EXHIBIT 99.2


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                               [GRAPHIC OMITTED]

                        [LOGO - VERMILION ENERGY TRUST]



                                  ANNUAL REPORT

                                      2004



                      MANAGEMENT'S DISCUSSION AND ANALYSIS




2004 Annual Report - Vermilion Energy Trust                                    1


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<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS


The following is management's discussion and analysis (MD&A) dated February 11,
2004 of Vermilion's operating and financial results for the years ended December
31, 2004 and 2003. This discussion should be read in conjunction with the
Trust's audited consolidated financial statements for the years ended December
31, 2004 and 2003, together with accompanying notes.

NON-GAAP MEASURES

Included in this report are references to terms commonly used in the oil and gas
industry, such as cash flow and cash flow per unit which is expressed before
changes in non-cash working capital and is used by the Trust to analyze
operating performance, leverage and liquidity. These terms are not defined by
Generally Accepted Accounting Principles ("GAAP"). Consequently, these are
referred to as non-GAAP measures. Cash flow, as discussed in this report,
appears as a separate caption on the Trust's cash flow statement and is
reconciled to both net income and cash flow from operations.

FORWARD-LOOKING INFORMATION

This report contains forward-looking financial and operational information
including earnings, cash flow, production and capital expenditure projections.
These projections are based on the Trust's expectations and are subject to a
number of risks and uncertainties that could materially affect the results.
These risks include, but are not limited to, future commodity prices, exchange
rates, interest rates, geological risk, reserves risk, political risk, product
demand and transportation restrictions.

<TABLE>
<CAPTION>

HIGHLIGHTS                                                                              2004       2003*       2002
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>         <C>        <C>
Revenues ($m)                                                                        354,525     314,146    287,540
Net earnings ($m)                                                                    108,917      41,216     41,322
   Per unit 2004, 2003, per share in 2002 ($)                                           1.81        0.78       0.74
Funds from operations ($m)                                                           170,179     144,761    157,365
   Per unit 2004, 2003, per share in 2002 ($)                                           2.83        2.73       2.82
Return on equity (%)                                                                    28.9        12.0       13.7
Total assets ($m)                                                                    844,602     780,589    811,711
WTI (US$/bbl)                                                                          41.40       31.04      25.83
AECO (CDN$/mcf)                                                                         6.56        6.69       4.07
Realized price ($/boe)                                                                 39.48       37.52      30.75
CASH FLOW NETBACK ($/BOE) 1                                                            20.19       17.29      16.83
-------------------------------------------------------------------------------------------------------------------
* Restated in accordance with accounting changes required by changes to the CICA
handbook 1 2003 netbacks are calculated including the impact of $25.6 million of
reorganization costs

2004 SUMMARY OF QUARTERLY RESULTS                                           Q1            Q2          Q3         Q4
-------------------------------------------------------------------------------------------------------------------
Revenue ($m)                                                            77,610        87,420      96,260     93,235
Net earnings from continuing operations ($m)                             6,148        14,660      10,253     16,353
Net earnings ($m) 1                                                      6,976        73,535      10,253     18,153
NET EARNINGS ($/UNIT) 1                                                   0.11          1.23        0.17       0.30
-------------------------------------------------------------------------------------------------------------------

2003 SUMMARY OF QUARTERLY RESULTS (RESTATED)                                Q1            Q2          Q3         Q4
-------------------------------------------------------------------------------------------------------------------
Revenue ($m)                                                            87,579        81,094      72,359     73,114
Net earnings (loss) from continuing operations ($m)                     (1,388)       27,999       9,331      6,759
Net earnings (loss) ($m)                                                (2,080)       27,578       8,687      7,031
NET EARNINGS (LOSS) ($/UNIT)                                             (0.04)         0.53        0.16       0.13
-------------------------------------------------------------------------------------------------------------------
</TABLE>

1 Net earnings and net earnings per unit is restated for non-controlling
interest pertaining to exchangeable shares as required by changes to the CICA
handbook.


2004 Annual Report - Vermilion Energy Trust                                    2


<PAGE>

QUARTERLY RESULTS

Quarterly results for the most recent two years have remained relatively
consistent except in three instances. Net earnings in the three months ended
March 31, 2003 were reduced as a result of the one-time re-organization costs of
$25.6 million related to the Plan of Arrangement. The increase in earnings in
the three months ended June 30, 2003 was related to the reduction in tax rates
for Canadian resource activities combined with the fact that with the structure
of the Trust, the future income tax liability recorded in the balance sheet will
be recovered through earnings over time. The increase in earnings in the three
months ended June 30, 2004 relates to the sale of Aventura for a net gain of
$68.0 million. The Trust restated its prior period financial statements to
reflect the Aventura net assets as "held for sale".

FOURTH QUARTER 2004

Revenue for the three months ended December 31, 2004 increased 28% over the
three months ended December 31, 2003. This increase is due to an increase in
production resulting from the acquisition of assets in the Netherlands as well
as increased prices received. WTI increased 55% quarter over quarter and AECO
increased 14% in the same period. Earnings increased significantly due mostly to
the increase in revenues and the gain on derivative instruments for the quarter.

OPERATIONAL ACTIVITIES

In Canada, the Trust participated in the drilling of forty-three wells (23.0
net) in 2004, resulting in eight gas wells (4.4 net), two oil wells (1.7 net),
two abandoned wells (0.7 net) and thirty-one standing wells (16.2 net) awaiting
further evaluation, completion or tie-in. These numbers include 25 (10.8 net)
wells drilled with Glacier, targeting coalbed methane and shallow gas. Less than
one half of Vermilion's 2004 capital program in Canada was spent on drilling.

Vermilion will participate with Glacier in the drilling of 50-75 wells in 2005.
The balance of Vermilion's 2005 drilling program will target infill wells
identified by historical drilling success or recompletion success in the areas
of interest.

In addition to the Trust's drilling operations, Vermilion had seven wells
drilled on its lands by third party operators through farm-out arrangements in
2004. Vermilion maintained an overriding royalty or small working interest in
these wells.

In France, Vermilion completed the La Torche 2 well during the first quarter of
2004 establishing further drilling opportunities which will be pursued over the
next few years. In the Parentis field in the Aquitaine Basin workovers and
recompletions enabled the Trust to maintain year-end exit rates of production in
France constant at approximately 6,000 boe/d. Up to four wells could be drilled
in the Paris Basin in 2005, depending upon the success of the program.

In the Netherlands, Vermilion assumed full operatorship of all properties and
facilities, including operatorship of the Zuidwal offshore platform. The Trust
also participated in the drilling and completion of the Zuidwal A-10 well. The
well appears to be in communication with the existing Zuidwal reservoir and no
additional reserves can be attributed to the A-10 well. Production from the
Zuidwal field is expected to increase marginally as a result of the A-10 well
and other workover activities currently underway. Vermilion will continue to
pursue the optimization of production from the Netherland properties in 2005.

PRODUCTION

Production in Canada during 2004 averaged 5,723 bbls/d of oil and NGL's and 46.4
mmcf/d of natural gas compared to 6,678 bbls/d of oil and NGL's and 60.0 mmcf/d
of natural gas in 2003. Fourth quarter production averaged 5,510 bbls/d of oil
and NGL's and 41.3 mmcf/d of natural gas, representing an annual decline of
approximately 17.7% compared to fourth quarter 2003 volumes.


2004 Annual Report - Vermilion Energy Trust                                    3


<PAGE>

Production in France averaged 6,018 boe/d in 2004 a 4.0% decline compared to
6,271 boe/d production in 2003. Fourth quarter production averaged 5,954 boe/d
and benefited from a recent recompletion in the Parentis field in the Aquitaine
Basin. Only one well, La Torche 2, was completed in 2004.

Production in the Netherlands, acquired in May 2004, averaged 3,519 boe/d
annualized for the year. Fourth quarter production from the Netherlands averaged
5,593 boe/d.


2004 Annual Report - Vermilion Energy Trust                                    4


<PAGE>

Total Trust production averaged 22,990 boe/d in 2004, compared to 22,942 boe/d
in 2003. Production declines in Canada and France were offset with the
acquisition of production in the Netherlands. Vermilion will benefit from a full
year of Netherlands production in 2005 as well as from additional volumes from
our proposed Australian acquisition which was announced on February 1, 2005.


<TABLE>
<CAPTION>
                      YEAR ENDED DECEMBER 31, 2004    YEAR ENDED DECEMBER 31, 2003     YEAR ENDED DECEMBER 31, 2002
-------------------------------------------------------------------------------------------------------------------
                            OIL &  NATURAL                 OIL &   NATURAL                  OIL &  NATURAL
                             NGLS      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)
-------------------------------------------------------------------------------------------------------------------
<S>                         <C>      <C>    <C>             <C>      <C>    <C>             <C>      <C>     <C>
Vermilion Energy Trust
     Canada                 5,723    46.38  13,453          6,678    59.96  16,671          7,669    69.56   19,262
     France                 5,763     1.53   6,018          6,018     1.51   6,271          6,053     1.32    6,273
     NETHERLANDS 1             13    21.03   3,519              -        -       -              -        -        -
-------------------------------------------------------------------------------------------------------------------
     TOTAL                 11,499    68.94  22,990         12,696    61.47  22,942         13,722    70.88   25,535
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1  Effective from May 19th, 2004

2004 QUARTERLY PRODUCTION (BOE/D)                                             Q1          Q2          Q3         Q4
-------------------------------------------------------------------------------------------------------------------

Canada                                                                    15,055      13,502      12,875     12,398
France                                                                     6,262       5,991       5,869      5,954
NETHERLANDS 1                                                                  -       2,882       5,553      5,593
-------------------------------------------------------------------------------------------------------------------
TOTAL                                                                     21,317      22,375      24,297     23,945
-------------------------------------------------------------------------------------------------------------------
1  Effective from May 19th, 2004

2003 QUARTERLY PRODUCTION (BOE/D)                                             Q1          Q2          Q3         Q4
-------------------------------------------------------------------------------------------------------------------

Canada                                                                    17,908      17,739      16,001     15,073
FRANCE                                                                     6,224       6,334       6,090      6,437
-------------------------------------------------------------------------------------------------------------------
TOTAL                                                                     24,132      24,073      22,091     21,510
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</TABLE>

CAPITAL EXPENDITURES

Capital spending for the year totalled $161.2 million compared to $79.6 million
spent in 2003. Of this total, approximately $85 million relates to the
acquisition in the Netherlands, $8.9 million relates to two minor acquisitions
completed in the fourth quarter with the remainder spent on drilling and
development activities.

<TABLE>
<CAPTION>

CAPITAL EXPENDITURES ($M)                                                               2004        2003       2002
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>       <C>        <C>
Land                                                                                     493       1,520      9,914
Seismic                                                                                  787       1,272      5,947
Drilling and completion                                                               34,469      47,440     61,849
Production equipment and facilities                                                   15,757      11,887     16,443
Workovers                                                                              9,999      12,861     11,829
CAPITALIZED EXPLORATION ADMINISTRATION                                                 1,670       2,061      3,248
-------------------------------------------------------------------------------------------------------------------
Drilling and development expenditures                                                 63,175      77,041    109,230
Property acquisitions (dispositions)                                                  93,990      (1,294)    23,433
Corporate acquisitions                                                                     -           -     97,334
OTHER                                                                                  4,084       3,819      4,082
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                                                                                     161,249      79,566    234,079
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CAPITAL EXPENDITURES BY COUNTRY ($M)                                                    2004        2003       2002
-------------------------------------------------------------------------------------------------------------------
Canada                                                                                31,722      33,511    134,336
France                                                                                35,028      30,469     25,092
Netherlands                                                                           94,499           -          -
TRINIDAD                                                                                   -      15,586     74,651
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2004 Annual Report - Vermilion Energy Trust                                    5


<PAGE>

                                                                                     161,249      79,566    234,079
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</TABLE>

FINANCIAL REVIEW

The Trust, excluding Verenex, generated cash flow of $169.8 million ($2.57 per
unit including exchangeables) in 2004, compared to $144.8 million ($2.47 per
unit including exchangeables) in 2003. The Trust's distributions in the year
totalled $122.6 million or $2.04 per unit for a payout ratio of 72%. Capital
expenditures in the year totalled $144.7 million. Vermilion's share of the cost
to drill and complete the Zuidwal A-10 well has been included in the acquisition
cost of the Netherlands assets and is not included in development capital.
During the year, Vermilion contributed $15.3 million to the Trust's reclamation
fund to provide for future abandonment liabilities bringing the fund balance to
$17.0 million.

CASH FLOW NETBACKS

Cash flow was $170.2 million in 2004, up from $144.8 million in 2003. A higher
average wellhead price was recorded in 2004 as a result of a 3% increase in AECO
pricing and a 33% increase in average WTI pricing compared with 2003.

<TABLE>
<CAPTION>

2004 CASH FLOW ($/BOE)               Q1            Q2          Q3           Q4          2004        2003       2002
-------------------------------------------------------------------------------------------------------------------
<S>                               <C>           <C>         <C>          <C>           <C>         <C>        <C>
Oil and gas revenues              41.71         44.21       43.79        43.04         43.21       39.90      31.15
Oil hedging losses                (2.84)        (3.34)      (4.35)       (4.23)        (3.73)      (2.38)     (0.40)
Royalties (net)                   (9.67)        (8.33)      (6.74)       (5.75)        (7.54)      (8.92)     (6.56)
Transportation                    (1.43)        (1.35)      (0.99)       (0.97)        (1.17)      (1.24)         -
OPERATING COSTS                   (6.16)        (6.72)      (6.86)       (6.74)        (6.63)      (6.11)     (4.60)
-------------------------------------------------------------------------------------------------------------------
Operating netbacks                21.61         24.47       24.85        25.35         24.14       21.25      19.59
General and administration        (1.58)        (1.67)      (1.59)       (1.53)        (1.59)      (1.24)     (1.00)
Reorganization costs                  -             -           -            -             -       (1.05)         -
Interest                          (0.69)        (0.39)      (0.17)       (0.26)        (0.37)      (1.05)     (0.60)
Current and capital taxes         (1.24)        (1.99)      (2.81)       (1.97)        (2.03)      (0.59)     (1.17)
FOREIGN EXCHANGE                      -          0.05        0.09            -          0.04       (0.03)      0.01
-------------------------------------------------------------------------------------------------------------------
CASH FLOW NETBACKS                18.10         20.47       20.37        21.59         20.19       17.29      16.83
-------------------------------------------------------------------------------------------------------------------

2003 CASH FLOW ($/BOE)               Q1            Q2          Q3           Q4
--------------------------------------------------------------------------------
Oil and gas revenues              43.48         38.19       37.50        39.12
Oil hedging losses                (3.16)        (1.12)      (1.89)       (2.18)
Royalties (net)                   (9.54)        (9.38)      (8.51)       (8.24)
Transportation                    (1.16)        (1.34)      (1.10)       (1.35)
OPERATING COSTS                   (5.45)        (5.79)      (6.38)       (6.90)
--------------------------------------------------------------------------------
Operating netbacks                24.17         20.56       19.62        20.45
General and administration        (1.15)        (1.31)      (1.18)       (1.31)
Reorganization costs              (4.06)            -           -            -
Interest                          (0.95)        (1.00)      (1.18)       (1.06)
Current and capital taxes         (0.66)        (0.60)      (0.53)       (0.59)
FOREIGN EXCHANGE                      -             -           -        (0.11)
--------------------------------------------------------------------------------
CASH FLOW NETBACKS                17.35         17.65       16.73        17.38
--------------------------------------------------------------------------------
</TABLE>

REVENUE

Total revenues in 2004 were $354.5 million compared to $314.1 million in 2003.
Vermilion's combined crude oil & NGL price was $47.26 per bbl for 2004, an
increase of 13% over the $41.84 per bbl reported in 2003. The natural gas price
realized in 2004 was $6.53 per mcf compared to $6.25 per mcf realized a year
ago, a 4% year-over-year increase.

In the following chart, "Derivative instruments" is the amortization of the fair
value loss of Vermilion's hedges in place as of January 1, 2004.


2004 Annual Report - Vermilion Energy Trust                                    6


<PAGE>


<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31
($000'S EXCEPT PER BOE)                                                                    2004              2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>               <C>
Crude oil & NGL's                                                                      $199,060          $193,895
Per boe                                                                                  $47.26            $41.84
Natural gas                                                                             165,174           140,187
PER MCF                                                                                   $6.53             $6.25
-----------------------------------------------------------------------------------------------------------------
Combined                                                                                364,234           334,082
DERIVATIVE INSTRUMENTS                                                                   (9,709)          (19,936)
-----------------------------------------------------------------------------------------------------------------
PETROLEUM AND NATURAL GAS REVENUE                                                      $354,525          $314,146
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</TABLE>

DERIVATIVE INSTRUMENTS

Vermilion continues to manage its risk exposure through prudent commodity and
currency economic hedging strategies. Vermilion has WTI hedges covering 1,500
bbls/d in 2005 at US$24.80/bbl. Vermilion has Brent hedges covering 1,500 bbls/d
in 2005 at US$23.37/bbl.

The impact of Vermilion's hedging program reduced cash netbacks by $3.73 per boe
on a combined basis for the year ended 2004 compared to an economic hedging loss
of $2.38 per boe in 2003. Oil hedging resulted in a $34.1 million cost for the
year, $4.04 per boe for the year. For 2003, oil hedging resulted in a $17.5
million cost for the year, $1.89 per boe for the year. For the year the Trust
recorded a net gain from its currency hedges totalling $3.3 million, $0.39 per
boe for the year.

ROYALTIES

Total royalties, net of ARTC, decreased to $7.54 per boe in 2004 or 17% of sales
compared with $8.92 per boe or 22% of sales in 2003. The decrease is due mostly
to the fact that there are no royalties paid in the Netherlands. Gas royalties
in Canada have reached a plateau as prices have increased beyond the maximum
royalty calculation. In France, royalties for the most part are calculated on a
unit of production basis and rates do not fluctuate with price changes.

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31
($000'S EXCEPT PER BOE)                                                                    2004              2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>               <C>
Crude oil & NGL's                                                                       $31,105           $33,242
Per boe                                                                                   $7.39             $7.17
Natural gas                                                                              32,450            41,477
PER MCF                                                                                   $1.28             $1.85
-----------------------------------------------------------------------------------------------------------------
COMBINED                                                                                $63,555           $74,719
-----------------------------------------------------------------------------------------------------------------
PER BOE                                                                                   $7.54             $8.92
-----------------------------------------------------------------------------------------------------------------
</TABLE>

OPERATING COSTS

Operating costs increased to $6.63 per boe in 2004 from $6.11 per boe in 2003.
The increase in the dollar amount of operating costs over 2003 was due to the
acquisition of the Netherland's assets. In Canada, declining production volumes,
as well as an increase in electricity rates in 2004, resulted in year over year
increases in costs per boe. In France, operating costs are up due primarily to
the increase in maintenance work performed in the second and third quarters. The
production in the Netherlands reflects operating costs of $6.55 per boe from
closing on May 19, 2004 to the end of the year.

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31
($000'S EXCEPT PER BOE)                                                                    2004              2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>               <C>
Crude oil & NGL's                                                                       $30,632           $30,951
Per boe                                                                                   $7.27             $6.68
Natural gas                                                                              25,285            20,210
PER MCF                                                                                   $1.00             $0.90
-----------------------------------------------------------------------------------------------------------------
COMBINED                                                                                $55,917           $51,161
-----------------------------------------------------------------------------------------------------------------


2004 Annual Report - Vermilion Energy Trust                                    7


<PAGE>

PER BOE                                                                                   $6.63             $6.11
-----------------------------------------------------------------------------------------------------------------
</TABLE>


2004 Annual Report - Vermilion Energy Trust                                    8


<PAGE>

TRANSPORTATION

Effective for 2004, Vermilion's transportation costs have been presented as an
expense in the statement of earnings whereas previously they were recorded as a
reduction of revenue. For comparative purposes, 2003 amounts have been
reclassified. Transportation costs, as presented in the statement of earnings,
are defined by the point of legal transfer of the product. Transportation costs
are dependent upon where the product is sold, product split, location of
properties, and industry transportation rates that are driven by supply and
demand of available transport capacity. For gas production, legal title
transfers at the intersection of major pipelines (referred to as "the Hub")
whereas the majority of Vermilion's oil production is sold at the wellhead. The
majority of Vermilion's transportation costs are made up of boat charges
incurred in the Aquitaine Basin in France where oil production is transported by
tanker from Ambes shipping terminal in Bordeaux to Donges, France.

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31
($000'S EXCEPT PER BOE)                                                                    2004              2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>              <C>
TRANSPORTATION                                                                           $9,865           $10,370
-----------------------------------------------------------------------------------------------------------------
PER BOE                                                                                   $1.17             $1.24
-----------------------------------------------------------------------------------------------------------------
</TABLE>

GENERAL AND ADMINISTRATION EXPENSES

General and administration expenses for the year increased to $1.59 per boe from
$1.24 per boe in 2003. The increase is mainly due to a reduction in the total
costs capitalized combined with lower average production volumes on a
consolidated basis.

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31
($000'S EXCEPT PER BOE)                                                                    2004              2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>               <C>
GENERAL AND ADMINISTRATION                                                              $13,410           $10,368
-----------------------------------------------------------------------------------------------------------------
PER BOE                                                                                   $1.59             $1.24
-----------------------------------------------------------------------------------------------------------------
</TABLE>

REORGANIZATION COSTS

Reorganization costs of $25.6 million in 2003 relate to Vermilion's decision to
convert to a trust. Included in this amount are $8.8 million in transaction
costs, which include investment banking fees as well as all accounting and legal
fees related to the conversion. Also included is $16.8 million representing the
value of trust units issued in exchange for the cancellation of all outstanding
employee options. All of these costs were incurred in the first quarter of 2003.

UNIT COMPENSATION EXPENSE

A non-cash trust unit compensation expense of $3.18 per boe was recorded in 2004
compared to $0.99 per boe in 2003. This non-cash amount relates to the value
attributable to rights granted to officers, directors and employees under the
Trust Unit Rights Incentive Plan.

The amounts are determined based on the market price of the units at the
financial statement date. The expense in 2004 reflects the significant increase
in the trading price of Vermilion's trust units when compared to the unit
trading price increases recorded in 2003.

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31
($000'S EXCEPT PER BOE)                                                                    2004              2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                <C>
UNIT COMPENSATION EXPENSE                                                               $26,766            $8,303
-----------------------------------------------------------------------------------------------------------------
PER BOE                                                                                   $3.18             $0.99
-----------------------------------------------------------------------------------------------------------------
</TABLE>


2004 Annual Report - Vermilion Energy Trust                                    9


<PAGE>

INTEREST EXPENSE

Interest expense decreased to $0.37 per boe in 2004 from $1.05 per boe in 2003
as a result of lower average debt levels. Debt levels are lower in 2004
primarily as a result of the December 2003 equity financing issue combined with
the sale of Aventura which closed in May 2004. The Trust's interest rates are
primarily based on short term Bankers' Acceptance rates.

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31
($000'S EXCEPT PER BOE)                                                                    2004              2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>               <C>
INTEREST                                                                                 $3,086            $9,348
-----------------------------------------------------------------------------------------------------------------
PER BOE                                                                                   $0.37             $1.05
-----------------------------------------------------------------------------------------------------------------
</TABLE>

DEPLETION AND DEPRECIATION EXPENSE

Depletion and depreciation expenses increased to $11.30 per boe in 2004 from
$10.98 per boe in 2003. The increase is due mainly to the increase of finding
and development costs in Canada. Depletion also increased as a result of the
asset increase due to the implementation of the E1C 151 change described in
accounting policy changes.

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31
($000'S EXCEPT PER BOE)                                                                    2004              2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>               <C>
DEPLETION AND DEPRECIATION                                                              $95,279           $91,947
-----------------------------------------------------------------------------------------------------------------
PER BOE                                                                                  $11.30            $10.98
-----------------------------------------------------------------------------------------------------------------
</TABLE>

TAXES

The Trust's current tax provision has increased to $2.03 per boe in 2004 from
$0.59 per boe in 2003. The current provision is based on an approximate $14.6
million tax liability in France (which includes payment of a disputed
registration tax of 2.6 million Euros related to 1997 and payment of 1.6 million
Euros related to an RCDM audit) and an approximate $8.5 million tax liability in
the Netherlands for the full year. The tax liability in the Netherlands will be
allocated to the purchase price for the period from January 1 to May 19 2004 in
accordance with the allocation of revenues and expenses related to the
Netherlands assets for that same time period. In Canada, it is anticipated that
there will be no current taxes due with the exception of capital taxes which are
assessed on an annual basis. The recovery in future income taxes is a result of
the taxable portion of distribution payments made to unitholders. In the Trust's
structure, payments are made between the operating company and the Trust
transferring both income and future income tax liability to the unitholder.
Therefore it is the opinion of management that no cash income taxes in Canada
are expected to be paid by the operating company in the future, and as such, the
future income tax liability recorded on the balance sheet related to Canadian
operations will be recovered through earnings over time.

In 2004 a reduction in the Alberta corporate income tax rate was substantially
enacted. This reduction amounted to a recovery of future income taxes of
approximately $2 million in 2004.

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31
($000'S EXCEPT PER BOE)                                                                    2004              2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                <C>
CURRENT AND CAPITAL TAX                                                                 $17,108            $4,966
-----------------------------------------------------------------------------------------------------------------
PER BOE                                                                                   $2.03             $0.59
-----------------------------------------------------------------------------------------------------------------
</TABLE>

ASSET RETIREMENT OBLIGATION

At December 31, 2004, Vermilion had recorded an asset retirement obligation of
$51.7 million for future abandonment and reclamation of its properties.
Previously reported amounts for the period ended December 31, 2003 have been
restated for the impact of the change in accounting policy for asset retirement
obligation that was implemented in 2003 and required retroactive application
with restatement of prior periods.


2004 Annual Report - Vermilion Energy Trust                                   10


<PAGE>

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31
($000'S EXCEPT PER BOE)                                                                    2004              2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>               <C>
ACCRETION EXPENSE                                                                        $2,261            $1,134
-----------------------------------------------------------------------------------------------------------------
PER BOE                                                                                   $0.27             $0.13
-----------------------------------------------------------------------------------------------------------------
</TABLE>


2004 Annual Report - Vermilion Energy Trust                                   11


<PAGE>


FOREIGN EXCHANGE

A combined realized and unrealized foreign exchange gain of $0.16 per boe was
recorded in 2004 with a loss of $0.36 per boe in 2003. The gain is mostly
unrealized and relates to the strengthening Canadian dollar versus the Euro on
the Netherlands asset retirement obligation.

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31
($000'S EXCEPT PER BOE)                                                                    2004              2003
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>                 <C>
FOREIGN EXCHANGE LOSS (GAIN)                                                           $(1,285)            $2,998
-----------------------------------------------------------------------------------------------------------------
PER BOE                                                                                 $(0.16)             $0.36
-----------------------------------------------------------------------------------------------------------------
</TABLE>

EARNINGS

Net earnings from continuing operations in the year increased to $47.4 million,
$0.79 per unit from $42.7 million, $0.80 per unit in 2003. Earnings in the year
were affected by the new accounting policies adopted in the year. The most
significant changes to pre-tax earnings were unit compensation expense which
added an additional expense of $26.8 million or $0.44 per unit and the loss on
derivative instruments which decreased pre-tax earnings by $16.9 million or
$0.28 per unit. Despite the changes in policy, earnings from continuing
operations were similar to 2003 due to increased revenues resulting from
stronger pricing this year over last. Earnings from discontinued operations were
as a result of the sale of Aventura.

LIQUIDITY AND CAPITAL RESOURCES

Vermilion's debt (net of working capital) on December 31, 2004 was $84.7 million
excluding Verenex working capital and the mark-to-market liability for
unrealized hedging losses. There were no changes to Vermilion's credit facility
in the year. The facility structure is comprised of a one year revolving period
with a one year term to follow with a final settlement payment required at the
end of the second year.

Vermilion maintained bank credit facilities of $240 million with a syndicate of
banks, resulting in unused debt capacity of $155 million at December 31, 2004.
These credit facilities automatically increase to $270 million upon finalization
of security over the assets in the Netherlands. Vermilion is in a position to
use its credit facilities to expand its business in 2005 if opportunities are
identified that will add value.

<TABLE>
<CAPTION>
LIQUIDITY AND CAPITAL RESOURCES                                                         2004        2003       2002
-------------------------------------------------------------------------------------------------------------------
<S>                      <C>                                                          <C>        <C>        <C>
Debt and working capital ($m)                                                         84,686     131,498    186,769
Bank facility ($m)                                                                   240,000     240,000    270,000
Unused bank facility ($m)                                                            155,314     108,502     83,231
Debt-to-cash-flow ratio 1                                                               0.50        0.87       1.19
DEBT-TO-EQUITY RATIO 1                                                                  0.22        0.38       0.58
-------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Debt includes working capital

Vermilion has a long-term and short-term need for capital. Short-term working
capital will be required to finance accounts receivable, drilling deposits 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. However, the acquisition and
development of petroleum and natural gas properties requires large amounts of
long-term capital. There are essentially three components in financing the
capital needs of Vermilion: debt, equity and internally generated cash.

During 2004, Vermilion negotiated the terms of an amended credit facility with
its banking syndicate to provide a revolving term loan of $240 million,
increasing to $270 million upon completion of certain security arrangements. The
period under the revolving term loan is expected to expire on June 30, 2005.
That revolving period may be extended, at the option of the lenders, for a
further 364 days. If the lenders convert the revolving credit facility to a
non-revolving credit facility, the amounts outstanding


2004 Annual Report - Vermilion Energy Trust                                   12



<PAGE>

under the facility become repayable 12 months after the end of the revolving
period. The cost of funds borrowed under the credit facility is calculated by
reference to a Canadian chartered bank's prime rate or United States' base rate
or a specified adjusted interbank deposit rate, stamping fee or discount rate,
depending on the form of borrowing. Security for amounts outstanding is provided
by, among other things, floating charge oil and gas debentures over all of the
present assets and after-acquired assets. Vermilion anticipates the prudent use
of increased amounts of debt as the cash flow stream of its assets supports
additional debt capacity. There is currently an active market for the equity
financing of Canadian resource trusts. Accordingly, any future significant
acquisition of producing properties is expected to be financed through the
issuance of trust units combined with additional bank debt. The Trust accessed
the capital markets in December 2003 by issuing 6.05 million trust units at a
price of $14.10 per trust unit for gross proceeds of approximately $85 million.
There are no assurances the equity markets will continue to be active for
royalty trusts.

Internally generated cash is used mainly for distributions with any surplus
amounts spent on capital requirements. Internal cash flow is significantly
influenced by commodity prices. Other risks include exchange rates, interest
rates and marketing opportunities, among others. For a thorough discussion of
these risks and how they are managed by Vermilion, please see the section on
Risk Management.

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
will be funded by Vermilion Resources Ltd. and/or its subsidiaries.
Contributions in 2004 totalled $15.3 million. The contribution in the second
quarter included a one-time payment of $10 million as a result of a decision by
management to use a portion of the proceeds from the sale of Aventura to build
the fund to a more meaningful level. Contributions are currently made on a
barrel of oil equivalent of production basis in Canada, France and the
Netherlands and are occasionally supplemented with lump sum contributions.
Contribution levels to the reclamation fund will be reviewed on a regular basis
and will be adjusted when necessary to ensure reclamation obligations associated
with the Trust's assets will be substantially funded when the costs are forecast
to be incurred.

DISTRIBUTIONS

Vermilion maintained monthly distributions at $0.17 per unit for the year
distributing a total of $122.6 million compared to $98.9 million in 2003 before
the impact of the Trust's DRIP program. Vermilion has maintained its
distributions at $0.17 per month since its conversion to a trust, resulting in
23 continuous months of distributions at this level. Of the distributions paid
in the year, approximately 85% will be taxed in the hands of taxable Canadian
unitholders' as other income. The balance, considered to be a return of capital,
is tax deferred and will reduce the adjusted cost base of trust units held by
unitholders'.

UNITHOLDERS' EQUITY

During the year approximately 1.5 million units were issued on conversion of
exchangeable shares, unit rights exercised, issued pursuant to the terms of the
Trust's bonus plan and unitholders' participation in the distribution
reinvestment plan. Unitholders' capital increased during the year by $26.1
million as a result of the issuance of a portion of those units. This increase
in equity was offset by cash distributions of $122.6 million in the year.

NON-CONTROLLING INTEREST

The Trust has recorded non-controlling interest attributed to the issued and
outstanding exchangeable shares in accordance with new accounting requirements
pursuant to EIC-151 (see Note 3 of the consolidated financial statements for
further discussion). The intent of the new standard is that exchangeable shares

2004 Annual Report - Vermilion Energy Trust                                   13


<PAGE>

of a subsidiary which are transferable to third parties, outside of the
consolidated entity, represent a non-controlling interest in the subsidiary.

The exchangeable shares are transferable to third parties. In all circumstances,
including in the event of liquidation or insolvency, holders of exchangeable
shares will receive trust units in exchange for their exchangeable shares and as
a result the exchangeable shares and trust units are considered to be
economically equivalent. Therefore, the Trust does not believe that there is a
permanent non-controlling interest as all exchangeable shares will ultimately be
exchanged for trust units by passage of time whereby the exchangeable shares
will be redeemed for trust units. Consequently, as the exchangeable shares are
exchanged for trust units over time, the non-controlling interest will decrease
and eventually will be nil when all exchangeable shares have been exchanged for
trust units on or before January 22, 2013. However, the Trust has reflected the
non-controlling interest in accordance with the requirements of EIC-151.


2004 Annual Report - Vermilion Energy Trust                                   14


<PAGE>

The non-controlling interest in 2004 of $23.1 million ($15.1 million in 2003) on
the consolidated balance sheet represents the book value of exchangeable shares
plus accumulated earnings attributable to the outstanding exchangeable shares.
The reduction in 2004 and 2003 net income, respectively, of $8.7 million and
$4.2 million, represents the net income attributable to the exchangeable
shareholders for 2004 and 2003. As the exchangeable shares are converted to
trust units, Unitholders' capital is increased for the fair value of the trust
units issued.

As at December 31, 2004 there were 4.7 million exchangeable shares outstanding
at exchange ratio of 1.26626 whereby 5.9 million trust units would be issuable
upon conversion. The exchangeable shares can be converted into trust units or
redeemed by the exchangeable share holder for trust units at any time. Vermilion
may redeem all outstanding exchangeable shares on or before January 22, 2013 and
may redeem the exchangeable shares at any time if the number of exchangeable
shares outstanding falls below 500,000 shares. Vermilion may issue cash or trust
units upon redemption of exchangeable shares and it is the intention to issue
trust units upon redemption.

PROPOSED TRANSACTION

On February 1, 2005, the Trust announced that it has entered into a letter of
intent to acquire 4,800 bopd of production through a 60% operated interest in an
offshore field located on Western Australia's Northwest Shelf. The purchase
price for the proposed transaction is approximately C$95 million effective
January 1, 2005, subject to normal closing adjustments, and the transaction is
scheduled to close by March 1, 2005. Closing is subject to the parties entering
into a definitive purchase and sale agreement, the satisfaction of all
conditions precedent and the receipt of all necessary regulatory approvals. The
transaction is also subject to the waiver of first rights of refusal by the
owner of the remaining 40% working interest.

DISCONTINUED OPERATIONS

The Trust made a strategic decision to sell its interest in the Trinidad
operations. On May 6, 2004, the Trust completed the sale of the shares of its
subsidiary, Aventura, for gross proceeds of $164.6 million. As a result, the
Trust realized an estimated $68.0 million (net of tax) gain on the sale of
shares, which was recorded in the second quarter.

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.

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. Maintenance of a strong financial position
and a stable cash flow stream through the development of long-life reserves is
key to mitigating business risks.

To manage the adverse impact of significant movements in commodity prices,
exchange rates and interest rates, Vermilion uses over-the-counter financial
structures as well as fixed/collar structures as a part of physical natural gas
sales. Vermilion has strict controls and guidelines in place and enacts
transactions 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 business interruptions.

CURRENCY RISK


2004 Annual Report - Vermilion Energy Trust                                   15


<PAGE>

Vermilion's primary exposure to currency risk comes from a revenue stream in
Canada and France that is denominated in U.S. dollars. Vermilion's exposure to
fluctuations in the Euro 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 French operations is reinvested in France,
creating a natural hedge to the working capital and cash flow stream when they
are converted to Euros.


2004 Annual Report - Vermilion Energy Trust                                   16


<PAGE>


CRITICAL ACCOUNTING ESTIMATES

The amounts recorded for depletion and depreciation of property, plant and
equipment and the provision for future asset retirement obligations are based on
estimates. The ceiling test calculation is based on estimates of proved
reserves, production rates, oil and natural gas prices, future costs and other
relevant assumptions. By their nature, these estimates are subject to
measurement uncertainty and the effect on the consolidated financial statements
from changes in such estimates in future years could be significant.

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, 2005.

<TABLE>
<CAPTION>
                                                                CASH AVAILABLE FOR DISTRIBUTIONS     CASH AVAILABLE
                                                                PER UNIT AND EXCHANGEABLE SHARES  FOR DISTRIBUTIONS
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>         <C>
Change in crude oil price by Cdn$1.00/bbl                                                $  0.04     $  2.6 million
Change in natural gas price by Cdn$0.10/mcf                                              $  0.01     $  1.0 million
Change in interest rate by one point                                                     $  0.01     $  0.7 million
Change in Cdn/U.S. foreign exchange rate by one point                                    $  0.02     $  1.7 million
CHANGE IN CDN/EURO FOREIGN EXCHANGE RATE BY ONE POINT                                    $  0.00     $  0.3 MILLION
-------------------------------------------------------------------------------------------------------------------
</TABLE>

OFF BALANCE SHEET ARRANGEMENTS

The Trust has certain lease agreements that are entered into in the normal
course of operations. All leases are treated as operating leases whereby the
lease payments are included in operating expenses or G&A expenses depending on
the nature of the lease. No asset or liability value has been assigned to these
leases in the balance sheet as of December 31, 2004.

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.

NEW ACCOUNTING PRONOUNCEMENTS

In 2004, the Trust has applied the requirements of EIC-151 "Exchangeable
Securities issued by Subsidiaries on Income Trusts". The Trust's interpretation
of this EIC is that the exchangeable securities issued by a corporate subsidiary
of the Trust would continue to qualify as a component of Unitholders' Equity
rather than non-controlling interest as proposed by the EIC. However, it is the
Trust's understanding that the EIC has had recent discussions indicating that
the intent of EIC-151 was that all transferable exchangeable shares would be
valued and presented as non-controlling interest and as such, the Trust's
exchangeable shares have been presented as non-controlling interest in the
accompanying consolidated financial statements. As a result, net income was
reduced by $8.7 million and $4.2 million, respectively for the non-controlling
interest's share of earnings in each of 2004 and 2003.

CICA Accounting Guideline 13 (AcG-13), "Hedging Relationships", became effective
for fiscal years beginning on or after July 1, 2003. AcG-13 addresses the
identification, designation, documentation and effectiveness of hedging
transactions for the purposes of applying hedge accounting. It also establishes
conditions for applying or discontinuing hedge accounting. Under the new
guideline, hedging transactions must be documented and it must be demonstrated
that the hedges are sufficiently effective in order to continue hedge accounting
for positions hedged with derivatives. Vermilion is not applying hedge
accounting to its hedging relationships, electing instead to account for its
hedging activities on a fair value basis. The change in fair value of derivative
instruments in 2004 resulted in a $2.00 pre-tax per boe reduction to earnings.


2004 Annual Report - Vermilion Energy Trust                                   17


<PAGE>


In 2004, Vermilion adopted the new CICA Handbook section 3110, "Asset Retirement
Obligations". This standard focuses on the recognition and measurement of
liabilities related to legal obligations associated with the retirement of
property, plant and equipment. Under this standard, these obligations are
initially measured at fair value and subsequently adjusted for the accretion of
discount and any changes in the underlying cash flows. The asset retirement cost
is to be capitalized to the related asset and amortized into earnings over time.
The adoption of CICA Handbook section 3110 allows for the cumulative effect of
the change in accounting policy to be booked to accumulated income with the
restatement of prior period comparatives. The adoption of the asset retirement
obligation accounting policy, which has been applied retroactively, resulted in
a new line item to the income statement called accretion expense which was $0.27
per boe in 2004.

The Trust has a Unit Rights Incentive Plan (the "Plan") for directors, officers
and employees. The exercise price of the rights granted may be reduced in future
periods under certain conditions. The amount of the reduction cannot be
reasonably estimated, as it is dependent upon a number of factors. Therefore, it
is not possible to determine a fair value for the rights granted using a
traditional option-pricing model and compensation expense has been determined
based on the intrinsic value of the rights at the date of exercise or at the
date of the financial statements for unexercised rights. The Trust adopted the
provisions outlined in Section 3870 Stock Based Compensation of the CICA
Handbook in the period and applied the new policy retroactively. Unit
compensation expense in 2004 was $3.18 per boe.

Effective January 1, 2004 the Trust adopted Accounting Guideline 16 "Oil and Gas
Accounting - Full Cost", which replaces Accounting Guideline 5 "Full Cost
Accounting in the Oil and Gas Industry". Accounting Guideline 16 ("AcG-16")
modifies how impairment is tested and is consistent with CICA section 3063
"Impairment of Long-lived Assets". Under AcG-16, impairment is recognized if the
carrying amount of the capital assets exceeds the sum of the undiscounted cash
flows expected to result from the Trust's proved reserves. If the carrying value
is not fully recoverable, the amount of impairment is measured by comparing the
carrying amounts of the capital assets to an amount equal to the estimated net
present value of future cash flows from proved plus probable reserves. This
calculation incorporates risks and uncertainties in the expected future cash
flows which are discounted using a risk-free rate. Any excess carrying value
above the net present value of the future cash flows would be recorded as a
permanent impairment. Previously, impairment was tested based on undiscounted
future net revenues using proved reserves, and providing for future general and
administration expenses, carrying costs, and taxes. The adoption of AcG-16 had
no effect on the Trust's financial results.

CONTRACTUAL OBLIGATIONS

Vermilion has a pipeline transportation commitment that runs to October 31,
2005, and has minimum annual payment requirements of Cdn$0.1 million.

ENVIRONMENT, HEALTH AND SAFETY

Vermilion remains committed to conducting its activities in an environmentally
responsible manner, protecting the health and safety of its employees and the
public in every country in which it operates. It is a condition of employment
that Vermilion personnel work safely and in accordance with established
regulations and procedures.

In 2004, Vermilion remained committed to the principles of the Environment,
Health and Safety Stewardship Program set out by the Canadian Association of
Petroleum Producers (CAPP). 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 protect land, water and air, as policies
and procedures, demonstrating leadership in these areas, were maintained and
further developed in 2004. Examples of accomplishments during the year included:


2004 Annual Report - Vermilion Energy Trust                                   18



<PAGE>

-    Reducing long-term environmental liabilities through decommissioning,
     abandoning and reclaiming well leases and facilities;
-    Monitoring long-term liabilities through regular inspections;
-    Continuing reductions in flaring and greenhouse gas emissions;
-    Minimizing waste products by reducing, recycling and recovering; and
-    Continuing risk management efforts with detailed emergency-response
     planning.


2004 Annual Report - Vermilion Energy Trust                                   19


<PAGE>

Vermilion is a member of several organizations concerned with environment,
health and safety, including the Western Canadian Air Shed and numerous area
co-operatives.

In the area of stakeholder relations, Vermilion works to build long-term
relationships with environmental stakeholders and communities.

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 on or before March 31, 2005.


2004 Annual Report - Vermilion Energy Trust                                   20