Penn West announces second quarter results



    CALGARY, Aug. 1 /CNW/ - PENN WEST ENERGY TRUST (TSX - PWT.UN; NYSE - PWE)
is pleased to announce its results for the second quarter ended June 30, 2007.
    
    -------------------------------------------------------------------------

    Operations

    -   Production averaged 126,599 boe per day in the second quarter of 2007
        compared to 93,242 boe per day in the same period of 2006. The
        previously announced fire at our Wildboy tank farm reduced reported
        second quarter 2007 gas production by approximately 20 mmcf per day
        (approximately 3,300 barrels of oil equivalent).
    -   Crude oil and NGL production averaged 70,923 barrels per day and
        natural gas production averaged 334 mmcf per day in the second
        quarter of 2007.
    -   Penn West invested $484 million on capital development that included
        $351 million of net property acquisitions and drilled 13 net wells in
        the second quarter with a success rate of 92 percent.

    Financial

    -   Cash flow of $326 million ($1.37 per unit, basic) in the second
        quarter of 2007 was 23 percent higher than cash flow of $265 million
        ($1.59 per unit, basic) realized in the second quarter of 2006,
        mainly due to higher production as a result of the Petrofund merger
        reflected from July 1, 2006 forward.
    -   The net loss in the second quarter of 2007 was $185 million
        ($0.77 per unit, basic) compared to net income of $221 million
        ($1.34 per unit, basic) in the second quarter of 2006, mainly due to
        a $326 million future income tax charge taken to reflect the
        enactment of the tax on income trusts (the "SIFT tax").
    -   In the absence of the charge to reflect the SIFT tax enactment, net
        income for the second quarter and first half of 2007 would have been
        $140 million ($0.59 basic per unit) and $237 million ($0.99 basic per
        unit), respectively.
    -   After the acquisition of approximately 80 percent of the shares of C1
        Energy Ltd. by July 23, 2007, a notice of extension was subsequently
        mailed extending the offer to August 3, 2007.
    -   On May 31, 2007, Penn West Petroleum Ltd. issued US$475 million of
        unsecured notes maturing in eight to 15 years on a private placement
        basis in the United States. The Company used the proceeds of the
        notes to repay a portion of the outstanding bank debt under its
        credit facilities.

    Distributions

    -   Penn West's Board of Directors recently resolved to keep our
        distribution level at $0.34 per unit, per month, for the next
        three months subject to current forecasts of commodity prices,
        production and planned capital expenditures.

    Distribution Tax

    -   In June 2007, the Government of Canada enacted the previously
        announced tax on publicly traded income trusts. This resulted in the
        accounting recognition of an additional $326 million future income
        tax liability and a non-cash future income tax expense in the second
        quarter of 2007. The tax enactment and the related charge against
        income did not affect cash flow or distributions in the quarter and
        is not expected to affect our distribution policies until 2011 at the
        earliest. Penn West will remain active with various parties pursuing
        a re-evaluation of the tax legislation and continues to review
        various tax efficient structural alternatives.

    Long-term Project Updates

    -   In the second half of 2007, in addition to ongoing geological and
        engineering studies and pilot tests, Penn West plans to drill an
        additional 19 horizontal wells and 14 stratigraphic test wells in its
        Peace River Oil Sands project. We expect to complete the tie-in of
        41 producing wells to recently constructed production facilities by
        August 2007, to significantly increase netbacks by reducing trucking
        costs. The previously announced acquisition of producing light oil
        and natural gas properties, undeveloped lands, additional
        infrastructure and all-weather roads in the project area will be
        important in the development of the project area.
    -   During the second quarter, we continued to evaluate an integrated
        approach to enhancing our light oil recovery rates from large, legacy
        oil pools using miscible flooding with CO2 captured from heavy
        industry gasification processes while at the same time helping to
        sequester greenhouse gases. At our Pembina CO2 pilot project, we
        plan to drill four horizontal wells in the third quarter which we
        expect to be on-stream by the first quarter of 2008. We are de-
        watering our four wells drilled to date at our South Swan Hills
        coalbed methane pilot project and are assessing potential future
        coalbed methane development programs in the area.

    HIGHLIGHTS

                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
    ($ millions, except
     per unit and                              %                          %
     production amounts)    2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Financial

    Gross revenues(1)   $  608.3  $  452.5     34  $1,190.7  $  886.4     34
    Cash flow              326.2     264.7     23     637.5     507.9     26
      Basic per unit        1.37      1.59    (14)     2.68      3.08    (13)
      Diluted per unit      1.35      1.56    (13)     2.65      3.03    (13)
    Net (loss) income     (185.2)    220.5   (184)    (88.9)    364.9   (124)
      Basic per unit       (0.77)     1.34   (157)    (0.37)     2.22   (117)
      Diluted per unit     (0.77)     1.31   (159)    (0.37)     2.18   (117)
    Capital
     expenditures, net     483.6     105.8    357     699.5     263.8    165
    Long-term debt at
     period-end          1,822.5   1,369.7     33   1,822.5   1,369.7     33
    Distributions
     paid(2)            $  243.1  $  167.4     45  $  485.2  $  324.3     50

    Operations

    Daily production
      Natural gas
       (mmcf/d)            334.1     267.9     25     337.2     267.4     26
      Light oil and NGL
       (bbls/d)           49,635    29,974     66    49,372    30,755     61
      Conventional
       heavy oil
       (bbls/d)           21,288    18,625     14    21,945    19,648     12
    -------------------------------------------------------------------------
    Total production
     (boe/d)             126,599    93,242     36   127,518    94,968     34
    -------------------------------------------------------------------------
    Average sales price
      Natural gas
       ($/mcf)          $   7.55  $   6.14     23  $   7.57  $   7.12      6
      Light oil and NGL
       ($/bbl)             65.24     71.96     (9)    62.39     66.93     (7)
      Conventional
       heavy oil
       ($/bbl)          $  42.45  $  52.85    (20) $  41.73  $  41.29      1

    Netback per boe
      Sales price       $  52.63  $  51.33      3  $  51.35  $  50.26      2
      Risk management       0.03      2.00    (99)     0.16      1.30    (88)
    -------------------------------------------------------------------------
      Net sales price      52.66     53.33     (1)    51.51     51.56      -
      Royalties             9.82      9.45      4      9.72      9.59      1
      Operating expenses   10.94     10.26      7     10.82     10.07      7
      Transportation        0.52      0.60    (13)     0.53      0.64    (17)
    -------------------------------------------------------------------------
      Netback           $  31.38  $  33.02     (5) $  30.44  $  31.26     (3)
    -------------------------------------------------------------------------
    The above information includes non-GAAP measures not defined under
    generally accepted accounting principles, including cash flow and
    netback. Cash flow is cash flow from operating activities before changes
    in non-cash working capital, and asset retirement expenditures. Please
    refer to the calculation of cash flow table on the first page of the
    Management's Discussion and Analysis for a reconciliation of cash flow
    from operating activities to cash flow. Barrels of oil equivalent (boe)
    are based on six mcf of natural gas equalling one barrel of oil (6:1).
    Netback is a per unit of production measure of operating margin used in
    capital allocation decisions.

    (1) Gross revenues include realized gains and losses on commodity
        contracts.
    (2) Includes distributions paid in trust units under the distribution
        reinvestment plan.


    DRILLING PROGRAM

                              Three months ended            Six months ended
                                    June 30                     June 30
                      -------------------------------------------------------
                              2007          2006          2007          2006
                      -------------------------------------------------------
                       Gross   Net   Gross   Net   Gross   Net   Gross   Net
    -------------------------------------------------------------------------
    Natural gas            5     3      12     5      54    25      80    64
    Oil                   24     8      23    21      77    44      64    55
    Dry                    1     1       1     1       5     4      11    11
    -------------------------------------------------------------------------
                          30    12      36    27     136    73     155   130
    Stratigraphic
     and service           4     1       1     1      19    15       9     6
    -------------------------------------------------------------------------
    Total                 34    13      37    28     155    88     164   136
    -------------------------------------------------------------------------
    Success Rate(1)             92%           96%           95%           92%
    -------------------------------------------------------------------------
    (1) Success rate is calculated excluding stratigraphic and service wells.


    UNDEVELOPED LANDS

                                                               As at June 30
                                        -------------------------------------
                                              2007         2006     % change
    -------------------------------------------------------------------------
    Gross acres (000s)                       3,969        4,825          (18)
    Net acres (000s)                         3,470        4,305          (19)
    Average working interest                    87%          89%          (2)
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    FARM-OUT ACTIVITY

                                    Three months ended      Six months ended
                                          June 30               June 30
                           --------------------------------------------------
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Wells drilled on farm-out
     lands(1)                            16         26        106         54
    -------------------------------------------------------------------------
    (1) Wells drilled on Penn West lands, including re-completions and re-
        entries, by independent operators pursuant to farm-out agreements.


    CORE AREA ACTIVITY

                             Net wells drilled for          Undeveloped land
                              the six months ended       as at June 30, 2007
    Core Area                        June 30, 2007   (thousands of net acres)
    -------------------------------------------------------------------------
    Central                                     51                     1,308
    Plains                                      35                     1,006
    Northern                                     2                     1,156
    -------------------------------------------------------------------------
                                                88                     3,470
    -------------------------------------------------------------------------

    TRUST UNIT DATA

                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
                                               %                          %
    (millions of units)     2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Weighted average
    Basic                  239.0     165.8     44     238.0     164.6     45
    Diluted                241.5     168.7     43     240.3     167.6     43

    Outstanding as at
     June 30

    Basic                                             239.2     235.3      2
    Basic plus trust
     unit rights                                      253.7     246.0      3
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                          Letter to our Unitholders
    -------------------------------------------------------------------------
    

    During the second quarter of 2007, Penn West continued to advance all of
its significant initiatives. These included the continuing execution of our
conventional asset development and optimization plans, the evaluation of our
Peace River Oil Sands project, the advancement of our Pembina CO2 pilot, and
continuing engineering, planning and pilot testing to set up commercial CO2
enhanced oil recovery programs on some of the largest legacy light oil pools
in Western Canada. We continue to focus our efforts on controlling our lifting
costs and capital efficiencies while enhancing our health, safety and
environmental stewardship programs.
    In April 2007, we closed the acquisition of light oil and natural gas
assets and infrastructure that includes important processing infrastructure
and all-weather roads in our Peace River Oil Sands project area. In May 2007,
we announced a take-over bid for the shares of C1 Energy Ltd. ("C1") for $0.20
per share, or a total acquisition cost of approximately $23 million, which we
closed in late July 2007. We also closed the issuance of US$ 475 million of
unsecured notes with fixed terms ranging from eight to 15 years. The proceeds
from the notes were used to repay a portion of our bank credit facilities. In
June 2007, Shirley McClellan was elected as a director of Penn West. Mrs.
McClellan will bolster our Board using her experience gained during her
distinguished career with the Government of Alberta, which included the
offices of Minister of Finance and Deputy Premier.
    Cash flow in the second quarter of 2007 was $326 million or $1.37 per
unit basic compared to $311 million or $1.31 per unit basic in the first
quarter of 2007 and $265 million or $1.59 per unit basic in the second quarter
of 2006. For 2007, we expect to generate cash flow between $1.3 billion and
$1.4 billion from forecast production of between 129,000 and 132,000 barrels
of oil equivalent per day. Subject to this forecast cash flow and capital
expenditures, our Board of Directors recently resolved to maintain our
distributions at $0.34 per unit per month for the next three months.
Production averaged 126,600 barrels of oil equivalent in the second quarter of
2007 compared to 128,447 and 93,242 barrels of oil equivalent in first quarter
of 2007 and second quarter of 2006 respectively. The increases in the 2007
production and cash flow over the second quarter of 2006 primarily reflects
the Petrofund merger we closed on June 30, 2006 partially offset by the
stronger Canadian dollar. The tank farm fire at our Wildboy gas plant reduced
our reported natural gas production in the second quarter of 2007 by
approximately 20 mmcf per day (approximately 3,300 barrels of oil equivalent
per day). We have since restored production at Wildboy to approximately 50
percent of the pre-fire level and expect to have production fully restored by
October 2007. We expect that our property insurance will cover the majority of
the capital costs to replace the damaged equipment and that our business
interruption insurance will cover a significant portion of the lost cash flow.
    Operationally, at our Peace River Oil Sands project, we elected to
increase our focus on delineating the resources contained in our 300,000 net
acres of oil sands leases in the area by scaling back the pace of our
development drilling. In addition to the 19 horizontal wells planned to be
drilled before year-end, we are also planning a total of 38 stratigraphic test
wells, 3-D seismic programs and area mapping over the next six to nine months.
To increase our netbacks from the area, we are currently connecting
41 producing wells to our central oil processing battery, thereby eliminating
all associated trucking costs. By year-end, we expect to have completed the
drilling and facility construction related to a six-well water flood pilot
project in our Seal Main area.
    On the CO2 enhanced oil recovery side, we are expanding our Pembina CO2
pilot project to include four new horizontal wells and one new vertical well,
and plan to commence injecting CO2 by the first quarter of 2008. At South Swan
Hills, we expect our eight-well vertical CO2 pilot will be operational by
January 2008 and are continuing to de-water our four horizontal wells at our
Mannville coalbed methane pilot project.
    The proposed tax on income trusts (the "trust tax") received Royal Assent
in the House of Commons on June 22. Currently, Penn West will be subject to
the new tax under this legislation effective in 2011 and may increase its
equity by approximately $10 billion over the period to 2011 without
pre-maturely triggering the trust tax. As a result of the tax enactment in the
second quarter, Penn West recorded a $326 million non-cash future income tax
charge against income, which led to our first reported quarterly loss since
1992. The charge has no impact on our cash flow and hence has no effect on our
distributions. Excluding the charge, second quarter 2007 net income would have
been $140 million ($0.59 per unit, basic) compared to $96 million ($0.41 per
unit, basic) in the first quarter of 2007. Based on our current forecasts,
little or no trust or corporate income tax will be paid until approximately
2014. Our efforts to obtain a re-evaluation of the trust tax are continuing in
collaboration with other parties.
    Over the remainder of 2007, we will work diligently to restore production
at Wildboy and advance all of our conventional and non-conventional projects.
On behalf of our Board of Directors, I wish to thank Jeffery Errico for his
counsel as a Director of Penn West since the merger with Petrofund in June
2006. Mr. Errico did not stand for re-election to our Board due to personal
reasons.

    On behalf of the Board of Directors,

    (signed)

    William E. Andrew
    President and CEO

    Calgary, Alberta
    August 1, 2007

    
                    MANAGEMENT'S DISCUSSION AND ANALYSIS
                   For the six months ended June 30, 2007
    -------------------------------------------------------------------------
    

    This management's discussion and analysis ("MD&A") of financial
conditions and results of operations should be read in conjunction with the
unaudited interim consolidated financial statements of Penn West Energy Trust
("Penn West", "the Trust", "we" or "our") for the three and six months ended
June 30, 2007 and the audited consolidated financial statements and MD&A for
the year ended December 31, 2006. The date of this MD&A is August 1, 2007.
    All dollar amounts contained in this MD&A are expressed in millions of
Canadian dollars unless noted otherwise.
    Please refer to our disclaimer on forward-looking statements at the end
of this MD&A. The calculations of barrels of oil equivalent ("boe") are based
on a conversion ratio of six thousand cubic feet of natural gas to one barrel
of crude oil. This could be misleading if used in isolation as it is based on
an energy equivalency conversion method primarily applicable at the burner tip
and does not represent a value equivalency at the wellhead.
    Measures including cash flow, cash flow per unit-basic, cash flow per
unit-diluted and netbacks included in this MD&A are not defined in generally
accepted accounting principles ("GAAP") and do not have a standardized meaning
prescribed by GAAP; accordingly, they may not be comparable to similar
measures provided by other issuers. Management utilizes cash flow and netbacks
to assess financial performance, to allocate its capital among alternative
projects and to assess our capacity to fund distributions and future capital
programs. Reconciliations of non-GAAP measures to their nearest measure
prescribed by GAAP are provided below.

    
    Calculation of Cash Flow

                                    Three months ended      Six months ended
                                          June 30               June 30
    ($ millions, except          --------------------------------------------
     per unit amounts)                 2007       2006       2007       2006
    -------------------------------------------------------------------------
    Cash flow from operating
     activities                   $   316.5  $   218.7  $   613.3  $   426.4
    Increase in non-cash
     working capital                    0.9       43.4        5.7       72.0
    Asset retirement expenditures       8.8        2.6       18.5        9.5
    -------------------------------------------------------------------------
    Cash flow                     $   326.2  $   264.7  $   637.5  $   507.9
    -------------------------------------------------------------------------

    Basic per unit                $    1.37  $    1.59  $    2.68  $    3.08
    Diluted per unit              $    1.35  $    1.56  $    2.65  $    3.03
    -------------------------------------------------------------------------

    Quarterly Financial Summary

    ($ millions, except per unit and production amounts) (unaudited)

                                          Penn West Energy Trust
                           --------------------------------------------------
                             June 30   Mar. 31   Dec. 31  Sept. 30   June 30
    Three months ended          2007      2007      2006      2006      2006
    -------------------------------------------------------------------------
    Gross revenues(1)       $  608.3  $  582.4  $  578.5  $  636.0  $  452.5
    Cash flow                  326.2     311.3     303.3     365.6     264.7
    Basic per unit              1.37      1.31      1.23      1.55      1.59
    Diluted per unit            1.35      1.30      1.22      1.53      1.56
    Net (loss) income         (185.2)     96.3     122.9     177.8     220.5
    Basic per unit             (0.77)     0.41      0.44      0.66      1.34
    Diluted per unit           (0.77)     0.40      0.44      0.65      1.31
    Distributions declared     243.5     242.4     241.5     240.7     167.6
    Per unit                    1.02      1.02      1.02      1.02      1.02
    Production
    Liquids(2) (bbls/d)       70,923    71,716    70,819    69,215    48,599
    Natural gas (mmcf/d)       334.1     340.4     354.6     359.1     267.9
    Total (boe/d)            126,599   128,447   129,915   129,059    93,242
    -------------------------------------------------------------------------

                                Penn West Energy Trust
                           ------------------------------
                             Mar. 31   Dec. 31  Sept. 30
    Three months ended          2006      2005      2005
    -----------------------------------------------------
    Gross revenues(1)       $  433.9  $  554.5  $  535.0
    Cash flow                  243.2     332.6     334.9
    Basic per unit              1.49      2.03      2.06
    Diluted per unit            1.47      2.03      2.04
    Net (loss) income          144.4     241.1     209.5
    Basic per unit              0.88      1.48      1.29
    Diluted per unit            0.87      1.46      1.27
    Distributions declared     162.0     151.8     127.3
    Per unit                    0.99      0.93      0.78
    Production
    Liquids(2) (bbls/d)       52,226    51,953    51,634
    Natural gas (mmcf/d)       266.9     277.5     289.0
    Total (boe/d)             96,713    98,205    99,802
    -----------------------------------------------------
    (1) Gross revenues include realized gains and losses on commodity
        contracts.
    (2) Includes crude oil and natural gas liquids.
    

    Enactment of the Tax on Income Trusts

    On June 12, 2007, the legislation implementing the new tax on publicly
traded income trusts and limited partnerships (the "SIFT tax"), referred to as
"Specified investment flow-through" ("SIFT") entities (Bill C-52) received
third reading in the House of Commons and on June 22, 2007, the Bill received
Royal Assent. As a result, the tax was considered to be enacted for accounting
purposes in June 2007.
    SIFTs are certain publicly traded income and royalty trusts and limited
partnerships including Penn West. For SIFTs in existence on October 31, 2006,
the SIFT tax will be effective in 2011 unless certain rules related to "undue
expansion" are not adhered to. Under the guidance provided, we can increase
our equity by approximately $10 billion between now and 2011 without
prematurely triggering the SIFT tax.
    Under the SIFT tax, distributions will not be deductible for income tax
purposes by SIFTs in 2011 and thereafter and any trust level taxable income
will be taxed at an approximate of the corporate income tax rate currently
estimated to be 31.5 percent. The resultant distributions will be considered
taxable dividends to unitholders, generally eligible for the dividend tax
credit. Distributions representing a return of capital for income tax purposes
will continue to be an adjustment to a unitholder's adjusted cost base of
trust units.
    For accounting purposes, as the SIFT tax was enacted in the second
quarter of 2007, Penn West recorded a non-cash charge of $326 million to
future income taxes to reflect the current temporary differences between the
book and tax basis of assets and liabilities expected to be remaining in the
Trust in 2011. The majority of the temporary differences at the Trust level
arose on the merger with Petrofund on June 30, 2006.
    Our Board of Directors and Management continue to review the impact of
this tax on our business strategy. We expect future technical interpretations
and details will further clarify the legislation. At the present time, Penn
West believes some or all of the following actions will or could result due to
the enactment of the SIFT tax:

    
    -   If structural or other similar changes are not made, the after-tax
        distribution yield in 2011 to taxable Canadian investors will remain
        approximately the same, however, the distribution yield in 2011 to
        tax-deferred Canadian investors (RRSPs, RRIFs, pension plans, etc.)
        and foreign investors would fall by an estimated 31.5 percent and
        26.5 percent, respectively;
    -   A portion of Penn West's cash flow could be allocated to the payment
        of the SIFT tax, or other forms of tax, and would not be available
        for distribution or re-investment;
    -   Penn West could convert to a corporate structure to facilitate
        investing a higher proportion or all of its cash flow in exploration
        and development projects. Such a conversion and change to capital
        programs could result in a significant reduction to, or elimination
        of, distributions and/or dividends;
    -   Penn West might determine that it is more economic to remain in the
        trust structure, at least for a period of time, and shelter its
        taxable income using tax pools and pay all or a portion of its
        distributions on a return of capital basis, likely at a lower payout
        ratio. Further, as the SIFT tax rate exceeds the corporate income tax
        rate that would be applicable to Penn West, some corporate tax might
        be paid resulting in all or a portion of distributions being paid on
        a return of capital basis at a lower payout ratio
    

    The Trust is reviewing all organizational structures and alternatives to
minimize the impact of the SIFT tax on our unitholders. While there can be no
assurance that the negative effect of the tax can be minimized or eliminated,
Penn West and its advisors will continue to work diligently on these issues.
    The table below, provided by the Government of Canada in a backgrounder
accompanying its October 31, 2006 announcement, shows a simplified comparison
of the effects of the changes to investor tax rates in 2011;

    
                             Current System               Proposed System
                      -------------------------------------------------------
                          Income                       Income
                         portion        Large         portion        Large
                         of trust    corporation      of trust    corporation
    Investor          distributions   (dividend)   distributions   (dividend)
    -------------------------------------------------------------------------
    Taxable Canadian
     individuals(1)         46%           46%           45.5%         45.5%
    Canadian tax-exempt
     investors               0%           32%           31.5%         31.5%
    Taxable U.S.
     investors(2)           15%           42%           41.5%         41.5%
    -------------------------------------------------------------------------
    (1) All rates in the table are as of 2011, and include both entity- and
        investor-level tax (as applicable). Rates for "taxable Canadian
        individuals" assume that top personal income tax rates apply and that
        provincial governments increase their dividend tax credit for
        dividends of large corporations.
    (2) Canadian taxes only. U.S. tax will also apply in most cases, net of
        any foreign tax credits.


    RESULTS OF OPERATIONS

    Production

                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
                                               %                          %
    Daily production        2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Natural gas (mmcf/d)   334.1     267.9     25     337.2     267.4     26
    Light oil and NGL
     (bbls/d)             49,635    29,974     66    49,372    30,755     61
    Conventional heavy
     oil (bbls/d)         21,288    18,625     14    21,945    19,648     12
    -------------------------------------------------------------------------
    Total production
     (boe/d)(1)          126,599    93,242     36   127,518    94,968     34
    -------------------------------------------------------------------------
    (1) Barrels of oil equivalent (boe) are based on six mcf of natural gas
        being equal to one barrel of oil (6:1)
    

    The increase in production was due to the Petrofund merger closing at the
end of June 2006, and to our development and optimization programs. Production
in the second quarter of 2007 was slightly below the 128,447 boe per day
produced in the first quarter of 2007 due to a fire at our 100% owned Wildboy
natural gas plant during mid-May reducing production by approximately
3,300 boe per day for the quarter. Partial production was restored at the
property in June 2007.
    We strive to maintain an approximately balanced portfolio of liquids and
natural gas production provided it is economic to do so. We believe a balance
by product helps to reduce exposure to price volatility that can affect a
single commodity. In the second quarter of 2007, crude oil and NGL production
averaged 70,923 barrels per day (56 percent of production) and natural gas
production averaged 334.1 mmcf per day (44 percent of production).
    We drilled 13 net wells in the second quarter of 2007, mainly in the
Central and Plains areas, compared to 28 in the same period of 2006.

    Commodity Markets

    Natural Gas

    Following exceptional volatility through the winter, natural gas price
movements have been relatively muted through the spring, with mild weather
providing little incentive to move prices in either direction. Lower natural
gas storage levels were offset by weaker demand due to the milder weather.
Spot natural gas prices at AECO in the second quarter of 2007 decreased by
$0.09 per mcf or one percent from the prior quarter to average $7.37 per mcf.
Penn West's average natural gas price in the second quarter of 2007 exceeded
AECO spot prices due to the use of fixed price, short-term, physical natural
gas contracts. Spot natural gas prices were $1.07 per mcf or 18 percent higher
than the second quarter of 2006.

    Crude Oil

    Due to concerns related to crude oil inventory levels resulting from mild
winter weather in the first quarter of 2007, crude oil prices were relatively
weak early in the first quarter of 2007 but subsequently recovered in the
second quarter of 2007. OPEC production cuts combined with strong North
American demand resulted in continued high prices. The Edmonton par price for
light, sweet crude oil weakened relative to WTI in the quarter as the Canadian
dollar strengthened relative to the US dollar. Heavy oil differentials widened
relative to Edmonton par, with Bow River differentials averaging $22.31 per
barrel in the second quarter of 2007 compared to $18.86 per barrel in the same
quarter of 2006.

    
    Average Sales Prices Received

                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
                                               %                          %
                            2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------

    Natural gas ($/mcf) $   7.55  $   6.14     23  $   7.57  $   7.12      6
    Risk management
     ($/mcf)                0.01      0.93    (99)     0.04      0.58    (93)
    -------------------------------------------------------------------------
    Natural gas net
     ($/mcf)                7.56      7.07      7      7.61      7.70     (1)
    -------------------------------------------------------------------------

    Light oil and
     liquids ($/bbl)       65.24     71.96     (9)    62.39     66.93     (7)
    Risk management
     ($/bbl)                   -     (2.11)  (100)     0.18     (1.04)  (117)
    -------------------------------------------------------------------------
    Light oil and
     liquids net ($/bbl)   65.24     69.85     (7)    62.57     65.89     (5)
    -------------------------------------------------------------------------

    Conventional heavy
     oil ($/bbl)           42.45     52.85    (20)    41.73     41.29      1
    -------------------------------------------------------------------------

    Weighted average
     ($/boe)               52.63     51.33      3     51.35     50.26      2
    Risk management
     ($/boe)                0.03      2.00    (99)     0.16      1.30    (88)
    -------------------------------------------------------------------------
    Weighted average
     net ($/boe)        $  52.66  $  53.33     (1) $  51.51  $  51.56      -
    -------------------------------------------------------------------------


    Netbacks

                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
                                               %                          %
                            2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Natural gas
    Production
     (mmcf/day)            334.1     267.9     25     337.2     267.4     26
      Operating netback
       ($/mcf):
        Sales price     $   7.55  $   6.14     23  $   7.57  $   7.12      6
        Risk
         management(2)      0.01      0.93    (99)     0.04      0.58    (93)
        Royalties           1.64      1.45     13      1.65      1.63      1
        Operating costs     1.10      0.97     13      1.08      0.96     13
        Transportation      0.20      0.21     (5)     0.20      0.22     (9)
    -------------------------------------------------------------------------
        Netback         $   4.62  $   4.44      4  $   4.68  $   4.89     (4)
    -------------------------------------------------------------------------
    Light oil and NGL
    Production
     (bbls/day)           49,635    29,974     66    49,372    30,755     61
      Operating netback
       ($/bbl):
        Sales price     $  65.24  $  71.96     (9) $  62.39  $  66.93     (7)
        Risk
         management(2)         -     (2.11)  (100)     0.18     (1.04)  (117)
        Royalties          11.29     10.57      7     11.02     10.69      3
        Operating costs    15.28     16.10     (5)    15.21     15.75     (3)
    -------------------------------------------------------------------------
        Netback         $  38.67  $  43.18    (10) $  36.34  $  39.45     (8)
    -------------------------------------------------------------------------
    Conventional
     heavy oil
    Production
     (bbls/day)           21,288    18,625     14    21,945    19,648     12
      Operating netback
       ($/bbl):
        Sales price     $  42.45  $  52.85    (20) $  41.73  $  41.29      1
        Royalties           6.38      9.39    (32)     6.33      7.45    (15)
        Operating costs    12.15     11.49      6     12.12     11.00     10
        Transportation      0.03         -      -      0.05      0.08    (38)
    -------------------------------------------------------------------------
        Netback         $  23.89  $  31.97    (25) $  23.23  $  22.76      2
    -------------------------------------------------------------------------
    Total liquids
    Production
     (bbls/day)           70,923    48,599     46    71,317    50,403     41
      Operating netback
       ($/bbl):
        Sales price     $  58.40  $  64.64    (10) $  56.03  $  56.93     (2)
        Risk
         management(2)         -     (1.30)  (100)     0.12     (0.63)  (119)
        Royalties           9.82     10.12     (3)     9.58      9.43      2
        Operating costs    14.34     14.33      -     14.26     13.90      3
        Transportation      0.01         -      -      0.02      0.03    (33)
    -------------------------------------------------------------------------
        Netback         $  34.23  $  38.89    (12) $  32.29  $  32.94     (2)
    -------------------------------------------------------------------------
    Combined totals

    Production
     (boe/day)(1)        126,599    93,242     36   127,518    94,968     34
      Operating netback
       ($/boe):
        Sales price     $  52.63  $  51.33      3  $  51.35  $  50.26      2
        Risk
         management(2)      0.03      2.00    (99)     0.16      1.30    (88)
        Royalties           9.82      9.45      4      9.72      9.59      1
        Operating costs    10.94     10.26      7     10.82     10.07      7
        Transportation      0.52      0.60    (13)     0.53      0.64    (17)
    -------------------------------------------------------------------------
        Netback         $  31.38  $  33.02     (5) $  30.44  $  31.26     (3)
    -------------------------------------------------------------------------
    (1) Boe or barrels of oil equivalent are based on six mcf of natural gas
        being equal to one barrel of oil (6:1).
    (2) Realized component of risk management activities related to oil and
        natural gas prices.


    Production Revenues

    Revenues from the sale of oil, NGL and natural gas consisted of the
following:

                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
                                               %                          %
    ($ millions)            2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Natural gas         $  231.4  $  172.4     34  $  465.8  $  372.7     25
    Light oil and NGL      294.7     190.5     55     559.2     366.8     52
    Conventional
     heavy oil              82.2      89.6     (8)    165.7     146.9     13
    -------------------------------------------------------------------------
    Gross revenues(1)   $  608.3  $  452.5     34  $1,190.7  $  886.4     34
    -------------------------------------------------------------------------
    (1) Gross revenues include realized gains and losses on commodity
        contracts.


    Increases (Decreases) in Production Revenues

    ($ millions)
    -------------------------------------------------------------------------
    Gross revenues - January 1 - June 30, 2006                      $  886.4
    Increase in light oil and NGL production                           222.0
    Decrease in light oil and NGL prices
     (including realized risk management)                              (29.6)
    Increase in conventional heavy oil production                       17.2
    Increase in conventional heavy oil prices                            1.7
    Increase in natural gas production                                  97.3
    Decrease in natural gas prices
     (including realized risk management)                               (4.3)
    -------------------------------------------------------------------------
    Gross revenues - January 1 - June 30, 2007                      $1,190.7
    -------------------------------------------------------------------------

    Royalties

                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
                                               %                          %
                            2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Royalties
     ($ millions)       $  113.1  $   80.1     41  $  224.4  $  165.7     35
    Average royalty
     rate (%)                 19        18      6        19        19      -
    $/boe               $   9.82  $   9.45      4  $   9.72  $   9.59      1
    -------------------------------------------------------------------------

    Expenses

                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
                                               %                          %
    ($ millions)            2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Operating           $  126.0  $   87.2     45  $  249.7  $  173.1     44
    Transportation           6.0       5.0     20      12.1      10.8     12
    Financing               24.3       8.4    189      40.5      14.8    174
    Unit-based
     compensation       $    5.0  $    2.4    108  $    9.8  $    5.4     81
    -------------------------------------------------------------------------


                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
                                               %                          %
    ($/boe)                 2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Operating           $  10.94  $  10.26      7  $  10.82  $  10.07      7
    Transportation          0.52      0.60    (13)     0.53      0.64    (17)
    Financing               2.12      1.00    112      1.76      0.87    102
    Unit-based
     compensation       $   0.44  $   0.29     52  $   0.42  $   0.32     31
    -------------------------------------------------------------------------
    

    Operating

    With the continued strong draw on skilled labour and services by the
large oil sands projects in Northern Alberta, oil and natural gas producers in
the Western Canada Sedimentary Basin continued to experience inflationary,
albeit moderating, pressure on operating costs in the second quarter of 2007.
A higher proportion of liquids production, combined with production
interruptions, also contributed to higher per unit operating costs in 2007
than the comparative second quarter 2006 period. The addition of the Petrofund
assets, effective July 1, 2006 with higher operating costs, also contributed
to the increase.
    In 2006, as natural gas prices fell from close to record highs, some
significant oil and natural gas companies cut their capital programs related
to natural gas helping to reduce demand for oilfield services, particularly
drilling and service rigs. The effect of lower activity, combined with
internal Penn West initiatives specifically targeted at reducing operating
costs, resulted in the operating cost per barrel of oil equivalent in the
second quarter of 2007 being approximately equal to the first quarter of 2007
and fourth quarter of 2006.
    A realized gain of $2.0 million (2006 - $2.2 million) on our electricity
contracts has been included in the operating costs for the first half of the
year.

    Financing

    The 2007 increase in interest expense was due to both an increase in the
average outstanding debt balance and increases in short-term interest rates
over 2006. The short end of the yield curve has increased due to rate
increases by the central bank in Canada. The increased average loan balance
was principally due to the $610 million of debt assumed with the Petrofund
merger on June 30, 2006 and the $330 million property acquisition that closed
in April 2007.
    Penn West Petroleum Ltd. ("the Company") closed the placement of
US$475 million of notes on May 31, 2007. The interest rates on the notes are
fixed at 5.68 to 6.05 percent for fixed terms of eight to 15 years. In
addition, the Company has swaps on $100 million of bank debt that fix the
interest rate at approximately 4.36 percent until March 2008. The interest
rate on the balance of the Company's long-term debt is currently issued to
short-term, floating interest rate debt instruments.

    Unit-Based Compensation

    Unit-based compensation expense related to Penn West's Trust Unit Rights
Incentive Plan is based on the fair value of trust unit rights issued,
determined using the Binomial Lattice option-pricing model. The unit-based
compensation expense was $5.0 million for the three months ended June 30,
2007, of which $1.3 million was charged to operating expense and $3.7 million
was charged to general and administrative expense (2006 - $2.4 million,
$0.6 million and $1.8 million respectively). Unit-based compensation expense
is based on the fair value of rights issued and is amortized over the
remaining vesting periods on a straight-line basis.

    
    General and Administrative Expenses

                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
    ($ millions, except                        %                          %
     per boe amounts)       2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Gross               $   20.9  $   13.4     56  $   41.9  $   25.5     64
      Per boe               1.81      1.58     15      1.81      1.48     22
    Net                     12.7       7.1     79      26.5      14.1     88
      Per boe           $   1.10  $   0.83     33  $   1.15  $   0.82     40
    -------------------------------------------------------------------------

    Increases in total and per boe general and administrative costs in 2007
were due to higher staff levels following the Petrofund merger and higher
compensation costs. The cost of hiring, compensating and retaining employees
and consultants, including the recruitment of professional staff dedicated to
optimizing and controlling field operating costs, remains high due to strong
demand for staff, particularly those with specialized training and experience.
More onerous regulatory compliance activities also contributed to the
increase.

    Depletion, Depreciation and Accretion ("DD&A")

                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
    ($ millions, except                        %                          %
     per boe amounts)       2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Depletion of oil
     and natural gas
     assets(1)          $  212.2  $  104.1    104  $  421.2  $  210.9    100
    Accretion of asset
     retirement
     obligation(2)           6.2       5.8      7      12.1      11.5      5
    -------------------------------------------------------------------------
    Total DD&A             218.4     109.9     99     433.3     222.4     95
    -------------------------------------------------------------------------
    DD&A expense
     per boe            $  18.95  $  12.96     46  $  18.77  $  12.94     45
    -------------------------------------------------------------------------
    (1) Includes depletion of the capitalized portion of the asset retirement
        obligation.
    (2) Represents the accretion expense on the asset retirement obligation
        during the period.


    Higher DD&A expense in 2007 versus 2006 was due to the Petrofund merger in
2006. The merger was accounted for as a purchase with the purchase price
allocated to the net assets acquired. The purchase price allocation to oil and
natural gas assets, at their estimated fair value, significantly increased our
consolidated depletion base per unit and hence our depletion rate.

    Taxes

                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
                                               %                          %
    ($ millions)            2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Future income
     expense
     (reduction)        $  299.0  $  (94.8)  (415) $  254.6  $ (104.7)  (343)
    -------------------------------------------------------------------------
    

    The second quarter of 2007 future income tax expense, compared to the
reduction in the first quarter of 2007, reflects a $325.5 million charge due
to the enactment of the SIFT tax legislation during the period. Temporary
differences at the Trust level, or differences between book and tax basis of
assets and liabilities, were previously not recognized as prescribed under
Canadian GAAP since the Trust was required to distribute all of its taxable
income. Under the new legislation, in 2011 and beyond, as distributions will
no longer be tax deductible, the Trust will not be able to make distributions
to reduce its taxable income and thus is no longer considered to be exempt
from income taxes for accounting purposes. Accordingly, the future income tax
liability was increased to reflect the current temporary differences expected
to be remaining at the Trust level in 2011 using the SIFT tax rate of
31.5 percent.
    Under our current structure, the operating entities make interest and
royalty payments to the Trust, which transfers taxable income to the Trust to
eliminate income subject to corporate and other income taxes in the operating
entities. With the new legislation, such amounts transferred to the Trust
could be taxable beginning in 2011 as distributions will no longer be
deductible for income tax purposes. At that time, Penn West could claim tax
pools in its operating companies, reduce the income transferred to the Trust,
and pay all or a portion of its distributions on a return of capital basis.
Until 2011, under the terms of its trust indenture, the Trust is required to
distribute amounts equal to at least its taxable income. In the event that the
Trust has undistributed taxable income in a taxation year (prior to 2011), an
additional special taxable distribution, subject to certain withholding taxes,
would be required by the terms of its trust indenture.
    The estimate of future income taxes is based on the current tax status of
the Trust. Future events, which could materially affect future income taxes
such as acquisitions and dispositions and modifications to the distribution
policy, are not reflected under Canadian GAAP until the events occur and the
related legal requirements have been fulfilled. As a result, future changes to
the tax legislation could lead to a material change in the recorded amount of
future income taxes.
    The new legislation is not expected to directly affect our cash flow
levels and distribution policies until 2011 at the earliest.

    
    Cash Flow and Net (Loss) Income

                               Three months ended           Six months ended
                                     June 30                    June 30
                        -----------------------------------------------------
                                               %                          %
                            2007      2006  change     2007      2006  change
    -------------------------------------------------------------------------
    Cash flow(1)
     ($ millions)       $  326.2  $  264.7     23  $  637.5  $  507.9     26
      Basic per unit        1.37      1.59    (14)     2.68      3.08    (13)
      Diluted per unit      1.35      1.56    (13)     2.65      3.03    (13)

    Net (loss) income
     ($ millions)         (185.2)    220.5   (184)    (88.9)    364.9   (124)
      Basic per unit       (0.77)     1.34   (157)    (0.37)     2.22   (117)
      Diluted per unit  $  (0.77) $   1.31   (159) $  (0.37) $   2.18   (117)
    -------------------------------------------------------------------------
    (1) Cash flow is a non-GAAP measure. See "Calculation of Cash Flow".
    

    Cash flow realized in the first six months of 2007 increased from the
comparable 2006 period due to higher production volumes resulting from the
Petrofund merger and higher conventional heavy oil prices partially offset by
higher operating and financing costs.
    In the absence of the $325.5 million non-cash charge taken to reflect the
enactment of the SIFT tax, net income for the second quarter and first half of
2007 would have been $140.3 million and $236.6 million, respectively. The
remainder of the decrease was due to increased depletion and financing charges
following the Petrofund merger that closed on June 30, 2006.

    Goodwill

    The goodwill balance of $652.0 million resulted from the merger with
Petrofund in June 2006. The Trust has determined that there was no goodwill
impairment as of June 30, 2007.

    
    Capital Expenditures

                                    Three months ended      Six months ended
                                          June 30               June 30
                                 --------------------------------------------
    ($ millions)                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Property acquisitions
     (dispositions), net          $   351.0  $    (3.4) $   368.1  $    (5.5)
    Land acquisition and
     retention                          1.6        5.1        4.5       18.5
    Drilling and completions           44.1       54.1      165.6      151.0
    Facilities and well equipping      80.2       47.7      147.6       94.7
    Geological and geophysical          4.3        0.9        8.0        2.2
    CO2 pilot costs                     1.6        0.8        3.1        1.9
    Administrative                      0.8        0.6        2.6        1.0
    -------------------------------------------------------------------------
    Capital expenditures              483.6      105.8      699.5      263.8
    -------------------------------------------------------------------------

    Business combination                  -    3,361.3          -    3,361.3
    -------------------------------------------------------------------------

    Total expenditures            $   483.6  $ 3,467.1  $   699.5  $ 3,625.1
    -------------------------------------------------------------------------
    

    We drilled 13 net wells in the second quarter of 2007, resulting in eight
net oil wells, three net natural gas wells and one stratigraphic well with a
success rate of 92 percent. Our drilling activities were focused in the
Central and Plains areas.
    CO2 pilot costs represent capital expenditures related to the Pembina CO2
pilot project, including the cost of injectants, for which no reserves have
been booked.
    On June 30, 2006, we merged with Petrofund. The fair value of the oil and
gas properties acquired of $3.3 billion was added to property, plant and
equipment and the remaining $0.7 billion of the purchase price was attributed
to goodwill. Goodwill was recorded to reflect that we increased our production
capacity to levels which made us the largest conventional oil and gas royalty
trust in North America, that we increased our exposure to light oil giving us
a better future product balance as we increase our production from the Peace
River Oil Sands, that we increased our reserve life index and we gained
technological access to, and staff with experience in, resource plays
including the Weyburn CO2 project and coalbed methane.
    On May 31, 2007, we entered into an agreement with C1 Energy Ltd ("C1")
to make an offer to its shareholders to acquire all of the issued and
outstanding shares of the company for an estimated cash purchase price of
$23 million. After the acquisition of approximately 80 percent of C1 by
July 23, 2007, we extended the offer to August 3, 2007. Certain assets of C1
are located in the Peace River Arch area of Alberta further strengthening our
position near our Peace River Oil Sands project. The acquisition is expected
to close in August 2007.
    Our farm-out program is ongoing; since 2005, 378 wells have been drilled
on Penn West's lands, including re-completions and re-entries, by independent
operators who incur drilling, completions and other capital costs on these
plays to earn an interest in the lands. In the second quarter of 2007,
16 wells were drilled on our farm-out lands.
    In addition to the above capital expenditures, $8.4 million was
capitalized in relation to future income taxes on minor acquisitions in the
Swan Hills area, to reflect the acquisition of assets with less tax basis than
the purchase price, and $17.1 million was capitalized for additions to asset
retirement obligations.

    Business Risks

    Market Risk Management

    We are exposed to normal market risks inherent in the oil and natural gas
business, including commodity price risk, credit risk, interest rate risk,
foreign currency and environmental risk. From time to time, we attempt to
minimize exposure to a portion of these risks by using financial instruments
and by other means.

    Commodity Price Risk

    We have substantial exposure to commodity price fluctuations. Crude oil
prices are influenced by worldwide factors such as OPEC actions, supply and
demand fundamentals, and political events. Oil prices, North American natural
gas supply and demand factors including storage levels influence natural gas
prices. Pursuant to our policies, we may, from time to time, manage these
risks through the use of costless collars or other financial instruments up to
a maximum of 50 percent of forecast sales volumes, net of royalties, for a
two-year period or up to 75 percent of forecast sales volumes, net of
royalties, for a one-year period.
    For a current summary of outstanding oil and natural gas hedging
contracts, please refer to "Financial Instruments" later in this MD&A or our
website at www.pennwest.com.

    Foreign Currency Rate Risk

    Prices received for sales of crude oil are referenced to, or denominated
in, US dollars, and thus realized oil prices are generally impacted by
Canadian to United States exchange rates. When we consider it appropriate, we
may use financial instruments to fix or collar future exchange rates. At
June 30, 2007, we had US dollar denominated debt with a face value of
US$475 million outstanding on which the repayment of principal amount in
Canadian dollars is not fixed.

    Credit Risk

    Credit risk is the risk of loss if purchasers or counterparties do not
fulfill their contractual obligations. All of our receivables are with
customers in the oil and natural gas industry and are subject to normal
industry credit risk. In order to limit the risk of non-performance of
counterparties to derivative instruments, we contract only with organizations
with high credit ratings or by obtaining security in certain circumstances.

    Interest Rate Risk

    We currently maintain our debt in floating-rate bank facilities,
resulting in exposure to fluctuations in short-term interest rates. From time
to time, we may increase the certainty of future interest rates using
financial instruments to swap floating interest rates for fixed rates or to
collar interest rates. In 2006, we entered into interest rate swaps that fix
the interest rate for two years at 4.36 percent on $100 million of bank debt.
We also closed the placement of notes totaling US$475 million on May 31, 2007
which bear fixed interest rates at an average rate of 5.8 percent for an
average term of 10.1 years.

    Greenhouse Gas and Air Emissions Legislation

    The Alberta Government has introduced legislation that will enable the
province to regulate emissions of Greenhouse Gases. The regulations require
facilities that emit over 100,000 tonnes of CO2E/yr (total Greenhouse Gases in
terms of CO2 equivalent) to reduce their emissions intensity (quantity of
gases released per unit of production) by 12 percent starting July 1, 2007 or
pay a fee based on emissions in excess of the targeted reductions. Penn West
currently does not operate any facilities that are over the current threshold
but it does have a working interest in some facilities that do exceed the
threshold. We have been in contact with the operators of these facilities to
evaluate the impact of the regulations on our working interest.
    The Federal Government has also released its regulatory framework to
reduce emissions of both Greenhouse Gases and four smog-forming pollutants
with targets coming into force in 2010 and 2015, respectively. Clarification
surrounding the regulations is expected in the next year with the regulations
to be finalized by 2010.
    There are multiple compliance mechanisms under both the Alberta and
Federal plans including making contributions to technology funds, emissions
trading, and offset credits.
    Penn West is in the process of fully evaluating the impact of these
regulations. There will be a cost associated with complying with these
regulations, but we believe that the cost will be minor. We believe that these
new regulations may result in increased interest in CO2 capture,
transportation and storage technologies and infrastructure and may assist in
the development of our CO2 enhanced oil recovery projects in our light oil
pools in Alberta. In the meantime, we will continue our current activities to
reduce our emissions intensity, improve our energy efficiency and develop CO2
injection and sequestration infrastructure.

    
    Liquidity and Capital Resources

    Capitalization

                                         June 30, 2007     December 31, 2006
    -------------------------------------------------------------------------
    ($ millions)                                     %                     %
    -------------------------------------------------------------------------
    Trust units issued, at market $   8,521       81.8  $   8,435       86.0
    Long-term debt                    1,823       17.5      1,285       13.1
    Working capital deficiency(1)        77        0.7         86        0.9
    -------------------------------------------------------------------------
    Total enterprise value        $  10,421      100.0  $   9,806      100.0
    -------------------------------------------------------------------------
    (1) Current assets minus current liabilities.
    

    During the first six months of 2007, we paid total distributions,
including those funded by the distribution reinvestment plan, of
$485.2 million compared to distributions of $324.3 million in the same period
of 2006. This increase was due to the increase in the distribution rate from
$0.31 per unit, per month in March 2006, to the rate of $0.34, and the
additional units issued as consideration for Petrofund in 2006.
    Long-term debt at June 30, 2007 was $1,823 million compared to
$1,285 million at December 31, 2006. Penn West Petroleum Ltd.'s unsecured,
extendible, three-year revolving syndicated credit facility has an aggregate
borrowing limit of $1.9 billion with stamping fees ranging from 60 - 115 basis
points and standby fees ranging from 12.5 - 22.5 basis points depending on our
ratio of consolidated bank debt to income before interest, taxes and
depreciation and depletion ("EBITDA"). The syndicated facility expires on
August 25, 2009.
    On April 18, 2007, the Company entered into an additional $250 million
unsecured, demand credit facility. This demand credit facility is priced at
the same rates as the Company's existing syndicated credit facility and
expires on December 31, 2008.
    On May 31, 2007, the Company closed an offering of notes issued on a
private placement basis in the United States, with an aggregate principal
amount of US$475 million. The Company used the proceeds of the notes to repay
a portion of its outstanding bank debt under its credit facilities. The notes
mature in eight to 15 years and bear interest at rates between 5.68 and
6.05 percent.
    On June 30, 2007, the Company was in compliance with the financial
covenant pursuant to the notes, which is that consolidated total debt to
consolidated total capitalization is not to exceed 55 percent except in the
event of a material acquisition where it is not to exceed 60 percent. The
ratio at June 30, 2007 was 28 percent.
    On June 30, 2007, the Company was in compliance with all of the financial
covenants under its syndicated credit facility. The financial covenants under
the syndicated credit facility are as follows:

    
    -   Consolidated bank debt to EBITDA shall be less than 3:1 except in
        certain circumstances and shall not exceed 3.5:1;
    -   Consolidated total debt to EBITDA shall be less than 4:1; and
    -   Consolidated bank debt to total trust capitalization shall not exceed
        50 percent except in certain circumstances and shall not exceed
        55 percent.
    

    The consolidated senior, and total debt, to EBITDA and the consolidated
senior debt to capitalization ratios at June 30, 2007 were 1.27 and 28 percent
respectively.
    Under the terms of its current trust indenture, the Trust is required to
make distributions to unitholders in amounts at least equal to its taxable
income. Distributions may be monthly or special and in cash or in trust units
at the discretion of our Board of Directors. To the extent that additional
cash distributions are paid and capital programs are not adjusted, debt levels
may increase. In the event that a special distribution in the form of trust
units is declared, the terms of the current trust indenture requires that the
outstanding units be consolidated immediately subsequent to the distribution.
The number of outstanding trust units would remain at the number outstanding
immediately prior to the unit distribution, plus those sold to fund the
payment of withholding taxes, and an amount equal to the distribution would be
allocated to the unitholders as a taxable distribution.
    Our philosophy is to retire approximately 10 percent of our opening asset
retirement obligation annually, using our cash flow. Due to the extent of our
environmental programs, we believe no benefit would arise from the initiation
of a reclamation fund. We believe our program is sufficient to meet or exceed
existing environmental regulations and best industry practices. In the event
of significant changes to the environmental regulations or the cost of
environmental activities, a higher portion of cash flow would be required to
fund our environmental expenditures.

    Standardized Distributable Cash

    Prior to recent guidance from accounting and regulatory standard setters
on the disclosure of distributable cash, Penn West believed it was
inappropriate to provide disclosures regarding distributable cash to its
investors and opted to provide statistics including a reconciliation of cash
flow from operating activities to distributions declared and distributions
declared as a percentage cash flow from operating activities and net income.
In the fourth quarter of 2006, Penn West early adopted the draft guidance on
the disclosure of distributable cash released in November 2006. The Canadian
Institute of Chartered Accountants issued the Interpretive Release
"Standardized Distributable Cash in Income Trusts and Other Flow-Through
Entities" in July 2007, which is required for the third quarter of 2007. The
interpretive release was early adopted by Penn West in this MD&A. In the new
guidance, sustainability concepts are discussed and standardized distributable
cash is defined as cash flow from operating activities less adjustments for
productive capacity maintenance, long-term unfunded contractual obligations
and the effect of any foreseeable financing matters, related to debt
covenants, which could impair our ability to pay distributions or maintain
productive capacity.

    
                                    Three months ended      Six months ended
                                          June 30               June 30
    ($ millions, except          --------------------------------------------
     per unit amounts)                 2007       2006       2007       2006
    -------------------------------------------------------------------------
    Cash flow from operating
     activities                   $   316.5  $   218.7  $   613.3  $   426.4
    Productive capacity
     maintenance(1)                  (132.6)    (109.2)    (331.4)    (269.3)
    -------------------------------------------------------------------------
    Standardized
     distributable cash               183.9      109.5      281.9      157.1
    Proceeds from the issue
     of trust units(2)                 37.4       31.8       65.9       51.4
    Bank borrowings and working
     capital changes                   22.2       26.3      138.1      121.1
    -------------------------------------------------------------------------
    Cash distributions declared   $   243.5  $   167.6  $   485.9  $   329.6
    Accumulated cash
     distributions, beginning       1,375.7      483.5    1,133.3      321.5
    -------------------------------------------------------------------------
    Accumulated cash
     distributions, ending        $ 1,619.2  $   651.1  $ 1,619.2  $   651.1
    -------------------------------------------------------------------------

    Standardized distributable
     cash per unit, basic              0.77       0.66       1.18       0.95
    Standardized distributable
     cash per unit, diluted            0.76       0.65       1.15       0.94
    Standardized distributable
     cash payout ratio(3)              1.32       1.53       1.72       2.10
    -------------------------------------------------------------------------

    Distributions declared
     per unit                     $    1.02  $    1.02  $    2.04  $    2.01
    Net income in excess of cash
     distributions declared             N/A        132%       N/A        111%
    Cash flows from operating
     activities in excess of cash
     distributions declared             130%       130%       126%       129%
    -------------------------------------------------------------------------
    (1) Please refer to our discussion of productive capacity maintenance
        below.
    (2) Consists of proceeds from the Distribution Reinvestment and Optional
        Purchase Plan, the Trust Unit Rights Incentive Plan and the Trust
        Unit Savings Plan.
    (3) Represents cash distributions declared divided by standardized
        distributable cash.
    

    We strive to fund both distributions and maintenance capital programs
primarily from cash flow. We initially budget our capital programs at
approximately 40-50 percent of annual cash flow. We believe that proceeds from
the Distribution Re-investment and Optional Purchase Plan should be used to
fund capital expenditures of a longer-term nature. Over the medium term,
additional borrowings and equity issues may be required from time to time to
fund a portion of our distributions or maintain or increase our productive
capacity. On a longer-term basis, adjustments to the level of distributions
and/or capital expenditures to maintain or increase our productive capacity
may be required based on forecast levels of cash flow, capital efficiency and
debt levels.
    Productive capacity maintenance is the amount of capital funds required
in a period for an enterprise to maintain its ability to generate future cash
flow from operating activities at a constant level. As commodity prices can be
volatile and short-term variations in production levels are often experienced
in our industry, we define our productive capacity as production on a barrel
of oil equivalent basis. A quantifiable measure for these short-term
variations is not objectively determinable or verifiable due to various
factors including the inability to distinguish natural production declines
from the effect of production additions resulting from capital and
optimization programs, and the effect of temporary production interruptions.
As a result, the adjustment for productive capacity maintenance in our
calculation of standardized distributable cash is our capital expenditures
during the period excluding the cost of any asset acquisitions or proceeds of
any asset dispositions. We believe that our current capital programs, based on
40-50 percent of forecast annual cash flow and our current view of our assets
and opportunities, including particularly our oil sands projects and proposed
enhanced oil recovery projects, and our outlook for commodity prices and
industry conditions in the medium term, should be sufficient to maintain our
productive capacity in the medium term. We set our hurdle rates for evaluating
potential development and optimization projects according to these parameters.
Due to the risks inherent in the oil and natural gas industry, particularly
our exploration and development activities and inherent variations in
commodity prices, there can be no assurance that capital programs, whether
limited to the excess of cash flow over distributions or not, will be
sufficient to maintain or increase our production levels or cash flow from
operating activities. Penn West generally incurs a large proportion of its
development expenditures in the first quarter of each calendar year to exploit
winter-only access properties. As we strive to maintain sufficient credit
facilities and appropriate levels of bank debt, this seasonality is not
expected to influence our distribution policies.
    Our calculation of standardized distributable cash has no adjustment for
long-term unfunded contractual obligations. We believe our only significant
long-term unfunded contractual obligation at this time is for asset retirement
obligations. Cash flow from operating activities, used in our standardized
distributable cash calculation, includes a deduction for abandonment
expenditures incurred during the period. We believe that our philosophy to
retire approximately 10 percent of our opening asset retirement obligation on
an annual basis is sufficient to fund our asset retirement obligations over
the life of our reserves.
    We currently have no financing restrictions caused by our debt covenants.
We regularly monitor our current and forecast debt levels to ensure debt
covenants are not exceeded.

    
    ($ millions, except indicators)                         To June 30, 2007
    -------------------------------------------------------------------------
    Cumulative distributable cash from operations(1)              $  1,300.3
    Issue of trust units                                               192.8
    Bank borrowing and working capital change                          126.1
    -------------------------------------------------------------------------
    Cumulative cash distributions declared(1)                     $  1,619.2
    -------------------------------------------------------------------------

    Standardized distributable cash payout ratio(2)                     1.25
    -------------------------------------------------------------------------
    (1) Subsequent to the trust conversion on May 31, 2005.
    (2) Represents cumulative cash distributions declared divided by
        cumulative standardized distributable cash.
    

    Financial Instruments

    We currently have WTI crude oil collars on approximately 25,000 barrels
per day from July 1 to December 31, 2007 and 17,500 barrels per day from
January 2008 to December 2008. The collars on the 25,000 barrels per day to
December 2007 have an average floor price of US$56.00 per barrel and an
average ceiling price of US$83.80 per barrel. The 2008 WTI crude oil collars
have an average floor price of US$64.25 per barrel and an average ceiling
price of US$81.06 per barrel. In addition, Penn West has AECO natural gas
collars on approximately 52 mmcf per day from July 1 to December 31, 2007 with
an average floor price of $7.81 per mcf and an average ceiling price of
$10.50 per mcf and approximately nine mmcf per day for the first quarter of
2008 with an average floor price of $8.18 per mcf and an average ceiling price
of $12.15 per mcf.
    In the second quarter of 2006, we entered into interest rate swaps that
fix the interest rate for two years at approximately 4.36 percent on
$100 million of floating interest rate debt.
    Other financial instruments outstanding at June 30, 2007 are Alberta
electricity contracts, which fix 2007 electricity costs on 67 megawatts at
$49.55 per megawatt hour and for 2008 on 2 megawatts at $57.00 per megawatt
hour.
    Mark to market amounts on all financial instruments outstanding on
June 30, 2007 are summarized in note 8 to the unaudited interim consolidated
financial statements. Please refer to Penn West's website at www.pennwest.com
for details of financial instruments currently outstanding.

    Outlook

    The outlook for oil prices remains strong however the outlook for natural
gas prices has weakened and the Canadian dollar has reached three decade high
levels against the US dollar. We are currently forecasting capital
expenditures of $850 million to $950 million in 2007, including net property
acquisitions. Estimated average 2007 production is currently forecast between
129,000 and 132,000 boe per day after the estimated reduction due to the
Wildboy fire. Using a forward strip, 2007 average WTI oil price of US$69.00,
an average $6.60 per mcf AECO natural gas price and an average exchange rate
of CAD$1.00 equals US$0.92, 2007 cash flow is currently forecast to be between
$1.3 billion and $1.4 billion.

    Sensitivity Analysis

    Estimated sensitivities to selected key assumptions on 2007 financial
results before considering hedging impacts are outlined in the table below.

    
                                          Impact on            Impact on
                                         cash flow(1)        net income(1)
    -------------------------------------------------------------------------
    ($ millions, except
     per unit amounts)
    Change of:                Change  $ millions  $/unit  $ millions  $/unit
    -------------------------------------------------------------------------
    Price per barrel
     of liquids                $1.00      21.5      0.09      15.1      0.06
    Liquids production         1,000      14.6      0.06       5.4      0.02
                            bbls/day
    Price per mcf of
     natural gas               $0.10       9.5      0.04       6.7      0.03
    Natural gas
     production                   10      13.5      0.06       1.4      0.01
                            mmcf/day
    Effective interest
     rate                         1%      14.1      0.06       8.3      0.03
    Exchange rate
     ($US per $CAD)            $0.01      21.3      0.09      15.0      0.06
    -------------------------------------------------------------------------
    (1) The impact on cash flow and net income is computed based on 2007
        forecast commodity prices and production volumes. The impact on net
        income assumes that the distribution levels are not adjusted for
        changes in cash flow thus changing the incremental future income tax
        rate.


    Contractual Obligations and Commitments

    We are committed to certain payments over the next five calendar years as
    follows:

    ($ millions)          2007     2008     2009     2010     2011 Thereafter
    -------------------------------------------------------------------------
    Transportation      $   8.0  $   9.7  $   5.1  $   3.2  $   0.1  $     -
    Transportation
     ($US)                  1.1      2.3      2.3      2.3      2.3      8.6
    Power infrastructure    4.8      3.9      3.9      3.9      3.9      7.6
    Drilling rigs           3.5      7.7      2.4      1.2        -        -
    Purchase
     obligations(1)         6.6     13.3     13.3     13.3     13.3     54.3
    Office lease        $   5.1  $  17.9  $  17.5  $  15.1  $  14.3  $ 117.5
    -------------------------------------------------------------------------
    (1) These amounts represent estimated commitments of $90.0 million for
        CO2 purchases and $24.1 million for processing fees related to
        interests in the Weyburn Unit.

    Our syndicated credit facility expires on August 25, 2009 and our demand
credit facility expires on December 31, 2008. If we were not successful in
renewing or replacing them, we would be required to repay all amounts then
outstanding on the facilities. In addition, we have US$475 million of fixed-
term notes expiring between 2015 and 2022. As we maintain our leverage ratios
at relatively modest levels, we believe we will be successful in renewing or
replacing our credit facilities on acceptable terms.

    Equity Instruments

    -------------------------------------------------------------------------
    Trust units issued:
      As at June 30, 2007                                        239,227,937
      Issued on exercise of trust unit rights                         32,960
      Issued to employee savings plan                                 42,455
      Issued pursuant to distribution re-investment plan             347,755
    -------------------------------------------------------------------------
      As at August 1, 2007                                       239,651,107
    -------------------------------------------------------------------------

    Trust unit rights outstanding:
      As at June 30, 2007                                         14,465,432
      Granted                                                         91,120
      Exercised                                                      (32,960)
      Forfeited                                                     (239,648)
    -------------------------------------------------------------------------
      As at August 1, 2007                                        14,283,944
    -------------------------------------------------------------------------
    

    Disclosure Controls and Procedures

    We have established a Disclosure Committee that is responsible for
ensuring that our disclosure controls and procedures are designed to provide
reasonable assurance that information required to be disclosed by us is
recorded, processed, summarized and reported within the time periods specified
under Canadian securities laws. The committee is also responsible to ensure
that our internal controls and procedures are designed to ensure that
information is accumulated and communicated to management, including the
President and Chief Executive Officer and the Chief Financial Officer, to
allow timely decisions regarding required disclosure. Our Disclosure Committee
includes selected members of senior management, including the Chief Executive
Officer, the Chief Operating Officer and the Chief Financial Officer.
    As at June 30, 2007, an evaluation of the effectiveness of our disclosure
controls and procedures, as defined under Multilateral Instrument 52-109, was
completed. The evaluation was completed under the supervision of the
Disclosure Committee and with the participation of management. As at June 30,
2007, the design and operating effectiveness of our disclosure controls and
procedures were assessed by our Chief Executive Officer and Chief Financial
Officer to be operating effectively.

    Internal Controls over Financial Reporting

    We have assembled a team of qualified and experienced staff and
consultants who have been working on compliance with the applicable
regulations regarding internal control over financial reporting. As we are
listed in both Canada and the United States, the recent changes in Canada to
remove the requirement for auditor attestation and to extend the timing of
CEO/CFO certification of the effective operation of internal control over
financial reporting to 2008 will not affect us. We became a registrant under
the U.S. Securities Act of 1934 and listed our trust units on the New York
Stock Exchange in June 2006. We are not required to certify or obtain auditor
attestation of the operating effectiveness of our internal control over
financial reporting until we file our 2007 year-end audited financial
statements. To date, all significant financial reporting processes have been
documented, assessed, and the resulting modifications to our systems of
internal control over financial reporting have been substantially completed.
Based on this work to date, no changes were made during the quarter ended
June 30, 2007 that materially affected, or would be reasonably likely to
materially affect, our internal control over financial reporting.

    Accounting Changes and Pronouncements

    Effective January 1, 2007, the Trust adopted new Canadian accounting
standards being "Comprehensive Income", "Financial Instruments - Disclosure
and Presentation", "Hedges", "Financial Instruments - Recognition and
Measurement", and "Equity". The adoption of these standards has had no
material impact on the Trust's net income or cash flows.

    Financial Instruments

    Financial instruments are required to be measured at fair value on the
balance sheet upon initial recognition of the instrument. Measurement in
subsequent periods depends on whether the financial instrument has been
classified in one of the following categories: held-for-trading,
available-for-sale, held-to-maturity, loans and receivables, or other
financial liabilities as defined under CICA Handbook Section 3855.
    Subsequent measurement and changes in fair value will depend on initial
classification, as follows: held-for-trading financial assets are measured at
fair value and changes in fair value are recognized in net income;
available-for-sale financial instruments are measured at fair value with
changes in fair value recorded in Other Comprehensive Income ("OCI") until the
instrument or a portion thereof is derecognized or impaired at which time the
amounts would be recorded in net income.
    As the Trust previously elected to discontinue hedge accounting, the
adoption of these standards did not change the Trust's accounting for
financial instruments. Cash and cash equivalents are designated as
held-for-trading and are measured at carrying value, which approximates fair
value due to the short-term nature of these instruments. Accounts receivable
and accrued revenues are designated as loans and receivables. Accounts payable
and accrued liabilities and long-term debt are designated as other
liabilities. Risk management assets and liabilities are derivative financial
instruments classified as held-for-trading.

    Embedded Derivatives

    An embedded derivative is a component of a contract that affects the
contract terms in relation to another factor, for example rent costs that
fluctuate with oil prices. These "hybrid" contracts are considered to consist
of a "host" contract plus an embedded derivative. The embedded derivative is
separated from the host contract and accounted for as a derivative if certain
conditions are met. These include:

    
    -  the economic characteristics and risks of the embedded derivative are
       not closely related to the economic characteristics and risks of the
       host contract,
    -  if the embedded derivative separated meets the definition of a
       derivative,
    -  the hybrid contract is not measured at fair value or classified as
       held for trading.
    

    The Trust currently has no material embedded derivatives.

    Comprehensive Income

    Comprehensive income is defined as the change in equity from transactions
and other events from non-owner sources. It consists of net income and OCI.
OCI refers to items recognized in comprehensive income that are excluded from
net income calculated in accordance with generally accepted accounting
principles. The Trust currently has no items requiring separate disclosure as
OCI on a statement of Comprehensive Income.
    Two new Canadian accounting standards have been issued, "Financial
Instruments-Disclosure" and "Capital Disclosure", which will require
additional disclosure in the Trust's financial statements commencing
January 1, 2008 about the Trust's financial instruments as well as its capital
and how it is managed.

    Related-Party Transactions

    During the first six months of 2007, Penn West paid $0.8 million (2006 -
$2.3 million) of legal fees to a law firm of which a partner is also a
director of Penn West.

    Off-Balance-Sheet Financing

    We have off-balance-sheet financing arrangements consisting of operating
leases. The operating lease payments are summarized in the Contractual
Obligations and Commitments section.

    Forward-Looking Statements

    In the interest of providing Penn West's unitholders and potential
investors with information regarding Penn West, including management's
assessment of Penn West's future plans and operations, certain statements
contained in this document constitute forward-looking statements or
information (collectively "forward-looking statements") within the meaning of
the "safe harbour" provisions of applicable securities legislation.
Forward-looking statements are typically identified by words such as
"anticipate", "continue", "estimate", "expect", "forecast", "may", "will",
"project", "could", "plan", "intend", "should", "believe", "outlook",
"potential", "target" and similar words suggesting future events or future
performance. In addition, statements relating to "reserves" or "resources" are
deemed to be forward-looking statements as they involve the implied
assessment, based on certain estimates and assumptions, that the reserves and
resources described exist in the quantities predicted or estimated and can be
profitably produced in the future. In particular, this document contains
forward-looking statements pertaining to, without limitation, the following:
the impact on our business and unitholders of the SIFT tax and the different
actions that we might take in response to the SIFT tax; drilling plans;
sufficiency of insurance related to Wildboy costs and losses; timing for
production restoration at Wildboy; tie-in of wells; environmental regulation
compliance costs and strategy; production estimates; netback estimates; our
business strategy, including our strategy in respect of our Peace River Oil
Sands project and enhanced oil recovery projects; product balance; the
sufficiency of our environmental program; funding sources for distributions
and distribution levels; the funding of our asset retirement obligations; our
beliefs and outlook for the maintenance of productive capacity; our outlook
for oil and natural gas prices; our forecast 2007 net capital expenditures and
the allocation and funding thereof; currency exchange rates; our forecast cash
flow; our belief that we will be successful in renewing or replacing our
credit facilities on acceptable terms when they expire; and the quantity and
recoverability of our oil and natural gas reserves and resources.
    With respect to forward-looking statements contained in this document, we
have made assumptions regarding, among other things: future oil and natural
gas prices and differentials between light, medium and heavy oil prices;
future oil and natural gas production levels; future exchange rates; the
amount of future cash distributions that we intend to pay; the cost of
expanding our property holdings; our ability to obtain equipment in a timely
manner to carry out development activities; our ability to restore production
at Wildboy and the costs thereof; our ability to market our oil and natural
gas successfully to current and new customers; the impact of increasing
competition; our ability to obtain financing on acceptable terms; and our
ability to add production and reserves through our development and
exploitation activities.
    Although Penn West believes that the expectations reflected in the
forward-looking statements contained in this document, and the assumptions on
which such forward-looking statements are made, are reasonable, there can be
no assurance that such expectations will prove to be correct. Readers are
cautioned not to place undue reliance on forward-looking statements included
in this document, as there can be no assurance that the plans, intentions or
expectations upon which the forward-looking statements are based will occur.
By their nature, forward-looking statements involve numerous assumptions,
known and unknown risks and uncertainties that contribute to the possibility
that the predictions, forecasts, projections and other forward-looking
statements will not occur, which may cause Penn West's actual performance and
financial results in future periods to differ materially from any estimates or
projections of future performance or results expressed or implied by such
forward-looking statements. These risks and uncertainties include, among other
things: volatility in market prices for oil and natural gas; the impact of
weather conditions on seasonal demand and ability to execute capital programs;
risks inherent in oil and gas operations; uncertainties associated with
estimating reserves and resources; competition for, among other things,
capital, acquisitions of reserves, resources, undeveloped lands and skilled
personnel; incorrect assessments of the value of acquisitions; geological,
technical, drilling and processing problems; general economic conditions in
Canada, the U.S. and globally; industry conditions, including fluctuations in
the price of oil and natural gas; royalties payable in respect of our oil and
natural gas production; changes in government regulation of the oil and
natural gas industry, including environmental regulation; fluctuations in
foreign exchange or interest rates; unanticipated operating events that can
reduce production or cause production to be shut-in or delayed; failure to
obtain industry partner and other third-party consents and approvals when
required; stock market volatility and market valuations; OPEC's ability to
control production and balance global supply and demand of crude oil at
desired price levels; political uncertainty, including the risks of
hostilities, in the petroleum producing regions of the world; the need to
obtain required approvals from regulatory authorities from time to time;
failure to realize the anticipated benefits of acquisitions, including the
merger with Petrofund Energy Trust; changes in tax law; and the other factors
described under "Business Risks" in this document and in Penn West's public
filings (including our Annual Information Form) available in Canada at
www.sedar.com and in the United States at www.sec.gov. Readers are cautioned
that this list of risk factors should not be construed as exhaustive.
    The forward-looking statements contained in this document speak only as
of the date of this document. Except as expressly required by applicable
securities laws, Penn West does not undertake any obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The forward-looking statements
contained in this document are expressly qualified by this cautionary
statement.

    Additional Information

    Additional information relating to Penn West including Penn West's Annual
Information Form is available on SEDAR at www.sedar.com.



    
                           Penn West Energy Trust
                         Consolidated Balance Sheets

                                                       June 30,  December 31,
    ($ millions, unaudited)                               2007          2006
    -------------------------------------------------------------------------
    Assets
    Current
      Accounts receivable                           $    247.9    $    268.7
      Risk management (note 8)                            21.3          54.0
      Other                                               46.9          56.0
    -------------------------------------------------------------------------
                                                         316.1         378.7
    -------------------------------------------------------------------------
    Property, plant and equipment (note 3)             7,342.8       7,039.0
    Goodwill                                             652.0         652.0
    -------------------------------------------------------------------------
                                                       7,994.8       7,691.0
    -------------------------------------------------------------------------
                                                    $  8,310.9    $  8,069.7
    -------------------------------------------------------------------------


    Liabilities and unitholders' equity
    Current
      Accounts payable and accrued liabilities      $    312.5   $     384.1
      Distributions payable                               81.3          80.6
    -------------------------------------------------------------------------
                                                         393.8         464.7
    Long-term debt (note 4)                            1,822.5       1,285.0
    Asset retirement obligations (note 5)                349.8         339.1
    Future income taxes                                1,055.6         792.6
    -------------------------------------------------------------------------
                                                       3,621.7       2,881.4
    -------------------------------------------------------------------------
    Unitholders' equity
    Unitholders' capital (note 6)                      3,779.1       3,712.4
    Contributed surplus (note 6)                          25.4          16.4
    Retained earnings                                    884.7       1,459.5
    -------------------------------------------------------------------------
                                                       4,689.2       5,188.3
    -------------------------------------------------------------------------
                                                    $  8,310.9    $  8,069.7
    -------------------------------------------------------------------------
    See accompanying notes to the unaudited interim consolidated financial
    statements.



                           Penn West Energy Trust
           Consolidated Statements of Income and Retained Earnings

                                    Three months ended      Six months ended
                                          June 30               June 30
                                  -------------------------------------------
    ($ millions, except per unit
     amounts, unaudited)               2007       2006       2007       2006
    -------------------------------------------------------------------------

    Revenues
      Oil and natural gas         $   608.0  $   435.5  $ 1,187.0  $   864.0
      Royalties                      (113.1)     (80.1)    (224.4)    (165.7)
    -------------------------------------------------------------------------
                                      494.9      355.4      962.6      698.3

    Risk management gain (loss)
     (note 8)
      Realized                          0.3       17.0        3.7       22.4
      Unrealized                        5.8      (27.4)     (29.2)     (14.1)
    -------------------------------------------------------------------------
                                      501.0      345.0      937.1      706.6
    -------------------------------------------------------------------------

    Expenses
      Operating (note 7)              127.3       87.8      252.3      174.5
      Transportation                    6.0        5.0       12.1       10.8
      General and administrative
       (note 7)                        16.4        8.9       33.7       18.1
      Financing (note 4)               24.3        8.4       40.5       14.8
      Depletion, depreciation
       and accretion (note 3)         218.4      109.9      433.3      222.4
      Risk management (gain) loss
       - unrealized (note 8)           (1.2)      (0.7)       3.5        5.8
      Unrealized foreign exchange
       gain                            (4.0)         -       (4.0)         -
    -------------------------------------------------------------------------
                                      387.2      219.3      771.4      446.4
    -------------------------------------------------------------------------
    Income before taxes               113.8      125.7      165.7      260.2
    -------------------------------------------------------------------------

    Taxes
      Future income expense
       (reduction)                    299.0      (94.8)     254.6     (104.7)
    -------------------------------------------------------------------------

    Net (loss) income                (185.2)     220.5      (88.9)     364.9

    Retained earnings, beginning
     of period                      1,313.4    1,588.1    1,459.5    1,605.7
      Distributions declared         (243.5)    (167.6)    (485.9)    (329.6)
    -------------------------------------------------------------------------
    Retained earnings, end
     of period                    $   884.7  $ 1,641.0  $   884.7  $ 1,641.0
    -------------------------------------------------------------------------

    Net (loss) income per unit
      Basic                       $   (0.77) $    1.34  $   (0.37) $    2.22
      Diluted                     $   (0.77) $    1.31  $   (0.37) $    2.18
    -------------------------------------------------------------------------
    See accompanying notes to the unaudited interim consolidated financial
    statements.



                           Penn West Energy Trust
                    Consolidated Statements of Cash Flows

                                    Three months ended      Six months ended
                                          June 30               June 30
                                  -------------------------------------------
    ($ millions, unaudited)            2007       2006       2007       2006
    -------------------------------------------------------------------------

    Operating activities
      Net (loss) income           $  (185.2) $   220.5  $   (88.9) $   364.9
      Depletion, depreciation
       and accretion (note 3)         218.4      109.9      433.3      222.4
      Future income tax expense
       (reduction)                    299.0      (94.8)     254.6     (104.7)
      Unit-based compensation
       (note 7)                         5.0        2.4        9.8        5.4
      Risk management (gain) loss
       (note 8)                        (7.0)      26.7       32.7       19.9
      Asset retirement expenditures    (8.8)      (2.6)     (18.5)      (9.5)
      Unrealized foreign
       exchange gain                   (4.0)         -       (4.0)         -
      Change in non-cash
       working capital                 (0.9)     (43.4)      (5.7)     (72.0)
    -------------------------------------------------------------------------
                                      316.5      218.7      613.3      426.4
    -------------------------------------------------------------------------

    Investing activities
      Acquisition of property,
       plant and equipment           (351.0)       3.4     (368.1)       5.5
      Additions to property, plant
       and equipment                 (132.6)    (109.2)    (331.4)    (269.3)
      Petrofund merger costs              -      (32.7)         -      (32.7)
      Change in non-cash
       working capital                (51.5)     (16.2)     (36.0)       3.0
    -------------------------------------------------------------------------
                                     (535.1)    (154.7)    (735.5)    (293.5)
    -------------------------------------------------------------------------

    Financing activities
      Proceeds from issuance
       of notes (note 4)              509.1          -      509.1          -
      (Decrease) increase in
       bank loan                      (84.8)      56.1       32.4      124.5
      Issue of equity                  12.5        6.4       18.2        9.1
      Distributions paid             (218.2)    (142.0)    (437.5)    (282.0)
      Settlement of future income
       tax liabilities on trust
       conversion                         -       15.5          -       15.5
    -------------------------------------------------------------------------
                                      218.6      (64.0)     122.2     (132.9)
    -------------------------------------------------------------------------

    Change in cash                        -          -          -          -
    Cash, beginning of period             -          -          -          -
    -------------------------------------------------------------------------
    Cash, end of period           $       -  $       -  $       -  $       -
    -------------------------------------------------------------------------

    Interest paid                 $    24.9  $     8.2  $    38.3  $    14.0
    Income taxes paid             $     4.5  $       -  $     4.5  $       -
    -------------------------------------------------------------------------
    See accompanying notes to the unaudited interim consolidated financial
    statements.


    Notes to the Unaudited Interim Consolidated Financial Statements
    (All tabular amounts are in $ millions except numbers of units, per unit
    amounts, percentages and various figures in Note 8)


    1. Structure of Penn West

    Penn West is an open-ended, unincorporated investment trust governed by
    the laws of the Province of Alberta. The purpose of Penn West is to
    indirectly explore for, develop and hold interests in petroleum and
    natural gas properties through investments in securities of subsidiaries
    and royalty interests in oil and natural gas properties. Penn West owns
    100 percent of the common shares, directly or indirectly, of the entities
    that carry on the oil and natural gas business of Penn West. The
    activities of these entities are financed through interest-bearing notes
    from Penn West and third-party debt as described in the notes to the
    unaudited interim consolidated financial statements.

    Pursuant to the terms of net profit interest agreements (the "NPIs"),
    Penn West is entitled to payments from certain subsidiary entities equal
    to essentially all of the proceeds of the sale of oil and natural gas
    production less certain specified deductions. Under the terms of the
    NPIs, the deductions are in part discretionary, include the requirement
    to fund capital expenditures and asset acquisitions, and are subject to
    certain adjustments for asset dispositions.

    Under the terms of its trust indenture, Penn West is required to make
    distributions to unitholders in amounts at least equal to its taxable
    income consisting of interest on notes, the NPIs, and any inter-corporate
    distributions and dividends received, less certain expenses and
    deductions.

    2. Significant accounting policies and basis of presentation

    These unaudited interim consolidated financial statements have been
    prepared in accordance with Canadian generally accepted accounting
    principles and are consistent with the accounting policies described in
    the notes to the audited consolidated financial statements of Penn West
    for the year ended December 31, 2006. These financial statements should
    accordingly be read in conjunction with Penn West's audited consolidated
    financial statements and notes thereto for the year ended December 31,
    2006.

    Effective January 1, 2007, the Trust adopted new Canadian accounting
    standards being "Comprehensive Income", "Financial Instruments -
    Disclosure and Presentation", "Hedges", "Financial Instruments -
    Recognition and Measurement", and "Equity". The adoption of these
    standards has had no material impact on the Trust's net income or cash
    flows.

    Financial Instruments

    Financial instruments are required to be measured at fair value on the
    balance sheet upon initial recognition of the instrument. Measurement in
    subsequent periods depends on whether the financial instrument has been
    classified in one of the following categories: held-for-trading,
    available-for-sale, held-to-maturity, loans and receivables, or other
    financial liabilities.

    Subsequent measurement and changes in fair value will depend on the
    classification of the instrument: held-for-trading financial assets are
    measured at fair value and changes in fair value are recognized in net
    income; available-for-sale financial instruments are measured at fair
    value with changes in fair value recorded in Other Comprehensive Income
    ("OCI") until the instrument or a portion thereof is derecognized or
    impaired at which time the amounts would be recorded in net income.

    As the Trust previously elected to discontinue hedge accounting, the
    adoption of these standards did not change the Trust's accounting for
    financial instruments. Cash and cash equivalents are designated as held-
    for-trading and are measured at carrying value, which approximates fair
    value due to the short-term nature of these instruments. Accounts
    receivable and accrued revenues are designated as loans and receivables.
    Accounts payable and accrued liabilities and long-term debt are
    designated as other financial liabilities. All risk management assets and
    liabilities are derivative financial instruments classified as held-for-
    trading.

    Embedded Derivatives

    An embedded derivative is a component of a contract, that affects the
    terms in relation to another factor, for example rent costs that
    fluctuate with oil prices. These "hybrid" contracts are considered to
    consist of a "host" contract plus an embedded derivative. The embedded
    derivative is separated from the host contract and accounted for as a
    derivative only if certain conditions are met. These include:
      -  the economic characteristics and risks of the embedded derivative
         are not closely related to the economic characteristics and risks of
         the host contract,
      -  if the embedded derivative separated meets the definition of a
         derivative,
      -  the hybrid contract is not measured at fair value or classified as
         held for trading.

    The Trust currently has no material embedded derivatives.

    Comprehensive Income

    Comprehensive income is defined as the change in equity from transactions
    and other events from non-owner sources. It consists of net income and
    OCI. OCI refers to items recognized in comprehensive income that are
    excluded from net income calculated in accordance with generally accepted
    accounting principles. The Trust currently has no items requiring
    separate disclosure as OCI on a statement of Comprehensive Income.

    Two new Canadian accounting standards have been issued, "Financial
    Instruments-Disclosure" and "Capital Disclosure", which will require
    additional disclosure in the Trust's financial statements commencing
    January 1, 2008 about the Trust's financial instruments as well as its
    capital and how it is managed.

    3. Property, plant and equipment

                                                       June 30,  December 31,
                                                          2007          2006
    -------------------------------------------------------------------------
    Oil and natural gas properties, including
     production and processing equipment            $ 10,388.4    $  9,666.0
    Other                                                 19.8          17.2
    -------------------------------------------------------------------------
                                                      10,408.2       9,683.2
    -------------------------------------------------------------------------
    Accumulated depletion and depreciation            (3,065.4)     (2,644.2)
    -------------------------------------------------------------------------
    Net book value                                  $  7,342.8    $  7,039.0
    -------------------------------------------------------------------------

    Other than Penn West's net share of capital overhead recoveries, no
    general and administrative expenses are capitalized. In 2007, additions
    to property, plant and equipment included a $17.1 million increase
    related to additions to asset retirement obligations and an $8.4 million
    addition for future income taxes recorded on minor property acquisitions.

    An impairment test was performed on the costs capitalized to oil and
    natural gas properties at June 30, 2007. The estimated undiscounted
    future net cash flows from proved reserves, using forecast prices,
    exceeded the carrying amount of the oil and natural gas property
    interests and the cost of unproved properties.

    4. Long-term debt

                                                       June 30,  December 31,
                                                          2007          2006
    -------------------------------------------------------------------------
    Bankers' acceptances and prime rate loans       $  1,317.4    $  1,285.0
    US Senior unsecured notes
      5.68%, US$160 million, maturing May 31, 2015       170.1             -
      5.80%, US$155 million, maturing May 31, 2017       164.8             -
      5.90%, US$140 million, maturing May 31, 2019       148.9             -
      6.05%, US$20 million, maturing May 31, 2022         21.3             -
    -------------------------------------------------------------------------
    Total long-term debt                            $  1,822.5    $  1,285.0
    -------------------------------------------------------------------------

    As at June 30, 2007, the Company had an unsecured, extendible, three-year
    revolving syndicated credit facility with an aggregate borrowing limit of
    $1.9 billion, which expires on August 25, 2009. The credit facility
    contains provisions for stamping fees on bankers' acceptances and LIBOR
    loans and standby fees on unutilized credit lines that vary depending on
    certain consolidated financial ratios.

    Interest expense on long-term debt for the six months ended June 30, 2007
    was $38.4 million (2006 - $13.8 million).

    Letters of credit totaling $0.2 million (December 31, 2006 -
    $0.4 million) were outstanding on June 30, 2007 that reduced the amount
    otherwise available to be drawn on the swing line facility.

    On April 18, 2007, the Company entered into a $250 million unsecured,
    demand credit facility. This demand credit facility is priced at the same
    rates as the Company's existing syndicated credit facility and expires on
    December 31, 2008.

    On May 31, 2007, the Company issued US$475 million of unsecured notes
    maturing in eight to 15 years, and bear interest at 5.68 to 6.05 percent,
    on a private placement basis in the United States. The notes are subject
    to the financial covenant that consolidated debt to consolidated
    capitalization shall not exceed 55 percent except in the event of a
    material acquisition where it is not to exceed 60 percent. The estimated
    fair value of the principal and interest obligations under the notes at
    June 30, 2007 was $490.6 million.

    5. Asset retirement obligations

    The total inflated and undiscounted amount to settle Penn West's asset
    retirement obligations at June 30, 2007 was $2.3 billion (December 31,
    2006 - $2.2 billion). The asset retirement obligation was determined by
    applying an inflation factor of 2.0 percent (2006 - 2.0 percent) and the
    inflated amount was discounted using a credit-adjusted rate of
    7.0 percent (2006 - 7.0 percent) over the expected useful life of the
    underlying assets, currently extending up to 50 years into the future
    with an average life of 23 years. Future cash flows from operating
    activities are expected to fund the obligations.

    Changes to asset retirement obligations were as follows:

                                                          2007          2006
    -------------------------------------------------------------------------
    Balance, beginning of period                    $    339.1    $    192.4
    Liabilities incurred during the period                17.1          30.2
    Petrofund liabilities assumed on acquisition             -          98.0
    Increase in liability due to change in estimate          -          25.7
    Liabilities settled during the period                (18.5)        (26.9)
    Accretion charges                                     12.1          19.7
    -------------------------------------------------------------------------
    Balance, end of period                          $    349.8    $    339.1
    -------------------------------------------------------------------------

    6. Unitholders' equity

    Unitholders' capital                                 Units        Amount
    -------------------------------------------------------------------------
    Balance, December 31, 2005                     163,290,013    $    561.0
    Issued on exercise of trust unit rights(1)         407,750          10.6
    Issued to employee trust unit savings plan         295,449          12.3
    Issued to distribution reinvestment plan         2,459,870          96.1
    Issued on Petrofund merger                      70,673,137       3,032.4
    -------------------------------------------------------------------------
    Balance, December 31, 2006                     237,126,219       3,712.4
    Issued on exercise of trust unit rights(1)         419,600          10.5
    Issued to employee trust unit savings plan         236,754           8.5
    Issued to distribution reinvestment plan         1,445,364          47.7
    -------------------------------------------------------------------------
    Balance, June 30, 2007                         239,227,937    $  3,779.1
    -------------------------------------------------------------------------


    Contributed surplus                                   2007          2006
    -------------------------------------------------------------------------
    Balance, beginning of period                    $     16.4    $      5.5
    Unit-based compensation expense                        9.8          11.3
    Net benefit on rights exercised(1)                    (0.8)         (0.4)
    -------------------------------------------------------------------------
    Balance, end of period                          $     25.4    $     16.4
    -------------------------------------------------------------------------
    (1) Upon exercise of trust unit rights, the net benefit is reflected as a
        reduction of contributed surplus and an increase to unitholders'
        capital.


                                    Three months ended      Six months ended
                                          June 30               June 30
                                  -------------------------------------------
    (millions of units)                2007       2006       2007       2006
    -------------------------------------------------------------------------

    Weighted average
    Basic                             239.0      165.8      238.0      164.6
    Diluted                           239.0      168.7      238.0      167.6

    Outstanding as at June 30
    Basic                                                   239.2      235.3
    Basic plus trust unit rights                            253.7      246.0
    -------------------------------------------------------------------------

    In 2007, due to the reported net loss arising as a result of the future
    income tax charge taken to reflect the enactment of the "Specified
    Investment Flow-Through" ("SIFT") tax, all trust unit rights (2006 -
    1.0 million) were excluded in calculating the weighted average number of
    diluted trust units as they were considered anti-dilutive.

    7. Unit-based compensation

    Trust unit rights incentive plan

    Penn West has a unit rights incentive plan that allows Penn West to issue
    rights to acquire trust units to directors, officers, employees and other
    service providers. Under the terms of the plan, the number of trust units
    reserved for issuance shall not exceed 10 percent of the aggregate number
    of issued and outstanding trust units of Penn West. Unit right exercise
    prices are administrated to be equal to the volume-weighted average
    trading price of the trust units on the Toronto Stock Exchange for the
    five trading days immediately prior to the date upon which the unit
    rights are granted. If certain conditions are met, the exercise price per
    unit may be reduced by deducting from the grant price the aggregate of
    all distributions, on a per unit basis, paid by Penn West after the grant
    date. Rights granted under the plan prior to November 13, 2006 vest over
    a five-year period and expire six years after the date of the grant.
    Rights granted subsequent to this date generally vest over a three-year
    period and expire four years after the date of the grant.


                                      Six months ended            Year ended
                                         June 30, 2007     December 31, 2006
                                ---------------------------------------------
                                            Weighted                Weighted
                                             average                 average
                                Number of   exercise    Number of   exercise
    Trust unit rights         unit rights      price  unit rights      price
    -------------------------------------------------------------------------
    Outstanding, beginning
     of period                11,284,872   $   27.76   9,447,625   $   28.45
    Granted                    4,246,476       33.90   3,257,622       39.77
    Exercised                   (419,600)      22.98    (407,750)      24.65
    Forfeited                   (646,316)      31.83  (1,012,625)      33.38
    -------------------------------------------------------------------------
    Balance before reduction
     of exercise price        14,465,432       29.52  11,284,872       30.89
    Reduction of exercise
     price for distributions
     paid                              -       (2.04)          -       (3.13)
    -------------------------------------------------------------------------
    Outstanding, end of
     period                   14,465,432   $   27.48  11,284,872   $   27.76
    -------------------------------------------------------------------------
    Exercisable, end of
     period                    2,608,730   $   23.14   1,125,300   $   23.16
    -------------------------------------------------------------------------

    Penn West recorded unit-based compensation expense of $9.8 million for
    the six months ended June 30, 2007, of which $2.6 million was charged to
    operating expense and $7.2 million was charged to general and
    administrative expense (2006 - $5.4 million, $1.4 million and
    $4.0 million respectively). Unit-based compensation expense is based on
    the fair value of rights issued and is amortized over the remaining
    vesting periods on a straight-line basis.

    The Binomial Lattice option-pricing model was used to determine the fair
    value of trust unit rights granted with the following weighted average
    assumptions:

    Six months ended June 30                              2007          2006
                                                    Three-year     Five-year
                                                       vesting       vesting
                                                        period        period
    -------------------------------------------------------------------------
    Average fair value of trust unit rights
     granted (per unit)                             $     6.68    $     8.16
    Expected life of trust unit rights (years)             3.0           4.5
    Expected volatility (average)                        24.6%         22.4%
    Risk-free rate of return (average)                    4.2%          4.2%
    Distribution yield(1)                                11.8%          9.0%
    -------------------------------------------------------------------------
    (1) Represents distributions declared as a percentage of the market price
        of trust units and does not account for any portion of distributions
        that represent a return of capital.

    Trust unit savings plan

    Penn West has an employee trust unit savings plan for the benefit of all
    employees. Under the savings plan, employees may elect to contribute up
    to 10 percent of their salary. Penn West matches employee contributions
    at a rate of $1.50 for each $1.00. Both the employee's and Penn West's
    contribution are used to acquire Penn West trust units. These trust units
    may be issued from treasury at the five-day volume weighted average
    month-end trading price on the Toronto Stock Exchange or purchased in the
    open market at prevailing market prices.

    8. Financial instruments

    Changes in the fair value of all outstanding financial commodity, power
    and interest rate contracts are reflected on the balance sheet with a
    corresponding unrealized gain or loss in income.

    The following table reconciles the changes in the fair value of financial
    instruments outstanding on June 30, 2007:

    Risk management                                            June 30, 2007
    -------------------------------------------------------------------------
    Balance, December 31, 2006                                    $     54.0
    Unrealized gain (loss) on financial instruments:
      Commodities                                                      (29.2)
      Electricity contracts                                             (4.0)
      Interest rate swaps                                                0.5
    -------------------------------------------------------------------------
    Fair value, end of period                                     $     21.3
    -------------------------------------------------------------------------

    Penn West had the following financial instruments outstanding as at
    June 30, 2007:

                        Notional                                      Market
                         volume       Remaining term      Pricing      value
    -------------------------------------------------------------------------
    Crude oil
      WTI Costless                                     US$ 56.00 to
       Collars       25,000 bbls/d   Jul/07 - Dec/07    $83.80/bbl    $ (3.1)
      WTI Costless                                     US$ 60.00 to
       Collars       10,000 bbls/d   Jan/08 - Jun/08    $94.55/bbl       2.1
      WTI Costless                                     US$ 65.00 to
       Collars       10,000 bbls/d   Jan/08 - Dec/08    $76.00/bbl      (4.5)
      WTI Costless                                     US$ 67.00 to
       Collars        5,000 bbls/d   Jul/08 - Dec/08    $77.70/bbl       0.2

    Natural gas
      AECO Costless                                      $7.63 to
       Collars        73,400 mcf/d   Jul/07 - Oct/07    $9.68/mcf       11.6
      AECO Costless                                      $8.18 to
       Collars         9,200 mcf/d   Nov/07 - Mar/08    $12.15/mcf       1.1

    Electricity
      Alberta Power
       Pool Swaps            67 MW              2007    $49.55/MWh      13.1
      Alberta Power
       Pool Swaps             2 MW              2008    $57.00/MWh       0.5

    Interest rate
     swaps                  $100.0   Jul/07 - Mar/08        4.356%       0.3
    -------------------------------------------------------------------------
    Total                                                             $ 21.3
    -------------------------------------------------------------------------

    A realized gain of $2.0 million (2006 - $2.2 million) on the electricity
    contracts has been included in the operating costs.

    Realized gains and losses on the interest rate swaps are charged to
    interest expense. In the period the fixed rate and the floating rate were
    approximately equal resulting in no reportable gain or loss being charged
    to interest rate expense in relation to the interest rate swaps.

    9. Income taxes

    On June 12, 2007, the Government of Canada enacted new tax legislation on
    publicly traded income trusts. Under the new rules, effective for the
    2011 tax year, distributions representing return on capital will no
    longer be deductible for income tax purposes by certain SIFT entities,
    including Penn West, and will be taxed at an approximate of the corporate
    tax rate, currently expected to be 31.5 percent. As a result of the
    enactment, an additional $325.5 million future income tax liability and
    future income tax expense was recorded in the second quarter of 2007 to
    reflect the Trust's current temporary differences between the accounting
    and tax values of assets and liabilities expected to be remaining in
    2011. In accordance with GAAP, prior to the enactment, the Trust's
    temporary differences were not recorded as future income taxes. The
    Trust's temporary differences relate primarily to the net book value of
    oil and natural gas properties in excess of tax pools recorded on the
    Petrofund merger closing June 30, 2006.

    10. Related-party transactions

    During the first six months of 2007, Penn West paid $0.8 million (2006 -
    $2.3 million) of legal fees to a law firm of which a partner is also a
    director of Penn West.

                            Investor Information
    -------------------------------------------------------------------------
    Penn West Energy Trust is a senior oil and natural gas income trust based
in Calgary, Alberta that trades on the Toronto Stock Exchange under the symbol
PWT.UN and on the New York Stock Exchange under the symbol PWE.

    A conference call will be held to discuss Penn West's results at 9:30 a.m.
Mountain Daylight Time, 11:30 p.m. Eastern Daylight Time, on Thursday, August
2, 2007. The North American conference call number is 800-733-7560 toll-free
or 416-644-3415 in the Toronto area. A taped recording will be available until
August 9, 2007 by dialing 877-289-8525 or 416-640-1917 and entering pass code
21235734 followed by the pound sign. This call will be broadcast live on the
Internet and may be accessed directly on the Penn West website
www.pennwest.com or at the following URL:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1900800.
    

    %SEDAR: 00022266E          %CIK: 0001334388




For further information:

For further information: PENN WEST ENERGY TRUST, Suite 2200, 425 - First
Street S.W., Calgary, Alberta, T2P 3L8, Phone: (403) 777-2500, Fax: (403)
777-2699, Toll Free: (866) 693-2707, Website: www.pennwest.com; Investor
Relations: Phone: (888) 770-2633, E-mail: investor_relations@pennwest.com;
William Andrew, President and CEO, Phone: (403) 777-2502, E-mail:
bill.andrew@pennwest.com

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