Exhibit
99.2
  MANAGEMENT’SREPORT ON INTERNALCONTROL OVER FINANCIAL REPORTING
  The
management of Enerplus Resources Fund is responsible for establishing and
maintaining adequate internal control over financial reporting for the Fund.
Under the supervision of our Chief Executive Officer and our Chief Financial
Officer we have conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the Internal Control-Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on our assessment, we have concluded that as
of December 31, 2007, our internal control over financial reporting is
effective.
 
 Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements and even those systems determined to be
effective can provide only reasonable assurance with respect to the financial
statement preparation and presentation.
 
 The
effectiveness of the Fund’s internal control over financial reporting as of
December 31, 2007, has been audited by Deloitte & Touche LLP, the
Fund’s Independent Registered Chartered Accountants, who also audited the Fund’s
Consolidated Financial Statements for the year ended December 31,
2007.
 
 
 REPORT
OF INDEPENDENT
REGISTEREDCHARTERED ACCOUNTANTS
 
 To the
Board of Directors of Enermark Inc. and
 Unitholders
of Enerplus Resources Fund:
 
 We have
audited the internal control over financial reporting of Enerplus Resources Fund
and subsidiaries (the “Fund”)as of December 31, 2007,
based on the criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Fund’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Fund's internal control over financial reporting based
on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
 
 A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
 
 Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
 
 In our
opinion, the Fund maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on the criteria
established in Internal Control - Integrated Frameworkissued by the Committee
of Sponsoring Organizations of the Treadway Commission.
    
 
 We have
also audited, in accordance with Canadian generally accepted auditing standards
and the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements as of and for the year ended
December 31, 2007 of the Fund and our report dated February 27, 2008 expressed
an unqualified opinion on those financial statements and included a separate
report titled Comments by Independent Registered Chartered Accountants on
Canada-United States of America Reporting Difference referring to changes in
accounting principles.
 
 
 “signed”
 DELOITTE & TOUCHE
LLP
 Independent
Registered Chartered Accountants
 Calgary,
Canada
 February
27, 2008
 
 
 
 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 27, 2008.
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 Registered 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 Independent Registered Chartered Accountants 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 Independent Registered Chartered
Accountants and has recommended their approval to the Board of Directors.
The Board of Directors has approved the consolidated financial statements of the
Fund.
 
 
  “signed”
                  Gordon J.
      Kerr
                  President
      and
                  Chief Executive
      Officer
                “signed”
                  Robert J.
      Waters
                  Senior Vice
      President and
                  Chief Financial
      Officer
 
 Calgary,
Alberta
 February
27, 2008
    
  Page 2 of
30
 REPORT
OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 
 To the
Board of Directors of Enermark Inc. and
 Unitholders
of Enerplus Resources Fund:
 
 We have
audited the accompanying consolidated balance sheets of Enerplus Resources Fund
and subsidiaries (the “Fund”) as at December 31, 2007 and 2006, and the related
consolidated statements of income, accumulated deficit, comprehensive income,
accumulated other comprehensive income 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 and the standards of the Public Company Accounting Oversight Board
(United States). These standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
 
 In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of Enerplus Resources Fund and subsidiaries as
atDecember 31,
2007 and 2006, and the results of their operations and their cash flows for the
years then ended in accordance with Canadian generally accepted accounting
principles.
 
 We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Fund's internal control over financial
reporting as of December 31, 2007, based onthe criteria established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 27, 2008
expressed an unqualified opinion on the Fund’s internal control over financial
reporting.
 
 
 
 “signed”
 DELOITTE & TOUCHE
LLP  Independent
Registered Chartered Accountants
 Calgary,
Canada
 February
27, 2008
 
 
 
 
 COMMENTS
BY INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS ON CANADA-UNITED STATES OF
AMERICA REPORTING DIFFERENCE
 
 The
standards of the Public Company Accounting Oversight Board  (United
States) require the addition of an explanatory paragraph (following the opinion
paragraph) when there are changes in accounting principles that have a material
effect on the comparability of the Fund’s financial statements, such as the
changes described in Notes 2, 12 and 16 to the consolidated financial
statements. Although we conducted our audits in accordance with both Canadian
generally accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States), our report to the Board of Directors
of Enermark Inc. and Unitholders of Enerplus Resources Fund, dated February 27,
2008, is expressed in accordance with Canadian reporting standards which do not
require a reference to such changes in accounting principles in the auditors’
report when the changes are properly accounted for and adequately disclosed in
the financial statements.
 
 
 
 
 “signed”
 DELOITTE & TOUCHE
LLP
 Independent
Registered Chartered Accountants
 Calgary,
Canada
 February
27, 2008
   Page 3 of
30
 
 CONSOLIDATED
BALANCE
SHEETS
   As
      at December 31 (CDN$ thousands)
                    
                    2007
                    
                    
                    2006AssetsCurrent
      assetsCash
                    
                    $
                    1,702
                    
                    
                    $
                    124Accounts
      receivable
                    
                    
                    145,602
                    
                    
                    
                    175,454Deferred
      financial assets (Notes 2 and 3)
                    
                    
                    10,157
                    
                    
                    
                    23,612Future
      income taxes (Note 11)
                    
                    
                    10,807
                    
                    
                    
                    -Other
      current
                    
                    
                    6,373
                    
                    
                    
                    6,715174,641
                    
                    
                    
                    205,905Property,
      plant and equipment (Note 4)
                    
                    
                    3,872,818
                    
                    
                    
                    3,726,097Goodwill
      (Note 1(f))
                    
                    
                    195,112
                    
                    
                    
                    221,578Other assets
      (Note 12)
                    
                    
                    60,559
                    
                    
                    
                    50,224$
                    4,303,130
                    
                    
                    $
                    4,203,804LiabilitiesCurrent
      liabilitiesAccounts
      payable
                    
                    $
                    269,375
                    
                    
                    $
                    284,286Distributions
      payable to unitholders
                    
                    
                    54,522
                    
                    
                    
                    51,723Deferred
      financial credits (Notes 2 and 3)
                    
                    
                    52,488
                    
                    
                    
                    -376,385
                    
                    
                    
                    336,009Long-term
      debt (Note 7)
                    
                    
                    726,677
                    
                    
                    
                    679,774Deferred
      financial credits (Notes 2 and 3)
                    
                    
                    90,090
                    
                    
                    
                    -Future income
      taxes (Note 11)
                    
                    
                    304,259
                    
                    
                    
                    331,340Asset
      retirement obligations (Note 5)
                    
                    
                    165,719
                    
                    
                    
                    123,6191,286,745
                    
                    
                    
                    1,134,733EquityUnitholders’
      capital (Note 10)Trust
      UnitsAuthorized:                                                        
      UnlimitedIssued
      and
      Outstanding:                                     
      2007 - 129,813,4452006
      - 123,150,820
                    
                    
                    4,032,680
                    
                    
                    
                    3,713,126Accumulated
      deficit
                    
                    
                    (1,283,953
                    )
                    
                    
                    (971,085
                    )Accumulated
      other comprehensive income (Notes 1(j) and 2)
                    
                    
                    (108,727
                    )
                    
                    
                    (8,979
                    )(1,392,680
                    )
                    
                    
                    (980,064
                    )2,640,000
                    
                    
                    
                    2,733,062$
                    4,303,130
                    
                    
                    $
                    4,203,804
 
 
 Signed on behalf of
the Board of Directors:
 
   
  “signed”
                Douglas R.
      Martin
                Director
              “signed”
                Robert L.
      Normand
                Director
  
 Page 4 of
30
 
 CONSOLIDATED STATEMENTS OFACCUMULATED DEFICIT
 
 
 For
      the year ended December 31 (CDN$ thousands)
              
              2007
              
              
              2006Accumulated
      income, beginning of year
              
              $
              1,952,960
              
              
              $
              1,408,178Adjustment
      for adoption of financial instruments standards (Note 2)
              
              
              (5,724
              )
              
              
              -Revised
      Accumulated income, beginning of year
              
              
              1,947,236
              
              
              
              1,408,178Net
      income
              
              
              339,691
              
              
              
              544,782Accumulated
      income, end of year
              
              $
              2,286,927
              
              
              $
              1,952,960Accumulated
      cash distributions, beginning of year
              
              $
              (2,924,045
              )
              
              $
              (2,309,705
              )Cash
      distributions
              
              
              (646,835
              )
              
              
              (614,340
              )Accumulated
      cash distributions, end of year
              
              $
              (3,570,880
              )
              
              $
              (2,924,045
              )Accumulated
      deficit, end of year
              
              $
              (1,283,953
              )
              
              $
              (971,085
              )
 
 
 
 
 CONSOLIDATED
STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE INCOME
 
 
 For
      the year ended December 31 (CDN$ thousands)
              
              2007
              
              
              2006Balance,
      beginning of year
              
              $
              (8,979
              )
              
              $
              (15,568
              )Transition
      adjustments (Note 2):Cash flow
      hedges
              
              
              660
              
              
              
              -Available for
      sale marketable securities
              
              
              14,252
              
              
              
              -Other
      comprehensive (loss)/income
              
              
              (114,660
              )
              
              
              6,589Balance, end
      of year
              
              $
              (108,727
              )
              
              $
              (8,979
              )
 
 
 CONSOLIDATED
STATEMENTS OF INCOME
 
 For
      the year ended December 31 (CDN$ thousands except per trust unit
      amounts)
              
              2007
              
              
              2006RevenuesOil and gas
      sales
              
              $
              1,539,153
              
              
              $
              1,595,324Royalties
              
              
              (285,148
              )
              
              
              (296,554
              )Commodity
      derivative instruments (Notes 3 and 12)
              
              
              (52,841
              )
              
              
              (3,226
              )Other income
      (Note 12)
              
              
              14,991
              
              
              
              2,4651,216,155
              
              
              
              1,298,009ExpensesOperating
              
              
              274,150
              
              
              
              251,239General and
      administrative (Note 10(b))
              
              
              67,921
              
              
              
              59,937Transportation
              
              
              22,098
              
              
              
              22,611Interest
      (Note 8)
              
              
              33,627
              
              
              
              32,168Foreign
      exchange (Note 9)
              
              
              (7,071
              )
              
              
              (528
              )Depletion,
      depreciation, amortization and accretion
              
              
              463,718
              
              
              
              481,598854,443
              
              
              
              847,025Income before
      taxes
              
              
              361,712
              
              
              
              450,984Current
      taxes
              
              
              23,011
              
              
              
              18,236Future income
      tax recovery (Note 11)
              
              
              (990
              )
              
              
              (112,034
              )Net
      Income
              
              $
              339,691
              
              
              $
              544,782Net income
      per trust unitBasic
              
              $
              2.66
              
              
              $
              4.48Diluted
              
              $
              2.66
              
              
              $
              4.47Weighted
      average number of trust units outstanding (thousands)Basic
              
              
              127,691
              
              
              
              121,588Diluted
              
              
              127,752
              
              
              
              121,858
 
 
 Page 5 of
30
 
 CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
 
 For
      the year ended December 31 (CDN$ thousands)
                
                2007
                
                
                2006Net
      income
                
                $
                339,691
                
                
                $
                544,782Other
      comprehensive (loss)/income, net of tax:Unrealized
      gain on marketable securities
                
                
                629
                
                
                
                -Realized
      gains on marketable securities included in net income
                
                
                (11,302
                )
                
                
                -Gains
      and losses on derivatives designated as hedges in prior periods included
      in net income
                
                
                (733
                )
                
                
                -Change
      in cumulative translation adjustment
                
                
                (103,254
                )
                
                
                6,589Other
      comprehensive (loss)/income
                
                
                (114,660
                )
                
                
                6,589Comprehensive
      income (Note 2)
                
                $
                225,031
                
                
                $
                551,371
 
 
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 For
      the year ended December 31 (CDN$ thousands)
                
                2007
                
                
                2006Operating
      ActivitiesNet
      income
                
                $
                339,691
                
                
                $
                544,782Non-cash
      items add/(deduct):Depletion,
      depreciation, amortization and accretion
                
                
                463,718
                
                
                
                481,598Change
      in fair value of derivative instruments (Note 3)
                
                
                91,852
                
                
                
                (31,106
                )Unit
      based compensation (Note 10 (b))
                
                
                8,435
                
                
                
                6,323Foreign
      exchange on translation of senior notes (Note 9)
                
                
                (41,182
                )
                
                
                (32
                )Future
      income tax (Note 11)
                
                
                (990
                )
                
                
                (112,034
                )Amortization
      of senior notes premium
                
                
                (631
                )
                
                
                -Reclassification
      adjustments from AOCI to net income
                
                
                (733
                )
                
                
                -Other
                
                
                (132
                )
                
                
                -Gain
      on sale of marketable securities (Note 12)
                
                
                (14,055
                )
                
                
                -Asset
      retirement obligations settled (Note 5)
                
                
                (16,280
                )
                
                
                (11,514
                )829,693
                
                
                
                878,017Decrease/(Increase)
      in non-cash operating working capital
                
                
                38,855
                
                
                
                (14,321
                )Cash
      flow from operating activities
                
                
                868,548
                
                
                
                863,696Financing
      ActivitiesIssue
      of trust units, net of issue costs (Note 10)
                
                
                256,369
                
                
                
                296,189Cash
      distributions to unitholders
                
                
                (646,835
                )
                
                
                (614,340
                )Increase
      in bank credit facilities (Note 7)
                
                
                148,827
                
                
                
                19,888Decrease
      in non-cash financing working capital
                
                
                2,799
                
                
                
                2,356Cash
      flow from financing activities
                
                
                (238,840
                )
                
                
                (295,907
                )Investing
      ActivitiesCapital
      expenditures
                
                
                (393,655
                )
                
                
                (496,201
                )Property
      acquisitions (Note 6)
                
                
                (226,480
                )
                
                
                (51,313
                )Property
      dispositions
                
                
                2,947
                
                
                
                1,599Proceeds
      on sale of marketable securities
                
                
                16,467
                
                
                
                -Purchase
      of investments
                
                
                (2,927
                )
                
                
                (29,172
                )Increase
      in non-cash investing working capital
                
                
                (21,046
                )
                
                
                (3,535
                )Cash
      flow from investing activities
                
                
                (624,694
                )
                
                
                (578,622
                )Effect
      of exchange rate changes on cash
                
                
                (3,436
                )
                
                
                864Change
      in cash
                
                
                1,578
                
                
                
                (9,969
                )Cash,
      beginning of year
                
                
                124
                
                
                
                10,093Cash,
      end of year
                
                $
                1,702
                
                
                $
                124Supplementary
      Cash Flow InformationCash
      income taxes paid
                
                $
                17,431
                
                
                $
                14,060Cash
      interest paid
                
                $
                42,861
                
                
                $
                34,924
 
 
 Page 6 of
30
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 The
management of Enerplus Resources Fund (“Enerplus” or the “Fund”) prepares the
consolidated 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 16.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.
Actual results could differ from those estimated. In particular, the amounts
recorded for depletion and depreciation of the petroleum and natural gas
properties and for asset retirement obligations are based on estimates of
reserves and future costs. By their nature, these estimates, and those related
to future cash flows used to assess impairment, are subject to measurement
uncertainty and the impact on the financial statements of future periods could
be material.
 
 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. (the Fund’s 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. Many of the Fund’s production activities are conducted through joint
ventures and the financial statements reflect only the Fund’s proportionate
interest in such activities.
 
 (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, drilling costs for productive and non-productive wells,
facilities 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. Net costs related to projects in the pre-commercial phase of development
are excluded from the country by country impairment test and are tested for
impairment separately.
 
 Page 7 of
30
 (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. Goodwill is not deductible for income tax purposes.
 
 Changes
in goodwill during 2007 represent the effects of foreign exchange recorded in
our U.S. subsidiary.
 
 (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.
 
 Effective
January 1, 2011, the Fund will be subject to a 28.0% SIFT (specified investment
flow-through entities) tax on Canadian income that has not been subject to a
Canadian corporate income tax in the Canadian operating entities. Therefore, the
future tax liability associated with Canadian assets recorded on the balance
sheet as at that date will be realized over time as the temporary
differences between the carrying value of assets in the consolidated financial
statements and their respective tax bases are realized. Current Canadian income
taxes will be accrued for at that time to the extent that there is taxable
income in the Trust or its underlying operating entities.
 
 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 the temporary differences between the carrying
value of the assets and liabilities on the consolidated financial statements 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.
 
 Page 8 of
30
 (i)
Financial Instruments
 
 Commencing
on January 1, 2007 financial assets and financial liabilities classified as
held-for-trading are measured at fair value with changes in fair value
recognized in net income. Financial assets classified as loans and receivables
along with financial liabilities classified as other liabilities are measured at
amortized cost using the effective interest rate method. Financial assets
classified as available-for-sale are measured at fair value with changes in fair
value recognized in other comprehensive income (“OCI”). Investments in equity
instruments classified as available-for-sale that do not have a quoted price in
an active market or a readily determinable fair value are measured at cost.
Transaction costs or fees attributable to the acquisition, issue, or disposal of
a financial asset or liability are expensed immediately to net
income.
 
 Derivative
instruments are recorded on the consolidated balance sheets at fair value,
including those derivatives that are embedded in financial or non-financial
contracts that are not closely related to the host contracts. Changes in the
fair values of derivative instruments are recognized in net income.
 
 (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 cumulative translation adjustment (“CTA”) which is part of
accumulated other comprehensive income (“AOCI”).
 
 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.
 
 (k)
Unit Based Compensation
 
 The
Fund uses the fair value method of accounting for the trust unit rights
incentive plan. 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.
 
 2.
CHANGES IN ACCOUNTING POLICIES
 
  Financial
Instruments
 Effective
January 1, 2007, the Fund adopted five new accounting standards that were issued
by the CICA: Handbook Section 1530, Comprehensive Income, Handbook Section 3251,
Equity, Handbook Section 3855, Financial Instruments - Recognition and
Measurement, Handbook Section 3861, Financial Instruments - Disclosure and
Presentation and Handbook Section 3865, Hedges. These standards were adopted
retrospectively without restatement, with the exception of CTA amounts which
have been reclassified to AOCI.
 
 Comprehensive
Income
 
 CICA
Handbook Section 1530 introduces comprehensive income, which consists of net
income and other comprehensive income (“OCI”). Comprehensive income represents
changes in equity during a period arising from transactions and other events and
circumstances with non-owner sources. OCI comprises revenues, expenses, gains
and losses that are recognized in comprehensive income but excluded from net
income. Examples of these gains and losses are unrealized gains and losses on
marketable securities classified as available-for-sale along with unrealized
foreign currency translation gains or losses arising from self-sustaining
foreign operations. The Consolidated Statements of Comprehensive Income include
a calculation of comprehensive income, while the cumulative changes in OCI are
included in the Statements of Accumulated Other Comprehensive Income (AOCI).
CICA Handbook Section 3251 establishes standards for the presentation of equity
and changes in equity during the period.
 
 Page 9 of
30
 Financial
Instruments - Recognition and Measurement
  CICA
Handbook Section 3855 establishes the criteria for recognizing and measuring
financial assets, financial liabilities and non-financial derivatives. Under
this standard, all financial instruments are required to be measured at fair
value on recognition except for certain related party transactions. Measurement
in subsequent periods depends on whether the financial instrument has been
classified as held-for-trading, available-for-sale, held-to-maturity, loans and
receivables, or other financial liabilities.
 
 Financial
assets and financial liabilities classified as held-for-trading are measured at
fair value with changes in fair value recognized in net income. Financial assets
classified as loans and receivables along with financial liabilities classified
as other liabilities are measured at amortized cost using the effective interest
rate method. Financial assets classified as available-for-sale are measured at
fair value with changes in fair value recognized in OCI. Investments in equity
instruments classified as available-for-sale that do not have a quoted price in
an active market are measured at cost. Transaction costs or fees attributable to
the acquisition, issue, or disposal of a financial asset or liability are
expensed immediately to net income.
 
 Derivative
instruments are recorded on the consolidated balance sheets at fair value,
including those derivatives that are embedded in financial or non-financial
contracts that are not closely related to the host contracts. Embedded
derivatives are included as of January 1, 2003. Changes in the fair values of
derivative instruments are recognized in net income with the exception of
derivatives that are designated as effective cash flow hedges. Refer to the
Hedges section for
further detail.
 
 CICA
Handbook Section 3861 establishes standards for the presentation and disclosure
of financial instruments and non-financial derivatives.
 
  Hedges
  CICA
Handbook Section 3865 specifies the criteria and method of accounting for each
of the designated hedging strategies.
 
 When
hedge accounting is discontinued for a cash flow hedge, the amounts previously
recognized in AOCI are reclassified to net income over the remaining term of the
hedged item.
 
 When
hedge accounting is discontinued for a fair value hedge, the carrying value of
the hedged item is no longer adjusted. Any difference between the carrying value
and the face value or principal amount of the hedged item is amortized to net
income over the remaining term of the original hedging relationship using the
effective interest method.
 
  Impact
upon Adoption of Sections 1530, 3251, 3855, 3861 and 3865
   As a
result of the adoption of these standards on January 1, 2007 the Fund elected to
stop designating its interest rate and electricity swaps as cash flow hedges and
recorded these items on the consolidated balance sheet at their fair values with
the offset recorded to opening accumulated other comprehensive income. In
addition, the Fund elected to stop designating its cross currency and interest
rate swap (“CCIRS”) as a fair value hedge and recorded the CCIRS on the
consolidated balance sheet at fair value with the offset recorded to opening
accumulated deficit. In conjunction, the underlying US$175,000,000 senior
unsecured notes were recorded at fair value with the offset recorded to opening
accumulated deficit.
  The
Fund’s investments in marketable securities have been classified as
available-for-sale and therefore those that have a quoted price in an active
market were recorded on the consolidated balance sheet at fair value with the
offset recorded to opening AOCI.
 
 Deferred
charges of $1,523,000 associated with issuance of the senior unsecured notes
were recorded to the opening accumulated deficit.
 
 Amounts
previously recorded in the cumulative translation adjustment were reclassified
into opening AOCI. Our prior year comparative statements have been restated to
reflect this change.
 
 Page 10 of
30
 The
Fund has recorded the following transition adjustments as of January 1, 2007 in
the Consolidated Financial Statements: (a) an increase of $1,494,000 to deferred
financial assets to record the electricity swaps at fair value; (b) an increase
to other current assets of $14,493,000 to record publicly traded marketable
securities at fair value; (c) an increase of $1,708,000 to other assets,
consisting of $3,231,000 to record publicly traded marketable securities at fair
value less $1,523,000 to write-off the deferred charges associated with the
issuance of the senior unsecured notes; (d) an increase of $65,675,000 to
deferred financial credits to record the CCIRS and interest rates swaps at fair
value; (e) a decrease to long-term debt of $60,111,000 to record the
US$175,000,000 senior unsecured note at fair value; (f) an increase to future
income taxes of $ 2,943,000 to reflect the tax impact of the adoption entries;
(g) an increase of $5,724,000, net of taxes, to the opening accumulated deficit;
(h) recognition in AOCI of $14,912,000, net of taxes, related to the net gains
on marketable securities classified as available-for-sale along with the fair
value of the interest rate and power swaps formerly designated as cash flow
hedges. In addition, the Fund reclassified to AOCI $8,979,000 of net unrealized
foreign currency losses that were previously presented as a separate item in
equity. These transition adjustments are summarized below.
 
 Impact
of transition adjustment on selected consolidated balance sheets line
items:
 
 Increase/(decrease)
      (CDN$ thousands)
                Transition
      adjustment as at January 1, 2007Deferred
      financial assets
                
                $
                1,494Other
      current assets
                
                
                14,493Other
      assets
                
                
                1,708Deferred
      financial credits
                
                
                65,675Long-term
      debt
                
                
                (60,111
                )Future
      income taxes
                
                
                2,943Accumulated
      deficit
                
                
                (5,724
                )Cumulative
      translation adjustment
                
                
                8,979Accumulated
      other comprehensive income
                
                
                5,933
 
 As a
result of these changes, net income increased by $5,619,000 ($7,943,000 before
future income taxes of $2,324,000) for the year ended December 31, 2007. Both
the basic and diluted net income per trust unit calculations for the year ended
December 31, 2007 increased by $0.04.
 
 Recent
Canadian Accounting Pronouncements
 
 CICA
Section 3862 - Financial Instruments - Disclosures
 
 This
standard requires entities to provide disclosures in their financial statements
that enable users to evaluate the significance of financial instruments to the
entity’s financial position and performance. It also requires that entities
disclose the nature and extent of risks arising from financial instruments and
how the entity manages those risks.
 
 This
standard is effective for reporting periods beginning after January 1, 2008 and
will result in additional disclosures for our financial
instruments.
 
 CICA
Section 3863 - Financial Instruments - Presentation
 
 This
standard establishes presentation guidelines for financial instruments and
non-financial derivatives and deals with the classification of financial
instruments, from the perspective of the issuer, between liabilities and equity,
the classification of related interest, dividends, losses and gains, and the
circumstances in which financial assets and financial liabilities are
offset.
 
 This
standard is effective for reporting periods beginning after January 1, 2008 and
should have a minimal impact on our reporting.
 
 CICA
Section 1535 - Capital Disclosures
 
 This
section details disclosures that must be made regarding an entity’s capital and
how it is managed. The standard requires qualitative information about an
entity’s objectives, policies and processes for managing capital and
quantitative data about what the entity regards as capital. It requires
disclosure of compliance with any capital requirements and consequences of any
non-compliance.
 
 This
standard is effective for reporting periods beginning after January 1, 2008 and
will result in additional disclosures around managing capital.
 
 Page 11 of
30
 3.
DEFERRED FINANCIAL ASSETS AND DEFERRED FINANCIAL CREDITS
 
 The
deferred financial assets and credits result from recording our derivative
financial instruments at fair value. At December 31, 2007 a current deferred
financial asset of $10,157,000, a current deferred financial credit of
$52,488,000 and a long-term deferred financial credit of $90,090,000 are
recorded on the consolidated balance sheet.
 
 The
deferred financial credit relating to crude oil instruments of $52,488,000 at
December 31, 2007 consists of the fair value of the financial instruments,
representing a loss position of $44,749,000, plus the related deferred premiums
of $7,739,000. The deferred financial asset relating to natural gas instruments
of $9,707,000 at December 31, 2007 consists of the fair value of the financial
instruments of $10,628,000 less the related deferred premiums of
$921,000.
 
 Interest
                
                
                Cross
      Currency Interest
                
                
                Foreign
                
                
                
                
                
                Commodity
      Derivative Instruments($
      thousands)
                
                Rate
      Swaps
                
                
                Rate
      Swaps
                
                
                Exchange
      Swaps
                
                
                Electricity
      Swaps
                
                
                Oil
                
                
                Gas
                
                
                TotalDeferred
      financial assets/(credits) as at December 31, 2006
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                10,922
                
                
                $
                12,690
                
                
                $
                23,612Adoption
      of financial instruments standards (Note 2)
                
                
                (673
                )
                
                
                (65,002
                )
                
                
                -
                
                
                
                1,494
                
                
                
                -
                
                
                
                -
                
                
                
                (64,181
                )Change
      in fair value asset/(credits) (Note 12)
                
                
                447
                (1)
                
                
                (24,437
                )(2)
                
                
                (425
                )(3)
                
                
                (1,044
                )(4)
                
                
                (63,410
                )(5)
                
                
                (2,983
                )(5)
                
                
                (91,852
                )Deferred
      financial assets/(credits) as at December 31, 2007
                
                $
                (226
                )
                
                $
                (89,439
                )
                
                $
                (425
                )
                
                $
                450
                
                
                $
                (52,488
                )
                
                $
                9,707
                
                
                $
                (132,421
                )Balance
      sheet classification:Current
      asset/(credit)
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                450
                
                
                $
                (52,488
                )
                
                $
                9,707
                
                
                $
                (42,331
                )Long-term
      asset/(credit)
                
                $
                (226
                )
                
                $
                (89,439
                )
                
                $
                (425
                )
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (90,090
                )
  (1)Recorded
      in interest expense.(2)Recorded
      in foreign exchange expense (loss of $31,777) and interest expense (gain
      of $7,340).(3)Recorded
      in foreign exchange expense.
 (4)Recorded
      in operating expense.
 (5)Recorded
      in commodity derivative instruments (see
below).
 
 The
      following table summarizes the income statement effects of commodity
      derivative instruments:
 
 ($
      thousands)
                
                2007
                
                
                2006Change
      in fair value loss/(gain)
                
                $
                66,393
                
                
                $
                (80,980
                )Amortization
      of deferred financial assets
                
                
                -
                
                
                
                49,874Realized
      cash (gains)/losses, net
                
                
                (13,552
                )
                
                
                34,332Commodity
      derivative instruments loss
                
                $
                52,841
                
                
                $
                3,226
 
 
 
 4.
PROPERTY, PLANT AND EQUIPMENT
 
 ($
      thousands)
                
                2007
                
                
                2006Property,
      plant and equipment
                
                $
                6,429,241
                
                
                $
                5,855,511Accumulated
      depletion, depreciation and accretion
                
                
                (2,556,423
                )
                
                
                (2,129,414
                )Net
      property, plant and equipment
                
                $
                3,872,818
                
                
                $
                3,726,097
 
 Capitalized
development general and administrative (“G&A”) expenses of $17,185,000 (2006
- $14,111,000) are included in PP&E. The depletion and depreciation
calculation includes future capital costs of $521,650,000 (2006 - $472,567,000)
as indicated in our reserve reports. Excluded from PP&E for the depletion
and depreciation calculation is $321,801,000 (2006 - $81,183,000) related to the
Joslyn development project and the Kirby Oil Sands project, both of which have
not yet commenced commercial production.
 
 An
impairment test calculation was performed on a country by country basis on the
PP&E values at December 31, 2007 in which the estimated undiscounted future
net cash flows associated with the proved reserves exceeded the carrying amount
of the Fund’s PP&E.
 
 Page 12 of
30
 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,
2007:
 
 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$/Mcf2008
                
                $
                89.61
                
                
                $
                1.00
                
                
                $
                88.17
                
                
                $
                6.512009
                
                
                86.01
                
                
                
                1.00
                
                
                
                84.54
                
                
                
                7.222010
                
                
                84.65
                
                
                
                1.00
                
                
                
                83.16
                
                
                
                7.692011
                
                
                82.77
                
                
                
                1.00
                
                
                
                81.26
                
                
                
                7.702012
                
                
                82.26
                
                
                
                1.00
                
                
                
                80.73
                
                
                
                7.61Thereafter
                
                
                *
                
                
                
                1.00
                
                
                
                *
                
                
                
                *
 (1)Actual
prices used in the impairment test were adjusted for commodity price
differentials specific to the Fund
 * Escalation varies after
2012.
 
 5.
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 $165,719,000 at December
31, 2007 compared to $123,619,000 at December 31, 2006 based on a total
undiscounted liability of $542,781,000 and $436,663,000 respectively. These
payments are expected to be made over the next 66 years with the majority of
costs incurred between 2038 and 2047. To calculate the present value of the
asset retirement obligations for 2007 the Fund used a weighted credit-adjusted
rate of approximately 6.1% and an inflation rate of 2.0%, (2006 - 6.3% and
2.0%). 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)
                
                2007
                
                
                2006Asset
      retirement obligations, beginning of year
                
                $
                123,619
                
                
                $
                110,606Changes
      in estimates
                
                
                46,000
                
                
                
                12,757Acquisition
      and development activity
                
                
                6,441
                
                
                
                5,574Dispositions
                
                
                (756
                )
                
                
                (45
                )Asset
      retirement obligations settled
                
                
                (16,280
                )
                
                
                (11,514
                )Accretion
      expense
                
                
                6,695
                
                
                
                6,241Asset
      retirement obligations, end of year
                
                $
                165,719
                
                
                $
                123,619
 
 6. PROPERTY
ACQUISITIONS
 
 Kirby
Oil Sands Partnership
 
 On
April 10, 2007 the Fund acquired a 90% interest in Kirby for total consideration
of $182,800,000, consisting of $128,050,000 in cash and the issuance of
1,104,945 trust units at a price of $49.55 per unit ($54,750,000 of equity). On
June 22, 2007, the Fund acquired the remaining 10% interest in Kirby for cash
consideration of $20,276,000. The acquisition of Kirby has been accounted for as
an asset acquisition pursuant to the guidance in the Emerging Issues Committee
Abstract 124.
 
 7.
LONG-TERM DEBT
 
 ($
      thousands)
                
                2007
                
                
                2006Bank
      credit facilities (a)
                
                $
                497,347
                
                
                $
                348,520Senior
      notes (b)US$175
      million (issued June 19, 2002)
                
                
                175,973
                
                
                
                268,328US$54
      million (issued October 1, 2003)
                
                
                53,357
                
                
                
                62,926Total
      long-term debt
                
                $
                726,677
                
                
                $
                679,774
 
 (a)
Unsecured Bank Credit Facility
 
 Enerplus
currently has a $1.4 billion unsecured covenant based three year term facility
($1.0 billion at December 31, 2007). The facility is extendible each year with a
bullet payment required at the end of the three year term. In the first quarter
of 2008 the bank credit facility size was increased in conjunction with the
acquisition of Focus Energy Trust (“Focus”) (see Note 15). At December 31, 2007
Enerplus had available credit of $502,653,000 based on a facility size of $1.0
billion at that time. In conjunction with the Focus acquisition, Enerplus
acquired approximately $340 million in Focus debt. Various borrowing options are
available under the facility including prime rate based advances and bankers’
acceptance loans. This facility carries floating interest rates that are
expected to range between 55.0 and 110.0 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 facility for the
year ended December 31, 2007 was 5.1% (2006 - 4.8%).
 
 Page 13 of
30
 
 (b)
Senior Unsecured Notes
 
 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. Concurrent with the issuance of the notes on June 19, 2002, the Fund
entered into a CCIRS 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
bankers’ acceptances, plus 1.18%.
 
 On
October 1, 2003 when the CDN/US exchange rate was 1.35 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. The notes are
translated into Canadian dollars using the period end foreign exchange
rate.
 
 During
September 2007 Enerplus entered into foreign exchange swaps that effectively fix
the five principal payments on the US$54,000,000 senior unsecured notes at a
CAD/US exchange rate of 1.02.
 
 On
January 1, 2007 in conjunction with the adoption of CICA Sections 3855 and 3865,
the Fund elected to stop designating the CCIRS as a fair value hedge on the
US$175,000,000 senior notes. As a result, the Fund recorded the senior notes at
their fair value of US$178,681,000 (CDN $208,217,000) with the offset to opening
accumulated deficit. In addition, the Fund recorded a liability of $65,002,000
with the offset to opening accumulated deficit, which represented the fair value
of the CCIRS. The premium amount of US$3,681,000, representing the difference
between the January 1, 2007 fair value and the face amount of the senior notes,
will be amortized to net income over the remaining term of the notes using the
effective interest method. The effective interest rate over the remaining term
of the senior notes is 6.16%. The senior notes are carried at amortized cost and
are translated into Canadian dollars using the period end foreign exchange rate.
At December 31, 2007 the amortized cost of the US$175,000,000 senior notes was
US$178,093,000
 
 The
bank credit facility 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.
 
 8.
INTEREST EXPENSE
 
 ($
      thousands)
                
                2007
                
                
                2006RealizedInterest
      on long-term debt
                
                $
                41,934
                
                
                $
                32,168UnrealizedGain
      on cross currency interest rate swap
                
                
                (7,340
                )
                
                
                -Gain
      on interest rate swaps
                
                
                (447
                )
                
                
                -Amortization
      of the premium on senior unsecured notes
                
                
                (631
                )
                
                
                -Other
                
                
                111
                
                
                
                -Interest
      Expense
                
                $
                33,627
                
                
                $
                32,168
 
 
 Page 14 of
30
 9.
FOREIGN EXCHANGE
 
 
 ($
      thousands)
                
                2007
                
                
                2006Unrealized
      foreign exchange gain on translation of U.S. dollar denominated senior
      notes
                
                $
                (41,182
                )
                
                $
                (32
                )Unrealized
      foreign exchange loss on cross currency interest rate swap
                
                
                31,777
                
                
                
                -Unrealized
      foreign exchange loss on foreign exchange swaps
                
                
                425
                
                
                
                -Realized
      foreign exchange loss/(gain)
                
                
                1,909
                
                
                
                (496
                )Foreign
      exchange gain
                
                $
                (7,071
                )
                
                $
                (528
                )
 
 The
US$54,000,000 and US$175,000,000 senior unsecured notes are exposed to foreign
currency fluctuations and 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 period.
 
 
 10.
FUND CAPITAL
 
 (a)
Unitholders’ Capital
 
 Trust
Units
 
 Authorized:
Unlimited number of trust units
 
 ($
      thousands)
                
                2007
                
                
                2006Issued:
                
                Units
                
                
                Amount
                
                
                Units
                
                
                AmountBalance
      before Contributed Surplus, beginning of year
                
                
                123,151
                
                
                $
                3,706,821
                
                
                
                117,539
                
                
                $
                3,407,567Issued
      for cash:Pursuant
      to public offerings
                
                
                4,250
                
                
                
                199,558
                
                
                
                4,370
                
                
                
                240,287Pursuant
      to rights incentive plan
                
                
                205
                
                
                
                6,758
                
                
                
                640
                
                
                
                22,974Trust
      unit rights incentive plan (non-cash) - exercised
                
                
                -
                
                
                
                2,288
                
                
                
                -
                
                
                
                3,065DRIP*,
      net of redemptions
                
                
                1,102
                
                
                
                50,053
                
                
                
                602
                
                
                
                32,928Issued
      for acquisition of corporate and property interests
    (non-cash)
                
                
                1,105
                
                
                
                54,750
                
                
                
                -
                
                
                
                -129,813
                
                
                
                4,020,228
                
                
                
                123,151
                
                
                
                3,706,821Contributed
      Surplus (Trust Unit Rights Incentive Plan)
                
                
                -
                
                
                
                12,452
                
                
                
                -
                
                
                
                6,305Balance,
      end of year
                
                
                129,813
                
                
                $
                4,032,680
                
                
                
                123,151
                
                
                $
                3,713,126
 * Distribution
Reinvestment and Unit Purchase Plan
 
 Contributed
      surplus ($ thousands)
                
                2007
                
                
                2006Balance,
      beginning of year
                
                $
                6,305
                
                
                $
                3,047Trust
      unit rights incentive plan (non-cash) - exercised
                
                
                (2,288
                )
                
                
                (3,065
                )Trust
      unit rights incentive plan (non-cash) - expensed
                
                
                8,435
                
                
                
                6,323Balance,
      end of year
                
                $
                12,452
                
                
                $
                6,305
 
 On
April 10, 2007 the Fund closed an equity offering of 4,250,000 trust units at a
price of $49.55 per unit for gross proceeds of $210,588,000 ($199,558,000 net of
issuance costs). These trust units were eligible for the April 20, 2007 cash
distribution paid to unitholders of record at the close of business on April 10,
2007.
 
 In
conjunction with the acquisition of Kirby on April 10, 2007, the Fund issued
1,105,000 trust units at a price of $49.55 per unit for gross proceeds of
$54,750,000.
 
 On
March 20, 2006 the Fund closed an equity offering of 4,370,000 units at a price
of $58.00 per unit for gross proceeds of $253,460,000 ($240,287,000 net of
issuance costs).
 
 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.
 
 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.
 
 Page 15 of
30
 (b)
Trust Unit Rights Incentive Plan
 
 As at
December 31, 2007 a total of 3,404,000 rights issued pursuant to the Trust Unit
Rights Incentive Plan (“Rights Incentive Plan”) were outstanding at an average
exercise price of $47.59. This represents 2.6% of the total trust units
outstanding of which 1,635,000 rights, with an average exercise price of $44.84,
were exercisable. Under the Rights Incentive 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, 2007 reduced the exercise price of the outstanding
rights by $2.05 per trust unit of which a $0.52 reduction is effective January
2008 and a $0.51 reduction is effective April 2008. Plan members have the choice
to exercise rights using the original exercise price or a reduced strike price.
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:
 
 2007
                
                
                2006Dividend
      yield
                
                
                10.37
                %
                
                
                9.26
                %Volatility
                
                
                26.35
                %
                
                
                25.61
                %Risk-free
      interest rate
                
                
                4.41
                %
                
                
                4.13
                %Forfeiture
      rate
                
                
                6.20
                %
                
                
                2.80
                %Right’s
      exercise price reduction
                
                $
                1.75
                
                
                $
                1.61
 
 The
fair value of the rights granted under the plan during 2007 ranged between 9%
and 12% (2006 - 12% and 14% of the underlying market price of a trust unit on
the grant date.
 
 During
the year the Fund expensed $8,435,000 or $0.07 per unit (2006 - $6,323,000 or
$0.05 per unit) of unit based compensation expense using the fair value method.
The remaining future fair value of the rights of $6,195,000 at December 31, 2007
(2006 - $10,113,000) will be recognized in earnings over the vesting period of
the rights. Activity for the rights issued pursuant to the Rights Incentive Plan
is as follows:
 
 2007
                
                
                2006Number
      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
                
                
                3,079
                
                
                $
                48.53
                
                
                
                2,621
                
                
                $
                42.80Granted
                
                
                816
                
                
                
                48.71
                
                
                
                1,473
                
                
                
                54.49Exercised
                
                
                (205
                )
                
                
                32.90
                
                
                
                (640
                )
                
                
                35.94Cancelled
                
                
                (286
                )
                
                
                50.74
                
                
                
                (375
                )
                
                
                46.35End
      of year
                
                
                3,404
                
                
                $
                47.59
                
                
                
                3,079
                
                
                $
                48.53Rights
      exercisable at the end of the year
                
                
                1,635
                
                
                $
                44.84
                
                
                
                809
                
                
                $
                39.81
 (1) Exercise
price reflects grant prices less reduction in strike price discussed
above.
 
 The
following table summarizes information with respect to outstanding rights as at
December 31, 2007. Rights vest between one and three years and expire between
four and six years.
 
 Rights
      Outstanding
                  at
      December 31, 2007
                  (000’s)
                Original
      Exercise
                  Price
                Exercise
      Price after
                  Price
      Reductions
                Expiry
      Date
                  December
      31
                Rights
      Exercisable at
                  December
      31, 2007
                  (000’s)16
                $  26.09
                $  18.30
                2008
                164
                27.70
                20.11
                2008
      - 2009
                48
                33.00
                25.72
                2008
      - 2009
                87
                36.00
                29.10
                2008
      - 2009
                7128
                37.62
                31.11
                2008
      - 2009
                1288
                40.70
                34.58
                2008
      - 2010
                823
                37.25
                31.50
                2008
      - 2010
                2349
                38.83
                33.48
                2008
      - 2010
                49341
                40.80
                35.80
                2008
      - 2010
                34168
                45.55
                40.87
                2009
      - 2011
                4572
                44.86
                40.53
                2009
      - 2011
                46126
                49.75
                45.82
                2009
      - 2011
                96532
                56.93
                53.41
                2009
      - 2011
                364145
                56.55
                53.51
                2010
      - 2012
                63402
                54.21
                51.67
                2010
      - 2012
                156252
                56.00
                53.97
                2010
      - 2012
                114443
                52.90
                51.38
                2010
      - 2012
                167168
                48.86
                47.84
                2011
      - 2013
                -444
                50.25
                49.74
                2011
      - 2013
                -153
                45.14
                45.14
                2011
      - 2013
                -15
                38.70
                38.70
                2011
      - 2013
                -3,404
                $  50.32
                $  47.59
                
                1,635
 
 
 Page 16 of
30
 (c)
Basic and Diluted per Trust Unit Calculations
 
 Net
income per trust unit has been determined based on the following:
 
 (thousands)
                
                2007
                
                
                2006Weighted
      average units
                
                
                127,691
                
                
                
                121,588Dilutive
      impact of rights
                
                
                61
                
                
                
                270Diluted
      trust units
                
                
                127,752
                
                
                
                121,858
 
 In 2007
we excluded 222,347 rights because their exercise price was greater than the
annual average unit market price of $47.11. No rights were excluded in
calculating the weighted average number of diluted units for the year ended
December 31, 2006. During the last two years, outstanding rights were the only
potential dilutive instrument.
 
 (d)
Performance Trust Unit Plan
 
 In 2007
the Board of Directors, upon recommendation of the Compensation Committee,
approved new Performance Trust Unit (“PTU”) plans for executives and employees.
These plans will result in employees and officers receiving cash compensation in
relation to the value of a specified number of underlying notional trust units.
The number of notional trust units awarded is variable to individuals and they
vest at the end of three years.
 
 Upon
vesting, the plan participant receives a cash payment based on the fair value of
the underlying trust units plus notional accrued distributions. The value
determined upon vesting of the PTU Plans is dependent upon the performance of
the Fund compared to its peers over the three year period. The level of
performance within the peer group then determines a performance
multiplier.
 
 At
December 31, 2007 there were 179,000 performance trust units
outstanding.
 
 11.
INCOME TAXES
 
 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
2007, the Fund had taxable income of $632,000,000 (2006 - $588,000,000) or $4.92
per trust unit (2006 - $4.81 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.
 
 There
were no dividend income and COGPE deductions for 2007. The amounts of COGPE and
issue costs in the fund remaining as at December 31, 2007 are $466,700,000 and
$30,289,000 respectively.
 
 
 Canadian
Government’s tax on income trusts
 
 On June
22, 2007 Bill C-52, which contained legislative provisions to implement the
proposals to tax publicly traded income trusts in Canada became law. As a
result, our second quarter future income tax provision included a future income
tax expense of $78,110,000 related to this legislation. This non-cash expense
related to temporary differences between the accounting and tax basis of the
Fund’s assets and liabilities at that time and had no immediate impact on cash
flow.
 
 On
December 14, 2007, Bill C-28, which contained legislative provisions to
implement corporate income tax rate reductions announced in the October 30, 2007
fall economic statement, became law. The general corporate tax rate will
decrease by 1.0% in 2008 from 20.5% to 19.5%. There are additional rate
reductions scheduled until the target federal tax rate of 15.0% is reached as of
January 1, 2012. These rate reductions will also apply to the SIFT tax on
distributions from income trusts. The SIFT tax rate will fall by 3.5% from 31.5%
to 28.0%. As a result, our year to date future income tax provision includes a
future income tax recovery of $22,640,000 related to this legislation and other
tax rate changes enacted earlier in the year.
 
 Page 17 of
30
 We are
currently evaluating alternatives to determine the optimal structure for our
unitholders. However, we see value in the remaining three-year tax exemption
period through 2010 and will look to maintain our current structure during this
period unless there are compelling reasons to change.
 
 The
future income tax liability on the balance sheet arises as a result of the
following temporary differences:
 
 ($
      thousands)
                
                Canadian
                
                
                Foreign
                
                
                2007
                  TotalExcess
      of net book value of property, plant and equipment over the underlying tax
      bases
                
                $
                176,962
                
                
                $
                194,393
                
                
                $
                371,355Asset
      retirement obligations
                
                
                (41,669
                )
                
                
                -
                
                
                
                (41,669
                )Other
                
                
                (2,825
                )
                
                
                (33,409
                )
                
                
                (36,234
                )Net
      future income tax liability/(asset)
                
                $
                132,468
                
                
                $
                160,984
                
                
                $
                293,452Current
      future income tax asset
                
                $
                (10,807
                )
                
                $
                -
                
                
                $
                (10,807
                )Long-term
      future income tax liability
                
                $
                143,275
                
                
                $
                160,984
                
                
                $
                304,259
 
 
 ($
      thousands)
                
                Canadian
                
                
                Foreign
                
                
                2006
                  TotalExcess
      of net book value of property, plant and equipment over the underlying tax
      bases
                
                $
                179,770
                
                
                $
                183,081
                
                
                $
                362,851Asset
      retirement obligations
                
                
                (37,667
                )
                
                
                -
                
                
                
                (37,667
                )Other
                
                
                6,963
                
                
                
                (807
                )
                
                
                6,156Future
      income taxes
                
                $
                149,066
                
                
                $
                182,274
                
                
                $
                331,340Current
      future income tax asset
                
                $
                -
                
                
                $
                -
                
                
                $
                -Long-term
      future income tax liability
                
                $
                149,066
                
                
                $
                182,274
                
                
                $
                331,340
 
 
 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)
                
                2007
                
                
                2006Income
      before taxes
                
                $
                361,712
                
                
                $
                450,984Computed
      income tax expense at the enacted rate of 32.41% (34.88% for
      2006)
                
                $
                117,231
                
                
                $
                157,303Increase
      (decrease) resulting from:Net
      income attributed to the Fund
                
                
                (162,016
                )
                
                
                (197,694
                )Non-deductible
      crown royalties
                
                
                -
                
                
                
                11,878Resource
      allowance
                
                
                -
                
                
                
                (11,998
                )Amended
      returns and pool balances
                
                
                5,150
                
                
                
                (21,446
                )Change
      in tax rate
                
                
                (22,640
                )
                
                
                (35,500
                )SIFT
      Tax
                
                
                78,110
                
                
                
                -Other
                
                
                6,186
                
                
                
                3,659$
                22,021
                
                
                $
                (93,798
                )Future
      income tax recovery
                
                $
                (990
                )
                
                $
                (112,034
                )Current
      tax
                
                $
                23,011
                
                
                $
                18,236
 
 
 The
breakdown of our current and future income tax balances between our Canadian and
Foreign operations is as follows:
 
 For
      the year ended December 31, 2007 ($ thousands)
                
                Canadian
                
                
                Foreign
                
                
                TotalFuture
      income (recovery)/expense
                
                $
                (8,183
                )
                
                $
                7,193
                
                
                $
                (990
                )Current
      income tax
                
                
                -
                
                
                
                23,011
                
                
                
                23,011
 
 
 For
      the year ended December 31, 2006 ($ thousands)
                
                Canadian
                
                
                Foreign
                
                
                TotalFuture
      income expense
                
                $
                (113,643
                )
                
                $
                1,609
                
                
                $
                (112,034
                )Current
      income tax
                
                
                -
                
                
                
                18,236
                
                
                
                18,236
 
   Page 18 of
30
 12.
FINANCIAL INSTRUMENTS
 
 (a)
Fair Value of Financial Instruments
 
 As a
result of the adoption of the new financial instrument and hedging accounting
standards described in Note 2, certain financial instruments are now measured
and reported on the balance sheet at fair value which were previously reported
at amortized cost.
 
 The
fair value of a financial instrument is the amount of consideration that would
be agreed upon in an arm’s-length transaction between knowledgeable, willing
parties who are under no compulsion to act. Fair values are determined by
reference to quoted bid or ask prices, as appropriate, in the most advantageous
active market for that instrument to which we have immediate access. Where bid
and ask prices are unavailable, we would use the closing price of the most
recent transaction for that instrument. In the absence of an active market, we
determine fair values based on prevailing market rates for instruments with
similar characteristics. Fair values may also be determined based on internal
and external valuation models, such as option pricing models and discounted cash
flow analysis, that use observable market based inputs and
assumptions.
 
 The
Fund is exposed to the commodity price fluctuations of crude oil and natural gas
and to fluctuations in the Canada/US dollar exchange rate. The Fund manages
this risk by entering into various derivative financial
instruments.
 
 The
Fund is exposed to credit risk due to the potential non-performance of
counterparties to our financial instruments. The Fund mitigates this risk by
having an established credit policy and controls designed to mitigate the risk
of default or non-payment.
 
 The
Fund has exposure to movements in interest rates. Changing interest rates can
affect borrowing costs and the price on yield-based investments such as Enerplus
trust units. The Fund monitors the interest rate forward market and has fixed
the interest rate on a portion of our debt through our senior unsecured notes
and interest rate swaps.
 
 (b)
Carrying Value and Fair Value of Financial Instruments
 
 i.
Cash
 
 Cash is
classified as held-for-trading and is reported at fair value.
 
 ii.
Accounts Receivable
 
 Accounts
receivable are classified as loans and receivables which are reported at
amortized cost. At December 31, 2007 the carrying value of accounts receivable
approximated their fair value.
 
 iii.
Marketable Securities
 
 Marketable
securities with a quoted market price in an active market are classified as
available-for-sale and are reported at fair value, with changes in fair value
recorded in other comprehensive income. As at December 31, 2007 the Fund
reported investments in marketable securities of publicly traded marketable
securities at a fair value of $14,676,000. For the year ended December 31, 2007,
the change in fair value of these investments represented a gain of $950,000
($629,000 net of tax).
 
 Marketable
securities without a quoted market price in an active market are reported at
cost. As at December 31, 2007 the Fund reported investments in marketable
securities of private companies at cost of $45,400,000.
 
 During
the first quarter of 2007 the Fund disposed of certain marketable securities
which resulted in a gain of $14,055,000 ($11,302,000 net of tax) being
reclassified from accumulated other comprehensive income to net income. This
gain is included in the other income balance of $14,991,000 on the Consolidated
Statements of Income.
 
 As at
December 31, 2007 total marketable securities of $60,076,000 are included in
other assets or other assets on the Consolidated Balance Sheet. Realized gains
and losses on marketable securities are included in other income.
 
 Page 19 of
30
 iv.
Accounts Payable & Distributions Payable to Unitholders
 
 Accounts
payable as well as distributions payable to unitholders are classified as other
liabilities and are reported at amortized cost. At December 31, 2007 the
carrying value of these accounts approximated their fair value.
 
 v.
Long-term debt
 
 Bank
Credit Facilities
 
 The
bank credit facilities are classified as other liabilities and are reported at
cost. At December 31, 2007 the carrying value of the bank credit facilities
approximated their fair value.
 
 US$54
million senior notes
 
 The
US$54,000,000 million senior notes, which are classified as other liabilities,
are reported at their amortized cost of US$54,000,000 and are translated into
Canadian dollars at the period end exchange rate. At December 31, 2007 the
Canadian dollar amortized cost of the senior notes was approximately $53,357,000
and the fair value of these notes was $56,585,000.
 
 US$175
million senior notes
 
 The
US$175,000,000 million senior notes, which are classified as other liabilities,
are reported at amortized cost of US$178,093,000 and are translated to Canadian
dollars at the period end exchange rate. At December 31, 2007 the Canadian
dollar amortized cost of the senior notes was approximately $175,973,000 and the
fair value of these notes was $185,591,000.
 
 vi.
Derivative Financial Instruments
 
 Interest
Rate Swaps
 
 The
Fund has entered into interest rate swaps on $75,000,000 of notional debt at
rates varying from 4.10% to 4.61% before banking fees that are expected to range
between 0.55% and 1.10%. These interest rate swaps mature between June 2011 and
January 2012. The interest rate swaps are classified as held-for-trading and are
reported at fair value. At December 31, 2007 the fair value of the interest rate
swaps represented a liability of $226,000 and the change in fair value of these
contracts represented an unrealized gain of $447,000.
 
 Cross
Currency Interest Rate Swap (“CCIRS”)
 
 Concurrent
with the issuance of the notes on June 19, 2002, the Fund entered into a CCIRS
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 payments 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 bankers’ acceptances, plus
1.18%. The CCIRS is classified as held-for-trading and is reported at fair
value. At December 31, 2007 the fair value of the CCIRS represented a liability
of $89,439,000 and the change in fair value of the CCIRS represented an
unrealized loss of $24,437,000.
 
 Foreign
Exchange Swaps
 
 In
September 2007 the Fund entered into foreign exchange swaps on US$54,000,000 of
notional debt at an average CAD/US foreign exchange rate of 1.02. These foreign
exchange swaps mature between October 2011 and October 2015 in conjunction with
the principal repayments on the US$54,000,000 senior notes. The foreign exchange
swaps are classified as held-for-trading and are reported at fair value. At
December 31, 2007 the fair value of the interest rate swaps represented a
liability of $425,000 and the change in fair value of these contracts
represented an unrealized loss of $425,000.
 
 Electricity
Instruments
 
 The
Fund has entered into electricity swaps that fix the price of electricity. These
contracts are classified as held-for-trading and are reported at fair value. At
December 31, 2007 the fair value of these contracts represented an asset of
$450,000 and the change in fair value of these contracts represented an
unrealized loss of $1,044,000.
 
 Page 20 of
30
 Unrealized
gains or losses resulting from changes in fair value along with realized gains
or losses on settlement of the electricity contracts are recognized as operating
costs.
 
 The
following table summarizes the Fund’s electricity management positions at
February 20, 2008.
 
 
 Term
                
                Volumes
      MWh
                
                
                Price
                  CDN$/MWhJanuary
      1, 2008 - September 30, 2008
                
                
                4.0
                
                
                $
                63.00January
      1, 2008 - December 31, 2009
                
                
                4.0
                
                
                $
                74.50
 
 The
Fund did not enter into any new electricity contracts in the first quarter of
2008.
 
 Crude
Oil Instruments
 
 Enerplus
has entered into the following financial option contracts to reduce the impact
of a downward movement in crude oil prices. These contracts are classified as
held-for-trading and are reported at fair value. At December 31, 2007 the fair
value of these contracts represented a liability of $52,488,000 and the change
in fair value of these contracts represented an unrealized loss of
$63,410,000.
 
 The net
premium cost of the crude oil instruments entered into as of December 31, 2007
is $7,739,000.
 
 The
following table summarizes the Fund’s crude oil risk management positions at
February 20, 2008:
 
 WTI
                  US$/bblDaily
      Volumes bbls/day
                
                
                Sold
      Call
                
                
                Purchased
      Put
                
                
                Sold
                  Put
                
                
                Fixed
      Price and SwapsTermJanuary
      1, 2008 - June 30, 2008Put
                
                
                1,500
                
                
                
                -
                
                
                $
                74.00
                
                
                
                -
                
                
                
                -Swap
      (1)
                
                
                1,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                92.61Swap
      (1)
                
                
                500
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                94.30Costless
      Collar (1)(3)
                
                
                400
                
                
                $
                79.00
                
                
                $
                70.00
                
                
                
                -
                
                
                
                -January
      1, 2008 - December 31, 2008Collar
                
                
                750
                
                
                $
                77.00
                
                
                $
                67.00
                
                
                
                -
                
                
                
                -3-Way
      option
                
                
                1,000
                
                
                $
                84.00
                
                
                $
                66.00
                
                
                $
                50.00
                
                
                
                -3-Way
      option
                
                
                1,000
                
                
                $
                84.00
                
                
                $
                66.00
                
                
                $
                52.00
                
                
                
                -3-Way
      option
                
                
                1,000
                
                
                $
                86.00
                
                
                $
                68.00
                
                
                $
                52.00
                
                
                
                -3-Way
      option
                
                
                1,000
                
                
                $
                87.50
                
                
                $
                70.00
                
                
                $
                52.00
                
                
                
                -3-Way
      option
                
                
                1,500
                
                
                $
                90.00
                
                
                $
                70.00
                
                
                $
                60.00
                
                
                
                -Put
      Spread (1)
                
                
                1,500
                
                
                
                -
                
                
                $
                76.50
                
                
                $
                58.00
                
                
                
                -Swap
                
                
                750
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                72.94Swap
                
                
                750
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                74.00Swap
                
                
                750
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                73.80Swap
                
                
                750
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                73.35Swap
      (1)((3)
                
                
                400
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                78.53April
      1, 2008 - December 31, 2008Put
      (2)
                
                
                700
                
                
                
                -
                
                
                $
                86.10
                
                
                
                -
                
                
                
                -July
      1, 2008 - December 31, 2008Put
      Spread (1)
                
                
                1,500
                
                
                
                -
                
                
                $
                78.00
                
                
                $
                58.00
                
                
                
                -Swap
      (1)
                
                
                1,500
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                92.00Swap
      (1)(3)
                
                
                400
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                84.60January
      1, 2009 - December 31, 2009Collar(2)
                
                
                850
                
                
                $
                100.00
                
                
                $
                85.00
                
                
                
                -
                
                
                
                -3-Way
      option (1)
                
                
                1,000
                
                
                $
                85.00
                
                
                $
                70.00
                
                
                $
                57.50
                
                
                
                -3-Way
      option (1)
                
                
                1,000
                
                
                $
                95.00
                
                
                $
                79.00
                
                
                $
                62.00
                
                
                
                -
 (1)
Financial contracts entered into during the fourth quarter of 2007.
 (2)
Financial contracts entered into subsequent to December 31, 2007.
 (3)
Acquired through the acquisition of Focus.
 
 Page 21 of
30
 
 Natural
Gas Instruments
 
 Enerplus
has certain financial contracts outstanding as at February 20, 2008 on its
natural gas production that are detailed below.
 
 These
contracts are classified as held-for-trading and are reported at fair value. At
December 31, 2007 the fair value of these contracts represented an asset of
$9,707,000 and the change in fair value of these contracts represented an
unrealized loss of $2,983,000.
 
 The net
premium cost of the financial natural gas instruments entered into as of
December 31, 2007 is $921,000.
 
 The
following table summarizes the Fund’s natural gas risk management positions at
February 20, 2008:
 
 
 AECO
      CDN$/McfDaily
      Volumes MMcf/day
                
                
                Sold
      Call
                
                
                Purchased
                  Put
                
                
                Sold
                  Put
                
                
                Fixed
      Price and SwapsTerm
                  January
      1, 2008 - January 31, 2008Call(1)
                
                
                4.7
                
                
                $
                9.13
                
                
                
                -
                
                
                
                -
                
                
                
                -February
      1, 2008 - February 29, 2008Call(1)
                
                
                4.7
                
                
                $
                9.58
                
                
                
                -
                
                
                
                -
                
                
                
                -January
      1, 2008 - March 31, 2008Collar
                
                
                2.4
                
                
                $
                9.95
                
                
                $
                8.00
                
                
                
                -
                
                
                
                -Collar
                
                
                2.4
                
                
                $
                10.15
                
                
                $
                8.00
                
                
                
                -
                
                
                
                -Collar
      (1)(3)
                
                
                14.2
                
                
                $
                9.50
                
                
                $
                8.70
                
                
                
                -
                
                
                
                -3-Way
      option
                
                
                4.7
                
                
                $
                10.50
                
                
                $
                8.20
                
                
                $
                5.70
                
                
                
                -3-Way
      option
                
                
                9.5
                
                
                $
                11.61
                
                
                $
                8.97
                
                
                $
                6.33
                
                
                
                -3-Way
      option
                
                
                4.7
                
                
                $
                11.08
                
                
                $
                8.55
                
                
                $
                6.01
                
                
                
                -3-Way
      option
                
                
                4.7
                
                
                $
                9.50
                
                
                $
                7.49
                
                
                $
                5.70
                
                
                
                -3-Way
      option
                
                
                9.5
                
                
                $
                9.50
                
                
                $
                7.39
                
                
                $
                5.70
                
                
                
                -Swap
                
                
                4.7
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                8.70Swap
                
                
                2.4
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                9.01Swap
      (3)
                
                
                14.2
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                8.46Swap
      (3)
                
                
                9.5
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                9.07April
      1, 2008 - October 31, 2008Collar
                
                
                6.6
                
                
                $
                8.44
                
                
                $
                7.17
                
                
                
                -
                
                
                
                -Collar
      (1)
                
                
                6.6
                
                
                $
                7.49
                
                
                $
                6.44
                
                
                
                -
                
                
                
                -Collar
      (1)
                
                
                5.7
                
                
                $
                7.39
                
                
                $
                6.65
                
                
                
                -
                
                
                
                -Collar
      (2)
                
                
                11.4
                
                
                $
                8.65
                
                
                $
                7.60
                
                
                
                -
                
                
                
                -Collar
      (2)
                
                
                2.8
                
                
                $
                8.65
                
                
                $
                7.49
                
                
                
                -
                
                
                
                -Collar
      (2)
                
                
                2.8
                
                
                $
                8.86
                
                
                $
                7.91
                
                
                
                -
                
                
                
                -3-Way
      option
                
                
                5.7
                
                
                $
                9.50
                
                
                $
                7.54
                
                
                $
                5.28
                
                
                
                -3-Way
      option (1)
                
                
                11.8
                
                
                $
                7.91
                
                
                $
                6.75
                
                
                $
                5.49
                
                
                
                -3-Way
      option (1)
                
                
                11.8
                
                
                $
                7.91
                
                
                $
                6.75
                
                
                $
                5.38
                
                
                
                -3-Way
      option (2)
                
                
                4.7
                
                
                $
                8.23
                
                
                $
                7.18
                
                
                $
                5.28
                
                
                
                -Swap
                
                
                4.7
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                8.18Swap
      (1)
                
                
                7.6
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                6.79Swap
      (1)(3)
                
                
                14.2
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                6.70Swap
      (2)(3)
                
                
                14.2
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                7.17Swap(2)
                
                
                2.8
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                7.91Swap(2)
                
                
                2.8
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                7.87November
      1, 2008 - March 31, 2009Collar
      (2)
                
                
                5.7
                
                
                $
                9.50
                
                
                $
                8.44
                
                
                
                -
                
                
                
                -3-Way
      option
                
                
                5.7
                
                
                $
                10.71
                
                
                $
                7.91
                
                
                $
                5.80
                
                
                
                -2007
      - 2010Physical
      (escalated pricing)
                
                
                2.0
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                $
                2.59
 (1)
                Financial
      contracts entered into during the fourth quarter of
  2007.
 (2)
                Financial
      contracts entered into subsequent to December 31,
  2007.
 (3)
                Acquired
      through the acquisition of Focus.
 
 Page 22 of
30
 13.
COMMITMENTS AND CONTINGENCIES
 
 (a)
Pipeline Transportation
 
 Enerplus
has contracted to transport 104 MMcf/day of natural gas on the Nova system in
the province of Alberta as well as 20 MMcf/day of natural gas on various
pipelines to the US midwest. 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
within western Canada.
 
 (b)
Oil Sands Lease #24
 
 The
Fund's acquisition of a working interest in the Joslyn project included the
assumption of a proportionate share of certain contingent project debt.
Effectively, this debt is comprised of principal of $3,150,000 plus accrued
interest to December 31, 2007 of $1,571,000. Interest is accrued at the Bank of
Canada prime business rate and is not compounded. The debt is contingent on
attaining certain production hurdles with respect to development of the project.
As it is still too early to determine if these hurdles will be
satisfied, no portion of the contingent debt has been accrued for in the
consolidated financial statements.
 
 (c)
Office Lease
 
 Enerplus
has office lease commitments for both its Canadian and U.S. operations that
expire between 2011 and 2014. Annual costs of these lease commitments include
rent and operating fees.
 
 (d)
Guarantees
 
 (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 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:
  TotalCommittedMinimum
      Annual Commitment Each Year
                          
                          
                          after
      2012($
      thousands)
                          
                          Total
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2011
                          
                          
                          2012Bank
      credit facility
                          
                          $
                          497,347
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          497,347
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Senior
      unsecured notes
                          
                          
                          323,408
                          (1)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          53,666
                          
                          
                          
                          64,682
                          
                          
                          
                          64,682
                          
                          
                          
                          140,378Pipeline
      commitments
                          
                          
                          31,063
                          
                          
                          
                          9,972
                          
                          
                          
                          5,879
                          
                          
                          
                          3,960
                          
                          
                          
                          2,797
                          
                          
                          
                          2,405
                          
                          
                          
                          6,050Office
      lease
                          
                          
                          67,875
                          
                          
                          
                          6,907
                          
                          
                          
                          7,559
                          
                          
                          
                          10,304
                          
                          
                          
                          10,782
                          
                          
                          
                          11,082
                          
                          
                          
                          21,241Total
      commitments
                          
                          $
                          919,693
                          
                          
                          $
                          16,879
                          
                          
                          $
                          13,438
                          
                          
                          $
                          565,277
                          
                          
                          $
                          78,261
                          
                          
                          $
                          78,169
                          
                          
                          $
                          167,669
 (1)
Includes the economic impact of derivative instruments directly related to the
senior unsecured notes (CCIRS and foreign exchange swap - see Note
12).
 
 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.
 
 Page 23 of
30
 Not
reflected in the above schedule are those term contracts for transportation and
the office lease that Enerplus assumed upon the completion of the Focus
acquisition. The Focus term transportation contracts consist of 45 MMcf/day of
natural gas in British Columbia, and 60 MMcf/day of natural gas in
Saskatchewan.
 
 
 14.
GEOGRAPHICAL INFORMATION
 
 As
      at December 31, 2007 ($ thousands)
                
                Canada
                
                
                U.S.
                
                
                TotalOil
      and gas revenue
                
                $
                1,252,413
                
                
                $
                286,740
                
                
                $
                1,539,153Capital
      assets
                
                
                3,293,413
                
                
                
                579,405
                
                
                
                3,872,818Goodwill
                
                
                47,532
                
                
                
                147,580
                
                
                
                195,112
 
 
 As
      at December 31, 2006 ($ thousands)
                
                Canada
                
                
                U.S.
                
                
                TotalOil
      and gas revenue
                
                $
                1,323,631
                
                
                $
                271,693
                
                
                $
                1,595,324Capital
      assets
                
                
                3,101,277
                
                
                
                624,820
                
                
                
                3,726,097Goodwill
                
                
                47,532
                
                
                
                174,046
                
                
                
                221,578
 
 
 15.
EVENTS SUBSEQUENT TO DECEMBER 31, 2007
 
 On
February 13, 2008, Enerplus closed the acquisition of Focus. Under the plan of
arrangement, Focus unitholders received 0.425 of an Enerplus trust unit for each
Focus trust unit. This transaction is being accounted for as a business
combination and the purchase price equation has not yet been determined. Total
estimated consideration, including deal costs and assumed debt, is $1.7 billion,
consisting of trust units issued and trust units issuable in respect of
convertible limited partnership units.
 
 Enerplus
issued a total of 30,150,000 trust units and assumed 9,087,000 Class B units of
Focus Limited Partnership, each exchangeable, at the option of the holder for no
additional consideration, into 0.425 of an Enerplus trust unit.
 
 
 16.
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:
 
 The
application of U.S. GAAP would have the following effects on net income as
reported:
 
 ($
      thousands)
                
                2007
                
                
                2006Net
      income as reported in the ConsolidatedStatement
      of Income - Canadian GAAP
                
                $
                339,691
                
                
                $
                544,782Adjustments:Depletion,
      depreciation, amortization and accretion (Note (a))
                
                
                60,749
                
                
                
                74,391Unrealized
      gain on cross-currency and interest rate swap (Note (b))
                
                
                -
                
                
                
                1,245Capitalized
      interest (Note (c))
                
                
                5,039
                
                
                
                3,436Compensation
      expense (Note (d))
                
                
                14,944
                
                
                
                (2,237
                )Income
      tax expense of DDA&A and capitalized interest
    adjustments
                
                
                (12,249
                )
                
                
                (23,218
                )Income
      tax expense due to changes in tax rates
                
                
                (66,761
                )
                
                
                (35,016
                )Net
      income - U.S. GAAP
                
                $
                341,413
                
                
                $
                563,383Other
      comprehensive (loss)/income as reported in the
ConsolidatedStatement
      of Comprehensive Income - Canadian GAAP
                
                $
                (114,660
                )
                
                $
                6,589Adjustments:Change
      in fair value of cash flow hedges (2006 - $49,882 net of tax of $14,595)
      (Note (b))
                
                
                -
                
                
                
                35,287Change
      in fair value of available for sale securities (2006 - $6,827 net of tax
      of $1,998) (Note (e))
                
                
                -
                
                
                
                4,829Other
      comprehensive (loss)/income - U.S. GAAP
                
                $
                (114,660
                )
                
                $
                46,705Comprehensive
      income - U.S. GAAP
                
                $
                226,753
                
                
                $
                610,088
  Page 24 of
30
  Net
      income per trust unitBasic
                
                $
                2.67
                
                
                $
                4.63Diluted
                
                $
                2.67
                
                
                $
                4.62Weighted
      average number of trust units outstandingBasic
                
                
                127,691
                
                
                
                121,588Diluted
                
                
                127,846
                
                
                
                121,860Deficit:Balance,
      beginning of year - U.S. GAAP
                
                $
                (3,015,590
                )
                
                $
                (3,551,509
                )Net
      income - U.S. GAAP
                
                
                341,413
                
                
                
                563,383Change
      in redemption value (Note (f))
                
                
                1,218,915
                
                
                
                586,876Cash
      distributions
                
                
                (646,835
                )
                
                
                (614,340
                )Balance,
      end of year - U.S. GAAP
                
                $
                (2,102,097
                )
                
                $
                (3,015,590
                )Accumulated
      other comprehensive income/(loss):Balance,
      beginning of year - U.S. GAAP
                
                $
                5,933
                
                
                $
                (40,772
                )Other
      comprehensive (loss)/income
                
                
                (114,660
                )
                
                
                46,705Balance,
      end of year - U.S. GAAP
                
                $
                (108,727
                )
                
                $
                5,933
  Reconciliation
of Accumulated Other Comprehensive (loss)/income:
 
 As
      at December 31 ($ thousands)
                
                2007
                
                
                2006Unamortized
      portion of former cash flow hedges, loss of $92, net of tax of $19 (2006 -
      gain of $821, net of tax of $161)
                
                $
                (73
                )
                
                $
                660Unrealized
      gain on available for sale securities, $4,618 net of tax of $1,039 (2006 -
      $17,724 net of tax of $3,472)
                
                
                3,579
                
                
                
                14,252Cumulative
      translation adjustment
                
                
                (112,233
                )
                
                
                (8,979
                )Accumulated
      other comprehensive (loss)/income
                
                $
                (108,727
                )
                
                $
                5,933
 
 
 The
      application of U.S. GAAP would have the following effects on the balance
      sheet as reported:
 
 ($
      thousands)
                
                Canadian
                  GAAP
                
                
                Increase
      / (Decrease)
                
                
                U.S.
                  GAAPDecember
      31, 2007Assets:Property,
      plant and equipment, net (Notes (a)(c))
                
                $
                3,872,818
                
                
                $
                (568,765
                )
                
                $
                3,304,053Liabilities:Trust
      unit rights liability (Note (d))
                
                $
                -
                
                
                $
                4,764
                
                
                $
                4,764Future
      income taxes/Deferred income taxes
                
                
                304,259
                
                
                
                (122,002
                )
                
                
                182,257Unitholders’
      mezzanine equity (Note (f))
                
                
                -
                
                
                
                4,399,297
                
                
                
                4,399,297Unitholder’s
      Equity:Unitholders’
      capital (Note (f))
                
                $
                4,020,228
                
                
                $
                (4,020,228
                )
                
                $
                -Contributed
      surplus (Note (d))
                
                
                12,452
                
                
                
                (12,452
                )
                
                
                -Deficit
      (Note (f))
                
                
                (1,283,953
                )
                
                
                (818,144
                )
                
                
                (2,102,097
                )December
      31, 2006Assets:Other
      current assets (Note (e))
                
                $
                6,715
                
                
                $
                14,493
                
                
                $
                21,208Property,
      plant and equipment, net (Notes (a)(c))
                
                
                3,726,097
                
                
                
                (634,553
                )
                
                
                3,091,544Other
      assets (Note (e))
                
                
                50,224
                
                
                
                3,231
                
                
                
                53,455Liabilities:Deferred
      credits/Financial derivative liabilities (Note (b))
                
                $
                -
                
                
                $
                64,181
                
                
                $
                64,181Trust
      unit rights liability (Note (d))
                
                
                -
                
                
                
                14,298
                
                
                
                14,298Long-term
      debt (Note (b))
                
                
                679,774
                
                
                
                (60,111
                )
                
                
                619,663Future
      income taxes/Deferred income taxes
                
                
                331,340
                
                
                
                (197,576
                )
                
                
                133,764Unitholders’
      mezzanine equity (Note (f))
                
                
                -
                
                
                
                5,305,098
                
                
                
                5,305,098Unitholder’s
      Equity:Unitholders’
      capital (Note (f))
                
                $
                3,706,821
                
                
                $
                (3,706,821
                )
                
                $
                -Contributed
      surplus (Note (d))
                
                
                6,305
                
                
                
                (6,305
                )
                
                
                -Deficit
      (Note (f))
                
                
                (971,085
                )
                
                
                (2,044,505
                )
                
                
                (3,015,590
                )Accumulated
      other comprehensive income/(loss) (Notes (b)(e)(g))
                
                
                (8,979
                )
                
                
                14,912
                
                
                
                5,933
   Page 25 of
30
 (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 tests under Canadian and U.S. GAAP did not
result in a write-down of capitalized costs in either 2007 or 2006.
 
 Where
the amount of a ceiling test write-down under Canadian GAAP differs from the
amount of the write-down under U.S. GAAP, the charge for DDA&A will differ
in subsequent years. Historically the Fund’s U.S. GAAP ceiling test write-downs
have exceeded the Canadian GAAP write-downs. As a result, U.S. GAAP DDA&A
charges are lower than Canadian GAAP DDA&A charges.
 
 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, 2007 DDA&A calculated under U.S. GAAP was
$60,749,000 ($49,438,000 net of tax) lower than DDA&A calculated under
Canadian GAAP. For the year ended December 31, 2006 DDA&A calculated under
U.S. GAAP was $74,391,000 ($52,542,000 net of tax) lower than DDA&A
calculated under Canadian GAAP.
 
 
 (b)
Derivative Instruments and Hedging
 
 Effective
January 1, 2007, the Fund adopted three new Canadian accounting standards issued
by the CICA: Handbook Section 1530, Comprehensive Income, Handbook Section 3855,
Financial Instruments - Recognition and Measurement, and Handbook Section 3865,
Hedges. With the adoption of these standards these U.S. GAAP differences no
longer exist.
 
 Under
Canadian GAAP prior to January 1, 2007, disclosure of the fair value of
derivative financial instruments that qualified for hedge accounting was
required with no effect on assets, liabilities or net income. Under U.S. GAAP,
all derivative instruments are recognized on the balance sheet as either an
asset or liability measured at fair value. Changes in the fair value are
recognized in earnings unless specific hedge criteria are met.
 
 
 Fair
Value Hedges
 Prior
to January 1, 2007 a U.S. GAAP difference existed as the Fund’s cross-currency
interest rate swap (“CCIRS”) was designated as a fair value hedge. For
derivative instruments designated as fair value hedges, both the derivative
instrument and the underlying commitment are recognized on the balance sheet at
their fair value under U.S. GAAP. The change in fair value of both items is
reflected in earnings.
 
 
 Cash
Flow Hedges
 Prior
to January 1, 2007 a U.S. GAAP difference existed as the Fund’s interest rate
and electricity swaps were designated as cash flow hedges. Under U.S. GAAP
changes in the fair value of derivatives that are designated as cash flow hedges
are recognized in earnings in the same period as the hedged item. The effective
portion of the change in fair value is recognized in other comprehensive income
with any ineffectiveness recognized in net income.
 
 Page 26 of
30
 Effective
December 31, 2005 the Fund stopped designating commodity financial contracts as
cash flow 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 asset was amortized to income during 2006 over the
remaining term of the contracts. Under U.S. GAAP, the fair value these contracts
was recorded on the balance sheet at fair value with the offset recorded in
accumulated other comprehensive income as at December 31, 2005. The amount
recognized in accumulated other comprehensive income will be reclassified to
earnings in the same period as the corresponding gains or losses associated with
the hedged item. In 2006, $49,874,000 was reclassified from accumulated other
comprehensive income to earnings.
 
 
 
 (c)
Interest Capitalization
 U.S.
GAAP requires interest expense to be capitalized for development projects that
have not reached commercial production. A U.S. GAAP difference exists as there
is not a similar requirement under Canadian GAAP. For the year ended December
31, 2007 the Fund capitalized interest of $5,039,000 ($4,101,000 net of tax)
(2006 - $3,436,000, $2,431,000 net of tax) related to projects under
development.
 
 
 (d)
Unit-based Compensation
 
 A U.S.
GAAP difference exists as rights granted under our rights plan are considered
liability awards for U.S. GAAP and equity awards under Canadian GAAP. The
distinction between a liability award and an equity award has an impact on the
related accounting treatment.
 
 Under
Canadian GAAP rights are accounted for using the fair value method for an equity
award. Under this method, the fair value of the right is determined using a
binomial lattice option-pricing model on the grant date and is not subsequently
remeasured. 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.
 
 Under
U.S. GAAP rights are accounted for using the fair value method for a liability
award. Under this method, the trust unit rights liability is calculated based on
the rights fair value determined using a binomial lattice option-pricing model
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.
 
 The
following assumptions were used to arrive at the estimate of fair value as at
December 31 for each the respective years:
 
 2007
                
                
                2006Dividend
      yield
                
                
                13.02
                %
                
                
                9.53
                %Volatility
                
                
                26.47
                %
                
                
                27.88
                %Risk-free
      interest rate
                
                
                3.96
                %
                
                
                3.94
                %Forfeiture
      rate
                
                
                6.20
                %
                
                
                2.80
                %Right’s
      exercise price reduction
                
                $
                1.84
                
                
                $
                1.67
 
 
 The
weighted average grant date fair value of trust unit rights granted in 2007 was
$5.54 per trust unit right (2006 - $6.83). The total intrinsic value of trust
unit rights exercised during 2007 was $3,025,000 (2006 -
$14,900,000).
 
 As at
December 31, 2007 1,635,000 trust unit rights were exercisable at a weighted
average reduced exercise price of $44.84 with a weighted average remaining
contractual term of 3.8 years, giving an aggregate intrinsic value of
$3,670,000. As at December 31, 2006, 809,000 trust unit rights were exercisable
at a weighted average reduced exercise price of $39.81 with a weighted average
remaining contractual term of 3.9 years, giving an aggregate intrinsic value of
$9,700,000.
 
 Page 27 of
30
 The
following chart details the U.S. GAAP differences related to our trust unit
rights plan for the years ended December 31, 2007 and 2006.
 
 
 2007
                
                
                2006CDN
      GAAP
                
                
                U.S.
      GAAP
                
                
                Difference
                
                
                CDN
      GAAP
                
                
                U.S.
      GAAP
                
                
                DifferenceCompensation
      expense
                
                $
                8,435,000
                
                
                $
                (6,509,000
                )
                
                $
                (14,944,000
                )
                
                $
                6,323,000
                
                
                $
                8,560,000
                
                
                $
                2,237,000Contributed
                  Surplus
                
                $
                12,452,000
                
                
                $
                -
                
                
                $
                (12,452,000
                )
                
                $
                6,305,000
                
                
                $
                -
                
                
                $
                (6,305,000
                )Trust
      unit rights liability
                
                $
                -
                
                
                $
                4,764,000
                
                
                $
                4,764,000
                
                
                $
                -
                
                
                $
                14,298,000
                
                
                $
                14,298,000
 
 
 (e)
Marketable Securities
 
 Prior
to January 1, 2007, under Canadian GAAP, the Fund accounted for its marketable
securities using the cost method and only disclosed the fair value. Under U.S.
GAAP marketable securities that have a readily determinable fair value are
considered available for sale and are recorded on the balance sheet at fair
value with changes in fair value recognized in comprehensive
income.
 
 With
the adoption of the new Canadian accounting standards on January 1, 2007 this
U.S. GAAP difference no longer exists.
 
 As at
December 31, 2006 available for sale marketable securities included in other
current assets had a fair value of $16,758,000 and an amortized cost of
$2,265,000, resulting in a gross unrealized holding gain of $14,493,000.
Available for sale marketable securities included in other assets had a fair
value of $13,231,000 and an amortized cost of $10,000,000, resulting in a gross
unrealized holding gain of $3,231,000.
 
 For the
year ended December 31, 2006, the unrealized holding gain on available for sale
securities included in accumulated other comprehensive income increased by
$6,827,000.
 
 For the
year ended December 31, 2006, the Fund disposed of available for sale marketable
securities for proceeds of $5,154,000 resulting in a gain of $1,425,000 being
included in net income. The Fund uses the average cost method in computing
realized gains or losses on sales of marketable securities.
 
 For the
year ended December 31, 2006, the Fund had marketable securities totaling
$38,700,000 that were carried at cost.
 
 
 (f) Unitholders’ Mezzanine
Equity
 
 A 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.
 
 For
U.S. GAAP the Fund has recorded unitholders’ mezzanine equity in the amount of
$4,399,297,000 for 2007 (2006 - $5,305,098,000), which represents the estimated
redemption value of the trust units at 85% of the year-end market price. In
addition, the Fund has recognized a deficit of $2,102,097,000 for 2007 (2006 -
$3,015,590,000) resulting from eliminating unitholders’ capital and replacing it
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.
 
 
 Page 28 of
30
 (g)
Cumulative Translation Adjustment
 
 Prior
to January 1, 2007 a U.S. GAAP difference existed relating to the cumulative
translation adjustment that is generated upon translating the financial
statements of the Fund’s U.S. subsidiaries. Previously under Canadian GAAP the
cumulative translation adjustment was deferred and included as a separate
component of equity. For U.S. GAAP this amount is recognized in comprehensive
income. With the adoption of the new Canadian standards on January 1, 2007
Canadian GAAP is substantially harmonized with U.S. GAAP and this U.S. GAAP
difference no longer exists. Prior period amounts have been
restated.
 
 
 (h)
FASB Interpretation No. 48 - Accounting for Uncertainty in Income Taxes
Disclosures
 
 In June
2006 the FASB issued FASB Interpretation No. 48 - Accounting for Uncertainty in
Income Taxes - an interpretation of FASB Statement No. 109. This guidance seeks
to reduce the diversity in practice associated with certain aspects of the
recognition and measurement related to accounting for income taxes. This
interpretation is effective for fiscal years beginning after December 15, 2006.
The Fund adopted this standard on January 1, 2007.
  As a
multinational entity, we are subject to taxation in many jurisdictions, and the
calculation of our tax liabilities involves dealing with uncertainties in the
application of complex tax laws and regulations.
  An
unrecognized tax benefit is defined as the difference between tax positions
taken in a tax return and amounts recognized in the financial statements. Prior
to 2007, the tax benefits associated with tax uncertainties, if any, were
recognized to the extent it was more likely than not that they would be
realized. The implementation of FIN 48 did not impact these
amounts.
   Pursuant
to FIN 48, each year we review the balance of estimated tax liabilities and we
determine whether the recognition and measurement criteria of FIN 48 have
changed. Where the criteria are no longer met, we reverse the liability and
recognize a tax recovery during that period. In addition, where the filing
positions taken in the current year do not meet the measurement criteria, we
will record a liability and recognize a tax expense.
   In
accordance with our accounting policy, we recognize potential accrued interest
and penalties related to unrecognized tax benefits as a component of Interest
expense on the Consolidated Statements of Income.
  The
following table summarizes the activity related to our unrecognized tax benefits
for 2007:
 
 ($
      thousands)
                
                2007Balance,
      beginning of year
                
                $
                1,500Accrued
      interest
                
                
                100Balance,
      end of year
                
                $
                1,600
 
  Of the
balance of unrecognized tax benefits as at December 31, 2007 $950,000, if
recognized, would affect the effective tax rate. We expect that the unrecognized
tax benefits will decrease by $800,000 in the next twelve months due to lapse of
applicable statute of limitations.
  In most
cases any uncertain tax positions are related to taxation years that remain
subject to examination by the relevant taxable authorities. The open taxation
years for which no examination has been initiated or the examination is in
progress is 2001 onward for Canada and 2004 onward for the United
States.
  
 
 (i)
Additional Disclosures Required under U.S. GAAP
 
 i.
The components of accounts receivable are as follows:
 
 As
      at December 31 ($ thousands)
                
                2007
                
                
                2006Oil
      & Gas Sales and Accruals
                
                $
                96,150
                
                
                $
                111,049Joint
      Venture
                
                
                49,879
                
                
                
                62,311Other
                
                
                1,562
                
                
                
                3,552Less:
      Allowance for Doubtful Accounts
                
                
                (1,989
                )
                
                
                (1,458
                )$
                145,602
                
                
                $
                175,454
 
   Page 29 of
30
 
 ii.
The components of accounts payable are as follows:
 
 As
      at December 31 ($ thousands)
                
                2007
                
                
                2006Contractors
      and Vendors
                
                $
                118,203
                
                
                $
                137,539Accrued
      Liabilities
                
                
                151,172
                
                
                
                146,747$
                269,375
                
                
                $
                284,286
 
 
 iii.
Net Oil and Gas Sales
 
 Under
U.S. GAAP oil and gas sales are presented net of royalties.
 
 For
      the year ended  December 31 ($ thousands)
                
                2007
                
                
                2006Oil
      and Gas Sales
                
                $
                1,539,153
                
                
                $
                1,595,324Royalties
                
                
                (285,148
                )
                
                
                (296,554
                )Net
      Oil and Gas Sales
                
                $
                1,254,005
                
                
                $
                1,298,770
 
 
 iv.
Consolidated Cash Flows:
 
 The
consolidated statements of cash flows prepared in accordance with Canadian GAAP
present operating cash flow before changes in non-cash working capital items.
This sub-total cannot be presented under U.S. GAAP.
 
 The
following chart details the changes in non-cash working capital:
 
 ($
      thousands)
                
                2007
                
                
                2006Accounts
      Receivable
                
                $
                29,852
                
                
                $
                (4,831
                )Other
      current
                
                
                342
                
                
                
                20,036Accounts
      Payable
                
                
                (14,911
                )
                
                
                (32,589
                )Distributions
      Payable to Unitholders
                
                
                2,799
                
                
                
                2,356Other
                
                
                2,526
                
                
                
                (472
                )Total
      Change in non-cash working capital
                
                $
                20,608
                
                
                $
                (15,500
                )Relating
      to:Operating
      Activities
                
                $
                38,855
                
                
                $
                (14,321
                )Financing
      Activities
                
                
                2,799
                
                
                
                2,356Investing
      Activities
                
                
                (21,046
                )
                
                
                (3,535
                )$
                20,608
                
                
                $
                (15,500
                )
 
 
 
 U.S.
Pronouncements
 
 The
following new accounting pronouncements have been issued, but have not yet been
adopted as of December 31, 2007:
 
 In
September 2006 the Financial Accounting Standards Board (“FASB”) issued SFAS 157
- Fair Value Measurements. This statement defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. SFAS No. 157 does not require any new fair value measurements.
However, in some cases, the application of SFAS No. 157 may change current
practice for measuring and disclosing fair values under other accounting
pronouncements that require or permit fair value measurements. For the Fund,
SFAS No. 157 is effective as of January 1, 2008 and must be applied
prospectively except in certain cases. The adoption of SFAS No. 157 is not
expected to materially affect the Funds consolidated results of operations or
financial position.
 
 In
February 2007 the FASB issued SFAS 159 - The Fair Value Option for Financial
Assets and Financial Liabilities. This Statement permits entities to choose to
measure certain financial instruments at fair value. For the Fund, SFAS No. 159
is effective as of January 1, 2008 and will have no impact on amounts presented
for periods prior to the effective date. The Fund has determined it will not
elect fair value measurements for financial assets and financial liabilities
included in the scope of SFAS No. 159.
 
 In
November 2007 the FASB issued Statement 141(R) - Business Combinations. SFAS No.
141(R) requires the acquiring entity in a business combination to recognize all
(and only) the assets acquired and liabilities assumed in the transaction,
establishes the acquisition-date fair value as the measurement objective for all
assets acquired and liabilities assumed, and requires the acquirer to disclose
to investors and other users all of the information they need to evaluate and
understand the nature and financial effect of the business combination. SFAS
141(R) applies prospectively to business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008 and cannot be early adopted.
 
 
 Page 30 of
30