EXHIBIT
99.2





2008
MANAGEMENT’S DISCUSSION AND ANALYSIS



































DISCLAIMER





This
document contains forward-looking financial and operational information
including earnings, cash flow, unitholder distributions, debt levels,
production, reserves 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, general
economic risks and uncertainties, future commodity prices, exchange rates,
interest rates, geological risk, reserves risk, political risk, production
demand, transportation restrictions, risks associated with changes in tax,
royalty and regulatory regimes and risks associated with international
activities.  Additional risks and uncertainties are described in the
Trust's Annual Information Form which is filed on SEDAR at
www.sedar.com.





Due to the
risks, uncertainties and assumptions inherent in forward-looking statements,
prospective investors in the Trust's securities should not place undue reliance
on these forward-looking statements.  Forward looking statements
contained in this document are made as of the date hereof and are subject to
change. The Trust assumes no obligation to revise or update forward looking
statements to reflect new circumstances, except as required by
law.  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.









MANAGEMENT’S
DISCUSSION AND ANALYSIS





The
following is Management’s Discussion and Analysis (MD&A) dated March 16,
2009 of Vermilion’s operating and financial results for the years ended December
31, 2008 and 2007.  This discussion should be read in conjunction with
the Trust’s audited consolidated financial statements for the years ended
December 31, 2008 and 2007, together with accompanying notes.





A
discussion of Vermilion’s operating and financial results for the fourth quarter
of 2008 is contained in Vermilion’s press release dated March 2, 2009 filed on
The System for Electronic Document Analysis and Retrieval (SEDAR - www.sedar.com).





NON-GAAP
MEASURES





This
report includes non-GAAP (“Generally Accepted Accounting Principles”) measures
as further described herein.  These measures do not have standardized
meanings prescribed by GAAP and therefore may not be comparable with the
calculations of similar measures for other entities.





“Fund
flows from operations” represents cash flows from operating activities before
changes in non-cash operating working capital and asset retirement costs
incurred. Management considers fund flows from operations and per unit
calculations of fund flows from operations (see discussion relating to per unit
calculations below) to be key measures as they demonstrate the Trust’s ability
to generate the cash necessary to pay distributions, repay debt, fund asset
retirement costs and make capital investments.  Management believes
that by excluding the temporary impact of changes in non-cash operating working
capital, fund flows from operations provides a useful measure of the Trust’s
ability to generate cash that is not subject to short-term movements in
operating working capital.  As fund flows from operations also
excludes asset retirement costs incurred, it assists management in assessing the
ability of the Trust to fund current and future asset retirement
costs.  The most directly comparable GAAP measure is cash flows from
operating activities.  Fund flows from operations is reconciled to
cash flows from operating activities below:






Years
      Ended December 31($000’s)
                        
                        2008
                        
                        
                        2007Cash
      flows from operating activities
                        
                        $
                        660,135
                        
                        
                        $
                        349,890Changes
      in non-cash operating working capital
                        
                        
                        (96,369
                        )
                        
                        
                        31,965Asset retirement costs
    incurred
                        
                        
                        10,200
                        
                        
                        
                        4,056Fund flows from operations
                        
                        $
                        573,966
                        
                        
                        $
                        385,911


“Acquisitions,
including acquired working capital deficiency” is the sum of “Acquisition of
petroleum and natural gas properties” and “Corporate acquisition, net of cash
acquired” as presented in the Trust’s consolidated statements of cash flows plus
any working capital deficiencies acquired as a result of those
acquisitions.  Management considers acquired working capital
deficiencies to be an important element of a property or corporate acquisition.
Acquisitions, including acquired working capital deficiency, is reconciled
below:





Years
      Ended December 31($000’s)
                              
                              2008
                              
                              
                              2007Acquisition
      of petroleum and natural gas properties from consolidated statements of
      cash flows
                              
                              $
                              46,466
                              
                              
                              $
                              121,294Corporate
      acquisition, net of cash acquired from consolidated statements of cash
      flows
                              
                              
                              1,764
                              
                              
                              
                              -Working
      capital deficiencies acquired from investments and
      acquisitions(see financial statement notes for relevant
      period)
                              
                              
                              -
                              
                              
                              
                              8,311Acquisitions, including acquired working capital
      deficiency
                              
                              $
                              48,230
                              
                              
                              $
                              129,605




“Net debt”
is the sum of long-term debt and working capital and is used by management to
analyze the financial position and leverage of the Trust.  Net debt is
reconciled below to long-term debt which is the most directly comparable GAAP
measure:






As
      At December 31($000’s)
                              
                              2008
                              
                              
                              2007Long-term
      debt
                              
                              $
                              197,651
                              
                              
                              $
                              452,490Current
      liabilities
                              
                              
                              250,275
                              
                              
                              
                              150,620Current assets
                              
                              
                              (240,173
                              )
                              
                              
                              (186,252
                              )Net debt
                              
                              $
                              207,753
                              
                              
                              $
                              416,858






2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  2





“Cash
distributions per unit” represents actual cash distributions paid per unit by
the Trust during the relevant periods.





“Net
distributions” is calculated as distributions declared for a given period less
proceeds received by the Trust pursuant to the Distribution Reinvestment Plan
(“DRIP”).  Distributions both before and after DRIP are reviewed by
management and are also assessed as a percentage of fund flows from operations
to analyze how much of the cash that is generated by the Trust is being used to
fund distributions.  Net distributions is reconciled below to
distributions declared, the most directly comparable GAAP measure:






Years
      Ended December 31($000’s)
                              
                              2008
                              
                              
                              2007Distributions
      declared
                              
                              $
                              158,674
                              
                              
                              $
                              136,389Issue of trust units pursuant to the distribution
      reinvestment plan
                              
                              
                              (18,453
                              )
                              
                              
                              (35,992
                              )Net distributions
                              
                              $
                              140,221
                              
                              
                              $
                              100,397
  “Total net
distributions, capital expenditures, reclamation fund contributions and asset
retirement costs incurred” is calculated as the addition of net cash
distributions as determined above plus the following amounts for the relevant
periods from the Trust’s consolidated statements of cash
flows:  “Drilling and development of petroleum and natural gas
properties”, “Contributions to reclamation fund” and “Asset retirement costs
incurred.”  This measure is reviewed by management and is also
assessed as a percentage of fund flows from operations to analyze the amount of
cash that is generated by the Trust that is available to repay debt and fund
potential acquisitions.  This measure is reconciled to the relevant
GAAP measures below:






Years
      Ended December 31($000’s)
                        
                        2008
                        
                        
                        2007Distributions
      declared
                        
                        $
                        158,674
                        
                        
                        $
                        136,389Issue
      of trust units pursuant to the distribution reinvestment
    plan
                        
                        
                        (18,453
                        )
                        
                        
                        (35,992
                        )Drilling
      and development of petroleum and natural gas properties
                        
                        
                        186,836
                        
                        
                        
                        175,639Contributions
      to reclamation fund
                        
                        
                        10,378
                        
                        
                        
                        -Asset retirement costs
    incurred
                        
                        
                        10,200
                        
                        
                        
                        4,056$
                        347,635
                        
                        
                        $
                        280,092


“Netbacks”
are per-unit of production measures used in operational and capital allocation
decisions.





“Adjusted
basic trust units outstanding” and “Adjusted basic weighted average trust units
outstanding” are used in the per unit calculations on the Highlights schedule of
this document and are different from the most directly comparable GAAP figures
in that they include amounts related to outstanding exchangeable shares at the
period end exchange ratio.  As the exchangeable shares will eventually
be converted into units of the Trust, management believes that their inclusion
in the calculation of basic rather than only diluted per unit statistics
provides meaningful information.  “Diluted trust units outstanding” is
the sum of “Adjusted basic trust units outstanding” plus outstanding awards
under the Trust’s Unit Rights Incentive Plan and the Trust Unit Award Incentive
Plan, based on current performance factor estimates.  These measures
are reconciled to the relevant GAAP measures below:







As
      At December 312008
                        
                        
                        2007Trust
      units outstanding
                        
                        
                        70,212,769
                        
                        
                        
                        67,335,427Trust units issuable pursuant to exchangeable
      shares outstanding
                        
                        
                        6,790,112
                        
                        
                        
                        6,935,605Adjusted basic trust units
      outstanding
                        
                        
                        77,002,881
                        
                        
                        
                        74,271,032Potential trust units issuable pursuant to unit
      compensation plans
                        
                        
                        1,917,278
                        
                        
                        
                        2,999,800Diluted trust units
    outstanding
                        
                        
                        78,920,159
                        
                        
                        
                        77,270,832




As
      At December 312008
                            
                            
                            2007Basic
      weighted average trust units outstanding
                            
                            
                            69,548,183
                            
                            
                            
                            66,122,423Trust units issuable pursuant to exchangeable
      shares outstanding
                            
                            
                            7,108,202
                            
                            
                            
                            6,935,786Adjusted basic weighted average trust units
      outstanding
                            
                            
                            76,656,385
                            
                            
                            
                            73,058,209


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  3







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.




Highlights ($000’s except per unit
      amounts)
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006Revenues
                          
                          $
                          1,001,905
                          
                          
                          $
                          707,334
                          
                          
                          $
                          618,072Net
      earnings
                          
                          
                          229,189
                          
                          
                          
                          164,286
                          
                          
                          
                          146,923Per
      unit, basic
                          
                          
                          3.30
                          
                          
                          
                          2.48
                          
                          
                          
                          2.30Per
      unit, diluted
                          
                          
                          3.23
                          
                          
                          
                          2.39
                          
                          
                          
                          2.22Fund
      flows from operations
                          
                          
                          573,966
                          
                          
                          
                          385,911
                          
                          
                          
                          342,502Per
      unit, adjusted basic
                          
                          
                          7.49
                          
                          
                          
                          5.28
                          
                          
                          
                          4.86Return
      on equity (%)
                          
                          
                          33.2
                          
                          
                          
                          28.2
                          
                          
                          
                          29.5Total
      assets
                          
                          
                          1,798,359
                          
                          
                          
                          1,668,123
                          
                          
                          
                          1,462,839WTI
      (US$/bbl)
                          
                          
                          99.65
                          
                          
                          
                          72.34
                          
                          
                          
                          66.21AECO
      (CDN$/mcf)
                          
                          
                          8.13
                          
                          
                          
                          6.45
                          
                          
                          
                          6.53Realized
      price ($/boe)
                          
                          
                          83.61
                          
                          
                          
                          61.86
                          
                          
                          
                          61.80Fund flows netback ($/boe)
                          
                          $
                          47.91
                          
                          
                          $
                          33.75
                          
                          
                          $
                          34.25
  2008
      Summary of Quarterly Results($000’s except per unit
      amounts)
                      
                      
                      Q1
                      
                      
                      
                      Q2
                      
                      
                      
                      Q3
                      
                      
                      
                      Q4Revenue
                      
                      $
                      229,459
                      
                      
                      $
                      341,405
                      
                      
                      $
                      245,712
                      
                      
                      $
                      185,329Net
      earnings
                      
                      
                      26,196
                      
                      
                      
                      102,289
                      
                      
                      
                      86,949
                      
                      
                      
                      13,755Per
      unit basic
                      
                      
                      0.38
                      
                      
                      
                      1.47
                      
                      
                      
                      1.24
                      
                      
                      
                      0.20Per unit diluted
                      
                      $
                      0.37
                      
                      
                      $
                      1.44
                      
                      
                      $
                      1.22
                      
                      
                      $
                      0.19




2007
      Summary of Quarterly Results($000’s except per unit
      amounts)
                        
                        
                        Q1
                        
                        
                        
                        Q2
                        
                        
                        
                        Q3
                        
                        
                        
                        Q4Revenue
                        
                        $
                        148,808
                        
                        
                        $
                        164,862
                        
                        
                        $
                        187,939
                        
                        
                        $
                        205,725Net
      earnings
                        
                        
                        31,347
                        
                        
                        
                        41,050
                        
                        
                        
                        48,640
                        
                        
                        
                        43,249Per
      unit basic
                        
                        
                        0.48
                        
                        
                        
                        0.62
                        
                        
                        
                        0.73
                        
                        
                        
                        0.65Per unit diluted
                        
                        $
                        0.47
                        
                        
                        $
                        0.60
                        
                        
                        $
                        0.71
                        
                        
                        $
                        0.62




VERMILION
ENERGY TRUST OVERVIEW





Mission
Statement


“To
consistently deliver superior rewards for all our stakeholders”





Vision
Statement


“To be
recognized as the premier Canadian based international energy
trust”





Vermilion’s
mission and vision statements guide the overall strategy and activities of the
Trust.  By striving to meet the goals entrenched within these
statements, the Trust aims to provide stability for its unitholders through the
implementation of a successful strategy, quality assets and proven
leadership.


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  4







Stability


From the
Trust’s inception in January, 2003 through November, 2007 the Trust paid a
consistent monthly distribution of $0.17.  In December, 2007 the Trust
increased its distribution by 12% to $0.19 per month and it has maintained that
level since.  In 2007 Vermilion was the only conventional energy trust
to increase distributions and this achievement was a result of the Trust’s
conservative fiscal practices.  Vermilion has paid out the lowest
portion of its fund flows from operations in the form of total net
distributions, capital expenditures, reclamation fund contributions and asset
retirement costs incurred as compared to other conventional energy
trusts.  The Trust’s balance sheet is very strong and is well
positioned to weather the recent downturn in commodity
prices.  Vermilion also has significant upside potential through its
interest in Verenex Energy Inc. (“Verenex”) which has met with strong success in
its exploration activities in Libya.





Vermilion
also provides stability by adhering to strong core values at all levels of the
Trust.  The Trust’s Board of Directors has been recognized in
corporate governance surveys for excellence in governance practices that
included board composition, compensation, shareholder rights, disclosure,
accountability and total return performance.





Successful
Strategy


Vermilion
adheres to a value creation strategy through the execution of asset optimization
programs and strategic acquisitions.  Vermilion focuses on the
development and optimization of mature producing properties in Western Canada,
Western Europe and Australia. Vermilion also exposes its unitholders to
significant upside opportunities through a combination of equity sponsorship in
new ventures and managed participation in high impact projects.  The
Trust engages in prudent and conservative financial management policies which
lay the groundwork for the execution of its strategy.





Quality
Assets


Vermilion
targets undercapitalized properties that are rich with low risk opportunities
for acquisition.  As a result of this focus, Vermilion has acquired
and further developed quality assets in four different countries.





Canada


Vermilion
operates over 800 wells in three core areas, all in Alberta.  The
properties include a significant light oil field at Utikuma, multiple level, and
liquid-rich tight gas reservoirs in the Drayton Valley region and a coalbed
methane and shallow gas development in Central Alberta.  Vermilion
controls approximately 261,485 net acres of land and operates significant oil
and natural gas processing facilities with combined throughput of more than
100,000 bbls/d of fluids and 90 mmcf/d of natural
gas.   Vermilion maintains a steady program of drilling and
recompletions in the Drayton Valley region and is evaluating new completion
techniques that are revitalizing some of these challenging
fields.  The Trust employs reservoir optimization techniques to
improve recoveries from the Utikuma reservoir and will continue to manage the
long-term development of its coalbed methane assets.





France


The Trust
initially acquired its France assets in 1997 and in 2006 Vermilion added
additional and complementary assets to its French asset
base.  Vermilion’s properties in France produce 98% oil and include
three massive fields at Chaunoy, Cazaux and Parentis.  The Trust is
focusing on increasing oil recovery from these fields to extend their reserve
life.  Vermilion’s reserve life index in France is greater than 13
years and these properties represent a core focus of Vermilion’s operations and
a stable source of our production.





Netherlands


Acquired
in 2004, Vermilion’s Netherlands assets produce natural gas which is sold in a
regulated environment at an oil-based index price.  Vermilion believes
that there are numerous potential prospects in this region and has plans to
recommence drilling in the Netherlands in 2010.





Australia


Vermilion
initially acquired a 60% interest in the Wandoo field, offshore the northwest
shelf of Australia, in 2005.  In 2006 and 2007, Vermilion
significantly expanded fluid handling and processing capacity on the platform
from approximately 114,000 bbls to 150,000 bbls.  In 2007 the Trust
acquired the remaining 40% of this oil producing asset.  In December
2008, the Trust announced it had successfully drilled and completed two new
‘attic oil’ wells and Vermilion intends to continue to review development
opportunities in this field.


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  5







Proven
Leadership





The
members of Vermilion’s executive management team average more than 20 years of
operating experience and are led by Lorenzo Donadeo, President and CEO, who is
one of the three co-founders of the predecessor company, Vermilion Resources
Ltd.  Vermilion and its management team have a strong track record of
providing high returns to its unitholders.





2008
REVIEW AND 2009 GUIDANCE





The
following table summarizes the Trust’s 2008 actual results as compared to
guidance and the Trust’s 2009 guidance:





($000’s
      except production amounts)
                    Capital
      Expenditures
                    Production2008
      GuidanceProvided
      March 3
                    $182,000
                    31,000
      – 32,000 boe/dUpdated
      May 2
                    $210,000
                    32,000
      – 33,000 boe/d2008
      Actual
                    $186,836
                    32,741
      boe/d2009
      Guidance
                    $120,000
                    30,000
      – 31,000
boe/d





Vermilion
provided initial guidance as to its expected 2008 development capital
expenditure program and production forecast in March 2008, corresponding with
the release of 2007 year-end results.  The initial production guidance
figures include the impact of Vermilion’s January 2008 acquisition of
approximately 1,000 boe/d of production for $47 million.  By May, oil
price expectations had risen even further and Vermilion expanded both its
production guidance figures and expected development capital
program.   Vermilion was able to achieve its full-year 2008
production guidance figures, due largely to strong performance from Canadian
operations.  Development capital expenditures for 2008 came in below
guidance levels due mostly to the deferral of the Parentis and Les Mimosas
drilling programs in France.





OPERATIONAL
ACTIVITIES





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





Canada





In Canada,
the Trust participated in the drilling of 44 wells (29.1 net) during 2008,
resulting in 34 gas wells (22.9 net), two oil wells (2.0 net), one abandoned
wells (1.0 net) and seven standing wells (3.2 net) awaiting further evaluation
and tie-in.  The total wells include 24 CBM and shallow gas wells
(16.8 net).





France





In France,
Vermilion participated in the drilling and completion of one oil well (0.2 net)
at Itteville in the Paris Basin.  An active workover and recompletion
program across all of its properties was instrumental in holding production
declines to minimal levels, despite the low drilling activity.  As
well, much time and capital was focused on the repair and maintenance of surface
facilities in the Chaunoy field acquired in 2006.  Depending on
commodity price strength, a significant increase in well workovers and
recompletions is scheduled for France in 2009.





Netherlands





In the
Netherlands, Vermilion focused efforts on the permitting process for six new
wells.  One of these in the Harlingen area has been shelved
indefinitely, while approvals on the remaining five permits are in various
stages of completion.  Vermilion has deferred the drilling of these
wells, which were to begin in the second half of 2009.  No production
from these wells was included in any of Vermilion’s previous forecasts for
2009.


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  6







Australia





Vermilion
completed the successful drilling of two infill wells in the Wandoo
field.   These wells were completed higher up in the reservoir
under the assumption that the significant aquifer drive had physically forced
the oil column upward.  The projections appear accurate as these two
wells were completed in a clean oil (no water) column and continue to produce
1,000 bbls/d of water-free oil each after 60 days on
production.  Prior to drilling the first horizontal well a vertical
section was drilled to test the presence of un-recovered oil on the flank of the
Wandoo reservoir.  Early indications suggest that this oil may be
recoverable through future development drilling.  Vermilion will
continue to evaluate the performance of these recent wells and begin the
planning of additional development drilling, hopefully by 2010.





PRODUCTION





Average
production in Canada during 2008 was 4,172 bbls/d of oil and NGLs and 51.2
mmcf/d of natural gas (12,696 boe/d) compared to 4,081 bbls/d of oil and NGLs
and 47.7 mmcf/d of natural gas (12,038 boe/d) in 2007, representing a
year-over-year increase of 5.5%.  Fourth quarter 2008 production
averaged 12,448 boe/d, compared to 12,065 boe/d in the fourth quarter of
2007.





Production
in France averaged 8,710 boe/d in 2008, 1.1% lower than the 8,809 boe/d produced
in 2007, reflecting a limited drilling program.  Fourth quarter
production of 8,630 boe/d in 2008 was 3.5% lower than the 8,946 boe/d produced
in France during the fourth quarter of 2007.





Production
in the Netherlands averaged 4,562 boe/d in 2008, an increase of 3.4% from the
4,413 boe/d recorded in 2007, due primarily to the tie-in of the 2007 wells,
less the impact of the shut-down at Harlingen.  Fourth quarter
production averaged 4,043 boe/d in 2008 compared with 4,468 boe/d during the
same period in 2007.





Australia
production averaged 6,773 boe/d in 2008, compared to 6,065 boe/d in 2007 as
Vermilion benefitted from a full year of production at 100% ownership of the
field.  Production during the fourth quarter of 2008 averaged 7,117
boe/d, compared to 7,591 boe/d during the same period in 2007, reduced slightly
by the interruption of drilling activities, some platform maintenance and
year-end cyclone activity.  Current production levels have approached
9,000 boe/d although first quarter cyclone activity is expected to dampen that
number somewhat.





Year Ended December 31,
2008
                                                                  
                                                                  
                                                                  Year Ended December 31,
2007
                                                                  
                                                                  
                                                                  Year Ended December 31,
2006Oil
      &
                                                                  
                                                                  
                                                                  Natural
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  Oil
      &
                                                                  
                                                                  
                                                                  Natural
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  
                                                                  Oil
      &
                                                                  
                                                                  
                                                                  NaturalNGLs
                                                                  
                                                                  
                                                                  Gas
                                                                  
                                                                  
                                                                  Total
                                                                  
                                                                  
                                                                  NGLs
                                                                  
                                                                  
                                                                  Gas
                                                                  
                                                                  
                                                                  Total
                                                                  
                                                                  
                                                                  NGLs
                                                                  
                                                                  
                                                                  Gas
                                                                  
                                                                  
                                                                  Total(bbls/d)
                                                                  
                                                                  
                                                                  (mmcf/d)
                                                                  
                                                                  
                                                                  (boe/d)
                                                                  
                                                                  
                                                                  (bbls/d)
                                                                  
                                                                  
                                                                  (mmcf/d)
                                                                  
                                                                  
                                                                  (boe/d)
                                                                  
                                                                  
                                                                  (bbls/d)
                                                                  
                                                                  
                                                                  (mmcf/d)
                                                                  
                                                                  
                                                                  (boe/d)Canada
                                                                  
                                                                  
                                                                  4,172
                                                                  
                                                                  
                                                                  
                                                                  51.15
                                                                  
                                                                  
                                                                  
                                                                  12,696
                                                                  
                                                                  
                                                                  
                                                                  4,081
                                                                  
                                                                  
                                                                  
                                                                  47.74
                                                                  
                                                                  
                                                                  
                                                                  12,038
                                                                  
                                                                  
                                                                  
                                                                  4,011
                                                                  
                                                                  
                                                                  
                                                                  40.99
                                                                  
                                                                  
                                                                  
                                                                  10,843France
      2
                                                                  
                                                                  
                                                                  8,514
                                                                  
                                                                  
                                                                  
                                                                  1.17
                                                                  
                                                                  
                                                                  
                                                                  8,710
                                                                  
                                                                  
                                                                  
                                                                  8,621
                                                                  
                                                                  
                                                                  
                                                                  1.13
                                                                  
                                                                  
                                                                  
                                                                  8,809
                                                                  
                                                                  
                                                                  
                                                                  7,576
                                                                  
                                                                  
                                                                  
                                                                  1.35
                                                                  
                                                                  
                                                                  
                                                                  7,800Netherlands
                                                                  
                                                                  
                                                                  24
                                                                  
                                                                  
                                                                  
                                                                  27.23
                                                                  
                                                                  
                                                                  
                                                                  4,562
                                                                  
                                                                  
                                                                  
                                                                  40
                                                                  
                                                                  
                                                                  
                                                                  26.24
                                                                  
                                                                  
                                                                  
                                                                  4,413
                                                                  
                                                                  
                                                                  
                                                                  31
                                                                  
                                                                  
                                                                  
                                                                  29.47
                                                                  
                                                                  
                                                                  
                                                                  4,943Australia1
                                                                  
                                                                  
                                                                  6,773
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  6,773
                                                                  
                                                                  
                                                                  
                                                                  6,065
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  6,065
                                                                  
                                                                  
                                                                  
                                                                  3,815
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  3,815Total
                                                                  
                                                                  
                                                                  19,483
                                                                  
                                                                  
                                                                  
                                                                  79.55
                                                                  
                                                                  
                                                                  
                                                                  32,741
                                                                  
                                                                  
                                                                  
                                                                  18,807
                                                                  
                                                                  
                                                                  
                                                                  75.11
                                                                  
                                                                  
                                                                  
                                                                  31,325
                                                                  
                                                                  
                                                                  
                                                                  15,433
                                                                  
                                                                  
                                                                  
                                                                  71.81
                                                                  
                                                                  
                                                                  
                                                                  27,401


1Acquisition
of remaining 40% interest effective June 20, 2007


2Vermilion Emeraude REP SAS effective from July 10, 2006




2008 Quarterly Production
      (boe/d)
                        
                        
                        Q1
                        
                        
                        
                        Q2
                        
                        
                        
                        Q3
                        
                        
                        
                        Q4Canada
                        
                        
                        12,730
                        
                        
                        
                        12,915
                        
                        
                        
                        12,693
                        
                        
                        
                        12,448France
                        
                        
                        8,800
                        
                        
                        
                        8,536
                        
                        
                        
                        8,872
                        
                        
                        
                        8,630Netherlands
                        
                        
                        5,096
                        
                        
                        
                        4,980
                        
                        
                        
                        4,142
                        
                        
                        
                        4,043Australia
                        
                        
                        6,446
                        
                        
                        
                        7,312
                        
                        
                        
                        6,220
                        
                        
                        
                        7,117Total
                        
                        
                        33,072
                        
                        
                        
                        33,743
                        
                        
                        
                        31,927
                        
                        
                        
                        32,238


2007 Quarterly Production
      (boe/d)
                        
                        
                        Q1
                        
                        
                        
                        Q2
                        
                        
                        
                        Q3
                        
                        
                        
                        Q4Canada
                        
                        
                        12,054
                        
                        
                        
                        12,351
                        
                        
                        
                        11,686
                        
                        
                        
                        12,065France
                        
                        
                        8,055
                        
                        
                        
                        9,221
                        
                        
                        
                        9,002
                        
                        
                        
                        8,946Netherlands
                        
                        
                        4,754
                        
                        
                        
                        3,904
                        
                        
                        
                        4,529
                        
                        
                        
                        4,468Australia1
                        
                        
                        4,227
                        
                        
                        
                        5,440
                        
                        
                        
                        6,955
                        
                        
                        
                        7,591Total
                        
                        
                        29,090
                        
                        
                        
                        30,916
                        
                        
                        
                        32,172
                        
                        
                        
                        33,070


1Acquisition of remaining 40% interest effective June 20,
2007


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  7







CAPITAL
EXPENDITURES





Capital
spending, including acquisitions for the year totaled $235.1 million compared to
$296.9 million spent in 2007.   The costs incurred to drill and
complete two new offshore Australia wells during the fourth quarter of 2008
resulted in increased non-acquisition capital spending year over
year.  Acquisition related capital spending decreased on a year to
date basis from the prior year as a result of the 2007 acquisition of the
remaining 40% interest in the Wandoo field, offshore Australia for $117.9
million as compared to purchase in the first quarter of 2008 of $44.1 million of
producing properties in the Drayton Valley area in Canada.





Capital Expenditures
    ($000’s)
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006Land
                          
                          $
                          5,183
                          
                          
                          $
                          3,484
                          
                          
                          $
                          2,025Seismic
                          
                          
                          10,989
                          
                          
                          
                          491
                          
                          
                          
                          2,555Drilling
      and completion
                          
                          
                          78,542
                          
                          
                          
                          89,081
                          
                          
                          
                          48,559Production
      equipment and facilities
                          
                          
                          56,974
                          
                          
                          
                          61,586
                          
                          
                          
                          58,160Recompletions
                          
                          
                          19,789
                          
                          
                          
                          11,021
                          
                          
                          
                          15,280Other
                          
                          
                          15,359
                          
                          
                          
                          9,976
                          
                          
                          
                          10,360186,836
                          
                          
                          
                          175,639
                          
                          
                          
                          136,939Acquisitions (excluding acquired working capital
      deficiency)
                          
                          
                          48,230
                          
                          
                          
                          121,294
                          
                          
                          
                          151,039$
                          235,066
                          
                          
                          $
                          296,933
                          
                          
                          $
                          287,978
 
 Capital Expenditures by Country
      ($000’s)
                          
                          2008
                          
                          
                          2007
                          
                          
                          2006Canada
                          
                          $
                          103,725
                          
                          
                          $
                          69,713
                          
                          
                          $
                          111,216France
                          
                          
                          55,669
                          
                          
                          
                          73,504
                          
                          
                          
                          164,523Netherlands
                          
                          
                          13,019
                          
                          
                          
                          22,275
                          
                          
                          
                          3,673Australia
                          
                          
                          62,653
                          
                          
                          
                          131,441
                          
                          
                          
                          8,566$
                          235,066
                          
                          
                          $
                          296,933
                          
                          
                          $
                          287,978




FINANCIAL
REVIEW





During the
year ended December 31, 2008, the Trust generated fund flows from operations of
$574.0 million compared to $385.9 million in 2007.  The year over year
increase in fund flows from operations of $188.1 million is largely the result
of higher average commodity prices in 2008 versus 2007.  The GAAP
measure, cash flows from operating activities similarly increased year over year
to $660.1 million for the year ended December 31, 2008 from $349.9 million for
2007.





Increased
year over year fund flows from operations have allowed Vermilion to further
strengthen its financial position and at December 31, 2008 the Trust’s net debt
was $207.8 million which represents a decrease of 50% from the net debt of
$416.9 million at December 31, 2007.  The Trust’s long-term debt has
decreased to $197.7 million at December 31, 2008 from $452.5 million at December
31, 2007.  At December 31, 2008 Vermilion’s net debt represented less
than 40% of its fourth quarter annualized fund flows from
operations.





For the
year ended December 31, 2008 total net distributions, capital expenditures,
reclamation fund contributions and asset retirement costs incurred as a
percentage of fund flows from operations was 61% versus 73% for the
corresponding period in the prior year.  The year over year
improvement in this metric relates to the significantly higher fund flows from
operations achieved in 2008 versus 2007 which was associated with higher average
commodity prices during 2008.











2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  8







FUND
FLOWS NETBACKS





Fund flows
from operations was $574.0 million in 2008, as compared to $385.9 million in
2007 due to higher average commodity prices during 2008.





2008 Fund Flows Netback
    ($/boe)
                            
                            
                            Q1
                            
                            
                            
                            Q2
                            
                            
                            
                            Q3
                            
                            
                            
                            Q4
                            
                            
                            2008
                            
                            
                            2007
                            
                            
                            2006Oil
      and gas revenues
                            
                            $
                            76.24
                            
                            
                            $
                            111.19
                            
                            
                            $
                            83.65
                            
                            
                            $
                            62.49
                            
                            
                            $
                            83.61
                            
                            
                            $
                            61.86
                            
                            
                            $
                            61.80Realized
      hedging gain or (loss)
                            
                            
                            (0.73
                            )
                            
                            
                            (1.94
                            )
                            
                            
                            (1.51
                            )
                            
                            
                            0.66
                            
                            
                            
                            (0.89
                            )
                            
                            
                            (0.25
                            )
                            
                            
                            (0.02
                            )Royalties
                            
                            
                            (12.18
                            )
                            
                            
                            (18.35
                            )
                            
                            
                            (12.03
                            )
                            
                            
                            (0.83
                            )
                            
                            
                            (10.92
                            )
                            
                            
                            (8.53
                            )
                            
                            
                            (9.22
                            )Transportation
                            
                            
                            (2.14
                            )
                            
                            
                            (1.94
                            )
                            
                            
                            (1.70
                            )
                            
                            
                            (2.08
                            )
                            
                            
                            (1.96
                            )
                            
                            
                            (2.01
                            )
                            
                            
                            (1.05
                            )Operating costs
                            
                            
                            (11.08
                            )
                            
                            
                            (10.78
                            )
                            
                            
                            (12.10
                            )
                            
                            
                            (14.01
                            )
                            
                            
                            (11.98
                            )
                            
                            
                            (10.45
                            )
                            
                            
                            (9.65
                            )Operating
      netback
                            
                            
                            50.11
                            
                            
                            
                            78.18
                            
                            
                            
                            56.31
                            
                            
                            
                            46.23
                            
                            
                            
                            57.86
                            
                            
                            
                            40.62
                            
                            
                            
                            41.86General
      and administration
                            
                            
                            (1.64
                            )
                            
                            
                            (2.33
                            )
                            
                            
                            (2.57
                            )
                            
                            
                            (1.76
                            )
                            
                            
                            (2.07
                            )
                            
                            
                            (1.64
                            )
                            
                            
                            (1.58
                            )Interest
                            
                            
                            (2.04
                            )
                            
                            
                            (1.67
                            )
                            
                            
                            (0.91
                            )
                            
                            
                            (0.80
                            )
                            
                            
                            (1.36
                            )
                            
                            
                            (1.95
                            )
                            
                            
                            (1.68
                            )Current
      taxes
                            
                            
                            (6.94
                            )
                            
                            
                            (13.58
                            )
                            
                            
                            (6.77
                            )
                            
                            
                            (0.46
                            )
                            
                            
                            (6.99
                            )
                            
                            
                            (2.98
                            )
                            
                            
                            (4.29
                            )Proceeds
      on sale of investments
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            0.02
                            
                            
                            
                            -
                            
                            
                            
                            0.01
                            
                            
                            
                            0.11
                            
                            
                            
                            -Foreign exchange
                            
                            
                            0.18
                            
                            
                            
                            1.39
                            
                            
                            
                            (1.22
                            )
                            
                            
                            1.42
                            
                            
                            
                            0.46
                            
                            
                            
                            (0.41
                            )
                            
                            
                            (0.06
                            )Fund flows netback
                            
                            $
                            39.67
                            
                            
                            $
                            61.99
                            
                            
                            $
                            44.86
                            
                            
                            $
                            44.63
                            
                            
                            $
                            47.91
                            
                            
                            $
                            33.75
                            
                            
                            $
                            34.25
 
 2007 Fund Flows Netback
    ($/boe)
                                                      
                                                      
                                                      Q1
                                                      
                                                      
                                                      
                                                      Q2
                                                      
                                                      
                                                      
                                                      Q3
                                                      
                                                      
                                                      
                                                      Q4Oil
      and gas revenues
                                                      
                                                      $
                                                      56.83
                                                      
                                                      
                                                      $
                                                      58.60
                                                      
                                                      
                                                      $
                                                      63.50
                                                      
                                                      
                                                      $
                                                      67.62Realized
      hedging gain or (loss)
                                                      
                                                      
                                                      0.31
                                                      
                                                      
                                                      
                                                      (0.11
                                                      )
                                                      
                                                      
                                                      0.01
                                                      
                                                      
                                                      
                                                      (1.11
                                                      )Royalties
                                                      
                                                      
                                                      (6.76
                                                      )
                                                      
                                                      
                                                      (7.32
                                                      )
                                                      
                                                      
                                                      (10.18
                                                      )
                                                      
                                                      
                                                      (9.57
                                                      )Transportation
                                                      
                                                      
                                                      (1.58
                                                      )
                                                      
                                                      
                                                      (2.30
                                                      )
                                                      
                                                      
                                                      (2.13
                                                      )
                                                      
                                                      
                                                      (1.97
                                                      )Operating costs
                                                      
                                                      
                                                      (10.40
                                                      )
                                                      
                                                      
                                                      (9.91
                                                      )
                                                      
                                                      
                                                      (10.16
                                                      )
                                                      
                                                      
                                                      (11.28
                                                      )Operating
      netback
                                                      
                                                      
                                                      38.40
                                                      
                                                      
                                                      
                                                      38.96
                                                      
                                                      
                                                      
                                                      41.04
                                                      
                                                      
                                                      
                                                      43.69General
      and administration
                                                      
                                                      
                                                      (2.15
                                                      )
                                                      
                                                      
                                                      (1.69
                                                      )
                                                      
                                                      
                                                      (1.55
                                                      )
                                                      
                                                      
                                                      (1.24
                                                      )Interest
                                                      
                                                      
                                                      (1.76
                                                      )
                                                      
                                                      
                                                      (1.68
                                                      )
                                                      
                                                      
                                                      (2.14
                                                      )
                                                      
                                                      
                                                      (2.18
                                                      )Current
      taxes
                                                      
                                                      
                                                      (5.37
                                                      )
                                                      
                                                      
                                                      (3.23
                                                      )
                                                      
                                                      
                                                      (3.44
                                                      )
                                                      
                                                      
                                                      (0.23
                                                      )Proceeds
      on sale of investments
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      0.40Foreign exchange
                                                      
                                                      
                                                      (0.11
                                                      )
                                                      
                                                      
                                                      (2.11
                                                      )
                                                      
                                                      
                                                      (0.54
                                                      )
                                                      
                                                      
                                                      1.03Fund flows netback
                                                      
                                                      $
                                                      29.01
                                                      
                                                      
                                                      $
                                                      30.25
                                                      
                                                      
                                                      $
                                                      33.37
                                                      
                                                      
                                                      $
                                                      41.47




REVENUE





Revenue
for the year ended December 31, 2008 was $1.0 billion compared $707.3 million in
2007.  Vermilion’s combined crude oil and NGL price was $101.32 per
boe in 2008, an increase of 36.8% over the $74.08 per boe reported in
2007.  The natural gas price realized was $9.60 per mcf in 2008
compared to $7.25 per mcf in 2007, a 32.4% increase year over
year.  Vermilion’s higher revenue year over year was associated with
higher average commodity prices in 2008 versus 2007.







Years
      Ended December 31($000’s except per boe and per
      mcf)
                        
                        2008
                        
                        
                        2007Crude
      oil & NGLs
                        
                        $
                        722,512
                        
                        
                        $
                        508,540Per
      boe
                        
                        $
                        101.32
                        
                        
                        $
                        74.08Natural
      gas
                        
                        
                        279,393
                        
                        
                        
                        198,794Per mcf
                        
                        $
                        9.60
                        
                        
                        $
                        7.25Petroleum and natural gas
      revenue
                        
                        $
                        1,001,905
                        
                        
                        $
                        707,334Per boe
                        
                        $
                        83.61
                        
                        
                        $
                        61.86


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  9







DERIVATIVE
INSTRUMENTS





Vermilion
manages a component of its risk exposure through prudent commodity and currency
economic hedging strategies.  The extent of Vermilion’s hedging
activities is driven, in part, by the state of the Trust’s balance
sheet.  With low net debt levels and a strong balance sheet, the
Trust’s recent hedging activities have been minimal.  Vermilion had
the following financial derivatives in place at December 31, 2008:





Risk Management: Oil
                  Funded Cost
                  bbls/d
                  US$/bblCollar
      - BRENT2009
                  US$1.00/bbl
                  500
                  $100.50
      - $200.00Call
      Spread - BRENT2009 - 2011
                  US$5.73/bbl
                  700
                  $  65.00 -
      $  85.00




The impact
of Vermilion’s economic hedging program decreased the fund flows netback by
$0.89 per boe for the year ended December 31, 2008 as the price of oil was in
excess of the ceiling on the majority of the Trust’s collars for much of the
year.  This compares to a hedging cost of $0.25 per boe in
2007.





ROYALTIES





Consolidated
royalties for the year ended December 31, 2008 were $10.92 per boe as compared
to $8.53 per boe in 2007.  As a percent of revenue for the year ended
December 31, 2008, royalties were 13% as compared to 14% in 2007.





In the
fourth quarter of 2008 Vermilion had a very active capital program in Australia
which resulted in the Trust realizing significant royalty relief in that
jurisdiction.  The level of capital expenditures associated with the
drilling and completion of two offshore wells was sufficiently large that the
Trust received a one-time rebate on previously paid royalties.





In Canada,
royalties as a percent of revenue for the year ended December 31, 2008 remained
relatively consistent at 19.5% as compared to 19.2% in the prior
year.  The new royalty framework and the related revisions announced
by the Alberta government are not expected to significantly change Vermilion’s
Canadian royalties as a percent of revenue in 2009.





In France,
a portion of the royalties levied is based on units of production and therefore
is not subject to changes in commodity prices.  Accordingly for 2008,
royalties as a percent of revenue were lower at 5.9% versus 6.6% in the prior
year due to higher average commodity prices in 2008.





Production
in the Netherland is not subject to royalties.







Years
      Ended December 31($000’s except per boe and per
      mcf)
                    
                    2008
                    
                    
                    2007Crude
      oil & NGLs
                    
                    $
                    96,736
                    
                    
                    $
                    73,933Per
      boe
                    
                    $
                    13.57
                    
                    
                    $
                    10.77Natural
      gas
                    
                    
                    34,092
                    
                    
                    
                    23,585Per mcf
                    
                    $
                    1.17
                    
                    
                    $
                    0.86Royalties
                    
                    $
                    130,828
                    
                    
                    $
                    97,518Per boe
                    
                    $
                    10.92
                    
                    
                    $
                    8.53


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  10





OPERATING
COSTS





Consolidated
operating costs per boe for the year ended December 31, 2008 were $11.98
compared to $10.45 for 2007.  Canadian operating costs have increased
to $10.48 per boe from $9.49 per boe in 2007 as a result as a result of a higher
electrical power and salary costs coupled with slightly lower
production.





Operating
costs in France increased in 2008 to $11.98 per boe compared to $9.21 per boe in
2007.  This increase is attributable to significant well intervention
work that was performed in the fourth quarter of 2008.  Vermilion
expects its full year France operating costs in 2009 to be approximately $13.00
per boe however the timing of well intervention work will likely cause the
results of individual quarters to differ.





Australian
operating costs increased to $14.64 per boe in 2008 from $13.19 per boe in 2007
as a result of increased levels of diesel and power consumption.





On a year
to date basis, operating costs in the Netherlands increased in 2008 to $12.19
per boe versus $11.80 per boe in 2007 due to higher power and salary costs while
production was relatively consistent year over year.





Years
      Ended December 31($000’s except per boe and per
      mcf)
                        
                        2008
                        
                        
                        2007Crude
      oil & NGLs
                        
                        $
                        90,250
                        
                        
                        $
                        75,102Per
      boe
                        
                        $
                        12.66
                        
                        
                        $
                        10.94Natural
      gas
                        
                        
                        53,288
                        
                        
                        
                        44,415Per mcf
                        
                        $
                        1.83
                        
                        
                        $
                        1.62Operating
                        
                        $
                        143,538
                        
                        
                        $
                        119,517Per boe
                        
                        $
                        11.98
                        
                        
                        $
                        10.45


TRANSPORTATION





Transportation
costs are a function of the point of legal transfer of the product and are
dependent upon where the product is sold, product split, location of properties
as well as industry transportation rates that are driven by supply and demand of
available transport capacity.  For Canadian gas production, legal
title transfers at the intersection of major pipelines (referred to as “the
Hub”) whereas the majority of Vermilion’s Canadian oil production is sold at the
wellhead.  The majority of Vermilion’s transportation costs are made
up of shipping charges incurred in the Aquitaine Basin in France where oil
production is transported by tanker from the Ambès terminal in Bordeaux to the
refinery.  In Australia, oil is sold at the Wandoo B platform and in
the Netherlands gas is sold at the plant gate, resulting in no transportation
costs relating to Vermilion’s production in these countries.





Transportation
costs in France continue to be higher than historic levels as a result of the
oil spill at the Ambès Terminal that occurred in January 2007.  In
early March 2008, Vermilion resumed transporting crude to the Ambès terminal via
pipeline and all trucking operations ceased.  As a result of the
limited capacity of the storage tank rented at the terminal, a vessel has been
retained on a full-time basis and serves as a temporary storage tank when not
transporting product to the refinery.  Transportation costs in France
are relatively consistent year over year and will continue to be higher than
pre-January 2007 levels until full resumption of terminal operations occurs,
which is expected during the second half of 2009.





Years
      Ended December 31($000’s except per boe)
                        
                        2008
                        
                        
                        2007Transportation
                        
                        $
                        23,545
                        
                        
                        $
                        22,926Per boe
                        
                        $
                        1.96
                        
                        
                        $
                        2.01


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  11







GENERAL
AND ADMINISTRATION EXPENSE





General
and administration expenses per boe for the year ended December 31, 2008 were
$2.07 as compared to $1.64 in 2007.  The increase per boe from 2007 is
associated with information technology project expenses and higher business
development costs as well as an overall increase in consulting
costs.  The increase in business development costs are a result of
higher activity levels whereby more acquisition opportunities were
evaluated.  Consultants are used frequently by Vermilion to complement
staff during times of peak workload and to facilitate project work.





Years
      Ended December 31($000’s except per boe)
                      
                      2008
                      
                      
                      2007General and administration
                      
                      $
                      24,837
                      
                      
                      $
                      18,726Per boe
                      
                      $
                      2.07
                      
                      
                      $
                      1.64
  UNIT
BASED COMPENSATION EXPENSE





Non-cash
unit based compensation expense for the year ended December 31, 2008 was $18.4
million as compared to $14.0 million in 2007.  For 2008, this expense
relates to the value attributable to long-term incentives granted to officers,
directors and employees under the Trust Unit Award Incentive
Plan.  The 2007 figures also include expense associated with the Trust
Unit Rights Incentive Plan, the value of which had been fully amortized by
December 31, 2007 resulting in no expense for this plan being recognized in
2008.





The year
over year increase in the expense compared to 2007 is associated with an
adjustment to the Trust’s estimates related to its Trust Unit Award Incentive
Plan that was recorded in the fourth quarter of 2007.






Years
      Ended December 31($000’s except per boe)
                      
                      2008
                      
                      
                      2007Unit based compensation
    expense
                      
                      $
                      18,388
                      
                      
                      $
                      13,985Per boe
                      
                      $
                      1.53
                      
                      
                      $
                      1.22
  INTEREST
EXPENSE





Interest
expense for the year ended December 31, 2008 was $16.3 million as compared to
$22.3 million in 2007.  The decrease in interest expense in 2008
versus 2007 is a result of significantly lower debt levels.







Years
      Ended December 31($000’s except per boe)
                            
                            2008
                            
                            
                            2007Interest
                            
                            $
                            16,331
                            
                            
                            $
                            22,330Per boe
                            
                            $
                            1.36
                            
                            
                            $
                            1.95





DEPLETION,
DEPRECIATION AND ACCRETION EXPENSE





Depletion,
depreciation and accretion expenses per boe for the year ended December 31, 2008
were $21.32 as compared to $18.49 in 2007.  Depletion, depreciation
and accretion rates in 2008 have increased from the rates per boe in 2007 due
primarily to higher finding, development and acquisition costs incurred by the
Trust.




Years
      Ended December 31($000’s except per boe)
                              
                              2008
                              
                              
                              2007Depletion, depreciation and
      accretion
                              
                              $
                              255,473
                              
                              
                              $
                              211,397Per boe
                              
                              $
                              21.32
                              
                              
                              $
                              18.49
  TAXES





Vermilion
is subject to current taxes in France, the Netherlands and
Australia.  Current taxes for the year ended December 31, 2008
increased to $83.8 million compared to $34.0 million in the prior
year.  This increase is attributable to the significant increase in
year over year revenues associated with higher commodity prices in
2008.  Current taxes for the fourth quarter of 2008 were significantly
lower than the expense recorded in prior quarters in 2008 as a result of lower
average commodity prices as well as certain deductions taken in France, the
Netherlands and Australia in the fourth quarter of 2008.


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  12







As at
December 31, 2008, Vermilion had the following tax pools:





($000’s)
                          Oil
      & Gas Assets
                          
                          Tax
      Losses
                          Other
                          TotalCanada
                          $313,519
                          (1)
                          $186,253
                          $1,721
                          $501,493France
                          59,249
                          (2)
                          60,854
                          -
                          120,103Australia
                          202,083
                          (1)
                          -
                          -
                          202,083Netherlands
                          65,036
                          (2)
                          -
                          -
                          65,036Total
                          $639,887
                          
                          $247,107
                          $1,721
                          $888,715(1)
      Deduction calculated by various declining balance rates
                            (2)
      Deduction calculated by unit of production
  method





On June
22, 2007 Federal legislation to tax certain types of income in publicly traded
income and royalty trusts (“SIFT Rules”) received royal assent.  The
main purpose of the SIFT Rules was to introduce a tax structure for trusts
similar to that for corporations and the SIFT Rules are expected to take effect
at the beginning of 2011.  The SIFT Rules also introduced normal
growth guidelines that limit the amount of equity that can be issued by trusts
until 2011.  Currently, Vermilion does not anticipate the normal
growth guidelines will impede its ability to execute its business
strategy.





On June
18, 2008 Federal legislation was enacted to replace the 13% provincial tax
component for tax applicable to SIFT trusts with the “provincial SIFT tax
rate”.  As substantially all of Vermilion’s Canadian operations are in
Alberta, we expect the provincial SIFT tax rate to be 10%.  However,
the related income tax regulations for calculating the provincial SIFT tax rate
have not been published and therefore are not considered to be substantively
enacted  As a result, Vermilion has used the deemed 13% provincial
rate to calculate its future taxes.





On
November 28, 2008 the Minister of Finance introduced legislation to permit
trusts to convert into corporations without any undue tax consequences to either
the trust or its unitholders.  As of December 31, 2008 the legislation
has not been enacted.





Vermilion
has evaluated the impact of the SIFT Rules on the current Trust structure in
addition to analyzing other alternative structures to determine the impact to
its business model and unitholders.  It is management’s current
intention that Vermilion will convert to a corporation by 2013.  The
timing of the intended conversion to a corporation will be influenced by a
number of factors including strategic business
opportunities.  Management will continue to monitor any future changes
to tax legislation and determine the impact to the trust structure
accordingly.







Years
      Ended December 31($000’s except per boe)
                        
                        2008
                        
                        
                        2007Current taxes
                        
                        $
                        83,804
                        
                        
                        $
                        34,033Per boe
                        
                        $
                        6.99
                        
                        
                        $
                        2.98




FOREIGN
EXCHANGE





For the
year ended December 31, 2008, a combined realized and unrealized foreign
exchange loss of $47.1 million was recorded compared to a gain of $11.5 million
in 2007.  The combined loss through December 31, 2008 is comprised of
a realized gain of $5.5 million and an unrealized, non-cash loss of $52.6
million.  The year to date unrealized loss is largely related to the
translation to Canadian dollars of foreign currency denominated future income
taxes and asset retirement obligations.  Since December 31, 2007, the
Canadian dollar weakened significantly against the Euro resulting in this
unrealized loss.







Years
      Ended December 31($000’s except per boe)
                            
                            2008
                            
                            
                            2007Foreign exchange loss
(gain)
                            
                            $
                            47,110
                            
                            
                            $
                            (11,533
                            )Per boe
                            
                            $
                            3.93
                            
                            
                            $
                            (1.01
                            )





2008
      Management’s Discussion and Analysis – Exhibit 99.2
                13







EARNINGS





Net
earnings for the year ended December 31, 2008 were $229.2 million or $3.30 per
unit as compared to $164.3 million or $2.48 per unit in 2007.  The
increase in earnings for 2008 versus 2007 is largely associated with higher
average commodity price levels in 2008 as compared to the prior
year.





LIQUIDITY
AND CAPITAL RESOURCES





Vermilion’s
net debt as at December 31, 2008 was $207.8 million compared to $416.9 million
as at December 31, 2007.





As at
December 31, 2008, the Trust had an unsecured covenant-based credit facility
allowing for maximum borrowings of $675 million.  The revolving period
under the facility is expected to expire in June 2009 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.





Vermilion
purchased 72,800 shares in Verenex Energy Inc. (“Verenex”) during the first
quarter of 2008 for total consideration of $0.6 million.  After
reflecting these additional shares, Vermilion owned 18.8 million shares
representing 42.4% of the outstanding shares of Verenex as at December 31,
2008.





On
February 24, 2008 Verenex entered into an agreement under which a company has
agreed to acquire all of Verenex's outstanding common shares for $10.00 per
share.  Pursuant to this arrangement, Vermilion entered into a lock-up
agreement with the acquirer whereby the Trust has agreed to tender its common
shares in Verenex under the offer.  Vermilion holds 18.8 million
shares in Verenex and accordingly, the Trust's proceeds from a successful
transaction would be approximately $187.6 million.





The
completion of this transaction is subject to a number of conditions including
consent from the Libyan National Oil Corporation and valid acceptance of the
offer by at least 66.7% of Verenex's shareholders as well as other governmental
and regulatory approvals.





On May 14,
2008, Vermilion suspended the distribution reinvestment plan.  This
suspension was effective June 16, 2008 and was the result of continued high
commodity prices resulting in fund flows from operations that were in excess of
the level needed to sustain the Trust’s business model.  Cash flows
from financing activities for the years ended December 31, 2008 and 2007
included cash flows related to the issuance of trust units pursuant to the
distribution reinvestment plan of $18.5 million and $36.0 million,
respectively.




Liquidity and Capital
    Resources
                      
                      2008
                      
                      
                      2007
                      
                      
                      2006Net
      debt ($m)
                      
                      $
                      207,753
                      
                      
                      $
                      416,858
                      
                      
                      $
                      354,809Bank
      facility ($m)
                      
                      $
                      675,000
                      
                      
                      $
                      625,000
                      
                      
                      $
                      500,000Unused
      bank facility ($m)
                      
                      $
                      467,247
                      
                      
                      $
                      208,142
                      
                      
                      $
                      145,191Net
      debt to fund flows from operations ratio 1
                      
                      
                      0.36
                      
                      
                      
                      1.08
                      
                      
                      
                      1.04Net debt to equity ratio1
                      
                      
                      0.28
                      
                      
                      
                      0.66
                      
                      
                      
                      0.66


1 These
are non-GAAP measures and may not be comparable to similar measures for other
entities.





Vermilion
has a long-term and short-term need for capital.  Short-term working
capital is required to finance accounts receivable, crude oil inventory and
other similar short-term assets.  Short-term capital may also be used
from time to time to fund cash distributions to maintain consistent monthly cash
distributions to unitholders of the Trust.  The acquisition and
development of petroleum and natural gas properties requires both short-term and
long-term capital.  There are essentially three methods of financing
the capital needs of Vermilion; internally generated cash, debt and
equity.





Internally
generated cash is used primarily for distributions, development capital
requirements and contributions to the Trust’s reclamation
fund.  Internal cash flow is significantly influenced by commodity
prices.  Other risks include exchange rates, interest rates and
marketing opportunities, among others.  Vermilion’s business model
generally maintains total distributions and capital development expenditures
below internally generated cash, using the excess to reduce outstanding
indebtedness.  At times, the volatility of commodity prices and/or
requirements of certain capital programs may result in total distributions and
capital development expenditures exceeding internally generated cash for short
periods.


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  14





Future
significant acquisitions of producing properties are expected to be financed
through additional bank debt combined with the issuance of trust units, if
necessary.  The Trust’s ability and desire to finance acquisitions
through the issuance of equity is dependent upon the nature of the market for
the issuance of equity as well as the size of the potential
acquisition.  It is Vermilion’s preference to finance acquisitions
with debt whenever practicable.  In the event that the Trust considers
equity financing appropriate, its ability to issue equity is highly dependent on
the receptivity of the equity markets.  In recent years, there has
been an active market for equity financing of Canadian resource
trusts.  In the current environment, the financial crisis has put
significant risk on the trust sector’s ability to equity finance.




Total
                    
                    
                    Less than 1 year
                    
                    
                    1-3 years
                    
                    
                    3-5 years
                    
                    
                    More than 5 yearsLong-term
      debt obligations (1)
                    
                    
                    197,651
                    
                    
                    
                    -
                    
                    
                    
                    197,651
                    
                    
                    
                    -
                    
                    
                    
                    -Operating lease obligations
                    
                    
                    53,015
                    
                    
                    
                    4,063
                    
                    
                    
                    10,224
                    
                    
                    
                    7,862
                    
                    
                    
                    30,866Total
                    
                    
                    250,666
                    
                    
                    
                    4,063
                    
                    
                    
                    207,875
                    
                    
                    
                    7,862
                    
                    
                    
                    30,866
 (1)
Does not include
interest





In
addition, the Trust has various other commitments associated with its business
operations, none of which in management’s view, are significant.





RECLAMATION
FUND





Vermilion
has established a reclamation fund for the ultimate payment of environmental and
site restoration costs on its asset base.  The reclamation fund is
funded by Vermilion Resources Ltd. and its operating
subsidiaries.  Contribution levels to the reclamation fund are
reviewed on a regular basis and are adjusted when necessary to ensure that
reclamation obligations associated with the Trust’s assets will be substantially
funded when the costs are expected to be incurred.





As at
December 31, 2008, the fair value of the reclamation fund was $63.4 million and
the fund was comprised of $21.7 million in cash and short term investments and
$41.7 million in equity and debt securities.  A portion of the cash
and short term investments and all of the equity and debt securities are
professionally managed by third parties.





ASSET
RETIREMENT OBLIGATION





At
December 31, 2008, Vermilion’s asset retirement obligation was $265.1 million
compared to $163.4 million as at December 31, 2007.  The increase is
largely attributable to changes in estimates relating to the Trust’s future
obligations as well as the impact of exchange rates on foreign currency
denominated obligations.





During the
years ended December 31, 2008 and 2007, the Trust completed reviews of its
estimates of the expected costs to reclaim the net interest in its wells and
facilities.  As a result of significantly higher Canadian reclamation
costs which have been observed by the industry as a whole, Vermilion adjusted
its asset retirement obligations to reflect these increased estimated future
costs.  When appropriate, the Trust engages external third party
consultants with relevant experience in reclamation activities in the regions in
which Vermilion has operations to assist in estimating its asset retirement
obligations.





DISTRIBUTIONS





Vermilion
maintained monthly distributions at $0.19 per unit for the year ended December
31, 2008 and declared distributions totalling $158.7 million compared to $136.4
million for the same period in 2007.





Since
inception, the Trust has declared $773.4 million in distributions to unitholders
as compared to unitholders’ capital of $444.4 million at December 31,
2008.





Proceeds
from the Trust’s distributions reinvestment program were $18.5 million in 2008
(2007 - $36.0 million).


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  15







Sustainability of
Distributions





($000’s)Three
      Months Ended
                                                  
                                                  
                                                  Year
      Ended
                                                  
                                                  
                                                  Year
      Ended
                                                  
                                                  
                                                  Year
      EndedDec 31, 2008
                                                  
                                                  
                                                  Dec 31, 2008
                                                  
                                                  
                                                  Dec 31, 2007
                                                  
                                                  
                                                  Dec 31, 2006Cash
      flows from operating activities
                                                  
                                                  $
                                                  142,983
                                                  
                                                  
                                                  $
                                                  660,135
                                                  
                                                  
                                                  $
                                                  349,890
                                                  
                                                  
                                                  $
                                                  306,033Net
      earnings
                                                  
                                                  $
                                                  13,755
                                                  
                                                  
                                                  $
                                                  229,189
                                                  
                                                  
                                                  $
                                                  164,286
                                                  
                                                  
                                                  $
                                                  146,923Distributions
      declared
                                                  
                                                  $
                                                  40,022
                                                  
                                                  
                                                  $
                                                  158,674
                                                  
                                                  
                                                  $
                                                  136,389
                                                  
                                                  
                                                  $
                                                  130,638Excess
      of cash flows from operating activitiesover
      cash distributions declared
                                                  
                                                  $
                                                  102,961
                                                  
                                                  
                                                  $
                                                  501,461
                                                  
                                                  
                                                  $
                                                  213,501
                                                  
                                                  
                                                  $
                                                  175,395Excess
      (shortfall) of net earnings over cashdistributions declared
                                                  
                                                  $
                                                  (26,267)
                                                  
                                                  
                                                  $
                                                  70,515
                                                  
                                                  
                                                  $
                                                  27,897
                                                  
                                                  
                                                  $
                                                  16,285




Excess of
cash flows from operating activities over cash distributions declared are used
to fund capital expenditures, asset retirement costs, reclamation fund
contributions and debt repayments. The current quarter shortfall of net earnings
over cash distributions declared is a result of the unrealized, non-cash foreign
exchange loss recorded during the quarter and has no immediate impact on
distribution sustainability.





The
Trust’s policy with respect to distributions is to be conservative and retain a
low payout ratio when comparing distributions to fund flows from
operations.  During low price commodity cycles, Vermilion will
initially maintain distributions and allow the payout ratio to
rise.  Should the low price cycle remain for an extended period of
time, the Trust will evaluate the necessity to change the level of distribution,
taking into consideration capital development requirements, debt levels and
acquisition opportunities.





Since
Vermilion’s conversion to a trust in January 2003, the distribution remained at
$0.17 per unit per month until December 2007.  Since then, the
distribution has remained at $0.19 per unit per month.





UNITHOLDERS’
EQUITY





During the
year ended December 31, 2008, 2.9 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.





In October
2008 the Trust acquired and then cancelled 45,600 of its own units pursuant to a
normal course issuer bid.  The cost to acquire these units was $1.2
million and this transaction resulted in a decrease to unitholders’ capital and
retained earnings of $0.3 million and $0.9 million, respectively.





Unitholders’
capital increased during the same period by $46.4 million as a result of the
issuance of those units, $17.3 million as a result of contributed surplus
transfer related to unit based compensation plans with a decrease of $0.3
million as a result of the unit buyback.





As at
March 16, 2009 there were 70,240,669 trust units outstanding.





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 sheets represents the book value of
exchangeable shares plus accumulated earnings attributable to the outstanding
exchangeable shares. The reduction in net income represents the net income
attributable to the exchangeable shareholders for the period. As the
exchangeable shares are converted to trust units, Unitholders' capital is
increased for the fair value of the trust units issued.  As the
exchangeable shares are exchanged for trust units over time, the non-controlling
interest will decrease and eventually will be nil when all exchangeable shares
have been exchanged for trust units.






2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  16





As at
December 31, 2008 there were 4.1 million exchangeable shares outstanding at an
exchange ratio of 1.66196whereby
6.8 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.  All outstanding exchangeable
shares must be redeemed on or before January 22, 2013 and Vermilion 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.





RISK
MANAGEMENT





Crude oil
and natural gas exploration, production, acquisition and marketing operations
involve a number of risks.  These risks include operational
fluctuations in commodity prices, exchange rates, interest rates, exploration
uncertainties, product demand, transportation restrictions and governmental
regulatory changes.





To
mitigate these risks whenever possible, Vermilion seeks to hire personnel with
experience in specific areas.  In addition, the Trust provides
continued training and development to staff to further develop their
skills.  When appropriate, Vermilion uses third party consultants with
relevant experience to augment its internal capabilities with respect to certain
risks.





Vermilion
considers its commodity price risk management program as a form of insurance
that protects its cash flow and rate of return.  The primary objective
of the risk management program is to support Vermilion’s distributions and its
internal capital development program.  The level of commodity price
risk management that occurs is highly dependent on the amount of debt that the
Trust is carrying.  When debt levels are higher, Vermilion will be
more active in protecting its cash flow stream through its commodity price risk
management strategy.





When
executing its commodity price risk management programs, Vermilion uses
over-the-counter financial structures as well as fixed/collar structures to
economically hedge a part of its physical natural gas and oil
sales.  Vermilion has strict controls and guidelines in relation to
these activities and contracts only with counter parties that have high credit
ratings.





Vermilion
maintains an insurance program consistent with industry practice to protect
against losses from accidental destruction of assets, well blowouts, pollution
and other potential business interruptions.





CURRENCY
RISK





Vermilion’s
primary exposure to currency risk comes from a revenue stream that is
denominated in U.S. dollars.  Vermilion’s exposure to fluctuations in
the Euro and Australian dollar is limited primarily to reinvestment and
repatriation of funds and forward-sale contracts can be used to mitigate these
risks.  The remaining cash flow from Vermilion’s international
operations is reinvested in each country, creating a natural hedge to the
working capital and cash flow stream when they are converted to Euros and
Australian dollars.





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
      the fluctuation of commodity prices and foreign exchange
      rates;iv.
                        
                        Depletion,
      depreciation and accretion are based on estimates of oil and gas reserves
      that the Trust expects to recover in the future;v.
                        
                        Asset
      retirement obligations are based on estimates of future costs and the
      timing of expenditures;vi.
                        
                        The
      future recoverable value of capital assets and goodwill are based on
      estimates that the Trust expects to realize; andvii.
                        
                        Unit
      compensation expense is determined using accepted fair value approaches
      which rely on historical data and certain estimates made by
      management.
   2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  17







SENSITIVITIES





Crude oil
and natural gas prices may change significantly because of factors Vermilion
cannot control.  The following table provides a summary of estimated
sensitivities to price fluctuations for pro-forma production levels and expenses
for the year ended December 31, 2008.




Change
      in
                        Change
      inCash
      Available for Distributions
                        Cash
      AvailablePer Unit and Exchangeable
      Shares
                        for DistributionsChange
      in crude oil price by US$1.00/bbl
                        $0.09
                        $6.8
      millionChange
      in natural gas price by Cdn$0.10/mcf
                        $0.02
                        $1.7
      millionChange
      in interest rate by one point
                        $0.03
                        $2.5
      millionChange
      in Cdn/U.S. foreign exchange rate by one point
                        $0.05
                        $3.6
      millionChange in Cdn/Euro foreign exchange rate by one
      point
                        $0.01
                        $0.7
million
  OFF
BALANCE SHEET ARRANGEMENTS





The Trust
has certain lease agreements that are entered into in the normal course of
operations.  All leases are operating leases and accordingly no asset
or liability value has been assigned in the balance sheet as of December 31,
2008.





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 prior to entering into a
derivative contract Vermilion reviews the creditworthiness of the
counterparty.





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.





ENVIRONMENT,
HEALTH AND SAFETY





Vermilion
remains committed to conducting its activities in a manner that will protect the
health and safety of its employees, contractors and the Public.  Vermilion
will maintain health, safety and environmental practices and procedures that
comply with regulatory requirements and industry standards.  It is a
condition of employment that Vermilion personnel work safely and in accordance
with established regulations and procedures.





In 2008,
Vermilion remained committed to the principles of the Environment, Health and
Safety Stewardship Program set out by the Canadian Association of Petroleum
Producers.  This voluntary initiative promotes continual improvement in the
areas of environment, health and safety performance, supplemented by progress
reports to stakeholders.





Vermilion
continued its commitment to reduce impacts to land, water and air, as policies
and procedures, demonstrating leadership in these areas, were maintained and
further developed in 2008.  Examples of accomplishments during the year
included:





-      Development
and implementation of Vermilion’s Health Safety and Environment Management
System;


-      Reducing
long-term environmental liabilities through decommissioning, abandoning and
reclaiming well leases and facilities;


-      Continuous
auditing and management inspections;


-      Reducing
waste products by reducing, recycling and recovering; and


-      Continuing
risk management efforts with detailed emergency-response planning.





Vermilion
is a member of several organizations concerned with environment, health and
safety, including numerous regional co-operatives and synergy groups.  In
the area of stakeholder relations, Vermilion works to build long-term
relationships with environmental stakeholders and communities.


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  18





INTERNATIONAL
FINANCIAL REPORTING STANDARDS TRANSITION





On
February 13, 2008, the Accounting Standards Board confirmed that the transition
date to International Financial Reporting Standards (“IFRS”) from Canadian GAAP
will be January 1, 2011 for publically accountable enterprises such as
Vermilion.





Vermilion
has created an internal IFRS transition team to oversee the Trust’s adoption of
IFRS and the services of a large international public accounting firm have been
retained to assist the Trust in its conversion program.  The Trust has
completed its scoping diagnostic to determine the areas of significant
difference between Canadian GAAP and IFRS and Vermilion’s transition team is
currently focusing on the design and implementation of policies and processes to
allow Vermilion to prepare both IFRS and Canadian GAAP financial statements in
2010 providing for comparative financial statements after the official
changeover in 2011.





NEW
ACCOUNTING POLICIES





On January
1, 2008, the Trust adopted Section 1535, “Capital Disclosures”; Section 3862,
“Financial Instruments – Disclosures”; and Section 3863, “Financial Instruments
– Presentation”.  The adoption of these standards did not impact the
amounts reported in the Trust’s consolidated financial statements however, it
did result in additional note disclosures relating to the Trust’s capital
structure and financial instruments.





On January
1, 2008, the Trust adopted Section 3031, “Inventories.”   The adoption
of this standard did not impact the Trust’s consolidated financial
statements.





RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS





In
February 2008, the CICA issued Section 3064 – “Goodwill and Intangible Assets”
to replace Sections 3062 – “Goodwill and Other Intangible Assets” and 3450 –
“Research and Development Costs”.  Section 3064 incorporates guidance
addressing when an internally developed intangible asset meets the criteria for
recognition as an asset.   This Section is effective for fiscal
years beginning on or after October 1, 2008.  The Trust does not
anticipate that the adoption of this standard will have a material impact on its
results of operations and financial position.





In January
2009, the CICA issued Section 1582 – “Business Combinations”, Section 1601–
“Consolidated Financial Statements” and Section 1602 – “Non-controlling
Interests”.   These new sections are effective for years
beginning on or after January 1, 2011 with earlier adoption permitted. Sections
1582 and 1602 will require net assets, non-controlling interests and goodwill
acquired in a business combination to be recorded at fair value and
non-controlling interests will be reported as a component of equity. In
addition, the definition of a business is expanded and is described as an
integrated set of activities and assets that are capable of being managed to
provide a return to investors or economic benefits to owners, members or
participants. Finally, acquisition costs are not part of the consideration and,
with the exception of trust unit issue costs, acquisition-related costs are to
be expensed when incurred.  Vermilion is current assessing the
potential impact and whether or not it will elect to adopt these standards in
advance of the transition to IFRS.





CORPORATE
GOVERNANCE





Vermilion
is committed to a high standard of corporate governance practices, a dedication
that begins at Board level and extends throughout the Trust. We believe good
corporate governance is in the best interest of our unitholders, and that
successful companies are those that deliver growth and a competitive return
along with a commitment to the environment, to the communities where they
operate and to their employees. We comply with the objectives and guidelines
relating to corporate governance adopted by the Toronto Stock Exchange. In
addition, the Board monitors and considers the implementation of corporate
governance standards proposed by various regulatory and non-regulatory
authorities in Canada.  A full examination of our corporate governance
policies will be provided in our Annual Information Circular, which will be
filed on SEDAR (www.sedar.com) and mailed to all unitholders by March 31,
2009.


2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  19





DISCLOSURE
CONTROLS AND PROCEDURES





Vermilion’s
officers have established and maintained disclosure controls and procedures and
evaluated the effectiveness of these controls in conjunction with the Trust’s
filings.





As of
December 31, 2008 the Trust has evaluated the effectiveness of the design and
operation of the Trust’s disclosure controls and procedures.  Based on
this evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded and certified that the Trust’s disclosure controls and procedures are
effective.





INTERNAL
CONTROL OVER FINANCIAL REPORTING





A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.





Management
has assessed the effectiveness of the Trust’s internal control over financial
reporting as defined in Rule 13a-15 under the US Securities Exchange Act of 1934
and as defined in Canada by National Instrument 52-109, Certification of
Disclosure in Issuers’ Annual and Interim Filings.  Management
concluded that the Trust’s internal control over financial reporting was
effective as of December 31, 2008.  The effectiveness of the Trust’s
internal control over financial reporting as of December 31, 2008 has been
audited by Deloitte & Touche LLP, as reflected in their report for
2008.  No changes were made to the Trust’s internal control over
financial reporting during the year ending December 31, 2008, that have
materially affected, or are reasonably likely to materially affect, the internal
controls over financial reporting.














2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  20







TRUST
INFORMATION





DIRECTORS
                              
                              Larry
      J. Macdonald 1, 2, 3, 4,
      5
                              Chairman
      & CEO, Point Energy Ltd.
                              Calgary,
      Alberta
                              
                              W.
      Kenneth Davidson 2,
      3
                              Toronto,
      Ontario
                              
                              Lorenzo
      Donadeo
                              Calgary,
      Alberta
                              
                              Claudio
      A. Ghersinich 2, 4,
      5
                              Executive
      Director, Carrera Investments Corp.
                              Calgary,
      Alberta
                              
                              Joseph
      F. Killi 2,
      3
                              Chairman,
                              Parkbridge
      Lifestyle Communities Inc.
                              Vice
      Chairman, Realex Properties Corp.
                              Calgary,
      Alberta
                              
                              William
      F. Madison 2, 4,
      5
                              Sugar
      Land, Texas
                              
                              1  Chairman
      of the Board
                              2  Audit
      Committee
                              3  Governance
      and Human Resources Committee
                              4  Health,
      Safety and Environment Committee
                              5  Independent
      Reserves Committee
                              
                              ANNUAL
      AND SPECIAL MEETING
                              May
      8, 2009 at 10:00 a.m.
                              The
      Ballroom
                              Metropolitan
      Centre
                              333
      – 4th
      Avenue S.W.
                              Calgary,
      Alberta
                            OFFICERS
      & KEY PERSONNEL
                              FirstQuarterReportMarch
      31, 2003
                              
                              CANADA
                              Lorenzo
      Donadeo, P.Eng.
                              President
      & Chief Executive Officer
                              
                              John
      D. Donovan, F.C.A.
                              Executive
      Vice President Business Development
                              
                              Curtis
      W. Hicks, C.A.
                              Executive
      Vice President & CFO
                              
                              G.
      R. (Bob) Mac Dougall, P.Eng.
                              Executive
      Vice President & COO
                              
                              Paul
      L. Beique
                              Vice
      President Capital Markets
                              
                              Mona
      Jasinski, M.B.A., C.H.R.P.
                              Vice
      President People
                              
                              Raj
      C. Patel, P.Eng.
                              Vice
      President Marketing
                              
                              Daniel
      Goulet, P.Eng.
                              Director
      Production and Operations
                              
                              FRANCE
                              Peter
      Sider, P.Eng.
                              Regional
      General Manager, European Operations
                              Vermilion
      REP SAS
                              
                              NETHERLANDS
                              Scott
      Ferguson, P.Eng.
                              General
      Manager
                              Vermilion
      Oil & Gas Netherlands B.V.
                              
                              AUSTRALIA
                              Bruce
      D. Lake, P.Eng.
                              Managing
      Director
                              Vermilion
      Oil & Gas Australia Pty Ltd.
                            AUDITORS
                              Deloitte
      & Touche LLP
                              Calgary,
      Alberta
                              
                              BANKERS
                              The
      Toronto-Dominion Bank
                              Calgary,
      Alberta
                              
                              Bank
      of Montreal
                              Calgary,
      Alberta
                              
                              BNP
      Paribas (Canada)
                              Toronto,
      Ontario
                              
                              The
      Bank of Nova Scotia
                              Calgary,
      Alberta
                              
                              Royal
      Bank of Canada
                              Calgary,
      Alberta
                              
                              Alberta
      Treasury Branches
                              Calgary,
      Alberta
                              
                              Fortis
      Capital (Canada) Ltd.
                              Calgary,
      Alberta
                              
                              Société
      Générale (Canada Branch)
                              Calgary,
      Alberta
                              
                              Citibank
      Canada
                              Calgary,
      Alberta
                              
                              EVALUATION
      ENGINEERS
                              GLJ
      Petroleum Consultants Ltd.
                              Calgary,
      Alberta
                              
                              LEGAL
      COUNSEL
                              Macleod
      Dixon LLP
                              Calgary,
      Alberta
                              
                              TRANSFER
      AGENT
                              Computershare
      Trust Company of Canada
                              
                              STOCK
      EXCHANGE LISTING
                              The
      Toronto Stock Exchange
                              Symbol:
      VET.UN
                              
                              INVESTOR
      RELATIONS CONTACT
                              Paul
      L. Beique
                              Vice
      President Capital Marketssmall logo
                            HEAD
      OFFICE

                              2800,
      400 – 4TH
      Avenue S.W.
                              Calgary,
      Alberta  T2P 0J4
                              403.269.4884
      TEL
                              403.264.6306
      FAX
                              1.866.895.8101
      TOLL FREE
                              investor_relations@vermilionenergy.com
                              www.vermilionenergy.com




2008
      Management’s Discussion and Analysis – Exhibit 99.2
                  21