Provident Energy Trust
TSX : PVE.UN
NYSE : PVX

Provident Energy Trust

May 08, 2008 16:26 ET

Provident Announces 2008 First Quarter Results and May Distribution

CALGARY, ALBERTA--(Marketwire - May 8, 2008) - Provident Energy Trust (TSX:PVE.UN) (NYSE:PVX) -

All values are in Canadian dollars and conversions of natural gas volumes to barrels of oil equivalent (boe) are at 6:1 unless otherwise indicated.

"Provident had an outstanding first quarter," said Provident President and Chief Executive Officer, Tom Buchanan. "Strong commodity prices and our high quality diversified energy assets combined to deliver funds flow from operations of over $180 million resulting in a payout ratio of 59 percent for the first quarter."

Highlights

- Consolidated funds flow from operations including the Canadian Oil and Gas Production and Midstream business units (continuing operations) and the U.S. Oil and Gas Production business unit (discontinued operations) was $180 million ($0.71 per unit), up 107 percent from $87 million ($0.41 per unit) in the first quarter of 2007. Consolidated funds flow from Canadian Oil and Gas and Midstream (continuing operations) increased to $130 million in the first quarter of 2008, up 52 percent from $86 million in the first quarter of 2007.

- Distributions for the first quarter held at $0.36 per unit, resulting in a strong payout ratio of 59 percent, down from 91 percent in the first quarter of 2007.

- Consolidated production for the quarter was approximately 52,300 barrels of oil equivalent per day (boed), up 61 percent from 32,400 boed in the first quarter of 2007 due to acquisitions in 2007 buttressed by internal development activities.

- Canadian Oil and Gas production averaged approximately 27,600 boed in the first quarter of 2008, up 13 percent from 24,300 boed in the first quarter of 2007. Production remained balanced at approximately 51 percent natural gas and 49 percent crude oil and natural gas liquids.

- Funds flow from operations in the Canadian Oil and Gas business was approximately $71 million in the first quarter of 2008, up 53 percent from $46 million in the same quarter in 2007.

- The Midstream business delivered first quarter Earnings before interest, taxes, depletion, depreciation, accretion and other non-cash items (EBITDA) of $76 million in 2008, up 44 percent from $53 million in the first quarter of 2007. Strong operational performance at the Midstream facilities allowed Provident to capitalize on the favourable price environment and deliver strong margins.

- In February, Provident announced it intention to sell its U.S. Oil and Gas production business. Under generally accepted accounting principles ("GAAP") these assets are now accounted for as discontinued operations.

May Distribution

Provident today announced its May cash distribution will be CDN$0.12 per unit payable on June 13, 2008. May's distribution will be paid to unitholders of record on May 23, 2008. The ex-distribution date will be May 21, 2008. The Trust's current annualized cash distribution rate is CDN$1.44 per trust unit. Based on the current annualized distribution rate and the closing price on May 7, 2008 of $11.41, Provident's yield is approximately 12.6 percent.

For unitholders receiving their distribution in U.S. funds, the May 2008 cash distribution will be approximately US$0.12 per unit based on an exchange rate of 0.9979. The actual U.S. dollar distribution will depend on the Canadian/U.S. dollar exchange rate on the payment date and will be subject to applicable withholding taxes.

This press release does not constitute and is not intended to be legal or tax advice to any particular holder or potential holder of Provident units. Holders or potential holders of Provident units are urged to consult their own legal and tax advisors as to their particular income tax consequences of holding Provident units.

Provident Energy Trust is a Calgary-based, open-ended energy income trust that owns and manages an oil and gas production business and a natural gas liquids midstream services and marketing business. Provident's energy portfolio is located in some of the most stable and predictable producing regions in Western Canada and the United States. Provident provides monthly cash distributions to its unitholders and trades on the Toronto Stock Exchange and the New York Stock Exchange under the symbols PVE.UN and PVX, respectively.

This document contains certain forward-looking statements concerning Provident, as well as other expectations, plans, goals, objectives, information or statements about future events, conditions, results of operations or performance that may constitute "forward-looking statements" or "forward-looking information" under applicable securities legislation. Such statements or information involve substantial known and unknown risks and uncertainties, certain of which are beyond Provident's control, including the impact of general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, pipeline design and construction, fluctuations in commodity prices, foreign exchange or interest rates, stock market volatility and obtaining required approvals of regulatory authorities.

Such forward-looking statements or information are based on a number of assumptions which may prove to be incorrect. In addition to other assumptions identified in this news release, assumptions have been made regarding, among other things, commodity prices, operating conditions, capital and other expenditures, and project development activities.

Although Provident believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Provident can give no assurance that such expectations will prove to be correct. Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Provident and described in the forward-looking statements or information.

The forward-looking statements or information contained in this news release are made as of the date hereof and Provident undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise unless so required by applicable securities laws. The forward-looking statements or information contained in this news release are expressly qualified by this cautionary statement.



Consolidated financial highlights

Consolidated
($ 000s except per unit data) Three months ended March 31
----------------------------------------------------------------------------
2008 2007 % Change
----------------------------------------------------------------------------

Revenue (net of royalties and
financial derivative
instruments) from continuing
operations $ 702,215 $ 558,807 26
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Funds flow from COGP operations (1) $ 71,142 $ 46,410 53
Funds flow from Midstream
operations (1) 59,252 39,404 50
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Funds flow from continuing
operations 130,394 85,814 52
Funds flow from discontinued
operations (USOGP) (1) (3) 49,836 1,226 3,965
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Total funds flow from operations(1) $ 180,230 $ 87,040 107
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Per weighted average unit - basic
and diluted (2) $ 0.71 $ 0.41 73
Distributions to unitholders $ 91,117 $ 76,271 19
Per unit $ 0.36 $ 0.36 -
Percent of funds flow from
operations paid out as declared
distributions (4) 59% 91% (35)
Net income $ 33,616 $ 43,093 (22)
Per weighted average unit - basic
and diluted (2) $ 0.13 $ 0.20 (35)
Capital expenditures (continuing
operations) $ 84,582 $ 38,753 118
Oil and gas property acquisitions,
net (continuing operations) $ 9,019 $ 8,681 4
Weighted average trust units
outstanding (000s)
- Basic 252,919 211,731 19
- Diluted (2) 252,923 211,969 19
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Consolidated
----------------------------------------------------------------------------
As at As at
March 31, December 31,
($ 000s) 2008 2007 % Change
----------------------------------------------------------------------------
Capitalization
Long-term debt (including
current portion) $ 1,166,809 $ 1,199,634 (3)
Unitholders' equity $ 1,677,855 $ 1,708,665 (2)
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(1) Represents cash flow from operations before changes in working capital
and site restoration expenditures.
(2) Includes dilutive impact of unit options and convertible debentures.
(3) Effective in the first quarter of 2008, Provident's USOGP business is
accounted for as discontinued operations (see note 10 of interim
consolidated financial statements).
(4) Calculated as distributions to unitholders divided by funds flow from
operations less distributions to non-controlling interests of $24.9
million for the quarter (2007 - $3.6 million).


Operational highlights

Three months ended March 31,
----------------------------------------------------------------------------
2008 2007 % Change
----------------------------------------------------------------------------

Oil and Gas Production
Daily production - COGP (continuing
operations)
Crude oil (bpd) 12,287 8,097 52
Natural gas liquids (bpd) 1,307 1,422 (8)
Natural gas (mcfpd) 83,970 88,928 (6)
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COGP oil equivalent (boed) (1) 27,589 24,340 13
USOGP (discontinued operations) oil
equivalent (boed) (1) 24,742 8,083 206
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Consolidated oil equivalent
(boed) (1) 52,331 32,423 61
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Average realized price from
continuing operations (before
realized financial derivative
instruments)
Crude oil blend ($/bbl) $ 75.06 $ 51.23 47
Natural gas liquids ($/bbl) $ 72.85 $ 49.02 49
Natural gas ($/mcf) $ 7.61 $ 7.48 2
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Oil equivalent ($/boe) (1) $ 60.04 $ 47.24 27
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Field netback from continuing
operations (before realized
financial derivative instruments)
($/boe) $ 36.55 $ 26.26 39
Field netback from continuing
operations (including realized
financial derivative instruments)
($/boe) $ 35.37 $ 25.88 37
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Midstream
Midstream NGL sales volumes (bpd) 136,320 125,033 9
EBITDA (000s) (2) $ 75,987 $ 52,853 44
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(1) Provident reports oil equivalent production converting natural gas to
oil on a 6:1 basis.
(2) EBITDA is earnings before interest, taxes, depletion, depreciation,
accretion and other non-cash items.

See "Reconciliation of non-GAAP measures".


Management's discussion and analysis

The following analysis dated May 8, 2008 provides a detailed explanation of Provident Energy Trust's ("Provident's") operating results for the three months ended March 31, 2008 compared to the same time period in 2007 and should be read in conjunction with the consolidated financial statements of Provident, found later in the interim report.

Provident Energy Trust has diversified investments in certain segments of the energy value chain. Provident currently operates in two key business segments: Canadian crude oil and natural gas production ("COGP"), and Midstream. Provident's COGP business produces crude oil and natural gas from seven core areas in the western Canadian sedimentary basin. The Midstream business unit operates in Canada and the U.S.A. and extracts, processes, markets, transports and offers storage of natural gas liquids within the integrated facilities at Younger in British Columbia, Redwater and Empress in Alberta, Kerrobert in Saskatchewan, Sarnia in Ontario, Superior in Wisconsin and Lynchburg in Virginia. Effective in the first quarter of 2008, Provident's United States oil and natural gas production ("USOGP") business is accounted for as discontinued operations and comparative figures have been reclassified to conform with this presentation (see note 10 of interim consolidated financial statements). USOGP produces crude oil and natural gas in California, Wyoming, Texas, Florida, Michigan, Indiana and Kentucky.

This analysis commences with a summary of the consolidated financial and operating results followed by segmented reporting on the COGP business unit and the Midstream business unit. The reporting focuses on the financial and operating measurements management uses in making business decisions and evaluating performance.

This analysis contains forward-looking information and statements. See "Forward-looking statements" at the end of the analysis for further discussion.

First quarter highlights

The first quarter highlights section provides commentary for the first quarter 2008 and for corresponding period in 2007.

Effective in the first quarter of 2008, Provident's United States oil and natural gas production (USOGP) business is accounted for as discontinued operations (see note 10 of interim consolidated financial statements).



Consolidated funds flow from operations and cash distributions

Consolidated Three months ended March 31,
----------------------------------------------------------------------------
($ 000s, except per unit data) 2008 2007 % Change
----------------------------------------------------------------------------

Funds Flow from Operations and
Distributions
Funds flow from continuing
operations $ 130,394 $ 85,814 52
Funds flow from discontinued
operations 49,836 1,226 3,965
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Total funds flow from operations $ 180,230 $ 87,040 107
Per weighted average unit - basic
and diluted (1) $ 0.71 $ 0.41 73
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Declared distributions $ 91,117 $ 76,271 19
Per Unit 0.36 0.36 -
Percent of funds flow from
operations distributed (2) 59% 91% (35)
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(1) Includes dilutive impact of unit options and convertible debentures.
(2) Calculated as declared distributions to unitholders divided by funds
flow from operations less distributions to non-controlling interests of
$24.9 million for the quarter (2007 - $3.6 million).


Management uses funds flow from operations to analyze operating performance. Funds flow from operations represents cash flow from operations before changes in working capital and site restoration expenditures. Provident also reviews funds flow from operations in setting monthly distributions and takes into account cash required for debt repayment and/or capital programs in establishing the amount to be distributed.

Funds flow from operations as presented does not have any standardized meaning prescribed by Canadian generally accepted accounting principles (GAAP) and therefore it may not be comparable with the calculations of similar measures for other entities. Funds flow from operations as presented is not intended to represent operating cash flow from operations or operating profits for the period nor should it be viewed as an alternative to cash provided by operating activities, net earnings or other measures of financial performance calculated in accordance with Canadian GAAP. All references to funds flow from operations throughout this report are based on cash provided by operating activities before changes in non-cash working capital and site restoration expenditures.

First quarter 2008 funds flow from operations was $180.2 million, 107 percent above the $87.0 million recorded in the first quarter of 2007. COGP provided 39 percent of first quarter 2008 funds flow from operations; Midstream added 33 percent and USOGP generated the remaining 28 percent.

COGP 2008 first quarter funds flow from operations was $71.1 million, a 53 percent increase from the $46.4 million recorded in the comparable 2007 quarter. This increase was a result of increased realized crude oil prices combined with higher production due to the acquisitions of Capitol Energy Resources Ltd. on June 19, 2007 ("Capitol") and Triwest Energy Inc. on December 3, 2007 ("Triwest"), and the successful execution of the internal drilling and development program.

The Midstream business unit contributed $59.3 million to first quarter of 2008 funds flow from operations, 50 percent above the $39.4 million recorded in the comparable 2007 quarter, reflecting a 90 percent increase in gross operating margin. The increase includes a nine percent increase in NGL sales volumes to 136,320 bpd accompanied by higher price-driven per barrel margins, partially offset by an increase in the realized loss on financial derivative instruments.

Funds flow from discontinued operations (USOGP) in the first quarter of 2008 was $49.8 million, compared to $1.2 million in the first quarter of 2007. The increase is primarily driven by increased production due to oil and gas property acquisitions by the MLP in 2007, including the $1.5 billion USOGP natural gas asset acquisition in November 2007, combined with higher commodity prices.

Declared distributions in the first quarter of 2008 totaled $91.1 million compared to $76.3 million of declared distributions in 2007. This represented 59 percent and 91 percent of funds flow from operations, respectively, after distributions to non-controlling interests of $24.9 million (2007 - $3.6 million). On a segmented basis, the Midstream business, due to its low sustaining capital requirements, effectively contributed 95 percent of its funds flow from operations for distribution in the three months ended March 31, 2008. The remaining distributions were effectively contributed by the oil and natural gas production businesses (COGP and USOGP) representing 36 percent of its funds flow from operations in the first quarter of 2008.

Outlook

The strength of commodity markets for crude oil, natural gas, and natural gas liquids combined with Provident's portfolio of quality upstream and midstream assets to deliver strong financial results in the first quarter of 2008.

The capital program in the Canadian Oil and Gas Production business is well underway with $79 million invested in the first quarter. Total capital expenditures for 2008 in the Canadian Oil and Gas Production business are anticipated to be approximately $134 million, although management is evaluating additional opportunities in the asset base which may result in an enhanced capital program for the latter half of the year to capitalize on identified opportunities and high commodity prices. The 2008 winter work program was executed successfully, and although the first quarter had some unanticipated down time, operational results for the business unit were consistent with expectations. As the second quarter progresses, 2008 average production is anticipated to be consistent with previous guidance in the range of 26,000 to 28,000 boed. Provident is expecting continued upward pressure on operating costs for the remainder of 2008 as fuel, power, labour, and maintenance costs are expected to increase due largely to strong commodity prices.

Provident's Midstream business saw strong demand for NGLs and a favourable price environment resulting in solid financial results in the first quarter of 2008. The Midstream business is cyclical, with stronger demand for NGLs in the winter months than in the summer. In typical years, EBITDA declines in the second quarter compared to the first quarter. As the winter season comes to an end and the demand for heating fuels decline, inventories that have been depleted will begin to be replenished. Midstream spent $5.4 million of its $43 million capital budget in the first quarter of 2008 as construction continues on two new storage caverns at Provident's Redwater storage and terminalling hub. Provident continues to assess expanding its storage and truck and rail offloading facilities to support growth opportunities related to the oil sands. The Midstream business expects continued strong performance if the current favourable business environment persists.

On February 5, 2008, Provident announced a strategic sales process of its U.S. Oil and Gas operations. This sale process is ongoing and has resulted in the GAAP requirement to account for the U.S. Oil and Gas Production business as a discontinued operation.

Provident's net earnings will continue to be impacted by long term unrealized losses on financial derivative instruments if the trend of rising energy prices continues. Provident's commodity price risk management program is designed to mitigate the impact of volatile commodity prices on cash flow and support stable cash distributions to our unitholders. Provident has delivered stable distributions of $0.12 per month for 4 1/2 years. In the Midstream business Provident manages commodity price risk on a five-year time horizon, while in the Canadian Oil and Gas Production business the risk management program has a two-year time horizon. The unrealized gains and losses for these contracts for their full life must be booked against earnings in the current quarter. Management continues to evaluate the effectiveness of the program and the type, duration, and nature of the financial derivative instruments used. Looking forward, Provident plans to use products which allow some level of participation above a floor price.

Provident's previously announced strategic review of the Canadian Oil and Gas Production and Midstream businesses continues with the objective of defining the optimal structure for its businesses, particularly in response to the federal SIFT (specified investment flow-through) tax legislation and the current challenges of the capital markets. The overall objectives of the strategic review are to enhance unitholder value, improve access to and cost of capital to facilitate growth, and to optimize the structure of our business units to be competitive in advance of the pending 2011 taxation on income trusts. Provident continues to see attractive valuations in the sector and although capital markets have been somewhat tight, Provident believes it will be well positioned in 2008 to assess and execute on growth opportunities in its Canadian Oil and Gas Production and Midstream business units.



Net income

Consolidated Three months ended March 31,
----------------------------------------------------------------------------
($ 000s, except per unit data) 2008 2007 % Change
----------------------------------------------------------------------------

Net income $ 33,616 $ 43,093 (22)
Per weighted average unit
- basic (1) and diluted (2) $ 0.13 $ 0.20 (35)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Based on weighted average number of trust units outstanding.
(2) Based on weighted average number of trust units outstanding including
the dilutive impact of the unit option plan and convertible debentures.


Net income for the first quarter of 2008 was $33.6 million compared to $43.1 million in the comparable 2007 quarter. A $48.7 million, or 47 percent, increase in earnings before interest, taxes, depletion, depreciation, accretion and other non-cash items (EBITDA) combined with higher income from discontinued operations and higher future income tax recoveries were more than offset by an $83.1 million change in unrealized loss on financial derivative instruments and increased depletion, depreciation and accretion.

The COGP business segment's net income was $9.6 million, an increase of $14.1 million compared to the 2007 first quarter net loss of $4.5 million. The increase was mainly due to increased operating earnings partially offset by increased depletion, depreciation, and accretion resulting from the acquisitions of Capitol and Triwest.

The Midstream segment's net income was $15.5 million in the first quarter of 2008 as compared to $51.8 million in the first quarter of 2007. A $23.1 million, or 44 percent increase in EBITDA and a future income tax recovery was more than offset by an $83.8 million change in the quarter from unrealized loss on financial derivative instruments.

In the first quarter of 2008, net income from discontinued operations (USOGP) was $8.5 million as compared to 2007 first quarter net loss of $4.2 million. Increased operating earnings were offset by increased unrealized losses on financial derivative instruments.

Provident's net income figures are impacted by the requirement to "mark-to-market" all unrealized gains and losses associated with financial derivative instruments at a point in time and report these against current period income. Because Provident's commodity price risk management program extends up to five years into the future in the Midstream segment, net earnings can show substantial quarterly variation that is not necessarily related to current operations.

Reconciliation of non-GAAP measures

The Trust calculates earnings before interest, taxes, depletion, depreciation, accretion and other non-cash items (EBITDA) within its segment disclosure. EBITDA is a non-GAAP measure. A reconciliation between EBITDA and (loss) income from continuing operations before taxes follows:



EBITDA Reconciliation Three months ended March 31,
----------------------------------------------------------------------------
($ 000s) 2008 2007 % Change
----------------------------------------------------------------------------
EBITDA $ 151,335 $ 102,609 47
Adjusted for:
Cash interest (15,449) (11,900) 30
Unrealized (loss) gain on
financial derivative instruments (62,273) 20,867 -
Depletion, depreciation and
accretion and other non-cash
expenses (74,990) (70,265) 7
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(Loss) income from continuing
operations before taxes $ (1,377) $ 41,311 -
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Reconciliation of funds flow from operations
to distributions Three months ended March 31,
----------------------------------------------------------------------------
2008 2007 % Change
----------------------------------------------------------------------------
Cash provided by operating
activities $ 300,853 $ 150,571 100
Change in non-cash operating
working capital (122,160) (64,757) 89
Site restoration expenditures 1,537 1,226 25
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Funds flow from operations 180,230 87,040 107
Distributions to non-controlling
interests (24,865) (3,587) 593
Cash retained for financing and
investing activities (64,248) (7,182) 795
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Distributions to unitholders 91,117 76,271 19
Accumulated cash distributions,
beginning of period 1,260,177 926,825 36
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Accumulated cash distributions,
end of period $1,351,294 $1,003,096 35
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Cash distributions per unit $ 0.36 $ 0.36 -
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Taxes

Three months ended March 31,
----------------------------------------------------------------------------
($ 000s) 2008 2007 % Change
----------------------------------------------------------------------------
Capital tax expense $ 482 $ 258 87
Current and withholding tax
expense 5,035 4,558 10
Future income tax recovery (32,001) (10,833) 195
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$ (26,484) $ (6,017) 340
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For the three months ended March 31, 2008, the total income tax recovery was $26.5 million. Based on year-to-date loss before taxes of $1.4 million, the expected income tax recovery was $0.4 million. The difference between the expected recovery and the total tax recovery is primarily a result of deductions allowed when computing taxable income of the Trust for distributions made to unitholders. The Trust is a taxable entity under Canadian income tax law and is currently taxable only on income that is not distributed or distributable to the unitholders until 2011, when the new tax on distributions is in effect. If the Trust distributes all of its taxable income to the unitholders, no current provision for taxes is required by the Trust until 2011. Since inception, the Trust has distributed all of its taxable income to the unitholders. Additionally, interest and royalties are charged by the Trust to its subsidiaries, which are deductible in the computation of taxable income at the incorporated subsidiary level reducing tax pool claims in certain subsidiaries and potentially creating tax loss carry-forwards that result in future income tax recoveries.

Capital taxes in the first quarter totaled $0.5 million, an increase from the $0.3 million expense recorded in the first quarter of 2007. The increase is due to greater production subject to the Saskatchewan resource surcharge.

The current and withholding tax expense of $5.0 million in the first quarter of 2008 compares to $4.6 million in the first quarter of 2007. These taxes arise from the Midstream operations.

The 2008 first quarter future income tax recovery of $32.0 million compares to $10.8 million in the first quarter of 2007. The recovery is primarily a result of increased tax loss carry-forwards generated from interest and royalties charged by the Trust to its subsidiaries.



Interest expense

Continuing operations Three months ended March 31,
----------------------------------------------------------------------------
($ 000s, except as noted) 2008 2007 % Change
----------------------------------------------------------------------------

Interest on bank debt $ 12,559 $ 8,908 41
Interest on convertible debentures 4,984 5,097 (2)
Discontinued operations portion (2,094) (2,105) (1)
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Total cash interest $ 15,449 $ 11,900 30
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Weighted average interest rate on
all long-term debt 5.7% 5.7% -
Debenture accretion and other
non-cash interest expense 1,206 1,215 (1)
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Total interest expense $ 16,655 $ 13,115 27
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Interest on bank debt increased in 2008 compared to 2007 due to increased capitalization including debt levels, largely resulting from the Capitol acquisition in the second quarter of 2007.

Commodity price risk management program

Provident's commodity price risk management program is intended to mitigate the volatility of commodity prices and to assist with stabilizing cash flow and distributions. Provident seeks to accomplish this through the use of financial instruments from time to time to reduce its exposure to fluctuations in commodity prices and foreign exchange rates.

In accordance with the Trust's credit policy, the Trust mitigates associated credit risk by limiting financial derivative transactions with counterparties to approved credit limits.

In the Midstream business, production margins are affected by the spread between the purchase cost of natural gas and sales price of propane, butane and condensate. Financial market liquidity may not provide sufficient or adequate opportunity to directly manage propane, butane and condensate prices over the longer term. Prices for propane, butane and condensate historically have correlated with prices for crude oil. As a consequence, Provident has entered into natural gas and crude oil financial derivative contracts through March 2013 in order to protect operating margins in the Midstream business. Short term financial derivative instruments directly fixing propane and butane prices have also been executed.

Activity in the First Quarter

A summary of Provident's risk management contracts executed during the first quarter of 2008 from continuing operations is contained in the following tables:



COGP

Volume Effective
Year Product (Buy)/Sell Terms Period
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Natural April 1 -
2008 Gas 13,840 Gjpd Puts Cdn $7.65 per gj December 31
Natural January 1 -
2009 Gas 1,000 Gjpd Puts Cdn $9.40 per gj March 31
----------------------------------------------------------------------------
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Midstream

Volume Effective
Year Product (Buy)/Sell Terms Period
----------------------------------------------------------------------------
----------------------------------------------------------------------------
April 1 -
2008 Crude Oil (1,393) Bpd US $88.53 per bbl(4) June 30
April 1 -
2,000 Bpd US $98.31 per bbl December 31
April 1 -
Propane 1,333 Bpd US $1.3707 per gallon (4)(6) June 30
April 1 -
820 Bpd US $1.425 per gallon (10)(6) May 31
Normal April 1 -
Butane 250 Bpd US $1.5925 per gallon (4)(7) June 30
April 1 -
833 Bpd US $1.425 per gallon (10)(7) April 30
April 1 -
ISO Butane 200 Bpd US $1.6225 per gallon (4)(8) June 30
Natural April 1 -
Gasoline (2,000) Bpd US $2.1663 per gallon (9) December 31
January 1 -

2009 Crude Oil 2,000 Bpd US $98.31 per bbl March 31
Participating Swap Cdn $85.62 per
bbl (Average participation 23% November 1 -
496 Bpd above the floor price) December 31
Participating Swap US $86.20 per
bbl (Average participation 20% November 1 -
250 Bpd above the floor price) November 30
Participating Swap Cdn $8.12 per
Natural gj (Average participation 22% November 1 -
Gas (3,486) Gjpd below the ceiling price) December 31
Foreign Sell US $646,500 per month November 1 -
Exchange @ 1.0040 (5) November 30
Natural January 1 -
Gasoline (2,000) Bpd US $2.1663 per gallon (9) March 31

Participating Swap Cdn $85.31 per
bbl (Average participation 23% January 1 -
2010 Crude Oil 252 Bpd above the floor price) December 31
Participating Swap US $83.91 per
bbl (Average participation 22% September 1 -
311 Bpd above the floor price) December 31
Participating Swap Cdn $8.02 per
Natural gj (Average participation 23% January 1 -
Gas (2,003) Gjpd below the ceiling price) December 31
Foreign Sell US $643,067 per month September 1 -
Exchange @ 1.009 (5) November 30
Sell US $629,673 per month November 1 -
@ 1.0165 (5) December 31

Participating Swap Cdn $84.38 per
bbl (Average participation 25% October 1 -
2011 Crude Oil 416 Bpd above the floor price) December 31
Participating Swap Cdn $8.28 per
Natural gj (Average participation 25% October 1 -
Gas (2,337) Gjpd below the ceiling price) December 31

Participating Swap Cdn $85.88 per February 1 -
bbl (Average participation 26% December 31
2012 Crude Oil 1,377 Bpd above the floor price)
Participating Swap US $89.68 per
bbl (Average participation 28% March 1 -
326 Bpd above the floor price) December 31
Participating Swap Cdn $8.55 per
Natural gj (Average participation 28% February 1 -
Gas (9,318) Gjpd below the ceiling price) December 31
Foreign Sell US $2,016,783 per month March 1 -
Exchange @ 1.0119 (5) March 31
Sell US $681,260 per month May 1 -
@ 0.9850 (5) October 31
Sell US $1,420,538 per month November 1 -
@ 0.9995 (5) December 31
Participating Swap Cdn $85.89 per
bbl (Average Participation 23% January 1 -

2013 Crude Oil 1,164 Bpd above the floor price) March 31
Participating Swap US $93.15 per
bbl (Average Participation 20% January 1 -
489 Bpd above the floor price) March 31
Participating Swap Cdn $8.87 per
Natural gj (Average Participation 22% January 1 -
Gas (9,524) Gjpd below the ceiling price) March 31
Foreign Sell US $1,397,250 per month January 1 -
Exchange @ 0.9995 (5) March 31
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Corporate

Volume Effective
Year Product (Buy)/Sell Terms Period
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2008 Foreign Sell US $5,000,000 @ 0.9994 (5.1) April 25
Exchange Sell US $2,500,000 @ 1.0125 (5.1) May 23
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(1) The above table represents a number of transactions entered into over
an extended period of time.
(2) Natural Gas contracts are settled against AECO monthly index.
(3) Crude Oil contracts are settled against NYMEX WTI calendar average.
(4) Conversion of Crude Oil BTU positions to liquids.
(5) US dollar contracts settled against Bank of Canada noon rate average.
(5.1) US dollar cashflows sold forward.
(6) Propane contracts are settled against Belvieu C3 TET.
(7) Normal Butane contracts are settled against Belvieu NC4 NON-TET.
(8) ISO Butane contracts are settled against Belvieu IC4 NON-TET.
(9) Natural Gasoline contracts are settled against Belvieu NON-TET Natural
Gasoline.
(10) Midstream inventory price stabilization contracts.


A summary of all of Provident's contracts in place at March 31, 2008 is available on Provident's website at www.providentenergy.com.

Settlement of commodity contracts

The following is a summary of the net funds flow from operations to settle commodity contracts (related to continuing operations) during the first quarter of 2008. For comparative purposes the 2007 amounts are also summarized.

a) Crude oil

For the quarter ended March 31, 2008, Provident paid $3.9 million (2007 - nil) to settle various oil market based contracts on an aggregate volume of 0.4 million barrels (2007 - 0.2 million barrels). Strong oil prices during the quarter caused the opportunity cost on oil price risk management activities.

It is estimated that if all contracts in place had been settled at March 31, 2008 an opportunity cost of $21.7 million (March 31, 2007 - $1.5 million) would have been incurred.

b) Natural Gas

For the quarter ended March 31, 2008, Provident received $1.0 million (2007 - paid $0.8 million) to settle various natural gas market based contracts on an aggregate volume of 3.6 million gj's (2007 - 3.8 million gj's).

It is estimated that if contracts in place had been settled at March 31, 2008 an opportunity cost of $5.1 million (March 31, 2007 - $3.7 million) would have been incurred.

c) Midstream

For the quarter ended March 31, 2008 Provident paid $14.4 million (2007 - received $3.2 million) to settle Midstream oil market based contracts on an aggregate volume of 0.2 million barrels (2007 - 0.3 million barrels) and paid $11.0 million (2007 - $4.5 million) to settle Midstream natural gas market based contracts on an aggregate volume of 6.8 million gj's (2007 - 5.1 million gj's). A strong "frac spread ratio" between high crude oil prices and relatively low natural gas prices caused this net opportunity cost. In addition, for the first quarter of 2007, Provident paid $5.4 million (2007 - $0.8 million) to settle Midstream NGL market based contracts on an aggregate volume of 1.9 million barrels (2007 - 2.0 million barrels).

It is estimated that if contracts in place had been settled at March 31, 2008 an opportunity cost of $309.6 million (March 31, 2007 - $32.9 million) would have been incurred. These unrealized "mark-to-market" opportunity costs relate to positions with effective periods ranging from 2008 through 2013 and are required to be recognized in the financial statements under generally accepted accounting principles. These unrealized opportunity costs relate to financial derivative instruments which were entered into in order to manage commodity prices and protect future Midstream product margins. Fluctuations in the market value of these instruments have no impact on funds flow from operations until the instrument is settled.

d) Foreign exchange contracts

For the quarter ended March 31, 2008, Provident received $2.8 million to settle various foreign exchange based contracts. It is estimated that if contracts in place had been settled at March 31, 2008 an opportunity cost of $0.2 million (March 31, 2007 - nil) would have been incurred.

e) Interest rate contracts

As at March 31, 2008 the estimated value of contracts in place settled at March 31 interest rates was an opportunity cost of $0.2 million (March 31, 2007 - nil).



Liquidity and capital resources

Continuing operations
----------------------------------------------------------------------------
March 31, December 31, % Change
($ 000s) 2008 2007
----------------------------------------------------------------------------

Long-term debt - revolving term
credit facility $ 889,867 $ 923,996 (4)
Long-term debt - convertible
debentures
(including current portion) 276,942 275,638 -
Working capital deficit
(surplus) (1) 23,299 (58,723) -
----------------------------------------------------------------------------
Net debt 1,190,108 1,140,911 4
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Unitholders' equity (at book
value) 1,677,855 1,708,665 (2)
----------------------------------------------------------------------------
Total capitalization at book
value $2,867,963 $ 2,849,576 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Total net debt as a percentage of
total book value capitalization 41% 40% 2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The working capital deficit (surplus) excludes balances for the current
portion of financial derivative instruments.


Provident operates two business units with similar but not identical monthly cash settlement cycles. Midstream revenues are received at various times throughout the month. Provident's working capital position is affected by seasonal fluctuations that reflect commodity price changes, drilling cycles in its oil and gas operations and inventory balances in its Midstream business unit. Provident relies on funds flow from operations, external lines of credit and access to equity markets to fund capital programs and acquisitions.

As at March 31, 2008, Provident held non-bank sponsored asset-backed commercial paper amounting to $4.6 million. As at March 31, 2008 these securities have been classified as investments due to a reduction in market liquidity for these investments. Provident does not expect the resolution of the liquidity issues to have a significant impact on its operations.

Long-term debt and working capital

As at March 31, 2008 Provident had drawn on 80 percent of its Canadian term credit facility of $1,125 million. This compares to 81 percent drawn as at December 31, 2007.

At March 31, 2008 Provident had letters of credit guaranteeing Provident's performance under certain commercial and other contracts that totaled $29.7 million, increasing bank line utilization to 82 percent. The guarantees totaled $31.6 million at December 31, 2007.

Provident's working capital from continuing operations decreased by $66.1 million as at March 31, 2008 relative to December 31, 2007. This amount includes a $37.1 million increase in accounts payable and accrued liabilities, a $14.4 million decrease in accounts receivable, a $25.7 million decrease in inventory, and a $4.1 million decrease in prepaid expenses and other current assets, partially offset by a $16.1 million decrease in the current portion of financial derivative instruments.

First quarter funds flow from continuing operations in 2008 was $130.4 million. The ratio of net debt to annualized first quarter funds flow from continuing operations was 2.3 to one, as compared to first quarter 2007 net debt to annualized funds flow from continuing operations of 2.6 to one. The decreased ratio reflects an increase in net debt as well as higher funds flow in both COGP and Midstream.

Trust units

For the quarter ended March 31, 2008 the Trust issued two thousand units on conversion of convertible debentures (2007 - 22 thousand units). An additional one thousand units pursuant to the unit option plan were issued for the quarter ended March 31, 2008 (2007 - 0.5 million units). Under Provident's Premium Distribution, Distribution Reinvestment (DRIP) and Optional Unit Purchase Plan program 1.4 million units were elected in the first quarter and were issued or are to be issued representing proceeds of $14.2 million (2007 - 0.9 million units for proceeds of $10.8 million).

At March 31, 2008, management and directors held approximately 0.9 percent of the outstanding units.



Capital expenditures and funding

Continuing operations Three months ended March 31,
----------------------------------------------------------------------------
($ 000s) 2008 2007 % Change
----------------------------------------------------------------------------
Capital Expenditures
Capital expenditures and site
restoration expenditures $ (86,119) $ (39,979) 115
Property acquisitions, net (9,019) (8,681) 4
----------------------------------------------------------------------------
Net capital expenditures $ (95,138) $ (48,660) 96
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Funded By
Funds flow from continuing operations
net of declared distributions to
unitholders $ 39,277 $ 9,543 312
Decrease in long-term debt (34,565) (57,502) (40)
Issue of trust units, net of cost;
excluding DRIP 7 4,836 (100)
DRIP proceeds 14,190 10,757 32
Change in working capital, including
cash, sale of assets and change in
investments 76,229 81,026 (6)
----------------------------------------------------------------------------
Net capital expenditure funding $ 95,138 $ 48,660 96
----------------------------------------------------------------------------
----------------------------------------------------------------------------


For the comparable quarters Provident has funded its net capital expenditures with funds flow from operations, debt and equity issued from treasury through public offerings and the DRIP (Distribution Re-Investment Program).

Non-cash unit based compensation

Non-cash unit based compensation includes expenses associated with Provident's restricted and performance unit plan, as well as the unit option plan. Provident accounts for the unit option plan using the fair value of the option at the time of issue. The other unit based compensation is recorded at the estimated fair value of the notional units granted. Compensation expense associated with the plans is recognized in earnings over the vesting period of each plan. The expense associated with each period is recorded as non-cash unit based compensation (a component of general and administrative expense). A portion is also allocated to operating expense. Provident recorded unit based compensation expense of $5.3 million for the quarter ended March 31, 2008 (2007 - $4.4 million) included primarily in general and administrative expense. Provident made payments in respect of unit based compensation of $8.3 million in the first quarter of 2008 (2007 - $1.8 million). At March 31, 2008, the current portion of the liability totaled $16.2 million (December 31, 2007 - $9.9 million) and the long-term portion totaled $2.6 million (December 31, 2007 - $12.4 million).

COGP segment review



Crude oil and liquids price

The following prices are net of transportation expense.

COGP Three months ended March 31,
----------------------------------------------------------------------------
($ per bbl) 2008 2007 % Change
----------------------------------------------------------------------------

Oil per barrel
WTI (US$) $ 97.90 $ 58.16 68
Exchange rate (from US$ to Cdn$) $ 1.00 $ 1.17 (15)
WTI expressed in Cdn$ $ 98.30 $ 68.14 44
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Realized pricing before financial
derivative instruments
Crude oil $ 75.06 $ 51.23 47
Natural gas liquids $ 72.85 $ 49.02 49
----------------------------------------------------------------------------
Crude oil and natural gas liquids $ 74.85 $ 50.90 47
----------------------------------------------------------------------------
----------------------------------------------------------------------------


In the first quarter of 2008, COGP's realized crude oil and natural gas liquids price, prior to the impact of financial derivative instruments, increased by 47 percent to $74.85 per barrel compared to $50.90 in the first quarter of 2007. The 2008 increase was a result of a 68 percent increase in $US WTI crude oil price, partially offset by a stronger Canadian dollar.



Natural gas price

The following prices are net of transportation expense.

COGP Three months ended March 31,
----------------------------------------------------------------------------
($ per mcf) 2008 2007 % Change
----------------------------------------------------------------------------

AECO monthly index (Cdn$ per mcf) $ 7.13 $ 7.40 (4)

Corporate natural gas price per mcf
before financial derivative
instruments (Cdn$) $ 7.61 $ 7.48 2
----------------------------------------------------------------------------
----------------------------------------------------------------------------


COGP's first quarter 2008 realized natural gas price, before financial derivative instruments, increased two percent as compared to the first quarter of 2007. Provident markets to aggregators and can sell to the market on daily and monthly indices, receiving prices which are based on the heat content of the natural gas. Provident's realized prices and changes in prices will therefore differ from benchmark indices.



Production

COGP Three months ended March 31,
----------------------------------------------------------------------------
2008 2007 % Change
----------------------------------------------------------------------------
Daily production
Crude oil (bpd) 12,287 8,097 52
Natural gas liquids (bpd) 1,307 1,422 (8)
Natural gas (mcfd) 83,970 88,928 (6)
----------------------------------------------------------------------------
Oil equivalent (boed) (1) 27,589 24,340 13
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Provident reports equivalent production converting natural gas to oil
on a 6:1 basis.


Production increased 13 percent to 27,589 boed during the first quarter of 2008 as compared to 24,340 boed in the comparable 2007 quarter. The increase in production was primarily a result of the Capitol acquisition that established the Dixonville core area, the Triwest acquisition that added production in Southeast Saskatchewan and internal drilling and development programs, partially offset by natural production declines. Production for the first quarter of 2008 was weighted 51 percent natural gas, and 49 percent crude oil and natural gas liquids, a change from the 61 percent natural gas, and 39 percent crude oil and natural gas liquids for the first quarter of 2007. The change in the production weighting reflects the oil-weighted acquisitions completed in 2007.

In the first quarter of 2008, the 13 percent production increase compared to the prior year's quarter was achieved despite production downtime driven primarily by the impact of cold weather on operations and unscheduled natural gas plant turnarounds. Areas affected included Southern Alberta, Northwest Alberta, and Dixonville. In addition, commingling application delays in our shallow gas play in Southwest Saskatchewan have delayed recompletions in this area. Production in Southeast Saskatchewan has increased reflecting the Triwest acquisition volumes and the associated drilling program.



Provident's COGP production summarized by core areas is as follows:

Three months ended March 31,
----------------------------------------------------------------------------
COGP 2008 2007 % Change
----------------------------------------------------------------------------
Daily Production - by area (boed) (1)
West Central Alberta 6,593 7,105 (7)
Southern Alberta 4,741 5,960 (20)
Northwest Alberta 4,640 4,589 1
Dixonville 3,902 - -
Southeast Saskatchewan 3,108 1,667 86
Southwest Saskatchewan 1,462 1,859 (21)
Lloydminster 3,143 3,160 (1)
----------------------------------------------------------------------------
27,589 24,340 13
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Provident reports equivalent production converting natural gas to oil
on a 6:1 basis.


Revenue and royalties

COGP Three months ended March 31,
----------------------------------------------------------------------------
($ 000s except per boe and mcf data) 2008 2007 % Change
----------------------------------------------------------------------------

Oil
Revenue $ 83,923 $ 37,336 125
Realized (loss) gain on financial
derivative instruments (3,929) 13 -
Royalties (15,073) (7,112) 112
----------------------------------------------------------------------------
Net revenue $ 64,921 $ 30,237 115
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net revenue (per barrel) $ 58.06 $ 41.49 40
Royalties as a percentage of revenue 18.0% 19.0%

Natural gas
Revenue $ 58,152 $ 59,880 (3)
Realized gain (loss) on financial
derivative instruments 955 (858) -
Royalties (11,284) (10,867) 4
----------------------------------------------------------------------------
Net revenue $ 47,823 $ 48,155 (1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net revenue (per mcf) $ 6.26 $ 6.02 4
Royalties as a percentage of revenue 19.4% 18.1%

Natural gas liquids

Revenue $ 8,667 $ 6,273 38
Royalties (2,240) (1,706) 31
----------------------------------------------------------------------------
Net revenue $ 6,427 $ 4,567 41
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net revenue (per barrel) $ 54.02 $ 35.69 51
Royalties as a percentage of revenue 25.8% 27.2%

Total
Revenue $ 150,742 $ 103,489 46
Realized loss on financial derivative
instruments (2,974) (845) 252
Royalties (28,597) (19,685) 45
----------------------------------------------------------------------------
Net revenue $ 119,171 $ 82,959 44
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net revenue (per boe) $ 47.47 $ 37.87 25
Royalties as a percentage of revenue 19.0% 19.0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Note: the above revenue, net revenue and net revenue per boe figures are
presented net of transportation expenses.


Quarter over quarter, 2008 COGP net revenue increased by 44 percent to $119.2 million and by 25 percent to $47.47 per boe. The increases reflect increased crude oil production from the Capitol and Triwest acquisitions and increased realized crude oil and natural gas liquids prices partially offset by a stronger Canadian dollar. Royalties, which are price sensitive and affected by production levels stayed constant as a percentage of revenue in the first quarter of 2008, compared to the first quarter in 2007. The increase in realized loss on financial derivative instruments to $3.0 million in the first quarter of 2008 from $0.8 million in the comparable 2007 quarter reflects a $0.9 million gain on our natural gas derivative contracts in 2008 offset by a $3.9 million loss on oil derivative contracts in a significantly higher crude oil price environment. The minimal impact of the derivative instruments recognizes the shift to more participating product in the oil and natural gas derivatives portfolio.



Production expenses

COGP Three months ended March 31,
----------------------------------------------------------------------------
($ 000s, except per boe data) 2008 2007 % Change
----------------------------------------------------------------------------

Production expenses $ 30,376 $ 26,261 16
Production expenses (per boe) $ 12.10 $ 11.99 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------


First quarter 2008 production expenses increased 16 percent to $30.4 million from $26.3 million in the comparable 2007 quarter. The increase was mainly due to the 13 percent increase in quarter over quarter production. On a per boe basis, production expenses were relatively flat at $12.10 per boe compared to $11.99 per boe in the first quarter of 2007. The per boe production expenses include additional costs due to unexpected cold weather events and unscheduled natural gas plant turnarounds, further compounded by the associated lost production. The per boe costs also reflect the lower per boe operating cost assets acquired in the Capitol and Triwest acquisitions.



Operating netback

COGP Three months ended March 31,
----------------------------------------------------------------------------
($ per boe) 2008 2007 % Change
----------------------------------------------------------------------------
Netback per boe
Gross production revenue $ 60.04 $ 47.24 27
Royalties (11.39) (8.99) 27
Operating costs (12.10) (11.99) 1
----------------------------------------------------------------------------
Field operating netback 36.55 26.26 39
Realized loss on financial
derivative instruments (1.18) (0.38) 211
----------------------------------------------------------------------------

Operating netback after realized
financial derivative instruments $ 35.37 $ 25.88 37
----------------------------------------------------------------------------
----------------------------------------------------------------------------


COGP operating netbacks have transportation expense netted against gross production revenue.

First quarter 2008 field operating netback increased 39 percent to $36.55 per boe from $26.26 per boe in the comparable 2007 quarter. The increase in field operating netback reflects a higher production weighting to crude oil accompanied by an increase in realized crude oil and natural gas liquids prices. Royalties on a per boe basis increased due to the increase in realized crude oil prices, whereas royalties as a percentage of revenue was consistent with prior year. Operating netbacks after realized financial derivative instruments increased by 37 percent to $35.37 per boe from $25.88 per boe for the quarter, reflecting a realized loss on financial derivative instruments of $1.18 per boe compared to $0.38 per boe realized loss in the comparable quarter in 2007. The minimal impact of the derivative instruments recognizes the shift to more participating product in the oil and gas derivatives portfolio employed in the execution of the Commodity Price Risk Management Program.



General and administrative

COGP Three months ended March 31,
----------------------------------------------------------------------------
($ 000s, except per boe data) 2008 2007 % Change
----------------------------------------------------------------------------

Cash general and administrative $ 11,923 $ 7,237 65
Non-cash unit based compensation (1,745) 986 -
----------------------------------------------------------------------------
$ 10,178 $ 8,223 24

Cash general and administrative
(per boe) $ 4.75 $ 3.30 44
----------------------------------------------------------------------------
----------------------------------------------------------------------------


First quarter 2008 COGP cash general and administrative expenses increased 65 percent to $11.9 million compared to $7.2 million in the first quarter of 2007. On a per barrel basis, cash general and administrative expenses increased 44 percent to $4.75 per boe in 2008 compared to the $3.30 per boe in the first quarter of 2007. First quarter 2008 cash general and administrative expense includes $4.5 million or $1.80 per boe (2007 - $0.9 million or $0.40 per boe) related to payments associated with performance unit based compensation. The unit based expense was accrued over a three-year vesting period as non-cash unit based compensation, consequently there is an offsetting reduction in non-cash unit based compensation in the first quarter of 2008, when the payments were made. Excluding these payments, cash general and administrative expenses were $7.4 million, or $2.95 per boe in the first quarter of 2008 compared to $6.3 million or $2.90 per boe in the first quarter of 2007.

Non-cash unit based compensation was a recovery of $1.7 million in the first quarter of 2008 compared to $1.0 million expense in the first quarter of 2007. First quarter 2008 cash payments related to unit based compensation were $4.5 million (2007 - $0.9 million). Payment of unit based compensation is recorded as cash general and administrative expense with an offsetting reduction in non-cash unit based compensation. Excluding this payment, non-cash unit based compensation was $2.8 million in the first quarter of 2008 (2007 - $1.9 million).



Capital expenditures

COGP Three months ended March 31,
----------------------------------------------------------------------------
($ 000s) 2008 2007
----------------------------------------------------------------------------

Capital expenditures - by category
Geological, geophysical and land $ 2,982 $ 784
Drilling and recompletions 60,688 33,463
Facilities and equipment 11,811 3,258
Other capital 3,677 883
----------------------------------------------------------------------------
Total additions $ 79,158 $ 38,388
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Capital expenditures - by area
West central Alberta $ 3,442 $ 2,716
Southern Alberta 3,723 3,518
Northwest Alberta 35,541 21,893
Dixonville 19,695 -
Southeast Saskatchewan 7,338 422
Southwest Saskatchewan 2,041 8,040
Lloydminster 2,744 972
Office and other 4,634 827
----------------------------------------------------------------------------
Total additions $ 79,158 $ 38,388
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Property acquisitions, net $ 9,019 $ 8,681
----------------------------------------------------------------------------
----------------------------------------------------------------------------


During the quarter COGP successfully executed its capital program throughout its core areas. The COGP business unit spent $60.7 million relating to drilling and recompletion activities, drilling 40.0 net wells with 98 percent success. Capital activity in COGP's newest core area, Dixonville, the winter program in Northwest Alberta and drilling in Southeast Saskatchewan account for 79 percent of COGP's capital expenditures.

At Dixonville, $19.7 million was spent primarily on drilling and completion activities, consisting of 16.0 net wells drilled. In Northwest Alberta, expenditures of $35.5 million were spent on the 2007/2008 winter capital program resulting in 14.0 net wells drilled, a successful 13.0 net well workover and recompletions program, plus associated facility work. The workovers and recompletions were successful with incremental production to be realized after spring breakup. Southeast Saskatchewan expenditures of $7.3 million were mainly on drilling 5.4 net wells and completion activities targeting light oil. The $12.0 million of capital spent in the remaining core areas included drilling, completion, tie-ins, recompletions, facility upgrades and production optimization activities.

Net property acquisitions of $9.0 million in 2008 include additional working interests related to the Southeast Saskatchewan Triwest assets acquired in 2007.



Depletion, depreciation and accretion (DD&A)

COGP Three months ended March 31,
----------------------------------------------------------------------------
($ 000s, except per boe data) 2008 2007 % Change
----------------------------------------------------------------------------

DD&A $ 72,502 $ 55,298 31
DD&A (per boe) $ 28.88 $ 25.24 14
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The COGP DD&A rate of $28.88 per boe for the first quarter of 2008 increased by 14 percent compared to $25.24 per boe for the first quarter of 2007. The increase was primarily as a result of the two acquisitions of Capitol and Triwest in 2007. These recent COGP acquisitions and the Rainbow assets acquired in 2006 differed from earlier acquisitions in that they included significant reserves that were not yet proved. Since depletion calculations are based on proved reserves, acquisitions with unproved reserves generally result in higher depletion rates. This phenomenon, combined with the higher cost of acquiring or drilling proved reserves in western Canada in an environment with higher commodity prices and increased drilling costs, will be reflected in the DD&A rate going forward.

In the first quarter of 2008 accretion expense associated with asset retirement obligations was $0.8 million compared to $0.6 million in the comparable period of 2007.

Midstream business segment review

The Midstream business

The Midstream business unit extracts, processes, stores, transports and markets natural gas liquids (NGL) for Provident and offers these services to third party customers. The Provident Midstream segment contains three business lines:

Empress East

Redwater West

Commercial Services

Midstream business unit results can be summarized as follows:



Midstream business unit results can be summarized as follows:

Three months ended March 31,
----------------------------------------------------------------------------
($ 000s) 2008 2007 % Change
----------------------------------------------------------------------------

Empress East Margin $ 66,480 $ 31,266 113
Redwater West Margin 40,288 17,522 130
Commercial Services Margin 10,558 13,122 (20)
----------------------------------------------------------------------------
Gross operating margin 117,326 61,910 90
Realized loss on financial
derivative instruments (27,963) (2,089) 1,239
Cash general and administrative
expenses (11,859) (6,968) 70
Foreign exchange (loss) gain and
other (1,517) - -
----------------------------------------------------------------------------
Midstream EBITDA $ 75,987 $ 52,853 44
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Gross operating margin

The Empress East business line:

The Empress East business line extracts NGLs from natural gas at the Empress straddle plants and sells finished products into markets in Central Canada and the Eastern United States. The margin in this business is determined primarily by the "frac spread ratio", which is the ratio between crude oil prices and natural gas prices. The higher the ratio, the better this business line will perform. There is also a differential between propane, butane and condensate prices and crude oil prices which can change prices received and margins realized for Midstream products separate from frac spread ratio changes. In the first quarter of 2008, the margin for this business line was $66.5 million (2007 - $31.3 million). This 113 percent increase is the result of approximately six percent higher propane-plus sales volumes at 32 percent higher prices while costs only increased approximately 16 percent. The higher propane plus prices reflect the stronger WTI crude oil price which, when expressed in Canadian dollars, increased by approximately 44 percent in the first quarter of 2008 compared to the first quarter of 2007. Cost of goods sold per unit increased significantly less than revenue as a result of the relatively low natural gas prices.

The Redwater West business line:

The Redwater West business line purchases an NGL mix from various producers and fractionates it into finished products at the Redwater fractionation facility near Edmonton, Alberta. Because the feedstock for this business line is primarily NGL mix rather than natural gas, the frac spread ratio has a smaller impact on margin than in the Empress East business line. In the first quarter of 2008, the margin for this business line was $40.3 million (2007 - $17.5 million). The 130 percent increase is the result of approximately 15 percent higher propane plus sales volumes at 37 percent higher prices while the cost increase was approximately 31 percent. The higher propane plus prices reflect the stronger crude oil price in the first quarter of 2008.

The Commercial Services business line:

The Commercial Services business line generates income from relatively stable fee-for-service contracts to provide fractionation, storage, loading, and marketing services to upstream producers. Income from pipeline tariffs from Provident's ownership in NGL pipelines is also included in this business line. In the first quarter of 2008, the margin for this business line was $10.5 million (2007 - $13.1 million). The reduction in the margin is due to a few factors including reduced debutanizer margin, reduced loading/offloading revenue, and reduced storage and pipeline revenue. These reductions were caused by factors which were all minor in nature and are not normally expected to re-occur.

Operations - Midstream NGL sales volumes

Midstream sold 136,320 bpd in the first quarter of 2008, up nine percent when compared with 125,033 bpd in the first quarter of 2007.

Earnings before interest, taxes, depletion, depreciation, accretion, and other non-cash items ("EBITDA") and funds flow from operations

First quarter 2008 EBITDA increased to $76.0 million from $52.9 million in 2007 reflecting higher operating margins for both the Empress East and Redwater West business lines, partially offset by higher realized losses on financial derivative instruments and higher cash general and administrative expenses. Funds flow from operations for the first quarter of 2008 was $59.3 million, an increase of $19.9 million or 50 percent above the $39.4 million for the first quarter 2007. The increase in funds flow from operations reflects the higher EBITDA.

Cash general and administrative expenses and other were $11.9 million for the first quarter 2008 (2007 - $7.0 million). First quarter 2008 cash general and administrative expenses include $3.8 million (2007 - $0.9 million) related to payments associated with performance unit-based compensation. The expense was accrued over the three-year vesting period as non-cash unit based compensation, consequently there is an offsetting reduction in non-cash unit based compensation in 2008, when the payments were made. Excluding these payments, cash general and administrative expenses were $8.1 million in the first quarter of 2008, compared with $6.1 million in the same period in 2007. The increase reflects higher compensation costs as well as costs associated with Provident's recently announced strategic review process.

Management uses EBITDA to analyze the operating performance of the Midstream business unit. EBITDA 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. EBITDA as presented is not intended to represent operating funds flow from operations or operating profits for the period nor should it be viewed as an alternative to funds flow from operations from operating activities, net earnings or other measures of financial performance calculated in accordance with Canadian GAAP. All references to EBITDA throughout this report are based on earnings before interest, taxes, depletion, depreciation, accretion, and other non-cash items ("EBITDA").

Capital expenditures

Midstream capital expenditures for the first quarter of 2008 totaled $5.4 million. In 2008, $1.3 million was spent on continued development of cavern storage, $2.7 million was spent on sustaining capital requirements and $1.4 million was spent on office furniture, equipment and other.

Discontinued operations (USOGP)

In February 2008, the Trust announced a strategic process respecting the decision to sell the operations that comprise the United States oil and natural gas production (USOGP) business. This business comprises approximately 22 percent ownership of BreitBurn Energy Partners, L.P., a publicly-traded U.S. Master Limited Partnership ("the MLP"). This MLP ownership also includes units held by the General Partner of which Provident owns approximately 96 percent. In addition, Provident owns approximately 96 percent of privately held BreitBurn Energy Company L.P. ("BreitBurn") which operates assets in California.

Given the sales decision, effective in the first quarter of 2008, the USOGP business is accounted for as discontinued operations. Discontinued operations (USOGP) includes the consolidated results of 100 percent of the MLP and BreitBurn. Non-controlling interests are comprised mainly of the public ownership in the MLP, and to a lesser extent the ownership interests of the managers in the MLP and BreitBurn, as well as third party investment in USOGP's land development project, which commenced in 2006.

The pre-tax book value of these investments at March 31, 2008 was approximately $445 million and the related tax basis approximately $100 million. While it is Provident's intention to monetize its USOGP investment, there is no certainty that this process will result in any changes to Provident's ownership of its U.S. holdings.

Distributions

The following table summarizes distributions paid or declared by the Trust since inception:



Distribution Amount
Record Date Payment Date (Cdn$) (US$)(1)
----------------------------------------------------------------------------
2008
January 24, 2008 February 15, 2008 $ 0.12 0.12
February 25, 2008 March 14, 2008 0.12 0.12
March 24, 2008 April 15, 2008 0.12 0.12
----------------------------------------------------------------------------
2008 Cash Distributions paid as declared $ 0.36 0.36
----------------------------------------------------------------------------
----------------------------------------------------------------------------
2007 Cash Distributions paid as declared 1.44 1.35
2006 Cash Distributions paid as declared 1.44 1.26
2005 Cash Distributions paid as declared 1.44 1.20
2004 Cash Distributions paid as declared 1.44 1.10
2003 Cash Distributions paid as declared 2.06 1.47
2002 Cash Distributions paid as declared 2.03 1.29
2001 Cash Distributions paid as declared
- March 2001 - December 2001 2.54 1.64
----------------------------------------------------------------------------
Inception to March 31, 2008 - Distributions
paid as declared $ 12.75 9.67
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Exchange rate based on the Bank of Canada noon rate on the payment date.


Foreign ownership

As at March 31, 2008, based on information received from the transfer agent and financial intermediaries, an estimated 85 percent of Provident's outstanding trust units are held by non-residents. However, this estimate may not be accurate as it is based on certain assumptions and data from the security industry that does not have a well-defined methodology to determine the residency of beneficial holders of securities.

The Trust qualifies as a Mutual Fund Trust under the Canadian Income Tax Act because substantially all the value of its asset portfolio is derived from non-taxable Canadian properties, comprised principally of royalties and inter-company debt. Provident monitors on an ongoing basis the value of its asset portfolio to confirm that substantially all of the value of its assets is derived from non-taxable Canadian properties.

On September 17, 2003 Canadian unitholders approved an amendment to the Trust's Trust Indenture providing that residency restriction provisions need not be enforced while the Trust continues to qualify as a Mutual Fund Trust under Canadian tax legislation. To allow Provident to remain a Mutual Fund Trust and to execute a business plan that maximizes unitholder returns without regard to the types of assets the Trust may hold, the approved amendment provides for Provident's board of directors to have sole discretion to determine whether and when it is appropriate to reduce or limit the number of trust units held by non-residents of Canada.


Change in accounting policies

The interim consolidated financial statements have been prepared based on the consistent application of the accounting policies and procedures as set out in the consolidated financial statements of the Trust for the year ended December 31, 2007 and are consistent with policies adopted in the first quarter of 2007, except as described in note 2 of the interim consolidated financial statements.

Business risks

The trust industry is subject to risks that can affect the amount of funds flow from operations available for distribution to unitholders, and the ability to grow. These risks include but are not limited to:

- capital markets risk and the ability to finance future growth; and

- the impact of Canadian governmental regulation on Provident, including the effect of the new tax on trust distributions;

The oil and natural gas industry is subject to numerous risks that can affect the amount of funds flow from operations available for distribution to unitholders and the ability to grow. These risks include but are not limited to:

- fluctuations in commodity price, exchange rates and interest rates;

- government and regulatory risk in respect of royalty and income tax regimes;

- operational risks that may affect the quality and recoverability of reserves;

- geological risk associated with accessing and recovering new quantities of reserves;

- transportation risk in respect of the ability to transport oil and natural gas to market;

- marketability of oil and natural gas;

- the ability to attract and retain employees; and

- environmental, health and safety risks.

The midstream industry is also subject to risks that can affect the amount of funds flow from operations available for distribution to unitholders and the ability to grow. These risks include but are not limited to:

- operational matters and hazards including the breakdown or failure of equipment, information systems or processes, the performance of equipment at levels below those originally intended, operator error, labour disputes, disputes with owners of interconnected facilities and carriers and catastrophic events such as natural disasters, fires, explosions, fractures, acts of eco-terrorists and saboteurs, and other similar events, many of which are beyond the control of the Trust or Provident;

- the Midstream NGL assets are subject to competition from other gas processing plants, and the pipelines and storage, terminal and processing facilities are also subject to competition from other pipelines and storage, terminal and processing facilities in the areas they serve, and the gas products marketing business is subject to competition from other marketing firms;

- exposure to commodity price fluctuations;

- regulatory intervention in determining processing fees and tariffs; and

- reliance on significant customers.

Provident strives to minimize these business risks by:

- employing and empowering management and technical staff with extensive industry experience and providing competitive remuneration;

- adhering to a strategy of acquiring, developing and optimizing quality, low-risk reserves in areas where we have technical and operational expertise;

- developing a diversified, balanced asset portfolio that generally offers developed operational infrastructure, year-round access and close proximity to markets;

- adhering to a consistent and disciplined Commodity Price Risk Management Program to mitigate the impact that volatile commodity prices have on funds flow from operations available for distribution;

- marketing crude oil and natural gas to a diverse group of customers, including aggregators, industrial users, well-capitalized third-party marketers and spot market buyers;

- marketing natural gas liquids and related services to selected, credit worthy customers at competitive rates;

- maintaining a low cost structure to maximize funds flow from operations and profitability;

- maintaining prudent financial leverage and developing strong relationships with the investment community and capital providers;

- adhering to strict guidelines and reporting requirements with respect to environmental, health and safety practices; and

- maintaining an adequate level of property, casualty, comprehensive and directors' and officers' insurance coverage.

Unit trading activity

The following table summarizes the unit trading activity of the Provident units for the three months ended March 31, 2008 on both the Toronto Stock Exchange and the New York Stock Exchange:



Q1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
TSE - PVE.UN (Cdn$)
High $ 11.37
Low $ 8.80
Close $ 10.95
Volume (000s) 34,702
----------------------------------------------------------------------------
----------------------------------------------------------------------------
NYSE -- PVX (US$)
High $ 11.28
Low $ 8.50
Close $ 10.60
Volume (000s) 74,533
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Forward-looking statements

This MD&A contains forward-looking information or forward-looking statements under applicable securities legislation. These statements relate to future events or the Trust's future performance. Such forward-looking statements or information are provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes, such as making investment decisions. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future. Forward looking statements or information in this MD&A include, but are not limited to, business strategy and objectives, reserve quantities and the discounted present value of future net cash flows from such reserves, net revenue, future production levels, capital expenditures, exploration plans, development plans, acquisition and disposition plans and the timing thereof, operating and other costs, royalty rates, budgeted levels of cash distributions and the performance associated with Provident's natural gas midstream, NGL processing and marketing business. Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual events or results to differ materially from those anticipated by the Trust and described in the forward-looking statements or information. In addition, this MD&A may contain forward-looking statements attributed to third party industry sources. Undue reliance should not be placed on forward-looking statements or information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. Forward-looking statements in this MD&A include, but are not limited to, statements with respect to:

- the Trust's ability to benefit from the combination of growth opportunities and the ability to grow through the capital markets;

- the Trust's acquisition strategy, the criteria to be considered in connection therewith and the benefits to be derived therefrom;

- sustainability and growth of production and reserves through prudent management and acquisitions;

- the emergence of accretive growth opportunities;

- the ability to achieve a consistent level of monthly cash distributions;

- the impact of Canadian governmental regulation on the Trust;

- the existence, operation and strategy of the commodity price risk management program;

- the approximate and maximum amount of forward sales and hedging to be employed;

- changes in oil and natural gas prices and the impact of such changes on cash flow after hedging;

- the level of capital expenditures devoted to development activity rather than exploration;

- the sale, farming out or development using third party resources to exploit or produce certain exploration properties;

- the use of development activity and acquisitions to replace and add to reserves;

- the quantity of oil and natural gas reserves and oil and natural gas production levels;

- currency, exchange and interest rates;

- the performance characteristics of Provident's natural gas midstream, NGL processing and marketing business;

- the growth opportunities associated with the natural gas midstream, NGL processing and marketing business; and

- the nature of contractual arrangements with third parties in respect of Provident's natural gas midstream, NGL processing and marketing business.

Although the Trust believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The Trust can not guarantee future results, levels of activity, performance, or achievements. Moreover, neither the Trust nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Some of the risks and other factors, some of which are beyond the Trust's control, which could cause results to differ materially from those expressed in the forward-looking information or forward-looking statements contained in this MD&A include, but are not limited to:

- general economic conditions in Canada, the United States and globally;

- industry conditions associated with the NGL services, processing and marketing business;

- fluctuations in the price of crude oil, natural gas and natural gas liquids;

- uncertainties associated with estimating reserves;

- royalties payable in respect of oil and gas production;

- interest payable on notes issued in connection with acquisitions;

- income tax legislation relating to income trusts, including the effect of new legislation taxing trust income;

- governmental regulation in North America of the oil and gas industry, including income tax and environmental regulation;

- fluctuation in foreign exchange or interest rates;

- stock market volatility and market valuations;

- the impact of environmental events;

- the need to obtain required approvals from regulatory authorities;

- unanticipated operating events which can reduce production or cause production to be shut-in or delayed;

- failure to realize the anticipated benefits of acquisitions;

- competition for, among other things, capital reserves, undeveloped lands and skilled personnel;

- failure to obtain industry partner and other third party consents and approvals, when required;

- risks associated with foreign ownership;

- third party performance of obligations under contractual arrangements; and

- the other factors set forth under "Business risks" in this MD&A.

Readers are cautioned that the foregoing list is not exhaustive of all possible risks and uncertainties. With respect to forwarding looking statements and forward looking information contained in this MD&A, the Trust has made assumptions regarding, among other things:

- future natural gas and crude oil prices;

- the ability of the Trust to obtain qualified staff and equipment in a timely and cost-efficient manner to meet demand;

- the regulatory framework regarding royalties, taxes and environmental matters in which the Trust conducts its business;

- the impact of increasing competition; and

- the Trust's ability to obtain financing on acceptable terms.

- the general stability of the economic and political environment in which the Trust operates;

- the timely receipt of any required regulatory approvals;

- the ability of the operator of the projects which the Trust has an interest in to operate the field in a safe, efficient and effective manner;

- field production rates and decline rates;

- the ability to replace and expand oil and natural gas reserves through acquisition, development of exploration;

- the timing and costs of pipeline, storage and facility construction and expansion and the ability of the Trust to secure adequate product transportation;

- currency, exchange and interest rates; and

- the ability of the Trust to successfully market its oil and natural gas products.

Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used. The forward-looking statements or information contained in this MD&A are made as of the date hereof and the Trust undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise unless required by applicable securities laws. The forward looking statements or information contained in this MD&A are expressly qualified by this cautionary statement.



Segmented information by quarter
----------------------------------------------------------------------------
($ 000s except for per unit and operating amounts) 2008
----------------------------------------------------------------------------
First
Quarter
----------------------------------------------------------------------------
Financial - consolidated
Revenue (continuing operations) $ 702,215
Funds flow from operations $ 180,230
Net income $ 33,616
Net income per unit - basic and diluted $ 0.13
Unitholder distributions $ 91,117
Distributions per unit $ 0.36
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Oil and gas production (continuing operations)
Cash revenue $ 122,815
Earnings before interest, DD&A, taxes and other non-cash items $ 75,348
Funds flow from operations $ 71,142
Net income $ 9,591
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Midstream services and marketing
Cash revenue $ 641,673
Earnings before interest, DD&A, taxes and other non-cash items $ 75,987
Funds flow from operations $ 59,252
Net income $ 15,516
----------------------------------------------------------------------------

Operating
Oil and gas production (continuing operations)
Light/medium oil (bpd) 10,535
Heavy oil (bpd) 1,752
Natural gas liquids (bpd) 1,307
Natural gas (mcfd) 83,970
Oil equivalent (boed) 27,589
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Average selling price net of transportation expense (continuing
operations) (Cdn$)
Crude oil per bbl $ 75.06
(before realized financial derivative instruments)
Crude oil per bbl $ 71.54
(including realized financial derivative instruments)
Natural gas liquids per barrel $ 72.85
Natural gas per mcf $ 7.61
(before realized financial derivative instruments)
Natural gas per mcf $ 7.74
(including realized financial derivative instruments)
----------------------------------------------------------------------------

Midstream
Midstream NGL sales volumes (bpd) 136,320
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Segmented information by quarter
----------------------------------------------------------------------------
($ 000s except for
per unit and
operating amounts) 2007
----------------------------------------------------------------------------
First Second
Quarter Quarter Third Fourth Annual
(1) (1) Quarter Quarter Total
----------------------------------------------------------------------------
Financial -
consolidated
Revenue (continuing
operations) $ 558,807 $ 463,995 $ 494,065 $ 521,648 $ 2,038,515
Funds flow from
operations $ 87,040 $ 98,503 $ 105,149 $ 177,563 $ 468,255
Net income (loss) $ 43,093 $ (46,199) $ (35,005) $ 68,545 $ 30,434
Net income (loss)
per unit - basic
and diluted $ 0.20 $ (0.21) $ (0.14) $ 0.28 $ 0.13
Unitholder
distributions $ 76,271 $ 80,236 $ 87,782 $ 89,063 $ 333,352
Distributions
per unit $ 0.36 $ 0.36 $ 0.36 $ 0.36 $ 1.44
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Oil and gas
production
(continuing
operations)
Cash revenue $ 84,668 $ 90,028 $ 92,419 $ 101,746 $ 368,861
Earnings before
interest, DD&A,
taxes and other
non-cash items $ 49,756 $ 55,457 $ 53,530 $ 63,009 $ 221,752
Funds flow from
operations $ 46,410 $ 52,032 $ 47,143 $ 58,667 $ 204,252
Net (loss) income $ (4,510) $ 50,429 $ (17,807) $ 16,953 $ 45,065
----------------------------------------------------------------------------


Midstream services
and marketing
Cash revenue $ 453,272 $ 397,713 $ 433,950 $ 598,963 $ 1,883,898
Earnings before
interest, DD&A,
taxes and other
non-cash items $ 52,853 $ 35,974 $ 47,425 $ 89,423 $ 225,675
Funds flow from
operations $ 39,404 $ 29,569 $ 32,350 $ 77,109 $ 178,432
Net income (loss) $ 51,838 $(142,191) $ (8,630) $ (62,037) $ (161,020)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Operating
Oil and gas
production
(continuing
operations)
Light/medium
oil (bpd) 6,428 6,692 8,858 9,483 7,876
Heavy oil (bpd) 1,669 1,918 2,324 1,769 1,921
Natural gas
liquids (bpd) 1,422 1,311 1,255 1,277 1,316
Natural gas (mcfd) 88,928 94,437 93,511 92,584 92,378
Oil equivalent
(boed) 24,340 25,660 28,022 27,960 26,509
----------------------------------------------------------------------------

Average selling
price net of
transportation
expense
(continuing
operations) (Cdn$)
Crude oil per bbl
(before realized
financial
derivative
instruments) $ 51.23 $ 53.75 $ 57.88 $ 61.75 $ 56.74
Crude oil per bbl
(including
realized
financial
derivative
instruments) $ 51.25 $ 52.77 $ 55.47 $ 57.23 $ 54.53
Natural gas
liquids per
barrel $ 49.02 $ 52.79 $ 55.47 $ 63.63 $ 55.07
Natural gas per
mcf
(before realized
financial
derivative
instruments) $ 7.48 $ 7.27 $ 4.94 $ 6.08 $ 6.42
Natural gas per
mcf
(including
realized
financial
derivative
instruments) $ 7.37 $ 7.20 $ 5.63 $ 6.68 $ 6.71
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Midstream
Midstream NGL
sales volumes
(bpd) 125,033 109,713 112,386 135,981 120,785
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Restated - see note 3 to interim consolidated financial statements.


Segmented information by quarter
----------------------------------------------------------------------------
($ 000s except for
per unit and
operating amounts) 2006
----------------------------------------------------------------------------
First Second Third Fourth Annual
Quarter Quarter Quarter Quarter Total
----------------------------------------------------------------------------
Financial -
consolidated
Revenue (continuing
operations) $ 522,315 $ 398,225 $ 597,082 $ 505,556 $ 2,023,178
Funds flow from
operations $ 78,906 $ 110,990 $ 120,089 $ 122,679 $ 432,664
Net income (loss) $ 24,200 $ 21,371 $ 120,850 $ (25,501) $ 140,920
Net income (loss)
per unit - basic $ 0.13 $ 0.11 $ 0.61 $ (0.12) $ 0.72
Net income (loss)
per unit -
diluted $ 0.13 $ 0.11 $ 0.58 $ (0.12) $ 0.72
Unitholder
distributions $ 68,350 $ 68,572 $ 70,970 $ 75,573 $ 283,465
Distributions per
unit $ 0.36 $ 0.36 $ 0.36 $ 0.36 $ 1.44
----------------------------------------------------------------------------

Oil and gas
production
(continuing
operations)
Cash revenue $ 78,343 $ 84,118 $ 75,766 $ 87,014 $ 325,241
Earnings before
interest, DD&A,
taxes
and other non-cash
items $ 47,615 $ 54,746 $ 45,335 $ 50,749 $ 198,445
Funds flow from
operations $ 39,949 $ 55,490 $ 41,315 $ 48,574 $ 185,328
Net income (loss) $ 33,987 $ 35,094 $ 22,621 $ (8,249) $ 83,453
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Midstream services
and marketing
Cash revenue $ 474,515 $ 367,624 $ 459,603 $ 447,244 $ 1,748,986
Earnings before
interest, DD&A,
taxes and other
non-cash items $ 32,813 $ 46,438 $ 65,958 $ 74,422 $ 219,631
Funds flow from
operations $ 26,093 $ 39,123 $ 58,618 $ 60,532 $ 184,366
Net income (loss) $ (12,284) $ (4,609) $ 82,733 $ (10,971) $ 54,869
----------------------------------------------------------------------------

Operating
Oil and gas
production
(continuing
operations)
Light/medium oil
(bpd) 7,302 6,623 6,640 6,569 6,815
Heavy oil (bpd) 2,506 2,011 2,004 1,838 2,057
Natural gas liquids
(bpd) 1,505 1,457 1,310 1,331 1,401
Natural gas (mcfd) 75,840 77,803 78,560 97,489 82,469
Oil equivalent
(boed) 23,953 23,058 23,047 25,986 24,018
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Average selling
price net of
transportation
expense
(continuing
operations) (Cdn$)
Crude oil per bbl
(before realized
financial
derivative
instruments) $ 43.75 $ 65.92 $ 54.94 $ 46.23 $ 52.45
Crude oil per bbl
(including realized
financial
derivative
instruments) $ 42.77 $ 64.64 $ 54.09 $ 45.38 $ 51.47
Natural gas liquids
per barrel $ 53.89 $ 54.12 $ 51.91 $ 47.46 $ 51.91
Natural gas per mcf
(before realized
financial
derivative
instruments) $ 7.98 $ 6.10 $ 5.90 $ 6.73 $ 6.66
Natural gas per mcf
(including realized
financial
derivative
instruments) $ 7.82 $ 6.41 $ 6.26 $ 7.15 $ 6.92
----------------------------------------------------------------------------

Midstream
Midstream NGL sales
volumes (bpd) 130,735 100,284 114,839 115,727 115,354
----------------------------------------------------------------------------
----------------------------------------------------------------------------


PROVIDENT ENERGY TRUST
CONSOLIDATED BALANCE SHEETS
Canadian dollars (000s)
(unaudited)

As at As at
March 31, December 31,
2008 2007
------------- -------------
Assets
Current assets
Cash and cash equivalents $ 18 $ -
Accounts receivable 323,658 338,105
Petroleum product inventory 58,983 84,638
Prepaid expenses and other current assets 4,180 8,313
Financial derivative instruments (note 8) 3,683 1,329
Assets held for sale - USOGP (note 10) 101,066 93,578
----------------------------------------------------------------------------
491,588 525,963

Investments 6,794 5,862
Property, plant and equipment 2,530,866 2,510,271
Intangible assets 168,428 171,793
Goodwill 517,299 517,299
Assets held for sale - USOGP (note 10) 2,137,815 2,027,604
----------------------------------------------------------------------------
$ 5,852,790 $ 5,758,792
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 384,324 $ 347,224
Cash distributions payable 25,814 25,100
Current portion of convertible debentures
(note 4) 19,382 19,198
Financial derivative instruments (note 8) 116,543 130,276
Liabilities held for sale - USOGP (note 10) 203,526 114,681
----------------------------------------------------------------------------
749,589 636,479

Long-term debt - revolving term credit
facilities (note 4) 889,867 923,996
Long-term debt - convertible debentures (note
4) 257,560 256,440
Asset retirement obligation (note 5) 44,112 43,886
Long-term financial derivative instruments
(note 8) 223,922 146,199
Other long-term liabilities (note 7) 2,610 12,400
Future income taxes 272,306 302,089
Liabilities held for sale - USOGP (note 10) 627,304 628,502
Non-controlling interests (note 10)
Discontinued operations (USOGP) 1,107,665 1,100,136

Unitholders' equity
Unitholders' contributions (note 6) 2,764,597 2,750,374
Convertible debentures equity component 18,211 18,213
Contributed surplus (note 7) 801 801
Accumulated other comprehensive (loss) income (56,718) (69,188)
Accumulated income 302,258 268,642
Accumulated cash distributions (1,351,294) (1,260,177)
----------------------------------------------------------------------------
1,677,855 1,708,665
----------------------------------------------------------------------------
$ 5,852,790 $ 5,758,792
----------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.


PROVIDENT ENERGY TRUST
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED INCOME
Canadian dollars (000s except per unit amounts)
(unaudited)



Three months ended
March 31,
------------------------
2008 2007
------------------------
(restated - note 3)

Revenue
Revenue $ 795,425 $ 540,874
Realized loss on financial derivative instruments (30,937) (2,934)
Unrealized (loss) gain on financial derivative
instruments (62,273) 20,867
----------------------------------------------------------------------------
702,215 558,807

Expenses
Cost of goods sold 544,077 385,089
Production, operating and maintenance 33,726 29,683
Transportation 8,527 6,649
Depletion, depreciation and accretion 81,616 66,456
General and administrative (note 7) 20,262 16,296
Interest on bank debt 12,995 9,344
Interest and accretion on convertible debentures 3,660 3,771
Foreign exchange (gain) loss and other (1,271) 208
----------------------------------------------------------------------------
703,592 517,496
----------------------------------------------------------------------------

(Loss) income from continuing operations before
taxes (1,377) 41,311
----------------------------------------------------------------------------

Capital tax expense 482 258
Current and withholding tax expense 5,035 4,558
Future income tax recovery (32,001) (10,833)
----------------------------------------------------------------------------
(26,484) (6,017)
----------------------------------------------------------------------------
Net income for the period from continuing
operations 25,107 47,328
Income (loss) from discontinued operations (note
10) 8,509 (4,235)
----------------------------------------------------------------------------
Net income for the period 33,616 43,093
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated income, beginning of period $ 268,642 $ 238,208
----------------------------------------------------------------------------
Accumulated income, end of period $ 302,258 $ 281,301
----------------------------------------------------------------------------
Net income from continuing operations per unit -
basic and diluted $ 0.10 $ 0.22
----------------------------------------------------------------------------
Net income per unit - basic and diluted $ 0.13 $ 0.20
----------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.


PROVIDENT ENERGY TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
Canadian dollars (000s)
(unaudited)

Three months ended
March 31,
------------------------
2008 2007
------------------------
(restated - note 3)

Cash provided by operating activities
Net income for the period from continuing
operations $ 25,107 $ 47,328
Add (deduct) non-cash items:
Depletion, depreciation and accretion 81,616 66,456
Non-cash interest expense and other 884 732
Non-cash unit based compensation (note 7) (3,173) 2,495
Unrealized loss (gain) on financial derivative
instruments 62,273 (20,867)
Unrealized foreign exchange (gain) loss and other (4,312) 503
Future income tax recovery (32,001) (10,833)
----------------------------------------------------------------------------
Funds flow from continuing operations 130,394 85,814
Funds flow from discontinued operations 49,836 1,226
----------------------------------------------------------------------------
Funds flow from operations 180,230 87,040
----------------------------------------------------------------------------
Site restoration expenditures (1,537) (1,226)
Change in non-cash operating working capital from
continuing operations 72,734 59,039
Change in non-cash operating working capital from
discontinued operations 49,426 5,718
----------------------------------------------------------------------------
300,853 150,571
----------------------------------------------------------------------------

Cash (used for) provided by financing activities
Decrease in long-term debt (34,565) (57,502)
Declared distributions to unitholders (91,117) (76,271)
Issue of trust units, net of issue costs 14,197 15,593
Change in non-cash financing working capital 714 504
Financing activities from discontinued operations (63,155) 47,563
----------------------------------------------------------------------------
(173,926) (70,113)
----------------------------------------------------------------------------

Cash used for investing activities
Capital expenditures (84,582) (38,753)
Oil and gas property acquisitions, net (9,019) (8,681)
Increase in investments (1,007) -
Proceeds on sale of assets - 7,624
Change in non-cash investing working capital 3,806 1,123
Investing activities from discontinued operations (28,727) (49,610)
----------------------------------------------------------------------------
(119,529) (88,297)

Increase (decrease) in cash and cash equivalents 7,398 (7,839)
Cash and cash equivalents, beginning of period 6,820 10,302
----------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 14,218 $ 2,463
Cash and cash equivalents, end of period from
discontinued operations $ 14,200 $ 2,413
----------------------------------------------------------------------------
Cash and cash equivalents, end of period from
continuing operations $ 18 $ 50
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental disclosure of cash flow information
Cash interest paid including debenture interest $ 22,079 $ 13,405
Cash taxes paid $ 2,100 $ 7,787
----------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.


PROVIDENT ENERGY TRUST
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND ACCUMULATED OTHER
COMPREHENSIVE INCOME
Canadian Dollars (000s)
(unaudited)


Three months ended
March 31,
------------------------
2008 2007
------------------------
(restated - note 3)

Net income $ 33,616 $ 43,093
----------------------------------------------------------------------------
Other comprehensive income (loss),
net of taxes
Foreign currency translation
adjustments 12,536 (3,639)
Unrealized loss on available-for-sale
investments(net of taxes of $9 in
2008 and $134 in 2007) (66) (789)
----------------------------------------------------------------------------
12,470 (4,428)
----------------------------------------------------------------------------

Comprehensive income $ 46,086 $ 38,665
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Accumulated other comprehensive
(loss) income, beginning of period (69,188) (42,294)
Other comprehensive income (loss) 12,470 (4,428)
----------------------------------------------------------------------------
Accumulated other comprehensive
(loss) income, end of period $ (56,718) $ (46,722)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated income, end of period 302,258 281,301
Accumulated cash disributions, end of
period (1,351,294) (1,003,096)
----------------------------------------------------------------------------
Retained earnings (deficit), end of
period (1,049,036) (721,795)
----------------------------------------------------------------------------
Total retained earnings (deficit) and
accumulated other comprehensive
(loss) income, end of period $ (1,105,754) $ (768,517)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The accompanying notes are an integral part of these statements.


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in Cdn$000's, except unit and per unit amounts)
(unaudited)


March 31, 2008

The Interim Consolidated Financial Statements of Provident Energy Trust ("the Trust") have been prepared by management in accordance with accounting principles generally accepted in Canada. Certain information and disclosures normally required in the notes to the annual financial statements have been condensed or omitted. The Interim Consolidated Financial Statements should be read in conjunction with the Trust's audited Financial Statements and notes for the year ended December 31, 2007.

1. Significant accounting policies

The Interim Consolidated Financial Statements have been prepared based on the consistent application of the accounting policies and procedures as set out in the Consolidated Financial Statements of the Trust for the year ended December 31, 2007 and are consistent with policies adopted in the first quarter of 2007, except as described in note 2. Certain comparative numbers have been reclassified to conform with the current period's presentation. In particular, the comparative figures have been reclassified to reflect discontinued operations presentation for the United States oil and natural gas production (USOGP) business (see note 10).

2. Changes in accounting policies and practices

(i) Inventory

In the first quarter of 2008, the Trust adopted the new accounting standard, CICA Handbook Section 3031 - Inventories, which replaced the previous standard for inventories, Section 3030. The main features of the new Section are as follows:

- measurement of inventories at the lower of cost and net realizable value;

- consistent use of either first-in, first-out or a weighted average cost formula to measure cost;

- reversal of previous write-downs to net realizable value when there is a subsequent increase to the value of inventories.

Adoption of the new Section has not had a material impact on the consolidated financial statements.

(ii) Capital disclosures

In the first quarter of 2008, the Trust adopted CICA Handbook Section 1535 "Capital Disclosures" which addresses the requirements for an entity to disclose qualitative information about its objectives, policies and processes for managing capital. This section also establishes the requirement for an entity to disclose quantitative data about what it regards as capital as well as disclose whether it has complied with any externally imposed capital requirements and, if not, the consequences of such non-compliance. The new disclosure is included in note 9.

(iii) Financial instruments - disclosures

In the first quarter of 2008, the Trust adopted CICA Handbook Section 3862 "Financial Instruments-Disclosures" and Section 3863 "Financial Instruments-Presentation". Section 3862 requires entities to provide disclosures in their financial statements that enable users to evaluate the significance of financial instruments to the entity's financial position and performance. It also requires that entities disclose the nature and extent of risks arising from financial instruments and how the entity manages those risks. Section 3863 establishes presentation guidelines for financial instruments and non-financial derivatives and addresses the classification of financial instruments, from the perspective of the issuer, between liabilities and equity, the classification of related interest, dividends, losses and gains, and circumstances in which financial assets and financial liabilities are offset. The new disclosure is included in note 8.

3. Restatement of 2007 interim consolidated financial statements

As previously disclosed in the third quarter of 2007, the Trust determined that an adjustment was necessary principally due to commercial transactions within the Midstream segment that resulted in overstated inventory balances. Internal accounting controls had identified the issue. Related cash settlements with third parties were not affected.

The effect of the restatement on the interim consolidated financial statements for the first quarter of 2007 is summarized below. There was no effect on 2006 or prior periods.



Effect on the three
months ended
(000's except per unit amounts) March 31, 2007
----------------------------------------------------------------------------

Increase in accounts receivable $ 3,138
(Decrease) in petroleum product inventory (13,226)
Decrease in future income tax liability 2,875
----------------------------------------------------------------------------
(Decrease) in unitholders' equity $ (7,213)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(Increase) in cost of goods sold $ (10,088)
Decrease in future income tax expense 2,875
----------------------------------------------------------------------------
(Decrease) in net income $ (7,213)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Decrease) in net income per unit - basic and diluted $ (0.04)
----------------------------------------------------------------------------


4. Long-term debt
March 31, 2008 December 31, 2007
----------------------------------------------------------------------------
Revolving term credit facilities $ 889,867 $ 923,996
----------------------------------------------------------------------------
Convertible debentures 276,942 275,638
Current portion of convertible
debentures (19,382) (19,198)
----------------------------------------------------------------------------
257,560 256,440
----------------------------------------------------------------------------
Total $ 1,147,427 $ 1,180,436
----------------------------------------------------------------------------


(i) Revolving term credit facility

At March 31, 2008 the Trust had a $1,125 million term credit facility (December 31, 2007 - $1,125 million). At March 31, 2008, $890.7 million was drawn on the facility. Included in the carrying value at March 31, 2008 were financing costs of $0.8 million.

At March 31, 2008 the Trust had letters of credit guaranteeing Provident's performance under certain commercial and other contracts that totaled $29.7 million. The guarantees totaled $31.6 million at December 31, 2007.

(ii) Convertible debentures

The Trust may elect to satisfy interest and principal obligations by the issue of trust units. For the three months ended March 31, 2008, $25 thousand of the face value of debentures were converted to trust units at the election of debenture holders (2007 - $0.2 million). Included in the carrying value at March 31, 2008 were financing costs of $6.4 million. The fair value of the convertible debentures at March 31, 2008 approximates the face value of the instruments. The following table details each convertible debenture:



Convertible As at As at
Debentures March 31, 2008 December 31, 2007
----------------------------------------------------------------------------
($000s except Conversion
conversion Carrying Face Carrying Face Maturity Price per
pricing) Value (1) Value Value (1) Value Date unit(2)
----------------------------------------------------------------------------
6.5%
Convertible
Debentures $141,189 $149,980 $140,515 $149,980 April 30, 2011 14.75
6.5%
Convertible
Debentures 91,805 98,999 91,460 99,024 Aug. 31, 2012 13.75
8.0%
Convertible
Debentures 24,566 25,109 24,465 25,109 July 31, 2009 12.00
8.75%
Convertible
Debentures 19,382 19,931 19,198 19,931 Dec. 31, 2008 11.05
----------------------------------------------------------------------------
$276,942 $294,019 $275,638 $294,044
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Excluding equity component of convertible debentures

(2) The debentures may be converted into trust units at the option of the
holder of the debenture at the conversion price per unit


5. Asset retirement obligation

The Trust's asset retirement obligation is based on the Trust's net ownership in wells, facilities and the midstream assets and represents management's estimate of the costs to abandon and reclaim those wells, facilities and midstream assets as well as an estimate of the future timing of the costs to be incurred. Estimated cash flows have been discounted at the Trust's credit-adjusted risk free rate of seven percent and an inflation rate of two percent.



Three months ended March 31,
----------------------------------------------------------------------------
($000s) 2008 2007
----------------------------------------------------------------------------
Carrying amount, beginning of period $ 43,886 $ 33,246
Increase in liabilities incurred during
the period 686 559
Settlement of liabilities during the period (1,537) (1,226)
Accretion of liability 1,077 815
----------------------------------------------------------------------------
Carrying amount, end of period $ 44,112 $ 33,394
----------------------------------------------------------------------------
----------------------------------------------------------------------------


6. Unitholders' contributions

The Trust has authorized capital of an unlimited number of common voting
trust units.

Three months ended March 31,
----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------
Number Amount Number Amount
Trust Units of units (000s) of units (000s)
----------------------------------------------------------------------------
Balance at beginning
of period 252,634,773 $ 2,750,374 211,228,407 $ 2,254,048
Issued pursuant to
unit option plan 1,000 7 490,210 5,173
Issued pursuant to
the distribution
reinvestment plan 994,591 9,671 646,840 7,285
To be issued pursuant
to the distribution
reinvestment plan 448,725 4,519 270,378 3,472
Debenture conversions 1,818 26 21,989 250
----------------------------------------------------------------------------
Balance at end
of period 254,080,907 $ 2,764,597 212,657,824 $ 2,270,228
----------------------------------------------------------------------------


The per trust unit amounts for the quarter ended March 31, 2008 were calculated based on the weighted average number of units outstanding of 252,919,221 (2007 - 211,731,407). The diluted per trust unit amounts for 2008 are calculated including an additional 4,294 trust units (2007 - 237,253) for the dilutive effect of the unit option plan and convertible debentures.

7. Unit based compensation

(i) Restricted/Performance units

As of March 31, 2008 there were 1,034,651 RTUs and 3,100,636 PTUs outstanding (December 31, 2007 - 849,672 RTUs and 2,478,037 PTUs). The fair value estimate associated with the RTUs and PTUs is expensed in the statement of operations over the vesting period. At March 31, 2008, $16.2 million (December 31, 2007 - $9.9 million) is included in accounts payable and accrued liabilities for this plan and $2.6 million (December 31, 2007 - $12.4 million) is included in other long-term liabilities. The following table reconciles the expense recorded for RTUs and PTUs.



Three months ended March 31,
----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------
Cash general and administrative $ 8,287 $ 1,767
Non-cash unit based compensation
(included in general and administrative) (3,173) 2,458
Production, operating and maintenance expense 231 175
----------------------------------------------------------------------------
$ 5,345 $ 4,400
----------------------------------------------------------------------------


(ii) Unit option plan

At March 31, 2008, the Trust had 1,247,170 options outstanding (March 31, 2007 - 1,615,865) with strike prices ranging from $10.49 to $12.14 per unit (March 31, 2007 - $10.49 and $12.14 per unit). The weighted average remaining contractual life of the options was 0.63 years (March 31, 2007 - 1.42 years) and the weighted average exercise price was $11.05 per unit (March 31, 2007 - $11.04 per unit) excluding average potential reductions to the strike prices of $1.90 per unit (March 31, 2007 - $1.48 per unit). Of these outstanding options, 1,247,170 (March 31, 2007 - 1,551,205) were exercisable with a weighted average price of $11.05 per unit (March 31, 2007 - $11.04).

The following table reconciles the movement in the contributed surplus balance.



Three months ended March 31,
----------------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------------
Contributed surplus, beginning of the period $ 801 $ 1,315
Non-cash unit based compensation
(included in general and administrative) - 37
Benefit on options exercised charged to
unitholders' equity - (337)
----------------------------------------------------------------------------
Contributed surplus, end of period $ 801 $ 1,015
----------------------------------------------------------------------------
----------------------------------------------------------------------------


8. Financial instruments

Risk Management overview

Provident has a comprehensive Enterprise Risk Management program that is designed to identify and manage risks that could negatively affect its business, operations or results. The program's activities include risk identification, assessment, response, control, monitoring and communication.

Provident's Risk Management group executes the program with oversight from the Risk Management Committee ("RMC"), which provides regular reports to the Audit Committee and Board of Directors.

Provident has established and implemented Risk Management strategies, policies and limits that are monitored by Provident's Risk Management group. The derivative instruments the Trust uses include put and call options, costless collars, participating swaps, and fixed price products that settle against indexed referenced pricing. Put option contracts effectively create a floor price for the commodity while allowing for full participation if prices increase. Call options are contracts that allow for a commodity to be sold at a fixed price at the option of the contract holder. Costless collars are contracts entered into that provide a floor and a ceiling price to limit the risk if prices fall and allowing upward participation within a set range. Participating swaps are contracts entered into that provide a floor and also provide a ceiling for a certain percentage of the volume of the contract. This type of derivative allows for price protection if the price falls, while still allowing some participation if the price increases. Fixed price swaps are contracts that specify a fixed price at which a certain volume of product will be bought or sold at in the future.

The Risk Management group monitors risk exposure by generating and reviewing mark-to-market reports and counterparty credit exposure of Provident's outstanding derivative contracts. Additional monitoring activities include reviewing available derivative positions, regulatory changes and bank and analyst reports.

Provident's commodity price risk management program includes a consistent, active and disciplined program that utilizes derivative instruments to provide for insurance against lower commodity prices and product margins, as well as fluctuating interest and foreign exchange rates. The program is designed to stabilize cash flows in order to support cash distributions, capital programs and bank financing. The risk management strategy protects a percentage of Provident's oil and natural gas production against a decline in commodity prices. Provident seeks to use products that allow participation in a rising commodity price environment where possible and economic. The program provides price stabilization and protection of a percentage of inventory values and fractionation spread margin associated with the midstream business unit. As well, the Provident risk management strategy reduces foreign exchange risk due to the exposure arising from the conversion of U.S. dollars into Canadian dollars.

Fair Values

The fair values of financial instruments are determined by reference to independent monthly forward settlement prices, interest rate yield curves, currency rates, and volatility rates at the period-end dates. All of Provident's financial instruments are executed in liquid markets.



Held for Held to Available
As at March 31, 2008 Trading Maturity for sale
----------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 18 $ - $ -
Accounts receivable - - -
Financial derivative instruments -
current asset 3,683 - -
Investments - 4,622 2,172
----------------------------------------------------------------------------
$ 3,701 $ 4,622 $ 2,172
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities
Accounts payable and accrued liabilities $ - $ - $ -
Cash distributions payable - - -
Current portion of convertible
debentures - - -
Financial derivative instruments-
current liabilities 116,543 - -
Long-term debt - revolving term credit
facilities - - -
Long-term debt - convertible debentures - - -
Financial derivative instruments - long
-term liabilities 223,922 - -
Other long-term liabilities - - -
----------------------------------------------------------------------------
$340,465 $ - $ -
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Total
Loans and Other Carrying
As at March 31, 2008 Receivables liabilities Value
----------------------------------------------------------------------------
Assets
Cash and cash equivalents $ - $ - $ 18
Accounts receivable 323,658 - 323,658
Financial derivative instruments -
current asset - - 3,683
Investments - - 6,794
----------------------------------------------------------------------------
$ 323,658 $ - $ 334,153
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities
Accounts payable and accrued
liabilities $ - $ 384,324 $ 384,324
Cash distributions payable - 25,814 25,814
Current portion of convertible
debentures - 19,382 19,382
Financial derivative instruments-
current liabilities - - 116,543
Long-term debt - revolving term credit
facilities - 889,867 889,867
Long-term debt - convertible
debentures - 257,560 257,560
Financial derivative instruments -
long-term liabilities - - 223,922
Other long-term liabilities - 2,610 2,610
----------------------------------------------------------------------------
$ - $ 1,579,557 $1,920,022
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Except as disclosed in note 4 in connection with the convertible debentures, there were no significant differences between the carrying value of these financial instruments and their estimated fair value as at March 31, 2008.

The following table is a summary of the net financial derivative instruments liability:



As at As at
March 31, December 31,
----------------------------------------------------------------------------
($000s) 2008 2007
----------------------------------------------------------------------------
Commodity prices
Crude Oil $ 21,648 $ 19,215
Natural Gas 5,150 (5,901)
Midstream 309,620 261,587
Other 364 245
----------------------------------------------------------------------------
Total $ 336,782 $ 275,146
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Market Risk

Market risk is the risk that the fair value of a financial instrument will fluctuate because of changes in market prices. Market risk generally comprises of price risk, currency risk and interest rate risk.

a) Price risk

Commodity Price Risk Management Program

The decisions to enter into financial derivative positions and to execute risk management strategy are made by senior officers of Provident who are also members of the RMC. The RMC receives input and commodity expertise from each business unit in the decision making process. Strategies are selected based on their ability to help Provident provide stable cash flow and distributions per unit rather than to simply lock in a specific price per barrel of oil or cubic foot of natural gas.

Oil and Natural Gas

Provident's risk management program employs derivative instruments, such as puts, participating swaps and costless collars, to protect a floor level of Provident's revenue on a portion of the oil and gas sold. At the same time, these instruments enable Provident to retain various levels of participation to the extent oil and gas prices rise. Provident may also use fixed price derivative instruments for its oil and natural gas business lines to protect acquisition economics.

The major identified risks for the oil and natural gas business line are commodity price volatility and market location and product quality differentials. Provident addresses these risks using a risk management program designed to protect a portion of its cash flow in order to support continued unitholder distributions, capital programs and bank financing.

Midstream

Commodity price volatility and market location differentials also affect the Midstream business. In addition, Midstream is exposed to possible price declines between the time Provident purchases natural gas liquid (NGL) feedstock and sells NGL products, and to narrowing frac spreads. Frac spread is the margin between the price paid for the natural gas feedstock from which Provident extracts NGLs, and the absolute price at which Provident sells NGL products (propane, butane and condensate).

Provident responds to these risks using a risk management program that protects a margin or floor level of operating income on a portion of its NGL inventory and production, while retaining some ability to participate in a widening margin environment. For the longer-term, Provident uses crude oil contracts in place of NGLs. Provident may replace these positions with actual NGL positions as market conditions allow. This strategy enables Provident to mitigate commodity price risk related to its NGL production business up to approximately five years into the future.

b) Currency risk

Provident receives both Canadian and U.S. dollars for oil, natural gas and NGL sales, exposing it to both positive and negative effects of fluctuations in the exchange rate. Provident manages this exposure by matching a significant portion of the cash costs that it expects with revenues in the same currency. As well, Provident uses derivative instruments to manage the U.S. cash requirements of its U.S. and Canadian business lines.

Provident regularly sells or purchases forward a portion of expected U.S. cashflows. Provident's strategy also manages the exposure it has to fluctuations in the U.S./Canadian dollar exchange rate when the underlying commodity price is based upon a U.S. index price. Provident may also use derivative products that provide for insurance against a stronger Canadian dollar, while allowing it to participate if the currency weakens relative to the U.S. dollar.

c) Interest rate risk

The Trust's revolving term credit facilities bear interest at a floating rate. Using debt levels as at March 31, 2008, an increase/decrease of 50 basis points in the lender's base rate would result in an increase/decrease of annual interest expense of approximately $4.5 million.

Financial derivative sensitivity analysis

The following table shows the impact on unrealized (loss) gain on financial derivative instruments if the underlying risk variables of the financial derivative instruments changed by a specified amount, with other variables held constant.



(000's) + Change - Change
----------------------------------------------------------------------------
COGP
Crude Oil (WTI +/- $10.00 per bbl) $ (6,802) $ 6,967
Natural Gas (Aeco +/- $1.00 per gj) (3,807) 4,466
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Midstream
Crude Oil (WTI +/- $10.00 per bbl) (153,538) 152,606
Natural Gas (Aeco +/- $1.00 per gj) 84,448 (83,922)
NGL's (Belvieu +/- $0.15 per gal) 3,211 (3,120)
Foreign Exchange
($U.S. vs $Cdn) (FX rate +/- $ 0.01) (2,796) 2,834
----------------------------------------------------------------------------


Liquidity Risk

Liquidity risk is the risk the Trust will not be able to meet its financial obligations as they fall due. The Trust's approach to managing liquidity risk is to ensure that it always has sufficient cash and credit facilities to meet its obligations when due, without incurring unacceptable losses or damage to the Trust's reputation.

Management typically forecasts cash flows for a period of twelve months to identify financing requirements. These requirements are then addressed through a combination of committed and demand credit facilities and access to capital markets, as discussed in note 9.

The following table outlines the timing of the cash outflows relating to financial liabilities.



As at March 31, 2008 Payment due by period
----------------------------------------------------------------------------
Less than 1
($000s) Total year 1 to 3 years 4 to 5 years
----------------------------------------------------------------------------
Accounts payable
and accrued
liabilities $ 384,324 $ 384,324 $ - $ -
Cash distributions
payable 25,814 25,814 - -
Current portion of
convertible
debentures 19,382 19,382 - -
Financial derivative
instruments -
current 116,543 116,543 - -
Long-term debt -
revolving term
credit facilities (1) 889,867 - 889,867 -
Long-term debt -
convertible
debentures 257,560 - 24,566 232,994
Long-term financial
derivative
instruments 223,922 - 157,308 66,614
Other long-term
liabilities 2,610 - 2,610 -
----------------------------------------------------------------------------
Total $ 1,920,022 $ 546,063 $ 1,074,351 $ 299,608
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) The terms of the Canadian credit facility have a revolving three year
period expiring on May 30, 2010. Provident can extend the revolving
period by an additional year, no earlier than 90 days and no later than
30 days prior to the end of the first year of the applicable three year
revolving period. If the lenders do not extend the revolving period, or
Provident chooses not to extend, the credit facility will be terminated
and the loan balance will become due and payable in full on the
maturity date. Management intends to extend the revolving period beyond
the current maturity date.


Credit Risk

Provident's Credit Policy governs the activities undertaken to mitigate the risks associated with counterparty (customer) non-payment. The Policy requires a formal credit review for counterparties entering into a commodity contract with Provident. This review determines an approved credit limit. Activities undertaken include regular monitoring of counterparty exposures, an annual review of all active counterparties, utilizing master netting arrangements and obtaining financial assurances where warranted. Financial assurances include guarantees, letters of credit and cash. In addition, the policy sets criteria to ensure that Provident has a diversified base of creditors.

Substantially all of the Trust's accounts receivable are due from customers and joint venture partners in the oil and gas and midstream services and marketing industries and are subject to credit risk. The Trust partially mitigates associated credit risk by limiting transactions with certain counterparties to limits imposed by the Trust based on the Trust's assessment of the creditworthiness of such counterparties. The carrying value of accounts receivable reflects management's assessment of the associated credit risks. With respect to counterparties to financial instruments, the Trust partially mitigates associated credit risk by limiting transactions to counterparties with investment grade credit ratings.

9. Capital management

Provident considers its total capital to be comprised of net debt and Unitholders' Equity. Net debt is comprised of long-term debt and working capital deficit (surplus), excluding balances for the current portion of financial derivative instruments. The balance of these items at March 31, 2008 and December 31, 2007 was as follows:



As at As at
March 31, December 31,
----------------------------------------------------------------------------
($000s) 2008 2007
----------------------------------------------------------------------------
Working capital deficit (surplus) (1) $ 23,299 $ (58,732)
Long-term debt (including current portion) 1,166,809 1,199,634
----------------------------------------------------------------------------
Net debt 1,190,108 1,140,902
Unitholders' equity 1,677,855 1,708,665
----------------------------------------------------------------------------
Total capitalization $ 2,867,963 $ 2,849,567
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net debt to total capitalization (%) 41% 40%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The working capital deficit (surplus) excludes balances for the current
portion of financial derivative instruments.


The Trust monitors its debt to total capitalization ratio as it must be less than 55 percent according to certain financial covenants. The Trust's debt to total capitalization ratio remains within stated guidelines.

Provident's primary objective for managing capital is to maximize long-term Unitholder value by:

- providing an appropriate return to shareholders relative to the risk of Provident's underlying assets; and

- ensuring financing capacity for Provident's acquisitions of energy related assets that are expected to add value to our Unitholders.

Provident makes adjustments to its capital structure based on economic conditions and the Company's planned requirements. Provident has the ability to adjust its capital structure by issuing new equity or debt, controlling the amount it returns to unitholders, and making adjustments to its capital expenditure program. Provident relies on cash flow from operations, external lines of credit and access to equity markets to fund capital programs and acquisitions.

The Trust is subject to certain capital growth restrictions as a result of the Canadian trust tax legislation passed in June 2007 and effective January 1, 2011. The restrictions provide that "normal growth" would include equity growth within certain "safe harbour" limits, measured by reference to the Trust's market capitalization as of the end of trading on October 31, 2006. These rules limit the amount of Unitholders' capital that can be issued by the Trust in each of the next three years, as follows:



----------------------------------------------------------------------------
($ billions) Annual Cumulative
----------------------------------------------------------------------------
Normal growth capital allowed in:
2008 (1) 0.6 1.7
2009 0.6 2.3
2010 0.5 2.8
----------------------------------------------------------------------------
(1) The Trust's allowed growth capital prior to 2008 was approximately
$1.1 billion.


If the maximum equity growth allowed is exceeded, the Trust may be subject to trust taxation prior to 2011. In 2007, the Trust issued equity amounting to $496.3 million.

10. Discontinued operations (USOGP)

In February, 2008 the Trust announced a strategic process respecting the decision to dispose of the operations that comprise the United States oil and natural gas production (USOGP) business. Effective in the first quarter of 2008, Provident's USOGP business is accounted for as discontinued operations and comparative figures have been reclassified to conform with this presentation.

The following tables show the net assets of discontinued operations and information about net income (loss) from UGOSP.



As at As at
Balance sheets March 31, December 31,
Canadian dollars (000s) 2008 2007
----------------------------------------------------------------------------
Assets
Current assets $ 101,066 $ 93,578
----------------------------------------------------------------------------
Property, plant and equipment 2,115,331 2,008,549
Other long-term assets 22,484 19,055
----------------------------------------------------------------------------
2,137,815 2,027,604
----------------------------------------------------------------------------
$ 2,238,881 $ 2,121,182
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ 119,473 $ 77,244
Financial derivative instruments 84,053 37,437
----------------------------------------------------------------------------
203,526 114,681
----------------------------------------------------------------------------
Long-term debt - revolving term credit
facilities 344,866 368,836
Long-term financial derivative instruments 96,495 66,382
Asset retirement obligation and other
long-term liabilities 42,026 45,373
Future income taxes 143,917 147,911
----------------------------------------------------------------------------
627,304 628,502
----------------------------------------------------------------------------
Non-controlling interests 1,107,665 1,100,136
----------------------------------------------------------------------------
Net Assets - discontinued operations $ 300,386 $ 277,863
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Net income (loss) from discontinued Three months ended March 31,
operations
----------------------------------------------------------------------------
Canadian dollars (000's) 2008 2007
----------------------------------------------------------------------------
Revenue $ 137,406 $ 37,680
----------------------------------------------------------------------------
Loss from discontinued operations before
taxes and non-controlling interests (14,446) (11,839)
Income tax recovery (9,806) (4,108)
Non-controlling interests (13,149) (3,496)
----------------------------------------------------------------------------
Net income (loss) from discontinued
operations for the period $ 8,509 (4,235)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


11. Segmented information

The Trust's business activities are conducted through two business segments: Canadian oil and natural gas production and Midstream.

Oil and natural gas production includes exploitation, development and production of crude oil and natural gas reserves. Midstream includes fractionation, transportation, loading and storage of natural gas liquids, and marketing of crude oil and natural gas liquids.

Geographically the Trust operates in Canada in the oil and gas production business segment and in Canada and the USA in the Midstream business.



Three months ended March 31, 2008
--------------------------------------------
Canadian Oil
and Natural
Gas Production Midstream(1) Total
----------------------------------------------------------------------------

Revenue
Gross production revenue $ 154,386 $ - $ 154,386
Royalties (28,597) - (28,597)
Product sales and service revenue - 669,636 669,636
Realized loss on financial
derivative instruments (2,974) (27,963) (30,937)
----------------------------------------------------------------------------
122,815 641,673 764,488
----------------------------------------------------------------------------

Expenses
Cost of goods sold - 544,077 544,077
Production, operating and
maintenance 30,376 3,350 33,726
Transportation 3,644 4,883 8,527
Foreign exchange (gain)
loss and other 1,524 1,517 3,041
General and administrative 11,923 11,859 23,782
----------------------------------------------------------------------------
47,467 565,686 613,153
----------------------------------------------------------------------------

Earnings before interest, taxes,
depletion, depreciation,
accretion and other non-cash items 75,348 75,987 151,335
Other revenue
Unrealized (loss) gain on financial
derivative instruments (14,368) (47,905) (62,273)
----------------------------------------------------------------------------

Other expenses
Depletion, depreciation and
accretion 72,502 9,114 81,616
Interest on bank debt 3,249 9,746 12,995
Interest and accretion on
convertible debentures 915 2,745 3,660
Unrealized foreign exchange loss
(gain) and other 1 (4,313) (4,312)
Non-cash unit based compensation (1,745) (1,428) (3,173)
Internal management charge (347) - (347)
Capital tax expense 482 - 482
Current and withholding tax
(recovery) expense (113) 5,148 5,035
Future income tax (recovery) expense (23,555) (8,446) (32,001)
----------------------------------------------------------------------------
51,389 12,566 63,955
----------------------------------------------------------------------------
Net (loss) income for the period
from continuing operations $ 9,591 $ 15,516 $ 25,107
Income (loss) from discontinued
operations (note 10) 8,509
----------------------------------------------------------------------------
Net income for the period $ 33,616
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Included in the Midstream segment is product sales and service revenue
of $120.6 million associated with U.S. operations.


As at and for the three months ended March 31, 2008
-----------------------------------------------------
Canadian Oil
and Natural
Gas Production Midstream Total
----------------------------------------------------------------------------
Selected balance sheet items
Capital assets
Property, plant and
equipment net $ 1,794,069 $ 736,797 $2,530,866
Intangible assets - 168,428 168,428
Goodwill 416,890 100,409 517,299
Capital expenditures
Capital Expenditures 79,158 5,424 84,582
Oil and gas property acquisitions,
net 9,019 - 9,019
Working capital
Accounts receivable 101,270 222,388 323,658
Petroleum product inventory - 58,983 58,983
Accounts payable and accrued
liabilities 156,270 228,054 384,324
Long-term debt - revolving term
credit facilities 222,467 667,400 889,867
Long-term debt - convertible
debentures 64,390 193,170 257,560
Financial derivative instruments $ 27,162 $ 309,620 $ 336,782
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Three months ended March 31, 2007
-----------------------------------------------------
Canadian Oil
and Natural
Gas Production Midstream(1)(2) Total
----------------------------------------------------------------------------

Revenue
Gross production revenue $ 105,198 $ - $ 105,198
Royalties (19,685) - (19,685)
Product sales and service revenue - 455,361 455,361
Realized loss on financial
derivative instruments (845) (2,089) (2,934)
----------------------------------------------------------------------------
84,668 453,272 537,940
----------------------------------------------------------------------------

Expenses
Cost of goods sold - 385,089 385,089
Production, operating and maintenance 26,261 3,422 29,683
Transportation 1,709 4,940 6,649
Foreign exchange (gain) loss and other (295) - (295)
General and administrative 7,237 6,968 14,205
----------------------------------------------------------------------------
34,912 400,419 435,331
----------------------------------------------------------------------------

Earnings before interest, taxes,
depletion, depreciation, accretion
and other non-cash items 49,756 52,853 102,609
Other revenue
Unrealized (loss) gain on financial
derivative instruments (15,051) 35,918 20,867
----------------------------------------------------------------------------

Other expenses
Depletion, depreciation and accretion 55,298 11,158 66,456
Interest on bank debt 2,336 7,008 9,344
Interest and accretion on convertible
debentures 943 2,828 3,771
Unrealized foreign exchange loss
(gain) and other - 503 503
Non-cash unit based compensation 986 1,509 2,495
Internal management charge (404) - (404)
Capital tax expense 258 - 258
Current and withholding tax
(recovery) expense 35 4,523 4,558
Future income tax (recovery) expense (20,237) 9,404 (10,833)
----------------------------------------------------------------------------
39,215 36,933 76,148
----------------------------------------------------------------------------
Net (loss) income for the period from
continuing operations $ (4,510) $ 51,838 $ 47,328
Income (loss) from discontinued
operations (note 10) (4,235)
----------------------------------------------------------------------------
Net income for the period $ 43,093
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Included in the Midstream segment is product sales and service revenue
of $91.2 million associated with U.S. operations.
(2) Restated - see note 3.


As at and for the three months ended March 31, 2007
-----------------------------------------------------
Canadian Oil
and Natural
Gas Production Midstream(1) Total
----------------------------------------------------------------------------
Selected balance sheet items
Capital assets
Property, plant and
equipment net $ 1,204,537 $ 729,130 $ 1,933,667
Intangible assets - 188,028 188,028
Goodwill 330,944 100,409 431,353
Capital expenditures
Capital Expenditures 38,388 365 38,753
Oil and gas property acquisitions,
net 8,681 - 8,681
Working capital
Accounts receivable 73,792 182,153 255,945
Petroleum product inventory - 61,008 61,008
Accounts payable and accrued
liabilities 110,890 179,352 290,242
Long-term debt - revolving term
credit facilities 157,099 471,296 628,395
Long-term debt - convertible
debentures 69,386 208,158 277,544
Financial derivative instruments $ 5,192 $ 32,877 $ 38,069
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Restated - see note 3.


Contact Information

  • Provident Energy Trust
    Investor and Media Contact:
    Dallas McConnell
    Manager, Investor Relations
    Phone: (403) 231-6710
    Email: info@providentenergy.com
    or
    Corporate Head Office:
    2100, 250 - 2nd Street S.W.
    Calgary, Alberta T2P 0C1
    (403) 296-2233 or Toll Free: 1-800-587-6299
    (403) 262-8773 (FAX)
    Website: www.providentenergy.com