Petrowest Energy Services Trust releases year-end results, and provides management update



    (TSX: PRW.UN)

    GRANDE PRAIRIE, AB, March 22 /CNW/ - Petrowest Energy Services Trust
("Petrowest" or the "Trust") (TSX - "PRW.UN") is pleased to present its first
year-end report since becoming a publicly traded trust.

    YEAR END RESULTS

    Petrowest was formed on July 6, 2006 and completed its initial public
offering and the acquisition of the 9 businesses that comprise Petrowest on
September 7, 2006, the day of commencement of commercial operations of the
Trust. The values and discussion within this report reflect operations and
business activities for the period since inception to December 31, 2006
exclusively.
    The time from the commencement of operations of the Trust on September 7,
2006 has become, and continues to be, a period of integration, combination and
transition as the nine separate companies that make up Petrowest are brought
together operationally, financially and culturally.
    Petrowest has a strong balance sheet with over $22.7 million in positive
working capital, including over $9.3 million in cash balances. The Trust has
less than $15.2 million in term debt against this working capital and has an
additional unused available debt facility of $45 million. The Trust has added
over $18 million in capital assets and increased operating capacity in each of
its business segments. The additions and capacity increases will sustain
operations into 2008 without the requirement for significant additional
maintenance capex expenditures, and the unused term debt facility will fulfill
the short term needs of growth capital and potential acquisitions.
    Petrowest's payout ratio for the period December 31, 2006 was 91.2%. In
addition to the general softening of the energy services market and the
decline in our activity levels caused thereby, our payout ratio for the period
ended December 31, 2006 was affected by inclement weather that adversely
affected activities and non-recurring expenses relating to integration and
start-up.

    
    FINANCIAL HIGHLIGHTS

    $000's except per unit amounts,                     For the period ended
     margins and ratios                                    December 31, 2006
    -------------------------------------------------------------------------
    Financial Results
    Revenue                                                           46,736

    EBITDA                                                            12,096

    EBITDA margin                                                      25.9%

    Net earnings                                                       3,379

    Cash provided by operating activities before
     changes in non-cash working capital                              12,268

    Cash provided by operating activities                              3,990

    Total assets                                                     295,585

    Total liabilities                                                 45,219

    Unitholders' equity                                              250,366

    Financial Position and Liquidity
    Working capital                                                   22,731

    Working capital ratio                                            1.76: 1

    Total long-term debt                                              15,169

    Net debt (total debt less cash and cash equivalents)               5,944

    Weighted average number of units outstanding
     - basic and diluted                                          28,275,094

    Cash provided by operating activities per unit                   $ 0.141

    Cash provided by operating activities before
     changes in non-cash working capital per unit                    $ 0.434

    Distributions per unit                                         $ 0.37667

    Payout ratio                                                       91.2%

    Net earnings per unit - basic and diluted                         $ 0.12

    Unit Price - December 31, 2006                                    $ 8.20
    -------------------------------------------------------------------------
    

    Please see the attached financial statements for the period ending
December 31, 2006 and the accompanying MD&A for more detailed information
regarding the financial performance of Petrowest. The attached financial
statements and MD&A qualifies the foregoing information.
    Additional information about the Trust, including electronic versions of
the financial statements and MD&A for the period ended December 31, 2006, can
be found on SEDAR at www.sedar.com and on the Trust's website at     
www.petro-west.com

    MANAGEMENT UPDATE

    Effective March 12, 2007 Mr. Gary Sweetman resigned as Chief Operating
Officer of Petrowest. Mr. Sweetman was one of the founders of Petrowest, and
held a key role as Petrowest was structured and developed in preparation for
its initial public offering in September 2006. Operations management duties
have been assumed by Mr. Brian Coffey, formerly Petrowest's Rentals and
Equipment Manager. Mr. Coffey's duties involved overseeing Nu-Northern Tractor
Rentals, one of the eight companies operating together as Petrowest, as well
as the management of the fleet of equipment owned by the Trust throughout all
its business segments. Mr. Coffey has 30 years experience with heavy equipment
in the oilfield, aggregate, forestry and agriculture sectors, with an emphasis
on marketing. Mr. Coffey recently joined Petrowest from a major equipment
supplier where he had been the regional sales manager for northern Alberta and
British Columbia.
    Petrowest would like to express appreciation to Mr. Sweetman for his
valuable contribution to Petrowest and its ongoing business success and wishes
Mr. Sweetman the very best in all his future endeavors.

    About Petrowest Energy Services Trust

    Petrowest provides pre-drilling and post-completion oilfield and
infrastructure services to the northern region of the western Canadian
sedimentary basin. Effective September 7, 2006, Petrowest completed the
acquisition of each of, and now carries on the business of each of, Gordon
Bros. Construction Ltd., Roy Larson Construction Ltd., Wales Contractors Ltd.,
D&D Well Services, Murtron Hauling Ltd., R. Bee Crushing Ltd., Safetymaster
Rentals Corp. (carrying on business as S.O.S. Oilfield Safety), Neuwest
Equipment Rentals Inc., Fitzpatrick Co. Ltd. and Northern Tractor Sales and
Rentals Co. Ltd., all of which are based in and around Grande Prairie,
Alberta.

    Forward Looking Statements

    This news release contains forward-looking statements that involve
substantial known and unknown risks and uncertainties. These forward-looking
statements are identified by their use of terms and phrases such as
"anticipate," "achievable," "believe," "expect," "estimate," "plan," "intend,"
"project," "may," "should," "could," "predict," "may," "will," or similar
words suggesting future outcomes or language suggesting an outlook.
Forward-looking statements and information are based on Petrowest's current
beliefs as well as assumptions made by and information currently available to
Petrowest concerning anticipated business performance. Although management of
Petrowest considers these assumptions to be reasonable based on information
currently available to it, they may prove to be incorrect.
    Forward-looking statements are subject to many external variables that
are beyond Petrowest's control, such as fluctuating prices for crude oil and
natural gas, changes in drilling activity, and general local and global
economic, political, business and weather conditions. If any of these, or
other uncertainties, materialize the actual results of Petrowest may vary
materially from those expected.

    President's Letter to Unitholders

    2006 was an exciting and full year for those of us involved with
Petrowest Energy Services Trust. Petrowest started with the seed of an idea
which took root and became a reality. After a number of conversations between
the Trust's founders in late 2005, it quickly became apparent that the
business model of bringing together a select group of 9 private service
companies into a combined public entity had solid financial merit and business
sense for both the operator and an investor.
    As we proceeded, our concept took on its own momentum and evolved into
Petrowest Energy Services Trust, the largest ever Canadian oil and gas
services initial public offering which we completed in September of 2006. The
time since has become, and continues to be, a period of integration,
combination and transition as the nine separate companies that make up
Petrowest are brought together operationally, financially and culturally.
    Our financial and operational results reflect only the approximate four
month period from completion of our initial public offering to the end of the
year, and our financial and operational results should therefore be reviewed
with this short reporting period in mind. Going forward, we will be reporting
on a calendar year basis.
    The Trust's results in 2006 enable it to begin to publicly establish a
track record of financial and operational discipline. With head office in
Grande Prairie, and operations covering northern Alberta, Petrowest's four
business divisions are focused on supporting oil sands, SAGD and other heavy
oil development, the deep drilling market west of the fifth meridian, as well
as northern development and infrastructure requirements.
    Many publicly traded oilfield services companies focus on the drilling
and completions requirements of the oil and gas sector, but Petrowest's focus
is broader and encompasses a diversified range of services which includes
drilling support, forestry related services, provincial infrastructure
programs and other non-oil and gas dependent lines of business. The Petrowest
group is able to help a client prepare a lease prior to drilling, reclaim the
area after a well has been abandoned, haul everything from logs, gravel, heavy
equipment, drilling rigs and related equipment. The Trust also provides
infrastructure services such as gravel crushing, excavation, municipal road
building and other commercial and residential civil work to the fast growing
regions of northern Alberta. Petrowest operates in strict adherence to the
highest standards of health and safety in the work environments in which
Petrowest's employees operate.

    Nine companies came together to form four divisions within Petrowest.

    The Road and Lease Construction Division consists of Roy Larson
Construction, Gordon Bros. Construction Ltd. and Wales Contracting. These
companies can operate both in the oilfield services sector and in the
infrastructure sector. Capacity increases have been in the range of 10% since
the Trust was created, and this is permitting additional productivity as well
as a growth in utilization rates through inter-operational utilization and
broader regional opportunities.
    The Transportation and Hauling Division consists of D&D Well Services and
Murtron Hauling. In addition to general hauling (e.g. logs, gravel and pipe),
these companies can also provide specialist hauling services including rig
moving and transportation of heavy equipment. Again, this is a division that
has seen capacity grow by more than 20% since the Trust's inception. The
transportation segment provides 80% of the internal transportation needs of
the Trust.
    The Civil Services Division is more diverse than the other divisions,
comprising R. Bee Crushing and S.O.S. Oilfield Safety. R. Bee Crushing is a
gravel crushing company. Since becoming part of the larger Trust organization,
R. Bee has upgraded two of its gravel crushing spreads and will be adding an
additional plant in due course. This enables R. Bee to participate in far
larger jobs, while also dealing with existing and smaller jobs with greater
productivity. S.O.S. Oilfield Safety has added additional air pack units and
assisted management in developing a comprehensive Health, Safety and
Environmental Program for the Trust as a whole.
    The Heavy Equipment Rentals Division was originally formed from Northern
Tractor Sales and Rental and Neuwest Equipment Rentals, companies that have
since merged operations within Petrowest to become Nu-Northern. The two
companies collectively have a range of specialized heavy equipment, which has
increased capacity in excess of 50 percent since September 2006. More than
75 percent of the heavy equipment units are committed through Q1 2007. As the
mandate of the rentals equipment division includes renting out underutilized
equipment from other companies within Petrowest, the Nu-Northern team has been
directly responsible for developing capital and maintenance budgets that
reflect the business activity of each sector.
    During the four month period since inception, approximately 65 percent of
the Trust's total revenue is attributable to supporting oil and gas
exploration and development activities. The 35 percent remainder is generated
by non-oil and gas related activities including infrastructure development,
construction, hauling and logging and other services. Lately, with a softening
in commodity pricing, particularly in regard to natural gas, deep drilling
activities and development work relating to natural gas plays, associated
service requirements have declined to some extent. Capital budgets for 2007
have been adjusted to reflect the slower expected levels in oil and gas
drilling. These cuts apply to all business segments except in the gravel
crushing operations of the Civil segment. Confirmed work to 2008 will require
additional investment in gravel crushing and hauling operations through 2008.
    Oil and gas related activities are heavily weather dependent, with the
significant drilling activity occurring in northern Alberta in Q4 and Q1,
while the ground is frozen. In Q4 2006, extreme cold and heavy snow and
freezing rain, adversely impacted activities, and forced extra "down" days,
which had, a negative impact on operational performance. With the weaker
commodity price environment Petrowest is anticipating lower activity levels
during the balance of 2007 in the oil and gas sector in the WCSB.
    In order to effectively manage oil and gas development cycles, Petrowest
is focusing on exploiting its various non-oil and gas dependent revenue
streams and further penetrating oil sand development activities.

    2006 Highlights

    Although Petrowest was not formed until the late summer of 2006, there
were many people involved in the process of turning a concept into a viable
business entity. Much was achieved during 2006 prior to, and after, formation.

    Highlights during 2006 include:

    
    -   The integration of nine separate, private services companies into one
        single publicly-traded trust. Employees, management and clients must
        all be commended for helping to ensure a smooth transition.

    -   The Trust's initial public offering was oversubscribed by several
        times the size of the issue. This is a testament both to the strength
        of our business plan and the potential that our business lines offer.

    -   Equipment and assets are being employed internally to eliminate third
        party charges. This can be directly attributed to a willingness of
        management to seek synergies and an ability to more seize utilization
        opportunities. We estimate approximately $1.9 million of inter-
        segment sales, which at an average EBITDA margin of 25.9% translates
        to approximately $483,000 in additional earnings retained in the
        Trust for the period since the Trust's inception which would have
        been subcontracted out to third party contractors.

    -   Combined earnings before interest, taxes, depreciation and
        amortization (EBITDA) of $12.1 million for the Trust as a whole since
        inception.

    -   The retention of a strong, experienced team of directors to help
        guide the Trust's senior management, and the addition of qualified,
        experienced management team members.

    -   Monthly distributions of $0.10 per unit, resulting in total
        distributions of $0.37667 per unit since inception ($1.20 per unit on
        an annualized basis). The Trust's overall payout ratio was
        91.2 percent in spite of the effects of inclement weather and slowing
        oil and gas drilling activity.

    -   A healthy balance sheet with year-end working capital of
        $22.7 million.
    

    Proposal from the Canadian Government to Tax Income Trust Distributions

    The Canadian Federal Minister of Finance announced on October 31, 2006
proposals to tax the distributions of most categories of publicly traded
income trusts. With the completion of this legislation, if it is enacted as
proposed, Petrowest, and all other affected income trusts, would see changes
to the taxation regime it is currently working within after four years, and
would come into effect in the 2011 tax year.
    On December 15, 2006, the federal government announced guidelines with
respect to the implementation of these proposed tax changes on income trust
distributions. Included were guidelines setting limits on the expansion of
existing income trusts prior to the 2011 tax year. It is anticipated that
organic growth within the Trust will not be affected by these guidelines in
the short term. However, these guidelines will have implications on
decision-making at Petrowest, and all other affected income trusts, regarding
any potential acquisitions. This aspect of the proposed legislative changes,
obviously, does affect the flexibility of Petrowest's management team and
board of directors, and may have a direct influence on the Trust before the
2011 tax year. See our MD&A for the period ended December 31, 2006 for more
detailed information regarding the October 31, 2006 proposals.
    The Petrowest team is maintaining a proactive stance in terms of
assessing the implications of this legislation for its unitholders, and is
keeping a close eye on political, lobbying and legislative developments around
these proposals. Despite uncertainty regarding trust taxation beyond 2010, the
Trust continues to aggressively implement its business plan.
    Petrowest unitholders can write, email or visit the constituency office
of their Member of Parliament to voice their opinion regarding the tax
proposal.

    2007 Outlook

    Although Petrowest Energy Services Trust has a relatively short track
record of only a few months, the member companies within the group have been
established for close to two decades on average, and bring more than 150 years
of commercial success to the larger trust entity. Throughout 2007 financial
and operational results should further reflect even greater exploitation of
both the economies of scale of the larger organization and synergistic
opportunities within the group.
    In 2007, the Trust will continue to focus in its geographical heartland
of northern Alberta and British Columbia. While management recognizes a slow
down in drilling activity, it is not content to ride it out without actively
pursuing new markets. Sales and marketing efforts are being targeted at the
wider range of services the Trust group can now provide and new business
opportunities and new markets are being explored to fully utilize the manpower
and equipment within the Trust.
    Transition is not yet complete and the full joint operational, commercial
and financial advantages have yet to be fully defined. At Petrowest, we
anticipate continued and growing divisional synergies.
    As President of Petrowest I would like to thank the management team and
employees of the Trust for their dedicated efforts since inception, and to all
the members of the Board of Directors for their guidance. I would also like to
express my sincere appreciation to the Trust's unitholders for their continued
support, confidence and belief in the strength of Petrowest's business model.

    On behalf of the Board of Directors,

    Ken Drysdale
    President and Chief Executive Officer

    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following Management's Discussion and Analysis (MD&A) is dated
March 22, 2007. The MD&A should be read in conjunction with Petrowest Energy
Services Trust's ("Petrowest" or the "Trust") audited consolidated financial
statements as at and for the period ended December 31, 2006, as well as the
MD&A's of the "Acquired Companies" contained in the Trust's prospectus dated
August 28, 2006. The Trust was formed on July 6, 2006, and commenced trading
on the TSX on September 7, 2006. This date should be viewed as the effective
start of commercial operations.

    
    FINANCIAL HIGHLIGHTS

    $000's except per unit amounts,                     For the period ended
     margins and ratios                                    December 31, 2006
    -------------------------------------------------------------------------
    Financial Results
    Revenue                                                           46,736

    EBITDA                                                            12,096

    EBITDA margin                                                      25.9%

    Net earnings                                                       3,379

    Cash provided by operating activities before
     changes in non-cash working capital                              12,268

    Cash provided by operating activities                              3,990

    Total assets                                                     295,585

    Total liabilities                                                 45,219

    Unitholders' equity                                              250,366

    Financial Position and Liquidity
    Working capital                                                   22,731

    Working capital ratio                                            1.76: 1

    Total long-term debt                                              15,169

    Net debt (total debt less cash and cash equivalents)               5,944

    Weighted average number of units outstanding
     - basic and diluted                                          28,275,094

    Cash provided by operating activities per unit                   $ 0.141

    Cash provided by operating activities before
     changes in non-cash working capital per unit                    $ 0.434

    Distributions per unit                                         $ 0.37667

    Payout ratio                                                       91.2%

    Net earnings per unit - basic and diluted                         $ 0.12

    Unit price - December 31, 2006                                    $ 8.20
    -------------------------------------------------------------------------
    

    BASIS OF PRESENTATION

    The financial data presented below has been prepared in accordance with
Canadian Generally Accepted Accounting Principles ("GAAP"). The reporting and
the measuring currency is the Canadian dollar.

    FORWARD LOOKING STATEMENTS

    Certain information and statements contained in this MD&A constitute
forward-looking information, including the anticipated costs associated with
the purchase of capital equipment, expectations concerning the nature and
timing of growth within the various business units operated through affiliates
of the Trust, expectations respecting the competitive position of such
business units, expectations concerning the financing of future business
activities, statements as to future economic and operating conditions, oil
sands production and investment, oil sands reserves and revenues from oil and
gas and non-oil and gas activities. Readers should review the cautionary
statement respecting forward-looking information that appears below.
    The information and statements contained in this MD&A that are not
historical facts are forward-looking statements. Forward-looking statements
(often, but not always, identified by the use of words such as "seek", "plan",
"continue", "estimate", "project", "predict", "potential", "targeting",
"intend", "could", "might", "should", "believe", "expect", "may", "anticipate"
or "will" and similar expressions) may include plans, expectations, opinions,
or guidance that are not statements of fact. Forward-looking statements are
based upon the opinions, expectations and estimates of management as at the
date the statements are made and are subject to a variety of risks and
uncertainties and other factors that could cause actual events or outcomes to
differ materially from those anticipated or implied by such forward-looking
statements. These factors include, but are not limited to, such things as
changes in industry conditions (including the levels of capital expenditures
made by oil and gas producers and explorers), the credit risk to which the
Trust is exposed in the conduct of its business, fluctuations in prevailing
commodity prices or currency and interest rates, the competitive environment
to which the various business units are, or may be, exposed in all aspects of
their business, the ability of the Trust's various business units to access
equipment (including parts) and new technologies and to maintain relationships
with key suppliers, the ability of the Trust's various business units to
attract and maintain key personnel and other qualified employees, various
environmental risks to which the Trust's business units are exposed in the
conduct of their operations, inherent risks associated with the conduct of the
businesses in which the Trust's business units operate, timing and costs
associated with the acquisition of capital equipment, the impact of weather
and other seasonal factors that affect business operations, availability of
financial resources or third-party financing and the impact of new laws or
changes in administrative practices on the part of regulatory authorities.
Forward-looking information respecting the anticipated costs associated with
the purchase of capital equipment are based upon historical prices for various
classes of equipment, expectations relating to the impact of inflation on the
future cost of such equipment and management's views concerning the
negotiating leverage of the Trust and its affiliates. Forward-looking
information concerning the nature and timing of growth within the various
business units is based on the current budget of the Trust (which is subject
to change), factors that affected the historical growth of such business
units, sources of historic growth opportunities and expectations relating to
future economic and operating conditions. Forward-looking information
concerning the future competitive position of the Trust's business units is
based upon the current competitive environment in which those business units
operate, expectations relating to future economic and operating conditions and
current and announced build programs and other expansion plans of other
organizations that operate in the energy service business. Forward-looking
information concerning the financing of future business activities is based
upon the financing sources on which the Trust and its predecessors have
historically relied and expectations relating to future economic and operating
conditions. Forward-looking information concerning future economic and
operating conditions is based upon historical economic and operating
conditions, opinions of third-party analysts respecting anticipated economic
and operating conditions. Although management of the Trust believes that the
expectations reflected in such forward looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Accordingly, readers should not place undue reliance upon any of the
forward-looking information set out in this MD&A. All of the forward looking
statements of the Trust contained in this MD&A are expressly qualified, in
their entirety, by this cautionary statement. The various risks to which the
Trust is exposed are described under "Key Risks and Uncertainties" herein and
under "Risk Factors" in the Trust's prospectus dated August 28, 2006. In
addition, prior to March 31, 2007 the Trust will file an Annual Information
Form which will include disclosure regarding these risks under the heading
"Risk Factors".

    NON-GAAP MEASURES

    In this MD&A the Trust uses the term "Distributable Cash" to refer to the
amount of cash that is expected to be available for distributions to the
unitholders; the term "EBITDA" to refer to earnings before interest expenses
net of interest income, gain on disposal of assets, amortization of property
and equipment and amortization of intangible assets; the term "Adjusted
EBITDA" to refer to earnings before management bonuses, before interest
expenses net of interest income, gain on disposal of assets, amortization of
property and equipment and amortization of intangible assets; the term "EBITDA
Margin" to refer to a fraction, the numerator of which is EBITDA and the
denominator of which is Revenue; the term "Adjusted EBITDA Margin" to refer to
a fraction, the numerator of which is Adjusted EBITDA and the denominator of
which is Revenue; the term "Cash Flow From Operations Before Changes in
Non-Cash Working Capital" to refer to cash provided by operating activities
before changes to accounts receivable, prepaid expenses, inventory and
accounts payable and accrued liabilities; the term "Distributions Per Unit" to
refer to a fraction, the numerator of which is distributions paid or accrued
to unitholders and the denominator of which is the number of trust units
issued; the term "Net Debt" to refer to the sum of total obligations under
capital leases and revolving equipment loans, less cash and cash equivalents;
the term "Cash Flow From Operations Before Changes in Non-Cash Working Capital
Per Unit" to refer to a fraction of which the numerator is Cash Flow From
Operations Before Changes in Non-Cash Working Capital and the denominator is
the number of trust units issued; the term "Cash Flow From Operating
Activities Per Unit" to refer to a fraction of which the numerator is cash
provided by operating activities and the denominator is the number of trust
units issued and the term "Payout Ratio" to refer to a fraction of which the
numerator is distributions paid or accrued to unitholders and the denominator
is Distributable Cash. The terms Distributable Cash, EBITDA, Adjusted EBITDA,
EBITDA Margin, Adjusted EBITDA Margin, Cash Flow From Operations Before
Changes in Non-Cash Working Capital, Distributions per Unit, Net Debt, Cash
Flow From Operating Activities Per Unit and Payout Ratio are not measures
recognized by Canadian generally accepted accounting principles ("GAAP") and
do not have standardized meanings prescribed by GAAP and therefore may not be
comparable to performance measures presented by others.
    Readers are cautioned that "Distributable Cash", "EBITDA", "Adjusted
EBITDA", "EBITDA Margin", "Adjusted EBITDA Margin", "Cash Flow From Operations
Before Changes in Non-Cash Working Capital" "Distributions per Unit", "Net
Debt", "Cash Flow From Operations Before Changes in Non-Cash Working Capital
Per Unit", "Cash Flow From Operating Activities Per Unit" and "Payout Ratio"
should not be considered as alternatives to net earnings, cash flow from
operating activities or other measures of financial performance calculated in
accordance with GAAP.
    Management views Distributable Cash as an operating performance measure,
as it is a measure generally used by Canadian income funds as an indicator of
financial performance. As the Trust will distribute substantially all of its
cash on an ongoing basis (after providing for certain amounts described in the
following MD&A) and since EBITDA, Adjusted EBITDA, EBITDA Margin, Adjusted
EBITDA Margin, Cash Flow From Operations Before Changes in Non-Cash Working
Capital, Distributions per Unit, Net Debt, Cash Flow From Operations Before
Changes in Non-Cash Working Capital Per Unit, Cash Flow From Operating
Activities Per Unit and Payout Ratio as respectively defined above are metrics
used by many investors to compare issuers on the basis of their ability to
generate cash from operations, management believes that, in addition to net
earnings, EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin
are useful supplemental measures from which to make adjustments to determine
distributable cash. The estimate of Distributable Cash has been prepared using
assumptions which management believes are reasonable and supportable, all of
which reflect the Trust's planned course of action given management's judgment
about the most probable set of economic conditions.

    DESCRIPTION OF BUSINESS

    Petrowest is an unincorporated, open-ended, limited purpose, mutual fund
trust established under the laws of Alberta. Effective September 7, 2006,
Petrowest completed the acquisition of each of, and now carries on the
business of each of, the "Acquired Companies" defined below, all of which are
involved in pre-drilling and post-completion energy services, construction and
hauling and are based in the Grande Prairie area of northern Alberta.
Petrowest continues to do business under the trade operating names of Gordon
Bros. Construction, Roy Larson Construction, Wales Contractors, D&D Well
Services, Murtron Hauling, R. Bee Crushing, S.O.S. Oilfield Safety and
Nu-Northern Tractor Rentals. The ongoing operations have been segregated into
four limited partnerships and the assets and operations of the Acquired
Companies are maintained within those partnerships as follows:

    
    Petrowest Construction LP
    ("Construction")
                                   Roy Larson Construction Ltd. ("Roy Larson
                                   Construction")

                                   Gordon Bros. Construction Ltd. and 332691
                                   Alberta Ltd. ("Gordon Bros. Construction")

                                   310423 Alberta Ltd. operating as Wales
                                   Contracting Ltd. ("Wales Contracting")

    Petrowest Transportation  LP
    ("Transportation")
                                   404434 Alberta Corporation, 756171 Alberta
                                   Corp. and 756169 Alberta Corp. ("D&D Well
                                   Services")

                                   Murtron Hauling Ltd. and 815431 Alberta
                                   Ltd. ("Murtron Hauling")

    Petrowest Civil Services LP
    ("Civil")
                                   R. Bee Crushing Ltd., Bernet Venture Ltd.
                                   and Dal Finn Holdings Ltd. ("R. Bee
                                   Crushing")

                                   Safetymaster Rentals Corp. ("SOS Oilfield
                                   Safety")

    Petrowest Rental Services LP
    ("Rentals")
                                   Northern Tractor Sales and Rental Co. Ltd.
                                   and Fitzpatrick Co. Ltd.

                                   Neuwest Equipment Rentals Inc.

                  (collectively, the "Acquired Companies")
    

    Petrowest Construction LP

    Petrowest Construction LP operates under the trade names of the original
companies, "Gordon Bros. Construction", "Roy Larson Construction", and "Wales
Contractors" and specializes in the construction of oil and gas lease well
site pads, road construction, remediation of oil and gas well sites, and civil
infrastructure work for non oil and gas clients. Petrowest Construction LP
operates a fleet of heavy equipment including dozers, tracked hoe excavators,
articulated rock haulers, compactors, graders, and scrapers as well as other
ancillary support equipment.

    Petrowest Transportation LP

    Petrowest Transportation LP operates under the trade names of the
original companies, "D&D Well Services" and "Murtron Hauling" and specializes
in the transportation of oil and gas drilling rigs, well site equipment and
heavy equipment as well as specialty hauling services including log loading
and hauling and gravel loading and hauling. The Transportation LP operates a
fleet of heavy transport trucks, trailers, jeeps, boosters, and log and gravel
loading equipment as well as other ancillary support equipment.

    Petrowest Civil Services LP

    Petrowest Civil Services LP operates under the trade names of the
original companies, "R. Bee Crushing", and "S.O.S. Oilfield Safety". The Civil
Services LP specializes in mobile aggregate rock crushing and sand screening
for gravel supply operations throughout Alberta and British Columbia operating
a fleet of cone and jaw crusher units, conveyor and sand stacker units,
loaders, dozers, tracked hoe excavators and articulated rock trucks. The Civil
Services LP also provides safety services including safety supervision and
rental of safety air units and wash units provide for safety support during
oil and gas drilling operations and plant turnarounds.

    Petrowest Rental Services LP

    Petrowest Rental Services LP operates under the new trade name of
"Nu-Northern Tractor Rentals" and specializes in heavy equipment rentals to
oil and gas companies, oil sand clients, and independent contractors working
in the oil and gas, mining, logging, pulp and paper and civil construction
industries. The Rental Services LP operates a fleet of heavy equipment
including dozers, tracked hoe excavators, articulated rock haulers, compactors
and side-boom pipelayers.

    BUSINESS FUNDAMENTALS

    Oil and Gas

    Conventional Oil and Gas

    Petrowest's results are directly impacted by the overall health of the
Alberta oil and gas industry. Approximately 65% of the Trust's total revenue
is tied to the support of oil and gas exploration and development activities.
    The Trust's operations are primarily in the deep drilling market regions
of the Western Canadian Sedimentary Basin ("WCSB") with operations in northern
Alberta and northeastern British Columbia. The WCSB is one of the largest oil
and gas producing regions in North America. Much of the terrain in the WCSB is
considered rugged, resulting in access issues due to dense bush, muskeg,
bedrock and mountainous terrain all of which are complicated by the weather in
the region. Historically this region has been less impacted by cyclical swings
in market prices due to the longer lead times in access, drilling and
completion of planned wells. Oil and gas producer companies have generally
taken a longer term view of project work in the area with consistent growth in
drilling activity. The Canadian Association of Oilwell Drilling Contractors
has estimated that the annual wells drilled in the WCSB have increased from
10,600 wells in 1999 to an estimated 22,100 wells in 2006.
    Weather also has a direct impact on the operations of Petrowest. Oil and
gas drilling activity is generally stronger November through March as frozen
ground conditions allow for the exploration in areas with muskeg conditions.
Wet weather in the spring and early summer months hinder the activity. As
frost comes out of the ground, road conditions deteriorate and municipalities
impose temporary weight restrictions on road surfaces ("road bans"), thus
placing restriction on access and trucking operations. Operations normally
gain strength in late June and continue through to the end of summer and fall.
A short slowdown normally exists in late fall until freezing conditions allow
for winter work activity to recommence. Therefore, a longer, colder winter and
drier spring and summer would generally enhance operational results.
    Extreme cold and heavy snow fall in mid to late Q4 resulted in extra down
days negatively impacting the operational performance in Q4.
    The softening of North American gas prices and decline in world oil
prices have resulted in industry activity slow downs. While the impact has
been less severe in the northern region of the WCSB than in coal bed methane
or shallow gas plays in southern Alberta, the Trust did experience demand
declines late in Q4. Lower activity is predicted to continue until Q3 and Q4
of 2007. The long term outlook into 2008 and beyond appears positive.
    The Trust is focused on the pre-drilling and post-completion phases of
work associated with drilling. In comparison to companies tied directly to
drilling or down hole completion work, it is advantageously positioned during
lower levels of drilling activity. The Trust's operations and work specialty
is the pre-drilling and post-completion phases of the well drilling cycle.
During times of lower drilling activity, a portion of the Trust's equipment
has typically been utilized to remediate dry and abandoned oil and gas well
sites. Management of the Trust views this work capability as a counter
cyclical buffer to downturns in oil and gas exploration activities. The WCSB
is a maturing basin with over 184,000 producing wells at December 31, 2005
with annual decline rates in the 10%-12% per year range in the absence of new
drilling. This is expected to result in higher demands in future years for
remediation service work.

    Oil Sand Operations

    In 2005 Alberta's oil sands were the source of about 58% of the
province's total crude oil and equivalent production and about 39% of all
crude oil and equivalent produced in Canada. According to the Canadian
Association of Petroleum Producers (CAPP), in 2005 industry investment in
Alberta's oil sands totaled approximately $10 billion. Annual oil sands
production is growing steadily as the industry matures. Output of marketable
oil sands production increased to 966,000 barrels per day (bbl/d) in 2005.
With anticipated growth, this level of production could reach 3 million
barrels per day by 2020 and possibly even 5 million barrels per day by 2030.
It is expected that $100 billion will be invested over the next 10 years on
oil sand projects.
    Within Alberta there are three recognized oil sand areas, the largest,
the Athabasca Oil Sands is a huge deposit containing an estimated 1.3 trillion
barrels of oil. The Cold Lake area also has sizable oil sand deposits
estimated at 200 billion barrels. The Peace Oil Sands is a resource containing
an estimated 155 billion barrels of oil. Based on today's technology it is
estimated that only 12% of this resource is recoverable. However, the
longevity of the oil sands project is not in question. It took the Shell
Insitu plant (north-east of Peace River) over 25 years to produce 50 million
barrels.
    The Trust is geographically positioned in Grande Prairie on the western
edge of the Peace Oil Sands projects. The Trust currently provides trucking,
equipment rental, and lease and road building construction to clients
operating in the Peace Oil Sands. These projects are in an infancy stage
relative to the Athabasca Oil Sand projects and the Trust is working to
establish relationships with the major operators in this area.
    In addition, the Trust currently provides services to clients and
producers operating in the Athabasca Oil Sands markets with respect to gravel
and aggregate crushing and equipment rentals in the Fort McMurray area.
Planned future investment and development by producer companies in both Fort
McMurray and Peace River are expected to continue to grow rapidly over the
next five years.

    Other Services

    The Trust performs services for clients not tied to oil and gas. These
services included gravel and aggregate crushing, gravel loading/hauling and
placing, log loading and hauling, equipment hauling, lease road building and
maintenance for municipal, county and commercial and residential projects and
equipment rental to commercial, logging and mining operations. Approximately
35% of the Trust's revenue is currently derived from work provided to these
sectors. Management is currently pursuing bids or negotiations on work tied to
a number of these planned projects and is optimistic that the Trust will be
successful in future participation on many of the projects.

    Logging Operations

    Based on 2005 Alberta government statistics, forests cover more than 60%
of Alberta's total land base, equal to approximately 94 million acres or
almost 147,000 square miles. Of this land base, 87% is on public lands and
managed for sustainable development with over 75 million seedlings planted
every year to sustain the forests. Alberta's forestry industry, in total,
generates approximately $3.8 billion in revenues with growth expectations of
approximately 0.4% annually from 2005 to 2010. As at December 31, 2006 there
were approximately 5 major forestry related projects proposed or underway in
the Peace River region, the Trust's primary operation area. These projects
totaled approximately $490 million dollars of which approximately 90% of the
project values are being undertaken by clients the Trust currently works for.

    Infrastructure, Power Generation, Institutional, Residential, and
    Commercial Construction:

    As of December 2006, according to statistics released by the Alberta
government, there are approximately 135 major projects proposed or underway in
the Peace River Region. The value of these projects is approximately
$1.19 billion, although it is reasonable to expect that not all proposed
projects will proceed. A large number of these projects will requires services
the Trust is able to provide including gravel crushing and supply, gravel
hauling and road and site construction.

    ACQUISITIONS

    The Trust was formed by a deed of trust dated July 6, 2006. Pursuant to a
prospectus dated August 28, 2006 the Trust issued units and used the proceeds,
through its subsidiaries, to acquire 100% of the outstanding shares of the
Acquired Companies ("the Acquisitions"). The estimated purchase price of the
Acquired Companies, calculated as the base purchase price plus working capital
less debt was $230,934,992, subject to post closing adjustments for actual
working capital and debt. The purchase price was funded by payment of
$103,284,052 in cash and the issuance of units by the Trust for proceeds of
$127,650,940. In conjunction with the acquisitions, all debt and capital lease
obligations were repaid by Petrowest through the use of proceeds from the
offering.
    The Acquisitions have been accounted for using the purchase method with
the assets acquired and liabilities assumed recorded at their estimates of
fair value. The purchase price valuations have been finalized subsequent to
year end for all companies except for Northern Tractor Sales and Rentals Co.
Ltd. and Fitzpatrick Co. Ltd. (collectively, "Northern Tractor"). The
financial statements reflect the settled valuations for all companies with the
exception of Northern Tractor. The final purchase price of Northern Tractor
has been recorded based on management's best estimates, and is subject to
change. A preliminary allocation of the consideration is as follows:

    
    Net assets acquired                                               $000's

      Cash acquired on acquisition                                     6,115
      Accounts receivable                                             37,648
      Prepaid expenses                                                   680
      Inventories                                                      4,158
      Accounts payable and accrued liabilities                       (27,376)
      Income taxes payable                                              (215)
      Property and equipment                                          82,699
      Intangibles                                                     56,223
      Goodwill                                                        98,068
                                                                   ----------

      Total                                                          258,000
                                                                   ----------
                                                                   ----------


    Consideration given for value of shares and shareholder loans
     of acquired companies

      Net cash to vendors                                            103,284
      Cash repayment of working capital adjustments                   (2,055)
      Purchase price adjustment                                        6,422
      Retirement of long-term debt and capital lease obligations      22,698
                                                                   ----------

                                                                     130,349

      Trust Units (12,765,094 units issued)                          127,651
                                                                   ----------

      Total                                                          258,000
                                                                   ----------
                                                                   ----------
    

    Net working capital acquired includes cash, accounts receivable,
inventory, prepaid expenses, income taxes recoverable, bank indebtedness,
accounts payable and accrued liabilities and income taxes payable. The
purchase price was affected by the changes in working capital, shareholder
loans and long-term debt from the date specified in the purchase and sale
agreement to the date of closing. Changes in the balances for these items as
the Trust realized on the value of working capital assets has affected the net
consideration paid by the Trust to the owners which is estimated to be
$4,366,236.
    There is currently a dispute with Northern Tractor associated with the
valuation of certain working capital items and the valuation of redundant
assets retained by the vendor. The total disputed amount is $3,694,038.
Arbitration of these amounts is expected to occur prior to the end of the
third quarter of 2007 and adjustments required to the purchase price, if any,
may be material.
    On December 7, 2006 the Trust, in a secondary transaction, acquired
specific equipment assets from two of the former vendors. These assets were
acquired at estimated fair market value for a total of $13,194,116. The assets
acquired included an addition to the fleet in the Rentals segment of 30
additional pieces of heavy equipment adding approximately 50% to that
segment's capacity and the addition of 5 pieces of heavy equipment and 2
separate camp units with accommodations for up to 28 men, to the Construction
segment.

    SUMMARY OF RESULTS

    The Trust was created pursuant to a deed of trust on July 6, 2006 and the
financial reporting is effective from this date. Pursuant to a prospectus
dated August 28, 2006, Petrowest issued units of the Trust and used the
proceeds, through its subsidiaries, to acquire 100% of the outstanding shares
of the Acquired Companies. These transactions closed and Petrowest commenced
trading on the Toronto Stock Exchange on September 7, 2006, the day of
commencement of commercial operations of the Trust. Accordingly, the fourth
quarter of fiscal 2006 has no comparative figures for the same period in the
previous year, as the Trust was not yet created.

    
    $000s
    except per unit amounts,                            For the period ended
    margins and ratios                                     December 31, 2006
    -------------------------------------------------------------------------
    Revenue by segment
    Construction                                                      13,609
    Transportation                                                    15,680
    Civil                                                             13,821
    Rentals                                                            3,626
    -------------------------------------------------------------------------

    Total Revenue                                                     46,736
    -------------------------------------------------------------------------
    Operating expenses by segment
    Construction                                                       9,806
    Transportation                                                    12,404
    Civil                                                              9,042
    Rentals                                                            1,590
    -------------------------------------------------------------------------

    Total operating expenses                                          32,842
    -------------------------------------------------------------------------

    Administrative Expenses                                            1,798
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------

    EBITDA(1)                                                         12,096
    Amortization of property and equipment                             5,824
    Amortization of intangible assets                                  2,785
    Interest - net                                                       186
    Gain on disposal of assets                                           (78)
    -------------------------------------------------------------------------

    Net earnings                                                       3,379
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net earnings per unit basic and diluted                           $ 0.12
    -------------------------------------------------------------------------
    Notes
    (1) The term EBITDA is not a measure recognized by Canadian generally
        accepted accounting principles ("GAAP") and does not have
        standardized meanings prescribed by GAAP.
    

    REVENUE

    Consolidated revenue for the period ended December 31, 2006 was
$46,735,994. This represents operations of approximately four months. Each
segment contributed to revenue as follows: Construction: 29.1%,
Transportation: 33.5%, Civil: 29.6% and Rentals: 7.8%. Q4 started out well,
however cold weather and extensive snowfall slowed all segments down. The
Trust started to feel the impact of softening drilling activity late in
November and December in all segments.
    The Construction segment accounted for $13,609,355 or 29% of the Trust's
total revenue. This is down from the 38% share of the Trust's total revenue
described in the Trust's prospectus for the year ended December 31, 2005. The
decline is largely as a result of the large gains posted by the gravel
crushing operations in the Civil segment. 11 new pieces of heavy equipment or
approximately 10% additional capacity was added to the Construction segment in
the period.
    The Transportation segment accounted for $15,680,066 or 33% of the
Trust's total revenue. This is equal to the percentage share of the Trust's
total revenue described in the Trust's prospectus for the year ended
December 31, 2005. The share of the Trust's revenue was maintained by the
addition of 18 mobile transport units or a 20% capacity increase that allowed
this segment to reduce its dependence on third party subcontract trucking to
meet client demand.
    The Civil segment accounted for $13,821,217 or 30% of the Trust's total
revenue. This is up from the 22% share of the Trust's total revenue described
in the Trust's prospectus for the year ended December 31, 2005. The gravel
crushing operations of the civil segment have been running at close to 100%
capacity for the period since acquisition and the Trust has added 20%
throughput capacity by upgrading the size of the crushing cones. Gravel
crushing operations have current contracts extending out into 2008 totaling
more than $45 million. Safety operations within this segment were also
complimented with the addition of 15 additional air trailer units.
    The Rentals segment accounted for $3,625,356 or 8% of the Trust's total
revenue. This is up from the 7% share of the Trust's total revenue described
in the Trust's prospectus for the year ended December 31, 2005. The increase
is largely due to the more than 50% increase in capacity by the addition of 35
new pieces of equipment.
    Capacity increases in all segments were financed by a combination of debt
and operating leases.

    INTER SEGMENT REVENUES

    Eliminated from the financial statements is $1,866,198 of inter segment
sales and the offsetting costs at the same value. These inter segment sales
relate to the market value of activity between the various segments of the
Trust, including the Transportation segment hauling equipment on behalf of the
Construction and Civil segments, the Rentals segment supplying equipment to
the Civil segment and other cross utilization of manpower and equipment. At an
average EBITDA margin of 25.9% this translates to approximately $483,000 in
additional earnings retained in the Trust that would have been paid out to
third party subcontractors. These operational synergy benefits have been
obtained despite a general slowdown in the industry and only four months of
operations. Management expects that additional synergies can be obtained as
operational integration continues.

    OPERATING EXPENSES AND GENERAL AND ADMINISTRATIVE

    Operating expenses on a consolidated basis for the period ended
December 31, 2006 were $32,841,841 or 70.3% of revenue. General and
administrative expenses for the period ended December 31, 2006 were
$1,798,845. This equates to 3.85% of revenue.
    In the Trust's prospectus for the year ended December 31, 2005 general
and administrative could not be separated from operating costs as the
individual operating companies did not account for them separately. The
combined costs of operating and general and administrative expenses for the
year ended December 31, 2005 in the Trust's prospectus was 67.8%. This
compares to a combined cost of operating and general and administrative costs
for the period ended December 31, 2006 of $34,640,687 or 74.1% of revenue.
    Operating and general and administrative costs have increased in the
period by 6.3%. As a percentage of revenue this translated to approximately
$2.95 million in additional costs in the period. The balance of the cost
increases have been as result of three main factors. First, the adverse
weather delayed activities and reduced productivity. Secondly, the general
slowdown in activity has impacted overall margins. Thirdly, there has been a
negative impact on operating margins caused by the additional capacity added
to the various segments in light of the slowdown. The portion of equipment
additions financed by operating leases, show up as additional equipment rental
expense and are included as additional costs in operating expenses.
    Also included in the additional costs are startup and integration costs
associated with the conversion of nine formerly privately owned companies to a
public entity and the associated public company costs. This impacts almost all
expense categories with increases in short term labor and contract labor, to
increases in office, communications and advertising expenses. These costs have
been incurred upfront in the short timeframe of the current reporting period,
and the benefits will be realized over the course of the full year and, in
some instances, future years.
    On a per segment basis compared to the Trust prospectus for the year
ended December 31, 2005, and allocating corporate costs to the various
segments proportionate to total revenues, the following is the results by
segment:
    The Construction segment costs increased to 75% of revenue from 71.6% in
the prospectus. In addition to the three main impacts described above, the
fall season is generally a time for this segment to perform pre-winter
maintenance in anticipation of the winter months' activities, including
corking of tracked equipment.
    The Transportation segment was hardest hit by weather and industry
slowdowns on the rig moving side. The sporadic activity levels made it
extremely difficult to control labor costs. To maintain the skilled drivers
needed, they need to be compensated even when weather prohibited billing their
time. As such, costs in the Transportation segment increased to 84.8% of
revenue from 69% in the prospectus. Added capacity prior to the slowdown also
impacted this segment hard due to the higher portion of operating lease
financing in this segment.
    The Civil segment remained almost the same with costs increasing to 67.6%
of revenue from 67.5%. Volume throughput increases offset cost increases as a
result of winter work conditions.
    The Rental segment costs increased to 49.5% of revenue from 43.6% in the
prospectus. A slowdown in December as a result of general Christmas shutdowns
by clients and the impact of additional operating leases contributed to the
cost increase.

    EBITDA

    EBITDA for the period ended December 31, 2006 was $12,095,306.(1) This
represents an EBITDA margin of 25.9%.(2)

    
    (1) EBITDA is calculated as net earnings of $3,378,702 plus interest
        expense of $272,775 less interest income of $87,431, less gain on
        disposal of assets of $78,197 plus amortization of property and
        equipment and amortization of intangible assets of $8,609,457.
    (2) EBITDA Margin is a fraction of which EBITDA of $12,095,306 is the
        numerator and revenue of $46,735,994 is the denominator.
    

    AMORTIZATION OF PROPERTY AND EQUIPMENT

    The Trust began providing amortization on its property and equipment
assets from the date of acquisition of the Acquired Companies. Amortization
for the period ending December 31, 2006 was $5,824,359. Amortization is
applied to reduce the value of property and equipment to its estimated
residual value over its estimated useful life on a declining balance basis
annually or on an actual usage basis. Management assesses the carrying amount
of property and equipment assets for impairment and, if impairment is
determined, a writedown to the asset's fair value is recognized during the
period.

    AMORTIZATION OF INTANGIBLE ASSETS

    Intangible assets, consisting of acquired customer relationships, brand
and trade names, and non-competition agreements are recorded at cost and
amortized over their useful lives, which is estimated to be between 5 and 10
years. Intangible assets are regularly evaluated by comparing their applicable
estimated future net cash flows to the unamortized net book value of the
intangible asset. Any impairment would be charged to income in that period.

    INTEREST

    Interest expense reflects carrying costs of debt held in the Acquired
Companies from date of closing to payout by the Trust including interest and
penalties associated with early retirement on lease obligations, interest on
capital lease obligations and interest on the revolving equipment loan.

    INCOME TAXES

    On October 31, 2006, the Minister of Finance (Canada) announced income
tax proposals which, if enacted, would modify the taxation of certain
flowthrough entities including mutual fund trusts and their unitholders (the
"October 31 Proposals"). The October 31 Proposals will apply to a specified
investment flowthrough ("SIFT") trust and will apply a tax at the trust level
on distributions of certain income from such SIFT trust at a rate of tax
comparable to the combined federal and provincial corporate tax rate. These
distributions will be treated as dividends to the Trust unitholders.
    On December 21, 2006, the Department of Finance (Canada) released draft
legislation to implement the October 31 Proposals discussed above. The draft
legislation appears to be generally consistent with details included in the
October 31 announcement.
    It is expected that Petrowest will be characterized as a SIFT trust and
as a result would be subject to the October 31 Proposals. The October 31
Proposals are to apply commencing January 1, 2007 for all SIFT trusts that
begin to be publicly traded after October 31, 2006 and commencing January 1,
2011 for all SIFT trusts that were publicly traded on or before October 31,
2006. Subject to the qualification below regarding the possible loss of the
four year grandfathering period in the case of undue expansion, it is expected
that Petrowest will not be subject to the October 31 Proposals until
January 1, 2011.
    Under the existing provisions of the Income Tax Act, Petrowest can
generally deduct, in computing its income for a taxation year, any amount of
income that it distributes to unitholders in the year and, on that basis,
Petrowest is generally not liable for any material amount of tax.
    Pursuant to the October 31 Proposals, commencing January 1, 2011,
(subject to the qualification below regarding the possible loss of the four
year grandfathering period in the case of undue expansion), Petrowest will not
be able to deduct certain of its distributed income (referred to as specified
income). Petrowest will become subject to a distribution tax on this specified
income at a special rate estimated to be 31.5%.
    Petrowest may lose the benefit of the four year grandfathering period if
Petrowest exceeds the limits on the issuance of new trust units and
convertible debt that constitute normal growth during the grandfathering
period (subject to certain exceptions). The normal growth limits are
calculated as a percentage of Petrowest's market capitalization of
$248.9 million on October 31, 2006 as follows: 40 percent for the period
November 1, 2006 to December 31, 2007, 20 percent for each of 2008, 2009 and
2010. Unused portions may be carried forward until December 31, 2010.
    Pursuant to the draft legislation, the distribution tax will only apply
in respect of distributions of income and will not apply to returns of
capital. If the October 31 Proposals are implemented, it is expected that the
imposition of tax at the Petrowest Trust level under the October 31 Proposals
will materially reduce the amount of cash available for distributions to
unitholders.

    NET INCOME

    Net income for the period ended December 31, 2006 was $3,378,702. This
represents earnings per unit of $0.12, basic and fully diluted.

    RECONCILIATION OF NET EARNINGS TO EBITDA AND DISTRIBUTABLE CASH

    Management views distributable cash as an operating performance measure,
as it is a measure generally used by Canadian income funds as an indicator of
financial performance. As the Trust will distribute substantially all of its
cash on an ongoing basis (after providing for certain amounts described below)
and since EBITDA (as defined in "Non-GAAP Measures") are metrics used by many
investors to compare issuers on the basis of their ability to generate cash
from operations, management believes that, in addition to net earnings, EBITDA
is a useful supplemental measure from which to make adjustments to determine
distributable cash. The estimate of distributable cash has been prepared using
assumptions which management believes are reasonable and supportable, all of
which reflect the Partnerships planned course of action given management's
judgment about the most probable set of economic conditions.

    
                                                        For the period ended
    $000s                                                  December 31, 2006
    -------------------------------------------------------------------------
    Net Earnings                                                       3,379

    Interest                                                             273
    Amortization of property and equipment                             5,824
    Amortization of intangibles                                        2,785
    Interest income                                                      (87)
    (Gain) on disposal of property and equipment                         (78)
    -------------------------------------------------------------------------

    EBITDA                                                            12,096
    Unit based compensation                                              358
    Interest                                                            (273)
    Maintenance capital expenditures reserve(1)                         (500)
    -------------------------------------------------------------------------

    Distributable Cash                                                11,681
    -------------------------------------------------------------------------


    RECONCILIATION OF CASH FLOW FROM OPERATIONS TO DISTRIBUTABLE CASH

                                                        For the period ended
    $000s                                                  December 31, 2006
    -------------------------------------------------------------------------
    Cash flow from operations                                          3,990

    Changes in non-cash working capital items                          8,278
    -------------------------------------------------------------------------

                                                                      12,268
    Interest income                                                      (87)
    Maintenance capital expenditures reserve(1)                         (500)
    -------------------------------------------------------------------------

    Distributable Cash                                                11,681
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Combined total distributions paid or payable                      10,650
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Payout ratio(2) - combined unitholders                             91.2%
    -------------------------------------------------------------------------
    (1) The Trust charges to expense all regular ongoing maintenance expense.
        "Maintenance capital expenditures" is defined as the amount incurred
        or reserved during the period to conduct infrequent overhauls of
        equipment. The amount will fluctuate from period to period.
    (2) Payout ratio is a fraction of which distributions paid or payable of
        $10,650,380 is the numerator and distributable cash of $11,680,515 is
        the denominator.
    

    SUSTAINABLE CASH FLOWS

    In the calculation of distributable cash management has allowed for a
current reserve for additional sustaining capital of $500,000 for the four
months ended to December 31, 2006. Management believes that the approximately
$18 million in capital expenditures incurred in the period for the replacement
of older equipment and increase in capacity, provide the Trust with the
capacity to sustain operations into 2008 without the need for any significant
additional sustaining capital expenditures. The reserve is being provided for
based on that fact that, though less likely, even relatively new equipment can
require a major overhaul.
    Further, growth expansion expenditures to the end of 2007 have been
largely completed as well. The recent softening of demand in the oil and gas
services sector has resulted in a delay of expansion plans as they relate to
new capital additions. The majority of initially planned equipment
acquisitions for 2007 have been delayed in all segments except in the gravel
crushing operations of the Civil segment. This operation has secured contracts
out to 2008 and requires additional capacity to fulfill these contracts.

    Cash provided from operations

    Excluding the effects of changes in non-cash working capital items, cash
flow from operations for the period ended December 31, 2006 was $12,267,946.
    The Trust believes that cash provided from operations combined with its
strategy of financing certain capital asset acquisitions, (specifically those
assets with shorter economic lives) with short term operating leases will
sustain liquidity, minimize maintenance capital expenditure costs, sustain
distributions, provide capital for growth and ensure productive capacity can
be maintained.

    Cash provided from financing activities

    Cash from financing activities in the net amount of $129,627,957 were
provided from the initial public offering and subscription of subordinated
trust units. Costs of the initial public offering were $11,982,043.
    Cash was also provided by the drawdown of the Trust's operating line of
credit in the amount of $15,000,000. These funds were used for the purchase of
equipment.

    Cash provided from investing activities

    Investment activities consisted of the acquisition of the Acquired
Companies and associated transfer of assets on closing, the retirement of the
Acquired Companies' debts and the purchase of new assets for use in the Trust.

    PAYOUT RATIO

    Petrowest's payout ratio for the period December 31, 2006 was 91.2%.  In
addition to the general softening of the energy services market and the
decline in our activity levels caused thereby, our payout ratio for the period
ended December 31, 2006 was affected by inclement weather that adversely
affected activities and non-recurring expenses relating to integration and
start-up. In spite of this, Petrowest closes the 2006 year in a very strong
financial position, capacity increase in all business segments and low
anticipated 2007 maintenance capex requirements.

    ACCRUED DISTRIBUTIONS

    Distributions paid to year end by the Trust to unitholders are as
follows:

    
    -   To unitholders of record on October 31, 2006 and paid November 15,
        2006 in the amount of $0.17667 per Trust unit.
    -   To unitholders of record on November 30, 2006 and paid December 15,
        2006 in the amount of $0.10 per Trust unit
    

    In addition the Trust has accrued distributions to Trust unitholders in
the amount of $0.10 per trust unit to unitholders of record as at December 31,
2006 in the amount of $2,676,509. This distribution was paid on January 15,
2007. Also accrued was $568,772 payable to Subordinated unitholders from
September 7, 2006 to December 31, 2006 in the cumulative amount of $0.37667.
    Future distributions and the actual payout ratio will be at the
discretion of the Board of Directors of Petrowest Energy Services General
Partner Ltd. and may vary depending on the current and anticipated level of
activity in the energy services industry as well as the operational
performance of the various partnerships.

    PROPERTY AND EQUIPMENT EXPENDITURES

    Property and equipment assets recorded on the acquisition of the Acquired
Companies have been recorded at the estimated fair market value of the assets
at the date of acquisition. The principal assets acquired as at the date of
the acquisition includes a large fleet of heavy equipment including, dozers,
tracked hoe excavators, loaders, graders, scrapers, articulated rock trucks,
gravel crushing equipment, and heavy haul trucks and trailers.
    Property and equipment asset acquisitions incurred after the acquisition
of the Acquired Companies are recorded at cost. The Trust added more than 10%
capacity in the Construction segment with 11 new pieces of equipment, 20% to
Transportation with 18 mobile transport units, 20% throughput increases to the
gravel crushing operations of the Civil segment and more than 50% to Rentals
with 35 new pieces of equipment added. The acquisition of the additional
capacity has been funded by a combination of debt and operating leases.

    
    CONTRACTUAL OBLIGATIONS - PAYMENTS DUE BY PERIOD

                                          As at December 31, 2006
                          ---------------------------------------------------
                           less than     1 - 3     4 - 6     There-
    $000s                    1 year      Years     Years     after    Total
    --------------------- ----------- --------- --------- --------- ---------
    Bank Indebtedness(1)           -    15,000         -         -    15,000
    Obligations under
     Capital leases(2)            87       169         -         -       256
    Operating Leases on
     Equipment(3)              7,691    12,573     1,015       Nil    21,279
    Operating Leases on
     Offices, Shop and
     yards(3)                  1,588     4,619     1,515       Nil     7,722
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    TOTAL                      9,366    32,361     2,530       Nil    44,257
    -------------------------------------------------------------------------
    Notes
    (1) Bank Indebtedness is described under Note 8 to the December 31, 2006
        Consolidated Financial Statements.
    (2) Obligations under Capital leases is described under Note 9 to the
        December 31, 2006 Consolidated Financial Statements.
    (3) Operating lease obligations are described under Note 10 to the
        December 31, 2006 Consolidated Financial Statements.


    LIQUIDITY

    Working Capital

                                                                       As at
                                                                 December 31
    $000s                                                               2006
    -------------------------------------------------------------------------
    Cash                                                               9,312
    Accounts receivable                                               38,498
    Prepaid expenses and deposits                                      1,517
    Inventory                                                          3,454
    Accounts payable and accrued liabilities                         (20,296)
    Distributions payable                                             (3,245)
    Purchase price adjustment                                         (6,422)
    Current portion of obligations under capital leases                  (87)
    -------------------------------------------------------------------------
    Working capital                                                   22,731
    -------------------------------------------------------------------------
    

    Working capital at December 31, 2006 was $22,730,672. This represents a
working capital ratio of 1.76 : 1.
    Working capital acquired from the Acquisitions was approximately
$21 million. In the four months of operations there has been an increase of
approximately $1.7 million in working capital balances. Management anticipates
that working capital requirements over the balance of 2007 are sustainable
from operations and net working capital will remain reasonably consistent.

    Purchase price adjustment

    The Acquisitions have been accounted for using the purchase method with
the assets acquired and liabilities assumed recorded at their estimates of
fair value. The purchase price valuations have been finalized subsequent to
year end for all companies except for Northern Tractor Sales and Rentals Co.
Ltd. and Fitzpatrick Co. Ltd. (collectively, "Northern Tractor"). The
financial statements reflect the settled valuations for all companies with the
exception of Northern Tractor. The final purchase price of Northern Tractor
has been recorded based on management's best estimates, and is subject to
change.
    The accrued purchase price adjustment relates to net working capital
acquired on the Acquisitions and includes cash, accounts receivable,
inventory, prepaid expenses, income taxes recoverable, bank indebtedness,
accounts payable and accrued liabilities and income taxes payable. The
purchase price was affected by the changes in working capital, shareholder
loans and long-term debt from the date specified in the purchase and sale
agreement to the date of closing. Changes in the balances for these items as
the Trust realized on the value of working capital assets, has affected the
net consideration paid by the Trust to the owners which is estimated to be
$4,366,236. As the Trust realizes on the settlement of the various assets
acquired this accrual is subject to change.
    There is currently a dispute with Northern Tractor associated with the
valuation of certain working capital items and the valuation of redundant
assets retained by the vendor. The total disputed amount is $3,694,038.
Arbitration of these amounts is expected to occur prior to the end of the
third quarter of 2007 and adjustments required, if any, may be material.

    BANK INDEBTEDNESS

    The Trust has a $60 million operating line of credit facility available
for growth capital, acquisition and working needs. Loan security is provided
by a first charge debenture, a general security agreement and a general
assignment of book debts. No principal repayments are required until 90 days
after the end of the term of the loan. Principle is then repayable in twelve
equal quarterly installments over 36 months. Interest is payable monthly at
rates between prime and prime + 1.0% depending on the Trust's debt to EBITDA
ratio. Current debt levels require payment of interest at prime.
    As at December 31, 2006 the Trust had drawn $15,000,000 on its credit
facility for use in the acquisition of equipment. The full amount has been
classified a long term as the first quarterly installment payment if requested
at the end of the term in November of 2007, would not be due until February of
2008.

    UNITHOLDERS' EQUITY

    The Trust is authorized to issue an unlimited number of Trust Units.
Prior to the conversion of the Subordinated Units, holders of Trust Units will
be entitled to receive per month distributions in priority to any payments on
the Subordinated Units.
    The Trust is authorized to issue an unlimited number of Subordinated
Units. Distributions on the Subordinated Units will be subordinated in favour
of Trust Units. Distributions on the Subordinated Units will only be paid at
the end of a fiscal quarter to the extent that: (i) the Trust has paid
distributions per month of at least $0.10 per Trust Unit to holders of Trust
Units during that quarter, and, (ii) any deficiency in such distributions to
holders of Trust Units during the preceding 12 months has been satisfied.
    The Trust is authorized to issue an unlimited number of Special Voting
Units which are not entitled to any distributions. No Special Voting Units
have been issued to date.

    
    Issued                                                            $000's
                                                     Outstanding

    Trust Units issued for cash net of issue costs    14,000,000     128,118
    Trust Units issued on acquisitions (note 4)       12,765,094     127,651
                                                     ------------ -----------
                  Total Units                         26,765,094     255,769

    Subordinated Units
    Issued for cash                                    1,510,000       1,510
    Issued for promissory notes                                -       3,020
    Less: Amount issued for promissory notes                   -      (3,020)
                                                     ------------ -----------

    Basic and Fully Diluted                           28,275,094     257,279
                                                     ------------ -----------
                                                     ------------ -----------
    


    Trust Units were issued on closing of the initial public offering on
September 7, 2006 at a price of $10.00 per unit. Trust issue costs in
conjunction with the offering were $11,882,043.
    Prior to the IPO, the Trust issued to various insiders an aggregate of
1,510,000 Subordinated Units at a price of $3.00 per Subordinated Unit,
$4,530,000 in the aggregate to be satisfied by payment of $1.00 in cash and
$2.00 by way of a three-year promissory note that may be forgiven at the
option of the Trust over three years if the subscriber remains as a director,
officer or employee of Petrowest.

    FINANCIAL INSTRUMENTS

    Fair values of financial assets and liabilities

    Petrowest's financial instruments consist of cash, accounts receivable,
accounts payable and accrued liabilities, purchase price adjustment payable,
distributions payable, obligations under capital leases and bank indebtedness.
The fair value of these financial instruments, with the exception of bank
indebtedness and capital lease obligations, approximates their carrying values
due to their relatively short term to maturity of the instruments. The fair
value of the capital lease obligations is not practicably determinable. The
fair value of bank indebtedness approximates carrying values as the interest
rates approximate market rates.

    Interest Rate Risk

    Petrowest is exposed to interest rate risk which bears fixed and variable
rates of interest through its capital lease obligations and bank indebtedness.

    Credit Risk

    Petrowest is exposed to credit risk on accounts receivables due from its
customers. Management routinely assesses the financial strengths of customers
and monitors exposure for credit losses.
    New CICA handbook requirements in regard to financial instruments come
into effect in 2007. The impact of these measures will impact disclosure of
financial instruments of the Trust including loans and receivables, trading
assets and liabilities, debt securities, equity securities, non-trading
liabilities and non-hedging derivatives. The Trust has not yet fully completed
its evaluation of the new standards, nor the impact the adoption of these
pronouncements will have on the Trust's financials statements.

    RELATED PARTY TRANSACTIONS

    Petrowest paid rents for office space for a building owned by an
executive officer of Petrowest in the amount of $58,721. Prior to period end
the company exercised its option to purchase the office building for the sum
of $854,393.
    Petrowest paid rents for office and shop space under leases entered into
with certain former vendors in the amount of $453,921. Future lease
commitments associated with the transactions are included in note 13 to the
financial statements.
    Transactions were estimated to equal fair market value.

    CRITICAL ACCOUNTING ESTIMATES AND ACCOUNTING POLICIES

    Critical Accounting Estimates

    As a normal part of the financial statement preparation process,
management is required to make estimates and assumptions based on information
available as at the financial statement date. These estimates and assumptions
affect the reported amounts of assets and liabilities, the possible disclosure
of contingent assets and liabilities at the date of the financial statements
and the amount of revenue and expense reported for the period.
    Although estimates and assumptions must be made during the financial
statement preparation process, it is management's opinion that none of the
estimates or assumptions were highly uncertain at the time they were made. The
most significant estimates in Petrowest's financial statements are the
amortization period for property and equipment, valuation of assets in the
purchase equation, assumptions used in the binomial valuation methodology and
recoverability of accounts receivable.
    Petrowest is made up of various subsidiaries and limited partnerships
which for the purposes of these financial statements have been consolidated to
reflect the operations relating to Petrowest. These financial statements are
stated in Canadian dollars and have been prepared by the management of
Petrowest in conformity with Canadian generally accepted accounting principles
("GAAP").

    
        a)    Cash and cash equivalents

              Included in cash and cash equivalents are bank overdrafts.

        b)    Inventory

              Inventory consists of gravel, spare equipment parts, tires,
              materials and supplies and is valued at the lower of cost and
              net realizable value with the cost being determined on a first-
              in, first-out basis.


        c)    Property and Equipment

              Property and equipment assets recorded on the acquisition of
              the Acquired Companies have been recorded at the estimated fair
              market value of the assets at the date of acquisition. Property
              and equipment asset acquisitions incurred after the acquisition
              of the Acquired Companies are recorded at cost.

              Amortization is applied to reduce the value of property and
              equipment to its estimated residual value over its estimated
              useful life on a declining balance basis annually.

                Buildings, portable buildings and fencing             2%-10%
                Heavy equipment                                       5%-25%
                Vehicles                                             25%-35%
                Trailers                                              5%-25%
                Equipment                                            15%-40%
                Office furniture and equipment                       20%-30%
                Communications, computer hardware and software       30%-60%
                Equipment under capital lease                        20%-67%
                Leasehold improvements                            Lease term

              Management assesses the carrying amount of property and
              equipment assets for impairment when facts and circumstances
              indicate a potential impairment. If it is determined the
              estimated net recoverable amount, measured by either fair
              value, if applicable, or estimated by calculating the present
              value of expected cash flows from the asset, is less than the
              net carrying amount, a write-down to the asset's fair value is
              recognized during the period.

        d)    Equipment under construction

              Certain rig up and modifications are required to capital assets
              prior to the asset being placed in service. Amortization is
              recorded from the date the asset is placed in service.

        e)    Goodwill

              Goodwill represents the excess of purchase price of the
              Acquired Companies over the fair value of net assets acquired
              and liabilities assumed. The goodwill balance is assessed for
              impairment annually at year-end or as events occur that could
              result in impairment. Impairment is recognized based on the
              fair value of the business segment compared to the book value
              of the business segment. If the fair value of the business
              segment is less than the book value, impairment is measured by
              allocating the fair value of the segment to the identifiable
              assets and liabilities as if the Trust has been acquired in a
              business combination for a purchase price equal to its fair
              value. The excess of the fair value of the segment over the
              amounts assigned to the identifiable assets and liabilities is
              the implied value of the goodwill. Any excess of the book value
              of goodwill over the implied value of goodwill is the
              impairment amount. Impairment is charged to earnings and is not
              tax affected, in the period in which it occurs. Goodwill is
              stated at cost less impairment and is not amortized.

        f)    Intangible assets

              Intangible assets, consisting of acquired customer
              relationships, brand and trade names and non-competition
              agreements are recorded at cost and amortized over their useful
              lives on a straight line basis, which is estimated to be
              between 5 and 10 years. Intangible assets are regularly
              evaluated by comparing their applicable estimated present value
              of future net cash flows to the unamortized net book value of
              the intangible asset. Any impairment would be charged to income
              in that period.

        g)    Revenue recognition

              Petrowest's services are generally sold based upon contractual
              agreements or purchase orders with the customer that include
              fixed or determinable prices. Revenue in each of the Trust's
              operating segments is recognized when services are rendered or
              over the rental period and when collection can be reasonably
              assured.

        h)    Use of estimates

              The preparation of financial statements in accordance with
              Canadian generally accepted accounting principles requires
              management to make estimates and assumptions that affect the
              reported amounts of assets and liabilities, stock based
              compensation and disclosure of contingent assets and
              liabilities at the date of the financial statements and the
              reported amounts of revenues and expenses during the period. By
              their nature, these estimates are subject to measurement
              uncertainty and the effect on the financial statements of
              changes in such estimates in future periods could be
              significant. These estimates are reviewed periodically and as
              adjustments become necessary they are reported in earnings in
              the period in which they become known. Such estimates including
              providing initial valuation of assets on the acquisition of the
              Acquired Companies, amortization of property and equipment and
              intangible assets, recoverability of accounts receivable,
              valuation of intangible assets and goodwill are the areas most
              subject to estimation. Actual results could differ from these
              estimates.

        i)    Income taxes

              Petrowest, and its operating entities, are taxable entities
              under the Income Tax Act of Canada; however they are currently
              taxable only on income that is not distributed or distributable
              to the unitholders. As the Trust currently distributes all of
              its taxable income to the unitholders, no provision for income
              taxes has been made in these consolidated financial statements.
              Recent proposed changes to the Income Tax Act of Canada will
              result in a change to the status of Trust with respect to
              income taxes being levied on distributions.

              On December 21, 2006 the Minister of Finance released for
              comment draft legislation concerning the taxation of certain
              publicly traded income trusts and partnerships with the
              exception of real estate investment trusts and, as a result,
              these entities will in effect be taxed as corporations on the
              amount of the non-deductible distributions. For entities such
              as the trust that were publicly traded on October 31, 2006, the
              proposed rules, if passed into law, would not apply until 2011
              provided the Trust does not violate the guidelines on "normal
              growth" as provided by the Minister. The amount of future
              income taxes to be recognized at the date of substantive
              enactment would be based on existing temporary differences that
              are expected to reverse after 2011, when the new tax rules take
              effect. The amount of future income taxes to be recognized at
              the date of substantive enactment would be based on existing
              temporary differences that are expected to reverse after 2011,
              when the new tax rules take effect.

        j)    Stock based compensation

              Options to purchase Trust Units granted under the Unit Option
              Plan are described in Note 10 of the Trust's financial
              statements. Unit based compensation is recognized in accordance
              with the fair-value based method of accounting. Compensation
              expense for unit options awarded under the plan is measured at
              estimated fair value at the grant date. This is done using a
              binomial valuation model and is recognized as unit-based
              compensation expense over the vesting period of the options
              granted.


        k)    Per Unit amounts

              Basic per unit amounts are calculated using the weighted
              average number of Trust Units outstanding during the period.
              Diluted per unit amounts are calculated by adding potentially
              dilutive option units to the weighted average number of Trust
              Units outstanding during the period. Basic and diluted amounts
              are calculated using the treasury stock method. Potentially
              dilutive option units are only considered dilutive and added
              if, and to the extent that they are "in the money". Under this
              method, the diluted weighted average number of units is
              calculated assuming the proceeds for the exercise of the
              dilutive option units are purchased at the average market price
              for the period.
    

    KEY RISKS AND UNCERTAINTIES

    Volatility of Industry Conditions

    The demand, pricing and terms for energy services largely depend upon the
level of industry activity for Canadian natural gas and, to a lesser extent,
oil exploration and development. Industry conditions are influenced by
numerous factors over which Petrowest will have no control, including: the
level of oil and gas prices; expectations about future oil and gas prices; the
cost of exploring for, producing and delivering oil and gas; the expected
rates of declining current production; the discovery rates of new oil and gas
reserves; available pipeline and other oil and gas transportation capacity;
worldwide weather conditions; global political, military, regulatory and
economic conditions; and the ability of oil and gas companies to raise equity
capital or debt financing.
    The level of activity in the Canadian oil and gas exploration and
production industry is volatile. No assurance can be given that expected
trends in oil and gas production activities will continue or that demand for
energy services will reflect the level of activity in the industry. Any
prolonged substantial reduction in oil and natural gas prices would likely
affect oil and gas production levels and therefore affect the demand for
services to oil and gas customers. A material decline in oil or gas prices or
Canadian industry activity could have a material adverse effect on Petrowest's
business, financial condition, results of operations and cash flows and
therefore on the distributions to unitholders.

    Seasonality

    In Canada, the level of activity in the energy services industry is
influenced by seasonal weather patterns. Spring breakup during the second
quarter leaves many secondary roads temporarily incapable of supporting the
weight of heavy equipment, which results in severe restrictions in the level
of energy services. The duration of this period will have a direct impact on
the level of Petrowest's activities. Spring breakup occurs earlier in the year
in southeastern Alberta than it does in northern Alberta and British Columbia.
The timing and duration of spring breakup are dependant on weather patterns
but it generally occurs in April and May. Additionally, if an unseasonably
warm winter prevents sufficient freezing, Petrowest may not be able to access
well sites and its operating results and financial condition may therefore be
adversely affected. The demand for energy services may also be affected by the
severity of the Canadian winters. In addition, during excessively rainy
periods, equipment moves may be delayed, thereby adversely affecting revenues.
The volatility in the weather and temperature can therefore create
unpredictability in activity and utilization rates, which can have a material
adverse effect on Petrowest's business, financial condition, results of
operations and cash flows and therefore on the distributable income to be
distributed to unitholders.

    Capital Expenditures

    Petrowest operates in a capital intensive business. There can be no
assurance that the actual capital costs incurred by Petrowest will not be
higher than anticipated. In particular, Petrowest will be subject to capital
costs that it has little control over, including, but not limited to, the cost
of the equipment required by Petrowest's business. Any material increase in
capital costs may materially affect Petrowest's business, financial
conditions, results of operations and cash flows, and therefore the
distributable income to be distributed to Unitholders.

    Changes in Legislation

    There can be no assurance that income tax laws and other governmental
programs relating to the oil and gas industry and the energy services
industry, such as the status of mutual fund trusts, will not be changed in a
manner which adversely affects unitholders. Recent proposed changes to the
Income Tax Act of Canada will result in a change to the status of Trust with
respect to income taxes being levied on distributions after January 1, 2011.

    Absence of Financial History

    The Trust has only been carrying on business as a consolidated entity
since September 7, 2006, the date the Acquired Companies were acquired by the
Trust. As such, management has had limited time to integrate the financial
controls and procedures of the Trust with the Acquired Companies. Difficulties
in integrating the financial controls and procedures and deficiencies in
financial and internal controls and procedures in respect of the Acquired
Companies may have a negative effect on the Trust and its operations.

    
    Additional risks are detailed in the Trust's prospectus dated August 28,
     2006 which is available in electronic form at www.sedar.com and will
       be detailed in the Trust's Annual Information Form which will be
     available in electronic form at www.sedar.com after March 31, 2007.
    

    FINANCIAL DISCLOSURES

    The Chief Executive Officer and the Chief Financial Officer evaluated the
effectiveness of Petrowest's disclosure controls and procedures for the period
ending December 31, 2006. This evaluation considered the functions performed
by its Disclosure Committee, the review and oversight of all executive
officers and the board, as well as the process and systems in place for filing
regulatory and public information. Petrowest's established review process and
disclosure controls are designed to ensure that all required information,
reports and filings required under Canadian securities legislation are
properly submitted and recorded in accordance with those requirements over
financial reporting as of December 31, 2006 pursuant to the requirements of
Multilateral Instrument 52-109 of the Canadian Securities Administrators.
    In the course of less than four months, Petrowest has integrated nine
private companies and completed the data conversion of the existing accounting
systems within the Acquired companies to a common accounting system platform.
All nine entities were live on the new accounting platform as at January 1,
2007.
    As part of the Trust's transition from nine owner managed control
environments that existed in the Acquired Companies to an acceptable public
company control environment, the Trust engaged third party consultants to
assist with the design, documentation and testing of original internal control
systems, new proposed improvements, interim measures during the conversion and
planned implementation on completion of the conversion. By their nature
certain planned controls, or controls that would exist on completion of the
data conversion, could not be tested because they were not fully operational
at the time of testing.
    In light of management's review, and the results of findings by third
party consultants, Petrowest has concluded that as of December 31, 2006 the
following weaknesses existed in the design of internal controls over financial
reporting. These weaknesses should also be considered in the Trust's
disclosure controls and procedures.

    Entity controls

    While the Board of Directors of the Trust has adopted a Whistle Blower
Policy and is in the final stages of completing a Code of Conduct, only an
informal distribution of both policies have been made to business unit
management and certain employees. No formal plan has as yet been developed to
train all existing employees and new hires on the contents of both policies.
    Management and the Board of Directors have indicated their intent to have
a training program for existing employees and new hire training program in
place by mid 2007 including evidence of both policies on the corporate web
page and in new hire packages.

    Financial reporting controls

    The Trust does not currently have an adequate segregation of duties
within the finance function due to the relatively short time frame in bringing
all the nine operational entities together since September of 2006. As a
result there has been no independent review of more complex areas of
accounting and certain accounting estimates prepared by the CFO.
    Segregation of duties will be improved through implementing certain
suggested internal control design improvements recommended from the third
party consultants. To help ensure quality financial reporting, the external
auditors of the Trust will be engaged to review the future interim financial
statements.

    Operational controls

    While written procedures documentation, authorization limits, checklists,
memos, verbal instructions and formal training has been given to staff and
management responsible for the processes and procedures associated with
billings, reconciliations, purchasing, cutoff, journal entries and the review
and approvals of these transactions, there is evidence in some instances of
incomplete documentation that the review and approvals have been performed. In
addition, during the conversion process over the last four months, a lack of
segregation of duties existed within the finance function in respected to the
initiation and recording of certain non recurring journal entries.
    While in these instances, management has satisfied itself that it is a
lack of documentation of the control rather than lack of existence of the
control itself, management intends to provide additional training with respect
to the new process and continue to monitor major expenditure items.
    Notwithstanding the weaknesses identified, based on the evaluation
performed, the CEO and CFO concluded that the design and operation of the
Trust's disclosure controls and procedures were effective as at December 31,
2006 to ensure that information required to be disclosed by the Trust in
reports filed under Canadian securities laws is gathered, recorded, processed,
summarized and reported within the time periods specified under Canadian
securities laws and is accumulated and communicated to management, including
the CEO and CFO, to allow timely decisions regarding required disclosure as
required under Canadian securities laws.
    Further, based on the Trust's mitigating procedures, the CEO and the CFO
have satisfied themselves that the weaknesses identified have not resulted in
material errors in the financial statements. Management and the Board of
Directors are committed to transparency and completeness of financial
reporting and disclosure. The existence of the identified control weaknesses
need not necessarily be interpreted as evidence of a lack of integrity, of
unsound business practices or of unacceptable risks to its shareholders and
other related parties.
    It should be noted that while Petrowest's principal executive officer and
principal financial officer believe that Petrowest's disclosure controls and
procedures provide a reasonable level of assurance that they are effective,
they do not expect that Petrowest's disclosure controls and procedures or
internal control over financial reporting will prevent all errors and fraud. A
control system, no matter how well conceived or operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met.
    Internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

    OUTLOOK

    The natural gas exploration activity slowdown that began in late 2006 and
continues so far in 2007 is expected to continue until such time as natural
gas storage issues are more properly defined and some measure of pricing
predictability can be determined. The expert consensus seems to be that
current North American economic growth will continue to fuel an increasing
demand for natural gas, and the steep production declines in existing
producing wells will result in a strengthening of natural gas pricing and a
stabilization of natural gas storage parameters. This combined with the
current relatively high prices of oil and the stability of oil drilling
activity will not result in a prolonged slowdown. As such, management
anticipates the start of higher levels of activity toward the end of the
summer of 2007 and positive growth in exploration and development activity in
2008.
    Petrowest has established a solid core base of operations acquiring some
of the "best in class" companies in the Grande Prairie region. These are
companies that were able to grow their businesses even in the down cycles of
the past. We are committed to continue with our growth plan and believe that
it can continue to be realized in spite of the current slowdown and the recent
announcements by the government with respect to the operations of trusts.
    Petrowest has a strong balance sheet with over $22.7 million in positive
working capital, including over $9.3 million in cash balances. The Trust has
less than $15.2 million in term debt against this working capital and has an
additional unused available debt facility of $45 million. The Trust has added
over $18 million in capital assets and increased operating capacity between
10% to 50% in each of its business segments. The additions and capacity
increases will sustain operations into 2008 without the requirement for
significant additional maintenance capex expenditures, and the unused term
debt facility will fulfill the short term needs of growth capital and
potential acquisitions.
    Petrowest's management believes that its current marketing focus in
remediation, infrastructure and oil sands development combined with the
Trust's experienced management, additions to capacity, current growth plans,
and strong financial position will allow the Trust to capitalize on
opportunities and sustain current operations and returns to investors
throughout the expected short-term slowdown.

    
                      ADDITIONAL CORPORATE INFORMATION
    Additional information relating to the Trust including the Trust's Annual
    Information Form, can be found on SEDAR at www.sedar.com and on the
    Trust's website at www.Petro-west.com


                     MANAGEMENT'S REPORT TO UNITHOLDERS

                 MANAGEMENT'S RESPONSIBILITY TO UNITHOLDERS
    

    The financial statements are the responsibility of the management of
Petrowest Energy Services Trust. They have been prepared in accordance with
generally accepted accounting principles, using management's best estimates
and judgments, where appropriate.
    Management is responsible for the reliability and integrity of the
financial statements, the notes to the financial statements, and other
financial information contained in this report. In the preparation of these
statements, estimates are sometimes necessary because a precise determination
of certain assets and liabilities is dependent on future events. Management
believes such estimates have been based on careful judgments and have been
properly reflected in the accompanying financial statements.
    Management is also responsible for ensuring that management fulfills its
responsibilities for financial reporting and internal control. The Board is
assisted in exercising its responsibilities through the Audit Committee of the
Board, which is composed of three non-management directors. The Committee
meets periodically with management and the auditors to satisfy itself that
management's responsibilities are properly discharged, to review the financial
statements and to recommend approval of the financial statements to the Board.
    PricewaterhouseCoopers LLP have audited Petrowest Energy Services Trust's
consolidated financial statements in accordance with generally accepted
auditing standards and provided an independent professional opinion. The
auditors have full and unrestricted access to the Audit Committee to discuss
their audit and their related findings as to the integrity of the financial
reporting process.

    
    (signed)                             (signed)
    ----------------------------------   ------------------------------------
    Kenneth N. Drysdale                  John B. Paul
    President and                        Chief Financial Officer
    Chief Executive Officer

        March 22, 2007


    Petrowest Energy Services Trust
    Consolidated Balance Sheet
    -------------------------------------------------------------------------
    December 31, 2006

    Assets                                                            $000's
    Current assets
    Cash and cash equivalents                                          9,312
    Accounts receivable                                               38,498
    Prepaid expenses and other                                         1,517
    Inventory                                                          3,454
                                                                  -----------

                                                                      52,781

    Property and equipment (note 5)                                   90,881

    Equipment under construction                                         417

    Intangible assets (note 6)                                        53,438

    Goodwill (note 4)                                                 98,068
                                                                  -----------

                                                                     295,585
                                                                  -----------
                                                                  -----------

    Liabilities

    Current liabilities
    Accounts payable and accrued liabilities                          20,296
    Current portion of obligations under capital leases (note 8)          87
    Distributions payable                                              3,245
    Purchase price adjustment payable (note 4)                         6,422
                                                                  -----------

                                                                      30,050

    Obligations under capital leases (note 8)                            169

    Revolving equipment loan (note 7)                                 15,000
                                                                  -----------

                                                                      45,219
                                                                  -----------
    Unitholders' Equity

    Units (note 9)                                                   257,279
    Contributed surplus                                                  358
    Accumulated earnings                                               3,379
    Accumulated cash distributions to unitholders                    (10,650)
                                                                  -----------

                                                                     250,366
                                                                  -----------

                                                                     295,585
                                                                  -----------
                                                                  -----------
    Commitments (notes 4 and 13)

    See accompanying notes to the consolidated financial statements

    Approved on behalf of the board:

     ("signed")                        ("signed")
    Ken Drysdale                     Gerald Romanzin


    Petrowest Energy Services Trust
    Consolidated Statement of Earnings
    -------------------------------------------------------------------------
    From the period July 6, 2006 to December 31, 2006(1)

                                                                      $000's

    Revenue (note 14)                                                 46,736
                                                                  -----------

    Expenses
    Operating expenses                                                32,842
    General and administrative                                         1,798
    Interest                                                             273
    Amortization                                                       8,609
                                                                  -----------

                                                                      43,522
                                                                  -----------

                                                                       3,214
                                                                  -----------
    Other income
    Gain on disposal of property and equipment                            78
    Interest income                                                       87
                                                                  -----------

                                                                         165
                                                                  -----------

    Net earnings for the period, accumulated
     earnings end of period                                            3,379
                                                                  -----------
                                                                  -----------

    Net earnings per unit - basic and diluted (note 9)                 $0.12
                                                                  -----------
                                                                  -----------

    See accompanying notes to the consolidated financial statements

    (1) Commercial operations of the Trust commenced September 7, 2006.


    Petrowest Energy Services Trust
    Consolidated Statement of Cash Flows
    -------------------------------------------------------------------------
    From the period July 6, 2006 to December 31, 2006(1)

                                                                      $000's
    Cash provided by (used in)

    Operating activities
    Net earnings for the period                                        3,379
    Items not affecting cash
      Amortization of tangible assets                                  5,824
      Amortization of intangible assets                                2,785
      Unit-based compensation                                            358
      (Gain) on disposal of property and equipment                       (78)
                                                                  -----------

                                                                      12,268
                                                                  -----------
    Changes in non-cash working capital
      Accounts receivable                                               (850)
      Prepaid expenses                                                  (837)
      Inventory                                                          704
      Accounts payable and accrued liabilities                        (7,295)
                                                                  -----------

                                                                       3,990
                                                                  -----------
    Financing activities
      Unitholder distributions                                        (7,405)
      Proceeds from revolving equipment loan                          15,000
      Issue of trust units - net of costs                            129,628
                                                                  -----------

                                                                     137,223
                                                                  -----------
    Investing activities
      Acquisition of Acquired Companies - cash to vendors
       net of cash acquired and working capital adjustments          (95,114)
      Retirement of acquired debt                                    (22,698)
      Proceeds on property disposals                                   4,385
      Equipment under construction                                      (417)
      Purchase of property and equipment                             (18,057)
                                                                  -----------

                                                                    (131,901)
                                                                  -----------

    Increase in cash                                                   9,312

    Cash and cash equivalents, beginning of period                         -
                                                                  -----------

    Cash and cash equivalents, end of period                           9,312
                                                                  -----------
                                                                  -----------

    Supplementary information
    Interest paid                                                        273
    Income taxes paid                                                      -

    Non cash transactions
    Property and equipment purchase through capital leases               256
    Units issued on acquisition (note 4)                             127,651

    See accompanying notes to the consolidated financial statements

    (1) Commercial operations of the Trust commenced September 7, 2006.


    Petrowest Energy Services Trust
    Notes to Consolidated Financial Statements
    -------------------------------------------------------------------------

    1   Nature of the Organization

        Petrowest Energy Services Trust ("Petrowest" or the "Trust") is an
        open-ended unincorporated mutual fund trust established under and
        governed by the laws of the Province of Alberta pursuant to the
        Deed of Trust dated July 6, 2006. Commercial operations of the Trust
        commenced on September 7, 2006.

        Petrowest was created to hold, indirectly, controlling limited
        partner interests, hold the common shares of the general partner and
        invest in the businesses noted below. Petrowest is a business trust
        operating an energy services business through its indirect
        subsidiaries. Unitholders hold Units of Petrowest which in turn holds
        a 100% beneficial interest in the Petrowest Business Trust (the
        "Business Trust"). The Business Trust, via four limited partnerships
        with Petrowest Energy Services General Partner Ltd. as the general
        partner, hold the assets of the businesses historically operated by
        the Acquired Companies defined below. The four limited partnerships
        are involved in the construction, transportation, civil services and
        rentals industries.

        Pursuant to a prospectus dated August 28, 2006, the Trust issued
        Units of the Trust and used the proceeds, through its subsidiaries,
        to acquire 100% of the outstanding shares of the Acquired Companies.
        The base purchase price of Acquired Companies was $230,934,992,
        subject to closing adjustments. The purchase price was funded by
        payment of $103,284,052 in cash and the issuance of Units by the
        Trust for proceeds of $127,650,940. The purchase transaction closed
        on September 7, 2006 and Petrowest began publicly trading on the
        Toronto Stock Exchange on that same day under the trading symbol
        PRW.UN.

        The acquired assets representing the assets and business operations
        of the various Acquired Companies were then transferred to the four
        limited partnerships as follows:


        Petrowest Rental Services LP ("Rentals")
                                   Northern Tractor Sales and Rental Co. Ltd.
                                   and Fitzpatrick Co. Ltd.
                                   Neuwest Equipment Rentals Inc.
        Petrowest Transportation LP ("Transportation")
                                   404434 Alberta Corporation, 756171 Alberta
                                   Corp. and 756169 Alberta Corp.
                                   Murtron Hauling Ltd. and 815431 Alberta
                                   Ltd.

        Petrowest Construction LP ("Construction")
                                   Roy Larson Construction Ltd.
                                   Gordon Bros. Construction Ltd. and 332691
                                   Alberta Ltd.
                                   310423 Alberta Ltd. operating as Wales
                                   Contracting Ltd.

        Petrowest Civil Services LP ("Civil")
                                   R. Bee Crushing Ltd., Bernet Venture Ltd.
                                   and Dal Finn Holdings Ltd.
                                   Safetymaster Rentals Corp.

                  (collectively, the "Acquired Companies")

        All operations of Petrowest are located in western Canada, primarily
        in northwestern Alberta and northeastern British Columbia, where
        Petrowest provides services to the crude oil, oilsand and natural gas
        exploration and production customers. In addition, Petrowest provides
        services to the lumber, pulp and paper industries and various
        municipal, governmental and commercial customers for work on
        infrastructure development.

    2   Summary of Significant Accounting Policies

        Petrowest is made up of various subsidiaries and limited partnerships
        which, for the purposes of these financial statements, have been
        consolidated to reflect the operations relating to Petrowest. These
        financial statements are stated in Canadian dollars and have been
        prepared by the management of Petrowest in conformity with Canadian
        generally accepted accounting principles ("GAAP").

        a) Cash and cash equivalents

              Included in cash and cash equivalents are bank overdrafts.

        b)    Inventory

              Inventory consists of gravel, spare equipment parts, tires,
              materials and supplies and is valued at the lower of cost and
              net realizable value with the cost being determined on a first-
              in, first-out basis.

        c)    Property and Equipment

              Property and equipment assets recorded on the acquisition of
              the Acquired Companies have been recorded at the estimated fair
              market value of the assets at the date of acquisition. Property
              and equipment asset acquisitions incurred after the acquisition
              of the Acquired Companies are recorded at cost.

              Amortization is applied to reduce the value of property and
              equipment to its estimated residual value over its estimated
              useful life on a declining balance basis annually.

                Buildings, portable buildings and fencing             2%-10%
                Heavy equipment                                       5%-25%
                Vehicles                                             25%-35%
                Trailers                                              5%-25%
                Equipment                                            15%-40%
                Office furniture and equipment                       20%-30%
                Communications, computer hardware and software       30%-60%
                Equipment under capital lease                        20%-67%
                Leasehold improvements                            Lease term

              Management assesses the carrying amount of property and
              equipment assets for impairment when facts and circumstances
              indicate a potential impairment. If it is determined the
              estimated net recoverable amount, measured by either fair
              value, if applicable, or estimated by calculating the present
              value of expected cash flows from the asset, is less than the
              net carrying amount, a write-down to the asset's fair value is
              recognized during the period.

        d)    Equipment under construction

              Certain modifications are required to capital assets prior to
              the asset being placed in service. Amortization is recorded
              from the date the asset is placed in service.

        e)    Goodwill

              Goodwill represents the excess of purchase price of the
              Acquired Companies over the fair value of net assets acquired
              and liabilities assumed. The goodwill balance is assessed for
              impairment annually at year-end or as events occur that could
              result in impairment. Impairment is recognized based on the
              fair value of the business segment compared to the book value
              of the business segment. If the fair value of the business
              segment is less than the book value, impairment is measured by
              allocating the fair value of the segment to the identifiable
              assets and liabilities as if the Trust has been acquired in a
              business combination for a purchase price equal to its fair
              value. The excess of the fair value of the segment over the
              amounts assigned to the identifiable assets and liabilities is
              the implied value of the goodwill. Any excess of the book value
              of goodwill over the implied value of goodwill is the
              impairment amount. Impairment is charged to earnings and is not
              tax affected, in the period in which it occurs. Goodwill is
              stated at cost less impairment and is not amortized.

        f)    Intangible assets

              Intangible assets, consisting of acquired customer
              relationships, brand and trade names and non-competition
              agreements are recorded at cost and amortized over their useful
              lives on a straight line basis, which is estimated to be
              between 5 and 10 years. Intangible assets are regularly
              evaluated by comparing their applicable estimated present value
              of future net cash flows to the unamortized net book value of
              the intangible asset. Any impairment would be charged to income
              in that period.

        g)    Revenue recognition

              Petrowest's services are generally sold based upon contractual
              agreements or purchase orders with the customer that include
              fixed or determinable prices. Revenue in each of the Trust's
              operating segments is recognized when services are rendered or
              over the rental period and when collection can be reasonably
              assured.

        h)    Use of estimates

              The preparation of financial statements in accordance with
              Canadian generally accepted accounting principles requires
              management to make estimates and assumptions that affect the
              reported amounts of assets and liabilities, stock based
              compensation and disclosure of contingent assets and
              liabilities at the date of the financial statements and the
              reported amounts of revenues and expenses during the period. By
              their nature, these estimates are subject to measurement
              uncertainty and the effect on the financial statements of
              changes in such estimates in future periods could be
              significant. These estimates are reviewed periodically and as
              adjustments become necessary they are reported in earnings in
              the period in which they become known. Such estimates including
              providing initial valuation of assets on the acquisition of the
              Acquired Companies, amortization of property and equipment and
              intangible assets, recoverability of accounts receivable,
              valuation of intangible assets and goodwill are the areas most
              subject to estimation. Actual results could differ from these
              estimates.

        i)    Income taxes

              Petrowest and its operating entities are taxable entities under
              the Income Tax Act of Canada; however, they are currently
              taxable only on income that is not distributed or distributable
              to the unitholders. As the Trust currently distributes all of
              its taxable income to the unitholders, no provision for income
              taxes has been made in these consolidated financial statements.
              Recent proposed changes to the Income Tax Act of Canada will
              result in a change to the status of Trust with respect to
              income taxes being levied on distributions.

              On December 21, 2006 the Minister of Finance released for
              comment draft legislation concerning the taxation of certain
              publicly traded income trusts and partnerships with the
              exception of real estate investment trusts and, as a result,
              these entities will in effect be taxed as corporations on the
              amount of the non-deductible distributions. For entities such
              as the Trust that were publicly traded on October 31, 2006 the
              proposed rules, if passed into law, would not apply until 2011
              provided the Trust does not violate the guidelines on "normal
              growth" as provided by the Minister. The amount of future
              income taxes to be recognized at the date of substantive
              enactment would be based on existing temporary differences that
              are expected to reverse after 2011, when the new tax rules take
              effect.

        j)    Stock based compensation

              Options to purchase Trust Units granted under the Unit Option
              Plan are described in Note 10 of these financial statements.
              Unit based compensation is recognized in accordance with the
              fair-value based method of accounting. Compensation expense for
              unit options awarded under the plan is measured at estimated
              fair value at the grant date. This is done using a binomial
              valuation model and is recognized as unit-based compensation
              expense over the vesting period of the options granted.

        k)    Per unit amounts

              Basic per unit amounts are calculated using the weighted
              average number of Trust Units outstanding during the period.
              Diluted per unit amounts are calculated by adding potentially
              dilutive option units to the weighted average number of Trust
              Units outstanding during the period. Basic and diluted amounts
              are calculated using the treasury stock method. Potentially
              dilutive option units are only considered dilutive and added
              if, and to the extent, that they are "in the money". Under this
              method, the diluted weighted average number of units is
              calculated assuming the proceeds for the exercise of the
              dilutive option units are purchased at the average market price
              for the period.

    3   Seasonality

        Petrowest's operations are in northern Alberta and northeast British
        Columbia. Accordingly, the operations are susceptible to the impacts
        of the seasons. Quarter one is in the winter months and is subject
        to frozen conditions, periods of extreme cold and snow. This is
        typically an extremely busy quarter for oil and gas exploration and
        development as drilling activity focuses on areas located in muskeg
        and swamp type conditions not normally accessible in a non-frozen
        state. Quarter two is generally the slowest period for Petrowest's
        operations. Spring time melt conditions result in soft, wet ground
        generally referred to as spring breakup, and the implementation of
        road bans which prevent heavy load transportation on roadways.
        Quarter three encompasses the summer months, and Petrowest's activity
        is average with work relating to oil and gas projects in areas that
        do not entail access through muskeg. Quarter four starts out similar
        to the summer activity and ramps up as the ground freezes and access
        is permitted.

    4   Acquisitions

        Pursuant to a prospectus dated August 28, 2006, Petrowest issued
        Units of the Trust and used the proceeds, through its subsidiaries,
        to acquire 100% of the outstanding shares of the Acquired Companies
        listed below (the "Acquisitions"). The estimated purchase price of
        Acquired Companies calculated as the base purchase price plus working
        capital less debt was $230,934,992, subject to post closing
        adjustments for actual working capital and debt and the sale of
        redundant assets. The purchase price was funded by an initial payment
        of $103,284,052 in cash and the issuance of Units by the Trust for
        proceeds of $127,650,940. In conjunction with Acquisitions, all debt
        and capital lease obligations were repaid by Petrowest through the
        use of proceeds from the offering.

          Northern Tractor Sales and Rental Co. Ltd. and Fitzpatrick Co. Ltd.
          Neuwest Equipment Rentals Inc.
          404434 Alberta Corporation, 756171 Alberta Corp. and
          756169 Alberta Corp.
          Murtron Hauling Ltd. and 815431 Alberta Ltd.
          Roy Larson Construction Ltd.
          Gordon Bros. Construction Ltd. and 332691 Alberta Ltd.
          310423 Alberta Ltd. operating as Wales Contracting Ltd.
          R. Bee Crushing Ltd., Bernet Venture Ltd. and
          Dal Finn Holdings Ltd.
          Safetymaster Rentals Corp.

        The Acquisitions have been accounted for using the purchase method
        with the assets acquired and liabilities assumed recorded at their
        estimates of fair value. The purchase price valuations have been
        finalized subsequent to year end for all companies except for
        Northern Tractor Sales and Rentals Co. Ltd. and Fitzpatrick Co. Ltd.
        (collectively, "Northern Tractor"). The financial statements reflect
        the settled valuations for all companies with the exception of
        Northern Tractor. The final purchase price of Northern Tractor has
        been recorded based on management's best estimates, and is subject to
        change. A preliminary allocation of the consideration is as follows:


        Net assets acquired                                           $000's
         Cash acquired on acquisition                                  6,115
         Accounts receivable                                          37,648
         Prepaid expenses                                                680
         Inventories                                                   4,158
         Accounts payable and accrued liabilities                    (27,376)
         Income taxes payable                                           (215)
         Property and equipment                                       82,699
         Intangibles                                                  56,223
         Goodwill                                                     98,068
                                                                  -----------

         Total                                                       258,000
                                                                  -----------
                                                                  -----------

        Consideration given for value of shares and shareholder loans of
        acquired companies
         Net cash to vendors                                         103,284
         Cash repayment of working capital adjustments                (2,055)
         Purchase price adjustment                                     6,422
         Retirement of long-term debt and capital lease obligations   22,698
                                                                  -----------

                                                                     130,349

         Trust Units (12,765,094 units issued)                       127,651
                                                                  -----------

         Total                                                       258,000
                                                                  -----------
                                                                  -----------

        Net working capital acquired on the Acquisitions includes cash,
        accounts receivable, inventory, prepaid expenses, income taxes
        recoverable, bank indebtedness, accounts payable and accrued
        liabilities and income taxes payable. The purchase price was affected
        by the changes in working capital, shareholder loans and long-term
        debt from the date specified in the purchase and sale agreement to
        the date of closing. Changes in the balances for these items as the
        Trust realized on the value of working capital assets has affected
        the net consideration paid by the Trust to the owners which is
        estimated to be $4,366,236.

        There is currently a dispute with Northern Tractor associated with
        the valuation of certain working capital items and the valuation of
        redundant assets retained by the vendor. The total disputed amount is
        $3,694,038. Arbitration on these amounts is expected to occur prior
        to the end of the third quarter of 2007 and adjustments required to
        the purchase price, if any, may be material.

        On December 7, 2006 the Trust, in a secondary transaction, acquired
        specific equipment assets from two of the former vendors. These
        assets were acquired at estimated fair market value for a total of
        $13,194,116.

    5   Property and Equipment
                                                         $000's
                                                      Accumulated   Net Book
                                             Cost    Amortization     Value

        Buildings, portable buildings
         and fencing                           3,384         100       3,284
        Heavy equipment                       79,712       4,625      75,087
        Equipment under capital lease            256           9         247
        Vehicles                               2,561         280       2,281
        Trailers                               7,746         319       7,427
        Equipment                              2,282         341       1,941
        Office furniture and equipment           171          23         148
        Communications, computer hardware
         and software                            445          25         420
        Leasehold improvements                    47           1          46

        Total                                 96,604       5,723      90,881
                                          ----------- ----------- -----------
                                          ----------- ----------- -----------


    6   Intangible Assets

                                                         $000's
                                                      Accumulated   Net Book
                                             Cost    Amortization     Value

        Non Competition Agreements            26,786       1,688      25,098
        Brand and Trade Names                  5,387         339       5,048
        Customer Relationships                24,050         758      23,292
                                          ----------- ----------- -----------

        Total                                 56,223       2,785      53,438
                                          ----------- ----------- -----------
                                          ----------- ----------- -----------


    7   Revolving Equipment Loan

        The Trust has a $60 million credit facility available for growth
        capital, acquisition and working capital needs. Loan security is
        provided by a first charge debenture, a general security agreement
        and a general assignment of book debts. No principal repayments are
        required until 90 days after the end of the term of the loan.
        Principle is then repayable in twelve equal quarterly installments
        over 36 months. Interest is payable monthly at rates between prime
        and prime + 1.0% depending on the Trust's debt to EBITDA ratio. The
        term "EBITDA" is defined as: earnings before interest expenses net of
        interest income, gain on disposal of assets, amortization of property
        and equipment and amortization of intangible assets.

        Current debt levels require payment of interest at prime.

        As at December 31, 2006 the Trust had drawn $15,000,000 on its credit
        facility for use in the acquisition of equipment. The full amount has
        been classified as long term as the first quarterly installment
        payment, if requested at the end of the term in November of 2007,
        would not be due until February 2008.

        Principal payments due in the next four years as at December 31, 2006
        are as follows:

                                                                      $000's
        2007                                                               -
        2008                                                           5,000
        2009                                                           5,000
        2010                                                           5,000


    8   Obligations Under Capital Leases

                                                                      $000's
        Capital leases are repayable in monthly payments ranging from
         $867 to $3,597 per month including interest at rates ranging
         from 0% to 7.5% and maturing on various dates to 2009           256

        Less: Obligations under capital leases due in one year           (87)
                                                                  -----------

                                                                         169
                                                                  -----------

        Estimated principal repayments as at December 31, 2006 are as follows

        2007                                                              87
        2008                                                              87
        2009                                                              87
                                                                  -----------
                                                                         261
        Less imputed interest                                              5
                                                                  -----------
                                                                         256
                                                                  -----------


    9   Unitholders' Capital

        a) Unitholders' Capital
           Authorized

           The Trust is authorized to issue an unlimited number of Trust
           Units. Prior to the conversion of the Subordinated Units, holders
           of Trust Units will be entitled to receive per month distributions
           in priority to any payments on the Subordinated Units.

           The Trust is authorized to issue an unlimited number of
           Subordinated Units. Distributions on the Subordinated Units will
           be subordinated in favour of Trust Units. Distributions on the
           Subordinated Units will only be paid at the end of a fiscal
           quarter to the extent that: (i) the Trust has paid distributions
           per month of at least $0.10 per Trust Unit to holders of Trust
           Units during that quarter, and, (ii) any deficiency in such
           distributions to holders of Trust Units during the preceding 12
           months has been satisfied.

           All distributions are subject to general board approval as set out
           in the Trust Agreement.

           The Trust is authorized to issue an unlimited number of Special
           Voting Units which are not entitled to any distributions. No
           Special Voting Units have been issued to date.

           Issued                                                     $000's
                                                     Outstanding

           Trust Units issued for cash net of
            issue costs                               14,000,000     128,118
           Trust Units issued on acquisitions
            (note 4)                                  12,765,094     127,651
                                                      ----------- -----------
                          Total Units                 26,765,094     255,769

           Subordinated Units
           Issued for cash                             1,510,000       1,510
           Issued for promissory notes                         -       3,020
           Less: Amount issued for promissory notes            -      (3,020)
                                                      ----------- -----------

           Basic and fully diluted                    28,275,094     257,279
                                                      ----------- -----------
                                                      ----------- -----------


           Trust Units were issued on closing of the initial public offering
           on September 7, 2006 at a price of $10.00 per unit. Trust issue
           costs in conjunction with the offering were $11,882,043.

           Prior to the IPO, the Trust issued to various insiders an
           aggregate of 1,510,000 Subordinated Units at a price of $3.00 per
           Subordinated Unit, $4,530,000 in the aggregate to be satisfied by
           payment of $1.00 in cash and $2.00 by way of a three-year
           promissory note that may be forgiven at the option of the Trust
           over three years if the subscriber remains as a director, officer
           or employee of Petrowest.

    10  Stock Based Compensation

        Petrowest implemented a stock option plan whereby options to acquire
        Trust Units may be granted to directors, officers, employees and
        consultants.

        The aggregate number of Trust units issuable upon the exercise of
        options outstanding under the plan at any time may not exceed 10% of
        the issued and outstanding Trust Units. The period during which an
        option granted under the Plan is exercisable may not exceed five
        years from the date such option is granted. The options issued under
        the Plan vest 1/3 after one year, 1/3 after two years and 1/3 after
        three years.

        As at December 31, 2006       Number of options     Weighted average
                                            outstanding       exercise price

        Granted - September 7, 2006           2,605,000               $10.00
        Expired                                       -                    -
        ---------------------------------------------------------------------
        Outstanding, December 31, 2006        2,605,000               $10.00
        Exercisable, December 31, 2006                -                    -
        ---------------------------------------------------------------------

        The total value of stock based compensation for options issued to
        employees and directors was calculated using a binomial option
        pricing model to estimate the fair value of stock options on the date
        of grant. The assumptions made for the options granted in 2006 are as
        follows.

         Expected volatility                                            30 %
         Risk-free interest rate                                       4.5 %
         Expected life of options                                    5 years
         Dividend yield                                               12.0 %

        The Trust recorded compensation expense and contributed surplus of
        $357,984 for the period to December 31, 2006. Compensation expense
        has been included in general and administrative expenses.

    11  Related Party Transactions

        Petrowest paid rents for office space for a building owned by an
        executive officer of Petrowest in the amount of $58,721. Prior to
        period end the company exercised its option to purchase the office
        building for the sum of $854,393.

        Petrowest paid rents for office and shop space under leases entered
        into with certain former vendors in the amount of $453,921. Future
        lease commitments associated with the transactions are included in
        note 13.

        Transactions were estimated to equal fair market value.

    12  Financial Instruments

        Fair values of financial assets and liabilities
        Petrowest's financial instruments consist of cash, accounts
        receivable, accounts payable and accrued liabilities, purchase price
        adjustment payable, distributions payable, obligations under capital
        leases and bank indebtedness. The fair value of these financial
        instruments, with the exception of bank indebtedness and capital
        lease obligations, approximates their carrying values due to their
        relatively short term to maturity of the instruments. The fair value
        of the capital lease obligations is not practicably determinable. The
        fair value of bank indebtedness approximates carrying values as the
        interest rates approximate market rates.

        Interest Rate Risk
        Petrowest is exposed to interest rate risk which bears fixed and
        variable rates of interest through its capital lease obligations and
        bank indebtedness.

        Credit Risk
        Petrowest is exposed to credit risk on accounts receivables due from
        its customers. Management routinely assesses the financial strengths
        of customers and monitors exposure for credit losses.

    13  Commitments

        The Trust has entered into operating leases for office and shop
        premises and equipment that provide for minimum annual lease payments
        as follows:
                                                                      $000's

        2007                                                           9,279
        2008                                                           7,514
        2009                                                           5,666
        2010                                                           4,012
        2011                                                           2,530


    14  Segmented Information

        The Trust determines its reportable segments based on the structure
        of its operations, which are primarily focused on four principal
        business segments - Construction, Transportation, Civil and Rentals.
        The accounting policies followed by these business segments are the
        same as those described in the summary of significant accounting
        policies. The following is selected financial information for each
        business segment.


                                         $000's
                  Constr-  Transpor-
                    uction    tation     Civil   Rentals  Corporate    Total

    Total Revenue   14,148    16,289    14,235     3,930         -    48,602


    Less inter-
     segment revenue  (539)     (609)     (414)     (304)        -    (1,866)
                   --------  --------  --------  --------  --------  --------

    Revenue         13,609    15,680    13,821     3,626         -    46,736

    Operating and
     general and
     administrative  9,709    12,735     8,838     1,663     1,695    34,640

    Interest Expense    17        16        98         2       140       273

    Interest income    (10)       (4)      (10)      (41)      (22)      (87)

    Gain on disposal
     of equipment       (4)      (32)      (74)       25         7       (78)

    Amortization     2,947     2,326     1,999     1,310        27     8,609
                   --------  --------  --------  --------  --------  --------

    Net income         950       639     2,970       667    (1,847)    3,379
                   --------  --------  --------  --------  --------  --------


    Selected       Constr-  Transpor-
    balance sheet   uction    tation     Civil   Rentals  Corporate    Total
    items

    Property and
     equipment      28,543    18,782    22,212    19,932     1,412    90,881

    Intangibles     15,829    19,498     9,481     8,630         -    53,438

    Goodwill        26,762    31,504    26,211    13,591         -    98,068


        All transactions between segments were initially recorded at
        approximate market rates. Transactions between segments have been
        eliminated on consolidation.
    





For further information:

For further information: Ken N. Drysdale, President & CEO, Suite 204,
10605 Westside Drive, Grande Prairie, Alberta, T8V 8E6, Tel: (780) 830-0881,
info@petro-west.com, www.petro-west.com; John B. Paul, CA, Chief Financial
Officer, Suite 1020, 407-2nd Street S.W., Calgary, Alberta, T2P 2Y3, Tel:
(403) 237-0881, info@petro-west.com, www.petro-west.com

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PETROWEST ENERGY SERVICES TRUST

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