**Exhibit
      99.2**























**2005
      ANNUAL
      MANAGEMENT’S DISCUSSION AND ANALYSIS**











**MANAGEMENT’S
      DISCUSSION AND ANALYSIS**




The
      following is
      Management’s Discussion and Analysis (MD&A) dated February 15, 2006 of
      Vermilion’s operating and financial results for the years ended December 31,
      2005 and 2004. This discussion should be read in conjunction with the Trust’s
      audited consolidated financial statements for the years ended December 31,
      2005
      and 2004, together with accompanying notes.





**NON-GAAP
      MEASURES**





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





**FORWARD-LOOKING
      INFORMATION**





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





**HIGHLIGHTS
                ($m except per unit amounts)**
            
            **2005**
            
            **2004*******
            
            **2003*******Revenues
            
            **$**
            **529,938**
            
            $
            354,525
            
            $
            314,146Net
                earnings
                from continuing operations
            
            
            **158,471**
            
            
            66,010
            
            
            44,962Net
                earnings
            
            
            **158,471**
            
            
            127,513
            
            
            43,477Per
                unit
                basic
            
            
            **2.57**
            
            
            2.12
            
            
            0.82Per
                unit
                diluted
            
            
            **2.49**
            
            
            2.07
            
            
            0.81Funds
                from
                operations
            
            
            **278,165**
            
            
            170,179
            
            
            144,761Per
                unit
            
            
            **4.50**
            
            
            2.83
            
            
            2.73Return
                on
                equity (%)
            
            
            **37.4**
            
            
            34.0
            
            
            12.0Total
                assets
            
            
            **1,111,739**
            
            
            844,602
            
            
            780,589WTI
                (US$/bbl)
            
            
            **56.56**
            
            
            41.40
            
            
            31.04AECO
                (CDN$/mcf)
            
            
            **8.77**
            
            
            6.56
            
            
            6.69Realized
                price ($/boe)
            
            
            **53.48**
            
            
            39.48
            
            
            37.52Cash
                flow
                netback ($/boe)1
            
            **$**
            **30.15**
            
            $
            20.19
            
            $
            17.29


1
            2003
                netbacks
                are calculated including the impact of $25.6 million of reorganization
                costs





**2005
                Summary of Quarterly Results ($m except per unit
                amounts)**
            
            **Q1**
            
            **Q2**
            
            **Q3**
            
            **Q4**Revenue
            
            **$**
            **108,715**
            
            **$**
            **117,360**
            
            **$**
            **149,877**
            
            **$**
            **153,986**Net
                earnings
            
            
            **25,990**
            
            
            **32,585**
            
            
            **50,118**
            
            
            **49,778**Per
                unit
                basic
            
            
            **0.43**
            
            
            **0.53**
            
            
            **0.81**
            
            
            **0.80**Per
                unit
                diluted
            
            **$**
            **0.41**
            
            **$**
            **0.53**
            
            **$**
            **0.79**
            
            **$**
            **0.78**





**2004
                Summary of Quarterly Results ($m except per unit
                amounts)**
            
            **Q1**
            
            **Q2**
            
            **Q3**
            
            **Q4**Revenue
            
            $
            77,610
            
            $
            87,420
            
            $
            96,260
            
            $
            93,235Net
                earnings
                from continuing operations*
            
            
            10,797
            
            
            19,309
            
            
            14,902
            
            
            21,002Net
                earnings*
            
            
            11,625
            
            
            78,184
            
            
            14,902
            
            
            22,802Per
                unit
                basic*****
            
            
            0.20
            
            
            1.31
            
            
            0.25
            
            
            0.38Per
                unit
                diluted*****
            
            $
            0.19
            
            $
            1.28
            
            $
            0.24
            
            $
            0.37


*****
            Restated
                stock compensation expense (Note
                11)





**QUARTERLY
      RESULTS**





Quarterly
      results
      in 2005 have improved due to the Australia acquisition which was completed
      at
      the end of the first quarter of 2005. In addition, WTI prices in the last half
      of 2005 were approximately US$10.00 per barrel higher than the first half of
      2005. The increase in earnings in the three months ended June 30, 2004 relates
      to the sale of Aventura for a net gain of $68.0 million.




*2005
          Annual MD&A - Vermilion Energy Trust*
 2


**FOURTH
      QUARTER 2005**





Revenue
      for the
      three months ended December 31, 2005 increased 65% over the three months ended
      December 31, 2004. This increase is due to an increase in production resulting
      from the acquisition of assets in Australia as well as increased prices
      received. WTI increased 24% quarter over quarter and AECO increased 74% in
      the
      same period. Earnings increased significantly due mostly to the increase in
      revenues. In December 2005, the Trust’s ownership in Verenex was decreased to
      approximately 49% and the Trust discontinued consolidating Verenex effective
      December 15, 2005. Prior periods have not been restated.





**OPERATIONAL
      ACTIVITIES**





**Canada**


In
      Canada, the
      Trust participated in the drilling of 66 wells (30.4 net) resulting in 19 gas
      wells (10.7 net), 1 oil well (0.5 net), 2 abandoned wells (0.6 net) and 44
      standing wells (18.6 net) awaiting further evaluation, completion or tie-in.
      Of
      the total wells drilled in 2005, 55 (24.0 net) were related to the CBM / shallow
      gas program, which achieved a 100% success rate.





In
      addition to the
      Trust’s drilling operations, an additional 21 wells were drilled on Vermilion
      lands by third party operators through farm-out arrangements. Vermilion
      maintained an overriding royalty of small working interest in these
      wells.





**France**


Vermilion
      drilled
      and completed three new La Torche wells and re-entered and completed the
      Champotran 23 well which was temporarily abandoned in 2004, all in the Paris
      Basin. Average production rates from these wells were approximately 180 boe/d
      per well, with each well adding approximately 400,000 bbls of reserves on a
      proved plus probable basis.





**Netherlands**


The
      Trust installed
      16 small diameter tubing strings to improve the deliverability of these gas
      wells. Vermilion completed major plant inspections and turn-arounds at its
      Harlingen and Garijp facilities and installed a new canal crossing for one
      of
      its delivery pipelines.





**Australia**


Vermilion
      applied
      for and received government approval to operate the offshore Wandoo facilities.
      A modest debottlenecking of the topside facilities on the Wandoo B platform
      was
      successfully completed during the summer, which combined with a modified cycling
      program of these wells increased production by approximately 200 boe/d.
      Vermilion undertook a geological modeling study and a reservoir study to explore
      different avenues to increase production from this field.





**PRODUCTION**





Production
      in
      Canada during 2005 averaged 4,870 bbls/d of oil and NGL’s and 38.4 mmcf/d of
      natural gas compared to 5,723 bbls/d of oil and NGL’s and 46.4 mmcf/d of natural
      gas in 2004. Fourth quarter production averaged 4,522 bbls/d of oil and NGL’s
      and 39.1 mmcf/d of natural gas, representing an annual decline of approximately
      11% compared to fourth quarter 2004 volumes.





Production
      in
      France averaged 5,695 boe/d in 2005 a 5% decline compared to 6,018 boe/d
      production in 2004. Fourth quarter production averaged 6,096 boe/d and benefited
      from a recent recompletion and tie-in of new wells in the Champotran/La Torche
      field.




Production
      in the
      Netherlands, acquired in May 2004, averaged 4,812 boe/d for the year compared
      to
      3,519 boe/d in 2004. Fourth quarter production from the Netherlands averaged
      5,214 boe/d, representing an annual decline of approximately 7% compared to
      fourth quarter 2004 volumes.





Production
      in
      Australia, acquired in March 2005, averaged 3,391 boe/d for the year. Fourth
      quarter production in Australia averaged 4,294 boe/d.





Total
      Trust
      production averaged 25,166 boe/d in 2005, compared to 22,990 boe/d in 2004.
      Production declines in Canada and France were offset with the acquisition of
      production in Australia and the full year of production in the Netherlands.


*2005
          Annual MD&A - Vermilion Energy Trust*
 3





**Year
                Ended December 31, 2005**
            
            **Year
                Ended December 31, 2004**
            
            **Year
                Ended December 31, 2003****Oil
                &**
            
            **Natural**
            
            
            
            **Oil
                &**
            
            **Natural**
            
            
            
            **Oil
                &**
            
            **Natural****NGLs**
            
            **Gas**
            
            **Total**
            
            **NGLs**
            
            **Gas**
            
            **Total**
            
            **NGLs**
            
            **Gas**
            
            **Total****(bbls/d)**
            
            **(mmcf/d)**
            
            **(boe/d)**
            
            **(bbls/d)**
            
            **(mmcf/d)**
            
            **(boe/d)**
            
            **(bbls/d)**
            
            **(mmcf/d)**
            
            **(boe/d)**Vermilion
                Energy TrustCanada
            
            
            **4,870**
            
            
            **38.39**
            
            
            **11,268**
            
            
            5,723
            
            
            46.38
            
            
            13,453
            
            
            6,678
            
            
            59.96
            
            
            16,671France
            
            
            **5,478**
            
            
            **1.30**
            
            
            **5,695**
            
            
            5,763
            
            
            1.53
            
            
            6,018
            
            
            6,018
            
            
            1.51
            
            
            6,271Netherlands1
            
            
            **28**
            
            
            **28.70**
            
            
            **4,812**
            
            
            13
            
            
            21.03
            
            
            3,519
            
            
            -
            
            
            -
            
            
            -Australia2
            
            
            **3,391**
            
            
            **-**
            
            
            **3,391**
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
            
            
            **13,767**
            
            
            **68.39**
            
            
            **25,166**
            
            
            11,499
            
            
            68.94
            
            
            22,990
            
            
            12,696
            
            
            61.47
            
            
            22,942


1
            Effective
                from May 19th, 2004


2
            Effective
                from March 31, 2005





**2005
                Quarterly Production (boe/d)**
            
            **Q1**
            
            **Q2**
            
            **Q3**
            
            **Q4**Canada
            
            
            **11,978**
            
            
            **10,996**
            
            
            **11,075**
            
            
            **11,035**France
            
            
            **5,559**
            
            
            **5,260**
            
            
            **5,856**
            
            
            **6,096**Netherlands
            
            
            **5,225**
            
            
            **3,789**
            
            
            **5,018**
            
            
            **5,214**Australia1
            
            
            **-**
            
            
            **4,498**
            
            
            **4,710**
            
            
            **4,294**Total
            
            
            **22,762**
            
            
            **24,543**
            
            
            **26,659**
            
            
            **26,639**


1
            Effective
                from March 31, 2005





**2004
                Quarterly Production (boe/d)**
            
            **Q1**
            
            **Q2**
            
            **Q3**
            
            **Q4**Canada
            
            
            15,055
            
            
            13,502
            
            
            12,875
            
            
            12,398France
            
            
            6,262
            
            
            5,991
            
            
            5,869
            
            
            5,954Netherlands1
            
            
            -
            
            
            2,882
            
            
            5,553
            
            
            5,593Total
            
            
            21,317
            
            
            22,375
            
            
            24,297
            
            
            23,945


1
            Effective
                from May 19th, 2004





**CAPITAL
      EXPENDITURES**





Capital
      spending
      for the year totalled $300.1 million compared to $161.2 million spent in 2004.
      Of this total, approximately $95.0 million relates to the acquisition in
      Australia, $91.6 million relates to the Glacier acquisition with the remainder
      spent on drilling and development activities.





**Capital
                Expenditures ($m)**
            
            **2005**
            
            **2004**
            
            **2003**Land
            
            **$**
            **2,233**
            
            $
            493
            
            $
            1,520Seismic
            
            
            **12,116**
            
            
            787
            
            
            1,272Drilling
                and
                completion
            
            
            **43,929**
            
            
            34,469
            
            
            47,440Production
                equipment and facilities
            
            
            **25,111**
            
            
            15,757
            
            
            11,887Recompletions
            
            
            **21,163**
            
            
            9,999
            
            
            12,861Capitalized
                exploration administration
            
            
            **267**
            
            
            1,670
            
            
            2,061Drilling
                and
                development expenditures
            
            
            **104,819**
            
            
            63,175
            
            
            77,041Property
                acquisitions (dispositions)
            
            
            **94,967**
            
            
            93,990
            
            
            (1,294
            )Corporate
                acquisitions
            
            
            **91,613**
            
            
            -
            
            
            -Other
            
            
            **8,711**
            
            
            4,084
            
            
            3,819**$**
            **300,110**
            
            $
            161,249
            
            $
            79,566**Capital
                Expenditures by Country ($m)**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**Canada
            
            **$**
            **141,022**
            
            $
            31,722
            
            $
            33,511France
            
            
            **50,649**
            
            
            35,028
            
            
            30,469Netherlands
            
            
            **12,434**
            
            
            94,499
            
            
            -Australia
            
            
            **96,005**
            
            
            -
            
            
            -Trinidad
            
            
            **-**
            
            
            -
            
            
            15,586**$**
            **300,110**
            
            $
            161,249
            
            $
            79,566




*2005
          Annual MD&A - Vermilion Energy Trust*
 4


**FINANCIAL
      REVIEW**





The
      Trust
      (excluding Verenex Energy Inc. “Verenex”) generated funds from operations of
      $87.9 million ($1.29 per unit) in the fourth quarter of 2005, compared to $47.5
      million ($0.72 per unit) in the fourth quarter of 2004. The Trust’s
      distributions in the fourth quarter totaled $31.8 million ($0.51 per unit)
      for a
      payout ratio of 36%. Cash flow (excluding Verenex) for the twelve months ended
      December 31, 2005 totaled $277.2 million ($4.07 per unit) compared to $169.8
      million ($2.57 per unit) in the prior year. The full year distributions in
      2005
      totaled $126.2 million compared to $122.6 million in 2004. This represents
      a
      payout ratio of approximately 45% of total cash flow. Development capital
      expenditures during the fourth quarter of 2005 (excluding Verenex) were $27.2
      million bringing the full year total to $102.6 million ($50.7 million in 2004).
      Vermilion took advantage of strong cash flow driven by high commodity prices
      to
      inject a further $25.2 million into the Trust’s reclamation fund, increasing the
      fund to $42.2 million. Vermilion is committed to maintaining a source of funds
      available for abandonment and reclamation activities, such that future
      distribution and capital program decisions will not be impacted by these
      liabilities.





Vermilion’s
      net
      debt as of December 31, 2005 was $244.9 million, less than 0.9 times trailing
      cash flow. Financial derivatives put in place by the Trust late in 2002 to
      protect against a fall in oil prices expired at the end of 2005. In
      2005, Vermilion
      recorded a cash cost of approximately $41 million related to these financial
      instruments. Vermilion has changed its approach in its use of financial
      instruments and is currently using a combination of puts and collars to provide
      downside commodity price protection.





**CASH
      FLOW
      NETBACKS**





Cash
      flow was
      $278.2 million in 2005, up from $170.2 million in 2004. A higher average
      wellhead price was recorded in 2005 as a result of a 34% increase in AECO
      pricing and a 37% increase in average WTI pricing compared with
      2004.





**2005
                Cash Flow ($/boe)**
            
            **Q1**
            
            **Q2**
            
            **Q3**
            
            **Q4**
            
            **2005**
            
            **2004**
            
            **2003**Oil
                and gas
                revenues
            
            **$**
            **53.36**
            
            **$**
            **52.90**
            
            **$**
            **61.42**
            
            **$**
            **62.87**
            
            **$**
            **57.94**
            
            $
            43.21
            
            $
            39.90Realized
                hedging losses
            
            
            **(3.98**
            **)**
            
            **(4.29**
            **)**
            
            **(5.13**
            **)**
            
            **(4.36**
            **)**
            
            **(4.46**
            **)**
            
            (3.73
            )
            
            (2.38
            )Royalties
                (net)
            
            
            **(7.01**
            **)**
            
            **(9.40**
            **)**
            
            **(10.37**
            **)**
            
            **(10.94**
            **)**
            
            **(9.54**
            **)**
            
            (7.54
            )
            
            (8.92
            )Transportation
            
            
            **(1.43**
            **)**
            
            **(0.96**
            **)**
            
            **(0.82**
            **)**
            
            **(0.81**
            **)**
            
            **(0.99**
            **)**
            
            (1.17
            )
            
            (1.24
            )Lifting
                costs
            
            
            **(7.52**
            **)**
            
            **(8.52**
            **)**
            
            **(7.54**
            **)**
            
            **(7.99**
            **)**
            
            **(7.89**
            **)**
            
            (6.63
            )
            
            (6.11
            )Operating
                netbacks
            
            
            **33.42**
            
            
            **29.73**
            
            
            **37.56**
            
            
            **38.77**
            
            
            **35.06**
            
            
            24.14
            
            
            21.25General
                and
                administration
            
            
            **(1.58**
            **)**
            
            **(1.65**
            **)**
            
            **(1.16**
            **)**
            
            **(1.39**
            **)**
            
            **(1.43**
            **)**
            
            (1.59
            )
            
            (1.24
            )Reorganization
                costs
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1.05
            )Interest
            
            
            **(0.47**
            **)**
            
            **(0.54**
            **)**
            
            **(0.78**
            **)**
            
            **(0.90**
            **)**
            
            **(0.69**
            **)**
            
            (0.37
            )
            
            (1.05
            )Current
                and
                capital taxes
            
            
            **(3.40**
            **)**
            
            **(3.12**
            **)**
            
            **(3.95**
            **)**
            
            **(0.52**
            **)**
            
            **(2.71**
            **)**
            
            (2.03
            )
            
            (0.59
            )Foreign
                exchange
            
            
            **(0.08**
            **)**
            
            **(0.06**
            **)**
            
            **(0.13**
            **)**
            
            **(0.05**
            **)**
            
            **(0.08**
            **)**
            
            0.04
            
            
            (0.03
            )Cash
                flow
                netbacks
            
            **$**
            **27.89**
            
            **$**
            **24.36**
            
            **$**
            **31.54**
            
            **$**
            **35.91**
            
            **$**
            **30.15**
            
            $
            20.19
            
            $
            17.29








**2004
                Cash Flow ($/boe)**
            
            **Q1**
            
            **Q2**
            
            **Q3**
            
            **Q4**Oil
                and gas
                revenues
            
            $
            41.71
            
            $
            44.21
            
            $
            43.79
            
            $
            43.04Realized
                hedging losses
            
            
            (2.84
            )
            
            (3.34
            )
            
            (4.35
            )
            
            (4.23
            )Royalties
                (net)
            
            
            (9.67
            )
            
            (8.33
            )
            
            (6.74
            )
            
            (5.75
            )Transportation
            
            
            (1.43
            )
            
            (1.35
            )
            
            (0.99
            )
            
            (0.97
            )Lifting
                costs
            
            
            (6.16
            )
            
            (6.72
            )
            
            (6.86
            )
            
            (6.74
            )Operating
                netbacks
            
            
            21.61
            
            
            24.47
            
            
            24.85
            
            
            25.35General
                and
                administration
            
            
            (1.58
            )
            
            (1.67
            )
            
            (1.59
            )
            
            (1.53
            )Interest
            
            
            (0.69
            )
            
            (0.39
            )
            
            (0.17
            )
            
            (0.26
            )Current
                and
                capital taxes
            
            
            (1.24
            )
            
            (1.99
            )
            
            (2.81
            )
            
            (1.97
            )Foreign
                exchange
            
            
            -
            
            
            0.05
            
            
            0.09
            
            
            -Cash
                flow
                netbacks
            
            $
            18.10
            
            $
            20.47
            
            $
            20.37
            
            $
            21.59





**REVENUE**





Total
      revenues in
      2005 were $529.9 million compared to $354.5 million in 2004. Vermilion’s
      combined crude oil & NGL price was $64.79 per bbl for 2005, an increase of
      37% over the $47.26 per bbl reported in 2004. The natural gas price realized
      in
      2005 was $8.28 per mcf compared to $6.53 per mcf realized a year ago, a 27%
      year-over-year increase.




*2005
          Annual MD&A - Vermilion Energy Trust*
 5


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




**Year
                Ended December 31****($000’S
                EXCEPT PER BOE)**
            
            **2005**
            
            **2004**Crude
                oil
                & NGL’s
            
            **$**
            **326,754**
            
            $
            199,060Per
                boe
            
            **$**
            **64.79**
            
            $
            47.26Natural
                gas
            
            
            **207,902**
            
            
            165,174Per
                mcf
            
            **$**
            **8.28**
            
            $
            6.53Combined
            
            
            **534,656**
            
            
            364,234Derivative
                instruments
            
            
            **(4,718**
            **)**
            
            (9,709
            )Petroleum
                and
                natural gas revenue
            
            **$**
            **529,938**
            
            $
            354,525





**DERIVATIVE
      INSTRUMENTS**





Vermilion
      continues
      to manage its risk exposure through prudent commodity and currency economic
      hedging strategies. Vermilion has the following collars and puts in place at
      the
      end of 2005:




**Risk
                Management: Oil**
            
            **Funded
                Cost**
            
            **bbls/d**
            
            **US$/bbl**Collar
                - WTIQ1
                2006
            
            
            US$0.50-$1.00/bbl
            
            
            1,250
            
            $
            53.00
                - $72.75Q2
                2006
            
            
            US$1.50/bbl
            
            
            250
            
            $
            53.00
                - $73.90Collar
                -
                BRENT2006
            
            
            US$1.00/bbl
            
            
            1,000
            
            $
            53.00
                - $67.70Q3
                2006
            
            
            US$1.00/bbl
            
            
            250
            
            $
            52.00
                - $68.50Q4
                2006
            
            
            US$1.50/bbl
            
            
            250
            
            $
            53.00
                - $69.80**Risk
                Management: Natural Gas**
            
            
            **Funded
                Cost**
            
            
            **GJ/d**
            
            
            **C$/GJ**CollarQ1
                2006
            
            $
            0.25/GJ
            
            
            2,500
            
            $
            9.50
                - $16.00Feb-Mar
                2006
            
            
            costless
            
            
            2,500
            
            $
            11.00
                - $20.74Apr-Oct
                2006
            
            $
            0.25/GJ
            
            
            2,500
            
            $
            8.00
                - $15.00PutQ1
                2006
            
            $
            0.23/GJ
            
            
            5,000
            
            $
            10.50





The
      impact of
      Vermilion’s hedging program reduced cash netbacks by $4.46 per boe on a combined
      basis for the year ended 2005 compared to an economic hedging loss of $3.73
      per
      boe in 2004. Oil hedging resulted in a $41.6 million cost for the year or $4.51
      per boe. For 2004, oil hedging resulted in a $34.1 million cost for the year
      or
      $4.04 per boe. For the year the Trust recorded a net gain from its power hedges
      totalling $0.5 million or $0.05 per boe. In 2004 a currency hedge gain of $3.3
      million or $0.39 per boe was recorded.





**ROYALTIES**





Total
      royalties,
      net of ARTC, increased to $9.54 per boe in 2005 or 16% of sales compared with
      $7.54 per boe or 17% of sales in 2004. The increase on a per boe basis is due
      to
      the impact of higher commodity prices. The decrease on a percentage basis is
      due
      to the fact there are no royalties paid in the Netherlands offset somewhat
      by a
      higher royalty rate in Australia. Contributing to the lower percentage is the
      fact that gas royalties in Canada have reached a plateau as prices have
      increased beyond the maximum royalty calculation. In France, royalties for
      the
      most part are calculated on a unit of production basis and rates do not react
      to
      price changes, therefore as prices increase, the royalties, as a percentage
      of
      sales, decline. In Australia, royalties are reduced by capital reinvestment
      in
      the country. For 2005, Vermilion’s capital program in Australia was minimal
      resulting in the Trust paying royalties at or near the maximum
      rate.





**Year
                Ended December 31****($000’S
                EXCEPT PER BOE)**
            
            **2005**
            
            **2004**Crude
                oil
                & NGL’s
            
            **$**
            **61,322**
            
            $
            31,105Per
                boe
            
            **$**
            **12.16**
            
            $
            7.39Natural
                gas
            
            
            **26,679**
            
            
            32,450Per
                mcf
            
            **$**
            **1.06**
            
            $
            1.28Combined
            
            **$**
            **88,001**
            
            $
            63,555Per
                boe
            
            **$**
            **9.54**
            
            $
            7.54


*2005
          Annual MD&A - Vermilion Energy Trust*
 6


**OPERATING
      COSTS**





Operating
      costs
      increased to $7.89 per boe in 2005 from $6.63 per boe in 2004. The increase
      in
      the dollar amount of operating costs over 2004 was due to the acquisition of
      higher cost assets in Australia. In Canada, the significant activity levels
      in
      the industry combined with increased energy costs, have placed upward pressure
      on costs across the board. When combined with a reduction in production volumes
      due primarily to plant turnarounds, year over year increases in costs per boe
      have been experienced. In France, operating costs are down due to a
      reclassification of certain expenses in the fourth quarter of 2005. In the
      Netherlands, operating costs are up due primarily to a reduction in production
      volumes and extensive plant maintenance in the second quarter of 2005. Cost
      of
      operations in Australia averaged $9.09 per boe of production since acquiring
      the
      assets at the end of the first quarter.





**Year
                Ended December 31****($000’S
                EXCEPT PER BOE)**
            
            **2005**
            
            **2004**Crude
                oil
                & NGL’s
            
            **$**
            **39,060**
            
            $
            30,632Per
                boe
            
            **$**
            **7.75**
            
            $
            7.27Natural
                gas
            
            
            **33,796**
            
            
            25,285Per
                mcf
            
            **$**
            **1.35**
            
            $
            1.00Combined
            
            **$**
            **72,856**
            
            $
            55,917Per
                boe
            
            **$**
            **7.89**
            
            $
            6.63





**TRANSPORTATION**





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





**Year
                Ended December 31****($000’S
                EXCEPT PER BOE)**
            
            **2005**
            
            **2004**Transportation
            
            **$**
            **9,136**
            
            $
            9,865Per
                boe
            
            **$**
            **0.99**
            
            $
            1.17





**GENERAL
      AND
      ADMINISTRATION EXPENSES**





General
      and
      administration expenses for the year decreased to $1.43 per boe from $1.59
      per
      boe in 2004. The decrease per boe is a result of the higher production volumes
      experienced in 2005.





**Year
                Ended December 31****($000’S
                EXCEPT PER BOE)**
            
            **2005**
            
            **2004**General
                and
                administration
            
            **$**
            **13,241**
            
            $
            13,410Per
                boe
            
            **$**
            **1.43**
            
            $
            1.59





**UNIT
      COMPENSATION EXPENSE**





A
      non-cash trust
      unit compensation expense of $1.52 per boe was recorded in 2005 compared to
      $0.80 per boe for 2004. This non-cash amount relates to the value attributable
      to rights granted to officers, directors and employees under the Trust Unit
      Rights Incentive Plan (“Unit Rights Plan”) and the Trust Unit Award Plan (“Award
      Plan”).





From
      inception of
      the unit rights incentive plan until January 1, 2005, the Trust applied the
      intrinsic value methodology based on the initial asessment that the number
      of
      uncertainties regarding the reduction in the strike price of the rights
      precluded a reasonable estimate of the fair value of the rights on the date
      of
      grant.





Effective
      on
      January 1, 2005, the Trust prospectively applied the fair value based method
      of
      accounting for the rights plan.




*2005
          Annual MD&A - Vermilion Energy Trust*
 7


In
      the fourth
      quarter of 2005 however, it has been determined that, in the circumstances,
      the
      fair value methodology could be applied since inception of the plan rather
      than
      the intrinsic value methodology. The Trust has therefore computed a fair value
      estimate of the rights at the respective dates of grant and has retroactively
      restated its unit compensation expense back to the inception of the plan in
      2003.





In
      March 2005, the
      Board of Directors established the new Award Plan to replace the existing Unit
      Rights Plan. The new Award Plan will result in directors, officers, employees
      and consultants of the Trust and its Affiliates being awarded a specified number
      of Restricted Units and the Units shall be 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.
      Payment in respect of Restricted Units that have vested shall be made by
      delivering Units or corresponding cash value to the Grantee. The fair value
      of
      the Awards will be recognized in earnings over the vesting period of the Awards
      outstanding.





**Year
                Ended December 31****($000’S
                EXCEPT PER BOE)**
            
            **2005**
            
            **2004**(Restated)Unit
                compensation expense
            
            **$**
            **14,000**
            
            $
            6,738Per
                boe
            
            **$**
            **1.52**
            
            $
            0.80





**INTEREST
      EXPENSE**





Interest
      expense
      increased to $0.69 per boe in 2005 from $0.37 per boe in 2004 as a result of
      higher average debt levels in 2005 stemming from the purchase of the assets
      in
      the Netherlands in May of 2004, the Australia assets in the first quarter of
      2005 and the Glacier acquisition in December 2005. The Trust’s interest rates
      have remained steady over the year.





**Year
                Ended December 31****($000’S
                EXCEPT PER BOE)**
            
            **2005**
            
            **2004**Interest
            
            **$**
            **6,331**
            
            $
            3,086Per
                boe
            
            **$**
            **0.69**
            
            $
            0.37





**DEPLETION,
      DEPRECIATION AND ACCRETION EXPENSES**





Depletion,
      depreciation and accretion expense increased to $13.23 per boe in 2005 from
      $11.57 per boe in 2004. The increase is due mainly to the increase of finding
      and development costs in Canada and the increase in the asset retirement
      obligation, resulting primarily from the Australia acquisition.





**Year
                Ended December 31****($000’S
                EXCEPT PER BOE)**
            
            **2005**
            
            **2004**Depletion,
                depreciation and accretion
            
            **$**
            **122,098**
            
            $
            97,540Per
                boe
            
            **$**
            **13.23**
            
            $
            11.57





**TAXES**




The
      Trust’s current
      tax provision has increased to $2.71 per boe in 2005 from $2.03 per boe in
      2004
      and is due primarily to the increase in earnings generated by strong commodity
      prices. The current provision is based on an approximate $13.4 million tax
      liability in France, an approximate $3.6 million tax liability in the
      Netherlands and an approximate $7.4 million tax liability in Australia. The
      tax
      liability in Australia was allocated to the purchase price for the period from
      January 1 to March 31, 2005 in accordance with the allocation of revenues and
      expenses related to the Australia assets for that same time period. The
      Netherlands acquisition closed on May 19, 2004 resulting in only a partial
      tax
      payment in 2004 compared to a full period assessment this year. In Canada,
      it is
      anticipated that there will be no current taxes due with the exception of
      capital taxes which are assessed on an annual basis. The recovery in future
      income taxes is a result of the taxable portion of distribution payments made
      to
      unitholders. In the Trust’s structure, payments are made between the operating
      company and the Trust transferring both income and future income tax liability
      to the unitholder. Therefore it is the opinion of management that no cash income
      taxes in Canada are expected to be paid by the operating company in the future,
      and as such, the future income tax liability recorded on the balance sheet
      related to Canadian operations will be recovered through earnings over time.





**Year
                Ended December 31****($000’S
                EXCEPT PER BOE)**
            
            **2005**
            
            **2004**Current
                and
                capital tax
            
            **$**
            **25,007**
            
            $
            17,108Per
                boe
            
            **$**
            **2.71**
            
            $
            2.03




*2005
          Annual MD&A - Vermilion Energy Trust*
 8


**FOREIGN
      EXCHANGE**





A
      combined realized
      and unrealized foreign exchange loss of $0.12 per boe was recorded in 2005
      with
      a gain of $0.16 per boe in 2004. The loss is mostly unrealized and relates
      to
      the impact of the strengthening Canadian dollar compared to the Euro on the
      foreign working capital.





**Year
                Ended December 31****($000’S
                EXCEPT PER BOE)**
            
            **2005**
            
            **2004**Foreign
                exchange loss (gain)
            
            **$**
            **1,083**
            
            $
            (1,285
            )Per
                boe
            
            **$**
            **0.12**
            
            $
            (0.16
            )





**EARNINGS**





Net
      earnings from
      continuing operations in the year increased to $158.5 million or $2.57 per
      unit
      from $66.0 million or $1.10 per unit in 2004. The increase in earnings is due
      mainly to the record commodity prices realized in the year as well as the full
      year impact of the Netherlands operations and the impact of the operations
      in
      Australia acquired in 2005.





**LIQUIDITY
      AND CAPITAL RESOURCES**





Vermilion’s
      debt
      (net of working capital) on December 31, 2005 was $244.9 million. Vermilion
      entered into an unsecured covenant based credit facility with a syndicate of
      chartered banks in July 2005. This $410 million facility is comprised of a
      one
      year revolving period with a one year term to follow with a final settlement
      payment required at the end of the second year.





**Liquidity
                and Capital Resources**
            
            **2005**
            
            **2004**
            
            **2003**Debt
                and
                working capital ($m)
            
            **$**
            **244,889**
            
            $
            84,686
            
            $
            131,498Bank
                facility
                ($m)
            
            **$**
            **410,000**
            
            $
            240,000
            
            $
            240,000Unused
                bank
                facility ($m)
            
            **$**
            **165,111**
            
            $
            155,314
            
            $
            108,502Debt-to-cash-flow
                ratio1
            
            
            **0.88**
            
            
            0.50
            
            
            0.87Debt-to-equity
                ratio1
            
            
            **0.53**
            
            
            0.22
            
            
            0.38


1
            Debt
                includes
                working capital





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





There
      is currently
      an active market for the equity financing of Canadian resource trusts.
      Accordingly, any future significant acquisition of producing properties is
      expected to be financed through additional bank debt combined with the issuance
      of trust units.





Internally
      generated cash is used primarily for distributions, internal capital
      requirements and contributions to the Trust’s reclamation fund. Internal cash
      flow is significantly influenced by commodity prices. Other risks include
      exchange rates, interest rates and marketing opportunities, among others. For
      a
      thorough discussion of these risks and how they are managed by Vermilion, please
      see the section on Risk Management.





**RECLAMATION
      FUND**





Vermilion
      has
      established a reclamation fund for the ultimate payment of environmental and
      site restoration costs on its asset base. The reclamation fund will be funded
      by
      Vermilion Resources Ltd. and/or its operating subsidiaries. Contributions in
      2005 totalled $25.2 million. Contributions are currently made on a barrel of
      oil
      equivalent of production basis in Canada, France the Netherlands, and Australia
      and are occasionally supplemented with lump sum contributions. Contribution
      levels to the reclamation fund will be reviewed on a regular basis and will
      be
      adjusted when necessary to ensure reclamation obligations associated with the
      Trust’s assets will be substantially funded when the costs are forecast to be
      incurred.




*2005
          Annual MD&A - Vermilion Energy Trust*
 9


**ASSET
      RETIREMENT OBLIGATION**





At
      December 31,
      2005, Vermilion had recorded an asset retirement obligation of $70.2 million
      for
      future abandonment and reclamation of its properties compared to $51.7 million
      in 2004. The increase is due to the liabilities recorded as a function of the
      asset acquisition in Australia.





**DISTRIBUTIONS**





Vermilion
      maintained monthly distributions at $0.17 per unit for the year distributing
      a
      total of $126.2 million compared to $122.6 million in 2004 before the impact
      of
      the Trust’s DRIP program. Vermilion has maintained its distributions at $0.17
      per month since its conversion to a trust, resulting in 35 continuous months
      of
      distributions at this level. Of the distributions paid in the year,
      approximately 86% will be taxed in the hands of taxable Canadian unitholders’ as
      other income. The balance, considered to be a return of capital, is tax deferred
      and will reduce the adjusted cost base of trust units held by unitholders’.





The
      Trust defines
      distributable income as funds from operations. For 2005, the Trust has paid
      out
      45% of its distributable income (72% in 2004).





**UNITHOLDERS’
      EQUITY**





During
      the year
      approximately 1.8 million units were issued on conversion of exchangeable
      shares, unit rights exercised, issued pursuant to the terms of the Trust’s bonus
      plan and unitholders’ participation in the distribution reinvestment plan.
      Unitholders’ capital increased during the year by $26.6 million as a result of
      the issuance of those units and $4.2 million as a result of contributed surplus
      transfer on exercise of unit rights. This increase in equity was offset by
      cash
      distributions of $126.2 million in the year.





**NON-CONTROLLING
      INTEREST - EXCHANGEABLE SHARES**





The
      Trust has
      recorded non-controlling interest attributed to the issued and outstanding
      exchangeable shares in accordance with accounting requirements pursuant to
      EIC-151 (see Note 2 of the consolidated financial statements for further
      discussion). The intent of the new standard is that exchangeable shares of
      a
      subsidiary which are transferable to third parties, outside of the consolidated
      entity, represent a non-controlling interest in the subsidiary.





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





The
      non-controlling
      interest in 2005 of $38.8 million ($24.7 million in 2004) on the consolidated
      balance sheet represents the book value of exchangeable shares plus accumulated
      earnings attributable to the outstanding exchangeable shares. The reduction
      in
      2005 and 2004 net income, respectively, of $14.4 million and $10.1 million,
      represents the net income attributable to the exchangeable shareholders for
      2005
      and 2004. As the exchangeable shares are converted to trust units, Unitholders'
      capital is increased for the fair value of the trust units issued.





As
      at December 31,
      2005 there were 4.6 million exchangeable shares outstanding at exchange ratio
      of
      1.37836 whereby 6.4 million trust units would be issuable upon conversion.
      The
      exchangeable shares can be converted into trust units or redeemed by the
      exchangeable share holder for trust units at any time. Vermilion may redeem
      all
      outstanding exchangeable shares on or before January 22, 2013 and may redeem
      the
      exchangeable shares at any time if the number of exchangeable shares outstanding
      falls below 500,000 shares. Vermilion may issue cash or trust units upon
      redemption of exchangeable shares and it is the intention to issue trust units
      upon redemption.




*2005
          Annual MD&A - Vermilion Energy Trust*
 10


**PROPOSED
      TRANSACTION**





On
      October 18,
      2005, Vermilion announced that a wholly-owned subsidiary entered into an
      exclusive arrangement with a French subsidiary of Exxon Mobil Corporation,
      to
      negotiate the purchase of its 89.89% shareholding in Esso REP. Any transaction
      would be subject to the parties entering into a definitive purchase and sale
      agreement which would be subject to the satisfaction of all conditions
      precedent, including due diligence and the receipt of all necessary regulatory
      approvals and which will require consultation with appropriate employee
      representative groups.





**DISCONTINUED
      OPERATIONS**





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





**RISK
      MANAGEMENT**





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





Vermilion
      considers
      its commodity price risk management program as a form of insurance that protects
      its cash flow and rate of return. The primary objective of the risk management
      program is to support Vermilion’s distributions and its internal capital
      development program. Maintenance of a strong financial position and a stable
      cash flow stream through the development of long-life reserves is key to
      mitigating business risks.





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





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





**CURRENCY
      RISK**





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





**CRITICAL
      ACCOUNTING ESTIMATES**





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




*2005
          Annual MD&A - Vermilion Energy Trust*
 11


**SENSITIVITIES**





Crude
      oil and
      natural gas prices may change significantly because of factors Vermilion cannot
      control. The following table provides a summary of estimated sensitivities
      to
      price fluctuations for pro-forma production levels and expenses for the year
      ended December 31, 2006.





**Cash
                Available for Distributions Per Unit and Exchangeable
                Shares**
            
            Cash
                Available for DistributionChange
                in
                crude oil price by Cdn$1.00/bbl
            
            $
            0.05
            
            $
            3.2
                millionChange
                in
                natural gas price by Cdn$0.10/mcf
            
            $
            0.02
            
            $
            1.3
                millionChange
                in
                interest rate by one point
            
            $
            0.03
            
            $
            2.0
                millionChange
                in
                Cdn/U.S. foreign exchange rate by one point
            
            $
            0.05
            
            $
            3.5
                millionChange
                in
                Cdn/Euro foreign exchange rate by one point
            
            $
            0.01
            
            $
            0.8
                million





**OFF
      BALANCE
      SHEET ARRANGEMENTS**





The
      Trust has
      certain lease agreements that are entered into in the normal course of
      operations. All leases are treated as operating leases whereby the lease
      payments are included in operating expenses or G&A expenses depending on the
      nature of the lease. No asset or liability value has been assigned to these
      leases in the balance sheet as of December 31, 2005.





The
      Trust has not
      entered into any guarantee or off balance sheet arrangements that would
      adversely impact the Trust’s financial position or results of
      operations.





**ENVIRONMENT,
      HEALTH AND SAFETY**





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





In
      2005, Vermilion
      remained committed to the principles of the Environment, Health and Safety
      Stewardship Program set out by the Canadian Association of Petroleum Producers
      (CAPP). This voluntary initiative promotes continual improvement in the areas
      of
      environment, health and safety performance, supplemented by progress reports
      to
      stakeholders.





Vermilion
      continued
      its commitment to protect land, water and air, as policies and procedures,
      demonstrating leadership in these areas, were maintained and further developed
      in 2005. Examples of accomplishments during the year included:





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


-
            Monitoring
                long-term liabilities through regular
                inspections;


-
            Continuing
                reductions in flaring and greenhouse gas
                emissions;


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


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





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





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





**CORPORATE
      GOVERNANCE**





Vermilion
      is
      committed to a high standard of corporate governance practices, a dedication
      that begins at Board level and extends throughout the Trust. We believe good
      corporate governance is in the best interest of our unitholders, and that
      successful companies are those that deliver growth and a competitive return
      along with a commitment to the environment, to the communities where they
      operate and to their employees. We comply with the objectives and guidelines
      relating to corporate governance adopted by the Toronto Stock Exchange. In
      addition, the Board monitors and considers the implementation of corporate
      governance standards proposed by various regulatory and non-regulatory
      authorities in Canada. A full examination of our corporate governance policies
      will be provided in our annual Information Circular, which will be filed on
      SEDAR (www.sedar.com) and mailed to all unitholders on or before March 31,
      2006.




*2005
          Annual MD&A - Vermilion Energy Trust*
 12


**SARBANES
      OXLEY UPDATE**





On
      July 31, 2002,
      the United States Congress enacted the Sarbanes Oxley Act (“SOX”) that applies
      to all companies registered with the Securities and Exchange Commission (“SEC”).
      On March 2, 2005, the Securities and Exchange Commission (“SEC”) announced a one
      year extension of the compliance date for all foreign private issuers. As a
      result of this extension, Vermilion is currently required to comply with section
      404 of the SOX legislation on December 31, 2006. Section 404 of the SOX
      legislation “Internal Controls Over Financial Reporting” requires that
      management identify, document, assess and remediate internal controls and issue
      an opinion on the effectiveness of internal controls surrounding the financial
      reporting process. The Trust currently has a comprehensive plan and a dedicated
      team of individuals in place to execute the plan of meeting the SOX Section
      404
      compliance date.





**DISCLOSURE
      CONTROLS AND PROCEDURES**





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




*2005
      Annual MD&A - Vermilion Energy Trust*


13