      2008
    -------------------------------------------------------------------------
    Unrealized gains (losses) on
     available-for-sale financial assets     3,031         (164)       2,867
    -------------------------------------------------------------------------


                                                        Other        December
                                         January 1,  Comprehensive      31,
    ($000)                                  2007        Income         2007
    -------------------------------------------------------------------------
    Unrealized gains on
     available-for-sale financial assets     1,566        1,465        3,031
    -------------------------------------------------------------------------


    8.  RELATED PARTY TRANSACTIONS

    The Trust received a management fee from Comaplex of $165,000 (2007 -
    $150,000) for management services and office administration. This fee has
    been included as a recovery in general and administrative expenses. As at
    June 30, 2008, the Trust had an account receivable from Comaplex of
    $63,000 (December 31, 2007 - $63,000).

    The Trust received a management fee from Pine Cliff Energy Ltd. (Pine
    Cliff) of $119,000 (2007 - $108,000) for management services and office
    administration. This fee has been included as a recovery in general and
    administrative expenses. As at June 30, 2008 the Trust had an account
    receivable from Pine Cliff of $1,000 (December 31, 2007 - $4,000).

    The above charges represent the agreed to exchange amount of the services
    rendered.

    9.  FINANCIAL AND CAPITAL RISK MANAGEMENT

    Financial Risk Factors
    ----------------------
    The Trust undertakes transactions in a range of financial instruments
    including:

    -   Receivables;
    -   Payables;
    -   Common share investments
    -   Bank loans
    -   Derivatives

    The Trust's activities result in exposure to a number of financial risks
    including market risk (commodity price risk, interest rate risk, foreign
    exchange risk, credit risk, and liquidity risk).

    Bonterra's overall risk management program seeks to mitigate these risks
    and reduce the volatility on the Trust's financial performance. Financial
    risk management is carried out by senior management under the direction
    of the Directors of Bonterra Energy Corp. (a subsidiary of the Trust).

    The Trust enters into various risk management contracts in accordance
    with Board approval to manage Bonterra's exposure to commodity price
    fluctuations. Currently no risk management agreements are in place in
    respect of interest rate risk. The Trust does not speculatively trade in
    risk management contracts. The Trust's risk management contracts are
    entered into to manage the risks relating to commodity prices from its
    business activities.

    Capital Risk Management
    -----------------------
    The Trust's objectives when managing capital are to safeguard the Trust's
    ability to continue as a going concern, so that it can continue to
    provide returns to its Unitholders and benefits for other stakeholders
    and to maintain an optimal capital structure to reduce the cost of
    capital. In order to maintain or adjust the capital structure, the Trust
    may adjust the amount of distributions, the percentage of return of
    capital or issue new units.

    The Trust monitors capital on the basis of the ratio of debt to adjusted
    distribution base. This ratio is calculated using each quarter end net
    debt (total debt adjusted for working capital) and divided by the
    annualized current quarter adjusted distribution base. For these
    purposes, the Trust defines adjusted distribution base as funds provided
    by operations before changes in non-cash operating working capital items
    excluding gains or losses on sale of property and asset retirement
    obligations.

    The Trust believes that maintaining debt at or less than one year's
    adjusted distribution base is an appropriate level to allow it to take
    advantage in the future of either acquisition opportunities or to provide
    flexibility to develop its infill oil, shallow gas and coal bed methane
    potential without requiring the issuance of trust units.

    Bonterra has a long-term goal to retain between 20 to 25 percent of its
    adjusted distribution base to finance its capital expenditures.

    The following section (a) of this note provides a summary of the Trust's
    underlying economic positions as represented by the carrying values, fair
    values and contractual face values of the Trust's financial assets and
    financial liabilities. The Trust's debt to adjusted distribution base is
    also provided.

    The following section (b) addresses in more detail the key financial risk
    factors that arise from the Trust's activities including its policies for
    managing these risks.

    The following section (c) provides details of the Trust's risk management
    contracts that are used for financial risk management.

        a) Financial assets, financial liabilities and debt ratio

           The carrying amounts, fair value and face values of the Trust's
           financial assets and liabilities are shown in Table 1.

           Table 1

                           As at June 30, 2008      As at December 31, 2007
           ------------------------------------------------------------------
                       Carrying    Fair     Face  Carrying    Fair     Face
           ($000)         Value    Value    Value    Value    Value    Value
           Financial
            assets
           Accounts
            receivable   15,412   15,412   15,441   10,575   10,575   10,595
           Investments
            in related
            party         3,828    3,828      N/A    4,014    4,014      N/A
           Financial
            liabilities
           Distributions
            payable       5,474    5,474    5,474    3,724    3,724    3,724
           Accounts
            payable and
            accrued
            liabilities  13,967   13,967   13,967   12,291   12,291   12,291
           Derivative
            liability    10,110   10,110        -    3,085    3,085        -
           Debt          52,980   52,980   52,980   57,422   57,422   57,422

           The net debt and adjusted distribution base figures for the
           three months ended June 30, 2008 and June 30, 2007 are presented
           in Table 2.

           Table 2

           For the three month
            periods ended                               June 30,     June 30,
           ($000)                                          2008         2007
           ------------------------------------------------------------------
           Debt                                          52,980       54,601
           Distribution payable                           5,474            -
           Accounts payable  and accrued liabilities     13,967       10,041
           Derivative liability                          10,110            -
           Current assets                               (25,383)     (15,047)
           ------------------------------------------------------------------
           Net Debt                                      57,148       49,595
           ------------------------------------------------------------------
           Cash flow from operations                     20,530       13,413
           Changes in non-cash operating
            working capital                                 636       (1,979)
           Asset retirement obligations settled             186          261
           ------------------------------------------------------------------
           Adjusted Distribution Base                    21,352       11,695
           Annualized adjusted distribution base         85,408       46,780
           ------------------------------------------------------------------
           Net debt to adjusted distribution base          0.67         1.06
           ------------------------------------------------------------------


        b) Risks and mitigations

           Market risk is the risk that the fair value or future cash flow of
           the Trust's financial instruments will fluctuate because of
           changes in market prices. Components of market risk to which
           Bonterra is exposed are discussed below.

           Commodity price risk
           --------------------
           The Trust's principal operation is the production and sale of
           crude oil, natural gas and natural gas liquids. Fluctuations in
           prices of these commodities directly impact the Trust's
           performance and ability to continue with its distributions.

           The Trust currently uses various risk management contracts to set
           price parameters for a portion of its production (see section c
           below). Management, in agreement with the Board of Directors,
           recently decided that at least in the near term it will
           discontinue the use of commodity price agreements. The Trust will
           assume full risk in respect of commodity prices.

           Sensitivity Analysis

           Commodity prices have fluctuated significantly over the recent
           past. The following table updates the cash flow sensitivity for
           movements in the commodity prices of $1 U.S. WTI for crude oil,
           $0.10 per MCF AECO for natural gas and $0.01 fluctuation in
           exchange rates. These figures have been updated from December 31,
           2007 to include commodity price hedges entered into during the
           first half of 2008.

                                                                   Cash Flow
           ------------------------------------------------------------------
           U.S. $1.00 per barrel                                   $ 692,000
           Canadian $0.10 per MCF                                  $ 181,000
           Change of Canadian $0.01/U.S. $ exchange rate           $ 587,000
           ------------------------------------------------------------------

           Interest rate risk
           ------------------
           Interest rate risk refers to the risk that the value of a
           financial instrument or cash flows associated with the instrument
           will fluctuate due to changes in market interest rates. Interest
           rate risk arises from interest bearing financial assets and
           liabilities that Bonterra uses. The principal exposure of the
           Trust is on its bank borrowings which have a variable interest
           rate which gives rise to a cash flow interest rate risk.

           Bonterra's debt consists of an operating line as well as
           borrowings by means of banker acceptances (BA's). The Trust
           manages its exposure to interest rate risk through entering into
           various term lengths on its BA's but in no circumstances do the
           terms exceed six months. As discussed above, the Trust manages its
           capital such that its debt to adjusted distribution base is no
           higher than one year. This allows flexibility in obtaining cost
           effective financing.

           Sensitivity Analysis

           Based on historic movements and volatilities in the interest rate
           markets and management's current assessment of the financial
           markets, the Trust believes that a one percent variation in the
           Canadian prime interest rate is reasonably possible over a
           12-month period. No income tax effect has been calculated as the
           Trust remains non-taxable until January 1, 2011.

           The following illustrates the annual impact of a one percent
           fluctuation in the Canadian prime rate:

                            As at                          As at
                        June 30, 2008                 December 31, 2007
    -------------------------------------------------------------------------
                  Plus 1%         Minus 1%        Plus 1%         Minus 1%
    ($000)   Earnings Equity Earnings Equity Earnings Equity Earnings Equity

    Financial
     assets
    ---------
    Accounts
     receivable    -       -       -       -       -       -       -       -
    Investments
     in related
     party         -       -       -       -       -       -       -       -
    Financial
     liabilities
    ------------
    Distribution
     payable       -       -       -       -       -       -       -       -
    Accounts
     payable and
     accrued
     liabilities   -       -       -       -       -       -       -       -
    Derivative
     liability     -       -       -       -       -       -       -       -
    Debt        (530)   (530)    530     530    (574)   (574)    574     574
    -------------------------------------------------------------------------
    Total
     increase
     (decrease) (530)   (530)    530     530    (574)   (574)    574     574
    -------------------------------------------------------------------------


           Foreign exchange risk
           ---------------------
           The Trust has no foreign operations and currently sells all its
           product sales in Canadian currency. The Trust however is exposed
           to currency risk in that crude oil is priced in U.S. currency then
           converted to Canadian currency. Bonterra mitigates some of this
           risk by using risk management contracts for a portion of its crude
           oil production in Canadian dollars. Please refer to sensitivity
           analysis under commodity price risk as well as section "c" below
           for a list of currently outstanding risk management agreements.
           Management, in agreement with the Board of Directors, recently
           decided that at least in the near term it will discontinue the use
           of commodity price agreements. The Trust will assume full risk in
           respect of foreign exchange fluctuations.

           Credit risk
           -----------
           Credit risk is the risk that a contracting party will not complete
           its obligations under a financial instrument and cause the Trust
           to incur a financial loss. Bonterra is exposed to credit risk on
           all financial assets included on the balance sheet. To help
           mitigate this risk:

              -  The Trust only enters into material agreements with credit
                 worthy counterparties. These include major oil and gas
                 companies or one of the major Canadian chartered banks.
              -  Agreements for product sales are primarily on 30 day renewal
                 terms.
              -  Investments are only with companies that have common
                 management with the Trust.

           Of the accounts receivable balance of June 30, 2008 ($15,412,000)
           and December 31, 2007 ($10,575,000) over 90 percent relates to
           product sales with international oil and gas companies. All of the
           derivative contracts as of both June 30, 2008 and December 31,
           2007 were with either Bonterra's principal banker or its major
           crude oil purchaser.

           The Trust assesses quarterly, if there has been any impairment of
           the financial assets of the Trust. During the three month period
           ended June 30, 2008 there was no impairment provision required on
           any of the financial assets of the Trust due to historical success
           of collecting receivables. The Trust does have a credit risk
           exposure as the majority of the Trust's accounts receivable are
           with counterparties having similar characteristics. However,
           payments from the Trust's largest accounts receivable counter
           parties have always been received within 30 days and the sales
           agreements with these parties are cancellable with 30 days notice
           if payments are not received.

           The carrying value of accounts receivable approximates their fair
           value due to the relatively short periods to maturity on this
           instrument. The maximum exposure to credit risk is represented by
           the carrying amount on the balance sheet. There are no material
           financial assets that the Trust considers past due.

           Liquidity risk
           --------------
           Liquidity risk includes the risk that, as a result of Bonterra's
           operational liquidity requirements:

              -  The Trust will not have sufficient funds to settle a
                 transaction on the due date,
              -  Bonterra will not have sufficient funds to continue with its
                 distributions,
              -  The Trust will be forced to sell assets at a value which is
                 less than what they are worth, or
              -  Bonterra may be unable to settle or recover a financial
                 asset at all.

           To help reduce these risks the Trust:

              -  Has a capital policy of maintaining no more than a one year
                 debt to adjusted distribution base.
              -  Uses of derivative instruments that are readily tradable
                 should the need arise.
              -  Maintains a portfolio of high-quality long reserve life oil
                 and gas assets.

        c) Risk management contracts

           The Trust entered into the following commodity hedging contracts
           for a portion of its 2008 production:

        Period of Agreement  Commodity  Volume per day  Index    Price (Cdn.)
        ---------------------------------------------------------------------
        July 1, 2008 to
         December 31, 2008   Crude Oil     500 barrels   WTI  Floor of 73.00
                                                               and ceiling of
                                                               $80.68 per
                                                               barrel

        July 1, 2008 to
          December 31, 2008  Crude Oil     500 barrels   WTI  Floor of $85.00
                                                               and ceiling of
                                                               $104.80 per
                                                               barrel

        April 1, 2008 to
         October 31, 2008  Natural Gas     1,500 GJ's   AECO  Floor of $6.00
                                                               and ceiling of
                                                               $7.60 per GJ

        As of June 30, 2008, the fair value of the outstanding commodity risk
        management contracts was a net liability of $10,110,000 (December 31,
        2007 - $3,085,000).

    10. UNREALIZED LOSS ON RISK MANAGEMENT CONTRACTS

    The following table reconciles the movement in the fair value of the
    Trust's financial risk management contracts that have not been designated
    as effect accounting hedges for the periods ended June 30:

                                    Three Months               Six Months
    ($000)                       2008         2007         2008         2007
    -------------------------------------------------------------------------
    Fair Value, beginning
     of period                 (5,474)        (603)      (3,085)       1,149
    Fair Value, end of period (10,110)         710      (10,110)         710
    -------------------------------------------------------------------------
    Unrealized loss on risk
     management contracts      (4,636)       1,313       (7,025)        (439)
    -------------------------------------------------------------------------


    11. RESTATEMENT

    The Trust has determined that its cash flow hedges on commodities are no
    longer effective hedges for accounting purposes. The following financial
    statement items have been restated to eliminate the use of hedge
    accounting:

    Three months ended June 30, 2007
    ($000 except $ per unit)              Reported   Adjustment     Restated
    -------------------------------------------------------------------------
    Unrealized gain (loss) on risk
     management contracts                        -        1,313        1,313
    Future tax expense                       3,777          382        4,159
    Net earnings for the period              4,440          931        5,371
    Deficit at beginning of period         (35,767)      (1,242)     (37,009)
    Deficit at end of period               (42,489)        (311)     (42,800)
    Net earnings per unit (basic and
     diluted)                                 0.26         0.06         0.32
    Other comprehensive income                 577         (931)        (354)
    -------------------------------------------------------------------------


    Six months ended June 30, 2007
    ($000 except $ per unit)              Reported   Adjustment     Restated
    -------------------------------------------------------------------------
    Unrealized loss on risk
     management contracts                        -         (439)        (439)
    Future tax expense                       3,815         (128)       3,687
    Net earnings for the period             13,344         (311)      13,033
    Deficit at end of period               (42,489)        (311)     (42,800)
    Net earnings per unit
     (basic and diluted)                      0.79        (0.02)        0.77
    Other comprehensive income                 317          311          628
    -------------------------------------------------------------------------


    12. SUBSEQUENT EVENT - DISTRIBUTION

    Subsequent to June 30, 2008, the Trust declared distributions of
    $0.32 per unit payable on August 31, 2008 to Unitholders of record on
    August 15, 2008.
    

    %SEDAR: 00017467E




For further information:

For further information: Additional information relating to the Trust
may be found on www.sedar.com as well as on the Trust's website at
www.bonterraenergy.com or by contacting George F. Fink, President, and CEO or
Garth E. Schultz, Vice President - Finance, and CFO at (403) 262-5307 or by
fax at (403) 265-7488

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Bonterra Energy Corp.

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