Vermilion Energy Trust - Second quarter results for the three and six month periods ended June 30, 2008



    CALGARY, Aug. 8 /CNW/ - Vermilion Energy Trust ("Vermilion" or the
"Trust") (TSX - VET.UN) is pleased to report interim operating and unaudited
financial results for the three and six month periods ended June 30, 2008.

    Second Quarter Highlights:

    
    -   Recorded production of 33,743 boe/d in the second quarter of 2008 as
        compared to 33,072 boe/d in the first quarter of 2008. The majority
        of the gain was related to Australian production, which had been
        reduced by normal seasonal cyclone related and planned shutdowns in
        the first quarter. Canadian production volumes were also slightly
        higher resulting from well completion and workover activity in the
        second quarter. France production was lower due to normal declines
        and a delayed start to planned workover activity.

    -   Generated record fund flows from operations of $190.3 million
        ($2.50 per unit) in the second quarter of 2008 compared to
        $119.4 million ($1.59 per unit) in the first quarter of 2008.
        Commodity price increases, combined with higher production were the
        primary drivers, while sales from oil inventory near the end of the
        quarter accounted for approximately $20 million in additional fund
        flows from operations. Second quarter 2008 fund flows from operations
        were more than double the level recorded in the second quarter of
        2007, driven by stronger commodity prices and a 9% year over year
        increase in production.

    -   Vermilion distributed $0.57 per unit in the quarter. Distributions
        declared were equivalent to 21% of fund flows from operations (17%,
        net of contributions from Vermilion's Distribution Reinvestment Plan
        or "DRIP") representing the lowest cash payout ratio in its peer
        group of oil and gas income trusts. Since converting to a trust in
        January 2003, Vermilion has distributed more than 95% of the initial
        unit price at the time of conversion.

    -   Vermilion continued an ongoing workover and recompletion program in
        Canada. Vermilion also expanded its natural gas handling capacity in
        the Drayton Valley area to provide for future drilling and third
        party processing demands.

    -   Reduced net debt by approximately $112 million from $397 million at
        March 31, 2008 to $285 million at June 30, 2008 which is equivalent
        to approximately 0.4 times annualized second quarter 2008 fund flows
        from operations.

    -   Total payout including net distributions, capital expenditures,
        reclamation fund contributions and asset retirement costs incurred
        was 34% of fund flows from operations in the second quarter of 2008
        compared to 67% in the second quarter of 2007. Historically,
        Vermilion has maintained a total payout less than or equal to fund
        flows from operations. Given the strong commodity price environment,
        the Trust is generating fund flows from operations that exceed the
        requirements needed to sustain its business model. Accordingly,
        Vermilion has suspended the DRIP until further notice. The DRIP,
        designed to provide investors with an incentive to receive additional
        units in lieu of distributions, was resulting in unnecessary dilution
        to existing unitholders.

    -   On Tuesday, August 5, 2008, Verenex Energy Inc, in which Vermilion
        holds a 42.4% equity interest, released the results of a third party
        resource assessment of contingent and prospective oil and gas
        resources in Verenex's Libyan concession, confirming the
        establishment of a world class resource base in Area 47. In summary,
        the aggregate estimate of gross contingent resources and risked mean
        estimate of gross prospective resources is approximately 1.6 billion
        barrels of oil equivalent.
    

    Conference Call and Webcast Details:

    Vermilion will discuss these results in a conference call to be held on
Friday, August 8, 2008. The conference call will begin at 9:00 AM MST (11:00
AM EST). To participate, you may call toll free 1-800-732-6179 or
1-416-644-3416 (Toronto area). The conference call will also be available on
replay by calling 1-877-289-8525 or 1-416-640-1917 (Toronto area) using pass
code 21275805 followed by the pound "No." key. The replay will be available
until midnight eastern time on August 22, 2008. You may also listen to the
webcast by clicking
    http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2320560


    
    HIGHLIGHTS

    Financial ($000's CDN       Three Months Ended          Six Months Ended
     except unit and          June 30,     June 30,     June 30,     June 30,
     per unit amounts)           2008         2007         2008         2007
    -------------------------------------------------------------------------
    Petroleum and natural
     gas revenue           $  341,405   $  164,862   $  570,864   $  313,670
    Fund flows from
     operations               190,347       85,101      309,743      161,039
      Per unit, basic(1)         2.50         1.18         4.07         2.23
    Capital expenditures       31,180       32,044       68,569       71,798
    Acquisitions, including
     acquired working
     capital deficiency           900      129,099       45,428      129,225
    Net debt                                            285,034      446,180
    Reclamation fund
     contributions and
     asset retirement
     costs incurred             1,142          381        2,291        1,217
    Cash distributions
     per unit                    0.57         0.51         1.14         1.02
    Distributions declared     39,767       33,669       78,842       66,876
      Less DRIP                 7,794        8,950       18,453       16,684
      Net distributions        31,973       24,719       60,389       50,192
      % of fund flows
       from operations
       distributed, gross         21%          40%          25%          42%
      % of fund flows
       from operations
       distributed, net           17%          29%          19%          31%
    Total net distributions,
     capital expenditures,
     reclamation fund
     contributions and
     asset retirement
     costs incurred        $   64,295   $   57,144   $  131,249   $  123,207
      % of fund flows
       from operations            34%          67%          42%          77%
    Trust units
     outstanding(1)
      Adjusted basic                                 76,801,309   72,964,796
      Diluted                                        79,021,095   76,304,261
    Weighted average
     trust units
     outstanding(1)
      Adjusted basic                                 76,026,235   72,230,913
      Diluted                                        77,750,414   74,804,398
    Unit trading
      High                                           $    45.50   $    37.35
      Low                                            $    31.00   $    30.33
      Close                                          $    44.25   $    36.00
    -------------------------------------------------------------------------
    Operations
    -------------------------------------------------------------------------
    Production
      Crude oil (bbls/d)       18,366       17,142       18,034       16,042
      Natural gas liquids
       (bbls/d)                 1,674        1,422        1,603        1,400
      Natural gas
       (mcf/d)                 82,218       74,114       82,618       75,406
      Boe/d (6:1)              33,743       30,916       33,407       30,010
    Average reference
     price
      WTI ($US/bbl)        $   123.98   $    65.03   $   110.94   $    61.65
      Brent ($US/bbl)          121.38        68.76       109.14        63.26
      AECO ($CDN/mcf)           10.21         7.07         9.06         7.23
      Netherlands
       reference (Euro/GJ)       7.13         4.96         6.84         5.26
      Foreign exchange
       rate ($US/$CDN)           0.99         0.91         0.99         0.88
      Foreign exchange
       rate (Euro/$CDN)          0.63         0.68         0.65         0.66
    Average selling price
      Crude oil and natural
       gas liquids
       ($CDN/bbl)              142.97        68.12       118.86        66.59
      Natural gas
       ($CDN/mcf)               10.78         7.38         9.71         7.58
    Netbacks per boe (6:1)
      Operating netback         78.18        38.96        64.28        38.69
      Fund flows netback        61.99        30.25        50.94        29.65
      Operating costs      $    10.78   $     9.91   $    10.93   $    10.15
    -------------------------------------------------------------------------
    (1) Includes trust units issuable for outstanding exchangeable shares
        based on the period end exchange ratio
    

    The above table includes non-GAAP measures which may not be comparable to
other companies. Please see "Non-GAAP Measures" under MD&A section for further
discussion.

    OUTLOOK

    Vermilion achieved record second quarter operating results and fund flows
from operations that reflects strong operational performance combined with
robust commodity prices. Second half results will be impacted by normal
declines and a voluntary curtailment of production in the Netherlands.
Accordingly, despite the higher than expected production in the first half of
the year, Vermilion is maintaining production guidance of between 32,000 and
33,000 boe/d for 2008.
    Vermilion has shut-in approximately 1,000 boe/d of production in the
Harlingen area of the Netherlands as it investigates the accuracy of recent
surface subsidence measurements. Vermilion's approved production licence at
Harlingen contains surface subsidence limitations. Measurements are routinely
taken over a representative area of the field. Recent measurements suggest
subsidence may be greater than expected and questions the accuracy of
Vermilion's subsidence forecast model. Vermilion, in full cooperation with
regulators, has agreed to voluntarily halt production in the affected areas
until further study can be completed to better understand the subsidence in
question and to more accurately predict future subsidence.
    Other Vermilion production in the Netherlands will not be affected, nor
are the future drilling plans. Vermilion is taking a strong, proactive
approach to address this situation. Vermilion expects to submit a revised
production plan for approval for certain parts of the field in the fourth
quarter of 2008. Vermilion will reinstate the production in question once we
have full approval from regulators which will occur once the issue surrounding
subsidence is understood by all impacted parties and a revised production
permit has been approved. We believe a portion of the production could be
reinstated by year-end 2008 with the timing regarding the balance unknown at
this point.
    Production in France was impacted by higher well downtime associated with
a much higher than expected well repair frequency and a number of pipeline
failures in the Chaunoy field. Volumes in the latter part of the second
quarter rebounded significantly as the well repair queue was reduced and
pipelines in Chaunoy were repaired. The pace of workovers increased late in
the second quarter of 2008 and should offset any further declines from the
France properties over the balance of the year. Drilling activities,
originally scheduled for the third quarter have been delayed until the fourth
quarter due to rig availability.
    In Australia, Vermilion expects the start of the two well infill
development drilling program in the Wandoo Field will be pushed back to
December, delaying completion and tie-in to the end of the first quarter of
2009. The production expected from these wells was not included in previous
guidance figures and this delay should not impact Vermilion's 2008 operational
results.

    Verenex Energy Inc.

    The Trust currently holds approximately 18.8 million shares representing
a 42.4% equity interest in Verenex Energy Inc. Verenex is a Canada-based,
international oil and gas exploration and production company with a
world-class exploration portfolio in the Ghadames Basin in Libya. Verenex is
the operator and holds a 50% working interest in Area 47 in Libya. Under the
EPSA terms for Area 47, Verenex would receive an initial production allocation
(free of all taxes and royalties) of 6.85% in any commercial development
scheme. Vermilion expects to benefit from its equity position in Verenex while
significantly limiting capital risk to its unitholders.
    Verenex continues to announce positive test results from its Libyan
exploration program. Recent announcements include the confirmation of an
extensive pool in the southern portion of Area 47 in Block 2 as evidenced by
four successful wells drilled into the same structure. The Company has also
announced its first new discovery in the northern portion of its concession in
Block 4, confirming the presence of the target formations in the northern
portion of Area 47. In total, Verenex has tested seven exploration wells and
one appraisal well for an aggregate total of more than 90,000 barrels of oil
per day. The company expects to have drilled and tested a total of 19 to 20
wells in Libya by the end of 2008.
    On August 5, 2008, Verenex released an assessment by DeGolyer and
MacNaughton ("DM"), a worldwide petroleum consulting firm, of the Company's
portfolio of discoveries and exploration prospects in Area 47 effective
February 1, 2008. This initial assessment reflects information available at
the end of January 2008 including drilling results from seven Verenex wells
and exploration prospects and leads mapped utilizing extensive seismic
coverage in Area 47 including 3D and 2D seismic shot by Verenex in 2006. As
previously announced on July 23, 2008, Verenex has since drilled and cased an
additional six wells (13 wells in total) and shot additional 3D and 2D seismic
in late 2007 and early 2008. These more recent results have not as yet been
reflected in the resource assessment. The assessment conforms to Canadian
Securities National Instrument 51-101 Standards of Disclosure for Oil and Gas
Activities.
    A full copy of Verenex's announcement, including a summary of the
assessment is addended at the end of this press release.

    Financial Strength

    Vermilion's balance sheet continues to get stronger, a reflection of the
commodity price environment over the first half of the year combined with the
Trust's conservative and sustainable business model. Total net debt at the end
of the quarter was only $285 million and this total is expected to be further
reduced over the balance of the year absent an acquisition. The net debt
figure does not take into account Vermilion's equity position in Verenex which
at June 30, 2008 had a market value of approximately $153 million. This
balance sheet strength provides Vermilion with the ability to actively pursue
acquisition opportunities and, where successful, close these opportunities
with little or no equity thereby retaining all of the accretion for existing
unitholders. Vermilion continues to evaluate global acquisition opportunities.
In case Vermilion is unsuccessful in attaining a significant acquisition over
the next six months, the Trust will be reviewing effective means of returning
excess fund flows to unitholders.
    Vermilion's strong financial position, significant portfolio of organic
growth opportunities and value creation approach to the business will continue
to reward unitholders. Management and directors own approximately 10% of the
issued and outstanding units including exchangeable shares aligning their
interest with unitholders.


    MANAGEMENT'S DISCUSSION AND ANALYSIS
    ------------------------------------

    The following is Management's Discussion and Analysis (MD&A) dated
August 6, 2008 of Vermilion's operating and financial results as at and for
the three and six month periods ended June 30, 2008 compared with the
corresponding periods in the prior year. This discussion should be read in
conjunction with the unaudited interim consolidated financial statements for
the period ended June 30, 2008 and the Trust's audited consolidated financial
statements for the years ended December 31, 2007 and 2006, together with
accompanying notes, as contained in the Trust's 2007 Annual Report.

    NON-GAAP MEASURES

    This report includes non-GAAP ("Generally Accepted Accounting
Principles") measures as further described herein. These measures do not have
standardized meanings prescribed by GAAP and therefore may not be comparable
with the calculations of similar measures for other entities.
    "Fund flows from operations" represents cash flows from operating
activities before changes in non-cash operating working capital and asset
retirement costs incurred. Management considers fund flows from operations and
per unit calculations of fund flows from operations (see discussion relating
to per unit calculations below) to be key measures as they demonstrate the
Trust's ability to generate the cash necessary to pay distributions, repay
debt, fund asset retirement costs and make capital investments. Management
believes that by excluding the temporary impact of changes in non-cash
operating working capital, fund flows from operations provides a useful
measure of the Trust's ability to generate cash that is not subject to
short-term movements in operating working capital. As fund flows from
operations also excludes asset retirement costs incurred, it assists
management in assessing the ability of the Trust to fund current and future
asset retirement costs. The most directly comparable GAAP measure is cash
flows from operating activities. Fund flows from operations is reconciled to
cash flows from operating activities below:

    
    ($000's)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Cash flows from
     operating activities  $  184,174   $   95,997   $  348,901   $  185,233
      Changes in non-cash
       operating working
       capital                  5,031      (11,277)     (41,449)     (25,411)
      Asset retirement
       costs incurred           1,142          381        2,291        1,217
    -------------------------------------------------------------------------
    Fund flows from
     operations            $  190,347   $   85,101   $  309,743   $  161,039
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    "Acquisitions, including acquired working capital deficiency" is the sum
of "Acquisition of petroleum and natural gas properties" and "Corporate
acquisition, net of cash acquired" as presented in the Trust's consolidated
statements of cash flows plus any working capital deficiencies acquired as a
result of those acquisitions. Management considers acquired working capital
deficiencies to be an important element of a property or corporate
acquisition. Acquisitions, including acquired working capital deficiency, is
reconciled below:

    
    ($000's)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Acquisition of
     petroleum and natural
     gas properties
     from consolidated
     statements of cash
     flows                 $      900   $  120,788   $   45,428   $  120,914
    Corporate acquisition,
     net of cash acquired
     from consolidated
     statements of cash
     flows                          -            -            -            -
    Working capital
     deficiencies acquired
     from investments
     and acquisitions
     (see financial
     statement notes for
     relevant period)               -        8,311            -        8,311
    -------------------------------------------------------------------------
    Acquisitions, including
     acquired working
     capital deficiency    $      900   $  129,099   $   45,428   $  129,225
    -------------------------------------------------------------------------
    

    "Net debt" is the sum of long-term debt and working capital and is used
by management to analyze the financial position and leverage of the Trust. Net
debt is reconciled below to long-term debt which is the most directly
comparable GAAP measure:

    
                                             As at        As at        As at
                                           June 30, December 31,     June 30,
    ($000's)                                  2008         2007         2007
    -------------------------------------------------------------------------
    Long-term debt                      $  286,672   $  452,490  $   448,177
    Current liabilities                    245,628      150,620      160,337
    Current assets                        (247,266)    (186,252)    (162,334)
    -------------------------------------------------------------------------
    Net debt                            $  285,034   $  416,858  $   446,180
    -------------------------------------------------------------------------
    

    "Cash distributions per unit" represents actual cash distributions paid
per unit by the Trust during the relevant periods.
    "Net distributions" is calculated as distributions declared for a given
period less proceeds received by the Trust pursuant to the Distribution
Reinvestment Plan ("DRIP"). Distributions both before and after DRIP are
reviewed by management and are also assessed as a percentage of fund flows
from operations to analyze how much of the cash that is generated by the Trust
is being used to fund distributions. Net distributions is reconciled below to
distributions declared, the most directly comparable GAAP measure:

    
    ($000's)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Distributions
     declared              $   39,767   $   33,669   $   78,842   $   66,876
    Issue of trust
     units pursuant
     to the distribution
     reinvestment plan         (7,794)      (8,950)     (18,453)     (16,684)
    -------------------------------------------------------------------------
    Net distributions      $   31,973   $   24,719   $   60,389   $   50,192
    -------------------------------------------------------------------------
    

    "Total net distributions, capital expenditures, reclamation fund
contributions and asset retirement costs incurred" is calculated as the
addition of net cash distributions as determined above plus the following
amounts for the relevant periods from the Trust's consolidated statements of
cash flows: "Drilling and development of petroleum and natural gas
properties", "Contributions to reclamation fund" and "Asset retirement costs
incurred." This measure is reviewed by management and is also assessed as a
percentage of fund flows from operations to analyze the amount of cash that is
generated by the Trust that is available to repay debt and fund potential
acquisitions. This measure is reconciled to the relevant GAAP measures below:

    
    ($000's)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Distributions
     declared              $   39,767   $   33,669   $   78,842   $   66,876
    Issue of trust
     units pursuant
     to the distribution
     reinvestment plan         (7,794)      (8,950)     (18,453)     (16,684)
    Drilling and
     development of
     petroleum and
     natural gas
     properties                31,180       32,044       68,569       71,798
    Contributions to
     reclamation fund               -            -            -            -
    Asset retirement
     costs incurred             1,142          381        2,291        1,217
    -------------------------------------------------------------------------
                           $   64,295   $   57,144   $  131,249   $  123,207
    -------------------------------------------------------------------------
    

    "Netbacks" are per-unit of production measures used in operational and
capital allocation decisions.
    "Adjusted basic trust units outstanding" and "Adjusted basic weighted
average trust units outstanding" are used in the per unit calculations on the
Highlights schedule of this document and are different from the most directly
comparable GAAP figures in that they include amounts related to outstanding
exchangeable shares at the period end exchange ratio. As the exchangeable
shares will eventually be converted into units of the Trust, management
believes that their inclusion in the calculation of basic rather than only
diluted per unit statistics provides meaningful information. "Diluted trust
units outstanding" is the sum of "Adjusted basic trust units outstanding" plus
outstanding awards under the Trust's Unit Rights Incentive Plan and the Trust
Unit Award Incentive Plan, based on current performance factor estimates.
These measures are reconciled to the relevant GAAP measures below:

    
                                                          As at        As at
                                                        June 30,     June 30,
                                                           2008         2007
    -------------------------------------------------------------------------
    Trust units outstanding                          69,836,829   66,218,901
    Trust units issuable pursuant
     to exchangeable shares outstanding               6,964,480    6,745,895
    -------------------------------------------------------------------------
    Adjusted basic trust units outstanding           76,801,309   72,964,796
    -------------------------------------------------------------------------
    Potential trust units issuable pursuant
     to unit compensation plans                       2,219,786    3,339,465
    -------------------------------------------------------------------------
    Diluted trust units outstanding                  79,021,095   76,304,261
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                          As at        As at
                                                        June 30,     June 30,
                                                           2008         2007
    -------------------------------------------------------------------------
    Basic weighted average trust units
     outstanding                                     69,059,361   65,485,018
    Trust units issuable pursuant to
     exchangeable shares outstanding                  6,966,874    6,745,895
    -------------------------------------------------------------------------
    Adjusted basic weighted average trust
     units outstanding                               76,026,235   72,230,913
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    FORWARD-LOOKING INFORMATION

    This document contains forward-looking financial and operational
information as to the Trust's internal projections and expectations relating
to future events or performance. In some cases, forward-looking information
can be identified by terminology such as "may", "will", "should", "expects",
"projects", "anticipates" and similar expressions. These statements represent
management's expectations concerning future operating results or the economic
performance of the Trust and are subject to a number of risks and
uncertainties that could materially affect results. These risks include, but
are not limited to future commodity prices, exchange rates, interest rates,
geological risk, reserves risk, political risk, product demand and
transportation restrictions, which may cause actual performance and financial
results in future periods to differ materially from any projections of future
performance or results expressed by such forward-looking statements.
Accordingly, readers are cautioned that events or circumstances could cause
results to differ materially from those predicted.

    OPERATIONAL ACTIVITIES

    Canada
    ------

    In Canada, Vermilion's activities were focused on workovers and
recompletions as well as the expansion of the gas gathering and compression
facilities in the West Pembina area. No wells were drilled during the quarter.
The drilling program for the second half of 2008 began July 2, 2008, with
plans to drill in the Drayton Valley and Utikuma areas until break-up 2009.
Vermilion will also participate in selective partner operated coalbed methane
drilling in Central Alberta.

    France
    ------

    In France, activity focused on a significant number of well repairs
(mainly pump replacements) related to several causes including extended
shut-in periods, summer electrical storm activity and waterflood optimization
efforts. This activity tied up the workover rigs, limiting other workover and
recompletion activity during the quarter. Well work during the second half of
the year will focus primarily on workovers, stimulations and recompletions,
which should offset production declines.
    A 43 square kilometre 3D seismic program at Cazaux was completed during
the quarter. This information is expected to improve the number and quality of
drillable prospects available to Vermilion in this field. Vermilion continues
to refurbish the main storage tanks at the Ambès terminal and expects to
complete this work by year-end.

    Netherlands
    -----------

    Activities in the Netherlands focused on permitting new wells for the
2009 drilling program. Subject to receipt of all approvals, Vermilion hopes to
drill 4 to 5 wells in the Netherlands next year beginning in the second
quarter.

    Australia
    ---------

    Australia operations were focused on drilling preparations for later this
year. This included the installation of a small platform extension to
accommodate new well templates as well as the installation of subsea
templates. Vermilion's safety case was submitted to regulators and a rig
contract was signed in mid-July.

    PRODUCTION

    Average production in Canada during the second quarter of 2008 was
4,368 bbls/d of oil and NGLs and 51.3 mmcf/d of natural gas (total
12,915 boe/d) compared to 4,165 bbls/d of oil and NGLs and 51.4 mmcf/d of
natural gas (total 12,730 boe/d) in the first quarter of 2008. A steady
drilling program scheduled for the second half of 2008 should mitigate
declines from our Canadian operations.
    Production in France averaged 8,536 boe/d in the second quarter of 2008,
slightly below the 8,800 boe/d produced in the first quarter of 2008. Workover
activity levels are expected to increase in the second half of 2008 and are
expected to sustain production over the balance of the year at slightly
improved levels. A higher level of drilling activity in 2009 should have a
positive impact on production next year.
    Production in the Netherlands averaged 4,980 boe/d in the second quarter
of 2008, slightly below first quarter 2008 production of 5,096 boe/d.
Approximately 1,000 boe/d of production was voluntarily shut-in at Harlingen
in mid-July and will remain shut-in until a new production permit is obtained
from regulators. Vermilion is working closely with regulators to determine the
source of the discrepancy between projected subsidence figures and measured
subsidence. Vermilion hopes to submit a new permit that would allow at least a
partial reinstatement of production before year-end 2008.
    Australia production averaged 7,312 boe/d in the second quarter of 2008
as compared to 6,446 boe/d in the first quarter of 2008. Second quarter
production was for the most part uninhibited, with only modest interruptions
for facility maintenance and repairs. Production over the balance of the year
should reflect normal base declines.

    
    -------------------------------------------------------------------------
                        Three Months Ended            Six Months Ended
                          June 30, 2008                 June 30, 2008
                        Oil  Natural                 Oil  Natural
                     & NGLs    Gas   Total        & NGLs     Gas   Total
                    (bbls/d)(mmcf/d)(boe/d)    % (bbls/d) (mmcf/d)(boe/d)  %
    -------------------------------------------------------------------------
    Canada            4,368  51.28   12,915   38   4,267   51.33  12,822  38
    France            8,334   1.21    8,536   25   8,469    1.19   8,668  26
    Netherlands          26  29.72    4,980   15      22   30.10   5,038  15
    Australia         7,312      -    7,312   22   6,879       -   6,879  21
    -------------------------------------------------------------------------
    Total Production 20,040  82.21   33,743  100  19,637   82.62  33,407 100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                       Three Months Ended            Six Months Ended
                         June 30, 2007                 June 30, 2007
                       Oil  Natural                 Oil   Natural
                    & NGLs     Gas    Total      & NGLs     Gas    Total
                   (bbls/d) (mmcf/d) (boe/d)   % (bbls/d) (mmcf/d)(boe/d)  %
    -------------------------------------------------------------------------
    Canada            4,091   49.56  12,351   40   4,098   48.64  12,205  41
    France            9,001    1.32   9,221   30   8,449    1.16   8,642  29
    Netherlands          32   23.23   3,904   13      58   25.61   4,326  14
    Australia         5,440       -   5,440   17   4,837       -   4,837  16
    -------------------------------------------------------------------------
    Total Production 18,564   74.11  30,916  100  17,442   75.41  30,010 100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    FINANCIAL OVERVIEW

    During the three and six month periods ended June 30, 2008 the Trust
generated fund flows from operations of $190.3 million and $309.7 million,
respectively. For the same periods in 2007 the Trust generated fund flows from
operations of $85.1 million and $161.0 million, respectively. The increase in
fund flows from operations of $105.2 million and $148.7 million for the three
and six month periods ended June 30, 2008 versus the corresponding periods in
the prior year is largely the result of the dramatic year over year increase
in commodity prices combined with an increase in production levels. The GAAP
measure, cash flows from operating activities similarly increased year over
year to $184.2 million and $348.9 million for the three and six month periods
ended June 30, 2008 versus $96.0 million and $185.2 million for the same
periods in 2007.
    These levels of fund flows from operations have allowed Vermilion to
further strengthen its financial position and at June 30, 2008 the Trust's net
debt was $285.0 million which represents a decrease of 31.6% from the net debt
of $416.9 million at December 31, 2007. The Trust's long-term debt has
decreased to $286.7 million at June 30, 2008 from $452.5 million at
December 31, 2007. At June 30, 2008 Vermilion's net debt represented less than
half of annualized fund flows from operations.
    For the six months ended June 30, 2008 total net distributions, capital
expenditures, reclamation fund contributions and asset retirement costs
incurred as a percentage of fund flows from operations was 42% versus 77% for
the corresponding period in the prior year. The year over year decrease in
this metric relates to the significant increase in fund flows from operations
associated with commodity price and production increases.

    CAPITAL EXPENDITURES

    Total capital spending, including acquisitions for the three and six
month periods ended June 30, 2008 was $32.1 million and $114.0 million,
respectively (three and six month periods ended June 30, 2007, $152.8 million
and $192.7 million, respectively). The year over year decrease in second
quarter capital spending mostly relates to the acquisition of the remaining
40% interest in the Wandoo Field in Australia for cash consideration of
$117.9 million that closed in June 2007. On a year to date basis, the decrease
in capital spending is associated with higher spending in 2007 related to the
aforementioned Australian acquisition partially offset by the first quarter
2008 purchase of $44.1 million of producing properties in the Drayton Valley
area.
    Non-acquisition related capital spending has remained relatively
consistent year over year.

    
    ($000's)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Land                   $    1,519   $      572   $    1,973   $    1,072
    Seismic                     4,468            -        7,481          335
    Drilling and
     completion                 2,518       13,729       17,038       29,725
    Production equipment
     and facilities            15,497       12,292       27,789       25,596
    Recompletions               4,676        2,340        7,500        7,975
    Other                       2,502        3,111        6,788        7,095
    -------------------------------------------------------------------------
                               31,180       32,044       68,569       71,798
    Acquisitions
     (excluding acquired
     working capital
     deficiency)                  900      120,788       45,428      120,914
    -------------------------------------------------------------------------
    Total                  $   32,080   $  152,832   $  113,997   $  192,712
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    REVENUE

    Revenue for the three and six month periods ended June 30, 2008 was
$341.4 million and $570.9 million, respectively (three and six month periods
ended June 30, 2007, $164.9 million and $313.7 million, respectively).
    Vermilion's combined crude oil and NGL price was $142.97 per boe in the
second quarter of 2008, an increase of 110% over the $68.12 per boe reported
in the second quarter of 2007. The natural gas price realized was $10.78 per
mcf in the second quarter of 2008 compared to $7.38 per mcf in the second
quarter of 2007, a 46% increase year over year. The prices realized in 2008
reflect the dramatic year over year increase in oil and gas reference prices
coupled with a significant draw down of Vermilion's oil inventory. Higher
realized prices and increased production resulted in higher revenue year over
year.

    
    ($000's except per boe and per mcf)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Crude oil & NGLs       $  260,718   $  115,081   $  424,820   $  210,236
    Per boe                $   142.97   $    68.12   $   118.86   $    66.59
    Natural gas                80,687       49,781      146,044      103,434
    Per mcf                $    10.78   $     7.38   $     9.71   $     7.58
    -------------------------------------------------------------------------
    Petroleum and
     natural gas
     revenue               $  341,405   $  164,862   $  570,864   $  313,670
    -------------------------------------------------------------------------
    Per boe                $   111.19   $    58.60   $    93.89   $    57.75
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    DERIVATIVE INSTRUMENTS

    Vermilion continues to manage its risk exposure through prudent commodity
and currency economic hedging strategies. Vermilion has the following
financial derivatives in place at June 30, 2008:

    

    Risk Management: Oil          Funded Cost    bbls/d              US$/bbl
    -------------------------------------------------------------------------
    Collar - WTI
      Q3 2008                     US$0.28/bbl       250      $70.00 - $90.00
      Q4 2008                     US$0.50/bbl       250      $69.00 - $90.00
    Collar - BRENT
      Q3 2008                     US$0.25/bbl       500      $66.40 - $82.00
      Q3 2008                     US$0.25/bbl       500      $66.60 - $82.00
      Q3 2008                     US$0.19/bbl       250      $65.00 - $90.00
      Q4 2008                     -                 500      $68.20 - $81.00
      2009                        US$1.00/bbl       500    $100.50 - $200.00
    Call Spread - BRENT
      2009 - 2011                 US$5.73/bbl       700      $65.00 - $85.00
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Risk Management: Natural Gas  Funded Cost      GJ/d                C$/GJ
    -------------------------------------------------------------------------
    Put - AECO
      July - October 2008            $0.35/GJ     2,500                $9.30
      July - October 2008            $0.32/GJ     2,500                $9.55
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The impact of Vermilion's economic hedging program through the second
quarter of 2008 decreased fund flows netbacks by $1.34 per boe ($1.94 per boe
in the quarter) as the price of oil exceeded the ceiling of the Trust's
collars. This compares to a hedging gain of $0.09 per boe in the first six
months of 2007 ($0.11 per boe loss in the quarter).

    ROYALTIES

    Royalties for the three and six month periods ended June 30, 2008 were
$18.35 per boe and $15.30 per boe, respectively (three and six month periods
ended June 30, 2007, $7.32 per boe and $7.05 per boe, respectively). As a
percent of sales for the three and six months ended June 30, 2008, royalties
were 16.5% and 16.3%, respectively (three and six months ended June 30, 2007,
12.5% and 12.2% respectively).
    In Australia, royalties are reduced by capital reinvestment in the
country and the year over year increase in Australian royalties as a percent
of revenue is largely due to reduced levels of capital activity in that
country in the first half of 2008. Royalties in Canada, which are paid on a
sliding scale basis, increased year over year on a per boe basis due to the
impact of higher commodity prices. In France, royalties increased on a per boe
basis and decreased as a percent of revenue as a portion of the royalties in
France are levied on a per unit of production basis. Production in the
Netherlands is not subject to royalties.

    
    ($000's except per boe and per mcf)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Crude oil & NGLs       $   46,520   $   13,980   $   75,100   $   24,858
    Per boe                $    25.51   $     8.28   $    21.01   $     7.87
    Natural gas                 9,840        6,610       17,923       13,432
    Per mcf                $     1.32   $     0.98   $     1.19   $     0.98
    -------------------------------------------------------------------------
    Royalties              $   56,360   $   20,590   $   93,023   $   38,290
    -------------------------------------------------------------------------
    Per boe                $    18.35   $     7.32   $    15.30   $     7.05
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    OPERATING COSTS

    Operating costs per boe for the three and six month periods ended
June 30, 2008 were $10.78 and $10.93, respectively (three and six month
periods ended June 30, 2007, $9.91 and $10.15, respectively). Canadian
operating costs have increased on a per boe basis for the three and six months
ended June 30, 2008 as a result of a favorable adjustment to equalization
provisions that was realized during the second quarter of 2007 which reduced
operating costs in that comparative period. Canadian operating costs per boe
have decreased versus the first quarter of 2008 due to lower levels of
spending on chemicals, electrical power and wages. Operating costs per boe in
France have increased slightly for the quarter and year to date periods versus
the same periods in the prior year and have remained at relatively consistent
levels since the fourth quarter of 2007. Australian operating costs have
decreased for the quarter and year to date periods compared to the prior year
as a result of decreased levels of diesel consumption as a Wandoo A platform
well continued to produce fuel gas. In the Netherlands, operating costs on a
per boe basis have remained relatively consistent year over year.

    
    ($000's except per boe and per mcf)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Crude oil & NGLs       $   20,099   $   18,346   $   39,781   $   34,848
    Per boe                $    11.02   $    10.86   $    11.13   $    11.04
    Natural gas                12,998        9,545       26,671       20,284
    Per mcf                $     1.74   $     1.42   $     1.77   $     1.49
    -------------------------------------------------------------------------
    Operating              $   33,097   $   27,891   $   66,452   $   55,132
    -------------------------------------------------------------------------
    Per boe                $    10.78   $     9.91   $    10.93   $    10.15
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    TRANSPORTATION

    Transportation costs are a function of the point of legal transfer of the
product and are dependent upon where the product is sold, product split,
location of properties as well as industry transportation rates that are
driven by supply and demand of available transport capacity. For Canadian gas
production, legal title transfers at the intersection of major pipelines
(referred to as "the Hub") whereas the majority of Vermilion's Canadian oil
production is sold at the wellhead. In France, the majority of Vermilion's
transportation costs are comprised of shipping charges incurred in the
Aquitaine Basin where oil production is transported by tanker from the Ambès
terminal in Bordeaux to the refinery. In Australia, oil is sold at the Wandoo
B Platform and in the Netherlands, gas is sold at the plant gate, resulting in
no transportation costs relating to Vermilion's production in these countries.
    Transportation costs in France continue to be higher than historic levels
as a result of the oil spill at the Ambès Terminal that occurred in January
2007. In early March 2008, Vermilion resumed transporting crude to the Ambès
terminal via pipeline and all trucking operations ceased. As a result of the
limited capacity of the storage tank rented at the terminal, a vessel has been
retained on a full-time basis and serves as a temporary storage tank when not
transporting product to the refinery. Transportation costs in France are
relatively consistent year over year and will continue to be higher than
pre-January 2007 levels until full resumption of terminal operations occurs.

    
    ($000's except per boe)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Transportation         $    5,949   $    6,480   $   12,400   $   10,615
    -------------------------------------------------------------------------
    Per boe                $     1.94   $     2.30   $     2.04   $     1.95
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    GENERAL AND ADMINISTRATION EXPENSES

    General and administration expenses per boe for the three and six month
periods ended June 30, 2008 were $2.33 and $1.99, respectively (three and six
month periods ended June 30, 2007, $1.69 and $1.91, respectively). The
increase per boe from 2007 is associated with increased staffing levels and
employee retention costs partially offset by increased levels of production.

    
    ($000's except per boe)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    General and
     administration        $    7,153   $    4,743   $   12,086   $   10,383
    -------------------------------------------------------------------------
    Per boe                $     2.33   $     1.69   $     1.99   $     1.91
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    UNIT BASED COMPENSATION EXPENSE

    Non-cash unit based compensation expense for the three and six month
periods ended June 30, 2008 was $4.3 million and $9.3 million, respectively
(three and six month periods ended June 30, 2007, $4.0 million and
$9.4 million, respectively). For 2008, this expense relates to the value
attributable to long-term incentives granted to officers, directors and
employees under the Trust Unit Award Incentive Plan. The 2007 figures also
include expense associated with the Trust Unit Rights Incentive Plan, the
value of which had been fully amortized by December 31, 2007 resulting in no
expense for this plan being recognized in 2008. Total unit based compensation
expense has remained relatively consistent for the three and six month periods
ended June 30, 2008 compared with the same periods of the prior year.

    
    ($000's except per boe)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Unit based
     compensation          $    4,349   $    4,024   $    9,250   $    9,416
    -------------------------------------------------------------------------
    Per boe                $     1.42   $     1.43   $     1.52   $     1.73
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    INTEREST EXPENSE

    Interest expense for the three and six month periods ended June 30, 2008
was $5.1 million and $11.3 million, respectively (three and six month periods
ended June 30, 2007, $4.7 million and $9.3 million, respectively). The
increase in interest expense for the quarter and year to date periods in 2008
versus 2007 is a result of higher weighted average debt levels. The Trust's
interest rates have decreased slightly year over year.

    
    ($000's except per boe)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Interest               $    5,134   $    4,735   $   11,274   $    9,348
    -------------------------------------------------------------------------
    Per boe                $     1.67   $     1.68   $     1.85   $     1.72
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    DEPLETION, DEPRECIATION AND ACCRETION EXPENSES

    Depletion, depreciation and accretion expenses per boe for the three and
six month periods ended June 30, 2008 were $21.22 and $20.99, respectively
(three and six month periods ended June 30, 2007, $18.69 and $18.08,
respectively). Depletion, depreciation and accretion rates for the quarter and
year to date periods in 2008 have increased slightly from the rates per boe
for the same periods in 2007.

    
    ($000's except per boe)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Depletion,
     depreciation and
     accretion             $   65,151   $   52,560   $  127,637   $   98,224
    -------------------------------------------------------------------------
    Per boe                $    21.22   $    18.69   $    20.99   $    18.08
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    TAXES

    Current taxes per boe for the three and six month periods ended June 30,
2008 were $13.58 and $10.29, respectively (three and six month periods ended
June 30, 2007, $3.23 and $4.26, respectively). The increase relates to higher
revenues associated with the strengthening of commodity prices.

    
    ($000's except per boe)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Current taxes          $   41,697   $    9,078   $   62,568   $   23,146
    -------------------------------------------------------------------------
    Per boe                $    13.58   $     3.23   $    10.29   $     4.26
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    FOREIGN EXCHANGE

    During the six month period ended June 30, 2008, a combined realized and
unrealized foreign exchange loss of $25.2 million was recorded (six month
period ended June 30, 2007, gain of $11.7 million). The combined loss through
June 30, 2008 is comprised of a realized gain of $4.8 million and an
unrealized non-cash loss of $30.0 million. The year to date unrealized loss is
related to the translation to Canadian dollars of foreign currency denominated
future income taxes and asset retirement obligations. Since December 31, 2007,
the Canadian dollar weakened significantly against the Euro resulting in this
unrealized loss.

    
    ($000's except per boe)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
    Foreign exchange
     (gain) loss           $   (2,381)  $  (12,190)  $   25,249   $  (11,676)
    -------------------------------------------------------------------------
    Per boe                $    (0.77)  $    (4.33)  $     4.16   $    (2.15)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    EARNINGS

    Net earnings for the three and six month periods ended June 30, 2008 were
$102.3 million or $1.47 per unit and $128.5 million or $1.86 per unit,
respectively (three and six month periods ended June 30, 2007, $41.1 million
or $0.62 per unit and $72.4 million or $1.11 per unit, respectively). The
increase in earnings is associated with higher commodity price levels and
production.

    LIQUIDITY AND CAPITAL RE

SOURCES Vermilion's net debt as at June 30, 2008 was $285.0 million compared to $416.9 million as at December 31, 2007. As at June 30, 2008, the Trust had an unsecured covenant-based credit facility allowing for maximum borrowings of $675 million. The revolving period under the facility is expected to expire in June 2009 and may be extended for an additional period of up to 364 days at the option of the lenders. If the lenders convert the revolving credit facility to a non-revolving credit facility, the amounts outstanding under the facility become repayable 24 months after the end of the revolving period. Various borrowing options are available under the facility including prime rate based advances and bankers' acceptance loans. Through the second quarter of 2008, Vermilion purchased shares in Verenex Energy Inc. ("Verenex") for total consideration of $0.6 million. After reflecting these additional shares, Vermilion owns 18.8 million shares representing 42.4% of the outstanding shares of Verenex. On May 14, 2008, Vermilion suspended the distribution reinvestment plan indefinitely. This suspension was effective June 16, 2008 and was the result of continued high commodity prices resulting in fund flows from operations that are in excess of the level needed to sustain the Trust's business model. Cash flows from financing activities for the three and six month periods ended June 30, 2008 included cash flows related to the issuance of trust units pursuant to the distribution reinvestment plan of $7.8 million and $18.5 million, respectively. RECLAMATION FUND Vermilion has established a reclamation fund for the ultimate payment of environmental and site restoration costs on its asset base. The reclamation fund is funded by Vermilion Resources Ltd. and its operating subsidiaries. Contribution levels to the reclamation fund are reviewed on a regular basis and are adjusted when necessary to ensure that reclamation obligations associated with the Trust's assets will be substantially funded when the costs are expected to be incurred. ASSET RETIREMENT OBLIGATION At June 30, 2008, Vermilion's asset retirement obligation was $188.0 million compared to $163.4 million as at December 31, 2007. The increase is due mostly to the impact of foreign exchange rate changes on non-Canadian dollar denominated obligations. When appropriate, the Trust engages external third party consultants with relevant experience in reclamation activities in the regions in which Vermilion has operations to assist in estimating its asset retirement obligations. DISTRIBUTIONS Vermilion maintained monthly distributions at $0.19 per unit for the six months ended June 30, 2008 and declared distributions totalling $78.8 million compared to $66.9 million for the same period in 2007. Since inception, the Trust has declared $693.6 million in distributions to unitholders as compared to unitholders' capital of $432.2 million at June 30, 2008. Sustainability of Distributions ------------------------------- ($000's) ------------------------------------------------------------------------- Three Months Six Months Ended Ended Year Ended Year Ended June 30, June 30, Dec 31, Dec 31, 2008 2008 2007 2006 ------------------------------------------------------------------------- Cash flows from operating activities $ 184,174 $ 348,901 $ 349,890 $ 306,033 Net earnings $ 102,289 $ 128,485 $ 164,286 $ 146,923 Distributions declared $ 39,767 $ 78,842 $ 136,389 $ 130,638 Excess of cash flows from operating activities over cash distributions declared $ 144,407 $ 270,059 $ 213,501 $ 175,395 Excess of net earnings over cash distributions declared $ 62,522 $ 49,643 $ 27,897 $ 16,285 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Excess of cash flows from operating activities over cash distributions declared are used to fund capital expenditures, asset retirement costs, reclamation fund contributions and debt repayments. UNITHOLDERS' EQUITY During the six month period ended June 30, 2008, approximately 2.5 million units were issued pursuant to the conversion of exchangeable shares, the Trust's bonus plan, the Trust's unit based compensation programs and unitholders' participation in the distribution reinvestment plan. Unitholders' capital increased during the same period by $34.3 million as a result of the issuance of those units and by $16.9 million as a result of contributed surplus transfer related to unit based compensation plans. As at July 28, 2008 there were 69,837,101 trust units outstanding. NON-CONTROLLING INTEREST - EXCHANGEABLE SHARES The Trust has recorded non-controlling interest attributed to the issued and outstanding exchangeable shares. Non-controlling interest on the consolidated balance sheets represents the book value of exchangeable shares plus accumulated earnings attributable to the outstanding exchangeable shares. The reduction in net income represents the net income attributable to the exchangeable shareholders for the period. As the exchangeable shares are converted to trust units, Unitholders' capital is increased for the fair value of the trust units issued. As the exchangeable shares are exchanged for trust units over time, the non-controlling interest will decrease and eventually will be nil when all exchangeable shares have been exchanged for trust units. As at June 30, 2008 there were 4.3 million exchangeable shares outstanding at an exchange ratio of 1.60362 whereby 7.0 million trust units would be issuable upon conversion. The exchangeable shares can be converted into trust units or redeemed by the shareholder for trust units at any time. All outstanding exchangeable shares must be redeemed on or before January 22, 2013 and Vermilion may redeem the exchangeable shares at any time if the number of exchangeable shares outstanding falls below 500,000 shares. Vermilion may issue cash or trust units upon redemption of exchangeable shares and it is the intention to issue trust units upon redemption. CRITICAL ACCOUNTING ESTIMATES The Trust's financial and operating results contain estimates made by management in the following areas: i. Capital expenditures are based on estimates of projects in various stages of completion; ii. Revenues, royalties and operating costs include accruals based on estimates of management; iii. Fair value of derivative instruments are based on estimates that are subject to fluctuation of commodity prices and foreign exchange rates; iv. Depletion, depreciation and accretion are based on estimates of oil and gas reserves that the Trust expects to recover in the future; v. Asset retirement obligations are based on estimates of future costs and the timing of expenditures; vi. The future recoverable value of capital assets and goodwill are based on estimates that the Trust expects to realize; and vii. Unit compensation expense is determined using accepted fair value approaches which rely on historical data and certain estimates made by management. NEW ACCOUNTING POLICIES On January 1, 2008, the Trust adopted Section 1535, "Capital Disclosures"; Section 3862, "Financial Instruments - Disclosures"; and Section 3863, "Financial Instruments - Presentation". The adoption of these standards did not impact the amounts reported in the Trust's consolidated financial statements however, it did result in additional note disclosures relating to the Trust's capital structure and financial instruments. On January 1, 2008, the Trust adopted Section 3031, "Inventories." The adoption of this standard did not impact the Trust's consolidated financial statements. OFF BALANCE SHEET ARRANGEMENTS The Trust has certain lease agreements that are entered into in the normal course of operations. All leases are operating leases and accordingly no asset or liability value has been assigned in the balance sheet as of June 30, 2008. The Trust uses a variety of options including funded and costless collars and puts to manage the risk associated with fluctuating commodity prices on the sale of crude oil and natural gas. The Trust does not obtain collateral or other security to support its financial derivatives as the majority of these instruments are with the Trust's banking syndicate. The Trust has not entered into any guarantee or off balance sheet arrangements that would adversely impact the Trust's financial position or results of operations. DISCLOSURE CONTROLS AND PROCEDURES There was no change in Vermilion's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect its internal control over financial reporting. INTERNATIONAL FINANCIAL REPORTING STANDARDS TRANSITION On February 13, 2008, the Accounting Standards Board confirmed that the transition date to International Financial Reporting Standards ("IFRS") from Canadian GAAP will be January 1, 2011 for publically accountable enterprises such as Vermilion. Vermilion has created an internal IFRS transition team to oversee the Trust's adoption of IFRS and the services of a large international public accounting firm have been retained to assist the Trust in its conversion program. Through the end of 2008 the Trust anticipates that it will continue to research areas of difference between IFRS and Canadian GAAP and in 2009 the Trust will design and implement policies and processes allowing for the preparation of both IFRS and Canadian GAAP financial statements in 2010 providing for comparative financial statements after the official changeover in 2011. ABBREVIATIONS API American Petroleum Institute bbls barrels bbls/d barrels per day bcf billion cubic feet boe barrel of oil equivalent boe/d barrel of oil equivalent per day CBM coalbed methane GJ gigajoules $m thousands of dollars $mm millions of dollars mbbls thousand barrels mboe thousand barrels of oil equivalent mcf thousand cubic feet mcf/d thousand cubic feet per day mmboe million barrels of oil equivalent mmcf million cubic feet mmcf/d million cubic feet per day MW megawatt NGLs natural gas liquids NPV net present value WTI West Texas Intermediate NETBACKS (6:1) Three Months Six Months Ended June 30, 2008 Ended June 30, 2008 ------------------------------------------------------------------------- Trust Oil & Natural Oil & Natural Financial NGLs Gas Total NGLs Gas Total Information $/bbl $/mcf $/boe $/bbl $/mcf $/boe ------------------------------------------------------------------------- Canada Price $115.35 $ 10.85 $ 82.08 $104.31 $ 9.40 $ 72.34 Realized hedging gain or loss - - - - - - Royalties (19.68) (2.10) (15.00) (18.29) (1.92) (13.75) Transportation (1.48) (0.23) (1.43) (1.37) (0.20) (1.24) Operating costs (10.30) (1.57) (9.73) (11.10) (1.65) (10.31) ------------------------------------------------------------------------- Operating netback $ 83.89 $ 6.95 $ 55.92 $ 73.55 $ 5.63 $ 47.04 ------------------------------------------------------------------------- ------------------------------------------------------------------------- France Price $144.41 $ 11.51 $142.62 $116.41 $ 10.66 $115.20 Realized hedging gain or loss (7.85) - (7.66) (5.29) - (5.16) Royalties (6.53) (0.34) (6.42) (6.04) (0.13) (5.92) Transportation (5.62) - (5.49) (6.17) - (6.03) Operating costs (9.95) (3.37) (10.20) (9.82) (3.43) (10.07) ------------------------------------------------------------------------- Operating netback $114.46 $ 7.80 $112.85 $ 89.09 $ 7.10 $ 88.02 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Netherlands Price $112.14 $ 10.65 $ 64.14 $103.52 $ 10.21 $ 61.43 Operating costs - (1.95) (11.67) - (1.91) (11.43) ------------------------------------------------------------------------- Operating netback $112.14 $ 8.70 $ 52.47 $103.52 $ 8.30 $ 50.00 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Australia Price $157.93 $ - $157.93 $130.96 $ - $130.96 Royalties (50.71) - (50.71) (41.21) - (41.21) Operating costs (12.71) - (12.71) (12.80) - (12.80) ------------------------------------------------------------------------- Operating netback $ 94.51 $ - $ 94.51 $ 76.95 $ - $ 76.95 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total Trust Price $142.97 $ 10.78 $111.19 $118.86 $ 9.71 $ 93.89 Realized hedging gain or loss (3.26) - (1.94) (2.28) - (1.34) Royalties (25.51) (1.32) (18.35) (21.01) (1.19) (15.30) Transportation (2.66) (0.15) (1.94) (2.96) (0.12) (2.04) Operating costs (11.02) (1.74) (10.78) (11.13) (1.77) (10.93) ------------------------------------------------------------------------- Operating netback $100.52 $ 7.57 $ 78.18 $ 81.48 $ 6.63 $ 64.28 ------------------------------------------------------------------------- General and administration (2.33) (1.99) Interest (1.67) (1.85) Foreign exchange 1.39 0.79 Current taxes (13.58) (10.29) ------------------------------------------------------------------------- Fund flows netback $ 61.99 $ 50.94 ------------------------------------------------------------------------- Depletion, depreciation and accretion (21.22) (20.99) Future income taxes (0.09) 0.16 Other income or loss (0.19) 0.26 Foreign exchange (0.62) (4.95) Non-controlling interest - exchangeable shares (3.31) (2.05) Equity in affiliate (0.04) (0.02) Unrealized gain or loss on derivative instruments (1.79) (0.70) Fair value of unit compensation (1.42) (1.52) ------------------------------------------------------------------------- Earnings netback $ 33.31 $ 21.13 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Six Months Months Ended Ended June June 30/07 30/07 --------------------------------- Trust Financial Total Total Information $/boe $/boe --------------------------------- Canada Price $ 52.50 $ 52.05 Realized hedging gain or loss (0.08) (0.11) Royalties (10.09) (10.18) Transportation (0.64) (0.67) Operating costs (8.08) (8.57) --------------------------------- Operating netback $ 33.61 $ 32.52 --------------------------------- --------------------------------- France Price $ 75.21 $ 69.55 Realized hedging gain or loss (0.25) 0.48 Royalties (4.87) (4.91) Transportation (6.86) (5.84) Operating costs (9.26) (9.24) --------------------------------- Operating netback $ 53.97 $ 50.04 --------------------------------- --------------------------------- Netherlands Price $ 43.39 $ 46.92 Operating costs (11.78) (11.85) --------------------------------- Operating netback $ 31.61 $ 35.07 --------------------------------- --------------------------------- Australia Price $ 55.20 $ 60.70 Royalties (10.44) (9.28) Operating costs (13.84) (14.24) --------------------------------- Operating netback $ 30.92 $ 37.18 --------------------------------- --------------------------------- Total Trust Price $ 58.60 $ 57.75 Realized hedging gain or loss (0.11) 0.09 Royalties (7.32) (7.05) Transportation (2.30) (1.95) Operating costs (9.91) (10.15) --------------------------------- Operating netback $ 38.96 $ 38.69 --------------------------------- General and administration (1.69) (1.91) Interest (1.68) (1.72) Foreign exchange (2.11) (1.15) Current taxes (3.23) (4.26) --------------------------------- Fund flows netback $ 30.25 $ 29.65 --------------------------------- Depletion, depreciation and accretion (18.69) (18.08) Future income taxes (0.57) 1.76 Other income or loss (0.01) 0.11 Foreign exchange 6.44 3.30 Non-controlling interest - exchangeable shares (1.50) (1.36) Equity in affiliate (0.28) (0.15) Unrealized gain or loss on derivative instruments 0.38 (0.15) Fair value of unit compensation (1.43) (1.73) --------------------------------- Earnings netback $ 14.59 $ 13.35 --------------------------------- --------------------------------- The above table includes non-GAAP measures which may not be comparable to other companies. Please see "Non-GAAP Measures" under MD&A section for further discussion. Consolidated Balance Sheets ($000's unaudited) June 30, December 31, 2008 2007 ------------------------------------------------------------------------- Assets Current Cash and cash equivalents (Note 13) $ 60,089 $ 47,868 Accounts receivable 169,292 119,645 Crude oil inventory 3,392 11,033 Derivative instruments (Note 10) - 37 Prepaid expenses and other 14,493 7,669 ------------------------------------------------------------------------- 247,266 186,252 Derivative instruments (Note 10) 12,734 9,515 Long-term investments (Note 12) 66,875 63,128 Goodwill 19,840 19,840 Reclamation fund (Note 4) 57,346 57,928 Capital assets 1,335,582 1,331,460 ------------------------------------------------------------------------- $1,739,643 $1,668,123 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities Current Accounts payable and accrued liabilities $ 170,360 $ 128,858 Distributions payable to unitholders 13,269 12,794 Derivative instruments (Note 10) 14,886 7,450 Income taxes payable 47,113 1,518 ------------------------------------------------------------------------- 245,628 150,620 Long-term debt (Note 5) 286,672 452,490 Asset retirement obligation (Note 4) 187,950 163,374 Future income taxes 225,536 205,702 ------------------------------------------------------------------------- 945,786 972,186 ------------------------------------------------------------------------- Non-controlling interest - exchangeable shares (Note 7) 79,696 68,576 ------------------------------------------------------------------------- Unitholders' Equity Unitholders' capital (Note 6) 432,165 380,941 Contributed surplus (Note 6) 20,978 29,211 Retained earnings 261,018 217,209 ------------------------------------------------------------------------- 714,161 627,361 ------------------------------------------------------------------------- $1,739,643 $1,668,123 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings ($000's except unit and per unit amounts, unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- REVENUE Petroleum and natural gas revenue $ 341,405 $ 164,862 $ 570,864 $ 313,670 Royalties (56,360) (20,590) (93,023) (38,290) ------------------------------------------------------------------------- 285,045 144,272 477,841 275,380 ------------------------------------------------------------------------- EXPENSES AND OTHER Operating 33,097 27,891 66,452 55,132 Transportation 5,949 6,480 12,400 10,615 Unit based compensation (Note 8) 4,349 4,024 9,250 9,416 Loss (gain) on derivative instruments (Note 10) 11,449 (758) 12,402 305 Interest 5,134 4,735 11,274 9,348 General and administration 7,153 4,743 12,086 10,383 Foreign exchange (gain) loss (2,381) (12,190) 25,249 (11,676) Other income or expense 595 38 (1,597) (600) Depletion, depreciation and accretion 65,151 52,560 127,637 98,224 ------------------------------------------------------------------------- 130,496 87,523 275,153 181,147 ------------------------------------------------------------------------- EARNINGS BEFORE INCOME TAXES AND OTHER ITEMS 154,549 56,749 202,688 94,233 ------------------------------------------------------------------------- INCOME TAXES Future 288 1,606 (952) (9,557) Current 41,697 9,078 62,568 23,146 ------------------------------------------------------------------------- 41,985 10,684 61,616 13,589 ------------------------------------------------------------------------- OTHER ITEMS Non-controlling interest - exchangeable shares (Note 7) 10,160 4,231 12,466 7,410 Loss related to equity method investment 115 784 121 837 ------------------------------------------------------------------------- 10,275 5,015 12,587 8,247 ------------------------------------------------------------------------- NET EARNINGS AND COMPREHENSIVE INCOME 102,289 41,050 128,485 72,397 ------------------------------------------------------------------------- Retained earnings, beginning of period 198,496 187,452 217,209 190,824 Distributions declared (Note 6) (39,767) (33,669) (78,842) (66,876) Unit-settled distributions on vested unit based awards (Note 6) - - (5,834) (1,512) ------------------------------------------------------------------------- RETAINED EARNINGS, END OF PERIOD $ 261,018 $ 194,833 $ 261,018 $ 194,833 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NET EARNINGS PER TRUST UNIT(NOTE 9): Basic $ 1.47 $ 0.62 $ 1.86 $ 1.11 Diluted $ 1.44 $ 0.60 $ 1.81 $ 1.07 ------------------------------------------------------------------------- WEIGHTED AVERAGE TRUST UNITS OUTSTANDING (NOTE 9): Basic 69,725,750 65,927,540 69,059,361 65,485,018 Diluted 78,116,563 75,112,732 77,750,414 74,804,398 ------------------------------------------------------------------------- Consolidated Statements of Cash Flows ($000's unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- OPERATING Net earnings $ 102,289 $ 41,050 $ 128,485 $ 72,397 Adjustments: Depletion, depreciation and accretion 65,151 52,560 127,637 98,224 Change in unrealized gains and losses and accruals relating to derivative contracts (Note 10) 5,499 (1,062) 4,254 816 Unit based compensation 4,349 4,024 9,250 9,416 Loss related to equity method investment 115 784 121 837 Unrealized foreign exchange loss (gain) 1,901 (18,130) 30,079 (17,904) Non-controlling interest - exchangeable shares 10,160 4,231 12,466 7,410 Change in unrealized gains and losses and accruals included in other income or expense relating to investments 595 38 (1,597) (600) Future income taxes 288 1,606 (952) (9,557) ------------------------------------------------------------------------- 190,347 85,101 309,743 161,039 Asset retirement costs incurred (1,142) (381) (2,291) (1,217) Changes in non-cash operating working capital (5,031) 11,277 41,449 25,411 ------------------------------------------------------------------------- Cash flows from operating activities 184,174 95,997 348,901 185,233 ------------------------------------------------------------------------- INVESTING Drilling and development of petroleum and natural gas properties (31,180) (32,044) (68,569) (71,798) Acquisition of petroleum and natural gas properties (Note 3) (900) (120,788) (45,428) (120,914) Long-term investment - - (627) - Changes in non-cash investing working capital (6,443) (5,180) (1,726) (8,843) ------------------------------------------------------------------------- Cash flows used in investing activities (38,523) (158,012) (116,350) (201,555) ------------------------------------------------------------------------- FINANCING Increase (decrease) in long-term debt (215,849) 66,910 (168,850) 92,129 Issue of trust units for cash 816 1,388 3,740 3,122 Issue of trust units pursuant to the distribution reinvestment plan 7,794 8,950 18,453 16,684 Cash distributions (39,714) (33,561) (78,367) (66,619) Changes in non-cash financing working capital - 329 - 193 ------------------------------------------------------------------------- Cash flows from or used in financing activities (246,953) 44,016 (225,024) 45,509 ------------------------------------------------------------------------- Foreign exchange gain (loss) on cash in foreign currencies (4,871) (3,096) 4,694 (3,055) ------------------------------------------------------------------------- Net change in cash and cash equivalents (106,173) (21,095) 12,221 26,132 Cash and cash equivalents, beginning of period 166,262 74,177 47,868 26,950 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 60,089 $ 53,082 $ 60,089 $ 53,082 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplementary information - cash payments Interest paid $ 3,719 $ 4,348 $ 9,761 $ 9,349 Income taxes paid $ 10,376 $ 19,683 $ 16,973 $ 25,770 ------------------------------------------------------------------------- Notes to the Consolidated Financial Statements For the three and six month periods ended June 30, 2008 and 2007 ($000's except unit and per unit amounts, unaudited) 1. BASIS OF PRESENTATION The consolidated financial statements of Vermilion Energy Trust (the "Trust" or "Vermilion") include the accounts of the Trust and its subsidiaries and have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") on a consistent basis with the audited consolidated financial statements for the year ended December 31, 2007 except as disclosed in Note 2 below. These interim consolidated financial statements do not include all disclosures required in annual financial statements and should be read in conjunction with the audited consolidated financial statements as at and for the year ended December 31, 2007 included in the Trust's 2007 Annual Report. 2. NEW ACCOUNTING POLICIES On January 1, 2008, the Trust adopted Section 1535, "Capital Disclosures"; Section 3862, "Financial Instruments - Disclosures"; and Section 3863, "Financial Instruments - Presentation". The adoption of these standards did not impact the amounts reported in the Trust's consolidated financial statements, however, it did result in additional note disclosures relating to the Trust's capital structure and financial instruments (see notes 14 and 15). On January 1, 2008, the Trust adopted Section 3031, "Inventories." The adoption of this standard did not impact the Trust's consolidated financial statements. 3. INVESTMENTS AND ACQUISITIONS On January 31, 2008, the Trust completed an acquisition of gas producing assets and gross-overriding royalties on oil producing properties for cash consideration of $44.1 million. The purchase price relating to this asset purchase was allocated as follows: Capital assets $ 46,057 Asset retirement obligation (1,931) --------------------------------------------------------------------- Total consideration $ 44,126 --------------------------------------------------------------------- --------------------------------------------------------------------- During the three and six month periods ended June 30, 2008, the Trust also acquired $0.9 million and $1.3 million of other petroleum and natural gas properties, respectively. 4. ASSET RETIREMENT OBLIGATION The asset retirement obligation was determined based on the estimated future costs and timing to reclaim the Trust's net interest in all wells and facilities. The Trust has estimated the net present value of its asset retirement obligations to be $188.0 million as at June 30, 2008 (December 31, 2007 - $163.4 million) based on a total undiscounted future liability after inflation adjustment of $640.7 million (December 31, 2007 - $579.4 million). These payments are expected to be made over the next 48 years with most arising within the next 15 to 37 years. The Trust used a credit adjusted risk free rate of 8% and inflation rates of between 1.5% and 2.0% to calculate the present value of the asset retirement obligation. The following table reconciles the changes in the Trust's asset retirement obligation: June 30, December 31, 2008 2007 --------------------------------------------------------------------- Carrying amount, beginning of period $ 163,374 $ 127,494 Increase in liabilities in the period 2,322 12,936 Disposition of liabilities in the period (2,291) (4,055) Change in estimate 3,960 27,240 Accretion expense 7,112 10,067 Foreign exchange 13,473 (10,308) --------------------------------------------------------------------- Carrying amount, end of period $ 187,950 $ 163,374 --------------------------------------------------------------------- --------------------------------------------------------------------- The Trust has set aside funds for the future payment of its estimated asset retirement obligations. The following table reconciles the Trust's reclamation fund investments: June 30, December 31, 2008 2007 --------------------------------------------------------------------- Cash and short-term investments, at fair value $ 11,693 $ 10,838 Equity and debt securities, at fair value 45,653 47,090 --------------------------------------------------------------------- $ 57,346 $ 57,928 --------------------------------------------------------------------- --------------------------------------------------------------------- A portion of the cash and short-term investments as well as all of the equity and debt securities which comprise the reclamation fund are professionally managed by third parties. 5. LONG-TERM DEBT As at June 30, 2008 the Trust had an unsecured, covenant-based credit facility allowing for maximum borrowings of $675 million. The revolving period under the facility is expected to expire in June 2009 and may be extended for an additional period of up to 364 days at the option of the lenders. If the lenders convert the revolving credit facility to a non-revolving credit facility, the amounts outstanding under the facility become repayable 24 months after the end of the revolving period. Various borrowing options are available under the facility including prime rate based advances and bankers' acceptance loans. 6. UNITHOLDERS' CAPITAL AND CONTRIBUTED SURPLUS Number of Units Amount --------------------------------------------------------------------- Trust Units Unlimited number of trust units authorized to be issued Balance as at December 31, 2006 64,708,194 $ 321,035 Distribution reinvestment plan 1,082,868 35,992 Issued on conversion of exchangeable shares 2,143 70 Unit rights exercised and issuance of units on vesting of trust unit award plan grants 1,477,278 7,045 Transfer from contributed surplus for unit based awards - 14,592 Trust units issued for bonus plan 23,039 695 Unit-settled distributions on vested unit based awards 41,905 1,512 --------------------------------------------------------------------- Balance as at December 31, 2007 67,335,427 $ 380,941 --------------------------------------------------------------------- Distribution reinvestment plan 521,839 18,453 Issued on conversion of exchangeable shares 179,157 5,714 Unit rights exercised and issuance of units on vesting of trust unit award plan grants 1,630,943 3,740 Transfer from contributed surplus for unit based awards - 16,886 Trust units issued for bonus plan 18,555 597 Unit-settled distributions on vested unit based awards 150,908 5,834 --------------------------------------------------------------------- Balance as at June 30, 2008 69,836,829 $ 432,165 --------------------------------------------------------------------- --------------------------------------------------------------------- June 30, December 31, 2008 2007 --------------------------------------------------------------------- Contributed Surplus Opening balance $ 29,211 $ 30,513 Unit compensation expense (excluding bonus plan) 8,653 13,290 Transfer to unitholders' capital for unit based awards (16,886) (14,592) --------------------------------------------------------------------- Ending balance $ 20,978 $ 29,211 --------------------------------------------------------------------- --------------------------------------------------------------------- Distributions declared to unitholders for the three and six month periods ended June 30, 2008 were $39.8 million and $78.8 million, respectively (2007 - $33.7 million and $66.9 million, respectively). Distributions are determined by the Board of Directors in accordance with the Trust indenture and are paid monthly. 7. NON-CONTROLLING INTEREST - EXCHANGEABLE SHARES Upon conversion to a Trust, 6.0 million exchangeable shares of Vermilion Resources Ltd. (the "Company") were issued. The exchangeable shares are mandatorily converted into trust units upon redemption by the shareholder. The Company holds the option to redeem all outstanding exchangeable shares for trust units or cash on or before January 22, 2013 and it is the intention of the Trust that trust units would be issued upon redemption of the exchangeable shares. On or before January 22, 2013, there will be no remaining non-controlling interest as all exchangeable shares must be converted to trust units by that time. The conversion of exchangeable shares occurs based on the exchange ratio which is adjusted monthly to reflect the distributions paid on trust units. Cash distributions are not paid on exchangeable shares. The non-controlling interest on the consolidated balance sheets consists of the book value of the exchangeable shares upon issuance plus the accumulated earnings attributable to the non-controlling interest. The net earnings attributable to the non-controlling interest on the consolidated statements of earnings represents the share of net earnings attributable to the non-controlling interest based on the Trust units issuable for exchangeable shares in proportion to total trust units issued and issuable at each period end. June 30, December 31, 2008 2007 --------------------------------------------------------------------- Exchangeable Shares Opening number of exchangeable shares 4,457,473 4,458,919 Exchanged for trust units (114,499) (1,446) --------------------------------------------------------------------- Ending balance 4,342,974 4,457,473 Ending exchange ratio 1.60362 1.55595 --------------------------------------------------------------------- Trust units issuable upon conversion 6,964,480 6,935,605 --------------------------------------------------------------------- --------------------------------------------------------------------- The following table summarizes the changes in the non-controlling interest as presented on the consolidated balance sheets: June 30, December 31, 2008 2007 --------------------------------------------------------------------- Non-controlling interest, beginning of period $ 68,576 $ 51,780 Reduction of book value for conversion to trust units (1,346) (17) Current period net earnings attributable to non-controlling interest 12,466 16,813 --------------------------------------------------------------------- Non-controlling interest, end of period $ 79,696 $ 68,576 --------------------------------------------------------------------- --------------------------------------------------------------------- 8. UNIT COMPENSATION PLANS Unit Rights Incentive Plan The following table summarizes information about the Trust's Unit Rights Incentive Plan: Grant Date Weighted Average Number of Exercise Unit Rights Price --------------------------------------------------------------------- Balance as at December 31, 2007 1,148,616 $ 14.55 Exercised (808,766) $ 12.93 --------------------------------------------------------------------- Balance as at June 30, 2008 339,850 $ 18.40 --------------------------------------------------------------------- --------------------------------------------------------------------- A summary of the plan as at June 30, 2008 is as follows: Range of Number of Rights Remaining Exercise Price Adjusted Outstanding Contractual Life At Grant Date Exercise Price and Exercisable of Rights (Years) --------------------------------------------------------------------- $15.01 - $19.56 $5.69 - $10.24 339,850 1.13 --------------------------------------------------------------------- --------------------------------------------------------------------- No compensation expense has been recorded for the three and six month periods ended June 30, 2008 (2007 - $0.4 million and $0.9 million, respectively) related to the Unit Rights Incentive Plan as all awards are fully vested. Trust Unit Award Incentive Plan The following table summarizes information about the Trust Unit Award Incentive Plan: Number of Awards --------------------------------------------------------------------- Balance as at December 31, 2007 1,102,495 Granted 494,790 Vested (407,113) Cancelled (13,365) --------------------------------------------------------------------- Balance as at June 30, 2008 1,176,807 --------------------------------------------------------------------- --------------------------------------------------------------------- Compensation expense of $4.3 million and $8.6 million has been recorded for the three and six month periods ended June 30, 2008, respectively (2007 - $3.6 million and $7.8 million, respectively) related to the Trust Unit Award Incentive Plan. Phantom Award Incentive Plan Compensation expense for this cash settled plan of $0.5 million and $1.0 million has been recorded as general and administration expense for the three and six month periods ended June 30, 2008, respectively (2007 - $0.7 million and $0.9 million, respectively). 9. PER UNIT AMOUNTS Basic and diluted net earnings per unit have been determined based on the following: Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 --------------------------------------------------------------------- Net earnings $ 102,289 $ 41,050 $ 128,485 $ 72,397 Non-controlling interest - exchangeable shares 10,160 4,231 12,466 7,410 --------------------------------------------------------------------- Net earnings for diluted net earnings per trust unit calculation $ 112,449 $ 45,281 $ 140,951 $ 79,807 --------------------------------------------------------------------- --------------------------------------------------------------------- Basic weighted average trust units outstanding 69,725,750 65,927,540 69,059,361 65,485,018 --------------------------------------------------------------------- Dilutive impact of trust units issuable on conversion of exchangeable shares 6,965,800 6,745,885 6,966,874 6,746,257 Dilutive impact of unit rights incentive and trust unit award plans 1,425,013 2,439,307 1,724,179 2,573,123 --------------------------------------------------------------------- Diluted weighted average trust units outstanding 78,116,563 75,112,732 77,750,414 74,804,398 --------------------------------------------------------------------- --------------------------------------------------------------------- Basic net earnings per trust unit has been calculated based on net earnings divided by the basic weighted average trust units outstanding. Earnings attributable to the non-controlling interest related to the exchangeable shares are added back to net earnings in calculating diluted net earnings per trust unit. All outstanding potential units related to incentive plans were dilutive and therefore have been included in the calculation of the diluted trust units for all periods presented. 10. DERIVATIVE INSTRUMENTS Risk Management Activities The nature of the Trust's operations result in exposure to fluctuations in commodity prices, interest rates and foreign currency exchange rates. The Trust monitors and, when appropriate, uses derivative financial instruments to manage its exposure to these risks. The Trust does not obtain collateral or other security to support its financial derivatives as the majority of these instruments are with the Trust's banking syndicate. Risk Management: Oil Funded Cost bbls/d US$/bbl --------------------------------------------------------------------- Collar - WTI Q3 2008 US$0.28/bbl 250 $70.00 - $90.00 Q4 2008 US$0.50/bbl 250 $69.00 - $90.00 Collar - BRENT Q3 2008 US$0.25/bbl 500 $66.40 - $82.00 Q3 2008 US$0.25/bbl 500 $66.60 - $82.00 Q3 2008 US$0.19/bbl 250 $65.00 - $90.00 Q4 2008 - 500 $68.20 - $81.00 2009 US$1.00/bbl 500 $100.50 - $200.00 Call Spread - BRENT 2009 - 2011 US$5.73/bbl 700 $65.00 - $85.00 --------------------------------------------------------------------- --------------------------------------------------------------------- Risk Management: Natural Gas Funded Cost GJ/d C$/GJ --------------------------------------------------------------------- Put - AECO July - October 2008 $0.35/GJ 2,500 $9.30 July - October 2008 $0.32/GJ 2,500 $9.55 --------------------------------------------------------------------- --------------------------------------------------------------------- The following table reconciles the change in the Trust's fair value of derivative contracts: June 30, December 31, 2008 2007 --------------------------------------------------------------------- Fair value of contracts, beginning of period $ 2,102 $ 6,280 Opening unrealized loss (gain) on contracts settled during the period 4,598 (1,624) Realized (loss) on contracts settled during the period (8,148) (2,835) Unrealized (loss) during the period on contracts outstanding at the end of the period (8,852) (2,554) Net payment to counterparties under contract settlements during the period 8,148 2,835 --------------------------------------------------------------------- Fair value of contracts, end of period $ (2,152) $ 2,102 --------------------------------------------------------------------- Comprised of: Current derivative asset $ - $ 37 Current derivative liability (14,886) (7,450) Non-current derivative asset 12,734 9,515 --------------------------------------------------------------------- Fair value of contracts, end of period $ (2,152) $ 2,102 --------------------------------------------------------------------- --------------------------------------------------------------------- The loss (gain) on derivative instruments for the periods is comprised of the following: Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 --------------------------------------------------------------------- Realized (gain) loss on contracts settled during the period $ 5,950 $ 304 $ 8,148 $ (511) Opening unrealized gain (loss) on contracts settled during the period (2,245) 701 (4,598) 1,300 Unrealized loss (gain) during the period on contracts outstanding at the end of the period 7,744 (1,763) 8,852 (484) --------------------------------------------------------------------- Loss on derivative instruments for the period $ 11,449 $ (758) $ 12,402 $ 305 --------------------------------------------------------------------- --------------------------------------------------------------------- During the normal course of business, the Trust enters into fixed price arrangements to sell a portion of its production. The Trust has elected to exempt these contracts from fair value accounting through the use of the normal purchase and sale exemption. 11. SEGMENTED INFORMATION Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 --------------------------------------------------------------------- Petroleum and natural gas revenue Canada $ 96,473 $ 59,011 $ 168,827 $ 114,983 France 110,784 63,111 181,746 108,791 Netherlands 29,063 15,412 56,326 36,747 Australia 105,085 27,328 163,965 53,149 --------------------------------------------------------------------- $ 341,405 $ 164,862 $ 570,864 $ 313,670 --------------------------------------------------------------------- --------------------------------------------------------------------- Net earnings Canada $ 533 $ 7,781 $ 33,430 $ 10,396 France 51,225 23,204 41,821 36,649 Netherlands 9,589 4,581 10,425 10,096 Australia 40,942 5,484 42,809 15,256 --------------------------------------------------------------------- $ 102,289 $ 41,050 $ 128,485 $ 72,397 --------------------------------------------------------------------- --------------------------------------------------------------------- Capital expenditures Canada $ 9,058 $ 12,611 $ 69,909 $ 34,280 France 15,171 17,663 28,203 28,773 Netherlands 3,418 3,359 9,691 4,381 Australia 4,433 119,199 6,194 125,278 --------------------------------------------------------------------- $ 32,080 $ 152,832 $ 113,997 $ 192,712 --------------------------------------------------------------------- --------------------------------------------------------------------- June 30, December 31, 2008 2007 --------------------------------------------------------------------- Total assets Canada $ 728,236 $ 662,904 France 628,063 604,090 Netherlands 138,242 150,533 Australia 245,102 250,596 --------------------------------------------------------------------- $ 1,739,643 $ 1,668,123 --------------------------------------------------------------------- --------------------------------------------------------------------- 12. LONG-TERM INVESTMENTS The following table reconciles the Trust's total long-term investments as presented on the consolidated balance sheets: June 30, December 31, 2008 2007 --------------------------------------------------------------------- Portfolio investments, at fair value $ 8,274 $ 5,032 Investment in Verenex Energy Inc., equity method (fair value - $152.7 million, 2007 - $158.8 million) 58,601 58,096 --------------------------------------------------------------------- Total long-term investments $ 66,875 $ 63,128 --------------------------------------------------------------------- --------------------------------------------------------------------- 13. COMPONENTS OF CASH AND CASH EQUIVALENTS The components of cash and cash equivalents are as follows: June 30, December 31, 2008 2007 --------------------------------------------------------------------- Monies on deposit with banks $ 60,089 $ 44,588 Guaranteed short-term investments - 3,280 --------------------------------------------------------------------- Total cash and cash equivalents $ 60,089 $ 47,868 --------------------------------------------------------------------- --------------------------------------------------------------------- 14. CAPITAL DISCLOSURES The Trust's objectives in managing capital are to safeguard the assets of the Trust, to ensure that sufficient economic resources are available to execute its business plans and to provide consistent and stable distributions for unitholders. In the management of capital, the Trust monitors net debt, a non-GAAP measure, which is defined as long-term debt as shown on the consolidated balance sheets plus working capital. Net debt is analyzed in relation to annualized fund flows from operations (a non- GAAP measure, defined as cash flows from operating activities before changes in non-cash operating working capital and asset retirement costs incurred). The following table calculates the Trust's ratio of net debt to annualized fund flows from operations for the three and six month periods ended June 30, 2008 and for the three month period ended December 31, 2007: Three Months Six Months Three Months Ended Ended Ended June 30, June 30, December 31, 2008 2008 2007 --------------------------------------------------------------------- Long-term debt $ 286,672 $ 286,672 $ 452,490 Current liabilities 245,628 245,628 150,620 Current assets (247,266) (247,266) (186,252) --------------------------------------------------------------------- Net debt(1) $ 285,034 $ 285,034 $ 416,858 --------------------------------------------------------------------- Cash flows from operating activities $ 184,174 $ 348,901 $ 51,737 Changes in non-cash operating working capital 5,031 (41,449) 72,760 Asset retirement costs incurred 1,142 2,291 1,618 --------------------------------------------------------------------- Fund flows from operations $ 190,347 $ 309,743 $ 126,115 --------------------------------------------------------------------- Annualized fund flows from operations(2) $ 761,388 $ 619,486 $ 504,460 --------------------------------------------------------------------- Ratio of net debt to annualized fund flows from operations ((1) (divided by) (2)) 0.4 0.5 0.8 --------------------------------------------------------------------- For the periods presented here, the ratio of net debt to annualized fund flows from operations was between 0.4 and 0.8. In relation to its long-term debt, the Trust is subject to a debt to EBITDA ratio test (where debt is defined as long-term debt as presented on the consolidated balance sheet and EBITDA is defined as earnings before interest, taxes, depreciation, amortization and other certain non-cash items). During the periods covered by these financial statements, the Trust continued to comply with this externally imposed capital requirement. 15. FINANCIAL INSTRUMENTS The following table summarizes information relating to Vermilion's financial instruments as at June 30, 2008 and December 31, 2007: Classification of Financial Instruments --------------------------------------- ------------------------------------------------------------------------- Related Income Account- or Expense Class of Location on ing Account Carrying Amount and Financial Consolidated Design- on Statement Fair Value of Asset Instruments Balance Sheet ation of Earnings (Liability) as at: ------------------------------------------------------------------------- June December 30, 2008 31, 2007 ------------------------------------------------------------------------- Cash Cash and cash HFT-B Gains and $ 60,089 $ 47,868 equivalents losses on foreign exchange are included in foreign exchange loss (gain) Receivables Accounts LAR Gains and $ 169,292 $ 119,645 receivable losses on foreign exchange are included in foreign exchange loss (gain). Impairments are recognized as general and administration expense Derivative Derivative HFT-B Loss (gain) $ 12,734 $ 9,552 assets instruments on derivative instruments Derivative Derivative HFT-B Loss (gain) $ (14,886) $ (7,450) liabilities instruments on derivative instruments Reclamation Reclamation HFT-A Other income $ 57,346 $ 57,928 fund fund or expense investments Portfolio Long-term HFT-A Other income $ 8,274 $ 5,032 investments investments(1) or expense Payables Accounts OTH Gains and $(183,629) $(141,652) payable and losses on accrued foreign liabilities. exchange are Distributions included in payable to foreign unitholders. exchange loss (gain) Long-term Long-term OTH Interest $(286,672) $(452,490) debt debt ------------------------------------------------------------------------- (1) See note 12 for a reconciliation of the long-term investments account Accounting designations used in the above table: HFT-A - Designated by the Trust as "Held for trading" upon initial recognition. Financial assets and liabilities designated as "Held for trading" are carried at fair value on the consolidated balance sheets with gains and losses associated with fair value adjustments recognized in net earnings. HFT-B - Classified as "Held for trading" in accordance with Section 3855 of the CICA Handbook. As with HFT-A instruments these financial assets and liabilities are carried at fair value on the consolidated balance sheets with associated gains and losses reflected in net earnings. LAR - "Loans and receivables" are initially recognized at fair value and subsequently are measured at amortized cost. Impairments and foreign exchange gains and losses are recognized in net earnings. OTH - "Other financial liabilities" are initially recognized at fair value and subsequently are measured at amortized cost. Interest is recognized in net earnings using the effective interest method. Foreign exchange gains and losses are recognized in net earnings. Determination of Fair Values ---------------------------- Fair values for derivative assets and derivative liabilities are determined using option pricing models that are based on assumptions which are supported by prices from observable market transactions. Fair values for portfolio investments and reclamation fund investments are determined by reference to published price quotations in active markets. The carrying value of cash equivalents, receivables and payables approximate their fair value due to their short maturities. The carrying value of long-term debt approximates its fair value due to the use of short-term borrowing instruments at market rates of interest. Nature and Extent of Risks Arising From Financial Instruments ------------------------------------------------------------- Vermilion is exposed to the following types of risks in relation to its financial instruments: Credit risk: ------------ Vermilion extends credit to customers and the Trust may, from time-to-time, be due amounts from counterparties in relation to derivative instruments. Accordingly, there is a risk of financial loss in the event that a counterparty fails to discharge its obligation. For transactions that are financially significant, Vermilion reviews third-party credit ratings and may require additional forms of security. Currency risk: -------------- Vermilion conducts business in currencies other than Canadian dollars and accordingly is subject to currency risk associated with changes in foreign exchange rates in relation to cash, receivables, payables, derivative assets and liabilities and reclamation fund investments. The effect of exchange rates on financial instruments of a current nature is somewhat mitigated as a result of the natural hedging effect of Vermilion's foreign currency working capital position. Vermilion monitors its exposure to currency risk and reviews whether the use of derivative financial instruments is appropriate to manage potential fluctuations in foreign exchange rates. At present, the Trust does not have any derivative instruments in place with respect to currency risk. Commodity price risk: --------------------- Vermilion uses financial derivatives as part of its risk management program associated with the effects of changes in commodity prices on future cash flows. Changes in the underlying commodity prices impact the fair value and future cash flows related to these derivatives. Equity price risk: ------------------ The Trust holds investments in equity securities in its reclamation fund. In addition, at June 30, 2008 the Trust held portfolio investments in equity securities with a fair value of $8.3 million. The fair value of these instruments is exposed to changes in the prices of the underlying equities. Interest rate risk: ------------------- Vermilion's debt is primarily comprised of short-term bankers acceptances that bear interest at market rates. Accordingly, Vermilion's exposure to interest rate risk in relation to its long- term debt at the balance sheet date is not material. The fair value of the bonds and debt securities that Vermilion holds in its reclamation fund is subject to interest rate risk. Liquidity risk: --------------- Liquidity risk is the risk that Vermilion will encounter difficulty in meeting obligations associated with its financial liabilities. The Trust does not consider this to be a significant risk as its financial position and available committed borrowing facility provide significant financial flexibility and allow Vermilion to meet its obligations as they come due. The nature of these risks and the Trust's strategy for managing these risks has not changed significantly from the prior period. Summarized Quantitative Data Associated with the Above Risks ------------------------------------------------------------ Credit risk: ------------ As at June 30, 2008 Vermilion's maximum exposure to credit risk was $182.0 million which is the aggregate value of receivables and derivative assets at the balance sheet date. Vermilion's receivables are due from counterparties that have investment grade third party credit ratings or, in the absence of the availability of such ratings; Vermilion has satisfactorily reviewed the counterparty for creditworthiness as appropriate. As at the balance sheet date the amount of financial assets that were past due or impaired was not material for disclosure. Liquidity risk: --------------- The following table summarizes Vermilion's financial liabilities and their contractual maturities: Later than Later than Later than one month three months one year Due in Not and not and not and not (from balance later than later than later than later than sheet date) one month three months one year five years --------------------------------------------------------------------- Non-derivative financial liabilities $ 122,156 $ 56,078 $ 5,395 $ 286,672 Derivative financial liabilities $ 2,460 $ 5,260 $ 6,708 $ 458 --------------------------------------------------------------------- Minimal liquidity risk exists with regards to the Trust's financial liabilities given the Trust's financial position and committed borrowing facility. Market risk: ------------ As previously noted, the Trust is exposed to currency risk related to changes in foreign currency denominated financial instruments, commodity price risk related to outstanding derivative positions, interest rate risk related to its long-term debt and investments in debt securities and equity price risk related to investments in equity securities. The following table summarizes what the impact on net earnings before tax would be for the six month period ended June 30, 2008 given changes in the relevant risk variables that the Trust considers were reasonably possible at June 30, 2008. The impact on net earnings before tax associated with changes in these risk variables for liabilities that are not considered financial instruments is excluded from this analysis. This analysis does not attempt to reflect any interdependencies between the relevant risk variables. Effect on net earnings before tax Description of change in increase Risk risk variable (decrease) --------------------------------------------------------------------- Currency risk - Increase in strength of the Canadian $ (9,226) Euro to Canadian dollar against the Euro by 10% over the relevant closing rates on June 30, 2008. Decrease in strength of the Canadian $ 4,613 dollar against the Euro by 5% over the relevant closing rates on June 30, 2008. Currency risk - Increase in strength of the Canadian $ (5,328) US$ to Canadian dollar against the US$ by 10% over the relevant closing rates on June 30, 2008. Decrease in strength of the Canadian $ 2,664 dollar against the US$ by 5% over the relevant closing rates on June 30, 2008. Currency risk - Increase in strength of the Canadian $ 1,416 AUD$ to Canadian dollar against the AUD$ by 10% over the relevant closing rates on June 30, 2008. Decrease in strength of the Canadian $ (708) dollar against the AUD$ by 5% over the relevant closing rates on June 30, 2008. Commodity price Increase in relevant oil reference $ (1,043) risk price at June 30, 2008 by US$5.00/bbl within option pricing models used to determine the fair value of derivative positions. Decrease in relevant oil reference $ 1,043 price at June 30, 2008 by US$5.00/bbl within option pricing models used to determine the fair value of derivative positions. --------------------------------------------------------------------- Reasonably possible changes in the relevant variables associated with interest rate risk and equity price risk would not have had a material impact on net earnings for the period ended June 30, 2008. ADDENDUM Press Release - August 5, 2008 VERENEX ANNOUNCES THIRD PARTY RE

SOURCE ASSESSMENT FOR AREA 47 IN LIBYA Verenex Energy Inc. ("Verenex" or the "Company") (TSX - VNX) is pleased to announce results of a third party assessment of oil and gas contingent and prospective resources in Area 47 in Libya. DeGolyer and MacNaughton ("DM") has completed an initial assessment of oil and gas resources in the Company's portfolio of discoveries and exploration prospects in Area 47 effective February 1, 2008. The assessment conforms to Canadian Securities National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. Gross contingent (discovered) and prospective (undiscovered) oil and gas resources in Area 47 are expressed in the tables below as a range of estimates. In summary, the aggregate of DM's best estimate of gross contingent resources and risked mean estimate of gross prospective resources is approximately 1.6 billion barrels of oil equivalent. Area 47 Gross Contingent Resources The DM best estimate of Area 47 gross contingent oil resources discovered in the Lower and Middle Acacus Formations is approximately 340 million barrels. This estimate is based on results from seven exploration and appraisal wells (six discoveries at A1, B1, C1, D1, E1 and F1-47/02 and one appraisal well A2-47/02) drilled by Verenex in Block 2 in the southern part of Area 47. The best estimate of gross contingent raw gas resources discovered in the Lower Acacus and Middle Acacus Formations is approximately 342 billion cubic feet. On an oil equivalent basis, the best estimate of gross contingent resources is approximately 396 million barrels. ------------------------------------------------------------------------- Area 47 Gross Contingent Resources(1) ------------------------------------------------------------------------- Low Best High Estimate(2) Estimate(3) Estimate(4) ------------------------------------------------------------------------- Oil - million barrels 94.9 339.5 599.7 ------------------------------------------------------------------------- Raw Gas - billion cubic feet 68.9 341.5 605.7 ------------------------------------------------------------------------- Total - million barrels oil equivalent(5) 106.3 396.4 700.6 ------------------------------------------------------------------------- Area 47 Gross Prospective Resources The DM unrisked mean estimate of Area 47 gross prospective oil resources in the Lower Acacus Formation only is approximately 2.4 billion barrels associated with 34 exploration prospects and leads. The unrisked mean estimate of gross prospective raw gas resources in the Lower Acacus Formation is approximately 1.7 trillion cubic feet. On an oil equivalent basis, the mean unrisked estimate of gross prospective resources is 2.7 billion barrels. The corresponding geologic risk-adjusted mean estimates of gross prospective resources in the Lower Acacus Formation are 1.1 billion barrels of oil and 0.8 trillion cubic feet of raw gas, or 1.2 billion barrels of oil equivalent. ------------------------------------------------------------------------- Area 47 Gross Prospective Resources(6) ------------------------------------------------------------------------- Unrisked Geologic Risk- ------------------------------------------- Adjusted Low Best High Mean Mean Estimate Estimate Estimate Estimate Estimate (7) (8) (9) (10) (12) ------------------------------------------------------------------------- Oil - million barrels 940.2 2,011.8 4,305.3 2,399.4 1,060.0 ------------------------------------------------------------------------- Raw Gas - billion cubic feet 828.6 1,517.8 2,780.6 1,696.9 761.1 ------------------------------------------------------------------------- Total - million barrels oil equivalent(11) 1,078.3 2,264.8 4,768.8 2,682.3 1,186.8 ------------------------------------------------------------------------- Commenting on the resource assessment, Jim McFarland, President and CEO of Verenex said: "The DM assessment confirms that Verenex has established a world class resource base in Area 47. We believe that the current discovered resources are sufficient to underpin an initial development phase of approximately 50,000 bopd (gross) and excellent potential exists to grow production above this floor. We remain tremendously excited about the future for Verenex given this resource outlook." This initial assessment reflects information available at the end of January 2008 including drilling results from seven Verenex wells and exploration prospects and leads mapped utilizing extensive seismic coverage in Area 47 including 3D and 2D seismic shot by Verenex in 2006. As previously announced on July 23, 2008, Verenex has since drilled and cased an additional six wells (13 wells in total) and shot additional 3D and 2D seismic in late 2007 and early 2008. These more recent results have not as yet been reflected in the resource assessment. The DM assessment excludes any resources associated with pre-existing oil discoveries at A1-NC3A and G1-NC02 located within or on the boundary of Block 2 in Area 47. The Libyan National Oil Corporation ("NOC") has advised that certain areas around these discoveries are unavailable to Verenex for exploration or exploitation under the current terms of the Area 47 Exploration and Production Sharing Agreement. This resource announcement coincides with the release on SEDAR at www.sedar.com of a material change report which was previously filed on a confidential basis with securities regulators. The material change report dated August 5, 2008 includes the following additional information: the risks and level of uncertainty associated with the recovery of the resources, the significant positive and negative factors relevant to the estimates and, in respect of the contingent resources, the specific contingencies which prevent the classification of the resources as reserves. Notes to tables: (1) Contingent resources, as evaluated by DM, are those quantities of petroleum estimated, as of February 1, 2008, to be potentially recoverable from known accumulations using established technology or technology under development, but which are not currently considered to be commercially recoverable due to one or more contingencies. There is no certainty that it will be commercially viable to produce any portion of the resources. (2) The Low Estimate is considered to be a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the Low Estimate. (3) The Best Estimate is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the Best Estimate. (4) The High Estimate is considered to be an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the High Estimate. (5) Total Contingent Resources represents the aggregate of the resources disclosed under "Raw Gas" and "Oil", combined on the basis that 6,000 cubic feet of raw gas is equivalent to one barrel of oil equivalent ("boe"). (6) Prospective resources, as evaluated by DM, are those quantities of petroleum that are estimated, as of February 1, 2008, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. There is no certainty that any portion of the prospective resources summarised in the DM reports will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the prospective resources. (7) The Low Estimate is P90. (8) The Best Estimate is P50. (9) The High Estimate is P10. (10) The Mean Estimate is the probability-weighted average, which typically has a probability in the P45 to P15 range, depending on the variance of prospective resources volume or associated value. (11) Total Prospective Resources represents the aggregate of the resources disclosed under "Raw Gas" and "Oil", combined on the basis that 6,000 cubic feet of raw gas is equivalent to one "boe". (12) The DM P(g)-adjusted Mean Estimate, or "geologic risk-adjusted mean estimate", is the probability-weighted average of the hydrocarbon quantities potentially recoverable if a prospect portfolio were drilled, or if a family of similar prospects were drilled. The P(g)- adjusted mean estimate is a "blended" quantity. It is a mean estimation of both volumetric uncertainty and geological risk (chance). This statistical measure considers and quantifies the geological success and geological failure outcomes. Consequently it represents the average or mean "geologic" outcome of a drilling and exploration program. The P(g)-adjusted mean estimate is calculated as: P(g)-adjusted mean estimate = P(g) x mean estimate. Verenex is a Canada-based, international oil and gas exploration and production company with a world-class exploration portfolio in the Ghadames Basin in Libya. Verenex is the operator and holds a 50% working interest in Area 47 in Libya. Under the EPSA terms for Area 47, Verenex would receive an initial production allocation (free of all taxes and royalties) of 6.85% in any commercial development scheme. A more complete description of the Area 47 contract terms is included in the Company's various filings on www.sedar.com. This press release contains forward-looking statements, including but not limited to operational information, future exploration and development plans and anticipated future production. These statements are based on current expectations and are subject to a number of risks and uncertainties that could materially affect the results. These risks include, but are not limited to: financing risks; geological risks; drilling risks; risks associated with obtaining regulatory approvals; oil and gas industry operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the ability to attract and retain key personnel; the risk of commodity price and foreign exchange rate fluctuations; the uncertainty associated with negotiating with governments; and the risk associated with international activity. Due to the risks, uncertainties and assumptions inherent in forward- looking statements, prospective investors in the company's securities should not place undue reliance on these forward-looking statements. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6,000 cubic feet to one barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. For further information, please contact: Jim McFarland, President & CEO - Verenex Energy Inc. Telephone: (403) 536-8009 or Ken Hillier, Chief Financial Officer - Verenex Energy Inc. Telephone: (403) 536-8005 www.verenexenergy.com End Of Addendum %SEDAR: 00018945E %CIK: 0001293135

For further information:

For further information: Lorenzo Donadeo, President & CEO; Curtis W.
Hicks, C.A., Executive VP & CFO; Paul Beique, Director Investor Relations,
2800, 400 - 4th Avenue S.W., Calgary, Alberta, T2P 0J4, TEL (403) 698-8827,
FAX (403) 264-6306, TOLL FREE 1-866-895-8101,
investor_relations@vermilionenergy.com, www.vermilionenergy.com

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VERMILION ENERGY TRUST

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