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U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 40-F o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934.
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13(a) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the fiscal year ended: December 31, 2003
    
    Commission File Number: 1-31253
 PENGROWTH ENERGY TRUST  Alberta, Canada
(Province or other jurisdiction of incorporation or organization) 1311
(Primary Standard Industrial
Classification Code Number)
    
    None
(I.R.S. Employer
Identification Number)
 Suite 2900,
111 5th Avenue S.W.
Calgary, Alberta Canada T2P 3Y6
(403) 233-0224
(Address and telephone number of Registrants principal executive offices) Vinson & Elkins L.L.P.
2300 First City Tower, 1001 Fannin
Houston, Texas 77002-6760
(713) 758-2222 (Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States) Securities registered or to be registered pursuant to Section 12(b) of the Act. Title of each class
    
    Name of each exchange on which registeredTrust Units
    
    New York Stock Exchange
 Securities registered or to be registered pursuant to Section 12(g) of the Act. None




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TABLE OF CONTENTS  DOCUMENTS FILED AS PART OF THIS ANNUAL REPORTCONTROLS AND PROCEDURESNOTICES PURSUANT TO REGULATION BTRIDENTIFICATION OF THE AUDIT COMMITTEEAUDIT COMMITTEE FINANCIAL EXPERTGOVERNANCE DISCLOSURE INCORPORATED BY REFERENCEUNDERTAKINGSIGNATURESAPPENDIX AGLOSSARY OF TERMS AND ABBREVIATIONSCONVERSIONPRESENTATION OF OUR FINANCIAL INFORMATIONPRESENTATION OF OUR RESERVE INFORMATIONFORWARD-LOOKING STATEMENTSPENGROWTH ENERGY TRUSTGENERAL DEVELOPMENT OF PENGROWTH ENERGY TRUSTOrganization and StructureBusiness Strategy and StrengthsHistorical DevelopmentRecent Acquisitions, Financings and DevelopmentsTrendsPENGROWTH MANAGEMENT LIMITEDBusinessManagement AgreementPENGROWTH CORPORATION  OPERATIONAL INFORMATIONPrincipal PropertiesReservesAdditional Information Relating to Reserves DataOther Oil And Gas InformationProductionReplacement of PropertiesBorrowingTRUST UNITSThe Trust IndentureThe TrusteeRedemption RightVoting at Meetings of Pengrowth TrustVoting at Meetings of Pengrowth CorporationTermination of Pengrowth TrustUnitholder Limited LiabilitySpecial Voting Unit2004 Annual and Special MeetingTHE ROYALTY INDENTURERoyalty UnitsThe RoyaltyThe TrusteeDISTRIBUTIONSINDUSTRY CONDITIONSGovernment RegulationPricing and Marketing  OilPricing and Marketing  Natural GasThe North American Free Trade AgreementProvincial Royalties and IncentivesEnvironmental RegulationSELECTED FINANCIAL INFORMATIONMANAGEMENTS DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITIONMARKET FOR SECURITIESDIRECTORS AND OFFICERSDirectors and Officers of Pengrowth ManagementPrincipal Holders of Shares of Pengrowth ManagementDirectors and Officers of Pengrowth CorporationRISK FACTORSCONFLICTS OF INTERESTCODE OF ETHICSPRINCIPAL ACCOUNTANT FEES AND SERVICESPRE-APPROVAL POLICIES AND PROCEDURESOFF-BALANCE SHEET ARRANGEMENTSTABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONSDISCLOSURE PURSUANT TO THE REQUIREMENTS OF THE NEW YORK STOCK EXCHANGEADDITIONAL INFORMATIONAPPENDIX BAPPENDIX CAPPENDIX EAPPENDIX FAPPENDIX GEXHIBITSConsent of Independent Chartered AccountantsConsent of Gilbert Lausten Jung Associates Ltd.Certificate pursuant to Section 906Certificate of CEO - Rule 13a-14(a) or 15d-14Certificate of CFO - Rule 13a-14(a) or 15d-14    Table of Contents  Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None   For Annual Reports indicate by check mark the information filed with this
Form: þ
    
    Annual information form
    
    þ
    
    Audited annual financial statements
 Indicate the number of outstanding shares of each of the issuers classes
of capital or common stock as of the close of the period covered by the annual
report: There were 123,873,651 Trust Units, of no par value, outstanding as of
December 31, 2003. Indicate by check mark whether the Registrant filing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
(the Exchange Act). If Yes is marked, please indicate the filing number
assigned to the Registrant in connection with such Rule. Yes o       No þ Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to filing requirements for the past 90
days. Yes þ      No o 
 DOCUMENTS FILED AS PART OF THIS ANNUAL REPORT The following documents have been filed as part of this Annual Report on
Form 40-F as Appendices hereto: Appendix
    
    DocumentsA
    
    Pengrowth Energy Trust Renewal Annual Information Form for the
year ended December 31, 2003.B
    
    Managements Discussion and Analysis (included on pages 42
through 65 of the Pengrowth Energy Trust 2003 Annual Report).
 -2-




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C
    
    Consolidated Financial Statements of Pengrowth Energy Trust
(included on pages 66 through 97 of the Pengrowth Energy Trust
2003 Annual Report), including footnote 20 thereof which includes
a reconciliation of the Consolidated Financial Statements to
United States generally accepted accounting principles.D
    
    Five Year Review  Pengrowth Energy Trust Consolidated Financial
Results (included on pages 98 through 99 of the Pengrowth Energy
Trust 2003 Annual Report).E
    
    Corporate Governance (included on pages 100 through 102 of the
Pengrowth Energy Trust 2003 Annual Report).F
    
    Part II  Corporate Governance (included on pages 12 through 21
of the Pengrowth Energy Trust Information Circular  Proxy
Statement dated March 15, 2004).G
    
    Oil and Gas Producing Activities Prepared in Accordance with SFAS
No. 69  Disclosures about Oil and Gas Producing Activities.
 
 CONTROLS AND PROCEDURES As of a date within 90 days of the date of filing this Annual Report, an
evaluation was carried out under the supervision, and with the participation,
of the Registrants management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Registrants disclosure controls
and procedures, as that term is defined in Form 40-F. Based on that
evaluation, the Registrants Chief Executive Officer and Chief Financial
Officer concluded that the design and operation of these disclosure controls
and procedures were effective to ensure that material information required to
be disclosed by the Registrant in the reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the Commissions rules and forms. No significant changes were made in the Registrants internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses. It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future
events. Because of these and other inherent limitations of control systems,
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions, regardless of how remote. 
 NOTICES PURSUANT TO REGULATION BTR None -3-




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IDENTIFICATION OF THE AUDIT COMMITTEE The registrant has a separately-designated standing audit committee established
in accordance with section 3(a)(58)(A) of the Exchange Act. The members of the
audit committee are: Thomas A. Cumming, Michael A. Grandin and Michael S.
Parrett. 
 AUDIT COMMITTEE FINANCIAL EXPERT The board of directors of the Registrant has determined that Messrs.
Michael A. Grandin and Michael S. Parrett, members of the Registrants audit
committee, qualify as an audit committee financial experts for purposes of
paragraph (8) of General Instruction B to Form 40-F. The board of directors
has further determined that Messrs. Grandin and Parrett are also independent,
as that term is defined in the Corporate Governance Listing Standards of the
New York Stock Exchange. The Commission has indicated that the designation of
Messrs. Grandin and Parrett as audit committee financial experts does not make
them an expert for any purpose, impose any duties, obligations or liabilities
on them that are greater than those imposed on members of the audit committee
and the board of directors who do not carry this designation or affect the
duties, obligations or liabilities of any other member of the audit committee
or the board of directors. 
 GOVERNANCE DISCLOSURE INCORPORATED BY REFERENCE Certain disclosure regarding the corporate governance practices of the
Registrant, including disclosure of the Registrants code of ethics, principal
accountant fees and services, pre-approval policies and procedures, off-balance
sheet arrangements and contractual obligations, is included on pages 55 through
57 of the Annual Information Form contained in Appendix C and incorporated
herein. 
 UNDERTAKING Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Commission staff, and to
furnish promptly, when requested to do so by the Commission staff, information
relating to: the securities registered pursuant to Form 40-F; the securities in
relation to which the obligation to file an annual report on Form 40-F arises;
or transactions in said securities. -4-




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SIGNATURES Pursuant to the requirements of the Exchange Act, the Registrant certifies
that it meets all of the requirements for filing on Form 40-F and has duly
caused this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized. Date: May 17, 2004
    
    PENGROWTH ENERGY TRUST
by its Administrator PENGROWTH
CORPORATIONBy:
    
    /s/ James S. KinnearJames S. KinnearPresident and Chief Executive Officer




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APPENDIX A PENGROWTH ENERGY TRUST RENEWAL ANNUAL INFORMATION FORM FOR THE YEAR ENDED
DECEMBER 31, 2003




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PENGROWTH ENERGY TRUST RENEWAL ANNUAL INFORMATION FORM Pengrowth Energy Trust is an energy investment trust formed under the laws of
the Province of Alberta which offers and sells its trust units to the public.
The trust units are not deposits within the meaning of the Canadian Deposit
Insurance Corporation Act (Canada) and are not insured under the provisions of
that Act or any other legislation. Furthermore, Pengrowth Energy Trust is not
a trust company and, accordingly, is not registered under any trust and loan
company legislation as it does not carry on or intend to carry on the business
of a trust company. May 17, 2004




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TABLE OF CONTENTS GLOSSARY OF TERMS AND ABBREVIATIONS
    
    
    4CONVERSION
    
    
    5PRESENTATION OF OUR FINANCIAL INFORMATION
    
    
    5PRESENTATION OF OUR RESERVE INFORMATION
    
    
    6FORWARD-LOOKING STATEMENTS
    
    
    6PENGROWTH ENERGY TRUST
    
    
    8GENERAL DEVELOPMENT OF PENGROWTH ENERGY TRUST
    
    
    8Organization and Structure
    
    
    8Business Strategy and Strengths
    
    
    9Historical Development
    
    
    10Recent Acquisitions, Financings and Developments
    
    
    12Trends
    
    
    16PENGROWTH MANAGEMENT LIMITED
    
    
    16Business
    
    
    16Management Agreement
    
    
    16PENGROWTH CORPORATION  OPERATIONAL INFORMATION
    
    
    18Principal Properties
    
    
    18Reserves
    
    
    24Additional Information Relating to Reserves Data
    
    
    32Other Oil And Gas Information
    
    
    33Production
    
    
    35Replacement of Properties
    
    
    37Borrowing
    
    
    37TRUST UNITS
    
    
    37The Trust Indenture
    
    
    37The Trustee
    
    
    38Redemption Right
    
    
    38Voting at Meetings of Pengrowth Trust
    
    
    38Voting at Meetings of Pengrowth Corporation
    
    
    38Termination of Pengrowth Trust
    
    
    39Unitholder Limited Liability
    
    
    39Special Voting Unit
    
    
    392004 Annual and Special Meeting
    
    
    39THE ROYALTY INDENTURE
    
    
    39Royalty Units
    
    
    39The Royalty
    
    
    40The Trustee
    
    
    41DISTRIBUTIONS
    
    
    41INDUSTRY CONDITIONS
    
    
    41Government Regulation
    
    
    41Pricing and Marketing  Oil
    
    
    42Pricing and Marketing  Natural Gas
    
    
    42The North American Free Trade Agreement
    
    
    42Provincial Royalties and Incentives
    
    
    42Environmental Regulation
    
    
    44
 - 2 -




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SELECTED FINANCIAL INFORMATION
    
    
    44MANAGEMENTS DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION
    
    
    45MARKET FOR SECURITIES
    
    
    45DIRECTORS AND OFFICERS
    
    
    45Directors and Officers of Pengrowth Management
    
    
    45Principal Holders of Shares of Pengrowth Management
    
    
    45Directors and Officers of Pengrowth Corporation
    
    
    46RISK FACTORS
    
    
    47CONFLICTS OF INTEREST
    
    
    55CODE OF ETHICS
    
    
    56PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    56PRE-APPROVAL POLICIES AND PROCEDURES
    
    
    57OFF-BALANCE SHEET ARRANGEMENTS
    
    
    57TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
    
    
    57DISCLOSURE PURSUANT TO THE REQUIREMENTS OF THE NEW YORK STOCK EXCHANGE
    
    
    57ADDITIONAL INFORMATION
    
    
    57
 Unless otherwise indicated, all of the information provided in this Annual
Information Form is as at December 31, 2003. - 3 -




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GLOSSARY OF TERMS AND ABBREVIATIONS Capitalized terms in this Annual Information Form has the meanings set forth below: Corporate  
    
    Board of Directorsrefers to the board of directors of Pengrowth Corporation;  
    
    Computersharerefers to Computershare Trust Company of Canada;  
    
    Pengrowth, we, us and ourrefers to Pengrowth Trust and Pengrowth Corporation on a consolidated basis;  
    
    Pengrowth Corporationrefers to Pengrowth Corporation, the administrator of Pengrowth Trust;  
    
    Pengrowth Managementrefers to Pengrowth Management Limited, the manager of Pengrowth Trust and Pengrowth Corporation;  
    
    Pengrowth Trustrefers to Pengrowth Energy Trust; and  
    
    unitholdersrefers to holders of trust units issued by Pengrowth Trust. Engineering  
    
    Developed Non-Producing Reservesrefers to those reserves that either
have not been on production, or have previously been on production, but
are shut-in, and the date of resumption of production is unknown;  
    
    Developed Producing Reservesrefers to those reserves expected to be
recovered from completion intervals open at the time of the estimate.
These reserves may be currently producing or, if shut in, they must have
previously been on production and the date of resumption of production
must be known with reasonable certainty;  
    
    Developed Reservesrefers to those reserves that are expected to be
recovered from existing wells and facilities or, if facilities have not
been installed, that would involve a low expenditure to put the reserves
on production. The developed category may be subdivided into producing
and non-producing;  
    
    Emerarefers to Emera Inc. and its subsidiaries, associates and affiliates on a consolidated basis;  
    
    GLJrefers to Gilbert Laustsen Jung Associates Ltd., independent petroleum consultants, Calgary, Alberta;  
    
    GLJ Reportrefers to the report prepared by GLJ dated February 19, 2004, having an effective date of December 31, 2003;  
    
    Grosswith respect to production and reserves refers to the total
production and reserves attributable to a property before the deduction
of royalties and with respect to land and wells refers to the total
number of acres or wells, as the case may be, in which Pengrowth has a
working interest or a royalty interest;  
    
    Netrefers to Pengrowths working interest share of production or
reserves, as the case may be, after the deduction of royalties, and,
with respect to land and wells, refers to Pengrowths working interest
share therein;  
    
    Pengrowth Gross Reserves or Pengrowth
Interest refers to Pengrowths working interest and
royalty interest share
of reserves before the deduction of royalties;  
    
    Pengrowth Total Proved Plus Probable Reservesmeans Pengrowths
working interest share of Total Proved Plus Probable Reserves before the
deduction of royalties;  
    
    Probable Reservesrefers to those additional reserves that are less
likely to be recovered than proved reserves. It is equally likely that
the actual remaining quantities recovered will be greater or less than
the sum of the estimated proved plus probable reserves;  
    
    Proved Reservesrefers to those reserves that can be estimated with a
high degree of certainty to be recoverable. It is likely that the
actual remaining quantities recovered will exceed the estimated proved
reserves;  
    
    Reserve Life Indexrefers to the number of years determined by
dividing the aggregate of the reserves of a
property by the estimated production per year from such property using
estimated production for the year 2004 as a reference;  
    
    Reservesrefers to estimated remaining quantities of oil and natural
gas and related substances anticipated to be recovered from known
accumulations, from a given date forward, based on: (i) analysis of
drilling, geological, geophysical and engineering data; (ii) the use of
established technology; and specified economic conditions which are
generally accepted as being reasonable and shall be disclosed. Reserves
are classified according to the degree of certainty associated with the
estimate;  
    
    royalty interestrefers to an interest in an oil and gas property consisting of a royalty granted in respect of production from the property; - 4 -




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
    
    Total Proved Plus Probable Reservesmeans the aggregate of Proved Reserves and Probable Reserves before the deduction of royalties;  
    
    Undeveloped Reservesrefers to those reserves expected to be produced
from known accumulation where a significant expenditure (eg. when
compared to the cost of drilling a well) is required to render them
capable of production. They must fully meet the requirements of the
reserve classification (proved, probable) to which they are assigned;  
    
    Unitizationrefers to a process whereby owners of adjoining
properties pool reserves into a single unit operated by one of the
owners, typically in order to conduct secondary recovery projects in a
manner that promotes improved recovery of reserves from a pool or field;
and  
    
    working interestrefers to the percentage of undivided interest held by Pengrowth in an oil and gas property. Abbreviations  
    
    bbl, bbls, mbbls, and mmbblsrefers to barrel, barrels, thousands of barrels and millions of barrels, respectively;  
    
    bblpdrefers to barrels per day;  
    
    boe, mboe and mmboerefers to barrels of oil equivalent, thousands of
barrels of oil equivalent and millions of barrels of oil equivalent,
respectively, on the basis of one boe being equal to one barrel of oil
or NGLs or six mcf of natural gas; barrels of oil equivalent may be
misleading, particularly if used in isolation; a conversion ratio of 6
mcf of natural gas to one boe is based on an energy equivalency
conversation method primarily applicable at the burner tip and does not
represent a value equivalency at the wellhead;  
    
    boepdrefers to barrels of oil equivalent per day;  
    
    $M and $MMrefers to thousands of dollars and millions of dollars, respectively;  
    
    mmbtu and mmbtupdrefers to a million british thermal units and million british thermal units per day respectively;  
    
    mcf, mmcf, bcf and tcfrefers to thousands of cubic feet, millions of cubic feet, billions of cubic feet and trillions of cubic feet, respectively;  
    
    mcfpd and mmcfpdrefers to thousands of cubic feet per day and millions of cubic feet per day respectively; and  
    
    NGLsrefers to natural gas liquids. 
 CONVERSION In this Annual Information Form measurements are given in Standard Imperial or
metric units only. The following table sets forth certain standard
conversions. To Convert From
    
    To
    
    Multiply Bymcf
    
    cubic metre
    
    
    28.174cubic metre
    
    cubic feet
    
    
    35.494bbls
    
    cubic metre
    
    
    0.159cubic metre
    
    bbls
    
    
    6.290feet
    
    metre
    
    
    0.305metre
    
    feet
    
    
    3.281miles
    
    kilometre
    
    
    1.609kilometre
    
    miles
    
    
    0.621acres
    
    hectares
    
    
    0.405hectares
    
    acres
    
    
    2.471
 Unless otherwise stated, all sums of money referred to in this Annual Information Form are expressed in Canadian dollars. 
 PRESENTATION OF OUR FINANCIAL INFORMATION Unless we indicate otherwise, financial information in this Annual
Information Form has been prepared in accordance with generally accepted
accounting principles (GAAP) in Canada. Canadian GAAP differs in some
significant respects from U.S. GAAP and thus our financial statements may not
be comparable to the financial statements - 5 -




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of U.S. companies. The principal differences as they apply to us are
summarized in note 20 to the audited annual consolidated financial statements
of Pengrowth Trust beginning on page 91 of Pengrowth Trusts 2003 Annual
Report. We present our financial information in Canadian dollars. 
 PRESENTATION OF OUR RESERVE INFORMATION The United States Securities and Exchange Commission (the SEC) generally
permits oil and gas companies, in their filings with the SEC, to disclose only
proved reserves after the deduction of royalties and interests of others which
are those reserves that a company has demonstrated by actual production or
conclusive formation tests to be economically producible under existing
economic and operating conditions. In 2003, the securities regulatory
authorities in Canada (other than Québec) adopted National Instrument 51-101 
Standards of Disclosure for Oil and Gas Activities(NI 51-101), which imposes
new oil and gas disclosure standards for Canadian public issuers engaged in oil
and gas activities. NI 51-101 permits oil and gas issuers, in their filings
with Canadian securities regulators, to disclose not only proved reserves but
also probable reserves, and to disclose reserves and production on a gross
basis before deducting royalties. Probable reserves are of a higher risk and
are less likely to be accurately estimated or recovered than proved reserves.
Because we are permitted to prepare this Annual Information Form in accordance
with Canadian disclosure requirements, we have disclosed in this Annual
Information Form and in the documents incorporated by reference reserves
designated as probable. If this Annual Information Form was required to be
prepared in accordance with U.S. disclosure requirements, the SECs guidelines
would prohibit reserves in these categories from being included. Moreover, in
accordance with Canadian practice, we have determined and disclosed estimated
future net cash flow from our reserves using both escalated and constant prices
and costs; for the constant prices and costs case, prices and costs in effect
as of December 31, 2003 were held constant for the economic life of the
reserves. The SEC does not permit the disclosure of estimated future net cash
flow from reserves based on escalating prices and costs and generally requires
that prices and costs be held constant at levels in effect at the date of the
reserve report. For a description of these and additional differences between
Canadian and U.S. standards of reporting reserves, see Risk Factors  Canadian
and United States practices differ in reporting reserves and production.
Additional information prepared in accordance with United States Statement of
Financial Accounting Standards No. 69 Disclosures About Oil and Gas Producing
Activities relating to our oil and gas reserves is set forth in our Form 40-F. 
 FORWARD-LOOKING STATEMENTS Certain statements contained in this Annual Information Form, including
certain documents incorporated by reference, constitute forward-looking
statements. The use of any of the words anticipate, continue, estimate,
expect, may, will, project, should, believe and similar expressions
are intended to identify forward-looking statements. These statements involve
known and unknown risks, uncertainties and other factors that may cause actual
results or events to differ materially from those anticipated in our
forward-looking statements. We believe the expectations reflected in those
forward-looking statements are reasonable. However, we cannot assure you that
these expectations will prove to be correct. You should not unduly rely on
forward-looking statements included, or incorporated by reference, in this
Annual Information Form. These statements speak only as of the date of this
Annual Information Form or as of the date specified in the documents
incorporated by reference in this Annual Information Form, as the case may be. In particular, this Annual Information Form, including the documents
incorporated by reference, contains forward-looking statements pertaining to
the following:  
    
    the size of our reserves;  
    
    estimates of future oil and natural gas production;  
    
    projections of market prices and costs;  
    
    supply and demand for oil and natural gas;  
    
    expectations regarding the ability to raise capital and to
continually add to our reserves through acquisitions and exploration
and development; and - 6 -




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
    
    treatment under governmental regulatory regimes. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of the risk factors set forth below and
elsewhere in this Annual Information Form, including under Risk Factors:  
    
    volatility in market prices for oil and natural gas;  
    
    liabilities inherent in our oil and gas operations;  
    
    uncertainties associated with estimating reserves;  
    
    competition for, among other things, capital, reserves, undeveloped lands and skilled personnel;  
    
    incorrect assessments of the value of our acquisitions; and  
    
    geological, technical, drilling and processing problems. These factors should not be construed as exhaustive. We undertake no
obligation to publicly update or revise any forward-looking statements. - 7 -




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PENGROWTH ENERGY TRUST Pengrowth Trust is an oil and gas royalty trust that was created under the
laws of the Province of Alberta on December 2, 1988. Pengrowth Trust is
governed by a trust indenture dated June 17, 2003 (amending and restating the
trust indenture dated April 23, 2002), with further amendments authorized by
unitholders on April 22, 2004, between Pengrowth Corporation and Computershare,
as trustee. In 1996, Pengrowth Trusts original name, Pengrowth Gas Income
Fund, was changed to Pengrowth Energy Trust. The purpose of Pengrowth Trust
is to purchase and hold royalty units issued by Pengrowth Corporation, its
majority owned subsidiary, and to issue trust units to members of the public.
Pengrowth Corporation acquires, owns and manages working interests and royalty
interests in oil and natural gas properties. The beneficiaries of Pengrowth
Trust are the unitholders. Pengrowth Corporation was created under the laws of the Province of
Alberta on December 30, 1987. In 1998, the name of Pengrowth Corporation was
changed from Pengrowth Gas Corporation to Pengrowth Corporation. Pengrowth
Corporation has 1,100 common shares outstanding, 1,000 of which are owned by
Pengrowth Trust and 100 of which are owned by Pengrowth Management. Pengrowth Management was created under the laws of the Province of Alberta
on December 16, 1982. Pengrowth Management serves as the manager of Pengrowth
Trust and as the manager of Pengrowth Corporation. 
 GENERAL DEVELOPMENT OF PENGROWTH ENERGY TRUST 
 Organization and Structure Under a royalty indenture dated June 17, 2003 (amending and restating the
royalty indenture dated April 23, 2002), with further amendments authorized by
unitholders on April 22, 2004, between Pengrowth Corporation and Computershare,
as trustee, Pengrowth Corporation has granted a royalty consisting of a 99%
share of royalty income to the holders of royalty units. The royalty units
represent fractional undivided interests in the royalty. Under the trust indenture, Pengrowth Trust has issued trust units to the
unitholders. Each trust unit represents a fractional undivided beneficial
interest in Pengrowth Trust. Our unitholders are entitled to receive monthly
distributions in respect of the royalty and in respect of investments that are
held directly by us. Pengrowth Trust presently holds approximately 99.9% of the royalty units
issued by Pengrowth Corporation. In addition, Pengrowth Trust holds other
permitted investments, such as oil and gas processing facilities and cash. Pursuant to the unanimous shareholder agreement dated June 17, 2003
(amending and restating the unanimous shareholder agreement dated April 23,
2002), with further amendments authorized by unitholders on April 22, 2004,
among Pengrowth Management, Pengrowth Trust, Pengrowth Corporation and
Computershare, our unitholders and holders of royalty units (other than
Computershare) are entitled to notice of, and to attend, all meetings of
shareholders of Pengrowth Corporation and vote as shareholders at all meetings
of the shareholders of Pengrowth Corporation to the same extent as if they were
holders of common shares of Pengrowth Corporation, including voting on the
election of the directors of Pengrowth Corporation (other than the two
directors to be appointed by Pengrowth Management), approving its financial
statements, appointing its auditors and appointing the auditor of Pengrowth
Trust. In addition, our unitholders are entitled to vote on any proposed
amendment to the unanimous shareholder agreement. The principal business of Pengrowth Management is that of a specialty fund
manager. Pengrowth Management currently provides advisory, management, and
administrative services to Pengrowth Trust and to Pengrowth Corporation. In
particular, Pengrowth Management also manages and provides services relating to
the acquisition and disposition of oil and natural gas properties and other
related assets on behalf of Pengrowth Corporation. James S. Kinnear, President and a director of Pengrowth Management and
Chairman, President, Chief Executive Officer and a director of Pengrowth
Corporation, owns, directly or indirectly, all of the issued and outstanding
voting securities of Pengrowth Management. - 8 -




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The following chart illustrates the organization and structure of
Pengrowth. (FLOW CHART) 
 Business Strategy and Strengths Our
goal is to maximize cash distributions on a per trust unit basis to
our unitholders over time while
enhancing the value of our trust units. We generally do not explore for oil
and natural gas. Instead, we focus on making accretive acquisitions and
maximizing the value of our mature property base by reducing operating costs,
implementing new development technologies, including three dimensional seismic
and tertiary recovery operations, and implementing other operational
efficiencies. Our ability to pay out distributions while enhancing unitholder value over
time is dependent upon effective operations and our ability to make
acquisitions which yield returns that exceed our cost of capital. We evaluate
acquisition opportunities based upon the following acquisition criteria: Financial  
    
    Acquisitions should increase future distributions on a per
trust unit basis based upon current economics.  
    
    The undiscounted aggregate projected future net cash flow from
the properties should exceed the aggregate purchase price of the
properties and provide a reasonable rate of return.  
    
    The oil and gas producing properties to be acquired should, in
the context of the market, have an attractive rate of return and a
relatively low reserve cost. Operational  
    
    Properties to be acquired should be high quality, relatively long life,
proven producing properties. Pengrowth Corporation gives priority to
properties with:  
    
    low anticipated capital expenditures relative to the cash generation potential of the properties;
    
    relatively low operating costs or high netbacks;
    
    experienced, well regarded industry operators or where operatorship may be assumed by Pengrowth; - 9 -




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
    
    favourable production history;  
    
    upside potential through infill drilling, improved
field operations and other development activities;  
    
    relatively long reserve life; and
    
    low environmental and site remediation risk. Independent Verification  
    
    Each purchase of new properties will be based on an independent
engineering report except for properties where the purchase price is
less than $5 million. Our structure, tax effectiveness and cost of capital allow us to bid
competitively for oil and natural gas properties relative to taxable corporations
and other taxable entities. Opportunities to acquire oil and gas properties
generally arise from sellers looking to reduce indebtedness, seeking funds for
higher risk exploration and development activities, exiting the business, or
fulfilling other strategic objectives. 
 Historical Development Pengrowth Corporations first acquisition, in December of 1988, was the
purchase of a 2.6507% interest in the Dunvegan Gas Unit No. 1 located near
Fairview, Alberta in the Peace River Arch. Pengrowth Corporation financed the acquisition by issuing
1,250,000 royalty units at a price of $10.00 per royalty unit, substantially
all of which were issued to Pengrowth Trust. Pengrowth Trust issued 1,243,500
trust units to the public at a price of $10.00 per trust unit for gross
proceeds of $12,435,000 which were used to pay for the royalty units.
An additional 56,500 royalty units were also issued in the public
offering which remain outstanding. Commencing in 1991, Pengrowth Management adopted a plan, and established
criteria, to build unitholder value through accretive acquisitions and
financings of those acquisitions. Thereafter Pengrowth Corporation completed a
series of acquisitions that were financed through periodic issuances of trust
units, rights offerings and bank indebtedness. Pengrowth Trust commenced a series of fully marketed equity offerings in
1994 to fund various property acquisitions. Since that time Pengrowth
Corporation has continued a course of targeted asset acquisitions for cash.
The most significant purchases and financings are described below. Effective July 1, 1997, Pengrowth Corporation acquired a 98.11% working
interest in the Judy Creek Beaverhill Lake Unit, a 94.58% working interest in
the Judy Creek West Beaverhill Lake Unit, and a 9.58% working interest in the
Swan Hills Unit No. 1 for a net purchase price of $496.1 million. In November 1997, Pengrowth
Corporation increased its working interest in the Judy Creek Beaverhill Lake
Unit to 100%. On October 15, 1997, Pengrowth Trust completed an offering of
23,928,572 trust units on an installment receipt basis with $12.50 per trust
unit paid on closing and the balance of $8.75 per unit due on or before October
15, 1998. Gross proceeds raised amounted to $508 million comprised of cash of
$299 million and an installment receivable of $209 million. On April 15, 1998,
Pengrowth Corporation assumed operatorship of the Judy Creek Units from
Imperial Oil Resources Ltd. Effective October 15, 1998, Pengrowth Trust acquired
certain facilities interests related to operations in the Judy Creek and Swan
Hills areas from Pengrowth Corporation for consideration of $106,000,000.
Pengrowth Trust entered into an agreement to lease the facilities back to
Pengrowth Corporation. On November 10, 2000, Pengrowth Trust issued 8,165,000 trust units to
raise gross proceeds of $155,135,000 which were applied to acquire interests in
Goose River, House Mountain, Minnehik Buck Lake, Mitsue and Weyburn from
Canadian Natural Resources Limited for cash consideration of $128,000,000 and
the transfer of certain properties. On May 31, 2001, Pengrowth Trust issued 10,895,000 trust units to raise
gross proceeds of $225,526,500. Effective June 15, 2001, Pengrowth Corporation acquired a royalty
representing substantially all of the beneficial interest in the natural gas
and liquids production from an 8.4% working interest in the Sable Offshore
Energy Project (SOEP) from Nova Scotia Resources (Ventures) Limited
(NSRVL), for $265 million (net adjusted price of $228.4 million). On
December 24, 2001, Pengrowth Corporation acquired certain additional petroleum
and natural gas rights and other assets from NSRVL for a gross purchase price
of $27.5 million. - 10 -




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On June 4, 2002, Pengrowth Trust issued 8,000,000 trust units at a price
of $15.40 per trust unit for total gross proceeds of $123.2 million. On October 1, 2002, with an effective date of July 1, 2002, Pengrowth
Corporation acquired certain properties located in northern British Columbia
from Calpine Natural Gas Partnership for net consideration after
adjustments of $352 million. In November, 2002, Pengrowth Trust completed a cross-border equity
offering in Canada and the United States of 20,125,000 trust units at $14.00
per trust unit (US$8.93 per unit) for gross proceeds of approximately $281.8 million. In total, two public
trust unit offerings completed during 2002 raised $380 million in net equity
proceeds. On April 23, 2003, Pengrowth completed a US$200 million private placement
of senior unsecured notes to a group of U.S. investors. The notes were offered
in two tranches: US$150 million at 4.93% due April 23, 2010 and US$50 million
at 5.47% due April 23, 2013. Interest on the notes is payable semi-annually. On May 7, 2003, Pengrowth Corporation acquired an 8.4% working interest in
the four SOEP production facilities downstream of Thebaud Central Platform from
SOEP co-venturers ExxonMobil Canada Properties, Shell Canada Resources Limited,
Imperial Oil Resources Ltd. and Mosbacher Operating Company Ltd. for net consideration
of approximately $57 million. Since the formation of Pengrowth in 1988, Pengrowth has completed a total
of 17 public financings of equity for gross proceeds in excess of
$2 billion. 
 Recent Acquisitions, Financings and Developments SOEP Facilities Acquisition On December 31, 2003, Pengrowth Corporation acquired an 8.4% working
interest in the SOEP offshore production platforms and associated sub-sea field
gathering lines from Emera for net consideration of approximately $65 million
including approximately $20 million in cash and a $45 million note payable over
three years. In addition, Pengrowth Corporation obtained an 8.4% working
interest in the SOEP reserves in exchange for its 99.9% SOEP royalty interest
in 8.4% of the reserves and production from SOEP. Combined with Pengrowth
Corporations May, 2003 purchase of an 8.4% working interest in the downstream
SOEP pipelines and processing facilities, Pengrowth Corporation holds an
undivided 8.4% working interest in all of SOEP. In addition, in June, 2003,
Pengrowth acquired interests in eleven significant discovery licenses from Nova
Scotia Resources (Ventures) Limited for $4.5 million and a 10%
net profits interest. 2004 Equity Financing On March 23, 2004, Pengrowth Trust completed an equity offering of
10,900,000 trust units, including 2,700,000 trust units issued upon exercise of
an underwriters option, at a price of $18.40 per trust unit for gross proceeds
of $200.5 million. Murphy Oil Acquisition On April 8, 2004 Pengrowth Corporation entered into an agreement with a
subsidiary of Murphy Oil Corporation to acquire oil and natural gas assets in
Alberta and Saskatchewan for $550 million through the purchase of shares in a
Alberta numbered company. The properties to be acquired represent a diverse group of assets within
western Canada, including interests in the West Central and Peace River Arch
areas (including interests in the McLeod, Deep Basin and Peace River Arch
areas); Southern Alberta (including interests in the Countess, Princess and
Twining/Three Hills areas); and heavy oil (including interests in the
Lindbergh, Tangleflags, and Lloydminster areas). Current production from the
interests Pengrowth is acquiring is approximately 15,500 boepd before
royalties, comprised of 46 mmcfpd of natural gas, 1,550 bblpd of light medium
crude oil and natural gas liquids and 6,250 bblpd of heavy oil. Subsequent to
the acquisition, Pengrowth Corporations total production will increase from
the current level of approximately 45,600 boepd to approximately 60,000 boepd,
an increase of 32%. The properties also include 219,000 acres of undeveloped
land. - 11 -




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Pengrowth Corporation will complete the acquisition with cash on hand
including the proceeds of the March 23, 2004 equity issue and through committed
interim debt provided by Pengrowth Corporations lead banker.
Various options are being examined with respect to permanent
financing. There are
limited tax pools associated with the transaction and Pengrowth Corporation
will assume various marketing and transportation arrangements as part of the
consideration. 2004 Annual and Special Meetings Reclassification of Trust Unit Capital At the annual general and special meeting of the shareholders of Pengrowth
Corporation, the annual and special meeting of unitholders and the special
meeting of royalty unitholders, held on April 22, 2004, amendments were
approved to the trust indenture, royalty indenture, unanimous shareholder
agreement and articles of Pengrowth Corporation to facilitate the
reclassification of our trust unit capital by in excess of 95% of the votes
cast at the meetings. The unitholders approved the reclassification of our trust unit capital
into two classes of units: Class A Trust Units and Class B Trust Units (the
A/B Unit Structure). Each class of new trust units will have the same rights
as the existing trust units to vote, obtain distributions and obtain assets
upon the wind-up or dissolution of Pengrowth Trust. The only distinction
between the two classes of units will be in respect of the residency of the
persons entitled to hold and trade the Class A and Class B Trust Units. The
Class A Trust Units are not subject to any residency restriction, will trade on
both the TSX and NYSE, may be exchanged at any time for Class B Trust Units
provided that the holder is a resident of Canada and provides suitable
residency declaration, and are subject to a restriction on the number to be
issued such that the Class A Trust Units will not exceed 99% (the Ownership
Threshold) of the number of issued and outstanding Class B Trust Units
(subject to certain transitional provisions). The Class B Trust Units may not
be held by non-residents of Canada, will trade only on the TSX and may be
exchanged by holder for Class A Trust Units, provided that the Ownership
Threshold will not be exceeded. Pengrowth Trust intends to take all necessary measures to ensure that it
continues to qualify as a mutual fund trust, within the meaning of the Income
Tax Act(Canada) (the Tax Act), on the basis that it is not reasonable, at
any time, to consider that Pengrowth Trust was established or is maintained
primarily for the benefit of non-residents of Canada. Pengrowth Trust was formed in 1988 as a mutual fund trust under the Tax
Act. The trust units are listed and posted for trading on the New York Stock
Exchange (NYSE) under the symbol PGH and on the Toronto Stock Exchange
(TSX) under the symbol PGF.UN. Since the trust units were listed on the NYSE
in April, 2002, and in particular since the completion of the cross-border
offering of trust units in November, 2002, Pengrowth Trust has experienced
increased interest in its trust units by non-residents of Canada, both in terms
of trading volumes and level of ownership. In making residency determinations, Pengrowth Trust has relied upon ADP
Reports (reports prepared by ADP Investor Communications (ADP) to show the
geographical locations of beneficial owners of trust units) as the best
available information about the residency of unitholders. There are
uncertainties in the ADP Reports and Pengrowth Trust has conservatively assumed
that unknown or non-reporting ADP participants represent non-resident
unitholders. On March 4, 2004, in conjunction with the release of Pengrowth Trusts
year end 2003 financial results, Pengrowth Trust announced that it was
developing a strategy to address non-resident ownership levels. The following
priorities were adopted by the Board of Directors:  
    
    compliance with the mutual fund trust requirements of the Tax Act;  
    
    maintenance of orderly markets for trust units in Canada and the U.S.; and  
    
    the ability to continue to raise capital within Canada and the U.S. to facilitate growth of unitholder value. The Board of Directors have resolved, and the unitholders have approved, a
resolution to amend the trust indenture to enhance the structure and procedures
that regulate non-resident ownership of trust units and ensure that Pengrowth
Trust continues to maintain its mutual fund trust status. Among other
things, these amendments will result in the reclassification of the existing
trust units into Class B Trust Units and the immediate conversion thereafter of
any such units held by non-residents into Class A Trust Units. The Board of
Directors believes that these changes together with the other changes described
below are in the best interests of unitholders. - 12 -




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The Board of Directors believe that the A/B Unit Structure must be put in
place to maintain non-resident ownership of the equity of Pengrowth Trust at
below 50%. Provisions that restrict foreign ownership are not unique. They
presently exist in the transportation, banking and telecommunications sectors
of the Canadian economy. The Board of Directors believe that it is practicable
to maintain an active market for securities in both Canada and the United
States and also maintain Pengrowth Trusts mutual fund trust status. The Board of Directors is of the view that:  
    
    the reclassification can be accomplished without adverse tax
consequences to unitholders resident either in Canada or in the United
States; and  
    
    corporate mechanisms are available and will be implemented by
Pengrowth Corporation to monitor and control Non-Resident ownership of
Class B Units following the reclassification. Subject to receipt of stock exchange and other regulatory approvals, which
Pengrowth Corporation has applied for, the reclassification will be implemented
upon receipt of satisfactory tax advice by the Board of Directors. Following the reclassification, the following procedures will be adopted
to monitor and constrain the ownership of Class B Trust Units by non-residents
of Canada:  
    
    Canadian Depository for Securities Limited (CDS) will be advised
that it is prohibited from holding Class B Trust Units on behalf of
non-residents. Pengrowth Corporation will require participants in the
book-based system to provide a participant declaration on a periodic
basis to ensure that no non-resident of Canada owns any Class B Trust
Units;  
    
    Depository Trust Company (DTC) will not be permitted to hold Class
B Trust Units;  
    
    the number of issued and outstanding Class A Trust Units will be
monitored to ensure the number of such limits does not exceed 99% of the
number of issued and outstanding Class B Trust Units;  
    
    Class B Trust Units may be exchanged for Class A Trust Units.
However, Pengrowth Corporation will implement a reservation system
pursuant to which a reservation number must be obtained for the
conversion of Class B Trust Units to Class A Trust Units;  
    
    Class A Trust Units may be exchanged for Class B Trust Units provided
that the transferee provides a residency declaration; and  
    
    Class A Trust Units will be registered with CDS, DTC and
Computershare in the same manner as the registered and book based system
which currently operates in respect of trust units. These rules and procedures may be amended from time to time by Pengrowth
Trust and Computershare. Maintaining its status as a mutual fund trust is of fundamental importance
to Pengrowth Trust. The negative tax consequences in the event of the loss of
Pengrowths trust status as a mutual fund trust are summarized under the heading Risk Factors. The Tax Act currently provides that where at any time it can reasonably be
considered that a trust is established or is maintained primarily for the
benefit of non-resident persons, it will not be a mutual fund trust unless,
among other exceptions which are not applicable to Pengrowth Trust, all or
substantially all of its property consisted of property other than taxable
Canadian property at all times since February 21, 1990. The Canadian Federal
Budget dated March 23, 2004 (the Federal Budget) proposes to amend the Tax
Act to provide that for the purpose of this exception Canadian resource
property, such as the royalty held by Pengrowth Trust, will be taxable Canadian
property. The Federal Budget provides that this amendment will not apply
before 2007 to a trust that would otherwise cease on March 23, 2004 to be a
mutual fund trust as a result of this newly proposed rule. - 13 -




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An ADP report received by Pengrowth Trust indicated that the ownership of
trust units by non-residents was approximately 53% on the morning of the
Federal Budget and was reduced to approximately 48.5% on the same date through
the completion of a Canadian only bought deal equity issue of trust units. It
is highly likely that the reclassification can be implemented without
adverse tax consequences to unitholders resident either in Canada or in the
United States. However, the interpretation and application of some of the
relevant provisions of the Tax Act and the Federal Budget are somewhat unclear
and the Board of Directors is of the view that the status of Pengrowth Trust as
a mutual fund trust could potentially be subject to some risk if non-resident
ownership of trust units is allowed to exceed 50% for a material period of
time. As the ownership of trust units by non-residents appears to be
increasing over time, the Board of Directors considers it very important to
implement the reclassification of trust unit capital as soon as possible. To
provide certainty to the reclassification, the Board of Directors would prefer
to implement the reclassification after obtaining an advance tax ruling or
other assurances from CRA acceptable to Pengrowth Trust and the Board of
Directors. The advance tax ruling process permits a taxpayer to confirm
certain tax consequences of proposed transactions in advance. However, given
the time that may be required to obtain an advance tax ruling and the likely
increase in non-resident ownership during such period, the Board of Directors
has determined that it may be prudent to implement the reclassification of
trust unit capital without an advance tax ruling. On balance, the Board of
Directors may determine that the preferred course, and the one that exposes the
unitholders to the least tax risk, is the practical course of complying as
quickly as possible with the Canadian federal governments apparent policy
objective of maintaining foreign ownership of trust units at below 50%. Exchangeable Shares At the shareholders meeting and royalty unitholders meeting conducted on
April 22, 2004, amendments were made to the Unanimous Shareholder Agreement to
facilitate the issuance of exchangeable shares. The amendments approved will
give the Board of Directors greater flexibility to issue a series of
exchangeable shares of Pengrowth Corporation which could meet Pengrowth
Corporations objectives of creating a security that is economically similar to
trust units, marketable in Canada, the United States and internationally, with
favourable income tax consequences in the offered jurisdictions and that can be
issued by Pengrowth Trust without exceeding the residency restrictions under
the mutual fund trust requirements of the Tax Act. Among other things,
exchangeable shares may provide a valuable alternative source of equity to
Pengrowth Corporation to finance ongoing capital commitments of Pengrowth
Corporation, new acquisitions and for other general corporate purposes. The
exchangeable shares will be securities of Pengrowth Corporation that have
rights upon a liquidation, wind-up or dissolution of Pengrowth Corporation (a
Liquidation Event) that are economically similar to the rights of trust
unitholders under the Trust Indenture and Royalty Indenture, except in relation
to assets other than royalty units that may be held by Pengrowth Trust and the
impact of general claims against Pengrowth Corporation. As a result of the
amendments approved, exchangeable shares will have the same rights as the
rights of the holders of common shares of Pengrowth Corporation to vote, to
dividends or to share splits in lieu of dividends and to the assets of
Pengrowth Corporation upon the occurrence of a Liquidation Event. In addition to the foregoing objective, the exchangeable shares may be
eligible for investment by certain classes of investors for whom there are
limitations with respect to holding trust units. The exchangeable shares may
also facilitate business combinations and acquisitions and may be issued to
Pengrowth Management should there be a wind-up or termination of the Management
Agreement. The creation of exchangeable shares was originally approved by unitholders
at the Annual and Special Meetings held on June 17, 2003. It was contemplated
at that time if a Liquidation Event were to occur, that holders of exchangeable
shares would exercise their exchange right for trust units and would
participate along with trust unitholders in accordance and provisions
prescribed by the Royalty Indenture and the Trust Indenture. However, a series
of exchangeable shares may, from time to time, be issued that would limit the
right of exchange to holders of exchangeable shares who are resident in Canada
or the right of exchange may otherwise be prescribed in terms of Class B Trust
Units and the conditions of ownership thereof. In order not to disenfranchise any holders of exchangeable shares and to
create clear rights with respect to the assets of Pengrowth Corporation subject
to claims against Pengrowth Corporation, unitholder approval was obtained to
make appropriate amendments to the Royalty Indenture to create insolvency
rights with respect to the assets of Pengrowth Corporation which are
economically similar to the rights of trust unitholders under the Trust
Indenture and the Royalty Indenture. Although economically similar, these
rights are distinct from the rights of holders of trust units in that the
holders of exchangeable shares shall only have a claim against the assets of
Pengrowth Corporation if a Liquidation Event - 14 -




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shall occur and shall have no claim against the cash or other assets of
Pengrowth Trust. The exchangeable shares, shall in the same manner as the
common shares, be subject to claims made against the Corporation generally. Upon a Liquidation Event, an amount will be withheld from the assets or
monies available for distribution to royalty unitholders under the Royalty
Indenture to be paid to holders of the exchangeable shares and common shares
representing the proportion of the economic interests in Pengrowth Corporation
represented by the exchangeable shares and in the common shares compared with
the beneficial economic interest in Pengrowth Corporation held by the trust
unitholders (through the royalty units held by Pengrowth Trust). New Long-Term Incentive Plan The unitholders approved a new long-term incentive program and the grant
of up to 250,000 phantom units and corresponding treasury units to executive
officers of Pengrowth Corporation in accordance with the terms of the program.
The mechanics of the program are as follows:  
    
    The Board of Directors will allocate phantom trust units under the
program to executive officers of Pengrowth Corporation from time to time
as part of their total compensation. Subject to vesting conditions to
be determined by the Board of Directors, the phantom trust units can be
exchanged by holders at any time for trust units to be issued from
treasury for nil consideration.  
    
    The phantom trust units will typically vest over a period of two
years after the initial grant and the Board of Directors may prescribe
other conditions for vesting such as personal performance or performance
by Pengrowth Trust. Phantom distributions will be paid on the phantom trust units in the form
of the issuance of additional phantom trust units based upon a deemed
reinvestment formula using a 20-day weighted average market price and any
phantom distributions so paid shall be considered to be fully vested phantom
trust units. Amendments to Unanimous Shareholders Agreement Amendments to the Unanimous Shareholder Agreement were approved in order
to: (i) provide that the special voting unit of Pengrowth Trust will be
entitled to a number of votes at any meeting of the shareholders of Pengrowth
Corporation equal to the number of outstanding Exchangeable Shares (to provide
voting rights for Exchangeable Shares that do not otherwise have voting
rights); (ii) provide voting rights to the Common Shares and to any series of
Exchangeable Shares that are provided with voting rights at the time they are
created by the Board of Directors; (ii) permit stock splits of the Common
Shares on equivalent terms to the Exchangeable Shares; and (iii) delete Article
V of the Unanimous Shareholders Agreement which prohibits the issuance of
additional shares of Pengrowth Corporation. These amendments are required to
achieve the desired financial and tax consequences for the Exchangeable Shares. 
 Trends There are a number of business and economic factors which underlie trends
in the oil and gas industry that influence the near term future of our
business. The conversion of traditional oil and gas companies into income and
royalty trusts has continued in 2003. The proliferation of income and royalty
trusts, the efforts of these trusts to replace annual production declines
and robust oil and natural gas prices have resulted in a very competitive market for the acquisition of oil and gas
properties and related assets. There has been a corresponding
increase in the valuation parameters for corporate and asset acquisitions,
while at the same time income and royalty trusts, including Pengrowth Trust,
have enjoyed favourable access to equity and debt capital markets. Commodity prices, while volatile, are at relatively high levels
compared with historical averages, with oil prices currently at thirteen-year
highs. However, the appreciation of the Canadian dollar in 2003 relative to
the U.S. dollar has offset a portion of the economic benefit to Canadian oil
and gas producers, including trusts, of these higher prices. Increases
or decreases in the Canadian dollar relative to the U.S. dollar also result in
decreases or increases, respectively, in revenues as operating costs
are denominated in Canadian dollars.
The Canadian dollar was strong in early 2004, but has weakened as of
late. At the same time, interest rates have been at 42-year record lows,
providing a significant stimulative impact on the North American economy. - 15 -




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For additional information regarding Pengrowth Trusts strategy in this
business environment, see Managements Discussion and Analysis  Outlook on
page 65 of Pengrowth Trusts 2003 Annual Report. 
 PENGROWTH MANAGEMENT LIMITED 
 Business The principal business of Pengrowth Management is that of a specialty fund
manager. Pengrowth Management currently provides advisory, management, and
administrative services primarily to Pengrowth Trust and Pengrowth Corporation.
Pengrowth Management also previously provided investment advisory and
management services in relation to investments by several Canadian pension
funds in the energy sector. These investments were subsequently acquired by
Pengrowth Corporation for royalty units and cash. Pengrowth Management
utilizes its extensive experience and employs prudent oil and gas business
practices to increase the value of the assets of Pengrowth Corporation through
effective acquisitions and dispositions and through effective operations.
Pengrowth Management has focused upon high quality, long life proven producing
properties located in Canada. Pengrowth Management will continue to focus upon
acquisitions which are strategic and which add value to Pengrowth Corporation
and Pengrowth Trust on a per unit basis. 
 Management Agreement The unitholders and the holders of royalty units approved an amended and
restated management agreement among Pengrowth Trust, Pengrowth Corporation,
Pengrowth Management and Computershare, as trustee (the Management Agreement)
at annual and special meetings held on June 17, 2003. The Management Agreement
governs both Pengrowth Trust and Pengrowth Corporation. The Board of Directors
negotiated the Management Agreement with Pengrowth Management, to incentisize
future performance and to avoid the upfront termination payments associated
with internalizations. Key elements of the Management Agreement are:  
    
    two distinct 3-year terms with a declining fee structure in the second 3-year term;  
    
    a base fee determined on a sliding scale:  
    
    in the first three-year contract term:  
    
    2% of the first $200 million of Income; and
    
    1% of the balance of Income over $200 million; and  
    
    in the second three-year contract term:  
    
    1.5% of the first $200 million of Income; and
    
    0.5% of the balance of Income over $200 million. (For these purposes, Income means the aggregate of net production
revenue of Pengrowth Corporation and any other income earned from
permitted investments of Pengrowth Trust (excluding interest on cash or
near-cash deposits or similar investments).  
    
    a performance based fee based on total returns received by
unitholders which essentially compensates Pengrowth Management for
total annual returns which average in excess of 8% per annum over a 3-year
period;  
    
    a ceiling on total fees payable determined in reference to a
percentage of the fees paid under the previous management agreement:
80% each year in the first three-year contract term and 60% each year
in the second three-year contract term and subject to a further
ceiling essentially equivalent to $12 million annually during the
second three-year contract term; - 16 -




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
    
    requirement for Pengrowth Management to pay certain expenses of
Pengrowth Corporation and Pengrowth Trust of approximately $2 million
per year;  
    
    an annual minimum management fee of $3.6 million comprised of
$1.6 million of management fees and $2.0 million of expenses;  
    
    key man provisions in respect of James S. Kinnear, the
President of Pengrowth Management;  
    
    a bonus structure based on 10% of Pengrowth Managements base
fee for employees and special consultants of Pengrowth Corporation;
and  
    
    an optional buyout of the Management Agreement at the election
of the Board of Directors upon the expiry of the first three-year
contract term with a termination payment of essentially 2/3 of the
management fee paid during the first three-year contract term plus
expenses of termination. The responsibilities of Pengrowth Management under the Management Agreement include:  
    
    reviewing and negotiating acquisitions for Pengrowth Corporation and Pengrowth Trust;  
    
    providing written reports to the Board of Directors to keep
Pengrowth Corporation fully informed about the acquisition,
exploration, development, operation and disposition of properties,
the marketing of petroleum substances, risk management practices and
forecasts as to market conditions;  
    
    supervising Pengrowth Corporation in connection with its acting
as operator of certain of its properties;  
    
    arranging for, and negotiating on behalf of, and in the name
of, Pengrowth Corporation all contracts with third parties for the
proper management and operation of the properties of Pengrowth
Corporation;  
    
    supervising, training and providing leadership to the employees
and consultants of Pengrowth Corporation and assisting in recruitment
of key employees of Pengrowth Corporation;  
    
    arranging for professional services for Pengrowth Corporation and Pengrowth Trust;  
    
    arranging for borrowings by Pengrowth Corporation and equity issuances by Pengrowth Trust; and  
    
    conducting general unitholder services, including investor
relations, maintaining regulatory compliance, providing information
to unitholders in respect of material changes in the business of
Pengrowth Corporation or Pengrowth Trust and all other reports
required by law, and calling, holding and distributing material in
respect of meetings of unitholders and holders of royalty units. Despite the broad authority of Pengrowth Management, approval of the Board
of Directors is required on decisions relating to any offerings, including the
issuance of additional trust units, acquisitions in excess of $5 million,
annual operating and capital expenditure budgets, the establishment of credit
facilities, the determination of cash distributions paid to unitholders, the
amendment of any of the constating documents of Pengrowth Corporation or
Pengrowth Trust and the amount of the assumed expenses of Pengrowth Management
which are a portion of the compensation of Pengrowth Management. Management Fee Pengrowth Management received $695,000 for acquisition fees, $9,661,349
for management services and $520,000 as performance fees in 2003. Although the
management fee rate decreased effective July 1, 2003, there was an increase in
total management fees compound to 2002 due to the higher fee base in 2003.
Management fees are calculated on a percentage of net operating income (oil
and gas sales and other income, less royalties, operating costs, solvent
amortization and reclamation funding.) The base fee has been reduced from a
sliding scale between 3.5% and 2.5%, to the new rate of 2% on the first $200
million of net operating income and 1% on net operating income over $200
million. Acquisition fees have been eliminated (effective July 1, 2003), and
Pengrowth Management is eligible to receive a performance fee if certain
performance criteria are met. The previous fee arrangements remain relevant
however as there - 17 -




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is a cap imposed on the fees, including the performance fee, limiting the
aggregate of such fees to 80% of the fees that would otherwise have been paid
under the old management agreement (inclusive of acquisition fees) for the
first three years, and 60% for the second three years. Bonus Pool As an incentive to officers, employees and special consultants of
Pengrowth Management (including employees of Pengrowth Corporation but
excluding the President, James S. Kinnear), a bonus pool has been established
which is carved out from the management fee paid to Pengrowth Management,
determined as 10% of the total fees received by Pengrowth Management (ie. 10%
of the management fee and any performance fee earned). Bonuses are paid from
time to time in accordance with criteria to be set at the discretion of
Pengrowth Management as a further incentive for performance. 
 PENGROWTH CORPORATION  OPERATIONAL INFORMATION As at December 31, 2003, Pengrowth Corporation had 217 permanent
employees. Pengrowth Corporation has invested more than $1.95 billion in the
energy sector primarily to purchase mature, proven producing oil and natural
gas properties in Canada. 
 Principal Properties The portfolio of properties acquired and held by Pengrowth Corporation
primarily includes relatively long life, oil and gas producing properties with established
production profiles. Pengrowth Corporation obtained the GLJ Report dated February 19, 2004 in
respect to the oil and gas properties of Pengrowth Corporation effective
December 31, 2003. All reserve data presented under this sub-heading is based
on the GLJ Report. Pengrowth Corporations producing properties are summarized in the
following table: Summary of Property Interests Held by Pengrowth Corporation as at December 31, 2003 Pengrowth TotalProved Plus
    
    
    
    
    
    2003 Actual Oil
    
    2004 Estimated OilRemaining
    
    Reserve
    
    Probable
    
    Value at 12%
    
    Equivalent
    
    EquivalentReserve Life
    
    Life Index
    
    Reserves(3)
    
    Discount
    
    Production(3)
    
    Production(3)(Years)
    
    (Years)
    
    (mboe)
    
    ($M)
    
    (boepd)
    
    (boepd)Judy Creek BHL Unit
    
    
    50
    
    
    
    11.7
    
    
    
    43,552
    
    
    
    282,012
    
    
    
    10,359
    
    
    
    10,197Judy Creek West BHL Unit
    
    
    50
    
    
    
    13.5
    
    
    
    10,451
    
    
    
    32,874
    
    
    
    1,946
    
    
    
    2,129SOEP
    
    
    10
    
    
    
    7.2
    
    
    
    18,746
    
    
    
    181,021
    
    
    
    7,620
    
    
    
    7,133Weyburn Unit
    
    
    39
    
    
    
    18.8
    
    
    
    14,641
    
    
    
    43,787
    
    
    
    2,091
    
    
    
    2,128Swan Hills Unit No.1
    
    
    50
    
    
    
    23.0
    
    
    
    11,325
    
    
    
    40,267
    
    
    
    1,455
    
    
    
    1,348Dunvegan Gas Unit No. 1
    
    
    45
    
    
    
    16.1
    
    
    
    6,140
    
    
    
    30,998
    
    
    
    972
    
    
    
    1,046Oak
    
    
    42
    
    
    
    9.9
    
    
    
    5,343
    
    
    
    48,591
    
    
    
    1,052
    
    
    
    1,474Rigel
    
    
    20
    
    
    
    5.4
    
    
    
    4,705
    
    
    
    50,044
    
    
    
    2,996
    
    
    
    2,404Monogram Gas Unit
    
    
    38
    
    
    
    12.8
    
    
    
    7,071
    
    
    
    51,132
    
    
    
    1,363
    
    
    
    1,508Enchant
    
    
    40
    
    
    
    13.3
    
    
    
    3,821
    
    
    
    18,448
    
    
    
    826
    
    
    
    784McLeod River
    
    
    28
    
    
    
    7.4
    
    
    
    4,679
    
    
    
    33,599
    
    
    
    1,760
    
    
    
    1,725Squirrel
    
    
    20
    
    
    
    5.7
    
    
    
    2,638
    
    
    
    24,885
    
    
    
    1,779
    
    
    
    1,271Kaybob Notikewin Unit No. 1
    
    
    43
    
    
    
    12.8
    
    
    
    3,512
    
    
    
    24,994
    
    
    
    811
    
    
    
    754Quirk Creek
    
    
    32
    
    
    
    10.9
    
    
    
    3,610
    
    
    
    28,520
    
    
    
    1,023
    
    
    
    907Other B.C. (1)
    
    
    50
    
    
    
    7.1
    
    
    
    12,448
    
    
    
    105,043
    
    
    
    5,164
    
    
    
    4,759Other (2)
    
    
    50
    
    
    
    10.7
    
    
    
    31,734
    
    
    
    254,709
    
    
    
    7,816
    
    
    
    8,092Total
    
    
    50
    
    
    
    10.6
    
    
    
    184,416
    
    
    
    1,250,924
    
    
    
    49,033
    
    
    
    47,659
 Source: GLJ Report   Notes:(1)
    
    Other B.C. includes Pengrowths working interest in 30 other
properties.(2)
    
    Other includes Pengrowth Corporations working interest in 27 other
properties.(3)
    
    Natural gas has been converted to barrels of oil equivalent on the basis
of six mcf of natural gas being equal to one boe. - 18 -




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Judy Creek Beaverhill Lake Unit and Judy Creek West Beaverhill Lake Unit Pengrowth Corporation holds a 100% working interest in the Judy Creek
Beaverhill Lake Unit (the Judy Creek A Pool) and a 98.38% working interest in
the Judy Creek West Beaverhill Lake Unit (the Judy Creek B Pool), (together
Judy Creek). Judy Creek is located approximately 200 kilometres northwest of
Edmonton in North-Central Alberta and covers an area of approximately 155
square kilometres (60 sections). Judy Creek was discovered in 1959, placed on
waterflood (secondary recovery) in 1962 and miscible flood (tertiary recovery)
in 1985. Original oil in place totalled 815 mmbbls of oil in the Judy Creek A
Pool, making it one of the largest oil pools discovered in western Canada. To
December 31, 2003, a total of 347.6 mmbbls have been produced from the Judy Creek
A Unit, before royalties. Remaining Total Proved Plus Probable Reserves at December 31, 2003 are
estimated at 43.5 mmboe. Original oil in place at the Judy Creek B
Unit
totalled 262 mmbbls and, as at December 31, 2003, 118 mmbbls
have been produced, before royalties. Original oil in place at the Judy Creek A and B Pools combined totals
1,077 mmbbls, with an aggregate of 465.6 mmbbls produced as at December
31, 2003. Pengrowths average production for Judy Creek in 2003
was 12,535
boepd (before royalties), the remaining producing reserve life is 50 years and
the Reserve Life Index is 11.7 and 13.5 years respectively for the A and B
pools. Development Activity Pengrowth Corporation operates both the Judy Creek A and B Pools.
Pengrowth Corporation has continued the enhanced oil recovery program that was
initiated at Judy Creek in 1985. In the Judy Creek hydrocarbon miscible flood
program, oil production is increased by injecting a light, hydrocarbon-based
solvent (ethane and methane) into the reservoir. In 2003, solvent was injected
at 13 solvent injection wells and Pengrowth Corporation is anticipating
increased oil production from up to 43 offsetting production wells. New development continued in 2003 with the drilling of four oil wells and
three water/solvent injection wells in the Judy Creek A Pool. There may be other methods of enhancing future production in Judy Creek
including the use of C02 as a solvent, potentially reducing solvent costs, or
developing the coal bed methane potential on Pengrowth Corporations acreage.
Coal bed methane technology in Canada is still in the developmental stage, but
is being researched by a number of major oil and gas companies. Coal bed
methane technology is more advanced in the United States where coal bed methane
resources have been successfully harnessed for economic gas production. During 2003, Pengrowth Corporation continued to focus on reducing
operating costs at Judy Creek and improving productivity with acid fracs and
injector booster pumps. Pengrowth Corporation also optimized the use of onsite
solvent to minimize the cost of solvent purchases. Development plans in 2004 include drilling up to five new oil wells, four
horizontal injection wells and three gas wells targeting shallow natural gas
reservoirs. Sable Offshore Energy Project The Sable Offshore Energy Project is located offshore the Province of Nova
Scotia. On June 15, 2001, Pengrowth Corporation acquired a 99.9% royalty
interest in the reserves and production associated with Emera Offshore
Incorporateds 8.4% working interest and was responsible for its royalty share
of associated capital and operating costs. On May 8, 2003, Pengrowth Corporation acquired an 8.4% working interest in
all of the SOEP production facilities downstream of the Thebaud Central
Processing Platform in conjunction with the adjustment of various operating and
processing expenses with Emera for a net consideration of approximately $57
million. As a result of the acquisition Pengrowth Corporation is no longer
paying processing fees in respect to the downstream facilities and the economic
interests of Pengrowth Corporation will be better aligned with those of the
other SOEP co-venturers. Although the acquisition of these facilities does not
increase Pengrowths SOEP reserves, the acquisition of these facilities does
increase the present value of future cash flows from the SOEP reserves by
reducing future operating costs. Effective December 31, 2003, Pengrowth
acquired an 8.4% working interest in the SOEP offshore platforms and associated
sub-sea field gathering lines from Emera and exchanged the royalty interest
previously held for a working interest in the SOEP reserves for a total
purchase price of $65 million. As a result of these two transactions, Pengrowth
now holds an 8.4% working interest in the overall SOEP project. The acquisition of SOEP facilities
interests in 2003 initially reduces Pengrowth Corporations annual operating
costs by $28 to $30 million. - 19 -




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As of December 31, 2003, the total SOEP remaining Total Proved Plus
Probable Reserves are estimated by GLJ to be 1.1 tcf of natural
gas and 41 mmbbls of NGLs and Pengrowth Total Proved Plus Probable
Reserves are estimated to be 92 bcf of natural gas and 3.5 mmbbls of NGLs.
Pengrowths working interest share of SOEP production averaged 36.7 mmcfpd of
sales gas and 1,500 bblpd of NGLs in 2003 (before royalties). The SOEP gas reserves were discovered in the early 1970s and commercial
gas production began in December 1999. SOEP currently produces gas and NGLs
from four fields in the vicinity of Sable Island, Nova Scotia: Venture, North
Triumph and Thebaud and Alma. The SOEP project consists of two tiers. The
first tier, completed in December 1999, included the construction of the main
gas processing plant at Goldboro, a natural gas liquids fractionation plant at
Point Tupper, offshore platforms at Thebaud, North Triumph and Venture and the
offshore pipeline system. The second tier encompasses the development of the
Alma and South Venture fields and development activity, including further
drilling, is expected to continue through 2008. The Alma platform was tied back
to the Thebaud platform in October, 2003 and the field came on-stream in
November 2003 at a total rate of 120 mmcfpd of which Pengrowths working
interest share was 10.1 mmcfpd (before royalties). One well was drilled in the South Venture field in late 2002 and is
awaiting completion pending installation of the production platform
and at least two more are planned after the platform is installed. Fabrication of facilities
began in March 2003 with construction approximately 50% complete at year end.
The South Venture field is expected to commence in late 2004. The first development well in the Glenelg field was drilled and abandoned
in the first quarter of 2003. Development of Glenelg has been
deferred and future plans for production at Glenelg are currently being
re-evaluated. Glenelg was originally included in the second tier development
plans. Sales gas from SOEP is delivered to the onshore gas plant facility at
Goldboro, and the liquids are processed at the fractionation plant in Point
Tupper. The refined gas is transported to market via the Maritimes & Northeast
Pipeline. With long term opportunities in mind, Pengrowth acquired Nova Scotia
Resources Limiteds interests in 11 Significant Discovery Licences in May 2003
for $4.5 million plus a 10 % net profits interest (NPI). The NPI starts after
the payment of capital invested plus a rate of return allowance. These licences
indicate that previous exploratory drilling has discovered hydrocarbon
resources. Further drilling will be required to prove up economic reserves. The
working interests in the licences range from 1.5 to 10%. Weyburn Unit Pengrowth Corporation holds a 9.75% working interest in the Weyburn Unit
located approximately 120 kilometres southeast of Regina in southeast
Saskatchewan. The Weyburn Unit encompasses approximately 216 square
kilometres. Production commenced from the Midale formation in 1955 under
primary depletion (solution gas expansion). The Weyburn Unit was formed in
1963 for the purpose of implementing an inverted nine-spot waterflood pressure
maintenance scheme. Commencing in 1985, the operator, PanCanadian Petroleum
Limited (now EnCana Corporation), embarked on an extensive infill drilling and
waterflood reconfiguration program. In recent years horizontal wells have been
extensively used to arrest production declines. Produced oil averages 31° API
and contains approximately 2% sulphur. GLJ estimates a remaining Total Proved
Plus Probable Reserves at December 31, 2003 of 150.1 mmboes of oil (Pengrowth
Total Proved Plus Probable Reserves are estimated to be 14.6 mmboes) with a
remaining producing life of 38.5 years and a Reserve Life Index of 18.8 years.
In 2003, gross lease production from the Weyburn Unit averaged 21,454 boepd from
749 (89 net) oil wells, of which Pengrowths working interest share was 2,091
boepd (before royalties). Development Activity A
carbon dioxide (CO2) miscible flood project was initiated in the fall of
2000. CO2 injection has been initiated in thirty two patterns in phases 1A,
1B and 1C of the flood. Recent development activity included 23 horizontal
infill wells in 2001, 5 horizontal wells and various waterflood enhancement
programs in 2002 and 7 horizontal infill wells in 2003. Including December 2003
data, the CO2 pattern development area now contributes 57% of total production
at the Weyburn Unit. Current gross lease incremental production directly due to
the CO2
miscible scheme is estimated at 8,800 bblpd of which Pengrowths
working interest share is estimated at 858 bblpd (before royalties). - 20 -




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Swan Hills Unit No. 1 Pengrowth Corporation holds a 10.45% working interest in the Swan Hills
Unit No. 1 located approximately 180 kilometres northwest of Edmonton in
North-Central Alberta. The Swan Hills Beaverhill Lake A and B pools were
discovered and placed on production in 1957. The pools were unitized in 1963
to facilitate the implementation of a line drive waterflood project. Swan
Hills Unit No. 1 is the second largest producing crude oil unit in Canada,
producing a total lease average of 13,925 boepd in 2003 and is operated by Devon
Canada Ltd. In 2003, Pengrowths working interest share of production was
1,455 boepd before royalties. GLJ estimates that the remaining Total Proved
Plus Probable Reserves at December 31, 2003 are 94.3 mmbbls of oil, 65.4 bcf of
natural gas and 3.2 mmbbls of NGLs (Pengrowth Total Proved Plus Probable
Reserves are estimated to be 9.9 mmbbls of oil, 6.8 bcf of natural gas and 0.3
mmbbls of NGLs) with a remaining producing life of 50 years and a Reserve Life
Index of 23 years. Development Activity Development activities in the Swan Hills Unit No. 1 during 2003 included
successful drilling of three northwest platform wells and three recompletions.
More platform drilling is anticipated for 2004 and a CO2 miscible pilot project
was approved. Dunvegan Gas Unit No. 1 Pengrowth Corporation holds a 7.97% working interest in the Dunvegan Unit
located near Fairview, Alberta, in the Peace River Arch, approximately 430 kilometres northwest of
Edmonton. The Dunvegan natural gas field is operated by Devon Canada
Corporation, has 129 (10 net) producing natural gas wells and covers an area of
approximately 213 square kilometres. Approximately 95% of the Dunvegan Units
identified natural gas reserves are contained in the Mississippian Debolt
formation at a depth of approximately 1,465 meters. A natural gas processing
plant, a gathering system and satellite facilities were built in 1973. A deep
cut facility was completed in 1987 for the purpose of extracting propane,
butane and heavier natural gas liquids from the raw natural gas stream. Sour
gas processing facilities were added in 1996. A natural gas storage project
also exists in the Dunvegan Unit. GLJ estimates that Total Proved Plus Probable Reserves of 341.9 bcf of
natural gas and 20.1 mmbbls of NGLs (Pengrowth Total Proved Plus Probable
Reserves of 27.2 bcf of natural gas and 1.6 mmbbls of NGLs) remain to be
produced from the Dunvegan Unit as at December 31, 2003. It has a remaining
life of 45 years and a Reserve Life Index of 16.1 years. Current production
from the Dunvegan Unit is obtained from five zones. In 2003, Pengrowth
Corporations working interest share of production averaged 972 boepd (before
royalties). The majority of gas from the Dunvegan Unit is currently being sold
under contract to Progas Limited with the remainder going to Pan-Alberta Gas
Ltd. and other direct markets. Development Activity Development activity at the Dunvegan Unit was very high and successful in
2003 with 12 new gas wells drilled and 14 recompletions of existing producers.
The operator proposes increased development in 2004, including 24 new wells and
12 recompletions. Oak The Oak area is located in northeastern British Columbia and is
approximately 20 kilometers north of Fort St. John. The property consists of
29 operated oil and natural gas wells, six injection wells and seven water
source wells surrounding two batteries and three natural gas compressors.
Pengrowth Corporation also holds a 20.6% working interest in the
non-operated Oak Cecil I Unit #1. Production is obtained from the Halfway, Cecil, Baldonnel, Cadomin and
Bluesky formations. One injector was drilled in 2003 to optimize the waterflood
and enhance Cecil oil production and reserves recovery within the area. Also,
two vertical Baldonnel gas wells were drilled in 2004 with one tied in and
producing at a total rate of 500 mcfpd before royalties; the other
well is still under evaluation. Pengrowths working interest share of production averaged 1,052 boepd (before
royalties) for 2003. - 21 -




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Development Activity Oak C unitization was completed, with gas injection commencing in
February, 2003 and water injection in April, 2003. The pool is estimated to see
increased production, in 2004, due to waterflood response. It is estimated an
incremental two million barrels of oil is recoverable with the waterflood. The
Baldonnel development drilling program will continue in 2004. Rigel The Rigel area is located in northeastern British Columbia and is
approximately 40 kilometers north of Fort St. John. Pengrowth Corporation
holds an average 60% working interest in the property. The property consists
of four Cecil oil pools containing 39 oil wells, 19 injection wells, a central
battery, and a solution gas compressor. One new edge well was drilled and
abandoned in 2003. Optimization of pumping equipment is ongoing and stimulations of selected
injectors will continue to optimize the waterflood. Pengrowths working
interest share of production averaged 2,996 boepd (before royalties)
in 2003. Development Activity No new wells are currently budgeted. Monogram Gas Unit Pengrowth Corporations working interest in the Monogram Gas Unit, located
in southern Alberta, is 53.82%. The Monogram Gas Unit produces sweet, dry
natural gas from the Medicine Hat, Milk River and Second White Specks
formations. Pengrowths working interest share of 2003 production averaged 8.2
mmcfpd from 366 wells (197 net). Pengrowth Total Proved Plus Probable Reserves
are estimated to be 42.4 bcf. A successful 40-well infill drilling program was completed in 2001. The
operator is currently evaluating a 154 well infill program for 2004. The
facilities will be upgraded with the addition of compression and line looping
in order to accommodate production from the new wells. It is anticipated that
the infill drilling program will double Pengrowths production from Monogram by
the end of 2004. Enchant The Enchant property is located approximately 120 miles southeast of
Calgary. The property consists of four operated oil pools in which Pengrowth
Corporation holds an average 88% working interest. These pools produce 32° API
oil from the Nisku formation. Pengrowths working interest share of production
from Enchant averaged 826 boepd (before royalties) for 2003. Pengrowth Corporation holds a 99% working interest in the largest pools
(the J and VV pool) which consists of 33 producing and 10 injection wells with
treating, water handling and gas conservation handled at a central battery.
Primary production commenced in 1992 and a waterflood project was implemented
in 1995. GLJ estimates that the Enchant property has a Reserve Life Index of 13
years. In the Enchant Arcs Unit No. 2, where Pengrowth Corporation converted a
well to injection in mid-2000, pressure support is now apparent and water break
through is being observed in our oil producers. Development Activity Pengrowth Corporation is currently evaluating drilling one potential oil
well in the Arcs Unit in 2004 to capture bypassed reserves due to water
breakthrough. McLeod River The McLeod River property is located approximately 70 miles from Edmonton.
Production is obtained from the Rock Creek, Notikewin, Gething and Cardium
formations. Pengrowth Corporation drilled eight gas wells during 2003, - 22 -




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with working interests between 30% and 100%. Three wells are tied-in and
are on production, one is awaiting tie-in and the other wells are under
evaluation. Pengrowths working interest share of production from McLeod River
averaged 1,760 boepd (before royalties) for 2003. Development Activity To date in 2004, one well has been drilled, completed and is on production
and a second well has been drilled and is awaiting to be completed. Four to
seven additional wells are planned to be drilled in the second half of 2004. Squirrel The Squirrel area located in North Eastern British Columbia approximately
48 kilometers north of Fort St. John consists of 12 producing oil wells, four
water injection wells, a gas injection well, a central battery and a compressor
station. The oil wells were either drilled or acquired in 2000 to obtain
production from the Triassic North Pine formation. A gas re-injection project
was implemented during November 2000 to maintain pool pressure and increase oil
production. With the commencement of water injection, gas injection has been
reduced to 10 days per month. During 2001, a waterflood was implemented to
maximize reserve recovery. One oil well was fracture stimulated with positive
results. We are currently assessing other fracture candidates. Pengrowths
working interest share of production from Squirrel averaged 1,779 boepd (before
royalties) 2003. Development Activity In 2004, Pengrowth will evaluate the conversion of one oil well to water
injection to improve the waterflood and reduce the need for gas injection. We
will continue to optimize the existing pumping equipment to improve oil
production. We are evaluating concurrent production approval of the gas cap and
also potential infill drilling for enhanced waterflood recovery. Kaybob Notikewin Unit No. 1 Pengrowth Corporations working interest in the Kaybob Notikewin Unit No.
1 is 64.5%. The property produces natural gas and natural gas liquids, with 19
producing wells (12.3 net) in the Kaybob Notikewin Unit. The estimated Reserve
Life Index of the property is 12.8 years. In 2003, Pengrowths working interest share of production averaged 811
boepd (before royalties). GLJ estimates Pengrowth Total Proved Plus Probable
Reserves at December 31, 2003 to be 3.5 mmboe. Plans for 2004 include reviewing the long term inactive wells. Quirk Creek Pengrowth Corporation holds a 55.9% working interest in three producing
deep plate gas wells, a 26.4% working interest in 10 other producing shallow
plate gas wells, a 5.5% working interest in 13 producing gas wells and a 30.5%
working interest in the Quirk Creek natural gas plant located in the Quirk
Creek areas of Southern Alberta. This compares to Pengrowth Corporations
previous 5.5% working interest in 13 producing gas wells in the area and a 4.6%
in the gas plant. Rated at 80 million cubic feet per day of raw inlet gas, the
Quirk Creek gas plant currently operates at about 90% of capacity. Pengrowth working interest share of production for 2003 was approximately
4.8 mmcfpd of natural gas and 219 bpd of natural gas liquids (before
royalties). Pengrowths remaining Total Proved Plus Probable Reserves are
estimated at 3.6 mmboe, consisting of 16.8 bcf of natural gas and 0.8 mmbbls of
NGLs. Pengrowth Corporation believes significant upside potential exists for
future gas development and processing revenue in the area. 
 Reserves The effective date of the information in this section is December 31, 2003
and the preparation date of the information is January 30, 2004. The
information in this section is based upon an evaluation by GLJ with an
effective date - 23 -




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of December 31, 2003 contained in the GLJ Report dated February 19, 2004.
The information in this section summarizes the oil, liquids and natural gas
reserves of Pengrowth Corporation and the net present values of future net
revenue for these reserves using GLJs constant prices and costs and forecast
prices and costs and conforms with the requirements of NI 51-101. Pengrowth
Corporation engaged GLJ to provide an evaluation of proved reserves and proved
plus probable reserves and no attempt was made to evaluate possible reserves.
It is Pengrowths practice to obtain an engineering report
evaluating all of its reserves as at December 31 of each year. All of Pengrowth Corporations reserves are in Canada in the provinces of
Alberta, British Columbia, Saskatchewan and Nova Scotia (SOEP offshore). The following tables set forth certain information relating to the oil and
natural gas reserves of Pengrowth Corporation and the present value of the
estimated future net cash flow associated with such reserves as at December 31,
2003. The information set forth below is derived from the GLJ Report which has
been prepared in accordance with the standards contained in the Canadian Oil
and Gas Evaluation Handbook and the reserves definitions contained in NI 51-101
and the Canadian Oil and Gas Evaluation Handbook. The GLJ Report incorporates
estimates of future well abandonment obligations but does not include estimates
of remediation costs. All evaluations of future net cash flow are stated prior
to any provision for income taxes, interest costs or general and administrative
costs and after the deduction of estimated future capital expenditures for
wells to which reserves have been assigned. It should not be assumed that the
estimated future net cash flow shown below is representative of the fair market
value of the properties. There is no assurance that such price and cost
assumptions will be attained and variances could be material. The recovery and
reserve estimates of crude oil, NGL and natural gas reserves provided herein
are estimates only and there is no guarantee that the estimated reserves will
be recovered. Actual crude oil, NGL and natural gas reserves may be greater
than or less than the estimates provided herein. In 2003, the securities regulatory authorities in Canada (other than
Québec) adopted National Instrument 51-101  Standards of Disclosure for Oil
and Gas Activitieswhich imposes new oil and gas disclosure standards for
Canadian public issuers engaged in oil and gas activities. Under the new
reserve categories, reserves are estimated remaining quantities of oil and
natural gas and related substances anticipated to be recoverable from known
accumulations, from a given date forward based on:  (a)
    
    analysis of drilling, geological, geophysical and engineering
data;(b)
    
    the use of established technology; and(c)
    
    specified economic conditions. Reserves are classified according to the degree of certainty associated
with the estimates.  (d)
    
    Proved Reservesare those reserves that can be estimated with a
high degree of certainty to be recoverable. It is likely that the
actual remaining quantities recovered will exceed the estimated
proved reserves.(e)
    
    Probable Reservesare those additional reserves that are less
certain to be recovered than proved reserves. It is equally likely
that the actual remaining quantities recovered will be greater or
less than the sum of the estimated proved plus probable reserves. Reported reserves should target the following levels of certainty under a
specific set of economic conditions:  
    
    at least a 90 percent probability that the quantities actually
recovered will equal or exceed the estimated proved reserves; and  
    
    at least a 50 percent probability that the quantities actually
recovered will equal or exceed the sum of the estimated proved plus
probable reserves. A qualitative measure of the certainty levels pertaining to the estimates
prepared for the various reserve categories is desirable to provide an
understanding of the associated risks and uncertainties. However, the majority
of reserve estimates will be prepared using deterministic methods that do not
provide a mathematically derived quantitative measure - 24 -




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of probability. In principle, there should be no difference between
estimates prepared using probabilistic or deterministic methods. Pengrowth Corporation is entitled to claim Alberta Royalty Credits. The
Alberta Royalty Credits program is based on a price-sensitive formula linked to
crude oil prices. Credits vary from a high of 75% of the eligible Alberta
Crown Royalties for a taxation year to a maximum of $1,500,000 (75% of
$2,000,000) when the price of oil falls below U.S. $15 per barrel, to a low of
25% (maximum $500,000) when the price of oil rises above U.S. $30 per barrel.
In the GLJ Report, this program is assumed to continue indefinitely. The net cash flows estimated in the GLJ Report represent estimates of the
revenues from oil and gas sales from the petroleum and natural gas properties
of Pengrowth Corporation together with an estimate of processing revenues less
royalties (net of incentives), mineral taxes, field operating expenses and
capital obligations. These net cash floes are not the same as the
distributable cash reported by Pengrowth Trust. Reference is made to the
audited consolidated financial statements of Pengrowth Trust for the year ended
December 31, 2003 for the computation of distributable cash and in particular
to the consolidated statements of income, the consolidated statements of cash
flow and note 4 to the financial statements headed Distributable Cash.
Significant factors to consider include:  (a)
    
    the GLJ Report does not estimate general and administrative
expenses, interest, management fees and holdbacks;(b)
    
    for purposes of calculating distributable income, Pengrowth
Trust amortizes the cost of miscible flood injection fluids purchased
from third parties over the period of expected future economic
benefit arising from the injection of those fluids, which is
currently 30 months. The GLJ Report includes the full cost of
purchased injection fluids ($21.2 million in 2003) in operating costs
in the year incurred; and(c)
    
    Pengrowth Corporation withholds approximately 10% of
distributable cash to fund capital. In accordance with the requirements of NI 51-101, the Report on Reserves
Data by Independent Qualified Reserves Evaluator in Form 51-101F2 and the
Report of Management and Directors on Oil and Gas Disclosure in Form 51-101F3
are attached as Appendices A and B hereto, respectively. SUMMARY OF OIL AND GAS RESERVES
AND NET PRESENT VALUES OF FUTURE NET REVENUE
as of December 31, 2003
CONSTANT PRICES AND COSTS OIL AND GAS RESERVESLIGHT AND
    
    
    
    
    
    
    
    
    
    NATURAL GASMEDIUM OIL
    
    NATURAL GAS
    
    LIQUIDSPengrowth
    
    Working
    

    
    
    

    

    Pengrowth

    
    Working
    

    
    
    

    

    Pengrowth

    
    WorkingInterest
    
    Interest(2)
    
    Net
    
    Interest
    
    Interest(2)
    
    Net
    
    Interest
    
    Interest(2)
    
    NetRESERVES CATEGORY
    
    (mbbls)
    
    (mbbls)
    
    (mbbls)
    
    (bcf)
    
    (bcf)
    
    (bcf)
    
    (mbbls)
    
    (mbbls)
    
    (mbbls)ProvedDeveloped Producing
    
    
    61,402
    
    
    
    61,279
    
    
    
    51,423
    
    
    
    278
    
    
    
    272
    
    
    
    220
    
    
    
    12,977
    
    
    
    12,818
    
    
    
    9,146Developed Non-Producing
    
    
    502
    
    
    
    501
    
    
    
    421
    
    
    
    12
    
    
    
    11
    
    
    
    9
    
    
    
    237
    
    
    
    231
    
    
    
    190Undeveloped
    
    
    17,655
    
    
    
    17,641
    
    
    
    14,946
    
    
    
    54
    
    
    
    52
    
    
    
    42
    
    
    
    1,585
    
    
    
    1,534
    
    
    
    1,129Total Proved
    
    
    79,559
    
    
    
    79,421
    
    
    
    66,790
    
    
    
    343
    
    
    
    336
    
    
    
    271
    
    
    
    14,799
    
    
    
    14,583
    
    
    
    10,464Probable
    
    
    18,855
    
    
    
    18,821
    
    
    
    15,785
    
    
    
    76
    
    
    
    72
    
    
    
    57
    
    
    
    3,598
    
    
    
    3,513
    
    
    
    2,578Total Proved Plus Probable
    
    
    98,414
    
    
    
    98,241
    
    
    
    82,575
    
    
    
    419
    
    
    
    408
    
    
    
    329
    
    
    
    18,393
    
    
    
    18,096
    
    
    
    13,044
 - 25 -




---



##### Table of Contents



TOTAL OILEQUIVALENT BASIS(1)Pengrowth
    
    WorkingInterest
    
    Interest(2)
    
    NetRESERVES CATEGORY
    
    (mboe)
    
    (mboe)
    
    (mboe)ProvedDeveloped Producing
    
    
    120,663
    
    
    
    119,439
    
    
    
    97,220Developed Non-Producing
    
    
    2,693
    
    
    
    2,637
    
    
    
    2,125Undeveloped
    
    
    28,174
    
    
    
    27,808
    
    
    
    23,141Total Proved
    
    
    151,530
    
    
    
    149,884
    
    
    
    122,486Probable
    
    
    35,038
    
    
    
    34,383
    
    
    
    27,938Total Proved Plus Probable
    
    
    186,569
    
    
    
    184,267
    
    
    
    150,424
   Notes:(1)
    
    Natural gas has been converted to barrels of oil equivalent on the basis
of six mcf of natural gas being equal to one boe.(2)
    
    Excludes royalty interests held by Pengrowth Corporation. NET PRESENT VALUES OF FUTURE NET REVENUEBEFORE INCOME TAXESDISCOUNTED AT (% per year)0
    
    5
    
    10
    
    15
    
    20RESERVES CATEGORY
    
    ($MM)
    
    ($MM)
    
    ($MM)
    
    ($MM)
    
    ($MM)ProvedDeveloped Producing
    
    
    2,193.4
    
    
    
    1,647.7
    
    
    
    1,343.1
    
    
    
    1,147.6
    
    
    
    1,010.3Developed Non-Producing
    
    
    58.7
    
    
    
    38.8
    
    
    
    28.0
    
    
    
    21.3
    
    
    
    16.9Undeveloped
    
    
    510.7
    
    
    
    339.5
    
    
    
    233.0
    
    
    
    162.5
    
    
    
    113.6Total Proved
    
    
    2,762.8
    
    
    
    2,026.0
    
    
    
    1,604.1
    
    
    
    1,331.5
    
    
    
    1,140.8Probable
    
    
    765.4
    
    
    
    448.8
    
    
    
    306.6
    
    
    
    227.1
    
    
    
    176.6Total Proved Plus Probable
    
    
    3,528.2
    
    
    
    2,474.8
    
    
    
    1,910.7
    
    
    
    1,558.6
    
    
    
    1,317.4
 TOTAL FUTURE NET REVENUE
(UNDISCOUNTED)
as of December 31, 2003 CONSTANT PRICES AND COSTS FUTURENETREVENUEWELL
    
    BEFOREOPERATING
    
    DEVELOPMENT
    
    ABANDONMENT
    
    INCOMEREVENUE
    
    ROYALTIES
    
    COSTS
    
    COSTS
    
    COSTS
    
    TAXESRESERVES CATEGORY
    
    ($M)
    
    ($M)
    
    ($M)
    
    ($M)
    
    ($M)
    
    ($M)Proved Reserves
    
    
    5,816,911
    
    
    
    1,076,730
    
    
    
    1,564,602
    
    
    
    336,270
    
    
    
    76,499
    
    
    
    2,762,812Proved Plus Probable Reserves
    
    
    7,176,177
    
    
    
    1,354,292
    
    
    
    1,830,578
    
    
    
    384,130
    
    
    
    78,955
    
    
    
    3,528,222
 FUTURE NET REVENUE
BY PRODUCTION GROUP
as of December 31, 2003 CONSTANT PRICES AND COSTS FUTURE NET REVENUE BEFOREINCOME TAXES(discounted at 10% per year)RESERVES CATEGORY
    
    PRODUCTION GROUP
    
    ($M)Proved Reserves
    
    Light and Medium Crude Oil (including solution gas and other by-products)(1)
    
    
    884,270Natural Gas (including by-products but excluding solution gas from oil wells)(2)
    
    
    713,853Proved Plus Probable
    
    Light and Medium Crude Oil (including solution gas and other by-products)(1)
    
    
    1,056,697Reserves
    
    Natural Gas (including by-products but excluding solution gas from oil wells)(2)
    
    
    847,872
   Notes: - 26 -




---



##### Table of Contents



(1)
    
    NGLs associated with the production of crude oil are included as a
by-product.(2)
    
    NGLs associated with the production of natural gas are included as a
by-product. SUMMARY OF OIL AND GAS RESERVES
AND NET PRESENT VALUES OF FUTURE NET REVENUE
as of December 31, 2003 FORECAST PRICES AND COSTS OIL AND GAS RESERVESLIGHT AND
    
    
    
    
    
    
    
    
    
    NATURAL GASMEDIUM OIL
    
    NATURAL GAS
    
    LIQUIDSPengrowth
    
    Working
    
    
    
    
    
    Pengrowth
    
    Working
    
    
    
    
    
    Pengrowth
    
    WorkingInterest
    
    Interest(2)
    
    Net
    
    Interest
    
    Interest(2)
    
    Net
    
    Interest
    
    Interest(2)
    
    NetRESERVES CATEGORY
    
    (mbbls)
    
    (mbbls)
    
    (mbbls)
    
    (bcf)
    
    (bcf)
    
    (bcf)
    
    (mbbls)
    
    (mbbls)
    
    (mbbls)ProvedDeveloped Producing
    
    
    59,677
    
    
    
    59,559
    
    
    
    50,344
    
    
    
    273
    
    
    
    267
    
    
    
    218
    
    
    
    12,774
    
    
    
    12,614
    
    
    
    9,099Developed Non-Producing
    
    
    494
    
    
    
    492
    
    
    
    414
    
    
    
    12
    
    
    
    11
    
    
    
    9
    
    
    
    237
    
    
    
    231
    
    
    
    189Undeveloped
    
    
    17,867
    
    
    
    17,853
    
    
    
    15,910
    
    
    
    54
    
    
    
    52
    
    
    
    44
    
    
    
    1,628
    
    
    
    1,577
    
    
    
    1,221Total Proved
    
    
    78,038
    
    
    
    77,904
    
    
    
    66,667
    
    
    
    338
    
    
    
    331
    
    
    
    271
    
    
    
    14,638
    
    
    
    14,422
    
    
    
    10,509Probable
    
    
    19,322
    
    
    
    19,288
    
    
    
    16,506
    
    
    
    75
    
    
    
    71
    
    
    
    57
    
    
    
    3,611
    
    
    
    3,531
    
    
    
    2,629Total Proved Plus Probable
    
    
    97,360
    
    
    
    97,192
    
    
    
    83,173
    
    
    
    413
    
    
    
    402
    
    
    
    328
    
    
    
    18,250
    
    
    
    17,953
    
    
    
    13,138 TOTAL OILEQUIVALENT BASIS(1)Pengrowth
    
    WorkingInterest
    
    Interest(2)
    
    NetRESERVES CATEGORY
    
    (mboe)
    
    (mboe)
    
    (mboe)ProvedDeveloped Producing
    
    
    117,937
    
    
    
    116,717
    
    
    
    95,760Developed Non-Producing
    
    
    2,680
    
    
    
    2,624
    
    
    
    2,120Undeveloped
    
    
    28,442
    
    
    
    28,076
    
    
    
    24,478Total Proved
    
    
    149,060
    
    
    
    147,417
    
    
    
    122,357Probable
    
    
    35,356
    
    
    
    34,700
    
    
    
    28,703Total Proved Plus Probable
    
    
    184,416
    
    
    
    182,118
    
    
    
    151,060
   Note:(1)
    
    Natural gas has been converted to barrels of oil equivalent on the basis
of six mcf of natural gas being equal to one boe.(2)
    
    Excludes royalty interests held by Pengrowth Corporation. NET PRESENT VALUES OF FUTURE NET REVENUEBEFORE INCOME TAXESDISCOUNTED AT (% per year)0
    
    5
    
    10
    
    15
    
    20RESERVES CATEGORY
    
    ($MM)
    
    ($MM)
    
    ($MM)
    
    ($MM)
    
    ($MM)ProvedDeveloped Producing
    
    
    1,491.1
    
    
    
    1,168.0
    
    
    
    977.9
    
    
    
    851.8
    
    
    
    761.1Developed Non-Producing
    
    
    44.7
    
    
    
    29.3
    
    
    
    21.0
    
    
    
    16.0
    
    
    
    12.7Undeveloped
    
    
    338.3
    
    
    
    213.4
    
    
    
    136.4
    
    
    
    85.9
    
    
    
    51.0Total Proved
    
    
    1,874.1
    
    
    
    1,410.7
    
    
    
    1,135.4
    
    
    
    953.6
    
    
    
    824.8Probable
    
    
    575.7
    
    
    
    336.2
    
    
    
    229.2
    
    
    
    169.9
    
    
    
    132.3Total Proved Plus Probable
    
    
    2,449.7
    
    
    
    1,746.9
    
    
    
    1,364.6
    
    
    
    1,123.5
    
    
    
    957.2
 - 27 -




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##### Table of Contents



TOTAL OF FUTURE NET REVENUE
(UNDISCOUNTED)
as of December 31, 2003 FORECAST PRICES AND COSTS FUTURENETREVENUEWELL
    
    BEFOREOPERATING
    
    DEVELOPMENT
    
    ABANDONMENT
    
    INCOMERESERVES
    
    REVENUE
    
    ROYALTIES
    
    COSTS
    
    COSTS
    
    COSTS
    
    TAXESCATEGORY
    
    ($M)
    
    ($M)
    
    ($M)
    
    ($M)
    
    ($M)
    
    ($M)Proved Reserves
    
    
    4,823,665
    
    
    
    800,685
    
    
    
    1,710,096
    
    
    
    345,920
    
    
    
    92,906
    
    
    
    1,874,058Proved Plus Probable Reserves
    
    
    6,049,709
    
    
    
    1,016,693
    
    
    
    2,085,052
    
    
    
    398,309
    
    
    
    99,918
    
    
    
    2,449,737
 FUTURE NET REVENUE
BY PRODUCTION GROUP
as of December 31, 2003 FORECAST PRICES AND COSTS FUTURE NET REVENUE BEFOREINCOME TAXES(discounted at 10% per year)RESERVES CATEGORY
    
    PRODUCTION GROUP
    
    ($M)Proved Reserves
    
    Light and Medium Crude Oil (including solution gas and other by-products)(1)
    
    
    590,512Natural Gas (including by-products but excluding solution gas from oil wells)(2)
    
    
    539,016Proved Plus Probable Reserves
    
    Light and Medium Crude Oil (including solution gas and other by-products)(1)
    
    
    713,320Natural Gas (including by-products but excluding solution gas from oil wells)(2)
    
    
    645,201
   Notes:(1)
    
    NGLs associated with the production of crude oil are included as a
by-product.(2)
    
    NGLs associated with the production of natural gas are included as a
by-product. SUMMARY OF PRICING ASSUMPTIONS
as of December 31, 2003
CONSTANT PRICES AND COSTS EXCHANGEOIL
    
    NATURAL GAS
    
    NATURAL GAS LIQUIDS(1)
    
    RATEWTI Cushing
    
    Edmonton Par Price
    
    Cromer Medium
    
    AECO Gas
    
    
    
    
    
    ButaneOklahoma
    
    400 API
    
    29.30 API
    
    Price
    
    Propane
    
    Field Gate
    
    Pentanes PlusYear(2)
    
    ($US/bbl)
    
    ($Cdn/bbl)
    
    ($Cdn/bbl)
    
    ($Cdn/mmbtu)
    
    ($Cdn/bbl)
    
    ($Cdn/bbl)
    
    ($Cdn/bbl)
    
    ($US/Cdn)2004(3)
    
    
    32.52
    
    
    
    40.81
    
    
    
    34.81
    
    
    
    6.09
    
    
    
    29.81
    
    
    
    31.81
    
    
    
    41.31
    
    
    
    0.7738
   Notes:(1)
    
    At Edmonton.(2)
    
    Information provided as at December 31, 2003.(3)
    
    This forecast represents the constant price forecast used by GLJ. - 28 -




---



##### Table of Contents



SUMMARY OF PRICING AND
INFLATION RATE ASSUMPTIONS
as of December 31, 2003 FORECAST PRICES AND COSTS INFLATION
    
    EXCHANGEOIL
    
    NATURAL GAS
    
    NATURAL GAS LIQUIDS(1)
    
    RATES(2)
    
    RATE(3)WTI Cushing
    
    Edmonton Par Price
    
    Cromer Medium
    
    AECO Gas
    
    
    
    
    
    ButaneOklahoma
    
    400 API
    
    29.30 API
    
    Price
    
    Propane
    
    Field Gate
    
    Pentanes PlusYear
    
    ($US/bbl)
    
    ($Cdn/bbl)
    
    ($Cdn/bbl)
    
    ($Cdn/mmbtu)
    
    ($Cdn/bbl)
    
    ($Cdn/bbl)
    
    ($Cdn/bbl)
    
    (%/Year)
    
    ($US/Cdn)2004
    
    
    29.00
    
    
    
    37.75
    
    
    
    31.75
    
    
    
    5.85
    
    
    
    26.75
    
    
    
    28.75
    
    
    
    38.25
    
    
    
    1.5
    
    
    
    0.752005
    
    
    26.00
    
    
    
    33.75
    
    
    
    28.75
    
    
    
    5.15
    
    
    
    21.75
    
    
    
    23.75
    
    
    
    34.25
    
    
    
    1.5
    
    
    
    0.752006
    
    
    25.00
    
    
    
    32.50
    
    
    
    28.50
    
    
    
    5.00
    
    
    
    20.50
    
    
    
    22.50
    
    
    
    33.00
    
    
    
    1.5
    
    
    
    0.752007
    
    
    25.00
    
    
    
    32.50
    
    
    
    28.50
    
    
    
    5.00
    
    
    
    20.50
    
    
    
    22.50
    
    
    
    33.00
    
    
    
    1.5
    
    
    
    0.752008 to 2014
    
    
    25.00
    
    
    
    32.50
    
    
    
    28.50
    
    
    
    5.00
    
    
    
    20.50
    
    
    
    22.50
    
    
    
    33.00
    
    
    
    1.5
    
    
    
    0.75Thereafter
    
    
    +1.5
    %
    
    
    +1.5
    %
    
    
    +1.5
    %
    
    
    +1.5
    %
    
    
    +1.5
    %
    
    
    +1.5
    %
    
    
    +1.5
    %
    
    
    +1.5
    
    
    
    0.75
   Notes:(1)
    
    At Edmonton.(2)
    
    Inflation rates for forecasting prices and costs.(3)
    
    The exchange rates used to generate the benchmark reference prices in
this table. RECONCILIATION OF
NET RESERVES BY PRINCIPAL PRODUCT TYPE FORECAST PRICES AND COSTS LIGHT AND MEDIUM OIL
    
    NATURAL GASNet Proved
    
    
    
    
    
    Net ProvedNet Proved
    
    Net Probable
    
    Plus Probable
    
    Net Proved
    
    Net Probable
    
    Plus ProbableFACTORS
    
    (mbbls)
    
    (mbbls)
    
    (mbbls)
    
    (mmcf)
    
    (mmcf)
    
    (mmcf)December 31, 2002
    
    
    76,129
    
    
    
    13,846
    
    
    
    89,975
    
    
    
    340,900
    
    
    
    58,800
    
    
    
    399,700Extensions
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    3,100
    
    
    
    2,000
    
    
    
    5,100Improved Recovery
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Technical Revisions
    
    
    (2,843
    )
    
    
    2,648
    
    
    
    (195
    )
    
    
    (37,900
    )
    
    
    (3,300
    )
    
    
    (41,200
    )Discoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    (100
    )
    
    
    Acquisitions
    
    
    274
    
    
    
    76
    
    
    
    350
    
    
    
    700
    
    
    
    100
    
    
    
    800Dispositions
    
    
    (239
    )
    
    
    (63
    )
    
    
    (302
    )
    
    
    (600
    )
    
    
    (100
    )
    
    
    (700
    )Economic Factors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Production
    
    
    (6,655
    )
    
    
    
    
    
    
    (6,655
    )
    
    
    (35,200
    )
    
    
    
    
    
    
    (35,200
    )December 31, 2003
    
    
    66,667
    
    
    
    16,506
    
    
    
    83,173
    
    
    
    271,100
    
    
    
    57,400
    
    
    
    328,500
   [Continued from above table, first column(s) repeated] NATURAL GAS LIQUIDS
    
    TOTAL OIL EQUIVALENT BASIS(1)Net Proved
    
    
    
    
    
    Net ProvedNet Proved
    
    Net Probable
    
    Plus Probable
    
    Net Proved
    
    Net Probable
    
    Plus Probable(mbbls)
    
    (mbbls)
    
    (mbbls)
    
    (mboe)
    
    (mboe)
    
    (mboe)December 31, 2002
    
    
    15,150
    
    
    
    2,708
    
    
    
    17,858
    
    
    
    148,096
    
    
    
    26,354
    
    
    
    174,450Extensions
    
    
    74
    
    
    
    54
    
    
    
    128
    
    
    
    592
    
    
    
    386
    
    
    
    978Improved Recovery
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Technical Revisions
    
    
    (3,045
    )
    
    
    (141
    )
    
    
    (3,186
    )
    
    
    (12,206
    )
    
    
    1,957
    
    
    
    (10,247
    )Discoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    (17
    )
    
    
    Acquisitions
    
    
    36
    
    
    
    8
    
    
    
    44
    
    
    
    427
    
    
    
    101
    
    
    
    527Dispositions
    
    
    (20
    )
    
    
    
    
    
    
    (20
    )
    
    
    (359
    )
    
    
    (80
    )
    
    
    (439
    )Economic Factors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Production
    
    
    (1,686
    )
    
    
    
    
    
    
    (1,686
    )
    
    
    (14,208
    )
    
    
    
    
    
    
    (14,208
    )December 31, 2003
    
    
    10,509
    
    
    
    2,629
    
    
    
    13,138
    
    
    
    122,359
    
    
    
    28,702
    
    
    
    151,061
   Note:(1)
    
    Natural gas has been converted to barrels of oil equivalent on the basis
of six mcf of natural gas being equal to one boe. At year end 2003, Pengrowth Corporations remaining recoverable Total
Proved Plus Probable Reserves were 184.4 mmboe as compared to 214.8 mmboe of
established reserves reported at year end 2002. Although not directly
comparable due to a change in reserve definitions under NI 51-101, the Total
Proved Plus Probable Reserves are similar to Pengrowths previously reported
established reserves which were defined as proved plus 50% of probable
reserves under the old reserve definitions. The following additional GLJ reserves reconciliation is presented for
year-end December 31, 2003. - 29 -




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##### Table of Contents



RECONCILIATION OF RESERVES
ON TOTAL EQUIVALENT BASIS FORECAST PRICES AND COSTS Proved
    
    
    
    
    
    Proved PlusProducing Reserves
    
    Proved Reserves
    
    Probable Reserves(mboe)(1)(2)
    
    (mboe)(1)(2)
    
    (mboe)(1)(2)December 31, 2002(3)
    
    
    130,868
    
    
    
    181,381
    
    
    
    214,844
    (4)Exploration and Development
    
    
    4,190
    
    
    
    2,720
    
    
    
    2,710Revisions(5)
    
    
    1,090
    
    
    
    (17,110
    )
    
    
    (15,267
    )Acquisitions
    
    
    240
    
    
    
    490
    
    
    
    620Dispositions
    
    
    (410
    )
    
    
    (420
    )
    
    
    (510
    )Production
    
    
    (17,897
    )
    
    
    (17,897
    )
    
    
    (17,897
    )December 31, 2003
    
    
    118,081
    
    
    
    149,164
    
    
    
    184,470
   Notes:(1)
    
    Pengrowths working interest share before royalties.(2)
    
    Natural gas has been converted to barrels of oil equivalent on the basis of
six mcf of natural gas being equal to one boe.(3)
    
    National Policy Statement 2-B reserves definitions.(4)
    
    Established (proved reserves and one-half probable reserves) reserves
as at December 31, 2002 based on National Policy Statement 2-B reserves
definitions.(5)
    
    Revisions reflect both reservoir performance and
the effect of the change in reserves definitions under NI 51-101. Significant factors on the reserves reconciliation were as follows:  
    
    GLJ reduced estimates of sales gas reserves attributed to
Pengrowth Corporations 8.4% working interest in the Sable Offshore
Energy Project (SOEP) determined at project startup by 50 bcf from
176 bcf to 126 bcf consistent with the reduction to SOEP reserves
announced by Shell Canada Resources Limited on January 29, 2004. The
adjustments were primarily due to the removal of the Glenelg field
from current development plans, the exclusion of an undrilled fault
block at North Triumph and poorer than anticipated performance at the
Venture field.
    
    Revisions to Proved Reserves for Pengrowth Corporations
overall oil and gas property portfolio are 17.1 mmboes or
approximately 9.3% of Pengrowth Corporations Proved Reserves.
Effective December 31, 2003, SOEP represented approximately 10% of
Pengrowths total Proved Reserves.
    
    Revisions to Total Proved Plus Probable Reserves (formerly
established reserves reported by GLJ as at December 31, 2002) were
15.3 mmboes or 7.1%, approximately 85% of which can be attributed to
reductions in reserves for Pengrowth Corporations SOEP interest. RECONCILIATION OF CHANGES IN
NET PRESENT VALUES OF FUTURE NET REVENUE
DISCOUNTED AT 10% PER YEAR PROVED RESERVES CONSTANT PRICES AND COSTS Period and Factor
    
    Before Tax 2003 ($M)Estimated Net Present Value at Beginning of Year
    
    
    1,941,700Oil and Gas Sales During the Period Net of Production Costs and Royalties(1)
    
    
    (395,000
    )Net Change due to Prices and Royalties Related to Forecast Production (2)
    
    
    (115,000
    )Change in Development Costs During the Period (3)
    
    
    85,700Change in Forecast Development Costs (4)
    
    
    Change Resulting from Extensions and Improved Recovery (5)
    
    
    7,200
 - 30 -




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##### Table of Contents



Period and Factor
    
    Before Tax 2003 ($M)Net Change Resulting from Discoveries (5)
    
    
    300Change Resulting from Acquisitions of Reserves (5)
    
    
    5,400Change Resulting from Dispositions of Reserves (5)
    
    
    (4,500
    )Accretion of Discount (6)
    
    
    194,170Net Change in Income Taxes (7)
    
    
    Change Resulting from Technical Reserves Revisions (8)
    
    
    (133,900
    )All Other Changes
    
    
    18,000Estimated Net Present Value at End of Year
    
    
    1,604,070
   Notes:(1)
    
    Net of income taxes and excluding general and administrative expenses.(2)
    
    The impact of changes in prices and other economic factors on future net
revenue.(3)
    
    Actual capital expenditures relating to the exploration, development and
production of oil and gas reserves.(4)
    
    The change in forecast development costs.(5)
    
    End of period net present value of the related reserves.(6)
    
    Estimated as 10% of the beginning of period net present value.(7)
    
    The difference between forecast income taxes at beginning of period and
actual taxes for the period plus forecast income taxes at the end of
period.(8)
    
    Changes due to the implementation of new reserve definitions under NI
51-101 and reductions in proved reserves primarily due to a reserves
adjustment for Pengrowth Corporations 8.4% working interest in SOEP. 
 Additional Information Relating to Reserves Data Undeveloped Reserves Undeveloped reserves are those reserves expected to be recovered from
known accumulations where a significant expenditure is required to render them
capable of production. Proved
and probable undeveloped reserves
have been estimated in accordance with procedures and standards
contained in the COGE Handbook. In general, undeveloped reserves are
scheduled to be developed within the next two years.
Much of the remaining capital scheduled beyond two years is related
to the Sable Island Offshore and Weyburn carbon dioxide projects,
which have staged development plans. Proved Undeveloped Reserves Pengrowth Corporations Proved Undeveloped Reserves comprise roughly 20%
of the total Proved Reserves on a barrel of oil equivalency basis. The 24.5
mmboe of Proved Undeveloped Reserves (net of royalties) assigned to Pengrowth
Corporation by GLJ meets the current accepted guidelines as stated in National
Instrument 51-101  Standards of Disclosure for Oil and Gas Activities. In
general, Proved Undeveloped Reserves were assigned to certain properties
because capital commitments have been made to convert the Undeveloped Reserves
to Proved Producing Reserves. Proved Undeveloped Reserves have been primarily
assigned for future miscible flood expansion and development drilling. The Judy Creek Units hold roughly 27% of the Proved Undeveloped Reserves.
Miscible injection has resulted in an overall incremental recovery of between
five and seven percent of the original oil in place in this area and has been
in use since 1985. Miscible flood expansion is an on going program which is
limited by the availability of injectant materials and is budgeted to continue
through to 2008. Similarly, at Swan Hills miscible flood expansion as well as
some infill drilling accounts for another 17% of Pengrowths Proved Undeveloped
Reserves assignments. The Swan Hills Unit Reserves have a 50 year reserve life.
The incremental recovery is well documented and is forecasted to continue until
2014. In the Weyburn Unit, an additional 14% of the Proved Undeveloped Reserves
assignment reflects the capital allocated to the CO2 miscible flood. Working
interest partners are committed to a 15 year supply of CO2 to further develop
the flood area from the existing 32 patterns to full development with 75
patterns. - 31 -




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##### Table of Contents



SOEP has 17% of the Pengrowths Proved Undeveloped Reserves to reflect
capital committed to future drilling. The 2004 budget has allocated capital for
drilling three new wells in South Venture along with the construction of the
South Venture platform. Shallow gas infill programs at Monogram (154 wells) and Tilley (100 wells) will
be underway in 2004. Roughly 8% of the total Proved Undeveloped Reserves can be
attributed to these projects. The Dunvegan Unit has 4% of the Proved
Undeveloped Reserves assignments that reflect an on-going successful
recompletion and drilling program. Future Development Costs The following table outlines development costs deducted in the estimation
of future net revenue for each of the next five financial years and in total,
undiscounted and using a discount rate of 10% per annum. 2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Remainder


    
    Total
    
    Total (discounted(undiscounted)
    
    (undiscounted)
    
    (undiscounted)
    
    (undiscounted)
    
    (undiscounted)
    
    (undiscounted)


    
    (undiscounted)
    
    at 10%)RESERVE CATEGORY
    
    ($MM)
    
    ($MM)
    
    ($MM)
    
    ($MM)
    
    ($MM)
    
    ($MM)


    
    ($MM)
    
    ($MM)Proved
Reserves
(Constant Prices and Costs)
    
    
    125.2
    
    
    
    67.5
    
    
    
    51.8
    
    
    
    19.4
    
    
    
    15.9
    
    
    
    56.5
    
    
    

    336.3
    
    
    
    267.9Proved
Reserves
(Forecast Prices and Costs)
    
    
    125.2
    
    
    
    68.4
    
    
    
    53.2
    
    
    
    20.2
    
    
    
    16.8
    
    
    
    62.1
    
    
    

    345.9
    
    
    
    272.8Proved
& Probable Reserves
(Forecast Prices and Costs)
    
    
    131.2
    
    
    
    82.4
    
    
    
    63.5
    
    
    
    24.4
    
    
    
    19.7
    
    
    
    77.1
    
    
    

    398.3
    
    
    
    309.9
 Commencing with the January 15, 2003 distribution to unitholders,
approximately 10% of cash available for distribution has been withheld to fund
capital expenditures. 
 Other Oil And Gas Information Oil and Gas Wells As at December 31, 2003, Pengrowth had an interest in 3,585 gross (1,049
net) producing oil and natural gas wells and 542 gross (268 net) inactive
wells. PRODUCING
    
    NON-PRODUCINGGross
    
    Net
    
    Gross
    
    NetCrude Oil WellsAlberta
    
    
    875
    
    
    
    312
    
    
    
    249
    
    
    
    116British Columbia
    
    
    148
    
    
    
    103
    
    
    
    44
    
    
    
    39Saskatchewan
    
    
    749
    
    
    
    89
    
    
    
    61
    
    
    
    6Nova Scotia
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Natural Gas WellsAlberta
    
    
    1660
    
    
    
    469
    
    
    
    81
    
    
    
    19British Columbia
    
    
    139
    
    
    
    75
    
    
    
    59
    
    
    
    44Saskatchewan
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Nova Scotia
    
    
    14
    
    
    
    1
    
    
    
    0
    
    
    
    0OtherBritish Columbia(1)
    
    
    0
    
    
    
    0
    
    
    
    48
    
    
    
    44Total
    
    
    3585
    
    
    
    1049
    
    
    
    542
    
    
    
    268
   Note:(1)
    
    Pengrowth cannot classify these wells as either oil or gas. Properties with No Attributed Reserves The following table sets forth the gross and net acres of unproved
properties held by Pengrowth and the net area of unproved property for which
Pengrowth expects its rights to explore, develop and exploit to expire during
the next year. UNPROVED PROPERTIES(acres)LOCATION
    
    Gross
    
    Net
    
    Net Area to ExpireAlberta
    
    
    65,586
    
    
    
    22,955
    
    
    
    4,590British Columbia
    
    
    605,312
    
    
    
    292,536
    
    
    
    58,500Saskatchewan
    
    
    1,393
    
    
    
    201
    
    
    
    
 - 32 -




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##### Table of Contents



UNPROVED PROPERTIES(acres)LOCATION
    
    Gross
    
    Net
    
    Net Area to ExpireNova Scotia
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TOTAL
    
    
    672,291
    
    
    
    315,692
    
    
    
    63,090
 Unproved Properties The expiring acreage in Alberta will be held based on current activity
which is focused on exploitation of up-hole potential in existing wells. The British Columbia properties are primarily winter access only
properties. Three wells were drilled in January 2004. There is a concerted
effort being made to farmout the remaining properties that are scheduled to
expire. The properties remaining will be placed in sale packages when all other
opportunities have been exhausted. Forward Contracts Pengrowth sells forward a portion of its future production through a
combination of fixed price sales contracts with customers and commodity swap
agreements with financial counterparties. Pengrowth has hedged a total of
17,000 mmbtupd of SOEP natural gas using financial swaps for the remainder of
2004 at an average price of $7.11 per mmbtu. In
2005, Pengrowth has hedged a total of 6000 mmbtupd of SOEP natural gas
at an average price of $8.86 per mmbtu. Pengrowth has an additional
3500 giga
joules per day of AECO gas hedged for 2004 at an average price of
$7.17 per
giga joule. Pengrowth
has currently hedged 10,500 blpd of crude oil for the remainder
of 2004 at an average price of $38.78 per bbl including foreign
exchange risk. In 2005, Pengrowth has hedged a total of 2,000 bblpd
of crude oil at an average price of $48.60 per bbl. From
February 1, 2004 to December 31, 2004 Pengrowth has hedged 5 mega watts
of power at an average price of $53 per mega watt hour. Abandonment & Reclamation Costs The total future abandonment and reclamation costs are estimated by
management based on Pengrowth Corporations working interest in its
wells and facilities, estimated costs to remediate, reclaim and abandon the
wells and facilities, and the estimated costs to be incurred in future periods.
The downhole abandonment costs are included in the GLJ Report and therefore are
included in the estimate of future net revenue. All other abandonment and
reclamation costs are not reflected in the estimate of future net revenue. Pengrowth has estimated the net present value (discounted 10% per annum)
of its total asset retirement obligations to be $84 million as at December 31,
2003, based on a total future liability of $352 million. These costs are
anticipated to be made over 51 years with the majority of the costs incurred
between 2014 and 2040. Pengrowth anticipates to incur abandonment costs on a total of 503 net oil
wells, 545 net gas wells and 239 net inactive wells. The following table summarizes Pengrowths total asset retirement
obligation: Future Reclamation, Remediation, Dismantling & Abandonment Costs2004
    
    2005
    
    2006
    
    Remainder
    
    Total($M)
    
    ($M)
    
    ($M)
    
    ($M)
    
    ($M)Total Reclamation, Remediation & Dismantling
    
    
    5,329
    
    
    
    6,560
    
    
    
    6,858
    
    
    
    312,236
    
    
    
    330,983Well Abandonment
    
    
    641
    
    
    
    671
    
    
    
    638
    
    
    
    18,755
    
    
    
    20,705Total
    
    
    5,970
    
    
    
    7,231
    
    
    
    7,496
    
    
    
    330,991
    
    
    
    351,688Discounted at 10%
    
    
    5,692
    
    
    
    6,268
    
    
    
    5,906
    
    
    
    66,374
    
    
    
    84,240
 - 33 -




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##### Table of Contents



Tax Horizon In determining its taxable income, Pengrowth Corporation deducts royalty
payments to unitholders and, historically, this has been sufficient to reduce
taxable income to nil. The recent change to Pengrowths distribution approach,
whereby approximately 10 percent of funds available for distribution are
withheld to fund future capital expenditures, could result in taxable income in
Pengrowth Corporation in the future. However, there are at present sufficient
tax pools available in Pengrowth Corporation to offset the expected level of
income to be retained. As a result, our after tax future net revenues from our
reserves are the same as our before tax future net revenues from our reserves. Costs Incurred The following table outlines property acquisition, exploration and
development costs incurred during the financial year ended December 31, 2003. NATURE OF COST
    
    AMOUNT ($MM)Acquisition Costs
    
    
    123.0Proved
    
    
    
    (1)Unproved
    
    
    
    (1)Exploration Costs
    
    
    Development Costs
    
    
    85.7Total
    
    
    208.7
   Note:(1)
    
    The acquisition costs reflect the amount paid by Pengrowth to acquire a
working interest in the SOEP natural gas processing facilities downstream
of the Thebaud Central Processing Platform and the SOEP offshore platforms
and associated sub-sea field gathering lines from Emera. This purchase
results in a savings in operating costs and does not increase proved and
unproved reserve values. Development Activities The following table summarizes the results of development activities
during the financial year ended December 31, 2003. GROSS
    
    NETDevelopment WellsGas
    
    
    138.0
    
    
    
    61.7Oil
    
    
    29.0
    
    
    
    8.3Service
    
    
    4.0
    
    
    
    3.9Dry
    
    
    9.0
    
    
    
    3.8Total Wells
    
    
    180.0
    
    
    
    77.7
 
 Production Production Estimates The following tables summarize the volume of production estimated for the
year ended December 31, 2004 using constant and forecast prices and costs. ESTIMATED PRODUCTIONTotal Proved
    
    Proved Plus ProbableConstant Prices and Costs
    
    Forecast Prices and CostsLight and Medium Crude Oil (bblpd)
    
    
    21,597
    
    
    
    22,086Natural Gas (mcfpd)
    
    
    111,693
    
    
    
    116,882Natural Gas Liquids (bblpd)
    
    
    5,401
    
    
    
    5,657
 Production History The following tables summarize certain information in respect of
production, product prices received, royalties paid, operating expenses and
resulting operating netbacks of Pengrowth for the periods indicated below: - 34 -




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##### Table of Contents



QUARTER ENDEDMarch 31, 2003
    
    June 30, 2003
    
    September 30, 2003
    
    December 31, 2003Crude Oil and NGLS(1)Average Daily Oil Production(2) (bblpd)
    
    
    24,807
    
    
    
    23,530
    
    
    
    22,852
    
    
    
    22,193Average Daily NGL Production(2) (bblpd)
    
    
    5,952
    
    
    
    5,390
    
    
    
    5,641
    
    
    
    5,907Sales Price (net of hedging gains/losses)
($/bbl)
    
    
    44.11
    
    
    
    38.83
    
    
    
    37.75
    
    
    
    37.53Processing and other income ($/bbl)
    
    
    0.76
    
    
    
    0.12
    
    
    
    0.70
    
    
    
    0.54Royalties ($/bbl)
    
    
    (8.42
    )
    
    
    (7.62
    )
    
    
    (7.26
    )
    
    
    (4.78
    )Amortization of injectants ($/bbl)
    
    
    (3.56
    )
    
    
    (3.43
    )
    
    
    (2.90
    )
    
    
    (2.33
    )Production Costs ($/bbl)
    
    
    (8.56
    )
    
    
    (8.01
    )
    
    
    (8.52
    )
    
    
    (9.61
    )Operating Netback ($/bbl)
    
    
    24.33
    
    
    
    19.89
    
    
    
    19.77
    
    
    
    21.35Natural Gas(1)Average Daily Natural Gas Production(2)
(mcfpd)
    
    
    120,402
    
    
    
    119,519
    
    
    
    122,140
    
    
    
    117,315Sales Price (net of hedging gains/losses)
($/mcfpd)
    
    
    7.63
    
    
    
    6.20
    
    
    
    5.67
    
    
    
    5.36Processing and other income ($/mcfpd)
    
    
    0.18
    
    
    
    0.19
    
    
    
    0.16
    
    
    
    0.17Royalties ($/mcfpd)
    
    
    (1.38
    )
    
    
    (1.33
    )
    
    
    (1.02
    )
    
    
    (1.02
    )Production Costs ($/mcfpd)
    
    
    (1.46
    )
    
    
    (1.25
    )
    
    
    (1.20
    )
    
    
    (1.32
    )Operating Netback ($/mcfpd)
    
    
    4.97
    
    
    
    3.81
    
    
    
    3.61
    
    
    
    3.19   Notes:(1)
    
    Determined based upon the principal product type attributable to each
well.(2)
    
    Before the deduction of royalties. QUARTER ENDEDMarch 31, 2003
    
    June 30, 2003
    
    September 30, 2003
    
    December 31, 2003Barrels of Oil Equivalent(1)Average Daily Production(2) (boepd)
    
    
    50,827
    
    
    
    48,839
    
    
    
    48,850
    
    
    
    47,653Sales Price (net of hedging gains/losses)
($/boe)
    
    
    44.33
    
    
    
    37.63
    
    
    
    35.76
    
    
    
    34.69Processing and other income ($/boe)
    
    
    0.65
    
    
    
    0.48
    
    
    
    0.62
    
    
    
    0.63Royalties ($/boe)
    
    
    (7.69
    )
    
    
    (7.17
    )
    
    
    (6.17
    )
    
    
    (4.60
    )Amortization of injectants ($/boe)
    
    
    (2.16
    )
    
    
    (2.03
    )
    
    
    (1.69
    )
    
    
    (1.38
    )Production Costs ($/boe)
    
    
    (8.63
    )
    
    
    (7.80
    )
    
    
    (7.98
    )
    
    
    (8.91
    )Operating Netback ($/boe)
    
    
    26.50
    
    
    
    21.11
    
    
    
    20.54
    
    
    
    20.43   Notes:(1)
    
    Natural gas has been converted to barrels of oil equivalent on the basis
of six mcf of natural gas being equal to one boe.(2)
    
    Before the deduction of royalties. Production History The annual and average daily production of crude oil, natural gas and
natural gas liquids of Pengrowth Corporation is set out in the following table: Crude Oil
    
    Natural Gas
    
    Natural Gas LiquidsAnnual
    
    
    Average Daily
    
    Annual
    
    Average Daily
    
    Annual
    
    Average Daily
    
    Average Daily TotalYear ended
    
    Production(2)
    
    Production(2)
    
    Production(2)
    
    Production(2)
    
    Production(2)
    
    Production(2)
    
    Production(1)(2)12 Months To
    
    (mbbls)
    
    (bblpd)
    
    (mmcf)
    
    (mcfpd)
    
    (mbbls)
    
    (bblpd)
    
    (boepd)December 31, 1997
    
    
    2,792
    
    
    
    7,650
    
    
    
    18,744
    
    
    
    51,355
    
    
    
    677
    
    
    
    1,856
    
    
    
    18,140December 31, 1998
    
    
    6,094
    
    
    
    16,695
    
    
    
    21,063
    
    
    
    57,707
    
    
    
    1,220
    
    
    
    3,342
    
    
    
    29,741December 31, 1999
    
    
    6,413
    
    
    
    17,570
    
    
    
    22,445
    
    
    
    61,494
    
    
    
    1,433
    
    
    
    3,927
    
    
    
    31,821December 31, 2000
    
    
    6,441
    
    
    
    17,599
    
    
    
    25,656
    
    
    
    70,098
    
    
    
    1,539
    
    
    
    4,205
    
    
    
    33,581December 31, 2001
    
    
    7,200
    
    
    
    19,726
    
    
    
    33,494
    
    
    
    91,764
    
    
    
    1,919
    
    
    
    5,258
    
    
    
    40,320December 31, 2002
    
    
    7,269
    
    
    
    19,914
    
    
    
    40,775
    
    
    
    111,713
    
    
    
    1,917
    
    
    
    5,252
    
    
    
    43,785December 31, 2003
    
    
    8,518
    
    
    
    23,337
    
    
    
    43,742
    
    
    
    119,842
    
    
    
    2,089
    
    
    
    5,722
    
    
    
    49,033
   Note:(1)
    
    Natural gas has been converted to barrels of oil equivalent on the basis
of six mcf of natural gas being equal to one boe.(2)
    
    Before the deduction of royalties. - 35 -




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Replacement of Properties In the event that Pengrowth Corporation determines that the sale of any of
its interests in properties, and the release of the royalty therefrom, would be
in the best interest of the unitholders, the royalty indenture permits it to
make sales without the requirement of approval of the unitholders, provided
that the aggregate properties sold in any given year total less than 25% of the
assets of Pengrowth Corporation, determined as at the date of disposition of
the properties based upon an independent engineering appraisal. Any sale
exceeding this threshold must be approved by an extraordinary resolution of the
unitholders. In connection with any sale of properties, Pengrowth Corporation will also
be required to consider whether the net proceeds of the sale should be
distributed or reinvested to purchase replacement properties (the Replacement
Properties). If the proceeds of disposition are not reinvested in the
purchase of Replacement Properties within the same calendar year then these
proceeds are allocated to the holders of royalty units, provided that such
rights are subordinate to the rights of the lenders to Pengrowth Corporation
under its credit facility and operating time of credit. 
 Borrowing Pursuant to the royalty indenture, Pengrowth Corporation is permitted to
borrow funds to finance the purchase of properties or for capital expenditures,
to incur take or pay obligations and other burdens and encumbrances in respect
of the properties, and to grant security on the properties in priority to the
royalty to secure the borrowing of such funds. Repayment of debt shall be
scheduled so as to minimize, to the extent possible, income tax payable by
Pengrowth Corporation. Debt service charges (to the extent that they exceed
certain revenues of Pengrowth Corporation) and taxes payable by Pengrowth
Corporation will be deducted in computing royalty income. In April 2003, Pengrowth closed a US$200 million private placement of
senior unsecured notes to a group of U.S. institutional investors. The notes
are in two tranches, one of US$150 million 4.93% senior notes due April 23,
2010 and one of US$50 million 5.47% senior notes due 2013. In addition,
Pengrowth has a $200 million revolving credit facility syndicated among eight
financial institutions that is extendible on June 18, 2004 for a 364 day
revolving period or a two year amortization term. These arrangements replace a
single $540 million revolving credit facility that had been in place on
December 31, 2002. Pengrowth also has a $35 million demand operating line of
credit. 
 TRUST UNITS 
 The Trust Indenture Trust units are issued under the terms of a trust indenture between
Pengrowth Corporation and Computershare, as trustee. A maximum of 500,000,000
trust units may be created and issued pursuant to the trust indenture, of which
123,873,651 trust units were outstanding on December 31, 2003. Each trust unit
represents a fractional undivided beneficial interest in Pengrowth Trust. The trust indenture, among other things, provides for the establishment of
Pengrowth Trust, the issue of trust units, the permitted investments of
Pengrowth Trust, the procedures respecting distributions to unitholders, the
appointment and removal of Computershare as trustee, Computershares authority
and restrictions thereon, the calling of meetings of unitholders, the conduct
of business at such meetings, notice provisions, the form of trust unit
certificates and the termination of Pengrowth Trust. The trust indenture may
be amended from time to time. Most amendments to the trust indenture,
including the early termination of Pengrowth Trust and the sale or transfer of
the property of Pengrowth Trust as an entirety or substantially as an entirety,
require approval by an extraordinary resolution of the unitholders. An
extraordinary resolution of the unitholders requires the approval of not less
than 66 2/3% of the votes cast by unitholders at a meeting of unitholders held
in accordance with the trust indenture at which two or more holders of at least
5% of the aggregate number of trust units then outstanding are represented.
Computershare, as trustee, is permitted to amend the trust indenture without
the consent or approval of the unitholders for certain purposes, including: (i)
ensuring that Pengrowth Trust complies with applicable laws or government
requirements, including satisfaction of certain provisions of the Income Tax
Act(Canada); (ii) ensuring that additional protection is provided for the
interests of unitholders as Computershare may consider expedient; and (iii)
making typographical or other non-substantive changes that are not adverse to
the interests of Computershare or unitholders. - 36 -




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The Trustee Computershare, as trustee, is generally empowered by the trust indenture
to exercise any and all rights and powers that could be exercised by the owner
of the assets of Pengrowth Trust. Computershares specific responsibilities
include, but are not limited to, the following: (i) reviewing and accepting
subscriptions for trust units and issuing trust units subscribed for; (ii)
subscribing for royalty units; (iii) issuing trust units in exchange for
royalty units tendered to it for exchange; and (iv) maintaining records and
providing timely reports to unitholders. Computershare is authorized to
delegate its powers and duties as trustee except as prohibited by law. Computershare, as trustee, must exercise its powers and carry out its
functions under the trust indenture honestly, in good faith and in the best
interests of Pengrowth Trust and the unitholders, and must exercise that degree
of care, diligence and skill that a reasonably prudent person would exercise in
comparable circumstances. Computershare is not required to devote its entire
time to the business and affairs of Pengrowth Trust. Computershare, as trustee, shall be reappointed or replaced every two
years as may be determined by a majority of the votes cast at an annual meeting
of the unitholders. Computershare may resign upon 60 days notice to Pengrowth
Corporation. Computershare may be removed by extraordinary resolution of the
unitholders or by Pengrowth Corporation in certain specific circumstances.
Such resignation or removal shall become effective upon the acceptance of
appointment by a successor. 
 Redemption Right Trust units are redeemable by Computershare, as trustee, at the request of
a unitholder when properly endorsed for transfer and when accompanied by a duly
completed and properly executed notice requesting redemption. The redemption
right permits unitholders in the aggregate to redeem trust units for maximum
proceeds of $25,000 in any calendar month; provided that such limitation may be
waived at the discretion of the Board of Directors. The redemption price is
the lesser of: (i) 95% of the market price of the trust units on the principal
market on which the trust units are quoted for trading during the 10 day
trading period commencing immediately after the date on which the trust units
are surrendered for redemption; and (ii) the closing market price on the
principal market on which the trust units are quoted for trading on the date
that the trust units are surrendered for redemption. 
 Voting at Meetings of Pengrowth Trust Meetings of unitholders may be called on 21 days notice and may be called
at any time by Computershare, as trustee, or upon written request of
unitholders holding in the aggregate not less than 5% of the trust units, and
shall be called by Computershare and held annually. All activities necessary
to organize any such meeting will be undertaken by Pengrowth Corporation on
behalf of Computershare. At all meetings of the unitholders, each holder is
entitled to one vote in respect of each trust unit held. Unitholders may
attend and vote at all meetings of the unitholders either in person or by proxy
and a proxy holder need not be a unitholder. Two persons present in person
either holding personally or representing as proxies at least 5% of the
outstanding trust units constitute a quorum for the transaction of business at
all such meetings. Except as otherwise provided in the trust indenture,
matters requiring the approval of the unitholders must be approved by
extraordinary resolution. Unitholders are entitled to pass resolutions that will bind Computershare,
as trustee, with respect to a limited list of matters, including but, not
limited to, the following: (i) the removal or appointment of Computershare as
trustee; (ii) the removal or appointment of the auditor of Pengrowth Trust;
(iii) the amendment of the trust indenture; (iv) the approval of subdivisions
or consolidations of trust units; (v) the sale of the assets of Pengrowth Trust
as an entirety or substantially as an entirety; and (vi) termination of
Pengrowth Trust. Unitholders can also consider the appointment of an inspector to
investigate whether Computershare has performed its duties arising under the
trust indenture. Such an inspector shall be appointed if a resolution
approving the appointment of such inspector is passed by a majority of the
votes duly cast at a meeting held for that purpose. 
 Voting at Meetings of Pengrowth Corporation The unitholders, along with holders of royalty units other than
Computershare, as trustee, are entitled to voting rights at meetings of
shareholders of Pengrowth Corporation on the basis of one vote for each trust
unit (or royalty Unit) held. - 37 -




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Termination of Pengrowth Trust The unitholders may vote to terminate Pengrowth Trust at any meeting of
the unitholders, subject to the following:  (i)
    
    a vote may be held only if requested in writing by the holders
of not less than 25% of the trust units, or if the trust units have
become ineligible for investment by RRSPs, RRIFs, RESPs and DPSPs;  (ii)
    
    the termination must be approved by extraordinary resolution of the
unitholders; and  (iii)
    
    a quorum representing 5% of the issued and outstanding trust
units must be present or represented by proxy at the meeting at which
the vote is taken. If the unitholders approve termination, Computershare, as trustee, will
sell the assets of Pengrowth Trust, discharge all known liabilities and
obligations, and distribute the remaining assets to the unitholders.
Computershare will distribute directly to the unitholders any assets which
Computershare is unable to sell by the date set for termination. 
 Unitholder Limited Liability The trust indenture, provides that no unitholder will be subject to any
personal liability in connection with Pengrowth Trust or its obligations and
affairs, and the satisfaction of claims of any nature arising out of or in
connection therewith is only to be made out of Pengrowth Trusts assets.
Additionally, the trust indenture states that no unitholder is liable to
indemnify or reimburse Computershare for any liabilities incurred by
Computershare with respect to any taxes payable by or liabilities incurred by
Pengrowth Trust or Computershare, and all such liabilities will be enforceable
only against, and will be satisfied only out of, Pengrowth Trusts assets. It
is intended that the operations of Pengrowth Trust will be conducted, upon the
advice of counsel, in such a way and in such jurisdictions as to avoid as far
as possible any material risk of liability on the unitholders for claims
against Pengrowth Trust. Notwithstanding the foregoing, because of
uncertainties in the law relating to trusts such as Pengrowth Trust, there is a
risk that a unitholder could be held personally liable for obligations of
Pengrowth Trust to the extent that claims are not satisfied by Pengrowth Trust. The Income Trusts Liability Actpassed third reading on May 11, 2004 in
the Alberta Legislative and now awaits royal ascent. The Act will apply to
Alberta income trusts which include Pengrowth Trust by virtue of being a trust
governed by the laws of the Province of Alberta and being a reporting issuer
under the Securities Act(Alberta). From and after coming into force,
notwithstanding any express or implied indemnity of a trustee by a beneficiary
of an Alberta income trust, the beneficiary will not, as a beneficiary, be
liable for any act, default, obligation or liability of the trustee of the
Alberta income trust. 
 Special Voting Unit The authorized trust units include the special voting trust unit which
entitles the holder thereof to a number of votes equal to the number of
outstanding exchangeable shares of Pengrowth Corporation at any meeting of the
unitholders. The special voting trust unit is not entitled to receive
distributions from Pengrowth Trust. The special voting trust unit is intended
to provide voting rights to the holders of exchangeable shares of Pengrowth
Corporation equivalent to the voting rights attached to trust units. As of the
date hereof, the special voting trust unit has not been issued. 
 2004 Annual and Special Meeting At the annual and special meeting of unitholders on April 22, 2004,
several amendments to the trust indenture were approved by the unitholders.
See General Development of Pengrowth Energy Trust  Recent Acquisitions,
Financings and Developments  2004 Annual and Special Meetings. 
 THE ROYALTY INDENTURE 
 Royalty Units Royalty units are issued under the terms of the royalty indenture dated
June 17, 2003 (amending and restating royalty indenture dated April 23, 2002)
between Pengrowth Corporation and Computershare, as trustee. A maximum of
500,000,000 royalty units can be created and issued pursuant to the royalty
indenture. The royalty units represent fractional undivided interests in the
royalty, consisting of a 99% share of royalty income. - 38 -




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The royalty indenture, among other things, provides for the grant of the
royalty, the issue of royalty units, the imposition on and acceptance by
Pengrowth Corporation of certain obligations and business restrictions, the
calling of meetings of unitholders, the conduct of business thereat, notice
provisions, the appointment and removal of the trustee, and the establishment
and use of the reserve as discussed below. The royalty indenture may be amended or varied only by extraordinary
resolution of the unitholders and the holders of royalty units, or by Pengrowth
Corporation and Computershare, as trustee, for certain specifically defined
purposes so long as, in the opinion of Computershare, the unitholders and the
holders of royalty units are not prejudiced as a result. The holders of royalty units other than the trustee are currently entitled
to vote at shareholder meetings of Pengrowth Corporation on the basis of one
vote for each royalty unit held. At the special meeting of royalty unitholders held on April 22, 2004,
amendments to the royalty indenture were approved by the unitholders to
facilitate the issuance of exchangeable shares by Pengrowth Corporation. See
General Development of Pengrowth Energy Trust  Recent Acquisitions, Financing
and Developments  2004 Annual and Special Meetings. 
 The Royalty The royalty consists of a 99% share of royalty income. Under the terms
of the Royalty Indenture, Pengrowth Corporation is entitled to retain a 1
percent share of royalty income and all miscellaneous income (the Residual
Interest) to the extent this amount exceeds the aggregate of debt service
charges, general and administrative expenses, and management fees. In 2003 and
2002, this Residual Interest, as computed, did not result in any income being
retained by Pengrowth Corporation. The royalty indenture provides that
royalty income means the aggregate of any special distributions and gross
revenue less, without duplication, the aggregate of the following amounts:  (a)
    
    operating costs;  (b)
    
    general and administrative costs;  (c)
    
    management fees and debt service charges;  (d)
    
    taxes or other charges payable by Pengrowth Corporation; and  (e)
    
    any amounts paid into the reserve. Gross revenues essentially consist of cash proceeds from the sale of
petroleum substances produced from the properties of Pengrowth Corporation and
all other money and things of value received by or incurring to Pengrowth
Corporation by virtue of its legal and beneficial ownership of the properties,
but not including processing or transportation revenues or proceeds from the
sale of properties. Special distributions essentially consist of proceeds from
the sale of properties that Pengrowth Corporation is unable to reinvest in
suitable replacement properties. The reserve is established by Pengrowth Corporation with miscellaneous
revenues (such as processing and transportation revenues) and allowable
portions of gross revenue, and must be used to fund the payment of operating
costs, future abandonments, environmental and reclamation costs, general and
administrative costs, management fees and debt service charges. Any amounts
remaining in the reserve when there are no longer any properties that are
subject to the royalty, and all of the above obligations have been satisfied,
are to be paid to Pengrowth Trust and to the holders of common shares and
exchangeable shares of Pengrowth Corporation in proportion to their respective
interests. Pengrowth Corporation is required to pay to the holders of royalty units,
on each cash distribution date, 99% of royalty income received by Pengrowth
Corporation from the properties for the period ending on the last day of the
second month immediately preceding that cash distribution date less the
percentage of distributable cash (currently 10%) that is retained by Pengrowth
Corporation to fund capital obligations. See Distributions. The holders of
royalty units, including Pengrowth Trust, will reimburse Pengrowth Corporation
for 99% of the non-deductible Crown royalties and other non-deductible Crown
charges payable by Pengrowth Corporation in respect of production from, or
ownership of, the properties. Pengrowth Corporation will at all times be
entitled to set off its right to be so reimbursed against its obligation to pay
the royalty. - 39 -




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To date, Pengrowth Corporation has not incurred income taxes but is
subject to the federal large corporations tax and the Saskatchewan resource
surcharge. Any taxes payable by Pengrowth Corporation will reduce royalty
income, and thus the distributions received by unitholders and holders of
royalty units. 
 The Trustee Computershare is the trustee for holders of royalty units under the
royalty indenture and will remain the trustee thereunder unless it resigns or
is removed by unitholders. Computershare or its successor may resign on 60
days prior notice to the unitholders, and may be removed by extraordinary
resolution of the unitholders. Computershares successor must be approved in
the same manner. Computershare, in accordance with its power to delegate under the trust
indenture, has appointed Pengrowth Corporation as the administrator of
Pengrowth Trust to assume those functions of the trustee which are largely
discretionary pursuant to the royalty indenture, subject to the powers and
duties of Pengrowth Management pursuant to the management agreement. 
 DISTRIBUTIONS Pengrowth uses the term distributable cash to refer to the amount of
cash that has been or is to be available for distribution to the unitholders.
distributable cash is not a measure recognized by generally accepted
accounting principles in Canada and does not have a standardized meaning
prescribed by GAAP, but is an amount calculated in accordance with the terms of
the royalty indenture. Therefore, distributable cash of Pengrowth may not be
comparable to similar measures presented by other issuers, and investors are
cautioned that distributable cash should not be construed as an alternative to
net income, cash provided by operating activities or other measures of
financial performance calculated in accordance with GAAP. Distributable cash is typically paid in the form of distributions in the
second month following the month in which they are earned. From time to time,
the Board of Directors may determine, on behalf of Pengrowth Trust, to cause
Pengrowth Trust to withhold a portion of the distributable cash in periods of
high commodity prices in order to reduce the variability of distributions
payable to unitholders resulting from commodity price fluctuations. At the special meeting of the holders of royalty units held on April 23,
2002, the holders of royalty units amended the royalty indenture to permit the
Board of Directors to establish a holdback, within Pengrowth Corporation, of up
to 20% of its gross revenue if the Board of Directors determines that it would
be advisable to do so in accordance with prudent business practices to provide
for the payment of future capital expenditures or for the payment of royalty
income in any future period. Subsequent to this action, the Board of Directors
authorized the establishment of a holdback to fund future capital obligations
and future payments of royalty income to Pengrowth Trust comprised of funds
retained within Pengrowth Corporation in an amount equivalent to approximately
10% of the distributable cash of Pengrowth Trust calculated as if the reserve
had not been established. The
following distributions per trust unit has been reported in
respect of the quarters indicated since January 1, 2001: Quarter
    
    2003
    
    2002
    
    2001First
    
    $
    0.75
    
    
    $
    0.41
    
    
    $
    1.14Second
    
    
    0.67
    
    
    
    0.54
    
    
    
    0.83Third
    
    
    0.63
    
    
    
    0.52
    
    
    
    0.63Fourth
    
    
    0.63
    
    
    
    0.60
    
    
    
    0.41Total Annual
    
    $
    2.68
    
    
    $
    2.07
    
    
    $
    3.01Cumulative,
since inception
    
    $
    26.08
    
    
    $
    23.40
    
    
    $
    21.33
 
 INDUSTRY CONDITIONS 
 Government Regulation The oil and natural gas industry is subject to extensive controls and
regulation imposed by various levels of government. Although we do not expect
that these controls and regulation will affect the operations of Pengrowth in a - 40 -




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manner materially different than they would affect other oil and gas
companies of similar size, the controls and regulations should be considered
carefully by investors in the oil and gas industry. All current legislation is
a matter of public record and Pengrowth is unable to predict what additional
legislation or amendments may be enacted. 
 Pricing and Marketing  Oil In Canada, producers of oil negotiate sales contracts directly with oil
purchasers, with the result that the market determines the price of oil. Such
price depends, in part, on oil type and quality, prices of competing fuels,
distance to market, the value of refined products and the supply/demand
balance, other contractual terms and the world price of oil. Oil exports may
be made pursuant to export contracts with terms not exceeding one year, in the
case of light crude, and not exceeding two years, in the case of heavy crude,
provided that an order approving any such export has been obtained from the
National Energy Board. Any oil export to be made pursuant to a contract of
longer duration (to a maximum of 25 years) requires an exporter to obtain an
export licence from the National Energy Board and the issue of such a licence
requires the approval of the Governor in Council. 
 Pricing and Marketing  Natural Gas In Canada, the price of natural gas sold in intraprovincial,
interprovincial and international trade is determined by negotiation between
buyers and sellers. Such price depends, in part, on natural gas quality,
prices of competing natural gas and other fuels, distance to market, access to
downstream transportation, length of contract term, weather conditions, the
supply/demand balance and other contractual terms. Natural gas exported from
Canada is subject to regulation by the National Energy Board and the government
of Canada. Exporters are free to negotiate prices and other terms with
purchasers, provided that the export contracts must continue to meet certain
criteria prescribed by the National Energy Board and the government of Canada.
Natural gas exports for a term of less than two years or for a term of 2 to 20
years (in quantities of not more than 30,000 m3/day), must be made pursuant to
an order of the National Energy Board. Any natural gas export to be made
pursuant to a contract of longer duration (to a maximum of 25 years) or a
larger quantity, requires an exporter to obtain an export licence from the
National Energy Board and the issue of such a licence requires the approval of
the Governor in Council. The governments of Alberta, British Columbia and Saskatchewan also
regulate the volume of natural gas which may be removed from those provinces
for consumption elsewhere, based on such factors as reserve availability,
transportation arrangements and market considerations. 
 The North American Free Trade Agreement On January 1, 1994, the North American Free Trade Agreement among the
governments of Canada, the U.S. and Mexico became effective. The North
American Free Trade Agreement carries forward most of the material energy terms
contained in the Canada-United States Free Trade Agreement. In the context of
energy resources, Canada continues to remain free to determine whether exports
to the United States or Mexico will be allowed, provided that any export
restrictions do not: (i) reduce the proportion of energy resource exported
relative to domestic use (based upon the proportion prevailing in the most
recent 36 month period); (ii) impose an export price higher than the domestic
price; or (iii) disrupt normal channels of supply. All three countries are
prohibited from imposing minimum export or import price requirements and,
except as permitted in enforcement of countervailing and antidumping orders and
undertakings, minimum or maximum import price requirements. The North American Free Trade Agreement contemplates the reduction of
Mexican restrictive trade practices in the energy sector and prohibits
discriminatory border restrictions and export taxes. The North American Free
Trade Agreement also contemplates clearer disciplines on regulators to ensure
fair implementation of any regulatory changes and to minimize disruption of
contractual arrangements, which is important for Canadian natural gas exports. 
 Provincial Royalties and Incentives The Federal and provincial governments in Canada have legislation and
regulations which govern land tenure, royalties, production rates,
environmental protection and other matters. The royalty regime is a
significant factor in the profitability of oil and natural gas production.
Royalties payable on production from lands other than Crown lands are
determined by negotiations between the freehold mineral owner and the lessee,
although production from such lands is also subject to certain provincial taxes
and royalties. Crown royalties are determined by governmental regulation and
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generally calculated as a percentage of the value of the gross production,
and the rate of royalties payable generally depends in part on prescribed
reference prices, well productivity, geographical location and field discovery
date. The Government of Albertas royalty structure includes incentives for
exploring and developing oil and natural gas reserves. The incentives include
a modification of the royalty formula structure through the implementation of a
third tier royalty. For oil produced from wells drilled after October 13,
1992, oil royalty reserved to the Crown has a base rate of 10% and a rate cap
of 30%. The oil royalty reserved to the Crown on older oil wells has a base
rate of 10% and a rate cap of 35%. The royalty reserved to the Crown in
respect of natural gas production, subject to various incentives, is between
15% and 30%, in the case of new gas, and between 15% and 35%, in the case of
old gas, depending upon a prescribed or corporate average reference price. In Alberta, certain producers of oil or natural gas are also entitled to a
credit against the royalties payable to the Alberta Crown by virtue of the
Alberta royalty tax credit program. The Alberta royalty tax credit program is
based on a price-sensitive formula, and the Alberta royalty tax credit program
rate varies between 75%, at prices for oil below $100 per cubic meter, and 25%,
at prices above $210 per cubic meter. The Alberta royalty tax credit program
rate is applied to a maximum of $2,000,000 of Alberta Crown royalties payable
for each producer or associated group of producers. Crown royalties on
production from producing properties acquired from companies claiming maximum
entitlement to Alberta royalty tax credit program will generally not be
eligible for Alberta royalty tax credit program. The Alberta royalty tax
credit program rate is established quarterly based on the average par price,
as determined by the Alberta Resource Development Department for the previous
quarterly period. In British Columbia, the amount payable as a royalty in respect of oil
depends on the vintage of the oil (whether it was produced from a pool
discovered before or after October 31, 1975), the quantity of oil produced in a
month and the value of the oil. Oil produced from newly discovered pools may
be exempt from the payment of a royalty for the first 36 months of production.
The royalty payable on natural gas is determined by a sliding scale based on a
reference price which is the greater of the amount obtained by the producer and
a prescribed minimum price. Natural gas produced in association with oil has a
minimum royalty of 8% while the royalty in respect of other natural gas may not
be less than 15%. On May 30, 2003, the Minister of Energy and Mines for British Columbia
announced an Oil and Gas Development Strategy for the Heartlands. The
strategy, which was updated in November 2003, is a comprehensive program to
address road infrastructure, targeted royalties, and regulatory reduction and
service-sector opportunities. Some of the financial incentives include: i)
royalty credits of up to $30 million annually towards road infrastructure in
support of resource development (Industry must make an equal contribution); ii)
royalty credits for deep gas exploration, re-entry and horizontal drilling; and
iii) royalty credits for unconventional and new basins. The new fiscal regime for the Saskatchewan oil and gas industry effective
October 1, 2002, provides an incentive to encourage exploration and development
through a revised royalty/tax structure for oil and natural gas wells with a
finished drilling date on or after October 1, 2002 or incremental oil
production due to a new or expanded waterflood project with a commencement date
on or after October 1, 2002. This fourth tier Crown royalty rate, applicable
to both oil and natural gas, is price sensitive and ranges from a minimum 5% at
a base price to a maximum of 30% at a price above the base price. A fourth
tier freehold tax structure, calculated by subtracting a production tax factor
of 12.5 percentage points from the corresponding Crown royalty rates, has also
been created which is applicable to conventional oil, incremental oil from new
or expanded waterfloods and natural gas. The fourth tier royalty/tax structure
is also applicable in respect of associated natural gas that is gathered for
use or sale which is produced either from oil wells with a finished drilling
date on or after October 1, 2002 and oil wells with a finished drilling date
prior to October 1, 2002, where the individual oil well has a gas-oil
production ratio in any month of more than 3,500 m3 of natural gas per 1 m3 of
oil. In addition, volume-based royalty/tax reduction incentives have been
changed such that a maximum royalty of 2.5% now applies to various volumes of
both oil and natural gas, depending on the depth and nature of the well (up to
16,000 m3 of oil in the case of deep exploratory wells and 25,000 m3 of natural
gas produced from exploratory wells). The royalty/tax category with respect to
re-entry and short sectional horizontal oil wells has been eliminated such that
all horizontal oil wells with a finished drilling date on or after October 1,
2002 will receive fourth tier royalty/tax rates and incentive volumes. Further
changes include the reduction of the corporation capital tax surcharge rate
from 3.6% to 2.0% and the expansion of the deep oil well definition to
include oil wells producing from a zone deeper than 1,700 meters provided that
the zone is within a geological system deposited during the Mississippian
Period or earlier or from a zone that was deposited before the Bakken zone
regardless of depth. The Government of Nova Scotia has established a generic royalty regime in
respect of oil and gas produced from offshore Nova Scotia. Such regime
contemplates a multi-tier royalty in which the royalty rate fluctuates when
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threshold levels of rates of return on capital have been reached.
Notwithstanding the generic royalty regime, royalties in respect of offshore
Nova Scotia oil and gas production may be determined contractually between the
participant and the government of Nova Scotia. Oil and natural gas royalty holidays and reductions for specific wells
reduce the amount of Crown royalties paid by Pengrowth to the provincial
governments. The Alberta royalty tax credit program provides a rebate on
Alberta Crown royalties paid in respect of eligible producing properties.
These incentives result in increased net income and funds from the operations
of Pengrowth. 
 Environmental Regulation The oil and natural gas industry is currently subject to environmental
regulation pursuant to provincial and federal legislation. Environmental
legislation provides for restrictions and prohibitions on releases or emissions
of various substances produced or utilized in association with certain oil and
gas industry operations. In addition, legislation requires that well and
facility sites be abandoned and reclaimed to the satisfaction of provincial
authorities. Compliance with such legislation can require significant
expenditures. A breach of such legislation may result in the imposition of
material fines and penalties, the revocation of necessary licenses and
authorizations and civil liability for pollution damage. In 1994, the United Nations Framework Convention on Climate Change came
into force and three years later led to the Kyoto Protocol which will require,
upon ratification, nations to reduce their emissions of carbon dioxide and
other greenhouse gases. As a consequence of the Kyoto Protocol, reductions in
greenhouse gases from Pengrowths operations may be required which could result
in increased capital expenditures and reductions in production of oil and gas.
Pengrowth may however earn carbon credits offsetting liabilities which may be
imposed under Kyoto due to Pengrowths participation in the carbon dioxide
miscible recovery scheme at Weyburn and other potential tertiary recovery
projects in the future. Pengrowth is committed to meeting its responsibilities to protect the
environment wherever it operates and anticipates making increased expenditures
of both a capital and expense nature as a result of increasingly stringent laws
relating to the protection of the environment. Pengrowth Corporation will be
taking such steps as required to ensure compliance with the Alberta
Environmental Protection and Enhancement Act, the Environmental Assessment Act
(British Columbia) and similar legislation or requirements in other
jurisdictions in which it operates. Pengrowth believes that it is in material
compliance with applicable environmental laws and regulations. Pengrowth also
believes that it is reasonably likely that the trend in environmental
legislation and regulation will continue toward stricter standards. 
 SELECTED FINANCIAL INFORMATION Summary of Annual Financial Information (Stated in thousands of dollars except per unit amounts) Year ended December 31 (Audited) 2003
    
    2002
    
    2001Oil and Gas Revenue
    
    $
    682,795
    
    
    $
    482,301
    
    
    $
    469,929Net Income (Loss)
    
    
    189,297
    
    
    
    56,955
    
    
    
    88,185Per trust unit  basic
    
    
    1.63
    
    
    
    0.63
    
    
    
    1.24Total Assets
    
    
    1,673,718
    
    
    
    1,552,651
    
    
    
    1,270,208Long Term Debt
    
    
    259,300
    
    
    
    316,501
    
    
    
    345,456Distributable cash
    
    
    313,415
    
    
    
    194,458
    
    
    
    215,787Per trust unit
    
    
    2.68
    
    
    
    2.07
    
    
    
    3.01
 Summary of Quarterly Financial Information (Stated in thousands of dollars except per trust unit amounts) Three months ended (Unaudited) 2003
    
    March 31
    
    June 30
    
    September 30
    
    December 31Oil and gas revenue
    
    $
    202,801
    
    
    $
    167,222
    
    
    $
    160,695
    
    
    $
    152,077Distributable cash
    
    
    97,221
    
    
    
    71,774
    
    
    
    72,951
    
    
    
    71,469Per trust unit
    
    
    0.75
    
    
    
    0.67
    
    
    
    0.63
    
    
    
    0.63
 - 43 -




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2002
    
    March 31
    
    June 30
    
    September 30
    
    December 31Oil and gas revenue
    
    $
    91,634
    
    
    $
    111,544
    
    
    $
    111,205
    
    
    $
    167,918Distributable cash
    
    
    33,118
    
    
    
    48,141
    
    
    
    46,139
    
    
    
    67,060Per trust unit
    
    
    0.41
    
    
    
    0.54
    
    
    
    0.52
    
    
    
    0.60
 Notes:  (1)
    
    The per trust unit amount for net income is based on weighted average
trust units outstanding calculated on a quarterly basis. The per trust
unit amounts for distributable cash reflect actual distributions paid or
declared.  (2)
    
    Certain comparative figures have been restated to conform to the
presentation adopted in the current year. 
 MANAGEMENTS DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL CONDITION Managements Discussion and Analysis relating to Pengrowth Trusts
financial statements for the fiscal years ended December 31, 2003 and 2002,
which are contained on pages 42 to 65 of Pengrowth Trusts 2003 Annual Report,
are incorporated herein by reference and form an integral part of this Annual
Information Form. 
 MARKET FOR SECURITIES Our outstanding trust units are listed and posted for trading on the
Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE). The
trading symbol for the trust units on the TSX is PGF.UN and on the NYSE is
PGH. At the annual and special meeting of unitholders on April 22, 2004,
several amendments to the trust indenture were approved by the unitholders to
permit the reclassification of existing trust units into Class B trust units
which may only be held by Canadian residents and will only trade on the TSX and
Class A trust units which are unrestricted and will trade on the TSX and the
NYSE. See General Development of Pengrowth Energy Trust  Recent
Acquisitions, Financings and Developments  2004 Annual and Special Meetings. 
 DIRECTORS AND OFFICERS Pengrowth Trust does not have any directors or officers. The following is
a summary of information relating to the directors and officers respectively of
Pengrowth Management, Pengrowth Management of Pengrowth Corporation and
Pengrowth Trust, and of Pengrowth Corporation, the administrator of Pengrowth
Trust. 
 Directors and Officers of Pengrowth Management The name, municipality of residence, position held and principal
occupation of each director and officer of Pengrowth Management are set out
below: Name andMunicipality of Residence
    
    Position with Pengrowth Management
    
    Principal OccupationJames S. Kinnear
    
    President and Director
    
    President,Calgary, Alberta
    
    (since 1982)
    
    Pengrowth Management LimitedGregory S. Fletcher
    
    Director
    
    President,Calgary, Alberta
    
    (since 1988)
    
    Sierra Energy Inc.Gordon
M. AndersonCalgary, Alberta
    
    Vice President, Financial Services (since 2001)
Vice President, Treasurer (1998-2001)
    
    Vice President, Financial
ServicesPengrowth Management LimitedTreasurer (1995-1998)Charles V. Selby
    
    Corporate Secretary
    
    Lawyer, Selby Professional CorporationCalgary, Alberta
    
    (since 1993)
    
    Principal, Ikon Strategies Inc.
 Each of the foregoing directors and officers has had the same principal
occupation for the previous five years except for: Mr. Fletcher who was
President, Canadian Conquest Exploration Inc. (1998-1999); and Mr. Anderson who
was Vice President, Treasurer (1998-2001). 
 Principal Holders of Shares of Pengrowth Management James S. Kinnear, President and a director of Pengrowth Management and
Chairman, President, Chief Executive Officer and a director of Pengrowth
Corporation, owns, directly or indirectly, all of the issued and outstanding
voting securities of Pengrowth Management. - 44 -




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Directors and Officers of Pengrowth Corporation The name, municipality of residence, position held and principal
occupation of each director and officer of Pengrowth Corporation are set out
below: Trust Units ofName and
    
    
    
    
    
    Controlled orMunicipality of
    
    
    
    
    
    BeneficiallyResidence
    
    Position with Pengrowth Corporation
    
    Principal Occupation
    
    Owned(1)(2)James
S. KinnearCalgary, Alberta
    
    President, Chairman, Director and
Chief Executive Officer
    
    President,Pengrowth Management Limited
    
    
    3,197,933
    (6)(since 1988)Stanley
H. Wong(4)Calgary, Alberta
    
    Director(since 1988)
    
    President,
Carbine Resources Ltd. a private
oil and gas producing and
    
    
    44,076
    (7)engineering consulting companyJohn
B. Zaozirny(5)Calgary, Alberta
    
    Director(since 1988)
    
    Counsel,
McCarthy Tétrault, Barristers and
    
    
    31,328SolicitorsThomas A. Cumming(3)(5)
    
    DirectorCalgary, Alberta
    
    (since 2000)
    
    Business Consultant
    
    
    6,678Michael Grandin(3)(5)(8)
    
    Director
    
    Chairman and Chief Executive
Officer,
    
    
    3,100Calgary, Alberta
    
    (since 2002)
    
    Fording Canadian Coal Trust andDean, Haskayne School
of Business, University of CalgaryMichael S. Parrett(3)
    
    DirectorAurora, Ontario
    
    (since 2004)
    
    Business Consultant
    
    nilWilliam R. Stedman(4)
    
    Director
    
    Chairman and Chief Executive
    
    
    nilCalgary, Alberta
    
    (since 2004)
    
    Officer, ENTx Capital CorporationRobert B. Hodgins
    
    Chief Financial Officer
    
    Chief Financial Officer
    
    
    5,008Calgary, Alberta
    
    (since 2002)
    
    Pengrowth CorporationGordon
M. AndersonCalgary, Alberta
    
    Vice President (since 2001)
Vice President, Treasurer (1997-2001),
Treasurer (1995-1997)
    
    Vice President, Financial
Services,Pengrowth Management Limited
    
    
    33,594Chief Financial Officer (1991-1998)Henry D. McKinnon
    
    Vice President, Operations
    
    Vice President, Operations
    
    
    7,258Calgary, Alberta
    
    (since 2000)
    
    Pengrowth CorporationLynn Kis
    
    Vice President, Engineering
    
    Vice President, Engineering
    
    
    23,379Calgary, Alberta
    
    (since 2001)
    
    Pengrowth CorporationCharles
V. SelbyCalgary, Alberta
    
    Corporate Secretary(since 1993)
    
    Lawyer, Selby Professional
Corporation Principal, Ikon Strategies Inc.
    
    
    121,021Chris Webster
    
    Treasurer
    
    Treasurer
    
    
    6,569Calgary, Alberta
    
    (since 2001)
    
    Pengrowth CorporationLianne Bigham
    
    Controller
    
    Controller
    
    
    96,875Calgary, Alberta
    
    (since 1996)
    
    Pengrowth Corporation
 Notes:  (1)
    
    Does not include trust units issuable upon the exercise of outstanding
trust unit options or trust unit rights.  (2)
    
    As at December 31, 2003.  (3)
    
    Member of Audit Committee.  (4)
    
    Member of Reserves Committee.  (5)
    
    Member of Corporate Governance/Compensation Committee.  (6)
    
    Comprised of 1,199,104 trust units held personally and 1,998,829 trust
units held by Kinnear Financial Consulting Limited. In addition, Mr.
Kinnear exercises control over 13,152 royalty units which are held by
Pengrowth Management Limited.  (7)
    
    In addition, Mr. Wong exercises control over 3,288 royalty units held by
Carbine Resources Ltd.  (8)
    
    Mr. Grandin was a director of Pegasus Gold Inc. in 1988 when that company
filed voluntarily to reorganize under Chapter 11 of the Bankruptcy Code
(United States). A liquidation plan for that company received court
confirmation later that year. Each of the foregoing directors and officers has had the same principal
occupation for the previous five years except for Mr. Cumming who was President
of the Alberta Stock Exchange from 1988 to 1999; Michael Grandin who was
Executive Vice-President and Chief Financial Officer, Canadian Pacific Limited
in 2000 and President, PanCanadian Energy Corporation in 2001 and has served as
Chairman and Chief Executive Officer of Fording Canadian Coal Trust since 2003;
Michael S. Parrett who was Vice-President and Chief Financial Officer of Rio
Algom Limited (Rio) from 1991 to - 45 -




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2000, Vice-President, Strategic Development and Joint Ventures of Rio from 1999
to 2000, President of Rio from 2000 to 2001; William R. Stedman who was
President and CEO of Pembina Pipeline Corporation from 1997 to 1999; Robert B.
Hodgins who was Vice President and Treasurer of Canadian Pacific Limited from
1998 to 2001 and Chief Financial Officer of TransCanada Pipelines Limited from
1993 to 1998; Lynn Kis who was General Manager, Engineering from 1998 to 2001;
and Chris Webster who was Manager, Operations Accounting from 2000 to 2001 and
Team Leader, Marketing Accounting and Treasury, Union Pacific Resources Inc.
from 1996 to 2000. 
 RISK FACTORS If any of the following risks occur, our production, revenues and
financial condition could be materially harmed, with a resulting decrease in
distributions on, and the market price of, our trust units. As a result, the
trading price of our trust units could decline, and you could lose all or part
of your investment. Our distributions are sensitive to the volatility of crude oil and natural gas
prices. The monthly distributions we pay to our unitholders depend, in part, on
the prices we receive for our oil and natural gas production. Oil and natural
gas prices can fluctuate widely on a month-to-month basis in response to a
variety of factors that are beyond our control. These factors include, among
others:  
    
    political conditions in the Middle East;  
    
    worldwide economic conditions;  
    
    weather conditions;  
    
    the supply and price of foreign oil and natural gas;  
    
    the level of consumer demand;  
    
    the price and availability of alternative fuels;  
    
    the proximity to, and capacity of, transportation facilities;  
    
    the effect of worldwide energy conservation measures; and  
    
    government regulation. Declines in oil or natural gas prices could have an adverse effect on our
operations, financial condition and proved reserves and ultimately on our
ability to pay distributions to our unitholders. Our distributions are affected by production and development costs and capital
expenditures. Production and development costs incurred with respect to properties,
including power costs and the costs of injection fluids associated with
tertiary recovery operations, reduce the royalty income that Pengrowth Trust
receives and, consequently, the amounts we can distribute to our unitholders. The timing and amount of capital expenditures will directly affect the
amount of income available for distribution to our unitholders. Distributions
may be reduced, or even eliminated, at times when significant capital or other
expenditures are made. To the extent that external sources of capital,
including the issuance of additional trust units, become limited or
unavailable, Pengrowth Corporations ability to make the necessary capital
investments to maintain or expand oil and gas reserves and to invest in assets,
as the case may be, will be impaired. To the extent that Pengrowth Corporation
is required to use cash flow to finance capital expenditures or property
acquisitions, the cash we receive from Pengrowth Corporation on the royalty
units will be reduced, resulting in reductions to the amount of cash we are
able to distribute to our unitholders. - 46 -




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Our actual results will vary from our reserve estimates, and those variations
could be material. The value of the trust units will depend upon, among other things,
Pengrowth Corporations reserves. In making strategic decisions, we generally
rely upon reports prepared by our independent reserve engineers. Estimating
reserves is inherently uncertain. Ultimately, actual production, revenues and
expenditures for the underlying properties will vary from estimates and those
variations could be material. Changes in the prices of, and markets for, oil
and natural gas from those anticipated at the time of making such assessments
will affect the return on, and value of, our trust units. The reserve and cash
flow information contained in this Annual Information Form or contained in the
documents incorporated by reference represent estimates only. Petroleum
engineers consider many factors and make assumptions in estimating reserves.
Those factors and assumptions include:  
    
    historical production from the area compared with production rates from similar producing areas;  
    
    the assumed effect of government regulation;  
    
    assumptions about future commodity prices, exchange rates,
production and development costs, capital expenditures, abandonment
costs, environmental liabilities, and applicable royalty regimes;  
    
    initial production rates;  
    
    production decline rates;  
    
    ultimate recovery of reserves;  
    
    marketability of production; and  
    
    other government levies that may be imposed over the producing life of reserves. If these factors and assumptions prove to be inaccurate, our actual
results may vary materially from our reserve estimates. Many of these factors
are subject to change and are beyond our control. In particular, changes in the
prices of, and markets for, oil and natural gas from those anticipated at the
time of making such assessments will affect the return on, and value of, our
trust units. In addition, all such assessments involve a measure of geological
and engineering uncertainty that could result in lower production and reserves
than anticipated. A significant portion of our reserves are classified as
undeveloped and are subject to greater uncertainty than reserves classified
as developed. In accordance with normal industry practices, we engage independent
petroleum engineers to conduct a detailed engineering evaluation of our oil and
gas properties for the purpose of estimating our reserves as part of our
year-end reporting process. As a result of that evaluation, we may increase or
decrease the estimates of our reserves. We do not consider an increase or
decrease in the estimates of our reserves in the range of one to five percent
to be material or inconsistent with normal industry practice. Any significant
reduction to the estimates of our reserves resulting from any such evaluation
could have a material adverse effect on the value of our trust units. Our reserves will be depleted over time and our level of distributable cash and
the value of our trust units could be reduced if reserves are not replaced. Our future oil and natural gas reserves and production, and therefore the
cash flows of Pengrowth Trust, will depend upon our success in acquiring
additional reserves. If we fail to add reserves by acquiring or developing
them, our reserves and production will decline over time as they are produced.
When reserves from our properties can no longer be economically produced and
marketed, our trust units will have no value unless additional reserves have
been acquired or developed. If we are not able to raise capital on favourable
terms, we may not be able to add to or maintain our reserves. If we use our
cash flow to acquire or develop reserves, we will reduce our distributable
cash. There is strong competition in all aspects of the oil and gas industry
including reserve acquisitions. We will actively compete for reserve
acquisitions and skilled industry personnel with a substantial number of other
oil and gas companies and energy trusts. However, many of our competitors have
greater resources than we do and we cannot assure you that we will be
successful in acquiring additional reserves on terms that meet our objectives. - 47 -




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Our operation of oil and natural gas wells could subject us to environmental
claims and liability. The oil and natural gas industry is subject to extensive environmental
regulation, which imposes restrictions and prohibitions on releases or
emissions of various substances produced in association with certain oil and
gas industry operations. In addition, Canadian legislation requires that well
and facility sites be abandoned and reclaimed to the satisfaction of provincial
authorities. A breach of this or other legislation may result in fines or the
issuance of a clean-up order. Ongoing environmental obligations will be funded
out of our cash flow and could therefore reduce distributable cash payable to
our unitholders. We may be unable to successfully compete with other companies in our industry. There is strong competition in all aspects of the oil and gas industry.
Pengrowth will actively compete for capital, skilled personnel, undeveloped
lands, reserve acquisitions, access to drilling rigs, service rigs and other
equipment, access to processing facilities and pipeline and refining capacity
and in all other aspects of its operations with a substantial number of other
organizations, many of which may have greater technical and financial resources
than Pengrowth. Some of those organizations not only explore for, develop and
produce oil and natural gas but also carry on refining operations and market
oil and other products on a world-wide basis and, as such, have greater and
more diverse resources on which to draw. Incorrect assessments of value at the time of acquisitions could adversely
affect the value of our trust units and our distributions. Acquisitions of oil and gas properties or companies will be based in large
part on engineering and economic assessments made by independent engineers.
These assessments include a series of assumptions regarding such factors as
recoverability and marketability of oil and gas, future prices of oil and gas
and operating costs, future capital expenditures and royalties and other
government levies which will be imposed over the producing life of the
reserves. Many of these factors are subject to change and are beyond our
control. All such assessments involve a measure of geologic and engineering
uncertainty which could result in lower production and reserves than
anticipated. Our level of debt could have a material adverse effect on our ability to pay
distributions to our unitholders. Pengrowth Corporation has issued US$200 million in term debt due in two
tranches, the first tranche of US$150 million is due in April 2010 and the
second tranche of US$50 million is due in April 2013. Pengrowth also has a
$200 million revolving credit facility syndicated among eight financial
institutions in place until June 20, 2004. The $200 million facility has a 364
day revolving period and should it not be renewed on June 20, 2004, it will be
repayable over a two year period. Pengrowth also has a $35 million demand
operating line of credit. We draw upon these credit facilities from time to
time to make acquisitions of oil and natural gas properties and to fund capital
investments in our properties. We pay interest at fluctuating rates with
respect to a portion of our outstanding debt under our existing credit
facilities. Variations in interest rates and scheduled principal repayments
could result in significant changes in the amount Pengrowth is required to
apply to service its debt. Certain covenants in the agreements with our
lenders may also limit the amount of the royalty paid by Pengrowth Corporation
to Pengrowth Trust and the distributions paid by us to our unitholders. On
April 8, 2004, Pengrowth Corporation entered into an agreement with a
subsidiary of Murphy Oil Corporation to acquire oil and natural gas assets
through the purchase of shares in a numbered company for $550 million which
will be funded through cash on hand and through a committed interim debt
facility provided by Pengrowth Corporations lead banker. Pengrowth
Corporation will seek to replace the interim credit facility with other sources
of financing. We cannot assure you that the amount of our credit facility will
be adequate for our future financial obligations or that we will be able to
obtain additional funds. If we become unable to pay our debt service charges
or otherwise cause an event of default to occur, our lenders may foreclose on
or sell the properties. The net proceeds of any such sale will be allocated
firstly, to the repayment of our lenders and other creditors and only the
remainder, if any, would be payable to Pengrowth Trust by Pengrowth Corporation
in respect of the royalty. Loss of our key management and other personnel could impact our business. Our unitholders are entirely dependent on the management of Pengrowth
Management and Pengrowth Corporation with respect to the acquisition of oil and
gas properties and assets, the development and acquisition of additional
reserves, the management and administration of all matters relating to
properties and the administration of Pengrowth Trust. The loss of the services
of key individuals who currently comprise the management team of Pengrowth
Management and Pengrowth Corporation could have a detrimental effect on
Pengrowth Trust. In addition, increased activity within the oil and gas sector
can increase the cost of goods and services and make it more difficult to have
and retain qualified professional staff. - 48 -




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Trust distributions are affected by marketability of production. The marketability of our production depends in part upon the availability,
proximity and capacity of gas gathering systems, pipelines and processing
facilities. United States federal and state and Canadian federal and provincial
regulation of oil and gas production and transportation, general economic
conditions, and changes in supply and demand could adversely affect our ability
to produce and market oil and natural gas. If market factors dramatically
change, the financial impact on us could be substantial. The availability of
markets is beyond our control. The operation of a significant portion of our properties is largely dependent
on the ability of third party operators, and harm to their business could cause
delays and additional expenses in our receiving revenues. The continuing production from a property, and to some extent the
marketing of production, is dependent upon the ability of the operators of our
properties. Currently 42% of our properties are operated by third parties,
based on daily production. If, in situations where we are not the operator, the
operator fails to perform these functions properly or becomes insolvent, then
revenues may be reduced. Revenues from production generally flow through the
operator and, where we are not the operator, there is a risk of delay and
additional expense in receiving such revenues. The operation of the wells located on properties not operated by us are
generally governed by operating agreements which typically require the operator
to conduct operations in a good and workmanlike manner. Operating agreements
generally provide, however, that the operator will have no liability to the
other non-operating working interest owners for losses sustained or liabilities
incurred, except such as may result from gross negligence or wilful misconduct.
In addition, third-party operators are generally not fiduciaries with respect
to Pengrowth Corporation, Pengrowth Trust or the unitholders. Pengrowth
Corporation, as owner of working interests in properties not operated by it,
will generally have a cause of action for damages arising from a breach of the
operators duty. Although not established by definitive legal precedent, it is
unlikely that the Pengrowth Trust or our unitholders would be entitled to bring
suit against third-party operators to enforce the terms of the operating
agreements. Therefore, our unitholders will be dependent upon Pengrowth
Corporation, as owner of the working interest, to enforce such rights. Our distributions could be adversely affected by unforeseen title defects. Although title reviews are conducted prior to any purchase of resource
assets, such reviews cannot guarantee that an unforeseen defect in the chain of
title will not arise to defeat our title to certain assets. Such defects could
reduce the amounts distributable to our unitholders, and could result in a
reduction of capital. Fluctuations in foreign currency exchange rates could adversely affect our
business. World oil prices are quoted in United States dollars and the price
received by Canadian producers is therefore affected by the Canadian/United
States dollar exchange rate which fluctuates over time. A material increase in
the value of the Canadian dollar may negatively impact our net production
revenue and cash flow. To the extent that we have engaged, or in the future
engage, in risk management activities related to commodity prices and foreign
exchange rates, through entry into oil or natural gas price hedges and forward
foreign exchange contracts or otherwise, we may be subject to unfavourable
price changes and credit risks associated with the counterparties with which we
contract. A decline in the value of the Canadian dollar relative to the United
States dollar provides a competitive advantage to United States companies in
acquiring Canadian oil and gas properties and may make it more difficult for us
to replace reserves through acquisitions. Our insurance coverage could be inadequate. We are exposed to a number of risks and maintain liability insurance,
where available, in amounts consistent with industry standards. However, we may
become liable for damages arising from events against which we cannot insure,
or against which we may elect not to insure because of high premium costs or
other reasons. The costs to repair such damage or pay such liabilities could
reduce distributable income. Our operations are subject to all of the risks
normally associated with drilling for, and the production and transportation of
oil and natural gas. Such risks and hazards include encountering unexpected
formations or pressures, blow-outs, craterings and fires, all of which could
result in personal injury, loss of life, property damage and environmental
damage. Although we have safety and environmental policies in place to protect
operators and employees, as well as to meet regulatory requirements, and
although we have liability insurance policies in - 49 -




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place, we cannot fully insure against all such risks. Costs incurred to
repair such damage or pay such liabilities will reduce payments made by
Pengrowth Corporation to Pengrowth Trust. Being a limited purpose trust makes Pengrowth Trust largely dependent upon the
operations and assets of Pengrowth Corporation. Pengrowth Trust is a limited purpose trust which is dependent upon the
operations and assets of Pengrowth Corporation. Pengrowth Corporations income
will be received from the production of crude oil and natural gas from its
properties and will be susceptible to the risks and uncertainties associated
with the oil and natural gas industry generally. Since the primary focus is to
pursue growth opportunities through the development of existing reserves and
the acquisition of new properties, Pengrowth Corporations involvement in the
exploration for oil and natural gas is minimal. As a result, if the oil and
natural gas reserves associated with Pengrowth Corporations resource
properties are not supplemented through additional development or the
acquisition of oil and natural gas properties, the ability of Pengrowth
Corporation to continue to generate cash flow for distribution to unitholders
may be adversely affected. The SOEP properties may present challenges and risks that we have not faced in
the past. The
SOEP properties are offshore and Pengrowth has had no other experience with
offshore projects. Moreover, they are in an earlier stage of development than
most of our previous acquisitions have been and have not been on production for
an extended period of time. As a result, the SOEP properties may present
challenges and risks that Pengrowth has not faced in the past. Furthermore,
because of the early stage of development and relatively brief production
history of these properties, events which could materially adversely affect our
interests are more likely to occur. No assurance can be given that capital
obligations will not be greater than forecast and that there will not be
further negative revisions to reserves. Management may have conflicts of interest. Pengrowth Management provides advisory, management and administrative
needs of Pengrowth Trust and Pengrowth Corporation in consideration for a
management fee which is currently based in part on net production revenue of
Pengrowth Corporation. This arrangement may create an incentive for Pengrowth
Management to maximize the net production revenue of Pengrowth Corporation,
rather than maximizing its distributable cash, which is the primary basis for
calculating distributions available to unitholders. Pengrowth Management may manage and administer such additional acquired
properties, as well as enter into other types of energy related management and
advisory activities and may not devote full time and attention to the business
of Pengrowth Corporation and therefore act in contradiction to or competition
with the interests of our unitholders. General and administrative expenses which Pengrowth Management incurs in
relation to the business of Pengrowth Corporation and Pengrowth Trust are
required to be paid by Pengrowth Corporation. These expenses are not subject
to a limit other than as may be provided under a periodic review by the Board
of Directors and, as a result, there may not be an incentive for Pengrowth
Management to minimize these expenses. We may incur material costs to comply with, or as a result of, health, safety
and environmental laws and regulations. Compliance with environmental laws and regulations could materially
increase our costs. We may incur substantial capital and operating costs to
comply with increasingly complex laws and regulations covering the protection
of the environment and human health and safety. In particular, we may be
required to incur significant costs to comply with the 1997 Kyoto Protocol to
the United Nations Framework Convention on Climate Change, known as the Kyoto
Protocol that is intended to reduce emissions of pollutants into the air. Lower oil and gas prices increase the risk of write-downs of our oil and gas
property investments. Under Canadian accounting rules, the net capitalized cost of oil and gas
properties may not exceed a ceiling limit which is based, in part, upon
estimated future net cash flows from reserves. If the net capitalized costs
exceed this limit, we must charge the amount of the excess against earnings. As
oil and gas prices decline, our net capitalized cost may approach and, in
certain circumstances, exceed this cost ceiling, resulting in a charge against
earnings. Under United States accounting rules, the cost ceiling is generally
lower than under Canadian rules because the future net cash flows used in the
United States ceiling test are discounted to a present value. Accordingly, we
would have more risk of a ceiling test write- - 50 -




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down in a declining price environment if we reported under United States
generally accepted accounting principles. While these write-downs would not
affect cash flow, the charge to earnings could be viewed unfavourably in the
market or could limit our ability to borrow funds or comply with covenants
contained in our current or future credit agreements or other debt instruments. Changes in Canadian legislation could adversely affect the value of our trust
units. The value of the trust units is largely related to our income tax
treatment. We cannot assure you that income tax laws and government incentive
programs relating to the oil and natural gas industry generally, the status of
royalty trusts having our structure, the Alberta royalty tax credit and the
resource allowance will remain favourable and not change in a manner that
adversely affects your investment. If Pengrowth Trust ceases to qualify as a mutual fund trust it would adversely
affect the value of our trust units. It is intended that Pengrowth Trust will at all times qualify as a mutual
fund trust for the purposes of the Tax Act. While Pengrowth Trust may have an
alternative basis for qualifying as a mutual fund trust, Pengrowth Trust
intends to take measures to ensure that it qualifies as a mutual fund trust on
the basis that it is not reasonable, at any time, to consider that Pengrowth
Trust was established or is maintained primarily for the benefit of
non-residents of Canada. Recent residency information received by Pengrowth regarding the
beneficial ownership of trust units indicates that a majority of trust units
are owned by non-residents of Canada. However, it is the view of Pengrowth
Corporation that Pengrowth Trust is not being maintained primarily for the
benefit of non-residents as it is continuing to undertake measures to monitor,
control and ultimately reduce the level of non-resident ownership, including
implementation of the reclassification of the outstanding Trust Units as Class
A and B Trust Units, where the Class B Trust Units may not be owned by
non-residents of Canada and will constitute greater than 50% of the outstanding
trust units. See General Development of Pengrowth Energy Trust  Recent
Acquisitions, Financings and Developments  2004 Annual and Special Meetings 
Reclassification of Trust Unit Capital. Notwithstanding the steps taken or to be taken by Pengrowth, no assurance
can be given that the status of Pengrowth Trust as a mutual fund trust will not
be challenged by a relevant taxation authority. If Pengrowth Trusts status as
a mutual fund trust is determined to have been lost, certain negative tax
consequences will have resulted for Pengrowth Trust and its unitholders. These
negative tax consequences include the following:  
    
    The trust units would cease to be a qualified investment for trusts
governed by RRSPs, RRIFs, RESPs and DPSPs, as defined in the Income Tax
Act(Canada) (the Tax Act). Where, at the end of a month, a RRSP,
RRIF, RESP or DPSP holds trust units that ceased to be a qualified
investment, the RRSP, RRIF, RESP or DPSP, as the case may be, must, in
respect of that month, pay a tax under Part XI.1 of the Tax Act equal to
1% of the fair market value of the trust units at the time such trust
units were acquired by the RRSP, RRIF, RESP or DPSP. In addition,
trusts governed by a RRSP or a RRIF which hold trust units that are not
qualified investments will be subject to tax on the income attributable
to the trust units while they are non-qualified investments, including
the full capital gains, if any, realized on the disposition of such
trust units. Where a trust governed by a RRSP or a RRIF acquires trust
units that are not qualified investments, the value of the investment
will be included in the income of the annuitant for the year of the
acquisition. Trusts governed by RESPs which hold trust units that are
not qualified investments can have their registration revoked by the
Canada Revenue Agency.  
    
    Pengrowth Trust would be required to pay a tax under Part XII.2 of
the Tax Act. The payment of Part XII.2 tax by Pengrowth Trust may have
adverse income tax consequences for certain unitholders, including
non-resident persons and residents of Canada who are exempt from Part I
tax.  
    
    The trust units would be foreign property for RRSPs, RRIFs DPSPs and
other persons subject to tax under Part XI of the Tax Act.  
    
    Pengrowth Trust would not be entitled to use the capital gains refund
mechanism otherwise available for mutual fund trusts.  
    
    The trust units would constitute taxable Canadian property for the
purposes of the Tax Act, potentially subjecting non-residents of Canada
to tax pursuant to the Tax Act on the disposition (or deemed
disposition) of such trust units. - 51 -




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The ability of investors resident in the United States to enforce civil
remedies may be affected for a number of reasons. Pengrowth Trust is an Alberta trust and Pengrowth Management and Pengrowth
Corporation are both Alberta corporations. All of these entities have their
principal places of business in Canada. All of the directors and officers of
Pengrowth Management and Pengrowth Corporation are residents of Canada and all
or a substantial portion of the assets of such persons and of Pengrowth Trust
are located outside of the United States. Consequently, it may be difficult for
United States investors to effect service of process within the United States
upon Pengrowth Trust or such persons or to realize in the United States upon
judgments of courts of the United States predicated upon civil remedies under
the Securities Act of 1933(United States), as amended. Investors should not
assume that Canadian courts:  (a)
    
    will enforce judgments of United States courts obtained in
actions against Pengrowth Trust or such persons predicated upon the
civil liability provisions of the United States federal securities
laws or the securities or blue sky laws of any state within the
United States; or  (b)
    
    will enforce, in original actions, liabilities against
Pengrowth Trust or such persons predicated upon the United States
federal securities laws or any such state securities or blue sky
laws. Our trust units are not equivalent to shares. Trust units should not be viewed by investors as shares in Pengrowth
Corporation. Trust units are also dissimilar to conventional debt instruments
in that there is no principal amount owing to our unitholders. Trust units
represent a fractional interest in Pengrowth Trust. unitholders will not have
the statutory rights normally associated with ownership of shares of a
corporation including, for example, the right to bring oppression or
derivative actions. Pengrowth Trusts assets are royalty units and common
shares of Pengrowth Corporation and certain facilities interests, and may also
include certain other investments permitted under the trust indenture. The
price per trust unit is a function of anticipated distributable cash, the oil
and natural gas properties acquired by Pengrowth Corporation and the ability to
effect long-term growth in the value of Pengrowth Corporation. The market price
of the trust units will be sensitive to a variety of market conditions
including, but not limited to, interest rates and the ability of Pengrowth
Corporation to acquire suitable oil and natural gas properties. Changes in
market conditions may adversely affect the trading price of our trust units. Trust units will have no value when reserves from the properties can no
longer be economically produced or marketed and, as a result, cash
distributions do not represent a yield in the traditional sense as they
represent both return of capital and return on investment. unitholders will
have to obtain the return of capital invested out of cash flow derived from
their investments in the trust units during the period when reserves can be
economically recovered. Accordingly, we give no assurances that the
distributions you receive over the life of your investment will meet or exceed
your initial capital investment. You may experience substantial future dilution given that the success of
Pengrowth Trust is dependent upon raising capital. One of our objectives is to continually add to our reserves through
acquisitions and through development. Our success is, in part, dependent on our
ability to raise capital from time to time. Unitholders may also suffer
dilution in connection with future issuance of trust units. The limited liability of unitholders is uncertain. The trust indenture provides that no unitholder will be subject to any
personal liability in connection with Pengrowth Trust or its obligations and
affairs, and the satisfaction of claims of any nature arising out of or in
connection therewith is only to be made out of Pengrowth Trusts assets.
Additionally, the trust indenture states that no unitholder is liable to
indemnify or reimburse Computershare for any liabilities incurred by
Computershare with respect to any taxes payable by or liabilities incurred by
Pengrowth Trust or Computershare, and all such liabilities will be enforceable
only against, and will be satisfied only out of, Pengrowth Trusts assets. It
is intended that the operations of Pengrowth Trust will be conducted, upon the
advice of counsel, in such a way and in such jurisdictions as to avoid as far
as possible any material risk of liability on the unitholders for claims
against Pengrowth Trust. Notwithstanding the foregoing, because of
uncertainties in the law relating to trusts such as Pengrowth Trust, there is a
risk that a unitholder could be held personally liable for obligations of
Pengrowth Trust to the extent that claims are not satisfied by Pengrowth Trust. - 52 -




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The Income Trusts Liability Actpassed third reading on May 11, 2004 in
the Alberta Legislative and now awaits royal ascent. The Act will apply to
Alberta income trusts which include Pengrowth Trust by virtue of being a trust
governed by the laws of the Province of Alberta and being a reporting issuer
under the Securities Act(Alberta). From and after coming into force,
notwithstanding any express or implied indemnity of a trustee by a beneficiary
of an Alberta income trust, the beneficiary will not, as a beneficiary, be
liable for any act, default, obligation or liability of the trustee of the
Alberta income trust. Canadian and United States practices differ in reporting reserves and
production. We report our production and reserve quantities in accordance with
Canadian practices and specifically in accordance with NI 51-101. These
practices are different from the practices used to report production and to
estimate reserves in reports and other materials filed with the United States
Securities and Exchange Commission by companies in the United States. We incorporate additional information with respect to production and
reserves which is either not generally included or prohibited under rules of
the United States Securities and Exchange Commission and practices in the
United States. We follow the Canadian practice of reporting gross production
and reserve volumes; however, we also follow the United States practice of
separately reporting these volumes on a net basis (after the deduction of
royalties and similar payments). We also follow the Canadian practice of using
forecast prices and costs when we estimate our reserves; however, we separately
estimate our reserves using prices and costs held constant at the effective
date of the reserve report in accordance with the Canadian reserve reporting
requirements. These requirements are similar to the constant pricing reserve
methodology utilized in the United States. We include in this Annual Information Form estimates of proved and proved
plus probable reserves. The United States Securities and Exchange Commission
generally prohibits the inclusion of estimates of probable reserves in filings
made with it. This prohibition does not apply to Pengrowth Trust because it is
a Canadian foreign private issuer. You may be required to pay taxes even if you do not receive any cash
distributions. You may be required to pay federal income taxes and, in some cases, state,
provincial and local income taxes on your share of our taxable income even if
you do not receive any cash distributions from us. You may not receive cash
distributions from us equal to your share of our taxable income or even equal
to the actual tax liability that results from your share of our taxable income. Unitholders who are United States persons face income tax risks. The United States federal income tax risks related to owning and disposing
of our trust units, include the following:  
    
    Because the trust units will be publicly traded, Pengrowth
Trust will not be treated as a corporation for U.S. federal income
tax purposes only if 90% or more of its gross income consists of
qualifying income. Although Pengrowth Trust expects to satisfy the
90% requirement at all times, if it fails to satisfy this
requirement, it will be treated as a foreign corporation. If
Pengrowth Trust were treated as a corporation, it could be a passive
foreign investment company or PFIC. Treatment of Pengrowth Trust as
a PFIC could result in a material reduction in the after-tax return
to the unitholders, likely causing a substantial reduction in the
value of the trust units.  
    
    A successful U.S. Internal Revenue Service (IRS) contest of
the federal income tax positions we take or have taken may adversely
affect the market for our trust units. For example, the IRS could
challenge our position that the royalty from Pengrowth Corporation
should be treated as a non-operating, non-working interest. We have
not requested a ruling from the IRS with respect to this or any other
matter affecting us other than relating to the timeliness of our
election to be treated as a partnership. The IRS may adopt positions
that differ from the conclusions of our counsel or from the positions
we take or have taken. It may be necessary to resort to
administrative or court proceedings to sustain our counsels
conclusions or those positions. A court may not concur with our
counsels conclusions or the positions we take or have taken. Any
contest with the IRS may materially and adversely impact the U.S.
federal income tax consequences to unitholders and, therefore, the
market for our trust units and the price at which they - 53 -




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trade. In addition, the costs of any contest with the IRS,
principally legal, accounting and related fees, will be borne by us
and indirectly by the unitholders.  
    
    Tax gain or loss on disposition of trust units could be
different from expected. If you sell your trust units, you will
recognize gain or loss equal to the difference between the amount
realized and your tax basis in the trust units. Prior distributions
in excess of the total net taxable income you were allocated, which
decreased your tax basis in the trust units, will, in effect, become
taxable income to you if the trust units are sold at a price greater
than your tax basis in those trust units, even if the price you
receive is less than your original cost. A substantial portion of the
amount realized, whether or not representing gain, may be ordinary
income to you. Should the IRS successfully contest some positions we
take, you could recognize more gain on the sale of trust units than
would be the case under those positions, without the benefit of
decreased income in prior years. Also, if you sell trust units, you
may incur a tax liability in excess of the amount of cash you receive
from the sale.  
    
    We have registered with the IRS as a tax shelter. This may
increase the risk of an IRS audit of us or a unitholder. The tax laws
require that some types of entities register as tax shelters in
response to the perception that they claim tax benefits that may be
unwarranted. As a result, we may be audited by the IRS and tax
adjustments could be made. Any unitholder owning less than a 1%
profits interest in us has very limited rights to participate in the
income tax audit process. Further, any adjustments in our tax returns
will lead to adjustments in our unitholders tax returns and may lead
to audits of unitholders tax returns and adjustments of items
unrelated to us. You will bear the cost of any expense incurred in
connection with an examination of your personal tax return.  
    
    We will treat each owner of trust units as having the same tax
benefits without regard to the specific trust units purchased. The
IRS may challenge this treatment, which could adversely affect the
value of our trust units. Because we cannot match transferors and
transferees of our trust units, we will adopt depletion, depreciation
and amortization positions that do not conform with all aspects of
final Treasury regulations. A successful IRS challenge to those
positions could adversely affect the amount of tax benefits available
to you. It also could affect the timing of these tax benefits or the
amount of gain from your sale of trust units and could have a
negative impact on the value of our trust units or result in audit
adjustments to your tax returns.  
    
    Pengrowth Trust may not be an appropriate investment for
certain types of entities. For example, there is a risk that some of
Pengrowth Trusts income could be unrelated business taxable income
with respect to tax-exempt organizations. Furthermore, we anticipate
that substantially all of Pengrowth Trusts gross income will not be
qualifying income for purposes of the rules relating to regulated
investment companies. 
 CONFLICTS OF INTEREST There may be situations in which the interests of Pengrowth Management
will conflict with those of our unitholders. Pengrowth Management may acquire
oil and natural gas properties on behalf of persons other than the unitholders.
Pengrowth Management may manage and administer such additional properties, as
well as enter into other types of energy-related management and advisory
activities. Accordingly, neither Pengrowth Management nor its management will
carry on their full-time activities on behalf of unitholders and, when acting
on behalf of others, may at times act in contradiction to or competition with
the interests of unitholders. In the event that the interests of Pengrowth
Management are in conflict with those of our unitholders, Pengrowth Management
is obliged to make decisions acting in good faith, having regard to the best
interests of unitholders and in a manner that would not contravene its
fiduciary obligations to unitholders. Although Pengrowth Management provides advisory and management services to
Pengrowth Corporation and Pengrowth Trust, the Board of Directors supervises
the management of the business and affairs of Pengrowth Corporation and
Pengrowth Trust. The Board of Directors makes significant operational decisions
and all decisions relating to: - 54 -




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(i)
    
    the issuance of additional trust units;  (ii)
    
    material acquisitions and dispositions of properties;(iii)
    
    material capital expenditures;(iv)
    
    borrowing; and  (v)
    
    the payment of distributable cash. Properties may not be acquired from officers or directors of Pengrowth
Management or persons not at arms length with such persons at prices which are
greater than fair market value and properties may not be sold to officers or
directors of Pengrowth Management or persons not at arms length with such
persons at prices which are less than fair market value, in each case as
established by an opinion of an independent financial advisor and approved by
the independent members of the Board of Directors. There may be circumstances
where certain transactions may also require the preparation of a formal
valuation and the affirmative vote of unitholders in accordance with the
requirements of Ontario Securities Commission Rule 61-501  Insider Bids,
Issuer Bids, Going Private Transactions and Related Party Transactions. Circumstances may arise where members of the Board of Directors serve as
directors or officers of corporations which are in competition to the interests
of Pengrowth Corporation and Pengrowth Trust. No assurances can be given that
opportunities identified by such board members will be provided to Pengrowth
Corporation and Pengrowth Trust. 
 CODE OF ETHICS Pengrowth has adopted a code of ethics, as that term is defined in Form
40-F under the U.S. Securities Exchange Act of 1934 (the Code of Ethics) that
applies to Pengrowths management, including its Chief Executive Officer, Chief
Financial Officer and principal accounting officer. The Code of Ethics is
available for viewing on our website (http://www.pengrowth.com). Since the adoption of its Code of Ethics, Pengrowth has not amended the
code or granted any waivers (including implicit waivers) from the terms
thereof. 
 PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table provides information about the aggregate fees billed
to Pengrowth for professional services rendered by KPMG LLP during fiscal 2003
and 2002: 2003
    
    2002Category
    
    $M
    
    $MAudit Fees
    
    $
    253
    
    
    $
    627Audit Related Fees
    
    nil
    
    nilTax Fees
    
    $
    84
    
    
    $
    427All Other Fees
    
    $
    26
    
    

nilTotal
    
    $
    363
    
    
    $
    1,054
 Audit Fees. Audit fees consist of fees for the audit of Pengrowths
annual financial statements and services that are normally provided in
connection with statutory and regulatory filings or engagements. Audit-Related
Fees. Audit-related fees normally include due diligence reviews in connection with acquisitions, research of accounting
and audit-related issues, review of reserves disclosure and the completion of
audits required by contracts to which Pengrowth is a party. - 55 -




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Tax Fees. During 2003 and 2002 the services provided in this category
included assistance and advice in relation to the preparation of income tax
returns for Pengrowth Trust and its subsidiaries, tax advice and planning and
commodity tax consultation. All Other Fees. During 2003 the services provided in this category
included consultation regarding the US Sarbanes Oxley Act and internal
controls. 
 PRE-APPROVAL POLICIES AND PROCEDURES Pengrowth has adopted the following policies and procedures with respect
to the pre-approval of audit and permitted non-audit services to be provided by
KPMG LLP: The audit committee approves a schedule which summarizes
the services to be provided that the audit
committee believes to be typical, recurring or otherwise likely to be provided
by KPMG LLP. The schedule generally covers the period between the adoption of the
schedule and the next meeting of the audit committee, but at the option of the
audit committee, may cover a shorter or longer period. The list of services is
sufficiently detailed as to the particular services to be provided to ensure
that (i) the audit committee knows precisely what services it is being asked to
pre-approve and (ii) it is not necessary for any member of Pengrowths
management to make a judgment as to whether a proposed service fits within the
pre-approved services. Pengrowth has not approved any non-audit services on the basis of the de
minimisexemptions. All non-audit services are pre-approved by the Audit
Committee in accordance with the pre-approval policy referenced herein. 
 OFF-BALANCE SHEET ARRANGEMENTS Pengrowth has no off-balance sheet arrangements. 
 TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS The disclosure regarding the contractual obligations of Pengrowth under
the heading Commitments and Contractual Obligations in the Managements
Discussion and Analysis appearing on page 59 of Pengrowth Trusts 2003 annual
report is incorporated by reference herein. 
 DISCLOSURE PURSUANT TO THE REQUIREMENTS OF THE NEW YORK STOCK EXCHANGE The board of directors of Pengrowth complies with the Guidelines for
effective Corporate Governance of the Toronto Stock Exchange (the TSX) and
Pengrowths corporate governance practices in comparison with the TSX best
practices are disclosed on pages 12 through 21 of Pengrowths Information
Circular-Proxy Statement, which pages are incorporated by reference herein.
These guidelines address the constitution of boards of directors and board
committees as well as their functions, their independence from management and
other means to promote sound Corporate Governance practices. Pengrowth is also considering and preparing for the application of recent
legislative changes in Canada and the recommendations of influential
organizations and commentators on effective corporate governance. Multilateral
Instrument 58-201 on effective Corporate Governance was published for comment
by the Canadian Securities administrators (the CSA) and will be considered
for implementation in 2005. The impact of Multilateral Instrument 52-110 in
respect of audit committees, Multilateral Instrument 52-109 in respect of the
certification of disclosure on issuers annual and interim filings and National
Instrument 51-101 in respect of standards of disclosure for oil and gas
activities are being considered by Pengrowth. These rules, as implemented and
as proposed for implementation, are meant to align Canadian corporate
governance with U.S. corporate governance, as set out in the Sarbanes-Oxley Act
of 2002 and the Corporate Governance Listing Standards of the New York Stock
Exchange. Further disclosure of Pengrowths corporate governance practices, is
found on pages 100 through 102 of Pengrowths 2003 Annual Report, which pages
are incorporated by reference herein. - 56 -




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ADDITIONAL INFORMATION Additional information, including Pengrowth Managements remuneration and
the principal holders of trust units, is contained in the Information Circular
 Proxy Statement of Pengrowth Corporation and Pengrowth Trust dated March 15,
2004 and the Supplement thereto dated March 29, 2004, which relates to the
Annual and Special Meeting of unitholders, and the Annual and Special Meeting
of shareholders of Pengrowth Corporation and the Special Meeting of holders of
royalty units to be held on April 22, 2004. Additional financial information
is contained in Pengrowth Trusts comparative financial statements for the
years ended December 31, 2003 and 2002 which are included in Pengrowth Trusts
2003 Annual Report. Pengrowth Trust will provide to any person or company upon request:  (a)
    
    when the securities of Pengrowth Trust are in the course of a
distribution pursuant to a short form prospectus or a preliminary
short form prospectus has been filed in respect of a proposed
distribution of its securities;  (i)
    
    one copy of Pengrowth Trusts latest annual
information form, together with one copy of any document, or
the pertinent pages of any document, incorporated therein by
reference;  (ii)
    
    one copy of the consolidated financial statements
of Pengrowth Trust for the most recently completed financial
year in respect of which such financial statements have been
issued together with the report of the auditor thereon, and one
copy of any unaudited interim consolidated financial statements
of Pengrowth Trust subsequent to the financial statements for
its most recent financial year;  (iii)
    
    one copy of the information circular of Pengrowth
Trust in respect of the most recent annual meeting of
unitholders of Pengrowth Trust which involved the election of
directors of Pengrowth Corporation; and  (iv)
    
    one copy of any other documents which are
incorporated by reference into the preliminary short form
prospectus or the short form prospectus and are not required to
be provided under (a) (i) to (iii) above; or  (b)
    
    at any other time, a copy of the documents referred to in
clauses (a) (i) to (iii) above, provided that Pengrowth Trust may
require a payment of a reasonable charge from such a person or
company who is not a unitholder. For additional copies of the Annual Information Form and the materials
listed in the preceding paragraphs please contact: Calgary Head Office
    
    Toronto Investor RelationsSuite 2900, 111  5th Avenue S.W.
    
    Suite 2315, 200 Bay StreetCalgary, Alberta T2P 3Y6
    
    Toronto, Ontario M5J 2J2Telephone: (403) 233-0224
    
    Telephone: (416) 362-17481-800-223-4122
    
    1-888-744-1111Fax: (403) 294-0051
    
    Fax: (403) 362-8191
 Website: www.pengrowth.com
email: pengrowth@pengrowth.com - 57 -




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APPENDIX A




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REPORT ON RESERVES DATA BY
INDEPENDENT QUALIFIED RESERVES
EVALUATOR OR AUDITOR To the board of directors of Pengrowth Corporation (the Company): We have prepared an
evaluation of the Companys reserves data as at
December 31, 2003. The reserves data consist of the following:  (a)  (i)
    
    proved and proved plus probable oil and gas reserves estimated
as at December 31, 2003, using forecast prices and costs; and(ii)
    
    the related estimated future net revenue; and(b)  (i)
    
    proved oil and gas reserves estimated as at December 31, 2003,
using constant prices and costs; and(ii)
    
    the related estimated future net revenue. The reserves data are the
responsibility of the Companys management. Our
responsibility is to express an opinion on the reserves data based on our
evaluation. We carried out our evaluation in accordance with standards set out in the
Canadian Oil and Gas Evaluation Handbook (the COGE Handbook) prepared jointly
by the Society of Petroleum Evaluation Engineers (Calgary Chapter) and the
Canadian Institute of Mining, Metallurgy & Petroleum (Petroleum Society). The following table sets forth the estimated future net revenue (before
deduction of income taxes) attributed to proved plus probable reserves,
estimated using forecast prices and costs and calculated using a discount rate
of 10 percent, included in the reserves data of the Company evaluated by us for
the year ended December 31, 2003, and identifies the respective portions
thereof that we have audited, evaluated and reviewed and reported on to the
Companys board of directors: Description and
Preparation Date of
    
    Location ofReserves(Country orForeign
    
    Net Present Value of Future Net Revenue(before income taxes, 10% discount rate)[Audit/Evaluation/
    
    GeographicReview] Report
    
    Area)
    
    Audited
    
    Evaluated
    
    Reviewed
    
    TotalJanuary 30, 2004
    
    Canada
    
    $
    0
    
    
    $1604MM
    
    $
    0
    
    
    $1604MM
 We have no responsibility to update this evaluation for events and
circumstances occurring after the preparation date. Because the reserves data are based on judgements regarding future events,
actual results will vary and the variations may be material. Gilbert Laustsen Jung Associates Ltd., Calgary, Alberta, Canada                                           Dated February 19, 2004 ORIGINALLY SIGNED BY  
 A-1




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APPENDIX B




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FORM 51-101F3
REPORT OF
MANAGEMENT AND DIRECTORS
ON OIL AND GAS DISCLOSURE Management of Pengrowth Corporation (the Company) are responsible for
the preparation and disclosure of information with respect to the oil and
gas activities of Pengrowth Energy Trust (the Pengrowth Trust) in
accordance with securities regulatory requirements. This information
includes reserves data, which consist of the following:  (a)
    
    (i) proved and proved plus probable oil and gas reserves
estimated as at December 31, 2003 using forecast prices and costs;
and  (ii)
    
    the related estimated future net revenue; and  (b)
    
    (i) proved oil and gas reserves estimated as at December 31,
2003 using constant prices and costs; and  (ii)
    
    the related estimated future net revenue. An independent qualified reserves evaluator has evaluated the Companys
reserves data. The report of the independent qualified reserves evaluator
will be filed with securities regulatory authorities concurrently with
this report. The Reserves Committee of the board of directors of the Company has  (a)
    
    reviewed the Companys procedures for providing information to
the independent qualified reserves evaluator;  (b)
    
    met with the independent qualified reserves evaluator to
determine whether any restrictions affected the ability of the
independent qualified reserves evaluator to report without
reservation; and  (c)
    
    reviewed the reserves data with management and the independent
qualified reserves evaluator. The Reserves Committee of the board of directors has reviewed the
Companys procedures for assembling and reporting other information
associated with oil and gas activities and has reviewed that information
with management. The board of directors has, on the recommendation of the
Reserves Committee, approved  (d)
    
    the content and filing with securities regulatory authorities
of the reserves data and other oil and gas information;  (e)
    
    the filing of the report of the independent qualified reserves
evaluator on the reserves data; and  (f)
    
    the content and filing of this report. Because the reserves data are based on judgements regarding future events,
actual results will vary and the variations may be material. B-1




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/s/ James S. Kinnear     /s/ Lynn
Kis     /s/ Stanley H. Wong     /s/ Thomas
A. Cumming     May 17, 2004 B-2




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APPENDIX B MANAGEMENTS DISCUSSION AND ANALYSIS (INCLUDED ON PAGES 42 THROUGH 65 OF THE
PENGROWTH ENERGY TRUST 2003 ANNUAL REPORT)




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Managements Discussion and Analysis The following discussion and analysis of financial results should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 2003 and is based on information available to February 29,
2004 except for the unit offering entered into on March 4, 2004 as discussed on
page 58. Certain prior period comparative numbers included within this
discussion and analysis have been restated to reflect the changes in accounting
policies as discussed in Note 3 to the financial statements. Note Regarding Forward-Looking Statements This discussion and analysis contains forward-looking statements. These
statements relate to future events or our future performance. In some
cases, you can identify forward-looking statements by terminology such as
may, will, should, expect, plan, anticipate, believe,
estimate, predict, potential, continue, or the negative of these
terms or other (PICTURE) comparable terminology. These statements are only predictions. A number of
factors, including the business risks discussed below, may cause actual
results to vary materially from these estimates. Actual events or results
may differ materially. In addition, this discussion contains
forward-looking statements attributed to third-party industry sources.
Readers should not place undue reliance on these forward-looking
statements. Critical Accounting Estimates As discussed in Note 2 to the financial statements, the preparation of
financial statements in conformity with Canadian generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and revenues and expenses for the
period then ended. The amounts recorded for depletion, depreciation and amortization of
injectants and the provision for asset retirement obligations are based on
estimates. The ceiling test calculation is based on estimates of proved
reserves, production rates, oil and natural gas prices, future costs and
other relevant assumptions. As required by National Instrument 51-101 (NI
51-101), Pengrowth uses independent qualified reserve evaluators in the
preparation of reserve evaluations. By their nature, these estimates are
subject to measurement uncertainty and changes in these estimates may
impact the consolidated financial statements of future periods. Conversion and Currency When converting natural gas to equivalent barrels of oil within this
discussion, Pengrowth has adopted the international standard of six
thousand cubic feet (mcf) to one barrel of oil equivalent (boe). All
amounts are stated in Canadian dollars unless otherwise specified. 42   Pengrowth Energy Trust · 2003 annual report




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##### Table of Contents



(CHARTS) Year 2003 Overview Record high commodity prices in 2003, partially offset by a decline in the
U.S. dollar relative to the Canadian dollar and increased production from
the acquisition of producing properties in British Columbia in the fourth
quarter of 2002, contributed to the strong performance by Pengrowth Energy
Trust in 2003. Highlights  
    
    Oil and gas sales increased by 42 percent to a record $683 million in 2003 from $482 million in 2002.
    
    Production increased by 12 percent to 49,033 boe per day in 2003 compared to 43,785 boe per day in 2002.
    
    Pengrowths average realized commodity price increased by 26 percent
to $38.15 per boe in 2003, the highest average realized price per boe in
the history of the Trust.
    
    On April 23, 2003 Pengrowth closed a US$200 million private debt
placement, issuing U.S. $150 million 7-year and U.S. $50 million 10-year
term notes at an average interest rate of 5.07 percent. As a result of
the increase in the Canadian dollar relative to the U.S. dollar since
April 2003, Pengrowth recorded an unrealized foreign exchange gain of
$31 million on $U.S.-denominated debt.
    
    During 2003 Pengrowth strengthened its financial position. Long-term
debt was reduced to $259 million at the end of 2003 compared to $317
million at year-end 2002. The long-term debt to debt-plus-equity ratio
was a conservative 0.2 times, and Pengrowth had $64 million of cash on the balance sheet at year-end.
    
    On July 23, Pengrowth closed a public offering of 8.5 million trust
units at $16.95 per unit to raise gross proceeds of $144 million (net
equity proceeds of $136 million). These proceeds more than funded total
acquisitions in the year of $123 million. Pengrowth Energy Trust · 2003 annual report   43




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(CHARTS AND STAFF PICTURE)  
    
    During 2003 Pengrowth acquired an 8.4 percent interest in the Sable
Energy Offshore Project (SOEP) onshore and offshore facilities, certain
significant discovery licences and converted its royalty interest into
an 8.4 percent working interest in SOEP for a total purchase price of
$127 million net of adjustments. As a result of these transactions,
Pengrowth has eliminated the requirement to pay third-party processing
fees for the SOEP facilities, which were approximately $30 million per
year, prior to acquisition.
    
    Operating costs increased marginally to $8.33 per boe in 2003 from
$8.12 per boe in 2002, as a result of increasing costs in the industry,
offset in part by reduced processing fees at SOEP following our
acquisition of an interest in the SOEP onshore facilities in May 2003.
    
    Pengrowth spent a total of $85.7 million on development projects in
2003. These expenditures were funded through the 10 percent holdback
from distributions which commenced in January 2003, and equity proceeds
received from the distribution reinvestment plan (DRIP) and the trust
unit option and rights incentive plans.
    
    Net income increased to $189 million in 2003 from $57 million in
2002. Included in 2003 net income is an unrealized foreign exchange gain
of $31 million.
    
    Cash distributions to unitholders totaled $313 million or $2.68 per
trust unit, an increase of 29 percent from the $2.07 per unit paid to
unitholders in 2002.
    
    Year-end proved plus probable (P50) reserves declined by 30.4 million
boe as compared to the established reserves reported at year-end 2002
including 17.9 million boe attributable to production and revisions as
announced in a News Release on February 2, 2004. 44   Pengrowth Energy Trust · 2003 annual report




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Financial and Operating Highlights (thousands, except per unit amounts)
    
    Three Months ended December 31
    
    Twelve Months ended December 31%
    
    
    
    
    
    
    
    
    
    %2003
    
    2002
    
    Change
    
    2003
    
    2002
    
    ChangeIncome StatementOil and gas sales
    
    $
    152,077
    
    
    $
    167,918
    
    
    
    (9
    )
    
    $
    682,795
    
    
    $
    482,301
    
    
    
    42Net income
    
    $
    37,355
    
    
    $
    25,873
    
    
    
    44
    
    
    $
    189,297
    
    
    $
    56,955
    
    
    
    232Net income per unit
    
    $
    0.31
    
    
    $
    0.25
    
    
    
    24
    
    
    $
    1.63
    
    
    $
    0.63
    
    
    
    159Distributable cash (1)
    
    $
    71,469
    
    
    $
    67,060
    
    
    
    7
    
    
    $
    313,415
    
    
    $
    194,458
    
    
    
    61Actual distributions paid
or declared per unit
    
    $
    0.63
    
    
    $
    0.60
    
    
    
    5
    
    
    $
    2.68
    
    
    $
    2.07
    
    
    
    29Weighted average number of
trust units outstanding
    
    
    122,326
    
    
    
    102,209
    
    
    
    20
    
    
    
    115,912
    
    
    
    89,923
    
    
    
    29Balance SheetWorking capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12,966
    
    
    $
    (36,568
    )
    
    
    135Property, plant and
equipment and other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,530,359
    
    
    $
    1,493,047
    
    
    
    2Long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    259,300
    
    
    $
    316,501
    
    
    
    (18
    )Unitholders equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,159,433
    
    
    $
    1,073,164
    
    
    
    8Unitholders equity per unit
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9.36
    
    
    $
    9.71
    
    
    
    (4
    )Number of units outstanding
at year-end
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123,874
    
    
    
    110,562
    
    
    
    12Daily ProductionCrude oil (barrels)
    
    
    22,193
    
    
    
    25,358
    
    
    
    (12
    )
    
    
    23,337
    
    
    
    19,914
    
    
    
    17Natural gas (thousands
of cubic feet)
    
    
    117,315
    
    
    
    127,391
    
    
    
    (8
    )
    
    
    119,842
    
    
    
    111,713
    
    
    
    7Natural gas liquids (barrels)
    
    
    5,907
    
    
    
    5,664
    
    
    
    4
    
    
    
    5,722
    
    
    
    5,252
    
    
    
    9Total production (boe) (6:1)
    
    
    47,653
    
    
    
    52,253
    
    
    
    (9
    )
    
    
    49,033
    
    
    
    43,785
    
    
    
    12Change in production
(year over year) (%)
    
    
    (9
    )
    
    
    18
    
    
    
    
    
    
    
    12
    
    
    
    9Production Profile
(6:1 conversion) (%)Crude oil
    
    
    47
    
    
    
    48
    
    
    
    
    
    
    
    47
    
    
    
    45Natural gas
    
    
    41
    
    
    
    41
    
    
    
    
    
    
    
    41
    
    
    
    43Natural gas liquids
    
    
    12
    
    
    
    11
    
    
    
    
    
    
    
    12
    
    
    
    12Average PricesCrude oil (per barrel)
    
    $
    38.08
    
    
    $
    39.91
    
    
    
    (5
    )
    
    $
    40.64
    
    
    $
    38.06
    
    
    
    7Natural gas (per mcf)
    
    $
    5.36
    
    
    $
    5.16
    
    
    
    4
    
    
    $
    6.21
    
    
    $
    3.85
    
    
    
    61Natural gas liquids
(per barrel)
    
    $
    35.45
    
    
    $
    30.78
    
    
    
    15
    
    
    $
    35.46
    
    
    $
    28.11
    
    
    
    26Average price per boe (6:1)
    
    $
    34.69
    
    
    $
    34.93
    
    
    
    (1
    )
    
    $
    38.15
    
    
    $
    30.18
    
    
    
    26Proved plus Probable
(P50) Reserves (2)Crude oil (mbbls)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,360
    
    
    
    106,738
    
    
    
    (9
    )Natural gas (bcf)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    412.8
    
    
    
    502.3
    
    
    
    (18
    )Natural gas liquids (mbbls)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,250
    
    
    
    24,354
    
    
    
    (25
    )Total oil equivalent (mboe)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    184,416
    
    
    
    214,814
    
    
    
    (14
    )
 (1) See Note 4 to the Financial Statements.
(2) For 2002, Reserves were Established Reserves which are equivalent to Proved Plus Probable (P50) Reserves as reported in 2003. Pengrowth Energy Trust · 2003 annual report   45




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(CHART AND PICTURES) Results Of Operations Production Average daily production increased by 12 percent to 49,033 boe per day in
2003 compared to 43,785 boe per day in 2002. This increase is mainly
attributable to the acquisition of Calpine Canadas British Columbia
properties on October 1, 2002 and development activities at some other
Pengrowth properties which partially offset normal production declines. The
2003 fourth-quarter production of 47,653 boe per day was 9 percent lower
than 2002 fourth quarter production of 52,253 boe per day, reflecting the
production decline over this period, offset in part by development
activities and minor acquisition volumes. Production from the SOEP Alma
field, which came onstream at the end of November 2003, and incremental gas
volumes from new wells drilled at Cessford and Dunvegan near year-end 2003,
should have a positive impact on first-quarter 2004 production. At this
time, Pengrowth is forecasting average 2004 production of approximately
44,000 to 45,000 boe per day from our existing properties. 46   Pengrowth Energy Trust    2003 annual report




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##### Table of Contents



(CHART) Daily Production Volumes 2003
    
    2002
    
    % ChangeCrude oil (bbl)
    
    
    23,337
    
    
    
    19,914
    
    
    
    17Natural gas (mcf)
    
    
    119,842
    
    
    
    111,713
    
    
    
    7Natural gas liquids (bbl)
    
    
    5,722
    
    
    
    5,252
    
    
    
    9Total daily sales volumes (boe)
    
    
    49,033
    
    
    
    43,785
    
    
    
    12
 Pricing and Commodity Price Hedging The increase in U.S.-based prices for North American crude oil and natural
gas were partially offset by the negative impact of the rising Canadian
dollar relative to the U.S. dollar. Pengrowths average realized commodity
price for 2003 was the highest for any year since the inception of the
Trust. Benchmark Pricing 2003
    
    2002
    
    % ChangeWTI crude oil ($ U.S./bbl)
    
    $
    30.99
    
    
    $
    26.08
    
    
    
    19AECO (monthly) natural gas ($/mcf)
    
    $
    6.70
    
    
    $
    4.07
    
    
    
    65NYMEX (HH close) natural gas
($U.S./mmbtu)
    
    $
    5.39
    
    
    $
    3.22
    
    
    
    67Currency ($Cdn/$U.S.)
    
    $
    0.7136
    
    
    $
    0.6368
    
    
    
    12
 Pengrowth Energy Trust    2003 annual report   47




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Pengrowths Average Realized Prices
(Adjusted for Hedging) 2003
    
    2002
    
    % ChangeCrude oil ($/bbl)
    
    $
    40.64
    
    
    $
    38.06
    
    
    
    7Natural gas ($/mcf)
    
    $
    6.21
    
    
    $
    3.85
    
    
    
    61Natural gas liquids ($/bbl)
    
    $
    35.46
    
    
    $
    28.11
    
    
    
    26Total oil and gas sales ($/boe)
    
    $
    38.15
    
    
    $
    30.18
    
    
    
    26
 Pengrowths average crude oil price increased by 7 percent in 2003 to
$40.64 per barrel compared to $38.06 per barrel in 2002. Although the 2003
average WTI benchmark crude price increased by 19 percent to $31.02 per
barrel in 2003, much of this increase was offset by the decline in the U.S.
dollar relative to the Canadian dollar. In 2003 Pengrowth had 10,838 barrels per day, or 46 percent of crude oil
production hedged at an average price of Cdn $41.41 per barrel. Pengrowths
hedging program resulted in a total hedging loss on crude oil for the year
of $7.8 million or $0.92 per barrel, compared to a loss of $6.1 million or
$0.83 per barrel in 2002. Pengrowths average natural gas price increased by 61 percent from $3.85
per mcf in 2002 to $6.21 per mcf in 2003. In comparison, the average AECO
and NYMEX benchmark gas prices increased by 65 percent and 67 percent
respectively. Pengrowth sold a total of 30.4 mmcf per day or approximately 26 percent of
2003 natural gas production under fixed price or financial swap contracts
at an average price of $6.60 per mcf. The Trust realized a net hedging loss
of $16.0 million, or $0.37 per mcf in 2003, compared to a net loss of $1.8
million or $0.04 per mcf in 2002. Pengrowths average price for natural gas liquids (NGLs) increased by 26
percent to $35.46 in 2003 compared to $28.11 in 2002. Approximately
one-third of Pengrowths NGL production is condensate and pentane for which
market prices are impacted more by the price of crude. Prices for propane,
butane and ethane, which comprise the balance of Pengrowths NGLs, track
natural gas prices more closely. Oil and Gas Sales
Oil and Gas Sales ($ millions)
    
    2003
    
    2002
    
    % ChangeCrude oil
    
    $
    346.2
    
    
    $
    276.6
    
    
    
    25Natural gas
    
    
    271.6
    
    
    
    156.9
    
    
    
    73Natural gas liquids
    
    
    74.1
    
    
    
    53.9
    
    
    
    37Less: gross overriding royalties
    
    
    (11.7
    )
    
    
    (8.2
    )
    
    
    43Gas marketing and brokering income, sulphur
    
    
    2.6
    
    
    
    3.1
    
    
    
    (16
    )Total oil and gas sales
    
    $
    682.8
    
    
    $
    482.3
    
    
    
    42
 48   Pengrowth Energy Trust    2003 annual report




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As a result of the 12 percent increase in production volumes and the 26
percent increase in the average realized price per boe, as previously
discussed, Pengrowths total oil and gas sales reported in 2003 increased
by 42 percent to $682.8 million. The following table illustrates in detail
the effect of changes in prices and volumes on the components of oil and
gas sales. Oil and Gas Sales  Price and Volume Analysis ($ millions)
    
    Oil
    
    Gas
    
    NGL
    
    GORR
    
    Other
    
    TotalYear ended December 31, 2002
    
    $
    276.6
    
    
    $
    156.9
    
    
    $
    53.9
    
    
    $
    (8.2
    )
    
    $
    3.1
    
    
    $
    482.3Effect of increase in sales volumes
    
    
    47.6
    
    
    
    11.4
    
    
    
    4.8
    
    
    
    
    
    
    
    
    
    
    
    63.8Effect of increase in product prices
    
    
    22.0
    
    
    
    103.3
    
    
    
    15.4
    
    
    
    
    
    
    
    
    
    
    
    140.7Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3.5
    )
    
    
    (0.5
    )
    
    
    (4.0
    )Year end December 31, 2003
    
    $
    346.2
    
    
    $
    271.6
    
    
    $
    74.1
    
    
    $
    (11.7
    )
    
    $
    2.6
    
    
    $
    682.8
 Royalties Crown royalties, net of incentives and freehold royalties and mineral taxes
increased to $114.9 million in 2003 from $80.6 million in 2002. Royalties
as a percentage of oil and gas sales were consistent with 2002 at 17
percent. Although the effective royalty rate was somewhat higher for most
properties in 2003 due to higher commodity prices, particularly natural
gas, this increase was offset by increased injection credits at Judy Creek
as a result of higher miscible flood injection costs. Operating Expenses Operating expenses increased to $149.0 million in 2003 compared to $129.8
million in 2002, mainly as a result of the British Columbia properties
acquired in the fourth quarter of 2002. This was somewhat offset by a
reduction of SOEP processing fees, following the acquisition of an interest
in the facilities downstream of the Thebaud Central Platform in May 2003. Operating costs per boe increased by 3 percent to $8.33 per boe compared to
$8.12 per boe in 2002. Higher electricity rates in 2003, an increase
in CO2
costs at Weyburn, general cost increases in the industry, and production
declines contributed to higher operating costs per boe in 2003. This was
despite cost savings on processing fees of approximately $9.5 million
realized as a result of the purchase of the SOEP onshore facilities. The
2003 fourth-quarter operating costs were $3.0 million lower than the fourth
quarter of 2002, due to the reduction of SOEP processing fees in 2003 and
some additional costs incurred in the last quarter of 2002. Fourth-quarter
2003 operating expenses were $3.2 million higher than the third quarter of
2003, due to a number of factors including additional well workover costs
on operated properties, prior period adjustments billed by other operators
on non-operated properties, and lower casinghead revenues (which is netted
against operating expenses at Judy Creek). At this time, based on our current property portfolio, Pengrowths total
operating costs are expected to decline by approximately $10-$15 million in
2004. This reduction is anticipated as a result of decreased processing
fees at SOEP due to the purchase of the SOEP offshore facilities at the end
of December 2003, and the SOEP on-shore facilities in May 2003, offset in
part by Pengrowth Energy Trust    2003 annual report   49




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higher costs at some of our other properties and general cost increases.
If we continue to see strong market prices for commodities, there is
likely to be continued upward pressure on operating costs, due to factors
such as increased demand for skilled industry workers as companies expand
exploration and development projects, higher fuel costs and higher
electricity rates. In order to help mitigate the risk of higher
electricity rates, Pengrowth has fixed the price on approximately 20
percent of our estimated electricity requirements at operated properties
in 2004. Amortization of Injectants for Miscible Floods The cost of injectants (primarily ethane and methane) purchased for
injection in miscible flood programs is amortized over the period of
expected future economic benefit, which is estimated at 30 months. In 2003,
the total cost of products purchased for reinjection increased to $23.0
million in 2003 from $15.1 million in 2002. Pengrowth amortized and
deducted $32.5 million of injectant costs from distributable cash in 2003
(2002  $44.3 million). As at December 31, 2003 Pengrowth had deferred
injectant costs of $24.3 million which will be amortized and charged
against distributable cash of future periods. The value of Pengrowths proprietary injectants is not recorded until
reproduced from the flood and sold, although the cost of producing these
products for reinjection is included in operating costs. Total injectant
costs are expected to increase in 2004 due to higher forecasted prices for
natural gas and ethane and increased activity at the Swan Hills flood. The
amount of injectants amortized against distributable cash is expected to
decline in 2004 as the deferred portion of prior years costs has declined. Interest Pengrowths average long-term debt was marginally lower in 2003 compared to
2002. However, interest expense increased to $18.2 million in 2003 from
$15.2 million in 2002, reflecting a higher average interest rate on the
term debt issued in 2003 compared to floating rates on bank debt in 2002.
Included in interest expense in 2003 is $2.2 million related to the
cancellation of interest rate swaps after all of Pengrowths floating rate
debt was either replaced with fixed-rate term debt in April 2003, or repaid
with the July 2003 equity proceeds. The average interest rate on all of Pengrowths long-term debt outstanding
at December 31, 2003 is 5.07 percent and is payable in U.S. dollars and
therefore subject to fluctuations in the exchange rate. The Note Payable is
non-interest bearing. Foreign Currency Gains and Losses Pengrowth recorded a net foreign exchange gain of $29.9 million in 2003
compared to a foreign exchange loss of $0.2 million
in 2002. Included in the 2003 net gain of $29.9 million is $30.9 million of
unrealized foreign exchange gain related to the U.S. dollar-denominated
debt. This arises as a result of the increase in the Canadian dollar since
the debt was issued in April 2003, from a rate of approximately $0.69 to
$0.77 at year-end. The balance, a foreign exchange loss of $1.0 million,
relates mainly to U.S. dollar-denominated natural gas sales from SOEP.
Pengrowth 50   Pengrowth Energy Trust · 2003 annual report




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has hedged the exchange rate on a portion of these U.S.-denominated gas
sales. Revenues are recorded at the average exchange rate for the
production month in which they accrue, with payment being received on or
about the 25th of the month following production. As a result of the
increase in the Canadian dollar relative to the U.S. dollar over the course
of the year, a foreign exchange loss was recorded to the extent of the
differential between the average exchange rate for the month of production
and the exchange rate at the date the payments were received on unhedged
gas sales. General and Administrative General and administrative expenses (G&A) increased to $16.0 million ($0.89
per boe) from $11.0 million ($0.69 per boe) in 2002. G&A costs have
increased in 2003 due to a number of factors including an increase in
office rent and staffing levels following the acquisition of Calpines
British Columbia properties in October 2002, and additional costs of
administering an expanding unitholder base. Legal and regulatory costs have
also increased as a result of listing on the New York Stock Exchange in the
second quarter of 2002 and recent changes to regulatory requirements
arising from the Sarbanes-Oxley Act and similar new or proposed legislation
in Canada. Included in 2003 G&A is $0.2 million in non-cash compensation
expense related to the estimated fair value of trust unit rights granted in
2003. (See Note 3 and Note 11 to the Financial Statements for details). Management Fees Management fees paid to Pengrowth Management Limited (the Manager)
increased to $10.2 million in 2003 from $6.6 million in 2002. Although the
management fee rate decreased effective July 1, 2003 there is an increase
in total management fees due to the growth in the size of the business and
net operating income as management fees are calculated on a percentage of
net operating income (oil and gas sales and other income, less royalties,
operating costs, solvent amortization and reclamation funding). A new management agreement, which was approved at the annual general
meeting on June 17, 2003 was effective July 1, 2003. Under the terms of
this agreement, the base fee has been reduced from a sliding scale between
3.5 percent and 2.5 percent, to 2 percent on the first $200 million of net
operating income and 1 percent on net operating income over $200 million
for the first three-year term; acquisition fees have been eliminated, and
the manager will receive a performance fee if certain performance
criteria are met  in particular should returns exceed 8 percent per annum on
a three-year rolling-average basis. The maximum fees, including the
performance fee, is limited to 80 percent of the fees that would otherwise
have been paid under the old management agreement (including acquisition
fees) for the first three years, and 60 percent for the second three years.
Management fees for 2003 include a performance fee of $520,000, which
represents 80 percent of the amount that would have been earned as an
acquisition fee under the old agreement, and together with the base fee
for the second half of 2003, is equivalent to 80 percent of total fees that
would have been earned by the Manager for that period. Pengrowth Energy Trust    2003 annual report   51




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Related Party Transactions Details of related party transactions incurred in 2003 and 2002 are
provided in Note 16 to the financial statements. These transactions include
the Management fees paid to the Manager, as discussed in the preceding
paragraphs. The Manager is controlled by James S. Kinnear, the Chairman,
President and Chief Executive officer of Pengrowth Corporation. As
discussed above, the management fees paid to the Manager are pursuant to a
management agreement which has been approved by the Trust unitholders. Mr.
Kinnear is not entitled to receive any salary or bonus in his capacity as a
director and officer of Pengrowth Corporation. Related party transactions in 2003 also include $675,692 paid to a firm
controlled by the Corporate Secretary of Pengrowth Corporation, Mr. Charles
V. Selby. These fees are paid in respect of legal and advisory services
provided by the Corporate Secretary. Taxes In determining its taxable income, Pengrowth Corporation deducts royalty
payments to unitholders and historically, this has been sufficient to
reduce taxable income to nil. The recent change to Pengrowths distribution
approach, whereby approximately 10 percent of funds available for
distribution are withheld to fund future capital expenditures, could result
in taxable income in the Corporation in the future. However, there are at
present sufficient tax pools available in the Corporation to offset the
expected level of income to be retained. Capital taxes of
$1.8 million in 2003 (2002  $0.5 million) consists of
Federal Large Corporations Tax (LCT) of $0.6 million and $1.2 million
Saskatchewan Capital Tax and Resource Surcharge. Included in the amount
recorded in 2002 is a LCT recovery of $1.3 million related to prior year
reassessments. Under new federal tax legislation passed in 2003 and
commencing in 2004, the taxable capital threshold will increase to $50
million and the LCT rate will gradually decline and be eliminated
completely by 2008. Depletion and Depreciation Depletion and depreciation of property, plant and equipment and other
assets is provided on the unit-of-production method based on total proved
reserves. The provision for depletion and depreciation increased by 32
percent in 2003 to $185.3 million from $140.8 million in 2002 due to a
larger depletable asset base and higher depletion rate (production as a
percentage of total proved reserves). On a unit-of-production basis,
depletion increased by 17 percent to $10.35 per boe in 2003 from $8.81 per
boe in 2002. The retroactive application of the new accounting policy for
asset retirement obligations required restatement of prior periods and this
resulted in an increase in the 2002 depletion and depreciation rate to
$8.81 per boe from $8.69 per boe. The increase in the per boe depletion
amount in 2003 reflects the acquisition of the SOEP facilities in 2003
without any associated reserves. With respect to the fourth-quarter
depletion provision, the increase also reflects the reduction in total
proved reserves recognized at year-end, which increases the depletion rate. 52   Pengrowth Energy Trust    2003 annual report




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##### Table of Contents



Ceiling Test In 2003 Pengrowth adopted AcG-16 Oil and Gas Accounting  Full Cost a new
CICA guideline which replaces AcG-5 Full Cost Accounting in the Oil and
Gas Industry. AcG-16 includes changes to the way the ceiling test must be
calculated, the details of which are provided in Note 2 to the financial
statements. Implementation of this guideline had no impact on Pengrowths
2003 financial results. Asset Retirement Obligations In 2003, the CICA issued Section 3110, Asset Retirement Obligations which
harmonizes Canadian GAAP requirements with the corresponding U.S. GAAP
requirements under SFAS 143. Under these standards, the fair value of a
liability for asset retirement obligations must be recognized in the period
in which it is incurred, and a corresponding asset retirement cost is to be
added to the carrying amount of the related asset. The new Canadian
standard is effective for fiscal years beginning on or after January 1,
2004 with earlier adoption encouraged. Pengrowth has elected to implement
this standard in 2003. As a result of implementation, the liability for
future site restoration costs (now called asset retirement obligations
under the new standard) increased by $41 million and property, plant and
equipment net of accumulated depletion increased by $70 million as at
December 31, 2003. Opening 2003 unitholders equity increased by $19
million to reflect the cumulative impact of accretion and depletion
expense, net of the cumulative change to the site restoration provision. Under the previous accounting method for future site restoration costs, the
provision for future site restoration costs was made over the life of the
oil and gas properties and facilities using the unit-of-production method.
Accretion, as recorded under the new Section 3110, represents the change in
the discounted value of the liability due to the passage of time. Remediation Trust Funds and Remediation and Abandonment Expenses Pursuant to the purchase of the Judy Creek and Swan Hills properties from
Imperial Oil Resources in 1997, Pengrowth established a trust fund to fund
certain obligations of these properties. Following the acquisition of a
working interest in the SOEP facilities in 2003, Pengrowth has also
contributed to a trust fund in respect to the future remediation costs of
these facilities. Pengrowth takes a proactive approach to managing its well abandonment and
site restoration obligations on operated properties. Operations personnel
have completed a detailed analysis of expected future site restoration and
abandonment costs for all of the major operated properties. Pengrowth
expects to spend approximately $6 million per year over the next 10 years
on remediation and abandonment expenses at operated properties. Netbacks Pengrowth recorded an operating netback of $22.17 per boe in 2003 compared
to $14.70 in 2002, mainly due to higher average commodity prices in 2003.
For the fourth quarter of 2003 the operating netback of $20.43 was higher
than the fourth quarter of 2002, mainly due to lower royalties and
amortization of injectants. Pengrowth Energy Trust    2003 annual report   53




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##### Table of Contents



Operating Netback per Boe Three months
    
    Year endedended December 31
    
    December 31,2003
    
    2002
    
    2003
    
    2002Oil and gas sales
    
    $
    34.69
    
    
    $
    34.93
    
    
    $
    38.15
    
    
    $
    30.18Crown and freehold royalties
    
    
    (4.60
    )
    
    
    (7.05
    )
    
    
    (6.42
    )
    
    
    (5.04
    )Other income
    
    
    0.63
    
    
    
    0.48
    
    
    
    0.59
    
    
    
    0.45Operating costs
    
    
    (8.91
    )
    
    
    (8.74
    )
    
    
    (8.33
    )
    
    
    (8.12
    )Amortization of injectants
    
    
    (1.38
    )
    
    
    (2.12
    )
    
    
    (1.82
    )
    
    
    (2.77
    )Operating netback
    
    $
    20.43
    
    
    $
    17.50
    
    
    $
    22.17
    
    
    $
    14.70
 Distributions and Taxability of Distributions Pengrowth paid $313.4 million ($2.68 per unit) in distributions related to
2003 cash flow, compared to $194.5 million ($2.07 per unit) in 2002. This
equates to 88 percent of funds generated from operations, compared to 85
percent in 2002. Commencing with the January 15, 2003 distribution to unitholders,
approximately 10 percent of cash available for distribution has been
withheld to fund capital expenditures as well as to stabilize monthly
distributions. Subject to a limit of 20 percent of gross revenues, as
approved by unitholders at the 2002 annual general meeting, the Board of
Directors may decide to increase (or decrease) the amount withheld in the
future, depending on a number of factors. These include future commodity
prices, capital expenditures requirements, and the availability of debt and
equity capital. Cash distributions are paid to unitholders on the 15th of the second month
following the month of production. Pengrowth paid $2.66 per unit as cash
distributions during the 2003 calendar year. For Canadian tax purposes
55.23 percent of these distributions or $1.4692 per unit is taxable income
to unitholders for the 2003 tax year. The remaining 44.77 percent or
$1.1908 per unit is a tax-deferred return of capital which will reduce the
unitholders cost base of the unit for purposes of calculating a capital
gain or loss upon ultimate disposition of the trust units. At December 31, 2003 the Trust had unused tax deductions of $10.13 per unit
(2002  $10.64 per unit). At this time, Pengrowth anticipates that
approximately 55 to 60 percent of 2004 distributions will be taxable; this
estimate is subject to change depending on a number of factors including,
but not limited to, the level of commodity prices, acquisitions,
dispositions, and new equity offerings. Non-Resident Ownership Pengrowths ability to continue to qualify as a mutual fund trust is
dependent on both the interpretation of the Income Tax Act(Canada) and its
level of foreign ownership. The latest ownership report received by
Pengrowth dated effective January 31, 2004 indicated that foreign ownership
of trust units was less than but approaching 50 percent. The level of
foreign ownership of Pengrowth trust units has increased steadily since
trust units were listed on the 54   Pengrowth Energy Trust    2003 annual report




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##### Table of Contents



New York Stock Exchange during April 2002 and following the cross-border
equity offering of Pengrowth trust units completed in November 2002.
Unitholder approval will be sought at Pengrowths Annual General Meeting
for amendments to Pengrowths trust indenture and other constating
documents that will enable the trust to manage foreign ownership levels and
continue to maintain the trust primarily for the benefit of Canadian
residents while encouraging orderly markets for trust units in Canada and
the United States. Acquisitions and Dispositions On May 8, 2003 Pengrowth acquired an 8.4 percent working interest in the
SOEP natural gas processing facilities downstream of the Thebaud Central
Processing Platform for a net purchase price of $57 million. On December
31, 2003 Pengrowth acquired an 8.4 percent working interest in the SOEP
offshore platforms and associated sub-sea field gathering lines from Emera
Offshore Incorporated (Emera) and exchanged the royalty interest previously
held for a working interest in the SOEP reserves, for a total purchase
price of $65 million. As a result of these two transactions, Pengrowth now
holds an 8.4 percent working interest in the entire SOEP project. In
addition, in June of 2003 Pengrowth acquired interests in 11 significant
discovery licenses (SDLs) related to potential future offshore Nova Scotia
resources, for $4.5 million. Capital Expenditures Pengrowth spent $85.7 million in capital expenditures in 2003 compared to
$55.6 million in 2002. In 2004, Pengrowth expects to spend approximately
$135 million on development opportunities at our existing properties. The
majority of this will be spent at Judy Creek, Monogram and SOEP. Capital Expenditures Year ended December 31
    
    2003
    
    2002($ millions)
    
    Development
    
    
    
    
    
    Total Capital
    
    Total CapitalProperty
    
    Drilling
    
    Facilities
    
    Expenditures
    
    ExpendituresJudy Creek
    
    $
    20.3
    
    
    $
    1.2
    
    
    $
    21.5
    
    
    $
    20.8SOEP
    
    
    13.7
    
    
    
    1.3
    
    
    
    15.0
    
    
    
    14.2Weyburn
    
    
    5.4
    
    
    
    3.3
    
    
    
    8.7
    
    
    
    2.2Cessford
    
    
    6.2
    
    
    
    1.0
    
    
    
    7.2
    
    
    
    Oak
    
    
    4.1
    
    
    
    2.0
    
    
    
    6.1
    
    
    
    0.1McLeod River
    
    
    5.6
    
    
    
    0.4
    
    
    
    6.0
    
    
    
    5.1House Mountain
    
    
    2.7
    
    
    
    0.1
    
    
    
    2.8
    
    
    
    1.7Elm
    
    
    2.4
    
    
    
    
    
    
    
    2.4
    
    
    
    Tupper
    
    
    1.7
    
    
    
    0.1
    
    
    
    1.8
    
    
    
    Other
    
    
    9.9
    
    
    
    4.3
    
    
    
    14.2
    
    
    
    11.5Total
    
    $
    72.0
    
    
    $
    13.7
    
    
    $
    85.7
    
    
    $
    55.6
 Pengrowth Energy Trust    2003 annual report   55




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##### Table of Contents



Review of Development Activities Operated Properties At Judy Creek, 2003 development activity included four producing oil wells,
two vertical water injection wells, one horizontal miscible injection well
and two shallow gas wells. The 2004 development plan for Judy Creek
includes four horizontal miscible injection wells, up to three oil wells in
Judy A Pool, and up to three shallow gas wells. At McLeod River, Pengrowth drilled a total of eight (4.9 net) wells in
2003three of which are producing natural gas wells, one is awaiting
tie-in, and the remaining four are currently under evaluation. The 2004
development plan at McLeod River includes 13 (7.2 net) new natural gas
wells. In 2003, Pengrowth drilled 10 (7.4 net) wells in northeast British
Columbia. In addition, Pengrowth completed 23 additional farm-out
transactions in 2003 on higher-risk development lands. These transactions
have resulted in 14 new wells drilled and commitments for the drilling of
13 additional wells in 2004. Pengrowth holds gross overriding royalty
interests in these farm-out landsranging from 0.5 to 15 percent.
Approximately $17 million of Pengrowths 2004 capital budget will target
further development opportunities at the British Columbia properties. Non-operated Properties At the Sable Offshore Energy Project (SOEP), where Pengrowth now holds an
8.4 percent working interest, the major milestone for 2003 was the
successful start-up of Alma, the first Tier II field. The Alma platform is
located in 67 metres of water and is connected to the SOEP Thebaud central
processing platform via a 52-kilometre sub-sea pipeline. The Alma field is
currently producing approximately 120 mmcf per day of natural gas and 3,000
barrels per day of condensate and natural gas liquids. With the addition of
Alma, average daily production from the SOEP is approximately 500 mmcf per
day of natural gas and 20,000 barrels per day of associated condensate and
natural gas liquids. Natural declines in production are expected to be
supplemented by production from South Venture when production starts in
late 2004 and the installation of compression in 2006/2007. SOEP activity for 2004 will be concentrated on the development of South
Venture, SOEP compression and future field development. At the Dunvegan Gas Unit, where Pengrowth holds a 7.98 percent working
interest, the operator drilled 13 successful gas wells during the latter
part of 2003. The wells are anticipated to commence production at an
average gross rate of 1.0 mmcf per day per well. Three wells from the 2003
program were carried over and were drilled in January and 14 existing
producers were also recompleted in 2003 with an average anticipated gross
incremental rate of 250 mcf per day per well. The operator plans to drill
an additional 24 wells and recomplete 12 existing producers in 2004. At the Monogram Gas Unit, where Pengrowth holds a 53.82 percent working
interest, 2004 plans include an extensive infill drilling program of
approximately 150 wells as well as facility upgrades such as line looping
and additional compression. 56   Pengrowth Energy Trust    2003 annual report




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##### Table of Contents



At Swan Hills Unit #1, three successful wells were drilled in the fourth
quarter of 2003 and up to five additional wells are planned for 2004. Other
major 2004 projects include a CO2 pilot and additional miscible pattern
development. Pengrowth has a 10.45 percent working interest in this unit. At the Weyburn Unit, where Pengrowth has a 9.75 percent working interest,
there are now 32 active CO2 patterns and the operator has proposed to
develop an additional 10 patterns in 2004. At Cessford, Pengrowth participated in a 73 well shallow gas program and
also drilled eight operated wells in the fourth quarter of 2003. Prior to
the infill program Pengrowths working-interest share of production was
approximately 650 mcf per day and production had tripled as of year-end.
Pengrowth holds a 60 percent working interest in the 73 non-operated wells
and an 87.5 percent working interest in the eight operated wells. Reserves Pengrowth is now required to comply with National Instrument 51-101, issued
by the Canadian Securities Administrators, in all its reserves-related
disclosures. NI 51-101 came into effect on September 30, 2003 and is
applicable for financial years ended on or after December 31, 2003. NI
51-101 brought about significant changes in which reporting issuers manage
and publicly disclose information relating to their oil and natural gas
reserves, mandates annual disclosure requirements and prescribes new
reserve definitions. Pengrowth reported year-end Proved plus Probable (P50) reserves of 184.4
million boe compared to 214.8 million boe of Established reserves reported
at year-end 2002. Most of the decline of 30.4 million boe relates to 2003
production of 17.9 million boe and year-end revisions to SOEP reserves, as
previously reported by Pengrowth in a news release on February 2, 2004.
Further details of Pengrowths 2003 year-end reserves are provided on pages
36-38 of this annual report. Financial Resources and Liquidity In 2003, Pengrowth continued its policy of maintaining a conservative
capital structure, capitalizing on opportunities to issue new equity when
appropriate, while maintaining a high distribution pay-out ratio to
unitholders. At year-end 2003, Pengrowth was in a strong financial
position, with long-term debt to long-term debt-plus-equity ratio of 18
percent. Pengrowth has $235 million in committed credit facilities which is
currently reduced by $22 million in letters of credit (reduced from $47
million outstanding at year-end 2003). With additional cash and term
deposits of $64 million, Pengrowth is well positioned to fund its 2004
development program of $135 million, and to take advantage of acquisition
opportunities as they arise. In 2003, Pengrowth raised a total of $210.2 million net proceeds from new
equity$136.3 million net equity proceeds from an equity issue in July,
with the balance coming from the employee trust unit option and trust unit
rights plans, and the distribution reinvestment plan. Pengrowth Energy Trust    2003 annual report   57




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##### Table of Contents



On March 4, 2004 Pengrowth entered into an agreement to sell 8.2 million
trust units at $18.40 per trust unit to raise gross proceeds of $150.9
million on a bought-deal basis. Pengrowth has granted the underwriters an
option to purchase up to an additional 2.7 million trust units at the same
offering price. Pengrowths long-term debt at December 31, 2003 was fixed-rate term debt
denominated in U.S. dollars and translated to $259 million. Due to the
increase in the $Cdn/$U.S. exchange rate in 2003, an unrealized gain of $31
million has been recorded since the U.S. dollar-denominated debt was issued
in April 2003. Pengrowths long-term debt decreased by $58 million in fiscal 2003 to $259
million at year-end 2003. The factors contributing to the change in
long-term debt are shown in the following table: Continuity of Long-term Debt ($ millions)
    
    2003
    
    2002Beginning balance, January 1
    
    $
    317
    
    
    $
    345Less: Cash provided by operating activities
    
    
    (347
    )
    
    
    (229
    )Net equity proceeds
    
    
    (210
    )
    
    
    (382
    )Note payable
    
    
    (45
    )
    
    
    Unrealized foreign exchange gain
    
    
    (31
    )
    
    
    Property dispositions
    
    
    (3
    )
    
    
    (43
    )Add: Distributions
    
    
    307
    
    
    
    171Property acquisitions
    
    
    123
    
    
    
    392Capital expenditures
    
    
    86
    
    
    
    56Increase in cash and term deposits
    
    
    56
    
    
    
    4Other
    
    
    6
    
    
    
    3Ending balance, December 31
    
    $
    259
    
    
    $
    317
 At December 31, 2003 Pengrowth also had a $45 million non-interest-bearing
note payable to Emera Offshore Incorporated related to installments due
upon the purchase of the SOEP offshore facilities from Emera on December
31, 2003. The terms of this note are provided in Note 9 to the financial
statements. At December 31, 2003 Pengrowth had cash and term deposits of $64 million,
which are available to fund future capital expenditures and/or future
acquisitions. Financial Leverage and Coverage 2003
    
    2002Distributable cash to interest expense (times)
    
    
    17
    
    
    
    12Long-term debt to distributable cash (times)
    
    
    0.8
    
    
    
    1.6Long-term debt to long-term debt-plus-equity (%)
    
    
    18
    
    
    
    23
 58   Pengrowth Energy Trust    2003 annual report




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##### Table of Contents



Commitments and Contractual Obligations Less than
    
    
    
    
    
    
    
    
    
    After($ thousands)
    
    Total
    
    1 year
    
    1-3 years
    
    4-5 years
    
    5 yearsLong-term
debt(1)
    
    $
    259,300
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    259,300Interest payments on
long-term debt(2)
    
    
    93,505
    
    
    
    13,134
    
    
    
    39,402
    
    
    
    26,268
    
    
    
    14,701Note payable
    
    
    45,000
    
    
    
    10,000
    
    
    
    35,000
    
    
    
    
    
    
    
    Operating leasesOffice rent
    
    
    1,679
    
    
    
    697
    
    
    
    982
    
    
    
    
    
    
    
    Vehicle leases
    
    
    1,966
    
    
    
    519
    
    
    
    1,282
    
    
    
    165
    
    
    
    3,645
    
    
    
    1,216
    
    
    
    2,264
    
    
    
    165
    
    
    
    Purchase obligationsPipeline transportation
    
    
    128,814
    
    
    
    24,041
    
    
    
    66,282
    
    
    
    37,915
    
    
    
    576Capital expenditures
    
    
    82,303
    
    
    
    46,242
    
    
    
    36,061
    
    
    
    
    
    
    
    CO2 purchases
    
    
    57,508
    
    
    
    5,372
    
    
    
    17,089
    
    
    
    9,341
    
    
    
    25,706Electricity commitment
    
    
    2,130
    
    
    
    2,130
    
    
    
    
    
    
    
    
    
    
    
    270,755
    
    
    
    77,785
    
    
    
    119,432
    
    
    
    47,256
    
    
    
    26,282Remediation trust
fund payments(3)
    
    
    1,250
    
    
    
    250
    
    
    
    750
    
    
    
    250
    
    
    
    Total
    
    $
    673,455
    
    
    $
    102,385
    
    
    $
    196,848
    
    
    $
    73,939
    
    
    $
    300,283
  (1)
    
    U.S. dollar-denominated debt due as follows: $150 million on April
2010 and $50 million on April 2013, translated at the December 31, 2003
foreign exchange rate of 0.7713 Cdn/U.S.(2)
    
    Interest payments on U.S.-denominated debt, calculated based on the
December 31, 2003 foreign exchange rate.(3)
    
    The annual remediation trust
fund payment of $250,000 has been assumed for the next five years based on
the current Judy Creek remediation trust fund agreement. The assets in the
Judy Creek remediation trust fund and the outstanding asset retirement
obligations are evaluated every five years. The contribution level beyond
2008 is not known. Risk Management Pengrowth uses forward and futures contracts to manage its exposure to
commodity price fluctuations. Commodity price hedges in place at December
31, 2003 are provided in Note 18 to the financial statements. Subsequent to
year-end, Pengrowth has entered into additional contracts and now has the
following volumes hedged for 2004: Crude Oil
    
    Eastern Natural GasVolume
    
    Average
    
    Volume
    
    Average(bbls/d)
    
    Price*
    
    (mcf/d)
    
    Price*(Cdn $/bbl)
    
    
    
    
    
    (Cdn $/mmbtu)2004
    
    
    9,500
    
    
    $
    38.11
    
    
    
    13,830
    
    
    $
    6.65
  *
    before transportation In addition, subsequent to year-end, Pengrowth has entered into an
agreement to purchase 5 megawatts of electricity from February 1, 2004 to
December 31, 2004 at a price of $53.00 per megawatt hour. This constitutes
approximately 20 percent of the electricity requirements of our operated
properties for the period. Pengrowth Energy Trust    2003 annual report   59




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##### Table of Contents



Trust Unit Information Volume
    
    ValueTrust Unit Trading  TSX
    
    High
    
    Low
    
    Close
    
    (000s)
    
    ($ millions)2003
    
    1st quarter
    
    $
    15.90
    
    
    $
    13.39
    
    
    $
    14.25
    
    
    
    20,122
    
    
    $
    297.62nd quarter
    
    
    18.22
    
    
    
    13.95
    
    
    
    17.25
    
    
    
    32,575
    
    
    
    519.03rd quarter
    
    
    17.87
    
    
    
    16.20
    
    
    
    17.25
    
    
    
    20,476
    
    
    
    349.54th quarter
    
    
    22.22
    
    
    
    16.75
    
    
    
    21.25
    
    
    
    24,220
    
    
    
    451.6Year
    
    $
    22.22
    
    
    $
    13.39
    
    
    $
    21.25
    
    
    
    97,393
    
    
    $
    1,617.72002
    
    1st quarter
    
    $
    16.23
    
    
    $
    13.25
    
    
    $
    16.13
    
    
    
    11,395
    
    
    $
    165.72nd quarter
    
    
    17.00
    
    
    
    14.60
    
    
    
    15.05
    
    
    
    12,588
    
    
    
    197.13rd quarter
    
    
    15.63
    
    
    
    13.01
    
    
    
    14.90
    
    
    
    9,367
    
    
    
    140.84th quarter
    
    
    14.99
    
    
    
    13.42
    
    
    
    14.73
    
    
    
    17,760
    
    
    
    250.1Year
    
    $
    17.00
    
    
    $
    13.01
    
    
    $
    14.73
    
    
    
    51,110
    
    
    $
    753.7
 Trust Unit Trading  NYSE
    
    
    
    
    
    
    
    
    
    
    
    
    
    Volume
    
    Value(listed on April 10, 2002) (in $US)
    
    High
    
    Low
    
    Close
    
    (000s)
    
    ($ millions)2003
    
    1st quarter
    
    $
    10.67
    
    
    $
    9.07
    
    
    $
    9.71
    
    
    
    8,168
    
    
    $
    80.82nd quarter
    
    
    13.80
    
    
    
    9.40
    
    
    
    12.83
    
    
    
    22,500
    
    
    
    271.13rd quarter
    
    
    13.13
    
    
    
    11.55
    
    
    
    12.81
    
    
    
    18,614
    
    
    
    230.24th quarter
    
    
    17.00
    
    
    
    12.50
    
    
    
    16.40
    
    
    
    24,721
    
    
    
    340.8Year
    
    $
    17.00
    
    
    $
    9.07
    
    
    $
    16.40
    
    
    
    74,003
    
    
    $
    922.92002
    
    2nd quarter
    
    $
    10.90
    
    
    $
    9.50
    
    
    $
    9.93
    
    
    
    1,784
    
    
    $
    18.13rd quarter
    
    
    10.25
    
    
    
    8.40
    
    
    
    9.37
    
    
    
    1,141
    
    
    
    11.04th quarter
    
    
    9.79
    
    
    
    8.50
    
    
    
    9.27
    
    
    
    6,747
    
    
    
    60.6Year
    
    $
    10.90
    
    
    $
    8.40
    
    
    $
    9.27
    
    
    
    9,672
    
    
    $
    89.7
 Pengrowth had 123,873,651 trust units outstanding at December 31, 2003,
compared to 110,562,327 trust units at December 31, 2002. The weighted
average number of units during the year was 115,912,374 (2002 
89,922,886). In 2003, Pengrowth raised a total of $210.2 million net proceeds from new
equity, issuing a total of 13.3 million additional trust units. On July 23,
2003 Pengrowth completed a public offering of 8.5 million units at $16.95
per unit to raise total gross proceeds of $144.1 million, and net proceeds
of $136.3 million. During 2003, Pengrowth issued 1.5 million units under
the DRIP plan at an average price of $15.31 per unit, raising additional
equity of $22.2 million. A further 3.4 million units were issued under the
employee trust unit option and rights plans, at an average price of $15.39
per trust unit, to raise an additional $51.7 million in new equity. 60   Pengrowth Energy Trust    2003 annual report




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Summary of Quarterly Results The following table is a summary of quarterly results for 2003 and 2002. As
this table illustrates, net income and distributable cash were impacted
positively by the acquisition of the British Columbia properties in the
fourth quarter of 2002. As Pengrowth did not make any significant
acquisitions in 2003, production declined to the fourth-quarter level of
approximately 48,000 boe per day. Natural production declines were
partially offset by Pengrowths 2003 development program on existing
properties. This table also shows the relatively high commodity prices sustained since
the first quarter of 2002, which have had a positive impact on net income
and distributable cash. 2003($ thousands)
    
    Q1
    
    Q2
    
    Q3
    
    Q4
    
    TotalOil and gas sales
    
    $
    202,801
    
    
    $
    167,222
    
    
    $
    160,695
    
    
    $
    152,077
    
    
    $
    682,795Net income
    
    $
    62,920
    
    
    $
    54,214
    
    
    $
    34,808
    
    
    $
    37,355
    
    
    $
    189,297Net income per unit
    
    $
    0.57
    
    
    $
    0.49
    
    
    $
    0.29
    
    
    $
    0.31
    
    
    $
    1.63Net income per unit  diluted
    
    $
    0.57
    
    
    $
    0.48
    
    
    $
    0.29
    
    
    $
    0.30
    
    
    $
    1.63Distributable cash(1)
    
    $
    97,221
    
    
    $
    71,774
    
    
    $
    72,951
    
    
    $
    71,469
    
    
    $
    313,415Actual distributions paid or
declared per unit
    
    $
    0.75
    
    
    $
    0.67
    
    
    $
    0.63
    
    
    $
    0.63
    
    
    $
    2.68Daily production (boe)
    
    
    50,827
    
    
    
    48,839
    
    
    
    48,850
    
    
    
    47,653
    
    
    
    49,033Average price per boe
    
    $
    44.33
    
    
    $
    37.63
    
    
    $
    35.76
    
    
    $
    34.69
    
    
    $
    38.15Operating netback per boe
    
    $
    26.48
    
    
    $
    21.11
    
    
    $
    20.54
    
    
    $
    20.43
    
    
    $
    22.17
 2002Q1
    
    Q2
    
    Q3
    
    Q4
    
    TotalOil and gas sales
    
    $
    91,634
    
    
    $
    111,544
    
    
    $
    111,205
    
    
    $
    167,918
    
    
    $
    482,301Net income
    
    $
    1,904
    
    
    $
    15,167
    
    
    $
    14,011
    
    
    $
    25,873
    
    
    $
    56,955Net income per unit
    
    $
    0.02
    
    
    $
    0.18
    
    
    $
    0.16
    
    
    $
    0.25
    
    
    $
    0.63Net income per unit  diluted
    
    $
    0.02
    
    
    $
    0.18
    
    
    $
    0.15
    
    
    $
    0.25
    
    
    $
    0.63Distributable cash(1)
    
    $
    33,118
    
    
    $
    48,141
    
    
    $
    46,139
    
    
    $
    67,060
    
    
    $
    194,458Actual distributions paid or
declared per unit
    
    $
    0.41
    
    
    $
    0.54
    
    
    $
    0.52
    
    
    $
    0.60
    
    
    $
    2.07Daily production (boe)
    
    
    41,859
    
    
    
    40,771
    
    
    
    40,203
    
    
    
    52,253
    
    
    
    43,785Average price per boe
    
    $
    24.32
    
    
    $
    30.06
    
    
    $
    30.07
    
    
    $
    34.93
    
    
    $
    30.18Operating netback per boe
    
    $
    10.71
    
    
    $
    15.34
    
    
    $
    14.57
    
    
    $
    17.50
    
    
    $
    14.70
  (1)
    
    See note 4 to the financial statements Pengrowth Energy Trust    2003 annual report   61




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Selected Annual Information Financial Results($ thousands)
    
    2003
    
    2002
    
    2001Oil and gas sales
    
    $
    682,795
    
    
    $
    482,301
    
    
    $
    469,929Net income
    
    $
    189,297
    
    
    $
    56,955
    
    
    $
    88,185Net income per unit
    
    $
    1.63
    
    
    $
    0.63
    
    
    $
    1.24Distributable cash(1)
    
    $
    313,415
    
    
    $
    194,458
    
    
    $
    215,787Actual distributions paid or declared per unit
    
    $
    2.68
    
    
    $
    2.07
    
    
    $
    3.01Total assets
    
    $
    1,673,718
    
    
    $
    1,552,651
    
    
    $
    1,270,208Long term financial liabilities(2)
    
    $
    294,300
    
    
    $
    316,501
    
    
    $
    345,456Trust unitholders equity
    
    $
    1,159,433
    
    
    $
    1,073,164
    
    
    $
    828,540Units outstanding at year-end (thousands)
    
    
    123,874
    
    
    
    110,562
    
    
    
    82,240
  (1)
    
    See note 4 to the financial statements(2)
    
    Long-term debt plus Note Payable (excluding current portion) Impact on Net Income of Change in Accounting Policies The implementation of new accounting policies in 2003 relating to
stock-based compensation and asset retirement obligations has resulted in
restatements of previously reported income. The restatements were required
under the provisions of the new accounting standards. The following table shows the impact of the new accounting policies on
annual net income for the years presented: ($ thousands)
    
    2003
    
    2002
    
    2001Net income before change
in accounting policies
    
    $
    180,204
    
    
    $
    49,067
    
    
    $
    85,150Increase (decrease) in net income:Stock-based compensation
    
    
    (189
    )
    
    
    
    
    
    
    Asset retirement obligations
    
    
    9,282
    
    
    
    7,888
    
    
    
    3,035Net income after change
in accounting policies
    
    $
    189,297
    
    
    $
    56,955
    
    
    $
    88,185
 The following table shows the impact of the new accounting policies on
quarterly net income for periods which have been presented for comparative
purposes: 2003($ thousands)
    
    Q1
    
    Q2
    
    Q3
    
    Q4Net income before change
in accounting policies(1)
    
    $
    61,050
    
    
    $
    52,435
    
    
    $
    33,025
    
    
    $
    33,694Increase (decrease) in net income:Stock-based compensation(2)
    
    
    (54
    )
    
    
    (12
    )
    
    
    (39
    )
    
    
    (84
    )Asset retirement obligations(3)
    
    
    1,924
    
    
    
    1,791
    
    
    
    1,822
    
    
    
    3,745Net income after change
in accounting policies
    
    $
    62,920
    
    
    $
    54,214
    
    
    $
    34,808
    
    
    $
    37,355
 62   Pengrowth Energy Trust    2003 annual report




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2002($ thousands)
    
    Q1
    
    Q2
    
    Q3
    
    Q4Net income before change
in accounting policies(1)
    
    $
    442
    
    
    $
    13,604
    
    
    $
    12,497
    
    
    $
    22,524Increase (decrease) in net income:Stock-based compensation(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset retirement obligations(3)
    
    
    1,462
    
    
    
    1,563
    
    
    
    1,514
    
    
    
    3,349Net income after change
in accounting policies
    
    $
    1,904
    
    
    $
    15,167
    
    
    $
    14,011
    
    
    $
    25,873
  (1)
    
    This represents net income as reported before retroactive restatement for
changes in accounting policies.(2)
    
    The new accounting policy for stock-based compensation was implemented in
the fourth quarter of 2003. The first
three quarters of 2003 have been restated as a result of this new policy.(3)
    
    The new accounting policy for asset retirement obligations was
implemented in the fourth quarter of 2003. This new standard required
retroactive application with restatement of all prior periods presented
for comparative purposes. Business Risks The amount of distributable cash available to unitholders and the value of
Pengrowth Energy Trust units are subject to numerous risk factors. As the
trust units allow investors to participate in the net cash flow from
Pengrowths portfolio of producing oil and natural gas properties, the
principal risk factors that are associated with the oil and gas business
include, but are not limited to, the following influences:  
    
    The prices of Pengrowths products (crude oil, natural gas and NGLs)
fluctuate due to many factors including local and global market supply
and demand, weather patterns, pipeline transportation and political
stability.
    
    The marketability of our production depends in part upon the
availability, proximity and capacity of gathering systems, pipelines and
processing facilities. Operational or economic factors may result in the
inability to deliver our products to market.
    
    Geological and operational risks affect the quantity and quality of
reserves and the costs of recovering those reserves. Our actual results
will vary from our reserve estimates and those variations could be
material.
    
    Government royalties, income taxes, commodity taxes, and other taxes,
levies and fees have a significant economic impact on Pengrowths
financial results. Changes to federal and provincial legislation
governing such royalties, taxes and fees could have a material impact on
Pengrowths financial results and the value of Pengrowth trust units.
    
    Environmental laws and regulatory initiatives impact Pengrowth
financially and operationally. We may incur substantial capital and
operating costs to comply with increasingly complex laws and regulations
covering the protection of the environment and human health and safety.
In particular, we may be required to incur significant costs to comply
with the 1997 Kyoto Protocol to the United Nations Framework Convention
on Climate Change.
    
    Pengrowths oil and gas reserves will be depleted over time and our
level of distributable cash and the value of our trust units could be
reduced if reserves and production are not replaced. The ability to
replace production depends on Pengrowths success in developing existing
reserves, acquiring new reserves and financing this development and
acquisition activity within the context of the capital markets. Pengrowth Energy Trust    2003 annual report   63




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##### Table of Contents




    
    A significant portion of our properties are operated by third
parties. If these operators fail to perform their duties properly or
become insolvent, we may experience interruptions in production and
revenues from these properties or incur additional liabilities and
expenses as a result of the default of these third party operators.
    
    Increased activity within the oil and gas sector can increase the
cost of goods and services and make it more difficult to hire and retain
professional staff.
    
    Changing interest rates influence borrowing costs and the
availability of capital.
    
    Investors interest in the oil and gas sector may change over time
which would affect the availability of capital and the value of
Pengrowth trust units.
    
    Inflation may result in escalating costs which could impact
unitholder distributions and the value of Pengrowth trust units.
    
    Canadian/ U.S. exchange rates influence revenues and, to a lesser
extent, operating and capital costs as well as reserve acquisition
costs.
    
    The value of Pengrowth trust units is impacted directly by the
related tax treatment of the trust units and the trust unit
distributions and indirectly by the tax treatment of alternative equity
investments. Changes in Canadian or U.S. tax legislation could adversely
affect the value of our trust units.
    
    In order to continue to qualify as a mutual fund trust. Pengrowth
Trust cannot, and may not at any time, reasonably be considered to be
established or maintained primarily for the benefit of non-resident
persons. Canges in the Income Tax Act(Canada), or changes in the level
of foreign ownership may require Pengrowth to restrict or control the
level of foreign ownership which could adversely affect the value of our
trust units. Pengrowth mitigates some of these risks by:  
    
    Fixing the price on a portion of its future crude oil and natural gas
production.
    
    Fixing the Canadian/ U.S. exchange rate through financial hedging
contracts or by fixing commodity prices in Canadian dollars.
    
    Offering competitive incentive-based compensation packages to attract
and retain highly qualified and motivated professional staff.
    
    Adhering to investment criteria for acquisitions.
    
    Acquiring mature production with long-life reserves and proven production.
    
    Performing extensive geological, geophysical, engineering and
environmental analysis before committing to acquisitions and capital
development projects.
    
    Geographically diversifying its portfolio.
    
    Controlling costs to maximize profitability.
    
    Developing and adhering to policies and practices that protect the
environment and meet or exceed the regulations imposed by the
government.
    
    Developing and adhering to safety policies and practices that meet or exceed regulatory standards.
    
    Ensuring strong third-party operators for non-operated properties.
    
    Carrying insurance to cover physical losses and business interruption. 64   Pengrowth Energy Trust    2003 annual report




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Outlook Our focus in 2004 continues to be on creating unitholder value. We successfully
accomplished this mission in 2003 delivering distributions of $2.68 per unit
and appreciation of trust units in the market place. In 2004 we will again
optimize the distributions to our unitholders within the parameters of
maintaining a prudent financial structure and allowing us to act on longer-term
growth opportunities for our unitholders. We will continue in 2004 to strive to accomplish many of the objectives which
have successfully grown the business and unitholders value over the years
including:  
    
    Maintaining a balanced property portfolio which includes gas, oil and
liquids as well as a mix of operated versus non-operated properties:
    
    Growing production and reserves through potentially accretive
acquisitions;
    
    The continued optimization of our existing properties and either
reducing declines or growing production through development drilling,
workovers and field optimization strategies;
    
    Maintaining a strong focus on operational and technical excellence to
reduce developmental risks, maintain relatively low operating costs and
maximize netbacks;
    
    Actively managing financial risk including reducing the cost of
capital for acquisitions and reinvestment, maximizing sales prices and
managing our credit exposure;
    
    Protecting the health and safety of our employees and the public, and
preserving the quality of our environment;
    
    Continuing to farm out our higher risk undeveloped acreage to
exploration companies which allows Pengrowth participatation in the
upside potential with much reduced capital risk to our unitholders;
    
    Utilizing proven and cost-effective technologies; and
    
    Maintaining our commitment to making a positive difference in the community at-large.
    
    Seeking to reduce the volatility of returns through market risk
management and the acquisition of steady cash flow producing assets such
as infrastructure systems, gas plants, gas gathering systems, other
infrastructure type assets related to the oil and gas industry. In 2004 we have planned the largest capital program of the Trusts history at
$135 million which we will strive to deploy in a manner which enhances value
for our unitholders. Pengrowth Energy Trust    2003 annual report   65




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APPENDIX C CONSOLIDATED FINANCIAL STATEMENTS OF PENGROWTH ENERGY TRUST (INCLUDED ON PAGES
66 THROUGH 97 OF THE PENGROWTH ENERGY TRUST 2003 ANNUAL REPORT), INCLUDING
FOOTNOTE 20 THEREOF WHICH INCLUDES A RECONCILIATION OF THE CONSOLIDATED
FINANCIAL STATEMENTS TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES




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Managements Report  Managements Responsibility to the Unitholders The financial statements are the responsibility of the management of
Pengrowth Energy Trust. They have been prepared in accordance with
generally accepted accounting principles, using managements best estimates
and judgements, where appropriate. Management is responsible for the reliability and integrity of the
financial statements, the notes to the financial statements, and other
financial information contained in this report. In the preparation of these
statements, estimates are sometimes necessary because a precise
determination of certain assets and liabilities is dependent on future
events. Management believes such estimates have been based on careful
judgements and have been properly reflected in the accompanying financial
statements. Management is also responsible for ensuring that it fulfills its
responsibilities for financial reporting and internal control. The Board is
assisted in exercising its responsibilities through the Audit Committee,
which is composed of three independent non-management directors. The
Committee meets periodically with management and the auditors to satisfy
itself that managements responsibilities are properly discharged, to
review the financial statements and to recommend approval of the financial
statements to the Board. KPMG LLP, the independent auditors appointed by the unitholders, have
audited Pengrowth Energy Trusts consolidated financial statements in
accordance with generally accepted auditing standards and provided an
independent professional opinion. The auditors have full and unrestricted
access to the Audit Committee to discuss their audit and their related
findings as to the integrity of the financial reporting process. James S. Kinnear
Chairman, President and
Chief Executive Officer
    
    Robert B. Hodgins
Chief Financial OfficerFebruary 29, 2004 except for Note 11 which is as of March 4, 2004.
 66   Pengrowth Energy Trust    2003 annual report




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Auditors Report To the Unitholders of Pengrowth Energy Trust We have audited the consolidated balance sheets of Pengrowth Energy Trust
as at December 31, 2003 and 2002 and the consolidated statements of income,
trust unitholders equity and cash flow for the years then ended. These
financial statements are the responsibility of the Trusts management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an
audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Trust as at December
31, 2003 and 2002 and the results of its operations and its cash flow for
the years then ended in accordance with Canadian generally accepted
accounting principles.  Chartered Accountants
Calgary, Canada
February 29, 2004 except for Note 11 which is as of March 4, 2004. Pengrowth Energy Trust    2003 annual report   67




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Consolidated Balance Sheets (Stated in thousands of dollars) As at December 31
    
    2003
    
    2002(restated see Note 3)ASSETSCURRENT ASSETSCash and term deposits
    
    $
    64,154
    
    
    $
    8,292Accounts receivable
    
    
    65,570
    
    
    
    41,426Inventory
    
    
    699
    
    
    
    1,301Marketable Securities
    
    
    
    
    
    
    1,906130,423
    
    
    
    52,925REMEDIATION TRUST FUNDS (Note 5)
    
    
    7,392
    
    
    
    6,679DEFERRED CHARGES (Note 12)
    
    
    5,544
    
    
    
    PROPERTY, PLANT AND EQUIPMENT
AND OTHER ASSETS (Note 7)
    
    
    1,530,359
    
    
    
    1,493,047$
    1,673,718
    
    
    $
    1,552,651LIABILITIES AND UNITHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    54,196
    
    
    $
    43,092Distributions payable to unitholders
    
    
    52,139
    
    
    
    45,315Due to Pengrowth Management Limited (Note 16)
    
    
    1,122
    
    
    
    1,086Note payable (Note 9)
    
    
    10,000
    
    
    
    117,457
    
    
    
    89,493NOTE PAYABLE (Note 9)
    
    
    35,000
    
    
    
    LONG-TERM DEBT (Note 10)
    
    
    259,300
    
    
    
    316,501ASSET RETIREMENT OBLIGATIONS (Note 8)
    
    
    102,528
    
    
    
    73,493TRUST UNITHOLDERS EQUITY
    
    
    1,159,433
    
    
    
    1,073,164COMMITMENTS (Note 19)
    
    $
    1,673,718
    
    
    $
    1,552,651
 See accompanying notes to the consolidated financial statements.  Approved on behalf of Pengrowth Energy Trust
by Pengrowth Corporation, as Administrator: Director
    
    Director
 68   Pengrowth Energy Trust    2003 annual report




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Consolidated Statements of Income (Stated in thousands of dollars) Years ended December 31
    
    2003
    
    2002(restated see Note 3)REVENUESOil and gas sales
    
    $
    682,795
    
    
    $
    482,301Processing and other income
    
    
    9,726
    
    
    
    6,936Crown royalties, net of incentives
    
    
    (108,325
    )
    
    
    (73,833
    )Freehold royalties and mineral taxes
    
    
    (6,580
    )
    
    
    (6,774
    )577,616
    
    
    
    408,630Interest and other income
    
    
    840
    
    
    
    274NET REVENUE
    
    
    578,456
    
    
    
    408,904EXPENSESOperating
    
    
    149,032
    
    
    
    129,802Amortization of injectants for miscible floods
    
    
    32,541
    
    
    
    44,330Interest
    
    
    18,153
    
    
    
    15,213Foreign exchange loss (gain) (Note 13)
    
    
    (29,911
    )
    
    
    182General and administrative
    
    
    15,997
    
    
    
    10,992Management and performance fee (Note 16)
    
    
    10,181
    
    
    
    6,567Capital taxes
    
    
    1,798
    
    
    
    483Depletion and depreciation
    
    
    185,270
    
    
    
    140,775Accretion (Note 8)
    
    
    6,039
    
    
    
    3,566389,100
    
    
    
    351,910INCOME BEFORE THE FOLLOWING
    
    
    189,356
    
    
    
    56,994ROYALTY INCOME ATTRIBUTABLE TO ROYALTY UNITS
OTHER THAN THOSE HELD BY PENGROWTH ENERGY TRUST
    
    
    59
    
    
    
    39NET INCOME
    
    $
    189,297
    
    
    $
    56,955NET INCOME PER UNIT (Note 17)Basic
    
    $
    1.633
    
    
    $
    0.633Diluted
    
    $
    1.625
    
    
    $
    0.633
 See accompanying notes to the consolidated financial statements. Pengrowth Energy Trust    2003 annual report   69




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Consolidated Statements of Cash Flow (Stated in thousands of dollars) Years ended December 31
    
    2003
    
    2002(restated see Note 3)CASH PROVIDED BY (USED FOR):OPERATINGNet income
    
    $
    189,297
    
    
    $
    56,955Items not involving cashDepletion, depreciation and accretion
    
    
    191,309
    
    
    
    144,341Amortization of injectants
    
    
    32,541
    
    
    
    44,330Purchase of injectants
    
    
    (23,037
    )
    
    
    (15,107
    )Expenditures on remediation
    
    
    (3,243
    )
    
    
    (1,607
    )Unrealized foreign exchange gain (Note 13)
    
    
    (30,940
    )
    
    
    Trust unit based compensation (Note 11)
    
    
    189
    
    
    
    Amortization of deferred charges (Note 12)
    
    
    204
    
    
    
    Loss (gain) on sale of marketable securities
    
    
    94
    
    
    
    (176
    )Funds generated from operating activities
    
    
    356,414
    
    
    
    228,736Changes in non-cash operating working capital (Note 14)
    
    
    (9,863
    )
    
    
    120Cash provided by operating activities
    
    
    346,551
    
    
    
    228,856FINANCINGDistributions
    
    
    (306,591
    )
    
    
    (171,350
    )Change in long-term debt
    
    
    (26,261
    )
    
    
    (28,955
    )Note payable (Note 9)
    
    
    41,393
    
    
    
    Proceeds from issue of trust units
    
    
    210,198
    
    
    
    382,127(81,261
    )
    
    
    181,822INVESTINGExpenditures on property acquisitions
    
    
    (122,964
    )
    
    
    (391,761
    )Expenditures on property, plant and equipment
    
    
    (85,718
    )
    
    
    (55,631
    )Proceeds on property dispositions
    
    
    2,835
    
    
    
    43,153Deferred charges
    
    
    (2,141
    )
    
    
    Change in Remediation Trust Funds
    
    
    (713
    )
    
    
    (209
    )Purchase of marketable securities
    
    
    
    
    
    
    (2,780
    )Proceeds from sale of marketable securities
    
    
    1,812
    
    
    
    1,050Change in non-cash investing working capital (Note 14)
    
    
    (2,539
    )
    
    
    (5
    )(209,428
    )
    
    
    (406,183
    )CHANGE IN CASH AND TERM DEPOSITS
    
    
    55,862
    
    
    
    4,495CASH AND TERM DEPOSITS AT BEGINNING OF YEAR
    
    
    8,292
    
    
    
    3,797CASH AND TERM DEPOSITS AT END OF YEAR
    
    $
    64,154
    
    
    $
    8,292
 See accompanying notes to the consolidated financial statements. 70   Pengrowth Energy Trust    2003 annual report




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Consolidated Statements of
Trust Unitholders Equity (Stated in thousands of dollars) Years ended December 31
    
    2003
    
    2002(restated see Note 3)Unitholders equity at beginning of (Note 3)
    
    $
    1,073,164
    
    
    $
    828,540Units issued, net of issue costs (Note 11)
    
    
    210,198
    
    
    
    382,127Net income for year
    
    
    189,297
    
    
    
    56,955Contributed Surplus (Note 11)
    
    
    189
    
    
    
    Distributable cash (Note 4)
    
    
    (313,415
    )
    
    
    (194,458
    )TRUST UNITHOLDERS EQUITY AT END OF YEAR
    
    $
    1,159,433
    
    
    $
    1,073,164
 See accompanying notes to the consolidated financial statements. Pengrowth Energy Trust    2003 annual report   71




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Notes to Consolidated Financial Statements Years ended December 31, 2003 and 2002 (Tabular amounts are stated in thousands of dollars except per unit amounts.) 1.  Structure of the Trust Pengrowth Energy Trust (EnergyTrust) is a closed-end investment trust
created under the laws of the Province of Alberta pursuant to a Trust
Indenture dated December 2, 1988 (as amended) between Pengrowth Corporation
(Corporation) and ComputerShare Investor Services Inc. (Computershare).
Operations commenced on December 30, 1988. The beneficiaries of EnergyTrust
are the holders of trust units (the unitholders). EnergyTrust acquires and holds royalty units issued by the Corporation,
which entitles EnergyTrust to the net revenue generated by Corporations
petroleum and natural gas properties less certain defined charges. In
addition, unitholders are entitled to receive the net cash flows from other
investments that are held directly by EnergyTrust. EnergyTrust owns
approximately 99.9 percent of the royalty units issued by the Corporation. Pengrowth Management Limited (the Manager) is responsible for the
management of the business affairs of the Corporation and the
administration of EnergyTrust. The Manager owns 9 percent of the common
shares of Corporation, and the Manager is controlled by an officer and a
director of the Corporation. The remaining 91 percent of the common shares
of the Corporation are owned by EnergyTrust. Under the terms of the Royalty Indenture, the Corporation is entitled to
retain a 1 percent share of royalty income and all miscellaneous income
(the Residual Interest) to the extent this amount exceeds the aggregate
of debt service charges, general and administrative expenses, and
management fees. In 2003 and 2002, this Residual Interest, as computed, did
not result in any income retained by Pengrowth Corporation. 2.  Significant Accounting Policies BASIS OF PRESENTATION EnergyTrusts consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in Canada and they
include the accounts of EnergyTrust and the accounts of Corporation
(collectively referred to as Pengrowth). All inter-entity transactions
have been eliminated. These financial statements do not contain the
accounts of the Manager. EnergyTrust owns 91 percent of the shares of Corporation and, through the
royalty, obtains substantially all the economic benefits of Corporation. In
addition, the unitholders of EnergyTrust have the right to elect the
majority of the board of directors of Corporation. 72   Pengrowth Energy Trust    2003 annual report




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JOINT INTEREST OPERATIONS A significant proportion of Pengrowths petroleum and natural gas
development and production activities are conducted with others and
accordingly the accounts reflect only Pengrowths proportionate interest in
such activities. PROPERTY PLANT AND EQUIPMENT Pengrowth follows the full cost method of accounting for oil and gas
properties and facilities whereby all costs of acquiring such interests are
capitalized and depleted on the unit of production method based on proved
reserves before royalties as estimated by independent engineers. The fair
value of the future estimated asset retirement obligations associated with
properties and facilities are also capitalized and depleted on the
unit-of-production method (see Asset Retirement Obligation). Natural gas
production and reserves are converted to equivalent units of crude oil
using their relative energy content. General and administrative costs are not capitalized other than to the
extent they are directly related to a successful acquisition, or to the
extent of Pengrowths working interest in capital expenditure programs to
which overhead fees can be recovered from
partners. Overhead fees are not charged on 100 percent owned projects. Proceeds from disposals of oil and gas properties and equipment are
credited against capitalized costs unless the disposal would alter the rate
of depletion and depreciation by more than 20 percent, in which case a gain
or loss on disposal is recorded. Pengrowth places a limit on the carrying value of property, plant and
equipment and other assets, which may be depleted against revenues of
future periods (the ceiling test). The carrying value is assessed to be
recoverable when the sum of the undiscounted cash flows expected from the
production of proved reserves, the lower of cost and market of unproved
properties and the cost of major development projects exceeds the carrying
value. When the carrying value is not assessed to be recoverable, an
impairment loss is recognized to the extent that the carrying value of
assets exceeds the sum of the discounted cash flows expected from the
production of proved and probable reserves, the lower of cost and market of
unproved properties and the cost of major development projects. The cash
flows are estimated using expected future product prices and costs and are
discounted using a risk-free interest rate. INJECTANT COSTS Injectants (mostly ethane and methane) are used in miscible flood programs
to stimulate incremental oil recovery. The cost of injectants purchased
from third parties for miscible flood projects is deferred and amortized
over the period of expected future economic benefit which is estimated as
30 months. Pengrowth Energy Trust    2003 annual report   73




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INVENTORY Inventories of crude oil, natural gas and natural gas liquids are stated at
the lower of cost and net realizable value. ASSET RETIREMENT OBLIGATIONS Pengrowth recognizes the fair value of an Asset Retirement Obligation
(ARO) in the period in which it is incurred when a reasonable estimate of
the fair value can be made. The fair value of the estimated ARO is recorded
as a liability, with a corresponding increase in the carrying amount of the
related asset. The capitalized amount is depleted on the unit-of-production
method based on proved reserves. The liability amount is increased each
reporting period due to the passage of time and the amount of accretion is
expensed to income in the period. Actual costs incurred upon the settlement
of the ARO are charged against the ARO. Pengrowth has placed cash in segregated remediation trust accounts to fund
certain asset retirement obligations for the Judy Creek and Swan Hills
properties, and the SOEP facilities. Contributions to these remediation
trust accounts and expenditures on ARO not funded by the trust accounts are
charged against distributable cash in the period incurred. INCOME TAXES EnergyTrust is a taxable trust under the Canadian Income Tax Act. As income
taxes are the responsibility of the individual unitholders and EnergyTrust
distributes all of its taxable income to its unitholders, no provision has
been made for income taxes by EnergyTrust in these financial statements. The Corporation follows the tax liability method of accounting for income
taxes. Under this method, income tax liabilities and assets are recognized
for the estimated tax consequences attributable to differences between the
amounts reported in the Corporations financial statements and their
respective tax bases, using enacted income tax rates. The effect of a
change in income tax rates on future income tax liabilities and assets is
recognized in income in the period that the change occurs. TRUST UNIT COMPENSATION PLANS Pengrowth has unit based compensation plans, which are described in Note
11. Compensation expense associated with unit based compensation plans is
deferred and recognized in income over the vesting period of the plan with
a corresponding increase in contributed surplus. Compensation expense is
based on the fair value of the unit based compensation at the date of grant
using a modified Black-Scholes option pricing model. 74   Pengrowth Energy Trust    2003 annual report




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Any consideration received upon the exercise of the unit based compensation
together with the amount of non-cash compensation expense recognized in
contributed surplus is recorded as an increase in unitholders equity. Pengrowth does not have any outstanding unit compensation plans that call
for settlement in cash or other assets. Grants of such items, if any, will
be recorded as expenses and liabilities based on the intrinsic value. RISK MANAGEMENT
Financial instruments are utilized by Pengrowth to manage its exposure to
commodity price fluctuations, foreign currency and interest rate exposures.
Pengrowths practice is not to utilize financial instruments for trading or
speculative purposes. Pengrowth formally documents relationships between hedging instruments and
hedged items, as well as its risk management objective and strategy for
undertaking various hedge transactions. This process includes linking
derivatives to specific assets and liabilities on the balance sheet or to
specific firm commitments or forecasted transactions. Pengrowth also
formally assesses, both at the hedges inception and on an ongoing basis,
whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in fair value or cash flows of hedged
items. Pengrowth uses forward, futures and swap contracts to manage its exposure
to commodity price fluctuations. The net receipts or payments arising from
these contracts are recognized in income as a component of oil and gas
sales during the same period as the corresponding hedged position. Foreign exchange translation gains and losses on foreign currency exchange
swaps used to hedge U.S. dollar denominated gas sales are recognized in
income as a component of natural gas sales during the same period as the
corresponding hedged position. Interest rate swap agreements are used as part of Pengrowths program to
manage the fixed and floating interest rate mix of Pengrowths total debt
portfolio and related overall cost of borrowing. The interest rate swap
agreements involve the periodic exchange of payments without the exchange
of the notional principal amount upon which the payments are based, and are
recorded as an adjustment of interest expense on the hedged debt
instrument. MEASUREMENT UNCERTAINTY
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and revenues and
expenses for the period then ended. Pengrowth Energy Trust    2003 annual report   75




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The amounts recorded for depletion, depreciation, amortization of
injectants and the asset retirement obligations are based on estimates. The
ceiling test calculation is based on estimates of proved reserves,
production rates, oil and natural gas prices, future costs and other
relevant assumptions. By their nature, these estimates are subject to
measurement uncertainty and may impact the consolidated financial
statements of future periods. EARNINGS PER UNIT
In calculating diluted net income per unit, Pengrowth follows the treasury
stock method to determine the dilutive effect of trust unit options and
other dilutive instruments. Under the treasury stock method, only in the
money dilutive instruments impact the diluted calculations. CASH AND TERM DEPOSITS
Pengrowth considers term deposits with a maturity of three months or less
to be cash equivalents. REVENUE RECOGNITION
Revenue from the sale of oil and natural gas is recognized when the product
is delivered. Revenue from processing and other miscellaneous sources is
recognized upon completion of the relevant service. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current year. 3.  Change in Accounting Policies
FULL COST ACCOUNTING GUIDELINE
Effective January 1, 2003, Pengrowth adopted a new Canadian accounting
standard relating to full cost accounting for oil and gas entities, as
outlined in Note 2. Prior to adopting the new standard, the limit on the aggregate carrying
value of the property, plant and equipment and other assets that may be
carried forward for depletion against future revenues was based on the sum
of the undiscounted cash flows expected from the production of proved
reserves, the lower of cost or market of unproved reserves and the cost of
major development projects less the estimated future costs for
administration, financing, asset retirement obligations and income taxes. There were no changes to net income, property plant and equipment and other
assets or any other reported amounts in the financial statements as a
result of adopting the standard. 76   Pengrowth Energy Trust    2003 annual report




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ASSET RETIREMENT OBLIGATIONS (ARO)
Effective January 1, 2002, Pengrowth retroactively adopted, with
restatement of prior periods, a new accounting standard relating to asset
retirement obligations, as outlined in Note 2. Prior to adopting the
standard, Pengrowth recognized a provision for future site restoration
costs over the life of the oil and gas properties and facilities using a
unit of production method. As a result of this change, net income for the year ended December 31, 2003
increased $9.3 million. The ARO increased by $41.0 million and property,
plant and equipment and other assets, net of accumulated depletion
increased by $69.5 million as at December 31, 2003. Opening 2003
unitholders equity increased by $19.2 million to reflect the cumulative
impact of accretion and depletion expense, net of the cumulative site
restoration provision. The previously reported amounts for 2002 have been restated due to the
retroactive application of this new standard. Net income for the year ended
December 31, 2002 increased by $7.9 million. The ARO increased by $29.2
million and property, plant and equipment and other assets, net of
accumulated depletion increased by $48.4 million as at December 31, 2002.
Opening 2002 unitholders equity increased by $11.3 million to reflect the
cumulative impact of accretion and depletion expense, less the previously
recorded cumulative site restoration provision. There was no impact on Pengrowths cash flow as a result of adopting the
standard. TRUST UNIT BASED COMPENSATION PLAN
Effective January 1, 2003, Pengrowth prospectively adopted amendments to a
Canadian accounting standard relating to recognizing the compensation
expense associated with unit based compensation plans, as outlined in Note
2. Under the amended standards, Pengrowth must recognize compensation
expense based on the fair value of the trust unit options and rights
granted under Pengrowths unit based compensation plans. Pengrowth uses a
modified Black-Scholes option pricing model to determine the fair value of
trust unit based compensation plans at the date of grant. For trust unit options and rights granted in 2002, Pengrowth elected not to
recognize compensation expense but provide pro forma disclosure as if the
amended accounting standards were adopted retroactively. As a result of adopting this amended standard, net income for the year
ended December 31, 2003 decreased by $189,000 and contributed surplus
increased by $189,000. Net income for 2002 remains unchanged with respect
to trust unit options and rights granted in 2002 and the pro forma results
are disclosed in Note 11. Pengrowth Energy Trust    2003 annual report   77




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4.  Distributable Cash There is no standardized measure of Distributable Cash and therefore
Distributable Cash, as presented below, may not be comparable to similar
measures presented by other trusts. 2003
    
    2002Net income
    
    $
    189,297
    
    
    $
    56,955Add (Deduct):
    
    Depletion, depreciation and accretion
    
    
    191,309
    
    
    
    144,341ARO expenses not covered by the trustfunds and trust fund contributions
    
    
    (3,956
    )
    
    
    (1,816
    )Unrealized foreign exchange gain (Note 13)
    
    
    (30,940
    )
    
    
    Non-cash compensation expense
    
    
    189
    
    
    
    Distributable cash before withholding
    
    
    345,899
    
    
    
    199,480Cash withheld to fund capital expenditures
    
    
    (32,484
    )
    
    
    (5,022
    )Distributable cash
    
    
    313,415
    
    
    
    194,458Less: Actual distributions paid or declared
    
    
    (313,381
    )
    
    
    (193,395
    )Balance to be distributed
    
    $
    34
    
    
    $
    1,063Actual distributions paid or declared per unit
    
    $
    2.680
    
    
    $
    2.070
 The per unit amount of distributions paid or declared reflect actual
distributions paid or declared based on units outstanding at the time.
Distributions are declared payable during the month following the month in
which the distributions were earned. Distributions are paid to unitholders
on the 15th day of the second month after the distributions are earned. Pursuant to a Unitholder resolution on April 23, 2002, the Board of
Directors of Pengrowth Corporation may elect to retain up to 20 percent of
gross revenues to provide for the payment of future capital expenditures or
for the payment of future distributions. Commencing with the January 15,
2003 distribution to unitholders, approximately 10 percent of funds
available for distribution have been withheld. Subject to the limit of 20
percent of gross revenues approved by unitholders, the Board of Directors
may elect to increase (or decrease) the amount withheld in the future. 5.  Remediation Trust Funds

Pengrowth is required to make contributions to a remediation trust fund
that is used to cover certain ARO of the Judy Creek properties. Pengrowth
makes monthly contributions to the fund of $0.10 per boe of production from
the Judy Creek properties and an annual lump sum contribution of $250,000. Every five years Pengrowth must evaluate the assets in the trust fund and
the outstanding asset retirement obligations, and make recommendations to
the former owner of the Judy Creek properties as to whether contribution
levels should be changed. Pengrowth is currently in discussions in respect
of required contributions for 2004 and future periods. If an agreement is
not reached regarding the changes in the contribution level, the matter may
be arbitrated. 78   Pengrowth Energy Trust    2003 annual report




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Commencing in May 2003, Pengrowth was required, pursuant to various
agreements with the Sable Offshore Energy Project (SOEP) partners, to make
contributions to a remediation trust fund that will be used to fund ARO of
the SOEP facilities and properties. Pengrowth has made monthly
contributions to the fund of $0.02 per mcf of natural gas production and
$0.08 per boe of natural gas liquids production from SOEP. An additional
$0.02 per mcf of natural gas production will be required as a result of the
acquisitions in December 2003 (see Note 6). The following summarizes Pengrowths trust fund contributions for 2003 and
2002 and Pengrowths expenditures on ARO not covered by the trust funds: 2003
    
    2002Contributions to Judy Creek
Remediation Trust Fund
    
    $
    910
    
    
    $
    893Contributions to SOEP Environmental
Restoration Fund
    
    
    181
    
    
    
    Expenditures related to Judy Creek
Remediation Trust Fund
    
    
    (378
    )
    
    
    (684
    )713
    
    
    
    209Expenditures on ARO not covered
by the trust funds
    
    
    2,865
    
    
    
    923Expenditures on ARO covered
by the trust funds
    
    
    378
    
    
    
    6843,243
    
    
    
    1,607Total trust fund contributions and
ARO expenditures not covered by the trust funds
    
    $
    3,956
    
    
    $
    1,816
 6.  Acquisitions
In May 2003, Pengrowth acquired an 8.4 percent working interest in the SOEP
processing facilities, downstream of the Thebaud central processing
platform, for approximately $57 million. In June 2003, Pengrowth acquired interests in eleven significant discovery
licenses from Nova Scotia Resources (Ventures) Limited (NSRVL) for $4.5
million plus a ten percent Net Profits Interest to NSRVL. In December 2003, Pengrowth acquired an 8.4 percent working interest in the
SOEP offshore production platforms and associated sub-sea field gathering
lines from Emera Offshore Incorporated (Emera) for $65 million. The
consideration for this acquisition included cash of $20 million and a $45
million note payable over three years (see Note 9). In conjunction with the December acquisition, Pengrowth exchanged its
royalty interest in SOEP for a direct working interest in SOEP. Pengrowth Energy Trust    2003 annual report   79




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In October 2002, Pengrowth acquired substantially all of the crude oil and
natural gas assets held by Calpine Canada Natural Gas Partnership (Calpine)
in northern British Columbia for $377.4 million, net of adjustments, with
the consideration consisting of cash and the tendering of debt securities
of Calpine Corporation and its subsidiaries purchased by Pengrowth on the
open market. Also in October 2002, Pengrowth sold to Progress Energy Ltd.
for consideration of $25.4 million certain crude oil and natural gas assets
acquired from Calpine. The acquisition was accounted for by the purchase
method with the results of operations of the acquired assets included in
the financial statements from the date of acquisition. The following unaudited pro forma information provides an indication of
what Pengrowths results of operations would have been had the Calpine
acquisition taken place on January 1, 2002. 2002(unaudited)Oil and gas sales
    
    $
    603,683Net income
    
    $
    90,661Net income per unit:Basic
    
    $
    0.847Diluted
    
    $
    0.847
 7.  Property, Plant and Equipment and Other Assets 2003
    
    2002PROPERTY, PLANT AND EQUIPMENTProperty, Plant and Equipment, at cost
    
    $
    2,281,166
    
    
    $
    2,049,080Accumulated depletion and depreciation
    
    
    (775,103
    )
    
    
    (589,833
    )Net book value of property, plant and equipment
    
    
    1,506,063
    
    
    
    1,459,247OTHER ASSETSDeferred injectant costs
    
    
    24,296
    
    
    
    33,800Net book value of property, plant and equipment
and other assets
    
    $
    1,530,359
    
    
    $
    1,493,047
 Property, plant and equipment includes $69.5 million (2002  $48.4
million), net of accumulated depletion, related to the ARO. Pengrowth performed a ceiling test calculation at December 31, 2003 to
assess the recoverable value of the property, plant and equipment and other
assets. The oil and gas future prices are based on the January 1, 2004
commodity price forecast of our independent reserve evaluators. 80   Pengrowth Energy Trust    2003 annual report




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These prices have been adjusted for commodity price differentials specific
to Pengrowth. The following table summarizes the benchmark prices used in
the ceiling test calculation. Based on these assumptions, the undiscounted
value of future net revenues from Pengrowths proved reserves exceeded the
carrying value of property, plant and equipment and other assets at
December 31, 2003. Foreign
    
    Edmonton LightWTI Oil
    
    Exchange
    
    Crude Oil
    
    AECO GasYear
    
    ($U.S./bbl)
    
    Rate
    
    ($Cdn/bbl)
    
    ($Cdn/mmbtu)2004
    
    
    29.00
    
    
    
    0.75
    
    
    
    37.75
    
    
    
    5.852005
    
    
    26.00
    
    
    
    0.75
    
    
    
    33.75
    
    
    
    5.152006
    
    
    25.00
    
    
    
    0.75
    
    
    
    32.50
    
    
    
    5.002007
    
    
    25.00
    
    
    
    0.75
    
    
    
    32.50
    
    
    
    5.002008
    
    
    25.00
    
    
    
    0.75
    
    
    
    32.50
    
    
    
    5.002009 - 2014
    
    
    25.00
    
    
    
    0.75
    
    
    
    32.50
    
    
    
    5.00Escalate thereafter
    
    1.5% per year
    
    
    
    
    
    
    1.5% per year
    
    
    1.5% per year
 8.  Asset Retirement Obligations
The total future asset retirement obligations were estimated by management
based on Pengrowths working interest in its wells and facilities,
estimated costs to remediate, reclaim and abandon the wells and facilities
and the estimated timing of the costs to be incurred in future periods.
Pengrowth has estimated the net present value of its total asset retirement
obligations to be $103 million as at December 31, 2003, based on a total
future liability of $352 million. These costs are expected to be made over
51 years with the majority of the costs incurred between 2014 and 2040.
Pengrowths credit adjusted risk free rate of eight percent and an
inflation rate of 1.5 percent were used to calculate the net present value
of the asset retirement obligations. The following reconciles Pengrowths asset retirement obligations: 2003
    
    2002ARO, beginning of year
    
    $
    73,493
    
    
    $
    42,123Increase in liabilities during the year related to:Additions
    
    
    11,086
    
    
    
    29,411Revisions
    
    
    15,153
    
    
    
    Accretion expense
    
    
    6,039
    
    
    
    3,566Liabilities settled during the year
    
    
    (3,243
    )
    
    
    (1,607
    )ARO, end of year
    
    $
    102,528
    
    
    $
    73,493
 Pengrowth Energy Trust    2003 annual report   81




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9.  Note Payable
The note payable is due to Emera in respect of the acquisition of the SOEP
facility (Note 6). The note payable is secured by Pengrowths woring
interest in SOEP. The note payable is non-interest bearing with payments
due as follows: $10 million on December 30, 2004, $15 million on December
29, 2005, and $20 million on December 31, 2006. At December 31, 2003, $3.6 million has been recorded as a deferred charge
representing the imputed interest on the non-interest bearing note. This
amount will be recognized as interest expense over the period outstanding
for each individual instalment. 10.  Long-Term Debt As at December 31,
    
    2003
    
    2002U.S. dollar denominated debt:$150 million senior unsecured notes at4.93 percent due April 2010
    
    $
    217,680
    
    
    $
    $50 million senior unsecured notes at5.47 percent due April 2013
    
    
    72,560
    
    
    
    Unrealized foreign exchange gain on translation
    
    
    (30,940
    )
    
    
    259,300
    
    
    
    Canadian dollar revolving credit borrowings
    
    
    
    
    
    
    316,501$
    259,300
    
    
    $
    316,501
 On April 23, 2003, Pengrowth closed a U.S.$200 million private placement of
senior unsecured notes to a group of U.S. investors. The notes were offered
in two tranches of U.S.$150 million at 4.93 percent due April 2010 and
U.S.$50 million at 5.47 percent due in April 2013. The notes contain
certain financial maintenance covenants and interest is paid semi-annually.
The proceeds from the private placement were used to repay a portion of
Pengrowths outstanding bank debt. Costs incurred in connection with
issuing the notes, in the amount of $2,141,000, are being amortized
straight line over the term of the notes (see Note 12). The Corporation has a $200 million revolving credit facility syndicated
among eight financial institutions with an extendible 364 day revolving
period and a two year amortization term period. In addition, it has a $35
million demand operating line of credit. At December 31, 2003, the
borrowing capacity under these facilities was reduced by outstanding
letters of credit in the amount of approximately $47 million. In January
2004, this amount of outstanding letters of credit was reduced by $25
million. Interest payable on amounts drawn is at the prevailing bankers
acceptance rates plus stamping fees, lenders prime lending rates, or U.S.
libor rates plus applicable margins, depending on the form of borrowing by
the Corporation. The margins and stamping fees vary from 0.25 percent to
1.50 percent depending on financial statement ratios and the form of
borrowing. 82   Pengrowth Energy Trust    2003 annual report




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The credit facility will revolve until June 18, 2004, whereupon it may be
renewed for a further 364 days, subject to satisfactory review by the
lenders, or converted into a term facility with amounts outstanding under
the facility repayable in eight equal quarterly instalments. The
Corporation can post, at its option, security suitable to the banks in lieu
of the first years payments. 11.  Trust Units
The authorized capital of Pengrowth is 500,000,000 trust units. 2003
    
    2002Number
    
    
    
    
    
    NumberTrust Units Issued
    
    of units
    
    Amount
    
    of units
    
    AmountBalance, beginning of year
    
    
    110,562,327
    
    
    $
    1,662,726
    
    
    
    82,240,069
    
    
    $
    1,280,599Issued for cash
    
    
    8,500,000
    
    
    
    144,075
    
    
    
    28,125,000
    
    
    
    404,350Less: issue expenses
    
    
    
    
    
    
    (7,820
    )
    
    
    
    
    
    
    (24,989
    )Issued for cash on exercise
of trust unit options and
rights incentive options
    
    
    3,358,442
    
    
    
    51,701
    
    
    
    66,093
    
    
    
    871Issued for cash under
Distribution
Reinvestment
Plan (DRIP)
    
    
    1,452,882
    
    
    
    22,242
    
    
    
    131,165
    
    
    
    1,895Balance, end of year
    
    
    123,873,651
    
    
    $
    1,872,924
    
    
    
    110,562,327
    
    
    $
    1,662,726
 Pursuant to the terms of the Royalty Indenture and the Trust Indenture,
there is attached to each royalty unit granted by the Corporation the right
to exchange such royalty unit for an equivalent number of trust units.
ComputerShare, as Trustee has reserved 18,940 trust units for such future
conversion. DISTRIBUTION REINVESTMENT PLAN
The Distribution Reinvestment Plan (DRIP) entitles Canadian unitholders to
reinvest cash distributions in additional units of EnergyTrust. The DRIP
was amended effective January 2003 such that trust units under the amended
plan are normally issued from treasury at a 5 percent discount to the
weighted average closing price of all EnergyTrust units traded on the
Toronto Stock Exchange and the New York Stock Exchange for the 20 trading
days preceding a distribution payment date. Prior to January 2003, the trust units under the plan were acquired in the
open market at prevailing market prices or issued from treasury at the
weighted average price of all EnergyTrust units traded on the Toronto Stock
Exchange for the 20 trading days preceding a distribution payment date. Pengrowth Energy Trust    2003 annual report   83




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TRUST UNIT OPTION PLAN
Pengrowth has a trust unit option plan under which directors, officers,
employees and special consultants of the Corporation and the Manager are
eligible to receive options. Under the terms of the plan, up to 10 percent
of the issued and outstanding trust units to a maximum of 10 million units
may be reserved for option and right grants. The options expire seven years
from the date of grant. One third of the options vest on the grant date,
one third on the first anniversary of the date of grant, and the remaining
third on the second anniversary. As at December 31, 2003, options to
purchase 2,014,903 trust units were outstanding (2002  4,451,131) that
expire at various dates to June 28, 2009. 2003
    
    2002Weighted
    
    
    
    
    
    WeightedNumber
    
    Average
    
    Number
    
    AverageTrust Unit Options
    
    of options
    
    Exercise price
    
    of options
    
    Exercise priceOutstanding at
beginning of year
    
    
    4,451,131
    
    
    $
    16.78
    
    
    
    3,106,635
    
    
    $
    17.78Granted
    
    
    
    
    
    
    
    
    
    
    1,895,603
    
    
    
    15.14Exercised
    
    
    (2,374,182
    )
    
    
    16.19
    
    
    
    (66,093
    )
    
    
    13.17Cancelled
    
    
    (62,046
    )
    
    
    17.17
    
    
    
    (485,014
    )
    
    
    17.23Outstanding at year-end
    
    
    2,014,903
    
    
    $
    17.47
    
    
    
    4,451,131
    
    
    $
    16.78Exercisable at year-end
    
    
    1,999,436
    
    
    $
    17.48
    
    
    
    3,715,271
    
    
    $
    17.04
 The following table summarizes information about trust unit options
outstanding and exercisable at December 31, 2003: Options Outstanding
    
    Options ExercisableWeighted-Number
    
    Average
    
    Weighted-
    
    Number
    
    Weighted-Outstanding
    
    Remaining
    
    Average
    
    Exercisable
    
    AverageRange of Exercise Prices
    
    At 12/31/03
    
    Contractual Life
    
    Exercise Price
    
    At 12/31/03
    
    Exercise Price$12.00 to $14.99
    
    
    260,893
    
    
    4.7 years
    
    $
    13.19
    
    
    
    245,426
    
    
    $
    13.08$15.00 to $16.99
    
    
    235,090
    
    
    
    3.7
    
    
    
    15.09
    
    
    
    235,090
    
    
    
    15.09$17.00 to $17.99
    
    
    756,545
    
    
    
    2.6
    
    
    
    17.49
    
    
    
    756,545
    
    
    
    17.49$18.00 to $20.50
    
    
    762,375
    
    
    
    2.6
    
    
    
    19.64
    
    
    
    762,375
    
    
    
    19.64$12.00 to $20.50
    
    
    2,014,903
    
    
    
    3.0
    
    
    $
    17.47
    
    
    
    1,999,436
    
    
    $
    17.48
 EMPLOYEE TRUST UNIT RIGHTS INCENTIVE PLAN
Pengrowth has an Employee Trust Unit Rights Incentive Plan (Rights
Incentive Plan), pursuant to which rights to acquire Pengrowth trust units
may be granted to the directors, officers, employees, and special
consultants of the Corporation and the Manager. Under the Rights Incentive
Plan, distributions per trust unit to trust unitholders in a calendar
quarter which represent a return of more than 2.5 percent of the net
property, plant and equipment at the end of such calendar quarter result in
a reduction in the exercise price. Total price reductions calculated for
2003 were $1.47 per trust unit right (2002  $0.64 per trust unit right).
One third of the rights granted under the Rights Incentive Plan vest on the
grant date, one third on the 84   Pengrowth Energy Trust    2003 annual report




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first anniversary date of the grant and the remaining on the second
anniversary. The rights have an expiry date of five years from the date of
grant. As at December 31, 2003, rights to purchase 1,112,140 trust units
were outstanding (2002  1,964,100) that expire at various dates to October
30, 2008. 2003
    
    2002Weighted
    
    
    
    
    
    WeightedNumber
    
    Average
    
    Number
    
    AverageRights Incentive Options
    
    of Rights
    
    Exercise Price
    
    of Rights
    
    Exercise PriceOutstanding at
beginning of year
    
    
    1,964,100
    
    
    $
    13.29
    
    
    
    
    
    
    $
    Granted(1)
    
    
    165,000
    
    
    
    16.35
    
    
    
    1,964,100
    
    
    
    13.61Exercised
    
    
    (984,260
    )
    
    
    13.49
    
    
    
    
    
    
    
    Cancelled
    
    
    (32,700
    )
    
    
    12.75
    
    
    
    
    
    
    
    Outstanding at year-end
    
    
    1,112,140
    
    
    $
    12.20
    
    
    
    1,964,100
    
    
    $
    13.29Exercisable at year-end
    
    
    359,740
    
    
    $
    11.92
    
    
    
    654,700
    
    
    $
    13.29
  (1)
    
    Weighted average exercise price of rights granted are based on the exercise
price at the date of grant. The following table summarizes information about rights incentive options
outstanding and exercisable at December 31, 2003: Rights Outstanding
    
    Rights ExercisableWeighted-Number
    
    Average
    
    Weighted-
    
    Number
    
    Weighted-Outstanding
    
    Remaining
    
    Average
    
    Exercisable
    
    AverageRange of Exercise Prices
    
    At 12/31/03
    
    Contractual Life
    
    Exercise Price
    
    At 12/31/03
    
    Exercise Price$11.00 to $12.99
    
    
    991,940
    
    
    3.8 years
    
    $
    11.80
    
    
    
    346,740
    
    
    $
    11.76$13.00 to $14.99
    
    
    42,300
    
    
    
    4.2
    
    
    
    14.03
    
    
    
    2,500
    
    
    
    14.03$15.00 to $16.99
    
    
    77,900
    
    
    
    4.7
    
    
    
    16.32
    
    
    
    10,500
    
    
    
    16.80$11.00 to $16.99
    
    
    1,112,140
    
    
    
    3.9
    
    
    $
    12.20
    
    
    
    359,740
    
    
    $
    11.92
 FAIR VALUE OF UNIT BASED COMPENSATION
Pengrowth recorded compensation expense and contributed surplus of $189,000
on rights incentive options granted in 2003. The amount of compensation
expense was reduced for rights granted on or after January 1, 2003 which
were subsequently cancelled prior to vesting. For trust unit options and rights granted in 2002, Pengrowth has elected to
disclose the pro forma effect as if the amended accounting standard had
been adopted retroactively. For the year ended December 31, 2003,
Pengrowths net income would have decreased by $1.6 million for the
estimated compensation expense related to the trust unit options and rights
granted on or after January 1, 2002. Pengrowth Energy Trust    2003 annual report   85




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The following is the pro forma effect of retroactive adoption of the
amended accounting standard on trust unit options and rights granted in
2002: 2003
    
    2002Net income, as reported
    
    $
    189,297
    
    
    $
    56,955Compensation expense related to trust unit
options granted in 2002
    
    
    (367
    )
    
    
    (899
    )Compensation expense related to rights
incentive options granted in 2002
    
    
    (1,279
    )
    
    
    (1,561
    )Pro forma net income
    
    $
    187,651
    
    
    $
    54,495Pro forma net income per unit:Basic
    
    $
    1.619
    
    
    $
    0.606Diluted
    
    $
    1.611
    
    
    $
    0.606
 The weighted average fair market value of trust unit options granted in
2002 was $0.73 per option using the Black-Scholes option pricing model with
the following weighted average assumptions: risk-free interest rate of 4.4
percent, dividend yield of 13 percent, expected volatility of 27 percent,
and expected life of five years. The fair value of rights incentive options granted in 2003 and 2002 was
estimated as 15 percent of the exercise price at the date of grant using a
modified Black-Scholes option pricing model with the following assumptions:
risk-free rate of 3.9 percent, volatility of 22 percent, expected life of
five years and adjustments for the estimated distributions and reductions
in the exercise price over the life of the right incentive option. SHARE APPRECIATION RIGHTS
On October 15, 2002, all of the 426,000 Share Appreciation Rights (SARs)
held by an officer of Pengrowth were converted into an equal number of
options under the Trust Unit Option Plan. These options have a weighted
average exercise price of $18.39, are fully vested and have expiry dates
ranging from October 15 to December 1, 2004. The SARs granted the right to receive a Payment Amount equal to any
increase in the market price of the 426,000 trust units above the exercise
price. Pengrowth, at its option, could have satisfied this Payment Amount
with either a cash payment or the issue of trust units from treasury based
on market prices at the time of exercise. The new standard for stock based
compensation required the recognition of compensation expense equal to the
amount of the excess of the market price above the exercise price for
SARs. No compensation cost was recognized for the year ended December 31,
2002. 86   Pengrowth Energy Trust    2003 annual report




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TRUST UNIT SAVINGS PLAN
Pengrowth has a trust unit savings plan whereby qualifying employees may
contribute from one to ten percent of their basic annual salary. Employee
contributions are invested in trust units purchased on the open market.
Pengrowth matches the employees contribution, investing in additional
trust units purchased on the open market. Pengrowths share of
contributions is recorded as compensation expense and amounted to
$1,037,063 in 2003 (2002  $844,213). TRUST UNIT MARGIN PURCHASE PLAN
Pengrowth has a plan whereby the employees, officers and directors, and
certain consultants of Corporation and the Manager can purchase trust units
and finance up to 75 percent of the purchase price through an investment
dealer, subject to certain participation limits and restrictions.
Participants maintain personal margin accounts with the investment dealer
and are responsible for all interest costs and obligations with respect to
their margin loans. The Corporation has provided a $5 million letter of credit to the
investment dealer to guarantee amounts owing with respect to the plan. The
amount of the letter of credit may fluctuate depending on the amounts
financed pursuant to the plan. At December 31, 2003, 2,471,120 trust units
were deposited under the plan (2002  2,529,698) with a market value of
$52.5 million (2002  $37.3 million) and a corresponding margin loan of
$4.8 million (2002  $11.3 million). The investment dealer has limited the total margin loan available under the
plan to the lesser of $15 million or 35 percent of the market value of the
units held under the plan. If the market value of the trust units under the
plan declines, the Corporation may be required to make payments or post
additional letters of credit to the investment dealer. Any payments to be
made by the Corporation would be reduced by proceeds of liquidating the
individuals trust units held under the plan. The maximum amount
of the guarantee at December 31, 2003 was $4.8 million, the fair value of
which is estimated to be a nominal amount. REDEMPTION RIGHTS
Trust units are redeemable at the request of a Unitholder. The redemption
right permits Unitholders in the aggregate to redeem a maximum of $25,000
of trust units in a month. 2004 OFFERING OF TRUST UNITS
On March 4, 2004 Pengrowth entered into an agreement to sell 8.2 million
trust units at $18.40 per trust unit to raise gross proceeds of $150.9
million on a bought-deal basis. Pengrowth has granted the underwriters an
option to purchase up to an additional 2.7 million trust units at the same
offering price. Pengrowth Energy Trust    2003 annual report   87




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12.  Deferred Charges 2003
    
    2002Imputed interest on note payable (Note 9)
    
    $
    3,607
    
    
    $
    U.S. debt issue costs (net of accumulated
amortization of $204) (Note 10)
    
    
    1,937
    
    
    
    $
    5,544
    
    
    $
    
 13.  Foreign Exchange Loss (Gain) 2003
    
    2002Unrealized foreign exchange gain on translation
of U.S. dollar denominated debt
    
    $
    (30,940
    )
    
    $
    Realized foreign exchange losses
    
    
    1,029
    
    
    
    182$
    (29,911
    )
    
    $
    182
 The U.S. dollar denominated debt is translated into Canadian dollars at the
exchange rate in effect at the balance sheet date. Foreign exchange gains
and losses are included income. 14.  Other Cash Flow Disclosures
CHANGE IN NON-CASH OPERATING WORKING CAPITAL 2003
    
    2002Accounts receivable
    
    $
    (24,144
    )
    
    $
    (13,567
    )Inventory
    
    
    602
    
    
    
    1,386Accounts payable and accrued liabilities
    
    
    13,643
    
    
    
    11,738Due to Pengrowth Management Limited
    
    
    36
    
    
    
    563$
    (9,863
    )
    
    $
    120
 CHANGE IN NON-CASH INVESTING WORKING CAPITAL 2003
    
    2002Accounts payable for capital accruals
    
    $
    (2,539
    )
    
    $
    (5
    )
 CASH PAYMENTS 2003
    
    2002Cash payments made for taxes
    
    $
    1,834
    
    
    $
    1,840Cash payments made for interest
    
    $
    16,657
    
    
    $
    15,400
 15.  Income Taxes
In 2003, the cost basis for income tax purposes of property, plant and
equipment exceeded the net book value by approximately $164 million (2002 
$149 million). A future tax asset of $56 million (2002  $66 million) has
been reduced to nil through a valuation allowance of $56 million (2002 
$66 million). 88   Pengrowth Energy Trust    2003 annual report




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16.  Related Party Transactions
Pengrowth Management Limited provides certain services pursuant to a
management agreement for which Pengrowth was charged $695,000 (2002 
$2,474,110) for acquisition fees, $520,000 (2002  nil) for performance
fees and $9,660,749 (2002  $6,567,055) for a management fee. The law firm
controlled by the corporate secretary charged $675,692 (2002  $698,748)
for legal and advisory services provided to Pengrowth by the corporate
secretary. The transactions have been recorded at the exchange amount. 17.  Amounts per Unit
The per unit amounts for net income are based on weighted average units
outstanding for the year. The weighted average units outstanding for 2003
were 115,912,374 units (2002  89,922,886 units). In computing diluted net
income per unit, 567,335 units were added to the weighted average number of
units outstanding during the year ended December 31, 2003 (2002  69,398)
for the dilutive effect of trust unit options and rights. 18.  Financial Instruments
INTEREST RATE RISK
On April 23, 2003, Pengrowth completed a U.S. $200 million private
placement of fixed rate seven and ten year term notes. Proceeds from the
notes were used to pay down existing floating rate bank debt. The interest
and principal payments on the term notes are payable in U.S. dollars.
Pengrowth had previously fixed the interest rates on $125 million of
Canadian bank debt using interest rate swaps. In 2003, Pengrowth terminated
these interest rate swaps at a total cost including accrued interest of
approximately $2,229,000. FOREIGN CURRENCY EXCHANGE RISK
Pengrowth is exposed to foreign currency fluctuations as crude oil and
natural gas prices received are referenced to U.S. dollar denominated
prices. Pengrowth has mitigated some of this exchange risk by entering into
fixed Canadian dollar crude oil and natural gas price swaps as outlined in
the forward and futures contracts section below. Pengrowth entered into a foreign exchange swap which fixed the Canadian to
U.S. dollar exchange rate at Cdn$1.55 per U.S.$1 on U.S.$750,000 per month
effective 2003 and 2004. This swap has mitigated a portion of the exchange
risk on U.S. dollar denominated gas sales. The estimated fair value of the
foreign exchange swap has been determined based on the amount Pengrowth
would receive or pay to terminate the contract at year end. At December 31,
2003, the amount Pengrowth would receive to terminate the foreign exchange
swap would be Cdn$2,169,000. Pengrowth Energy Trust    2003 annual report   89




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CREDIT RISK
Pengrowth sells a significant portion of its oil and gas to commodity
marketers, and the accounts receivable are subject to normal industry
credit risks. The use of financial swap agreements involves a degree of
credit risk that Pengrowth manages through its credit policies which are
designed to limit eligible counterparties to those with A credit ratings
or better. FORWARD AND FUTURES CONTRACTS
Pengrowth has a price risk management program whereby the commodity price
associated with a portion of its future production is fixed. Pengrowth
sells forward a portion of its future production through a combination of
fixed price sales contracts with customers and commodity swap agreements
with financial counterparties. As at December 31, 2003, Pengrowth had fixed the price applicable to future
production as follows: Crude Oil: Volume
    
    Reference
    
    PriceRemaining Term
    
    (bbl/d)
    
    Point
    
    Per bbl2004Financial:Jan 1, 2004  Dec 31, 2004
    
    
    9,500
    
    
    WTI (1)
    
    $38.11 Cdn
 Natural Gas: Volume
    
    Reference
    
    PriceRemaining Term
    
    (mmbtu/d)
    
    Point
    
    Per mmbtu2004Financial:Jan 1, 2004  Dec 31, 2004
    
    
    5,000
    
    
    Tetco M3 (1)
    
    $6.90 CdnJan 1, 2004  Dec 31, 2004
    
    
    7,000
    
    
    Transco Z6
    
    $3.90 U.S.
   (1)
    
    Associated CDN$ / U.S.$ foreign exchange rate has been fixed. The estimated fair value of the financial crude oil and natural gas
contracts has been determined based on the amounts Pengrowth would receive
or pay to terminate the contracts at year-end. At December 31, 2003, the
amounts Pengrowth would pay to terminate the financial crude oil and
natural gas contracts would be $4,401,000 and $9,768,000, respectively. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments included in the balance sheet,
other than long term debt, the note payable and remediation trust funds,
approximate their fair value due to their short maturity. The fair value of
the remediation trust funds at December 31, 2003, was $7,479,000 (2002 
$6,729,000). The fair value of the U.S. denominated debt approximates its 90   Pengrowth Energy Trust    2003 annual report




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##### Table of Contents



carrying value at December 31, 2003, as the rate on the debt did not vary
significantly from market rates. The fair value of the note payable
approximates its carrying value net of the imputed interest included in
deferred charges. 19.   Commitments
Pengrowth has future commitments under various agreements for oil and
natural gas pipeline transportation, the purchase of carbon dioxide and
operating leases. The commitment to purchase carbon dioxide arises as a
result of Pengrowths working interest in the Weyburn
CO2 miscible flood
project (1). 2004
    
    2005
    
    2006
    
    2007
    
    2008 Thereafter
    
    TotalPipeline
transportation
    
    $
    24,041
    
    
    $
    23,642
    
    
    $
    23,192
    
    
    $
    19,448
    
    
    $
    19,052
    
    
    $
    19,439
    
    
    $
    128,814Capital
expenditures
    
    
    46,242
    
    
    
    18,656
    
    
    
    17,405
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82,303CO2 purchases
    
    
    5,372
    
    
    
    6,534
    
    
    
    5,725
    
    
    
    4,830
    
    
    
    4,651
    
    
    
    30,396
    
    
    
    57,508Other
commitments
    
    
    1,216
    
    
    
    1,174
    
    
    
    732
    
    
    
    358
    
    
    
    165
    
    
    
    
    
    
    
    3,645$
    76,871
    
    
    $
    50,006
    
    
    $
    47,054
    
    
    $
    24,636
    
    
    $
    23,868
    
    
    $
    49,835
    
    
    $
    272,270
   (1)
    
    Contract prices for CO2 are denominated in U.S. dollars and have
been translated at the year end foreign exchange rate.  20.
    
    Reconciliation of Financial Statements to United States Generally
Accepted Accounting Principles The significant differences between Canadian generally accepted accounting
principles (Canadian GAAP) which, in most respects, conforms to generally
accepted accounting principles in the United States (U.S. GAAP), as they
apply to Pengrowth, are as follows:  (a)
    
    As required annually under U.S. GAAP, the carrying value of petroleum
and natural gas properties and related facilities, net of future or
deferred income taxes, is limited to the present value of after tax
future net revenue from proven reserves, discounted at 10 percent (based
on prices and costs at the balance sheet date), plus the lower of cost
and fair value of unproven properties. Prior to 2003, under Canadian
GAAP, the ceiling test was calculated without application of a
discount factor. At December 31, 1998 and 1997 the application of the
full cost ceiling test under U.S. GAAP resulted in a write-down of
capitalized costs of $328.6 million and $49.8 million, respectively. At
December 31, 2003 and 2002, the application of the full cost ceiling
test under U.S. GAAP did not result in a write-down of capitalized
costs.  Where the amount of a ceiling test writedown under Canadian GAAP differs
from the amount of the write-down under U.S. GAAP, the charge for
depletion, depreciation, and amortization will differ in subsequent
years. Pengrowth Energy Trust    2003 annual report   91




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(b)
    
    Under U.S. GAAP, interest and other income would not be included as a
component of Net Revenue.  (c)
    
    Effective January 1, 2003, Pengrowth prospectively adopted U.S.
standards relating to recognizing the compensation expense associated with
unit based compensation plans. Under U.S. GAAP Pengrowth adopted the following:  (i)
For trust unit options granted on or after January 1, 2003, the
estimated fair value of the options is recognized as an expense over
the vesting period. The compensation expense associated with trust unit
options granted prior to January 1, 2003 is disclosed on a pro forma
basis;(ii)
For rights incentive options granted on or after January 1,
2003, the estimated fair value of the rights, determined using a
modified Black-Scholes option pricing model, is recognized as an
expense over the vesting period. The compensation expense associated
with the rights granted prior to January 1, 2003 is disclosed on a pro
forma basis.  The following is the pro forma effect of trust unit options and rights
granted prior to January 1, 2003, had the fair value method of accounting
been used: Years ended December 31,
    
    2003
    
    2002Net income  U.S. GAAP, as reported
    
    $
    236,181
    
    
    $
    73,246Compensation expense related to trust unit
options granted prior to January 1, 2003
    
    
    (426
    )
    
    
    (890
    )Compensation expense related to rights incentive
options granted prior to January 1, 2003
    
    
    (1,279
    )
    
    
    (337
    )Pro forma net income  U.S. GAAP
    
    $
    234,476
    
    
    $
    72,019Pro forma net income  U.S. GAAP per unit:Basic
    
    $
    2.02
    
    
    $
    0.80Diluted
    
    $
    2.01
    
    
    $
    0.80
  (d)
    
    Marketable securities held by Pengrowth are classified as
available-for-sale in accordance with the definitions of Statement of
Financial Accounting Standards (SFAS) 115. Under provisions of this
Statement, available-for-sale securities are reported at fair value, with
unrealized holding gains and losses included in comprehensive income and
reported as a separate component of unitholders equity until realized.  (e)
    
    SFAS 130 requires the reporting of comprehensive income in addition to net
income.
Comprehensive income includes net income plus other comprehensive income;
specifically, all changes in equity of a company during a period arising
from non-owner sources.  (f)
    
    Effective January 1, 2002, Pengrowth retroactively adopted with
restatement of prior periods, a new Canadian accounting standard relating
to asset retirement obligations, as outlined in Note 2. Canadian standards
are consistent with the requirements under SFAS 143, Accounting for Asset
Retirement Obligations, except under U.S. GAAP the change 92   Pengrowth Energy Trust    2003 annual report




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was effective January 1, 2003. Under U.S. GAAP, prior periods are not
restated for the change in accounting policy and the effect of the
change is charged to income, not unitholders equity. The effect of the
change in accounting policy of $19,225,000 or $0.17 per unit basic and
diluted was charged to income in 2003.The following shows the effect of the change in accounting policy on the
2002 U.S. GAAP financial statements: As reported:Net income under U.S. GAAP
    
    $
    73,246Net income per unit under U.S. GAAPBasic
    
    $
    0.81Diluted
    
    $
    0.81Pro forma amounts assumed SFAS 143 was applied retroactively:Net income under U.S. GAAP
    
    $
    81,134Net income per unit under U.S. GAAPBasic
    
    $
    0.90Diluted
    
    $
    0.90ARO beginning of year
    
    $
    42,123ARO end of year
    
    $
    73,493
  Prior to January 1, 2003, U.S. GAAP required the provision for
abandonment costs to be recorded as a reduction of capital assets.(g)
    
    SFAS 133, Accounting for Derivative Instruments and Hedging
Activities establishes accounting and reporting standards for
derivative instruments and for hedging activities. This statement
requires an entity to establish, at the inception of a hedge, the method
it will use for assessing the effectiveness of the hedging derivative
and the measurement approach for determining the ineffective aspect of
the hedge. Those methods must be consistent with the entitys approach
to managing risk.  At December 31, 2003, $13,869,000 has been recorded as a current
liability in respect of the fair value of crude oil and natural gas
hedges outstanding at year end with a corresponding change in
accumulated other comprehensive income. At December 31, 2002,
$17,824,000 has been recorded as a liability in respect of fair value of
crude oil and natural gas hedges outstanding at year end with a
corresponding change in accumulated other comprehensive income. Of the
liability, $12,666,000 has been classified as current and $5,158,000 has
been classified as long term. These amounts will be recognized against
crude oil and natural gas sales over the remaining terms of the related
hedges. Pengrowth Energy Trust    2003 annual report   93




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At December 31, 2003, $300,000 has been recorded as a current liability
with respect to the ineffective portion of crude oil and natural gas
hedges outstanding at year end, with a corresponding change to net
income. At December 31, 2002, $960,000 has been recorded as a current
liability with respect to the ineffective portion of crude oil and
natural gas hedges outstanding at year end, with a corresponding change
to net income.  At December 31, 2003, a current asset of $2,169,000 has been recorded in
respect of the fair value of a foreign exchange swap outstanding at year
end with a corresponding change in accumulated other comprehensive
income. At December 31, 2002, a liability of $885,000 has been recorded
with respect to the fair value of a foreign exchange swap outstanding at
year end with a corresponding change in accumulated other comprehensive
income. Of this liability, $351,000 has been classified as current and
$534,000 has been classified as long term.  In 2003, Pengrowth terminated interest rate swaps at a total cost
including accrued interest of $2,229,000. The cost has been recorded as
an expense under Canadian GAAP. The unrealized hedging loss recorded in
other comprehensive income related to the interest rate swaps, as at
December 31, 2002 was $2,116,000.  (h)
    
    In 2003, the Financial Accounting Standards Board (FASB) issued FIN
46 (Revised) Consolidation of certain entities that are controlled through
financial interests that indicate control (referred to as variable
interests). Variable interests are the rights or obligations that convey
economic gains or losses from changes in the values of an entitys assets
or liabilities. The holder of the majority of an entitys variable
interests will be required to consolidate the variable interest entity.
Adopting the provisions of FIN 46 (Revised) had no impact on the U.S. GAAP
financial statements.  In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. This Statement establishes standards for how an issuer
classifies and measures in its statement of financial position certain
financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that
is within its scope as a liability (or an asset in some circumstances)
because the financial instrument embodies an obligation of the issuer.
Many of those instruments were previously classified as equity. Adopting
the provisions of SFAS No. 150 had no impact on the U.S. GAAP financial
statements. 94   Pengrowth Energy Trust    2003 annual report




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Consolidated Statements of Income
The application of U.S. GAAP would have the following effect on net income as
reported: (Stated in thousands of Canadian Dollars, except per unit amounts) Years ended December 31
    
    2003
    
    2002Net income for the year, as reported
    
    $
    189,297
    
    
    $
    56,955Adjustments:Depletion and depreciation (a)
    
    
    26,999
    
    
    
    26,363Effect of retroactive application with restatement
under Canadian GAAP (f)
    
    
    
    
    
    
    (7,888
    )Compensation expense (c)
    
    
    
    
    
    
    (1,224
    )Unrealized gain (loss) on ineffective portion of oil
and natural gas hedges (g)
    
    
    660
    
    
    
    (960
    )Net income before cumulative effect of change in
accounting policy under U.S. GAAP
    
    $
    216,956
    
    
    $
    73,246Cumulative effect of change in accounting policy (f)
    
    
    19,225
    
    
    
    Net income  U.S. GAAP
    
    $
    236,181
    
    
    $
    73,246Other comprehensive income:Unrealized gain on available for-sale-securities (d)(e)
    
    
    
    
    
    
    271Realized loss on available for-sale-securities (d)(e)
    
    
    (271
    )
    
    
    Realized gain on settlement of interest rate swaps (e)(g)
    
    
    2,116
    
    
    
    (2,116
    )Unrealized hedging gains (losses) (e)(g)
    
    
    7,009
    
    
    
    (20,903
    )Comprehensive income  U.S. GAAP
    
    $
    245,035
    
    
    $
    50,498Net income before cumulative effect of change
in accounting policy under U.S. GAAP:Basic
    
    $
    1.87
    
    
    $
    0.81Diluted
    
    $
    1.86
    
    
    $
    0.81Net income  U.S. GAAPBasic
    
    $
    2.04
    
    
    $
    0.81Diluted
    
    $
    2.03
    
    
    $
    0.81
 Pengrowth Energy Trust    2003 annual report   95




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Consolidated Balance Sheets
The application of U.S. GAAP would have the following effect on the Balance
Sheets as reported: Stated in thousands of Canadian Dollars As
    
    IncreaseDecember 31, 2003
    
    Reported
    
    (Decrease)
    
    U.S. GAAPAssets:Current portion of unrealized
hedging gain (g)
    
    $
    
    
    
    $
    2,169
    
    
    $
    2,169Capital assets (a)
    
    
    1,530,359
    
    
    
    (242,942
    )
    
    
    1,287,417$
    (240,773
    )Liabilities:Accounts payable and accrued
liabilities (g)
    
    $
    54,196
    
    
    $
    300
    
    
    $
    54,496Current portion of unrealized
hedging loss (g)
    
    
    
    
    
    
    13,869
    
    
    
    13,869Unitholders equity:Other comprehensive income (e)(g)
    
    
    
    
    
    
    (11,700
    )
    
    
    (11,700
    )Trust Unitholders Equity (a)
    
    
    1,159,433
    
    
    
    (243,242
    )
    
    
    916,191$
    (240,773
    )
 December 31, 2002Assets:Marketable securities (d)
    
    $
    1,906
    
    
    $
    271
    
    
    $
    2,177Capital assets (a)(f)
    
    
    1,493,047
    
    
    
    (362,659
    )
    
    
    1,130,388$
    (362,388
    )Liabilities:Accounts payable and accrued
liabilities (g)
    
    $
    43,092
    
    
    $
    960
    
    
    $
    44,052Current portion of unrealized
hedging loss (g)
    
    
    
    
    
    
    14,462
    
    
    
    14,462Long-term portion of unrealized
hedging loss (g)
    
    
    
    
    
    
    6,363
    
    
    
    6,363Provision for abandonment costs (f)
    
    
    73,493
    
    
    
    (73,493
    )
    
    
    Unitholders equity:Other comprehensive income (e)(g)
    
    
    
    
    
    
    (20,554
    )
    
    
    (20,554
    )Trust Unitholders Equity (a)(f)
    
    
    1,073,164
    
    
    
    (290,126
    )
    
    
    783,038$
    (362,388
    )
 96   Pengrowth Energy Trust    2003 annual report




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Additional disclosures required under U.S. GAAP The components of accounts receivable are as follows: December 31,
    
    2003
    
    2002Trade
    
    $
    52,663
    
    
    $
    35,148Prepaids
    
    
    9,759
    
    
    
    5,084Other
    
    
    3,148
    
    
    
    1,194$
    65,570
    
    
    $
    41,426
 The components of accounts payable and accrued liabilities are as follows: December 31,
    
    2003
    
    2002Accounts payable
    
    $
    41,694
    
    
    $
    29,806Accrued liabilities
    
    
    12,802
    
    
    
    14,246$
    54,496
    
    
    $
    44,052
 Pengrowth Energy Trust    2003 annual report   97




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APPENDIX E CORPORATE GOVERNANCE (INCLUDED ON PAGES 100 THROUGH 102 OF THE PENGROWTH ENERGY
TRUST 2003 ANNUAL REPORT)




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Corporate Governance Corporate Responsibility Pengrowth Energy Trust is in business to provide returns to Pengrowth
unitholders through competitive acquisitions and effective management of
our petroleum and natural gas properties. As a good corporate citizen we
also recognize that economic performance is not the only criteria on which
Pengrowth is evaluated. Pengrowth also supports a broad base of charitable
organizations and is actively involved in the community. Corporate Governance Practices The Board of Directors of Pengrowth Corporation seeks to comply with
prevailing standards for Corporate Governance in both Canada and the United
States. The trust units of Pengrowth Energy Trust are listed on both the
Toronto Stock Exchange and the New York Stock Exchange. Pengrowth Energy
Trust is an issuer in Canada and a foreign issuer in the United States. The Board of Directors of Pengrowth Corporation complies with the
guidelines for effective Corporate Governance of the Toronto Stock Exchange
and Pengrowths Corporate Governance practices in comparison with the TSX
best practices are disclosed in Pengrowths annual proxy materials. These
guidelines address the constitution of boards of directors and board
committees as well as their functions, their independence from management
and other means to promote sound Corporate Governance practices. Pengrowth is also considering the application of recent legislative changes
and the recommendations of influential organizations and commentators on
effective Corporate Governance. Multilateral Instrument 58-201 on effective
Corporate Governance was published for comment by the Canadian Securities
administrators (the CSA) and will be considered for implementation in
2005. The impact of Multilateral Instrument 52-101 in respect of audit
committee, Multilateral Instrument 52-109 in respect of the certification
of disclosure on issuers annual and interim filings and National
Instrument 51-101 in respect of standards of disclosure for oil and gas
activities are being considered by Pengrowth. In the United States, the two
most significant recent developments relate to the Sarbanes-Oxley Act of
2002 (SOX) and the Corporate Governance Listing Standards proposed by the
New York Stock Exchange (NYSE). The SOX stipulates a certification
process for financial results and internal financial statements by the
Chief Executive Officer and Chief Financial Officer. The Corporate
Governance Listings Standards establish mandatory Corporate Governance
practices for issuers listed on the NYSE addressing issues such as board
and committee independence and codes of conduct. Non-U.S. issuers listed on
the NYSE are required only to comply with the audit committee requirement
by July 31st, 2005 though such issuers much disclose either on their
websites or in their annual reports any significant differences between
their corporate governance practices and those required for U.S. issues.   100   Pengrowth Energy Trust    2003 annual report




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The following are important elements of our current Corporate Governance
practice:  
    
    The Board of Directors of the Corporation, Pengrowth Management
Limited and senior management of the Corporation consider good
Corporate Governance to be central to the effective and efficient
operation of Pengrowth Energy Trust and Pengrowth Corporation.
    
    Pengrowth Management Limited makes recommendations to the Board of
Directors as to the strategic direction of Pengrowth Corporation and
Pengrowth Energy Trust and as to acquisitions and divestitures. The
Board of Directors considers these recommendations and assumes
overall responsibility for the strategic direction of Pengrowth
Corporation and Pengrowth Energy Trust. The Board of Directors of
Pengrowth Corporation also considers management development and
succession programs, financing proposals including the issuance of
trust units and other securities as well as those matters which
require Board approval;
    
    Two members of the Board of Directors are considered related to the
Corporation and/or Pengrowth Energy Trust by virtue of their
appointment by Pengrowth Management Limited and other factors. The
remainder (up to six) of the Directors are independent in that they
have not worked for Pengrowth Corporation (nor Pengrowth Management
Limited) nor have they material contracts with Pengrowth Corporation
(nor Pengrowth Management Limited) nor have they received remuneration
from Pengrowth Corporation (nor Pengrowth Management Limited), other
than options or rights to acquire trust units, in excess of Directors
fees payable by Pengrowth Corporation;
    
    The Board of Directors has established a Corporate Governance and
Compensation Committee. This committee is comprised of four independent
directors and has activities which include:  
    
    adoption of a charter for
Corporate Governance, which has been ratified by the Board of Directors;
    
    development of procedures for assessing the effectiveness of the Board of
Directors, committees and individual directors;
    
    undertaking
responsibility for evaluating the performance of Pengrowth Management
Limited;
    
    adoption of a business code of ethics and policies on
disclosure and insider trading.
    
    the independent members of the Board of
Directors meet separately at meetings of the Board under the chairmanship
of a lead director;
    
    the audit committee of the Board of Directors is
comprised entirely of independent members of the Board and communicates
directly with the auditors of Pengrowth Corporation and Pengrowth Energy
Trust;
    
    the reserves committee of the Board has been appointed to review
Pengrowths standards for reporting reserves for its portfolio of oil and
natural gas properties. The reserves Pengrowth Energy Trust    2003 annual report   101




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committee communicates directly with Gilbert Laustsen Jung Associates
Ltd., Pengrowth Corporations independent engineers;  
    
    all stock option
and stock rights plans have been approved by the unitholders of
Pengrowth Energy Trust. Structure and Function The Board of Directors has general corporate authority over the business
and affairs of Pengrowth Corporation and derives its authority and respect
to Pengrowth Energy Trust by virtue of the delegation of powers of the
Trustee to Pengrowth Corporation as administrator in accordance with the
Trust Indenture. In accordance with the Royalty Indenture, Trust Indenture
and Unanimous Shareholders Agreement, the Trust unitholders and Royalty
unitholders empowered the Trustee and Pengrowth Corporation to delegate
authority to Pengrowth Management Limited. Pengrowth Management Limited
derives its authority from the Management Agreement with both Pengrowth
Corporation and Pengrowth Energy Trust. As a result neither Pengrowth
Management Limited nor the Board of Directors has plenary authority over
the business and affairs of Pengrowth Energy Trust or Pengrowth
Corporation. In practice, Pengrowth Management Limited defers to the Board
of Directors on all matters material to Pengrowth Corporation and Pengrowth
Energy Trust. The Board of Directors represents a cross-section of experience in matters
of oil and natural gas, finance and directors responsibilities. Four of
the six current members of the Board of Directors have been directors since
the formation of Pengrowth Corporation and Pengrowth Energy Trust. Thomas
A. Cumming has been a Director since April 2000 and Michael A. Grandin was
elected a director at the April 23rd, 2002 Special and Annual Meeting. Pengrowth Management Limited has broad discretion to administer and
regulate the day-to-day operations of Pengrowth Energy Trust and Pengrowth
Corporation and initiates acquisition and disposition activity. Mandate of Computershare as Trustee Computershare, as Trustee, has broad power over the administration and
management of Pengrowth Energy Trust and the power to delegate those duties
and responsibilities. This power is governed by the terms of the Trust
Indenture between Pengrowth Corporation and Computershare, subject to the
voting rights of the unitholders. All Trust unitholders and Royalty
unitholders other than Computershare, are entitled to attend and vote upon
all resolutions brought before meetings of the unitholders of Pengrowth
Corporation on the basis of one vote for each trust unit. 102   Pengrowth Energy Trust    2003 annual report




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APPENDIX F PART II - CORPORATE GOVERNANCE (INCLUDED ON PAGES 12 THROUGH 21 OF THE
PENGROWTH ENERGY TRUST INFORMATION CIRCULAR  PROXY STATEMENT (DATED MARCH 15, 2004)




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of credit facilities, the determination of cash distributions paid to Trust
Unitholders, the amendment of any of the constating documents of the
Corporation or Pengrowth Trust and the amount of the assumed expenses of the
Manager which are a portion of the compensation of the Manager. 
 PART II  CORPORATE GOVERNANCE 
 MANDATES OF THE TRUSTEE, THE MANAGER AND THE BOARD OF DIRECTORS The Corporation holds petroleum and natural gas rights and other assets. Under
the Royalty Indenture, a royalty was created representing 99% of the Royalty
Income, which is payable to Royalty Unitholders. Pengrowth Trust was created
for the purpose of issuing Trust Units to the public, facilitating an indirect
investment in Royalty Units and other permitted investments under the Trust
Indenture. Pengrowth Trust holds Royalty Units, interests in certain petroleum
and natural gas facilities, cash and other assets. The Trust Units of Pengrowth
Trust are listed on the Toronto Stock Exchange (the TSX) and on the New York
Stock Exchange (the NYSE) and Pengrowth Trust is therefore subject to the
corporate governance listing requirements of both exchanges. Under the terms of the Trust Indenture, the Trustee is empowered to exercise
those rights and privileges that could be exercised by a beneficial owner of
the assets of Pengrowth Trust in respect of the administration and management
of Pengrowth Trust. The Trustee is permitted to delegate certain of the powers
and duties of the Trustee to any one or more agents, representatives, officers,
employees, independent contractors or other persons. However, specific powers
are delegated to the Corporation as Administrator under the Trust Indenture
and the Trustee has granted broad discretion to the Manager to administer and
regulate the day to day operations of Pengrowth Trust. The powers of the
Trustee are also limited through the voting rights of Trust Unitholders. Under the Management Agreement, the Manager is empowered to act as agent for
Pengrowth Trust in respect of various matters, to execute documents on behalf
of the Trustee and to make executive decisions which conform to general
policies and general principles previously established by the Trustee. The
Manager is empowered to undertake, on behalf of the Corporation and Pengrowth
Trust, subject to the Royalty Indenture, all matters pertaining to the
properties of the Corporation. See Management Agreement. Under the Royalty Indenture, the Corporation makes all operating decisions with
respect to the properties of the Corporation. Under the Trust Indenture,
general powers have been delegated to the Corporation as the Administrator of
Pengrowth Trust to perform those functions of the Trustee which are largely
discretionary, subject to the powers and duties of the Manager. Additionally,
specific powers have been delegated to the Corporation in relation to the
offering of securities, the acquisition of facilities and other assets, the
incurring of indebtedness, the granting of security and the determination of
distributable income. In accordance with the terms of the Unanimous Shareholder Agreement, all
Royalty Unitholders other than the Trustee, and all Trust Unitholders are
entitled to attend at, and vote upon, all resolutions brought before meetings
of the Shareholders of the Corporation on the basis of one vote for each Unit
held. Currently, the Unanimous Shareholder Agreement also provides that the
Board of Directors shall consist of two nominees of the Manager and up to six
directors who are elected by the Trust Unitholders of Pengrowth Trust. The
Board of Directors meets a minimum of four times each year, once in each fiscal
quarter. In addition, the Board of Directors meets at other times when matters
requiring its approval are raised and the timing is such that it is not prudent
or possible to await a regularly scheduled quarterly meeting. During 2003,
eight regularly constituted Board of Directors meetings were held. - 12 -




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BOARD INDEPENDENCE The NYSE listing standards state that a majority of directors be independent.
An independent director is defined as one who is independent of the Manager and
is free from any interest or any business or other relationship which could, or
could reasonably be perceived to, materially interfere with the directors
ability to act with a view to the best interests of the issuer, other than
interests and relationships arising from shareholdings. In addition, the TSX
Company Manual recommends that the board of directors of every issuer be
constituted with a majority of individuals who qualify as unrelated
directors. An unrelated director is a director who is independent of the
Manager and is free from any interest and any business or other relationship
which could, or could reasonably be perceived to, materially interfere with the
directors ability to act with a view to the best interest of Pengrowth Trust. Five of seven directors recommended for election to the Board of Directors are
independent directors under the NYSE requirements and five of the seven
directors are unrelated. Mr. James S. Kinnear, who is Chairman, President and
Chief Executive Officer of the Corporation as well as President and Chief
Executive Officer of the Manager, is not independent of either entity and is a
related director. Mr. Stanley H. Wong may be considered not to be independent
and is a related director as he is the Managers additional appointee to the
Board of Directors pursuant to the terms of the Unanimous Shareholder
Agreement. However, Mr. Wong is neither engaged by the Manager nor by the
Corporation and receives remuneration solely in his capacity as a director of
the Corporation. The remainder of the directors are independent and unrelated,
in that they have not worked for the Corporation (or the Manager) nor do they
have material contracts with the Corporation (or the Manager) or receive
remuneration from the Corporation (or the Manager), other than Trust Unit
Options and Trust Unit Rights, in excess of directors fees payable by the
Corporation. 
 BOARD APPROVALS AND STRUCTURE The Manager makes recommendations to the Board of Directors as to the strategic
direction of the Corporation and Pengrowth Trust. The Board of Directors
considers these recommendations and assumes overall responsibility for the
strategic direction of the Corporation and Pengrowth Trust through the annual
consideration of a strategic plan and budget. Criteria are approved by the
Board of Directors for the acquisition and disposition of oil and natural gas
properties and other permitted investments. The Manager has general power under the Management Agreement to conduct
acquisitions and dispositions and the operation of properties. Because of the
structure created by the Trust Indenture, the Royalty Indenture and the
Unanimous Shareholder Agreement, neither the Manager nor the Board of Directors
has plenary authority over the businesses and affairs of Pengrowth Trust and
the Corporation. The Trustee responds to directions from the Manager and from
the Board of Directors (with respect to the Corporation as administrator of
Pengrowth Trust) within the scope of the authority of the Trustee and the
Trustees power to delegate. The Board of Directors responds to recommendations brought forward by the
Manager to the Board of Directors on material matters impacting the Corporation
and Pengrowth Trust. Practically, the Manager defers to the Board of Directors
in respect of all matters which may have a material impact upon the business
and undertaking of the Corporation, Pengrowth Trust, the Royalty Unitholders or
the Trust Unitholders. Reliance is placed upon independent engineering, legal
and accounting consultants where appropriate. The Board of Directors represents a cross-section of experience in matters of
oil and gas, finance and directors responsibilities. Three of the seven
nominated members of the Board of Directors have been directors since the
formation of the Corporation and Pengrowth Trust. Thomas A. Cumming has been a
director since April 2000 and Michael A. Grandin has been a director since
April 2002. Michael S. - 13 -




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Parrett and William R. Stedman have been nominated for election to the Board of
Directors at the 2004 Annual Meeting. Mr. Parrett is a chartered accountant
with extensive financial and management experience and Mr. Stedman is a
professional engineer with extensive technical, financial and management
experience. 
 BOARD COMMITTEES The Audit Committee of the Board of Directors is currently comprised of four of
the independent, unrelated directors. The Board of Directors has a Corporate
Governance/Compensation Committee which is also comprised of four independent,
unrelated directors. The Board of Directors has also formed a Reserves
Committee comprised of two directors, one of whom is an independent, unrelated
director, to review the assumptions and practices and results in respect to the
preparation of independent reserve reports for the oil and gas assets of the
Corporation and the reporting thereof. There are no other committees of the
Board of Directors. In respect of matters such as discussions concerning the Management Agreement
or related party transactions, representatives of the Manager disclose their
conflict of interest and absent themselves from discussions and voting. 
 STATEMENT OF CORPORATE GOVERNANCE PRACTICES The Board of Directors and the Manager support the Guidelines for Corporate
Governance (the TSX Guidelines) adopted by the TSX. On November 4, 2003, the
NYSE adopted a number of changes to the standards for issuers listed on the
NYSE, such as Pengrowth Trust. The changes to the NYSE listing standards are
not mandatory for Pengrowth Trust, but any differences in Pengrowth Trusts
corporate governance practices and the NYSE rules must be disclosed by
Pengrowth Trust in its annual 40F filing with the Securities and Exchange
Commission in the United States. Certain provisions of SOX and certain rules
adopted and proposed by the United States Securities and Exchanges Commission
(SEC) pursuant to the requirements of SOX, which are applicable to Pengrowth
Trust, also influence Pengrowth Trusts approach to corporate governance. The
Corporate Governance/Compensation Committee of the Board of Directors continues
to monitor proposed amendments to Canadian and United States corporate
governance practices and will take appropriate action in response to any new
standards which are established. Pengrowth is also considering the application of recent legislative changes and
the recommendations of influential organizations and commentators on effective
Corporate Governance. Multilateral Instrument 58-201 on effective Corporate
Governance was published for comment by the Canadian Securities Administrators
(the CSA) and will be considered for implementation in 2005. The impact of
Multilateral Instrument 52-101 in respect of audit committee, Multilateral
Instrument 52-109 in respect of certification of disclosure on issuers annual
and interim filings and National Instrument 51-101 in respect of standards of
disclosure for oil and gas activities are being considered by Pengrowth. The Board of Directors, the Manager and senior management consider good
corporate governance to be central to the effective and efficient operation of
Pengrowth Trust and the Corporation. The Board of Directors has general
corporate authority over the business and affairs of the Corporation and
derives its authority in respect to Pengrowth Trust by virtue of the delegation
of powers by the Trustee to the Corporation as Administrator in accordance
with the Trust Indenture. In accordance with the Royalty Indenture, Trust
Indenture and Unanimous Shareholder Agreement the Trust Unitholders and Royalty
Unitholders empowered the Trustee and the Corporation to delegate authority to
the Manager. The Manager derives its authority from the Management Agreement
with both the Corporation and Pengrowth Trust. In practice, the Manager defers
to the Board of Directors on all matters material to the Corporation and
Pengrowth Trust. - 14 -




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The following is a statement of the Corporations existing corporate governance
practices with specific reference to the TSX Guidelines.  1.
    
    The board of directors of every corporation should explicitly assume
responsibility for the stewardship of the corporation and, as part of the
overall stewardship responsibility, should assume responsibility for the
following matters:  The Board of Directors is responsible for the overall stewardship of the
Corporation and Pengrowth Trust and in setting corporate strategy and
direction. The Board of Directors has overall responsibility for the
management and supervision of the affairs of the Corporation and
Pengrowth Trust. The Board of Directors has established administrative
procedures which prescribe the rules governing the approval of
transactions carried out in the course of the Corporations operations,
the delegation of authority and the execution of documents on behalf of
the Corporation. The Board of Directors reviews and approves various
matters, including the appointment of corporate officers, as well as the
annual capital and operating budgets and authorization of unbudgeted
investments and divestitures above a specified dollar threshold. The
Board of Directors expectations of management of the Corporation are
communicated directly to management and through committees of the Board
of Directors. More specifically, the Board of Directors assumes the
following principal responsibilities:  (a)
    
    adoption of a strategic planning process;  The Board of Directors considers management development and succession
programs, strategic business developments such as significant
acquisitions, and financing proposals including the issuance of Trust
Units and other securities, as well as those matters requiring the
approval of the Board of Directors. The Board of Directors conducts an
annual strategic planning process.  As part of the strategic planning process conducted in 2003, senior
officers of the Corporation and the general management of the Corporation
held several meetings and put forward their views. This input from
senior members of management was used as part of the background
information reviewed by the Board of Directors to assist them in
developing the Corporations strategic plan.  (b)
    
    the identification of the principal risks of the corporations
business and ensuring the implementation of appropriate systems to manage
these risks;  The Board of Directors ensures that a system is in place to identify the
principal risks to the Corporation and to monitor the process to manage
such risks. The Audit Committee reviews and approves Managements
identification of principal financial risks and monitors the process to
manage such risks.  (c)
    
    succession planning, including appointing, training and monitoring
senior management;  The Corporate Governance/Compensation Committee, in conjunction with the
Manager, is responsible for appointing officers and other key employees
on behalf of the Corporation, planning for the succession of the
directors, officers and key employees; and reviewing the performance of
senior management.  The Corporate Governance/Compensation Committee reviews the performance
of senior members of management and also the total compensation paid to
those individuals, including salary, bonus and options. The Committee
also reviews the process and background information used to determine
overall compensation in reference to industry data, performance and
future objectives. - 15 -




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(d)
    
    a communications policy for the corporation; and  The Board of Directors has approved a Corporate Disclosure Policy to
ensure timely, accurate, credible and balanced disclosure of material
information in respect of Pengrowth Trust and the Corporation. The
policy in place outlines the procedures and practical guidelines for the
consistent, transparent, regular and timely public disclosure and
dissemination of material and non-material information about the
Corporation and Pengrowth Trust. Under the policy, a Disclosure Policy
Committee has been established by the Board of Directors and includes the
Chief Executive Officer, Chief Financial Officer, Lead Director and
Corporate Secretary. It is this committees responsibility to monitor the
effectiveness of and compliance with the Corporate Disclosure Policy and
educate directors, officers and employees as to disclosure issues.  The Corporate Disclosure Policy has been provided to all staff to ensure
employees are aware of the procedures in place regarding information
being disclosed to the public.  (e)
    
    the integrity of the corporations internal control and management
information systems.  The Audit Committee: (a) monitors the integrity of the Corporations
financial reporting process and systems of internal controls regarding
finance, accounting, and legal compliance; (b) monitors the independence
and performance of the Corporations independent auditors; and (c)
provides an avenue of communication among the independent auditors,
management and the Board of Directors.  The Audit Committee has approved a process that will be used to review
managements internal controls and procedures.  In order to comply with Section 404 of the SOX, which involves the
Corporations internal control over financial reporting, management is
reviewing and testing the companys internal controls over financial
reporting. The Board of Directors is provided with regular updates from
management on this process. This process needs to be complete and in
place for year end 2005 reporting. However, it is managements intention
to complete the review in 2004.  2.
    
    The board of directors of every corporation should be constituted with a
majority of individuals who qualify as unrelated directors. An unrelated
director is a director who is independent of management and is free from
any interest and any business or other relationship which could, or could
reasonably be perceived to, materially interfere with the directors
ability to act with a view to the best interests of the Corporation, other
than interests and relationships arising from shareholding. A related
director is a director who is not an unrelated director. If the
corporation has a significant shareholder, in addition to a majority of
unrelated directors, the board should include a number of directors who do
not have interests in or relationships with either the corporation or the
significant shareholder and which fairly reflects the investment in the
corporation by Shareholders other than the significant shareholder. A
significant shareholder is a shareholder with the ability to exercise a
majority of the votes for the election of the board of directors.  The Board of Directors is presently comprised of six members, four of
whom are independent and unrelated and two are appointments of the
Manager, one of whom is the President, Chairman and Chief Executive
Officer of the Corporation.  The Manager is entitled to appoint two members to the Board of Directors
in accordance with the Management Agreement. The balance are to be
appointed by the Trust Unitholders. - 16 -




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##### Table of Contents



The two new nominees to the Board of Directors would also be considered
independent and unrelated.  3.
    
    The application of the definition of unrelated director to the
circumstances of each individual director should be the responsibility of
the board which will be required to disclose on an annual basis whether
the board has a majority of unrelated directors, in the case of a
corporation with a significant shareholder, whether the board is
constituted with the appropriate number of directors which are not related
to either the corporation or the significant shareholder. Management directors are related directors. The board will also be
required to disclose on an annual basis the analysis of the application
of the principles supporting this conclusion.  The Board of Directors is presently composed of a majority of unrelated
directors and will be comprised of a majority of unrelated directors upon
election of the directors proposed at the Shareholder Meeting:
Thomas A. Cumming  unrelated director
Michael A. Grandin  unrelated director
James S. Kinnear  related director (Chairman, President and Chief Executive Officer)
Francis G. Vetsch  retiring unrelated director
Michael S. Parrett  unrelated director nominee
William R. Stedman  unrelated director nominee
Stanley H. Wong  related director (appointed by the Manager*)
John B. Zaozirny  unrelated director (Lead Director)  *
    Although Mr. Wong is appointed by the Manager, he holds no position
with the Manager and has not had a financial connection to the Manager
for more than 10 years.  4.
    
    The board of directors of every corporation should appoint a committee of
directors composed exclusively of outside, i.e., non-management,
directors, a majority of whom are unrelated directors, with the
responsibility for proposing to the full board new nominees to the board
and for assessing directors on an ongoing basis.  The Corporate Governance/Compensation Committee is presently composed of
four directors, all of whom are independent directors. This committees
responsibilities include proposing to the Board of Directors new nominees
to the Board of Directors and assessing each directors performance on an
ongoing basis. In assessing new nominees, the Corporate
Governance/Compensation Committee seeks to ensure that there is a
sufficient range of skills, expertise and experience to ensure that the
Board of Directors can carry out its mandate and functions effectively.
The Corporate Governance/Compensation Committee receives and evaluates
suggestions for candidates from individual directors, the President and
Chief Executive Officer and from professional search organizations.
During 2003 the Corporate Governance/Compensation Committee initiated a
search process to seek two new directors of the Corporation, one with
financial expertise and the second with technical/engineering expertise.
Many candidates were considered and ultimately Korn/Ferry International
were retained resulting in the two nominees proposed for election at the
Shareholders Meeting.  5.
    
    Every board of directors should implement a process to be carried out by
the nominating committee or other appropriate committee for assessing the
effectiveness of the board as a whole, the committees of the board and the
contribution of individual directors.  The Corporate Governance/Compensation Committee is responsible for
assessing the effectiveness of the Board of Directors, its committees and
individual directors. The Corporate Governance/Compensation Committee is
also responsible for evaluating the performance of the - 17 -




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##### Table of Contents



Manager and, if necessary, negotiating the Management Agreement and
making recommendations to the Trust Unitholders as to the Manager and the
terms of the Management Agreement.  The Corporate Governance/Compensation Committee has developed an Annual
Effectiveness Survey which includes evaluating board responsibility,
board operations and board effectiveness. The Survey is completed by each
Director and submitted anonymously. The collated results are then
reviewed by the President and Lead Director. During 2003, the Corporate
Governance/Compensation Committee negotiated a new Management Agreement
with the Manager.  6.
    
    Every corporation, as an integral element of the process for appointing
new directors, should provide an orientation and education program for new
recruits to the board.  The Corporate Governance/Compensation Committee is responsible for
procedures for the orientation and education of new board members
concerning their role and responsibilities and for the continued
development of existing members of the Board of Directors. Materials have
been prepared for review by new directors in respect of the structure,
business and results of Pengrowth Trust.  7.
    
    Every board of directors should examine its size and, with a view to
determining the impact of the number upon effectiveness, undertake where
appropriate, a program to reduce the number of directors to a number which
facilitates more effective decision making.  A board of directors must have enough directors to carry out its duties
efficiently while presenting a diversity of views and experiences. The
Board of Directors currently has six members. The size of the Board of
Directors and criteria for new directors are reviewed by the Corporate
Governance/Compensation Committee and suitable candidates are identified.  Over the past year the Corporte Governance/Compensation Committee has
reviewed the size of the Board of Directors, the experience of existing
members and the increasing time commitments required of Directors. Once
this review was complete criteria were set for new directors including a
requirement for additional financial expertise and for additional
technical expertise to replace the expertise of Mr. Francis G. Vetsch who
has declined to stand for reelection to the Board. After an extensive
search by the Committee and the President and Chief Executive Officer
suitable candidates were identified and brought forward to the Board of
Directors. The names of two new director nominees are being put forward
for approval at the Shareholders Meeting.  8.
    
    The board of directors should review the adequacy and form of the
compensation of directors and ensure the compensation realistically
reflects the responsibilities and risk involved in being an effective
director.  The Corporate Governance/Compensation Committee reviews and makes
recommendations to the Board of Directors on the adequacy and form of the
compensation of directors and the compensation to be paid to committee
members and to the lead director based upon comparable available industry
data.  9.
    
    Committees of the board of directors should generally be composed of
outside directors, a majority of whom are unrelated directors, although
some board committees, such as the executive committee, may include one or
more inside directors. - 18 -




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The Board of Directors annually appoints members to its committees. The
committees presently established by the Board of Directors are composed as
follows: Audit Committee
    
    Thomas A. Cumming, Chairman
    
    unrelated directorJohn B. Zaozirny
    
    unrelated directorFrancis G. Vetsch*
    
    unrelated directorMichael A. Grandin
    
    unrelated directorCorporate Governance/
    
    John B. Zaozirny, Chairman
    
    unrelated directorCompensation Committee
    
    Michael A. Grandin
    
    unrelated directorThomas A. Cumming
    
    unrelated directorFrancis G. Vetsch*
    
    unrelated directorReserves Committee
    
    Francis G. Vetsch*
    
    unrelated directorStanley H. Wong
    
    related director
  *
    Mr. Francis G. Vetsch has advised the Board of Directors that he does
not propose to stand for re-election.  In addition, the Board of Directors has established a Disclosure Policy
Committee that includes: the lead director  John B. Zaozirny  unrelated
director, the Chief Executive Officer  James S. Kinnear  related
director, Chief Financial Officer  Robert B. Hodgins and Corporate
Secretary  Charles V. Selby.  10.
    
    Every board of directors should expressly assume responsibly for, or assign
to a committee of directors the general responsibility for, developing the
corporations approach to governance issues. This committee would, amongst
other things, be responsible for the corporations response to these governance
guidelines.  The Corporate Governance/Compensation Committee is responsible for
corporate governance issues and the implementation of the TSX Guidelines.
The Corporate Governance/Compensation Committee is responsible for
reviewing and providing recommendations for improvement to the Board of
Directors with respect to all aspects of corporate governance. The
Corporation has in place a Code of Business Conduct and a Code of Ethics
for all employees and agents of the Corporation; Terms of Reference for
the Corporate Governance/Compensation Committee; a Corporate Governance
Policy for the Board of Directors; Terms of Reference for the Chairman of
the Board of Directors and the lead director; and a Charter for the Audit
Committee.  The Corporate Governance/Compensation Committee reviews new corporate
governance information on an ongoing basis to ensure they are following
best practices suggested in this area.  11.
    
    The board of directors, together with the Chief Executive Officer, should
develop position descriptions for the board and for the Chief Executive
Officer, involving the definition of the limits to managements
responsibilities. In addition, the board should approve or develop the
corporate objectives which the Chief Executive Officer is responsible for
meeting.  The Board of Directors has adopted guidelines for the responsibilities of
the Board of Directors and has in place Terms of Reference for the
positions of lead director and Chairman of the Board of Directors. The
responsibilities of the Manager are set out in the Management Agreement.
The Corporate Governance/Compensation Committee will set annual
performance objectives in discussions with the Manager in conjunction
with the Board of Directors strategic planning and budgeting processes. - 19 -




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##### Table of Contents



12.
    
    Every board of directors should have in place appropriate structures and
procedures to ensure that the board can function independently of management.
An appropriate structure would be to (i) appoint a chair of the board who is
not a member of management with responsibility to ensure the board discharges
its responsibilities or (ii) adopt alternate means such as assigning this
responsibility to a committee of the board or to a director, sometimes referred
to as the lead director. Appropriate procedures may involve the board meeting
on a regular basis without management present or may involve expressly
assigning the responsibility for administering the boards relationship to
management to a committee of the board.  The Board of Directors derives its authority with respect to Pengrowth
Trust from the duties delegated to the Corporation as Administrator by
the Trustee in accordance with the Trust Indenture. The Trustee also
delegates certain powers to the Manager in accordance with the terms of
the Management Agreement. In practice, the Manager defers to the Board of
Directors on all material matters. The Board of Directors is composed of
a majority of independent directors. In matters that require independence
of the Board of Directors, only the independent directors participate in
the decision making and evaluation.  The Board of Directors have appointed a lead director who is not a member
of management. The Board of Directors meets independently of management
at all board and committee meetings.  13.
    
    The audit committee of every board of directors should be composed only of
outside directors. The roles and responsibilities of the audit committee should be
specifically defined so as to provide appropriate guidance to audit
committee members as to their duties. The audit committee should have
direct communication channels with the internal and external auditors to
discuss and review specific issues as appropriate. The audit committee
duties should include oversight responsibility for management reporting
on internal control. While it is managements responsibility to design
and implement an effective system of internal control, it is the
responsibility of the audit committee to ensure that management has done
so.  The Audit Committee is composed of four independent, unrelated directors.
The mandate of the Audit Committee is set forth in the Audit Committee
Charter, which the Board of Directors adopted July 30, 2001. The charter
directs the Audit Committee to: (a) monitor the integrity of the
companys financial reporting process and systems of internal controls
regarding finance, accounting, and legal compliance; (b) monitor the
independence and performance of the companys independent auditors; and
(c) provide an avenue of communication among the independent auditors,
management and the Board of Directors.  The Board of Directors notes that the Canadian Securities Administrators
have recently adopted Multilateral Instrument 52-110  Audit Committees
(MI 52-110) which will become effective for Pengrowth Trust on the
earlier of its next annual unitholders meeting and July 1, 2005. The
Board of Directors is currently reviewing Pengrowth Trusts practices to
determine compliance to MI 52-110. The Board of Directors expects that,
given its historical focus on corporate governance, only minor changes
will be necessary.  The Audit Committee meets independently with the external auditor of the
Corporation on a regular basis.  14.
    
    The board of directors should implement a system which enables an
individual director to engage an outside adviser at the expense of the
corporation in appropriate circumstances. The engagement of the outside
advisor should be subject to the approval of an appropriate committee of the
board. - 20 -




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##### Table of Contents



The Corporate Governance Policy of the Board of Directors permits
directors to engage outside advisors at the Corporations expense with
the approval of the Board of Directors. The Board of Directors has approved the following charters and policies in
respect to corporate governance: DATE OF APPROVAL BY THECHARTER/POLICY
    
    BOARD OF DIRECTORS1.
    
    Policy on Trading in Securities by Directors, Officers and
Employees
    
    October 30, 20032.
    
    Corporate Disclosure Policy
    
    March 3, 20033.
    
    Code of Business Ethics
    
    November 19, 20024.
    
    Authority Levels
    
    November 19, 20025.
    
    Terms of Reference  Corporate Governance/Compensation
Committee
    
    July 30, 20026.
    
    Corporate Governance Policy
    
    July 30, 20027.
    
    Terms of Reference Chairman of the Board of Directors
    
    July 30, 2002Terms of Reference Lead Director8.
    
    Audit Committee Charter
    
    July 30, 20019.
    
    Internet Policy
    
    July 21, 1999
 
 OTHER MATTERS The Manager knows of no amendment, variation or other matter to come before the
Meetings other than the matters referred to in the Notices of Meetings. If any
other matter properly comes before the Meetings, however, the enclosed proxies
will be voted on such matter in accordance with the best judgment of the person
or persons voting the proxies. 
 PART III  MATTERS TO BE CONSIDERED AT THE SHAREHOLDER MEETING 
 APPOINTMENT OF AUDITORS The Unitholders will be asked to consider a resolution to appoint the firm of
KPMG LLP, Chartered Accountants, of Calgary, Alberta, as auditors of the
Corporation, to hold office until the next annual meeting of the Shareholders
or until their successor is elected or appointed, at the remuneration to be
fixed by the Board of Directors. 
 ELECTION OF DIRECTORS The current directors of the Corporation are James S. Kinnear, John B.
Zaozirny, Stanley H. Wong, Francis G. Vetsch, Thomas A. Cumming and Michael A.
Grandin. Mr. Vetsch has advised the board that he does not propose to stand for
reelection. Mr. Vetsch is a professional engineer with extensive oil and
natural gas management experience who has capably served as a member of the
board of directors since inception of the fund in 1988. Pursuant to the Unanimous Shareholder Agreement, the Corporation shall have a
Board of Directors of a minimum of three and a maximum of eight members, two of
whom are to be appointed by the Manager. It is the intention of the Manager to
appoint James S. Kinnear and Stanley H. Wong as directors. The - 21 -




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APPENDIX G OIL AND GAS PRODUCING ACTIVITIES PREPARED IN ACCORDANCE WITH SFAS NO. 69 
DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES.




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##### Table of Contents



SUPPLEMENTAL INFORMATION  OIL AND GAS PRODUCING ACTIVITIES
(unaudited) The following disclosures have been prepared in accordance with SFAS No. 69 
disclosures about Oil and Gas Producing Activities.: OIL AND GAS RESERVES Users of this information should be aware that the process of estimating
quantities of proved and proved developed crude oil and natural gas
reserves is very complex, requiring significant subjective decisions in the
evaluation of all available geological, engineering and economic data for each
reservoir. The data for a given reservoir may also change substantially over
time as a result of numerous factors including, but not limited to, additional
development activity, evolving production history, and continual reassessment
of the viability of production under varying economic conditions.
Consequently, material revisions to existing reserve estimates occur from time
to time. Although every reasonable effort is made to ensure that reserve
estimates reported represent the most accurate assessments possible, the
significance of the subjective decisions required and variances in available
data for various reservoirs make these estimates generally less precise than
other estimates presented in connection with financial statement disclosures. Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods. Canadian provincial royalties are determined based on a graduated percentage
scale which varies with prices and production volumes. Canadian reserves, as
presented on a net basis, assume prices and royalty rates in existence at the
time the estimates were made, and the Trusts estimate of future production
volumes. Future fluctuations in prices, production rates, or changes in
political or regulatory environments could cause the Trusts share of future
production from Canadian reserves to be materially different from that
presented. Subsequent to December 31, 2003 no major discovery or other favorable or
adverse event is believed to have caused a material change in the estimates of
proved or proved developed reserves as of that date. RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES The following table sets forth revenue and direct cost information relating to
the Trusts oil and gas producing activities for the years ended December 31. (thousands of dollars)
    
    2003
    
    2002RevenueSales
    
    $
    577,616
    
    
    $
    408,630DeductProduction costs
    
    
    143,453
    
    
    
    125,558Amortization of injectant costs
    
    
    32,541
    
    
    
    44,330Technical support and other
    
    
    5,579
    
    
    
    4,244Depletion, depreciation and
amortization and valuation
provision
    
    
    158,271
    
    
    
    112,511Results of operations from
producing activities
    
    $
    237,772
    
    
    $
    121,987




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##### Table of Contents



1.
    
    The costs in this schedule exclude corporate overhead, interest expense
and other operating costs which are not directly related to producing
activities. COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES Costs incurred in oil and gas
producing activities for the years ended December 31 are as follows: (thousands of dollars)
    
    2003
    
    2002Property Acquisition CostsProved
    
    $
    122,964
    
    
    $
    391,761Development Costs
    
    
    85,718
    
    
    
    55,631Injectant Costs
    
    
    23,037
    
    
    
    15,107$
    231,719
    
    
    $
    462,499
 Acquisition costs include costs incurred to purchase, lease, or otherwise
acquire oil and gas properties. Development costs include the costs of drilling and equipping development wells
and facilities to extract, treat and gather and store oil and gas. Injectants (mostly ethane and methane) are used in miscible flood programs to
stimulate incremental oil recovery. The cost of injectants purchased from
third parties for miscible flood projects is deferred and amortized over the
period of expected future economic benefit which is estimated as 30 months. General and administrative costs are not capitalized other than to the extent
they are directly related to a successful acquisition, or to the extent of the
Trusts working interest in exploration or development projects to which
overhead fees can be recovered from partners. Overhead fees are not charged on
100% owned projects. There were no oil and gas property costs not being amortized in any of the
years presented. CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES The capitalized costs and related accumulated depreciation, depletion and
amortization, including impairments, relating to the Trusts oil and gas
exploration, development and producing activities at December 31 consist of: (thousands of dollars)
    
    2003
    
    2002Proved oil and gas properties
    
    $
    2,305,462
    
    
    $
    1,976,802Less accumulated depletion, depreciation and amortization
    
    
    (1,018,045
    )
    
    
    (846,415
    )Net capitalized costs
    
    $
    1,287,417
    
    
    $
    1,130,388




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##### Table of Contents



OIL AND GAS RESERVE INFORMATION All of the Trusts proved oil, natural gas liquids, and natural gas reserves
are located in Canada, primarily in the provinces of Alberta, British Columbia,
Saskatchewan and Nova Scotia. The Trusts proved developed and undeveloped
reserves after deductions of royalties are summarized below: Crude Oil andNatural Gas
    
    NaturalLiquids
    
    GasMMbbls
    
    BcfNET PROVED DEVELOPED AND
UNDEVELOPED RESERVES AFTER
ROYALTIESEnd of year 2001
    
    
    90.9
    
    
    
    330.3Revision of previous estimates
    
    
    (3.0
    )
    
    
    (22.1
    )Purchase of reserves in place
    
    
    13.4
    
    
    
    73.2Sales of reserves in place
    
    
    (4.2
    )
    
    
    (16.5
    )Discoveries and extensions
    
    
    0.1
    
    
    
    3.2Production
    
    
    (7.4
    )
    
    
    (32.1
    )End of year 2002
    
    
    89.8
    
    
    
    336.0Revision of previous estimates
    
    
    (4.6
    )
    
    
    (33.8
    )Purchase of reserves in place
    
    
    0.3
    
    
    
    0.6Sales of reserves in place
    
    
    (0.2
    )
    
    
    (0.6
    )Discoveries and extensions
    
    
    0.1
    
    
    
    3.0Production
    
    
    (8.1
    )
    
    
    (33.8
    )End of year 2003
    
    
    77.3
    
    
    
    271.4NET PROVED DEVELOPED
RESERVES AFTER ROYALTIESEnd of year 2001
    
    
    65.9
    
    
    
    231.6End of year 2002
    
    
    66.6
    
    
    
    233.2End of year 2003
    
    
    60.6
    
    
    
    219.9
   Notes:1.
    
    Net after royalty reserves are the Trusts lessor royalty, overriding
royalty, and working interest share of the gross remaining reserves, after
deduction of any crown, freehold and overriding royalties. Such royalties
are subject to change by legislation or regulation and can also vary
depending on production rates, selling prices and timing of initial
production.2.
    
    Reserves are the estimated quantities of crude oil, natural gas and
related substances anticipated from geological and engineering data to be
recoverable from known accumulations, from a given date forward, by known
technology, under existing operating conditions and prices in effect at
year end.3.
    
    Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years
from known reservoirs under existing economic and operating conditions.4.
    
    Proved developed oil and gas reserves are reserves that can be expected
to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped reserves are reserves that are
expected to be recovered from known accumulations where a significant
expenditure is required.




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##### Table of Contents



STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES The following information has been developed utilizing procedures described by
SFAS No. 69 and based on crude oil and natural gas reserve and production
volumes estimated by the independent engineering consultants of the Trust.It
may be useful for certain comparison purposes, but should not be solely relied
upon in evaluating the Trust or its performance. Further, information
contained in the following table should not be considered as representative of
realistic assessments of future cash flows, nor should the Standardized Measure
of Discounted Future Net Cash Flows be viewed as representative of the current
value of the Trusts reserves. The future cash flows presented below are based on sales prices, cost rates,
and statutory income tax rates in existence as of the date of the projections.
It is expected that material revisions to some estimates of crude oil and
natural gas reserves may occur in the future, development and production of the
reserves may occur in periods other than those assumed, and actual prices
realized and costs incurred may vary significantly from those used. Management does not rely upon the following information in making investment
and operating decisions. Such decisions are based upon a wide range of
factors, including estimates of probable as well as proved reserves, and
varying price and cost assumptions considered more representative of a range of
possible economic conditions that may be anticipated. The computation of the standardized measure of discounted future net cash flows
relating to proved oil and gas reserves at December 31, 2003 was based on a
crude price of $38.77/bbl and natural gas price of $6.13/mcf. The computation
of the standardized measure of discounted future net cash flows relating to
proved oil and gas reserves at December 31, 2002 was based on the Trusts crude
oil price of $42.58 /bbl and natural gas price of $5.58 /mcf. STANDARDIZED MEASURE OF DISCOUNTED FUTURE CASH FLOW RELATING TO PROVED OIL AND
GAS RESERVES The following table sets forth the standardized measure of discounted future
net cash flows from projected production of the Trusts crude oil and natural
gas reserves at December 31, for the years presented. (millions of dollars)
    
    2003
    
    2002Future cash inflows
    
    $
    4,797
    
    
    $
    5,621Future costsFuture production and development costs
    
    
    (2,034
    )
    
    
    (2,108
    )Future net cash flows
    
    
    2,763
    
    
    
    3,513Deduct: 10% annual discount factor
    
    
    (1,159
    )
    
    
    (1,571
    )Standardized measure of discounted future net cash flows
    
    $
    1,604
    
    
    $
    1,942




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##### Table of Contents



CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE CASH FLOW RELATING TO
PROVED OIL AND GAS RESERVES The following table sets forth the changes in the standardized measure of
discounted future net cash flows at December 31, for the years presented. (millions of dollars)
    
    2003
    
    2002Future discounted net cash flows at beginning of year
    
    $
    1,942
    
    
    $
    897Sales and transfer, net of production costs
    
    
    (395
    )
    
    
    (262
    )Net change in sales and transfer prices, net of
development and production costs
    
    
    (115
    )
    
    
    733Extensions, discoveries and improved recovery, net
of related costs
    
    
    7
    
    
    
    9Revisions of quantity estimates
    
    
    (134
    )
    
    
    (89
    )Accretion of discount
    
    
    194
    
    
    
    90Sales of reserves in place
    
    
    (4
    )
    
    
    (92
    )Purchase of reserves in place
    
    
    5
    
    
    
    432Changes in timing of future net cash flows and other
    
    
    104
    
    
    
    224End of Year
    
    $
    1,604
    
    
    $
    1,942
   Note:1.
    
    The schedules above are calculated using year-end prices, costs,
statutory tax rates and existing proved oil and gas reserves. The value
of exploration properties and probable reserves, future exploration costs,
future changes in oil and gas prices and in production and development
costs are excluded.




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##### Table of Contents



EXHIBITS Exhibit No.
    
    Description1
    
    Consent of KPMG LLP, independent chartered accountants2
    
    Consent of Gilbert Laustsen Jung Associates Ltd., independent
petroleum consultants3
    
    Certificate pursuant to Section 906 of the Sarbanes-Oxley Act of 20024
    
    Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) or
15d-14 of the Securities Exchange Act of 1934.5
    
    Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) or
15d-14 of the Securities Exchange Act of 1934