EnerVest Natural Resource Fund Ltd.

EnerVest Natural Resource Fund Ltd.

March 29, 2007 12:53 ET

EnerVest Natural Resource Fund Ltd. Announces Financial Results for the Year Ended December 31, 2006

CALGARY, ALBERTA--(CCNMatthews - March 29, 2007) - EnerVest Funds Management Inc., the manager of EnerVest Natural Resource Fund Ltd. ("EnerVest"), is pleased to announce the financial results for the year ended December 31, 2006. The following is an excerpt from the management report of fund performance and annual financial statements of EnerVest for the year ended December 31, 2006. The annual report, which includes the entire management report of fund performance and financial statements, can be found on our website at www.enervest.com or on SEDAR at www.sedar.com.

MANAGEMENT DISCUSSION OF FUND PERFORMANCE

Results of Operations

Ongoing political tension and instability in the Middle East, concerns of a global economic slowdown, and particularly large fluctuations in commodity prices contributed to a rather tumultuous year for the oil and gas sector. The Conservative Government's October 31 announcement to tax distributions from income trusts had an indirect but significant impact on the industry, in particular on emerging and junior oil and gas companies which were traditionally acquired by income trusts. The proposed legislative changes effectively stopped oil and gas royalty trusts from expanding their operations in this manner. A sell off of emerging and junior oil and gas companies ensued as collateral damage. As a result, the S&P/TSX Capped Energy Index managed a modest return of only 4.2% for 2006 compared to the 61.7% of 2005.

EnerVest's portfolio is heavily weighted in gas-oriented emerging and junior oil and gas companies and accordingly its portfolio was particularly hard hit by the Government's proposed legislation and the instability of natural gas prices. Consequently, EnerVest's net asset value per share declined 17.0% in 2006. EnerVest experienced significant redemptions with approximately $21.7 million being paid during the year. These redemptions were greater than normal. We believe this was largely the result of volatile commodity prices causing investors to move out of the oil and gas sector. The transfer in of limited partnership units in March from the EnerVest FTS Limited Partnership 2004 also allowed these new unitholders to liquidate a previously illiquid investment.

Portfolio

EnerVest focuses on well-managed companies that display strong balance sheets and flexible capital programs. EnerVest's investment portfolio is segregated by market capitalization. Notable changes in portfolio weightings from 2005 to 2006 are a decrease in emerging oil and gas issuers from 20.3% to 13.1%, a decrease in juniors from 51.8% to 43.0% and an increase in seniors from 20.2% to 29.4%. These changes are the result of the decrease in valuations of emerging and junior oil and gas companies and movements between sectors as a result of changes in market capitalization. The weighting of private companies increased from 3.7% to 7.9%.

Financial Performance

Investment revenues totalled $75,824 for 2006, a decrease of $103,341 from 2005. Distribution income of $73,078 decreased 42.7% compared to 2005. This decrease is due to fewer income trusts being held in the portfolio as a result of mergers or acquisitions throughout 2006 compared to 2005 and the distributions received on those units. Units of royalty and income trusts are generally not held in the portfolio. If received as a result of a merger or acquisition, these investments are usually sold shortly after being received.

Total expenses for 2006 were $1.3 million, of which the $1.0 million in management fees accounted for 76.3%. Management fees are based on EnerVest's daily net asset values, therefore increases in net assets result in an increase in management fees. The $108,189 increase in management fees over 2005 is due to higher daily net asset values for most of 2006 as compared to 2005. All other expenses totalled $319,800 for 2006. Since these expenses are capped at 0.7% of the daily net asset value of the fund, the increase over the prior year is also the result of the higher daily net asset values.

EnerVest had net realized capital gains of $5.8 million. Unrealized gains in the portfolio decreased by $13.0 million due to market value declines, particularly in the junior and emerging sectors, and the realization of capital gains.

The decrease in net assets from operations for the year was $8.4 million, or $3.44 per share. Proceeds from issuance of shares were $13.2 million, significantly less than the $21.7 million in redemptions. As a result of the decrease from operations and the net outflow of $8.5 million on shareholder transactions, net assets have decreased $16.9 million since December 31, 2005. As at December 31, 2006, EnerVest's net assets totalled $36.0 million, or $16.82 per share.

Recent Developments

Consolidation Activity

The volatile commodity price environment and dramatic drop in equity markets following the Federal Government's October 31, 2006 announcement of its intention to tax income trusts in 2011 has indirectly impacted the junior oil and gas companies. Consequently, the energy sector is poised for increased takeover activity as a result of a valuation gap between senior and junior exploration and producing companies, and the expectation that the average Western Canadian Sedimentary Basin property transaction metric could fall thereby positioning the larger capitalized companies to acquire assets on an accretive basis given their lower cost of capital and limited competition.

FINANCIAL HIGHLIGHTS

The following tables show selected key financial information about EnerVest and are intended to help you understand EnerVest's financial performance for the past five years. This information is derived from EnerVest's audited annual financial statements.





EnerVest's Net Asset Value ("NAV") per Share
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2006 2005 2004 2003 2002
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Net asset value, beginning of year 20.27 14.48 12.25 12.32 8.89
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Increase (decrease) from operations:
Total revenue 0.03 0.08 0.04 0.06 0.04
Total expenses (0.55) (0.52) (0.41) (0.40) (0.32)
Realized gains for year 2.37 2.80 2.82 3.21 0.49
Unrealized (losses) gains for year (5.29) 4.46 1.67 (0.33) 3.16
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Total increase from operations(1) : (3.44) 6.82 4.12 2.54 3.37
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Distributions:
From capital gains - (1.17) (1.93) (2.72) -
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Total annual distributions(2) - (1.17) (1.93) (2.72) -
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Net asset value, at December 31 16.82 20.27 14.48 12.25 12.32
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(1) Net asset value and distributions are based on the actual number of
shares outstanding at the relevant time. The increase/decrease from
operations is based on the weighted average number of shares outstanding
over the financial period.
(2) Distributions were paid in cash, reinvested in additional shares of
EnerVest, or both.
(3) This schedule is not a reconciliation of NAV since it does not reflect
all of the unitholder transactions as shown on the Statement of Changes
in Net Assets and therefore may not add.


Ratios and Supplemental Data
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2006 2005 2004 2003 2002
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Net assets ($000's)(1) 36,016 52,902 29,603 23,982 27,974
Number of shares outstanding
(000's)(1) 2,142 2,610 2,044 1,958 2,270
Management expense ratio(2) 2.95% 2.95% 2.95% 2.95% 2.95%
Portfolio turnover rate(3) 32.99% 41.57% 71.38% 49.14% 59.25%
Trading expense ratio(4) 0.24% 0.29% 0.42% 0.52% 0.30%
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(1) This information is provided as at December 31 of the year shown.
(2) Management expense ratio is based on total expenses for the stated year
and is expressed as an annualized percentage of daily average net assets
during the year.
(3) EnerVest's portfolio turnover rate indicates how actively EnerVest's
portfolio advisor manages its portfolio investments. A portfolio
turnover rate of 100% is equivalent to EnerVest buying and selling all
of the securities in its portfolio once in the course of the year. The
higher a fund's portfolio turnover rate in a year, the greater the
trading costs payable by the fund in the year and the greater the chance
of an investor receiving taxable capital gains in the year. There is not
necessarily a relationship between a high turnover rate and the
performance of a fund.
(4) The trading expense ratio represents total commissions and other
portfolio transaction costs expressed as an annualized percentage of
daily average net assets during the year.


PAST PERFORMANCE

The performance data provided assumes that all distributions made by EnerVest in the years shown were reinvested in additional shares of EnerVest and does not take into account sales, distribution or other optional charges that would have reduced returns or performance. Past performance does not necessarily indicate how EnerVest will perform in the future.

Year-by-Year Returns

This table below shows EnerVest's annual performance for each of the years shown and illustrates how EnerVest's performance has changed from year to year. This table shows in percentage terms how much an investment made on January 1 of each year (or, for 2000, an investment made on December 7, 2000) would have increased or decreased by December 31 of the same year.



2000 2001 2002 2003 2004 2005 2006
------ ------ ------ ------ ------ ------ ------
Return 13.7% 15.0% 38.2% 23.9% 32.5% 50.2% (17.0%)


Annual Compound Returns

The below table shows annual compound returns for the periods ended December 31, 2006 for EnerVest compared to the S&P/TSX Capped Energy Index and S&P/TSX Composite Index.



S&P/TSX S&P/TSX
Capped Energy Composite
EnerVest Index(1) Index(2)
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One year (17.0)% 4.2% 17.3%
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Three years 19.2% 30.0% 18.6%
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Five years 23.7% 25.2% 13.1%
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Return since inception 24.6% 23.3% 7.8%
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(1) The S&P/TSX Capped Energy Index is composed of firms whose primary
business is related to the exploration, extraction or production of
natural resources.
(2) The S&P/TSX Composite Index tracks the performance of some of the
largest and most widely held stocks listed on the Toronto Stock
Exchange.


SUMMARY OF INVESTMENT PORTFOLIO

Portfolio Breakdown

Junior 42.95%
Senior 29.35%
Emerging 13.10%
Private 7.86%
Intermediate 6.95%
Cash & Cash Equivalents 0.12%
Other Assets less Liabilities (0.33%)
-------
Net Assets 100.0%

Top 25 Holdings

Issuer Name % of Net Assets
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Century Oilfield Services Inc. 5.44%
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Nexen Inc. 4.28%
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Highpine Oil & Gas Limited 4.05%
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Talisman Energy Inc. 4.01%
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Canadian Natural Resources Limited 3.97%
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EnCana Corporation 3.72%
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Cyries Energy Inc. 3.52%
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Niko Resources Ltd. 3.24%
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Bow Valley Energy Ltd. 2.80%
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RSX Energy Inc. 2.80%
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Suncor Energy Inc. 2.80%
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Mission Oil & Gas Inc. 2.74%
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Rider Resources Ltd. 2.68%
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Petro-Canada 2.65%
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Mahalo Energy Ltd. 2.60%
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Western Oil Sands Inc. 2.54%
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Bulldog Resources Inc. 2.24%
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Crew Energy Inc. 2.22%
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Real Resources Inc. 2.18%
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OPTI Canada Inc. 2.14%
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Bunker Energy Inc. 1.83%
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TriStar Oil & Gas Ltd. 1.82%
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Berens Energy Ltd. 1.72%
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Kereco Energy Ltd. 1.70%
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Great Plains Exploration Inc. 1.64%
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The summary of investment portfolio may change due to ongoing portfolio transactions of the investment fund. A quarterly update is available on our website at www.enervest.com or can be requested by calling 1-800-459-3384 or writing to EnerVest Funds Management Inc., Suite 2800, 700 9th Avenue SW, Calgary, Alberta, T2P 3V4.



Statements of Net Assets
December 31, 2006 and 2005
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2006 2005
$ $
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ASSETS
Investments 36,090,816 53,018,755
Cash 42,588 56,986
Proceeds receivable for portfolio assets sold - 115,187
Subscriptions receivable for shares issued - 41,000
Distributions receivable 6,245 13,386
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36,139,649 53,245,314
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LIABILITIES
Accounts payable and accrued liabilities 89,842 134,752
Redemptions payable 34,144 133,978
Distributions payable - 75,000
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123,986 343,730
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NET ASSETS 36,015,663 52,901,584
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SHARES ISSUED AND OUTSTANDING 2,141,783 2,610,397
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NET ASSET VALUE PER SHARE $ 16.82 $ 20.27
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Statements of Operations
Years Ended December 31, 2006 and 2005
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2006 2005
$ $
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INVESTMENT REVENUES
Distribution income 73,078 127,630
Other income - 48,648
Interest income 2,746 2,887
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75,824 179,165

EXPENSES
Management fees 1,027,877 919,688
Administration fees 137,665 106,711
Goods and services tax 82,835 78,867
Audit fees 33,972 25,995
Legal fees 21,889 33,597
Securityholder reporting costs 17,616 21,361
Directors' fees 14,625 3,925
Custodial fees 11,198 15,388
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1,347,677 1,205,532
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NET INVESTMENT LOSS (1,271,853) (1,026,367)

GAIN ON INVESTMENTS
Net realized gains on sale of portfolio assets 5,794,490 6,458,972
Net change in unrealized portfolio gains (12,953,177) 10,287,750
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(7,158,687) 16,746,722
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(DECREASE) INCREASE IN NET ASSETS FROM OPERATIONS (8,430,540) 15,720,355
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WEIGHTED AVERAGE SHARES OUTSTANDING 2,448,071 2,303,535
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(DECREASE) INCREASE IN NET ASSETS FROMOPERATIONS
PER SHARE $ (3.44) $ 6.82
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Statements of Changes in Net Assets
Years Ended December 31, 2006 and 2005
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2006 2005
$ $
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NET ASSETS, BEGINNING OF YEAR 52,901,584 29,602,503

(DECREASE) INCREASE IN NET ASSETS FROM OPERATIONS (8,430,540) 15,720,355

SHAREHOLDER TRANSACTIONS
Proceeds from issuance of shares 13,162,168 22,035,845
Amounts paid on redemption of shares (21,691,631) (15,275,321)
Shares issued on reinvestment of distributions 74,082 3,143,204
Distributions to shareholders
- from realized gains on sale of portfolio assets - (2,325,002)
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(8,455,381) 7,578,726
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NET ASSETS, END OF YEAR 36,015,663 52,901,584
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Statement of Investment Portfolio
December 31, 2006
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Average Market
Number of Cost Value
Shares Issuer name Description $ $
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EMERGING
960,000 AltaCanada Energy Corp. Common 574,166 441,600
102,920 Berkana Energy Corp. Common 319,319 142,030
120,000 Burmis Energy Inc. Common 324,000 306,000
46,666 Canext Energy Ltd. Common 55,999 75,599
102,286 Choice Resources Corp. Common 91,034 63,417
35,800 Choice Resources Corp. Warrants - -
274,000 Cinch Energy Corp. Common 953,926 293,180
Cirrus Energy
180,000 Corporation Common 160,200 234,000
Defiant Energy
130,000 Corporation Common 477,750 305,500
Desmarais Energy
123,000 Corporation Common 157,440 75,645
245,100 E4 Energy Inc. Common 455,238 301,473
Great Plains Exploration
425,109 Inc. Common 1,113,324 590,902
170,000 Magnus Energy Inc. Class A 195,500 117,300
125,000 Masters Energy Inc. Common 474,536 425,000
90,000 Pegasus Oil & Gas Inc. Class A 198,000 252,000
222,200 RedStar Oil & Gas Inc. Common 544,390 284,416
104,816 Rock Energy Inc. Common 355,010 303,966
31,840 Titan Exploration Ltd. Class A 81,880 111,121
160,000 Trimox Energy Inc. Class A 368,000 296,000
324,872 Yangarra Resources Ltd. Common 201,421 97,462
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7,101,133 4,716,611

JUNIOR
80,925 Accrete Energy Inc. Common 380,937 493,642
Bear Ridge Resources
47,415 Ltd. Common 224,191 175,435
568,200 Berens Energy Ltd. Common 1,007,619 619,338
50,000 Birchcliff Energy Ltd. Common 376,750 204,500
150,000 Bow Valley Energy Ltd. Common 631,516 1,009,500
45,600 Breaker Energy Ltd. Class A 177,840 265,848
155,000 Bulldog Resources Inc. Common 227,566 807,550
Capitol Energy Resources
70,000 Ltd. Common 384,750 298,900
27,900 Celtic Exploration Ltd. Common 110,205 388,089
65,000 Crew Energy Inc. Common 461,470 799,500
100,000 Cyries Energy Inc. Common 1,155,879 1,266,000
160,000 ExAlta Energy Inc. Common 680,000 584,000
82,680 Kereco Energy Ltd. Common 1,195,549 613,486
266,000 Mahalo Energy Ltd. Common 1,047,430 936,320
78,001 Mission Oil & Gas Inc. Common 517,158 986,713
110,000 Peerless Energy Inc. Class A 407,000 445,500
20,000 ProEx Energy Ltd. Common 155,649 257,000
70,000 ProspEx Resources Ltd. Common 294,039 310,800
Pure Energy Services
23,700 Ltd. Common 213,300 317,580
Questerre Energy
50,328 Corporation Common 45,296 67,440
47,000 Real Resources Inc. Common 1,113,900 784,900
110,044 Rider Resources Ltd. Common 272,342 963,985
280,000 RSX Energy Inc. Common 757,400 1,008,000
112,000 TriStar Oil & Gas Ltd. Common 797,440 654,080
100,000 TUSK Energy Corporation Sp. Warrants 405,000 315,000
44,784 Vero Energy Inc. Common 78,993 271,391
95,843 West Energy Ltd. Common 574,239 519,469
32,974 Zenas Energy Corp. Common 77,735 102,879
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13,771,193 15,466,845

INTERMEDIATE
Highpine Oil & Gas
93,000 Limited Class A 1,405,411 1,460,100
60,000 Oilexco Incorporated Common 222,000 435,000
10,000 Paramount Resources Ltd. Class A 280,500 240,000
18,000 Trican Well Service Ltd. Common 45,065 365,760
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1,952,976 2,500,860

SENIOR
Canadian Natural
23,000 Resources Limited Common 248,442 1,429,450
25,000 EnCana Corporation Common 847,652 1,341,500
24,000 Nexen Inc. Common 1,108,001 1,540,800
14,000 Niko Resources Ltd. Common 577,920 1,166,900
39,000 OPTI Canada Inc. Common 485,226 771,420
20,000 Petro-Canada Common 590,788 955,000
11,000 Suncor Energy Inc. Common 245,171 1,009,690
73,000 Talisman Energy Inc. Common 451,471 1,445,400
28,000 Western Oil Sands Inc. Class A 316,659 915,880
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4,871,330 10,576,040

PRIVATE
444,500 Bunker Energy Inc. Common 657,860 657,860
Century Oilfield
560,000 Services Inc. Common 700,000 1,960,000
125,000 Escavar Energy Ltd. Common 125,000 125,000
36,500 Golden Eagle Energy Inc. Class A 15,000 87,600
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1,497,860 2,830,460
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29,194,492 36,090,816
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EnerVest is an open-end mutual fund corporation, specializing in investing in the oil and gas industry and is actively managed by Cypress Capital Management Ltd. The fund code for EnerVest is ENV 040.

This news release contains certain forward looking statements that involve substantial known and unknown risks and uncertainties, some of which are beyond our control, including the impact of general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations, including the Canadian Income Tax Act, fluctuations in interest rates, commodity prices and foreign exchange, stock market volatility, and market valuations of income and royalty trusts. Our actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward looking statements and, accordingly, no assurances can be given that any of these events anticipated by the forward looking statements will transpire or occur, or if any of them do, what benefits, including the amount of proceeds, that we will derive therefrom.

Contact Information

  • EnerVest Funds Management Inc.
    Sean J.H. Morgan
    Chief Financial Officer
    (403) 571-5550 or Toll Free: 1-800-459-3384
    (403) 571-5554 (FAX)
    or
    EnerVest Funds Management Inc.
    Kristie Allen
    Investor Relations
    (403) 571-5550 or Toll Free: 1-800-459-3384
    (403) 571-5554 (FAX)
    or
    EnerVest Funds Management Inc.
    Linda Koroluk
    Investor Relations
    (403) 571-5550 or Toll Free: 1-800-459-3384
    (403) 571-5554 (FAX)
    or
    EnerVest Funds Management Inc.
    Suite 2800, 700-9th Avenue S.W.
    Calgary, Alberta, T2P 3V4
    Email: info@enervest.com
    Website: www.enervest.com