Avenir Diversified Income Trust
TSX : AVF.UN

Avenir Diversified Income Trust

May 15, 2006 19:06 ET

Avenir Diversified Income Trust Posts First Quarter 2006 Results and Confirms Essential Trust Spin Out and Impact on Distributions

CALGARY, ALBERTA--(CCNMatthews - May 15, 2006) - AVENIR DIVERSIFIED INCOME TRUST ("Avenir Trust") (TSX:AVF.UN) is pleased to announce the financial and operational results for the three months ended March 31, 2006 and to announce they have filed the complete Management Discussion and Analysis and Unaudited Interim Consolidated Financial Statements for the three months ended March 31, 2006 on SEDAR. An electronic copy of these documents may be obtained on Avenir Trust's SEDAR profile at www.sedar.com.

On May 11, 2006, unitholder approval was received to effect the spin out of Avenir Trust's Energy Services division into a new, publicly traded, energy services trust called Essential Energy Services Trust ("Essential Trust") effective May 31, 2006. With the spin out of Essential Trust, the combined Essential Trust and Avenir Trust distribution will in effect result in an approximate 4% distribution increase over the current monthly Avenir Trust distribution. Avenir Trust unitholders of record May 31, 2006 will receive one (1) trust unit of Essential Energy for each two (2) trust units of Avenir previously held. Beginning with the June 2006 distribution, Essential Trust will pay approximately $0.083 per trust unit per month and the Avenir Trust will pay $0.083 per trust unit per month. Accordingly, for each Avenir trust unit held prior to the spin-out, a unitholder will receive an aggregate of $0.1245 ($0.083 + $0.083/2 = $0.1245) per month in distributions versus $0.12 per trust unit before the spin-out.



FIRST QUARTER 2006 FINANCIAL HIGHLIGHTS & REVIEW

------------------------------------------------------------------------
For the quarter ended March 31
------------------------------------------------------------------------
TOTAL CONSOLIDATED FINANCIAL
SUMMARY 2006 2005 Change
------------------------------------------------------------------------
Gross Revenue $188,762,997 $ 16,639,442 1034 %
Net Revenue $186,149,211 $ 8,979,798 1973 %
Funds From Operations (FFO)(1) $ 20,595,565 $ 7,278,944 183 %
FFO Per Unit(1) - Basic $ 0.51 $ 0.55 (7)%
Distributions $ 14,736,657 $ 4,190,081 252 %
Distributions Per Unit - Basic $ 0.37 $ 0.32 16 %
Distribution Payout Ratio(2) 72 % 58 % 24 %
Net Income (loss) $ 10,105,502 $ (603,882) 1773 %
Net Income (loss) Per Basic
Unit $ 0.25 $ (0.05) 600 %
Total Assets $567,627,819 $274,220,427 107 %
Working Cap. (Net Debt)
including mortgages(1) $(50,965,017) $ 46,218,631 (210)%
Wtd. Avg. Units Outstanding
- Basic 40,149,659 13,127,359 206 %
Units Outstanding (including
escrowed units) 41,421,450 24,398,573 70 %
------------------------------------------------------------------------
OIL & GAS OPERATIONS
------------------------------------------------------------------------
Production
Oil and NGL's -- bbls per day 1,714 1,637 5 %
Gas -- mcf per day 9,586 7,172 34 %
Total BOE(3) per day 3,312 2,832 17 %
Average Pricing
Oil & NGL ($/Bbl) before
hedging(4) $ 47.04 $ 44.66 5 %
Oil & NGL ($/Bbl) after
hedging(4) $ 41.14 $ 42.13 (2)%
Natural Gas ($/mcf) $ 8.10 $ 7.05 15 %
Average Price Per BOE(3) before
hedging(4) $ 47.04 $ 43.25 9 %
Average Price Per BOE(3) after
hedging(4) $ 43.98 $ 41.79 5 %
------------------------------------------------------------------------


(1) Funds from operations, Funds from operations per unit, net back, and working capital (net debt) are not recognized measures under Canadian generally accepted accounting principles (GAAP). Funds from operations is calculated by taking net income and adding back non-cash balances such as depletion, depreciation and amortization, asset retirement obligation accretion, (loss) gain on sale of property and equipment, stock based compensation expense, unrealized foreign exchange, unrealized (gain) loss on financial instruments, non-controlling interest and future income tax recovery. Working capital (net debt) is calculated by taking current assets less current liabilities including capital lease obligations, mortgages (upon mortgage maturity it is the Trust's intention to renew the mortgages on a long term basis at current rates) and long-term debt. Management believes that these measures are useful supplemental measures to analyze operating performance as they demonstrate the Trust's ability to generate the Funds from operations necessary to fund future distributions and capital investments. The Trust's method of calculating these measures may differ from other issuers, and accordingly, they may not be comparable to measures used by other issuers. Investors should be cautioned that "Funds from operations" and "Funds from operations per unit" should not be construed as an alternative to net income, cash flow from operating activities or other measures of financial performance calculated in accordance with GAAP.

(2) Distribution Payout Ratio is calculated by dividing the Distributions by the Funds from operations.

(3) Natural Gas conversion ratio of 6mcf:1bbl

(4) Hedging in this situation means the realized gain or loss on physical delivery contracts and financial commodity fixed price transaction

Forward Looking Statements

Except for historical financial and operating information contained herein, the matters discussed in this document may be considered forward-looking statements. Such statements include declarations regarding management's intent, belief or current expectations. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties; actual results could differ materially from those indicated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: (i) that the information is of a preliminary nature and may be subject to further adjustment, (ii) the possible unavailability of financing, (iii) risks related to the exploration and development of oil and gas properties, (iv) the impact of price fluctuations and the demand and pricing for oil and natural gas, (v) the seasonal nature of the business, (vi) start-up risks, (vii) general operating risks, (viii) dependence on third parties, (ix) changes in government regulation, (x) the effects of competition, (xi) dependence on senior management, (xii) financial condition of real estate tenants and financial services counterparts, (xiii) impact of the Canadian economic conditions or the demand for real estate leasing opportunities, (xiv) fluctuations in currency exchange rates and interest rates.

President's Message

Results for the first quarter were at or slightly ahead of forecast again proving the benefits of diversification as higher energy services and financial services cash flow offset lower realized commodity prices in our Oil and Gas division. In the Financial Services division we saw solid performances from both Elbow River and the EnerVest Group of companies. Elbow River's first quarter, although not outstanding like its fourth quarter numbers, sets us on track to meet or exceed our budget expectations despite an unseasonably warm winter propane season. EnerVest has added over $400 million to its assets under management since Avenir acquired the management contract in October 2005. The increase is a result of the completion of an exchangeable offering and a rights issue in its publicly-traded fund, a 2005 Flow through offering, as well as the addition of a new Oilsands Trust. EnerVest continues to evaluate both new fund and potential acquisition opportunities.

First quarter results in our Oil and Gas division were negatively impacted by lower natural gas prices and extremely wide differentials on our Southern Alberta medium crude. While natural gas prices have yet to recover to budget levels, oil differentials have narrowed substantially in the second quarter boding well for quarter two and three ahead. Our oil and gas group continues to work on several development projects within our current portfolio of greater than $40 million in projects which should add oil and gas production at approximately $20,000 per producing BOE per day through the balance of 2006. Current production is approximately 3,400 BOE per day or flat to fourth quarter 2005 and first quarter 2006 with about 100 BOE per day shut-in due to service work requirements. We have been disciplined in our approach to acquisitions, and continue to only evaluate opportunities that fit both our financial and operating criteria. We continue to review new and exiting opportunities and are also continuing to evaluate farmout options on our lands.

The Real Estate business unit continues to be the hardest business unit to transact on as we look to target and acquire real estate properties that will yield a 9-10% return. Given our target yield, we have been looking for unique situations that would provide both the yield and scale to grow this unit. We remain confident that with our disciplined approach we will be able to achieve this.

The Energy Services division continued its strong returns in what is traditionally a robust first quarter. Much of our focus for the quarter was in this division as we spent over $30 million in the acquisitions of both HK Well Service Ltd. in February and the Kodiak Coil Tubing Ltd. acquisition at the end of March 2006. The Energy Service term facility was increased from $10 million to $20 million; reflecting not only our increased size, but also our strong operating performance.

At the beginning of April 2006 we announced that the Trust would be spinning-out its Energy Service division into a stand alone trust as Essential Energy Services Trust ("Essential"). We believe that the valuations of the stand alone Avenir Trust and the new Trust entities will be better reflected in the marketplace. Further, given its size, we believe the Energy Service division will benefit from a management team and board of directors that can dedicate 100% of their efforts and resources to continuing its growth. This reorganization accomplishes these objectives. In order to maintain corporate direction and provide continuity to the new Trust, Gary Dundas and I will join the board of directors of the new Trust together with a majority of new outside directors. The senior management of Avenir's Energy Services division, along with each business entity manager, will also continue with the new Trust.

The units of the new Trust will be distributed to existing unitholders of Avenir. These unitholders will receive one new Trust unit of Essential Energy Trust for every two Avenir trust units held. Avenir currently intends for Essential Energy Trust to initially distribute $0.083 per Essential Trust unit per month, beginning with the first distribution payable following closing of the arrangement (expected to be May 31, 2006). Avenir also anticipates that Avenir's distribution policy will be adjusted such that Avenir will distribute an amount equal to $0.083 per Avenir trust unit per month beginning with the first distribution payable to the Avenir unitholders of record on or about June 30, 2006, which will be paid on or about July 15, 2006 following closing of the arrangement. On a combined basis, unitholders who held one Avenir unit immediately prior to completion of the Arrangement will receive, after the arrangement, a combined distribution of $0.1245 per month ($1.50 per year), rather than the $0.12 per month ($1.44 per year) currently distributed by Avenir.

We remain focused and diligent with respect to our operations and acquisitions. We continue to see and evaluate opportunities and plan to remain active on the acquisition front. With the spin-out of our Energy Services division, we will turn our attention to establishing a foothold in a new business line that will provide opportunities to grow both organically and through consolidation. We firmly believe we will continue to provide sustainable distributions and accretive growth on a per unit basis.

REVIEW OF FINANCIAL RESULTS

The net income for the quarter ended March 31, 2006 was $10,105,502 which is up 1773% versus the $(603,882) net income for the quarter ended March 31, 2005. The three months ended March 31, 2006 net income was substantially higher than 2005 due to the impact of 2005 acquisitions and organic growth in each of our divisions and recognition of a first quarter 2006 non-cash mark-to-market gain of $1,325,391 versus a 2005 first quarter loss of $(5,557,222).

Funds from operations were $20,595,565 for the quarter ended March 31, 2006, up 183% as funds from operations for the quarter ended March 31, 2005 were $7,278,944. The increase in funds from operations was primarily the result of the growth in the Trust's business units as mentioned above.

The Trust declared distributions of $14,736,657 ($0.37 per unit) for the quarter ended March 31, 2006 which is up 252% over the $4,190,081 ($0.32 per unit) distributed for the quarter ended March 31, 2005. The 2006 quarter end payout ratio was 72% of cash flow.

REVIEW OF BUSINESS UNIT OPERATIONS

I. ENERGY - Oil & Gas Operations

During the first quarter of 2006 the Trust focused on advancing the capital expenditure projects identified in the second half of 2005 rather than pursuing acquisition opportunities at a time when junior oil and gas companies were trading at very high multiples. These development efforts have been successful but some delays have been experienced due to the shortage of available equipment and manpower. Overheated conditions in the oil and gas industry make it difficult for smaller operators to contract drilling rigs and other equipment. The Trust has a growing inventory of excellent projects and will advance the development of these projects by either participation or farm out over the remainder of the quarter.

Field production for the first quarter of 2006 averaged 3,429 boe/d, however, reported sales were reduced by 117 boe/d due to prior period adjustments. Shut in production averaged approximately 130 boe/d through the first quarter resulting in an indicated production capability of approximately 3,580 boe/d.

Oil and Gas sales for the first quarter of 2006 averaged 3,312 boe/d comprised of 1,714 boe/d of oil and natural gas liquids and 9,586 mcf/d of natural gas. This represents an increase in total sales of 17% over the first quarter of 2005. Oil and natural gas liquids sales were up by 4% while natural gas sales increased by 33%. The increase is largely due to the inclusion of the Val Vista and Makah corporate acquisitions completed during 2005, the December 2005 Grand Forks area asset acquisition and less the November 2005 Shekilie disposition and natural production declines. Production in the first quarter of 2006 was also negatively impacted by plant turn arounds at Noel and Liege which reduced natural gas production by approximately 600 mcfd (100 boe/d) on average for the first quarter. The Alberta Energy and Utilities Board approved the Trust's application for common carrier status on a third party pipeline in the Taber area of southern Alberta and production in this area which had been shut-in since September of 2005 was restarted in December of 2005. This will add approximately 40 boe/d of reliable shallow gas production to the Trust. Further drilling on the property is currently being evaluated.

For the first quarter of 2006 revenue from petroleum and natural gas sales including the effect of hedges, was $13,110,413 up 23% from $10,651,179 in the first quarter of 2005. The average price received for crude oil and natural gas liquids during the first quarter of 2006 was $47.04 per boe an increase of 5% versus $44.66 per boe which was received in the first quarter of 2005. Natural gas pricing for the first quarter of 2006 was $8.10 per mcf versus $7.05 for the first quarter of 2005, an increase of 15%. Oil and natural gas royalties increased 20% to $2,386,769 in the first quarter of 2006 compared to $1,993,721 in the first quarter of 2005 which represents a slight decrease in the royalty rate from approximately 18% to approximately 17%. Per unit operating expenses increased by 26% from $10.63 per boe in the first quarter of 2005, to $13.37 per boe in the first quarter of 2006. The increase in operating expense resulted from increased work-over activity, expenses related to the plant turnarounds at Liege and Noel, the prior year adjustments of 117 boe per day and generally increased costs in the industry due to high activity levels.

The first quarter net capital expenditure by the Trust totaled $3.9 million including:

1. Northern Alberta Mills Grouse Development -- 14 wells drilled and 5 wells re- completed with an average 15% working interest (WI) as part of a non-operated program for the Grand Rapids and McMurray sands.

2. Weyburn Saskatchewan Horizontal Well -- The Trust operated the drilling of a 61.5% WI two-leg horizontal well drilled to the Midale formation.

3. Southeast Alberta and Saskatchewan -- 9 well workover and reactivation program in final phases of a $458,000 program.

4. Central Alberta Viking Program -- Trust operated a 3 well program with an 50% WI for delineation of the Viking formation.

5. East Central Alberta Programs -- Two low interest non-operated programs with WI ranging from 4% to 6%.

The current forecast for the remainder of 2006 has the Trust focusing on operated projects in the East Central and Southeast Alberta properties primarily targeting Bow Island and Mannville gas and Sawtooth oil horizons. Capital spending is estimated at $2.60 MM for the second quarter with a total 2006 budget estimated at $12-$13 million.

2. ENERGY - Energy Services Operations

The first quarter of 2006 saw continued growth in energy services with results exceeding expectations. Gross revenue increased from $4,204,051 in the first quarter of 2005 to $19,448,741 in the first quarter of 2006, an increase of 363%. Funds from operations increased by 353% from $1.5 million to $6.8 million over the same period. Direct costs increased by 385% and general and administrative expenses increased by 229%. These large increases are mainly due to a very strong quarter at Cascade Services Partnership together with the acquisitions of Millard Oilfield, Endless Tubing, Cardinal Well Service, WestVac Service and Richmound Energy Services which were all completed in 2005 after the first quarter. It should be noted that EBITDA margins also improved from approximately 35% in the first quarter of 2005 to approximately 37% in the first quarter of 2006 as the Trust moved to exploit efficiencies inherent in a larger organization while retaining a strong customer focus in the autonomous business units that form the energy services division.

During the first quarter the Trust completed the acquisition of HK Well Service for total consideration of $7.9 million cash (before adjustments). A contingent payment may be payable to the previous shareholders if certain revenue thresholds are exceeded over the first quarter of operations as a unit of the Trust. HK operates five swabbing rigs and one rod rig (flush-by) from a base in Medicine Hat, Alberta. The Trust also completed the acquisition of 90% of Kodiak Coil Tubing at the close of the first quarter for total consideration of $23.65 million (before adjustments) including 729,438 Avenir Trust Units at a deemed price of $12.11 per unit. A contingent payment may be payable to the previous shareholders if earnings before interest, taxes and depreciation exceed $5.2 million over the first quarter of operations as a unit of the Trust. Kodiak operates a fleet of 10 coil tubing units from operational bases in Three Hills, Brooks and Medicine Hat, Alberta. Both acquisitions are accretive to the Trust's cash flow and fit with the Trust's strategy of acquiring well managed companies that provide essential production services to the oil and gas industry. Subsequent to the quarter end, in conjunction with the spin-out of the Energy Services division as Essential Energy Services Trust, the Trust announced the acquisitions of Classic Well Service, a Nisku, Alberta based private company that operates 9 service rigs in central Alberta. In addition three smaller private companies were acquired, two of the companies will be absorbed by the Trust's Cascade Service unit and will add 7 units including 3 vacuum trucks, 2 hot oilers, a hydro-vac and a tank truck to Cascade's fleet along with access to valuable contracts and relationships. The third private company has 4 swabbing rigs that will be added to the fleet of HK in Medicine Hat. The acquisitions of HK, Kodiak and Classic in particular include strong operational management teams and greatly strengthen the Trust's position in south and central Alberta.

During the first quarter the Trust also invested $5.4 million in new equipment including approximately $1.1 million for the completion of a new service rig for Millard Oilfield that was delivered and commenced operations in April of 2006. Approximately $2.9 million was invested in new tankers and a hydro-vac for Westvac and tankers and a hot oiler for Cascade. Additional funds were advanced for the construction of three new flush-by's for Cardinal and a new coil tubing rig for Endless Tubing all of which are scheduled to be delivered in the second half of 2006.

3. FINANCIAL SERVICES

At March 31, 2006 the Trust's financial services business unit, Avenir Financial Services Limited Partnership consisted of:

i. ENERVEST LIMITED PARTNERSHIP -- MANAGEMENT CONTRACT

In October 2005, the Trust expanded its Financial Services division through the acquisition of the joint venture that was the sole shareholder of EnerVest Management Ltd., Manager of the EnerVest Group of Funds. Through a series of management contracts, EnerVest provides a stable long-term source of monthly distributable cash flow based on fees earned from assets under management in the Enervest Group of Funds. Initial acquisition metrics were based on funds from operations of at least $14 million, the majority of which is derived from the EnerVest Diversified Income Trust, which has 45 years remaining on its trust indenture. The division was ahead of original first quarter 2006 budget by approximately 13% as assets being managed increased due to the fourth quarter 2005 exchange offering and first quarter 2006 rights offering. This larger amount under management allows the Enervest investment manager to take advantage of trust buying opportunities and allows the Enervest funds to lower expense fees thereby increasing returns within the funds. This increase in size was partially offset by the price reduction of some of the underlying trust unit prices in the main diversified trust fund due to the negative impact of continued rising interest rates.

The Enervest division has identified growth opportunities in current and new product offerings. To date the Enervest Group has raised approximately $400 million within its funds since joining the Avenir Trust in early October 2005. New products have included the winter Enervest Flow-through 2005 Limited Partnership and the new Enervest Energy and Oil Sands Total Return Trust which closed in April 2006. A new Toronto office has been opened to increase the Enervest presence and better market the respective Enervest products in Eastern Canada.

ii. ELBOW RIVER RESOURCES MARKETING LP

On April 1, 2005, the Trust closed on an agreement to acquire Elbow River Resources Ltd. ("Elbow River"), a wholesale broker, transporter and supplier of butane to major refineries and propane to major retailers in the United States, Canada and Mexico. Elbow River, established in 1984, is considered to be one of the largest wholesale brokers in Canada and United States in providing brokerage, marketing, logistics, transportation, storage and risk management services to the natural gas liquids and specialty petroleum products market.

At March 31, 2006, Elbow River completed its first full year as part of the Trust. For the year ended March 31, 2006, Elbow River Marketing exceeded budget and initial acquisition metrics by approximately 26%. They currently transact over 15,000 BOE per day of liquids sales with approximately 160 customers and suppliers.

The diversification into different product lines has helped Elbow River finish just under budget for the first quarter 2006. Despite weak propane demand due to record warm weather across most of North America, they experienced good butane sales due to strong gasoline blending economics, strong ethanol demand and continued growth from the bio-diesel market.

It is anticipated that the second quarter of 2006 will be near budget, accounting for the seasonality in the propane markets and continued strength in pre-sales from both the butane and ethanol markets. Elbow River also sees continued growth in bio-diesel and other specialty product markets.

iii. FINANCIAL SERVICE CONTRACTS

In January 2003, Avenir Financial Services Partnership acquired its initial financial services contract with an affiliate of a financial services provider, RentCash Inc. ("RentCash"), to provide funding for a cash advance company. RentCash provides cash advance, cheque cashing and payday loan services. The Trust expanded its business since 2003 with RentCash by entering into additional contracts and at the end of March 2006 there were $19.9 million in contracts outstanding.

Although the Trust has not expanded its financial service contracts portfolio since mid year 2005, it continues to be comfortable with the investment and returns based on results to date.

4. REAL ESTATE

The Western Spirit Investments Ltd. acquisition in March of 2004 became the founding corner stone to the real estate business unit. The business unit currently has over 450,000 square feet of light industrial and smaller commercial properties located in Toronto and London, Ontario and Edmonton and Calgary, Alberta.

On January 31, 2006, the Trust purchased the remaining 50% ownership of its Vaughan, Ontario Snidercroft building from an arm's length third party for $1.85 million (before adjustments). Also during the quarter ended March 31, 2006 the remaining vacancy at the Harris location was filled and the Trust's real estate properties are now 100% leased.



The current portfolio, including expansions, is as follows:

City % Ownership % Leased Square Footage
--------------------- ------------ --------- --------------
Edmonton, AB 100% 100% 90,800
Fort Saskatchewan, AB 100% 100% 16,000
Calgary, AB 100% 100% 119,553
Vaughan, ON 100% 100% 71,000
London, ON 100% 100% 141,343
--------------------- ------------ --------- --------------
Total 454,696
--------------------- ------------ --------- --------------


For additional information, please refer to the complete Management Discussion and Analysis and Unaudited Interim Consolidated Financial Statements for the three months ended March 31, 2006 on the company's profile on SEDAR at www.sedar.com or the Trust's website at www.avenirtrust.com.



Avenir Diversified Income Trust
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, 2006 December 31, 2005
$ $
------------------------------------- --------------- ------------------
ASSETS
Current
Cash -- 6,767,724
Restricted cash 203,000 366,057
Accounts receivable and prepaid
expenses 72,102,278 95,663,009
Inventory 15,265,204 31,786,855
Marketable securities 12,500 12,500
Notes receivable 1,050,000 1,050,000
------------------------------------- --------------- ------------------
88,632,982 135,646,145
------------------------------------- --------------- ------------------
Property and equipment 224,120,432 204,615,394
Investment in financial services
contracts 20,400,000 20,440,209
Intangibles and other assets 146,155,998 146,572,446
Goodwill 88,318,407 76,352,738
------------------------------------- --------------- ------------------
567,627,819 583,626,932
------------------------------------- --------------- ------------------
------------------------------------- --------------- ------------------
LIABILITIES AND UNITHOLDERS' EQUITY
Current
Bank indebtedness 62,090,908 58,881,771
Accounts payable and accrued
liabilities 51,340,241 68,922,316
Distributions payable 4,970,574 4,883,041
Deferred revenue 248,393 200,439
Due to non-controlling interest owner 61,418 43,674
Risk management liability 3,930,779 5,256,170
Notes payable -- 7,500,000
Current portion of capital lease
obligations 113,743 155,127
Current portion of long-term debt 970,001 1,159,521
Current portion of mortgages 8,356,873 7,684,571
------------------------------------- --------------- ------------------
132,082,930 154,686,630
------------------------------------- --------------- ------------------
Capital lease obligations 297,390 325,521
Mortgages 6,203,932 6,203,933
Long-term debt 1,013,747 1,124,424
Asset retirement obligation 11,711,381 11,479,561
Future income taxes 20,922,342 20,123,076
Non-controlling interest 1,885,626 1,004,965

Unitholders' equity
Unitholder capital 410,751,859 401,918,365
Contributed surplus 2,765,340 2,136,030
Accumulated earnings 37,729,028 27,623,526
Accumulated cash distributions (57,735,756) (42,999,099)
------------------------------------- --------------- ------------------
393,510,471 388,678,822
------------------------------------- --------------- ------------------
567,627,819 583,626,932
------------------------------------- --------------- ------------------
------------------------------------- --------------- ------------------



Avenir Diversified Income Trust
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED EARNINGS
(unaudited)

For the
Three months ended
March 31, 2006 March 31, 2005
$ $
------------------------------------- --------------- ------------------
REVENUE
Oil and gas revenue 13,337,181 10,759,880
Oil and gas transportation costs (226,768) (108,701)
Royalties, net of ARTC (2,386,769) (1,993,721)
Unrealized gain (loss) on financial
instruments 1,325,391 (5,557,222)
------------------------------------- --------------- ------------------
12,049,035 3,100,236
Real estate revenue 738,902 690,303
Energy services revenue 19,448,741 4,204,051
Financial services revenue 153,912,782 752,902
Interest and other revenue -- 9,946
Gain (loss) on sale of property and
equipment (249) 222,360
------------------------------------- --------------- ------------------
186,149,211 8,979,798
------------------------------------- --------------- ------------------
EXPENSES
Oil and gas operating 3,913,326 2,712,539
Real estate operating 182,019 222,049
Energy services operating 9,770,014 2,012,944
Financial services operating 143,639,076 12,000
General and administrative 6,272,485 1,451,564
Foreign exchange (613,075) --
Interest and bank fees 742,378 414,505
Interest on long-term debt and capital
leases 234,369 226,054
Capital taxes 136,183 47,295
Depletion, depreciation and
amortization 10,315,450 4,081,154
Asset retirement obligation accretion 244,062 170,989
------------------------------------- --------------- ------------------
174,836,287 11,351,093
------------------------------------- --------------- ------------------
Income (loss) before income tax and
non-controlling interest 11,312,924 (2,371,295)
Future income tax recovery (expense) (799,266) 1,864,800
------------------------------------- --------------- ------------------
Net income (loss) before
non-controlling interest 10,513,658 (506,495)
Non-controlling interest (408,156) (97,387)
------------------------------------- --------------- ------------------
Net income (loss) for the period 10,105,502 (603,882)
Accumulated earnings, beginning of the
period 27,623,526 4,684,188
------------------------------------- --------------- ------------------
Accumulated earnings, end of the
period 37,729,028 4,080,306
------------------------------------- --------------- ------------------
------------------------------------- --------------- ------------------
Net income per unit basic and diluted 0.25 (0.05)
------------------------------------- --------------- ------------------



Avenir Diversified Income Trust

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

For the
Three months ended
March 31, 2006 March 31, 2005
$ $
------------------------------------- --------------- ------------------
OPERATING ACTIVITIES
Net income (loss) for the period 10,105,502 (603,882)
Add (deduct) non-cash items:
Loss (gain) on sale of property and
equipment 249 (222,360)
Non-cash general and administrative 631,145 63,234
Depletion, depreciation and
amortization 10,315,450 4,081,154
Asset retirement obligation accretion 244,062 170,989
Unrealized foreign exchange (582,874) --
Unrealized (gain) loss on financial
instruments (1,325,391) 5,557,222
Future income tax expense (recovery) 799,266 (1,864,800)
Non-controlling interest 408,156 97,387
------------------------------------- --------------- ------------------
Funds from operations 20,595,565 7,278,944
Asset retirement costs incurred during --
period (67,433)
Change in non-cash working capital 25,688,125 480,864
------------------------------------- --------------- ------------------
Cash provided by operating activities 46,216,257 7,759,808
------------------------------------- --------------- ------------------
FINANCING ACTIVITIES
Issue of trust units, net of issue
costs -- 118,286,431
Distributions to unitholders (14,649,124) (3,711,544)
Decrease in bank indebtedness (1,277,186) (31,325,000)
Increase in bank indebtedness 4,486,323 --
Decrease in notes payable (7,500,000) --
Increase in mortgages -- 2,015,000
Repayment of mortgages (130,250) (2,030,022)
Repayments of capital lease
obligations (29,764) (16,068)
Increase in long-term debt -- 192,677
Repayment of long-term debt (2,822,443) (191,770)
Change in non-cash working capital 33,688 348,960
------------------------------------- --------------- ------------------
Cash (used in) provided by financing
activities (21,888,756) 83,568,664
------------------------------------- --------------- ------------------
INVESTING ACTIVITIES
Purchase of Val Vista Energy Ltd. -- (13,273,649)
Purchase of Eagle Oilfield Services
Ltd. -- (771,833)
Purchase of Kodiak (13,416,783) --
Oil and gas property disposals 94,850 74,320
Oil and gas development expenditures (3,908,439) (1,053,392)
Financial services development
expenditures (1,300) (749,379)
Purchase of energy services assets (13,499,156) (1,315,732)
Sale of energy services assets 166,125 --
Purchase of other assets (21,219) (115,441)
Purchase of financial services
contracts -- (2,750,000)
Purchase of real estate properties (1,035,516) (2,915,290)
Proceeds on sale of real estate
properties -- 3,718,794
Change in restricted cash 163,057 (657)
Change in non-controlling interest (105,555) --
Changes in non-cash working capital 468,711 2,771,207
------------------------------------- --------------- ------------------
Cash used in investing activities (31,095,225) (16,381,052)
------------------------------------- --------------- ------------------
Increase in cash during the period (6,767,724) 74,947,420
Cash, beginning of period 6,767,724 327,217
------------------------------------- --------------- ------------------
Cash, end of period -- 75,274,637
------------------------------------- --------------- ------------------
------------------------------------- --------------- ------------------
Cash interest paid 705,427 560,009
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Contact Information

  • Avenir Diversified Income Trust
    William M. Gallacher
    President & CEO
    (403) 237-9949
    or
    Avenir Diversified Income Trust
    Gary Dundas
    Vice President Finance & CFO
    (403) 237-9949
    or
    Avenir Diversified Income Trust
    300, 808 - First Street S.W.,
    Calgary, Alberta T2P 1M9
    (403) 237-9949
    (403) 237-0903 (FAX)