##### 



EXHIBIT 12.5

Balance Sheet of the Paramount Resources Ltd. Northeast Alberta Properties as
at December 31, 2002 and 2001 and Statements of Earnings and Changes in
Investment by Paramount Resources Ltd. and Cash Flows for each of the years in
the three year period ending December 31, 2002, together with Auditors report
thereon.

AUDITORS REPORT

To the Trustee of Paramount Energy Trust

At the request of the Trustee of Paramount Energy Trust, we have audited the
balance sheet of the Paramount Resources Ltd. Northeast Alberta Properties (see
note 1 to the financial statements) as at December 31, 2002 and 2001 and the
statements of earnings and changes in investment by Paramount Resources Ltd.
and cash flows for each of the years in the three-year period ended December
31, 2002. These financial statements are the responsibility of the
Administrator of Paramount Energy Trust. 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 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 financial statements present fairly, in all material
respects, the financial position of the Paramount Resources Ltd. Northeast
Alberta Properties as at December 31, 2002 and 2001 and the results of its
operations and cash flows for each of the years in the three-year period ended
December 31, 2002 in accordance with Canadian generally accepted accounting
principles.

Generally accepted Canadian accounting principles vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Application of accounting principles generally accepted in
the United States of America would have affected the financial statements for each
of the years in the three-year period ended December 31, 2002 to the extent
summarized in the notes to the financial statements.

/s/KPMG LLP
Chartered Accountants
Calgary, Canada
May 5, 2003 except as to note
6 which is as of June 27, 2003





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##### 



PARAMOUNT RESOURCES LTD. - Northeast Alberta Properties
Balance Sheet
(Cdn$000)
(See note 1: Basis of Presentation)

|                                              |                                               |   |             |          |             |   |         |          |  
|--------------------------------------------- | --------------------------------------------- | - | ----------- | -------- | ----------- | - | ------- | -------- | -
|                                              |                                               |   | December 31 |          | December 31
|                                              |                                               |   | 2002        |          | 2001       
|                                              |                                               |   |             |          |            
|ASSETS                                        |                                               |   |             |          |             |   |         |         
|Current Assets                                |                                               |   |             |          |             |   |         |         
|                                              | Accounts receivable                           |   | $           | 16,444   |             |   | $       | 15,500   |  
|                                              | Deferred hedging loss (note 5)                |   |             |         |             |   |         | 8,003    |  
|                                              |                                               |   |             |          |             |   |         |          |  
|                                              |                                               |   | 16,444      |          |             |   | 23,503  |         
|                                              |                                               |   |             |          |             |   |         |          |  
|Property, plant and equipment                 |                                               |   |             |          |             |   |         |         
|                                              | Petroleum and natural gas properties, at cost |   |             | 523,119  |             |   |         | 518,436  |  
|                                              | Accumulated depletion and depreciation        |   |             | (260,488 | )           |   |         | (213,217 | )
|                                              |                                               |   |             |          |             |   |         |          |  
|                                              |                                               |   | 262,631     |          |             |   | 305,219 |         
|                                              |                                               |   |             |          |             |   |         |          |  
|                                              |                                               | $ | 279,075     |          |             | $ | 328,722 |         
|                                              |                                               |   |             |          |             |   |         |          |  
|LIABILITIES AND EQUITY                        |                                               |   |             |          |             |   |         |         
|Current Liabilities                           |                                               |   |             |          |             |   |         |         
|                                              | Accounts payable and accrued liabilities      |   | $           | 22,094   |             |   | $       | 12,054   |  
|                                              |                                               |   |             |          |             |   |         |          |  
|                                              |                                               |   | 22,094      |          |             |   | 12,054  |         
|                                              |                                               |   |             |          |             |   |         |          |  
|Future site restoration and abandonment costs |                                               |   | 7,130       |          |             |   | 5,289   |         
|Deferred revenue (note 5)                     |                                               |   | 2,283       |          |             |   | 612     |         
|Future income taxes                           |                                               |   | 133,616     |          |             |   | 109,785 |         
|                                              |                                               |   |             |          |             |   |         |          |  
|                                              |                                               |   | 143,029     |          |             |   | 115,686 |         
|                                              |                                               |   |             |          |             |   |         |          |  
|Equity                                        |                                               |   |             |          |             |   |         |         
|                                              | Investment by Paramount Resources Ltd         |   |             | 113,952  |             |   |         | 200,982  |  
|                                              |                                               |   |             |          |             |   |         |          |  
|                                              |                                               |   | 113,952     |          |             |   | 200,982 |         
|                                              |                                               |   |             |          |             |   |         |          |  
|                                              |                                               | $ | 279,075     |          |             | $ | 328,722 |         
|                                              |                                               |   |             |          |             |   |         |          |  

Subsequent Event: Note 7

|                                    |  |                                    
|----------------------------------- |  | -----------------------------------
|/s/Susan L. Riddell Rose            |  | /s/ Clayton H. Riddell             
|Director - Paramount Resources Ltd. |  | Director - Paramount Resources Ltd.

See accompanying notes to financial statements





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##### 



PARAMOUNT RESOURCES LTD. - Northeast Alberta Properties
Statements of Earnings and Changes in Investment by Paramount Resources Ltd.
(Cdn$000)
(See note 1: Basis of Presentation)

|                                                            |                                                             |   |                        |         |      |   |         |         |   |   |         |         |  
|----------------------------------------------------------- | ----------------------------------------------------------- | - | ---------------------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                            |                                                             |   | Year Ended December 31
|                                                            |                                                             |   |                       
|                                                            |                                                             |   | 2002                   |         | 2001 |   | 2000   
|                                                            |                                                             |   |                        |         |      |   |        
|Revenue                                                     |                                                             |   |                        |         |      |   |         |         |   |   |         |        
|                                                            | Petroleum and natural gas sales                             |   | $                      | 126,095 |      |   | $       | 235,641 |   |   | $       | 195,927 |  
|                                                            | Hedging (note 5)                                            |   |                        | 13,692  |      |   |         | 9,123   |   |   |         | (449    | )
|                                                            | Royalties (net of Alberta Royalty Tax Credit)               |   |                        | (22,488 | )    |   |         | (47,319 | ) |   |         | (38,793 | )
|                                                            |                                                             |   |                        |         |      |   |         |         |   |   |         |         |  
|                                                            |                                                             |   | 117,299                |         |      |   | 197,445 |         |   |   | 156,685 |        
|                                                            |                                                             |   |                        |         |      |   |         |         |   |   |         |         |  
|Expenses                                                    |                                                             |   |                        |         |      |   |         |         |   |   |         |        
|                                                            | Operating                                                   |   |                        | 30,687  |      |   |         | 33,955  |   |   |         | 25,341  |  
|                                                            | Surmont compensation  net (note 4)                         |   |                        | (37,291 | )    |   |         |        |   |   |         |        |  
|                                                            | General and administrative                                  |   |                        | 4,067   |      |   |         | 5,529   |   |   |         | 4,877   |  
|                                                            | Dry holes                                                   |   |                        | 246     |      |   |         | 507     |   |   |         |        |  
|                                                            | Lease rentals                                               |   |                        | 1,914   |      |   |         | 2,175   |   |   |         | 1,736   |  
|                                                            | Geological and geophysical                                  |   |                        | 367     |      |   |         | 848     |   |   |         |        |  
|                                                            | (Gain) Loss on sale of property and equipment               |   |                        | 134     |      |   |         | 134     |   |   |         |        |  
|                                                            | Provision for future site restoration and abandonment costs |   |                        | 1,841   |      |   |         | 1,057   |   |   |         | 741     |  
|                                                            | Depletion and depreciation                                  |   |                        | 49,065  |      |   |         | 37,459  |   |   |         | 25,123  |  
|                                                            |                                                             |   |                        |         |      |   |         |         |   |   |         |         |  
|                                                            |                                                             |   | 51,030                 |         |      |   | 81,664  |         |   |   | 57,818  |        
|                                                            |                                                             |   |                        |         |      |   |         |         |   |   |         |         |  
|Earnings before income taxes                                |                                                             |   | 66,269                 |         |      |   | 115,781 |         |   |   | 98,867  |        
|Income and other taxes                                      |                                                             |   |                        |         |      |   |         |         |   |   |         |        
|                                                            | Current taxes                                               |   |                        | 2,677   |      |   |         | 15,838  |   |   |         | 1,421   |  
|                                                            | Future income taxes                                         |   |                        | 23,831  |      |   |         | 32,029  |   |   |         | 45,621  |  
|                                                            |                                                             |   |                        |         |      |   |         |         |   |   |         |         |  
|                                                            |                                                             |   | 26,508                 |         |      |   | 47,867  |         |   |   | 47,042  |        
|                                                            |                                                             |   |                        |         |      |   |         |         |   |   |         |         |  
|Net earnings                                                |                                                             | $ | 39,761                 |         |      | $ | 67,914  |         |   | $ | 51,825  |        
|                                                            |                                                             |   |                        |         |      |   |         |         |   |   |         |         |  
|Investment by Paramount Resources Ltd., beginning of period |                                                             |   | 200,982                |         |      |   | 223,954 |         |   |   | 243,336 |        
|Net earnings                                                |                                                             |   | 39,761                 |         |      |   | 67,914  |         |   |   | 51,825  |        
|Distributions to Paramount Resources Ltd.                   |                                                             |   | (126,791               | )       |      |   | (90,886 | )       |   |   | (71,237 | )      
|                                                            |                                                             |   |                        |         |      |   |         |         |   |   |         |         |  
|Investment by Paramount Resources Ltd., end of period       |                                                             | $ | 113,952                |         |      | $ | 200,982 |         |   | $ | 223,924 |        
|                                                            |                                                             |   |                        |         |      |   |         |         |   |   |         |         |  

See accompanying notes to financial statements





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##### 



PARAMOUNT RESOURCES LTD. - Northeast Alberta Properties
Statements of Cash Flows
(Cdn$000)
(See note 1: Basis of Presentation)

|                                                |                                                             |   |                        |         |      |   |         |        |   |   |         |        |  
|----------------------------------------------- | ----------------------------------------------------------- | - | ---------------------- | ------- | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|                                                |                                                             |   | Year Ended December 31
|                                                |                                                             |   |                       
|                                                |                                                             |   | 2002                   |         | 2001 |   | 2000   
|                                                |                                                             |   |                        |         |      |   |        
|Operating Activities                            |                                                             |   |                        |         |      |   |         |        |   |   |         |       
|Net earnings                                    |                                                             | $ | 39,761                 |         |      | $ | 67,914  |        |   | $ | 51,825  |       
|Add (deduct) non-cash items                     |                                                             |   | 9,136                  |         |      |   |        |        |   |   |        |       
|                                                | Writedown of Surmont assets                                
|                                                | Depletion and depreciation                                  |   |                        | 49,065  |      |   |         | 37,459 |   |   |         | 25,123 |  
|                                                | (Gain) Loss on sale of property and equipment               |   |                        | 134     |      |   |         | 134    |   |   |         |       |  
|                                                | Provision for future site restoration and abandonment costs |   |                        | 1,841   |      |   |         | 1,057  |   |   |         | 741    |  
|                                                | Future income taxes                                         |   |                        | 23,831  |      |   |         | 32,029 |   |   |         | 45,621 |  
|Add items not relating to operating activities 
|                                                | Dry hole costs                                              |   | 246                    |         |      |   | 507     |        |   |   |        |       
|                                                | Surmont compensation                                        |   |                        | (46,427 | )    |   |         |       |   |   |         |       |  
|                                                |                                                             |   |                        |         |      |   |         |        |   |   |         |       
|                                                |                                                             |   | 77,587                 |         |      |   | 139,100 |        |   |   | 123,310 |       
|Add (deduct) non-cash items                    
|                                                | Change in accounts receivable                               |   | (944                   | )       |      |   | 17,415  |        |   |   | (20,021 | )     
|                                                | Change in deferred hedging loss                             |   |                        | 8,003   |      |   |         | (8,003 | ) |   |         |       |  
|                                                | Change in accounts payable                                  |   |                        | 9,160   |      |   |         | (8,504 | ) |   |         | 11,746 |  
|                                                | Change in deferred revenue                                  |   |                        | 1,671   |      |   |         | (704   | ) |   |         | (938   | )
|                                                |                                                             |   |                        |         |      |   |         |        |   |   |         |       
|                                                |                                                             |   | 95,477                 |         |      |   | 139,304 |        |   |   | 114,097 |       
|                                                |                                                             |   |                        |         |      |   |         |        |   |   |         |       
|Financing Activities                            |                                                             |   |                        |         |      |   |         |        |   |   |         |       
|Distributions to Paramount Resources Ltd        |                                                             |   | (126,791               | )       |      |   | (90,886 | )      |   |   | (71,237 | )     
|                                                |                                                             |   |                        |         |      |   |         |        |   |   |         |       
|                                                |                                                             |   | (126,791               | )       |      |   | (90,886 | )      |   |   | (71,237 | )     
|                                                |                                                             |   |                        |         |      |   |         |        |   |   |         |       
|Investing Activities                            |                                                             |   |                        |         |      |   |         |        |   |   |         |       
|Petroleum and natural gas property expenditures |                                                             |   | (15,747                | )       |      |   | (45,225 | )      |   |   | (45,642 | )     
|Dry hole costs                                  |                                                             |   | (246                   | )       |      |   | (507    | )      |   |   |        |       
|Surmont compensation                            |                                                             |   | 46,427                 |         |      |   |        |        |   |   |        |       
|Change in non-cash working capital              |                                                             |   | 880                    |         |      |   | (2,686  | )      |   |   | 2,782   |       
|                                                |                                                             |   |                        |         |      |   |         |        |   |   |         |       
|                                                |                                                             |   | 31,314                 |         |      |   | (48,418 | )      |   |   | (42,860 | )     
|                                                |                                                             |   |                        |         |      |   |         |        |   |   |         |       
|Change in cash                                  |                                                             |   |                       |         |      |   |        |        |   |   |        |       
|Cash at beginning of period                     |                                                             |   |                       |         |      |   |        |        |   |   |        |       
|                                                |                                                             |   |                        |         |      |   |         |        |   |   |         |       
|Cash at end of period                           |                                                             | $ |                       |         |      | $ |        |        |   | $ |        |       
|                                                |                                                             |   |                        |         |      |   |         |        |   |   |         |       

See accompanying notes to financial statements





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##### 



Paramount Resources Ltd.  Northeast Alberta Properties
Notes to Financial Statements
(Cdn$000 except as noted)



|1. |  | Basis of Presentation
|-- |  | ---------------------

Paramount Resources Ltd. (PRL) is a Canadian energy company. PRL
explores for, develops, processes, transports and markets petroleum and natural
gas. From its inception in 1978 until 1993, PRL concentrated on the exploration
and development of shallow gas in northeastern Alberta. Commencing in 1993, PRL
diversified from its traditional area of focus and added new core areas in
central Alberta, northwest Alberta and the Liard Basin in northeast British
Columbia and the southern Northwest Territories. On May 12, 2002 PRL announced
that it would create a new energy trust (Paramount Energy Trust or PET)
that would hold substantially all of PRLs northeast Alberta natural gas
properties. These transactions were consummated in February and March of 2003.

These financial statements have been prepared to present the financial
position, results of operations and cash flows for PRLs activities in
northeastern Alberta. While certain of PRLs properties in northeastern Alberta
are not among the properties that have been acquired by PET, these financial
statements have been prepared to include all of the properties in this core
area (the Northeast Alberta Properties).

Subsequent to the acquisition of the properties by PET, the management of
PET will determine all operating, investing and financing activities applicable
to these properties. Accordingly the amounts recorded in these financial
statements may not be indicative of the amounts that will result in future
periods.

Each of PRLs core areas, including the Northeast Alberta Properties, has
distinct operating staff, capital budgets and targets. PRL also has shared
services such as drilling, facilities, and construction, accounting, land
administration and corporate compliance. Historically, PRL has maintained
accounting records necessary to support its consolidated financial statements
and for other internal or tax reporting purposes. PRL has not previously
prepared separate complete financial statements for the Northeast Alberta
Properties or for any of its other core areas. While the amounts applicable to
the Northeast Alberta Properties for certain revenues, expenses, assets and
liabilities can be derived directly from the accounting records of PRL, it has
been necessary to allocate certain items in the manner described below.

These financial statements of the Northeast Alberta Properties have been
prepared in accordance Canadian generally accepted accounting policies as
applied by PRL, which in the case of these financial statements, differ in
certain respects from those in the United States. These differences are
described in note 6. These policies include, among other things, the
application of the successful efforts method of accounting.

Presentation of the Statement of Earnings

The amounts for natural gas sales, royalties, operating costs, geological
and geophysical costs, dry hole costs and lease rentals have been recorded in
the accounting records of PRL on a property by property basis, and the amounts
included in these financial statements have been derived directly from the
accounting records of PRL. The amounts for depletion and depreciation and the
provision for future site restoration and abandonment costs were determined by
PRL on the basis of production volumes, estimates of reserves and cumulative
costs applicable to each area. The amounts applicable to the Northeast Alberta
Properties have been included in these financial statements.

General and administrative costs incurred by PRL are considered a
corporate cost. For purposes of these financial statements, the amounts
recorded for general and administrative costs have been allocated for each
period on a pro rata basis using production volumes of the Northeast Alberta
Properties as a proportion of the aggregate production volumes of PRL.





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##### 



Paramount Resources Ltd.  Northeast Alberta Properties
Notes to Financial Statements
(Cdn$000 except as noted)

Due to the maturity of the properties and the declining level of capital
investment in the northeast Alberta area, cumulative cash flow from these
properties has exceeded the amounts invested and excess cash flow has been used
in conjunction with bank financing to fund the exploration and development in
PRLs other core areas. For these reasons, no amount of the debt, or associated
interest costs, have been allocated to the Northeast Alberta Properties.

PRL periodically uses derivative financial instrument contracts to manage
its exposure to petroleum and natural gas prices, the Canadian/US dollar
exchange rate and interest rate fluctuations. Hedging activities are considered
to be a corporate activity, and are not designated to particular properties.
For purposes of these financial statements, gains and losses resulting from the
hedging of natural gas prices and Canadian/US dollar exchange rate fluctuations
have been allocated for each period on a pro rata basis using applicable cash
flows of the Northeast Alberta Properties as a proportion of the aggregate cash
flows of PRL. Deferred gains or losses as at the balance sheet dates, such as
amounts resulting from the early termination of hedging instruments, have been
allocated on a pro rata basis using expected future production of the Northeast
Alberta Properties as a proportion of the aggregate expected future production
of PRL. Gains or losses applicable to hedging of interest rate hedges have been
excluded from these financial statements.

PRL conducted all of its Canadian activities through one entity for the
periods covered by these financial statements. Accordingly, the income tax
balances for the costs of acquiring, exploring for and developing the Northeast
Alberta Properties, and the costs of associated tangible equipment, are
commingled with those of PRLs other areas. In recent years, while much of the
taxable income of PRL before claims of capital costs was from the Northeast
Alberta Properties, the majority of the capital expenditures were in other
areas. As a result, the capital costs of other areas will have been used to
eliminate or reduce taxable income from all areas, including that derived from
the Northeast Alberta Properties. For purposes of these financial statements,
the amount of future income taxes of PRL has been allocated to the Northeast
Alberta Properties on a pro rata basis using the equity of the Northeast
Alberta Properties as a proportion of the retained earnings of PRL as a whole.

Presentation of Financial Position

The costs of petroleum and natural gas properties, the associated
accumulated depletion and depreciation, and the provision for future site
restoration and abandonment costs have been accumulated in the accounting
records on an area by area basis. The amounts included in these financial
statements have been derived directly from the accounting records of PRL.

For accounts receivable and accounts payable and accrued liabilities, the
amounts included in the ledgers of PRL have been attributed to the respective
core areas or corporate activity on the basis of the nature of the balance or
the identity of the counter party. For certain amounts such as when a supplier
provides services for several core areas, the amounts have been allocated on
the basis of the activity levels during the months preceding the period end.

Cash, short-term investments and bank loans are considered to be a
corporate activity of PRL and have been excluded from these financial
statements. For purposes of these financial statements, the activities of the
Northeast Alberta Properties are considered to have been financed by advances
from the corporate treasury group and retained earnings, net of accumulated
repayment of cash flows from operating activities. As the cumulative cash flows
from operations of the Northeast Alberta Properties, and repaid to the
corporate treasury function, are in excess of the associated investments, no
amount has been recorded for interest expense in these financial statements.





---



##### 



Paramount Resources Ltd.  Northeast Alberta Properties
Notes to Financial Statements
(Cdn$000 except as noted)

Presentation of Statement of Cash Flows

As discussed above, the cash balances of PRL are maintained on a
centralized basis and considered to be a corporate activity and excluded from
these financial statements. For purposes of the presentation of the statement
of cash flows, cash and disbursements are deemed to be transferred to or from
the corporate account concurrent with the respective inflow or outflow of cash.



|2. |  | Summary of Significant Accounting Policies
|-- |  | ------------------------------------------

General

These financial statements are stated in Canadian dollars and have been
prepared in accordance with Canadian generally accepted accounting principles,
which in the case of these financial statements, differ in certain respects
from those in the United States. These differences are described in note 6.

The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the period. Estimates are used for, but not limited to, volumes of
recoverable petroleum and natural gas reserves and future site restoration and
abandonment costs. Actual results could differ from those estimates.

Petroleum and Natural Gas Producing Properties

PRL follows the successful efforts method of accounting for petroleum and
natural gas operations. Under this method, PRL 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.

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.

Certain of the exploration development and production activities related
to the Northeast Alberta Properties are conducted jointly with others. These
financial statements reflect only PRLs proportional interest in such
activities.





---



##### 



Paramount Resources Ltd.  Northeast Alberta Properties
Notes to Financial Statements
(Cdn$000 except as noted)

Revenue Recognition

Revenue from the sale of petroleum and natural gas is recorded at the time
that the product is produced and sold using the entitlement method. Natural
gas is produced in a substantially marketable state and is sold to purchasers
immediately at or near the point of production.

Future Site Restoration and Abandonment Costs

Estimated future site restoration and abandonment costs are provided for
using the unit of production method. This estimate, net of expected recoveries,
includes the cost of the equipment removal and environmental cleanup based upon
current regulations and economic circumstances at year end. Actual site
restoration costs are deducted from the provision in the year incurred. The
total estimated future liability (undiscounted) for the dismantlement,
restoration and abandonment of the wells and facilities comprising the
Northeast Alberta Properties is approximately $20 million

Financial Instruments

PRL utilizes derivative financial instrument contracts to manage its
exposure to petroleum and natural gas prices and the Canadian/US dollar
exchange rate. Gains or losses from foreign exchange and commodity hedge
contracts, including amounts realized on the early termination of the
contracts, are recognized in the same period as the related production revenue.
The fair values of these contracts are not reflected in the financial
statements.





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##### 



Paramount Resources Ltd.  Northeast Alberta Properties
Notes to Financial Statements
(Cdn$000 except as noted)



|3. |  | Acquisition of Northeast Alberta Properties by Paramount Energy Trust
|-- |  | ---------------------------------------------------------------------

In accordance with a series of agreements, a trust beneficially owned by
PET acquired , in February and March of 2003, in most of PRLs remaining
properties in its northeast Alberta core area (the PET Assets). PRLs
properties in its northeast Alberta core area that are not being transferred to
PET are referred to as the Excluded Assets for purposes of these financial
statements.

The revenues (excluding gains or losses on hedging), royalties and
operating expenses of each of the groups of properties are as follows:

|                             |                                 |        |         |         |          |               |           |       |   |   |         |         |  
|---------------------------- | ------------------------------- | ------ | ------- | ------- | -------- | ------------- | --------- | ----- | - | - | ------- | ------- | -
|                             |                                 |        | PET     |         | Excluded |               | Northeast
|Year Ended December 31, 2002 |                                 | Assets |         | Assets  |          | Alberta Total
|                             |                                 |        |         |         |          |              
|Revenue                      |                                 |        |         |         |          |               |           |       |   |   |         |        
|                             | Petroleum and
natural gas sales |        | $       | 123,739 |          |               | $         | 2,356 |   |   | $       | 126,095 |  
|                             | Royalties                       |        |         | (21,886 | )        |               |           | (602  | ) |   |         | (22,488 | )
|                             |                                 |        |         |         |          |               |           |       |   |   |         |         |  
|                             |                                 |        | 101,853 |         |          |               | 1,754     |       |   |   | 103,607 |        
|Operating Expenses           |                                 |        | 30,265  |         |          |               | 422       |       |   |   | 30,687  |        
|                             |                                 |        |         |         |          |               |           |       |   |   |         |         |  
|                             |                                 | $      | 71,588  |         |          | $             | 1,332     |       |   | $ | 72,920  |        
|                             |                                 |        |         |         |          |               |           |       |   |   |         |         |  

|                             |                                 |        |         |         |          |               |           |        |   |   |         |         |  
|---------------------------- | ------------------------------- | ------ | ------- | ------- | -------- | ------------- | --------- | ------ | - | - | ------- | ------- | -
|                             |                                 |        | PET     |         | Excluded |               | Northeast
|Year Ended December 31, 2001 |                                 | Assets |         | Assets  |          | Alberta Total
|                             |                                 |        |         |         |          |              
|Revenue                      |                                 |        |         |         |          |               |           |        |   |   |         |        
|                             | Petroleum and
natural gas sales |        | $       | 228,283 |          |               | $         | 7,358  |   |   | $       | 235,641 |  
|                             | Royalties                       |        |         | (45,761 | )        |               |           | (1,558 | ) |   |         | (47,319 | )
|                             |                                 |        |         |         |          |               |           |        |   |   |         |         |  
|                             |                                 |        | 182,522 |         |          |               | 5,800     |        |   |   | 188,322 |        
|Operating Expenses           |                                 |        | 32,870  |         |          |               | 1,085     |        |   |   | 33,955  |        
|                             |                                 |        |         |         |          |               |           |        |   |   |         |         |  
|                             |                                 | $      | 149,652 |         |          | $             | 4,715     |        |   | $ | 154,367 |        
|                             |                                 |        |         |         |          |               |           |        |   |   |         |         |  

|                             |                                 |        |         |         |          |               |           |        |   |   |         |         |  
|---------------------------- | ------------------------------- | ------ | ------- | ------- | -------- | ------------- | --------- | ------ | - | - | ------- | ------- | -
|                             |                                 |        | PET     |         | Excluded |               | Northeast
|Year Ended December 31, 2000 |                                 | Assets |         | Assets  |          | Alberta Total
|                             |                                 |        |         |         |          |              
|Revenue                      |                                 |        |         |         |          |               |           |        |   |   |         |        
|                             | Petroleum and
natural gas sales |        | $       | 182,727 |          |               | $         | 13,200 |   |   | $       | 195,927 |  
|                             | Royalties                       |        |         | (35,191 | )        |               |           | (3,602 | ) |   |         | (38,793 | )
|                             |                                 |        |         |         |          |               |           |        |   |   |         |         |  
|                             |                                 |        | 147,536 |         |          |               | 9,598     |        |   |   | 157,134 |        
|Operating Expenses           |                                 |        | 24,146  |         |          |               | 1,195     |        |   |   | 25,341  |        
|                             |                                 |        |         |         |          |               |           |        |   |   |         |         |  
|                             |                                 | $      | 123,390 |         |          | $             | 8,403     |        |   | $ | 131,793 |        
|                             |                                 |        |         |         |          |               |           |        |   |   |         |         |  



|4. |  | Surmount Compensation
|-- |  | ---------------------

During 2000, the Alberta Energy and Utilities Board (the AEUB) issued a
decision regarding the Surmont natural gas bitumen co-production issue. The
Surmont property is in northeast Alberta, was not acquired by PET and is one of
the Excluded Assets. As a result of this decision, the AEUB ordered the
shut-in of approximately 22 mmcf/d of PRLs production. On February 28, 2002
PRL and other Surmont gas producers entered into a Memorandum of Understanding
with the Province of Alberta effective May 1, 2000. The Memorandum provided for
compensation of approximately $85 million to be paid to PRL and the other
Surmont producers by the Alberta Crown, as well as granting to the Province of
Alberta an 11% gross overriding royalty encompassing certain wells, land and
leases affected by the shut-in order of May 1, 2000.





---



##### 



Paramount Resources Ltd.  Northeast Alberta Properties
Notes to Financial Statements
(Cdn$000 except as noted)

In June 2002, PRL received approximately $46.4 million from the Province
of Alberta as compensation for its proportionate share of the settlement. The
cash settlement, net of the book value of wells, lands and leases in the
affected area of $9.1 million, has been recorded as a gain of $37.3 million in
net earnings in the current period.



|5. |  | Financial Instruments
|-- |  | ---------------------

For purposes of these financial statements, gains and losses resulting
from the hedging of natural gas prices and Canadian/US dollar exchange rate
fluctuations have been allocated for each period on a pro rata basis using
applicable cash flows of the Northeast Alberta Properties as a proportion of
the aggregate cash flows of PRL. Deferred gains or losses as at the balance
sheet dates, such as amounts resulting from the early termination of hedging
instruments, have been allocated on a pro rata basis using expected future
production of the Northeast Alberta Properties as a proportion of the aggregate
expected future production of PRL. Gains or losses applicable to hedging of
interest rates have been excluded from these financial statements.



| | (a) |  | December 31, 2002      
| | --- |  | -----------------------
|
| | (i) |  | Foreign Exchange Hedges

PRL had entered into currency index swap transactions, fixing the exchange
rate on receipts of $US 40.9 million for $Cdn 58.6 million over the next three
years at $Cdn 1.4322. The $US/$Cdn closing exchange rate was 1.5776 as at
December 31, 2002 (2001  1.5928).

At December 31, 2002, the estimated fair value based on PRLs assessment
of available market information was a loss of $6.0 million (2001  loss of $4.6
million).



| | (ii) |  | Natural Gas Commodity Price Hedges
| | ---- |  | ----------------------------------

PRL had entered into financial forward sales arrangements as follows:

|            |  |       |         |      |  |                                      |  | 
|----------- |  | ----- | ------- | ---- |  | ------------------------------------ |  | 
|            |  | Price |         | Term
|            |  |       |         |     
|AECO        |  |       |         |      |  |                                      |  | 
|10,000 GJ/d |  | $     | 5.46    |      |  | November 30, 2002  October 31, 2003
|20,000 GJ/d |  | $     | 5.06    |      |  | November 30, 2002  October 31, 2003
|20,000 GJ/d |  | $     | 5.25    |      |  | November 30, 2002  October 31, 2003
|NYMEX       |  |       |         |      |  |                                      |  | 
|20 mmcf/d   |  | $     | US 3.83 |      |  | November 1, 2002  October 31, 2003 
|20 mmcf/d   |  | $     | US 3.90 |      |  | November 1, 2002  October 31, 2003 
|10 mmcf/d   |  | $     | US 4.10 |      |  | November 1, 2002  October 31, 2003 

The pre-tax unrealized loss on these financial contracts at December 31,
2002 totalled $28.7 million.

PRL periodically settles outstanding commodity hedging contracts. Cash
proceeds or payments on settlement are included in deferred revenue or deferred
hedging losses and amortized over the life of the initial hedging contract.





---



##### 



Paramount Resources Ltd.  Northeast Alberta Properties
Notes to Financial Statements
(Cdn$000 except as noted)



| | (b) |  | Fair Value of Financial Assets and Liabilities
| | --- |  | ----------------------------------------------

Fair values of derivative instruments are determined based on the
estimated cash payment or receipt necessary to settle the contract. Cash
payments or receipts are based on discounted cash flow analysis using current
market rates and prices available to PRL.



|6. |  | Accounting Principles Generally Accepted in the United States
|-- |  | -------------------------------------------------------------

These financial statements 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:

|                                 |  |  |   |  |  |                         |        |      |  |      |        |   |  |   |        | 
|-------------------------------- |  |  | - |  |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | 
|                                 |  |  |   |  |  | Year ended December 31,
|                                 |  |  |   |  |  | 2002                    |        | 2001 |  | 2000
|                                 |  |  |   |  |  |                         |        |      |  |     
|Net earnings - Canadian GAAP     |  |  |   |  |  | $                       | 39,761 |      |  | $    | 67,914 |   |  | $ | 51,825 | 
|Derivative financial instruments |  |  | b |  |  |                         | (7,780 | )    |  |      | 4,929  |   |  |   |       | 
|Future Income Taxes              |  |  | b |  |  |                         | 3,112  |      |  |      | (1,972 | ) |  |   |       | 
|                                 |  |  |   |  |  |                         |        |      |  |      |        |   |  |   |        | 
|Net earnings - US GAAP           |  |  |   |  |  | $                       | 35,093 |      |  | $    | 70,871 |   |  | $ | 51,825 | 
|                                 |  |  |   |  |  |                         |        |      |  |      |        |   |  |   |        | 

Balance Sheet

|                      |  |          |          |         |  |          |          |         |  |   |          |   |  |   |          |  
|--------------------- |  | -------- | -------- | ------- |  | -------- | -------- | ------- |  | - | -------- | - |  | - | -------- | -
|                      |  | 2002     |          | 2001   
|                      |  | Cdn GAAP |          | US GAAP |  | Cdn GAAP |          | US GAAP
|                      |  |          |          |         |  |          |          |        
|Deferred Hedging Loss |  | $        |         |         |  | $        |         |         |  | $ | 8,003    |   |  | $ |         |  
|Accounts Receivable   |  |          | 16,444   |         |  |          | 16,444   |         |  |   | 11,148   |   |  |   | 23,468   |  
|Accounts Payable      |  |          | (22,094  | )       |  |          | (32,157  | )       |  |   | (12,054  | ) |  |   | (12,054  | )
|Deferred Revenue      |  |          | (2,283   | )       |  |          |         |         |  |   | (612     | ) |  |   |         |  
|Future Income Taxes   |  |          | (133,616 | )       |  |          | (132,476 | )       |  |   | (109,785 | ) |  |   | (111,757 | )
|Investment by PRL     |  | $        | (113,952 | )       |  | $        | (107,312 | )       |  | $ | (200,982 | ) |  | $ | (203,939 | )



| | a) |  | Property, Plant and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Under 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. Under Canadian GAAP, the impairment
loss is the difference between the carrying value of the asset and
its net recoverable amount (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.





---



##### 



Paramount Resources Ltd.  Northeast Alberta Properties
Notes to Financial Statements
(Cdn$000 except as noted)



| | b) |  | Accounting for Derivative Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Under U.S. GAAP, PRL is 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |    |  | As PRL did not contemplate the preparation of US GAAP financial
statements at the time the derivative instruments were entered
into, and the required hedge accounting documentation was not
prepared, the derivatives entered into by PRL 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 Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |    |  | In 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) |  | Other Comprehensive Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |    |  | Under 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      





---



##### 



Paramount Resources Ltd.  Northeast Alberta Properties
Notes to Financial Statements
(Cdn$000 except as noted)



| | e)  |  | Statement of Cash Flows                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | There are no differences between Canadian and US GAAP as they
apply to statements of cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | f)  |  | Known But Not Yet Adopted Changes in Accounting Principles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (i) |  | Future Removal and Site Restoration                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     |  | Beginning on January 1, 2003, companies will be required to
adopt 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. As at the date of
adoption of January 1, 2003 the amount to be recorded as the
fair value of the liability has been estimated at $10 million
representing the discounted value of the total estimated future
liability for the dismantlement, restoration and abandonment of
wells and facilities comprising the Northeast Alberta
Properties of approximately $20 million.



|7. |  | Subsequent Events
|-- |  | -----------------

On June 3, 2003 the 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.

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.





---



##### 



Paramount Resources Ltd.  Northeast Alberta Properties
Notes to Financial Statements
(Cdn$000 except as noted)

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 financial statements.