Vault Energy Trust
TSX : VNG.UN

Vault Energy Trust

November 10, 2005 04:30 ET

Vault Energy Announces Third Quarter Financial and Operating Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 10, 2005) - Vault Energy Trust (TSX:VNG.UN) ("Vault") is pleased to present its consolidated financial and operating results for the period ended September 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 101-day period from June 22, 2005 to September 30, 2005.

HIGHLIGHTS

- Funds flow from operations for the quarter in excess of $21 million, with a payout ratio of 51%;

- During the third quarter of 2005, Vault assembled a talented technical team to manage the Trust's diverse asset base;

- Vault drilled 3 (2.8 net) wells during the quarter and has procured the services required for its 17 well fourth quarter drilling program;



------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
FINANCIAL (1) 2005 2004 2005 2004
------------------------------------------------------------------------
($ thousands, except per
Trust unit amounts)
Oil and natural gas
sales (2) 43,847 1,614 73,329 2,059

Funds flow from
operations 21,436 505 33,859 499
per Trust unit - basic 0.67 0.07 1.63 0.10
per Trust unit - diluted 0.59 0.07 1.52 0.10

Net income (loss) 10,833 16 11,276 (97)
per Trust unit - basic 0.34 - 0.54 (0.02)
per Trust unit - diluted 0.31 - 0.53 (0.02)

Property acquisitions 296 - 372,963 -
Capital expenditures 10,124 2,669 20,272 3,435

Bank debt 73,517 - 73,517 -
Net working capital
(deficit) (3) (10,978) 28,280 (10,978) 28,280

Trust units
outstanding(4)
weighted average
- basic 32,005,779 7,464,394 20,709,303 4,756,459
- diluted 37,425,483 7,656,702 21,319,748 4,881,262

end of period
- basic 32,096,990 7,464,394 32,096,990 7,464,394
- diluted 43,668,492 9,697,894 43,668,492 9,690,394
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) The results reflect the operations of Chamaelo from January 1, 2005
to June 21, 2005 plus the operations of Vault for the 101-day period
from June 22, 2005 to September 30, 2005.
(2) Oil and natural gas sales are shown net of transportation costs.
(3) Net working capital as at September 30, 2005 includes $3.7 million
payable to unitholders.
(4) Prior period per Trust unit amounts based on 2 Chamaelo shares for 1
Trust unit.


------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
OPERATING (1) 2005 2004 2005 2004
------------------------------------------------------------------------
Number of producing days 92 92 273 122

Daily production
Oil and NGL - (bbls/d) 3,200 233 2,026 222
Natural gas - (mcf/d) 30,899 812 17,686 809
------------------------------------------------------------------------
Oil equivalent
- (boe/d @6:1) 8,350 368 4,974 357

Sales price before
physical hedges(2)
Oil and NGL - ($/bbl) 68.95 52.75 63.66 5.78
Natural gas - ($/mcf) 9.16 6.48 8.41 6.69
------------------------------------------------------------------------
Oil equivalent
- ($/boe @6:1) 60.31 47.66 55.84 47.37

Effect of physical hedges
Oil and NGL - ($/bbl) (2.24) - (1.19) -
Natural gas - ($/mcf) (0.64) - (0.38) -
------------------------------------------------------------------------
Oil equivalent
- ($/boe @6:1) (3.23) - (1.83) -

Net sales price
Oil and NGL - ($/bbl) 66.71 52.75 62.47 5.78
Natural gas - ($/mcf) 8.52 6.48 8.03 6.69
------------------------------------------------------------------------
Oil equivalent
- ($/boe @6:1) 57.08 47.66 54.01 47.37

Royalties
Oil and NGL - ($/bbl) 11.51 7.73 9.54 7.35
Natural gas - ($/mcf) 2.11 1.31 1.87 1.29
------------------------------------------------------------------------
Oil equivalent
- ($/boe @6:1) 12.22 7.77 10.52 7.48

Production expenses
Oil and NGL - ($/bbl) 14.05 27.35 13.81 28.60
Natural gas - ($/mcf) 1.75 2.25 1.63 1.86
------------------------------------------------------------------------
Oil equivalent
- ($/boe @6:1) 11.87 22.25 11.44 22.01

Operating netback
Oil and NGL - ($/bbl) 41.15 17.67 39.12 15.83
Natural gas - ($/mcf) 4.66 2.92 4.53 3.54
------------------------------------------------------------------------
Oil equivalent
- ($/boe @6:1) 32.99 17.64 32.05 17.88
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) The results reflect the operations of Chamaelo from January 1, 2005
to June 21, 2005 plus the operations of Vault for the 101-day period
from June 22, 2005 to September 30, 2005.
(2) Sales prices are shown net of transportation costs


President's Message

Vault Energy Trust is pleased to announce the results for the quarter ended September 30, 2005. Cash flow from operations for the quarter was $21.4 million representing $0.67 per unit. Current production is approximately 8,700 boed, with an expected 2005 exit rate of approximately 9,000 boed. During the quarter, production averaged 8,350 boed. Current production is slightly below our initial expectations due to a production shortfall from the properties acquired in June of this year, for which Vault has been compensated by the vendor of the properties through a cash purchase price adjustment. Vault will apply the proceeds of the purchase price adjustment to restore the production shortfall.

We review our cash distributions on a monthly basis, taking into consideration the crude oil and natural gas prices in conjunction with our cash flow, capital budgets, and acquisition strategies. Vault's distribution policy remains unchanged and stable providing for monthly distributions of $0.115 per trust unit, implying a current pay out ratio of approximately 50%.

Drilling Program

At the inception of Vault, we anticipated drilling 20 wells by year-end. To date, we have completed ten gross (9.1 net) wells resulting in five net oil wells, three net gas wells, one (0.1 net) standing well, and one well that was drilled and abandoned. The remainder of the drilling program is in progress and we anticipate that all of these wells will be brought on-stream over the next several months. We are currently finalizing plans for our Winter/Spring 2006 drilling program.

Farm-out to Chamaelo

Chamaelo Exploration Ltd. (Chamaelo) has recently served notice to begin a 17 well drilling program under the Wimborne Farm-out agreement, targeting geologic horizons above the Nisku where Vault has not assigned any reserves. We anticipate that Chamaelo's drilling program will be completed by late December. We have not however, included any success from this program into our 2005 exit production rate.

Employees

During the past several months, we have been actively adding to our staff and believe we have assembled a top-notch team of people with an excellent blend of technical, operational, and financial abilities. The team will manage the assets we have acquired and will focus on growing our production base. Our goal is to grow Vault to 15,000-20,000 boed over the next 18-24 months through strategic acquisitions and the development of our existing asset base.

Capital Budget

Vault is currently in the process of reviewing its capital and operating budget for 2006. The asset teams are ranking the various capital project opportunities within their areas and are planning to finalize the capital budget by mid December for Board approval.

Guidance for 2006

Once the budget process is completed, we will be providing the market with 2006 financial and operational guidance. We anticipate that the guidance will be released in late December.

Independent Reserve Evaluators

Vault has recently engaged Sproule Associates Limited (Sproule) as independent reserve evaluation engineers. Vault and Sproule have commenced the year end reserves evaluation process.

For the remainder of 2005 we will focus on completing this year's programs and the streamlining of operating efficiencies. In addition to pursuing our many internal opportunities, we continue to review accretive acquisition opportunities that will strengthen our business and continue to add value for our unitholders. The third quarter of 2005 marks the completion of our first full quarter of operations and we are very pleased with the quality of our assets and our future direction. We would like to thank the entire Vault team for their dedication and enthusiasm through the rapid growth of this exciting new trust. We would also like to thank our unitholders for their continued support. Vault is looking forward to continued success and increasing value for our unitholders as we move forward.

Sincerely,

(Signed)

Robert T. Jepson

President & CEO

Management's Discussion and Analysis

November 8, 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 nine months ended September 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 $373.0 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 101 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. As of September 30, 2005, there have been 281,726 exchangeable shares exchanged for 290,943 Trust units. At September 30, 2005, there were 3,607,736 exchangeable shares outstanding at an exchange ratio of 1.04110.

On April 27, 2005, Chamaelo 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 of September 30, 2005, there were 54,371 convertible debentures remaining with 1,529 convertible debentures having been converted into 132,956 Trust units.

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.



------------------------------------------------------------------------
Three Months Ended Nine Months Ended
Summary of Financial September 30, September 30,
Results(1) 2005 2004 2005 2004
------------------------------------------------------------------------
($ thousands, except per
Trust unit amounts)
Oil and natural gas
sales (2) 43,847 1,614 73,329 2,059

Funds flow from
operations 21,436 505 33,859 499
per Trust unit - basic 0.67 0.07 1.63 0.10
per Trust unit - diluted 0.59 0.07 1.52 0.10

Net income (loss) 10,833 16 11,276 (97)
per Trust unit - basic 0.34 - 0.54 (0.02)
per Trust unit - diluted 0.31 - 0.53 (0.02)

Total assets 504,144 504,144

Bank debt 73,517 73,517
Net working capital
(deficit) (10,978) 28,280 (10,978) 28,280

Total long-term
liabilities 78,743 78,743
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) The results reflec t the operations of Chamaelo from January 1, 2005
to June 21, 2005 plus the operations of Vault for the 101-day period
from June 22, 2005 to September 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.


Production (1)
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, % September 30, %
2005 2004 Change 2005 2004 Change
------------------------------------------------------------------------
Average Daily
Production
Oil (bbls/d) 3,200 233 1,273 2,026 222 813
Natural gas
(mcf/d) 30,899 812 3,705 17,686 809 2,086
------------------------------------------------------------------------
Total (boe/d) 8,350 368 2,169 4,974 357 1,293
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) The results reflect the operations of Chamaelo from January 1, 2005
to June 21, 2005 plus the operations of Vault for the 101-day period
from June 22, 2005 to September 30, 2005.


Crude oil and natural gas liquids production averaged 3,200 boe/d (2004 - 233 boe/d) and 2,026 boe/d (2004 - 222 boe/d) during the three and nine months ended September 30, 2005, respectively.

Natural gas production averaged 30,899 mcf/d (2004 - 812 mcf/d) and 17,686 mcf/d (2004 - 809 mcf/d) during the three and nine months ended September 30, 2005.

Incremental production from the October 13, 2004 and November 30, 2004 property acquisitions added to production for the three and nine months ended September 30, 2005. Net production increases resulting from the June 22, 2005 acquisition and the ExploreCo disposition have been reflected in operational results for 101 days.

Production levels for the third quarter were lower than anticipated as throughout the third quarter the Trust used much of the quarter to assemble a talented technical team to manage the Trust's assets. In addition, Vault has procured the required services to pursue several capital projects to add production during the fourth quarter. Several of these capital projects, which have begun in the latter part of the third quarter, have resulted in the Trust having 380 boe/d of production behind pipe and awaiting tie-in.

The Trust's exit production rate for the month of September 2005 was approximately 8,500 boe/d, with a forecasted 2005 exit production rate of approximately 9,000 boe/d.



Revenue(1)
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, % September 30, %
($ thousands) 2005 2004 Change 2005 2004 Change
------------------------------------------------------------------------
Oil and NGL $ 19,638 $ 1,129 1,639 $ 34,548 $ 1,399 2,369
Natural gas 24,209 484 4,902 38,781 660 5,776
------------------------------------------------------------------------
Total $ 43,847 $ 1,613 2,618 $ 73,329 $ 2,059 3,461
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) The results reflect the operations of Chamaelo from January 1, 2005
to June 21, 2005 plus the operations of Vault for the 101-day period
from June 22, 2005 to September 30, 2005.


Average Sales Price
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, % September 30, %
2005 2004 Change 2005 2004 Change
------------------------------------------------------------------------
Oil and NGL ($/bbl) $ 66.71 $ 52.75 26 $ 62.47 $ 51.78 21
Natural gas ($/mcf) 8.52 6.48 31 8.03 6.69 20
------------------------------------------------------------------------
Average sales
price ($/boe) $ 57.08 $ 47.66 20 $ 54.01 $ 47.37 14
------------------------------------------------------------------------
------------------------------------------------------------------------


Oil and natural gas liquids revenue, net of transportation totaled $19.6 million (2004 - $1.1 million) and $34.5 million (2004 -$1.4 million) for the three and nine months ended September 30, 2005, respectively. Natural gas revenue, net of transportation totaled $24.2 million (2004 - $484,000) and $38.8 million (2004 - $660,000) for the three and nine months ended September 30, 2005.

Revenue increased during both the three and nine month periods ended September 30, 2005 due to the effect of the October 13, 2004 and November 30, 2004 acquisitions as well as 101 days of operations from the June 2005 acquisition. In addition, commodity prices have continued to rise, which has contributed to increased revenues.



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

Commodity Pricing
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
(Average unless September 30, % September 30, %
otherwise stated) 2005 2004 Change 2005 2004 Change
------------------------------------------------------------------------
Oil and NGL
Corporate price
$/bbl $ 66.71 $ 52.75 26 $ 62.47 $ 51.78 21
West Texas
Intermediate
US$/bbl 63.01 43.82 44 55.25 42.38 30
Edmonton Par $/bbl 77.21 56.61 36 68.55 55.30 24

Natural Gas
Corporate price
$/mcf $ 8.52 $ 6.48 31 $ 8.03 $ 6.69 20
AECO Daily Spot
Price $/mcf 9.30 6.51 43 7.85 6.72 17

Exchange Rates
U.S./Cdn Dollar
Period-end 1.16 1.36 (14) 1.16 1.36 (14)
U.S./Cdn Dollar
Average 1.20 1.31 (8) 1.22 1.32 (7)
------------------------------------------------------------------------
------------------------------------------------------------------------


Commodity Price Risk Management

Currently, the Trust does not have any financial derivative instruments to hedge against future commodity price fluctuations. However, the Trust did enter into two physical sales contracts on April 13, 2005, which have been in effect since July 1, 2005. The floor price on these instruments was lower than market prices during the quarter and as a result Vault's realized prices, particularly with respect to natural gas, rose less than has been historically the case when compared to benchmark prices.

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 risk inherent in the sale of oil and natural gas commodities.

The Trust has physical contracts in place representing approximately 34% of its September 30, 2005 exit rate production. A summary of the physical instruments follows:



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

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

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


Royalties
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, % September 30, %
($ thousands) 2005 2004 Change 2005 2004 Change
------------------------------------------------------------------------
Oil and NGL $ 3,388 $ 166 1,941 $ 5,276 $ 199 2,551
Natural gas 5,999 98 6,021 9,010 127 6,994
------------------------------------------------------------------------
Total Royalties $ 9,387 $ 264 3,456 $ 14,286 $ 326 4,282
------------------------------------------------------------------------

------------------------------------------------------------------------
Total Royalty Rate 21.4% 16.3% 19.5% 15.8%
------------------------------------------------------------------------
------------------------------------------------------------------------


Oil and natural gas royalties totaled $9.4 million (21.4% revenues) and $14.3 million (19.5% of revenues) during the three and nine months ended September 30, 2005. This compares to oil and natural gas royalties of $264,000 (15.8% of revenues) and $326,000 (16.3% of revenues) during the three and nine months ended September 30, 2004. 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 third quarter of 2005 reflect the full impact of the June 2005 acquisition and are in line with the Trust's expectation of royalties of approximately 22% of revenues for the remainder of the year.



Production Expenses
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, % September 30, %
($ thousands) 2005 2004 Change 2005 2004 Change
------------------------------------------------------------------------
Oil and NGL ($/bbl) $ 14.05 $ 27.35 (49) $ 13.81 $ 28.60 (52)
Natural gas ($/mcf) 1.75 2.25 (22) 1.63 1.86 (12)
------------------------------------------------------------------------
Total production
costs ($/boe) $ 11.87 $ 22.25 (47) $ 11.44 $ 22.01 (48)
------------------------------------------------------------------------
------------------------------------------------------------------------


Production expenses were $9.1 million ($11.87/boe) and $15.5 million ($11.44/boe) for the three and nine months ended September 30, 2005 compared to $754,000 ($22.25/boe) and $957,000 ($22.01/boe) for the three and nine months ended September 30, 2004. Production expenses on a gross basis have increased primarily due to the increased asset base of the Trust for the three and nine months ended September 30, 2005 compared to the respective periods in 2004. Production expenses have declined on a per boe basis primarily due to the addition of lower cost production compared to the properties of the Trust at September 30, 2004 through the November 2004 and June 2005 acquisitions.

Furthermore, third quarter scheduled plant maintenance and turnarounds together with the offsetting production interruptions have resulted in increased operating costs on a per boe basis compared to the second quarter of 2005.

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 reduction in per boe production costs by mid 2006.



Operating Netback
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, % September 30, %
2005 2004 Change 2005 2004 Change
------------------------------------------------------------------------
Oil and NGL ($/bbl)
Revenue 66.71 52.75 26 62.47 51.78 21
Royalties 11.51 7.73 49 9.54 7.35 30
Production expenses 14.05 27.35 (49) 13.81 28.60 (52)
------------------------------------------------------------------------
Operating Netback 41.15 17.67 133 39.12 15.83 147
------------------------------------------------------------------------
------------------------------------------------------------------------

Natural gas ($/mcf)
Revenue 8.52 6.48 31 8.03 6.69 20
Royalties 2.11 1.31 61 1.87 1.29 45
Production expenses 1.75 2.25 (22) 1.63 1.86 (12)
------------------------------------------------------------------------
Operating Netback 4.66 2.92 60 4.53 3.54 28
------------------------------------------------------------------------
------------------------------------------------------------------------

Combined ($/boe)
Revenue 57.08 47.66 20 54.01 47.37 14
Royalties 12.22 7.77 57 10.52 7.48 41
Production expenses 11.87 22.25 (47) 11.44 22.01 (48)
------------------------------------------------------------------------
Operating Netback 32.99 17.64 87 32.05 17.88 79
------------------------------------------------------------------------
------------------------------------------------------------------------


The operating netback is a key indicator of the Trust's ability to generate cash flow for distribution and reinvestment. During the three and nine months ended September 30, 2005, Vault generated an operating netback of $32.99 (2004 - $17.64) and $32.05 (2004 - $17.88) per boe, respectively.

General and Administrative Expenses ("G&A")

Net G&A costs totaled $1.4 million ($1.85/boe) and $4.0 million ($2.97/boe) for the three and nine months ended September 30, 2005, respectively, compared to $219,000 ($6.46/boe) and $404,000 ($9.30/boe) during the three and nine months ended September 30, 2004, respectively. Gross G&A costs have increased in 2005 primarily because the Trust has added technical staff to manage the increased asset and production base. In addition, Chamaelo paid out approximately $1.5 million in performance incentive bonuses in June of 2005. Previous to this, 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 the production increases from property acquisitions, which 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 continue at current levels for the remainder of the year.

Stock-Based Compensation

During the three and nine months ended September 30, 2005, $702,000 (2004 - $150,000) and $3.3 million (2004 - $169,000) was charged to income in respect of stock-based payments. The Trust uses the fair value method of allocating value to Trust unit rights. The stock-based compensation recognized represents the amortization of this fair value to income over the vesting period with an offset to contributed surplus.

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.

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 during the nine months ended September 30, 2005, representing the amount in excess of fair value paid by the Trust to settle employee stock options on June 22, 2005. The Trust also charged $2.3 million directly to unitholders' equity 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 total, $2.5 million of the stock-based compensation recognized for the nine months ended September 30, 2005, was non-cash.

Depletion, Depreciation and Accretion ("DD&A")

During the three and nine months ended September 30, 2005, DD&A expense totaled $12.2 million ($15.85/boe) and $22.4 million ($16.46/boe), respectively. DD&A was $342,000 ($10.10/boe) and $429,000 ($9.86/boe) for the three and nine months ended September 30, 2004, respectively. 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 nine months ended September 30, 2005, the provision for DD&A includes $304,000 ($0.40/boe) and $830,000 ($0.62/boe), respectively for accretion of asset retirement obligations.

For the three and nine months ended September 30, 2005, $98,000 ($0.13/boe) and $170,000 ($0.13/boe), respectively of accretion expense has been recognized in respect of the convertible debentures issued on April 27, 2005. See note 5. In addition, amortization of $140,000 ($0.18/boe) and $140,000 ($0.10.boe), respectively of deferred financing charges relating to the issue of convertible debentures has been recognized for the three and nine months ended September 30, 2005.

Interest Expense

The Trust incurred $2.0 million ($2.62/boe) and $3.5 million ($2.58/boe) in interest expense for the three and nine months ended September 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 accruing to holders of the $55,000,000 convertible debentures issued on April 27, 2005, at a rate of 8%, has increased overall interest expense. The Trust's average interest rate on credit facilities for the quarter was 4.70%

Taxes

Capital taxes for the three and nine months ended September 30, 2005 were $147,000 and $367,000, respectively, consisting primarily of Large Corporations Tax ("LCT"). For the three and nine months ended September 30, 2004, capital taxes were $19,000 and $36,000, respectively. 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 near 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 September 30, 2005, a future tax recovery of $3.2 million (2004 - $nil) was recorded. For the nine months ended September 30, 2005 a future tax recovery of $2.7 million (2004 - $nil) was recorded.

Funds Flow and Net Income

Funds flow from operations for the three and nine months ended September 30, 2005 was $21.4 million ($0.59 per diluted Trust unit) and $33.9 million ($1.63 per diluted Trust unit). This compares to funds flow from operations for the three and nine months ended September 30, 2004 of $505,000 ($0.07 per diluted Trust unit) and $499,000 ($0.10 per diluted Trust unit).

The Trust had net income of $10.8 million ($0.31 per diluted Trust unit) for the three months ended September 30, 2005 compared to net income of $16,000 ($nil per Trust unit) for the same period in 2004. Net income for the nine months ended September 30, 2005 totaled $11.3 million ($0.53 per diluted Trust unit) compared to a net loss of $97,000 ($0.01 loss per Trust unit) for the same period in 2004.



Capital Expenditures
------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
($ thousands) 2005 2004 2005 2004
------------------------------------------------------------------------
Land 14 162 636 366
Drilling, completions
and workovers 7,118 1,758 14,268 1,937
Equipment 1,582 158 2,496 158
Geological and Geophysical 326 241 1,638 399
Office 1,084 11 1,234 81
------------------------------------------------------------------------
Capital expenditures 10,124 2,330 20,272 2,941
Property acquisitions 296 339 372,963 494
------------------------------------------------------------------------
Total capital expenditures
and property acquisitions 10,420 2,669 393,235 3,435
------------------------------------------------------------------------
------------------------------------------------------------------------


During the three and nine months ended September 30, 2005, Vault drilled 3 (2.8 net) and 17 (11.4 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 $10.1 million and $20.3 million for the three and nine months ended September 30, 2005, respectively. Much of the capital spent in the third quarter was spent in the latter part of the quarter and as a result the Trust has approximately 380 boe/d behind pipe and awaiting tie-in. Office capital was spent on leaseholds as the Trust has expanded its head office to accommodate the talented technical team it has assembled.

On June 22, 2005, concurrent with the Plan of Arrangement, Vault completed the June 2005 acquisition for approximately $373.0 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.

Distributable Cash

Distributions are paid 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 nine months ended September 30, 2005, Vault distributed $11.0 million and $14.7 million, respectively, or $0.115 per Trust unit to unitholders. This amount includes 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 nine months ended September 30, 2005 is 51% and 43%, respectively.

Liquidity and Capital Resources

Bank debt was $73.5 million and the net working capital deficit was $11.0 million at September 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 $373.0 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. As of September 30, 2005, there have been 281,726 exchangeable shares exchanged for 290,943 Trust units. At September 30, 2005, there were 3,607,736 exchangeable shares outstanding at an exchange ratio of 1.04110.

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. As of September 30, 2005, there were 54,371 convertible debentures remaining with 1,529 convertible debentures having been converted into 132,956 Trust units.



Summary of Quarterly Results

($ thousands) Q2/04 Q3/04 Q4/04 Q1/05 Q2/05 Q3/05
------------------------------------------------------------------------

Oil and natural gas sales (1) 446 1,614 7,057 13,489 15,993 43,847

Cash flow from operations (7) 508 3,494 6,902 5,522 21,436
per Trust unit - basic - 0.06 0.30 0.50 0.35 0.67
per Trust unit - diluted - 0.06 0.28 0.46 0.33 0.59

Net income (loss) (113) 16 441 1,479 (1,036) 10,833
per Trust unit - basic (0.06) - 0.04 0.10 (0.07) 0.34
per Trust unit - diluted (0.06) - 0.04 0.10 (0.07) 0.31
------------------------------------------------------------------------
------------------------------------------------------------------------

(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 September 30, 2005, the Trust had 32,096,990 Trust units and 3,607,736 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 80% of cash distributions may be taxable and 20% 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 capital leases for vehicles. The following table summarizes the Trust's commitments at September 30, 2005:



------------------------------------------------------------------------
Total
Minimum Commitments Each Year Committed
---------------------------------
($ thousands) 2005 2006 2007 2008 2009 After 2009 Total
------------------------------------------------------------------------
Capital lease
obligations 28 104 103 59 1,841 - 2,135
Operating lease
obligation 153 610 745 758 780 1,629 4,675
------------------------------------------------------------------------
181 714 848 817 2,621 1,629 6,810
------------------------------------------------------------------------
------------------------------------------------------------------------


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

September 30, December 31,
2005 2004
------------------------------------------------------------------------
(Unaudited)

Assets
Current assets:
Accounts receivable $ 10,950,681 $ 6,489,451
Prepaid expenses and deposits 1,962,703 234,993
------------------------------------------------------------------------
12,913,384 6,724,444

Oil and gas properties and
equipment (Note 3) 484,198,227 142,124,354

Deferred financing charges (Note 5) 2,660,565 -
Goodwill 4,179,193 4,179,193
Future income taxes 192,749 -
------------------------------------------------------------------------
$ 504,144,118 $ 153,027,991
------------------------------------------------------------------------

Liabilities and Unitholders' Equity
Current liabilities:
Revolving credit facility (Note 4) $ - $ 12,965,269
Accounts payable and
accrued liabilities 20,177,642 8,398,310
Distributions payable to unitholders 3,713,606 -
------------------------------------------------------------------------
23,891,248 21,363,579

Capital lease obligation 178,464 29,328
Natural gas sales contract 1,875,901 2,846,002
Revolving credit facility (Note 4) 73,517,324 -
Convertible debentures (Note 5) 51,111,362 -
Future income taxes - 2,773,746
Asset retirement obligation 25,577,697 15,562,509

Non-controlling interest (Note 6) 25,372,325 -

Unitholders' equity:
Trust units/common shares (Note 7) 311,535,985 109,764,820
Contributed surplus (Note 8) 702,057 343,744
Equity component of convertible
debentures (Note 5) 2,527,720 -
Accumulated cash distributions (18,399,203) -
Accumulated (deficit) income 6,253,238 344,263
------------------------------------------------------------------------
302,619,797 110,452,827
------------------------------------------------------------------------
$ 504,144,118 $ 153,027,991
------------------------------------------------------------------------
------------------------------------------------------------------------
Subsequent event (Notes 2 and 5)
See accompanying notes to the consolidated financial statements


Approved by the Board of Directors:

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


VAULT ENERGY TRUST
Consolidated Statements of Income

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
(Unaudited) 30, 2005 30, 2004 30, 2005 30, 2004
------------------------------------------------------------------------

Revenue:
Oil and natural gas $44,947,777 $1,664,024 $75,141,634 $2,126,952
Transportation
expense (1,100,363) (50,316) (1,812,237) (67,650)
Royalties (9,387,256) (263,118) (14,285,748) (325,353)
Interest income - 148,127 - 164,347
------------------------------------------------------------------------
34,460,158 1,498,717 59,043,649 1,898,296

Expenses:
Production 9,115,903 753,255 15,526,948 956,713
General and
administrative 1,418,737 218,804 4,026,705 404,231
Interest 2,010,557 - 3,503,410 -
Depletion,
depreciation and
accretion 12,172,866 341,999 22,353,247 428,804
Stock-based
compensation 702,057 150,148 3,294,475 169,505
Foreign exchange 13,400 - 13,400 -
------------------------------------------------------------------------
25,433,520 1,464,206 48,718,185 1,959,253
------------------------------------------------------------------------
Income (loss) before
taxes 9,026,638 34,511 10,325,464 (60,957)
------------------------------------------------------------------------

Taxes:
Current taxes 147,471 18,515 367,235 35,815
Future income tax
recovery (3,230,244) - (2,691,772) -
------------------------------------------------------------------------
Net income
(loss) before
non-controlling
interest 12,109,411 15,996 12,650,001 (96,772)
Non-controlling
interest (Note 6) (1,275,643) - (1,373,629) -
------------------------------------------------------------------------
Net income (loss) $10,833,768 $ 15,996 $11,276,372 $ (96,772)
------------------------------------------------------------------------


Consolidated Statements of Accumulated (Deficit) Income

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
(Unaudited) 30, 2005 30, 2004 30, 2005 30, 2004
------------------------------------------------------------------------
Accumulated (deficit)
income, beginning
of period $(4,417,645) $ (112,768) $ 344,263 $ -
Net (loss) income 10,833,768 15,996 11,276,372 (96,772)
Costs of plan of
arrangement (net of
future tax recovery
of $2,777,363)
(Note 2) (162,885) - (5,367,397) -
------------------------------------------------------------------------
Accumulated
(deficit), end
of period $ 6,253,238 $ (96,772) $ 6,253,238 $ (96,772)
------------------------------------------------------------------------
------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements



VAULT ENERGY TRUST
Consolidated Statements of Cash Flows

Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
(Unaudited) 30, 2005 30, 2004 30, 2005 30, 2004
------------------------------------------------------------------------

Cash provided by (used in):

Operating:

Net income (loss) $ 10,833,768 15,996 11,276,372 (96,772)
Items not affecting
cash:
Depletion,
depreciation and
accretion 12,172,866 341,999 22,353,247 428,804
Amortization of
natural gas
sales contract (307,945) - (970,101) -
Stock-based
compensation 702,057 150,148 2,527,932 169,505
Future income taxes (3,230,244) - (2,691,772) -
Non-controlling
interest 1,275,643 - 1,373,629 -
Asset retirement
expenditures (10,551) (2,903) (10,551) (2,903)
------------------------------------------------------------------------
Funds flow from
operations 21,435,594 505,240 33,858,756 498,634
Net change in
non-cash operating
working capital (2,496,260) (371,754) 1,952,608 (459,257)
------------------------------------------------------------------------
18,939,334 133,486 35,811,364 39,377
------------------------------------------------------------------------

Financing:
Increase (decrease)
in revolving credit
facility (6,991,165) - 60,552,055 -
Convertible
debenture issue,
net of costs - - 52,199,405 -
Increase (decrease)
in capital lease
obligation 156,420 - 149,136 -
Trust units issued,
net of costs (153,674) (21,528) 260,964,101 31,216,005
Warrants exercised 20,270 - 1,940,365 -
Options exercised,
net of settled - - 811,250 -
Distributions to
unitholders (11,022,036) - (14,685,597) -
Plan of arrangement
costs (247,170) - (8,144,760) -
Change in non-cash
financing working
capital 1,061,213 - - -
------------------------------------------------------------------------
(17,176,142) (21,528) 353,785,955 31,216,005
------------------------------------------------------------------------

Investments:
Property acquisitions (296,395) (338,842)(372,963,206) (494,297)
Capital expenditures (10,124,162) (2,329,939) (20,271,897) (2,940,703)
Change in non-cash
investing working
capital 4,967,340 1,250,949 3,637,784 1,588,679
------------------------------------------------------------------------
(5,453,217) (1,417,832)(389,597,319) (1,846,321)
------------------------------------------------------------------------

Change in cash (3,690,025) (1,305,874) - 29,409,061
Cash, beginning
of period 3,690,025 30,714,937 - 2
------------------------------------------------------------------------

Cash, end of
period $ - 29,409,063 - 29,409,063
------------------------------------------------------------------------
------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements


Vault Energy Trust
Notes to the Consolidated Financial Statements
Nine months ended September 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 September 30, 2005.

Under the Trust Indenture, Vault pays monthly cash distributions to unitholders based upon the distributable cash of the Trust. The principal undertaking of the Trust is to indirectly explore for, develop and hold interests in petroleum and natural gas properties. Vault Energy Inc. carries on the business of the Trust and directly owns the petroleum and natural gas properties and assets related thereto. Under the Trust Indenture, the Trust may declare payable to unitholders all or any part of the income of the Trust. The income of the Trust is primarily comprised of interest earned on debt notes issued to Vault Energy Inc., as well as, amounts attributed to a net profits interest agreement entered into with Vault Energy Inc. The aggregate amounts received by the Trust each period are based on the consolidated cash flow from operations before changes in non-cash working capital each period, as adjusted on a discretionary basis, for cash withheld to fund capital expenditures.

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. Retractions of exchangeable shares are accounted for using step acquisition accounting. As a result, any excess between the fair market value of the trust units issued upon retraction and the book value of the corresponding exchangeable shares is recorded as an increase to property, plant and equipment. In addition, future taxes are recorded as a result of differences between fair market values tax bases.

(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.



------------------------------------------------------------------------
June 2005 acquisition ($)
------------------------------------------------------------------------
Purchase price:
Contract purchase price 395,000,000
Deal costs 2,410,102
Closing adjustments (24,446,895)
------------------------------------------------------------------------
372,963,207
------------------------------------------------------------------------
------------------------------------------------------------------------

Net assets acquired:
Petroleum and natural gas assets 385,103,059
Asset retirement obligations (12,139,852)
------------------------------------------------------------------------
372,963,207
------------------------------------------------------------------------
------------------------------------------------------------------------


Subsequent to September 30, 2005, Vault received a purchase price adjustment relating to the June 2005 acquisition from the vendor in the amount of $10,665,600.

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:



------------------------------------------------------------------------
ExploreCo ($)
------------------------------------------------------------------------
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
------------------------------------------------------------------------
------------------------------------------------------------------------


As at September 30, 2005, $3,581,492 was payable to ExploreCo, which included standard joint venture amounts and also revenue from purchasers collected on ExploreCo's behalf.

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:



------------------------------------------------------------------------
Plan of Arrangement Costs ($)
------------------------------------------------------------------------
Consulting and legal fees 7,110,624
Fairness opinion 1,034,136
------------------------------------------------------------------------
Plan of Arrangement costs, before tax 8,144,760
Future tax recovery 2,777,363
------------------------------------------------------------------------
Plan of Arrangement costs, net of tax 5,367,397
------------------------------------------------------------------------
------------------------------------------------------------------------


3. OIL AND NATURAL GAS PROPERTIES AND EQUIPMENT

The Trust performed an impairment (ceiling) test calculation at September 30, 2005 to assess the recoverable value of the oil and natural gas properties. The oil and natural gas future prices are based on October 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 September 30, 2005.

For the nine months ended September 30, 2005, $19,580,000 relating to undeveloped properties has been excluded from depletion and $71,330 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 September 30, 2005 was 4.25%.

5. CONVERTIBLE DEBENTURES

On April 27, 2005, Chamaelo completed a bought deal private placement financing issuing 55,000 Series D subscription receipts 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 nine months ended September 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 2,600,000
Accretion 98,044 -
Conversion to Trust units (1,458,682) (72,280)
------------------------------------------------------------------------
Balance at September 30, 2005 51,111,362 2,527,720
------------------------------------------------------------------------
------------------------------------------------------------------------


Subsequent to September 30, 2005, $4,800,000 of convertible debentures were converted to Trust units.

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 and the non-controlling interest ("NCI") as at September 30, 2005:



------------------------------------------------------------------------
Exchangeable Non-controlling
Shares Interest ($)
------------------------------------------------------------------------
Balance, January 1, 2005 - -
Plan of Arrangement 3,889,462 25,880,626
Net income attributable to NCI 97,986
------------------------------------------------------------------------
Balance, June 30, 2005 3,889,462 25,978,612
Retracted for Trust units (281,726) (1,881,930)
Net income attributable to NCI 1,275,643
------------------------------------------------------------------------
3,607,736 25,372,325
Exchange ratio, end of period 1.04110
------------------------------------------------------------------------
Trust units issuable upon conversion,
end of period 3,756,013
------------------------------------------------------------------------
------------------------------------------------------------------------


Exchangeable share retractions are accounted for using the step acquisition method of accounting. A summary of these acquisitions as at September 30, 2005 follows:



------------------------------------------------------------------------
Acquisition of non-controlling interest ($)
------------------------------------------------------------------------
Retraction of exchangeable shares reflected in property,
plant and equipment 2,377,205
Future taxes on acquisition of exchangeable shares (810,627)
------------------------------------------------------------------------
Excess of fair market value over book value 1,566,578
------------------------------------------------------------------------
------------------------------------------------------------------------


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

Trust units issued on conversion of
debentures 132,956 1,530,962
Trust units issued on retraction of
exchangeable shares 290,943 3,448,507
Trust units issued through Distribution
Re-investment and Optional Purchase Plan 11,106 109,129
Trust units issued on exercise of warrants 2,492 22,512
Trust unit issue costs - (262,802)
------------------------------------------------------------------------
Balance at September 30, 2005 32,294,548 309,955,340
------------------------------------------------------------------------
------------------------------------------------------------------------

Warrants (note 7(b)) - 1,580,645
------------------------------------------------------------------------
Total Unitholders' Capital 32,294,548 311,535,985
------------------------------------------------------------------------
------------------------------------------------------------------------


On April 27, 2005, Chamaelo 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 September 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 1,714,533
Plan of arrangement (131,645)
------------------------------------------------------------------------
Balance at June 30, 2005 1,749,061 7.65 1,582,888
Exercised for Trust units (2,492) 8.13 (2,243)
------------------------------------------------------------------------
Balance at September 30, 2005 1,746,569 7.30 1,580,645
------------------------------------------------------------------------
------------------------------------------------------------------------


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
September 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 September 30, 2005 - - -
------------------------------------------------------------------------
------------------------------------------------------------------------


d) Trust Unit Rights Incentive Plan

On July 1, 2005, the Trust introduced its Trust Unit Rights Incentive Plan. 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.



The following table summarizes the rights outstanding at September 30,
2005:

Weighted Weighted
Average Average
Number of Original Reduced Years to
Rights Price ($) Price ($) Expiry
------------------------------------------------------------------------
Balance at
July 1, 2005 -
Rights granted:
July 2005 603,170 10.45 10.11 4.76
August 2005 771,525 10.77 10.55 4.86
September 2005 190,525 13.27 13.18 4.94
------------------------------------------------------------------------
Balance at
September 30, 2005 1,565,220 10.95 10.70 4.83
------------------------------------------------------------------------
------------------------------------------------------------------------

Exercisable at
September 30, 2005 - - -
------------------------------------------------------------------------
------------------------------------------------------------------------


8. STOCK-BASED COMPENSATION

During the three months ended September 30, 2005, $702,057 was charged to income in respect of stock-based compensation cost. The compensation cost charged against income during the nine months ended September 30, 2005 was $3,294,475. These charges comprise amortization of the fair value of stock options and Trust unit rights 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 Ended Nine Months Ended
September 30, 2005 September, 30, 2005
Stock-based compensation ($) ($)
------------------------------------------------------------------------
Amortization of Fair value 702,057 2,527,932
Excess over fair value on settlement - 766,543
------------------------------------------------------------------------
Total stock-based compensation 702,057 3,294,475
------------------------------------------------------------------------
------------------------------------------------------------------------

Contributed surplus
Balance, beginning of period - 343,744
Amortization of fair value 702,057 2,527,932
Reclased to equity (1) - (2,169,619)
------------------------------------------------------------------------
Balance, end of period 702,057 702,057
------------------------------------------------------------------------
------------------------------------------------------------------------

(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 Chamaelo options granted was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:



------------------------------------------------------------------------
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 1,565,220 rights to employees as of September 30, 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.

The fair value of each right granted was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:



------------------------------------------------------------------------
Fair value per option $4.24
Risk-free rate 3.8%
Expected life 5.0
Expected forfeitures 10%
Expected volatility 19.0%
Dividend yield $1.38
------------------------------------------------------------------------
------------------------------------------------------------------------


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 Nine Months Ended
September 30, 2005 September 30, 2005
------------------------------------------------------------------------
Basic 32,005,779 20,709,303
Diluted 37,425,483 21,319,748
------------------------------------------------------------------------
------------------------------------------------------------------------
(x) 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. SUPPLEMENTAL CASH FLOW INFORMATION

Three Months Ended Nine Months Ended
September 30, 2005 September 30, 2005
($) ($)
------------------------------------------------------------------------
Cash interest paid 932,347 2,346,605

Cash taxes paid 147,471 643,058
------------------------------------------------------------------------
------------------------------------------------------------------------


11. PHYSICAL SALES CONTRACTS

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

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

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

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


12. COMMITMENTS

The Trust is committed to payments under an operating lease for office
space and capital leases for leased vehicles as at September 30, 2005:

------------------------------------------------------------------------
Minimum Commitments Each Year Total
----------------------------------- Committed
($ thousands) 2005 2006 2007 2008 2009 After 2009 Total
------------------------------------------------------------------------
Capital lease
obligations 28 104 103 59 1,841 - 2,135
Operating lease
obligation 153 610 745 758 780 1,629 4,675
------------------------------------------------------------------------
181 714 848 817 2,621 1,629 6,810
------------------------------------------------------------------------
------------------------------------------------------------------------


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)