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EXHIBT 4.1    
    

HARVEST ENERGY TRUST  

2003 RENEWAL ANNUAL INFORMATION FORM  

APRIL 30, 2004  

 
 

TABLE OF CONTENTS    
    

	 
	 	Page

	 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	 	1
	 SUPPLEMENTAL DISCLOSURE	 	1
	 GLOSSARY OF TERMS	 	1
	 ABBREVIATIONS	 	7
	 CONVERSIONS	 	8
	 DATE OF INFORMATION	 	8
	 HARVEST ENERGY TRUST	 	8
	 RECENT DEVELOPMENTS	 	12
	 STATEMENT OF RESERVES DATA AND OTHER OIL AND NATURAL GAS INFORMATION	 	13
	 DESCRIPTION OF THE TRUST	 	31
	 INFORMATION RESPECTING THE CORPORATION	 	35
	 SHARE CAPITAL OF THE CORPORATION	 	45
	 TRUST INDENTURE	 	45
	 DEBENTURES	 	51
	 TRUST UNIT INCENTIVE PLAN	 	55
	 DRIP PLAN	 	56
	 CONFLICTS OF INTEREST	 	56
	 SELECTED FINANCIAL INFORMATION	 	57
	 RECORD OF CASH DISTRIBUTIONS	 	57
	 ESCROWED SECURITIES	 	58
	 MANAGEMENT'S DISCUSSION AND ANALYSIS	 	58
	 MARKET FOR SECURITIES	 	58
	 RISK FACTORS	 	58
	 ADDITIONAL INFORMATION	 	64
	 APPENDIX A—REPORT OF MANAGEMENT AND DIRECTORS ON RESERVES DATA AND OTHER INFORMATION	 	 
	 APPENDIX B—REPORT ON RESERVES DATA	 	 
	 APPENDIX C—FINANCIAL STATEMENTS	 	 

  

 
 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS    
    

        The Trust is hereby providing cautionary statements identifying important factors that could cause the Trust's actual results to differ materially from those
projected in forward-looking statements made in this Annual Information Form. Any statements that express or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future
events or performance (often, but not always through use of words or phrases such as "will likely result", "are expected to", "will continue", "is anticipated", "estimated", "intends", "plans",
"projection" and "outlook") are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the factors discussed
throughout this Annual Information Form, and particularly in the risk factors set forth herein under "Risk Factors". Because actual results or outcomes could differ materially from those expressed in
any forward-looking statements of the Trust made by or on behalf of the Trust, investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement
speaks only as of the date on which such statement is made, and the Trust undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the
date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by law including applicable securities laws. New factors emerge from time to time, and it
is not possible for management of the Corporation to predict all of such factors and to assess in advance the impact of each such factor on the Trust or the extent to which any factor, or combination
of factors, may cause actual results to differ materially from those contained in any forward-looking statements. 

 
 

SUPPLEMENTAL DISCLOSURE    
    

        Distributable cash and cash available for distribution and cash-on-cash yield are not recognized generally accepted accounting principles.
Management believes that in addition to net income and net income per Trust Unit, distributable cash and cash available for distribution are useful supplemental measures as they provide investors with
information on cash available for distribution. Cash-on-cash yield is a useful and widely used supplemental measure that provides investors with information on cash actually
distributed relative to trading price. Investors are cautioned that distributable cash, cash available for distribution and cash-on-cash yield should not be construed as an
alternate to net income as determined by Canadian generally accepted accounting principles. Investors are also cautioned that cash-on-cash yield
represents a blend of return of investors' initial investment and a return on investors' initial
investment and is not comparable to traditional yield on debt instruments where investors are entitled to full return of the principal amount of debt on maturity in addition to a return on investment
through interest payments.

 
 

GLOSSARY OF TERMS    
    

        In this Annual Information Form, the following terms shall have the meanings set forth below, unless otherwise indicated. 

        "ABCA" means the Business Corporations Act (Alberta), together with any or all regulations
promulgated thereunder, as amended from time to time. 

        "Administration Agreement" means the agreement dated September 27, 2002 between the Trustee and the Corporation pursuant to which
the Corporation provides certain administrative and advisory services in connection with the Trust. See "Description of the Trust" and "Information Respecting the Corporation". 

        "Affiliate" means, with respect to the relationship between corporations, that one of them is controlled by the other or that both of them
are controlled by the same Person and for this purpose a corporation shall be deemed to be controlled by the Person who owns or effectively controls, other than by way of security only, sufficient
voting shares of the corporation (whether directly through the ownership of shares of the corporation or indirectly through the ownership of shares of another corporation or otherwise) to elect the
majority of its board of directors. 

        "ARTC" means the Alberta Royalty Tax Credit, an Alberta provincial government program under which, in certain circumstances, tax credits
may be provided against royalties on oil and natural gas production payable to the Province of Alberta. 

        "Board of Directors" or "Harvest Board" means the board of directors of the Corporation. 

        "Bridge Agreements" means, collectively, the Bridge Notes and the Equity Bridge Notes. 

        "Bridge Lenders" means, collectively, Caribou and the Chairman of the Corporation. 

1

 

        "Bridge Notes" means, collectively, the bridge notes dated September 29, 2003 between the Trust and each of the Bridge Lenders
providing for advances of up to $30 million to the Trust to assist with the payout of the then existing credit facility and the payment of the Deferred Purchase Price Obligation as a result of
the acquisition of the Carlyle Properties. 

        "Business Day" means a day, other than a Saturday, Sunday or statutory holiday in the Province of Alberta or any other day on which banks
in Calgary, Alberta are not open for business. 

        "Capital Fund" means the cumulative amount of funds that the Trust retains from Cash Available For Distributions to finance future
acquisitions and development of properties. See "Description of the Trust—Capital Fund". 

        "Caribou" means Caribou Capital Corp. 

        "Carlyle Properties" means various working, royalty, proprietary 3D seismic and other interests acquired pursuant to the Carlyle
Properties Transaction as described under "Acquisition of Carlyle Properties". 

        "Carlyle Properties Acquisition Agreement" means the agreement of purchase and sale between the Carlyle Properties Vendor and the
Corporation dated effective October 1, 2003 for the purchase of the Carlyle Properties. 

        "Carlyle Properties Transaction" means the acquisition of the Carlyle Properties by the Corporation pursuant to the Carlyle Properties
Acquisition Agreement. 

        "Carlyle Properties Vendor" means a senior oil and natural gas partnership. 

        "Cash Available For Distribution" means, for any particular period, all amounts available for distribution during any applicable period by
the Trust to holders of Trust Units prior to any retention by the Trust for the Capital Fund. See "Description of the Trust—Cash Available For Distribution". 

        "COGPE" means Canadian oil and natural gas property expense, as defined in the Tax Act. 

        "COGE Handbook" means the Canadian Oil and Gas Evaluation Handbook prepared jointly by the Society of Petroleum Evaluation Engineers
(Calgary chapter) and the Canadian Institute of Mining, Metallurgy & Petroleum; 

        "Corporation" means, as the context requires, the Trust's wholly-owned subsidiary, Harvest Operations Corp., a corporation amalgamated
under the Business Corporations Act (Alberta) on January 1, 2004 and, prior to January 1, 2004, a corporation incorporated under the  Business Corporations
Act (Alberta); 

        "Corporation" means Harvest Operations Corp., a wholly-owned subsidiary of the Trust, and its wholly-owned subsidiaries. 

        "Current Bank Facility" means the credit facility provided by the Current Lender as more fully described under "Information Respecting the
Corporation—Borrowing by the Corporation". 

        "Current Lender" means a syndicate of lenders comprised of two Canadian chartered banks and Alberta Treasury Branches. 

        "Debenture Indenture" means the trust indenture dated January 29, 2004 made among the Trust, the Corporation and the Debenture
Trustee, as trustee. 

        "Debenture Trustee" means the trustee of the Debentures, Valiant Trust Company. 

        "Debentures" means the 9% convertible unsecured subordinated debentures of the Trust due May 31, 2009. 

        "Deferred Purchase Price Obligation" means, collectively, the ongoing obligation of the Trust to pay to the Corporation and HST, to the
extent of the Trust's available funds, an amount equal to 99% of the cost of, including any amount borrowed to acquire, any Canadian resource property acquired by the Corporation or HST, and the cost
of, including any amount borrowed to fund, certain designated capital expenditures in relation to the Properties. 

        "Direct Royalties" means royalty interests in petroleum and natural gas rights acquired by the Trust from time to time pursuant to a
Direct Royalties Sale Agreement. 

        "Direct Royalties Sale Agreement" means any purchase and sale agreement between the Trust and an Operating Subsidiary providing for the
purchase by the Trust from an Operating Subsidiary of Direct Royalties. 

2

 

        "Distributable Cash" means, for any particular period, the Cash Available For Distribution less any amounts retained by the Trust for the
Capital Fund. 

        "DRIP Plan" means the Trust's Distribution Reinvestment and Optional Unit Purchase Plan. 

        "Equity Bridge Notes" means, collectively, the equity bridge notes dated July 28, 2003 and amended September 29, 2003
between the Trust and each of the Bridge Lenders providing for advances of up to $40 million to the Trust to
assist in the payout of the Corporation's then existing credit facility and the payment of the Deferred Purchase Price Obligation as a result of the Carlyle Properties Transaction. 

        "Exchangeable Shares" means the non-voting exchangeable shares in the capital of the Corporation. 

        "farmout" means an agreement whereby a third party agrees to pay for all or a portion of the drilling of a well on one or more of the
Properties in order to earn an interest therein, with an Operating Subsidiary retaining a residual interest in such Properties. 

        "Gross" means: 

	(a)
	in
relation to the Operating Subsidiaries' interest in production and reserves, its "Corporation gross reserves", which are the Operating Subsidiaries' interest (operating and
non-operating) share before deduction of royalties and without including any royalty interest of the Operating Subsidiaries;

	(b)
	in
relation to wells, the total number of wells in which the Operating Subsidiaries have an interest; and

	(c)
	in
relation to properties, the total area of properties in which the Operating Subsidiaries have an interest. 

        "HST" means Harvest Sask Energy Trust, a trust established under the laws of the Province of Alberta, wholly owned by the Trust. 

        "Initial Public Offering" means the initial public offering of 3,750,000 Trust Units at a price of $8.00 per Trust Unit completed on
December 5, 2002, resulting in gross proceeds of $30,000,000, and includes the over-allotment option granted in favour of and exercised by the underwriters to acquire an additional
562,500 Trust Units at a price of $8.00 per Trust Unit, resulting in gross proceeds of $4,500,000. 

        "Interim Bank Facility" means the interim credit facility provided by the Interim Lender as more fully described under "Information
Respecting the Corporation—Borrowing by the Corporation", which interim credit facility was replaced with the Current Bank Facility. 

        "Interim Lender" means the Canadian chartered bank providing the Interim Bank Facility. 

        "Management Group" means those directors and officers of the Corporation and their family members, close friends and business associates
who owned the Management Group Debentures. See "Risk Factors—Public and Insider Ownership". 

        "Management Group Debentures" means debentures of 990148 Alberta Ltd. previously held by the Management Group. See "Risk
Factors—Public and Insider Ownership". 

        "McDaniel" means McDaniel & Associates Consultants Ltd., independent oil and natural gas reservoir engineers of Calgary,
Alberta. 

        "McDaniel Report" means the report of McDaniel dated April 1, 2004 evaluating the crude oil, natural gas liquids and natural gas
reserves of the Operating Subsidiaries as at December 31, 2003. 

        "Net" means: 

	(a)
	in
relation to the Operating Subsidiaries' interest in production and reserves, the Operating Subsidiaries' interest (operating and non-operating) share after deduction of
royalties obligations, plus the Operating Subsidiaries' royalty interest in production or reserves.

	(b)
	in
relation to wells, the number of wells obtained by aggregating the Operating Subsidiaries' working interest in each of its gross wells; and

	(c)
	in
relation to the Operating Subsidiaries' interest in a property, the total area in which the Operating Subsidiaries have an interest multiplied by the working interest owned by the
Operating Subsidiaries. 

        "NI 51-101" means National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities; 

3

 

        "Notes" means, collectively, the promissory notes issuable by the Corporation in series pursuant to a note indenture to be redeemed in
consideration for a portion of the NPI, having a fair market value equal to such principal amount, and being subject to the following terms and conditions: 

	(a)
	being
unsecured and bearing interest at 6% per annum payable monthly in arrears on the 20th day of the next following month;

	(b)
	being
subordinate to all senior indebtedness which includes all indebtedness for borrowed money or owing in respect of property purchases on any default in payment of any such senior
indebtedness, and to all trade debt of the Corporation or any subsidiary of the Corporation or the Trust on any creditor proceedings such as bankruptcy, liquidation or insolvency;

	(c)
	being
subject to earlier prepayment, being due and payable on the 15th anniversary of the date of issuance;

	(d)
	being
an aggregate principal amount not to exceed $500 million, and

	(e)
	being
subject to such other standard terms and conditions as would be included in a note indenture for promissory notes of this kind, as may be approved by the Harvest Board. 

        "NPI" means, collectively, the net profit interest owing by the Operating Subsidiaries to the Trust pursuant to the NPI Agreements. 

        "NPI Agreements" means, collectively, the amended and restated net profit interest agreement dated September 27, 2002 between the
Corporation and the Trust, the royalty agreement dated effective January 17, 2003 between WEI and BNY Trust Company of Canada and the net profit interest agreement dated October 17, 2003
between HST and the Trust and "NPI Agreement" means any one of these agreements, as applicable. 

        "NYMEX" means the New York Mercantile Exchange. 

        "Operating Subsidiaries" means, collectively, the Corporation and HST, each a wholly-owned subsidiary of the Trust, and  "Operating Subsidiary" means either of the
Corporation or HST, as applicable. 

        "Ordinary Resolution" means a resolution approved at a meeting of Unitholders by more than 50% of the votes cast in respect of the
resolution by or on behalf of Unitholders present in person or represented by proxy at the meeting. 

        "Permitted Investments" means: 

	(a)
	loan
advances to the Corporation;

	(b)
	interest
bearing accounts of certain financial institutions including Canadian chartered banks and the Trustee;

	(c)
	obligations
issued or guaranteed by the Government of Canada or any province of Canada or any agency or instrumentality thereof;

	(d)
	term
deposits, guaranteed investment certificates of deposit or bankers' acceptances of or guaranteed or accepted by any Canadian chartered bank or other financial institution
(including the Trustee and any Affiliate of the Trustee) the short term debt or deposits of which have been rated at least A or the equivalent by Standard & Poor's Corporation or Moody's
Investors Service, Inc. or Dominion Bond Rating Service Limited;

	(e)
	commercial
paper rated at least A or the equivalent by Dominion Bond Rating Service Limited; and

	(f)
	investments
in bodies corporate, partnerships or trusts engaged in the oil and natural gas business; 

        provided
that an investment is not a Permitted Investment if it: 

	(g)
	would
result in the cost amount to the Trust of all "foreign property" (as defined in the Tax Act) which is held by the Trust to exceed the amount prescribed by
Regulation 5000(1) of the Regulations to the Tax Act;

	(h)
	is
a "small business security" as that term is used in Part L1 of the Regulations to the Tax Act; or

	(i)
	would
result in the Trust not being considered either a "unit trust" or a "mutual fund trust" for purposes of the Tax Act. 

4

 

        "Person" includes an individual, a body corporate, a trust, a union, a pension fund, a government and a governmental agency. 

        "Prior Bank Facility" means the credit facility provided by the Prior Lender to the Corporation which was repaid in full on
September 30, 2003. 

        "Prior Lender" means a syndicate of lenders with a U.S. bank as a lender and as administrative agent for all of the lenders. 

        "Pro Rata Share" means, of any particular amount in respect of a Unitholder at any time, the product obtained by multiplying the
number of Trust Units that are owned by that Unitholder at that time by the quotient obtained when the particular amount is divided by the total number of all Trust Units that are issued and
outstanding at that time. 

        "Production" means the produced petroleum, natural gas and natural gas liquids attributed to the Properties. 

        "Properties" means the working, royalty or other interests of the Corporation and HST in any petroleum and natural gas rights, tangibles
and miscellaneous interests, including properties which may be acquired by the Corporation or HST from time to time. 

        "Property Interests" means petroleum and natural gas rights and related tangibles and miscellaneous interests beneficially owned by the
Corporation or HST. 

        "Provost Properties" means Properties other than the Carlyle Properties. 

        "Provost Properties Vendors" means, collectively, the vendors from whom the Operating Subsidiaries acquired the Provost Properties. 

        "Record Date" means December 31 of each year hereafter and the last day of each calendar month or such other date as may be
determined from time to time by the Trustee upon the recommendation of the Board of Directors. 

        "Reserve Fund" means the cumulative amount of production and other revenues entitled to be retained by the Operating Subsidiaries pursuant
to the NPI Agreements to provide for payment of production costs which the Operating Subsidiaries estimate will or may become payable in the following six months for which there may not be sufficient
production revenues to satisfy such production costs in a timely manner. See "Description of the Trust—The NPI and Direct Royalties—Reserve Fund". 

        "Reserve Life Index" or "RLI" means the amount obtained by dividing the quantity of proved
plus probable reserves as at December 31, 2003, by the annualized 2004 production of petroleum, natural gas and natural gas liquids from those reserves as projected in the McDaniel Report. 

        "Reserve Value" means, for any petroleum and natural gas property at any time, the present worth of all of the estimated
pre-tax cash flow net of capital expenditures from the proved plus probable reserves shown in the McDaniel Report for such property, discounted at 10% and using forecast price and cost
assumptions (a common benchmark in the oil and natural gas industry). 

        "Senior Indebtedness" means all indebtedness, liabilities and obligations of the Trust (whether outstanding as at the date of the
Indenture or thereafter created, incurred or assumed or for which it is liable in respect of any guarantee, indemnity, suretyship or joint and several liability) (i) in respect of borrowed
money of itself or any subsidiary; (ii) in connection with the acquisition of any business, properties or asset by itself or any subsidiary; (iii) in connection with risk mitigation
instruments or agreements of itself or a subsidiary; (iv) to any trade creditors of itself or any subsidiary; or (v) renewals, extensions, restructurings, refinancings and refunding of
any of the foregoing; unless the instrument creating or evidencing any of the foregoing provides that such indebtedness, liabilities or obligations are to rank  pari passu, or subordinate, in right
of payment to the Debentures. 

        "Special Resolution" means a resolution proposed to be passed as a special resolution at a meeting of Unitholders (including an adjourned
meeting) duly convened for the purpose and held in accordance with the provisions of the Trust Indenture at which two or more holders of at least 10% of the aggregate number of Trust Units then
outstanding are present in person or by proxy and passed by the affirmative votes of the holders of not less than 662/3% of the Trust Units represented at the meeting and voted on a
poll upon such resolution. 

        "Special Warrants" means the special trust unit purchase warrants sold to a syndicate of underwriters on February 4, 2003, which
warrants were exchanged for Trust Units upon their deemed exercise on March 7, 2003. 

        "Storm" means Storm Energy Limited. 

5

 

        "Subsequent Investments" means any of the investments that the Trust may make pursuant to the Trust Indenture, which includes: 

	(a)
	making
payments to the Corporation pursuant to the Deferred Purchase Price Obligations under the NPI Agreement;

	(b)
	making
loans to the Corporation in connection with the Capital Fund; and

	(c)
	temporarily
holding cash and investments for the purposes of paying the expenses and liabilities of the Trust, making certain other investments as contemplated by Section 4.2
of the Trust Indenture, paying amounts payable to the Trust in connection with the redemption of any Trust Units, and making distributions to Unitholders; 

        provided
that such investments will not be a Subsequent Investment if it: 

	(d)
	would
result in the cost amount to the Trust of all "foreign property" (as defined in the Tax Act) which is held by the Trust to exceed the amount prescribed by
Regulation 5000(1) of the Regulations to the Tax Act;

	(e)
	is
a "small business security" as that term is used in Part L1 of the Regulations to the Tax Act; or

	(f)
	would
result in the Trust not being considered either a "unit trust" or a "mutual fund trust" for purposes of the Tax Act. 

        "Tax Act" means the Income Tax Act (Canada) and the regulations thereunder. 

        "Trust" or "Harvest" means Harvest Energy Trust. 

        "Trust Fund" at any time, shall mean any of the following monies, properties and assets that are at such time held by the Trustee on
behalf of the Trust for the purposes of the Trust under the Trust Indenture: 

	(a)
	the
amount paid to settle the Trust;

	(b)
	all
funds realized from the issuance of Trust Units;

	(c)
	any
Permitted Investments in which funds may from time to time be invested;

	(d)
	all
rights in respect of and income generated under the NPI Agreement with the Corporation, including the applicable NPI;

	(e)
	all
rights in respect of and income generated under a Direct Royalties Sale Agreement;

	(f)
	any
Subsequent Investment;

	(g)
	any
proceeds of disposition of any of the foregoing property including, without limitation, the Direct Royalties; and

	(h)
	all
income, interest, profit, gains and accretions and additional assets, rights and benefits of any kind or nature whatsoever arising directly or indirectly from or in connection
with or accruing to such foregoing property or such proceeds of disposition. 

        "Trust Indenture" means the amended and restated trust indenture dated July 10, 2003 between the Trustee and the Corporation as
such indenture may be further amended by supplemental indentures from time to time. 

        "Trust Unit" means a trust unit of the Trust created, issued and certified under the Trust Indenture and outstanding and entitled to the
benefits thereof. 

        "Trustee" means Valiant Trust Company, or its successor as trustee of the Trust. 

        "TSX" means the Toronto Stock Exchange. 

        "Unitholders" means the holders from time to time of one or more Trust Units. 

        "Unit Incentive Plan" means the Trust's unit incentive plan described under "Trust Unit Incentive Plan". 

        "U.S. Securities Act" means the United States Securities Act of 1933, as
amended. 

        "WEI" means the Trust's former wholly-owned subsidiary, Westcastle Energy Inc., a corporation incorporated under the  Business Corporations Act (Alberta) and which
amalgamated with the Corporation on January 1, 2004, with the amalgamated corporation continuing
under the name "Harvest Operations Corp.". 

6

 

        "Working Interest" or "WI" means an undivided interest held by a party in an oil and/or
natural gas or mineral lease granted by a Crown or freehold mineral owner, which interest gives the holder the right to "work" the property (lease) to explore for, develop, produce and market the
lease substances but does not include, among other things, a royalty, overriding royalty, gross overriding royalty, net profits interest or other interest that entitles the holder thereof to a share
of production or proceeds of sale of production without a corresponding right or obligation to "work" the property. 

        Certain other terms used herein but not defined herein are defined in NI 51-101 and, unless the context otherwise requires, shall have the same
meanings herein as in NI 51-101.

 
 

ABBREVIATIONS    
    

	Oil and Natural Gas Liquids
 
	 	Natural Gas
 

	Bbl	 	Barrel	 	Mcf	 	thousand cubic feet
	Bbls	 	Barrels	 	Mmcf	 	million cubic feet
	Mbbls	 	thousand barrels	 	Bcf	 	billion cubic feet
	Bbls/d	 	barrels per day	 	Mcf/d	 	thousand cubic feet per day
	Mmbbls	 	million barrels	 	Mmcf/d	 	million cubic feet per day
	NGLs	 	natural gas liquids	 	MMBTU	 	million British Thermal Units

	 
	 	 

	
Other	
 	

 
	AECO	 	EnCana Corporation's natural gas storage facility located at Suffield, Alberta.
	BOE	 	means barrel of oil equivalent, using the conversion factor of 6 Mcf of natural gas being equivalent to one Bbl of oil, unless otherwise specified. The conversion factor used to convert natural gas to oil equivalent
is not necessarily based upon either energy or price equivalents at this time.
	BOE/d	 	barrels of oil equivalent per day.
	MBOE	 	means thousand barrels of oil equivalent.
	MMBOE	 	means million barrels of oil equivalent.
	OOIP	 	means original oil in place.
	WTI	 	means West Texas Intermediate, the reference price paid in U.S. dollars at Cushing, Oklahoma for crude oil of standard grade.
	oAPI	 	means the measure of the density or gravity of liquid petroleum products derived from a specific gravity.
	MW	 	megawatts of electrical power.
	3D	 	three dimensional.
	Darcies	 	means the measure of permeability (being the ease with which a single fluid will flow through connected pore space when a pressure gradient is applied).
	porosity	 	means the measure of the fraction of pore space of a reservoir.
	$000	 	thousands of dollars
	$millions	 	millions of dollars

7

 
 
 

CONVERSIONS    
    

        The following table sets forth certain conversions between Standard Imperial Units and the International System of Units (or metric units). 

	To Convert From
 
	 	To
	 	Multiply By

	Mcf	 	cubic metres	 	28.174
	cubic metres	 	cubic feet	 	35.494
	Bbls	 	cubic metres	 	0.159
	feet	 	metres	 	0.305
	metres	 	feet	 	3.281
	miles	 	kilometres	 	1.609
	kilometres	 	miles	 	0.621
	acres	 	hectares	 	0.405
	hectares	 	acres	 	2.471

        ALL DOLLAR AMOUNTS SET FORTH IN THIS ANNUAL INFORMATION FORM ARE IN CANADIAN DOLLARS, EXCEPT WHERE OTHERWISE INDICATED.

 
 

DATE OF INFORMATION    
    

        Unless otherwise specified, information in this Annual Information Form is as at the end of the Trust's most recently completed financial
year, being December 31, 2003.

 
 

HARVEST ENERGY TRUST    
    

General  

        The Trust is an open-ended, unincorporated investment trust established under the laws of the Province of Alberta and created pursuant to the Trust
Indenture. The head and principal office of the Trust is
located at Suite 1900, 330 - 5th Avenue S.W., Calgary, Alberta T2P 0L4. Although the Trust receives income from the NPI from each of the Operating Subsidiaries,
all oil and natural gas operations are conducted through the Corporation and the Trust is managed solely by the Corporation pursuant to the Trust Indenture and the Administration Agreement. 

Structure of the Trust  

        The structure of the Trust and the flow of cash from the Properties to the Operating Subsidiaries, from the Operating Subsidiaries to the Trust and from the Trust
to Unitholders are set forth below: 

  

Notes: 

	(1)
	As
of January 1, 2004, the Operating Subsidiaries consist of Harvest Operations Corp. and Harvest Sask Energy Trust, each of which is a wholly-owned subsidiary of the Trust. 

8

 
	(2)
	Although
the Trust receives NPI income from each of the Operating Subsidiaries, all operations and management of the Trust are conducted through the Corporation.

	(3)
	The
Operating Subsidiaries own the Properties.

	(4)
	In
addition to the NPI, the Trust holds various Direct Royalties.

	(5)
	The
Trust receives regular monthly payments in accordance with the NPI Agreements. See "Description of the Trust—The NPI and Direct Royalties".

	(6)
	The
Trust may retain up to 50% of the Cash Available For Distribution in its Capital Fund to finance future acquisitions and development of the Properties. 

General Development of the Business  

        The following is a description of the general development of the business of the Trust. 

        The
Corporation was incorporated on May 14, 2002 to carry on oil and natural gas acquisition, development and production activities. The Board of Directors then reviewed its
strategic alternatives and based on such review determined that the formation of an energy royalty trust was the optimal structure. On July 10, 2002, the Trust was formed pursuant to the Trust
Indenture. On the same date, the Corporation and the Trust entered into a net profit agreement which has been amended and restated effective September 27, 2002 pursuant to which the Corporation
granted to the Trust the right to receive income from the net profit interest created thereby on Properties held by the Corporation from time to time. Pursuant to that NPI Agreement, the Trust paid to
the Corporation $12.6 million using the proceeds from an interim loan provided by Caribou to the Trust. 

        On
July 10, 2002 the Corporation acquired certain direct royalties and properties from a major oil and natural gas producer for an aggregate purchase price of
$26.1 million. The acquisition consisted of an overriding royalty interest of 7.10688% in the Choice Viking Gas Unit No. 1, and an approximate 99% working interest in oil and
natural gas producing properties that are both unitized and non-unitized. The purchase price was funded by an advance under the Corporation's credit facilities and, indirectly, through an
interim loan provided by Caribou to the Trust. 

        On
August 1, 2002 the Corporation entered into an Agreement of Purchase and Sale with a major oil and natural gas producer to purchase certain direct royalties and properties
effective June 1, 2002 for an aggregate purchase price of $71.8 million. The Corporation completed the acquisition on November 15, 2002 for a closing price of
$53.2 million. The acquisition consisted of a direct royalty interest and an interest in oil and natural gas producing properties located in East Central Alberta. The purchase price was funded
by an advance under the Corporation's credit facilities and, indirectly, through an interim loan provided by Caribou to the Trust. 

        On
December 5, 2002, the Trust completed the Initial Public Offering, which resulted in the issuance of 3,750,000 Trust Units and aggregate gross proceeds of $30.0 million.
Approximately $22.9 million from the net proceeds of the Initial Public Offering was used to repay interim loans which had been provided by Caribou to the Trust (including accrued interest) and
approximately $5.4 million from the net proceeds of the Initial Public Offering was used to partially repay bank indebtedness. The balance was used for general working capital purposes. 

        On
December 17, 2002, the Trust issued 562,500 Trust Units to FirstEnergy Capital Corp. and Haywood Securities Inc. as a result of the exercise of an
over-allotment option granted to them in connection with the Initial Public Offering. The gross proceeds from the sale of such Trust Units were $4.5 million. 

        On
February 4, 2003, the Trust sold 1,500,000 Special Warrants to a syndicate of underwriters at a price of $10.00 per Special Warrant for net proceeds of $13.7 million.
Each Special Warrant entitled the holder to receive on exercise or deemed exercise one Trust Unit for the payment of no additional consideration. On March 7, 2003, the Trust received receipts
for a (final) prospectus qualifying the Trust Units issuable on exercise of the Special Warrants and on March 7, 2003, the Trust issued 1,500,000 Trust Units on the deemed exercise of the
Special Warrants. The net proceeds were used to partially repay bank indebtedness and for working capital. 

        During
April and May, 2003, the Corporation closed the acquisition of various interests in two properties in the Killarney area of Alberta. The properties were acquired from two major
oil and natural gas producers for $13.2 million and the issuance of 200,000 Trust Units respectively. The cash acquisition was financed through the Corporation's credit facilities. Included
with the acquisition was an interest in two oil batteries. 

9

 

        At
the Annual and Special Meeting of Unitholders of the Trust held on June 12, 2003 (the "2003 Unitholders' Meeting"), Unitholders approved resolutions respecting each of the
matters set forth below: 

	•
	to
amend the Trust Indenture to authorize the creation of an unlimited number of special voting units ("Special Voting Units"). Each Special Voting Unit entitles the holder
thereof to such number of votes at meetings of Unitholders as may be prescribed by the Board of Directors of the Corporation in the resolution authorizing the issuance of any such Special Voting
Units;

	•
	to
amend the Trust Indenture to grant the Corporation (through the Board of Directors) the specific authority and responsibility for any and all matters relating to the
terms of the NPI Agreement and other material contracts of the Trust (other than as otherwise provided in the Trust Indenture) including any amendments thereto;

	•
	to
amend the Trust Indenture to clarify and elaborate upon the responsibility which had previously been delegated to the Corporation in respect of matters relating to an
issuance or offering of Trust Units or any other rights, warrants or other securities to purchase, to convert into or to exchange into Trust Units;

	•
	to
authorize an amendment of the articles of the Corporation to create a new class of non-voting common shares, issuable in series ("Non-Voting
Shares"). Except for the
right to notice of and to attend at any meetings of the shareholders of the Corporation, the holder of the Non-Voting Shares will have the same rights as the holders of common shares of
the Corporation;

	•
	to
increase the number of Trust Units which may be reserved for issuance under the Unit Incentive Plan by 246,000 Trust Units from 875,000 Trust Units to a cumulative
maximum number of 1,121,000 Trust Units; and

	•
	approving
the issuance by the Trust in one or more private placements during the 12 month period commencing June 12, 2003, of up to 11,210,957 Trust Units,
subject to certain restrictions. 

        On
June 27, 2003, the Trust completed the acquisition of all of the common shares of WEI and an NPI in certain producing oil and natural gas properties held by WEI in exchange for
total consideration of approximately $10.1 million (consisting of the issuance of 625,000 Trust Units, $3 million in cash and a $850,000 unsecured promissory note) plus the assumption of
$2.8 million in bank debt and $2.3 million in working capital deficit. The oil and natural gas producing properties acquired included working interests ranging from 20% to 100% in the
fields of Amisk, Czar and Killarney, all of which are operated by the Corporation. 

        On
July 28, 2003, the Trust entered into the Equity Bridge Notes to provide funds to pay the Deferred Purchase Price Obligation associated with the Carlyle Properties Transaction.
On July 29, 2003, $11 million was advanced to the Trust pursuant to the Equity Bridge Notes to fund a deposit relating to the purchase of the Carlyle Properties. On September 29,
2003, the Trust amended the Equity Bridge Notes to allow advances to be used to pay out the Corporation's then existing credit facility and entered into the Bridge Notes. On September 29, 2003,
the Trust received additional advances under the Equity Bridge Notes in the amount of $22.5 million and also received advances of $25.0 million under the Bridge Notes. These amounts were
advanced by the Trust to the Corporation on September 30, 2003 and used to pay out in part the approximately $48.1 million owing under the Corporation's then existing credit facility. On
October 1, 2003, the $11 million deposit in connection with the Carlyle Properties Transaction was refunded and the Trust used this amount to repay $11 million of principal in
respect of the Bridge Notes. 

        On
July 29, 2003 the Corporation entered into an agreement in respect of the purchase of partnership interests in a New Brunswick limited partnership which held the Carlyle
Properties. On September 29, 2003 the Corporation entered into an agreement wherein the interests of the Corporation in the July 29, 2003 agreement referred to above were assigned to the
Carlyle Properties Vendor and wherein it was agreed that substantially all of the Carlyle Properties would be conveyed to the Corporation. On October 1, 2003, the Corporation entered into the
Carlyle Properties Acquisition Agreement with the Carlyle Properties Vendor to acquire substantially all of the Carlyle Properties effective October 1, 2003 for total consideration of
approximately $80 million, prior to adjustments and transaction costs. Closing of the Carlyle Properties Acquisition occurred on October 16, 2003. 

        Immediately
following the completion of the Carlyle Properties Transaction, the Trust completed an internal reorganization pursuant to which substantially all of the Carlyle Properties
were conveyed to HST, a trust which is wholly-owned by the Trust. 

10

 

        The
Carlyle Properties Acquisition was financed as to $48.65 million through an offering of 4,312,500 Trust Units at a price of $12.00 per Trust Unit for gross proceeds of
$51.8 million and as to $31.35 million through advances under the Current Bank Facility. 

        The
Carlyle Properties are located in South East Saskatchewan near the town of Carlyle. The majority of the production is situated between Township 7 Range 32 W1M to Township 13 Range 13
W2M. For the month of September 2003, the Carlyle Properties produced approximately 5,200 BOE/d of light (28° to 34° API) oil concentrated in the
Mississippian-aged Tilson subcrop play trend. As evaluated by McDaniel in the McDaniel Report, the Carlyle Properties contained, as at December 31, 2003, 14.0 MMBOE of proved plus
probable reserves, with an RLI of 8.3 years. The recovery mechanism is bottom water drive supported by an active aquifer affording an efficient recovery of reserves, making operating
characteristics of the Carlyle Properties similar to those of the other Properties. The Trust acquired an average 98% Working Interest in the Carlyle Properties and assumed operatorship of over
approximately 95% of the total production from the properties. All the production is concentrated geographically which promotes ease of access and operating synergies. To support ongoing growth of the
properties, management has identified upside value associated with production optimization, development drilling, the undeveloped land holdings and the proprietary seismic database, which are part of
the assets associated with the Carlyle Properties. 

        A
schedule of revenue and expenses for the Carlyle Properties for the years ended December 31, 2002, 2001 and 2000 and the nine months ended September 30, 2003 and 2002 are
contained in this Annual Information Form. Pro forma financial statements of the Trust for the year ended December 31, 2003 are also contained in this Annual Information Form. 

        Upon
closing of the Carlyle Properties Transaction on October 16, 2003, the Corporation put in place its Current Bank Facility and the Corporation used a portion of this facility
to repay $8.5 million of the Equity Bridge Notes and approximately $14 million was used to repay in full the Bridge Notes. 

        On
October 16, 2003, the Trust issued 4,312,500 Trust Units at a price of $12.00 per Trust Unit for gross proceeds of $51.8 million. The Trust Units were offered to the
public through a syndicate of underwriters, which was led by National Bank Financial Inc. and included CIBC World Markets Inc., FirstEnergy Capital Corp. and Haywood
Securities Inc. 

Significant Acquisitions and Significant Dispositions  

        There were no significant acquisitions or significant dispositions by the Trust or any significant probable acquisition by the Trust within or since the
completion of the most recently completed financial year of the Trust other than as described above in "—General Development of the Business" and as described in "Recent
Developments—Acquisition of Storm Energy Limited". 

Trends  

        There are a number of trends in the oil and natural gas industry that are shaping the near term future of the business. The first trend is the ongoing
consolidation phase that the industry has been going through which has affected companies of all sizes from the small emerging companies to the senior integrated organizations. Although consolidation
is nothing new for the industry, the pace at which it has occurred during the past 30 months and the nature of the companies involved are unique. The companies which have been consolidated
include the traditional small to medium size companies as well as a number of large, well established companies. The most active acquirors have been royalty trusts and one large Canadian oil and
natural gas producer. 

        Another
continuing trend has been small to medium sized exploration and production companies converting to royalty trusts. These new trusts have become active in the consolidation of the
industry thereby increasing competition for the previously existing trusts. 

        Including
recently announced conversions of several exploration and production companies to trusts, approximately half of the top 30 publicly listed oil and natural gas issuers on the
TSX are now trusts. Annual production declines from the trusts will likely result in a continued high level of competition for available oil and natural gas properties and companies. This increased
competition within the trust sector, as well as the influence of U.S. based companies, has resulted in higher valuation parameters for corporate and asset acquisitions. Those trusts with
substantial opportunities for production replacement through internal development drilling should be in an advantaged position relative to those more exposed to production replacement through
acquisitions. 

11

 

        Another
ongoing trend is the continued volatility of oil and natural gas prices with oil and natural gas company capital budgets highly responsive to commodity prices. As the
supply/demand balance for both natural gas and crude oil tightens, commodity prices increase and drilling activity rises reflecting increased capital spending by oil and natural gas companies.
Conversely, as commodity prices decline, capital budgets are reduced and drilling activity declines. In tight markets such as those the Trust is currently encountering, the supply response resulting
from changing drilling activity has a material impact on prices. In addition, oil prices have been stronger due to higher demand associated with growing world economies. This has been supported by the
influence of the political instability in the Middle East. Price volatility is expected to be an ongoing characteristic of the oil and natural gas industry. 

        The
Canadian/U.S. exchange rate also influences commodity prices received by Canadian producers as oil and natural gas production is priced in U.S. dollars. The
strengthening witnessed in 2003 of the Canadian dollar has had a negative impact on Canadian oil and natural gas production revenue. The recent weakening trend for the Canadian dollar has served to
improve Canadian dollar revenue from oil and natural gas sales. 

 
 

RECENT DEVELOPMENTS    
    

Amalgamation of Subsidiaries  

        On January 1, 2004 WEI amalgamated with Harvest Operations Corp. and the amalgamated corporation continued under the name "Harvest Operations Corp.". 

Issue of Debentures  

        On January 29, 2004, the Trust issued $60 million principal amount of Debentures. The Debentures were offered to the public through a syndicate of
underwriters which was led by National Bank Financial Inc. and included CIBC World Markets Inc., FirstEnergy Capital Corp., Haywood Securities Inc.,
TD Securities Inc. and Canaccord Capital Corporation. 

        On
March 15, 2004, 1,000 convertible debentures were converted at the option of the holder, into 71,428 trust units and $11 for accrued interest and fractional units. 

Acquisition of Storm Energy Limited  

        On April 19, 2004, the Trust announced that it had entered into an agreement with Storm to effect a business combination through a Plan of Arrangement
whereby the Trust will acquire all of the outstanding shares of Storm for approximately $189 million, including assumed net debt of approximately $64 million. The proposed transaction
contemplates the Trust and Storm combining their assets into the Trust and transferring certain of Storm's assets into a separate junior exploration and development company whose shares will be held
by the former shareholders of Storm ("ExploreCo"). The properties to be acquired produce approximately 4,200 BOE per day and are primarily concentrated in the Red Earth area of north central
Alberta. The consideration to be paid by the Trust to each shareholder of Storm will be $4.15 per share in cash to a maximum aggregate cash amount of $75 million; or 0.281 of an exchangeable
share of the Corporation, exchangeable into Trust Units, to a maximum aggregate of 2 million exchangeable shares; or 0.281 of a Trust Unit, to a maximum aggregate of 8 million units and
exchangeable shares combined. In addition, each Storm shareholder will receive one common share of ExploreCo and approximately 0.053 common shares of Rock Energy Inc., a company which Storm
presently has an interest in. 

        Shareholders
of Storm will be asked to approve the transaction at a special meeting of shareholders to be held in June 2004. If Storm shareholder approval is obtained and all
other conditions are satisfied, it is anticipated that the transaction will close in late June 2004. 

Potential Acquisitions  

        The Trust continues to evaluate potential acquisitions of all types of petroleum and natural gas and other energy-related assets as part of its ongoing
acquisition program. The Trust is normally in the process of evaluating several potential acquisitions at any one time which individually or together could be material. As of the date hereof, the
Trust has not reached agreement on the price or terms of any potential material acquisitions other than as described above under "—Acquisition of Storm Energy Limited". The Trust cannot
predict whether any current or future opportunities will result in one or more acquisitions for the Trust. 

12

 

 
 

STATEMENT OF RESERVES DATA AND OTHER OIL AND NATURAL GAS INFORMATION    
    

        The statement of reserves data and other oil and natural gas information set forth below (the "Statement") is dated April 30, 2004. The effective date of
the Statement is December 31, 2003 and the preparation date of the Statement is April 1, 2004. 

Disclosure of Reserves Data  

        The reserves data set forth below (the "Reserves Data") is based upon an evaluation by McDaniel with an effective date of December 31, 2003 contained in
the McDaniel Report. The Reserves Data summarizes the crude oil, natural gas liquids and natural gas reserves of the Operating Subsidiaries and the net present values of future net revenue for these
reserves using constant prices and costs and forecast prices and costs. The McDaniel Report has been prepared in accordance with the standards contained in the COGE Handbook and the reserve
definitions contained in NI 51-101. Additional information not required by NI 51-101 has been presented to provide continuity and additional information which we
believe is important to the readers of this information. The Operating Subsidiaries engaged McDaniel to provide an evaluation of proved and proved plus probable reserves and no attempt was made to
evaluate possible reserves. 

        All
of the Operating Subsidiaries' reserves are in Canada and, specifically, in the provinces of Alberta and Saskatchewan. 

        Disclosure provided herein in respect of BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 bbl is based
on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

        It should not be assumed that the estimates of future net revenues presented in the tables below represent the fair market value of the reserves. There is no
assurance that the constant prices and costs assumptions and forecast prices and costs assumptions will be attained and variances could be material. The recovery and reserve estimates of the Operating
Subsidiaries' crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil,
natural gas and natural gas liquid reserves may be greater than or less than the estimates provided herein.

Reserves Data (Constant Prices and Costs)  

SUMMARY OF OIL AND NATURAL GAS RESERVES

AND NET PRESENT VALUES OF FUTURE NET REVENUE

as of December 31, 2003

CONSTANT PRICES AND COSTS 

	 
	 	RESERVES

	 
	 	LIGHT AND MEDIUM OIL
	 	HEAVY OIL
	 	NATURAL GAS
	 	NATURAL GAS LIQUIDS

	RESERVES CATEGORY
 
	 	Gross

(Mbbl)
	 	Net

(Mbbl)
	 	Gross

(Mbbl)
	 	Net

(Mbbl)
	 	Gross

(Mbbl)
	 	Net

(Mbbl)
	 	Gross

(Mbbl)
	 	Net

(Mbbl)

	PROVED	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Developed Producing	 	20,985	 	19,088	 	7,501	 	6,327	 	2,080	 	1,779	 	127	 	107
	 	Developed Non-Producing	 	26	 	25	 	—	 	—	 	6.6	 	4.6	 	0.4	 	0.3
	 	Undeveloped	 	1,100	 	1,000	 	275.5	 	205.3	 	74	 	67	 	8	 	7
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	TOTAL PROVED	 	22,111	 	20,114	 	7,776	 	6,532	 	2,161	 	1,850	 	136	 	114
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	PROBABLE	 	5,446	 	5,044	 	1,475	 	1,247	 	784	 	625	 	35	 	30
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	TOTAL PROVED PLUS PROBABLE	 	27,557	 	25,158	 	9,252	 	7,779	 	2,945	 	2,475	 	171	 	144
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

13

 

	 
	 	NET PRESENT VALUES OF FUTURE NET REVENUE

DISCOUNTED BEFORE INCOME TAXES(1)

	RESERVES CATEGORY
 
	 	0%

($000)
	 	5%

($000)
	 	10%

($000)
	 	15%

($000)
	 	20%

($000)

	PROVED	 	 	 	 	 	 	 	 	 	 
	 	Developed Producing	 	296,004	 	265,461	 	234,732	 	209,207	 	188,627
	 	Developed Non-Producing	 	99	 	145	 	158	 	157	 	150
	 	Undeveloped	 	17,170	 	12,602	 	9,371	 	7,025	 	5,278
	 	 	
	 	
	 	
	 	
	 	

	TOTAL PROVED	 	313,274	 	278,208	 	244,262	 	216,390	 	194,055
	 	 	
	 	
	 	
	 	
	 	

	PROBABLE	 	74,945	 	50,462	 	35,962	 	26,690	 	20,433
	 	 	
	 	
	 	
	 	
	 	

	TOTAL PROVED PLUS PROBABLE	 	388,219	 	328,671	 	280,225	 	243,080	 	214,489
	 	 	
	 	
	 	
	 	
	 	

TOTAL FUTURE NET REVENUE

(UNDISCOUNTED)

as of December 31, 2003

CONSTANT PRICES AND COSTS 

	RESERVES CATEGORY
 
	 	REVENUE

($000)
	 	ROYALTIES

($000)
	 	OPERATING COSTS

($000)
	 	DEVELOPMENT COSTS

($000)
	 	WELL ABANDONMENT COSTS

($000)
	 	FUTURE NET REVENUE BEFORE INCOME TAXES(1) ($000)

	Proved Reserves	 	954,753	 	122,051	 	465,088	 	15,248	 	39,090	 	313,274
	Proved Plus Probable Reserves	 	1,179,052	 	143,625	 	576,505	 	30,972	 	39,729	 	388,219

 
 

FUTURE NET REVENUE
  BY PRODUCTION GROUP
  as of December 31, 2003
  CONSTANT PRICES AND COSTS    

	RESERVES CATEGORY
 
	 	PRODUCTION GROUP
	 	FUTURE NET REVENUE BEFORE INCOME TAXES (discounted at 10%/year) ($000)

	Proved Reserves	 	Light and Medium Crude Oil	 	196,748
	 	 	Heavy Crude Oil	 	38,607
	 	 	Natural Gas (including by-products)	 	8,908
	Proved Plus Probable Reserves	 	Light and Medium Crude Oil	 	227,814
	 	 	Heavy Crude Oil	 	41,067
	 	 	Natural Gas (including by-products)	 	11,344

14

 

Reserves Data (Forecast Prices and Costs)—December 31, 2003  

SUMMARY OF OIL AND NATURAL GAS RESERVES

AND NET PRESENT VALUES OF FUTURE NET REVENUE

as of December 31, 2003

FORECAST PRICES AND COSTS 

	 
	 	RESERVES

	 
	 	LIGHT AND MEDIUM OIL
	 	HEAVY OIL
	 	NATURAL GAS
	 	NATURAL GAS LIQUIDS

	RESERVES CATEGORY
 
	 	Gross

(Mbbl)
	 	Net

(Mbbl)
	 	Gross

(Mbbl)
	 	Net

(Mbbl)
	 	Gross

(MMcf)
	 	Net

(MMcf)
	 	Gross

(Mbbl)
	 	Net

(Mbbl)

	PROVED	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Developed Producing	 	18,201.5	 	16,557.8	 	7,235.7	 	6,101.9	 	1,909.9	 	1,630.2	 	114.5	 	95.0
	 	Developed Non-Producing	 	17.5	 	17.0	 	—	 	—	 	4.5	 	3.1	 	0.3	 	0.2
	 	Undeveloped	 	1,032.6	 	937.3	 	275.5	 	205.3	 	73.8	 	67.1	 	7.4	 	6.6
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	TOTAL PROVED	 	19,251.6	 	17,512.1	 	7,511.3	 	6,307.1	 	1,988.2	 	1,700.5	 	122.1	 	101.8
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	PROBABLE	 	4,617.5	 	4,279.7	 	1,052.9	 	895.6	 	710.8	 	564.1	 	31.6	 	27.2
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	TOTAL PROVED PLUS PROBABLE	 	23,869.1	 	21,791.8	 	8,564.2	 	7,202.7	 	2,699.0	 	2,264.6	 	153.6	 	129.0
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	 
	 	NET PRESENT VALUES OF FUTURE NET REVENUE

BEFORE INCOME TAXES DISCOUNTED AT (%/year)(1)

	RESERVES CATEGORY
 
	 	0

($000)
	 	5

($000)
	 	10

($000)
	 	15

($000)
	 	20

($000)

	PROVED	 	 	 	 	 	 	 	 	 	 
	 	Developed Producing	 	171,659	 	161,319	 	149,533	 	138,481	 	128,691
	 	Developed Non-Producing	 	(89	)	(28	)	8	 	28	 	38
	 	Undeveloped	 	10,585	 	7,586	 	5,381	 	3,743	 	2,506
	 	 	
	 	
	 	
	 	
	 	

	TOTAL PROVED	 	182,155	 	168,878	 	154,922	 	142,252	 	131,235
	 	 	
	 	
	 	
	 	
	 	

	PROBABLE	 	26,267	 	19,372	 	14,249	 	10,572	 	7,916
	 	 	
	 	
	 	
	 	
	 	

	TOTAL PROVED PLUS PROBABLE	 	208,422	 	188,250	 	169,171	 	152,824	 	139,152
	 	 	
	 	
	 	
	 	
	 	

TOTAL FUTURE NET REVENUE

(UNDISCOUNTED)

as of December 31, 2003

FORECAST PRICES AND COSTS 

	RESERVES CATEGORY
 
	 	REVENUE

($000)
	 	ROYALTIES

($000)
	 	OPERATING COSTS

($000)
	 	DEVELOPMENT COSTS

($000)
	 	WELL ABANDONMENT COSTS

($000)
	 	FUTURE NET REVENUE BEFORE INCOME TAXES(1)

($000)

	Proved Reserves	 	746,372	 	98,174	 	400,807	 	15,476	 	49,758	 	182,155
	Proved Plus Probable Reserves	 	909,733	 	113,674	 	504,668	 	31,706	 	51,262	 	208,422

15

 
FUTURE NET REVENUE

BY PRODUCTION GROUP

as of December 31, 2003

FORECAST PRICES AND COSTS 

	RESERVES CATEGORY
 
	 	PRODUCTION GROUP
	 	FUTURE NET REVENUE BEFORE INCOME TAXES (discounted at 10%/year)

($000)

	Proved Reserves	 	Light and Medium Crude Oil	 	118,218
	 	 	Heavy Crude Oil	 	29,263
	 	 	Natural Gas (including by-products)	 	7,440
	
 Proved Plus Probable Reserves	
 	

Light and Medium Crude Oil	
 	

130,361
	 	 	Heavy Crude Oil	 	29,510
	 	 	Natural Gas (including by-products)	 	9,299

Notes to Reserves Data Tables:  

	1.
	The
Trust is entitled to deduct from its income all amounts which are paid or payable by it to Unitholders in a given financial year. As a result of amounts paid to Unitholders in the
course of the most recent financial year, the Trust is not liable for any material amount of income tax on income. The net present values of future net revenue after income taxes are, therefore, the
same as the net present values of future net revenue before income taxes.

	2.
	Columns
may not add due to rounding.

	3.
	The
crude oil, natural gas liquids and natural gas reserve estimates presented in the McDaniel Report are based on the definitions and guidelines contained in the COGE Handbook. A
summary of those definitions are set forth below. 

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 

	•
	analysis
of drilling, geological, geophysical and engineering data;

	•
	the
use of established technology; and

	•
	specified
economic conditions (see the discussion of "Economic Assumptions" below). 

        Reserves
are classified according to the degree of certainty associated with the estimates. 

	(a)
	Proved reserves are 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.

	(b)
	Probable reserves are 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. 

        Other
criteria that must also be met for the categorization of reserves are provided in the COGE Handbook. 

        Each
of the reserve categories (proved and probable) may be divided into developed and undeveloped categories: 

	(c)
	Developed reserves are those reserves that are expected to be recovered from existing wells and installed facilities or, if facilities
have not been installed, that would involve a low expenditure (for example, when compared to the cost of drilling a well) to put the reserves on production. The developed category may be subdivided
into producing and non-producing.

	(i)
	Developed producing reserves are those reserves that are 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 certainly. 

16

 

	(ii)
	Developed non-producing reserves are 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.

	(d)
	Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (for example,
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 reserves classification (proved, probable) to which they
are assigned. 

        In
multi-well pools it may be appropriate to allocate total pool reserves between the developed and undeveloped categories or to subdivide the developed reserves for the pool
between developed producing and developed non-producing. This allocation should be based on the estimator's assessment as to the reserves that will be recovered from specific wells,
facilities and completion intervals in the pool and their respective development and production status. 

Levels of Certainty for Reported Reserves  

        The qualitative certainty levels referred to in the definitions above are applicable to individual reserve entities (which refers to the lowest level at which
reserves calculations are performed) and to reported reserves (which refers to the highest level sum of individual entity estimates for which reserves are presented). Reported reserves should target
the following levels of certainty under a specific set of economic conditions: 

	(a)
	at
least a 90 percent probability that the quantities actually recovered will equal or exceed the estimated proved reserves; and

	(b)
	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 estimates prepared for the various reserves categories is desirable to provide a clearer understanding of the associated risks
and uncertainties. However, the majority of reserves estimates will be prepared using deterministic methods that do not provide a mathematically derived quantitative measure of probability. In
principle, there should be no difference between estimates prepared using probabilistic or deterministic methods. 

        Additional
clarification of certainty levels associated with reserves estimates and the effect of aggregation is provided in the COGE Handbook. 

4.     Forecast Prices and Costs—January 1, 2004  

        Forecast prices and costs are those: 

	(a)
	generally
acceptable as being a reasonable outlook of the future; and

	(b)
	if,
and only to the extent that, there are fixed or presently determinable future prices or costs to which the Operating Subsidiaries is legally bound by a contractual or other
obligation to supply a physical product, including those for an extension period of a contract that is likely to be extended, those prices or costs rather than the prices and costs referred to in
paragraph (a). 

        The
forecast cost and price assumptions assume increases in wellhead selling prices and take into account inflation with respect to future operating and capital costs. Crude oil and
natural gas benchmark reference pricing, inflation and exchange rates utilized in the McDaniel Report, which were McDaniel's then current forecasts at
the date of the McDaniel Report, were as follows: 

17

  

 
 

SUMMARY OF PRICING AND INFLATION RATE ASSUMPTIONS
  as of January 1, 2004
  FORECAST PRICES AND COSTS    
    

	 
	 	OIL
	 	 
	 	 
	 	 
	 	 

	Year
 
	 	WTI Cushing Oklahoma ($US/bbl)
	 	Edmonton Light Par Price 40° API ($Cdn/bbl)
	 	Hardisty Heavy 12° API ($Cdn/bbl)
	 	Bow River Medium 29.3° API ($Cdn/bbl)
	 	NATURAL GAS AECO Gas Price ($Cdn/MMBtu)
	 	NATURAL GAS LIQUIDS FOB Field Gate ($Cdn/BBL)
	 	INFLATION RATES(1) (%/Year)
	 	EXCHANGE RATE(2) ($US/$Cdn)

	Forecast	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2004	 	29.00	 	37.70	 	22.70	 	27.70	 	5.50	 	27.90	 	2.00	 	0.75
	2005	 	26.50	 	34.30	 	21.55	 	26.65	 	5.19	 	25.50	 	2.00	 	0.75
	2006	 	25.50	 	33.00	 	21.56	 	26.24	 	4.87	 	24.50	 	2.00	 	0.75
	2007	 	25.00	 	32.30	 	20.63	 	25.40	 	4.68	 	23.80	 	2.00	 	0.75
	2008	 	25.00	 	32.30	 	20.39	 	25.26	 	4.53	 	23.70	 	2.00	 	0.75
	2009	 	25.50	 	32.90	 	20.76	 	25.72	 	4.57	 	24.10	 	2.00	 	0.75
	2010	 	26.00	 	33.50	 	21.11	 	26.18	 	4.60	 	24.50	 	2.00	 	0.75
	2011	 	26.50	 	34.20	 	21.56	 	26.73	 	4.69	 	25.00	 	2.00	 	0.75
	2012	 	27.00	 	34.80	 	21.91	 	27.18	 	4.78	 	25.40	 	2.00	 	0.75
	2013	 	27.50	 	35.50	 	22.35	 	27.73	 	4.87	 	26.00	 	2.00	 	0.75
	2014	 	28.10	 	36.20	 	22.79	 	28.28	 	4.97	 	26.50	 	2.00	 	0.75
	2015	 	28.70	 	37.00	 	23.32	 	28.92	 	5.08	 	27.10	 	2.00	 	0.75
	2016	 	29.30	 	37.80	 	23.85	 	29.56	 	5.19	 	27.60	 	2.00	 	0.75
	2017	 	29.90	 	38.60	 	24.37	 	30.19	 	5.29	 	28.20	 	2.00	 	0.75
	2018	 	30.50	 	39.30	 	24.79	 	30.72	 	5.40	 	28.70	 	2.00	 	0.75
	2019	 	31.10	 	40.10	 	25.30	 	31.35	 	5.51	 	29.30	 	2.00	 	0.75
	2020	 	31.70	 	40.90	 	25.80	 	31.98	 	5.61	 	29.90	 	2.00	 	0.75
	2021	 	32.30	 	41.70	 	26.30	 	32.60	 	5.72	 	30.50	 	2.00	 	0.75
	2022	 	32.90	 	42.40	 	26.69	 	33.12	 	5.82	 	31.00	 	2.00	 	0.75
	2023	 	33.60	 	43.30	 	27.28	 	33.83	 	5.95	 	31.60	 	2.00	 	0.75
	Thereafter	 	33.60	 	43.30	 	27.28	 	33.83	 	5.95	 	31.60	 	0	 	0.75

Notes: 

	(1)
	Inflation
rates for forecasting prices and costs.

	(2)
	Exchange
rates used to generate the benchmark reference prices in this table. 

        Weighted average historical prices realized by the Operating Subsidiaries for the year ended December 31, 2003, were $6.70/mcf for natural
gas, $29.92/bbl for natural gas liquids and $27.34/bld for heavy oil. 

5.     Constant Prices and Costs  

        Constant prices and costs are: 

	(a)
	the
Operating Subsidiaries' prices and costs as at the effective date of the estimation, held constant throughout the estimated lives of the properties to which the estimate applies;
and

	(b)
	if,
and only to the extent that, there are fixed or presently determinable future prices or costs to which the Operating Subsidiaries is legally bound by a contractual or other
obligation to supply a physical product, including those for an extension period of a contract that is likely to be extended, those prices or costs rather than the prices and costs referred to in
paragraph (a). 

        For
the purposes of paragraph (a), the Operating Subsidiaries' prices are the posted prices for oil and the spot price for natural gas, after historical adjustments for
transportation, gravity and other factors. 

18

 

        The
constant crude oil and natural gas benchmark references pricing and the exchange rate utilized in the McDaniel Report were as follows: 

 
 

SUMMARY OF PRICING ASSUMPTIONS
  as of December 31, 2003
  CONSTANT PRICES AND COSTS    
    

	 
	 	OIL
	 	 
	 	 
	 	 

	 
	 	 
	 	NATURAL GAS LIQUIDS FOB Field Gate ($Cdn/BBL)
	 	 

	Year
 
	 	WTI Cushing Oklahoma ($US/bbl)
	 	Edmonton Par Price 40° API ($Cdn/bbl)
	 	Hardisty Heavy 12° API ($Cdn/bbl)
	 	Cromer Medium 29.3° API ($Cdn/bbl)
	 	NATURAL GAS AECO Gas Price ($Cdn/MMBtu)
	 	EXCHANGE RATE(2) ($US/$Cdn)

	Historical 2003(1)	 	32.78	 	39.76	 	22.75	 	34.25	 	5.87	 	31.50	 	0.75

Notes: 

	(1)
	Prices
as at December 31, 2003

	(2)
	The
exchange rate used to generate the benchmark reference prices in this table. 

6.     Future Development Costs  

        The following table sets forth development costs deducted in the estimation of the Operating Subsidiaries' future net revenue attributable to the reserve
categories noted below. 

	 
	 	Forecast Prices and Costs

($000)
	 	 

	 
	 	Constant Prices and Costs

($000)

	Year
 
	 	Proved Reserves
	 	Proved Plus Probable Reserves

	 	Proved Reserves

	2004	 	11,600	 	16,583	 	11,522
	2005	 	3,876	 	11,923	 	3,726
	2006	 	0	 	3,199	 	0
	Thereafter	 	0	 	0	 	0
	 	 	
	 	
	 	

	Total Undiscounted	 	15,476	 	31,706	 	15,248
	 	 	
	 	
	 	

	Total Discounted at 10%	 	14,420	 	28,666	 	14,215

	7.
	Estimated
future abandonment and reclamation costs related to a property have been taken into account by McDaniel in determining reserves that should be attributed to a property and in
determining the aggregate future net revenue therefrom, there was deducted the reasonable estimated future well abandonment costs. No allowance was made, however, for reclamation of wellsites or the
abandonment and reclamation of any facilities.

	8.
	Both
the constant and forecast price and cost assumptions assume the continuance of current laws and regulations.

	9.
	The
extent and character of all factual data supplied to McDaniel were accepted by McDaniel as represented. No field inspection was conducted. 

19

 

Reconciliations of Changes in Reserves and Future Net Revenue  

 
 

RECONCILIATION OF
  OPERATING SUBSIDIARIES NET RESERVES
  BY PRINCIPAL PRODUCT TYPE
  FORECAST PRICES AND COSTS    
    

	 
	 	LIGHT AND MEDIUM OIL
	 	HEAVY OIL
	 	ASSOCIATED AND NON-ASSOCIATED NATURAL GAS
	 
	FACTORS
 
	 	Net Proved (Mbbl)
	 	Net Probable (Mbbl)
	 	Net Proved Plus Probable (Mbbl)
	 	Net Proved (Mbbl)
	 	Net Probable (Mbbl)
	 	Net Proved Plus Probable (Mbbl)
	 	Net Proved (MMcf)
	 	Net Probable (MMcf)
	 	Net Proved Plus Probable (MMcf)
	 
	December 31, 2002	 	4,258	 	235	 	4,493	 	5,930	 	528	 	6,458	 	1,435	 	120	 	1,555	 
	Extensions	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 
	Improved Recovery	 	—	 	—	 	—	 	589	 	108	 	698	 	—	 	—	 	—	 
	Technical Revisions	 	579	 	940	 	1,519	 	1,181	 	212	 	1,392	 	(91	)	387	 	296	 
	Discoveries	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 
	Acquisitions	 	14,330	 	3,105	 	17,435	 	284	 	49	 	333	 	760	 	57	 	817	 
	Dispositions	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 
	Economic Factors	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 	—	 
	Production	 	(1,655	)	—	 	(1,655	)	(1,677	)	—	 	(1,677	)	(403	)	—	 	(403	)
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 
	December 31, 2003	 	17,512	 	4,280	 	21,792	 	6,307	 	896	 	7,203	 	1,701	 	564	 	2,265	 

Note: 

	(1)
	The
evaluation as at December 31, 2002 was prepared using National Policy 2-B reserves definitions. Under those definitions, probable reserves were adjusted
by a factor to account for the risk associated with their recovery. The Operating Subsidiaries previously applied a risk factor of 50% in reporting probable reserves. Under current
NI 51-101 reserves definitions, estimates are prepared such that the full proved plus probable reserves are estimated to be recoverable (proved plus probable reserves are
effectively a "best estimate"). The above reconciliation reflects current probable reserves versus previous risk adjusted (50%) probable reserves reported by the Operating Subsidiaries.

	(2)
	Natural
gas liquids reserves have not been reconciled as they represent less than 0.05% of total reserves. 

 
 

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
 
	 	2003

($000)
	 
	Estimated Future Net Revenue at Beginning of Year	 	203,914	 
	Sales and Transfers of Oil and Natural Gas Produced, Net of Production Costs and Royalties	 	(84,015	)
	Net Change in Prices, Production Costs and Royalties Related to Future Production	 	(73,792	)
	Development Costs During the Period	 	17,630	 
	Changes in Forecast Development Costs	 	(13,365	)
	Extensions and Improved Recovery	 	7,403	 
	Discoveries	 	—	 
	Acquisitions of Reserves	 	150,860	 
	Dispositions of Reserves	 	—	 
	Net Change Resulting from Revisions in Quantity Estimates	 	15,237	 
	Accretion of Discount	 	20,391	 
	Net Change in Income Taxes	 	—	 
	Estimated Future Net Revenue at End of Year	 	244,263	 

20

 

Reserves Information—Updated Pricing  

        The information set forth below is based upon an evaluation by McDaniel with an effective date of December 31, 2003. Such reserves information summarizes
the crude oil, natural gas liquids and natural gas reserves of the Operating Subsidiaries and the net present values of future net revenue for these reserves using McDaniel's April 1, 2004,
forecast prices and costs (rather than McDaniel's forecasts as at January 1, 2004), as described above under "Disclosure of Reserves Data". 

        The reserves information presented below is in addition to the detailed information respecting the Operating Subsidiaries and their reserves which has been
prepared as required under NI 51-101. In particular, the forecast prices and costs which have been utilized in the McDaniel evaluation upon which the reserves information presented
below is based were McDaniel's forecasts as at April 1, 2004, rather than McDaniel's forecasts as at January 1, 2004:

Reserves Data (Forecast Prices and Costs)—April 1, 2004  

 
 

SUMMARY OF OIL AND NATURAL GAS RESERVES
  AND NET PRESENT VALUES OF FUTURE NET REVENUE
  as of April 1, 2004
  FORECAST PRICES AND COSTS    
    

	 
	 	RESERVES

	 
	 	LIGHT AND MEDIUM OIL
	 	HEAVY OIL
	 	NATURAL GAS
	 	NATURAL GAS LIQUIDS

	RESERVES CATEGORY
 
	 	Gross (Mbbl)
	 	Net (Mbbl)
	 	Gross (Mbbl)
	 	Net (Mbbl)
	 	Gross (MMcf)
	 	Net (MMcf)
	 	Gross (Mbbl)
	 	Net (Mbbl)

	PROVED	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	Developed Producing	 	18,396	 	16,711	 	7,251	 	6,112	 	1,919	 	1,638	 	115	 	95
	 	Developed Non-Producing	 	18	 	17	 	—	 	—	 	4	 	3	 	—	 	—
	 	Undeveloped	 	1,040	 	944	 	275	 	205	 	74	 	67	 	7	 	6
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	TOTAL PROVED	 	19,454	 	17,673	 	7,526	 	6,317	 	1,997	 	1,708	 	123	 	102
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	PROBABLE	 	4,873	 	4,516	 	1,037	 	882	 	724	 	575	 	32	 	28
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	TOTAL PROVED PLUS PROBABLE	 	24,328	 	22,189	 	8,564	 	7,199	 	2,722	 	2,284	 	155	 	130
	 	 	
	 	
	 	
	 	
	 	
	 	
	 	
	 	

	

 
	
 	

NET PRESENT VALUES OF FUTURE NET REVENUE
	
 
	 
	 	BEFORE INCOME TAXES DISCOUNTED AT (%/year)(1)
	 
	RESERVES CATEGORY
 
	 	0

($000)
	 	5

($000)
	 	10

($000)
	 	15

($000)
	 	20

($000)
	 
	PROVED	 	 	 	 	 	 	 	 	 	 	 
	 	Developed Producing	 	225,615	 	211,189	 	196,023	 	182,191	 	170,080	 
	 	Developed Non-Producing	 	(682	)	(517	)	(407	)	(332	)	(279	)
	 	Undeveloped	 	12,548	 	9,314	 	6,930	 	5,153	 	3,806	 
	 	 	
	 	
	 	
	 	
	 	
	 
	TOTAL PROVED	 	237,481	 	219,985	 	202,546	 	187,012	 	173,607	 
	 	 	
	 	
	 	
	 	
	 	
	 
	
 PROBABLE	
 	

33,207	
 	

24,812	
 	

18,728	
 	

14,409	
 	

11,299	
 
	 	 	
	 	
	 	
	 	
	 	
	 
	TOTAL PROVED PLUS PROBABLE	 	270,689	 	244,798	 	221,275	 	201,421	 	184,907	 
	 	 	
	 	
	 	
	 	
	 	
	 

21

 

Forecast Prices and Costs—April 1, 2004  

        Crude oil and natural gas benchmark reference pricing, inflation and exchange rates utilized by McDaniel, which were McDaniel's forecasts as at April 1,
2004, were as follows: 

 
 

SUMMARY OF PRICING AND INFLATION RATE ASSUMPTIONS
  as of April 1, 2004
  FORECAST PRICES AND COSTS    
    

	 
	 	OIL
	 	 
	 	 
	 	 
	 	 

	Year
 
	 	WTI Cushing Oklahoma ($US/bbl)
	 	Edmonton Light Par Price 40° API ($Cdn/bbl)
	 	Hardisty Heavy 12° API ($Cdn/bbl)
	 	Bow River Medium 29.3° API ($Cdn/bbl)
	 	NATURAL GAS AECO Gas Price ($Cdn/MMBtu)
	 	NATURAL GAS LIQUIDS FOB Field Gate ($Cdn/BBL)
	 	INFLATION RATES(1) (%/Year)
	 	EXCHANGE RATE(2) ($US/$Cdn)

	Forecast	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2004(3)	 	34.00	 	44.30	 	29.30	 	34.30	 	6.05	 	32.40	 	2.00	 	0.75
	2005	 	29.00	 	37.60	 	24.90	 	30.00	 	5.65	 	28.00	 	2.00	 	0.75
	2006	 	27.00	 	35.00	 	23.60	 	28.20	 	5.10	 	25.90	 	2.00	 	0.75
	2007	 	25.50	 	32.90	 	21.20	 	26.00	 	4.80	 	24.30	 	2.00	 	0.75
	2008	 	25.50	 	32.90	 	21.00	 	25.90	 	4.70	 	24.20	 	2.00	 	0.75
	2009	 	26.00	 	33.60	 	21.50	 	26.40	 	4.75	 	24.70	 	2.00	 	0.75
	2010	 	26.50	 	34.20	 	21.80	 	26.90	 	4.90	 	25.10	 	2.00	 	0.75
	2011	 	27.00	 	34.90	 	22.30	 	27.40	 	5.00	 	25.70	 	2.00	 	0.75
	2012	 	27.50	 	35.50	 	22.60	 	27.90	 	5.05	 	26.10	 	2.00	 	0.75
	2013	 	28.10	 	36.30	 	23.20	 	28.50	 	5.15	 	26.70	 	2.00	 	0.75
	2014	 	28.70	 	37.00	 	23.60	 	29.10	 	5.25	 	27.20	 	2.00	 	0.75
	2015	 	29.30	 	37.80	 	24.10	 	29.70	 	5.40	 	27.80	 	2.00	 	0.75
	2016	 	29.90	 	38.60	 	24.60	 	30.40	 	5.50	 	28.50	 	2.00	 	0.75
	2017	 	30.50	 	39.40	 	25.20	 	31.00	 	5.65	 	29.10	 	2.00	 	0.75
	2018	 	31.10	 	40.10	 	25.60	 	31.50	 	5.75	 	29.60	 	2.00	 	0.75
	2019	 	31.70	 	40.90	 	26.10	 	32.20	 	5.85	 	30.10	 	2.00	 	0.75
	2020	 	32.30	 	41.70	 	26.60	 	32.80	 	5.95	 	30.70	 	2.00	 	0.75
	2021	 	32.90	 	42.50	 	27.10	 	33.40	 	6.05	 	31.30	 	2.00	 	0.75
	2022	 	33.60	 	43.40	 	27.70	 	34.10	 	6.20	 	32.00	 	2.00	 	0.75
	2023	 	34.30	 	44.30	 	28.30	 	34.80	 	6.30	 	32.60	 	2.00	 	0.75
	Thereafter	 	34.30	 	44.30	 	28.30	 	34.80	 	6.30	 	32.60	 	0	 	0.75

Notes: 

	(1)
	Inflation
rates for forecasting prices and costs.

	(2)
	Exchange
rates used to generate the benchmark reference prices in this table.

	(3)
	2004
Forecast for 9 months only. 

Additional Information Relating to Reserves Data  

Undeveloped Reserves  

        The Operating Subsidiaries carries a relatively minor amount of undeveloped reserves. These reserves are infill wells primarily located in undrilled spacing units
at its Hayter and Carlyle property areas. A portion of these infill wells are projected to be upgraded to producing status in 2004 and the remainder in 2005 and 2006. 

        The
Operating Subsidiaries does not see a major uncertainty related to the upgrading of undeveloped reserves. Nevertheless, a catastrophic drop in oil prices might delay infill drilling
activity. 

        Important
economic factors that should be taken into consideration that may affect particular components of the reserve data include: oil pricing, power costs and operating expenses. 

22

 

Significant Factors or Uncertainties  

        Information in this Annual Information Form contains forward-looking information and estimates with respect to Harvest. This information addresses future events
and conditions, and as such involves risks and uncertainties that could cause actual results to differ materially from those contemplated by the information provided. These risks and uncertainties
include but are not limited to factors intrinsic in domestic and international politics and economics, general industry conditions including the impact of environmental laws and regulations,
imprecision of reserves estimates, fluctuations in commodity prices, interest rates or foreign exchange rates and stock market volatility. The information and opinions concerning the Trust's future
outlook are based on information available at December 31, 2003. 

Other Oil and Natural Gas Information  

Oil and Natural Gas Properties  

        The Operating Subsidiaries' portfolio of Properties are discussed below. Although the Trust receives income from the NPI from each of the Operating Subsidiaries,
all oil and natural gas operations and the management of the Trust are conducted by the Corporation. 

        In
general, the Properties include major oil accumulations which benefit from active pressure support due to an underlying regional aquifer. Generally, the properties have predictable
decline rates with costs of production and oil price key to determining the economic limits of production. The Corporation is actively engaged in cost reduction, production and reserve replacement
optimization efforts directed at reserve addition through extending the economic life of these producing properties beyond the limits used in the McDaniel Report and developing new proven reserves
previously not evaluated by McDaniel. In respect of the Properties, the Corporation has entered into a number of electrical power swaps to manage a portion of the risk associated with electrical power
cost volatility, which is a significant portion of the production costs associated with the Properties. 

Principal Provost Properties  

        The following is a description of the Operating Subsidiaries' principal oil and natural gas properties which constitute the Provost Properties as at
December 31, 2003. Production stated is gross production to the Operating Subsidiaries, namely the Operating Subsidiaries' interest share before deducting royalties owned by others and without
including any royalty interest of the Operating Subsidiaries and, unless otherwise stated, is the exit production for 2003 excluding production from non-operated properties. Unless
otherwise specified, gross and net acres and well count information are as at December 31, 2003. 

Hayter 

        The
Operating Subsidiaries have an average 93.1% Working Interest in this operated property, which produces approximately 5,000 net BOE/d of 15° API oil from the Dina "B"
Pool located in Sections 24, 25, 34 and 35-40-1 W4M. The Hayter pool contains 176 gross (167 net) producing wells. OOIP is estimated at 138 Mmbbls of oil on the
Operating Subsidiaries' Working Interest acreage. 

        The
Hayter fluid production is gathered into one of two central batteries located at 8-35-40-1 W4M or 1-34-40-1
W4M in which the Operating Subsidiaries have a 95% Working Interest and is the operator. The batteries have a combined capacity of approximately 200,000 Bbls/d of fluid. Oil from the Hayter
area is blended with condensate and shipped from the battery via the Gibson Provost pipeline to the Hardisty terminal. Solution natural gas is conserved and utilized as fuel gas at the batteries, with
the remainder processed at the Husky North Hansman Gas Plant located at 8-14-39-03 W4M. Future development of this pool will include additional in-fill
drilling on closer spacing, pool extensions through the identification of by-passed reserves and re-completion of existing wells by isolating portions of the horizontal wells
that are experiencing higher water production. There is also an opportunity to employ cost
reduction practices to improve netbacks and ultimate recovery, employing inclined free-water knockouts and additional disposal. Initial low pressure water disposal results are encouraging
for continuing reduction of operating costs and increase in disposal volumes. 

Thompson Lake 

        The
Operating Subsidiaries operate the Thompson Lake properties with approximately a 99% Working Interest. Production from the properties is approximately 1,230 BOE/d of
27° API oil, at a 99% water cut, from the Provost 

23

 

Glauconite
"A" Pool located in Township 40 and 41 and Range 10 and 11 W4M. The field contains 192 gross producing wells. OOIP is estimated at 50 Mmbbls of oil. 

        The
Thompson Lake fluid production is gathered at a central battery located at 4-2-41-11 W4M in which the Co has a 100% Working Interest. The battery
has a capacity of approximately 210,000 Bbls/d of fluid. Oil is shipped from the battery via the Gibson Pipeline to the Hardisty terminal. Solution natural gas is conserved and processed at the
Husky Provost Gas Plant at 13-30-40-10 W4M. 

        A
primary operating tactic to enhance the future performance of the Thompson Lake field is to improve overall fluid handling efficiency and by reducing the electrical power requirements
associated with water handling. Additional low pressure water disposal capacity will allow production optimization through total fluid increases at the wells that could have a favourable impact on
production rates, reserve recoveries and production costs. Additionally, production prioritization is expected to optimize total fluids handling by focusing operational efforts on the most prolific
wells. 

Killarney 

        The
Operating Subsidiaries own a 93% average Working Interest and the Operating Subsidiaries operate the Killarney field, which was acquired by the Operating Subsidiaries and by the
Trust, through the acquisition of certain properties in Killarney directly and through the acquisition of WEI, in the second quarter of 2003. The Killarney field is a Cummings/Dina oil pool within 3.5
miles of Harvest's existing Hayter field. Production is approximately 1,020 BOE/d of 20.4° API oil. The Killarney pool contains 123 gross (114 net) producing oil wells. OOIP is
estimated at 51 Mmbbls of oil. 

        The
Killarney fluid production is gathered at two central batteries located at 6-29-41-1 W4M and 10-20-41-1 W4M.
The batteries have a total maximum capacity of approximately 175,000 Bbls/d of fluid. Upside may be realized by increasing water disposal capacity for this field. 

David North 

        The
Operating Subsidiaries have a 100% Working Interest in this operated property, which produces approximately 700 BOE/d of primarily 23° API oil, at a 98% water cut,
from the Lloydminster (which is under waterflood) and Dina sands located in Sections 26 and 27-40-3 W4M. The field contains 54 gross (54 net) producing wells.
OOIP is estimated at 18 Mmbbls of oil for the two producing zones. 

        The
fluid production is gathered to the central battery located at 15-26-40-3 W4M in which the Operating Subsidiaries have a 100% Working Interest.
The battery has a capacity of approximately 40,000 Bbls/d of fluid. Oil is shipped from the battery via the Gibson Pipeline to the Hardisty terminal. Solution natural gas is conserved and
processed at the Husky North Hansman Gas Plant 8-14-39-3 W4M. 

        Selected
well speed-ups and expanded use of inclined free-water knockouts could result in increased efficiency, lower operating costs and increased fluid handling
capacity. The Operating Subsidiaries are also considering targeting re-completions for wells that have produced in the Lloydminster and/or Dina zones to be converted to Cummings or Sparky
oil producers. Numerous wells have been identified by the Operating Subsidiaries for re-completion. 

West Provost 

        The
Operating Subsidiaries hold an average 43.1% Working Interest in this area. Production from the area is approximately 610 BOE/d of primarily 26° API oil, at a 98%
water cut, primarily from the Mannville "L" Pool located in Townships 37, 38 and 39-3 W4M. Natural gas production is approximately 200 Mcf/d. The West Provost pool
contains 114 gross (43 net) producing oil wells and 15 gross (6 net) producing natural gas wells. OOIP is estimated at 35 Mmbbls of oil. 

        The
majority of the West Provost fluid production in the area is gathered at a central battery located at 3-15-38-03 W4M, in which the Operating
Subsidiaries have a 37.5% Working Interest. The battery has a capacity of approximately 115,000 Bbls/d of fluid. Oil is shipped from the battery via the Gibson Provost pipeline to the Hardisty
terminal. Solution and non-associated natural gas is conserved and processed at the Husky North, Hansman Lake Gas Plant at 8-14-39-03 W4M. The West
Provost area also produces natural gas from 15 gross wells, primarily from the Viking and Colony Formations. 

        There
is an opportunity to employ cost reduction practices to improve netbacks and ultimate recovery employing inclined free-water knockouts and increased water disposal
capacity. 

24

 

Amisk 

        WEI
owns a 75% average Working Interest in the Amisk field and the Operating Subsidiaries operate all production, which was acquired by the Trust through the acquisition of WEI on
June 27, 2003. The Amisk field is located on the producing trend, which includes Thompson Lake, Hayter, Killarney and West Provost. Amisk is located 15 miles east of Thompson Lake, produces
from the same formation and has similar production characteristics. Production from the field is approximately 690 BOE/d of 22° API oil. The Amisk pool contains 88 gross (66 net)
producing oil wells. OOIP is estimated at 62 Mmbbls oil for the entire Amisk pool area. 

        The
Amisk fluid production is gathered at an operated central battery located at 12-15-40-08W4M. The Operating Subsidiaries has identified an
opportunity to improve netbacks and ultimate recovery by reducing operating costs, suspending marginal wells and increasing water disposal capacity for the field. 

Czar 

        The
Operating Subsidiaries own an average 100% Working Interest in this area (and the Operating Subsidiaries operate all production), which interests acquired by the Trust through the
acquisition of WEI on June 27, 2003. The Czar field is located 8 miles due east of Amisk on the same producing trend. Production is approximately 480 BOE/d of 16° API oil.
The Czar pool contains 67 gross (67 net) producing oil wells. OOIP is estimated at 34 Mmbbls of oil. 

        The
Czar fluid production is gathered at an operated central battery located at 2-19-40-06W4M. The Operating Subsidiaries have identified an
opportunity to improve netbacks and ultimate recovery by reducing operating costs and increasing water disposal capacity for the field. 

Bellshill Lake 

        The
Operating Subsidiaries have a 100% Working Interest in 1,120 acres of land in Sections 5 and 6-41-12 W4M which is in proximity to the Bellshill
Blairmore Unit. Production
from this operated property is approximately 420 BOE/d of primarily 18° API oil, at a 98% water cut, from the Ellerslie "A" Pool and natural gas from the Glauconite "A" Pool. The
field contains 20 gross (20 net) producing wells. OOIP is estimated at 27 Mmbbls of oil. 

        The
Bellshill Lake fluid production is gathered at a central battery located at 11-5-41-12 W4M in which the Operating Subsidiaries have a 100% Working
Interest. The battery has a capacity of approximately 40,000 Bbls/d of fluid. Oil is shipped from the battery via the Gibson Bellshill Pipeline to the Hardisty terminal. Solution natural gas is
conserved and processed at the Husky Hastings Coulee Gas Plant at 1-14-41-15 W4M. Water is re-injected back into the lower Cretaceous aquifer.
Development upside includes an additional horizontal drilling location and increases to water injection capacity. 

Metiskow 

        The
Operating Subsidiaries have a 100% Working Interest in this operated property, which produces approximately 140 BOE/d of 16° API oil from the Provost Dina "E" Pool
located in Sections 22 and 23-39-6 W4M. The field has been developed exclusively with horizontal wells. The pool contains 9 gross (9 net) producing wells. OOIP is
estimated at 3.0 Mmbbls of oil. 

        The
Metiskow fluid production is gathered at a central battery located at 5-22-39-6 W4M in which the Operating Subsidiaries have a 100% Working
Interest. The battery has a capacity of approximately 13,500 Bbls/d of fluid. Oil is trucked from the battery to the Hardisty terminal. Upside may be realized by increasing water disposal
capacity for this field. 

Principal Carlyle Properties  

        The following is a description of the Operating Subsidiaries' principal oil and natural gas properties which constitute the Carlyle Properties (which were
acquired by the Operating Subsidiaries in October 2003) as at December 31, 2003. Production stated is gross production to the Operating Subsidiaries, namely the Operating Subsidiaries'
interest share before deducting royalties owned by others and without including any royalty interest of the Operating Subsidiaries and, unless otherwise stated, is the exit production for 2003
excluding production from non-operated properties. Unless otherwise specified, gross and net acres and well count information are as at December 31, 2003. 

25

 

        The
properties described below constitute the majority of the Carlyle Properties. Additional production of approximately 260 BOE/d is derived from various minor properties. OOIP
numbers are published values from the Saskatchewan Government. All oil production is delivered into the Enbridge Saskatchewan pipeline system. 

Hazelwood 

        This
area is comprised of nine separate pools producing approximately 1,940 BOE/d of 34° API oil from 142 oil wells in the Tilston formation. As at December 31,
2003, the Operating Subsidiaries held an average 98% Working Interest in 19,107 gross acres including 8,669 net undeveloped acres. The area contains 142 gross (139 net) producing oil wells. OOIP is
estimated at 160 Mmbbls of oil for all Hazelwood pools. Operatorship (100% Working Interest in all but one facility) along with extensive proprietary 3D seismic coverage offer control of the
opportunity to increase oil production and reserve life through workovers, step-out drilling and horizontal infill drilling. Natural gas volumes at Hazelwood are marketed through an area
rural natural gas co-operative. 

Moose Valley 

        This
area is comprised of five pools producing approximately 1,070 BOE/d of 28° API oil from 98 oil wells in the Tilston formation. As at December 31, 2003, the
Operating Subsidiaries held an average 97% Working Interest in 8,417 gross acres including 3,794 net undeveloped acres. The area contains 98 gross (97 net) producing oil wells. OOIP is estimated at
80 Mmbbls of oil for all Moose Valley pools. Operatorship (100% Working Interest in all but one facility) along with extensive proprietary 3D seismic coverage offer control of the opportunity
to increase production and reserve life through workovers, water handling upgrades and water control measures and additional infill and step-out drilling. 

Whitebear 

        This
area is comprised of three main pools producing approximately 800 BOE/d of 34° API oil from 67 oil wells in the Tilston formation. As at December 31, 2003,
the Operating Subsidiaries held a 100% Working Interest in 11,245 gross acres including 6,204 net undeveloped acres. The area contains 67 gross (58 net) producing oil wells. OOIP is estimated at
120 Mmbbls of oil for all Whitebear pools. A significant portion of the property is located on the Whitebear First Nation Reserve. The Carlyle Properties Vendor holds an option to acquire an
additional 23% average Working Interest in 960 gross acres plus royalty interests in 96 acres at Willmar, which is part of the Whitebear area (the "Whitebear Reserve Option Lands"). Operatorship of
all facilities along with extensive proprietary 3D seismic coverage offer control of the opportunity to increase oil production and reserve life through workovers, water handling upgrades and water
control measures, horizontal infill drilling. 

Corning/Flinton 

        This
area is comprised of five pools producing approximately 740 BOE/d of 28.5° API oil from 67 oil wells in the Tilston formation. As at December 31, 2003, the
Operating Subsidiaries held an average 100% Working Interest in 13,748 gross acres, including 6,309 net undeveloped acres. The area contains 67 gross (66 net) producing oil wells. OOIP is estimated at
53 Mmbbls of oil for all Corning/Flinton pools. Operatorship (100% WI)
in all facilities along with extensive proprietary 3D seismic coverage offer control of the opportunity to increase production and reserve life through workovers and drilling of selected infill and
step-out wells. 

Parkman East 

        This
area is comprised of the Parkman East pools, producing approximately 280 BOE/d of 33.5° API oil from 37 oil wells in the Tilston formation. As at
December 31, 2003, the Operating Subsidiaries held an average 88.1% Working Interest in 6,198 gross acres including 2,506 net undeveloped acres. The area contains 37 gross (26 net) producing
oil wells. OOIP is estimated at 230 Mmbbls of oil for all Parkman East pools. Opportunity exists to increase oil production and reserve life through workovers, water handling upgrades and water
control measures, and selective infill drilling. 

Wauchope/Lightning 

        This
area is comprised of three pools producing approximately 110 BOE/d of 33° API oil from 12 oil wells in the Tilston formation. As at December 31, 2003, the
Operating Subsidiaries held an average 93% Working Interest in 4,079 gross acres including 2,514 net undeveloped acres. The area contains 12 gross (11 net) producing oil wells. 

26

 

OOIP
is estimated at 26 Mmbbls of oil for all Wauchope/Lightning pools. Operatorship (100% WI) in all facilities along with extensive proprietary 3D seismic coverage offer control of the
opportunity to increase production and reserve life through workovers, water handling upgrades and water control measures and additional step-out and new pool drilling. 

Incremental Exploitation and Development Potential  

        Management of the Corporation has identified several opportunities to take advantage of possible development potential in order to increase existing production
supplemental to the future development projects included in the determination of the Reserve Values contained in the McDaniel Report. Neither the capital costs nor the potential incremental production
associated with these opportunities are reflected in the McDaniel Report. Opportunities being considered include: 

	•
	Increasing
water handling and water disposal capacity at key fields to add incremental oil volumes. This includes the use of inclined free water knock-outs and
additional disposal wells;

	•
	Debottlenecking
existing fluid handling facilities and surface infrastructure;

	•
	Infill
horizontal drilling and step-out drilling opportunities at Hazelwood beyond those included in the McDaniel Report. Locations are fully defined by 3D
seismic;

	•
	Optimizing
field oil cut management through the shut-in of select wells and increased total fluid from offset higher oil cut wells. Shut-in wells
would be available for restart as oil cuts vary;

	•
	Reperforating
existing shut-in wells to access undrained reserves;

	•
	Numerous
exploratory opportunities defined by seismic from which value might be extracted by sale or farmout; and

	•
	Selected
development drilling opportunities for prolific Alida and Souris Valley subcrop oil accumulations. 

Oil And Natural Gas Wells  

        The following table sets forth the number and status of wells in which the Operating Subsidiaries have a working interest as at December 31, 2003. 

	 
	 	Oil Wells
	 	Natural Gas Wells

	 
	 	Producing
	 	Non-Producing
	 	Producing
	 	Non-Producing

	 
	 	Gross
	 	Net
	 	Gross
	 	Net
	 	Gross
	 	Net
	 	Gross
	 	Net

	Alberta	 	723	 	598	 	476	 	439	 	21	 	5	 	7	 	3
	Saskatchewan	 	385	 	369	 	232	 	221	 	—	 	—	 	—	 	—
	Total	 	1,108	 	967	 	708	 	660	 	21	 	5	 	7	 	3

Properties with no Attributable Reserves  

        The following table sets out the Operating Subsidiaries' undeveloped land holdings as at January 1, 2004. 

	 
	 	Undeveloped Acres

	 
	 	Gross
	 	Net

	Alberta	 	15,549	 	10,398
	Saskatchewan	 	26,372	 	25,598
	Total	 	41,921	 	35,996

        The
Operating Subsidiaries expect that rights to explore, develop and exploit 5,832 net acres of its undeveloped land holdings will expire by December 31, 2004. 

Forward Contracts  

        For details of material commitments to sell natural gas and crude oil which were outstanding at December 31, 2003—see note 12
to the Financial Statements contained on pages 50 to 52 in the Trust's annual report, which pages are incorporated herein by reference. 

27

  

Additional Information Concerning Abandonment and Reclamation Costs  

        The following table sets forth information respecting future abandonment and reclamation costs for surface leases, wells, facilities and pipelines which are
expected to be incurred by the Operating Subsidiaries and for the periods indicated: 

	Period
 
	 	Abandonment & Reclamation costs net of salvage value (undiscounted and using a 2% inflation rate)

($000)
	 	Abandonment & Reclamation costs net of salvage value (discounted at 10% using a 2% inflation rate)

($000)

	Total as at Dec. 31, 2004	 	29,000	 	12,200
	Anticipated to be paid in 2004	 	68	 	65
	Anticipated to be paid in 2005	 	72	 	61
	Anticipated to be paid in 2006	 	89	 	71

        The
number of net wells for which McDaniel estimated that the Operating Subsidiaries would incur abandonment and reclamation costs is 1,969 wells. 

        Only
abandonment costs associated with wells were deducted by McDaniel in estimating future net revenue in the McDaniel Report and all of such costs (without accounting for salvage
values) were so deducted. 

Capital Expenditures  

        The following tables summarize capital expenditures (net of incentives and net of certain proceeds and including capitalized general and administrative expenses)
related to the Operating Subsidiaries' activities for the year ended December 31, 2003 ($000): 

	Property acquisition costs	 	 	 
	 	Proved properties	 	$	108,677
	 	Undeveloped properties	 	 	—
	Exploration costs	 	 	—
	Development costs	 	 	26,623
	 	 	

	Total	 	$	135,300
	 	 	

Exploration and Development Activities  

        The following table sets forth the gross and net exploratory and development wells in which the Operating Subsidiaries participated during the year ended
December 31, 2003: 

	 
	 	Exploratory Wells
	 	Development Wells

	 
	 	Gross
	 	Net
	 	Gross
	 	Net

	Light and Medium	 	—	 	—	 	21	 	18.5
	Natural Gas	 	—	 	—	 	—	 	—
	Service	 	—	 	—	 	1	 	1
	Dry	 	—	 	—	 	—	 	—
	 	 	
	 	
	 	
	 	

	Total:	 	—	 	—	 	22	 	19.5
	 	 	
	 	
	 	
	 	

        During
2004, the Operating Subsidiaries plan to drill 32 wells. Fourteen were drilled during the first quarter. The Operating Subsidiaries have commenced a development drilling program
in SE Saskatchewan targeting 15 wells drilled for Tilston oil production. As of April 30, 2004 five of these SE Saskatchewan wells have been drilled. The Operating Subsidiaries are continuing
development drilling at East Hayter with the addition of up to 12 new wells. Six of these East Hayter wells have been drilled to date. The Operating Subsidiaries are also continuing with a program to
add low pressure water disposal to reduce operating costs by reducing consumption of electricity. At Thompson Lake, two new disposal wells were added and an additional three wells are planned in the
Provost area. 

28

 

Production Estimates  

        The following table sets out the volume of the Operating Subsidiaries' net production estimated for the year ended December 31, 2004 which is reflected in
the estimate of future net revenue disclosed in the tables contained under "- Disclosure of Reserves Data" and forecast by McDaniel. 

	 
	 	Light and Medium Oil
	 	Heavy Oil
	 	Natural Gas
	 	Natural Gas Liquids
	 	BOE

	 
	 	(bbls/d)

	 	(bbls/d)

	 	(mcf/d)

	 	(bbls/d)

	 	(BOE/d)

	Proved Producing	 	8,765	 	4,595	 	1,115	 	53	 	13,599
	Proved Developed Non-Producing	 	—	 	—	 	—	 	—	 	—
	Proved Undeveloped	 	194	 	82	 	12	 	2	 	280
	Total Proved	 	8,958	 	4,677	 	1,127	 	55	 	13,879
	Total Probable	 	294	 	204	 	54	 	—	 	509
	Total Proved Plus Probable	 	9,241	 	4,893	 	1,181	 	57	 	14,388

        Hayter
is the Operating Subsidiaries' largest producing property representing 32% of forecast 2004 production. It is forecast by McDaniel to produce 4,525 Bbls/d of heavy oil. 

Production History  

        The following tables summarize certain information in respect of production, product prices received, royalties paid, operating expenses and resulting netback for
the periods indicated below: 

Average Daily Production Volumes  

(before the deduction of royalties)  

	 
	 	2003

	 
	 	Q1
	 	Q2
	 	Q3
	 	Q4
	 	Total

	Natural Gas(mcfd)	 	875	 	1,161	 	1,453	 	1,744	 	1,311
	Heavy Oil (bopd)	 	4,853	 	5,139	 	6,010	 	5,756	 	5,444
	Medium Oil (bopd)	 	3,181	 	4,232	 	5,044	 	4,662	 	4,286
	Light Oil (bopd)	 	—	 	—	 	—	 	4,079	 	1,028
	NGL (blpd)	 	43	 	67	 	77	 	70	 	64
	 	 	
	 	
	 	
	 	
	 	

	Total Liquids (blpd)	 	8,077	 	9,438	 	11,131	 	14,567	 	10,822
	 	 	
	 	
	 	
	 	
	 	

	
BOE—6:1	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	
Total Sales Production:	
 	

 	
 	

 	
 	

 	
 	

 	
 	

 
	Natural Gas (mcf)	 	78,750	 	105,651	 	133,676	 	160,448	 	478,515
	Heavy Oil (bbls)	 	436,770	 	467,649	 	552,920	 	529,571	 	1,987,060
	Medium Oil (bbls)	 	286,290	 	385,112	 	464,048	 	428,912	 	1,564,390
	Light Oil (bbls)	 	—	 	—	 	—	 	375,310	 	375,220
	NGL (bbls)	 	3,870	 	6,097	 	7,084	 	6,397	 	23,360
	 	 	
	 	
	 	
	 	
	 	

	Total Liquids (bbls)	 	726,930	 	858,858	 	1,024,052	 	1,340,190	 	3,950,030
	 	 	
	 	
	 	
	 	
	 	

	BOE—6:1	 	740,055	 	876,467	 	1,046,331	 	1,366,931	 	4,029,783

29

 

Average Sales Prices Received:  

	 
	 	2003

	 
	 	Q1
	 	Q2
	 	Q3
	 	Q4
	 	Total

	Natural Gas (mcf)	 	8.85	 	6.81	 	6.17	 	6.01	 	6.70
	Heavy Oil ($/bbl)	 	33.86	 	27.16	 	24.96	 	24.92	 	27.34
	Medium Oil ($/bbl)	 	38.96	 	31.54	 	31.09	 	30.13	 	32.18
	Light Oil ($/bbl)	 	—	 	—	 	—	 	35.56	 	35.56
	 	 	
	 	
	 	
	 	
	 	

	Total Oil ($/bbl)	 	35.88	 	29.14	 	27.76	 	29.59	 	30.05
	 	 	
	 	
	 	
	 	
	 	

	NGL ($bbl)	 	43.28	 	28.91	 	23.80	 	29.18	 	29.92
	 	 	
	 	
	 	
	 	
	 	

	Total Oil & Liquids ($/bbl)	 	35.92	 	29.14	 	27.73	 	29.59	 	30.05
	 	 	
	 	
	 	
	 	
	 	

	BOE—6:1	 	35.44	 	28.69	 	27.27	 	29.13	 	29.59

Royalties Paid(1)  

	 
	 	2003

	 
	 	Q1
	 	Q2
	 	Q3
	 	Q4
	 	Total

	Heavy Oil ($000)	 	1,638	 	1,584	 	1,665	 	1,635	 	6,522
	Medium & Light Oil ($000)	 	1,160	 	1,576	 	1,887	 	4,513	 	9,135
	Natural gas & NGL's ($000)	 	125	 	130	 	281	 	2220	 	755
	 	 	
	 	
	 	
	 	
	 	

	Total Oil ($000)	 	2,923	 	3,290	 	3,832	 	6,367	 	6,412
	 	 	
	 	
	 	
	 	
	 	

	Heavy Oil ($/bbl)	 	3.75	 	3.39	 	3.01	 	3.09	 	3.28
	Medium & Light Oil ($/bbl)	 	4.05	 	4.09	 	4.07	 	5.61	 	4.71
	Natural gas & NGL's ($/boe)	 	7.35	 	5.50	 	9.56	 	6.62	 	6.36
	 	 	
	 	
	 	
	 	
	 	

	Total Oil ($/bbl)	 	3.95	 	3.96	 	3.66	 	4.85	 	4.18
	 	 	
	 	
	 	
	 	
	 	

Operating Expenses(1)  

	 
	 	2003

	 
	 	Q1
	 	Q2
	 	Q3
	 	Q4
	 	Total

	Heavy Oil ($000)	 	3,624	 	3,212	 	3,838	 	3,984	 	14,658
	Medium & Light Oil ($000)	 	3,075	 	3,256	 	5,602	 	734	 	20,666
	Natural gas & NGL's ($000)	 	106	 	128	 	221	 	265	 	721
	 	 	
	 	
	 	
	 	
	 	

	Total Oil ($000)	 	6,804	 	6,596	 	9,661	 	12,983	 	36,045
	 	 	
	 	
	 	
	 	
	 	

	Heavy Oil ($/bbl)	 	8.30	 	6.87	 	6.94	 	7.52	 	7.38
	Medium & Light Oil ($/bbl)	 	10.74	 	8.45	 	12.07	 	10.86	 	10.65
	Natural gas & NGL's ($/boe)	 	6.25	 	5.42	 	7.53	 	7.99	 	6.99
	 	 	
	 	
	 	
	 	
	 	

	Total Oil ($/bbl)	 	9.19	 	7.53	 	9.23	 	9.50	 	8.94
	 	 	
	 	
	 	
	 	
	 	

30

 

Netback Received(1)  

	 
	 	2003

	 
	 	Q1
	 	Q2
	 	Q3
	 	Q4
	 	Total

	Heavy Oil ($/bbl)	 	21.81	 	16.90	 	15.01	 	14.31	 	16.68
	Medium & Light Oil ($/bbl)	 	24.17	 	18.99	 	14.95	 	16.19	 	16.82
	Natural gas & NGL's ($/boe)	 	82.78	 	58.87	 	43.75	 	50.65	 	56.78
	 	 	
	 	
	 	
	 	
	 	

	Total Oil ($/bbl)	 	22.29	 	17.41	 	14.38	 	14.97	 	16.61
	 	 	
	 	
	 	
	 	
	 	

Note: 

	(1)
	Information
respecting Natural Gas and NGLs has not been reported as production volumes are not material. 

 
 

DESCRIPTION OF THE TRUST    
    

General  

        The Trust is an open-ended, unincorporated investment trust established under the laws of the Province of Alberta. The Trust is not managed by a third
party manager. Instead, the Trust is managed by the Corporation, its wholly-owned subsidiary, pursuant to the Trust Indenture and the Administration Agreement. 

        The
Trust was established for the purposes of: 

	(a)
	acquiring
the NPI and similar interests from the Corporation and similar interests and acquiring Direct Royalties;

	(b)
	making
payments to the Corporation, to the extent of the Trust's available funds, for 99% of the Corporation's cost of (including any amount borrowed to acquire) any Canadian resource
property acquired by the Corporation, and the cost of (including any amount borrowed to fund) certain designated capital expenditures in relation to the Properties;

	(c)
	acquiring
or investing in securities of the Corporation and in the securities of any other entity including, without limitation, bodies corporate, partnerships or trusts that are
Permitted Investments, and borrowing funds or otherwise obtaining credit for that purpose;

	(d)
	disposing
of any part of the Trust Fund, including, without limitation, any securities of the Corporation;

	(e)
	temporarily
holding cash and investments for the purposes of paying the expenses and the liabilities of the Trust, making other investments as contemplated by the Trust Indenture,
paying amounts payable by the Trust in connection with the redemption of any Trust Units, and making distributions to Unitholders; and

	(f)
	paying
costs, fees and expenses associated with the foregoing purposes or incidental thereto. 

        See
"Description of the Trust—Cash Available For Distribution" and "Description of the Trust—Distributable Cash". 

The NPI and Direct Royalties  

Overview  

        The NPI consists of the right to receive a monthly payment from the Operating Subsidiaries pursuant to the terms of the NPI Agreements, equal to the amount by
which ninety-nine (99%) percent of the gross proceeds from the sale of production attributable to Property Interests for such month (the "NPI Revenues") exceed ninety-nine
(99%) percent of certain deductible production costs for such period. The residual 1% share of gross proceeds from the sale of production which does not form part of the NPI is retained by the
Operating Subsidiaries, together with any income of the Operating Subsidiaries derived from Properties that are not Working Interests in Canadian resource properties (including the Corporation's 1%
share of income from the royalty interests from which the Direct Royalties are derived), is used to defray certain expenses and capital expenditures of the Operating Subsidiaries. 

        In
calculating the NPI, the Operating Subsidiaries deduct various costs and expenses. The Trust also reimburses the Operating Subsidiaries for Crown royalties and other Crown charges
payable by the Operating Subsidiaries in 

31

 

respect
of production from or ownership of the Corporation's Properties. The Operating Subsidiaries are entitled to set off the right to be so reimbursed against the obligation to pay the NPI. 

        Pursuant
to the NPI Agreements, the Trust must pay to the Operating Subsidiaries the Deferred Purchase Price Obligation. To satisfy the Deferred Purchase Price Obligation, the net
proceeds of any issue of the Trust Units or the proceeds from the disposition of the NPI on any Properties are paid to the Corporation. The Trust is not required to pay an amount as a Deferred
Purchase Price Obligation except to the extent the Trust has such proceeds available. See "Deferred Purchase Price Obligation" below for a more detailed description of the Deferred Purchase Price
Obligation. 

        Pursuant
to the NPI Agreements substantially all of the economic benefit derived from the assets of the Operating Subsidiaries accrues to the benefit of the Trust and ultimately to the
Unitholders. The term of each of the NPI Agreements is for so long as there are petroleum and natural gas rights to which the NPI Agreement applies. 

        In
addition to the NPI, the Trust owns a beneficial interest in the Direct Royalties and the Trust may acquire further Direct Royalties. Such Direct Royalties may consist of direct
petroleum and natural gas royalty interests and may be acquired from time to time. 

Deferred Purchase Price Obligation  

        Pursuant to the NPI Agreements, the Deferred Purchase Price Obligation consists of an ongoing obligation of the Trust to pay to the Operating Subsidiaries, to the
extent of the Trust's available funds, an amount equal to: 

	(a)
	the
portion of acquisition costs incurred by the Operating Subsidiary from time to time which are attributable to Canadian resource property; plus

	(b)
	certain
designated drilling, completion, equipping and other costs, in respect of the Properties; plus

	(c)
	the
portion of indebtedness incurred in respect of such acquisition costs and capital expenditures, payable at the time of satisfaction by the Corporation of such indebtedness. 

        To
satisfy the Deferred Purchase Price Obligation, the Trust is required to pay over to the Corporation the net proceeds of any issue of the Trust Units or the proceeds from the
disposition of the NPI of any Properties held by the Corporation. The Trust is not obligated to pay an amount as a Deferred Purchase Price Obligation except to the extent the Trust has such proceeds
available. 

        To
the extent that the Corporation designates an expenditure as a Deferred Purchase Price Obligation: 

	(a)
	if
the designated expenditure is funded by issuing additional Trust Units, by the proceeds of dispositions of the Canadian resource property component of Properties, by the
disposition of Direct Royalties or by the issuance of debt, it will not be a charge against the income from the NPI, and therefore will not reduce payments of income from the NPI to the Trust or
distributions to Unitholders;

	(b)
	the
Trust will be obliged to pay to the Corporation 99% of the amount of the designated expenditure to the extent not funded by borrowing by the Corporation;

	(c)
	the
cost to the Trust of the designated expenditure will be added to the Canadian oil and natural gas property expenditures account of the Trust, thus creating additional tax
deductions (see "Canadian Federal Income Tax Considerations"); and

	(d)
	the
additional revenue generated from the Properties acquired by the designated expenditure will be added to the revenues used to calculate income from the NPI, thereby potentially
increasing the amount payable to the Trust under the NPI Agreements. 

Reserve Fund  

        Under the NPI Agreements, the Operating Subsidiaries are entitled to pay such amounts of the revenues received from Production and other income received by the
Corporation in respect of the Properties into the Reserve Fund if, as and when the Corporation determines, in its reasonable discretion, that it is prudent to do so in accordance with prudent business
practices, to provide for payment of production costs which the Corporation estimates will or may become payable in the next six months for which there may not be sufficient revenues to satisfy such
costs in a timely manner. Funds retained by the Corporation in the Reserve Fund are required to be used by the Corporation to 

32

 

fund
the payment of production costs. To the extent that funds are drawn from the Reserve Fund and used to pay production costs, such amounts will be deducted from the NPI. 

Reclamation Fund  

        Each of the Operating Subsidiaries are liable for their share of ongoing environmental obligations and for the ultimate reclamation of the Properties upon
abandonment. Pursuant to the NPI Agreements, the Operating Subsidiaries have established a funding strategy for the purpose of funding currently estimated future environmental and reclamation
obligations. To the extent that funds from the reclamation funds are used for site restoration and well and facility abandonment expenditures such amounts are deducted in calculating income from the
NPI. 

        Ongoing
environmental obligations are expected to be funded out of debt and cash flow. Those obligations will reduce the amount of income from the NPI payable to the Trust. The
Corporation currently estimates that the future environmental and reclamation obligations in respect of the Properties will aggregate approximately $35 million, net of estimated salvage value,
over the life of the Properties. 

        In
addition to the identified producing wells and wells capable of production, the Properties include interests in approximately 215 gross (212 net) active injection, disposal or service
wells and 294 gross (254 net) suspended or shut-in wells, all of which have been included in the total estimate of the Corporation's future environmental and reclamation obligations. 

Cash Available For Distribution  

        Cash Available For Distribution consists of any amounts received by the Trust pursuant to the NPI and the Direct Royalties, any interest or other income from
Permitted Investments, ARTC received by the Trust net of non-deductible Crown royalties that are reimbursed by the Trust to the Operating Subsidiaries,
dividends on the shares of the Operating Subsidiaries or any other dividends on securities of the Operating Subsidiaries less all expenses and liabilities of the Trust, including debt service costs,
which are due or accrued and which are chargeable to income. 

        Pursuant
to the Trust Indenture and the Administration Agreement, the Corporation calculates income from the NPI for each calendar month and arranges for payment of certain direct
expenses of the Trust from the NPI. 

        The
actual amount of Cash Available For Distribution depends on, among other things, the quantity and quality of crude oil, natural gas and natural gas liquids produced, prices received
for such production, direct expenses of the Trust, taxes, operating costs, transportation and processing costs, capital expenditures, debt service costs, Crown and other royalties, other Crown
charges, net contributions to the reclamation funds, net contributions by the Operating Subsidiaries to the Reserve Fund, and general and administrative costs of the Trust and the Operating
Subsidiaries. See "Risk Factors". 

        The
Operating Subsidiaries also have the discretion to incur debt or retain cash in order to modify seasonal and other variations in Cash Available For Distribution. Unitholders may also
receive distributions of the net proceeds received from sales of Properties to the extent the Corporation determines not to use those proceeds to acquire additional Properties. 

Delay in Cash Available For Distribution  

        In addition to the usual delays in payment by purchasers of oil and natural gas to the operator of the Properties, and by the operator to the Operating
Subsidiaries or the Trust, payments between any of such parties may also be delayed by restrictions imposed by lenders, delays in the sale or delivery of products, delays in the connection of wells to
a gathering system, blowouts or other accidents, recovery by the operator of expenses incurred in the operation of Properties, or the establishment by the operator of reserves for such expenses. 

Capital Fund  

        The Trust retains up to 50% of the Cash Available For Distribution in its Capital Fund to finance future acquisitions and development of Properties with the
intent that it will be able to continue to provide or maintain the Cash Available For Distribution over a longer period of time than would otherwise be the case. As at December 31, 2003, the
Capital Fund had a deficit of approximately $14.2 million (on March 31, 2004, the Capital Fund has a positive balance of approximately $10.9 million). 

33

 

Distributable Cash  

        Distributable Cash consists of the balance of the Cash Available For Distribution after the retention of funds by the Trust for the Capital Fund, which is
distributed to Unitholders. 

        Unitholders
of record on a Record Date are entitled to receive monthly cash distributions of the Distributable Cash which will become payable on the 15th day following the
Record Date, and if such date of payment is not a Business Day on the next Business Day after the 15th day following the Record Date. 

Income Tax Treatment  

        Any amounts paid by the Trust in respect of acquisition costs and the Deferred Purchase Price Obligation is COGPE of the Trust in the year incurred. The Trust's
share of any proceeds of disposition of Canadian resource properties which are receivable as a result of the release of the NPI will reduce the Trust's cumulative COGPE. In determining the portion of
Distributable Cash that is taxable to a Unitholder, the Trust is entitled to an annual deduction in respect of its cumulative COGPE account, resource allowance and capitalized issue expenses in
accordance with the provisions of the Tax Act. The portion of Distributable Cash to Unitholders that is not taxable in the Trust is treated as a return of capital and reduces the adjusted cost
base of Trust Units held as capital property by a Unitholder. In this respect, the taxation of capital distributions is deferred until an actual or deemed disposition of Trust Units occurs or a
holder's Trust Units have an adjusted cost base which is less than zero. See "Canadian Federal Income Tax Considerations". 

Board of Directors  

        The Corporation has a board of directors consisting of 5 individuals. Pursuant to the Trust Indenture, Unitholders are entitled to elect the Board of Directors
annually. Prior to all annual meetings, the Corporation will deliver an information circular and form of proxy to Unitholders with respect to the election of the directors of the Corporation at any
such meeting. See "Information Respecting the Corporation—Directors and Officers of the Corporation". 

Delegation of Authority, Administration and Trust Governance  

        The Corporation (and, accordingly, the Board of Directors of the Corporation) has generally been delegated the significant management decisions of the Trust. In
particular, the Trustee has delegated to the Corporation responsibility for any and all matters relating to the following: (i) an offering of securities; (ii) ensuring compliance with
all applicable laws, including in relation to an offering; (iii) all matters relating to the content of any offering documents, the accuracy of the disclosure contained therein, and the
certification thereof; (iv) all matters concerning the terms of, and amendment from time to time of the material contracts of the Trust; (v) all matters concerning any underwriting or
agency agreement providing for the sale of Trust Units or rights to Trust Units;
(vi) all matters relating to the redemption of Trust Units; (vii) all matters relating to the voting rights on any investments in the Trust Fund or any Subsequent Investments;
(viii) all matters relating to the specific powers and authorities as set forth in the Trust Indenture. 

        Under
the NPI Agreements, the Operating Subsidiaries have the exclusive control and authority over development of, and recovery of petroleum, natural gas and natural gas liquids from,
the Properties and lands pooled or unitized therewith, including, without limitation, making all decisions respecting whether, when and how to drill, complete, equip, produce, suspend, abandon and
shut-in wells and whether to elect to convert royalties to working interests. The Harvest Board has determined that all significant operational decisions and all decisions relating to:
(i) the acquisition and disposition of properties for a purchase price or proceeds in excess of $5 million; (ii) the approval of capital expenditure budgets; (iii) the
approval of risk management policies and activities proposed to be undertaken, and (iv) the establishment of credit facilities, shall be made by the Board of Directors. 

        In
exercising its powers and discharging its duties, the Corporation must act honestly and in good faith and exercise the degree of care, diligence and skill that a reasonably prudent
oil and natural gas industry advisor and administrator would exercise in comparable circumstances. The Corporation's objective in exercising its powers and discharging its duties is to maximize the
income distributable to the Unitholders to the extent consistent with long-term growth in the value of the Trust. In pursuing such an objective, the Corporation employs and will continue
to employ prudent oil and natural gas business practices. All of the Corporation's business is and will continue to be conducted in accordance with applicable laws with a view to the best interests of
the Unitholders and the Trust. 

34

 

        The
Harvest Board reviews on an ongoing basis both the nature and extent of the services required of the Corporation by the Trust and the costs of providing such services. 

        General
and administrative costs are deducted from production revenues in computing income from the NPI to the extent not paid from the residual income of the Corporation or deducted by
the Trust in computing Cash Available For Distribution. General and administrative costs are generally charged to the Trust by the Corporation based on direct costs incurred in fulfilling the
obligations of the Corporation to the Trust pursuant to the Trust Indenture and the Administration Agreement. The Corporation is entitled to reimbursement for all of its direct and indirect expenses,
costs and expenditures in connection with the creation, start-up, set-up and organization of the Trust and the transition from the Provost Properties Vendors and the Carlyle
Properties Vendor to the Corporation of ownership, management and operatorship of the Provost Properties and the Carlyle Properties. To the extent that such costs have been incurred to date, they have
been paid by the Corporation through drawdowns under a prior credit facility and an interim loan which had been provided to the Trust by Caribou. 

Borrowing by the Trust  

        On July 28, 2003, the Trust entered into the Equity Bridge Notes with the Bridge Lenders which provide for advances of up to $40 million to the
Trust to assist with the payment of the Deferred Purchase Price Obligation in connection with the acquisition of the Carlyle Properties. On September 29, 2003, the Equity Bridge Notes were
amended to permit advances to be used to pay out the Prior Bank Facility and the Trust entered into the Bridge Notes. The Bridge Notes provide for advances of up to $30 million to the Trust to
assist with the payment of the Deferred Purchase Price Obligations as a result of the acquisition of the Carlyle Properties and to pay out the Prior Bank Facility. No commitment or arrangement fee has
or will be earned by the Bridge Lenders through the provision of the Bridge Agreements. 

        The
terms of the Bridge Agreements call for quarterly interest payments to be made to the Bridge Lenders in arrears due on the first business day following a calendar quarter. The
payments are calculated daily at a fixed rate of 10% per annum using a 365 or 366 (as the case may be) year. Under the Equity Bridge Notes, the Trust has the option to settle the quarterly interest
payments with cash or, subject to receipt or applicable regulatory approval, the issue of Trust Units. If the Trust elects to issue Trust Units the Trust is required to give the Bridge Lenders at
least 5 business days notice. The number of Trust Units to be issued to the Bridge Lenders to settle a quarterly payment shall be equivalent to the quarterly payment amount divided by 90% of the
ten-day weighted average trading price of the Trust Units on TSX over the last 10 trading days of the calendar quarter. 

        The
Trust also has the option to repay the principal amounts outstanding at any time. The Trust is required to give the Bridge Lenders ten business days written notice prior to the
Trust's repayment of principal. If the Trust chooses to partially repay the outstanding principal amount, such payment is to be made in cash. Under the Equity Bridge Notes, if the Trust elects to
repay the full principal amount plus the accrued quarterly payment at maturity, the Trust then has the option to settle its obligation with cash or, subject to receipt of applicable regulatory
approvals, the issue of Trust Units. If the Trust elects to issue Trust Units, the Trust is required to give the Bridge Lenders at least five business days notice. The number of Trust Units to be
issued to the Bridge Lenders to settle the principal amount and accrued quarterly payment amount shall be equivalent to the sum of the principal and accrued quarterly payment amounts divided by 90% of
the ten-day weighted average trading price of the Trust Units on TSX over the last ten trading days immediately prior to the date that the obligation will be settled. Notwithstanding the
above, the outstanding principal portion and all accrued and unpaid interest on the Bridge Agreements is due and payable in full on January 1, 2005. The amount due on January 1, 2005 may
be settled by the payment of cash and in the case of the Equity Bridge Notes, subject to receipt of applicable regulatory approvals, the issue of Trust Units, with notice provided and the calculation
of the number of Trust Units to be issued as indicated above. Security has been provided to the Bridge Lenders in the form of a fixed and floating debenture on the Trust's NPI. The Bridge Lenders may
demand payment of the full amount if specified events of default under the Bridge Agreements occur. The Trust does not have the option to issue Trust Units to satisfy its repayment obligations under
such a demand. 

        Upon
completion of the Carlyle Properties Transaction on October 16, 2003, the Corporation repaid $8.5 million of the Equity Bridge Notes (resulting in $25 million
being outstanding thereunder) and $25 million of the Bridge Notes resulting in no amount being outstanding thereunder through drawings under the Current Bank Facility. 

        In
2004, the Trust repaid in full the $25 million outstanding under the Equity Bridge Notes with proceeds from the issuance of the Convertible Debentures. 

35

 

 
 

INFORMATION RESPECTING THE CORPORATION    
    

        The Corporation was incorporated under the Business Corporations Act (Alberta) on May 14, 2002 as 989131
Alberta Ltd. On May 17, 2002, the Corporation amended its Articles of Incorporation to change its name to Coyote Energy Inc. and on September 17, 2002, the Corporation
changed its name to "Harvest Operations Corp.". On January 1, 2004, the Corporation amalgamated with WEI and the amalgamated corporation continued under the name "Harvest Operations Corp.". The
head and principal office of the Corporation is located at Suite 1900, 330 - 5th Avenue S.W., Calgary, Alberta, T2P 0L4 and its registered office
is located at Suite 1400, 350 - 7th Avenue S.W., Calgary, Alberta T2P 3N9. All of the issued and outstanding shares of the Corporation are held in
the name of the Trustee for the benefit of, and on behalf of, the Trust. 

Business  

        The Corporation manages and administers the Trust and HST on behalf of the Trust and is responsible for the oil and natural gas technical, investment,
engineering, geological, land management, financial and administrative services and commodity marketing services relating to the Properties and the Trust. Each of the directors and senior management
of the Corporation have been involved in the oil and natural gas industry for, on average, in excess of 18 years. At April 30, 2004, the Corporation has a staff made up of 48 head office
employees and consultants and 62 field employees and consultants/contractors dedicated to the Properties, with key personnel having extensive experience in all technical, operating and financial
aspects of the oil and natural gas industry including: 

	•
	organizing,
operating, managing, developing and optimizing petroleum and natural gas properties;

	•
	evaluating,
acquiring and disposing of petroleum and natural gas properties; and

	•
	marketing
petroleum, natural gas and natural gas liquids. 

Management Policies and Strategies  

        As a result of management's past experience, the members of the management team have established proven track records in acquiring, developing and operating oil
and natural gas reserves. Management of the Corporation believes that the success derived from these experiences can be attributed to several management principles, including: 

	(a)
	a
focused and rigorous evaluation and acquisition strategy having an objective of acquiring operated oil and natural gas reserves at low costs;

	(b)
	employing
operating and management strategies and controls to increase production rates and enhance production netbacks, primarily through production cost reduction;

	(c)
	identifying
and exploiting upside opportunities in acquired Properties to increase production and reserve recovery;

	(d)
	acquiring
other assets within existing operating areas to achieve operating and development efficiencies; and

	(e)
	managing
risk effectively through prudent insurance and commodity hedging programs and hands-on property management. 

        Activities
undertaken by the management of the Corporation on behalf of the Trust are intended to be directed towards: 

	•
	optimizing
consistent levels of Cash Available For Distribution and ultimately, the Distributable Cash paid to Unitholders;

	•
	capturing
the maximum cash flow, production and reserve recovery from the Properties; and

	•
	striving
for long-term growth in the value of the Properties and consequently the value of the NPI and the Direct Royalties held by the Trust by improving
recovery levels from Provost Properties and acquiring additional Properties. 

36

  

Borrowing by the Corporation  

        The Operating Subsidiaries and the Trust are permitted to incur indebtedness to purchase Property Interests, effect capital expenditures or other obligations or
expenditures in respect of the Properties or for working capital purposes. Indebtedness of the Operating Subsidiaries to fund the purchase of Canadian resource properties may be repaid with funds
received from the Trust pursuant to the Deferred Purchase Price Obligation. The Harvest Board has established the following guidelines with respect to the indebtedness of the Operating Subsidiaries:
(i) amounts borrowed to finance the purchase of Properties should not exceed 50% of the Reserve Value of all Properties including those to be acquired at the time of borrowing as shown on the
latest available independent engineering report, unless specifically approved by the Board of Directors; and (ii) the estimated annual debt service costs for the 12 months following the
borrowing on amounts borrowed to finance capital expenditures or other financial obligations or expenditures required to maintain or improve production from the Properties should not exceed 50% of the
estimated income from the NPI and income from Direct Royalties for such 12 month period, unless specifically approved by the Board of Directors. The Operating Subsidiaries are entitled to grant
security in priority to the NPI and the Trust is permitted to grant security on the NPI and Direct Royalties to secure the loan of funds directly to the Trust or secure guarantees granted by the Trust
of indebtedness of the Operating Subsidiaries. The borrowings of the Trust require approval by the Board of Directors. 

        Debt
service costs of the Operating Subsidiaries are deducted in computing NPI income and debt service costs of the Trust are deducted in computing Cash Available For Distribution. Debt
repayment by the Operating Subsidiaries is scheduled to minimize, to the extent possible, any income tax payable by the Operating Subsidiaries. 

        On
October 3, 2003, the Corporation entered into an interim credit facility to provide a $15 million revolving operating demand loan which was used to pay out WEI's credit
facility with a Canadian chartered bank and for general working capital purposes. On October 3, 2003, the Corporation paid out $2.9 million in respect of the borrowings and accrued
interest on WEI's credit facility. Upon closing of the Carlyle Properties Transaction on October 16, 2003, the interim credit facility was paid out and replaced with the Current Bank Facility
described below. 

        On
October 16, 2003, Harvest Operations Corp. entered into the $89 million Current Bank Facility with the Current Lender. The facility bears interest at rates ranging from
0.25% to 1.5% above prime rate, and is dependent upon the Trust's debt to cash flow ratio. The borrowing base is reduced monthly by $4.5 million commencing January 31, 2004. A portion of
this facility was used to pay out the $15 million Interim Bank Facility, $31.35 million was used to finance in part the acquisition of the Carlyle Properties, $8.5 million was
used to repay a portion of the Equity Bridge Notes and $25 million was used to repay the Bridge Notes. 

	 
	 	 
	 	Debt to Annualized Cash Flow Ratio

	Borrowing
 
	 	Base Rate
	 	<1.0x
	 	1.0x - 1.5x
	 	1.5x - 2.0x
	 	2.0x - 3.0x
	 	>3.0x

	Canadian $	 	Cdn. Bank Prime	 	+0.25%	 	+0.375%	 	+0.50%	 	+0.75%	 	+1.50%
	Banker's Acceptances	 	Market rates	 	+1.25%	 	+1.50%	 	+1.75%	 	+2.00%	 	N/A
	U.S. $	 	U.S. Bank Prime	 	+0.25%	 	+0.375%	 	+0.50%	 	+0.75%	 	+1.50%
	LIBOR	 	Market rates	 	+1.25%	 	+1.50%	 	+1.75%	 	+2.00%	 	N/A

        The
Corporation is subject to a standby fee equal to 0.125% per annum on the undrawn amount of the Current Bank Facility. 

        Security
for the Current Bank Facility consists of: a general assignment of book debts; a $150,000,000 debenture with a floating charge over all of the assets of the Corporation;
representation as to title of oil and natural gas leases and reserves; subordination agreements on NPI payments, Bridge Agreements payments, and distribution
payment restrictions to Unitholders upon demand for repayment or an event of default, or under certain circumstances, upon a borrowing base shortfall or default. Covenants for the Current Bank
Facility include: maintenance of a working capital ratio (current assets plus unused portion of the Current Bank Facility divided by current liabilities excluding bank debt) of at least 1:1;
maintenance of minimum hedging of 50% and 25% of oil volumes for the first four forward and next four calendar quarters, respectively; and industry standard requirements in respect of reporting,
operations, compliance with laws, payment of taxes, environmental, lender access to books and records, maintenance of records, change in control, merger, amalgamation, payment of dividends or
distribution of capital, incur additional secured indebtedness or guarantee of obligations of others, dispose of assets with annual proceeds greater than $100,000 and hedge more than 75% of working
interest production volumes. 

        Events
of default under the Current Bank Facility include: failure to pay interest or principal when due; failure to meet security or covenants; material misrepresentation; material
adverse change in the financial condition of operations of the Corporation; uncontested proceedings initiated to enforce encumbrances on the Corporation's assets that have an aggregate value of
$500,000; liquidation, winding-up or dissolution of the Corporation; ceasing to carry on business; and appointment of receiver or trustee appointed by judicial body or pursuant to another
agreement. 

        As
of April 30, 2004, approximately $39.7 million is outstanding under the Current Bank Facility. 

37

 

Commodity Hedging  

        The following is a summary of the oil sales contracts with price swap or collar features as at December 31, 2003 that have fixed future sales prices: 

	Commodity collar contracts based on West Texas Intermediate
	 
	Daily Quantity
 
	 	Term
	 	Price per Barrel
	 	Mark to Market Gain (Loss) Cdn $
	 
	2,500 Bbls/d	 	January through December 2004	 	U.S. $22.00 - 28.10	 	($2,456,677	)
	1,000 Bbls/d	 	January through December 2004	 	U.S. $23.00 - 27.95

($18.00)(1)	 	(1,095,885	)
	1,000 Bbls/d	 	January through December 2004	 	U.S. $25.00 - 28.25

($18.00)(1)	 	($954,367	)
	500 Bbls/d	 	January through December 2004	 	U.S. $27.50 - 31.00

($20.25)(1)	 	$154,929	 
	500 Bbls/d	 	January through December 2004	 	U.S. $27.65 - 33.00

($21.00)(1)	 	($47,173	)

	

Commodity swap contracts based on West Texas Intermediate
	
 
	Daily Quantity
 
	 	Term
	 	Price per Barrel
	 	Mark to Market Gain (Loss) Cdn $
	 
	1,510 Bbls/d	 	January through March 2004	 	U.S. $23.23	 	($1,553,580	)
	1,300 Bbls/d	 	January through March 2004	 	U.S. $24.23	 	($1,171,187	)
	500 Bbls/d	 	January through December 2004	 	U.S. $24.12 ($15.50)(1)	 	($1,441,863	)
	500 Bbls/d	 	January through December 2004	 	U.S. $24.25	 	($1,399,408	)
	500 Bbls/d	 	January through December 2004	 	U.S. $29.32	 	($203,583	)
	1,430 Bbls/d	 	April through June 2004	 	U.S. $22.93	 	($1,297,309	)
	1,200 Bbls/d	 	April through June 2004	 	U.S. $25.50	 	($2,911,765	)
	1,380 Bbls/d	 	July through September 2004	 	U.S. $22.70	 	($1,098,458	)
	500 Bbls/d	 	July through September 2004	 	U.S. $24.56	 	($287,414	)
	1,325 Bbls/d	 	October through December 2004	 	U.S. $22.54	 	($957,680	)
	500 Bbls/d	 	October through December 2004	 	U.S. $24.03	 	($272,808	)
	500 Bbls/d	 	January through December 2004	 	U.S. $30.50	 	$74,736	 
	500 Bbls/d	 	January through December 2005	 	U.S. $24.00	 	($811,076	)
	1,100 Bbls/d	 	January through March 2005	 	U.S. $22.38	 	($714,041	)
	1,030 Bbls/d	 	April through June 2005	 	U.S. $22.18	 	($652,039	)

	

Commodity swap contracts based on the Lloydminster Blend Crude differential

	2,000 Bbls/d	 	January through December 2004	 	U.S. ($7.75)(1)	 	$1,368,005
	1,000 Bbls/d	 	January through December 2004	 	U.S. ($8.20)(1)	 	$471,726
	500 Bbls/d	 	January through December 2004	 	U.S. ($7.90)(1)	 	$306,622

Note: 

	(1)
	The
Corporation has sold a put option at the price denoted in parenthesis, for the same volumes as the associated commodity contract. The counterparty may exercise this option if the
respective index falls below the specified price on a monthly basis. 

38

 

        The following is a summary of electricity price hedging swap contracts entered into by the Corporation to fix the cost of future electricity usage
as at December 31, 2003: 

	Commodity swap contracts based on electricity prices

	Quantity
 
	 	Term
	 	Price per Megawatt
	 	Mark to Market Gain (Loss)

	5MW	 	January through December 2004	 	Cdn $46.00	 	$	384,300
	5MW	 	January through December 2004	 	Cdn $46.00	 	$	384,300
	5MW	 	January through December 2004	 	Cdn $45.50	 	$	406,260
	5MW	 	January through December 2005	 	Cdn $43.00	 	$	153,300
	9.75MW	 	January 2004 through March 2006	 	Cdn $44.50	 	$	1,372,920

	

Commodity swap based on electricity heat rate

	Swaps
 
	 	Term
	 	Price per Megawatt
	 	Mark to Market Gain (Loss)

	5MW	 	January through December 2005	 	8.40 GJ/MWh	 	$	46,253

	

Foreign Currency Contracts

	Monthly Contract Amount
 
	 	Term
	 	Contract Rate
	 	Mark to Market Gain (Loss) Cdn $

	U.S. $3 million	 	January through December 2004	 	1.3333 Cdn / U.S.	 	$	1,735,435

        At
December 31, 2003, the net mark-to-market unrealized loss for all the financial derivative contracts entered into by the Corporation was approximately
$12,467,527. The Corporation has provided a deposit to the counterparties with some of its financial derivative contracts, based on the mark-to-market value of those contracts
at the end of the trading day. As at December 31, 2003, this amount totalled $11,899,127 and is recorded in the prepaid expense and deposits balance. 

39

 

Directors and Officers of the Corporation  

        The names, municipalities of residence, present positions with the Corporation and principal occupations during the past five years of the directors and officers
of the Corporation are set out in the table below and in the text which follows thereafter. 

	Name and Municipality of Residence
 
	 	Position with the Corporation
	 	No. of Trust Units Held(1)
	 	Principal Occupation

	
 John A. Brussa(2)(4)

Calgary, Alberta	
 	

Director	
 	

241,600	
 	

Barrister and Solicitor; Partner of Burnet, Duckworth & Palmer LLP (a law firm).
	
 M. Bruce Chernoff(3)(4)

Calgary, Alberta	
 	

Director, Chairman	
 	

5,222,723	
(7)	

Professional Engineer; Chairman of the Corporation; President and Director of Caribou (a private investment management company) since June 1999; from April 2000 to October 2001, Executive Vice President and Chief Financial Officer of
Petrobank Energy and Resources Ltd. ("Petrobank") (a public oil and natural gas company); from February to June 1999, Executive Vice President and Chief Financial Officer of Pacalta Resources Ltd. ("Pacalta") (a public oil and natural
gas company); prior thereto, Executive Vice President of Pacalta.
	
 Hank B. Swartout(3)

Calgary, Alberta	
 	

Director	
 	

628,774	
 	

Chairman, President and Chief Executive Officer of Precision Drilling Corporation since July, 1987.
	
 Verne G. Johnson(2)(3)

Calgary, Alberta	
 	

Director	
 	

20,000	
 	

President of KristErin Resources Inc., a private family company since January 2000; Senior Vice President, Funds Management of Enerplus Resources Group from 2000 to 2002; prior thereto, President and Chief Executive Officer of AltaQuest
Energy Corporation from 1999 to 2000; prior thereto, President of Ziff Energy Group (an energy consulting company) from 1997 to 1999; prior thereto, President and Chief Executive Officer of ELAN Energy Inc. (a public oil and natural gas company)
from 1989 to 1997.
	 	 	 	 	 	 	 

40

 

	
 Hector J. McFadyen(2)(4)

Calgary, Alberta	
 	

Director	
 	

20,000	
 	

Independent businessman and Director of Hunting PLC (a UK based public international oil services company); director of Computershare Trust Company of Canada (a private Canadian company that manages various trust related activities for public
and private companies throughout North America); director of Aluma Systems (a private Canadian company providing industrial and concrete construction services); formerly, President, Midstream Division, Alberta Energy Company Ltd. (a public oil
and natural gas company).
	
 Jacob Roorda

Calgary, Alberta	
 	

President	
 	

158,348	
(8)	

Professional Engineer, President of the Corporation; from June 1999 to July 2002, Managing Director, Research Capital (a mid-sized investment banking dealer); from January 1996 to March 1999, Vice President, Corporate, Director
and co-founder of PrimeWest Energy Trust ("PrimeWest") (a public energy trust); from May 1991 to January 1996, Manager, Business Development, Fletcher Challenge (a private oil and natural gas company).
	
 J.A. Ralston

Calgary, Alberta	
 	

Vice President, Operations	
 	

107,262	
 	

Vice President, Operations of the Corporation; from 1996 to 2002, Manager, Production of Penn West Petroleum ("PennWest") (a public oil and natural gas company).
	 	 	 	 	 	 	 

41

 

	
 David M. Fisher

Calgary, Alberta	
 	

Vice President, Finance	
 	

76,424	
(9)	

Vice President, Finance of the Corporation since October 2002; from September 1998 to October 2002, Director, Vice President, Finance and Chief Financial Officer of Integra Resources Ltd. ("Integra") (a private oil and natural gas
corporation); from April 1995 to July 1998, Vice President, Finance and Chief Financial Officer of Canrise Resources Ltd. (a public oil and natural gas corporation); from June 1994 to April 1995 independent consultant; from
April 1985 to May 1994, Manager, Corporate Reporting of Canadian Hunter Exploration Ltd.
	
 David J. Rain

Calgary, Alberta	
 	

Corporate Secretary	
 	

80,700(10)	
 	

Chartered Accountant; Corporate Secretary of the Corporation; Vice President, Finance and Chief Financial Officer of Petrobank since October 2001; Vice President and Director of Caribou since April 2001; from April 2000 to
September 2001, Director, Corporate Finance of Petrobank; from May 1997 to June 1999, Corporate Controller and Treasurer of Pacalta.

Notes: 

	(1)
	Represents
all Trust Units held directly or indirectly or over which such person exercises control or direction as at September 30, 2003. Based upon information provided by the
director or officer to the Trust.

	(2)
	Member
of the Audit and Corporate Governance Committee.

	(3)
	Member
of the Reserves, Safety and Environment Committee.

	(4)
	Member
of the Compensation Committee.

	(5)
	The
Corporation does not have an executive committee.

	(6)
	The
terms of office of all of the directors will expire at the next annual shareholders' meeting of the Corporation.

	(7)
	Includes
Trust Units held by Caribou, a company controlled by Mr. Chernoff, and Trust Units held in RESP accounts for the benefit of Mr. Chernoff's children.

	(8)
	Includes
43,919 Trust Units held in Mr. Roorda's spouse's account which is controlled by Mr. Roorda.

	(9)
	Excludes
7,250 Trust Units held in the name of Mr. Fisher's children but otherwise controlled by Mr. Fisher.

	(10)
	Includes
30,700 Trust Units held by Mr. Rain's spouse. 

        As at April 30, 2004, the directors and officers of the Corporation and their associates and affiliates, as a group, hold, directly or
indirectly, or exercise control or direction over, approximately 6,555,831 Trust Units or 37.9% of the outstanding Trust Units. 

        The
following is a brief description of the background of each of the senior officers and directors of the Corporation. The past performance of each of the individuals indicated below is
not necessarily indicative of future performance. 

42

 

Jacob Roorda, President  

        Mr. Roorda is a Professional Engineer and holds a Bachelor of Applied Science (Eng.) degree from Queen's University and an MBA from the University of
Calgary. 

        Following
university, Mr. Roorda held a number of senior engineering positions with Dome Petroleum Ltd. From 1987 to 1991, Mr. Roorda was a Vice President in the
equity research group and was a ranked oil and natural gas analyst at BZW Canada Ltd., in Toronto. 

        From
1991 to 1996, Mr. Roorda was Manager, Business Development at Fletcher Challenge. In January 1996, Mr. Roorda co-founded PrimeWest (a public energy
trust) and served as Vice President, Corporate and Director of PrimeWest. Mr. Roorda was responsible for overseeing the acquisition strategies of PrimeWest. While at Fletcher and PrimeWest,
Mr. Roorda was responsible for closing in excess of $650 million of oil and natural gas property acquisitions. 

        From
June 1999 to July 2002, Mr. Roorda was a Managing Director of Research Capital, an investment-banking firm. At Research Capital, Mr. Roorda was
responsible for the overall direction and operations of the Calgary investment banking office of the firm. 

J.A. Ralston, Vice President, Operations  

        Mr. Ralston completed the Management Development Program at the University of Calgary in 1994. 

        Mr. Ralston
was employed with Petro-Canada from 1980 through June 1994 in a broad range of field operating positions of increasing responsibility. During his tenure at
Petro-Canada, Mr. Ralston was responsible for construction of field facilities and pipelines, natural gas plant and field operations, procurement, reservoir management, drilling and workovers. 

        Mr. Ralston
commenced employment with Penn West in July 1994 where he worked until June 2002. Since 1997, Mr. Ralston served as Production Manager,
responsible for overseeing all of Penn West's 100,000 BOE/d production operations, 270 field staff and an annual budget of $200 million. Mr. Ralston was responsible for all areas
of operations including engineering, exploitation, production optimization, capital management, planning, construction and budgeting. 

David M. Fisher, Vice President, Finance  

        Mr. Fisher is a Chartered Accountant and graduated in 1980 with a Bachelor of Commerce degree from the University of Alberta. Mr. Fisher has in
excess of 20 years experience in financial reporting, management and administration of entities active in the oil and natural gas industry. 

        From
September 1998 to October 2002, Mr. Fisher was a founder, Director and Vice President, Finance and Chief Financial Officer of Integra, a private upstream oil
and natural gas corporation with assets located in the province of Alberta. Mr. Fisher was responsible for all financial aspects of Integra including reporting systems, financial reporting,
securing equity and bank financing, managing financial assets, taxation, and working with legal counsel and transfer agents in the management of shareholder and regulatory items. 

        From
April 1995 to July 1998, Mr. Fisher was the Vice President, Finance and Chief Financial Officer of Canrise. Canrise was a public upstream oil and natural gas
corporation with assets located in west-central Alberta. 

        During
the period June 1980 to April 1995 Mr. Fisher's was an external auditor for KPMG Chartered Accountants (formerly Peat Marwick Mitchell & Co.),
incentives auditor for Energy Mines and Resources Canada, Manager of Corporate Reporting for Canadian Hunter Exploration Ltd. and an independent consultant providing financial administration
for domestic and international entities. 

John A. Brussa, Director  

        Mr. Brussa is a barrister and solicitor and has been a partner at Burnet, Duckworth & Palmer LLP in Calgary since 1987. Mr. Brussa is
recognized as a leading tax practitioner in Canada and sits on the board of directors of several Canadian public companies. 

43

 

M. Bruce Chernoff, Director and Chairman  

        Mr. Chernoff is a Professional Engineer with a Bachelor of Applied Science degree in Chemical Engineering from Queen's University. Mr. Chernoff
commenced employment with Pacalta in 1988. Pacalta was a public junior oil and natural gas company with operations in Canada. Mr. Chernoff held various senior positions with Pacalta including
Executive Vice-President and Chief Financial Officer. Mr. Chernoff was a director of Pacalta from 1992 until Pacalta was purchased by Alberta Energy Company in May 1999 for
$1 billion. 

        Mr. Chernoff
initiated the formation of Caribou, of which he is the President and a Director, in June 1999, to make various investments. Mr. Chernoff became a
Director, and the Executive Vice President and Chief Financial Officer of Petrobank in March 2000. Mr. Chernoff resigned as Chief Financial Officer of Petrobank in October 2001 to
focus on his other business interests, but remains a director of the company. Mr. Chernoff initiated the formation of the Corporation in June 2002 to pursue oil and natural gas
development and acquisition opportunities. 

Hank B. Swartout, Director  

        Mr. Swartout is the Chairman of the Board, President and Chief Executive Officer of Precision Drilling Corporation, the largest Canadian integrated
oilfield and industrial services contractor and a global provider of products and services to the energy industry. 

Verne G. Johnson, Director  

        Mr. Johnson received a Bachelor of Science degree in Mechanical Engineering from the University of Manitoba in 1966. He immediately commenced employment
with Imperial Oil Limited, which continued until 1981 (including two years with Exxon Corporation in New York from 1977 to 1979). In 1981, Mr. Johnson joined Liberty
Petroleum Ltd. as President and Chief Executive Officer. In 1982, he joined Roxy Petroleum Ltd. as Vice President, Production, remaining until 1987 when he joined Paragon
Petroleum Ltd. as President. In 1989, Mr. Johnson joined ELAN Energy Inc. (then Lasmo Canada Inc.) as President and a Director. Following the sale of ELAN in 1997, he
became President of Ziff Energy Group until 1999, then President of AltaQuest Energy Corporation and he then joined the Enerplus Resources Group in 2000, becoming Senior Vice President of Funds
Management. In February 2002, he departed from the Enerplus Resources Group and remains as President of his private family company, KristErin Resources Inc. 

Hector J. McFadyen, Director  

        Mr. McFadyen holds a Master of Arts (Econ.) degree from the University of Calgary and a Bachelor of Arts (Econ.) degree from Sir George Williams
University. 

        Mr. McFadyen
was employed at the Alberta Energy and Utilities Board (formerly the Oil and natural gas Conservation Board) between 1969 and 1976, primarily within its Economics
Department. 

        Mr. McFadyen
began work for Alberta Energy Company Ltd. ("AEC"), now EnCana Corporation ("EnCana"), in 1976. EnCana is one of the largest independent oil and natural gas
producers in North America. Mr. McFadyen developed a number of significant business units within AEC, developing experience in a broad range of businesses and disciplines. Such experience
included project development and investments across North America, Latin America, Asia and Europe. At AEC, Mr. McFadyen served as a member of the senior executive team
involved in recommending and implementing the strategic plan for the company. As President of the Forest Products Division, he assumed responsibility for development and implementation of the business
strategy for an Alberta based forest products business. Mr. McFadyen also served as the President of the Midstream Division of AEC since 1995, having responsibility for the company's pipelines
and natural gas storage businesses. Mr. McFadyen retired from EnCana in 2002. 

        Mr. McFadyen
is a member of the board of directors of Hunting PLC ("Hunting"), a UK-based public corporation engaged in oil services, and oil and natural gas
marketing and distribution activities internationally. Hunting carries on its oil and natural gas marketing and distribution activities in North America through its wholly-owned subsidiary, Gibson
Energy Ltd. Mr. McFadyen is also a member of the Board of Directors of Computershare Trust Company of Canada, a private Canadian company that manages various trust related activities for
public and private companies throughout North America. Mr. McFadyen is also a director of Aluma Systems, a private Canadian company providing industrial and concrete construction services. 

44

 

David J. Rain, Corporate Secretary  

        Mr. Rain is a Chartered Accountant and holds a Bachelor of Commerce degree from the University of Saskatchewan (1986). 

        Mr. Rain
articled at KPMG LLP Chartered Accountants and was a Manager in their audit group until he departed in 1992. Mr. Rain served in senior financial positions
at Nowsco Well Service Ltd., an oilfield service company with worldwide operations, from 1992 through August 1996. Mr. Rain was the Chief Financial Officer of Trican Well
Service Ltd, an oilfield service company with operations in Alberta and Saskatchewan, from October 1996 through April 1997. Mr. Rain joined Pacalta in May 1997 as
Corporate Controller. Pacalta was an oil and natural gas exploration and production company with operations primarily in Ecuador. When AEC acquired Pacalta in 1999, Mr. Rain joined
Mr. Chernoff at Caribou, and became Director, Corporate Finance at Petrobank in March 2000. Mr. Rain assumed the position of Vice President, Finance and Chief Financial Officer of
Petrobank in October 2001 and resigned in March 2004. Currently, Mr. Rain is the Chief Financial Officer of Caribou. 

Corporate Cease Trade Orders or Bankruptcies  

        No director, officer or promoter of the Corporation or shareholder holding sufficient securities of the Corporation to affect materially the control of the
Corporation has, within the last 10 years, been a director, officer or promoter of any reporting issuer that, while such person was acting in that capacity, was the subject of a cease trade or
similar order or an order that denied the reporting issuer access to any statutory exemption for a period of more than 30 consecutive days or was declared a bankrupt or made a voluntary assignment in
bankruptcy, made a proposal under any legislation relating to bankruptcy or been subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver-manager
or trustee appointed to hold the assets of that person. 

Penalties or Sanctions  

        No director, officer or promoter of the Corporation or shareholder holding sufficient securities of the Corporation to affect materially the control of the
Corporation, has been subject to any penalties or sanctions imposed by a court or securities regulatory authority relating to trading in securities, promotion or management of a publicly traded issuer
or theft or fraud. 

Personal Bankruptcies  

        No director, officer or promoter of the Corporation, or a shareholder holding sufficient securities of the Corporation to affect materially the control of the
Corporation, or a personal holding company of any such persons, has, within the last 10 years, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or
been subject to or instituted any proceeding, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of the individual. 

 
 

SHARE CAPITAL OF THE CORPORATION    
    

        The share capital of the Corporation currently consists of an unlimited number of common shares and an unlimited number of first preferred shares. As at the date
hereof, one hundred common shares of the Corporation are outstanding. Such shares are held by the Trustee for and on behalf of the Trust. The voting of such shares is governed by the provisions of the
Trust Indenture and the Trust is not entitled, without the direction of Unitholders, to exercise its rights as a shareholder of the Corporation except as permitted by the Trust Indenture. See "Trust
Indenture—Exercise of Voting Rights Attached to Shares of the Corporation". 

 
 

TRUST INDENTURE    
    

        The following is a summary of the Trust Indenture and other matters regarding the structure and operations of the Trust. 

Trust Units  

        An unlimited number of Trust Units may be created and issued pursuant to the Trust Indenture. As of April 30, 2004, there were 17,303,353 Trust Units
issued and outstanding. Each Trust Unit entitles the holder thereof to one vote at any meeting of the holders of Trust Units and represents an equal undivided beneficial interest in any distribution
from the Trust (whether of net income, net realized capital gains or other amounts) and in any net assets 

45

 

of
the Trust in the event of termination or winding-up of the Trust. All Trust Units outstanding from time to time shall be entitled to equal shares of any distributions by the Trust, and
in the event of termination or winding-up of the Trust, in any net assets of the Trust. All Trust Units shall rank among themselves equally and rateably without discrimination, preference
or priority. Each Trust Unit is transferable, is not subject to any conversion or pre-emptive rights and entitles the holder thereof to require the Trust to redeem any or all of the Trust
Units held by such holder (see "Redemption Right" below) and to one vote at all meetings of Unitholders for each Trust Unit held. See "Risk Factors—Nature of Trust Units". 

Special Voting Units  

        At the 2003 Unitholders' Meeting, the Unitholders approved an amendment to the Trust Indenture to provides for the issuance of an unlimited number of special
voting units. Each special voting unit will entitle the holder thereof to such number of votes at meetings of Unitholders as may be prescribed by the Board of Directors of the Corporation in the
resolution authorizing the issuance of any such special voting units. 

Unitholder Limited Liability  

        The Trust Indenture provides that no Unitholder, in its capacity as such, shall incur or be subject to any liability in contract or in tort in connection with the
Trust Fund or the obligations or affairs of the Trust or with respect to any act or omission of the Trustee or any other person in the performance or exercise, or purported performance or exercise, of
any obligation, power, discretion or authority conferred upon the Trustee or such other person hereunder or with respect to any transaction entered into by the Trustee or by any other person pursuant
to the
Trust Indenture. No Unitholder shall be liable to indemnify the Trustee or any such other person with respect to any such liability or liabilities incurred by the Trustee or by any such other person
or persons or with respect to any taxes payable by the Trust or by the Trustee or by any other person on behalf of or in connection with the Trust. Notwithstanding the foregoing, to the extent that
any Unitholders are found by a court of competent jurisdiction to be subject to any such liability, such liability shall be enforceable only against, and shall be satisfied only out of, the Trust Fund
and the Trust (to the extent of the Trust Fund) is liable to, and shall indemnify and save harmless any Unitholder against any costs, damages, liabilities, expenses, charges or losses suffered by any
Unitholder from or arising as a result of such Unitholder not having any such limited liability. See "Risk Factors—Unitholder Limited Liability". 

Issuance Of Trust Units  

        The Trust Indenture provides that Trust Units, including rights, warrants and other securities to purchase, to convert into or to exchange into Trust Units, may
be created, issued, sold and delivered on such terms and conditions and at such times as the Harvest Board may determine. The Trust Indenture also provides that the Corporation may authorize the
creation and issuance of debentures, notes and other evidences of indebtedness of the Trust from time to time on such terms and conditions to such persons and for such consideration as the Corporation
may determine. 

Borrowing By the Trust  

        Pursuant to the Trust Indenture, the Trustee is permitted to, directly or indirectly, borrow money from or incur indebtedness to any person and in connection
therewith, to guarantee, indemnify or act as a surety with respect to payment or performance of any indebtedness, liabilities or obligation of any kind of any person, including, without limitation,
the Corporation and any subsidiary of the Trust; to enter into any other obligations on behalf of the Trust; or enter into any subordination agreement on behalf of the Trust or any other person, and
to assign, charge, pledge, hypothecate, convey, transfer, mortgage, subordinate, and grant any security interest, mortgage or encumbrance over or with respect to all or any of the Trust Fund or to
subordinate the interests of the Trust in the Trust Fund to any other person. 

        Debt
service costs incurred by the Trust are deducted in computing the Cash Available For Distribution. 

Redemption Right  

        Trust Units are redeemable at any time on demand by the holders thereof upon delivery to the Trust of the certificate or certificates representing such Trust
Units, accompanied by a duly completed and properly executed notice requiring redemption. Upon receipt of the notice to redeem Trust Units by the Trust, the holder thereof shall only be entitled to
receive a price per Trust Unit (the "Market Redemption Price") equal to the lesser of: (i) 90% of the "market price" of the Trust Units on the principal market on which the Trust Units are
quoted for trading during 

46

 

the
10 trading day period commencing immediately after the date on which the Trust Units are tendered to the Trust 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 so tendered for redemption. 

        For
the purposes of this calculation, "market price" will be an amount equal to the simple average of the closing price of the Trust Units for each of the trading days on which there was
a closing price; provided that, if the applicable exchange or market does not provide a closing price but only provides the highest and lowest prices of the Trust Units traded on a particular day, the
market price shall be an amount equal to the simple average of the average of the highest and lowest prices for each of the trading days on which there was a trade; and provided further that if there
was trading on the applicable exchange or market for fewer than 5 of the 10 trading days, the market price shall be the simple average of the following prices established for each of the 10 trading
days: the average of the last bid and last ask prices for each day on which there was no trading; the closing price of the Trust Units for each day that there was trading if the exchange or market
provides a closing price; and the average of the highest and lowest prices of the Trust Units for each day that there was trading, if the market provides only the highest and lowest prices of Trust
Units traded on a particular day. 

        The
"closing market price" shall be: an amount equal to the closing price of the Trust Units if there was a trade on the date; an amount equal to the average of the highest and lowest
prices of the Trust Units if there was trading and the exchange or other market provides only the highest and lowest prices of Trust Units traded on a particular day; and the average of the last bid
and last ask prices if there was no trading on the date. 

        The
aggregate Market Redemption Price payable by the Trust in respect of any Trust Units surrendered for redemption during any calendar month shall be satisfied by way of a cheque drawn
on a Canadian chartered bank or trust company in Canadian money payable on the last day of the following month. The entitlement of Unitholders to receive cash upon the redemption of their Trust Units
is subject to the limitation that the total amount payable by the Trust in respect of such Trust Units and all other Trust Units tendered for redemption in the same calendar month and in any preceding
calendar month during the same year shall not exceed $100,000; provided that, the Corporation may, in its sole discretion, waive such limitation in respect of any calendar month. If this limitation is
not so waived, the Market Redemption Price payable by the Trust in respect of Trust Units tendered for redemption in such calendar month shall be paid on the last day of the following month as
follows: (i) firstly, by the Trust distributing Notes having an aggregate principal amount equal to the aggregate Market Redemption Price of the Trust Units tendered for redemption, and
(ii) secondly, to the extent that the Trust does not hold Notes having a sufficient principal amount outstanding to effect such payment, by the Trust issuing its own promissory notes (herein
referred to as "Redemption Notes") to the Unitholders who exercised the right of redemption having an aggregate principal amount equal to any such shortfall. 

        If,
at the time Trust Units are tendered for redemption by a Unitholder, the outstanding Trust Units are not listed for trading on the TSX and are not traded or quoted on any other stock
exchange or market which the Corporation considers, in its sole discretion, to represent fair market value for the Trust Units or the normal trading of the outstanding Trust Units is suspended or
halted on any stock exchange on which the Trust Units are listed for trading or, if not so listed, on any market on which the Trust Units are quoted for trading, on the date such Trust Units are
tendered for redemption or for more than five trading days during the 10 trading day period, commencing immediately after the date such Trust Units were tendered for redemption then such Unitholder
shall, instead of the Market Redemption Price, be entitled to receive a price per Trust Unit (the "Appraised Redemption Price") equal to 90% of the fair market value thereof as determined by the
Corporation as at the date on which such Trust Units were tendered for redemption. The aggregate Appraised Redemption Price payable by the Trust in respect of Trust Units tendered for redemption in
any calendar month shall be paid on the last day of the third following month by, at the option of the Trust: (i) a cash payment; or (ii) a distribution of Notes and/or Redemption Notes
as described above. 

        It
is anticipated that this Redemption Right will not be the primary mechanism for holders of Trust Units to dispose of their Trust Units. Redemption Notes which may be distributed in
specie to Unitholders in connection with a redemption will not be listed on any stock exchange and no market is expected to develop in such Redemption Notes. Redemption Notes may not be qualified
investments for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans and registered education savings plans. 

Non-Resident Unitholders  

        It is in the best interests of Unitholders that the Trust qualify as a "unit trust" and a "mutual fund trust" under the Tax Act. Certain provisions of the
Tax Act require that the Trust not be established nor maintained primarily for 

47

 

the
benefit of Non-Residents. Accordingly, in order to comply with such provisions, the Trust Indenture contains restrictions on the ownership of Trust Units by Unitholders who are
Non-Residents. In this regard, the Trust shall, among other things, take all necessary steps to monitor the ownership of the Trust Units. If at any time the Trust becomes aware that the
beneficial owners of 49% or more of the outstanding Trust Units are or may be Non-Residents or that such a situation is imminent, the Trust, by or through the Corporation on the Trust's
behalf, shall take such action as may be necessary to carry out the intentions evidenced herein. For the purposes of this Section, "Non-Residents" means non-residents of Canada
within the meaning of the Tax Act. 

Meetings of Unitholders  

        The Trust Indenture provides that meetings of Unitholders must be called and held for, among other matters, the election or removal of the Trustee, the
appointment or removal of the auditors of the Trust, the approval of amendments to the Trust Indenture (except as described under "—Amendments to the Trust Indenture"), the sale of the
property of the Trust as an entirety or substantially as an entirety, and the
commencement of winding-up the affairs of the Trust. Meetings of Unitholders will be called and held annually for, among other things, the election of the directors of the Corporation and
the appointment of the auditors of the Trust. 

        A
meeting of Unitholders may be convened at any time and for any purpose by the Corporation and must be convened, except in certain circumstances, if requisitioned by the holders of not
less than 20% of the Trust Units then outstanding by a written requisition. A requisition must, among other things, state in reasonable detail the business purpose for which the meeting is to be
called. 

        Unitholders
may attend and vote at all meetings of Unitholders either in person or by proxy and a proxyholder need not be a Unitholder. Two persons present in person or represented by
proxy and representing in the aggregate at least 10% of the votes attaching to all outstanding Trust Units shall constitute a quorum for the transaction of business at all such meetings. 

        The
Trust Indenture contains provisions as to the notice required and other procedures with respect to the calling and holding of meetings of Unitholders in accordance with the
requirements of applicable laws. 

Exercise of Voting Rights Attached to Shares of the Corporation  

        The Trust Indenture prohibits the Trustee from voting the shares of the Corporation with respect to (i) the election of directors of the Corporation,
(ii) the appointment of auditors of the Corporation or (iii) the approval of the Corporation's financial statements, except in accordance with an Ordinary Resolution adopted at an annual
meeting of Unitholders. The Trust Indenture also provides that the Trustee shall not, after the Closing, vote the shares to authorize: 

	(a)
	any
sale, lease or other disposition of, or any interest in, all or substantially all of the assets of the Corporation, except in conjunction with an internal reorganization of the
direct or indirect assets of the Corporation as a result of which either the Corporation or the Trust has the same, or substantially similar, interest, whether direct or indirect, in the assets as the
interest, whether direct or indirect, that it had prior to the reorganization;

	(b)
	any
statutory amalgamation of the Corporation with any other corporation, except in conjunction with an internal reorganization as referred to in paragraph (a) above;

	(c)
	any
statutory arrangement involving the Corporation except in conjunction with an internal reorganization as referred to in paragraph (a) above;

	(d)
	any
amendment to the articles of the Corporation to increase or decrease the minimum or maximum number of directors; or

	(e)
	any
material amendment to the articles of the Corporation to change the authorized share capital or amend the rights, privileges, restrictions and conditions attaching to any class of
the Corporation's shares in a manner which may be prejudicial to the Trust; 

without
the approval of the Unitholders by Special Resolution at a meeting of Unitholders called for that purpose. 

48

 

Trustee  

        Valiant Trust Company is the trustee of the Trust. All of the administrative and management powers of the Trustee relating to the Trust and the operations of the
Trust have been delegated to the Corporation pursuant to the Trust Indenture and the Administration Agreement. See "Description of the Trust—Delegation of Authority, Administration and
Trust Governance". Notwithstanding this general delegation, pursuant to the Administration Agreement, the Trustee has agreed not to delegate any authority to manage the following affairs of the Trust: 

	(a)
	the
issue, certification, countersigning, transfer, exchange and cancellation of certificates representing Trust Units;

	(b)
	the
maintenance of a register of Unitholders;

	(c)
	the
distribution of Distributable Cash to Unitholders, although the calculation of the amount of the distribution shall be made by the Corporation and approved by the Harvest Board
and submitted by the Corporation to the Trustee for distribution to the Unitholders;

	(d)
	the
mailing of notices, financial statements and reports to Unitholders pursuant to the Trust Indenture, although the Corporation shall be responsible for the preparation or causing
the preparation of such notices, financial statements and reports;

	(e)
	the
provision of a basic list of registered Unitholders to Unitholders in accordance with the procedures outlined in the Trust Indenture;

	(f)
	the
amendment or waiver of the performance or breach of any term or provision of the Trust Indenture on behalf of the Trust;

	(g)
	the
renewal or termination of the Administration Agreement on behalf of the Trust; and

	(h)
	any
matter which requires the approval of the Unitholders under the terms of the Trust Indenture. 

        The
Trustee is required under the Trust Indenture to exercise its powers and carry out its functions thereunder as Trustee honestly, in good faith and in the best interests of the Trust
and the Unitholders and, in connection therewith, shall exercise that degree of care, diligence and skill that a reasonably prudent trustee would exercise in comparable circumstances. 

        The
initial term of the Trustee's appointment is until the first annual meeting of Unitholders. The Unitholders shall, at the first annual meeting of the Unitholders,
re-appoint, or appoint a successor to the Trustee for an additional one year term, and thereafter, the Unitholders shall reappoint or appoint a successor to the Trustee at the annual
meeting of Unitholders following the reappointment or appointment of the successor to the Trust. The Trustee may also be removed by the Corporation upon delivery of a notice in writing by the
Corporation to the Trustee in limited circumstances. Such resignation or removal becomes effective only upon the approval of the Unitholders by Special Resolution, the acceptance or appointment of a
successor trustee and the assumption by the successor trustee of all obligations of the Trustee and in the same capacity. 

Liability of the Trustee  

        The Trustee, its directors, officers, employees, shareholders and agents shall not be liable to any Unitholder or any other person, in tort, contract or
otherwise, in connection with any matter pertaining to the Trust or the Trust Fund, arising from the exercise by the Trustee of any powers, authorities or discretion conferred under the Trust
Indenture, including, without limitation, any action taken or not taken in good faith in reliance on any documents that are, prima facie, properly
executed, any depreciation of, or loss to, the Trust Fund incurred by reason of the sale of any asset, any inaccuracy in any valuation provided by any other appropriately qualified person, any
reliance on any such evaluation, any action or failure to act of the Corporation, or any other person to whom the Trustee has, with the consent of the Corporation, delegated any of its duties under
the Trust Indenture, or any other action or failure to act (including failure to compel in any way any former trustee to redress any breach of trust or any failure by the Corporation to perform its
duties under or delegated to it under the Trust Indenture or any other contract), unless such liabilities arise out of the gross negligence, wilful default or fraud of the Trustee or any of its
directors, officers, employees or shareholders. If the Trustee has retained an appropriate expert, adviser or legal counsel with respect to any matter connected with its duties under the Trust
Indenture or any other contract, the Trustee may act or refuse to act based on the advice of such expert, adviser or legal counsel, and the Trustee shall not be liable for and shall be fully protected
from any loss or liability occasioned by any action or refusal to act based on the advice of any such expert, 

49

 

adviser
or legal counsel. In the exercise of the powers, authorities or discretion conferred upon the Trustee under the Trust Indenture, the Trustee is and shall be conclusively deemed to be acting as
Trustee of the assets of the Trust and shall not be subject to any personal liability for any debts, liabilities, obligations, claims, demands, judgments, costs, charges or expenses against or with
respect to the Trust or the Trust Fund. In addition, the Trust Indenture contains other customary provisions limiting the liability of the Trustee. 

Amendments to the Trust Indenture  

        The Trust Indenture may be amended or altered from time to time by Special Resolution. The Trustee may, without the consent, approval or ratification of any of
the Unitholders, amend the Trust Indenture for the purpose of: 

	•
	ensuring
the Trust's continuing compliance with applicable laws or requirements of any governmental agency or authority of Canada or of any province;

	•
	ensuring
that the Trust will satisfy the provisions of each of subsections 108(2) and 132(6) of the Tax Act as from time to time amended or replaced;

	•
	ensuring
that such additional protection is provided for the interests of Unitholders as the Trustee may consider expedient;

	•
	removing
or curing any conflicts or inconsistencies between the provisions of the Trust Indenture or any supplemental indenture, any Direct Royalties Sale Agreement, and any
other agreement of the Trust or any Offering Document pursuant to which securities of the Trust are issued with respect to the Trust, or any applicable law or regulation of any jurisdiction, provided
that in the opinion of the Trustee the rights of the Trustee and of the Trust Unitholders are not prejudiced thereby;

	•
	providing
for the electronic delivery by the Trust to Unitholders of documents relating to the Trust (including annual and quarterly reports, including financial statements,
notices of Unitholder meetings and information circulars and proxy related materials) once applicable securities laws have been amended to permit such electronic delivery in place of normal delivery
procedures, provided that such amendments to the Trust Indenture are not contrary to or do not conflict with such laws;

	•
	curing,
correcting or rectifying any ambiguities, defective or inconsistent provisions, errors, mistakes or omissions, provided that in the opinion of the Trustee the rights
of the Trustee and of the Unitholders are not prejudiced thereby; and

	•
	making
any modification in the form of the Trust Unit certificates to conform with the provisions of the Trust Indenture, or any other modifications provided the rights of
the Trustee and the Unitholder are not prejudiced thereby. 

Take-Over Bid  

        The Trust Indenture contains provisions to the effect that if a take-over bid is made for the Trust Units and not less than 90% of the Trust Units
(other than Trust Units held at the date of the takeover bid by or on behalf of the offeror or associates or affiliates of the offeror) are taken up and paid for by the offeror, the offeror will be
entitled to acquire the Trust Units held by Unitholders who did not accept the takeover bid on the terms offered. 

Termination of the Trust  

        Unitholders may vote to terminate the Trust at any meeting of the Unitholders duly called for that purpose, subject to the following: (a) a vote may only
be held if requested in writing by the holders of not less than 20% of
the outstanding Trust Units; (b) a quorum of 50% of the issued and outstanding Trust Units is present in person or by proxy; and (c) the termination must be approved by Special
Resolution of Unitholders. 

        Unless
the Trust is earlier terminated or extended by vote of the Unitholders, the Trustee shall commence to wind-up the affairs of the Trust on December 31, 2099. In
the event that the Trust is wound-up, the Trustee will sell and convert into cash the Direct Royalties and other assets comprising the Trust Fund in one transaction or in a series of
transactions at public or private sale and do all other acts appropriate to liquidate the Trust Fund, and shall in all respects act in accordance with the directions, if any, of the Unitholders in
respect of termination authorized pursuant to the Special Resolution authorizing the termination of the Trust. However, in no event shall the Trust be wound-up until the Direct Royalties
have been disposed of. After paying, retiring or discharging, or making provision for the payment, retirement, or discharge of all known liabilities and obligations of the Trust and after providing
for indemnity against any other outstanding liabilities and obligations, the Trustee shall distribute the remaining part of the proceeds of the sale of the assets together with any cash forming part
of the property of the Trust among the Unitholders in accordance with their Pro Rata Share.

50

  

Reporting to Unitholders  

        The consolidated financial statements of the Trust will be audited annually by an independent recognized firm of chartered accountants. The audited consolidated
financial statements of the Trust, together with the report of such chartered accountants, will be mailed by the Corporation to Unitholders and the unaudited interim consolidated financial statements
of the Trust will be mailed to Unitholders within the periods prescribed by securities legislation. The year end of the Trust is December 31. The Trust is subject to the continuous disclosure
obligations under all applicable securities legislation. 

 
 

DEBENTURES    
    

        As at April 30, 2004, $59,000,000 principal amount of Debentures of the Trust were outstanding. 

        The
following is a summary of the material attributes and characteristics of the Debentures. This summary does not purport to be complete and is subject to, and qualified by, reference
to the terms of the Debenture Indenture with respect to the Debentures. 

General  

        The Debentures were issued under the Debenture Indenture. The Debentures authorized for issue are limited in aggregate principal amount to $60,000,000. The Trust
may, however, from time to time, without the consent of the holders of the Debentures but subject to the limitations described herein, issue additional debentures of the same series or of a different
series under the Debenture Indenture, in addition to the Debentures offered hereby. 

        The
Debentures are dated January 29, 2004 and mature on May 31, 2009. The Debentures are issuable only in denominations of $1,000 and integral multiples thereof. 

        The
Debentures bear interest from the date of issue at 9% per annum, which is payable semi-annually in arrears in equal instalments (other than in respect of the period from
January 29, 2004 to, but excluding, May 31, 2004) on May 31 and November 30 in each year, commencing on May 31, 2004. The first interest payment will include
interest accrued from January 29, 2004 to, but excluding, May 31, 2004. 

        The
principal amount of the Debentures is payable in lawful money of Canada or, at the option of the Trust and subject to applicable regulatory approval, by payment of Trust Units as
further described under "Payment upon Redemption or Maturity" and "Redemption and Purchase". The interest on the Debentures will be payable in lawful money of Canada including, at the option of the
Trust and subject to applicable regulatory approval, in accordance with the Unit Interest Payment Election as described under "Interest Payment Option". 

        The
Debentures are direct obligations of the Trust and will not be secured by any mortgage, pledge, hypothec or other charge and will be subordinated to other liabilities of the Trust as
described under "- Subordination". The Debenture Indenture does not restrict the Trust from incurring additional indebtedness or from mortgaging, pledging or charging its properties to secure any
indebtedness. 

Conversion Privilege  

        The Debentures are convertible at the holder's option into fully paid and non-assessable Trust Units at any time prior to the close of business on the
earlier of May 31, 2009 and the business day immediately preceding the date specified by the Trust for redemption of the Debentures, at a conversion price of $14.00 per Trust Unit, being a
conversion rate of 71.4286 Trust Units for each $1,000 principal amount of Debentures. No adjustment will be made for distributions on Trust Units issuable upon conversion or for interest accrued on
Debentures surrendered for conversion; however, holders converting their Debentures will receive accrued and unpaid interest thereon. Notwithstanding the foregoing, no Debentures may be converted
during the 5 Business Days preceding and including May 31 and November 30 and in each year, commencing May 31, 2004, as the registers of the Debenture Trustee will be closed
during such periods. 

        Subject
to the provisions thereof, the Debenture Indenture provides for the adjustment of the conversion price in certain events. 

        No
fractional Trust Units will be issued on any conversion but in lieu thereof the Trust shall satisfy fractional interests by a cash payment equal to the current market price of any
fractional interest. 

51

 

        The
term "current market price" is defined in the Debenture Indenture to mean the weighted average trading price of the Trust Units on the TSX for the 20 consecutive trading days ending
on the fifth trading day preceding the date fixed for redemption or the maturity date, as the case may be. 

Redemption and Purchase  

        The Debentures are not redeemable on or before May 31, 2007. After May 31, 2007 and prior to maturity, the Debentures may be redeemed in whole or in
part from time to time at the option of the Trust on not more than 60 days and not less than 30 days prior notice, at a Redemption Price of $1,050 per Debenture after May 31, 2007
and on or before May 31, 2008 and at a Redemption Price of $1,025 per Debenture after May 31, 2008 and before maturity, in each case, plus accrued and unpaid interest thereon, if any. 

        In
the case of redemption of less than all of the Debentures, the Debentures to be redeemed will be selected by the Debenture Trustee on a pro rata basis or in such other manner
as the Debenture Trustee deems equitable, subject to the consent of the TSX. 

        The
Trust will have the right to purchase Debentures in the market, by tender or by private contract. 

Payment upon Redemption or Maturity  

        On redemption or at maturity, the Trust will repay the indebtedness represented by the Debentures by paying to the Debenture Trustee in lawful money of Canada an
amount equal to the aggregate Redemption Price of the outstanding Debentures which are to be redeemed or the principal amount of, and premium (if any) on, the outstanding Debentures which have
matured, together with accrued and unpaid interest thereon. The Trust may, at its option, on not more than 60 days and not less than 40 days prior notice and subject to applicable
regulatory approval, elect to satisfy its obligation to pay the Redemption Price of the Debentures which are to be redeemed or the principal amount of, and premium (if any) on, the Debentures which
have matured, as the case may be, by issuing Trust Units to the holders of the Debentures. Any accrued and unpaid interest thereon will be paid in cash. The number of Trust Units to be issued will be
determined by dividing the aggregate Redemption Price of the outstanding Debentures which are to be redeemed or the principal amount of, and premium (if any) on, the outstanding Debentures which have
matured, as the case may be, by 95% of the current market price on the date fixed for redemption or the maturity date, as the case may be. No fractional Trust Units will be issued on redemption or
maturity but in lieu thereof the Trust shall satisfy fractional interests by a cash payment equal to the current market price of any fractional interest. 

Subordination  

        The payment of the principal of, and premium, if any, and interest on, the Debentures is subordinated in right of payment, as set forth in the Debenture
Indenture, to the prior payment in full of all Senior Indebtedness of the Trust. 

        The
Debenture Indenture provides that in the event of any insolvency or bankruptcy proceedings, or any receivership, liquidation, reorganization or other similar proceedings relative to
the Trust, or to its property or
assets, or in the event of any proceedings for voluntary liquidation, dissolution or other winding-up of the Trust, whether or not involving insolvency or bankruptcy, or any marshalling of
the assets and liabilities of the Trust or any sale of all or substantially all of the assets of the Trust, then those holders of Senior Indebtedness, including any indebtedness to trade creditors,
will receive payment in full before the holders of Debentures will be entitled to receive any payment or distribution of any kind or character, whether in cash, property or securities, which may be
payable or deliverable in any such event in respect of any of the Debentures or any unpaid interest accrued thereon. The Debenture Indenture will also provide that the Trust will not make any payment,
and the holders of the Debentures will not be entitled to demand, institute proceedings for the collection of, or receive any payment or benefit (including, without any limitation, by
set-off, combination of accounts or realization of security or otherwise in any manner whatsoever) on account of indebtedness represented by the Debentures at any time when a default has
occurred under the Senior Indebtedness and is continuing and the notice of such default has been given to the Debenture Trustee under the Debenture Indenture by the Trust, any holder of a Debenture or
any holder of Senior Indebtedness, unless the Senior Indebtedness has been repaid in full. No holder of a Debenture has the right to institute any act or proceeding to enforce the Debentures in a
manner inconsistent with the terms of the Debenture Indenture. 

        The
Debentures are effectively subordinate to claims of creditors of the Trust's subsidiaries except to the extent the Trust is a creditor of such subsidiaries ranking at least  pari passu with such
other creditors. Specifically, the 

52

 

Debentures
are subordinated in right of payment to the prior payment in full of all indebtedness under the Current Bank Facility. 

Priority over Trust Distributions  

        The Trust Debenture Indenture provides that certain expenses of the Trust must be deducted in calculating the amount to be distributed to the Unitholders.
Accordingly, the funds required to satisfy the interest payable on the Debentures, as well as the amount payable upon redemption or maturity of the Debentures or upon an Event of Default (as defined
below), will be deducted and withheld from the amounts that would otherwise be payable as distributions to Unitholders. 

Change of Control of the Trust  

        Within 30 days following the occurrence of a change of control of the Trust involving the acquisition of voting control or direction over
662/3% or more of the Trust Units (a "Change of Control"), the Trust will be required to make an offer in writing to purchase all of the
Debentures then outstanding (the "Debenture Offer"), at a price equal to 101% of the principal amount thereof plus accrued and unpaid interest (the
"Debenture Offer Price"). 

        The
Debenture Indenture contains notification and repurchase provisions requiring the Trust to give written notice to the Debenture Trustee of the occurrence of a Change of Control
within 30 days of such event together with the Debenture Offer. The Debenture Trustee will thereafter promptly mail to each holder of Debentures a notice of the Change of Control together with
a copy of the Debenture Offer to repurchase all the outstanding Debentures. 

        If
90% or more of the aggregate principal amount of the Debentures outstanding on the date of the giving of notice of the Change of Control have been tendered to the Trust pursuant to
the Debenture Offer, the Trust will have the right and obligation to redeem all the remaining Debentures at the Debenture Offer Price. Notice of such redemption must be given by the Trust to the
Debenture Trustee within 10 days following the expiry of the Debenture Offer, and as soon as possible thereafter, by the Debenture Trustee to the holders of the Debentures not tendered pursuant
to the Debenture Offer. 

Interest Payment Option  

        The Trust may elect, from time to time, to satisfy its obligation to pay interest on the Debentures (the "Interest
Obligation"), on the date it is payable under the Debenture Indenture (an "Interest Payment Date"), by delivering sufficient
Trust Units to the Debenture Trustee to satisfy all or any part of the Interest Obligation in accordance with the Debenture Indenture (the "Unit Interest Payment
Election"). The Debenture Indenture will provide that, upon such election, the Debenture Trustee shall (a) accept delivery from the Trust of Trust Units,
(b) accept bids with respect to, and consummate sales of, such Trust Units, each as the Trust shall direct in its absolute discretion, (c) invest the proceeds of such sales in
short-term permitted government securities (as defined in the Debenture Indenture) which mature prior to the applicable Interest Payment Date, and use the proceeds received from such
permitted government securities, together with any proceeds from the sale of Trust Units not invested as aforesaid, to satisfy the Interest Obligation, and (d) perform any other action
necessarily incidental thereto. 

        The
Debenture Indenture will set forth the procedures to be followed by the Trust and the Debenture Trustee in order to effect the Unit Interest Payment Election. If a Unit Interest
Payment Election is made, the sole right of a holder of Debentures in respect of interest will be to receive cash from the Debenture Trustee out of the proceeds of the sale of Trust Units (plus any
amount received by the Debenture Trustee from the Trust attributable to any fractional Trust Units) in full satisfaction of the Interest Obligation, and the holder of such Debentures will have no
further recourse to the Trust in respect of the Interest Obligation. 

        Neither
the Trust's making of the Unit Interest Payment Election nor the consummation of sales of Trust Units will (a) result in the holders of the Debentures not being entitled
to receive on the applicable Interest Payment Date cash in an aggregate amount equal to the interest payable on such Interest Payment Date, or (b) entitle such holders to receive any Trust
Units in satisfaction of the Interest Obligation. 

Events of Default  

        The Debenture Indenture provides that an event of default ("Event of Default") in respect of the Debentures will
occur if any one or more of the following described events has occurred and is continuing with respect of the Debentures: (a) failure for 10 days to pay interest on the Debentures when
due; (b) failure to pay principal or 

53

 

premium,
if any, when due on the Debentures, whether at maturity, upon redemption, by declaration or otherwise; (c) certain events of bankruptcy, insolvency or reorganization of the Trust under
bankruptcy or insolvency laws; (d) default in the observance or performance of any material covenant or condition of the Debenture Indenture and continuance of such default for a period of
30 days after notice in writing has been given by the Debenture Trustee to the Trust specifying such default and requiring the Trust to rectify the same; (e) a resolution is passed for
the liquidation or winding—up of the Trust; or (f) any proceedings are taken with respect to a compromise or arrangement of the Trust. If an Event of Default has occurred and is
continuing, the Debenture Trustee may, in its discretion, and shall upon request of holders of not less than 25% of the principal amount of Debentures then outstanding, declare the principal of and
interest on all outstanding Debentures to be immediately due and payable. In certain cases, the holders of more than 50% of the principal amount of the Debentures then outstanding may, on behalf of
the holders of all Debentures, waive any Event of Default and/or cancel any such declaration upon such terms and conditions as such holders shall prescribe. 

Offers for Debentures  

        The Debenture Indenture contains provisions to the effect that if an offer is made for the Debentures which is a take-over bid for Debentures within
the meaning of the Securities Act (Alberta) and not less than 90% of the Debentures (other than Debentures held at the date of the take-over
bid by or on behalf of the offeror or associates or affiliates of the offeror) are taken up and paid for by the offeror, the offeror will be entitled to acquire the Debentures held by the holders of
Debentures who did not accept the offer on the terms offered by the offeror. 

Modification  

        The rights of the holders of the Debentures as well as any other series of debentures that may be issued under the Debenture Indenture may be modified in
accordance with the terms of the Debenture Indenture. For that purpose, among others, the Debenture Indenture will contain certain provisions which will make binding on all Debenture holders
resolutions passed at meetings of the holders of Debentures by votes cast thereat by holders of not less than 662/3% of the principal amount of the Debentures present at the meeting or
represented by proxy, or rendered by instruments in writing signed by the holders of not less than 662/3% of the principal amount of the Debentures then outstanding. In certain cases,
the modification will, instead or in addition, require assent by the holders of the required percentage of Debentures of each particularly affected series. 

Limitation on Issuance of Additional Debentures  

        The Debenture Indenture provides that the Trust shall not issue additional convertible debentures of equal ranking if the principal amount of all issued and
outstanding convertible debentures of the Trust exceeds 25% of the Total Market Capitalization of the Trust immediately after the issuance of such additional convertible debentures. "Total Market
Capitalization" will be defined in the Debenture Indenture as the total principal amount of all issued and outstanding debentures of the Trust which are convertible at the option of the holder into
Trust Units of the Trust plus the amount obtained by multiplying the number of issued and outstanding Trust Units of the Trust by the current market price of the Trust Units on the relevant date. 

Limitation on Non-Resident Ownership  

        At no time may non-residents of Canada be the beneficial owners of a majority of the Trust Units, on a fully diluted basis, including any Trust Units
which may be issued upon conversion, redemption or maturity of the Debentures. The Trustee may require declarations as to the jurisdictions in which beneficial owners of the Debentures are resident.
If the Trustee becomes aware as a result of requiring such declarations as to beneficial ownership, that the beneficial owners of 49% of the Trust Units then outstanding, on a fully diluted basis,
are, or may be, non-residents of Canada or that such a situation is imminent, the Trustee may make a public announcement thereof and shall not register a transfer of Debentures to a person
unless the person provides a declaration that the person is not a non-resident. If, notwithstanding the foregoing, the Trustee determines that a majority of the Trust Units are held by
non-residents of Canada, the Trustee may send a notice to non-resident holders of Debentures, chosen in inverse order to the order of acquisition or registration of the
Debentures or in such manner as the Trustee may consider equitable and practicable, requiring them to sell their Debentures or a portion thereof within a specified period of not less than
60 days. If the Debenture holders receiving such notice have not sold the specified number of Debentures or provided the Trustee with satisfactory evidence that they are not
non-residents within such period, the Trustee may, on behalf of such Debenture holder, sell such Debentures, and, in the interim, shall suspend the rights 

54

 

attached
to such Debentures. Upon such sale, the affected holders shall cease to be holders of Debentures, and their rights shall be limited to receiving the net proceeds of sale upon surrender of
such Debentures. The trustees of the Trust have similar obligations in respect of the Trust Units which are outlined in the Trust Debenture Indenture. 

 
 

TRUST UNIT INCENTIVE PLAN    
    

        The Trust has adopted the Unit Incentive Plan which permits the Harvest Board to grant non-transferable rights to purchase Trust Units ("Incentive
Rights") to the directors, officers, consultants, employees and other ongoing service providers of the Trust and its subsidiaries, including the Corporation. The purpose of the Unit Incentive Plan is
to provide an effective long term incentive to eligible participants and to reward them on the basis of long term performance and distributions. Effective June 12, 2003 the total number of
Trust Units issuable under the Unit Incentive Plan was increased from 875,000 Trust Units to
a cumulative maximum number of 1,121,000 Trust Units. The total number of Trust Units issuable under the Unit Incentive Plan as at April 30, 2004 was 1,063,725. 

        The
Harvest Board administers the Unit Incentive Plan and determines participants in the Unit Incentive Plan, numbers of Incentive Rights granted, and the terms of vesting of Incentive
Rights. The grant price of the Incentive Rights (the "Grant Price") shall be equal to the per Trust Unit closing price on the trading date immediately preceding the date of grant, unless otherwise
permitted. The exercise price ("Exercise Price") per Right shall be calculated by deducting from the Grant Price the aggregate of all distributions, on a per Unit basis, made by the Trust after the
Grant Date, provided the aggregate amount of such distribution represents a return of more than 0.833% of the Trust's recorded cost of capital assets less all debt, working capital deficiency
(surplus) or debt equivalent instruments, depletion, depreciation and amortization charges and any future income tax liability associated with such capital assets at the end of each month. 

        Incentive
Rights are exercisable for a maximum of five years from the date of the grant thereof and are subject to early termination upon the holder ceasing to be an eligible
participant, or upon the death of the holder. In the case of early termination, a holder is entitled, from the date the holder ceased to be an eligible participant to the earlier of 30 days and
the end of the exercise period, to exercise vested Incentive Rights. In the case of death, the estate of the holder is entitled, from the date of death to the earlier of 6 months and the end of
the exercise period, to exercise vested Incentive Rights at the Exercise Price in effect at the date of death. Incentive Rights not vested at the date of termination of the holder or at date of the
holder's death are immediately null and void. The Trust has the option to settle outstanding Incentive Rights with Trust Units and/or cash. The number of Trust Units to be issued to settle outstanding
Incentive Rights shall equal the amount determined by multiplying the number of Incentive Rights by the quotient obtained by dividing the difference between the current market price of a Trust Unit
and the Exercise Price by the current market price of a Trust Unit. Cash paid to settle outstanding Incentive Rights will equal the difference between the current market price of a Trust Unit less the
Exercise Price multiplied by the number of Incentive Rights to be settled. 

55

 

        The
following table sets forth information with respect to the Incentive Rights outstanding under the Unit Incentive Plan as at April 30, 2004. 

	Group
 
	 	Date Incentive Rights Granted
	 	Trust Units Under Option
	 	Grant Price
	 	Closing Price on Day Prior to Grant
	 	Exercise Price as at April 30, 2004
	 	Expiry Date
	 	Market Value of Incentive Right(1)

	Executive Officers (5)	 	November 25, 2002	 	475,000	 	$	8.00	 	$	8.00	 	$	4.80	 	November 25, 2007	 	$	4,797,000
	 	 	February 14, 2003	 	9,500	 	$	10.75	 	$	10.75	 	$	7.85	 	February 14, 2008	 	$	66,975
	
 Directors (4)	
 	

November 25, 2002	
 	

75,000	
 	
$	

8.00	
 	
$	

8.00	
 	
$	

4.80	
 	

November 25, 2005	
 	
$	

757,500
	 	 	February 14, 2003	 	25,000	 	$	10.75	 	$	10.75	 	$	7.85	 	February 14, 2008	 	$	176,250
	
 Employees and Consultants (46)	
 	

November 25, 2002	
 	

231,250	
 	
$	

8.00	
 	
$	

8.00	
 	
$	

4.80	
 	

November 25, 2005	
 	
$	

2,335,625
	 	 	January 24, 2003	 	18,125	 	$	10.21	 	$	10.21	 	$	7.16	 	January 24, 2008	 	$	140,324
	 	 	July 15, 2003	 	12,500	 	$	10.18	 	$	10.18	 	$	8.29	 	July 15, 2008	 	$	82,625
	 	 	July 17, 2003	 	7,500	 	$	10.30	 	$	10.30	 	$	8.41	 	July 17, 2008	 	$	48,675
	 	 	July 18, 2003	 	11,000	 	$	10.45	 	$	10.45	 	$	8.56	 	July 18, 2008	 	$	69,740
	 	 	October 17, 2003	 	73,400	 	$	12.19	 	$	12.19	 	$	10.89	 	October 17, 2008	 	$	294,040
	 	 	December 15, 2003	 	99,750	 	$	13.15	 	$	13.15	 	$	12.24	 	December 15, 2008	 	$	265,335
	 	 	February 16, 2004	 	13,700	 	$	13.35	 	$	13.35	 	$	12.87	 	February 16, 2009	 	$	493,710
	 	 	February 24, 2004	 	12,000	 	$	13.75	 	$	13.75	 	$	13.33	 	February 24, 2009	 	$	974,896

Note:

	(1)
	Based
on the difference between the closing price of $14.90 per Trust Unit on the TSX on April 30, 2004 and the grant price of the Incentive Right less distributions per Trust
Unit paid after the date the Incentive Right was granted multiplied by the number of Trust Units under the Incentive Right. 

 
 

DRIP PLAN    
    

        The Trust has received all applicable regulatory approvals and has implemented a DRIP Plan. The DRIP Plan is not available to Unitholders
who are residents of the United States. The DRIP Plan provides eligible holders of Trust Units the means of accumulating additional Trust Units by reinvesting any
Distributable Cash received. At the discretion of the Corporation, Trust Units will either be acquired at prevailing market rates (not exceeding 115% of the volume weighted average trading price of
the Trust Units on the TSX for the 10 trading days immediately preceding the date the Trust Units are purchased) or issued from treasury at 95% of the market price of the Trust Units (calculated as
the weighted average trading price of the Trust Units on the TSX for the period commencing on the second Business Day following the distribution record date and ending on the second Business Day
immediately prior to the distribution payment date on which at least a board lot of Trust Units is traded). Participants in the DRIP Plan are also permitted to purchase additional Trust Units at 100%
of the market price (as described above) of the Trust Units by investing additional sums to a maximum of $5,000 per month and a minimum of $1,000 per remittance; provided that the total number of
Trust Units that may be issued each fiscal year pursuant to optional cash payments is restricted to not more than 2% of the number of issued and outstanding Trust Units at the commencement of that
year. As at April 30, 2004, 1,125,675 Trust Units have been issued from treasury since February 15, 2003 for proceeds of approximately $12.2 million due to DRIP Plan participation
associated with cash distributions by the Trust. 

 
 

CONFLICTS OF INTEREST    
    

        Properties will not be acquired from officers or directors of the Corporation or persons not at arm's length with such persons at prices which are greater than
fair market value, nor will Properties be sold to officers or directors of the Corporation 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 Harvest Board. 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. 

        Circumstances
may arise where members of the Harvest Board serve as directors or officers of corporations which are in competition with the interests of the Corporation and the Trust. No
assurances can be given that opportunities identified by such board members will be provided to the Corporation and the Trust. 

56

 

 
 

SELECTED FINANCIAL INFORMATION    
    

Annual and Financial Information  

        The following is a summary of selected consolidated financial information of the Trust for the period from July 10 to December 31, 2002 and the
three month period ended on each of March 31, 2003, June 30, 2003, September 30, 2003 and December 31, 2003. The following should be read in conjunction with the
information contained under the heading "Management's Discussion and Analysis" below and the audited consolidated financial statements of the Trust for the year ended December 31, 2003 and the
audited consolidated financial statements of the Trust for the period from July 10, 2002 to December 31, 2002. The selected consolidated financial information is not necessarily
reflective of the Trust's future results from operations or financial condition. 

	 
	 	 
	 	2003

	 
	 	For the period from July 10 to December 31, 2002

	($000, except unit amounts)
 
	 	Three month period ended March 31
	 	Three month period ended June 30
	 	Three month period ended September 30
	 	Three month period ended December 31

	Net Revenue	 	8,955	 	14,738	 	17,622	 	21,181	 	30,474
	Net Income	 	5,136	 	3,736	 	1,180	 	5,751	 	6,043
	Net Income per unit—basic	 	3.46	 	0.36	 	0.10	 	0.46	 	0.37
	Net Income per unit—diluted	 	3.69	 	0.34	 	0.10	 	0.45	 	0.36
	Total Assets	 	93,729	 	92,041	 	120,122	 	144,369	 	220,250
	Total Liabilities	 	53,723	 	38,891	 	61,645	 	51,473	 	89,175
	Distributions declared, per unit	 	0.20	 	0.60	 	0.60	 	0.60	 	0.60

 
 

RECORD OF CASH DISTRIBUTIONS    
    

        The following table sets forth the per Trust Unit amount of monthly cash distributions paid by the Trust since the completion of the Initial Public Offering. 

	 
	 	Distribution Per Trust Unit

	2003	 	 	 
	January(1)	 	$	0.20
	February	 	$	0.20
	March	 	$	0.20
	April	 	$	0.20
	May	 	$	0.20
	June	 	$	0.20
	July	 	$	0.20
	August	 	$	0.20
	September	 	$	0.20
	October	 	$	0.20
	November(2)	 	$	0.20
	December	 	$	0.20
	
2004	
 	
 	

 
	January	 	$	0.20
	February	 	$	0.20
	March	 	$	0.20

Notes: 

	(1)
	This
distribution was the first cash distribution paid by the Trust following the completion of the Initial Public Offering.

	(2)
	The
Trust announced on April 15, 2004 that the next monthly cash distribution of $0.20 per Trust Unit will be paid on May 17, 2004 to Unitholders of record on
April 30, 2004. 

        Unitholders of record on a Record Date will be entitled to receive monthly cash distributions of the Distributable Cash which will become payable
on the 15th day following the Record Date, and if such date of payment is not a Business Day on the next Business Day after the 15th day following the Record Date. 

57

 

 
 

ESCROWED SECURITIES    
    

        In connection with the completion of the Initial Public Offering, certain members of the Management Group holding an aggregate $4,777,500 principal amount of
debentures of 990148 Alberta Ltd. (which were settled with 4,777,500 Trust Units which, as at September 30, 2003 represented approximately 38.4% of the then outstanding Trust Unit and as
at the date hereof approximately 28.1%) executed an undertaking in favour of the underwriters of the Initial Public Offering not to offer or sell, agree to offer or sell, or enter into an arrangement
to offer or
sell any Trust Units or other securities of the Trust or the Corporation, or securities convertible into, exchangeable for, or otherwise exercisable to acquire any securities of the Trust or the
Corporation then held by such holder or such holder's spouse, directly or indirectly, at any time until November 28, 2004. 

 
 

MANAGEMENT'S DISCUSSION AND ANALYSIS    
    

        Reference is made to the "Management's Discussion and Analysis" for the year ended December 31, 2003 contained on pages 23 to 35 of the
Trust's 2003 Annual Report, which is incorporated herein by reference. The Management's Discussion and Analysis should be read in connection with the audited consolidated financial statements of the
Trust for the year ended December 31, 2003 which are included in the Trust's 2003 Annual Report and which are incorporated herein by reference. 

 
 

MARKET FOR SECURITIES    
    

        The Trust Units are listed and traded on the TSX. The trading symbol for the Trust Units is HTE. 

 
 

RISK FACTORS    
    

        The following are certain factors relating to the business of the Trust. The following information is a summary only of certain risk factors and is qualified in
its entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this Annual Information Form. 

Public and Insider Ownership  

        As at April 30, 2004, the directors and officers of the Corporation and their associates and affiliates, as a group, held, directly or indirectly, or
exercised control or direction over, approximately 6,555,831 Trust Units or approximately 37.9% of the outstanding Trust Units. 

        As
part of the Initial Public Offering, certain members of the Management Group holding an aggregate $4,777,500 principal amount of the Management Group Debentures executed an
undertaking in favour of the Underwriters not to offer or sell, agree to offer or sell, or enter into an arrangement to offer or sell any Trust Units or other securities of the Trust or the
Corporation, or securities convertible into, exchangeable for, or otherwise exercisable to acquire any securities of the Trust or the Corporation then held by such holder or such holder's spouse,
directly or indirectly, at any time until November 28, 2004. 

Dilution  

        The Trust Indenture provides that Trust Units, including rights, warrants and other securities to purchase, to convert into or to exchange into Trust Units, may
be created, issued, sold and delivered on such terms and conditions and at such times as the Harvest Board may determine. In addition, the Trust may issue additional Trust Units from time to time
pursuant to the Unit Incentive Plan and the DRIP Plan. The possible issuance of these Trust Units could result in dilution to holders of Trust Units. See "Trust Indenture—Issuance of Trust
Units", "Trust Unit Incentive Plan" and "DRIP Plan". 

Purchase of the NPI, the Properties and the Direct Royalties  

        The price paid for the purchase of the NPI, the Provost Properties and the Direct Royalties or to be paid for the purchase of the Carlyle Properties was based on
engineering and economic assessments made by independent engineers. These assessments include a number of material assumptions regarding such factors as recoverability and marketability of crude oil,
natural gas and natural gas liquids, future prices of oil, natural gas and natural gas liquids 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 the control of the Corporation and the Trust. In particular, changes in the prices of and
markets for petroleum, natural gas and natural 

58

 

gas
liquids from those anticipated at the time of making such assessments will affect the return on the value of the Trust Units. In addition, all such assessments involve a measure of geological and
engineering uncertainty which could result in lower production and reserves than those currently attributed to the Provost Properties and the Carlyle Properties. 

Changes in Legislation  

        There can be no assurance that income and capital tax laws and government incentive programs relating to the oil and natural gas industry, such as the status of
mutual fund trusts and the resource allowance, will not be changed in a manner which adversely affects Unitholders. 

Investment Eligibility  

        If the Trust ceases to qualify as a mutual fund trust, the Trust Units will cease to be qualified investments for registered retirement savings plans ("RRSPs"),
registered retirement income funds ("RRIFs"), deferred profit sharing plans ("DPSPs") and registered education savings plans ("RESPs") (collectively, "Exempt Plans"). Where at the end of any month an
Exempt Plan holds Trust Units that are not qualified investments, the Exempt Plan
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 Exempt
Plan. In addition, where a trust governed by an RRSP holds Trust Units that are not qualified investments, the trust will become taxable on its income attributable to the Trust Units or any gains
realized on a disposition of the Trust Units while they are not qualified investments. See "Eligibility for Investment" and "Canadian Federal Income Tax Considerations". 

Operational Matters  

        The operation of oil and natural gas wells involves a number of operating and natural hazards which may result in blowouts, environmental damage and other
unexpected or dangerous conditions resulting in damage to the Corporation and possible liability to third parties. The Corporation will employ prudent risk management practices and maintain liability
insurance, where available, in amounts consistent with industry standards. Business interruption insurance may also be purchased for selected facilities, to the extent that such insurance is
available. The Corporation may become liable for damages arising from such events against which it cannot insure or against which it may elect not to insure because of high premium costs or other
reasons. Costs incurred to repair such damage or pay such liabilities will reduce income from the NPI. 

        Continuing
production from a property and to some extent, the marketing of production therefrom, are largely dependent upon the ability of the operator of the property. To the extent the
operator fails to perform these functions properly, revenue may be reduced. Payments from production generally flow through the operator and there is a risk of delay and additional expense in
receiving such revenues if the operator becomes insolvent. Although the Corporation operates the Provost Properties and believes it will become the operator of the Carlyle Properties, there is no
guarantee that it will remain operator of the Provost Properties or that the Corporation will operate the Carlyle Properties or any other Properties it may acquire. 

        A
significant portion of the operating expenses of the Provost Properties, and to a lesser degree, the Carlyle Properties, is attributable to electrical power costs. Since deregulation
of the electrical power system in Alberta in recent years, the unit cost of electrical power has been set by a market driven mechanism based upon supply and demand. As a result, the prices for
electrical power have become volatile. This volatility in electrical power pricing can impact the Corporation's operating expenses, and in turn, the Cash Available For Distribution. The Corporation
has implemented an electrical power hedging program to mitigate its exposure to electrical power cost volatility. In respect of the Carlyle Properties, the Saskatchewan power system is regulated and
as such, electrical power costs are not subject to significant volatility. However, there can be no certainty that the Saskatchewan power system will not deregulate in the future. 

        Although
satisfactory title reviews will generally be conducted on the Properties in accordance with industry standards, such reviews do not guarantee or certify that a defect in title
may not arise to defeat the claim of the Corporation to certain Properties. A reduction of income from the NPI or income from Direct Royalties could result in such circumstances. 

59

 

Reserve Estimates  

        The reserve and recovery information contained in the McDaniel Report is only an estimate and the actual production and ultimate reserves from the Properties may
differ from the estimates prepared by McDaniel. 

Environmental Concerns  

        The oil and natural gas industry is subject to environmental regulation pursuant to local, provincial and federal legislation. A breach of such legislation may
result in the imposition of fines or the issuance of clean up orders in respect of the Corporation or the Properties. Such legislation may be changed to impose higher standards and potentially more
costly obligations on the Corporation. See "Industry Conditions—Environmental Regulation". Although the Operating Subsidiaries have established reclamation funds for the purpose of funding
estimated future environmental and reclamation obligations, there can be no assurance that the Operating Subsidiaries will be able to satisfy its actual environmental and reclamation obligations. See
"Description of the Trust—The NPI and Direct Royalties—Reclamation Fund". 

        In
December 2002, the Government of Canada ratified the Kyoto Protocol (the "Protocol"). The Protocol calls for Canada to reduce its greenhouse gas emissions to 6 percent
below 1990 levels during the period between 2008 and 2012. The Protocol will only become legally binding when it is ratified by at least 55 countries, covering at least 55 percent of the
emissions addressed by the Protocol. If the Protocol is ratified and becomes legally binding, it is expected to affect the operation of all industries in Canada, including the oil and natural gas
industry. As details of the implementation of this Protocol have yet to be announced, it is difficult to determine what, if any, the impact the Protocol may have on the Corporation's ongoing
environmental liabilities, on prices for oil and natural gas or on other general economic factors, which may affect the Trust's Cash Available For Distribution. 

Debt Service  

        As at the date hereof, the Trust had indebtedness of approximately $64 million under the Current Bank Facility. In addition, the New Lender has
issued letters of credit to third parties of approximately $3.3 million on behalf of the Corporation to secure services on the Properties. See "Information Respecting the
Corporation—Borrowing by the Corporation". In addition, as of the date hereof, approximately $25 million is outstanding under the Equity Bridge Notes. See "Description of the
Trust—Borrowing by the Trust. 

        The
Current Lender was provided with security over all of the assets of the Operating Subsidiaries. See "Information Respecting the Corporation—Borrowing by the Corporation".
If the Corporation, WEI and the Trust experience an unremedied borrowing base shortfall or default, commit an event of default or the Current Lender demands repayment, the Current Lender may foreclose
on or sell the Properties free from, or together with, the NPI. 

        Dividends
and other distributions by the Corporation are prohibited in certain circumstances upon a borrowing base shortfall or default, or upon an event of default or demand for
repayment under the Current Bank Facility. The NPI, any indebtedness of the Corporation to the Trust, and amounts payable to the Trustee under the Trust Indenture are subordinate to the Current Bank
Facility pursuant to a subordination agreement between the Current Lender, the Trustee, and the Corporation dated October 16, 2002. This Subordination Agreement may restrict the ability of the
Corporation to pay the NPI to the Trust or pay interest or principal on any indebtedness to the Trust, and therefore may limit or eliminate the Cash Available For Distribution. 

        The
Corporation must meet certain ongoing hedging and financial covenants under the Current Bank Facility. The covenants are customary restrictions on the Corporation's operations and
activities, including restrictions on the incurring of indebtedness, the granting of security, the issuance of incremental debt, and the sale of its assets. 

Debt Repayment  

        The Corporation and the Trust are permitted to borrow funds to finance the purchase of Properties, capital expenditures, or other financial obligations in respect
of the Properties or for working capital purposes. Borrowings of the Corporation to fund the purchase of Canadian resource properties may be repaid with funds received from the Trust. Debt service
costs of the Operating Subsidiaries are deducted in computing income from the NPI and debt service costs of the Trust are deducted in computing Cash Available For Distribution. Variations in interest
rates could result in significant changes in the amount required to be applied to debt service before payment of the NPI and Cash Available For Distribution. To the extent that borrowings under the
New Interim Bank Facility are made in U.S. dollars, the interest payable thereunder is also payable in U.S. dollars. Variations in the Canadian/U.S. dollar 

60

 

exchange
could result in a significant increase in the amount of the interest paid under the New Interim Bank Facility, thereby reducing the Cash Available For Distribution. See "Information
Respecting the Corporation—Borrowing by the Corporation". 

Delay in Cash Distributions  

        In addition to the usual delays in payment by purchasers of oil and natural gas to the operators of the Properties, and by the operator to the Corporation,
payments between any of such parties may also be delayed by restrictions imposed by lenders, delays in the sale or delivery of products, delays in the connection of wells to a gathering system,
blowouts or other accidents, recovery by the operator of expenses incurred in the operation of Properties or the establishment by the operator of reserves for such expenses. 

Variability of Cash Distributions  

        The Operating Subsidiaries retain a portion of the cash flows from the Properties in their Reserve Fund to facilitate future acquisitions and development of the
Properties. The Corporation believes this will assist in maintaining distributions for a longer period than would otherwise be the case if all cash flows from the Properties were paid to the Trust
pursuant to the NPI and subsequently distributed to the Unitholders. Future cash flows generated by such additional Properties may not be similar to those of the Provost Properties and may not
generate sufficient cash flows to allow the Operating Subsidiaries to generate sufficient income from the NPI to allow the Trust to maintain consistent distributions from the Trust over a long period
of time. 

Reliance on Management of the Corporation  

        Unitholders will be dependent on the management of the Corporation in respect of the administration and management of all matters relating to the Properties, the
NPI, the Direct Royalties, the Trust, and the Trust Units. Investors who are not willing to rely on the management of the Corporation should not invest in the Trust Units. 

Depletion of Reserves (Sustainability)  

        The Trust has certain unique attributes which differentiate it from other oil and natural gas industry participants. Cash Available For Distribution in respect of
Properties, absent commodity price increases or cost effective acquisition and development activities, will decline over time in a manner consistent with declining production from typical oil, natural
gas and natural gas liquids reserves. The Trust and the Corporation will not be reinvesting cash flow in the same manner as other industry participants. Accordingly, absent additional capital
investment in Properties through the use of the Capital Fund or otherwise, initial production levels and reserves attributable to the Properties will decline. 

        The
Corporation's future oil and natural gas reserves and production, and therefore its cash flows, will be highly dependent on the Corporation's success in exploiting its reserve base
and acquiring additional reserves. Without reserve additions through acquisition or development activities, the Corporation's reserves and production will decline over time as reserves are exploited. 

        Trust
Units will have no value when reserves from the Properties can no longer be economically marketed and, as a result, subscribers for Trust Units will need to obtain a return of
capital invested out of cash flow derived from their investment in Trust Units during the period when reserves can be economically recovered. 

        There
is strong competition relating to all aspects of the oil and natural gas industry. The Corporation will actively compete for reserve acquisitions and skilled industry personnel
with a substantial number of other oil and natural gas companies, many of which have significantly greater financial and other resources than the Corporation. 

        There
can be no assurance that the Corporation will be successful in developing or acquiring additional reserves on terms that meet the Corporation's investment objectives. 

Return of Capital  

        Trust Units will have no value when reserves from the underlying assets of the Trust can no longer be economically produced 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. 

61

 

Additional Financing  

        To the extent that external sources of capital, including the issuance of additional Trust Units, becomes limited or unavailable, the Trust's and the
Corporation's ability to make the necessary capital investments to maintain or expand its oil and natural gas reserves will be impaired. To the extent the Trust or the Corporation is required to use
cash flow to finance capital expenditures or property acquisitions, the level of Cash Available For Distribution will be reduced. 

Limited Operational History  

        The Corporation and the Trust were only recently organized and have a limited history of operations and the Trust has made only limited distributions. 

Impact of Future Capital Expenditures  

        The Reserve Value of the Properties as estimated by McDaniel is based in part on cash flows to be generated in future years as a result of future capital
expenditures. The Reserve Value of the Properties as estimated by McDaniel will be reduced to the extent that such capital expenditures on the Properties do not achieve the level of success assumed by
McDaniel. 

Volatility of Commodity Prices and Foreign Exchange Risk  

        The Trust's results of operations and financial condition, and therefore the NPI and the Direct Royalties, will be dependent on the prices received for petroleum,
natural gas and natural gas liquids production. Prices for petroleum, natural gas and natural gas liquids have fluctuated widely during recent years and are determined by supply and demand factors,
including weather and general economic conditions as well as conditions in other oil producing regions, which are beyond the control of the Corporation or the Trust. Oil prices received from
production in Canada also reflect changes in the Canadian/U.S. currency exchange rate. Any decline in petroleum oil and natural gas prices or increases in differentials could have a material
adverse effect on the Trust's operations, financial condition and the level of funds available for the development of its oil and natural gas reserves. The Corporation may manage the risk associated
with changes in commodity prices and foreign exchange rates by entering, or causing the Trust to enter, from time to time, into crude oil and natural gas price hedges and foreign exchange contracts.
To the extent that the Corporation or the Trust engages in risk management activities related to commodity prices and foreign exchange rates, it will be subject to counterparty risk. In addition,
commodity hedge contracts may require, from time to time, margin payments to be made which could impact negatively on the Trust's ability to make distributions to Unitholders. The Corporation must
also meet certain ongoing hedging covenants under its credit facility. To the extent that commodity prices increase significantly, Cash Available for Distribution could be negatively affected. 

Crude Oil Differentials  

        The Corporation's crude oil production from the Properties will be approximately 73% light and medium oil, 26% heavy oil and 1% natural gas and natural gas
liquids. Processing medium oil and heavy oil is more expensive than processing conventional light oil, and such processing yields less valuable products compared to refining light oil; accordingly,
producers of heavy oil or medium oil receive lower wellhead prices. The differential between light oil and heavy oil or medium oil has fluctuated widely during recent years and when considered with
the fluctuating prices of light oil, substantially increases the volatility of prices for heavy oil and medium oil. Any increase in the differentials could result in lower prices being received for
petroleum, natural gas and natural gas liquids and could have a material adverse effect on the Trust's operations, financial condition and the level of funds available for the development of its oil
and natural gas reserves. Volatility in the differential is a result of an availability of supply, seasonal demand, pipeline constraints and conversion capacity of refineries, which are beyond the
control of the Trust or the Corporation. 

Competition  

        There is strong competition relating to all aspects of the oil and natural gas industry. The Corporation and the Trust will actively compete for capital, skilled
personnel, undeveloped land, 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 the Corporation and the Trust. Some of those
organizations not only explore for, develop 

62

 

and
produce oil and natural gas but also carry on refining operations and market petroleum and other products on a world-wide basis and as such have greater and more diverse resources on
which to draw. 

Potential Conflicts of Interest  

        Circumstances may arise where members of the Board of Directors or officers of the Corporation are directors or officers of corporations which are in competition
to the interests of the Corporation and the Trust. No assurances can be given that opportunities identified by such board members will be provided to the Corporation and the Trust. See "Conflicts of
Interest". 

Nature of Trust Units  

        Securities such as the Trust Units are hybrids in that they share certain attributes common to both equity securities and debt instruments. Trust Units are
dissimilar to debt instruments in that there is no principal amount owing to Unitholders. The Trust Units do not represent a traditional investment in the oil and natural gas sector and should not be
viewed by investors as shares in the Corporation. The Trust Units represent a fractional interest in the Trust. As holders of Trust Units, 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. The Trust's sole assets will be Permitted Investments, the NPI,
the Direct Royalties and related contractual rights. The market price per Trust Unit will be a function of anticipated Cash Available For Distribution, the value of the Properties acquired by the
Corporation and the Corporation's ability to effect long-term growth in the value of the Trust. The issue price of each Trust Unit is greater than the per Trust Unit Reserve Value of the
Provost Properties. 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 the Trust to acquire
suitable oil and natural gas properties. Changes in market conditions may adversely affect the trading price of the Trust Units. 

Unitholder Limited Liability  

        The Trust Indenture provides that no Unitholder, in its capacity as such, shall incur or be subject to any liability in contract or in tort in connection with the
Trust Fund or the obligations or affairs of the Trust or with respect to any act performed by the Trustee or by any other person pursuant to the Trust Indenture or with respect to any act or omission
of the Trustee or any other person in the performance or exercise, or purported performance or exercise, of any obligation, power, discretion or authority conferred upon the Trustee or such other
person hereunder or with respect to any transaction entered into by the Trustee or by any other person pursuant to the Trust Indenture. No Unitholder shall be liable to indemnify the Trustee or any
such other person with respect to any such liability or liabilities incurred by the Trustee or by any such other person or persons or with respect to any taxes payable by the Trust or by the Trustee
or by any other person on behalf of or in connection with the Trust. Notwithstanding the foregoing, to the extent that any Unitholders are found by a court of competent jurisdiction to be subject to
any that liability, such liability shall be enforceable only against, and shall be satisfied only out of, the Trust Fund, and the Trust (to the extent of the Trust Fund) is liable to, and shall
indemnify and save harmless any Unitholder against any costs, damages, liabilities, expenses, charges or losses suffered by any Unitholder from or arising as a result of such Unitholder not having any
such limited liability. 

        The
Trust Indenture also provides that all contracts signed by or on behalf of the Trust, whether by the Corporation, the Trustee, or otherwise, must (except as the Trustee or the
Corporation may otherwise expressly agree with respect to their own personal liability) contain a provision to the effect that such obligation will not be binding upon Unitholders personally.
Notwithstanding the terms of the Trust Indenture, Unitholders may not be protected from liabilities of the Trust to the same extent a shareholder is protected from the liabilities of a corporation.
Personal liability may also arise in respect of claims against the Trust (to the extent that claims are not satisfied by the Trust) that do not arise under contracts, including claims in tort, claims
for taxes and possibly certain other statutory liabilities. The possibility of any personal liability to Unitholders of this nature arising is considered unlikely by the Harvest Board in view of the
fact that all business operations are carried on by the Corporation. 

        The
activities of the Trust and the Corporation, its wholly-owned subsidiary, are conducted and are intended to 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 to the Unitholders for claims against the Trust including by obtaining appropriate insurance, where available, for the
operations of the Corporation and having contracts signed by or on behalf of the Trust include a provision that such obligations are not binding upon Unitholders personally. 

63

 

Net Asset Value  

        The net asset value of the Trust will vary dependent upon a number of factors beyond the control of management, including oil and natural gas prices. The trading
prices of the Trust Units is also determined by a number of factors which are beyond the control of management and such trading prices may be greater than or less than the net asset value of the
Trust. 

Change in the Trust's Status Under Tax Laws  

        Harvest presently qualifies as a mutual fund trust for purposes of the Tax Act and it is intended that the Trust continue to qualify as a mutual fund trust
for such purposes; however, should the status of the Trust as a mutual fund trust be lost or successfully challenged by a relevant tax authority, certain adverse consequences may arise. The material
consequences of losing mutual fund trust status are as follows: (i) Trust Units would not constitute qualified investments for Exempt Plans upon the Trust ceasing to be a mutual fund trust.
Where at the end of any month an Exempt Plan holds Trust Units that are not qualified investments, the Exempt Plan must, in respect of that month, pay a tax under Part XI.1 of the Act equal to
1% of the fair market value of the Trust Units at the time such Trust Units were acquired by the Exempt Plan. An RRSP or RRIF holding Trust Units that are not qualified investments would become
taxable n income attributable to the Trust Units while they are not qualified investments. RESPs which hold Trust Units that are not qualified investments may have their registration revoked by the
Canada Customs and Revenue Agency; (ii) the Trust would be required to pay a tax under Part XII.2 of the Tax Act on certain types of income distributed to unitholders including
income generated by oil and natural gas royalties held by the Trust. The payment of the Part XII.2 tax by the Trust may have adverse income tax consequences for certain Unitholders, since the
amount of cash available for distribution would be reduced by the amount of the tax; (iii) the Trust would cease being eligible for the capital gains refund mechanism available under the
Tax Act upon ceasing to be a mutual fund trust; (iv) Trust Units held by Unitholders that are not residents of Canada would become taxable Canadian property upon the Trust ceasing to be
a mutual fund trust. Such Unitholders would be subject to Canadian income tax on any gains realized on a disposition of Trust Units constituting taxable Canadian property; and (v) the Trust
would be subject to alternative minimum tax under Part I of the Tax Act. 

Structure of the Trust  

        From time to time, the Trust may take steps to organize its affairs in a manner which minimizes taxes and other expenses payable with respect to the operation of
the Trust and the Operating Subsidiaries and which maximizes the amount of cash available for distributions to Unitholders. If the manner in which the Trust structures its affairs is successfully
challenged by a taxation or other authority, the amount of cash available for distribution to Unitholders may be affected. 

 
 

ADDITIONAL INFORMATION    
    

        Additional information including remuneration of directors and officers of the Corporation, principal holders of the Trust Units, is contained in the Information
Circular—Proxy Statement of the Trust dated May 12, 2004 which relates to the Annual and Special Meeting of Unitholders to be held on June 22, 2004, and additional financial
information is provided in the consolidated financial statements of the Trust for the year ended December 31, 2003. 

        The
Trust shall provide to any person, upon request to the Secretary of the Corporation on behalf of the Trust: 

	(a)
	when
the securities of the 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
distribution of its securities,

	(b)
	one
copy of the Annual Information Form of the Trust, together with one copy of any document, or the pertinent pages of any document, incorporated by reference in the Annual
Information Form;

	(c)
	one
copy of the consolidated financial statements of the Trust for the most recently completed fiscal year together with the accompanying report of the auditor and one copy of any
subsequent interim financial statements;

	(d)
	one
copy of the Information Circular—Proxy Statement of the Trust dated May 12, 2004; and

	(e)
	one
copy of any other documents that are incorporated by reference into the preliminary short form prospectus or the short form prospectus and are not required to be provided under
(i) to (iii) above; or 

64

 

	(f)
	at
any other time, one copy of any other documents referred to in (a)(i), (ii) and (iii) above, provided the Trust may require the payment of a reasonable charge if the
request is made by a person who is not a security holder of the Trust. 

        For
additional copies of the Annual Information Form and the materials listed in the preceding paragraphs please contact: 

Harvest
Energy Trust

c/o Harvest Operations Corp.

1900, 330 - 5th Avenue S.W.

Calgary, Alberta T2P 0L4

Toll free in Canada: 1-866-666-1178

Fax: (403) 265-3940 

65

  

 
 
 

APPENDIX A
  
    REPORT OF MANAGEMENT AND DIRECTORS ON RESERVES DATA AND OTHER INFORMATION    
    

        Management of Harvest Operations Corp. (the "Company") on behalf of Harvest Energy Trust (the "Trust") are responsible for the preparation and disclosure of
information with respect to the Company's and the Trust's other subsidiaries' oil and natural gas activities in accordance with securities regulatory requirements. This information includes reserves
data, which consist of the following: 

	
 	
 	

(g)	
 	

(i)	
 	

proved and proved plus probable oil and natural gas reserves estimated as at December 31, 2003 using forecast prices and costs; and
	

 	
 	

 	
 	

(ii)	
 	

the related estimated future net revenue; and
	

 	
 	

(h)	
 	

(i)	
 	

proved oil and natural 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 and the Trust's other subsidiaries' reserves data. The report of the independent qualified reserves evaluator is
presented below. 

        The
Reserves, Safety & Environment Committee (the "RSE Committee") of the board of directors of the Company has 

	
 	
 	

(i)	
 	

reviewed the Company's procedures for providing information to the independent qualified reserves evaluator;
	

 	
 	

(j)	
 	

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
	

 	
 	

(k)	
 	

reviewed the reserves data with management and the independent qualified reserves evaluator.

        The
RSE Committee of the board of directors has reviewed the Company's procedures for assembling and reporting other information associated with oil and natural gas activities and has
reviewed that information with management. The board of directors has, on the recommendation of the Audit Committee, approved 

	
 	
 	

(l)	
 	

the content and filing with securities regulatory authorities of the reserves data and other oil and natural gas information;
	

 	
 	

(m)	
 	

the filing of the report of the independent qualified reserves evaluator on the reserves data; and
	

 	
 	

(n)	
 	

the content and filing of this report.

        Because
the reserves data are based on judgments regarding future events, actual results will vary and the variations may be material. 

	
 (signed) JACOB ROORDA
 Jacob Roorda

President	

(signed) J. A. RALSTON
 J. A. Ralston

Vice President, Operations
	

   (signed) VERNE JOHNSON
 Verne Johnson

Director and Chairman of the RSE Committee	

(signed) HANK B. SWARTOUT
 Hank B. Swartout

Director and Member of the RSE Committee
	

   April 30, 2004	

 

A-1

  

 
 
 

APPENDIX B
  
    REPORT ON RESERVES DATA    
    

        To the board of directors of Harvest Operations Corp. (the "Company"): 

	1.
	We
have evaluated the Company's reserves data as at December 31, 2003. The reserves data consist of the following:

	(a)
	proved
and proved plus probable oil and natural gas reserves estimated as at December 31, 2003 using forecast prices and costs and the related estimated future net revenue; and

	(b)
	proved
oil and natural gas reserves estimated as at December 31, 2003 using constant prices and costs; and the related estimated future net revenue.

	2.
	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). 

	3.
	Those
standards require that we plan and perform an evaluation to obtain reasonable assurance as to whether the reserves data are free of material misstatement. An evaluation also
includes assessing whether the reserves data are in accordance with principles and definitions presented in the COGE Handbook.

	4.
	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 management: 

	 
	 	 
	 	 
	 	Net Present Value of Future Net Revenue $M

(before income taxes, 10% discount rate)

	 
	 	Preparation Date of Evaluation Report
	 	Location of Reserves

	 
	 	Audited
	 	Evaluated
	 	Reviewed
	 	Total

	 	 	December 31, 2003	 	Canada	 	—	 	169,171	 	—	 	169,171

	5.
	In
our opinion, the reserves data respectively evaluated by us have, in all material respects, been determined and are in accordance with the COGE Handbook.

	6.
	We
have no responsibility to update our report referred to in paragraph 4 for events and circumstances occurring after their respective preparation dates.

	7.
	Because
the reserves data are based on judgements regarding future events, actual results will vary and the variations may be material. 

Executed
as to our report referred to above. 

McDaniel &
Associates Consultants Ltd.

(signed) B.H. EMSLIE, P.ENG.

Senior Vice President 

Calgary,
Alberta

April 30, 2004 

B-1

  

 
 
 

APPENDIX C
  
    FINANCIAL STATEMENTS    
    

	1.
	Schedule
of Revenue and Expenses for certain of the Provost Properties Acquired from Devon Canada Corporation—Years Ended December 31, 2001, 2000 and 1999 and Six
Months Ended June 30, 2002 and 2001.

	2.
	Schedule
of Revenue and Expenses for certain of the Provost Properties Acquired from Anadarko Canada Corporation—Years Ended December 31, 2001, 2000 and 1999 and Six
Months Ended June 30, 2002 and 2001.

	3.
	Schedule
of Revenue and Expenses for the Carlyle Properties—Years Ended December 31, 2002, 2001 and 2000 and Nine Months Ended September 30, 2003 and 2002.

	4.
	Pro Forma
Consolidated Financial Statements of Harvest Energy Trust as at and for the Year Ended December 31, 2003. 

C-1

  

Schedule of Revenue and Expenses for the 

CARLYLE PROPERTIES  

Years ended December 31, 2002, 2001 and 2000 

  

	 	KPMG LLP	 	 	 	 
	 	Chartered Accountants	 	Telephone	 	(403) 691-8000
	 	1200-205 5 Avenue SW	 	Telefax	 	(403) 691-8008
	 	Calgary AB    T2P 4B9	 	www.kmpg.ca	 	 

 
 

AUDITORS' REPORT    
    

To
the board of directors of Harvest Operations Corp. 

        At
the request of Harvest Operations Corp., we have audited the schedule of revenue and expenses for the properties (the "Carlyle Properties") referred to in the purchase and sale
agreement dated October 1, 2003 between Harvest Operations Corp. and the vender for each of the years in the three year period ended December 31, 2002. The financial information is the
responsibility of Harvest Operations Corp. Our responsibility is to express an opinion on this financial information 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 information is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial information. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial information. 

        In
our opinion, this financial information presents fairly, in all material respects, the revenue and expenses for the Carlyle Properties referred to in the purchase and sale agreement
dated July 29, 2003 for each of the years in the three-year period ended December 31, 2002. 

  

Chartered
Accountants 

Calgary,
Canada

October 3, 2003 

 
 
 

CARLYLE PROPERTIES    
    
    SCHEDULE OF REVENUE AND EXPENSES FOR THE CARLYLE PROPERTIES    
    

	 
	 	Nine months ended

September 30,
	 	Years ended December 31,
	 
	 
	 	2003
	 	2002
	 	2002
	 	2001
	 	2000
	 
	 
	 	(unaudited)
 
	 	(audited)
 
	 
	Revenue	 	$	59,838,735	 	$	60,740,813	 	$	85,270,787	 	$	89,172,498	 	$	119,482,399	 
	Royalties	 	 	(12,646,317	)	 	(13,595,661	)	 	(18,163,421	)	 	(19,099,841	)	 	(27,813,069	)
	 	 	
	 	
	 	
	 	
	 	
	 
	 	 	 	47,192,418	 	 	47,145,152	 	 	67,107,366	 	 	70,072,657	 	 	91,669,330	 
	

Operating costs	
 	
 	

18,057,001	
 	
 	

19,334,790	
 	
 	

24,688,372	
 	
 	

22,610,861	
 	
 	

25,202,098	
 
	 	 	
	 	
	 	
	 	
	 	
	 
	Operating income	 	$	29,135,417	 	$	27,810,362	 	$	42,418,994	 	$	47,461,796	 	$	66,467,232	 
	 	 	
	 	
	 	
	 	
	 	
	 

See accompanying notes to schedule of revenue and expenses for the Carlyle Properties.  

  
 
 

    CARLYLE PROPERTIES    
    
    NOTES TO SCHEDULE OF REVENUE AND EXPENSES FOR THE CARLYLE PROPERTIES    
    
    Years ended December 31, 2002, 2001 and 2000
  (Information for the six months ended
June 30, 2003 and 2002 is unaudited)    
    

1.     BASIS OF PRESENTATION:  

On
October 1, 2003 Harvest Operations Corp. entered into a purchase and sale agreement to acquire the properties (the "Carlyle Properties") from an arm's length vender. 

The
schedule of revenue and expenses for the Carlyle Properties includes the operations of the Carlyle Properties by the previous owners. The schedule of revenue and expenses for the Carlyle
Properties includes only amounts applicable to the working interest of the previous owners for the Carlyle Properties. 

The
schedule of revenue and expenses for the Carlyle Properties does not include any provision for the depletion and depreciation, site restoration, future capital costs, impairment of unevaluated
properties, general and administrative costs and income taxes for the Carlyle Properties as these amounts are based on the consolidated operations of the previous owners of which the Carlyle
Properties formed only a part. 

2.     SIGNIFICANT ACCOUNTING POLICIES:  

	(a)
	Revenue:

Revenue
from the sale of oil and natural gas is recorded at the time that the product is produced and sold. 

	(b)
	Royalties:

Royalties
are recorded at the time the product is produced and sold. Royalties are calculated in accordance with Alberta Energy regulations or the terms of individual royalty agreements. 

	(c)
	Operating
expenses: 

Operating
expenses include amounts incurred to bring the oil and natural gas to the surface, gather, transport, field process, treat and store same. Operating expenses are reflected net of gathering,
processing and transportation revenue associated with the Carlyle Properties. 

QuickLinks

EXHIBT 4.1

TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

SUPPLEMENTAL DISCLOSURE

GLOSSARY OF TERMS

ABBREVIATIONS

CONVERSIONS

DATE OF INFORMATION

HARVEST ENERGY TRUST

RECENT DEVELOPMENTS

STATEMENT OF RESERVES DATA AND OTHER OIL AND NATURAL GAS INFORMATION

FUTURE NET REVENUE BY PRODUCTION GROUP as of December 31, 2003 CONSTANT PRICES AND COSTS

SUMMARY OF PRICING AND INFLATION RATE ASSUMPTIONS as of January 1, 2004 FORECAST PRICES AND COSTS

SUMMARY OF PRICING ASSUMPTIONS as of December 31, 2003 CONSTANT PRICES AND COSTS

RECONCILIATION OF OPERATING SUBSIDIARIES NET RESERVES BY PRINCIPAL PRODUCT TYPE FORECAST PRICES AND COSTS

RECONCILIATION OF CHANGES IN NET PRESENT VALUES OF FUTURE NET REVENUE DISCOUNTED AT 10% PER YEAR PROVED RESERVES CONSTANT PRICES AND COSTS

SUMMARY OF OIL AND NATURAL GAS RESERVES AND NET PRESENT VALUES OF FUTURE NET REVENUE as of April 1, 2004 FORECAST PRICES AND COSTS

SUMMARY OF PRICING AND INFLATION RATE ASSUMPTIONS as of April 1, 2004 FORECAST PRICES AND COSTS

DESCRIPTION OF THE TRUST

INFORMATION RESPECTING THE CORPORATION

SHARE CAPITAL OF THE CORPORATION

TRUST INDENTURE

DEBENTURES

TRUST UNIT INCENTIVE PLAN

DRIP PLAN

CONFLICTS OF INTEREST

SELECTED FINANCIAL INFORMATION

RECORD OF CASH DISTRIBUTIONS

ESCROWED SECURITIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

MARKET FOR SECURITIES

RISK FACTORS

ADDITIONAL INFORMATION

REPORT OF MANAGEMENT AND DIRECTORS ON RESERVES DATA AND OTHER INFORMATION

REPORT ON RESERVES DATA

FINANCIAL STATEMENTS

AUDITORS' REPORT

SCHEDULE OF REVENUE AND EXPENSES FOR THE CARLYLE PROPERTIES

NOTES TO SCHEDULE OF REVENUE AND EXPENSES FOR THE CARLYLE PROPERTIESQuickLinks
 -- Click here to rapidly navigate through this document

 
 

Exhibit 4.2    
    

 
 

HARVEST ENERGY TRUST
  
    INFORMATION CIRCULAR — PROXY STATEMENT
  
    FOR THE ANNUAL AND SPECIAL MEETING OF UNITHOLDERS
  TO BE HELD ON TUESDAY, JUNE 22, 2004    
    

SOLICITATION OF PROXIES  

        This Information Circular — Proxy Statement is furnished in connection with the solicitation of proxies by the management of
Harvest Operations Corp. ("Harvest Management"), for use at the Harvest Energy Trust (the "Trust") Annual and Special Meeting (the "Meeting") of the holders (the "Unitholders") of trust units ("Trust
Units") of the Trust to be held on the 22nd day of June, 2004, at 3:00 p.m. (Calgary time) in the Royal Room, Metropolitan Centre, 333 - 4th Avenue S.W.,
Calgary, Alberta, and at any adjournment thereof, for the purposes set forth in the Notice of Annual and Special Meeting. 

        Instruments
of Proxy must be received by Valiant Trust Company ("Valiant"), 510, 550 - 6th Avenue S.W., Calgary, Alberta, T2P 0S2, before
4:30 p.m. (Calgary time) on June 18, 2004. Valiant, the trustee of the Trust (the "Trustee"), has fixed the record date for the Meeting at the close of business on May 21, 2004
(the "Record Date"). Only Unitholders of record as at the Record Date are entitled to receive notice of the Meeting. Unitholders of record will be entitled to vote those Trust Units included in the
list of Trust Units entitled to vote at the Meeting prepared as at the Record Date, even though the Unitholder has since that time disposed of his or her Trust Units. No Unitholder who became a
Unitholder after the Record Date shall be entitled to vote at the Meeting. 

        The
instrument appointing a proxy shall be in writing and shall be executed by the Unitholder or his attorney authorized in writing or, if the Unitholder is a corporation, under its
corporate seal or by an officer or attorney thereof duly authorized. 

        The persons named in the enclosed form of proxy are directors or officers of Harvest Operations Corp. Each Unitholder has the right to appoint a proxyholder other
than the persons designated in the proxy, who need not be a Unitholder, to attend and to act for the Unitholder and on behalf of the Unitholder at the Meeting. To exercise such right, the names of the
nominees of Harvest Management should be crossed out and the name of the Unitholder's appointee should be legibly printed in the blank space provided.

NOTICE TO BENEFICIAL HOLDERS OF TRUST UNITS  

        The information set forth in this section is of significant importance to many Unitholders of the Trust, as a substantial number of the
Unitholders of the Trust do not hold Trust Units in their own name. Unitholders who do not hold their Trust Units in their own name (referred to herein as "Beneficial
Unitholders") should note that only proxies deposited by Unitholders whose names appear on the records of the Trust as the registered holders of Trust Units can be recognized
and acted upon at the Meeting. If Trust Units are listed in an account statement provided to a Unitholder by a broker, then in almost all cases those Trust Units will not be registered in the
Unitholder's name on the records of the Trust. Such Trust Units will more likely be registered under the name of the Unitholder's broker or an agent of that broker. In Canada, the vast majority of
such Trust Units are registered under the name of CDS & Co. (the registration name for The Canadian Depositary for Securities Limited, which acts as nominees for many Canadian brokerage
firms). Trust Units held by brokers or their nominees can only be voted (for or against resolutions) upon the instructions of the Beneficial Unitholder. Without specific instructions, the
broker/nominees are prohibited from voting Trust Units for their clients. The Trust does not know for whose benefit the Trust Units registered in the name of CDS & Co. are held. 

        Applicable
regulatory policy requires intermediaries/brokers to seek voting instructions from Beneficial Unitholders in advance of unitholders' meetings. Every intermediary/broker has
its own mailing procedures and provides its own return instructions, which should be carefully followed by Beneficial Unitholders in order to ensure that their Trust Units are voted at the Meeting.
Often, the form of proxy supplied to a Beneficial Unitholder by its broker is identical to the form of proxy provided to registered Unitholders; however, its purpose is limited to instructing the
registered Unitholder how to vote on behalf of the Beneficial Unitholder. The majority of brokers now delegate responsibility for obtaining instructions from clients to ADP Investor Communications.
ADP Investor Communications typically mails a scannable Voting Instruction Form in lieu of the form of proxy. The Beneficial Holder is requested to complete and return the Voting Instruction Form to
them by mail or facsimile. Alternatively the Beneficial Holder can call a toll-free telephone number to vote the Trust Units held by the Beneficial Holder. ADP Investor Communications then
tabulates the results of all instructions received and provides appropriate 

 

instructions
respecting the voting of Trust Units to be represented at the Meeting. A Beneficial Unitholder receiving a Voting Instruction Form cannot use that Voting
Instruction Form to vote Trust Units directly at the Meeting as the Voting Instruction Form must be returned as directed by ADP Investor Communications well in advance of the Meeting in order to have
the Trust Units voted.

REVOCABILITY OF PROXY  

        A Unitholder who has submitted a proxy may revoke it at any time prior to the exercise thereof. If a person who has given a proxy attends at the Meeting in person
at which such proxy is to be voted, such person may revoke the proxy and vote in person. In addition to revocation in any other manner permitted by law, a proxy may be revoked by instrument in writing
executed by the Unitholder or his attorney authorized in writing or, if the Unitholder is a corporation, under its corporate seal or by an officer or attorney thereof duly authorized and deposited
either at the head office of Harvest Operations Corp. at any time up to and including the last business day preceding the day of the Meeting, or any adjournment thereof, at which the proxy is to be
used, or with the Chairman of the Meeting on the day of the Meeting, or any adjournment thereof, and upon either of such deposits, the proxy is revoked. 

PERSONS MAKING THE SOLICITATION  

        The solicitation is made on behalf of Harvest Management.    The costs incurred in the preparation and mailing of the Instrument
of Proxy, Notice of Annual and Special Meeting and this Information Circular — Proxy Statement will be borne by the Trust. In addition to solicitation by mail,
proxies may be solicited by personal interviews, telephone or other means of communication and by directors, officers and employees of Harvest Operations Corp., who will not be specifically
remunerated therefor. 

EXERCISE OF DISCRETION BY PROXY  

        The Trust Units represented by proxy in favour of the Harvest Management nominees shall be voted on any ballot at the Meeting and, where the Unitholder specifies
a choice with respect to any matter to be acted upon, the Trust Units shall be voted on any ballot in accordance with the specification so made. 

        In the absence of such specification, the Trust Units will be voted in favour of the matters to be acted upon. The persons appointed under the Instrument of Proxy
furnished by the Trust are conferred with discretionary authority with respect to amendments or variations of those matters specified in the Instrument of Proxy and Notice of Annual and Special
Meeting. At the time of printing this Information Circular — Proxy Statement, Harvest Management knows of no such amendment, variation or other
matter.

VOTING TRUST UNITS AND PRINCIPAL HOLDERS THEREOF  

        The Trust was formed pursuant to the provisions of a trust indenture dated July 10, 2002 as amended and restated as of July 10, 2003, between the
Trustee and Harvest Operations Corp. (the "Trust Indenture"). 

        The
Trust is authorized to issue an unlimited number of Trust Units. As at May 12, 2004, approximately 17,310,495 Trust Units were issued and outstanding. At the Meeting, upon a
show of hands, every Unitholder present in person or represented by proxy and entitled to vote shall have one vote. On a poll or ballot, every Unitholder present in person or by proxy has one vote for
each Trust Unit of which such Unitholder is the registered holder. All votes on special resolutions are by a ballot and no demand for a ballot is necessary. 

        When
any Trust Unit is held jointly by several persons, any one of them may vote at the Meeting in person or by proxy in respect of such Trust Unit, but if more than one of them are
present at the Meeting in person or by proxy, and such joint owners of the proxy so present disagree as to any vote to be cast, the joint owner present or represented whose name appears first in the
register of Unitholders maintained by the Trustee is entitled to cast such vote. 

2

 

        To
the best of the knowledge of the directors and officers of Harvest Operations Corp., the only person that owns, directly or indirectly, or exercises control or direction over Trust
Units carrying more than 10% of the votes attached to all of the issued and outstanding Trust Units which may be voted at the Meeting, is as follows: 

	Name of Unitholder
 
	 	Type of Ownership
	 	Number of Trust Units Owned
	 	Percentage of Outstanding Trust Units

	M. Bruce Chernoff(1)	 	Direct and Beneficial	 	5,222,723	 	30.2%
	Acuity Investment Management Inc.	 	Direct and Beneficial	 	2,009,600	 	11.6%

Note: 

	(1)
	Includes
152,990 Trust Units owned by Caribou Capital Corp., a company controlled by Mr. Chernoff. 

        The percentage of Trust Units that are owned, directly or indirectly, by all directors and officers of Harvest Operations Corp. as a group is
approximately 37.9% (6,555,831 Trust Units). 

QUORUM FOR MEETING  

        At the Meeting, a quorum shall consist of two or more persons either present in person or represented by proxy and representing in the aggregate at least 10% of
the outstanding Trust Units. If a quorum is not present at the Meeting within one half hour after the time fixed for the holding of the Meeting, it shall stand adjourned to such day being not less
than fourteen (14) days later and to such place and time as may be determined by the Chairman of the Meeting. At such adjourned Meeting, the Unitholders present either personally or by proxy
shall form a quorum. In the case of a meeting, at which a special resolution is under consideration, such adjournments are required to be for not less than 21 days and notice to be given
at least 10 days prior to the date of the adjourned meeting. 

APPROVAL REQUIREMENTS  

        All of the matters to be considered at the Meeting are ordinary resolutions requiring approval by more than 50% of the votes cast in respect of the resolution by
or on behalf of Unitholders present in person or represented by proxy at the Meeting except for the Harvest Share Resolution (as hereinafter defined), which requires approval by a special resolution.
A special resolution requires the approval of not less than 662/3% of the votes cast in respect of the resolution by or on behalf of Unitholders present in person or represented by
proxy at the Meeting. 

MATTERS TO BE ACTED UPON AT MEETING  

1.     Appointment of the Trustee  

        The Trust Indenture provides that the Unitholders shall, at each annual meeting, re-appoint or appoint a successor to the Trustee. Accordingly,
Unitholders will consider an ordinary resolution to re-appoint Valiant as trustee of the Trust to hold office until the end of the next annual meeting. Valiant has been trustee of the
Trust since September 27, 2002. 

2.     Election of Directors of Harvest Operations Corp.  

        The articles of Harvest Operations Corp. provide for a minimum of one (1) director and a maximum of eleven (11) directors. There are currently five
(5) directors. Unitholders are entitled to select all of the members of the Board of Directors of Harvest Operations Corp. (the "Board") by a vote of Unitholders at a meeting of Unitholders
held in accordance with the Trust Indenture. Following such meeting the Trustee shall elect the individuals so selected by the Unitholders to the Board of Directors of Harvest Operations Corp. 

        The
five (5) nominees for election as directors of Harvest Operations Corp. are as follows: 

John
A. Brussa

M. Bruce Chernoff

Hank B. Swartout

Verne G. Johnson

Hector J. McFadyen 

        The
names and municipalities of residence of the five (5) persons nominated for election as directors of Harvest Operations Corp. by Unitholders, the number of Trust Units of the
Trust beneficially owned, directly or indirectly, or 

3

 

over
which each exercises control or direction, the offices held by each in Harvest Operations Corp., the period served as director and the principal occupation of each are as follows: 

	Name and Municipality of Residence
	 	No. of Trust Units Beneficially Owned or Controlled(1)
	 	Offices Held and Time as a Director
	 	Principal Occupation

	 John A. Brussa(2)(4)

Calgary, Alberta	 	241,600	 	Director since August 28, 2002	 	Barrister and Solicitor; Partner of Burnet, Duckworth & Palmer LLP (a law firm).
	 M. Bruce Chernoff(3)(4)

Calgary, Alberta	 	5,222,723	(5)	Chairman of the Board and Director since May 17, 2002	 	Professional Engineer; Chairman of Harvest Operations Corp.; President and Director of Caribou Capital Corp. (a private investment management company) since June 1999; from April 2000 to October 2001,
Executive Vice President and Chief Financial Officer of Petrobank Energy and Resources Ltd. (a public oil and natural gas company); from February to June 1999, Executive Vice President and Chief Financial Officer of Pacalta
Resources Ltd. ("Pacalta") (a public oil and natural gas company); prior thereto, Executive Vice President of Pacalta.
	 Hank B. Swartout(3)

Calgary, Alberta	 	628,774	 	Director since December 10, 2002	 	Chairman, President and Chief Executive Officer of Precision Drilling Corporation since July, 1987.
	 Verne G. Johnson(2)(3)

Calgary, Alberta	 	20,000	 	Director since August 28, 2002	 	President of KristErin Resources Inc., a private family company since January 2000; Senior Vice President, Funds Management of Enerplus Resources Group from 2000 to 2002; prior thereto, President and Chief
Executive Officer of AltaQuest Energy Corporation from 1999 to 2000; prior thereto, President of Ziff Energy Group (an energy consulting company) from 1997 to 1999; prior thereto, President and Chief Executive Officer of ELAN Energy Inc. (a
public oil and natural gas company) from 1989 to 1997.
	 Hector J. McFadyen(2)(4)

Calgary, Alberta	 	20,000	 	Director since August 28, 2002	 	Independent businessman and Director of Hunting PLC (a UK based public oil and natural gas company); director of Computershare Trust Company of Canada (a private Canadian company that manages the administration of
shareholder and employee records from public and private companies throughout North America); director of Aluma Systems (a private Canadian company providing industrial and concrete construction services); formerly, President, Midstream Division,
Alberta Energy Company Ltd. (a public oil and natural gas company).

Notes: 

	(1)
	Represents
all Trust Units held directly or indirectly or over which such person exercises control or direction. Based upon information provided by the director or officer to Harvest
Operations Corp. by the nominees.

	(2)
	Member
of the Audit and Corporate Governance Committee.

	(3)
	Member
of the Reserves, Safety and Environment Committee.

	(4)
	Member
of the Compensation Committee. 

4

 
	(5)
	Includes
152,990 Trust Units held by Caribou Capital Corp., a company controlled by Mr. Chernoff.

	(6)
	Harvest
Operations Corp. does not have an executive committee. 

3.     Appointment of the Auditor of the Trust  

        The Trust Indenture provides that the auditors of the Trust will be selected at each annual meeting of Unitholders. Accordingly, Unitholders will consider an
ordinary resolution to appoint the firm of KPMG LLP, Chartered Accountants, Calgary, Alberta, to serve as auditors of the Trust until the next annual meeting of the Unitholders. KPMG LLP
has been the Trust's auditors since June 12, 2002. 

4.     Amendment of Trust Unit Incentive Plan  

        Unitholders will be asked at the Meeting to consider, and if thought fit, ratify and approve certain amendments to the Trust Unit Incentive Plan of the Trust (the
"Unit Incentive Plan"). The Unit Incentive Plan, in its current form, was last ratified by Unitholders on June 12, 2003. As at the date hereof, the Unit Incentive Plan, as previously adopted by
the Board and approved by the Unitholders, provides that the aggregate number of Trust Units issuable under the Unit Incentive Plan not exceed 1,121,000 Trust Units. The approval of Unitholders is
required to be obtained if the number of Trust Units which can be issued under the Unit Incentive Plan is increased. 

        As
at the date hereof, rights to purchase 1,087,725 Trust Units are presently outstanding under the Unit Incentive Plan (representing approximately 6.28% of the Trust Units outstanding),
rights to purchase 6,250 Trust Units have been exercised and rights to acquire 27,025 Trust Units have not yet been granted. The Board is proposing to increase the maximum number of Trust Units which
may, from time to time, be issued under the Unit Incentive Plan from 1,121,000 to 1,487,250 Trust Units, subject to regulatory and Unitholder approval. This amendment will permit the granting of
rights to acquire an additional 366,250 Trust Units in accordance with the Unit Incentive Plan. 

        The
effect of the increase in the maximum number of Trust Units issuable pursuant to the Unit Incentive Plan as aforesaid is that the number of Trust Units which will be available for
the grant of rights (rights to acquire 393,275 Trust Units) together with the number of rights to acquire Trust Units which have been granted and are outstanding (rights to acquire 1,087,725 Trust
Units) will bring the total number of Trust Units which are potentially issuable under the Unit Incentive Plan to 1,481,000 Trust Units which represents 8.56% of the presently outstanding Trust Units. 

        The
Board has determined that the increase is necessary due to increases in the outstanding number of Trust Units and in order to assist in attracting and retaining qualified personnel. 

        At
the Meeting, Unitholders will be asked to consider and, if thought fit, to approve the following resolution of Unitholders to approve the amendment of the Unit Incentive Plan: 

"BE
IT RESOLVED as an ordinary resolution of the Unitholders of Harvest Energy Trust that the maximum number of Trust Units issuable under the Trust Unit Incentive Plan of Harvest Energy Trust be
increased by 393,275 Trust Units to a cumulative maximum number of 1,487,250 Trust Units be and the same is hereby ratified, approved and authorized." 

        The
Board believes that the above resolution is in the best interests of the Trust and recommends that Unitholders vote in favour of the resolution. 

        The
persons named in the Instrument of Proxy furnished by Harvest Management intend, unless otherwise directed, to vote in favour of the resolution approving the amendment to the Unit
Incentive Plan. 

5.     Adoption of Unit Award Incentive Plan  

        Unitholders will be asked at the Meeting to consider, and if thought fit, ratify and approve a unit award incentive plan (the "Unit Award Plan") of the Trust and
the issuance of up to 150,000 Trust Units pursuant to the Unit Award Plan, subject to adjustment in accordance with the Unit Award Plan including adjustment for monthly distributions paid on the Trust
Units. 

        The
Board has approved the adoption of the Unit Award Plan which authorizes the Trust to grant awards ("Unit Awards") of restricted Trust Units to directors, officers, employees and
consultants ("Service Providers") of the Trust and its affiliates. Unit Awards vest annually over a four-year period and, upon vesting, entitle the holder to receive the number of Trust
Units subject to the Unit Award. The Unit Award Plan has been adopted by the Board as an 

5

 

alternative
to the Trust's existing Unit Incentive Plan. Grants under the Unit Award Plan will be made primarily to directors, officers and other key employees. 

        The
Compensation Committee, the Board and Harvest Management have conducted a review of the compensation programs of the Trust and those of similar trusts in both the oil and gas and
other industries. The objective of this process was to design a compensation program for the Trust that will provide an effective incentive compensation mechanism and more closely align the interests
of management and employees of the Trust with the interests of Unitholders. The Compensation Committee, the Board and Harvest Management determined that the Trust's existing Unit Incentive Plan was
not completely effective in achieving these goals and, significantly, was not effective in enabling the Trust to attract and retain key employees in the highly competitive market for qualified
personnel in the oil and gas industry. As an alternative and in addition to the Unit Incentive Plan, the Board approved the Unit Award Plan based on the recommendations of the Compensation Committee
and Harvest Management. 

        The
principal purposes of the Unit Award Plan are: to retain and attract qualified Service Providers; to promote a proprietary interest in the Trust by such individuals and to encourage
such individuals to remain in the employ of the Trust and put forth maximum efforts for the success for the business of the Trust; and to focus management of the Trust on operating and financial
performance and long-term Unitholder returns. 

        Under
the terms of the Unit Award Plan, any Service Provider may be granted Unit Awards. Each Unit Award will entitle the holder to be issued the number of Trust Units designated in the
Unit Award and such Trust Units will vest and be issued as to one-fourth on each of the first, second, third and fourth anniversary dates of the date of grant. 

        A
holder of a Unit Award may elect, subject to the consent of the Board, to receive an amount in cash equal to the aggregate then current market value of the Trust Units to which the
holder is entitled under his or her Unit Award in lieu of the issue of Trust Units under such Unit Award. The amount payable to the holder is based on the closing price of the Trust Units on the
Toronto Stock Exchange (the "TSX") on the trading day immediately
preceding the issue date of the Trust Units. If the Trust and the holder so agree, this amount may be satisfied in whole or in part by Trust Units acquired by the Trust on the TSX provided that the
total number of Trust Units that may be so acquired on the TSX within any twelve month period may not exceed 5% of the outstanding Trust Units at the beginning of the period and within any
30 day period may not exceed 2% of the outstanding Trust Units at the beginning of the period. 

        The
Unit Award Plan provides for cumulative adjustments to the number of Trust Units to be issued pursuant to Unit Awards on each date that distributions are paid in respect of the Trust
Units by an amount equal to a fraction having as its numerator the amount of the distribution per Trust Unit multiplied by the number of Trust Units issuable immediately prior to the distribution
payment date and having as its denominator the fair market value, as calculated under the Unit Award Plan, of the Trust Units. 

        In
the event of a "Change of Control" of the Trust, as defined in the Unit Award Plan, the vesting provisions attaching to the Unit Awards are accelerated and all unexercised Unit Awards
will be issued immediately prior to the date upon which the change of control is completed. The Unit Award Plan also provides for the vesting and/or termination of Unit Awards in the event of the
cessation of employment or death of a holder. 

        As
discussed above, the Unit Award Plan is intended as an alternative and in addition to the existing Unit Incentive Plan of the Trust. Rights which have been granted pursuant to the
Unit Incentive Plan and remain outstanding will not be affected by the implementation of the Unit Award Plan. As at May 12, 2004, rights to acquire 1,087,725 Trust Units are outstanding
pursuant to the Unit Incentive Plan. 

        The
issuance of Trust Units under the Unit Award Plan is subject to the receipt of all regulatory approvals, including, without limitation, the approval of the TSX. 

        The
Unit Award Plan provides that the maximum number of Trust Units reserved for issuance from time to time pursuant to Unit Awards shall not exceed 150,000, subject to adjustment in
accordance with the Unit Award Plan including adjustments for monthly distributions paid on the Trust Units. After giving effect to the implementation of the Unit Award Plan, the Trust will have an
aggregate of 1,731,000 Trust Units reserved for issuance pursuant to all unit compensation arrangements (which represents 10.0% of the presently outstanding Trust Units) including 1,481,000 Trust
Units reserved under the Unit Incentive Plan (see "- Amendment of Trust Unit Incentive Plan"), 150,000 Trust Units reserved under the Unit Awards Plan and 100,000 Trust Units reserved under the
Directors and Officers Compensation Plan (see "- Adoption of Directors and Officers Compensation Plan"). 

        A
copy of the Unit Award Plan is attached hereto as Schedule "A". 

6

 

        At
the Meeting, Unitholders will be asked to consider and, if thought fit, to approve the following resolution of disinterested Unitholders to approve the adoption of the Unit Award
Plan: 

"BE
IT RESOLVED as an ordinary resolution of disinterested unitholders of Harvest Energy Trust that the unit award incentive plan of Harvest Energy Trust, in substantially the form attached to Harvest
Energy Trust's Information Circular — Proxy Statement dated May 12, 2004, including the issuance of Trust Units pursuant thereto, be and the same is hereby
ratified, approved and authorized." 

        The
Board believes that the above resolution is in the best interests of the Trust and recommends that Unitholders vote in favor of the resolution. 

        In
order for the foregoing resolution to be passed, it must be approved by a simple majority of the votes cast by Unitholders who vote in person or by proxy at the Meeting excluding
votes attaching to Trust Units beneficially owned by individuals who will be entitled to receive Unit Awards and who are "insiders" (as such meaning is defined in the  Securities Act (Ontario), as well
as "associates" (as such meaning is defined in the Securities Act
(Ontario)) of grantees. At the Meeting, the Trustee will be directed to exclude votes on this resolution by such insiders and their associates, which insiders and their associates hold an aggregate
6,555,831 Trust Units. 

        The
persons named in the Instrument of Proxy furnished by Harvest Management intend, unless otherwise directed, to vote in favour of the resolution approving the Unit Award Plan. 

6.     Adoption of Directors and Officers Compensation Plan  

        Unitholders will be asked at the Meeting to consider and, if thought fit, ratify and approve a directors and officers compensation plan (the "Directors and
Officers Compensation Plan") and the issuance of up to 100,000 Trust Units pursuant to the Directors and Officers Compensation Plan, subject to adjustment in accordance with the Directors and Officers
Compensation Plan including adjustment for monthly distributions paid on the Trust Units. 

        The
Board has approved the adoption of the Directors and Officers Compensation Plan in order to provide effective incentives for the directors and officers of Harvest Operations Corp. to
promote the success and business of Harvest Operations Corp. and to reward such directors and officers in relation to the long-term performance and growth of Harvest Operations Corp. by
encouraging ownership of Trust Units of the Trust. 

        There
are two components to the Directors and Officers Compensation Plan: (i) a deferred grant to directors of the Corporation of such number of Trust Units per calendar year
which is approved by the Board from time to time; and (ii) a deferred grant to officers of the Corporation who are approved by the Board of such number of Trust Units per calendar year as is
approved by the Board. Compensation is payable pursuant to the Directors and Officers Compensation Plan in the form of a deferred grant of Trust Units. 

        A
director or officer of Harvest Operations Corp. will not be entitled to elect to be issued any of the Trust Units which he or she has been granted until a period of three years has
passed since the date of grant of such Trust Units or until the director or officer ceases to be a director or officer of Harvest Operations Corp., whichever is earlier. Notwithstanding the foregoing,
however, each director or officer who is eligible to receive a deferred grant of Trust Units pursuant to the Directors and Officers Compensation Plan has the right to elect in writing, prior to
the grant to him or her of a deferred grant of Trust Units in any year, that the Trust Units to be issued to him or her under the Directors and Officers Compensation Plan will be issued on
December 31 of the year in which such grant of Trust Units is made to him or her. Trust Units which a director or officer is entitled to receive pursuant to the Directors and Officers
Compensation Plan will not be issued until the Director or Officer has delivered to Harvest Operations Corp. an election in writing that the Trust Units be issued together with payment to the Trust in
the amount specified in the Directors and Officers Compensation Plan. A director or officer shall have no right to receive Trust Units granted to him or her which have not been exercised and issued on
the date that is five years following the date of grant. 

        The
Directors and Officers Compensation Plan provides that the number of Trust Units that are issuable to a director or officer pursuant to the Directors and Officers Compensation Plan
shall be increased on each date on which a cash distribution is paid to Unitholders by an amount equal to the product of the number of the Trust Units which remain issuable and the fraction which has
as its numerator the cash distribution paid, expressed as an amount per Trust Unit multiplied by the number of Trust Units issuable immediately prior to the distribution payment date and which has as
its denominator the fair market value, as determined under the Directors and Officers Compensation Plan, of Trust Units on the TSX. 

7

 

        The
issue of Trust Units under the Directors and Officers Compensation Plan is subject to the receipt of all regulatory approvals, including, without limitation, the approval of the TSX. 

        Subject
to the receipt of all regulatory approvals, including, without limitation, the approval of the TSX and subject to the receipt of Unitholders at this Meeting, the Directors and
Officers Compensation Plan will be effective on December 15, 2003 in respect of deferred grants to directors of Harvest Operations Corp., and effective on January 1, 2004 in respect of
grants to officers of Harvest Operations Corp. 

        The
total number of Trust Units issuable pursuant to the Directors and Officers Compensation Plan shall not exceed 100,000, subject to adjustment in accordance with the Directors and
Officers Compensation Plan, including adjustments for monthly distributions paid on the Trust Units. 

        A
copy of the Directors and Officers Compensation Plan is attached hereto as Schedule "B". 

        At
the Meeting, Unitholders will be asked to consider and, if thought fit, to approve the following resolution of disinterested Unitholders to approve the adoption of the Directors and
Officers Compensation Plan: 

"BE
IT RESOLVED as an ordinary resolution of disinterested Unitholders of Harvest Energy Trust that the Directors and Officers Compensation Plan in substantially the form attached to Harvest Energy
Trust's Information Circular — Proxy Statement dated May 12, 2004, including the issuance of Trust Units pursuant thereto be and the same is hereby
ratified, approved and authorized." 

        The
Board believes that the above resolution is in the best interests of the Trust and recommends that Unitholders vote in favour of the resolution. 

        In
order for the foregoing resolution to be passed, it must be approved by the simple majority of the votes cast by Unitholders who vote in person or by proxy at the Meeting, excluding
votes attaching to Trust Units beneficially owned by the directors and officers of Harvest Operations Corp. as well as "associates" (as such meaning is defined in the  Securities Act (Ontario)) of such
persons. At the Meeting, the Trustee will be directed to exclude votes on this resolution by the directors and
officers of Harvest Operations Corp. and their associates, which persons and their associates hold an aggregate 6,555,831 Trust Units. 

        The
persons named in the instrument of proxy furnished by Harvest Management intend, unless otherwise directed, to vote in favour of the resolution approving the Directors and Officers
Compensation Plan and the issuance of Trust Units pursuant thereto. 

7.     New Class of Shares for Harvest Operations Corp.  

        Harvest Management has presented to the Board of Directors of Harvest Operations Corp. a proposal to amend the Articles of Harvest Operations Corp. to create an
unlimited number of exchangeable shares, issuable in series, and after considering such proposal the Board of Directors of Harvest Operations Corp. has determined to place before the Unitholders a
special resolution approving such amendment. 

        The
authorized capital of Harvest Operations Corp. currently consists of an unlimited number of common shares and an unlimited number of first preferred shares. In addition, at the
Annual and Special Meeting of Unitholders held June 12, 2003, Unitholders also approved a special resolution to amend the articles of Harvest Operations Corp. to create a class of
non-voting common shares, issuable in series. 

        In
order to provide for further flexibility in acquisition and capital raising opportunities, the Board of Directors of Harvest Operations Corp. recommends amending the Articles of
Harvest Operations Corp. to create a new class of exchangeable shares, issuable in series (the "Exchangeable Shares"). The Exchangeable Shares will entitle the holder to exchange each Exchangeable
Share at any time into Trust Units of the Trust based on an exchange ratio which is then in effect, such exchange ratio being initially one and adjusted thereafter to reflect distributions paid on
Trust Units in a given month and the current market price of the Trust Units. The Exchangeable Shares will provide holders with a security having economic, ownership and voting rights which are
substantially equivalent to those of Trust Units of the Trust. The Exchangeable Shares will be provided equivalent voting rights as Unitholders through special voting rights issued by the Trust (the
creation of which special voting rights were also approved by Unitholders at the Annual and Special Meeting of Unitholders held June 12, 2003). The rights, privileges and restrictions and
conditions of each series of Exchangeable Shares will be determined by the Board of Directors at the time of creation of each such series. The Exchangeable Shares will rank prior to the common shares
of Harvest Operations Corp., the non-voting shares of 

8

 

Harvest
Operations Corp., the first preferred shares of Harvest Operations Corp. and any other shares ranking junior to the Exchangeable Shares with respect to the payment of dividends and the
distribution of assets in the event of the liquidation dissolution or winding up of Harvest Operations Corp. 

        The
Trust Indenture provides that the Trustee shall not be permitted to amend the Articles of Harvest Operations Corp. to change its authorized share capital without the approval of
Unitholders by a special resolution at a meeting of Unitholders called for that purpose. Accordingly, at the Meeting, Unitholders will be asked to consider and, if thought fit, to approve the
following special resolution (the "Harvest Share Resolution") to authorize the amendment of the Articles of Harvest Operations Corp.: 

"BE
IT RESOLVED as a special resolution of Unitholders of Harvest Energy Trust that: 

1.     the
articles of incorporation of Harvest Operations Corp. ("Harvest") be amended pursuant to Section 173(1)(d) of the Business Corporations
Act (Alberta) to create a new class of exchangeable shares, issuable in series (the "Exchangeable Shares") having the rights, privileges and restrictions as approved by the
Board of Directors of Harvest including those described in the Information Circular — Proxy Statement of Harvest Energy Trust dated May 12, 2004; 

2.     subject
to the implementation of this special resolution as set forth in paragraph no. 3 below, this special resolution shall be effective as of the date of its approval by the
Unitholders; and 

3.     the
proper officers of Harvest and/or the Trustee, on behalf of the Trust, be and they are hereby authorized and directed to execute, deliver and file all such documents and other
instruments and to otherwise do and perform all such acts and things as they determine to be necessary or desirable for the implementation of this special resolution, at such times as they may
determine, provided that the directors of Search may, in their discretion and without further approval of the Unitholders, revoke and rescind this special resolution or any of the amendments to the
Trust Indenture contemplated therein before it is acted upon." 

        The
Board of Directors of Harvest Operations Corp. recommends that Unitholders approve the above resolution. If the resolution is passed, Unitholders are hereby informed that Harvest
Operations Corp. will pass a shareholders' resolution in writing to amend the Articles of Harvest Operations Corp. pursuant to the Business Corporations
Act (Alberta) to create the new class of Exchangeable Shares. 

        In
order for the foregoing resolution to be passed, it must be approved by not less than 662/3% of the votes cast by Unitholders who vote in person or by proxy at the
Meeting. 

        The
persons named in the Instrument of Proxy furnished by Harvest Management intend, unless other directed, to vote in favour of the resolution authorizing the amendment of the Articles
of Harvest Operations Corp. to create the new class of Exchangeable Shares. 

REPORT ON EXECUTIVE COMPENSATION  

        The Trust's compensation plan for the executive officers of Harvest Operations Corp. has consisted of a combination of base salary, bonuses and the grant of
rights under the Trust's Unit Incentive Plan. The Compensation Committee, when making such salary, bonus and other incentive determinations, takes into consideration individual salaries, bonuses and
benefits paid to executives of other Canadian conventional oil and natural gas trusts and mid-sized oil and natural gas companies with a view to ensuring that such overall compensation
packages are competitive. Such information is obtained from the Mercer Human Resource Consulting annual Canadian oil and gas industry salaries and benefits survey which is prepared by independent
consultants who regularly review compensation practices in Canada. 

        The
foregoing report is respectfully submitted to Unitholders by the Compensation Committee: 

John
A. Brussa

M. Bruce Chernoff

Hector J. McFadyen 

9

 

EXECUTIVE COMPENSATION  

Summary Compensation Table  

        Harvest Operations Corp. currently has four executive officers, three of whom received annual salaries of $120,000, $100,000 and $100,000, respectively, for the
calendar years ending December 31, 2002 and December 31, 2003. All officers have received and also are eligible to receive rights to purchase Trust Units in the future in accordance with
the Trust's Unit Incentive Plan. 

        The
following table sets forth information concerning the compensation paid to the President of Harvest Operations Corp. and the other two officers of Harvest Operations Corp. who
received compensation in excess of $100,000 during the year ended December 31, 2003 (collectively, the "Named Executive Officers"). 

	 
	 	 
	 	Annual Compensation
	 	 
	 	 

	Name and Principal Position
 
	 	Year
	 	Salary

($)
	 	Bonus

($)
	 	Other Annual Compensation

($)
	 	Securities Under Rights Granted

(#)
	 	All Other Compensation

($)

	 Jacob Roorda(1)

President	 	2003

2002	 	120,000

50,000	 	112,560

Nil	 	16,956

6,699	 	Nil

175,000	 	Nil

Nil
	 J.A. Ralston(3)

Vice President, Operations	 	2003

2002	 	100,000

45,834	 	112,560

Nil	 	14,744

4,583	 	Nil

175,000	 	Nil

Nil
	 David M. Fisher(4)

Vice President, Finance	 	2003

2002	 	100,000

20,833	 	70,350

Nil	 	14,744

2,083	 	Nil

125,000	 	Nil

Nil

Notes: 

	(1)
	Mr. Roorda
was appointed the President of Harvest Operations Corp. on August 1, 2002.

	(2)
	Harvest
Operations Corp. did not commence active business until July, 2002. Prior to Mr. Roorda's appointment, Mr. Chernoff was the President of Harvest Operations Corp.
Mr. Chernoff did not receive any compensation, including rights under the Trust's Unit Incentive Plan, for acting as President of Harvest Operations Corp.

	(3)
	Mr. Ralston
was appointed Vice President, Operations of Harvest Operations Corp. on August 1, 2002.

	(4)
	Mr. Fisher
was appointed Vice President, Finance of Harvest Operations Corp. on October 7, 2002. 

Incentive Rights Granted  

        The following table sets forth the details with respect to all Incentive Rights granted to the Named Executive Officers during the fiscal year ended
December 31, 2003. 

	Name
 
	 	Securities Under Rights
	 	% of Total Rights Granted to Employees in Financial Year
	 	Exercise or Base Price ($/Security)
	 	Market Value of Securities Underlying Rights on the Date of Grant

($/Security)
	 	Expiration Date

	Jacob Roorda	 	Nil	 	N/A	 	N/A	 	N/A	 	N/A
	J.A. Ralston	 	Nil	 	N/A	 	N/A	 	N/A	 	N/A
	David M. Fisher	 	Nil	 	N/A	 	N/A	 	N/A	 	N/A

10

 

        The
following table sets forth with respect to the Named Executive Officers, the number of Incentive Rights exercised, the number of unexercised Incentive Rights and the value of
in-the-money Incentive Rights based upon the closing price of the Trust Units of $14.07 on December 31, 2003. 

	Name
 
	 	Securities acquired on exercise (#)
	 	Aggregate Value Realized ($)
	 	Unexercised unit rights at year-end

(#)

exerciseable/unexercisable
	 	Value of unexercised in-the-money unit rights at year-end(1) ($) exerciseable/unexercisable

	Jacob Roorda	 	Nil	 	N/A	 	43,750 / 131,250	 	370,563 / 1,111,687
	J.A. Ralston	 	Nil	 	N/A	 	43,750 / 131,250	 	370,563 / 1,111,687
	David M. Fisher	 	Nil	 	N/A	 	31,250 / 93,750	 	264,688 / 794,062

Note: 

	(1)
	Based
on the difference between the closing price of $14.07 per Trust Unit on the TSX on December 31, 2003 and the grant price of the Incentive Right less distributions per
Trust Unit paid after the date the Incentive Right was granted multiplied by the number of Trust Units under the Incentive Right. 

REMUNERATION OF DIRECTORS  

        Each of the directors of Harvest Operations Corp. are paid an annual retainer of $10,000, $500 for each board meeting attended, $500 for each committee meeting
attended if on a different date than the date that a board meeting is held and are entitled to reimbursement for expenses incurred in carrying out their duties as directors. Each director can elect to
take his remuneration in the form of cash or, subject to the approval of the Directors and Officers Compensation Plan, a deferred grant of Trust Units. The directors are also entitled to participate
in
the Trust's Unit Incentive Plan and, subject to the approval of the Unit Award Plan, to participate in the Unit Award Plan. 

EMPLOYMENT CONTRACTS  

        Harvest Operations Corp. has not entered into employment agreements with any of its officers or senior employees. However, Harvest Operations Corp. intends to
enter into employment agreements with each of its senior officers and such agreements are expected to contain industry standard severance and change of control provisions. 

INDEBTEDNESS OF DIRECTORS AND SENIOR OFFICERS AND OTHERS  

        At no time since incorporation has there been any indebtedness of any director or officer of Harvest Operations Corp., or any associate of any such director or
officer, to Harvest Operations Corp. or the Trust or to any other entity which is, or at any time since the beginning of the most recently completed financial period has been, the subject of a
guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by Harvest Operations Corp. or the Trust. 

INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS  

        There are no material interests, direct or indirect, of insiders of the Trust, proposed nominees for election as directors, or any associate or affiliate of such
insiders or nominees since January 1, 2003, or in any proposed transaction which is materially affected or would materially affect the Trust or any of its subsidiaries except as set forth
below. 

        On
January 24, 2003 Caribou Capital Corp., a corporation controlled by M. Bruce Chernoff (a director and Chairman of Harvest Operations Corp.), exercised warrants to purchase
150,000 trust units for proceeds of $150,000. The warrants were granted in respect of debt financing provided by Caribou Capital Corporation to the Trust in 2002. 

        On
February 4, 2003, Mr. Chernoff, Jacob Roorda (the President of Harvest Operations Corp.) and John Brussa (a director of Harvest Operations Corp.) acquired 167,750,
10,000 and 1,500 special common share purchase warrants of the Trust ("Special Warrants"), respectively, at a price of $10.00 per Special Warrant. Such Special Warrants were issued as part of the
offering of 1,500,000 Special Warrants by the Trust. The Special Warrants which were purchased by the individuals described above were acquired on the same terms that all other Special Warrants were
purchased. 

        On
July 28, 2003, the Trust entered into equity bridge notes ("Equity Bridge Notes") with Mr. Chernoff and Caribou Capital Corp., a company controlled by
Mr. Chernoff, which provided for advances of up to $40,000,000 to the Trust to assist in connection with the acquisition by Harvest Operations Corp. of certain oil and gas properties. On 

11

 

July 29,
2003, the Trust received $11,000,000 in advances pursuant to the Equity Bridge Notes to fund the deposit relating to the purchase of such properties. On September 29, 2003, the
Trust amended the Equity Bridge Notes to allow advances to be used to pay out Harvest Operations Corp.'s then existing credit facility and entered into bridge notes (the "Bridge Notes") with
Mr. Chernoff and Caribou Capital Corp. providing for advances of up to $30,000,000 to the Trust to assist with the payout of Harvest Operations Corp.'s then existing credit facility and to
assist in connection with the acquisition by Harvest Operations Corp. of certain oil and gas properties. On September 29, 2003, the Trust received additional advances under the Equity Bridge
Notes in the amount of $22,500,000 and also received advances of $25,000,000 under the Bridge Notes. These amounts were advanced by the Trust to Harvest Operations Corp. on September 30, 2003,
and used to payout, in part, the approximately $48,100,000 owing under Harvest Operation Corp.'s then existing credit facility. On October 1, 2003, the $11,000,000 deposit with respect to the
properties was refunded and this amount was used to partially repay $11,000,000 of principal in respect of the Bridge Notes. On October 16, 2003, the Corporation repaid $8,500,000 of the Equity
Bridge Notes and approximately $14,000,000 was used to repay in full the Bridge Notes. On January 2, 2004 the Trust paid $665,068 in accrued interest in respect of equity bridge principal
outstanding during the fourth quarter of 2003. On January 26 and 29, 2004 the Trust repaid the remaining $25,000,000 of equity bridge principal amounts outstanding and paid $185,232 of interest
accrued since December 31, 2003. 

        On
October 16, 2003, David M. Fisher (the Vice President, Finance of Harvest Operations Corp.) and certain family trusts for which Mr. Fisher is the executor and
administrator acquired 20,250 Trust Units at a price of $12.00 per Trust Unit. Such Trust Units were issued as part of the October 7, 2003 offering in which a total of 4,312,500 Trust Units
were issued by the Trust. The Trust Units which were purchased by Mr. Fisher and the family trusts were acquired on the same terms that all other Trust Units were acquired under the
October 7, 2003 offering. 

        On
January 29, 2004, Mr. Chernoff acquired $4,500,000 principal amount of 9% Convertible Unsecured Subordinated Debentures (the "Debentures") at a price of $1,000 per
Debenture. The Debentures acquired were issued as part of the January 21, 2004 Debenture offering in which a total of $60,000,000 principal amount of Debentures were issued by the Trust. The
Debentures purchased by Mr. Chernoff were acquired on the same terms and conditions as all other Debentures issued under the January 21, 2004 offering. 

INTEREST OF CERTAIN PERSONS AND COMPANIES IN MATTERS TO BE ACTED UPON  

        Harvest Management is not aware of any material interest of any director, senior officer or nominee for director of Harvest Operations Corp., or of any associate
or affiliate of any of the foregoing, in respect of any matter to be acted on at the Meeting except as disclosed herein. 

OTHER MATTERS  

        Harvest Management knows of no amendment, variation or other matter to come before the Meeting other than the matters referred to in the Notice of Annual and
Special Meeting; however, if any other matter properly comes before the Meeting, the accompanying proxy will be voted on such matter in accordance with the best judgment of the person or persons
voting the proxy. 

APPROVAL AND CERTIFICATION  

        The contents and sending of this Information Circular — Proxy Statement has been approved by the Board of Directors of
Harvest Operations Corp. on behalf of the Trust. 

        The
foregoing contains no untrue statement of a material fact and does not omit to state a material fact that is required to be stated or that is necessary to make a statement not
misleading in light of the circumstances in which it was made. 

        DATED
May 12, 2004. 

 
 

HARVEST ENERGY TRUST
  By: Harvest Operations Corp.    
    

	(signed) JACOB ROORDA, P. ENG.

President	 	(signed) DAVID M. FISHER, C.A.

Vice President, Finance

12

 
 

SCHEDULE "A"
  
    UNIT AWARD INCENTIVE PLAN    
    

        The Board of Directors of Harvest Operations Corp. (the "Corporation") has adopted this Unit Award Incentive Plan
(the "Plan") for Harvest Energy Trust (the "Trust") governing the issuance of Units (as defined herein)
of the Trust to directors, officers, employees and consultants of the Trust and the Trust Affiliates (as defined herein). 

1.     Purposes  

        The principal purposes of the Plan are as follows: 

	(a)
	to
retain and attract qualified directors, officers, employees and other service providers that the Trust and the Trust Affiliates require;

	(b)
	to
promote a proprietary interest in the Trust by such directors, officers, employees and service providers and to encourage such individuals to remain in the employ of the Trust and
the Trust Affiliates and put forth maximum efforts for the success of the business of the Trust; and

	(c)
	to
focus management of the Trust and the Trust Affiliates on operating and financial performance and total long-term Unitholder return. 

2.     Definitions  

        As used in this Plan, the following words and phrases shall have the meanings indicated: 

	(a)
	"Adjustment Ratio" means, with respect to any Unit Award, the ratio used to adjust the number of Units to be issued on the applicable
Issue Date(s) pertaining to such Unit Award determined in accordance with the terms of the Plan; and, in respect of each Unit Award, the Adjustment Ratio shall initially be equal to one, and shall be
cumulatively adjusted thereafter by increasing the Adjustment Ratio on each Distribution Payment Date by an amount, rounded to the nearest five decimal places, equal to a fraction having as its
numerator the Distribution, expressed as an amount per Unit, paid on that Distribution Payment Date multiplied by the Adjustment Ratio immediately prior to the Distribution Payment Date, and having as
its denominator of the Fair Market Value of the Units immediately preceding that Distribution Payment Date;

	(b)
	"Board" means the board of directors of the Corporation as it may be constituted from time to time;

	(c)
	"Change of Control" means:

	(i)
	a
successful take over-bid;

	(ii)
	any
change in the beneficial ownership or control of the outstanding securities or other interests which results in:

	(A)
	a
person or group of persons "acting jointly or in concert" (as defined in the Securities Act (Alberta), as amended from time to time),
or

	(B)
	an
"affiliate" or "associate" (each as defined in the Securities Act (Alberta), as amended from time to time) of such person or group
of persons, 

holding,
owning or controlling, directly or indirectly, more than 50% of the outstanding voting securities or interests of the Trust, other than as a result of a transaction or series of transactions
approved by the Incumbent Directors unless such holding, owning or controlling, exceeds 50% of the outstanding voting securities or interests of the Trust, 

	(iii)
	Incumbent
Directors no longer constituting a majority of the Board,

	(iv)
	the
sale, lease or transfer of all or substantially all of the directly or indirectly held assets of the Trust to any other person or persons (other than pursuant to an
internal reorganization), or

	(v)
	any
determination by a majority of the Board that a Change of Control has occurred or is about to occur and any such determination shall be binding and conclusive for
all purposes of the Plan;

	(d)
	"Committee" has the meaning set forth in Section 3 hereof provided that if the Compensation Committee or another committee is
not appointed or authorized to administer the Plan by the Board, all references in the Plan to the Committee will be deemed to be references to the Board; 

 

	(e)
	"Consultant" means a person or company, other than an employee, senior officer or director of the Trust that:

	(i)
	is
engaged to provide services to the Trust or a Trust Affiliate;

	(ii)
	provides
the services under a written contract with the Trust or a Trust Affiliate; and

	(iii)
	spends
or will spend a significant amount of time and attention on the affairs and business of the Trust or a Trust Affiliate; 

and
includes, for an individual consultant, a company of which the individual consultant is an employee or shareholder, and a partnership of which the individual consultant is an employee or partner; 

	(f)
	"Disability" in respect of a Grantee means that such Grantee is receiving benefits under any long term disability plan of the
Corporation or a Trust Affiliate;

	(g)
	"Distribution" means a distribution paid by the Trust in respect of the Units, expressed as an amount per Unit;

	(h)
	"Distribution Payment Date" means any date that a Distribution is distributed to Unitholders;

	(i)
	"Distribution Record Date" means the applicable record date in respect of any Distribution used to determine the Unitholders entitled
to receive such Distribution;

	(j)
	"Exchange" means the Toronto Stock Exchange or such other stock exchange on which the Units are then listed and posted for trading from
time to time;

	(k)
	"Fair Market Value" with respect to a Unit, means the arithmetic average of the daily volume weighted average trading prices of the
Units on the Toronto Stock Exchange for the trading days in the Trading Period on which at least a board lot of Units is traded, appropriately adjusted for certain capital changes (including Unit
subdivisions, Unit consolidations, certain rights offerings and certain distributions).

	(l)
	"Grantee" has the meaning set forth in Section 4 hereof;

	(m)
	"Incumbent Directors" means any member of the Board who was a member of the Board at the effective date of the Plan and any successor
to an Incumbent Director who was recommended or elected or appointed to succeed any Incumbent Director by the affirmative vote of the Board, including a majority of the Incumbent Directors then on the
Board, prior to the occurrence of the transaction, transactions, elections or appointments giving rise to a Change of Control;

	(n)
	"Issue Date" means, with respect to any Unit Award, the date upon which Units awarded thereunder shall be issued to the Grantee of such
Unit Award;

	(o)
	"Peer Comparison Group" means, generally, comparable public Canadian oil and gas issuers that are competitors of the Trust and which
shall be determined from time to time by the Committee;

	(p)
	"Retirement" shall have such meaning as the Committee or the Board shall determine from time to time but, for greater certainty, shall
not include any of the events described in paragraphs 6(d)(i), (ii), (iii) or (v);

	(q)
	"Service Provider" has the meaning set forth in Section 4 hereof;

	(r)
	"Settlement Amount" has the meaning set forth in Section 6(c) hereof;

	(s)
	"takeover bid" means a "take-over bid" as defined in the Securities Act
(Alberta), as amended from time to time, pursuant to which the "offeror" would as a result of such take-over bid, if successful, beneficially own, directly or indirectly, in excess of 50%
of the outstanding Units;

	(t)
	"Total Unitholder Return" means, with respect to any period, the total return to Unitholders on the Units calculated using cumulative
distributions on a reinvested basis and the change in the trading price of the Units on the Exchange over such period;

	(u)
	"Trading Period" means the period commencing on the second business day after the Distribution Record Date and ending on the second
business day immediately prior to the Distribution Payment Date. Such period will not include more than 20 trading days and the last trading day of the period will be the second business day prior to
the Distribution Payment Date. 

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	(v)
	"Trust Affiliate" means a corporation, partnership or trust that is affiliated with the Corporation or the Trust (within the meaning of
the Securities Act (Alberta), and for the purpose of this definition, a corporation, partnership or trust is affiliated with another corporation,
partnership or trust if it directly or indirectly controls or is directly or indirectly controlled by that other corporation, partnership or trust through the ownership of securities;

	(w)
	"Unit Award" means an award of Units under the Plan, which Units shall be issued on the Issue Date(s) determined in accordance with
Section 6(b)(i) hereof, subject to adjustment pursuant to the provisions of such Section 6(b)(i);

	(x)
	"Unit Award Agreement" has the meaning set forth in Section 6 hereof;

	(y)
	"Unitholder" means a holder of Units; and

	(z)
	"Units" means trust units of the Trust. 

3.     Administration  

        The Plan shall be administered by the Compensation Committee of the Board or such other committee as the Board considers appropriate (the
"Committee"). 

        The
Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers
and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation: 

	(a)
	the
authority to determine Unit Awards;

	(b)
	to
determine the Fair Market Value of the Units on any date;

	(c)
	to
determine the Service Providers to whom, and the time or times at which Unit Awards shall be granted;

	(d)
	to
determine the number of Units to be covered by each Unit Award;

	(e)
	to
determine the Peer Comparison Group at any time;

	(f)
	to
prescribe, amend and rescind rules and regulations relating to the Plan;

	(g)
	to
interpret the Plan;

	(h)
	to
determine the terms and provisions of Unit Award Agreements (which need not be identical) entered into in connection with Unit Awards; and

	(i)
	to
make all other determinations deemed necessary or advisable for the administration of the Plan. 

        The
determinations of the Committee shall be subject to review and approval by the Board. The Committee may delegate to one or more of its members or to one or more agents such
administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any
responsibility the Committee or such person may have under the Plan. 

        For
greater certainty and without limiting the discretion conferred on the Committee pursuant to this Section, the Committee's determination to approve the grant of a Unit Award in any
year shall not require the Committee to make a determination to approve the grant of a Unit Award to any Service Provider in any other year; nor shall the Committee's decision with respect to the size
or terms and conditions of a Unit Award in any year require it to make a determination to approve the grant of a Unit Award of the same or similar size or with the same or similar terms and conditions
to any Service Provider in any other year. The Committee shall not be precluded from make a determination to approve the grant of a Unit Award to any Service Provider solely because such Service
Provider may previously have been granted a Unit Award under this Plan or any other similar compensation arrangement of the Trust or a Trust Affiliate. No Service Provider has any claim or right to be
granted a Unit Award 

4.     Eligibility and Award Determination  

        Unit Awards may be granted only to persons, firms or corporations who are full-time employees, senior officers, directors or Consultants of the Trust
or any Trust Affiliates (collectively, "Service Providers"); provided, however, that the participation of a Service Provider in the Plan is voluntary.
In determining the Service Providers to whom Unit Awards may be granted ("Grantees") and the number of Units to be covered by each Unit Award, the
Committee 

A-3

 

may
take into account such factors as it shall determine in its absolute discretion including, if so determined by the Committee, any one or more of the following factors: 

	(a)
	compensation
data for comparable benchmark positions among the Peer Comparison Group;

	(b)
	the
duties and seniority of the Grantee;

	(c)
	performance
measures of the Trust compared with similar performance measures of members of the Peer Comparison Group for the most recently completed fiscal year;

	(d)
	the
individual contributions and potential contributions of the Grantee to the success of the Trust;

	(e)
	any
cash bonus payments paid or to be paid to the Grantee in respect of his or her individual contributions and potential contributions to the success of the Trust;

	(f)
	the
Fair Market Value or current market price of the Units at the time of such Unit Award; and

	(g)
	such
other factors as the Committee shall deem relevant in its sole discretion in connection with accomplishing the purposes of the Plan. 

5.     Reservation of Units  

        Subject to Section 6(f) of the Plan, the number of Units reserved for issuance from time to time pursuant to Unit Awards shall not exceed 150,000. 

6.     Terms and Conditions of Unit Awards  

        Each Unit Award granted under the Plan shall be subject to the terms and conditions of the Plan and evidenced by a written agreement between the Trust and the
Grantee (a "Unit Award Agreement"), which agreement shall comply with, and be subject to, the requirements of the Exchange and the following terms and
conditions (and
with such other terms and conditions not inconsistent with the terms of this Plan as the Committee or the Board, in its discretion, shall establish): 

	(a)
	Number and Type of Units — The Committee shall determine the number of Units to be awarded to a
Grantee pursuant to the Unit Award in accordance with the provisions set forth in Section 4 of the Plan; provided, however, that no one Service Provider may be granted any Unit Award if such
grant could result, at any time, in (i) the number of Trust Units reserved for issuance pursuant to issuances under the Plan in respect of Trust Units granted to insiders of the Trust exceeding
10% of the aggregate issued and outstanding Trust Units, (ii) the issuance to insiders of the Trust pursuant to the Plan and all other established or proposed share compensation arrangements,
within a one year period, of a number of Trust Units exceeding 10% of the aggregate issued (as defined by the Toronto Stock Exchange Company Manual) and outstanding Trust Units, (iii) the
issuance pursuant to the Plan and all other established or proposed share compensation arrangements to any one insider of the Trust, or such insider's associates, within a one year period, of a number
of Trust Units exceeding 5% of the aggregate issued and outstanding Trust Units, or (iv) the issuance pursuant to the Plan to any one person of a number of Trust Units exceeding 5% of the
aggregate issued and outstanding Trust Units.

	(b)
	Issue Dates and Adjustment of Unit Awards

	(i)
	Subject
to Section 6(d) hereunder, with respect to any Unit Award, the Issue Dates for the issuance of Units thereunder shall be as follows:

	(A)
	as
to one-fourth of the Units awarded pursuant to such Unit Award, on the first anniversary of the date of the Unit Award;

	(B)
	as
to one-fourth of the Units awarded pursuant to such Unit Award, on the second anniversary of the date of the Unit Award;

	(C)
	as
to one-fourth of the Units awarded pursuant to such Unit Award, on the third anniversary of the date of the Unit Award; and

	(D)
	as
to the remaining one-fourth of the Units awarded pursuant to such Unit Award, on the fourth anniversary of the date of the Unit Award; 

A-4

 

provided,
however, that: 

	(I)
	in
the event of any Change of Control prior to the Issue Dates determined in accordance with the above provisions of this Section 6(b)(i), the Issue Date for all
Units awarded pursuant to such Unit Award that have not yet been issued as of such time shall be the earlier of (i) the next applicable Issue Date determined in accordance with the above
provisions, and (ii) the date which is immediately prior to the date upon which a Change of Control is completed; and

	(II)
	immediately
prior to each Issue Date, the number of Units to be issued on such Issue Date shall be adjusted by multiplying such number by the Adjustment Ratio
applicable in respect of such Unit Award. 

Notwithstanding
any other provision of this Plan, but subject to the limits described in Sections 5 and 6(a) hereof and any other applicable requirements of the Exchange or other
regulatory authority, the Board hereby reserves the right to make any additional adjustments to the number of Units to be issued pursuant to any Performance Award if, in the sole discretion of the
Board, such adjustments are appropriate in the circumstances having regard to the principal purposes of the Plan. 

	(ii)
	Notwithstanding
any other provision of this Plan, the Board may, in its sole discretion, accelerate the Issue Date for all or any Unit Awards at any time and from time
to time.

	(c)
	Surrender of Units — At any time when the Units are listed and posted for trading on the
Exchange, a Grantee may elect on any Issue Date pertaining to a Unit Award, subject to the consent of the Board, that the Trust pay an amount in cash equal to the aggregate current market value of the
Units (as adjusted in accordance with the relevant provisions set forth in Section 6(b) and based on the closing price of the Units on the Exchange on the trading day immediately
preceding such Issue Date) (the "Settlement Amount") in consideration for the surrender by the Grantee to the Trust of the right to receive Units under
such Unit Award. Following such election and the acceptance thereof by the Trust, the Trust shall cause a cheque to be issued payable to the Grantee (or as the Grantee may direct) in the Settlement
Amount (subject to Section 7 hereof) and sent by pre-paid mail or delivered to the Grantee. The Trust and the Grantee may also agree that all or a portion of the Settlement Amount
may be satisfied in whole or in part in Units in which case the number of Units that are issuable to the Grantee on the Issue Date shall be acquired by the Corporation on the Exchange or from the
Trust, as an issuance of treasury Units, or a combination thereof; provided, however, that the aggregate number of Units that may be so acquired on the Exchange within any 12 month period shall
not exceed 5% of the outstanding Units as at the beginning of such period and within any 30 day period shall not exceed 2% of the issued and outstanding Units at the beginning of such period
and such purchases on the Exchange shall also be subject to any other applicable rules and requirements of the Exchange. The Corporation shall be entitled to withhold from the Settlement Amount all
amounts as may be required by law and in the manner contemplated by Section 7 hereof.

	(d)
	Termination of Relationship as Service Provider — Unless otherwise provided in a Unit Award
Agreement pertaining to a particular Unit Award or any written employment agreement governing a Grantee's role as a Service Provider, the following provisions shall apply in the event that a Grantee
ceases to be a Service Provider:

	(i)
	Termination for cause — If a Grantee ceases to be a
Service Provider as a result of termination for cause, effective as of the date notice is given to the Grantee of such termination, all outstanding Unit Award Agreements under which Unit Awards have
been made to such Grantee shall be terminated and all rights to receive Units thereunder shall be forfeited by the Grantee.

	(ii)
	Termination not for cause — If a Grantee ceases to be
a Service Provider as a result of being terminated other than a termination for cause, effective as of the last day of any notice period applicable in respect of such termination, all outstanding Unit
Award Agreements under which Unit Awards have been made to such Grantee shall be terminated and all rights to receive Units thereunder shall be forfeited by the Grantee, unless otherwise approved by
the Board.

	(iii)
	Disability or Voluntary Resignation — If a Grantee
voluntarily ceases to be a Service Provider for any reason other than such Grantee's Retirement or death, effective as of the later of: (A) last day of any notice period applicable in respect
of such voluntary resignation; or (B) the date which is thirty 

A-5

 

(30) days
after the date that the Grantee ceases t be a Service Provider, all outstanding Unit Award Agreements under which Unit Awards have been made to such Grantee shall be terminated; and
all rights to receive Units thereunder shall be forfeited by the Grantee provided, however, that notwithstanding the foregoing, the right to receive Units under a Unit Award shall not be affected by a
change of employment or term of office or appointment within or among the Trust or a Trust Affiliate so long as the Grantee continues to be a Service Provider. 

	(iv)
	Retirement — If a Grantee ceases to be a Service
Provider as a result of such Grantee's Retirement, the Issue Date for all Units awarded to such Grantee under any outstanding Unit Award Agreements shall be as of the date such Grantee ceases to be a
Service Provider as a result of such Grantee's Retirement.

	(v)
	Death — If a Grantee ceases to be a Service Provider
as a result of such Grantee's death, the Issue Date for all Units awarded to such Grantee under any outstanding Unit Award Agreements shall be as of the date of such Grantee's death.

	(e)
	Rights as a Unitholder — Until the Units granted pursuant to any Unit Award have been issued in
accordance with the terms of the Plan, the Grantee to whom such Unit Award has been made shall not possess any incidents of ownership of such Units including, for greater certainty and without
limitation, the right to receive Distributions on such Units and the right to exercise voting rights in respect of such Units. Such Grantee shall only be considered a Unitholder in respect of such
Units when such issuance has been entered upon the records of the duly authorized transfer agent of the Trust.

	(f)
	Effect of Certain Changes — In the event:

	(i)
	of
any change in the Units through subdivision, consolidation, reclassification, amalgamation, merger or otherwise;

	(ii)
	that
any rights are granted to Unitholders to purchase Units at prices substantially below Fair Market Value; or

	(iii)
	that,
as a result of any recapitalization, merger, consolidation or other transaction, the Units are converted into or exchangeable for any other securities; 

then,
in any such case, the Board may make such adjustments to the Plan, to any Unit Awards and to any Unit Award Agreements outstanding under the Plan as the Board may, in its sole discretion,
consider appropriate in the circumstances to prevent dilution or enlargement of the rights granted to Grantees hereunder. 

7.     Withholding Taxes  

        When a Grantee or other person becomes entitled to receive Units under, or any Settlement Amount in respect of any Unit Award Agreement, the Trust shall have the
right to require the Grantee or such other person to remit to the Trust an amount sufficient to satisfy any withholding tax requirements relating thereto. Unless otherwise prohibited by the Committee
or by applicable law, satisfaction of the withholding tax obligation may be accomplished by any of the following methods or by a combination of such methods: 

	(a)
	the
tendering by the Grantee of cash payment to the Trust in an amount less than or equal to the total withholding tax obligation; or

	(b)
	the
withholding by the Corporation or the Trust, as the case may be, from the Units otherwise due to the Grantee such number of Units having a Fair Market Value, determined as of the
date the withholding tax obligation arises, less than or equal to the amount of the total withholding tax obligation; or

	(c)
	the
withholding by the Corporation or the Trust, as the case may be, from any cash payment otherwise due to the Grantee such amount of cash as is less than or equal to the amount of
the total withholding tax obligation; 

provided,
however, that the sum of any cash so paid or withheld and the Fair Market Value of any Units so withheld is sufficient to satisfy the total withholding tax obligation. 

A-6

 

8.     Non-Transferability  

        Subject to Section 6(d)(v), the right to receive Units pursuant to a Unit Award granted to a Service Provider may only be exercised by such Service
Provider personally. Except as otherwise provided in this Plan, no assignment, sale, transfer, pledge or charge of a Unit Award, whether voluntary, involuntary, by operation of law or otherwise, vests
any interest or right in such Unit Award whatsoever in any assignee or transferee and, immediately upon any assignment, sale, transfer, pledge or charge or attempt to assign, sell, transfer, pledge or
charge, such Unit Award shall terminate and be of no further force or effect. 

9.     Amendment and Termination of Plan  

        The Corporation retains the right to amend from time to time or to terminate the terms and conditions of the Plan by resolution of the Board. Any amendments shall
be subject to the prior consent of any applicable regulatory bodies, including the Exchange. Any amendment to the Plan shall take effect only with respect to Unit Awards granted after the effective
date of such amendment, provided that it may apply to any outstanding Unit Awards with the mutual consent of the Corporation and the Service Providers to whom such Unit Awards have been made. 

10.   Effective Date  

        The Plan shall take effect on May 12, 2004, upon the acceptance of the Plan by the Exchange and any other relevant regulatory authority and receipt of the
approval of Unitholders. 

11.   Miscellaneous  

	(a)
	Effect of Headings — The section and subsection headings contained herein are for convenience
only and shall not affect the construction hereof.

	(b)
	Compliance with Legal Requirements — The Trust shall not be obliged to issue any Units if such
issuance would violate any law or regulation or any rule of any government authority or stock exchange. The Corporation, in its sole discretion, may postpone the issuance or delivery of Units under
any Unit Award as the Board may consider appropriate, and may require any Grantee to make such representations and furnish such information as it may consider appropriate in connection with the
issuance or delivery of Units in compliance with applicable laws, rules and regulations. The Trust shall not be required to qualify for resale pursuant to a prospectus or similar document any Units
awarded under the Plan, provided that, if required, the Trust shall notify the Exchange and any other appropriate regulatory bodies in Canada of the existence of the Plan and the granting of Unit
Awards hereunder in accordance with any such requirements.

	(c)
	No Right to Continued Employment — Nothing in the Plan or in any Unit Award Agreement entered
into pursuant hereto shall confer upon any Grantee the right to continue in the employ or service of the Trust or any Trust Affiliates, to be entitled to any remuneration or benefits not set forth in
the Plan or a Unit Award Agreement or to interfere with or limit in any way the right of the Trust or any Trust Affiliate to terminate Grantee's employment or service arrangement with the Trust or any
Trust Affiliate.

	(d)
	Ceasing to be a Trust Affiliate — Except as otherwise provided in this Plan, Unit Awards granted
under this Plan shall not be affected by any change in the relationship between or ownership of the Corporation and a Trust Affiliate. For greater certainty, all Unit Awards remain valid and
exercisable in accordance with the terms and conditions of this Plan and are not affected by reason only that, at any time, any corporation, partnership or trust ceases to be a Trust Affiliate.

	(e)
	Expenses — All expenses in connection with the Plan shall be borne by the Trust. 

12.   Governing Law  

        The Plan shall be governed by and construed in accordance with the laws in force in the Province of Alberta. 

A-7

 
 

SCHEDULE "B"
  
    DIRECTORS AND OFFICERS COMPENSATION PLAN    
    

1.     Purpose of Plan  

        The directors and officers compensation plan (the "Plan") of Harvest Operations Corp. (the "Corporation") is intended to provide effective incentives for the
directors and officers of the Corporation to promote the success and business of Harvest Energy Trust (the "Trust") and to reward such the directors and officers of the Corporation in relation to the
long-term performance and growth of the Trust by encouraging ownership of trust units ("Trust Units") of the Trust. 

2.     Components of Plan  

        The Plan consists of two components as follows: 

	(a)
	a
deferred grant to each director of the Corporation of such number of Trust Units per calendar year which is approved by the Board of Directors of the Corporation (the "Board of
Directors") from time to time; and

	(b)
	a
deferred grant to such officers of the Corporation whom are approved by the Board of Directors of such number of Trust Units per calendar year as is approved by the Board of
Directors. 

3.     Form of Payment  

        Compensation payable pursuant to the Plan will be payable in the form of a deferred grant of Trust Units. 

4.     Issue of Trust Units  

        Trust Units which a director or officer is entitled to receive pursuant to the Plan will not be issued until the director or officer has delivered to the
Corporation an exercise election in writing that the Trust Units be issued together with payment to the Trust in the amount of $1.00. 

        A
director or officer will not be entitled to elect to be issued any of the Trust Units which he or she has been granted until a period of three years has passed since the date of grant
of such Trust Units or until the director or officer ceases to be a director or officer of the Corporation, whichever is earlier. Upon a director or officer ceasing to be a director or officer of the
Corporation, such director or officer shall be required to elect whether he or she will be issued all or any portion of the Trust Units which have been granted to him or her (and to deliver payment
for all of such Trust Units to be issued). 

        A
director or officer shall have no right to receive Trust Units granted to him or her which have not been issued on the date that is five years following the date of grant. 

        In
the event that Trust Units are to be issued to a director or officer as foresaid, the director or officer shall be required to either pay to the Corporation the amount of statutory
withholdings required to be remitted by the Corporation in respect of the subject issuance or to irrevocably authorize the Corporation to sell on the market or otherwise such number of Trust Units as
are necessary for the Corporation to remit such statutory withholdings. 

5.     Election  

        Notwithstanding Section 3 of this Plan, each director or officer who is eligible to receive a deferred grant of Trust Units pursuant to the Plan has the
right to elect in writing, prior to the grant to him or her of a deferred grant of Trust Units in any year, that the Trust Units to be issued to him or her under the Plan will be issued on
December 31 of the year in which such grant of Trust Units is made to him or her. 

        In
the event that Trust Units are to be issued to a director or officer as foresaid, the director or officer shall be required to either pay to the Corporation the amount of statutory
withholdings required to be remitted by the Corporation in respect of the subject issuance or to irrevocably authorize the Corporation to sell on the market or otherwise such number of Trust Units as
are necessary for the Corporation to remit such statutory withholdings. 

6.     Adjustment of Number of Trust Units  

        The number of Trust Units which are issuable to a director or officer pursuant to a deferred grant of Trust Units shall be increased on each the record date in
respect of a cash distribution to be paid to holders of Trust Units of the Trust by an amount equal to the product of the number of the Trust Units which remain issuable and the fraction which has as
its numerator the cash distribution paid, expressed as an amount per Trust Unit multiplied by the Trust Units issuable to such director or officer immediately prior to the record date for such cash
distribution and which has 

 

as
its denominator the weighted average trading price of Trust Units on the Toronto Stock Exchange for the trading period commencing on the second business day after the distribution record date and
ending on the second business day immediately prior to the distribution payment date. 

7.     Grant of Trust Units  

        Compensation paid to a director or officer pursuant to the Plan in the form of a deferred grant of Trust Units will be evidenced by an agreement between the
Corporation and the director or officer in a form which is approved by the Board of Directors from time to time. 

8.     Trust Units Subject to the Plan and Other Restrictions  

        The total number of Trust Units issuable pursuant to the Plan shall not exceed 100,000 of which the total number of Trust Units issuable pursuant to the Plan to
directors of the Corporation shall not exceed 100,000 and of which the total number of Trust Units issuable pursuant to the Plan to officers of the Corporation shall not exceed 100,000. No Trust Units
may be issued to a director or officer under the Plan if such issuance could result, at any time, in (i) the number of Trust Units reserved for issuance pursuant to issuances under the Plan in
respect of Trust Units granted to insiders of the Trust exceeding 10% of the aggregate issued and outstanding Trust Units, (ii) the issuance to insiders of the Trust pursuant to the Plan and
all other established or proposed share compensation arrangements (as defined in the Toronto Stock Exchange Company Manual), within a one year period, of a number of Trust Units exceeding 10% of the
aggregate issued and outstanding Trust Units, (iii) the issuance pursuant to the Plan and all other established or proposed share compensation arrangements (as defined in the Toronto Stock
Exchange Company Manual) to any one insider of the Trust, or such insider's associates, within a one year period, of a number of Trust Units exceeding 5% of the aggregate issued and outstanding Trust
Units, or (iv) the issuance pursuant to the Plan to any one person of a number of Trust Units exceeding 5% of the aggregate issued and outstanding Trust Units. 

9.     Eligibility and Determination  

        The Trust Units issuable under the Plan pursuant to deferred grants of Trust Units are reserved for directors or officers of the Corporation. 

10.   No Fractional Shares  

        No fractional Trust Units may be issued under the Plan and any entitlement hereunder to a fractional Common Share will be rounded down and no amount of money will
be payable by the Corporation in respect of such fractional interest. 

11.   Non-Transferability  

        The right to receive a deferred grant of Trust Units under the Plan may only be exercised by the director or officer to whom the grant has been made. Except as
otherwise provided in this Plan or in an agreement providing for a deferred grant of Trust Units pursuant to the Plan, no assignment, sale, transfer, pledge or charge of a grant, whether voluntary,
involuntary, by operation of law or otherwise, vest any interest or right in such grant whatsoever in any assignee or transferee and, immediately upon any assignment, sale, transfer, pledge or charge
or attempt to assign, sell, transfer, pledge or charge, such grant shall terminate and be of no further force or effect. 

12.   Administration  

        The Plan shall be administered by the Compensation Committee of the Board of Directors of the Trust. The Trust shall effect the deferred grant of Trust Units from
time to time under the Plan in accordance with the determinations made as to the number of Trust Units to be granted and the date of grant as provided for under the Plan. 

13.   Regulation  

        The Trust's obligation to issue and deliver Trust Units under the Plan is subject to compliance with all government and stock exchange regulations and
requirements. 

B-2

 

14.   Capital Reorganizations  

        If and whenever there shall be a capital reorganization of the Trust such as a Trust Unit subdivision, consolidation, reclassification, change or exchange of the
Trust Units, including as a result of any merger, arrangement, amalgamation or business combination with any other corporation or entity, the entitlement to Trust Units of any director or officer for
any applicable year, or portion thereof, shall be adjusted to take into account such capital reorganization. 

15.   Effective Date  

        Subject to the receipt of all regulatory approvals including, without limitation, the approval of the Toronto Stock Exchange and subject to the receipt of
approval of holders of Trust Units, the Plan will be effective on December 15, 2003 in respect of deferred grants to officers of the Corporation and effective on January 1, 2004 in
respect of grants to directors of the Corporation and shall remain in effect until such time as the Board of Directors amends or cancels the Plan which may occur at any time but not with retroactive
effect. Any amendment to the Plan will be subject to the receipt of all regulatory approvals. 

B-3

QuickLinks

Exhibit 4.2

HARVEST ENERGY TRUST INFORMATION CIRCULAR — PROXY STATEMENT FOR THE ANNUAL AND SPECIAL MEETING OF UNITHOLDERS TO BE HELD ON TUESDAY, JUNE 22, 2004

HARVEST ENERGY TRUST By: Harvest Operations Corp.

SCHEDULE "A" UNIT AWARD INCENTIVE PLAN

SCHEDULE "B" DIRECTORS AND OFFICERS COMPENSATION PLAN

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