EnerVest Natural Resource Fund Ltd.

EnerVest Natural Resource Fund Ltd.

March 20, 2008 17:30 ET

EnerVest Natural Resource Fund Ltd. Announces Financial Results for the Year Ended December 31, 2007

CALGARY, ALBERTA--(Marketwire - March 20, 2008) - EnerVest Natural Resource Fund Ltd. ("EnerVest"), is pleased to announce the financial results for the year ended December 31, 2007. The following is an excerpt from the management report of fund performance and annual financial statements of EnerVest for the year ended December 31, 2007. 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

It was a difficult year for Canadian emerging and junior oil and gas companies, particularly gas-weighted companies. Several factors weighed against the sector, including the Tax Fairness Plan announced in October 2006 which has restricted access to financing and decreased demand from royalty trusts in acquiring juniors, continued capital cost increases, lower natural gas prices, and the new Alberta royalty regime announced in October 2007. The result was an average market price decline of 21% in 2007. EnerVest's portfolio is heavily weighted in gas-oriented emerging and junior oil and gas companies. Its portfolio therefore declined during 2007 as a result of the weakness in the natural gas market. Redemptions during 2007 totalled $9.4 million, requiring significant investment sales to fund. Consequently, EnerVest's net asset value per share declined 17.5% during the year compared to an 11.2% increase in the S&P/TSX Capped Energy Index which consists mainly of senior companies and royalty trusts with more of an emphasis on oil production.

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. At December 31, 2007, large capitalized companies represented 32.4% of the portfolio, up from 29.4% in 2006 due to the contraction of the emerging and junior sectors. Emerging and junior companies combined accounted for 53.3% of the portfolio, down from 56.1% a year ago. Private companies were 9.3% of the portfolio at year end. The portfolio has a 67.6% weighting in small and mid-sized oil and gas companies with good growth prospects.

The smallest companies have been the most negatively affected due to government policy decisions, increasing capital costs and lower natural gas prices. A number of companies now represent good value to investors.

Financial Performance

Investment revenues totalled $66,164 for 2007, a decrease of $9,660 from 2006 due to less distribution income being received from income trusts. Total expenses were $911,076, of which the $666,947 in management fees accounted for 73.2%. Management fees are based on EnerVest's daily net asset values, therefore increases in net assets result in an increase in management fees. The $360,930 decrease in management fees from 2006 is due to lower daily net asset values for most of 2007 as compared to 2006. All other expenses totalled $244,129 for the year. Since these expenses are capped at 0.7% of the daily net asset value of the fund, the decrease from the prior year is also the result of the lower daily net asset values.

EnerVest had net realized capital gains of $327,544, the largest gains resulting from the acquisitions of Mission Oil & Gas Inc. by Crescent Point Energy Trust and Western Oil Sands by Marathon Oil Corp. Unrealized gains in the portfolio decreased by $5.0 million due to market value declines, particularly in gas-weighted companies, and the realization of capital gains.

The decrease in net assets from operations for the year was $5.6 million, or $2.57 per share. Proceeds on the issuance of shares were $6.0 million, significantly less than the $9.4 million in redemptions. In January, $3.6 million in shares were issued on payment of a capital gains dividend. Opening net assets decreased by $206,427 due to a fair value adjustment to revalue December 31, 2006 investments to bid prices as required under a new accounting standard. As a result of the decrease from operations, the net outflow of $3.4 million on shareholder transactions, and the fair value adjustment, net assets have decreased $9.2 million since December 31, 2006. As at December 31, 2007, EnerVest's net assets totalled $26.8 million, or $12.28 per share.

Recent Developments

Commodity Prices

Though natural gas prices were depressed throughout 2007 due to excess storage levels and pressure from liquefied natural gas imports, prices have recently risen in response to colder winter weather and the resulting depleting storage levels. Crude oil prices have risen to record levels and traded over US $100 per barrel recently. Continued demand for crude oil will persist if GDP growth from non-OECD remains strong. However, further retraction in the United States and global growth will make it difficult for commodity prices to remain at these levels.

The intervention by government has created an additional persistent discount in the valuation of junior producers even in light of recent increasing commodity prices. Any further fiscal manipulation will only further erode market confidence in investing in Canadian resources and will continue to dampen market performance. Recent comments from the Alberta government have indicated their concern over the unfair treatment experienced by several companies and certain sectors of the energy market under the new royalty regime and they have indicated they will review their policy in conjunction with those companies affected. The market has already begun to factor in this probability and a number of those hardest hit are now rebounding from their lows, making for a very volatile market.

The weaker performance by junior companies has eroded market capitalizations and created a group of super-small juniors with market capitalizations of less than $100 million that, because of liquidity concerns, are mostly ignored by the institutional marketplace. More merger and acquisition deals among companies of equal size are therefore expected in an attempt to create a new entity that is larger and stronger than the two individual companies alone. This should lead to larger market capitalizations, reduced expenses per barrel of production and increased balance sheet strength.

The market encountered many unforeseen events last year, including the passing of the income trust taxation change, a stronger Canadian dollar, the subprime market crisis, the asset-backed commercial paper crisis as well as the new Alberta royalty change. This has resulted in a retraction of equity capital available to producers, particularly small and mid- size producers. There is also a divergence of valuations between larger and smaller producers as investors are focusing on more liquid stocks and less risk. This trend might continue in 2008, but may include a select group of high quality small capitalized producers, as well as internationals and oil sands companies. The merger and acquisition trend will likely continue and the metrics on the deals being struck can change quickly. The fund is positioned in each of these areas and hopes to be able to capitalize on these trends.

Accounting Changes

On April 1, 2005, the Canadian Institute of Chartered Accountants ("CICA") issued new financial reporting standards for the accounting and disclosure of financial instruments. Of importance to investment funds are new definitions and requirements for determining the fair value of financial instruments, particularly investments. Since current securities regulations require that investment funds calculate Net Asset Value Per Share ("NAVPS") in accordance with Generally Accepted Accounting Principles ("GAAP"), these new standards impact the way in which net asset value is determined. For securities quoted on an open market, the new standards require the use of bid prices as opposed to the closing prices previously used. Bid prices are normally less than closing prices which will result in lower net asset values. Under the old rules, transaction costs such as broker commissions could be added to the cost base of investments purchased and deducted from the proceeds of investments sold. The new rules require that these costs be expensed. These new standards were effective for fiscal years beginning on or after October 1, 2006, therefore effective January 1, 2007 for EnerVest. Securities regulators have granted relief from the requirement to calculate NAVPS in accordance with GAAP. This relief is in effect until the date on which legislation with respect to calculating net asset value for purposes other than financial statements is changed. The Canadian Securities Administrators have proposed amendments to National Instrument 81-106 Investment Fund Continuous Disclosure, Form 81-106F1, Companion Policy 81-106CP, and other related consequential amendments, which modify the requirements regarding the calculation of net asset value following the introduction of the new accounting standards. Specifically it allows for investment funds to have two different net asset values: one for financial statements using bid prices (referred to as "net assets" or "net assets per unit"); and another for all other purposes using closing prices (referred to as "net asset value" or "net asset value per unit"). During the temporary relief period, EnerVest calculates NAVPS under the old method, specifically using closing rather than bid prices, for all purposes other than financial statements. This Management Report of Fund Performance has been completed based on the proposed amendments and the 2007 annual financial statements have been presented in accordance with the new accounting rules.



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.

EnerVest's Net Assets per Share (1)
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2007 2006 2005 2004 2003
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Net assets, beginning of year 16.82 20.27 14.48 12.25 12.32
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Increase (decrease) from
operations:
Total revenue 0.03 0.03 0.08 0.04 0.06
Total expenses (0.42) (0.55) (0.52) (0.41) (0.40)
Realized gains for year 0.15 2.37 2.80 2.82 3.21
Unrealized (losses) gains
for year (2.33) (5.29) 4.46 1.67 (0.33)
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Total (decrease) increase
from operations(2) : (2.57) (3.44) 6.82 4.12 2.54
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Distributions:
From capital gains (1.69) - (1.17) (1.93) (2.72)
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Total distributions(3) (1.69) - (1.17) (1.93) (2.72)
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Net assets, at December 31 12.28 16.82 20.27 14.48 12.25
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(1) This information is derived from EnerVest's audited annual financial
statements. The net assets per share presented in the financial
statements differs from the net asset value calculated for fund pricing
purposes. An explanation of these differences can be found in the notes
to the financial statements.
(2) Net assets 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.
(3) Distributions were paid in cash, reinvested in additional shares of
EnerVest, or both.
(4) This schedule is not a reconciliation of net assets since it does not
reflect shareholder transactions as shown on the Statement of Changes in
Net Assets. Columns may therefore not add.


Ratios and Supplemental Data
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2007 2006 2005 2004 2003
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Total net asset value
($000s)(1) (5) 27,030 36,016 52,902 29,603 23,982
Number of shares outstanding
(000's)(1) 2,184 2,142 2,610 2,044 1,958
Management expense ratio(2) 2.95% 2.95% 2.95% 2.95% 2.95%
Trading expense ratio(3) 0.12% 0.24% 0.29% 0.42% 0.52%
Portfolio turnover rate(4) 4.54% 32.99% 41.57% 71.38% 49.14%
Net asset value per share(5) $12.38 $16.82 $20.27 $14.48 $12.25
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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 (excluding
commissions and other portfolio transaction costs) for the stated period
and is expressed as an annualized percentage of daily average net asset
value during the period.
(3) The trading expense ratio represents total commissions and other
portfolio transaction costs expressed as an annualized percentage of
daily average net asset value during the period.
(4) 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.
(5) The net asset value and net asset value per share calculated for fund
pricing purposes differs from the net assets and net assets per share
presented in the financial statements. An explanation of these
differences can be found in the notes to the financial statements.


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.

Annual Compound Returns

The below table shows annual compound returns for the periods ended December
31, 2007 for EnerVest compared to the S&P/TSX Capped Energy Index and
S&P/TSX Composite Index.

S&P/TSX Capped S&P/TSX Composite
EnerVest Energy Index(1) Index(2)
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One year (17.5)% 11.2% 9.8%
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Three years 0.9% 23.3% 16.9%
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Five years 11.6% 25.0% 18.3%
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Return since inception 17.5% 21.5% 8.1%
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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

Emerging 16.99%
Junior 36.35%
Intermediate 5.18%
Senior 32.41%
Private 9.30%
Cash & Cash Equivalents 0.13%
Liabilities, net of Other Assets (0.36%)
--------
Net Asset Value 100.0%


Top 25 Holdings

Issuer Name % of Net Assets
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Century Oilfield Services Inc., Cl. A 5.18%
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Nexen Inc. 4.99%
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Canadian Natural Resources Limited 4.94%
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EnCana Corporation 4.92%
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Talisman Energy Inc. 4.42%
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Suncor Energy Inc. 3.95%
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Bulldog Resources Inc. 3.65%
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Niko Resources Ltd. 3.63%
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Pacific Stratus Energy Ltd. 3.18%
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Petro-Canada 3.15%
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Cirrus Energy Corporation 2.82%
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Oilexco Incorporated 2.68%
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Greenfield Resources Ltd. 2.50%
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Mahalo Energy Ltd. 2.49%
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TriStar Oil & Gas Ltd. 2.41%
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TUSK Energy Corporation 2.41%
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Cyries Energy Inc. 2.32%
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Peerless Energy Inc., Cl. A 2.28%
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ProspEx Resources Ltd. 2.16%
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Crew Energy Inc. 2.11%
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Temple Energy Inc. 1.46%
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Canadian Oil Sands Trust 1.43%
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Great Plains Exploration Inc. 1.40%
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Rider Resources Ltd. 1.34%
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UTS Energy Corporation 1.29%
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Statements of Net Assets
December 31, 2007 and 2006
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2007 2006
$ $
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ASSETS
Investments 26,889,704 36,090,816
Cash 35,657 42,588
Proceeds receivable for portfolio assets sold 84,752 -
Distributions receivable 15,696 6,245
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27,025,809 36,139,649
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LIABILITIES
Accounts payable and accrued liabilities 66,371 89,842
Redemptions payable 131,191 34,144
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197,562 123,986
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NET ASSETS 26,828,247 36,015,663
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SHARES ISSUED AND OUTSTANDING 2,183,979 2,141,783
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NET ASSETS PER SHARE $12.28 $16.82
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Statements of Operations and Comprehensive Income
For the Years Ended December 31, 2007 and 2006
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2007 2006
$ $
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INVESTMENT REVENUES
Distribution income 64,920 73,078
Interest income 1,244 2,746
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66,164 75,824
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EXPENSES
Management fees 666,947 1,027,877
Administration fees 94,387 137,665
Goods and services tax 49,497 82,835
Brokerage commissions 36,638 -
Audit fees 23,015 33,972
Directors' fees 14,625 14,625
Legal fees 14,361 21,889
Securityholder reporting costs 7,998 17,616
Independent Review Committee fees and expenses 1,958 -
Custodial fees 1,650 11,198
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911,076 1,347,677
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NET INVESTMENT LOSS (844,912) (1,271,853)
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GAIN ON INVESTMENTS
Net realized gains on sale of portfolio assets 327,544 5,794,490
Net change in unrealized portfolio gains (5,033,817) (12,953,177)
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(4,706,273) (7,158,687)
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DECREASE IN NET ASSETS FROM OPERATIONS (5,551,185) (8,430,540)
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WEIGHTED AVERAGE SHARES OUTSTANDING 2,156,376 2,448,071
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DECREASE IN NET ASSETS FROM OPERATIONS PER SHARE ($2.57) ($3.44)
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Statements of Changes in Net Assets
For the Years Ended December 31, 2007 and 2006
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2007 2006
$ $
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NET ASSETS, BEGINNING OF YEAR 36,015,663 52,901,584
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FAIR VALUE ADJUSTMENT
Value adjustment to December 31, 2006 bid prices (206,427) -
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DECREASE IN NET ASSETS FROM OPERATIONS (5,551,185) (8,430,540)
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SHAREHOLDER TRANSACTIONS
Proceeds from issuance of shares 6,014,550 13,162,168
Amounts paid on redemption of shares (9,396,764) (21,691,631)
Distributions to shareholders
- from realized gains on sale of portfolio
assets (3,619,931) -
Shares issued on reinvestment of distributions 3,572,341 74,082
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(3,429,804) (8,455,381)
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NET ASSETS, END OF YEAR 26,828,247 36,015,663
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Statement of Investment Portfolio
December 31, 2007
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Average
Number of Cost Fair Value % of Net
Issuer Name Shares $ $ Assets
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EMERGING
Accrete Energy Inc. 75,925 357,401 368,996 1.38%
AltaCanada Energy Corp. 960,000 574,166 297,600 1.11%
Berens Energy Ltd. 568,200 1,007,619 352,284 1.31%
Buffalo Resources Corp. 229,698 285,848 243,480 0.91%
Burmis Energy Inc. 120,000 324,000 205,200 0.76%
Canext Energy Ltd. 497,950 294,873 199,180 0.74%
Cinch Energy Corp. 244,000 849,481 214,720 0.80%
Cirrus Energy Corporation 270,000 321,300 745,200 2.78%
Desmarais Energy Corporation 73,000 93,440 9,490 0.04%
ExAlta Energy Inc. 150,000 637,500 262,500 0.98%
Flagship Energy Inc., Cl. A 56,000 14,000 8,960 0.03%
Great Plains Exploration Inc. 505,109 1,009,432 378,832 1.41%
Masters Energy Inc. 125,000 474,536 287,500 1.07%
Pegasus Oil & Gas Inc., Cl. A 90,000 198,000 163,800 0.61%
Pure Energy Services Ltd. 23,700 213,300 92,667 0.35%
Rock Energy Inc. 84,816 287,270 212,040 0.79%
RSX Energy Inc. 240,000 649,200 362,400 1.35%
Sabretooth Energy Ltd. 38,031 94,317 77,964 0.29%
Yangarra Resources Ltd. 324,872 201,421 34,112 0.13%
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7,887,104 4,516,925 16.84%
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JUNIOR
Berkana Energy Corp. 92,920 288,293 180,265 0.67%
Bow Valley Energy Ltd. 55,000 231,556 344,850 1.28%
Breaker Energy Ltd., Cl. A 45,600 177,840 267,216 1.00%
Bulldog Resources Inc. 135,000 198,203 980,100 3.65%
Celtic Exploration Ltd. 25,000 98,750 270,500 1.01%
Cordero Energy Inc. 34,426 143,901 112,229 0.42%
Crew Energy Inc. 79,000 572,120 568,010 2.12%
Cyries Energy Inc. 93,000 1,020,767 626,820 2.34%
Highpine Oil & Gas Limited 100,000 1,428,955 993,000 3.70%
Kereco Energy Ltd. 85,000 1,128,696 331,500 1.24%
Mahalo Energy Ltd. 264,000 1,039,555 625,680 2.33%
Pacific Stratus Energy Ltd. 70,000 905,800 856,800 3.19%
Pearl Exploration and
Production Ltd. 70,070 250,150 176,576 0.66%
Peerless Energy Inc., Cl. A 110,000 407,000 614,900 2.29%
ProEx Energy Ltd. 20,000 155,649 235,400 0.88%
ProspEx Resources Ltd. 195,000 722,726 557,700 2.08%
Questerre Energy Corporation,
Cl. A 52,932 47,326 39,699 0.15%
Rider Resources Ltd. 103,044 255,018 360,654 1.34%
TriStar Oil & Gas Ltd. 52,000 701,795 651,040 2.43%
TUSK Energy Corporation 457,972 978,726 650,320 2.42%
Vero Energy Inc. 44,784 78,993 258,852 0.96%
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10,831,819 9,702,111 36.16%
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INTERMEDIATE
Oilexco Incorporated 55,000 203,500 724,900 2.70%
Trican Well Service Ltd. 17,000 42,562 326,230 1.22%
UTS Energy Corporation 65,000 362,700 349,700 1.30%
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608,762 1,400,830 5.22%
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SENIOR
Canadian Natural Resources
Limited 18,400 198,754 1,334,736 4.98%
Canadian Oil Sands Trust 10,000 322,500 386,700 1.44%
EnCana Corporation 19,700 667,950 1,329,750 4.96%
Nexen Inc. 42,000 969,501 1,346,520 5.02%
Niko Resources Ltd. 11,000 582,711 979,660 3.65%
OPTI Canada Inc. 16,000 199,067 265,440 0.99%
Petro-Canada 16,000 472,630 851,040 3.17%
Suncor Energy Inc. 9,900 220,655 1,068,309 3.98%
Talisman Energy Inc. 65,000 439,871 1,193,400 4.45%
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4,073,639 8,755,555 32.64%
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PRIVATE
Century Oilfield Services Inc.,
Cl. A 560,000 700,000 1,400,000 5.22%
Cipher Energy Inc. 17,508 17,508 17,508 0.06%
Golden Eagle Energy Inc. 36,500 15,000 27,375 0.10%
Greenfield Resources Ltd. 250,000 587,500 675,000 2.52%
Temple Energy Inc. 272,000 544,000 394,400 1.47%
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1,864,008 2,514,283 9.37%
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25,265,332 26,889,704 100.23%
BROKERAGE COMMISSIONS (89,481) - -
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TOTAL INVESTMENT PORTFOLIO 25,175,851 26,889,704 100.23%
CASH & CASH EQUIVALENTS 35,657 0.13%
LIABILITIES, NET OF OTHER
ASSETS (97,114) (0.36%)
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NET ASSETS 26,828,247 100.00%


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 portfolio holdings. 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.
    Kevin W. Wolfe
    President & Chief Executive Officer
    (403) 571-5550 or Toll Free: 1-800-459-3384
    or
    EnerVest Funds Management Inc.
    Sean J. H. Morgan
    Chief Financial Officer
    (403) 571-5550 or Toll Free: 1-800-459-3384
    or
    EnerVest Funds Management Inc.
    Kristie Allen
    Investor Relations
    (403) 571-5550 or Toll Free: 1-800-459-3384
    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