Progress Energy Increases 2008 Production Guidance



    Increases capital investment; Record cash flow

    CALGARY, July 31 /CNW/ - Progress Energy Trust ("Progress" or the
"Company") today increased its production guidance for 2008 by four percent,
or 1,000 barrels of oil equivalent ("boe") per day to an annual average of
approximately 24,500 boe per day as a result of successful drilling. Second
quarter production averaged 23,805 boe per day including 121 million cubic
feet ("mmcf") per day of natural gas and 3,643 barrels per day of light and
medium oil and natural gas liquids.
    The Company also reported record cash flow of $78 million or $0.69 per
unit diluted, for the second quarter of 2008, a 30 percent increase compared
to the second quarter of 2007. Cash distributions declared totaled $29.5
million resulting in a payout ratio of 38 percent excluding exchangeable
shares which do not receive cash distributions, or 43 percent including
exchangeable shares.
    "Very strong natural gas prices and the success of our winter drilling
program are driving our cash flow growth," said Michael Culbert, President and
CEO of Progress. "We are generating strong cash flow which we are deploying to
build our balance sheet and to further expand our asset base to generate
production and reserve growth."

    Capital investment grows

    Progress has expanded its capital investment program for 2008 and expects
to invest approximately $140 million in 2008, before the impact of
dispositions. The 2008 capital investment program is split evenly between the
Company's two primary regions in the Deep Basin and the Foothills.
Approximately 50-55 net wells will be drilled in its core regions and will
continue its aggressive pace of land capture in Progress' key operating areas.
    "Our first priority has been to build upon our balance sheet strength,"
said Mr. Culbert. "The current commodity price environment and the disposition
of our Saskatchewan assets have allowed us to do this."
    Drilling activity in the Deep Basin of northwest Alberta and the
northeast British Columbia Foothills has recently accelerated after spring
break-up with five rigs currently operating. The Company drilled only one well
in the second quarter due to field conditions associated with break-up.
    Moving forward in 2008, Progress will test the merits of horizontal
drilling and multi-stage fracture stimulations in the northeast British
Columbia Foothills by recompleting one existing horizontal well and drilling
up to three horizontal wells in the prolific Halfway formation. Progress has
jointly drilled over 150 successful vertical wells in the Halfway formation
since 2002 and has monitored the advancements in horizontal drilling and
completions technologies and resulting cost improvements over this period. It
is anticipated that Progress will have results from these initial horizontal
wells in the fourth quarter.

    Production ahead of expectation

    In the second quarter, Progress' production averaged 23,805 boe per day.
Production was lower than the comparable quarter in 2007 due to the 22 day
maintenance turnaround at the Spectra-owned McMahon gas processing plant in
northeast British Columbia which is scheduled every third year. It was
anticipated that substantially all of Progress' British Columbia production
would be off-line during this period but the Company negotiated the processing
of natural gas production from its Bubbles property through the Spectra-owned
Jedney gas processing plant.
    As a result of the Company's successful drilling program, higher than
originally anticipated second quarter production and increased capital
investment, Progress has revised its 2008 average production guidance to
approximately 24,500 boe per day and expects to exit 2008 at approximately
26,000 boe per day.
    Operating expenses averaged $6.39 per boe in the second quarter of 2008
compared to $6.59 per boe in the second quarter of 2007. Second quarter
operating costs reflect the impact of the McMahon turnaround and active
maintenance activity at Progress-owned facilities. Operating costs are
expected to average approximately $6.00 per boe for the remainder of the year.

    Growing land inventory

    During the second quarter, Progress acquired over 26,000 net undeveloped
acres of land through a series of crown land sales, acquisitions and farm-ins.
The acquired lands are contiguous with existing Progress lands in the Deep
Basin and Foothills. In aggregate, Progress holds over 600,000 acres of
undeveloped land.
    In the second quarter, Progress completed the sale of its Saskatchewan
assets to Seaview Energy Inc. (CVU.A) in exchange for $5.4 million of cash and
8.3 million Class A common shares of Seaview. Progress currently holds
approximately 16 percent of the outstanding shares of Seaview.

    Natural gas prices and low cost structure generate strong cash flows

    Progress' average gas price in the second quarter was $9.35 per thousand
cubic feet ("mcf") including losses on its commodity risk management positions
and was $10.21 per mcf before realized hedging losses. Progress' natural gas
production achieves a premium price to the prices quoted at AECO because of
its high heat content nature.
    "Natural gas prices have strengthened considerably during the first six
months of 2008 as compared to 2007 primarily resulting from the growing
year-over-year natural gas storage deficit, significantly lower imports of
liquefied natural gas and persistently high prices for competing fuels," said
Mr. Culbert. "In this environment we continue to actively hedge our natural
gas production to protect our distribution and capital investment."
    Progress maintains a consistent price risk management program to mitigate
price risk volatility and provide greater certainty of its revenue stream. For
the period from April 1, 2008 to October 31, 2008, the Company has hedges on
approximately 70 million cubic feet ("mmcf") per day at a net floor price of
$7.77 per mcf and a net ceiling of $8.62 per mcf. For the period from
November 1, 2008 to March 31, 2009, the Company has hedges on approximately
30 mmcf per day at a net floor price of $10.44 per mcf and a net ceiling of
$13.85 per mcf.

    Maintaining financial strength

    Capital investment in the second quarter was $17.6 million before
dispositions. At the end of the second quarter, bank debt outstanding was
$282 million on total credit facilities of $375 million. Total debt (long term
bank debt, convertible debentures and working capital surplus) to annualized
first half 2008 cash flow was 1.3 times.
    Progress has in excess of $1.1 billion in tax pools which can be used to
shelter income well into the future.

    Outlook

    Progress expects 2008 production to average approximately 24,500 boe per
day while investing approximately $140 million on land, seismic, drilling and
facilities, before dispositions.
    The North American natural gas picture remains strong relative to the
comparable period in 2007. Although year-to-date US natural gas production has
risen significantly as a result of onshore production growth from resource
plays, it has been offset by lower imports of LNG, lower Canadian production
and a rise in residential, commercial and gas-fired electrical generation
demand. Natural gas demand should also benefit from the movement towards the
use of more environmentally friendly fuels. Natural gas produces significantly
less carbon dioxide than burning alternative fossil fuels and is becoming a
fuel of choice in North America.
    Weather will remain a key component of the natural gas demand picture in
North America. Demand for natural gas is largely driven by natural gas
consumed to generate electricity for air conditioning load in the summer and
for residential and commercial heating in the winter. In aggregate, the
natural gas supply/demand balance remains tight over the medium to longer
term.
    Progress will continue to focus its tight gas exploration and development
expertise on non-conventional resource plays within the Deep Basin of
northwest Alberta and the Foothills of northeast British Columbia.
Improvements in drilling and completions technology will continue to unlock
the potential within these multi-zone regions creating the opportunity to
significantly expand the Company's inventory of opportunities. Moving toward
2011, the Company believes that its high-quality asset base, operating
expertise and substantial tax pool coverage create maximum optionality for the
transition period.

    In memoriam

    On May 1, 2008, Progress lost an important member of its Board of
Directors. Mr. Fred Coles passed away after a long and courageous battle with
cancer. He was a member of Progress' Board since inception and contributed his
wealth of knowledge and experience to Progress and the community at large. He
will be missed.


    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following discussion and analysis ("MD&A") of financial results is
dated July 31, 2008 and is to be read in conjunction with the accompanying
unaudited consolidated interim financial statements and related notes for the
period ended June 30, 2008 and the audited consolidated financial statements
and related notes and MD&A of Progress Energy Trust ("Progress" or the
"Trust") for the year ended December 31, 2007. The financial data presented
has been prepared in accordance with Canadian generally accepted accounting
principles ("GAAP"). The reporting and the measurement currency is the
Canadian dollar.

    Non-GAAP Measurements

    Management uses certain industry benchmarks such as operating netback and
total debt to cash flow ratio to analyze financial and operating performance.
These benchmarks as presented do not have any standardized meaning prescribed
by Canadian GAAP and therefore may not be comparable with the calculation of
similar measures for other entities. Operating netback and total debt to cash
flow ratio are used by research analysts to compare operating performance and
a trust's ability to maintain current distributions. Operating netback is the
net result of the Trust's revenue net of realized gains and losses on
financial instruments, and royalty, operating and transportation expenses as
found in the accompanying interim financial statements. The total debt to cash
flow ratio is calculated by dividing total debt at the end of the period
(comprised of the working capital deficit or surplus, outstanding bank debt
and the debt portion of the Trust's convertible unsecured debentures) by the
12 month trailing cash flow from operating activities before changes in
non-cash working capital.

    Forward-Looking Statements

    Certain information regarding Progress set forth in this document,
including Management's assessment of the Trust's future plans and operations,
contains forward-looking statements that involve substantial known and unknown
risks and uncertainties. The use of any of the words "anticipate", "continue",
"estimate", "expect", "may", "will", "project", "should", "believe" and
similar expressions are intended to identify forward looking statements. Such
statements represent Progress' internal projections, estimates or beliefs
concerning, among other things, an outlook on the estimated amounts and timing
of capital investment, anticipated future debt, revenues or other
expectations, beliefs, plans, objectives, assumptions, intentions or
statements about future events or performance. These statements are only
predictions and actual events or results may differ materially. Although
Progress believes that the expectations reflected in the forward-looking
statements are reasonable, it cannot guarantee future results, levels of
activity, performance or achievement since such expectations are inherently
subject to significant business, economic, competitive, political and social
uncertainties and contingencies. Many factors could cause Progress' actual
results to differ materially from those expressed or implied in any
forward-looking statements made by, or on behalf of, Progress.
    In particular, forward-looking statements included in this MD&A include,
but are not limited to, statements with respect to the size of, and future net
revenues from, crude oil and natural gas reserves; the focus of capital
expenditures; expectations regarding the ability to raise capital and to
continually add to reserves through acquisitions and development; projections
of market prices and costs and the related sensitivity of distributions; the
performance characteristics of the Trust's crude oil and natural gas
properties; crude oil and natural gas production levels; Progress' future
operating and financial results; capital investment programs; supply and
demand for crude oil and natural gas; average royalty rates; grassroots
development drilling and development drilling in its operating regions; amount
of general and administrative expenses; treatment under governmental
regulatory regimes and tax laws; and levels of cash distributions paid to
unitholders. In addition, statements relating to "reserves" or "resources" are
deemed to be forward looking statements, as they involve the implied
assessment, based on certain estimates and assumptions, that the resources and
reserves described can be profitably produced in the future.
    These forward-looking statements are subject to numerous risks and
uncertainties, certain of which are beyond the Trust's control, including the
impact of general economic conditions; volatility in market prices for crude
oil and natural gas; industry conditions; volatility of commodity prices;
currency fluctuation; imprecision of reserve estimates; liabilities inherent
in crude oil and natural gas operations; environmental risks; incorrect
assessments of the value of acquisitions and exploration and development
programs; competition from other producers; the lack of availability of
qualified personnel or management; changes in income tax laws or changes in
tax laws and incentive programs relating to the oil and gas industry and
income trusts; hazards such as fire, explosion, blowouts, cratering, and
spills, each of which could result in substantial damage to wells, production
facilities, other property and the environment or in personal injury; stock
market volatility; ability to access sufficient capital from internal and
external sources and the other risks considered under "Risk Factors" in our
annual information form for the year ended December 31, 2007 which is
available on www.sedar.com.
    With respect to forward-looking statements contained in this MD&A,
Progress has made assumptions regarding: current commodity prices and royalty
regimes; availability of skilled labour; north American sulphur prices; timing
and amount of capital expenditures; future exchange rates; the price of oil
and natural gas; the impact of increasing competition; conditions in general
economic and financial markets; availability of drilling and related
equipment; effects of regulation by governmental agencies; royalty rates and
future operating costs.
    Management has included the above summary of assumptions and risks
related to forward-looking information provided in this MD&A in order to
provide unitholders with a more complete perspective on Progress' future
operations and such information may not be appropriate for other purposes.
Progress' actual results, performance or achievement could differ materially
from those expressed in, or implied by, these forward-looking statements and,
accordingly, no assurance can be given that any of the events anticipated by
the forward-looking statements will transpire or occur, or if any of them do
so, what benefits that the Trust will derive there from. Readers are cautioned
that the foregoing lists of factors are not exhaustive. These forward-looking
statements are made as of the date of this MD&A and the Trust disclaim any
intent or obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or results or otherwise,
other than as required by applicable securities laws.

    Description of Business

    Progress is an open-ended, unincorporated investment trust governed by
the laws of the province of Alberta. The principal undertaking of the Trust is
to indirectly explore for, develop and hold interests in petroleum and natural
gas properties. Progress Energy Ltd., a wholly owned subsidiary of Progress,
carries on the business of the Trust and directly owns the petroleum and
natural gas properties and assets related thereto. The Trust's unitholders and
exchangeable shareholders are the sole beneficiaries of the Trust. Under the
Trust Indenture, the Trust may declare payable to unitholders all or any part
of the income of the Trust which is primarily comprised of interest earned on
debt notes issued to Progress Energy Ltd., as well as, amounts attributed to a
net profits interest agreement entered into with Progress Energy Ltd. The
aggregate amounts received by the Trust each period are based on the
consolidated cash flow each period, as adjusted on a discretionary basis, for
cash withheld to fund capital investment.
    Progress is a Calgary based, natural gas focused, trust targeting
sustainable production and reserves per trust unit through utilization of its
technical capability and capital investment efficiencies. Primary operating
regions include the Deep Basin of northwest Alberta and the northeast British
Columbia Foothills and Fort St. John Plains regions. Trust units of Progress
trade on the Toronto Stock Exchange ("TSX") under the symbol PGX.UN.
Exchangeable shares and the 6.75 percent and 6.25 percent convertible
unsecured subordinated debentures (the "Debentures") of Progress trade on the
TSX under the symbols PGE, PGX.DB and PGX.DB.A, respectively.

    Relationship with ProEx Energy Ltd.

    The Trust provides personnel and certain administrative and technical
services to ProEx Energy Ltd. ("ProEx") in connection with the management,
development, exploitation and operation of the assets of ProEx and the
marketing of its production. The Trust provides these services in accordance
with the technical services agreement ("Technical Services Agreement") entered
into with ProEx as described below. ProEx has granted stock options and shares
to employees and executives of Progress as service providers and has also
participated in a long term incentive plan by granting ProEx common shares to
employees of Progress, excluding the executives. To facilitate this plan,
Progress purchases ProEx common shares and is reimbursed by ProEx for the cost
incurred. As at June 30, 2008 184,489 ProEx shares (2007 - nil) have been
purchased for future distribution under the plan. The ProEx common shares will
be held until the vesting date, two years from the date of grant. Any
forfeited shares will revert back to ProEx.
    The Trust and ProEx have joint interest in certain properties and
undeveloped land in the northeast British Columbia Foothills and Fort St. John
Plains regions. These joint interest properties are governed by standard
industry agreements and in addition the Trust has entered into a protocol
arrangement ("Protocol Arrangement") with ProEx that specifies how each
company will manage the joint lands in specifically identified areas of
interest. To ensure good governance practices, both the Trust and ProEx have
each created independent committees of their Board of Directors to monitor
compliance with the Technical Services Agreement and the Protocol Arrangement.
    On April 2, 2007, Progress acquired all of the issued and outstanding
shares of a private company for $527.4 million, net of certain assets retained
by the vendor. In conjunction with the acquisition, on April 2, 2007, Progress
disposed of certain assets of the private company to ProEx for $134.4 million.
When considering the bid process for the acquisition, each of Progress and
ProEx identified assets that they were interested in acquiring and values that
they were willing to pay to acquire such assets. Progress made a single bid on
behalf of ProEx and Progress and the ultimate purchase price was based on the
prices that each of Progress and ProEx were willing to pay for the assets that
they had selected to acquire. The resale of assets from Progress to ProEx was
based on these allocations. The technical services committee reviewed the
details of the transaction prior to the purchase and sale agreement being
signed. All lands are managed in accordance with the Protocol Arrangement.
    On November 30, 2007, Progress and ProEx jointly acquired certain assets
in the Foothills region of British Columbia. The total cost of the acquisition
of $17.9 million was split in accordance with working interests currently held
in the surrounding area. As a result, Progress acquired a 20 percent interest
in the assets ($3.6 million) and ProEx an 80 percent interest ($14.3 million).

    CORPORATE ACQUISITION

    On April 2, 2007, Progress acquired all of the issued and outstanding
shares of a private company for $527.4 million, net of certain assets retained
by the vendor ("Corporate Acquisition"). In conjunction with the Corporate
Acquisition, on April 2, 2007, Progress disposed of certain assets of the
private company to ProEx for $134.4 million. The resulting net cash
consideration of $393.0 million was financed by the issuance of 21,000,000
trust units at a price of $12.00 per trust unit for proceeds of $252.0 million
($238.7 million net of issue costs) and through increased bank debt. Included
in the Corporate Acquisition was approximately $720.9 million of tax pools
which are available to Progress to shelter future taxable income resulting in
the recognition of a $137.2 million future income tax asset.
    The Corporate Acquisition included approximately 6,400 boe per day of
production, 95 percent natural gas and approximately 240,000 net acres of
undeveloped land.

    OPERATING SUMMARY

    In accordance with Canadian industry practice, production volumes,
reserve volumes and revenues are reported on a Trust interest basis (working
interest plus royalty interest), before deduction of Crown and other
royalties, unless otherwise indicated. The Trust's results of operations are
dependent on production volumes of natural gas, crude oil and natural gas
liquids and the prices received for this production. Prices for these
commodities have shown significant volatility during recent years and are
determined by supply and demand factors, including weather, general economic
conditions and changes in the Canadian/United States ("US") currency exchange
rate.
    In this MD&A, production and reserves information may be presented on a
"barrel of oil equivalent" or "boe" basis with six thousand cubic feet ("mcf")
of natural gas being equivalent to one barrel ("bbl") of crude oil or natural
gas liquids. Boe's may be misleading, particularly if used in isolation. A boe
conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.

    
    Production
                              Three Months Ended    Six Months Ended
                                         June 30             June 30
                                  2008      2007      2008      2007  Change
    -------------------------------------------------------------------------
    Average Daily Production
    Natural gas (mcf/d)        120,971   127,255   124,319   110,894     12%
    Crude oil (bbls/d)           1,976     2,134     2,081     2,126     (2)%
    Natural gas liquids
     (bbls/d)                    1,667     1,485     1,859     1,432     30%
    -------------------------------------------------------------------------
    Total daily production
     (boe/d)                    23,805    24,828    24,660    22,040     12%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Sulphur sales (tons/d)          49        39        40        32     25%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    For the three months ended June 30, 2008 (the "Quarter"), Progress'
production averaged 23,805 boe per day consisting of 120,971 mcf per day of
natural gas, 1,976 bbls per day of crude oil and 1,667 bbls per day of natural
gas liquids. Production during the Quarter was four percent lower than the
same period in 2007 of 24,828 boe per day due to the 22 day scheduled plant
turnaround of the Spectra-owned McMahon gas processing facility in June 2008.
The turnaround reduced production for the Quarter by approximately 1,300 boe
per day. Production for the Quarter was ahead of expectations as the Trust
anticipated that substantially all of its British Columbia production would be
shut-in during the turnaround but Progress was able to negotiate the
processing of its Bubbles area natural gas production in the Foothills region
through the Spectra-owned Jedney gas processing plant. The Trust's production
portfolio for the Quarter was weighted 85 percent to natural gas, eight
percent to crude oil and seven percent to natural gas liquids.
    Natural gas production decreased five percent to 120,971 mcf per day for
the Quarter compared to 127,255 mcf per day for the same period in 2007 due to
the McMahon turnaround in June 2008. Crude oil and natural gas liquids
production for the Quarter of 3,643 bbls per day was consistent with the same
period in 2007 of 3,619 bbls as the McMahon turnaround also resulted in
reduced natural gas liquids production for the Quarter.
    Year-to-date 2008 production was 24,660 boe per day consisting of
124,619 mcf per day of natural gas, 2,081 bbls per day of crude oil and
1,859 bbls per day of natural gas liquids. This production was 12 percent
higher than the same period in 2007 of 22,040 boe per day due to the Corporate
Acquisition on April 2, 2007, as well as successful drilling results. The
Trust's production portfolio for the six months ended June 30, 2008 was
weighted 84 percent to natural gas, eight percent to crude oil and eight
percent to natural gas liquids.
    Management has increased its production guidance for 2008 by four
percent, or 1,000 boe per day to an annual average of approximately 24,500 boe
per day mainly due to successful winter drilling results.
    Natural gas produced by Progress in certain areas of the Fort St. John
Plains and Foothills regions of northeast British Columbia contain varying
levels of hydrogen sulphide. The processing of this gas results in sulphur as
a by-product. For the three and six months ended June 30, 2008, the Trust sold
49 tons per day and 40 tons per day of sulphur, respectively (2007 - 39 tons
per day and 32 tons per day, respectively).

    
    Production by Region
                              Three Months Ended    Six Months Ended
                                         June 30             June 30
                                  2008      2007      2008      2007  Change
    -------------------------------------------------------------------------
    Average Daily Production
     (boe/d)
    Foothills                    5,923     6,538     6,396     5,350     20%
    Fort St. John Plains         1,456     2,027     1,681     1,983    (15)%
    Deep Basin - Ojay              806     1,026       859       516     66%
    Milo                           212       324       233       344    (32)%
    -------------------------------------------------------------------------
    Total British Columbia       8,397     9,915     9,169     8,193     12%
    -------------------------------------------------------------------------
    Deep Basin                  12,893    12,154    12,956    11,002     18%
    Central Alberta              1,708     1,873     1,708     1,933    (12)%
    Other                          551       643       571       671    (15)%
    -------------------------------------------------------------------------
    Total Alberta               15,152    14,670    15,235    13,606     12%
    -------------------------------------------------------------------------
    Saskatchewan                   256       243       256       241      6%
    -------------------------------------------------------------------------
    Total daily production      23,805    24,828    24,660    22,040     12%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Excludes sulphur production
    

    Pricing

    Natural Gas Markets

    Progress' realized natural gas price for the Quarter was 10.21 per mcf
(2007 - $7.52 per mcf) compared to the AECO daily index average of $9.69 per
gigajoule ("gj") and the AECO monthly index average of $8.86 per gj (2007 -
$6.63 per gj and $6.99 per gj, respectively). Progress markets its natural gas
at a mix of daily and monthly pricing.
    For the six months ended June 30, 2008 Progress' realized natural gas
price was $9.05 per mcf (2007 - $7.66 per mcf), compared to the AECO daily
index average of $8.59 per gj and the AECO monthly index average of
$7.81 per gj (2007 - $6.83 per gj and $7.03 per gj, respectively).
    Natural gas prices in all markets in North America rose continuously
through the Quarter based on bullish sector news. Factors supportive of the
higher prices include: lower liquefied natural gas ("LNG") imports given the
strong Asian and European demand; lower Canadian production; an extended
outage at the Independence Hub natural gas processing facility in the Gulf of
Mexico; and, the growing year-over-year natural gas storage deficit. As well,
natural gas prices have been supported by rising prices for competing fuels as
the price of West Texas Intermediate ("WTI") crude oil reached unprecedented
levels during the Quarter.
    The outlook for natural gas prices remains strong although natural gas
production in the US has been rising, the supply-demand balance remains tight
as a result of lower imports of LNG, falling Canadian production and rising
industrial demand. Weather will continue to be a key determining factor in
consumption patterns for electric power generation for air conditioning load
in the summer.

    Oil Markets

    Progress' realized prices for its liquids streams for the Quarter were
$117.72 per bbl (2007 - $68.37 per bbl) for crude oil and $95.17 per bbl (2007
- $60.51 per bbl) for natural gas liquids. For the six months ended June 30,
2008 Progress realized $103.09 per bbl (2007 - $65.29 per bbl) for crude oil
and $78.61 per bbl (2007 - $57.91 per bbl) for natural gas liquids.
    Crude oil prices remained volatile and experienced wide fluctuations
while setting record prices throughout the Quarter. Prompt month WTI crude oil
traded at approximately US$100.00 per bbl at the beginning of the Quarter and
closed the Quarter at approximately US$140.00 per bbl and reached an all-time
high of US$145.85 per bbl subsequent to the Quarter on July 3, 2008. Key
factors contributing to the volatility were the fluctuating US dollar, unrest
in the Middle East and rebel strikes on petroleum infrastructure in Nigeria.
    Global oil supply continues to be driven by geo-political events in the
Middle East and Africa, two key light oil producing regions. Although OPEC and
non-OPEC countries have moved to increase supply, it is typically a heavier,
sour grade of crude which requires upgrading while upgrading capacity
continues to be very tight in the consuming areas of the world. It is
anticipated that persistently high oil prices will have a dampening effect on
global economic growth.

    Sulphur Markets

    Progress' net realized sulphur price for the Quarter and six months ended
June 30, 2008 was $388.97 per ton and $324.05 per ton, respectively (2007 -
$15.35 per ton net loss and $18.75 per ton net loss, respectively). Progress
markets its sulphur through an arrangement with a sulphur marketing company
and pays all costs and fees associated with transportation, loading, storage
and marketing of its sulphur.
    North American sulphur prices have risen sharply over the past year,
supported by rising global demand for agricultural products such as
fertilizers and other chemicals. Benchmark Florida sulphur prices averaged
US $71.00 per ton since 1990 but have risen to over US$450 per ton this year.
Canadian prices have been even stronger this year with Vancouver prices
reaching over $600 per ton, largely as a result of strong Asian demand.
Canadian sulphur production represents approximately 16 percent of global
production. The majority of the Canadian production comes from the oil and gas
industry where sulphur may be a by-product during the processing of crude oil
and natural gas.

    
    Commodity Prices
                              Three Months Ended    Six Months Ended
                                         June 30             June 30
                                  2008      2007      2008      2007  Change
    -------------------------------------------------------------------------
    Average Benchmark Prices
    Natural gas - AECO
     (daily) ($/gj)               9.69      6.63      8.59      6.83     26%
    Natural gas - AECO
     (monthly) ($/gj)             8.86      6.99      7.81      7.03     11%
    Crude oil - WTI (US$/bbl)   123.98     65.04    111.00     61.44     81%
    Crude oil - Edmonton par
     price (Cdn$/bbl)           126.22     71.90    111.72     69.52     61%
    Exchange rate (US$/Cdn$)    1.0100    1.0981    1.0070    1.1349    (11)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Average Realized Prices
    Natural gas ($/mcf)          10.21      7.52      9.05      7.66     19%
    Crude oil ($/bbl)           117.72     68.37    103.09     65.29     58%
    Natural gas liquids
     ($/bbl)                     95.17     60.51     78.61     57.91     36%
    Sulphur - net ($/ton)       388.97    (15.35)   324.05    (18.75)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Price Risk Management

    The Trust has entered into several natural gas financial contracts for
the purpose of protecting its cash flow from the volatility of natural gas
prices. For the Quarter, the Trust's natural gas price risk management program
had a net realized loss of $9.4 million (2007 - $0.2 million net gain). For
the six months ended June 30, 2008, the Trust's natural gas price risk
management program had a realized loss of $9.4 million (2007 - $7.2 million
net gain).
    On January 1, 2007 the Trust adopted the new accounting standards
regarding the accounting for financial instruments. In addition to the
adoption of the new standards, Management elected not to use hedge accounting
and therefore, records the fair value of its natural gas financial contracts
at each reporting period with the change in the fair value being classified as
unrealized gains or losses on the statement of earnings.
    On adoption, the Trust recognized a current asset of $15.6 million for
the fair value of its natural gas derivative contracts with a corresponding
increase to the future income tax liability and accumulated other
comprehensive income of $5.1 million and $10.5 million, respectively. The
$10.5 million in accumulated other comprehensive income was amortized through
other comprehensive income and unrealized gain or loss on the statement of
earnings over the term of the contracts. For the three months ended June 30,
2007, $1.8 million, net of tax, was amortized through other comprehensive
income with a corresponding pre-tax unrealized gain of $2.7 million and a
charge to future income tax expense of $0.9 million. For the six months ended
June 30, 2007 $8.1 million, net of tax, was amortized through other
comprehensive income with a corresponding pre-tax unrealized gain of
$12.0 million and a charge to future income tax expense of $3.9 million.
    At June 30, 2008 the fair value of the natural gas financial contracts
was a liability of $44.3 million (2007 - $5.8 million asset). The decrease in
value for the Quarter of $19.6 million (2007 - $7.8 million increase) was due
to the increase in forward natural gas prices compared to a decrease in
forward natural gas prices for the same period in 2007. The decrease in value
of $44.3 million for the six months ended June 30, 2008 was due to the
increase in forward natural gas prices (2007 - $9.7 million decrease).
    The Trust's risk management activities are conducted pursuant to the
Trust's Risk Management Policy approved by the Board of Directors. Progress
uses financial derivative instruments designed to establish a minimum floor
price while retaining exposure to upside price movements. The Risk Management
Policy has the following objectives:

    
      -  To reduce risk exposure to budgeted annual cash flow projections
         resulting from uncertainty or changes in commodity prices, interest
         rates or foreign exchange.
      -  To provide greater certainty and stability to monthly distributions.
      -  To limit the permissible structures to ensure hedging effectiveness.
      -  To limit hedging up to a maximum of 50 percent of budgeted annual
         production before royalties.
      -  To limit hedging activity to counter-parties that provide sufficient
         collateral in support of payment or have investment grade credit
         ratings.

    Progress' commodity risk management positions are described in Note 11 in
the unaudited interim consolidated financial statements.


                              Contract Natural Gas              % of
                               Volumes ('000 gj/d)      Estimated Production
    -------------------------------------------------------------------------
    Third quarter of 2008               80                       50
    Fourth quarter of 2008              50                       30
    First quarter of 2009               35                       20
    -------------------------------------------------------------------------
    

    Revenue

    For the Quarter, petroleum and natural gas revenue increased 38 percent
to $149.7 million from $108.5 million for the same period in 2007 due to
higher commodity prices. Production revenue for the Quarter consisted of
$112.4 million from natural gas sales, $21.2 million from crude oil sales,
$14.4 million from the sale of natural gas liquids and $1.7 million from the
sale of sulphur.
    For the six months ended June 30, 2008, revenues increased 41 percent to
$272.8 million from $194.0 million for the same period in 2007 due to higher
natural gas production and higher commodity prices.


    
                              Three Months Ended    Six Months Ended
                                         June 30             June 30
    ($ thousands)                 2008      2007      2008      2007  Change
    -------------------------------------------------------------------------
    Natural gas sales          112,348    87,106   204,756   153,957     33%
    Crude oil sales             21,168    13,278    39,043    25,125     55%
    Natural gas liquids sales   14,437     8,176    26,601    15,012     77%
    Sulphur sales (net)          1,746       (57)    2,374      (114)
    -------------------------------------------------------------------------
    Petroleum and natural
     gas revenue               149,699   108,503   272,774   193,980     41%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                                     Crude
                                          Natural    Oil &
    ($ thousands)                             Gas     NGLs  Sulphur    Total
    -------------------------------------------------------------------------
    Three months ended June 30, 2007
     petroleum and natural gas revenue     87,106   21,454      (57) 108,503
    Price variance                         29,543   14,009    1,818   45,775
    Production variance                    (4,301)     142      (15)  (4,174)
    -------------------------------------------------------------------------
    Three months ended June 30, 2008
     petroleum and natural gas revenue    112,348   35,605    1,746  149,699
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                                     Crude
                                          Natural    Oil &
    ($ thousands)                             Gas     NGLs  Sulphur    Total
    -------------------------------------------------------------------------
    Six months ended June 30, 2007
     petroleum and natural gas revenue    153,957   40,137     (114) 193,980
    Price variance                         32,161   21,198    2,517   55,876
    Production variance                    18,638    4,309      (29)  22,918
    -------------------------------------------------------------------------
    Six months ended June 30, 2008
     petroleum and natural gas revenue    204,756   65,644    2,374  272,774
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Royalties

    For the Quarter, royalties increased 50 percent to $35.6 million from
$23.7 million for the same period in 2007 due to higher revenues, as a result
of higher commodity prices. Royalty expense consists of royalties paid to
provincial governments, freehold landowners and overriding royalty owners. The
Trust's average royalty rate for the Quarter was 23.8 percent compared to
21.9 percent in 2007. The increase in the royalty rate is due to the higher
commodity prices.
    For the six months ended June 30, 2008 royalties increased 43 percent to
$63.0 million compared to $43.9 million for the same period in 2007. The
Trust's average royalty rate was 23.1 percent compared to 22.6 percent in
2007, the increase being due to higher commodity prices.
    Management anticipates, based on current commodity prices and royalty
regimes, the average royalty rate for 2008 will be consistent with the Quarter
at approximately 24.0 percent of petroleum and natural gas revenue.
    On October 25, 2007 the Alberta government announced the New Royalty
Framework ("framework"), which is proposed to take effect on January 1, 2009.
Progress has reviewed the information currently provided by the government and
believes that the changes to Alberta royalties may increase Progress' Alberta
royalty rate from 27 percent to between 31.5 to 36.0 percent based on current
production and a realized natural gas price of between $7.00 to $9.00 per gj.
Using the same production and price assumptions, Progress' corporate royalty
rate is estimated to increase from 24 percent to between 27.5 to 29.0 percent.
    The framework proposes a new simplified royalty formula for natural gas
that will operate on a sliding scale determined by commodity prices, well
productivity and drilling depth. Progress' Deep Basin well depths range
between 2,300 to 2,700 meters which will be eligible for the new measured
depth drilling formula. Progress is attracted to the Deep Basin region because
of the quality and pedigree of the region with its higher than average well
productivity and multi zone drilling targets. The new royalty formula will
increase Progress' royalties payable but is not expected to materially impact
the economics of development drilling in the Deep Basin. Generally, it is
expected to have a negative impact on full cycle exploration drilling in
Alberta due to the inadequate consideration of exploration risk. In the
Quarter, 65 percent of Progress' revenue was from the province of Alberta and
approximately 50 percent of its capital program was in Alberta.

    Operating Expenses

    Operating expenses during the Quarter decreased seven percent to
$13.8 million from $14.8 million for the same period in 2007 due to higher
costs in 2007 as a result of the Corporate Acquisition on April 2, 2007. Since
that time efficiencies have been obtained on the assets acquired to reduce
operating costs. For the six months ended June 30, 2008 operating expenses
increased six percent to $27.5 million compared to $25.9 million for the same
period in 2007. The increase is the result of higher production in 2008
compared to the same period in 2007, reflecting the impact of the Corporate
Acquisition and successful drilling. On a boe basis, operating expenses for
the Quarter decreased three percent to $6.39 from $6.57 in the same period in
2007 while year-to-date operating expenses decreased six percent to $6.13 from
$6.49 in the same period in 2007 as a result of efficiencies obtained on the
assets acquired in the Corporate Acquisition.
    Management anticipates operating expense for the remainder of 2008 will
be consistent with year-to-date operating expenses per boe and average
approximately $6.00 per boe.

    Transportation Expenses

    Transportation expenses for the Quarter increased 22 percent to
$5.1 million compared to $4.2 million for the same period in 2007. The
increase was the result of tolls paid to divert natural gas production from
the Bubbles area in the Foothills region of British Columbia through the
Spectra-owned Jedney facility during the McMahon turnaround and overall higher
transportation and treatment tolls as compared to the same period in 2007. For
the six months ended June 30, 2008 transportation expenses increased
40 percent to $9.7 million compared to $6.9 million for the same period in
2007. The increase is due to higher production in 2008 compared to the same
period in 2007, as well as higher transportation and treatment tolls
associated with the Corporate Acquisition. On a boe basis, transportation
expenses during the Quarter increased 25 percent to $2.36 compared to $1.85
for the same period in 2007 while year-to-date transportation expenses
increased 25 percent to $2.17 compared to $1.74 for the same period in 2007.
In British Columbia, there is an infrastructure owned by mid-stream processing
companies that enables gas producers to avoid facility construction in
exchange for regulated gathering, processing and transmission fees. This
all-in charge is included in transportation expenses.

    Operating Netbacks

    Although many wells produce both crude oil and natural gas, a well is
categorized as a natural gas well or an oil well based upon the higher
proportion of natural gas or crude oil production. The following table
summarizes the operating netbacks for natural gas and oil properties for the
three and six months ended June 30, 2008 compared to the same periods in 2007:

    
                                      Three Months Ended    Six Months Ended
                                                 June 30             June 30
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    Natural Gas Properties ($/mcf)
    Sales price                          10.86      7.65      9.51      7.85
    Realized gain (loss) on financial
     instruments                         (0.80)     0.01     (0.39)     0.34
    Royalties                            (2.64)    (1.70)    (2.26)    (1.80)
    Operating expenses                   (0.97)    (1.01)    (0.91)    (0.99)
    Transportation expenses              (0.40)    (0.30)    (0.37)    (0.29)
    -------------------------------------------------------------------------
    Operating netback - natural gas
     properties                           6.05      4.65      5.58      5.11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Oil Properties ($/bbl)
    Sales Price                         105.04     63.60     92.52     61.47
    Royalties                           (22.22)   (12.58)   (18.27)   (12.83)
    Operating expenses                  (11.56)   (10.99)   (12.14)   (10.83)
    Transportation expenses              (1.92)    (1.97)    (1.90)    (1.96)
    -------------------------------------------------------------------------
    Operating netback - oil properties   69.34     38.06     60.21     35.83
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    All Properties ($/boe)
    Sales Price(1)                       69.10     48.03     60.78     48.62
    Realized gain (loss) on financial
     instruments                         (4.35)     0.08     (2.10)     1.80
    Royalties                           (16.44)   (10.51)   (14.04)   (11.01)
    Operating expenses                   (6.39)    (6.57)    (6.13)    (6.49)
    Transportation expenses              (2.36)    (1.85)    (2.17)    (1.74)
    -------------------------------------------------------------------------
    Operating netback - all properties   39.56     29.18     36.34     31.18
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes sulphur net revenue with no associated production as no
        conversion exists for tons to boe.
    

    General and Administrative Expenses

    For the Quarter, general and administrative expenses net of overhead
recoveries, ("G&A") matched the same period in 2007 of $2.3 million. On a boe
basis G&A was $1.05 compared to $1.02 for the same period in 2007. For the six
months ended June 30, 2008, G&A expenses increased 27 percent to $5.4 million
($1.21 per boe) compared to $4.3 million ($1.07 per boe) for the same period
in 2007. The increase in G&A year-to-date is due to the increased size of the
Trust, as well as higher costs incurred to retain employees.
    In accordance with the Technical Services Agreement with ProEx, the Trust
provides personnel and certain administrative and technical services in
connection with the management, development, exploitation and operation of the
assets of ProEx and the marketing of its production. The Trust provides these
services to ProEx on an expense reimbursement basis, based on ProEx's monthly
capital activity and production levels relative to the combined capital
activity and production levels of both the Trust and ProEx. Total expenses
reimbursed by ProEx for the Quarter were $2.1 million (2007 - $1.3 million)
and for the six months ended June 30, 2008 were $4.4 million
(2007 - $2.8 million).
    The Trust capitalized approximately $0.5 million of G&A during the
Quarter (2007 - $0.4 million) and $0.8 million for the six months ended June
30, 2008 (2007 - $0.8 million). The majority of these costs represent
geological and geophysical salaries.
    Management anticipates G&A for the remainder of 2008 will be consistent
with the Quarter at $1.00 to $1.10 per boe.

    Unit Based Compensation Expenses

    Performance Units

    The Progress performance unit plan (the "Plan") provides for employees
and directors to be granted performance units which vest at the end of a three
year performance period at which time they will be converted to trust units,
or the cash equivalent, and include the accumulated distributions over the
three year period. The actual number of trust units paid is dependent upon a
performance factor that is determined based on the Trust's performance
relative to its peers and ranges from 0.5 to 1.5 times the initial grant,
except for performance units granted to the Trust's executives effective July
2, 2007 which can range from 0 to 3 times. Payment may be in the form of cash
or trust units, at the Trust's option. Management anticipates, at the end of
the performance period, accumulated distributions will be paid in cash and
trust units will be paid from treasury.

    Long Term Incentive Component

    Awards granted under the LTI component of the Plan will vest over three
years with 40 percent vesting on the second anniversary of the date of grant
and 60 percent vesting on the third anniversary of the date of grant. An
additional 15 percent grant will be paid if the holder holds the units they
receive on the second anniversary date for one additional year. As at June 30,
2008 198,463 units are outstanding under the LTI component at an average value
of approximately $14.11 per unit, resulting in a total compensation cost of
$2.8 million of which $2.5 million will be recognized through unit based
compensation expense and $0.3 million will be capitalized over the vesting
period.
    For the Quarter, unit based compensation expenses relating to the
performance unit incentive plan, which includes the performance units and
units issued under the LTI component, decreased six percent to $2.4 million
($1.11 per boe) compared to $2.6 million ($1.13 per boe) for the same period
in 2007. The decrease is due to forfeitures in 2008. For the six months ended
June 30, 2008 unit based compensation expenses increased five percent to
$4.3 million ($0.95 per boe) compared to $4.0 million ($1.01 per boe) for the
same period in 2007. The difference is due to the performance units granted
effective July 2, 2007, the units granted May 3, 2007 under the LTI component,
as well as an increase in the estimated performance factor in the second
quarter of 2007 on the performance units vesting in 2008 and 2009 due to the
Trust's strong operating performance relative to its peers. Actual performance
factors will not be determined until the end of the three year performance
periods.
    On June 28, 2007 381,367 units were issued to settle the performance
units vesting on July 2, 2007. Subsequent to the Quarter, 725,394 units were
issued to settle the performance units vesting on July 2, 2008 at a
performance factor of 1.5 times.
    As at June 30, 2008 the total outstanding performance units and units
under the LTI component amounted to two percent of the total outstanding trust
units and units which may be issued on the exchange of exchangeable shares
using the currently anticipated performance factors for the performance units.

    
    Performance Units                                       Six Months Ended
                                                                     June 30
                                                            2008        2007
    -------------------------------------------------------------------------
    Balance, beginning of period                       1,388,200   1,300,717
    Granted                                                5,400      12,950
    Settled                                                    -    (381,367)
    Forfeited                                            (77,306)     (4,750)
    -------------------------------------------------------------------------
    Balance, end of period                             1,316,294     927,550
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Vesting Date
    July 2, 2008(1)                                      489,444     510,700
    July 2, 2009(1)                                      367,050     416,850
    July 2, 2010(2)                                      459,800           -
    -------------------------------------------------------------------------
    Total                                              1,316,294     927,550
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Using the current anticipated performance factor of 1.5 times,
        725,394 trust units and 550,575 trust units, respectively, will be
        issued on the vesting of the 2008 and 2009 performance units.
    (2) Using the current anticipated performance factor of 1.25 times,
        574,750 units will be issued on the vesting of the 2010 performance
        units.



    Units under LTI Component                               Six Months Ended
                                                                     June 30
                                                            2008        2007
    -------------------------------------------------------------------------
    Balance, beginning of period                         189,485           -
    Granted                                               13,809     182,542
    Forfeited                                             (4,831)          -
    -------------------------------------------------------------------------
    Balance, end of period                               198,463     182,542
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Vesting Date
    2009                                                  74,550      73,017
    2010                                                 115,832     109,525
    2011                                                   8,081           -
    -------------------------------------------------------------------------
    Total(1)                                             198,463     182,542
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) An additional 15 percent grant will be paid to LTI unitholders if a
        unitholder holds the units they receive on the second anniversary
        date for one additional year. This would result in an additional
        29,769 units issued by the Trust.


    Interest and Financing Expenses

    Interest and financing expenses during the Quarter increased four percent
to $5.9 million compared to $5.7 million for the same period in 2007 while
year-to-date interest and financing expenses increased 29 percent to
$12.3 million compared to $9.5 million for the same period in 2007. The
increase is due to the increase in bank debt to fund the Corporate Acquisition
and capital expenditures during the last half of 2007 and first half of 2008.



                                      Three Months Ended    Six Months Ended
                                                 June 30             June 30
    ($ thousands)                         2008      2007      2008      2007
    -------------------------------------------------------------------------
    Interest on bank debt                3,173     2,929     6,761     3,989
    Interest on Debentures               2,112     2,122     4,209     4,212
    Amortization of Debenture issue
     costs                                 279       279       558       558
    Accretion on debt portion of
     Debentures(1)                         367       362       732       719
    -------------------------------------------------------------------------
    Total interest and financing
     expense                             5,931     5,692    12,260     9,478
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Under Canadian GAAP, the fair value of the conversion feature of the
        Debentures is classified as equity and the remainder is classified as
        debt. Over the term of the Debentures, the debt portion will accrete
        up to the principal balance at maturity with the charge going to
        interest and financing expenses.
    

    Depletion, Depreciation and Accretion

    For the Quarter, depletion and depreciation of property, plant and
equipment and the accretion of the asset retirement obligations ("DD&A")
decreased six percent to $35.8 million compared to $38.3 million for the same
period in 2007 due to lower production as a result of the McMahon gas
processing facility turnaround. For the six months ended June 30, 2008 DD&A
increased 17 percent to $74.9 million compared to $64.1 million for the same
period in 2007. The increase was due to the Corporate Acquisition. On a boe
basis, DD&A for the Quarter was $16.52 compared to $16.94 for the same period
in 2007 and for the six months ended June 30, 2008 was $16.68 compared to
$16.06 for the same period in 2007.

    Taxes

    On June 12, 2007 the federal government's bill regarding the taxation of
distributions from trusts beginning January 1, 2011 passed the third reading
making it substantively enacted in accordance with Canadian GAAP. As a result,
a recovery of $6.6 million was recognized in the future income tax provision
on the recognition of a $6.6 million future income tax asset in the Trust.
Previously, the future income tax liability on the consolidated balance sheet
represented only the future income tax liability of the Trust's subsidiary.
    As part of the government's bill, a growth limit was established for
existing trusts by limiting new equity issues to 40 percent of that trust's
October 31, 2006 market capitalization ("benchmark") for 2007, and an
additional 20 percent of the benchmark for each of 2008, 2009 and 2010. For
Progress, the 2008 growth limit is $463.2 million increasing by $238.4 million
for each of 2009 and 2010. Any unused amount will roll forward to the next
year.
    The provision for future income taxes for the Quarter was a recovery of
$1.0 million compared to a recovery of $8.6 million in same period in 2007.
The higher recovery for the same period in 2007 was due to the recognition of
the Trust's future income tax asset as noted above. For the six months ended
June 30, 2008 the provision for future income taxes was a recovery of
$7.9 million compared to a recovery of $10.6 million for the same period in
2007. The difference was also due to the recognition of the Trust's future
income tax asset.
    As a result of the Corporate Acquisition, Progress recognized a
$137.2 million future income tax asset for the difference between the
$720.9 million in tax pools acquired over the value assigned to the assets.
Progress' estimated tax pool balances as at June 30, 2008 total approximately
$1.1 billion.
    On July 14, 2008 the Department of Finance of Canada released draft tax
legislation (the SIFT conversion rules) that will facilitate the restructuring
of income trusts so as to convert them into corporations. The draft rules have
been anticipated since October 31, 2006 when the Government of Canada first
proposed to impose an entity-level tax on income trusts. If enacted as
proposed, the SIFT conversion rules would generally allow Progress to convert
to corporate form on a tax-efficient basis during a five-year window beginning
on the date of the announcement and ending December 31, 2012. Management
continues to analyze its business options for structural changes and to
determine a course of action and potential restructuring to maximize value in
the best interest of unitholders.

    Non-Controlling Interest - Exchangeable Shares

    The exchangeable shares of the Trust's subsidiary trade on the TSX,
thereby allowing holders of the exchangeable shares to dispose of them without
having to exchange them for trust units and consequently, they must be
classified as non-controlling interest outside of unitholders' equity. The net
earnings attributable to the exchangeable shares is charged to the
consolidated statement of earnings as non-controlling interest expense with a
corresponding increase to non-controlling interest on the consolidated balance
sheet.

    
                                             Six months ended June 30
                                    -----------------------------------------
                                            2008                  2007
    ($ thousands, except            -------------------   -------------------
     unit amounts)                   Number     Amount     Number     Amount
    -------------------------------------------------------------------------
    Exchangeable Shares
    Balance, beginning of period  9,173,083    126,384  9,642,540    122,592
    Exchanged for trust units      (872,856)   (12,167)  (316,466)    (4,049)
    Non-controlling interest
     expense                                     4,840                 6,982
    -------------------------------------------------------------------------
    Balance, end of period        8,300,227    119,057  9,326,074    125,525
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The charge to net earnings of $4.8 million for 2008 and $7.0 million for
2007 represents the net earnings attributable to the exchangeable shares over
the period.

    Net Earnings and Comprehensive Income

    Net earnings for the Quarter decreased 10 percent to $28.6 million
compared to $31.9 million for the same period in 2007. Higher revenues for the
Quarter were offset by the realized loss on financial instruments of
$9.4 million, the unrealized loss on financial instruments of $19.6 million
and a lower future income tax recovery as compared to the same period in 2007.
Also included in net earnings was an $11.6 million gain on investments
relating to the Trust's ownership of 8,300,000 Class A common shares of
Seaview Energy Inc. which is being accounted for as a held for trading
financial instrument (refer to the Capital Expenditures section below). Basic
and diluted net earnings for the Quarter were $0.29 per unit compared to $0.33
 per unit basic and diluted for the same period in 2007.
    Net earnings for the six months ended June 30, 2008 decreased 24 percent
to $36.7 million compared to $48.4 million for the same period in 2007. Higher
revenues were offset by the realized loss on financial instruments of
$9.4 million and the unrealized loss on financial instruments of $44.3
million. Basic and diluted net earnings for the six months ended June 30, 2008
were $0.37 per unit compared to $0.56 per unit basic and $0.55 per unit
diluted for the same period in 2007.
    Other comprehensive income for the three and six months ended June 30,
2008 was nil compared to a loss of $1.8 million and $8.1 million,
respectively, for the same periods in 2007. The prior period amount relates to
the amortization of the amount recognized in accumulated other comprehensive
income on January 1, 2007 for the fair value of financial instruments on
adoption of the new accounting standards for financial instruments (refer to
Risk Management above). Total comprehensive income for the three and six
months ended June 30, 2008 was $28.6 million and $36.7 million respectively
(2007 - $30.1 million and $40.2 million, respectively).


    
    Quarterly Financial Summary (1),(2)
                                                 Three Months Ended
                                      ---------------------------------------
    ($ thousands, except               June 30    Mar 31    Dec 31   Sept 30
     per unit amounts)                    2008      2008      2007      2007
    -------------------------------------------------------------------------
    Petroleum and natural gas revenue  149,699   123,075    99,592    88,480
    -------------------------------------------------------------------------
    Net earnings                        28,631     8,034     9,922    11,909
      Per unit basic                      0.29      0.08      0.10      0.12
      Per unit diluted                    0.29      0.08      0.10      0.12
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                 Three Months Ended
                                      ---------------------------------------
    ($ thousands, except               June 30    Mar 31    Dec 31   Sept 30
     per unit amounts)                    2007      2007      2006      2006
    -------------------------------------------------------------------------
    Petroleum and natural gas revenue  108,503    85,477    75,182    72,328
    -------------------------------------------------------------------------
     Net earnings                       31,947    16,425    21,538    20,252
       Per unit basic                     0.33      0.22      0.29      0.27
       Per unit diluted                   0.33      0.22      0.28      0.27
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Certain amounts above have been adjusted to conform to the
        presentation adopted in 2007 as a result of the adoption of the new
        accounting standards for financial instruments.

    (2) Petroleum and natural gas revenue for the fourth quarter of 2006 and
        the first quarter of 2007 increased as a result of increased
        production from drilling, as well as, higher natural gas prices. Net
        earnings for the first quarter of 2007 decreased due to an $8.2
        million unrealized loss on financial instruments as a result of
        adopting the new accounting standards for financial instruments and
        electing not to use hedge accounting. Petroleum and natural gas
        revenue increased in the second quarter of 2007 due to the Corporate
        Acquisition and decreased for the third and fourth quarter due to
        lower natural gas prices and slightly lower production. For the first
        quarter of 2008, revenue and net earnings increased as a result of
        higher production and commodity prices. Net earnings for the first
        quarter included an unrealized loss on financial instruments of $24.7
        million due to strengthening future natural gas prices as compared to
        when the hedges were entered into. For the Quarter, commodity prices
        continued to strengthen which resulted in higher revenues and net
        earnings.
    

    Distributions

    Management monitors the Trust's distribution payout policy with respect
to forecasted net cash flow, debt levels and capital expenditures. As a crude
oil and natural gas trust, Progress has a declining asset base and therefore
relies on ongoing development activities and acquisitions to replace
production and add additional reserves. Progress' future crude oil and natural
gas production and reserves are highly dependent on its success in exploiting
its asset base and acquiring additional reserves. The success of these
activities, along with natural gas prices are the main factors influencing the
sustainability of the Trust's distributions. Progress defines sustainability
as maintaining production and reserves per trust unit over an extended period
of time. Progress' sustainability objective is to annually retain sufficient
cash flow to replace reserves produced.
    Since January 2007, the Trust's monthly distribution has been $0.10 per
trust unit. Distributions for the Quarter were $29.5 million compared to $29.1
million for the same period in 2007. For the six months ended June 30, 2008
$58.9 million was distributed compared to $53.9 million for the same period in
2007. The Trust distributed 38 percent of its cash flow to unitholders for the
Quarter (43 percent including exchangeable shares) compared to 50 percent
(56 percent including exchangeable shares) for the same period in 2007.
    For the Quarter, cash flow from operating activities (after changes in
non-cash working capital) of $79.9 million, exceeded cash distributions of
$29.5 million. This was consistent with the three months ended June 30, 2007
in which cash flow from operating activities (after changes in non-cash
working capital) of $75.1 million exceeded cash distributions of $29.1
million. For the six months ended June 30, 2008 the Trust distributed 40
percent of its cash flow (46 percent including exchangeable shares) compared
to 48 percent (53 percent including exchangeable shares) for the same period
in 2007.
    For the Quarter, cash distributions of $29.5 million exceeded net
earnings of $28.6 million. For the three months ended June 30, 2007 cash
distributions of $29.1 million were lower than net earnings of $31.9 million.
Net earnings includes significant non-cash charges which for the Quarter were
$49.3 million. Cash distributions for the six months ended June 30, 2008 and
2007 of $58.9 million and $53.9 million, respectively, both exceeded net
earnings for those periods of $36.7 million and $48.4 million, respectively.
Included in net earnings for the three and six months ended June 30, 2008 was
an unrealized loss on financial instruments for natural gas hedging contracts.
The loss in value reflects the strengthening of future natural gas prices
which may benefit the Trust in the future. Net earnings also include
fluctuations in future income taxes due to changes in tax rates and tax rules.
In addition, other non-cash charges such as DD&A are not a good proxy for the
cost of maintaining our productive capacity given the natural declines
associated with crude oil and natural gas assets. In these instances, where
distributions exceed net earnings, a portion of the cash distribution paid to
unitholders may represent an economic return of the unitholders' capital.
    For the Quarter, cash distributions and capital spending combined totaled
$42.9 million, which was lower than the cash flow from operating activities
(after changes in non-cash working capital) of $79.9 million. For the three
months ended June 30, 2007 cash distributions and capital spending (excluding
the Corporate Acquisition) exceeded the cash flow from operating activities
(after changes in non-cash working capital) by $9.8 million. For the six
months ended June 30, 2008, cash distributions and capital spending were lower
than cash flow from operating activities (after changes in non-cash working
capital) by $28.2 million (2007 - $29.5 million higher). Progress relies on
access to capital markets to the extent cash distributions and net capital
expenditures exceed cash flow from operations (after changes in non-cash
working capital). Over the long term Progress expects to fund distributions
and capital expenditures with its cash flow, however, it will continue to fund
acquisitions and growth through additional debt and equity. In the crude oil
and natural gas sector, because of the nature of reserve reporting, the
natural reservoir declines and the risks involved in capital investment, it is
not possible to distinguish between capital spent on maintaining productive
capacity and capital spent on growth opportunities. Therefore, maintenance
capital is not disclosed separately from development capital spending.
    On October 25, 2007 the Alberta government announced the New Royalty
Framework ("framework"), which is proposed to take effect on January 1, 2009.
Progress has reviewed the information currently provided by the government and
believes that the changes to Alberta royalties may increase Progress' Alberta
royalty rate from 27 percent to between 31.5 to 36.0 percent based on current
production and a realized natural gas price of between $7.00 to $9.00 per gj.
Using the same production and price assumptions, Progress' corporate royalty
rate is estimated to increase from 24 percent to between 27.5 to 29.0 percent.
    Although Progress intends to continue to make cash distributions to
unitholders, these distributions are not guaranteed.

    Capital Expenditures

    During the Quarter, the Trust invested $13.4 million in capital
expenditures compared to $55.8 million in the same period in 2007. For the six
months ended June 30, 2008 the Trust invested $55.0 million in capital
expenditures compared to $99.4 million for the same period in 2007.

    
                                      Three Months Ended    Six Months Ended
                                                 June 30             June 30
    ($ thousands)                         2008      2007      2008      2007
    -------------------------------------------------------------------------
    Land acquisitions and retention      5,307     1,164     6,068     4,039
    Geological and geophysical             836       724     2,631     2,658
    Drilling and completions             6,228     7,619    36,347    35,438
    Equipping and facilities             5,254     5,795    13,888    16,509
    Corporate assets                        16       130        42       172
    -------------------------------------------------------------------------
    Exploration and development
     capital                            17,641    15,432    58,976    58,816
    Net property acquisitions
     (dispositions)                     (4,193)   40,402    (4,000)   40,619
    -------------------------------------------------------------------------
    Total capital expenditures          13,448    55,834    54,976    99,435
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    On June 26, 2008, Progress disposed of its Saskatchewan properties to
Seaview Energy Inc. ("Seaview") for gross proceeds of $28.3 million
($26.7 million net of final closing adjustments and fees). The amount received
included $5.4 million of cash and 8,300,000 Class A common shares of Seaview
valued at $2.76 per share. The shares received represent the non-cash value of
this transaction and are not included in the table above.
    During the Quarter, due to restricted field access relating to spring
breakup, Progress drilled only one gross well (one net) in the Deep Basin
region of northwest Alberta.
    Year-to-date, Progress drilled 34 gross wells (15.1 net) with a
100 percent success rate, all natural gas wells. The program included 10 gross
wells (8.1 net) drilled in the Deep Basin region of northwest Alberta,
19 gross (6.0 net) drilled in the Foothills of northeast British Columbia, one
gross well (0.8 net) in the Fort St. John Plains region and four gross
(0.2 net) drilled in Central Alberta.
    As a result of strengthened natural gas prices and a successful winter
drilling program Progress has expanded its capital program for 2008 from
$125 million to approximately $140 million for the year before the impact of
dispositions. The program is split evenly between the Trust's two primary
regions, the Deep Basin in northwest Alberta and the Foothills of northeast
British Columbia.


    
    Liquidity and Capital Resources

                                                       June 30   December 31
    ($ thousands, except per unit amounts)                2008          2007
    -------------------------------------------------------------------------
    Working capital deficiency (surplus)               (27,711)       25,459
    Bank debt                                          282,077       296,590
    Convertible debentures                             123,407       122,174
    -------------------------------------------------------------------------
    Total debt                                         377,773       444,223
    -------------------------------------------------------------------------
    Units outstanding and issuable for
     exchangeable shares (thousands)                   111,412       110,781
    Market price per unit, end of period                 14.55         10.85
    -------------------------------------------------------------------------
    Market value of trust units and
     exchangeable shares                             1,621,045     1,201,974
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flow(1) (12 month trailing)                   248,882       214,290
    Total debt to cash flow ratio                         1.52          2.07
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Represents cash flow from operating activities before changes in non-
        cash working capital.
    

    At June 30, 2008 the Trust had $282.1 million outstanding on its credit
facilities, $123.4 million for the debt portion of the 6.75 percent and
6.25 percent convertible unsecured subordinated debentures (the "Debentures")
and a working capital surplus of $27.7 million, totaling $377.8 million of
total debt. Included in the working capital surplus is the Trust's investment
in Seaview valued at $35.3 million at June 30, 2008 as described below.
    At June 30, 2008 the Trust's credit facilities consisted of a
$340 million extendible revolving term credit facility and a $35 million
working capital credit facility with a syndicate of banks. The facilities are
available on a revolving basis for a period of at least 364 days until May 26,
2009, and such initial term out date may be extended for further 364 day
periods at the request of the Trust, subject to approval by the banks.
Following the term out date, the facilities will be available on a
non-revolving basis for a one year term, at which time the facilities would be
due and payable. The credit facilities are secured by a $1 billion fixed and
floating charge debenture on the assets of Progress Energy Ltd. and by a
guarantee and subordination provided by Progress Energy Ltd. in respect of the
Trust's obligations. The $375 million borrowing base is subject to semi-annual
review by the banks.
    At June 30, 2008 the Trust had outstanding $55.7 million principal amount
of the 6.75 percent debentures and $75.0 million principal amount of the
6.25 percent debentures for a combined total of $130.7 million. Both the
6.75 percent debentures and the 6.25 percent debentures pay interest
semi-annually and are convertible at the option of the holder at any time into
fully paid trust units at a conversion price of $15.00 per trust unit and
$19.50 per trust unit, respectively. The 6.75 percent debentures mature on
June 30, 2010 and the 6.25 percent debentures mature on September 30, 2011 at
which time they are due and payable.
    The Debentures have been classified as debt net of the fair value of the
conversion feature which has been classified as part of unitholders' equity
and net of issue costs. At June 30, 2008 the debt portion was $123.4 million,
net of unamortized issue costs. Issue costs are amortized over the term of the
Debentures and the debt portion will accrete up to the principal balance at
maturity. The accretion, amortization of issue costs and the interest paid are
expensed with interest and financing expense on the consolidated statements of
earnings.
    Bank debt decreased from $296.6 million as at December 31, 2007 to
$282.1 million as at June 30, 2008 due to strengthening commodity prices. The
working capital surplus of $27.7 million at June 30, 2008 is higher than the
December 31, 2007 deficiency of $25.4 million due to a higher accounts
receivable balance as a result of higher revenues and the Trust's investment
in Seaview.
    On June 26, 2008, Progress disposed of its Saskatchewan properties to
Seaview for gross proceeds of $28.3 million ($26.7 million net of final
closing adjustments and fees). The amount received included $5.4 million of
cash and 8,300,000 Class A common shares of Seaview valued at $2.76 per share.
The Class A common shares are included in investments on the balance sheet and
have been classified as a held for trading financial instrument and, as a
result, will be measured at fair market value each reporting period. Based on
Seaview's closing trading price on June 30, 2008 of $4.25 per share, a gain of
$11.6 million was recognized for the three and six months ended June 30, 2008
on the revaluation of the shares from $23.7 million to $35.3 million.
    On April 2, 2007 Progress purchased all of the issued and outstanding
shares of a private company (refer to Corporate Acquisition above) and in
conjunction with the purchase, sold certain assets of the private company to
ProEx. The net cash consideration of $393.0 million, was financed by the
issuance of 21.0 million trust units at a price of $12.00 per trust unit for
proceeds of $252.0 million ($238.7 million net of issue costs) and through
increased bank debt.
    Outstanding as at July 30, 2008 were 99,517,009 trust units,
8,295,506 exchangeable shares convertible into 12,707,720 trust units and
$130.7 million of Debentures convertible into 7,557,287 trust units.
    The Trust's investing activities in the Quarter other than the
disposition of its Saskatchewan properties, primarily consisted of
expenditures on its capital program. Management anticipates that the Trust
will continue to have adequate liquidity to fund future working capital and
forecasted capital expenditures through a combination of cash flow and debt.
Cash flow used to finance these commitments may reduce the amount of cash
distributions paid to unitholders as distributions are not guaranteed.

    CERTIFICATION OF DISCLOSURE

    During the Quarter a new national instrument 52-109 was proposed that is
expected to be effective for the Trust's 2008 year end reporting. The proposed
rule includes the certification of the operating effectiveness of internal
controls over financial reporting ("ICFR"), requires the use of a control
framework to design and evaluate internal controls, provides specific guidance
regarding the documentation of controls, as well as the documentation on
testing and evaluating controls, and provides clarification regarding the
definition of a material weakness and conclusions on disclosure controls and
procedures when there is a material weakness in ICFR. Progress has examined
the proposed rule and will be compliant on the effective date.

    INTERNATIONAL FINANCIAL REPORTING STANDARDS

    Early in 2008, the Canadian Accounting Standards Board confirmed the
convergence of Canadian GAAP to International Financial Reporting Standards
("IFRS") effective January 1, 2011. Progress is assessing the impact of
adopting IFRS and is implementing plans for transition.

    DISCLOSURE CONTROLS AND PROCEDURES

    Disclosure controls and procedures have been designed to ensure that
information required to be disclosed by the Trust is accumulated and
communicated to the Trust's Management, as appropriate, to allow timely
decisions regarding required disclosures. The Trust's Chief Executive Officer
and Chief Financial Officer have concluded, based on their evaluation as of
the end of the period covered by the interim filings that the Trust's
disclosure controls and procedures are effective to provide reasonable
assurance that material information related to the issuer, is made known to
them by others within the Trust. It should be noted that while the Trust's
Chief Executive Officer and Chief Financial Officer believe that the Trust's
disclosure controls and procedures provide a reasonable level of assurance
that they are effective, they do not expect that the 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 objective of the
control system is met.

    Additional Information

    Additional information regarding the Trust and its business and
operations, including the annual information form ("AIF") is available on the
Trust's company profiles at www.sedar.com. Copies of the AIF can also be
obtained by contacting the Trust at Progress Energy Trust 1200, 205 - 5th
Avenue S.W., Calgary, Alberta, Canada T2P 2V7 or by e-mail at
ir@progressenergy.com. This information is also accessible on the Trust's web
site at www.progressenergy.com.

    OUTLOOK

    We remain firmly focused on our goal of maintaining or modestly growing
reserves and production on a per unit basis. Our sustainability strategy has
been achieved through the drill bit at industry leading efficiencies and
supplemented by strategic acquisitions while maintaining our financial
strength. Our sustainability strategy has been strengthened by expanding our
development inventory while providing an appropriate exposure to exploration
upside within our existing core regions.
    We expect 2008 production to average approximately 24,500 boe per day, a
1,000 boe per day increase to our previously expected production. We have
expanded our capital investment program for 2008 to approximately $140 million
which includes the drilling of 50 to 55 net wells.
    The North American natural gas picture remains strong relative to the
comparable period in 2007. Although year-to-date US natural gas production has
risen significantly as a result of onshore production growth from resource
plays, it has been offset by lower imports of LNG, lower Canadian production
and a rise in residential, commercial and gas-fired electrical generation
demand. Natural gas demand should also benefit from the movement towards the
use of more environmentally friendly fuels. Natural gas produces significantly
less carbon dioxide than burning alternative fossil fuels and is becoming a
fuel of choice in North America.
    In the short term, natural gas prices will be dictated by the rate of
natural gas storage injections and the impact of weather expectations. Over
the longer term, natural gas will become more integrated into a global market
as a result of the continual growth in LNG capacity. The supply/demand balance
is expected to remain tight and relatively volatile with the impact of weather
being a key determinant of demand.
    We will continue to focus our tight gas exploration and development
expertise on non-conventional resource plays within the Deep Basin of
northwest Alberta and the Fooothills of northeast British Columbia.
Improvements in drilling and completions technology will continue to unlock
the potential within these multi-zone regions creating the opportunity to
significantly expand our inventory of opportunities.
    Our opportunity inventory is more visible than at any point in our
history and we are in the enviable position of having many investment choices.
Our tax pool coverage is expected to provide further sheltering beyond 2011
when the taxation of income trusts is anticipated to occur. We remain aligned
with our unitholders through an approximate 11 percent ownership of the units
and exchangeable shares of Progress by employees, management and directors.

    On behalf of the Board of Directors,


    (Signed) "Michael R. Culbert"
    ------------------------------

    Michael R. Culbert
    President & CEO
    July 31, 2008


    
    PROGRESS ENERGY TRUST
    CONSOLIDATED BALANCE SHEETS

                                                       June 30   December 31
    ($ thousands)                                         2008          2007
    -------------------------------------------------------------------------
                                                    (Unaudited)
    ASSETS
    Current
      Cash and short-term investments                        -             -
      Accounts receivable                               57,226        47,505
      Prepaid expenses and deposits                      9,743         5,066
      Investments (Notes 3 and 11)                      39,357         4,082
      Future income taxes                               13,198             -
    -------------------------------------------------------------------------
                                                       119,524        56,653
    Property, plant and equipment (Note 3)           1,013,916     1,055,054
    Future income taxes (Note 2)                        33,627        36,716
    Goodwill                                           414,655       414,655
    -------------------------------------------------------------------------
                                                     1,581,722     1,563,078
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES
    Current
      Accounts payable and accrued liabilities          63,470        67,127
      Cash distributions payable                         9,878         9,748
      Current income taxes payable                       5,267         5,237
      Fair value of financial instruments (Note 11)     44,278             -
      Future income taxes                                2,425             -
    -------------------------------------------------------------------------
                                                       125,318        82,112
    Bank debt (Note 4)                                 282,077       296,590
    Convertible debentures (Note 5)                    123,407       122,174
    Asset retirement obligations (Note 6)               34,107        35,012
    -------------------------------------------------------------------------
                                                       564,909       535,888
    NON-CONTROLLING INTEREST
    Exchangeable shares (Note 7)                       119,057       126,384

    UNITHOLDERS' EQUITY
    Unitholders' capital (Note 8)                    1,005,390       990,946
    Convertible debentures (Note 5)                      7,699         7,702
    Contributed surplus (Note 8)                        19,225        14,468
    Deficit                                           (134,558)     (112,310)
    -------------------------------------------------------------------------
                                                       897,756       900,806
    -------------------------------------------------------------------------
                                                     1,581,722     1,563,078
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements



    PROGRESS ENERGY TRUST
    CONSOLIDATED STATEMENTS OF EARNINGS, COMPREHENSIVE INCOME AND DEFICIT
    (Unaudited)


                                      Three Months Ended    Six Months Ended
    ($ thousands, except per                     June 30             June 30
     unit amounts)                        2008      2007      2008      2007
    -------------------------------------------------------------------------

    REVENUE
      Petroleum and natural gas        149,699   108,503   272,774   193,980
      Royalties                        (35,610)  (23,736)  (63,014)  (43,925)
    -------------------------------------------------------------------------
                                       114,089    84,767   209,760   150,055
      Realized gain (loss) on
       financial instruments (Note 11)  (9,420)      185    (9,420)    7,180
      Unrealized gain (loss) on
       financial instruments (Note 11) (19,586)   10,498   (44,278)    2,266
      Unrealized gain on investments
       (Note 11)                        11,643         -    11,643         -
    -------------------------------------------------------------------------
                                        96,726    95,450   167,705   159,501
    -------------------------------------------------------------------------
    EXPENSES
      Operating                         13,843    14,841    27,509    25,882
      Transportation                     5,106     4,177     9,722     6,947
      General and administrative         2,284     2,313     5,447     4,280
      Unit based compensation (Note 8)   2,409     2,563     4,264     4,049
      Interest and financing             5,931     5,692    12,260     9,478
      Depletion, depreciation and
       accretion                        35,795    38,263    74,857    64,056
    -------------------------------------------------------------------------
                                        65,368    67,849   134,059   114,692
    -------------------------------------------------------------------------
    Earnings before taxes and
     non-controlling interest           31,358    27,601    33,646    44,809
    -------------------------------------------------------------------------
    TAXES
      Capital taxes                         29        34        39        79
      Future income taxes               (1,048)   (8,621)   (7,898)  (10,624)
    -------------------------------------------------------------------------
                                        (1,019)   (8,587)   (7,859)  (10,545)
    -------------------------------------------------------------------------
    Net earnings before
     non-controlling interest           32,377    36,188    41,505    55,354
    Non-controlling interest -
     exchangeable shares (Note 7)       (3,746)   (4,241)   (4,840)   (6,982)
    -------------------------------------------------------------------------
    NET EARNINGS                        28,631    31,947    36,665    48,372

    OTHER COMPREHENSIVE INCOME
      Amortization of fair value of
       financial instruments (Note 11)       -    (1,804)        -    (8,138)
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME                 28,631   30,143    36,665    40,234
    -------------------------------------------------------------------------

    Deficit, beginning of period       (133,641) (76,777) (112,310)  (68,371)
    Distributions                       (29,548) (29,092)  (58,913)  (53,923)
    -------------------------------------------------------------------------
    Deficit, end of period             (134,558) (73,922) (134,558)  (73,922)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    NET EARNINGS PER UNIT (Note 8)
      Basic                               $0.29    $0.33     $0.37     $0.56
      Diluted                             $0.29    $0.33     $0.37     $0.55
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements



    PROGRESS ENERGY TRUST
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited)

                                      Three Months Ended    Six Months Ended
                                                 June 30             June 30
    ($ thousands)                         2008      2007      2008      2007
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES
      Net earnings                      28,631    31,947    36,665    48,372
      Unrealized loss (gain) on
       financial instruments (Note 11)  19,586   (10,498)   44,278    (2,266)
      Unrealized gain on investments
       (Note 11)                       (11,643)        -   (11,643)        -
      Depletion, depreciation and
       accretion                        35,795    38,263    74,857    64,056
      Non-controlling interest -
       exchangeable shares (Note 7)      3,746     4,241     4,840     6,982
      Convertible debentures accretion
       (Note 5)                            367       362       732       719
      Amortization of convertible
       debenture issue costs (Note 5)      279       279       558       558
      Amortization of commodity sales
       contract                           (112)     (127)     (226)     (258)
      Unit based compensation expense
       (Note 8)                          2,409     2,563     4,264     4,049
      Asset retirement expenditures
       (Note 6)                            (55)      (11)     (357)     (110)
      Future income taxes               (1,048)   (8,621)   (7,898)  (10,624)
    -------------------------------------------------------------------------
                                        77,955    58,398   146,070   111,478
      Changes in non-cash working
       capital (Note 10)                 1,909    16,714    (4,009)   12,374
    -------------------------------------------------------------------------
                                        79,864    75,112   142,061   123,852
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
      Increase (decrease) in
       bank debt                       (28,983)  142,438   (14,513)  177,036
      Issue of units (Notes 2 and 8)         -   252,000         -   252,000
      Cash distributions               (29,472)  (29,046)  (58,783)  (54,761)
      Unit issue costs (Notes 2
       and 8)                                -   (13,304)        -   (13,304)
      Changes in non-cash working
       capital (Note 10)                     -      (850)        -         -
    -------------------------------------------------------------------------
                                       (58,455)  351,238   (73,296)  360,971
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
      Deferred Acquisition (Note 2)          -    27,448         -         -
      Corporate Acquisition (Note 2)         -  (523,763)        -  (523,763)
      Disposition (Note 2)                   -   134,400         -   134,400
      Capital expenditures             (13,448)  (55,834)  (54,976)  (99,435)
      Changes in non-cash working
       capital (Note 10)                (7,961)   (8,601)  (13,789)   (4,290)
    -------------------------------------------------------------------------
                                       (21,409) (426,350)  (68,765) (493,088)
    -------------------------------------------------------------------------
    CHANGE IN CASH AND
     SHORT-TERM INVESTMENTS                  -         -         -    (8,265)
    Cash and short-term
     investments, beginning of period        -         -         -     8,265
    -------------------------------------------------------------------------
    CASH AND SHORT-TERM
     INVESTMENTS, END OF PERIOD              -         -         -         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements


    PROGRESS ENERGY TRUST
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    (Unaudited) (tabular amounts are in $ thousands except for trust units
    and per trust unit amounts)

    Progress Energy Trust ("Progress" or the "Trust") is an open-ended,
    unincorporated investment trust governed by the laws of the province of
    Alberta. The principal undertaking of the Trust is to indirectly explore
    for, develop and hold interests in petroleum and natural gas properties
    through investments in securities of subsidiaries and royalty interests
    in petroleum and natural gas properties. Progress Energy Ltd. carries on
    the business of the Trust and directly owns the petroleum and natural gas
    properties and assets related thereto. The Trust owns, directly and
    indirectly, 100 percent of the common shares (excluding the exchangeable
    shares - see note 7) of Progress Energy Ltd. The activities of Progress
    Energy Ltd. are financed through interest bearing notes from the Trust
    and third party debt. The convertible debentures are direct obligations
    of the Trust. Under the Trust Indenture, the Trust may declare payable to
    unitholders all or any part of the income of the Trust, which is
    primarily comprised of interest earned on debt notes issued to Progress
    Energy Ltd., as well as, amounts attributed to a net profits interest
    ("NPI") agreement entered into with Progress Energy Ltd. The aggregate
    amounts received by the Trust each period are based on the consolidated
    cash flow from operations before changes in non-cash working capital each
    period, as adjusted on a discretionary basis, for cash withheld to fund
    capital expenditures.

    Pursuant to the terms of the NPI agreement, the Trust is entitled to a
    payment from Progress Energy Ltd. each month equal to the amount by which
    99% of the gross proceeds from the sale of production exceed 99% of
    certain deductible expenditures (as defined). Under the terms of the NPI
    agreement, deductible expenditures may include amounts, determined on a
    discretionary basis, to fund capital expenditures, to repay third party
    debt and to provide for working capital required to carry out the
    operations of Progress Energy Ltd.

    Relationship with ProEx Energy Ltd.

    A technical services agreement ("Technical Service Agreement") is
    currently in place between the Trust and ProEx Energy Ltd. ("ProEx")
    whereby the Trust provides personnel and certain administrative and
    technical services in connection with the management, development,
    exploitation and operation of the assets of ProEx and the marketing of
    its production. The Trust provides these services to ProEx on an expense
    reimbursement basis, based on ProEx's monthly capital activity and
    production levels relative to the combined capital activity and
    production levels of both the Trust and ProEx. Total expense reimbursed
    by ProEx for the three and six months ended June 30, 2008 was
    $2.1 million and $4.4 million, respectively (2007 - $1.3 million and
    $2.8 million).

    ProEx has granted stock options and shares to employees and executives of
    Progress as service providers and has also participated in the long term
    incentive plan by granting ProEx common shares to employees of Progress,
    excluding the executives. To facilitate this plan, Progress purchases
    ProEx common shares and is reimbursed by ProEx for the cost incurred. As
    at June 30, 2008 184,489 ProEx shares (2007 - nil) had been purchased
    for future distribution under the plan. The ProEx common shares will be
    held until the vesting date and any forfeited shares will revert back to
    ProEx.

    As at June 30, 2008, accounts payable included $1.8 million
    (2007 - $3.1  million) payable to ProEx which includes standard joint
    venture amounts including revenue. These amounts were paid subsequent to
    June 30, 2008.

    On April 2, 2007, Progress acquired all of the issued and outstanding
    shares of a private company for $527.4 million, net of certain assets
    retained by the vendor. In conjunction with the acquisition, on April 2,
    2007, Progress disposed of certain assets of the private company to ProEx
    for $134.4 million. When considering the bid process for the acquisition,
    each of Progress and ProEx identified assets that they were interested in
    acquiring and values that they were willing to pay to acquire such
    assets. Progress made a single bid on behalf of ProEx and Progress and
    the ultimate purchase price was based on the prices that each of Progress
    and ProEx were willing to pay for the assets that they had selected to
    acquire. The resale of assets from Progress to ProEx was based on these
    allocations. The technical services committee reviewed the details of the
    transaction prior to the purchase and sale agreement being signed. All
    lands are managed in accordance with the Protocol Arrangement.

    On November 30, 2007, Progress and ProEx jointly acquired certain assets
    in the Foothills region of British Columbia. The total cost of the
    acquisition of $17.9 million was split in accordance with working
    interests currently held in the surrounding area. As a result, Progress
    acquired a 20 percent interest in the assets ($3.6 million) and ProEx an
    80 percent interest ($14.3 million).


    1.  SUMMARY OF ACCOUNTING POLICIES

        The interim consolidated financial statements of the Trust have been
        prepared following the same accounting policies and methods of
        computation as the consolidated financial statements of the Trust for
        the year ended December 31, 2007. The disclosures provided below are
        incremental to those included with the annual consolidated financial
        statements and certain disclosures, which are normally required to be
        included in the notes to the annual consolidated financial
        statements, have been condensed or omitted. These interim
        consolidated financial statements should be read in conjunction with
        the consolidated financial statements and notes thereto in the
        Trust's annual report for the year ended December 31, 2007.

        Progress is involved in the exploration, development and production
        of petroleum and natural gas in British Columbia, Alberta and
        Saskatchewan. The consolidated financial statements include the
        accounts of the Trust and its wholly owned subsidiary. The
        consolidated financial statements are stated in Canadian dollars and
        have been prepared in accordance with Canadian generally accepted
        accounting principles ("GAAP").

        The preparation of financial statements in conformity with Canadian
        GAAP requires Management to make estimates and assumptions that
        affect the reported amounts of assets and liabilities and disclosure
        of contingent assets and liabilities at the date of the financial
        statements and reported amounts of revenues and expenses during the
        period. Actual results could differ from those estimates.

    2.  CORPORATE ACQUISITION

        On April 2, 2007 Progress acquired all of the issued and outstanding
        shares of a private company for $527.4 million, net of certain assets
        retained by the vendor. In conjunction with the acquisition, on
        April 2, 2007, Progress disposed of certain assets of the private
        company to ProEx for $134.4 million. The resulting net cash
        consideration of $393.0 million was financed by the issuance of
        21,000,000 trust units at a price of $12.00 per trust unit for
        proceeds of $252.0 million ($238.7 million net of issue costs) and
        through increased bank debt. Included in the acquisition was
        approximately $720.9 million of tax pools which are available to
        Progress to shelter future taxable income. As a result a
        $137.2 million future income tax asset was recognized on the
        acquisition. Using the purchase method of accounting, the net assets
        acquired and consideration paid were as follows:

        Net assets acquired
        ---------------------------------------------------------------------
        Working capital                                                3,965
        Bank debt                                                     (9,123)
        Property, plant and equipment                                266,625
        Future income taxes                                          137,203
        Asset retirement obligations                                  (5,638)
        ---------------------------------------------------------------------
        Total net assets acquired                                    393,032
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Consideration
        ---------------------------------------------------------------------
        Cash                                                         523,166
        Proceeds of asset disposition                               (134,400)
        Acquisition costs                                              4,266
        ---------------------------------------------------------------------
        Total purchase price                                         393,032
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    3.  PROPERTY, PLANT AND EQUIPMENT

                                                       June 30   December 31
                                                          2008          2007
        ---------------------------------------------------------------------
        Property, plant and equipment                1,476,468     1,447,181
        Conversions of exchangeable shares              50,452        47,461
        Accumulated depletion and depreciation        (513,004)     (439,588)
        ---------------------------------------------------------------------
        Property, plant and equipment, net           1,013,916     1,055,054
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        On June 26, 2008, Progress disposed of its Saskatchewan properties to
        Seaview Energy Inc. ("Seaview") for gross proceeds of $28.3 million
        ($26.7 million net of final closing adjustments and fees). The amount
        received included $5.4 million of cash and 8,300,000 Class A common
        shares of Seaview valued at $2.76 per share. The accounting for the
        investment in Seaview is disclosed in note 11.

        On May 31, 2007 Progress acquired certain petroleum and natural gas
        assets in the Deep Basin region of northwest Alberta for
        $40.9 million, net of final closing adjustments.

        The conversion of exchangeable shares held by previous Progress
        Energy Ltd. shareholders to Trust units is accounted for as a
        step-purchase. Consequently a charge of $3.0 million was made to
        property, plant and equipment for the six months ended June 30, 2008
        (2007 - $1.1 million).

        The calculation of 2008 depletion and depreciation expense included
        an estimated $65.7 million for future development costs associated
        with proved undeveloped reserves and excluded $25.9 million for the
        estimated future net realizable value of production equipment and
        facilities and $93.9 million for the estimated value of unproven
        properties. Depletion and depreciation expense for the three and six
        months ended June 30, 2008 was $35.1 million and $73.4 million,
        respectively (2007 - $37.6 million and $62.9 million).

        Included in the Trust's property, plant and equipment balance is
        $17.5 million, net of accumulated depletion, related to asset
        retirement obligations ($29.9 million before accumulated depletion)
        (Refer to note 6).

        The Trust capitalized approximately $1.5 million of geological and
        geophysical compensation costs associated with the exploration and
        development of capital assets during the six months ended June 30,
        2008 (2007 - $1.6 million).

    4.  BANK DEBT

                                                       June 30   December 31
                                                          2008          2007
        ---------------------------------------------------------------------
        Direct advances                                  7,077         1,590
        Banker's acceptances                           275,000       295,000
        ---------------------------------------------------------------------
        Total bank debt                                282,077       296,590
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        At June 30, 2008 the Trust's credit facilities consisted of a
        $340 million extendible revolving term credit facility and a
        $35 million working capital credit facility with a syndicate of banks
        resulting in total credit facilities of $375 million. The facilities
        are available on a revolving basis for a period of at least 364 days
        until May 26, 2009, and such initial term out date may be extended
        for further 364 day periods at the request of the Trust, subject to
        approval by the banks. Following the term out date, the facilities
        will be available on a non-revolving basis for a one year term, at
        which time the facilities would be due and payable. Various borrowing
        options are available under the facilities including prime rate based
        advances and banker's acceptance loans. Average cost of borrowing
        under these facilities for the six months ended June 30, 2008 was
        4.6 percent (2007 - 5.1 percent). The credit facilities are secured
        by a $1 billion fixed and floating charge debenture on the assets of
        Progress Energy Ltd. and by a guarantee and subordination provided by
        Progress Energy Ltd. in respect of the Trust's obligations. The
        $375 million borrowing base is subject to semi-annual review by the
        banks.

    5.  CONVERTIBLE DEBENTURES

        The 6.75 percent debentures and the 6.25 percent debentures (the
        "Debentures") have been classified as debt, net of issue costs and
        net of the fair value of the conversion feature at the date of issue
        which has been classified as part of unitholders' equity. The issue
        costs will be amortized over the term of the Debentures and the debt
        portion will accrete up to the principal balance at maturity. The
        accretion, amortization of issue costs and the interest paid are
        expensed within interest and financing expense on the consolidated
        statements of earnings. If the Debentures are converted to units, a
        portion of the value of the conversion feature under unitholders'
        equity will be reclassified to unitholders' capital along with the
        conversion price paid.

        The 6.75 percent debentures and the 6.25 percent debentures pay
        interest semi-annually and are convertible at the option of the
        holder at any time into fully paid trust units at a conversion price
        of $15.00 per trust unit and $19.50 per trust unit, respectively. The
        6.75 percent debentures mature on June 30, 2010 and the 6.25 percent
        debentures mature on September 30, 2011, at which time they are due
        and payable. The Trust may elect to satisfy the interest and
        principal obligations by the issuance of trust units.


                                       Six Months Ended June 30
                        -----------------------------------------------------
                                   2008                       2007
                        -----------------------------------------------------
        Debentures        6.75%    6.25%    Total    6.75%    6.25%    Total
        ---------------------------------------------------------------------
        Principal,
         beginning of
         period          55,727   75,000  130,727   55,727   75,000  130,727
        Converted to
         Trust Units        (60)       -      (60)       -        -        -
        ---------------------------------------------------------------------
        Principal, end
         of period       55,667   75,000  130,667   55,727   75,000  130,727
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Debt portion,
         beginning of
         period          53,274   68,900  122,174   52,300   67,305  119,605
        Accretion           255      477      732      252      467      719
        Amortization of
         issue costs        233      325      558      233      325      558
        Converted to
         Trust Units(1)     (57)       -      (57)       -        -        -
        ---------------------------------------------------------------------
        Debt portion,
         end of period   53,705   69,702  123,407   52,785   68,097  120,882
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Equity portion,
         beginning of
         period           2,756    4,946    7,702    2,756    4,946    7,702
        Converted to
         Trust Units         (3)       -       (3)       -        -        -
        ---------------------------------------------------------------------
        Equity portion,
         end of period    2,753    4,946    7,699    2,756    4,946    7,702
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Net of unamortized issue costs.

        Total interest charged to earnings for the three months ended
        June 30, 2008 was $2.8 million (2007 - $2.8 million) which includes
        $0.4 million of debenture accretion (2007 - $0.4 million) and
        $0.3 million of amortized issue costs (2007 - $0.3 million).

        Total interest charged to earnings for the six months ended June 30,
        2008 was $5.5 million (2007 - $5.5 million) which includes
        $0.7 million of debenture accretion (2007 - $0.7 million) and
        $0.6 million of amortized issue costs (2007 - $0.6 million).

    6.  ASSET RETIREMENT OBLIGATIONS

        Asset retirement obligations were estimated based on the Trust's net
        ownership interest in all wells and facilities, the estimated costs
        to abandon and reclaim the wells and facilities and the estimated
        timing of the costs to be incurred in future periods. The total
        undiscounted amount of the estimated cash flows required to settle
        the asset retirement obligations is approximately $72.0 million which
        will be incurred over the next 40 years with the majority of costs
        incurred between 2009 and 2020. A credit adjusted risk-free rate of
        eight percent was used to calculate the fair value of the asset
        retirement obligations. The following reconciles the Trust's asset
        retirement obligations:

                                                            Six Months Ended
                                                                     June 30
                                                          2008          2007
        ---------------------------------------------------------------------
        Balance, beginning of period                    35,012        24,148
        Liabilities incurred                             1,515           810
        Liabilities settled                               (357)         (110)
        Acquisition                                          -         5,638
        Disposition                                     (3,504)            -
        Accretion expense                                1,441         1,116
        ---------------------------------------------------------------------
        Balance, end of period                          34,107        31,602
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    7.  NON-CONTROLLING INTEREST - EXCHANGEABLE SHARES

        The non-controlling interest on the consolidated balance sheet
        consists of the book value of exchangeable shares issued to Progress
        Energy Ltd. shareholders and the fair value of exchangeable shares
        issued to Cequel Energy Inc. shareholders as part of a Plan of
        Arrangement that became effective on July 2, 2004, as well as, net
        earnings attributable to the exchangeable shares, less exchangeable
        shares (and related cumulative earnings) redeemed. The non-
        controlling interest charge on the consolidated statement of earnings
        represents the share of net earnings attributable to the exchangeable
        shares based on the trust units issuable for exchangeable shares in
        proportion to total trust units issued and issuable each period end.

                                           Six months ended June 30
                             ------------------------------------------------
                                         2008                    2007
                             ------------------------ -----------------------
                                  Number      Amount      Number      Amount
        ---------------------------------------------------------------------
        Exchangeable Shares
        Balance, beginning
         of period             9,173,083     126,384   9,642,540     122,592
        Exchanged for trust
         units                 (872,856)     (12,167)   (316,466)     (4,049)
        Non-controlling
         interest expense                      4,840                   6,982
        ---------------------------------------------------------------------
        Balance, end of
         period               8,300,227      119,057   9,326,074     125,525
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The exchangeable shares can be converted, at the option of the
        holder, into trust units at any time and are listed on the Toronto
        Stock Exchange under the symbol PGE. If the number of exchangeable
        shares outstanding is less than 1,600,000, the Trust can elect to
        redeem the exchangeable shares for trust units or an amount in cash
        equal to the amount determined by multiplying the exchange ratio on
        the last business day prior to the redemption date by the current
        market price of a trust unit on the last business day prior to such
        redemption date. The number of trust units issued upon conversion is
        based on the exchange ratio in effect on the date of conversion. The
        exchange ratio is calculated monthly based on the five day weighted
        average trust unit trading price preceding the monthly effective
        date. The exchangeable shares are not eligible for cash
        distributions.

        Retraction of Exchangeable Shares

        Exchangeable shareholders may redeem their shares at any time by
        delivering their share certificates to the Trustee, together with a
        properly completed retraction request. The retraction price will be
        satisfied with trust units equal to the amount determined by
        multiplying the exchange ratio on the last business day prior to the
        retraction date by the number of exchangeable shares redeemed.

        Redemption of Exchangeable Shares

        On July 2, 2009 the exchangeable shares will be redeemed by the Trust
        unless the Board of Directors of Progress Energy Ltd. elect to extend
        the redemption period. The exchangeable shares will be redeemed by
        either issuing units or payment in cash for an amount equivalent to
        the value of the exchangeable shares at the current exchange ratio.

    8.  UNITHOLDERS' EQUITY

        The Trust Indenture provides that an unlimited number of trust units
        may be authorized and issued. Each trust unit is transferable,
        carries the right to one vote and represents an equal undivided
        beneficial interest in any distributions from the Trust and in the
        assets in the event of termination or winding-up of the Trust. All
        trust units are of the same class with equal rights and privileges.


        Unitholders' Capital

                                           Six months ended June 30
                              -----------------------------------------------
                                         2008                    2007
                              ----------------------- -----------------------
                                  Number      Amount      Number      Amount
        ---------------------------------------------------------------------
        Trust Units
        Balance, beginning
         of period            97,478,808     990,946  75,457,291     739,998
        Issued for cash
         (Note 2)                      -           -  21,000,000     252,000
        Exchangeable shares
         converted             1,301,575      14,384     422,991       4,815
        Unit based
         compensation                  -           -     381,367       5,102
        Issued on conversion
         of Debentures             4,000          60           -           -
        Unit issue costs
         (Note 2)                                  -                 (13,304)
        ---------------------------------------------------------------------
        Balance, end of
         period               98,784,383   1,005,390  97,261,649     988,611
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        On June 28, 2007 381,367 units were issued to settle the performance
        units vesting on July 2, 2008, resulting in $5.1 million being
        transferred from contributed surplus to unitholders' capital.

        Subsequent to June 30, 2008, 725,394 units were issued to settle the
        performance units vesting on July 2, 2008 at a performance factor of
        1.5 times.

        Redemption Right

        Unitholders may redeem their trust units for cash at any time, up to
        a maximum value of $250,000 in any calendar month, by delivering
        their unit certificates to the Trustee, together with a properly
        completed notice requesting redemption. The redemption amount per
        trust unit will be the lesser of 90 percent of the simple average
        closing price of the trust units on the principal market on which
        they are traded for the 10 day trading period after the trust units
        have been validly tendered for the redemption and the closing market
        price of the trust units on the principal market on which they are
        traded on the date on which they were validly tendered for
        redemption, or if there was no trade of the trust units on that date,
        the average of the last bid and ask prices of the trust units on that
        date.

        Net Earnings Per Unit

        The following table summarizes the weighted average trust units used
        in calculating net earnings per unit:

                                Three Months Ended          Six Months Ended
                                           June 30                   June 30
                                 2008         2007         2008         2007
        ---------------------------------------------------------------------
        Weighted average
         trust units -
         basic             98,408,607   96,611,973   98,086,498   86,205,745
        Trust units
         issuable on
         conversion of
         exchangeable
         shares(1)         13,002,203   12,905,538   13,330,522   12,982,483
        Performance units   1,251,811      447,974    1,133,696      568,599
        ---------------------------------------------------------------------
        Weighted average
         trust units -
         diluted          112,662,621  109,965,485  112,550,716   99,756,827
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Calculated based on the weighted average exchangeable shares
            outstanding during the period at the period end exchange ratio.

        An adjustment to the numerator of $3.7 million and $4.8 million for
        the three and six months ended June 30, 2008 (2007 - $4.2 million and
        $7.0 million) is required in the diluted earnings per unit
        calculation to provide for earnings attributable to non-controlling
        interest. Units potentially issuable on the conversion of the
        Debentures are anti-dilutive and are not included in the calculation
        of diluted weighted average units for the three and six months ended
        June 30, 2008.

        Performance Unit Incentive Plan

        The Trust has established a Performance Unit Incentive Plan (the
        "Plan") for employees and directors of the Trust or its subsidiary
        that includes both performance units and units under a long term
        incentive component. The number of units reserved for issuance under
        the Plan shall not exceed five percent of the aggregate number of
        issued and outstanding units of the Trust and the number of units
        which may be issued on the exchange of the outstanding exchangeable
        shares, which may be converted into trust units.

        Performance Units

        Under the Plan, performance units shall be granted by the Board of
        Directors of Progress Energy Ltd. from time to time at its sole
        discretion. The performance units will vest on the third anniversary
        of the date of grant and actual payment will be determined based on
        the performance of the Trust relative to its peers. Performance
        factors range from 0.5 to 1.5 times the initial performance units
        granted except for performance units granted to the Trust's
        executives effective July 2, 2007 which can range from 0 to 3 times.
        Over the three year term the performance units will attract
        distributions. The Trust expects to pay out the distribution portion
        in cash while the units earned will be issued from treasury.

        Long Term Incentive Component

        During 2007, the Plan was modified to include a new long term
        incentive component ("LTI component") for non-executive employees.
        Awards granted under the LTI component of the Plan will vest over
        three years with 40 percent vesting on the second anniversary of the
        date of grant and 60 percent vesting on the third anniversary of the
        date of grant. An additional 15 percent grant will be paid if the
        holder holds the units received on the second anniversary date for
        one additional year. As at June 30, 2008, 198,463 units are
        outstanding under the LTI component at an average value of $14.11 per
        unit, resulting in a total compensation cost of $2.8 million of which
        $2.5 million will be recognized through unit based compensation
        expense and $0.3 million will be capitalized over the vesting period.

        On June 28, 2007 381,367 units were issued to settle the performance
        units vesting on July 2, 2008, resulting in $5.1 million being
        transferred from contributed surplus to unitholders' capital.

        As at June 30, 2008 there are 1,316,294 performance units outstanding
        with 489,444 vesting on July 2, 2008, 367,050 vesting on July 2, 2009
        and 459,800 vesting on July 2, 2010. The unit based compensation
        expense is calculated using the current estimated performance factor
        for each performance unit grant based on the Trust's operating
        performance. Actual performance factors will not be determined until
        the end of the performance period.

        Subsequent to June 30, 2008 725,394 units were issued to settle the
        performance units vesting on July 2, 2008 at a performance factor of
        1.5 times.

        For the three and six months ended June 30, 2008 $2.4 million and
        $4.3 million, respectively were charged to unit based compensation
        expense (2007 - $2.6 million and $4.0 million) and $0.4 million and
        $0.5 million, respectively were capitalized (2007 - $0.4 million and
        $0.7 million) relating to the total performance units and units under
        the LTI component outstanding.


        Performance Units                                   Six Months Ended
                                                                     June 30
                                                          2008          2007
        ---------------------------------------------------------------------
        Balance, beginning of period                 1,388,200     1,300,717
        Granted                                          5,400        12,950
        Settled                                              -      (381,367)
        Forfeited                                      (77,306)       (4,750)
        ---------------------------------------------------------------------
        Balance, end of period                       1,316,294       927,550
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        Vesting Date
        July 2, 2008(1)                                489,444      510,700
        July 2, 2009(1)                                367,050       416,850
        July 2, 2010(2)                                459,800             -
        ---------------------------------------------------------------------
        Total                                        1,316,294       927,550
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Using the current anticipated performance factor of 1.5 times,
            725,394 units and 550,575 units, respectively, will be issued on
            the vesting of the 2008 and 2009 performance units.
        (2) Using the current anticipated performance factor of 1.25 times,
            574,750 units will be issued on the vesting of the 2010
            performance units

        Units under LTI Component                           Six Months Ended
                                                                     June 30
                                                          2008          2007
        ---------------------------------------------------------------------
        Balance, beginning of period                   189,485             -
        Granted                                         13,809       182,542
        Forfeited                                       (4,831)            -
        ---------------------------------------------------------------------
        Balance, end of period                         198,463       182,542
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        Vesting Date
        2009                                            74,550        73,017
        2010                                           115,832       109,525
        2011                                             8,081             -
        ---------------------------------------------------------------------
        Total(1)                                       198,463       182,542
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) An additional 15 percent grant will be paid to LTI unitholders if
            a unitholder holds the units they receive on the second
            anniversary date for one additional year. This would result in an
            additional 29,769 units issued by the Trust.

        The following table reconciles the Trust's contributed surplus:

                                      Three Months Ended    Six Months Ended
                                                 June 30             June 30
                                          2008      2007      2008      2007
        ---------------------------------------------------------------------
        Balance, beginning of period    16,465    10,934    14,468     9,210
        Unit based compensation expense  2,409     2,563     4,264     4,049
        Unit based compensation
         capitalized                       351       415       493       653
        Settlements                          -    (5,102)        -    (5,102)
        ---------------------------------------------------------------------
        Balance, end of period          19,225     8,810    19,225     8,810
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Accumulated other comprehensive income

        The adoption of the new accounting policies regarding financial
        instruments resulted in an amount being recognized in accumulated
        other comprehensive income for the fair value of the Trust's natural
        gas derivative contracts at January 1, 2007. The amount recognized in
        accumulated other comprehensive income was $10.5 million,
        representing the value of the asset of $15.6 million net of future
        income taxes of $5.1 million. This amount was charged to the
        statement of earnings over the term of the contracts with a
        corresponding decrease to other comprehensive income.

                                      Three Months Ended    Six Months Ended
                                                 June 30             June 30
                                          2008      2007      2008      2007
        ---------------------------------------------------------------------
        Balance, beginning of period         -     4,209         -         -
        Change in accounting policy,
         net of tax of $5,072                -         -         -    10,543
        Amortization of fair value of
         financial instruments, net
         of tax of $868 and $3,915,
         respectively                        -    (1,804)        -    (8,138)
        ---------------------------------------------------------------------
        Balance, end of period               -     2,405         -     2,405
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  TAXES

        On June 12, 2007 the federal government's bill regarding the taxation
        of distributions from trust's beginning January 1, 2011 became
        substantively enacted. As a result, a recovery of $6.6 million was
        recognized in the future income tax provision for the three and six
        months ended June 30, 2007 on the recognition of a $6.6 million
        future income tax asset in the Trust.

    10. SUPPLEMENTAL CASH FLOW INFORMATION

        Changes in non-cash working capital

                                      Three Months Ended    Six Months Ended
                                                 June 30             June 30
                                          2008      2007      2008      2007
        ---------------------------------------------------------------------
        Accounts receivable             (2,771)   25,264    (9,721)   24,115
        Prepaid expenses and deposits     (168)   (1,666)   (4,677)   (1,683)
        Accounts payable                (3,133)  (16,345)   (3,430)  (14,378)
        Current income taxes payable        20        10        30        30
        ---------------------------------------------------------------------
        Change in non-cash working
         capital                        (6,052)    7,263   (17,798)    8,084
        Relating to:
        Financing activities                 -      (850)        -         -
        Investing activities            (7,961)   (8,601)  (13,789)   (4,290)
        ---------------------------------------------------------------------
        Operating activities             1,909    16,714    (4,009)   12,374
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Interest and taxes paid

                                      Three Months Ended    Six Months Ended
                                                 June 30             June 30
                                          2008      2007      2008      2007
        ---------------------------------------------------------------------
        Interest paid                    5,145     5,463    11,052     9,371
        Income and other taxes paid          9        24         9        49
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    11. FINANCIAL INSTRUMENTS

        Fair Value of Financial Instruments

        The Trust's financial instruments recognized on the balance sheet
        consist of accounts receivable, investments, accounts payable and
        accrued liabilities, bank debt, convertible debentures and derivative
        natural gas contracts ("financial instruments"). The fair value of
        these instruments, excluding the investments, convertible debentures
        and the derivative natural gas contracts, approximate their carrying
        amounts due to their short terms to maturity or the indexed rate of
        interest on the bank debt. The fair value of the convertible
        debentures outstanding as at June 30, 2008 was approximately
        $134.4 million (2007 - $132.4 million). The fair value of the natural
        gas contracts is recognized on the balance sheet as described below.

        On June 26, 2008 Progress disposed of its Saskatchewan properties to
        Seaview for gross proceeds of $28.3 million ($26.7 million net of
        final closing adjustments and fees). The amount received included
        $5.4 million of cash and 8,300,000 Class A common shares of Seaview
        valued at $2.76 per share. The Class A common shares are included in
        investments on the balance sheet and have been classified as a held
        for trading financial instrument and, as a result, will be measured
        at fair market value each reporting period. Based on Seaview's
        closing trading price on June 30, 2008 of $4.25 per share, a gain of
        $11.6 million was recognized for the three and six months ended
        June 30, 2008 on the revaluation of the shares from $23.7 million to
        $35.3 million.

        Commodity Price Contracts

        The Trust has entered into several derivative natural gas financial
        instruments for the purpose of protecting its cash flow from
        operations before changes in non-cash working capital from the
        volatility of natural gas prices. For the three months ended June 30,
        2008, the Trust's natural gas price risk management program had a net
        realized loss of $9.4 million (2007 - $0.2 million net gain). For the
        six months ended June 30, 2008, the Trust's natural gas price risk
        management program had a net realized loss of $9.4 million (2007 -
        $7.2 million net gain).

        On January 1, 2007 Progress adopted the new accounting standards
        regarding the recognition, measurement, disclosure and presentation
        of financial instruments. In conjunction with the adoption of these
        new standards, the Trust elected not to use hedge accounting for its
        natural gas derivative contracts under its risk management program.
        The fair value of the commodity contracts is recognized at each
        reporting period with the change in the fair value being classified
        as an unrealized gain or loss on the statement of earnings. On
        January 1, 2007 the fair value of the commodity price contracts was
        an asset of $15.6 million and resulted in an increase to accumulated
        other comprehensive income and the future income tax liability of
        $10.5 million and $5.1 million, respectively. The $10.5 million
        recognized in accumulated other comprehensive income was amortized
        over the term of the contracts through other comprehensive income
        with a corresponding unrealized gain on financial instruments on the
        statement of earnings. As a result, for the three months ended
        June 30, 2007 $1.8 million, net of tax, was charged to other
        comprehensive income with a corresponding unrealized gain on
        financial instruments of $2.7 million and a charge to future income
        tax expense of $0.9 million. For the six months ended June 30, 2007
        $8.1 million, net of tax, was charged to other comprehensive income
        with a corresponding unrealized gain on financial instruments of
        $12.0 million and a charge to future income tax expense of
        $3.9 million. At June 30, 2008 the fair value was a liability of
        $44.3 million, resulting in an unrealized loss for the three and six
        months ended June 30, 2008 of $19.6 million and $44.3 million,
        respectively.

        Contracts outstanding in respect to financial instruments are as
        follows:

        Natural Gas           Pricing  Strike Price  Cost/
        Contracts(1)  Volume   Point      $/gj(1)   Premium       Term
        ---------------------------------------------------------------------
        Fixed Price   10,000                                  April 01/08 to
         Swap          gj/d    AECO        6.70        -        Oct 31/08
        Fixed Price   10,000                                  April 01/08 to
         Swap          gj/d    AECO        6.78        -        Oct 31/08
        Swap - call   10,000                                  April 01/08 to
         spread        gj/d    AECO    $7.50-$8.50  $0.365/gj   Oct 31/08
        Swap - call   10,000                                  April 01/08 to
         spread        gj/d    AECO    $7.39-$8.39  $0.370/gj   Oct 31/08
        Swap - call   10,000                                  April 01/08 to
         spread        gj/d    AECO  $7.095-$8.095  $0.355/gj   Oct 31/08
        Swap - call   10,000                                  April 01/08 to
         spread        gj/d    AECO    $7.13-$8.13  $0.355/gj   Oct 31/08
        Swap - call   10,000                                  April 01/08 to
         spread        gj/d    AECO    $7.23-$8.23  $0.355/gj   Oct 31/08
        Swap - call    5,000                                  April 01/08 to
         spread        gj/d    AECO    $7.21-$8.21  $0.360/gj   Oct 31/08
        Swap - call    5,000                                  April 01/08 to
         spread        gj/d    AECO    $7.24-$8.24  $0.360/gj   Oct 31/08
        Swap - call    5,000                                    Nov 01/08 to
         spread        gj/d    AECO   $9.10-$12.10  $0.840/gj   March 31/09
        Swap - call    5,000                                    Nov 01/08 to
         spread        gj/d    AECO   $9.40-$12.40  $0.900/gj   March 31/09
        Swap - call    5,000                                    Nov 01/08 to
         spread        gj/d    AECO   $9.42-$12.42  $0.920/gj   March 31/09
        Swap - call    5,000                                    Nov 01/08 to
         spread        gj/d    AECO   $9.64-$12.64  $0.930/gj   March 31/09
        Swap - call   10,000                                    Nov 01/08 to
         spread        gj/d    AECO  $10.89-$13.89  $0.890/gj   March 31/09
        Swap - call    5,000                                    Nov 01/08 to
         spread        gj/d    AECO  $11.40-$14.40  $0.900/gj   March 31/09
        ---------------------------------------------------------------------
        (1) Call spread strike prices indicate minimum floor and maximum
            ceiling


    SELECTED QUARTERLY INFORMATION

    FINANCIAL HIGHLIGHTS
                              Three Months Ended
    -------------------------------------------------------------------------
                                    2007                          2008
    -------------------------------------------------------------------------
    ($ thousands
     except per unit
     amounts)     March 31   June 30   Sept 30    Dec 31  March 31   June 30
    -------------------------------------------------------------------------

    Income Statement
    Petroleum and
     natural gas
     revenue        85,477   108,503    88,480    99,592   123,075   149,699
    Cash flow(1)    53,080    58,398    48,085    54,727    68,115    77,955
      Per unit -
       diluted        0.60      0.53      0.43      0.49      0.61      0.69
    Cash distri-
     butions
     declared       24,831    29,092    30,987    29,232    29,365    29,548
      Per unit        0.30      0.30      0.30      0.30      0.30      0.30
    Net earnings    16,425    31,947    11,909     9,922     8,034    28,631
      Per unit -
       basic          0.22      0.33      0.12      0.10      0.08      0.29
      Per unit -
       diluted        0.22      0.33      0.12      0.10      0.08      0.29

    Payout Ratio
    Excluding
     exchangeable
     shares            47%       50%       64%       53%       43%       38%
    Including
     exchangeable
     shares            54%       56%       73%       61%       49%       43%

    Balance Sheet
    Capital
     expenditures   43,601   445,197    23,433    54,174    41,528    13,448
    Total debt     252,000   410,696   417,678   444,223   447,531   377,773
    Unitholders'
     equity        689,909   933,606   916,357   900,806   887,206   897,756

    Trust Units
     (thousands,
     except where
     otherwise
     stated)
    Units
     outstanding,
     end of period  75,799    97,262    97,344    97,479    98,016    98,784
    Units
     issuable for
     exchangeable
     shares         12,665    12,859    13,093    13,302    13,110    12,627
    -------------------------------------------------------------------------
    Total units
     outstanding
     and issuable for
     exchangeable
     shares, end of
     period         88,464   110,121   110,437   110,781   111,126   111,411
    Weighted
     average units
     - diluted(2)   89,039   109,965   110,936   111,413   112,144   112,663
    Exchange ratio,
     end of period 1.34944   1.37885   1.41278   1.45015   1.48845   1.52131

    Trust Unit
     Trading
     Statistics ($)
    High             13.29     15.79     13.44     12.25     13.40     15.70
    Low              11.00     12.76     10.96      9.92     10.13     12.14
    Closing          13.07     12.93     12.03     10.85     12.80     14.55
    Unit volume
     traded
     (thousands)    23,116    23,310    25,679    20,726    20,341    18,328

    Exchangeable
     Shares Trading
     Statistics ($)
    High             17.50     20.50     18.15     17.00     18.75     24.00
    Low              14.84     17.90     15.01     14.50     15.00     18.50
    Closing          17.60     18.60     16.51     15.15     18.50     22.00
    Share volume
     traded
     (thousands)        13        27        92       104        27        68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    1 Refer to discussion in the Management Discussion and Analysis
    2 Includes exchangeable shares converted at the end of period exchange
      ratio.



    SELECTED QUARTERLY INFORMATION

    OPERATIONAL HIGHLIGHTS
                                          Three Months Ended
                                    2007                          2008
                  -----------------------------------------------------------
                  March 31   June 30   Sept 30    Dec 31  March 31   June 30
    -------------------------------------------------------------------------

    Daily
     Production
      Natural gas
       (mcf/d)      94,351   127,255   120,804   123,740   127,667   120,971
      Crude oil
       (bbls/d)      2,118     2,134     2,268     2,068     2,186     1,976
      Natural gas
       liquids
       (bbls/d)      1,379     1,485     1,370     1,548     2,052     1,667
      Total daily
       production
       (boe/d)      19,222    24,828    23,772    24,240    25,515    23,805

    Average Realized
     Prices
      Natural gas
       ($/mcf)        7.88      7.52      5.76      6.47      7.96     10.21
      Crude oil
       ($/bbl)       62.15     68.37     78.77     81.67     89.86    117.72
      Natural gas
       liquids
       ($/bbl)       55.08     60.51     62.91     71.51     65.15     95.17

    Highlights
     ($/boe)(1)
      Weighted
       average
       sales
       price(1)      49.41     48.03     40.46     44.66     53.01     69.10
      Realized gain
       (loss) on
       financial
       instruments    4.04      0.08      2.89      1.14         -     (4.35)
      Royalties     (11.67)   (10.51)    (8.80)    (9.54)   (11.80)   (16.44)
      Operating
       expenses      (6.38)    (6.57)    (6.67)    (5.91)    (5.89)    (6.39)
      Transportation
       expenses      (1.60)    (1.85)    (1.96)    (1.86)    (1.99)    (2.36)
    -------------------------------------------------------------------------
      Operating
       Netbacks      33.80     29.18     25.92     28.49     33.33     39.56
      Unrealized
       gain on
       investments       -         -         -         -         -      5.38
      Other Income       -      0.09      0.01         -         -         -
      General and
       administrative
       expense       (1.14)    (1.02)    (1.12)    (0.90)    (1.36)    (1.05)
      Unit based
       compensation  (0.86)    (1.13)    (1.09)    (1.16)    (0.80)    (1.11)
      Interest and
       financing
       expenses      (2.19)    (2.61)    (2.88)    (3.16)    (2.73)    (2.74)
      Unrealized gain
       (loss) on
       financial
       instruments   (4.76)     4.65     (0.27)    (0.75)   (10.64)    (9.04)
      Depletion,
       depreciation
       and
       accretion    (14.91)   (16.94)   (17.08)   (16.70)   (16.82)   (16.52)
    -------------------------------------------------------------------------
      Net earnings
       before taxes   9.94     12.22      3.49      5.82      0.98     14.48
      Capital taxes  (0.03)    (0.02)    (0.02)    (0.01)        -     (0.01)
      Future income
       taxes recovery
       (expense)      1.16      3.82      2.71     (0.76)     2.95      0.48
      Non-controlling
       interest -
       exchangeable
       shares        (1.58)    (1.88)    (0.73)    (0.60)    (0.47)    (1.73)
    -------------------------------------------------------------------------
      Net earnings    9.49     14.14      5.45      4.45      3.46     13.22
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Drilling Results
     (No. of Wells)
      Gross             30         6        17        39        33         1
      Net - natural
       gas            11.7       4.7       9.3      19.3      14.1         1
      Net - crude oil    -         -         -         -         -         -
      Success Rate
       (percent)        87       100       100        96       100       100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes sulphur net revenue with no associated production as no
        conversion exists for tons to boe.
    





For further information:

For further information: Michael Culbert, President & CEO or Greg Kist,
VP Investor Relations & Marketing, www.progressenergy.com

Organization Profile

Progress Energy Canada Ltd.

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