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Harvest Energy Trust Announces Third Quarter 2003 Results

Nov 18, 2003 - 08:30 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 nine month 
periods ended September 30, 2003. 


/T/

Third Quarter Highlights

- Distributions of $0.60 per trust unit;

- Cash flow from operations of $16.8 million or $1.35 per trust unit,
  for the three month periods ended September 30, 2003; After adjusting 
  cash flow from operations for the non-recurring foreign exchange gain 
  of $6.3 million, cash flow from operations would have been $10.5 
  million and the payout ratio would have been 71%;

- Sales volume averaged 11,373 BOE/d for the three month period ended
  September 30, 2003, an increase of 18% from the second quarter;

- Harvest continued its development activities in its core areas with
  capital expenditures of approximately $10.1 million resulting in an
  exit rate of 11,600 BOE/d at September 30, 2003; and

- Harvest announced the signing of an agreement to acquire predominantly
  light oil properties in the Carlyle area of Southeastern Saskatchewan.
  Harvest closed the Carlyle acquisition on October 16, 2003,
  representing incremental production of approximately 5,200 BOE/d, for
  a closing price of approximately $80 million.

Third Quarter Financial and Operational Summary

Financial                                            Three months ended
($000's except per BOE and per trust unit amounts)   September 30, 2003
-----------------------------------------------------------------------
Revenue, before hedging                                      $   28,538
Revenue, net of hedging                                      $   25,013
Hedging Loss                                                 $    3,525
Cash flow from operations                                    $   16,759
Cash flow from operations per trust unit                     $     1.35
Cash flow from operations adjusted for
 non-recurring items                                         $   10,449
Cash flow from operations adjusted for
 non-recurring items per trust unit                          $     0.84

Net income                                                   $    5,751
Net income per trust unit, basic                             $     0.46
Distributions paid                                           $    7,403
Payout ratio - adjusted for non-recurring items                      71%

Capital expenditures                                         $   10,099

Net debt                                                     $ 9,739 (1)
-----------------------------------------------------------------------

(1) Prior to giving effect to $33.5 million of Equity Bridge Notes
    outstanding at September 30, 2003.


Financial                                            Three months ended
($000's except per BOE and per trust unit amounts)   September 30, 2003
-----------------------------------------------------------------------
Declared distributions to unitholders                        $    7,460
Declared distributions per trust unit                        $     0.60

Weighed average trust units outstanding, basic               12,385,722
Trust units outstanding at the end of the period             12,522,889
-----------------------------------------------------------------------


Operating and Reserves

(Natural gas converted
 to barrel of oil
 equivalent BOE              Three months ended   Nine months ended
 on a 6:1 basis)             September 30, 2003  September 30, 2003
-------------------------------------------------------------------
Average daily sales volumes
 Crude oil and natural gas
  liquids (Bbls/d)                       11,131               9,560
 Natural gas (mcf/d)                      1,453               1,165
-------------------------------------------------------------------
Total (BOE/d)                            11,373               9,754

Production exit rate (BOE/d)             11,600              11,600
-------------------------------------------------------------------

/T/

Third Quarter Message to Unitholders 

During the third quarter, Harvest's activities were focused on 
development activities and the Carlyle acquisition. Production 
was in line with expectations, and increased by 18% to average 
11,373 BOE/d. These increases were the result of the successful 
drilling program at Hayter, initiated in the first and second 
quarter, and the continued focus on production optimization 
activities. 

Operating expenses in the third quarter were $9.23 per BOE, in 
line with expectations. Operating costs continue to be impacted 
by higher than budgeted electrical power rates in Alberta. 

Cash flow from operations strengthened in the third quarter to 
$16.8 million, 76% higher than the second quarter. Cash flow from 
operations was impacted positively by a non-recurring foreign 
exchange gain of $6.3 million realized during the third quarter. 
Adjusting for this gain, cash flow from operations would have 
been $10.5 million or $0.84 per trust unit. 

Harvest maintained an active development program in the third 
quarter. Harvest continued to focus its development efforts on 
drilling, primarily at Hayter, and production optimization. 
Capital expenditures were $10.1 million and production at the end 
of the third quarter was 11,600 BOE/d, approximately 10% higher 
than the second quarter exit rate. Harvest exited the third 
quarter with net debt of $9.7 million and equity bridge notes 
outstanding of $33.5 million. 

On July 29, 2003 Harvest announced that it had entered into an 
agreement to acquire light gravity oil properties located in the 
Carlyle area of Southeastern Saskatchewan. Closing of this 
transaction occurred on October 16, 2003. Harvest anticipates the 
properties will provide the following benefits to unitholders: 


/T/

- increases Harvest's established reserve base to 33.5 MM BOE;

- increases Harvest's reserve life index to 5.8;

- increases the light/medium oil component of Harvest's production to
  64%;

- provides an expanded base of production compatible with Harvest's
  proven operating competencies;

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

- accretive to 2004 cash flow;

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

- acquisition of royalty interests which provide the potential for
  reserve addition without capital expenditures.

/T/

Harvest's current production rate is approximately 16,000 BOE/d. 
Combining the incremental production from the Carlyle properties 
for the period of October 16, 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                    15,100 BOE/d           11,000 BOE/d
Average Royalty Rate                        17.0%                  14.5%
Operating Expenses                 $9.50 per BOE          $9.00 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 nine month periods ended September 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 respect to Harvest. 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 November 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 11,373 
BOE/d and 9,754 BOE/d in the three and nine month periods, 
respectively. 


/T/

Average Sales Volumes

                      Three Month Period Ended  Nine Month Period Ended
                            September 30, 2003       September 30, 2003
                      -------------------------------------------------

Medium oil (Bbls/d)            5,044        44%         4,300        44%
Heavy oil (Bbls/d)             6,010        53%         5,192        53%
-----------------------------------------------------------------------
Total oil (Bbls/d)            11,054        97%         9,492        97%
Natural gas liquids
 (Bbls/d)                         77         1%            68         1%
-----------------------------------------------------------------------
Total oil and natural gas
 liquids (Bbls/d)             11,131        98%         9,560        98%
Natural gas (mcf/d)            1,453         2%         1,165         2%

-----------------------------------------------------------------------
Total oil equivalent
 (6:1 BOE/d)                  11,373       100%         9,754       100%
-----------------------------------------------------------------------

/T/

Harvest exited September 30, 2003 with a higher daily production 
rate of approximately 11,600 BOE/d, which reflects the impact of 
the ongoing development and optimization activities during the 
quarter. Harvest anticipates further production growth in the 
balance of 2003 due to the oil and natural gas property 
acquisition in Southeastern Saskatchewan and the continuing 
development and optimization program. 

Revenue 

Revenues, before royalties, totaled $28.5 million and $79.4 
million, which was the result of average realized prices of 
$27.22 and $29.66 per barrel for oil and natural gas liquids and 
$4.94 and $6.28 per mcf for natural gas during the three and nine 
month periods ended, respectively. The overall impact of 
Harvest's hedging program is an approximate decrease of $3.37 and 
$5.94 per BOE of production, for the three and nine month periods 
ended respectively. Harvest plans to continue with its current 
hedging strategy, and has approximately 10,000 Bbls/d of 
production hedged for the balance of 2003 at an approximate 
average price of $30.00 Cdn per barrel. 

Operating Netbacks 

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


/T/

                                           ($/BOE)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
                      Three month period ended  Nine month period ended
                            September 30, 2003       September 30, 2003
-----------------------------------------------------------------------
Market price                             27.27                    29.82
Hedging loss                              3.37                     5.94
-----------------------------------------------------------------------
Realized price                           23.90                    23.88

Royalties, net                            3.66                     3.77
Operating costs                           9.23                     8.66
-----------------------------------------------------------------------

Netback                                  11.01                    11.45
-----------------------------------------------------------------------

/T/

Royalty Expense 

Harvest paid net royalties of $3.8 million and $10 million in the 
three and nine month periods ended or approximately $3.66/BOE and 
$3.77/BOE, respectively. The net royalty amount for the three 
month period ended is comprised of $2.7 million in freehold 
royalties and freehold mineral tax, $1.1 million in crown 
royalties, $0.2 million in gross overriding royalties and $0.1 
million in royalty income received. The net royalty amount for 
the nine month period ended is comprised of $6.8 million in 
freehold royalties and freehold mineral tax, $3.2 million in 
crown royalties, $0.4 million in gross overriding royalties and 
$0.3 million in royalty income received. 

Operating Expenses 

Harvest's operating expenses were $9.7 million and $23 million 
for the three and nine month periods ended, or approximately 
$9.23 and $8.66 per BOE, respectively. 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 $0.6 million or $0.54 
per BOE for the three month period ended, and $2.1 million or 
$0.78 per BOE for the nine month period ended. During the three 
and nine month periods ended, $0.2 million and $0.7 million, 
respectively, of general and administrative costs were 
capitalized with respect to field enhancement and acquisition 
activities. Third quarter general and administrative expenditures 
have been reduced by recoveries related to the capital 
expenditure program during the third quarter. 

Interest Expense and Amortization of Deferred Financing Charges 

Interest expense and deferred financing charges amounted to $1.2 
million and $3.4 million in the three and nine month periods 
ended, respectively. The amortization of deferred financing 
charges associated with fees to secure bank lending facilities 
amounted to $0.8 million and $1.6 million for the three and nine 
month periods ended, respectively. 

Depletion, Depreciation and Amortization and Future Site 
Reclamation Expenses 

Harvest's depletion, depreciation, and amortization and site 
restoration provision totaled $9.3 million and $22.8 million and 
for the three and nine month periods ended, respectively. This 
balance is comprised of oil and natural gas properties depletion 
and depreciation of $8 million and $20.1 million, approximately 
$28,000 and $78,000 for depreciation of office furniture and 
equipment, and $1.3 million and $2.7 million for future 
abandonment and site restoration costs, respectively. The 
depletion rate for oil and natural gas properties was 
approximately $7.68 and $7.58 per BOE for the three and nine 
months ended 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 $1.21 and $1.00 per BOE rate, for the three & nine 
month periods ended, respectively, used to provide for future 
site reclamation costs is founded on an ultimate net future 
expenditure of approximately $18.8 million. The depreciation of 
office furniture and equipment and leasehold improvement costs 
has been calculated on a straight-line basis of 20% to 50%. 

Income Taxes 

Income taxes for the three and nine month periods ended are 
comprised of approximately $86,000 and $138,000 in large 
corporation tax and a $3.6 million and $3.3 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 nine month periods ended consolidated cash flow 
from operations was $16.8 million and $32.8 million, and net 
income was $5.8 million and $10.7 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 analysts and investors to compare 
oil and natural 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   Nine month period ended
                           September 30, 2003        September 30, 2003
-----------------------------------------------------------------------
                           Per Trust Unit            Per Trust Unit
                          ----------------          ----------------
                        Basic Diluted Per boe    Basic Diluted  Per boe
                        ---------------------    ----------------------

Cash flow from
 operations             $1.35   $1.31  $16.02    $2.88   $2.79   $12.32
Net income              $0.46   $0.45   $5.50    $0.94   $0.91    $4.01

/T/

The cash flow from operations amounts are higher than anticipated 
due to the extinguishment of U.S. denominated debt and the 
realization of the foreign exchange gain on this instrument. 

Capital Expenditures 

Capital expenditures totaled $10.1 million and $48.5 million in 
the three and nine month periods ended, respectively, including 
non-cash charges. The expenditures during these periods primarily 
consist of the acquisition of oil and natural gas producing 
properties in Eastern Alberta, that complement Harvest's current 
operations and production. 

Subsequent to the end of the quarter, on October 16, 2003 Harvest 
closed 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 5,200 BOE/d in production, for an approximate 
consideration of $80.0 million. 

Capitalization and Financial Resources 

As at September 30, 2003, the demand loan payable was 
approximately $2.8 million, compared to a balance of $45.3 
million of demand loan payable as at December 31, 2002. The 
demand loan denominated in U.S. dollars was extinguished on 
September 30, 2003, with the funds received from the debt and 
equity bridge note facilities. The debt and equity bridge note 
facilities outstanding as at September 30, 2003 were $25 million 
and $33.5 million, respectively. 

The working capital balance as at September 30, 2003 was $18.1 
million, excluding the demand loan and bridge note payable. This 
is in comparison to working capital of $10.7 million as at 
December 31, 2002. The difference of $7.4 million is primarily 
due to an increase in cash and short-term investments, resulting 
from the timing of the receipt of the debt and equity bridge note 
facilities in the latter part of the third quarter. These funds 
were subsequently used as a portion of the financing of the 
acquisition of the Southeastern Saskatchewan properties. 

Distributions 

During the first half of 2003, Harvest paid distributions of 
$0.20 per month. Of the distributions declared and paid in the 
first nine months of 2003, approximately 39% were reinvested by 
unitholders through Harvest's distribution reinvestment plan. 
This resulted in a net cash distributions paid during the first 
nine months of $12.4 million. The Trust anticipates the 2003 
distributions will likely be 40% taxable, and a 60% 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


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

Current assets
 Cash and short-term investments      $  17,403,711      $  4,502,947
 Accounts receivable                     14,496,072        13,577,870
 Prepaid expenses and deposits            6,759,342           534,573
---------------------------------------------------------------------
                                         38,659,125        18,615,390

Deferred financing charges,
 net of amortization                      1,173,593         2,209,792
Future income tax                         4,593,313         1,272,000

Property, plant and equipment, net
 (Note 2)                                99,943,318        71,631,507
---------------------------------------------------------------------

                                      $ 144,369,349      $ 93,728,689
---------------------------------------------------------------------
---------------------------------------------------------------------

Liabilities and Unitholders' Equity

Current liabilities
 Accounts payable and accrued
  liabilities                         $  17,850,114      $  5,640,175
 Cash distributions payable               2,504,578         1,862,500
 Accrued interest payable                   218,904           389,349
 Demand loan (Note 2)                     2,825,000        45,286,396
 Bridge note payable (Note 3)            25,000,000                 -
---------------------------------------------------------------------
                                         48,398,596        53,178,420

Site restoration provision                3,074,185           544,178
---------------------------------------------------------------------
                                         51,472,781        53,722,598

Unitholders' equity
 Unitholders' capital (Note 5)           66,094,529        36,727,997
 Equity bridge notes (Note 4)            33,500,000                 -
 Accumulated income                      15,598,172         5,136,093
 Contributed surplus                         41,728             4,500
 Accumulated cash distributions         (22,337,861)       (1,862,500)
---------------------------------------------------------------------
                                         92,896,568        40,006,090
---------------------------------------------------------------------
                                      $ 144,369,349      $ 93,728,689
---------------------------------------------------------------------
---------------------------------------------------------------------

Subsequent events (Note 10)

See accompanying notes to consolidated financial statements.



Harvest Energy Trust
Consolidated Statement of Income and Accumulated Income
(Unaudited)
---------------------------------------------------------------------
                               Three Months Ended   Nine Months Ended
                               September 30, 2003  September 30, 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Revenue
 Oil and natural gas sales           $ 28,537,957        $ 79,407,339
 Hedging loss                          (3,525,083)        (15,821,359)
 Royalty income                           172,866             342,999
 Royalty expense                       (4,005,183)        (10,387,959)
---------------------------------------------------------------------
                                       21,180,557          53,541,020
Expenses
 Operating                              9,660,960          23,061,371
 Interest and amortization of
  deferred finance charges              1,195,737           3,386,465
 General and administrative               566,941           2,086,594
 Site restoration and reclamation       1,270,878           2,654,682
 Depletion, depreciation and
  amortization                          8,032,971          20,181,186
 Foreign exchange gain                 (1,825,596)         (5,313,053)
---------------------------------------------------------------------
                                       18,901,891          46,057,245

---------------------------------------------------------------------
Income before taxes                     2,278,666           7,483,775

Taxes
 Large corporation tax                     86,267             137,805
 Future tax expense                    (3,558,837)         (3,321,313)
---------------------------------------------------------------------

Net income for the period               5,751,236          10,667,283
---------------------------------------------------------------------

Interest on equity bridge notes
 (Note 4)                                (205,205)           (205,205)

Accumulated income,
 beginning of period                   10,052,141           5,136,094

Accumulated income, end of period    $ 15,598,172        $ 15,598,172
---------------------------------------------------------------------
---------------------------------------------------------------------

Income per trust unit, basic         $       0.46        $       0.94
Income per trust unit, diluted       $       0.45        $       0.91
---------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



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

Cash provided by (used in)
Operating Activities
 Net income for the period           $  5,751,236        $ 10,667,283
 Items not requiring cash
  Depletion, depreciation and
   amortization                         8,032,971          20,181,186
  Site restoration and reclamation      1,270,878           2,654,682
  Foreign exchange (gain) loss          4,484,284             996,827
  Amortization of finance charges         765,702           1,578,652
  Future tax expense                   (3,558,837)         (3,321,313)
  Unit based compensation                  12,273              37,228
---------------------------------------------------------------------
 Cash flow from operations             16,758,507          32,794,545
 Change in non-cash working
  capital (Note 8)                      7,345,126           6,448,729
---------------------------------------------------------------------
                                       24,103,633          39,243,274
Financing Activities
 Issue of trust units, net of costs      (165,084)         13,631,097
 Issue of trust units under the
  distribution reinvestment plan,
  net of costs                          2,986,398           7,385,435
 Issue of bridge note payable (Note 3) 25,000,000          25,000,000
 Issue of equity bridge notes (Note 4) 33,500,000          33,500,000
 Increase in demand loan                8,485,253          41,864,318
 Repayment of demand loan             (57,126,666)        (86,683,848)
 Repayment of promissory note payable    (850,000)           (850,000)
 Financing costs                         (542,453)           (542,453)
 Cash distributions                    (7,402,864)        (19,833,283)
 Change in non-cash working capital
  balances related to financing
  activities (Note 8)                      57,068             642,078
---------------------------------------------------------------------
                                        3,941,652          14,113,344
Investing Activities
 Additions to property,
  plant and equipment                  (9,040,735)        (34,011,837)
 Acquisition of a private company
  (Note 2)                                      -          (3,000,000)
 Change in non-cash working capital
  balances related to investing
  activities (Note 8)                  (2,781,448)         (3,444,017)
---------------------------------------------------------------------
                                      (11,822,183)        (40,455,854)

Increase in cash and short-term
 investments                           16,223,102          12,900,764

Cash and short-term investments,
 beginning of period                    1,180,609           4,502,947

---------------------------------------------------------------------
Cash and short-term investments,
 end of period                       $ 17,403,711        $ 17,403,711
---------------------------------------------------------------------
---------------------------------------------------------------------

Cash interest payments               $    741,709        $  1,687,054
Cash tax payments                    $     91,034        $    137,805
Cash distributions per unit (Note 5) $       0.60        $       1.74
---------------------------------------------------------------------
---------------------------------------------------------------------

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. 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. Acquisition of a private company 

On June 1, 2003, the 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 trust 
unit (Note 5), $3 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 
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
--------------------------------------------------------------------
--------------------------------------------------------------------

/T/

3. Bridge note payable 

On September 29, 2003, the Trust entered into a bridge note 
agreement with a corporation controlled by a director of Harvest 
Operations Corp., which provides for advances of up to $25 
million. Under the terms of the agreement, interest is paid 
quarterly in arrears and is calculated daily at a fixed rate of 
10% per annum. The outstanding principal portion and all accrued 
and unpaid interest on the bridge note agreements is due and 
payable in full on January 1, 2005. Security has been provided in 
the form of a fixed and floating debenture on the Trust's net 
profit interest ("NPI"). As at September 30, 2003, there was $25 
million drawn on the bridge note payable, and accrued interest of 
$13,699. 

4. Equity bridge note 

On July 28, 2003, the Trust entered into two equity bridge note 
agreements, which provide for advances in aggregate of up to $40 
million. The terms and conditions are identical for both 
agreements, which is comprised of a $30 million agreement with a 
corporation controlled by a director of Harvest Operations Corp., 
and a $10 million agreement with a director of Harvest Operations 
Corp. 

Under the terms of the agreements, interest is paid quarterly in 
arrears and is calculated daily at a fixed rate of 10% per annum. 
The Trust has the option to settle the quarterly interest 
payments with cash or the issue of trust units. If the Trust 
elects to issue trust units, the number of trust units to be 
issued to settle a quarterly payment shall be the equivalent to 
the quarterly payment amount divided by 90% of the most recent 
ten-day weighted average trading price. 

The Trust also has the option to repay the principal amounts 
outstanding at any time. If the Trust chooses to partially repay 
the outstanding principal amount, such payment is to be made in 
cash. If the Trust elects to repay the full principal amount plus 
the accrued quarterly payment at maturity, the Trust then has the 
option to settle its obligation with cash or with the issue of 
trust units. The terms to settle with units is the same as with 
the interest option described above. The outstanding principal 
portion and all accrued and unpaid interest on the equity bridge 
note agreements is due and payable in full on January 1, 2005. 
Security has been provided in the form of a fixed and floating 
debenture on the Trust's NPI. The equity bridge lenders may 
demand payment of the full amount if specified events of default 
under the equity bridge note agreements occur. On September 29, 
2003, the equity bridge note agreements were amended to extend 
the uses permitted under the previous agreements, to include 
repayment of bank debt. As at September 30, 2003, there was $33.5 
million drawn on the equity bridge notes, and accrued interest of 
$205,205 which is a charge to unitholders' equity and not 
included in income. This amount was settled with a cash payment 
subsequent to the period end. 

5. Unitholders' capital 

(a) Authorized 

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

(b) Issued 


/T/

                                        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)                            735,389           7,385,435
Share issue costs                               -          (1,518,903)
---------------------------------------------------------------------
As at, September 30, 2003              12,522,889        $ 66,094,529
---------------------------------------------------------------------

/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 trust 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 trust unit, for partial consideration of the 
purchase of a private company. (Note 2). 

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


/T/

                                             Trust units
                                                  issued
Distribution                                       under
Month           Record Date        Payment Date     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
June          June 30, 2003       July 15, 2003  104,425     989,718
July          July 31, 2003     August 15, 2003   92,818     989,612
August      August 29, 2003  September 15, 2003   88,095   1,007,068
--------------------------------------------------------------------
As at, September 30, 2003                        735,389 $ 7,385,435
--------------------------------------------------------------------
--------------------------------------------------------------------

/T/

(c)     Per trust unit information 

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


/T/

---------------------------------------------------------------------
                                Three Months Ended  Nine Months Ended
                                September 30, 2003 September 30, 2003
---------------------------------------------------------------------

Weighted average trust units
 outstanding, basic                     12,385,722         11,383,042
Effect of trust unit rights                391,972            360,157
Weighted average trust units
 outstanding, diluted                   12,777,694         11,743,199
---------------------------------------------------------------------

/T/

6. 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/

---------------------------------------------------------------------

                                         Trust unit  Weighted 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
Granted, July 15, 2003                       12,500             10.18
Granted, July 17, 2003                        7,500             10.20
Granted, July 18, 2003                       11,000             10.30
Reduction in exercise price
 due to distributions                            -              (1.80)
---------------------------------------------------------------------
As at, September 30, 2003                  885,500             $ 6.32
---------------------------------------------------------------------
---------------------------------------------------------------------

/T/

The trust unit rights outstanding vest equally over 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                                            23.3%
Risk free interest rate                                         3.5%
Expected life of the trust unit rights                       4 years
Estimated annual distributions per unit                        $2.40
--------------------------------------------------------------------

/T/

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 as follows: 


/T/

---------------------------------------------------------------------
                                Three Months Ended  Nine Months Ended
                                September 30, 2003 September 30, 2003
---------------------------------------------------------------------
---------------------------------------------------------------------
Net income          As reported         $5,751,236        $10,667,283
                    Pro forma           $5,317,606        $ 9,522,447
Income per unit
 - basic            As reported         $     0.46        $      0.94
                    Pro forma           $     0.43        $      0.84
Income per unit
 - diluted          As reported         $     0.45        $      0.91
                    Pro forma           $     0.42        $      0.81
---------------------------------------------------------------------
---------------------------------------------------------------------

/T/

During the three and nine month periods ended, the Trust has 
recognized $12,273 and $37,228 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. 

7. 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 
September 30, 2003, that have fixed future sales prices: 


/T/

                                                      Mark to Market
Swaps          Term                  Price per Barrel     Gain (Loss)
--------------------------------------------------------------------

Swaps based on West Texas Intermediate
1,000 Bbls/d   October through
                December 2003             Cdn. $36.63        $23,972
1,510 Bbls/d   January through
                March 2004                U.S. $23.23      ($786,285)
1,300 Bbls/d   January through
                March 2004                U.S. $24.33      ($507,925)
500 Bbls/d     January through
                December 2004             U.S. $24.12      ($603,370)
500 Bbls/d     January through
                December 2004             U.S. $24.25      ($572,214)
1,430 Bbls/d   April through
                June 2004                 U.S. $22.93      ($664,575)
1,200 Bbls/d   April through
                June 2004                 U.S. $25.50      ($758,654)
1,380 Bbls/d   July through
                September 2004            U.S. $22.70      ($592,472)
500 Bbls/d     July through
                September 2004            U.S. $24.56      ($102,307)
1,325 Bbls/d   October through
                December 2004             U.S. $22.54      ($528,585)
500 Bbls/d     October through
                December 2004             U.S. $24.03      ($109,459)
500 Bbls/d     January through
                December 2005             U.S. $24.00      ($309,139)
1,100 Bbls/d   January through
                March 2005                U.S. $22.38      ($404,432)
1,030 Bbls/d   April through
                June 2005                 U.S. $22.18      ($381,430)
--------------------------------------------------------------------

Swaps based on the Lloydminster Blend Crude differential
2,000 Bbls/d   January through
                December 2004             U.S. ($7.75)      $390,644
1,000 Bbls/d   January through
                December 2004             U.S. ($8.20)      ($20,371)


                                                      Mark to Market
Collars        Term                  Price per Barrel     Gain (Loss)
--------------------------------------------------------------------
500 Bbls/d     October through
                December 2003     Cdn. $35.50 - 37.35        $45,106
1,000 Bbls/d   January through
                December 2004     U.S. $23.00 - 27.95             $0
1,000 Bbls/d   January through
                December 2004     U.S. $25.00 - 28.25             $0
--------------------------------------------------------------------

                                                      Mark to Market
Sold Put       Term                  Price per Barrel     Gain (Loss)
--------------------------------------------------------------------
500 Bbls/d     January through
                December 2004   Short put Cdn. $15.50       ($21,569)
1,000 Bbls/d   January through
                December 2004   Short put Cdn. $18.00      ($119,830)
1,000 Bbls/d   January through
                December 2004   Short put Cdn. $18.00      ($119,830)

/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 September 30, 2003: 


/T/

                                             Price per   Mark to Market
Swaps     Term                                Megawatt       Gain (Loss)
-----------------------------------------------------------------------
5MW       January through December 2003    Cdn  $46.30        $ 129,168
5MW       January through December 2004    Cdn  $46.00        $  65,880
5MW       January through December 2004    Cdn. $46.00        $  65,880
5MW       January through December 2004    Cdn. $45.50        $  87,840
5MW       January through December 2005    Cdn  $43.00        $  38,544
9.75MW    April 2003 through March 2006    Cdn  $44.50        $ 712,577
-----------------------------------------------------------------------

                                             Price per   Mark to Market
Swaps     Term                                Megawatt       Gain (Loss)
-----------------------------------------------------------------------
5MW       January through December 2005    8.40 GJ/MWh        $  45,289
-----------------------------------------------------------------------

/T/

At September 30, 2003 the net mark-to-market unrealized loss for 
all the financial derivative contracts entered into by Harvest 
Operations was approximately $4,973,581. 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 September 
30, 2003, this amount totaled $5,076,910 and is recorded in the 
prepaid expense and deposits balance. 

8. Change in non-cash working capital 


/T/

                                 --------------------------------------
                                 Three Months Ended   Nine Months Ended
                                 September 30, 2003  September 30, 2003
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Changes in non-cash working
 capital items:
 Accounts receivable                   $  1,728,332        $    (82,019)
 Prepaid expenses and deposits           (4,360,789)         (6,195,004)
 Accounts payable and accrued
 liabilities                              7,787,060           9,498,951
 Cash distributions payable                  57,068             642,078
 Accrued interest payable                  (590,925)           (170,445)
 Large corporation taxes payable                  -             (46,771)
-----------------------------------------------------------------------
                                       $  4,620,746        $  3,646,790
-----------------------------------------------------------------------
-----------------------------------------------------------------------

Changes relating to operating
 activities                            $  7,345,126        $  6,448,729
Changes relating to financing
 activities                                  57,068             642,078
Changes relating to investing
 activities                              (2,781,448)         (3,444,017)

-----------------------------------------------------------------------
                                       $  4,620,746        $  3,646,790
-----------------------------------------------------------------------
-----------------------------------------------------------------------

/T/

9. Related party transactions 

A director and a corporation controlled by a director of Harvest 
Operations Corp., have advanced $60.5 million to the Trust during 
the period ended September 30, 2003. (Notes 3 & 4) 

A corporation controlled by a director of Harvest Operations 
Corp. exercised a warrant to purchase 150,000 trust units for 
proceeds of $150,000 on January 24, 2003. (Note 5) 

A corporation controlled by a director of Harvest Operations 
Corp. sublets office space and is provided administrative 
services at fair market value. 

10. Subsequent events 

On October 1, 2003, Harvest Energy Trust repaid $11 million of 
the bridge loan payable plus accrued interest. 

On October 3, 2003, Harvest Operations Corp. entered into a $15 
million interim bank facility and subsequently paid $2,902,990 in 
borrowings and unpaid interest to terminate the demand loan. 
Borrowings under the interim facility bear interest at the banks 
prime rate plus one-half percent. 

On October 15, 2003, the Trust paid the $0.20 per trust unit 
distribution announced on September 16, 2003, for unitholders' of 
record as at September 30, 2003. The distribution paid consisted 
of $1,476,228 in cash and 89,578 trust units issued for 
$1,028,349 on the reinvestment of distributions pursuant to the 
Distribution Reinvestment and Optional Unit Purchase Plan. 

On October 16, 2003, Harvest Operations Corp. entered into an $89 
million bank facility with a chartered Canadian bank syndicate. 
The facility bears interest at rates ranging from 0.25% to 1.5% 
above prime rate, and is dependent upon the Trust's debt to cash 
flow ratio. The borrowing base is reduced monthly by $4.5 million 
commencing January 31, 2004. A portion of this facility was used 
to repay the $15 million interim bank facility. 

On October 16, 2003, the Trust closed the acquisition of the 
Carlyle properties in Southeastern Saskatchewan for an estimated 
purchase price of $80 million. 

On October 16, 2003, the Trust closed an issue of 4,312,500 trust 
units at a price of $12.00 per trust unit for gross proceeds of 
approximately $51.8 million. 

On October 17, 2003, the Trust issued 73,400 additional trust 
unit rights to employees of Harvest Operations Corp. The average 
exercise price of the rights granted was $12.19. 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, and are subject to Board of Directors approval. 


On October 23, 2003, the Trust announced a cash distribution of 
$0.20 per trust unit to the unitholders of record on October 31, 
2003. The distribution was paid on November 15, 2003 and 
consisted of $2,338,364 in cash and 88,256 trust units issued for 
$1,046,229 on the reinvestment of distributions pursuant to the 
Distribution Reinvestment and Optional Unit Purchase Plan. 

On October 27, 2003, Harvest Operations Corp. purchased an 
average rate U.S. dollar put option with a strike price of 
1.3333, for a premium of $2 million. The notional amount of the 
option is U.S. $3 million per month, and has a term from November 
1, 2003 to December 31, 2004. The contract is settled monthly on 
the last business day of each month. 

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


/T/


Trade Date          Swap          Term              Price per Barrel
-----------------------------------------------------------------------
Swaps based on the Lloydminster Blend Crude differential

October 10, 2003    500 Bbls/d    January through
                                   December 2004    U.S. ($7.90)

Trade Date          Collar        Term              Price per Barrel
-----------------------------------------------------------------------

October 16, 2003    2,500 Bbls/d  October through
                                   December 2003    U.S. $24.00 - $30.45

October 16, 2003    2,500 Bbls/d  January through
                                   December 2004    U.S. $22.00 - $28.10

/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 light, medium and 
heavy gravity crude oil properties in East Central Alberta and 
South East Saskatchewan, and its hands on operating strategy 
underpin Harvest's objective to deliver superior economic returns 
to unitholders. 


/T/

Harvest Energy Trust
1900, 330 - 5th Avenue S.W.
Calgary, AB T2P 0L4
Canada

/T/

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