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Harvest Energy Trust Announces Second Quarter 2004 Results

Aug 12, 2004 - 09:00 ET

CALGARY, ALBERTA--(CCNMatthews - Aug. 12, 2004) - (TSX: HTE.UN) - 
Harvest Energy Trust ("Harvest") today announced its unaudited 
operating and financial results for the three and six month 
periods ended June 30, 2004. 

Highlights: 

- Harvest declared distributions of $0.60 per trust unit, 
representing a payout ratio of 64%; 

- Harvest concluded the Plan of Arrangement with Storm Energy 
Ltd. ("Storm") on June 30, 2004, acquiring 4,000 BOE/d of light 
oil and natural gas properties in the Red Earth area of North 
Central Alberta for consideration of approximately $189 million. 
The consolidated balance sheet at June 30, 2004 reflects the 
Storm assets acquired and the consideration paid to the former 
Storm shareholders, but no operating results related to those 
assets are included in the second quarter financial results as 
the acquisition closed on the last day of the quarter; 

- Cash flow from operations of $17.2 million or $0.99 per trust 
unit for the three month period ended June 30, 2004, compared to 
$14.8 million in the first quarter and $9.5 million during the 
same period in 2003; 

- Sales volume averaged 15,291 BOE/d for the three month period 
ended June 30, 2004, a 3% increase over the previous quarter, and 
a 59% increase over the same period in the previous year; 

- Development activities continued in core areas, reflected in 
capital expenditures of approximately $8.6 million ($0.49 per 
trust unit) for the quarter, with the goal of adding production 
and reserves, and providing stability for future distributions; 

- Subsequent to the end of the quarter, Harvest announced a $526 
million acquisition of crude oil and natural gas producing 
properties from a subsidiary of EnCana, concurrent with a bought 
deal equity and convertible debenture financing, and a new credit 
facility. The acquisition includes approximately 19,500 BOE/day 
of production, 57.8 mmBOE of proved plus probable reserves, and 
343,000 net acres of undeveloped land. The acquisition is 
expected to close on or about September 1, 2004. Pro forma this 
acquisition, Harvest's production will be approximately 37,000 - 
38,000 BOE/d. 

- Following completion of the EnCana acquisition and reflecting 
the results of the Storm acquisition, Harvest's operating and 
financial statistics will improve as follows: 

- Reserve life index ("RLI") increases to 7.5; 

- Payout ratio, being the ratio of trust unit distributions to 
cash flow from operations, decreases to less than 45%; 

- Operating costs/BOE, G&A/BOE and royalty rates decline 
significantly, resulting in improved netbacks; 

- Natural gas and NGL production increases to 18% of total 
production. 


/T/

Second Quarter Financial and Operational Summary

($000's, except per BOE and per trust unit amounts)

------------------------------------------------------------------------
                        Three months ended          Six months ended
                              June 30                   June 30
FINANCIAL            2004     2003 % Change      2004     2003  % Change
                         (Restated)                  (Restated)
------------------------------------------------------------------------

Revenue, net of
 hedging        $  40,808 $ 20,912      95%  $ 79,253 $ 38,573      105%

Cash flow from
 operations        17,160    9,546      80%    32,001   16,035      100%
  Per trust unit,
   basic (non GAAP)  0.99     0.84      17%      1.85     1.47       26%
Net income          1,594    1,064      50%       530    4,533      -88%
  Per trust unit,
   basic             0.02     0.09     -79%     (0.11)    0.41     -127%

Distributions      11,015    6,692      65%    21,306   13,015       64%
Distributions per
 trust unit, basic   0.60     0.60       0%      1.20     1.20        0%

Payout ratio          64%      70%      -8%       67%      81%      -18%
Capital
 expenditures       8,596   19,120     -55%    20,640   24,971      -17%
Net debt          145,097   39,924     263%   145,097   39,924      263%
Weighted average
 trust units
 outstanding,
 basic         17,388,668               53%         10,891,161
                        11,351,728         17,284,683                59%


OPERATING
------------------------------------------------------------------------

Average daily sales volume
 Crude oil and
  natural gas
  liquids (bbl/d)  14,916    9,438      58%    14,796    8,554       73%
 Natural gas
  (mcf/d)           2,249    1,161      94%     1,582    1,077       47%
------------------------------------------------------------------------
Total (BOE/d)      15,291    9,632      59%    15,060    8,734       72%
Production exit
 rate (BOE/d)      19,200   10,556      82%    19,200   10,556       82%
------------------------------------------------------------------------
(Natural gas converted to barrel of oil equivalent (BOE)
on a 6:1 basis)

/T/

Second Quarter Message to Unitholders 

During the second quarter, Harvest was focused on development 
activities at Hayter and Hazelwood, closing the Storm Plan of 
Arrangement to acquire the Red Earth assets and pursuing the 
EnCana asset acquisition. Harvest's second quarter exit rate was 
approximately 19,200 BOE/d, a 26% increase from March 31, 2004. 

Harvest completed and commissioned a number of water disposal 
projects in the Provost area which were designed to reduce 
operating costs. Also during the quarter, Harvest drilled three 
new wells, all situated in Southeast Saskatchewan, with a success 
rate of 100%. Development capital during the quarter totaled $8.6 
million, primarily for drilling, completing and tying-in of 
wells, and was split almost equally between properties in Alberta 
and Saskatchewan. 

Harvest's full year 2004 capital program is not expected to be 
materially different than the previously communicated outlook of 
approximately $42 to $45 million, and will be focused on adding 
production and reserves as well as improving operating 
efficiency. As the Storm transaction did not close until the end 
of the second quarter, operational activities in the Red Earth 
area were limited. The acquisition of the Red Earth properties 
provides Harvest with approximately 4,000 BOE/day of light 
gravity crude oil and natural gas produced from highly operated 
properties with low operating expenses and high netbacks. 

Subsequent to the end of the second quarter, on July 15, 2004, 
Harvest announced the acquisition of conventional oil and natural 
gas producing properties from a subsidiary of EnCana Corporation 
for approximately $526 million. The properties are concentrated 
primarily in East Central Alberta, where Harvest already has a 
presence with its Provost properties, and Southern Alberta, which 
represents the creation of a new core area. A bought deal equity 
and convertible debenture financing closed on August 10, 2004 and 
raised proceeds of $175.2 million (not $179.2 million as reported 
in the press release dated August 10) from issuance of 
subscription receipts and $100 million from issuance of 
convertible debentures, which will be used to fund a portion of 
the acquisition.  The balance of the acquisition price will be 
funded with proceeds from a new credit facility.  Following the 
closing of the EnCana property acquisition on or about September 
1, 2004, development capital may be re-allocated to the new 
properties, but material additions to the capital expenditure 
budget are not expected. 

The EnCana assets are a natural complement to existing Harvest 
properties and proven strategies, given that they are primarily 
operated, have a high working interest, are made up of large 
original oil-in-place and gas-in-place properties, and offer 
significant development opportunities. These properties also 
increase Harvest's natural gas exposure to approximately 27 
Mmcf/d which provides commodity diversification. Once the 
acquisition is complete, Harvest's RLI will be extended to 7.5. 
Additionally, due to low royalty rates and operating expenses on 
the acquired properties, Harvest anticipates its operating 
netbacks to improve. 

Specific elements of the acquisition include: 

- Accretion to cash flow, net asset value, production per unit, 
and reserves per unit; 

- Production addition of approximately 19,500 BOE/d (before 
royalties); 

- Proved plus probable reserves of approximately 57.8 mmBOE; 

- Increased RLI from 6.7 to 7.5. 

The acquisition is expected to close on or about September 1, 
2004. Based on Harvest's incremental production from 2004 
acquisition activity combined with its existing base of 
production, volumes added through development and offset by 
natural production decline, Harvest anticipates the following: 


/T/

                   Fourth Quarter 2004 Estimate  Full Year 2004 Estimate
------------------------------------------------------------------------
Average Production
 Volumes (BOE/d)                37,000 - 38,000          22,500 - 23,500
Royalties (% of revenue)          16.0% - 16.5%           16.5 % - 17.0%
Operating costs ($/BOE)           $7.30 - $7.80            $8.50 - $9.00
------------------------------------------------------------------------

/T/

The Board of Directors of Harvest Operations Corp. will continue 
to evaluate distributions on a monthly basis. Although recent 
acquisition activity is accretive to cash flow per trust unit, 
Harvest's low payout ratio provides additional cash flow to help 
fund Harvest's ongoing property enhancement program, acquisition 
strategy and also facilitate the repayment of debt. 

Harvest is pleased to announce the promotion of James A. Campbell 
to the position of Vice President, Geosciences. 

On August 11, 2004, Harvest appointed David J. Rain to the 
position of Vice President and Chief Financial Officer, replacing 
David M. Fisher. Mr. Fisher had been with Harvest since October 
2002 and Harvest thanks him for his significant contributions and 
wishes him the best in his future endeavors. 

All references are to Canadian dollars unless otherwise 
indicated. Natural gas volumes recorded in thousand cubic feet 
("mcf") are converted to barrels of oil equivalent ("BOE") using 
the ratio of six (6) thousand cubic feet to one (1) barrel of oil 
("bbl"). BOE's may be misleading, particularly if used in 
isolation. A BOE conversion ratio of 6 mcf:1 bbl is based on an 
energy equivalent conversion method primarily applicable at the 
burner tip and does not represent a value equivalent at the 
wellhead. 

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 reserve 
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 as at August 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 
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 and operational practices. These operational 
practices include diligent, hands-on management to maintain and 
maximize production rates, application of technology and 
selective capital investment to maximize reservoir recovery, 
enhancing operational efficiencies to control and reduce 
expenses, and unique marketing arrangements and corporate hedging 
techniques to effectively manage cash flow. The Trust has 
operations in the Provost and Red Earth regions of Alberta and in 
the Carlyle region of Southeastern Saskatchewan. 

Industry Overview 


/T/

------------------------------------------------------------------------
                        Three months ended         Six months ended
                              June 30                   June 30
------------------------------------------------------------------------
Prices               2004     2003 % Change      2004     2003  % Change
------------------------------------------------------------------------

West Texas
 Intermediate crude
 oil (US$ per
 barrel)         $  38.32 $  28.91      33%   $ 36.73  $ 31.39       17%
Edmonton light
 crude ($ per
 barrel)            50.62    41.10      23%     48.11    46.04        4%
Lloyd blend crude
 oil ($ per
 barrel)            36.15    30.44      19%     34.68    34.59        0%
Bow river blend
 crude oil ($ per
 barrel)            47.26    40.87      16%     45.79    44.73        2%
AECO natural gas
 ($ per mcf)         6.80     6.71       1%      7.00     7.46       -6%

Alberta Power Pool
 electricity price
 ($ per MWh)        60.15    50.94      18%     54.43    67.37      -19%

Canadian / U.S.
 dollar exchange
 rate (C$)          1.360    1.398      -3%     1.339    1.454       -8%
Bank of Canada
 bank rate          2.28%    3.46%     -34%     2.50%    3.28%      -24%
------------------------------------------------------------------------

/T/

The benchmark price of WTI crude oil impacts Harvest's revenues, 
because the Trust's primary product is crude oil. Foreign 
exchange also has an impact on Harvest's revenues because it 
affects the realized revenues in Canadian dollars for products 
denominated in U.S. dollars. Although Harvest's natural gas 
weighting is relatively low, fluctuations in AECO natural gas 
spot prices also impact the Trust's revenues. This impact is 
expected to increase once the EnCana acquisition closes, because 
Harvest's natural gas production weighting will increase to 13% 
from 2%. 

Although the price of WTI in U.S. dollars has increased 
significantly period on period, crude prices in Canadian dollar 
terms did not keep pace as a result of the strengthening of the 
Canadian versus the U.S. dollar and slightly wider differentials 
for Canadian crude. The overall average increase in WTI of 
approximately 33% was slightly offset by the 3% increase in the 
value of the Canadian dollar relative to the U.S. dollar. 
Edmonton light (posted price for light oil delivered to Edmonton) 
rose 23% during the second quarter of 2004 relative to the same 
period of 2003. 

The differential between heavy and light crude oil widened 
slightly in Canadian dollar terms as the lighter crudes were 
afforded a premium due to their proportionately higher gasoline 
yield and in response to higher WTI prices. 

Harvest has been mostly exposed to swings in world oil prices 
(WTI) and light to medium/heavy differentials given the fact 
that, in the past, 97% of production was medium and heavy crude 
oil. In the second quarter of 2004, light oil made up 34% of 
total production. Pro forma the acquisitions of the Red Earth and 
EnCana properties, light and medium gravity crude oil will make 
up 35% and gas and NGL's will make up 18% of total production. 
This diversification will reduce Harvest's exposure to WTI prices 
and heavy oil differentials and increase our exposure to North 
American gas prices. 

The average Alberta Electricity System Operator (AESO) 
electricity price increased in the second quarter of 2004 by 
approximately 18% over the same period in 2003. The price 
increase was primarily the result of a higher number of days in 
which multiple large generators were simultaneously off-line 
combined with reduced output from a number of the province's low 
cost gas fired co-generation units. These outages coupled with 
second quarter year-over-year demand growth of 4% were the 
leading factors behind the increase in second quarter electricity 
prices. A 1% increase in AECO natural gas prices also contributed 
to the second quarter electricity price increases over the same 
period last year. The 42% decrease in prices seen in the first 
quarter of 2004 compared to the same period in 2003 continues to 
drive the cost decrease for the six month period ending June 30. 
Electricity prices are a significant component of Harvest's 
operating costs, which management has attempted to hedge through 
various derivative contracts. 

Summary of Quarterly Results 


/T/

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

Revenue, net of
 royalties and
 hedging      $ 32,503  $ 30,418    $ 30,474  $ 21,181 $ 17,622 $ 14,738
Operating
 expense        13,600    13,674      12,984     9,661    6,596    6,804
------------------------------------------------------------------------
Net operating
 income      $  18,903  $ 16,744    $ 17,490  $ 11,520 $ 11,026 $  7,934

Net income
 (loss)          1,594    (1,065)      6,134     5,673    1,063    3,468
  Per trust unit,
   basic          0.02     (0.13)       0.38      0.45     0.09     0.33
  Per trust unit,
   diluted        0.02     (0.13)       0.37      0.44     0.09     0.31
Cash flow from
 operations     17,160    14,839      13,115    16,759    9,547    6,489
  Per trust unit,
   basic
   (non GAAP)     0.99      0.87        0.81      1.35     0.84     0.62
  Per trust unit,
   diluted
   (non GAAP)     0.95      0.84        0.79      1.31     0.82     0.60

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

Crude oil
 (bbl/d)        14,775    14,626      14,497    11,054    9,371    8,034
Natural gas
 liquids (bbl/d)   141        50          70        77       67       43
Natural gas
 (mcf/d)         2,249       915       1,744     1,453    1,161      875
------------------------------------------------------------------------
Total (BOE/d)   15,291    14,829      14,858    11,373    9,632    8,223
------------------------------------------------------------------------

/T/

The above table highlights Harvest's performance for the second 
quarter of 2004, and the preceding quarters following the Trust's 
Initial Public Offering in December of 2002. 

Net revenues have trended higher since the first quarter of 2003, 
attributable to increasing production volumes and a strengthening 
commodity price environment. Production related to the Storm 
assets will be reflected for all of the third quarter, and 
production from the EnCana assets will be reflected from the date 
of closing of that acquisition, currently scheduled for September 
1, 2004. 

Net income includes both cash and non-cash items. The non-cash 
items including depletion, depreciation and accretion (DD&A), 
future income taxes, foreign exchange, and unrealized gain or 
loss on derivatives can cause the net income to vary 
significantly. As demonstrated in the above table, net income has 
not demonstrated the same trend as net revenues. Given that 
distributions are paid out of cash flow from operations rather 
than net income, Harvest believes that net income is not 
necessarily indicative of future cash flows or Harvest's ability 
to continue making distributions to its unitholders. 

Cash flow from operations has demonstrated a steady upward trend, 
with the exception of a non-recurring foreign exchange gain 
realized in the third quarter of 2003. 

Sales Volumes 

Harvest's production consists of light, medium and heavy crude 
oil, natural gas liquids, and natural gas from properties located 
in Red Earth, East Central Alberta and Southeastern Saskatchewan. 
Sales volumes, on a barrel of oil equivalent (BOE) basis, 
averaged 15,291 BOE/d and 15,060 BOE/d for the three and six 
month periods ended June 30, 2004, in comparison to 9,632 BOE/d 
and 8,734 BOE/d for the similar periods ended June 30, 2003. 
Compared to the second quarter of 2003, the higher average 
production in the second quarter of 2004 reflects the impact of 
acquisitions completed during the balance of 2003 and in 2004, as 
well as the ongoing optimization and development programs 
conducted by Harvest on its oil and natural gas properties. 

Average production of 15,291 BOE/d for the second quarter of 2004 
is slightly higher than the 14,829 BOE/d recorded in the previous 
quarter. The increase in the second quarter volumes is primarily 
due to successful development and optimization work primarily at 
Harvest's Hazelwood and Hayter properties. The shift in 
production of light, medium and heavy oil in the second quarter 
of 2004 compared to the second quarter of 2003 is attributable to 
the light and medium crude oil production acquired in the Carlyle 
asset transaction in October 2003. 

The average daily sales volumes by product were as follows: 


/T/

------------------------------------------------------------------------
                    Three month period ended   Three month period ended
                               June 30, 2004              June 30, 2003
------------------------------------------------------------------------
Light crude oil (Bbls/d)          5,216   34%                -        0%
Medium crude oil (Bbls/d)         4,082   27%            4,232       44%
Heavy crude oil (Bbls/d)          5,477   36%            5,139       53%
------------------------------------------------------------------------
Total oil (Bbls/d)               14,775   97%            9,371       97%
Natural gas liquids (Bbls/d)        141    1%               67        1%
------------------------------------------------------------------------
Total oil and natural gas
 liquids (Bbls/d)                14,916   98%            9,438       98%
Natural gas (mcf/d)               2,249    2%            1,161        2%
------------------------------------------------------------------------

Total oil equivalent (6:1 BOE/d) 15,291  100%            9,632      100%
------------------------------------------------------------------------

------------------------------------------------------------------------
                      Six month period ended      Six month period ended
                               June 30, 2004               June 30, 2003
------------------------------------------------------------------------
Light crude oil (Bbls/d)          5,134   34%                -        0%
Medium crude oil (Bbls/d)         4,116   27%            3,488       40%
Heavy crude oil (Bbls/d)          5,451   36%            5,001       57%
------------------------------------------------------------------------
Total oil (Bbls/d)               14,701   98%            8,489       97%
Natural gas liquids (Bbls/d)         95    1%               65        1%
------------------------------------------------------------------------
Total oil and natural gas liquids
 (Bbls/d)                        14,796   98%            8,554       98%
Natural gas (mcf/d)               1,582    2%            1,077        2%
------------------------------------------------------------------------
Total oil equivalent (6:1 BOE/d) 15,060  100%            8,734      100%
------------------------------------------------------------------------

/T/

Harvest's June 30, 2004 exit rate was approximately 19,200 BOE/d, 
an 82% increase over the exit rate of 10,556 BOE/d for the period 
ended June 30, 2003. The exit rate was also 26% higher than the 
15,200 BOE/d exit rate as at March 31, 2004. The increases can 
primarily be attributed to the 4,000 BOE/d production acquired in 
the Red Earth acquisition and the Carlyle transaction noted 
above. 

In Harvest's MD&A for December 31, 2003, the Trust set a 2004 
performance goal of 15,000 - 15,500 BOE/d average production. In 
the first quarter 2004 report to unitholders, this target was 
increased by approximately 2,000 BOE/d to 17,000 - 17,500, to 
reflect the production acquired from the Red Earth and Carlyle 
transactions noted above. On the expectation that the acquisition 
of properties from EnCana closes September 1, 2004, Harvest is 
again increasing its 2004 production volume target by 5,500 - 
6,500 BOE/d, for a full year average of 22,500 - 23,500 BOE/d. 

Revenues 

Revenues net of hedging losses and before royalties were 95% 
higher in the second quarter of 2004 at $40.8 million, compared 
to $20.9 million for the same period in 2003. For the first six 
months of 2004, revenues net of hedging losses and before 
royalties increased 105% to $79.3 million, compared to $38.6 
million recorded for the same period in 2003. Higher net revenues 
in the three and six months ended June 30, 2004 are as a result 
of Harvest's higher production volumes as well as higher average 
commodity prices in 2004 compared to 2003. For the three and six 
month periods ended June 30, 2004, the average market price was 
$38.13/BOE and $36.69/BOE, compared to $28.69/BOE and $32.86/BOE 
for the same periods in the previous year. 

The following is a breakdown of average market prices by product 
for the three and six month periods ended June 30, 2004 and 2003. 



/T/

------------------------------------------------------------------------
                  Three month   Three month     Six month     Six month
                 period ended  period ended  period ended  period ended
                June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------------------------------------------------------------------
Product prices:
 Light oil
  ($/bbl)          $    44.28       $     -     $   42.71     $       -
 Medium oil ($/bbl)     36.95         30.05         36.69         36.99
 Heavy oil ($/bbl)      33.53         26.45         31.17         28.55
 Natural gas liquids
 ($/bbl)                30.39         35.39         31.60         30.97
 Natural gas ($/mcf)     5.91          7.15          5.78          6.68
------------------------------------------------------------------------

 BOE ($/BOE)       $    38.13       $ 28.69     $   36.69     $   32.86
------------------------------------------------------------------------


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

------------------------------------------------------------------------
                              (Amounts expressed are $/BOE)
                  Three month   Three month     Six month     Six month
                 period ended  period ended  period ended  period ended
                June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------------------------------------------------------------------
Market price       $    38.13   $     28.69   $     36.69  $      32.86
Hedging loss             8.80          4.34          7.77          7.94
------------------------------------------------------------------------
Realized price          29.33         24.35         28.92         24.92

Royalties, net           5.97          3.96          5.96          4.12
 Royalties, percent     15.7%         13.8%         16.2%         12.5%
Operating costs          9.77          7.68          9.95          8.66
------------------------------------------------------------------------
Netback            $    13.59   $     12.71   $     13.01  $      12.14
------------------------------------------------------------------------

/T/

Operating netbacks in the second quarter of 2004 were 7% higher 
than the same period in 2003, and 7% higher in the six month 
period ended June 30, 2004 compared to 2003. The increase in 
netbacks is primarily attributable to higher market and realized 
prices slightly offset by higher royalties and operating costs 
per BOE, which are addressed below. Netbacks are an indicator of 
the amount of cash flow per BOE that Harvest realizes before head 
office expenses and financing charges. 

As a result of the Storm transaction and following closing of the 
EnCana acquisition, Harvest's netbacks are expected to improve as 
a result of lower operating costs and lower royalty rates. The 
following table provides a comparison of Harvest's first quarter 
2004 netbacks with netbacks realized on the Storm and EnCana 
properties. 


/T/

                                      First Quarter 2004
------------------------------------------------------------------------
                              (Amounts expressed are $/BOE)
------------------------------------------------------------------------
                               Harvest       Storm(1)       EnCana(2)
------------------------------------------------------------------------
Price received              $    28.49  $    45.10      $    34.17
Royalties                        (5.95)     (10.00)          (4.16)
Operating expenses              (10.13)      (4.48)          (5.75)
------------------------------------------------------------------------
Netback                     $    12.41  $    30.62      $    24.26
------------------------------------------------------------------------
------------------------------------------------------------------------

/T/

(1) Per Storm's first quarter public data, included in Harvest's 
July 30, 2004 prospectus 

(2) Per EnCana's audited statements included in Harvest's July 
30, 2004 prospectus 

Royalties 

Harvest's net royalties in the second quarter of 2004 totaled 
$8.3 million ($5.97/BOE), and were 150% higher than the same 
period in 2003 of $3.3 million ($3.96/BOE). For the six month 
period ended June 30, 2004, Harvest's net royalties were $16.3 
million ($5.96/BOE), an increase of 163% compared to $6.2 million 
($4.12/BOE) for the same period in 2003. 

Higher net royalties in 2004 compared to 2003 is due to the 
change in Harvest's royalty structure as the result of the 
addition of the higher royalty burdened Carlyle properties 
acquired in the fourth quarter of 2003. Royalty expense as a 
percentage of revenues before hedging increased from 13.8% to 
15.7% in the second quarter and from 12.5% to 16.2% in the six 
months ended June 30, 2004 compared to the same period the 
previous year. Royalties as a percentage of revenues are expected 
to decline in future quarters due to lower royalty rates for the 
EnCana property acquisition. 

Operating Expenses 

Harvest's operating expenses were $13.6 million ($9.77/BOE) and 
$27.3 million ($9.95/BOE) for the three and six month periods 
ended June 30, 2004. This compares to $6.6 million ($7.68/BOE) 
and $13.4 million ($8.66/BOE) for the same periods in 2003. 

The $2.09/BOE increase in unit operating expenses during the 
second quarter of 2004 compared to the second quarter of 2003 
reflects the higher per unit operating costs associated with the 
Carlyle properties acquired in the fourth quarter of 2003. Year 
to date operating costs in 2004 are also higher due to the higher 
operating costs in Saskatchewan. 

During the second quarter of 2004, approximately 42% of Harvest's 
operating costs related to the consumption of electricity. 
Management has utilized fixed price electricity contracts to 
mitigate electricity price risk within Alberta. For the balance 
of the year, Harvest anticipates realizing further benefits from 
its electricity hedges (with approximately 25 MWh of its 
estimated Alberta electricity usage hedged at an average price of 
$45.34 per MWh) and capital expenditures of approximately $4.9 
million in 2004 being dedicated to power efficiency projects. The 
increased exposure to natural gas production associated with the 
EnCana assets will provide a natural hedge to electricity prices 
and power costs. 

The second quarter 2004 operating cost figure of $9.77/BOE is in 
line with Harvest's performance goals set out in the December 31, 
2003 MD&A. Further efficiencies realized from the Harvest capital 
program coupled with additional production volumes from the Storm 
and EnCana asset purchases are expected to reduce the overall 
2004 average unit operating expenses to approximately $8.50 - 
$9.00/BOE. In addition, the impact of lower operating cost 
production associated with the Storm and EnCana assets will 
further reduce consolidated operating costs per BOE. 

General and Administration Expenses 

The portion of general and administrative expenditures charged 
against income totaled $2.0 million ($1.43/BOE) and $3.5 million 
($1.29/BOE), respectively for the three and six month periods 
ended June 30, 2004. This compares to $0.8 million ($0.92/BOE) 
and $1.5 million ($0.98/BOE) for the same periods in 2003. The 
increase in general and administrative expenses on a per BOE 
basis quarter over quarter, is the result of a build-up of staff 
and systems required to operate a growing enterprise, and 
approximately $0.2 million related to unit appreciation right 
expenses as the result of adopting the new CICA recommendations 
on stock based compensation. Harvest's general and administrative 
expenses charged against income is anticipated to decrease to 
approximately $0.90-$1.00/BOE for the 2004 calendar year due to 
anticipated economies of scale following the Storm and EnCana 
acquisitions. 

During the three and six month periods ended June 30, 2004, $0.5 
million and $1.1 million of general and administrative costs were 
capitalized with regards to field enhancement and acquisition 
activities, while $0.4 million and $0.5 million were capitalized 
for the same respective periods in 2003. 

Interest Expense and Amortization of Deferred Financing Charges 

Interest expense and amortization of deferred financing charges 
were $1.0 million and $2.2 million for the three and six month 
periods ended June 30, 2004, respectively, compared to $1.1 
million and $2.2 million for the same periods in 2003. 

Depletion, Depreciation and Accretion 

Harvest's depletion, depreciation, and accretion expense totaled 
$12.8 million and $25.0 million for the three and six month 
periods ended June 30, 2004, respectively. This compares to the 
depletion, depreciation and accretion expense total of $7.8 
million and $13.5 million for the same periods in 2003. 

For the three and six month periods ended June 30, 2004, the 
total depletion, depreciation and accretion expense primarily 
consists of: crude oil and natural gas properties depletion and 
depreciation of $10.1 million and $19.7 million; depletion of 
capitalized asset retirement costs of $1.8 million and $3.6 
million; and approximately $0.9 million and $1.7 million for 
accretion on the asset retirement obligation. The depletion rate 
for oil and natural gas properties was approximately $8.55/BOE 
and $8.53/BOE for the three and six months ended June 30, 2004, 
respectively, 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. For the three and six month 
periods ended June 30, 2004, Harvest's depletion rate is lower 
compared to the same periods in 2003. This reduction in the 
depletion rate in 2004 is attributable to the addition of the 
Carlyle properties acquired in the fourth quarter of 2003, as 
well as reserve additions through acquisitions and positive 
reserve revisions. 

For the three and six month periods ending June 30, 2003 
respectively, the total depletion, depreciation and accretion 
expense primarily consists of: crude oil and natural gas 
properties depletion and depreciation of $6.9 million and $12.1 
million; depletion of capitalized asset retirement costs of $1.0 
million and $1.7 million; and approximately $0.4 million and $0.7 
million for accretion on the asset retirement obligation. The 
depletion rate for oil and natural gas properties was 
approximately $9.02/BOE and $8.75/BOE. 

It is anticipated that the depletion, depreciation and accretion 
expense per BOE will increase following the Red Earth acquisition 
due to the purchase price allocation which includes a future tax 
balance. 

Future taxes 

Future taxes for the three month period ended June 30, 2004 and 
2003 are comprised of approximately $1.6 million in recoveries 
and $0.7 million in expense, respectively. 

The estimated value of the tax pools associated with the Storm 
transaction will be less than the book value of the net assets 
acquired, resulting in a future tax liability of $36.5 million on 
Harvest's balance sheet. 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. Similarly, Harvest does not 
anticipate cash taxes associated with the acquisition of the 
EnCana assets. 

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 from operations net of 
distributions, bank credit facilities and Unitholder reinvestment 
of distributions through the distribution reinvestment plan. 

For the three and six months ended June 30, 2004, the Trust's 
cash flow from operations was $17.2 million and $32.0 million and 
net income was $1.6 million and $0.5 million. For the same 
periods in 2003, cash flow from operations was $9.5 million and 
$16.0 million and net income was $1.1 million and $4.5 million. 

The Trust's net debt (working capital plus demand loan) at June 
30, 2004 was $145 million, which is an increase of $91.4 million 
in comparison to net debt of $53.6 million as at December 31, 
2003. The increase is primarily the result of the plan of 
arrangement with Storm whereby Harvest paid cash of $75 million 
to Storm's shareholders, assumed Storm's debt of $58.5 million 
and working capital deficit of approximately $6.7 million. 

During the second quarter of 2004, the Trust declared $11.0 
million in distributions payable to unitholders; $0.20 per trust 
unit for each of April, May and June 2004. Of the distributions 
paid, $1.9 million was reinvested into the Trust by unitholders 
through the issue of 140,426 trust units under the Distribution 
Reinvestment Plan ("DRIP"). This reflects 19% participation under 
the DRIP. The Trust will continue to declare its distributions 
monthly, and consistent with the preceding 19 months, the August 
15, 2004 payment has been confirmed at $0.20 per trust unit. The 
distributions will continue to be financed with cash flow from 
operations. Harvest anticipates its payout ratio, which is the 
ratio of distributions to cash flow from operations, to decline 
to below 45% after the acquisition of the EnCana assets. This low 
payout ratio will provide Harvest significant flexibility in 
servicing its outstanding debt and financing capital and 
acquisition activities. 

A breakdown of the Trust's outstanding trust units and 
potentially dilutive elements are as follows: 


/T/

------------------------------------------------------------------------
                              As at March 31, 2004  As at June 30, 2004
------------------------------------------------------------------------
Trust units outstanding                 17,281,528            20,228,860
Exchangeable shares outstanding(1)               -               600,587
Trust unit rights outstanding(2)         1,063,725             1,168,100
Convertible debentures(3)                   59,000                57,795
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Exchangeable into trust units at the election of the holder at any
    time
(2) Exercisable at an average price of $6.62 per trust unit as at June
    30, 2004 and $6.39 per trust unit as at March 31, 2004.
(3) Each debenture has a face value of $1,000 and is convertible, at the
    option of the holder at any time, into trust units at a price of
    $14.00 per trust unit.  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.

/T/

Capital Expenditures 

Capital expenditures excluding the plan of arrangement with 
Storm, totaled $8.6 million for the three month period ended June 
30, 2004, resulting in year to date capital expenditures of $20.6 
million. The capital expenditures were dedicated to ongoing 
optimization and development of existing assets. This compares to 
$19.1 million spent in the second quarter of 2003 and $25.0 
million for the six months ending June 30, 2003. Total 
consideration for the plan of arrangement with Storm was 
approximately $189 million, bringing the Trust's total capital 
expenditures in the second quarter to $198 million, including 
acquisitions. 

Excluding acquisitions, Harvest continues to expect full year 
2004 capital expenditures of approximately $42 to $45 million, 
and will be focused on production, reserve additions, and 
operating efficiency programs. Harvest expects to reallocate 
capital for the properties acquired in the EnCana acquisition, 
but does not anticipate a material increase to its 2004 capital 
budget. 

Future Liquidity Requirements 

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. Harvest's 
ability to obtain 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. 

As a result of the EnCana asset acquisition, Harvest anticipates 
a significant increase in its bank credit facilities. Harvest has 
received from National Bank of Canada, a fully underwritten 
commitment for credit facilities totaling $440 million. The 
credit facilities will be used to finance the EnCana acquisition, 
for general corporate purposes and to refinance Harvest's 
existing revolving credit facility. The incremental borrowing 
capacity combined with the issue of subscription receipts and the 
convertible debentures, which closed August 10,2004, are expected 
to be sufficient to finance the $526 million acquisition. 
However, dependent upon market conditions, the Trust will 
consider additional financings 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 EnCana 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, service interest 
obligations associated with the convertible debentures and carry 
out the anticipated optimization and development capital 
expenditures currently contemplated. 

Contractual Obligations 

The Trust has entered into the following contractual obligations: 



/T/

                                            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                   325           646           646              -

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

/T/

At June 30, 2004, the Trust had $145 million drawn and 
approximately $3.3 million in letters of credit outstanding under 
the credit facility. 

As at June 30, 2004 Harvest Operations Corp. has entered into 
physical and financial contracts for production with average 
deliveries of approximately 10,603 barrels per day for the 
balance of 2004 and 9,033 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 11 to the consolidated financial 
statements for further details. 

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. Certain accounting policies have been deemed critical 
by Management in the preparation of the financial results of the 
Trust. These critical accounting policies are described in the 
Trust's first quarter report MD&A and include accounting policies 
related to oil and natural gas operations, the asset retirement 
obligation and the Trust's unit incentive plan. 

Changes in Accounting Policies 

Note 2 to the consolidated financial statements describes changes 
to accounting policies in 2004, including the adoption of the 
CICA's recommendations related to oil and natural gas accounting, 
asset retirement obligations and financial instruments. 

Transactions with Related Parties 

See Note 13 to the consolidated financial statements for a 
description of related party transactions reflected during the 
period ended June 30, 2004. 

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 and views its risk management 
activities as a key component of achieving this objective. 

As at June 30, 2004 Harvest Operations Corp. had entered into 
physical and financial contracts for production with a current 
delivery of approximately 10,603 barrels per day for the balance 
of 2004 and 9,033 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 $26.9 million 
as at June 30, 2004. Please refer to Note 11 in the Consolidated 
Financial Statements for further information. 

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. 

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 June 30, 2004: 



/T/

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

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

Volumes Hedged
West Texas intermediate crude oil price
 based swaps (bbls/d)                      3,853      1,033          -
West Texas intermediate crude oil price
 based collars (bbls/d)                    5,500      4,000          -
West Texas intermediate crude oil price
 based floors (bbls/d)                     1,250      4,000
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
 (U.S. $ million)                              3          -          -
------------------------------------------------------------------------


------------------------------------------------------------------------
                                                     Maturity
------------------------------------------------------------------------
                                            2004       2005       2006
------------------------------------------------------------------------
Mark to Market Gains (Losses) ($ thousands)
West Texas intermediate crude oil
 price based swaps                       (10,987)    (6,067)         -
West Texas intermediate crude oil
 price based collars                     (10,686)    (3,124)         -
West Texas intermediate crude oil price
 based options                              (854)    (1,207)
Lloyd blend crude oil price based swaps    2,280          -          -
Alberta electricity price based swaps      1,773      1,596        285
Electricity heat rate                          -        113          -
Canadian / U.S. dollar put option             12          -          -
------------------------------------------------------------------------
                                         (18,462)    (8,689)       285
------------------------------------------------------------------------

/T/

Taxability of Cash Distributions paid to Unitholders 

Harvest declared and paid distributions of $0.20 per trust unit 
in each month of the first and second quarters of 2004. Cash 
distributions are comprised of a taxable (dividend) portion, and 
a return of capital portion (tax deferred). Harvest anticipates 
that between 10% and 25% of the distributions will be a return of 
capital in 2004. Harvest anticipates that cash distributions will 
be highly taxable in 2005 pro forma the EnCana asset acquisition. 


Key Performance Indicators and 2004 Outlook 

Based upon current operations and assuming the successful 
completion of the EnCana asset acquisition on September 1, 2004, 
the following table provides guidance in respect to 2004 and 
relative performance for the past year: 


/T/

------------------------------------------------------------------------
                            Results  Performance Goals          Results
                            Q2 2004     Full Year 2004   Full Year 2003
------------------------------------------------------------------------

Daily production (BOE/d)     15,291    22,500 - 23,500           11,040
Average Royalty Rate, net      15.7%        16.5%-17.0%            14.3%
Operating expense ($/BOE)     $9.77        $8.50-$9.00            $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. 

Sensitivities 

The table below indicates the impact of changes in key variables 
on Harvest's cash flow and distributions for the balance of 2004, 
including the impacts of the hedging program. The figures in this 
table are provided for directional information only and are based 
on the units outstanding as at June 30, 2004. 


/T/

------------------------------------------------------------------------
                                       Variable
------------------------------------------------------------------------
                            Heavy Oil                Canadian    Foreign
                      WTI LLB differ-    Crude Oil       bank   exchange
                price/bbl  ential/bbl   production prime rate  Cdn./U.S.
------------------------------------------------------------------------
Assumption      $40.30 US   $10.00 US 32,000 bbl/d      4.25%       1.31
Change (plus
 or minus)       $1.00 US    $1.00 US  1,000 bbl/d      1.00%       0.01

Cash flow from
 operations
 ($000's)          $3,500      $2,500       $4,700     $1,300     $1,100
Per trust unit,
 basic              $0.15       $0.10        $0.20      $0.05      $0.05
Per trust unit,
 diluted            $0.10       $0.07        $0.14      $0.04      $0.03

Payout ratio         1.0%        0.7%         1.3%       0.4%       0.3%

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

/T/

Harvest Energy Trust is a Calgary-based energy trust actively 
managed 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. Trust 
units of Harvest are traded on the Toronto Stock Exchange (TSX) 
under the symbol "HTE.UN". For further information on Harvest, 
please visit our website at www.harvestenergy.ca. 

ADVISORY: Certain information regarding Harvest Energy Trust and 
its subsidiaries 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 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/

Harvest Energy Trust
Consolidated Balance Sheets
(thousands of dollars)

                                                      (Restated, Note 3)
------------------------------------------------------------------------
                                    June 30, 2004     December 31, 2003
------------------------------------------------------------------------
Assets                                 (Unaudited)             (Audited)

Current assets
  Accounts receivable                    $ 32,857              $ 19,168
  Prepaid expenses and deposits            14,652                12,131
------------------------------------------------------------------------
                                           47,509                31,299

Deferred financing charges,
 net of amortization                          672                 1,989
Future income tax                               -                12,609

Property, plant and equipment
 (Notes 3 and 4)                          419,746               210,543

Goodwill (Note 4)                          20,277                     -
------------------------------------------------------------------------

                                        $ 488,204             $ 256,440
------------------------------------------------------------------------

Liabilities and Unitholders' Equity

Current liabilities
  Accounts payable and
   accrued liabilities                   $ 44,001              $ 18,083
  Cash distributions payable                4,046                 3,422
  Bank debt (Note 5)                      144,559                63,349
------------------------------------------------------------------------
                                          192,606                84,854

Commodity derivative contracts (Note 11)    9,732                     -
Asset retirement obligation (Notes 3 and 4) 50,007                42,009
Future income tax (Note 4)                 19,640                     -
------------------------------------------------------------------------
                                          271,985               126,863

Unitholders' equity
  Unitholders' capital (Notes 4 and 7)     162,859               117,407
  Exchangeable shares (Notes 4 and 8)        8,870                     -
  Equity bridge notes (Notes 6 and 13)     25,000                25,000
  Convertible debentures (Note 10)         55,129                     -
  Accumulated income                       17,584                19,478
  Contributed surplus                         630                   239
  Accumulated cash distributions          (53,853)              (32,547)
------------------------------------------------------------------------
                                          216,219               129,577
------------------------------------------------------------------------
                                        $ 488,204             $ 256,440
------------------------------------------------------------------------
------------------------------------------------------------------------

Subsequent events (Note 14)
Contingencies (Note 15)
See accompanying notes to consolidated financial statements.

Approved by the Board of Directors:

Director                     Director



Harvest Energy Trust
Consolidated Statements of Income and Accumulated Income
(Unaudited)
(thousands of dollars, except per trust unit amounts)
------------------------------------------------------------------------
------------------------------------------------------------------------
                                  Three Months Ended   Six Months Ended
                                        June 30              June 30
                                    2004      2003       2004      2003
------------------------------------------------------------------------
------------------------------------------------------------------------
                                         (Restated,           (Restated,
                                            Note 3)              Note 3)
Revenue
  Oil and natural gas sales     $ 53,057  $ 24,639  $ 100,557  $ 50,869
  Royalty expense, net            (8,305)   (3,289)   (16,331)   (6,213)
  Hedging loss                   (12,249)   (3,727)   (21,304)  (12,296)
  Mark to market loss on
   commodity derivative
   contracts (Note 11)            (4,241)        -     (9,732)        -
------------------------------------------------------------------------
                                  28,262    17,623     53,190    32,360
Expenses
  Operating                       13,600     6,596     27,274    13,400
  General and administrative       1,992       789      3,545     1,520
  Interest                           364       672        882     1,378
  Amortization of deferred
   finance charges                   593       406      1,338       813
  Depletion, depreciation
   and accretion                  12,824     8,301     24,940    14,527
  Foreign exchange gain           (1,222)     (984)    (1,289)   (3,487)
------------------------------------------------------------------------
                                  28,151    15,780     56,690    28,151

------------------------------------------------------------------------
Income (loss) before taxes           111     1,843     (3,500)    4,209

Taxes
  Large corporation tax              120        32        136        52
  Future tax expense (recovery)   (1,603)      747     (4,166)     (376)
------------------------------------------------------------------------

Net income for the period          1,594     1,064        530     4,533
------------------------------------------------------------------------

Interest on equity bridge notes
 (Notes 6 and 13)                      (7)        -       (192)        -
Interest on convertible
 debentures (Note 10)             (1,314)        -     (2,232)        -

Accumulated income, beginning
 of period                        17,311     8,605     19,478     5,136

Accumulated income, end
 of period                      $ 17,584   $ 9,669   $ 17,584   $ 9,669
------------------------------------------------------------------------
------------------------------------------------------------------------

Net income (loss) per trust
 unit (Notes 7 and 9)
Income (loss) per trust unit,
 basic                            $ 0.02    $ 0.09    $ (0.11)   $ 0.42
Income (loss) per trust unit,
 diluted                          $ 0.02    $ 0.09    $ (0.11)   $ 0.41
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


Harvest Energy Trust
Consolidated Statements of Cash Flows (Unaudited)
(thousands of dollars, except per trust unit amounts)
------------------------------------------------------------------------
------------------------------------------------------------------------
                                  Three Months Ended   Six Months Ended
                                        June 30              June 30
                                    2004      2003       2004      2003
------------------------------------------------------------------------
------------------------------------------------------------------------
                                         (Restated,           (Restated,
                                            Note 3)              Note 3)

Cash provided by (used in)
Operating Activities

  Net income for the period       $1,594    $1,064       $530    $4,533
  Items not requiring cash
    Depletion, depreciation
     and accretion                12,824     8,301     24,940    14,527
    Foreign exchange gain           (697)     (984)      (764)   (3,487)
    Amortization of deferred
     finance charges                 593       406      1,338       813
    Mark to market loss on
     commodity derivative
     contracts (Note 11)           4,241         -      9,732         -
    Future tax expense (recovery) (1,603)      747     (4,166)     (376)
    Unit based compensation          208        12        391        25
------------------------------------------------------------------------
  Cash flow from operations       17,160     9,546     32,001    16,035
  Site restoration and
   reclamation expenditures          (89)        -       (153)        -
  Change in non-cash working
   capital (Note 12)                 137    (4,490)    (2,159)    1,454
------------------------------------------------------------------------
                                  17,208     5,056     29,689    17,489
Financing Activities
  Issue of trust units,
   net of costs                      (59)        -       (131)   14,096
  Issue of trust units under the
   distribution reinvestment plan,
   net of costs (Note 7)           1,945     2,824      3,180     4,099
  Issue of equity bridge notes
   (Notes 6 and 13)               25,000         -     25,000         -
  Repayment of equity bridge
   notes (Notes 6 and 13)              -         -    (25,000)        -
  Interest on equity bridge notes      -         -       (850)        -
  Issuance of convertible
   debentures, net of costs            -         -     57,334         -
  Interest on convertible
   debentures                     (1,801)        -     (1,801)        -
  Increase in bank debt          245,767    27,741    273,265    33,379
  Repayment of bank debt        (197,556)   (6,180)  (250,163)  (29,556)
  Financing costs                    (22)        -        (22)        -
  Cash distributions             (11,015)   (6,692)   (21,306)  (13,015)
  Change in non-cash working
   capital (Note 12)                 589       225        624       585
------------------------------------------------------------------------
                                  62,848    17,918     60,130     9,588
Investing Activities
  Additions to property,
   plant and equipment            (8,596)  (19,120)   (20,640)  (24,971)
  Acquisition of a private
   company                             -    (3,000)         -    (3,000)
  Acquisition of Storm
   Energy Ltd.                   (75,000)        -    (75,000)        -
  Change in non-cash working
   capital (Note 12)               3,540    (1,439)     5,821    (2,428)
------------------------------------------------------------------------
                                 (80,056)  (23,559)   (89,819)  (30,399)

Decrease in cash and
 short-term investments                -      (585)         -    (3,322)

Cash and short term investments,
 beginning of period                   -     1,766          -     4,503

------------------------------------------------------------------------
Cash and short term investments,
 end of period                       $ -   $ 1,181        $ -   $ 1,181
------------------------------------------------------------------------
------------------------------------------------------------------------

Cash interest payments           $ 2,203     $ 890    $ 2,721     $ 945
Cash tax payments                   $ 50      $ 11       $ 66      $ 47
Cash distributions declared
 per unit                         $ 0.60    $ 0.60     $ 1.20    $ 1.20
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


Harvest Energy Trust
Notes to Consolidated Financial Statements
June 30, 2004
(thousands of dollars, except per trust unit amounts)
------------------------------------------------------------------------

/T/

1. Significant accounting policies 

These interim consolidated financial statements of Harvest Energy 
Trust (the "Trust") have been prepared by management in 
accordance with Canadian generally accepted accounting principles 
("Canadian GAAP"). The preparation of financial statements 
requires management to make estimates and assumptions that affect 
the reported amounts of assets and liabilities and disclosures of 
contingencies, if any, as at the date of the financial statements 
and the reported amounts of revenues and expenses during the 
period. In the opinion of management, these interim consolidated 
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 previously reported net income, property plant 
and equipment or any other financial statement amounts as a 
result of the implementation 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 assets and depleted and 
depreciated using the 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 obligations. 

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 applying 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 11). 

d) Goodwill 

Goodwill is the residual amount that results when the purchase 
price of an acquired business exceeds the fair value for 
accounting purposes of the net identifiable assets and 
liabilities of the acquired business (Note 4). The goodwill 
balance is assessed for impairment annually at year-end, or more 
frequently if events or changes in circumstances indicate that 
the asset might be impaired. The test for impairment is carried 
by the comparison of the carrying amount to the fair value of the 
reporting entity. If the fair value of the consolidated Trust is 
less than the book value, impairment is measured by allocating 
the fair value of the consolidated Trust to the identifiable 
assets and liabilities at their fair values. The excess of this 
allocation is the fair value of goodwill. Any excess of the book 
value of goodwill over this implied fair value is the impairment 
amount. Impairment is charged to income in the period in which it 
occurs. Goodwill is stated at cost less impairment and is not 
amortized. 

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 $90 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 
reflected as $50.0 million at June 30, 2004. None of these 
balances reflect salvage values which the Company anticipates it 
will recover on completion of the related asset retirements. 

A reconciliation of the asset retirement obligation is provided 
below: 


/T/

------------------------------------------------------------------------
                                       Three month period ended June 30
Asset retirement obligations                         2004          2003
------------------------------------------------------------------------
($000)
Balance, beginning of period                     $ 42,744      $ 15,858
Liabilities incurred in the period                  6,477        11,406
Liabilities settled in the period                     (89)            -
Accretion expense                                     875           391
------------------------------------------------------------------------
Balance, end of period                           $ 50,007      $ 27,655
------------------------------------------------------------------------


------------------------------------------------------------------------
                                     Six month period
                                       ended June 30         Year ended
Asset retirement obligations         2004        2003 December 31, 2003
------------------------------------------------------------------------
($000)
------------------------------------------------------------------------
Balance, beginning of period     $ 42,009    $ 15,566          $ 15,566
Liabilities incurred in
 the period                         6,477      11,406            25,175
Liabilities settled in the period    (153)          -              (577)
Accretion expense                   1,674         683             1,845
------------------------------------------------------------------------
Balance, end of period           $ 50,007    $ 27,655          $ 42,009
------------------------------------------------------------------------


The effect of the change in accounting policy (Note 2) has been
recorded retroactively with restatement of prior periods follows:
------------------------------------------------------------------------
                                                                  As at
Balance sheet                                         December 31, 2003
------------------------------------------------------------------------
($000)
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
Accumulated income                                             $ (1,498)
------------------------------------------------------------------------



                                 Three month period    Six month period
Income statement                ended June 30, 2003 ended June 30, 2003
------------------------------------------------------------------------
($000)
Accretion expense                             $ 391               $ 683
Depletion and depreciation on asset
 retirement costs                               974               1,700
Site restoration and reclamation               (818)             (1,383)
Future tax recovery                            (430)               (614)
Net earnings change                            (117)               (386)
Net income change per trust unit, basic       (0.01)              (0.04)
Net income change per trust unit, diluted   $ (0.01)            $ (0.04)
------------------------------------------------------------------------

/T/

4. Plan of Arrangement with Storm Energy Ltd. 

On June 30, 2004, the Trust completed a Plan of Arrangement with 
Storm Energy Ltd. ("Storm"). Under this plan, the Trust acquired 
certain oil and natural gas producing properties for total 
consideration of approximately $189 million. This amount 
consisted of the issuance of 2,720,837 trust units at a price of 
$14.77 per unit (Note 7), the issuance of 600,587 exchangeable 
shares (Note 8), $75 million in cash, the assumption of 
approximately $58.5 million in debt and a working capital deficit 
of $6.7 million. The acquisition was financed with the new credit 
facility (Note 5) and with a draw on the equity bridge notes 
(Note 6). This transaction has been accounted for using the 
purchase price method. 

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


/T/

                                                         Amount ($000s)
------------------------------------------------------------------------

Property, plant & equipment                                  $ 211,829
Goodwill                                                        20,277
Working capital deficiency                                      (6,669)
Bank debt                                                      (58,452)
Asset retirement obligation                                     (6,477)
Future income tax                                              (36,455)
------------------------------------------------------------------------
                                                             $ 124,053
------------------------------------------------------------------------
------------------------------------------------------------------------

Consideration for the acquisition:
Cash                                                          $ 75,000
Issuance of trust units                                         40,183
Issuance of exchangeable shares                                  8,870
------------------------------------------------------------------------
                                                             $ 124,053
------------------------------------------------------------------------
------------------------------------------------------------------------

/T/

5. Bank debt 

On June 30, 2004, Harvest Operations Corp. entered into a credit 
agreement with a syndicate of Canadian chartered banks and the 
Alberta Treasury Branches. This facility consists of a $145 
million production loan, a $15 million operating loan and a 
U.S.$18.8 million mark to market credit to be used for financial 
instrument hedging. The term of the facility is to June 29, 2005. 
The facility permits drawings in Canadian or U.S. dollars, and 
includes bankers acceptances, LIBOR loans and letters of credit. 
Outstanding balances bear interest at rates ranging from 0% to 
2.25% above the applicable Canadian or U.S. prime rate depending 
upon the type of borrowing and the ratio of debt to annualized 
cash flow. The debt is secured by a $250 million debenture with a 
floating charge over all of the assets of the Corporation, and a 
guarantee by the Trust and its subsidiaries. Distributions to the 
Trust's Unitholders, and payments on the Equity Bridge notes 
(Note 6), and the convertible debentures (Note 10) are 
subordinate to the bank debt. The credit facility agreement 
includes certain restrictive covenants, including a working 
capital ratio of at least one to one and a requirement that 
Harvest not hedge more than 75% of its net after royalty 
production. 

6. Equity bridge notes 

On January 26 and 29, 2004, the Trust repaid the two equity 
bridge notes 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 $850,000. 

On June 29, 2004, the Trust drew $25 million under the equity 
bridge note agreement that is with a corporation controlled by a 
director of Harvest Operations Corp. Interest in respect of the 
equity bridge notes accrues at 10% per annum and is a charge to 
unitholders' equity and is not included in income. 

7. Unitholders' capital 

(a) Authorized 

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

(b) Issued 


/T/

------------------------------------------------------------------------
                                               Number of
                                                   units  Amount ($000s)
------------------------------------------------------------------------

As at December 31, 2003                       17,109,006      $ 117,407

Unit appreciation rights exercise (i)              6,250             57
Storm Plan of Arrangement (ii)                 2,720,837         40,183
Convertible debenture conversions (iii)          157,497          2,163
Distribution reinvestment plan
 issuance (iv)                                   235,270          3,180
Trust unit issue costs                                 -           (131)
------------------------------------------------------------------------
As at June 30, 2004                           20,228,860      $ 162,859
------------------------------------------------------------------------

/T/

(i) On March 17, 2004, 6,250 trust unit appreciation rights were 
exercised for proceeds of $57,000. 

(ii) On June 30, 2004, 2,720,837 trust units were issued under 
the Plan of Arrangement with Storm Energy Ltd. (Note 4) 

(iii) For the six month period ended June 30, 2004, 2,205 
convertible debentures were converted at the option of the 
holders, into 157,497 trust units and $32,000 in accrued interest 
and fractional units. (Note 10) 

(iv) For the three and six month periods ended June 30, 2004, 
140,426 trust units in the amount of $1.9 million and 235,270 
trust units in the amount of $3.2 million were issued under the 
distribution reinvestment plan ("DRIP"), respectively. 

(c) Per trust unit information 

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


/T/

------------------------------------------------------------------------
                                             Three months ended June 30
                                                  2004             2003
------------------------------------------------------------------------

Weighted average trust units outstanding    17,382,068       11,351,728
Weighted average exchangeable
 shares outstanding                              6,600                -
------------------------------------------------------------------------
Weighted average trust units
 outstanding, basic                         17,388,668       11,351,728

Effect of trust unit appreciation rights       420,130          226,795
Weighted average trust units
 outstanding, diluted                       17,808,798       11,578,523
------------------------------------------------------------------------

------------------------------------------------------------------------
                                               Six months ended June 30
                                                  2004             2003
------------------------------------------------------------------------

Weighted average trust units outstanding    17,281,383       10,891,161
Weighted average exchangeable
 shares outstanding                              3,300                -
------------------------------------------------------------------------
Weighted average trust units
 outstanding, basic                         17,284,683       10,891,161

Effect of trust unit appreciation rights       392,624          190,578
Weighted average trust units
 outstanding, diluted                       17,677,307       11,081,739
------------------------------------------------------------------------

/T/

The income (loss) per trust unit is calculated on the basis of 
net income available to the Trust Unitholder, and as such deducts 
the interest on the equity bridge notes and convertible 
debentures in the numerator of the calculation. 

8. Exchangeable shares 

(a) Authorized 

Harvest Operations Corp. is authorized to issue an unlimited 
number of exchangeable shares without nominal or par value. 

(b) Issued 


/T/

Exchangeable shares, series 1
------------------------------------------------------------------------
                                                Number    Amount ($000s)
------------------------------------------------------------------------

Storm Plan of Arrangement (i)                  600,587          $ 8,870

------------------------------------------------------------------------
As at, June 30, 2004                           600,587          $ 8,870
------------------------------------------------------------------------

/T/

(i) On June 30, 2004, 600,587 exchangeable shares, series 1 were 
issued at $14.77 per exchangeable share as partial consideration 
for the Plan of Arrangement with Storm (Note 4). The exchangeable 
shares had an exchange ratio of 1:1 as at June 30, 2004. 

The exchangeable shares, series 1 can be converted at the option 
of the holder at any time into trust units. The number of trust 
units issued to the holder upon conversion is based upon the 
applicable exchange ratio at that time. The exchange ratio is 
calculated monthly and adjusts to account for distributions paid 
to unitholders during the period that the exchangeable shares are 
outstanding. The exchangeable shares are not eligible to receive 
distributions. The exchangeable shares that have not been 
converted by the holder, may be redeemed by Harvest Operations 
Corp. at any date subsequent to June 30, 2006 until June 30, 
2009, at which time all remaining exchangeable shares in this 
series will be redeemed. Harvest Operations Corp. also has the 
option to convert up to 20% of the initial amount of the 
exchangeable shares outstanding annually in the first 90 days of 
each calendar year, and may also redeem all of the exchangeable 
shares if the aggregate amount outstanding is less than 500,000. 

9. 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 1,487,250 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                                      133,200              14.48
Cancelled                                    (15,875)             (8.59)
Exercised in trust units                      (6,250)             (5.20)
Exercised in cash                             (8,125)             (7.37)
Average reduction in exercise price
 due to distributions                              -              (1.06)
------------------------------------------------------------------------
As at June 30, 2004                        1,168,100             $ 6.62
------------------------------------------------------------------------
------------------------------------------------------------------------

/T/

All of the trust unit rights outstanding vest equally over the 
four years following 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/

------------------------------------------------------------------------
                                                         June 30
                                                 2004              2003
------------------------------------------------------------------------
Expected volatility                              27.5%             27.5%
Risk free interest rate                           4.0%              3.0%
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 issued subsequent to 
December 31, 2002 is amortized to expense over the vesting 
periods. The Trust's pro forma net income and per trust unit 
amounts would have been accounted for as follows: 


/T/

(thousands of dollars except per trust unit amounts)
------------------------------------------------------------------------
                             (Restated, Note 3)       (Restated, Note 3)
------------------------------------------------------------------------
                    Three months ended June 30 Six months ended June 30
                                 2004     2003            2004     2003
------------------------------------------------------------------------
Net income        As reported  $1,594   $1,064            $530   $4,533
                  Pro forma    $1,211     $621           ($235)  $3,652
Income (loss) per
 unit - basic     As reported   $0.02    $0.09          ($0.11)   $0.41
                  Pro forma    ($0.01)   $0.06          ($0.15)   $0.33
Income (loss) per
 unit - diluted   As reported   $0.02    $0.09          ($0.11)   $0.40
                  Pro forma    ($0.01)   $0.05          ($0.15)   $0.32
------------------------------------------------------------------------

/T/

During the three and six month periods ended, the Trust has 
recognized $208,000 and $391,000 in 2004 and $12,000 and $25,000 
in 2003 respectively, in compensation expense related to Trust 
unit rights and included it in general and administrative expense 
in the consolidated statement of income and accumulated income. 

10. 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 any 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. 


/T/

The following table summarizes the issuance and conversions of the
convertible debentures:

------------------------------------------------------------------------
                                            Number of
                                           debentures     Amount ($000s)
------------------------------------------------------------------------

January 29, 2004, issuance                     60,000          $ 60,000

Converted for trust units (i)                  (2,205)           (2,205)
Convertible debenture issue costs                   -            (2,666)
------------------------------------------------------------------------
As at June 30, 2004                            57,795          $ 55,129
------------------------------------------------------------------------
(i) During the three months ended June 30, 2004, 1,205 convertible
    debentures were converted at the option of the holders, into 86,069
    trust units and $21,000 in accrued interest and fractional units.

/T/

11. Financial instruments 

The Trust uses oil sales contracts and derivative financial 
instruments to mitigate the effect of fluctuations in commodity 
prices. The following is a summary of the oil sales contracts 
with price swap or collar features as at June 30, 2004, that have 
fixed future sales prices: 


/T/

------------------------------------------------------------------------
Commodity swap contracts based on West Texas Intermediate
------------------------------------------------------------------------
                                                                Mark to
Daily                                            Price per       Market
Quantity                 Term               Barrel (Note 1)  Gain (Loss)
                                                                  ($000)
------------------------------------------------------------------------

500 Bbls/d       July through          U.S. $24.12 ($15.50)    $ (1,544)
                December 2004
1,500 Bbls/d     July through                  U.S. $28.02       (3,200)
                December 2004
1,880 Bbls/d     July through                  U.S. $23.19       (3,194)
               September 2004
1,825 Bbls/d  October through                  U.S. $22.95       (3,049)
                December 2004
500 Bbls/d    January through                  U.S. $24.00       (2,668)
                December 2005
1,100 Bbls/d  January through                  U.S. $22.38       (1,774)
                   March 2005
1,030 Bbls/d    April through                  U.S. $22.18       (1,625)
                    June 2005

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

4,500 Bbls/d     July through                   U.S. $7.82      $ 2,280
                December 2004

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

2,500 Bbls/d     July through          U.S. $22.00 - 28.10     $ (5,287)
                December 2004
3,000 Bbls/d     July through  U.S. $25.19 - 29.40 ($18.88)      (5,399)
                December 2004
2,500 Bbls/d  January through  U.S. $28.40 - 32.25 ($21.80)      (2,075)
                    June 2005
1,500 Bbls/d      July though  U.S. $28.17 - 32.10 ($22.33)      (1,049)
                December 2005
2,000 Bbls/d   January though          U.S. $28.00 - 42.00            -
                December 2005

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.
------------------------------------------------------------------------

Commodity option contracts based on West Texas Intermediate
------------------------------------------------------------------------
                                                                Mark to
Daily                                          Price per         Market
Quantity                 Term                     Barrel     Gain (Loss)
                                                                  ($000)
------------------------------------------------------------------------
1,250 Bbls/d     July through December       U.S. $24.00         $ (854)
                      2004 - short put
4,000 Bbls/d  January through December       U.S. $30.00          3,309
                       2005 - long put
1,972 Bbls/d  January through December       U.S. $30.00         (6,739)
                     2005 - short call
1,972 Bbls/d  January through December       U.S. $40.00          2,223
                      2005 - long call

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


The following is a summary of electricity price hedging physical and
financial swap contracts entered into by Harvest Operations Corp. to fix
the cost of future electricity usage as at June 30, 2004:

------------------------------------------------------------------------
Commodity swap contracts based on electricity prices
------------------------------------------------------------------------
                                                          Mark to Market
Quantity                          Term  Price per Megawatt   Gain ($000)
------------------------------------------------------------------------
15MW        July through December 2004          Cdn $45.83       $ 1,203
5MW      January through December 2005          Cdn $43.00           456
9.75MW    July 2004 through March 2006          Cdn $44.50         1,995
------------------------------------------------------------------------

Commodity swap contracts based on electricity heat rate
------------------------------------------------------------------------
                                                          Mark to Market
Swaps                            Term            Price        Gain($000)
------------------------------------------------------------------------
5MW     January through December 2005      8.40 GJ/MWh             $ 113
------------------------------------------------------------------------

------------------------------------------------------------------------
Foreign Currency Contracts
------------------------------------------------------------------------
                                                                 Mark to
Monthly                                                           Market
Contract Amount              Term         Contract Rate       Gain($000)
------------------------------------------------------------------------
U.S. $3 million     April through      1.3333 Cdn / U.S.            $ 12
                    December 2004
------------------------------------------------------------------------

/T/

At June 30, 2004 the net mark-to-market unrealized loss for all 
the financial derivative contracts entered into by Harvest 
Operations Corp. was approximately $26.9 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 June 30, 2004, the amounts deposited totaled $13.4 
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. As at June 30, 2004, the mark to 
market loss is $9.7 million. The realized losses on all 
derivative contracts are included in the period in which they are 
incurred. 


/T/

12. Change in non-cash working capital

------------------------------------------------------------------------
                               Three month period      Six month period
                                  ended June 30          ended June 30
                                2004        2003       2004        2003
($000)
------------------------------------------------------------------------
------------------------------------------------------------------------
Changes in non-cash
 working capital items:
  Accounts receivable      $ (19,161)     (2,958) $ (13,689)     (1,810)
  Prepaid expenses and
   deposits                    4,657        (851)    (2,521)     (1,834)
  Accounts payable and
   accrued liabilities        24,226      (2,045)    25,918       2,085
  Cash distributions payable     590         225        624         585

------------------------------------------------------------------------
                            $ 10,312      (5,629)  $ 10,332        (974)
------------------------------------------------------------------------
------------------------------------------------------------------------

Changes relating to
 operating activities          $ 137      (4,490)  $ (2,159)      1,454
Changes relating to
 financing activities            589         225        624         585
Changes relating to
 investing activities          3,540      (1,439)     5,821      (2,428)
Add: Non cash changes          6,046          75      6,046        (585)
------------------------------------------------------------------------
                            $ 10,312      (5,629)  $ 10,332      $ (974)
------------------------------------------------------------------------
------------------------------------------------------------------------

/T/

13. Related party transactions 

A director and a corporation controlled by a director of Harvest 
Operations Corp., were repaid and then reissued $25 million under 
the equity bridge notes during the six month period ended June 
30, 2004. The Trust paid $850,000 of the total interest accrued 
and payable during the year. (Note 6) 

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

14. Subsequent events 

On July 15, 2004, the Trust entered into an agreement to purchase 
oil and natural gas producing properties for $526 million. In 
conjunction with the acquisition of the properties, the Trust has 
entered into an underwriting agreement to issue approximately 
$175 million in subscription receipts and $100 million in 8% 
convertible unsecured subordinated debentures. The subscription 
receipts will be exchanged for 12,166,666 trust units upon 
closing of the acquisition. The balance of the acquisition cost 
will be funded with a new credit facility arrangement. The new 
credit facility will be similar to the existing credit facility 
(Note 5) but will have a $440 million borrowing limit and will be 
secured by a $750 million debenture. Directors and officers 
participated in this financing by acquiring 1,845,495 
subscription receipts. 

On August 4, 2004, Harvest Operations Corp. sold forward 
U.S.$13.5 million to be settled for Cdn.$17.8 million on August 
25, 2004. 

Subsequent to June 30, 2004, 9,531 convertible debentures were 
converted at the option of the holders, into 680,781 trust units 
and $125,000 in accrued interest and fractional units. 

Subsequent to June 30, 2004, 8,430 exchangeable shares were 
converted into 8,544 trust units. 

The following is a summary of the Trust distributions announced 
and paid subsequent to June 30, 2004: 


/T/

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

June         June 30, 2004    July 15, 2004       83,629         $ 4,046
July         July 31, 2004  August 15, 2004
------------------------------------------------------------------------

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

/T/

15. 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 2005, and are expected to be renewed as 
required. 

-30-


FOR FURTHER INFORMATION PLEASE CONTACT:

Harvest Energy Trust
Jacob Roorda
President
(403) 265-1178 or (866) 666-1178
(403) 265-3490 (FAX)
information@harvestenergy.ca

or

Harvest Energy Trust
David Rain
Vice President & CFO
(403) 265-1178 or (866) 666-1178
(403) 265-3490 (FAX)

or

Harvest Energy Trust
Cindy Gray
Communications Advis
or

(403) 265-1178 or (866) 666-1178
(403) 265-3490 (FAX)
gray@harvestenergy.ca
www.harvestenergy.ca