Peyto Energy Trust announces second quarter 2008 results



    SYMBOL: PEY.UN - TSX

    CALGARY, Aug. 6 /CNW/ - Peyto Energy Trust ("Peyto" or "the Trust") is
pleased to present the operating and financial results for the second quarter
of the 2008 fiscal year. Peyto is an explorer and producer of unconventional
tight gas assets in Alberta's Deep Basin and, due to its trust structure, is
able to flow profits from the success of that business to its unitholders in
the form of distributions. The success of Peyto's strategy has resulted in the
growth of both assets and distributions over time.
    Peyto is well known for building its own high quality, sweet natural gas
assets that exhibit long reserve life, low operating costs and high revenue
per boe. The following summarizes the Trust's foundation:

    
    -   Long reserve life - Proved Producing 13 years, Total Proved 16 years,
        Proved plus Probable 21 years
    -   Low operating costs - $2.58/boe, three months ending June 30, 2008
    -   High revenue per boe - $70.16/boe before hedging, $64.45/boe after
        hedging, three months ending June 30, 2008
    -   Low base general and administrative costs - $1.08/boe, three months
        ending June 30, 2008
    -   High field netback - $46.12/boe, three months ending June 30, 2008
    -   High operatorship - operates over 95% of its production
    -   Cash distributions - cash distributions of $46.6 million were 63% of
        funds from operations for the three months ended June 30, 2008
    -   Low debt to funds from operations ratio - 1.5:1 (net debt, before
        provision for future compensation, divided by annualized second
        quarter 2008 funds from operations)
    -   Distribution growth - distributions have been increased 6 times; they
        have never decreased, and are now 100% higher than when the trust was
        formed in July, 2003
    -   Since inception, Peyto has raised a total of $410 million issuing
        units from treasury, accumulated earnings of $804 million, and
        distributed $714 million to unitholders
    -   Transparent capital structure - no convertible debentures, no
        exchangeable shares, no stock options, no warrants

    The second quarter was highlighted by stronger commodity prices, increased
distributions and increased capital spending as improved business conditions
offered better returns. The following summarizes performance highlights of the
business for the second quarter of 2008.

    -   Capital expenditures - $21.5 million was invested into finding and
        developing new natural gas reserves in the quarter, a 66% increase
        from Q2 2007. Over 75% of the capital was spent in June following
        spring breakup. Capital expenditures for the first half of 2008 were
        $54.6 million versus $43.4 million for the first half of 2007, an
        increase of 26%
    -   Production - decreased 5% from 20,509 boe/d in the second quarter of
        2007 to 19,530 boe/d in the second quarter of 2008
    -   Production per unit - decreased 5% per trust unit from the second
        quarter of 2007, after adjusting for debt and future unrealized
        performance based compensation
    -   Per unit funds from operations - increased 7% from the previous year
        to $0.70/unit
    -   Strong commodity prices - Natural gas prices, both before and after
        hedging, were stronger in Q2 2008 with prices averaging $10.46/mcf
        and $9.32/mcf, respectively versus $8.10/mcf and $8.59/mcf in Q2 2007
    -   Hedging - a $10.1 million loss for the three months ending June 30,
        2008 was realized
    -   Distributions per unit increased 5% from the second quarter of 2007
        while the cash payout ratio decreased to 63% in Q2 2008 from 64% in
        Q2 2007. A total of $46.6 million or $0.44 per unit was distributed
        to unitholders in the second quarter of 2008
    -   Net debt increased 9% from $415 million in Q2 2007 to $454 million in
        Q2 2008. This leaves available borrowing capacity of $96 million on
        bank lines of $550 million

    Natural gas volumes recorded in thousand cubic feet (mcf) are converted to
barrels of oil equivalent (boe) using the ratio of six (6) thousand cubic feet
to one (1) barrel of oil (bbl). This could be misleading if used in isolation
as it is based on an energy equivalency conversion method primarily applied at
the burner tip and does not represent a value equivalency at the wellhead.

    (1) Per unit results are adjusted for changes in net debt (including
        future performance-based compensation) and equity. Net debt is
        converted to equity using the June 30 unit price of $18.20 for 2007
        and $20.15 for 2008.


    -------------------------------------------------------------------------
                 3 Months Ended June 30   %     6 Months Ended June 30   %
                     2008        2007   Change      2008        2007   Change
    -------------------------------------------------------------------------
    Operations
    Production
      Natural gas
       (mcf/d)       97,819     101,812   (4)%      99,644     103,986   (4)%
      Oil & NGLs
       (bbl/d)        3,226       3,540   (9)%       3,328       3,574   (7)%
      Barrels of
       oil
       equivalent
       (boe/d @
       6:1)          19,530      20,509   (5)%      19,936      20,904   (5)%
    Product prices
      Natural gas
       ($/mcf)         9.32        8.59     8%        8.90        9.19   (3)%
      Oil & NGLs
       ($/bbl)       107.45       65.65    64%       95.08       62.71    52%
    Operating
     expenses
     ($/boe)           2.58        2.70   (4)%        2.63        2.77   (5)%
    Transportation
     ($/boe)           0.64        0.57    12%        0.63        0.58     9%
    Field netback
     ($/boe)          46.12       41.21    12%       44.38       43.04     3%
    General &
     administrative
     expenses
     ($/boe)           1.08        1.10   (2)%        1.14        1.04    10%
    Interest
     expense
     ($/boe)           3.34        2.95    13%        3.26        2.96    10%
    Financial
     ($000, except
     per unit)
    Revenue         114,543     100,750    14%     218,971     213,576     3%
    Royalties        26,861      17,734    51%      46,125      38,060    21%
    Funds from
     operations      74,113      69,345     7%     145,068     147,709   (2)%
    Funds from
     operations
     per unit          0.70        0.66     7%        1.37        1.40   (2)%
    Total
     distributions   46,605      44,399     5%      91,403      88,750     3%
    Total
     distributions
     per unit          0.44        0.42     5%        0.86        0.84     2%
    Payout ratio         63          64   (2)%          63          60     5%
    Earnings         31,412      38,825  (19)%      63,852      95,709  (33)%
    Earnings per
     diluted unit      0.30        0.37  (19)%        0.60        0.91  (34)%
    Capital
     expenditures    21,528      12,949    66%      54,587      43,426    26%
    Weighted
     average
     trust units
     out-
     standing   105,920,194 105,712,364      - 105,876,470 105,670,476      -

    As at June 30
    Net debt
     (before future
     compensation
     expense)                                      454,417     415,266     9%
                                                   -------     -------
    Unitholders'
     equity                                        419,922     514,651  (15)%
    Total assets                                 1,196,367   1,150,589     4%
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                         3 Months Ended      6 Months Ended
                                             June 30             June 30
                                         2008      2007      2008      2007
    -------------------------------------------------------------------------
    Net Earnings                        31,412    38,825    63,852    95,709
    Items not requiring cash:
    Non-cash provision for
     performance based compensation      5,349       431     8,845       438
    Future income tax expense           19,510    11,326    35,243    12,965
    Depletion, depreciation and
     accretion                          17,842    18,763    37,128    38,597
    -------------------------------------------------------------------------
    Funds from operations(1)            74,113    69,345   145,068   147,709
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Funds from operations - Management uses funds from operations to
        analyze the operating performance of its energy assets. In order to
        facilitate comparative analysis, funds from operations is defined
        throughout this report as earnings before performance based
        compensation, non-cash and non-recurring expenses. Management
        believes that funds from operations is an important parameter to
        measure the value of an asset when combined with reserve life. Funds
        from operations is not a measure recognized by Canadian generally
        accepted accounting principles ("GAAP") and does not have a
        standardized meaning prescribed by GAAP. Therefore, funds from
        operations, as defined by Peyto, may not be comparable to similar
        measures presented by other issuers, and investors are cautioned that
        funds from operations should not be construed as an alternative to
        net earnings, cash flow from operating activities or other measures
        of financial performance calculated in accordance with GAAP. Funds
        from operations cannot be assured and future distributions may vary.
    

    Quarterly Review

    In the second quarter, Peyto spent $21.5 million drilling and connecting
new tight gas wells in its Alberta Deep Basin core areas. The majority of the
capital was invested in June, following spring breakup, as the Trust embarked
on its expanded capital program. Drilling and completions accounted for
$17.0 million in the quarter, while wellsite equipment and tie-ins accounted
for $3.2 million. Successful land sale bids and new seismic data made up the
balance of the capital expenditures at $1.2 million.
    Peyto drilled 9 gross (6.9 net, 77% working interest) gas wells,
completed 16 gross (14 net) gas zones and brought 15 gross (13.5 net) gas
zones on production in the quarter. Production for the quarter averaged
19,530 boe/d, comprised of 97.8 mmcf/d of gas and 3,226 bbl/d of oil and
natural gas liquids (NGLs).
    Strong commodity prices were realized in the quarter with an average
natural gas price of $9.32/mcf and an average liquids price of $107.45/bbl,
after hedging losses. Royalties to the Alberta government averaged 23.5% or
$15.11/boe, up from $9.50/boe in the previous year due to higher commodity
prices. Operating costs in Q2 2008 were $2.58/boe, down from $2.68/boe in the
previous quarter and $2.70/boe a year ago. Reductions in operating costs
resulted from lower third party processing charges which more than offset
increases due to property taxes, chemicals and fuel. The high commodity prices
and low costs combined to yield the highest field netback in the Trust's
history at $46.12/boe.

    Activity Update

    Post breakup, there have been five drilling rigs actively exploring and
developing both the extensive Cardium gas trend across the Trust's land base,
as well as the established Notikewin and Cadomin trends in the greater
Sundance area. This compares to three drilling rigs working at this same time
last year. The five rigs currently active are drilling much more efficiently
than in past years, effectively delivering as many wells as 7 to 8 rigs were
in 2006.
    To date in 2008, Peyto has drilled 34 gross (24.6 net) wells and brought
on 37 gross (35.0 net) zones accounting for approximately 2500 boe/d of new
production. The Trust is looking to maintain this level of activity through
the balance of 2008, on track with previous capital guidance for the year of
approximately $175 million. Other than some minor pipeline looping, it is
anticipated that existing processing facilities and gathering infrastructure
will be sufficient to handle this year's new volumes.

    Marketing

    Natural gas prices have been extremely volatile over the last few months.
In January 2008, the monthly average AECO (Alberta) price was $6.10/GJ. The
price then rose to $10.80/GJ by July followed promptly by a 22% drop in August
to $8.44/GJ. Oil prices, to which our condensate price is closely tied, were
only slightly less volatile, dropping approximately 15% in the last month.
Numerous factors are at play in the energy markets including global supply and
demand, US economic recession, currency markets, Middle East unrest, weather
forecasts and environmental concerns. It makes predicting future natural gas
prices challenging and is the reason that Peyto adheres to a marketing
strategy which smoothes out such volatility through future sales. As at
June 30, 2008, the Trust had committed to the future sale of 21,035,000 GJ of
natural gas at an average price of $7.88/GJ ($9.22/mcf based on the historical
heating value of Peyto's natural gas). Had these contracts been closed on
June 30, 2008, the Trust would have realized a loss in the amount of
$80 million. By comparison, had these contracts been closed at July 31, 2008
prices, the Trust would have realized a loss in the amount of $12 million.
    For the second quarter of 2008, Peyto's natural gas price before future
sales was $10.46/mcf, up 29% from $8.10 in Q2 2007. Forward sales for the
second quarter 2008 decreased the realized natural gas price by $1.14/mcf
versus a $0.49/mcf gain in the equivalent period in 2007. In general, this
approach of forward selling a portion of the Trust's production will realize
hedging losses when the short term prices rise and hedging gains when the
short term prices fall.

    Outlook

    Despite the recent drop in natural gas price futures, 2008 is unfolding
as a year of record commodity prices. Industry activity has re-aligned service
costs such that good returns are again being realized. Alberta's new royalty
framework, to take effect January 2009, has been incorporated into the
economic evaluation of future drilling ideas. With an industry leading cost
structure to help offset the increased royalties, Peyto remains in the
enviable position of having an abundance of profitable drilling prospects. The
Trust is actively working to execute on them in both a timely and cost
efficient manner.
    Peyto remains committed to its strategy of exploration and development of
Deep Basin tight gas. These high quality assets, when combined with Peyto's
low cost structure, deliver some of the highest returns on capital in the
industry. Unitholders who visit the Peyto website at www.Peyto.com will find a
monthly report from the President with up to date production and capital
spending as well an investor presentation designed to educate and inform.

    Conference Call and Webcast

    A conference call will be held with the senior management of Peyto to
answer questions with respect to the 2008 second quarter results on Thursday,
August 7th, 2008 at 9:00 a.m. Mountain Daylight Time (MDT), 11:00 a.m. Eastern
Daylight Time (EDT). To participate live by phone, please call 1-416-915-5647
or toll free 1-800-814-3911 for all participants. The conference call will
also be available on replay by calling 1-416-640-1917 (Toronto area) or toll
free 1-877-289-8525 for all other parties, using passcode 21279259, followed
by the pound key. The replay will be available at 11:00 a.m. MDT, 1:00 p.m.
EDT Thursday, August 7th, 2008 until midnight EDT on Thursday, August 14th,
2008. The conference call can also be accessed through the internet at
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2357520. The archived
conference call will be available on the Peyto website at www.peyto.com.

    Management's Discussion and Analysis

    A copy of the second quarter report to Unitholders, including the
Management's Discussion and Analysis, and unaudited interim financial
statements and related notes is available at
http://www.peyto.com/news/Q22008MDandA.pdf and will be filed at SEDAR,
www.sedar.com, at a later date.

    Darren Gee
    President and Chief Executive Officer
    August 6, 2008

    Certain information set forth in this document and Management's
Discussion and Analysis, including management's assessment of Peyto's future
plans and operations, contains forward-looking statements. By their nature,
forward-looking statements are subject to numerous risks and uncertainties,
some of which are beyond these parties' control, including the impact of
general economic conditions, industry conditions, volatility of commodity
prices, currency fluctuations, imprecision of reserve estimates, environmental
risks, competition from other industry participants, the lack of availability
of qualified personnel or management, stock market volatility and ability to
access sufficient capital from internal and external sources. Readers are
cautioned that the assumptions used in the preparation of such information,
although considered reasonable at the time of preparation, may prove to be
imprecise and, as such, undue reliance should not be placed on forward-looking
statements. Peyto's actual results, performance or achievement could differ
materially from those expressed in, or implied by, these forward-looking
statements and, accordingly, no assurance can be given that any of the events
anticipated by the forward-looking statements will transpire or occur, or if
any of them do so, what benefits Peyto will derive therefrom. Peyto disclaims
any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.


    
    Peyto Energy Trust

    Consolidated Balance Sheets
    ($000)

    (unaudited)

                                                       June 30,  December 31,
                                                         2008        2007
    -------------------------------------------------------------------------

    Assets
    Current
    Cash                                                  5,726       20,547
    Accounts receivable (Note 10)                        53,462       47,728
    Financial derivative instruments (Note 10)                -        7,405
    Prepaid expenses and deposits                         6,289        5,020
    -------------------------------------------------------------------------
                                                         65,477       80,700
    Property, plant and equipment (Note 4)            1,130,890    1,111,532
    -------------------------------------------------------------------------
                                                      1,196,367    1,192,232
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity
    Current
    Accounts payable and accrued liabilities             54,006       85,923
    Distributions payable                                15,888       14,800
    Provision for future performance based
     compensation                                         4,346           16
    Financial derivative instruments (Note 10)           75,793            -
    Future income taxes                                       -        2,285
    -------------------------------------------------------------------------
                                                        150,033      103,024
    -------------------------------------------------------------------------

    Long-term debt (Note 5)                             450,000      430,000
    Provision for future performance based
     compensation                                         4,769          253
    Asset retirement obligations                          8,664        6,766
    Financial derivative instruments (Note 10)            4,539            -
    Future income taxes                                 158,440      123,197
    -------------------------------------------------------------------------
                                                        626,412      560,216
    -------------------------------------------------------------------------

    Unitholders' equity
    Unitholders' capital (Note 6)                       410,233      406,301

    Accumulated earnings (Note 7)                        90,021      117,572
    Accumulated other comprehensive income (loss)       (80,332)       5,119
    -------------------------------------------------------------------------
    Accumulated earnings and other comprehensive
     income (loss)                                        9,689      122,691
    -------------------------------------------------------------------------
                                                        419,922      528,992
    -------------------------------------------------------------------------
                                                      1,196,367    1,192,232
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes

    On behalf of the Board:


    (signed) "Michael MacBean"           (signed) "Darren Gee"
    Director                             Director


    Peyto Energy Trust

    Consolidated Statements of Earnings
    ($000 except per unit amounts)

    (unaudited)

                                      Three Months Ended   Six Months Ended
                                            June 30             June 30
                                        2008      2007      2008      2007
    -------------------------------------------------------------------------
    Revenue
    Oil and gas sales                  114,543   100,750   218,971   213,576
    Royalties                          (26,861)  (17,733)  (46,125)  (38,060)
    -------------------------------------------------------------------------
    Petroleum and natural gas
     sales, net                         87,682    83,017   172,846   175,516
    -------------------------------------------------------------------------

    Expenses
    Operating (Note 8)                   4,580     5,038     9,545    10,476
    Transportation                       1,133     1,071     2,293     2,200
    General and administrative
     (Note 9)                            1,918     2,061     4,121     3,945
    Future performance based
     compensation provision              5,349       431     8,845       438
    Interest on long term debt           5,938     5,502    11,819    11,186
    Depletion, depreciation and
     accretion (Note 4)                 17,842    18,763    37,128    38,597
    -------------------------------------------------------------------------
                                        36,760    32,866    73,751    66,842
    -------------------------------------------------------------------------
    Earnings before taxes               50,922    50,151    99,095   108,674
    -------------------------------------------------------------------------

    Taxes
    Future income tax expense           19,510    11,326    35,243    12,965
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Net earnings for the period         31,412    38,825    63,852    95,709
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per unit (Note 6)
    Basic and diluted                     0.30      0.37      0.60      0.91
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



    Peyto Energy Trust

    Consolidated Statements of Comprehensive Income (Loss)
    ($000 except per unit amounts)

    (unaudited)

                                      Three Months Ended   Six Months Ended
                                            June 30             June 30
                                        2008      2007      2008      2007
    -------------------------------------------------------------------------
    Net earnings for the period         31,412    38,825    63,852    95,709
    Other comprehensive income (loss)
    Change in unrealized gain (loss)
     on cash flow hedges               (32,234)    9,650   (79,613)   (4,166)
    Realized gain (loss) on cash
     flow hedges                       (10,150)    3,674    (5,838)   (4,121)
    -------------------------------------------------------------------------
    Comprehensive income (loss)        (10,972)   52,149   (21,599)   87,422
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



    Peyto Energy Trust

    Consolidated Statements of Accumulated Earnings and Accumulated Other
    Comprehensive Income (Loss)
    ($000)

    (unaudited)

                                      Three Months Ended   Six Months Ended
                                            June 30             June 30
                                        2008      2007      2008      2007
    -------------------------------------------------------------------------
    Accumulated earnings, beginning
     of period                         105,214    98,769   117,572    86,236
    Net earnings for the period         31,412    38,825    63,852    95,709
    Distributions (Note 7)             (46,605)  (44,399)  (91,403)  (88,750)
    -------------------------------------------------------------------------
    Accumulated earnings, end
     of period                          90,021    93,195    90,021    93,195
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accumulated other comprehensive
     income, beginning of period       (37,948)    1,831     5,119         -
    Adoption of financial instruments,
     net of tax                              -         -         -    23,442
    Other comprehensive income (loss)  (42,384)   13,324   (85,451)   (8,287)
    -------------------------------------------------------------------------
    Accumulated other comprehensive
     income (loss), end of period      (80,332)   15,155   (80,332)   15,155
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



    Peyto Energy Trust

    Consolidated Statements of Cash Flows
    ($000)

    (unaudited)

                                      Three Months Ended   Six Months Ended
                                            June 30             June 30
                                        2008      2007      2008      2007
    -------------------------------------------------------------------------
    Cash provided by (used in)
    Operating Activities
    Net earnings for the period         31,412    38,825    63,852    95,709
    Items not requiring cash:
      Future income tax expense         19,510    11,326    35,243    12,965
      Depletion, depreciation and
       accretion                        17,842    18,763    37,128    38,597
    Change in non-cash working capital
     related to operating activities    (2,677)      (40)  (17,653)     (996)
    -------------------------------------------------------------------------
                                        66,087    68,874   118,570   146,275
    -------------------------------------------------------------------------
    Financing Activities
    Issue of trust units, net of costs       -         -     3,932     2,825
    Distributions paid (Note 7)        (46,605)  (44,399)  (91,403)  (88,750)
    Increase (decrease) in bank debt    10,000    (5,000)   20,000   (10,000)
    Change in non-cash working
     capital related to financing
     activities                          1,059         -     1,088     5,107
    -------------------------------------------------------------------------
                                       (35,546)  (49,399)  (66,383)  (90,818)
    -------------------------------------------------------------------------
    Investing Activities
    Additions to property, plant
     and equipment                     (21,520)  (12,949)  (54,587)  (43,426)
    Change in non-cash working
     capital related to investing
     activities                         (5,759)   (5,828)  (12,421)  (11,613)
    -------------------------------------------------------------------------
                                       (27,279)  (18,777)  (67,008)  (55,039)
    -------------------------------------------------------------------------
    Net increase (decrease) in cash      3,262       698   (14,821)      418
    Cash, beginning of period            2,464    10,526    20,547    10,806
    -------------------------------------------------------------------------
    Cash, end of period                  5,726    11,224     5,726    11,224
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes



    Peyto Energy Trust

    Notes to Consolidated Financial Statements

    (unaudited)
    June 30, 2008 and 2007

    1.  Summary of Significant Accounting Policies

        The unaudited interim consolidated financial statements of Peyto
        Energy Trust (the "Trust" or "Peyto") follow the same accounting
        policies as the most recent annual audited consolidated financial
        statements except as disclosed in Note 2. The interim consolidated
        financial statement note disclosures do not include all of those
        required by Canadian generally accepted accounting principles
        ("GAAP") applicable for annual financial statements. Accordingly,
        these interim financial statements should be read in conjunction with
        the December 31, 2007 audited consolidated financial statements.

        These financial statements include the accounts of Peyto Energy Trust
        and its wholly owned subsidiaries, Peyto Exploration & Development
        Corp., Peyto Operating Trust, Peyto Energy Limited Partnership and
        Peyto Energy Administration Corp.

    2.  Changes in Accounting Policies

        a) Financial Instruments - Disclosure and Presentation

        As of January 1, 2008, the Trust adopted two new CICA Handbook
        Sections, Section 3862 "Financial Instruments - Disclosures" and
        Section 3863 "Financial Instruments - Presentation" which replaced
        Section 3861 "Financial Instruments - Disclosure and Presentation".
        The new standards require disclosure on the significance of financial
        instruments to an entity's financial statements, the risks associated
        with the financial instruments, and how those risks are managed.
        Specifically, Section 3862 requires disclosure on the significance of
        financial instruments to the Trust's financial position. In addition,
        the guidance outlines revised requirements for the disclosure of
        qualitative and quantitative information regarding exposure to risks
        arising from financial instruments. The presentation requirements
        under Section 3863 are relatively unchanged from Section 3861. Refer
        to Note 10, "Financial Instruments and Risk Management" for the
        additional disclosures under Section 3862.

        b) Capital Disclosures

        As of January 1, 2008, the Trust adopted CICA Handbook Section 1535
        "Capital Disclosures", which requires entities to disclose their
        objectives, policies and processes for management of capital and, in
        addition, whether the entity has complied with any externally imposed
        capital requirements. These disclosures include a description of the
        Trust's objectives, policies and processes for managing capital, the
        quantitative data relating to what the entity regards as capital,
        whether the entity has complied with capital requirements, and, if it
        has not complied, the consequences of such non-compliance. Refer to
        Note 11, "Capital Disclosures".

    3.  Pending Accounting Pronouncements

        Goodwill and Intangible Assets

        As of January 1, 2009, the Trust will be required to adopt new CICA
        Handbook Section 3064 "Goodwill and Intangible Assets" which replaces
        Section 3062 "Goodwill and Other Intangible Assets" and Section 3450
        "Research and Development Costs." Various changes have been made to
        other standards to be consistent with the new Section 3064, which
        establishes standards for the recognition, measurement, presentation
        and disclosure of goodwill and intangible assets. Standards
        concerning goodwill are unchanged from the standards in the previous
        Section 3062. The Trust is assessing the impact of this new standard
        on its consolidated financial statements, however, the adoption is
        not expected to have a material impact on its consolidated financial
        statements.

        Adoption of IFRS

        In January 2006, the CICA Accounting Standards Board ("ASCB") adopted
        a strategic plan for the direction of accounting standards in Canada.
        As part of that plan, accounting standards in Canada for public
        companies are expected to converge with International Financial
        Reporting Standards ("IFRS") by 2011. On February 13, 2008, The ASCB
        confirmed that the use of IFRS will be required in 2011 for publicly
        accountable profit-orientated enterprises. The Trust continues to
        monitor and assess the impact of the convergence of Canadian GAAP and
        IFRS.

    4.  Property, Plant and Equipment

                                                       June 30,  December 31,
        ($000)                                           2008        2007
        ---------------------------------------------------------------------
        Property, plant and equipment                 1,466,745    1,410,767
        Accumulated depletion and depreciation         (335,855)    (299,235)
        ---------------------------------------------------------------------
                                                      1,130,890    1,111,532
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        At June 30, 2008 costs of $37.8 million (June 30, 2007 -
        $38.8 million) related to undeveloped land have been excluded from
        the depletion and depreciation calculation.

    5.  Long-Term Debt

        The Trust has a syndicated $550 million extendible revolving credit
        facility. The facility is made up of a $20 million working capital
        sub-tranche and a $530 million production line. The facilities are
        available on a revolving basis for a period of at least 364 days and
        upon the term out date may be extended for a further 364 day period
        at the request of the Trust, subject to approval by the lenders. In
        the event that the revolving period is not extended, the facility is
        available on a non-revolving basis for a one year term, at the end of
        which time the facility would be due and payable. Outstanding amounts
        on this facility bear interest at rates determined by the Trust's
        debt to earnings before interest, taxes, depreciation, depletion and
        amortization ("EBITDA") ratio that range from prime to prime plus
        0.75% for debt to EBITDA ranging from less than 1:1 to greater than
        2.5:1. A General Security Agreement with a floating charge on land
        registered in Alberta is held as collateral by the bank.

    6.  Unitholders' Capital

        Authorized: Unlimited number of voting trust units

        Issued and Outstanding

                                                     Number of
        Trust Units (no par value) ($000)              Units         Amount
        ---------------------------------------------------------------------
        Balance, December 31, 2006                  105,251,394      398,434
        Trust units issued by private placement         460,970        7,867
        ---------------------------------------------------------------------
        Balance, December 31, 2007                  105,712,364      406,301
        ---------------------------------------------------------------------
        Trust units issued by private placement         207,830        3,932
        ---------------------------------------------------------------------
        Balance, June 30, 2008                      105,920,194      410,233
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Per Unit Amounts

        Earnings per unit have been calculated based upon the weighted
        average number of units outstanding for three months ended June 30,
        2008 of 105,920,194 (2007 - 105,712,364) and for the six months ended
        June 30, 2008 of 105,876,470 (2007 - 105,670,476). There are no
        dilutive instruments outstanding.

    7.  Accumulated Distributions

        The Trust paid total distributions to the unitholders in the
        aggregate amount of $46.6 million in the three months ended June 30,
        2008 (2007 - total $44.4 million) and $91.4 million for the six
        months ended June 30, 2008 (2007 - total $88.8 million) in accordance
        with the following schedule:

        Production Period     Record Date        Distribution Date  Per Unit
        ---------------------------------------------------------------------
        Special Distribution  January 1, 2008    January 15, 2008    $0.0035
        January 2008          January 31, 2008   February 15, 2008     $0.14
        February 2008         February 28, 2008  March 14, 2008        $0.14
        March 2008            March 31, 2008     April 15, 2008        $0.14
        April 2008            April 30, 2008     May 15, 2008          $0.14
        May 2008              May 31, 2008       June 13, 2008         $0.15
        June 2008             June 30, 2008      July 15, 2008         $0.15


        Accumulated Earnings and Distributions

                                                       June 30,  December 31,
        ($000)                                           2008        2007
        ---------------------------------------------------------------------
        Opening accumulated earnings                    740,038      531,154
        Net earnings for the period                      63,852      208,884
        ---------------------------------------------------------------------
        Total accumulated earnings                      803,890      740,038
        Total accumulated distributions                (713,869)    (622,466)
        ---------------------------------------------------------------------
        Accumulated earnings                             90,021      117,572
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    8.  Operating Expenses

        The Trust's operating expenses include all costs with respect to day-
        to-day well and facility operations. Processing and gathering income
        related to joint venture and third party natural gas reduces
        operating expenses.

                                      Three Months Ended   Six Months Ended
                                            June 30             June 30
        ($000)                          2008      2007      2008      2007
        ---------------------------------------------------------------------
        Field expenses                   7,328     7,714    14,878    14,821
        Processing and gathering
         income                         (2,748)   (2,676)   (5,333)   (4,345)
        ---------------------------------------------------------------------
        Total operating costs            4,580     5,038     9,545    10,476
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  General and Administrative Expenses (G & A)

        General and administrative expenses are reduced by operating and
        capital overhead recoveries on operated properties.

                                      Three Months Ended   Six Months Ended
                                            June 30             June 30
        ($000)                          2008      2007      2008      2007
        ---------------------------------------------------------------------
        G&A expenses                     2,579     2,522     5,468     5,059
        Overhead recoveries               (661)     (461)   (1,347)   (1,114)
        ---------------------------------------------------------------------
        Net G&A expenses                 1,918     2,061     4,121     3,945
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    10. Financial Instruments and Risk Management

        Market Risk

        Market risk is the risk that changes in market prices, such as
        commodity prices and interest rates will affect the Trust's net
        earnings or the value of financial instruments. The objective of
        market risk management is to manage and control its exposures within
        acceptable limits, while maximizing returns. These risks are
        consistent with prior years.

        Commodity Price Risk Management

        The Trust is a party to certain derivative financial instruments,
        including fixed price contracts. The Trust enters into these
        contracts with well established counterparties for the purpose of
        protecting a portion of its future earnings and cash flows from
        operations from the volatility of petroleum and natural gas prices.
        The Trust believes the derivative financial instruments are effective
        as hedges, both at inception and over the term of the instrument, as
        the term and notional amount do not exceed the Trust's firm
        commitment or forecasted transaction and the underlying basis of the
        instrument correlates highly with the Trust's exposure. A summary of
        contracts outstanding in respect of the hedging activities at
        June 30, 2008 is as follows:

                                                                     Price
        Natural Gas Period Hedged           Type      Daily Volume   (CAD)
        ---------------------------------------------------------------------
        April 1 to October 31, 2008      Fixed price    5,000 GJ    $7.85/GJ
        April 1 to October 31, 2008      Fixed price    5,000 GJ    $6.60/GJ
        April 1 to October 31, 2008      Fixed price    5,000 GJ    $6.40/GJ
        April 1 to October 31, 2008      Fixed price    5,000 GJ    $6.60/GJ
        April 1 to October 31, 2008      Fixed price    5,000 GJ    $6.80/GJ
        April 1 to October 31, 2008      Fixed price    5,000 GJ    $7.05/GJ
        April 1 to October 31, 2008      Fixed price    5,000 GJ    $7.20/GJ
        April 1 to October 31, 2008      Fixed price    5,000 GJ    $7.10/GJ
        April 1 to October 31, 2008      Fixed price    5,000 GJ    $7.20/GJ
        April 1 to October 31, 2008      Fixed price    5,000 GJ    $7.40/GJ
        April 1, 2008 to March 31, 2009  Fixed price    5,000 GJ    $7.05/GJ
        April 1, 2008 to March 31, 2009  Fixed price    5,000 GJ    $6.82/GJ
        Nov 1, 2008 to March 31, 2009    Fixed price    5,000 GJ    $7.25/GJ
        Nov 1, 2008 to March 31, 2009    Fixed price    5,000 GJ    $7.50/GJ
        Nov 1, 2008 to March 31, 2009    Fixed price    5,000 GJ    $7.60/GJ
        Nov 1, 2008 to March 31, 2009    Fixed price    5,000 GJ    $8.00/GJ
        Nov 1, 2008 to March 31, 2009    Fixed price    5,000 GJ    $8.25/GJ
        Nov 1, 2008 to March 31, 2009    Fixed price    5,000 GJ    $8.40/GJ
        Nov 1, 2008 to March 31, 2009    Fixed price    5,000 GJ    $8.65/GJ
        Nov 1, 2008 to March 31, 2009    Fixed price    5,000 GJ    $9.00/GJ
        Nov 1, 2008 to March 31, 2009    Fixed price    5,000 GJ    $9.70/GJ
        April 1 to October 31, 2009      Fixed price    5,000 GJ    $7.85/GJ
        April 1 to October 31, 2009      Fixed price    5,000 GJ    $8.12/GJ
        April 1 to October 31, 2009      Fixed price    5,000 GJ    $8.95/GJ
        April 1 to October 31, 2009      Fixed price    5,000 GJ    $9.30/GJ
        April 1 to October 31, 2009      Fixed price    5,000 GJ   $10.20/GJ


        As at June 30, 2008, the Trust had committed to the future sale of
        21,035,000 gigajoules (GJ) of natural gas at an average price of
        $7.88 per GJ or $9.22 per mcf based on the historical heating value
        of Peyto's natural gas. Had these contracts been closed on June 30,
        2008, the Trust would have realized a loss in the amount of
        $80.3 million. If the AECO gas price on June 30, 2008 had been $1/GJ
        higher or lower, the unrealized loss on these closed contracts would
        change by approximately $21.0 million and would be reflected in the
        other comprehensive income of the Trust.

        Interest rate risk

        The Trust is exposed to interest rate risk in relation to interest
        expense on its revolving demand facility. Currently, the Trust has
        not entered into any agreements to manage this risk. A 1% increase or
        decrease in interest rates would have impacted the net income before
        taxes of the Trust during the quarter ended June 30, 2008 by
        approximately $1.1 million and year to date by approximately
        $2.2 million.

        Fair Values of Financial Assets and Liabilities

        The Trust's financial instruments include cash, accounts receivable,
        financial derivative instruments, current liabilities (excluding
        future income tax), provision for future performance based
        compensation and long term debt. At June 30, 2008, the carrying value
        of cash, accounts receivable, financial derivative instruments,
        current liabilities (excluding future income tax) and provision for
        future performance based compensation approximate their fair value
        due to their short term nature or method of determination. The
        carrying value of the long term debt approximates its fair value due
        to the floating rate of interest charged under the facilities.

        Credit Risk

        A substantial portion of the Trust's accounts receivable is with
        petroleum and natural gas marketing entities. Industry standard
        dictates that commodity sales are settled on the 25th day of the
        month following the month of production. The Trust generally extends
        unsecured credit to these companies, and therefore, the collection of
        accounts receivable may be affected by changes in economic or other
        conditions and may accordingly impact the Trust's overall credit
        risk. Management believes the risk is mitigated by the size,
        reputation and diversified nature of the companies to which they
        extend credit. The Trust has not previously experienced any material
        credit losses on the collection of accounts receivable. Of the
        Trust's significant individual accounts receivable at June 30, 2008,
        approximately 81% was due from four companies (December 31, 2007 -
        three companies, 72%). Of the Trust's revenue for the six months
        ended June 30, 2008, approximately 83% was received from three
        companies (June 30, 2007 - three companies, 86%). The maximum
        exposure to credit risk is represented by the carrying amount on the
        balance sheet. There are no material financial assets that the Trust
        considers past due and no accounts have been written off.

        The Trust assesses quarterly if there should be any impairment of
        financial assets. At June 30, 2008, there was no impairment of any of
        the financial assets of the Trust.

        The Trust may be exposed to certain losses in the event of non-
        performance by counter-parties to commodity price contracts. The
        Trust mitigates this risk by entering into transactions with counter-
        parties that have investment grade credit ratings.

        Liquidity Risk

        Liquidity risk includes the risk that, as a result of operational
        liquidity requirements:

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

        The Trust's operating cash requirements, including amounts projected
        to complete our existing capital expenditure program, are
        continuously monitored and adjusted as input variables change. These
        variables include, but are not limited to, available bank lines, oil
        and natural gas production from existing wells, results from new
        wells drilled, commodity prices, cost overruns on capital projects
        and changes to government regulations relating to prices, taxes,
        royalties, land tenure, allowable production and availability of
        markets. As these variables change, liquidity risks may necessitate
        the need for the Trust to conduct equity issues or obtain project
        debt financing. The Trust also mitigates liquidity risk by
        maintaining an insurance program to minimize exposure to some losses.

        The following are the contractual maturities of financial liabilities
        as at June 30, 2008:

                                   less than                          There-
        ($000s)                      1 Year   1-2 Years   2-5 Years   after
        ---------------------------------------------------------------------
        Accounts payable and
         accrued liabilities         54,006
        ---------------------------------------------------------------------
        Derivative financial
         instruments                 75,793      4,769
        ---------------------------------------------------------------------
        Distributions Payable        15,888
        ---------------------------------------------------------------------
        Provision for future
         performance based
         compensation                 4,346      4,769
        ---------------------------------------------------------------------
        Long-term debt                         450,000
        ---------------------------------------------------------------------

    11. Capital Disclosures

        The Trust's objectives when managing capital are: (i) to maintain a
        flexible capital structure, which optimizes the cost of capital at
        acceptable risk; and (ii) to maintain investor, creditor and market
        confidence to sustain the future development of the business.

        The Trust manages its capital structure and makes adjustments to it
        in light of changes in economic conditions and the risk
        characteristics of our underlying assets. The Trust considers its
        capital structure to include unitholders' equity, debt and working
        capital. To maintain or adjust the capital structure, the Trust may
        from time to time, issue trust units, raise debt and/or adjust its
        capital spending to manage its current and projected debt levels. The
        Trust monitors capital based on the following non-GAAP measures:
        current and projected debt to earnings before interest, taxes,
        depreciation, depletion and amortization ("EBITDA") ratios, payout
        ratios and net debt levels. To facilitate the management of these
        ratios, the Trust prepares annual budgets, which are updated
        depending on varying factors such as general market conditions and
        successful capital deployment. The annual budget is approved by the
        Board of Directors. The Trust's unitholders' capital is not subject
        to any external financial covenants.

        There were no changes in the Trust's approach to capital management
        from the previous year.

                                                       June 30,  December 31,
        ($000)                                           2008        2007
        ---------------------------------------------------------------------
        Unitholders' equity                             419,922      528,992
        Long-term debt                                  450,000      430,000
        Working capital deficit(1)                       84,556       22,324
        ---------------------------------------------------------------------
                                                        954,478      981,316
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Current liabilities less current assets (includes unrealized
            hedging loss of $80 million)


    12. Supplemental Cash Flow Information

                                      Three Months Ended   Six Months Ended
                                            June 30             June 30
        ($000)                          2008      2007      2008      2007
        ---------------------------------------------------------------------
        Cash interest paid during
         the period                      5,938     5,502    11,819    11,186
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    13. Contingencies and Commitments

        a) Contingent Liabilities

        From time to time, Peyto is the subject of litigation arising out of
        its day-to-day operations. While Peyto assesses the merits of each
        lawsuit and defends itself accordingly, Peyto may be required to
        incur significant expenses or devote significant resources to
        defending itself against such litigation. These claims are not
        currently expected to have a material impact on Peyto's financial
        position or results of operations.

        b) Commitments

        The Trust is committed to payments under operating leases for office
        space as follows:

        ---------------------------------------------------------------------
        ($000)                                                          $
        ---------------------------------------------------------------------
        2008                                                             548
        2009                                                           1,097
        2010                                                           1,097
        2011                                                           1,097
        ---------------------------------------------------------------------
                                                                       3,839
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        c) Income Taxes

        Canada Revenue Agency ("CRA") has conducted an audit of restructuring
        costs claimed as a result of the trust conversion in 2003 that has
        resulted in the reclassification of $41.0 million dollars in
        employment related costs as eligible capital. The Trust has not yet
        received a notice of reassessment from the CRA. Based upon
        consultation with legal counsel, Management's view is that CRA's
        position has no merit. A notice of objection will be filed upon
        receipt of the notice of reassessment. No provision has been made in
        these financial statements.


    Peyto Exploration & Development Corp. Information


    Officers

    Darren Gee                              Glenn Booth
    President and Chief Executive           Vice-President, Land
    Officer

    Scott Robinson                          Stephen Chetner
    Executive Vice-President and Chief      Corporate Secretary
    Operating Officer

    Kathy Turgeon
    Vice-President, Finance and Chief
    Financial Officer


    Directors
      Ian Mottershead, Chairman
      Rick Braund
      Don Gray
      Brian Davis
      Michael MacBean
      Darren Gee
      Gregory Fletcher

    Auditors
    Deloitte & Touche LLP

    Solicitors
    Burnet, Duckworth & Palmer LLP

    Bankers
    Bank of Montreal
    Union Bank of California
    Royal Bank of Canada
    BNP Paribas
    Société Générale
    ATB Financial
    Fortis Capital (Canada) Ltd.

    Transfer Agent
    Valiant Trust Company

    Stock Listing Symbol: PEY.un
                          Toronto Stock Exchange
    

    %SEDAR: 00019597E




For further information:

For further information: Head Office, 2900, 450 - 1st Street SW,
Calgary, AB, T2P 5H1, Phone: (403) 261-6081, Fax: (403) 451-4100, Web:
www.peyto.com

Organization Profile

PEYTO ENERGY TRUST

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