TKE Energy Trust
TSX : TKE.UN

TKE Energy Trust
True Energy Trust
TSX : TUI.UN

True Energy Trust

November 10, 2005 19:27 ET

TKE Energy Trust Announces Third Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 10, 2005) - TKE Energy Trust (TSX:TKE.UN) ("TKE" or the "Trust") is pleased to provide information with respect to operating and financial results for the period ended September 30, 2005. The complete text of the quarterly report, including the MD&A and consolidated financial statements, has been filed on SEDAR and may be viewed either on that site (www.sedar.com) or on the Trust's website at www.tketrust.com.

CORPORATE PROFILE

TKE Energy Trust commenced business on November 2, 2004 upon the re-organization of TUSK Energy Inc. by way of Plan of Arrangement. The re-organization has been accounted for using the continuity of interest method. Accordingly, all financial and operating information has been reported as if TKE Energy Trust had always carried on the business of TUSK Energy Inc.

On November 2, 2005 the units of TKE Energy Trust were consolidated, the name was changed to True Energy Trust and the Trust acquired all of the outstanding common shares of True Energy Inc.

True is committed to delivering consistent distributions to the holders of its units. The distribution level of TKE Energy Trust was initially set at $0.12 per unit and on November 15th the eleventh consecutive monthly distribution of $0.12 per unit ($0.24 per post consolidation unit) will be made to holders of TKE Energy Trust units as of the end of October (prior to the closing of the Plan of Arrangement). The first monthly distribution by True Energy Trust will be made in mid-December to all holders of record as of the end of November.

MESSAGE TO UNITHOLDERS

On August 23, 2005 TKE Energy Trust and True Energy Inc. ("True") announced that they had entered into an agreement to combine and re-organize through a Plan of Arrangement (the "Arrangement") under which TKE would acquire all of the common shares of True in exchange for trust units of TKE. It was agreed that, coincident with the Arrangement, TKE would change its name and consolidate its units on the basis of 2 old units for 1 new unit of True Energy Trust.

On November 1, 2005 the unitholders of TKE Energy Trust approved the consolidation and name change.

On November 2, 2005, exactly one year after TKE Energy Trust was initially formed, the Arrangement was finalized. Units of TKE traded for the last time on Friday, November 4th and trading in the units of True Energy Trust began trading on the Toronto Stock Exchange under the symbol TUI.UN on Monday, November 7th.

We thank the retiring directors of TKE Energy Trust, (C. Alexander Squires, Brian W. Mainwaring, Michael A. McVea, Jeffrey W.C. Arsenych) for their guidance and counsel. Coincident with the closing of the Arrangement the board of directors and management was changed. The Board of Directors of True Energy Trust now consists of Paul R. Baay, W.C. (Mickey) Dunn, John H. Cuthbertson, Raymond G. Smith and H. Garth Wiggins. Norman W. Holton and Murray B. Todd are continuing as directors. The post plan of arrangement executive team is led by Paul R. Baay as President and Chief Executive Officer, Clinton T. Broughton as Executive Vice President, Joan E. Dunne as Vice President, Finance and Chief Executive Officer, Wayne B. Jessee as Vice President and Chief Operating Officer, Ian C. Ross as Vice President, Land and Case Caulfield as Vice President, Exploration.

True Energy Trust combines the long life reserves and gas-weighted portfolio of TKE Energy Trust with the larger production base and abundant drilling locations of True Energy Inc. Together, as True Energy Trust, production exceeds 12,000 boepd with 339,000 net acres of undeveloped lands and a drilling inventory of more than 150 locations.

Production is 65% natural gas and the Trust is totally un-hedged as of the date of this report. The Trust has substantial financial flexibility with a line of credit is set at $125 million and current net debt estimated at about $70 million.

Please visit the True Energy Inc. website at www.trueenergy.ab.ca on Monday, November 14, 2005 to view our updated presentation for details of anticipated 2006 operations for the Trust.

We look forward to continued strong financial results as a combined entity and intend to exploit our strong financial position to provide investment opportunity and sustainable distributions to all of our unit holders.

MANAGEMENT'S FINANCIAL DISCUSSION & ANALYSIS

The following analysis and discussion is provided by the management of TKE Energy Trust ("TKE" or the "Trust") and should be read in conjunction with the un-audited consolidated interim financial statements for the nine and three months ended September 30, 2005 and 2004 and the audited consolidated financial statements for the year ended December 31, 2004. This commentary is based on information available to, and is dated, November 9, 2005.

Basis of Presentation - The financial data presented below has been prepared in accordance with Canadian generally accepted accounting principles. The reporting and the measurement currency is the Canadian dollar.

Non-GAAP Measurements - The Management's Discussion and Analysis contains the term cash flow from operations, which should not be considered an alternative to, or more meaningful than cash flow from operating activities as determined in accordance with Canadian generally accepted accounting principles as an indicator of the Trust's performance. The Trust's determination of cash flow from operations may not be comparable to that reported by other companies. The reconciliation between net earnings and cash flow from operations can be found in the consolidated statements of cash flows in the unaudited interim consolidated financial statements and the audited consolidated financial statements. The Trust also presents cash flow from operations per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of earnings per share.

Barrels of Oil Equivalent - BOE may be misleading, particularly if used in isolation. The BOE conversion ratio for natural gas used in this report is derived by converting natural gas to BOE in the ratio of six Mcf to one barrel of oil equivalent. This ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The conversion ratio is an industry accepted norm and is not based on either energy content or current prices.

TKE Energy Trust commenced business on November 2, 2004 upon the reorganization of TUSK Energy Inc. pursuant to a Plan of Arrangement. For purposes of financial reporting, the conversion is accounted for as a continuity of interest. Accordingly, the "comparative" figures shown are the results of operations and cash flow applicable to TUSK Energy Inc. and its subsidiaries for the 9 and 3 months ended September 30, 2004. The Plan of Arrangement allocated a portion of the production of TUSK Energy Inc. to an ExploreCo (TUSK Energy Corporation) and, as a consequence, certain of the information included for prior periods is not directly comparable.



SUMMARY INFORMATION PER BOE

September 30, 2005 September 30, 2004
9 Months 3 Months 9 Months 3 Months
----------------------------------------------------
($) ($) ($) ($)

Gross Revenue 47.83 54.22 39.98 40.95
Royalties, Net of ARTC 9.57 9.89 9.19 10.96
----------------------------------------------------

Net Revenue 38.26 44.33 30.79 29.99
Operating Expense 12.06 13.30 6.72 8.07
----------------------------------------------------

Net Operating Revenue 26.20 31.03 24.07 21.92

General & Administrative 1.36 1.32 1.34 1.42
Interest Expense 1.08 1.06 1.05 0.98
Capital Taxes 0.10 0.12 0.11 (0.09)
----------------------------------------------------

Cash Flow Per BOE 23.66 28.53 21.57 19.61
----------------------------------------------------
----------------------------------------------------


Oil and Gas Revenues

Oil and gas revenue, before royalties, for the nine month period ended September 30, 2005 was $47,253,808 compared to $59,965,036 for the nine month period ended September 30, 2004. This was due to a decrease in boe production, primarily due to the expected production declines at the Shane property, from 1,499,989 boe for the nine months ended September 30, 2004 to 987,902 boe for the nine months ended September 30, 2005, offset by an increase of $11.67 per barrel in the average oil price and by a $0.73 per mcf increase in the average price of natural gas.

For the three months ended September 30, 2005, oil and gas revenues, before royalties, were $17,170,864 compared to $20,239,674 for the three months ended September 30, 2004. Lower BOE production was offset by oil prices which were $14.48 per barrel higher and gas prices of $1.72 per MCF higher than the comparable period during the prior year.



September 30, 2005 September 30, 2004
9 Months 3 Months 9 Months 3 Months
----------------------------------------------------

Oil and Gas Revenues,
Before Royalties $47,253,808 $17,170,864 $59,965,036 $20,239,674
Oil Production (bbls) 267,111 90,680 313,193 101,478
Oil Price ($/bbl) $ 56.44 $ 63.78 $ 44.77 $ 49.30
NGL Production (bbls) 51,848 15,978 130,555 40,983
NGL Price ($/bbl) $ 47.91 $ 51.88 $ 35.08 $ 39.74
Gas Production (MMcf) 4,014 1,260 6,337 2,111
Gas Price ($/Mcf) $ 7.40 $ 8.38 $ 6.67 $ 6.66
BOE Production 987,902 316,704 1,499,989 494,254
BOE per Day 3,619 3,442 5,494 5,372


Royalties

Total royalties, net of ARTC, were $9,453,535 ($9.57 per BOE) for the nine month period ended September 30, 2005 compared to $13,787,088 ($9.19 per BOE) for the same period ended September 30, 2004. Net royalties represented 20% of gross revenues in 2005 compared to 23% in 2004. Royalties on gas revenues from the Shane property in 2004 were higher due to the high gas production rates. For the three months ended September 30, 2005 total royalties, net of ARTC, were $3,132,810 ($9.89 per BOE) compared to $5,418,930 ($10.96 per BOE) for the same period in 2004.



September 30, 2005 September 30, 2004
9 Months 3 Months 9 Months 3 Months
----------------------------------------------------

Crown Royalties 3,962,140 999,048 8,055,838 2,859,219
Indian Oil & Gas
Canada Royalties 3,717,480 1,495,923 3,549,215 1,210,994
Freehold Royalties 1,031,118 468,280 906,092 357,763
Saskatchewan
Production Tax 361,651 79,273 466,282 157,517
Gross Overriding
Royalties 881,146 90,286 1,383,556 917,738
----------------------------------------------------

9,953,535 3,132,810 14,360,983 5,503,231

Alberta Royalty
Tax Credit (500,000) - (573,895) (84,301)
----------------------------------------------------

Net Royalties 9,453,535 3,132,810 13,787,088 5,418,930
----------------------------------------------------
----------------------------------------------------

Net Royalties
per BOE (6:1) 9.57 9.89 9.19 10.96
----------------------------------------------------
----------------------------------------------------


Operating Expenses

Operating expenses for the nine months ended September 30, 2005 were $11,913,178 ($12.06 per BOE) compared to $10,086,396 ($6.72 per BOE) in the same period in 2004. For the three months ended September 30, 2005, operating costs were $4,213,043 ($13.30 per BOE) (2004 - $3,990,855 - $8.07 BOE). Operating costs increased on a BOE basis due to a general increase in the costs of services, remedial work to bring certain of the acquired properties up to current regulatory requirements, processing and transportation costs for the first half of 2004 which were not billed until 2005 and, the use of rental equipment and single well batteries at the Gage property.

Depletion, Depreciation and Amortization (DD&A)

Depletion and depreciation was $17,114,686 for the nine month period ended September 30, 2005, which represents a provision of $17.32 per BOE of production. For the period ended September 30, 2004, the Trust recorded a DD&A provision of $22,766,171 ($15.18 per BOE). For the three month period ended September 30, 2005, the Trust recorded a DD&A provision of $5,682,716 ($17.94 per BOE) (2004 - $7,873,346 - $15.93 per BOE). The increase in DD&A is due to the very active drilling and development capital program in the fall of 2004 and 2005 to date.

General and Administrative

Gross general and administrative costs for the nine months ended September 30, 2005 have increased from $3,759,284 in 2004 to $4,394,599 in 2005 mainly due to the hiring of additional personnel and increases in most G&A expense categories with increased activity. For the three months ended September 30, 2005 gross general and administrative costs were $1,341,089 compared to $1,262,871 for the same period in 2004. Overhead recoveries were higher mainly due to recoveries from TUSK Energy Corporation, as part of the Technical Services Agreement ($1,456,000 for nine months ended September 30, 2005 and $419,000 for three months ended September 30, 2005).



September 30, 2005 September 30, 2004
9 Months 3 Months 9 Months 3 Months
----------------------------------------------------

Gross General and
Administrative 4,394,599 1,341,089 3,759,284 1,262,871
Acquisition,
Exploration &
Development Costs
Capitalized (790,225) (267,937) (1,131,475) (407,000)
Overhead Recoveries (2,262,877) (665,437) (622,371) (155,011)
----------------------------------------------------

Net General and
Administrative 1,341,497 417,715 2,005,438 699,985
----------------------------------------------------
----------------------------------------------------

Per BOE 1.36 1.32 1.34 1.42
----------------------------------------------------
----------------------------------------------------


Equity

In March, 2005, the Trust closed a financing of 2,900,000 trust units for gross proceeds of $31,755,000. As of September 30, 2005 there were 19,794,076 trust units and 895,097 exchangeable shares issued and outstanding. At November 2, 2005, immediately prior to the effective time of the plan of arrangement with True Energy Inc., there were 20,708,128 units, including 855,750 trust units issued on the exercise of unit incentive rights, and 843,304 exchangeable shares issued and outstanding which were convertible into 949,662 trust units.

Capital Expenditures

Capital additions, excluding acquisitions and divestitures, for the period ended September 30, 2005 were $25,735,248 compared to $26,763,674 for the same period ended in 2004. For the three months ended September 30, 2005 capital additions, excluding acquisitions and divestitures were $9,701,481 compared to $8,443,190 in 2004.



September 30, 2005 September 30, 2004
9 Months 3 Months 9 Months 3 Months
----------------------------------------------------

Land 1,454,905 461,172 3,765,885 1,583,713
Seismic & Exploration 1,166,485 549,910 2,427,405 587,944
Drilling & Completion 16,258,001 6,730,206 16,877,472 5,082,621
Facilities 6,790,330 1,957,737 3,646,200 1,182,824
Corporate 65,527 2,456 46,742 6,088
----------------------------------------------------

Total 25,735,248 9,701,481 26,763,674 8,443,190
----------------------------------------------------
----------------------------------------------------


Cash Distributions

Management monitors the Trust's distribution payout policy with respect to forecasted net cash flow, debt levels and capital expenditures. Exchangeable shares are convertible into trust units of the Trust based on the exchange ratio, which is adjusted monthly to reflect that distributions are not paid on the exchangeable shares and cash flow related to the exchangeable shares is retained by the Trust for additional capital expenditures or debt repayment. The key drivers of TKE's cash flow, as is generally the case with other energy trusts, are commodity prices and production. Since the Trust's production is weighted to natural gas (68 percent in the nine months ended September 30, 2005), natural gas prices have a significant effect on its cash flow.

TKE's monthly cash distribution has been $0.12 per trust unit for the months of December, 2004 to October, 2005.

Liquidity and Capital Resources

TKE had a working capital deficiency, before bank indebtedness, of $5,258,367 at September 30, 2005.

The Trust has a financing arrangement with two Canadian financial institutions whereby the Company was provided a $43.0 million revolving production loan of which $31.0 million was drawn as at September 30, 2005, leaving $12 million un-drawn at September 30, 2005.

On an ongoing basis TKE will typically utilize three sources of funding to finance its capital expenditure program and distributions: (i) internally generated cash flow from operations; (ii) debt where deemed appropriate: and (iii) new equity issues if available on favourable terms. When financing corporate acquisitions, TKE may also assume certain future liabilities. Commodity prices and production volumes have the largest impact on TKE's ability to generate adequate cash flow to meet all its obligations. A prolonged decrease in commodity prices would negatively affect TKE's cash flow from operations and would also likely result in a reduction in the amount of bank loan available. If TKE's capital expenditure program does not result in sufficient additional reserves and/or production it would likely have a negative impact on TKE's liquidity.

TKE may adjust its capital expenditure program depending on the commodity price outlook. TKE believes that internally generated cash flow and incremental bank debt should be sufficient to finance current operations and planned capital spending in the next year.

Business Risks

The marketability and price of products owned or that may be acquired or discovered by TKE will be affected by numerous factors beyond the Trust's control. TKE must compete in all aspects of its operations with a number of other corporations that have equal or greater technical or financial resources. The ability of the Trust to market its natural gas may depend on its ability to acquire space in pipelines that deliver natural gas to commercial markets. The Trust is also subject to market fluctuations in the prices of products, exchange rates, uncertainties related to the proximity of its reserves to pipelines and processing facilities and extensive government regulation.

Costless Collars & Puts

The Trust entered into several short term arrangements impacting the selling price of part of its oil and natural gas production applicable to the 2005 fiscal period. These agreements included both costless collars and floor price arrangements. The Trust realized a net loss of $2,634,938 (compared to a net loss of $668,944 in 2004) on its oil and natural gas risk management program for the nine months ended September 30, 2005. For the three months ended September 30, 2005 the Trust realized a net loss of $1,974,518 (2004 - a loss of $10,421). Additional information with respect to these arrangements is included in Note 6 to the September 30, 2005 Financial Statements.

Subsequent Event

At a special meeting held November 1, 2005, shareholders of True Energy Inc. ("True") voted 93% in favour of a Plan of Arrangement ("the 2005 Arrangement") to effect a business combination of True Energy Inc. and TKE. Under the 2005Arrangement, TKE acquired all of the common shares of True in exchange for, among other consideration, trust units of TKE, on the basis of 0.50 of on pre-consolidated TKE trust unit (0.25 of one post-consolidated trust unit) for each True common share. At a special meeting held November 1, 2005, unit holders of TKE voted 98% in favour of changing the name of TKE to True Energy Trust and consolidating the trust units on a 2 for 1 basis. The name change and consolidation became effective on November 2, 2005. The business combination will be accounting for using the purchase method whereby True will acquire TKE.



Quarterly Data

The following tables set forth selected quarterly financial information
for the last eight financial quarters.

Third Second First Fourth
Quarter Quarter Quarter Quarter
2005 2005 2005 2004
------------------------------------------------
Production per Day
Oil and NGLs (bbls) 1,159 1,057 1,290 1,372
Natural Gas (Mcf) 13,699 14,901 15,528 18,929
Boe 3,442 3,541 3,878 4,527
Netback per boe ($) 28.53 23.74 20.92 19.33
Petroleum and natural
gas sales, net ($) 14,038,054 11,532,157 12,230,062 11,834,805
Funds from operations
($) 9,031,666 7,053,474 7,303,069 7,125,221
Per Unit (basic) ($) 0.46 0.36 0.44 0.39
Per Unit (diluted) ($) 0.43 0.36 0.41 0.39
Net income (loss) 3,703,171 1,120,663 2,669,027 (237,413)
Per Unit (basic) ($) 0.19 0.06 0.16 (0.03)
Per Unit (diluted) ($) 0.18 0.05 0.15 (0.03)


Third Second First Fourth
Quarter Quarter Quarter Quarter
2004 2004 2004 2003
------------------------------------------------
Production per Day
Oil and NGLs (bbls) 1,548 1,560 1,770 1,872
Natural Gas (Mcf) 22,943 23,650 23,056 23,416
Boe 5,372 5,502 5,612 5,775
Netback per boe ($) 19.61 22.76 22.30 16.68
Petroleum and natural
gas sales, net ($) 14,820,744 15,693,678 15,393,526 13,637,220
Funds from operations
($) 9,690,236 11,393,689 11,262,417 8,860,103
Per Unit (basic) ($) 0.60 0.70 0.70 0.48
Per Unit (fully diluted)
($) 0.58 0.68 0.68 0.46
Net income 835,164 2,329,955 2,575,817 (1,086,997)
Per Unit (basic) ($) 0.06 0.14 0.16 (0.24)
Per Unit (fully diluted)
($) 0.06 0.14 0.16 (0.14)



TKE Energy Trust
Consolidated Balance Sheets

ASSETS
(Unaudited)
September 30 December 31
2005 2004
------------- ------------
(Restated - Note 2)
($) ($)
Current Assets
Cash 25,976 33,226
Accounts Receivable 7,938,207 11,147,688
Prepaid Expenses 1,122,185 1,994,287
------------- ------------

9,086,368 13,175,201

Property, Plant and Equipment 160,724,951 143,844,993

Goodwill 11,160,724 11,160,724
------------- ------------

180,972,043 168,180,918
------------- ------------
------------- ------------


LIABILITIES AND UNITHOLDERS' EQUITY

Current Liabilities
Accounts Payable 11,898,042 21,392,456
Bank Indebtedness 31,008,000 33,670,000
Distributions Payable 2,255,124 1,880,307
Current Portion of
Obligations Under
Capital Lease 191,569 210,487
------------- ------------

45,352,735 57,153,250
------------- ------------

Obligations Under Capital Lease 167,529 310,212
------------- ------------

Asset Retirement Obligations
(Note 3) 4,698,058 4,272,103
------------- ------------

Non-Controlling Interest
Exchangeable Shares (Note 4) 3,403,100 6,156,712
------------- ------------

Future Income Taxes 37,167,480 39,120,480
------------- ------------

Unitholders' Equity
Unitholders Capital (Note 5) 98,217,587 59,536,353
Contributed Surplus 3,506,166 233,204
Accumulated Earnings 10,809,152 3,316,291
Accumulated Distributions (22,349,764) (1,917,687)
------------- ------------

90,183,141 61,168,161
------------- ------------

180,972,043 168,180,918
------------- ------------
------------- ------------

See Accompanying Notes



TKE ENERGY TRUST
Consolidated Statements of Earnings and Accumulated Earnings
For the Nine Months and Three Months Ended September 30, 2005 and 2004
(unaudited)

September 30, 2005 September 30, 2004
9 Months 3 Months 9 Months 3 Months
---------------------- -----------------------
($) ($) ($) ($)

Revenue
Oil and Gas Revenues,
Net 47,253,808 17,170,864 59,965,036 20,239,674
Royalties, Net of
Alberta Royalty Tax
Credit 9,453,535 3,132,810 13,787,088 5,418,930
---------------------- -----------------------

37,800,273 14,038,054 46,177,948 14,820,744
---------------------- -----------------------
Expenses
Oil and Gas
Operating 11,913,178 4,213,043 10,086,396 3,990,855
Interest on Bank
Indebtedness 1,062,337 336,666 1,579,928 482,220
General and
Administrative 1,341,497 417,715 2,005,438 699,985
Unit-Based
Compensation 3,272,962 497,752 749,318 251,659
Depreciation and
Depletion 17,114,686 5,682,716 22,766,171 7,873,346
Accretion 367,700 123,027 311,917 140,067
---------------------- -----------------------

35,072,360 11,270,919 37,499,168 13,438,132
---------------------- -----------------------

Net Income for the
Period Before Income
Taxes And
Non-Controlling
Interest 2,727,913 2,767,135 8,678,780 1,382,612
---------------------- -----------------------

Income Taxes
Capital 95,052 38,964 159,844 (42,552)
Future (Reduction) (5,000,000) (1,100,000) 2,778,000 590,000
---------------------- -----------------------

(4,904,948) (1,061,036) 2,937,844 547,448
---------------------- -----------------------
Net Income For The
Period before
Non-Controlling
Interest 7,632,861 3,828,171 5,740,936 835,164

Non-Controlling
Interest - Exchangeable
Shares 140,000 125,000 - -
---------------------- -----------------------

Net Income for the
Period 7,492,861 3,703,171 5,740,936 835,164
---------------------- -----------------------

Accumulated Earnings,
Beginning of Period
as Previously Reported 3,293,291 7,105,981 14,506,038 19,176,785

Non-Controlling
Interest - Retroactive
Adoption (Note 2) 23,000 - - -

Unit-Based Compensation-
Retroactive Adoption - - (616,000) -

Asset Retirement
Obligations -
Retroactive Adoption - - 419,475 -
---------------------- -----------------------

Accumulated Earnings,
Beginning of Period
as Restated 3,316,291 7,105,981 14,309,513 19,176,785
---------------------- -----------------------

Adjustment for Share
Redemption - - (38,500) -
---------------------- -----------------------

Accumulated Earnings,
End of Period 10,809,152 10,809,152 20,011,949 20,011,949
---------------------- -----------------------
---------------------- -----------------------

Net Income per Unit
Basic 0.40 0.19 0.36 0.06
---------------------- -----------------------
---------------------- -----------------------
Diluted 0.38 0.18 0.34 0.06
---------------------- -----------------------
---------------------- -----------------------



TKE ENERGY TRUST
Consolidated Statements of Cash Flows
For the Nine Months and Three Months Ended September 30, 2005 and 2004
(unaudited)

September 30, 2005 September 30, 2004
9 Months 3 Months 9 Months 3 Months
---------------------- -----------------------
($) ($) ($) ($)

Operating Activities

Operating Activities:
Net Income 7,492,861 3,703,171 5,740,936 835,164

Items not Requiring
Cash:

Non-Controlling
Interest - Exchangeable
Shares 140,000 125,000 - -
Unit Based
Compensation 3,272,962 497,752 749,318 251,659
Depreciation,
Depletion and
Accretion 17,482,386 5,805,743 23,078,088 8,013,413
Future Income Taxes
(Reduction) (5,000,000) (1,100,000) 2,778,000 590,000
---------------------- -----------------------

Funds from Operations 23,388,209 9,031,666 32,346,342 9,690,236

Change in Non-cash
Working Capital (316,184) 2,453,078 2,823,288 4,362,592
---------------------- -----------------------

Cash Provided by
Operating Activities 23,072,025 11,484,744 35,169,630 14,052,828
---------------------- -----------------------

Financing Activities

Distributions (20,057,261) (7,182,312) - -
Issue of Units 32,674,154 354,843 256,300 207,800
Unit Issue Costs (1,938,531) (152,498) (40,882) (10,003)
Repurchase of
Common Shares - - (107,160) -
Bank Indebtedness (2,662,000) 8,000,000 (5,300,000) (4,800,000)
Obligations Under
Capital Lease (161,601) (46,612) (487,601) (165,220)
Change in Non-cash
Working Capital - (861,228) - -
---------------------- -----------------------

7,854,761 112,193 (5,679,343) (4,767,423)
---------------------- -----------------------

Investing Activities

Investment - - 31,907 262
Property, Plant and
Equipment (25,735,248) (9,701,481) (26,763,674) (8,443,190)
Change in non-cash
working capital (5,198,788) (1,895,480) (2,770,209) (800,572)
---------------------- -----------------------

30,934,036)(11,596,961) (29,501,976) (9,243,500)
---------------------- -----------------------

Increase (Decrease)
in Cash During the
Period (7,250) (24) (11,689) 41,905

Cash: Beginning of
Period 33,226 26,000 84,249 32,655
---------------------- -----------------------

Cash: End of Period 25,976 25,976 72,560 72,560
---------------------- -----------------------
---------------------- -----------------------

Interest Paid 1,037,544 225,736 1,567,457 477,820
---------------------- -----------------------
---------------------- -----------------------

Taxes Paid 72,052 93,964 450,648 100,029
---------------------- -----------------------
---------------------- -----------------------


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

TKE Energy Trust ("TKE" or the "Trust") is an open-ended, unincorporated investment trust governed by the laws of the province of Alberta. The Trust was established as part of a Plan of Arrangement (the "2004 Arrangement") that became effective on November 2, 2004.

The reorganization resulted in the shareholders of TUSK Energy Inc. receiving trust units or exchangeable shares in the Trust, a new energy trust that owns approximately 95 percent of the assets formerly held by TUSK Energy Inc. In addition, the shareholders of TUSK Energy Inc. received shares in a separate, publicly-listed, exploration-focused company TUSK Energy Corporation ("TUSKEx"). The remaining 5 percent of the assets of TUSK Energy Inc. were transferred to TUSKEx.

Pursuant to the 2004 Arrangement, shareholders of TUSK Energy Inc. received shares of TUSKEx and at their election, either units of the Trust, which pay monthly cash distributions or exchangeable shares of a subsidiary of the Trust which may be exchanged into units of the Trust. The 2004 Arrangement resulted in TUSK Energy Inc. shareholders receiving one trust unit or exchangeable share of the Trust and one of a share in TUSKEx for every two shares of TUSK Energy Inc.

The conversion of TUSK Energy Inc. to a Trust has been accounted for as a continuity of interest. The comparative figures are the results of TUSK Energy Inc. and its subsidiaries. Due to the conversion into an energy trust, certain information included in the financial statements for prior periods may not be directly comparable.

The term "units" has been used to identify both the Trust units and exchangeable shares of the Trust issued on or after November 2, 2004 as well as the common shares of TUSK Energy Inc. outstanding prior to the conversion on November 2, 2004.

Relationship with TUSK Energy Corporation

In conjunction with the 2004 Arrangement, TUSKEx and TKE entered into a Technical Services Agreement which provides for the shared services required to manage TUSKEx's activities and govern the allocation of general and administrative expenses between the entities. Under the Technical Services Agreement, TUSKEx is charged a technical services fee by TKE, on a cost recovery basis, in respect of management, development, exploitation, operations and marketing activities on the basis of relative production and capital expenditures. For the nine month period ended September 30, 2005 the technical services fee was $1,456,000 ($419,000 for the three months ended September 30, 2005). The Technical Services Agreement has no set termination date and will continue until terminated by either party with six months prior written notice to the other party or at some other date as may be mutually agreed. As part of the plan of arrangement with True Energy Inc., the Technical Services Agreement was terminated November 2, 2005 (See Note 8).

As a result of the 2004 Arrangement, TUSKEx and TKE have joint interest in certain properties and undeveloped land. These joint interest properties are governed by standard industry agreements.

As at September 30, 2005, accounts receivable and accounts payable included $2.2 million due to TUSKEx, which includes standard joint venture amounts, including revenue.

1. Significant Accounting Policies

The interim consolidated financial statements of the Trust have been prepared following the same accounting policies and methods of computation as the consolidated financial statements of the Trust as at December 31, 2004 other than described in Note 2. The disclosures included below are incremental to those included with the annual consolidated financial statements. The interim consolidated financial statements should be read in conjunction with the Trust(s consolidated financial statements and notes thereto for the year ended December 31, 2004.

2. Change in Accounting Policy

Exchangeable Securities - Non-Controlling Interest

On March 8, 2005 the accounting abstract "Exchangeable Securities Issued by Subsidiaries of Income Trusts" was amended effective for financial statements issued on or after June 30, 2005. Under the amended abstract, exchangeables share are presented as equity of the Trust only if the exchangeable shares are entitled to receive distributions of earnings economically equivalent to distributions received by units of the trust and the holders of exchangeable shares can only dispose of them by exchanging them for trust units. The exchangeable shares of the Trust's subsidiary can be traded privately, thereby allowing holders of the exchangeable shares to dispose of them without having to exchange them for trust units and consequently, they must be classified as non-controlling interest outside of Unitholders' Equity.

In accordance with the transitional provisions of the abstract, the Trust has retroactively restated prior periods dating back to the Arrangement dated November 2, 2004. As a result of this change in accounting policy, the Trust has reflected a non-controlling interest on the consolidated balance sheet of $3,400,100 as at September 30, 2005 and $6,156,712 as at December 31, 2004. Each redemption of exchangeable shares held by previous TUSK Energy Inc. shareholders are accounted for as a step-purchase, which for the nine months ended September 30, 2005 and the year ended December 31, 2004 resulted in an increase in property, plant and equipment of $8,099,000 and $1,146,000 respectively, and increase of unitholders' capital of $5,052,000 and $700,500 respectively and an increase in future income tax liability of $3,047,000 and $445,500 respectively. Cash flow was not impacted by this change. The change in accounting policy had no impact to the consolidated net exchangeable shares were issued subsequent to those periods.



3. Asset Retirement Obligations

A reconciliation of the asset retirement obligations is provided below:

Nine Months Ended
September 30, September 30,
2005 2004
------------------------------------------------------------------------
Asset retirement obligations
Balance, beginning of period 4,272,103 3,446,000
Liabilities, incurred in period 58,256 409,420
Accretion expense 367,699 311,917
------------------------------------------------------------------------

Balance, end of period 4,698,058 4,167,337
------------------------------------------------------------------------
------------------------------------------------------------------------


4. Non-Controlling Interest - Exchangeable Shares

The Trust retroactively applied the amended accounting abstract "Exchangeable Securities issued by a Subsidiary of an Income Trust" whereby the exchangeable shares issued by the Trust's subsidiary must be reflected as non-controlling interest on the consolidated balance sheet and in turn, net earnings must be reduced by the amount of net earnings attributed to the non-controlling interest.

The non-controlling interest on the consolidated balance sheet consists of the book value of exchangeable shares issued to TUSK Energy Inc. shareholders at the time of the Plan of Arrangement, plus net earnings attributable to the exchangeable shares, less exchangeable shares (and related cumulative earnings) redeemed. The non-controlling interest charge on the consolidated statement of earnings represents the share of net earnings attributable to the exchangeable shares based on the trust units issuable for exchangeable shares in proportion to total trust units issued and issuable each period end.



The activity for non-controlling interest for the nine months ended
September 30, 2005 is as follows:

Nine Months Ended September 30
2005 2004
--------------------------------------------
Number Amount Number Amount
--------------------------------------------

Balance, beginning
of period 1,679,647 6,156,712 - -
Exchanged for trust units (784,550) (2,893,612) - -
Non-controlling interest
expense - 140,000 - -
--------------------------------------------

Balance, end of period 895,097 3,403,100 - -
--------------------------------------------
--------------------------------------------

5. Unitholders' Capital

a) Trust Units of TKE Energy Trust

September 30, 2005 September 30, 2004
Number Amount Number Amount
--------------------------------------------

Trust Units
Balance Beginning of Period 15,984,926 59,536,353 - -
Issued for Cash 2,995,885 32,674,154 - -
Exchangeable Shares
Converted 813,265 7,945,612 - -
--------------------------------------------

Balance, end of Period 19,794,076 100,156,119 - -

Less: Unit Issue Expenses
Net of Tax Effect of $775,000 - 1,938,532 - -
--------------------------------------------

19,794,076 98,217,587 - -
--------------------------------------------
--------------------------------------------


b) Per Unit Amounts

Per unit amounts have been calculated on the weighted average number of units outstanding. The weighted average units outstanding for the nine months ended September 30, 2005 was 18,639,817 (2004 - 16,255,967) (three months ended September 30, 2005 - 19,749,359 & September 30, 2004 - 16,337,303). In computing diluted earnings per unit, nil units were added to the weighted average number of units outstanding during the nine months ended September 30, 2005 (2004 - 835,188) (three months ended September 30, 2005 - 83,884 units, 2004 - 614,769) for the diluted effect of Trust Unit Incentive Rights and 1,179,385 (three months ended September 30, 2005 - 1,009,405) units that would be issued on the conversion of the exchangeable shares outstanding at September 30, 2005.

c) Unit-Based Compensation

The fair values of all incentive rights granted are estimated on the date of grant using the Black-Scholes option-pricing model. The weighted fair market value of incentive rights granted during the period ended September 30, 2005 and the assumptions used in their determination are as noted below:



Period Ended
September 30, 2005
--------------------

Weighted Fair Market Value per Right 1.97
Average Risk-Free Interest Rate (percent) 2.48
Average Volatility (percent) 21
Expected Life (years) 5

d) Unit Incentive Rights

A summary of the status of the Company's Unit Incentive Rights plan as
of September 30, 2005 and changes during period than ended is presented
below:

2005

Weighted
Unit Average
Incentive Exercise
Rights Price ($)
---------------------

Outstanding at Beginning of Year 1,766,000 9.51
Granted 45,000 9.89
Exercised - -
Expired/Cancelled (10,000) 9.17
---------------------

Outstanding and Exercisable at End of Period 1,801,000 8.72
---------------------
---------------------


6. Financial Instruments

a) Commodity Price Contracts

The Trust has entered into several derivative financial instruments, including crude oil and natural gas costless collar and floor price contracts. The Trust enters into these contracts for the purpose of protecting its future earnings and cash flow from operations from the volatility of crude oil and natural gas commodity prices. The costless collar and floor price contracts reduce fluctuations in petroleum and natural gas revenues by locking in a floor price and, in the case of collars, also a maximum price.

The Trust has entered into several short-term arrangements for both oil and natural gas. For the nine month period ended September 30, 2005, the Trust realized a net loss of $2,634,938 (2004 - a loss of $668,944) on its oil and natural gas price risk management. For the three months ended September 30, 2005 the Trust realized a net loss of $1,974,518 (2004 - a loss of $10,421).



Contracts outstanding in respect to financial instruments at September
30, 2005 were as follows:

Pricing Strike Cost/
Contract Volume Point Price Premium Term
------------------------------------------------------------------------

Crude Oil:
Put Option 1,300 WTI $40.00 $2.17/bbl Jan 01 - Dec 31

Natural Gas:
Put Option 8,000 AECO $6.00 $0.145/GJ Apr 01 - Oct 31
Costless
Collar 8,000 AECO $6.00-$8.80 N/A Apr 01 - Oct 31

(1) Oil volumes are in barrels per day. Gas volumes are in gigajoules
per day.
(2) Strike price and any cost or premium paid is in US dollars for oil.
(3) All dates occur in 2005.


b) Fair Value of Financial Instruments

The Company's financial instruments recognized in the balance sheet consist of accounts receivable, accounts payable, bank indebtedness and obligations under capital leases. The fair value of these financial instruments approximate their carrying amounts due to their short terms to maturity or the indexed rate of interest on the bank indebtedness.

Transactions entered into after September 30, 2005 are not reflected in the estimated fair market values shown below. At September 30, 2005 the estimated fair value of the financial instrument transactions were as follows:



$ 000's
receivable
(payable)
------------
Crude oil contracts 138
Natural gas contracts $(530,051)


The above estimated fair values are based on the market value of these instruments as at September 30, 2005 and represent the amounts the Company would receive or pay to terminate the contracts at that date.

7. Measurement Uncertainty

The amounts recorded for depletion and depreciation of property and equipment, the asset retirement obligations and the ceiling test calculation are based on estimates of proven reserves, production rates, oil and natural gas prices, future costs and other relevant assumptions. By their nature, these estimates are subject to measurement uncertainty and the effect on the consolidated financial statements of changes in such estimates in future periods could be significant.

8. Subsequent Event

At a special meeting held November 1, 2005, shareholders of True Energy Inc. ("True") voted 93% in favour of a Plan of Arrangement ("the 2005 Arrangement") to effect a business combination of True Energy Inc. and TKE. Under the 2005 Arrangement, TKE acquired all of the common shares of True in exchange for, among other considerations, trust units of TKE, on the basis of 0.50 of on pre-consolidated TKE trust unit (0.25 of one post-consolidated trust unit) for each True common share. At a special meeting held November 1, 2005, unit holders of TKE voted 98% in favour of changing the name of TKE to True Energy Trust and consolidating the trust units on a 2 for 1 basis. The name change and consolidation became effective on November 2, 2005. The business combination will be accounting for using the purchase method whereby True will acquire TKE.

Forward Looking Statements - Some of the statements contained in this news release may be forward-looking statements. Forward-looking statements may include, but are not limited to, statements concerning estimates of recoverable hydrocarbons, expected hydrocarbon prices, expected costs, statements relating to the continued advancement of the projects and/or prospects of TKE Energy Trust ("TKE" or the "Trust") and other statements which are not historical facts. When used in this document, and in other published information of TKE, the words such as "could," "estimate," "expect," "intend," "may," "potential," "should," and similar expressions are indicative of a forward-looking statement. Although TKE believes that its expectations reflected in the forward-looking statements are reasonable, the potential results suggested by such statements involve risk and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Various factors, which could cause actual results to differ from these forward-looking statements, include the potential that projects and/or prospects in which the Trust is involved will experience technical and mechanical problems, geological conditions in the reservoir which may negatively impact levels of oil and gas production and changes in product prices and other risks not anticipated by TKE or disclosed in the published material of the Trust. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties.

Contact Information

  • TKE Energy Trust
    Paul R. Baay
    President & Chief Executive Officer
    (403) 266-8670
    or
    TKE Energy Trust
    Joan E. Dunne
    Vice President, Finance & Chief Financial
    (403) 266-8670
    Website: www.tketrust.com