**Exhibit
      99.2**


**MANAGEMENT’S
        RESPONSIBILITY FOR FINANCIAL STATEMENTS**
  In
        management’s opinion, the accompanying consolidated financial statements of
        Enerplus Resources Fund (the “Fund”) have been prepared within reasonable limits
        of materiality and in accordance with Canadian generally accepted accounting
        principles. Since a precise determination of many assets and liabilities
        is
        dependent on future events, the preparation of financial statements necessarily
        involves the use of estimates and approximations. These have been made using
        careful judgment and with all information available up to February 18, 2006.
        Management is responsible for all information in the annual report and for
        the
        consistency, therewith, of all other financial and operating data presented
        in
        this report.
 
 To
        meet
        its responsibility for reliable and accurate financial statements, management
        has established and monitors systems of internal control which are designed
        to
        provide reasonable assurance that financial information is relevant, reliable
        and accurate, and that assets are safeguarded and transactions are executed
        in
        accordance with management’s authorization.
 
 The
        consolidated financial statements have been examined by Deloitte & Touche
        LLP, independent Chartered Accountants. Their responsibility is to express
        a
        professional opinion on the fair presentation of the consolidated financial
        statements in accordance with Canadian generally accepted accounting principles.
        The Auditors’ Report outlines the scope of their examination and sets forth
        their opinion.
 
 The
        Audit Committee, consisting exclusively of independent directors, has reviewed
        these statements with management and the external auditors and has recommended
        their approval to the Board of Directors. The Board of Directors has approved
        the consolidated financial statements of the Fund.
 
 “signed”
              “signed”Gordon
                  J. Kerr
              Robert
                  J. WatersPresident
                  and
              Senior
                  Vice President andChief
                  Executive Officer
              Chief
                  Financial Officer
 
 Calgary,
        Alberta
 February
        18, 2006
 
 **REPORT
        OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS**
 
 To
        the
        Unitholders of Enerplus Resources Fund:
 
 We
        have
        audited the consolidated balance sheets of Enerplus Resources Fund (the “Fund”)
        as at December 31, 2005 and 2004 and the consolidated statements of income,
        accumulated income, accumulated cash distributions and cash flows for the
        years
        then ended. These financial statements are the responsibility of the Fund’s
        management. Our responsibility is to express an opinion on these financial
        statements based on our audits.
 
 We
        conducted our audits in accordance with Canadian generally accepted auditing
        standards. Those standards require that we plan and perform an audit to obtain
        reasonable assurance 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.
 
 In
        our
        opinion, these consolidated financial statements present fairly, in all material
        respects, the financial position of the Fund as at December 31, 2005 and
        2004
        and the results of its operations and its cash flows for the years then ended
        in
        accordance with Canadian generally accepted accounting principles.
 
 The
        Fund is not required to have, nor were we engaged to perform, an audit of
        its
        internal control over financial reporting. Our audit included consideration
        of
        internal control over financial reporting as a basis for designing audit
        procedures that are appropriate in the circumstances, but not for the purpose
        of
        expressing an opinion on the effectiveness of the Fund’s internal control over
        financial reporting. Accordingly we express no such opinion.
  DELOITTE
        & TOUCHE LLP
 Independent
        Registered Chartered Accountants          “signed”
 Calgary,
        Alberta
 February
        18, 2006
  
  **CONSOLIDATED
        BALANCE SHEETS**
 
 **As
                  at December 31 (CDN$ thousands)**
              
              **2005**
              
              **2004****Assets**Current
                  assetsCash
              
              **$**
              **10,093**
              
              $
              -Accounts
                  receivable
              
              
              **170,623**
              
              
              107,996Deferred
                  financial assets (Note 3)
              
              
              **49,874**
              
              
              -Other
                  current
              
              
              **26,751**
              
              
              9,602**257,341**
              
              
              117,598Property,
                  plant and equipment (Note 5)
              
              
              **3,650,327**
              
              
              3,029,007Goodwill
                  (Note 7)
              
              
              **221,234**
              
              
              29,082Deferred
                  charges (Note 8)
              
              
              **1,721**
              
              
              5,061**$**
              **4,130,623**
              
              $
              3,180,748**Liabilities**Current
                  liabilitiesAccounts
                  payable
              
              **$**
              **316,875**
              
              $
              179,568Distributions
                  payable to unitholders
              
              
              **49,367**
              
              
              36,443Deferred
                  credits (Note 3)
              
              
              **57,368**
              
              
              42,303**423,610**
              
              
              258,314Long-term
                  debt (Note 8)
              
              
              **659,918**
              
              
              584,991Future
                  income taxes (Note 11)
              
              
              **442,970**
              
              
              235,551Asset
                  retirement obligations (Note 4)
              
              
              **110,606**
              
              
              105,978**1,213,494**
              
              
              926,520**Equity**Unitholders’
                  capital (Note 10)
              
              
              **3,410,614**
              
              
              2,831,277Accumulated
                  income
              
              
              **1,408,178**
              
              
              976,137Accumulated
                  cash distributions
              
              
              **(2,309,705**
              **)**
              
              (1,811,500
              )Cumulative
                  translation adjustment (Note 1(j))
              
              
              **(15,568**
              **)**
              
              -**2,493,519**
              
              
              1,995,914**$**
              **4,130,623**
              
              $
              3,180,748
    "Signed"
              "Signed"Douglas R. Martin
                Director
              Robert L. Normand
                Director
 
 **CONSOLIDATED
        STATEMENTS OF INCOME**
 
 **For
                  the year ended December 31 (CDN$ thousands except per trust unit
                  amounts)**
              
              **2005**
              
              **2004****Revenues**Oil
                  and gas sales
              
              **$**
              **1,550,569**
              
              $
              1,149,765Royalties
              
              
              **(296,983**
              **)**
              
              (230,954
              )Derivative
                  instruments (Notes 3 and 12)Financial
                  contracts - qualified hedges
              
              
              **(27,256**
              **)**
              
              (18,167
              )Other
                  financial contracts
              
              
              **(82,664**
              **)**
              
              (117,213
              )Interest
                  and other income
              
              
              **11,064**
              
              
              2,095**1,154,730**
              
              
              785,526**Expenses**Operating
              
              
              **216,808**
              
              
              196,451General
                  and administrative (Note 10(b))
              
              
              **40,375**
              
              
              33,863Transportation
              
              
              **26,915**
              
              
              25,119Interest
                  on long-term debt (Note 8)
              
              
              **25,791**
              
              
              20,737Foreign
                  exchange loss/(gain) (Note 9)
              
              
              **1,677**
              
              
              (5,018
              )Depletion,
                  depreciation, amortization and accretion
              
              
              **386,545**
              
              
              326,269**698,111**
              
              
              597,421Income
                  before taxes
              
              
              **456,619**
              
              
              188,105Capital
                  taxes
              
              
              **6,486**
              
              
              6,612Current
                  taxes
              
              
              **2,764**
              
              
              -Future
                  income tax expense/(recovery) (Note 11)
              
              
              **15,328**
              
              
              (76,823
              )**Net
                  Income**
              
              **$**
              **432,041**
              
              $
              258,316Net
                  income per trust unitBasic
              
              **$**
              **3.96**
              
              $
              2.60Diluted
              
              **$**
              **3.95**
              
              $
              2.60Weighted
                  average number of trust units outstanding (thousands)Basic
              
              
              **109,083**
              
              
              99,273Diluted
              
              
              **109,371**
              
              
              99,416
 
  Page
            2 of
            20
  **CONSOLIDATED
        STATEMENTS OF ACCUMULATED INCOME**
 
 **For
                  the year ended December 31 (CDN$ thousands)**
              
              **2005**
              
              **2004**Accumulated
                  income, beginning of year
              
              **$**
              **976,137**
              
              $
              717,821Net
                  income
              
              
              **432,041**
              
              
              258,316Accumulated
                  income, end of year
              
              **$**
              **1,408,178**
              
              $
              976,137
  **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 
 **For
                  the year ended December 31 (CDN$ thousands)**
              
              **2005**
              
              **2004****Operating
                  Activities**Net
                  income
              
              **$**
              **432,041**
              
              $
              258,316Non-cash
                  items add/(deduct):Depletion,
                  depreciation, amortization and accretion
              
              
              **386,545**
              
              
              326,269Non-cash
                  financial contracts
              
              
              **(32,679**
              **)**
              
              39,160Non-cash
                  foreign exchange gain (Note 9)
              
              
              **(2,036**
              **)**
              
              (4,795
              )Unit
                  based compensation (Notes 2 and 10)
              
              
              **3,040**
              
              
              4,668Future
                  income tax expense/(recovery) (Note 11)
              
              
              **15,328**
              
              
              (76,823
              )Asset
                  retirement costs settled (Note 4)
              
              
              **(7,829**
              **)**
              
              (6,826
              )**794,410**
              
              
              539,969Decrease
                  / (Increase) in non-cash working capital
              
              
              **(19,777**
              **)**
              
              15,091**774,633**
              
              
              555,060**Financing
                  Activities**Issue
                  of trust units, net of issue costs (Note 10)
              
              
              **507,209**
              
              
              314,309Cash
                  distributions to unitholders
              
              
              **(498,205**
              **)**
              
              (423,311
              )Increase
                  in bank credit facilities (Note 8)
              
              
              **76,963**
              
              
              251,669Decrease
                  in non-cash financing working capital
              
              
              **12,924**
              
              
              3,421**98,891**
              
              
              146,088**Investing
                  Activities**Capital
                  expenditures
              
              
              **(373,032**
              **)**
              
              (209,052
              )Property
                  acquisitions (Note 6)
              
              
              **(123,896**
              **)**
              
              (504,857
              )Property
                  dispositions
              
              
              **66,511**
              
              
              31,742Corporate
                  acquisitions, net of cash acquired (Note 7)
              
              
              **(483,014**
              **)**
              
              (121,171
              )Decrease
                  in non-cash investing working capital
              
              
              **51,045**
              
              
              21,774**(862,386**
              **)**
              
              (781,564
              )Effect
                  of exchange rate changes on cash
              
              
              **(1,045**
              **)**
              
              -Change
                  in cash
              
              
              **10,093**
              
              
              (80,416
              )Cash,
                  beginning of year
              
              
              **-**
              
              
              80,416Cash,
                  end of year
              
              **$**
              **10,093**
              
              $
              -**Supplementary
                  Cash Flow Information**Cash
                  income taxes paid
              
              **$**
              **2,669**
              
              $
              -Cash
                  interest paid
              
              **$**
              **24,220**
              
              $
              19,196
 
 **CONSOLIDATED
        STATEMENTS OF ACCUMULATED CASH DISTRIBUTIONS**
 
 **For
                  the year ended December 31 (CDN$ thousands)**
              
              **2005**
              
              **2004**Accumulated
                  cash distributions, beginning of year
              
              **$**
              **1,811,500**
              
              $
              1,388,189Cash
                  distributions
              
              
              **498,205**
              
              
              423,311Accumulated
                  cash distributions, end of year
              
              **$**
              **2,309,705**
              
              $
              1,811,500
  Page
            3 of
            20
 
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **1.
        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 The
        management of Enerplus Resources Fund (“Enerplus” or the “Fund”) prepares the
        financial statements in accordance with Canadian generally accepted accounting
        principles (“GAAP”). A reconciliation between Canadian GAAP and United States of
        America GAAP is disclosed in Note
        15. The
        preparation of financial statements requires management to make estimates
        and
        assumptions that affect the reported amounts of assets and liabilities and
        disclosures of contingencies, if any, as at the date of the financial statements
        and the reported amounts of revenues and expenses during the reporting period.
        The following significant accounting policies are presented to assist the
        reader
        in evaluating these consolidated financial statements and, together with
        the
        following notes, should be considered an integral part of the consolidated
        financial statements.
 
 **(a)
        Organization and Basis of Accounting**
 
 The
        Fund is an open-end investment trust created under the laws of the Province
        of
        Alberta operating pursuant to the Amended and Restated Trust Indenture between
        EnerMark Inc., its wholly-owned subsidiary, Enerplus Resources Corporation
        (“ERC”) and CIBC Mellon Trust Company as Trustee. The beneficiaries of the Fund
        (the “unitholders”) are holders of the trust units issued by the Fund. As a
        trust under the Income Tax Act (Canada), Enerplus is limited to holding and
        administering permitted investments and making distributions to the
        unitholders.
 
 The
        Fund’s financial statements include the accounts of the Fund and its
        subsidiaries on a consolidated basis. All inter-entity transactions have
        been
        eliminated.
 
 **(b)
        Revenue Recognition**
 
 Revenue
        associated with the sale of crude oil, natural gas and natural gas liquids
        is
        recognized when title passes from the Fund to its customers based on volumes
        delivered and contractual delivery points and price. A portion of the properties
        acquired through the March 5, 2003 acquisition of PCC Energy Inc. and PCC
        Energy
        Corp. are subject to a royalty arrangement with a private company that is
        structured as a net profits interest. The results from operations included
        in
        the Fund's consolidated financial statements for these properties are reduced
        for this net profits interest.
 
 **(c)
        Property, Plant and Equipment (“PP&E”)**
 
 The
        Fund follows the full cost method of accounting for petroleum and natural
        gas
        properties under which all acquisition and development costs are capitalized
        on
        a country by country cost centre basis. Such costs include land acquisition,
        geological, geophysical and drilling costs for productive and non-productive
        wells and directly related overhead charges. Repairs, maintenance and
        operational costs that do not extend or enhance the recoverable reserves
        are
        charged to earnings. Proceeds from the sale of petroleum and natural gas
        properties are applied against the capitalized costs. Gains and losses are
        not
        recognized upon disposition of oil and natural gas properties unless such
        a
        disposition would alter the rate of depletion by 20% or more. Net costs related
        to operating and administrative activities during the development of large
        capital projects are capitalized until commercial production has
        commenced.
 
 **(d)
        Impairment Test**
 
 A
        limit
        is placed on the aggregate carrying value of PP&E (the “impairment test”).
        The Fund performs an impairment test on a country by country basis. An
        impairment loss exists when the carrying amount of the country’s PP&E
        exceeds the estimated undiscounted future net cash flows associated with
        the
        country’s proved reserves. If an impairment loss is determined to exist, the
        costs carried on the balance sheet in excess of the discounted future net
        cash
        flows associated with the country’s proved and probable reserves are charged to
        income. Reserves are determined pursuant to National Instrument 51-101
“Standards of Disclosure for Oil and Gas Activities”.
 
  Page
            4 of
            20
  **(e)
        Depletion and Depreciation**
 
 The
        provision for depletion and depreciation of oil and natural gas assets is
        calculated on a country by country basis using the unit-of-production method,
        based on the country’s share of estimated proved reserves before royalties.
        Reserves and production are converted to equivalent units on the basis of
        6 Mcf
        = 1 bbl, reflecting the approximate relative energy content.
 
 **(f)
        Goodwill**
 
 The
        Fund, when appropriate, recognizes goodwill relating to corporate acquisitions
        when the total purchase price exceeds the fair value of the net identifiable
        assets and liabilities of the acquired companies. The goodwill balance is
        assessed for impairment annually at year-end or as events occur that could
        result in an impairment. To assess impairment, the fair values of the Canadian
        and U.S. reporting units are compared to their respective book values. If
        the
        fair value is less than the book value, a second test is performed to determine
        the amount of impairment. The amount of impairment is measured by allocating
        the
        fair value of the reporting unit to its identifiable assets and liabilities
        as
        if they had been acquired in a business combination for a purchase price
        equal
        to their fair value. If goodwill determined in this manner is less than the
        carrying value of goodwill, an impairment loss is recognized in the period
        in
        which it occurs. Goodwill is stated at cost less impairment and is not
        amortized.
  **(g)
        Asset Retirement Obligations**
 
 The
        Fund recognizes as a liability the estimated fair value of the future retirement
        obligations associated with PP&E. The fair value is capitalized and
        amortized over the same period as the underlying asset. The Fund estimates
        the
        liability based on the estimated costs to abandon and reclaim its net ownership
        interest in all wells and facilities and the estimated timing of the costs
        to be
        incurred in future periods. This estimate is evaluated on a periodic basis
        and
        any adjustment to the estimate is prospectively applied. As time passes,
        the
        change in net present value of the future retirement obligation is expensed
        through accretion. Retirement obligations settled during the period reduce
        the
        future retirement liability. No gains or losses on retirement activities
        were
        realized, due to settlements approximating the estimates.
 
 **(h)
        Income Taxes**
  The
        Fund is a taxable entity under the Income Tax Act (Canada) and is taxable
        only
        on Canadian income that is not distributed or distributable to the Fund’s
        unitholders. In the Trust structure, payments made between the Canadian
        operating entities and the Fund, ultimately transfers both income and future
        income tax liability to the unitholders. The future income tax liability
        associated with Canadian assets recorded on the balance sheet is recovered
        over
        time through these payments. As the Canadian operating entities transfer
        all of
        their Canadian taxable income to the Fund, no provision for current Canadian
        income tax has been made by any Canadian operating entity.
 
 The
        U.S. operating entity is subject to U.S. income taxes on its taxable income
        determined under U.S. income tax rules and regulations. Repatriation of funds
        from U.S. operations will also be subject to applicable withholding taxes
        as
        required under U.S. tax law. A provision has been setup to reflect these
        current
        U.S. income taxes.
 
 The
        Fund follows 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 financial statements of the Fund’s corporate subsidiaries and their
        respective tax bases, using substantively enacted income tax rates. The effect
        of a change in these income tax rates on future income tax liabilities and
        assets is recognized in income during the period that the change
        occurs.
 
 **(i)
        Financial Instruments**
 
 The
        Fund is exposed to market risks resulting from fluctuations in commodity
        prices
        and interest rates in the normal course of operations. The Fund uses various
        types of financial instruments to manage these market risks. Prior to December
        31, 2005, the Fund designated certain commodity contracts and interest rate
        swaps as qualified hedges. Effective December 31, 2005, the Fund elected
        to stop
        designating commodity contracts as qualified hedges. The fair value of the
        former commodity hedges has been recorded as a financial liability with an
        offset to deferred financial assets. The deferred financial asset will be
        amortized over the remaining lives of the associated financial contracts.
        The
        fair value of the financial liability will be determined at each period end
        with
        any resulting change in fair value being taken into income in that
        period.
 
 The
        gain or loss in fair value of all financial contracts that had not previously
        qualified for hedge accounting are taken into income during the period of
        change
        and charged to deferred credits or deferred charges on the balance sheet.
 
  Page
            5 of
            20
  Proceeds
        or costs realized from holding interest rate swaps are recognized at the
        time
        each transaction under a contract is settled and is recorded in interest
        expense. The Fund has designated the interest rate swaps as qualified hedges
        and
        these swaps are evaluated quarterly to ensure they effectively hedge the
        underlying interest rate.
 
 **(j)
        Foreign Currency Translation**
 
 The
        Fund’s U.S. operations are self-sustaining. Assets and liabilities of these
        operations are translated into Canadian dollars at period end exchange rates,
        while revenues and expenses are converted using average rates for the period.
        Gains and losses from the translation into Canadian dollars are deferred
        and
        included in the foreign currency translation adjustment as part of unitholders’
equity.
 
 Other
        monetary assets and liabilities, not related to the Fund’s U.S. operations, are
        translated into Canadian dollars at rates of exchange in effect at the balance
        sheet date. The other assets and related depreciation, depletion and
        amortization, other liabilities, revenue and other expenses are translated
        into
        Canadian dollars at rates of exchange in effect at the respective transaction
        dates. The resulting exchange gains or losses are included in
        earnings.
 
 **2.
        CHANGES IN ACCOUNTING POLICIES**
 
 **Unit
        Based Compensation**
 
 Generally
        accepted accounting principles require the Fund to estimate the fair value
        of
        unit options issued under its unit based compensation programs and recognize
        this amount as compensation expense in the income statement over the respective
        vesting period with a credit to contributed surplus. Prior to October 1,
        2005,
        the Fund measured unit based compensation based on the intrinsic value of
        the
        rights and recognized the amount in income over the vesting period. After
        the
        rights vested, changes in the intrinsic value were recognized in income in
        the
        period of change. The intrinsic value was determined as the excess of the
        trust
        unit price over the exercise price of the right at the date of exercise,
        or the
        date of the financial statements for the unexercised rights. The change in
        value
        was reflected in general and administrative expenses (“G&A”) and contributed
        surplus. Cash received upon exercise of the rights and the related amount
        of
        contributed surplus was credited to unitholders’ capital.
 
 On
        October 1, 2005 the Fund retroactively adopted the fair value method of
        accounting for the trust unit rights incentive plan to January 1, 2003. Under
        this method, the fair value of the rights is determined on the date in which
        fair value can reasonably be determined, generally being the grant date.
        This
        amount is charged to earnings over the vesting period of the rights, with
        a
        corresponding increase in contributed surplus. When rights are exercised,
        the
        proceeds, together with the amount recorded in contributed surplus, are recorded
        to unitholders’ capital. The impact of the adoption on our 2003 and 2004
        reported earnings was not material and therefore prior period financial
        statements have not been restated.
 
 For
        the
        year ended December 31, 2005, the fair value methodology resulted in a
        compensation expense of $3,040,000 compared to an $18,688,000 compensation
        expense calculated under the intrinsic methodology.
 
 **3.
        DEFERRED FINANCIAL ASSETS AND DEFERRED CREDITS**
 
 **Current
                  Deferred Financial Assets ($ thousands)**Deferred
                  financial asset as at December 31, 2004
              
              $
              -Deferred
                  financial asset recorded upon termination of hedging relationships(1)
              
              
              49,874Deferred
                  financial asset as at December 31, 2005
              
              $
              49,874
 (1)
        Represents the fair value of financial contracts on December 31, 2005 for
        which
        hedge accounting is no longer applied. This deferred financial asset will
        be
        amortized over the remaining lives of the associated financial contracts.
 
 **Current
                  Deferred Credits ($ thousands)**Deferred
                  credits as at December 31, 2004
              
              $
              42,303Financial
                  contract assumed through Lyco acquisition
              
              
              1,014Financial
                  liability recorded upon termination of hedging relationships(1)
              
              
              49,874Change
                  in fair value - other financial contracts(2)
              
              
              (35,823
              )Deferred
                  credits as at December 31, 2005
              
              $
              57,368
 (1) Represents the fair value of financial contracts on December 31, 2005 for
        which
        hedge accounting is no longer applied.
 (2) Changes in the fair value of financial contracts that do not qualify for
        hedge
        accounting are taken into income during the period as other financial contracts
        and reflected as an increase or decrease in the deferred financial liability.
  Page
            6 of
            20
  The
        following table summarizes the income statement effects of other financial
        contracts:
 
 **Other
                  Financial Contracts ($ thousands)**
              
              **2005**
              
              **2004**Change
                  in fair value
              
              **$**
              **(35,823**
              **)**
              $
              21,288Amortization
                  of deferred financial assets
              
              
              **3,144**
              
              
              17,872Realized
                  cash costs, net
              
              
              **115,343**
              
              
              78,053Other
                  financial contracts
              
              **$**
              **82,664**
              
              $
              117,213
 
 During
        the year ended December 31, 2005, the Fund realized cash costs of $27,256,000
        (net gains and losses) from financial contracts that qualified as hedges
        compared to cash costs of $18,167,000 during 2004.
 
 **4.
        ASSET RETIREMENT OBLIGATIONS**
 
 Total
        future asset retirement obligations were estimated by management based on
        the
        Fund’s net ownership interest in wells and facilities, estimated costs to
        abandon and reclaim the wells and facilities and the estimated timing of
        the
        costs to be incurred in future periods. The Fund has estimated the net present
        value of its total asset retirement obligations to be $110,606,000 at December
        31, 2005 compared to $105,978,000 at December 31, 2004 based on a total
        liability of $422,045,000 and $383,942,000 respectively. These payments are
        expected to be made over the next 66 years with the majority of costs incurred
        between 2026 and 2035. To calculate the present value of the asset retirement
        obligations for 2005 the Fund used a weighted credit-adjusted rate of
        approximately 6.3% (2004 - 6.5%) and an inflation rate of 2.0% for both years.
        Settlements during the year approximated our estimates and as a result, no
        gains
        or losses were recognized.
 
 Following
        is a reconciliation of the asset retirement obligations:
 
 **($
                  thousands)**
              
              **2005**
              
              **2004**Asset
                  retirement obligations, beginning of year
              
              **$**
              **105,978**
              
              $
              63,936Changes
                  in estimates
              
              
              **8,764**
              
              
              23,100Acquisition
                  and development activity
              
              
              **6,791**
              
              
              23,723Dispositions
              
              
              **(9,413**
              **)**
              
              (3,000
              )Retirement
                  obligations settled
              
              
              **(7,829**
              **)**
              
              (6,826
              )Accretion
                  expense
              
              
              **6,315**
              
              
              5,045Asset
                  retirement obligations, end of year
              
              **$**
              **110,606**
              
              $
              105,978
 
 **5.
        PROPERTY, PLANT AND EQUIPMENT**
 
 **($
                  thousands)**
              
              **2005**
              
              2004Property,
                  plant and equipment
              
              **$**
              **5,306,137**
              
              $
              4,305,584Accumulated
                  depletion, depreciation and accretion
              
              
              **(1,655,810**
              **)**
              
              (1,276,577
              )Net
                  property, plant and equipment
              
              **$**
              **3,650,327**
              
              $
              3,029,007
 
 Capitalized
        development G&A of $11,571,000 (2004 - $8,451,000) is included in PP&E
        and the depletion and depreciation calculation includes future capital costs
        of
        $464,423,000 (2004 - $279,700,000) included in our reserve reports. Excluded
        from PP&E for the depletion and depreciation calculation is $61,795,000
        (2004 - $28,574,000) related to the Joslyn development project that has not
        commenced commercial production.
 
 An
        impairment test calculation was performed on a country by country basis on
        the
        PP&E values at December 31, 2005 in which the estimated undiscounted future
        net cash flows associated with the proved reserves exceeded the carrying
        amount
        of the Fund’s PP&E.
 
 The
        following table outlines benchmark prices and the exchange rate used in the
        impairment tests for both Canadian and U.S. cost centres at December 31,
        2005:
 
 **Year**
              
              **WTI****Crude
                  Oil****(1)**
                **US$/bbl**
              
              **Exchange
                  Rate**
                **US$/CDN$**
              
              **Edm
                  Light
                  Crude****(1)******
                **CDN$/bbl**
              
              **Natural
                  Gas**
                **30
                  day
                  spot**
                **@
                  AECO****(1)**
                **CDN$/Mcf**2006
              
              $
              60.81
              
              $
              0.85
              
              $
              70.07
              
              $
              11.582007
              
              
              61.61
              
              
              0.85
              
              
              70.99
              
              
              10.842008
              
              
              54.60
              
              
              0.85
              
              
              62.73
              
              
              8.952009
              
              
              50.19
              
              
              0.85
              
              
              57.53
              
              
              7.872010
              
              
              47.76
              
              
              0.85
              
              
              54.65
              
              
              7.57Thereafter
              
              
              +
                  1.5
              %
              
              0.85
              
              
              +
                  1.5
              %
              
              *
 (1)  Actual
        prices used in the impairment test were adjusted for commodity price
        differentials specific to the Fund
 *
        Escalation varies after 2010
 
  Page
            7 of
            20
  **6.
        PROPERTY ACQUISITIONS**
 
 **Assets
        of Sleeping Giant LLC (“Sleeping Giant”)**
 
 On
        October 4, 2005 the Fund acquired all ownership interests and retired the
        debt
        of Sleeping Giant, a private U.S. company holding additional working interests
        in certain properties of Lyco Energy Corporation for total cash consideration
        of
        $111,914,000 which was financed through existing credit facilities. The fair
        value of this consideration was allocated to cash and positive working capital
        assumed of $5,754,000 and PP&E of $106,160,000. This acquisition has been
        accounted for as an asset acquisition. The operating results of Sleeping
        Giant
        subsequent to October 4, 2005 are included in the Fund’s consolidated financial
        statements.
 
 **Assets
        of ChevronTexaco Corporation (“ChevronTexaco”)**
 
 On
        June
        30, 2004 the Fund acquired certain oil and natural gas properties from
        ChevronTexaco. Total consideration was $467,199,000 financed concurrently
        by
        subscription receipts issued on June 15, 2004 and available lines of credit.
        Results from operations have been included in Enerplus’ financial results from
        June 30, 2004 forward.
  **7.
        CORPORATE ACQUISITIONS**
 
 The
        allocation to the fair value of the assets acquired and liabilities assumed
        plus
        the future income tax cost are summarized as follows:
 
 **($
                  thousands)**
              
              **2005**
                **Lyco**
              
              **2005**
                **TriLoch**
              
              **2004**
                **Ice
                  Energy**Property,
                  plant and equipment
              
              **$**
              **506,379**
              
              **$**
              **77,786**
              
              $
              130,544Goodwill
                  (with no tax base)
              
              
              **179,019**
              
              
              **18,450**
              
              
              29,082Future
                  income taxes
              
              
              **(179,019**
              **)**
              
              **(18,450**
              **)**
              
              (29,082
              )**506,379**
              
              
              **77,786**
              
              
              130,544Cash
              
              
              **27,231**
              
              
              **-**
              
              
              -Non-cash
                  working capital deficiency
              
              
              **(31,664**
              **)**
              
              **(399**
              **)**
              
              (9,373
              )Net
                  assets acquired
              
              **$**
              **501,946**
              
              **$**
              **77,387**
              
              $
              121,171
 
 Goodwill
        is comprised of the following:
 
 **($
                  thousands)**Goodwill
                  as at December 31, 2004
              
              $
              29,082Lyco
                  acquisition
              
              
              179,019TriLoch
                  acquisition
              
              
              18,450Foreign
                  exchange(1)
              
              
              (5,317
              )**Goodwill
                  as at December 31, 2005**
              
              **$**
              **221,234**
 (1) The
        foreign exchange results from the translation of the Lyco goodwill at the
        period
        end rate.
 
 **Lyco
        Energy Corporation (“Lyco”)**
 
 On
        August 30, 2005 the Fund acquired all the outstanding common shares and retired
        the debt including all outstanding mandatorily redeemable preferred shares
        of
        Lyco, a private U.S. company operating in the states of Montana and North
        Dakota. Total consideration was approximately $501,946,000, and the Fund
        assumed
        a net working capital deficiency of $4,433,000. Goodwill of $179,019,000
        was
        recorded based on the excess of the consideration paid over the value assigned
        to the identifiable assets and liabilities including the future income tax
        liability. The acquisition, which was financed through an equity offering
        and
        available credit facilities, has been accounted for using the purchase method
        of
        accounting for business combinations. Results from the operations of Lyco
        subsequent to August 30, 2005 are included in the Fund’s consolidated financial
        statements.
 
 **TriLoch
        Resources Inc. (“TriLoch”)**
 
 On
        July
        1, 2005 the Fund acquired all the outstanding common shares of TriLoch, a
        public
        Alberta corporation operating in southern Alberta, in exchange for 1,632,516
        trust units of the Fund with a recorded value of $69,088,000. The trust unit
        value was based on the weighted average price of the Fund’s trust units on the
        Toronto Stock Exchange during the five day trading period surrounding the
        announcement of the TriLoch transaction. Total consideration was $77,387,000
        consisting of units, deal costs and the retirement of TriLoch’s bank
        indebtedness. The Fund also assumed a working capital deficiency of $399,000.
        Goodwill of $18,450,000 has been recorded as a result of the excess of the
        consideration paid over the value allocated to the identifiable assets and
        liabilities including the future income tax liability. This acquisition has
        been
        accounted for using the purchase method of accounting for business combinations.
        Results from the operations of TriLoch subsequent to July 1, 2005 are included
        in the Fund’s consolidated financial statements.
 
  Page
            8 of
            20
  **Ice
        Energy Limited (“Ice Energy”)**
 
 On
        January 7, 2004 the Fund acquired all of the outstanding common shares of
        Ice
        Energy for total consideration of $121,171,000. The excess of the consideration
        paid over the fair value of the identifiable assets and liabilities resulted
        in
        the recording of $29,082,000 of goodwill. Available lines of credit financed
        the
        acquisition, which has been accounted for using the purchase method of
        accounting for business combinations. Results from operations of Ice Energy
        subsequent to January 7, 2004 are included in the Fund’s consolidated financial
        statements.
 
 **8.
        LONG-TERM DEBT**
 
 **($
                  thousands)**
              
              **2005**
              
              **2004**Bank
                  credit facilities (a)
              
              **$**
              **328,632**
              
              $
              251,669Senior
                  notes (b)US
                  $175 million (issued June 19, 2002)
              
              
              **268,328**
              
              
              268,328US
                  $54 million (issued October 1, 2003)
              
              
              **62,958**
              
              
              64,994Total
                  long-term debt
              
              **$**
              **659,918**
              
              $
              584,991
 
 **(a)
        Unsecured Bank Credit Facilities**
 
 In
        November 2004 the Fund negotiated an $850,000,000 unsecured covenant based
        three
        year term facility. Enerplus has the ability to extend the facility each
        year or
        repay the entire balance at the end of the three year term. During 2005,
        the
        facility was extended until November 2008. At December 31, 2005, Enerplus
        had
        available credit of $521,368,000 under this facility. The facility is extendible
        each year with a bullet payment required at the end of the three year term.
        Various borrowing options are available under the facility including prime
        rate
        based advances and banker’s acceptance loans. This facility carries floating
        interest rates that are expected to range between 60.0 and 115.0 basis points
        over Bankers Acceptance rates, depending on Enerplus’ ratio of senior debt to
        earnings before interest, taxes and non-cash items. The effective interest
        rate
        on the facilities for the year ended December 31, 2005 was 3.4% (2004 -
        3.1%).
 
 **(b)**
              **Senior
                  Unsecured Notes**
 
 On
        October 1, 2003 Enerplus issued US$54,000,000 senior unsecured notes that
        mature
        October 1, 2015. The notes have a coupon rate of 5.46% priced at par with
        interest paid semi-annually on April 1 and October 1 of each year. Principal
        payments are required in five equal installments beginning October 1, 2011
        and
        ending October 1, 2015. Costs incurred in connection with issuing the notes
        in
        the amount of $475,000 are classified as deferred charges on the balance
        sheet
        and are being amortized as a part of depletion, depreciation, amortization
        and
        accretion (“DDA&A”) over the term of the notes. At December 31, 2005, the
        amount remaining to be amortized associated with these costs was $386,000
        (2004
        - $425,000). The notes are subject to fluctuations in foreign exchange rates.
 
 On
        June
        19, 2002 Enerplus issued US$175,000,000 senior unsecured notes that mature
        June
        19, 2014. The notes have a coupon rate of 6.62% priced at par, with interest
        paid semi-annually on June 19 and December 19 of each year. Principal payments
        are required in five equal installments beginning June 19, 2010 and ending
        June
        19, 2014. Costs incurred in connection with issuing the notes in the amount
        of
        $1,892,000 are classified as deferred charges on the balance sheet and are
        being
        amortized to DDA&A over the term of the notes. At December 31, 2005, the
        amount remaining to be amortized was $1,335,000 (2004 - $1,492,000). Concurrent
        with the issuance of the notes on June 19, 2002, the Fund entered into a
        cross
        currency swap with a syndicate of financial institutions. Under the terms
        of the
        swap, the amount of the notes was fixed for purposes of interest and principal
        repayments at a notional amount of CDN$268,328,000. Interest payments are
        made
        on a floating rate basis, set at the rate for three-month Canadian banker’s
        acceptances, plus 1.18%.
 
 The
        bank credit facilities and the senior notes (the “Combined Facilities”) are the
        legal obligation of EnerMark Inc. and are guaranteed by its subsidiaries.
        Payments with respect to the Combined Facilities have priority over payments
        to
        the Fund and over claims of and future distributions to the unitholders.
        However, unitholders have no direct liability beyond their equity investment
        should cash flow be insufficient to repay the Combined Facilities.
  Page
            9 of
            20
  **9.
        FOREIGN EXCHANGE**
 
 **($
                  thousands)**
              
              **2005**
              
              **2004**Unrealized
                  foreign exchange gain on translation of U.S. dollar denominated
                  senior
                  notes
              
              **$**
              **(2,036**
              **)**
              $
              (4,795
              )Realized
                  foreign exchange loss/(gain)
              
              
              **3,713**
              
              
              (223
              )Foreign
                  exchange loss/(gain)
              
              **$**
              **1,677**
              
              $
              (5,018
              )
 
 The
        US$54,000,000 senior unsecured notes that are exposed to foreign currency
        fluctuations are translated into Canadian dollars at the exchange rate in
        effect
        at the balance sheet date. Foreign exchange gains and losses are included
        in the
        determination of net income for the year.
 
 **10.
        FUND CAPITAL**
 
 **(a)
        Unitholders’ Capital**
 
 Trust
        Units
 
 Authorized:
        Unlimited number of trust units
 
 **(thousands)**
              
              **2005**
              
              **2004****Issued:**
              
              **Units**
              
              **Amount**
              
              **Units**
              
              **Amount**Balance
                  before Contributed Surplus, beginning of year
              
              
              **104,124**
              
              **$**
              **2,826,641**
              
              
              94,349
              
              $
              2,510,011Issued
                  for cash:Pursuant
                  to public offerings
              
              
              **10,638**
              
              
              **466,885**
              
              
              8,800
              
              
              286,248Pursuant
                  to rights plans
              
              
              **805**
              
              
              **24,737**
              
              
              648
              
              
              16,947Trust
                  unit rights incentive plan (non- cash) - exercised
              
              
              **-**
              
              
              **2,163**
              
              
              -
              
              
              1,396DRIP*,
                  net of redemptions
              
              
              **339**
              
              
              **15,613**
              
              
              302
              
              
              11,114Issued
                  for acquisition of corporate and property interests
                  (non-cash)
              
              
              **1,633**
              
              
              **69,062**
              
              
              25
              
              
              925**117,539**
              
              
              **3,405,101**
              
              
              104,124
              
              
              2,826,641Contributed
                  Surplus (Trust Unit Rights Plan)
              
              
              **-**
              
              
              **5,513**
              
              
              -
              
              
              4,636Balance,
                  end of year
              
              
              **117,539**
              
              **$**
              **3,410,614**
              
              
              104,124
              
              $
              2,831,277
 *  Distribution
        Reinvestment and Unit Purchase Plan
 
 **Contributed
                  surplus ($ thousands)**
              
              **2005**
              
              **2004**Balance,
                  beginning of year
              
              **$**
              **4,636**
              
              $
              1,364Trust
                  unit rights incentive plan (non-cash) - exercised
              
              
              **(2,163**
              **)**
              
              (1,396
              )Trust
                  unit rights incentive plan (non-cash) - expensed
              
              
              **3,040**
              
              
              4,668Balance,
                  end of year
              
              **$**
              **5,513**
              
              $
              4,636
 
 On
        August 9, 2005 the Fund completed a Canadian equity offering of 10,637,500
        subscription receipts at a price of $46.25 per subscription receipt for gross
        proceeds of $491,984,000 ($466,885,000 net of issuance costs). The subscription
        receipts were exchanged for an equal number of trust units on August 30,
        2005
        upon the closing of the Lyco transaction. The holders of the subscription
        receipts received the August 2005 cash distribution of $0.37 per trust unit
        and
        this amount has been included in cash distributions to unitholders.
 
 On
        July
        1, 2005 the Fund issued 1,632,516 trust units pursuant to the acquisition
        of
        TriLoch valued at $42.32 per trust unit, being the weighted average trading
        price of the Fund’s trust units on the Toronto Stock Exchange during the five
        day trading period surrounding the announcement of the TriLoch transaction,
        for
        a recorded value of $69,088,000 ($69,062,000 net of issuance
        costs).
 
 On
        June
        15, 2004 Enerplus completed an equity offering of 8,800,000 subscription
        receipts at a price of $34.30 per subscription receipt for gross proceeds
        of
        $301,840,000 ($286,248,000 net of issuance costs). The subscription receipts
        were exchanged for trust units on June 30, 2004 upon closing of the
        ChevronTexaco asset acquisition. The holders of the subscription receipts
        received the June 2004 cash distribution of $0.35 per trust unit and this
        amount
        has been included in cash distributions to unitholders.
 
 Pursuant
        to the monthly Distribution Reinvestment and Unit Purchase Plan (“DRIP”),
        Canadian unitholders are entitled to reinvest cash distributions in additional
        trust units of the Fund. Trust units are issued at 95% of the weighted average
        market price on the Toronto Stock Exchange for the 20 trading days preceding
        a
        distribution payment date without service charges or brokerage fees. Eligible
        unitholders are also entitled to make optional cash payments to acquire
        additional trust units, however the 5% discount does not apply.
 
  Page
            10 of
            20
  Trust
        units are redeemable by unitholders at approximately 85% of the current market
        price. Redemptions are limited to $500,000 during any rolling two calendar
        months. Redemption requests in excess of $500,000 can be paid using investments
        of the Fund or a non-interest bearing instrument.
 
 **(b)
        Trust Unit Rights Incentive Plan**
 
 As
        at
        December 31, 2005 a total of 2,621,000 rights issued pursuant to the Trust
        Unit
        Rights Incentive Plan (“Rights Plan”) at an average exercise price of $42.80
        were outstanding. This represents 2.2% of the total trust units outstanding
        of
        which 643,000 rights with an average exercise price of $32.46 were exercisable.
        Under the Rights Plan, distributions per trust unit to Enerplus unitholders
        in a
        calendar quarter which represent a return of more than 2.5% of the net PP&E
        of Enerplus at the end of such calendar quarter, may result in a reduction
        in
        the exercise price of the rights. Results for the year ended December 31,
        2005
        reduced the exercise price of the outstanding rights by $1.64 per trust unit
        of
        which a $0.41 reduction is effective January 2006 and a $0.48 reduction is
        effective April 2006. Plan members have the choice to exercise rights using
        the
        original exercise price or a reduced strike price, should a reduction take
        place. In certain circumstances, it may be more advantageous to use the original
        exercise price as it could effectively lower the plan member’s tax rate on the
        transaction.
 
 The
        Fund uses a binomial lattice option-pricing model to calculate the estimated
        fair value of rights granted under the plan. The following assumptions were
        used
        to arrive at the estimate of fair value:
 
 **2005**
              
              **2004**Dividend
                  yield
              
              
              **8.97**
              **%**
              
              10.45
              %Right’s
                  exercise price reduction
              
              **$**
              **1.43**
              
              $
              1.05Volatility
              
              
              **21.46**
              **%**
              
              20.77
              %Risk-free
                  interest rate
              
              
              **3.70**
              **%**
              
              3.63
              %Forfeiture
                  rate
              
              
              **4.60**
              **%**
              
              5.80
              %
 
 The
        fair value of the rights granted under the plan ranged between 7% and 10%
        of the
        underlying market price of a trust unit on the grant date.
 
 During
        the year the Fund expensed $3,040,000 of unit based compensation expense
        using
        the fair value method. The remaining future fair value of the rights of
        $6,380,000 at December 31, 2005 will be recognized in earnings over the
        remaining vesting period of the rights. Activity for the rights issued pursuant
        to the Rights Plan is as follows:
  **2005**
              
              **2004****Number
                  of Rights**
                **(000’s)**
              
              **Weighted
                  Average Exercise
                  Price****(1)**
              
              Number
                  of Rights
                (000’s)
              
              Weighted
                  Average
                Exercise
                  Price(1)Trust
                  unit rights outstandingBeginning
                  of year
              
              
              **2,401**
              
              **$**
              **34.33**
              
              
              2,192
              
              $
              30.05Granted
              
              
              **1,125**
              
              
              **53.07**
              
              
              1,002
              
              
              40.22Exercised
              
              
              **(805**
              **)**
              
              **30.72**
              
              
              (644
              )
              
              26.16Cancelled
              
              
              **(100**
              **)**
              
              **37.15**
              
              
              (149
              )
              
              30.94End
                  of year
              
              
              **2,621**
              
              
              **42.80**
              
              
              2,401
              
              
              34.33Rights
                  exercisable at the end of the year
              
              
              **643**
              
              **$**
              **32.46**
              
              
              551
              
              $
              27.84
 (1)  Exercise
        price reflects grant prices less reduction in strike price discussed
        above.
 
 The
        following table summarizes information with respect to outstanding Unit Rights
        as at December 31, 2005. Unit rights vest between one and three years and
        expire
        between four and six years.
 
 **Rights
                  Outstanding at**
                **December
                  31, 2005**
                **(000’s)**
              
              **Original
                  Exercise**
                **Price**
              
              **Exercise
                  Price after**
                **Price
                  Reductions**
              
              **Expiry
                  Date**
                **December
                  31**
              
              **Rights
                  Exercisable at**
                **December
                  31, 2005**
                **(000’s)**14
              
              $
              24.50
              
              $
              20.31
              
              
              2007
              
              
              141
              
              
              26.40
              
              
              22.33
              
              
              2008
              
              
              12
              
              
              27.33
              
              
              23.33
              
              
              2008
              
              
              2162
              
              
              26.09
              
              
              22.23
              
              
              2008
              
              
              16233
              
              
              27.70
              
              
              24.04
              
              
              2009
              
              
              1147
              
              
              33.00
              
              
              29.65
              
              
              2009
              
              
              2631
              
              
              36.00
              
              
              33.03
              
              
              2009
              
              
              18404
              
              
              37.62
              
              
              35.04
              
              
              2009
              
              
              19933
              
              
              40.70
              
              
              38.51
              
              
              2010
              
              
              751
              
              
              37.25
              
              
              35.43
              
              
              2010
              
              
              -88
              
              
              38.83
              
              
              37.41
              
              
              2010
              
              
              8645
              
              
              40.80
              
              
              39.73
              
              
              2010
              
              
              195121
              
              
              45.55
              
              
              44.80
              
              
              2011
              
              
              -132
              
              
              44.86
              
              
              44.46
              
              
              2011
              
              
              -169
              
              
              49.75
              
              
              49.75
              
              
              2011
              
              
              -688
              
              
              56.93
              
              
              56.93
              
              
              2011
              
              
              -2,621
              
              $
              44.03
              
              $
              42.80
              
              
              
              
              
              643
 
  Page
            11 of
            20
  Non-cash
        compensation costs of $3,040,000 ($0.03 per unit) related to the rights issued
        since January 1, 2003 have been charged to G&A expense during 2005 compared
        to $4,668,000 ($0.05 per unit) during 2004.
  The
        following table outlines the estimated compensation cost associated with
        the
        rights issued during 2002 and the pro forma effects on net income and net
        income
        per unit, had the Canadian Institute of Chartered Accountants Handbook (“CICA”)
        section 3870 been applied retroactive to 2002.
 
 **($
                  thousands, except per unit amounts)**
              
              **2005**
              
              **2004**Net
                  income as reported
              
              **$**
              **432,041**
              
              $
              258,316Compensation
                  expense for rights issued in 2002
              
              
              **(160**
              **)**
              
              (4,734
              )Pro
                  forma net income
              
              **$**
              **431,881**
              
              $
              253,582Net
                  income per trust unit - basicReported
              
              **$**
              **3.96**
              
              $
              2.60Pro
                  forma
              
              **$**
              **3.96**
              
              $
              2.55Net
                  income per trust unit - dilutedReported
              
              **$**
              **3.95**
              
              $
              2.60Pro
                  forma
              
              **$**
              **3.95**
              
              $
              2.55
 
 **(c)**
              **Basic
                  and Diluted per Trust Unit Calculations**
 
 Net
        income per trust unit has been determined based on the following:
 
 **(thousands)**
              
              **2005**
              
              2004Weighted
                  average units
              
              
              **109,083**
              
              
              99,273Dilutive
                  impact of rights
              
              
              **288**
              
              
              143Diluted
                  trust units
              
              
              **109,371**
              
              
              99,416
 
 In
        calculating the weighted average number of diluted units outstanding for
        the
        year ended December 31, 2005, we excluded 132,511 rights (2004 - 40,929),
        because their exercise price was greater than the annual average unit market
        price in those periods. During the last two years, outstanding rights were
        the
        only potential dilutive instrument.
 
 **11.
        INCOME TAXES**
 
 **(a)
        Enerplus Resources Fund**
 
 The
        Fund is an inter-vivos trust for income tax purposes. As such, the Fund’s income
        that is not allocated to the Fund’s unitholders is taxable. The Fund intends to
        allocate all income to unitholders.
 
 For
        2005, the Fund had taxable income of $451,000,000 (2004 - $381,000,000) or
        $4.05
        per trust unit (2004 - $3.77 per trust unit). Taxable income of the Fund
        is
        comprised of dividend, royalty, interest and partnership income, less deductions
        for Canadian oil and gas property expense (“COGPE”) and trust unit issue costs.
 
 The
        amounts of COGPE and issue costs remaining in the Fund at December 31, 2005
        are
        $466,700,000 and $40,109,000 respectively (2004 - $506,985,000 and
        $32,297,000).
 
 **(b)
        Corporate Subsidiaries**
 
 The
        future income tax liability on the balance sheet arises as a result of the
        following temporary differences:
 
 **($
                  thousands)**
              
              **2005**
              
              **2004**Excess
                  of net book value of property, plant and equipment over the underlying
                  tax
                  bases
              
              **$**
              **485,965**
              
              $
              285,606Asset
                  retirement obligations
              
              
              **(37,976**
              **)**
              
              (35,945
              )Deferred
                  hedging and other
              
              
              **(5,019**
              **)**
              
              (14,110
              )Future
                  income tax liability
              
              **$**
              **442,970**
              
              $
              235,551
 
  Page
            12 of
            20
  The
        provision for income taxes varies from the amounts that would be computed
        by
        applying the combined Canadian federal and provincial income tax rates for
        the
        following reasons:
 
 **($
                  thousands)**
              
              **2005**
              
              **2004**Income
                  before taxes
              
              **$**
              **456,619**
              
              $
              188,105Computed
                  income tax expense at the enacted rate of 38.01% (38.86% for
                  2004)
              
              **$**
              **173,564**
              
              $
              73,098Increase
                  (decrease) resulting from:Net
                  income attributed to the Fund
              
              
              **(172,463**
              **)**
              
              (153,686
              )Non-deductible
                  crown royalties
              
              
              **30,652**
              
              
              38,647Resource
                  allowance
              
              
              **(37,047**
              **)**
              
              (35,966
              )Amended
                  returns and pool balances
              
              
              **16,544**
              
              
              (105
              )Change
                  in tax rate
              
              
              **-**
              
              
              (5,700
              )Tax
                  rate differentials(1)
              
              
              **628**
              
              
              -Other
              
              
              **6,214**
              
              
              6,889**$**
              **18,092**
              
              $
              (76,823
              )Future
                  income tax expense / (recovery)
              
              **$**
              **15,328**
              
              $
              (76,823
              )Current
                  tax
              
              **$**
              **2,764**
              
              $
              -
 (1) The
        corporate income tax rate in the U.S. is 40.75%.
 
 **12.
        FINANCIAL INSTRUMENTS**
 
 The
        Fund’s financial instruments presented on the balance sheet consist of cash,
        accounts receivable, deferred financial assets, other current assets, a portion
        of deferred charges, current liabilities and long-term debt.
 
 The
        carrying value of cash, accounts receivable, current liabilities and the
        outstanding bank credit facility balances approximate their fair value. Other
        current assets are comprised of prepaid expenses and marketable securities.
        The
        marketable securities are carried on the balance sheet at the lower of cost
        and
        fair value. The fair value of the marketable securities at December 31, 2005
        exceeded the cost of these securities by $10,898,000. The Fund carried
        US$54,000,000 of fixed rate debt. In addition, it carried US$175,000,000
        of
        fixed rate debt that was converted to CDN$268,328,000 floating rate debt
        through
        a cross-currency swap with a syndicate of financial institutions. At December
        31, 2005 the fair value of the senior unsecured notes was $64,110,000 (for
        the
        US$54,000,000 notes) and $212,025,000 (for the US$175,000,000 notes), see Note
        8 .
        The
        balance related to derivative instruments that did not qualify for hedge
        accounting treatment upon adoption of AcG-13 in 2004, was fully amortized
        at
        December 31, 2005. At December 31, 2004, this balance was $3,144,000 and
        was
        included in deferred charges.
 
 The
        estimated fair values have been determined based on available market information
        and appropriate valuation methods. The actual amounts realized may differ
        from
        these estimates.
 
 **(a)** **** **Credit
        Risk**
 
 Most
        of
        the Fund’s accounts receivable relate to oil and natural gas sales and are
        exposed to typical industry credit risks. The Fund manages this credit risk
        by
        entering into sales contracts with only highly rated entities and reviewing
        its
        exposure to individual entities on a regular basis. The Fund is also exposed
        to
        certain losses in the event of non-performance by counterparties to derivative
        financial instruments. This credit risk is managed by the Fund by selecting
        financially sound counterparties.
 
 **(b)
        Interest Rate Risk**
 
 The
        Fund is exposed to movements in interest rates. Long-term debt is comprised
        of
        both variable rate bank facilities and fixed rate senior notes. The Fund
        monitors the interest rate forward market and through the use of interest
        rate
        swaps along with the fixed-rate notes has fixed the interest rate on
        approximately 21% of its debt. See part (d) below.
 
 **(c)
        Currency Risk**
 
 The
        Fund is exposed to fluctuations in foreign currency as a result of its U.S.
        operations and the issuance of senior unsecured notes denominated in U.S.
        dollars. Through the use of a financial swap, the exposure on our US$175,000,000
        senior unsecured notes has been converted to Canadian dollar debt. As well,
        the
        Fund has indirect exposure to fluctuations in foreign currency as crude oil
        sales and a portion of natural gas sales are based on U.S. dollar indices.
        We
        have not entered into any foreign currency derivatives with respect to oil
        and
        natural gas sales.
 
  Page
            13 of
            20
  **(d** **)** **Derivative
        Financial Instruments**
 
 The
        Fund uses certain derivative financial instruments to manage its commodity
        price, foreign currency and interest rate exposures. The fair values of these
        instruments are based on an approximation of the amounts that would have
        been
        paid to or received from counterparties to settle the instruments outstanding
        as
        at December 31, 2005 with reference to forward prices and market valuations
        provided by third party sources.
 
 The
        fair values of derivative financial instruments are as follows:
 
 *Interest
        Rate and Cross Currency Swaps*
 
 The
        Fund has entered into interest rate swaps on $75,000,000 of notional debt
        at
        rates varying from 3.74% to 4.12% before banking fees that are expected to
        range
        between 0.60% and 1.15%. These interest rate swaps mature between June 2006
        and
        January 2007. The fair value of the $75,000,000 interest rate swaps as at
        December 31, 2005 represents an unrealized cost of $206,000. These swaps
        have
        been designated as hedges for accounting purposes.
 
 The
        fair value of the cross currency swap related to the US$175,000,000 senior
        unsecured notes as at December 31, 2005 represents an unrealized cost of
        $62,439,000 where as the fair value of the underlying debt instrument as
        at
        December 31, 2005 represents an unrealized gain of $56,303,000. The cross
        currency swap has been designated as a hedge for accounting
        purposes.
 
 *Crude
        Oil Instruments*
 
 Enerplus
        has entered into the following financial option contracts to reduce the impact
        of a downward movement in crude oil prices. Effective December 31, 2005,
        the
        Fund elected to stop designating commodity contracts as qualified hedges.
        The
        fair value of the financial crude oil contracts that are no longer designated
        as
        hedges for accounting purposes results in a liability of $13,321,000 (see Note
        3) .
 
 The
        following table summarizes the Fund’s crude oil risk management positions at
        February 15, 2006:
 
 **Daily
                Volumes**
              
              **WTI
                  US$/bbl****bbls/day**
              
              **Sold
                  Call**
              
              **Purchased
                  Put**
              
              **Sold
                  Put**TermJanuary
                  1, 2006 - June 30, 20063-way
                  option
              
              
              1,500
              
              $
              45.80
              
              $
              31.50
              
              $
              27.50Put
                  *
              
              
              1,500
              
              
              -
              
              $
              41.50
              
              
              -Put
              
              
              1,500
              
              
              -
              
              
              -
              
              $
              35.00January
                  1, 2006 - June 30, 2006Costless
                  Collar
                  *
              
              
              1,500
              
              $
              35.35
              
              $
              30.00
              
              
              -Costless
                  Collar
                  *
              
              
              1,500
              
              $
              37.00
              
              $
              30.00
              
              
              -January
                  1, 2006 - December 31, 2006Put
                  *
              
              
              1,500
              
              
              -
              
              $
              50.00
              
              
              -Put
              
              
              1,500
              
              
              -
              
              
              -
              
              $
              41.00January
                  1, 2006 - December 31, 2006Put
                  *
              
              
              1,500
              
              
              -
              
              $
              53.00
              
              
              -Put
              
              
              1,500
              
              
              -
              
              
              -
              
              $
              43.00January
                  1, 2006 - December 31, 2006Put
                  *
              
              
              1,500
              
              
              -
              
              $
              53.00
              
              
              -Put
              
              
              1,500
              
              
              -
              
              
              -
              
              $
              43.00
 *
        Financial contracts that were treated as hedges during 2005, however the
        Fund
        elected to stop designating these contracts as hedges as of December 31,
        2005.
 The
        Fund did not enter into any new contracts in the fourth quarter of
        2005.
 
 *Natural
        Gas Instruments*
 
 Enerplus
        has physical and financial contracts in place on its natural gas production
        as
        described below. Effective December 31, 2005, the Fund elected to stop
        designating commodity contracts as qualified hedges. The fair value of the
        financial natural gas contracts that are no longer designated as hedges for
        accounting purposes results in a liability of $36,553,000 (see Note
        3) .
 
  Page
            14 of
            20
  The
        following table summarizes the Fund’s natural gas risk management positions at
        February 15, 2006:
 
 **AECO
                  CDN$/Mcf****Daily**
                **Volumes**
                **MMcf/day**
              
              **Sold
                  Call**
              
              **Purchased**
                **Put**
              
              **Sold**
                **Put**
              
              **Fixed
                  Price**
                **and
                  Swaps**TermJanuary
                  1, 2006 - March 31, 20063-way
                  option
              
              
              9.5
              
              $
              9.92
              
              $
              7.12
              
              $
              5.80
              
              
              -Put
                  *
              
              
              9.5
              
              
              -
              
              $
              7.91
              
              
              -
              
              
              -Put
                  *
              
              
              9.5
              
              
              -
              
              $
              7.91
              
              
              -
              
              
              -Put
                  *
              
              
              9.5
              
              
              -
              
              $
              7.91
              
              
              -
              
              
              -January
                  1, 2006 - October 31, 2006Swap
                  *
              
              
              9.5
              
              
              -
              
              
              -
              
              
              -
              
              $
              5.47Swap
                  *
              
              
              4.8
              
              
              -
              
              
              -
              
              
              -
              
              $
              5.25Swap
                  *
              
              
              4.8
              
              
              -
              
              
              -
              
              
              -
              
              $
              5.24Swap
                  *
              
              
              4.8
              
              
              -
              
              
              -
              
              
              -
              
              $
              5.28April
                  1, 2006 - October 31, 2006Put
                  *
              
              
              9.5
              
              
              -
              
              $
              7.38
              
              
              -
              
              
              -Put
                  *
              
              
              9.5
              
              
              -
              
              $
              7.38
              
              
              -
              
              
              -Put
                  *
              
              
              9.5
              
              
              -
              
              $
              7.38
              
              
              -
              
              
              -2006
                  - 2010Physical
                  (escalated
                  pricing)
              
              
              2.0
              
              
              -
              
              
              -
              
              
              -
              
              $
              2.52
 *
        Financial contracts that were treated as hedges during 2005, however the
        Fund
        elected to stop designating these contracts as hedges as of December 31,
        2005.
 The
        Fund did not enter into any new contracts in the fourth quarter of
        2005.
 
 *Electricity
        Instrument*
 
 The
        Fund has an electricity swap contract that fixed the price of electricity
        on
        5MWh of Alberta Power Pool electricity consumption at $49.99/MWh from January
        1,
        2006 to December 31, 2006. This has been designated as a cash flow hedge
        and the
        fair value of this instrument as at December 31, 2005 is an unrealized gain
        of
        $1,019,000. Proceeds or costs realized from the electricity hedge are recognized
        as operating costs.
 
 **13.
        COMMITMENTS AND CONTINGENCIES**
 
 **(a)
        Pipeline Transportation**
 
 Enerplus
        has contracted to transport natural gas with various pipelines totaling 35.3
        MMcf/day until 2008; of this amount 5 MMcf/day extends until 2015. Enerplus
        also
        has a contract to transport a minimum of 2,480 bbls/day of crude oil from
        the
        field to suitable marketing sales points until 2010.
 
 **(b)
        Oil Sands Lease #24**
 
 During
        2002 the Fund acquired a 16% working interest in the Oil Sands Lease #24
        (Joslyn
        Creek Lease). The acquisition included the assumption of contingent project
        debt
        that is comprised of principal of $3,360,000 plus accrued interest to December
        31, 2005 of $1,281,000. Interest is accrued at the Bank of Canada prime business
        rate and is not compounded. The debt is contingent on production hurdles
        with
        respect to development on the lease. As it is still too early in the development
        of this project to determine if these hurdles will be satisfied, the contingent
        debt has not been accrued in the consolidated financial statements.
 
 **(c)
        Office Lease**
 
 Enerplus
        has office lease commitments for both its Canadian and U.S. operations that
        expire between November 2009 and January 2011. Annual costs of these lease
        commitments, which include rent and operating fees, amount to approximately
        $5,700,000.
 
 **(d)
        Guarantee**
 
 (i)
        Corporate indemnities have been provided by the Fund to all directors and
        certain officers of its subsidiaries and affiliates for various items including,
        but not limited to, all costs to settle suits or actions due to their
        association with the Fund and its subsidiaries and/or affiliates, subject
        to
        certain restrictions. The Fund has purchased directors’ and officers’ liability
        insurance to mitigate the cost of any potential future suits
  Page
            15 of
            20
  or
        actions. Each indemnity, subject to certain exceptions, applies for so long
        as
        the indemnified person is a director or officer of one of the Fund’s
        subsidiaries and/or affiliates. The maximum amount of any potential future
        payment cannot be reasonably estimated.
 
 (ii)
        The Fund may provide indemnifications in the normal course of business that
        are
        often standard contractual terms to counterparties in certain transactions
        such
        as purchase and sale agreements. The terms of these indemnifications will
        vary
        based upon the contract, the nature of which prevents the Fund from making
        a
        reasonable estimate of the maximum potential amounts that may be required
        to be
        paid. Management believes the resolution of these matters would not have
        a
        material adverse impact on the Fund’s liquidity, consolidated financial position
        or results of operations.
 
 Enerplus
        has the following minimum annual commitments including long-term
        debt:
  **Total****Minimum
                    Annual Commitment Each Year**
                
                **Committed****($
                    thousands)**
                
                **Total**
                
                **2006**
                
                **2007**
                
                **2008**
                
                **2009**
                
                **2010**
                
                **after
                    2010**Bank
                    credit facility
                
                **$**
                **328,632**
                
                $
                -
                
                $
                -
                
                $
                328,632
                
                $
                -
                
                $
                -
                
                $
                -Senior
                    unsecured notes
                
                
                **331,286**
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                53,666
                
                
                277,620Pipeline
                    commitments
                
                
                **33,956**
                
                
                6,026
                
                
                6,026
                
                
                5,513
                
                
                2,952
                
                
                2,444
                
                
                10,995Office
                    lease
                
                
                **23,373**
                
                
                5,680
                
                
                5,651
                
                
                5,722
                
                
                5,678
                
                
                592
                
                
                50Total
                    commitments
                
                **$**
                **717,247**
                
                $
                11,706
                
                $
                11,677
                
                $
                339,867
                
                $
                8,630
                
                $
                56,702
                
                $
                288,665
 
 In
        addition, the Fund is involved in claims and litigation arising in the normal
        course of business. The resolution of these claims is uncertain and there
        can be
        no assurance they will be resolved in favour of the Fund, however management
        believes the resolution of these matters would not have a material adverse
        impact on the Fund’s liquidity, consolidated financial position or results of
        operations.
 
 **14.
        GEOGRAPHICAL INFORMATION**
 
 Due
        to
        the acquisitions of Lyco and Sleeping Giant, the Fund now operates in Canada
        and
        the United States.
  **As
                  at December 31, 2005**
                **($
                  thousands)**
              
              **Oil
                  and Gas**
                **Revenue**
              
              **Capital
                  Assets**
              
              **Goodwill**Canada
              
              **$**
              **1,471,473**
              
              **$**
              **3,054,078**
              
              **$**
              **47,532**United
                  States
              
              
              **79,096**
              
              
              **596,249**
              
              
              **173,702**Total
              
              **$**
              **1,550,569**
              
              **$**
              **3,650,327**
              
              **$**
              **221,234**
 
 **As
                  at
                  December 31, 2004**
                **($
                  thousands)**
              
              **Oil
                  and Gas**
                **Revenue**
              
              **Capital
                  Assets**
              
              **Goodwill**Canada
              
              $
              1,149,765
              
              $
              3,029,007
              
              $
              29,082United
                  States
              
              
              -
              
              
              -
              
              
              -Total
              
              $
              1,149,765
              
              $
              3,029,007
              
              $
              29,082
 
 **15.
        DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
        PRINCIPLES**
 
 The
        Fund’s consolidated financial statements have been prepared in accordance with
        Canadian GAAP. These principles, as they pertain to the Fund’s consolidated
        statements differ from United States GAAP (“U.S. GAAP”) as follows:
 
  Page
            16 of
            20
 The
        application of U.S. GAAP would have the following effects on net income as
        reported:
 
 **($
                  thousands)**
              
              **2005**
              
              **2004****(1)**Net
                  income as reported in the ConsolidatedStatement
                  of Income - Canadian GAAP
              
              **$**
              **432,041**
              
              $
              258,316AdjustmentsDepletion,
                  depreciation, amortization and accretion (Note (a))
              
              
              **57,050**
              
              
              74,775Amortization
                  of financial derivative deferred charges (Note (b))
              
              
              **3,143**
              
              
              17,872Unrealized
                  gain (loss) on cross-currency and interest rate swap (Note
                  (c))
              
              
              **(4,049**
              **)**
              
              (2,549
              )Compensation
                  expense (Note (d))
              
              
              **(19,732**
              **)**
              
              (6,920
              )Income
                  tax expense of above adjustments, including recovery due to change
                  in tax
                  rates of $2,548 for 2005 and an expense of $10,543 for
                  2004
              
              
              **(16,540**
              **)**
              
              (40,897
              )Net
                  income before cumulative effect of change in accounting principle
                  - U.S.
                  GAAP
              
              
              **451,913**
              
              
              300,597Cumulative
                  effect of adoption of SFAS 123R (Note (d))
              
              
              **1,753**
              
              
              -Net
                  income - U.S. GAAP
              
              
              **453,666**
              
              
              300,597Net
                  change in fair value of hedging instruments and available for sale
                  securities, net of tax recovery of $5,887 (2004 - recovery of $2,860)
                  and
                  tax recovery due to change in tax rates of $38 for 2005 (2004 -
                  expense of
                  $118) (Note (e))
              
              
              **(11,386**
              **)**
              
              (5,709
              )Net
                  change in cumulative translation adjustment (2004 - nil) (Note
                  (g))
              
              
              **(15,568**
              **)**
              
              -Comprehensive
                  income
              
              **$**
              **426,712**
              
              $
              294,888Net
                  income per trust unit before cumulative change in accounting principleBasic
              
              **$**
              **4.14**
              
              $
              3.03Diluted
              
              **$**
              **4.13**
              
              $
              3.02Cumulative
                  effect of change in accounting principleBasic
              
              **$**
              **0.02**
              
              $
              -Diluted
              
              **$**
              **0.02**
              
              $
              -Net
                  income per trustBasic
              
              **$**
              **4.16**
              
              $
              3.03Diluted
              
              **$**
              **4.15**
              
              $
              3.02Weighted
                  average number of trust units outstandingBasic
              
              
              **109,083**
              
              
              99,273Diluted
              
              
              **109,371**
              
              
              99,416DeficitBalance,
                  beginning of year - U.S. GAAP
              
              **$**
              **(2,366,709**
              **)**
              $
              (1,873,467
              )Net
                  income - U.S. GAAP
              
              
              **453,666**
              
              
              300,597Change
                  in redemption value (Note (f))
              
              
              **(1,140,261**
              **)**
              
              (370,528
              )Cash
                  distributions
              
              
              **(498,205**
              **)**
              
              (423,311
              )Balance,
                  end of year - U.S. GAAP
              
              **$**
              **(3,551,509**
              **)**
              $
              (2,366,709
              )Accumulated
                  other comprehensive income (loss)Balance,
                  beginning of year - U.S. GAAP
              
              **$**
              **(13,818**
              **)**
              $
              (8,109
              )Net
                  change in fair value of hedging instruments and available for sale
                  securities, net of tax
              
              
              **(11,386**
              **)**
              
              (5,709
              )Net
                  change in
                  cumulative translation adjustment
              
              
              **(15,568**
              **)**
              
              -Balance,
                  end of year - U.S. GAAP
              
              **$**
              **(40,772**
              **)**
              $
              (13,818
              )
 (1) Certain amounts have been reclassified to ensure presentation
        consistency
  The
        application of U.S. GAAP would have the following effects on the balance
        sheet
        as reported:
 
 **($
                  thousands)**
              
              **Canadian**
                **GAAP**
              
              **Increase**
                **(Decrease)**
              
              **U.S.**
                **GAAP****December
                  31, 2005**Other
                  current assets (Note (e))
              
              $
              257,341
              
              $
              (38,977
              )
              $
              218,364Property,
                  plant and equipment, net (Note (a))
              
              
              3,650,327
              
              
              (712,380
              )
              
              2,937,947Deferred
                  credits/Financial derivative liabilities (Note (b))
              
              
              57,368
              
              
              61,626
              
              
              118,994Trust
                  unit rights liability (Note (d))
              
              
              -
              
              
              20,654
              
              
              20,654Long-term
                  debt (Note (c))
              
              
              659,918
              
              
              (56,303
              )
              
              603,615Future
                  income taxes/Deferred income taxes
              
              
              442,970
              
              
              (272,403
              )
              
              170,567Unitholders’
                  mezzanine equity (Note (f))
              
              
              -
              
              
              5,580,869
              
              
              5,580,869Unitholders’
                  capital (Note (f))
              
              
              3,405,100
              
              
              (3,405,100
              )
              
              -Contributed
                  surplus (Note (d))
              
              
              5,514
              
              
              (5,514
              )
              
              -Deficit
                  (Note (f))
              
              
              -
              
              
              (3,551,509
              )
              
              (3,551,509
              )Accumulated
                  income (Note (f))
              
              
              1,408,178
              
              
              (1,408,178
              )
              
              -Accumulated
                  other comprehensive income (loss) (Note (c)(e)(g))
              
              
              -
              
              
              (40,772
              )
              
              (40,772
              )Accumulated
                  cash distributions (Note (f))
              
              
              (2,309,705
              )
              
              2,309,705
              
              
              -Cumulative
                  translation adjustment (Note (g))
              
              
              (15,568
              )
              
              15,568
              
              
              -**December
                  31, 2004****(1)**Other
                  current assets (Note (e))
              
              $
              9,602
              
              $
              1,668
              
              $
              11,270Deferred
                  charges (Note (b))
              
              
              5,061
              
              
              (3,143
              )
              
              1,918Property,
                  plant and equipment, net (Note (a))
              
              
              3,029,007
              
              
              (769,430
              )
              
              2,259,577Deferred
                  credits/Financial derivative liabilities (Note (b))
              
              
              42,303
              
              
              67,899
              
              
              110,202Long-term
                  debt (Note (c))
              
              
              584,991
              
              
              (43,291
              )
              
              541,700Future
                  income taxes/Deferred income taxes
              
              
              235,551
              
              
              (283,018
              )
              
              (47,467
              )Unitholders’
                  mezzanine equity (Note (f))
              
              
              -
              
              
              3,863,946
              
              
              3,863,946Unitholders’
                  capital (Note (f))
              
              
              2,826,641
              
              
              (2,826,641
              )
              
              -Contributed
                  surplus (Note (d))
              
              
              4,636
              
              
              (4,636
              )
              
              -Deficit
                  (Note (f))
              
              
              -
              
              
              (2,366,709
              )
              
              (2,366,709
              )Accumulated
                  income (Note (f))
              
              
              976,137
              
              
              (976,137
              )
              
              -Accumulated
                  other comprehensive income (loss) (Note (c)(e))
              
              
              -
              
              
              (13,818
              )
              
              (13,818
              )Accumulated
                  cash distributions (Note (f))
              
              
              (1,811,500
              )
              
              1,811,500
              
              
              -
 (1) Certain amounts have been reclassified to ensure presentation
        consistency  Page
              17 of
              20
 **(a)
        Property, Plant and Equipment and Depletion, Depreciation, Amortization and
        Accretion**
 
 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 proved reserves,
        discounted at 10% (based on prices and costs at the balance sheet date),
        plus
        the lower of cost and fair value of unproved properties. Under Canadian GAAP,
        an
        impairment loss exists when the carrying amount of the Fund’s PP&E exceeds
        the estimated undiscounted future net cash flows associated with the Fund’s
        proved reserves. If an impairment loss is determined to exist, the costs
        carried
        on the balance sheet in excess of the discounted future net cash flows
        associated with the Fund’s proved and probable reserves are charged to income.
        The application of the impairment test under U.S. GAAP did not result in
        a
        write-down of capitalized costs in either 2005 or 2004.
 
 A
        U.S.
        GAAP difference also exists relating to the basis of measurement of proved
        reserves that is utilized in the depletion calculation. Under U.S. GAAP,
        depletion charges are calculated by reference to proved reserves estimated
        using
        constant prices. Under Canadian GAAP, depletion charges are calculated by
        reference to proved reserves estimated using future prices and
        costs.
 
 For
        the
        year ended December 31, 2005, DDA&A calculated under U.S. GAAP was
        $57,050,000 ($37,659,000 net of tax) lower than DDA&A calculated under
        Canadian GAAP. For the year ended December 31, 2004, DDA&A calculated under
        U.S. GAAP was $74,775,000 ($49,606,000 net of tax) lower than DDA&A
        calculated under Canadian GAAP.
 
 **(b)
        Derivative financial instruments (non-hedges)**
 
 Effective
        January 1, 2004, the Fund prospectively adopted CICA Accounting Guideline
        - 13
“Hedging Relationships” (“AcG-13”) and Emerging Issues Committee Abstract 128
“Accounting for Trading, Speculative or Non-hedging Derivative Financial
        Instruments”. As a result, most of the derivative financial instruments used by
        the Fund as economic hedges of commodity, interest and foreign currency
        transactions now receive the same accounting treatment under both Canadian
        and
        U.S. GAAP. Derivative financial assets and liabilities are presented as deferred
        charges and deferred credits.
 
 Upon
        adoption of AcG-13, deferred credits and deferred charges of $21,015,000
        were
        recognized representing the fair value of derivative financial instruments
        in
        place as of January 1, 2004 that do not qualify for hedge accounting. The
        deferred charges are amortized over the life of the financial instruments
        for
        Canadian GAAP and were equal to the aggregate of U.S. GAAP gains and losses
        incurred on these instruments prior to January 1, 2004. During 2005, the
        remaining $3,143,000 ($2,074,000 net of tax) of the deferred charges were
        amortized to income under AcG-13. Because this amount was expensed prior
        to 2004
        for U.S. GAAP, the amount has been reversed in the current period.
 
 **(c)
        Cross-currency and interest rate swap**
  For
        Canadian GAAP, the cross-currency and interest rate swap qualifies as a fair
        value hedge for accounting purposes and therefore disclosure of the fair
        value
        is required with no effect on assets, liabilities or net income. Under U.S.
        GAAP, the fair value of the swap is recognized as a liability on the
        consolidated balance sheet and the underlying long-term debt is carried at
        fair
        value. Changes in the fair value of the cross-currency and interest rate
        swap
        are offset by changes in the fair value of the underlying long-term debt
        and the
        ineffective portion is taken into net income during the period.
 
 **(d)
        Unit-based compensation**
 
 On
        January 1, 2005 the Fund adopted Statement of Financial Accounting Standards
        (“SFAS”) 123R, “Share-Based Payment” using the modified prospective application
        of this standard and adopted the fair value method of accounting for the
        rights
        plan for all rights granted under the plan. In 2003 and 2004 the Fund accounted
        for the rights plan under the intrinsic method as we believe it was not possible
        to measure compensation expense using an option pricing model. Based
        on recent discussions about our accounting for stock based compensation with
        the
        securities commissions, we have determined it is appropriate to use a binomial
        lattice option-pricing model to calculate the estimated fair value of rights
        granted under the plan. We have evaluated the impact of using this binomial
        lattice option-pricing model to value the trust unit rights granted since
        the
        adoption of SFAS 123 in 2003 as opposed to the intrinsic value method. We
        have
        concluded the impact on prior financial statements is not material and therefore
        prior period financial statements have not been restated.
 
 Under
        SFAS 123R, rights granted under our rights plan are considered liability
        awards
        whereas they were previously considered equity awards under SFAS 123. As
        a
        result of this change, on January 1, 2005 the Fund recorded a trust unit
        rights
        liability of $12,208,000 which represented the fair value of all outstanding
        rights on that date, in proportion to the requisite service period rendered
        to
        that date. In addition, mezzanine equity was reduced by $13,961,000,
        representing previously recognized compensation cost for all outstanding
        rights,
        and a recovery of $1,753,000 was recorded to cumulative effect of a change
        in
        accounting principle.
 
  Page
            18 of
            20
  Under
        the fair value method for a liability award, the trust unit rights liability
        is
        calculated based on the rights fair value at each reporting date until the
        date
        of settlement. Compensation cost for each period is based on the change in
        the
        fair value of the rights for each reporting period. When rights are exercised,
        the proceeds, together with the amount recorded as a trust unit rights
        liability, are recorded to mezzanine equity.
 
 A
        U.S.
        GAAP difference exists as compensation expense is not recorded for rights
        issued
        prior to January 1, 2003 under Canadian GAAP. In addition, rights granted
        under
        our rights plan are considered equity awards for Canadian GAAP purposes and
        are
        accounted for using the fair value method for an equity award. Under this
        method, the fair value of the right is determined on the grant date. This
        amount
        is charged to earnings over the vesting period of the rights, with a
        corresponding increase in contributed surplus. When rights are exercised,
        the
        fair value recorded in contributed surplus is recorded to unitholders’ capital.
  The
        following chart details the U.S. GAAP differences related to our trust unit
        rights plan for the years ended December 31, 2005 and 2004.
 
 **2005**
              
              2004**CDN
                  GAAP**
              
              **U.S.
                  GAAP**
              
              **Difference**
              
              CDN
                  GAAP
              
              U.S.
                  GAAP
              
              DifferenceCompensation
                  expense
              
              **$**
              **3,040,000**
              
              **$**
              **22,772,000**
              
              **$**
              **19,732,000**
              
              $
              4,668,000
              
              $
              11,588,000
              
              $
              6,920,000Contributed
                  Surplus
              
              **$**
              **5,514,000**
              
              **$**
              **-**
              
              **$**
              **(5,514,000**
              **)**
              $
              4,636,000
              
              $
              -
              
              $
              4,636,000Trust
                  unit rights liability
              
              **$**
              **-**
              
              **$**
              **20,654,000**
              
              **$**
              **20,654,000**
              
              $
              -
              
              $
              -
              
              $
              -
  **(e)
        Derivative instruments and available for sale securities**
 
 Under
        Canadian GAAP, disclosure of the fair value of derivative instruments that
        qualify for hedge accounting is required with no effect on assets, liabilities
        or net income. For U.S. GAAP, derivative instruments that qualify for hedge
        accounting must be measured and presented at fair value with changes in fair
        value of all cash flow hedges recognized in comprehensive income. Furthermore,
        the ineffective portion of qualified hedges is recognized
 in
        net
        income.
 
 Effective
        December 31, 2005, the Fund stopped designating commodity financial contracts
        as
        hedges in accordance with CICA AcG-13, “Hedging Relationships”. As a result of
        this change, a deferred credit and deferred financial asset of $49,874,000
        were
        recognized representing the fair value of these financial contracts. The
        deferred financial asset will be amortized during 2006 over the remaining
        lives
        of the financial contracts. For U.S. GAAP, these financial contracts are
        measured and presented at fair value with cumulative effective changes in
        fair
        value recognized in comprehensive income. Amortization of the deferred financial
        asset will result in a U.S. GAAP difference.
 
 In
        addition, a U.S. GAAP difference exists relating to available for sale
        securities under SFAS 115 “Accounting for Certain Investments in Debt and
        Equity”. Under Canadian GAAP the fair value of marketable securities is
        disclosed, whereas under U.S. GAAP, available for sale securities are presented
        on the balance sheet at fair value with changes in fair value recognized
        in
        comprehensive income.
 
 The
        Fund’s comprehensive income for the year ended December 31, 2005 includes a net
        loss in fair value of $17,311,000 ($11,424,000 net of tax). Comprehensive
        income
        for the year ended December 31, 2004 includes a net loss in fair value of
        $8,451,000 ($5,709,000 net of tax). The Fund’s accumulated comprehensive income
        is summarized below:
 
 **($
                  thousands)**
              
              **2005**
              
              **2004**Fair
                  value of interest rate swaps
              
              **$**
              **(206**
              **)**
              $
              (1,412
              )Fair
                  value of natural gas instruments
              
              
              **(36,553**
              **)**
              
              (14,723
              )Fair
                  value of crude oil instruments
              
              
              **(13,321**
              **)**
              
              (6,406
              )Fair
                  value of electricity swap
              
              
              **1,019**
              
              
              20Fair
                  value of hedging instruments
              
              **$**
              **(49,061**
              **)**
              $
              (22,521
              )Unrealized
                  gain on available for sale securities
              
              
              **10,898**
              
              
              1,668Cumulative
                  translation adjustment
              
              
              **(15,568**
              **)**
              
              -Deferred
                  income taxes
              
              
              **12,959**
              
              
              7,035Accumulated
                  other comprehensive income (loss)
              
              **$**
              **(40,772**
              **)**
              $
              (13,818
              )
   Page
            19 of
            20
  **(f)
        Unitholders’ mezzanine equity**
 
 U.S.
        GAAP difference exists as a result of the redemption feature in the Fund’s trust
        units, which is required for the Fund to retain its Canadian mutual fund
        trust
        status. The trust units are redeemable at the option of the holder for
        approximately 85% of the current trading price. The amount of trust units
        that
        are redeemable for cash is limited to $500,000 in any two consecutive months.
        Any redemption in excess of the limit may be honored with promissory notes
        or
        other investments of the Fund. For Canadian GAAP, the trust units are considered
        to be permanent equity and are presented as unitholders’ capital. Under U.S.
        GAAP, the redemption feature of the trust units excludes them from
        classification as permanent equity and results in the trust units being
        classified as mezzanine equity.
 
 The
        Fund has recorded, for U.S. GAAP, unitholders’ mezzanine equity in the amount of
        $5,580,869,000 for 2005 and $3,863,946,000 for 2004, which represents the
        estimated redemption value of the trust units at 85% of the year-end market
        price. For 2004, this amount also includes $13,961,000 which represents the
        intrinsic value of rights granted under our trust unit rights incentive plan.
        The Fund has also recognized a deficit of $3,551,509,000 for 2005 and
        $2,366,709,000 for 2004, resulting from eliminating the unitholders’ capital,
        accumulated income and cash distributions of the Fund and replacing them
        with
        unitholders’ mezzanine equity at redemption value. Changes in unitholders’
mezzanine equity in excess of trust units issued, net of redemptions, net
        income
        and cash distributions in any period are recognized as charges to the
        deficit.
 
 **(g)
        Cumulative translation adjustment**
 
 A
        U.S.
        GAAP difference exists relating to the cumulative translation adjustment
        that is
        generated upon translating the financial statements of the Fund’s U.S.
        subsidiaries. For Canadian GAAP the cumulative translation adjustment is
        deferred and included as a separate component of equity. For U.S. GAAP this
        amount is recognized in comprehensive income.
 
 The
        Fund’s comprehensive income for the year ended December 31, 2005 includes a net
        change in the cumulative translation adjustment of $15,568,000 (2004 -
        nil).
 
 **U.S.
        Pronouncements**
 
 In
        December 2004, the Financial Accounting Standards Board (“FASB”) issued
        Statement 153, *Exchanges
        of Nonmonetary Assets* ,
        an
        amendment of APB Opinion 29, *Accounting
        for Nonmonetary Transactions* .
        This
        amendment eliminates the exception for nonmonetary exchanges of similar
        productive assets and replaces it with a general exception for exchanges
        of
        nonmonetary assets that do not have commercial substance. Under Statement
        153,
        if a nonmonetary exchange of similar productive assets meets a
        commercial-substance test and fair value is determinable, the transaction
        must
        be accounted for at fair value resulting in the recognition of any gain or
        loss.
        This statement is effective for nonmonetary transactions in fiscal periods
        that
        begin after June 15, 2005. We do not expect the adoption of this statement
        will
        have any material impact on our results of operations or financial
        position.
 
 In
        June
        2005, the FASB issued Statement 154, *Accounting
        Changes and Error Corrections* which
        replaces APB Opinion 20 and FASB Statement 3. Statement 154 changes the
        requirements for the accounting and reporting of a change in accounting
        principle. Opinion 20 previously required that most voluntary changes in
        accounting principle be recognized by including the cumulative effect of
        the new
        accounting principle in net income of the period of the change. Statement
        154
        now requires retrospective application of changes in accounting principle
        to
        prior period financial statements, unless it is impracticable to determine
        either the period-specific effects or the cumulative effect of the change.
        The
        Statement is effective for fiscal years beginning after December 15, 2005.
        We do
        not expect the adoption of this statement will have a material impact on
        our
        results of operations or financial position.
 
  Page 20
        of
        20