Progress Energy Third Quarter Operational and Financial Results



    Sustainability continues

    PGX.UN

    CALGARY, Oct. 24 /CNW/ - Progress Energy Trust ("Progress" or "Trust")
generated quarterly cash flow from operations of $48.0 million or $0.43 per
unit, diluted for the third quarter of 2007, as compared to $47.2 million or
$0.54 per unit in the third quarter of 2006. Cash distributions declared
totaled $31.0 million or $0.10 per trust unit resulting in a payout ratio of
64 percent excluding exchangeable shares which do not receive cash
distributions. Production averaged 23,772 barrels of oil equivalent (boe) per
day and capital investment for the quarter was $23.4 million.
    Year-to-date, Progress has made distributions of $84.9 million and has
invested $90.5 million in its capital program, excluding acquisitions and
dispositions. Cash flow from operations for the same period was
$159.6 million. The Company's payout ratio is 53 percent year-to-date,
excluding exchangeable shares and 61 percent including exchangeable shares.
    "We remain committed to our strategy of sustainability measured on a per
unit basis," said Michael Culbert, President and Chief Executive Officer of
Progress. "Although gas prices have weakened throughout the summer, we believe
that reduced drilling activity in Western Canada and the slowing of drilling
activity in the U.S. will help keep gas prices at levels where Progress'
combined cash distributions to unitholders and sustaining capital investment
are roughly in balance with cash flow over the medium to longer term."

    Field activities ramping up

    "We currently have four rigs drilling on Progress operated wells and
another two rigs drilling wells in which Progress has a working interest,"
said Mr. Culbert. "It has been an unusually wet summer and fall in our
operating areas and this has limited the number of wells and facility
construction that we had originally planned. We believe the appropriate choice
at this time is to not accelerate our program and catch up but rather maintain
a steady pace of activity as we move into the winter drilling season. Our
production profile has held in steady through this period of reduced activity
and is currently in the range of 24,000 boe per day."
    Progress' third quarter exploration and development program included the
drilling of 17 gross wells (9.3 net) with a 100 percent commercial success
rate. Field activity normally accelerates through the summer in the Foothills
of northeast British Columbia and northwest Alberta as these areas become more
accessible with dry ground conditions. However, this season, successive
weather disturbances across these operating areas reduced field activities.
Seven wells (4.8 net) were drilled in the Deep Basin, primarily on the Gold
Creek and Wapiti properties with only one well tied-in as wet field conditions
have limited construction.
    Nine gross (3.7 net) wells were drilled in the Foothills of northeast
British Columbia including three wells on the Bubbles property acquired in the
second quarter of this year. Two of the three wells are currently on
production at over one million cubic feet per day each while the third well
awaits pipeline crews. Drilling will continue on the inventory-rich Bubbles
property through the winter season. Two successful exploratory wells were
drilled in the quarter, one west of Julienne and one south of Buckinghorse.
These wells will require further delineation drilling to justify tie-ins as
they are remote from infrastructure at this time. Development wells were
drilled at Julienne, Dogrib and Sasquatch where the rigs will continue
operations into the fourth quarter. In September, Progress participated in its
first spud of a program of deeper Mississippian Debolt drills on the Green
property. Results from this high impact test area are expected before year
end.
    In the Plains region of northeast British Columbia, just outside of Fort
St. John, Progress drilled a horizontal test into the gas bearing Belloy
formation. This well is currently on production flowing without compression at
slightly more than 2 million cubic feet per day.
    Progress is currently in the final planning stage for a proposed
200 square kilometer 3-D shoot in the Foothills in order to evaluate lands
acquired late in 2006. Data from this shoot is expected to provide drilling
locations for late 2008 and into 2009.
    In the third quarter, Progress added over 4,500 acres of land in
established fairways in the Foothills and Deep Basin regions. Land acquisition
will continue along mapped or seismically identified trends as Progress
strengthens its position as a dominant player in its operating regions. In
total, Progress controls approximately 600,000 acres of undeveloped lands.

    Consistent production profile

    Daily production for the third quarter averaged 23,772 boe including
120.8 million cubic feet per day of natural gas and 3,638 barrels of light and
medium oil and natural gas liquids. Third quarter production was 35 percent
higher than the comparable quarter in 2006 as a result of the acquisition of
producing assets in the Deep Basin and Foothills areas. Fourth quarter
production is expected to average approximately 24,000 boe per day.

    Alberta Royalty Review

    Progress Energy is an active exploration and development company with
approximately 60 percent of its production in Alberta. The Company maintains a
large, multi-year inventory of drilling opportunities in both Alberta and
British Columbia. Progress' capital investment program is designed to yield
strong returns through its low cost leadership and program repeatability. If
the changes as proposed by the Alberta Royalty Review Panel are implemented,
Progress will shift a substantial portion of its capital investment into
British Columbia to capture opportunities which would yield higher,
risk-adjusted economic returns than would be achieved in Alberta. We do
however, have confidence that the Alberta government will take the time to
understand the potential impact changes to the royalty system will have on
activity levels and investor confidence before they arrive at a decision.

    Premium to AECO

    The Trust's average gas price realization in the quarter was $6.34 per
mcf after hedging, as compared to $7.63 per mcf for the comparable quarter in
2006. On a before hedging basis, the Trust's gas price realization was $5.77.
Progress' before hedging price realization represents a premium of
approximately 12 percent to the average daily AECO index price of $5.19 per
mcf. The premium reflects the high heat content of the Trust's gas production.
    In the short term, natural gas prices will be dictated by high levels of
gas in storage and the impact of weather. Over the longer term, natural gas
will become more integrated into a global market as a result of the growth in
LNG capacity. LNG imports to the U.S. are likely to act as a counterbalance to
reduced natural gas supply flowing from Canada. The supply/demand balance is
expected to remain tight and relatively volatile with the impact of weather
being a key determinant of demand.

    Financial strength

    Organic capital investment in the third quarter was $31.7 million and
$90.5 million for the nine months ended September 30, 2007. Capital
expenditures are forecast at approximately $130 million for 2007 which
reflects the slower pace of activity related to the wet field conditions
experienced in the second and third quarter.

    Progress' total debt-to-12-month trailing cash flow was 2.0 times as at
September 30, 2007. The Company has a $375 million credit facility of which
$106 million was unutilized at quarter end. Progress' total debt includes
approximately $121.5 million of convertible debentures which mature in 2010
and 2011. The Company's financial position also includes tax pools in excess
of $1 billion which will help to shield income well beyond 2011 when the
taxation of trust distributions is expected to be implemented.

    MANAGEMENT'S DISCUSSION AND ANALYSIS

    The following discussion and analysis ("MD&A") of financial results is
dated October 24, 2007 and is to be read in conjunction with the accompanying
unaudited consolidated interim financial statements and related notes for the
period ended September 30, 2007 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, 2006. 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 cash flow from operations (before changes in non-cash
working capital) ("cash flow") to analyze operating performance and leverage.
Cash flow as presented does not have any standardized meaning prescribed by
Canadian GAAP and therefore it may not be comparable with the calculation of
similar measures for other entities. Cash flow as presented is not intended to
represent operating profit for the period nor should it be viewed as an
alternative to operating profit, net earnings or other measures of financial
performance calculated in accordance with Canadian GAAP. The reconciliation
between cash flow, as defined above, and cash flow from operations after
changes in working capital for the three and nine months ended September 30,
2007 and 2006 is as follows:

    
                                      Three Months Ended   Nine Months Ended
                                            September 30        September 30
    ($ thousands)                         2007      2006      2007      2006
    -------------------------------------------------------------------------
    Cash flow (as defined above)        48,085    47,218   159,563   140,726
    Changes in non-cash working capital  7,605       745    15,177     4,555
    -------------------------------------------------------------------------
    Cash flow from operations after
     changes in working capital         55,690    47,963   174,740   145,281
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Management considers cash flow to be a key measure as it demonstrates the
Trust's ability to generate the cash necessary to pay distributions, repay
debt and to fund future capital investments. Cash flow is used by research
analysts to value and compare oil and gas trusts and is frequently included in
published research when providing investment recommendations. Cash flow per
unit is calculated using the diluted weighted average number of units for the
period. All references to cash flow throughout the MD&A are based on cash flow
before changes in non-cash working capital unless otherwise specified.
    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, outstanding bank debt and the debt
portion of the Trust's convertible unsecured debentures) by the 12 month
trailing cash flow as defined above.

    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. 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, industry
conditions, volatility of commodity prices, currency fluctuations, imprecision
of reserve estimates, environmental risks, competition from other producers,
the lack of availability of qualified personnel or management, stock market
volatility and ability to access sufficient capital from internal and external
sources. 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.

    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 expenditures.
    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. ProEx has also
participated in a new long term incentive plan by granting ProEx common shares
to employees of Progress, excluding the executives. To facilitate this plan,
during the second quarter, Progress purchased 173,789 ProEx common shares and
has been reimbursed by ProEx for the cost incurred. The ProEx common shares
will be held until the vesting date of May 3, 2009. 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.

    Technical Services Agreement

    The Technical Services Agreement has no set termination date and will
continue until terminated by either party with one year prior written notice
to the other party or some other date as mutually agreed. The Trust provides
services including management, development, exploitation, operations,
administrative, and marketing, as well as, information technology systems 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.

    Protocol Arrangement

    The Protocol Arrangement identifies methods and processes to be followed
on both existing and new lands, joint facilities, marketing, seismic and
surface rights. The Protocol Arrangement also outlines the practices to be
followed in the event either party enters into areas outside of the identified
areas of interest.

    On April 2, 2007, Progress acquired all of the issued and outstanding
shares of a private company for $523.8 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. Each of Progress and ProEx
determined that a single bid was more likely to be successful than two partial
bids. Therefore, Progress made a single bid. The purchase price was based on
amounts that each of Progress and ProEx were willing to pay for the assets
that they had selected to acquire. The resale of assets between Progress and
ProEx is based on these allocations.

    CORPORATE ACQUISITION

    On April 2, 2007, Progress acquired all of the issued and outstanding
shares of a private company for $523.8 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 $389.4 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. Included
in the Corporate Acquisition was approximately $719.0 million of tax pools
which are available to Progress to shelter future taxable income resulting in
the recognition of a $136.5 million future income tax asset. After giving
effect of the acquisition, Progress' estimated tax pool balances as at
September 30, 2007 total approximately $1.0 billion.
    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 ("U.S.") 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   Nine Months Ended
                                  September 30        September 30
                                2007      2006      2007      2006    Change
    -------------------------------------------------------------------------
    Average Daily Production
    Natural gas (mcf/d)      120,804    85,701   114,234    84,799        35%
    Crude oil (bbls/d)         2,268     2,056     2,174     2,251       (4)%
    Natural gas liquids
     (bbls/d)                  1,370     1,327     1,411     1,398       (1)%
    -------------------------------------------------------------------------
    Total daily production
     (boe/d)                  23,772    17,667    22,624    17,783        27%
    -------------------------------------------------------------------------
    Natural gas as a % of
     total production             85%       81%       84%       79%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    For the three months ended September 30, 2007 (the "Quarter"), Progress'
production averaged 23,772 boe per day consisting of 120,804 mcf per day of
natural gas, 2,268 bbls per day of crude oil and 1,370 bbls per day of natural
gas liquids. Production during the Quarter was 35 percent higher than the same
period in 2006 of 17,667 boe per day due to the Corporate Acquisition and
successful drilling results. Production for the Quarter was slightly lower
than Management's expectations due to wet field conditions delaying drilling
and tie-in work. The Trust's production portfolio for the Quarter was weighted
85 percent to natural gas, 10 percent to crude oil and five percent to natural
gas liquids.
    Natural gas production increased 41 percent to 120,804 mcf per day for
the Quarter compared to 85,701 mcf per day for the same period in 2006 due to
the Corporate Acquisition, as well as successful drilling in the fourth
quarter of 2006 and first half of 2007 in the northeast British Columbia
Foothills, the Deep Basin of northwest Alberta and the Central Alberta
regions. Crude oil and natural gas liquids production for the Quarter of
3,638 bbls per day was slightly higher than the same period in 2006 of
3,383 bbls per day.
    Year-to-date 2007 production was 22,624 boe per day consisting of
114,234 mcf per day of natural gas, 2,174 bbls per day of crude oil and
1,411 bbls per day of natural gas liquids. This production was 27 percent
higher than the same period in 2006 of 17,783 boe per day due to the Corporate
Acquisition, as well as successful drilling results. The Trust's production
portfolio for the nine months ended September 30, 2007 was weighted 84 percent
to natural gas, 10 percent to crude oil and six percent to natural gas
liquids.
    Management anticipates production to average approximately 24,000 boe per
day for the fourth quarter of 2007.

    Production by Region

    
                            Three Months Ended   Nine Months Ended
                                  September 30        September 30
                                2007      2006      2007      2006    Change
    -------------------------------------------------------------------------
    Average Daily Production
     (boe/d)
    Foothills                  6,122     3,676     5,610     3,663        53%
    Fort St. John Plains       2,036     1,948     2,001     2,091       (4)%
    Deep Basin - Ojay          1,101         -       713         -
    Milo                         304       298       331       377      (12)%
    -------------------------------------------------------------------------
    Total British Columbia     9,563     5,922     8,655     6,131        41%
    -------------------------------------------------------------------------
    Deep Basin                11,595     8,977    11,201     8,732        28%
    Central Alberta            1,800     1,687     1,888     1,752         8%
    Other                        557       779       633       826      (23)%
    -------------------------------------------------------------------------
    Total Alberta             13,952    11,443    13,722    11,310        21%
    -------------------------------------------------------------------------
    Saskatchewan                 257       302       247       342      (28)%
    -------------------------------------------------------------------------
    Total daily production    23,772    17,667    22,624    17,783        27%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Pricing

    Natural Gas Markets

    Progress' realized natural gas price for the Quarter was $5.77 per mcf
(2006 - $6.30 per mcf) compared to the AECO daily index average of $4.88 per
gigajoule ("gj") and the AECO monthly index average of $5.32 per gj (2006 -
$5.33 per gj and $5.72 per gj, respectively). Progress markets its natural gas
at a mix of daily and monthly pricing.
    For the nine months ended September 30, 2007 Progress' realized natural
gas price was $6.99 per mcf (2006 - $7.23 per mcf), compared to the AECO daily
and monthly index averages of $6.18 per gj and $6.46 per gj, respectively
(2006 - $6.05 per gj and $6.82 per gj, respectively).
    The North American natural gas market has been hampered by high natural
gas inventories and correspondingly low prices with many analysts calling for
sustained weakness as a result of high levels of drilling in the United States
("U.S.") and liquefied natural gas ("LNG") imports that have kept the market
well supplied through the early part of the summer. Storage levels in the U.S.
are trending behind the record levels set in 2006 but remain higher than the
five year average. Storage levels are expected to be in the range of 3.4 to
3.6 trillion cubic feet at the start of the heating season.
    The evidence of reduced Canadian natural gas drilling activity is showing
up in the form of weaker field receipts. Year-to-date field receipts in
Alberta and British Columbia combined are down approximately 300 million cubic
feet per day compared to 2006. Weak drilling activity throughout the second
and third quarter of 2007 is expected to continue to put downward pressure on
production. On the demand side, oil sands development is expected to continue
to increase the demand for natural gas over the next decade.
    In the U.S., natural gas drilling activity levels remain elevated with
the natural gas directed rig count near 1,450 although this is down from
recent levels of over 1,500 natural gas directed rigs. LNG imports into the
U.S. have continued to fall throughout the summer from the record levels
established in the second quarter of 2007. Electrical generating power demand
in the United Kingdom has helped to keep netbacks in Europe stronger than in
the U.S.
    In the short term, natural gas prices will be dictated by high levels of
gas in storage and the impact of weather. Over the longer term, natural gas
will become more integrated into a global market as a result of the growth in
LNG capacity. LNG imports to the U.S. are likely to act as a counterbalance to
reduced natural gas supply flowing from Canada. The supply/demand balance is
expected to remain tight and relatively volatile with the impact of weather
being a key determinant of demand.

    Oil Markets

    Progress' realized prices for its liquids streams for the Quarter were
$78.77 per bbl (2006 - $75.69 per bbl) for crude oil and $62.91 per bbl (2006
- $68.29 per bbl) for natural gas liquids. For the nine months ended
September 30, 2007 Progress realized $70.03 per bbl (2006 - $70.50 per bbl)
for crude oil and $59.54 per bbl (2006 - $64.77 per bbl) for natural gas
liquids.
    Crude oil prices continued to be relatively volatile through the third
quarter of 2007. Strong global demand growth lead by China with a 4.9 percent
consumption increase from the same period in 2006 pulled heavily from world
supply which struggled to keep pace. Calls for increased OPEC production
quotas were met with claims that the market was adequately supplied and it
wasn't until late September that a modest increase was finally permitted. As a
result, crude oil inventories decreased steadily through the Quarter. In spite
of this, OPEC is discussing the need for more production increases in Q4 due
to a forecast world demand of 31.5 million bbls per day.
    World geopolitical events pushed crude prices upward to new record highs
as the risk premium continued to grow. Suspicion over Iran's nuclear program
monopolized much of the news through the quarter as the United Nations worked
to resolve the situation through the use of sanctions. Meanwhile, Nigerian
militants threatened more violence in that country as they demanded the
emancipation of the Niger delta.
    The U.S. dollar continued to lose value through the third quarter which
also contributed to the WTI value increase.

    Commodity Prices

    
                            Three Months Ended   Nine Months Ended
                                  September 30        September 30
                                2007      2006      2007      2006    Change
    -------------------------------------------------------------------------
    Average Benchmark Prices
    Natural gas - AECO
     (daily) ($/gj)             4.88      5.33      6.18      6.05         2%
    Natural gas - AECO
     (monthly) ($/gj)           5.32      5.72      6.46      6.82       (5)%
    Natural gas - Station
     No. 2 (daily) ($/gj)       4.94      5.19      6.08      5.74         6%
    Crude oil - WTI (US$/bbl)  75.38     70.48     66.08     68.22       (3)%
    Crude oil - Edmonton par
     price (Cdn$/bbl)          79.84     78.83     72.96     75.47       (3)%
    Exchange rate (US$/Cdn$)  1.0446    1.1212    1.1048    1.1327       (2)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Average Realized Prices
    Natural gas ($/mcf)(1)      5.77      6.30      6.99      7.23       (3)%
    Crude oil ($/bbl)          78.77     75.69     70.03     70.50       (1)%
    Natural gas liquids
     ($/bbl)                   62.91     68.29     59.54     64.77       (8)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes $0.01 per mcf in 2007 ($0.02 per mcf in 2006) for the
        amortization of the physical natural gas sales contract acquired in
        conjunction with the acquisition of Campion Resources Ltd. on June 3,
        2002. Contract expires in 2008.
    

    Risk Management - Financial Instruments

    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 gain of $6.3 million (2006 - $10.5 million net gain). For
the nine months ended September 30, 2007, the Trust's natural gas price risk
management program had a realized net gain of $13.5 million (2006 -
$19.5 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. The accounting for
hedging relationships for prior fiscal periods are not retroactively changed,
therefore, there was no restatement of the financial position or results of
operation as at and for the three and nine months ended September 30, 2006.
    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 will be amortized
through other comprehensive income and unrealized gain or loss on the
statement of earnings over the term of the contracts. For the Quarter,
$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 nine months ended
September 30, 2007, $9.9 million, net of tax, was amortized through other
comprehensive income with a corresponding pre-tax unrealized gain of
$14.7 million and a charge to future income tax expense of $4.8 million.
    At September 30, 2007 the fair value of the natural gas financial
contracts was an asset of $2.6 million. The decrease in value for the Quarter
of $3.3 million was due to the expiration of three months of these contracts
which expire October 31, 2007. The decrease in value of $13.0 million for the
nine months ended September 30, 2007 was primarily due to the expiration of
nine months of the current financial contracts. The total net unrealized loss
on the statement of earnings for the Quarter is $0.6 million which is
comprised of the unrealized loss on the change in fair value of the natural
gas derivative contracts of $3.3 million, net of the $2.7 million amortized
gain from the adoption of the standards on January 1, 2007. For the nine
months ended September 30, 2007, the net unrealized gain on the statement of
earnings is comprised of the unrealized loss of $13.0 million on the change in
fair value of its natural gas derivative contracts, which was more than offset
by the $14.7 million amortized gain from the adoption of the standards on
January 1, 2007, for a total net unrealized gain of $1.7 million.
    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 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 12 in
the unaudited interim consolidated financial statements.

    Revenue

    For the Quarter, petroleum and natural gas revenue increased 22 percent
to $88.5 million from $72.3 million for the same period in 2006 due to higher
natural gas production as a result of the Corporate Acquisition and successful
drilling. Production revenue for the Quarter consisted of $64.0 million from
natural gas sales, $16.4 million from crude oil sales and $7.9 million from
the sale of natural gas liquids.
    For the nine months ended September 30, 2007, revenues increased
20 percent to $282.5 million from $235.3 million for the same period in 2006
due to higher natural gas production.

    
                            Three Months Ended   Nine Months Ended
                                  September 30        September 30
    ($ thousands)               2007      2006      2007      2006    Change
    -------------------------------------------------------------------------
    Natural gas sales         63,992    49,528   217,577   166,847        30%
    Crude oil sales           16,435    14,319    41,560    43,334       (4)%
    Natural gas liquids sales  7,928     8,341    22,940    24,723       (7)%
    Amortization of commodity
     sales contract(1)           125       140       383       431      (11)%
    -------------------------------------------------------------------------
    Petroleum and natural
     gas revenue              88,480    72,328   282,460   235,335        20%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Amortization of physical natural gas sales contract acquired in
        conjunction with the acquisition of Campion Resources Ltd. on June 3,
        2002. Contract expires in 2008.



                                                             Crude
                                                 Natural     Oil &
    ($ thousands)                                    Gas      NGLs     Total
    -------------------------------------------------------------------------
    Three months ended September 30, 2006
     petroleum and natural gas revenue            49,668    22,660    72,328
    Price variance                                (5,895)       (5)   (5,900)
    Production variance                           20,344     1,708    22,052
    -------------------------------------------------------------------------
    Three months ended September 30, 2007
     petroleum and natural gas revenue            64,117    24,363    88,480
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                                                             Crude
                                                 Natural     Oil &
    ($ thousands)                                    Gas      NGLs     Total
    -------------------------------------------------------------------------
    Nine months ended September 30, 2006
     petroleum and natural gas revenue           167,278    68,057   235,335
    Price variance                                (7,383)   (2,363)   (9,746)
    Production variance                           58,065    (1,194)   56,871
    -------------------------------------------------------------------------
    Nine months ended September 30, 2007
     petroleum and natural gas revenue           217,960    64,500   282,460
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Royalties

    Royalty expense consists of royalties paid to provincial governments,
freehold landowners and overriding royalty owners. Effective for 2007, the
Alberta government eliminated the Alberta royalty tax credit program. The
impact to Progress was an increase to royalty expense for the three and nine
months ended September 30, 2007 of approximately $0.1 million and
$0.4 million, respectively.
    For the Quarter, royalties increased five percent to $19.2 million from
$18.3 million for the same period in 2006 due to higher revenues, as a result
of higher production. The Trust's average royalty rate for the Quarter was
21.8 percent compared to 25.3 percent in 2006. The decrease in the royalty
rate is due to lower royalty rates on the properties acquired in the Corporate
Acquisition, as well as, the acquired properties included wells in which
Progress paid gross over riding royalties.
    For the nine months ended September 30, 2007 royalties of $63.2 million
were consistent with the same period in 2006 of $61.7 million. The Trust's
average royalty rate was 22.4 percent compared to 26.3 percent in 2006.
    Management anticipates, based on current commodity prices and royalty
regimes, the average royalty rate for the remainder of 2007 will be
approximately 23.0 percent of petroleum and natural gas revenue.
    On September 18, 2007 the Royalty Review Panel delivered its final report
and recommendations to the Government of Alberta. The report titled "Our Fair
Share" recommends a significant increase to royalties levied on natural gas,
conventional oil and oil sands produced in Alberta. These recommendations, if
enacted as proposed, would have a significant impact on Progress' royalties
going forward as approximately 60 percent of its production is from wells
located in Alberta.

    Operating Expenses

    Operating expenses during the Quarter increased 45 percent to
$14.6 million from $10.0 million for the same period in 2006 and for the nine
months ended September 30, 2007 increased 38 percent to $40.5 million compared
to $29.3 million for the same period in 2006. The increase is the result of
higher production in 2007 compared to the same periods in 2006, reflecting the
impact of the Corporate Acquisition and successful drilling. On a boe basis,
operating expenses for the Quarter increased eight percent to $6.67 from $6.18
in the same period in 2006, while year-to-date operating expenses increased
eight percent to $6.55 from $6.04 in the same period in 2006. The operating
expense per boe is expected to trend downwards for the fourth quarter of 2007
as the Trust optimizes the acquired assets. Progress has experienced increased
costs for well servicing, insurance, workovers and well maintenance. Through
increased operating efficiencies, relationships with suppliers and the
addition of low operating cost per boe production, the Trust has been able to
offset a large portion of these increases and keep operating costs per boe
low.
    Management anticipates operating expense for the fourth quarter of 2007
will be consistent with the Quarter and average approximately $6.50 per boe.

    Transportation Expenses

    Transportation expenses for the Quarter increased 64 percent to
$4.3 million compared to $2.6 million for the same period in 2006. For the
nine months ended September 30, 2007 transportation expenses increased
33 percent to $11.2 million compared to $8.4 million for the same period in
2006. The increase is due to higher production in 2007 compared to 2006. On a
boe basis, transportation expenses during the Quarter increased 22 percent to
$1.96 compared to $1.61 for the same period in 2006, while year-to-date
transportation expenses increased five percent to $1.82 compared to $1.74 for
the same period in 2006. The increase for the Quarter is due to higher
transportation and treatment tolls associated with the Corporate Acquisition
including higher treatment tolls associated with the Slave Point production at
the Bubbles property. In British Columbia, there is an infrastructure owned by
Spectra Energy 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 nine months ended September 30, 2007 compared to the same periods in
2006:

    
                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Natural Gas Properties ($/mcf)
    Sales price                     6.13        6.78        7.23        7.59
    Amortization of commodity
     sales contract                 0.01        0.02        0.01        0.02
    Realized gain on financial
     instruments                    0.55        1.26        0.41        0.79
    Royalties                      (1.35)      (1.80)      (1.64)      (2.03)
    Operating expenses             (0.97)      (0.89)      (0.99)      (0.94)
    Transportation expenses        (0.33)      (0.26)      (0.30)      (0.29)
    -------------------------------------------------------------------------
    Operating netback
     - natural gas properties       4.04        5.11        4.72        5.14
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Oil Properties ($/bbl)
    Sales Price                    68.09       67.71       64.21       64.38
    Royalties                     (14.00)     (14.04)     (13.22)     (15.69)
    Operating expenses            (13.31)     (11.25)     (11.36)      (8.47)
    Transportation expenses        (1.80)      (1.85)      (1.94)      (1.85)
    -------------------------------------------------------------------------
    Operating netback
     - oil properties              38.98       40.57       37.69       38.37
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    All Properties ($/boe)
    Sales Price                    40.40       44.41       45.67       48.39
    Amortization of commodity
     sales contract                 0.06        0.09        0.06        0.09
    Realized gain on financial
     instruments                    2.89        6.47        2.19        4.02
    Royalties                      (8.80)     (11.24)     (10.23)     (12.70)
    Operating expenses             (6.67)      (6.18)      (6.55)      (6.04)
    Transportation expenses        (1.96)      (1.61)      (1.82)      (1.74)
    -------------------------------------------------------------------------
    Operating netback
     - all properties              25.92       31.94       29.32       32.02
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    General and Administrative Expenses

    For the Quarter, general and administrative expenses net of overhead
recoveries, ("G&A") increased 91 percent to $2.5 million ($1.12 per boe)
compared to $1.3 million ($0.79 per boe) for the same period in 2006. For the
nine months ended September 30, 2007, G&A expenses increased 41 percent to
$6.7 million ($1.09 per boe) compared to $4.8 million ($0.98 per boe) for the
same period in 2006. The increase in G&A for the Quarter and year-to-date is
due to the increased size of the Trust, reduced recoveries as a result of
lower capital expenditures, 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 $1.4 million (2006 - $0.9 million)
and for the nine months ended September 30, 2007 were $4.2 million (2006 -
$2.9 million).
    The Trust capitalized approximately $0.2 million of G&A during the
Quarter (2006 - $0.3 million) and $0.9 million for the nine months ended
September 30, 2007 (2006 - $0.9 million). The majority of these costs
represent geological and geophysical salaries.
    Management anticipates G&A for the fourth quarter of 2007 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 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
    During the second quarter of 2007, the performance unit incentive plan
(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% vesting on the
second anniversary of the date of grant and 60% vesting on the third
anniversary of the date of grant. An additional 15% grant will be paid if the
holder holds the units they receive on the second anniversary date for one
additional year. As at September 30, 2007 176,855 units are outstanding under
the LTI component at an average value of approximately $14.45 per unit,
resulting in a total compensation cost of $2.6 million of which $2.2 million
will be recognized through unit based compensation expense and $0.4 million
will be capitalized over the vesting period.
    Effective July 2, 2007 the Trust granted 486,750 performance units at an
average value of $12.79 per unit. Of the total value of approximately $6.3
million, assuming a performance factor of 1.0, $5.6 million will be charged to
unit based compensation expense over the vesting period and $0.7 million will
be capitalized.
    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, increased 76 percent to $2.4 million
($1.09 per boe) compared to $1.4 million ($0.84 per boe) for the same period
in 2006. For the nine months ended September 30, 2007 unit based compensation
expenses increased 91 percent to $6.4 million ($1.04 per boe) compared to $3.4
million ($0.70 per boe) for the same period in 2006. The increase 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 performance factor
in the second quarter of 2007 from 1.0 to 1.5 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 which subsequently vested on July 2, 2007. As at September 30, 2007 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 performance factors of
1.5, 1.5 and 1.0 for the performance units vesting in 2008, 2009 and 2010,
respectively.

    
    Performance Units                                      Nine Months Ended
                                                                September 30
                                                           2007         2006
    -------------------------------------------------------------------------
    Balance, beginning of period                      1,300,717      898,367
    Granted                                             503,650      412,650
    Settled                                            (381,367)           -
    Forfeited                                           (49,700)     (18,300)
    -------------------------------------------------------------------------
    Balance, end of period                            1,373,300    1,292,717
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                          As at September 30
                                                                        2007
    -------------------------------------------------------------------------
    Vesting Date
    July 2, 2008(1)                                                  483,800
    July 2, 2009(1)                                                  402,750
    July 2, 2010                                                     486,750
    -------------------------------------------------------------------------
    Total                                                          1,373,300
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Using the current anticipated performance factor of 1.5 times,
    725,700 trust units and 604,125 trust units, respectively, will be issued
    on the vesting of the 2008 and 2009 performance units.


    Units under LTI Component                              Nine Months Ended
                                                                September 30
                                                           2007         2006
    -------------------------------------------------------------------------
    Balance, beginning of period                              -            -
    Granted                                             185,999            -
    Forfeited                                            (9,144)           -
    -------------------------------------------------------------------------
    Balance, end of period                              176,855            -

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

                                                          As at September 30
                                                                        2007
    -------------------------------------------------------------------------
    Vesting Date
    May 1, 2009                                                       70,742
    May 1, 2010                                                      106,113
    -------------------------------------------------------------------------
    Total(1)                                                         176,855
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) If the units vesting May 1, 2009 are held by the LTI holder until
    May 1, 2010 an additional 26,528 units will be issued by the Trust.
    

    Interest and Financing Expenses

    Interest and financing expenses during the Quarter increased 92 percent
to $6.3 million compared to $3.3 million for the same period in 2006 while
year-to-date interest and financing expenses increased 95 percent to $16.0
million compared to $8.2 million for the same period in 2006. The increase is
due to the increase in bank debt to fund the Corporate Acquisition and capital
expenditures during 2007, as well as the issuance of the 6.25 percent
convertible unsecured subordinated debentures in August of 2006.

    
                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30
    ($ thousands)                   2007        2006        2007        2006
    -------------------------------------------------------------------------
    Interest on bank debt          3,533       1,422       7,719       3,582
    Interest on Debentures         2,123       1,460       6,335       3,673
    Amortization of
     Debenture issue costs           279         175         837         438
    Accretion on debt portion
     of Debentures(1)                367         229       1,086         508
    -------------------------------------------------------------------------
    Total interest and
     financing expense             6,302       3,286      15,977       8,201
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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")
increased 57 percent to $37.3 million compared to $23.7 million for the same
period in 2006. For the nine months ended September 30, 2007 DD&A increased 45
percent to $101.4 million compared to $70.2 million for the same period in
2006. The increase was due to the Corporate Acquisition. On a boe basis, DD&A
for the Quarter was $17.08 compared to $14.59 for the same period in 2006 and
for the nine months ended September 30, 2007 was $16.42 compared to $14.45 for
the same period in 2006.

    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 $7.6 million was recognized in the future income tax provision
on the recognition of a $7.6 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 growth limits are $476.8 million for 2007 (less $252.0 million
as a result of the equity offering in regards to the Corporate Acquisition)
and $238.4 million for each of 2008, 2009 and 2010 with any unused amount
rolling forward to the next year.
    The provision for future income taxes for the Quarter was a recovery of
$5.9 million compared to a recovery of $1.4 million in same period in 2006.
For the nine months ended September 30, 2007 the provision for future income
taxes was a recovery of $16.6 million compared to a recovery of $13.3 million
for the same period in 2006. The higher recoveries in the Quarter and
year-to-date in 2007 are due to lower earnings, as well as, the recovery in
the nine months ended September 30, 2007 due to the recognition of the future
income tax asset of the Trust and a reduction in future federal income tax
rates from the government's 2007 budget. The substantial recovery in 2006 is
due to a reduction in future federal and provincial income tax rates enacted
in the period.
    As a result of the Corporate Acquisition, Progress recognized a $136.5
million future income tax asset for the difference between the $719.0 million
in tax pools acquired over the value assigned to the assets. Progress'
estimated tax pool balances as at September 30, 2007 total approximately $1.0
billion after giving effect of the acquisition.

    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.

    
                                      Nine Months Ended September 30

                                        2007                   2006
    -------------------------------------------------------------------------
    ($ thousands, except
    unit amounts)                 Number      Amount      Number      Amount
    -------------------------------------------------------------------------
    Exchangeable Shares
    Balance, beginning
     of period                 9,642,540     122,592  11,388,751     127,205
    Exchanged for trust units   (375,066)     (4,842) (1,738,811)    (20,037)
    Non-controlling interest
     expense                                   8,574                  11,936
    -------------------------------------------------------------------------
    Balance, end of period     9,267,474     126,324   9,649,940     119,104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The charge to net earnings of $8.6 million for 2007 and $11.9 million for
2006 represents the net earnings attributable to the exchangeable shares over
the period.

    Net Earnings, Comprehensive Income and Cash Flow

    Net earnings for the Quarter decreased 41 percent to $11.9 million
compared to $20.3 million for the same period in 2006. The decrease is due to
higher costs, primarily DD&A, as well as lower natural gas prices which
exceeded the impact of the higher production as a result of the Corporate
Acquisition. Basic and diluted net earnings for the Quarter were $0.12 per
unit compared to $0.27 per unit basic and diluted for the same period in 2006.
    Net earnings for the nine months ended September 30, 2007 decreased 14
percent to $60.3 million compared to $70.1 million for the same period in
2006. Lower natural gas prices and higher DD&A expense in 2007 exceeded the
impact of higher production as a result of the Corporate Acquisition. Basic
and diluted net earnings for the nine months ended September 30, 2007 were
$0.67 per unit and $0.66 per unit, respectively, compared to $0.94 per unit
basic and $0.93 per unit diluted for the same period in 2006.
    Other comprehensive income for the three and nine months ended September
30, 2007 included a charge of $1.8 million and $9.9 million, respectively
(2006 - nil) relating 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). This resulted in total
comprehensive income for the three and nine months ended September 30, 2007 of
$10.1 million and $50.3 million, respectively (2006 - $20.3 million and $70.1
million, respectively).
    Cash flow for the Quarter of $48.1 million was consistent with the same
period in 2006 of $47.2 million. For the nine months ended September 30, 2007
cash flow increased 13 percent to $159.6 million compared to the same period
in 2006 of $140.7 million. The increase was due to higher revenues as a result
of the Corporate Acquisition. Diluted cash flow for the Quarter was $0.43 per
unit compared to $0.54 per unit during the same period in 2006. Diluted cash
flow for the nine months ended September 30, 2007 was $1.54 per unit compared
to $1.60 per unit during the same period in 2006.

    
    Quarterly Financial Summary (1),(2)

                                        Three Months Ended
                    ---------------------------------------------------------
    ($ thousands,     Sept    June    Mar    Dec   Sept   June    Mar     Dec
    except per          30      30     31     31     30     30     31      31
    unit amounts)     2007    2007   2007   2006   2006   2006   2006    2005
    -------------------------------------------------------------------------
    Petroleum and
     natural gas
     revenue        88,480 108,503 85,477 75,182 72,328 71,439 91,568 120,628
    -------------------------------------------------------------------------
    Cash flow       48,085  58,398 53,080 49,603 47,218 45,871 47,637  65,785
      Per unit
       diluted        0.43    0.53   0.60   0.56   0.54   0.52   0.55    0.77
    -------------------------------------------------------------------------
    Net earnings    11,909  31,947 16,425 21,538 20,252 28,425 21,383  29,398
      Per unit
       basic          0.12    0.33   0.22   0.29   0.27   0.38   0.29    0.41
      Per unit
       diluted        0.12    0.33   0.22   0.28   0.27   0.38   0.29    0.40
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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 and cash flow for the first,
         second and third quarters of 2006 decreased as a result of lower
         natural gas prices. Petroleum and natural gas revenue and cash flow
         for the fourth quarter of 2006 and the first quarter of 2007
         increased slightly due to strengthening 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 and cash flow increased in the second quarter of 2007 due to
         the Corporate Acquisition. For the Quarter, revenue, cash flow and
         net earnings decreased as a result of lower natural gas prices.
    

    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.
    Starting in January 2007, the Trust reduced its monthly distributions
from $0.14 per trust unit to $0.10 per trust unit due to a reduction in
forecasted 2007 cash flow as a result of the then current weakness in natural
gas prices. The distribution reduction reinforces Progress' commitment to
sustainability. 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. As a result, $31.0 million was distributed in the Quarter
compared to $31.6 million for the same period in 2006. For the nine months
ended September 30, 2007, $84.9 million was distributed compared to
$93.9 million for the same period in 2006. The distributions for the three and
nine months ended September 30, 2007 include $1.8 million relating to the
performance units that vested on July 2, 2007.
    For the three and nine months ended September 30, 2007, cash flow from
operating activities (after changes in non-cash working capital) of
$55.7 million and $174.7 million, respectively, exceeded cash distributions of
$31.0 million and $84.9 million, respectively. This was consistent with the
three and nine months ended September 30, 2006 in which cash flow from
operating activities (after changes in non-cash working capital) of
$48.0 million and $145.3 million, respectively, exceeded cash distributions of
$31.6 million and $93.9 million, respectively.
    For the three and nine months ended September 30, 2007, cash
distributions of $31.0 million and $84.9 million, respectively, exceeded net
earnings of $11.9 million and $60.3 million, respectively. This is consistent
with the three and nine months ended September 30, 2006 in which cash
distributions of $31.6 million and $93.9 million, respectively, exceeded net
earnings of $20.2 million and $70.1 million, respectively. Net earnings
includes significant non-cash charges which in 2007 were $36.2 million for the
Quarter and $99.3 million year-to-date that do not impact cash flow. 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
$54.4 million, which was slightly lower than the cash flow from operating
activities (after changes in non-cash working capital) of $55.7 million. For
the nine months ended September 30, 2007, cash distributions and capital
spending (excluding the Corporate Acquisition and Wapiti asset purchase
described below) combined totaled $166.9 million, which was $7.9 million lower
than the cash flow from operating activities (after changes in non-cash
working capital) of $174.7 million. For the three and nine months ended
September 30, 2006 cash distributions and capital spending exceeded the cash
flow from operating activities (after changes in non-cash working capital) by
$14.5 million and $47.9 million, respectively, in which monthly distributions
were at the $0.14 per unit level. 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 September 18, 2007 the Royalty Review Panel delivered its final report
and recommendations to the Government of Alberta. The report titled "Our Fair
Share" recommends a significant increase to royalties levied on natural gas,
conventional oil and oil sands produced in Alberta. These recommendations, if
enacted as proposed, would have a significant impact on Progress' royalties
going forward as approximately 60 percent of its production is from wells
located in Alberta.
    Although Progress intends to continue to make cash distributions to
unitholders, these distributions are not guaranteed.

    Capital Expenditures

    During the Quarter, the Trust invested $23.4 million in capital
expenditures compared to $30.9 million in the same period in 2006.  For the
nine months ended September 30, 2007 the Trust invested $122.9 million in
capital expenditures compared to $99.3 million for the same period in 2006.

    
                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30
    ($ thousands)                   2007        2006        2007        2006
    -------------------------------------------------------------------------
    Land acquisitions
     and retention                 1,104       2,002       5,143       7,619
    Geological and geophysical       725         850       3,383       5,096
    Drilling and completions      22,954      19,624      58,392      60,546
    Equipping and facilities       6,912       7,307      23,421      23,918
    Net property
     acquisitions (dispositions)  (8,293)        (12)     32,326         936
    Corporate assets                  31       1,104         203       1,233
    -------------------------------------------------------------------------
    Total capital expenditures    23,433      30,875     122,868      99,348
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the Quarter, Progress drilled 17 gross wells (9.3 net) with a 100
percent success rate. The program yielded 17 natural gas wells (9.3 net),
including seven gross wells (4.8 net) drilled in the Deep Basin region of
northwest Alberta, nine gross wells (3.7 net) in the Foothills of northeast
British Columbia and one gross well (0.8 net) in the Fort St. John Plains
region.
    Year-to-date, Progress drilled 53 gross wells (27.5 net) with a 94
percent success rate. The program yielded 48 natural gas wells (25.7 net),
including 21 gross wells (15.7 net) drilled in the Deep Basin region of
northwest Alberta, 23 gross (6.8 net) drilled in the northeast British
Columbia Foothills region, three gross (2.4 net) drilled in Central Alberta
and one gross (0.8 net) in the northeast British Columbia Fort St. John Plains
region.
    In July 2007, Progress sold its gross overriding interest and certain
land in the Copton and Cutpick areas for $8.0 million.
    On May 31, 2007 Progress acquired certain petroleum and natural gas
assets from a major producer in the Wapiti area for $40.9 million, net of
final closing adjustments. The acquisition added approximately 800 boe per day
of production, 1.54 million boe of proved plus probable reserves and 31,000
net undeveloped acres of land with varying working interests which will create
further opportunities to consolidate working interests within the region.
Progress believes there are substantial upside opportunities on the acquired
lands which are contiguous with the Trust's Gold Creek property. The
acquisition also added ownership in infrastructure which is strategic to
Progress' area of expansion plans.
    The Trust's capital spending in the fourth quarter of 2007 will continue
to be directed to the three focus regions of the Deep Basin in northwest
Alberta and the Fort St. John Plains and Foothills of northeast British
Columbia. An unusually wet summer in Progress' operating areas limited the
number of wells drilled and the extent of the facility activities that were
originally planned. As a result, Progress expects total capital spending in
2007, before net property acquisitions (dispositions), to be approximately
$130 million compared to the forecast last quarter of $140 million.

    Liquidity and Capital Resources

    
    ($ thousands, except                           September 30  December 31
    per unit amounts)                                      2007         2006
    -------------------------------------------------------------------------
    Working capital deficiency                           26,968       13,959
    Bank debt                                           269,182       75,000
    Convertible debentures                              121,528      119,605
    -------------------------------------------------------------------------
    Total debt                                          417,678      208,564
    -------------------------------------------------------------------------
    Units outstanding and issuable
     for exchangeable shares (thousands)                110,436       88,114
    Market price per unit at end of period                12.03        12.57
    -------------------------------------------------------------------------
    Market value of trust units
     and exchangeable shares                          1,328,545    1,107,593
    -------------------------------------------------------------------------
    Cash flow (12 month trailing)                       209,166      190,329
    Total debt to cash flow ratio                          2.00         1.10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    At September 30, 2007 the Trust had $269.2 million outstanding on its
credit facilities, $121.5 million for the debt portion of the 6.75 percent and
6.25 percent convertible unsecured subordinated debentures (the "Debentures")
and a working capital deficiency of $27.0 million, totaling $417.7 million of
total debt.
    At September 30, 2007 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 27,
2008, 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 September 30, 2007 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 September 30, 2007 the debt portion was
$121.5 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 increased from $75.0 million as at December 31, 2006 to
$269.2 million as at September 30, 2007 mainly due to the Corporate
Acquisition and the Wapiti area asset purchase described above. The working
capital deficiency of $27.0 million at September 30, 2007 is higher than the
December 31, 2006 deficiency of $14.0 million due to a lower accounts
receivable balance as a result of lower natural gas prices and a decrease in
the cash and short-term investments balance of $8.3 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 $389.4 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 October 23, 2007 were 97,343,544 trust units, 9,267,474
exchangeable shares and $130.7 million of Debentures convertible into
7,561,287 trust units.
    The Trust's investing activities in the Quarter 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.

    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 second quarter acquisitions, our first acquisitions as a Trust,
have further strengthened our sustainability strategy by expanding our
development inventory while providing an appropriate exposure to exploration
upside within our existing core regions. For the fourth quarter of 2007, we
are targeting average production to be approximately 24,000 boe per day.
    On the commodity front, natural gas prices have weakened in the near term
as a result of ample natural gas storage while liquefied natural gas imports
to the United States have continued to grow in the absence of demand in
Europe. We believe that the outlook for natural gas prices remains positive
over the medium to longer term.
    On September 18, 2007 the Royalty Review Panel delivered its final report
and recommendations to the Government of Alberta. The report titled "Our Fair
Share" recommends a significant increase to royalties levied on natural gas,
conventional oil and oil sands produced in Alberta. These recommendations, if
enacted as proposed, would have a significant impact on Progress' royalties
going forward as approximately 60 percent of its production is from wells
located in Alberta. Progress is an active exploration and development company
and maintains a large, multi-year inventory of drilling opportunities in both
Alberta and British Columbia. Our capital investment program is designed to
yield strong returns through its low cost leadership and program
repeatability. If the changes as proposed by the Alberta Royalty Review Panel
are implemented, Progress will shift a substantial portion of its capital
investment into British Columbia to capture opportunities which would yield
higher, risk-adjusted economic returns than would be achieved in Alberta. We
do however, have confidence that the Alberta government will take the time to
understand the potential impact changes to the royalty system will have on
activity levels and investor confidence before they arrive at a decision.
    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
    October 24, 2007


    PROGRESS ENERGY TRUST
    CONSOLIDATED BALANCE SHEETS

    ($ thousands)                                  September 30  December 31
                                                           2007         2006
    -------------------------------------------------------------------------

    ASSETS                                           (Unaudited)

    Current
      Cash and short-term investments                         -        8,265
      Accounts receivable                                28,056       35,555
      Prepaid expenses and deposits                       9,293        7,798
      Fair value of financial
       instruments (Notes 2 and 12)                       2,558            -
    -------------------------------------------------------------------------
                                                         39,907       51,618
    Property, plant and equipment (Note 4)            1,038,504      744,431
    Future income taxes (Notes 3 and 10)                 37,605            -
    Goodwill                                            414,655      414,655
    -------------------------------------------------------------------------
                                                      1,530,671    1,210,704
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES
    Current
      Accounts payable and accrued liabilities           49,348       49,820
      Cash distributions payable                          9,734       10,564
      Current income taxes payable                        5,235        5,193
    -------------------------------------------------------------------------
                                                         64,317       65,577
    Bank debt (Note 5)                                  269,182       75,000
    Convertible debentures (Note 6)                     121,528      119,605
    Commodity sales contract (Note 12)                      493          876
    Asset retirement obligations (Note 7)                32,470       24,148
    Future income taxes (Notes 3 and 10)                      -      114,367
    -------------------------------------------------------------------------
                                                        487,990      399,573
    NON-CONTROLLING INTEREST
    Exchangeable shares (Note 8)                        126,324      122,592

    UNITHOLDERS' EQUITY
    Unitholders' capital (Note 9)                       989,512      739,998
    Convertible debentures (Note 6)                       7,702        7,702
    Contributed surplus (Note 9)                         11,542        9,210
    Accumulated other comprehensive
     income (Notes 2 and 9)                                 601            -
    Deficit                                             (93,000)     (68,371)
    -------------------------------------------------------------------------
                                                        916,357      688,539
    -------------------------------------------------------------------------
                                                      1,530,671    1,210,704
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to the consolidated financial statements


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

                                    Three Months Ended     Nine Months Ended
    ($ thousands, except                  September 30          September 30
    per unit amounts)                 2007        2006       2007       2006
    -------------------------------------------------------------------------

    REVENUE
      Petroleum and natural gas     88,480      72,328    282,460    235,335
      Royalties                    (19,242)    (18,268)   (63,167)   (61,673)
    -------------------------------------------------------------------------
                                    69,238      54,060    219,293    173,662
      Realized gain on financial
       instruments (Notes 2 and 12)  6,324      10,526     13,504     19,487
      Unrealized gain/(loss) on
       financial instruments
       (Notes 2 and 12)               (598)          -      1,668          -
      Other income                      15           -        212          -
    -------------------------------------------------------------------------
                                    74,979      64,586    234,677    193,149
    -------------------------------------------------------------------------

    EXPENSES
      Operating                     14,596      10,041     40,478     29,340
      Transportation                 4,295       2,624     11,242      8,424
      General and administrative     2,454       1,282      6,734      4,773
      Unit based
       compensation (Note 9)         2,394       1,363      6,443      3,378
      Interest and financing         6,302       3,286     15,977      8,201
      Depletion, depreciation
       and accretion                37,345      23,720    101,401     70,166
    -------------------------------------------------------------------------
                                    67,386      42,316    182,275    124,282
    -------------------------------------------------------------------------

    Earnings before taxes and
     non-controlling interest        7,593      22,270     52,402     68,867
    -------------------------------------------------------------------------

    TAXES
      Capital taxes                     28          45        107        135
      Future income taxes           (5,936)     (1,354)   (16,560)   (13,264)
    -------------------------------------------------------------------------
                                    (5,908)     (1,309)   (16,453)   (13,129)
    -------------------------------------------------------------------------
    Net earnings before
     non-controlling interest       13,501      23,579     68,855     81,996
    Non-controlling interest
     - exchangeable
     shares (Note 8)                (1,592)     (3,327)    (8,574)   (11,936)
    -------------------------------------------------------------------------
    NET EARNINGS                    11,909      20,252     60,281     70,060

    OTHER COMPREHENSIVE INCOME
    Amortization of fair value of
     financial instruments
     (Notes 2 and 9)                (1,804)          -     (9,942)         -
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME            10,105      20,252     50,339     70,060
    -------------------------------------------------------------------------

    Deficit, beginning of period   (73,922)    (46,846)   (68,371)   (34,406)
    Distributions                  (30,987)    (31,625)   (84,910)   (93,873)
    -------------------------------------------------------------------------
    Deficit, end of period         (93,000)    (58,219)   (93,000)   (58,219)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    NET EARNINGS PER UNIT (Note 9)
      Basic                          $0.12       $0.27      $0.67      $0.94
      Diluted                        $0.12       $0.27      $0.66      $0.93
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements


    PROGRESS ENERGY TRUST
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited)

                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30
    ($ thousands)                   2007        2006        2007        2006
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES

      Net earnings                11,909      20,252      60,281      70,060
      Unrealized (gain)/loss on
       financial instruments
       (Notes 2 and 12)              598           -      (1,668)          -
      Depletion, depreciation
       and accretion              37,345      23,720     101,401      70,166
      Non-controlling interest
       - exchangeable shares
       (Note 8)                    1,592       3,327       8,574      11,936
      Convertible debentures
       accretion (Note 6)            367         229       1,086         508
      Amortization of convertible
       debenture issue
       costs (Note 6)                279         175         837         438
      Amortization of commodity
       sales contract               (125)       (140)       (383)       (431)
      Unit based compensation
       expense (Note 9)            2,394       1,363       6,443       3,378
      Asset retirement
       expenditures (Note 7)        (338)       (354)       (448)     (2,065)
      Future income
       taxes (Note 10)            (5,936)     (1,354)    (16,560)    (13,264)
    -------------------------------------------------------------------------
                                  48,085      47,218     159,563     140,726
      Changes in non-cash
       working capital (Note 11)   7,605         745      15,177       4,555
    -------------------------------------------------------------------------
                                  55,690      47,963     174,740     145,281
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES

      Increase/(decrease) in
       bank debt                   8,022     (54,691)    185,058     (23,662)
      Issue of units
       (Notes 3 and 9)                 -           -     252,000           -
      Unit issue costs
       (Notes 3 and 9)                 -           -     (13,304)          -
      Issue of 6.25% convertible
       debentures (Note 6)             -      75,000           -      75,000
      6.25% convertible debenture
       issue costs (Note 6)            -      (3,375)          -      (3,375)
      Cash distributions         (30,979)    (31,549)    (85,740)    (93,293)
      Changes in non-cash
       working capital (Note 11)       -         205           -         205
    -------------------------------------------------------------------------
                                 (22,957)    (14,410)    338,014     (45,125)
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES

      Corporate Acquisition
       (Note 3)                        -           -    (523,763)          -
      Disposition (Note 3)             -           -     134,400           -
      Capital expenditures       (23,433)    (30,875)   (122,868)    (99,348)
      Changes in non-cash
       working capital (Note 11)  (9,300)     (2,678)     (8,788)       (808)
    -------------------------------------------------------------------------
                                 (32,733)    (33,553)   (521,019)   (100,156)
    -------------------------------------------------------------------------
    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 8) 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 nine months ended September 30, 2007 was
    $1.4 million and $4.2 million, respectively (2006 - $0.9 million and
    $2.9 million).

    ProEx has granted stock options and shares to employees and executives of
    Progress as service providers. ProEx has also participated in a new long
    term incentive plan by granting ProEx common shares to employees of
    Progress, excluding the executives. To facilitate this plan, during the
    second quarter, Progress purchased 173,789 ProEx common shares and has
    been reimbursed by ProEx for the cost incurred. The ProEx common shares
    will be held until the vesting date of May 3, 2009. Any forfeited shares
    will revert back to ProEx.

    As at September 30, 2007, accounts payable included $1.0 million (2006 -
    $2.6 million) payable to ProEx which includes standard joint venture
    amounts including revenue. These amounts were paid subsequent to
    September 30, 2007.

    On April 2, 2007, Progress acquired all of the issued and outstanding
    shares of a private company for $523.8 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.

    
    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, 2006, except for the change described in
        note 2. 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, 2006.

        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.  CHANGE IN ACCOUNTING POLICY

        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. In
        accordance with the transitional provisions of the standards, the
        accounting for hedging relationships for prior periods is not
        retroactively adjusted, therefore, there has been no restatement of
        the prior periods. On adoption, the Trust recognized a current asset
        of $15.6 million for the fair value of its natural gas derivative
        contracts and an 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 will be amortized through other comprehensive
        income and unrealized gain or loss on financial instruments on the
        statement of earnings over the term of the contracts. As a result,
        for the three months ended September 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 nine months
        ended September 30, 2007 $9.9 million, net of tax, was charged to
        other comprehensive income with a corresponding unrealized gain on
        financial instruments of $14.7 million and a charge to future income
        tax expense of $4.8 million.

        The impact of the change in fair value from January 1, 2007 to
        September 30, 2007 is disclosed in note 12. Certain comparative
        amounts have been reclassified to conform to the presentation adopted
        in 2007.

    3.  CORPORATE ACQUISITION

        On April 2, 2007 Progress acquired all of the issued and outstanding
        shares of a private company for $523.8 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 $389.4 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. Included in the acquisition was
        approximately $719.0 million of tax pools which are available to
        Progress to shelter future taxable income. As a result a
        $136.5 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                                                  814
        Bank debt                                                     (9,123)
        Property, plant and equipment                                266,823
        Future income taxes                                          136,487
        Asset retirement obligations                                  (5,638)
        ---------------------------------------------------------------------
        Total net assets acquired                                    389,363
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Consideration
        ---------------------------------------------------------------------
        Cash                                                         519,497
        Proceeds of asset disposition                               (134,400)
        Acquisition costs                                              4,266
        ---------------------------------------------------------------------
        Total purchase price                                         389,363
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The above amounts are estimates which were made by Management based
        on information currently available. Amendments may be made to these
        amounts as values subject to estimate are finalized.

    4.  PROPERTY, PLANT AND EQUIPMENT

                                                  September 30   December 31
                                                          2007          2006
        ---------------------------------------------------------------------
        Property, plant and equipment                1,394,258     1,001,785
        Conversions of exchangeable shares              47,258        46,014
        Accumulated depletion and depreciation        (403,012)     (303,368)
        ---------------------------------------------------------------------
        Property, plant and equipment, net           1,038,504       744,431
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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 $1.2 million was made to
        property, plant and equipment for the nine months ended September 30,
        2007 (2006 - $13.4 million).

        The calculation of 2007 depletion and depreciation expense included
        an estimated $50.0 million for future development costs associated
        with proved undeveloped reserves and excluded $25.7 million for the
        estimated future net realizable value of production equipment and
        facilities and $98.5 million for the estimated value of unproven
        properties. Depletion and depreciation expense for the three and nine
        months ended September 30, 2007 was $36.7 million and $99.6 million,
        respectively (2006 - $23.3 million and $68.9 million).

        Included in the Trust's property, plant and equipment balance is
        $19.6 million, net of accumulated depletion, related to asset
        retirement obligations ($29.7 million before accumulated depletion)
        (Refer to note 7).

        The Trust capitalized approximately $0.6 million of geological and
        geophysical compensation costs associated with the exploration and
        development of capital assets during the nine months ended
        September 30, 2007 (2006 - $1.5 million).

    5.  BANK DEBT

                                                  September 30   December 31
                                                          2007          2006
        ---------------------------------------------------------------------
        Direct advances                                 14,182             -
        Banker's acceptances                           255,000        75,000
        ---------------------------------------------------------------------
        Total bank debt                                269,182        75,000
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        At September 30, 2007 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 27, 2008, 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 nine months ended September 30, 2007
        was 5.2 percent (2006 - 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.

    6.  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.


                                    Nine Months Ended September 30
                        -----------------------------------------------------
                                   2007                       2006
                        -----------------------------------------------------
        Debentures        6.75%    6.25%   Total     6.75%    6.25%    Total
        ---------------------------------------------------------------------
        Principal,
         beginning of
         period(1)       55,727   75,000  130,727   86,182   75,000  161,182
        Converted to
          Trust Units         -        -        -  (30,455)       -  (30,455)
        ---------------------------------------------------------------------
        Principal, end
         of period       55,727   75,000  130,727   55,727   75,000  130,727
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Debt portion,
         beginning of
         period(1)       52,300   67,305  119,605   79,381   66,679  146,060
        Accretion           379      707    1,086      408      100      508
        Amortization of
         issue costs        350      487      837      381       57      438
        Converted to
         Trust Units(2)       -        -        -  (28,113)       -  (28,113)
        ---------------------------------------------------------------------
        Debt portion,
         end of period   53,029   68,499  121,528   52,057   66,836  118,893
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Equity portion,
         beginning of
         period(1)        2,756    4,946    7,702    4,261    4,946    9,207
        Converted to
         Trust Units          -        -        -   (1,505)       -   (1,505)
        ---------------------------------------------------------------------
        Equity portion,
         end of period    2,756    4,946    7,702    2,756    4,946    7,702
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) The 6.75 percent debentures were issued February 2, 2005 and the
            6.25 percent debentures were issued August 22, 2006.
        (2) Net of unamortized issue costs.

        Total interest charged to earnings for the three months ended
        September 30, 2007 was $2.8 million (2006 - $1.9 million) which
        includes $0.4 million of debenture accretion (2006 - $0.2 million)
        and $0.3 million of amortized issue costs (2006 - $0.2 million).

        Total interest charged to earnings for the nine months ended
        September 30, 2007 was $8.3 million (2006 - $4.6 million) which
        includes $1.1 million of debenture accretion (2006 - $0.5 million)
        and $0.8 million of amortized issue costs (2006 - $0.4 million).

    7.  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 $58.9 million which
        will be incurred over the next 41 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:

                                                           Nine Months Ended
                                                                September 30
                                                          2007          2006
        ---------------------------------------------------------------------
        Balance, beginning of period                    24,148        20,906
        Liabilities incurred                             1,375         3,251
        Liabilities settled                               (448)       (2,065)
        Acquisition (Note 3)                             5,638             -
        Disposition                                          -          (374)
        Accretion expense                                1,757         1,268
        ---------------------------------------------------------------------
        Balance, end of period                          32,470        22,986
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    8.  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, plus 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.

                                       Nine months ended September 30
                              -----------------------------------------------
                                         2007                    2006
                              ----------------------- -----------------------
                                  Number      Amount      Number      Amount
        ---------------------------------------------------------------------
        Exchangeable Shares

        Balance, beginning
         of period             9,642,540     122,592  11,388,751     127,205
        Exchanged for trust
         units                  (375,066)     (4,842) (1,738,811)    (20,037)
        Non-controlling
         interest expense                      8,574                  11,936
        ---------------------------------------------------------------------
        Balance, end of
         period                9,267,474     126,324   9,649,940     119,104
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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.

    9.  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

                                       Nine months ended September 30
                              -----------------------------------------------
                                         2007                    2006
                              ----------------------- -----------------------
                                  Number      Amount      Number      Amount
        ---------------------------------------------------------------------
        Trust Units

        Balance, beginning
         of period            75,457,291     739,998  71,302,265     681,263
        Issued for cash
         (Note 3)             21,000,000     252,000           -           -
        Exchangeable shares
         converted               504,886       5,716   2,114,992      29,004
        Unit based
         compensation            381,367       5,102           -           -
        Issued on conversion
         of convertible
         debentures                    -           -   2,030,321      29,618
        Unit issue costs
         (Note 3)                            (13,304)                      -
        ---------------------------------------------------------------------
        Balance, end of
         period               97,343,544     989,512  75,447,578     739,885
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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

        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       Nine Months Ended
                                        September 30            September 30
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Weighted average
         trust units - basic  97,297,822  75,190,280  89,943,734  74,229,439
        Trust units issuable
         on conversion of
         exchangeable
         shares(1)            13,139,048  12,457,109  13,247,052  13,080,522
        Performance units        498,983     542,264     693,118     469,035
        ---------------------------------------------------------------------
        Weighted average
         trust units -
         diluted             110,935,853  88,189,653 103,883,904  87,778,996
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (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 $1.6 million and $8.6 million for
        the three and nine months ended September 30, 2007 (2006 -
        $3.3 million and $11.9 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 nine
        months ended September 30, 2007.

        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 the second quarter of 2007, the performance unit incentive
        plan (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% vesting on the second anniversary of the date of grant
        and 60% vesting on the third anniversary of the date of grant. An
        additional 15% grant will be paid if the holder holds the units
        received on the second anniversary date for one additional year. As
        at September 30, 2007, 176,855 units are outstanding under the LTI
        component at an average value of $14.45 per unit, resulting in a
        total compensation cost of $2.6 million of which $2.2 million will be
        recognized through unit based compensation expense and $0.4 million
        will be capitalized over the vesting period.

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

        As at September 30, 2007 there are 483,800 performance units
        outstanding that were granted effective July 2, 2005. During the
        second quarter of 2007, the estimated performance factor for this
        grant was increased from 1.0 to 1.5 based on the Trust's operating
        performance. The fair value of the performance units using a
        performance factor of 1.5 is approximately $10.9 million of which
        $9.6 million will be amortized through unit based compensation
        expense and $1.3 million will be capitalized over the vesting period
        with a corresponding increase to contributed surplus. Actual
        performance factors will not be determined until the end of the
        performance period.

        As at September 30, 2007, there are 402,750 performance units
        outstanding that were granted effective July 2, 2006. During the
        second quarter, the estimated performance factor for this grant was
        increased from 1.0 to 1.5 based on the Trust's operating performance.
        The fair value of the performance units using a performance factor of
        1.5 was approximately $9.1 million. Over the three year vesting
        period, approximately $8.1 million will be amortized through unit
        based compensation expense and $1.0 million will be capitalized over
        the vesting period with a corresponding increase to contributed
        surplus. Actual performance factors will not be determined until the
        end of the performance period.

        As at September 30, 2007, there are 486,750 performance units
        outstanding that were granted effective July 2, 2007. The fair value
        of the performance units using a performance factor of 1.0 was
        approximately $6.3 million. Over the three year vesting period,
        approximately $5.6 million will be amortized through unit based
        compensation expense and $0.7 million will be capitalized over the
        vesting period with a corresponding increase to contributed surplus.
        Actual performance factors will not be determined until the end of
        the performance period.

        For the three and nine months ended September 30, 2007 $2.4 million
        and $6.4 million, respectively were charged to unit based
        compensation expense (2006 - $1.4 million and $3.4 million) and
        $0.3 million and $1.0 million, respectively were capitalized (2006 -
        $0.2 million and $0.6 million) relating to the total performance
        units and units under the LTI component outstanding.

        Performance Units                                  Nine Months Ended
                                                                September 30
                                                          2007          2006
        ---------------------------------------------------------------------
        Balance, beginning of period                 1,300,717       898,367
        Granted                                        503,650       412,650
        Settled                                       (381,367)            -
        Forfeited                                      (49,700)      (18,300)
        ---------------------------------------------------------------------
        Balance, end of period                       1,373,300     1,292,717
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

                                                          As at September 30
                                                                        2007
        ---------------------------------------------------------------------
        Vesting Date

        July 2, 2008(1)                                              483,800
        July 2, 2009(1)                                              402,750
        July 2, 2010                                                 486,750
        ---------------------------------------------------------------------
        Total                                                      1,373,300
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Using the current anticipated performance factor of 1.5 times,
            725,700 units and 604,125 units, respectively, will be issued on
            the vesting of the 2008 and 2009 performance units.

        Units under LTI Component                          Nine Months Ended
                                                                September 30
                                                          2007          2006
        ---------------------------------------------------------------------
        Balance, beginning of period                         -             -
        Granted                                        185,999             -
        Forfeited                                       (9,144)            -
        ---------------------------------------------------------------------
        Balance, end of period                         176,855             -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

                                                          As at September 30
                                                                        2007
        ---------------------------------------------------------------------
        Vesting Date

        May 1, 2009                                                   70,742
        May 1, 2010                                                  106,113
        ---------------------------------------------------------------------
        Total(1)                                                     176,855
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) If the units vesting May 1, 2009 are held by the LTI holder until
            May 1, 2010 an additional 26,528 units will be issued by the
            Trust.

        The following table reconciles the Trust's contributed surplus:

                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Balance, beginning
         of period                 8,810       5,874       9,210       3,530
        Unit based compensation
         expense                   2,394       1,363       6,443       3,378
        Unit based compensation
         capitalized                 338         239         991         568
        Settlements                    -           -      (5,102)          -
        ---------------------------------------------------------------------
        Balance, end of period    11,542       7,476      11,542       7,476
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Accumulated other comprehensive income

        As described in note 2, 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
        will be charged to the statement of earnings over the term of the
        contracts with a corresponding decrease to other comprehensive
        income.

                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Balance, beginning
         of period                 2,405           -           -           -
        Change in accounting
         policy, net of tax
         of $5,072 (Note 2)            -           -      10,543           -
        Amortization of fair
         value of financial
         instruments, net of
         tax of $868 and
         $4,783, respectively     (1,804)          -      (9,942)          -
        ---------------------------------------------------------------------
        Balance, end of period       601           -         601           -
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    10. TAXES

        On June 12, 2007 the federal government's bill regarding the taxation
        of distributions from trusts beginning January 1, 2011 became
        substantively enacted. As a result, a recovery of $7.6 million was
        recognized in the future income tax provision for the nine months
        ended September 30, 2007 on the recognition of a $7.6 million future
        income tax asset in the Trust.

        The future income tax provision for the nine months ended
        September 30, 2006 includes a recovery of $8.2 million relating to a
        reduction in future federal and provincial income tax rates enacted
        during the period and includes the impact of certain tax balance
        adjustments.

    11. SUPPLEMENTAL CASH FLOW INFORMATION

        Changes in non-cash working capital

                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Accounts receivable        6,162      (1,820)     30,277      18,756
        Prepaid expenses
         and deposits                189         465      (1,494)        666
        Accounts payable          (8,058)     (1,071)    (22,436)    (15,676)
        Current income
         taxes payable                12         698          42         206
        ---------------------------------------------------------------------
        Change in non-cash
         working capital          (1,695)     (1,728)      6,389       3,952
        Relating to:
        Financing activities           -         205           -         205
        Investing activities      (9,300)     (2,678)     (8,788)       (808)
        ---------------------------------------------------------------------
        Operating activities       7,605         745      15,177       4,555
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Interest and taxes paid

                                  Three Months Ended       Nine Months Ended
                                        September 30            September 30
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Interest paid              6,118         483      15,489       8,621
        Income and other
         taxes paid                   17          38          66         621
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    12. FINANCIAL INSTRUMENTS

        Fair Value of Financial Instruments

        The Trust's financial instruments recognized on the balance sheet
        consist of accounts receivable, accounts payable and accrued
        liabilities, bank debt, convertible debentures and derivative natural
        gas contracts ("financial instruments"). The fair value of these
        instruments, excluding the 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 September 30, 2007 was approximately $130.0 million (2006 -
        $134.1 million). The fair value of the natural gas contracts is
        recognized on the balance sheet as described below.

        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
        September 30, 2007, the Trust's natural gas price risk management
        program had a net realized gain of $6.3 million (2006 - $10.7 million
        net gain). For the nine months ended September 30, 2007, the Trust's
        natural gas price risk management program had a net realized gain of
        $13.5 million (2006 - $19.5 million net gain).

        As described in note 2, the Trust recognizes the fair value of its
        commodity price contracts on the balance sheet each reporting period
        with the change in fair value being recognized 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 is being 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
        September 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 nine months ended September 30,
        2007 $9.9 million, net of tax, was charged to other comprehensive
        income with a corresponding unrealized gain on financial instruments
        of $14.7 million and a charge to future income tax expense of
        $4.8 million. At September 30, 2007 the fair value was an asset of
        $2.6 million, resulting in an unrealized loss for the three months
        ended September 30, 2007 of $0.6 million and an unrealized gain of
        $1.7 million for the nine months ended September 20, 2007, net of the
        amortization of the accumulated other comprehensive income.

        Contracts outstanding in respect to financial instruments are as
        follows:

        Natural Gas              Pricing    Strike       Cost/
         Contracts(1)   Volume    Point   Price $/gj    Premium      Term
        ---------------------------------------------------------------------
        Swap - call                                               Apr 01/07 -
         spread       10,000 gj/d  AECO  $7.45 - $8.45  $0.42/gj   Oct 31/07
        Swap - call                                               Apr 01/07 -
         spread       10,000 gj/d  AECO  $7.41 - $8.41  $0.39/gj   Oct 31/07
        Swap - call                                               Apr 01/07 -
         spread       10,000 gj/d  AECO  $7.42 - $8.42  $0.37/gj   Oct 31/07
        Swap - call                                               Apr 01/07 -
         spread       10,000 gj/d  AECO  $7.43 - $8.43  $0.38/gj   Oct 31/07
        ---------------------------------------------------------------------
        (1) Call spread strike prices indicate minimum floor and maximum
            ceiling

        Commodity Sales Contract

        The following physical gas sales contract was outstanding at
        September 30, 2007. This contract was acquired in conjunction with
        the acquisition of Campion Resources Ltd. on June 3, 2002, at which
        time the fair value of the contracts was a liability of $4.1 million.
        This value was recorded as a liability on June 3, 2002, and is being
        amortized over the life of the contract. At September 30, 2007 the
        unamortized remaining liability was $0.5 million.

        Volume       Pricing Point   Progress Price                Term
        ---------------------------------------------------------------------
        1,000 gj/d   AECO            $2.16/gj in 2007 escalating   Jun 1/97 -
                                      at 2.5% annually             Oct 31/08
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------



    SELECTED QUARTERLY INFORMATION

      Financial Highlights
                                              Three Months Ended
    -------------------------------------------------------------------------
                                                     2006
    -------------------------------------------------------------------------
    ($ thousands except
     per unit amounts)          March 31     June 30     Sept 30      Dec 31
    -------------------------------------------------------------------------

    Income Statement
    Petroleum and natural
     gas revenue                  91,568      71,439      72,328      75,182
    Cash flow(1)                  47,637      45,871      47,218      49,603
      Per unit - diluted            0.55        0.52        0.54        0.56
    Cash distributions declared   30,836      31,412      31,626      31,689
      Per unit                      0.42        0.42        0.42        0.42
    Net earnings                  21,383      28,425      20,252      21,538
      Per unit - basic              0.29        0.38        0.27        0.29
      Per unit - diluted            0.29        0.38        0.27        0.28

    Payout Ratio
    Excluding exchangeable shares    65%         68%         67%         64%
    Including exchangeable shares    76%         80%         78%         75%

    Balance Sheet
    Capital expenditures          35,984      32,489      30,875      35,304
    Total debt                   172,106     182,873     190,531     208,564
    Unitholders' equity          687,953     694,236     696,844     688,539


    Trust Units (thousands,
     except where otherwise
     stated)
    Units outstanding, end
     of period                    74,315      74,901      75,448      75,457
    Units issuable for
     exchangeable shares          12,309      12,314      12,301      12,657
    -------------------------------------------------------------------------
    Total units outstanding and
     issuable for exchangeable
     shares, end of period        86,624      87,215      87,749      88,114
    Weighted average units
     - diluted(2)                 86,579      87,557      88,190      88,623
    Exchange ratio, end
     of period                   1.21322     1.24284     1.27469     1.31263

    Trust Unit Trading
     Statistics ($)
    High                           18.20       18.33       17.50       16.21
    Low                            14.75       14.73       14.21       10.60
    Closing                        17.45       16.30       15.30       12.57
    Unit volume traded
     (thousands)                  18,619      12,619      15,524      23,725

    Exchangeable Shares Trading
     Statistics ($)
    High                           21.29       21.76       22.48       20.40
    Low                            18.49       18.28       18.60       14.90
    Closing                        20.70       19.57       18.60       16.21
    Share volume traded
     (thousands)                      85          15          69          31
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    Income Statement
    Petroleum and natural gas
     revenue                      85,477     108,503      88,480
    Cash flow(1)                  53,080      58,398      48,085
      Per unit - diluted            0.60        0.53        0.43
    Cash distributions declared   24,831      29,092      30,987
      Per unit                      0.30        0.30        0.30
    Net earnings                  16,425      31,947      11,909
      Per unit - basic              0.22        0.33        0.12
      Per unit - diluted            0.22        0.33        0.12

    Payout Ratio
    Excluding exchangeable shares    47%         50%         64%
    Including exchangeable shares    54%         56%         73%

    Balance Sheet
    Capital expenditures          43,601      55,834      23,433
    Total debt                   252,000     410,696     417,678
    Unitholders' equity          689,909     933,606     916,357

    Trust Units (thousands,
    except where otherwise
    stated)
    Units outstanding,
     end of period                75,799      97,262      97,344
    Units issuable for
     exchangeable shares          12,665      12,859      13,093
    -------------------------------------------------------------
    Total units outstanding and
     issuable for exchangeable
     shares, end of period        88,464     110,121     110,437
    Weighted average units
     - diluted(2)                 89,039     109,965     110,936
    Exchange ratio, end
     of period                   1.34944     1.37885     1.41278

    Trust Unit Trading
     Statistics ($)
    High                           13.29       15.79       13.44
    Low                            11.00       12.76       10.96
    Closing                        13.07       12.93       12.03
    Unit volume traded
     (thousands)                  23,116      23,310      25,679

    Exchangeable Shares Trading
     Statistics ($)
    High                           17.50       20.50       18.15
    Low                            14.84       17.90       15.01
    Closing                        17.50       18.60       16.51
    Share volume traded
     (thousands)                      13          27          92
    -------------------------------------------------------------
    -------------------------------------------------------------
    (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
    -------------------------------------------------------------------------
                                                     2006
    -------------------------------------------------------------------------
                                March 31     June 30     Sept 30      Dec 31
    -------------------------------------------------------------------------

    Daily Production
      Natural gas (mcf/d)         86,433      82,271      85,701      88,568
      Crude oil (bbls/d)           2,605       2,099       2,056       2,030
      Natural gas liquids
       (bbls/d)                    1,390       1,478       1,327       1,269
      Total daily production
       (boe/d)                    18,401      17,288      17,667      18,060

    Average Realized Prices
      Natural gas ($/mcf)           8.82        6.55        6.30        7.07
      Crude oil ($/bbl)            64.45       72.79       75.69       59.26
      Natural gas liquids ($/bbl)  62.86       63.34       68.29       55.71

    Highlights ($/boe)
      Weighted average sales
       price                       55.29       45.41       44.50       45.25
      Realized gain/(loss) on
       financial instruments       (0.37)       6.08        6.47        6.29
      Royalties                   (14.87)     (11.94)     (11.24)     (10.29)
      Operating expenses           (5.81)      (6.15)      (6.18)      (6.63)
      Transportation expenses      (1.91)      (1.68)      (1.61)      (1.56)
    -------------------------------------------------------------------------
      Operating Netbacks           32.33       31.72       31.94       33.06
      Other income                     -           -           -           -
      General and administrative
       expense                     (1.08)      (1.08)      (0.79)      (0.93)
      Unit based compensation      (0.61)      (0.64)      (0.84)      (0.90)
      Interest and financing
       expenses                    (1.45)      (1.60)      (2.02)      (2.16)
      Unrealized gain/(loss)
       on financial instruments        -           -           -           -
      Depletion, depreciation
       and accretion              (14.27)     (14.49)     (14.59)     (14.77)
    -------------------------------------------------------------------------
      Net earnings before taxes    14.92       13.91       13.70       14.30
      Capital taxes                (0.20)       0.16       (0.03)      (0.03)
      Future income taxes
       (recovery)                   0.56        6.98        0.83        0.85
      Non-controlling interest
       - exchangeable shares       (3.16)      (3.32)      (2.37)      (2.16)
    -------------------------------------------------------------------------
      Net earnings                 12.91       18.07       12.46       12.96
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Drilling Results
      Gross                           39          15          22          30
      Net - natural gas             18.8        11.0         9.8        15.6
      Net - crude oil                0.8         0.4         1.6         2.0
      Success Rate (percent)          93         100          95         100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                        Three Months Ended
    -------------------------------------------------------------
                                               2007
    -------------------------------------------------------------
                                March 31     June 30     Sept 30
    -------------------------------------------------------------

    Daily Production
      Natural gas (mcf/d)         94,351     127,255     120,804
      Crude oil (bbls/d)           2,118       2,134       2,268
      Natural gas liquids
       (bbls/d)                    1,379       1,485       1,370
      Total daily production
       (boe/d)                    19,222      24,828      23,772

    Average Realized Prices
      Natural gas ($/mcf)           7.87        7.52        5.77
      Crude oil ($/bbl)            62.15       68.37       78.77
      Natural gas liquids ($/bbl)  55.08       60.51       62.91

    Highlights ($/boe)
      Weighted average sales
       price                       49.41       48.03       40.46
      Realized gain/(loss) on
       financial instruments        4.04        0.08        2.89
      Royalties                   (11.67)     (10.51)      (8.80)
      Operating expenses           (6.38)      (6.57)      (6.67)
      Transportation expenses      (1.60)      (1.85)      (1.96)
    -------------------------------------------------------------
      Operating Netbacks           33.80       29.18       25.92
      Other income                     -        0.09        0.01
      General and administrative
       expense                     (1.14)      (1.02)      (1.12)
      Unit based compensation      (0.86)      (1.13)      (1.09)
      Interest and financing
       expenses                    (2.19)      (2.61)      (2.88)
      Unrealized gain/(loss)
       on financial instruments    (4.76)       4.65       (0.27)
      Depletion, depreciation
       and accretion              (14.91)     (16.94)     (17.08)
    -------------------------------------------------------------
      Net earnings before taxes     9.94       12.22        3.49
      Capital taxes                (0.03)      (0.02)      (0.02)
      Future income taxes
       (recovery)                   1.16        3.82        2.71
      Non-controlling interest
       - exchangeable shares       (1.58)      (1.88)      (0.73)
    -------------------------------------------------------------
      Net earnings                  9.49       14.14        5.45
    -------------------------------------------------------------
    -------------------------------------------------------------

    Drilling Results
      Gross                           29           6          17
      Net - natural gas             11.7         4.8         9.3
      Net - crude oil                  -           -           -
      Success Rate (percent)          89         100         100
    -------------------------------------------------------------
    -------------------------------------------------------------
    

    %SEDAR: 00020979E




For further information:

For further information: Mr. Michael Culbert, President & Chief
Executive Officer, Phone: (403) 539-1820; Mr. Greg Kist, Vice President,
Investor Relations & Marketing, Phone: (403) 539-1809; Progress Energy Ltd.,
1200, 205-5th Avenue S.W., Bow Valley Square II, Calgary, AB, T2P 2V7, Toll
Free: (866) 216-2510, Fax: (403) 216-2514, Email: ir@progressenergy.com, Web:
www.progressenergy.com

Organization Profile

Progress Energy Canada Ltd.

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