##### 



EXHIBIT 12.3

Consolidated Balance Sheets of Paramount Energy Trust as at March 31, 2003 and
December 31, 2002, and Consolidated Statements of Earnings and Retained
Earnings and Cash Flows of Paramount Energy Trust for the three month period
ending March 31, 2003 and 2002.

Paramount Energy Trust
Consolidated Balance Sheets

|                                                            |                                          |   |                |        |                   |   |         |       | 
|----------------------------------------------------------- | ---------------------------------------- | - | -------------- | ------ | ----------------- | - | ------- | ----- | 
|                                                            |                                          |   | March 31, 2003 |        | December 31, 2002
|                                                            |                                          |   | (unaudited)    |        | (audited)        
|                                                            |                                          |   |                |        |                  
|($ thousands)                                               |                                          |   |                |        |                   |   |         |      
|Assets                                                      |                                          |   |                |        |                   |   |         |      
|Current
Assets                                             
|                                                            | Accounts Receivable                      | $ | 32,402         |        |                   | $ | 16,012  |      
|Capital Assets (Note 3)                                     |                                          |   | 269,015        |        |                   |   | 252,048 |      
|                                                            |                                          |   |                |        |                   |   |         |      
|                                                            |                                          | $ | 301,417        |        |                   | $ | 268,060 |      
|                                                            |                                          |   |                |        |                   |   |         |      
|Liabilities                                                 |                                          |   |                |        |                   |   |         |      
|Current
Liabilities                                        
|                                                            | Accounts Payable and Accrued Liabilities | $ | 23,914         |        |                   | $ | 19,306  |      
|                                                            | Distributions Payable                    |   |                | 32,900 |                   |   |         |      | 
|                                                            | Bank and Other Debt (Note 4)             |   |                | 60,633 |                   |   |         | 2,123 | 
|                                                            |                                          |   |                |        |                   |   |         |      
|                                                            |                                          |   | 117,447        |        |                   |   | 21,429  |      
|                                                            |                                          |   |                |        |                   |   |         |      
|Provision for Future Site restoration and Abandonment Costs |                                          |   | 7,511          |        |                   |   | 7,111   |      
|Unitholders Equity                                         |                                          |   |                |        |                   |   |         |      
|Trust Units (Note 5)                                        |                                          |   | 199,381        |        |                   |   |        |      
|Net Book Value Adjustment (Note 3)                          |                                          |   | (45,131        | )      |                   |   | 1,317   |      
|Net Investment of Paramount Resources Ltd. in Properties    |                                          |   |               |        |                   |   | 238,203 |      
|Retained Earnings                                           |                                          |   | 22,209         |        |                   |   |        |      
|                                                            |                                          |   |                |        |                   |   |         |      
|                                                            |                                          |   | 176,459        |        |                   |   | 239,520 |      
|                                                            |                                          |   |                |        |                   |   |         |      
|                                                            |                                          | $ | 301,417        |        |                   | $ | 268,060 |      
|                                                            |                                          |   |                |        |                   |   |         |      

Basis of Presentation: Note 1 and Note 2
Subsequent Events: Note 8

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               





---



##### 



Paramount Energy Trust
Consolidated Statements of Earnings and Retained Earnings

|                                              |                                                              |           |         |          |       |   |         |        |       |  
|--------------------------------------------- | ------------------------------------------------------------ | --------- | ------- | -------- | ----- | - | ------- | ------ | ----- | -
|Three month period ended March 31 (unaudited) |                                                              | 2003      |         | 2002    
|                                              |                                                              |           |         |         
|($ thousands except per unit amounts)         |                                                              |           |         |          |       |   |         |       
|Revenue                                       |                                                              |           |         |          |       |   |         |       
|                                              | Natural Gas                                                  |           | $       | 62,104   |       |   | $       | 21,778 |      
|                                              | Royalties                                                    |           |         | (14,195  | )     |   |         | (3,647 | )    
|                                              |                                                              |           |         |          |       |   |         |        |      
|                                              |                                                              |           | 47,909  |          |       |   | 18,131  |       
|                                              |                                                              |           |         |          |       |   |         |        |      
|Expenses                                      |                                                              |           |         |          |       |   |         |       
|                                              | Operating                                                    |           |         | 8,559    |       |   |         | 10,594 |      
|                                              | Dry Hole                                                     |           |         |         |       |   |         | 218    |      
|                                              | Geological and Geophysical                                   |           |         | 23       |       |   |         | 367    |      
|                                              | Lease Rentals                                                |           |         | 322      |       |   |         | 606    |      
|                                              | General and Administrative                                   |           |         | 766      |       |   |         | 975    |      
|                                              | Interest                                                     |           |         | 451      |       |   |         |       |      
|                                              | Future Site Restoration and Abandonment                      |           |         | 400      |       |   |         | 221    |      
|                                              | Depletion and Depreciation                                   |           |         | 10,972   |       |   |         | 12,528 |      
|                                              |                                                              |           |         |          |       |   |         |        |      
|                                              |                                                              |           | 21,493  |          |       |   | 25,509  |       
|                                              |                                                              |           |         |          |       |   |         |        |      
|Earnings (Loss) before Income Taxes           |                                                              |           | 26,416  |          |       |   | (7,378  | )     
|Income Taxes                                 
|                                              | Current                                                      |           |        |          |       |   | (2,951  | )     
|                                              |                                                              |           |         |          |       |   |         |        |      
|Net Earnings (Loss)                           |                                                              |           | 26,416  |          |       |   | (4,427  | )     
|Retained Earnings at Beginning of Period      |                                                              |           | 238,203 |          |       |   | 282,815 |       
|                                              | Reduction in Net Investment on Restructuring (Notes 1 and 2) |           |         | (209,510 | )     |   |         |       |      
|                                              | Distributions Paid or Payable in Period                      |           |         | (32,900  | )     |   |         |       |      
|                                              |                                                              |           |         |          |       |   |         |        |      
|Retained Earnings at End of Period            |                                                              | $         | 22,209  |          |       | $ | 278,388 |       
|                                              |                                                              |           |         |          |       |   |         |        |      
|Earnings (loss) Per Trust Unit (Note 2(d))    |                                                              |           |         |          |       |   |         |       
|                                              |                                                              |  Basic   |         | $        | (0.67 | ) |         | $      | (0.11 | )
|                                              |                                                              |  Diluted |         | $        | (0.65 | ) |         | $      | (0.11 | )
|                                              |                                                              |           |         |          |       |   |         |        |      





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##### 



Paramount Energy Trust
Consolidated Statements of Cash Flows

|                                              |                                          |                                    |                                         |          |         |     |         |        |       |     | 
|--------------------------------------------- | ---------------------------------------- | ---------------------------------- | --------------------------------------- | -------- | ------- | --- | ------- | ------ | ----- | --- | 
|Three month period ended March 31 (unaudited) |                                          | 2003                               |                                         | 2002    
|($ thousands)                                 |                                          |                                    |                                         |         
|Cash Provided By (Used For)                   |                                          |                                    |                                         |          |         |     |         |       
|Operating Activities                          |                                          |                                    |                                         |          |         |     |         |       
|                                              | Net Earnings (Loss)                      |                                    | $                                       | 26,416   |         |     | $       | (4,427 | )    
|                                              | Items
not Involving Cash                
|                                              |                                          |                                    | Depletion and Depreciation              | 10,972   |         |     |         | 12,528 |      
|                                              |                                          |                                    | Future Site Restoration and Abandonment |          |         | 400 |         |        |       | 221 | 
|                                              | Item
not associated with Operations     
|                                              |                                          |                                    | Dry Hole                                |         |         |     |         | 218    |      
|                                              |                                          |                                    | Geological and Geophysical              |          |         | 23  |         |        |       | 367 | 
|                                              |                                          |                                    |                                         |          |         |     |         |        |      
|                                              | Funds Flow from Operations               |                                    |                                         | 37,811   |         |     |         | 8,907  |      
|                                              |                                          | Change in Non-Cash Working Capital |                                         |          | (11,782 | )   |         |        | 1,114 |    
|                                              |                                          |                                    |                                         |          |         |     |         |        |      
|                                              |                                          |                                    | 26,029                                  |          |         |     | 10,021  |       
|                                              |                                          |                                    |                                         |          |         |     |         |        |      
|Financing Activities                          |                                          |                                    |                                         |          |         |     |         |       
|                                              | Issue of Trust Units                     |                                    |                                         | 201,130  |         |     |         |       |      
|                                              | Distributions to Unitholders             |                                    |                                         | (32,900  | )       |     |         |       |      
|                                              | Trust Unit Issue Costs                   |                                    |                                         | (1,749   | )       |     |         |       |      
|                                              | Change in Bank and Other Debt            |                                    |                                         | 58,510   |         |     |         |       |      
|                                              | Change in Non-Cash Working Capital       |                                    |                                         | 32,900   |         |     |         |       |      
|                                              |                                          |                                    |                                         |          |         |     |         |        |      
|                                              |                                          |                                    | 257,891                                 |          |         |     |        |       
|                                              |                                          |                                    |                                         |          |         |     |         |        |      
|Funds Available for Investment                |                                          |                                    | 283,920                                 |          |         |     | 10,021  |       
|                                              |                                          |                                    |                                         |          |         |     |         |        |      
|Investing Activities                          |                                          |                                    |                                         |          |         |     |         |       
|                                              | Dry Hole                                 |                                    |                                         |         |         |     |         | (218   | )    
|                                              | Geological and Geophysical               |                                    |                                         | (23      | )       |     |         | (367   | )    
|                                              | Acquisition of Properties                |                                    |                                         | (269,210 | )       |     |         |       |      
|                                              | Exploration and Development Expenditures |                                    |                                         | (14,687  | )       |     |         | (9,436 | )    
|                                              |                                          |                                    |                                         |          |         |     |         |        |      
|                                              |                                          | $                                  | (283,920                                | )        |         | $   | (10,021 | )     
|                                              |                                          |                                    |                                         |          |         |     |         |        |      





---



##### 



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



|1. |  | Paramount Energy Trust:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Paramount Energy Trust (PET or the Trust) 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.                                                                                                                                                                                                                                                                                         
|  
|   |  | 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:                                                                                                                                   



| |  |  | On February 3, 2003, 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





---



##### 



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



| |   |  | granted a guarantee to PRL for such indebtedness and granted PRL a
security interest over its assets for the guarantee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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 Trust Units, 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. On March 11, 2003, 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.



|2. |  | Basis of Presentation and Accounting Policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The accompanying consolidated balance sheet of PET as at March 31, 2003
and the consolidated statements of earnings and retained earnings and
cash flows of PET for the three month period ended March 31, 2003 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Prior to the asset acquisitions on February 3, and March 11, 2003
described in Note 1, the consolidated financial statements include the
operations and results of the northeast Alberta properties of Paramount
Resources Ltd which were acquired by the Trust on those dates. The
consolidated financial statements have been prepared on a continuity of
interests basis which recognizes the Trust as the successor entity to
PRLs northeast Alberta core area of operations as the Trust acquired
substantially all of PRLs natural gas assets in that region. Certain of
PRLs properties in northeast Alberta were not acquired by the Trust and
the results of such properties have been excluded from these consolidated
financial statements. While the amounts applicable to PRLs northeast
Alberta properties for certain revenues, royalties, expenses, assets and
liabilities could be derived directly from the accounting records of PRL,
it was necessary to allocate certain other items between PRLs core
areas. In the opinion of management, the consolidated balance sheet and
statements of earnings and retained earnings and cash flows include all
adjustments necessary for the fair presentation of the proposed
transactions in accordance with Canadian GAAP.



| | 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





---



##### 



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



| |    |  | 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. An impairment loss should be recognized when the carrying
amount of the asset is less than the sum of the expected future
cash flows (undiscounted and without interest charges). The amount
of the impairment loss is calculated as the difference between the
carrying amount and the fair value of the asset where fair value
is calculated as the present value of estimated future cash flows.
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.
|
| |    |  | Prior to January 1, 2003, the net amount at which petroleum and
natural gas costs on a property or project were carried was
subject to a different cost-recovery test. Any impairment loss
was the difference between the carrying value of the asset and its
recoverable amount (undiscounted). This change has been adopted
retroactively but had no effect on these consolidated financial
statements.                                                                                                                                                                                                                                                                                                                                                                               
|
| |    |  | 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) |  | Per Unit InformationThe Trust uses the treasury stock method
where only in the money dilutive instruments impact the diluted
calculations. In computing diluted earnings and funds flow from
operations per unit, no net Units were added to the weighted average
number of common shares outstanding during the year ended December
31, 2002 (2001  nil net units) for the dilutive effect of Unit
options. No adjustments were required to reported earnings or funds
flow from operations in computing diluted per
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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##### 



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



| |    |  | unit amounts. A total of nil (2000  nil) options were excluded
from the diluted calculations as they were anti-dilutive. Per Unit
amounts for all periods presented have been presented on a
pro-forma basis as if the Trusts Units outstanding at March 31,
2003 were all outstanding for each period shown.                                                                                                                                                                                                                                                                                                                                                      
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | e) |  | 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.                                                                                                                                                                                                                                                                                                                                      
|
| | f) |  | 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.                                                                                                                                                                                                    
|
| | g) |  | 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.                                                                                                                                      
|
| | h) |  | Unit Incentive PlanThe Trust has a unit incentive plan as
described in note 6. No amount is recorded as an expense when
options are issued. Consideration received upon exercise of options
is included in share capital.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |    |  | Effective for fiscal years beginning on or after January 1, 2002,
the Trust adopted the recommendations of the CICA on accounting
for stock based compensation which apply to new rights granted on
or after January 1, 2002. The Trust has elected to measure
compensation cost based on the intrinsic value of the award at the
date of the grant and recognize that cost over the vesting period.
As the exercise price of the rights granted approximates the
market price of the trust units at the time of the grant date, no
compensation cost has been provided in the statement of income.                                                                  
|
| |    |  | The exercise price of the rights granted under the Trusts unit
incentive plan may be reduced in future periods in accordance with
the terms of the rights plan. The amount of the reduction cannot
be reasonably estimated as it is dependent upon a number of
factors including, but not limited to, future prices received on
the sale of oil and natural gas, future production of oil and
natural gas, determination of amounts to be withheld from future
distributions to fund capital expenditures and the purchase and
sale of property, plant and equipment. Therefore, it is not
possible to determine a fair value for the rights granted under
the plan.





---



##### 



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



|3. |  | Capital Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Effective July 1, 2002, PET entered into a series of agreements with its
then parent Paramount Resources Limited, to acquire certain natural gas
properties in northeast Alberta. The purchase price for the initial
assets acquired was $81 million funded by way of issue of units and
promissory notes. The purchase price for the remaining additional assets
was $220 million funded by way of cash received from the issue of Trust
Units pursuant to a Rights offering (Note 1) and bank debt (Note 1). As
related party transactions, the purchase price of the acquired assets was
adjusted to reflect the sellers net book value of the assets. This
resulted in a reduction in the carrying value of natural gas properties
of $46.4 million. This amount was recorded as a reduction in Unitholders
Equity.
|  
|   |  | 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 Trusts current
office premises. The purchase price for these assets was $2,073,000 and
was paid for by way of issue of a promissory note (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 the
vendor. This resulted in an increase in the carrying value of the assets
of $1,317,000 and an equivalent increase in Unitholders Equity.                                                                                                                                                                          

|                                       |  |           |          |              |  |   |          |  
|-------------------------------------- |  | --------- | -------- | ------------ |  | - | -------- | -
|                                       |  | March 31, |          | December 31,
|                                       |  | 2003      |          | 2002        
|                                       |  |           |          |             
|Petroleum and Natural Gas Properties   |  | $         | 571,910  |              |  | $ | 497,523  |  
|Corporate Assets                       |  |           | 2,828    |              |  |   | 2,828    |  
|Adjustment to Net Book Value           |  |           | (45,131  | )            |  |   | 1,317    |  
|                                       |  |           |          |              |  |   |          |  
|                                       |  |           | 529,607  |              |  |   | 501,668  |  
|Accumulated Depletion and Depreciation |  |           | (260,592 | )            |  |   | (249,620 | )
|                                       |  |           |          |              |  |   |          |  
|                                       |  | $         | 269,015  |              |  | $ | 252,048  |  
|                                       |  |           |          |              |  |   |          |  



|4. |  | Bank and Other Debt                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On February 4, 2003 Paramount Energy Trust issued a promissory note in
the amount of $34.2 million in relation to the acquisition of certain
assets in Northeast Alberta. Subsequently this promissory note was
extinguished through the issue of Trust Units (Note 5).                                                                                                                         
|  
|   |  | On February 3, 2003 Paramount Energy Trust issued a promissory note in
the amount of $30.0 million in relation to the acquisition of certain
assets in Northeast Alberta. Subsequently this promissory note was
extinguished through the utilization of bank facilities.                                                                                                                        
|  
|   |  | On July 1, 2002, PET issued a promissory note pursuant to the acquisition
of assets from Summit Resources Limited (Note 3). This promissory note
accrued 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





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##### 



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



|   |  | was extinguished.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | PET has a demand credit facility with a syndicate of Canadian Chartered
Banks in the amount of $100 million, with a borrowing base at March 31,
2003 of $100 million. The facility consists of a revolving demand loan of
$90 million and a working capital facility of $10 million. The borrowing
base increased to $115 million effective April 30, 2003. In addition to
amounts outstanding under the facility, PET has outstanding letters of
credit in the amount of $1.7 million. Collateral for the credit facility
is provided by a floating-charge debenture covering all existing and
after acquired property of the Trust as well as unconditional full
liability guarantees from all subsidiaries in respect of amounts borrowed
under the facility.
|  
|   |  | Advances under the facility are made in the form of Bankers Acceptances
(BA), prime rate loans or letters of credit. In the case of BA advances,
interest is a function of the BA rate plus a stamping fee based on the
Trusts current ratio of debt to cash flow. In the case of prime rate
loans, interest is charged at the Lenders prime rate.                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|5. |  | Trust Unit Capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



| | a) |  | Authorized                                                                                                                                                          
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |    |  | Authorized capital consists of an unlimited number of Trust Units
and an unlimited number of Special Voting Units. No Special Voting
Units have been issued to date.
|
| | b) |  | Issued and Outstanding                                                                                                                                              
|
| |    |  | The following is a summary of changes in capital during the period
ended March 31, 2003:                                                                            

|                                                                             |  |          |            |        |  |   |             |  
|---------------------------------------------------------------------------- |  | -------- | ---------- | ------ |  | - | ----------- | -
|                                                                             |  | Number   |            |        |  |  
|Trust Units                                                                  |  | Of Units |            | Amount
|                                                                             |  |          |            |       
|Balance, December 31, 2002                                                   |  |          | 1          |        |  | $ | 100         |  
|Units issued on settlement of Promissory Note                                |  |          | 6,636,045  |        |  |   | 34,152,000  |  
|Units issued on settlement of Promissory Note                                |  |          | 3,273,721  |        |  |   | 16,848,000  |  
|Units cancelled after declaration of
dividend by Paramount Resources Limited |  |          | (173       | )      |  |   | (874        | )
|Units issued pursuant to Rights Offering                                     |  |          | 29,728,782 |        |  |   | 150,130,349 |  
|Trust Unit issue costs                                                       |  |          |           |        |  |   | (1,748,984  | )
|                                                                             |  |          |            |        |  |   |             |  
|Balance, March 31, 2003                                                      |  |          | 39,638,376 |        |  | $ | 199,380,591 |  
|                                                                             |  |          |            |        |  |   |             |  



|6. |  | 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





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##### 



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



|    |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | PET has granted 1,003,000 rights to purchase PET Trust Units to
directors, officers and employees of the Administrator.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | At March 31, 2003 a total of 3,963,838 units had been reserved under the
Unit Incentive Plan. No units reserved under the Unit Incentive Plan had
vested. All units had an exercise price of $5.05.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|7.  |  | Distributions to Unitholders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | Cash distributions to Unitholders declared by the Trust for the period
ended March 31, 2003 totalled $0.83 per trust unit. Such distributions
were paid to Unitholders on April 15, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|8.  |  | Subsequent events:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(a) |  | On April 10, 2003 PET announced the acquisition of certain properties
from Paramount Resources Ltd. for $19.9 million before closing
adjustments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(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 Trust
Unit for 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.





---



##### 



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



| |  | 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.
|
| |  | 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.