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Harvest Energy Trust Announces 2002 Audited Financial and Operating Results

Apr 2, 2003 - 11:01 ET

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN 
THE UNITED STATED.  ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY 
CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW.  

CALGARY - Harvest Energy Trust ("Harvest") (TSX: HTE.UN)
announced today its 2002 audited financial statements for the period July 10
to December 31, 2002 and the independent engineering evaluation, effective
January 1, 2003, completed by McDaniel & Associates ("McDaniel").

OVERALL 2002 HIGHLIGHTS
- Harvest initiates operation with the successful acquisition of two
  property packages in East Central Alberta at acquisition prices below
  industry average;
- Harvest completes Initial Public Offering issuing 4.3 million units at
  $8.00 for gross proceeds of $34.5 million;
- December exit rates for Harvest equal to 8,610 BOE/day; and
- Year-end engineering evaluation provides for positive reserve
  appreciation yielding 211% production replacement.

    FINANCIAL & OPERATIONAL HIGHLIGHTS

    Financial ($000's except per-BOE and per-trust-unit amounts)
    -----------------------------------------------------------------
    Net revenue, before Hedging                               $19,964
    Net revenue, net of Hedging                               $18,955
    Cash flow from operations                                  $9,504
    Cash Flow per BOE                                          $12.61
    Net income                                                 $5,136
    Net Income per BOE                                          $6.81
    Capital expenditures                                      $76,923
    Net debt                                                  $34,688


    Cash distributed to Unitholders                            $1,863
      Per Trust Unit                                            $0.20

    Weighed Average Trust Units Outstanding, basic          1,391,608
    Weighted Average Trust Units Outstanding, diluted       1,479,108

    Trust Units Issued                                      9,312,500
    Unit Appreciation Rights granted                          787,500


    Operating and Reserves
    (Natural gas converted to barrel of oil equivalent (BOE) on a 6:1 basis)
    ------------------------------------------------------------------------

    Average Daily Sales volumes
      Crude oil and Natural gas liquids (bbls/d)                4,203
      Natural gas (mcf/d)                                         624
      Total (BOE/day)                                           4,307

    December 2002 Exit Rate Total (BOE/day)                     8,610

    Realized Commodity Prices (Cdn $)      Before Hedging   After Hedging
      Crude oil and Natural
       gas liquids ($/bbl)                      $30.20         $28.83
      Natural gas ($/Mcf)                        $4.54          $4.54
      Total ($ per BOE)                         $30.13         $28.79

    Field Netback $ per BOE                     $18.00         $16.66

    Working Interest Reserves Summary

                               Crude Oil    Natural               Present
                                & NGL         Gas       Total      Worth
                                (Mbbl)      (Mmcf)      (MBOE)    (at 10%)
                               ---------  ----------  ---------  ---------

    Proved Producing Reserve      9,759      1,377      9,989      $98,997
    Total Proved                 11,707      1,808     12,008     $115,965
    Risked Probable                 886        150        911       $7,536
                               ---------  ---------   ---------  ---------
    Established                  12,593      1,958     12,919     $123,501



    Finding & Acquisition Cost
    (Using January 1, 2003 McDaniel Valuation Report; Natural gas
    converted to barrel of oil equivalent (BOE) on a 6:1 basis)
    ------------------------------------------------------------------------

    Capital Expenditures                                      $76,923

    Finding & Acquisition Costs ($/BOE)
      Proved                                                    $6.03
      Established                                                5.63
      Proved plus Probable                                       5.28


    Our First 175 Days Of Operations: Harvest's production consists of medium
oil, heavy oil, natural gas liquids and natural gas from properties located in
East Central Alberta. It is noteworthy that the financial performance
described in the following paragraphs reflects the operations of 175 days of
the Thompson Lake Properties acquired on July 10, 2002, and only 45 days of
the Hayter Properties, acquired on November 15, 2002. As a result, the
weighted average values may not be indicative of the actual consolidated
performance of these two operations.
    Production revenue was $22.7 million and $21.7 million after accounting
for hedging transactions, before royalties. Average product prices realized,
before hedging, were $30.20 per barrel for crude oil and natural gas liquids
and $4.54 per Mcf of natural gas.
    Average daily production volumes for this period were 4,307 BOE per day.
This production was comprised of 4,203 barrels per day of crude oil and
natural gas liquids and 624 Mcfd of natural gas. Approximately 2,780 BOE/d was
contributed by the Thompson Lake Properties acquired on July 10, 2002. The
Hayter Properties, acquired on November 15, 2002, contributed the balance of
the production, being 5,791 BOE/d for the last 46 days of 2002, or an average
for 1,527 BOE/d for the entire period starting July 10, 2002. December average
production for the combined base of properties was 8,610 BOE/day.
    Operating expenses were $6.4 million or $8.49 per BOE. These unit
operating expenses reflect the greater contribution made by the Thompson Lake
Properties, which have higher relative unit operating expense. Current
operating expenses for the combined base of properties are in the range of
$7.50 per BOE.
    General and administrative expenses for the period were $0.6 million, or
$0.77 per BOE.
    Interest and financing expenses totaled $2.6 million for the period.
Interest rates for this period were higher due to Harvest's use of more
expensive bridge financing prior to the Initial Public Offering in December
2002. At December 31, 2002, the Trust had bank debt of $45.7 million and
working capital of $11.0 million.
    The provision for depletion and depreciation recorded for the period of
July 10 to December 31, 2002 was $5.1 million. The provision for site
restoration and abandonment recorded for the period was $0.5 million.

    For the period of July 10 to December 31, 2002, Harvest reported cash
flow from operations of $9.5 million. Net income for this period was
$5.1 million.

    Harvest was formed with the objective of aligning the interests of
management and those of the Unitholders. There is no third party management
contract with management and no related management fees. Management and
directors are significant Unitholders themselves.

    Hedging: Harvest has developed a risk management policy that uses
commodity hedges to mitigate commodity price risk, particularly as it relates
to oil sales. The objective of Harvest's risk management policy is to provide
Unitholders with greater distribution stability and certainty. Note 10(c) of
the attached Consolidated Financial Statements sets out Harvest's commodity
contracts as at December 31, 2002.
    Cash Distributions: Harvest paid its first distribution for December
2002, on January 15, 2003. Subsequent to this Harvest has paid two additional
distributions for the months of January and February 2003 and will be paying
March 2003 distributions of $0.20 on April 15, 2003.
    Taxability: In the year 2002 Harvest declared a distribution of $0.20 per
trust unit for December 2002. The December distribution is 100% tax deferred.
As the distribution was paid in January 2003 the amount is to be included in
the calculation of taxable income by individuals for the year ended December
31, 2003.

    INDEPENDENT RESERVES VALUATION HIGHLIGHTS

    Report Summary:

    - Over 211% of the Harvest's 2002 production was replaced
      through positive established reserves revisions;
    - Approximately 12% of the closing established reserves was added
      through improved reserve performance;
    - Total proved reserves increased 5.1%, comparing the January 1, 2003
      McDaniel report to the August 1, 2002 McDaniel report;
    - Total established reserves increased 1.5%, comparing the January 1,
      2003 McDaniel report to the August 1, 2002 McDaniel report;
    - Reserves were added at no cost since no material development capital
      was expended during 2002; and
    - Established Reserve Life Index of 4.3 years, based on McDaniel's
      forecast 2003 production of 8,320 BOE/day. This does not fully take
      into account production expected to be added through Harvest's 2003
      capital spending program.

    McDaniel's year-end established reserve forecasts show that Harvest
replaced 211% of its 2002 production. The bulk of these reserve additions were
the result of technical/performance revisions, which replaced 209% of 2002
production, the balance being the result of price forecast revisions. Since
Harvest has not invested material capital, these reserve revisions are
attributable to the underlying quality of the assets and the mode of
operations employed by Harvest, resulting in stabilized production
performance.


    Present Worth - Escalating    @ 0%    @ 10%    @ 12%   @ 15%
                                  -------    --------    --------   --------
    January 1, 2003 ($000)

    Proved Producing              114,999      98,997      96,394     92,781
    Total Proved                  137,770     115,965     112,458    107,612
    Probable                       22,009      15,072      14,090     12,795
    Total Proved and Probable     159,779     131,037     126,548    120,407
    Established                   148,774     123,501     119,503    114,010

    Established: August 1, 2002   132,753     108,515     104,792     99,720
    % Change                          12%         14%         14%        14%


                                                          Natural
    Reserves Summary            Crude Oil       NGL's       Gas        Total
    January 1, 2003               (Mbbl)       (Mbbl)      (Mmcf)     (MBOE)
                                 --------    --------    --------   --------

    Proved Producing                9,694          65       1,377      9,989
    Total Proved                   11,630          77       1,808     12,008
    Probable                        1,757          14         300      1,821
    Total Proved and Probable      13,387          91       2,108     13,829
    Established                    12,508          84       1,958     12,919

    Established: August 1, 2002    12,344          82       1,816     12,729
    % Change                         1.3%        1.9%        7.8%       1.5%


    Notes regarding tables: Natural gas converted at 6 mcf = 1
BOE. NGL converted at 1 bbl = 1 BOE. "Established Reserves" are
100% of proved reserves plus 50% of probable reserves. All estimates of
present worth are presented without provision for income taxes, general and
administrative expenses or future abandonment and reclamation liabilities.
Present worth is based on McDaniel's internal commodity price forecast as of
January 1, 2003, which assumes a base 2003 WTI oil price of US$26.00 per
barrel. Reserves are company working interest reserves before royalties.
Columns may not add due to rounding.

    Reconciliation of Reserves:  The following table contains a
reconciliation of Harvest's established reserves effective January 1, 2003.

                              Proved     PUD    Total    Risked
                           Producing   & PNP   Proved  Probable  Established
                           --------- -------  -------  --------  -----------
    Oil Equivalent (MBOE)

    Opening                      0         0        0         0           0
      Capital Additions          0         0        0         0           0
      Acquisitions           8,828     1,953   10,781     1,301      12,082
      Dispositions               0         0        0         0           0
      Revisions              1,915        66    1,981      (390)      1,591
      Production              (754)        0     (754)        0        (754)
    As at January 1, 2003    9,989     2,019   12,008       911      12,919


    SUBSEQUENT EVENTS

    Harvest has embarked on an active program of corporate activities during
the first few months of 2003:

    - Cash distributions of $0.20 per trust unit per month starting with
      December 2002, paid to Unitholders on January 15, 2003;
    - Three additional distributions of $0.20 per trust unit have been
      announced and have been paid or are payable for January, February and
      March 2003;
    - Initiated its 2003 capital development program focused on developing
      additional production and reserves from existing properties;
    - Established a Distribution Reinvestment and Optional Unit Purchase
      Plan; and
    - Completed an equity financing on February 4, 2003 at $10.00, a 25%
      premium above the IPO price, providing gross proceeds of $15 million.

    Harvest Energy Trust is a Calgary based oil and natural gas trust that
strives to deliver stable monthly cash distributions to its Unitholders
through its strategy of acquiring, enhancing and producing crude oil, natural
gas and natural gas liquids. Harvest's assets, comprised of high quality
medium and heavy gravity crude oil properties in East Central Alberta, and its
hands on operating strategy underpin Harvest's objective to deliver superior
economic returns to Unitholders. Harvest's strategy is to retain up to 50% of
its Cash Available for Distribution for capital reinvestment in the form of
existing property enhancement and new property acquisitions while maintaining
a high rate of cash distributions. Harvest currently operates approximately
99% of its production, enabling it to pursue additional asset growth through
property optimization and enhancement.

    ADVISORY: Certain information regarding Harvest Energy Trust and Harvest
Operations Corp. including management's assessment of future plans and
operations, may constitute forward-looking statements under applicable
securities law and necessarily involve risks associated with oil and natural
gas exploration, production, marketing and transportation such as loss of
market, volatility of prices, currency fluctuations, imprecision of reserve
estimates, environmental risks, competition from other producers and ability
to access sufficient capital from internal and external sources; as a
consequence, actual results may differ materially from those anticipated in
the forward-looking statements.


    Harvest Energy Trust
    Consolidated Balance Sheet
                                                                December 31,
                                                                       2002
    ------------------------------------------------------------------------
    Assets

    Current assets
      Cash and short-term investments                        $    4,502,947
      Accounts receivable                                        13,577,870
      Prepaid expenses                                              409,573
    ------------------------------------------------------------------------
                                                                 18,490,390

    Deferred financing charges, net of amortization               2,209,792
    Restoration fund (Note 3)                                       125,000
    Future income tax (Note 9)                                    1,272,000

    Property, plant and equipment, net (Note 4)                  71,631,507
    ------------------------------------------------------------------------
                                                             $   93,728,689
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------

    Liabilities and Unitholders' Equity

    Current liabilities
      Accounts payable and accrued liabilities               $    5,593,405
      Cash distributions payable                                  1,862,500
      Accrued interest payable                                      389,349
      Large corporation taxes payable                                46,771
    ------------------------------------------------------------------------
                                                                  7,892,025

    Long-term debt (Note 5)                                      45,286,396

    Site restoration and reclamation (Note 3)                       544,178
    ------------------------------------------------------------------------
                                                                 53,722,599
    Commitments and contingencies (Note 13)

    Unitholders' equity
      Unitholders' capital (Note 6)                              36,727,997
      Accumulated income                                          5,136,093
      Contributed surplus (Note 7)                                    4,500
      Accumulated cash distributions                             (1,862,500)
    ------------------------------------------------------------------------
                                                                 40,006,090
    ------------------------------------------------------------------------
                                                             $   93,728,689
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------

    Subsequent events (Note 12)

    See accompanying notes to consolidated financial statements.
    Approved by the Board of Directors:

        Signed  "John Brussa"        Director


        Signed  "Hector McFadyen"    Director



    Harvest Energy Trust
    Consolidated Statement of Income and Accumulated Income

    For the period from July 10 (date of formation) to December 31, 2002



    Revenues
      Oil and natural gas sales, net of hedging              $   21,699,861
      Royalties                                                  (2,864,411)
      Royalty income                                                119,982
    ------------------------------------------------------------------------
                                                                 18,955,432

    Expenses
      Operating                                                   6,396,294
      Interest and amortization of financing charges              2,046,406
      Interest on long-term debt                                    599,137
      General and administrative                                    576,780
      Site restoration and reclamation                              544,178
      Depletion, depreciation and amortization                    5,136,829
      Foreign exchange gain                                        (255,056)
    ------------------------------------------------------------------------
                                                                 15,044,568
    ------------------------------------------------------------------------
    Income before taxes                                           3,910,864

    Taxes
      Large corporation taxes                                        46,771
      Future tax recovery (Note 9)                               (1,272,000)
    ------------------------------------------------------------------------


    Net income for the period, being accumulated income      $    5,136,093
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------

    Income per trust unit, basic (Note 6)                            $ 3.69
    Income per trust unit, diluted (Note 6)                          $ 3.46
    ------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.


    Harvest Energy Trust
    Consolidated Statement of Cash Flows

    Period from July 10 (date of formation) to December 31, 2002
    ------------------------------------------------------------------------

    Cash provided by (used in)

    Operations
      Net income for the period                              $    5,136,093
      Add items not involving cash:
        Depletion, depreciation and amortization                  5,136,829
        Amortization of finance charges                             209,788
        Site restoration and reclamation                            544,178
        Foreign exchange gain                                      (255,056)
        Unit based compensation                                       4,500
        Future tax recovery                                      (1,272,000)
    ------------------------------------------------------------------------
    Cash flow from operations                                     9,504,332
    Change in non-cash working capital (Note 11)                 (6,974,243)
    ------------------------------------------------------------------------
                                                                  2,530,089

    Financing
      Issue of trust units, net of costs                         31,727,997
      Deferred charges                                           (2,419,580)
      Initial financing                                          55,041,491
      Repayment of initial financing                            (55,041,491)
      Issuance of debentures                                      5,000,000
      Issuance of long-term debt                                 60,202,789
      Repayment of long-term debt                               (14,661,337)
      Change in non-cash working capital (Note 11)                  781,049
    ------------------------------------------------------------------------
                                                                 80,630,918

    Investing
      Acquisition of properties                                 (76,153,324)
      Additions to property, plant and equipment                   (770,162)
      Proceeds on disposition of property, plant and equipment      155,150
      Reclamation fund                                             (125,000)
      Change in non-cash working capital (Note 11)               (1,764,724)
    ------------------------------------------------------------------------
                                                                (78,658,060)
    ------------------------------------------------------------------------


    Increase in cash and short-term investments                   4,502,947

    Cash and short-term investments, beginning of period                  -
    ------------------------------------------------------------------------
    Cash and short-term investments, end of period           $    4,502,947
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------

    Cash interest payments                                   $    1,886,921
    Cash tax payments                                        $            -
    Cash distribution per trust unit                         $         0.20
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------


    See accompanying notes to consolidated financial statements.

    1. Structure of the trust
       Harvest Energy Trust (the "Trust") is an open-ended, unincorporated
       investment trust formed under the laws of Alberta. Pursuant to a trust
       indenture and an administration agreement, the Trust is managed by its
       wholly owned subsidiary, Harvest Operations Corp. ("Harvest
       Operations"). The Trust acquires and holds net profit interests in oil
       and natural gas properties acquired and held by Harvest Operations.

       The beneficiaries of the Trust are the holders of trust units. The
       Trust makes monthly distributions of its distributable cash to
       unitholders of record on the last day of each calendar month. The
       amount of the distributions per trust unit are equal to the pro rata
       share of the net income of the Trust (including direct royalties
       received, net profit interests in the oil and natural gas properties
       and crown charges that are not deductible for income tax purposes of
       Harvest Operations), dividends of Harvest Operations, Alberta Royalty
       Tax Credits received less expenses (including interest and net debt
       repayments) and net realized capital gains of the Trust less an
       appropriate working capital reserve.

    2. Significant accounting policies

       These consolidated financial statements of the Trust have been
       prepared by management in accordance with Canadian generally
       accepted accounting principles ("Canadian GAAP").

       (a) Consolidation
           These consolidated financial statements include the accounts of
           the Trust and its wholly-owned subsidiary Harvest Operations. All
           inter-entity transactions and balances have been eliminated upon
           consolidation.

       (b) Use of estimates
           The preparation of financial statements requires management to
           make estimates and assumptions that affect the reported amounts of
           assets and liabilities and disclosures of contingencies, if any,
           as at the date of the financial statements and the reported
           amounts of revenues and expenses during the period. Specifically,
           amounts recorded for depletion, depreciation, amortization and
           site restoration and reclamation and amounts used for the ceiling
           test calculation are based on estimates of oil and natural gas
           reserves and future costs required to develop those reserves. By
           their nature, these estimates are subject to measurement
           uncertainty.

       (c) Revenue recognition
           Revenues associated with the sale of the Harvest Operation's crude
           oil, natural gas and natural gas liquids are recognized when title
           passes from Harvest Operations to its customer.

       (d) Cash and short-term investments

           Short-term investments with maturities less than three months are
           considered to be cash equivalents and are recorded at cost, which
           approximate market value.

       (e) Joint venture accounting
           Harvest Operations conducts substantially all of its oil and
           natural gas production activities through joint ventures, and the
           accounts reflect only their proportionate interest in such
           activities.

       (f) Property, plant and equipment
           The Trust follows the full cost method of accounting. All costs of
           acquiring oil and natural gas properties and related exploration
           and development costs, including overhead charges directly related
           to these activities, are capitalized and accumulated in one cost
           center. Maintenance and repairs are charged against income.
           Renewals and enhancements that extend the economic life of the
           capital assets are capitalized.

           Gains and losses are not recognized on disposition of oil and
           natural gas properties unless that disposition would alter the
           rate of depletion by 20% or more.

           Ceiling test
           The Trust places a limit on the aggregate cost of capital assets,
           which may be carried forward for depletion against net revenues of
           future periods (the ceiling test). The ceiling test is a cost
           recovery test whereby the capitalized costs, less accumulated
           depletion and site restoration and the lower of cost and market
           value of unproved land, are limited to an amount equal to
           estimated undiscounted future net revenues from proved reserves,
           less general and administrative expenses, site restoration,
           management fees, future financing costs and applicable income
           taxes. Costs and prices at the balance sheet date are used. Any
           costs carried on the balance sheet in excess of the ceiling test
           limitation are charged to income.

           Site restoration and reclamation provision
           The Trust provides for the cost of future site restoration and
           reclamation, based on estimates by management, using the unit-of-
           production method. Actual site restoration costs are charged
           against the accumulated liability.

           Depletion, depreciation and amortization
           Provision for depletion and depreciation of petroleum and natural
           gas assets is calculated on the unit-of-production method, based
           on proved reserves before royalties as estimated by independent
           petroleum engineers. The basis used for the calculation of the
           provision is the capitalized costs of petroleum and natural gas
           assets plus the estimated future development costs of proved
           undeveloped reserves. Reserves are converted to equivalent units
           on the basis of six thousand cubic feet of natural gas to one
           barrel of oil.

           Depreciation and amortization of office furniture and equipment is
           provided for at rates ranging from 20% to 33% per annum.

       (g) Income taxes
           The Trust is a taxable entity under the Income Tax Act (Canada)
           and is taxable only on income that is not distributed or
           distributable to the unitholders. As the Trust plans to distribute
           all of its taxable income to the unitholders and meets the
           requirements of the Income Tax Act (Canada) applicable to a Trust,
           the Trust makes provision for income taxes on the taxes payable
           basis. Harvest Operations follows the liability method of
           accounting for income taxes. Under this method, income tax
           liabilities and assets are recognized for the estimated tax
           consequences attributable to differences between the amounts
           reported in its financial statements and its respective tax base,
           using enacted or substantively enacted income tax rates. The
           effect of a change in income tax rates on future tax liabilities
           and assets is recognized in income in the period in which the
           change occurs. Temporary differences arising on acquisitions
           result in future income tax assets and liabilities.

       (h) Unit-based compensation
           The Trust uses the intrinsic value based method of accounting for
           the Trust Unit incentive plan (Note 7). Under the terms of the
           plan, the exercise price of rights granted may be reduced in
           future periods based on the distributions made to Trust
           unitholders. The Trust does not recognize compensation expense on
           the issuance of rights to employees and directors as the exercise
           price of rights equals the market price on the day of the grant.
           Rights issued to non-employees are accounted for in accordance
           with the fair value method of accounting for stock-based
           compensation.

       (i) Deferred financing charges
           Deferred financing charges relate to costs incurred on the
           issuance of debt and are amortized on a straight-line basis over
           the term of the debt, and are included in the associated interest
           expense.

       (j) Financial instruments
           Harvest Operations enters into financial instruments to manage its
           exposure to adverse fluctuations in commodity prices, foreign
           currency exchange rates, electricity costs and interest rates.
           Harvest Operation's policy is not to utilize derivative financial
           instruments for trading or speculative purposes. Realized gains or
           losses on financial instruments that are designated and assessed
           effective as hedges are recognized in income concurrently with the
           underlying hedged transaction. If the hedge of an anticipated
           transaction is terminated or ceases to be effective, the
           associated gain or loss at that date is deferred and recognized
           concurrently with the anticipated transaction. Subsequent changes
           in value of the financial instruments are reflected in income.

       (k) Foreign currency translation
           Monetary assets and liabilities denominated in a foreign currency
           are translated at the rate of exchange in effect at the balance
           sheet date. Revenues and expenses are translated at the monthly
           average rate of exchange. Translation gains and losses are
           included in income in the period in which they arise.

    3. Site restoration and reclamation

       Site restoration involves the surface clean up and reclamation of well
       site and field production facilities. In addition, certain plant
       facilities will require decommissioning, which involves dismantlement
       of facilities as well as the decontamination and reclamation of these
       lands. Total estimated future costs, net of salvage value, are
       approximately $9,213,808, of which $544,178 has been accrued to
       December 31, 2002. The board of directors has established a fund to
       ensure that cash is available to carry out the future site restoration
       and reclamation work. In 2002, $125,000 has been contributed to this
       fund.

    4. Property, plant and equipment

                                                  Accumulated
                                                   depletion,
                                             depreciation and       Net book
                                      Cost       amortization          value
    ------------------------------------------------------------------------

    Oil and natural
     gas properties           $ 55,188,754      $ (3,841,661)   $ 51,347,093
    Production facilities
     and equipment              21,343,287        (1,271,752)     20,071,535
    Office furniture and
     equipment                     236,295           (23,416)        212,879
    ------------------------------------------------------------------------
                              $ 76,768,336      $ (5,136,829)   $ 71,631,507
    ------------------------------------------------------------------------

       General and administrative costs of $174,425 have been capitalized
       during the period ended December 31, 2002.
       All costs are subject to depletion and depreciation at December 31,
       2002. In addition, future development costs of $9,857,300 are included
       in depletion and depreciation calculations at December 31, 2002.
       In accordance with Canadian GAAP, the Trust has performed a ceiling
       test as at December 31, 2002. Using December 31, 2002 commodity prices
       of WTI $US 31.23 per barrel for crude oil and AECO $5.20 per mcf for
       natural gas, resulted in a ceiling test excess.

    5. Long-term debt

       On November 14, 2002, Harvest Operations entered into a term borrowing
       base credit facility for U.S. $60 million. This facility has an
       initial borrowing base of U.S. $38 million, bears interest at the
       lender's prime rate plus an applicable margin in the case of a base
       rate loan, and at a LIBOR rate or Bankers Acceptance stamping fee plus
       an applicable margin in the case of a Eurodollar loan or Bankers
       Acceptance loan. The applicable margin is 1.125% or 1.875% for a base
       rate loan and 2.125% or 2.875% for a Eurodollar loan or Bankers
       Acceptance loan, depending on the amount of the borrowing base that is
       drawn. The effective interest rate for this facility was 5.35% for the
       period ended December 31, 2002. To secure the credit facility, Harvest
       Operation granted the lender a first priority lien on all of its
       assets. Certain restrictive covenants, including a requirement that
       Harvest Operations maintain price hedging agreements for not less than
       67% of its expected production, and financial ratios are required to
       be maintained for the purpose of measuring Harvest Operation's ability
       to meet its obligation under the credit agreement. Accrued interest is
       due and payable quarterly. The facility will revolve until April 30,
       2004 at which time any outstanding principal and interest balances
       must be repaid.


    6. Unitholders' capital

    (a) Authorized
        The authorized capital consists of an unlimited number of trust
        units.

        Each trust unitholder is entitled to a beneficiary interest in any
        distribution of the Trust and in any net assets in the event of
        termination or wind-up. Trust units are redeemable at any time at
        the option of the holder. The redemption price is equal to the
        lesser of 95% of the average market price of the trust units
        during a 10 day period commencing immediately after the redemption
        date and the closing market price on the redemption date. The
        total amount payable by the Trust in respect of redemptions in any
        calendar month shall not exceed $100,000. To the extent that a
        unitholder is entitled to a redemption payment, it will be
        satisfied by a cash payment from the Trust or by the Trust
        distributing a pro-rata number of Harvest Operations notes or
        distributing its own notes.

    (b) Issued
                                                  Number of
                                                    Units        Amount $
        ------------------------------------------------------------------
        Issued for cash on formation (i)                100           100
        Initial public offering (ii)              4,312,500    34,500,000
        Settlement of debenture (iii)             5,000,000     5,000,000
        Cancel the initial units issued on
         formation (i)                                 (100)         (100)
        Unit issue costs                                  -    (2,772,003)
        ------------------------------------------------------------------
        As at December 31, 2002                   9,312,500    36,727,997
        ------------------------------------------------------------------

        (i) On July 10, 2002, the Trust issued 100 units for cash proceeds
        of $100. As per the agreement on the initial issuance, the units
        were cancelled upon the completion of the initial public offering
        on December 5, 2002.

        (ii) On December 5, 2002, the Trust issued 3,750,000 trust units
        for $27.6 million, net of a 6% underwriters' fee and $702,003 of
        issue costs. The net proceeds were used to fully repay a loan from
        a corporation controlled by a director of Harvest Operations and
        partially repay the bank loans. In conjunction with this initial
        public offering, the Trust granted the underwriters an option, to
        purchase up to an additional 562,500 trust units at a price of
        $8.00 per unit. On December 17, 2002, the underwriters exercised
        the option; the net proceeds were used to partially repay the bank
        loans.

        (iii) Upon completion of the initial public offering the Trust
        paid the trust debenture principal and interest thereon, by the
        issuance of 5,000,000 trust units and a cash payment of $34,829.



    (c) Per unit information
        The following table summarizes the trust units used in calculating
        income per trust unit.

        ------------------------------------------------------------------
        Period ended December 31, 2002

        Weighted average trust units outstanding, basic      1,391,608
        Effect of trust unit rights                             87,500
        Weighted average trust units outstanding, diluted    1,479,108
        ------------------------------------------------------------------

        The income for the diluted income per trust unit determined
        includes the effect of $17,500 on trust unit distributions.

    7. Trust unit incentive plan

       A Trust unit incentive plan has been established whereby the Trust is
       authorized to grant non-transferable rights to purchase trust units to
       directors, officers, consultants, employees and other service
       providers to an aggregate of 875,000 trust units. The initial exercise
       price of rights granted under the plan is equal to the closing market
       price on the date immediately prior to the date the rights are granted
       and the maximum term of each right is not to exceed five years. The
       exercise price of the rights is adjusted downwards from time to time
       based upon the cash distributions made on the trust units if the
       minimum distribution rate is met.  The following summarizes the trust
       units reserved for issuance under the trust unit incentive plan:

                                                              Weighted
                                                Trust unit    average
                                                  rights   exercise price
                                                  Number          $
       ------------------------------------------------------------------
       Granted on November 25, 2002              787,500        8.00
       Reduction in exercise price due to
       December 2002 distribution                     -       (0.20)
       ------------------------------------------------------------------
       Outstanding, December 31, 2002            787,500        7.80
       ------------------------------------------------------------------

       All of the trust unit rights outstanding vest equally over the next
       four years on their anniversary date.

       Under CICA Handbook section 3870 "Stock-based Compensation and Other
       Stock-based payments", the Trust has chosen not to recognize
       compensation expense when trust unit rights are granted to employees
       and directors under the trust unit incentive plan with no cash
       settlement features. The fair value of trust unit rights issued to
       directors, officers and employees has been determined using a binomial
       option pricing model.  The binomial model has been utilized by the
       Trust as it allows the calculation of the fair value of a trust unit
       right with a decreasing exercise price, based on the distributions
       paid from the date of issue to the date of vesting.

       For purposes of estimating fair value disclosures below, the fair
       value of each trust unit right has been estimated on the grant date
       using the following weighted-average assumptions:

          Expected volatility                                 25.6%
          Risk free interest rate                                3%
          Expected life of the trust unit rights            4 years
          Estimated annual distributions per unit             $2.40
          ---------------------------------------------------------

       For the purposes of pro forma disclosures, the estimated fair value of
       the trust unit rights is amortized to expense over the vesting
       periods. The Trust's pro forma net income and per trust amounts would
       have been accounted for as follows:

       --------------------------------------------------------------------
       Net income                 As reported                    $5,136,093
                                  Pro forma                      $4,969,520
       Income per unit - basic    As reported                         $3.69
                                  Pro forma                           $3.57
       Income per unit - diluted  As reported                         $3.46
                                  Pro forma                           $3.35
       --------------------------------------------------------------------

       During the period, the Trust has recognized $4,500 in compensation
       expense and included it in general and administrative expense in the
       consolidated statement of income and accumulated income, for trust
       unit rights issued to non-employees.

    8. Related party transactions

       A corporation controlled by a director of Harvest Operations had
       advanced and was repaid $30,971,491 during the period ended
       December 31, 2002.  The loans bore interest at a rate of 12% per annum
       and were unsecured.  The corporation was granted warrants to purchase
       150,000 trust units at $1.00 per unit as a fee for providing the
       credit facility.  The warrants were exercised subsequent to year end.
       The Trust paid $1,215,891 of interest on the loan during the period
       ended December 31, 2002.

       Certain officers and directors of Harvest Operations and their
       associates provided $3,837,500 of the $5,000,000 of funds obtained
       pursuant to a debenture issued and repaid during the period ended
       December 31, 2002.  The debenture bore interest at a rate of 2.25% per
       annum and was unsecured. The Trust paid $26,731 of interest on the
       debenture during the period ended December 31, 2002.

       As at December 31, 2002, the financial derivatives (Note 10) were
       secured by a $3,000,000 personal guarantee provided by a director of
       Harvest Operations.

    9. Income taxes

       The provisions for future income taxes varies from the amount that
       would be computed by applying the combined Canadian federal and
       provincial income tax rates to the reported income before taxes as
       follows:
       --------------------------------------------------------------------
       Income before taxes                                     $ 3,910,864
       --------------------------------------------------------------------
       Computed income tax expense at the
        statutory rate of 42.1%                                  1,646,473
       Amount included in Trust income                          (2,912,280)
       --------------------------------------------------------------------
                                                                (1,265,807)
       Increase (decrease) resulting from:
         Non-deductible crown royalties and other payments           9,400
         Federal resource allowance                                (17,000)
         Other                                                       1,407
       --------------------------------------------------------------------
       Future income taxes                                    $(1,272,000)
       --------------------------------------------------------------------

       Future income taxes reflect the net tax effects of temporary
       differences between the carrying amounts of assets and liabilities of
       Harvest Operations for financial reporting purposes and the amounts of
       used for income tax purposes. The components of the Harvest
       Operation's future tax assets are as follows:

       --------------------------------------------------------------------
       Future tax assets:
         Tax pools of oil and natural gas in excess of
          net book value                                      $   552,700
         Resource allowance                                       172,000
         Tax loss carry forwards                                  547,300
       --------------------------------------------------------------------
       Net future tax asset                                   $ 1,272,000
       --------------------------------------------------------------------

       At December 31, 2002, the Trust has tax pools of aggregating
       $86,000,000, including $12,000,000 in non-capital losses expiring in
       2009.  The tax pools exceed the corresponding book values by
       approximately $18,000,000.

       At December 31, 2002, Harvest Operations has tax pools aggregating
       $63,000,000, including $1,300,000 in non-capital losses expiring in
       2009. The tax pools exceed the corresponding book values by
       approximately $3,500,000.

    10. Financial instruments

       The Trust is exposed to market risks resulting from fluctuations in
       commodity prices, foreign exchange rates and interest rates in the
       normal course of operations.

       (a) Fair values
           Financial instruments of the Trust consist mainly of cash,
           accounts receivable, prepaid expenses, accounts payable and
           accrued liabilities, distributions payable, large corporation
           taxes payable and long-term debt. As at December 31, 2002, there
           were no significant differences between the carrying amounts of
           these financial instruments reported on the balance sheet and
           their estimated fair value.

       (b) Interest rate risk
           The Trust is exposed to interest rate risk on its long-term debt.

       (c) Credit risk
           Substantially all of the accounts receivable are due from
           customers in the oil and natural gas industry and are subject to
           normal industry credit risks.  Concentration of credit risk is
           mitigated by having a broad customer, which includes a significant
           number of companies engaged in joint operations with the Trust.
           The Trust routinely assesses the financial strength of its
           partners and customers, including parties involved in the
           marketing or other commodity arrangements.  The carrying value of
           accounts receivable reflects management's assessment of the
           associated credit risks.

       (d) Commodity risk management
           The bank loan agreement requires the Trust to maintain hedging
           arrangements of not less than two thirds of its expected
           production volumes. The Trust uses oil sales contracts and
           derivative financial instruments to comply with this requirement.
           Under the terms of some of the derivative instruments, Harvest
           Operations is required to provide security from time to time based
           on the underlying market commodity price of those contracts.

           The following is a summary of the oil sales contracts with price
           swap or collar features as at December 31, 2002, that have fixed
           future sales prices:
           ------------------------------------------------------------------
                                                                    Mark to
                                                       Price per  Market Gain
           Swaps         Term                            Barrel     (Loss) $
           ------------------------------------------------------------------
           1,000 Bbls/d  January through March 2003     Cdn $38.30  (826,311)
           1,000 Bbls/d  April through June 2003        Cdn $37.59  (513,586)
           1,000 Bbls/d  July through September 2003    Cdn $37.10  (298,033)
           1,000 Bbls/d  October through December 2003  Cdn $36.63  (197,719)
             200 Bbls/d  January through March 2003    U.S. $24.95  (146,191)
             200 Bbls/d  April through June 2003       U.S. $24.39   (86,590)
           1,510 Bbls/d  January through March 2004    U.S. $23.23  (133,207)
           1,300 Bbls/d  January through March 2004    U.S. $24.33    88,347
           1,430 Bbls/d  April through June 2004       U.S. $22.93   (89,462)
           1,380 Bbls/d  July through September 2004   U.S. $22.70   (91,323)
           1,325 Bbls/d  October through December 2004 U.S. $22.54   (97,395)
           1,100 Bbls/d  January through March 2005    U.S. $22.38   (93,532)
           1,030 Bbls/d  April through June 2005       U.S. $22.18  (112,047)

           ------------------------------------------------------------------
                                                                    Mark to
                                                       Price per  Market Gain
           Collars       Term                            Barrel     (Loss) $
           ------------------------------------------------------------------
             500 Bbls/d  January through March 2003    Cdn $35.00
                                                        - 41.30     (278,156)
             500 Bbls/d  April through June 2003       Cdn $35.00
                                                        - 39.60     (165,338)
             500 Bbls/d  July through September 2003   Cdn $35.40
                                                        - 38.40      (89,217)
             500 Bbls/d  October through December 2003 Cdn $35.50
                                                        - 37.35      (65,740)
           ------------------------------------------------------------------

           The Trust has also entered into a physical contract to deliver
           6,000 Bbls/d of Lloydminster blend crude oil to the vendor of the
           property until December 31, 2003.  This requires the Trust to
           purchase approximately 1,000 Bbls/d of diluents to blend with its
           production to meet the oil quality requirements at the delivery
           point.  Under the contract, the Trust is paid a price equal to the
           NYMEX calendar WTI price less a fixed differential of U.S. $8.23
           per Bbl, such price not to be less than U.S. $14.40 per Bbl or
           greater than U.S. $17.24 per Bbl.

           The following is a summary of electricity price hedging swap
           contracts entered into by Harvest Operations to fix the cost of
           future electricity usage as at December 31, 2002:

           ------------------------------------------------------------------
                                                                    Mark to
                                                       Price per  Market Gain
           Swaps         Term                           Megawatt    (Loss) $
           ------------------------------------------------------------------
           5MW           January through December 2003 Cdn $46.30     63,072
           ------------------------------------------------------------------

           At December 31, 2002 the net mark-to-market unrealized loss for
           all the financial derivative contracts entered into by Harvest
           Operations was approximately $3,123,000.

    11. Change in non-cash working capital

        ---------------------------------------------------------------------
        Changes in non-cash working capital items:
          Accounts receivable                                   $(13,577,870)
          Prepaid expenses                                          (409,573)
          Accounts payable and accrued liabilities                 5,593,405
          Accrued interest payable                                   389,349
          Large corporation taxes payable                             46,771
        ---------------------------------------------------------------------
                                                                $ (7,957,918)
        ---------------------------------------------------------------------

        Changes relating to operating activities                $ (6,974,243)
        Changes relating to financing activities                     781,049
        Changes relating to investing activities                  (1,764,724)
        ---------------------------------------------------------------------
                                                                $ (7,957,918)
        ---------------------------------------------------------------------

    12. Subsequent events

       On January 15, 2003, the Trust announced a cash distribution of $0.20
       per trust unit to the unitholders of record on January 31, 2003. The
       distribution was paid on February 17, 2003. On February 17, 2003,
       79,208 trust units were issued for $794,650 on the reinvestment of
       distributions pursuant to the Distribution Reinvestment and Optional
       Unit Purchase Plans.

       On January 24, 2003, 150,000 trust units were issued to a corporation
       controlled by a director of Harvest Operations on the exercise of a
       warrant. The $150,000 in proceeds was added to working capital.

       On January 24, 2003, 32,500 trust unit rights were issued to employees
       under the Trust unit incentive plan with an exercise price of $10.21
       per unit. The trust unit rights vest equally over the next four years
       on their anniversary date.

       On January 29, 2003, Harvest Operations entered into an electricity
       purchase agreement whereby 5 MW per hour will be provided at a price
       of $46 per MW from January 1, 2004 to January 1, 2005.

       On February 4, 2003, pursuant to an underwriting agreement dated
       January 26, 2003, the Trust issued 1,500,000 special warrants that are
       exercisable into 1,500,000 trust units for $14,050,000, net of a 5%
       underwriters' fee and approximately $200,000 of issue costs.
       Subsequent to the exercising of these rights, the net proceeds were
       added to working capital and used to partially repay the long-term
       debt.

       On February 8, 2003, the Trust announced a cash distribution of $0.20
       per unit to the unitholders of record on February 28, 2003. The
       distribution was paid on March 17, 2003. On March 17, 2003, 73,230
       trust units were issued for $780,223 on the reinvestment of
       distributions pursuant to the Distribution Reinvestment and Optional
       Unit Purchase Plan.

       On February 14, 2003, 34,500 trust unit rights were issued to
       directors under the Trust unit incentive plan with an exercise price
       of $10.75 per unit. The trust unit rights vest equally over the next
       four years on their anniversary date.

       On February 26, 2003, the personal guarantee provided by a director
       for the financial derivative contracts in place was replaced by cash
       on account of approximately U.S. $2,163,000 USD from Harvest
       Operations.

    The following is a summary of the oil sales contracts with price swap or
    collar features that were entered into by Harvest Operations subsequent
    to December 31, 2002, that have fixed future sales prices:

    -------------------------------------------------------------------------
                                                                   Price per
    Trade Date        Swaps         Term                           Barrel
    -------------------------------------------------------------------------
    January 14, 2003  1,300 Bbls/d  January through March 2004     USD $24.33
    February 26, 2003 1,200 Bbls/d  April through June, 2004       USD $25.50
    February 26, 2003   500 Bbls/d  July through September, 2004   USD $24.56
    February 26, 2003   500 Bbls/d  October through December, 2004 USD $24.03
    March 21, 2003      500 Bbls/d  January through December, 2004 USD $24.12
    -------------------------------------------------------------------------

    Associated with the swap agreement entered into on March 21, 2003,
    Harvest Operations sold a put agreement to the counterparty for 500
    Bbls/day at USD$15.50.

    13. Commitments and contingencies

       The vendor of certain properties purchased by Harvest Operations has
       indicated its intent to charge an additional $5.8 million for the
       properties purchased.  Management believes that such amount is not
       owing to the vendor and accordingly, the additional amount has not
       been included in the cost of the purchase.  This dispute is expected
       to be resolved through an arbitration process and any amount paid and
       not recoverable will be recorded as capital assets upon settlement.
    %SEDAR: 00018577E

-30-


FOR FURTHER INFORMATION PLEASE CONTACT:

Jacob Roorda,
President

or

David M. Fisher,
Vice President,
Finance,
Harvest Energy Trust,
Telephone: (403) 265-1178,
Facsimile: (403) 265-3490,
Email address: information@harvestenergy.ca,
TSE Symbol: HTE.UN