Progress Energy's Q3 Production and Cash Flow Rise



    Continued balance sheet strength

    CALGARY, Oct. 30 /CNW/ - Progress Energy Trust ("Progress" or the
"Company") generated quarterly cash flow from operations of $72.1 million or
$0.62 per unit, diluted for the third quarter of 2008, an increase of
50 percent compared to $48.1 million or $0.43 per unit, diluted in the third
quarter of 2007. Cash distributions declared totaled $33.0 million or $0.10
per trust unit resulting in a payout ratio of 46 percent excluding
exchangeable shares, as compared to 64 percent for the same period in 2007.
Production averaged 24,783 barrels of oil equivalent (boe) per day, an
increase of four percent over same quarter in 2007.
    Exploration and development capital expenditures in the Quarter were
$52.1 million including $17.1 million invested in land in the Company's key
operating areas. For the nine months ending on September 30, 2008, Progress
has made distributions of $91.9 million and has invested $109.2 million in its
capital program. Cash flow from operations for the same period was $218.2
million. The Company's payout ratio is 42 percent year-to-date, excluding
exchangeable shares and 48 percent including exchangeable shares.
    "This has been a very strong quarter for the Company," said Michael
Culbert, President and Chief Executive Officer of Progress. "The foundation of
our Company is as solid as ever. We have continued to build a focused, high
quality asset base with the technical and financial expertise required to
deliver results for unitholders at all points in the business and commodity
price cycles.

    Consistent production profile

    Daily production for the third quarter averaged 24,783 boe including
126.3 million cubic feet of natural gas and 3,739 barrels of light and medium
oil and natural gas liquids. Third quarter production was four percent higher
than the comparable quarter in 2007 as a result of the Company's consistent
development program in the Deep Basin and Foothills areas. Fourth quarter
production is expected to average approximately 25,000 boe per day.

    Drilling Success

    Progress' third quarter exploration and development program included the
drilling of 32 gross wells (12.5 net), resulting in 25 gas wells and 3 oil
wells. At present, Progress has two rigs drilling in the Deep Basin and three
rigs drilling in the Foothills.
    In the third quarter, 14 wells (8.2 net) were drilled in the Deep Basin
of northwest Alberta. This region continues to provide Progress with a growing
inventory of multi-zone, high working interest opportunities through Crown
purchases and farm-in agreements. In the Quarter, three farm-ins to industry
competitors were negotiated adding over 5,000 acres of prospective land to the
Deep Basin land base. In the Gold Creek project area, Progress drilled seven
(5.8 net) successful new gas wells with tested gas rates of between one to
four million cubic feet per day. These wells are expected to be tied-in to
Progress owned infrastructure during the fourth quarter. At Chime-Smoky in the
southern part of the Deep Basin, four wells were drilled (1.2 net) by partners
utilizing seismic targeting the sub-thrusted, stacked Cardium gas-filled
sands. Three of the four wells were successful achieving rates up to 3 million
cubic feet per day after stimulation.
    In the Foothills of northeast British Columbia, 18 (4.3 net) new gas
wells were drilled. Progress participated in eight drills in the Julienne area
which resulted in a significant expansion of the pool extent to the north. In
addition, a new pool discovery in a new zone was made on the western most
flank of Julienne. This well has been tied into Progress' gathering system.
One deep Debolt test was drilled and completed in the Sasquatch area. At
Dogrib, where the Halfway sand is quite impermeable, Progress participated in
the drilling and completion of a 1,000 meter long horizontal Halfway well that
has just been placed on production. A second horizontal well will be drilled
to the south on the Sasquatch anticline testing a modestly permeable Halfway
sand section. Two wells were drilled and successfully completed with a
slick-water fracture stimulation in the Bubbles North area. The original
standing horizontal well at Bubbles which was fracture stimulated with six
fracs using the Packers Plus technology during the third quarter and has been
producing at a stabilized rate of approximately 2 million cubic feet per day.
Other wells drilled in the Foothills included a new pool discovery at Diaber
and two Bluesky drills at West Gundy.

    Land Expansion

    In the third quarter, Progress acquired over 50,000 acres of undeveloped
land through crown land sales and another 6,000 acres through property
acquisitions 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.

    Premium to AECO

    The Company's average gas price realization in the Quarter was $8.22 per
mcf after hedging, as compared to $6.36 per mcf for the comparable quarter in
2007. On a before hedging basis, the Trust's gas price realization was
$9.12 per mcf. Progress' before hedging price realization represents a premium
of approximately 18 percent to the average daily AECO index price of $7.74 per
mcf. The premium reflects the high heat content of the Company's gas
production and impact of the balance of gas sales on Monthly index in the
Quarter.
    The Company's hedging program seeks to mitigate price volatility by
hedging a portion of its revenue stream to protect both the capital program
and distribution stream. Progress currently has hedges in place on
approximately 25 percent of its winter natural gas production at a net floor
price of $10.44 per mcf.
    AECO gas prices fell over 48 percent in the third quarter as compared to
a 45 percent drop in Nymex gas prices largely the result of weaker than
anticipated electrical demand for air conditioning load and falling world oil
prices. Since the beginning of October however, AECO gas prices have risen by
18 percent compared to a 10 percent drop in spot Nymex gas prices. Going
forward, AECO natural gas prices remain relatively strong as compared to Nymex
gas prices due to the sharp strengthening of the US dollar in the past month.

    Financial strength

    Organic capital investment in the third quarter was $52.1 million and
$111.1 million for the nine months ended September 30, 2008.

    Progress' total debt-to-12-month trailing cash flow was 1.5 times as at
September 30, 2008. The Company has a $375 million credit facility with a
syndicate of banks of which $95 million was unutilized at Quarter end.
Progress' total debt includes approximately $124.1 million of convertible
debentures which mature in 2010 and 2011. The Company's financial position
also includes in excess of $1 billion of tax pools which will help to shield
income well beyond 2011 when the taxation of trust distributions is expected
to be implemented.

    Outlook

    We expect fourth quarter production to average approximately 25,000 boe
per day. Our capital investment program for the remainder of 2008 will be
focused on internally generated drilling opportunities and agressive land
capture. Our initial plans for 2009 capital investment will focus on ensuring
that our capital investment and distributions are in balance with cash flow.
With an expected capital investment program of approximately $120 to
$135 million in 2009, we will maintain our financial strength and flexibility
in the current environment.
    We believe the supply-demand balance for natural gas in North America
remains tight. Although there has been substantial year over year growth in
organic production in the US, it has been offset by reduced imports of
liquefied natural gas and natural gas imports from Canada. On the demand side,
there is consistent year over year growth in natural gas demand for electrical
generation and residential and commercial consumption. Natural gas in storage
will again be a critical factor in balancing winter related supply-demand.
Natural gas in storage is expected to be approximately four to five percent
lower than last years record levels but on par with the 5-year average meaning
that colder than normal winter weather will place strong upward pressure on
natural gas prices in North America.
    Our focus on internally generated growth opportunities is well suited to
continue to add unitholder value during these weak economic times. We have
maintained a clear strategy on applying our tight gas expertise on
non-conventional resource plays in the Deep Basin of northwest Alberta and the
Foothills of northeast British Columbia while maintaining our low-cost focus
to ensure that the Company remains strong and flexible even in the face of
weaker North American economic activity. Our low-cost operating structure and
our strong capital efficiencies allow us to continue to capture opportunities
no matter where we are in the business or commodity price cycle.
    Equity market valuations have been significantly impacted by the
weakening economy and credit issues globally. Progress' unit price and that of
our competitors is trading at historical low levels. We believe that as
investors begin to look through the economic weakness for investment
opportunities, they will migrate towards companies with strong market
liquidity, dominant asset positions in key resource plays and the financial
strength to compete for opportunities. These attributes are characteristic of
Progress Energy.

    MANAGEMENT'S DISCUSSION AND ANALYSIS

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

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

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

    Description of Business

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

    Relationship with ProEx Energy Ltd.

    ProEx Energy Ltd. ("ProEx") was created as part of a Plan of Arrangement
effective July 2, 2004 which included the creation of Progress Energy Trust.
Progress has no ownership interest in ProEx and ProEx has no ownership
interest in Progress. ProEx has no employees. Progress provides personnel and
services to ProEx under a technical services agreement ("Technical Services
Agreement"). The Technical Services Agreement was put in place to ensure the
sharing of costs of operating both companies using Progress employees. The
Trust provides personnel and certain administrative and technical services to
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.
    Progress and ProEx also share the cost of long-term compensation and
consequently ProEx has granted stock options and shares to employees and
executives of Progress as service providers and has also participated in a
long term incentive plan by granting ProEx common shares to employees of
Progress, excluding the executives. To facilitate this plan, Progress
purchases ProEx common shares and is reimbursed by ProEx for the cost
incurred. As at September 30, 2008 184,489 ProEx shares (2007 - 173,789) have
been purchased for future distribution under the plan. The ProEx common shares
will be held until the vesting date, two years from the date of grant. Any
forfeited shares will revert back to ProEx.
    The Trust and ProEx have joint interest in certain properties and
undeveloped land in the northeast British Columbia Foothills and Fort St. John
Plains regions. These joint interest properties are governed by standard
industry agreements and in addition the Trust has entered into a protocol
arrangement ("Protocol Arrangement") with ProEx that specifies how each
company will manage the joint lands in specifically identified areas of
interest. To ensure good governance practices, both the Trust and ProEx have
each created independent committees of their Board of Directors to monitor
compliance with the Technical Services Agreement and the Protocol Arrangement.
    On April 2, 2007, Progress acquired all of the issued and outstanding
shares of a private company for $527.4 million, net of certain assets retained
by the vendor. In conjunction with the acquisition, on April 2, 2007, Progress
disposed of certain assets of the private company to ProEx for $134.4 million.
When considering the bid process for the acquisition, each of Progress and
ProEx identified assets that they were interested in acquiring and values that
they were willing to pay to acquire such assets. Progress made a single bid on
behalf of ProEx and Progress and the ultimate purchase price was based on the
prices that each of Progress and ProEx were willing to pay for the assets that
they had selected to acquire. The resale of assets from Progress to ProEx was
based on these allocations. The technical services committee reviewed the
details of the transaction prior to the purchase and sale agreement being
signed. All lands are managed in accordance with the Protocol Arrangement.
    On November 30, 2007, Progress and ProEx jointly acquired certain assets
in the Foothills region of British Columbia. The total cost of the acquisition
of $17.9 million was split in accordance with working interests currently held
in the surrounding area. As a result, Progress acquired a 20 percent interest
in the assets ($3.6 million) and ProEx an 80 percent interest ($14.3 million).

    CORPORATE ACQUISITION

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

    OPERATING SUMMARY

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

    
    Production

                              Three Months Ended   Nine Months Ended
                                    September 30        September 30
                                  2008      2007      2008      2007  Change
    -------------------------------------------------------------------------
    Average Daily Production
    Natural gas (mcf/d)        126,265   120,804   124,972   114,234      9%
    Crude oil (bbls/d)           2,027     2,268     2,063     2,174    (5)%
    Natural gas liquids
     (bbls/d)                    1,712     1,370     1,810     1,411     28%
    -------------------------------------------------------------------------
    Total daily production
     (boe/d)                    24,783    23,772    24,702    22,624      9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Sulphur sales (tons/d)          34        31        38        32      6%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    For the three months ended September 30, 2008 (the "Quarter"), Progress'
production averaged 24,783 boe per day consisting of 126,265 mcf per day of
natural gas, 2,027 bbls per day of crude oil and 1,712 bbls per day of natural
gas liquids. Production during the Quarter was four percent higher than the
same period in 2007 of 23,772 boe per day as a result of successful drilling
over the last 12 months in the Foothills of British Columbia and the Deep
Basin of Alberta. The Trust's production portfolio for the Quarter was
weighted 85 percent to natural gas, eight percent to crude oil and seven
percent to natural gas liquids.
    Natural gas production increased five percent to 126,265 mcf per day for
the Quarter compared to 120,804 mcf per day for the same period in 2007 due to
successful drilling. Crude oil and natural gas liquids production for the
Quarter of 3,739 bbls per day was consistent with the same period in 2007 of
3,638 bbls per day.
    Year-to-date 2008 production was 24,702 boe per day consisting of 124,972
mcf per day of natural gas, 2,063 bbls per day of crude oil and 1,810 bbls per
day of natural gas liquids. This production was nine percent higher than the
same period in 2007 of 22,624 boe per day due to the Corporate Acquisition on
April 2, 2007, as well as successful drilling results. The Trust's production
portfolio for the nine months ended September 30, 2008 was weighted 84 percent
to natural gas, nine percent to crude oil and seven percent to natural gas
liquids.
    Management expects fourth quarter production to average approximately
25,000 boe per day, consistent with the Quarter.
    Natural gas produced by Progress in certain areas of the Fort St. John
Plains and Foothills regions of northeast British Columbia contain varying
levels of hydrogen sulphide. The processing of this gas results in sulphur as
a by-product. For the three and nine months ended September 30, 2008, the
Trust sold 34 tons per day and 38 tons per day of sulphur, respectively (2007
- 31 tons per day and 32 tons per day, respectively).

    
    Production by Region

                              Three Months Ended   Nine Months Ended
                                    September 30        September 30
                                  2008      2007      2008      2007  Change
    -------------------------------------------------------------------------
    Average Daily Production
     (boe/d)
    Foothills                    6,813     6,122     6,536     5,610     17%
    Fort St. John Plains         1,778     2,036     1,714     2,001   (14)%
    Deep Basin - Ojay              888     1,101       869       713     22%
    Milo                           217       304       228       331   (31)%
    -------------------------------------------------------------------------
    Total British Columbia       9,696     9,563     9,347     8,655      8%
    -------------------------------------------------------------------------
    Deep Basin                  12,840    11,595    12,917    11,201     15%
    Central Alberta              1,632     1,800     1,683     1,888   (11)%
    Other                          610       557       584       633    (8)%
    -------------------------------------------------------------------------
    Total Alberta               15,082    13,952    15,184    13,722     11%
    -------------------------------------------------------------------------
    Saskatchewan                     5       257       171       247   (31)%
    -------------------------------------------------------------------------
    Total daily production      24,783    23,772    24,702    22,624      9%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Excludes sulphur production

    Pricing
    

    Natural Gas Markets

    Progress' realized natural gas price for the Quarter was $9.12 per mcf
(2007 - $5.76 per mcf) compared to the AECO daily index average of $7.34 per
gigajoule ("gj") and the AECO monthly index average of $8.76 per gj (2007 -
$4.88 per gj and $5.32 per gj, respectively). Progress markets its natural gas
at a mix of daily and monthly pricing.
    For the nine months ended September 30, 2008 Progress' realized natural
gas price was $9.07 per mcf (2007 - $6.99 per mcf), compared to the AECO daily
index average of $8.17 per gj and the AECO monthly index average of $8.13 per
gj (2007 - $6.18 per gj and $6.46 per gj, respectively).
    The Quarter began with record high natural gas prices with AECO opening
the Quarter at $11.24 per gj before falling to $5.81 per gj by September 30,
2008. Rising US natural gas production and the absence of weather related
demand put continual downward pressure on prices throughout the Quarter. A
relatively active hurricane season was expected to put upward pressure on
prices but it also caused short term demand destruction as a result of the
Texas area refineries being shut-down during the hurricanes. Since the end of
the Quarter, the weakening Canadian dollar has caused AECO gas prices to rise
even while Nymex gas prices have continued to fall.
    The supply-demand balance for natural gas in North America remains tight.
Although there has been substantial year over year growth in organic
production in the US, it has been offset by reduced imports of liquefied
natural gas and natural gas imports from Canada. On the demand side, there is
consistent year over year growth in natural gas demand for electrical
generation, residential and commercial consumption. Natural gas storage will
again be a critical factor in balancing winter related demand. Natural gas
storage is expected to be approximately four to five percent lower than last
years record levels but on par with the 5-year average. Colder than normal
winter weather will place strong upward pressure on natural gas prices in
North America.

    Oil Markets

    Progress' realized prices for its liquids streams for the Quarter were
$114.06 per bbl (2007 - $78.77 per bbl) for crude oil and $88.34 per bbl (2007
- $62.91 per bbl) for natural gas liquids. For the nine months ended September
30, 2008 Progress realized $106.71 per bbl (2007 - $70.03 per bbl) for crude
oil and $81.70 per bbl (2007 - $59.54 per bbl) for natural gas liquids.
    Crude oil prices began the Quarter with WTI oil hitting a high of
$145.29 US per barrel on July 3, 2008. Oil prices began to fall throughout the
Quarter as global demand destruction concerns became more apparent. Prices
continued to fall through September as the international credit crisis began
to spread globally with fears of a global recession. WTI oil prices settled at
$100 US per barrel by the end of the Quarter but has since fallen further as a
result of the deepening global credit crises. US and global demand forecasts
are being revised downward which is having a resultant negative impact on
prices.

    Sulphur Markets

    Progress' net realized sulphur price for the Quarter and nine months
ended September 30, 2008 was $604.69 per ton and $407.89 per ton, respectively
(2007 - $19.83 per ton net gain and $6.58 per ton net loss, respectively).
Progress markets its sulphur through an arrangement with a sulphur marketing
company and pays all costs and fees associated with transportation, loading,
storage and marketing of its sulphur.
    North American sulphur prices have dropped sharply over the past Quarter.
Depressed by the international credit crisis and decreased end use demand for
the manufacture of fertilizer and nickel smelting, prices have fallen back to
near historical average levels below $100 per ton from the highs seen earlier
this year in the $800 plus range per ton. The market outlook for sulphur
appears to be weak as a majority of the global purchasers hold substantial
inventories which provide minimal demand while the Canadian sulphur supply
continues unrestricted as produced sulphur comes as a by-product from the
production of crude oil and natural gas.

    
    Commodity Prices

                              Three Months Ended   Nine Months Ended
                                    September 30        September 30
                                  2008      2007      2008      2007  Change
    -------------------------------------------------------------------------
    Average Benchmark Prices
    Natural gas - AECO (daily)
     ($/gj)                       7.34      4.88      8.17      6.18     32%
    Natural gas - AECO (monthly)
     ($/gj)                       8.76      5.32      8.13      6.46     26%
    Natural gas - Station No.2
     (daily) ($/gj)               7.07      4.94      8.03      6.08     32%
    Crude oil - WTI (US$/bbl)   117.98     75.38    113.33     66.08     72%
    Crude oil - Edmonton par
     price (Cdn$/bbl)           121.91     79.84    115.12     72.96     58%
    Exchange rate (US$/Cdn$)    1.0418    1.0446    1.0186    1.1048    (8)%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Average Realized Prices
    Natural gas ($/mcf)           9.12      5.76      9.07      6.99     30%
    Crude oil ($/bbl)           114.06     78.77    106.71     70.03     52%
    Natural gas liquids ($/bbl)  88.34     62.91     81.70     59.54     37%
    Sulphur - net ($/ton)       604.69     19.83    407.89     (6.58)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Price Risk Management

    The Trust has entered into several natural gas financial contracts for
the purpose of protecting its cash flow from the volatility of natural gas
prices. For the Quarter, the Trust's natural gas price risk management program
had a net realized loss of $10.4 million (2007 - $6.3 million net gain). For
the nine months ended September 30, 2008, the Trust's natural gas price risk
management program had a realized loss of $19.9 million (2007 - $13.5 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.
    On adoption, the Trust recognized a current asset of $15.6 million for
the fair value of its natural gas derivative contracts with a corresponding
increase to the future income tax liability and accumulated other
comprehensive income of $5.1 million and $10.5 million, respectively. The
$10.5 million in accumulated other comprehensive income was amortized through
other comprehensive income and unrealized gain or loss on the statement of
earnings over the term of the contracts. For the three months ended September
30, 2007, $1.8 million, net of tax, was amortized through other comprehensive
income with a corresponding pre-tax unrealized gain of $2.7 million and a
charge to future income tax expense of $0.9 million. For the 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, 2008 the fair value of the natural gas financial
contracts was an asset of $12.7 million (2007 - $2.6 million). The increase in
value for the Quarter of $57.0 million (2007 - $0.6 million decrease) was due
to the decrease in forward natural gas prices at September 30, 2008 as
compared to the forward prices at June 30, 2008. For the same period in 2007,
forward natural gas prices increased resulting in a loss of $0.6 million. The
increase in value of $12.7 million for the nine months ended September 30,
2008 was due to the decrease in forward natural gas prices (2007 -
$1.7 million increase).
    The Trust's risk management activities are conducted pursuant to the
Trust's Risk Management Policy approved by the Board of Directors. Progress
uses financial derivative instruments designed to establish a minimum floor
price while retaining exposure to upside price movements. The Risk Management
Policy has the following objectives:

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

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


                              Contract Natural Gas              % of
                              Volumes ('000 gj/d)       Estimated Production
    -------------------------------------------------------------------------
    Fourth quarter of 2008              50                       38
    First quarter of 2009               35                       24
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Revenue

    For the Quarter, petroleum and natural gas revenue increased 62 percent
to $143.0 million from $88.5 million for the same period in 2007 due to both
higher commodity prices and production. Production revenue for the Quarter
consisted of $106.0 million from natural gas sales, $21.3 million from crude
oil sales, $13.9 million from the sale of natural gas liquids and $1.9 million
from the sale of sulphur.
    For the nine months ended September 30, 2008, revenues increased
47 percent to $415.8 million from $282.5 million for the same period in 2007
due to higher natural gas production and higher commodity prices.

    
                              Three Months Ended   Nine Months Ended
                                    September 30        September 30
    ($ thousands)                 2008      2007      2008      2007  Change
    -------------------------------------------------------------------------
    Natural gas sales          105,953    64,061   310,709   218,018     43%
    Crude oil sales             21,269    16,435    60,312    41,560     45%
    Natural gas liquids sales   13,917     7,928    40,518    22,940     77%
    Sulphur sales (net)          1,887        56     4,261       (58)
    -------------------------------------------------------------------------
    Petroleum and natural gas
     revenue                   143,026    88,480   415,800   282,460     47%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                     Crude
                                          Natural    Oil &
    ($ thousands)                             Gas     NGLs  Sulphur    Total
    -------------------------------------------------------------------------
    Three months ended September 30, 2007
     petroleum and natural gas revenue     64,061   24,363       56   88,480
    Price variance                         38,996   10,147    1,826   50,969
    Production variance                     2,896      676        5    3,577
    -------------------------------------------------------------------------
    Three months ended September 30, 2008
     petroleum and natural gas revenue    105,953   35,186    1,887  143,026
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                     Crude
                                          Natural    Oil &
    ($ thousands)                             Gas     NGLs  Sulphur    Total
    -------------------------------------------------------------------------
    Nine months ended September 30, 2007
     petroleum and natural gas revenue    218,018   64,500      (58) 282,460
    Price variance                         72,197   31,148    4,329  107,674
    Production variance                    20,494    5,182      (10)  25,666
    -------------------------------------------------------------------------
    Nine months ended September 30, 2008
     petroleum and natural gas revenue    310,709  100,830    4,261  415,800
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Royalties

    For the Quarter, royalties increased 76 percent to $33.8 million from
$19.2 million for the same period in 2007 due to higher revenues, as a result
of higher commodity prices. Royalty expense consists of royalties paid to
provincial governments, freehold landowners and overriding royalty owners. The
Trust's average royalty rate for the Quarter was 23.7 percent compared to
21.8 percent in 2007. The increase in the royalty rate is due to the higher
commodity prices.
    For the nine months ended September 30, 2008 royalties increased
53 percent to $96.9 million compared to $63.2 million for the same period in
2007. The Trust's average royalty rate was 23.3 percent compared to
22.4 percent in 2007, the increase being due to higher commodity prices.
    Management anticipates, based on current commodity prices and royalty
regimes, the average royalty rate for the fourth quarter will be consistent
with the Quarter at approximately 24.0 percent of petroleum and natural gas
revenue.
    On October 25, 2007 the Alberta government announced the New Royalty
Framework ("framework"), which is proposed to take effect on January 1, 2009.
Progress has reviewed the information currently provided by the government and
believes that the changes to Alberta royalties may increase Progress' Alberta
royalty rate from 27 percent to between 31.5 to 36.0 percent based on current
production and a realized natural gas price of between $7.00 to $9.00 per gj.
Using the same production and price assumptions, Progress' corporate royalty
rate is estimated to increase from 24 percent to between 27.5 to 29.0 percent.
    The framework proposes a new simplified royalty formula for natural gas
that will operate on a sliding scale determined by commodity prices, well
productivity and drilling depth. Progress' Deep Basin well depths range
between 2,300 to 2,700 meters which will be eligible for the new measured
depth drilling formula. Progress is attracted to the Deep Basin region because
of the quality and pedigree of the region with its higher than average well
productivity and multi zone drilling targets. The new royalty formula will
increase Progress' royalties payable but is not expected to materially impact
the economics of development drilling in the Deep Basin. Generally, it is
expected to have a negative impact on full cycle exploration drilling in
Alberta due to the inadequate consideration of exploration risk. In the
Quarter, approximately 60 percent of Progress' revenue and capital spending
was in the province of Alberta.

    Operating Expenses

    Operating expenses during the Quarter decreased five percent to
$13.9 million from $14.6 million for the same period in 2007 due to higher
costs in 2007 as a result of the Corporate Acquisition on April 2, 2007. Since
that time efficiencies have been obtained on the assets acquired to reduce
operating costs. For the nine months ended September 30, 2008 operating
expenses of $41.4 million were consistent with the same period in 2007 of
$40.5 million. On a boe basis, operating expenses for the Quarter decreased
nine percent to $6.09 from $6.67 in the same period in 2007 while year-to-date
operating expenses decreased seven percent to $6.12 from $6.55 in the same
period in 2007 as a result of efficiencies obtained on the assets acquired in
the Corporate Acquisition.
    Management anticipates operating expense for the fourth quarter of 2008
will be consistent with year-to-date operating expenses per boe and average
approximately $6.00 per boe.

    Transportation Expenses

    Transportation expenses for the Quarter increased seven percent to $4.6 
million compared to $4.3 million for the same period in 2007, consistent with
the increase in production. For the nine months ended September 30, 2008
transportation expenses increased 27 percent to $14.3 million compared to
$11.2 million for the same period in 2007. The increase is due to higher
production in 2008 compared to the same period in 2007 as well as, higher
transportation and treatment tolls associated with the Corporate Acquisition
and increased tolls paid to divert certain natural gas production in the
Foothills region through the Spectra-owned Jedney facility during the McMahon
turnaround in June 2008. On a boe basis, transportation expenses for the
Quarter of $2.01 were consistent with the same period in 2007 of $1.96 while
year-to-date transportation expenses increased 16 percent to $2.11 compared to
$1.82 for the same period in 2007. In British Columbia, there is an
infrastructure owned by mid-stream processing companies that enables gas
producers to avoid facility construction in exchange for regulated gathering,
processing and transmission fees. This all-in charge is included in
transportation expenses.

    Operating Netbacks

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

    
                                      Three Months Ended   Nine Months Ended
                                            September 30        September 30
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    Natural Gas Properties ($/mcf)
    Sales price                           9.66      6.14      9.52      7.24
    Realized gain (loss) on financial
     instruments                         (0.84)     0.55     (0.54)     0.41
    Royalties                            (2.31)    (1.35)    (2.28)    (1.64)
    Operating expenses                   (0.91)    (0.97)    (0.90)    (0.99)
    Transportation expenses              (0.34)    (0.33)    (0.36)    (0.30)
    -------------------------------------------------------------------------
    Operating netback - natural gas
     properties                           5.26      4.04      5.44      4.72
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Oil Properties ($/bbl)
    Sales Price                          98.38     68.09     95.26     64.21
    Royalties                           (21.45)   (14.00)   (19.50)   (13.22)
    Operating expenses                  (11.79)   (13.31)   (12.80)   (11.36)
    Transportation expenses              (1.86)    (1.80)    (1.89)    (1.94)
    -------------------------------------------------------------------------
    Operating netback - oil properties   63.28     38.98     61.07     37.69
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    All Properties ($/boe)
    Sales Price(1)                       62.73     40.46     61.43     45.73
    Realized gain (loss) on financial
     instruments                         (4.58)     2.89     (2.93)     2.19
    Royalties                           (14.84)    (8.80)   (14.31)   (10.23)
    Operating expenses                   (6.09)    (6.67)    (6.12)    (6.55)
    Transportation expenses              (2.01)    (1.96)    (2.11)    (1.82)
    -------------------------------------------------------------------------
    Operating netback - all properties   35.21     25.92     35.96     29.32
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Includes sulphur net revenue with no associated production as no
        conversion exists for tons to boe.
    

    General and Administrative Expenses

    For the Quarter, general and administrative expenses net of overhead
recoveries, ("G&A") decreased 10 percent to $2.2 million compared to
$2.5 million for the same period in 2007. On a boe basis G&A was $0.97
compared to $1.12 for the same period in 2007. The decrease was due to higher
overhead recoveries in the Quarter as a result of the higher capital spending
as compared to the same period in 2007. For the nine months ended September
30, 2008, G&A expenses increased 14 percent to $7.7 million ($1.13 per boe)
compared to $6.7 million ($1.09 per boe) for the same period in 2007. The
increase in G&A year-to-date is due to the increased size of the Trust, as
well as higher costs incurred to retain employees.
    In accordance with the Technical Services Agreement with ProEx, the Trust
provides personnel and certain administrative and technical services in
connection with the management, development, exploitation and operation of the
assets of ProEx and the marketing of its production. The Trust provides these
services to ProEx on an expense reimbursement basis, based on ProEx's monthly
capital activity and production levels relative to the combined capital
activity and production levels of both the Trust and ProEx. Total expenses
reimbursed by ProEx for the Quarter were $2.0 million (2007 - $1.4 million)
and for the nine months ended September 30, 2008 were $6.4 million (2007 -
$4.2 million).
    The Trust capitalized approximately $0.5 million of G&A during the
Quarter (2007 - $0.2 million) and $1.3 million for the nine months ended
September 30, 2008 (2007 - $0.9 million). The majority of these costs
represent geological and geophysical salaries.
    Management anticipates G&A for the remainder of 2008 will be consistent
with the Quarter at $1.00 per boe.

    
    Unit Based Compensation Expenses

    Performance Units
    

    The Progress performance unit plan (the "Plan") provides for employees
and directors to be granted performance units which vest at the end of a three
year performance period at which time they will be converted to trust units,
or the cash equivalent, and include the accumulated distributions over the
three year period. For new employees hired during the year, their grant on the
date of hire will vest 20 percent on the first anniversary date, 30 percent on
the second anniversary and 50 percent on the third anniversary. 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 and 2008 which can range from
0 to 3 times. Payment may be in the form of cash or trust units, at the
Trust's option. Management anticipates, at the end of the performance period,
accumulated distributions will be paid in cash and trust units will be paid
from treasury.

    Long Term Incentive Component

    Awards granted under the LTI component of the Plan will vest over three
years with 40 percent vesting on the second anniversary of the date of grant
and 60 percent vesting on the third anniversary of the date of grant. An
additional 15 percent grant will be paid if the holder holds the units they
receive on the second anniversary date for one additional year. As at
September 30, 2008 193,243 units are outstanding under the LTI component at an
average value of approximately $14.06 per unit, resulting in a total
compensation cost of $2.7 million of which $2.5 million will be recognized
through unit based compensation expense and $0.2 million will be capitalized
over the vesting period.
    For the Quarter, unit based compensation expenses relating to the
performance unit incentive plan, which includes the performance units and
units issued under the LTI component, decreased 18 percent to $2.0 million
($0.86 per boe) compared to $2.4 million ($1.09 per boe) for the same period
in 2007. The decrease is due to the vesting of the 2005 performance units on
July 2, 2008, at a 1.5 performance factor. Effective July 2, 2008 543,850
performance units were granted to employees with the resulting unit based
compensation being measured at a performance factor of 1.0.
    For the nine months ended September 30, 2008 unit based compensation
expenses decreased three percent to $6.2 million ($0.92 per boe) compared to
$6.4 million ($1.04 per boe) for the same period in 2007. The difference is
due to forfeitures, as well as the difference in the performance factor
applied to the performance units vesting on July 2, 2008 and the ones granted
on July 2, 2008. Actual performance factors will not be determined until the
end of the three year performance periods.
    On July 2, 2008 725,394 units were issued to settle the performance units
vesting on July 2, 2008 at a performance factor of 1.5 times. Also on July 2,
2008 543,850 performance units were granted to employees that will vest on
July 2, 2011.
    On June 28, 2007 381,367 units were issued to settle the performance
units vesting on July 2, 2007.
    As at September 30, 2008 the total outstanding performance units and
units under the LTI component amounted to two percent of the total outstanding
trust units and units which may be issued on the exchange of exchangeable
shares using the currently anticipated performance factors for the performance
units.

    
    Performance Units                                      Nine Months Ended
                                                                September 30
                                                            2008        2007
    -------------------------------------------------------------------------
    Balance, beginning of period                       1,388,200   1,300,717
    Granted                                              553,750     503,650
    Performance factor adjustment(1)                     235,950           -
    Settled                                             (725,394)   (381,367)
    Forfeited                                           (118,606)    (49,700)
    -------------------------------------------------------------------------
    Balance, end of period                             1,333,900   1,373,300
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Vesting Date
    July 2, 2008(1)                                            -     483,800
    July 2, 2009(2)                                      355,800     402,750
    July 2, 2010(3)                                      444,750     486,750
    July 2, 2011                                         533,350           -
    -------------------------------------------------------------------------
    Total                                              1,333,900   1,373,300
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) A performance factor of 1.5 times was realized on the performance
        units vesting on July 2, 2008 resulting in an additional 235,950
        units being issued.
    (2) Using the current anticipated performance factor of 1.5 times,
        533,700 trust units will be issued on the vesting of the 2009
        performance units.
    (3) Using the current anticipated performance factor of 1.25 times,
        558,775 units will be issued on the vesting of the 2010 performance
        units.


    Units under LTI Component                              Nine Months Ended
                                                                September 30
                                                            2008        2007
    -------------------------------------------------------------------------
    Balance, beginning of period                         189,485           -
    Granted                                               24,238     185,999
    Forfeited                                            (20,480)     (9,144)
    -------------------------------------------------------------------------
    Balance, end of period                               193,243     176,855
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    Vesting Date
    2009                                                  67,739      70,742
    2010                                                 111,166     106,113
    2011                                                  14,338           -
    -------------------------------------------------------------------------
    Total(1)                                             193,243     176,855
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) An additional 15 percent grant will be paid to LTI unitholders if a
        unitholder holds the units they receive on the second anniversary
        date for one additional year. This would result in an additional
        28,986 units issued by the Trust.
    

    Interest and Financing Expenses

    Interest and financing expenses during the Quarter decreased four percent
to $6.1 million compared to $6.3 million for the same period in 2007 as a
result of lower interest rates on bank debt. Year-to-date interest and
financing expenses increased 16 percent to $18.3 million compared to
$15.8 million for the same period in 2007. The increase was due to the
increase in bank debt to fund the Corporate Acquisition and capital
expenditures during the last half of 2007 and first half of 2008.

    
                                      Three Months Ended   Nine Months Ended
                                            September 30        September 30
    ($ thousands)                         2008      2007      2008      2007
    -------------------------------------------------------------------------
    Interest on bank debt                3,293     3,518    10,054     7,507
    Interest on Debentures               2,120     2,123     6,329     6,335
    Amortization of Debenture issue
     costs                                 279       279       837       837
    Accretion on debt portion of
     Debentures(1)                         371       367     1,103     1,086
    -------------------------------------------------------------------------
    Total interest and financing
     expense                             6,063     6,287    18,323    15,765
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (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") of
$36.7 million was consistent with the same period in 2007 of $37.3 million.
For the nine months ended September 30, 2008 DD&A increased 10 percent to
$111.6 million compared to $101.4 million for the same period in 2007. The
increase was due to the Corporate Acquisition. On a boe basis, DD&A for the
Quarter was $16.11 compared to $17.08 for the same period in 2007 and for the
nine months ended September 30, 2008 was $16.49 compared to $16.42 for the
same period in 2007.

    Taxes

    On June 12, 2007 the federal government's bill regarding the taxation of
distributions from trusts beginning January 1, 2011 passed the third reading
making it substantively enacted in accordance with Canadian GAAP. As a result,
a recovery of $6.6 million was recognized in the future income tax provision
on the recognition of a $6.6 million future income tax asset in the Trust.
Previously, the future income tax liability on the consolidated balance sheet
represented only the future income tax liability of the Trust's subsidiary.
    As part of the government's bill, a growth limit was established for
existing trusts by limiting new equity issues to 40 percent of that trust's
October 31, 2006 market capitalization ("benchmark") for 2007, and an
additional 20 percent of the benchmark for each of 2008, 2009 and 2010. For
Progress, the 2008 growth limit is $463.2 million increasing by $238.4 million
for each of 2009 and 2010. Any unused amount will roll forward to the next
year.
    The provision for future income taxes for the Quarter was an expense of
$15.5 million compared to a recovery of $5.9 million in same period in 2007.
The expense for the Quarter is due to higher pre-tax earnings as compared to
the same period in 2007 as a result of higher revenues and the unrealized gain
on financial instruments. For the nine months ended September 30, 2008 the
provision for future income taxes was an expense of $7.6 million compared to a
recovery of $16.6 million for the same period in 2007. The difference was due
to higher pre-tax earnings, as well as the recovery in the prior period due to
the recognition of the Trust's future income tax asset.
    As a result of the Corporate Acquisition, Progress recognized a
$137.2 million future income tax asset for the difference between the
$720.9 million in tax pools acquired over the value assigned to the assets.
Progress' estimated tax pool balances as at September 30, 2008 total
approximately $1.1 billion.
    On July 14, 2008 the Department of Finance of Canada released draft tax
legislation (the SIFT conversion rules) that will facilitate the restructuring
of income trusts into corporations. The draft rules have been anticipated
since October 31, 2006 when the Government of Canada first proposed to impose
an entity-level tax on income trusts. If enacted as proposed, the SIFT
conversion rules would generally allow Progress to convert to corporate form
on a tax-efficient basis during a five-year window beginning on the date of
the announcement and ending December 31, 2012. Management continues to analyze
its business options for structural changes and to determine a course of
action and potential restructuring to maximize value in the best interest of
unitholders.

    Non-Controlling Interest - Exchangeable Shares

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

    
                                          Nine months ended September 30
                                   ------------------------------------------
                                           2008                   2007
    ($ thousands, except           --------------------  --------------------
     unit amounts)                   Number     Amount     Number     Amount
    -------------------------------------------------------------------------
    Exchangeable Shares
    Balance, beginning of period  9,173,083    126,384  9,642,540    122,592
    Exchanged for trust units    (1,050,127)   (14,848)  (375,066)    (4,842)
    Non-controlling interest
     expense                                    11,601                 8,574
    -------------------------------------------------------------------------
    Balance, end of period        8,122,956    123,137  9,267,474    126,324
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The charge to net earnings of $11.6 million for 2008 and $8.6 million for
2007 represents the net earnings attributable to the exchangeable shares over
the period.

    Net Earnings and Comprehensive Income

    Net earnings for the Quarter increased 341 percent to $52.5 million
compared to $11.9 million for the same period in 2007 as a result of higher
revenues, as well as a $57.0 million unrealized gain on financial instruments.
Basic and diluted net earnings for the Quarter were $0.53 per unit and
$0.51 per unit, respectively, compared to $0.12 per unit basic and diluted for
the same period in 2007.
    Net earnings for the nine months ended September 30, 2008 increased
48 percent to $89.1 million compared to $60.3 million for the same period in
2007, as a result of higher revenues. Basic and diluted net earnings for the
nine months ended September 30, 2008 were $0.90 per unit and $0.89 per unit,
respectively, compared to $0.67 per unit basic and $0.66 per unit diluted for
the same period in 2007.
    Other comprehensive income for the three and nine months ended September
30, 2008 was nil compared to a loss of $1.8 million and $9.9 million,
respectively, for the same periods in 2007. The prior period amounts relate to
the amortization of the amount recognized in accumulated other comprehensive
income on January 1, 2007 for the fair value of financial instruments on
adoption of the new accounting standards for financial instruments (refer to
Risk Management above). Total comprehensive income for the three and nine
months ended September 30, 2008 was $52.5 million and $89.1 million
respectively (2007 - $10.1 million and $50.3 million, respectively).

    
    Quarterly Financial Summary(1),(2)

                                                 Three Months Ended
                                      ---------------------------------------
    ($ thousands, except               Sept 30   June 30    Mar 31    Dec 31
     per unit amounts)                    2008      2008      2008      2007
    -------------------------------------------------------------------------
    Petroleum and natural gas revenue  143,026   149,699   123,075    99,592
    -------------------------------------------------------------------------
    Net earnings                        52,461    28,631     8,034     9,922
      Per unit basic                      0.53      0.29      0.08      0.10
      Per unit diluted                    0.51      0.29      0.08      0.10
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                 Three Months Ended
                                      ---------------------------------------
    ($ thousands, except               Sept 30   June 30    Mar 31    Dec 31
     per unit amounts)                    2007      2007      2007      2006
    -------------------------------------------------------------------------
    Petroleum and natural gas revenue   88,480   108,503    85,477    75,182
    -------------------------------------------------------------------------
    Net earnings                        11,909    31,947    16,425    21,538
      Per unit basic                      0.12      0.33      0.22      0.29
      Per unit diluted                    0.12      0.33      0.22      0.28
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Certain amounts above have been adjusted to conform to the
        presentation adopted in 2007 as a result of the adoption of the new
        accounting standards for financial instruments.
    (2) Petroleum and natural gas revenue for the first quarter of 2007
        increased as a result of increased production from drilling, as well
        as, higher natural gas prices. Net earnings for the first quarter of
        2007 decreased due to an $8.2 million unrealized loss on financial
        instruments as a result of adopting the new accounting standards for
        financial instruments and electing not to use hedge accounting.
        Petroleum and natural gas revenue increased in the second quarter of
        2007 due to the Corporate Acquisition and decreased for the third and
        fourth quarter of 2007 due to lower natural gas prices and slightly
        lower production. For the first quarter of 2008, revenue and net
        earnings increased as a result of higher production and commodity
        prices. Net earnings for the first quarter included an unrealized
        loss on financial instruments of $24.7 million due to strengthening
        future natural gas prices as compared to when the hedges were entered
        into. For the second quarter of 2008, commodity prices continued to
        strengthen which resulted in higher revenues and net earnings. For
        the Quarter, revenues decreased slightly due to lower commodity
        prices. Net earnings for the Quarter included a $57.0 million
        unrealized gain on financial instruments.
    

    Distributions

    Management monitors the Trust's distribution payout policy with respect
to forecasted net cash flow, debt levels and capital expenditures. As a crude
oil and natural gas trust, Progress has a declining asset base and therefore
relies on ongoing development activities and acquisitions to replace
production and add additional reserves. Progress' future crude oil and natural
gas production and reserves are highly dependent on its success in exploiting
its asset base and acquiring additional reserves. The success of these
activities, along with natural gas prices are the main factors influencing the
sustainability of the Trust's distributions. Progress defines sustainability
as maintaining production and reserves per trust unit over an extended period
of time. Progress' sustainability objective is to annually retain sufficient
cash flow to replace reserves produced.
    Since January 2007, the Trust's monthly distribution has been $0.10 per
trust unit. Distributions for the Quarter were $33.0 million compared to
$31.0 million for the same period in 2007. For the nine months ended September
30, 2008 $91.9 million was distributed compared to $84.9 million for the same
period in 2007. Included in the distributions for the Quarter was $3.1 million
paid on the vesting of the 2008 performance units (2007 - $1.8 million).
    For the Quarter, cash flow from operating activities (after changes in
non-cash working capital) of $81.5 million, exceeded cash distributions of
$33.0 million. This was consistent with the three months ended September 30,
2007 in which cash flow from operating activities (after changes in non-cash
working capital) of $55.7 million exceeded cash distributions of
$31.0 million. For the nine months ended September 30, 2008, cash flow from
operating activities (after changes in non-cash working capital) of
$223.6 million exceeded cash distributions of $91.9 million (2007 -
$174.7 million cash flow from operating activities (after changes in non-cash
working capital) exceeded distributions of $84.9 million).
    For the Quarter, net earnings of $52.5 million exceeded the cash
distributions of $33.0 million. For the three months ended September 30, 2007,
cash distributions of $31.0 million exceeded net earnings of $11.9 million.
Cash distributions for the nine months ended September 30, 2008 and 2007 of
$91.9 million and $84.9 million, respectively, both exceeded net earnings for
those periods of $89.1 million and $60.3 million, respectively. Net earnings
include significant non-cash charges which for the Quarter were $20.0 million.
Net earnings 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
$87.2 million, which was higher than the cash flow from operating activities
(after changes in non-cash working capital) of $81.5 million. For the three
months ended September 30, 2007 cash distributions and capital spending was
$1.3 million lower than the cash flow from operating activities (after changes
in non-cash working capital). For the nine months ended September 30, 2008,
cash distributions and capital spending were lower than cash flow from
operating activities (after changes in non-cash working capital) by
$22.5 million (2007 - $33.0 million higher, excluding the Corporate
Acquisition). Progress relies on access to capital markets to the extent cash
distributions and net capital expenditures exceed cash flow from operations
(after changes in non-cash working capital). Over the long term Progress
expects to fund distributions and capital expenditures with its cash flow,
however, it will continue to fund acquisitions and growth through additional
debt and equity. In the crude oil and natural gas sector, because of the
nature of reserve reporting, the natural reservoir declines and the risks
involved in capital investment, it is not possible to distinguish between
capital spent on maintaining productive capacity and capital spent on growth
opportunities. Therefore, maintenance capital is not disclosed separately from
development capital spending.
    On October 25, 2007 the Alberta government announced the New Royalty
Framework ("framework"), which will take effect on January 1, 2009. Progress
has reviewed the information currently provided by the government and believes
that the changes to Alberta royalties may increase Progress' Alberta royalty
rate from 27 percent to between 31.5 to 36.0 percent based on current
production and a realized natural gas price of between $7.00 to $9.00 per gj.
Using the same production and price assumptions, Progress' corporate royalty
rate is estimated to increase from 24 percent to between 27.5 to 29.0 percent.
    Although Progress intends to continue to make cash distributions to
unitholders, these distributions are not guaranteed.

    Capital Expenditures

    During the Quarter, the Trust invested $54.2 million in capital
expenditures compared to $23.4 million in the same period in 2007. For the
nine months ended September 30, 2008 the Trust invested $109.2 million in
capital expenditures compared to $122.9 million for the same period in 2007.

    
                                      Three Months Ended   Nine Months Ended
                                            September 30        September 30
    ($ thousands)                         2008      2007      2008      2007
    -------------------------------------------------------------------------
    Land acquisitions and retention     17,118     1,104    23,186     5,143
    Geological and geophysical           1,978       725     4,609     3,383
    Drilling and completions            25,161    22,954    61,508    58,392
    Equipping and facilities             7,786     6,912    21,674    23,421
    Corporate assets                       100        31       142       203
    -------------------------------------------------------------------------
    Exploration and development
     capital                            52,143    31,726   111,119    90,542
    Net property acquisitions
     (dispositions)                      2,080    (8,293)   (1,920)   32,326
    -------------------------------------------------------------------------
    Total capital expenditures          54,223    23,433   109,199   122,868
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    On June 26, 2008, Progress disposed of its Saskatchewan properties to
Seaview Energy Inc. ("Seaview") for gross proceeds of $28.3 million
($26.7 million net of final closing adjustments and fees). The amount received
included $5.4 million of cash and 8,300,000 Class A common shares of Seaview
valued at $2.76 per share. The shares received represent the non-cash value of
this transaction and are not included in the table above.
    Progress drilled 32 gross wells (12.5 net) with a 94 percent success rate
during the Quarter. The drilling activity included 14 gross wells (8.2 net) in
the Deep Basin region of northwest Alberta and 18 gross wells (4.3 net) in the
Foothills region of northeast British Columbia. The net wells include 10.6 gas
wells, 1.1 crude oil wells and 0.8 abandoned wells.
    During the Quarter Progress acquired over 50,000 acres of undeveloped
land through crown land sales and another 6,000 acres through property
acquisitions in established fairways in the Foothills and Deep Basin regions.
    Year-to-date, Progress drilled 66 gross wells (27.6 net) with a
97 percent success rate. The program included 23 gross wells (16.1 net)
drilled in the Deep Basin region of northwest Alberta, 38 gross (10.4 net)
drilled in the Foothills of northeast British Columbia, one gross well (0.8
net) in the Fort St. John Plains region and four gross (0.2 net) drilled in
Central Alberta.
    Progress' capital program for the remainder of 2008 will be focused on
internally generated drilling opportunities and aggressive land capture.

    Goodwill

    The goodwill balance of $414.7 million is primarily the result of the
acquisition of Cequel in 2004. In accordance with Canadian GAAP, goodwill is
not amortized but is subject to an impairment test. Progress conducts a
goodwill impairment test on an annual basis at its fiscal year end. Goodwill
may be tested for impairment between annual tests in certain situations.
    For these purposes, the fair value of goodwill is determined as the fair
value of the Trust as a whole less the fair value of the Trust's identifiable
assets and liabilities. Given the significant value attributable to the
Trust's oil and natural gas assets, a writedown of the carrying value of
goodwill may be required if the fair value of identifiable assets, less the
fair value of liabilities, exceed the value of Progress.

    
    Liquidity and Capital Resources

                                                  September 30   December 31
    ($ thousands, except per unit amounts)                2008          2007
    -------------------------------------------------------------------------
    Working capital deficiency                           4,985        25,459
    Bank debt                                          279,918       296,590
    Convertible debentures                             124,057       122,174
    -------------------------------------------------------------------------
    Total debt                                         408,960       444,223
    -------------------------------------------------------------------------
    Units outstanding and issuable for
     exchangeable shares (thousands)                   112,398       110,781
    Market price per unit, end of period                 12.05         10.85
    -------------------------------------------------------------------------
    Market value of trust units and
     exchangeable shares                             1,354,396     1,201,974
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flow(1) (12 month trailing)                   272,941       214,290
    Total debt to cash flow ratio                         1.50          2.07
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Represents cash flow from operating activities before changes in non-
        cash working capital.
    

    At September 30, 2008 the Trust had $279.9 million outstanding on its
credit facilities, $124.1 million for the debt portion of the 6.75 percent and
6.25 percent convertible unsecured subordinated debentures (the "Debentures")
and a working capital deficit of $5.0 million, totaling $409.0 million of
total debt. Included in the working capital deficit is the Trust's investment
in Seaview valued at $22.4 million at September 30, 2008 as described below.
    At September 30, 2008 the Trust's credit facilities consisted of a
$340 million extendible revolving term credit facility and a $35 million
working capital credit facility with a syndicate of banks. The facilities are
available on a revolving basis for a period of at least 364 days until May 26,
2009, and such initial term out date may be extended for further 364 day
periods at the request of the Trust, subject to approval by the banks.
Following the term out date, the facilities will be available on a
non-revolving basis for a one year term, at which time the facilities would be
due and payable. The credit facilities are secured by a $1 billion fixed and
floating charge debenture on the assets of Progress Energy Ltd. and by a
guarantee and subordination provided by Progress Energy Ltd. in respect of the
Trust's obligations. The $375 million borrowing base is subject to semi-annual
review by the banks.
    At September 30, 2008 the Trust had outstanding $55.7 million principal
amount of the 6.75 percent debentures and $75.0 million principal amount of
the 6.25 percent debentures for a combined total of $130.7 million. Both the
6.75 percent debentures and the 6.25 percent debentures pay interest
semi-annually and are convertible at the option of the holder at any time into
fully paid trust units at a conversion price of $15.00 per trust unit and
$19.50 per trust unit, respectively. The 6.75 percent debentures mature on
June 30, 2010 and the 6.25 percent debentures mature on September 30, 2011 at
which time they are due and payable.
    The Debentures have been classified as debt net of the fair value of the
conversion feature which has been classified as part of unitholders' equity
and net of issue costs. At September 30, 2008 the debt portion was
$124.1 million, net of unamortized issue costs. Issue costs are amortized over
the term of the Debentures and the debt portion will accrete up to the
principal balance at maturity. The accretion, amortization of issue costs and
the interest paid are expensed with interest and financing expense on the
consolidated statements of earnings.
    Bank debt decreased from $296.6 million as at December 31, 2007 to
$279.9 million as at September 30, 2008 due to strengthening commodity prices.
The working capital deficit of $5.0 million at September 30, 2008 is lower
than the December 31, 2007 deficiency of $25.4 million due to the Trust's
investment in Seaview.
    On June 26, 2008, Progress disposed of its Saskatchewan properties to
Seaview for gross proceeds of $28.3 million ($26.7 million net of final
closing adjustments and fees). The amount received included $5.4 million of
cash and 8,300,000 Class A common shares of Seaview valued at $2.76 per share.
The Class A common shares are included in investments on the balance sheet and
have been classified as a held for trading financial instrument and, as a
result, will be measured at fair market value each reporting period. Based on
Seaview's closing trading price on September 30, 2008 of $2.70 per share, a
loss of $12.9 million and $1.2 million was recognized for the three and nine
months ended September 30, 2008 on the revaluation of the shares to
$22.4 million at September 30, 2008.
    On April 2, 2007 Progress purchased all of the issued and outstanding
shares of a private company (refer to Corporate Acquisition above) and in
conjunction with the purchase, sold certain assets of the private company to
ProEx. The net cash consideration of $393.0 million, was financed by the
issuance of 21.0 million trust units at a price of $12.00 per trust unit for
proceeds of $252.0 million ($238.7 million net of issue costs) and through
increased bank debt.
    Outstanding as at October 29, 2008 were 99,784,948 trust units, 8,122,956
exchangeable shares convertible into 12,715,513 trust units and $130.7 million
of Debentures convertible into 7,557,287 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 the current working capital
deficit and forecasted capital expenditures through a combination of cash flow
and debt. Cash flow used to finance these commitments may reduce the amount of
cash distributions paid to unitholders as distributions are not guaranteed.

    CERTIFICATION OF DISCLOSURE

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

    INTERNATIONAL FINANCIAL REPORTING STANDARDS

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

    DISCLOSURE CONTROLS AND PROCEDURES

    Disclosure controls and procedures have been designed to ensure that
information required to be disclosed by the Trust is accumulated and
communicated to the Trust's Management, as appropriate, to allow timely
decisions regarding required disclosures. The Trust's Chief Executive Officer
and Chief Financial Officer have concluded, based on their evaluation as of
the end of the period covered by the interim filings that the Trust's
disclosure controls and procedures are effective to provide reasonable
assurance that material information related to the issuer, is made known to
them by others within the Trust. It should be noted that while the Trust's
Chief Executive Officer and Chief Financial Officer believe that the Trust's
disclosure controls and procedures provide a reasonable level of assurance
that they are effective, they do not expect that the disclosure controls and
procedures or internal control over financial reporting will prevent all
errors and fraud. A control system, no matter how well conceived or operated,
can provide only reasonable, not absolute, assurance that the objective of the
control system is met.

    Additional Information

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

    OUTLOOK

    We remain firmly focused on our goal of maintaining or modestly growing
reserves and production on a per unit basis. Our sustainability strategy has
been achieved through the drill bit at industry leading efficiencies and
supplemented by strategic acquisitions while maintaining our financial
strength. Our sustainability strategy has been strengthened by expanding our
development inventory while providing an appropriate exposure to exploration
upside within our existing core regions.
    We expect fourth quarter production to average approximately 25,000 boe
per day. Our capital investment program for the remainder of 2008 will be
focused on internally generated drilling opportunities and agressive land
capture. Our initial plans for 2009 capital investment will focus on ensuring
that our capital investment and distributions are in balance with cash flow.
With an expected capital investment program of approximately $120 to
$135 million in 2009, we will maintain our financial strength and flexibility
in the current environment.
    We believe the supply-demand balance for natural gas in North America
remains tight. Although there has been substantial year over year growth in
organic production in the US, it has been offset by reduced imports of
liquefied natural gas and natural gas imports from Canada. On the demand side,
there is consistent year over year growth in natural gas demand for electrical
generation and residential and commercial consumption. Natural gas in storage
will again be a critical factor in balancing winter related demand.
    Our focus on internally generated growth opportunities is well suited to
continue to add unitholder value during these weak economic times. We have
maintained a clear strategy on applying our tight gas expertise on
non-conventional resource plays in the Deep Basin of northwest Alberta and the
Foothills of northeast British Columbia while maintaining our low-cost focus
to ensure that Progress remains strong and flexible even in the face of weaker
North American economic activity. Our low-cost operating structure and our
strong capital efficiencies allow us to continue to capture opportunities no
matter where we are in the business or commodity price cycle.
    Equity market valuations have been significantly impacted by the
weakening economy and credit issues globally. Progress' unit price and that of
our competitors are trading at historical low levels. We believe that as
investors begin to look through the economic weakness for investment
opportunities, they will migrate towards companies with strong market
liquidity, dominant asset positions in key resource plays and the financial
strength to compete for opportunities. These attributes are characteristic of
Progress. 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 30, 2008



    PROGRESS ENERGY TRUST
    CONSOLIDATED BALANCE SHEETS
    (Unaudited)

                                                  September 30   December 31
    ($ thousands)                                         2008          2007
    -------------------------------------------------------------------------

    ASSETS
    Current
      Cash and short-term investments                        -             -
      Accounts receivable                               44,535        47,505
      Prepaid expenses and deposits                     11,434         5,066
      Fair value of financial instruments (Note 11)     12,727             -
      Investments (Notes 3 and 11)                      23,756         4,082
    -------------------------------------------------------------------------
                                                        92,452        56,653
    Property, plant and equipment (Note 3)           1,033,418     1,055,054
    Future income taxes (Note 2)                        32,730        36,716
    Goodwill                                           414,655       414,655
    -------------------------------------------------------------------------
                                                     1,573,255     1,563,078
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES
    Current
      Accounts payable and accrued liabilities          69,495        67,127
      Cash distributions payable                         9,978         9,748
      Current income taxes payable                       5,237         5,237
      Future income taxes                                3,940             -
    -------------------------------------------------------------------------
                                                        88,650        82,112
    Bank debt (Note 4)                                 279,918       296,590
    Convertible debentures (Note 5)                    124,057       122,174
    Asset retirement obligations (Note 6)               35,184        35,012
    -------------------------------------------------------------------------
                                                       527,809       535,888
    NON-CONTROLLING INTEREST
    Exchangeable shares (Note 7)                       123,137       126,384

    UNITHOLDERS' EQUITY
    Unitholders' capital (Note 8)                    1,019,038       990,946
    Convertible debentures (Note 5)                      7,699         7,702
    Contributed surplus (Note 8)                        10,634        14,468
    Deficit                                           (115,062)     (112,310)
    -------------------------------------------------------------------------
                                                       922,309       900,806
    -------------------------------------------------------------------------
                                                     1,573,255     1,563,078
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements



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

                                      Three Months Ended   Nine Months Ended
    ($ thousands, except per                September 30        September 30
     unit amounts)                        2008      2007      2008      2007
    -------------------------------------------------------------------------
    REVENUE
      Petroleum and natural gas        143,026    88,480   415,800   282,460
      Royalties                        (33,841)  (19,242)  (96,855)  (63,167)
    -------------------------------------------------------------------------
                                       109,185    69,238   318,945   219,293
      Realized gain (loss) on
       financial instruments (Note 11) (10,433)    6,324   (19,853)   13,504
      Unrealized gain (loss) on
       financial instruments (Note 11)  57,005      (598)   12,727     1,668
      Unrealized (loss) on
       investments (Note 11)           (15,602)        -    (3,959)        -
    -------------------------------------------------------------------------
                                       140,155    74,964   307,860   234,465
    -------------------------------------------------------------------------
    EXPENSES
      Operating                         13,886    14,596    41,395    40,478
      Transportation                     4,584     4,295    14,306    11,242
      General and administrative         2,218     2,454     7,665     6,734
      Unit based compensation (Note 8)   1,971     2,394     6,235     6,443
      Interest and financing             6,063     6,287    18,323    15,765
      Depletion, depreciation and
       accretion                        36,741    37,345   111,598   101,401
    -------------------------------------------------------------------------
                                        65,463    67,371   199,522   182,063
    -------------------------------------------------------------------------
    Earnings before taxes and
     non-controlling interest           74,692     7,593   108,338    52,402
    -------------------------------------------------------------------------
    TAXES
      Capital taxes                          -        28        39       107
      Future income taxes               15,470    (5,936)    7,572   (16,560)
    -------------------------------------------------------------------------
                                        15,470    (5,908)    7,611   (16,453)
    -------------------------------------------------------------------------
    Net earnings before
     non-controlling interest           59,222    13,501   100,727    68,855
    Non-controlling interest -
     exchangeable shares (Note 7)       (6,761)   (1,592)  (11,601)   (8,574)
    -------------------------------------------------------------------------
    NET EARNINGS                        52,461    11,909    89,126    60,281

    OTHER COMPREHENSIVE INCOME
      Amortization of fair value of
       financial instruments (Note 11)       -    (1,804)        -    (9,942)
    -------------------------------------------------------------------------
    COMPREHENSIVE INCOME                52,461    10,105    89,126    50,339
    -------------------------------------------------------------------------

    Deficit, beginning of period      (134,558)  (73,922) (112,310)  (68,371)
    Distributions                      (32,965)  (30,987)  (91,878)  (84,910)
    -------------------------------------------------------------------------
    Deficit, end of period            (115,062)  (93,000) (115,062)  (93,000)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    NET EARNINGS PER UNIT (Note 8)
      Basic                              $0.53     $0.12     $0.90     $0.67
      Diluted                            $0.51     $0.12     $0.89     $0.66
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    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)                         2008      2007      2008      2007
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES
      Net earnings                      52,461    11,909    89,126    60,281
      Unrealized loss (gain) on
       financial instruments (Note 11) (57,005)      598   (12,727)   (1,668)
      Unrealized loss on investments
       (Note 11)                        15,602         -     3,959         -
      Depletion, depreciation and
       accretion                        36,741    37,345   111,598   101,401
      Non-controlling interest -
       exchangeable shares (Note 7)      6,761     1,592    11,601     8,574
      Convertible debentures accretion
       (Note 5)                            371       367     1,103     1,086
      Amortization of convertible
       debenture issue costs (Note 5)      279       279       837       837
      Amortization of commodity sales
       contract                           (109)     (125)     (335)     (383)
      Unit based compensation expense
       (Note 8)                          1,971     2,394     6,235     6,443
      Asset retirement expenditures
       (Note 6)                           (398)     (338)     (755)     (448)
      Future income taxes               15,470    (5,936)    7,572   (16,560)
    -------------------------------------------------------------------------
                                        72,144    48,085   218,214   159,563
      Changes in non-cash working
       capital (Note 10)                 9,377     7,605     5,368    15,177
    -------------------------------------------------------------------------
                                        81,521    55,690   223,582   174,740
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    FINANCING ACTIVITIES
      Increase (decrease) in
       bank debt                        (2,159)    8,022   (16,672)  185,058
      Issue of units (Notes 2 and 8)         -         -         -   252,000
      Cash distributions               (32,865)  (30,979)  (91,648)  (85,740)
      Unit issue costs (Notes 2
       and 8)                                -         -         -   (13,304)
    -------------------------------------------------------------------------
                                       (35,024)  (22,957) (108,320)  338,014
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    INVESTING ACTIVITIES
      Corporate Acquisition (Note 2)         -         -         -  (523,763)
      Disposition (Note 2)                   -         -         -   134,400
      Capital expenditures             (54,223)  (23,433) (109,199) (122,868)
      Changes in non-cash working
       capital (Note 10)                 7,726    (9,300)   (6,063)   (8,788)
    -------------------------------------------------------------------------
                                       (46,497)  (32,733) (115,262) (521,019)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    CHANGE IN CASH AND
     SHORT-TERM INVESTMENTS                  -         -         -    (8,265)
    Cash and short-term investments,
     beginning of period                     -         -         -     8,265
    -------------------------------------------------------------------------
    CASH AND SHORT-TERM INVESTMENTS,
     END OF PERIOD                           -         -         -         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes to the consolidated financial statements



    PROGRESS ENERGY TRUST
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

    Relationship with ProEx Energy Ltd.

    ProEx Energy Ltd. ("ProEx") was created as part of a Plan of Arrangement
    effective July 2, 2004 which included the creation of Progress Energy
    Trust. Progress has no ownership interest in ProEx and ProEx has no
    ownership interest in Progress. ProEx has no employees. Progress provides
    personnel and services to ProEx under a technical services agreement
    ("Technical Services Agreement"). The Technical Services Agreement was
    put in place to ensure the sharing of costs of operating both companies
    using Progress employees. 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,
    2008 was $2.0 million and $6.4 million, respectively (2007 - $1.4 million
    and $4.2 million).

    Progress and ProEx also share the cost of long-term compensation and
    consequently ProEx has granted stock options and shares to employees and
    executives of Progress as service providers and has also participated in
    the long term incentive plan by granting ProEx common shares to employees
    of Progress, excluding the executives. To facilitate this plan, Progress
    purchases ProEx common shares and is reimbursed by ProEx for the cost
    incurred. As at September 30, 2008 184,489 ProEx shares (2007 - 173,789)
    had been purchased for future distribution under the plan. The ProEx
    common shares will be held until the vesting date and any forfeited
    shares will revert back to ProEx.

    As at September 30, 2008, accounts payable included $4.5 million (2007 -
    $1.0 million) payable to ProEx which includes standard joint venture
    amounts including revenue. These amounts were paid subsequent to
    September 30, 2008.

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

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


    1.  SUMMARY OF ACCOUNTING POLICIES

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

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

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

    2.  CORPORATE ACQUISITION

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

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

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

    3.  PROPERTY, PLANT AND EQUIPMENT

                                                  September 30   December 31
                                                          2008          2007
        ---------------------------------------------------------------------
        Property, plant and equipment                1,531,635     1,447,181
        Conversions of exchangeable shares              50,836        47,461
        Accumulated depletion and depreciation        (549,053)     (439,588)
        ---------------------------------------------------------------------
        Property, plant and equipment, net           1,033,418     1,055,054
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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

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

        The conversion of exchangeable shares held by previous Progress
        Energy Ltd. shareholders to Trust units is accounted for as a step-
        purchase. Consequently a charge of $3.4 million was made to property,
        plant and equipment for the nine months ended September 30, 2008
        (2007 - $1.2 million).

        The calculation of 2008 depletion and depreciation expense included
        an estimated $84.1 million for future development costs associated
        with proved undeveloped reserves and excluded $26.0 million for the
        estimated future net realizable value of production equipment and
        facilities and $108.5 million for the estimated value of unproven
        properties. Depletion and depreciation expense for the three and nine
        months ended September 30, 2008 was $36.0 million and $109.5 million,
        respectively (2007 - $36.7 million and $99.6 million).

        Included in the Trust's property, plant and equipment balance is
        $17.6 million, net of accumulated depletion, related to asset
        retirement obligations ($30.7 million before accumulated depletion)
        (Refer to note 6).

        The Trust capitalized approximately $2.1 million of geological and
        geophysical compensation costs associated with the exploration and
        development of capital assets during the nine months ended
        September 30, 2008 (2007 - $0.6 million).

    4.  BANK DEBT

                                                  September 30   December 31
                                                          2008          2007
        ---------------------------------------------------------------------
        Direct advances                                 12,918         1,590
        Banker's acceptances                           267,000       295,000
        ---------------------------------------------------------------------
        Total bank debt                                279,918       296,590
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        At September 30, 2008 the Trust's credit facilities consisted of a
        $340 million extendible revolving term credit facility and a
        $35 million working capital credit facility with a syndicate of banks
        resulting in total credit facilities of $375 million. The facilities
        are available on a revolving basis for a period of at least 364 days
        until May 26, 2009, and such initial term out date may be extended
        for further 364 day periods at the request of the Trust, subject to
        approval by the banks. Following the term out date, the facilities
        will be available on a non-revolving basis for a one year term, at
        which time the facilities would be due and payable. Various borrowing
        options are available under the facilities including prime rate based
        advances and banker's acceptance loans. Average cost of borrowing
        under these facilities for the nine months ended September 30, 2008
        was 4.6 percent (2007 - 5.2 percent). The credit facilities are
        secured by a $1 billion fixed and floating charge debenture on the
        assets of Progress Energy Ltd. and by a guarantee and subordination
        provided by Progress Energy Ltd. in respect of the Trust's
        obligations. The $375 million borrowing base is subject to semi-
        annual review by the banks.

    5.  CONVERTIBLE DEBENTURES

        The 6.75 percent debentures and the 6.25 percent debentures (the
        "Debentures") have been classified as debt, net of issue costs and
        net of the fair value of the conversion feature at the date of issue
        which has been classified as part of unitholders' equity. The issue
        costs will be amortized over the term of the Debentures and the debt
        portion will accrete up to the principal balance at maturity. The
        accretion, amortization of issue costs and the interest paid are
        expensed within interest and financing expense on the consolidated
        statements of earnings. The fair value of the conversion feature was
        determined at the time of issue as the difference between the
        principal value of the debentures and the discounted cash flows
        assuming an eight percent rate, which was the estimated rate for debt
        with similar terms at the time. 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
                        -----------------------------------------------------
                                   2008                       2007
                        -----------------------------------------------------
        Debentures        6.75%    6.25%    Total    6.75%    6.25%    Total
        ---------------------------------------------------------------------
        Principal,
         beginning of
         period          55,727   75,000  130,727   55,727   75,000  130,727
        Converted to
         Trust Units        (60)       -      (60)       -        -        -
        ---------------------------------------------------------------------
        Principal, end
         of period       55,667   75,000  130,667   55,727   75,000  130,727
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Debt portion,
         beginning of
         period          53,274   68,900  122,174   52,300   67,305  119,605
        Accretion           384      719    1,103      379      707    1,086
        Amortization of
         issue costs        350      487      837      350      487      837
        Converted to
         Trust Units(1)     (57)       -      (57)       -        -        -
        ---------------------------------------------------------------------
        Debt portion,
         end of period   53,951   70,106  124,057   53,029   68,499  121,528
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Equity portion,
         beginning of
         period           2,756    4,946    7,702    2,756    4,946    7,702
        Converted to
         Trust Units         (3)       -       (3)       -        -        -
        ---------------------------------------------------------------------
        Equity portion,
         end of period    2,753    4,946    7,699    2,756    4,946    7,702
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) Net of unamortized issue costs.

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

        Total interest charged to earnings for the nine months ended
        September 30, 2008 was $8.3 million (2007 - $8.3 million) which
        includes $1.1 million of debenture accretion (2007 - $1.1 million)
        and $0.8 million of amortized issue costs (2007 - $0.8 million).

    6.  ASSET RETIREMENT OBLIGATIONS

        Asset retirement obligations were estimated based on the Trust's net
        ownership interest in all wells and facilities, the estimated costs
        to abandon and reclaim the wells and facilities and the estimated
        timing of the costs to be incurred in future periods. The total
        undiscounted amount of the estimated cash flows required to settle
        the asset retirement obligations is approximately $73.0 million which
        will be incurred over the next 40 years with the majority of costs
        incurred between 2009 and 2020. A credit adjusted risk-free rate of
        eight percent was used to calculate the fair value of the asset
        retirement obligations. The following reconciles the Trust's asset
        retirement obligations:

                                                           Nine Months Ended
                                                                September 30
                                                          2008          2007
        ---------------------------------------------------------------------
        Balance, beginning of period                    35,012        24,148
        Liabilities incurred                             2,298         1,375
        Liabilities settled                               (755)         (448)
        Acquisition                                          -         5,638
        Disposition                                     (3,504)            -
        Accretion expense                                2,133         1,757
        ---------------------------------------------------------------------
        Balance, end of period                          35,184        32,470
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    7.  NON-CONTROLLING INTEREST - EXCHANGEABLE SHARES

        The non-controlling interest on the consolidated balance sheet
        consists of the book value of exchangeable shares issued to Progress
        Energy Ltd. shareholders and the fair value of exchangeable shares
        issued to Cequel Energy Inc. shareholders as part of a Plan of
        Arrangement that became effective on July 2, 2004, and includes the
        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
                              -----------------------------------------------
                                         2008                    2007
                              ----------------------- -----------------------
                                  Number      Amount      Number      Amount
        ---------------------------------------------------------------------
        Exchangeable Shares
        Balance, beginning
         of period             9,173,083     126,384   9,642,540     122,592
        Exchanged for trust
         units                (1,050,127)    (14,848)   (375,066)     (4,842)
        Non-controlling
         interest expense                     11,601                   8,574
        ---------------------------------------------------------------------
        Balance, end of
         period                8,122,956     123,137   9,267,474     126,324
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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

        Retraction of Exchangeable Shares

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

        Redemption of Exchangeable Shares

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

    8.  UNITHOLDERS' EQUITY

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

        Unitholders' Capital

                                        Nine months ended September 30
                              -----------------------------------------------
                                         2008                  2007
                              ----------------------- -----------------------
                                  Number      Amount      Number      Amount
        ---------------------------------------------------------------------
        Trust Units
        Balance, beginning
         of period            97,478,808     990,946  75,457,291     739,998
        Issued for cash
         (Note 2)                      -           -  21,000,000     252,000
        Exchangeable
         shares converted      1,576,746      17,351     504,886       5,716
        Unit based
         compensation            725,394      10,681     381,367       5,102
        Issued on conversion
         of Debentures             4,000          60           -           -
        Unit issue costs
         (Note 2)                                  -                 (13,304)
        ---------------------------------------------------------------------
        Balance, end of
         period               99,784,948   1,019,038  97,343,544     989,512
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        On July 2, 2008, 725,394 units were issued to settle the performance
        units that vested at a performance factor of 1.5 times, resulting in
        $10.7 million being transferred from contributed surplus to
        unitholders' capital.

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

        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
                                 2008         2007         2008         2007
        ---------------------------------------------------------------------
        Weighted average
         trust units -
         basic             99,544,037   97,297,822   98,576,066   89,943,734
        Trust units
         issuable on
         conversion of
         exchangeable
         shares(1)         12,846,542   13,139,048   13,351,418   13,247,052
        Performance units     791,355      498,983    1,022,481      693,118
        6.75% Debentures    3,711,133            -            -            -
        6.25% Debentures    3,846,154            -            -            -
        ---------------------------------------------------------------------
        Weighted average
         trust units -
         diluted          120,739,221  110,935,853  112,949,965  103,883,904
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (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 $6.8 million and $11.6 million for
        the three and nine months ended September 30, 2008 (2007 -
        $1.6 million and $8.6 million) is required in the diluted earnings
        per unit calculation to provide for earnings attributable to non-
        controlling interest. An increase to the numerator of $2.8 million
        for the three months ended September 30, 2008 is also required to
        provide for the earnings impact of the Debentures. Units potentially
        issuable on the conversion of the Debentures for the nine months
        ended September 30, 2008 and three and nine months ended
        September 31, 2007 are anti-dilutive and are not included in the
        calculation of diluted weighted average units.

        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. For new employees
        hired during the year, their grant on the date of hire will vest
        20 percent on the first anniversary date, 30 percent on the second
        anniversary and 50 percent on the third anniversary. 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 and 2008 which can range from 0 to
        3 times. Over the three year term the performance units will attract
        distributions. The Trust expects to pay out the distribution portion
        in cash while the units earned will be issued from treasury.

        Long Term Incentive Component

        During 2007, the Plan was modified to include a new long term
        incentive component ("LTI component") for non-executive employees.
        Awards granted under the LTI component of the Plan will vest over
        three years with 40 percent vesting on the second anniversary of the
        date of grant and 60 percent vesting on the third anniversary of the
        date of grant. An additional 15 percent grant will be paid if the
        holder holds the units received on the second anniversary date for
        one additional year. As at September 30, 2008, 193,243 units are
        outstanding under the LTI component at an average value of $14.06 per
        unit, resulting in a total compensation cost of $2.7 million of which
        $2.5 million will be recognized through unit based compensation
        expense and $0.2 million will be capitalized over the vesting period.

        On July 2, 2008 725,394 units were issued to settle the performance
        units that vested at a performance factor of 1.5 times. As a result
        $10.7 million was transferred from contributed surplus to
        unitholders' capital. Also on July 2, 2008, 543,850 performance units
        were granted to employees that will vest on July 2, 2011.

        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.

        As at September 30, 2008 there are 1,333,900 performance units
        outstanding with 355,800 vesting on July 2, 2009, 444,750 vesting on
        July 2, 2010 and 533,350 vesting on July 2, 2011. The unit based
        compensation expense is calculated using the current estimated
        performance factor for each performance unit grant based on the
        Trust's operating performance. Actual performance factors will not be
        determined until the end of the performance period.

        For the three and nine months ended September 30, 2008 $2.0 million
        and $6.2 million, respectively were charged to unit based
        compensation expense (2007 - $2.4 million and $6.4 million) and
        $0.2 million and $0.8 million, respectively were capitalized (2007 -
        $0.3 million and $1.0 million) relating to the total performance
        units and units under the LTI component outstanding.


        Performance Units                                  Nine Months Ended
                                                                September 30
                                                          2008          2007
        ---------------------------------------------------------------------
        Balance, beginning of period                 1,388,200     1,300,717
        Granted                                        553,750       503,650
        Performance factor adjustment(1)               235,950             -
        Settled                                       (725,394)     (381,367)
        Forfeited                                     (118,606)      (49,700)
        ---------------------------------------------------------------------
        Balance, end of period                       1,333,900     1,373,300
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        Vesting Date
        July 2, 2008(1)                                      -       483,800
        July 2, 2009(2)                                355,800       402,750
        July 2, 2010(3)                                444,750       486,750
        July 2, 2011                                   533,350             -
        ---------------------------------------------------------------------
        Total                                        1,333,900     1,373,300
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) A performance factor of 1.5 times was realized on the performance
            units vesting on July 2, 2008 resulting in an additional 235,950
            units being issued.
        (2) Using the current anticipated performance factor of 1.5 times
            533,700 units will be issued on the vesting of the 2009
            performance units.
        (3) Using the current anticipated performance factor of 1.25 times,
            558,775 units will be issued on the vesting of the 2010
            performance units


        Units under LTI Component                          Nine Months Ended
                                                                September 30
                                                          2008          2007
        ---------------------------------------------------------------------
        Balance, beginning of period                   189,485             -
        Granted                                         24,238       185,999
        Forfeited                                      (20,480)       (9,144)
        ---------------------------------------------------------------------
        Balance, end of period                         193,243       176,855
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        ---------------------------------------------------------------------
        Vesting Date
        2009                                            67,739        70,742
        2010                                           111,166       106,113
        2011                                            14,338             -
        ---------------------------------------------------------------------
        Total(1)                                       193,243       176,855
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (1) An additional 15 percent grant will be paid to LTI unitholders if
            a unitholder holds the units they receive on the second
            anniversary date for one additional year. This would result in an
            additional 28,986 units issued by the Trust.


        The following table reconciles the Trust's contributed surplus:

                                      Three Months Ended   Nine Months Ended
                                            September 30        September 30
                                          2008      2007      2008      2007
        ---------------------------------------------------------------------
        Balance, beginning of period    19,225     8,810    14,468     9,210
        Unit based compensation expense  1,971     2,394     6,235     6,443
        Unit based compensation
         capitalized                       119       338       612       991
        Settlements                    (10,681)        -   (10,681)   (5,102)
        ---------------------------------------------------------------------
        Balance, end of period          10,634    11,542    10,634    11,542
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Accumulated other comprehensive income

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

                                      Three Months Ended   Nine Months Ended
                                            September 30        September 30
                                          2008      2007      2008      2007
        ---------------------------------------------------------------------
        Balance, beginning of period         -     2,405         -         -
        Change in accounting policy,
         net of tax of $5,072                -         -         -    10,543
        Amortization of fair value
         of financial instruments,
         net of tax of $868 and $3,915,
         respectively                        -    (1,804)        -    (9,942)
        ---------------------------------------------------------------------
        Balance, end of period               -       601         -       601
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  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 $6.6 million was
        recognized in the future income tax provision for the nine months
        ended September 30, 2007 on the recognition of a $6.6 million future
        income tax asset in the Trust.

    10. SUPPLEMENTAL CASH FLOW INFORMATION

        Changes in non-cash working capital

                                      Three Months Ended   Nine Months Ended
                                            September 30        September 30
                                          2008      2007      2008      2007
        ---------------------------------------------------------------------
        Accounts receivable             12,691     6,162     2,970    30,277
        Prepaid expenses and deposits   (1,691)      189    (6,368)   (1,494)
        Accounts payable                 6,133    (8,058)    2,703   (22,436)
        Current income taxes payable       (30)       12         -        42
        ---------------------------------------------------------------------
        Change in non-cash working
         capital                        17,103    (1,695)     (695)    6,389
        Relating to:
        Investing activities             7,726    (9,300)   (6,063)   (8,788)
        ---------------------------------------------------------------------
        Operating activities             9,377     7,605     5,368    15,177
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Interest and taxes paid

                                      Three Months Ended   Nine Months Ended
                                            September 30        September 30
                                          2008      2007      2008      2007
        ---------------------------------------------------------------------
        Interest paid                    6,348     6,118    17,400    15,489
        Income and other taxes paid         30        17        39        66
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    11. FINANCIAL INSTRUMENTS

        Fair Value of Financial Instruments

        The Trust's financial instruments recognized on the balance sheet
        consist of accounts receivable, investments, accounts payable and
        accrued liabilities, bank debt, convertible debentures and derivative
        natural gas contracts ("financial instruments"). The fair value of
        these instruments, excluding the investments, convertible debentures
        and the derivative natural gas contracts, approximate their carrying
        amounts due to their short terms to maturity or the indexed rate of
        interest on the bank debt. The fair value of the convertible
        debentures outstanding as at September 30, 2008 was approximately
        $130.5 million (2007 - $130.0 million). The fair value of the natural
        gas contracts is recognized on the balance sheet as described below.

        On June 26, 2008 Progress disposed of its Saskatchewan properties to
        Seaview for gross proceeds of $28.3 million ($26.7 million net of
        final closing adjustments and fees). The amount received included
        $5.4 million of cash and 8,300,000 Class A common shares of Seaview
        valued at $2.76 per share. The Class A common shares are included in
        investments on the balance sheet and have been classified as a held
        for trading financial instrument and, as a result, will be measured
        at fair market value each reporting period. Based on Seaview's
        closing trading price on September 30, 2008 of $2.70 per share, a
        loss of $12.9 million and $1.2 million was recognized for the three
        and nine months ended September 30, 2008 on the revaluation of the
        shares to $22.4 million at September 30, 2008. Progress also has an
        investment in a private company which was revalued at $1.3 million
        from $4.1 million based on a purchase and sale agreement entered into
        subsequent to September 30, 2008. The $2.7 million unrealized loss is
        included in the unrealized loss on investments on the consolidated
        statement of earnings for the three and nine months ended
        September 30, 2008.

        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, 2008, the Trust's natural gas price risk management
        program had a net realized loss of $10.4 million (2007 - $6.3 million
        net gain). For the nine months ended September 30, 2008, the Trust's
        natural gas price risk management program had a net realized loss of
        $19.9 million (2007 - $13.5 million net gain).

        On January 1, 2007 Progress adopted the new accounting standards
        regarding the recognition, measurement, disclosure and presentation
        of financial instruments. In conjunction with the adoption of these
        new standards, the Trust elected not to use hedge accounting for its
        natural gas derivative contracts under its risk management program.
        The fair value of the commodity contracts is recognized at each
        reporting period with the change in the fair value being classified
        as an unrealized gain or loss on the statement of earnings. On
        January 1, 2007 the fair value of the commodity price contracts was
        an asset of $15.6 million and resulted in an increase to accumulated
        other comprehensive income and the future income tax liability of
        $10.5 million and $5.1 million, respectively. The $10.5 million
        recognized in accumulated other comprehensive income was amortized
        over the term of the contracts through other comprehensive income
        with a corresponding unrealized gain on financial instruments on the
        statement of earnings. As a result, for the three months ended
        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, 2008 the fair value was an asset of $12.7 million
        (2007 - $2.6 million), resulting in an unrealized gain for the three
        and nine months ended September 30, 2008 of $57.0 million and
        $12.7 million, respectively (2007 - $0.6 million unrealized loss and
        $1.7 million unrealized gain, respectively, net of the amortization
        of accumulated other comprehensive income).

        Contracts outstanding in respect to financial instruments are as
        follows:

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


    SELECTED QUARTERLY INFORMATION

    FINANCIAL HIGHLIGHTS

    -------------------------------------------------------------------------
                                                        2007
    -------------------------------------------------------------------------
    ($ thousands except per
     unit amounts)                    March 31   June 30   Sept 30    Dec 31
    -------------------------------------------------------------------------

    Income Statement
    Petroleum and natural gas revenue   85,477   108,503    88,480    99,592
    Cash flow(1)                        53,080    58,398    48,085    54,727
      Per unit - diluted                  0.60      0.53      0.43      0.49
    Cash distributions declared         24,831    29,092    30,987    29,232
      Per unit                            0.30      0.30      0.30      0.30
    Net earnings                        16,425    31,947    11,909     9,922
      Per unit - basic                    0.22      0.33      0.12      0.10
      Per unit - diluted                  0.22      0.33      0.12      0.10

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

    Balance Sheet
    Capital expenditures                43,601   445,197    23,433    54,174
    Total debt                         252,000   410,696   417,678   444,223
    Unitholders' equity                689,909   933,606   916,357   900,806

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

    Trust Unit Trading Statistics ($)
    High                                 13.29     15.79     13.44     12.25
    Low                                  11.00     12.76     10.96      9.92
    Closing                              13.07     12.93     12.03     10.85
    Unit volume traded (thousands)      23,116    23,310    25,679    20,726

    Exchangeable Shares Trading
     Statistics ($)
    High                                 17.50     20.50     18.15     17.00
    Low                                  14.84     17.90     15.01     14.50
    Closing                              17.60     18.60     16.51     15.15
    Share volume traded (thousands)         13        27        92       104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    ---------------------------------------------------------------
                                                   2008
    ---------------------------------------------------------------
    ($ thousands except per
     unit amounts)                    March 31   June 30   Sept 30
    ---------------------------------------------------------------

    Income Statement
    Petroleum and natural gas revenue  123,075   149,699   143,026
    Cash flow(1)                        68,115    77,955    72,144
      Per unit - diluted                  0.61      0.69      0.62
    Cash distributions declared         29,365    29,548    32,965
      Per unit                            0.30      0.30      0.30
    Net earnings                         8,034    28,631    52,461
      Per unit - basic                    0.08      0.29      0.53
      Per unit - diluted                  0.08      0.29      0.51

    Payout Ratio
    Excluding exchangeable shares          43%       38%       46%
    Including exchangeable shares          49%       43%       51%

    Balance Sheet
    Capital expenditures                41,528    13,448    54,223
    Total debt                         447,531   377,773   408,960
    Unitholders' equity                887,206   897,756   922,309

    Trust Units (thousands, except
     where otherwise stated)
    Units outstanding, end of period    98,016    98,784    99,785
    Units issuable for
     exchangeable shares                13,110    12,627    12,613
    ---------------------------------------------------------------
    Total units outstanding and
     issuable for exchangeable shares,
     end of period                     111,126   111,411   112,398
    Weighted average units
     - diluted(2)                      112,144   112,663   113,182
    Exchange ratio, end of period      1.48845   1.52131   1.55282

    Trust Unit Trading Statistics ($)
    High                                 13.40     15.70     15.95
    Low                                  10.13     12.14     11.12
    Closing                              12.80     14.55     12.05
    Unit volume traded (thousands)      20,341    18,328    23,931

    Exchangeable Shares Trading
     Statistics ($)
    High                                 18.75     24.00     24.25
    Low                                  15.00     18.50     17.01
    Closing                              18.50     22.00     20.00
    Share volume traded (thousands)         27        68        15
    ---------------------------------------------------------------
    ---------------------------------------------------------------
    (1) Refer to discussion in the Management Discussion and Analysis
    (2) Includes exchangeable shares converted at the end of period exchange
        ratio.



    SELECTED QUARTERLY INFORMATION

    OPERATIONAL HIGHLIGHTS

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

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

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

    Highlights ($/boe)(1)
      Weighted average sales price(1)    49.41     48.03     40.46     44.66
      Realized gain (loss) on
       financial instruments              4.04      0.08      2.89      1.14
      Royalties                         (11.67)   (10.51)    (8.80)    (9.54)
      Operating expenses                 (6.38)    (6.57)    (6.67)    (5.91)
      Transportation expenses            (1.60)    (1.85)    (1.96)    (1.86)
    -------------------------------------------------------------------------
      Operating Netbacks                 33.80     29.18     25.92     28.49
      Unrealized gain (loss) on
       investments                           -         -         -         -
      Other Income                           -      0.09      0.01         -
      General and administrative
       expense                           (1.14)    (1.02)    (1.12)    (0.90)
      Unit based compensation            (0.86)    (1.13)    (1.09)    (1.16)
      Interest and financing expenses    (2.19)    (2.61)    (2.88)    (3.16)
      Unrealized gain (loss) on
       financial instruments             (4.76)     4.65     (0.27)    (0.75)
      Depletion, depreciation and
       accretion                        (14.91)   (16.94)   (17.08)   (16.70)
    -------------------------------------------------------------------------
      Net earnings before taxes           9.94     12.22      3.49      5.82
      Capital taxes                      (0.03)    (0.02)    (0.02)    (0.01)
      Future income taxes recovery
       (expense)                          1.16      3.82      2.71     (0.76)
      Non-controlling interest -
       exchangeable shares               (1.58)    (1.88)    (0.73)    (0.60)
    -------------------------------------------------------------------------
      Net earnings                        9.49     14.14      5.45      4.45
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Drilling Results (No. of Wells)
      Gross                                 30         6        17        39
      Net - natural gas                   11.7       4.7       9.3      19.3
      Net - crude oil                        -         -         -         -
      Success Rate (percent)                87       100       100        96
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                            Three Months Ended
                                                   2008
                                     ------------------------------
                                      March 31   June 30   Sept 30
    ---------------------------------------------------------------

    Daily Production
      Natural gas (mcf/d)              127,667   120,971   126,265
      Crude oil (bbls/d)                 2,186     1,976     2,027
      Natural gas liquids (bbls/d)       2,052     1,667     1,712
      Total daily production (boe/d)    25,515    23,805    24,783

    Average Realized Prices
      Natural gas ($/mcf)                 7.96     10.21      9.12
      Crude oil ($/bbl)                  89.86    117.72    114.06
      Natural gas liquids ($/bbl)        65.15     95.17     88.34

    Highlights ($/boe)(1)
      Weighted average sales price(1)    53.01     69.10     62.73
      Realized gain (loss) on
       financial instruments                 -     (4.35)    (4.58)
      Royalties                         (11.80)   (16.44)   (14.84)
      Operating expenses                 (5.89)    (6.39)    (6.09)
      Transportation expenses            (1.99)    (2.36)    (2.01)
    ---------------------------------------------------------------
      Operating Netbacks                 33.33     39.56     35.21
      Unrealized gain (loss) on
       investments                           -      5.38     (6.84)
      Other Income                           -         -         -
      General and administrative
       expense                           (1.36)    (1.05)    (0.97)
      Unit based compensation            (0.80)    (1.11)    (0.86)
      Interest and financing expenses    (2.73)    (2.74)    (2.66)
      Unrealized gain (loss) on
       financial instruments            (10.64)    (9.04)    25.00
      Depletion, depreciation and
       accretion                        (16.82)   (16.52)   (16.11)
    ---------------------------------------------------------------
      Net earnings before taxes           0.98     14.48     32.77
      Capital taxes                          -     (0.01)        -
      Future income taxes recovery
       (expense)                          2.95      0.48     (6.78)
      Non-controlling interest -
       exchangeable shares               (0.47)    (1.73)    (2.97)
    ---------------------------------------------------------------
      Net earnings                        3.46     13.22     23.02
    ---------------------------------------------------------------
    ---------------------------------------------------------------

    Drilling Results (No. of Wells)
      Gross                                 33         1        32
      Net - natural gas                   14.1         1      10.6
      Net - crude oil                        -         -       1.2
      Success Rate (percent)               100       100        94
    ---------------------------------------------------------------
    ---------------------------------------------------------------
    (1) Includes sulphur net revenue with no associated production as no
        conversion exists for tons to boe.
    





For further information:

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

Organization Profile

Progress Energy Canada Ltd.

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