**EXHIBIT
      99.3**














**2006
        AUDITED ANNUAL FINANCIAL STATEMENTS**
     
 
  **MANAGEMENT’S
        REPORT TO UNITHOLDERS**
 
 **Management’s
        Responsibility for Financial Statements**
  The
        accompanying
        consolidated financial statements of Vermilion Energy Trust are the
        responsibility of management and have been
        approved by
        the Board of Directors of Vermilion Resources Ltd., on behalf of the Trust.
        The
        financial statements have been prepared
        in
        accordance with accounting policies detailed in the notes to the financial
        statements and are in accordance with accounting
        principles generally accepted in Canada. Where necessary, management has
        made
        informed judgments and estimates
        of
        transactions that were not complete at the balance sheet date. Financial
        information throughout the Annual Report is
        consistent with
        the financial statements.
  Deloitte
&
        Touche LLP, the Trust’s Independent Registered Chartered Accountants, have
        conducted an audit of the consolidated financial
        statements in accordance with Canadian generally accepted auditing standards
        and
        the standards of the Public Company
        Accounting
        Oversight Board (United States) and have provided their report.
  The
        Board of
        Directors is responsible for ensuring that management fulfills its
        responsibility for financial reporting and internal control.
        The Board
        carries out this responsibility principally through the Audit Committee,
        which
        is appointed by the Board and is comprised entirely of independent Directors.
        The Committee meets periodically with management and Deloitte and Touche
        LLP to
        satisfy itself that each party is properly discharging its responsibilities
        and
        to review the consolidated financial statements, the Management’s Discussion and
        Analysis and the Report of the Independent Registered Chartered Accountants
        before they are presented
        to the
        Board of Directors.
  **Management’s
        Report on Internal Control Over Financial Reporting**
  Management
        is
        responsible for establishing and maintaining an adequate system of internal
        control over financial reporting. Management
        conducted an evaluation of the effectiveness of the system of internal control
        over financial reporting based on the criteria
        established in “Internal Control - Integrated Framework” issued by the Committee
        of Sponsoring Organizations of the Treadway
        Commission.
  A
        Company’s
        internal control system is designed to provide reasonable assurance that
        the
        financial information is relevant, reliable
        and
        accurate and that the Company’s assets are appropriately accounted for and
        adequately safeguarded. Based on this evaluation,
        management concluded that the Trust’s system of internal control over financial
        reporting was effective as of December
        31,
        2006.
  In
        accordance with
        guidance from the U.S. Securities and Exchange Commission, the Trust excluded
        from its 2006 evaluation an assessment
        of the
        internal control over financial reporting relating to the Vermilion Emeraude
        Rep
        SAS operations **,** which
        was acquired
        on July
        10, 2006 and whose financial statements constitute 26 percent and 19 percent
        of
        net and total assets, respectively,
        8
        percent of revenues, and 5 percent of net income of the consolidated financial
        statement amounts as of and for the
        year ended
        December 31, 2006.
  Management’s
        assessment of the effectiveness of the Trust’s internal control over financial
        reporting as of December 31, 2006 has been audited by Deloitte & Touche LLP,
        Independent Registered Chartered Accountants, as stated in their report,
        which
        is included
        herein.
        The Report of Independent Registered Chartered Accountants expresses an
        unqualified opinion on management’s
        assessment of the Trust’s internal control over financial reporting and an
        unqualified opinion on the effectiveness of
        the Trust’s
        internal control over financial reporting as of December 31, 2006.
   *("Lorenzo
                  Donadeo")*
              
              *("Curtis
                    W. Hicks")*Lorenzo
                  Donadeo
              
              Curtis
                  W.
                  HicksPresident
                  & Chief Executive Officer
              
              Executive
                  Vice President &March
                  20,
                  2007
              
              Chief
                  Financial Officer
  
 *2006
                Annual Report - Vermilion Energy Trust*
              **2**
 
  **REPORTS
        OF
        INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS**
  **Report
        of
        Independent Registered Chartered Accountants**
  To
        the Board of
        Directors of Vermilion Resources Ltd. and Unitholders of Vermilion Energy
        Trust:
  We
        have audited the
        accompanying consolidated balance sheets of Vermilion Energy Trust and
        subsidiaries (the “Trust”) as of December
        31, 2006
        and 2005 and the related consolidated statements of earnings and accumulated
        earnings and cash flows for the
        years then
        ended. These financial statements are the responsibility of the Trust’s
        management. Our responsibility is to express
        an opinion
        on these financial statements based on our audits.
  With
        respect to the
        financial statements for the year ended December 31, 2006, we conducted our
        audit in accordance with Canadian
        generally
        accepted auditing standards and the standards of the Public Company Accounting
        Oversight Board (United States).
        With
        respect to the financial statements for the year ended December 31, 2005,
        we
        conducted our audit in accordance with Canadian generally accepted auditing
        standards. Those standards require that we plan and perform the audit to
        obtain reasonable
        assurance about whether the financial statements are free of material
        misstatement. An audit includes examining, on a test basis, evidence supporting
        the amounts and disclosures in the financial statements. An audit also includes
        assessing the
        accounting
        principles used and significant estimates made by management, as well as
        evaluating the overall financial statement
        presentation. We believe that our audits provide a reasonable basis for our
        opinion.
  In
        our opinion,
        such consolidated financial statements present fairly, in all material respects,
        the financial position of Vermilion Energy
        Trust and
        subsidiaries as of December 31, 2006 and 2005, and the results of their
        operations and their cash flows for the years
        then ended in
        conformity with Canadian generally accepted accounting principles.
  The
        consolidated
        financial statements for the year ended December 31, 2005 have been restated
        with respect to Note 19, Differences
        between
        Canadian and United States of America Generally Accepted Accounting
        Principles.
  On
        March 20, 2007,
        we reported separately to the Unitholders of Vermilion Energy Trust on our
        audit, conducted in accordance with Canadian generally accepted auditing
        standards, of financial statements for the same period, prepared in accordance
        with Canadian
        generally
        accepted accounting principles but which did not include Note 19, Differences
        between Canadian and United States
        Generally
        Accepted Accounting Principles.
  We
        have also
        audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), the effectiveness
        of
        the Trust’s internal control over financial reporting as of December 31, 2006,
        based on the criteria established in Internal
        Control -
        Integrated Framework issued by the Committee of Sponsoring Organizations
        of the
        Treadway Commission and our
        report dated
        March 20, 2007 expressed an unqualified opinion on management's assessment
        of
        the effectiveness of the Trust's
        internal
        control over financial reporting and an unqualified opinion on the effectiveness
        of the Trust's internal control over financial
        reporting.
  *("Deloitte
        & Touche LLP")*
  Independent
        Registered Chartered Accountants Calgary,
        Canada
March 20, 2007
  **Comments
        by
        Independent Registered Chartered Accountants on Canada - United States of
        America Reporting** **Difference**
  The
        standards of
        the Public Company Accounting Oversight Board (United States) require the
        addition of an explanatory paragraph
        (following the opinion paragraph) when there are changes in accounting
        principles that have a material effect on the comparability
        of
        the Trust’s financial statements, such as the changes described in Note 19 to
        the financial statements. Our report
        to the Board
        of Directors of Vermilion Resources Ltd. and Unitholders of Vermilion Energy
        Trust dated March 20, 2007 is expressed in accordance with Canadian reporting
        standards which do not require a reference to such changes in accounting principles,
        in the
        auditors’ report when the change is properly accounted for and adequately
        disclosed in the financial statements.
  *("Deloitte
          & Touche LLP")*
  Independent
        Registered Chartered Accountants Calgary,
        Canada
March 20, 2007
  *2006
                  Annual Report - Vermilion Energy Trust*
                **3**
  **Report
        of
        Independent Registered Chartered Accountants**
  To
        the Board of
        Directors of Vermilion Resources Ltd. and Unitholders of Vermilion Energy
        Trust:
  We
        have audited
        management's assessment, included in the accompanying Management’s Report on
        Internal Control Over Financial
        Reporting, that Vermilion Energy Trust and subsidiaries (the “Trust”) maintained
        effective internal control over financial reporting
        as of
        December 31, 2006, based on criteria established in Internal Control -
        Integrated Framework issued by the Committee of Sponsoring Organizations
        of the
        Treadway Commission. As described in Management’s Report on Internal Control
        Over
        Financial Reporting, management excluded from its assessment the internal
        control over financial reporting at Vermilion
        Emeraude
        REP SAS, which was acquired on July 10, 2006 and whose financial statements
        constitute 26 percent and 19 percent of net and total assets, respectively,
        8
        percent of revenues, and 5 percent of net income of the consolidated financial
        statement amounts as of and for the year ended December 31, 2006. Accordingly,
        our audit did not include the internal control over
        financial
        reporting at Vermilion Emeraude REP SAS. The Trust's management is responsible
        for maintaining effective internal
        control
        over financial reporting and for its assessment of the effectiveness of internal
        control over financial reporting. Our responsibility is to express an opinion
        on
        management's assessment and an opinion on the effectiveness of the Trust's
        internal control
        over
        financial reporting based on our audit.
  We
        conducted our
        audit in accordance with the standards of the Public Company Accounting
        Oversight Board (United States). Those
        standards
        require that we plan and perform the audit to obtain reasonable assurance
        about
        whether effective internal control
        over
        financial reporting was maintained in all material respects. Our audit included
        obtaining an understanding of internal control
        over
        financial reporting, evaluating management's assessment, testing and evaluating
        the design and operating effectiveness
        of
        internal control, and performing such other procedures as we considered
        necessary in the circumstances. We believe
        that our
        audit provides a reasonable basis for our opinions.
  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.
  Because
        of the
        inherent limitations of internal control over financial reporting, including
        the
        possibility of collusion or improper management override of controls, material
        misstatements due to error or fraud may not be prevented or detected on a
        timely basis.
        Also, projections of any evaluation of the effectiveness of the internal
        control
        over financial reporting to future periods are subject to the risk that the
        controls may become inadequate because of changes in conditions, or that
        the
        degree of compliance with
        the policies
        or procedures may deteriorate.
  In
        our opinion,
        management's assessment that the Trust maintained effective internal control
        over financial reporting as of December
        31, 2006,
        is fairly stated, in all material respects, based on the criteria established
        in
        Internal Control - Integrated Framework
        issued by
        the Committee of Sponsoring Organizations of the Treadway Commission. Also
        in
        our opinion, the Trust maintained,
        in all
        material respects, effective internal control over financial reporting as
        of
        December 31, 2006, based on the criteria
        established in Internal Control - Integrated Framework issued by the Committee
        of Sponsoring Organizations of the Treadway
        Commission.
  *2006
                  Annual Report - Vermilion Energy Trust*
                **4**
 We
            have also
            audited, in accordance with Canadian generally accepted auditing standards
            and
            the standards of the Public Company Accounting Oversight Board (United
            States),
            the consolidated financial statements as of and for the year ended December
            31,
            2006 of the Trust, and our report dated March 20, 2007 expressed an unqualified
            opinion on those financial statements
            (which
            report on the consolidated financial statements includes explanatory
            paragraphs
            relating to a restatement of the
            consolidated
            financial statements as discussed in Note 19, and our report to the Unitholders
            of Vermilion Energy Trust on our audit
            conducted in
            accordance with Canadian generally accepted auditing standards of the
            consolidated financial statements for the
            same period)
            and included a separate report titled Comments by Independent Registered
            Chartered Accountants on Canada-United
            States of America Reporting Difference referring to a change in accounting
            principle.
 
 ("Deloitte
&
        Touche LLP")
  Independent
        Registered Chartered Accountants Calgary,
        Canada
March 20, 2007
 
 *2006
                Annual Report - Vermilion Energy Trust*
              **5**
 
  **Consolidated
        Balance Sheets** **December
        31**
 **(THOUSANDS
        OF CANADIAN DOLLARS)**
  **2006**
              
              **2005****ASSETS**CurrentCash
                  and cash
                  equivalents
              
              **$**
              **26,950**
              
              $
              42,777Accounts
                  receivable
              
              
              **120,573**
              
              
              75,098Crude
                  oil
                  inventory
              
              
              **4,898**
              
              
              10,279Fair
                  value of
                  derivative instruments (Note 12)
              
              
              **1,624**
              
              
              1,166Prepaid
                  expenses and other
              
              
              **13,473**
              
              
              9,387**167,518**
              
              
              138,707Fair
                  value of
                  derivative instruments (Note 12)
              
              
              **4,656**
              
              
              -Long-term
                  investments (Notes 3 and 15)
              
              
              **27,152**
              
              
              19,637Goodwill
                  (Note 3)
              
              
              **19,840**
              
              
              19,840Reclamation
                  fund (Note 5)
              
              
              **56,357**
              
              
              42,198Capital
                  assets (Note 4)
              
              
              **1,187,316**
              
              
              891,357**$**
              **1,462,839**
              
              $
              1,111,739**LIABILITIES**CurrentAccounts
                  payable and accrued liabilities
              
              **$**
              **139,672**
              
              $
              90,422Distributions
                  payable to unitholders
              
              
              **11,000**
              
              
              10,626Income
                  taxes
                  payable
              
              
              **13,419**
              
              
              11,607Fair
                  value of
                  derivative instruments (Note 12)
              
              
              **-**
              
              
              383**164,091**
              
              
              113,038Long-term
                  debt (Note 6)
              
              
              **358,236**
              
              
              271,099Asset
                  retirement obligation (Note 5)
              
              
              **127,494**
              
              
              70,214Future
                  income
                  taxes (Note 7)
              
              
              **224,631**
              
              
              160,475**874,452**
              
              
              614,826Non-controlling
                  interest - exchangeable shares (Note 9)
              
              
              **51,780**
              
              
              38,760**UNITHOLDERS’
                  EQUITY**Unitholders’
                  capital (Note 8)
              
              
              **321,035**
              
              
              274,813Contributed
                  surplus (Note 8)
              
              
              **30,513**
              
              
              14,566Accumulated
                  earnings
              
              
              **663,437**
              
              
              516,514Accumulated
                  cash distributions
              
              
              **(478,378**
              **)**
              
              (347,740
              )**536,607**
              
              
              458,153**$**
              **1,462,839**
              
              $
              1,111,739
 
 **APPROVED
        BY
        THE BOARD**
  *("Joseph
                F. Killi")*
              
              *("Lorenzo
                Donadeo")*Joseph
                  F.
                  Killi, Director
              
              Lorenzo
                  Donadeo, Director
   
 *2006
                Annual Report - Vermilion Energy Trust*
              **6**
 
  **Consolidated
        Statements of Earnings and Accumulated Earnings** **Years
        Ended
        December 31**
 **(THOUSANDS
        OF CANADIAN DOLLARS, EXCEPT UNIT AND PER UNIT AMOUNTS)**
 **2006**
              
              
              **2005****REVENUE**Petroleum
                  and
                  natural gas revenue (Note 12)
              
              **$**
              **618,072**
              
              $
              529,938Royalties
              
              
              **92,212**
              
              
              88,001**525,860**
              
              
              441,937**EXPENSES**Production
              
              
              **96,492**
              
              
              72,856Transportation
              
              
              **10,504**
              
              
              9,136Unit
                  compensation (Note 10)
              
              
              **24,383**
              
              
              14,000(Gain)
                  loss
                  on derivative instruments (Note 12)
              
              
              **(349**
              **)**
              
              18,787Interest
              
              
              **15,433**
              
              
              6,331General
                  and
                  administration (Note 10)
              
              
              **15,839**
              
              
              13,241Foreign
                  exchange loss (gain)
              
              
              **12,997**
              
              
              (10,727
              )Depletion,
                  depreciation and accretion
              
              
              **162,254**
              
              
              122,098**337,553**
              
              
              245,722**EARNINGS
                  BEFORE INCOME TAXES AND OTHER ITEMS**
              
              
              **188,307**
              
              
              196,215**INCOME
                  TAXES (RECOVERY) (NOTE 7)**Future
              
              
              **(16,349**
              **)**
              
              (240
              )Current
                  and
                  capital
              
              
              **42,876**
              
              
              25,007**26,527**
              
              
              24,767**OTHER
                  ITEMS**Non-controlling
                  interest - exchangeable shares (Note 9)
              
              
              **14,917**
              
              
              14,399Non-controlling
                  interest (Note 3)
              
              
              **-**
              
              
              (1,159
              )Equity
                  in
                  (earnings) of affiliates (Note 3)
              
              
              **(60**
              **)**
              
              (263
              )**14,857**
              
              
              12,977**NET
                  EARNINGS**
              
              
              **146,923**
              
              
              158,471**ACCUMULATED
                  EARNINGS, BEGINNING OF YEAR**
              
              
              **516,514**
              
              
              358,043**ACCUMULATED
                  EARNINGS, END OF YEAR**
              
              **$**
              **663,437**
              
              $
              516,514**NET
                  EARNINGS PER TRUST UNIT (NOTE 11)**Basic
              
              **$**
              **2.30**
              
              $
              2.57Diluted
              
              **$**
              **2.22**
              
              $
              2.49**WEIGHTED
                  AVERAGE TRUST UNITS OUTSTANDING (NOTE 11)**Basic
              
              
              **63,977,134**
              
              
              61,755,432Diluted
              
              
              **73,059,877**
              
              
              69,395,074
 
 *2006
                Annual Report - Vermilion Energy Trust*
              **7**
 
  **Consolidated
        Statements of Cash Flows** **Years
        Ended
        December 31**
 **(THOUSANDS
        OF CANADIAN DOLLARS)**
 **2006**
              
              
              **2005****CASH
                  AND CASH EQUIVALENTS PROVIDED BY (USED IN):****OPERATING**Net
                  earnings
              
              **$**
              **146,923**
              
              $
              158,471Items
                  not
                  affecting cash:Depletion,
                  depreciation and accretion
              
              
              **162,254**
              
              
              122,098Amortization
                  of deferred charges for derivative instruments
              
              
              **-**
              
              
              4,718Change
                  in
                  unrealized gains and losses and amounts accruedrelating
                  to
                  derivative contracts
              
              
              **(571**
              **)**
              
              (22,393
              )Unit
                  compensation
              
              
              **24,383**
              
              
              14,000Equity
                  in
                  (earnings) of affiliates
              
              
              **(60**
              **)**
              
              (263
              )Unrealized
                  foreign exchange loss (gain)
              
              
              **12,353**
              
              
              (11,466
              )Non-controlling
                  interest
              
              
              **-**
              
              
              (1,159
              )Non-controlling
                  interest - exchangeable shares
              
              
              **14,917**
              
              
              14,399Income
                  earned
                  on reclamation fund
              
              
              **(1,348**
              **)**
              
              -Future
                  income
                  tax recovery
              
              
              **(16,349**
              **)**
              
              (240
              )Funds
                  from
                  operations
              
              
              **342,502**
              
              
              278,165Asset
                  retirement costs incurred
              
              
              **(4,217**
              **)**
              
              (948
              )Changes
                  in
                  non-cash operating working capital (Note 13)
              
              
              **(32,252**
              **)**
              
              (32,101
              )**306,033**
              
              
              245,116**INVESTING**Drilling
                  and
                  development of petroleum and natural gas properties
              
              
              **(136,939**
              **)**
              
              (113,530
              )Acquisition
                  of petroleum and natural gas properties
              
              
              **(26,435**
              **)**
              
              (90,318
              )Long-term
                  investment (Note 3)
              
              
              **(7,500**
              **)**
              
              (12,299
              )Corporate
                  acquisition (Note 3)
              
              
              **(124,604**
              **)**
              
              (87,036
              )Purchase
                  of
                  derivative instrument (Note 12)
              
              
              **(4,926**
              **)**
              
              -Contributions
                  to reclamation fund
              
              
              **(9,553**
              **)**
              
              (25,183
              )Changes
                  in
                  non-cash investing working capital (Note 13)
              
              
              **548**
              
              
              (7,068
              )**(309,409**
              **)**
              
              (335,434
              )**FINANCING**Issue
                  of
                  trust units for cash, net of unit issue costs
              
              
              **11,545**
              
              
              9,147Cash
                  distributions
              
              
              **(130,264**
              **)**
              
              (125,884
              )Increase
                  in
                  long-term debt
              
              
              **87,137**
              
              
              196,084Issue
                  of
                  trust units pursuant to distribution reinvestment plan
              
              
              **18,811**
              
              
              15,850Cash
                  acquired
                  on shares issued by subsidiary, net of share issue costs
              
              
              **-**
              
              
              424Changes
                  in
                  non-cash financing working capital (Note 13)
              
              
              **(1,531**
              **)**
              
              (584
              )**(14,302**
              **)**
              
              95,037Foreign
                  exchange gain (loss) on cash held in foreign currencies
              
              
              **1,851**
              
              
              (9,062
              )Net
                  change in
                  cash and cash equivalents
              
              
              **(15,827**
              **)**
              
              (4,343
              )Impact
                  on
                  cash resulting from de-consolidation of Verenex (Note 3)
              
              
              **-**
              
              
              (17,911
              )Cash
                  and cash
                  equivalents, beginning of year
              
              
              **42,777**
              
              
              65,031Cash
                  and cash
                  equivalents, end of year
              
              **$**
              **26,950**
              
              $
              42,777Supplementary
                  information - cash paymentsInterest
                  paid
              
              **$**
              **20,320**
              
              $
              8,612Income
                  taxes
                  paid
              
              **$**
              **47,523**
              
              $
              26,190
 
 *2006
                Annual Report - Vermilion Energy Trust*
              **8**
 
  **Notes
                  to the Consolidated Financial Statements - Years Ended December
                  31, 2006
                  and 2005****(TABULAR
                  AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT UNIT AND PER UNIT
                  AMOUNTS)**
  **1.** **BASIS
        OF
        PRESENTATION**
  Vermilion
        Energy
        Trust (the “Trust” or “Vermilion”) was established on January 22, 2003, under a
        Plan of Arrangement entered into
        by the Trust,
        Vermilion Resources Ltd. (“Resources” or the “Company”), Clear Energy Inc.
        (“Clear”) and Vermilion Acquisition
        Ltd.
        The Trust is an open-end unincorporated investment trust governed by the
        laws of
        the Province of Alberta and created pursuant to a trust indenture (“Trust
        Indenture”). Computershare Trust Company of Canada has been appointed trustee under
        the Trust Indenture. The beneficiaries of the Trust are the holders of trust
        units.
  As
        a result of the
        completion of the Plan of Arrangement, former holders of common shares of
        the
        Company received units of the Trust,
        exchangeable
        shares of the Company or a combination thereof, in accordance with the elections
        made by such holders, as
        well as common
        shares of Clear. The Company became a subsidiary of the Trust. The Company
        is
        actively engaged in the business
        of oil and
        natural gas development, acquisition and production.
  Prior
        to the Plan
        of Arrangement on January 22, 2003, the consolidated financial statements
        included the accounts of the Company
        and its
        subsidiaries. After giving effect to the Plan of Arrangement, the consolidated
        financial statements have been prepared
        on a
        continuity of interests basis, which recognizes the Trust as the successor
        entity to Resources.
  **2.** **SIGNIFICANT
        ACCOUNTING POLICIES**
  ***Principles
        of Consolidation***
 The
        consolidated
        financial statements have been prepared in accordance with Canadian generally
        accepted accounting principles
        and
        include the accounts of the Trust and its subsidiaries on a consolidated
        basis,
        all of which are wholly owned. Inter-company
        account balances and transactions are eliminated upon consolidation. Since
        December 15, 2005, Verenex Energy
        Inc.
        (“Verenex”) (Note 3) has been accounted for using the equity
        method.
  The
        Trust currently
        has no variable interest entities of which it is the primary beneficiary
        and
        accordingly the consolidated financial
        statements do not include the accounts of any such entities.
  ***Petroleum
        and Natural Gas Operations***
 The
        Trust uses the
        full-cost method of accounting for petroleum and natural gas operations and
        capitalizes all exploration and development
        costs
        on a country-by-country basis. These costs include land acquisition, geological
        and geophysical costs, drilling (including
        related
        overhead) on producing and non-producing properties and other carrying charges
        on unproven properties. Proceeds
        of
        disposition are applied against the cost pools with no gain or loss recognized
        except where the disposition results in a
        greater than 20%
        change in the rate of depletion and depreciation.
  Amortization
        of
        these costs plus future development costs to develop proved reserves is
        calculated on a country-by-country basis
        using the
        unit-of-production method based on estimated proved reserves, before royalties,
        as determined by independent engineers. The cost of significant unevaluated
        properties is excluded from the depletion and depreciation base. For purposes
        of depletion
        and
        depreciation calculations, oil and gas reserves are converted to a common
        unit
        of measure on the basis of their relative
        energy
        content based on a conversion ratio of six thousand cubic feet of natural
        gas to
        one barrel of oil.
  The
        carrying value
        of the Trust’s petroleum and natural gas properties is compared to the sum of
        the undiscounted cash flows expected
        to result
        from the Trust’s proved reserves on a country by country basis. If the carrying
        value is not fully recoverable, the amount of impairment is measured by
        comparing the carrying amounts of the assets to the estimated net present
        value
        of future cash flows from proved plus probable reserves (the “ceiling test”).
        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 charged to
        earnings.
  Substantially
        all
        of the exploration, development and production activities of the Trust are
        conducted jointly with others and, accordingly,
        the
        consolidated financial statements reflect only the Trust’s proportionate
        interest in such activities.
  
 *2006
                Annual Report - Vermilion Energy Trust*
              **9**
 
  **2.
        SIGNIFICANT ACCOUNTING POLICIES (Continued)**
  The
        Trust
        recognizes the estimated liability associated with an asset retirement
        obligation (“ARO”) in the consolidated financial statements
        at the
        time the liability is incurred. The estimated fair value of the ARO is recorded
        as a long term liability, with a corresponding
        increase in the carrying amount of the related asset. The capitalized amount
        is
        depleted on a unit-of-production method
        over the
        life of the proved reserves. The liability amount is increased each reporting
        period due to the passage of time and
        the amount of
        accretion is charged to earnings in the period. The ARO can also increase
        or
        decrease due to changes in the estimates of timing of cash flows or changes
        in
        the original estimated undiscounted costs. Actual costs incurred upon settlement of
        the
        ARO are charged against the ARO to the extent of the liability
        recorded.
  The
        amounts
        recorded for depletion and depreciation of property, plant and equipment
        are
        based on estimates. The ceiling test calculation is based on the sum of the
        undiscounted cash flows expected to result from the Trust’s proved reserves. The
        asset retirement
        obligation is based on estimated liabilities related to legal obligations
        associated with future retirement of property, plant
        and
        equipment. 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.
  ***Cash
        and Cash Equivalents***
 Cash
        and cash
        equivalents include monies on deposit and short-term investments accounted
        for
        at cost that have an original maturity
        date of
        not more than 90 days.
  ***Furniture
        and Equipment***
 Furniture
        and
        equipment are recorded at cost and are amortized on a declining-balance basis
        at
        rates of 20% to 50% per year.
  ***Crude
        Oil Inventory***
 Inventories
        of
        crude oil, consisting of production for which title has not yet transferred
        to
        the buyer are valued at the lower of cost or
        net realizable
        value. Cost is determined on a weighted-average basis.
  ***Long-Term
        Investments***
 Investments
        in
        which the Trust has significant influence are accounted for using the equity
        basis of accounting whereby the investment cost is increased or decreased
        for
        the Trust’s percentage of net earnings or loss and reduced by dividends paid to the
        Trust.
  Long-term
        investments over which the Trust does not have significant influence are
        carried
        at cost. Dividends received or receivable from the investments are included
        in
        the Trusts net earnings, with no adjustment to the carrying amount of the investment.
  The
        Trust expenses
        any decline in the fair value of long-term investments below their carrying
        value when management assesses
        the
        decline to be other than temporary.
  ***Goodwill***
 Goodwill
        is tested
        for impairment at least annually by comparing the fair value of the reporting
        unit with its carrying amount. If the carrying
        amount
        exceeds the fair value, an impairment loss will be recognized for the
        excess.
  ***Revenue
        Recognition***
 Revenues
        associated
        with the sale of crude oil, natural gas and natural gas liquids are recorded
        when title passes to the customer.
  ***Derivative
        Financial Instruments***
 The
        Trust has
        elected to not designate any of its price risk management activities as
        accounting hedges and accounts for derivative
        financial instruments at fair value. The Trust uses derivative financial
        instruments to manage exposures to fluctuations in commodity prices, interest
        rates and foreign currency exchange rates. All transactions of this nature
        entered into by the Trust are
        related to an
        underlying financial position or to future petroleum and natural gas production.
        The Trust does not use derivative
        financial instruments for trading purposes. The fair value of derivative
        financial instruments are recorded in the consolidated balance sheets with
        changes in fair value of derivative financial instruments recognized in earnings
        during the period.
 
 *2006
                Annual Report - Vermilion Energy Trust*
              **10**
 
  **2.
        SIGNIFICANT ACCOUNTING POLICIES (Continued)**
  ***Unit
        Compensation***
 The
        Trust has
        unit-based long-term compensation plans for directors, officers and employees
        of
        the Trust and its subsidiaries. Unit compensation expense is measured based
        on
        the fair value of the award at the date of grant. Unit compensation expense
        is
        deferred and recognized in earnings over the vesting period of the awards
        with a
        corresponding increase or decrease in contributed
        surplus.
  The
        amount
        previously recognized in contributed surplus together with the consideration
        paid upon the exercise of unit rights is recorded
        as an
        increase in unitholders’ capital. The Trust has not incorporated an estimated
        forfeiture rate for awards that will not
        vest, rather,
        the Trust accounts for forfeitures as they occur. See Note 10 for a description
        of the long-term unit compensation
        plans.
  ***Per-unit
        Amounts***
 Net
        earnings per
        unit are calculated using the weighted-average number of units outstanding
        during the period. Diluted net earnings
        per unit
        are calculated using the treasury stock method to determine the dilutive
        effect
        of unit-based compensation and include the weighted-average number of
        exchangeable shares outstanding converted at the exchange ratio at the end
        of
        each period.
        The
        treasury stock method assumes that the aggregate of the proceeds received
        from
        the exercise of “in the money” trust
        unit rights
        and the deemed proceeds related to unrecognized unit based compensation expense
        are used to repurchase units
        at the
        average market price during the period. Trust unit awards outstanding are
        converted at estimated performance factors.
  ***Foreign
        Currency Translation***
 Foreign
        currency
        balances of foreign subsidiaries, which are considered to be integrated,
        are
        translated on the following basis:
  - Monetary
        assets and
        liabilities are translated at the rates of exchange prevailing at the balance
        sheet dates;
 - Non-monetary
        assets, liabilities and related depreciation and depletion expense are
        translated at historical rates; and -   
          Sales, other revenues, royalties and all other expenses are translated
          at the
          average rate of exchange during the month in which
          they are
          recognized.
 Any
        resulting
        foreign exchange gains and losses are included in earnings.
  ***Reclamation
        Fund***
 A
        reclamation fund
        has been created by the Trust to ensure that assets are available to fund
        future
        abandonment and reclamation
        work on
        wells, plants and facilities. Reclamation fund assets are comprised of bonds,
        which are carried at amortized cost
        and cash and
        equity securities which are carried at cost. The Trust expenses any decline
        in
        the fair value of reclamation fund
        assets below
        their carrying value when management assesses the decline to be other than
        temporary.
  ***Income
        Taxes***
 The
        Trust is a
        taxable entity under the Income Tax Act (Canada) and is taxable only on income
        that is not distributed or distributable
        to
        the unitholders. As the Trust allocates all of its Canadian taxable income
        to
        the unitholders in accordance with the Trust
        Indenture,
        and meets the requirements of the Income Tax Act (Canada) applicable to the
        Trust, no provision for Canadian income
        tax expense
        has been made in the Trust.
  In
        the Trust
        structure, payments are made between the Company and the Trust that result
        in
        the transferring of taxable income from the Company to individual unitholders.
        These payments may reduce future income tax liabilities previously recorded
        by
        the Company
        that would
        be recognized as a recovery of income tax in the period incurred.
  Income
        taxes are
        calculated in the subsidiary companies using the liability method of accounting
        for income taxes. Under this method,
        income tax
        liabilities and assets are recognized for the estimated tax consequences
        attributable to temporary differences
        between
        the amounts reported in the consolidated financial statements of the Trust
        and
        their respective underlying tax
        base, using
        substantively enacted income tax rates in the respective tax jurisdictions
        that
        will be in effect when the differences
        are
        expected to reverse. The effect of a change in income tax rates on future
        tax
        liabilities and assets is recognized in
        income in the
        period in which a change occurs.
  The
        Trust is
        subject to current income taxes in France, the Netherlands and Australia
        based
        on the tax legislation of each respective
        country.
  
 *2006
                Annual Report - Vermilion Energy Trust*
              **11**
 
  **2.**  **SIGNIFICANT
        ACCOUNTING POLICIES (Continued)**
  ***Exchangeable
        Shares - Non-controlling Interest***
 The
        exchangeable
        shares issued pursuant to the Plan of Arrangement were initially recorded
        at
        their pro-rata percentage of the carrying value of Resources’ equity. When the
        exchangeable shares are converted into trust units, the conversion is recorded
        as an
        acquisition of the non-controlling interest at fair value and is accounted
        for
        as a step acquisition. Upon conversion of the exchangeable shares, the fair
        value of the trust units issued is recorded in unitholders’ capital, and the
        difference between the carrying value of the non-controlling interest and
        the
        fair value of the trust units is recorded as capital assets, or goodwill
        as appropriate.
  ***Distributions***
 The
        Trust makes
        monthly distributions of its distributable cash to unitholders of record
        on the
        last day of each calendar month. Pursuant
        to the
        Trust’s policy, it will pay distributions to its unitholders subject to
        satisfying its financing covenants, making loan repayments
        and, if
        applicable, funding future asset retirement obligations.
  **3.**  **INVESTMENTS
        AND ACQUISITIONS**
  ***a)
        Verenex Energy Inc.***
 On
        June 29, 2004
        Verenex Energy Inc. (“Private Verenex”), a subsidiary of the Trust, amalgamated
        with Prairie Fire Oil & Gas Ltd.
        (“Prairie
        Fire”). The common shares of Prairie Fire were exchanged for common shares of
        the resulting issuer, Verenex Energy Inc. (“Verenex”) on the basis of one
        Verenex share for every 25 Prairie Fire shares, and each Private Verenex
        share
        was exchanged for one common share of Verenex. As a result of the share exchange
        control passed to Verenex as it owned the
        majority of the
        issued and outstanding shares of the combined entity. Accounting principles
        applicable to reverse takeovers were applied to record this acquisition.
        Net
        assets of Prairie Fire were deemed to have been purchased by Verenex,
        at fair
        value, through the exchange of capital.
  In
        conjunction with
        the transaction described above, Vermilion sold to Verenex exploration interests
        in France and a royalty on producing
        oil and
        gas assets in Alberta in exchange for 10 million common shares. The sale
        of
        assets was recorded at the underlying cost of the assets to the Trust due
        to the
        related party nature of the transaction. The Trust also subscribed for 2 million
        of common
        shares at a price of $2.50 per share through Verenex’s $32.6 million private
        placement on June 29, 2004.
  On
        December 15,
        2005 Verenex completed a $26 million private placement in which Vermilion
        subscribed for 3.1 million shares
        at a price
        of $3.20 per share, representing 38% of the private placement resulting in
        the
        Trust’s equity interest in Verenex
        being
        reduced to 49% from 53%.
  Effective
        December
        15, 2005, the Trust discontinued consolidating the financial results of Verenex,
        as the Trust was no longer considered
        to
        control Verenex. The investment in Verenex has since been accounted for using
        the equity basis of accounting.
        Comparative figures have not been restated.
  The
        impact of no
        longer consolidating Verenex had the following effect on the Trust’s December
        31, 2005 balance sheet:
 
  **(000’s)**
              
              
              **Increase
                  (Decrease**
              **)**Current
                  assets
              
              $
              (36,344
              )Capital
                  assets
              
              
              (15,951
              )Current
                  liabilities
              
              
              (2,716
              )Non-controlling
                  interest
              
              
              (26,948
              )Contributed
                  surplus
              
              
              (3,591
              )Initial
                  investment in Verenex
              
              
              19,040Equity
                  in
                  income of affiliate from December 15 to December 31, 2005
              
              
              56Investment
                  in
                  Verenex at December 31, 2005
              
              $
              19,096
  On
        December 21,
        2006, Verenex completed a $33.2 million bought-deal financing in which Vermilion
        purchased 1,171,875 common shares at a price of $6.40 per share, representing
        23% of the bought-deal financing. This reduced the Trust’s equity interest
        in Verenex
        to 45% from 49%.
  ***b)
        Glacier Energy Limited (“Glacier”)***
 On
        June 16, 2004,
        the Trust acquired 5.4 million shares of Glacier for consideration of 50%
        of the
        Trust’s working interest in the
        CBM and shallow
        gas rights over certain of its lands. On June 20, 2005, the Trust acquired
        an
        additional 0.9 million shares
        of Glacier
        at a price of $2.50 per share as part of a private placement completed by
        Glacier.
 
 *2006
                Annual Report - Vermilion Energy Trust*
              **12**
 
  **3.
        INVESTMENTS AND ACQUISITIONS (Continued)**
  On
        December 7,
        2005, the Trust acquired the outstanding shares of Glacier, not already owned
        by
        the Trust, for total cash consideration
        of
        $87.0 million. Equity income of affliate of $0.2 million was recorded by
        the
        Trust up to December 7, 2005. The
        acquisition was
        accounted for using the purchase method of accounting, effective from December
        7, 2005 as follows:
  **Allocation
                  of purchase price:**
              
              
              **First
                  Purchase**
              
              
              **Second
                  Purchase**
              
              
              **Total**Capital
                  assets
              
              $
              7,903
              
              $
              98,918
              
              $
              106,821Goodwill
              
              
              -
              
              
              19,840
              
              
              19,840Future
                  income
                  taxes
              
              
              -
              
              
              (26,845
              )
              
              (26,845
              )Asset
                  retirement obligation
              
              
              -
              
              
              (300
              )
              
              (300
              )$
              7,903
              
              
              91,613
              
              
              99,516Investment
                  in
                  Glacier
              
              
              (7,903
              )
              
              -
              
              
              (7,903
              )-
              
              
              91,613
              
              
              91,613Working
                  capital
              
              
              -
              
              
              (4,577
              )
              
              (4,577
              )Cash
                  paid
              
              $
              -
              
              $
              87,036
              
              $
              87,036
  ***c)
        Australia Acquisition***
 On
        March 31, 2005, the Trust acquired $95.0 million of producing properties
        in
        Australia. The purchase price allocation was determined
        as
        follows:
  Petroleum
                  and
                  natural gas assets and equipment
              
              $
              113,840Asset
                  retirement obligation
              
              
              (18,873
              )94,967Accounts
                  payable and accrued liabilities
              
              
              (4,649
              )Cash
                  paid
              
              $
              90,318
  ***d)
        Esso
        Rep Acquisition***
 On
        July 10, 2006,
        the Trust, through its France subsidiary, acquired an 89.886% interest in
        Esso
        Rep, from Esso SAF, a subsidiary of Exxon Mobil Corporation. On July 12,
        2006,
        the Trust acquired the remaining 10.114% interest in Esso Rep from another
        party. As no significant transactions occurred affecting the results of
        operations or the fair value of assets acquired
        and
        liabilities assumed during the two day period between these two events, the
        acquisition has been accounted for using
        the purchase
        method of accounting with the allocation of the purchase price determined
        as at
        July 10, 2006. Results of operations
        are
        included in the consolidated results from that date. The aggregate purchase
        price, exclusive of the acquired working capital deficiency, was $126.6 million
        consisting of cash of $123.1 million and a current payable of $3.5 million. Subsequent
        to the
        date of acquisition, Esso Rep was renamed Vermilion Emeraude Rep SAS. The
        purchase price allocation has
        been determined
        as follows:
  Capital
                  assets
              
              $
              256,320Asset
                  retirement obligation
              
              
              (20,636
              )Future
                  income
                  taxes
              
              
              (66,239
              )Cash
              
              
              1,996Working
                  capital, excluding cash
              
              
              (44,841
              )Total
                  consideration
              
              $
              126,600
  **4.
        CAPITAL
        ASSETS**
  **2006**
              
              
              **Cost**
              
              
              **Accumulated**
                **Depletion,**
                **Depreciation
                  and**
                **Amortization**
              
              
              **Net
                  Book Value**Petroleum
                  and
                  natural gas properties and equipment
              
              $
              1,841,854
              
              $
              657,988
              
              $
              1,183,866Furniture
                  and
                  equipment
              
              
              9,598
              
              
              6,148
              
              
              3,450$
              1,851,452
              
              $
              664,136
              
              $
              1,187,316
 
 *2006
                Annual Report - Vermilion Energy Trust*
              **13**
 
  **4.
        CAPITAL
        ASSETS (Continued)**
  **2005**
              
              
              **Cost**
              
              
              **Accumulated**
                **Depletion,**
                **Depreciation
                  and**
                **Amortization**
              
              
              **Net
                  Book Value**Petroleum
                  and
                  natural gas properties and equipment
              
              $
              1,393,053
              
              $
              504,094
              
              $
              888,959Furniture
                  and
                  equipment
              
              
              7,566
              
              
              5,168
              
              
              2,398$
              1,400,619
              
              $
              509,262
              
              $
              891,357
  As
        at
        December 31, 2006 and 2005 there were no costs for undeveloped properties
        to
        exclude from the depletion and depreciation
        calculation. During the year, the Trust capitalized $0.4 million (2005 -
        $0.3
        million) of overhead costs related to exploration
        and
        development activities.
  The
        Trust performed
        ceiling test calculations at December 31, 2006 and 2005 to assess whether
        the
        carrying value of petroleum and
        natural gas
        properties and equipment is recoverable. Based on the calculations, the
        undiscounted future cash flows from the
        Trust’s proved
        reserves exceeded the carrying values of the Trust’s petroleum and natural gas
        properties and equipment at December
        31, 2006
        and 2005.
  The
        benchmark prices used in the calculation are as follows:
  **CDN$/BOE**
              
              
              **Canada**
              
              
              **France**
              
              
              **Netherlands**
              
              
              **Australia**2007
              
              $
              50.63
              
              $
              63.06
              
              $
              50.06
              
              $
              66.382008
              
              $
              50.52
              
              $
              61.02
              
              $
              47.25
              
              $
              64.082009
              
              $
              50.74
              
              $
              58.94
              
              $
              45.68
              
              $
              61.782010
              
              $
              50.36
              
              $
              57.84
              
              $
              44.49
              
              $
              60.632011
              
              $
              50.74
              
              $
              57.78
              
              $
              44.13
              
              $
              60.63Average
                  increase thereafter
              
              
              2.0
              %
              
              2.0
              %
              
              2.0
              %
              
              2.0
              %
  **5.
        ASSET
        RETIREMENT OBLIGATION AND RECLAMATION FUND**
  The
        total asset
        retirement obligation was determined by management based on the estimated
        future
        costs and timing to reclaim the
        Trust’s net
        interest in all wells and facilities. The Trust has estimated the net present
        value of its asset retirement obligations to
        be $127.5
        million as at December 31, 2006 (2005 - $70.2 million) based on a total
        undiscounted future liability before inflation adjustment
        of
        $367.1 million (2005 - $236.7 million). These payments are expected to be
        made
        over the next 47 years with most coming
        within the
        time frame of 25-30 years. The Trust used a credit adjusted risk free rate
        of 8%
        and an inflation rate of 1.5% to
        calculate the
        present value of the asset retirement obligation.
  The
        following table reconciles the Trust’s total asset retirement
        obligation:
  **2006**
              
              
              **2005**Carrying
                  amount, beginning of period
              
              **$**
              **70,214**
              
              $
              51,688Increase
                  in
                  liabilities in the period
              
              
              **21,297**
              
              
              19,656Disposition
                  of liabilities in the period
              
              
              **(4,217**
              **)**
              
              (948
              )Change
                  in
                  estimate
              
              
              **24,946**
              
              
              3,089Accretion
                  expense
              
              
              **7,380**
              
              
              4,935Foreign
                  exchange
              
              
              **7,874**
              
              
              (8,206
              )Carrying
                  amount, end of period
              
              **$**
              **127,494**
              
              $
              70,214
  The
        Trust has set aside funds for the future payment of its estimated asset
        retirement obligations. In 2006, the Trust contributed $9.6
        million (2005
        - $25.2 million) to the reclamation fund.
  The
        following table reconciles the Trust’s reclamation fund
        investments:
  **Carrying**
              
              
              **Carrying****Value**
              
              
              **Value****2006**
              
              
              **2005**Cash
                  and
                  short-term investments, at cost (market value 2006 - $30.7 million;2005
                  - $25.8
                  million)
              
              **$**
              **30,685**
              
              $
              25,789Bonds,
                  at
                  amortized cost (market value 2006 - $17.4 million; 2005 - $11.2
                  million)
              
              
              **17,458**
              
              
              11,217Equity
                  securities, at cost (market value 2006 - $10.7 million; 2005 -
                  $5.7
                  million)
              
              
              **8,214**
              
              
              5,192**$**
              **56,357**
              
              $
              42,198
 
 *2006
                Annual Report - Vermilion Energy Trust*
              **14**
 
  **5.** **ASSET
        RETIREMENT OBLIGATION AND RECLAMATION FUND (Continued)**
  A
        portion of the
        cash and short term investments as well as all of the bonds and equity
        securities which comprise the reclamation fund
        are
        professionally managed by third parties.
  **6.** **LONG-TERM
        DEBT**
  As
        at December 31,
        2006, the Trust had an unsecured covenant based revolving credit facility
        in the
        amount of $500 million. The
        revolving
        period under the term loan is expected to expire in July 2007 and may be
        extended for an additional period of up to 364
        days at the
        option of the lender. If the lenders convert the revolving credit facility
        to a
        non-revolving credit facility, the amounts
        outstanding
        under the facility become repayable 12 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.
  **7.** **INCOME
        TAXES**
  The
        net
        future income tax liability at December 31, 2006 and 2005 is comprised of
        the
        following:
  **2006**
              
              
              **2005**Future
                  income
                  tax liabilities:Capital
                  assets
              
              **$**
              **(250,282**
              **)**
              $
              (176,736
              )Derivative
                  contracts
              
              
              **(2,095**
              **)**
              
              (266
              )Partnership
                  income deferral
              
              
              **(5,069**
              **)**
              
              (44,666
              )Future
                  income
                  tax assets:Non-capital
                  losses
              
              
              **22,920**
              
              
              41,824Asset
                  retirement obligation
              
              
              **8,689**
              
              
              17,743Basis
                  difference of investments
              
              
              **1,176**
              
              
              1,556Share
                  issue
                  costs
              
              
              **30**
              
              
              70Net
                  future
                  income tax (liability)
              
              **$**
              **(224,631**
              **)**
              $
              (160,475
              )
  The
        provision for
        income tax differs from the amount that would have been expected if the reported
        earnings had been subject only
        to the
        statutory Canadian income tax rate of 34.50% (2005 - 37.62%), as
        follows:
  **2006**
              
              
              **2005**Earnings
                  before income taxes and other items
              
              **$**
              **188,307**
              
              $
              196,215Canadian
                  corporate tax rate
              
              
              **34.50**
              **%**
              
              37.62
              %Expected
                  tax
                  expense
              
              
              **64,966**
              
              
              73,816Increase
                  (decrease) in taxes resulting from:Income
                  attributable to the unitholders
              
              
              **(45,069**
              **)**
              
              (40,971
              )Non-deductible
                  Crown payments
              
              
              **4,071**
              
              
              10,344Resource
                  allowance
              
              
              **(2,863**
              **)**
              
              (8,244
              )Foreign
                  tax
                  rate differentials*
              
              
              **(8,563**
              **)**
              
              (2,689
              )Statutory
                  rate changes
              
              
              **(9,490**
              **)**
              
              -Capital
                  taxes
              
              
              **(179**
              **)**
              
              901Unit
                  compensation expense
              
              
              **8,539**
              
              
              3,792Amended
                  returns and pool estimate variances
              
              
              **4,653**
              
              
              (3,781
              )Foreign
                  exchange
              
              
              **10,064**
              
              
              (9,172
              )Other
              
              
              **398**
              
              
              771Provision
                  for
                  income taxes
              
              **$**
              **26,527**
              
              $
              24,767
  *
        The corporate tax rate in France is 34.4%, 41% in the Netherlands and 30%
        in
        Australia
  On
        October 31, 2006, the Government of Canada proposed changes to the tax treatment
        of income trusts that would take effect in 2011. If enacted, these changes
        would
        affect the taxable status of the Trust and would result in the recording
        of
        future income taxes
        at the Trust
        level.
  
 *2006
                Annual Report - Vermilion Energy Trust*
              **15**
 
  **8.
        UNITHOLDERS’ CAPITAL AND CONTRIBUTED SURPLUS**
  The
        Trust is authorized to issue an unlimited number of units of the Trust. Upon
        conversion to a Trust, 6.0 million exchangeable shares
        of the
        Company were issued.
  The
        exchangeable shares are convertible into trust units based on the exchange
        ratio, which is adjusted monthly to reflect the distributions
        paid
        on the trust units. Cash distributions are not paid on the exchangeable shares.
        On the 10th anniversary of the issuance
        of the
        exchangeable shares, subject to extension of such date by the Board of Directors
        of the Company, the exchangeable
        shares
        will be redeemed for trust units on the basis of an exchange ratio as at
        the
        last business day prior to the redemption
        date
        (see Note 9).
  The
        Trust established a Distribution Reinvestment Plan (“DRIP”) in conjunction with
        the Trust’s transfer agent to provide the option for unitholders to reinvest
        cash distributions into additional trust units issued from treasury. In 2006,
        the Trust issued 0.6 million
        units for
        proceeds of $18.8 million (2005 - 0.7 million units for proceeds of $15.9
        million).
  **Number
                  of Units**
              
              
              **Amount**Trust
                  UnitsUnlimited
                  number of trust units authorized to be issuedBalance
                  as at
                  December 31, 2004
              
              
              60,707,660
              
              $
              244,015Distribution
                  reinvestment plan
              
              
              674,766
              
              
              15,850Issued
                  on
                  conversion of exchangeable shares
              
              
              73,692
              
              
              1,623Transfer
                  from
                  contributed surplus on unit right exercise
              
              
              -
              
              
              4,178Trust
                  units
                  issued for bonus plan
              
              
              40,246
              
              
              827Unit
                  rights
                  exercised
              
              
              1,011,850
              
              
              8,320Balance
                  as at
                  December 31, 2005
              
              
              62,508,214
              
              
              274,813Distribution
                  reinvestment plan
              
              
              609,907
              
              
              18,811Issued
                  on
                  conversion of exchangeable shares
              
              
              225,132
              
              
              7,430Unit
                  rights
                  exercised and issuance of units on vesting of Trust Unit Award
                  Plan
                  grants
              
              
              1,350,541
              
              
              11,116Transfer
                  from
                  contributed surplus on unit right exercise and vesting of Trust
                  Unit Award
                  Plan grants
              
              
              -
              
              
              8,436Trust
                  units
                  issued for bonus plan
              
              
              14,400
              
              
              429Balance
                  as at
                  December 31, 2006
              
              
              64,708,194
              
              $
              321,035**2006**
              
              
              **2005**Contributed
                  SurplusOpening
                  balance
              
              **$**
              **14,566**
              
              $
              9,136Unit
                  compensation expense (Note 10)
              
              
              **24,383**
              
              
              13,199Transfer
                  to
                  unitholders’ capital on unit right exercise and vesting of Trust Unit
                  Award Plan grants
              
              
              **(8,436**
              **)**
              
              (4,178
              )De-consolidation
                  of Verenex (Note 3)
              
              
              **-**
              
              
              (3,591
              )Ending
                  balance
              
              **$**
              **30,513**
              
              $
              14,566
  **9.
        NON-CONTROLLING INTEREST**
  Exchangeable
        shares
        are convertible into trust units based on the exchange ratio which is adjusted
        monthly to reflect the distribution
        paid
        on the trust units. Cash distributions are not paid on the exchangeable
        shares.
  The
        exchangeable
        shares are mandatorily converted into trust units upon redemption by the
        shareholder. The Company holds the option to redeem all outstanding exchangeable
        shares for trust units or cash on or before January 22, 2013 and it is the
        intention of the Trust that trust units would be issued upon redemption of
        the
        exchangeable shares. On or before January 22, 2013, there will be no remaining
        non-controlling interest as all exchangeable shares will have been converted
        to
        trust units by that
        time.
  The
        non-controlling
        interest on the consolidated balance sheets consists of the book value of
        the
        exchangeable shares upon issuance plus the accumulated earnings attributable
        to
        the non-controlling interest. The net earnings attributable to the
        non- controlling
        interest on the consolidated statement of earnings represents the share of
        net
        earnings attributable to the non- controlling
        interest based on the Trust units issuable for exchangeable shares in proportion
        to total trust units issued and issuable
        at each
        period end.
  
 *2006
                Annual Report - Vermilion Energy Trust*
              **16**
 
  **9.
        NON-CONTROLLING INTEREST (Continued)**
 
  **2006**
              
              
              **2005**Exchangeable
                  SharesOpening
                  number of exchangeable shares
              
              
              **4,619,335**
              
              
              4,675,961Exchanged
                  for
                  trust units
              
              
              **(160,416**
              **)**
              
              (56,626
              )Ending
                  Balance
              
              
              **4,458,919**
              
              
              4,619,335Ending
                  exchange ratio
              
              
              **1.46741**
              
              
              1.37836Trust
                  units
                  issuable upon conversion
              
              
              **6,543,062**
              
              
              6,367,107
  Following
        is a
        summary of the non-controlling interest:
 **2006**
              
              
              2005Non-controlling
                  interest, beginning of year
              
              **$**
              **38,760**
              
              $
              24,686Reduction
                  of
                  book value for conversion to trust units
              
              
              **(1,897**
              **)**
              
              (325
              )Current
                  period net earnings attributable to non-controlling
                  interest
              
              
              **14,917**
              
              
              14,399Non-controlling
                  interest, end of year
              
              **$**
              **51,780**
              
              $
              38,760
  **10.
        UNIT
        COMPENSATION PLANS**
  ***Unit
        Rights Incentive Plan***
 The
        Trust has a
        unit rights incentive plan that allows the Trust to issue rights to acquire
        trust units to directors, officers and employees.
        The
        Trust is authorized to issue up to 6.0 million unit rights; however, the
        number
        of trust units reserved for issuance upon exercise of the rights shall not
        at
        any time exceed 10% of the aggregate number of issued and outstanding trust
        units of the Trust.
        Unit right
        exercise prices are equal to the market price for the trust units on the
        date
        the unit rights are issued. If certain conditions
        are met,
        the exercise price per unit may be calculated by deducting from the grant
        price
        the aggregate of all distributions,
        on a
        per-unit basis, made by the Trust after the grant date. Rights granted under
        the
        plan vest over a three-year period
        and expire
        five years after the grant date. No future rights are expected to be issued
        as
        the unit rights incentive plan was replaced with a Trust Unit Award Plan
        in
        2005. The existing rights plan will be in place until all issued and outstanding
        rights are exercised
        or
        cancelled.
  The
        Trust used the Black-Scholes option-pricing model to calculate the estimated
        fair value of the outstanding rights. The following
        assumptions were used to arrive at the estimate of fair value:
  **2005**
              
              
              **2004**Expected
                  volatility
              
              
              22.33
              %
              
              22.33
              %Risk-free
                  interest rate
              
              
              4.0
              %
              
              4.0
              %Expected
                  life
                  of option (years)
              
              
              5.0
              
              
              5.0Fair
                  value
                  per option
              
              $
              5.28
              
              $
              4.16
                  - $5.52
  The
        dividend yield
        is offset by the reducing strike price feature of the plan resulting in using
        a
        zero dividend yield in the option- pricing
        model. The
        remaining fair value of the rights will be recognized in earnings over the
        remaining vesting period of the rights outstanding.
        During
        the year, $2.6 million of the fair value has been recorded as compensation
        expense (2005 - $6.8 million). Any
        consideration
        paid upon exercise together with the amount previously recognized in contributed
        surplus is recorded as an increase
        to
        unitholders’ capital.
  The
        following table
        summarizes information about the Trust’s unit rights:
  **2006**
              
              
              
              
              
              **2005****Number
                  of Unit Rights**
              
              
              **Weighted
                  Average****Exercise
                  Price**
              
              
              **Number
                  of Unit Rights**
              
              
              **Weighted
                  Average****Exercise
                  Price**Opening
                  Balance
              
              
              **3,617,750**
              
              **$**
              **13.81**
              
              
              4,744,100
              
              $
              13.99Granted
              
              
              **-**
              
              
              **-**
              
              
              48,600
              
              
              20.20Cancelled
              
              
              **(177,800**
              **)**
              
              **17.85**
              
              
              (163,100
              )
              
              16.79Exercised
              
              
              **(1,195,692**
              **)**
              
              **12.63**
              
              
              (1,011,850
              )
              
              12.13Closing
                  balance
              
              
              **2,244,258**
              
              **$**
              **14.12**
              
              
              3,617,750
              
              $
              14.47
 
 *2006
                Annual Report - Vermilion Energy Trust*
              **17**
 
  **10.
        UNIT
        COMPENSATION PLANS (Continued)**
  A
        summary of the plan as at December 31, 2006 is as follows:
  **Remaining****Range
                  of Exercise**
              
              
              **Adjusted**
              
              
              **Number
                  of Rights**
              
              
              **Contractual
                  Life**
              
              
              **Number
                  of Rights****Price
                  at Grant Date**
              
              
              **Exercise
                  Price**
              
              
              **Outstanding**
              
              
              **of
                  Right (Years**
              **)**
              
              **Exercisable**$11.45
              
              $
              3.46
              
              
              1,263,375
              
              
              1.08
              
              
              1,263,375$11.46
                  -
                  $15.00
              
              $
              3.64
                  - $7.18
              
              
              119,400
              
              
              1.39
              
              
              119,067$15.01
                  -
                  $19.56
              
              $
              8.89
                  - $13.44
              
              
              861,483
              
              
              2.66
              
              
              495,716
  ***Trust
        Unit Award Incentive Plan***
 In
        2005,
        the Board of Directors established a new trust unit award incentive plan
        (the
“Award Plan”) governing the issuance of restricted
        units of
        the Trust to directors, officers, employees and consultants of the Trust
        and its
        Affiliates. The Award Plan consists
        of units
        that are designated as either a Restricted Time Based Award (“RTBA’s”) for which
        the number of awards is fixed or
        a Performance
        Based Award (“PBA’s”) for which the number of awards is variable.
  Upon
        vesting, the grantee will be delivered units of the Trust, adjusted for
        cumulative distributions of the Trust during the period that
        the restricted
        units are outstanding. The number of units issued upon vesting of the PBA’s is
        dependent upon the future performance
        of the
        Trust compared to its peers based on a performance factor that may range
        from
        zero to two times the number
        of PBA’s
        originally granted. The vesting date for all restricted units is on the date
        that is the third anniversary of the date of
        the Unit Award
        grant except for awards granted in the grantee’s first year of service which
        vest over three years.
  The
        following table summarizes information about the Award Plan:
  **Number
                  of Awards**Balance
                  December 31, 2005
              
              
              655,550Granted
              
              
              521,275Vested
              
              
              (76,775
              )Cancelled
              
              
              (132,250
              )Balance
                  December 31, 2006
              
              
              967,800
  Compensation
        expense of $21.8 million was recorded during the year ended December 31,
        2006
        (2005 - $3.3 million).
  ***Verenex
        Energy Inc. Compensation Plans***
 Effective
        December
        15, 2005, Verenex is not considered to be controlled by the Trust (Note 3).
        In
        2005, $3.1 million was recognized
        in stock
        compensation expense for the options and warrants of Verenex up to December
        15,
        2005. Subsequent to that
        date, Verenex
        has been accounted for as an equity investment.
  ***Phantom
        Award Incentive Plan***
 In
        September 2006,
        the Board of Directors approved for certain employees not eligible to
        participate in the Award Plan, a new long-term incentive plan which provides
        for
        cash payments based on the market value of a trust unit. The cash consideration paid
        upon vesting is dependent upon the future performance of the Trust compared
        to
        its peers based on a performance factor that
        may range from
        zero to two times the number of notional units originally granted. Awards
        granted in 2006 will vest over three
        years.
  Compensation
        expense recognized is based on the closing market price of a trust unit and
        is
        remeasured at each reporting date. The
        total expense
        is amortized over the relevant vesting periods and the amount payable is
        recorded as a liability until settlement.
  Compensation
        expense of $1.2 million has been recorded as general and administration expense
        during the year ended December
        31,
        2006.
  
 *2006
                Annual Report - Vermilion Energy Trust*
              **18**
 
  **11.
        PER-UNIT AMOUNTS**
  The
        following table shows the effect of dilutive securities on the weighted average
        trust units outstanding:
  **2006**
              
              
              **2005**BasicNet
                  earnings
                  per unit
              
              **$**
              **2.30**
              
              $
              2.57Weighted-average
                  number of units outstanding (thousands)
              
              
              **63,977**
              
              
              61,755DilutedNet
                  earnings
                  per unit
              
              **$**
              **2.22**
              
              $
              2.49Weighted-average
                  number of units outstanding (thousands)
              
              
              **73,060**
              
              
              69,395
  The
        number of units
        used to calculate diluted earnings per unit for the year ended December 31,
        2006
        of 73.1 million (2005 - 69.4
        million)
        includes the weighted-average number of units outstanding of 64.0 million
        (2005
        - 61.8 million) plus 2.5 million (2005 - 1.2 million) units related to the
        dilutive impact of the unit rights incentive and trust unit award plans and
        6.6
        million for outstanding
        exchangeable shares at the period end exchange ratio (2005 - 6.4
        million).
  The
        determination
        of diluted net earnings per unit was not affected by unit rights that would
        be
        anti-dilutive as the respective exercise
        prices
        exceeded the average market price of the units. Net earnings attributable
        to the
        non-controlling interest- exchangeable
        shares
        is added back to net earnings from operations in calculating dilutive per
        unit
        amounts.
  **12.
        DERIVATIVE INSTRUMENTS**
  ***Risk
        Management Activities***
  The
        nature of the
        Trust’s operations results in exposure to fluctuations in commodity prices,
        interest rates and foreign currency exchange
        rates. The
        Trust monitors and, when appropriate, uses derivative financial instruments
        to
        manage its exposure to these
        risks. The
        Trust is exposed to credit-related losses in the event of non-performance
        by
        counterparties to the financial instruments.
  The
        Trust 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 collars
        as the
        majority of these instruments are with the Trust’s banking
        syndicate.
  **Risk
                  Management: Oil**
              
              **Funded
                  Cost**
              
              
              **bbls/d**
              
              **US$/bbl**Collar
                  -
                  WTI2007
              
              US$1.00/bbl
              
              
              500
              
              $60.00
                  - $77.30Q1
                  2007
              
              costless
              
              
              250
              
              $58.00
                  - $83.85Q1
                  2007
              
              US$0.11/bbl
              
              
              250
              
              $65.00
                  - $90.00Q1
                  2007
              
              US$0.06/bbl
              
              
              500
              
              $70.00
                  - $90.00Q2
                  2007
              
              US$0.50/bbl
              
              
              500
              
              $61.70
                  - $90.00Put2007
              
              US$1.27/bbl
              
              
              250
              
              $57.05Collar
                  -
                  BRENTQ3
                  2007
              
              US$0.88/bbl
              
              
              500
              
              $60.00
                  - $90.00Q4
                  2007
              
              US$0.70/bbl
              
              
              500
              
              $60.00
                  - $89.00Call
                  Spread -
                  BRENT2009
                  -
                  2011
              
              US$5.73/bbl
              
              
              700
              
              $65.00
                  - $85.00**Risk
                  Management: Natural Gas**
              
              **Funded
                  Cost**
              
              
              **GJ/d**
              
              **C$/GJ**CollarQ2
                  2007
              
              $0.35/GJ
              
              
              2,500
              
              $6.50
                  - $7.85Q2
                  2007
              
              $0.25/GJ
              
              
              2,500
              
              $6.25
                  - $7.96April-October
                  2007
              
              $0.02/GJ
              
              
              2,500
              
              $6.50
                  - $9.00PutQ1
                  2007
              
              $0.34/GJ
              
              
              4,000
              
              $6.37Q1
                  2007
              
              $0.34/GJ
              
              
              3,000
              
              $6.60Q1
                  2007
              
              $0.34/GJ
              
              
              3,000
              
              $6.44
 
 *2006
                Annual Report - Vermilion Energy Trust*
              **19**
 
  **12.
        DERIVATIVE INSTRUMENTS (Continued)**
  Through
        January 1,
        2004 the fair value of all outstanding derivative financial instruments that
        were not recorded as accounting hedges were recorded on the consolidated
        balance
        sheets with an offsetting amount to deferred charges. The deferred charge was
        recognized into revenue over the life of the associated contracts. The remaining
        deferred charge at January 1, 2005 was $4,718
        and was
        recognized as a charge to revenue in that year.
  Changes
        in fair
        value after January 1, 2004 are recorded on the consolidated balance sheets
        with
        the associated unrealized gain or loss recorded in net earnings. The estimated
        fair value of all derivative financial instruments is based on quoted market
        prices or,
        in their
        absence, third party market indications and forecasts. Unrealized gains or
        losses and realized gains or losses are recorded
        as a
        separate element of earnings.
  The
        following table
        reconciles the change in the unrealized amounts related to the fair value
        of
        derivative contracts:
  **2006**
              
              
              **2005**Fair
                  value of
                  contracts, beginning of period
              
              **$**
              **783**
              
              $
              (21,610
              )Opening
                  unrealized (gain) loss on contracts settled during the
                  period
              
              
              **(783**
              **)**
              
              21,610Realized
                  (loss) on contracts settled during the period
              
              
              **(222**
              **)**
              
              (41,180
              )Unrealized
                  gain during the period on contracts outstanding at the end of the
                  period
              
              
              **1,354**
              
              
              783Purchase
                  of
                  derivative contracts at fair value
              
              
              **4,926**
              
              
              -Net
                  payment
                  to counterparties under contract settlements during the
                  period
              
              
              **222**
              
              
              41,180Fair
                  value of
                  contracts, end of period
              
              
              **6,280**
              
              
              783Comprised
                  of:Current
                  derivative asset
              
              
              **1,624**
              
              
              1,166Current
                  derivative liability
              
              
              **-**
              
              
              (383
              )Non-current
                  derivative asset
              
              
              **4,656**
              
              
              -**$**
              **6,280**
              
              $
              783
  The
        (gain) loss on derivative instruments for the period is comprised of the
        following:
 **2006**
              
              **2005**Realized
                  loss
                  on contracts settled during the period
              
              **$**
              **222**
              
              $
              41,180Opening
                  unrealized gain (loss) on contracts settled during the
                  period
              
              
              **783**
              
              
              (21,610
              )Unrealized
                  (gain) loss during the period on contracts outstanding at the end
                  of the
                  period
              
              
              **(1,354**
              **)**
              
              (783
              )(Gain)
                  loss
                  on derivative instruments for the period
              
              **$**
              **(349**
              **)**
              $
              18,787
  Pursuant
        to an
        acquisition under which the vendor participates in a portion of the net price
        received by Vermilion from 2009 to 2011
        inclusive, the
        Trust entered into a derivative transaction to economically offset a portion
        of
        the related potential future payments.
  The
        transaction
        consisted of three dated Brent crude purchased call options at US$65.00 per
        barrel and three dated Brent crude written
        call
        options at US$85.00 per barrel representing approximately one half of the
        expected production subject to the related provision.
        The
        total cost of this derivative transaction was $4.9 million.
  The
        Trust has
        determined that any potential future payments under this provision would
        constitute additional consideration. As the
        outcome of this
        provision could not be determined beyond a reasonable doubt and as the amount
        of
        the potential contingent consideration
        could
        not be reasonably estimated, no amount related to this provision was recognized
        as part of the purchase price
        at the date
        of acquisition. If payments are made under this provision in future periods
        or
        if additional information becomes available
        that
        allows the Trust to determine the outcome of this provision beyond a reasonable
        doubt and reasonably estimate the amount of contingent consideration that
        will
        be paid, the Trust will recognize an adjustment to the purchase price on
        a prospective
        basis.
  ***Fair
        Values***
  The
        carrying values
        of cash and cash equivalents, accounts receivable, accounts payable and accrued
        liabilities and long-term debt approximated their fair values as at December
        31,
        2006 and 2005 as a result of the short-term nature of these instruments and,
        in
        the case of long-term debt, having variable interest rates which approximate
        market value.
  
 *2006
                Annual Report - Vermilion Energy Trust*
              **20**
 
  **13.
        CASH
        FLOW INFORMATION**
  The
        following amounts represent the changes in non-cash working
        capital:
  **2006**
              
              **2005**Accounts
                  receivable
              
              **$**
              **10,497**
              
              $
              (13,087
              )Crude
                  oil
                  inventory
              
              
              **18,571**
              
              
              (5,811
              )Prepaid
                  expenses and other
              
              
              **(4,085**
              **)**
              
              (4,369
              )Accounts
                  payable and accrued liabilities
              
              
              **(62,399**
              **)**
              
              (17,017
              )Foreign
                  exchange
              
              
              **4,181**
              
              
              531Changes
                  in
                  non-cash working capital
              
              **$**
              **(33,235**
              **)**
              $
              (39,753
              )
  **14.
        SEGMENTED INFORMATION**
  The
        Trust has operations principally in Canada, France, the Netherlands and
        Australia. The Trust’s entire operating activities are related
        to
        exploration, development and production of petroleum and natural
        gas.
  **2006**
              
              
              **2005**Petroleum
                  and
                  natural gas revenueCanada
              
              **$**
              **208,306**
              
              $
              243,199France1
              
              
              **201,650**
              
              
              133,729Netherlands
              
              
              **92,592**
              
              
              72,525Australia2
              
              
              **115,524**
              
              
              80,485**$**
              **618,072**
              
              $
              529,938Net
                  earningsCanada
              
              **$**
              **26,658**
              
              $
              57,383France1
              
              
              **60,079**
              
              
              47,652Netherlands
              
              
              **29,660**
              
              
              24,038Australia2
              
              
              **30,526**
              
              
              29,398**$**
              **146,923**
              
              $
              158,471Funds
                  from
                  operationsCanada
              
              **$**
              **110,546**
              
              $
              130,023France1
              
              
              **133,433**
              
              
              62,145Netherlands
              
              
              **53,125**
              
              
              50,940Australia2
              
              
              **45,398**
              
              
              35,057**$**
              **342,502**
              
              $
              278,165Capital
                  expendituresCanada
              
              **$**
              **111,216**
              
              $
              141,022France1
              
              
              **209,364**
              
              
              50,649Netherlands
              
              
              **3,673**
              
              
              12,434Australia2
              
              
              **8,566**
              
              
              96,005**$**
              **332,819**
              
              $
              300,110Total
                  assetsCanada
              
              **$**
              **627,147**
              
              $
              588,462France1
              
              
              **542,074**
              
              
              255,816Netherlands
              
              
              **148,710**
              
              
              121,296Australia2
              
              
              **144,908**
              
              
              146,165**$**
              **1,462,839**
              
              $
              1,111,739
 1
        France
        segmented information reflects the acquisition of Vermilion Emeraude Rep
        SAS
        effective July 10, 2006
 2
        Australia assets were acquired March 31, 2005
 
 *2006
                Annual Report - Vermilion Energy Trust*
              **21**
 
  **15.
        LONG-TERM INVESTMENTS**
  The
        following table reconciles the Trust’s total long-term
        investments:
  **Carrying**
                **Value**
                **2006**
              
              
              **Carrying**
                **Value**
                **2005**Portfolio
                  investments, at cost (market value 2006 - $5.2 million; 2005 -
                  $5.2
                  million)
              
              **$**
              **496**
              
              $
              541Investment
                  in
                  Verenex Energy Inc., equity method
              
              
              **26,656**
              
              
              19,096**$**
              **27,152**
              
              $
              19,637
  **16.**  **RELATED
        PARTY TRANSACTIONS**
  During
        the period,
        Vermilion initially paid for various expenditures on behalf of Verenex and
        then
        recovered such amounts from Verenex.
        These
        transactions were measured at the exchange amount, which is the amount of
        consideration established and agreed
        to by the
        related parties. These transactions were undertaken under the same terms
        and
        conditions as transactions with non-related
        parties.
  **17.**  **COMMITMENTS**
  The
        Trust has
        various commitments associated with its business operations, none of which,
        in
        managements view, are significant.
  **18.**  **GUARANTEES**
  In
        the normal
        course of operations, the Trust executes agreements that provide for
        indemnification and guarantees to counter- parties
        in
        transactions such as the sale of assets and operating leases.
  These
        indemnifications and guarantees may require compensation to counterparties
        for
        costs and losses incurred as a result of various events, including breaches
        of
        representations and warranties, loss of or damages to property, environmental
        liabilities or as
        a result of
        litigation that may be suffered by the counterparties.
  Certain
        indemnifications can extend for an unlimited period and generally do not
        provide
        for any limit on the maximum potential amount.
        The nature
        of substantially all of the indemnifications prevents the Trust from making
        a
        reasonable estimate of the maximum
        potential
        amount that might be required to pay counterparties as the agreements do
        not
        specify a maximum amount, and
        the amounts
        depend on the outcome of future contingent events, the nature and likelihood
        of
        which cannot be determined at this
        time.
  **19.**  **DIFFERENCES
        BETWEEN CANADIAN AND UNITED STATES OF AMERICA GENERALLY ACCEPTED
        ACCOUNTING**
  **PRINCIPLES**
  The
        consolidated
        financial statements of the Trust have been prepared in accordance with
        accounting principles generally accepted in Canada (“Canadian GAAP”) which in
        most respects, conform to accounting principles generally accepted in the United
        States of America (“U.S. GAAP”). The significant differences, as they apply to
        the Trust are shown below.
  
 *2006
                Annual Report - Vermilion Energy Trust*
              **22**
 
  The
        application of U.S. GAAP would have the following effect on net
        earnings:
  **2006**
              
              
              **2005**(Restated
                  (e
                  and h))Net
                  earnings
                  as reported under Canadian GAAP
              
              **$**
              **146,923**
              
              $
              158,471Differences
                  having the effect of increasing (decreasing) net earningsUnit
                  compensation (a)
              
              
              **(27,291**
              **)**
              
              -Non-controlling
                  interest adjustment (c)
              
              
              **14,917**
              
              
              14,399Gain
                  on
                  marketable securities (e)
              
              
              **1,973**
              
              
              3,011Amortization
                  of deferred derivative charge (d)
              
              
              **-**
              
              
              4,718Depletion,
                  depreciation and accretion (c, f and g)
              
              
              **(16,225**
              **)**
              
              628Equity-method
                  accounting adjustments (h)
              
              
              **(1,798**
              **)**
              
              (3,718
              )Dilution
                  gain
                  on sale of shares by equity-method investee (i)
              
              
              **9,429**
              
              
              -Deferred
                  tax
                  consequences of U.S. GAAP adjustments
              
              
              **11,825**
              
              
              212Net
                  earnings
                  under U.S. GAAP before cumulative effect of change in accounting
                  principle
              
              **$**
              **139,753**
              
              $
              177,721Cumulative
                  effect of change in accounting principle (a)
              
              
              **(49,276**
              **)**
              
              -Net
                  earnings
                  under U.S. GAAP
              
              **$**
              **90,477**
              
              
              177,721Accumulated
                  earnings, beginning of year, as previously reported, under U.S.
                  GAAP
              
              **$**
              **(1,282,815**
              **)**
              
              (746,578
              )Prior
                  period
                  adjustments (e and h)
              
              
              **1,129**
              
              
              1,423Accumulated
                  earnings, beginning of year, as restated, under U.S. GAAP
              
              
              **(1,281,686**
              **)**
              
              (745,155
              )Temporary
                  equity adjustment to accumulated earnings (b)
              
              
              **133,206**
              
              
              (714,252
              )Accumulated
                  earnings, end of period, under U.S. GAAP
              
              **$**
              **(1,058,003**
              **)**
              $
              (1,281,686
              )Earnings
                  per
                  trust unit under U.S. GAAP before cumulative effect of change in
                  accounting principleBasic
              
              **$**
              **1.98**
              
              $
              2.61Diluted
              
              **$**
              **1.90**
              
              $
              2.56Cumulative
                  effect of change in accounting principle (a)Basic
              
              **$**
              **(0.70**
              **)**
              $
              -Diluted
              
              **$**
              **(0.67**
              **)**
              $
              -Earnings
                  per
                  trust unit under U.S. GAAPBasic
              
              **$**
              **1.28**
              
              $
              2.61Diluted
              
              **$**
              **1.23**
              
              $
              2.56Weighted
                  average trust units outstandingBasic
                  (c)
              
              
              70,563,021
              
              
              68,122,539Diluted
                  (c)
              
              
              73,409,726
              
              
              69,395,074
 
 *2006
                Annual Report - Vermilion Energy Trust*
              **23**
 
  The
        application of U.S. GAAP would have the following effect on the consolidated
        balance sheets:
  **2006**
              
              
              **2006**
              
              
              2005
              
              
              2005**CDN
                  GAAP**
              
              
              **U.S.
                  GAAP**
              
              
              CDN
                  GAAP
              
              
              U.S.
                  GAAP**ASSETS**
              
              
              
              
              
              
              
              
              
              
              
              (Restated
                  (e and h)
              )CurrentCash
                  and cash
                  equivalents
              
              **$**
              **26,950**
              
              **$**
              **26,950**
              
              $
              42,777
              
              $
              42,777Accounts
                  receivable
              
              
              **120,573**
              
              
              **120,573**
              
              
              75,098
              
              
              75,098Crude
                  oil
                  inventory
              
              
              **4,898**
              
              
              **4,898**
              
              
              10,279
              
              
              10,279Fair
                  value of
                  derivative instruments
              
              
              **1,624**
              
              
              **1,624**
              
              
              1,166
              
              
              1,166Prepaid
                  expenses and other
              
              
              **13,473**
              
              
              **13,473**
              
              
              9,387
              
              
              9,387**167,518**
              
              
              **167,518**
              
              
              138,707
              
              
              138,707Fair
                  value of
                  derivative instruments
              
              
              **4,656**
              
              
              **4,656**
              
              
              -
              
              
              -Long-term
                  investments (e, h and i)
              
              
              **27,152**
              
              
              **35,769**
              
              
              19,637
              
              
              20,578Goodwill
              
              
              **19,840**
              
              
              **19,840**
              
              
              19,840
              
              
              19,840Reclamation
                  fund (e)
              
              
              **56,357**
              
              
              **58,793**
              
              
              42,198
              
              
              42,706Capital
                  assets (c, f and g)
              
              
              **1,187,316**
              
              
              **1,164,328**
              
              
              891,357
              
              
              890,127**$**
              **1,462,839**
              
              **$**
              **1,450,904**
              
              $
              1,111,739
              
              $
              1,111,958**LIABILITIES**CurrentAccounts
                  payable and accrued liabilities
              
              **$**
              **139,672**
              
              **$**
              **139,672**
              
              $
              90,422
              
              $
              90,422Unit-based
                  compensation liability (a)
              
              
              -
              
              
              **75,833**
              
              
              **-**
              
              
              **-**Distributions
                  payable to unitholders
              
              
              **11,000**
              
              
              **11,000**
              
              
              10,626
              
              
              10,626Income
                  taxes
                  payable
              
              
              **13,419**
              
              
              **13,419**
              
              
              11,607
              
              
              11,607Fair
                  value of
                  derivative instruments
              
              
              **-**
              
              
              **-**
              
              
              383
              
              
              383**164,091**
              
              
              **239,924**
              
              
              113,038
              
              
              113,038Long-term
                  debt
              
              
              **358,236**
              
              
              **358,236**
              
              
              271,099
              
              
              271,099Asset
                  retirement obligation
              
              
              **127,494**
              
              
              **127,494**
              
              
              70,214
              
              
              70,214Unit-based
                  compensation liability (a)
              
              
              -
              
              
              **15,348**
              
              
              **-**
              
              
              **-**Future
                  income
                  taxes
              
              
              **224,631**
              
              
              **220,429**
              
              
              160,475
              
              
              168,098**874,452**
              
              
              **961,431**
              
              
              614,826
              
              
              622,449Non-controlling
                  interest - exchangeable shares (c)
              
              
              **51,780**
              
              
              **-**
              
              
              38,760
              
              
              -Temporary
                  equity (a, b and c)
              
              
              **-**
              
              
              **2,025,854**
              
              
              **-**
              
              
              2,118,935**UNITHOLDERS’
                  EQUITY**Unitholders’
                  capital (b)
              
              
              **321,035**
              
              
              **-**
              
              
              274,813
              
              
              -Contributed
                  surplus
              
              
              **30,513**
              
              
              **-**
              
              
              14,566
              
              
              -Accumulated
                  earnings
              
              
              **663,437**
              
              
              **(1,058,003**
              **)**
              
              516,514
              
              
              (1,281,686
              )Accumulated
                  cash distributions
              
              
              **(478,378**
              **)**
              
              **(478,378**
              **)**
              
              (347,740
              )
              
              (347,740
              )**536,607**
              
              
              **(1,536,381**
              **)**
              
              458,153
              
              
              (1,629,426
              )**$**
              **1,462,839**
              
              **$**
              **1,450,904**
              
              $
              1,111,739
              
              $
              1,111,958
  a) 
Unit
        compensation
  On
        January 1, 2006
        the Trust adopted Statement of Financial Accounting Standards (“SFAS”) No.
        123(R), “Share-Based Payment” using the modified prospective application method.
        As a result of adopting this standard, the Trust’s unit-based compensation
        plans
        are now accounted for as liability plans whereas under Canadian GAAP and
        the
        previous U.S. standard,
        SFAS No.
        123 “Accounting for Stock-Based Compensation” the plans are considered equity
        plans. Under equity plan
        accounting, a
        fair value is determined for a unit-based compensation award at the date
        of
        grant. This fair value is recognized
        as an
        expense over the relevant vesting period with a corresponding increase in
        temporary equity. Liability plan accounting
        requires
        that the fair value associated with a unit-based award be remeasured at each
        reporting date until settlement
        with the
        corresponding changes in fair value reflected in net earnings. In the case
        of
        unit rights incentive plan awards,
        the Trust
        considers that settlement has occurred after the employee has been subject
        to
        the risks and rewards of trust unit ownership for a reasonable period of
        time
        after the unit right has been exercised. For trust unit awards, settlement
        is
        considered to have occurred after the employee has been subject to the risks
        and
        rewards of trust unit ownership for a reasonable
        period
        of time after the trust unit has vested. Upon settlement, the fair value
        of the
        award is reclassified to temporary
        equity.
  *2006
                  Annual Report - Vermilion Energy Trust*
                **24**
  The
        adoption of
        SFAS No. 123(R) on January 1, 2006 resulted in the recording of a unit-based
        compensation liability of $63,842,
        a decrease
        to temporary equity of $14,566 and a corresponding expense of $49,276
        representing the cumulative effect
        of a change
        in accounting principle. As required by the transitional provisions of SFAS
        123(R) associated with the modified
        prospective application method, prior periods have not been
        restated.
  The
        fair value of
        trust unit awards is determined using closing market prices. The fair value
        of
        unexercised unit rights incentive
        plan
        awards was determined using the Black-Scholes model incorporating management’s
        estimates as follows:
  **December
                  31, 2006**
              
              
              **January
                  1,****2006**Expected
                  volatility
              
              
              20.80
              %
              
              19.42
              %Risk-free
                  interest rate
              
              
              3.97
              %
              
              3.87
              %Expected
                  life
                  of option (years)
              
              
              1.4
              
              
              2.4Fair
                  value
                  per option
              
              $
              24.89
              
              $
              19.40
  b) Temporary
        equity
  As
        trust units are
        redeemable on demand for cash under the terms of the Trust Indenture, U.S.
        GAAP
        requires that trust units be carried at their redemption value outside of
        permanent equity. Changes in the redemption value are reflected as adjustments
        to
        accumulated earnings. Under Canadian GAAP, the trust units are considered
        permanent equity.
  c) Non-controlling
        interest adjustment
  Under
        Canadian GAAP
        exchangeable shares are classified as non-controlling interest to reflect
        a
        minority ownership in a subsidiary
        of the
        Trust. As these exchangeable shares are ultimately to be converted into trust
        units (see Note 9), they are classified
        as
        temporary equity under U.S. GAAP. Accordingly, non-controlling interest net
        income as recorded under Canadian
        GAAP is
        eliminated. In addition, increases to capital assets recorded during the
        year
        ended December 31, 2006 of
        $5,533 (2005 -
        $13,310) related to the conversion of exchangeable shares, as well as the
        related depletion and depreciation
        effects, have been eliminated.
  Under
        U.S. GAAP,
        the exchangeable shares are included in the calculation of basic weighted
        average trust units outstanding whereas under Canadian GAAP they are only
        incorporated into diluted weighted average trust units outstanding.
  d) Amortization
        of
        deferred derivative charge
  Effective
        January
        1, 2004, the Trust prospectively adopted Accounting Guideline 13 “Hedging
        Relationships” (“AcG-13”) under
        Canadian
        GAAP. This effectively eliminated U.S. GAAP differences relating to financial
        instruments that do not qualify
        for hedge
        accounting for future periods.
  During
        2005 a
        deferred charge of $4,718 related to the adoption of AcG-13 was amortized
        to
        income. This charge was previously
        recognized under U.S. GAAP.
  e) Gain
        on marketable securities
  The
        Trust has
        investments in equity securities that are carried at cost under Canadian
        GAAP
        whereas under U.S. GAAP these equity investments must be carried at fair
        value.
        The Trust has elected to reflect gains and losses associated with changes
        in fair
        value of these securities under U.S. GAAP in net earnings. Prior to 2006
        these
        investments were not recorded
        at fair
        value on the Trust’s U.S. GAAP balance sheet and accordingly the comparative
        financial statements for 2005
        have been
        restated. This restatement increased opening retained earnings by $1,423
        at
        January 1, 2005, increased long-term
        investments by $5,167 and increased deferred income tax liability by $1,584
        as
        at December 31, 2005, increased gain
        on marketable
        securities by $3,011 and decreased future income tax recovery by $851 for
        the
        year ended December 31,
        2005.
  
 *2006
                Annual Report - Vermilion Energy Trust*
              **25**
 
  f) Liability
        method of
        accounting for income taxes
  In
        2000, the Trust
        adopted the liability method of accounting for income taxes for Canadian
        GAAP.
        The change to the liability method eliminated a difference between Canadian
        and
        U.S. GAAP, however, the effect of the adoption under Canadian
        GAAP
        resulted in a charge to retained earnings, whereas, under U.S. GAAP the deferred
        income taxes that resulted
        would have
        been reflected in capital assets. As a result of the difference in
        implementation method, depletion and depreciation expense differs between
        U.S.
        and Canadian GAAP due to the additional amounts reflected as capital assets under
        U.S. GAAP. During the year ended December 31, 2006 additional depletion and
        depreciation of $1,321 (2005 - $1,603)
        was
        recorded under U.S. GAAP.
  g) Ceiling
        test
  Under
        U.S. GAAP
        full cost accounting, the carrying value of petroleum and natural gas properties
        and related facilities, net of
        deferred income
        taxes, is limited to the present value of after tax future net revenue from
        proven reserves, discounted at 10% (based on unescalated prices and costs
        at the
        balance sheet date), plus the lower of cost and fair value of unproven
        properties. Under Canadian GAAP, an impairment loss occurs when the carrying
        amount of the Trust’s property, plant and equipment exceeds the estimated
        undiscounted future net cash flows associated with the Trust’s proved reserves
        and if an impairment
        loss is
        determined to have occurred, the costs carried on the balance sheet in excess
        of
        the discounted future net cash flows associated with the Trust’s proved and
        probable reserves are charged to income. The application of the impairment
        test
        under U.S. GAAP at December 31, 2006 resulted in a writedown of capitalized
        costs of $17,039 on a before- tax
        basis. This
        writedown is reflected as additional depletion expense. The application of
        the
        impairment test under U.S. GAAP
        did not result
        in a writedown of capitalized costs for the year ended December 31,
        2005.
  h)  
        Equity-method accounting adjustments
  Under
        Canadian
        GAAP, entities that use the full-cost method of accounting adjust depletion
        reported by equity-method investees
        to result
        in the investor’s reported net income being the same as if the investee had been
        consolidated. Accordingly,
        depletion and ceiling test calculations are recalculated using reporting-entity
        cost-centres which include figures related
        to the
        equity method investee. Under U.S. GAAP no such adjustments are recorded
        in
        relation to equity method investees.
        The
        Trust’s U.S. GAAP reconciliation for the year ended December 31, 2005 did not
        reflect these differences between Canadian and U.S. GAAP and accordingly
        the
        comparative financial results for 2005 have been restated. This restatement
        decreased long-term investments by $3,718 and decreased deferred income tax
        liability by $1,264 as at December
        31, 2005,
        decreased equity in earnings of affiliate by $3,718 and increased future
        income
        tax recovery by $1,264 for
        the year ended
        December 31, 2005.
  i)   
        Dilution gain on sale of shares by equity-method investee
  Under
        Canadian
        GAAP, entities that use the full-cost method of accounting only recognize
        dilution gains on sales of shares by
        equity method
        investees if the sale is, in substance, a sale of oil and gas properties,
        in
        situations where crediting the proceeds
        to the
        relevant cost-centres results in a change of at least 20% to the related
        depletion, depreciation and amortization
        rates.
        Under U.S. GAAP there is no similar guidance which would preclude the
        recognition of a dilution gain related
        to
        equity-method investees and accordingly, the Trust has recorded a gain related
        to Verenex’s share offering which closed
        in December,
        2006.
  j)   
        Effects on statements of cash flows
  The
        Trust presents
        funds from operations before changes in non-cash working capital as a subtotal
        in the consolidated statement of cash flows. This line item would not be
        presented in a cash flow statement prepared in accordance with U.S. GAAP.
  
 *2006
                Annual Report - Vermilion Energy Trust*
              **26**
 
  k)  
        Recent U.S. Accounting Standards
  •
              In
                  February
                  2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
                  Financial Instruments - anamendment
                  of
                  FASB Statements No. 133 and 140” (“SFAS 155”). SFAS 155 permits an entity
                  to measure at fair valueany
                  financial
                  instrument that contains an embedded derivative that otherwise
                  would
                  require bifurcation. This Statementis
                  effective
                  for all financial instruments acquired or issued after the beginning
                  of an
                  entity’s first fiscal year that beginsafter
                  September 15, 2006. The Trust is currently assessing the impact
                  that SFAS
                  155 will have on its results ofoperations
                  and financial position.
  •
              The
                  FASB
                  introduced SFAS No. 157, “Fair Value Measurements” (“SFAS 157”), which
                  establishes a singleauthoritative
                  definition of fair value based upon the assumptions market participants
                  would use when pricing an asset or liability and creates a fair
                  value
                  hierarchy that prioritizes the information used to develop those
                  assumptions. Under the standard, additional disclosures are required,
                  including disclosures of fair value measurements by level within
                  thefair
                  value
                  hierarchy. SFAS 157 is effective for fair value measures already
                  required
                  or permitted by other standards forfiscal
                  years
                  beginning after November 15, 2007 and interim periods within those
                  fiscal
                  years. The Trust does notbelieve
                  that
                  the adoption of SFAS 157 will have a material impact on its results
                  of
                  operations and financial position.
  •
              In
                  February
                  2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
                  Assets and FinancialLiabilities”
                  (“SFAS 159”). SFAS 159 provides companies with an option to report
                  selected financial assets and liabilitiesat
                  fair
                  value. SFAS 159 is effective as of the beginning of an entity’s first
                  fiscal year beginning after November 15, 2007.The
                  Trust is
                  currently evaluating the provisions of SFAS 159 and assessing the
                  impact
                  the standard may have on itsfinancial
                  position and results of operations.
  •
              FASB
                  Staff
                  Position No. AUG AIR-1, “Accounting for Planned Major Maintenance
                  Activities” (“FSP AUG AIR-1”),prohibits
                  companies from accruing as a liability in annual and interim periods
                  the
                  future costs of periodic majoroverhauls
                  and
                  maintenance of plant and equipment (the “accrue-in-advance method”). Other
                  previously acceptablemethods
                  of
                  accounting for planned major overhauls and maintenance (the direct
                  expense, built-in overhaul and deferralmethods)
                  will
                  continue to be permitted. The new requirements apply to entities
                  in all
                  industries for fiscal yearsbeginning
                  after December 15, 2006, and must be retrospectively applied. The
                  Trust
                  does not believe that the adoption of this FSP will have a material
                  impact
                  on its results of operations and financial
                  position.
  •
              In
                  July 2006,
                  the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
                  Income Taxes, aninterpretation
                  of FASB Statement No. 109”, (“FIN 48”). FIN 48 clarifies the accounting
                  for uncertainty in income taxes recognized in a company’s financial
                  statements in accordance with SFAS No. 109, “Accounting for Income Taxes.”
                  Itprescribes
                  a
                  recognition threshold and measurement attribute for the financial
                  statement recognition and measurementof
                  a tax
                  position taken or expected to be taken in a tax return. The interpretation
                  also provides guidance onderecognition,
                  classification, interest and penalties, accounting in interim periods,
                  disclosure, and transition. FIN 48 is effective for fiscal years
                  beginning
                  after December 15, 2006. The Trust is currently assessing the impact
                  that
                  FIN 48will
                  have on
                  its results of operations and financial
                  position.
  •
              In
                  September
                  2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering the
                  Effects of Prior YearMisstatements
                  when Quantifying Misstatements in Current Year Financial Statements” (“SAB
                  108”). SAB 108 providesguidance
                  on
                  how prior year misstatements should be considered when quantifying
                  misstatements in the current yearfinancial
                  statements. The SAB requires registrants to quantify misstatements
                  using
                  both a balance sheet and anincome
                  statement approach and evaluate whether either approach results
                  in
                  quantifying a misstatement that, when allrelevant
                  quantitative and qualitative factors are considered, is material.
                  Upon
                  initial application, SAB 108 permits aone-time
                  cumulative effect adjustment to beginning retained earnings. SAB
                  108 is
                  effective for fiscal years ending after November 15, 2006. The
                  Trust does
                  not believe that the adoption of SAB 108 will have a material impact
                  on
                  its resultsof
                  operations
                  and financial position.
 *2006
                  Annual Report - Vermilion Energy Trust*
                **27**
 **TRUST
        INFORMATION**
   **DIRECTORS**
                
                Larry
                  J.
                  Macdonald1,2,3,4,5Chairman
&
                  CEO, Point Energy Ltd.Calgary,
                  Alberta
                
                W.
                  Kenneth Davidson2,3Toronto,
                  Ontario
                
                Lorenzo
                  DonadeoCalgary,
                  Alberta
                
                Claudio
                  A.
                  Ghersinich
                Executive
                  Director, Carrera Investments Corp.
                Calgary,
                  Alberta
                
                Joseph
                  F.
                  Killi2,3
                Chairman,
                Parkbridge
                  Lifestyle Communities Inc.
                President,
                  Rosebridge Capital Corp. Inc.
                Calgary,
                  Alberta
                
                William
                  F.
                  Madison2,4,5Sugar
                  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
              
              **OFFICERS
                  & KEY PERSONNEL**
                
                ***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
                
                Keith
                  D.
                  Hartman, P.Eng.Vice
                  President
                  Exploitation
                
                Raj
                  C. Patel, P.Eng.Vice
                  President
                  Marketing
                
                Paul
                  L.
                  Beique
                Director
                  Investor Relations
                
                Cheryl
                  M.
                  Kinzie
                Director
                  Human
                  Resources & Administration
                
                Charles
                  W.
                  Berard, B.Eng., L.LL., LL.B.Partner,
                  Macleod Dixon LLPCorporate
                  Secretary
                
                ***FRANCE***
                
                Daniel
                  Goulet,
                  P.Eng.Directeur
                  GénéralVermilion
                  REP
                  SAS
                
                ***NETHERLANDS***
                
                Peter
                  Sider,
                  P.Eng.
                Managing
                  Director
                Vermilion
                  Oil
                  & Gas Netherlands B.V.
                
                ***AUSTRALIA***
                
                Bruce
                  D. Lake,
                  P.Eng.
                Managing
                  Director
                Vermilion
                  Oil
                  & Gas Australia Pty Ltd.
              
              **AUDITORS**
                Deloitte
&
                  Touche LLPCalgary,
                  Alberta
                
                **BANKERS**
                
                The
                  Toronto-Dominion BankCalgary,
                  Alberta
                
                Bank
                  of
                  MontrealCalgary,
                  Alberta
                
                BNP
                  Paribas (Canada)Toronto,
                  Ontario
                
                Royal
                  Bank of
                  CanadaCalgary,
                  Alberta
                
                The
                  Bank of Nova ScotiaCalgary,
                  Alberta
                
                Alberta
                  Treasury BranchesCalgary,
                  Alberta
                
                Fortis
                  Capital
                  (Canada) Ltd.Calgary,
                  Alberta
                
                Société
                  Générale (Canada Branch)Calgary,
                  Alberta
                
                **EVALUATION
                  ENGINEERS**
                GLJ
                  Petroleum Consultants Ltd.Calgary,
                  Alberta
                
                **LEGAL
                  COUNSEL**
                Macleod
                  Dixon
                  LLPCalgary,
                  Alberta
                
                **TRANSFER
                  AGENT**
                Computershare
                  Trust Companyof
                  Canada
                
                **STOCK
                  EXCHANGE LISTING**
                The
                  Toronto Stock ExchangeSymbol:
                  VET.UN
                
                **INVESTOR
                  RELATIONS CONTACT**
                Paul
                  L.
                  Beique
                Director
                  Investor Relations
                
                **HEAD
                  OFFICE**
                2800,
                  400 -
                  4THAvenue
                  S.W.
                Calgary,
                  Alberta T2P 0J4
                Telephone:
                  (403) 269-4884
                Fax:
                  (403)
                  264-6306
                IR
                  Toll Free: 1-866-895-8101
                investor_relations@vermilionenergy.com
                vermilionenergy.com
  
   *2006
                  Annual Report - Vermilion Energy Trust*
                **28**