Vermilion Energy Trust - Second quarter results for the period ended June 30, 2007



    CALGARY, Aug. 7 /CNW/ - Vermilion Energy Trust ("Vermilion") (TSX -
VET.UN) is pleased to report unaudited interim operating and financial results
for the period ended June 30, 2007.

    Second Quarter Highlights:

    
    -   Recorded production of 30,916 boe/d in the second quarter of 2007, an
        increase of 6.3% compared to 29,090 boe/d in the first quarter of
        2007. Increased volumes in Australia, France and Canada more than
        offset seasonally curtailed production in the Netherlands.

    -   Generated funds from operations of $85.1 million ($1.18 per unit) in
        the second quarter of 2007, compared to $75.9 million ($1.06 per
        unit) in the first quarter of 2007. Revenue, cash flow and operating
        netbacks in Australia appear lower as only a single shipment of crude
        from the Wandoo Field occurred in the quarter. Unsold inventories at
        Wandoo increased by approximately 245,000 bbls in the second quarter
        of 2007. Unsold production is recorded at cost until shipped, and the
        difference between the realized sales price and cost is reflected in
        future funds from operations.

    -   Distributed $0.51 per unit during the quarter, bringing cumulative
        distributions to $9.01 since conversion to a trust in 2003.
        Vermilion's cash payout ratio in the second quarter was 40% before
        impact of the DRIP compared to 44% in the first quarter of 2007. The
        total implied payout ratio, including distributions (net of the
        DRIP), capital expenditures, and contributions to the reclamation
        fund was 67% of funds from operations compared to 87% in the first
        quarter of 2007.

    -   Closed the acquisition of a 40% interest in the Wandoo Field offshore
        Australia. Vermilion now holds a 100% operated interest in this
        field.

    -   Successfully recompleted two wells in the Wandoo Field offshore
        Australia. Production from these two wells increased by approximately
        825 boe/d. Completed preparations for the Phase 2 expansion of the
        Wandoo B Platform. Subsequent to the end of the quarter, the Wandoo B
        Platform was shut down for approximately one week to complete this
        expansion, which may result in a further modest increase to oil
        production.

    -   Completed a successful tight gas drilling pilot program that
        commenced in July 2006, which resulted in 10 wells (100% success) in
        the Drayton Valley region in Alberta. Vermilion plans to continue
        with workovers and third party drilling programs in 2007 and will
        prepare for additional drilling in 2008. Continued completing and
        tying-in previously drilled coalbed methane (CBM) wells in central
        Alberta. Much of the Canadian operations, including the CBM drilling
        program experienced delays in the second quarter due to wet weather,
        which reduced access to many of these properties.

    -   Completed all preparations to begin drilling two wells at Harlingen
        and one well at DeBlesse in the Netherlands.

    -   Advanced preparations to drill the Orca 1 well on the Aquitaine
        Maritime prospect offshore France, including procurement of equipment
        and of service contracts required to service the well. As announced
        on July 19, 2007, French authorities have approved an extension of
        the drilling period to September 30, 2007 and issued a drilling
        permit for the Orca 1 well. The Byford Dolphin rig is expected to
        begin the two-week move to the location in the next few days.

    -   Vermilion's net debt at the end of the second quarter increased by
        $100 million to approximately $446 million, equivalent to 1.3 times
        annualized second quarter cash flow, reflecting the acquisition of
        the Wandoo property exclusive of the impact of that acquisition on
        funds from operations.

    -   Subsequent to the end of the quarter, Vermilion increased its
        investment in Verenex Energy Inc. ("Verenex") by $30 million through
        participation in a financing announced by Verenex on July 9, 2007.
        Vermilion owns approximately 18.5 mm shares of Verenex, representing
        approximately 41.8% of that company's outstanding shares.

    Conference Call and Webcast Details
    -----------------------------------
    Vermilion will discuss these results in a conference call to be held on
Wednesday, August 8th, 2007. The conference call will begin at 9:00 AM MST -
11:00 AM EST. To participate, you may call toll free 1-800-588-4490 or
1-416-644-3425 (Toronto area). The conference call will also be available on
replay by calling 1-877-289-8525 or 1-416-640-1917 (Toronto area) using pass
code 21239565 followed by the pound "No." key. The replay will be available
until midnight eastern time on August 16, 2007. You may also listen to the
webcast by clicking
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1919280

    HIGHLIGHTS

    Financial ($000 CDN         Three Months Ended          Six Months Ended
     except unit and          June 30,     June 30,     June 30,     June 30,
     per unit amounts)           2007         2006         2007         2006
    -------------------------------------------------------------------------
    Petroleum and natural
     gas revenue           $  164,862   $  147,763   $  313,670   $  295,049
    Funds from operations      85,101       76,810      161,039      159,462
      Per unit, basic(1)         1.18         1.10         2.23         2.28
    Capital expenditures       32,044       27,665       71,798       63,805
    Acquisitions, including
     acquired working
     capital deficiency       129,099        7,593      129,225       11,803
    Net debt                        -            -      446,180      211,920
    Reclamation fund
     contributions and
     abandonment
     expenditures                 381          652        1,217        1,942
    Cash distributions
     per unit                    0.51         0.51         1.02         1.02
    Cash distributions total   33,669       32,635       66,876       64,904
      Less DRIP                 8,950        3,474       16,684        8,673
      Cash distributions net   24,719       29,161       50,192       56,231
      % of cash flow
       distributed gross          40%          42%          42%          41%
      % of cash flow
       distributed net            29%          38%          31%          35%
    Total net distributions,
     capex, reclamation
     fund contributions
     and abandonment
     expenditures          $   57,144   $   57,478   $  123,207   $  121,978
      % of cash flow              67%          75%          77%          76%
    Trust units
     outstanding(1)
      Basic                                          72,964,796   70,403,709
      Diluted                                        76,304,261   74,078,968
    Weighted average trust
     units outstanding(1)
      Basic                                          72,230,913   69,916,773
      Diluted                                        74,804,398   72,344,649
    Unit trading
      High                                           $    37.35   $    35.27
      Low                                            $    30.33   $    26.51
      Close                                          $    36.00   $    34.55
    -------------------------------------------------------------------------
    Operations
    Production
      Crude oil (bbls/d)       17,142       12,499       16,042       12,322
      Natural gas liquids
       (bbls/d)                 1,422        1,303        1,400        1,271
      Natural gas (mcf/d)      74,114       69,897       75,406       73,502
      Boe/d (6:1)              30,916       25,452       30,010       25,843
    Average reference price
      WTI ($US/bbl)        $    65.03   $    70.69   $    61.65   $    67.08
      Brent ($US/bbl)           68.76        69.62        63.26        65.69
      AECO ($CDN/mcf)            7.07         6.01         7.23         6.78
      NIP 2006 Netherlands
       (Euro/GJ)                 4.96         6.12         5.26         6.05
      Foreign exchange rate
       ($US/$CDN)                0.91         0.89         0.88         0.88
      Foreign exchange rate
       (Euro/$CDN)               0.68         0.71         0.66         0.71
    Average selling price
      Crude oil ($CDN/bbl)      68.88        81.65        67.46        78.63
      Natural gas liquids
       ($CDN/mcf)               58.95        65.98        56.71        62.41
      Natural gas ($CDN/mcf)     7.38         7.40         7.58         7.92
    Netbacks per boe (6:1)
      Operations netback        38.96        43.90        38.69        43.25
      Cash flow netback         30.25        33.17        29.65        34.07
      Operating costs            9.91         9.25        10.15         8.93
    -------------------------------------------------------------------------
    (1) Includes trust units issuable for outstanding exchangeable shares
        based on the period end exchange ratio
    

    The above table includes non-GAAP measurements such as funds from
operations and net debt, which may not be comparable to other companies.
Please see "Non-GAAP Measures" under MD&A section for further discussion.

    OUTLOOK

    Vermilion's production growth is expected to continue in the second half
of 2007, boosted by the 3,000 boe/d Wandoo acquisition in Australia and a new
gas contract in the Netherlands that will eliminate the seasonal curtailment
of production in the spring and summer months.
    In Canada, the first phase of the Drayton Valley tight gas development
program launched last summer is nearing completion. Vermilion drilled 10 wells
in this program resulting in nine gas wells and one oil well with average
initial production rates exceeding 200 boe/d. This drilling program, combined
with workovers, recompletions and participation in third party drills,
increased Drayton Valley production by over 1,500 boe/d over the past year,
net of declines. Vermilion is planning to continue this program in 2008. The
Trust's 2007 CBM drilling program was delayed until the third quarter by wet
weather and poor location access over the past few months. Vermilion plans to
drill 14 CBM wells in the third quarter and will participate in an additional
five partner-operated drills. All successful wells will be tied into the
Morningside compressor station.
    In France, Vermilion has completed and tied in two wells at Champotran
and La Torche in the Paris Basin adding approximately 350 boe/d to production.
Trucking of crude oil production from the Aquitaine Basin will continue for
the balance of the year, but sufficient volumes are being moved to allow for
normal well maintenance work to resume in southern France. Accordingly,
Vermilion expects France production volumes to remain stable over the second
half of the year.
    The review of the failure of the storage vessel at the Ambes terminal is
ongoing. Vermilion expects that a court-appointed expert will provide an
opinion on the incident early in 2008 with a final judgement regarding the
cause, responsibility and allocable costs likely not available for a few
years. Meanwhile, the cleaning and inspection of other storage vessels at the
terminal is ongoing, as is detailed engineering design work. Proposed changes
to the system are being prepared for submission in late 2007, which, if
accepted, would allow modifications to be implemented in the first half of
2008. Full terminal activities will not likely resume until sometime in the
second half of 2008. Vermilion continues to work towards an interim solution
that would allow access to a storage vessel not impacted by the shut-down
order at the Ambes terminal. If successful, this plan would allow intermittent
use of the pipeline and Ambes loading facility and would considerably reduce
the current trucking requirements.
    Authorities in France granted Vermilion and its partners an extension to
the drilling period for the Orca 1 well on the Aquitaine Maritime prospect
offshore France to September 30, 2007. Vermilion expects the Byford Dolphin
rig to begin moving to the location in the next few days and should commence
drilling the well in late August 2007. Well results should be available by
early October 2007. Vermilion is excited about the potential for this well,
but reminds investors that it is a high-risk exploration target. On July 24,
2007 Vermilion announced that French authorities awarded the Aquila offshore
exploration permit to Vermilion and Verenex (50/50) providing the right to
explore a 709 square kilometre area which lies between the Aquitaine Maritime
Permit and the southwest coast of France. This could further enhance the
significance of a successful well on the Aquitaine Maritime Permit.
    Vermilion commenced drilling its first well of a three well program in
the Netherlands on July 26, 2007. The first wells are targeting the
development of a tight chalk reservoir at Harlingen and a later well will be
targeting the extension of a reservoir at De Blesse. Work is proceeding on
plans to install new compression facilities at the Harlingen Treatment Centre,
to reduce horsepower consumption and to release some fuel gas to the sales
line. These facility modifications will require a three week shut down in
October, which is expected to reduce production by approximately 1,000 boe/d
for the month. Subsequently, Vermilion expects gas sales at the Harlingen
Treatment Center to increase by 200 boe/d compared to previous levels. Second
quarter production volumes were curtailed by approximately 800 boe/d due to
reduced seasonal demand. Vermilion signed a new contract with its natural gas
purchaser, Gasterra (formerly Gasunie), on July 1, 2007 that will allow
Vermilion to produce gas at full capacity year-round. This will eliminate the
seasonal reductions that have impacted Vermilion's gas volumes in both the
second and third quarter in past years.
    In Australia, Vermilion recognized a combined production increase of
approximately 825 boe/d (at 60% interest) from two wells that were
re-perforated in 'bypassed pay' zones. On June 20, 2007, the Trust closed the
acquisition of an additional 40% interest in the Wandoo field boosting
Vermilion's production capacity by approximately 3,000 boe/d. Subsequent to
the end of the quarter, Vermilion shut-in the platform for approximately one
week while it completed the second phase of the facility expansion on the
Wandoo B Platform. Current production capacity at Wandoo exceeds 8,000 boe/d.
We expect to experience normal declines from this field over the balance of
the year.
    Subsequent to the end of the quarter Verenex announced that its B1-47/02
and C1-47/02 wells in Libya both tested successfully, that testing on the
fourth well, D1 47/02 which appears similar to the C1 well will commence
shortly and that a fifth is currently drilling. The B1-47/02 well tested
23,800 barrels per day of light crude oil and the C1 well test was similar.
Vermilion holds a 41.8% equity interest in Verenex.
    The recent passage of legislation related to the change in taxation of
income trusts beginning in 2011 requires these changes to be appropriately
reflected in the determination of future income tax assets and liabilities.
This legislation resulted in the recognition of future income taxes related to
Vermilion Energy Trust, the parent entity, whereas previously such differences
were only recognized in relation to subsidiaries of the Trust. The related
impact on the Trust's future income tax provision and future income tax
liability related to this legislation was not material.
    Vermilion continues to offer its investors a rich portfolio of assets,
positive unit price performance and exposure to potentially high-impact
opportunities.

    Management's Discussion and Analysis
    ------------------------------------
    The following is management's discussion and analysis (MD&A) dated
July 31, 2007 of Vermilion's operating and financial results for the three and
six months ended June 30, 2007 compared with the corresponding periods in the
prior year. This discussion should be read in conjunction with the unaudited
interim consolidated financial statements and the Trust's audited consolidated
financial statements for the years ended December 31, 2006 and 2005, together
with accompanying notes, as contained in the Trust's 2006 Annual Report.

    Non-GAAP Measures

    Included in this report are references to terms commonly used in the oil
and gas industry, such as net debt (long-term debt, net of working capital)
and funds from operations which represent cash flow from operating activities
expressed before changes in non-cash working capital and are used by the Trust
to analyze operating performance, leverage and liquidity. These terms do not
have standardized meanings prescribed by Generally Accepted Accounting
Principles ("GAAP") and therefore may not be comparable with the calculations
of similar measures for other entities. Consequently, these are referred to as
non-GAAP measures. Funds from operations, as discussed in this report, appears
as a separate caption on the Trust's cash flow statement and is reconciled to
cash from operations below.

    
    ($000's)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Funds from operations  $   85,101   $   76,810   $  161,039   $  159,462
      Changes in non-cash
       operating working
       capital                 11,277      (29,024)      25,411       (6,908)
      Asset retirement
       costs incurred            (381)        (443)      (1,217)        (804)
    -------------------------------------------------------------------------
    Cash from operations   $   95,997   $   47,343   $  185,233   $  151,750
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    FORWARD-LOOKING INFORMATION

    This document contains forward-looking financial and operational
information as to the Trust's internal projections and expectations relating
to future events or performance. In some cases, forward-looking information
can be identified by terminology such as "may", "will", "should", "expects",
"projects", "anticipates" and similar expressions. These statements represent
management's expectations concerning future operating results or the economic
performance of the Trust and are subject to a number of risks and
uncertainties that could materially affect results. These risks include, but
are not limited to future commodity prices, exchange rates, interest rates,
geological risk, reserves risk, political risk, product demand and
transportation restrictions, which may cause actual performance and financial
results in future periods to differ materially from any projections of future
performance or results expressed by such forward-looking statements.
Accordingly, readers are cautioned that events or circumstances could cause
results to differ materially from those predicted. Certain natural gas volumes
have been converted on the basis of six thousand cubic feet of gas to one
barrel equivalent of oil. Barrels of oil equivalent (boe's) may be misleading,
particularly if used in isolation. A boe conversion ratio of six thousand
cubic feet to one barrel of oil is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.

    OPERATIONAL ACTIVITIES

    Canada
    ------
    In Canada, the Trust participated in the drilling of two wells (1.2 net)
in the second quarter resulting in two standing wells (1.2 net) awaiting
further evaluation and tie-in. Both wells were drilled in the Drayton Valley
area. The CBM drilling program was delayed to the third quarter due to wet
weather.

    France
    ------
    Two 100% wells were drilled in the Champotran/La Torche Field in the
Paris Basin during the second quarter yielding incremental production of
approximately 350 boe/d. Vermilion intensified trucking operations to handle
production from the Aquitaine Basin in southwest France averaging 55 trucks
per day in the quarter. This will allow a resumption of full well maintenance
programs that should reduce normal production declines over the balance of the
year.
    A shore-based facility was established to supply equipment and services
for the Aquitaine Maritime drilling prospect that is scheduled for the third
quarter 2007. Vermilion also worked to finalize drilling plans for this well
(Orca 1).

    Netherlands
    -----------
    Vermilion continued preparations for the installation of new compression
facilities at Harlingen. Site construction for the Harlingen-9 and
Harlingen-10 drilling prospects was completed. Drilling will commence in the
third quarter of 2007.

    Australia
    ---------
    Vermilion completed work on the Wandoo B-5 and B-9 workovers and returned
the wells to production. Australian operations during the remainder of the
quarter focused on preparations for the second phase of the Wandoo B Platform
expansion. Subsequent to the end of the quarter, the Wandoo B Platform was
shut down for approximately one week to complete the installation process.

    PRODUCTION

    Average production in Canada during the second quarter of 2007 was 4,091
bbls/d of oil and NGL's and 49.6 mmcf/d of natural gas compared to 4,104
bbls/d of oil and NGL's and 47.7 mmcf/d of natural gas in the first quarter of
2007. Second quarter total production of 12,351 boe/d was 2% higher than first
quarter 2007 production of 12,054 boe/d.
    Production in France averaged 9,221 boe/d in the second quarter of 2007
compared to 8,055 boe/d in the first quarter of 2007 reflecting the
acceleration of trucking operations in the Aquitaine Basin. Production volumes
are anticipated to remain relatively stable over the balance of 2007.
    Production in the Netherlands averaged 3,904 boe/d in the second quarter
of 2007 compared to 4,754 boe/d in the first quarter of 2007. Volumes were
reduced due to seasonal curtailment by the purchaser, Gasterra. A new contract
with Gasterra, entered into on July 1, 2007 should see volumes rebound to
higher levels in the third quarter. The Harlingen Treatment Centre is
scheduled to be shut down for approximately three weeks in October to allow
for the installation of new compressor facilities. Otherwise production should
reflect normal declines over the balance of the year, not accounting for
potential drilling success.
    Australia production averaged 5,440 boe/d in the second quarter of 2007,
compared to 4,227 boe/d during the first quarter of 2007. Most of these gains
were due to successful workover operations. Third quarter volumes will see the
full impact of the Wandoo acquisition, less a week related to the shutdown of
the Wandoo B Platform. Production over the balance of the year should reflect
normal production declines.

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


    -------------------------------------------------------------------------
                        Three Months Ended          Six Months Ended
                           June 30, 2006              June 30, 2006
                       Oil  Natural               Oil  Natural
                    & NGLs      Gas    Total   & NGLs      Gas    Total
                   (bbls/d) (mmcf/d)  (boe/d) (bbls/d) (mmcf/d)  (boe/d)   %
    -------------------------------------------------------------------------
    Canada           4,093    40.74   10,883    4,126    40.65   10,901   42
    France           5,780     1.36    6,006    5,680     1.40    5,914   23
    Netherlands         12    27.80    4,646       13    31.45    5,254   20
    Australia        3,917        -    3,917    3,774        -    3,774   15
    -------------------------------------------------------------------------
    Total           13,802    69.90   25,452   13,593    73.50   25,843  100
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CAPITAL EXPENDITURES

    Drilling and development capital spending for the first half of 2007
totalled $71.8 million compared to $63.8 million spent in the first half of
2006. During the quarter, Vermilion acquired the remaining 40% interest of the
offshore Wandoo field in Australia for $126.2 million including acquired
working capital deficiency. Vermilion now holds a 100% operated interest in
the field. Vermilion also acquired Verenex Energy Inc.'s 95% participating
interest in the Marvilliers Permit in France for approximately $3 million
Canadian after adjustments.

    ($000's)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Land                   $      572   $      269   $    1,072   $      771
    Seismic                         -          381          335          770
    Drilling and
     completion                13,729        9,695       29,725       29,918
    Production equipment
     and facilities            12,292       12,255       25,596       22,193
    Recompletions               2,340        2,386        7,975        4,149
    Other                       3,111        2,679        7,095        6,004
    -------------------------------------------------------------------------
                               32,044       27,665       71,798       63,805
    Acquisitions              129,099        7,593      129,225       11,803
    -------------------------------------------------------------------------
    Total                  $  161,143   $   35,258   $  201,023   $   75,608
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    FINANCIAL REVIEW

    The Trust generated funds from operations of $85.1 million ($1.18 per
unit) in the second quarter of 2007, a 12% increase above the $75.9 million
($1.06 per unit) recorded in the first quarter of 2007, and 11% higher than
the $76.8 million ($1.10 per unit) generated in the second quarter of 2006.
The improved results compared to the first quarter of 2007 reflect modest
gains in production and higher oil prices. Vermilion expects to see further
production improvements in the third quarter 2007.
    The Trust's distributions in the second quarter totalled $33.7 million
($0.51 per unit) for a payout ratio of 40% before the impact of the Trust's
distribution reinvestment program ("DRIP"), which generated $9.0 million of
cash to the Trust as unitholders reinvested their monthly distributions in
additional trust units. After accounting for the DRIP, the resulting net
distribution payout ratio in the second quarter of 2007 was 29%. Total payout,
including net distributions (after DRIP) capital expenditures, contributions
to the reclamation fund and abandonment expenditures represented 67% of funds
generated from operations in the second quarter of 2007 as compared to 87% in
the first quarter of 2007. Vermilion's net debt increased to $446.2 million at
the end of the second quarter, reflecting the Wandoo acquisition that was
financed using the Trust's credit facilities. The net debt is equivalent to
1.3 times the second quarter funds from operations annualized.

    REVENUE

    Total revenues in the first half of 2007 were $313.7 million
($164.9 million in the quarter) compared to $295.0 in the first half of 2006
($147.8 million in the quarter). Vermilion's combined crude oil & NGL price
was $66.59 per bbl in the first half of 2007 ($68.12 per boe in the quarter),
a decrease of 14% over the $77.12 per boe reported in the first half of 2006
($80.17 per bbl in the quarter). The natural gas price realized in the first
half of 2007 was $7.58 per mcf ($7.38 per mcf in the quarter) compared to
$7.92 per mcf realized a year ago ($7.40 per mcf in the quarter), a 4%
decrease year-over-year. Although commodity prices were lower in the first
half of 2007 compared to 2006, increased production in Canada and the
acquisition of the French assets in the second half of 2006 resulted in
increased production year over year generating higher revenue. During the
quarter there was only one lifting in Australia resulting in a build-up of
crude inventory in Australia at June 30, 2007. A lifting of 298,124 barrels
was completed on July 10, 2007.

    
    ($000's except per BOE and per mcf)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Crude oil & NGL's      $  115,081   $  100,700   $  210,236   $  189,743
    Per boe                $    68.12   $    80.17   $    66.59   $    77.12
    Natural gas                49,781       47,063      103,434      105,306
    Per mcf                $     7.38   $     7.40   $     7.58   $     7.92
    -------------------------------------------------------------------------
    Petroleum and natural
     gas revenue           $  164,862   $  147,763   $  313,670   $  295,049
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    DERIVATIVE INSTRUMENTS

    Vermilion continues to manage its risk exposure through prudent commodity
and currency economic hedging strategies. Vermilion has the following
financial collars and puts in place at June 30, 2007:

    Risk Management: Oil               Funded Cost  bbls/d           US$/bbl
    -------------------------------------------------------------------------
    Collar - WTI
      2007                             US$1.00/bbl     500   $60.00 - $77.30
      Q3 - Q4 2007                     US$0.50/bbl     500   $60.50 - $75.25
      Q3 - Q4 2007                     US$0.50/bbl     500   $63.35 - $75.00
      Q3 2007                          US$0.50/bbl     500   $63.75 - $76.00
      Q4 2007                          US$0.50/bbl     500   $63.00 - $79.00
      Q1 2008                          US$0.50/bbl     500   $63.00 - $79.05
      Q2 2008                          US$0.50/bbl     500   $64.30 - $76.00
    Put - WTI
      2007                             US$1.27/bbl     250            $57.05
    Collar - BRENT
      Q3 2007                          US$0.88/bbl     500   $60.00 - $90.00
      Q3 2007                          US$0.50/bbl     500   $62.10 - $79.00
      Q3 2007                                    -     500   $63.60 - $80.00
      Q3 2007                                    -     500   $63.85 - $80.00
      Q4 2007                          US$0.70/bbl     500   $60.00 - $89.00
      Q4 2007                          US$0.50/bbl     500   $62.90 - $80.00
      Q4 2007                          US$0.25/bbl     500   $67.00 - $81.00
      Q3 2008                          US$0.25/bbl     500   $66.40 - $82.00
      Q4 2008                                    -     500   $68.20 - $81.00
    Call Spread - BRENT
      2009 - 2011                      US$5.73/bbl     700   $65.00 - $85.00
    -------------------------------------------------------------------------

    Risk Management: Natural Gas       Funded Cost    GJ/d             C$/GJ
    -------------------------------------------------------------------------
    Collar
      July - October 2007                 $0.02/GJ   2,500     $6.50 - $9.00
      Q3 2007                             $0.25/GJ   2,500     $7.00 - $9.50
    -------------------------------------------------------------------------
    

    The impact of Vermilion's economic hedging program increased cash
netbacks by $0.09 per boe in the first half of 2007 (cost of $0.11 per boe for
the quarter). The dip in commodity prices in the first quarter meant some of
Vermilion's collars were in the money for that period. This compares to a
hedging cost of $0.09 in the first six months of 2006 ($0.13 per boe in the
quarter) when commodity prices were higher than Vermilion's derivative
instruments.

    ROYALTIES

    Total royalties decreased to $7.05 per boe or 12% of sales in the first
half of 2007 ($7.32 per boe, 12% in the quarter), compared with $9.74 per boe
or 15% of sales in the first half of 2006 ($9.45 per boe, 15% in the quarter).
In Australia, royalties are reduced by capital reinvestment in the country.
For 2007, Vermilion's capital program in Australia was active resulting in the
Trust paying royalties at a much reduced rate over 2006 when the capital
program was minimal. Also contributing to the decline is the impact of lower
gas prices in Canada where royalties are paid on a sliding scale relative to
pricing. In France, royalties for the most part are calculated on a unit of
production basis and rates do not react to price changes therefore royalties
were basically unchanged on a boe basis in France. Production in the
Netherlands is not subject to royalty.

    
    ($000's except per BOE and per mcf)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Crude oil & NGL's      $   13,980   $   18,047   $   24,858   $   34,445
    Per boe                $     8.28   $    14.37   $     7.87   $    14.00
    Natural gas                 6,610        3,835       13,432       11,105
    Per mcf                $     0.98   $     0.60   $     0.98   $     0.83
    -------------------------------------------------------------------------
    Combined               $   20,590   $   21,882   $   38,290   $   45,550
    -------------------------------------------------------------------------
    Per boe                $     7.32   $     9.45   $     7.05   $     9.74
    -------------------------------------------------------------------------

    OPERATING COSTS

    Operating costs increased to $10.15 per boe in the first half of 2007
($9.91 per boe in the quarter) from $8.93 per boe in the first half of 2006
($9.25 per boe in the quarter). Cost of operations in Australia are up
significantly due to increased labour costs and unplanned diesel purchases for
gas lift purposes. In Canada, the significant activity levels in the industry
combined with increased energy costs, have placed upward pressure on costs
across the board, however, during the quarter, a positive adjustment to the
provisions for equalizations was realized which has reduced operating costs in
Canada for the quarter. In France, operating costs are up significantly due to
the higher cost assets associated with the acquisition of Vermilion Emeraude
Rep SAS. In addition, the oil spill at the Ambes terminal has increased both
operating and transportation costs in France. These cost increases will be
mitigated once the terminal returns to operation sometime in 2008. In the
Netherlands, operating costs per barrel have remained consistent.

    ($000's except per BOE and per mcf)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Crude oil & NGL's      $   18,346   $   10,161   $   34,848   $   20,998
    Per boe                $    10.86   $     8.09   $    11.04   $     8.53
    Natural gas                 9,545       11,252       20,284       20,768
    Per mcf                $     1.42   $     1.77   $     1.49   $     1.56
    -------------------------------------------------------------------------
    Combined               $   27,891   $   21,413   $   55,132   $   41,766
    -------------------------------------------------------------------------
    Per boe                $     9.91   $     9.25   $    10.15   $     8.93
    -------------------------------------------------------------------------
    

    TRANSPORTATION

    Transportation costs as presented in the statements of earnings are
defined by the point of legal transfer of the product. Transportation costs
are dependent upon where the product is sold, product split, location of
properties, and industry transportation rates that are driven by supply and
demand of available transport capacity. For Canadian gas production, legal
title transfers at the intersection of major pipelines (referred to as "the
Hub") whereas the majority of Vermilion's Canadian oil production is sold at
the wellhead. The majority of Vermilion's transportation costs are made up
normally of shipping charges incurred in the Aquitaine Basin in France where
oil production is transported by tanker from the Ambes terminal in Bordeaux to
Donges, France. In Australia, oil is sold at the Wandoo B Platform and in the
Netherlands gas is sold at the plant gate, resulting in no transportation
costs relating to Vermilion's production in these countries.
    France has experienced increased transportation costs as a result of the
oil spill at Ambes terminal as Vermilion is currently transporting production
to port by truck. In the first quarter of 2007 the costs were offset by a
one-time insurance recovery of one million Euros. Transportation costs in the
second quarter of 2007 reflect the expected quarterly costs through the rest
of the year.

    
    ($000's except per BOE)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Transportation         $    6,480   $    2,483   $   10,615   $    4,940
    -------------------------------------------------------------------------
    Per boe                $     2.30   $     1.07   $     1.95   $     1.06
    -------------------------------------------------------------------------

    GENERAL AND ADMINISTRATION EXPENSES

    General and administration expenses in the first half of 2007 increased to
$1.91 per boe ($1.69 per boe in the quarter) compared to $1.47 per boe in the
first half of 2006 ($1.66 per boe in the quarter). The increase per boe is
primarily a result of increased staffing levels combined with increased staff
retention costs. The increase is also a result of consulting costs incurred in
France as a result of the oil spill.

    ($000's except per BOE)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    General and
     administration        $    4,743   $    3,839   $   10,383   $    6,877
    -------------------------------------------------------------------------
    Per boe                $     1.69   $     1.66   $     1.91   $     1.47
    -------------------------------------------------------------------------
    

    UNIT COMPENSATION EXPENSE

    A non-cash trust unit compensation expense of $1.73 per boe was recorded
in the first half of 2007 ($1.43 per boe in the quarter) compared to $2.45 per
boe in the first half of 2006 ($2.85 per boe in the quarter). This non-cash
amount relates to the value attributable to long-term incentives granted to
officers, directors and employees under the Trust Unit Rights Incentive Plan
and the Trust Unit Award Plan.
    In September 2006, the Board of Directors approved a new long-term
incentive plan for certain employees not eligible to participate in the Award
Plan, which provides for cash payments based on the fair market value of a
trust unit. The cash consideration paid upon vesting is dependent upon the
future performance of the Trust compared to its peers based on a performance
factor that may range from zero to two times the number of notional units
originally granted. Compensation expense recognized is based on the closing
market price of a trust unit and is remeasured at each reporting date. The
total expense is amortized over the relevant vesting periods and the amount
payable is recorded as a liability until settlement. Expense associated with
this unit based compensation plan is excluded from unit compensation expense
on the statements of earnings and the table below.

    
    ($000's except per BOE)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Unit compensation
     expense               $    4,024   $    6,597   $    9,416   $   11,458
    -------------------------------------------------------------------------
    Per boe                $     1.43   $     2.85   $     1.73   $     2.45
    -------------------------------------------------------------------------

    INTEREST EXPENSE

    Interest expense increased to $1.72 per boe in the first half of 2007
($1.68 per boe in the quarter) from $1.22 per boe in the first half of 2006
($1.44 per boe in the quarter). Debt levels are higher in 2007 primarily
stemming from the acquisition of Vermilion Emeraude Rep SAS in July of 2006
and the Australia acquisition at the end of the second quarter of 2007. The
Trust's interest rates have remained relatively steady over the year.

    ($000's except per BOE)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Interest               $    4,735   $    3,341   $    9,348   $    5,686
    -------------------------------------------------------------------------
    Per boe                $     1.68   $     1.44   $     1.72   $     1.22
    -------------------------------------------------------------------------

    DEPLETION, DEPRECIATION AND ACCRETION EXPENSES

    Depletion, depreciation and accretion expenses increased to $18.08 per boe
in the first half of 2007 ($18.69 per boe in the quarter) compared to $15.20
per boe in the first half of 2006 ($15.51 per boe in the quarter). The
increase is due mainly to the increase of finding and development costs in
Canada and France and the increase in the asset retirement obligation
resulting primarily from the France and Australia acquisitions.

    ($000's except per BOE)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Depletion, depreciation
     and accretion         $   52,560   $   35,940   $   98,224   $   71,102
    -------------------------------------------------------------------------
    Per boe                $    18.69   $    15.51   $    18.08   $    15.20
    -------------------------------------------------------------------------
    

    TAXES

    The Trust's current tax provision has decreased to $4.26 per boe in the
first half of 2007 ($3.23 per boe in the quarter) from $6.24 per boe in the
first half of 2006 ($6.83 per boe in the quarter). The decrease is due
primarily to lower commodity prices in a higher cost environment. The recovery
in future income taxes in the first half of 2007 is a result of the taxable
portion of distribution payments made to unitholders. In the Trust's
structure, payments are made between the operating company and the Trust
transferring both income and future income tax liability to the unitholder.
Therefore it is the opinion of management that no cash income taxes in Canada
are expected to be paid by the operating company in the future, and as such,
the future income tax liability recorded on the balance sheet related to
Canadian operations will be recovered through earnings over time.
    On June 12, 2007, the Canadian federal government substantially enacted a
tax on publicly traded income trusts as originally announced on October 31,
2006. The changes do not take effect until January 1, 2011, provided the Trust
experiences only "normal growth" and no "undue expansion" before then. The
government has defined "normal growth" parameters, relative to the market
capitalization of the Trust's issued and outstanding publicly-traded trust
units as of October 31, 2006. For the period from November 1, 2006 to December
31, 2007, a trust's permitted or "safe harbour" growth amount will be 40% of
the October 31, 2006 market capitalization benchmark and for each of the years
2008 through and including 2010 will be 20% of the benchmark, cumulatively
allowing growth of up to 100% until 2011. In addition, we understand that
trusts may be able to issue equity to retire debt existing on October 31, 2006
without eroding their safe harbour limits. Vermilion's estimated market
capitalization as defined by the government, was $2.4 billion at October 31,
2006 and outstanding indebtedness was approximately $400 million.
    Our interpretation suggests that Vermilion may be able to mitigate the
contemplated distribution tax. Currently, Vermilion's foreign operations
generate after tax cash flow and subsequently declare and pay dividends which
do not attract additional taxes when received in Canada. We anticipate being
able to flow through this dividend income to unitholders as part of the normal
distributions paid and not attract the distribution tax on that portion of
distributions made up of this dividend income. In addition, Vermilion has
increased the return on capital or taxable portion of its distribution for
2006 to 100% in order to preserve the tax basis it would have utilized to
declare a portion of the 2006 distribution as a return of capital or tax
deferred. The Trust expects that it will continue with this practice through
2010 to preserve the tax basis during the interim period prior to the
implementation of the new rules. Under the legislation commencing in 2011,
that portion of the distribution that represents a return of capital will not
attract the distribution tax. This analysis is a general assessment of the
impact on Vermilion and is not meant to be exhaustive or definitive.
    This substantive enactment of this legislation resulted in the
recognition of future income taxes related to Vermilion Energy Trust, the
parent entity, whereas previously such differences were only recognized in
relation to subsidiaries of the Trust. The related impact on the Trust's
consolidated future income tax provision and future income tax liability
related to this legislation was not material.

    
    ($000's except per BOE)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Current and capital
     tax                   $    9,078   $   15,828   $   23,146   $   29,183
    -------------------------------------------------------------------------
    Per boe                $     3.23   $     6.83   $     4.26   $     6.24
    -------------------------------------------------------------------------

    FOREIGN EXCHANGE

    A foreign exchange gain of $2.15 per boe was recorded in the first half of
2007 ($4.33 per boe in the quarter) compared with a loss of $0.23 per boe in
the first half of 2006 ($1.42 per boe in the quarter). The Canadian dollar
significantly strengthened against the US dollar and Euro in the second
quarter of 2007. The foreign exchange gain results mainly from the translation
of future income taxes and the asset retirement obligation, and is offset by
the translation of working capital in Vermilion's foreign jurisdictions.

    ($000's except per BOE)
    -------------------------------------------------------------------------
                                Three Months Ended          Six Months Ended
                              June 30,     June 30,     June 30,     June 30,
                                 2007         2006         2007         2006
    -------------------------------------------------------------------------
    Foreign exchange loss
     (gain)                $  (12,190)  $    3,303   $  (11,676)  $    1,089
    -------------------------------------------------------------------------
    Per boe                $    (4.33)  $     1.42   $    (2.15)  $     0.23
    -------------------------------------------------------------------------
    

    EARNINGS

    Net earnings in the first half of 2007 decreased to $72.4 million or
$1.11 per unit from $81.2 million or $1.28 per unit in 2006. The decline in
earnings is primarily due to the impact of the high inventory held in
Australia at June 30, 2007.

    LIQUIDITY AND CAPITAL RE

SOURCES As at June 30, 2007 the Trust had an unsecured covenant based credit facility consisting of a revolving term loan in the amount of $625 million. The revolving period under the term loan is expected to expire in June 2008 and may be extended for an additional period of up to 364 days at the option of the lenders. If the lenders convert the revolving credit facility to a non-revolving credit facility, the amounts outstanding under the facility become repayable 24 months after the end of the revolving period. Various borrowing options are available under the facility including prime rate based advances and bankers' acceptance loans. The amount available to the Trust under this facility is reduced by a US$15 million letter of credit associated with the Trust's operations. Subsequent to June 30, 2006, Vermilion purchased 2.1 million shares in Verenex Energy Inc. ("Verenex") for total consideration of CDN $30 million as part of a CDN $100 million bought-deal financing announced by Verenex. After reflecting these additional shares, Vermilion owns 18.5 million shares representing 41.8% of the outstanding shares of Verenex. RECLAMATION FUND Vermilion has established a reclamation fund for the ultimate payment of environmental and site restoration costs on its asset base. The reclamation fund is funded by Vermilion Resources Ltd. and/or its operating subsidiaries. Contribution levels to the reclamation fund are reviewed on a regular basis and are adjusted when necessary to ensure reclamation obligations associated with the Trust's assets will be substantially funded when the costs are forecast to be incurred. ASSET RETIREMENT OBLIGATION At June 30, 2007, Vermilion had recorded an asset retirement obligation of $136.0 million for future abandonment and reclamation of its properties compared to $127.5 million as at December 31, 2006. The increase is due mostly to the additional obligation related to the Australia acquisition. DISTRIBUTIONS Vermilion maintained monthly distributions at $0.17 per unit for the first half of 2007 distributing a total of $66.9 million compared to $64.9 million for the same period in 2006. Vermilion has maintained its distributions at $0.17 per month since its conversion to a trust, resulting in 53 continuous months of distributions at this level. The Trust defines distributable income as funds from operations. For the first half of 2007, the Trust has paid out 42% of its distributable income (41% in the first half of 2006). Since inception, the Trust has paid out $545.3 million in distributions to unitholders as compared to unitholders capital of $355.2 million. UNITHOLDERS' EQUITY During the first half of 2007, approximately 1.5 million units were issued pursuant to the conversion of exchangeable shares, the Trust's bonus plan, the Trust's unit based compensation programs and unitholders' participation in the distribution reinvestment plan. Unitholders' capital increased during the same period by $22.1 million as a result of the issuance of those units and $12.1 million as a result of contributed surplus transfer related to unit based compensation plans. This increase in equity was offset by cash distributions of $66.9 million in the first half of 2007. NON-CONTROLLING INTEREST - EXCHANGEABLE SHARES The Trust has recorded non-controlling interest attributed to the issued and outstanding exchangeable shares. Non-controlling interest on the consolidated balance sheet represents the book value of exchangeable shares plus accumulated earnings attributable to the outstanding exchangeable shares. The reduction in 2007 net income represents the net income attributable to the exchangeable shareholders for the period. As the exchangeable shares are converted to trust units, Unitholders' capital is increased for the fair value of the trust units issued. As the exchangeable shares are exchanged for trust units over time, the non-controlling interest will decrease and eventually will be nil when all exchangeable shares have been exchanged for trust units on or before January 22, 2013. As at June 30, 2007 there were 4.5 million exchangeable shares outstanding at exchange ratio of 1.51339 whereby 6.7 million trust units would be issuable upon conversion. The exchangeable shares can be converted into trust units or redeemed by the shareholder for trust units at any time. Vermilion may redeem all outstanding exchangeable shares on or before January 22, 2013 and may redeem the exchangeable shares at any time if the number of exchangeable shares outstanding falls below 500,000 shares. Vermilion may issue cash or trust units upon redemption of exchangeable shares and it is the intention to issue trust units upon redemption. CRITICAL ACCOUNTING ESTIMATES The Trust's financial and operating results contain estimates made by management in the following areas: i. Capital expenditures are based on estimates of projects in various stages of completion; ii. Revenues, royalties and operating costs include accruals based on estimates of management; iii. Fair value of derivative instruments are based on estimates that are subject to fluctuation of commodity prices and foreign exchange rates; iv. Depletion, depreciation and accretion are based on estimates of oil and gas reserves that the Trust expects to recover in the future; v. Asset retirement obligations are based on estimates of future costs and the timing of expenditures; and vi. The future recoverable value of capital assets and goodwill are also based on estimates that the Trust expects to realize. RECENTLY ADOPTED ACCOUNTING STANDARDS On January 1, 2007 the Trust adopted Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530, "Comprehensive Income"; Section 3855, "Financial Instruments"; Section 3861, "Financial Instruments - Presentation and Disclosure"; and Section 3865, "Hedges". These standards require that entities categorize financial instruments and measure certain financial instruments at fair value. In addition, these standards introduce the concept of comprehensive income within Canadian GAAP and establish new guidance relating to hedge accounting. As a result of adopting Section 3855, the Trust's investments in marketable securities are now measured at fair value whereas previously they were carried at cost. Gains and losses associated with these securities are reflected in net earnings in the period in which they arise. Transaction costs and discounts related to the issuance of long-term debt are now added to the fair value on initial recognition. Previously, these amounts were deferred and amortizied using the straight-line method over the term of the debt. Unamortized amounts were included in prepaid expenses and other on the consolidated balance sheet. The Trust does not currently use hedge accounting and accordingly risk management related derivatives continue to be accounted for at fair value with the associated gains and losses reflected in net earnings. As the Trust does not have any other comprehensive income, net earnings equals comprehensive income. In accordance with the transitional provisions, prior periods have not been restated as a result of adopting these standards. The cumulative effect of the adoption of these new standards had the following impact on the Trust's consolidated balance sheet as at January 1, 2007: Increase (Decrease) ------------------------------------------------------------------------- Prepaid expenses and other $ (2,431) Long-term investments $ 4,704 Reclamation fund $ 2,436 Long-term debt $ (2,431) Future income taxes $ 1,375 Retained earnings $ 5,765 ------------------------------------------------------------------------- There was no other material impact on the consolidated financial statements relating to the adoption of these standards. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2006 the CICA issued Section 1535, "Capital Disclosures" which establishes disclosure standards about an entity's capital structure and how it is managed. Section 3862, "Financial Instruments - Disclosures" and Section 3863 "Financial Instruments - Presentation" were also issued in December 2006 and establish standards for the presentation of financial instruments and non-financial derivatives and require additional disclosure to enable users to evaluate the significance and risks relating to financial instruments on an entity's financial position. These three sections are effective for fiscal years beginning on or after October 1, 2007. The Trust does not anticipate that the adoption of these standards will have an impact on its results of operations and financial position. In June 2007, the CICA issued Section 3031, "Inventories." This section enhances the guidance relating to the determination of inventory cost and effectively harmonizes the Canadian standard with the International Financial Reporting Standards equivalent. This section applies to interim and annual financial statements for fiscal years beginning on or after January 1, 2008. The Trust does not anticipate that the adoption of this standard will have a material impact on its results of operations and financial position. In June 2007, the CICA amended Section 1400, "General Standards of Financial Statement Presentation," to require an assessment and potential disclosure of an entity's ability to continue as a going concern. The new requirements are effective for interim and annual periods beginning on or after January 1, 2008. These amendments will not impact the Trust's consolidated financial statements. OFF BALANCE SHEET ARRANGEMENTS The Trust has certain lease agreements that are entered into in the normal course of operations. All leases are treated as operating leases whereby the lease payments are included in operating expenses or G&A expenses depending on the nature of the lease. No asset or liability value has been assigned to these leases in the balance sheet as of June 30, 2007. The Trust uses a variety of options including funded and costless collars and puts to manage the risk associated with fluctuating commodity prices on the sale of crude oil and natural gas. The Trust does not obtain collateral or other security to support its financial derivatives as the majority of these instruments are with the Trust's banking syndicate. The Trust has not entered into any guarantee or off balance sheet arrangements that would adversely impact the Trust's financial position or results of operations. DISCLOSURE CONTROLS AND PROCEDURES There was no change in Vermilion's internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect its internal control over financial reporting. NETBACKS (6:1) Three Months Six Months Ended June 30, 2007 Ended June 30, 2007 ------------------------------------------------------------------------- Oil & Natural Oil & Natural NGLs Gas Total NGLs Gas Total $/bbl $/mcf $/boe $/bbl $/mcf $/boe ------------------------------------------------------------------------- Trust Financial Information Canada Price $ 67.89 $ 7.48 $ 52.50 $ 66.15 $ 7.49 $ 52.05 Realized hedging gain or loss - (0.02) (0.08) (0.01) (0.03) (0.11) Royalties (net) (12.75) (1.46) (10.09) (12.26) (1.52) (10.18) Transportation 0.03 (0.16) (0.64) (0.50) (0.13) (0.67) Lifting costs (11.11) (1.10) (8.08) (11.64) (1.17) (8.57) ------------------------------------------------------------------------- Operating netback $ 44.06 $ 4.74 $ 33.61 $ 41.74 $ 4.64 $ 32.52 ------------------------------------------------------------------------- France Price $ 76.01 $ 7.05 $ 75.21 $ 70.15 $ 7.25 $ 69.55 Realized hedging gain or loss (0.25) - (0.25) 0.49 - 0.48 Royalties (net) (4.96) (0.17) (4.87) (5.00) (0.21) (4.91) Transportation (7.02) - (6.86) (5.98) - (5.84) Lifting costs (8.98) (3.47) (9.26) (8.99) (3.39) (9.24) ------------------------------------------------------------------------- Operating netback $ 54.80 $ 3.41 $ 53.97 $ 50.67 $ 3.65 $ 50.04 ------------------------------------------------------------------------- Netherlands Price $ 73.14 $ 7.19 $ 43.39 $ 71.47 $ 7.76 $ 46.92 Lifting costs - (1.98) (11.78) - (2.00) (11.85) ------------------------------------------------------------------------- Operating netback $ 73.14 $ 5.21 $ 31.61 $ 71.47 $ 5.76 $ 35.07 ------------------------------------------------------------------------- Australia Price $ 55.20 $ - $ 55.20 $ 60.70 $ - $ 60.70 Royalties (net) (10.44) - (10.44) (9.28) - (9.28) Lifting costs (13.84) - (13.84) (14.24) - (14.24) ------------------------------------------------------------------------- Operating netback $ 30.92 $ - $ 30.92 $ 37.18 $ - $ 37.18 ------------------------------------------------------------------------- Total Trust Price $ 68.12 $ 7.38 $ 58.60 $ 66.59 $ 7.58 $ 57.75 Realized hedging gain or loss (0.12) (0.01) (0.11) 0.23 (0.02) 0.09 Royalties (net) (8.28) (0.98) (7.32) (7.87) (0.98) (7.05) Transportation (3.40) (0.11) (2.30) (3.01) (0.08) (1.95) Lifting costs (10.86) (1.42) (9.91) (11.04) (1.49) (10.15) ------------------------------------------------------------------------- Operating netback $ 45.46 $ 4.86 $ 38.96 $ 44.90 $ 5.01 $ 38.69 ------------------------------------------------------------------------- General and administration (1.69) (1.91) Interest (1.68) (1.72) Foreign exchange (2.11) (1.15) Current and capital taxes (3.23) (4.26) ------------------------------------------------------------------------- Cash flow netback $ 30.25 $ 29.65 ------------------------------------------------------------------------- Depletion, depreciation and accretion (18.69) (18.08) Future income taxes (0.57) 1.76 Other Income (0.01) 0.11 Foreign exchange 6.44 3.30 Non-controlling interest - exchangeable shares (1.50) (1.36) Equity in affiliate (0.28) (0.15) Unrealized gain or loss on derivative instruments 0.38 (0.15) Fair value of stock compensation (1.43) (1.73) ------------------------------------------------------------------------- Earnings netback $ 14.59 $ 13.35 ------------------------------------------------------------------------- Three Six Months Months Ended Ended June June 30/06 30/06 --------------------------------- Total Total $/boe $/boe --------------------------------- Trust Financial Information Canada Price $ 52.88 $ 55.03 Realized hedging gain or loss 0.18 0.15 Royalties (net) (9.20) (10.59) Transportation (0.58) (0.69) Lifting costs (9.28) (9.00) --------------------------------- Operating netback $ 34.00 $ 34.90 --------------------------------- France Price $ 79.06 $ 76.73 Realized hedging gain or loss (0.88) (0.65) Royalties (net) (5.59) (5.50) Transportation (3.48) (3.34) Lifting costs (5.84) (6.31) --------------------------------- Operating netback $ 63.27 $ 60.93 --------------------------------- Netherlands Price $ 51.27 $ 49.64 Lifting costs (12.09) (10.58) --------------------------------- Operating netback $ 39.18 $ 39.06 --------------------------------- Australia Price $ 85.58 $ 83.62 Royalties (net) (27.26) (27.47) Lifting costs (11.00) (10.52) --------------------------------- Operating netback $ 47.32 $ 45.63 --------------------------------- Total Trust Price $ 63.80 $ 63.07 Realized hedging gain or loss (0.13) (0.09) Royalties (net) (9.45) (9.74) Transportation (1.07) (1.06) Lifting costs (9.25) (8.93) --------------------------------- Operating netback $ 43.90 $ 43.25 --------------------------------- General and administration (1.66) (1.47) Interest (1.44) (1.22) Foreign exchange (0.80) (0.25) Current and capital taxes (6.83) (6.24) --------------------------------- Cash flow netback $ 33.17 $ 34.07 --------------------------------- Depletion, depreciation and accretion (15.51) (15.20) Future income taxes 4.85 2.86 Other Income - - Foreign exchange (0.62) 0.02 Non-controlling interest - exchangeable shares (1.57) (1.56) Equity in affiliate (0.10) (0.04) Unrealized gain or loss on derivative instruments 0.07 (0.35) Fair value of stock compensation (2.85) (2.45) --------------------------------- Earnings netback $ 17.44 $ 17.35 --------------------------------- The above table includes non-GAAP measurements which may not be comparable to other companies, including "operating netback" and "cash flow netback". Consolidated Balance Sheets ($000's unaudited) June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Assets Current Cash and cash equivalents $ 53,082 $ 26,950 Accounts receivable 84,687 120,573 Crude oil inventory 14,610 4,898 Derivative instruments (Note 10) 450 1,624 Prepaid expenses and other 9,505 13,473 ------------------------------------------------------------------------- 162,334 167,518 Derivative instruments (Note 10) 5,952 4,656 Long-term investments (Notes 2 and 13) 31,413 27,152 Goodwill 19,840 19,840 Reclamation fund (Notes 2 and 4) 58,018 56,357 Capital assets 1,308,192 1,187,316 ------------------------------------------------------------------------- $ 1,585,749 $ 1,462,839 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities Current Accounts payable and accrued liabilities $ 137,347 $ 139,672 Distributions payable to unitholders 11,257 11,000 Derivative instruments (Note 10) 938 - Income taxes payable 10,795 13,419 ------------------------------------------------------------------------- 160,337 164,091 Long-term debt (Note 5) 448,177 358,236 Asset retirement obligation (Note 4) 136,021 127,494 Future income taxes (Notes 2 and 14) 204,856 224,631 ------------------------------------------------------------------------- 949,391 874,452 ------------------------------------------------------------------------- Non-controlling interest - exchangeable shares (Note 7) 59,173 51,780 ------------------------------------------------------------------------- Unitholders' Equity Unitholders' capital (Note 6) 355,217 321,035 Contributed surplus (Note 6) 27,135 30,513 Retained earnings 194,833 185,059 ------------------------------------------------------------------------- 577,185 536,607 ------------------------------------------------------------------------- $ 1,585,749 $ 1,462,839 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Earnings, Comprehensive Income and Retained Earnings ($000's except unit and per unit amounts, unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2007 2006 2007 2006 ------------------------------------------------------------------------- Revenue: Petroleum and natural gas revenue $ 164,862 $ 147,763 $ 313,670 $ 295,049 Royalties 20,590 21,882 38,290 45,550 ------------------------------------------------------------------------- 144,272 125,881 275,380 249,499 ------------------------------------------------------------------------- Expenses and other income: Production 27,891 21,413 55,132 41,766 Transportation 6,480 2,483 10,615 4,940 Unit compensation (Note 8) 4,024 6,597 9,416 11,458 Loss (gain) on derivative instruments (Note 10) (758) 140 305 2,024 Interest 4,735 3,341 9,348 5,686 General and administration 4,743 3,839 10,383 6,877 Foreign exchange loss (gain) (12,190) 3,303 (11,676) 1,089 Other expense (income) 38 - (600) - Depletion, depreciation and accretion 52,560 35,940 98,224 71,102 ------------------------------------------------------------------------- 87,523 77,056 181,147 144,942 ------------------------------------------------------------------------- Earnings before income taxes and other items 56,749 48,825 94,233 104,557 ------------------------------------------------------------------------- Income taxes (recovery): Future 1,606 (11,242) (9,557) (13,370) Current 9,078 15,828 23,146 29,183 ------------------------------------------------------------------------- 10,684 4,586 13,589 15,813 ------------------------------------------------------------------------- Other items: Non-controlling interest - exchangeable shares (Note 7) 4,231 3,647 7,410 7,304 Equity in loss of affiliate 784 232 837 202 ------------------------------------------------------------------------- 5,015 3,879 8,247 7,506 ------------------------------------------------------------------------- Net earnings and comprehensive income 41,050 40,360 72,397 81,238 ------------------------------------------------------------------------- Retained earnings, beginning of period 187,452 177,383 185,059 168,774 Cumulative effect of adoption of new accounting standards (Note 2) - - 5,765 - Distributions paid or declared (33,669) (32,635) (66,876) (64,904) Unit-settled distributions on vested unit based awards (Note 6) - - (1,512) - ------------------------------------------------------------------------- Retained earnings, end of period $ 194,833 $ 185,108 $ 194,833 $ 185,108 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net earnings per trust unit (Note 9): Basic $ 0.62 $ 0.63 $ 1.11 $ 1.28 Diluted $ 0.60 $ 0.61 $ 1.07 $ 1.22 ------------------------------------------------------------------------- Weighted average trust units outstanding (Note 9): Basic 65,927,540 63,943,511 65,485,018 63,555,265 Diluted 75,112,732 72,675,530 74,804,398 72,344,649 ------------------------------------------------------------------------- Consolidated Statements of Cash Flows ($000's unaudited) Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2007 2006 2007 2006 ------------------------------------------------------------------------- Cash and cash equivalents provided by (used in): Operating Net earnings $ 41,050 $ 40,360 $ 72,397 $ 81,238 Items not affecting cash: Depletion, depreciation and accretion 52,560 35,940 98,224 71,102 Change in unrealized gains and losses and amounts accrued relating to derivative contracts (1,062) (165) 816 1,624 Unit compensation 4,024 6,597 9,416 11,458 Equity in loss of affiliate 784 232 837 202 Unrealized foreign exchange loss (gain) (18,130) 1,441 (17,904) (96) Non-controlling interest - exchangeable shares 4,231 3,647 7,410 7,304 Unrealized investment loss (income) 38 - (600) - Future income taxes 1,606 (11,242) (9,557) (13,370) ------------------------------------------------------------------------- Funds from operations 85,101 76,810 161,039 159,462 Asset retirement costs incurred (381) (443) (1,217) (804) Changes in non-cash operating working capital 11,277 (29,024) 25,411 (6,908) ------------------------------------------------------------------------- 95,997 47,343 185,233 151,750 ------------------------------------------------------------------------- Investing Drilling and development of petroleum and natural gas properties (32,044) (27,665) (71,798) (63,805) Acquisition of petroleum and natural gas properties (Note 3) (120,788) (7,593) (120,914) (11,803) Contributions to reclamation fund - (209) - (1,138) Changes in non-cash investing working capital (5,180) 8,637 (8,843) 14,123 ------------------------------------------------------------------------- (158,012) (26,830) (201,555) (62,623) ------------------------------------------------------------------------- Financing Increase in long- term debt 66,910 116,330 92,129 112,918 Issue of trust units for cash, net of issue costs 1,388 990 3,122 8,113 Issue of trust units pursuant to distribution reinvestment plan 8,950 3,474 16,684 8,673 Cash distributions (33,561) (32,588) (66,619) (64,644) Changes in non-cash financing working capital 329 (511) 193 22 ------------------------------------------------------------------------- 44,016 87,695 45,509 65,082 ------------------------------------------------------------------------- Foreign exchange loss on cash held in a foreign currencies (3,096) (1,744) (3,055) (507) ------------------------------------------------------------------------- Net change in cash and cash equivalents (21,095) 106,464 26,132 153,702 Cash and cash equivalents, beginning of period 74,177 90,015 26,950 42,777 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 53,082 $ 196,479 $ 53,082 $ 196,479 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplementary information - cash payments Interest paid $ 4,348 $ 21,520 $ 9,349 $ 22,794 Income taxes paid $ 19,683 $ 3,993 $ 25,770 $ 6,816 ------------------------------------------------------------------------- Notes to the Consolidated Financial Statements For the three and six months ended June 30, 2007 and 2006, unaudited (000's except unit and per unit amounts) 1. BASIS OF PRESENTATION The consolidated financial statements of Vermilion Energy Trust (the "Trust" or "Vermilion") include the accounts of the Trust and its subsidiaries and have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles ("Canadian GAAP") on a consistent basis with the audited consolidated financial statements for the year ended December 31, 2006 except as disclosed in Note 2 below. The interim consolidated financial statements do not include all disclosures required in annual consolidated financial statements and should be read in conjunction with the audited consolidated financial statements as at and for the year ended December 31, 2006 included in the Trust's 2006 Annual Report. 2. NEW ACCOUNTING POLICIES Financial Instruments On January 1, 2007 the Trust adopted Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530, "Comprehensive Income"; Section 3855, "Financial Instruments"; Section 3861, "Financial Instruments - Presentation and Disclosure"; and Section 3865, "Hedges". These standards require that entities categorize financial instruments and measure certain financial instruments at fair value. In addition, these standards introduce the concept of comprehensive income within Canadian GAAP and establish new guidance relating to hedge accounting. As a result of adopting Section 3855, the Trust's investments in marketable securities are now measured at fair value whereas previously they were carried at cost. Gains and losses associated with these securities are reflected in net earnings in the period in which they arise. Transaction costs and discounts related to the issuance of long- term debt are now added to the fair value on initial recognition. Previously, these amounts were deferred and amortizied using the straight-line method over the term of the debt. Unamortized amounts were included in prepaid expenses and other on the consolidated balance sheet. The Trust does not currently use hedge accounting and accordingly risk management related derivatives continue to be accounted for at fair value with the associated gains and losses reflected in net earnings. As the Trust does not have any other comprehensive income, net earnings equals comprehensive income. In accordance with the transitional provisions, prior periods have not been restated as a result of adopting these standards. The cumulative effect of the adoption of these new standards had the following impact on the Trust's consolidated balance sheet as at January 1, 2007: Increase (Decrease) ------------------------------------------------------------------------- Prepaid expenses and other $ (2,431) Long-term investments $ 4,704 Reclamation fund $ 2,436 Long-term debt $ (2,431) Future income taxes $ 1,375 Retained earnings $ 5,765 ------------------------------------------------------------------------- ------------------------------------------------------------------------- There was no other material impact on the consolidated financial statements relating to the adoption of these standards. 3. INVESTMENTS AND ACQUISITIONS a) Australia Acquisition On June 20, 2007, the Trust acquired the remaining 40% interest in the Wandoo field in offshore Australia for cash consideration of $117.9 million. The purchase price allocation was determined as follows: Capital assets $ 138,596 Asset retirement obligation (12,405) Working capital (8,311) ------------------------------------------------------------------------- Total consideration $ 117,880 ------------------------------------------------------------------------- ------------------------------------------------------------------------- b) Esso Rep Acquisition On July 10, 2006, the Trust, through its France subsidiary, acquired an 89.886% interest in Esso Rep, from Esso SAF, a subsidiary of Exxon Mobil Corporation. On July 12, 2006, the Trust acquired the remaining 10.114% interest in Esso Rep from another party. As no significant transactions occurred affecting the results of operations or the fair value of assets acquired and liabilities assumed during the two day period between these two events, the acquisition has been accounted for using the purchase method of accounting with the allocation of the purchase price determined as at July 10, 2006. Results of operations are included in the consolidated results from that date. The aggregate purchase price, exclusive of the acquired working capital deficiency, was $126.6 million consisting of cash of $123.1 million and a current payable of $3.5 million. Subsequent to the date of acquisition, Esso Rep was renamed Vermilion Emeraude Rep SAS. The purchase price allocation was determined as follows: Capital assets $ 256,320 Asset retirement obligation (20,636) Future income taxes (66,239) Cash 1,996 Working capital, excluding cash (44,841) ------------------------------------------------------------------------- Total consideration $ 126,600 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 4. ASSET RETIREMENT OBLIGATION The total asset retirement obligation was determined by management based on the estimated future costs and timing to reclaim the Trust's net interest in all wells and facilities. The Trust has estimated the net present value of its asset retirement obligations to be $136.0 million as at June 30, 2007 (December 31, 2006 - $127.5 million) based on a total undiscounted future liability of $379.5 million (December 31, 2006 - $367.1 million) before inflation adjustment. These payments are expected to be made over the next 47 years with most arising within the next 25 to 30 years. The Trust used a credit adjusted risk free rate of 8% and an inflation rate of 1.5% to calculate the present value of the asset retirement obligation. The following table reconciles the Trust's total asset retirement obligation: June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Carrying amount, beginning of period $ 127,494 $ 70,214 Increase in liabilities in the period 12,590 21,297 Disposition of liabilities in the period (1,217) (4,217) Change in estimate - 24,946 Accretion expense 5,431 7,380 Foreign exchange (8,277) 7,874 ------------------------------------------------------------------------- Carrying amount, end of period $ 136,021 $ 127,494 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The Trust has established a reclamation fund for the future payment of its estimated asset retirement obligations. 5. LONG-TERM DEBT As at June 30, 2007 the Trust had an unsecured covenant based credit facility consisting of a revolving term loan in the amount of $625 million. The revolving period under the term loan is expected to expire in June 2008 and may be extended for an additional period of up to 364 days at the option of the lenders. If the lenders convert the revolving credit facility to a non-revolving credit facility, the amounts outstanding under the facility become repayable 24 months after the end of the revolving period. Various borrowing options are available under the facility including prime rate based advances and bankers' acceptance loans. The amount available to the Trust under this facility is reduced by a US$15 million letter of credit associated with the Trust's operations. 6. UNITHOLDERS' CAPITAL AND CONTRIBUTED SURPLUS Number of Units Amount ------------------------------------------------------------------------- Trust Units Unlimited number of trust units authorized to be issued Balance as at December 31, 2005 62,508,214 $ 274,813 Distribution reinvestment plan 609,907 18,811 Issued on conversion of exchangeable shares 225,132 7,430 Transfer from contributed surplus for unit based awards - 8,436 Trust units issued for bonus plan 14,400 429 Unit rights exercised and issuance of units on vesting of trust unit award plan grants 1,350,541 11,116 ------------------------------------------------------------------------- Balance as at December 31, 2006 64,708,194 $ 321,035 ------------------------------------------------------------------------- Distribution reinvestment plan 530,142 $ 16,684 Issued on conversion of exchangeable shares 2,143 70 Transfer from contributed surplus for unit based awards - 12,099 Trust units issued for bonus plan 23,039 695 Unit rights exercised and issuance of units on vesting of trust unit award plan grants 913,478 3,122 Unit-settled distributions on vested unit based compensation awards 41,905 1,512 ------------------------------------------------------------------------- Balance as at June 30, 2007 66,218,901 $ 355,217 ------------------------------------------------------------------------- ------------------------------------------------------------------------- June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Contributed Surplus Opening balance $ 30,513 $ 14,566 Unit compensation expense (excluding bonus plan) 8,721 24,383 Transfer to unitholders' capital for unit based awards (12,099) (8,436) ------------------------------------------------------------------------- Ending balance $ 27,135 $ 30,513 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 7. NON-CONTROLLING INTEREST - EXCHANGEABLE SHARES Exchangeable shares are convertible into trust units based on the exchange ratio which is adjusted monthly to reflect the distribution paid on the trust units. Cash distributions are not paid on the exchangeable shares. The exchangeable shares are mandatorily converted into trust units upon redemption by the shareholder. The Company holds the option to redeem all outstanding exchangeable shares for trust units or cash on or before January 22, 2013 and it is the intention of the Trust that trust units would be issued upon redemption of the exchangeable shares. On or before January 22, 2013, there will be no remaining non-controlling interest as all exchangeable shares will have been converted to trust units. The non-controlling interest on the consolidated balance sheet consists of the book value of the exchangeable shares upon issuance plus the accumulated earnings attributable to the non-controlling interest. The net earnings attributable to the non-controlling interest on the consolidated statement of earnings represents the share of net earnings attributable to the non-controlling interest based on the Trust units issuable for exchangeable shares in proportion to total trust units issued and issuable at each period end. June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Exchangeable Shares Opening number of exchangeable shares 4,458,919 4,619,335 Exchanged for trust units (1,446) (160,416) ------------------------------------------------------------------------- Ending balance 4,457,473 4,458,919 Ending exchange ratio 1.51339 1.46741 ------------------------------------------------------------------------- Trust units issuable upon conversion 6,745,895 6,543,062 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The following is a summary of the non-controlling interest: June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Non-controlling interest, beginning of period $ 51,780 $ 38,760 Reduction of book value for conversion to trust units (17) (1,897) Current period net earnings attributable to non-controlling interest 7,410 14,917 ------------------------------------------------------------------------- Non-controlling interest, end of period $ 59,173 $ 51,780 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 8. UNIT COMPENSATION PLANS Unit Rights Incentive Plan The following table summarizes information about the Trust's unit rights: Weighted Average Number of Exercise Unit Rights Price ------------------------------------------------------------------------- Balance December 31, 2006 2,244,258 $ 14.12 Granted - - Cancelled (3,900) 21.55 Exercised (527,942) 13.22 ------------------------------------------------------------------------- Balance June 30, 2007 1,712,416 $ 14.38 ------------------------------------------------------------------------- ------------------------------------------------------------------------- A summary of the plan as at June 30, 2007 is as follows: Remaining Contractual Range of Number of Life of Number of Exercise Price Adjusted Rights Right Rights At Grant Date Exercise Price Outstanding (Years) Exercisable ------------------------------------------------------------------------- $11.45 $2.44 897,650 0.58 897,650 $11.46 - $15.00 $2.62 - $6.16 105,700 0.89 105,700 $15.01 - $19.56 $7.87 - $12.42 709,066 2.18 396,133 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Compensation expense of $0.4 million and $0.9 million has been recorded related to the Unit Rights Incentive Plan for the three and six month periods ended June 30, 2007, respectively ($0.7 million and $1.4 million for the three and six month periods ended June 30, 2006, respectively). Trust Unit Award Incentive Plan The following table summarizes information about the Trust Unit Award Incentive Plan: Number of Awards ------------------------------------------------------------------------- Balance December 31, 2006 967,800 Granted 384,170 Vested (192,775) Cancelled (57,420) ------------------------------------------------------------------------- Balance June 30, 2007 1,101,775 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Compensation expense of $3.6 million and $7.8 million has been recorded for the three and six month periods ended June 30, 2007, respectively ($5.9 million and $10.1 million for the three and six month periods ended June 30, 2006, respectively) related to the Trust Unit Award Incentive Plan. Phantom Award Incentive Plan In September 2006, the Board of Directors approved for certain employees not eligible to participate in the Trust Unit Award Incentive Plan, a new long-term incentive plan which provides for cash payments based on the market value of a trust unit. The cash consideration paid upon vesting is dependent upon the performance of the Trust compared to its peers based on a performance factor that may range from zero to two times the number of notional units originally granted. Compensation expense is based on the closing market price of a trust unit and is remeasured at each reporting date. The total expense is amortized over the relevant vesting periods and the amount payable is recorded as a liability until settlement. Compensation expense of $0.7 million and $0.9 million has been recorded as general and administration expense during the three and six month periods ended June 30, 2007, respectively (2006 - nil). 9. PER UNIT AMOUNTS Net earnings per unit has been determined based on the following: Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2007 2006 2007 2006 ------------------------------------------------------------------------- Weighted average trust units outstanding 65,927,540 63,943,511 65,485,018 63,555,265 ------------------------------------------------------------------------- Trust units issuable on conversion of exchangeable shares 6,745,885 6,360,809 6,746,257 6,424,363 Dilutive impact of unit rights incentive and trust unit award plans 2,439,307 2,371,210 2,573,123 2,365,021 ------------------------------------------------------------------------- Diluted weighted average trust units outstanding 75,112,732 72,675,530 74,804,398 72,344,649 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic net earnings per trust unit has been calculated based on net earnings divided by the basic weighted average trust units outstanding. Earnings attributable to the non-controlling interest related to the exchangeable shares are added back to net earnings in calculating diluted net earnings per trust unit. All outstanding unit rights were dilutive and therefore have been included in the calculation of the diluted trust units. 10. DERIVATIVE INSTRUMENTS Risk Management Activities The nature of the Trust's operations result in exposure to fluctuations in commodity prices, interest rates and foreign currency exchange rates. The Trust monitors and, when appropriate, uses derivative financial instruments to manage its exposure to these risks. The Trust is exposed to credit-related losses in the event of non-performance by counterparties to the financial instruments. The Trust does not obtain collateral or other security to support its financial derivatives as the majority of these instruments are with the Trust's banking syndicate. Risk Management: Oil Funded Cost bbls/d US$/bbl ------------------------------------------------------------------------- Collar - WTI 2007 US$1.00/bbl 500 $60.00 - $77.30 Q3 - Q4 2007 US$0.50/bbl 500 $60.50 - $75.25 Q3 - Q4 2007 US$0.50/bbl 500 $63.35 - $75.00 Q3 2007 US$0.50/bbl 500 $63.75 - $76.00 Q4 2007 US$0.50/bbl 500 $63.00 - $79.00 Q1 2008 US$0.50/bbl 500 $63.00 - $79.05 Q2 2008 US$0.50/bbl 500 $64.30 - $76.00 Put - WTI 2007 US$1.27/bbl 250 $57.05 Collar - BRENT Q3 2007 US$0.88/bbl 500 $60.00 - $90.00 Q3 2007 US$0.50/bbl 500 $62.10 - $79.00 Q3 2007 - 500 $63.60 - $80.00 Q3 2007 - 500 $63.85 - $80.00 Q4 2007 US$0.70/bbl 500 $60.00 - $89.00 Q4 2007 US$0.50/bbl 500 $62.90 - $80.00 Q4 2007 US$0.25/bbl 500 $67.00 - $81.00 Q3 2008 US$0.25/bbl 500 $66.40 - $82.00 Q4 2008 - 500 $68.20 - $81.00 Call Spread - BRENT 2009 - 2011 US$5.73/bbl 700 $65.00 - $85.00 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Risk Management: Natural Gas Funded Cost GJ/d C$/GJ ------------------------------------------------------------------------- Collar July - October 2007 $0.02/GJ 2,500 $6.50 - $9.00 Q3 2007 $0.25/GJ 2,500 $7.00 - $9.50 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The fair value of derivative instruments are recorded on the consolidated balance sheets with the associated unrealized gain or loss recorded in net earnings. The estimated fair value of all derivative financial instruments is based on quoted market prices or, in their absence, third party market indications and forecasts. Unrealized gains or losses and realized gains or losses are recorded as a separate element of earnings. The following table reconciles the change in the unrealized amounts related to the fair value of derivative contracts: June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Fair value of contracts, beginning of period $ 6,280 $ 783 Opening unrealized (gain) on contracts settled during the period (1,300) (783) Realized gain (loss) on contracts settled during the period 511 (222) Unrealized gain during the period on contracts outstanding at the end of the period 484 1,354 Purchase of derivative contracts at fair value - 4,926 Net payment to (receipt from) counterparties under contract settlements during the period (511) 222 ------------------------------------------------------------------------- Fair value of contracts, end of period $ 5,464 $ 6,280 ------------------------------------------------------------------------- Comprised of: Current derivative asset $ 450 $ 1,624 Current derivative liability (938) - Non-current derivative asset 5,952 4,656 ------------------------------------------------------------------------- $ 5,464 $ 6,280 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The loss on derivative instruments for the periods is comprised of the following: Six Months Six Months Ended Ended June 30, June 30, 2007 2006 ------------------------------------------------------------------------- Realized (gain) loss on contracts settled during the period $ (511) $ 400 Opening unrealized gain on contracts settled during the period 1,300 833 Unrealized (gain) loss during the period on contracts outstanding at the end of the period (484) 791 ------------------------------------------------------------------------- Loss on derivative instruments for the period $ 305 $ 2,024 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Pursuant to an acquisition under which the vendor participates in a portion of the net price received by Vermilion from 2009 to 2011 inclusive, the Trust entered into a derivative transaction to economically offset a portion of the related potential future payments. The transaction consisted of three dated Brent crude purchased call options at US$65.00 per barrel and three dated Brent crude written call options at US$85.00 per barrel representing approximately one half of the expected production subject to the related provision. The total cost of this derivative transaction was $4.9 million. The Trust has determined that any potential future payments under this provision would constitute additional consideration. As the outcome of this provision could not be determined beyond a reasonable doubt and as the amount of the potential contingent consideration could not be reasonably estimated, no amount related to this provision was recognized as part of the purchase price at the date of acquisition. If payments are made under this provision in future periods or if additional information becomes available that allows the Trust to determine the outcome of this provision beyond a reasonable doubt and reasonably estimate the amount of contingent consideration that will be paid, the Trust will recognize an adjustment to the purchase price on a prospective basis. During the normal course of business, the Trust enters into fixed and collared price arrangements to sell a portion of its production. The Trust has elected to exempt these contracts from fair value accounting through the use of the normal purchase and sale exemption. 11. SEGMENTED INFORMATION Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2007 2006 2007 2006 ------------------------------------------------------------------------- Petroleum and natural gas revenues Canada $ 59,011 $ 52,373 $ 114,983 $ 108,573 France 63,111 43,212 108,791 82,137 Netherlands 15,412 21,673 36,747 47,212 Australia 27,328 30,505 53,149 57,127 ------------------------------------------------------------------------- $ 164,862 $ 147,763 $ 313,670 $ 295,049 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net earnings Canada $ 7,781 $ 8,718 $ 10,396 $ 10,875 France 23,204 16,380 36,649 34,779 Netherlands 4,581 7,843 10,096 17,708 Australia 5,484 7,419 15,256 17,876 ------------------------------------------------------------------------- $ 41,050 $ 40,360 $ 72,397 $ 81,238 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Funds from operations Canada $ 24,672 $ 28,722 $ 50,620 $ 59,186 France 40,153 25,712 65,076 51,635 Netherlands 7,149 9,588 19,091 24,573 Australia 13,127 12,788 26,252 24,068 ------------------------------------------------------------------------- $ 85,101 $ 76,810 $ 161,039 $ 159,462 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Capital expenditures Canada $ 12,611 $ 25,672 $ 34,280 $ 48,311 France 17,663 8,399 28,773 24,925 Netherlands 3,359 186 4,381 681 Australia 119,199 1,001 125,278 1,691 ------------------------------------------------------------------------- $ 152,832 $ 35,258 $ 192,712 $ 75,608 ------------------------------------------------------------------------- ------------------------------------------------------------------------- June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Identifiable assets: Canada $ 604,035 $ 627,147 France 576,617 542,074 Netherlands 136,802 148,710 Australia 268,295 144,908 ------------------------------------------------------------------------- $1,585,749 $1,462,839 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 12. FINANCIAL INSTRUMENTS The Trust has classified its financial instruments as follows: - Cash and cash equivalents are classified as held for trading and are measured at carrying value, which approximates fair value due to the short-term nature of these instruments. A gain or loss arising from a change in the fair value is recognized in net earnings in the current period. - Accounts receivable are classified as loans and receivables and are initially measured at fair value and subsequently measured at amortized cost. The carrying value approximates the fair value due to the short-term nature of these instruments. - Accounts payable and accrued liabilities, distributions to unitholders and long term debt have been classified as other financial liabilities and are initially recognized at fair value. The carrying value approximates the fair value due to the short-term nature of these instruments. - Investments in debt securities are classified as held to maturity and are initially measured at fair value and subsequently measured at amortized cost. A gain or loss arising from the de-recognition or impairment of assets is recognized in net earnings in the period. - All derivative and equity security investments not subject to consolidation or equity method accounting have been classified as held for trading and are measured at fair value. Accordingly, gains and losses are reflected in net income in the period in which they arise. Gains and losses associated with the Trust's investments in equity securities are included in other income in the consolidated statement of earnings. The fair values of derivative instruments and equity securities are determined by reference to published prices in active markets. 13. LONG-TERM INVESTMENTS The following table reconciles the Trust's total long-term investments: June 30, December 31, 2007 2006 ------------------------------------------------------------------------- Portfolio investments, at fair value $ 5,593 $ - Portfolio investments, at cost (fair value 2006 - $5.2 million) - 496 Investment in Verenex Energy Inc., equity method (fair value - $228.2 million, 2006 - $109.6 million) 25,820 26,656 ------------------------------------------------------------------------- $ 31,413 $ 27,152 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Subsequent to June 30, 2006, Vermilion purchased 2.1 million shares in Verenex Energy Inc. ("Verenex") for total consideration of CDN $30 million as part of a CDN $100 million bought-deal financing announced by Verenex. After reflecting these additional shares, Vermilion owns 18.5 million shares representing 41.8% of the outstanding shares of Verenex. 14. INCOME TAXES On June 12, 2007, legislation that effectively imposes an income tax beginning in 2011 on income trusts passed third reading in the House of Commons. In the context of a minority government in Canada, the occurrence of a third reading results in legislation being considered substantively enacted for accounting purposes and requires that the legislation be appropriately reflected in the determination of future income tax assets and liabilities. This legislation resulted in the recognition of future income taxes related to Vermilion Energy Trust, the parent entity, whereas previously such differences were only recognized in relation to subsidiaries of the Trust. The related impact on the Trust's consolidated future income tax provision and future income tax liability related to this legislation was not material. 15. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In December 2006 the CICA issued Section 1535, "Capital Disclosures" which establishes disclosure standards about an entity's capital structure and how it is managed. Section 3862, "Financial Instruments - Disclosures" and Section 3863 "Financial Instruments - Presentation" were also issued in December 2006 and establish standards for the presentation of financial instruments and non-financial derivatives and require additional disclosure to enable users to evaluate the significance and risks relating to financial instruments on an entity's financial position. These three sections are effective for fiscal years beginning on or after October 1, 2007. The Trust does not anticipate that the adoption of these standards will have an impact on its results of operations and financial position. In June 2007, the CICA issued Section 3031, "Inventories." This section enhances the guidance relating to the determination of inventory cost and effectively harmonizes the Canadian standard with the International Financial Reporting Standards equivalent. This section applies to interim and annual financial statements for fiscal years beginning on or after January 1, 2008. The Trust does not anticipate that the adoption of this standard will have a material impact on its results of operations and financial position. In June 2007, the CICA amended Section 1400, "General Standards of Financial Statement Presentation," to require an assessment and potential disclosure of an entity's ability to continue as a going concern. The new requirements are effective for interim and annual periods beginning on or after January 1, 2008. These amendments will not impact the Trust's consolidated financial statements. %SEDAR: 00018945E

For further information:

For further information: Curtis W. Hicks, C.A., Executive Vice President
& Chief Financial Officer or Paul Beique, Director Investor Relations, 2800,
400 - 4th Avenue S.W., Calgary, Alberta, T2P 0J4, Phone: (403) 698-8827, Fax:
(403) 264-6306, IR Toll Free: 1-866-895-8101,
investor_relations@vermilionenergy.com, www.vermilionenergy.com

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VERMILION ENERGY TRUST

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