Peyto Energy Trust announces first quarter 2009 results


    CALGARY, May 13 /CNW/ - Peyto Energy Trust ("Peyto") is pleased to
present the operating and financial results for the first quarter of the 2009
fiscal year. Peyto is an explorer and producer of unconventional tight gas
assets in Alberta's Deep Basin and using its trust structure is able to flow
profits from the success of that business to its unitholders in the form of
    Peyto is well known for owning high quality, sweet natural gas assets
that exhibit long reserve life, low operating costs and high revenue per mcfe.
The following summarizes the Trust's foundation:

    -   Long reserve life - Proved Producing 14 years, Total Proved 17 years,
        Proved plus Probable 23 years
    -   Low operating costs - $0.44/mcfe ($2.66/boe), three months ending
        March 31, 2009
    -   High heat content natural gas stream - Realized revenue of $6.34/mcfe
        ($38.04/boe) before hedging, $7.63/mcfe ($45.78/boe) after hedging,
        three months ending March 31, 2009
    -   Low base general and administrative costs - $0.22/mcfe ($1.32/boe),
        three months ending March 31, 2009
    -   High field netback - $6.27/mcfe ($37.62/boe) or 82% of revenue, three
        months ending March 31, 2009
    -   High level of operatorship - operates over 97% of its production
    -   Cash distributions - cash distributions of $41.3 million were 70% of
        funds from operations for the three months ended March 31, 2009
    -   Since inception, Peyto has raised a total of $410 million issuing
        units from treasury, accumulated earnings of $983 million, and
        distributed $851 million to unitholders
    -   Transparent capital structure - no convertible debentures, no
        exchangeable shares, no stock options, no warrants

    The first quarter of 2009 was highlighted by strong cash netbacks despite
weak natural gas prices and reduced activity due to changing royalty
incentives as illustrated by the following:

    -   Natural gas prices before hedges were 22% lower in Q1 2009 with
        prices averaging $6.15/mcf versus $7.93/mcf in Q1 2008. After
        hedging, gas prices were 10% lower at $7.68/mcf and $8.49/mcf
    -   Cash netbacks for the quarter averaged $5.70/mcfe ($34.23/boe) versus
        $6.38/mcfe ($38.33/boe) a year ago which represents 75% of revenue or
        a 75% pre-tax profit margin
    -   Capital expenditures - $13.0 million was invested into finding and
        developing new natural gas reserves, down from $22.5 million in the
        previous quarter, and down from $33.1 million in Q1 2008
    -   Production - decreased 6% from 122,048 mcfe/d (20,342 boe/d) in the
        first quarter of 2008 to 114,128 mcfe/d (19,021 boe/d) in the first
        quarter of 2009
    -   Per unit funds from operations - decreased 15% from the previous year
        to $0.55/unit
    -   Hedging - a $13.3 million gain for the three months ending March 31,
        2009 was realized
    -   A total of $41.3 million or $0.39/unit was distributed to unitholders
        in the first quarter of 2009 out of $63.6 million in earnings or
    -   Net debt decreased $2.1 million from Q4 2008 to $490.6 million in Q1
        2009 but was up 7% from $460.4 million in Q1 2008. This leaves
        available borrowing capacity of $59 million on bank lines of
        $550 million, secured by over $2.7 billion in Proved Producing assets
        (2008 PP NPV5)

    Natural gas volumes recorded in thousand cubic feet (mcf) are converted
to barrels of oil equivalent (boe) using the ratio of six (6) thousand cubic
feet to one (1) barrel of oil (bbl). Natural gas liquids and oil volumes in
barrel of oil (bbl) are converted to thousand cubic feet equivalent (mcfe)
using a ratio of one (1) barrel of oil to six (6) thousand cubic feet. This
could be misleading if used in isolation as it is based on an energy
equivalency conversion method primarily applied at the burner tip and does not
represent a value equivalency at the wellhead.

                                        3 Months Ended Mar. 31        %
                                           2009         2008        Change
      Natural gas (mcf/d)                   95,998      101,468          (5)%
      Oil & NGLs (bbl/d)                     3,022        3,430         (12)%
      Thousand cubic feet equivalent
       (mcfe/d @ 1:6)                   114,128      122,048          (6)%
      Barrels of oil equivalent
       (boe/d @ 6:1)                     19,021       20,342          (6)%

    Product prices
      Natural gas ($/mcf)                     7.68         8.49         (10)%
      Oil & NGLs ($/bbl)                     44.46        83.45         (47)%
      Operating expenses ($/mcfe)             0.44         0.45          (2)%
      Transportation ($/mcfe)                 0.11         0.11           -
      Field netback ($/mcfe)                  6.27         7.11         (12)%
      General & administrative
       expenses ($/mcfe)                      0.22         0.20           10%
      Interest expense ($/mcfe)               0.35         0.53         (34)%
    Financial ($000, except per unit)
    Revenue                                 78,423      104,428         (25)%
    Royalties                                8,290       19,264         (57)%
    Funds from operations                   58,607       70,955         (17)%
    Funds from operations per unit            0.55         0.67         (18)%
    Total distributions                     41,309       44,798          (8)%
    Total distributions per unit              0.39         0.42          (7)%
      Payout ratio                              70           63           11%
    Earnings                                63,574       32,440           96%
    Earnings per diluted unit                 0.60         0.31           94%
    Capital expenditures                    13,036       33,054         (61)%
    Weighted average trust units
     outstanding                       105,920,194  105,744,338            -
    As at December 31
    Net debt (before future
     compensation expense and
     unrealized hedging gains)             490,570      460,397            7%
    Unitholders' equity                    580,221      477,499           22%
    Total assets                         1,271,770    1,179,705            7%
    Earnings                                63,574       32,440
    Items not requiring cash:

    Provision for performance based
     compensation                            1,150        3,496
      Future income tax expense            (24,694)      15,733
      Depletion, depreciation and
       accretion                            18,577       19,286
    Funds from operations(1)                58,607       70,955

    (1) Funds from operations - Management uses funds from operations to
        analyze the operating performance of its energy assets. In order to
        facilitate comparative analysis, funds from operations is defined
        throughout this report as earnings before performance based
        compensation, non-cash and non-recurring expenses. Management
        believes that funds from operations is an important parameter to
        measure the value of an asset when combined with reserve life. Funds
        from operations is not a measure recognized by Canadian generally
        accepted accounting principles ("GAAP") and does not have a
        standardized meaning prescribed by GAAP. Therefore, funds from
        operations, as defined by Peyto, may not be comparable to similar
        measures presented by other issuers, and investors are cautioned that
        funds from operations should not be construed as an alternative to
        net earnings, cash flow from operating activities or other measures
        of financial performance calculated in accordance with GAAP. Funds
        from operations cannot be assured and future distributions may vary.

    Quarterly Review

    Peyto invested $13.0 million into drilling and connecting new Deep Basin
gas wells in the first quarter of 2009. Drilling and completions accounted for
$10.5 million, while wellsite equipment and pipelines accounted for $2.3
million. Additional seismic data and land was acquired for $0.2 million,
making up the balance of the capital expenditures. On March 3, 2009 the
Alberta government announced a new royalty incentive program that became
effective April 1, 2009 and included both new drilling royalty credits and new
production royalty relief. This announcement caused Peyto to halt new well
spuds and new production startups until the program became effective in order
to capture the available incentives. For this reason, activity in January and
February 2009 made up over 90% of the capital spending.
    In the first quarter, the Trust drilled 6 gross (5.5 net, 91% working
interest) gas wells, completed 7 gross (6.5 net) gas zones and brought 3 gross
(3 net) zones on production. Production for the quarter averaged 114,128
mcfe/d (19,021 boe/d) down from 122,048 mcfe/d (20,342 boe/d) in Q1 2008.
    Transportation and operating costs in the first quarter 2009 were
effectively flat from a year earlier at $0.11/mcfe ($0.69/boe) and $0.44/mcfe
($2.66/boe) respectively. Reduced methanol prices were primarily responsible
for maintaining operating costs at this level despite a decline in production.
Royalties to the province of Alberta totaled $8.3 million in the quarter,
representing 11% of sales or $0.81/mcfe ($4.84/boe). Natural gas prices for
the first quarter 2009 averaged $7.68/mcf, after hedging gains of $1.53/mcf,
while liquids prices averaged $44.46/boe. The high heat content, premium gas
price that Peyto achieved, elevated by hedging gains, combined with its low
operating costs, transportation and royalty expense resulted in field netbacks
of $6.27/mcfe ($37.62/boe) for the quarter or an 82% operating margin.
    Peyto underwent its annual bank review in the quarter and after the
engineering appraisal reaffirmed the high value of the reserve assets, the
Trust's banking syndicate extended the $550 million revolving credit facility.
Net debt for the quarter remained manageable at $490.6 million.

    Activity Update

    Peyto tied in 2 gross (1.6 net) wells between April 1, 2009 and spring
breakup but was unable to commence any drilling operations in that time. The
economic impact of the new "Three Point Royalty Incentive Program" has been
reviewed and although it is not expected it will have a significant influence
on the future drilling strategies of the Trust, it will provide additional
economic return for new wells drilled within the program. It is anticipated
that the capital program for the balance of 2009 will be achieved with two
drilling rigs commencing operations after breakup. Activity will be spread
throughout Peyto's core operational areas and include several exploratory
ideas as well as an evaluation of the potential for horizontal multi-stage
fracture technology.
    So far, production for the second quarter has averaged 111.5 mmcfe/d.
Peyto is continuously monitoring individual wells for their ability to
generate positive funds flow during this period of low natural gas prices. By
operating over 97% of production and having low operating costs, Peyto ensures
that its gas wells are making money even when many others are not.


    The current global economic recession and reduced energy demand has
created excess supply in North American natural gas. Fears that surplus
international LNG might find its way to North America are exacerbating the
situation. This has caused Alberta spot natural gas prices to drop to levels
not experienced since 2002. While there is much speculation on when prices
will recover, Peyto has, as of March 31 2009, committed to the forward sale of
15,670,000 gigajoules (GJ) of natural gas at an average price of $7.94/GJ or
$9.29/mcf (representing a 17% premium heat content). Had these contracts been
closed on March 31, 2009, the Trust would have realized a gain of $37.8
    The Trust continues to forward sell small portions of production, up to
24 months into the future, to secure prices for upcoming distributions and
capital programs. This strategy has worked successfully in the past to smooth
out much of the volatility in natural gas prices caused by periods of excess
supply or demand.


    Although the current economic conditions discourage bringing on new
production into a depressed natural gas price environment, Peyto continues to
build upon its inventory of high quality Deep Basin drilling prospects. A
recent personnel addition to the Trust's exploration team will strengthen this
process. The profitability of drilling projects will continue to guide
investment decisions while a low cost structure and strong hedge position
offer significant protection during this period of low gas prices. Ongoing
optimization of already low operating costs will ensure Peyto's competitive
advantage is maintained.
    Unitholders are encouraged to visit the Peyto website at
where there is a wealth of information designed to inform and educate

    Conference Call and Webcast

    A conference call will be held with the senior management of Peyto to
answer questions with respect to the 2009 first quarter financial results on
Thursday, May 14th, 2009, at 9:00 a.m. Mountain Daylight Time (MDT), or 11:00
a.m. Eastern Daylight Time (EDT). To participate, please call 1-416-644-3423
(Toronto area) or 1-800-732-1073 for all other participants. The conference
call will also be available on replay by calling 1-416-640-1917 (Toronto area)
or 1-877-289-8525 for all other parties, using passcode 21304757 followed by
the pound key (Number sign). The replay will be available at 11:00 a.m. MDT,
1:00 p.m. EDT Thursday, May 13th, 2009 until midnight EDT on Thursday, May
21st, 2009. The conference call can also be accessed through the internet at After this
time the conference call will be archived on the Peyto Energy Trust website at

    Management's Discussion and Analysis

    A copy of the first quarter report to Unitholders, including the
Management's Discussion and Analysis, and unaudited interim financial
statements and related notes is available at and will be filed at SEDAR,, at a later date.

    Darren Gee
    President and CEO
    May 13, 2009

    Certain information set forth in this document and Management's
Discussion and Analysis, including management's assessment of Peyto's future
plans and operations, contains forward-looking statements. By their nature,
forward-looking statements are subject to numerous risks and uncertainties,
some of which are beyond these parties' control, including the impact of
general economic conditions, industry conditions, volatility of commodity
prices, currency fluctuations, imprecision of reserve estimates, environmental
risks, competition from other industry participants, the lack of availability
of qualified personnel or management, stock market volatility and ability to
access sufficient capital from internal and external sources. Readers are
cautioned that the assumptions used in the preparation of such information,
although considered reasonable at the time of preparation, may prove to be
imprecise and, as such, undue reliance should not be placed on forward-looking
statements. Peyto's actual results, performance or achievement could differ
materially from those expressed in, or implied by, these forward-looking
statements and, accordingly, no assurance can be given that any of the events
anticipated by the forward-looking statements will transpire or occur, or if
any of them do so, what benefits Peyto will derive therefrom. Peyto disclaims
any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or

    Peyto Energy Trust

    Consolidated Balance Sheets


                                                     March 31,   December 31,
                                                        2009         2008
    Accounts receivable                                  56,645       65,662
    Financial derivative instruments (Note 10)           35,296       27,788
    Prepaid expenses and deposits                         2,488        3,367
                                                         94,429       96,817
    Financial derivative instruments (Note 10)            2,546        2,458
    Prepaid capital                                       2,188        3,069
    Property, plant and equipment (Note 4)            1,172,607    1,177,902
                                                      1,271,770    1,280,246

    Liabilities and Unitholders' Equity
    Accounts payable and accrued liabilities             26,992       48,854
    Distributions payable                                12,710       15,888
    Provision for future performance based compensation   1,150            -
                                                         40,852       64,742

    Long-term debt (Note 5)                             510,000      500,000
    Asset retirement obligations                          9,726        9,479
    Future income taxes                                 130,971      155,308
                                                        650,697      664,787

    Unitholders' equity
    Unitholders' capital (Note 6)                       410,233      410,233
    Accumulated earnings (Note 7)                       132,503      110,238
    Accumulated other comprehensive income               37,485       30,246
                                                        580,221      550,717

                                                      1,271,770    1,280,246

    See accompanying notes

    On behalf of the Board:

    (signed) "Michael MacBean"     (signed) "Darren Gee"
    Director                       Director

    Peyto Energy Trust

    Consolidated Statements of Earnings
    ($000 except per unit amounts)


    For the three months ended March 31,

                                                        2009         2008
    Oil and gas sales                                    65,163      100,126
    Realized gain on hedges                              13,260        4,302
    Royalties                                            (8,290)     (19,264)
    Petroleum and natural gas sales, net                 70,133       85,164

    Operating (Note 8)                                    4,560        4,965
    Transportation                                        1,178        1,160
    General and administrative (Note 9)                   2,238        2,202
    Future performance based compensation provision       1,150        3,496
    Interest on long term debt                            3,550        5,882
    Depletion, depreciation and accretion (Note 4)       18,577       19,286
                                                         31,253       36,991
    Earnings before taxes                                38,880       48,173

    Future income tax (recovery) expense                (24,694)      15,733

    Earnings for the period                              63,574       32,440

    Earnings per unit (Note 6)
    Basic and diluted                                      0.60         0.31

    See accompanying notes

    Peyto Energy Trust

    Consolidated Statements of Comprehensive Income (Loss)
    ($000 except per unit amounts)


    For the three months ended March 31,

                                                        2009         2008
    Earnings for the period                              63,574       32,440
    Other comprehensive income (loss)
    Change in unrealized gain (loss) on cash
     flow hedges                                         20,499      (38,765)
    Realized (gain) on cash flow hedges                 (13,260)      (4,302)
    Comprehensive income (loss)                          70,813      (10,627)

    See accompanying notes

    Peyto Energy Trust

    Consolidated Statements of Accumulated Earnings and Accumulated Other
    Comprehensive Income (Loss)


    For the three months ended March 31,

                                                        2009         2008

    Accumulated earnings, beginning of period           110,238      117,572
    Earnings for the period                              63,574       32,440
    Distributions (Note 7)                              (41,309)     (44,798)
    Accumulated earnings, end of period                 132,503      105,214

    Accumulated other comprehensive income,
     beginning of period                                 30,246        5,119
    Other comprehensive income (loss)                     7,239      (43,067)
    Accumulated other comprehensive income (loss),
     end of period                                       37,485      (37,948)

    See accompanying notes

    Peyto Energy Trust

    Consolidated Statements of Cash Flows


    For the three months ended March 31,

                                                        2009         2008
    Cash provided by (used in)
    Operating Activities
    Earnings for the period                              63,574       32,440
    Items not requiring cash:
      Future income tax (recovery) expense              (24,694)      15,733
      Depletion, depreciation and accretion              18,577       19,286
    Change in non-cash working capital related to
     operating activities                                (5,355)     (14,976)
                                                         52,102       52,483
    Financing Activities
    Issue of trust units, net of costs                        -        3,932
    Distribution paid                                   (41,309)     (44,798)
    Increase in bank debt                                10,000       10,000
    Change in non-cash working capital related
     to financing activities                             (3,178)          29
                                                        (34,487)     (30,837)
    Investing Activities
    Additions to property, plant and equipment          (13,036)     (33,067)
    Change in non-cash working capital related
     to investing activities                             (4,579)      (6,662)
                                                        (17,615)     (39,729)
    Net decrease in cash                                      -      (18,083)
    Cash, beginning of period                                 -       20,547
    Cash, end of period                                       -        2,464

    See accompanying notes

    Notes to Consolidated Financial Statements

    March 31, 2009 and 2008

    1.  Summary of Significant Accounting Policies

        The unaudited interim consolidated financial statements of Peyto
        Energy Trust (the "Trust" or "Peyto") follow the same accounting
        policies as the most recent annual audited consolidated financial
        statements. The interim consolidated financial statement note
        disclosures do not include all of those required by Canadian
        generally accepted accounting principles ("GAAP") applicable for
        annual financial statements. Accordingly, these interim financial
        statements should be read in conjunction with the 2008 audited
        consolidated financial statements.

        These financial statements include the accounts of Peyto Energy Trust
        and its wholly owned subsidiaries, Peyto Exploration & Development
        Corp., Peyto Operating Trust, Peyto Energy Limited Partnership and
        Peyto Energy Administration Corp.

    2.  Accounting Pronouncements

        Current Year Accounting Changes

        Goodwill and Intangible Assets

        On January 1, 2009, the Trust retrospectively adopted the Canadian
        Institute of Chartered Accountants (CICA) Section 3064, Goodwill and
        Intangible Assets issued by the AcSB. This section clarifies the
        criteria for the recognition of assets, intangible assets and
        internally developed intangible assets. Adoption of this standard did
        not have an impact on the Trust's results of operations or financial

        Business Combinations

        On January 1, 2009, the Trust prospectively adopted CICA Section
        1582, Business Combinations issued by the AcSB. This section
        establishes principles and requirements of the acquisition method for
        business combinations and related disclosures. Adoption of this
        statement did not have an impact on the Trust's results of operations
        or financial position.

        Consolidated Financial Statements and Non-Controlling Interests

        On January 1, 2009, the Trust adopted CICA Sections 1601,
        Consolidated Financial Statements, and 1602, Non-Controlling
        Interests issued by the AcSB. Section 1601 establishes standards for
        the preparation of consolidated financial statements. Section 1602
        provides guidance on accounting for non-controlling interests in
        consolidated financial statements subsequent to a business
        combination. Adoption of this statement did not have an impact on the
        Trust's results of operations or financial position.

    3.  Accounts Receivable

        ($000)                            March 31, 2009   December 31, 2008
        Accounts receivable - general         49,377              58,394
        Accounts receivable - income
         taxes                                 7,268               7,268
                                              56,645              65,662

        Canada Revenue Agency ("CRA") has conducted an audit of restructuring
        costs claimed as a result of the Trust conversion in 2003 that has
        resulted in the reclassification of $41.0 million dollars in
        employment related costs as eligible capital. In October, 2008, the
        Trust received a notice of reassessment from the CRA and paid an
        amount of $7.3 million related to this audit. Based upon consultation
        with legal counsel, Management's view is that CRA's position has no
        merit. A notice of objection has been filed and a notice of appeal
        will be filed shortly.

    4.  Property, Plant and Equipment

                                               March 31,       December 31,
                                                 2009              2008
        ($000)                                      $                 $

        Property, plant and equipment          1,564,907         1,551,789
        Accumulated depletion and
         depreciation                           (392,300)         (373,887)
                                               1,172,607         1,177,902

        At March 31, 2009, costs of $40.3 million (December 31, 2008 -
        $36.8 million) related to undeveloped land have been excluded from
        the depletion and depreciation calculation.

    5.  Long-Term Debt

        The Trust has a syndicated $550 million extendible revolving credit
        facility with a stated term date of April 30, 2010. The facility is
        made up of a $20 million working capital sub-tranche and a
        $530 million production line. The facilities are available on a
        revolving basis for a period of at least 364 days and upon the term
        out date may be extended for a further 364 day period at the request
        of the Trust, subject to approval by the lenders. In the event that
        the revolving period is not extended, the facility is available on a
        non-revolving basis for a one year term, at the end of which time the
        facility would be due and payable. Outstanding amounts on this
        facility bear interest at rates determined by the Trust's debt to
        cash flow ratio that range from prime to prime plus 0.75% for debt to
        earnings before interest, taxes, depreciation, depletion and
        amortization (EBITDA) ratios ranging from less than 1:1 to greater
        than 2.5:1. A General Security Agreement with a floating charge on
        land registered in Alberta is held as collateral by the bank. The
        average borrowing rate for the three months ended March 31, 2009 was
        2.8% (2008 - 5.4%).

    6.  Unitholders' Capital

        Authorized: Unlimited number of voting trust units

        Issued and Outstanding
          Trust Units (no par value) ($000)     Number of Units    Amount
          Balance, December 31, 2008
           and March 31, 2009                     105,920,194     410,233

        Per Unit Amounts

        Earnings per unit have been calculated based upon the weighted
        average number of units outstanding for the three months ended
        March 31, 2009 of 105,920,194 (2008 - 105,744,338). There are no
        dilutive instruments outstanding.

    7.  Accumulated Distributions

        The Trust paid total distributions to the unitholders in the
        aggregate amount of $41.3 million in the three months ended March 31,
        2009 of which all was settled in cash (2008 - total $44.8 million) in
        accordance with the following schedule:

        Production Period  Record Date        Distribution Date  Per Unit (1)
        January 2009       January 31, 2009   February 13, 2009     $0.15
        February 2009      February 28, 2009  March 13, 2009        $0.12
        March 2009         March 31, 2009     April 15, 2009        $0.12
        (1) Distributions per trust unit reflect the sum of the per trust
            unit amounts declared monthly to unitholders.

        Accumulated Earnings and Distributions

        ($000)                            March 31, 2009   December 31, 2008
        Accumulated earnings,
         beginning of period                  919,435           740,038
        Earnings for the period                63,574           179,397
        Total accumulated earnings            983,009           919,435
        Total accumulated distributions      (850,506)         (809,197)
        Accumulated earnings,
         end of period                        132,503           110,238

    8.  Operating Expenses

        The Trust's operating expenses include all costs with respect to day-
        to-day well and facility operations. Processing and gathering income
        related to joint venture and third party natural gas reduces
        operating expenses.

                                                 Three Months Ended March 31
                                                       2009       2008
        ($000)                                           $          $

        Field expenses                                 7,395      7,550
        Processing and gathering income               (2,835)    (2,585)
        Operating expenses                             4,560      4,965

    9.  General and Administrative Expenses (G & A)

        General and administrative expenses are reduced by operating and
        capital overhead recoveries on operated properties.

                                                 Three Months Ended March 31
                                                       2009       2008
        ($000)                                           $          $
        General and administrative expenses            2,739      2,694
        Overhead recoveries                             (501)      (492)
        Net General and administrative expenses        2,238      2,202

    10. Financial Instruments and Risk Management

        Market Risk

        Market risk is the risk that changes in market prices will affect the
        Trust's net earnings or the value of its financial instruments.
        Market risk is comprised of commodity price risk and interest rate
        risk. The objective of market risk management is to manage and
        control its exposures within acceptable limits, while maximizing
        returns. The Trust's objectives, processes and policies for managing
        market risks have not changed from the previous year.

        Commodity Price Risk Management

        The Trust is a party to certain derivative financial instruments,
        including fixed price contracts. The Trust enters into these
        contracts with well established counterparties for the purpose of
        protecting a portion of its future earnings and cash flows from
        operations from the volatility of commodity prices. The Trust
        believes the derivative financial instruments are effective as
        hedges, both at inception and over the term of the instrument, as the
        term and notional amount do not exceed the Trust's firm commitment or
        forecasted transaction and the underlying basis of the instrument
        correlates highly with the Trust's exposure. A summary of contracts
        outstanding in respect of the hedging activities at March 31, 2009
        are as follows:

        Natural Gas                                       Daily     Price
        Period Hedged                           Type      Volume    (CAD)

        April 1, 2009 to October 31, 2009   Fixed price  5,000 GJ  $7.85/GJ
        April 1, 2009 to October 31, 2009   Fixed price  5,000 GJ  $8.12/GJ
        April 1, 2009 to October 31, 2009   Fixed price  5,000 GJ  $8.95/GJ
        April 1, 2009 to October 31, 2009   Fixed price  5,000 GJ  $9.30/GJ
        April 1, 2009 to October 31, 2009   Fixed price  5,000 GJ  $10.20/GJ
        April 1, 2009 to October 31, 2009   Fixed Price  5,000 GJ  $7.50/GJ
        April 1 , 2009 to March 31, 2010    Fixed Price  5,000 GJ  $7.65/GJ
        April 1 , 2009 to March 31, 2010    Fixed Price  5,000 GJ  $6.90/GJ
        November 1, 2009 to March 31, 2010  Fixed Price  5,000 GJ  $8.39/GJ
        November 1, 2009 to March 31, 2010  Fixed Price  5,000 GJ  $8.35/GJ
        November 1, 2009 to March 31, 2011  Fixed Price  5,000 GJ  $6.20/GJ
        November 1, 2010 to March 31, 2011  Fixed Price  5,000 GJ  $8.91/GJ
        November 1, 2010 to March 31, 2011  Fixed Price  5,000 GJ  $9.15/GJ

        As at March 31, 2009, the Trust had committed to the future sale of
        15,670,000 gigajoules (GJ) of natural gas at an average price of
        $7.94 per GJ. Had these contracts been closed on March 31, 2009, the
        Trust would have realized a gain in the amount of $37.8 million. If
        the AECO gas price on March 31, 2009 were to increase by $1/GJ, the
        unrealized gain on these closed contracts would change by
        approximately $15.7 million. An opposite change in commodity prices
        rates will result in an opposite impact on earnings which would have
        been reflected in the other comprehensive income of the Trust.

        Subsequent to March 31, 2009 the Trust entered into the following

        Natural Gas                                       Daily     Price
        Period Hedged                           Type      Volume    (CAD)

        November 1, 2009 to March 31, 2011  Fixed price  5,000 GJ  $5.81/GJ
        April 1, 2010 to October 31, 2010   Fixed price  5,000 GJ  $6.10/GJ

        Interest rate risk

        The Trust is exposed to interest rate risk in relation to interest
        expense on its revolving credit facility. Currently, the Trust has
        not entered into any agreements to manage this risk. If interest
        rates applicable to floating rate debt were to have increased by
        100 bps (1%) it is estimated that the Trust's earnings for the period
        ended March 31, 2009 would decrease by $1.3 million. An opposite
        change in interest rates will result in an opposite impact on

        Fair Values of Financial Assets and Liabilities

        The Trust's financial instruments include cash, accounts receivable,
        financial derivative instruments, current liabilities (excluding
        future income tax), provision for future performance based
        compensation and long term debt. At March 31, 2009, the carrying
        value of cash, accounts receivable, financial derivative instruments,
        current liabilities and provision for future performance based
        compensation approximate their fair value. The carrying value of the
        long term debt approximates its fair value due to the floating rate
        of interest charged under the credit facility.

        Credit Risk

        A substantial portion of the Trust's accounts receivable is with
        petroleum and natural gas marketing entities.

        Industry standard dictates that commodity sales are settled on the
        25th day of the month following the month of production. The Trust
        generally extends unsecured credit to these companies, and therefore,
        the collection of accounts receivable may be affected by changes in
        economic or other conditions and may accordingly impact the Trust's
        overall credit risk. Management believes the risk is mitigated by the
        size, reputation and diversified nature of the companies to which
        they extend credit. The Trust has not previously experienced any
        material credit losses on the collection of accounts receivable. Of
        the Trust's significant individual accounts receivable at March 31,
        2009, approximately 33% was due from four companies (December 31,
        2008 - 43%, three companies). Of the Trust's revenue for the period
        ended March 31, 2009, approximately 83% was received from four
        companies (December 31, 2008 - 90%, four companies). The maximum
        exposure to credit risk is represented by the carrying amount on the
        balance sheet. There are no material financial assets that the Trust
        considers past due and no accounts have been written off.

        The Trust may be exposed to certain losses in the event of non-
        performance by counterparties to commodity price contracts. The Trust
        mitigates this risk by entering into transactions with counter-
        parties that have investment grade credit ratings, in accordance with
        policy as established by the Board of Directors. Counterparties for
        derivative instrument transactions are limited to financial
        institutions which are all members of our syndicated credit facility.

        The Trust assesses quarterly if there should be any impairment of
        financial assets. At March 31, 2009, there was no impairment of any
        of the financial assets of the Trust.

        Liquidity Risk

        Liquidity risk includes the risk that, as a result of operational
        liquidity requirements:

          -  The Trust will not have sufficient funds to settle a transaction
             on the due date;
          -  The Trust will be forced to sell financial assets at a value
             which is less than what they are worth; or
          -  The Trust may be unable to settle or recover a financial asset
             at all.

        The Trust's operating cash requirements, including amounts projected
        to complete our existing capital expenditure program, are
        continuously monitored and adjusted as input variables change. These
        variables include, but are not limited to, available bank lines, oil
        and natural gas production from existing wells, results from new
        wells drilled, commodity prices, cost overruns on capital projects
        and changes to government regulations relating to prices, taxes,
        royalties, land tenure, allowable production and availability of
        markets. As these variables change, liquidity risks may necessitate
        the need for the Trust to conduct equity issues or obtain project
        debt financing.

        The following are the contractual maturities of financial liabilities
        as at March 31, 2009:

        ($000s)         (less than) 1 Year  1-2 Years  2-5 Years  Thereafter
        Accounts payable
         and accrued
         liabilities           26,992
        Provision for
         future performance
         based compensation     1,150
         payable               12,710
        Long-term debt(1)                    510,000
        (1)Revolving credit facility renewed annually (see Note 5)

    11. Capital Disclosures

        The Trust's objectives when managing capital are: (i) to maintain a
        flexible capital structure, which optimizes the cost of capital at
        acceptable risk; and (ii) to maintain investor, creditor and market
        confidence to sustain the future development of the business.

        The Trust manages its capital structure and makes adjustments to it
        in light of changes in economic conditions and the risk
        characteristics of our underlying assets. The Trust considers its
        capital structure to include unitholders' equity, debt and working
        capital. To maintain or adjust the capital structure, the Trust may
        from time to time, issue trust units, raise debt and/or adjust its
        capital spending to manage its current and projected debt levels. The
        Trust monitors capital based on the following non-GAAP measures:
        current and projected debt to earnings before interest, taxes,
        depreciation, depletion and amortization ("EBITDA") ratios, payout
        ratios and net debt levels. To facilitate the management of these
        ratios, the Trust prepares annual budgets, which are updated
        depending on varying factors such as general market conditions and
        successful capital deployment. Currently, all ratios are within
        acceptable parameters. The annual budget is approved by the Board of
        Directors. The Trust's unitholders' capital is not subject to any
        external financial covenants.

        There were no changes in the Trust's approach to capital management
        from the previous year.

        ($000s)                           March 31, 2009   December 31, 2008
        Unitholders' equity                    580,221           550,717
        Long-term debt                         510,000           500,000
        Working capital (surplus)
         deficit (1)                           (53,577)          (32,075)
                                             1,036,644         1,018,642
        (1) Current liabilities less current assets (includes unrealized
            hedging asset of $35.3 million)

    12. Supplemental Cash Flow Information

        Changes in non-cash working capital balances

                                                 Three Months Ended March 31
        ($000)                                         2009        2008
        Cash interest paid during the year            3,550       5,882

    13. Contingencies and Commitments

        Following is a summary of the Trust's commitments related to
        operating leases as at March 31, 2009. The Trust has no other
        contractual obligations or commitments as at March 31, 2009.

        ($000)                                                March 31, 2009
         2009                                                        903
         2010                                                      1,203
         2011                                                        903

        Contingent Liability

        From time to time, Peyto is the subject of litigation arising out of
        its day-to-day operations. Damages claimed pursuant to such
        litigation, may be material or may be indeterminate and the outcome
        of such litigation may materially impact Peyto's financial position
        or results of operations in the period of settlement. While Peyto
        assesses the merits of each lawsuit and defends itself accordingly,
        Peyto may be required to incur significant expenses or devote
        significant resources to defending itself against such litigation.
        These claims are not currently expected to have a material impact on
        Peyto's financial position or results of operations.

    Peyto Exploration & Development Corp. Information


      Darren Gee                            Glenn Booth
      President and Chief Executive         Vice-President, Land

      Scott Robinson                        Stephen Chetner
      Executive Vice-President and          Corporate Secretary
       Chief Operating Officer

      Kathy Turgeon
      Vice-President, Finance and Chief
       Financial Officer


      Don Gray, Chairman
      Michael MacBean, Lead Independent Director
      Rick Braund
      Brian Davis
      Darren Gee
      Gregory Fletcher
      Stephen Chetner


    Deloitte & Touche LLP


    Burnet, Duckworth & Palmer LLP


    Bank of Montreal
    Union Bank, Canada Branch
    BNP Paribas (Canada)
    Royal Bank of Canada
    Alberta Treasury Branches
    Société Générale (Canada Branch)
    HSBC Bank Canada
    Canadian Western Bank

    Transfer Agent

    Valiant Trust Company

    Head Office

    2900, 450 - 1st Street SW
    Calgary, AB
    T2P 5H1
    Phone: 403.261.6081
    Fax: 403.451.4100

    Stock Listing Symbol: PEY.un
                          Toronto Stock Exchange

    %SEDAR: 00019597E

For further information:

For further information: Head Office, 2900, 450 - 1st Street SW,
Calgary, AB, T2P 5H1, Phone: (403) 261-6081, Fax: (403) 451-4100, Web:

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