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Harvest Energy Trust Announces First Quarter 2003 Results, Eastern Alberta Properties Acquisition and Confirms Distribution Guidance

May 29, 2003 - 11:06 ET

(HTE.UN - TSX)

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

CALGARY - (TSX: HTE.UN) - Harvest Energy Trust ("Harvest")
today announced its unaudited operating and financial results for the first
quarter 2003, the acquisition of certain Eastern Alberta properties and
distribution guidance.

FIRST QUARTER HIGHLIGHTS

- Sales volume averaged 8,223 BOE/d;
- Cash flow from operations during Q1 was $0.62 per trust unit after
  hedging losses ($1.45 per trust unit prior to hedging losses);
- Distributions of $0.60 per trust unit;
- Successfully drilled eight horizontal wells in Hayter; Proceeding with
  follow-up eight well drilling program in Q2;
- Completed a financing of 1.5 million Special Warrants at $10.00 each
  for gross proceeds of $15 million; and
- Subsequent to the end of the quarter on April 11, 2003 acquired the
  Killarney property adding 925 BOE/d of production and on May 28, 2003
  entered into an agreement to acquire the Eastern Alberta properties,
  set out below.


EASTERN ALBERTA PROPERTIES ACQUISITION HIGHLIGHTS

- Acquiring 1,350 BOE/d of production and 1.454 million BOE of
  established reserves on favourable terms ($9,800 per BOE/d and $9.08
  per BOE);
- Accretive to cash flow per trust unit in 2003;
- Similar operating characteristics to existing assets in Eastern
  Alberta; and
- Further ownership consolidation in the Killarney property, acquired in
  April 2003.

DISTRIBUTION GUIDANCE

Harvest confirms that subject to monthly review and approval by the Board
of Directors of Harvest Operations Corp. Harvest intends to continue to
distribute $0.20 per trust unit per month. Although the recent acquisitions
are accretive to cash flow per trust unit, additional cash flow derived from
the acquired properties will be used to fund Harvest's ongoing property
enhancement program and acquisition strategy.

    FIRST QUARTER FINANCIAL AND OPERATIONAL SUMMARY

    Financial                                            Three months ended
                                                             March 31, 2003
    -------------------------------------------------------------------------
    ($000's except per BOE and per trust unit amounts)
    Net revenue, before hedging                                     $23,307
    Net revenue, net of hedging                                     $14,738
    Hedging Loss                                                     $8,570
    Cash flow from operations                                        $6,489
    Cash flow from operations per trust unit                          $0.62
    Net income                                                       $3,736
    Net income per trust unit                                         $0.36
    Capital expenditures                                             $5,893
    Net debt                                                        $22,351
    -------------------------------------------------------------------------

    Financial                                            Three months ended
                                                             March 31, 2003
    -------------------------------------------------------------------------
    ($000's except per BOE and per trust unit amounts)
    Declared distributed to unitholders                              $6,024
    Declared distributions per trust unit                             $0.60
    Weighed average trust units outstanding                      10,387,522
    Trust units outstanding at the end of the period             11,114,938
    -------------------------------------------------------------------------


    Operating and Reserves          Three months ended         Period ended
                                        March 31, 2003    December 31, 2002
    -------------------------------------------------------------------------
    (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)                          8,077                4,203
      Natural gas (mcf/d)                          875                  624
    -------------------------------------------------------------------------
    Total (BOE/d)                                8,223                4,307
    Production exit rate (BOE/d)                 8,600                8,610
    -------------------------------------------------------------------------

    EASTERN ALBERTA PROPERTIES ACQUISITION

    Harvest announces that its wholly owned subsidiary, Harvest Operations
Corp., has entered into an agreement to purchase oil and natural gas producing
properties in the Amisk, Czar, Hayter and Killarney fields for consideration
of approximately $13 million subject to final adjustments. The acquisition is
expected to close prior to June 15, 2003.
    The acquisition will be financed through the issuance of 625,000 trust
units, a cash payment of $6 million and the assumption of certain liabilities.
Debt outstanding following closing of this acquisition is expected to be
approximately $49 million, or approximately 1.1 times annualized cash flow pro
forma this acquisition.

    Properties Highlights:
    - Current production of 1,350 BOE; The majority of the production is
      derived from the Amisk and Czar properties ($9,800 per BOE/d);
    - Established reserves as determined by McDaniel & Associates, of 1.454
      million BOE ($9.08 per BOE);
    - Accretive to cash flow per trust in 2003;
    - Similar operating characteristics and situated in close proximity to
      Harvest's core operating area in Eastern Alberta, enabling operating
      efficiencies;
    - Similar reservoir characteristics to Harvest's existing properties;
      High quality, mature production from large original-oil-in-place
      supported by an active natural water drive;
    - Property consolidation through the acquisition of an incremental 20%
      working interest in a portion of the Killarney property, acquired in
      April, 2003, bringing interest to 83% in this portion;
    - Property enhancement from production optimization to yield incremental
      production and reduce operating expenses;
    - Production from this property is medium gravity at 19 degrees API
      gravity; and
    - Trust units outstanding following the acquisition will be approximately
      12.1 million.

    2003 OUTLOOK

    Combining the incremental performance for the production from these
properties and Harvest's 2003 existing base of production, Harvest expects its
last three quarters of 2003 to be:

                              Last 9 months of 2003        12 months of 2003
                              ---------------------        -----------------
    Average Production                 10,600 BOE/d             10,000 BOE/d
    Average Royalty Rate                        14%                      13%
    Operating Expenses                $9.00 per BOE            $9.04 per BOE
    Payout Ratio                                70%                      75%

    FIRST QUARTER MESSAGE TO UNITHOLDERS

    The first quarter of 2003 was active for Harvest with the commencement of
the first development drilling program and the ongoing optimization of field
operations. Results were in-line with expectations except for two items that
impacted operational and financial performance. Specifically, Harvest
experienced higher operating expenses than had originally been expected as a
result of higher electrical power costs in Alberta. Electrical power costs
were driven primarily by the high natural gas prices experienced during the
quarter. On average, power costs represent approximately 60% of Harvest's
total operating expenses. As a result of higher than expected power cost
Harvest's operating expenses were $1.3 million (22%) higher than originally
forecast for the first quarter. All other components of operating expenses
have remained, on the whole, in line with expectations.
    Base levels of production from Harvest's assets is essentially in-line
with expectations. However, due to seasonal weather delays in implementing our
capital spending program (primarily drilling at the Hayter property) Harvest's
first quarter production was 4% lower than originally expected. Consequently,
cash flow was $0.7 million lower than expectation.
    These effects resulted in cash flow from operations of $6.8 million,
which was approximately $2 million lower than originally expected.
    Harvest has continued to build elements into its risk management strategy
to mitigate the impact of potential swings in future electrical power costs
and oil pricing through the execution of several favourable power hedges and
crude oil sales hedges. (For a detailed description see the Notes to the
Financial Statements, attached). Furthermore, the full positive impact of the
first quarter drilling program and the closing of the Killarney acquisition
are now being felt. Further positive production and cash flow performance are
anticipated from the closing of the Eastern Alberta properties acquisition.
Combining these effects, the payout ratio for cash flow for the last three
quarters is anticipated to average approximately 70%.
    As described above, Harvest anticipates significant improvements in
operating and payout performance as the balance of the year unfolds. We remain
committed to a strategy of maintaining the distribution rate of $0.20 per
trust unit per month, while continuing to deploy retained cash flow into
ongoing property enhancement and additional property acquisitions.

    MANAGEMENT'S DISCUSSION AND ANALYSIS

    Management's Discussion and Analysis

    Management's discussion and analysis ("MD&A") of Harvest Energy Trust's
financial condition and results of operations should be read in conjunction
with Harvest's unaudited interim consolidated financial statements for the
three month period ended March 31, 2003 and the audited consolidated financial
statements and MD&A for the period from July 10 (date of formation) to
December 31, 2002.

    Forward-Looking Information

    The following discussion contains forward-looking information with
respect to Harvest Energy Trust ("Harvest" or the "Trust"). This information
addresses future events and conditions and as such involves risks and
uncertainties that could cause actual results to differ materially from those
contemplated by the information provided. The information and opinions
concerning the Trust's future outlook are based on information available at
May 2003.

    Sales Volumes
    Harvest's production consists of medium and heavy oil, natural gas
liquids, and natural gas from properties located in East Central Alberta.
Sales of oil and natural gas averaged 8,223 BOE/d in the three month period
ended March 31, 2003.

    Average Sales Volumes

    Medium oil                                     3,181 Bbls/d        38%
    Heavy oil                                      4,853 Bbls/d        59%
    -------------------------------------------------------------------------
    Total oil                                      8,034 Bbls/d        97%
    Natural gas liquids                               43 Bbls/d         1%
    -------------------------------------------------------------------------
    Total oil and natural gas liquids              8,077 Bbls/d        98%
    Natural gas                                       875 mcf/d         2%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Total oil equivalent (6:1)                      8,223 BOE/d       100%
    -------------------------------------------------------------------------

    Harvest exited March 31, 2003 with a daily production rate of 8,627
BOE/d, which reflects the impact of the ongoing development and optimization
activities. Harvest anticipates further production growth in the balance of
2003 due to oil and natural gas property acquisitions and the continuing
development and optimization program.

    Revenue

    Revenues, before royalties, totaled $26.230 million during the three
month period ended March 31, 2003, which was the result of average realized
prices of $35.07 per barrel for oil and natural gas liquids and $9.38 per mcf
for natural gas. The overall impact of Harvest's hedging program is an
approximate decrease in revenue of $11.58 per BOE of production. Harvest plans
to continue with its current hedging strategy, and based on projected
production has approximately 70% of the balance of 2003 hedged at an average
WTI based price of $35.09 Cdn per barrel.

    Operating Netbacks

    The following is a summary of Harvest's operating netbacks for the three
month period ended March 31, 2003.

          -------------------------------------------------
                                                 ($/BOE)
                                             March 31, 2003
          -------------------------------------------------
          Market price                         $35.44/BOE
          Hedging loss                         $11.58/BOE
          -------------------------------------------------
          Selling price                        $23.86/BOE

          Royalties, net                        $3.95/BOE
          Operating costs                       $9.19/BOE
          -------------------------------------------------

          Netback                              $10.72/BOE
          -------------------------------------------------
          -------------------------------------------------

    Royalty Expense

    Harvest paid net royalties of $2.923 million in the three month period
ended March 31, 2003 or approximately $3.95 per BOE. The net royalty amount is
comprised of $1.709 million in freehold royalties, $1.145 million in crown
royalties and mineral taxes and $0.125 million in gross overriding royalties.
The balance relates to $0.056 million in royalty income received.

    Operating Expenses

    Harvest's operating expenses were $6.804 million in the three month
period ended March 31, 2003, or approximately $9.19 per BOE. Substantially all
of the entity's properties are operated by Harvest. The significant portions
of Harvest's operating costs were electricity (65%) and maintenance (14%).
During the three month period ended March 31, 2003, electricity costs
increased significantly due to market fluctuations. For the remainder of 2003,
Harvest has approximately 50% of its current electricity usage hedged at an
average price of $45.11 per MWh, which is anticipated to reduce the overall
electricity expense.

    General and Administration Expenses

    General and administrative expenses totaled $0.887 million or $1.20 per
BOE for the three month period ended March 31, 2003. Of this amount, $0.731
million or $0.99 per BOE was charged against income with the balance in the
amount of $0.156 million or $0.21 per BOE of general and administrative costs
were capitalized with respect to field enhancement and acquisition activities.

    Interest Expense and Amortization of Deferred Financing Charges

    Interest expense and deferred financing charges amounted to $1.112
million in the three month period ended March 31, 2003. Interest charges were
$0.706 million, while amortized deferred financing charges associated with
fees to secure bank lending facilities amounted to $0.406 million. The
deferred financing charges will be amortized on a straight-line basis over the
life of the bank credit facility.

    Depletion, Depreciation and Amortization and Future Site Reclamation
    Expenses

    Harvest's depletion, depreciation, and amortization and site restoration
provision totaled $5.777 million for the three month period ended March 31,
2003. This balance is comprised of oil and natural gas properties depletion
and depreciation of $5.188 million, $0.024 for depreciation of office
furniture and equipment, and $0.565 million for future abandonment and site
restoration costs. The depletion rate for oil and natural gas properties was
approximately $7.01 per BOE and is based on the costs of the oil and natural
gas properties purchased, capital expenditures incurred and capitalization of
general and administrative expenses. The $0.76 per BOE rate used to provide
for future site reclamation costs is founded on an ultimate future expenditure
of approximately $9.214 million estimated by management and an independent
third party. The depreciation of office furniture and equipment has been
calculated on a straight-line basis of 10% to 33%.
    Effective January 1, 2003, the Board of Directors of Harvest Operations
has approved a proposed amendment to the Net Profit Interest Agreement dated
September 27, 2002, removing the requirement to maintain cash in a segregated
reclamation fund. The cash requirements for future site restoration and
abandonment will now be funded through an allocation of a portion of the
Trust's borrowing base. As at March 31, 2003, Harvest had internally allocated
approximately $0.600 million of the current facility outstanding. Harvest
determined that this amendment was more in line with trust unitholders
interests, as the money previously segregated for the reclamation fund could
be applied to outstanding debt and reduce overall interest expense.

    Income Taxes

    Income taxes for the three month period ended March 31, 2003 are
comprised of $0.020 in large corporation tax and a $0.920 million future
income tax recovery. Other than large corporations tax, neither the Trust nor
its operating subsidiary are expected to pay cash taxes in 2003.

    Cash Flow and Income

    For the three month period ended March 31, 2003, consolidated cash flow
from operations and net income were $6.489 million ($8.77 per BOE) and $3.736
million ($5.05 per BOE), respectively. The corresponding per trust unit
figures are $0.62 (diluted - $0.60) and $0.36 (diluted $0.34).

    Capital Expenditures

    Capital expenditures totaled $5.893 million in the first three months of
2003. These expenditures have been almost entirely dedicated to the ongoing
optimization program of Harvest's properties acquired in 2002. We anticipate
this program to be substantially completed during the third quarter of 2003,
with an overall estimated cost of $13.1 million.
    Subsequent to the end of the quarter, on April 11, 2003 Harvest closed
the purchase of the Killarney properties in Eastern Alberta through its wholly
owned subsidiary, Harvest Operations Corp.  This asset purchase added
approximately 925 BOE/d in production, and was purchased for consideration of
$13.2 million.
    On May 26, 2003, Harvest entered into an agreement to purchase oil and
natural gas producing properties, through its wholly owned subsidiary Harvest
Operations Corp. The asset purchase will add approximately 1,350 BOE/d in
production, and will be purchased for total consideration of approximately 
$13 million consisting of cash and approximately 625,000 trust units. The
purchase is anticipated to close during the second quarter.

    Capitalization and Financial Resources

    As at March 31, 2003, bank debt was approximately $24.748 million and
unamortized deferred financing costs were $1.803 million, compared to balances
of $45.286 million of bank debt and $2.210 million of deferred financing
charges as at December 31, 2002.
    The working capital balance as at March 31, 2003 was $2.397 million,
which resulted in an overall net debt of $22.351 million. The decrease of
$12.337 million in net debt from December 31, 2002 is due to the trust unit
offering on February 4, 2003 and the favourable results of the foreign
exchange rate with regard to the U.S. dollar based facility. The impact of
both of these factors is partially offset by the debt utilized in financing
the expenditures for Harvest's optimization program.
    On February 4, 2003, Harvest issued 1.5 million special warrants for net
proceeds of $13.6 million, which were subsequently exercised into trust units
on March 7, 2003. An additional 150,000 warrants outstanding at December 31,
2003 were exercised into trust units on a one-for-one basis for net proceeds
of $150,000.

    Distributions

    During the first quarter of 2003, Harvest paid distributions of $0.20 per
month. Of the distributions declared in 2003, approximately 40% were
reinvested by unitholders through Harvest's distribution reinvestment plan.
This resulted in a net cash distributions paid during the quarter of    
$4.388 million. The Trust anticipates the 2003 distributions will likely be
45% taxable, and a 55% return of capital to Unitholders. Additional oil and
natural gas property acquisitions may change the taxability of the
distributions.


    Harvest Energy
    Consolidated Balance Sheets

    ------------------------------------------------------------------------
                                        March 31, 2003    December 31, 2002
    ------------------------------------------------------------------------
    Assets                                  (Unaudited)            (Audited)

    Current assets
      Cash and short-term investments    $   1,765,571        $   4,502,947
      Accounts receivable                   12,430,193           13,577,870
      Prepaid expenses and deposits
       (Note 4)                              1,517,955              534,573
    ------------------------------------------------------------------------
                                            15,713,719           18,615,390

    Deferred financing charges,
     net of amortization                     1,803,316            2,209,792
    Future income tax                        2,211,856            1,272,000

    Property, plant and equipment, net      72,311,989           71,631,507
    ------------------------------------------------------------------------
                                         $  92,040,880        $  93,728,688
    ------------------------------------------------------------------------

    Liabilities and Unitholders' Equity

    Current liabilities
      Accounts payable and accrued
       liabilities                       $   9,760,545        $   5,593,405
      Cash distributions payable             2,222,988            1,862,500
      Accrued interest payable               1,039,747              389,349
      Large corporation taxes payable           10,526               46,771
    ------------------------------------------------------------------------
                                            13,033,806            7,892,025

    Long term debt                          24,747,675           45,286,396

    Site restoration provision               1,109,521              544,178
    ------------------------------------------------------------------------
                                            38,891,002           53,722,598

    Unitholders' equity
      Unitholders' capital (Note 2)         52,146,773           36,727,997
      Accumulated income                     8,872,252            5,136,093
      Contributed surplus                       17,182                4,500
      Accumulated cash distributions        (7,886,329)          (1,862,500)
    ------------------------------------------------------------------------
                                            53,149,878           40,006,090
    ------------------------------------------------------------------------
                                         $  92,040,880        $  93,728,688
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------

    Subsequent events (Note 7)

    See accompanying notes to consolidated financial statements.


    Harvest Energy Trust
    Consolidated Statement of Income and Accumulated Income
    (Unaudited)

    ------------------------------------------------------------------------
                                                          Three Months Ended
                                                             March 31, 2003
    ------------------------------------------------------------------------
    Revenue
      Oil and gas sales                                       $  26,230,056
      Hedging loss                                               (8,569,683)
      Royalty income                                                 55,774
      Royalty expense                                            (2,978,415)
    ------------------------------------------------------------------------
                                                                 14,737,732
    Expenses
      Operating                                                   6,804,423
      Interest and amortization of deferred finance charges         462,137
      Interest on long-term debt                                    650,398
      General and administrative                                    730,812
      Site restoration and reclamation                              565,343
      Depletion and depreciation                                  5,212,142
      Foreign exchange gain                                      (2,503,722)
    ------------------------------------------------------------------------
                                                                 11,921,533

    ------------------------------------------------------------------------
    Income before taxes                                           2,816,199

    Taxes
      Large corporation tax                                          19,897
      Future tax recovery                                          (939,856)
    ------------------------------------------------------------------------

    Net income for the period                                     3,736,158
    ------------------------------------------------------------------------

    Accumulated income, beginning of period                       5,136,094

    Accumulated income, end of period                         $   8,872,252
    ------------------------------------------------------------------------

    Income per trust unit, basic (Note 3)                     $        0.36
    Income per trust unit, diluted (Note 3)                   $        0.34
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.


    Harvest Energy Trust
    Consolidated Statements of Cash Flows
    (Unaudited)

    ------------------------------------------------------------------------
                                                          Three Months Ended
                                                             March 31, 2003
    ------------------------------------------------------------------------

    Cash provided by (used in)

    Operating Activities
      Net income for the period                               $   3,736,158
      Items not requiring cash
        Depletion, depreciation and amortization                  5,212,142
        Site restoration and reclamation                            565,343
        Foreign exchange gain                                    (2,503,722)
        Amortization of finance charges                             406,476
        Future tax recovery                                        (939,856)
        Unit based compensation                                      12,682
    ------------------------------------------------------------------------
    Cash flow from operations                                     6,489,223
    Change in non-cash working capital (Note 5)                   2,089,877
    ------------------------------------------------------------------------
                                                                  8,579,100
    Financing Activities
      Issue of trust units, net of costs                         13,843,903
      Issue of trust units under the distribution
       reinvestment plan, net of costs                            1,574,873
      Issuance of long-term debt                                  5,631,425
      Repayment of long-term debt                               (23,666,424)
      Cash distributions                                         (5,663,341)
      Change in non-cash working capital balances
       related to financing activities (Note 5)                     650,398
    ------------------------------------------------------------------------
                                                                 (7,629,166)
    Investing Activities
      Additions to property, plant and equipment                 (5,892,624)
      Change in non-cash working capital balances
       related to investing activities (Note 5)                   2,205,314
    ------------------------------------------------------------------------
                                                                 (3,687,310)

    Decrease in cash and short-term investments                  (2,737,376)

    Cash and short-term investments, beginning of period          4,502,947
    ------------------------------------------------------------------------
    Cash and short-term investments, end of period               $1,765,571
    ------------------------------------------------------------------------

    Cash interest payments                                    $      55,662

    Cash tax payments                                         $      36,245

    Cash distributions per unit                               $        0.55
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------

    See accompanying notes to consolidated financial statements.

    1. Significant Accounting Policies

    These interim consolidated financial statements of the Trust have been
prepared by management in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP"). 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. In the opinion of
management, these financial statements have been prepared within reasonable
limits of materiality. The interim consolidated financial statements follow
the same significant accounting policies as described and used in the annual
report of the Trust for the year ended December 31, 2002 and should be read in
conjunction with that report.
    These consolidated financial statements include the accounts of Harvest
Energy Trust and its wholly owned subsidiary Harvest Operations Corp.

    2. Unitholders' capital

    (a) Authorized

    The authorized capital consists of an unlimited number of trust units.

    (b) Issued

                                                   Number of
                                                     units          Amount
    ------------------------------------------------------------------------
    As at, December 31, 2002                       9,312,500   $  36,727,997
    Exercise of warrants (i)                         150,000         150,000
    Special warrant exercise (ii)                  1,500,000      15,000,000
    Distribution reinvestment plan issuance (iii)    152,438       1,574,873
    Share issue costs                                      -      (1,306,097)
    ------------------------------------------------------------------------
    As at, March 31, 2003                         11,114,938     $52,146,773
    ------------------------------------------------------------------------
    ------------------------------------------------------------------------

    (i) 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.

    (ii) On March 7, 2003, 1,500,000 special warrants were exercised into
trust units. The special warrants were issued on February 4, 2003 for
$13,700,000 net of a 5% underwriters' fee and approximately $550,000 of issues
costs.

    (iii) 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 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 Plans.

    (c) Per unit information

    The following table summarizes the trust units used in calculating income
per trust unit.

    -------------------------------------------------------------------------
    Three months ended March 31, 2003

    Weighted average trust units outstanding, basic               10,387,522
    Effect of trust unit rights                                      221,767
    Weighted average trust units outstanding, diluted             10,609,289
    -------------------------------------------------------------------------

    The income for the diluted income per trust unit determined includes the
effect of $133,061 on trust unit distributions.

    3. 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
    -------------------------------------------------------------------------

    Outstanding, December 31, 2002            787,500                 $7.80
    Granted, January 24, 2003                  32,500                 10.21
    Granted, February 14, 2003                 34,500                 10.75
    Reduction in exercise price due to
     distributions                                  -                 (0.60)
    -------------------------------------------------------------------------
    As at, March 31, 2003                     854,500                 $7.42
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The trust unit rights outstanding vest equally over the next four years
on their anniversary date.
    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               $3,716,158
                                      Pro forma                 $3,281,929
    Income per unit - basic           As reported                    $0.36
                                      Pro forma                      $0.32
    Income per unit - diluted         As reported                    $0.34
                                      Pro forma                      $0.30
    -------------------------------------------------------------------------

    During the three month period, the Trust has recognized $12,682 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.

    4. Financial instruments

    The Trust uses oil sales contracts and derivative financial instruments
to mitigate the effect of fluctuations in commodity prices on prices realized.
The following is a summary of the oil sales contracts with price swap or
collar features as at March 31, 2003, that have fixed future sales prices:


                                                    Price per  Mark to Market
    Swaps          Term                                Barrel    Gain (Loss)
    -------------------------------------------------------------------------
    1,000 Bbls/d   April through June 2003          Cdn $37.59   ($433,015)
    1,000 Bbls/d   July through September 2003      Cdn $37.10   ($217,149)
    1,000 Bbls/d   October through December 2003    Cdn $36.63   ($144,714)
    200 Bbls/d     April through June 2003         U.S. $24.39   ($126,068)
    1,510 Bbls/d   January through March 2004      U.S. $23.23   ($446,315)
    1,300 Bbls/d   January through March 2004      U.S. $24.33   ($197,333)
    1,430 Bbls/d   April through June 2004         U.S. $22.93   ($376,106)
    1,200 Bbls/d   April through June, 2004        U.S. $25.50   ($580,372)
    1,380 Bbls/d   July through September 2004     U.S. $22.70   ($344,861)
    500 Bbls/d     July through September, 2004    U.S. $24.56        $764
    1,325 Bbls/d   October through December 2004   U.S. $22.54   ($298,873)
    500 Bbls/d     October through December, 2004  U.S. $24.03    ($11,937)
    500 Bbls/d     January through December, 2004  U.S. $24.12    ($44,419)
    1,100 Bbls/d   January through March 2005      U.S. $22.38   ($233,188)
    1,030 Bbls/d   April through June 2005         U.S. $22.18   ($241,924)
    -------------------------------------------------------------------------

                                                    Price per  Mark to Market
    Sold Put       Term                                Barrel    Gain (Loss)
    -------------------------------------------------------------------------
    500 Bbls/d     January through December 2004   Cdn $15.00     ($90,115)
    -------------------------------------------------------------------------

                                                   Price per   Mark to Market
    Collars        Term                            Barrel        Gain (Loss)
    -------------------------------------------------------------------------
    500 Bbls/d     April through June 2003         Cdn $35.00    ($125,053)
                                                      - 39.60
    500 Bbls/d     July through September 2003     Cdn $35.40     ($48,774)
                                                      - 38.40
    500 Bbls/d     October through December 2003   Cdn $35.50     ($39,237)
                                                      - 37.35
    -------------------------------------------------------------------------

    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 diluent 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 March 31, 2003:

                                                  Price per   Mark to Market
    Swaps       Term                               Megawatt    Gain (Loss)
    -------------------------------------------------------------------------
    5 MW.h      January through December 2003    Cdn $46.30      $64,020
    5 MW.h      January through December 2004    Cdn $46.00     ($15,330)
    9.75 MW.h   April 2003 through March 2006    Cdn $44.50      $65,700
    -------------------------------------------------------------------------

    At March 31, 2003 the net mark-to-market unrealized loss for all the
financial derivative contracts entered into by Harvest Operations was
approximately $3,884,299. Harvest Operations Corp. has provided a deposit to
the counterparties with some of its financial derivative contracts, based on
the mark-to-market value of those contracts at the end of the trading day. As
at March 31, 2003, this amount totaled $1,262,626 and is recorded in the
prepaid expense and deposits balance.

    5. Change in non-cash working capital

    Changes in non-cash working capital items:
    Accounts receivable                                        $1,147,677
    Prepaid expenses                                             (983,381)
    Accounts payable and accrued liabilities                    4,167,140
    Accrued interest payable                                      650,398
    Large corporation taxes payable                               (36,245)
    ----------------------------------------------------------------------
                                                               $4,945,589
    ----------------------------------------------------------------------
    Changes relating to operating activities                   $2,089,877
    Changes relating to financing activities                      650,398
    Changes relating to investing activities                    2,205,314
    ----------------------------------------------------------------------
                                                               $4,945,589
    ----------------------------------------------------------------------

    6. Related party transactions

    As at March 31, 2003, an electricity swap contract (Note 4) was secured
by a guarantee facilitated by a director of Harvest Operations Corp., for
which the counterparty is compensated.

    7. Subsequent events

    On April 11, 2003, the Trust acquired a crude oil producing property,
through its wholly owned subsidiary Harvest Operations Corp., for a cash
amount of $13.2 million.
    On April 15, 2003, the Trust paid the $0.20 per trust unit distribution
announced on March 18, 2003. The distribution paid consisted of $1,315,183 in
cash and 96,019 trust units issued for $907,805 on the reinvestment of
distributions pursuant to the Distribution Reinvestment and Optional Unit
Purchase Plan.
    On April 15, 2003, the Trust announced a cash distribution of $0.20 per
trust unit to the unitholders of record on April 30, 2003. The distribution
will be paid consisted of $1,316,529 in cash and 98,535 trust units issued for
$925,662 on the reinvestment of distributions pursuant to the Distribution
Reinvestment and Optional Unit Purchase Plan.
    On May 13, 2003, Harvest Operations Corp. entered into an electricity
purchase agreement whereby 5 MW per hour will be provided at a price of $46.00
per MW from January 1, 2004 to January 1, 2005, and $43.00 per MW from January
1, 2005 to January 1, 2006.
    The following is a summary of the oil sales contracts with price swap or
collar features that were entered into by Harvest Operations Corp. subsequent
to March 31, 2003, that have fixed future sales and purchase prices:

                                                               Price per
    Trade Date    Swap          Term                           Barrel
    -------------------------------------------------------------------------
    April 9, 2003 500 Bbls/d    January through December 2005  USD $24.00
    May 16, 2003  2,000 Bbls/d  January through December 2004  Calendar month
                                                               WTI less $7.75
                                                               per Bbl
    -------------------------------------------------------------------------

                                                               Price per
    Trade Date    Put           Term                           Barrel
    -------------------------------------------------------------------------
    May 19, 2003  1,000 Bbls/d  January through December 2004  USD $23.00
    May 19, 2003  1,000 Bbls/d  January through December 2004  USD $18.00
    -------------------------------------------------------------------------

                                                               Price per
    Trade Date    Call          Term                           Barrel
    -------------------------------------------------------------------------
    May 19, 2003  1,000 Bbls/d  January through December 2004  USD $27.95
    -------------------------------------------------------------------------
In connection with the May 16, 2003 swap, Harvest Operations Corp. is
required to provide the counterparty with 2,600 to 3,000 Bbls/d at the market
price at the time of the sale plus USD $0.35 per Bbl, from January through
December 2004. The actual volume sold at any given period, is at the option of
Harvest Operations Corp.
On May 27, 2003, the Trust acquired a crude oil producing property,
through its wholly owned subsidiary Harvest Operations Corp., for
consideration of 200,000 trust units.
On May 28, 2003, the Board of Directors approved the purchase of oil and
gas producing properties, through its wholly owned subsidiary Harvest
Operations Corp., for total consideration of approximately $13 million
consisting of cash and approximately 625,000 trust units. The purchase is
anticipated to close during the second quarter.

8. Comparative figures

Certain comparative figures have been reclassified to conform to the
current period's presentation.

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.
A part of Harvest's financial 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. Based upon Management's expectations for
production levels and operating performance of existing assets, current
commodity markets coupled with Harvest's hedging program and the impact of the
rising Canadian dollar, Harvest estimates that its payout ratio for 2003 will
be approximately 75%. 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.

-30-


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