EXHIBIT 99.10 ------------- [GRAPHIC OMITTED] [LOGO - VERMILION ENERGY TRUST] PRESS RELEASE - FOR IMMEDIATE RELEASE MAY 12, 2003 FIRST QUARTER RESULTS, MARCH 31, 2003 Vermilion Energy Trust (the "Trust") (TSX - VET.UN) is pleased to report unaudited interim operating and financial results for the first quarter 2003. These results reflect the full three months of operations and include the full restructuring costs of the reorganization of Vermilion Resources Ltd. ("Vermilion"). On January 22, 2003, Vermilion was reorganized, by way of a Plan of Arrangement, into Vermilion Energy Trust and Clear Energy Inc. ("Clear"). Vermilion's Board of Directors concluded that this realignment was in the best interests of shareholders and both shareholders and optionholders approved the reorganization at a special meeting held on January 15, 2003. The Trust maintained 94% of the mature producing assets of Vermilion while Clear, an exploration-focused producer, acquired certain natural gas weighted assets and undeveloped lands. In addition, Vermilion entered into an agreement with majority-controlled Aventura Energy Inc. ("Aventura") whereby Vermilion sold 100% of its shares in Vermilion (Barbados) Ltd., which held Vermilion's Trinidad assets, to Aventura in consideration of 212.1 million common shares of Aventura at a deemed price of $0.35 per share. Vermilion currently owns 72.2% of Aventura, which is publicly traded on the TSX under the symbol AVR. The Trust achieved the following highlights: FIRST QUARTER HIGHLIGHTS > Successfully reorganized Vermilion Resources Ltd. into Vermilion Energy Trust and Clear Energy Inc. effective January 22, 2003. > Consolidated the interests in the Trinidad Central Block held by Aventura and Vermilion under Aventura, which is now 72.2% owned by the Trust. > Initiated distributions of $0.17 per unit per month to the Trust unitholders, commencing with the February distribution paid on March 14, 2003. > Based on the strong performance in the first quarter and current outlook on pricing and forecast results for the balance of the year, the Trust anticipates that it will be able to maintain its monthly distribution at $0.17 per unit. > Generated cash flow of $38.4 million ($0.67 per unit) from the Trust's production of 24,132 boe/d, consisting of 12,992 bbls/d of oil and NGL's and 66.8 mmcf/d of natural gas (1). > Listed on the Toronto Stock Exchange under the symbol VET.UN on January 24, 2003 and witnessed the trading of more than 26 million units to March 31, 2003. (1) Although Aventura's production and financial results are consolidated in the financial tables, these are not included as part of distributable funds for the Trust's unitholders. CONFERENCE CALL Vermilion will discuss these results in a conference call to be held on Tuesday, May 13, 2003. The conference call will begin at 8:30 a.m. EST (6:30 a.m. MST). To participate, you may call toll free 1-800-814-3911 or 1-416-640-4127 (Toronto area). The conference call will also be available on replay by calling 1-416-640-1917 (Toronto area) or 1-877-289-8525 for all other parties, using pass code 251391 followed by the pound "#" key. The replay will be available until midnight eastern time on May 20, 2003. 1 - -------------------------------------------------------------------------------- HIGHLIGHTS Trust CONSOLIDATED Financial Aventura MARCH 31, (unaudited) Information Energy Inc. (3) 2003 - ------------------------------------------------------------------------------------------------------------------ FINANCIAL ($000 CDN EXCEPT UNIT AND PER UNIT AMOUNTS) Petroleum and natural gas revenues $ 84,934 $ 3,079 $ 88,013 Cash flow from operations 38,398 1,340 39,738 Per unit, basic (1) 0.67 0.69 Distributions (2) 17,666 17,666 Per unit 0.34 0.34 Capital expenditures 13,254 5,509 18,763 Acquisitions (dispositions) 5,761 (6,896) (1,135) Total assets 786,762 Debt, net of working capital (surplus) $ 193,024 $ (13,291) 179,733 Unitholders' equity 299,059 Trust units outstanding (1) Basic 57,557,131 Diluted 61,906,831 Weighted average trust units outstanding (1) Basic 57,410,652 Diluted 57,606,607 Unit trading High $ 13.00 Low $ 11.12 Close $ 12.30 OPERATIONS Production Crude oil (bbls/d) 11,036 342 11,378 Natural gas liquids (bbls/d) 1,956 -- 1,956 Natural gas (mcf/d) 66,843 11,632 78,475 Boe/d (6:1) 24,132 2,281 26,413 Average selling price Crude oil (per bbl, including hedging) $ 39.25 $ 42.44 $ 39.34 Crude oil (per bbl, not including hedging) 46.17 42.44 46.05 Natural gas liquids (per bbl) 41.09 -- 41.09 Natural gas (per mcf, including hedging) 6.44 1.69 5.73 Netbacks per boe (6:1) Operations netback 24.17 11.42 23.07 Cash flow netback 17.68 $ 6.53 16.71 Cash flow netback excluding reorganization costs $ 21.74 $ 20.42 (1) Includes trust units issuable for outstanding exchangeable shares based on the period end exchange ratio (2) Distributions are paid on issued trust units at each record date (3) The Trust owns 72.2% of the outstanding shares of Aventura, necessitating the consolidation of the results of the Trust and Aventura. 2 - -------------------------------------------------------------------------------- OPERATIONAL ACTIVITIES While the Trust's activities in the first quarter were focused on reorganization activities, the quarter was not without some operational highlights. The Trust completed and tested a 100% WI well at Homeglen-Rimbey in central Alberta, which flowed at 2.3 mmcf/d of natural gas with 30 bbls/mmcf of condensates (450 boe/d). At Drayton, the 14-34 well (100% WI) was completed and is flowing 3.5 mmcf/d of natural gas with 50-60 bbls/mmcf of condensates (750 boe/d). As part of a waterflood optimization project at Cyn-Pem, the installation of a high-volume downhole pump in one well (83% WI) yielded net incremental flow rates of 330 boe/d. The Trust plans to fit a second well with a similar system in the near future. - -------------------------------------------------------------------------------- PRODUCTION SUMMARY (6:1) - ------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, 2003 OIL & NGLS NATURAL GAS TOTAL (BBLS/D) (MMCF/D) (BOE/D) % - ------------------------------------------------------------------------------- VERMILION ENERGY TRUST Canada 7,005 65.42 17,908 68 France 5,987 1.42 6,224 23 - ------------------------------------------------------------------------------- Total 12,992 66.84 24,132 91 AVENTURA ENERGY INC. Trinidad 342 11.63 2,281 9 - ------------------------------------------------------------------------------- CONSOLIDATED 13,334 78.47 26,413 100 =============================================================================== First quarter production in Canada averaged 7,005 bbls/d of oil and NGL's and 65.4 mmcf/d of natural gas. Included in these production rates is production from assets that were disposed to Clear Energy Inc. on January 22, 2003. These properties contributed production equal to approximately 400 boe/d when averaged over the quarter. The Trust also produced 6,224 boe/d from its properties in France. The Trust anticipates that both the Canadian and French production streams will remain stable in the second quarter of 2003. In France, the Trust successfully completed its first fracture treatment in late 2002, increasing the productivity of a well in the Champotran field from 60 bbls/d to a stabilized rate of 300 bbls/d. Additional fracture treatments are scheduled for wells in this Paris Basin field in the second quarter of 2003. The working interest in these wells is 100%. Management is also encouraged by recent workover success in the Vulaines field, also in the Paris Basin. - -------------------------------------------------------------------------------- DRILLING ACTIVITY (# OF WELLS) - ------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, 2003 CANADA FRANCE TOTAL GROSS (NET) GROSS (NET) GROSS (NET) - ------------------------------------------------------------------------------- Oil 0 0.0 0 0.0 0 0.0 Gas 1 (1.0) 0 0.0 1 (1.0) D&A 0 0.0 0 0.0 0 0.0 - ------------------------------------------------------------------------------- TOTAL 1 (1.0) 0 0.0 1 (1.0) =============================================================================== FINANCIAL The Trust generated cash flow of $38.4 million in the first quarter ($0.67 per unit), net of cash expenses of $8.8 million in reorganization costs. The Trust's distributions allocated to February and March totalled $17.7 million or $0.34 per unit. Earnings for the first quarter have been reduced by $25.6 million in reorganization costs expensed in the first quarter. Capital expenditures for the period totalled $13.3 million, including $5.9 million, which was spent prior to the implementation of the reorganization on January 22, 2003. First quarter acquisitions of $5.8 million were also completed as part of the reorganization plan. Accordingly, of the initial $25 million capital budget for the Trust, $7.4 million was spent in the first quarter 2003. The Trust's total debt, net of working capital (assignable to the Trust) at the end of the period was $193 million. 3 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CAPITAL EXPENDITURES ($000'S) - -------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, 2003 TRUST AVENTURA ASSETS ENERGY INC. CONSOLIDATED - -------------------------------------------------------------------------------- Land $ 325 $ -- $ 325 Seismic 1,054 -- 1,054 Drilling and completion 2,402 -- 2,402 Production equipment and facilities 3,534 -- 3,534 Workovers 2,262 -- 2,262 Trinidad 1,804 5,509 7,313 OTHER 1,873 -- 1,873 - -------------------------------------------------------------------------------- 13,254 5,509 18,763 PROPERTY ACQUISITIONS (DISPOSITIONS) 5,761 (6,896) (1,135) - -------------------------------------------------------------------------------- $19,015 $(1,387) $17,628 ================================================================================ AVENTURA ENERGY INC. The first of two important exploration wells to be drilled in Trinidad in 2003, the Saunders-1 well, is nearing total depth and Aventura anticipates being able to release information regarding this well over the next few weeks. Aventura expects to renew its existing 20 mmcf/d short-term gas contract to cover the next 1.5 to 2.5 years. Contract negotiations are proceeding on a high volume, longer-term contract to ensure that Aventura has flexibility and access to natural gas markets at competitive pricing. The original discovery well in which Aventura has a 65% working interest, Carapal Ridge-1, continues to flow at a market-restricted rate of 20 mmcf/d and approximately 500 bbls/d of associated condensate. OUTLOOK As a result of the additional cash flow generated by strong commodity prices in the first quarter, the Trust is positioned to accelerate the development of its prospect inventory. In that regard, the board of directors of the Trust has approved an increase to the 2003 capital budget to $55 million, including costs incurred prior to the reorganization. Based on this revised budget, the Trust expects to increase its annual average production by 600 boe/d to 23,600 boe/d. The expanded capital program will allow for the initial development of some longer lead-time projects including a planned waterflood in the Champotran Field in France. This will be balanced with additional drilling and workovers that will provide the production volume gains slated for 2003. The Trust continues to be encouraged by the depth of its asset base and by the number of value-adding opportunities available in the existing portfolio. Based on the strong performance in the first quarter and the current outlook on pricing and forecast results for the balance of the year, the Trust anticipates that it will be able to maintain its monthly distribution at $0.17 per unit. 4 - -------------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS THE THREE MONTHS ENDED MARCH 31, 2003 REPRESENTS THE FIRST QUARTER OF VERMILION ENERGY TRUST'S (THE "TRUST") OPERATION AS A TRUST AND INCLUDE THE CONSOLIDATED INTEREST OF AVENTURA ENERGY INC. ("AVENTURA"). AS THE TRUST WAS CREATED THROUGH THE RE-ORGANIZATION OF VERMILION RESOURCES LTD. ("VERMILION"), THE HISTORICAL RESULTS OF VERMILION WILL REPRESENT THE HISTORICAL RESULTS OF THE TRUST FOR COMPARATIVE PURPOSES. Oil and gas prices for the first quarter of 2003 were strong in comparison with the first quarter of 2002. The WTI reference price averaged $33.86 US per bbl for the quarter, dated Brent was $31.53 US per bbl and AECO reference price was $8.33 Cdn per mcf. This compares to $21.64 per bbl for WTI, $21.14 per bbl for Brent and $3.54 per mcf Cdn AECO for the first three months of 2002. Prices are the main driver behind the increase in netbacks quarter over quarter. In 2003, the Trust's operating netback equalled $23.07 per boe, and the cash flow netback was $16.71. This compares to much lower netbacks in 2002, equal to $18.69 and $14.62 for operating and cash flow netbacks, respectively. In addition, the 2003 cash flow netbacks were reduced by $3.71 per boe as a result of the impact of the cash costs incurred in the re-organization of Vermilion into a trust. Total revenues for the first quarter of 2003 were $88.0 million compared to $64.6 for the first quarter 2002. The Trust's combined crude oil & NGL price was $45.33 per bbl for the first quarter of 2003, an increase of 43% over the $31.76 per bbl reported for the first quarter of 2002. The natural gas price realized in the first quarter 2003 was $5.73 per mcf compared to $3.80 per mcf realized a year ago, a 51% year-over-year increase. Tempering this increase was the impact of Vermilion's hedging program, whereby prices were reduced by $2.89 per boe on a consolidated basis, compared to a hedging gain of $1.11 per boe in the first quarter of 2002. The Trust has CDN/US dollar currency hedges in place covering two-thirds of its oil hedge positions for 2003 at approximately $1.59 US per Canadian dollar or $0.63 CDN per US dollar. Total royalties, net of ARTC, increased to $8.82 per boe or 24% of sales, compared with $6.13 per boe, or 21% of sales in the first quarter 2002. This increase is due directly to the increase in prices explained above as royalties are calculated as a percentage of revenue. In addition, royalty rates in Canada are price sensitive and react to changes in prices. Operating costs increased to $5.13 per boe from $3.97 per boe in the first quarter 2002. In Canada, processing costs in the Peace River Arch area, scheduled workovers and increased power costs resulting from the strong gas prices in the first quarter have contributed to the year over year increase. In France, power costs continue to rise and the strengthening Euro also contributed to the increase in operating costs when converted to Canadian dollars. Based on higher power costs and currency exchange issues, we are revising our average 2003 outlook for operating costs to $5.25 per boe from $5.00. General and administrative expenses (G&A) for the quarter increased from $2.4 million to $2.7 million. Total costs averaged $1.14 per boe in 2003, up from $1.05 per boe (net of capitalized costs) in the first quarter of 2002. Costs in 2003 reflect the cost structure of the Trust and are representative of anticipated costs over the balance of the year. It should be noted that a larger portion of the 2002 G&A costs were capitalized in 2002 as compared to current practices. Reorganization costs of $25.6 million relate to Vermilion's decision to convert to a trust. Included in this amount are $8.8 million in transaction costs, which include investment banking fees as well as all accounting and legal fees related to the conversion. Also included in the total is the value of trust units issued in exchange for the cancellation of outstanding Vermilion employee options. The value of the trust units issued totalled $16.8 million. Interest expense increased to $0.84 per boe for the first quarter 2003 from $0.44 per boe during the same period in 2002 as a result of higher average debt levels. 5 - -------------------------------------------------------------------------------- Depletion and depreciation expenses increased from $9.18 per boe in the first quarter 2002 to $9.93 per boe in the first quarter 2003. The Trust's current tax provision has decreased to $0.67 per boe in the first quarter 2003 from $2.54 per boe in the first quarter of 2002. The current provision is based on an estimated $6.0 million tax liability in France for the year, while in Canada, it is anticipated that there will be no current taxes due as a function of the conversion to an income trust. Net loss for the first quarter amounted to a loss of $0.7 million or $0.01 per unit as compared to earnings of $10.4 million or $0.19 per share in the first quarter of 2002. The year-over-year decline is attributable to the $25.6 million in reorganization costs expensed in the first quarter. Capital spending for the first quarter totalled $18.8 million including $7.3 million in Trinidad relating to the drilling of the Saunders-1 well. This compares to $61.2 million spent during the first quarter 2002, $31.0 million of which was for the corporate acquisition of Artemis Energy Limited. The capital for the first quarter of 2003 was funded entirely through cash flow and was primarily spent on facilities, tie-ins and workovers. The Trust's debt (net of working capital) on March 31, 2003 was $179.7 million. Early in 2003, the Trust negotiated the terms of an amended credit facility with its banking syndicate to provide a $260 million credit facility. The amended loan facility remains with the same syndicate of lenders with no change to the terms and security provisions. The facility structure is comprised of a one year revolving period with a one year term to follow with a final settlement payment required at the end of the second year. 6 - -------------------------------------------------------------------------------- NETBACKS (6:1) THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2003 DEC 31/02 MAR 31/02 ---------------------------------------------- --------------------------- Oil & NGLs Natural Gas TOTAL Total Total $/bbl $/mcf $/BOE $/boe $/boe - ------------------------------------------------------------------------------------------------------------------- TRUST FINANCIAL INFORMATION CANADA Price $48.42 $6.45 $42.51 $35.73 $25.77 Oil hedging gain (loss) (6.03) -- (2.36) (0.98) 0.75 Royalties (net) (11.33) (1.82) (11.09) (8.54) (6.82) Lifting costs (6.13) (0.68) (4.88) (4.86) (3.44) - ------------------------------------------------------------------------------------------------------------------- Operating netback $24.93 $3.95 $24.18 $21.35 $16.26 - ------------------------------------------------------------------------------------------------------------------- FRANCE Price $41.87 $5.71 $41.58 $34.81 $33.42 Oil hedging gain (loss) (5.70) -- (5.49) (1.37) 2.18 Royalties (net) (4.99) (0.25) (4.85) (4.61) (4.07) Lifting costs (6.80) (2.37) (7.08) (6.58) (5.58) - ------------------------------------------------------------------------------------------------------------------- Operating netback $24.38 $3.09 $24.16 $22.25 $25.95 - ------------------------------------------------------------------------------------------------------------------- TOTAL TRUST Price $45.40 $6.44 $42.26 $35.51 $27.68 Oil hedging gain (loss) (5.88) -- (3.16) (1.08) 1.11 Royalties (net) (8.41) (1.79) (9.48) (7.56) (6.13) Lifting costs (6.44) (0.72) (5.45) (5.29) (3.97) - ------------------------------------------------------------------------------------------------------------------- Operating netback $24.67 $3.93 $24.17 $21.58 $18.69 - ------------------------------------------------------------------------------------------------------------------- AVENTURA FINANCIAL INFORMATION Price $42.44 $1.69 $15.00 $ -- $ -- Oil hedging gain (loss) -- -- -- -- -- Royalties (net) (5.14) (0.19) (1.75) -- -- Lifting costs -- (0.36) (1.83) -- -- - ------------------------------------------------------------------------------------------------------------------- Operating netback $37.30 $1.14 $11.42 $ -- $ -- - ------------------------------------------------------------------------------------------------------------------- CONSOLIDATED Price $45.33 $5.73 $39.91 $35.51 $27.68 Oil hedging gain (loss) (5.73) -- (2.89) (1.08) 1.11 Royalties (net) (8.32) (1.55) (8.82) (7.56) (6.13) Lifting costs (6.27) (0.66) (5.13) (5.29) (3.97) - ------------------------------------------------------------------------------------------------------------------- Operating netback $25.01 $3.52 $23.07 $21.58 $18.69 - ------------------------------------------------------------------------------------------------------------------- General & administrative (1.14) (0.84) (1.05) Reorganization costs (3.71) -- -- Interest (0.84) (0.68) (0.44) Foreign exchange -- 0.03 (0.04) Current and capital taxes (0.67) 2.64 (2.54) - ------------------------------------------------------------------------------------------------------------------- CASH FLOW NETBACK $16.71 $22.73 $14.62 - ------------------------------------------------------------------------------------------------------------------- Depletion and depreciation (9.93) (10.44) (9.18) Future income taxes 0.38 (6.70) (0.72) Deferred financing charges (0.08) (0.08) (0.08) Foreign exchange (0.30) 0.28 (0.05) Non-controlling interest (0.01) (0.10) 0.05 Trust units issued (7.07) -- -- - ------------------------------------------------------------------------------------------------------------------- EARNINGS NETBACK $(0.30) $ 5.69 $ 4.64 - ------------------------------------------------------------------------------------------------------------------- 7 - -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS ($000'S) MARCH 31, December 31, 2003 2002 (UNAUDITED) (audited) - ------------------------------------------------------------------------------ ASSETS Current Cash $ 35,116 $ 32,562 Accounts receivable 45,397 56,582 Crude oil inventory 5,401 3,207 PREPAID EXPENSES AND OTHER 5,177 4,699 91,091 97,050 - -------------------------------------------------------------------------------- Deferred financing costs 243 435 Deferred reorganization costs -- 2,324 Reclamation fund 405 -- Capital assets 695,023 711,902 - -------------------------------------------------------------------------------- $ 786,762 $ 811,711 ================================================================================ LIABILITIES AND UNITHOLDERS' EQUITY Current Accounts payable and accrued liabilities $ 50,200 $ 79,817 Distributions payable to unitholders 8,858 -- Income taxes payable 1,589 10,977 - -------------------------------------------------------------------------------- 60,647 90,794 Long-term debt (Note 5) 210,177 193,025 Provision for future site restoration 11,918 11,169 Future income taxes 175,659 171,094 - -------------------------------------------------------------------------------- 458,401 466,082 - -------------------------------------------------------------------------------- Non-controlling interest 29,302 21,321 - -------------------------------------------------------------------------------- Unitholders' Equity Unitholders' capital (Note 6) 120,007 140,557 Exchangeable shares (Note 6) 13,687 -- Accumulated earnings 183,031 183,751 Accumulated cash distributions (17,666) -- - -------------------------------------------------------------------------------- 299,059 324,308 - -------------------------------------------------------------------------------- $ 786,762 $ 811,711 ================================================================================ 8 - -------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF EARNINGS AND ACCUMULATED EARNINGS ($000'S, EXCEPT UNIT AND PER UNIT AMOUNTS, UNAUDITED) THREE MONTHS ENDED MARCH 31, March 31, 2003 2002 - ------------------------------------------------------------------------------- Revenue: Petroleum and natural gas revenue $ 88,013 $ 64,613 Royalties (net) 20,955 13,758 - ------------------------------------------------------------------------------- 67,058 50,855 - ------------------------------------------------------------------------------- Expenses: Production 12,205 8,913 Interest 2,190 1,169 General and administration 2,717 2,358 Reorganization costs (Note 3) 25,628 -- Foreign exchange 706 204 Depletion and depreciation 23,609 20,591 - ------------------------------------------------------------------------------- 67,055 33,235 - ------------------------------------------------------------------------------- Earnings before income taxes and other item 3 17,620 Income taxes (recovery): Future (897) 1,620 Current 1,446 5,564 Capital 143 135 - ------------------------------------------------------------------------------- 692 7,319 - ------------------------------------------------------------------------------- Other item: Non-controlling interest 31 (105) - ------------------------------------------------------------------------------- Net earnings (loss) (720) 10,406 Accumulated earnings, beginning of period 183,751 142,897 - ------------------------------------------------------------------------------- Accumulated earnings, end of period $ 183,031 $ 153,303 =============================================================================== Net earnings (loss) per Trust Unit Basic $ (0.01) $ 0.19 Diluted $ (0.01) $ 0.18 =============================================================================== Weighted Average Trust Units Outstanding Basic 57,410,652 55,592,810 Diluted 57,606,607 56,684,254 =============================================================================== 9 - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ($000'S, UNAUDITED) THREE MONTHS ENDED MARCH 31, March 31, 2003 2002 - ---------------------------------------------------------------------------------------------------- Cash provided by (used in): OPERATING Net earnings (loss) $ (720) $ 10,406 Items not affecting cash: Depletion and depreciation 23,609 20,591 Unrealized foreign exchange loss 706 112 Amortized deferred financing charges 192 172 Non-controlling interest 31 (105) Trust units issued on cancellation of employee stock options 16,817 -- Future income taxes (897) 1,620 - ---------------------------------------------------------------------------------------------------- Cash flow from operations 39,738 32,796 Site restoration costs incurred (24) (158) Changes in non-cash working capital (28,811) (21,704) - ---------------------------------------------------------------------------------------------------- 10,903 10,934 - ---------------------------------------------------------------------------------------------------- INVESTING Disposition (acquisition) of capital assets 1,135 (2,124) Drilling and development of petroleum and natural gas properties (18,763) (28,060) Corporate acquisition -- (21,915) - ---------------------------------------------------------------------------------------------------- (17,628) (52,099) - ---------------------------------------------------------------------------------------------------- FINANCING Increase in long-term debt 17,151 43,350 Issue of Common shares for cash, net of share issue costs 1,201 3,645 Cash acquired on shares issued by subsidiary 203 50 Cash distributions (8,808) -- - ---------------------------------------------------------------------------------------------------- 9,747 47,045 - ---------------------------------------------------------------------------------------------------- Foreign exchange loss on cash held in a foreign currency (468) (134) Net increase in cash 2,554 5,746 Cash, beginning of period 32,562 6,716 - ---------------------------------------------------------------------------------------------------- Cash, end of period $ 35,116 $ 12,462 ==================================================================================================== Cash payments Interest $ 3,280 $ 1,391 Taxes $ 20,463 $ 6,813 - ---------------------------------------------------------------------------------------------------- 10 - -------------------------------------------------------------------------------- NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002, UNAUDITED (000'S, EXCEPT UNIT AND PER UNIT AMOUNTS) 1. BASIS OF PRESENTATION Vermilion Energy Trust (the "Trust") was established on January 22, 2003, under a Plan of Arrangement entered into by the Trust, Vermilion Resources Ltd., Clear Energy Inc., and Vermilion Acquisition Ltd. The Trust is an open-end unincorporated investment trust governed by the laws of the Province of Alberta and created pursuant to a trust indenture. Vermilion Resources Ltd. (the "Company") is a wholly owned subsidiary of the Trust. Prior to the Plan of Arrangement on January 22, 2003, the consolidated financial statements include the accounts of the Company and its subsidiaries. After giving effect to the Plan of Arrangement, the consolidated financial statements have been prepared on a continuity of interests basis which recognizes the Trust as the successor entity to Vermilion Resources Ltd. The consolidated financial statements include the accounts of the Trust and its subsidiaries and have been prepared by management in accordance with Canadian generally accepted accounting principles on the same basis as the audited consolidated financial statements for the year ended December 31, 2002. The interim consolidated financial statements should be read in conjunction with the Trust`s 2002 Annual Information Form. 2. SIGNIFICANT ACCOUNTING POLICIES a) Unit Rights Incentive Plan The Trust has a unit-based long-term compensation plan for employees, directors and consultants of the Trust and its subsidiaries. Compensation cost is measured based on the intrinsic value of the award at the date of the grant and is recognized over the vesting period. Any consideration received by the Trust on exercise of the units rights is credited to unitholders' capital. See Note 7 for a description of the plan and pro-forma disclosure of the associated compensation cost. b) Per Unit Amounts Net earnings and cash flow from operations per unit are calculated using the weighted average number of units outstanding during the period, including the weighted average number of exchangeable shares outstanding converted at the exchange ratio at the end of each month. Diluted net earnings and cash flow from operations per unit are calculated using the treasury stock method to determine the dilutive effect of unit based compensation. The treasury stock method assumes that the proceeds received from the exercise of "in the money" trust unit rights are used to repurchase units at the average market rate during the period. c) Reclamation Fund A reclamation fund has been set up by the Trust to ensure that cash is available to carry out future abandonment and reclamation work on wells, plants and facilities. The contributions are currently made on the basis of $0.20 per BOE of production in Canada and France. Actual abandonment and reclamation work undertaken in the period was funded from the fund balance. 11 - -------------------------------------------------------------------------------- 3. TRANSFER OF ASSETS AND LIABILITIES PURSUANT TO THE PLAN OF ARRANGEMENT Under the Plan of Arrangement, the Company transferred to Clear Energy Inc. a portion of the Company's existing lands and exploration assets. As this was a related party transaction, assets and liabilities were transferred at book value. Details are as follows: Petroleum and natural gas assets and equipment $19,509 Future income tax asset 5,461 ---------------------------------------------------------------------- Total assets transferred $24,970 Provision for site restoration and abandonment 89 ---------------------------------------------------------------------- Net assets transferred and reduction in share capital $24,881 ---------------------------------------------------------------------- Associated with the Plan of Arrangement, the Company recorded transaction costs of $25.6 million, with $16.8 million related to the issue of Trust units in exchange for cancellation of stock options and $8.8 million in advisory and other costs. 4. BUSINESS ACQUISITION AND INVESTMENT Effective January 22, 2003, the Company sold its existing 40% working interest in the Central Block in Trinidad to Aventura Energy Inc. ("Aventura") for consideration of 212,059,512 shares. As this was a related party transaction, assets and liabilities were transferred at book value. The sale increases the Company's equity holding in Aventura to approximately 72% from approximately 47% held prior to the sale. 5. LONG-TERM DEBT At March 31, 2003, the Company had a line of credit of $260,000,000 with a banking syndicate, which has a one year revolving period with a one year term to follow with a final settlement payment required at the end of the second year. A working capital tranche of $10 million included in the $260 million facility has been placed in France to assist cash-management practices. The amended loan facility remains with the same syndicate of lenders with no change to the terms and security provisions. 6. UNITHOLDERS' CAPITAL AND EXCHANGEABLE SHARES Pursuant to the Plan of Arrangement, 51,480,467 units of the Trust and 6,000,000 exchangeable shares of the Company were issued in exchange for all of the outstanding shares of the Company on a one for one basis. The 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. During the period, a total of 623,792 exchangeable shares were converted into 627,770 trust units. At March 31, 2003, the exchange ratio was 1.01352. NUMBER OF SHARES CONSIDERATION ---------------------------------------------------------------------- EXCHANGEABLE SHARES Issued pursuant to Plan of Arrangement January 22, 2003 6,000,000 $13,955 Exchanged for trust units (623,792) (268) ---------------------------------------------------------------------- Balance as at march 31, 2003 5,376,208 $13,687 ---------------------------------------------------------------------- 12 - -------------------------------------------------------------------------------- 6. UNITHOLDERS' CAPITAL AND EXCHANGEABLE SHARES (CONTINUED) NUMBER OF UNITS AMOUNT ------------------------------------------------------------------------------------------------------ TRUST UNITS Unlimited number of trust units authorized to be issued Issued pursuant to Plan of Arrangement January 22, 2003 51,480,467 $119,739 Issued on conversion of exchangeable shares 627,770 268 ------------------------------------------------------------------------------------------------------ Balance as at March 31, 2003 52,108,237 $120,007 Trust units issuable on conversion of exchangeable shares 5,448,894 13,687 ------------------------------------------------------------------------------------------------------ Trust unitholders' capital as at March 31, 2003 57,557,131 $133,694 ------------------------------------------------------------------------------------------------------ As per the Plan of Arrangement, shareholders of Vermilion Resources Ltd. received one unit or one exchangeable share in the Trust for each common share held. In addition, Vermilion shareholders received one share in a separate publicly listed oil and gas company, Clear Energy Inc. for each three common shares held (Note 3). NUMBER OF SHARES AMOUNT ------------------------------------------------------------------------------------------------------ COMMON SHARES OF VERMILION RESOURCES LTD. Balance as at December 31, 2002 55,866,918 $ 140,557 Issued upon exercise of stock options 267,100 1,201 ------------------------------------------------------------------------------------------------------ Balance January 21, 2003 prior to Plan of arrangement 56,134,018 $ 141,758 ------------------------------------------------------------------------------------------------------ Trust units issued on cancellation of employee stock options (Note 3) 1,346,449 $ 16,817 Transfer of assets and liabilities (Note 3) - (24,881) Trust units issued (51,480,467) (119,739) Exchangeable shares issued (6,000,000) (13,955) ------------------------------------------------------------------------------------------------------ NIL NIL ------------------------------------------------------------------------------------------------------ 7. TRUST UNIT RIGHTS INCENTIVE PLAN The Trust has a unit rights incentive plan that allows the Trust to issue rights to acquire trust units to directors, officers, employees and service providers. The Trust is authorized to issue up to 6,000,000 unit rights, however, the number of trust units reserved for issuance upon exercise of the rights shall not at any time exceed 10% of the aggregate number of issued and outstanding trust units of the Trust. Unit right exercise prices approximate the market price for the trust units on the date the unit rights are issued. If certain conditions are met, the exercise price per unit may be calculated by deducting from the grant price the aggregate of all distributions, on a per unit basis, made by the Trust after the grant date. Rights granted under the plan vest over a three year period and expire five years after the grant date. The Trust accounts for its unit rights incentive plan using the intrinsic-value of the unit rights. Using intrinsic-values, compensation costs are not recognized in the consolidated financial statements for unit rights granted to employees and directors when issued at prevailing market prices. 13 - -------------------------------------------------------------------------------- 7. TRUST UNIT RIGHTS INCENTIVE PLAN (CONTINUED) Since the fair value of the unit rights can not be determined due to the nature of the reducing exercise price feature, pro-forma compensation cost has been determined using the excess of the unit price over the exercise price for unit rights issued since January 1, 2003 as at the date of the consolidated interim financial statements. For the three months ended March 31, 2003, net loss would be reduced by $439,000. The effect on net loss would be an increase of $0.01 per unit. The following table summarizes information about the Trust's unit rights: NUMBER OF WEIGHTED AVERAGE UNIT RIGHTS EXERCISE PRICE ---------------------------------------------------------------------- Balance, January 22, 2003 -- $ -- Granted 4,490,700 11.47 Cancelled (141,000) 11.45 ---------------------------------------------------------------------- BALANCE, MARCH 31, 2003 4,349,700 $ 11.47 ---------------------------------------------------------------------- 8. PER UNIT AMOUNTS Basic per unit calculations are based on the weighted average number of trust units outstanding. Diluted calculations include additional trust units for the dilutive impact of unit rights outstanding pursuant to the unit rights incentive plan. Net earnings and cash flow from operations per unit are as follows: MARCH 31, 2003 MARCH 31, 2002 ----------------------------------------------------------------------- Net earnings Basic (1) $(0.01) $ 0.19 Diluted (2) $(0.01) $ 0.18 Cash flow from operations Basic (1) $ 0.69 $ 0.59 Diluted (2) $ 0.69 $ 0.58 ----------------------------------------------------------------------- (1) Basic per unit calculations are based on the weighted average number of trust units outstanding in 2003 of 57,410,652 for the period (55,592,810 common shares in 2002) which includes outstanding exchangeable shares converted at the period end exchange ratio. (2) Diluted calculations include additional trust units in 2003 of 195,955 for the period (1,091,444 additional shares in 2002) for the dilutive impact of the unit rights incentive plan (stock option plan in 2002). Calculations of diluted shares exclude 59,700 of unit rights in 2003 which would have been anti-dilutive. There were no adjustments to net earnings or cash flow from operations in calculating dilutive per unit amounts. 9. SEGMENTED INFORMATION MARCH 31 MARCH 31 2003 2002 --------------------------------------------------------------------- Petroleum and natural gas revenues: Canada $ 64,315 $ 44,627 France 20,216 19,986 Trinidad 3,482 -- --------------------------------------------------------------------- $ 88,013 $ 64,613 --------------------------------------------------------------------- Net earnings: Canada $ (4,937) $ 5,237 France 3,314 5,169 Trinidad 903 -- --------------------------------------------------------------------- $ (720) $ 10,406 --------------------------------------------------------------------- 14 - -------------------------------------------------------------------------------- 9. SEGMENTED INFORMATION (CONTINUED) Funds generated from operations: Canada $ 25,442 $ 18,932 France 12,015 13,864 Trinidad 2,281 -- ---------------------------------------------------------------------- $ 39,738 $ 32,796 ---------------------------------------------------------------------- Capital expenditures: Canada $ 7,992 $ 54,339 France 2,323 6,432 Trinidad / Argentina 7,313 400 ---------------------------------------------------------------------- $ 17,628 $ 61,171 ---------------------------------------------------------------------- MARCH 31 DECEMBER 31, 2003 2002 ====================================================================== Identifiable assets: Canada $ 474,747 $ 497,512 France 201,719 199,385 Trinidad / Argentina 110,296 114,814 ---------------------------------------------------------------------- $ 786,762 $ 811,711 ---------------------------------------------------------------------- 10. CONTINGENCIES On September 25, 2001, Vermilion received a tax notice from the Direction Generale des Impots regarding the Company's wholly owned subsidiary in France, Vermilion REP S.A. The notice advises that the Company is liable for a registration fee that was owed at the time of the purchase of the French properties in 1997 in the amount of 4.5 million Euro, including interest charges for late filing. The Company disagrees with the tax authorities position and is in the process of challenging the notice. At the present time the Company is unable to determine the likelihood that it will be required to pay the registration fee, and as such, no amount has been accrued for in the consolidated financial statements at March 31, 2003. 11. COMMITMENTS The Trust realized a hedging loss of $6.9 million during the first three months of 2003 (2002 - $2.5 million gain) related to its oil hedging activities. Hedging contracts currently in place are as follows: REMAINING CALENDAR NINE MONTHS OF YEAR 2003 2004 ---------------------------------------------------------------------- Oil Hedging Program Average volume - WTI (bbls/d) 2,950 1,500 Average price - WTI (US$/bbl) 24.74 24.07 Average volume - Brent (bbls/d) 2,600 1,750 Average price - Brent (US$/bbl) 23.24 22.74 Natural Gas Hedging Program Volume (mmcf/d) 24.7 5.4 Average Floor ($/mcf) 5.23 5.39 Average Cap ($/mcf) 6.12 9.01 12. COMPARATIVE FIGURES Certain of the prior period numbers have been restated to conform with the current period presentation. 15 - -------------------------------------------------------------------------------- For further information please contact: Curtis W. Hicks, C.A. VP Finance & Chief Financial Officer or Paul Beique Director Investor Relations 2800, 400 - 4th Avenue S.W. Calgary, Alberta T2P 0J4 Phone: (403) 269-4884 Fax: (403) 264-6306 IR Toll Free: 1-866-895-8101 info@vermilionenergy.com www.vermilionenergy.com FORWARD-LOOKING INFORMATION This report contains forward-looking financial and operational information including earnings, cash flow, production and capital expenditure projections. These projections are based on the Trust's expectations and are subject to a number of risks and uncertainties that could materially affect the results. These risks include, but are not limited to, future commodity prices, exchange rates, interest rates, geological risk, reserves risk, political risk, product demand and transportation restrictions. 16 - --------------------------------------------------------------------------------