Bonavista Energy Trust
TSX : BNP.UN

Bonavista Energy Trust

May 07, 2009 16:01 ET

Bonavista Energy Trust Announces First Quarter Results

CALGARY, ALBERTA--(Marketwire - May 7, 2009) - Bonavista Energy Trust (TSX:BNP.UN) is pleased to report to unitholders its interim consolidated financial and operating results for the three months ended March 31, 2009.



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Highlights
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Three months
ended March 31,
2009 2008
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Financial
($ thousands, except per unit)
Production revenues 179,146 296,387
Funds from operations (1) 105,685 155,132
Per unit (1) (2) 0.89 1.44
Distributions declared 55,074 77,575
Per unit 0.56 0.90
Percentage of funds from operations (1) 52% 50%
Net income 32,959 72,298
Per unit (2) 0.28 0.67
Total assets 2,557,096 2,462,977
Long-term debt, including working capital
deficiency 636,369 919,925
Long-term debt, net of adjusted working
capital (3) 684,922 874,760
Unitholders' equity 1,393,561 1,063,318
Capital expenditures:
Exploitation and development 57,148 93,265
Acquisitions, net 22,097 169,374
Weighted average outstanding equivalent trust
units: (thousands) (2)
Basic 119,140 107,876
Diluted 121,040 110,164
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Operating
(boe conversion - 6:1 basis)
Production:
Natural gas (mmcf/day) 172 178
Oil and liquids (bbls/day) 22,757 24,694
Total oil equivalent (boe/day) 51,347 54,397
Product prices: (4)
Natural gas ($/mcf) 6.37 7.89
Oil and liquids ($/bbl) 51.35 68.63
Operating expenses ($/boe) 10.49 8.97
General and administrative expenses ($/boe) 0.83 0.71
Cash costs ($/boe) (5) 12.13 12.01
Operating netback ($/boe) (6) 24.51 34.38
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NOTES:
(1) Management uses funds from operations to analyze operating performance,
distribution coverage and leverage. Funds from operations as presented
do not have any standardized meaning prescribed by Canadian GAAP and
therefore it may not be comparable with the calculations of similar
measures for other entities. Funds from operations as presented is not
intended to represent operating cash flow or operating profits for the
period nor should it be viewed as an alternative to cash flow from
operating activities, net income or other measures of financial
performance calculated in accordance with Canadian GAAP. All references
to funds from operations throughout this report are based on cash flow
from operating activities before changes in non-cash working capital and
asset retirement expenditures. Funds from operations per unit is
calculated based on the weighted average number of units outstanding
consistent with the calculation of net income per unit.
(2) Basic per unit calculations include exchangeable shares which are
convertible into trust units on certain terms and conditions.
(3) Long-term debt, net of adjusted working capital excludes unrealized
gains or losses on financial instruments and its related tax impact.
(4) Product prices include realized gains or losses on financial
instruments.
(5) Cash costs equal the total of operating, general and administrative, and
financing expenses.
(6) Operating netback equals production revenues including realized gains or
losses on financial instruments, less royalties, transportation and
operating expenses, calculated on a boe basis.


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Three months ended
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March 31, December 31, September 30, June 30,
Trust Unit Trading Statistics 2009 2008 2008 2008
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($ per unit, except volume)

High 18.93 26.39 37.65 37.64
Low 11.74 14.25 25.01 28.96
Close 15.30 17.00 26.29 37.45
Average Daily Volume - Units 306,298 425,042 273,074 329,638
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MESSAGE TO UNITHOLDERS

Bonavista Energy Trust ("Bonavista" or the "Trust") is pleased to report to its unitholders (the "Unitholders") its consolidated financial and operating results for the three months ended March 31, 2009. Bonavista has continued on its course of generating profitable results since commencing operations as an energy trust in July 2003. The execution of Bonavista's long term, proven strategies in the first quarter of 2009 continues to validate the effectiveness of an operationally and technically focused energy trust. During these times of uncertainty in the capital markets and commodity price volatility, these strategies enable Bonavista to be flexible and responsive to our changing environment. Although the industry fundamentals during the quarter were relatively weak due to declining commodity prices, Bonavista continued to focus on the key aspects of our business by ensuring that production and revenues were optimized, all costs were diligently scrutinized, and distributions were adjusted, all in an effort to maximize value to our unitholders. With the current economic and industry conditions, in March 2009 Bonavista reduced its capital spending projections for 2009 to between $225 and $250 million. This level of spending will result in the drilling of approximately 110 to 120 wells, and result in production averaging between 51,500 and 52,500 boe per day in 2009. Although this revised level of capital spending is down over 50% from 2008 and with our distribution reduction of 47%, we believe this to be prudent given the uncertainty surrounding the prevailing economy. Maintaining our healthy financial position, along with our low costs, and our capital spending flexibility, positions Bonavista very well to sustain through a longer economic downturn and allows us to remain poised to pursue incremental opportunities as they arise.

Accomplishments for Bonavista in the first quarter of 2009 include:

- Operationally, production volumes averaged 51,347 boe per day during the first quarter of 2009, versus 54,397 boe per day in 2008. Bonavista's current production rate is approximately 52,250 boe per day;

- Maintained an efficient capital program during the first quarter of 2009 investing $57.1 million in exploitation and development activities. Bonavista drilled 36 wells with an overall 97% success rate, and we spent an additional $22.1 million on three acquisitions within our core regions;

- Drilled 15 successful horizontal wells, year to date, on five different play types within our existing core regions. Seven of these wells were drilled on the light oil Bakken play in Southeast Saskatchewan testing and extending our interpretation of the pool boundaries as well as three successful horizontal wells drilled on the highly prospective Mannville trend in the Willesden Green field in Central Alberta. Bonavista has also identified additional conventional and unconventional development opportunities to pursue in the coming months using advanced seismic, drilling, and completion technologies;

- Continued to participate at crown land sales and freehold purchases, investing $5.4 million in land activity, further enhancing our future drilling prospect inventory for several years. Bonavista's undeveloped land position continues to remain stable at 1.2 million net acres;

- Generated funds from operations of $105.7 million ($0.89 per unit) for the three months ended March 31, 2009. Bonavista distributed 52% of these funds for the three months ended March 31, 2009 to Unitholders with the remaining funds reinvested in the business to continue growing our production base;

- Continued to record attractive levels of profitability in the first quarter of 2009 with a return on equity of 13% and a net income to funds from operations ratio of 43%. The above ratios reflect net income adjusted to negate the after tax impact of the unrealized gains and losses on financial instruments;

- Since inception as a Trust, Bonavista has delivered cumulative distributions of $1.6 billion or $19.67 per trust unit. These cumulative distributions are in excess of our closing price of $16.00 per trust unit on the first trading day after we became an energy trust on July 2, 2003;

Strengths of Bonavista Energy Trust

Upon restructuring from an exploration and production corporation into an energy trust in July 2003, Bonavista brought forward all of the same attributes that resulted in the tremendous success of the company between 1997 and 2003. We have maintained a high level of investment activity on our asset base, increasing production more than 50% since 2003. This activity stems from the operational and technical focus of our Trust, the attention to detail, and the ability to continuously generate economic prospects on our asset base within the Western Canadian Sedimentary Basin. Our experienced technical teams have a solid understanding of our assets and possess the necessary discipline and commitment to deliver profitable results to our Unitholders over the long term. We actively participate in undeveloped land acquisitions through Crown land sales, property purchases or farm-in opportunities, which have all continued to add to our already extensive low-risk drilling inventory. This has led to low cost reserve additions, lengthening of our reserve life index, an increase in the quality and quantity of our drilling inventory and a growing production base. Our production base is balanced 55% in favour of natural gas and 45% towards oil and liquids and is geographically focused within select medium depth, multi-zone regions in Alberta, Saskatchewan and British Columbia. This asset base has a low operating cost structure resulting in attractive operating netbacks. In addition, these high working interest assets are predominantly operated by Bonavista, ensuring that operating and capital cost efficiencies are maintained and that Bonavista controls the pace of its operations.

Our team brings a successful track record of executing low to medium risk development programs, including both asset and corporate acquisitions, along with a solid track record of sound financial management. Unitholders benefit from a fully internalized, industry leading cost structure, which results in one of the lowest per unit overhead costs in the energy trust industry. Our management team and Board of Directors possess extensive experience in the oil and natural gas business, navigating successfully through many different economic cycles utilizing a proven strategy consisting of strict cost controls and prudent financial management. Directors, management and employees also own approximately 19% of the Trust, resulting in a close alignment of interests with all Unitholders.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's discussion and analysis ("MD&A") of the financial condition and results of operations should be read in conjunction with Bonavista Energy Trust's ("Bonavista" or the "Trust") audited consolidated financial statements and MD&A for the year ended December 31, 2008. The following MD&A of the financial condition and results of operations was prepared at, and is dated May 7, 2009. Our audited consolidated financial statements, Annual Report, and other disclosure documents for 2008 are available through our filings on SEDAR at www.sedar.com or can be obtained from Bonavista's website at www.bonavistaenergy.com.

Basis of Presentation - The financial data presented below has been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The reporting and the measurement currency is the Canadian dollar. For the purpose of calculating unit costs, natural gas is converted to a barrel of oil equivalent ("boe") using six thousand cubic feet of natural gas equal to one barrel of oil unless otherwise stated. A boe may be misleading, particularly if used in isolation. A boe conversion of 6 Mcf to one barrel is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Forward-Looking Statements - Certain information set forth in this document, including management's assessment of Bonavista's future plans and operations, contains forward-looking statements including; (i) forecasted capital expenditures; (ii) exploration, drilling and development plans and prospects; (iii) anticipated production rates; (iv) expected royalty rate; (v) annualized debt to funds from operations; (vi) funds from operations, (vii) anticipated operating costs; (viii) expected service agreement fees; (ix) drilling prospects, which are provided to allow investors to better understand our business. By their nature, forward-looking statements are subject to numerous risks and uncertainties; some of which are beyond Bonavista's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, changes in environmental tax and royalty legislation, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Bonavista's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements or if any of them do so, what benefits that Bonavista will derive there from. Bonavista disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Investors are also cautioned that cash-on-cash yield represents a blend of return of an investor's initial investment and a return on investors' initial investment and is not comparable to traditional yield on debt instruments where investors are entitled to full return of the principal amount of debt on maturity in addition to a return on investment through interest payments.

Non-GAAP Measurements - Within Management's discussion and analysis, references are made to terms commonly used in the oil and natural gas industry. Management uses "funds from operations" and the "ratio of debt to funds from operations" to analyze operating performance and leverage. Funds from operations as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculation of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net income or other measures of financial performance calculated in accordance with Canadian GAAP. All references to funds from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital and abandonment expenditures. Funds from operations per unit is calculated based on the weighted average number of trust units outstanding consistent with the calculation of net income per unit. Operating netbacks equal production revenue and realized gains or losses on financial instruments, less royalties, transportation and operating expenses calculated on a boe basis. Total boe is calculated by multiplying the daily production by the number of days in the period. Management uses these terms to analyze operating performance and leverage.

Operations - Bonavista's exploitation and development program for the three months ended March 31, 2009 led to the drilling of 36 wells in our four core regions with an overall success rate of 97%. This program resulted in 22 natural gas wells and 13 oil wells. Bonavista continues to pursue deeper and higher impact drilling opportunities focusing on unconventional development through horizontal drilling and multi-stage fracture stimulation technology particularly in the Lower Mannville sands in our Central region in Alberta and in the Bakken play in our Southeast Saskatchewan area, where we have experienced excellent success and attractive finding and development costs over the past few years. These activities have also continued to enhance the predictability in our overall production base in addition to lengthening our reserve life index. In addition to the exploitation and development program, Bonavista executed three complementary acquisitions in its core regions during the first quarter of 2009.

Production - For the three months ended March 31, 2009, production decreased 6% to 51,347 boe per day when compared to 54,397 boe per day for the same period a year ago. Specifically, average natural gas production decreased 3% to 172 mmcf per day in the first quarter of 2009 from 178 mmcf per day for the same period a year ago, while total oil and liquids production decreased 8% to 22,757 bbls per day in the first quarter of 2009 (comprised of 17,221 bbls per day of light and medium oil and 5,536 bbls per day of heavy oil) from 24,694 bbls per day (comprised of 17,740 bbls per day of light and medium oil and 6,954 bbls per day of heavy oil) for the same period in 2008. The decline in production quarter over quarter was due in part to lower spending levels, 600 bbls per day of heavy oil production shut in due to weak heavy oil prices and unusually cold weather in January. We also delayed the tie-in of approximately 800 boe per day of production relating to two material natural gas wells in order to take full advantage of the reduced royalty program announced in early March. Bonavista's balanced commodity investment approach minimizes our dependence on any one product and helped us report consistent results in the quarter. We anticipate production volumes in 2009 to average between 51,500 and 52,500 boe per day. Our current production is approximately 52,250 boe per day consisting of 55% natural gas, 34% light and medium oil and 11% heavy oil.

Production revenues - Production revenues for the three months ended March 31, 2009 decreased 40% to $179.1 million when compared to $296.4 million for the same period a year ago, primarily due to lower average commodity prices and lower heavy oil production. For the three months ended March 31, 2009, natural gas prices decreased 19% to $6.37 per mcf, when compared to $7.89 per mcf realized in the same period in 2008. The average oil and liquids price also decreased 25% to $51.35 per bbl (comprised of $54.42 per bbl for light and medium oil and $41.78 per bbl for heavy oil) for the first quarter of 2009 from $68.63 per bbl (comprised of $69.91 per bbl for light and medium oil and $65.36 per bbl for heavy oil) for the same period in 2008.



The following table highlights Bonavista's realized commodity pricing for
the three months ended March 31:

Three months
ended March 31,
2009 2008
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Natural gas ($/mcf):
Production revenues $ 6.06 $ 7.86
Realized gains on financial instruments 0.31 0.03
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6.37 7.89
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Light and medium oil ($/bbl):
Production revenues 43.42 77.81
Realized gains (losses) on financial
instruments 11.00 (7.90)
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54.42 69.91
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Heavy oil ($/bbl):
Production revenues 36.84 68.31
Realized gains (losses) on financial
instruments 4.94 (2.95)
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$ 41.78 $ 65.36
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Commodity price risk management - As part of our financial management strategy, Bonavista has adopted a disciplined commodity price risk management program. The purpose of this program is to stabilize funds from operations against volatile commodity prices and protect acquisition economics. Bonavista's Board of Directors has approved a commodity price risk management limit of 60% of forecast production, net of royalties, primarily using costless collars. Our strategy of primarily using costless collars limits Bonavista's exposure to downturns in commodity prices, while allowing for participation in commodity price increases.

For the three months ended March 31, 2009, our risk management program on financial instruments resulted in a net gain of $6.9 million, consisting of a realized gain of $24.3 million and an unrealized loss of $17.4 million. The realized gain of $24.3 million consisted of a $4.8 million gain on natural gas commodity derivative contracts and a $19.5 million gain on crude oil commodity derivative contracts. For the same period in 2008, our risk management program on financial instruments resulted in a net loss of $33.7 million, consisting of a realized loss of $14.3 million and an unrealized loss of $19.4 million. The realized loss of $14.3 million consisted of a $338,000 gain on natural gas commodity derivative contracts and a $14.6 million loss on crude oil commodity derivative contracts.

Royalties - For the three months ended March 31, 2009, royalties decreased 43% to $32.9 million from $57.5 million for the same period a year ago, largely attributed to a decrease in commodity prices. In addition, royalties as a percentage of revenues (including realized gains and losses on financial instruments) for the first quarter of 2009 decreased to 16.2% compared to 20.4% in 2008 for similar reasons discussed above and the impact of realized gains on financial instruments in the first quarter of 2009 compared to realized losses on financial instruments in the comparable period of 2008. For the three months ended March 31, 2009, royalties by product as a percentage of revenues (including realized gains and losses on financial instruments) were 17.7% for natural gas, 15.2% for light and medium oil and 13.2% for heavy oil. For the three months ended March 31, 2008, royalties by product as a percentage of revenues (including realized gains and losses on financial instruments) were 20.9% for natural gas, 20.1% for light and medium oil and 19.4% for heavy oil.

On October 25, 2007, the Alberta Government announced the New Royalty Framework ("NRF") which was subsequently revised on April 10, 2008 to provide further clarification on the NRF as well as to introduce two new royalty programs related to the development of deep oil and natural gas reserves. The NRF was legislated in November 2008 and took effect on January 1, 2009. Subsequent to legislation of the NRF, the Government of Alberta introduced the Transitional Royalty Plan ("TRP") in response to the decrease in development activity in Alberta resulting from declining commodity prices and the global economic downturn. The TRP offers reduced royalty rates for new wells drilled on or after November 19, 2008 that meet certain depth requirements. An election must be filed on an individual well basis in order to qualify for the TRP. The TRP is in place for a maximum of 5 years to December 31, 2013. All wells drilled between 2009 and 2013 that adopt the transitional rates will be required to shift to the NRF on January 1, 2014. On March 3, 2009, the Alberta Government announced a further royalty incentive program consisting of a three-point incentive program to stimulate new and continued economic activity in Alberta which includes a drilling royalty credit for new conventional oil and natural gas wells and a new royalty incentive program. The net effect of these programs will add approximately $7 million to $9 million of funds from operations and credits in 2009.

Operating expenses - Operating expenses for the first quarter of 2009 increased 9% to $48.5 million compared to $44.4 million for the same period a year ago. Despite reduced industry activities during the first quarter Bonavista continued to experience higher operating expenses, primarily driven by higher power, trucking, labour costs and property taxes. These factors, coupled with a 6% decrease in production volumes has resulted in average per unit operating expenses increasing by 17% to $10.49 per boe for the three months ended March 31, 2009, from $8.97 per boe in the comparable period of 2008. For the first quarter of 2009, operating expenses by product were $1.56 per mcf for natural gas, $10.99 per bbl for light and medium oil and $14.91 per bbl for heavy oil compared to $1.24 per mcf for natural gas, $9.76 per bbl for light and medium oil and $13.39 per bbl for heavy oil for the same period in 2008. Notwithstanding these cost increases, Bonavista continues to focus on operating cost discipline and remains optimistic that operating costs will stabilize or decrease slightly over the remainder of 2009.

Transportation expenses - For the three months ended March 31, 2009, transportation expenses decreased 13% to $8.8 million ($1.90 per boe) when compared to $10.1 million ($2.03 per boe) for 2008. Transportation expenses by product for the first quarter of 2009 were $0.36 per mcf for natural gas, $0.89 per bbl for light and medium oil and $3.81 per bbl for heavy oil compared to $0.41 per mcf for natural gas, $0.84 per bbl for light and medium oil and $3.32 per bbl for heavy oil for the same period in 2008.

General and administrative expenses - General and administrative expenses, after overhead recoveries, increased 9% to $3.9 million for the three months ended March 31, 2009 from $3.5 million in the same period in 2008. On a per boe basis, general and administrative expenses increased 17% for the three months ended March 31, 2009 to $0.83 per boe from $0.71 per boe in the same period in 2008. These increases are largely due to the higher costs of personnel required to manage our operations, increasing cost pressures currently experienced throughout our industry and the termination of general and administrative cost recoveries under the services agreement with NuVista Energy Ltd.

In connection with its Trust Unit Incentive Rights and Restricted Trust Unit Plans, Bonavista recorded a unit-based compensation charge of $2.8 million for the three months ended March 31, 2009, compared to $2.3 million for the same period in 2008.

Financing expenses - Financing expenses, which include interest expense on long-term debt and convertible debentures, decreased 68% to $3.7 million for the three months ended March 31, 2009, from $11.5 million for the same period in 2008 and on a boe basis, decreased 65% to $0.81 per boe for the three months ended March 31, 2009 from $2.33 per boe for the same period in 2008. This decrease is due to lower average debt levels used to fund Bonavista's capital program, proceeds received from a $214.0 million equity financing and a declining interest rate environment. During the first quarter of 2009, Bonavista paid cash interest of $3.5 million compared to $10.9 million in 2008. Bonavista's effective interest rate as at March 31, 2009 was approximately 1.8% (2008 - 4.7%).

Depreciation, depletion and accretion expenses - Depreciation, depletion and accretion expenses increased slightly to $65.5 million for the three months ended March 31, 2009 from $65.4 million for the same period of 2008 due to higher costs of finding, developing and acquiring reserves and a larger asset base in 2009 offset by a 6% decline in overall production year over year. For the three months ended March 31, 2009, the average cost increased to $14.18 per boe from $13.20 per boe for the same period in 2008. The increase in depreciation, depletion and accretion expenses is due to increased costs associated with adding new reserves. Over the past few years our industry has seen cost escalation in all areas of our activities.

Income taxes - For the three months ended March 31, 2009, the provision for income tax was a recovery of $12.9 million compared to a recovery of $4.3 million for the same period in 2008. Bonavista made no cash payments relating to installments for the three months ended March 31, 2009, or for the comparative period in 2008.

On February 26, 2008, the Federal government announced that the provincial component of the SIFT tax is to be determined based on the general corporate provincial tax rate in each province that the Trust has a permanent establishment. On June 18, 2008, the legislation to re-define the provincial component of the tax rate was passed. The specific rules governing how the provincial component is to be calculated was released in draft on July 14, 2008, and is considered to be substantively enacted as at March 31, 2009. As a result, a recovery of approximately $4.1 million is reflected in the Trust's consolidated financial statements due to the changes in the tax rate for the Trust's future income tax.

Funds from operations, net income and comprehensive income - For the three months ended March 31, 2009, Bonavista experienced a 32% decrease in funds from operations to $105.7 million ($0.89 per unit, basic) from $155.1 million ($1.44 per unit, basic) for the same period in 2008, primarily due to both lower commodity prices and production volumes partially offset by the impact of realized gains on financial instruments. Net income and comprehensive income for the three months ended March 31, 2009, decreased 54% to $33.0 million ($0.28 per unit, basic) from $72.3 million ($0.67 per unit, basic) for the same period in 2008.



The following table is a reconciliation of a non-GAAP measure, funds from
operations, to its nearest measure prescribed by GAAP:

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Three months
ended March 31,
Calculation of Funds From Operations: 2009 2008
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(thousands)
Cash flow from operating activities $ 80,561 $ 164,649
Asset retirement expenditures 2,240 2,918
Changes in non-cash working capital 22,884 (12,435)
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Funds from operations $ 105,685 $ 155,132
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Capital expenditures - Capital expenditures for the three months ended March 31, 2009 were $79.2 million, consisting of $57.1 million on exploitation and development spending and $22.1 million on net property acquisitions. For the same period in 2008 capital expenditures were $262.6 million, consisting of $93.3 million on exploitation and development spending and $169.3 million on net property acquisitions. Although we have seen some downward movement in service costs in the first quarter, we anticipate a further reduction for the remainder of the year such that our exploitation and development program will continue to generate a predictable and attractive return on investment. The substantial reduction in capital expenditures compared to last year, is a testament to our commitment to maintaining our financial flexibility and healthy balance sheet.

Liquidity and capital resources - As at March 31, 2009, long-term debt including working capital (excluding unrealized gains on financial instruments and related tax impact) was $684.9 million with a debt to 2009 annualized first quarter funds from operations ratio of 1.6:1. Bonavista has significant flexibility to finance future expansions of its capital programs, through the use of its current funds generated from operations and our bank loan facility of $1.0 billion, of which $315.1 million is unused borrowing capability.

Bonavista's bank loan facility is provided by a syndicate of 12 domestic and international banks. The bank loan facility is a three year revolving facility and may at the request of the Trust and with the consent of the lenders be extended on an annual basis. On August 25, 2008, Bonavista and its lenders agreed to extend its bank loan facility to August 10, 2011 with no principal repayments required until then. This facility also includes an accordion feature providing that at any time during the term, on participation of any existing or additional lenders, we can increase the facility by $250 million.

Under the terms of the credit facility, the Trust has provided the covenant that its: (i) consolidated senior debt borrowing will not exceed three times net income before unrealized gains and losses on financial instruments, interest, taxes and depreciation, depletion and accretion; (ii) consolidated total debt will not exceed three and one half times consolidated net income before unrealized gains and losses on financial instruments, interest, taxes and depreciation, depletion and accretion; and (iii) consolidated senior debt borrowing will not exceed one-half of consolidated total debt plus consolidated unitholders' equity of the Trust, in all cases calculated based on a rolling prior four quarters.

In 2009, Bonavista plans to invest between $225 and $250 million on its capital programs to expand its core regions. Given the current global economic weakness and the constraints in both the equity and credit environments, the Trust along with all other oil and gas entities have restricted access to capital and potentially increased borrowing costs. The Trust intends on financing its 2009 capital program with a combination of funds from operations and to the extent required, its existing credit facility. The Trust is committed to the fundamental principle of maintaining financial flexibility and the prudent use of debt, as such, our 2009 capital program is based upon using a conservative amount of debt in our financing structure.

Unitholders' equity - As at March 31, 2009, Bonavista had 119.1 million equivalent trust units outstanding. This includes 10.0 million exchangeable shares, which are exchangeable into 20.5 million trust units. The exchange ratio in effect at March 31, 2009 for exchangeable shares was 2.05101:1. As at May 7, 2009, Bonavista had 119.4 million equivalent trust units outstanding. This includes 10.0 million exchangeable shares, which are exchangeable into 20.7 million trust units. The exchange ratio in effect at May 7, 2009 for exchangeable shares was 2.07152:1. In addition, Bonavista has 4.3 million trust unit incentive rights outstanding at May 7, 2009, with an average exercise price of $22.14 per trust unit.

Distributions - Bonavista's distribution policy is constantly monitored and is dependent upon its forecasted operations, funds from operations, debt levels and capital expenditures. One of the paramount objectives of the Trust is to be a sustainable entity, which is defined as maintaining both production and reserves over an extended period of time. This is accomplished by retaining sufficient funds from operations to replace the reserves that have been produced. With these considerations, for the three months ended March 31, 2009 the Trust declared distributions of $55.1 million ($0.56 per trust unit) compared to $77.6 million ($0.90 per trust unit) in the same period in 2008. We continuously monitor all the factors influencing our distribution rate and the necessity to adjust the monthly distribution in the future.

The following table illustrates the relationship between cash flow provided from operating activities and distributions declared, as well as net income and distributions declared. Net income includes significant non-cash charges, such as depreciation, depletion and accretion, unrealized gains and losses on financial instruments, fluctuations in future income taxes due to changes in tax rates and tax rules, these non-cash charges do not represent the actual cost of maintaining our production capacity given the natural declines associated with oil and natural gas assets. For the three months ended March 31, 2009, the non-cash charges amounted to $72.7 million compared to $82.8 million for the same period in 2008. In instances where distributions exceed net income, a portion of the cash distribution paid to Unitholders may be considered an economic return of Unitholders' capital.



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Three months
ended March 31,
Distribution Analysis 2009 2008
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(thousands)
Cash flow provided from operating activities $ 80,561 $ 164,649
Net income 32,959 72,298
Distributions declared 55,074 77,575
Excess of cash flow provided from operating
activities over distributions declared 25,487 87,074
Excess (shortfall) of net income over
distributions declared (22,115) (5,277)
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Bonavista announces its distribution policy on a quarterly basis. Distributions are determined by the Board of Directors and are dependent upon the commodity price environment, production levels, and the amount of capital expenditures to be financed from funds from operations. Bonavista's current monthly distribution rate is $0.16 per unit, down from $0.30 per unit at the same time last year. Our long-term objective is to distribute up to 50% of our funds from operations, which allows us to withhold sufficient funds to finance capital expenditures required to maintain or modestly grow our production base over a longer period of time. Our distribution rate of $0.16 per unit per month will place us slightly below this range for 2009, assuming current strip prices are realized.

Quarterly financial information - The following table highlights Bonavista's performance for the eight quarterly periods ending on June 30, 2007 to March 31, 2009:



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2009 2008
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March 31 December 31 September 30 June 30 March 31
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($ thousands, except
per unit amounts)
Production revenues 179,146 221,782 354,667 361,555 296,387
Net income 32,959 129,192 207,594 29,282 72,298
Net income per unit:
Basic 0.28 1.09 1.77 0.26 0.67
Diluted 0.28 1.09 1.75 0.26 0.67
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2007
-------------------------------------------
December 31 September 30 June 30
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($ thousands, except
per unit amounts)
Production revenues 242,361 219,885 223,878
Net income 63,631 58,990 33,936
Net income per unit:
Basic 0.60 0.56 0.32
Diluted 0.59 0.55 0.32
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Production revenues over the past eight quarters has fluctuated between a low of $179.2 million in March 2009 to a high of $361.6 million in June 2008, largely due to the volatility of commodity prices as our volumes have remained relatively constant throughout the last two years. Net income in the past eight quarters has fluctuated from a low of $29.3 million in June 2008 to a high of $207.6 million in September 2008. These fluctuations are primarily influenced by commodity prices, realized and unrealized gains and losses on financial instruments and future income tax recoveries associated with the reduction in corporate income tax rates. Net income decreased 54% in the first quarter of 2009 as compared to the first quarter of 2008. The decrease in net income in the first quarter of 2009 is largely attributed to lower overall commodity prices and a 6% decrease in production volumes over the comparable period in 2008. The large decrease in net income in the second quarter of 2007 is primarily attributable to the non-cash future income tax charge to net income of $41.0 million to reflect changes to income tax legislation, substantially enacted in the second quarter of 2007.

Disclosure and internal controls - Disclosure controls and procedures have been designed to ensure that information required to be disclosed by Bonavista is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required disclosures. The Chief Executive Officer and Chief Financial Officer have concluded, as of the end of the period covered by the interim filings, that Bonavista's disclosure controls and procedures are effectively designed to provide reasonable assurance that material information related to the issuer is made known to them by others within the Trust. It should be noted that while the Trust's Chief Executive Officer and Chief Financial Officer believe that the disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objective of the control system is met. There were no material changes made to the internal controls over financial reporting for the quarter ended March 31, 2009.

Update on regulatory and financial reporting matters - On March 3, 2009, the Government of Alberta announced a three-point incentive program to stimulate new and continued economic activity in Alberta which included a drilling royalty credit program for new conventional oil and natural gas wells and a new well royalty incentive program. Under the drilling royalty credit program a $200 per metre royalty credit will be available on new conventional oil and natural gas wells drilled between April 1, 2009 and March 31, 2010, subject to certain maximum amounts. The maximum credits available will be determined by the company's production level in 2008 and its drilling activity between April 1, 2009 and March 31, 2010. The new well incentive program will apply to wells beginning production of conventional oil and natural gas between April 1, 2009 and March 31, 2010 and provides for a maximum 5% royalty rate for the first 12 months of production, up to a maximum of 50,000 bbls of oil or 500 mmcf of natural gas.

On February 13, 2008, Canada's Accounting Standards Board confirmed January 1, 2011 as the effective date for complete convergence of Canadian GAAP to International Financial Reporting Standards ("IFRS"). Canadian generally accepted accounting principles as we currently know them, will cease to exist for all publicly reporting entities. Currently, the application of IFRS to the oil and gas industry in Canada requires considerable clarification. The Canadian Securities Administrators are in the process of examining changes to securities rules as a result of this initiative. Bonavista has completed a preliminary analysis of the accounting differences and has plans in place to perform a detailed assessment of the impact of IFRS on our results of operations, financial position and disclosures in 2009.

Effective January 1, 2009, Bonavista adopted Canadian Institute of Chartered Accountants ("CICA") Section 3064, "Goodwill and Intangible Assets", which defines the criteria for the recognition of intangible assets. The adoption of this standard did not impact the Trust's consolidated financial statements.

Environmental matters - On February 19, 2008 the government of British Columbia introduced a consumer-based carbon tax that became effective on July 1, 2008. The Trust is required to pay carbon tax on all fuel used in the province of British Columbia through its normal course of operations. For the period ending March 31, 2009 Bonavista has paid approximately $122,000 with respect to the carbon tax.

OUTLOOK

As we progress into our twelfth year since restructuring the Company in 1997, and our sixth year since converting to an energy trust, we continue to benefit from all of the same qualities that drove the success of Bonavista as a public company and an energy trust. We apply a similar proven strategy and execute this strategy in a disciplined and cost-effective manner much the same as in 1997 when we started on our mission of creating value for our investors. The foundation of this strategy is to actively pursue low to medium risk drilling opportunities on our extensive undeveloped land base within geographically concentrated areas of operations. Despite a very active exploitation and development program over the past several years, the quality and quantity of our drilling opportunities continues to improve as we progress through 2009. Bonavista has currently identified approximately 700 drilling prospects on its land base and remains flexible to consider accelerating or decelerating the capital program subject to market conditions and opportunities. The steady increase in the quality of prospects generated over the past several years can be directly attributed to the detailed and tireless work of our talented technical team, who possess a strong commitment and a solid understanding of the Western Canadian Sedimentary Basin. We also continue to search and have been successful in strategic acquisition opportunities where we can add value utilizing our own technical expertise. Our timely and prudent approach to capital investments has been very effective in the past, and together with our steadfast commitment to adding Unitholder value and attention to detail, will continue to provide the foundation for the future success of the Trust. Today our activity, efficiency, productivity and profitability remain among the strongest levels in our eleven year history.

With natural gas prices currently in the $3.50 to $4.00 per mcf range, funds from operations generated from natural gas production is coming under significant pressure. For 2009, given the current instability of commodity prices and the reduced funds from operations, Bonavista has significantly reduced its capital budget to between $225 and $250 million, which is a reduction of over 50% from 2008. It is anticipated that this level of capital expenditures will result in the drilling of between 110 and 120 wells and production levels to average between 51,500 and 52,500 boe per day, which is a modest decrease compared to 2008. Our development program includes the drilling of 60 high-impact horizontal wells with multi-stage fracs targeting resources in the Bakken, Glauconite, Halfway, Cardium, Viking and Notikewin formations. Bonavista believes that recent new seismic, drilling and completion technologies will have a significant impact on our vast land holdings in our core regions and will lead to the development of several resource type plays and the extraction of incremental reserves from existing productive reservoirs over the next few years. We will closely monitor our capital programs and will remain flexible to reallocate or expand our capital program on additional property or land acquisitions and/or drilling opportunities as success and economic conditions dictate. In the meantime, our conservative approach to spending and distributions will preserve our current financial strength and should serve our unitholders well in this uncertain environment.

We are extremely proud of our achievements over the past eleven years and despite some short term commodity weakness, we remain enthusiastic about the future and the growing opportunities that exist for Bonavista. We would like to thank our employees for their significant effort and their continued enthusiasm and perseverance as we pursue these opportunities in this uncertain economic environment. Despite the setbacks we have endured over the past couple of years, such as the passage of federal legislation on the taxation of distributions from certain publicly traded Canadian trusts, the introduction of the New Royalty Framework by the Government of Alberta, and the volatile capital market, Bonavista's commitment and value creation process has not changed and we remain comfortable that our operating philosophy works well in this tough environment. Throughout many business cycles and changes in the business environment, Bonavista has converted adversity into opportunity and has emerged an even stronger entity as a result of this attitude. Our success is based on the consistent application of our core philosophy and operating strategies. Our legal structure may ultimately change by 2011 when the new tax laws become effective, but our steadfast commitment to creating unitholder value will not change regardless of the environment. Our team remains committed to this vision over the long term.

Unitholders who are unable to attend Bonavista's AGM today at 3:00 pm MDT are invited to listen to the webcast of our presentation at http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2587860.



BONAVISTA ENERGY TRUST
Consolidated Balance Sheets

----------------------------------------------------------------------------
----------------------------------------------------------------------------
March 31, December 31,
(thousands) 2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(unaudited)
Assets:
Current assets:
Accounts receivable $ 107,478 $ 106,116
Unrealized gains on financial instruments 68,780 76,203
----------------------------------------------------------------------------
176,258 182,319
Oil and natural gas properties and equipment 2,339,517 2,319,600
Goodwill 41,321 41,321
----------------------------------------------------------------------------
$ 2,557,096 $ 2,543,240
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and Unitholders' Equity:
Current liabilities:
Accounts payable and accrued liabilities $ 116,221 $ 143,093
Distributions payable 15,780 28,731
Unrealized losses on financial instruments 3,063 -
Future income taxes 17,164 22,221
----------------------------------------------------------------------------
152,228 194,045
Unrealized losses on financial instruments 6,856 -
Long-term debt 660,399 588,792
Convertible debentures 43,892 43,711
Asset retirement obligations 130,754 127,467
Future income taxes 169,406 177,253
Unitholders' equity:
Unitholders' capital and debenture
conversion component 1,113,665 1,100,768
Exchangeable shares 61,110 69,488
Contributed surplus 9,872 10,687
Accumulated earnings 208,914 231,029
----------------------------------------------------------------------------
1,393,561 1,411,972
----------------------------------------------------------------------------
$ 2,557,096 $ 2,543,240
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.


BONAVISTA ENERGY TRUST
Consolidated Statements of Operations, Comprehensive Income and Accumulated
Earnings

----------------------------------------------------------------------------
----------------------------------------------------------------------------
(thousands, except per unit amounts) Three months
ended March 31,
2009 2008
----------------------------------------------------------------------------
(unaudited)
Revenues:
Production $ 179,146 $ 296,387
Royalties (32,915) (57,451)
----------------------------------------------------------------------------
146,231 238,936
----------------------------------------------------------------------------
Realized gains (losses) on financial instruments 24,284 (14,283)
Unrealized losses on financial instruments (17,342) (19,464)
----------------------------------------------------------------------------
6,942 (33,747)
----------------------------------------------------------------------------
153,173 205,189
----------------------------------------------------------------------------
Expenses:
Operating 48,477 44,395
Transportation 8,773 10,066
General and administrative 3,850 3,519
Financing 3,730 11,541
Unit-based compensation 2,754 2,313
Depreciation, depletion and accretion 65,534 65,366
----------------------------------------------------------------------------
133,118 137,200
----------------------------------------------------------------------------
Income before taxes 20,055 67,989
Income taxes (reductions) (12,904) (4,309)
----------------------------------------------------------------------------
Net income and comprehensive income 32,959 72,298
Accumulated earnings, beginning of period 231,029 125,203
Distributions declared (55,074) (77,575)
----------------------------------------------------------------------------
Accumulated earnings, end of period $ 208,914 $ 119,926
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income per unit - basic $ 0.28 $ 0.67
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net income per unit - diluted $ 0.28 $ 0.67
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.


BONAVISTA ENERGY TRUST
Consolidated Statements of Cash Flows

----------------------------------------------------------------------------
(thousands, except per unit amounts) Three months
ended March 31,
2009 2008
----------------------------------------------------------------------------
(unaudited)
Cash provided by (used in):
Operating Activities:
Net income $ 32,959 $ 72,298
Items not requiring cash from operations:
Depreciation, depletion and accretion 65,534 65,366
Unit-based compensation 2,754 2,313
Unrealized losses on financial instruments 17,342 19,464
Future income taxes (reductions) (12,904) (4,309)
Asset retirement expenditures (2,240) (2,918)
Changes in non-cash working capital items (22,884) 12,435
----------------------------------------------------------------------------
80,561 164,649
----------------------------------------------------------------------------
Financing Activities:
Issuance of equity, net of issue costs 452 4,702
Distributions (68,025) (77,428)
Changes in long-term debt 71,607 143,250
Changes in non-cash working capital items 279 663
----------------------------------------------------------------------------
4,313 71,187
----------------------------------------------------------------------------
Investing Activities:
Exploitation and development (57,148) (93,265)
Property acquisitions (22,097) (169,374)
Changes in non-cash working capital items (5,629) 26,803
----------------------------------------------------------------------------
(84,874) (235,836)
----------------------------------------------------------------------------
Change in cash - -
Cash, beginning of period - -
----------------------------------------------------------------------------
Cash, end of period $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.


BONAVISTA ENERGY TRUST
Notes to Consolidated Financial Statements
For the three months ended March 31, 2009 (unaudited)


Structure of the Trust and Basis of Presentation:

Bonavista Energy Trust ("Bonavista" or the "Trust") is an open-ended unincorporated investment trust governed by the laws of the Province of Alberta. The Trust was established on July 2, 2003 under a Plan of Arrangement entered into by the Trust, Bonavista Petroleum Ltd. ("BPL") and its subsidiaries and partnerships and NuVista Energy Ltd. ("NuVista"). Under the Plan of Arrangement, a wholly-owned subsidiary of the Trust amalgamated with BPL and became the successor company. The Trust has two significant subsidiaries in which it owns 100% of the common shares of BPL (excluding the exchangeable shares - see note 6) and 100% of the units of Bonavista Trust (2003) ("BT"). The activities of these entities are financed through interest bearing notes from the Trust and third party debt as described in the notes to the consolidated financial statements. The business of the Trust is carried on through the entities owned by the subsidiaries of the Trust, Bonavista Petroleum, a general partnership ("BP") and Bonavista Energy Limited Partnership ("BELP"). The net income of the Trust is generated from interest on notes advanced to its subsidiaries, royalty payments on oil and natural gas assets owned by BP, as well as any dividends or distributions paid by its subsidiaries. The Trustee must declare payable to the Trust Unitholders all of the taxable income of the Trust.

1. Changes in accounting policies:

a) Goodwill:

On January 1, 2009, the Trust adopted CICA Handbook Section 3064 "Goodwill and Intangible Assets", which defines the criteria for the recognition of intangible assets. The adoption of this standard did not impact the Trust's consolidated financial statements.

b) International Financial Reporting Standards:

On February 13, 2008, Canada's Accounting Standards Board confirmed January 1, 2011 as the effective date for the convergence of Canadian GAAP to International Financial Reporting Standards ("IFRS"). The Canadian Securities Administrators are in the process of examining the changes to securities rules as a result of this initiative. Bonavista has completed a preliminary analysis of the accounting differences and has plans in place to perform a detailed assessment of the impact of IFRS on our results of operations, financial position and disclosures.

2. Business relationships:

Bonavista and NuVista are considered related as two directors of NuVista, one of whom is NuVista's chairman, are directors and officers of Bonavista and a director and an officer of NuVista are also officers of Bonavista.

Pursuant to the Plan of Arrangement, Bonavista entered into a Technical Services Agreement ("TSA") with NuVista, whereby, Bonavista received payment for certain technical and administrative services provided by it to NuVista on a cost recovery basis. Effective January 1, 2007 the terms of the TSA were amended to reflect the reduced level of services provided by Bonavista and subsequently on August 31, 2007 the TSA was terminated and replaced with a new services agreement. This new services agreement was terminated on November 1, 2008.

For the three months ended March 31, 2009, Bonavista charged NuVista nil (2008 - $414,000) in fees relating to general and administrative services provided to NuVista, in addition, NuVista charged Bonavista management fees for a jointly owned partnership totaling $337,500 (2008 - $337,500). As at March 31, 2009, the amount payable to NuVista was $726,000.

3. Asset retirement obligations:

The Trust's asset retirement obligations result from net ownership interests in oil and natural gas assets including well sites, gathering systems and processing facilities. The Trust estimates the total undiscounted amount of expenditures required to settle its asset retirement obligations is approximately $600.9 million (2008 - $556.6 million) which will be incurred over the next 51 years. The majority of the costs will be incurred between 2010 and 2037. A credit-adjusted risk-free rate of 7.5% (2008 - 7.5%) and an inflation rate of 2% (2008 - 2%) were used to calculate the fair value of the asset retirement obligations.



A reconciliation of the asset retirement obligations is provided below:

----------------------------------------------------------------------------
Three months
ended March 31,
2009 2008
----------------------------------------------------------------------------
(thousands)
Balance, beginning of period $ 127,467 $ 116,893
Accretion expense 2,249 2,083
Liabilities incurred 729 2,565
Liabilities acquired 2,128 2,487
Liabilities settled (2,240) (2,918)
Change in assumptions 421 -
----------------------------------------------------------------------------
Balance, end of period $ 130,754 $ 121,110
----------------------------------------------------------------------------
----------------------------------------------------------------------------


4. Long-term debt:

The Trust has a $1.0 billion credit facility with a syndicate of chartered banks. This facility is an unsecured, covenant-based, extendible revolving facility and includes a $50 million working capital facility. The facility provides that advances may be made by way of prime rate loans, bankers' acceptances and/or US dollar LIBOR advances. These advances bear interest at the banks' prime rate and/or at money market rates plus a stamping fee. The facility is a three year revolving credit and may, at the request of the Trust with the consent of the lenders, be extended on an annual basis. On August 25, 2008 the facility was extended to August 10, 2011 with no principal payments required until then. This facility also includes an accordion feature providing that at anytime during the term, on participation of any existing or additional lenders, we can increase the facility by $250 million.

Under the terms of the credit facility, the Trust has provided the covenant that its: (i) consolidated senior debt borrowing will not exceed three times net income before unrealized gains and losses on financial instruments, interest, taxes and depreciation, depletion and accretion; (ii) consolidated total debt will not exceed three and one half times consolidated net income before unrealized gains and losses on financial instruments, interest, taxes and depreciation, depletion and accretion; and (iii) consolidated senior debt borrowing will not exceed one-half of consolidated total debt plus consolidated unitholders' equity of the Trust, in all cases calculated based on a rolling prior four quarters.

Financing expenses for the three months ended March 31, 2009 include interest on bank loans of $3.0 million (2008 - $10.7 million) and convertible debentures of $763,000 (2008 - $867,000). For the three months ended March 31, 2009, Bonavista paid cash interest of $3.5 million (2008 - $10.9 million). For the period ending March 31, 2009 our effective interest rate was 1.8% (2008 - 4.7%).

5. Convertible debentures:

The debt component of the debentures has been recorded net of the fair value of the conversion feature and issue costs. The fair value of the conversion feature of the debentures included in Unitholders' equity at the date of issue was $4.7 million. The issue costs are amortized to net income over the term of the obligation. The debt portion is accreted over the term of the obligation to the principal value on maturity with a corresponding charge to net income. The following table sets out the convertible debenture activities to March 31, 2009:



----------------------------------------------------------------------------
Debt Equity
Component Component
----------------------------------------------------------------------------
(thousands)
Balance, December 31, 2008 $ 43,711 $ 933
Accretion 12 -
Amortization of issue expenses 169 -
----------------------------------------------------------------------------
Balance, March 31, 2009 $ 43,892 $ 933
----------------------------------------------------------------------------
----------------------------------------------------------------------------


6. Unitholders' equity:

a) Authorized:

Unlimited number of voting trust units.

b) Issued and outstanding:

(i) Trust units:

----------------------------------------------------------------------------
Number of
Units Amount
----------------------------------------------------------------------------
(thousands)
Balance, December 31, 2008 95,770 $ 1,099,835
Issued on conversion of exchangeable shares 2,750 8,378
Issued upon exercise of trust unit incentive
rights 41 452
Conversion of restricted trust units 61 -
Unit-based compensation - 4,067
----------------------------------------------------------------------------
Balance, March 31, 2009 98,622 $ 1,112,732
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(ii) Contributed surplus:
----------------------------------------------------------------------------
Amount
----------------------------------------------------------------------------
(thousands)
Balance, December 31, 2008 $ 10,687
Unit-based compensation expense 2,754
Unit-based compensation capitalized 498
Exercise of trust unit incentive rights and conversion of
restricted trust units (4,067)
----------------------------------------------------------------------------
Balance, March 31, 2009 $ 9,872
----------------------------------------------------------------------------
----------------------------------------------------------------------------


(iii) Exchangeable shares:
----------------------------------------------------------------------------
Number Amount
----------------------------------------------------------------------------
(thousands)
Balance, December 31, 2008 11,375 $ 69,488
Exchanged for trust units (1,371) (8,378)
----------------------------------------------------------------------------
Balance, March 31, 2009 10,004 61,110
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Exchange ratio, March 31, 2009 2.05101 -
----------------------------------------------------------------------------
Trust units issuable on exchange 20,518 $ 61,110
----------------------------------------------------------------------------
----------------------------------------------------------------------------


As a result of minimal conversions of exchangeable shares into trust units over the last few years, Bonavista elected to redeem 10% of its exchangeable shares outstanding on January 16, 2009. This redemption allows Bonavista to manage the dilution created by the compounding effect of the exchangeable shares, maintain an optimal capital and tax efficient trust structure for the Trust and its unitholders. On January 16, 2009, 1.1 million exchangeable shares were redeemed for 2.3 million trust units.

c) Long term incentive plans:

For the three months ended March 31, 2009 there were 144,975 restricted trust units granted and 1.3 million trust unit incentive rights issued with an average exercise price of $16.11 per trust unit and an estimated fair value of $8.33 per trust unit. As at March 31, 2009 there were 236,827 restricted trust units outstanding and 4.3 million trust unit rights outstanding with an average exercise price of $22.53 per trust unit. The Trust uses the fair value based method for the determination of the unit-based compensation costs. The fair value of each incentive right granted was estimated on the date of grant using the modified Black-Scholes option-pricing model. In the pricing model, the risk free interest rate was 3.5%; volatility of 60%; a forfeiture rate of 10% and an expected life of 4.5 years.



d) Per unit amounts:

The following table summarizes the weighted average trust units,
exchangeable shares and convertible debentures used in calculating net
income per trust unit:

----------------------------------------------------------------------------
Three months
ended March 31, 2009
----------------------------------------------------------------------------
(thousands)
Trust units 97,894
Exchangeable shares converted at the exchange ratio 21,246
----------------------------------------------------------------------------
Basic equivalent trust units 119,140
Convertible debentures 1,617
Trust unit incentive rights 46
Restricted trust units 237
----------------------------------------------------------------------------
Diluted equivalent trust units 121,040
----------------------------------------------------------------------------


For the purposes of calculating net income per trust unit on a diluted basis, net income has been increased by $943,000 (2008 - $1.1 million) with respect to the accretion, amortization and interest expense on the convertible debentures.

7. Financial instruments:

The Trust has exposure to credit, liquidity and market risks from its use of financial instruments. This note provides information about the Trust's exposure to each of these risks, the Trust's objectives, policies and processes for measuring and managing risk. Further quantitative disclosures are included throughout these financial statements.

(a) Credit risk:

The carrying amount of accounts receivable represents the maximum credit exposure. As at March 31, 2009 the Trust's receivables consisted of $61.5 million of receivables from crude oil and natural gas marketers which has substantially been collected, $28.0 million from joint venture partners of which $4.5 million has been subsequently collected, and $18.0 million of Crown deposits and prepaid expenses. As at March 31, 2009 the Trust has $8.4 million in accounts receivable that is considered to be past due. Although these amounts have been outstanding for greater than 90 days, they are still deemed to be collectible. The Trust does not have an allowance for doubtful accounts as at March 31, 2009 and did not provide for any doubtful accounts nor was it required to write-off any receivables during the period ended March 31, 2009.

(b) Liquidity risk:

Liquidity risk is the risk that the Trust will encounter difficulty in meeting obligations associated with the financial liabilities. The Trust's financial liabilities consist of accounts payable and accrued liabilities, financial instruments, bank debt and convertible debentures. Accounts payable consists of invoices payable to trade suppliers for office, field operating activities, capital expenditures, and distributions payable. The Trust processes invoices within a normal payment period.Accounts payable and financial instruments have contractual maturities of less than one year. The Trust maintains a three year revolving credit facility, as outlined in note 4, which may, at the request of the Trust with the consent of the lenders, be extended on an annual basis. The Trust also has two series of convertible debentures outstanding. The 7.5% debentures have a conversion price of $23.00 per trust unit, maturing on June 30, 2009 and the 6.75% debentures have a conversion price of $29.00 per trust unit, maturing on June 30, 2010. The Trust may elect to satisfy the principal obligation of these debentures by issuing trust units to the holders of the debentures. The Trust also maintains and monitors a certain level of cash flow which is used to partially finance all operating, investing and capital expenditures.

(c) Commodity price risk:

Commodity price risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in commodity prices. Commodity prices for crude oil and natural gas are impacted not only by global economic events that dictate the levels of supply and demand but also by the relationship between the Canadian and United States dollar. The Trust has attempted to mitigate a portion of the commodity price risk through the use of various financial instruments and physical delivery sales contracts. The Trust's policy is to enter into commodity price contracts when considered appropriate to a maximum of 60% of net after royalty, forecasted production volumes.



i) Financial instruments:

As at March 31, 2009, the Trust has hedged by way of costless collars to
sell natural gas and crude oil as follows:

----------------------------------------------------------------------------
Volume Average Price Term
----------------------------------------------------------------------------
20,000 gjs/d CDN$ 6.75 - CDN$ 8.53 - AECO April 1, 2009 -
October 31, 2009
5,000 gjs/d CDN$ 5.00 - CDN$ 6.50 - AECO November 1, 2009 -
March 31, 2010
1,000 bbls/d CDN$ 70.00 - CDN$ 78.00 - Bow River April 1, 2009 -
December 31, 2009
6,455 bbls/d CDN$ 83.68 - CDN$ 128.04 - WTI April 1, 2009 -
December 31, 2009
1,000 bbls/d US$ 85.00 - US$ 105.60 - WTI April 1, 2009 -
December 31, 2009
3,000 bbls/d CDN$ 55.00 - CDN$ 93.67 - WTI January 1, 2010 -
December 31, 2010
----------------------------------------------------------------------------


Financial instruments are recorded on the consolidated balance sheet at fair value at each reporting period with the change in fair value being recognized as an unrealized gain or loss on the consolidated statements of operations, comprehensive income and accumulated earnings. These financial instruments had the following gains and losses reflected in the consolidated statements of operations, comprehensive income and accumulated earnings:



----------------------------------------------------------------------------
Three months
ended March 31,
2009 2008
----------------------------------------------------------------------------
Realized gains (losses) on financial instruments $ 24,284 $ (14,283)
Unrealized losses on financial instruments (17,342) (19,464)
----------------------------------------------------------------------------
$ 6,942 $ (33,747)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Bonavista mitigates its risk associated with fluctuations in commodity prices by utilizing financial instruments. A $0.10 increase or decrease to the price per thousand cubic feet of natural gas - AECO would have an impact of approximately $0.3 million on net income for those financial instruments that were in place as at March 31, 2009. A $1.00 increase or decrease to the price per barrel of oil - WTI would have an impact of approximately $1.8 million on net income for those financial instruments that were in place as at March 31, 2009.

Subsequent to March 31, 2009 the Trust has hedged by way of costless collars to sell crude oil as follows:



Subsequent to March 31, 2009 the Trust has hedged by way of costless collars
to sell crude oil as follows:

----------------------------------------------------------------------------
Volume Average Price Term
----------------------------------------------------------------------------
1,000 bbls/d CDN$ 70.00 - CDN$ 91.25 - WTI January 1, 2010 -
December 31, 2010
1,000 bbls/d CDN$ 60.00 - CDN$ 75.50 - WTI July 1, 2010 -
September 30, 2010
1,000 bbls/d CDN$ 60.00 - CDN$ 75.30 - WTI October 1, 2010 -
December 31, 2010
----------------------------------------------------------------------------


ii) Physical purchase contracts:

As at March 31, 2009, the Trust has entered into direct sale costless
collars to sell natural gas as follows:

----------------------------------------------------------------------------
Volume Average Price (CDN$ - AECO) Term
----------------------------------------------------------------------------
15,000 gjs/d $ 5.75 - $ 7.73 April 1, 2009 - October 31, 2009
5,000 gjs/d $ 5.00 - $ 6.56 November 1, 2009 - March 31, 2010
----------------------------------------------------------------------------


Physical purchase contracts are being accounted for as they are settled.

Fair value of financial instruments

The fair value of financial instruments is determined by the financial intermediary to extinguish all rights or obligations of the financial instruments. As at March 31, 2009, the fair market value of these financial instruments was an asset of approximately $58.9 million (2008 - $64.5 million liability).

Fair market value of the convertible debentures as at March 31, 2009 is $45.2 million (2008 - $54.2 million), as determined by its most recent closing trading price.

Bank debt bears interest at a floating market rate and accordingly the fair market value approximates the carrying value.

INVESTOR INFORMATION

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

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

Contact Information

  • Bonavista Energy Trust
    Keith A. MacPhail
    Chairman and CEO
    (403) 213-4300
    or
    Ronald J. Poelzer
    Executive Vice President
    (403) 213-4300
    or
    Glenn A. Hamilton
    Senior Vice President& CFO
    (403) 213-4300
    or
    700, 311 - 6th Avenue SW
    Calgary, AB T2P 3H2
    Website: www.bonavistaenergy.com