Harvest Energy Trust

Harvest Energy Trust

February 28, 2005 07:00 ET

Harvest Energy Trust Announces Year End 2004 Reserves, 2004 Distribution Taxability, and 2005 Guidance




FEBRUARY 28, 2005 - 07:00 ET

Harvest Energy Trust Announces Year End 2004 Reserves,
2004 Distribution Taxability, and 2005 Guidance

CALGARY, ALBERTA--(CCNMatthews - Feb. 28, 2005) - Harvest Energy Trust
(TSX:HTE.UN) ("Harvest") today announces the following:

- Highlights from Harvest's 2004 year end reserves report indicating
additions to all reserve categories, low reserve addition costs, an
increase to RLI and significant increases to net present values;

- Details regarding the 2004 distribution taxability, and the additional
distribution of income in the form of units to unitholders of record on
March 31, 2005; and

- Discussion of Harvest's guidance for 2005 production volumes and other
select operating information.


Harvest is pleased to report that its independent reserve evaluators
have completed their evaluation report (the "Reserves Report") in
accordance with National Instrument 51-101 for the year ended December
31, 2004.

Highlights of the Reserves Report include:

- Total Proved reserves increased 176% from the prior year to 75.0
million BOE (from 27.2 million BOE) and Proved plus Probable reserves
increased 211% to 102.5 million BOE (from 33.0 million BOE);

- Total Proved reserve life index increased 15% from the prior year to
6.2 (from 5.4) and Proved plus Probable reserve life index increased 25%
to 8.0 years (from 6.4 years);

- Net present value (before taxes, discounted at 10%) of Total Proved
reserves increased 481% to $900.1 million (from $154.9 million the prior
year), and Proved plus Probable reserves increased 569% to $1,132.5
million (from $169.2 million one year ago);

- Total Proved reserve replacement was approximately 560% and Proved
plus Probable reserve replacement was approximately 813%, as a
percentage of Harvest's estimated full year 2004 production;

- Finding, Development and Acquisition (FD&A) costs of Total Proved and
Proved plus Probable reserves were approximately $14.50 per BOE and
$11.10 per BOE, respectively; Finding and Development (F&D) costs of
Total Proved and Proved plus Probable reserves were approximately $5.40
per BOE and $2.70 per BOE, respectively;

- Natural gas reserves now account for approximately 14% of Total Proved
and Proved plus Probable reserves compared to approximately 1% of each
reserve category one year ago.

Following the issuance of senior notes in the U.S. in 2004, Harvest
became an SEC registrant, and is required to follow U.S. reporting
rules. SEC regulations stipulate that oil and natural gas producers must
use year-end pricing (called the 'Constant Price Case') to establish the
economic viability of reserves. Although the price differential for
heavy oil was at a historically high level on December 31, 2004, Harvest
does not anticipate a write-down of any of its heavy oil reserves under
the Constant Price Case.

The following tables summarize certain information contained in the
Reserves Report. Additional reserve disclosure tables, as required under
NI 51-101, will be contained in the Annual Information Form that will be
filed on SEDAR before March 31, 2005.

Reserves Summary - Forecast Prices & Costs as at December 31, 2004

Light & Medium Heavy Natural
Crude Oil Crude Oil Gas Liquids
---------------- ---------------- ----------------
Reserves Gross(1) Net(2) Gross(1) Net(2) Gross(1) Net(2)
Category (Mbbl) (Mbbl) (Mbbl) (Mbbl) (Mbbl) (Mbbl)
-------------- -------- ------- -------- ------- -------- -------
Producing 26,386 23,679 29,355 26,636 1,980 1,755
Non-Producing 356 332 - - 82 72
Undeveloped 2,699 2,416 3,375 2,924 63 60
Total Proved 29,441 26,427 32,730 29,560 2,125 1,887
Probable 8,398 7,680 15,447 13,849 513 463
Total Proved
Plus Probable 37,839 34,107 48,177 43,409 2,638 2,350

Total Oil
Natural Gas Equivalent(3)
------------------ ------------------
Gross(1) Net(2) Gross(1) Net(2)
Reserves Category (Mmcf) (Mmcf) (Mboe) (Mboe)
------------------------ -------- ------- -------- -------
Developed Producing 56,887 50,465 67,202 60,481
Developed Non-Producing 5,650 5,429 1,380 1,309
Undeveloped 1,954 1,329 6,462 5,621
Total Proved 64,491 57,223 75,045 67,411
Probable 18,660 16,475 27,467 24,738
Total Proved Plus Probable 83,151 73,698 102,512 92,150
(1) "Gross" reserves means the total working and royalty interest
share of Harvest's remaining recoverable reserves before
deductions of royalties payable to others.

(2) "Net" reserves means Harvest's gross reserves less all royalties
payable to others.

(3) Oil equivalent amounts have been calculated using a conversion
rate of six thousand cubic feet of natural gas to one barrel of
oil. BOEs may be misleading, particularly if used in isolation.
This conversion ratio is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.

(4) Columns may not add due to rounding.

Net Present Value of Reserves - Forecast Prices & Costs as at
December 31, 2004

0% 5% 10% 15% 20%
Reserves Category ($000) ($000) ($000) ($000) ($000)
----------------- ---------- ---------- ---------- -------- --------
Producing 1,145,402 948,487 820,001 728,641 659,768
Non-Producing 35,851 25,400 19,697 16,136 13,691
Undeveloped 103,880 77,550 60,364 48,401 39,649
Total Proved 1,285,133 1,051,437 900,062 793,178 713,109
Probable 447,590 310,112 232,424 183,027 149,084
Total Proved
Plus Probable 1,732,723 1,361,549 1,132,486 976,205 862,193

A complete listing of the McDaniel & Associates Consultants Ltd. price
forecast as at December 31, 2004 that was used in this reserves
evaluation is available on McDaniel's website at the following link:

2004 Reserves Reconciliation

Net Proved
Net Proved Net Probable Plus Probable
FACTORS (Mboe) (Mboe) (Mboe)
---------------------- -------------- ------------- --------------

December 31, 2003 24,204 5,296 29,501

Extensions/ Improved
Recovery 892 557 1,449
Technical Revisions 1,790 326 2,116
Discoveries 326 109 435
Acquisitions 45,171 17,803 62,974
Dispositions - - -
Economic Factors 2,292 647 2,939
Production (7,263) - (7,263)
-------------- ------------- --------------

December 31, 2004 67,412 24,738 92,150
(1) Columns may not add due to rounding.


Harvest's distributions paid to unitholders in 2004 totaled $0.20 per
trust unit per month for a total of $2.40 for the year. However, the
Trust earned more taxable income in 2004 than the amounts distributed to
unitholders. As a result, all distributions paid in the year are 100%
taxable. No amount of the distributions is a return of capital.

Harvest's trust indenture requires that any taxable income earned in the
Trust that exceeds the amount paid in distributions automatically
becomes payable to unitholders. As a result of the excess taxable income
earned in 2004, Harvest unitholders will receive an additional
allocation of taxable income of $0.252 per unit, which is also 100%
taxable. This amount will be reported as a corresponding increase in
taxable income shown on those unitholders' T3 slips.

In settlement of this additional income payable to unitholders, holders
of record on March 31, 2005 will receive an additional payment of trust
units equal to $0.252 per unit. Trust units will be valued as at
December 31, 2004 for this purpose, in accordance with the trust
indenture. The closing price of the Trust units on December 31, 2004
was $22.95 and therefore each unitholder of record on March 31, 2005
will receive 0.01098 of a trust unit per trust unit held on that date in
settlement of this incremental amount of taxable income. This
allocation of income will increase unitholders' adjusted cost base
("ACB") in their units by the amount of the additional payment. This
payment, representing the excess income, will be made concurrently with
the distribution payment to unitholders on April 15, 2005. Harvest trust
units are expected to commence trading on an ex-distribution basis on
March 29, 2005. A table showing the detailed breakdown of the
distribution and taxability information is available on Harvest's

Canadian Unitholders

Unitholders holding their Trust units in a Registered Retirement Savings
Plan, Registered Retirement Income Fund or Deferred Profit Sharing Plan
should not report income from distributions on these units on their
income tax returns. Unitholders holding their units outside such plans
will receive a T3 Supplementary information slip ("T3 slip"), postmarked
on or before March 31, 2005. Harvest's registered unitholders will
receive T3 slips from Harvest's transfer agent, Valiant Trust Company
("Valiant"). Unitholders that hold their units through a broker or other
intermediary will receive T3 slips directly from their broker or
intermediary. Unitholders are to report the taxable portion of
distributions as "other income" on their 2004 income tax return.

Canadian unitholders are required to reduce the adjusted cost base
("ACB") of their trust units by an amount equal to the return of capital
portion of the distributions. The ACB is used to calculate capital gains
or losses on the disposition of trust units. Since the distributions
paid from January 2004 to December 2004 contain no return of capital
portion, they do not reduce the ACB of units. The additional
distribution of $0.252 per unit should be added to the ACB of the units.

Harvest encourages all unitholders to seek independent legal or tax
advice as it relates to distributions from the Trust.

U.S. and Non-resident Unitholders

The following information is provided for general information only. As
such, Harvest recommends that all non-resident unitholders obtain
independent legal or tax advice on the impact to them of holding Harvest
units. Given that most non-resident unitholders reside in the U.S., the
following discussion is intended to provide general guidance for U.S.
unitholders only.

Because Harvest is considered a "corporation" for U.S. federal income
tax purposes, distributions paid to U.S. unitholders, where the Harvest
units are held outside of a qualified retirement plan, are treated as
dividends. U.S. individuals must report the amount of such dividends on
Internal Revenue Service ("IRS") Form 1040 "U.S. Individual Tax Return"
("Form 1040"). Distributions paid by Harvest on units held by a
qualified retirement plan are not required to be reported on Form 1040.

Registered unitholders will receive a T3 slip directly from Harvest's
transfer agent, Valiant, that indicates the 2004 distributions
denominated in Canadian dollars. Unitholders that hold their investment
in Harvest through a broker or other intermediary will likely receive an
IRS Form 1099-DIV "Dividends and Distributions" ("Form 1099-DIV") that
contains information in respect of the 2004 distributions. Unitholders
are encouraged to review the Form 1099-DIV carefully as it may contain
incorrect information, as discussed below.

In consultation with its U.S. tax advisors, Harvest is of the view that
2004 distributions are "qualified dividends" under the Jobs and Growth
Tax Relief Reconciliation Act of 2003. These dividends are eligible for
the reduced tax rate applicable to long-term capital gains and should be
reported as such on Form 1040. Please note that the distributions may
not be qualified dividends in certain circumstances, depending on the
holder's personal situation (i.e. if an individual holder does not meet
a holding period test). Where the distributions are not qualified
dividends, they should be reported as ordinary dividends.

Please note that Harvest, along with many other foreign entities that do
not issue common shares, may not be listed as a "qualified foreign
corporation" on databases used by brokerage firms to prepare Form
1099-DIV for their clients. Accordingly, U.S. brokerage firms may report
all or a portion of the Trust distributions received in 2004 as ordinary
dividends. These databases do not contain an exhaustive list of
qualified foreign corporations, meaning that intermediaries may
incorrectly report Harvest distributions as ordinary dividends on Form
1099-DIV. Trust distributions that indeed qualify as "qualified
dividends" should be reported as such, despite how they have been
reported on Form 1099-DIV.

U.S. tax rules state that no portion of the distribution will be
considered a tax deferred return of capital unless Harvest computes its
current and accumulated earnings and profits in accordance with U.S.
income tax principles. U.S. unitholders should note that Harvest has not
prepared a current and accumulated earnings and profits calculation in
accordance with U.S. income tax principles. Accordingly, the Harvest
distributions are 100% taxable as a dividend to U.S. unitholders.

Generally, the distributions paid by Harvest to a non-resident are
subject to Canadian withholding tax under the Canadian Income Tax Act at
a rate of 25%. The withholding tax rate is generally reduced to 15% for
payments to unitholders who reside in the United States, as per the
Canada-United States Income Tax Convention. The amount of Canadian
withholding tax deducted from the cash distributions may be reported by
U.S. individual unitholders on IRS Form 1116 "Foreign Tax Credit" to
offset a portion of the U.S. tax liability as a result of the
distributions; alternatively, U.S. unitholders may elect to deduct the
Canadian withholding tax in the determination of taxable income.

An NR4 tax slip ("Statement of Amounts Paid or Credited to Non-residents
of Canada") indicating the amount of Canadian withholding tax deducted
(in Canadian dollars) will be issued to U.S. and non-resident
unitholders. Registered unitholders will receive an NR4 slip directly
from Valiant. For unitholders that hold their units through a broker or
other intermediary, the broker or intermediary will receive the NR4
slip. Unitholders that hold their investment through a broker or other
intermediary are likely to only receive a Form 1099-DIV (see above) that
reflects the Canadian withholding tax deducted. Unitholders should note
that Harvest does not nor is it obligated to prepare the Form 1099-DIV

The information above is not an exhaustive list of all possible U.S.
income tax considerations nor is it intended to provide legal or tax
advice to any particular holder or potential holder of Harvest Trust
Units. Holders or potential holders of Harvest units should consult
their own legal and tax advisors as to their particular tax consequences
of holding units and reporting income earned and tax withheld from


Based on current operations, Harvest anticipates a 2005 full year
capital budget of approximately $75 million, with 2005 production
volumes targeted to average between 34,000 - 36,000 BOE/d. As a
percentage of revenue, Harvest's 2005 average royalty rates are expected
to be between 15-17%, and operating expenses are anticipated to average
between $7.75 - $8.50 per BOE. Harvest has approximately 75% of its net
crude oil production volumes hedged for 2005, with the majority of
instruments in place structured to allow Harvest to participate in a
strengthening price environment. At year end 2004, Harvest had
approximately $400 million in net debt, 41.8 million trust units and
456,000 exchangeable shares outstanding, and convertible debentures
outstanding of approximately $26 million. Harvest anticipates taxability
of distributions in 2005 to be similar to 2004.

Harvest anticipates releasing its Q4 and full year 2004 financial and
operating results on March 14th, 2005.

Harvest Energy Trust is a Calgary-based energy trust actively managed to
deliver stable monthly cash distributions to its Unitholders through its
strategy of acquiring, enhancing and producing crude oil, natural gas
and natural gas liquids. Harvest trust units are traded on the Toronto
Stock Exchange (TSX) under the symbol "HTE.UN". Please visit Harvest's
website at www.harvestenergy.ca for additional corporate information and
a recent corporate presentation.


Contact Information

    Harvest Energy Trust
    Jacob Roorda
    (403) 265-1178 or Toll Free: (866) 666-1178
    Harvest Energy Trust
    David Rain
    Vice President & CFO
    (403) 265-1178 or Toll Free: (866) 666-1178
    Harvest Energy Trust
    Cindy Gray
    Investor Relations & Communications Advisor
    (403) 265-1178 or Toll Free: (866) 666-1178
    (403) 265-3490 (FAX)
    Email: gray@harvestenergy.ca
    Harvest Energy Trust
    2100, 330 - 5th Avenue S.W.
    Calgary, AB Canada T2P 0L4
    (403) 265-1178 or Toll Free: (866) 666-1178
    (403) 265-3490 (FAX)
    Email: information@harvestenergy.ca
    Website: www.harvestenergy.ca