##### 



EXHIBIT 12.4

Consolidated Balance Sheet of Paramount Energy Trust as at December 31, 2002
and Consolidated Statement of Earnings and Retained Earnings (Deficit) and Cash
Flows for the Period from formation on June 28, 2002 to December 31, 2002,
together with Auditors report thereon.

AUDITORS REPORT

To the Unitholders of Paramount Energy Trust

We have audited the consolidated balance sheet of Paramount Energy Trustas at
December 31, 2002 and the consolidated statements of earnings and retained
earnings (deficit) and cash flows for the period from formation on June 28,
2002 to December 31, 2002. These consolidated financial statements are the
responsibility of the Trusts management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with Canadian generally accepted auditing
standards and auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Trust as at December 31, 2002
and the results of its operations and its cash flows for the period from
formation on June 28, 2002 to December 31, 2002 in accordance with Canadian
generally accepted accounting principles.

KPMG LLP

Chartered Accountants

Calgary, Canada
May 5, 2003 except as to Note 8(b) and 8(c)
which is at June 27, 2003





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##### 



Paramount Energy Trust
Consolidated Balance Sheet

|                                                 |                                          |   |             |       | 
|------------------------------------------------ | ---------------------------------------- | - | ----------- | ----- | 
|                                                 |                                          |   | December 31
|                                                 |                                          |   | 2002       
|                                                 |                                          |   |            
|($ thousands)                                    |                                          |   |             |      
|Assets                                           |                                          |   |             |      
|Current Assets                                  
|                                                 | Accounts Receivable                      | $ |            |      
|Capital Assets (Note 3)                          |                                          |   | 3,355       |      
|                                                 |                                          |   |             |      
|                                                 |                                          | $ | 3,355       |      
|                                                 |                                          |   |             |      
|Liabilities                                      |                                          |   |             |      
|Current
Liabilities                             
|                                                 | Accounts Payable and Accrued Liabilities | $ | 226         |      
|                                                 | Due to Paramount Resources Ltd.          |   |             | 2,123 | 
|                                                 |                                          |   |             |      
|                                                 |                                          |   | 2,349       |      
|                                                 |                                          |   |             |      
|Unitholders Equity                              |                                          |   |             |      
|Capital (Note 6)                                 |                                          |   |            |      
|Net book value adjustment for purchase of assets |                                          |   | 1,317       |      
|Retained Earnings (Deficit)                      |                                          |   | (311        | )    
|                                                 |                                          |   |             |      
|                                                 |                                          |   | 1,006       |      
|                                                 |                                          |   |             |      
|                                                 |                                          | $ | 3,355       |      
|                                                 |                                          |   |             |      

Subsequent Events: Note 8
See accompanying notes

Approved by the Board of Directors of Paramount Energy
Operating Corp., as agent for the Trustee, Computershare Trust
Company of Canada.

|                  |  |                        
|----------------- |  | -----------------------
|John W. Peltier |  | Susan L. Riddell Rose
|Director          |  | Director               





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##### 



Paramount Energy Trust
Consolidated Statements of Earnings and Retained Earnings (Deficit)

Period from formation on June 28, 2002
to December 31, 2002
($ thousands except per unit amounts)

|                                             |                            |   |      |     | 
|-------------------------------------------- | -------------------------- | - | ---- | --- | 
|Revenue                                      |                            |   |      |    
|                                             | Revenue                    |   | $    |    | 
|                                             |                            |   |      |     | 
|                                             |                            |   |     |    
|                                             |                            |   |      |     | 
|Expenses                                     |                            |   |      |    
|                                             | General and Administrative |   |      |    | 
|                                             | Interest on Debt           |   |      | 50  | 
|                                             | Depletion and Depreciation |   |      | 261 | 
|                                             |                            |   |      |     | 
|                                             |                            |   | 311  |    
|                                             |                            |   |      |     | 
|Net Earnings                                 |                            |   | (311 | )  
|- Deficit at Beginning of Period             |                            |   |     |    
|Retained Earnings (Deficit) at End of Period |                            | $ | (311 | )  
|                                             |                            |   |      |     | 

See accompanying notes





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##### 



Paramount Energy Trust
Consolidated Statement of Cash Flows

Period from formation on June 28, 2002
to December 31, 2002
($ thousands except per unit amounts)

|                               |                                    |                                    |       |       |   | 
|------------------------------ | ---------------------------------- | ---------------------------------- | ----- | ----- | - | 
|Cash Provided By (Used For)    |                                    |                                    |       |      
|Operating Activities           |                                    |                                    |       |      
|                               | Net Loss                           |                                    | $     | (311  | )
|                               | Items not Involving Cash          
|                               |                                    | Depletion and Depreciation         |       | 261   |  
|                               |                                    |                                    |       |       |  
|                               | Funds Flow from Operations         |                                    |       | (50   | )
|                               |                                    | Change in Non-Cash Working Capital |       |       |  | 
|                               |                                    |                                    |       |       |  
|                               |                                    |                                    | (50   | )    
|                               |                                    |                                    |       |       |  
|Financing Activities           |                                    |                                    |       |      
|                               | Issue of Unit Capital              |                                    |       |      |  
|                               | Issue of Promissory Notes          |                                    |       | 2,123 |  
|                               |                                    |                                    |       |       |  
|                               |                                    |                                    | 2,123 |      
|                               |                                    |                                    |       |       |  
|Funds available for investment |                                    |                                    | 2,073 |      
|                               |                                    |                                    |       |       |  
|Investing Activities           |                                    |                                    |       |      
|                               | Corporate Assets                   |                                    |       | 2,299 |  
|                               | Change in Non-Cash Working Capital |                                    |       | (226  | )
|                               |                                    |                                    |       |       |  
|                               |                                    | $                                  | 2,073 |      
|                               |                                    |                                    |       |       |  

See accompanying notes





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##### 



PARAMOUNT ENERGY TRUST
Notes to Consolidated Financial Statement
(dollar amounts in Cdn$ except as noted)



|1. |  | Paramount Energy Trust:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Paramount Energy Trust (PET) is an unincorporated trust formed under
the laws of the Province of Alberta pursuant to a trust indenture dated
June 28, 2002, as amended, and whose trustee is Computershare Trust
Company of Canada. The beneficiaries of PET are the holders of the Trust
Units of PET (the Unitholders). PET was established for the purposes
of issuing Trust Units and acquiring and holding royalties and other
investments. The consolidated financial statements of PET consist of 100
percent ownership of Paramount Energy Operating Corp. (the
Administrator) and the 100 percent ownership of the beneficial
interests of Paramount Operating Trust (POT). PET utilizes a calendar
fiscal year for financial reporting purposes.
|  
|   |  | The Administrator was incorporated primarily to act as trustee of POT.
As trustee of POT, the Administrator will hold legal title to the
properties and assets of POT on behalf of and for the benefit of POT and
will administer, manage and operate the oil and gas business of POT. In
addition, the Administrator will provide certain management and
administrative services for PET and its trustee pursuant to a delegation
of power and authority to it under the PET indenture.                                                                                                                                                                                                                                                                          
|  
|2. |  | Basis of Presentation and Accounting Policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | The accompanying consolidated balance sheet of PET as at December 31,
2002 and the consolidated statements of earnings of PET for the period
from formation on June 28, 2002 to December 31, 2002 have been prepared
by management of the Administrator (as agent for the trustee of PET) on
behalf of PET in accordance with Canadian generally accepted accounting
principles (Canadian GAAP) which, for purposes of these consolidated
financial statements of PET, are similar in all material respects to
generally accepted accounting principles in the United States.                                                                                                                                                                                   
|  
|   |  | In the opinion of management, the consolidated balance sheet and
statements of earnings include all adjustments necessary for the fair
presentation of the proposed transactions in accordance with Canadian
GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | As at December 31, 2002 and for the period from June 28, 2002 to December
31, 2002, PET operated as a wholly owned subsidiary of PRL.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             



| | a) |  | Principles of ConsolidationThe consolidated financial
statements include the accounts of the Trust and its wholly-owned
subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Petroleum and Natural Gas OperationsPET follows the
successful efforts method of accounting for petroleum and natural
gas operations. Under this method, PET capitalizes only those costs
that result directly in the discovery of petroleum and natural gas
reserves. Exploration expenses, including geological and
geophysical costs, lease rentals and exploratory dry hole costs, are
charged to earnings as incurred. Leasehold acquisition costs,
including costs of drilling and equipping successful wells, are
capitalized. The net cost of unproductive wells, abandoned wells
and surrendered leases are charged to earnings in the year of
abandonment or surrender. Gains or losses are recognized on the
disposition of properties and equipment.





---



##### 



PARAMOUNT ENERGY TRUST
Notes to Consolidated Financial Statement
(dollar amounts in Cdn$ except as noted)



| |    |  | Depletion and depreciation of petroleum and natural gas properties
including well development expenditures, production equipment, gas
plants and gathering systems are provided on the
unit-of-production method based on estimated proven recoverable
reserves of each producing property or project. Depreciation of
other equipment is provided on a declining balance method at rates
varying from 20 to 30 percent.                                                                                                     
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | The net amount at which petroleum and natural gas costs on a
property or project are carried is subject to a cost-recovery
test. Any impairment loss is the difference between the carrying
value of the asset and its recoverable amount (undiscounted). The
carrying values of capital assets, including the costs of
acquiring proven and probable reserves, are subject to uncertainty
associated with the quantity of oil and gas reserves, future
production rates, commodity prices and other factors.                
|
| |    |  | Substantially all of the exploration, development and production
activities of the Trust are conducted jointly with others. These
financial statements reflect only the Trusts proportionate
interest in such activities.                                                                                                                                                                                                                                                                                                   
|
| |    |  | The Trusts corporate assets are recorded at cost and are
depreciated on a straight line basis at rates ranging from 2.5% -
20%.                                                                                                                                                                                                                                                                                                                                                                                             
|
| | c) |  | Future Site Restoration CostsEstimated future site
restoration costs are provided for using the unit of production
method based on total proved reserves before royalties. Costs are
estimated by the Trusts engineers based on current regulations,
costs, technology and industry standards. The annual charge is
included in the calculation of net earnings and removal and site
restoration expenditures are charged to the accumulated provision as
incurred.                                                         
|
| | d) |  | Foreign Currency TranslationMonetary assets and liabilities
denominated in a foreign currency are translated at the rate of
exchange in effect at year end while non-monetary assets and
liabilities are translated at historical rates of exchange.
Revenues and expenses are translated at monthly average rates of
exchange.                                                                                                                                                                                              
|
| | e) |  | Financial InstrumentsThe Trust may periodically enter into
derivative financial instrument contracts to manage exposures
related to interest rates, foreign currency exchange rates and oil
and natural gas prices. Amounts received or paid under interest rate
swaps are recognized in interest expense, while settlement amounts
on commodity and foreign currency hedge contracts are recognized in
earnings as the related production revenues are recorded.                                                            
|
| | f) |  | Income TaxesThe Trust, and its operating entity POT, are
taxable entities under the Income Tax Act(Canada) and are taxable
only on income that is not distributed or distributable to the
unitholders. As the Trust distributes all of its taxable income to
the unitholders pursuant to its Trust Indenture and meets the
requirements of the Income Tax Act(Canada) applicable to the Trust,
no provision for income taxes has been made in these consolidated
financial statements. The Administrator has no tax balances.





---



##### 



PARAMOUNT ENERGY TRUST
Notes to Consolidated Financial Statement
(dollar amounts in Cdn$ except as noted)



| | g) |  | Unit Incentive PlanThe Trust has a Unit Incentive Plan as
described in note 7. No amount is recorded as an expense when
options are issued. Consideration received upon exercise of options
is included in share capital.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. |  | Capital Assets                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On July 1, 2002, PET entered into an agreement with a related party,
Summit Resources Limited, to acquire all of the furniture, fixtures and
information technology infrastructure located in the offices formerly
occupied by Summit Resources Limited. The purchase price for these assets
was $2,073,000 and was paid for by way of issue of a promissory note
(refer Note 4).
|  
|   |  | As the transaction was between related parties, the assets acquired were
recognized at a value equal to their net book value in the books of
Summit Resources Limited. This resulted in an increase in the carrying
value of the assets of $1,317,000 which was recognized as part of
Unitholders Equity.                                                                        

|                           |  |      |       |  
|-------------------------- |  | ---- | ----- | -
|                           |  | 2002
|                           |  |     
|Corporate Assets           |  | $    | 2,299 |  
|Write-up to Net Book Value |  |      | 1,317 |  
|                           |  |      |       |  
|                           |  |      | 3,616 |  
|Accumulated Depreciation   |  |      | (261  | )
|                           |  |      |       |  
|                           |  | $    | 3,355 |  
|                           |  |      |       |  



|4. |  | Promissory Note                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On July 1, 2002, PET issued a promissory note pursuant to the acquisition
of assets from Summit Resources Limited (Refer note 3). This promissory
note bears interest at a rate of prime plus 0.25 percent. The promissory
note was repaid in full on February 3 , 2003. No interest was paid during
the period. All interest accrued on the promissory note was paid at the
time the promissory note was extinguished.
|  
|5. |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | No income tax expense or liability has been recorded as all taxation
obligations reside with the Unitholders.                                                                                                                                                                                                                                                                                                          
|  
|6. |  | Issued Capital                                                                                                                                                                                                                                                                                                                                                                                                         



| | a) |  | Authorized                                                                                                        
| | -- |  | ------------------------------------------------------------------------------------------------------------------
|
| |    |  | Authorized capital consists of an unlimited number of Trust Units
and an unlimited number of Special Voting Units.





---



##### 



PARAMOUNT ENERGY TRUST
Notes to Consolidated Financial Statement
(dollar amounts in Cdn$ except as noted)



| | b) |  | Issued and Outstanding:                                                                    
| | -- |  | -------------------------------------------------------------------------------------------
|
| |    |  | The following is a summary of changes in capital during the period
ended December 31, 2002:

|                                            |  |          |   |        |  |   |     | 
|------------------------------------------- |  | -------- | - | ------ |  | - | --- | 
|                                            |  | Number   |   |        |  |  
|Trust Units                                 |  | Of Units |   | Amount
|                                            |  |          |   |       
|Number of units issued at creation of Trust |  |          | 1 |        |  | $ | 100 | 
|                                            |  |          |   |        |  |   |     | 
|Balance, December 31, 2002                  |  |          | 1 |        |  | $ | 100 | 
|                                            |  |          |   |        |  |   |     | 



|7. |  | Unit Incentive Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | PET has adopted a unit incentive plan which permits the Administrators
board of directors to grant non-transferrable rights to purchase Trust
Units (Incentive Rights) to its and affiliated entities, employees,
officers, directors and other service providers. The purpose of the unit
incentive plan is to provide an effective long-term incentive to eligible
participants and to reward them on the basis of PETs long-term
performance and distributions. The Administrators board of directors
will administer the unit incentive plan and determine participants,
numbers of Incentive Rights and terms of vesting. The grant price of the
Incentive Rights (the Grant Price) shall equal the per Trust Unit
closing price on the trading date immediately preceding the date of the
grant, unless otherwise permitted. The holder of the Incentive Rights
may elect to reduce the strike price of the Incentive Rights (the Strike
Price), such reduction determined by deducting from the Grant Price the
aggregate amounts of all distributions on a per Trust Unit basis that PET
pays its Unitholders after the date of grant which represent a return of
more than 2.5% per quarter on PETs consolidated net fixed assets on its
balance sheet at each calendar quarter end.
|  
|   |  | The Strike Price will be adjusted on a quarterly basis and in no case may
it be reduced to less than $0.001 per Trust Unit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Under US GAAP, the amount included on the balance sheet for Unitholders
equity will be reduced by an amount equal to the redemption value of the
units as at the balance sheet date. If the Trust Units are trading at
prices at or above the rights exercise price of $5.05 per unit as at the
balance sheet date, substantially all of the amount included in
Unitholders equity will be treated as temporary equity reclassified as a
liability. In future periods, the redemption value of the Trust Units
will be determined with respect to the trading value of the Trust Units
as at each balance sheet date, and the amount of the redemption value
will be classified as temporary equity. Increases, if any, in the
redemption value during a period would result in a charge to permanent
equity and would be reflected in computing earnings available to
Unitholders for the period.                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | PET granted 1,003,000 rights to purchase PET Trust Units to directors,
officers and employees of the Administrator on January 28, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 





---



##### 



PARAMOUNT ENERGY TRUST
Notes to Consolidated Financial Statement
(dollar amounts in Cdn$ except as noted)



|    |  | For purposes of Canadian generally accepted accounting principles, PET
will account for the Incentive Rights granted to employees or directors
of PET and its subsidiaries by the settlement method under which no
amount will be recorded at the time the Incentive Rights are granted.
Proceeds received on the exercise of the rights will be added to
Unitholders equity.                                                                                                                                                                                                                                                                
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Under US GAAP, the excess of the fair value, if any, of Trust Units
outstanding over the Incentive Rights exercise price will result in a
charge to earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The Incentive Rights will only be dilutive to the calculation of income
per Trust Unit if the exercise price is below the fair value of the unit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | No Incentive Rights had been formally granted as at December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|8.  |  | Subsequent Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(a) |  | The issuance of a receipt for a prospectus was made by Canadian
regulatory authorities on January 29, 2003 and by regulators in the United
States on February 3, 2003. Subsequent to the issuance of these receipts,
PET, POT, the Administrator and Paramount Resources Ltd. (PRL) completed
a series of transactions pursuant to which PET, on a consolidated basis,
acquired oil and gas properties and related assets with an estimated value
of approximately $301,000,000 from PRL. PET raised equity of
approximately $150,000,000 from the exercise of rights and obtained bank
financing of approximately $100,000,000, as follows:



| |  |  | PRL, effective July 1, 2002, sold its interest in certain
assets (the Initial Assets) to POT for consideration consisting of
a promissory note in PRLs favour of $81,000,000. Interest on the
$81,000,000 purchase price accrued at a rate of 6.5% per annum. At
that time a secured guarantee was given by both POT and PET in
respect of $20,000,000 of PRLs indebtedness to PRLs lenders. At
the same time PRL and POT executed the Take-Up Agreement which
required PRL to sell and POT to purchase 100 percent of PRLs
interest in certain additional assets (the Additional Assets).
The purchase price was $220,000,000. POT paid a $5,000,000 deposit
on the purchase price of these assets through the issuance of a
non-interest bearing promissory note;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | POT, effective July 1, 2002, granted to PET a royalty of 99
percent of the net revenue less permitted deductions with respect to
debt payments, capital expenditures and certain other amounts from
the Canadian resource properties comprised in the Initial Assets and
all after-acquired Canadian resource properties of POT including the
Additional Assets described below (the Royalty) in exchange for
consideration consisting of $64,152,000 to be paid in accordance
with an agreement between POT, PET and PRL whereby PET issued and
delivered to PRL a first promissory note in the amount of
$30,000,000 and a second promissory note in the amount of
$34,152,000. The first promissory note carried annual interest
equal to the prime rate of a major Canadian chartered bank from time
to time plus 1.875%. This payment reduced the amount of
indebtedness that POT owes to PRL to approximately $16,848,000 which
was represented by a promissory note that carried annual interest
from the date of issue equal to the prime rate of a major Canadian
chartered bank from time to time plus 1.875%. PET granted a
security interest to PRL in PETs assets as security for its
indebtedness under the first promissory note and POT granted a
guarantee to PRL for such indebtedness and granted PRL a security
interest over its assets for the guarantee;





---



##### 



PARAMOUNT ENERGY TRUST
Notes to Consolidated Financial Statement
(dollar amounts in Cdn$ except as noted)



| |  |  | PET issued 6,636,045 Trust Units to PRL in full repayment of
the indebtedness under the second promissory note;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | PET purchased from PRL the remaining $16,848,000 indebtedness
owed by POT to PRL in exchange for the issuance and delivery to PRL
of an additional 3,273,721 Trust Units;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | PRL did, on February 4, 2003, by way of a dividend,
distribute all of the PET Trust Units held by PRL, being all
9,909,767 of the Trust Units that PRL then held, to the holders of
PRL common shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | PET issued to each of the holders of the Trust Units
distributed by PRL, three rights to subscribe for additional PET
Trust Units. Each right entitled the holder to purchase one
additional PET Trust Unit at a subscription price of $5.05 per Trust
Unit. PRL did, effective July 1, 2002, sell to POT 100 percent of
PRLs interest in the Additional Assets for an aggregate
consideration of $220,000,000. This was funded by the exercise and
payment of 100 percent of the rights granted, resulting in proceeds
of $150,129,475 (before issue costs). These funds together with bank
financing of $100,000,000 were also used to repay the $30,000,000
promissory note to PRL and to complete the acquisition of the
Additional Assets.



|(b) |  | On May 7, 2003 PET entered into an underwriting agreement to issue
4,350,000 Trust Units to a syndicate of underwriters at $12.65 per Unit
and net proceeds of $52,276,125.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(c) |  | On June 3, 2003 the Alberta Energy and Utilities Board (AEUB) released
General Bulletin 2003-16 (GB 2003-16), announcing a proposed change in
policy respecting gas production from the Wabiskaw and McMurray Formations
in the AEUB-defined Athabasca Oil Sands Area. GB 2003-16 provides a
description of the policy it proposes to implement, outlines a deadline
for written submissions of June 26, 2003 with respect to the proposed
policy and provides notification of a two day consultation meeting with
interested parties beginning July 3, 2003, at which time the Trust will be
afforded 45 minutes to speak to its own submissions and those of other
interested parties. PET intends to make submissions as outlined in GB
2003-16. Following these additional consultation steps and consideration
of any evidence put forward, the AEUB will issue its new policy.
|   
|    |  | The proposed policy contemplates the shut-in of all Wabiskaw-McMurray gas
production, without benefit of public hearing, within a 5.5 million acre
area in Northeastern Alberta. The Trust is at risk of having up to a net
44 MMcf/d of natural gas production affected, representing up to
approximately 50 percent of its current production, following a proposed
shut-in on August 1, 2003. This range is established by the uncertainty
in the treatment of wells which lie outside a new application area but
have Wabiskaw-McMurray gas pools which overlap the new boundary.                                                                                                                                                                                                                                                                                                   





---



##### 



PARAMOUNT ENERGY TRUST
Notes to Consolidated Financial Statement
(dollar amounts in Cdn$ except as noted)



| |  | According to the proposed policy, after the shut-in has been implemented
the AEUB intends to complete a detailed review of shut-in gas production
to determine what, if any, gas should be allowed to re-commence
production. GB 2003-16 also announces the immediate implementation of a
reduced Wabiskaw and McMurray gas production application area. The
effect of this change is that any outstanding gas production applications
outside the amended application area will be closed and returned to the
applicant. This allowed for the commencement of an additional four
MMcf/d of production net to PET in the Ells and Legend East fields in
June 2003. In addition, new applications for gas production will only be
required within the new application area or where wells encounter
Wabiskaw-McMurray gas pools which overlap the application area boundary.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | At this time the ultimate policy resulting from GB 2003-16 is uncertain.
We cannot at this time accurately estimate the amount of production which
may be shut-in, if any, and for what duration. We also cannot ensure that
PET will be able to negotiate adequate compensation for having to shut-in
any such production. This could have a material adverse effect on the
amount of income available for distribution to our Unitholders however
due to the uncertainty of possible outcomes no adjustments, including
writedown of petroleum and natural gas assets, have been made to these
consolidated financial statements.