CNE China Everbright Environment Group Limited

CALGARY, March 8 /PRNewswire-FirstCall/ -- (CNE.UN - TSX; CNE - NYSE) - Canetic Resources Trust ("Canetic" or the "Trust"), is pleased to announce its operating and financial results for the fourth quarter and year ended December 31, 2006 as well as selected information from Canetic's independent engineering reserve report effective December 31, 2006. The year 2006 marked another pronounced period of growth and change for Canetic with the successful closing of two significant acquisitions totaling $3.5 billion and its listing on the New York Stock Exchange on February 15, 2006. These targeted acquisitions served to more than double production and reserves of Acclaim Energy Trust (Acclaim), Canetic's predecessor, on a stand-alone basis, while also significantly increasing the undeveloped land base and inventory of exploitation opportunities that will fuel Canetic's development and growth in the coming years. HIGHLIGHTS OF CANETIC'S YEAR INCLUDE: - Annual production averaged approximately 74,409 barrels of oil equivalent (boe) per day for 2006, an increase of 84 percent from 40,460 boe per day in 2005. Production in the fourth quarter totaled 80,276 boe per day compared to 74,475 boe per day in the third quarter of 2006. Canetic exited 2006 with production of more than 82,000 boe per day which is in line with previous guidance. - Completion of the largest and most active exploitation and development program in Canetic history at $351.3 million. Canetic's 2006 development program resulted in the drilling of 378 gross (174.4 net) wells with an overall success rate of 98 percent. - Canetic's total capital program, including the Samson Canada Ltd. (Samson) acquisition, replaced 237 percent of 2006 production on a proved plus probable basis at a finding, development and acquisition (FD&A) cost of $20.41 per boe, excluding future development capital and $23.30 per boe including future development capital. - Canetic's internal development program replaced 76 percent of 2006 production on a proved plus probable basis at a finding and development (F&D) cost of $16.93 per boe, excluding future development capital and $19.21 per boe including future development capital while spending less than 50 percent of funds flow from operations. The StarPoint Energy Trust (StarPoint) assets performed particularly well, resulting in replacement of 124 percent and 106 percent of 2006 related production on a proved producing and proved plus probable basis, respectively. - Canetic replaced 2006 production at an efficiency rate of $20,300 per boe per day based on 2006 exit rates. These very strong efficiencies were achieved during a period when the Trust was very active integrating the two large acquisitions completed in 2006. - Proved plus probable reserves increased 16 percent to 275.6 million boe from 238.4 million boe (including StarPoint). Proved reserves increased 12 percent to 192.2 million boe. Proved producing reserves increased 15 percent to 157.1 million boe. - Canetic's Reserve Life Index (RLI) increased 1.0 years to 9.7 years on a proved plus probable basis and 0.5 years to 6.8 years on a total proved basis. - Canetic closed the previously announced acquisition of StarPoint effective January 5, 2006 forming one of Canada's largest oil and gas royalty trusts. The StarPoint acquisition served to significantly increase both production and reserves and create a portfolio of high quality assets characterized by large oil and gas in place, an extensive undeveloped land and opportunity base offering a dominant operating position and key exposure to some of the most notable plays in Canada, including coal bed methane (CBM) in central Alberta, tight gas in northern BC, shallow tight gas in southern Alberta, waterflood and tertiary recovery enhancement in Alberta and Saskatchewan and horizontal infill optimization. - On August 31, 2006, Canetic closed the acquisition of primarily natural gas interests in central Alberta and northeastern British Columbia from Samson. The acquisition included production at closing of approximately 13,500 boe per day, comprised of 70.0 million cubic feet (mmcf) per day of natural gas and 1,600 barrels (bbls) per day of crude oil and natural gas liquids. At the time, the acquisition increased Canetic's overall production to more than of 80,000 boe per day and balanced Canetic's asset portfolio to 53 percent crude oil and natural gas liquids and 47 percent natural gas. The assets acquired were complementary to Canetic's existing properties and served to further expand Canetic's undeveloped land position by a considerable 230,000 net acres, to nearly 1 million net undeveloped acres. - Canetic commissioned construction of a 20 mmcf per day gas processing plant at Willisden Green, which has been completed and will be brought on at full capacity late in the first quarter of 2007. The new gas plant is expected to alleviate capacity constraints and allow Canetic to further pursue its previously successful drilling activities in the surrounding area. - Canetic generated funds flow from operations of $750.1 million ($3.64 per basic unit) in 2006 compared to $360.5 million ($4.04 per basic unit) in 2005. During the fourth quarter, funds flow from operations totaled $170.1 million ($0.76 per basic unit) an increase of 60 percent from $106.5 million ($1.16 per basic unit) realized in the same period last year. Funds flow reported for the third quarter of 2006 totaled $200.3 million ($0.95 per basic unit). The decrease in per unit fourth quarter and full year 2006 funds flow from operations compared with prior comparable periods was largely attributable to decreases in either crude oil or natural gas prices during the comparable period. - Net earnings increased 239 percent to $223.1 million in 2006 compared to $65.8 million in 2005. On a per trust unit basis net earnings increased 46 percent to $1.08 per basic unit compared to $0.74 per basic unit in 2005. - Cash distributions totaled $583.5 million in 2006 compared to $208.5 million in 2005, an increase of 180 percent. On a per unit basis cash distributions totaled $2.76 per unit ($0.23 per unit per month) in 2006 compared with $2.34 per unit ($0.195 per unit per month) in 2005. Canetic's payout ratio (defined as cash distributions to unitholders divided by funds flow from operations) averaged 78 percent in 2006. - Canetic's average realized price in 2006 was $51.52 per boe, including hedging, compared to an average price of 48.76 per boe, including hedging, in 2005. A decrease in natural gas prices was more than offset by higher prices for crude oil and natural gas liquids and lower hedging losses. - Canetic listed its trust units for trading on the New York Stock Exchange and began trading under the symbol CNE on February 15, 2006. ------------------------------------------------------------------------- A conference call to discuss these results will be hosted at 9 a.m. MST (11 a.m. EST) on Friday, March 9, 2007. The call will also be available via audio webcast from Canetic Resources Trust's website (http://www.canetictrust.com/). To participate Toll-Free across North America call: 1-800-769-8320 or within Toronto and area call: 416-695-5259. A recorded playback of the call will also be made available until March 31, by calling toll-free across North America: 1-888-509-0081 or within Toronto and area call: 416-695-5275. ------------------------------------------------------------------------- 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: one (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. FORWARD-LOOKING STATEMENTS -------------------------- Certain statements contained in this news release constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of applicable securities laws. All statements other than statements of historical fact may be forward looking statements. Statements relating to "reserves" or "resources" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described can be profitably produced in the future. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "could", "should", "believe", "intend", "propose", "budget" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. We believe the expectations reflected in the forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements are not guarantees of future performance and should not be unduly relied upon. These statements speak only as of the date of this news release. In particular, this news release contains forward-looking statements pertaining to the following: business strategies; production volumes and capacity, processing capacity; reserves volumes, operating and other costs, drilling plans; commodity prices; future cash distribution levels and taxability; payout ratios; capital spending including timing, allocation and amounts of capital expenditures and the sources of funding thereof; regulatory changes; hedging and other risk management programs; anticipated tax obligations; supply and demand for oil and natural gas; ability to raise capital; ability to add to reserves through acquisitions and development; treatment under governmental regulatory regimes; acquisition plans; the impact of acquisitions and the timing for achieving such impact; future tax treatment of income trusts such as the Trust; the benefits of the Trust's size and the size of its inventory; and liquidity and financial capacity. The forward-looking statements contained in this news release are based on a number of expectations and assumptions that may prove to be incorrect. In addition to other assumptions identified in this news release, assumptions have been made regarding, among other things: that the Trust will continue to conduct its operations in a manner consistent with past operations; the continuance of existing (and in certain circumstances, proposed) tax and royalty regimes; the general continuance of current industry conditions; the accuracy of the estimates of the Trust's reserve volumes; the ability of Canetic to obtain equipment, services and supplies in a timely manner to carry out its activities; the ability of Canetic to market oil and natural gas successfully; the timely receipt of required regulatory approvals; the ability of Canetic to obtain financing on acceptable terms; currency, exchange and interest rates; future oil and gas prices and future cost assumptions. No assurance can be given that these factors, expectations and assumptions will prove to be correct. The actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth below and elsewhere in this news release: volatility in market prices for oil and natural gas; risks and liabilities inherent in oil and natural gas including operations, exploration, development, exploitation, production, marketing and transportation risks; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; inability to complete acquisitions on commercially acceptable terms; inability to raise necessary capital on commercially acceptable terms or at all; geological, technical, drilling and processing problems; risks and uncertainties involving geology of oil and gas deposits; unanticipated operating results or production declines; fluctuations in foreign exchange, currency or interest rates and stock market volatility; changes in laws and regulations changes including but not limited to those pertaining to income tax, environmental and regulatory matters; failure to realize the anticipated benefits of acquisitions; health, safety and environmental risks; and the other factors described in Canetic's public filings from time to time (including under "Risk Management" in the Management's Discussion & Analysis (MD&A) included in this news release and under "Risk Factors" in its Annual Information Form) available in Canada at http://www.sedar.com/ and in the United States at http://www.sec.gov/. Readers are cautioned that this list of risk factors should not be construed as exhaustive. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement. Canetic undertakes no obligation to publicly update or revise any forward-looking statements except as expressly required by applicable securities law. Non-GAAP Measures ----------------- This MD&A refers to certain financial measures that are not determined in accordance with GAAP. These measures as presented do not have any standardized meaning prescribed by Canadian GAAP and therefore they may not be comparable with calculations of similar measures for other companies or trusts. Management uses funds flow from operations, which we define as net earnings plus non-cash items before deducting non-cash working capital and asset retirement costs incurred to analyze operating performance and leverage. Readers should refer to the "Funds Flow from Operations" section of the MD&A included in this news release for a reconciliation of funds flow from operations. We use the term net debt, which we define as long-term debt and working capital, to analyze liquidity and capital resources. Readers should refer to the "Liquidity and Capital Resources" section of the MD&A for a reconciliation of net debt. We use the term payout ratio, which we define as cash distributions to unitholders divided by funds flow from operations, to analyze financial and operating performance. Readers should refer to the "Cash Distributions" section of the MD&A for the calculation of payout ratio. We use the terms operating and cash netbacks to analyze margin and cash flow on each boe production. Operating and cash netbacks should not be viewed as an alternative to cash flow from operating activities, net earnings per trust unit or other measures of financial performance calculated in accordance with GAAP. Readers should refer to the "Netbacks" section of the MD&A for a reconciliation of operating and cash netbacks. We use the term total capitalization, which we define as net debt including convertible debentures plus unitholders' equity, to analyze leverage. Total capitalization is not intended to represent the total funds from equity and debt received by the Trust. Readers should refer to the "Liquidity and Capital Resources" section of the MD&A for a reconciliation of total capitalization. Management believes that, in conjunction with results presented in accordance with GAAP, these measures assist in providing a more complete understanding of certain aspects of the Trust's results of operations and financial performance. Investors are cautioned however, that these measures should not be construed as an alternative to measures determined in accordance with GAAP as an indication of our performance. 2006 HIGHLIGHTS Three Months Ended Year ended December 31 December 31 ------------------------------------------------------------------------- ($millions except per unit amounts) 2006 2005 % 2006(1) 2005 % ------------------------------------------------------------------------- FINANCIAL Gross revenue 347.7 234.1 49% 1,407.8 800.2 76% Funds flow from operations(3) 170.1 106.5 60% 750.1 360.5 108% Per unit - basic(2) 0.10 1.16 -34% 3.64 4.04 -10% Per unit - diluted(2) 0.75 1.15 -35% 3.57 3.98 -10% Net earnings (loss) (21.6) 48.7 -144% 223.1 65.8 239% Per unit - basic(2) (0.10) 0.53 -119% 1.08 0.74 46% Per unit - diluted(2) (0.10) 0.52 -119% 1.06 0.73 45% Cash distributions declared 155.5 53.3 192% 583.5 208.5 180% Per unit(2) 0.6900 0.5850 18% 2.7600 2.3401 18% Payout ratio(3) 91% 50% 82% 78% 58% 34% ------------------------------------------------------------------------- Capital expenditures Development expenditures 106.0 72.0 47% 351.3 172.2 104% Net capital expenditures (net of StarPoint) 85.5 75.6 13% 1,315.0 181.2 626% Total assets 5,831.0 1,571.1 271% 5,831.0 1,571.1 271% Long-term debt 1,289.7 309.1 317% 1,289.7 309.1 317% Net debt (excluding financial derivatives)(3) 1,318.3 331.8 297% 1,318.3 331.8 297% Unitholders' equity 3,506.9 764.6 359% 3,506.9 764.6 359% ------------------------------------------------------------------------- Weighted average trust units outstanding (000s)(2) 225,192 91,489 146% 206,081 89,331 131% Trust units outstanding at period end (000s)(2) 225,796 91,583 147% 225,796 91,583 147% ------------------------------------------------------------------------- OPERATING Production(3) Natural gas (mmcf/d) 221.2 105.8 109% 186.3 104.5 78% Crude oil (bbl/d) 36,713 16,945 117% 37,500 17,779 111% Crude oil and NGL's (bbl/d) 43,402 21,915 98% 43,358 23,046 88% Barrel of oil equivalent (boe/d, 6:1) 80,276 39,541 103% 74,409 40,460 84% ------------------------------------------------------------------------- Average Prices(3) Natural gas ($/mcf) 6.90 12.29 -44% 7.01 9.08 -23% Natural gas ($/mcf) (including financial instruments) 7.34 11.74 -37% 7.62 8.84 -14% Crude oil ($/bbl) 53.23 59.37 -10% 60.61 57.78 5% Crude oil ($/bbl) (including financial instruments) 51.88 46.35 12% 56.97 46.83 22% Natural gas liquids ($/bbl) 45.44 44.97 1% 47.84 40.44 18% ------------------------------------------------------------------------- Total ($/boe) 47.08 64.35 -27% 51.83 54.19 -4% Total ($/boe)(including financial instruments) 47.67 57.29 -17% 51.52 48.76 6% ------------------------------------------------------------------------- Drilling activity (gross) Natural gas 55 40 - 205 81 - Oil 60 41 - 161 87 - Other - - - 5 2 - Dry and abandoned - 1 - 7 2 - ------------------------------------------------------------------------- Total gross wells 115 82 - 378 172 - ------------------------------------------------------------------------- Total net wells 48.8 52.4 - 174.4 106.6 - ------------------------------------------------------------------------- Success rate (%) 100% 99% - 98% 99% - ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Includes the financial and operating results of StarPoint Energy Trust from the date of the merger, January 5, 2006 and the property acquisition from the date of closing August 31, 2006. (2) The merger of Acclaim Energy Trust ("Acclaim") and StarPoint Energy Trust ("StarPoint") has been accounted for as a purchase of StarPoint by Acclaim. Accordingly, the financial and operating results of StarPoint have been included from the date of acquisition, January 5, 2006. The comparative results for 2005 are those of Acclaim only. All disclosures of units and per unit amounts of Acclaim up to the merger on January 5, 2006 have been restated using the exchange ratio of 0.8333 of a Canetic unit for each Acclaim unit. (3) Please refer to the Advisory section at the end of this report for definitions of Non-GAAP terms and frequently recurring terms and abbreviations. The payout ratio is based on cash distributions divided by funds flow from operations. MESSAGE TO UNITHOLDERS The year 2006 was the first full year of operations for Canetic following the merger of Acclaim with StarPoint in early January. It was a dynamic year for Canetic, and for the entire trust sector, highlighted by continued growth, an expanded investment reach with the listing of Canetic units on the New York Stock Exchange and the successful completion of the largest capital program in the Trust's history. Canetic rose to the challenge and marked another solid year of performance, a year in which the team executed on our business strategies to extend and enhance the Trust's long-term opportunity base through acquisition while continuing to deliver solid results from our ongoing exploitation and development activities. A significant component of Canetic's business strategy is to be operationally focused and create value internally. Following on its strong performance in 2005, the team continued to demonstrate its ability to derive value from Canetic's large asset portfolio through its focused exploitation and development activity. During 2006, Canetic completed the largest development program in its history at $351.3 million, operating or participating in the drilling of 378 wells with a success rate of 98 percent. Through its development activities Canetic successfully replaced 76 percent of its production on a proved plus probable basis at an F&D cost of $16.93 per boe excluding future development capital. Canetic's recycle ratio, defined as operating netback divided by F&D cost, was 1.9 times on a proved plus probable basis. In addition, Canetic replaced production through drilling at an efficiency rate of $20,300 per boe per day. These are very strong results that are indicative of the quality of our reserve and opportunity base and underscore Canetic's relentless commitment to deliver long-term value to its unitholders. In addition to our demonstrated technical expertise, one of Canetic's key strengths lies in our ability to complete acquisitions and to integrate people and assets. Our approach to integration has been developed over several years and over many transactions and we believe we have created an effective template for smoothly integrating people, systems and properties. With the closing of the StarPoint merger in January and the Samson acquisition in August, the Canetic team once again demonstrated its aptitude for completing and integrating large, complex, value adding acquisitions that enhance the Trust's opportunity base. Through these acquisitions Canetic more than doubled its production and reserves and enhanced its opportunity base while also increasing its inventory of undeveloped acreage and exposure to key areas expected to fuel the Trust's continued long-term growth and development. Our experience tells us that there is an increase in knowledge and understanding that follows any acquisition and that acquired properties tend to have the greatest impact two to three years following their integration. We also find that the more complex properties hold some of the greatest opportunity for us over the long-term, however it takes time to understand and extract that value. Having now integrated the StarPoint and Samson assets in 2006 and with work ongoing to understand and build a growing inventory of related development opportunities, we look excitedly at 2007 and beyond as years in which we can enjoy the benefits of our work and begin to extract long-term value from these assets. With the recent growth of the Trust, Canetic also undertook to restructure itself operationally in late 2006 to better meet its needs as a large producer. We set out to hire and secure the necessary talent and resources and restructured into newly formed business units, integrating geotechnical and commercial skills, to ensure each team can collectively work to maximize the extraction of value from Canetic's assets. The year also marked a transition in the focus of our development from a program targeting the maintenance of production rate to a program that places growing emphasis on increasing the ultimate value of Canetic's assets over the long-term. Canetic's asset base offers significant untapped potential and as a result of these changes Canetic now has the teams, expertise and structure in place to optimize that potential. Given our size we are also well positioned to spread risk across a much broader portfolio of opportunity and pursue deeper, higher reward prospects without exposing our unitholders to significant risk. In addition, Canetic created a team of reservoir specialists in 2006 to look at ways to mitigate overall declines through an increased focus on the implementation or refinement of reservoir management and enhanced recovery strategies in respect of our large oil in place pools and the development of strategies for the exploitation of our significant inventory of longer term resource plays. The year 2006 was also punctuated by the announcement of the Canadian Government's Tax Fairness Plan on October 31, 2006, a key component of which was a proposed change to taxation rules governing publicly traded income trusts in Canada. The creation of this new tax regime for publicly listed flow-through entities reflects a fundamental shift in the tax system which could have a significant impact on the strategic direction of the income trust model. Existing publicly traded income trusts, such as Canetic, would be subject to the proposed changes beginning in the 2011 taxation year, providing the trust complies with subsequently announced guidelines for "normal growth" in the intervening period. As a result of these proposals there have been significant implications to the Trust and our unitholders. Shortly after the announcement of the new rules, the valuation of Canetic and other trusts was significantly reduced to reflect the loss of our current tax advantage. Canetic is currently working with the Canadian Association of Income Funds and the Coalition of Canadian Energy Trusts to effect changes to the legislation as proposed. A main focus is ensuring that the facts related to income trusts are understood and that all data is made available by the Minister of Finance to the investing public and other members of Parliament. We have initiated a review of our business and potential alternatives available to the Trust in context of the current Canadian Government proposals, but it is premature at this time to determine what Canetic's course of action will be as 2011 approaches. Until the legislation is enacted, the rules fully understood and all options have been assessed, we are not prepared to commit to any strategic changes. In the short-term, we believe we are in a strong competitive position and are not compelled to make any significant changes with respect to our strategic direction, preferring to remain focused on our business and execute on our planned capital program. As one of the largest conventional oil and gas trusts in North America, Canetic is well positioned to create long-term value for unitholders. We believe that our current size provides the Trust with sufficient room to grow within the safe harbour guidance announced by the Canadian Government and will improve our competitive position with respect to large acquisitions, consolidation and our ability to expand outside of western Canada, as well as allowing us to undertake or participate in longer term more capital intensive projects. We have successfully built an asset base that is rich with opportunity. Our focus moving forward is to manage through the current uncertainty and deliver on our promise to create long-term value for our unitholders. REVIEW OF OPERATIONS Over recent years the oil and gas sector has increased its focus on unconventional and resource plays, but Canetic continues to believe its considerable inventory of conventional oil and natural gas development opportunities will remain the engine for growth and fuel the Trust's development activity over the coming years. The year 2006 was no exception, with Canetic's operated development activity almost exclusively focused on exploitation of Canetic's significant inventory of conventional opportunities. As demonstrated once again in 2006, our continued focus in this area continues to drive our industry competitive finding and development costs while also providing strong economic returns, regardless of the pricing environment. During 2006, Canetic had exploration and development expenditures of $351.3 million as compared to $172.2 million in 2005 (2004 - $91.8 million). A total of 378 gross (174.4 net) wells were drilled during the year, including 115 gross (48.8 net) wells in the fourth quarter, compared to 82 gross (52.4 net) wells during the fourth quarter 2005. The increase in drilling activity reflects the larger opportunity base associated with our assets as a result of the acquisitions made in 2006. This level of activity is expected to continue into the first quarter of 2007 with the drilling of an estimated 50 operated wells. Of the total wells drilled in 2006, 102 gross (90.6 net) were operated by Canetic resulting in 64 gross (58.0 net) oil wells and 32 gross (26.9 net) natural gas wells, 2 gross (2 net) service wells and 4 gross (3.8 net) abandoned wells. The overall program resulted in 161 gross (81.9 net) oil wells and 205 gross (85.4 net) natural gas wells, 5 gross (2.2 net) service wells and 7 gross (4.0 net) abandoned wells. In 2006, Canetic focused 62 percent of its operated capital program on conventional oil and big oil in place pools. Primary areas of activity included the newly acquired StarPoint assets in Williston Basin in southeast Saskatchewan and the Countess - Suffield - Alderson assets of Southern Alberta. We were also active in the Acheson field located near the western city limits of Edmonton. Although most of the pools have been producing for a considerable time and are in various stages of maturity, Canetic continues to identify numerous opportunities for infill drilling, pool extensions and downspacing. Canetic has been highly successful at finding incremental reserves and production through infill drilling and pool extensions in major pools such as Queensdale, Alida West and Ingoldsby. In the Williston Basin, other pools such as Bryant, Tatagwa, and Handsworth, offer further development potential through a combination of pressure support and infill drilling. In Southern Alberta, Canetic initiated a 14 well program in four Sunburst pools in the Countess and Alderson East area. This program was the initial phase of a 3 phase project targeting increased recovery factors in the pool. Phase 2 of the project is currently underway and includes conversion of producers to injectors to increase pressure to the pools and improve recovery factors. Phase 3 of the project will encompass further infill drilling activity once simulation has been completed and flood response is observed. Canetic's 2006 natural gas development largely focused on higher rate conventional opportunities and resulted in significant discoveries and conversions associated with the Rock Creek, Belly River, Ellerslie and Doig/Halfway formations in the Peace River Arch and West Central Alberta. The Acheson field in Central Alberta was also an important area of activity for Canetic in 2006. As anticipated the Leduc (D3a) pool at Acheson entered its final blow down stage in late 2005, but depleted more rapidly than expected, and as a result Canetic experienced a loss of nearly 6,000 boe per day of production over a short period of time. In response to this setback, the Acheson technical team initiated an aggressive multi year up-hole re-completion and drilling program to backfill lost production associated with the D3a pool. The team achieved significant success from the program during 2006 and had backfilled most of the lost production by year end, however, due to timing of the new production coming on stream the initial loss still had considerable impact on our average production for the year. Canetic was also active on the optimization front in 2006 with a continued emphasis on the completion of new zones in existing well bores and the optimization of our existing producing assets. The focus in this area through 2006 was on the identification of opportunities that added new production as well as new reserves. During the year Canetic committed to the construction of our new Willesden Green gas processing plant in response to capacity constraints impacting production in the area. The start-up of the 20 mmcf per day plant late in the first quarter of 2007 will help to alleviate previous capacity constraints in the area and will allow Canetic to resume its successful drilling activities which will be ongoing and timed to keep the new facility near capacity in the coming years. During the second half of 2006, Canetic undertook to review and high grade plans for the future development of its shallow gas resources after considerably increasing its portfolio of opportunities earlier in the year as a result of the StarPoint and Samson acquisitions. At Canetic we believe have successfully built an asset base rich with years of ongoing development opportunity and our focus moving forward is to effectively manage the development and exploitation of this considerable resource base. Given the diversity of Canetic's conventional oil pools the strategy for growth and development of the assets is quite dynamic. Over the near term, Canetic will continue to drill its existing inventory of conventional oil opportunities at an expected rate of 60 to 70 wells per year, largely targeting opportunities for pool extensions and infill drilling to further enhance its production base. Canetic also expects it will identify further follow-up or contingent locations that will expand the current inventory of opportunities associated with its existing assets. Over the coming years, Canetic's primary focus will shift more towards opportunities for improved pressure maintenance and sweep efficiencies as well as identification of enhanced recovery opportunities in relation to its larger oil and gas reservoirs. Work being completed by Canetic's newly formed team of reservoirs specialists will support these plans moving forward. Longer term, these initiatives are expected to aid in the mitigation of natural declines by lowering Canetic's overall base decline rate while also contributing positively to Canetic's reserve life index and the ultimate recovery of resources from Canetic's large oil and natural gas reservoirs. Canetic's existing portfolio of properties provide important exposure to a variety of large, high quality, long life natural gas reservoirs with considerable conventional gas development potential in the coming years. Over the near term, Canetic expects to operate a 20 to 30 well per year conventional natural gas program and continue to expand its inventory of opportunities through additional land purchase and identification of further opportunities on existing lands. As part of a broader strategy for the development of its significant natural gas resources, Canetic plans to direct a portion of its ongoing near and medium-term development capital towards higher impact, liquids rich conventional natural gas plays that, if successful, offer significant potential for substantial production and reserve additions. Longer term, the Trust's recent acquisition of properties from Samson provides significantly expanded access to lands in northeast British Columbia that offer considerable deep and multi-zone conventional development potential. Canetic currently expects to move forward with an aggressive drilling program in the fourth quarter of 2007 targeting multi zone horizons including the Dunlevy, Halfway, Doig and Baldonnel. Canetic expects this area to yield strong drilling programs which will comprise a significant portion of Canetic's ongoing conventional natural gas development activity for years to come. Tight and shallow gas opportunities remain a key element of Canetic's longer term development plans due to their generally long-life, low risk nature and a relatively low associated cost of production. Looking ahead, Canetic has identified a significant inventory of shallow gas prospects which will provide considerable development opportunity over the next few years with emphasis placed on drilling into favourable and more stabilized natural gas pricing environments. Historically, Canetic has spent limited capital on development of its shallow gas assets. With the addition of the Hoadley properties in Central Alberta, which were acquired as part of the Samson acquisition, Canetic added a significant inventory of drilling opportunities providing the critical mass necessary to drive efficient programs. As a result, Canetic is now moving forward plans for the development of its considerable shallow gas resources. In the near term, Canetic has plans to proceed with its previously deferred 20 well program in the Countess - Leckie area in expectation of a more stabilized natural gas price environment. Going forward, Canetic has identified an abundance of new shallow gas drilling and downspacing opportunities, particularly in the Countess - Leckie block of southern Alberta for Medicine Hat and Milk River related production. Canetic could expand its current inventory of drilling opportunities by as much as 250 to 600 additional drilling locations should it elect to pursue potential downspacing from current plans of eight wells per section to 12 or 16 wells per section, as some competitors have done. In the Hoadley area, Canetic has identified numerous opportunities targeting the Edmonton sands with downspacing potential of five to eight wells per section. In the longer term, Canetic will develop these opportunities. Coalbed Methane production is expected to provide further long-term growth potential as Canetic begins development of its Mannville play in Corbett Creek and North Central Alberta as well as further development of its coalbed methane resources in Wyoming's Powder River Basin at Big Bend and Coal Gulch. Further potential may exist in respect of Horseshoe Canyon and Ardley coals in Southern Alberta on lands recently acquired from Samson. To date, Canetic has participated in several non-operated Mannville drilling opportunities in the Corbett Creek area and has identified several operated and further non-operated drilling opportunities on its growing land base in the area. Over the near term, Canetic will continue to participate with partners in Corbett Creek with the drilling of 9 to 12 multi-leg Mannville horizontal wells where Canetic has an approximate 40 percent working interest. Up to 3 billion cubic feet per section is recoverable in this area and Canetic holds positions in twenty four undeveloped sections. In addition, Canetic has further plans to drill two operated multi lateral wells and one water disposal well in the Corbett Creek area in 2007. In Wyoming, Canetic will complete phase 1 of a 50 well program in the Big Bend area which is expected to be followed by a period of dewatering of the coals. Analogies from offsetting production in the area indicate dewatering periods of four to twelve months are required to achieve commercial production of natural gas. Once commercial production is established Canetic plans to proceed with phases two and three of the drilling program. Over the longer term, Canetic will continue to pursue economic development opportunities associated with its growing exposure to Mannville, Horseshoe Canyon and Ardley coals in and around the Corbett Creek, Horsehoe Canyon, Willesden Green, and Gilby areas. Plans also remain in place to proceed with the further development of its Big Bend and Coal Gulch coalbed methane plays in Wyoming. FINANCIAL RESULTS For the year ended December 31, 2006 Canetic achieved record financial and operating results. Significantly increased production volumes combined with a higher combined average realized price, after hedging, contributed to the strong performance. The production increases resulted primarily from the addition of production volumes associated with the StarPoint acquisition as well as four months of production attributable to the properties acquired from Samson. Further discussion on Canetic's 2006 financial and operating performance can be found in the Management's Discussion and Analysis contained in this news release or available on SEDAR at http://www.sedar.com/. TAXABILITY OF UNITHOLDER DISTRIBUTIONS On February 28, 2007, Canetic issued 2006 distribution tax information for Canetic unitholders and to former unitholders of Acclaim and StarPoint resident in Canada. Further, on January 15, 2007, and March 6, 2007, Canetic issued separate news releases outlining relevant tax information with respect to distributions received by United States resident unitholders. For information on the taxability of distributions paid or payable for 2006 please refer to information contained in the above noted news releases available on Canetic's website at http://www.canetictrust.com/ or on SEDAR as http://www.sedar.com/. CANETIC RESOURCES ANNUAL GENERAL MEETING The Annual General Meeting of Unitholders of Canetic Resources Trust will be held on Wednesday, May 9, 2007 at 3:00 p.m. local time at the Hyatt Regency Hotel, 700 Centre Street S.E. Calgary, Alberta. All Unitholders and interested parties are invited to attend. RESERVES SUMMARY 2006 reserve highlights were dominated by successful development activities and continued positive technical revisions which are indicative of our quality reserve and opportunity base. Canetic continues to provide consistent and stable reserve growth with a three (3) year average proved plus probable F&D cost of $13.50 per boe, excluding future development capital and a three (3) year proved plus probable FD&A cost of $16.59 per boe, excluding future development capital. HIGHLIGHTS FOR 2006 INCLUDE: - Canetic's development program replaced 96 percent of its 2006 production on a proved producing basis at an F&D cost of $13.49 per boe, excluding future development capital and $14.72 per boe including future development capital. These results included positive technical revisions of 6.7 percent which is a reflection of the performance and quality of the reserve base. - Canetic's internal development program delivered 20.8 million boe of proved plus probable reserves, replacing 76 percent of production at an F&D cost of $16.93 per boe, excluding future development capital and $19.21 per boe including future development capital. Canetic achieved this result spending 47 percent of its Funds from Operations. These reserve additions were realized from various play types including Corbett Creek CBM development, Acheson uphole oil and gas development, Willesden Green gas development and South Eastern Saskatchewan infill and step-out drilling. - Canetic's total capital program including acquisitions replaced 237 percent of its 2006 production on a proved plus probable basis at an FD&A cost of $20.41 per boe, excluding future development capital and $23.30 per boe including future development capital. - Canetic's reserves as at December 31, 2006 totaled 192.2 million boe of total proved reserves and 275.6 million boe of proved plus probable reserves. This represents an increase of 12% and 16% respectively to reserves reported as at December 31, 2005. - Canetic's Reserve Life Index increased by 1.0 years to 9.7 years on a proved plus probable basis. Reserves included herein are stated on a company interest basis (before royalty burdens and including royalty interests) unless noted otherwise. All reserves information has been prepared in accordance with National Instrument ("NI") 51-101. This summary contains several cautionary statements that are specifically required by NI 51-101. In addition to the detailed information disclosed in this news release more detailed information on a net interest basis) after royalty burdens and including royalty interests) and on a gross interest basis (before royalty burdens and excluding royalty interests) will be included in Canetic's Annual Information Form ("AIF") which will be filed on SEDAR at http://www.sedar.com/ on or before March 30, 2007. Canetic's oil and gas reserves as at December 31, 2006 were evaluated by the independent engineering firms of GLJ Petroleum Consultants Ltd.("GLJ") and Sproule Associates Limited ("Sproule") in compliance with National Instrument 51-101. Under NI 51-101 guidelines, proved reserves are defined as those reserves that have at least a 90 percent probability that the quantities actually recovered will equal or exceed the estimates. Proved plus probable reserves are defined as those reserves that have at least a 50 percent probability of being exceeded at the reported level. They are the best estimate, or the most realistic case. It is equally likely that the actual reserves will be higher or lower than the estimate. It should not be assumed that the estimates of net present values of reserves presented in the tables below represent the fair market value of the reserves. All evaluations of future net production revenues set forth in the tables are stated after the provision for income taxes and exclude abandonment costs on wells and facilities where reserves are not assigned or associated general and administrative costs. This information has been prepared on the basis that Canetic will not pay cash income taxes in Canada in the future due to Canetic's current structure as an income trust and Canadian tax laws currently in effect. The Canadian federal government has announced a proposal designed to effectively tax income trusts such as Canetic at the same level as Canadian corporations, effective for the 2011 tax year. Such proposal has not yet been approved or put in force and it is uncertain as what form, if any, changes in Canadian income tax laws will take as a result of such proposal. Any changes in Canadian income tax laws that may result from such proposal could adversely affect the estimated future net revenues associated with Canetic's oil and gas reserves. For additional information, investors should refer to disclosure that will be contained in Canetic's Annual Information Form. Summary of Oil and Gas Reserves - Company Interest(1) Forecasted Prices and Costs Light and Natural Medium Gas Natural Crude Oil Heavy Oil Liquids Gas BOE ------------------------------------------------------ (mbbls) (mbbls) (mbbls) (mmcf) (mboe) Proved Developed producing 68,315 15,417 372,979 11,173 157,068 Developed non- producing 2,958 1,542 29,387 937 10,336 Undeveloped 11,662 1,527 63,979 922 24,775 ------------------------------------------------------------------------- Total proved 82,936 18,487 466,345 13,032 192,179 Probable 34,392 5,796 228,173 5,247 83,464 ------------------------------------------------------------------------- Total proved plus probable 117,327 24,283 694,518 18,279 275,642 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Note: May not add due to rounding (1) "Company Interest" means in relation to Canetic's interest in reserves, its "Corporation gross reserves", which are Canetic's working interest (operating and non-operating) share before deduction of royalties, plus Canetic's royalty interests in reserves. "Company Interest" reserves is not a measure defined in NI 51- and does not have a standardized meaning under NI 51-101. Accordingly, Canetic's Company Interest reserves may not be comparable to reserves presented or disclosed by other issuers. Canetic's reserves statement, which includes complete disclosure of its oil and gas reserves and other oil and gas information in accordance with NI 51-101 will be contained within its Annual Information Form which will be available on our website at http://www.canetictrust.com/ and on our SEDAR profile at http://www.sedar.com/. Additionally, the Annual Information form is part of our Form 40-F that will be filed with the SEC and available on http://www.sec.gov/. Before Income Tax Net Present Value of Reserves Forecasted Prices and Costs Undis- Discounted Discounted Discounted Discounted counted at 5% at 10% at 15% at 20% ------------------------------------------------------------------------- ($M) ($M) ($M) ($M) ($M) Proved ------------------------------------------------------------------------- Developed producing 4,662,073 3,515,069 2,892,706 2,493,224 2,210,722 Developed non- producing 285,053 212,000 170,885 143,402 123,449 Undeveloped 475,959 329,570 237,133 174,204 129,143 ------------------------------------------------------------------------- Total proved 5,423,084 4,056,639 3,300,724 2,810,830 2,463,314 Probable 2,494,025 1,411,019 949,810 701,204 546,933 ------------------------------------------------------------------------- Total proved plus probable 7,917,110 5,467,658 4,250,534 3,512,034 3,010,247 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Note: May not add due to rounding. Estimates of net present values do not represent fair market value. Pricing Assumptions Forecasted Prices and Costs The first six years of the GLJ/Sproule January 1, 2007 price forecast are presented below. These prices have been utilized in determining the reserves and cash flow forecasts above. Bank of Canada Average Crude Oil Natural Noon Crude Oil Edmonton Gas Exchange Year WTI Light AECO Rate ------------------------------------------------------------------------- ($US/bbl) ($CDN/bbl) ($CDN/ ($US/ MMBtu) $CDN) 2007 63.87 72.17 7.46 0.8700 2008 64.41 72.81 8.02 0.8700 2009 60.21 68.00 7.74 0.8700 2010 57.68 65.03 7.67 0.8700 2011 56.10 63.20 7.79 0.8700 2012 56.90 64.07 8.00 0.8700 ------------------------------------------------------------------------- Summary of Oil and Gas Reserves - Company Interest(1) Constant Prices and Costs Light and Natural Medium Gas Natural Crude Oil Heavy Oil Liquids Gas BOE ------------------------------------------------------- (mbbls) (mbbls) (mbbls) (mmcf) (mboe) Proved Developed producing 69,781 15,589 368,661 11,220 158,033 Developed non- producing 2,863 1,575 28,888 922 10,175 Undeveloped 11,827 1,550 63,663 930 24,917 ------------------------------------------------------------------------- Total proved 84,470 18,715 461,212 13,072 193,126 Probable 35,037 5,922 224,245 5,238 83,571 ------------------------------------------------------------------------- Total proved plus probable 119,507 24,637 685,457 18,310 276,697 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Note: May not add due to rounding (1) "Company Interest" means in relation to Canetic's interest in reserves, its "Corporation gross reserves", which are Canetic's working interest (operating and non-operating) share before deduction of royalties, plus Canetic's royalty interests in reserves. "Company Interest" reserves is not a measure defined in NI 51- and does not have a standardized meaning under NI 51-101. Accordingly, Canetic's Company Interest reserves may not be comparable to reserves presented or disclosed by other issuers. Canetic's reserves statement, which includes complete disclosure of its oil and gas reserves and other oil and gas information in accordance with NI 51-101 will be contained within its Annual Information Form which will be available on our website at http://www.canetictrust.com/ and on our SEDAR profile at http://www.sedar.com/. Additionally, the Annual Information form is part of our Form 40-F that will be filed with the SEC and available on http://www.sec.gov/. Before Income Tax Net Present Value of Reserves Constant Prices and Costs Undis- Discounted Discounted Discounted Discounted counted at 5% at 10% at 15% at 20% ------------------------------------------------------------------------- ($M) ($M) ($M) ($M) ($M) Proved Developed producing 4,244,546 3,226,467 2,653,161 2,279,373 2,013,531 Developed non- producing 250,679 190,227 153,731 128,771 110,518 Undeveloped 425,003 288,516 202,373 143,887 102,162 ------------------------------------------------------------------------- Total proved 4,920,229 3,705,209 3,009,265 2,552,031 2,226,211 Probable 2,051,904 1,210,674 828,942 615,367 480,060 ------------------------------------------------------------------------- Total proved plus probable 6,972,133 4,915,884 3,838,207 3,167,398 2,706,271 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Note: May not add due to rounding Pricing Assumptions Constant Prices and Costs Natural Crude Oil Edmonton Gas Exchange Year WTI Light AECO Rate ------------------------------------------------------------------------- ($US/bbl) ($CDN/bbl) ($CDN/ ($US/ MMBtu) $CDN) (Year End) 2007 60.95 67.59 6.10 0.8580 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NET ASSET VALUE The following net asset value ("NAV") calculation utilizes what is generally referred to as the "produce-out" net present value of Canetic's oil and natural gas reserves based on forecast prices as provided by the independent engineering firms. This calculation can vary significantly depending on the oil and natural gas price assumptions used. It does not take into account the development and growth in additional reserves in its existing properties beyond those included in the 2006 yearend report. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that will vary over time. Net Asset Value - Discounted at 5 and 10 percent Jan 1, 2007 Jan 1, 2007 Jan 1, 2007 Constant Forecasted Strip Pricing Prices Pricing(e) 5% 10% 5% 10% 10% ------------------------ ------------------ ------------------ ---------- $Millions Proved Plus Probable(a) 4,915.9 3,838.2 5,467.7 4,250.5 4,920.7 Undeveloped Lands + Seismic(b) 248.3 248.3 248.3 248.3 248.3 Debentures and Long-term Debt, net of Working Capital(c) (1,577.3) (1,577.3) (1,577.3) (1,577.3) (1,577.3) ------------------------ ------------------ ------------------ ---------- Net Asset Value 3,586.9 2,509.2 4,138.6 2,921.5 3,591.6 Units Outstanding (000's)(d) 225,796 225,796 225,796 225,796 225,796 NAV/Unit 15.89 11.11 18.33 12.94 15.91 ------------------------ ------------------ ------------------ ---------- (a) As evaluated by GLJ and Sproule. (b) Internal Estimate. (c) Excludes commodity and foreign currency contracts. (d) Represents total trust units outstanding and trust units issuable for exchangeable shares. (e) Strip Pricing at February 28, 2007 In the absence of reserve additions by the Trust, the NAV per unit will decline as the reserves are produced out. The cash flow generated by the production relates directly to the cash distributions paid to unitholders. Canetic works continuously to add value, improve profitability and increase reserves to enhance the Trust's NAV. 2006 Finding and Development (F&D), Net Acquisition, and Finding, Development and Net Acquisition Costs (FD&A) 2006 ------------------------------------ Change to Company Capital Interest Reserve Expenditures Reserves Costs ------------------------------------------------------------------------- ($thousands) (mboe) ($/boe) Total Proven F&D Including change in FDC 385,212 20,016 19.25 Excluding change in FDC 351,288 20,016 17.55 ------------------------------------------------------------------------- Including change in FDC 1,434,405 47,304 30.32 Excluding change in FDC 1,315,041 47,304 27.80 Proven Plus Probable F&D Including change in FDC 398,669 20,752 19.21 Excluding change in FDC 351,288 20,752 16.93 FD&A Including change in FDC 1,500,942 64,419 23.30 Excluding change in FDC 1,315,041 64,419 20.41 3 Year Average ------------------------------------ Change to Company Capital Interest Reserve Expenditures Reserves Costs ------------------------------------------------------------------------- ($thousands) (mboe) ($/boe) Total Proven F&D Including change in FDC 685,977 41,165 16.66 Excluding change in FDC 615,279 41,165 14.95 ------------------------------------------------------------------------- Including change in FDC 2,208,182 94,279 23.42 Excluding change in FDC 2,022,304 94,279 21.45 Proven Plus Probable F&D Including change in FDC 728,723 45,592 15.98 Excluding change in FDC 615,279 45,592 13.50 FD&A Including change in FDC 2,320,955 121,887 19.04 Excluding change in FDC 2,022,304 121,887 16.59 RESERVE RECONCILIATION Reconciliation of Company Interest(1) Reserves by Principal Product Type Forecast Prices and Costs Natural Light and Heavy Natural Gas Medium Crude Oil Gas Liquids BOE ------------------------------------------------------------------------- (mbbl) (mbbl) (mmcf) (mbbl) (mboe) Proved Producing Opening Balance 66,797 16,564 268,785 8,707 136,866 Acquisitions 850 - 110,484 2,399 21,662 Dispositions - - (1,205) (132) (332) Discoveries 9 - 840 74 224 Extentions 1,479 270 24,405 1,344 7,160 Infill Drilling 3,205 887 8,444 111 5,610 Improved Recovery 1,264 613 8,615 398 3,711 Economic Factors 100 25 403 13 205 Technical Revisions 5,792 (434) 20,209 396 9,121 Production (11,180) (2,507) (68,001) (2,138) (27,159) ------------------------------------------------------------------------- Closing Balance 68,315 15,417 372,979 11,173 157,068 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total Proved Opening Balance 82,527 19,852 355,599 10,388 172,034 Acquisitions 1,081 - 142,305 2,822 27,620 Dispositions - - (1,205) (132) (332) Discoveries 347 - 1,094 74 604 Extentions 1,502 336 22,362 1,115 6,680 Infill Drilling 2,634 769 6,721 70 4,594 Improved Recovery - 2,533 6,867 257 3,935 Economic Factors 124 30 533 16 258 Technical Revisions 5,901 (2,526) 70 560 3,946 Production (11,180) (2,507) (68,001) (2,138) (27,159) ------------------------------------------------------------------------- Closing Balance 82,936 18,487 466,345 13,032 192,179 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Proved Plus Probable Opening Balance 116,071 26,354 491,494 14,041 238,382 Acquisitions 1,627 - 228,120 4,415 44,062 Dispositions - - (1,432) (156) (395) Discoveries 417 - 1,271 85 715 Extentions 1,838 700 33,539 1,428 9,555 Infill Drilling 3,511 516 8,387 132 5,557 Improved Recovery 1,872 951 7,959 309 4,458 Economic Factors 174 40 737 21 358 Technical Revisions 2,998 (1,772) (7,556) 142 110 Production (11,180) (2,507) (68,001) (2,138) (27,159) ------------------------------------------------------------------------- Closing Balance 117,327 24,283 694,518 18,279 275,642 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Note: May not add due to rounding (1) "Company Interest" means in relation to Canetic's interest in reserves, its "Corporation gross reserves", which are Canetic's working interest (operating and non-operating) share before deduction of royalties, plus Canetic's royalty interests in reserves. Royalty interest volumes are as follows: PP 1,079 mboe; TP 1,194 mboe; and P+P 1,631 mboe. Canetic's Land Position As at December 31, Developed Undeveloped 2006 (acres) Gross Net Gross Net ------------------------------------------------------------------------- Alberta 1,666,860 762,821 1,050,353 584,843 British Columbia 233,024 101,675 262,088 148,144 Saskatchewan 263,398 149,210 273,895 145,798 Manitoba 36,510 13,143 7,943 2,627 Wyoming 9,652 3,821 26,785 14,962 Montana 1,520 937 2,275 811 North Dakota 7,506 3,731 31,148 24,851 ------------------------------------------------------------------------- Total 2,218,470 1,035,338 1,654,487 922,036 ------------------------------------------------------------------------- ------------------------------------------------------------------------- As at December 31, Total 2006 (acres) Gross Net --------------------------------------------------- Alberta 2,717,213 1,347,665 British Columbia 495,112 249,819 Saskatchewan 537,293 295,008 Manitoba 44,453 15,770 Wyoming 36,436 18,783 Montana 3,796 1,748 North Dakota 38,654 28,582 --------------------------------------------------- Total 3,872,957 1,957,375 --------------------------------------------------- --------------------------------------------------- OUTLOOK Our long-term strategy has always been to build a significant asset base and a team of people that could generate long-term value for our stakeholders. We have pursued our objectives aggressively over the past four years and today, with the merger of Acclaim and StarPoint and the recent addition of the Samson assets we believe we have created a trust with substantial financial strength and a great asset and opportunity base capable of delivering that value. With the growth of Canetic and expansion of the opportunity base, exploitation has become a significant component of our business strategy. In 2006, we reported solid results from Canetic's development program delivering what we believe will be top quartile finding, development and acquisition costs and strong production efficiencies. In 2007, we will continue to actively exploit our asset base. We have budgeted approximately $350 million for development related expenditures in 2007. More than 80 percent of that amount will be allocated to drilling and new completion or optimization related activity directly impacting production and reserves performance. The 2007 operated drilling program is weighted modestly to oil prone plays with substantial development targeting many of the former StarPoint properties which performed very strongly throughout 2006. We continue to target new completions in areas such as Acheson, where we have had significant success identifying and exploiting multiple zones in the large inventory of well bores we acquired through the ChevronTexaco transaction. In the early part of 2007, our focus has been to tie in production from our successful fourth quarter 2006 drilling program, while also pursuing an aggressive drilling and optimization program on our producing properties. During the fourth quarter of 2006, Canetic continued its strong performance of efficiently adding reserves and production. We exited the year with approximately 1,400 boe per day behind pipe, led by successful Q4 programs in the Acheson area, Southern and Northwest Alberta. Following on the strength of the 2006 program and depth of opportunities Canetic kicked off the largest first quarter development program in its history in 2007. Canetic operated five to seven drilling rigs throughout the first quarter of 2007 and to date we have drilled 37 wells. Canetic's focus in 2007 will be on gas development in the Willesden Green area where our new 20 mmcf per day gas plant is now on stream, Northeast BC where we are excited about the prospect of a Slave Point test and follow-ups, and continued programs in Border Plains and our Southern business unit. In addition, we have an aggressive drilling, new completion and facility de-bottlenecking program underway in the Acheson area. This program is in follow-up to a large and successful fourth quarter program, where we added incremental reserves and production. We anticipate drilling a total of approximately 50 operated wells by the end of the first quarter of 2007, depending on seasonal impacts, such as the start of break-up. Results to date from both our drilling and new completion and optimization programs are meeting our expectations, and in areas such as Acheson, we continue to be excited by both the results we are seeing and the inventory that we have in front of us. For the year, we continue to target annual average production of approximately 75,500 to 80,000 boe per day. Given current commodity prices, this production target should result in a payout ration of 65 to 75 percent at current distribution levels of $0.19 per unit per month. The balance of cash flow available should be sufficient to finance the majority of our capital expenditure program. In recent years the oil and natural gas industry has experienced significant increases in costs including labour, both in the field and head office, and all services, including power, pipe and drilling. We believe this trend may change following the Canadian Government's announcement on the taxation of trusts but more importantly in response to the recent weakness and volatility in commodity prices, which is expected to result in cutbacks in overall industry drilling activity. We currently intend to hold operating costs largely flat in 2007 at approximately $9.00 per boe and G&A costs at between $1.30 and $1.40 per boe. As we look forward, we intend to continue executing our business strategy, which involves a balanced approach to acquisitions and effective asset exploitation and management programs. Having completed over $4 billion in acquisitions since our inception, Canetic has accumulated an extensive inventory of development opportunities, including nearly one million net undeveloped acres. As a result we do not feel it is necessary to complete any significant acquisitions in the near term though we will continue to monitor both asset and corporate acquisition opportunities which may arise as a result of the changing environment for trusts in Canada, including potential consolidation opportunities within the sector, unconventional opportunities, or expansion opportunities outside of Canada, particularly in the U.S. In the meantime, Canetic will continue to focus on the development and exploitation of its significant resource base. We look forward to an exciting and successful 2007. Jack C. Lee J. Paul Charron Chairman President & Chief Executive Officer March 8, 2006 MANAGEMENT'S DISCUSSION AND ANALYSIS This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the Consolidated Financial Statements and Notes thereto of Canetic Resources Trust ("Canetic" or the "Trust") for the year ended December 31, 2006. This MD&A is dated March 8, 2007. The Consolidated Financial Statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). This discussion provides Management's analysis of Canetic's historical financial and operating results and provides estimates of Canetic's future financial and operating performance based on information currently available. Actual results will vary from estimates and the variances may be material. You should be aware that historical results are not necessarily indicative of future performance. Readers are referred to the legal advisories regarding forward-looking information contained in this news release. FEDERAL GOVERNMENT'S PROPOSED TAXATION OF INCOME TRUSTS On October 31, 2006, the Federal Minister of Finance announced a Tax Fairness Plan for Canadians. A principal component of the government's plan involved changing the taxation rules governing publicly-listed income trusts and other public "flow-through entities". The creation of this new tax regime for publicly listed flow-through entities reflects a fundamental shift in the tax system which will significantly impact the strategic direction of the income trust model. Existing income trusts, such as Canetic, would be subject to the new rules starting in 2011. Under the proposed rules, distributions paid or payable to unitholders would no longer be deductible at the Trust level, and would be subject to the new tax at a rate of 31.5 percent. The effect would essentially tax income in the trust structure in a similar manner and at similar rates to public corporations. It is expected that this tax would apply to all of the Trust's income in excess of available tax shelter. At the investor level, distributions will be considered taxable dividends and eligible for the dividend tax credit mechanism. As such, the after-tax yield to taxable Canadian resident investors in 2011 will remain approximately the same. The after-tax distribution yield for tax-deferred investors will be reduced significantly and be dependent upon the tax shelter available in the Trust. On December 15, 2006, the Federal Government announced safe harbour guidance with respect to "normal growth" for flow-through entities. Existing income trusts, are provided an exemption from the new tax until 2011, provided these guidelines are respected and the Trust does not experience "undue expansion" in the interim period. The guidelines are measured by reference to a trust's market capitalization on October 31, 2006 and allow cumulative increases in equity capital of 40 percent in 2007 and 20 percent each of the subsequent three years providing for a doubling of equity capital to the end of 2010. Growth in excess of these limits will be considered "undue expansion" and subject the Trust to the new tax regime prior to the end of the four year grace period. We do not believe these guidelines will materially limit our near-term growth opportunities as the Trust could issue approximately $4.5 billion in additional equity under these guidelines prior to the end of 2010. On December 21, 2006, the Government released detailed draft legislation with respect to the new tax proposals and has requested comments from interested stakeholders. Recently, these tax proposals have been the subject of special hearings before the House of Commons Standing Committee on Finance. The Committee has subsequently released their findings and has recommended substantial changes to the legislation as currently proposed including a reduction of the rate from 31.5% to 10% and an extension of the grace period for existing trusts from 4 years to 10 years. It is unclear what effect, if any, these recommendations will have on the final form of the legislation to be tabled in the House of Commons. We are also presently unable to predict when these proposals may become enacted into law. These proposals have had significant implications for the Trust and our investors. Shortly after the announcement of the new rules, the valuation of Canetic and other trusts was significantly reduced to reflect the loss of our tax advantage. In 2011, when the rules are effective, distributions will be reduced to reflect the tax. Although most taxable Canadian investors should be indifferent, the reduced distributions will be a sunk cost to investors such as pension funds, registered retirement savings plans and non-resident investors who may not be able to utilize the dividend tax credit. Canetic is currently working with the Canadian Association of Income Funds (CAIF) and the Coalition of Canadian Energy Trusts to effect change to the legislation as proposed. A main focus is ensuring that the facts related to income trusts are understood and that all data is made available by the Minister to the investing public and other members of Parliament. It is premature at this time to determine what Canetic's course of action will be as 2011 approaches. Until the legislation is enacted, the rules fully understood and all options have been assessed, we are not in a position to commit to any strategic changes. In the short-term, we are focused on our business and executing on our capital program. SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION The results of operations in 2006 in comparison to 2005 and 2004 are outlined under the section, "Results of Operations". A) ANNUAL FINANCIAL INFORMATION ($000s except per unit amounts) Year ended December 31 2006 2005 2004 ------------------------------------------------------------------------- Petroleum and natural gas sales 1,407,754 800,249 521,514 ------------------------------------------------------------------------- Funds flow from operations 750,146 360,475 233,473 Per unit - basic(1)(2) 3.64 4.04 3.13 Per unit - diluted(1)(2) 3.57 3.98 3.09 ------------------------------------------------------------------------- Net earnings 223,101 65,848 31,263 Per unit - basic(1)(2) 1.08 0.74 0.42 Per unit - diluted(1)(2) 1.06 0.73 0.42 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Balance Sheet Information Total distributions 583,528 208,477 176,741 Distributions per unit 2.76 2.34 2.34 Total assets 5,830,976 1,571,097 1,559,201 Working capital deficiency 29,794 45,630 27,800 Long-term debt 1,289,678 309,146 283,845 Unitholders' equity 3,506,915 764,583 780,980 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average trust units outstanding (thousands) 206,081 89,331 74,650 Trust units outstanding at year end (thousands) 225,796 91,583 86,313 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) When calculating the weighted average number of units at the end of a quarter, all units outstanding from the previous quarter are deemed to be outstanding for the entire period, whereas in the year to date calculation those units are weighted according to the date of issue. Consequently, the addition of the quarterly per unit results, will not add to the annual earnings per unit. (2) All units of Acclaim up to the merger on January 5, 2006, have been restated using the exchange ratio of 0.8333 of a Canetic trust unit for each Acclaim trust unit. ($000s except per unit amounts) 2006 ------------------------------------------------------------------------- Earnings Information Dec. 31 Sept. 30 Jun. 30 Mar. 31 ------------------------------------------------------------------------- Production Oil and NGLs (bbl/d) 43,402 44,239 42,391 43,388 Natural gas (mmcf/d) 221.2 181.4 166.0 176.1 Boe/d 80,276 74,475 70,061 72,737 Petroleum and natural gas sales 347,701 368,502 341,205 350,346 Funds flow from operations 170,082 200,268 185,053 194,741 Per unit - basic(1)(2) 0.76 0.95 0.92 0.97 Per unit - diluted(1)(2) 0.75 0.93 0.89 0.96 Net earnings (loss) (21,632) 102,663 82,875 59,195 Per unit - basic(1)(2) (0.10) 0.49 0.41 0.29 Per unit - diluted(1)(2) (0.10) 0.48 0.40 0.29 Distributions declared Per unit 0.69 0.69 0.69 0.69 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 2005 ------------------------------------------------------------------------- Earnings Information Dec. 31 Sept. 30 Jun. 30 Mar. 31 ------------------------------------------------------------------------- Production Oil and NGLs (bbl/d) 21,915 22,323 23,249 24,741 Natural gas (mmcf/d) 105.8 107.4 100.6 104.1 Boe/d 39,541 40,227 40,017 42,089 Petroleum and natural gas sales 234,098 217,449 177,501 171,201 Funds flow from operations 106,477 92,679 80,516 80,803 Per unit - basic(1)(2) 1.16 1.03 0.92 0.92 Per unit - diluted(1)(2) 1.14 1.02 0.91 0.91 Net earnings (loss) 48,662 6,538 27,473 (16,825) Per unit - basic(1)(2) 0.53 0.07 0.31 (0.19) Per unit - diluted(1)(2) 0.53 0.07 0.31 (0.19) Distributions declared Per unit 0.5850 0.5850 0.5850 0.5850 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) When calculating the weighted average number of units at the end of a quarter, all units outstanding from the previous quarter are deemed to be outstanding for the entire period, whereas in the year to date calculation those units are weighted according to the date of issue. Consequently, the addition of the quarterly per unit results, will not add to the annual earnings per unit. (2) All units of Acclaim up to the merger on January 5, 2006, have been restated using the exchange ratio of 0.8333 of a Canetic trust unit for each Acclaim trust unit. Production volumes averaged 80,276 boe/d during the three months ended December 31, 2006, an increase of 8 percent from 74,475 boe/d reported for the third quarter of 2006. Crude oil prices weakened with the West Texas Intermediate ("WTI") price averaging US$60.22 per barrel in the fourth quarter, as compared to US$70.55 per barrel in the third quarter of 2006. The AECO Daily Spot price for natural gas however, averaged $6.69/mcf in the fourth quarter as compared to $5.55/mcf during the third quarter of 2006. The results of operations during the fourth quarter include the Samson acquisition from the date of closing, August 31, 2006. The transaction with StarPoint was accounted for as a purchase of StarPoint by Acclaim. Accordingly, the financial and operating results for the year ended December 31, 2006, include those of the StarPoint assets from the date of acquisition, January 5, 2006. Comparative results are those of Acclaim only. Quarter over quarter petroleum and natural gas sales are influenced by increases in production volumes and changes in commodity prices. Although commodity prices have increased significantly since the fourth quarter of 2004, some of the gains in oil prices were taken back during this quarter. In combination with increased production volumes from the ChevronTexaco property acquisition in June 2004, the StarPoint merger in January 2006 and the most recent acquisition which closed August 31, 2006, petroleum and natural gas sales have increased. The variation of net earnings, quarter over quarter, is primarily a result of changes in depletion rates, the provision for future income taxes and accounting for unrealized gains and losses on financial derivatives. Net earnings in the fourth quarter reflects a $95.4 million unrealized hedging gain based on the mark-to-market price of crude oil and natural gas at December 31, 2006 RESULTS OF OPERATIONS PRODUCTION Production volumes averaged 74,409 boe/d in 2006, compared to 40,460 boe/d in 2005 (2004 - 33,421 boe/d). The 84 percent increase in average 2006 production results from the StarPoint and Samson acquisitions which closed on January 5 and August 31, 2006 respectively. At the time of acquisition, the StarPoint assets were producing approximately 35,000 boe/d and the Samson assets approximately 13,500 boe/d. Production By Product 2006 2005 2004 ------------------------------------------------------------------------- Natural gas (mmcf/d) 186.3 104.5 94.2 Crude oil (bbl/d) 37,500 17,779 13,731 Natural gas liquids (bbl/d) 5,858 5,267 3,988 Barrels of oil equivalent (boe/d) 74,409 40,460 33,421 ------------------------------------------------------------------------- Percentage natural gas 42% 43% 47% Percentage crude oil and natural gas liquids 58% 57% 53% ------------------------------------------------------------------------- ------------------------------------------------------------------------- Natural gas sales averaged 186.3 mmcf/d in 2006, 78 percent higher than the 104.5 mmcf/d reported for the same period in 2005 (2004 - 94.2 mmcf/d). Crude oil and NGLs production averaged 43,358 bbl/d, an increase of 88 percent from 23,046 bbl/d reported in the prior year (2004 - 17,719 bbl/d). Production By United Jurisdiction States B.C. Alberta Sask. Manitoba Total ------------------------------------------------------------------------- Natural gas (mmcf/d) 1.9 21.6 155.0 7.8 - 186.3 Crude oil (bbl/d) 268 201 19,073 16,765 1,193 37,500 Natural gas liquids (bbl/d) - 200 5,621 37 - 5,858 ------------------------------------------------------------------------- Total (boe/d) 585 4,001 50,527 18,102 1,193 74,409 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Percentage 0.8% 5.4% 67.9% 24.3% 1.6% 100.0% For the three months ended December 31, 2006, natural gas sales averaged 221.2 mmcf/d, 109 percent more than the 105.8 mmcf/d reported for the fourth quarter 2005. Crude oil and liquids production increased 98 percent to 43,402 bbl/d from 21,915 bbl/d reported for the same period a year earlier. Production volumes fluctuate day to day based on pipeline capacity restrictions, natural declines, inclement weather, down time due to normal repairs and maintenance and the timing of when new wells are brought on production. In 2006, our quarterly production volumes were impacted by unplanned turnarounds, tie-in delays and spring break-up. Fourth quarter production was affected by a planned September turnaround at Mitsue which extended into October and unseasonably cold weather in November and December which increased well down time. COMMODITY PRICES Benchmark Prices - (Annual Average) 2006 2005 2004 ------------------------------------------------------------------------- WTI Crude oil (US$/bbl) 66.25 56.56 41.40 NYMEX natural gas (US$/mcf) 7.07 8.55 6.14 AECO natural gas monthly index ($/mcf) 6.98 8.48 6.79 Canadian/U.S. Dollar Exchange Rate 0.8819 0.8253 0.7683 ------------------------------------------------------------------------- The price of West Texas Intermediate crude averaged US$66.25/bbl during 2006, up 17 percent from the average price of US$56.56/bbl for the same period in 2005. WTI during the fourth quarter decreased 6 percent from an average of US$70.55/bbl in the third quarter of 2006. West Texas Intermediate at Cushing, Oklahoma is the benchmark for North American crude oil prices. Canadian crude oil prices are determined by refiners' postings at major market hubs as Edmonton and Hardisty, Alberta. Canadian prices adjust WTI for the Canadian/U.S. exchange rate, transportation and quality differentials. NYMEX natural gas prices are referenced from Henry Hub, Louisiana. Western Canadian natural gas prices are referenced from AECO Hub in Alberta and are adjusted for heat content. Average Prices (before financial derivatives) 2006 2005 2004 ------------------------------------------------------------------------- Natural gas ($/mcf) 7.01 9.08 6.91 Crude oil ($/bbl) 60.61 57.78 46.44 Natural gas liquids ($/bbl) 47.84 40.44 34.18 ------------------------------------------------------------------------- For the year ended December 31, 2006, we received an average oil price of $60.61/bbl as compared to $57.78/bbl for the comparable period in 2005. Our average oil price during the quarter decreased 21 percent from an average of $67.27/bbl reported during the third quarter of 2006. High crude oil inventory levels across North America and pipeline apportionment problems in southeast Saskatchewan have caused Canetic's corporate average oil price differential to widen in relation to the benchmark NYMEX WTI futures contract over the past year. Our average natural gas price was $7.01/mcf for the year ended December 31, 2006 as compared to $9.08/mcf during the same period in 2005. The fourth quarter natural gas price averaged $6.90/mcf as compared to $6.21/mcf in the third quarter. The AECO Daily Index gas price averaged $6.43/mcf during 2006, down 26 percent from the average price of $8.73 for the same period in 2005. The AECO Daily Index price for the fourth quarter of 2006 was 21 percent higher than the third quarter 2006 price of $5.55/mcf. COMMODITY PRICE RISK MANAGEMENT The prices we receive for our petroleum and natural gas can fluctuate significantly due to supply and demand fundamentals which are influenced by weather patterns, the economic environment or political uncertainty. Our commodity price risk management program is designed to provide price protection on a portion of our future production in the event of an adverse commodity price movement, while retaining the opportunity to participate in favorable price movements. This practice allows us to generate stable cash flow for distributions and to ensure positive economic returns on capital development and acquisition activities. During 2006, we recorded a realized financial derivative loss of $8.5 million as compared to a loss of $80.2 million in 2005 (2004 - $39.4 million). The following commodity commitments have been put in place for 2007 and beyond as noted below: ------------------- ----------------------------------- ----------------- Commodity Contracts Annual Average ------------------- ----------------------------------- ----------------- Q1 Q2 Q3 Q4 Natural Gas 2007 2007 2007 2007 2007 2008 ------------------- ----------------------------------- ----------------- Fixed Price Volume (Gj/d) 5,000 50,000 50,000 20,163 31,250 - Fixed Price Average ($/Gj) $8.47 $7.32 $7.32 $7.51 $7.40 - Collar Volume (Gj/d) 100,000 80,000 80,000 86,667 86,667 22,500 Collar Floors $7.70 $6.74 $6.74 $6.92 $7.06 $7.00 Collar Caps $13.08 $9.62 $9.62 $10.74 $10.90 $11.23 Total Volume Hedged (Gj/d) 105,000 130,000 130,000 106,830 117,917 22,500 ------------------- ----------------------------------- ----------------- Q1 Q2 Q3 Q4 Crude Oil 2007 2007 2007 2007 2007 2008 ------------------- ----------------------------------- ----------------- Cdn Denominated Fixed Price Volume (bbl/d) 8,000 8,000 8,000 8,000 8,000 250 Cdn Denominated Fixed Price Average ($Cdn/bbl) $67.26 $67.26 $67.26 $67.26 $67.26 $72.20 US Denominated Fixed Price Volume (bbl/d) 1,500 1,500 1,500 1,500 1,500 - US Denominated Fixed Price Average ($US/bbl) $48.11 $48.11 $48.11 $48.11 $48.11 - Collar Volume (bbl/d) 6,000 6,000 6,000 6,000 6,000 5,000 Collar Floors ($US/bbl) $58.00 $58.00 $58.00 $58.00 $58.00 $63.00 Collar Caps ($US/bbl) $80.76 $80.76 $80.76 $80.76 $80.76 $83.23 Total Volume Hedged (bbl/d) 15,500 15,500 15,500 15,500 15,500 5,250 CURRENCY RISK MANAGEMENT The Canadian dollar averaged US$0.8819 during 2006 as compared to US$0.8261 for the same period last year. As the price of WTI crude oil is quoted in U.S. dollars, appreciation in the Canadian dollar reduces the average price received for our production. Canetic mitigates the impact of exchange rate fluctuations by either entering into foreign exchange contracts directly or executing some portion of our crude oil swaps in Canadian dollars. In 2006, Canetic had no foreign exchange contracts, but had entered into contracts for 6,000 bbl/d of its crude oil production using Canadian dollar denominated swaps. PETROLEUM AND NATURAL GAS SALES Revenue(1) ($000s ) 2006 2005 2004 ------------------------------------------------------------------------- Crude oil and natural gas liquids 931,884 454,124 283,292 Natural gas 475,870 346,125 238,222 ------------------------------------------------------------------------- Petroleum and natural gas sales 1,407,754 800,249 521,514 ------------------------------------------------------------------------- (1) Before financial derivative gains and losses. Crude oil and NGLs sales before derivative gains and losses increased 105 percent during the year to $931.9 million from $454.1 million in 2005 (2004 - $283.3 million). The increase is attributable to strong commodity prices throughout the year and the impact of increased production volumes associated with the Samson and StarPoint acquisitions. Average daily production of crude oil and NGLs increased to 43,358 bbl/d from 23,046 bbl/d in 2005. Natural gas sales increased 38 percent year over year from $346.1 million to $475.9 million. Natural gas prices in 2006 were 23 percent lower than those received in 2005, which negatively impacted revenue. Average daily sales of natural gas increased 78 percent to 186.3 mmcf/d in 2006 from 104.5 mmcf/d in 2005 primarily as a result of the volumes acquired from the acquisitions made during the year. For the three months ended December 31, 2006, petroleum and natural gas revenue totalled $347.7 million as compared to $234.1 million for the same period in 2005. The increase is attributable to higher production volumes. ROYALTIES Royalties ($000s) 2006 2005 2004 ------------------------------------------------------------------------- Royalties, net of ARTC 258,260 175,723 103,957 % of petroleum and natural gas revenue 18.3% 22.0% 19.9% $/boe $ 9.51 $ 11.90 $ 8.50 ------------------------------------------------------------------------- ------------------------------------------------------------------------- DATASOURCE: Canetic Resources Trust CONTACT: please see Canetic's website at http://www.canetictrust.com/ or contact Canetic investor relations by email at: or toll free telephone at 1-877-539-6300

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