Vault Energy Trust
TSX : VNG.UN
TSX : VNG.DB
TSX : VNG.DB.A

Vault Energy Trust

November 14, 2007 07:10 ET

Vault Energy Trust ("Vault" or the "Trust") Announces Its Consolidated Financial and Operating Results for the Three and Nine Months Ended September 30, 2007

CALGARY, ALBERTA--(Marketwire - Nov. 14, 2007) - Vault Energy Trust (TSX:VNG.UN) (TSX:VNG.DB) (TSX:VNG.DB.A)

MESSAGE TO UNITHOLDERS

On September 24th, 2007 we announced that Vault had entered into a definitive agreement with Penn West Energy Trust whereby Penn West would acquire all of the issued and outstanding units of Vault pursuant to a plan of arrangement under the Business Corporations Act (Alberta). Penn West will acquire all the issued and outstanding units of Vault whereby each Vault trust unit will be exchanged for 0.14 of a Penn West trust unit. The Arrangement is subject to stock exchange, court and regulatory approvals and other conditions that are typical of transactions of this nature, including approval by at least 66 2/3% of Vault Security Holders.

On October 31, 2007, Penn West announced that it had entered into an agreement that provides for the combination of Penn West and Canetic Resources Trust ("Canetic") into the largest conventional oil and gas trust in North America, with an enterprise value of over C$15 billion. Details of the combination, and a profile of the combined trust, are contained in the joint press release issued by Penn West and Canetic. The press release stated, "It is Penn West's intention to complete the previously announced acquisition of Vault".

Management and the Board of Directors of Vault are assessing the combination of Penn West and Canetic. To do this, Vault and its financial advisors need to consider various matters, including a review of the pro forma financial statements of Penn West that will be prepared in connection with the Penn West / Canetic transaction. Based on the previously-delivered fairness opinion (the "Vault Opinion") provided by Scotia Waterous Inc. in connection with the Arrangement, and the opinion of Scotia Waterous Inc. provided to Penn West in connection with the Penn West / Canetic transaction, the Board continues to believe that the Arrangement is in the best interests of the Vault Securityholders. However, the Board, in fulfilling its fiduciary obligations, has requested Scotia Waterous Inc. to update the Vault Opinion and has also requested Canaccord Capital Corporation to provide it with an independent review of the Arrangement.

As a result of this recent development, Vault will apply to the Court for an order to extend the time for the holding of the Meeting. In connection with the extended meeting date, additional information pertaining to the Penn West / Canetic transaction, which will supplement the information contained in the Information Circular, will be provided to the Vault Securityholders. Vault expects this information to be available by late November or early December, for an anticipated meeting date of the Vault Securityholders to occur prior to year end. The initial date of the Meeting was to be November 26th but until Vault is able to provide the Vault Securityholders with the additional information, Vault recommends that Vault Securityholders not submit their proxies in respect of the presently-scheduled November 26, 2007 meeting. Vault will issue a further press release once dates are confirmed.

Production for the quarter and year to date averaged 6,844 BOE per day and 7,102 BOE per day respectively. Daily BOE volumes in the quarter are down approximately 6% from the second quarter mainly due to third party unscheduled plant turnarounds. Cash flow from operations for the three and nine months ended September 30, 2007 was $9.1 million or $0.25 per unit basic and $31.0 million or $0.85 per unit basic respectively.

Lastly, distributions to our unitholders for the quarter remained at $0.085 per Trust unit per month and the payout ratio for the year to date was 90%. The November distribution payable on December 14th, 2007 to unitholders of record as of November 30, 2007 will remain at $0.085 per Trust unit.



Sincerely,

"Robert T. Jepson"

(signed)
Robert T. Jepson
President & CEO


Three months ended Nine months ended
September 30, September 30,
Summary of Financial Results 2007 2006 2007 2006
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($ thousands, except per Trust
unit amounts)
Petroleum and natural gas
revenue (1) 30,680 32,158 94,831 104,642

Funds flow from operations 9,149 9,102 30,997 40,180
per Trust unit - basic 0.25 0.26 0.85 1.18
per Trust unit - diluted 0.23 0.23 0.76 1.03

Net loss (68,410) (13,841) (75,703) (12,514)
per Trust unit - basic (1.87) (0.40) (2.08) (0.37)
per Trust unit - diluted (1.87) (0.40) (2.08) (0.37)

Total assets 424,362 516,200 424,362 516,200

Bank debt 80,000 43,505 80,000 43,505

Working capital deficit 10,917 24,659 10,917 24,659

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(1) Petroleum and natural gas revenue are shown net of transportation costs.


FINANCIAL AND OPERATIONAL
HIGHLIGHTS Three months ended Nine months ended
($ thousands, except per volume September 30, September 30,
and per Trust unit) 2007 2006 2007 2006
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FINANCIAL

Petroleum and natural gas
revenue (1) 30,680 32,158 94,831 104,642

Funds flow from operations 9,149 9,102 30,997 40,180
per Trust unit - basic 0.25 0.26 0.85 1.18
per Trust unit - diluted 0.23 0.23 0.76 1.03
Net loss (68,410) (13,841) (75,703) (12,514)
per Trust unit - basic (1.87) (0.40) (2.08) (0.37)
per Trust unit - diluted (1.87) (0.40) (2.08) (0.37)

Distributions 9,333 12,105 27,896 35,478
Payout ratio 102% 133% 90% 88%
Capital expenditures 5,468 6,433 24,647 32,550
Bank debt 80,000 43,505 80,000 43,505
Working capital deficit 10,917 24,659 10,917 24,659

Trust units outstanding
(thousands)
weighted average - basic 36,594 34,927 36,435 34,109
- diluted 39,024 37,766 39,003 37,632
end of period - basic 36,610 35,289 36,610 35,289
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OPERATIONAL (units as noted)

Average daily production
Natural gas (mcf) 26,222 27,388 27,047 28,765
Crude oil (bbls) 2,092 1,982 2,195 2,349
Natural gas liquids (bbls) 381 382 399 422
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Total (BOE) 6,844 6,929 7,102 7,565

Average sales price (2)
Natural gas ($ per mcf) 5.01 5.87 6.14 6.36
Crude oil ($ per bbl) 75.34 77.96 68.27 71.12
Natural gas liquids ($ per bbl) 64.31 68.43 53.35 69.08

Netback per BOE ($ per BOE)
Petroleum and natural gas
revenue 48.72 50.45 48.89 50.67
Royalties 7.08 8.87 8.61 9.00
Production expense 17.60 21.08 16.01 15.72
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Operating netback 24.04 20.50 24.27 25.95

Wells drilled (gross/net) 5 (2.8) 1 (1.0) 11 (6.5) 7 (4.7)
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(1) Petroleum and natural gas revenue are shown net of transportation
costs.
(2) Net of oil and gas transportation costs.


Management's Discussion and Analysis

November 12, 2007

Management's Discussion and Analysis ("MD&A") should be read in conjunction with the consolidated financial statements of Vault Energy Trust ("Vault" or the "Trust") as at and for the nine months ended September 30, 2007 and the audited consolidated financial statements for the year ended December 31, 2006 together with accompanying notes. Barrel of oil equivalent ("BOE") amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of crude oil ("6:1") unless otherwise stated. The financial statements and financial data contained in the MD&A have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") in Canadian currency (except where noted as being in another currency).

Additional information related to the Trust, including the Trust Indenture, may be found on the SEDAR website at www.sedar.com.

This MD&A may contain forward-looking information that involves a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. For this purpose, any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. Such risks and uncertainties include, but are not limited to: risks associated with the oil and gas industry (e.g. - operational risks in exploration, development and production; changes and/or delays in the development of capital assets; uncertainty of reserve estimates; uncertainty of estimates and projections relating to production and costs; commodity price fluctuations; environmental risks; and industry competition).

Management uses financial measures such as funds flow, funds flow per unit, payout ratio and operating netback as factors in evaluating performance. These financial measures do not have any standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similar measures used by other companies. Vault uses these measures as it believes they facilitate the understanding of the operating results and the Trust's financial position. Vault calculated funds from operations prior to the change in non-cash working capital relating to operating activities, with the per unit amount calculated using a weighted average units outstanding for the period.

Production

Daily oil and natural gas production, for the three and nine months ended September 30, 2007, averaged 6,844 BOE per day (2006 - 6,929 BOE per day) and 7,102 BOE per day (2006 - 7,565 BOE per day) respectively. Production for the third quarter decreased 6% or 470 BOE per day compared to the second quarter.

Natural gas production for the quarter averaged 26.2 mmcf/d (2006 - 27.4 mmcf/d) and for the period to date averaged 27.0 mmcf/d (2006 - 28.8 mmcf/d). Production for the quarter was down 8% or 2.3 mmcf/d versus last quarter mainly due to the various third party facility turnarounds, including Apache Hamburg, which significantly affected production at Chinchaga.

Crude oil production averaged 2,092 bbls per day (2006 - 1,982 bbls per day) and 2,195 bbls per day (2006 - 2,349 bbls per day) for the three and nine months ended respectively. Quarter over quarter oil production was basically flat.



Average daily production for the period ended September 30th is outlined
below:

Three months ended Nine months ended
Average Daily September 30, % September 30, %
Production 2007 2006 Change 2007 2006 Change
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Natural gas (mcf per
day) 26,222 27,388 (4) 27,047 28,765 (6)
Crude oil (bbls per
day) 2,092 1,982 6 2,195 2,349 (7)
Natural gas liquids
(bbls per day) 381 382 (0) 399 422 (5)
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Total (BOE per day) 6,844 6,929 (1) 7,102 7,565 (6)
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Pricing

The Trust's earnings, funds flow and financial condition are dependent on
the prices received for our petroleum and natural gas production. Petroleum
and natural gas prices have fluctuated widely during recent years.

Three months ended Nine months ended
September 30, % September 30, %
Average Sales Price(1) 2007 2006 Change 2007 2006 Change
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Before effect of risk
management:
Natural gas ($ per mcf) 5.01 5.87 (15) 6.14 6.36 (3)
Crude oil ($ per bbl) 75.34 77.96 (3) 68.27 71.12 (4)
Natural gas liquids
($ per bbl) 64.31 68.43 (6) 53.35 69.08 (23)
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Average sales price
($ per BOE) 45.53 49.52 (8) 47.28 50.28 (6)
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Effect of risk
management:
Natural gas ($ per mcf) 0.97 0.59 - 0.48 0.38 -
Crude oil ($ per bbl) (2.28) (4.04) - (0.95) (2.84) -
Natural gas liquids
($ per bbl) - - - - - -
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Average sales price
($ per BOE) 3.19 0.93 - 1.61 0.39 -
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Net Sales Price:
Natural gas ($ per mcf) 5.98 6.46 (7) 6.62 6.74 (2)
Crude oil ($ per bbl) 73.06 73.92 (1) 67.32 68.28 (1)
Natural gas liquids
($ per bbl) 64.31 68.43 (6) 53.35 69.08 (23)
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Average sales price
($ per BOE) 48.72 50.45 (3) 48.89 50.67 (4)
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(1) Net of oil and gas transportation costs


Average Benchmark % %
Pricing 2007 2006 Change 2007 2006 Change
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Natural Gas
AECO Daily Index (Cdn$
per mcf) 5.17 5.62 (8) 6.53 6.39 2
AECO Monthly Index (Cdn$
per mcf) 5.73 6.09 (6) 6.86 7.38 (7)
Crude Oil
West Texas Intermediate
(US$ per bbl) 75.41 70.44 7 66.12 68.10 (3)
West Texas Intermediate
(Cdn$ per bbl) 78.79 78.89 (0) 73.06 76.95 (5)
Edmonton Par (Cdn$ per
bbl) 80.70 79.73 1 73.73 76.06 (3)
Exchange Rates
US$/CDN$ Dollar
Period-end 0.99 1.12 (12) 0.99 1.12 (12)
US$/CDN$ Dollar Average 1.04 1.12 (7) 1.10 1.14 (4)
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Commodity Price Risk Management

The Trust has physical sales contracts in place representing approximately
35% of its 2007 estimated production. A summary of the outstanding physical
sales contracts and financial derivative instruments are as follows:

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Upside
Product Volume Floor price Participation Term
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Apr 1, 2007 -
Natural gas 2,500 GJs/d $7.00/GJ Max price $9.00/GJ Oct 31, 2007
Apr 1, 2007 -
Natural gas 7,500 GJs/d $7.60/GJ N/A Oct 31, 2007
Nov 1, 2007 -
Natural gas 2,500 GJs/d $7.85/GJ 50% above $7.85/GJ Mar 31, 2008
Jan 1, 2007 -
Crude Oil 1,000 bbls/d $68.00/bbl 50% above $68.00/bbl Dec 31, 2007

Crude Oil - WTI Jan 1, 2008 -
Swap 500 bbls/d $76.43 N/A Dec 31, 2008
Jan 1, 2008 -
Crude Oil 500 bbls/d $71.15 50% above $71.15/bbl Dec 31, 2008

Crude Oil - WTI Jan 1, 2009 -
Swap 250 bbls/d $76.15 N/A Dec 31, 2009
Jan 1, 2009 -
Crude Oil 250 bbls/d $69.20 50% above $69.20/bbl Dec 31, 2009

Natural Gas - Nov 1, 2007 -
AECO Swap 2,500 GJs/d $8.61 N/A Mar 31, 2008

Apr 1, 2006 -
Electricity 5 MWH $60.75/MW N/A Dec 31, 2008
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On January 1, 2007, the Trust adopted the new accounting standards regarding the accounting for financial instruments. The Trust determined that the physical instruments in respect of the commodity purchase and sales contracts qualify for the normal purchase or sale exemption. Accordingly, the change in fair value of these financial instruments are not recognized on the balance sheet. Realized gains and losses on these contracts are recognized in petroleum and natural gas revenue and cash flows in the same period in which the revenues associated with the financial transactions are recognized. At September 30, 2007, the fair value of these physical contracts was estimated to
be $1.9 million.

The Trust has recognized a current liability of $1.2 million for the fair value of its oil and gas swap derivative contracts as at September 30, 2007.

Petroleum and natural gas revenue

Petroleum and natural gas revenue, net of transportation was $30.7 million (2006 - $32.2 million) and $94.8 million (2006 - $104.6 million) for the three and nine months ended September 30, 2007. Third quarter sale revenues was approximately 4% lower or $1.4 million compared to the second quarter mainly due to the decrease in oil and natural gas BOE production.

Natural gas prices, net of transportation, averaged $5.01 per mcf for the quarter and $6.14 per mcf for the period to date. Average gas prices received for the third quarter were down approximately 22% compared to the previous quarter this year. On October 31, 2007, a natural gas sales contract acquired with the purchase of certain properties in the Bigoray area will expire. Prices realized under this contract are at a steep discount to AECO pricing. Upon expiry, natural gas from the Bigoray area will be priced based on AECO therefore improving the overall natural gas netbacks. The price of natural gas is based primarily on the supply and demand fundamentals in the North American markets. In Western Canada, a pullback in exploration and development drilling activity has decreased gas production, and together with growth demand for gas by oil sands producers, will result in lower volumes available for U.S. export. Natural gas prices have weakened in the near term as a result of surplus natural gas storage and liquefied natural gas imports to the United States have continued to grow in the absence of demand in Europe, Including mild summer weather conditions and lack of storm activity in the Gulf of Mexico this year.

Crude oil prices, net of transportation, averaged $75.34 per bbl for the quarter and $68.27 per bbl for the nine months ended. Average crude oil prices received for the third quarter in 2007 were higher by 14% compared to the second quarter. Crude oil prices have remained at relatively high levels due to the continued global demand in China, India and the United States, significant geopolitical and weather related issues, and concerns regarding lack of North American refining capacity.



For the Three Months Ended September 30, 2007
Analysis of Sales
Revenue(1) ($ thousands) Natural Gas Crude Oil NGLs Total
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2006 Sales Revenue 16,277 13,285 2,596 32,158
Price Variance (1,203) 1,164 (144) (183)
Volume Variance (641) (460) (194) (1,295)
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2007 Sales Revenue 14,433 13,989 2,258 30,680
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For the Nine Months Ended September 30, 2007
Analysis of Sales Revenue
(1) ($ thousands) Natural Gas Crude Oil NGLs Total
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2006 Sales Revenue 52,921 43,576 8,145 104,642
Price Variance (948) 452 (1,843) (2,339)
Volume Variance (3,076) (3,911) (485) (7,472)
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2007 Sales Revenue 48,897 40,117 5,817 94,831
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(1) Revenue is shown net of oil and gas transportation costs and including
the effect of risk management.


Risk management contracts increased revenues by $1.9 million (2006 - $597,000) and $2.9 million (2006 - $802,000) for the three and nine months ended respectively. For the third quarter and year to date periods, realized gains from natural gas contracts were $2.3 million and $3.5 million respectively, while realized losses from crude oil contracts were $439,000 and $569,000 respectively.

Royalties

Royalties are paid to various government entities and other land and mineral rights owners. For the third quarter, royalty expense were $4.5 million, a decrease of $2.1 million as compared to the second quarter. This reduction is attributable mainly due to the decreased gas revenues associated to both lower commodity prices and production volumes in the quarter. Second quarter royalty expense also included a 2005-2007 retroactive crown oil royalty adjustment of $474,000. For the nine months ended, royalty expense were $16.7 million or 18% of petroleum and natural gas revenue (before risk management) compared to $18.6 million or 17% in 2006.

On October 25, 2007, the Alberta government announced changes to the oil and natural gas royalty regime which will be implemented in January, 2009.

Production Expense

Production expenses for the three and nine months ended September 30, 2007 were $11.1 million or $17.60 per BOE (2006 - $13.4 million or $21.08 per BOE) and $31.0 million or $16.01 per BOE (2006 - $32.5 million or $15.72 per BOE) respectively.

Operating costs for the third quarter increased by approximately 10% or $1.0 million compared to the second quarter. Factors affecting third quarter operating costs include non-operated 2005-2006 Fort Laird gas processing fees of $470,000 ($0.75 per BOE) as accrued in the period and a one time field staff retention expense of $522,000 ($0.83 per BOE) incurred in September.

Future production expenses will continue to be influenced by the number of workovers, and well suspensions. Management is committed and focused on identifying opportunities to improve operational efficiencies to reduce operating costs.



Operating Netback

Three months ended Nine months ended
September 30, % September 30, %
Operating Netback(1) 2007 2006 Change 2007 2006 Change
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Natural gas ($ per mcf)
Revenue 5.98 6.46 (7) 6.62 6.74 (2)
Royalties 0.94 1.28 (27) 1.33 1.44 (8)
Production expense 2.39 2.77 (14) 2.19 2.15 2
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Operating Netback 2.65 2.41 10 3.10 3.15 (2)
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Crude oil and NGL ($ per
bbl)
Revenue 71.39 73.03 (2) 64.86 68.39 (5)
Royalties 9.61 11.15 (14) 9.66 9.57 1
Production expense 23.37 29.66 (21) 21.04 20.61 2
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Operating Netback 38.41 32.22 19 34.16 38.21 (11)
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Combined ($ per BOE)
Revenue 48.72 50.45 (3) 48.89 50.67 (4)
Royalties 7.08 8.87 (20) 8.61 9.00 (4)
Production expense 17.60 21.08 (17) 16.01 15.72 2
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Operating Netback 24.04 20.50 17 24.27 25.95 (6)
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(1) Revenue is shown net of oil and gas transportation costs and including
the effect of risk management.


The operating netback is a key indicator of the Trust's ability to generate funds flow for distribution and reinvestment. During the three and nine months ended, Vault generated an operating netback of $ 24.04 per BOE (2006 - $20.50 per BOE) and $ 24.27 per BOE (2006 - $25.95 per BOE). The 6% decrease for the period to date as compared to last year is attributable primarily to a combination of a lower oil and gas production and commodity prices.



A reconciliation of the year to date 2007 operating netback by components
compared to 2006 is as follows:

Operating netback reconciliation ($ thousands) 2007
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Production decrease (7,473)
Price decrease, net of risk management (2,780)
Transportation decrease 441
Royalty decrease 1,879
Production expense decrease 1,430
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Decrease in net operating income (6,503)
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General and Administrative Expenses ("G&A")

G&A costs, net of overhead recoveries on operated properties, were $2.6 million (2006 - $1.8 million) for the three months ended and $6.8 million (2006 - $5.7 million) for the nine months ended September 30, 2007. The increase is attributable to a one time compensation charge paid to employees, excluding three senior executives, of $498,000 for retention costs as incurred in the period. It also includes a provision of $300,000 for legal fees and other associated costs relating to the Penn West Plan of Arrangement as incurred to September 30, 2007.

Unit-based Compensation

In June 2007, the Board of Directors approved a new compensation plan that would better suit the employee base of the Trust and be more comparable with the standard industry compensation framework for a trust of this size. As part of the change to the compensation arrangements, the new Long Term Incentive Plan (LTIP) will provide for employees to be granted deemed units based on individual and corporate performance, which vest over a three year performance period. At the time of vesting, the deemed units are settled in cash and include the accumulated distributions over the three year period which are reinvested to purchase additional units. The LTIP, has two components namely: (1) Restricted Trust Units (RTUs) and (2) Performance Trust Units (PTUs). The RTUs granted vest one third annually over the three year period. The PTUs will vest at the end of the three year period dependent upon certain performance levels being achieved, as vesting can range from 0-200% of the units granted. The Board reserves the right to change the LTIP from a unit grant with a cash settlement program to a grant of units from Treasury. which is subject to unitholder approval. The LTIP does not replace the existing unit based compensation plan.

For the three and nine months ended September 30, 2007, $1.0 million (2006 - $1.5 million) and $2.7 million (2006 - $3.0 million) respectively was charged to income in respect of non cash unit-based payments, which includes $233,000 compensation costs under the new LTIP arrangement. The Trust uses the fair value method of allocating value to Trust unit rights. The unit-based compensation recognized represents the amortization of this fair value to income over the vesting period with an offset to contributed surplus.

Interest Expense

The Trust incurred $3.2 million (2006 - $2.7 million) and $9.0 million (2006 - $7.1 million) in interest expense for the three and nine months ended respectively. The inclusion of interest on the 7.2% debenture issuance in May of last year and drawing on available lines of credit to fund capital expenditure programs has increased overall interest expense. The Trust's average interest rate on bank credit facilities for the three and nine months ended September 30, 2007 was 6.0% (2006 - 6.9%) and 5.7% (2006 - 5.9%) respectively.

Depletion, Depreciation and Accretion ("DD&A")

DD&A expense was $16.5 million or $26.21 per BOE (2006 -$16.5 million or $25.83 per BOE) and $50.3 million or $25.92 per BOE (2006 - $51.4 million or $24.89 per BOE) for the three and nine months ended September 30, 2007.



Three months ended Nine months ended
Depletion, depreciation September 30, % September 30, %
and accretion 2007 2006 Change 2007 2006 Change
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Depletion and
depreciation expense 15,487 15,479 0 47,230 48,740 (3)
Accretion of asset
retirement obligations 536 529 1 1,614 1,560 3
Other 477 455 5 1,407 1,103 28
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Total 16,500 16,463 0 50,251 51,403 (2)
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Write-down of Oil & Gas Properties

The petroleum and natural gas properties are evaluated each reporting period through a ceiling test calculation to review the carrying value of the Trust's petroleum and natural gas properties relative to its measured fair value. When the carrying value is determined to not be recoverable, the properties are subject to an impairment write-down to its fair value.

On September 24, 2007, the Trust entered into a definitive agreement with Penn West Energy Trust whereby Penn West will acquire all the issued and outstanding units of Vault. The transaction will be accomplished through a Plan of Arrangement whereby each Vault trust unit will be exchanged for 0.14 of a Penn West trust unit and each Vault exchangeable share will receive 0.14 of a Penn West unit for each Vault unit into which the Vault exchangeable shares are exchangeable at the exchange ratio.

As a result of this Penn West Plan of Arrangement, the Trust has calculated a decline in market valuation of its petroleum and natural gas properties in the amount of $68.0 million in the third quarter. This non-cash impairment represents the excess of the Trust's carrying values as compared to the fair market value as established by the Penn West acquisition.

Taxes

In June 2007, the Government of Canada enacted new legislation as Bill C-52 received Royal Assent, which will tax publicly traded income trusts. The new 31.5% tax which will be applied to income distributions, is not expected to apply to the Trust until January 1, 2011. Due to the uncertainty as to when the Trust will substantially be able to utilize the income tax pools, the Trust has taken a valuation allowance equivalent to the amount of the estimated future income tax recovery adjustment.

The current income taxes for the nine months ended September 30, 2007 was a recovery of $271,000 relating to prior year's taxes, as compared to a provision of $53,000 in 2006.

For the period to date, the provision for future income taxes was a recovery of $8.7 million, compared to a recovery of $4.1 million last year.

The tax returns for all prior years are still open and may be subject to tax audit review in the future.

Funds Flow and Net Loss

Funds flow from operations for the three months ended was $9.1 million ($0.23 per diluted Trust unit), unchanged from last year. For the nine months ended September 30, 2007, funds flow from operations was $31.0 million ($0.76 per diluted Trust unit) versus $40.2 million ($1.03 per diluted Trust unit) for the same period in 2006.

The Trust had a net loss of $68.4 million ($1.87 loss per diluted Trust unit) for the three month ended, compared to a net loss of $13.8 million ($0.40 loss per diluted Trust unit) in the same period in 2006. For the nine months ended September 30, 2007, the net loss was $75.7 million ($2.08 loss per diluted Trust unit) compared to a net loss of $12.5 million ($0.37 loss per diluted Trust unit) for the same period last year.



Capital Expenditures

Three months ended Nine months ended
Capital Expenditures September 30, September 30,
($ thousands) 2007 2006 2007 2006
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Land 178 1,639 1,067 2,347
Drilling, completions and
workovers 3,297 4,005 14,816 19,387
Equipment 1,822 192 7,834 8,657
Geological and
geophysical 103 482 739 1,106
Office 68 115 191 1,053
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Capital expenditures 5,468 6,433 24,647 32,550
Property acquisitions - 1,071 - 1,483
Dispositions (3,225) (1,110) (3,365) (3,162)
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Net capital expenditures 2,243 6,394 21,282 30,871
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For the three and nine months ended September 30, 2007, Vault drilled 5 (2.8 net) and 11 (6.5 net) wells respectively.

Year to date capital projects at Wimborne, Chinchaga, and Bigoray relating to drilling & completing, equipping & pipeline tie-ins, and workovers accounted for roughly 50% of capital expenditures. Major capital activities completed in the period included various Wimborne workovers, Bigoray drilling, equipping and tie-ins, and third party Pembina Nisku Z facility upgrades.

The Trust disposed of certain non-core natural gas properties at Kyklo for net proceeds after adjustments of approximately $3.2 million effective August 1, 2007.

Total net capital expenditures incurred for the year to date were $21.3 million (2006 - $30.9 million).

Distributions

Distributions are paid monthly on or about the 15th day of each month with the record date being the last business day of the preceding calendar month or such other date as may be determined. A portion of cash flow is retained to fund acquisitions and development activity.

The Trust will monitor the payout level with respect to cash flow, debt levels and spending plans. We will continue to distribute a significant portion of our cash flow with the distribution level set by the Board of Directors dependent on the level of commodity prices and the success of the Trust's drilling and development program. However, we are prepared to adjust the payout ratio in an effort to align the investors' desire for cash distributions with the Trust's requirement to maintain a prudent capital structure.

During the three and nine months ended September 30, 2007, Vault declared cash distributions of $9.3 million or $0.26 per Trust unit and $27.9 million or $0.77 per Trust unit respectively to unitholders.




Reconciliation of Cash
Available for Distribution Three months ended Nine months ended
September 30, September 30,
($ thousands) 2007 2006 2007 2006
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Cash flow from operating
activities 8,552 22,214 27,390 34,848
Change in non-cash working
capital 597 (13,112) 3,607 5,332
----------------------------------------------------------------------------
Funds flow from operations 9,149 9,102 30,997 40,180
----------------------------------------------------------------------------
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Cash distributions paid 9,333 12,105 27,896 35,478
----------------------------------------------------------------------------

Distributions per Trust unit $ 0.26 $ 0.35 $ 0.77 $ 1.04
Payout ratio(1) 102% 133% 90% 88%
----------------------------------------------------------------------------

(1) Ratio is calculated based on cash distributions paid divided by funds
flow from operations.


Liquidity and Capital Resources

Bank debt was $80.0 million and the working capital deficit, which includes bank overdraft of $8.8 million, was $10.9 million at September 30, 2007.

The Trust has, through its subsidiary, a credit agreement with a syndicate of Canadian banks to provide the Trust with $125,000,000 of total credit facilities. This is comprised of an extendible revolving term credit facility of $115,000,000 and a $10,000,000 operating facility each bearing interest at prime plus a premium ranging between 0% and 1.75% based on the Trust's debt to cash flow ratio. The credit facilities are secured by a $200,000,000 demand debenture on the assets of Vault Energy and have been renewed to June 28, 2008.



Quarterly Financial Information

Summary of Quarterly Results

($ thousands) Q4/05 Q1/06 Q2/06 Q3/06 Q4/06
----------------------------------------------------------------------------

Production:
Natural gas
(mcf per day) 29,363 29,428 29,502 27,388 27,184
Crude oil and NGL
(bbls per day) 3,025 2,912 3,041 2,364 3,188
----------------------------------------------------------------------------
Total BOE
(Natural Gas 6:1) 7,919 7,817 7,958 6,929 7,718
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Petroleum and natural
gas revenue (1) 47,791 36,175 36,310 32,158 34,155

Funds flow from operations 26,761 15,578 15,499 9,102 10,661
per Trust unit - basic 0.82 0.47 0.45 0.26 0.30
per Trust unit - diluted 0.73 0.42 0.38 0.23 0.27

Net income (loss) 4,573 (1,280) 2,607 (13,841) (3,300)
per Trust unit - basic 0.14 (0.04) 0.08 (0.40) (0.09)
per Trust unit - diluted 0.14 (0.04) 0.07 (0.40) (0.09)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


($ thousands) Q1/07 Q2/07 Q3/07
----------------------------------------------------------------------------

Production:
Natural gas (mcf per day) 26,426 28,497 26,222
Crude oil and NGL (bbls per day) 2,747 2,565 2,473
----------------------------------------------------------------------------
Total BOE (Natural Gas 6:1) 7,151 7,314 6,844
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Petroleum and natural gas revenue (1) 32,095 32,057 30,680

Funds flow from operations 12,062 9,787 9,149
per Trust unit - basic 0.33 0.27 0.25
per Trust unit - diluted 0.29 0.24 0.23

Net income (loss) (2,428) (4,865) (68,410)
per Trust unit - basic (0.07) (0.13) (1.87)
per Trust unit - diluted (0.07) (0.13) (1.87)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Petroleum and natural gas revenue are shown net of transportation costs


Trust Unit Information

The Trust is authorized to issue an unlimited number of Trust units. The Trust units are traded on the Toronto Stock Exchange under the symbol "VNG.UN". At December 31, 2006, the Trust had 36,105,737 Trust units outstanding and 2,126.063 exchangeable shares outstanding as held by outside third parties.

At September 30, 2007, the Trust had 36,609,938 Trust units outstanding and 1,920,793 exchangeable shares outstanding as held by outside third parties. The increase in Trust units during the period is a result of 280,731 issued for exchangeable shares and 223,470 units issued pursuant to the Distribution Reinvestment and Optional Purchase Plan ("DRIP").



Commitments

The Trust is committed to payments under an operating lease for office space
and capital leases for leased vehicles as at September 30, 2007:

----------------------------------------------------------------------------
Minimum Commitments Each Year Total
---------------------------------- Committed
($ thousands) 2007 2008 2009 2010 2011 After 2011 Total
----------------------------------------------------------------------------
Capital lease
obligations 48 287 60 35 - - 430
Operating lease
obligation 438 1,752 1,819 1,825 1,825 3,802 11,461
----------------------------------------------------------------------------
486 2,039 1,879 1,860 1,825 3,802 11,891
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Debt commitments are outlined in the Notes to the Consolidated Financial
Statements.


Critical Estimates

Management is required to make judgments, assumptions, and estimates in the application of generally accepted accounting principles that have a significant impact on the financial results of the Trust. These estimates and assumptions are developed based on the best available information and are believed by management to be reasonable under the existing circumstances. New events or additional information may result in the revision of these estimates over time. The following summarizes the accounting policies that are critical to determining the company's financial results.

Petroleum and Natural Gas Reserves - The Trust's petroleum and natural gas reserves are evaluated and reported on by independent petroleum engineers. The estimates of reserves is a very subjective process as forecasts are based on engineering data, projected future rates of production, estimated future commodity prices and the timing of future expenditures, which are all subject to uncertainty and interpretation. Reserve estimates can have a significant impact on earnings, as they are a key component in the calculation of depletion. A downward revision to the reserve estimate could result in higher depletion and thus lower net earnings. In addition, estimated reserves are also used in the calculation of the impairment (ceiling) test.

Critical Accounting Policies

Full Cost Accounting - The Trust follows the full cost method of accounting whereby all costs related to the acquisition of, exploring for and developing petroleum and natural gas reserves are capitalized and charged against earnings. These costs, together with the estimated future costs to be incurred in developing proved reserves, are depleted or depreciated using the unit-of-production method based on the proved reserves before royalties as estimated by independent petroleum engineers. The costs of undeveloped properties are excluded from the costs subject to depletion and depreciation until it is determined whether proved reserves are attributable to the properties or impairment occurs. Petroleum and natural gas properties are evaluated each reporting period through an impairment test to determine the recoverability of capitalized costs. The carrying amount is assessed as recoverable when the sum of the undiscounted cash flows expected from proved reserves plus the cost of unproved interests, net of impairments, exceeds the carrying amount. When the carrying amount is assessed not to be recoverable, an impairment loss is recognized to the extent that the carrying amount exceeds the sum of the discounted cash flows from proved and probable reserves plus the cost of unproved interests, net of impairments.

The cash flows are estimated using expected future prices and costs and are discounted using a credit adjusted risk-free interest rate. Proceeds from the sale of petroleum and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would result in a change in the depletion rate of 20%
or more.

Asset Retirement Obligation - The Trust is required to provide for future abandonment and site restoration costs. These costs are estimated based on existing laws, contracts or other policies and are presented as asset retirement obligation. The obligation is initially measured at fair value and subsequently adjusted for the accretion of discount and any changes to the underlying cash flows. The asset retirement cost is capitalized to petroleum and natural gas properties and equipment and amortized into earnings on a basis consistent with depletion and depreciation. The estimate of the asset retirement obligation involves estimates relating to the timing of abandonment, the economic life of the underlying asset and the costs associated with abandonment and site restoration which are all subject to uncertainty and interpretation.

Exchangeable shares and Non-controlling Interests - Exchangeable shares in Vault Energy were issued pursuant to the Plan of Arrangement. The exchangeable shares are transferable and are retractable for Trust units. As such, they have been classified outside of equity as a non-controlling interest. Net income (loss) as reported is net of net income (loss) attributable to non-controlling interest.

Convertible debentures - Convertible debentures are initially recorded at the fair value of the obligation without the conversion feature. The difference between the principal amount and the fair value without the conversion feature is recorded in unitholders' equity as equity component of convertible debentures. The obligation is accreted through earnings using the effective interest rate method and the equity component of convertible debentures is increased as the debentures are converted for Trust units.

Risk Assessment

The acquisition, exploration and development of petroleum and natural gas assets involves many risks common to all participants in the petroleum and natural gas industry. Vault's exploration and development activities are subject to various business risks such as unstable commodity prices, interest rate and foreign exchange fluctuations, the uncertainty of replacing production and reserves on an economic basis, government regulations, taxes and safety and environmental concerns. As such, the funds flow paid to unitholders as well as the value of Vault's trust units are subject to such risks. While the management of Vault realizes these risks cannot be eliminated, they are committed to monitoring and mitigating these risks.

Reserves and Reserve Replacement

The recovery and reserve estimates on Vault's properties are estimates only and the actual reserves may be materially different from that estimated. The estimates of reserve values are based on a number of variables including price forecasts, projected production volumes and future production and capital costs. All of these factors may cause estimates to vary from actual results.

Vault's future petroleum and natural gas reserves, production, and fund flows to be derived there from are highly dependent on Vault successfully acquiring new reserves and developing existing reserves.

To mitigate this risk, Vault has assembled a team of experienced technical professionals who have expertise operating and exploring in areas which Vault has identified as the most prospective for increasing Vault's reserves on an economic basis.

To further mitigate reserve replacement risk, Vault has targeted a majority of its prospects in areas which have multi-zone potential, year-round access and lower drilling costs. Also, Vault employs advanced geological and geophysical techniques to increase the likelihood of finding additional reserves.

Reserves that Vault may have at any particular time and the production there from will decline over time as such existing reserves are exploited. A future increase in Vault's reserves will depend on its abilities to acquire suitable prospects or properties and discover new reserves. Acquisitions of oil and gas assets depend upon the assessment of value that Vault makes at the time of acquisition, which are subject to the risk of incorrect assessments. Vault mitigates acquisition risk by performing due diligence, review and obtaining approval from the Board of Directors for potential acquisitions. Where required, evaluations from independent reserve engineers are also obtained.

Operational Risks

Vault's operations are subject to the risks normally incidental to the operation and development of oil and natural gas properties and the drilling of oil and natural gas wells. Continuing production from a property, and to some extent the marketing of production there from, are largely dependent upon the ability of the operator of the property.

Commodity Price Risk

The Company's oil and natural gas production is marketed and sold on the spot market to area aggregators based on daily spot prices that are adjusted for product quality and transportation costs. Operating results and financial condition of the Trust are impacted by prices it receives for its production.


Interest Rate Risk

Vault has exposure to movements in interest rates, particularly those charged on the revolving credit facility entered into at the time of the Plan of Arrangement.

Foreign Currency Risk

The Trust is exposed to foreign currency fluctuations as crude oil prices received are referenced to U.S. dollar denominated prices. Currently, Vault sells natural gas in Canadian currency; however, if that were to change then Vault would be subject to foreign exchange risk on selling this product in U.S. dollar denominated indices.

Safety and Environmental Risks

The petroleum and natural gas business is subject to extensive regulation pursuant to various municipal, provincial, national, and international conventions and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in association with oil and natural gas operations. Vault is committed to meeting and exceeding its environmental and safety responsibilities. Vault has implemented an environmental and safety policy that is designed, at a minimum to comply with current governmental regulations set for the oil and natural gas industry. Changes to governmental regulations are monitored to ensure compliance. Environmental reviews are completed as part of the due diligence process when evaluating acquisitions. Environmental and safety updates are presented and discussed at each Board of Directors' meeting. Vault maintains adequate insurance commensurate with industry standards to cover reasonable risks and potential liabilities associated with its activities as well as insurance coverage for officers and directors executing their corporate duties.

Regulatory Risk

In June 2007, the Government of Canada enacted new legislation that will tax publicly traded income trusts, effective January 1, 2011. Prior to June 2007, the Trust estimated the future income tax on certain temporary differences between amounts recorded on its balance sheet for book and tax purposes at a nil effective tax rate. The new 31.5% tax, which will be applied to income distributions, is not expected to apply to Vault until 2011. As the legislation is new, future technical interpretations of the legislation could occur and could materially affect management's estimate of the future income tax liability.

On October 25, 2007, the Alberta government announced changes to the oil and natural gas royalty regime which will be implemented in January, 2009.

Credit Risk

Vault is exposed to credit risk from sales of petroleum and natural gas as well as from joint venture participants. These customers are in the oil and natural gas industry, which makes Vault subject to normal industry credit risk. In order to limit this risk, the Trust selects financially sound counterparties to transact with and reviews its exposure to individual customers on a frequent basis.

Unitholder Liability

Previously, there has been some concern that trust unitholders may be held personally liable for the indebtedness of the Trust. In June 2004, the Province of Alberta enacted legislation that provides statutory protection for unitholders which is similar to protection to shareholder of a corporation. Therefore, since Vault is registered in Alberta, the risk of Unitholder Liability is removed.

Evaluation of Disclosure Controls and Procedures

Vault has implemented a system of internal controls that it believes adequately protects the asset of the Trust and is appropriate for the nature of its business and the size of its operation. These internal controls include disclosure controls and procedures designed to ensure that information required to be disclosed by the Trust is accumulated and communicated to management as appropriate to allow timely decisions regarding financial disclosure. Management of Vault, including the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design of the disclosure controls and procedures. Management has concluded that the design of the disclosure controls and procedures provide reasonable assurance that material information is made known to them by others within Vault. It should be noted that while the Chief Executive Officer and Chief Financial Officer believe that the Trust's design of the disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect these disclosure controls and procedures or internal control over financial reporting will necessarily prevent all errors and fraud.

There were no material changes to the Trust's internal control over financial reporting since December 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Trust's internal control over financial reporting.

Additional information related to Vault, including the Annual Information Form (AIF), may be found on the SEDAR website at www.sedar.com.



VAULT ENERGY TRUST
Consolidated Balance Sheets

September 30, December 31,
($ thousands) 2007 2006
----------------------------------------------------------------------------
(unaudited)

Assets
Current assets:
Accounts receivable $ 17,732 $ 16,025
Prepaid expenses and deposits 2,312 2,413
----------------------------------------------------------------------------
20,044 18,438

Property, plant and equipment (Note 3) 404,318 497,316
Deferred charges (Note 5) - 3,905
----------------------------------------------------------------------------
$ 424,362 $ 519,659
----------------------------------------------------------------------------

Liabilities and Unitholders' Equity
Current liabilities:
Bank indebtedness $ 8,756 $ 7,433
Accounts payable and accrued
liabilities 17,885 24,418
Derivative contracts (Note 14) 1,208 -
Distributions payable to unitholders 3,112 3,069
----------------------------------------------------------------------------
30,961 34,920

Capital lease obligation 181 258
Deferred credits (Note 15) 2,309 2,310
Revolving credit facility (Note 4, 17) 80,000 56,000
Convertible debentures (Note 5, 17) 92,429 94,928
Asset retirement obligation (Note 6) 36,063 34,508
Future income taxes (Note 10) - 8,139
----------------------------------------------------------------------------
210,982 196,143

Non-controlling interest (Note 7) 6,359 13,861

Unitholders' equity:
Trust units/common shares (Note 8, 17) 346,798 344,363
Contributed surplus (Note 9) 8,570 6,081
Equity component of convertible
debentures (Note 5, 17) 4,701 4,701
Deficit (184,009) (80,410)
----------------------------------------------------------------------------
176,060 274,735
----------------------------------------------------------------------------
$ 424,362 $ 519,659
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements

Approved by the Board of Directors:

Robert Jepson Sean Monaghan
President, Chief Executive Officer Chairman of the Board of Directors
and Director


VAULT ENERGY TRUST
Consolidated Statements of Loss and Deficit
(unaudited)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
($ thousands) 30, 2007 30, 2006 30, 2007 30, 2006
----------------------------------------------------------------------------

Revenue:
Petroleum and natural gas $ 31,697 $ 33,329 $ 98,176 $ 108,428
Transportation expense (1,017) (1,171) (3,345) (3,786)
Royalties (4,459) (5,650) (16,684) (18,563)
Unrealized loss on
derivative contracts (819) - (1,208) -
----------------------------------------------------------------------------
25,402 26,508 76,939 86,079

Expenses:
Production 11,080 13,436 31,040 32,470
General and administrative 2,583 1,831 6,787 5,728
Unit-based compensation
(Note 9) 1,028 1,503 2,723 2,969
Interest 3,173 2,678 8,958 7,139
Depletion, depreciation and
accretion 16,500 16,463 50,251 51,403
Goodwill impairment - 4,179 - 4,179

Write-down of oil & gas
properties (Note 3) 67,996 - 67,996 -

----------------------------------------------------------------------------
102,360 40,090 (167,755) 103,888

----------------------------------------------------------------------------
Net loss before taxes (76,958) (13,582) (90,816) (17,809)
----------------------------------------------------------------------------

Taxes:
Current tax provision
(recovery) - 45 (271) 53
Future income tax expense
(recovery) (3,003) 1,577 (8,705) (4,121)
----------------------------------------------------------------------------
(3,003) 1,622 (8,976) (4,068)

Net loss before
non-controlling interest (73,955) (15,204) (81,840) (13,741)
Non-controlling interest
(Note 7) 5,545 1,363 6,137 1,227
----------------------------------------------------------------------------
Net loss $ (68,410) $ (13,841) $ (75,703) $ (12,514)
----------------------------------------------------------------------------


Deficit, beginning of period $ (106,266) $ (40,928) $ (80,410) $ (18,882)
Net loss (68,410) (13,841) (75,703) (12,514)
Distributions (9,333) (12,105) (27,896) (35,478)
----------------------------------------------------------------------------
Deficit, end of period $ (184,009) $ (66,874) $ (184,009) $ (66,874)
----------------------------------------------------------------------------

Net loss per Trust unit
(Note 11)
Basic (1.87) (0.40) (2.08) (0.37)
Diluted (1.87) (0.40) (2.08) (0.37)

See accompanying notes to the consolidated financial statements


VAULT ENERGY TRUST
Consolidated Statements of Cash Flows
(unaudited)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
($ thousands) 30, 2007 30, 2006 30, 2007 30, 2006
----------------------------------------------------------------------------


Cash provided by (used in):

Operating:
Net loss $ (68,410) $ (13,841) $ (75,703) $ (12,514)
Items not affecting cash:
Unrealized loss on
derivative contracts 819 - 1,208 -
Depletion, depreciation and
accretion 16,500 16,463 50,251 51,403
Goodwill impairment - 4,179 - 4,179
Write-down of oil & gas
properties 67,996 - 67,996 -
Amortization of natural gas
sales contract (184) (238) (579) (745)
Unit-based compensation 815 1,503 2,489 2,969
Future income tax expense
(recovery) (3,003) 1,577 (8,705) (4,121)
Non-controlling interest (5,545) (1,363) (6,137) (1,227)
Gas over bitumen royalty
adjustment 123 1,026 553 1,026
Asset retirement
expenditures 38 (204) (376) (790)
----------------------------------------------------------------------------
Funds flow from operations 9,149 9,102 30,997 40,180

Net change in non-cash
operating working capital (597) 13,112 (3,607) (5,332)
----------------------------------------------------------------------------
8,552 22,214 27,390 34,848
----------------------------------------------------------------------------

Financing:
Increase in revolving
credit facility 6,640 (5,775) 25,323 (37,995)
Convertible debenture
issue, net of costs - (32) - 47,756
Increase (decrease) in
capital lease obligation 43 (5) (77) 68
Trust units issued, net of
costs - 4,345 1,054 8,173
Warrants exercised - 212 - 474
Distributions to
unitholders (9,333) (12,105) (27,896) (35,478)
Change in non-cash
financing working capital 1 96 43 289
----------------------------------------------------------------------------
(2,649) (13,264) (1,553) (16,713)
----------------------------------------------------------------------------

Investments:
Capital expenditures (5,468) (6,433) (24,647) (32,550)
Property acquisitions - (1,071) - (1,483)
Property dispositions 3,225 1,110 3,365 3,162
Change in non-cash
investing working capital (3,660) (2,556) (4,555) 6,967
----------------------------------------------------------------------------
(5,903) (8,950) (25,837) (23,904)
----------------------------------------------------------------------------

Change in cash - - - (5,769)
Cash, beginning of period - - - 5,769
----------------------------------------------------------------------------

Cash, end of period $ - $ - $ - $ -
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements


Vault Energy Trust
Notes to the Consolidated Financial Statements
Nine months ended September 30, 2007
(Tabular amounts in thousands of Canadian dollars, except per unit amounts)


Structure of the Trust

Vault Energy Trust (the "Trust") is an open-ended, unincorporated investment trust governed by the laws of the Province of Alberta. The Trust was established as part of the Chamaelo Plan of Arrangement that became effective on June 22, 2005. The purpose of the Trust is to indirectly explore for, develop and hold interests in petroleum and natural gas properties, through investments in securities of subsidiaries and royalty interests in oil and natural gas properties. The business of the Trust is carried on by Vault Energy Inc. The Trust owns, directly and indirectly, 100% of the common shares, (excluding the exchangeable shares - see note 7) of Vault Energy Inc. The activities of Vault Energy Inc. are financed through interest bearing notes from the Trust and third party debt as described in the notes to the financial statements. The convertible debentures are direct obligations of the Trust.

Pursuant to the terms of an agreement (the "NPI Agreement"), the Trust is entitled to a payment from Vault Energy Inc. each month equal to the amount by which 99% of the gross proceeds from the sale of production exceed 99% of certain deductible expenditures (as defined). Under the terms of the NPI Agreement, deductible expenditures may include amounts, determined on a discretionary basis, to fund capital expenditures, to repay third party debt and to provide for working capital required to carry out the operations of Vault Energy Inc.

The Trustee may declare payable to the Trust Unitholders all or any part of the net income of the Trust earned from interest income on the notes and from the income generated under the NPI Agreement, and from any dividends paid on the common shares of Vault Energy Inc., less any expenses of the Trust including interest on the convertible debentures.

1. SUMMARY OF ACCOUNTING POLICIES

The interim consolidated financial statements of Vault have been prepared by management in accordance with accounting principles generally accepted in Canada. The interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the audited consolidated financial statements of Vault for the period ended December 31, 2006. The disclosures provided below are incremental to those included with the audited annual consolidated financial statements. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in Vault Energy Trust's annual report for the period ended December 31, 2006.

2. CHANGE IN ACCOUNTING POLICY

a) Financial Instruments

In an effort to harmonize Canadian standards with United States and International accounting standards, the Canadian Accounting Standards Board has recently issued the following new Handbook sections which are effective for annual and interim periods in fiscal years beginning on or after October 1, 2006:

- 1530 ; Comprehensive Income

- 3855 ; Financial Instruments - Recognition and Measurement

- 3861 ; Financial Instruments - Disclosure and Presentation; and

- 3865 ; Hedges

Under these new standards, all financial assets should be measured at fair value with the exception of loans, receivables, and investments that are intended to be held to maturity and certain equity investments, which should be measured at cost. Similarly, all financial liabilities should be measured at fair value when they are either derivatives or held for trading. Gains and losses on financial instruments measured at fair value will be recognized in net income in the periods they arise with the exception of gains and losses arising from:

- Financial assets held for sale, for which unrealized gains and losses are deferred in other comprehensive income until sold or impaired; and

- Certain financial instruments that qualify for hedge accounting

Currently, the Trust does not enter into any financial instruments for trading or speculative purposes. Effective January 1, 2007, the Trust determined that the financial instruments in respect of the commodity purchase and sales contracts qualify for the normal purchase or sale exemption. Accordingly, the change in fair value of these financial instruments are not recognized on the balance sheet. Realized gains and losses on these contracts are recognized in petroleum and natural gas revenue and cash flows in the same period in which the revenues associated with the financial transactions are recognized.

The fair value of the commodity derivative contacts are recognized at each reporting date with the change in the fair value being classified as an unrealized gain or loss in the statement of income.

b) Deferred Charges

Under the requirements of the new financial instrument standards, the Trust has included the debenture issue costs as part of the carrying value of the debt component effective January 1, 2007. Refer to note 5 for more details.



3. PROPERTY, PLANT AND EQUIPMENT


September 30, December 31,
Property, plant and equipment ($ thousands) 2007 2006
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Petroleum and natural gas properties 553,642 599,606
Office and other equipment 3,890 3,744
----------------------------------------------------------------------------
----------------------------------------------------------------------------
557,532 603,350
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated depletion, depreciation and
accretion (153,214) (106,034)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Property, plant and equipment 404,318 497,316
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As at September 30, 2007, the cost of petroleum and natural gas properties includes $13,733,000 (2006 - $14,652,000) relating to properties from which there is no proved reserves and which have been excluded from costs subject to depletion and depreciation. The provision for depletion, depreciation and accretion also includes $1,614,000 (2006 - $1,560,000) for accretion of asset retirement costs. During the period, the Trust capitalized $463,000 (2006 - $423,000) of geological and geophysical administrative costs associated with exploration and development activities. Future development costs of $24,060,000 (2006 - $21,842,000) have been included in the calculation of depletion, depreciation and accretion.

On September 24, 2007, the Trust entered into a definitive agreement with Penn West Energy Trust whereby Penn West will acquire all the issued and outstanding units of Vault. The transaction will be accomplished through a Plan of Arrangement whereby each Vault trust unit will be exchanged for 0.14 of a Penn West trust unit and each Vault exchangeable share will receive 0.14 of a Penn West unit for each Vault unit into which the Vault exchangeable shares are exchangeable at the exchange ratio. As a result of this Penn West Plan of Arrangement, the Trust has calculated a decline in market valuation of its petroleum and natural gas properties in the amount of $67,996,000 in the third quarter. This non-cash impairment represents the excess of the Trust's carrying values as compared to the fair market value as established by the Penn West acquisition.

4. REVOLVING CREDIT FACILITY

Concurrent with the Chamaelo Plan of Arrangement, Vault Energy entered into a credit agreement with a syndicate of Canadian banks to provide the Trust with $125,000,000 of total credit facilities. This is comprised of an extendible revolving term credit facility of $115,000,000 and a $10,000,000 operating facility each bearing interest at prime plus a premium ranging between 0% and 1.75% based on the Trust's debt to cash flow ratio. The credit facilities are secured by a $200,000,000 demand debenture on the assets of Vault Energy and have been renewed to June 28, 2008. Should the facilities not be renewed they convert to 366-day non-revolving term facilities on the renewal date. Payment will not be required under the facilities for more than 365 days from the conversion date and, as such, the revolving credit facility has been classified as non-current. The effective interest rate as at September 30, 2007 was 6.1% (2006 - 6.7%).

5. CONVERTIBLE DEBENTURES

On April 27, 2005, Chamaelo Energy Inc. ('Chamaelo") completed a bought deal private placement financing issuing 55,000 Series D subscription receipts at a price of $1,000 per Series D subscription receipt for aggregate gross proceeds of $55,000,000. Effective January 1, 2007, issue costs of $1,960,000 have been classified with the debt component and will be amortized over the life of the debentures. For the nine month ended September 30, 2007, amortization of $420,000 (2006 - $338,000) has been expensed.

The debentures were initially recorded at the fair value of the obligation without the conversion feature. This fair value to make future payments of principal and interest was determined to be $52,400,000. The difference between the principal amount of $55,000,000 and the fair value of the obligation is $2,600,000 and has been recorded in unitholders' equity as the fair value of the conversion feature of the debentures. The following table shows the convertible debenture activities for the period ended September 30, 2007:



Number of Debt Component Equity component
Convertible Debentures - 8% Debentures ($ thousands) ($ thousands)
----------------------------------------------------------------------------
Balance at December 31, 2006 48,671 47,003 2,301
Deferred charges (1,960)
----------------------------------------------------------------------------
Balance at January 1, 2007 45,043
Accretion & Amortization 751
----------------------------------------------------------------------------
Balance at September 30, 2007 48,671 45,794 2,301
----------------------------------------------------------------------------
----------------------------------------------------------------------------


On May 2, 2006, Vault closed a bought deal offering of $50,000,000 principle amount of convertible unsecured subordinated debentures. Effective January 1, 2007, issue costs of $1,945,000 have been classified with the debt component and will be amortized over the life of the debentures. For the nine month ended September 30, 2007, amortization of $337,000 (2006 - $163,000) has been expensed.

The debentures were initially recorded at the fair value of the obligation without the conversion feature. This fair value to make future payments of principal and interest was determined to be $47,600,000. The difference between the principal amount of $50,000,000 and the fair value of the obligation is $2,400,000 and has been recorded in unitholders' equity as the fair value of the conversion feature of the debentures. The following table shows the convertible debenture activities for the period ended September 30, 2007:



Number of Debt Component Equity component
Convertible Debentures - 7.2% Debentures ($ thousands) ($ thousands)
----------------------------------------------------------------------------
Balance at December 31, 2006 50,000 47,925 2,400
Deferred charges (1,945)
----------------------------------------------------------------------------
Balance at January 1, 2007 45,980
Accretion & Amortization 656
----------------------------------------------------------------------------
Balance at September 30, 2007 50,000 46,636 2,400
----------------------------------------------------------------------------
----------------------------------------------------------------------------


6. ASSET RETIREMENT OBLIGATION

The Trust's asset retirement obligation result from net ownership interests in petroleum and natural gas properties including well sites, gathering systems and processing facilities. The Trust estimates the total undiscounted amount of cash flows (adjusted for inflation using a rate of 2%) required to settle its asset retirement obligation is approximately $133,800,000 (2006 - $112,300,000) which will be incurred during years ranging from 2007 to 2036. A credit-adjusted risk-free rate of 7% was used to calculate the fair value of the asset retirement obligation.



A reconciliation of the asset retirement obligations is provided below:

September 30, December 31,
Asset retirement obligation ($ thousands) 2007 2006
----------------------------------------------------------------------------
Balance, beginning of period 34,508 29,560
Liabilities incurred in period 231 395
Liabilities resulting from changes in estimates 269 4,465
Accretion expense 1,614 2,095
Disposals (183) -
Liabilities settled in period (376) (2,007)
----------------------------------------------------------------------------
Balance, end of period 36,063 34,508
----------------------------------------------------------------------------
----------------------------------------------------------------------------


7. NON-CONTROLLING INTEREST

Pursuant to the Chamaelo Plan of Arrangement dated June 22, 2005, former shareholders of Chamaelo had the option to receive 0.5 exchangeable shares of Vault Energy Inc. for each Chamaelo share held to a maximum of 5,000,000 exchangeable shares. As a result, 3,889,462 exchangeable shares were issued in exchange for 7,778,924 common shares of Chamaelo. The exchangeable shares must be exchanged for Trust units by June 22, 2008.

The following summarizes the exchangeable shares outstanding as held by outside third parties and the non-controlling interest ("NCI") as at September 30, 2007:



September 30, 2007 December 31, 2006
----------------------------------------------------------------------------
Exchangeable Non-controlling Exchangeable Non-controlling
Shares Interest Shares Interest
('000s) ('000s)
----------------------------------------------------------------------------
Balance, beginning
of period 2,126,063 13,861 3,560,586 24,856
Retracted for
Trust units (205,270) (1,365) (1,434,523) (9,514)
Net loss
attributable
to NCI (6,137) (1,481)
----------------------------------------------------------------------------
Balance, end
of period 1,920,793 6,359 2,126,063 13,861
Exchange ratio,
end of period 1.48853 1.26889
----------------------------------------------------------------------------
Trust units
issuable upon
conversion, end
of period 2,859,158 2,697,740
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Exchangeable share retractions are accounted for using the step acquisition
method of accounting. A summary of these acquisitions to date as at
September 30, 2007 is as follows:



September 30, December 31,
2007 2006
----------------------------------------------------------------------------
Acquisition of non-controlling interest ($ thousands) ($ thousands)
----------------------------------------------------------------------------
Retraction of exchangeable shares
reflected in property, plant and equipment 10,495 9,913
Future taxes on acquisition of exchangeable
shares (3,462) (2,897)
----------------------------------------------------------------------------
Excess of fair market value over book value 7,033 7,016
----------------------------------------------------------------------------
----------------------------------------------------------------------------


8. UNITHOLDERS' EQUITY

The Trust Indenture provides that an unlimited number of Trust units may be authorized and issued. Each Trust unit is transferable, carries the right to one vote and represents an equal undivided beneficial interest in any distributions from the Trust and in the assets of the Trust in the event of termination or winding-up of the Trust. All Trust units are of the same class with equal rights and privileges.



a) Trust units:


September 30, 2007 December 31, 2006
----------------------------------------------------------------------------
Number of Amount Number of Amount
Units ('000s) Units ('000s)
----------------------------------------------------------------------------
Balance, beginning of the period 36,105,737 342,856 32,785,833 315,612
Trust units issued on retraction
of exhangeable shares 280,731 1,381 1,615,358 14,747
Trust units issued through
Distribution
Re-investment & Optional
Purchase Plan 223,470 1,054 1,623,182 11,848
Trust units issued on exercise
of warrants - - 81,364 625
Plan of Arrangement & other - - - 24
----------------------------------------------------------------------------
Balance, end of the period 36,609,938 345,291 36,105,737 342,856
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Warrants (note 8(b)) - 1,507 - 1,507
----------------------------------------------------------------------------
Total Unitholders' Equity 36,609,938 346,798 36,105,737 344,363
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Distribution Re-investment and Optional Purchase Plan ("DRIP")

The Trust has initiated a distribution reinvestment plan (the "Regular DRIP") and a premium distribution reinvestment plan (the "Premium DRIP"). The Regular DRIP permits eligible unitholders to direct their distributions to the purchase of additional units at 95 percent of the weighted average market price of Trust units for the 10-day trading period prior to a distribution payment date. The Premium DRIP permits eligible unitholders to elect to receive 102 percent of the cash the unitholder would otherwise have received on the distribution date. The cash distributed to the Premium DRIP unitholders is funded through the issuance of additional trust units in the open market. Participation in the Regular and Premium DRIP is subject to proration by the Trust. Unitholders who participate in either the Regular DRIP or the Premium DRIP are also eligible to participate in the Optional Unit Purchase Plan as defined in the plan. The Premium DRIP was suspended effective December 15, 2006 while the Regular DRIP was also suspended effective the May 15, 2007 distribution date.

b) Warrants

As a result of the Chamaelo Plan of Arrangement, unexercised warrants of Chamaelo were converted into 0.5 warrants of the Trust and 0.2 warrants of Chamaelo Exploration. Warrants of the trust allow the holder to purchase units of the Trust at the specified warrant exercise price. The exercise price of each warrant is reduced as of the date of conversion by the cumulative cash distributions attributable to one Trust unit. No warrants were exercised for Trust units during the period. As at September 30, 2007, the remaining warrants outstanding of 1,506,101 have been reduced in exercise price by $3.01 per warrant.

c) Trust Unit Rights Incentive Plan

On July 1, 2005, the Trust introduced its Trust Unit Rights Incentive Plan. The rights vest over three years, expire five years from the date of grant and have an exercise price that declines by the amount of distributions paid per Trust unit.



The following table summarizes the rights outstanding at September 30, 2007:

Average Average Weighted
Number of Original Reduced Average
Rights Price ($) Price ($) Years to
Expiry
----------------------------------------------------------------------------
Balance, January 1, 2007 2,169,930 9.96 8.58 3.94
Rights granted 179,730 5.20 4.95 4.73
Rights cancelled (260,943) 10.12 8.25 3.18
----------------------------------------------------------------------------
Balance, September 30, 2007 2,088,717 9.14 7.39 2.96
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The following table summarizes information with respect to outstanding
rights as at September 30, 2007:

Weighted Weighted Weighted
Number of Rights Average Average Average Number of Rights
Outstanding at Exercise Reduced Years to Exercisable at
September 30, 2007 Price ($) Price ($) Expiry September 30, 2007
----------------------------------------------------------------------------
1,076,670 10.56 8.21 2.82 717,780
18,900 12.43 10.14 2.90 12,600
78,775 13.27 11.09 2.94 52,517
37,125 10.67 8.75 3.14 12,375
4,800 9.82 8.22 3.34 1,600
872,447 7.69 6.65 3.94 212,405
----------------------------------------------------------------------------
2,088,717 9.14 7.39 2.96 1,009,277
----------------------------------------------------------------------------
----------------------------------------------------------------------------


9. UNIT- BASED COMPENSATION

During the nine months ended September 30, 2007, $2,723,000 (2006 - 2,969,000) was charged to income in respect of unit-based compensation cost. These charges comprise amortization of the fair value of Trust unit rights and also include $233,000 relating to compensation costs under the new Long Term Incentive Plan (LTIP).

In June 2007, the Board of Directors approved a new compensation plan that would better suit the employee base of the Trust and be more comparable with the standard industry compensation framework for a trust of this size. As part of the change to the compensation arrangements, the new LTIP will provide for employees to be granted deemed units based on individual and corporate performance, which vest over a three year performance period. At the time of vesting, the deemed units are settled in cash and include the accumulated distributions over the three year period which are reinvested to purchase additional units. The LTIP has two components namely: (1) Restricted Trust Units (RTUs) and (2) Performance Trust Units (PTUs). The RTUs granted vest one third annually over the three year period. The PTUs will vest at the end of the three year period dependent upon certain performance levels being achieved, as vesting can range from 0-200% of the units granted. The Board reserves the right to change the LTIP from a unit grant with a cash settlement program to a grant of units from Treasury, which is subject to unitholder approval. The LTIP does not replace the existing unit based compensation plan.

On July 1, 2005, the Trust introduced its Trust Unit Rights Incentive Plan (the "Plan"). The Trust has granted 2,088,717 (Note 8(c)) rights to employees which are outstanding as of September 30, 2007. The rights vest over three years, expire five years from the date of grant and have an exercise price that declines by the amount of distributions paid per Trust unit. Under the terms of the Plan employees are not entitled to cash payments.



Nine months ended
Unit-based compensation ($ thousands) September 30, 2007
----------------------------------------------------------------------------
Amortization of fair value 2,489

Contributed surplus
----------------------------------------------------------------------------
Balance, beginning of period 6,081
Amortization of fair value 2,489
----------------------------------------------------------------------------
Balance, end of period 8,570
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The fair value of each right granted was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions for the period to date:



2007 2006
----------------------------------------------------------------------------
Fair value per right $ 4.69 $ 4.70
Risk-free rate 4.5% 3.9%
Expected life 5 years 5 years
Expected forfeitures 13.5% 10.0%
Expected volatility 52.0% 22.0%
Dividend yield $ 1.02 $ 1.38
----------------------------------------------------------------------------


10. TAXES

In June 2007, the Government of Canada enacted new legislation as Bill C-52 received Royal Assent, which will tax publicly traded income trusts. The new 31.5% tax which will be applied to income distributions, is not expected to apply to the Trust until January 1, 2011. Due to the uncertainty as to when the Trust will substantially be able to utilize the income tax pools, the Trust has taken a valuation allowance equivalent to the amount of the estimated future income tax recovery adjustment.

The future income tax provision for the nine months ended September 30, 2007 was a recovery of $8,705,000, compared to a recovery of $4,121,000 in 2006.

Income tax pools are estimated to be $487,000,000 which is available for deduction against future taxable income.

The tax returns for all prior years are still open and may be subject to tax audit review in the future.

11. PER TRUST UNIT INFORMATION

The weighted average number of Trust units outstanding for the determination of basic and diluted per Trust unit amounts for the period to date are as follows:



2007 2006
----------------------------------------------------------------------------
Basic 36,434,543 34,108,776
Dilution on account of:
Exchangeable shares 2,568,692 3,077,928
Warrants - 444,940
----------------------------------------------------------------------------
Diluted 39,003,235 37,631,644
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Trust unit rights and convertible debentures are anti-dilutive for the nine months ended September 30, 2007, and as a result, they have not been included in the table above. The if-converted method used to calculate dilution of certain dilutive instruments may cause differences in the diluted trust unit figures used to determine earnings per trust unit and funds flow per trust unit.



12. SUPPLEMENTAL CASH FLOW INFORMATION


Three months ended Nine months ended
September 30, September 30,
($ thousands) 2007 2006 2007 2006
----------------------------------------------------------------------------
Cash interest paid 1,314 1,762 7,024 4,291
Cash taxes paid - 45 - 53
----------------------------------------------------------------------------
----------------------------------------------------------------------------


13. PHYSICAL SALES CONTRACTS

Vault has entered into physical purchase and sales contracts which are
outstanding as follows:


----------------------------------------------------------------------------
Upside
Product Volume Floor price Participation Term
----------------------------------------------------------------------------
Natural gas 2,500 GJs/d $ 7.00/GJ Max price $9.00/GJ Apr 1, 2007 -
Oct 31, 2007
Natural gas 7,500 GJs/d $ 7.60/GJ N/A Apr 1, 2007 -
Oct 31, 2007
Natural gas 2,500 GJs/d $ 7.85/GJ 50% above $7.85/GJ Nov 1, 2007 -
Mar 31, 2008
Crude Oil 1,000 bbls/d $ 68.00/bbl 50% above $68.00/bbl Jan 1, 2007 -
Dec 31, 2007
Electricity 5 MWH $ 60.75/MW N/A Apr 1, 2006 -
Dec 31, 2008
----------------------------------------------------------------------------


Effective January 1, 2007, the Trust determined that the physical financial instruments in respect of the commodity purchase and sales contracts qualify for the normal purchase or sale exemption. Accordingly, the change in fair value of these financial instruments are not recognized on the balance sheet. Realized gains and losses on these contracts are recognized in petroleum and natural gas revenue and cash flows in the same period in which the revenues associated with the financial transactions are recognized. At September 30, 2007, the fair value of these physical contracts is estimated to be $1,918,000.

14. FINANCIAL INSTRUMENTS

The Trust's financial instruments presented on the balance sheet consist of current assets, current liabilities, capital lease obligations, revolving credit facility and convertible debentures.

a) Fair values

The carrying value of current assets and current liabilities approximate their fair value due to the near term maturity of these instruments. Due to the revolving credit facility's floating interest rate, carrying value approximates fair value. Convertible debentures on the balance sheet are allocated between convertible debentures and equity component of convertible debentures. See note 5. The fair value of the outstanding convertible debentures as at September 30, 2007 is $50,618,000 for the 8% convertible debentures and $50,125,000 for the 7.2% convertible debentures based on the market closing price.

The estimated fair values have been determined based on available market information and appropriate valuation methods. The actual amounts realized may differ from these estimates.



The following financial derivative contracts were outstanding at September
30, 2007:

----------------------------------------------------------------------------
Floor Upside
Product Volume price Participation Term
----------------------------------------------------------------------------

Crude Oil - 500 bbls/d $ 76.43 N/A Jan 1, 2008 -
WTI Swap Dec 31, 2008
Crude Oil 500 bbls/d $ 71.15 50% above $71.15/bbl Jan 1, 2008 -
Dec 31, 2008

Crude Oil - 250 bbls/d $ 76.15 N/A Jan 1, 2009 -
WTI Swap Dec 31, 2009
Crude Oil 250 bbls/d $ 69.20 50% above $69.20/bbl Jan 1, 2009 -
Dec 31, 2009

Natural Gas -
AECO Swap 2,500 GJs/d $ 8.61 N/A Nov 1, 2007 -
Mar 31, 2008

----------------------------------------------------------------------------


New CICA Handbook Standards, Section 1530 "Comprehensive Income", Section 3855 "Financial Instruments - Recognition and Measurement", Section 3861 "Financial Instruments - Disclosure and Presentation" and Section 3865 "Hedges" are applicable for the Trust beginning in 2007.

All derivative contracts commencing in 2007 are recorded at fair value on the balance sheet. Derivatives are adjusted to fair value each period with the change recognized in the determination of income. At September 30, 2007, the Trust has recognized a current liability of $1,208,000 for the fair value of its oil and gas derivative contracts.

b) Credit risk

A substantial portion of the Trust's accounts receivable are with major customers and joint venture partners in the oil and gas industry and are subject to normal industry credit risks. The Trust manages this credit risk by entering into sales contracts with only highly rated entities and reviewing its exposure to individual entities on a regular basis.

c) Interest Rate Risk

The Trust is exposed to movements in interest rates. The revolving credit facility is a variable rate facility. The Trust is monitoring this risk by examining the interest rate forward market for opportunities to fix the rate on a portion of its variable rate debt. As at September 30, 2007, The Trust has fixed the rate on a short term basis on a portion of the revolving credit facility.

d) Commodity price risk

Natural gas sales contract - This contract was acquired in conjunction with the purchase of certain petroleum and natural gas properties on November 30, 2004. At the date of the acquisition, the fair value of the contract was a liability of $2,962,000. This value was recorded as a deferred credit which is $58,000 at September 30, 2007 (2006 - $852,000) and is being amortized over the life of the contract, which expires in October 2007.

Other than the natural gas sales contract and the physical sales contracts outlined in Note 13, the Trust's oil and natural gas production was marketed and sold on the spot market to area aggregators based on daily spot prices that are adjusted for product quality and transportation costs.

e) Currency Risk

The Trust is exposed to foreign currency fluctuations as crude oil prices received are referenced to U.S. dollar denominated prices. As at September 30, 2007, the Trust has not entered into any foreign currency derivatives with respect to oil and natural gas sales. The financial derivatives have been transacted in Canadian dollars and as such have a foreign currency derivative embedded.

15. DEFERRED CREDITS

In October 2004, the Alberta Government passed amendments to the royalty regulations. The Government may reduce the royalty calculated if production has been constrained by the AEUB's objective to conserve bitumen. The royalty adjustments received have been recorded on the balance sheet rather than income as the Trust cannot determine if, when or to what extent the royalty adjustments may be repayable through incremental royalties if and when gas production recommences. However, all royalty adjustments are recorded as a component of cash flow and are considered distributable income. Included in deferred credits, the Trust recorded gas over bitumen royalty adjustments of $1,976,000 as at September 30, 2007.



16. COMMITMENTS AND CONTINGENCIES

The Trust is committed to payments under an operating lease for office space
and capital leases for leased vehicles as at September 30, 2007:

----------------------------------------------------------------------------
Minimum Commitments Each Year Total
----------------------------- Committed
($ thousands) 2007 2008 2009 2010 2011 After 2011 Total
----------------------------------------------------------------------------
Capital lease obligations 48 287 60 35 - - 430
Operating lease obligation 438 1,752 1,819 1,825 1,825 3,802 11,461
----------------------------------------------------------------------------
486 2,039 1,879 1,860 1,825 3,802 11,891
----------------------------------------------------------------------------
----------------------------------------------------------------------------


17. SUBSEQUENT EVENTS

On September 24, 2007, the Trust entered into a definitive agreement with Penn West Energy Trust whereby Penn West will acquire all the issued and outstanding units of Vault. The transaction will be accomplished through a Plan of Arrangement whereby each Vault trust unit will be exchanged for 0.14 of a Penn West trust unit and each Vault exchangeable share will receive 0.14 of a Penn West unit for each Vault unit into which the Vault exchangeable shares are exchangeable at the exchange ratio. The Arrangement is subject to stock exchange, court and regulatory approvals and other conditions that are typical of transactions of this nature, including approval by at least 66 2/3% of Vault Security Holders.

On October 31, 2007, Penn West Energy Trust and Canetic Resources Trust announced that they have entered into a combination agreement that provides for the strategic combination of Penn West and Canetic. As a result of this recent development, Vault will apply to the Court for an order to extend the time for the holding of the Meeting. In connection with the extended meeting date, additional information pertaining to the Penn West / Canetic transaction, which will supplement the information contained in the Information Circular, will be provided to the Vault Security Holders. Vault expects this information to be available by late November or early December, for an anticipated meeting date of the Vault Security Holders to occur prior to year end. The initial date of the Meeting was to be November 26th but until Vault is able to provide the Vault Security Holders with the additional information, Vault recommends that Vault Security Holders not submit their proxies in respect of the presently-scheduled November 26, 2007 meeting. Vault will issue a further press release once dates are confirmed.

In the event of a change in control of Vault, under the terms of the existing bank credit facility, all bank obligations and indebtedness owing under the credit facilities become immediately due and payable. In accordance with the Vault Debenture Indentures, completion of the Penn West Plan of Arrangement will constitute a change in control of Vault. Following the effective date of the Arrangement, Penn West will assume all rights, covenants and obligations of Vault under the Vault Debenture Indentures in respect of the outstanding Vault Debentures. Penn West will be required, within 30 days of completion of the Arrangement make an offer to purchase all outstanding Vault Debentures at a price of 101% of the principal amount plus accrued and unpaid interest.

Contact Information

  • Vault Energy Trust
    Robert Jepson
    President and Chief Executive Officer
    (403) 444-9662
    or
    Vault Energy Trust
    Greg Fisher
    VP, Finance and Chief Financial Officer
    (403) 444-9651
    or
    Vault Energy Trust
    Nicole Collard
    Investor Relations
    (403) 444-9657
    Email: info@vaultenergy.com
    Website: www.vaultenergy.com