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Harvest Energy Trust Announces Second Quarter 2003 Results

Aug 21, 2003 - 11:16 ET


CALGARY, ALBERTA-- 

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 

Harvest Energy Trust ("Harvest") today announced its unaudited 
operating and financial results for the three and six month 
periods ended June 30, 2003. 

Second Quarter Highlights 

- Distributions of $0.60 per trust unit; 

- Cash flow from operations of $9.5 million, or $0.84 per trust 
unit, representing a payout ratio of 73% for the three month 
period ended June 30, 2003; 

- Sales volume averaged 9,632 BOE/d for the three month period 
ended June 30, 2003, an increase of 17% from the first quarter; 

- Harvest continued its development and consolidation activities 
in its core areas including the acquisition of approximately 
$30.0 million of properties resulting in an exit rate of 10,500 
at June 30, 2003; and 

- Following the second quarter, on July 29, 2003, Harvest 
announced the signing of an agreement to acquire 6,000 BOE/d of 
predominantly light oil in the Carlyle area, in Southeastern 
Saskatchewan for approximately $105.0 million. 


/T/

Second Quarter Financial and Operational Summary

Financial                                            Three months ended
                                                          June 30, 2003
($000's except per BOE and per trust unit amounts)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Net revenue, before hedging                                  $   24,754
Net revenue, net of hedging                                  $   21,027
Hedging Loss                                                 $    3,727

Cash flow from operations                                    $    9,546
Cash flow from operations per trust unit                     $     0.84

Net income                                                   $    1,180
Net income per trust unit                                    $     0.10

Capital expenditures                                         $   32,491

Net debt                                                     $   39,924

Declared distributions to unitholders                        $    6,992
Declared distributions per trust unit                        $     0.60

Weighed average trust units outstanding                      11,351,728
Trust units outstanding at the end of the period             12,237,551
-----------------------------------------------------------------------
-----------------------------------------------------------------------


Operating and Reserves           Three months ended    Six months ended
                                      June 30, 2003       June 30, 2003
(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)                           9,438               8,554
  Natural gas (mcf/d)                         1,161               1,077
-----------------------------------------------------------------------
Total (BOE/d)                                 9,632               8,734

Production exit rate (BOE/d)                 10,500              10,500
-----------------------------------------------------------------------
-----------------------------------------------------------------------

/T/

Second Quarter Message to Unitholders 

During the second quarter, Harvest continued to build on the 
foundation set out in the first quarter. Production was in line 
with expectations, and increased by 17% to average 9,632 BOE/d. 
These increases were the result of the successful drilling 
program at Hayter, initiated in the first quarter and the closing 
of the two Provost property acquisitions, reported on April 14 
and May 29, 2003. Revenues were higher than anticipated due to 
primarily higher oil prices. 

Operating expenses in the second quarter were $7.68 per BOE, in 
line with expectations, and significantly lower than first 
quarter operating expenses. Lower operating expenses were the 
result of lower overall power costs in Alberta, the impact of 
power hedges applied in the second quarter, higher volumes of 
production and prior period accounting adjustments. 

Accordingly, cash flow from operations strengthened in the second 
quarter, to $9.5 million, 47% higher than the first quarter. Cash 
flow per trust unit has increased to $0.84 per trust unit in the 
second quarter, 35% higher than the first quarter. 

Harvest maintained an active development program in the second 
quarter. In addition to the acquisitions described above, Harvest 
embarked on a follow-up development program at Hayter, which 
included the drilling of nine wells. This program was completed 
in July and all wells are now being commissioned or are 
on-stream. Harvest exited the second quarter with net debt of 
$39.9 million, representing 1.1 times annualized second quarter 
cash flow. 

Following the second quarter, on July 29, 2003, Harvest announced 
that it had entered into an agreement to acquire approximately 
6,000 BOE/d of light gravity oil properties located in 
Southeastern Saskatchewan for approximately $105.0 million. 
Closing of this transaction will occur on or about September 30, 
2003. Harvest anticipates the Southeastern Saskatchewan 
properties will provide the following benefits to Unitholders: 

- an increase in established reserve base to 35 MMBOE; 

- an increase in reserve life index from 4.0 years to 5.7 years; 

- an increase in the light/medium oil component of total 
production to 66% 

- addition of a new core area for additional low cost growth in 
the form of property enhancement and consolidation of additional 
interests; 

- accretion to 2004 cash flow; and 

- greater cash flow certainty from a larger production and 
reserve base. 

Combining the incremental production from the Southeastern 
Saskatchewan properties for the period of October 1, 2003 to 
December 31, 2003 with Harvest's existing base of production, 
Harvest expects average production, average royalty rate and unit 
operating expenses to be: 


/T/

                                Q4 2003 Average    Calendar 2003 Average
------------------------------------------------------------------------
Total Production                   16,300 BOE/d             11,000 BOE/d
Average Royalty Rate                        18%                      14%
Operating Expenses               $ 9.70 per BOE           $ 9.50 per BOE
------------------------------------------------------------------------

/T/

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. 

Management's Discussion and Analysis 

Management's discussion and analysis ("MD&A") of Harvest Energy 
Trust's ("Harvest" or the "Trust") financial condition and 
results of operations should be read in conjunction with 
Harvest's unaudited interim consolidated financial statements for 
the three and six month periods ended June 30, 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 espect to Harvest Energy 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 August 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 9,632 
BOE/d and 8,734 BOE/d in the three and six month periods ended 
June 30, 2003, respectively. 


/T/

Average Sales Volumes

                                 Three Month Period     Six Month Period
                                Ended June 30, 2003  Ended June 30, 2003
                                ----------------------------------------
Medium oil (bbls/d)                4,232        44%     3,488        40%
Heavy oil (bbls/d)                 5,139        53%     5,001        57%
------------------------------------------------------------------------
Total oil (bbls/d)                 9,371        97%     8,489        97%
Natural gas liquids (bbls/d)          67         1%        65         1%
------------------------------------------------------------------------
Total oil and natural gas liquids
 (bbls/d)                          9,438        98%     8,554        98%
Natural gas (mcf/d)                1,161         2%     1,077         2%
------------------------------------------------------------------------
Total oil equivalent (6:1 boe/d)   9,632       100%     8,734       100%
------------------------------------------------------------------------

/T/

Harvest exited June 30, 2003 with a higher daily production rate 
of 10,556 BOE/d, which reflects the impact of the ongoing 
development and optimization activities and the acquisitions 
during the quarter. 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 $24.6 million and $50.9 
million, which was the result of average realized prices of 
$28.69 and $32.86 per barrel for oil and natural gas liquids and 
$5.93 and $7.48 per mcf for natural gas during the three and six 
month periods ended June 30, 2003 respectively. The overall 
impact of Harvest's hedging program is an approximate decrease of 
$4.34 and $7.94 per BOE of production, for the three and six 
month periods ended respectively. Harvest plans to continue with 
its current hedging strategy, and has approximately 7,500 Bbls/d 
of production hedged for the balance of 2003 at an approximate 
average price of $33.00 Cdn per barrel. 


/T/

Operating Netbacks

The following is a summary of Harvest's operating netbacks for the
periods ended June 30, 2003.

                                            ($/boe)
------------------------------------------------------------------------
------------------------------------------------------------------------
                       Three month period ended   Six month period ended
                                  June 30, 2003            June 30, 2003
------------------------------------------------------------------------
Market price                              28.69                    32.86
Hedging loss                               4.34                     7.94
------------------------------------------------------------------------
Realized price                            24.35                    24.92

Royalties, net                             3.96                     4.12
Operating costs                            7.68                     8.66

------------------------------------------------------------------------
Netback                                   12.71                    12.14
------------------------------------------------------------------------

/T/

Royalty Expense 

Harvest paid net royalties of $3.3 million and $6.2 million in 
the three and six month periods ended June 30, 2003 or 
approximately $3.96/BOE and $4.12/BOE. The net royalty amount for 
the three month period ended is comprised of $1.9 million in 
freehold royalties and freehold mineral tax, $1.4 million in 
crown royalties, $0.1 million in gross overriding royalties and 
$0.1 million in royalty income received. The net royalty amount 
for the six month period ended is comprised of $4.1 million in 
freehold royalties and freehold mineral tax, $2.1 million in 
crown royalties, $0.2 million in gross overriding royalties and 
$0.2 million in royalty income received. 

Operating Expenses 

Harvest's operating expenses were $6.6 million and $13.4 million 
for the three and six month periods ended June 30, 2003, or 
approximately $7.68 and $8.66 per BOE. Substantially all of the 
entity's properties are operated by Harvest. The significant 
portions of Harvest's operating costs are electricity (60%) and 
maintenance (15%). For the remainder of 2003, Harvest has 
approximately 48% of its current electricity usage hedged at an 
average price of $45.10 per MWh. 

General and Administration Expenses 

General and administrative expenses totaled $0.8 million or $0.92 
per BOE for the three month period ended, and $1.5 million or 
$0.98 per BOE for the six month period ended June 30, 2003. 
During the three and six month periods ended, $0.4 million and 
$0.5 million 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 $1.1 
million and $2.2 million in the three and six month periods ended 
June 30, 2003. The amortization of deferred financing charges 
associated with fees to secure bank lending facilities amounted 
to $0.4 million and $0.8 million for the three and six month 
periods ended, respectively. 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 $7.8 million and $13.5 million and 
for the three and six month periods ended June 30, 2003. This 
balance is comprised of oil and natural gas properties depletion 
and depreciation of $6.9 million and $12.1 million, approximately 
$26,000 and $50,000 for depreciation of office furniture and 
equipment, and $0.8 million and $1.4 million for future 
abandonment and site restoration costs, respectively. The 
depletion rate for oil and natural gas properties was 
approximately $8.09 and $7.84 per BOE respectively, 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 $0.95 and $0.89 per BOE rate used to 
provide for future site reclamation costs is founded on an 
ultimate future expenditure of approximately $18.8 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%. 

Income Taxes 

Income taxes for the three and six month periods ended June 30, 
2003 are comprised of approximately $32,000 and $52,000 in large 
corporation tax and a $1.2 million and $0.2 million future income 
tax expense, respectively. 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 and six month periods ended June 30, 2003, 
consolidated cash flow from operations was $9.5 million and $16.0 
million, and net income was $1.2 million and $4.9 million, 
respectively. 

Cash flow from operations per trust unit is calculated and 
disclosed by the Trust, as it is a widely accepted measure of 
financial performance used by some analysts and investors to 
compare oil and gas producing companies. Cash flow from 
operations per trust unit is not defined under Canadian generally 
accepted accounting principles ("GAAP") and should not be 
considered in isolation or as an alternative to conventional GAAP 
measurements. Harvest's measure of cash flow from operations is 
not necessarily comparable to a similarly titled measure of 
another company or trust. 

The corresponding per Trust Unit and per BOE figures are as 
follows: 


/T/

------------------------------------------------------------------------
------------------------------------------------------------------------
                       Three month period ended   Six month period ended
                             June 30, 2003             June 30, 2003
------------------------------------------------------------------------
                       Per Trust Unit             Per Trust Unit
                       --------------             --------------
                       Basic  Diluted   Per boe   Basic  Diluted Per boe
                       -------------------------------------------------
Cash flow from
 operations           $ 0.84   $ 0.82    $11.12  $ 1.47   $ 1.45  $10.36
Net income            $ 0.10   $ 0.08    $ 1.37  $ 0.45   $ 0.42  $ 3.18
------------------------------------------------------------------------

/T/

Capital Expenditures 

Capital expenditures totaled $32.5 million and $38.4 million in 
the three and six month periods ending June 30, 2003. The 
expenditures during these periods primarily consist of the 
acquisition of oil and gas producing properties in Eastern 
Alberta, that complement Harvest's current operations and 
production. 

The ongoing optimization program of Harvest's properties 
acquired, has been extended to accommodate the new opportunities 
realized with the property acquisitions during the second quarter 
of 2003. With the additional expenditures, the program is still 
planned to be substantially completed during the third quarter of 
2003, with an overall estimated total program cost of $14.5 
million. 

Subsequent to the end of the quarter, on July 30, 2003 Harvest 
announced the purchase of oil and natural gas producing 
properties in Southeastern Saskatchewan through its wholly owned 
subsidiary, Harvest Operations Corp. This asset purchase is 
anticipated to add approximately 6,000 BOE/d in production, and 
is expected to be purchased for an estimated consideration of 
$105.0 million. 

Capitalization and Financial Resources 

As at June 30, 2003, the demand loan payable was approximately 
$45.6 million and unamortized deferred financing costs were $1.4 
million, compared to balances of $45.3 million of demand loan 
payable and $2.2 million of deferred financing charges as at 
December 31, 2002. A large portion of the demand loan is 
denominated in United States currency which, due to favourable 
foreign exchange rates, has resulted in unrealized foreign 
exchange gains of $1.0 million and $3.5 million during the three 
and six month periods ended June 30, 2003, respectively. 

The working capital balance as at June 30, 2003 was $6.5 million, 
excluding the demand loan and promissory note payable. This is in 
comparison to working capital of $10.7 million as at December 31, 
2002. The difference of $4.2 million is primarily due to the 
expenditures incurred for Harvest's optimization program. 

Distributions 

During the first half of 2003, Harvest paid distributions of 
$0.20 per month. Of the distributions declared and paid in the 
first six months of 2003, approximately 32% were reinvested by 
Unitholders through Harvest's distribution reinvestment plan. 
This resulted in a net cash distributions aid during the first 
six months of $8.3 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. 


/T/

Harvest Energy Trust
Consolidated Balance Sheets

------------------------------------------------------------------------
------------------------------------------------------------------------
                                     June 30, 2003     December 31, 2002
------------------------------------------------------------------------
Assets                                 (Unaudited)             (Audited)

Current assets
  Cash and short-term investments     $  1,180,609          $  4,502,947
  Accounts receivable                   16,224,404            13,577,870
  Prepaid expenses and deposits          2,398,553               534,573
------------------------------------------------------------------------
                                        19,803,566            18,615,390

Deferred financing charges, net
 of amortization                         1,406,840             2,209,792
Future income tax                        1,034,476             1,272,000

Property, plant and equipment,
 net (Note 3)                           97,876,800            71,631,507
------------------------------------------------------------------------

                                      $120,121,682          $ 93,728,689
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Unitholders' Equity

Current liabilities
  Accounts payable and accrued
   liabilities                        $ 10,063,054          $  5,593,405
  Cash distributions payable             2,447,510             1,862,500
  Accrued interest payable                 809,829               389,349
  Demand loan (Note 2)                  45,557,388            45,286,396
  Promissory note payable (Note 3)         850,000                     -
  Large corporation taxes payable                -                46,771
------------------------------------------------------------------------
                                        59,727,781            53,178,421

Site restoration provision               1,917,018               544,178
------------------------------------------------------------------------
                                        61,644,799            53,722,599

Unitholders' equity
  Unitholders' capital (Note 4)         63,273,216            36,727,997
  Accumulated income                    10,052,141             5,136,093
  Contributed surplus                       29,455                 4,500
  Accumulated cash distributions       (14,877,929)          (1,862,500)
------------------------------------------------------------------------
                                        58,476,883            40,006,090
------------------------------------------------------------------------
                                      $120,121,682          $ 93,728,689
------------------------------------------------------------------------
------------------------------------------------------------------------

Subsequent events (Note 8)

See accompanying notes to consolidated financial statements.

Harvest Energy Trust
Consolidated Statement of Income and Accumulated Income
(Unaudited)
------------------------------------------------------------------------
                                Three Months Ended      Six Months Ended
                                   June 30, 2003          June 30, 2003
------------------------------------------------------------------------
------------------------------------------------------------------------

Revenue
  Oil and gas sales                   $ 24,639,326          $ 50,869,382
  Hedging loss                          (3,726,594)         (12,296,276)
  Royalty income                           114,359               170,133
  Royalty expense                       (3,404,361)          (6,382,776)
------------------------------------------------------------------------
                                        17,622,730            32,360,463
Expenses
  Operating                              6,595,988            13,400,411
  Interest and amortization of
   deferred finance charges              1,078,193             2,190,728
  General and administrative               788,841             1,519,653
  Site restoration and reclamation         818,461             1,383,804
  Depletion, depreciation and
   amortization                          6,936,073            12,148,215
  Foreign exchange gain                   (983,735)          (3,487,457)
------------------------------------------------------------------------
                                        15,233,821            27,155,354
------------------------------------------------------------------------
Income before taxes                      2,388,909             5,205,109

Taxes
  Large corporation tax                     31,640                51,538
  Future tax expense                     1,177,380               237,524
------------------------------------------------------------------------

Net income for the period                1,179,889             4,916,047
------------------------------------------------------------------------

Accumulated income, beginning of period  8,872,252             5,136,094

Accumulated income, end of period     $ 10,052,141          $ 10,052,141
------------------------------------------------------------------------
------------------------------------------------------------------------

Income per trust unit, basic          $       0.10          $       0.45
Income per trust unit, diluted        $       0.10          $       0.44
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

Harvest Energy Trust
Consolidated Statement of Cash Flows
(Unaudited)
------------------------------------------------------------------------
                                Three Months Ended      Six Months Ended
                                   June 30, 2003          June 30, 2003
------------------------------------------------------------------------
------------------------------------------------------------------------

Cash provided by (used in)

Operating Activities
  Net income for the period           $  1,179,889          $  4,916,047
  Items not requiring cash
    Depletion, depreciation and
     amortization                        6,936,073            12,148,215
    Site restoration and reclamation       818,461             1,383,804
    Foreign exchange gain                 (983,735)          (3,487,457)
    Amortization of finance charges        406,476               812,950
    Future tax expense                   1,177,380               237,524
    Unit based compensation                 12,273                24,955
------------------------------------------------------------------------
  Cash flow from operations              9,546,817            16,036,038
  Change in non-cash working
   capital (Note 8)                     (4,415,339)              868,612
------------------------------------------------------------------------
                                         5,131,478            16,904,650
Financing Activities
  Issue of trust units, net of costs             -            14,096,181
  Issue of trust units under the
   distribution reinvestment plan,
   net of costs                          2,824,164             4,099,037
  Increase in demand loan               27,747,640            33,379,065
  Repayment of demand loan              (6,180,670)         (29,557,182)
  Cash distributions                    (6,767,077)         (12,430,419)
  Change in non-cash working capital
   balances related to financing
   activities (Note 8)                     218,285               585,010
------------------------------------------------------------------------
                                        17,842,342            10,171,692
Investing Activities
  Additions to property, plant and
   equipment                           (19,119,967)         (24,971,104)
  Acquisition of a private company
   (Note 3)                             (3,000,000)          (3,000,000)
  Change in non-cash working capital
   balances related to investing
   activities (Note 8)                  (1,438,815)          (2,427,576)
------------------------------------------------------------------------
                                       (23,558,782)         (30,398,680)
Decrease in cash and short-term
 investments                              (584,962)          (3,322,338)
Cash and short-term investments,
 beginning of period                     1,765,571             4,502,947

------------------------------------------------------------------------
Cash and short-term investments, end
 of period                            $  1,180,609          $  1,180,609
------------------------------------------------------------------------
------------------------------------------------------------------------

Cash interest payments                $    889,682          $    945,344
Cash tax payments                     $     10,526          $     46,771
Cash distributions per unit (Note 4)  $       0.60          $       1.14
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

/T/

1. Significant accounting policies 

These interim consolidated financial statements of Harvest Energy 
Trust (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. 
Except as noted below, these interim consolidated financial 
statements follow the same significant accounting policies as 
described and used in the annual report of the Trust for the 
period from formation on July 10, 2002 to December 31, 2002 and 
should be read in conjunction with that report. Certain 
comparative figures have been reclassified to conform to the 
current period's presentation. 

These consolidated financial statements include the accounts of 
Harvest Energy Trust and its wholly owned subsidiaries. 

2. Change in accounting policy 

The Canadian Institute of Chartered Accountants has issued an 
accounting pronouncement concerning the classification of debt 
that is effective for financial years commencing on or after 
January 1, 2002. Based on this pronouncement and the underlying 
terms of Harvest Operations' debt facility, the loan is 
classified as a current liability since the lender has the right 
to demand repayment on April 30, 2004. 

3. Acquisition of a private company 

On June 1, 2003, Harvest Energy Trust acquired all of the common 
shares and the Net Profit Interest of a private company. Total 
consideration paid by the Trust was $10.1 million, and consisted 
of the issuance of 625,000 trust units at a price of $10.00 per 
unit (Note 4), $3.0 million in cash and an $850,000 unsecured 
demand promissory note that bears interest at 10% per annum 
effective June 27, 2003. The acquisition has been accounted for 
using the purchase price method. 

The following summarizes the estimated fair value of the assets 
acquired and liabilities assumed at the date of acquisition. The 
Company has not yet completed its final calculation of the assets 
and acquired and liabilities assumed and therefore, the purchase 
price allocation maybe subject to change. 


/T/

                                                               Amount
---------------------------------------------------------------------
Property, plant & equipment                               $15,180,670
Working capital, net                                       (2,281,160)
Bank debt                                                  (2,799,510)
---------------------------------------------------------------------
                                                          $10,100,000
---------------------------------------------------------------------
---------------------------------------------------------------------

4. 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
Acquisitions (iii)                         825,000             8,350,000
Distribution reinvestment plan
 issuance (iv)                             450,051             4,399,037
Share issue costs                                -           (1,353,818)
------------------------------------------------------------------------
As at, June 30, 2003                    12,237,551           $63,273,216
------------------------------------------------------------------------
------------------------------------------------------------------------

/T/

(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 May 27, 2003, the Trust issued 200,000 trust units at a 
price of $10.50 per unit, for consideration of the purchase of a 
crude oil producing property. 

On June 27, 2003, the Trust issued 625,000 trust units at a price 
of $10.00 per unit, for partial consideration of the purchase of 
a private company. (Note 3). 

(iv) The following table summarizes the issuance of trust units 
under the distribution reinvestment plan ("DRIP"): 


/T/

                                                   Trust units
Distribution                                            issued
Month          Record Date        Payment Date       under DRIP   Amount
------------------------------------------------------------------------

January       January 31, 2003    February 17, 2003    79,208 $  794,650
February      February 28, 2003   March 17, 2003       73,230    780,223
March         March 31, 2003      April 15, 2003       96,019    907,805
April         April 30, 2003      May 15, 2003         98,535    925,662
May           May 31, 2003        June 16, 2003       103,059    990,697
------------------------------------------------------------------------
As at, June 30, 2003                                  450,051 $4,399,037
------------------------------------------------------------------------
------------------------------------------------------------------------

(c) Per trust unit information

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

------------------------------------------------------------------------
                                Three Months Ended      Six Months Ended
                                     June 30, 2003         June 30, 2003
                               -----------------------------------------

Weighted average trust units
 outstanding, basic                     11,351,728            10,891,161
Effect of trust unit rights                226,795               190,578
Weighted average trust units
 outstanding, diluted                   11,578,523            11,081,739
------------------------------------------------------------------------

/T/

5. 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 1,121,000 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: 


/T/

-----------------------------------------------------------------------
                                                               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                                    -               (1.20)
-----------------------------------------------------------------------
As at, June 30, 2003                        854,500             $  6.58
-----------------------------------------------------------------------
-----------------------------------------------------------------------

/T/

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: 


/T/

------------------------------------------------------------------------
Expected volatility                                                27.5%
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:

                               ------------------       ----------------
                               Three Months Ended       Six Months Ended
                                    June 30, 2003          June 30, 2003
-------------------------------------------------       ----------------
-------------------------------------------------       ----------------

Net income      As reported           $ 1,179,889            $ 4,916,047
                Pro forma             $   738,196            $ 4,037,245
Income per unit
 - basic        As reported           $      0.10            $      0.45
                Pro forma             $      0.07            $      0.37
Income per unit
 - diluted      As reported           $      0.10            $      0.44
                Pro forma             $      0.06            $      0.36
-------------------------------------------------       ----------------
-------------------------------------------------       ----------------

/T/

During the three and six month periods ended, the Trust has 
recognized $12,273 and $24,546 respectively 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. 

6. 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 June 30, 
2003, that have fixed future sales prices: 


/T/

                                                 Price    Mark to Market
 Swaps                     Term                  per Barrel  Gain (Loss)
------------------------------------------------------------------------
1,000 Bbls/d     July through September 2003     Cdn $37.10   ($277,718)
1,000 Bbls/d   October through December 2003     Cdn $36.63   ($155,834)
1,510 Bbls/d      January through March 2004    U.S. $23.23   ($697,743)
1,300 Bbls/d      January through March 2004    U.S. $24.33   ($426,279)
500 Bbls/d     January through December 2004    U.S. $24.12   ($447,354)
500 Bbls/d     January through December 2004    U.S. $24.25   ($415,200)
1,430 Bbls/d         April through June 2004    U.S. $22.93   ($567,192)
1,200 Bbls/d         April through June 2004    U.S. $25.50   ($383,485)
1,380 Bbls/d     July through September 2004    U.S. $22.70   ($487,748)
500 bls/d        July through September 2004    U.S. $24.56   ($ 60,761)
1,325 Bbls/d   October through December 2004    U.S. $22.54   ($409,012)
500 Bbls/d     October through December 2004    U.S. $24.03   ($ 61,452)
500 Bbls/d     January through December 2005    U.S. $24.32   ($ 19,931)
1,100 Bbls/d      January through March 2005    U.S. $22.38   ($303,940)
1,030 Bbls/d         April through June 2005    U.S. $22.18   ($282,152)
------------------------------------------------------------------------

      Swaps based on the Lloydminster Blend Crude differential

2,000 Bbls/d   January through December 2004    U.S. ($7.75) $ 1,731,396
1,100 Bbls/d   January through December 2004    U.S. ($8.20) $   643,090
------------------------------------------------------------------------

                                                                 Mark to
 Sold Put                    Term         Price per Barrel   Market Loss
------------------------------------------------------------------------
500 Bbls/d        January through
                    December 2004     Short put Cdn $15.50     ($44,522)
1,000 Bbls/d      January through
                    December 2004     Short put Cdn $18.00    ($173,140)
------------------------------------------------------------------------

                                           Price per      Mark to Market
 Collars                  Term             Barrel            Gain (Loss)
------------------------------------------------------------------------
500 Bbls/d     July through September 2003 Cdn  $35.40 - 38.40 ($79,059)
500 Bbls/d   October through December 2003 Cdn  $35.50 - 37.35 ($44,797)
1,000 Bbls/d January through December 2004 U.S. $23.00 - 27.95  $     0
------------------------------------------------------------------------

/T/

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 June 30, 2003: 


/T/

                                               Price per Mark to Market
Swaps                   Term                    Megawatt     Gain (Loss)
------------------------------------------------------------------------
5MW         January through December 2003     Cdn $46.30       $308,790
5MW         January through December 2004     Cdn $46.00       $ 32,850
5MW         January through December 2004     Cdn $46.00       $ 32,850
5MW         January through December 2005     Cdn $43.00      ($ 21,900)
9.75MW      April 2003 through March 2006     Cdn $44.50       $916,022
------------------------------------------------------------------------

/T/

At June 30, 2003 the net mark-to-market unrealized loss for all 
the financial derivative contracts entered into by Harvest 
Operations was approximately $1,704,799. 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 June 30, 
2003, this amount totaled $1,733,008 and is recorded in the 
prepaid expense and deposits balance. 


/T/

7. Change in non-cash working capital

                               ------------------      ----------------
                               Three Months Ended      Six Months Ended
                                    June 30, 2003         June 30, 2003
-------------------------------------------------      ----------------
-------------------------------------------------      ----------------

Changes in non-cash working
 capital items:
  Accounts receivable               $  (2,958,028)        $  (1,810,351)
  Prepaid expenses and deposits          (850,833)           (1,834,215)
  Accounts payable and accrued
   liabilities                         (1,575,528)            1,711,765
  Cash distributions payable              224,523               585,010
  Accrued interest payable               (459,367)              420,480
  Large corporation taxes payable         (10,398)              (46,643)
-------------------------------------------------       ---------------
                                    $  (5,629,631)         $   (973,954)
-------------------------------------------------       ---------------
-------------------------------------------------       ---------------
Changes relating to operating
 activities                         $  (4,415,339)         $    868,612
Changes relating to financing
 activities                               224,523               585,010
Changes relating to investing
 activities                            (1,438,815)           (2,427,576)
-------------------------------------------------       ---------------
                                    $  (5,629,631)         $   (973,954)
-------------------------------------------------       ---------------
-------------------------------------------------       ---------------

/T/

8. Subsequent events 

On July 14, 2003, the Trust announced a cash distribution of 
$0.20 per trust unit to the Unitholders of record on July 31, 
2003. The distribution was paid on August 15, 2003 and consisted 
of $1,478,783 in cash and 92,818 trust units issued for $989,612 
on the reinvestment of distributions pursuant to the Distribution 
Reinvestment and Optional Unit Purchase Plan. 

On July 15, 2003, the Trust paid the $0.20 per trust unit 
distribution announced on June 16, 2003, for Unitholders' of 
record as at June 30, 2003. The distribution paid consisted of 
$1,457,793 in cash and 104,425 trust units issued for $989,718 on 
the reinvestment of distributions pursuant to the Distribution 
Reinvestment and Optional Unit Purchase Plan. 

During the period from July 15 to July 18, 2003, the Trust issued 
31,000 additional trust unit rights to employees of Harvest 
Operations Corp. 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 
average exercise price of the rights granted was $10.23. 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. All of the trust unit 
rights outstanding vest equally over the next four years on their 
anniversary date. 

On July 30, 2003, Harvest Operations Corp. entered into an 
agreement to acquire producing oil properties in Southeastern 
Saskatchewan. The expected purchase at closing is approximately 
$105.0 million, and the transaction is anticipated to close on 
September 30, 2003. 

On July 31, 2003, Harvest Operations Corp. entered into an 
electricity purchase agreement whereby 5 MW per hour will be 
provided at a price of $45.50 per MW from January 1, 2004 to 
January 1, 2005, and an electrical price based heat rate of 8.40 
GJ/MWh from January 1, 2005 to January 1, 2006. 

On August 20, 2003, the Trust announced a cash distribution of 
$0.20 per unit to the Unitholders of record on August 29, 2003. 
The distribution that will be paid on September 15, 2003 is 
$2,486,959. 

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 June 30, 2003, that have fixed 
future sales and purchase prices: 


/T/
------------------------------------------------------------------------
                                                                   Price
Trade Date    Buy (Sell) Put              Term                per Barrel
------------------------------------------------------------------------
July 11, 2003 (1,000 Bbls/d)  January through December 2004   USD $18.00
July 11, 2003  1,000 Bbls/d   January through December 2004   USD $25.00
------------------------------------------------------------------------
                                                                   Price
Trade Date         Call                   Term                per Barrel
------------------------------------------------------------------------
July 11, 2003 (1,000 Bbls/d)  January through December 2004   USD $28.25
------------------------------------------------------------------------

/T/

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. 

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-


FOR FURTHER INFORMATION PLEASE CONTACT:

Harvest Energy Trust
Jacob Roorda
President
(403) 265-1178

or

Harvest Energy Trust
David M. Fisher
Vice President, Finance
(403) 265-1178
(403) 265-3490 (FAX)
Email: information@harvestenergy.ca
Website: www.harvestenergy.ca