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EXHIBIT 99.3 AUDITORS REPORT To the Trustee
Paramount Energy Trust Under date of February 26, 2004, we reported on the consolidated balance sheets
of Paramount Energy Trust as at December 31, 2003 and 2002, and the
consolidated statements of earnings and accumulated earnings and cash flows for
the years then ended, as incorporated by reference in the annual report on Form
40-F. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related supplemental note
entitled Reconciliation of Financial Statements to Accounting Principles
Generally Accepted in the United States as set forth in the
annual report. This supplemental note is the responsibility of the Trusts
management. Our responsibility is to express an opinion on this supplemental
note based on our audits. In our opinion, such supplemental note, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.  Chartered Accountants Calgary, Canada
February 26, 2004




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RECONCILIATION OF FINANCIAL STATEMENTS TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES The financial statements contained in Exhibit 99.2 to this annual report on
Form 40-F have been prepared in accordance with accounting principles generally
accepted in Canada (Canadian GAAP) which, in most respects, conform to
accounting principles generally accepted in the United States (US GAAP).
Significant differences between Canadian and US GAAP are as follows: Statement of Earnings Year Ended December 312003
    
    2002Net earnings  Canadian GAAP
    
    
    
    
    
    $
    52,434
    
    
    $
    7,406Derivative financial instruments
    
    
    b
    
    
    
    (4,000
    )
    
    
    Net earnings before cumulative effect of change
in accounting policy  US GAAP
    
    
    
    
    
    
    48,434
    
    
    
    7,406Cumulative effect of change in accounting policy
    
    
    d
    
    
    
    (3,640
    )
    
    
    Net earnings  US GAAP
    
    
    
    
    
    
    44,794
    
    
    
    7,406Increase in redemption value of Trust Units
    
    
    e
    
    
    
    (209,218
    )
    
    
    Net earnings
available to Unitholders  US GAAP
    
    
    
    
    
    
    (164,424
    )
    
    
    7,406Net earnings before cumulative effect of change
in accounting policy per Trust Unit  US GAAPBasic
    
    
    
    
    
    $
    1.14
    
    
    $
    0.19Diluted
    
    
    
    
    
    $
    1.12
    
    
    $
    0.19Net earnings per Trust Unit  US GAAPBasic
    
    
    
    
    
    $
    1.05
    
    
    $
    0.19Diluted
    
    
    
    
    
    $
    1.04
    
    
    $
    0.19Net earnings available to Unitholders per Trust
Unit  US GAAPBasic
    
    
    
    
    
    $
    3.68
    
    
    $
    0.19Diluted
    
    
    
    
    
    $
    3.63
    
    
    $
    0.19
 Balance Sheet December 312003
    
    2003
    
    2002
    
    2002Cdn GAAP
    
    US GAAP
    
    Cdn GAAP
    
    US GAAPAccounts Payable
    
    $
    (8,726
    )
    
    $
    (12,726
    )
    
    $
    (19,306
    )
    
    $
    (19,306
    )Investment by PRL
    
    
    
    
    
    
    
    
    
    
    (234,563
    )
    
    
    (234,563
    )Temporary Equity
    
    
    
    
    
    
    (469,236
    )
    
    
    
    
    
    
    Unitholders Equity
    
    
    (166,065
    )
    
    
    307,174
    
    
    
    
    
    
    
    
  a)
    
    Property, Plant and EquipmentUnder both US and Canadian GAAP, property plant and equipment must be
assessed for potential impairments. Under US GAAP, if the sum of the
expected future cash flows (undiscounted and without interest charges) is
less than the carrying amount of the asset, then an impairment loss (the
amount by which the carrying amount of the asset exceeds the fair value of
the asset) should be recognized. Fair value is calculated as the present
value of estimated future cash flows. In 2002, under Canadian GAAP, the
impairment loss would have been the difference between the carrying value of
the asset and its net recoverable amount Page 1




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(undiscounted). These differences in the determination of the amount of
impairment did not result in any differences in the periods covered by these
financial statements. In 2003 there is no difference between Canadian and US
GAAP.b)
    
    Accounting for Derivative Financial InstrumentsUnder US GAAP, entities are required commencing January 1, 2001 to account
for derivative instruments and hedging activities in accordance with FAS 133
which requires that all derivatives be recognized as assets and liabilities
on the balance sheet and measured at fair value. Gains or losses, including
unrealized amounts, on derivatives that have not been designated as hedges,
or were not effective as hedges, are included in income as they arise.For derivatives designated as fair value hedges, changes in the fair value
are recognized in earnings together with equal or lesser amounts of changes
in the fair value of the hedge item.For derivatives designated as cash flow hedges, changes in the fair value of
the derivatives are recognized in other comprehensive income until the
hedged items are recognized in earnings. Any portion of the change in the
fair value of the derivatives that is not effective in hedging the changes
in future cash flows is included in earnings each period.The derivatives entered into by PET did not qualify as hedges for US GAAP
purposes. Accordingly, the gains and losses, including unrealized amounts,
have been included in income as they arise.c)
    
    Impairment or Disposal of Long-term AssetsIn August 2001, the FASB issued Statement No. 144 Accounting for the
Impairment or Disposal of Long-term assets (FAS 144), which address the
financial accounting and reporting for the impairment or disposal of
long-lived assets. FAS 144 supersedes but retains the basic principle of
Statement No 121 for the impairment of assets to be held and used. Assets to
be disposed of through abandonment or an exchange for similar productive
assets will be classified as held for use until they cease to be used. FAS
144 established criteria that must be met in order to classify an asset or
group as held for sale. Assets classified as held for sale will be measured
at the lower of their carrying amount or fair value less cost to sell, and
depreciation will cease when the asset or group is classified as held for
sale. The changes resulting from the adoption of the FAS 144 did not have
any impact on the results of the impairment test as described in a) above.FAS 144 broadens the definition of disposals to be presented as discontinued
operations to include components of an entity that comprise operating cash
flows that can clearly be distinguished, operationally and for financial
reporting purposes from the rest of the entity. While FAS 144 may result in
differences in future periods, it does not have any impact on these
financial statements.d)
    
    Asset Retirement ObligationsEffective January 1, 2003, PET adopted FASB Statement No. 143 Accounting
for Asset Retirement Obligations (FAS 143), which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible assets. The standard applies to legal obligations associated with
the retirement of long-lived assets that result from the acquisition,
construction, development and use of the asset. FAS 143 requires that the
fair value of a liability for an asset retirement obligation be recognized
in the period in which it is incurred if a reasonable estimate of fair value
can be made. The fair value is added to the carrying amount of the
associated asset. The liability is accreted at the end of each period
through charges to operating expenses.Canadian standards are consistent with the requirements under SFAS 143,
Accounting for Asset Retirement Obligations, except under US GAAP the
change was effective January 1, Page 2




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2003. Under US GAAP, prior periods are not restated for the change in
accounting policy and the effect of the change is charged to earnings, not
Unitholders capital. The effect of the change in accounting policy of $3.6
million or $0.09 per Unit basic and diluted was charged to earnings in 2003
under US GAAP.e)
    
    Temporary EquityUnder US GAAP, the amount included on the consolidated balance sheet for
Unitholders Equity would be reduced by an amount equal to the redemption
value of the Trust Units as at the balance sheet date. The redemption value
of the Trust Units is determined with respect to the trading value of the
Trust Units as at each balance sheet date, and the amount of the redemption
value is 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. As the redemption value is dependent on the trading value of
the Units as at the date they are presented for redemption and for a period
thereafter, and the Trust Units did not commence trading until
February 2003
no amount would have been recorded as a liability at December 31, 2002.f)
    
    Variable Interest EntitiesIn 2003, the FASB issued FIN 46 (Revised) Consolidation of certain entities
that are controlled through financial interest that indicated control
(referred to as Variable interests). Variable interests are the rights
or obligations that convey economic gains or losses from changes in the
values of an entitys assets or liabilities. The holder of the majority of
an entitys variable interests will be required to consolidate the variable
interest entity. Adopting the provisions of FIN 46 (Revised) had no impact
on the US GAAP financial statements.g)
    
    Financial Instruments with Characteristics of both Liabilities and EquityIn May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures in
its statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or
an asset in some circumstances) because the financial instrument embodies an
obligation of the issuer. Many of those instruments were previously
classified as equity. Adopting the provisions of SFAS No. 150 had no impact
on the US GAAP financial statements.(h)
    
    Other Comprehensive IncomeUnder US GAAP, certain items such as the unrealized gain or loss on
derivative instrument contracts designated and effective as cash flow hedges
are included in other comprehensive income. In these financial statements,
there are no comprehensive income items other than net income.(i)
    
    Statement of Cash FlowsThere are no differences between Canadian and US GAAP as they apply to
statements of cash flows. Page 3