Vault Energy Trust
TSX : VNG.UN

Vault Energy Trust

August 11, 2005 04:30 ET

Vault Energy Announces Second Quarter Financial and Operating Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 11, 2005) - Vault Energy Trust (Vault) (TSX:VNG.UN) is pleased to present its consolidated financial and operating results for the period ended June 30, 2005. Vault was created and commenced operations on June 22, 2005, subsequent to the reorganization of Chamaelo Energy Inc. ("Chamaelo") pursuant to a Plan of Arrangement. As Vault is a continuation of Chamaelo, these results reflect the operations of Chamaelo from January 1, 2005 to June 21, 2005 plus the operations of Vault for the nine day period from June 22, 2005 to June 30, 2005.

HIGHLIGHTS



- Vault was created on June 22, 2005 as the result of the
reorganization of Chamaelo pursuant to a Plan of Arrangement;
- Concurrent with the reorganization, certain petroleum and natural
gas assets in West Central Alberta and North Eastern British
Columbia were acquired for $373 million, net of closing adjustments;
- The reorganization and acquisition were partially funded through
proceeds from a bought deal private placement for aggregate gross
proceeds of $330 million;
- Pursuant to the Plan of Arrangement, on June 30, 2005, the Trust
paid a distribution of $0.115 per Trust unit to unitholders of
record as of June 22, 2005.

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Three Months Six Months
Ended June 30, Ended June 30,
FINANCIAL (1) 2005 2004 2005 2004
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($ thousands, except per
Trust unit amounts)
Oil and natural gas
sales (2) 15,993 446 29,482 446

Funds flow from
Operations 5,522 (7) 12,423 (7)
per Trust unit - basic 0.35 - 0.83 -
per Trust unit - diluted 0.33 - 0.80 -

Net income (loss) (1,036) (113) 443 (113)
per Trust unit - basic (0.07) (0.06) 0.03 (0.06)
per Trust unit - diluted (0.07) (0.06) 0.03 (0.06)

Property acquisitions 372,667 - 372,667 -
Capital expenditures 2,439 766 10,148 766

Bank debt 80,508 - 80,508 -
Net working capital
(deficit) (3) (3,706) 30,465 (3,706) 30,465

Trust units
outstanding (4)
weighted average
- basic 15,873,849 1,892,895 14,967,448 1,892,895
- diluted 16,937,477 1,947,303 15,541,197 1,947,303

end of period
- basic 31,857,051 7,464,394 31,857,051 7,464,394
- diluted 42,280,574 9,690,394 42,280,574 9,690,394
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(1) The results reflect the operations of Chamaelo from January 1,
2005 to June 21, 2005 plus the operations of Vault for the nine day
period from June 22, 2005 to June 30, 2005.
(2) Oil and natural gas sales are shown net of transportation costs.
(3) Net working capital as at June 30, 2005 includes $3.7 million
cash and $3.7 million payable to unitholders.
(4) Prior period per Trust unit amounts based on 2 Chamaelo shares
for 1 Trust unit.


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Three Months Six Months
Ended June 30, Ended June 30,
OPERATING (1) 2005 2004 2005 2004
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Number of producing days 91 30 181 30

Daily production
Oil - (bbls/d) 1,475 187 1,429 187
Natural gas - (mcf/d) 11,611 801 10,969 801
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Oil equivalent -
(boe/d @6:1) 3,410 321 3,257 321

Sales price (2)
Oil - ($/bbl) 59.48 48.06 57.64 48.06
Natural gas - ($/mcf) 7.58 7.33 7.34 7.33
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Oil equivalent -
($/boe @6:1) 51.54 46.35 50.00 46.35

Royalties
Oil - ($/bbl) 7.59 5.88 7.30 5.88
Natural gas - ($/mcf) 1.46 1.22 1.52 1.22
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Oil equivalent -
($/boe @6:1) 8.27 6.47 8.31 6.47

Production expenses
Oil - ($/bbl) 13.50 33.40 13.54 33.40
Natural gas - ($/mcf) 1.40 0.67 1.46 0.67
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Oil equivalent -
($/boe @6:1) 10.59 21.16 10.87 21.16

Operating netback
Oil - ($/bbl) 38.39 8.78 36.80 8.78
Natural gas - ($/mcf) 4.72 5.44 4.36 5.44
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Oil equivalent -
($/boe @6:1) 32.68 18.72 30.82 18.72

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(1) The results reflect the operations of Chamaelo from January 1,
2005 to June 21, 2005 plus the operations of Vault for the nine day
period from June 22, 2205 to June 30, 2005.
(2) Sales prices are shown net of transportation costs


President's Message

I am pleased to be writing the first President's message for Vault Energy Trust. Although Vault has only officially been in business since June 22, 2005, we have made enormous strides in the past weeks in establishing ourselves as a sustainable royalty trust. During this period of time, we have assembled the necessary team who will drive the asset base forward to provide unitholders with steady, reliable distributions.

We took over operations of our properties effective July 1, 2005 and estimate our production to be approximately 9,200 boe/per day. We are confident our production levels will reach 9,550 boe/per day as we strive to fine-tune operations and tie in additional wells. Our reserve life index (RLI), which is a measure of long-term sustainability, is 8.7 years proved and 10.7 years proved plus probable (P+P). This gives us an RLI comparable to trusts of a much larger production base and market capitalization.

Commodity prices continue to remain strong and look very encouraging moving forward. While 30% of our production is hedged, our participating hedges allow us to enjoy a significant portion of these robust prices. Assuming a US $58.00 WTI oil price and a CDN $8.25 natural gas price for the remainder of this year, our current distribution levels will equate to approximately 54% of forecast cash flow. Based on the pricing assumptions above, we are generating cash flow of approximately $7.6 million monthly ($0.21/unit) or approximately $91.2 million ($2.55/unit) on an annualized basis.

I would like to acknowledge the efforts of our employees who are making valuable contributions as we build momentum. We have enjoyed our ability to attract top talent in this competitive marketplace to build a cohesive and successful team. Not only are we attracting top talent, we are attracting positive attention from financial institutions and investors. On behalf of the management and staff of Vault, I would like to welcome all of our new unitholders as we look forward to a long and prosperous journey together.



Sincerely,
(signed)
Robert T. Jepson
President & CEO


Management's Discussion and Analysis

August 9, 2005

Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited consolidated financial statements of Vault Energy Trust ("Vault" or the "Trust") for the six months ended June 30, 2005 and the audited consolidated financial statements of Chamaelo Energy Inc. ("Chamaelo") for the period ended December 31, 2004. Barrel of oil equivalent ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil ("6:1") unless otherwise stated. The financial statements and financial data contained in the MD&A have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") in Canadian currency (except where noted as being in another currency).

Additional information related to the Trust, including the Trust Indenture, may be found on the SEDAR website at www.sedar.com.

This MD&A may contain forward-looking information that involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. For this purpose, any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. Such risks and uncertainties include, but are not limited to: risks associated with the oil and gas industry (e.g. - operational risks in exploration, development and production; changes and/or delays in the development of capital assets; uncertainty of reserve estimates; uncertainty of estimates and projections relating to production and costs; commodity price fluctuations; environmental risks; and industry competition).

Management uses funds flow as a factor in evaluating performance. Funds flow as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similar measures used by other companies. The determination of funds flow from operations is detailed on the Statement of Cash Flows.

Plan of Arrangement

The reorganization of Chamaelo Energy Inc. into Vault Energy Trust and a newly created exploration focused junior oil and gas producer was completed on June 22, 2005 pursuant to a Plan of Arrangement ("Plan of Arrangement") involving Chamaelo Energy Inc. ("Chamaelo"), Vault Energy Inc. ("Vault Energy"), Vault Energy Trust ("Vault" or "the Trust") and a new exploration focused entity ("ExploreCo"). Concurrent with the Plan of Arrangement, Vault Energy acquired certain oil and natural gas properties in West Central Alberta and North Eastern British Columbia (the "June 2005 Acquisition") for approximately $372.7 million, including transaction costs, net of estimated closing adjustments. The operating results from the June 2005 Acquisition have been included in the Trust's operational results for nine days from the closing date on June 22, 2005 to the end of the period. In addition, pursuant to the Plan of Arrangement, Vault Energy disposed of certain oil and natural gas assets to ExploreCo ("ExploreCo Dispostion"), on June 22, 2005. The results of operations from the ExploreCo Disposition assets have been included in results from operations of the Trust only up to the date of the disposition. The comparative figures used in the MD&A and consolidated financial statements are those of Chamaelo as the Trust is following the continuity of interests accounting method.

Completion of the transactions under the Plan of Arrangement resulted in shareholders of Chamaelo exchanging each of their Chamaelo common shares for one unit in the Trust ("Trust unit"), or a share exchangeable into a Trust unit ("exchangeable share"), and one common share of ExploreCo ("ExploreCo share"), prior to a 2 for 1 consolidation of the Trust units and a 5 for 1 consolidation of the ExploreCo shares. The maximum number of exchangeable shares available pursuant to the Plan of Arrangement was 5,000,000 and 3,889,462 exchangeable shares were issued.

On April 27, 2005, Vault completed a bought deal private placement issuing 42,312,000 Series E subscription receipts in the capital of the Trust at a price of $6.50 per Series E subscription receipt and 55,000 Series D subscription receipts in the capital of the Trust at a price of $1,000 per Series D subscription receipt for aggregate gross proceeds of $330,028,000. Pursuant to the Plan of Arrangement, each Series E subscription receipt was converted into one Trust unit and one ExploreCo share, prior to a 2 for 1 consolidation of the Trust units and a 5 for 1 consolidation of the ExploreCo shares.

Pursuant to the Plan of Arrangement, each Series D subscription receipt was converted into one convertible debenture of the Trust. The convertible debentures have a face value of $1,000 per debenture and a maturity date of June 30, 2010. The convertible debentures pay interest semi-annually on June 30 and December 31 of each year at 8% per annum and are convertible into Trust units at a conversion price of $11.50 per Trust unit. Holders of the convertible debentures have the option of redeeming the convertible debentures at a price of $1,050 per convertible debenture after June 30, 2008 and on or before June 30, 2009 and thereafter until the maturity date at a price of $1,025 per convertible debenture. The Trust may repay the convertible debentures in cash or through the issue of additional Trust units at 95% of the market price.

As a result of the consolidation of Trust units, prior period per Trust unit amounts are calculated assuming that each common share of Chamelo was exchanged for 0.5 Trust units. Pursuant to EIC - 151, the exchangeable shares have been presented as a non-controlling interest and net income figures are presented after net income attributable to non-controlling interest. Income attributable to the non-controlling interest has been deducted from net income commencing on June 22, 2005.



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Three Months Six Months
Ended June 30, Ended June 30,
Summary of Financial Results (1) 2005 2004 2005 2004
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($ thousands, except per
Trust unit amounts)
Oil and natural gas sales (2) 15,993 446 29,482 445,594

Funds flow from operations 5,522 (7) 12,423 (7)
per Trust unit - basic 0.35 - 0.83 -
per Trust unit - diluted 0.33 - 0.80 -

Net income (loss) (1,036) (113) 443 (113)
per Trust unit - basic (0.07) (0.06) 0.03 (0.06)
per Trust unit - diluted (0.07) (0.06) 0.03 (0.06)

Total assets 502,289 47,303 502,289 47,303

Bank debt 80,508 - 80,508 -
Net working capital
(deficit) (3) (3,706) 30,465 (3,706) 30,465

Total long-term
liabilities 82,196 1,001 82,196 1,001
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(1) The results reflect the operations of Chamaelo from January 1,
2005 to June 21, 2005 plus the operations of Vault for the nine
day period from June 22, 2205 to June 30, 2005.
(2) Oil and natural gas sales are shown net of transportation costs.
(3) Prior period per Trust unit amounts based on 2 Chamaelo shares
for 1 Trust unit.
(4) Working capital as at June 30, 2005 includes $3.7 million in cash

Production (1)
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Three Six
Months ended Months ended
June 30, % June 30, %
2005 2004 Change 2005 2004 Change
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Average Daily Production
Oil (bbls/d) 1,475 187 689 1,429 187 664
Natural gas (mcf/d) 11,611 801 1,350 10,969 801 1,269
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Total (boe/d) 3,410 321 962 3,257 321 915
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(1) The results reflect the operations of Chamaelo from January 1,
2005 to June 21, 2005 plus the operations of Vault for the nine
day period from June 22, 2205 to June 30, 2005.


Crude oil and natural gas liquids production averaged 1,475 boe/d (2004 - 187 boe/d) and 1,429 boe/d (2004 - 187 boe/d) during the three and six months ended June 30, 2005, respectively.

Natural gas production averaged 11,611 mcf/d (2004 - 801 mcf/d) and 10,969 mcf/d (2004 - 801 mcf/d) during the three and six months ended June 30, 2005.

Incremental production from the October 13, 2004 and November 30, 2004 property acquisitions added to production for the three and six months ended June 30, 2005. Net production increases resulting from the June 22, 2005 acquisition and the ExploreCo disposition have been reflected in operational results for nine days. The Trust's exit production rate for the month of June 2005 was approximately 9,200 boe/d.



Revenue(1)
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Three Six
Months ended Months ended
June 30, % June 30, %
($ thousands) 2005 2004 Change 2005 2004 Change
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Oil $ 7,983 $ 270 2,857 $ 14,910 $ 270 5,422
Natural gas 8,010 176 4,451 14,572 176 8,180
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Total $ 15,993 $ 446 3,486 $ 29,482 $ 446 6,510
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(1) The results reflect the operations of Chamaelo from January 1,
2005 to June 21, 2005 plus the operations of Vault for the nine
day period from June 22, 2205 to June 30, 2005.

Average Sales Price
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Three Six
Months ended Months ended
June 30, % June 30, %
2005 2004 Change 2005 2004 Change
---------------------------------------------------------------------
Oil ($/bbl) $ 59.48 $ 48.06 24 $ 57.64 $ 48.06 20
Natural gas ($/mcf) 7.58 7.33 3 7.34 7.33 0
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Average sales price
($/boe) $ 51.54 $ 46.35 11 $ 50.00 $ 46.35 8
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Oil revenue, net of transportation totaled $7.9 million (2004 - $270,000) and $14.9 million (2004 -$270,000) for the three and six months ended June 30, 2005, respectively. Natural gas revenue, net of transportation totaled $8.0 million (2004 - $176,000) and $14.6 million (2004 - $176,000) for the three and six months ended June 30, 2005.

Revenue increased during both the three and six month periods ended June 30, 2005 due to the effect of the October 13, 2004 and November 30, 2004 acquisitions as well as nine days of operations from the June 2005 acquisition. Furthermore, commodity prices have risen during the last year, contributing significantly to increased revenues.

The following table outlines the Trust's realized wellhead prices and industry benchmarks:



Commodity Pricing
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Three Six
Months ended Months ended
June 30, % June 30, %
(Average unless
otherwise stated) 2005 2004 Change 2005 2004 Change
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Oil
Corporate price $/bbl $ 59.48 $48.06 24 $ 57.64 $48.06 20
West Texas
Intermediate US$/bbl 53.17 38.06 40 51.54 38.06 35
Edmonton Par $/bbl 65.71 51.38 28 63.62 51.38 24

Natural Gas
Corporate price $/mcf $ 7.58 $ 7.33 3 $ 7.34 $ 7.33 0
AECO Daily Spot
Price $/mcf 7.38 7.36 0 7.04 7.36 (4)

Exchange Rates
U.S./Cdn Dollar
Period-end 1.23 1.36 (10) 1.23 1.36 (10)
U.S./Cdn Dollar
Average 1.24 1.36 (9) 1.24 1.36 (9)
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Commodity Price Risk Management

Currently, the Trust does not have any financial derivative instruments to hedge against future commodity price fluctuations and sold all of its oil and a majority of its natural gas on the spot market during the quarter. However, the Trust did enter into two physical sales contracts on April 13, 2005, which are effective July 1, 2005. The Trust will continue to monitor commodity prices and will implement price risk management programs as necessary to assist with the sustainability of distributions and growth of the organization given the downside risk inherent in the sale of oil and natural gas commodities.

The Trust has entered into physical contracts representing approximately 31% of its June 30, 2005 exit rate production. A summary of the physical instruments follows:



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Floor Upside
Product Volume price Participation Term
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Natural
gas 11,000 GJ/d $7.00/GJ 60% above $7.00/GJ Jul 1, 2005 -
Oct 31, 2006

Oil 1,000 bbls/d $61.50/bbl 50% above $61.50/bbl Jul 1, 2005 -
Dec 31, 2006
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Royalties
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Three Six
Months ended Months ended
June 30, % June 30, %
($ thousands) 2005 2004 Change 2005 2004 Change
---------------------------------------------------------------------
Oil $ 1,018 $ 33 2,985 $ 1,888 $ 33 5,621
Natural gas 1,547 29 5,234 3,011 29 10,283
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Total Royalties $ 2,565 $ 62 4,037 $ 4,899 $ 62 7,802
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Total Royalty Rate 16% 14% 17% 14%
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Oil and natural gas royalties totaled $2.6 million (16% of revenues) and $4.9 million (17% of revenues) during the three and six months ended June 30, 2005. The increase in royalties can be attributed to the incremental production and revenues associated with property acquisitions, which closed in October and November of 2004 and June of 2005. The royalty rates realized in the first six months of 2005 do not reflect the full impact of the June 2005 acquisition. Properties acquired in June 2005 have higher royalty rates than the existing properties. As a result, the Trust expects royalties for the remainder of the year to be approximately 22% of revenues.



Production Expenses
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Three Six
Months ended Months ended
June 30, % June 30, %
($ thousands) 2005 2004 Change 2005 2004 Change
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Oil ($/bbl) $ 13.50 $ 33.40 (60) $ 13.54 $ 33.40 (59)
Natural gas ($/mcf) 1.40 0.67 109 1.46 0.67 118
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Average sales price
($/boe) $ 10.59 $ 21.16 (50) $ 10.87 $ 21.16 (49)
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Production expenses were $3.3 million ($10.59/boe) and $6.4 million ($10.87/boe) for the three and six months ended June 30, 2005 compared to $203,000 ($21.16/boe) for the same periods in 2005. Lower production costs from properties acquired on November 30, 2004 reflected in the Trust's 2005 operating results have helped to reduce production expenses on a per boe basis. Production expenses were also down from the first quarter primarily due to lower heating costs, however scheduled maintenance and turnarounds in the third quarter are expected to offset the cost savings realized in the second quarter. In addition, the per unit production expenses associated with assets acquired in the June 2005 acquisition are slightly lower than the Trust's existing properties.

Vault recognizes that controlling production expenses is an integral part of the effective exploitation of reserves typically found today in the Western Canadian Sedimentary Basin. Vault is committed to focusing efforts on opportunities that will improve operational efficiencies and reduce per boe production expenses to enhance operating netbacks. The Trust anticipates that cost savings within the existing portfolio of assets as well as the opportunities for cost savings identified on the June 2005 acquisition assets will result in a further reduction in per boe production costs by mid 2006.



Operating Netback
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Three Six
Months ended Months ended
June 30, % June 30, %
2005 2004 Change 2005 2004 Change
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Oil ($/bbl)
Revenue 59.48 48.06 24 57.64 48.06 20
Royalties 7.59 5.88 29 7.30 5.88 24
Production expenses 13.50 33.40 (60) 13.54 33.40 (59)
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Operating Netback 38.39 8.78 337 36.80 8.78 319
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Natural gas ($/mcf)
Revenue 7.58 7.33 3 7.34 7.33 0
Royalties 1.46 1.22 20 1.52 1.22 25
Production expenses 1.40 0.67 109 1.46 0.67 118
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Operating Netback 4.72 5.44 (13) 4.36 5.44 (20)
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Combined ($/boe)
Revenue 51.54 46.35 11 50.00 46.35 8
Royalties 8.27 6.47 28 8.31 6.47 28
Production expenses 10.59 21.16 (50) 10.87 21.16 (49)
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Operating Netback 32.68 18.72 75 30.82 18.72 65
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The operating netback is a key indicator of the Trust's ability to generate cash flow for distribution and reinvestment. During the three and six months ended June 30, 2005, Vault generated an operating netback of $32.68 (2004 - $18.72) and $30.82 (2004 - $18.72) per boe, respectively.

General and Administrative Expenses ("G&A")

Net G&A costs totaled $2.0 million ($6.56/boe) and $2.6 million ($4.42/boe) for the three and six months ended June 30, 2005, respectively, compared to $185,000 ($19.29/boe) during the same periods in 2004. Gross G&A costs have increased in 2005 primarily because Chamaelo paid out approximately $1.5 million in performance incentive bonuses in June of 2005. Chamaelo had not paid out any bonuses since its inception in June 2004.

G&A costs on a per boe basis decreased year over year due to more days of production being included in the 2005 operating results compared to 2004. In addition, the production increases from property acquisitions has reduced fixed G&A costs on a per boe basis. Management is committed to controlling G&A costs and as such is estimating G&A will be approximately $1.75/boe for the remainder of the year.

Stock-Based Compensation

On June 1, 2005, all of the stock options of Chamaelo's independent directors and officers (in their capacity as directors) vested and were exercised on June 22, 2005. In addition, on June 22, 2005, pursuant to the Plan of Arrangement, one-third of the options of employees and officers (in their capacity as employees) were vested and exercised and the remaining two-thirds of officer and employee options were settled by the Trust.

During the three and six months ended June 30, 2005, $2.4 million (2004 - $19,000) and $2.6 million (2004 - $19,000) was charged to income in respect of these stock-based payments.

Canadian Institute of Chartered Accountants 3870 ("CICA 3870") provides guidance for the settling of unvested stock options. CICA 3870 states that any amount not exceeding the fair value of the stock options may be charged directly to equity when the options are settled. The amount paid in excess of fair value must be expensed. Pursuant to CICA 3870, the Trust charged $800,000 to stock-based compensation for the three and six months ended June 30, 2005 representing the amount in excess of fair value paid by the Trust to settle employee stock options. The Trust also charged $2.3 million directly to share capital representing the fair value of the options settled.

CICA 3870 also states that any unamortized balances of fair value of stock options must be taken to income when options are settled by the Trust. The additional amounts expensed in 2005 represent the unamortized balance of fair value all of the stock options of Chamaelo, which either vested and were exercised or were settled by the Trust . In this respect, $1.6 million and $1.8 million of non-cash stock-based compensation was recognized for the three and six months ended June 30, 2005, respectively.

Depletion, Depreciation and Accretion

During the three and six months ended June 30, 2005, DD&A expense totaled $5.4 million ($17.42/boe) and $10.2 million ($17.27/boe), respectively. DD&A was $87,000 ($9.03/boe) for the three and six months ended June 30, 2004. The DD&A rate partially reflects the higher cost of corporate and property acquisitions together with the inclusion of asset retirement obligations in the Trust's depletion base. During the three and six months ended June 30, 2005, the provision for DD&A includes $142,000 ($0.46/boe) and $536,000 ($0.91/boe), respectively for accretion of asset retirement obligations.

For the three and six months ended June 30, 2005, $72,000 ($0.23/boe) and $72,000 ($0.12/boe) of accretion expense has been recognized in respect of the convertible debentures issued on April 27, 2005. See note 5.

Interest Expense

The Trust incurred $1.3 million ($4.26/boe) and $1.5 million ($2.53/boe) in interest expense for the three and six months ended June 30, 2005, respectively. The increase in interest results from drawing on available lines of credit to fund acquisitions and capital development programs. In addition, interest of approximately $784,000 was paid on June 30, 2005 to holders of the $55,000,000 convertible debentures issued on April 27, 2005.

Taxes

Capital taxes for the three and six months ended June 30, 2005 were $170,000 and $220,000, respectively, consisting primarily of Large Corporations Tax ("LCT"). For the three and six months ended June 30, 2004, capital taxes were $17,000. The increase in capital taxes in 2005 is a result of increased debt and equity levels resulting from acquisitions. Given the current capital structure of the trust, capital taxes are expected to be approximately $450,000 for the 2005 year.

Future income taxes arise from differences between the accounting and tax bases of the operating company's assets and liabilities. Payments are made between the operating company and the Trust in our current structure, which ultimately transfers both income and future tax liability to our unitholders. Therefore, it is Vault's opinion that no cash income taxes are expected to be paid by the operating entities in the future. As a result, the future income tax liability recorded on the balance sheet should be recovered through earnings over time.

For the three months ended June 30, 2005, a future tax recovery of $273,000 (2004 - $nil) was recorded. For the six months ended June 30, 2005 a future tax expense of $538,000 (2004 - $nil) was recorded. The future tax expense is a result of the income earned in the operating company (formerly Chamaelo) before being acquired by the Trust.

Funds Flow and Net Earnings

Funds flow from operations for the three and six months ended June 30, 2005 was $5.5 million ($0.33 per diluted Trust unit) and $12.4 million ($0.80 per diluted Trust unit).

The Trust incurred a net loss of $1.0 million ($0.07 loss per diluted Trust unit) for the three months ended June 30, 2005 compared to a net loss of $113,000 ($0.06 loss per Trust unit) for the same period in 2004. Net income for the six months ended June 30, 2005 totaled $443,000 ($0.03 per diluted Trust unit) compared to a net loss of $113,000 ($0.06 loss per Trust unit) for the same period in 2004.



Capital Expenditures
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Three Months Ended Six Months Ended
($ thousands) June 30, 2005 June 30, 2005
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Land 220 622
Drilling, completions
and workovers 1,271 7,150
Equipment 415 914
Geological and Geophysical 498 1,312
Office 35 150
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Capital expenditures 2,439 10,148
Property acquisitions 372,667 372,667
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Total capital expenditures
and property acquisitions 375,106 382,815
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On June 22, 2005, concurrent with the Plan of Arrangement, Vault completed the June 2005 acquisition for approximately $372.7 million including transaction costs, net of closing adjustments. The June 2005 acquisition complements Vault's existing assets and will help diversify the production base with which to sustain production and distributions. The acquisition was financed through a private placement of Trust units ($275 million) and convertible debentures ($55 million) as well as credit facilities provided by a syndicate of Canadian chartered banks.

During the three and six months ended June 30, 2005, Vault drilled 2 (1.2 net) and 14 (8.8 net) wells, respectively. In addition, Vault completed numerous workovers and re-completions to improve production and continued to enhance its future prospects by adding acreage to its land base. These activities resulted in capital expenditures of $2.4 million and $10.1 million for the three and six months ended June 30, 2005, respectively.

Distributable Cash

Distributions are paid made monthly on the 15th day of each month with the record date being the last business day of the preceding calendar month or such other date as may be determined by the board of directors. A portion of funds flow is retained to fund acquisitions and development activity.

The Trust will monitor the payout level with respect to funds flow, debt levels and spending plans. We anticipate that the payout ratio will be approximately 60%, however we are prepared to adjust the payout ratio in an effort to align the investors' desire for cash distributions with the Trust's requirement to maintain a prudent capital structure. The current payout ratio includes a special distribution that was paid to unitholders as a result of the Plan of Arrangement, however the assets acquired through the Plan of Arrangement have only been included in operating results for nine days.

During the three and six months ended June 30, 2005, Vault distributed $3.7 million, or $0.115 per Trust unit to unitholders. This amount represents the special distribution made to unitholders of record on the date of the Plan of Arrangement on June 22, 2005. The resulting payout ratio for the three and six months ended June 30, 2005 is 66% and 30%, respectively. Funds flow from operations includes only nine days of operations from the June 2005 acquisition. Cash distributions paid during the period included amounts paid to Series E subscription receipt holders who became unitholders pursuant to the Plan of Arrangement.

Liquidity and Capital Resources

Bank debt was $80.5 million and the net working capital deficit was $3.7 million at June 30, 2005.

The Trust has, through its subsidiary, a credit agreement with a syndicate of Canadian banks to provide the Trust with $125,000,000 of total credit facilities. This is comprised of an extendible revolving term credit facility of $115,000,000 and a $10,000,000 operating facility each bearing interest at prime plus a premium ranging between 0% and 1.75% based on the Trust's debt to funds flow ratio. The credit facilities are secured by a $200,000,000 demand debenture on the assets of Vault Energy and are renewable on June 30, 2006.

On June 22, 2005, pursuant to the Plan of Arrangement, Vault acquired certain oil and natural gas properties in West Central Alberta and North Eastern British Columbia for approximately $372.7 million, including transaction costs and net of estimated closing adjustments.

Completion of the transactions under the Plan of Arrangement resulted in shareholders of Chamaelo exchanging each of their Chamaelo common shares for one Trust unit or exchangeable share and one ExploreCo share, prior to a 2 for 1 consolidation of the Trust units and a 5 for 1 consolidation of the ExploreCo shares. The maximum number of exchangeable shares available pursuant to the Plan of Arrangement was 5,000,000. Chamaelo shareholders elected to receive 3,889,462 exchangeable shares as a result of the Plan of Arrangement.

On April 27, 2005, Vault completed a bought deal private placement financing issuing 42,312,000 Series E subscription receipts in the capital of the Trust at a price of $6.50 per Series E subscription receipt and 55,000 Series D subscription receipts in the capital of the Trust at a price of $1,000 per Series D subscription receipt for aggregate gross proceeds of $330,028,000.

Pursuant to the Plan of Arrangement, each Series E subscription receipt was converted into one Trust unit and one ExploreCo share, prior to a 2 for 1 consolidation of the Trust units and a 5 for 1 consolidation of the ExploreCo shares.

Pursuant to the Plan of Arrangement, each Series D subscription receipt was converted into one convertible debenture of the Trust. The convertible debentures have a face value of $1,000 per debenture and a maturity date of June 30, 2010. The convertible debentures pay interest semi-annually on June 30 and December 31 of each year at 8% per annum and are convertible into Trust Units at a conversion price of $11.50 per Trust Unit. Holders of the convertible debentures have the option of redeeming the convertible debentures at a price of $1,050 per convertible debenture after June 30, 2008 and on or before June 30, 2009 and thereafter until the maturity date at a price of $1,025 per convertible debenture. The Trust may repay the convertible debentures in cash or through the issue of additional Trust Units at 95% of the market price.



Summary of Quarterly Results
($ thousands) Q2/04 Q3/04 Q4/04 Q1/05 Q2/05
---------------------------------------------------------------------

Oil and natural
gas sales(1) 446 1,614 7,057 13,489 15,993

Cash flow from operations (7) 508 3,494 6,902 5,522
per Trust unit - basic - 0.06 0.30 0.50 0.35
per Trust unit - diluted - 0.06 0.28 0.46 0.33

Net earnings (loss) (113) 16 441 1,479 (1,036)
per Trust unit - basic (0.06) - 0.04 0.10 (0.07)
per Trust unit - diluted (0.06) - 0.04 0.10 (0.07)
---------------------------------------------------------------------
---------------------------------------------------------------------


(1) Oil and natural gas sales are shown net of transportation costs

Trust Unit Information

The Trust is authorized to issue an unlimited number of Trust units. The Trust units are traded on the Toronto Stock Exchange under the symbol "VNG.UN". At December 31, 2004, Chamaelo had 33,434,412 common shares outstanding. Pursuant to the Plan of Arrangement 0.5 Trust units or exchangeable shares were granted for each outstanding common share of Chamaelo. As a result of this consolidation, the equivalent number of Trust units outstanding at December 31, 2004 was 16,717,206 assuming each former Chamaelo share was exchanged for 0.5 Trust units.

As at June 30, 2005, the Trust had 31,857,051 Trust units and 3,889,462 exchangeable shares outstanding.

Income Taxes

The following is a general discussion of the Canadian tax consequences of holding Vault Trust units as capital property. The summary is not exhaustive in nature nor is it intended to provide advice on legal or tax matters. Current and prospective investors should consult their own legal or tax counsel as to their particular circumstances.

The Trust qualifies as a mutual fund trust under the Income Tax Act (Canada) and accordingly, Trust units are qualified investments for RRSP's, RRIF's, RESP's and DPSP's. Each year the Trust is required to file an income tax return and any taxable income in the Trust is allocated to the unitholders.

In computing income, unitholders are required to include their pro-rata share of any taxable income earned by the Trust in that year. The adjusted cost base ("ACB") of an investor's trust unit equals the purchase price of the Trust unit less any non-taxable cash distributions received from the date the unit was purchased. Should an investor's ACB be reduced below zero, the extent to which the ACB is below zero will be deemed to be a capital gain to the unitholder and the ACB of the unit will be brought to $nil.

For 2005, Vault estimates that 65% of cash distributions may be taxable and 35% may be a tax deferred return on capital. Actual taxable amounts may vary depending on actual distributions, which are dependent upon production, commodity prices and funds flow experienced throughout the year.

Commitments

The Trust is committed to payments under an operating lease for office space and a capital lease for a vehicle. The following table summarizes the Trust's commitments at June 30, 2005:



---------------------------------------------------------------------
Total
Minimum Commitments Each Year Committed
---------------------------------
($ thousands) 2005 2006 2007 2008 2009 After 2009 Total
---------------------------------------------------------------------
Capital lease
obligation 8 15 17 - - - 40
Operating lease
obligation 305 610 745 758 780 1,629 4,827
---------------------------------------------------------------------
313 625 762 758 780 1,629 4,867
---------------------------------------------------------------------
---------------------------------------------------------------------


Critical Accounting Policies

Management is required to make judgments, assumptions, and estimates in the application of generally accepted accounting principles that have a significant impact on the financial results of the Trust. The following summarizes the accounting policies that are critical to determining the company's financial results.

Full Cost Accounting - The Trust follows the full cost method of accounting whereby all costs related to the acquisition of, exploring for and developing oil and natural gas reserves are capitalized and charged against earnings.
These costs, together with the estimated future costs to be incurred in developing proved reserves, are depleted or depreciated using the unit-of-production method based on the proved reserves before royalties as estimated by independent petroleum engineers. The costs of undeveloped properties are excluded from the costs subject to depletion and depreciation until it is determined whether proved reserves are attributable to the properties or impairment occurs. Oil and natural gas properties are evaluated each reporting period through an impairment test to determine the recoverability of capitalized costs. The carrying amount is assessed as recoverable when the sum of the undiscounted cash flows expected from proved reserves plus the cost of unproved interests, net of impairments, exceeds the carrying amount. When the carrying amount is assessed not to be recoverable, an impairment loss is recognized to the extent that the carrying amount exceeds the sum of the discounted cash flows from proved and probable reserves plus the cost of unproved interests, net of impairments. The cash flows are estimated using expected future prices and costs and are discounted using a credit adjusted risk-free interest rate. Proceeds from the sale of oil and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would result in a change in the depletion rate of 20% or more.

Oil and Natural Gas Reserves - The Trust's oil and natural gas reserves are evaluated and reported on by independent petroleum engineers. The estimates of reserves is a very subjective process as forecasts are based on engineering data, projected future rates of production, estimated future commodity prices and the timing of future expenditures, which are all subject to uncertainty and interpretation. Reserve estimates can have a significant impact on earnings, as they are a key component in the calculation of depletion. A downward revision to the reserve estimate could result in higher depletion and thus lower net earnings. In addition, estimated reserves are also used in the calculation of the impairment (ceiling) test.

Goodwill - Goodwill, which represents the excess of purchase price over the fair value of net assets received in an acquisition, is tested for impairment on an annual basis in the fourth quarter. A goodwill impairment loss would be recognized when the carrying amount of goodwill exceeds its fair value. Should the test result in an impairment, it will be charged to income in the period of the impairment.

Asset Retirement Obligation - The Trust is required to provide for future abandonment and site restoration costs. These costs are estimated based on existing laws, contracts or other policies and are presented as asset retirement obligation. The obligation is initially measured at fair value and subsequently adjusted for the accretion of discount and any changes to the underlying cash flows. The asset retirement cost is capitalized to oil and natural gas properties and equipment and amortized into earnings on a basis consistent with depletion and depreciation. The estimate of the asset retirement obligation involves estimates relating to the timing of abandonment, the economic life of the underlying asset and the costs associated with abandonment and site restoration which are all subject to uncertainty and interpretation.

Exchangeable shares and Non-controlling Interests - Exchangeable shares in Vault Energy were issued pursuant to the Plan of Arrangement. The exchangeable shares are transferable and are retractable for Trust units. As such, they have been classified outside of equity as a non-controlling interest. Net income (loss) as reported is net of net income (loss) attributable to non-controlling interest.

Convertible debentures - Convertible debentures are initially recorded at the fair value of the obligation without the conversion feature. The difference between the principal amount and the fair value without the conversion feature is recorded in unitholders' equity as equity component of convertible debentures. The obligation is accreted through earnings using the effective interest rate method and the equity component of convertible debentures is increased as the debentures are converted for Trust units.



VAULT ENERGY TRUST
Consolidated Balance Sheets


(Unaudited) June 2005 Dec 2004
---------------------------------------------------------------------
---------------------------------------------------------------------

Assets
Current assets:
Cash $ 3,690,025 $ -
Accounts receivable 7,448,082 6,489,451
Prepaid expenses and deposits 1,217,646 234,993
---------------------------------------------------------------------
---------------------------------------------------------------------
12,355,753 6,724,444

Oil and gas properties and equipment
(Note 3) 482,953,495 142,124,354

Deferred financing charges (Note 5) 2,800,595 -
Goodwill 4,179,193 4,179,193
---------------------------------------------------------------------
---------------------------------------------------------------------
$ 502,289,036 $ 153,027,991
---------------------------------------------------------------------
---------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities:
Revolving credit facility (Note 4) $ - $ 12,965,269
Accounts payable and accrued liabilities 12,397,693 8,398,310
Distributions payable to unitholders 3,663,561 -
---------------------------------------------------------------------
---------------------------------------------------------------------
16,061,254 21,363,579

Capital lease obligation 22,044 29,328
Natural gas sales contract 2,183,846 2,846,002
Revolving credit facility (Note 4) 80,508,489 -
Convertible debentures (Note 5) 52,472,000 -
Future income taxes 2,311,153 2,773,746
Asset retirement obligation 25,206,485 15,562,509


Non-controlling interest (note 6) 25,978,612 -

Unitholders' equity:
Trust units/common shares (Note 7) 306,689,920 109,764,820
Contributed surplus (note 8) - 343,744
Equity component of convertible
debentures (Note 5) 2,600,000 -
Accumulated cash distributions (7,327,122) -
Accumulated (deficit) income (4,417,645) 344,263
---------------------------------------------------------------------
---------------------------------------------------------------------
297,545,153 110,452,827
Commitments (Note 13)
---------------------------------------------------------------------
---------------------------------------------------------------------
$ 502,289,036 $ 153,027,991
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes to the consolidated financial statements

Approved by the Board of Directors:


(signed) (signed)
Robert Jepson Sean Monaghan
President, Chief Executive Officer Chairman of the Board of Directors
and Director



VAULT ENERGY TRUST
Consolidated Statements of Income


Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
(Unaudited) 2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------

Revenue:
Oil and natural gas $ 16,309,781 $ 462,928 $30,193,857 $ 462,928
Transportation
expense (317,173) (17,334) (711,874) (17,334)
Royalties (2,565,309) (62,235) (4,898,492) (62,235)
Interest income - 16,220 - 16,220
---------------------------------------------------------------------
---------------------------------------------------------------------
13,427,299 399,579 24,583,491 399,579

Expenses:
Production 3,287,722 203,458 6,411,045 203,458
General and
administrative 2,036,248 185,427 2,607,968 185,427
Interest 1,321,866 - 1,492,853 -
Depletion, depreciation
and accretion 5,407,067 86,805 10,180,381 86,805
Stock-based
compensation 2,415,580 19,357 2,592,418 19,357
---------------------------------------------------------------------
---------------------------------------------------------------------
14,468,483 495,047 23,284,665 495,047

---------------------------------------------------------------------
---------------------------------------------------------------------
(Loss) income before
taxes (1,041,184) (95,468) 1,298,826 (95,468)

Taxes:
Current taxes 169,760 17,300 219,764 17,300
Future income taxes (272,780) - 538,472 -
---------------------------------------------------------------------
---------------------------------------------------------------------
Net (loss) income
before non-controlling
interest (938,164) (112,768) 540,590 (112,768)

Non-controlling
interest (Note 6) (97,986) (97,986)
---------------------------------------------------------------------
---------------------------------------------------------------------
Net (loss) income $(1,036,150) $(112,768) $ 442,604 $(112,768)
---------------------------------------------------------------------
---------------------------------------------------------------------


Consolidated Statements of Accumulated (Deficit) Income

Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
(Unaudited) 2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------

Accumulated income,
beginning of period $ 1,823,017 $ - $ 344,263 $ -
Net (loss) income (1,036,150) (112,768) 442,604 (112,768)
Costs of plan of
arrangement
(net of future tax
recovery of
$2,693,078) (Note 2) (5,204,512) - (5,204,512) -
---------------------------------------------------------------------
---------------------------------------------------------------------
Accumulated (deficit),
end of period $(4,417,645) $(112,768)$(4,417,645) $(112,768)
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes to the consolidated financial statements



VAULT ENERGY TRUST
Consolidated Statements of Cash Flows


Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
(Unaudited) 2005 2004 2005 2004
---------------------------------------------------------------------
---------------------------------------------------------------------

Cash provided by
(used in):

Operating:
Net earnings
(loss) $ (1,036,150) $ (112,768) $ 442,604 $ (112,768)
Items not
affecting cash:
Depletion,
depreciation
and accretion 5,407,067 86,805 10,180,381 86,805
Amortization of
natural gas
sales contract (323,620) - (662,156) -
Stock-based
compensation 1,649,037 19,357 1,825,875 19,357
Future income
taxes (272,780) - 538,472 -
Non-controlling
interest 97,986 - 97,986 -
Asset retirement
expenditures - - - -
---------------------------------------------------------------------
---------------------------------------------------------------------
Funds flow from
operations 5,521,540 (6,606) 12,423,162 (6,606)
Net change in
non-cash operating
working capital 3,674,903 (87,503) 4,448,868 (87,503)
---------------------------------------------------------------------
---------------------------------------------------------------------
9,196,443 (94,109) 16,872,030 (94,109)
---------------------------------------------------------------------
---------------------------------------------------------------------

Financing:
Increase in
revolving credit
facility 69,815,108 32,450,000 67,543,220 32,450,000
Convertible
debenture issue,
net of costs 52,199,405 - 52,199,405 -
Decrease in
capital lease
obligation (4,138) - (7,284) -
Trust units
issued, net
of costs 261,124,916 - 261,117,775 -
Warrants
exercised 1,623,980 - 1,920,095 -
Options exercised,
net of
settled 811,250 - 811,250 -
Distributions to
unitholders (3,663,561) - (3,663,561) -
Plan of arrangement
costs (7,897,590) - (7,897,590) -
Change in non-cash
financing working
capital (1,061,213) - (1,061,213) -
---------------------------------------------------------------------
---------------------------------------------------------------------
372,948,157 32,450,000 370,962,097 32,450,000
---------------------------------------------------------------------
---------------------------------------------------------------------

Investments:
Property
acquisitions (372,666,811) (766,219) (372,666,811) (766,219)
Capital
expenditures (2,438,670) - (10,147,735) -
Change in
non-cash
investing
working
capital (3,349,094) 337,730 (1,329,556) 337,730
---------------------------------------------------------------------
---------------------------------------------------------------------
(378,454,575) (428,489) (384,144,102) (428,489)
---------------------------------------------------------------------
---------------------------------------------------------------------

Change in cash 3,690,025 31,927,402 3,690,025 31,927,402
Cash, beginning
of period - 2 - 2
---------------------------------------------------------------------
---------------------------------------------------------------------

Cash, end
of period $3,690,025 $31,927,404 $3,690,025 $31,927,404
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes to the consolidated financial statements


Vault Energy Trust
Notes to the Consolidated Financial Statements
Six months ended June 30, 2005
(Unaudited)


Vault Energy Trust ("Vault" or the "Trust") is an open-ended, unincorporated investment trust governed by the laws of the province of Alberta pursuant to a Trust Indenture. Valiant Trust Company has been appointed trustee under the Trust Indenture. The beneficiaries of the Trust are the holders of the Trust units ("unitholders").

The Trust was formed on April 25, 2005, completed a private placement on April 27, 2005 and began active oil and gas operations through its subsidiary, Vault Energy Inc. ("Vault Energy") as part of a plan of arrangement ("Plan of Arrangement") on June 22, 2005 involving Chamaelo Energy Inc. ("Chamaelo"), a new exploration focused entity ("ExploreCo"), Vault Energy and the Trust.

While the Trust was created on June 22, 2005, these unaudited consolidated financial statements follow the continuity of interests basis of accounting as if the Trust was a continuation of Chamaelo. As a result, the comparative figures are those of Chamaelo, while the results of operations include Chamaelo's results for the period up to and including June 21, 2005, and the Trust's results of operations from June 22, 2005 to June 30, 2005. Under the Trust Indenture, Vault pays monthly cash distributions to unitholders based upon the distributable cash of the Trust.

1. SIGNIFICANT ACCOUNTING POLICIES

The interim consolidated financial statements of Vault have been prepared by management in accordance with accounting principles generally accepted in Canada. The interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the audited consolidated financial statements of Chamaelo for the period ended December 31, 2004. The disclosures provided below are incremental to those included with the audited annual consolidated financial statements. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in Chamaelo Energy Inc.'s annual report for the period ended December 31, 2004.

(a) Exchangeable shares - non-controlling interest
Exchangeable shares in Vault Energy were issued pursuant to the Plan of Arrangement. The exchangeable shares are transferable and are retractable for Trust units. As such, they have been classified outside of equity as a non-controlling interest. Net income (loss) as reported is net of net income (loss) attributable to non-controlling interest.

(b) Convertible debentures
Convertible debentures are initially recorded at the fair value of the obligation without the conversion feature. The difference between the principal amount and the fair value without the conversion feature is recorded in unitholders' equity as equity component of convertible debentures. The obligation is accreted through earnings using the effective interest rate method and the equity component of convertible debentures is increased as the debentures are converted for Trust units.

2. PLAN OF ARRANGEMENT

The Plan of Arrangement involved the conversion of Chamaelo into the Trust, the acquisition by Vault Energy of certain petroleum and natural gas assets in West Central Alberta and North Eastern British Columbia (the "June 2005 acquisition") and the conveyance of certain assets to ExploreCo. As a result of the Plan of Arrangement former Chamaelo shareholders received 0.2 shares of ExploreCo and either 0.5 Trust units or 0.5 exchangeable shares for each Chamaelo share held.

a) June 2005 acquisition

On June 22, 2005, pursuant to the Plan of Arrangement, Vault Energy acquired certain petroleum and natural gas producing assets in West Central Alberta and North Eastern British Columbia. The total costs of the acquisition may change as the Trust completes the closing adjustment process.



---------------------------------------------------------------------
Purchase price:
Contract purchase price $ 395,000,000
Deal costs 2,113,706
Closing adjustments (24,446,895)
---------------------------------------------------------------------
$ 372,666,811
---------------------------------------------------------------------
---------------------------------------------------------------------

Net assets acquired:
Petroleum and natural gas assets $ 384,806,663
Asset retirement obligations (12,139,852)
---------------------------------------------------------------------
$ 372,666,811
---------------------------------------------------------------------


b) ExploreCo

Under the Plan of Arrangement, certain assets of Vault Energy were transferred to ExploreCo. At the time of the transaction, the entities were related and therefore the assets and liabilities of ExploreCo have been transferred to ExploreCo at Vault's net book value as follows:



---------------------------------------------------------------------
Net assets disposed:
Petroleum and natural gas assets $ 44,694,608
Office equipment 32,426
Asset retirement obligations (3,206,034)
---------------------------------------------------------------------
$ 41,521,000
---------------------------------------------------------------------
---------------------------------------------------------------------

---------------------------------------------------------------------
Common shares $ 41,389,355
Warrants 131,645
---------------------------------------------------------------------
$ 41,521,000
---------------------------------------------------------------------
---------------------------------------------------------------------


c) Plan of Arrangement costs

Certain costs were incurred as a result of the Plan of Arrangement, which have been charged to accumulated income in the period. The costs are as follows:



---------------------------------------------------------------------
Consulting and legal fees $ 6,863,454
Fairness opinion 1,034,136
---------------------------------------------------------------------
Plan of Arrangement costs, before tax $ 7,897,590
Future tax recovery 2,693,078
---------------------------------------------------------------------
Plan of Arrangement costs, net of tax 5,204,512
---------------------------------------------------------------------
---------------------------------------------------------------------


3. OIL AND NATURAL GAS PROPERTIES AND EQUIPMENT

The Trust performed an impairment (ceiling) test calculation at June 30, 2005 to assess the recoverable value of the oil and natural gas properties. The oil and natural gas future prices are based on May 1, 2005 commodity price forecasts published by an independent reserve evaluator. These prices have been adjusted for commodity price differentials specific to the Trust. Based on these assumptions, there was no impairment at June 30, 2005.

For the six months ended June 30, 2005, $19,236,000 relating to undeveloped properties has been excluded from depletion and $66,972 of general and administrative costs have been capitalized.

4. REVOLVING CREDIT FACILITY

Concurrent with the Plan of Arrangement, Vault Energy entered into a credit agreement with a syndicate of Canadian banks to provide the Trust with $125,000,000 of total credit facilities. This is comprised of an extendible revolving term credit facility of $115,000,000 and a $10,000,000 operating facility each bearing interest at prime plus a premium ranging between 0% and 1.75% based on the Trust's debt to cash flow ratio. The credit facilities are secured by a $200,000,000 demand debenture on the assets of Vault Energy and are renewable on June 30, 2006. Should the facilities not be renewed they convert to 366-day non-revolving term facilities on the renewal date. Payment will not be required under the facilities for more than 365 days from the conversion date and, as such, the revolving credit facility has been classified as non-current. The effective interest rate as at June 30, 2005 was 4.25%.

5. CONVERTIBLE DEBENTURES

On April 27, 2005, the Trust completed a bought deal private placement financing issuing 55,000 Series D subscription receipts in the capital of the Trust at a price of $1,000 per Series D subscription receipt for aggregate gross proceeds of $55,000,000. Issue costs of $2,800,595 have been classified as deferred financing charges and will be amortized over the life of the debentures.

Pursuant to the Plan of Arrangement, each Series D subscription receipt was converted into one convertible debenture of the Trust. The convertible debentures have a face value of $1,000 per debenture and a maturity date of June 30, 2010. The convertible debentures pay interest semi-annually on June 30 and December 31 of each year at 8% per annum and are convertible into Trust units at a conversion price of $11.50 per Trust unit. Holders of convertible debentures have the option of redeeming them at a price of $1,050 per debenture after June 30, 2008 and on or before June 30, 2009 and thereafter until the maturity date at a price of $1,025 per debenture. The Trust may repay the convertible debentures in cash or through the issue of additional Trust units at 95% of the market price.

The debentures were initially recorded at the fair value of the obligation without the conversion feature. This fair value to make future payments of principal and interest was determined to be $52,400,000. The difference between the principal amount of $55,000,000 and the fair value of the obligation is $2,600,000 and has been recorded in unitholders' equity as the fair value of the conversion feature of the debentures. The following table shows the convertible debenture activities for the six months ended June 30, 2005:



---------------------------------------------------------------------
Debt Equity
Convertible Debentures Component Component
---------------------------------------------------------------------
Issued April 27, 2005 $ 52,400,000 $ 2,600,000
Accretion 72,000 -
---------------------------------------------------------------------
Balance at June 30, 2005 $ 52,472,000 $ -
---------------------------------------------------------------------
---------------------------------------------------------------------


6. NON-CONTROLLING INTEREST

Vault Energy Inc. is authorized to issue an unlimited number of exchangeable shares. Exchangeable shares are convertible into Trust units based on the exchange ratio, which is adjusted monthly to reflect the distributions paid on the Trust units. Cash distributions are not paid on exchangeable shares, however the exchangeable shareholders do have the right to vote at the meetings of unitholders. The exchangeable shares must be exchanged for Trust units by June 22, 2008.

Pursuant to the Plan of Arrangement, former shareholders of Chamaelo had the option to receive 0.5 exchangeable shares of Vault Energy Inc. for each Chamaelo share held to a maximum of 5,000,000 exchangeable shares. As a result, 3,889,462 exchangeable shares were issued in exchange for 7,778,924 common shares of Chamaelo.

The following summarizes the exchangeable shares outstanding as at June 30, 2005:



---------------------------------------------------------------------
Vault Energy Inc. Exchangeable Shares June 30, 2005 June 30, 2004
---------------------------------------------------------------------
Balance, beginning of period - -
Plan of Arrangement 3,889,462 -
---------------------------------------------------------------------
Balance, end of period 3,889,462 -
Exchange ratio, end of period 1.01068
---------------------------------------------------------------------
Trust units issuable upon conversion,
end of period 3,931,001 -
---------------------------------------------------------------------
---------------------------------------------------------------------


Following is a summary of the non-controlling interest:



---------------------------------------------------------------------
Non-Controlling Interest June 30, 2005 June 30, 2004
---------------------------------------------------------------------
Non-controlling interest,
beginning of period - -
Plan of Arrangement 25,880,626 -
Net income attributable to
non-controlling interest 97,986
---------------------------------------------------------------------
Non-controlling interest,
end of period 25,978,612 -
---------------------------------------------------------------------
---------------------------------------------------------------------


7. UNITHOLDERS' EQUITY

The Trust Indenture provides that an unlimited number of Trust units may be authorized and issued. Each Trust unit is transferable, carries the right to one vote and represents an equal undivided beneficial interest in any distributions from the Trust and in the assets of the Trust in the event of termination or winding-up of the Trust. All Trust units are of the same class with equal rights and privileges.

a) Trust units:



---------------------------------------------------------------------
Number of
Unitholders' Equity Shares Amount ($)
---------------------------------------------------------------------

Common shares of Chamaelo Energy Inc.
Balance at January 1, 2005 28,079,786 107,744,820
Exercise of warrants 421,020 2,225,562
Exercise of options 680,200 5,280,499
Options repurchased by Trust (Note 8) - (2,299,630)
Shares exchanged for exchangeable
shares (Note 6) (7,778,924) (25,880,626)
Share issue costs (net of future
taxes of $2,487) - (4,654)
Future tax effect of $5.0 million
flow-through share renunciation - (1,694,500)
---------------------------------------------------------------------
21,402,082 85,371,471

Shares cancelled on conversion
to Trust units (21,402,082) -
Trust units issued on cancellation
of common shares 10,701,051 -
Plan of Arrangement (Note 2(b)) - (41,389,355)
---------------------------------------------------------------------
10,701,051 43,982,116

Trust units issued in private placement 21,156,000 275,028,000
Trust unit issue costs - (13,903,084)
---------------------------------------------------------------------
Balance at June 30, 2005 31,857,051 305,107,032
---------------------------------------------------------------------

Warrants (note 7(b)) - 1,582,888
---------------------------------------------------------------------
Total Unitholders' Capital 31,857,051 306,689,920
---------------------------------------------------------------------
---------------------------------------------------------------------


On April 27, 2005, the Trust completed a bought deal private placement issuing 42,312,000 Series E subscription receipts in the capital of the Trust at a price of $6.50 per Series E subscription receipt for aggregate gross proceeds of $275,028,000.

Pursuant to the Plan of Arrangement, each Series E subscription receipt was converted into 0.5 Trust Units and 0.2 ExploreCo shares.

Redemption Right

Unitholders may redeem their Trust units for cash at any time, up to a maximum of $250,000 in any calendar month, by delivering their unit certificates to the Trust, together with a properly completed notice of redemption. The redemption amount per Trust unit will be the lesser of 90 percent of the market price of the Trust units on the principal market on which the they are traded during the 10 day trading period after the Trust units have been validly tendered for the redemption and the closing market price on the principal market on which they are traded on the date which they were validly tendered for redemption, or if there was no trade of the Trust unit s on that date, the average of the last bid and ask prices of the Trust units on that date.

b) Warrants

As a result of the Plan of Arrangement, unexercised warrants of Chamaelo were converted into 0.5 warrants of the Trust and 0.2 warrants of ExploreCo. Warrants of the trust allow the holder to purchase units of the Trust at the specified warrant exercise price. The exercise price of each warrant is reduced as of the date of conversion by the cumulative cash distributions attributable to one Trust unit.

The following summarizes the warrants outstanding as at June 30, 2005:



---------------------------------------------------------------------
Weighted
Number of Average
Warrants Warrants Price ($) Amount ($)
---------------------------------------------------------------------
Balance at January 1, 2005 3,917,626 4.34 2,020,000
Exercised for shares (421,020) 4.56 (305,467)
---------------------------------------------------------------------
Balance at June 22, 2005 3,496,606 4.31 1,714,533
------------
------------

Trust warrants granted on
cancellation of share
purchase warrants 1,749,061 7.65 -
Plan of arrangement (131,645)
---------------------------------------------------------------------
Balance at June 30, 2005 1,749,061 7.65 1,582,888
---------------------------------------------------------------------
---------------------------------------------------------------------


c) Stock options

On June 1, 2005, all of the stock options of Chamaelo's independent directors and officers (in their capacity as directors) vested and were exercised on June 22, 2005. In addition, on June 22, 2005, pursuant to the Plan of Arrangement, one-third of the options of employees and officers (in their capacity as employees) were vested and exercised and the remaining two-thirds of officer and employee options were settled by the Trust.

The following table summarizes the stock options outstanding at June 30, 2005:



Weighted Weighted
Number of Average Average
Options Price ($) Years to Expiry
---------------------------------------------------------------------
Balance at January 1, 2005 1,437,000 4.56 4.02
Options granted 100,000 5.94 4.66
Options exercised (680,200) 4.57 4.06
Options cancelled (856,800) 4.65 4.06
---------------------------------------------------------------------
Balance at June 30, 2005 - - -
---------------------------------------------------------------------


8. STOCK-BASED COMPENSATION

During the three months ended June 30, 2005, $2,415,580 was charged to income in respect of stock-based compensation cost. The compensation cost charged against income during the six months ended June 30, 2005 was $2,592,418. These charges comprise amortization of the fair value of stock options as well as the excess over fair value paid by the Trust to settle unexercised options with employees on June 22, 2005. The details of these costs follow:



Three Months Six Months
Ended Ended
Stock-based compensation June 30, 2005 June 30, 2005
---------------------------------------------------------------------
Amortization of Fair value 1,649,037 1,825,875
Excess over fair value on settlement 766,543 766,543
---------------------------------------------------------------------
Total stock-based compensation 2,415,580 2,592,418
---------------------------------------------------------------------
---------------------------------------------------------------------

Contributed surplus
---------------------------------------------------------------------
Balance, beginning of period 520,582 343,744
Amortization of fair value 1,649,037 1,649,037
Reclased to equity(1) (2,169,619) (1,992,781)
---------------------------------------------------------------------
Balance, end of period - -
---------------------------------------------------------------------
---------------------------------------------------------------------
(1) The contributed surplus value was reclassified to equity on June
22, 2005 when all of the outstanding options were exercised or
settled by the Trust.


The fair value of each option granted was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions for the six months ended June 30, 2005:



---------------------------------------------------------------------
Fair value per option $1.90
Risk-free rate 3.6%
Expected life 4 years
Expected volatility 34.0%
Dividend yield -
---------------------------------------------------------------------


On July 1, 2005, the Trust introduced its Trust Unit Rights Incentive Plan. The Trust has granted 1,143,170 rights to employees as of August 9, 2005. The rights vest over three years, expire five years from the date of grant and have an exercise price that declines by the amount of distributions paid per Trust unit.

9. PER TRUST UNIT INFORMATION

The weighted average number of Trust units outstanding for the determination of basic and diluted per Trust unit amounts are as follows:



Three Months Ended Six Months Ended
June 30, 2005 June 30, 2005
---------------------------------------------------------------------
Basic 15,873,849 14,967,448
Diluted 16,937,477 15,541,197
---------------------------------------------------------------------


- The weighted average and diluted calculations assume that the outstanding shares and dilutive instruments of Chamaelo have been consolidated to equivalent Trust units and dilutive instruments of Trust units.

10. RELATED PARTY TRANSACTION

As at June 30, 2005, accounts receivable included $1,061,000 related to advances to employees. Subsequent to June 30, 2005 all of the advances have been collected.

11. SUPPLEMENTAL CASH FLOW INFORMATION



Three Months Ended Six Months Ended
June 30, 2005 June 30, 2005
---------------------------------------------------------------------
$ $

Cash interest paid 1,243,271 1,414,258

Cash taxes paid 249,009 495,587
---------------------------------------------------------------------
---------------------------------------------------------------------


12. PHYSICAL SALES CONTRACTS

On April 13, 2005, Vault entered into physical delivery contracts as follows:



Floor Upside
Product Volume price Participation Term
---------------------------------------------------------------------

Natural
gas 11,000 GJ/d $7.00/GJ 60% above $7.00/GJ Jul 1, 2005 -
Oct 31, 2006

Oil 1,000 bbls/d $61.50/bbl 50% above $61.50/bbl Jul 1, 2005 -
Dec 31, 2006
---------------------------------------------------------------------


13. COMMITMENTS

The Trust is committed to payments under an operating lease for office space as at June 30, 2005:



$
---------------------------------------------------------------------
2005 305,099
2006 610,198
2007 745,447
2008 757,742
2009 779,884
Thereafter 1,628,952
---------------------------------------------------------------------
4,827,322
---------------------------------------------------------------------
---------------------------------------------------------------------


FORWARD LOOKING STATEMENTS

The Press Release may contain forward-looking information that involves a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. For this purpose, any statements herein that are not statements of historical fact may be deemed to be forward-looking statements. Such risks and uncertainties include, but are not limited to: risks associated with the oil and gas industry (e.g.-operational risks in exploration, development and production; changes and/or delays in the development of capital assets; uncertainty of reserve estimates; uncertainty of estimates and projections relating to production and costs; commodity price fluctuations; environmental risks; and industry competition).

Contact Information

  • Vault Energy Trust
    Robert T. Jepson
    President & CEO
    (403) 444-9662
    or
    Vault Energy Trust
    Greg Fisher
    VP Finance & CFO
    (403) 444-9651
    or
    Vault Energy Trust
    Nicole Collard
    Investor Relations
    (403) 444-9657
    or
    Vault Energy Trust
    Suite 2100,635 8th Avenue SW
    Calgary, Alberta T2P 3M3
    (403) 444-9500
    (403) 264-0061 (FAX)