Vermilion Energy Trust - Year end 2007 operating and financial results



    CALGARY, March 3 /CNW/ - Vermilion Energy Trust ("Vermilion") (TSX -
VET.UN) is pleased to report operating and unaudited financial results for the
year ended December 31, 2007.

    
    2007 Highlights:

    -   Beginning with the December 2007 distribution, Vermilion increased
        the monthly distribution by 12% to $0.19 per unit. This is the first
        change in Vermilion's distribution in five years. Since converting to
        a trust in January 2003, Vermilion has paid distributions of
        $10.05 per unit equal to 86% of its initial value, and the unit price
        has nearly tripled from $11.75 per unit to $34.23 per unit as of
        December 31, 2007.

    -   Recorded production of 31,325 boe/d in 2007 an increase of 14%
        compared to 27,401 boe/d in 2006. Fourth quarter 2007 production was
        33,070 boe/d compared to 32,172 in the third quarter of 2007.

    -   Generated fund flows from operations of $126.1 million ($1.73 per
        unit) in the fourth quarter of 2007, bringing full year 2007 fund
        flows from operations to $385.9 million ($5.28 per unit) compared to
        $342.5 million ($4.86 per unit) in 2006. Fourth quarter figures
        benefited from the recognition of non-recurring tax reductions. Cash
        distributions as a percent of fund flows from operations were 28% in
        the fourth quarter of 2007 and 35% for the full year.

    -   Provided total returns to unitholders of 3.7% in 2007, compared to an
        average loss of 3.1% for Vermilion's peer group. Over the past three
        years, the Trust has delivered an industry leading compounded average
        rate of return of 26.1%. Since converting to a trust in 2003,
        Vermilion has generated a 5 year compound average rate of return of
        30.4% (not including reinvestment of distributions) representing top
        quartile performance.

    -   Added 15.8 million barrels equivalent of new proved plus probable
        reserves in 2007, replacing 138% of 2007 production through drilling
        and acquisitions. Over the past five years, Vermilion has grown its
        proved plus probable reserves by 26% per unit on a debt-adjusted
        basis while increasing its production per unit by 10%. The Trust's
        proved plus probable reserve life index at the end of 2007 was
        10.6 years.

    -   Acquired 40% of the Wandoo Field, offshore Australia, increasing
        Vermilion's interest to 100% of this field. Completed the expansion
        of processing facilities on the platform to enable fluid throughput
        of 150,000 barrels per day, and successfully carried out the first
        well workovers ever in this field.

    -   Successfully drilled Vermilion's first wells in the Netherlands. The
        three wells combined are expected to contribute approximately
        650 boe/d to Vermilion's production in 2008.

    -   Received recognition for superior corporate governance in the Globe &
        Mail's "Board Games" as Canada's number one income trust and in
        Canadian Business Magazine's annual governance survey as one of the
        top ten companies in Canada.

    -   By maintaining a conservative payout ratio, Vermilion was able to
        execute a $176 million development capital program, acquire
        $130 million of producing properties, declare over $100 million in
        net cash distributions and still maintain a strong financial
        position. Vermilion's net debt at year-end 2007 was approximately
        $417 million, less than 1.1 times trailing funds from operations.
    

    Conference Call and Webcast Details
    -----------------------------------
    Vermilion will discuss these results in a conference call to be held on
Monday, March 3, 2008. The conference call will begin at 9:00 AM MST -
11:00 AM EST. To participate, you may call toll free 1-800-733-7560 or
1-416-644-3415 (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 21260367 followed by the pound key. The replay will be available until
midnight eastern time on March 17, 2008. You may also listen to the webcast by
clicking http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2146760.


    
    HIGHLIGHTS

    Financial ($000 CDN           Three Months Ended   Year Ended Year Ended
     except unit and              Dec 31,     Dec 31,     Dec 31,     Dec 31,
     per unit amounts)              2007        2006        2007        2006
    -------------------------------------------------------------------------
    Petroleum and natural
     gas revenue              $  205,725  $  155,722  $  707,334  $  618,072
    Fund flows from operations   126,115      89,558     385,911     342,502
      Per unit, basic(1)            1.73        1.27        5.28        4.86
    Capital expenditures          52,121      37,425     175,639     136,939
    Acquisitions, including
     acquired working capital
     deficiency                      366       5,845     129,605     195,880
    Net debt                                             416,858     354,809
    Reclamation fund
     contributions and asset
     retirement costs incurred     1,618       8,027       4,056      13,770
    Cash distributions per unit     0.53        0.51        2.06        2.04
    Cash distributions total      35,564      32,961     136,389     130,638
      Less DRIP                    9,807       6,131      35,992      18,811
      Cash distributions net      25,757      26,830     100,397     111,827
      % of fund flows from
       operations distributed
       gross                         28%         37%         35%         38%
      % of fund flows from
       operations distributed
       net                           20%         30%         26%         33%
    Total net distributions,
     capital expenditures,
     reclamation fund
     contributions and asset
     retirement costs
     incurred                 $   79,496  $   72,282  $  280,092  $  262,536
      % of fund flows from
       operations                    63%         81%         73%         77%
    Trust units outstanding(1)
      Adjusted basic                                  74,271,031  71,251,256
      Diluted                                         77,270,832  74,925,989
    Weighted average trust
     units outstanding(1)
      Adjusted basic                                  73,058,209  70,520,196
      Diluted                                         75,782,723  73,059,877
    Unit trading
      High                                            $    40.40  $    37.99
      Low                                             $    30.33  $    26.51
      Close                                           $    34.23  $    35.00
    -------------------------------------------------------------------------
    Operations
    -------------------------------------------------------------------------
    Production
      Crude oil (bbls/d)          18,949      16,033      17,324      14,204
      Natural gas liquids
       (bbls/d)                    1,486       1,215       1,483       1,229
      Natural gas (mcf/d)         75,812      73,221      75,113      71,805
      Boe/d (6:1)                 33,070      29,452      31,325      27,401
    Average reference price
      WTI ($US/bbl)           $    90.69  $    60.21  $    72.34  $    66.21
      Brent ($US/bbl)              88.69       59.68       72.52       65.14
      AECO ($CDN/mcf)               6.14        6.91        6.45        6.53
      Netherlands reference
       (Euro/GJ)                    5.87        6.04        5.35        6.12
      Foreign exchange rate
       ($US/$CDN)                   1.02        0.88        0.94        0.88
      Foreign exchange rate
       (Euro/$CDN)                  0.70        0.68        0.68        0.70
    Average selling price
      Crude oil and natural
       gas liquids ($CDN/bbl)      81.61       64.50       74.08       73.71
      Natural gas ($CDN/mcf)        7.50        7.92        7.25        7.74
    Netbacks per boe (6:1)
      Operations netback           43.69       36.92       40.62       41.86
      Fund flows netback           41.47       33.06       33.75       34.25
      Operating costs         $    11.28  $    10.52  $    10.45  $     9.65
    -------------------------------------------------------------------------
    (1) Includes trust units issuable for outstanding exchangeable shares
        based on the period end exchange ratio
    

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

    FOR A COMPLETE COPY OF VERMILION'S 2007 FINANCIAL STATEMENTS AND RELATED
    MANAGEMENT'S DISCUSSION AND ANALYSIS, PLEASE REFER TO WWW.SEDAR.COM AND
    OR VERMILION'S WEBSITE AT WWW.VERMILIONENERGY.COM. THESE DOCUMENTS WILL
    BE MADE AVAILABLE ON OR BEFORE MARCH 31, 2008.

    2007 IN REVIEW

    Vermilion generated another year of strong operating and financial
results by maintaining a disciplined adherence to the Trust's strategic plan.
Initial 2007 production guidance of between 29,500 and 30,500 boe/d was
increased by 1,500 boe/d at mid-year to reflect the acquisition of additional
production in Australia. Vermilion's actual 2007 volumes averaged
31,325 boe/d, near the midpoint of its revised guidance range.
    Total development capital expenditures of $176 million included
approximately $29 million related to the pre-tax impact of Vermilion's share
of the offshore Aquitaine Maritime well in France. This was a high risk
project that had the potential to double the reserves of the Trust with
minimal after-tax exposure. Unfortunately, the well was abandoned.
    In Canada, Vermilion's 2007 capital program continued to focus on tight
natural gas opportunities in the Drayton Valley area as well as coalbed
methane and shallow gas in central Alberta. These drilling, workover and
recompletion programs contributed to an 11% growth in Canadian production in
2007 as compared to 2006.
    Vermilion's operations in France were notably impacted by the shut down
of its Parentis to Ambès pipeline beginning in January. All of the Trust's
production from properties in the Aquitaine Basin was transported to an
alternate shipping location by truck over the balance of the year, resulting
in reduced volumes as well as higher costs related to the trucking operations.
Until the fourth quarter, most of the workover program spending for the
Aquitaine Basin in southern France was deferred or re-allocated to the Paris
Basin properties. In the Paris Basin, Vermilion drilled two wells in the La
Torche/Champotran field and participated in a partner operated well at
Itteville. France production volumes averaged 8,809 boe/d for the year.
    The activity in France which attracted the most attention in 2007 was the
drilling of the Orca 1 well on the Aquitaine Maritime offshore exploration
concession. While the well ultimately proved to be a dry hole, the process
provided Vermilion with valuable experience and, relative to the potential of
the prospect, came at a small after-tax cost to unitholders. The well results
confirmed all the key elements of Vermilion's geological and geophysical
interpretations except for the presence of hydrocarbons. Vermilion will
continue to evaluate the exploration potential of offshore France, but has no
immediate plans to follow up on this well.
    On the other hand, Vermilion's first foray into drilling in the
Netherlands provided encouraging results. Vermilion successfully drilled and
completed three wells, including two at Harlingen and one at DeBlesse. The
combined production from these three wells are expected to contribute
approximately 650 boe/d to Vermilion's production in 2008. The Harlingen
treatment centre debottlenecking was completed, liberating 200 boe/d of gas
previously used to fuel the compressors.
    In Australia, Vermilion completed two well interventions in the Wandoo
Field, adding approximately 600 boe/d to production. More importantly this
work substantiated the opportunity to target unrecovered oil in this field
using horizontal wellbores placed higher in the formation than the existing
wellbore positions. Vermilion also completed the expansion of surface
facilities at Wandoo, significantly enhancing the total fluid handling
capacity of the platform. In July, Vermilion increased its interest in the
Wandoo Field from 60% to 100%. Accordingly, future work programs will provide
a more significant impact to the Trust's overall operations.
    Vermilion worked closely with the Canadian Coalition of Energy Trusts in
its attempts to reverse the Government of Canada's decision to impose a tax on
income trust distributions. Sadly these efforts were to no avail. Then, in
October, the Province of Alberta's provincial government announced significant
revisions to royalty plans, creating further negative uncertainty for
investors. Fortunately, Vermilion believes that it is well positioned to
maintain its current business plans with minimal impact to unitholders from
either of these government initiatives.
    The Trust's Board of Directors and governance practices were recognized
in two prominent studies. The Globe & Mail's "Board Games" ranked Vermilion as
the number one income trust in Canada in terms of disclosure, board
composition and compensation, shareholder rights and total return performance.
Canadian Business Magazine ranked Vermilion in the top ten of 275 corporations
surveyed based on similar criteria. Vermilion's success reflects not only the
quality of its assets, the strength of its people and the significance of a
stable business plan, but also the strong guidance of its management team and
Board of Directors.
    Vermilion continues to provide superior total returns to its unitholders,
and again delivered top-quartile performance in 2007, measured on either a
one-year, three-year or five-year basis. The Trust recorded record profits and
fund flows from operations in 2007, and we anticipate another strong year in
2008.

    OUTLOOK

    Vermilion's Board of Directors approved a $182 million development
capital program for 2008, slightly higher than the 2007 program. Production is
expected to average between 31,000 and 32,000 boe/d in 2008 without
attributing any production from the upcoming Australian drilling program.
Success in Australia drilling will have a positive impact on 2008 exit
production.
    The capital program includes approximately $50 million to drill and
complete two development wells in the Wandoo Field, offshore Northwest
Australia. A contract is currently being finalized with a rig provider, and
Vermilion expects to drill these development wells beginning in the third
quarter of 2008. Production from these wells, anticipated at 1,000 boe/d each,
is expected to be on-stream before year end.
    In France, planned activities include the drilling of a water injection
well to increase the production capability at Les Mimosas and the drilling of
a development well on the west end of the Parentis field. The capital program
includes significant funds targeting a 20% increase in workover and
recompletion programs in both the Paris and Aquitaine Basins. The Parentis to
Ambès pipeline is expected to return to service before mid-year. Seismic
programs covering 50% of the Cazaux Field and potentially parts of the Chaunoy
and La Torche Fields are also planned.
    In Canada, Vermilion recently launched a 16-well coalbed methane shallow
gas program in central Alberta. The Trust also is planning to drill three Keg
River oil development wells and reactivate five additional wells at its
Utikuma light oil properties in northern Alberta. Vermilion's Drayton Valley
activities will focus on high-value recompletions, and a handful of
non-operated drills.
    On January 31, 2008 Vermilion closed the acquisition of a package of
producing assets in the Drayton Valley area for $47 million. These properties
will add approximately 1,000 boe/d to current production. The properties are
in most cases adjacent to or in close proximity to Vermilion's existing
production and facilities. Included in the acquisition was a 100% working
interest in a 10 mmcf/d sweet gas plant. Although this was a relatively small,
bolt-on acquisition, the purchase metrics were attractive at approximately
$47,000 per flowing barrel.
    Netherlands activities will be directed primarily toward permitting a
number of new wells that would be the objective of a drilling program starting
in 2009. The Trust also will look to tie in a few stranded gas wells, and
continue to work on the optimization of surface facilities.
    Vermilion continues to direct a significant amount of time and human
capital towards the evaluation of its large oil pools. Based on assessments
provided by GLJ Petroleum Consultants Ltd., Vermilion's top five oil pools,
including Utikuma in Canada, Wandoo in Australia and Chaunoy, Cazaux and
Parentis in France, contained a combined original oil-in-place of
approximately 1.5 billion barrels. Of that amount 545 million barrels have
been recovered, and 59.8 million barrels are currently booked as recoverable
reserves. Vermilion will continue to focus on improving the recovery of oil
from these fields through improved processes and ultimately the application of
enhanced oil recovery techniques. An incremental recovery rate of only 5%
could provide potential incremental reserves of 75 million barrels, which
currently represents approximately 60% of the Trust's total reserve base.
    The Trust increased its position in Verenex Energy Inc. in 2007, and
currently holds approximately 18.7 million shares representing a 42.2% equity
interest in the firm. Verenex continues to explore its 1.5 million acre land
position, "Area 47", in the Ghadames Basin of Libya, where early results have
been remarkable. Verenex has successfully drilled eight wells, the first five
of which tested at combined rates of 75,000 barrels of oil per day. The latest
well results imply that some of the drilled structural traps may be part of a
much more extensive stratigraphic oil play.
    Verenex continues to further an appraisal program designed to clear the
way for submission of a commerciality application, which is targeted for the
middle of 2008. The southern part of Area 47 is contemplated as the core for
an initial production phase of up to 50,000 barrels of oil per day (gross) by
the end of 2009. Verenex also continues to advance its exploration program
through seismic and additional drilling and currently has two rigs operating
in Libya. Vermilion remains very pleased with these results which we believe
will ultimately be reflected in Vermilion's equity stake in the company.
    Vermilion's portfolio of properties and assets provides unitholders with
a stable base and significant opportunities for future growth. The Trust will
also continue to pursue acquisition opportunities in its core areas of
operations, targeting accretive growth and unrealized development potential.
Management remains highly committed to delivering meaningful returns to its
investors, while protecting the interests of all stakeholders involved in its
operations.

    RESERVES SUMMARY

    GLJ Petroleum Consultants Ltd. (GLJ), independent petroleum engineering
consultants in Calgary, has prepared the 2007 year-end reserve evaluation
report for the Trust. This report is in compliance with National Instrument
51-101(1) and the COGEH Handbook.
    Vermilion added total proved plus probable reserves (P50) of 15.8 mmboe,
approximately 1.4 times production in 2007. After production of 11.4 mmboe,
the Trust's total proved reserves (P90) increased slightly to 86.6 mmboe at
January 1, 2008. Total proved plus probable reserves (P50) increased by
approximately 3.5% to 127.6 mmboe. On a per unit basis (debt adjusted where
all debt is assumed to be converted to equity at year-end), Vermilion's total
proved plus probable reserves (P50) declined by 2.6% over the prior year.
Based on fourth quarter production rates, the Trust's effective reserve life
index at January 1, 2008 is 7.2 years for proved reserves and 10.6 years for
proved plus probable reserves.

    (1) Under the NI51-101 guidelines, proved reserves are qualified as those
    reserves that have a 90% chance of being exceeded at the reported level.
    Proved reserves, by definition, are conservative. Nine times out of ten
    actual reserves will be greater than the proved estimate. Proved plus
    probable reserves are characterized as those reserves that have a 50%
    probability of being exceeded at the reported level. They are the best
    estimate, or the most realistic case. It is equally likely that the
    actual reserves will be higher or lower than the estimate.

    The summary reserve table and reserves reconciliation table are included
below. The reserves shown are Vermilion's company interest share before
deducting royalties.

    
    Reserves Summary Table (Company Interest Gross) (as at January 1, 2008)
    -------------------------------------------------------------------------
                                                        Cumulative Cash Flow
                                              (Escalated Prices - Before Tax)
    -------------------------------------------------------------------------
              Light &                              Oil
               Medium    Natural            Equivalent
                  Oil        Gas      NGL's        6:1     Undisc.        8%
              (mmbbls)      (bcf)   (mmbbls)    (mmboe)      ($mm)      ($mm)
    -------------------------------------------------------------------------
    Total
     Proved     57.06      160.0       2.82      86.56      3,371      2,257
    Total
     Proved
     plus
     probable   81.62     248.68       4.54     127.62      5,033      3,301
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The net present value of the reserves shown above (cumulative cash flow)
are based on GLJ's escalating price and cost scenario, are presented for
comparative purposes only and are not necessarily representative of fair
market value.


    Company Interest Reserves Reconciliation Summary Table (as at
     January 1, 2008)
    -------------------------------------------------------------------------
                                                                        (P50)
                                                                       Total
                                                             (P90)    Proved
                                                Proved      Total       Plus
    Oil Equivalent (mmbbl) Gas at 6:1        Producing     Proved   Probable
    -------------------------------------------------------------------------
    Opening Balance:                            75,025     86,418    123,299
      Drilling additions and improved
       recovery                                  4,705      2,534      5,766
      Acquisition                                6,587      7,279      9,742
      Disposition                                    -          -          -
      Technical revisions                        2,197      1,758        242
      Production                               (11,434)   (11,434)   (11,434)
    -------------------------------------------------------------------------
    Closing balance                             77,080     86,555    127,615
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Certain natural gas volumes have been converted on the basis of six
    thousand cubic feet of gas to one barrel equivalent of oil. Barrels of
    oil equivalent (boe's) may be misleading, particularly if used in
    isolation. A barrel of oil equivalent ("boe") is based on a conversion
    rate of six thousand cubic feet of natural gas to one barrel of oil and
    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 COMPLETE INFORMATION REGARDING VERMILION'S RESERVES, PLEASE REVIEW
    THE TRUST'S 2007 ANNUAL INFORMATION FORM THAT WILL BE FILED ON SEDAR
    WWW.SEDAR.COM ON OR BEFORE MARCH 31, 2008.
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    MANAGEMENT'S DISCUSSION AND ANALYSIS
    ------------------------------------
    The following is Management's Discussion and Analysis (MD&A) dated
February 28, 2008 of Vermilion's operating and financial results for the three
and twelve month periods ended December 31, 2007 and 2006. This discussion
should be read in conjunction with the Trust's audited consolidated financial
statements for the years ended December 31, 2006 and 2005, together with
accompanying notes.

    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  Year Ended  Year Ended
                                  Dec 31,     Dec 31,     Dec 31,     Dec 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Cash flows from
     operating activities     $   51,737  $   93,731  $  349,890  $  306,033
      Changes in non-cash
       operating working
       capital                    72,760      (7,027)     31,965      32,252
      Asset retirement costs
       incurred                    1,618       2,854       4,056       4,217
    -------------------------------------------------------------------------
    Fund flows from
     operations               $  126,115  $   89,558  $  385,911  $  342,502
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    "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.
    "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.
    "Cash distributions per unit" represents actual cash distributions paid
per unit by the Trust during the relevant periods.
    "Cash distributions net" is calculated as actual cash distributions paid
or payable for a given period less proceeds received by the Trust pursuant to
the Distribution Reinvestment Plan ("DRIP"). Cash 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
generated by the Trust is being used to fund distributions.
    "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
generated by the Trust that is available to repay debt and fund potential
acquisitions.
    "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.

    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

    Certain natural gas volumes have been converted on the basis of six
thousand cubic feet of gas to one barrel equivalent of oil. Barrels of oil
equivalent (boe's) may be misleading, particularly if used in isolation. A
barrel of oil equivalent ("boe") is based on a conversion rate of six thousand
cubic feet of natural gas to one barrel of oil and is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.

    Canada
    ------
    In Canada, the Trust participated in the drilling of 51 wells (35.1 net)
during 2007, resulting in 29 gas wells (22.1 net), three oil wells (2.4 net),
six abandoned wells (6.0 net) and 13 standing wells (4.6 net) awaiting further
evaluation and tie-in. The total wells include 27 CBM and shallow gas wells
(19.2 net). The abandoned wells were related to a shallow gas exploration
venture in Saskatchewan, which has been discontinued.

    France
    ------
    In France, Vermilion drilled and completed two oil wells (2.0 net) in the
Champotran/La Torche Field, participated in one oil well (0.2 net) at
Itteville in the Paris Basin, and drilled one offshore well (0.5 net) which
resulted in a dry and abandoned well. A comprehensive trucking operation was
established as an interim replacement for the Ambès pipeline. More than 9,500
truckloads carrying approximately 1.5 million barrels of oil were transported
from producing facilities to shipping terminals, virtually incident free,
reflecting Vermilion's strong commitment to safety and the environment.
Ongoing refurbishment of alternate tanks at the Ambès terminal should allow
the resumption of the pipeline operations sometime in the first half of 2008.

    Netherlands
    -----------
    In the Netherlands, Vermilion successfully drilled two wells (1.9 net) at
Harlingen and one well (0.5 net) at De Blesse, validating the geological and
geophysical interpretations for these wells and initiating a drilling program
that is expected to resume in 2009. The Trust successfully replaced two
oversized gas-powered, turbine compression units at the Harlingen gas
treatment centre reducing total horsepower requirements and liberating
1.2 mmcf/d (200 boe/d) of fuel gas to the sales line.

    Australia
    ---------
    The Wandoo Platform faced three evacuations in the first quarter of the
year and one in the fourth quarter of the year. Downtime resulting from
evacuations has been reduced through a series of platform modifications, and
the total cyclone-related production shortfall was narrowed to approximately
240 boe/d in 2007. Vermilion completed the expansion of fluid handling
capacity on the Wandoo platform in the second quarter of 2007. Two successful
workover and recompletions in the Wandoo Field provided essential information
that confirmed the opportunity to capture additional reserves and production
by repositioning wellbores closer to the top of the oil column in this
reservoir. A two well drilling program is planned for 2008 to initiate the
capture of this opportunity. With success, Vermilion would review additional
drilling opportunities in this field.

    PRODUCTION

    Average production in Canada during 2007 was 4,081 bbls/d of oil and
NGL's and 47.7 mmcf/d of natural gas (12,038 boe/d) compared to 4,011 bbls/d
of oil and NGL's and 41.0 mmcf/d of natural gas (10,843 boe/d) in 2006. Fourth
quarter 2007 production averaged 12,065 boe/d, representing an increase of 12%
over prior year levels.
    Production in France averaged 8,809 boe/d in 2007, 13% higher than the
7,800 boe/d produced in 2006, reflecting the full year impact of the July 2006
acquisition, net of the reduction in volumes arising from the Ambès pipeline
and terminal shut-down incident. Fourth quarter production of 8,946 boe/d in
2007 was 9% lower than the 9,841 boe/d produced in France during the fourth
quarter of 2006, reflecting normal declines together with the impact of the
Ambès situation and a reduction in workover activity in 2007.
    Production in the Netherlands averaged 4,413 boe/d in 2007, down 11% from
the 4,943 boe/d recorded in 2006, due primarily to normal reservoir declines
and some maintenance downtime. Fourth quarter production averaged 4,468 boe/d
in 2007 compared with 5,091 boe/d during the same period in 2006. As recently
completed wells are tied in, production is expected to increase early in 2008
before resuming normal declines.
    Australia production averaged 6,065 boe/d in 2007, compared to a full
year average of 3,815 in 2006. Volumes in 2006 were impacted by storm related
shut-downs during the first quarter and operations related shut-downs in the
second half of 2006. Production in 2007 was curtailed by cyclone action in the
first half of the year, and boosted by the acquisition of the remaining 40%
interest in the Wandoo Field in the second half of 2007. Production during the
fourth quarter of 2007 averaged 7,591 boe/d, compared to 3,775 boe/d during
the same period in 2006. The two wells scheduled for drilling in the second
half of the year are expected to be tied-in by year end, but are not
anticipated to contribute to 2008 production volumes.

    
    Production
    -------------------------------------------------------------------------
                          Three Months Ended
                                Dec 31, 2007    Year Ended Dec 31, 2007
                     Oil &  Natural             Oil &  Natural
                      NGLs      Gas    Total     NGLs      Gas    Total
                   (bbls/d) (mmcf/d)  (boe/d) (bbls/d) (mmcf/d)  (boe/d)   %
    -------------------------------------------------------------------------
    Canada           4,047    48.12   12,065    4,081    47.74   12,038   39
    France           8,776     1.02    8,946    8,621     1.13    8,809   28
    Netherlands         21    26.68    4,468       40    26.24    4,413   14
    Australia        7,591        -    7,591    6,065        -    6,065   19
    -------------------------------------------------------------------------
    Total           20,435    75.82   33,070   18,807    75.11   31,325  100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                          Three Months Ended
                                Dec 31, 2006    Year Ended Dec 31, 2006
                     Oil &  Natural             Oil &  Natural
                      NGLs      Gas    Total     NGLs      Gas    Total
                   (bbls/d) (mmcf/d)  (boe/d) (bbls/d) (mmcf/d)  (boe/d)   %
    -------------------------------------------------------------------------
    Canada           3,752    41.96   10,745    4,011    40.99   10,843   40
    France           9,629     1.27    9,841    7,576     1.35    7,800   28
    Netherlands         93    29.99    5,091       31    29.47    4,943   18
    Australia        3,775        -    3,775    3,815        -    3,815   14
    -------------------------------------------------------------------------
    Total           17,249    73.22   29,452   15,433    71.81   27,401  100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CAPITAL EXPENDITURES

    Drilling and development capital spending for the year totalled
$305.2 million compared to $332.8 million spent in 2006.

    ($000's)
    -------------------------------------------------------------------------
                                  Three Months Ended  Year Ended  Year Ended
                                  Dec 31,     Dec 31,     Dec 31,     Dec 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Land                      $    1,086  $       73  $    3,484  $    2,025
    Seismic                          156       1,151         491       2,555
    Drilling and completion       25,000      10,870      89,081      48,559
    Production equipment
     and facilities               22,781      16,404      61,586      58,160
    Recompletions                  2,999       7,198      11,021      15,280
    Other                             99       1,729       9,976      10,360
    -------------------------------------------------------------------------
                                  52,121      37,425     175,639     136,939
    Acquisitions                     366       5,845     129,605     195,880
    -------------------------------------------------------------------------
    Total                     $   52,487  $   43,270  $  305,244  $  332,819
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    FINANCIAL REVIEW

    The Trust generated fund flows from operations of $126.1 million
($1.73 per unit) in the fourth quarter of 2007, compared to $89.6 million
($1.27 per unit) in the fourth quarter of 2006. Production volumes were 12%
higher in the fourth quarter of 2007 compared to last year's period, and
realized commodity prices were 18% higher than in the fourth quarter of 2006.
A drop in cash taxes, as compared with historical levels, also accounted for
part of the strong fourth quarter 2007 results. In 2007, Vermilion executed
certain transactions that contributed to a substantial reduction in the
current income taxes paid by the Trust's international operating subsidiaries,
including the drilling of the offshore well in France and the property
acquisition in Australia. The primary impact on current income taxes was
recorded over the second half of 2007, as the Trust obtained certainty over
both the completion of the transactions and their tax effect.
    Cash distributions as a percentage of fund flows from operations was
35.3% (28.2% in the quarter) before the impact of the Trust's distribution
reinvestment program ("DRIP"), which generated $36.0 million ($9.8 million in
the quarter) of cash to the Trust. Unitholders reinvest their monthly
distributions to receive additional trust units equal to 5% of the DRIP units
purchased with their distributions. After accounting for the DRIP, cash
distributions as a percentage of fund flows from operations were 26.0% (20.4%
in the quarter). This compares to cash distributions as a percentage of fund
flows from operations of 38.1% (36.8% in the quarter) before the impact of the
DRIP and 32.7% (30.0% in the quarter) after the impact of the DRIP in 2006.
    Development capital expenditures during the fourth quarter of 2007 were
$52.1 million bringing the full year total to $175.6 million. The total of net
distributions (after DRIP), capital expenditures, reclamation fund
contributions and asset retirement costs incurred represented 73% of fund
flows from operations in 2007 as compared to 77% in 2006.
    Vermilion's net debt was $416.9 million at the end of the 2007, compared
with $354.8 million at the end of 2006. Vermilion was able to execute a
$176 million development capital program, acquire $130 million of producing
properties, declare over $100 million in net cash distributions, increase its
equity position in Verenex by over $30 million and still maintain a strong
financial position. The net debt at year end 2007 is equivalent to less than
1.1 times trailing fund flows from operations and only 0.8 times annualized
fourth quarter 2007 funds from operations.

    REVENUE

    Total revenue was $707.3 million ($205.7 million in the quarter) in 2007
compared to $618.1 million ($155.7 million in the quarter) in 2006.
Vermilion's combined crude oil & NGL price was $74.08 per boe ($81.61 per boe
in the quarter) in 2007, an increase of 1% over the $73.71 per boe reported
($64.50 per boe in the quarter) in 2006. The natural gas price realized was
$7.25 per mcf ($7.50 per mcf in the quarter) in 2007 compared to $7.74 per mcf
($7.92 per mcf in the quarter) realized a year ago, a 6% decrease year over
year. The increase in oil prices in the fourth quarter of 2007 compared to the
same period in 2006 was partially offset by the strengthening of the Canadian
dollar. Increased production in Canada, coupled with the acquisition of the
remaining 40% interest in the Wandoo Field offshore Australia in the second
quarter of 2007, resulted in higher revenue year over year.

    
    ($000's except per boe and per mcf)
    -------------------------------------------------------------------------
                                  Three Months Ended  Year Ended  Year Ended
                                  Dec 31,     Dec 31,     Dec 31,     Dec 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Crude oil & NGL's         $  153,433  $  102,362  $  508,540  $  415,245
    Per boe                   $    81.61  $    64.50  $    74.08  $    73.71
    Natural gas                   52,292      53,360     198,794     202,827
    Per mcf                   $     7.50  $     7.92  $     7.25  $     7.74
    -------------------------------------------------------------------------
    Petroleum and natural
     gas revenue              $  205,725  $  155,722  $  707,334  $  618,072
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Per boe                   $    67.62  $    57.47  $    61.86  $    61.80
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    DERIVATIVE INSTRUMENTS

    Vermilion continues to manage its risk exposure through prudent commodity
and currency economic hedging strategies. Vermilion has the following
financial collars and puts in place at December 31, 2007:

    Risk Management: Oil               Funded Cost  bbls/d           US$/bbl
    -------------------------------------------------------------------------
    Collar - WTI
      Q1 2008                          US$0.50/bbl     500   $63.00 - $79.05
      Q2 2008                          US$0.50/bbl     500   $64.30 - $76.00
      Q3 2008                          US$0.28/bbl     250   $70.00 - $90.00
      Q4 2008                          US$0.50/bbl     250   $69.00 - $90.00
    Collar - BRENT
      Q1 2008                          US$0.25/bbl     500   $68.42 - $83.00
      Q1 2008                          US$0.25/bbl     500   $69.25 - $82.00
      Q2 2008                          US$0.50/bbl     500   $64.00 - $80.10
      Q2 2008                          US$0.25/bbl     500   $67.20 - $82.00
      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
    Call Spread - BRENT
      2009 - 2011                      US$5.73/bbl     700   $65.00 - $85.00
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The impact of Vermilion's economic hedging program for the year decreased
cash netbacks by $0.25 per boe (cost of $1.11 per boe for the quarter) in
2007. This compares to a hedging cost of $0.02 (gain of $0.23 per boe in the
quarter) in 2006.

    ROYALTIES

    Total royalties for the year decreased to $8.53 per boe or 14% of sales
($9.57 per boe, 14% in the quarter) in 2007, compared with $9.22 per boe or
15% of sales ($9.23 per boe, 16% in the quarter) in 2006. In Australia,
royalties are reduced by capital reinvestment in the country and the year over
year decrease is largely due to Vermilion's active capital program in
Australia resulting in the Trust paying royalties at a reduced rate compared
to 2006. Royalties in Canada, which are paid on a sliding scale basis, were
relatively consistent year over year. Royalties did not change substantially
in France, where for the most part, royalties are calculated on a unit of
production basis. Production in the Netherlands is not subject to royalties.

    
    ($000's except per boe and per mcf)
    -------------------------------------------------------------------------
                                  Three Months Ended  Year Ended  Year Ended
                                  Dec 31,     Dec 31,     Dec 31,     Dec 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Crude oil & NGL's         $   23,165  $   18,783  $   73,933  $   70,941
    Per boe                   $    12.32  $    11.84  $    10.77  $    12.59
    Natural gas                    5,937       6,220      23,585      21,271
    Per mcf                   $     0.85  $     0.92  $     0.86  $     0.81
    -------------------------------------------------------------------------
    Combined                  $   29,102  $   25,003  $   97,518  $   92,212
    -------------------------------------------------------------------------
    Per boe                   $     9.57  $     9.23  $     8.53  $     9.22
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    OPERATING COSTS

    Operating costs for the year increased to $10.45 per boe ($11.28 per boe
in the quarter) from $9.65 per boe ($10.52 boe in the quarter) in 2006. The
increase in the dollar amount of operating costs over 2006 reflects the
inclusion of a full year of expenses related to the acquisition of Vermilion
Emeraude SAS as well as the inclusion of expenses associated with the mid-2007
acquisition of the remaining 40% interest in the Wandoo Field in offshore
Australia. On a per boe basis, operating costs in Canada have remained
relatively consistent year over year. In France, per unit costs have increased
as a result of the acquisition of the higher cost Vermilion Emeraude assets
coupled with the impact of the oil spill at the Ambès terminal in 2007. The
Trust has been reimbursed for a portion of the costs incurred as a result of
the Ambès incident through proceeds of its insurance policies. There is the
potential to recover additional costs, however, the timing and certainty of
recovery is not determinable at this time and therefore no provision for
additional recoveries has been made. Unplanned maintenance resulted in an
increase in per boe operating costs in the Netherlands.

    
    ($000's except per boe and per mcf)
    -------------------------------------------------------------------------
                                  Three Months Ended  Year Ended  Year Ended
                                  Dec 31,     Dec 31,     Dec 31,     Dec 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Crude oil & NGL's         $   22,578  $   17,819  $   75,102  $   54,494
    Per boe                   $    12.01  $    11.23  $    10.94  $     9.67
    Natural gas                   11,740      10,700      44,415      41,998
    Per mcf                   $     1.68  $     1.59  $     1.62  $     1.60
    -------------------------------------------------------------------------
    Combined                  $   34,318  $   28,519  $  119,517  $   96,492
    -------------------------------------------------------------------------
    Per boe                   $    11.28  $    10.52  $    10.45  $     9.65
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    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. The majority of Vermilion's transportation
costs are comprised of shipping charges incurred in the Aquitaine Basin in
France where oil production is usually 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 have increased as a result of the oil
spill at the Ambès terminal as Vermilion is currently transporting some of its
production to port by truck. It is expected that the terminal will resume
operations in 2008.

    
    ($000's except per boe)
    -------------------------------------------------------------------------
                                  Three Months Ended  Year Ended  Year Ended
                                  Dec 31,     Dec 31,     Dec 31,     Dec 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Transportation            $    6,007  $    2,798  $   22,926  $   10,504
    -------------------------------------------------------------------------
    Per boe                   $     1.97  $     1.03  $     2.01  $     1.05
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    GENERAL AND ADMINISTRATION EXPENSES

    General and administration expenses for the year increased to $1.64 per
boe ($1.24 per boe in the quarter) in 2007 compared to $1.58 per boe
($1.27 per boe in the quarter) in 2006. The increase per boe is primarily a
result of increased staffing levels combined with increased staff retention
costs. Also contributing to the increase are consulting costs incurred in
France as a result of the oil spill at the Ambès terminal.

    ($000's except per boe)
    -------------------------------------------------------------------------
                                  Three Months Ended  Year Ended  Year Ended
                                  Dec 31,     Dec 31,     Dec 31,     Dec 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    General and
     administration           $    3,759  $    3,433  $   18,726  $   15,839
    -------------------------------------------------------------------------
    Per boe                   $     1.24  $     1.27  $     1.64  $     1.58
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    UNIT BASED COMPENSATION EXPENSE

    A non-cash trust unit compensation expense of $1.22 per boe ($0.28 per boe
in the quarter) was recorded in 2007 compared to $2.44 per boe ($3.54 per boe
in the quarter) in 2006. This non-cash amount relates to the value
attributable to long-term incentives granted to officers, directors and
employees under the Trust Unit Rights Incentive Plan and the Trust Unit Award
Incentive Plan.

    ($000's except per boe)
    -------------------------------------------------------------------------
                                  Three Months Ended  Year Ended  Year Ended
                                  Dec 31,     Dec 31,     Dec 31,     Dec 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Unit compensation expense $      865  $    9,604  $   13,985  $   24,383
    -------------------------------------------------------------------------
    Per boe                   $     0.28  $     3.54  $     1.22  $     2.44
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    INTEREST EXPENSE

    Interest expense increased to $1.95 per boe ($2.18 per boe in the quarter)
in 2007 from $1.68 per boe ($2.50 per boe in the quarter) in 2006. Debt levels
are higher in 2007 primarily stemming from the Australia acquisition at the
end of the second quarter of 2007. The Trust's interest rates have remained
relatively consistent over the year.

    ($000's except per boe)
    -------------------------------------------------------------------------
                                  Three Months Ended  Year Ended  Year Ended
                                  Dec 31,     Dec 31,     Dec 31,     Dec 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Interest                  $    6,637  $    6,775  $   22,330  $   16,781
    -------------------------------------------------------------------------
    Per boe                   $     2.18  $     2.50  $     1.95  $     1.68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    DEPLETION, DEPRECIATION AND ACCRETION EXPENSES

    Depletion, depreciation and accretion expenses increased to $18.49 per boe
($19.62 per boe in the quarter) in 2007 compared to $16.23 per boe ($16.93 per
boe in the quarter) in 2006. The increase is due mainly to higher finding and
development costs in Canada and France as well as the increase in the asset
retirement obligation resulting primarily from the Australia acquisition.

    ($000's except per boe)
    -------------------------------------------------------------------------
                                  Three Months Ended  Year Ended  Year Ended
                                  Dec 31,     Dec 31,     Dec 31,     Dec 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Depletion, depreciation
     and accretion            $   59,698  $   45,876  $  211,397  $  162,254
    -------------------------------------------------------------------------
    Per boe                   $    19.62  $    16.93  $    18.49  $    16.23
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    TAXES

    The Trust's current tax provision has decreased to $2.98 per boe
($0.23 per boe in the quarter) in 2007 from $4.29 per boe ($0.27 per boe in
the quarter) in 2006. In 2007 certain transactions, including the drilling of
the offshore well in France and the property acquisition in Australia resulted
in a substantial reduction in current income taxes associated with the Trust's
international operating subsidiaries. This impact on current income tax has
been mostly reflected in the second half of 2007 as the Trust obtained
certainty over both the completion of the transactions and the related tax
effect.
    On June 22, 2007, the Canadian federal government passed legislation that
enacted a tax on publicly traded income trusts as originally announced on
October 31, 2006. The changes do not take effect until January 1, 2011,
provided the Trust experiences only "normal growth" and no "undue expansion"
before then. The government has defined "normal growth" parameters, relative
to the market capitalization of the Trust's issued and outstanding publicly
traded trust units as of October 31, 2006. For the period from November 1,
2006 to December 31, 2007, a trust's permitted or "safe harbour" growth amount
will be 40% of the October 31, 2006 market capitalization benchmark and for
each of the years 2008 through and including 2010 will be 20% of the
benchmark, cumulatively allowing growth of up to 100% until 2011. In addition,
we understand that trusts may be able to issue equity to retire debt existing
on October 31, 2006 without eroding their safe harbour limits. Vermilion's
estimated market capitalization as defined by the government, was $2.4 billion
at October 31, 2006 and outstanding indebtedness was approximately
$400 million.
    Our interpretation suggests that Vermilion may be able to largely
mitigate the contemplated distribution tax for a period of time beyond 2011.
Currently, Vermilion's foreign operations generate after tax cash flow and
subsequently declare and pay dividends which do not attract additional taxes
when received in Canada. We anticipate being able to flow through this
dividend income to unitholders as part of the normal distributions paid and
not attract the distribution tax on that portion of distributions made up of
this dividend income. Beginning in 2006, Vermilion increased the return on
capital or taxable portion of its distributions to 100% in order to preserve
the tax basis it would have utilized to declare a portion of the distribution
as a return of capital or tax deferred. The Trust expects that it will
continue with this practice through 2010 to preserve the tax basis during the
interim period prior to the implementation of the new rules. Under the
legislation the portion of the distribution that represents a return of
capital will not attract the distribution tax. This analysis is a general
assessment of the impact on Vermilion and is not meant to be exhaustive or
definitive.
    Applying this legislation resulted in the recognition of future income
taxes related to timing differences in Vermilion Energy Trust, the parent
entity, whereas previously such differences were only recognized in relation
to subsidiaries of the Trust. The related impact on the Trust's consolidated
future income tax provision and future income tax liability related to this
legislation was not material.

    
    ($000's except per boe)
    -------------------------------------------------------------------------
                                  Three Months Ended  Year Ended  Year Ended
                                  Dec 31,     Dec 31,     Dec 31,     Dec 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Current                   $      701  $      731  $   34,033  $   42,876
    -------------------------------------------------------------------------
    Per boe                   $     0.23  $     0.27  $     2.98  $     4.29
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    FOREIGN EXCHANGE

    A foreign exchange gain of $1.01 per boe (a loss of $0.91 per boe in the
quarter) was recorded in 2007 compared with a loss of $1.30 per boe (a loss of
$4.81 per boe in the quarter) in 2006. The gain for the year ended
December 31, 2007 is mostly due to the impact of the strengthening of the
Canadian dollar on foreign currency denominated liabilities.

    ($000's except per boe)
    -------------------------------------------------------------------------
                                  Three Months Ended  Year Ended  Year Ended
                                  Dec 31,     Dec 31,     Dec 31,     Dec 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Foreign exchange loss
     (gain)                   $    2,777  $   13,050  $  (11,533) $   12,997
    -------------------------------------------------------------------------
    Per boe loss (gain)       $     0.91  $     4.81  $    (1.01) $     1.30
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    EARNINGS

    Net earnings in 2007 increased to $164.3 million or $2.48 per unit
($43.2 million or $0.65 per unit for the quarter) from $146.9 million or
$2.30 per unit ($17.6 million or $0.27 per unit for the quarter) in 2006. The
increase in earnings is primarily due to the impact of higher operating
revenues, as stronger price realizations more than offset increased operating
costs.

    LIQUIDITY AND CAPITAL RE

SOURCES As at December 31, 2007 the Trust had an unsecured covenant based credit facility consisting of a revolving term loan in the amount of $625 million. The revolving period under the term loan is expected to expire in June 2008 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. In the fourth quarter of 2007, Vermilion purchased 0.2 million shares in Verenex Energy Inc. ("Verenex") for total consideration of CDN $2.2 million. After reflecting these additional shares, Vermilion owns 18.7 million shares representing 42.2% of the outstanding shares of Verenex. 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 reclamation obligations associated with the Trust's assets will be substantially funded when the costs are forecast to be incurred. ASSET RETIREMENT OBLIGATION At December 31, 2007, Vermilion had recorded an asset retirement obligation of $163.4 million for future abandonment and reclamation of its properties compared to $127.5 million as at December 31, 2006. The increase is due mostly to a change in abandonment obligation estimates coupled with the additional obligation related to the Australia acquisition partially offset by the impact of foreign exchange. DISTRIBUTIONS Vermilion increased monthly distributions to $0.19 per unit, beginning in December of 2007, bringing total distributions to $2.06 per unit for the year. Distributions declared in 2007 totalled $136.4 million compared to $130.6 million for the same period in the prior year. The 12% increase in distributions is the first since Vermilion's conversion to a trust and follows 58 continuous months of distributions at $0.17 per month. Since inception, the Trust has declared $614.8 million in distributions to unitholders as compared to unitholders capital of $380.9 million at December 31, 2007. Proceeds from the Trust's distributions reinvestment program were $36.0 million in 2007 (2006 - $18.8 million). Sustainability of Distributions ------------------------------- ($000's) ------------------------------------------------------------------------- Three Months Year Year Year Ended Ended Ended Ended Dec 31, Dec 31, Dec 31, Dec 31, 2007 2007 2006 2005 ------------------------------------------------------------------------- Cash flows from operating activities $ 51,737 $ 349,890 $ 306,033 $ 245,116 Net earnings $ 43,249 $ 164,286 $ 146,923 $ 158,471 Distributions declared $ 35,564 $ 136,389 $ 130,638 $ 126,190 Excess of cash flows from operating activities over cash distributions declared $ 16,173 $ 213,501 $ 175,395 $ 118,926 Excess of net earnings over cash distributions declared $ 7,685 $ 27,897 $ 16,285 $ 32,281 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Excess of cash flows from operating activities over cash distributions declared and net earnings over cash distributions declared are used to fund capital expenditures, asset retirement costs, reclamation fund contributions and debt repayments. UNITHOLDERS' EQUITY During 2007, approximately 2.6 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 $45.3 million as a result of the issuance of those units and by $14.6 million as a result of contributed surplus transfer related to unit based compensation plans. 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 sheet 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 on or before January 22, 2013. As at December 31, 2007 there were 4.5 million exchangeable shares outstanding at exchange ratio of 1.55595 whereby 6.9 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. Vermilion may redeem all outstanding exchangeable shares on or before January 22, 2013 and 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 also 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. RECENTLY ADOPTED ACCOUNTING STANDARDS Financial Instruments On January 1, 2007 the Trust adopted Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1506 - "Accounting Changes", Section 1530 - "Comprehensive Income", Section 3855 - "Financial Instruments", Section 3861 - "Financial Instruments - Presentation and Disclosure", and Section 3865 - "Hedges". These standards require that entities categorize financial instruments and measure certain financial instruments at fair value. In addition, these standards introduce the concept of comprehensive income within Canadian GAAP and establish new guidance relating to hedge accounting. As a result of adopting Section 3855, the Trust's investments in marketable securities are now measured at fair value whereas previously they were carried at cost. Gains and losses associated with these securities are reflected in net earnings in the period in which they arise. Transaction costs and discounts are now added to the fair value of long-term debt on initial recognition whereas previously these amounts were deferred and amortized using the straight-line method over the term of the debt. Unamortized amounts were included in prepaid expenses and other on the consolidated balance sheet. The Trust does not currently use hedge accounting and accordingly risk management related derivatives continue to be accounted for at fair value with the associated gains and losses reflected in net earnings. As the Trust does not have any other comprehensive income, net earnings equal comprehensive income. In accordance with the transitional provisions, prior periods have not been restated as a result of adopting these standards. The cumulative effect of the adoption of these new standards had the following impact on the Trust's consolidated balance sheet as at January 1, 2007: Increase (Decrease) ------------------------------------------------------------------------- Prepaid expenses and other $ (2,431) Long-term investments $ 4,704 Reclamation fund $ 2,436 Long-term debt $ (2,431) Future income taxes $ 1,375 Retained earnings $ 5,765 ------------------------------------------------------------------------- ------------------------------------------------------------------------- There was no other material impact on the consolidated financial statements relating to the adoption of these standards. Accounting Changes Effective January 1, 2007, the Trust adopted Section 1506 - "Accounting Changes" which prescribes the criteria for changing accounting policies as well as the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors. The adoption of this amended accounting standard did not impact the financial statements of the Trust. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2006 the CICA issued Section 1535 - "Capital Disclosures" which establishes disclosure standards about an entity's capital structure and how it is managed. Section 3862 - "Financial Instruments - Disclosures" and Section 3863 - "Financial Instruments - Presentation" were also issued in December 2006 and establish standards for the presentation of financial instruments and non-financial derivatives and require additional disclosure to enable users to evaluate the significance and risks relating to financial instruments on an entity's financial position. These three sections are effective for fiscal years beginning on or after October 1, 2007. The Trust does not anticipate that the adoption of these standards will have an impact on its results of operations and financial position. In June 2007, the CICA issued Section 3031 - "Inventories". This section enhances the guidance relating to the determination of inventory cost and effectively harmonizes the Canadian standard with the International Financial Reporting Standards equivalent. This section applies to interim and annual financial statements for fiscal years beginning on or after January 1, 2008. The Trust does not anticipate that the adoption of this standard will have a material impact on its results of operations and financial position. In June 2007, the CICA amended Section 1400 - "General Standards of Financial Statement Presentation," to require an assessment and potential disclosure of an entity's ability to continue as a going concern. The new requirements are effective for interim and annual periods beginning on or after January 1, 2008. These amendments will not impact the Trust's consolidated financial statements. On February 13, 2008, the Accounting Standards Board ("AcSB") confirmed that the transition date to International Financial Reporting Standards ("IFRS") from Canadian GAAP will be January 1, 2011 for publicly accountable enterprises. In February 2008, the CICA issued Section 3064 - "Goodwill and Intangible Assets" to replace Sections 3062 - "Goodwill and Other Intangible Assets" and 3450 - "Research and Development Costs". Section 3064 incorporates guidance addressing when an internally developed intangible asset meets the criteria for recognition as an asset. This Section is effective for fiscal years beginning on or after October 1, 2008. The Trust does not anticipate that the adoption of this standard will have a material impact on its results of operations and financial position. 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 December 31, 2007. 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. 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 Twelve Months Ended December 31, 2007 Ended December 31, 2007 ------------------------------------------------------------------------- Oil & Natural Oil & Natural Trust Financial NGLs Gas Total NGLs Gas Total Information $/bbl $/mcf $/boe $/bbl $/mcf $/boe ------------------------------------------------------------------------- Canada Price $ 78.80 $ 6.62 $ 52.82 $ 71.24 $ 6.85 $ 51.32 Realized hedging gain or loss 0.01 0.08 0.34 - 0.02 0.09 Royalties (15.08) (1.34) (10.38) (13.33) (1.35) (9.87) Transportation (0.55) (0.15) (0.78) (0.33) (0.14) (0.65) Operating costs (13.73) (1.45) (10.37) (12.02) (1.37) (9.49) ------------------------------------------------------------------------- Operating netback $ 49.45 $ 3.76 $ 31.63 $ 45.56 $ 4.01 $ 31.40 ------------------------------------------------------------------------- France Price $ 85.30 $ 8.75 $ 84.67 $ 75.45 $ 7.58 $ 74.81 Realized hedging gain or loss (4.65) - (4.56) (1.03) - (1.01) Royalties (4.87) (0.27) (4.81) (4.98) (0.24) (4.91) Transportation (6.36) - (6.24) (6.37) - (6.24) Operating costs (9.75) (4.90) (10.12) (8.90) (3.93) (9.21) ------------------------------------------------------------------------- Operating netback $ 59.67 $ 3.58 $ 58.94 $ 54.17 $ 3.41 $ 53.44 ------------------------------------------------------------------------- Netherlands Price $ 83.84 $ 9.03 $ 54.34 $ 73.99 $ 7.97 $ 48.03 Operating costs - (1.99) (11.88) - (1.98) (11.80) ------------------------------------------------------------------------- Operating netback $ 83.84 $ 7.04 $ 42.46 $ 73.99 $ 5.99 $ 36.23 ------------------------------------------------------------------------- Australia Price $ 78.85 $ - $ 78.85 $ 74.05 $ - $ 74.05 Royalties (19.51) - (19.51) (17.34) - (17.34) Operating costs (13.74) - (13.74) (13.19) - (13.19) ------------------------------------------------------------------------- Operating netback $ 45.60 $ - $ 45.60 $ 43.52 $ - $ 43.52 ------------------------------------------------------------------------- Total Trust Price $ 81.61 $ 7.50 $ 67.62 $ 74.08 $ 7.25 $ 61.86 Realized hedging gain or loss (1.99) 0.05 (1.11) (0.47) 0.01 (0.25) Royalties (net) (12.32) (0.85) (9.57) (10.77) (0.86) (8.53) Transportation (2.84) (0.10) (1.97) (2.99) (0.09) (2.01) Operating costs (12.01) (1.68) (11.28) (10.94) (1.62) (10.45) ------------------------------------------------------------------------- Operating netback $ 52.45 $ 4.92 $ 43.69 $ 48.91 $ 4.69 $ 40.62 ------------------------------------------------------------------------- General and admini- stration (1.24) (1.64) Interest (2.18) (1.95) Foreign exchange 1.03 (0.41) Proceeds on sale of investment 0.40 0.11 Current and capital taxes (0.23) (2.98) ------------------------------------------------------------------------- Fund flows netback $ 41.47 $ 33.75 ------------------------------------------------------------------------- Depletion, depreciation and accretion (19.62) (18.49) Future income taxes (3.43) 0.82 Other income or loss (0.04) (0.01) Foreign exchange (1.94) 1.42 Non-controlling interest - exchangeable shares (1.45) (1.47) Equity in affiliate 0.25 (0.07) Unrealized gain or loss on derivative instruments (0.74) (0.37) Fair value of stock compensation (0.28) (1.22) ------------------------------------------------------------------------- Earnings netback $ 14.22 $ 14.36 ------------------------------------------------------------------------- Three Twelve Months Months Ended Ended Dec Dec 31/06 31/06 --------------------------------- Trust Financial Total Total Information $/boe $/boe --------------------------------- Canada Price $ 49.18 $ 52.64 Realized hedging gain or loss 0.33 0.24 Royalties (10.39) (10.24) Transportation (0.92) (0.77) Operating costs (11.41) (9.64) --------------------------------- Operating netback $ 26.79 $ 32.23 --------------------------------- France Price $ 62.60 $ 70.83 Realized hedging gain or loss 0.31 (0.42) Royalties (6.74) (5.69) Transportation (2.09) (2.62) Operating costs (8.09) (7.35) --------------------------------- Operating netback $ 45.99 $ 54.75 --------------------------------- Netherlands Price $ 53.42 $ 51.32 Operating costs (8.50) (10.68) --------------------------------- Operating netback $ 44.92 $ 40.64 --------------------------------- Australia Price $ 73.16 $ 82.97 Royalties (24.85) (25.50) Operating costs (17.09) (13.01) --------------------------------- Operating netback $ 31.22 $ 44.46 --------------------------------- Total Trust Price $ 57.47 $ 61.80 Realized hedging gain or loss 0.23 (0.02) Royalties (net) (9.23) (9.22) Transportation (1.03) (1.05) Operating costs (10.52) (9.65) --------------------------------- Operating netback $ 36.92 $ 41.86 --------------------------------- General and admini- stration (1.27) (1.58) Interest (2.50) (1.68) Foreign exchange 0.18 (0.06) Proceeds on sale of investment - - Current and capital taxes (0.27) (4.29) --------------------------------- Fund flows netback $ 33.06 $ 34.25 --------------------------------- Depletion, depreciation and accretion (16.93) (16.23) Future income taxes (0.46) 1.63 Other income or loss 0.50 0.13 Foreign exchange (4.99) (1.24) Non-controlling interest - exchangeable shares (1.20) (1.49) Equity in affiliate 0.04 0.01 Unrealized gain or loss on derivative instruments 0.03 0.06 Fair value of stock compensation (3.54) (2.44) --------------------------------- Earnings netback $ 6.51 $ 14.68 --------------------------------- The above table includes non-GAAP measurements 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) December 31, December 31, 2007 2006 ------------------------------------------------------------------------- Assets Current Cash and cash equivalents $ 47,868 $ 26,950 Accounts receivable 119,645 120,573 Crude oil inventory 11,033 4,898 Derivative instruments 37 1,624 Prepaid expenses and other 7,669 13,473 ------------------------------------------------------------------------- 186,252 167,518 Derivative instruments 9,515 4,656 Long-term investments 63,128 27,152 Goodwill 19,840 19,840 Reclamation fund 57,928 56,357 Capital assets 1,331,460 1,187,316 ------------------------------------------------------------------------- $ 1,668,123 $ 1,462,839 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities Current Accounts payable and accrued liabilities $ 128,858 $ 139,672 Distributions payable to unitholders 12,794 11,000 Derivative instruments 7,450 - Income taxes payable 1,518 13,419 ------------------------------------------------------------------------- 150,620 164,091 Long-term debt 452,490 358,236 Asset retirement obligation 163,374 127,494 Future income taxes 205,702 224,631 ------------------------------------------------------------------------- 972,186 874,452 ------------------------------------------------------------------------- Non-controlling interest - exchangeable shares 68,576 51,780 ------------------------------------------------------------------------- Unitholders' Equity Unitholders' capital 380,941 321,035 Contributed surplus 29,211 30,513 Retained earnings 217,209 185,059 ------------------------------------------------------------------------- 627,361 536,607 ------------------------------------------------------------------------- $ 1,668,123 $ 1,462,839 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings ($000's except unit and per unit amounts, unaudited) Three Months Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2007 2006 2007 2006 ------------------------------------------------------------------------- Revenue Petroleum and natural gas revenue $ 205,725 $ 155,722 $ 707,334 $ 618,072 Royalties (29,102) (25,003) (97,518) (92,212) ------------------------------------------------------------------------- 176,623 130,719 609,816 525,860 ------------------------------------------------------------------------- Expenses and other income Operating 34,318 28,519 119,517 96,492 Transportation 6,007 2,798 22,926 10,504 Unit based compensation 865 9,604 13,985 24,383 Loss (gain) on derivative instruments 5,623 (695) 7,013 (349) Interest 6,637 6,775 22,330 16,781 General and administration 3,759 3,433 18,726 15,839 Foreign exchange loss (gain) 2,777 13,050 (11,533) 12,997 Other income (1,100) (1,348) (1,106) (1,348) Depletion, depreciation and accretion 59,698 45,876 211,397 162,254 ------------------------------------------------------------------------- 118,584 108,012 403,255 337,553 ------------------------------------------------------------------------- Earnings before income taxes and other items 58,039 22,707 206,561 188,307 ------------------------------------------------------------------------- Income taxes Future 10,433 1,249 (9,325) (16,349) Current 701 731 34,033 42,876 ------------------------------------------------------------------------- 11,134 1,980 24,708 26,527 ------------------------------------------------------------------------- Other items Non-controlling interest - exchangeable shares 4,425 3,244 16,813 14,917 Loss (gain) related to equity method investment (769) (121) 754 (60) ------------------------------------------------------------------------- 3,656 3,123 17,567 14,857 ------------------------------------------------------------------------- Net earnings and comprehensive income 43,249 17,604 164,286 146,923 ------------------------------------------------------------------------- Retained earnings, beginning of period 209,524 200,416 185,059 168,774 Cumulative effect of adoption of new accounting standards - - 5,765 - Distributions declared (35,564) (32,961) (136,389) (130,638) Unit-settled distributions on vested unit based awards - - (1,512) - ------------------------------------------------------------------------- Retained earnings, end of period $ 217,209 $ 185,059 $ 217,209 $ 185,059 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net earnings per trust unit Basic $ 0.65 $ 0.27 $ 2.48 $ 2.30 Diluted $ 0.62 $ 0.26 $ 2.39 $ 2.22 ------------------------------------------------------------------------- Weighted average trust units outstanding Basic 66,992,180 64,583,168 66,122,423 63,977,134 Diluted 76,414,607 73,693,408 75,782,723 73,059,877 ------------------------------------------------------------------------- Consolidated Statements of Cash Flows ($000's unaudited) Three Months Ended Year Ended Year Ended December 31, December 31, December 31, December 31, 2007 2006 2007 2006 ------------------------------------------------------------------------- Operating Net earnings $ 43,249 $ 17,604 $ 164,286 $ 146,923 Adjustments: Depletion, depreciation and accretion 59,698 45,876 211,397 162,254 Change in unrealized gains and losses and amounts accrued relating to derivative contracts 2,246 (82) 4,178 (571) Unit based compensation 865 9,604 13,985 24,383 Loss (gain) related to equity method investment (769) (121) 754 (60) Unrealized foreign exchange loss (gain) 5,913 13,532 (16,226) 12,353 Non-controlling interest - exchangeable shares 4,425 3,244 16,813 14,917 Change in unrealized gains and losses and amounts accrued relating to investments 55 (1,348) 49 (1,348) Future income taxes 10,433 1,249 (9,325) (16,349) ------------------------------------------------------------------------- 126,115 89,558 385,911 342,502 Asset retirement costs incurred (1,618) (2,854) (4,056) (4,217) Changes in non-cash operating working capital (72,760) 7,027 (31,965) (32,252) ------------------------------------------------------------------------- Cash flows from operating activities 51,737 93,731 349,890 306,033 ------------------------------------------------------------------------- Investing Drilling and development of petroleum and natural gas properties (52,121) (37,425) (175,639) (136,939) Acquisitions of petroleum and natural gas properties (366) (5,845) (121,294) (26,435) Long-term investment (2,193) (7,500) (32,193) (7,500) Corporate acquisition, net of cash acquired - - - (124,604) Purchase of derivative instrument - (4,926) - (4,926) Contributions to reclamation fund - (5,173) - (9,553) Changes in non-cash investing working capital 3,005 (6,871) (4,512) 548 ------------------------------------------------------------------------- Cash flows used in investing activities (51,675) (67,740) (333,638) (309,409) ------------------------------------------------------------------------- Financing Increase in long- term debt (38,186) (54,402) 99,053 87,137 Issue of trust units for cash 1,335 1,155 7,045 11,545 Issue of trust units pursuant to distribution reinvestment plan 9,807 6,131 35,992 18,811 Cash distributions (34,116) (32,909) (134,595) (130,264) Changes in non-cash financing working capital - 850 - (1,531) ------------------------------------------------------------------------- Cash flows from (used in) financing activities (61,160) (79,175) 7,495 (14,302) ------------------------------------------------------------------------- Foreign exchange (loss) gain on cash held in a foreign currency 2,602 1,938 (2,829) 1,851 ------------------------------------------------------------------------- Net change in cash and cash equivalents (58,496) (51,246) 20,918 (15,827) Cash and cash equivalents, beginning of period 106,364 78,196 26,950 42,777 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 47,868 $ 26,950 $ 47,868 $ 26,950 ------------------------------------------------------------------------- Supplementary information - cash payments Interest paid $ 6,895 $ 6,114 $ 26,071 $ 20,320 Income taxes paid $ 11,096 $ 12,180 $ 45,934 $ 47,523 -------------------------------------------------------------------------

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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