Avenir Diversified Income Trust
TSX : AVF.UN

Avenir Diversified Income Trust

August 14, 2006 19:38 ET

Avenir Diversified Income Trust Posts Second Quarter 2006 Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 14, 2006) - AVENIR DIVERSIFIED INCOME TRUST ("Avenir Trust") (TSX:AVF.UN) is pleased to announce the financial and operational results for the three and six months ended June 30, 2006 and to announce the have filed the complete Management Discussion and Analysis and Unaudited Interim Consolidated Financial Statements for the three and six months ended June 30, 2006 on SEDAR. An electronic copy of these documents may be obtained on Avenir Trust's SEDAR profile at www.sedar.com.



------------------------------------------------------------------------
For the periods ended Three months Ended June 30
------------------------------------------------------------------------
2006 2005 %
(restated)(4) Change
------------------------------------------------------------------------
FINANCIAL
Gross Revenue $171,034,177 $ 61,297,621 179
Net Revenue $169,126,889 $ 59,325,819 185
Funds From Operations (FFO)(1) $ 15,747,172 $ 9,351,360 68
FFO Per Unit(1) - Basic $ 0.38 $ 0.38 0
Distributions(2) $ 13,448,537 $ 7,953,581 69
Distributions Per Unit - Basic $ 0.33 $ 0.33 0
Distribution Payout Ratio(3) 85% 85% 0
Income from continuing operations $ 9,782,609 $ 2,332,049 319
Income from continuing
operations/Unit - Basic $ 0.24 $ 0.10 140
Income from discontinued
operations $ 527,106 $ 412,296 28
Income discontinued
operations/Unit - Basic $ 0.01 $ 0.01 0
Net Income $ 10,309,715 $ 2,744,345 276
Net Income Per Unit - Basic $ 0.25 $ 0.11 127
Total Assets $476,204,685 $317,216,981 50
Working Cap. (Net Debt) including
mortgages (1) $(34,385,547) $(42,210,037) (19)
Wtd. Avg. Units Outstanding -
Basic 41,047,398 24,441,653 68
Units Outstanding (incl. escrowed
units) 41,763,367 25,011,258 67
------------------------------------------------------------------------


------------------------------------------------------------------------
For the periods ended Six months Ended June 30
------------------------------------------------------------------------
2006 2005 %
(restated)(4) Change
------------------------------------------------------------------------
FINANCIAL
Gross Revenue $340,348,433 $ 73,369,845 364
Net Revenue $335,827,608 $ 64,101,566 424
Funds From Operations (FFO)(1) $ 36,342,738 $ 16,630,304 119
FFO Per Unit(1) - Basic $ 0.90 $ 0.88 2
Distributions(2) $ 28,185,194 $ 12,143,662 132
Distributions Per Unit - Basic $ 0.69 $ 0.65 6
Distribution Payout Ratio(3) 78% 73% 7
Income from continuing operations $ 16,897,956 $ 863,722 1856
Income from continuing
operations/Unit - Basic $ 0.42 $ 0.05 740
Income from discontinued
operations $ 3,517,261 $ 1,276,741 175
Income discontinued
operations/Unit - Basic $ 0.08 $ 0.06 33
Net Income $ 20,415,217 $ 2,140,463 854
Net Income Per Unit - Basic $ 0.50 $ 0.11 355
Total Assets $476,204,685 $317,216,981 50
Working Cap. (Net Debt) including
mortgages (1) $(34,385,547) $(42,210,037) (19)
Wtd. Avg. Units Outstanding -
Basic 40,601,009 18,815,761 116
Units Outstanding (incl. escrowed
units) 41,763,367 25,011,258 67


(1) Funds from operations, Funds from operations per unit, net back, and
working capital (net debt) including mortgages are not recognized
measures under Canadian generally accepted accounting principles (GAAP).
Funds from operations is calculated by taking net income and adding back
non-cash balances such as depletion, depreciation and amortization,
asset retirement obligation accretion, (loss) gain on sale of property
and equipment, stock based compensation expense, unrealized foreign
exchange, unrealized (gain) loss on financial instruments,
non-controlling interest and future income tax recovery. Working capital
(net debt) is calculated by taking current assets less current
liabilities including capital lease obligations, mortgages (upon
mortgage maturity it is the Trust's intention to renew the mortgages on
a long term basis at current rates) and long-term debt. Management
believes that these measures are useful supplemental measures to analyze
operating performance as they demonstrate the Trust's ability to
generate the Funds from operations necessary to fund future
distributions and capital investments. The Trust's method of calculating
these measures may differ from other issuers, and accordingly, they may
not be comparable to measures used by other issuers. Investors should be
cautioned that "Funds from operations" and "Funds from operations per
unit" should not be construed as an alternative to net income, cash flow
from operating activities or other measures of financial performance
calculated in accordance with GAAP.
(2) Distributions represents the actual cash distribution paid during the
period. It does not include the special distribution in June 2006 of the
Essential Energy Services Trust Units.
(3) Distribution Payout Ratio is calculated by dividing the Distributions
by the Funds from operations.
(4) Comparative periods have been restated to conform to current period
presentation - specifically relating to the discontinued operations of
the Energy Seervices Division of the Trust.


President's Message

The second quarter was in line with expectations taking into account the spin-off of the energy services division on May 31, 2006. The Trust is now approximately 40% energy (oil and gas production) and 60% non-energy (financial services and real estate) and the Trust will continue to target a 75% annual payout ratio, as it has since inception in 2003. The energy services division is included in the Trust's operations for the months of January through May only and is accounted for as a discontinued operation in the financial statements accompanying this write-up. The second quarter is traditionally the Trust's weakest quarter with the seasonal slowdown in the Elbow River natural gas liquids marketing division, some production restrictions due to spring break-up and turnarounds in the oil and gas division and the impact of spring rains and break-up in the energy services division. This year was no exception as the energy services division was particularly impacted by early spring rains that reduced contributions from the Southern Alberta business units in April and May. The Elbow River division had a solid quarter and will benefit in the coming quarters from a larger than usual sales in transit volume at quarter end and significant product presales which will be recognized when deliveries are made. The Enervest fund management group had a very good quarter despite a general weakness in the Trust and energy segment of the market and the continued uncertainty around the direction of interest rates throughout the quarter. The oil and gas division has been able to keep production volumes flat at approximately 3,400 BOE per day for the past three quarters and has increased cashflow despite significantly lower natural gas prices in the second quarter of 2006. The benefits of a balanced product mix of 52% natural gas and 48% oil was proved out in Q2 2006. Real Estate continued to perform well but to date is a very small contributor to our monthly distributions.

The second quarter of 2006 was largely focused on the spin-off of our energy services division into a publicly-traded oilfield services trust, Essential Energy Services Trust ("Essential"). Since inception, the Avenir Trust's business strategy has been consistent; in addition to providing sustainable distributions across energy and non-energy businesses, the Trust has and continues to look at unlocking additional value for the Avenir Trust unitholders through the disposition or the spinning-off of its divisions. By spinning-off a division which has grown to a sufficient independent size and stability, the market is better able to value them on their own. While the Avenir Trust continues to provide and focus on sustainable distributions through diversified businesses, the Trust has also been able to achieve distribution growth through accretive acquisitions. Built in to the May 31, 2006 spin-off of the energy service division was a small distribution increase which represented the 7th distribution increase in the three years since the Trusts inception. In conjunction with the spin-off, the Trust's monthly distribution was reduced from $0.12 per month to $0.083 per month; however Trust unitholders also now receive the equivalent of $0.0415 per month (1/2 of the $0.083 being distributed by Essential monthly) from the Essential units they received in the spin-off. On a combined basis this results in a distribution increase from $1.44 per year to $1.495 per year or 4%.

With respect to Essential, its name was chosen for the reason that "Essential" correctly described the nature of the services provided, as they focus on oilfield maintenance activities after a well has been drilled. These services help provide ongoing cashflow to oil and gas companies and in effect become "essential" to the oil and gas producers. With almost 300 employees and now over $35 million per year in EBITDA, the energy services division reached a juncture in its evolution that required a focused management team that could dedicate 100% of their efforts to the energy services division. From the Avenir Trust unitholder perspective, Avenir had invested approximately $80 million in energy services assets and new equipment and spun the division out such that Avenir unitholders would have a current market value of approximately $165 million. Management felt the spin-off was a means of crystallizing the value for unitholders that had been added within the division. We firmly believe that once the market better understands the Essential story and sees their profitable results, the Essential units will perform as expected. We also must take into consideration that the second quarter is by far the weakest quarter for the energy services division, with the fourth and first quarters being the strongest. The future looks very bright for this group.

We encourage the Avenir Trust unitholders to take the time to better understand the opportunities and growth potential that lie ahead for Essential Energy Services Trust (ESN.UN) by going to Essential's website at www.essentialenergy.ca to view their most recent information and presentations.

William M. Gallacher
President & CEO

REVIEW OF FINANCIAL RESULTS

Due to the seasonal nature of the energy services division and its Elbow River natural gas marketing division, the second quarter of the year will tend to be the Trust's weakest quarter; Energy Services impacted by weather and spring breakup and marketing revenues tending to decline in the spring shoulder months after the busy winter sales season. However, taking this into consideration, along with only two months of revenue from the energy service division prior to its spin-off, the Trust had a solid second quarter that was ahead of forecast.

The Trust had net earnings for the quarter ended June 30, 2006 of $10,309,715 as profits were recorded across each of its operating divisions. Net Income was up 276% over the $2,744,345 net income for the quarter ended June 30, 2005. Net income for the six months ended June 30, 2006 was $20,415,217 or $0.50 per unit versus $2,140,463 or $0.11 per unit for the first six months of 2005. The funds from operations for the second quarter 2006 were $15,747,172 or $0.38 per unit versus $9,351,360 or $0.38 per unit for the second quarter 2005. For the six months ended June 30, 2006, funds from operations were $36,342,738 compared to $16,630,304 for the same period in 2005, a 119% increase. The increase in funds from operations was primarily the result of the growth in the Trust's business units, including an August 2005 oil and gas acquisition, a much larger energy services division due to acquisitions throughout the second half of 2005 and the first quarter of 2006, and the addition of the EnerVest Management contract in October 2005. The Trust distributed $13,448,537 or $0.33 per unit for the quarter ended June 30, 2006 versus $7,953,581 or $0.33 per unit distributed for the quarter ended June 30, 2005. This does not include the special distribution of the Essential Trust Units on a ratio of one Essential Trust unit for each two Avenir Trust units held. For the quarter ended June 30, 2006 the payout ratio was 85% of funds from operations. For the six months ended June 30, 2006 the payout ratio was 78% versus 73% for the first six months of 2005 and a target payout ratio of 75% to 80%. With traditionally stronger third and fourth quarters ahead, the Trust is well positioned to be at or less than its payout ratio target.



REVIEW OF BUSINESS UNIT OPERATIONS

1. OIL AND GAS

For the periods ended Three months Ended Six months Ended
June 30 June 30
2006 2005 % 2006 2005 %
Change Change
------------------------------------------------------------------------
Production
Oil and NGL's - bbls per day 1,653 1,609 3 1,683 1,623 4
Gas - Mcf per day 10,447 9,819 6 10,019 8,503 18
Total BOE1 per day 3,394 3,246 5 3,353 3,040 10
Average Pricing
Oil & NGL ($/Bbl) before
hedging(2)
$66.76 $47.28 41 $56.78 $45.85 24
Oil & NGL ($/Bbl) after
hedging(2) $60.94 $42.28 44 $50.91 $42.20 21
Natural Gas ($/Mcf) $ 6.15 $ 7.06 (13) $ 7.08 $ 7.06 0
Average Price Per BOE(1)
before hedging(2) $50.76 $44.01 15 $49.93 $43.65 12
Average Price Per BOE(1)
after hedging(2) $47.93 $41.65 15 $45.99 $41.71 10
------------------------------------------------------------------------

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

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


For the second quarter of 2006, production volumes for the Trust have remained flat through continued focus on optimization and capital projects on the existing asset base. Oil and gas sales averaged 3,394 BOE per day in the second quarter compared to an average production rate of 3,373 BOE per day in the previous two quarters. Weather impacts and maintenance outages in the second quarter caused a restriction of 62 BOE per day indicating a current production capability for the Trust of approximately 3,450 BOE per day.

Oil and natural gas liquid sales for the second quarter averaged 1,653 Bbls per day down 4% from the first quarter due primarily to weather related lease access and power reliability issues. Natural gas sales were up 9% to 10,447 Mcf per day with fewer third party restrictions at Noel and the completion of turnaround work at Liege.

Total gross revenue from petroleum and natural gas sales in the second quarter was $15,016,412 up 20% from $12,499,460 in the first quarter 2006. Stronger oil and liquids pricing along with prior year royalty revenue adjustments helped to offset the lower gas prices experienced in the second quarter. The average price received for crude oil and natural gas liquids during the second quarter was $60.94 per barrel after hedging (a majority of the hedges were put in place in 2004 to support the Prime West acquisition) representing a 44% increase over first quarter pricing. Natural gas pricing for the second quarter of 2006 was $6.15 per Mcf versus $8.10 per Mcf in the first quarter, a decrease of 24%. The lower gas pricing and a prior year gas cost allowance adjustment resulted in a decreased overall royalty rate of 11% compared to 17% in the first quarter.

Oil and Gas operating expenses in the current period reflects normal course adjustments relating to prior period activity. Additional workover and turnaround costs in the first quarter of 2006 resulted in an accounting period adjustment of $406,600 while adjustments relating to prior period activity from non-operated properties increased the overall operating expenses by $276,400. The total operating expense for the second quarter including these adjustments was $4,599,650 resulting in a division operating expense of $14.89 per BOE. Without these adjustments, the division operating expense for the second quarter production period was $12.68 per BOE. The average year to date division operating expense excluding these adjustments was $13.60 per BOE. The Trust expects the average division operating expense to remain in the range of $12.50 to $13.00 per BOE for the remainder of the year.

The total second quarter net capital expenditure by the Trust was $2.4 million bringing the total year to date net capital expenditure to $6.3 million. Activity in the second quarter continued to focus on optimization and re-completions and included the drilling of 4 gross (3 net) operated wells in South and East Central Alberta. All 4 wells were cased as gas targets and are currently awaiting completion and evaluation for tie-in.

Activity also continued on the non-operated development program in the Deer Mountain Oil Unit in which the Trust holds a 4% working interest. To date in 2006, 4 wells have been drilled and cased in the Beaverhill Lake Pool. An additional 8 wells and facilities are planned by year end at an estimated net capital expenditure of $1.1 million. Coal bed methane development in the non-operated areas of Central Alberta progressed in the first half of 2006 based on the successful results of 2005. The Trust has agreed to participate in 23 wells planned for 2006 at an average working interest of 4%.

The current focus for the Trust in the second half of 2006 will include the advancement of the gas development programs in South and East Central Alberta combined with oil development opportunities in Saskatchewan and Central Alberta. The Trust remains flexible on the timing of the capital programs based on the commodity pricing in the third and fourth quarters of 2006. Total capital spending is estimated at $10 to $11 million for the 2006 budget year.

As part of the ongoing rationalization of the asset base, the Trust has completed the divestiture of the Rigel assets in Northeast British Columbia effective May 2006. The sale of this operated property is consistent with the mandate of the Trust to focus resources on the core areas of Central and South Alberta and Saskatchewan. Total consideration for the property was $1.56 million for approximately 25 BOE per day of net production, yielding an approximate $62,400 per flowing BOE disposition price. In the second half of 2006, the Trust will continue to evaluate accretive acquisition opportunities to strengthen the core areas with the focus being opportunities in the 250 to 1,000 BOE per day range.

2. FINANCIAL SERVICES

At June 30, 2006 the Trust's financial services business unit consisted of:

i. ENERVEST LIMITED PARTNERSHIP ("EnerVest") - MANAGEMENT CONTRACT

Despite declines in the Canadian equity markets and a rising interest rate environment, EnerVest's assets under management remained relatively static during the quarter with the launch of two new projects. As of June 30, 2006 the value of the total "assets under management" was just under $2 billion. During the quarter, $50 million was raised in April with the closing of the EnerVest Energy and Oil Sands Total Return Trust and $29 million was raised in June for the EnerVest FTS Limited Partnership 2006 flow through fund. Funds from operations for the quarter were 14% higher than the previous quarter as a result of EnerVest growing through the 2006 Rights Offering of the EnerVest Diversified Trust for a full quarter. Avenir Trust receives a fee based on the percentage of the total assets under management for managing the EnerVest group of funds. Looking ahead, EnerVest is working to bring new products to the market over the next few months to further diversify their offerings and add to their total assets under management.

In June, EnerVest joined the Investment Funds Institute of Canada. Most of Canada's investment managers belong to this organization to promote the investment funds industry and establish "Best Practices" procedures.

i. ELBOW RIVER RESOURCES MARKETING LP ("Elbow")

Elbow posted very solid second quarter results in a quarter that is traditionally Elbow's weakest by a significant margin due to little shoulder season weather demand. Second quarter 2006 funds from operations were slightly ahead of forecast after accounting for foreign exchange movements and product sales in transit and well ahead of second quarter 2005. Additionally, this quarter did not have transitional issues, as was the case in Q2 2005, which allowed Elbow to focus solely on their business. Propane sales were on par with typical years whereby Q2 is historically the slowest quarter with little weather demand and minimal sales for storage. Butane sales were strong due to favourable spread opportunities related to volatile crude and unleaded gasoline prices as well as shifting market conditions related to Alberta Oil Sands activity. Ethanol sales also had a strong quarter as a result of significant demand increases as the U.S. adds new ethanol markets related to their Renewable Fuels Energy Bill. Bio-diesel sales started to gain momentum with several spot deals and some term deals being consummated as the market started to see significant growth again aided by the Renewable Fuels Energy Bill.

The balance of the year looks positive based on record presales and opportunities identified by the Elbow team. Propane is well positioned for the winter with some favourable storage positions and term deals in place. Butane presales are at record levels as Elbow has been able to capture spread opportunities through the balance of the year. Ethanol also has strong presales as buyers were scrambling earlier in the year to secure supply for the upcoming winter due to demand growing faster than new plant construction. Bio-diesel should continue to show strong growth as new plants continue to come on-stream and the company will soon be adding a second marketer to help develop this segment.

ii. FINANCIAL SERVICE CONTRACTS

In January 2003, Avenir Financial Services Partnership acquired its initial financial services contract with an affiliate of a financial services provider, RentCash Inc. ("RentCash"), to provide funding for a cash advance company. RentCash provides cash advance, cheque cashing and payday loan services. The Trust had since expanded this business and at the peak held $19.9 million in contracts. Although the Trust continues to be comfortable with this investment and its returns based on results to date, since July of 2005 the Trust has not entered into any new contracts and has since redeemed $4.13 million. Currently the Trust holds $15.77 million in outstanding contracts.

As the Trust identifies other opportunities, it may choose to reallocate investments within its portfolio into other areas providing greater long term impact.

3. REAL ESTATE

On April 1, 2006 the real estate division changed management companies and is now under the direction of MDC Property Services Ltd. ("MDC"), a Calgary based firm that currently has approximately $150 million under management. The Trust's management is excited to have MDC as advisors and is looking forward to working with MDC in locating opportunities to grow this business unit.

The business unit currently has over 430,000 square feet of light industrial and smaller commercial properties located in Toronto and London, Ontario and Edmonton and Calgary, Alberta. During the first quarter the remaining vacancy at the Harris location was filled and the Trust's real estate properties are now 100% leased.

In the near term, the Trust would like to increase its investments in real estate in order to make this division a more meaningful contributor to the Trust's total assets and funds from operations. Although cap rates remain at historically low levels, the Trust believes it can identify niche opportunities which will provide returns that meet our 9% to 10% hurdle targets. The new relationship with MDC should allow the Trust to more aggressively source opportunities that fit our investment criteria.

4. DISCONTINUED OPERATIONS - ENERGY SERVICES

During the second quarter the main focus of this division was its spin-off into the publicly-traded oilfield services trust, Essential Energy Services Trust ("Essential") that occurred on May 31, 2006. For 2006, the energy services division is included in the Trust's operations for the period from January 1 through May 31 only and is accounted for as a discontinued operation in the financial statements. The second quarter is traditionally the energy services division's weakest quarter with the impact of wet weather and spring break-up and this year was no exception. The division was particularly impacted by early spring rains that reduced contributions from the Southern Alberta business units in April and May.

Second quarter 2006 includes only partial results from energy services as the division was spun-out on May 31, 2006 and therefore includes two rather than three months of operations for the quarter. The results are outlined in the MD&A and financial statements to follow.

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

Forward Looking Statements

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



CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, 2006 December 31, 2005
$ $
------------------------------------------------------------------------

ASSETS
Current
Cash - 6,767,724
Restricted cash 203,000 366,057
Accounts receivable and prepaid
expenses 65,772,334 95,663,009
Inventory 31,596,301 31,786,855
Marketable securities 12,500 12,500
Notes receivable - 1,050,000
------------------------------------------------------------------------
97,584,135 135,646,145
------------------------------------------------------------------------

Property and equipment 162,582,134 204,615,394
Investment in financial services
contracts 19,370,000 20,440,209
Intangibles and other assets 144,127,094 146,572,446
Goodwill 52,541,322 76,352,738
------------------------------------------------------------------------
476,204,685 583,626,932
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current
Bank indebtedness 53,948,757 58,881,771
Accounts payable and accrued
liabilities 56,620,697 68,922,316
Distributions payable 3,466,359 4,883,041
Deferred revenue 248,393 200,439
Due to non-controlling interest owner - 43,674
Risk management liability 3,258,032 5,256,170
Notes payable - 7,500,000
Current portion of capital lease
obligations - 155,127
Current portion of long-term debt - 1,159,521
Current portion of mortgages 8,223,511 7,684,571
------------------------------------------------------------------------
125,765,749 154,686,630
------------------------------------------------------------------------
Capital lease obligations - 325,521
Mortgages 6,203,933 6,203,933
Long-term debt - 1,124,424
Asset retirement obligation 11,727,412 11,479,561
Future income taxes 17,967,163 20,123,076
Non-controlling interest - 1,004,965

Unitholders' equity
Unitholder capital 413,519,814 401,918,365
Contributed surplus 3,213,536 2,136,030
Accumulated earnings 48,038,743 27,623,526
Accumulated distributions (150,231,665) (42,999,099)
------------------------------------------------------------------------
314,540,428 388,678,822
------------------------------------------------------------------------
476,204,685 583,626,932
------------------------------------------------------------------------
------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED EARNINGS
(unaudited)

For the
Three months ended Six months ended
June 30, June 30, June 30, June 30
2006 2005 2006 2005
$ $ $ $
(restated(1)) (restated(1))
------------------------------------------------------------------------
REVENUE
Oil and gas revenue 15,016,412 12,499,460 28,353,593 23,259,287
Oil and gas
transportation costs (213,200) (200,328) (439,968) (309,029)
Royalties, net of
ARTC (1,694,088) (1,771,474) (4,080,857) (3,765,195)
Unrealized gain
(loss) on financial
instruments 672,747 363,167 1,998,138 (5,194,055)
------------------------------------------------------------------------
13,781,871 10,890,825 25,830,906 13,991,008
Real estate revenue 989,995 695,355 1,728,897 1,385,658
Financial services
revenue 154,286,797 47,681,876 308,199,579 48,434,778
Interest and other
revenue 68,226 57,763 68,226 67,762
Gain (loss) on sale
of property and
equipment - - - 222,360
------------------------------------------------------------------------
169,126,889 59,325,819 335,827,608 64,101,566
------------------------------------------------------------------------
EXPENSES
Oil and gas
operating 4,599,650 3,689,805 8,512,976 6,402,344
Real estate
operating 380,447 185,131 562,466 407,180
Financial services
operating 145,007,238 45,278,305 288,646,314 45,290,305
General and
administrative 4,472,533 1,758,533 8,361,789 2,530,796
Foreign exchange (257,321) (29,632) (870,396) (29,632)
Interest and bank
fees 678,254 308,768 1,157,189 716,549
Interest on
long-term debt and
capital leases 182,702 200,256 368,350 408,142
Capital taxes 30,986 206,254 167,169 253,549
Depletion,
depreciation and
amortization 6,696,570 5,197,293 13,427,246 8,753,365
Asset retirement
obligation
accretion 209,400 199,057 453,462 370,046
------------------------------------------------------------------------
162,000,459 56,993,770 320,786,565 65,102,644
------------------------------------------------------------------------

Income (loss) from
continuing
operations before
income tax 7,126,430 2,332,049 15,041,043 (1,001,078)
Future income tax
recovery 2,656,179 - 1,856,913 1,864,800
------------------------------------------------------------------------
Net income from
continuing
operations 9,782,609 2,332,049 16,897,956 863,722
Net income from
discontinued
operations 527,106 412,296 3,517,261 1,276,741
------------------------------------------------------------------------
Net income for the
period 10,309,715 2,744,345 20,415,217 2,140,463
Accumulated
earnings, beginning
of the period 37,729,028 4,080,306 27,623,526 4,684,188
------------------------------------------------------------------------
Accumulated
earnings, end of
the period 48,038,743 6,824,651 48,038,743 6,824,651
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income from
continuing
operations per unit
Basic 0.24 0.10 0.42 0.05
Diluted 0.24 0.07 0.42 0.03
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income from
discontinued
operations per unit
Basic 0.01 0.01 0.08 0.06
Diluted 0.01 0.01 0.08 0.05
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income per unit
Basic 0.25 0.11 0.50 0.11
Diluted 0.25 0.08 0.50 0.08
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Comparative periods have been restated to conform to current period
presentation - specifically relating to the discontinued operations
of the Energy Services Division of the Trust.


CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

For the
Three months ended Six months ended
June 30, June 30, June 30, June 30
2006 2005 2006 2005
$ $ $ $
(restated(1)) (restated(1))
------------------------------------------------------------------------

OPERATING ACTIVITIES
Net income from
continuing
operations 9,782,609 2,332,049 16,897,956 863,722
Add (deduct)
non-cash items:
(Gain) on sale of
property and
equipment - - - (222,360)
Non-cash general
and administrative 1,471,990 345,189 2,103,135 408,423
Depletion,
depreciation and
amortization 6,696,569 5,197,293 13,427,246 8,753,365
Asset retirement
obligation
accretion 209,400 199,057 453,462 370,046
Unrealized foreign
exchange (1,195,310) - (1,778,184) -
Unrealized (gain)
loss on financial
instruments (672,747) (363,167) (1,998,138) 5,194,055
Future income tax
expense (recovery) (2,656,179) - (1,856,913) (1,864,800)
------------------------------------------------------------------------
Funds from
continuing
operations 13,636,332 7,710,421 27,248,564 13,502,451
Funds from
discontinued
operations 2,110,840 1,640,939 9,094,174 3,127,853
------------------------------------------------------------------------
Funds from
operations 15,747,172 9,351,360 36,342,738 16,630,304
Asset retirement
costs incurred
during period (69,423) - (136,856) -
Change in non-cash
working capital (14,375,269) (17,179,439) 11,318,970 (17,374,182)
------------------------------------------------------------------------
Cash provided by
(used in) operating
activities 1,302,480 (7,828,079) 47,524,852 (743,878)
------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of trust
units, net of issue
costs 1,149,823 - 1,149,823 118,286,431
Distributions to
unitholders (14,952,752) (7,018,107) (29,601,876) (10,729,651)
Increase in bank
indebtedness 19,257,848 31,950,217 22,466,986 625,217
Decrease in notes
payable - - (7,500,000) -
Decrease in note
receivable 1,050,000 - 1,050,000 -
Increase in
mortgages - 1,900,000 - 3,915,000
Repayment of
mortgages (133,361) (103,249) (263,611) (2,133,271)
Repayments of
capital lease
obligations (21,659) (16,391) (51,174) (32,459)
Increase in
long-term debt - 4,388 - 197,065
Repayment of
long-term debt (171,080) (214,406) (2,993,521) (406,176)
Change in non-cash
working capital (74,764) (305,668) (41,076) 43,292
------------------------------------------------------------------------
Cash provided by
(used in) financing
activities 6,104,055 26,196,784 (15,784,449) 109,765,448
------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of Val
Vista Energy Ltd. - (160,849) - (12,768,670)
Energy Services
Division
acquisitions (4,244,642) (30,567,781) (30,994,706) (32,655,346)
Purchase of Elbow
River - (51,852,069) - (52,616,448)
Disposition of
Energy Services
Division (2,383,243) - (2,383,243) -
Oil and gas
property disposals 1,543,346 65,910 1,638,196 140,230
Oil and gas
development
expenditures (2,439,179) (1,486,378) (6,347,618) (2,511,872)
Financial services
expenditures (24,061) (71,830) (25,361) (56,830)
Purchase of other
assets (19,932) (35,077) (41,150) (150,518)
Purchase of
financial services
contracts - (6,763,380) - (9,513,380)
Redemption of
financial services
contracts 1,030,000 - 1,030,000 -
Purchase of real
estate properties (183,660) - (1,225,294) (2,915,290)
Proceeds on sale of
real estate
properties - - - 3,718,794
Change in
restricted cash - (681) 163,057 (1,338)
Change in
non-controlling
interest (418,763) - (524,318) -
Changes in non-cash
working capital (266,401) (2,771,207) 202,310 (18,119)
------------------------------------------------------------------------
Cash used in
investing
activities (7,406,535) (93,643,342) (38,508,127)(109,348,787)
------------------------------------------------------------------------
Decrease in cash
during the period - (75,274,637) (6,767,724) (327,217)
Cash, beginning of
period - 75,274,637 6,767,724 327,217
------------------------------------------------------------------------
Cash, end of period - - - -
------------------------------------------------------------------------
------------------------------------------------------------------------

Cash interest paid 999,584 529,126 1,845,355 1,156,934
Cash taxes paid 335,248 25,066 338,379 64,040
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Comparative periods have been restated to conform to current period
presentation - specifically relating to the discontinued operations
of the Energy Services Division of the Trust.


Contact Information

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