Bonavista Energy Trust
TSX : BNP.UN

Bonavista Energy Trust

May 12, 2005 16:00 ET

Bonavista Energy Trust Announces First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - May 12, 2005) - Bonavista Energy Trust (TSX:BNP.UN) is pleased to report to unitholders its interim consolidated financial and operating results for the three months ended March 31, 2005 as follows:



------------------------------------------------------------------------
------------------------------------------------------------------------
Trust Highlights
------------------------------------------------------------------------
Three Months
ended
March 31, %
2005 2004 Change
------------------------------------------------------------------------
(restated)

Financial
($ thousands, except per unit)

Production revenue 187,697 141,236 33

Funds from operations (1) (3) 102,672 81,326 26
Per unit (2) (3) 1.09 1.03 6

Cash distributions 63,284 47,175 34
Per unit 0.83 0.75 11
Percentage of funds from
operations distributed 62% 58% 4

Net income (3) 57,480 50,336 14
Per unit (2) (3) 0.61 0.64 (5)

Total assets 1,779,863 1,166,294 53

Long-term debt,
net of working capital 343,428 190,199 81

Convertible debentures 158,811 94,054 69

Unitholders' equity 972,894 635,670 53

Capital expenditures:
Exploitation and development 51,433 37,731 36
Acquisitions, net 6,560 59,808 (89)

Weighted average outstanding
equivalent trust units (thousands): (2)
Basic 94,491 79,022 20
Diluted 102,073 82,473 24
------------------------------------------------------------------------
------------------------------------------------------------------------
Operating
(boe conversion - 6:1 basis)

Production:
Natural gas (mmcf/day) 177 146 21
Oil and liquids (bbls/day) 21,865 17,634 24
Total oil equivalent (boe/day) 51,302 41,927 22

Product prices: (4)
Natural gas ($/mcf) 6.88 6.48 6
Oil and liquids ($/bbl) 39.85 34.47 16

Operating expenses ($/boe) 6.46 5.29 22

General and administrative
expenses ($/boe) 0.44 0.31 42

Cash costs ($/boe) 8.47 6.65 27

Operating netback ($/boe) 24.25 22.68 7
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
Trust Unit Trading Statistics
Three Months ended
------------------------------------------------------------------------
March December September June
31, 2005 31, 2004 30, 2004 30, 2004
------------------------------------------------------------------------
($ per unit, except volume)

High 32.24 28.88 26.00 23.24
Low 26.30 23.59 22.52 20.69
Close 30.13 27.10 25.89 23.04
Average Daily Volume 400,285 269,429 245,067 146,600
------------------------------------------------------------------------

NOTES:

(1) Funds from operations are determined before changes in non-cash
working capital to analyze operating performance and leverage.
Funds from operations does not have a standardized measure
prescribed by Canadian Generally Accepted Accounting Principles
and therefore may not be comparable with the calculations with
similar measures for other companies.

(2) Includes Exchangeable Shares and Exchangeable Units, which are
convertible into Trust Units on certain terms and conditions.

(3) Net income and funds from operations including per unit amounts
have been restated for the adoption of new accounting standards
for convertible debentures.

(4) Product prices presented are before transportation costs.


MESSAGE TO UNITHOLDERS

Bonavista Energy Trust ("Bonavista" or the "Trust") is pleased to report to its unitholders ("Unitholders"), its consolidated financial and operating results for the three months ended March 31, 2005. The results of the first quarter of 2005 represent seven consecutive quarters of continuous profitable growth for Bonavista since commencing operations as an energy trust. The continued successful execution of Bonavista's proven strategies in the first quarter of 2005 is a testament to the validity and effectiveness of an operationally and technically focused energy trust. The first quarter of 2005 is also highlighted by very strong commodity prices for both oil and natural gas and an increased selection of drilling and acquisition opportunities for Bonavista. This favourable environment creates the opportunity for Bonavista to continue to record strong profitable results, both operationally and financially throughout 2005 and beyond.

Other significant accomplishments include:

- From inception as an energy trust on July 2, 2003 to date, the Trust has delivered a total return to its investors of 132%, comprised of a 96% increase in unit price and a 36% return from cash distributions. For the first quarter of 2005, the total return to investors was 14%, which is top decile industry performance. The monthly cash distribution was maintained at $0.275 per unit per month and results in a cash-on-cash yield of approximately 11%;

- Operationally, Bonavista significantly increased average production volumes to a record 51,302 boe per day during the first quarter of 2005, which represents a 22% increase over the 41,927 boe per day of production in the first quarter of 2004 and a 48% increase over the 34,600 boe per day of production at commencement as an energy trust on July 2, 2003. Current production rates are approximately 51,000 boe per day;

- Increased undeveloped land position to 1,245,000 net acres at March 31, 2005, further enhancing future drilling prospect inventory. Bonavista currently has over two years inventory of drilling prospects;

- Maintained an active capital program during the first quarter of 2005, having invested $51.4 million in exploitation and development activities and $7.1 million in three synergistic acquisitions within our core regions;

- On December 31, 2004 Bonavista completed a significant acquisition of assets in northeast British Columbia which added a new core region with numerous optimization and exploitation opportunities;

- Generated funds from operations of $102.7 million ($1.09 per unit) and distributed 62% of funds from operations generated in the three months ending March 31, 2005 to Unitholders with the remaining funds from operations used to fund capital expenditures and growth;

- Continued recording strong profitable growth in the first quarter of 2005 with average return on equity of 27% and a strong net income to funds from operations ratio of 56%; and

- Bonavista expanded its existing loan facility to $475 million, which provides significant financial flexibility to take advantage of future investment opportunities in 2005 and beyond.

Strengths of Bonavista Energy Trust

Since its restructuring in July 2003, Bonavista has successfully retained its experienced and proven management and technical team who have a solid understanding of our asset base and possess the necessary discipline to deliver profitable results to our Unitholders for the long-term. The Trust also has and will continue to benefit from an excellent undeveloped land position with numerous low-risk development opportunities, allowing us to maintain our base of production and lengthen our proven and probable reserve life index over time. Our production base is weighted 59% towards natural gas, geographically focused within select medium depth, multi-zone regions in Alberta, Saskatchewan and British Columbia and has one of the lowest operating cost structures in the oil and natural gas trust sector. All of these attributes together result in top quartile netbacks for Bonavista. Also, these high working interest assets are predominately operated by the Trust, ensuring that operating and capital cost efficiencies are maintained.

Our team brings a successful track record of executing low to moderate risk development programs, both asset and corporate acquisitions, along with sound financial management. Unitholders benefit from a fully internalized, industry-leading cost structure, which results in one of the lowest per unit overhead cost structures in the energy trust industry. The management team remains in place along with a strong Board of Directors, who possess extensive experience in oil and natural gas operations, corporate governance and financial management. Directors and management also own approximately 18% of the Trust, resulting in an alignment of interests with all Unitholders.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's discussion and analysis ("MD&A") of the financial position and results of operations for the three months ended March 31, 2005, should be read in conjunction with Bonavista Energy Trust's ("Bonavista" or the "Trust") consolidated interim financial statements for the three months ended March 31, 2005 and the audited consolidated financial statements and MD&A for the years ended December 31, 2004 and 2003. Our audited consolidated financial statements, Annual Report, and other disclosure documents are filed on SEDAR at http://www.sedar.com or can be obtained from Bonavista's website at http://www.bonavistaenergy.com.

Basis of Presentation - The financial data presented below has been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The reporting and the measurement currency is the Canadian dollar. For the purpose of calculating unit costs, natural gas is converted to a barrel of oil equivalent ("boe") using six thousand cubic feet of natural gas equal to one barrel of oil unless otherwise stated.

Forward-Looking Statements - Certain information set forth in this document, including management's assessment of Bonavista's future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Bonavista's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Bonavista's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements, or if any of them do so, what benefits that Bonavista will derive therefrom. Bonavista disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Measurements - Within Management's discussion and analysis, references are made to terms commonly used in the oil and gas industry. Funds from operations and funds from operations per unit are not defined by GAAP in Canada and therefore may not be comparable with calculations of similar measures of other entities. These measures are referred to as non-GAAP measures and are used by management for the purposes of analyzing operating performance and leverage. Funds from operations is detailed on the Statement of Cash Flows. Funds from operations per unit is calculated based on the weighted average number of trust units outstanding consistent with the calculation of net income per unit. Netbacks equal total revenue less royalties and operating costs calculated on a boe basis. Total boe is calculated by multiplying the daily production by the number of days in the year.

Operations - Bonavista's exploitation and development program for the three months ended March 31, 2005 led to the drilling of 79 wells in its three core regions, with an overall success rate of 97%. This program resulted in 50 natural gas wells, 22 light and medium oil wells, five heavy oil wells and two dry holes. Bonavista operated the drilling of 51 of these wells, with an average working interest of 74%. Operatorship and high working interest ownership remain an integral part of our strategy to ensure control over the pace of our growth and control of spending on any given project. In addition to the exploitation and development program, Bonavista executed three complementary acquisitions in its core regions in 2005.

Production - As a direct result of Bonavista's successful capital programs, production for the three months ended March 31, 2005 increased 22% to a record 51,302 boe per day when compared to 41,927 boe per day for the same period a year ago. More specifically, average natural gas production increased 21% to 177 mmcf per day from 146 mmcf per day in 2004, while total oil and liquids production increased 24% to 21,865 bbls per day from 17,634 bbls per day in 2004. Of the total oil and liquids production during the first quarter of 2005, heavy oil accounted for 6,289 bbls per day. Our current production is approximately 51,000 boe per day consisting of 59% natural gas, 29% light and medium oil and 12% heavy oil. We will continue to focus on a diversified commodity investment approach to minimize our dependence on any one product.

During the second and third quarters of 2005, Bonavista has received notice from three third party plant operators that their gas processing facilities will be down for maintenance between 21 and 28 days each. One of these facilities is located in northern British Columbia and the other two are located in Central Alberta. The estimated impact from this maintenance on Bonavista's second quarter production volumes is approximately 2,000 boe per day and on its third quarter production volumes is approximately 900 boe per day. During this period the Trust will use this opportunity to complete required maintenance on its own facilities and wells which produce into these third party facilities.

Production revenue - Production revenue for the three months ended March 31, 2005 increased by 33% to $187.7 million when compared to $141.2 million for the same period a year ago. This increase is attributable to a 22% increase in production volumes and a 10% increase in commodity prices on a boe basis. For the three months ended March 31, 2005 natural gas prices averaged $6.88 per mcf, an increase of 6% from $6.48 per mcf for the same period a year ago. The corporate average oil price increased 16% to $39.85 per bbl for the three months ended March 31, 2005 when compared to $34.47 per bbl for the same period a year ago.

Commodity hedging - As part of our financial management strategy, the Trust has adopted a disciplined commodity hedging program. The purpose of the hedging program is to reduce volatility in the financial results, protect acquisition economics and stabilize funds from operations and Unitholder distributions against the unpredictable commodity price environment. At any given period of time, our hedging strategy is restricted to a maximum hedge position of 60% of forecasted production, net of royalties, and primarily uses costless collars. This strategy limits the Trust's exposure to downturns in commodity prices while allowing for more participation in commodity price increases. For the three months ended March 31, 2005, our hedging program resulted in a net loss of $1.9 million due to the stronger than expected commodity prices realized throughout the period. A summary of hedging contracts in place as at March 31, 2005 is outlined in note 6 of the Notes to the Interim Consolidated Financial Statements.

Royalties - For the three months ended March 31, 2005, royalties net of the Alberta Royalty Tax Credit, increased 26% from $30.7 million for the first quarter of 2004 to $38.8 million for the first quarter of 2005, primarily as a result of the higher revenues. For the three months ended March 31, 2005, royalties as a percentage of production revenue was 20.7% compared to 21.7% for the first quarter of 2004, primarily due to lower royalty-rate production acquired over the last year. In the first quarter of 2005, royalties as a percentage of production revenue by product, were 22.5% for natural gas, 19.7% for light and medium oil and 12.0% for heavy oil.

Transportation costs - For the three months ended March 31, 2005, transportation costs were $7.1 million ($1.54 per boe) compared to $3.8 million ($1.00 per boe) in 2004. The 86% increase in transportation costs resulted primarily due to higher production in 2005 versus 2004. The increase in transportation costs on a boe basis in 2005 is primarily due to the December 2004 acquisition of assets in British Columbia which have higher per unit associated transportation costs relative to Bonavista's other assets. Transportation costs by product for the first quarter of 2005 were $0.28 per mcf for natural gas, $0.71 per bbl for light and medium oil and $2.88 per bbl for heavy oil.

Operating expenses - Operating expenses were $29.8 million for the three months ended March 31, 2005 compared to $20.2 million a year ago, an increase of 48%. This increase resulted primarily from higher production volumes and an increase in per unit operating costs associated with recent acquisitions as well as the general increasing cost pressures facing the entire industry. Consequently, in the first quarter of 2005, operating costs increased to $6.46 per boe from $5.29 per boe in the comparable period of 2004. Operating costs by product for the first quarter of 2005 were $0.88 per mcf for natural gas, $7.73 per bbl for light and medium oil and $8.69 per bbl for heavy oil. Notwithstanding recent increases, Bonavista continues to place significant emphasis on the control of operating costs and remains one of the lowest cash cost producers in the industry.

General and administrative expenses - General and administrative expenses, after overhead recoveries, increased 74% to $2.0 million for the three months ended March 31, 2005 from $1.2 million in the same period in 2004. On a per boe basis, general and administrative expenses also increased for the three months ended March 31, 2005 to $0.44 per boe from $0.31 per boe in 2004. These increases are largely due to the higher staffing levels required to manage our larger operations and increasing cost pressures, primarily driven by strong commodity prices and record levels of industry activities. Bonavista has a Technical Services Agreement with NuVista Energy Ltd., through which it renders administrative services and receives a fee determined on a cost recovery basis. The fee charged under this agreement was $297,000 related to general and administrative activities rendered for the three months ended March 31, 2005. Bonavista also recorded a unit-based compensation charge of $594,000 for the three months ended March 31, 2005 in connection with its Trust Unit Incentive Rights Plan, compared to $290,000 for the same period of 2004.

Financing expenses - Financing expenses, which includes interest expense related to bank debt and convertible debentures, increased to $6.0 million for the three months ended March 31, 2005 from $3.1 million for the same period of 2004, and on a boe basis increased to $1.31 per boe in the first quarter of 2005 from $0.81 per boe in the first quarter of 2004. These increases are primarily due to the higher average debt levels resulting from our expanded capital programs. Amortization and accretion expenses related to the Trust's convertible debentures for the three months ended March 31, 2005 was $485,000 compared to $181,000 for the three months ended March 31, 2004. This increase is largely attributable to additional amortization and accretion expenses related to the $135 million of convertible debentures on December 31, 2004. The amortization component reflects the charge to net income of the debenture issue costs over the term of the debenture. The fair value of the conversion option of the debentures is classified as equity. Over the term of the debentures, the carrying value will accrete to the principal balance, at maturity, with the charge to financing expenses. The adoption of the new accounting policy is more fully detailed in note 1 of the Notes to the Interim Consolidated Financial Statements. During the first quarter of 2005, Bonavista paid cash interest of $4.7 million compared to $1.9 million in 2004.

Depreciation, depletion and accretion expenses - Depreciation, depletion and accretion expenses increased 30% to $46.7 million for the three months ended March 31, 2005 from $36.0 million in the same period of 2004 due to higher production levels and higher average per unit costs. For the three months ended March 31, 2005 the average per unit cost increased to $10.11 per boe from $9.45 per boe for the same period in 2004. These increases are directly attributable to the overall higher cost of adding new reserves, which is a trend being experienced throughout the industry.

Income and other taxes - For the three months ended March 31, 2005, the provision for income and other taxes was a reduction of $1.4 million, compared to a reduction of $ 4.6 million during the same period of 2004. The higher tax recovery in the first quarter of 2004 when compared to 2005 was due to the decrease in the Alberta corporate income tax rates effective in the first quarter of 2004. For each of the three month periods ended March 31, 2005 and 2004, Bonavista paid capital tax installments of $603,000.

Funds from operations and net income - For the three months ended March 31, 2005, Bonavista realized a 26% increase in funds from operations to $102.7 million ($1.09 per unit, basic) from $81.3 million ($1.03 per unit, basic) recorded in the same period in 2004. Net income for the three months ended March 31, 2005 was $57.5 million ($0.61 per unit, basic) compared to $50.3 million ($0.64 per unit, basic) a year ago, an increase of 14%. The increases in funds from operations and net income are largely attributable to increased production levels and higher average commodity prices realized in 2005 when compared to 2004.

Capital expenditures - For the three month period ended March 31, 2005, capital expenditures were $58.0 million, consisting of $6.6 million on net property acquisitions and $51.4 million on exploitation and development spending. For the same period in 2004, capital expenditures were $97.5 million consisting of $59.8 million on net property acquisitions and $37.7 million on exploitation and development activities.

Liquidity and capital resources - As at March 31, 2005, bank debt net of working capital was $343.4 million resulting in an attractive debt to funds from operations ratio of 0.8:1 (1.2:1 including convertible debentures). With our banking facility of $475 million, Bonavista has significant unused bank borrowing capability, maintaining significant flexibility to finance expanded capital programs or future acquisition opportunities as they arise. As described under New Accounting Policies and note 1 of the Notes to the Interim Consolidated Financial Statements, Bonavista records its convertible debentures as debt, net of the fair value of the conversion feature and issue costs. The fair value of the conversion feature has been classified as part of unitholders' equity.

In 2005, Bonavista plans to invest up to $230 million to expand its core regions, which will be financed through retained funds from operations and bank debt, if necessary, depending upon actual commodity prices realized. The Trust is committed to the fundamental principal of maintaining financial flexibility and the prudent use of debt. As such, the 2005 capital expenditure program is based on maintaining a conservative amount of debt in our financing structure.

Unitholders' equity - As at March 31, 2005, Bonavista had 95,045,467 equivalent Trust Units outstanding. This includes 14,317,537 Exchangeable Shares and 1,500,000 Exchangeable Units, which combined are exchangeable into 19,559,425 additional Trust Units. The exchange ratio in effect at March 31, 2005 for Exchangeable Shares was 1.26135 to 1. As of May 12, 2005, Bonavista had 95,262,771 equivalent Trust Units outstanding. This includes 14,307,626 Exchangeable Shares and 1,414,035 Exchangeable Units, which combined are exchangeable into 19,631,220 additional Trust Units. The exchange ratio in effect at May 12, 2005 for Exchangeable Shares was 1.27325 to 1.

As at March 31, 2005, Unitholders' Equity included $3.5 million, representing the ascribed value of the conversion feature of the debentures, determined at the time of issue, net of amounts attributed to debentures that have been converted into Trust Units. Of the 100,000, 7.5% convertible debentures issued on January 29, 2004, 64,560 debentures converted to Trust Units to the end of the first quarter of 2005, leaving 35,440 debentures with a principal amount of $35.4 million outstanding at March 31, 2005. On December 31, 2004, the Trust also issued 135,000, 6.75% convertible debentures in conjunction with the property acquisition in British Columbia. These debentures have a principal amount of $135 million and as at March 31, 2005, 448 of these debentures have been converted, leaving 134,552 debentures outstanding, with a principal amount of $134.6 million.

Distributions - For the three months ended March 31, 2005, the Trust distributed $63.3 million, amounting to 62% of funds from operations generated during the period, while the remaining 38% of funds from operations was reinvested to fund exploitation, development and acquisition programs.

Bonavista announces its distribution policy on a quarterly basis. The amount of the cash distribution is determined by the Board of Directors and is dependent upon the commodity price environment, production levels, and the amount of capital expenditures to be funded from funds from operations. Our distribution policy incorporates the withholding of funds from operations to finance capital expenditures, which will provide more sustainable distributions in the long term. Bonavista's current monthly distribution rate is $0.275 per Trust Unit which is comprised of a regular base monthly distribution of $0.25 per Trust Unit plus a supplementary monthly distribution of $0.025 per Trust Unit due to the strength of current commodity prices.



Quarterly financial information - The following table highlights
Bonavista's performance for the eight quarterly periods ending from
June 30, 2003 to March 31, 2005:

------------------------------------------------------------------------
2005 2004 (restated)
------------------------------------------------------------------------
March 31 December 31 September 30 June 30 March 31
------------------------------------------------------------------------
($ thousands,
except per
unit amounts)

Production
revenue 187,697 155,077 154,264 148,868 141,236
Net income 57,480 51,199 49,031 48,458 50,336
Net income
per unit:
Basic 0.61 0.62 0.61 0.61 0.64
Diluted 0.60 0.61 0.60 0.60 0.63
------------------------------------------------------------------------

------------------------------------------------------------------------
2003 (restated)
------------------------------------------------------------------------
December 31 September 30 June 30
------------------------------------------------------------------------
($ thousands, except
per unit amounts)

Production revenue 109,800 106,242 119,747
Net income 32,474 41,972 44,614
Net income per unit:
Basic 0.45 0.63 0.68
Diluted 0.45 0.63 0.67
------------------------------------------------------------------------


Since the reorganization into a Trust on July 2, 2003, Bonavista has experienced growth in production volumes and production revenue in each quarter. Production revenue has increased over the past seven quarters due to the impact of increased production levels and the trend of increasing oil and natural gas commodity prices. Over this period, production revenue has increased 77% and net income has increased 37%. The increase in net income is less than the increase in production revenue due to the significant pressure on costs being experienced by the entire industry, a result of higher commodity prices and activity levels.

Production volumes, production revenue and net income prior to the reorganization on July 2, 2003 were higher than the third and fourth quarters of 2003 as a result of the transfer of oil and natural gas assets to NuVista as part of the reorganization.

Update on Regulatory and Financial Reporting Matters:

a) New accounting policies - Effective January 1, 2005, Bonavista retroactively adopted and implemented the new accounting policy relating to convertible debentures pursuant to requirements of the Canadian Institute of Chartered Accountants ("CICA") Handbook. The convertible debentures have been classified as debt net of the fair value of the conversion feature, and net of issue costs. The fair value of the conversion feature has been classified as part of Unitholders' Equity. Issue costs will be amortized over the term of the debenture, and the debt portion will accrete to the principal balance on maturity. The accretion, amortization of issue costs and interest on the convertible debentures are expensed in the consolidated statement of earnings.

b) Exchangeable shares - On January 19, 2005, the Emerging Issues Committee of the CICA issued EIC Abstract 151, Exchangeable Securities Issued by Subsidiaries of Income Trusts. EIC 151 requires that exchangeable shares issued by the subsidiaries of an income trust be classified as non-controlling interest unless each of two conditions is met. The first condition is that the holders of the exchangeable shares are entitled to receive distributions of earnings economically equivalent to distributions received by Unitholders. The second condition is that the exchangeable shares are ultimately required, by a specified date, to be exchanged for units of the trust and are non-transferable to third parties. The EIC has revised EIC 151 such that it will be necessary to satisfy both parts of the second condition, and that the revisions will be effective for periods ending on or after June 30, 2005. Effective for the first quarter of 2005, the terms of the Exchangeable Shares were amended to satisfy both conditions and therefore are not required to be classified as a non-controlling interest. Prior periods will be restated where both conditions have not been met to classify the Exchangeable Shares as a non-controlling interest when this pronouncement becomes effective on June 30, 2005.

OUTLOOK

The Trust continues to benefit from all the same qualities that drove the success of Bonavista Petroleum Ltd. as a public corporation prior to conversion. Today, we continue to apply the same proven principles and execute that strategy in a disciplined and cost-effective manner. The foundation of this strategy is to actively pursue low to medium risk drilling opportunities on the extensive undeveloped land base within our geographically concentrated areas of operations. We will also continue to search for strategic acquisition opportunities where we can add value utilizing our own technical expertise. To accomplish these goals, we rely upon the many talents of the Bonavista team, who possess a successful track record and a thorough understanding of our asset base within the Western Canadian Sedimentary Basin. This prudent approach to our capital investment program has been very effective in the past, and together with our steadfast commitment and attention to detail, will provide the foundation for the future success of the Trust.

For 2005, Bonavista's preliminary capital budget includes drilling approximately 300 wells on existing lands. Similar to 2004, these locations generally consist of low to medium risk prospects drilled within close proximity of company owned and operated infrastructure. The capital required to complete this drilling program and our complementary acquisition program is approximately $230 million and should result in average daily production of approximately 51,000 boe per day in 2005.

We are proud of our achievements since converting to an energy trust in mid-2003 and are very excited about the opportunities that exist for Bonavista in the future. We sincerely appreciate the support of all our Unitholders endorsing our decision to reorganize into the Trust. We would also like to thank our employees for their significant effort and their continued enthusiasm and excitement as we continue this new phase as an energy trust. Our experienced team remains committed to applying the same proven strategies within the more efficient trust structure to continue adding Unitholder value in the oil and gas business for many years to come.



Consolidated Balance Sheets
(thousands) March 31, December 31,
2005 2004
------------------------------------------------------------------------
(unaudited) (restated)
Assets:

Accounts receivable $ 102,998 $ 76,821
Oil and natural gas properties
and equipment 1,649,344 1,635,909
Goodwill 27,521 27,521
------------------------------------------------------------------------
$ 1,779,863 $ 1,740,251
------------------------------------------------------------------------
Liabilities and Unitholders' Equity:

Accounts payable and accrued liabilities $ 107,374 $ 92,286
Long-term debt 339,052 309,094
Other long-term obligations 8,050 9,102
Convertible debentures 158,811 185,533
Asset retirement obligations 60,046 58,531
Future income taxes 133,636 136,202

Unitholders' equity:
Unitholders' capital 674,422 644,795
Contributed surplus 2,781 2,475
Exchangeable shares 40,477 40,686
Convertible debentures 3,465 3,994
Accumulated earnings 590,734 533,254
Accumulated cash distributions (338,985) (275,701)
------------------------------------------------------------------------
972,894 949,503
------------------------------------------------------------------------
$ 1,779,863 $ 1,740,251
------------------------------------------------------------------------



Consolidated Statements of Operations and Retained Earnings
(thousands, except per unit amounts)

Three Months ended
March 31,
2005 2004
------------------------------------------------------------------------
(unaudited) (restated)
Revenues:
Production $ 187,697 $ 141,236
Royalties, net of Alberta
Royalty Tax Credit (38,817) (30,699)
Transportation costs (7,099) (3,824)
------------------------------------------------------------------------
141,781 106,713
------------------------------------------------------------------------
Expenses:
Operating 29,823 20,167
General and administrative 2,049 1,179
Financing 6,044 3,104
Amortization and accretion on
convertible debentures 485 181
Unit-based compensation 594 290
Depreciation, depletion and accretion 46,679 36,038
------------------------------------------------------------------------
85,674 60,959
------------------------------------------------------------------------
Income before income and other taxes 56,107 45,754
Income and other taxes (reduction) (1,373) (4,582)
------------------------------------------------------------------------

Net income 57,480 50,336

Accumulated earnings, beginning of
period, as previously reported 534,153 325,924
Retroactive application of changes in
accounting policies (899) 8,306
------------------------------------------------------------------------
Accumulated earnings, end of period $ 590,734 $ 384,566
------------------------------------------------------------------------
Net income per unit - basic $ 0.61 $ 0.64
------------------------------------------------------------------------
Net income per unit - diluted $ 0.60 $ 0.63
------------------------------------------------------------------------
------------------------------------------------------------------------



Consolidated Statements of Cash Flows
(thousands) Three Months ended
March 31,
2005 2004
------------------------------------------------------------------------
------------------------------------------------------------------------
(unaudited) (restated)
Cash provided by (used in):

Operating Activities:

Net income $ 57,480 $ 50,336
Items not requiring cash from operations:
Depreciation, depletion and accretion 46,679 36,038
Amortization and accretion on
convertible debentures 485 181
Unit-based compensation 594 290
Future income taxes (reduction) (2,566) (5,519)
------------------------------------------------------------------------
Funds from operations 102,672 81,326
Asset retirement expenditures (606) (154)
Decrease (Increase) in non-cash
working capital items (16,236) 7,710
------------------------------------------------------------------------
85,830 88,882
------------------------------------------------------------------------
Financing Activities:

Issuance of equity, net of issue costs 1,399 (30)
Issuance of convertible debentures,
net of issue costs (5) 95,773
Cash distributions (63,284) (47,175)
Increase (Decrease) in long-term debt 29,958 (30,280)
Decrease (Increase) in non-cash working
capital items 4,095 1,293
------------------------------------------------------------------------
(27,837) 19,581
------------------------------------------------------------------------
Investing Activities:
Business acquisition - (69,924)
Exploitation and development (51,433) (37,731)
Property acquisitions (7,122) (808)
Property dispositions 562 -
------------------------------------------------------------------------
(57,993) (108,463)
------------------------------------------------------------------------
Decrease in cash - -
Cash, beginning of period - -
------------------------------------------------------------------------
Cash, end of period $ - $ -
------------------------------------------------------------------------


Notes to Interim Consolidated Financial Statements

For the three months ended March 31, 2005

The consolidated financial statements include the accounts of the Trust, its subsidiaries, and its partnerships, and have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles and, except as outlined below, are consistent with the accounting policies set out in Bonavista's audited Consolidated Financial Statements for the year ended December 31, 2004. The interim consolidated financial statements and notes should be read in conjunction with Bonavista's 2004 Annual Report.

1. Change in accounting policy:

Effective January 1, 2005, the Trust retroactively adopted the new accounting policy on convertible debentures. The Convertible Debentures have been classified as debt net of the fair value of the conversion feature at the date of issue and net of issue costs. The fair value of the conversion feature has been classified as part of Unitholders' Equity. The details of the changes are outlined in note 4. Issue costs will be amortized over the term of the Debentures and the debt portion will accrete up to the principal balance at maturity. The accretion, amortization of issue costs and interest on the Convertible Debentures are expensed on the consolidated statement of operations. Previously the Trust included its obligation relating to Convertible Debentures in Unitholders' Equity and interest on the Convertible Debentures was charged to accumulated earnings, as the obligations could be settled with the issuance of equity.

The effect of this change in accounting policy has been recorded retroactively with restatement of prior periods. The effect of the adoption is presented below as increases (decreases):



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Balance Sheet December 31, 2004
---------------------------------------------------------------------
(thousands)

Convertible debentures - debt component $ 185,533
Unitholders equity:
Convertible debentures $ (184,094)
Unitholders' capital $ (540)
Accumulated earnings $ (899)
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---------------------------------------------------------------------
Three Months Year
ended ended
Statements of Income March 31, 2004 December 31, 2004
---------------------------------------------------------------------
(thousands, except per unit amounts)

Interest on convertible debentures $ 1,270 $ 6,400
Amortization and accretion 181 899
---------------------------------------------------------------------

Net income $ (1,451) $ (7,299)
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Net income per Unit - basic $ - $ (0.01)
Net income per Unit - diluted $ - $ (0.01)
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2. Asset retirement obligations:

The Trust's asset retirement obligations result from net ownership interests in petroleum and natural gas assets including well sites, gathering systems and processing facilities. The Trust estimates the total undiscounted amount of expenditures required to settle its asset retirement obligations is approximately $286.6 million which will be incurred over the next 51 years. The majority of the costs will be incurred between 2018 and 2034. A credit-adjusted risk-free rate of 7.5% was used to calculate the fair value of the asset retirement obligations.

A reconciliation of the asset retirement obligations is provided below:



---------------------------------------------------------------------
Three Months
ended
March 31,
2005 2004
---------------------------------------------------------------------
(thousands)
Balance, beginning of period $ 58,531 $ 38,654

Accretion expense 1,047 674
Liabilities incurred 504 106
Liabilities acquired 570 1,600
Liabilities settled (606) (154)
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Balance, end of period $ 60,046 $ 40,880
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3. Long-term debt:

In March 2005, Bonavista and its lenders agreed to amend the Trust's bank loan facility to increase the maximum borrowing to $475 million. All other terms of the facility have remained unchanged.

4. Convertible debentures:

The debt component of the Debentures have been recorded net of the fair value of the conversion feature and net of issue costs as described in note 1. The fair value of the conversion feature of the Debentures in Unitholders' Equity at the date of issue was $4.7 million. The issue costs are amortized to earnings over the term of the obligation and the debt component of the obligation is adjusted for the amortization as well as for the portion of issue costs relating to conversions. The debt portion is accreted over the term of the obligation to the principal value on maturity with a corresponding charge to earnings. The following table sets out the convertible debenture activities to March 31, 2005:



---------------------------------------------------------------------
Debt Equity
Component Component
---------------------------------------------------------------------
(thousands)

Balance, December 31, 2004
before restatement $ - $ 188,088
Adjustment for debt and equity
components of debentures 183,388 (183,388)
Accretion 230 -
Issue expenses related to conversions 1,246 -
Amortization 669 -
Conversion to Trust Units - (706)
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Balance, December 31, 2004 after
restatement 185,533 3,994
Accretion 134 -
Issue expenses related to conversions 632 -
Amortization 351 -
Conversion to Trust Units (27,834) (529)
Issue expenses (5) -
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Balance, March 31, 2005 $ 158,811 $ 3,465
---------------------------------------------------------------------


5. Unitholders' equity:

a) Trust Units:

---------------------------------------------------------------------
Unitholders' Capital Number of Units Amount
(restated)
---------------------------------------------------------------------

(thousands)
Trust Units:

Balance, December 31, 2004 75,558,633 $ 644,795
Issued on conversion of
exchangeable shares 91,758 209
Issued on conversion of debentures 1,206,126 27,834
Issued upon exercise of trust unit
incentive plan 129,525 1,399
Adjustment to equity component of
debenture on conversion - 529
Issue expenses related to conversions - (632)
Unit Based Compensation - 288
---------------------------------------------------------------------

Balance, March 31, 2005 76,986,042 $ 674,422
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b) Exchangeable Shares:

---------------------------------------------------------------------
Number of Shares Amount
---------------------------------------------------------------------

Exchangeable Shares: (thousands)
Balance, December 31, 2004 14,391,286 $ 40,686
Exchanged for Trust Units (73,749) (209)
---------------------------------------------------------------------

Balance, March 31, 2005 14,317,537 $ 40,477
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c) Per Unit Amounts:

The following table summarizes the weighted average Trust Units, Exchangeable Trust Units, Exchangeable Shares and Convertible Debentures used in calculating net income per trust unit:



---------------------------------------------------------------------
Number of Units
---------------------------------------------------------------------

Trust Units 74,889,286
Exchangeable Trust Units 1,500,000
Exchangeable shares at exchange ratio 18,101,621
---------------------------------------------------------------------

Basic 94,490,907
Convertible Debentures 6,670,892
Trust Unit Incentive Rights 911,562
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Diluted 102,073,361
---------------------------------------------------------------------


d) Trust Unit Incentive Rights Plan:

For the three months ended March 31, 2005, there were 580,000 trust unit rights issued with an exercise price of $27.38 per unit and an estimated fair value of $6.55 per unit. In addition, there were 2,110,850 trust unit rights outstanding with an average exercise price of $16.92 per unit as at March 31, 2005.

6. Financial instruments:

a) Hedge instruments:

As at March 31, 2005, the Trust has hedged by way of costless collars to sell crude oil and natural gas as follows:



---------------------------------------------------------------------
Volume Average Price Term
---------------------------------------------------------------------

6,000 bbls/d US$ 32.33 - US$ 50.80 - WTI April 1, 2005 -
June 30, 2005
1,000 bbls/d CDN$ 33.00 - CDN$ 41.70 - Bow River April 1, 2005 -
June 30, 2005
7,000 bbls/d US$ 35.14 - US$ 55.32 - WTI July 1, 2005 -
September 30, 2005
1,000 bbls/d CDN$ 33.00 - CDN$ 41.70 - Bow River July 1, 2005 -
September 30, 2005
7,000 bbls/d US$ 35.71 - US$ 55.75 - WTI October 1, 2005 -
December 31, 2005
1,000 bbls/d CDN$ 33.00 - CDN$ 41.70 - Bow River October 1, 2005 -
December 31, 2005
5,000 bbls/d US$ 36.00 - US$ 55.95 - WTI January 1, 2006 -
March 31, 2006
2,000 bbls/d US$ 36.00 - US$ 54.05 - WTI April 1, 2006 -
June 30, 2006
5,000 gjs/d CDN$ 7.00 - CDN$ 11.15 - AECO November 1, 2005 -
March 31, 2006
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As at March 31, 2005, the market deficiency of these financial instruments was approximately $18.2 million.

b) Physical purchase contracts

As at March 31, 2005, the Trust has entered into direct sale costless collars to sell natural gas as follows:



---------------------------------------------------------------------
Volume Average Price (CDN$/GJ) Term
---------------------------------------------------------------------

57,500 gjs/d $ 5.82 - $ 8.51 April 1, 2005 -
October 31, 2005
15,000 gjs/d $ 6.50 - $ 10.50 November 1, 2005 -
March 31, 2006
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INVESTOR INFORMATION

Bonavista Energy Trust is a natural gas weighted energy trust which is committed to maintaining its emphasis on operating high quality oil and natural gas properties, delivering consistent distributions to unitholders and ensuring financial strength and sustainability.

Corporate information provided herein contains forward-looking information. The reader is cautioned that assumptions used in the preparation of such information, particularly those pertaining to cash distributions, production volumes, commodity prices, operating costs and drilling results, which are considered reasonable by Bonavista at the time of preparation, may be proven to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein and the variations may be material. There is no representation by Bonavista that actual results achieved during the forecast period will be the same in whole or in part as those forecast.


Contact Information

  • Bonavista Energy Trust
    Keith A. MacPhail
    President & CEO
    (403) 213-4315
    or
    Ronald J. Poelzer
    Executive Vice President & CFO
    (403) 213-4308
    or
    Greg R. Warner
    Vice President, Finance
    (403) 514-7307
    or
    Bonavista Petroleum Ltd.
    700, 311 - 6th Avenue SW
    Calgary, AB T2P 3H2
    (403) 213-4300
    Website: http://www.bonavistaenergy.com