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Harvest Energy Trust Announces First Quarter 2004 Results

May 14, 2004 - 09:00 ET

CALGARY, ALBERTA--(CCNMatthews - May 14, 2004) -  

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 March 31, 2004. 

First Quarter Highlights 

- Distributions of $0.60 per trust unit; 

- Cash flow from operations of $14.8 million or $0.87 per trust 
unit, for the three month periods ended March 31, 2004, an 
increase of 8.4% from the fourth quarter of 2003 and a 129% 
increase for the same period last year; 

- Sales volume averaged 14,829 BOE/d for the three month period 
ended March 31, 2004, an 80% increase over the same period last 
year; 

- Harvest continued its development activities in its core areas 
with capital expenditures of approximately $12.0 million 
resulting in an exit rate of 15,200 BOE/d at March 31, 2004; and 

- Harvest announced the signing of an agreement to acquire 4,200 
BOE/d of predominantly light oil properties in the Red Earth area 
of North Central Alberta through a Plan of Arrangement with Storm 
Energy Ltd. Harvest expects to close the Red Earth acquisition in 
June 2004, for consideration of approximately $189 million. 


/T/

First Quarter Financial and Operational Summary

Financial
($000's except per BOE and                  Three months ended March 31
 per trust unit amounts)                    2004         2003  % Change
------------------------------------------------------------------------
Revenue, before hedging                   47,500       26,230       81%
Revenue, net of hedging                   38,445       17,660      118%
Realized hedging loss                      9,055        8,570        6%
Cash flow from operations                 14,839        6,489      129%
Cash flow from operations
 per trust unit, basic                     $0.87        $0.62       40%

Net income (loss)                         (1,065)       3,469     (131%)
Net income (loss) per trust
 unit, basic                              ($0.06)       $0.33     (118%)

Distributions declared                    10,325        6,024       71%
Distributions declared
 per trust unit                            $0.60        $0.60        -

Payout ratio                                  69%          93%     (25%)

Capital expenditures                      12,011        5,892      104%

Net debt                                  28,657       22,068      (30%)

Weighed average trust
 units outstanding, basic             17,179,955   10,387,522       65%
Trust units outstanding
 at the end of the period             17,281,528   11,114,938       55%
------------------------------------------------------------------------



Operating and Reserves                      Three months ended March 31
                                            2004         2003  % Change
------------------------------------------------------------------------
Average daily sales volumes
 Crude oil and natural gas
  liquids (Bbls/d)                        14,676        8,077       82%
 Natural gas (mcf/d)                         915          875        5%
------------------------------------------------------------------------
Total (BOE/d)                             14,829        8,223       80%
Production exit rate (BOE/d)              15,200        8,600       77%
------------------------------------------------------------------------
(Natural gas converted to barrel of oil equivalent BOE on a 6:1 basis)

/T/

First Quarter Message to Unitholders 

During the first quarter, Harvest's activities were focused on 
development activities at Carlyle and Provost and negotiating the 
Red Earth acquisition. 

Harvest maintained an active development program in the first 
quarter. Harvest continued to focus its development efforts on 
drilling, primarily at Hayter in Provost and at Hazelwood, Bender 
and Big Marsh in Carlyle. Capital expenditures were $12.0 million 
and production at the end of the first quarter was approximately 
15,200 BOE/d. Harvest currently expects total capital 
expenditures during 2004 to be approximately $35 million, focused 
on production and reserve additions and operating efficiency 
programs. 

On January 1, 2004, Harvest was required to adopt a new 
accounting standard governing hedging activities. In addition to 
the first quarter impact, Harvest expects that this accounting 
standard will result in greater income volatility in future 
periods. As a result of the implementation of this accounting 
standard, Harvest has recorded an unrealized after tax mark to 
market loss in the first quarter of $3.5 million on a portion of 
the hedging instruments employed in its risk management hedging 
portfolio. Of note, this new standard did not impact the realized 
price of products sold and did therefore not impact cash flow. A 
complete discussion of this new accounting standard is located in 
the management discussion and analysis and notes 2 and 8 of the 
first quarter unaudited consolidated financial statements. 

Subsequent to the first quarter, on April 19, 2004, Harvest 
announced the signing of an agreement to acquire 4,200 BOE/d of 
predominantly light oil properties in the Red Earth area of North 
Central Alberta through a Plan of Arrangement with Storm Energy 
Ltd. Harvest expects to close the Red Earth acquisition in June 
2004, for consideration of approximately $189 million. Harvest 
anticipates the properties will provide the following benefits to 
unitholders: 

- increases Harvest's proved plus probable reserve base to 
approximately 47 million BOE; 

- increases Harvest's reserve life index to 6.6; 

- increases the light/medium oil component of Harvest's 
production to approximately 70%; 

- enhances Harvest's netbacks as a result of the lower unit 
operating cost of the acquired properties and the higher price 
realizations per unit of production; 

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

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

Harvest's current production rate is approximately 15,400 BOE/d. 
Combining the incremental production from the Red Earth 
properties for the period of July 1, 2004 to December 31, 2004 
with Harvest's existing base of production, Harvest expects 
average production to be: 


/T/

------------------------------------------------------------------------
                        Calendar 2004 Average        December 2004 Exit
------------------------------------------------------------------------
Total Production        16,750 - 17,500 BOE/d     18,750 - 19,250 BOE/d
------------------------------------------------------------------------

/T/

Harvest confirms, that subject to monthly review and approval by 
the Board of Directors of Harvest Operations Corp., it 
anticipates continuing to distribute $0.20 per trust unit per 
month. Although the recent acquisition is 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. 

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. 

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. 


/T/

Consolidated Financial Statements of
Harvest Energy Trust
March 31, 2004


Harvest Energy Trust
Consolidated Balance Sheets
(thousands of dollars)

                                                      (Restated, Note 3)
------------------------------------------------------------------------
                                    March 31, 2004    December 31, 2003
------------------------------------------------------------------------
Assets                                  (Unaudited)            (Audited)

Current assets
 Accounts receivable                     $  13,696            $  19,168
 Prepaid expenses and deposits              19,309               12,131
------------------------------------------------------------------------
                                            33,005               31,299

Deferred financing charges,
 net of amortization                         1,245                1,989
Future income tax                           15,172               12,609

Property, plant and equipment
 (Note 3)                                  211,236              210,543
------------------------------------------------------------------------
                                         $ 260,658            $ 256,440
------------------------------------------------------------------------
------------------------------------------------------------------------


Liabilities and Unitholders' Equity

Current liabilities
 Bank indebtedness                       $   2,819            $   3,274
 Accounts payable and accrued
  liabilities                               18,714               17,186
 Accrued interest payable                    1,061                  232
 Cash distributions payable                  3,456                3,422
 Demand loan                                35,611               60,075
 Equity bridge interest payable
  (Notes 4 and 10)                               -                  665
------------------------------------------------------------------------
                                            61,661               84,854

Commodity derivative contracts
 (Note 8)                                    5,491                    -
Asset retirement obligation (Note 3)        42,744               42,009
------------------------------------------------------------------------
                                           109,896              126,863

Unitholders' equity
 Unitholders' capital (Note 5)             119,527              117,407
 Equity bridge notes (Notes 4 and 10)            -               25,000
 Convertible debentures (Note 7)            56,374                    -
 Accumulated income                         17,311               19,478
 Contributed surplus                           422                  239
 Accumulated cash distributions            (42,872)             (32,547)
------------------------------------------------------------------------
                                           150,762              129,577
------------------------------------------------------------------------
                                         $ 260,658            $ 256,440
------------------------------------------------------------------------
------------------------------------------------------------------------

Subsequent events (Note 11)
Commitments and contingencies (Note 12)
See accompanying notes to consolidated financial statements.

Approved by the Board of Directors:

Director                  Director



Harvest Energy Trust
Consolidated Statement of Income and Accumulated Income
(Unaudited)
(thousands of dollars, except per trust unit amounts)

                                                      (Restated, Note 3)
------------------------------------------------------------------------
                                Three Months Ended   Three Months Ended
                                    March 31, 2004       March 31, 2003
------------------------------------------------------------------------
Revenue
 Oil and natural gas sales               $  47,500            $  26,230
 Royalty expense, net                       (8,027)              (2,922)
 Hedging loss                               (9,055)              (8,570)
 Mark to market loss of
  commodity derivative
  contracts (Note 8)                        (5,491)                   -
------------------------------------------------------------------------
                                            24,927               14,738
Expenses
 Operating                                  13,674                6,804
 General and administrative                  1,554                  731
 Interest                                      519                  651
 Finance charges and amortization
  of deferred finance charges                  744                  462
 Depletion, depreciation and accretion      12,116                6,229
 Foreign exchange gain                         (68)              (2,503)
------------------------------------------------------------------------
                                            28,539               12,374
------------------------------------------------------------------------

Income (loss) before taxes                  (3,612)               2,364

Taxes
 Large corporation tax                          16                   20
 Future tax expense                         (2,563)              (1,125)
------------------------------------------------------------------------

Net income (loss) for the period            (1,065)               3,469
------------------------------------------------------------------------

Interest on equity bridge notes (Note 4)      (185)                   -
Interest on convertible
 debentures (Note 7)                          (917)                   -

Accumulated income, beginning of period     19,478                5,136

Accumulated income, end of period        $  17,311            $   8,605
------------------------------------------------------------------------
------------------------------------------------------------------------

Net income (loss) per trust unit
 (Notes 5 and 6)
Income (loss) per trust unit, basic      $   (0.06)           $    0.33
Income (loss) per trust unit, diluted    $   (0.06)           $    0.32
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



Harvest Energy Trust
Consolidated Statement of Cash Flows
(Unaudited)
(thousands of dollars, except per trust unit amounts)

                                                      (Restated, Note 3)
------------------------------------------------------------------------
                                Three Months Ended   Three Months Ended
                                    March 31, 2004       March 31, 2003
------------------------------------------------------------------------
Cash provided by (used in)
Operating Activities
 Net income (loss) for the period        $  (1,065)           $   3,469
 Items not requiring cash
  Depletion, depreciation and accretion     12,116                6,229
  Foreign exchange (gain) loss                 (68)              (2,503)
  Amortization of finance charges              745                  406
  Mark to market loss of
   commodity derivative
   contracts (Note 8)                        5,491                    -
  Future tax recovery                       (2,563)              (1,125)
  Unit based compensation                      183                   13
------------------------------------------------------------------------
Cash flow from operations                   14,839                6,489
Site restoration and reclamation
 expenditures                                  (64)                   -
Change in non-cash working
 capital (Note 9)                             (270)               2,090
------------------------------------------------------------------------
                                            14,505                8,579

Financing Activities
 Issue of trust units, net of costs            (72)              13,844
 Issue of trust units under the
  distribution reinvestment
  plan, net of costs (Note 5)                1,235                1,575
 Repayment of equity bridge
  notes (Notes 4 and 10)                  (25,000)                    -
 Interest on equity bridge notes             (850)                    -
 Issuance of debentures, net of costs      57,331                     -
 Increase in demand loan                   27,500                 5,631
 Repayment of demand loan                 (52,151)              (23,666)
 Cash distributions                       (10,290)               (5,663)
 Change in non-cash working
  capital balances related to
  financing activities (Note 9)                34                   650
------------------------------------------------------------------------
                                           (2,263)               (7,629)
Investing Activities
 Additions to property, plant
  and equipment                           (12,011)               (5,892)
 Change in non-cash working capital
  balances related to investing
  activities (Note 9)                         224                 2,205
------------------------------------------------------------------------
                                          (11,787)               (3,687)

Increase (decrease) in cash and
 short-term investments                       455                (2,737)

Cash (bank indebtedness),
 beginning of period                       (3,274)                4,503
------------------------------------------------------------------------
Cash (bank indebtedness),
 end of period                           $ (2,819)            $   1,766
------------------------------------------------------------------------
------------------------------------------------------------------------

Cash interest payments                   $    518             $      56
Cash tax payments                        $     16             $      36
Cash distributions declared per unit     $   0.60             $    0.60
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

/T/

Harvest Energy Trust 

Notes to Consolidated Financial Statements 

March 31, 2004 

(thousands of dollars, except per trust unit amounts) 

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 consolidated financial statements of 
the Trust for the year ended December 31, 2003 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. Changes in accounting policy 

a) Full cost accounting guideline 

Effective January 1, 2004, the Trust has adopted the CICA 
Accounting Guideline 16 "Oil and Gas Accounting - Full Cost". The 
changes under the new guideline include modifications to the 
ceiling test and depletion and depreciation calculations. There 
were no changes to the net income, property plant and equipment 
or any other financial statement amount as a result of the 
implementations of this guideline. 

b) Asset retirement obligation 

Effective January 1, 2004, the Trust has adopted the CICA 
Handbook standard for accounting for asset retirement obligation. 
The new standard requires the Trust to record the fair value of 
an asset retirement obligation as a liability in the period in 
which it incurs a legal obligation associated with the retirement 
of tangible long-lived assets that result from the acquisition, 
construction, development, and the normal use of the assets. The 
associated asset retirement costs are capitalized as part of the 
carrying amount of the long-lived asset and depleted and 
depreciated using a unit of production method over estimated 
gross proved reserves. Subsequent to the initial measurement of 
the asset retirement obligations, the obligations are adjusted at 
the end of each period to reflect the passage of time and changes 
in the estimated future cash flows underlying the obligation. 

c) Financial instruments 

Effective January 1, 2004, the Trust has implemented CICA 
Accounting Guideline 13 "Hedging Relationships". This guideline 
addresses the identification, designation and effectiveness of 
financial contracts for the purpose of application of hedge 
accounting. Under this guideline, financial derivative contracts 
must be designated to the underlying revenue or expense stream 
that they are intended to hedge, and tested to ensure they remain 
sufficiently effective. For transactions that do not qualify as 
designated hedges, the Trust applies a fair value method of 
accounting by initially recording an asset or liability, and 
recognizing changes in the fair value of the derivative 
instruments in income. (Note 8) 

3. Asset retirement obligation 

The Trust's asset retirement obligations result from net 
ownership interests in petroleum and natural gas assets including 
well sites, gathering systems and processing facilities. The 
Trust estimates the total undiscounted amount of cash flows 
required to settle its asset retirement obligations is 
approximately $77 million which will be incurred between 2004 and 
2019. The majority of the costs will be incurred between 2015 and 
2019. A credit-adjusted risk-free rate of 7.5 percent was used to 
calculate the fair value of the asset retirement obligations. 

A reconciliation of the asset retirement obligations is provided 
below: 


/T/

------------------------------------------------------------------------
                               Three month    Three month
                              period ended   period ended    Year ended
Asset retirement obligations      March 31,      March 31,  December 31,
                                      2004           2003          2003
------------------------------------------------------------------------

Balance, beginning of period     $  42,010      $  15,566     $  15,566
Liabilities incurred in
 the period                              -              -        25,176
Liabilities settled
 in the period                         (64)             -          (577)
Accretion expense                      798            292         1,845
------------------------------------------------------------------------
Balance, end of period           $  42,744      $  15,858     $  42,010
------------------------------------------------------------------------
------------------------------------------------------------------------

/T/

The effect of this change in accounting policy (Note 2) has been 
recorded retroactively with restatement of prior periods. The 
effect of the adoption is presented below as increases 
(decreases): 


/T/

------------------------------------------------------------------
                                                            As at
Balance sheet                                   December 31, 2003
------------------------------------------------------------------

Asset retirement costs, included in
 property, plant and equipment                          $  35,166
Asset retirement obligations                               42,009
Site restoration provision                                 (4,899)
Future income tax                                           1,024
Retained earnings                                       $  (1,498)


                                               Three month period
Income statement                             ended March 31, 2003
------------------------------------------------------------------

Accretion expense                                       $     292
Depletion and depreciation on
 asset retirement costs                                       726
Site restoration and reclamation                             (565)
Future tax recovery                                          (184)
Net earnings change                                          (269)
Basic net earnings per share                                (0.03)
Diluted net earnings per share                          $   (0.02)
------------------------------------------------------------------

/T/

4. Equity bridge note 

On January 26 and 29, 2004, the Trust repaid the two equity 
bridge note agreements outstanding in the amounts of $7.4 million 
and $17.6 million, respectively. During the month, the Trust also 
paid the accrued and outstanding interest in the amount $850. 

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, 2003                     17,109,006      $ 117,407

Trust unit issue (i)                             71,428            957
Unit appreciation rights exercise (ii)            6,250             57
Distribution reinvestment plan
 issuance (iii)                                  94,844          1,235
Share issue costs                                     -           (129)
-----------------------------------------------------------------------
As at, March 31, 2004                        17,281,528      $ 119,527
-----------------------------------------------------------------------
-----------------------------------------------------------------------

/T/

(i) On March 15, 2004, 1,000 convertible debentures were 
converted at the option of the holder, into 71,428 trust units 
and $11 in accrued interest and fractional units. (Note 7) 

(ii) On March 17, 2004, 6,250 trust unit appreciation rights were 
exercised, for proceeds of $57. 

(iii) 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
------------------------------------------------------------------------

As at, December 31, 2003                           1,009,006   $ 10,638

December     December 31, 2003   January 15, 2004     54,761        719
January      January 31, 2004    February 16, 2004    15,103        185
February     February 27, 2004   March 15, 2004       24,980        331
------------------------------------------------------------------------
As at, March 31, 2004                              1,103,850   $ 11,873
------------------------------------------------------------------------

/T/

(c) Per trust unit information 

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


/T/

----------------------------------------------------------------------
                              Three Months Ended   Three Months Ended
                                  March 31, 2004       March 31, 2003
----------------------------------------------------------------------

Weighted average trust units
 outstanding, basic                   17,130,519           10,387,522
Effect of trust unit rights              430,194              221,767
Weighted average trust units
 outstanding, diluted                 17,560,713           10,609,289
----------------------------------------------------------------------

/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/

----------------------------------------------------------------------
                                                             Weighted
                                      Trust unit              average
                                          rights       exercise price
----------------------------------------------------------------------

As at, December 31, 2003               1,065,150              $  6.86

Granted                                   25,700                13.54
Cancelled                                (15,875)               (8.59)
Exercised in trust units                  (6,250)               (5.20)
Exercised in cash                         (5,000)               (7.62)
Average reduction in exercise
 price due to distributions                    -                (0.59)
----------------------------------------------------------------------
As at, March 31, 2004                  1,063,725              $  6.39
----------------------------------------------------------------------
----------------------------------------------------------------------

/T/

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

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/

----------------------------------------------------------------------
                              Three Months Ended   Three Months Ended
                                  March 31, 2004       March 31, 2003
----------------------------------------------------------------------
Expected volatility                         23.3%               27.5%
Risk free interest rate                     4.06%               3.00%
Expected life of the trust
 unit rights                             4 years             4 years
Estimated annual
 distributions per unit                    $2.40               $2.40
----------------------------------------------------------------------

/T/

For the purposes of pro forma disclosures, the estimated fair 
value of all 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: 


/T/
----------------------------------------------------------------------
                                                    (Restated, Note 3)
                             -----------------------------------------
                              Three Months Ended   Three Months Ended
                                  March 31, 2004       March 31, 2003
----------------------------------------------------------------------
Net income       As reported             ($1,066)              $3,469
                 Pro forma               ($1,449)              $3,035
Income per
 unit - basic    As reported              ($0.06)               $0.33
                 Pro forma                ($0.07)               $0.29
Income per
 unit - diluted  As reported              ($0.06)               $0.32
                 Pro forma                ($0.08)               $0.28
----------------------------------------------------------------------

/T/

During the three month periods ended, the Trust has recognized 
$183 and $13 respectively in compensation expense and included it 
in general and administrative expense in the consolidated 
statement of income and accumulated income. 

7. Convertible debentures 

On January 29, 2004, the Trust closed an issue of 60,000 9% 
convertible unsecured subordinated debentures due May 31, 2009. 
Interest on the debentures is payable semi-annually in arrears in 
equal installments on May 31 and November 30 in each year, 
commencing May 31, 2004. The debentures are convertible into 
fully paid and non-assessable trust units at the option of the 
holder at any time prior to the close of business on the earlier 
of May 31, 2009 and the business day immediately preceding the 
date specified by the Trust for redemption of the Debentures, at 
a conversion price of $14.00 per trust unit plus a cash payment 
for accrued interest and in lieu of the fractional trust units 
resulting on the conversion. The debentures may be redeemed by 
the Trust at its option in whole or in part subsequent to May 31, 
2007, at a price equal to $1,050 per debenture between June 1, 
2007 and May 31, 2008 and at $1,025 per debenture between June 1, 
2008 and May 31, 2009. Any redemption will include accrued and 
unpaid interest at such time when completed. The Trust may also 
elect to redeem the debentures upon maturity with the issue of 
trust units at a price equal to 95% of the weighted average 
trading price for the preceding 20 consecutive trading days, 5 
days prior to settlement date. Under both redemption options, the 
Trust may elect to pay both the debenture and accrued interest in 
the form of trust units. A settlement in trust units is subject 
to specified notice and regulatory approval. 

The impact of the convertible debentures on the diluted earnings 
per share calculation was anti-dilutive for the three month 
period ended March 31, 2004, and not included in the calculation. 


On March 15, 2004, 1,000 convertible debentures were converted at 
the option of the holder, into 71,428 trust units and $11 in 
accrued interest and fractional units. 

8. Financial instruments 

The Trust uses oil sales contracts and derivative financial 
instruments to mitigate the effect of fluctuations in commodity 
prices on prices realized. The following is a summary of the oil 
sales contracts with price swap or collar features as at March 
31, 2004, that have fixed future sales prices: 


/T/

-----------------------------------------------------------------------
Commodity swap contracts based on West Texas Intermediate
-----------------------------------------------------------------------
Daily                            Price per              Mark to Market
Quantity       Term              Barrel (Note 1)            Gain (Loss)
-----------------------------------------------------------------------

500 Bbls/d     April through
                December 2004    U.S. $24.12 ($15.50)         $ (1,784)
1,500 Bbls/d   April through
                December 2004    U.S. $28.02                    (3,243)
2,630 Bbls/d   April through
                June 2004        U.S. $24.10                    (3,398)
1,880 Bbls/d   July through
                September 2004   U.S. $23.19                    (2,346)
1,825 Bbls/d   October through
                December 2004    U.S. $22.95                    (2,115)
500 Bbls/d     January through
                December 2005    U.S. $24.00                    (1,634)
1,100 Bbls/d   January through
                March 2005       U.S. $22.38                    (1,212)
1,030 Bbls/d   April through
                June 2005        U.S. $22.18                    (1,088)


Commodity swap contracts based on the Lloydminster Blend Crude
differential
-----------------------------------------------------------------------

4,500 Bbls/d   April through
                December 2004    U.S. ($7.85)                 $  1,488


Commodity collar contracts based on West Texas Intermediate
-----------------------------------------------------------------------

2,500 Bbls/d   April through
                December 2004    U.S. $22.00 - 28.10          $ (5,337)
3,000 Bbls/d   April through
                December 2004    U.S. $25.79 - 30.05 ($19.31)   (5,027)
2,500 Bbls/d   January through
                June 2005        U.S. $28.40 - 32.25 ($21.80)     (276)
1,000 Bbls/d   July though
                December 2005    U.S. $27.75 - 30.65 ($22.00)     (186)

Note 1  Harvest has sold put options at the average price denoted in
        parenthesis, for the same volumes as the associated commodity
        contracts. The counterparty may exercise these options if the
        respective index falls below the specified price on a monthly
        settlement basis.
-----------------------------------------------------------------------

/T/

The following is a summary of electricity price hedging swap 
contracts entered into by Harvest Operations Corp. to fix the 
cost of future electricity usage as at March 31, 2004: 


/T/

-------------------------------------------------------------------
Commodity swap contracts based on electricity prices
-------------------------------------------------------------------
                                   Price per        Mark to Market
Quantity     Term                  Megawatt             Gain (Loss)
-------------------------------------------------------------------
15MW         April through
              December 2004        Cdn $45.83                 $957
5MW          January through
              December 2005        Cdn $43.00                 $186
9.75MW       April 2004
              through March 2006   Cdn $44.50               $1,243
-------------------------------------------------------------------


Commodity swap contracts based on electricity heat rate
-------------------------------------------------------------------
                                                    Mark to Market
Swaps        Term                  Price                Gain (Loss)
-------------------------------------------------------------------
5MW          January through
              December 2005        8.40 GJ/MWh               ($156)
-------------------------------------------------------------------


Foreign Currency Contracts
---------------------------------------------------------------------
Monthly                                               Mark to Market
Contract Amount   Term               Contract Rate              Gain
---------------------------------------------------------------------
U.S. $3 million   April through
                   December 2004     1.3333 Cdn / U.S.        $  807
---------------------------------------------------------------------

/T/

At March 31, 2004 the net mark-to-market unrealized loss for all 
the financial derivative contracts entered into by Harvest 
Operations Corp. was approximately $23.1 million. Harvest 
Operations Corp. has provided deposits to some counterparties for 
a portion of its financial derivative contracts, based on the 
mark-to-market value of those contracts at the end of the trading 
day. As at March 31, 2004, the amounts deposited totaled $19.2 
million and are recorded in the prepaid expense and deposits 
balance. 

Upon the implementation of the CICA Accounting Guideline 13, the 
Trust recorded a liability and a corresponding unrealized mark to 
market loss of $5.5 million. 


/T/

9. Change in non-cash working capital

------------------------------------------------------------------------
                                Three Months Ended   Three Months Ended
                                    March 31, 2004       March 31, 2003
------------------------------------------------------------------------
Changes in non-cash working capital items:
 Accounts receivable                      $  5,472             $  1,148
 Prepaid expenses and deposits              (7,178)                (983)
 Accounts payable and accrued
  liabilities                                1,528                4,167
 Cash distributions payable                     34                  650
 Accrued interest payable                      829                  (36)
 Equity bridge interest payable               (665)                   -
------------------------------------------------------------------------
                                          $     20             $  4,946
------------------------------------------------------------------------
------------------------------------------------------------------------

Changes relating to operating
 activities                               $   (270)            $  2,090
Changes relating to financing
 activities                                     34                  651
Changes relating to investing
 activities                                    224                2,205
Add: Non cash changes                           32                    -
------------------------------------------------------------------------
                                          $     20             $  4,946
------------------------------------------------------------------------
------------------------------------------------------------------------

/T/

10. Related party transactions 

A director and a corporation controlled by a director of Harvest 
Operations Corp., were repaid $25 million under the equity bridge 
note during the three month period ended March 31, 2004. The 
Trust paid $850 of the total interest accrued and payable during 
the year. (Note 4) 

A director of Harvest Operations Corp., owns 4,500 of the 
convertible debentures issued on January 29, 2004. (Note 7) 

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

11. Subsequent events 

On April 12, 2004, Harvest Operations Corp. sold forward U.S.$4.4 
million to be settled for Cdn.$5.9 million on May 25, 2004. On 
the same date, Harvest Operations Corp. sold forward U.S.$10.4 
million settled for Cdn.$13.8 million on April 26, 2004. The 
purpose of these transactions was to fix the Canadian dollar 
equivalent on oil and natural gas revenues that will be paid to 
Harvest Operations Corp. in U.S. dollars by the purchaser. 

On April 19, 2004, the Trust announced a plan of arrangement with 
Storm Energy Ltd. ("Storm"), whereby the Trust will acquire all 
of the outstanding shares of Storm for approximately $189 
million, including assumed net debt of approximately $64 million. 
The shareholders of Storm will be asked to approve the plan of 
arrangement at a special meeting to be held in June 2004. 

On April 28, 2004, Harvest Operations Corp. sold forward U.S.$8 
million to be settled for Cdn.$11 million on May 25, 2004. 

On May 6, 2004, 24,000 trust unit appreciation rights were 
granted to employees of Harvest Operations Corp., with an 
exercise price of $15.08. 

On May 11, 2004, $100 of the convertible debentures issued on 
January 29, 2004 were converted into 7,142 trust units. In 
conjunction with this conversion, the Trust also paid an 
approximate total of $3 in cash for accrued interest and in lieu 
of fractional units. 

The following is a summary of the oil sales contracts with price 
swap or collar features that were entered into by Harvest 
Operations Corp. subsequent to March 31, 2004, that have fixed 
future sales and purchase prices: 


/T/

----------------------------------------------------------------------
Commodity collar contracts based on West Texas Intermediate
----------------------------------------------------------------------
Trade Date       Collar      Term                    Price per Barrel
----------------------------------------------------------------------
April 28, 2004   500 Bbls/d  July through              U.S. $29.00 -
                              December 2005             35.00 ($23.00)
----------------------------------------------------------------------

/T/

The following is a summary of the Trust distributions announced 
and paid subsequent to March 31, 2004: 


/T/
                                              Trust units         Total
Distribution                                       issued     Amount of
Month        Record Date      Payment Date     under DRIP  Distribution
------------------------------------------------------------------------
March        March 31, 2004   April 15, 2004       21,825         3,456
April        April 30, 2004   May 17, 2004                        3,461
May          May 31, 2004     June 15, 2004
------------------------------------------------------------------------

Note: The trust units to be distributed under the DRIP for the April
distribution have not yet been determined.

The amount to be distributed and the allocation to the DRIP for the May
distribution have not yet been determined.

/T/

12. Commitments and contingencies 

From time to time, the Trust is involved in litigation or has 
claims sought against it in the normal course of business 
operations. Management of the Trust is not currently aware of any 
claims or actions that would materially affect the Trust's 
reported financial position or results from operations. 

The Trust has letters of credit outstanding in the amount of 
approximately $3.3 million, related to electricity infrastructure 
usage. These letters are provided by the Trust's lenders under 
the availability of the demand loan. The letters expire 
throughout 2004, and are expected to be renewed as required. 

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 audited consolidated financial statements and 
accompanying notes for the year ended December 31, 2003. 

Forward-Looking Information 

The following disclosure contains forward-looking information and 
estimates 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. 
These risks and uncertainties include but are not limited to, 
factors intrinsic in domestic and international politics and 
economics, general industry conditions including the impact of 
environmental laws and regulations, imprecision of reserves 
estimates, fluctuations in commodity prices, interest rates or 
foreign exchange rates and stock market volatility. The 
information and opinions concerning the Trust's future outlook 
are based on information available at May 2004. 

Certain Financial Reporting Measures 

The Trust has used certain measures of financial reporting that 
are commonly used as benchmarks within the oil and natural gas 
production industry in the following MD&A discussion. The 
measures discussed are widely accepted measures of performance 
and value within the industry, and are used by analysts and 
investors to compare and evaluate oil and natural gas producing 
entities. These measures are not defined under Canadian generally 
accepted accounting principles ("GAAP") and should not be 
considered in isolation or as an alternative to conventional GAAP 
measures. Certain of these measures are not necessarily 
comparable to a similarly titled measure of another company or 
trust. When these measures are used, they are defined as 
"non-GAAP" and should be given careful consideration by the 
reader. 

Trust Overview 

Harvest Energy Trust is an oil and natural gas royalty trust, 
which focuses on the operation of high quality, mature 
properties. The Trust employs a conservative approach to the oil 
and natural gas production business, whereby it acquires high 
working interest, mature producing properties and employs 
distinct management techniques. These techniques include 
diligent, hands-on management to maintain and maximize production 
rates, application of technologies and selective capital 
investment to maximize reservoir recovery, enhancing operational 
efficiencies to control and reduce expenses, unique marketing 
arrangements and corporate hedging techniques to effectively 
manage cash flow. The Trust has operations in the Provost region 
of Eastern Alberta and in the Carlyle region of Southeastern 
Saskatchewan. 


/T/

Industry Overview

---------------------------------------------------------------------
                                 (average for the three
                                   month period ended)
Prices                      March 31, 2004  March 31, 2003  % Change
---------------------------------------------------------------------

West Texas intermediate
 crude oil (US$ per barrel)        $ 35.25         $ 33.80         4%
Edmonton light crude
 ($ per barrel)                      45.68           50.96       (10%)
Lloyd blend crude oil
 ($ per barrel)                      33.22           38.48       (14%)
Bow river blend crude oil
 ($ per barrel)                      34.74           39.70       (12%)
AECO natural gas ($ per mcf)          6.44            8.44       (24%)

Alberta Power Pool
 electricity price ($ per MWh)       48.83           83.91       (42%)

U.S. / Canadian dollar
 exchange rate (US$)                 1.318           1.510       (13%)
Bank of Canada bank rate              2.72%           3.08%      (12%)
---------------------------------------------------------------------
---------------------------------------------------------------------

/T/

The average price for world crude oil increased period over 
period, with the North American benchmark West Texas Intermediate 
crude oil price averaging U.S. $35.25 in the first three months 
of 2004, in comparison with U.S. $33.80 for the same period in 
2003, primarily due to increased international demand, low 
inventory levels and geo-political uncertainty. With continued 
geo-political uncertainty in the Middle East and strong demand 
for crude oil, particularly for gasoline, robust commodity prices 
are expected to persist through the remainder of 2004. 

The exchange rate trend between the U.S. and Canadian dollars 
showed an increase in the value of the Canadian dollar in 2003. 
During the three months ended March 31, 2004 relative to the 
corresponding period of 2003 the average U.S. / Canadian dollar 
exchange rate increased in value by approximately 12.7%. 
Recently, due to growing employment levels and anticipation in 
increases in interest rates in the U.S., the value of the 
Canadian dollar has retreated. Significantly volatility is 
anticipated over the remainder of 2004. 

Even though the price of WTI in U.S. dollars has increased period 
on period, crude prices in Canadian dollar terms suffered 
primarily as a result of the strengthening of the Canadian versus 
the U.S. dollar. The overall average price increase in the price 
of WTI was approximately 4.3%, was mitigated by the 12.7% 
increase in the value of the Canadian dollar relative to the U.S. 
dollar. This is evidenced by the 10.4% decrease in the average 
price received for Edmonton light (posted price for light oil 
delivered to Edmonton) during the first quarter of 2004 relative 
to the same period of 2003. 

The differential between heavy and light crude oil is locally 
recognized in the pricing of Lloyd and Bow River blend crude 
prices. Quarter on quarter these differentials widened slightly 
in Canadian dollar terms. 

The average Alberta Electricity System Operator (AESO) 
electricity price decreased approximately 42% over the same 
period in 2003. The decrease is due to a combination of factors, 
including: the 24% decrease in the average AECO natural gas 
prices, reduction in demand loads as a result of winter weather 
conditions and electrical generation facilities that were under 
maintenance in the first quarter of 2003 were in production in 
2004. 


/T/

Summary of Quarterly Results

--------------------------------------------------------------------
                                  (Restated - Refer to note 3 of the
                                   consolidated financial statements)
                             2004                   2003
Financial                     Q1       Q4       Q3       Q2       Q1
--------------------------------------------------------------------

Revenue, net of royalties
 and hedging             $30,418  $30,474  $21,181  $17,622  $14,738
Operating expense         13,674   12,984    9,661    6,596    6,804
--------------------------------------------------------------------
Net operating income     $16,744  $17,490  $11,520  $11,026  $ 7,934

Net income (loss)         (1,065)   6,134    5,673    1,063    3,468
 Per trust unit, basic     (0.06)    0.38     0.45     0.09     0.33
 Per trust unit, diluted   (0.06)    0.37     0.44     0.09     0.31
 Per BOE                   (0.79)    4.49     5.42     1.21     4.69
Cash flow from
 operations               14,839   13,115   16,759    9,547    6,489
 Per trust unit, basic
  (non GAAP)                0.87     0.81     1.35     0.84     0.62
 Per trust unit, diluted
  (non GAAP)                0.84     0.79     1.31     0.82     0.60
 Per BOE                   11.00     9.59    16.02    11.12     8.77

Sales Volumes
--------------------------------------------------------------------

Crude oil (bbl/d)         14,626   14,497   11,054    9,371    8,034
Natural gas liquids
 (bbl/d)                      50       70       77       67       43
Natural gas (mcf/d)          915    1,744    1,453    1,161      875
Total (BOE/d)             14,829   14,858   11,373    9,632    8,223

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

/T/

Sales Volumes 

Harvest's production consists of light, medium and heavy crude 
oil, natural gas liquids, and natural gas from properties located 
in East Central Alberta and Southeastern Saskatchewan. Sales 
volumes, on a barrel of oil equivalent, averaged 14,829 BOE/d, in 
comparison to 8,223 BOE/d for the three month period ended March 
31, 2004 and 2003, respectively. The increased average production 
in the first quarter of 2004, when compared to the first quarter 
of 2003, reflects the impact of acquisitions completed in the 
last three calendar quarters of 2003 and the ongoing optimization 
and development programs conducted by Harvest on its oil and 
natural gas properties. 

The average production for the first three months of 2004 of 
14,829 BOD/d is slightly lower than the 14,858 recorded in the 
fourth quarter of 2004. This is due to natural production 
declines, extremely cold weather related field outages and 
equipment failure and weather related delays in the performance 
of the planned optimization and development activities planned to 
maintain or increase production during the first three months of 
2004. 

The average daily sales volumes by product were as follows: 


/T/

--------------------------------------------------------------------
                                      Three month        Three month
                                     period ended       period ended
                                   March 31, 2004     March 31, 2003
--------------------------------------------------------------------
Light crude oil (Bbls/d)             5,053     34%          -      0%
Medium crude oil (Bbls/d)            4,150     28%      3,181     39%
Heavy crude oil (Bbls/d)             5,423     37%      4,853     59%
--------------------------------------------------------------------
Total oil (Bbls/d)                  14,626     99%      8,034     98%
Natural gas liquids (Bbls/d)            50      0%         43      1%
--------------------------------------------------------------------
Total oil and natural gas liquids
 (Bbls/d)                           14,676     99%      8,077     98%
Natural gas (mcf/d)                    915      1%        875      2%

--------------------------------------------------------------------
Total oil equivalent (6:1 BOE/d)     14,829     100%    8,223    100%
--------------------------------------------------------------------

/T/

Harvest exited March 31, 2004 with a daily production rate of 
approximately 15,200 BOE/d, a 76% increase over the exit rate of 
8,627 BOE/d for the period ended March 31, 2003. 

The average production rate of 14,829 BOE/d is about the same as 
the expectations imbedded within the 2004 performance goal of 
15,000 - 15,500 BOE/d average disclosed in the MD&A for December 
31, 2003. On April 19, 2004 Harvest announced the acquisition of 
Storm Energy Ltd. ("Storm") via a plan of arrangement. Assuming 
that this transaction is completed prior to the end of June 2004, 
Harvest anticipates that 2004 production will increase by 
approximately 2,000 BOE/d and thus average 17,000 - 17,500 BOE/d. 


Revenues 

Revenues net of hedging loss and before royalties totaled $38.4 
million and $17.7 million which was the result of the Harvest 
average realized prices of $35.20 and $35.44 per barrel of oil 
equivalent for the periods ended March 31, 2004 and 2003, 
respectively. The relative similarity in realized prices period 
over period is somewhat misleading, as the overall, higher 
priced, corporate quality (API gravity) of crude increased 
substantially quarter over quarter offset by a decrease in the 
overall benchmark for Canadian crude. 


/T/

--------------------------------------------------------------------
--------------------------------------------------------------------
                                      Three month        Three month
                                     period ended       period ended
                                   March 31, 2004     March 31, 2003
--------------------------------------------------------------------
Product prices:
 Light oil ($/bbl)                        $ 41.09             $    -
 Medium oil ($/bbl)                         36.44              41.60
 Heavy oil ($/bbl)                          28.79              31.16
 Natural gas liquids ($/bbl)                35.00              39.00
 Natural gas ($/mcf)                         5.46               7.05
 -------------------------------------------------------------------

 BOE ($/BOE)                              $ 35.20            $ 35.44
 -------------------------------------------------------------------

Operating Netbacks

The following is a summary of Harvest's operating netbacks:

--------------------------------------------------------------------
          (Amounts are expressed on a $ per barrel of oil equivalent)
--------------------------------------------------------------------
                                      Three month        Three month
                                     period ended       period ended
                                   March 31, 2004     March 31, 2003
--------------------------------------------------------------------
Market price                               $35.20             $35.44
Realized hedging loss                        6.71              11.58
--------------------------------------------------------------------
Realized price                              28.49              23.86

Royalties, net                               5.95               3.95
Operating costs                             10.13               9.19

--------------------------------------------------------------------
Netback                                    $12.41             $10.72
--------------------------------------------------------------------

/T/

Harvest paid net royalties of $8.0 million and $2.9 million 
during the period ended March 31, 2004 and 2003, or approximately 
$5.95 per BOE and $3.95 per BOE, respectively. The net royalty 
amount for the three month period ended March 31, 2004 is 
comprised of $4.8 million in freehold royalties and freehold 
mineral tax, $3.0 million in crown royalties and $1.2 million in 
gross overriding royalties net of $1.0 million in royalty income 
received. In comparison, the net royalty amount for the three 
month period ended March 31, 2003 was comprised of $2.1 million 
in freehold royalties and freehold mineral tax, $0.7 million in 
crown royalties and $0.2 million in gross overriding royalties 
net of $0.1 million in royalty income received. The net realized 
royalty percentage with respect to revenue has increased to 16.9% 
versus 11.1% over the prior year's quarter. This is due to the 
change in Harvest's royalty structure as the result of the 
addition of the higher royalty burdened Saskatchewan properties. 

Harvest's operating expenses were $13.7 million and $6.8 million 
or approximately $10.13 and $9.19 per BOE for the three month 
periods ended March 31, 2004 and 2003, respectively. The $0.94 
per BOE ($10.13 less $9.19) year over year increase in unit 
operating expenses reflects the cost associated with incremental 
medium and heavy oil production and the addition of the higher 
per unit operating costs properties in Saskatchewan. 

Approximately 40% of Harvest's respective operating costs are 
related to the consumption of electricity in the first quarter of 
2004. Management has utilized fixed price delivery contracts to 
mitigate electricity price risk within Alberta. For the remainder 
of fiscal year 2004 Harvest anticipates realizing further 
benefits from its electricity hedges with approximately 25 MWh of 
its estimated Alberta electricity hedged at an average price of 
$45.34 per MWh. 

The $10.13 per BOE figure for the first quarter of 2004 is in 
line with Harvest's performance goals set out in the December 31, 
2003 MD&A. The impact of the further efficiencies realized from 
the Harvest capital program and additional production from the 
Storm purchase is an anticipated reduction in the overall 2004 
average operating expenses to approximately $9.75 - $10.25 per 
BOE. 

General and Administration Expenses 

The portion of general and administrative expenditures charged 
against income totaled $1.6 million or $1.15 per BOE for the 
three month period ended March 31, 2004, in comparison to $0.7 
million or $0.99 per BOE for the three month period ended March 
31, 2003. The increase in general and administrative expenses on 
a per BOE basis quarter over quarter, is the direct result of 
approximately $0.2 million in expenses related to unit 
appreciation right expenses, as the result of adoption of the new 
CICA HB section on stock based compensation, and additional staff 
and systems required to operate a growing enterprise. The impact 
on Harvest of the Storm transaction on general and administrative 
expenses charged against income is anticipated to be a decrease 
to about $1.00 per BOE for the 2004 calendar year due to 
anticipated economies of scale. 

During the respective periods ended March 31, 2004 and 2003, $0.6 
million and $0.2 million of general and administrative costs were 
capitalized with regards to field enhancement and acquisition 
activities. The development and optimization opportunities 
associated with the properties to be added through the Storm 
transaction will mean that the 2004 capitalized general and 
administrative expenditures will total nearly $2.4 million. 

Interest Expense and Amortization of Deferred Financing Charges 

Interest expense and deferred financing charges amounted to $1.3 
million and $1.1 million for the period ended March 31, 2004 and 
2003, respectively. 

Depletion, Depreciation and Accretion 

Harvest's depletion, depreciation, and accretion totaled $12.1 
million and $6.2 million for the three month periods ended March 
31, 2004 and 2003, respectively. This balance is primarily 
comprised of crude oil and natural gas properties depletion and 
depreciation of $9.5 million and $5.2 million, depletion of 
capitalized asset retirement costs of $1.8 million and $0.7 
million and approximately $0.8 million and $0.3 million for 
accretion on the asset retirement obligation for the periods 
ended March 31, 2004 and 2003, respectively. The depletion rate 
for oil and natural gas properties was approximately $8.98 and 
$7.50 per BOE for the respective periods, and is based on the 
costs of the oil and natural gas properties purchased, capital 
expenditures incurred, capitalization of general and 
administrative expenses and the long-lived asset retirement 
costs. 

Future taxes 

Future tax recoveries for the three month period ended March 31, 
2004 and 2003 ended are comprised of approximately $2.6 million 
and $1.1 million, respectively. Other than large corporations 
tax, neither the Trust nor its operating subsidiaries are 
expected to pay cash taxes in 2004. 

The anticipated value of the tax pools associated with the Storm 
transaction will be less than the net assets acquired. This will 
result in a decrease in the future tax recovery currently 
recorded and disclosed as an asset on Harvest's balance sheet. 
The precise impact has not been determined as Harvest, Storm and 
our advisors are reviewing various alternatives associated with 
the contemplated transaction. Nonetheless, following completion 
of the Storm transaction, other than an increase in large 
corporation tax, neither the Trust nor its operating subsidiaries 
anticipate paying cash income taxes in 2004. 

Liquidity and Capital Resources 

The Trust's capital investment and operational enhancement 
programs, as well as current financial commitments are expected 
to be supported by cash flow generated by operations, bank credit 
facilities and unitholder reinvestment of distributions paid to 
the Trust through the distribution reinvestment plan. 

The Trust's cash flow from operations and net loss for the three 
month period ended March 31, 2004 was $14.8 million and $1.1 
million, in comparison to cash flow from operations and net 
income of $6.5 million and $3.5 million respectively, for the 
corresponding period ended 2003. The net loss of $1.1 million 
recorded in the first quarter of 2004 includes a $5.5 million 
non-cash loss ($3.5 million loss after tax) relating to mark to 
market accounting on certain commodity derivative contracts as 
required under the new hedge accounting standard. The net income 
before the non-cash charges was $1.4 million ($0.14 per weighted 
average trust unit outstanding). There was no impact on cash flow 
from operations as a result of this change. 

As at March 31, 2004 and December 31, 2003 the Trust had working 
capital, excluding the demand loan, of $7.0 million and $6.5 
million respectively. 

The Trust's net debt (working capital plus demand loan) at March 
31, 2004 was $28.7 million, which is a decrease of $24.9 million 
in comparison to net debt of $53.6 million as at December 31, 
2003. The decrease is primarily the result of the issue of 
convertible debentures on January 29, 2004, from which the Trust 
received gross proceeds of $60 million and approximately $57.3 
million net of issue costs. Funds from this financing was 
utilized to repay the $25 million balance of the equity bridge 
notes issued in the fourth quarter of 2003 with the $32.3 million 
balance being applied to the demand loan and working capital. 

During the first quarter of 2004, the Trust declared $10.3 
million in distributions payable to unitholders; $0.20 per trust 
unit for each of January, February and March 2004. Of the 
distributions paid, $1.2 million was reinvested into the Trust by 
unitholders through the issue of 94,844 trust units under the 
Trust Unitholders' Distribution Reinvestment Plan ("DRIP"). This 
reflects 12% participation under the DRIP. The Trust anticipates 
maintaining this distribution rate of $0.20 per trust unit per 
calendar month in 2004. The distributions will be financed with 
cash flow generated by operations. 

Capital Expenditures 

Capital expenditures totaled $12.0 million for the three month 
period ended March 31, 2004, in comparison to $5.9 million for 
the same period ended 2003. During both periods, the capital 
expenditures were dedicated to ongoing optimization and 
development of existing assets. 

Excluding the Storm acquisition Harvest anticipates 2004 capital 
expenditures of approximately $35 million for the year ending 
December 31, 2004. The $189 million Storm purchase is currently 
anticipated to lead to an increase in capital spending of 
approximately $7.0 million. Thus following completion of the 
Storm transaction, the anticipated total 2004 optimization and 
development expenditures will be increased to about $42 million. 

Capital Fund 

The Trust maintains a notional Capital Fund to ensure that funds 
derived from cash flow are available for future acquisitions and 
capital spending. As the Capital Fund is a notional item, the 
fund is not specifically segregated in the financial statements. 
The Capital Fund balance is calculated as follows: prior period 
ending balance plus cash flow from operations and amounts 
financed with net proceeds from equity issues, less distributions 
declared payable to unitholders and other equity charges (such as 
interest on Equity Bridge Notes and convertible debentures) less 
capital and acquisition expenditures. The Trust does not 
segregate the Capital Fund nor is a liability recorded in the 
consolidated financial statements. The Trust's policy is to 
retain and contribute up to 50% of cash flow as contributions to 
the notional Capital Fund. 

At March 31, 2004 the Capital Fund balance was $10.9 million 
which has been applied to reduce bank debt. 

Reclamation Fund 

Site restoration involves the surface clean up and reclamation of 
well sites and field production facilities. In addition, certain 
plant facilities will require decommissioning, which involves 
dismantling facilities and reclamation of theses properties. 
Harvest's total estimated future costs, net of related salvage 
values, are $35.2 million. 

The Board of Directors has established a notional fund to ensure 
that cash is available to carry out the future site restoration 
and reclamation work. This fund is notional and the fund is not 
specifically segregated in the financial statements. The amounts 
allocated under the fund restrict the utilization of the 
borrowing base under Harvest's bank credit facilities. The amount 
currently being accrued is $250,000 per month less actual site 
restoration and reclamation expenditures incurred. The monthly 
accrual amount is reviewed annually by Management and the Board 
of Directors and is adjusted as required. 

Future Liquidity Requirements 

Harvest intends to continue with its plan to optimize current 
production with the use of the Capital Fund. From time to time 
the Trust may require external financing, through both debt and 
equity, to maintain its business plan of growing through 
acquisitions and capital expenditures. Access to Harvest 
obtaining the necessary financing is subject to external factors 
including, but not limited to, fluctuations in equity and 
commodity markets, economic downturns and interest and foreign 
exchange rates. Adverse changes in these factors could require 
Harvest's Management to alter the current business plan of the 
Trust. 

Harvest anticipates a significant increase in its bank credit 
facilities or bank calculated borrowing base, based upon the 
performance of Harvest's existing asset base and the incremental 
lending value resulting from soon to be acquired Storm assets. 
The incremental borrowing capacity combined with the issue of 
trust units elected by Storm shareholders and the assumed Storm 
working capital is expected to be sufficient to close the $189 
million Storm transaction. However, dependent upon market 
conditions, the Trust will consider additional equity issues in 
the form of convertible debentures or trust units to strengthen 
the balance sheet, expand the capital program or to finance 
additional acquisitions. The Trust currently has access to and 
may also utilize bridge financing, similar to that used in 2003, 
if required. 

Following the Storm purchase the Trust anticipates that the 
remaining borrowing capacity, cash flow generated from operating 
activities and funds from the DRIP will be sufficient for the 
Trust to pay unitholder distributions of $0.20 per trust unit per 
month, pay the interest obligations associated with the 
convertible debentures at the end of May 2004 and November 2004 
and carry out the anticipated optimization and development plan 
currently contemplated. 

Off-Balance Sheet Arrangements 

The Trust has a number of non-material operating leases 
attributable to moveable field equipment and vehicles. These 
leases require periodic lease payments and are recorded as 
operating costs. The Trust also finances its corporate insurance 
requirements, whereby a portion of the annual premium is deferred 
and paid monthly over the balance of the term. 


/T/

Contractual Obligations

The Trust has entered into the following contractual obligations:

                                         Maturity
                      ----------------------------------------------
Annual Contractual
 Obligation           Less than
 ($ thousands)           1 year  Years 1-3  Years 4-5  After 5 Years
--------------------------------------------------------------------

Product transportation
 agreements                  35         39         25              -
Operating and premise
 leases                     275        646        646              -

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

/T/

At March 31, 2004, the Trust also had $35.6 million of bank debt 
outstanding related to short term borrowing through its revolving 
credit facility and approximately $3.3 million in letters of 
credit issued primarily to electricity suppliers. 

As at March 31, 2004 Harvest Operations Corp. has entered into 
physical and financial contracts for production with average 
deliveries of approximately 9,700 barrels per day for the balance 
of 2004 and 2,800 barrels per day in 2005. Harvest has also 
entered into financial contracts to minimize its exposure to 
fluctuating electricity prices and the US / Canadian dollar 
exchange rate. Please see Note 8 in the Consolidated Financial 
Statements for further details. 

The Trust has entered into a number of insignificant contractual 
obligations under operating leases and normal course oil and 
natural gas business relationships. All of these agreements are 
cancelable on a month to month basis, and do not require 
additional payment upon defeasance. 

Critical Accounting Policies 

The Management of the Trust is required to make estimates and 
assumptions that affect the reported amounts of assets and 
liabilities when applying Canadian generally accepted accounting 
principles. The following is a discussion of the accounting 
policies that are deemed critical by Management in the 
preparation of the financial results of the Trust. 

Oil and Natural Gas Accounting 

The Trust follows the Canadian Institute of Chartered Accountants 
guideline for the full cost method of accounting for the oil and 
natural gas industry. All costs of acquiring oil and natural gas 
properties and related exploration and development costs, 
including overhead charges directly related to these activities, 
are capitalized and accumulated in one cost center. The 
maintenance and repairs are charged against income, and renewals 
and enhancements that extend the economic life of the capital 
assets are capitalized. Any gains or losses are not recognized on 
disposition of oil and natural gas properties unless that 
disposition would alter the rate of depletion by 20% or more. The 
provision for depletion and depreciation of petroleum and natural 
gas assets is calculated on the unit-of-production method, based 
on proved reserves before royalties as estimated by independent 
petroleum engineers. The basis used for the calculation of the 
provision is the capitalized costs of petroleum and natural gas 
assets plus the estimated future development costs of proved 
undeveloped reserves. Reserves are converted to equivalent units 
on the basis of six thousand cubic feet of natural gas to one 
barrel of oil. The reserve estimates used in these calculations 
can have a significant impact on the net income, and any revision 
in this estimate could result in a material change to depletion 
and depreciation expense. In addition, a downward revision of 
this reserve estimate could require an additional charge against 
income as a result of the ceiling test calculation prescribed 
under this guideline. Note 2 to the Consolidated Financial 
Statements discloses the application of this accounting policy by 
Harvest. 

Asset retirement obligation 

The Trust provides for the cost of future site restoration and 
reclamation based on estimates by Management. These estimates are 
applied against earnings and to the asset retirement obligation 
liability account over the expected service life of the 
underlying assets. Management estimates the expected future costs 
to abandon and environmentally restore a well or battery site 
under specific environmental legislation and regulations. These 
estimates are characteristically difficult to assess due to their 
expected timing and associated costs at that future date. Due to 
this estimation, any upward revision of these expected costs or 
revisions in timing could adversely affect the amount being 
charged to income. Further details regarding the Trust's asset 
retirement obligation is disclosed in Note 2 and Note 3 of the 
Consolidated Financial Statements. Note 2 to the Consolidated 
Financial Statements discloses the application of this accounting 
policy by Harvest. 

Trust unit incentive plan 

The Trust has established a trust unit incentive plan whereby the 
Trust is authorized to grant to directors, officers, employees, 
consultants and other service personnel non-transferable rights 
to purchase 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 
subject to a specific return as outlined in the Trust Units 
Rights Incentive Plan. Under GAAP the Trust records a 
compensation expense based on the binomial model of valuation. 
The binomial model has been utilized by the Trust as it allows 
for the estimation 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 date of exercise. Management is required to 
make certain assumptions and estimates when applying the binomial 
model. Further details regarding the Trust's trust unit incentive 
plan and assumptions and estimates used are included in the Note 
6 of the Consolidated Financial Statements. 

Changes in Accounting Policies 

Asset retirement obligation 

The Effective January 1, 2004 the Trust has adopted the CICA 
Handbook standard for accounting for asset retirement obligation. 
The new standard requires the Trust to record the fair value of 
an asset retirement obligation as a liability in the period in 
which it incurs a legal obligation associated with the retirement 
of tangible long-lived assets that result from the acquisition, 
construction, development, and the normal use of the assets. The 
associated asset retirement costs are capitalized as part of the 
carrying amount of the long-lived asset and depleted and 
depreciated using a unit of production method over estimated 
gross proved reserves. Subsequent to the initial measurement of 
the asset retirement obligations, the obligations are adjusted at 
the end of each period to reflect the passage of time and changes 
in the estimated future cash flows underlying the obligation. The 
Trust has retroactively applied this standard, and restated prior 
periods presented for comparability purposes, refer to Note 3 of 
the Consolidated Financial Statements for specific changes in 
respect of the application of this accounting standard. 

Oil and Natural Gas Accounting 

Effective January 1, 2004, the Trust has adopted the CICA 
Accounting Guideline 16 "Oil and Gas Accounting - Full Cost". The 
changes under the new guideline include modifications to the 
ceiling test and depletion and depreciation calculations. There 
were no changes to the net income, property plant and equipment 
or any other financial statement amount as a result of the 
implementations of this guideline. 

Changes in Accounting Standards 

Note 2 to the Consolidated Financial Statements describes 
Harvest's application of each of the accounting standards 
discussed below. The following is a list of changes to accounting 
standards that will affect the financial reporting of the Trust 
in the upcoming year as at April 2004: 

Asset retirement obligation 

The CICA has issued a new Handbook section 3110 "Accounting for 
Asset Retirement Obligation" which requires that entities 
recognize the liability associated with the fair value of future 
site reclamation and abandonment costs in the financial 
statements at the time when the liability is incurred. The new 
standard is effective for fiscal years beginning on or after 
January 1, 2004, with earlier adoption encouraged. The Trust has 
elected to adopt this standard in the upcoming fiscal year. 

Full cost accounting guideline 

In September 2003 the CICA issued Accounting Guideline 16 "Oil 
and Gas Accounting - Full Cost". The guideline replaces 
Accounting Guideline 5 "Full Cost Accounting in the Oil and Gas 
Industry" and is effective for fiscal years beginning on or after 
January 1, 2004, with earlier adoption encouraged. Under the new 
guideline the definition for proved and probable reserves has 
been changed to comply with the new reserve definitions under the 
recently issued National Instrument 51-101 "Standards of 
Disclosure for Oil and Gas Activities" issued by the Canadian 
Securities Administrators. These changes include modifications to 
the ceiling test calculation, additional disclosure within the 
notes to the financial statements and changes in accounting for 
disposals of properties other than by sale. The Trust has elected 
to adopt this standard in the upcoming fiscal year. 

Hedging 

In December 2001 the CICA issued Accounting Guideline 13 "Hedging 
Relationships" that provides guidance on the identification, 
designation, documentation and measurement of the effectiveness 
of hedging relationships for the purposes of applying hedge 
accounting. This guideline is effective for fiscal years 
beginning on or after July 1, 2003. The Trust has implemented the 
requirements of this guideline, and determined that its 
applicable hedges were deemed to be effective as at January 1, 
2004. Under the new accounting guideline, certain commodity 
derivatives entered into do not qualify as effective hedges and 
are subject to fair value accounting. The commodity derivative 
contracts that do not qualify are "three-way hedges", whereby 
crude oil price collars are purchased in conjunction with the 
sale of an "out of the money" put option to reduce the cost of 
entering into the contract. Although this contract forms an 
integral part of the commodity risk management portfolio of the 
Trust, it does not qualify as a hedge under the new guideline. 

Transactions with Related Parties 

A director and a corporation controlled by a director of Harvest 
Operations Corp. were repaid $25 million under the equity bridge 
notes during the three month period ended March 31, 2004. The 
Trust also paid $850 in interest in respect of the equity bridge 
notes. 

A director of Harvest Operations Corp., owns 4,500 of the 
convertible debentures issued on January 29, 2004. 

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

Risk Management Activities 

All of Harvest's risk management activities are carried out under 
policies approved by the Board of Directors. Harvest intends to 
execute its business plan to create value for unitholders by 
paying stable monthly distributions. 

As at March 31, 2004 Harvest Operations Corp. had entered into 
physical and financial contracts for production with a current 
delivery of approximately 9,700 barrels per day for the balance 
of 2004 and 2,800 barrels per day in 2005. Harvest has also 
entered into financial swap and collared contracts for WTI crude 
oil, LLB differential, US / Canadian dollar exchange rate, 
electricity and natural gas heat rate, collectively these 
contracts had a mark to market unrealized loss of $23.1 million 
as at March 31, 2004. Please refer to Note 8 in the Consolidated 
Financial Statements for further information. 

The following table summarizes the risk management activities 
undertaken by the Trust, the volumes hedged and the associated 
unrecognized mark to market gains and losses as at March 31, 
2004: 


/T/

--------------------------------------------------------------------
                                                     Maturity
--------------------------------------------------------------------

                                              2004     2005     2006
--------------------------------------------------------------------

Volumes Hedged
West Texas intermediate crude oil price
 based swaps (bbls/d)                        4,110      785        -
West Texas intermediate crude oil price
 based collars (bbls/d)                      5,500    1,744        -
Lloyd blend crude oil price based swaps
 (bbls/d)                                    4,500        -        -
Alberta electricity price based swaps (MW)      25       15        3
Electricity heat rate (GJ/MWh)                   -        5        -
Canadian / U.S. dollar based swap
 (Cdn $ million)                                 3        -        -
--------------------------------------------------------------------

Mark to Market Gains (Losses) ($ thousands)
West Texas intermediate crude oil price
 based swaps                               (12,886)  (3,934)       -
West Texas intermediate crude oil price
 based collars                             (10,364)    (462)       -
Lloyd blend crude oil price based swaps      1,488        -        -
Alberta electricity price based swaps        1,371      807      208
Electricity heat rate                            -     (156)       -
Canadian / U.S. dollar put option              807        -        -
--------------------------------------------------------------------
                                           (19,584)  (3,745)     208
--------------------------------------------------------------------

/T/

Under Harvest's risk management policy Management enters into 
crude oil based financial and physical contracts to mitigate the 
risk of price volatility for its expected production. Management 
also enters into electricity price based swaps to assist in 
maintaining stable operating costs. Finally, as a further means 
to manage revenue risks, Management has entered into foreign 
exchange contracts to minimize the effect of adverse foreign 
exchange fluctuations of the Canadian dollar against the U.S. 
dollar. 

Taxability of Cash Distributions paid to Unitholders 

Harvest has declared distributions of $0.20 per trust unit in 
each month of the first quarter of 2004, and anticipates that 
this rate of distribution will continue throughout the balance of 
the year. Cash distributions are comprised of a return of capital 
portion (tax deferred) and a return on capital portion (taxable). 
Harvest anticipates that between 10% and 25% of the distributions 
will be a return of capital in 2004. 

Key Performance Indicators and 2004 Outlook 

Based upon current operations and assuming the successful 
completion of the Storm transaction prior to the end of the 
second quarter, the following table provides guidance in respect 
to 2004 and relative performance for the past year: 


/T/

--------------------------------------------------------------------
                              Results   Performance Goals    Results
                              Q1 2004                2004       2003
--------------------------------------------------------------------

Daily production (BOE/d)       14,829     16,750 - 17,500     11,040
Average Royalty Rate, net        16.9%           16% - 18%      13.8%
Operating expense ($/BOE)      $10.13      $9.75 - $10.25      $8.94

/T/

Harvest plans to continue with its business plan of acquiring and 
operating high quality, mature crude oil and natural gas 
properties that can be enhanced through operational and 
exploitation techniques. Harvest also plans to continue to 
identify new areas in the Western Canadian sedimentary basin that 
can provide the required growth and stability for sustainable 
distributions and growth in net asset value per unit. 

It is important to note that the above figures are estimates 
based upon Management's current expectations. The ultimate 
results may vary, perhaps materially. 

The table below indicates the impact of changes of key variables 
on Harvest's cash flow and distributions including the impacts of 
the hedging program. 


/T/

Sensitivities

-----------------------------------------------------------------------
                                      Variable
            -----------------------------------------------------------
                 WTI  Heavy Oil LLB                 Canadian    Foreign
              price/  differential/    Crude Oil        bank   exchange
                 bbl            bbl   production  prime rate  Cdn./U.S.
-----------------------------------------------------------------------
Assumption  $32.00US        $9.50US 16,900 bbl/d        4.25%      1.34
Change
 (plus or
  minus)    $ 1.00US        $1.00US  1,000 bbl/d        1.00%      0.01

Cash flow
 from
 operations
 ($000's)   $  2,500        $ 1,900    $   6,100     $   990    $ 1,100
 Per trust
  unit,
  basic     $   0.13        $  0.10    $    0.32     $  0.05    $  0.06
Per trust
 unit,
 diluted    $   0.12        $  0.10    $    0.31     $  0.05    $  0.06

Payout
 ratio           2.0%           1.5%         5.0%        0.8%       0.9%
-----------------------------------------------------------------------

/T/



-30-


FOR FURTHER INFORMATION PLEASE CONTACT:

 Harvest Energy Trust
Jacob Roorda
President
(403) 265-1178
(403) 265-3490 (FAX)

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