growth evolution - crescent point energy€¦ · company in 2001, and through conversion to a trust...
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Growth & EvolutionCrescent Point Energy Trust • Annual Report 2007
Crescent Point’s business plan has remained consistent since 2001, the three key
elements of which are a strong balance sheet and effective risk management, a
defined acquisition strategy and the application of exploitation and development
methods to maximize potential from existing focus areas.
In 2007, the success of this strategy led to an 86 percent increase in net asset
value (“NAV”) per unit, an 85 percent increase in year end reserves, year end
production of 33,351 boe/d and a low risk development drilling inventory of
13 years.
Crescent Point’s exploitation strategy evolved in 2007 to include significant Crown
and freehold land acquisitions and step out drilling successes that significantly
expanded the size of the southeast Saskatchewan Bakken light oil resource play.
Crescent Point also evolved to assume a leadership role in its sector with the
implementation of corporate governance Bill 198. The Trust joined the Board
of Governors for the Canadian Association of Petroleum Producers (“CAPP”)
and played a prominent role in preparing industry responses to the federal
trust taxation legislation and to changes in the Alberta royalty system. The Trust
was also named Alberta’s Best Workplace for Benefits, Perks and Incentives as
awarded by AlbertaVenture Magazine.
With a proven management team, a strong balance sheet and a focused reserve
base, Crescent Point is well positioned for sustained growth in value over the
coming years.
Focusing On Our Evolution
01 Financial and Operating Highlights
02 President’s Letter to Unitholders
08 Operations
14 Reserves
17 Land Holdings
18 Risk Management & Hedging Strategy
19 Corporate Governance
20 Environment, Health & Safety
21 Management’s Discussion and Analysis
45 Management’s Responsibility for Financial Reporting
46 Auditors’ Report
47 Consolidated Financial Statements
50 Notes to Consolidated Financial Statements
IBC Corporate and Investor Information
TABLE OF CONTENTS
NOTICE OF ANNUAL GENERAL MEETINGThe Annual General Meeting of unitholders of Crescent Point Energy Trust will be held on Friday, May 30, 2008 at 10:00 a.m. in the Lecture
Theatre Room of The Metropolitan Conference Centre of Calgary, 333 – 4th Avenue SW, Calgary, Alberta. Unitholders are encouraged to
attend the meeting and those unable to do so are urged to complete, sign and return their form of proxy mailed with this report.
ORGANIZATION DEFINITION
Throughout the Annual Report, Crescent Point Energy Trust and its subsidiaries, predecessor companies and related entities are referred to as “Crescent Point”, or the “Trust”.
VOLUME REPORTING
Barrel of oil equivalent (“boe”) figures for the periods presented throughout this report are expressed at a conversion rate of six thousand cubic feet of natural gas to one barrel of crude oil. This conversion ratio approximates relative heating values, and is the generally accepted ratio used by Canadian oil and gas companies, oil and gas trusts and investment analysts.
Proven Track Record of Growth
NAV PER UNIT & ENTERPRISE VALUE
0
700
1,400
2,100
2,800
3,500
$0.00
$8.40
$16.80
$25.20
$33.60
$42.00
Enterprise ValueNAV per unit at 5 percent
Ente
rpri
se V
alue
($M
M)
NAV
per
uni
t ($
/uni
t)
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
$m
illio
ns
0
72
144
216
288
360
2003
2004
2005
2006
2007
(boe
/d)
0
5,000
10,000
15,000
20,000
25,000
30,000
2003
2004
2005
2006
2007
(pro
ved +
pro
bab
le)
mm
boe
0
36
72
108
144
180
CASh FLow GRowTh ($mm) PRodUCTIoN GRowTh (boe/d) RESERVES GRowTh (mmboe)
AR | 07 Crescent Point Energy Trust �
FINANCIAL AND OPERATING HIGHLIGHTS($000s except trust units, per trust unit and per boe amounts) 2007 2006 % Change
Financial
Cash flow from operations (1) 355,910 189,135 88
Per unit (1) (2) 3.51 2.98 18
Net income (loss)(3) (32,167) 68,947 (147)
Per unit (2) (3) (0.32) 1.05 (130)
Cash distributions 245,108 150,277 63
Per unit (2) 2.40 2.40 -
Payout ratio (%) (1) 69 79 (10)
Per unit (%) (1) (2) 68 81 (13)
Net debt (1) (4) 650,088 227,905 185
Capital acquisitions (net) (5) 1,068,406 507,929 110
Development capital expenditures 227,923 109,995 107
Weighted average trust units outstanding (mm)
Basic 100.7 61.5 64
Diluted 102.1 63.6 61
Operating
Average daily production
Crude oil and NGLs (bbls/d) 24,349 17,417 40
Natural gas (mcf/d) 22,610 19,833 14
Total (boe/d) 28,117 20,723 36
Average selling prices (6)
Crude oil and NGLs ($/bbl) 67.33 60.03 12
Natural gas ($/mcf) 6.52 6.33 3
Total ($/boe) 63.55 56.52 12
Netback ($/boe)
Oil and gas sales 63.55 56.52 12
Royalties (11.59) (11.90) (3)
Operating expenses (9.25) (9.18) 1
Transportation (1.73) (1.35) 28
Netback prior to realized financial instruments 40.98 34.09 20
Realized loss on financial instruments (0.96) (4.01) (76)
Netback 40.02 30.08 33
(1)Cashflowfromoperations,payoutratioandnetdebtaspresenteddonothaveanystandardizedmeaningprescribedbyGAAPand,therefore,maynotbe comparablewiththecalculationofsimilarmeasurespresentedbyotherentities.
(2) Theperunitamounts(withtheexceptionofperunitdistributions)aretheperunit–dilutedamounts.Thenetincomeandcashflowperunit–diluted amountsexcludethecashportionofunit-basedcompensation.
(3) NetincomefortheyearendedDecember31,2007was$73.3million,excludingunrealizedfinancialinstrumentlossesof$105.4million.
(4) Netdebtincludesworkingcapitalandlongterminvestments,butexcludestheriskmanagementliabilitiesandassets.
(5) Capitalacquisitionsrepresenttotalconsiderationforthetransactionsincludingbankdebtandworkingcapitalassumed.
(6) Theaveragesellingpricesreportedarebeforerealizedfinancialinstruments.
2003
2007wastheTrust’smostsuccessfulyeartodateandrepresentsasixthstraightyearofsolidyearoveryeargrowth inreserves,production,cashflowandnetassetvalue.
TheTrustincreaseditsnetassetvalue(“NAV”)perunitby 86percentandcorporateyearendreservesby85percent,grewitslowriskdevelopmentdrillinginventorytomorethan13years,establishedandconsolidatedadominantpositioninthelargestconventionallightoildiscoveryinwesternCanadainmorethan50years,andprovidedtoitsunitholdersatotalreturnof55percent,thehighestintheoilandgasincometrustsector.
2007alsomarkedseveralmilestonesintheevolutionoftheTrust.CrescentPoint’senterprisevaluevaultedto$3.5billionbyyearend2007from$1.5billionattheendof2006.Averageproductiongrewby36percentyearoveryear,exitingtheyearabovethe30,000boe/dthresholdforthefirsttimeat33,351boe/d.CrescentPoint’sannualcapitaldevelopmentbudgetexceeded$200millionandtheTrustacquiredmorethan$1billionofassets,principallyinthesoutheastSaskatchewanBakkenlightoilresourceplay.
Inthepastyear,CrescentPointassumedaleadershiproleintheindustryonseveralfronts.TheTrustbecameanindustryleaderintheimplementationofcorporategovernanceBill198.CrescentPointalsojoinedtheBoardofGovernorsfortheCanadianAssociationofPetroleumProducers(“CAPP”).Asaresultofthis,theTrustplayedaprominentroleinpreparingindustryresponsestothefederaltrusttaxationlegislationandtochangesintheAlbertaroyaltysystem.TheTrustwasalsonamedAlberta’sBestWorkplaceforBenefits,PerksandIncentivesasawardedbyAlbertaVentureMagazine.
Sinceinceptionasajuniorexplorationandproductioncompanyin2001,andthroughconversiontoatrustin2003,CrescentPoint’sbusinessplanhasremainedunchanged,withacommitmenttogrowthandsustainabilitybuiltonthecorefundamentalsofhighquality,largeresourceinplaceassets,astrongbalancesheet,andeffectiveriskmanagement.ThisbusinessapproachhasprovidedconsistentyearoveryeargrowthwithpredictableandsustainabledistributionswhilepositioningtheTrustfortremendouslongtermgrowthinvalue.
TrustestablishedthroughreorganizationofCrescentPointEnergyLtd.andTappitResourcesLtd.
PRESIDENT’SLETTERTOUNITHOLDERS
� Crescent Point Energy Trust AR | 07
5,999boe/dannouncedproductionQ3 �003
2004
In2007,theTrustfocuseditsacquisitions,explorationandexploitationeffortsontheBakkenlightoilresourceplayinsoutheastSaskatchewan,thesecondlargestconventionallightoilpooleverdiscoveredinwesternCanada.CrescentPointsecuredadominantpositionintheplaywiththe$628millionacquisitionofMissionOil&GasInc.(“Mission”)inFebruaryof2007.TheTrustaggressivelyconsolidateditspositionintheplaywiththefollowupacquisitionsofInnovaExplorationLtd.(“Innova”)for$400millioninOctoberandPilotEnergyLtd.(“Pilot”)for$76millioninJanuaryof2008.Duringthistimeperiod,theTrustgrewitsundevelopedBakkenlandholdingsbymorethan150percentfrom143netsectionswithMissionto363netsections,drilled88(60.0net)Bakkenhorizontalwellswitha100percentsuccessrate,andgrewitsBakkenproductiontomorethan12,000boe/d.
Overthepast12months,CrescentPointaggressivelypursuedastepoutdrillingexplorationprogramintheBakken,increasingestimatesofthepool’ssizefrom1.0billionbarrelsoforiginaloilinplace(“OOIP”)tomorethan4.0billionbarrels.TheTrust’sdevelopmentdrillinginventoryintheplayincreasedto1,050netlocations.WithcontinuingimprovementstothefracturestimulationtechnologyutilizedintheBakkenplay,
theTrustdoubledperwellinitialproductionrates,increasedperwellreservesby17percent,andmorethantripledthenetpresentvalueofeachwell.
TheTrustspent$227.9milliononcapitaldevelopmentactivitiesin2007,drilling149(107.0net)wellswitha99percentsuccessrateandadding42.1millionboeprovedplusprobableoftechnicalreserveadditions.TheTrustreplaced410percentofproductionthroughitsdrillingactivitiesandrealizedfindinganddevelopmentcostsof$5.42perprovedplusprobableboeand$8.32perprovedboe,excludingchangesinfuturedevelopmentcosts.
During2007,CrescentPointcontinuedtopaya$0.20perunitmonthlydistributionforanaveragepayoutratioof68percent.Sinceinceptionasatrust,CrescentPointhasneverdecreaseditsmonthlydistribution,with52consecutivemonthsofdistributionsforatotalcumulativedistributionof$536million,or$9.66perunit.
Therobustoperationalandfinancialresultsof2007furtheremphasizetheTrust’sproventrackrecordofprovidingupsidegrowthpotentialwithabusinessmodelsustainableoverthelongterm.TodayCrescentPointisproducingmorethan35,000boe/d,a69percentincreaseovertheTrust’saverage
AR | 07 Crescent Point Energy Trust 3
ThreeacquisitionsinsoutheastareaofSaskatchewan-totalconsiderationof$64.5million
$14millioncorepropertyacquisitioninSoundingLakearea
9,527boe/dannouncedproductionQ32004
PRESIDENT’SLETTERTOUNITHOLDERS
CrescentPointcompletes$82millionacquisitionofCapioPetroleumCorporation,addinganadditional1,750boe/d
8,874boe/dannouncedproductionQ12004
4CrescentPointEnergyTrustAR|07
PRESIDENT’SLETTERTOUNITHOLDERS
2005
CrescentPointacquiresBulldogEnergyInc.,addinganadditional1,925boe/d
CrescentPointacquiresassetsinsouthwestSaskatchewanfortotalcashconsiderationof$257million.Theassetsproduceapproximately5,000boe/d
2006productionof20,723boe/d.TheTrusthasnearly1,400
netlowriskdevelopmentdrillinglocationsininventory,which
willallowtheTrusttomaintainandgrowproductionformore
than13years.
2007 HIGHLIGHTS
• IncreasedNAVperunit,discountedat5percent,to$40.21
from$21.61in2006andfrom$15.12in2005.TheTrust
hasincreasedNAVperuniteveryyearsinceinception;
• Increasedyearend2007reservesby85percentto167.5
millionboeprovedplusprobable,basedonindependent
thirdpartyevaluationsbyGLJPetroleumConsultantsLtd.
(“GLJ”)andSprouleAssociatesLtd.(“Sproule”);
• Replaced410percentofproductionthroughpositive
technicalanddevelopmentreserverevisionsof42.1million
boeprovedplusprobable.Thisisthesixthstraightyearand
arecordyearofstrongyearoveryearpositivetechnicaland
developmentreserverevisions;
• Achievedlow2007findinganddevelopment(“F&D”)costs,
excludingchangesinfuturedevelopmentcosts,of$5.42
perprovedplusprobableboeand$8.32perprovedboeof
reserves.Thisequatestoaprovedplusprobablerecycle
ratioof7.6times;
• ReducedtheTrust’s6yearaverageF&D,excludingchanges
infuturedevelopmentcapital,to$6.96perprovedplus
probableboeand$10.17perprovedboe,whichequates
toaweightedaverageprovedplusprobablerecycleratioof
6.1times;
• Achievedlow2007finding,developmentandacquisition
costs,excludingfuturedevelopmentcosts,of$14.71per
provedplusprobableboeand$20.74perprovedboe.The
Trust’s6yearaverageFD&Acostsare$13.40perproved
plusprobableboeand$18.28perprovedboe;
• Completed9acquisitionsin2007andoneinJanuary
2008,addingapproximately12,400boe/dofproduction
and50.4millionboeofprovedplusprobablereserves;
• Executedarecorddevelopmentcapitalprogram,spending
$227.9million,whichincludedthedrillingof107.0netwells
withasuccessrateof99percent.Throughits2007capital
developmentprogram,theTrustaddedmorethan7,000
boe/dofinitialinterestproduction;
CrescentPointannouncesfourseparatesoutheastSaskatchewanacquisitions,addingatotalof1,925boe/d
Crescent Point announces consolidationacquisitionwithassetsatJohnLake,Albertaand insoutheasternSaskatchewan
12,530boe/dannouncedproduction in Q32005
10,783boe/dannouncedproduction in Q12005
4CrescentPointEnergyTrustAR|07
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PRESIDENT’SLETTERTOUNITHOLDERS
2006
• Acquired115netsectionsofundevelopedBakkenlandthroughastrategicCrownandfreeholdlandacquisitionprogram;
• Increasedcashflowto$355.9million($3.51per unit-diluted)from$189.1million($2.98perunit-diluted)in2006,ayearoveryearincreaseof88percent;
• Maintainedmonthlydistributionsof$0.20perunit,resultinginanannualdistributionof$2.40perunit,unchangedfrom2006.TheTrust’soverallpayoutratiowas69percent(68percentonaperunit–dilutedbasis),downfrom79percent(81percentonaperunit–dilutedbasis)in2006;
• CompletedtwoboughtdealequityfinancingsinSeptember2007andJanuary2008,totaling14.1milliontrustunitsgeneratinggrossproceedsof$290.1million.TheTrustissued31.8milliontrustunitsvaluedat$567.6millionaspartoftheplansofarrangementtoacquireMissioninFebruary2007andPilotinJanuary2008;and
• Maintainedanexcellentbalancesheetthroughouttheyear,withtheTrust’screditfacilityincreasingto$800millionin2007.For2008,theTrustforecastsnetdebtto12monthcashflowof1.0times.
Subsequent Event – Investment in Shelter Bay Energy Inc. and Acquisition of the non Bakken assets of Landex Petroleum Corp.
AspartoftheOctober31,2006federalgovernmentdecisiontotaxCanadianincometrustsin2011,thegovernmentrestrictedtheamountofequitythatcouldbeissuedbytrustsbetweenOctober31,2006andDecember31,2010withthecreationofSafeHarbourLimits,whicharedefinedasapercentageofOctober31,2006marketcapitalization.
ToallowtheTrusttocontinuetoexecuteitsbusinessplanwithintheconstraintsoftheSafeHarbourLimits,CrescentPointannouncedinJanuary2008a$60millioninvestmentinShelterBayEnergyInc.(“ShelterBay”),aprivatecorporationnotsubjecttotheequitygrowthconstraintsplacedonincometrusts.CrescentPoint’sinvestmentrepresentsa20percentinterestinShelterBay.CrescentPointwillprovideShelterBaywithmanagementandtechnicalexpertiseunderaTechnicalServicesAgreement,wherebyShelterBaywillleveroffCrescentPoint’sknowledgeandinfrastructuretofurtherconsolidateanddominatethesoutheastSaskatchewanBakkenplayandothercoreCrescentPointareas.
CrescentPointacquiresCanexEnergyInc.foratotalpurchasepriceof $85.6million
CrescentPointacquiresassetsinSaskatchewanandAlbertaforatotalconsiderationof$66.3million.Theassetsproduceacombinedproductionofapproximately900boe/d
CrescentPointacquiresapproximately950boe/dinPeaceRiverArch,AlbertaandinsoutheastSaskatchewan
CrescentPointannounced amergerwithMissionOil&GasInc.fortotalconsiderationofabout$628million.TheMissionassetsproduceabout 7,000boe/d
21,305boe/dannouncedproduction in Q3 �006
AR|07CrescentPointEnergyTrust5
25,291announcedproduction in �007 Q�
CrescentPointannouncesacquisitionofPilotEnergyLtd.foratotalconsiderationof$76million.CrescentPointacquiresapproximately1,000boe/doffocusedhighnetbackoil,50percentofwhichisinCrescentPoint’scoreViewfieldBakkenresourceplay.
AspartofitsinvestmentinShelterBay,CrescentPointhasagreedtofarmout22netsections,representingapproximately6percent,oftheTrust’sundevelopedBakkenlandtoShelterBay.CrescentPointexpectsShelterBaytodrill40grossBakkenhorizontalwellsonthesefarminlandsineachof2008and2009.CrescentPointretainsaninterestofupto50percentofeachwell,addingproduction,cashflowandreserveswithlimitedcapitalrequirements.
ItisanticipatedthatCrescentPointandShelterBaywillmergeoperationsinthefuturewhentheSafeHarbourLimitsonequityissuancearenolongerofrelevanceforCrescentPoint.
ConcurrentwiththeinvestmentinShelterBay,CrescentPointannouncedthatithadenteredintoanagreementtoacquireLandexPetroleumCorp.(“Landex”),aprivateoilandgascompanywithassetsinsoutheastSaskatchewan,fortotalconsiderationofapproximately$310million.Aspartoftheagreement,CrescentPointwillacquirethenonBakkenassetsofLandex,approximately1,500boe/d,for$80millionandShelterBaywillacquiretheBakkenassetsofLandex,approximately2,500boe/d,for$230million.
TheacquisitionisexpectedtocloseinlateMarch.
2008 OuTLOOk
CrescentPointhasaproventrackrecordandasoundbusinessplanbuiltonthethreekeydriversofasuccessfulenergytrust:aprovenmanagementgroupandBoardofDirectors,anexcellentbalancesheetandahighqualityreservebasewithextensiveopportunitiestoaddproductionandreserves.In2008,theTrustwillcontinuetoaggressivelyimplementitsbusinessplanandbuildonthesuccessesofthepastsixyears.
CrescentPoint’sdevelopmentcapitalbudgetfor2008hasbeensetat$225million,directedmoretowardsthedevelopmentoftheBakkenlightoilresourceplay.TheTrustanticipatesdrillingupto140(105.7net)wells,including79(65.5net)Bakkenhorizontalwells.TheTrustwillfracturestimulateupto92(77.2)BakkenhorizontalwellsandwillexpandtheViewfieldgasplanttoaccommodateincrementalgasandliquidsvolumesresultingfromthe2008Bakkendrillingprogram.CrescentPoint’sshareofShelterBaydrillingonfarminlandswilladdupto20netadditionalfracturestimulatedBakkenhorizontalwells.
Inaddition,theTrustwillcontinueactivedevelopmentprogramsatitscorepropertiesofManor,Tatagwa,Battrum/Cantuar,Worsley,SoundingLakeandGlenEwen.TheTrustwillspendupto$50milliononfacilities,landandseismic,primarilyinsoutheastSaskatchewancoreareas.
6 Crescent Point Energy Trust AR | 07
PRESIDENT’SLETTERTOUNITHOLDERS
2007
CrescentPointacquiresInnovaExplorationLtd.foratotaltransactionvalueofapproximately$400million.CrescentPointacquiresapproximately4,300boe/dofhighquality,highnetbacklightoilandnaturalgasproduction,65percentofwhichisintheViewfieldBakkenresourceplay.
26,170announcedproduction in �007 Q�
Simveroeugiamipisdolorevercieugiam,senibhexelitautetatueratedolorevullaoreroduisnullandreetveleratexerosdipitadipeldoodionhenitdoloborediamilit.
Simveroeugiamipisdolorevercieugiam,senibhexelitautetatueratedolorevullaoreroduisnullandreetveleratexeros.
The$118millionacquisitionofBulldogEnergyInc.,inOctober2005Simveroeugiamipisdolorevercieugiam,senibhexelitautetatueratedolorevullaoreroduisnullandreetveleratexerosdipitadipeldoodionhenit
TheTrustanticipates2008cashflowtobeapproximately$527million,or$4.21perunit,fullydiluted,basedonforecastpricingofUS$92.50perbarrelWTI,US$1.00exchangerate,andCdn$8.00permcfAECO.Monthlydistributionsareanticipatedtoremainat$0.20perunitforapayoutratioof57percent.Productionisforecastat34,500boe/d.
TheTrustcontinuestoactivelymanageits3.5yearcommodityhedgingprogram,with60percentofvolumeshedgedin2008,57percentin2009,41percentin2010and2percentinthefirsthalfof2011.Hedgeinstrumentsutilizedintheprogramincludeswaps,collarsandputoptions,providingafloorofgreaterthanCdn$74perbarrel,withupsidepotentialifpricesstrengthenabovecurrentlevels.Thebalancesheetremainsstrong,withprojectednetdebtto12monthcashflowof1.0times.
CrescentPoint’smanagementbelievesthatwiththehighqualityreservebaseanddevelopmentinventory,excellentbalancesheetandhedgingprogram,theTrustiswellpositionedtocontinuegeneratingstrongoperatingandfinancialresultsanddeliveringsustainabledistributionsthrough2008andbeyond.
ThroughitsinvestmentinShelterBay,theTrustremainsexposedtofurtherconsolidationopportunities,includingland,assetandcorporateacquisitions,intheBakkenlightoilresourceplay
andinotherCrescentPointcoreareas.Inaddition,ongoingimprovementstoinitialproductivityratesintheBakkenanda13yearlowriskdevelopmentdrillinginventoryprovidetheTrustwithsignificantopportunitytogrowproductioninternallythroughdevelopmentdrilling.
Atthistime,IextendsincerethankstoCrescentPoint’smanagementteamandemployeesfortheirdedicatedeffortsindeliveringoutstandingresultsthroughoutthepastyear,toallthemembersoftheBoardofDirectorsfortheirguidance,andtotheTrust’sunitholdersfortheirsupportoftheCrescentPointbusinessmodel.
OnbehalfoftheBoardofDirectors,
ScottSaxberg PresidentandChiefExecutiveOfficer March2008
PRESIDENT’SLETTERTOUNITHOLDERS
33,351announcedproduction in2007Q4 2008
AR | 07 Crescent Point Energy Trust 7
� Crescent Point Energy Trust AR | 07
OPERATIONS
EvOLuTION OF THE BuSINESS STRATEGy: ACquIRE, ExPLOIT AND ExPLORE
2007isCrescentPoint’ssixthconsecutiveyearofgrowthandrecordresults.Thisyear’ssuccesseshavehighlightedCrescentPoint’stechnicalexpertiseandabilitytonotonlyacquireandgrow,buttoexplore,exploitanddevelop.TheTrustnotonlyacquiredassetsof45.7millionboeprovedplusprobableduringtheyear,butalsocomplementeditsacquisitionswitharecordcapitaldevelopmentprogramthataddedprovedplusprobablereservesof42.1millionboethroughexploration,exploitationanddevelopment.
Inearly2007,CrescentPointacquiredMissionOil&GasInc.(“Mission”),establishingadominantpositionintheViewfieldBakkenlightoilresourceplayinsoutheastSaskatchewan.WiththeacquisitionofMission,theTrustacquiredmorethan5,000boe/dofBakkenproduction,143netsectionsofundevelopedBakkenlandandaninventoryof570netlowriskBakken drillinglocations.Atthetime,CrescentPointestimatedtheBakkenplaytocontainabout1.0billionbarrelsoforiginaloil inplace(“OOIP”).
Throughanaggressivecapitalprogram,theTrustsuccessfullydrilled88(60.0net)Bakkenwellsin2007,increasingproductionto12,000boe/dbyyearend,a54percentincreaseoverthe7,800boe/dofBakkenproductionacquiredintheacquisitionsofMissionandInnovaExplorationLtd.(“Innova”).TheBakkendrillingprogramincluded11strategicstepoutexplorationwells,expandingtheaerialextentoftheplayby11townships.CrescentPoint’sinternalestimatesoftheBakkenarenowgreaterthan4billionbarrelsOOIP.TheTrustalsospentmorethan$42millionstrategicallyacquiring115netsectionsofundevelopedBakkenland.
Byyearend,theTrusthadincreaseditsundevelopedBakkenlandholdingsto363netsectionsanditslowriskBakkendevelopmentdrillinginventoryto1,050netlocations.Atyearend,independentengineersrecognizedpositivetechnicalprovedplusprobablereserveadditionsof35.7millionboeintheBakken,bringingtheTrust’stotalBakkenreservesto70.2millionboeprovedplusprobable.
Corporatelyin2007,CrescentPointachievedrecordnetassetvalue(“NAV”)pertrustunit,production,reservesandtechnicalanddevelopmentreservesrevisions.TheTrustgenerateditslowesteverfindinganddevelopment(“F&D”)costsin2007whileexecutingitslargestevercapitaldevelopmentprogram.
TheTrust’snetbacksin2007wereamongthehighestintheoilandgasincometrustsectorwhich,combinedwithtopdecileF&Dcosts,areexpectedtogeneratethehighestprovedplusprobablerecycleratio(netbackdividedbyprovedplusprobableF&Dcosts)inthesectorat7.6times.
TheTrust’s2007achievementsarethedirectresultoftheconsistentanddisciplinedapplicationofitsbusinessplan,itstechnicalexpertiseanditsstrategicfocustoitslargeoilinplaceassets.Overtheyears,theTrusthasdevelopedahighlevelofgeological,reservoirandoperationalexpertiseinitscoreareas,andthisknowledgebaseandexperiencehasledtoeconomiesofscaleinbothoperationsandcapitaldevelopmentandtostrongoperationalresults.
0
3
6
9
12
15
2002 2003 2004 2005 2006 2007
RLI (
Year
s)
20081
8.5
9.2
11.1
11.9
9.1
13.3
14.0
PROVED PLUS PROBABLERESERVE LIFE INDEX
(1)IncludesacquisitionsofLandexPetroleumCorp.’snonBakkenassetsand PilotEnergyLtd.
2007 OPERATIONS HIGHLIGHTS: RECORD RESuLTS
During2007,CrescentPointcontinuedtocreatesustainable,valueaddedgrowthinproduction,reservesandcashflowthroughtheexecutionofmanagement’sintegratedstrategyofacquiring,exploiting,developingandoptimizingitshighquality,longlifelightoilandnaturalgasproperties.
TheTrustreduceditssixyearaverageF&Dcoststo$6.96perboeprovedplusprobableasaresultofasixthconsecutiveandrecordyearofstrongpositivetechnicalanddevelopmentreserverevisions.TheTrustincreaseditstotalprovedplus
AR | 07 Crescent Point Energy Trust �
OPERATIONS
probablereservelifeindexfrom11.9yearsatyearend2006to13.3yearsatyearend2007andto14.0yearsincludingthefirstquarter2008acquisitionsofLandexPetroleumCorp.’snonBakkenassetsandPilotEnergyLtd.
At$40.98perboe,CrescentPointhadoneofthehighestoperatingnetbacksinthesectorin2007duetoimprovingoilqualities,pricesandroyaltyratesandstrongoperatingcostdiscipline.WithF&Dcostsof$5.42perprovedplusprobableboein2007,theTrustimproveditsrecycleratioto7.6timesonaprovedplusprobablebasis.
2007 OPERATIONAL HIGHLIGHTS:
• IncreasedtheTrust’syearendNAVperunitby86percentto$40.21from$21.61;
• IncreasedtheTrust’syearendprovedreservesby81percentto115.7millionboeanditsprovedplusprobablereservesby85percentto167.5millionboe.YearendreserveswereindependentlyevaluatedbyGLJPetroleumConsultantsLtd.(“GLJ”)andSprouleAssociatesLtd.(“Sproule”)utilizingNI51-101reservedefinitions;
• ReducedF&Dcosts,excludingchangesinfuturedevelopmentcosts,to$5.42perprovedplusprobableboeand$8.32perprovedboeofreserves.Thisisa45percentand36percentimprovement,respectively,from2006;
• Achieveda2007provedplusprobablerecycleratioof7.6timesbasedonF&Dcostsof$5.42perboeandanaveragenetback,excludinghedgingadjustments,of$40.98perboe.TheTrust’ssixyearweightedaveragerecycleratiois6.1times;
• Achievedasixthconsecutiveandrecordyearofstrongpositivetechnicalanddevelopmentreserverevisions,whichadded42.1millionboeofincrementalprovedplusprobablereserves.Approximately63.7millionboeoftheTrust’syearendreservebaseof167.5millionboearederivedfromindependentlyrecognizednetpositivetechnicalanddevelopmentreservesrevisionsoverthepastsixyears,whichhighlightstheTrust’stechnicalexpertiseandabilitytosuccessfullyexpand,exploitanddevelopitshighquality,largeresourceinplaceassetbase;
• ExpandedtheBakkenlightoilresourceplaytomorethan4billionbarrelsofOOIPthroughanaggressivestepoutdrillingexplorationprogramandachievedtechnicalanddevelopmentreserveadditionsintheBakkenof35.7mmboeprovedplusprobableand20.8mmboeproved.FullcycleF&Dcostsintheplayareapproximately$12.40per
provedplusprobableboe,whichcombinedwithanaverage2007Bakkennetbackof$62.09perboe,generatearecycleratioof5.0timesprovedplusprobable;
• Realizedpositivetechnicalanddevelopmentreserverevisionsof6.4mmboeprovedplusprobableand6.6mmboeprovedontheTrust’snonBakkenassets,realizingF&Dcostsof$13.48perprovedplusprobableboeand$13.06perprovedboe;
• Completed9acquisitionsandoneminordispositionforatotalnetpurchasepriceof$1.1billion,netofclosingadjustments.Theacquisitionsadded11,400boe/dofproductionandreservesof34.9millionboeprovedand45.7millionboeprovedplusprobable;
• Achievedlowfinding,developmentandacquisition(“FD&A”)costs,excludingchangesinfuturedevelopmentcosts,of$14.71perprovedplusprobableboeand$20.74perprovedboeofreserves;
• IncreasedtheTrust’slowriskdrillinginventorytonearly1,400netlocations.ThevalueoftheTrust’sfuturedevelopmentprojectsis$2.2billion;
• IncreasedtheTrust’sassetbasetomorethan6billionbarrelsgrossOOIP;
• Successfullyexecutedarecordcapitaldevelopmentprogram,spending$227.9million,includingmorethan$42milliononland.TheTrustdrilled149(107.0net)wellsin2007,achievingasuccessrateof99percentandaddinginitialinterestproductionof7,000boe/d;and
• Increaseddailyaverageproductionby36percentto28,117boe/din2007from20,723boe/din2006.Productioncurrentlyexceeds35,000boe/d.
F&DANDFD&ASUMMARY
Perboe,exceptRecycleRatios Proved ProvedplusProbable
F&D
2007F&DCost,excludingchangeinFDC� $8.32 $5.42
2007AverageRecycleRatio� 4.9 7.6
2007F&DCost,includingchangeinFDC $16.39 $12.90
6-yrF&DCost,excludingchangeinFDC $10.17 $6.96
FD&A
2007FD&ACost,excludingchangeinFDC $20.74 $14.71
2007AverageRecycleRatio� 2.0 2.8
2007FD&ACost,includingchangeinFDC $24.30 $18.31
6-yrFD&ACost,excludingchangeinFDC $18.28 $13.40
(1)FutureDevelopmentCapital (2) Basedon2007averageoperatingnetback(excludingrealizedhedginglosses) of$40.98/boe
�0 Crescent Point Energy Trust AR | 07
OPERATIONS
RESERvES: 6 yEARS OF SuBSTANTIAL POSITIvE TECHNICAL AND DEvELOPmENT RESERvE REvISIONS
Sinceinceptionasacompanyin2001,CrescentPointhasbuiltatrackrecordofcreatingvalueaddedgrowthinreserves,productionandcashflowthroughstrategicaccretiveacquisitionsandthesuccessfulexploitationanddevelopmentofitshighqualityassetbase.
TheTrustdemonstrateditssixthconsecutiveandarecordyearofindependentlyrecognizedpositivetechnicalanddevelopmentreserverevisionsin2007.ThistrackrecordistheresultoftheTrust’sabilitytoidentifyhighqualitylargeresourceinplaceassetswithsignificantupsidepotentialanditsabilitytoimplementtechnicalplanstoincreaserecoveryfactorsandreserves.Therecordpositivetechnicalrevisionsin2007areduelargelytotheTrust’ssuccessfulexpansionoftheBakkenlightoilpoolthroughstepoutexplorationdrilling,infilldrilling,andthecontinuingrefinementandimprovementoftechnology.
During2007,theTrustadded87.4millionboeofprovedplusprobablereserves,including42.1millionboeduetotechnicalanddevelopmentrevisions.These42.1millionboeareontopofacumulative21.6millionboeofprovedplusprobabletechnicalanddevelopmentreserveadditionsovertheprevioussixyears.
0
5
10
15
20
25
30
FINDING AND DEVELOPMENT COSTS
$/bo
e
2002 2003 2004 2005 2006 2007
Total Proved
Total Proved Plus Probable
Proved Plus Probable Weighted Average
$6.96/boe
0
5
10
15
20
25
30
FINDING, DEVELOPMENT ANDACQUISITION COSTS
$/bo
e
2002 2003 2004 2005 2006 2007
Total Proved
Total Proved Plus Probable
Proved Plus Probable Weighted Average
$13.40/boe
0
45,000
90,000
135,000
180,000
CONTRIBUTION OFRESERVES REVISIONS
Prov
edPl
usPr
obab
leRe
serv
es(m
boe)
2002 2003 2004 2005 2006 2007
Proved Plus Probable Reserves
Cumulative Revisions
Yearly Revisions
AR | 07 Crescent Point Energy Trust ��
OPERATIONS
LOw RISk DEvELOPmENT DRILLING INvENTORy OF mORE THAN 13 yEARS
OneofthekeyelementsofCrescentPoint’sbusinessplanistofocusonlargeoilorgasinplacepools.Largeresourceinplacepoolsoffergreatergrowthpotentialduetoalongstandingpetroleumindustryphenomenon:largeresourceinplacepoolstendtooutperformtheirinitialestimatesovertime.Byfocusingonthesepools,CrescentPointhasamassedanassetbaseofmorethan6billionbarrelsofgrossOOIP,whichprovidestheTrustwiththeopportunitytomorethandoublecurrentreservesthroughinfilldrilling,improvedtechnologies,andwaterfloodandproductionoptimization.
Withthisassetbase,CrescentPointhasdevelopedasignificantlowriskdevelopmentinventoryofnearly1,400netlocationsrepresentingmorethan100,000boe/dofriskedproduction
additions.TheTrustusesthisdevelopmentdrillinginventorytomaintainandgrowproductionandtoprovidealongtermbasewithwhichtosustaindistributions.
Sinceinception,CrescentPointhasdemonstratedapositiverecordofdevelopmentdrilling.Overthepastsixyears,thecompanyhasdrilled293.2netwellswithasuccessrateof97percent,addingnearly16,000boe/dofinitialinterestproduction.TheTrusthasenjoyedanaveragerateofreturngreaterthan200percent,achievingF&Dcostsof$6.96perprovedplusprobableboeandaweightedaveragerecycleratioof6.1times.
2007wasanotherrecordyearofsuccessfulcapitalactivityforCrescentPoint.TheTrustdrilled149(107.0net)wellsincluding142(102.2net)oilwellsand6(4.8net)servicewells,achievinga99percentsuccessrateandaddingover7,000boe/dofinitialinterestproduction.
ThefollowingtablesummarizestheTrust’sdrillingresultsfortheyearendedDecember31,2007:
DRILLING RESuLTS
Gas Oil D&A Service Standing Total Net SuccessSoutheastSaskatchewan - 124 - 4 � ��� 93.7 ��%
SouthwestSaskatchewan - �3 - - - �3 6.4 �00%
South/CentralAlberta - � - � - � 1.9 �00%NortheastBCandWestPeaceRiverArch,Alberta - 4 - � - 5 5.0 �00%
Total - 142 - 6 � 149 107.0 ��%
2007 ACquISITIONS
CrescentPoint’sacquisitionstrategyisakeycomponentofitsbusinessplan.TheTrustfocusesonlargeoilorgasinplacepropertiesthatareoperatedwithhighworkinginterestsandnetbacks,developmentdrillingupside,andthepotentialtoincreasereservesovertime.TheTrust’sdisciplinedapproachtoacquisitionshasprovidedunitholderswithyearoveryeargrowthinreserves,productionandcashflow.
2007wasanothersuccessfulyearofacquisitionsasCrescentPointcompleted9transactionsandoneinearly2008.AllofthesewereconsolidationswithintheTrust’scoreareasandthemostsignificantweretheBakkenacquisitionsofMissionandInnova.TheacquisitionofMissionaddedreservesof24.8mmboeprovedplusprobableand15.9mmboeproved,ofwhichapproximately82percentwereintheBakken.TheacquisitionofInnovaconsolidatedtheMissionlands,addingfurtherreservesof18.0mmboeprovedplusprobableand12.0mmboeproved.
TheInnovaacquisitionaddedapproximately4,300boe/dofhighnetbackproduction,approximately65percentofwhichwasintheBakken.
2007 OPERATIONS REvIEw AND 2008 CAPITAL PLANS
Thefoundationofmanagement’sintegratedbusinessstrategy,andforCrescentPoint’ssustainabletrustmodel,istheTrust’shighqualityassetbase.Thisassetbaseconsistsoffocused,largeresourceinplaceoilandgasreservoirswithlowaverageproductiondeclinesandsubstantialreservesupsidepotential.Theseassetsaremanagedbymultidisciplinarybusinessteamsconsistingofexperiencedgeologists,engineers,landmen,accountantsandfieldoperatorswhocreatelongtermvaluebymaximizingrecoveriesandminimizingcosts.
In2007,theseteamsfocusedonvalueaddedinitiativesattheTrust’scoreareasofViewfield,Battrum/Cantuar,Manor,Tatagwa,SoundingLake,WorsleyandGlenEwen.
�� Crescent Point Energy Trust AR | 07
OPERATIONS
vIEwFIELD BAkkEN
During2007,CrescentPointestablished,consolidatedandexpandedadominantpositioninthesoutheastSaskatchewanBakkenlightoilresourceplay.TheTrustcompletedfiveacquisitionsintheViewfieldBakkenplay,includingtheFebruaryacquisitionofMissionandtheOctoberacquisitionofInnova.TheTrustalsoaggressivelyexpandedtheplaywithasuccessfulstepoutexplorationdrillingprogramandastrategiclandacquisitionstrategythatadded115netsectionsofundevelopedCrownandfreeholdBakkenland.Includingdevelopedland,theTrust’sBakkenlandholdingstotaled413netsectionsbyyearend.
CrescentPointisnowthelargestoilproducerinsoutheastSaskatchewan.TheTrustisalsothedominantplayerintheViewfieldBakkenplayduetoitsproductionlevels,drillinginventory,infrastructurecontrolandundevelopedlandholdings.Yearend2007productionfromtheBakkenareaexceeded12,000boe/d,thelargestinthesoutheastSaskatchewanBakkenplay.ByFebruaryof2008,over300grosswellshadbeendrilledonTrustownedlandsintheBakkenwitha100percentsuccessrate,providingCrescentPointwiththelargestdatabaseofeconomicandtechnicalBakkendata.TheTrustoperatesthelargestandmostcentrallylocatedgasplantandgatheringsystemintheplay,providingasignificantcompetitiveadvantage.ThisareadominanceprovidestheTrustwitheconomiesofscaleandinfluenceoverthecostandavailabilityofsuppliesandservices.
CrescentPointengineersandfieldstaffcontinuetoimprovethefracturestimulationtechniquesutilizedintheBakkentoimprovetheproductivityofthehorizontaloilwellsandtobetterunlockthevalueoftheplay.Technologicaladvanceshavemorethandoubledinitialproductionrates,significantlyincreasedperwellreservesandmorethantripledperwellvalues.
In2007,theTrustdrilledatotalof88(60.0net)Bakkenhorizontalwells,including11stepoutexplorationwells,andfracturestimulated46(38.3net)Bakkenhorizontalwells.Utilizingaseriesofimprovementstothefracturestimulationtechnology,theTrustincreasedaverageinitialpostfracturestimulationproductionratestomorethan200boe/dperwell.
AsaresultoftheTrust’sactivitiesinthearea,independentengineersrecognizedatyearend2007positivetechnicalanddevelopmentreserverevisionsof35.7mmboeprovedplusprobableand20.8mmboeprovedontheselands,resultinginaprovedplusprobableF&Dcostof$3.98perboe.Basedona
2007Bakkenoperatingnetbackof$62.09perboe,theTrustrealizedaprovedplusprobableBakkenrecycleratioof15.6times.CrescentPointbelievesthatinfilldrillingovertimemayincreaserecoveryfactorsto15percentcomparedtothe3.9percentcurrentlybookedbyindependentengineers.Thisincreasecouldaddupwardsof190mmboeofprovedplusprobablereservesnettotheTrustintheBakkenplay.
TheTrusthasinternallyidentified1,210(1,050.0net)drillinglocationsonitsBakkenlandholdingswithariskedproductionpotentialofmorethan85,000boe/d.TheTrusthasafracturestimulationinventoryof65(60.0net)previouslyfracturestimulatedwellsandafurther75(70.0net)wellsthathavenotyetbeenfracturestimulated.Inall,theTrustcouldaddupto13,000boe/dofnetincrementalproductionfromfracturestimulationactivities.
TheTrust’slargedrillinginventory,alongwithstrategicdecisionsregardingthetimingoffracturestimulationprograms,providestheTrustwithsignificantflexibilityintheimplementationofitscapitaldevelopmentactivities.
During2008,CrescentPointplanstodrillupto79(65.5net)horizontalwellsintheBakkenandfracturestimulate92(77.2net)wells.DuetosuccessfulexplorationandexploitationactivitiesintheBakken,theTrustdoubledthecapacityoftheViewfieldgasplantfrom3mmcf/dto6mmcf/din2007andaddedfullfractionationfacilities.TheTrustwillfurtherexpandtheplantto15mmcf/dinlate2008,whichwillaccommodatetheTrust’ssuccessfulBakkendrillingandfracturestimulationactivities.CrescentPointalsooperates17oilbatteriesintheBakkenarea,providingfurtheroperationalflexibilityandcontrol.
BATTRum
IntheBattrumarea,theTrustcontinuedtooptimizereservesrecoveriesthroughacombinationofwaterfloodoptimization,infilldrillingandrecompletions.Positivereserverevisionsof1.2mmboeprovedplusprobablewereassignedbyindependentengineers,generatingF&Dcostsof$2.50perprovedplusprobableboe.Thetrustdrilled8(3.6net)wellsatBattrumwitha100percentsuccessrateandaddedover180boe/dofinterestproduction.Sinceacquiringthepropertyin2006,theTrusthasaddedover8.3mmboeofprovedplusprobablereservestoatotalof13.9mmboeatyearend2007.
In2008,theTrustplanstodrillupto15(6.3net)oilwells atBattrum.
AR | 07 Crescent Point Energy Trust �3
OPERATIONS
CANTuAR
AtthenonoperatedCantuarUnit,areservoirsimulationmodeldemonstratedthatOOIPestimateshadincreasedfrom 409mmbblsto489mmbbls,theresultofinfilldrillingandimprovedwaterfloodperformanceaccessingmoreofthereservoir.Positivereserverevisionsof0.9mmboeprovedplusprobablewereassignedbyindependentengineers,resultinginF&Dcostsof$5.91perprovedplusprobableboe.
TheTrustparticipatedinthedrillingof5(2.8net)wellsatCantuar,includingtwo20acredownspacedwells,achievinga100percentsuccessrate,andaddingover80boe/dofinterestproduction.Upto5(2.8net)20acrespacedwellsareplannedfor2008.Sinceacquiringthepropertyin2006,theTrusthasaddedover8.5mmboeofprovedplusprobablereservestoatotalof18.4mmboeatyearend2007.
mANOR
AtManor,theTrustdrilled14(14.0net)wells,including3(3.0net)75metreinfillhorizontalwells,addingover1,000boe/dofinitialincrementallightoilproductionwithhighnetbacks.TheTrust’sdrillingactivitiesresultedinprovedplusprobablereservesrevisionsof459mboeatyearend2007.
Duringtheyear,theTrustexpandeditswaterhandlingfacilitiestoaccommodateincreasedfluidproductionandcommencedconstructiontotieingasfromManorNorth,whichwascompletedinFebruaryof2008,adding550mcf/dofinterestsalesgas.TheTrustwilldrillupto10(7.7net)wellsin2008,including3(3.0net)75-metreinfillhorizontallocations.
TATAGwA
Basedondetailedgeologicalandreservoirengineeringstudiesconductedduring2006attheTatagwaUnit,theTrustdrilled4(2.8net)waterinjectionwellsandexpandeditswaterhandlingfacilitiestoaccommodateincreasedproduction.Independentengineershaveassignedaprovedplusprobablerecoveryfactorof11.5percenttotheUnit,representinganincremental 4.7percentincreasefrom2003whentheTrustacquireditsinterestintheUnit.Thisrepresentsanincremental7.8mmboeofprovedplusprobablereserves.
In2008,CrescentPointwilldrillupto6(4.2net)waterinjectionwellsandupto3(2.1net)oilwellsatTatagwatofurtherimprovewaterfloodefficienciesandimproverecoveries.
SOuNDING LAkE
AtSoundingLake,fieldwideupgradeandexpansionofthegatheringandinjectionsystemcontinuedinordertosupportthelongtermdevelopmentoftheCummings,DinaandSparkywaterfloods.RegulatoryapprovalforthedelineationoftheSparkyformationpoolwasreceivedinlate2007andawaterfloodapplicationhasbeensubmitted,approvalofwhichisexpectedinmid2008,withwaterinjectionforecasttocommenceinlate2008.Independentengineershaverecognizedconservativepreliminaryincrementalinterestreservesof136mboeduetothewaterfloodplans.
TheTrustplanstodrillupto4(3.8net)oilwellsandconvert6(6.0net)oilwellstowaterinjectionwellsintheSparkyformationandconvert4(4.0net)oilwellstowaterinjectionwellsintheCummingspooltooptimizewaterfloodrecoveries.
wORSLEy
AtWorsley,theTrustobtainedGoodProductionPractice(“GPP”)statusattheCharlieLakeTpoolandappliedforanexpansionofitsexistingSpooldelineationandwaterflood.WaterinjectioncommencedintheSandTpoolsin2007andasourcewaterwellwasdrilledtosupportincreasedoilwithdrawalsfromthereservoirs.ThecentralbatteryatWorsleywasalsoupgradedtoaccommodatefuturewaterinjectioncapacity.Constructionofastreamlinedgatheringsystemandcompressoroptimizationwascompletedinearly2008.
Atotalof4(4.0net)wellsweredrilledin2007,achievinga100percentsuccessrateandadding200boe/d.TheTrustplanstodrillupto4(3.6net)wellstargetingtheCharlieLakeformationin2008andwillcontinuetooptimizegasgatheringfacilities.
GLEN EwEN
AtGlenEwen,constructionofthe3mmcf/dgasplantwascompletedinthefirstquarterof2007,increasingliquidsrecoveriesandincreasingrevenueatthefieldby$20.00perboe.Atotalof6(6.0net)horizontalwellsweredrilledin2007withanadditional2(2.0net)plannedfor2008.
14CrescentPointEnergyTrustAR|07
RESERVESAllreservesinformationhasbeenpreparedinaccordancewithNationalInstrument(“NI”)51-101.ThisreportcontainsseveralcautionarystatementsthatarespecificallyrequiredbyNI51-101.Inadditiontothedetailedinformationdisclosedinthisannualreport,moredetailedinformationwillbeincludedintheTrust’sAnnualInformationForm(“AIF”).
In2007,CrescentPointreplaced410percentofproductiononaprovedplusprobablebasis,notincludingreservesaddedthroughacquisitions.Includingacquisitions,theTrustreplaced855percentofproductionandincreaseditsyearendreservesto167.5millionboeprovedplusprobableand115.7millionboeproved.Bycomparison,yearend2006reserveswere90.3millionboeprovedplusprobableand64.0millionboeproved.
TheTrust’syearendreserveswereindependentlyevaluatedbyGLJandSprouleasatDecember31,2007.
During2007,oilandgascapitalexpenditures(excludingacquisitions)were$227.9million.Basedontechnicalanddevelopmentreserveadditionsof42.1millionboeprovedplusprobableand27.4millionproved,theTrusthadF&Dcosts,excludingchangesinfuturedevelopmentcosts,of$5.42perprovedplusprobableboeand$8.32perprovedboe.TheTrust’ssixyearweightedaverageforF&Dcostsis$6.96perprovedplusprobableboe.
TheTrust’sFD&Acostsfor2007,excludingchangesinfuturedevelopmentcosts,were$14.71perprovedplusprobableboeand$20.74perprovedboe.TheTrust’ssixyearweightedaverageforFD&Acostsis$13.40perprovedplusprobableboe.Includingchangesinfuturedevelopmentcosts,theTrust’sFD&Acostsfor2007were$18.31perprovedplusprobableboeand$24.30perprovedboe.
TheTrust’sNAVperunitincreasedto$40.21(discountedat5percent)atyearend2007,upfrom$21.61fortheyearprevious.TheTrusthasincreasedNAVperuniteveryyearsinceinception,morethandoublingitinthelasttwoyearsalone.
AR|07CrescentPointEnergyTrust15
RESERVES
SummARy OF RESERvES ASATDECEMBER31,2007(�)
ESCALATEDPRICINGRESERVES(�)
Oil(mbbls) Gas(mmscf) NGL(mbbls) Total(mboe)
Description Gross Net Gross Net Gross Net Gross Net
Provedproducing 62,088 52,945 43,262 35,429 1,611 1,425 70,910 60,274
Provednon-producing 37,532 33,740 25,264 20,844 3,051 2,799 44,793 40,015
Totalproved 99,620 86,685 68,526 56,273 4,662 4,224 115,703 100,289
Probable 45,000 39,174 27,649 22,908 2,164 1,986 51,773 44,977
Totalprovedplusprobable(3) 144,620 125,859 96,175 79,181 6,826 6,210 167,476 145,266
(1) BasedonGLJ’sJanuary1,2008escalatedpriceforecast. (2) “GrossReserves”arethetotalTrust’sinterestsharebeforethedeductionofanyroyaltiesandwithoutincludinganyroyaltyinterestoftheTrust.“NetReserves”arethetotal Trust’sinterestshareafterdeductingroyaltiesandincludinganyroyaltyinterest. (3) Numbersmaynotaddduetorounding.
SummARy OF BEFORE AND AFTER TAx NET PRESENT vALuESASATDECEMBER31,2007(�)
ESCALATEDPRICINGBEFORETAXNETPRESENTVALUE($000) AFTERTAXNETPRESENTVALUE($000)
DiscountRate DiscountRate
Description Undiscounted 5% �0% 15% Undiscounted 5% �0% 15%
Provedproducing 2,812,839 2,082,080 1,695,324 1,452,326 2,630,828 1,987,669 1,638,386 1,414,651
Provednon-producing 1,935,941 1,406,808 1,088,634 878,279 1,693,520 1,256,839 987,498 805,749
Totalproved 4,748,780 3,488,888 2,783,958 2,330,605 4,324,348 3,244,508 2,625,884 2,220,400
Probable 2,492,837 1,346,743 874,943 630,479 1,854,205 1,020,979 674,088 492,498
Totalprovedplusprobable 7,241,617 4,835,631 3,658,901 2,961,084 6,178,553 4,265,487 3,299,972 2,712,898
(1) BasedonGLJ’sJanuary1,2008escalatedpriceforecast.
RESERvES RECONCILIATION (GROSS RESERvES(1))FORTHEYEARENDEDDECEMBER31,2007
ESCALATEDPRICING CrudeOilandLiquids(mbbls) NaturalGas(mmscf) BOE(mboe)
Proved Probable Total Proved Probable Total Proved Probable Total
Openingbalance 57,458 23,962 81,420 38,959 14,446 53,405 63,951 26,370 90,321
Acquired 30,554 9,099 39,653 25,797 10,542 36,339 34,854 10,856 45,711
Disposed (3�) (34) (66) (1,197) (522) (1,719) (�3�) (���) (353)
Production (8,887) 0 (8,887) (8,253) 0 (8,253) (10,263) 0 (10,263)
Development 21,203 14,685 35,888 8,753 5,331 14,084 22,662 15,574 38,235
Technicalrevisions 3,987 (548) 3,439 4,466 (2,147) 2,319 4,731 (�06) 3,825
Closingbalance(�) 104,282 47,164 151,446 68,526 27,649 96,175 115,703 51,773 167,476
(1) BasedonGLJ’sJanuary1,2008escalatedpriceforecast.“Grossreserves”aretheTrust’sworking-interestsharebeforedeductionofanyroyaltiesandwithoutincludingany royaltyinterestsoftheTrust. (2) Numbersmaynotaddduetorounding.
�6 Crescent Point Energy Trust AR | 07
RESERVES
2007 FINDING, DEvELOPmENT AND ACquISITION COSTS (ExCLuDING FuTuRE DEvELOPmENT COSTS)
FORTHEYEARENDEDDECEMBER31,2007CapitalExpenditures(1)(4) Reserves(3) Finding,DevelopmentandAcquisitionCosts(�) (�)
TotalProved ProvedPlusProbable Proved ProvedPlusProbable
$000 % mboe % mboe % $/boe $/boe
Exploration,developmentandrevisions $227,923 ��% 27,392 44% 42,060 48% $8.32 $5.42
Acquisitionsnetofdispositions $1,058,069 ��% 34,622 56% 45,358 52% $30.56 $23.33
Total $1,285,993 �00% 62,015 �00% 87,418 �00% $20.74 $14.71
(1) ExplorationDevelopmentandRevisionsexcludethechangeduringthemostrecentfinancialyearinestimatedfuturedevelopmentcostsrelatingtoprovedandproved plusprobablereservesrespectively.Thesecostswouldadd$220.9millionand$314.5millionrespectivelytotheprovedandprovedplusprobablereservescategories. Includingthesechanges,theprovedandprovedplusprobablefindinganddevelopmentcostsare$16.39and$12.90perboerespectively. (2)Includingchangeinfuturedevelopmentcosts,finding,developmentandacquisitioncostsare$24.30perprovedboeand$18.31perprovedplusprobableboe. (3) GrossTrustinterestreservesareusedinthiscalculation(interestreserves,beforedeductionofanyroyaltiesandwithoutincludinganyroyaltyinterestsoftheTrust). (4) Thecapitalexpendituresincludesthepurchasepriceofcorporateacquisitionsratherthantheamountsallocatedtoproperty,plantandequipmentforaccountingpurposes. Thecapitalexpendituresalsoexcludecapitalizedadministrationcostsandacquisitioncosts.
SummARy OF RESERvES, INCLuDING FIRST quARTER 2008 ACquISITIONS AsatJanuary1,2008(�) (�)
ESCALATEDPRICINGRESERVES(3) BEFORETAXNETPRESENTVALUE($000)
Oil(mbbls) Gas(mmscf) NGL(mbbls) Total(mboe) DiscountRate
Description Gross Net Gross Net Gross Net Gross Net Undiscounted 5% �0% 15%
Provedproducing 65,643 56,077 44,384 36,466 1,623 1,437 74,663 63,592 2,982,478 2,223,327 1,817,660 1,561,112
Provednon-producing 38,998 35,090 25,884 21,427 3,122 2,864 46,434 41,526 2,007,585 1,461,015 1,132,211 914,643
Totalproved 104,640 91,167 70,268 57,894 4,745 4,302 121,097 105,117 4,990,063 3,684,342 2,949,872 2,475,755
Probable 47,648 41,543 28,555 23,751 2,235 2,053 54,642 47,554 2,630,987 1,432,863 936,188 677,719
Totalprovedplusprobable(4) 152,288 132,710 98,823 81,645 6,980 6,354 175,739 152,672 7,621,051 5,117,205 3,886,060 3,153,475
(1) Includesindependentengineers’evaluationsofCrescentPoint2007yearend,PilotEnergyLtd2007yearend,andLandexPetroleumnonBakkenassets2007yearend. (2) BasedonGLJ’sJanuary1,2008escalatedpriceforecast. (3) “GrossReserves”arethetotalTrust’sinterestsharebeforethedeductionofanyroyaltiesandwithoutincludinganyroyaltyinterestsoftheTrust.“NetReserves”arethetotal Trust’sinterestshareafterdeductingroyaltiesandincludinganyroyaltyinterests. (4) Numbersmaynotaddduetorounding.
BEFORE TAx NET ASSET vALuE PER uNIT, FuLLy DILuTEDUTILIZINGINDEPENDENTENGINEERINGESCALATEDPRICING
�00� (�) �007 �006 2005 2004 �003
PV0% $59.69 $61.03 $34.08 $21.99 $16.19 $12.72
PV5% $39.92 $40.21 $21.61 $15.12 $11.22 $9.15
PV10% $30.23 $30.05 $15.70 $11.45 $8.56 $7.14
PV15% $24.47 $24.04 $12.27 $9.10 $6.85 $5.83
(1) IncludesCrescentPoint’s2007fiscalresultsandtheacquisitionofLandexPetroleumCorp.’snonBakkenassetsandPilotEnergyLtd.utilizingJanuary1,2008 IndependentEngineeringEscalatedPricingandtheimpactoftheboughtdealequityfinancingof$125million.
AR | 07 Crescent Point Energy Trust �7
LANDHOLDINGSAsatDecember31,2007,CrescentPointhadanundevelopedlandbaseof536,000netacres(approximately838sections),withanaverageworkinginterestofapproximately72percent.Ofthistotal,235,000netacres(approximately363sections)wereinthesoutheastSaskatchewanBakkenlightoilresourceplay.
InFebruary2007andOctober2007,respectively,CrescentPointsuccessfullyclosedtheacquisitionsofMissionOilandGasInc.andInnovaExplorationLtd.Combined,thesetwoacquisitionsaddedapproximately340,000netundevelopedacres(approximately531sections)totheTrust’sexistinglandbase,ofwhichapproximately240sectionswereinthe Bakkenplay.
Inadditiontothesecorporateacquisitions,CrescentPointfocusedaggressivelyonacquiringundevelopedBakkenacreagethroughcrownlandsalesandfreeholdleasingprogramsin2007.Asaresultoftheseactivities,theTrustsuccessfullyadded73,600netacres(115netsections)ofundevelopedBakkenlandduringtheyear.
Alsoin2007,CrescentPoint’stechnicalteamidentifiedthreeopportunitiestofarminonthirdpartyundevelopedlandholdingsintheTrust’scoreareaofsoutheastSaskatchewan.TheTrustsuccessfullynegotiatedfarminarrangementsresultinginthedrillingofonewellin2007,twowellsinearly2008,andtheplanningforthreeadditionalwellstobedrilledinthebalanceof2008.Thefirstthreefarminwellswereasuccess,andwiththecompletionofallsixwells,theTrustwillearna100percentworkinginterestinthelandssubjecttoanonconvertiblegrossoverridingroyalty.
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RISKMANAGEMENT& HEDGINGSTRATEGY
CommoditypriceriskmanagementhasbeenakeycomponentofCrescentPoint’sbusinessplanandcorporatestrategysincethecompany’sinceptionin2001.TheTrustusesadisciplined,rolling3.5yearriskmanagementprogramthatincludesaportfolioofswaps,collarsandputstoprovidestabilityincrudeoilandnaturalgaspricesandintheUS/Cdndollarexchangerate.
ThisrigoroushedgingprogramisdesignedtoprovidestabilityovertheTrust’scashflowsanddistributionsovertime,despitethecyclicalnatureofoilandnaturalgasprices.Usingacombinationofinstruments,theTrustisprovidedwithdownsideprotectionwhilepreservingupsideintheeventofrisingprices.
TheTrust’sriskmanagementlimitsallowforthehedgingofupto50percentofaftercrownroyaltyvolumesovera3.5yearperiod.Hedgevolumesmaybeincreasedatmanagement’sdiscretiontoalimitof65percentofaftercrownroyaltyvolumesprovidedthatthehedgevolumesoverandabovethe50percentlimitareintheformofpurchasedputoptions.
AsofMarch3,2008,theTrusthadapproximately60percentofaftercrownroyaltyvolumeshedgedin2008,57percentin2009,41percentin2010and2percentinthefirsthalfof2011.MinimumfloorpricesweremorethanCDN$74.00boe.
TOTAL HEDGES (boe/d as at March 3, 2008)
boe/
d
Swaps Collars Put Options
0
5,000
10,000
15,000
20,000
Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11
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CORPORATEGOVERNANCETheBoardofDirectorsandthemembersofCrescentPoint’smanagementarecommittedtothehigheststandardsofcorporategovernance.CrescentPointemploysavarietyofpolicies,programsandpracticestomanagecorporategovernanceandensurecomplianceismaintained.TheTrust’sBoardofDirectorsandmanagementbelievethatstrongcorporategovernanceisanessentialingredientinthecreationofunitholdervalueandthemaintenanceofinvestorconfidence.Tothisend,CrescentPointhasestablishedastrongcorporategovernanceculturebuiltonintegrity,accountabilityandtransparency.Ourcommitmenttogovernanceexcellenceishighlightedthroughthefollowingmechanisms:
ROLE OF THE BOARD OF DIRECTORS
TheBoardofDirectorsisresponsiblefortheeffectivestewardshipofCrescentPointonbehalfofallunitholders.TheBoardfulfillsitsmandatethroughfivestandingsubcommittees,eachwithaclearlydefinedcharter.ThesearetheAuditCommittee,theCompensationCommittee,theReservesCommittee,theCorporateGovernanceandNominatingCommittee,andtheEnvironment,HealthandSafety(EH&S)Committee.
GOvERNANCE POLICIES
CrescentPointhasseveralkeygovernancepolicies,includingaWhistleblowerPolicy,aDisclosurePolicy,andaCodeofConduct.Thesepoliciesfacilitateanethicalandhonestbusinessenvironmentformanagementandstaffbycallingforfull,fair,accurate,andtimelypublicdisclosures;compliancewithapplicablelaws,rulesandregulations;andpromptinternalreportingofpolicyviolationstotheBoardChairandChiefFinancialOfficer.
AuDIT COmmITTEE OvERSIGHT
CrescentPoint’sAuditCommitteeassiststheBoardofDirectorsinfulfillingitsoversightresponsibilitiesbymonitoringCrescentPoint’sinternalcontrolsandbyreviewingallfinancialdisclosurespriortopublicrelease.Inaddition,theAuditCommitteereviewsandapprovesannuallytheexternalauditors’auditplanandmustapproveanynonauditworkperformedbytheexternalauditors.
BILL 198
TheOntarioSecuritiesCommissionintroducedMulti-LateralInstrument52-109in2004.ThisregulationisbeingphasedinoverseveralyearsandrequiresCrescentPoint’sChiefExecutiveOfficerandChiefFinancialOfficertocertifyonthereliabilityoffinancialdisclosuresandontheeffectivenessofcontrolssupportingthosedisclosures.During2005,theTrustcommencedacomprehensiveprogramtoformallydocumentandevaluatetheeffectivenessofallorganizationalprocessesandcontrolsthatimpactitscorporatedisclosures.By2006,theTrustwasfullycompliantwithcertificationrequirements forBill198.
For2007,CrescentPoint’sChiefExecutiveOfficerandChiefFinancialOfficerhaveconcludedthatCrescentPoint’sdisclosurecontrolsandproceduresareeffectiveandprovidereasonableassurancethatmaterialinformationrelatedtoCrescentPointismadeknowntothembyotherswithintheTrust.TheybelievethatinternalcontrolsprovidereasonableassuranceregardingthereliabilityoftheTrust’sfinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithCanadianGAAP.
During2007,theTrustengagedexternalconsultantstoassistindocumentingandassessingtheTrust’sdesignofinternalcontrolsoverfinancialreporting.NomaterialchangesintheTrust’sinternalcontroloverfinancialreportingwereidentifiedduringtheyearendedDecember31,2007thathasmateriallyaffected,orarereasonablylikelytomateriallyaffect,theTrust’sinternalcontroloverfinancialreporting.
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ENVIRONMENT,HEALTHANDSAFETYThehealthandsafetyofemployees,contractors,visitorsandthepublic,aswellastheprotectionoftheenvironment,isofutmostimportancetoCrescentPoint.TheTrustendeavourstoconductitsoperationsinamannerthatwillminimizebothadverseeffectsandconsequencesofemergencysituationsby:
• Complyingwithgovernmentregulationsandstandards;
• Conductingoperationsconsistentwithindustrycodes,practicesandguidelines;
• Ensuringprompt,effectiveresponseandrepairtoemergencysituationsandenvironmentalincidents;
•ProvidingtrainingtoemployeesandcontractorstoensurecompliancewithTrustsafetyandenvironmentalrulesandprocedures;
• Promotingtheaspectsofcarefulplanning,goodjudgment,implementationoftheTrust’sprocedures,andmonitoringTrustactivities;
• Communicatingopenlywithmembersofthepublicregardingouractivities;and
• AmendingtheTrust’spoliciesandproceduresasmayberequiredfromtimetotime.
CrescentPointbelievesthatallemployeesplayavitalroleinachievingexcellenceinenvironmental,healthandsafetyperformance.Thisisbestachievedthroughcarefulplanningandthesupportandactiveparticipationofeveryoneinvolved.
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MANAGEMENT’SDISCUSSION ANDANALYSISManagement’sdiscussionandanalysis(“MD&A”)isdatedMarch12,2008andshouldbereadinconjunctionwiththeauditedconsolidatedstatementsfortheyearendedDecember31,2007forafullunderstandingofthefinancialpositionandresultsofoperationsofCrescentPointEnergyTrust(“CrescentPoint”orthe“Trust”).
NON-GAAP FINANCIAL mEASuRES
Throughoutthisdiscussionandanalysis,CrescentPointusesthetermscashflowfromoperations,cashflowfromoperationsperunit,cashflowfromoperationsperunit–diluted,netdebt,marketcapitalizationandtotalcapitalization.ThesetermsdonothaveanystandardizedmeaningasprescribedbyCanadiangenerallyacceptedaccountingprinciples(“GAAP”)andthereforetheymaynotbecomparablewiththecalculationofsimilarmeasurespresentedbyotherissuers.
Cashflowfromoperationsiscalculatedbasedoncashflowfromoperatingactivitiesbeforechangesinnon-cashworkingcapitalandassetretirementobligationexpenditures.Cashflowfromoperationsperunit–dilutediscalculatedbasedoncashflowfromoperatingactivitiesbeforechangesinnon-cashworkingcapitalandassetretirementobligationexpendituresexcludingthecashportionofunit-basedcompensation.ManagementutilizescashflowfromoperationsasakeymeasuretoassesstheabilityoftheTrusttofinancedistributions,operatingactivities,capitalexpendituresanddebtrepayments.Cashflowfromoperationsaspresentedisnotintendedtorepresentcashflowfromoperatingactivities,netearningsorothermeasuresoffinancialperformancecalculatedinaccordancewithCanadianGAAP.
Thefollowingtablereconcilesthecashflowfromoperatingactivitiestocashflowfromoperations:
($000) �007 �006 % ChangeCashflowfromoperatingactivities 332,605 177,426 �7
Changesinnon-cashworkingcapital 21,450 10,691 �0�
Assetretirementexpenditures 1,855 1,018 ��
Cashflowfromoperations 355,910 189,135 ��
Netdebtiscalculatedascurrentliabilitieslesscurrentassets,includinglongterminvestments,andexcludingriskmanagementassetsandliabilities.ManagementutilizesnetdebtasakeymeasuretoassesstheliquidityoftheTrust.Marketcapitalizationiscalculatedbyapplyingtheyearendclosingunittradingpricetothenumberoftrustunitsoutstanding.Marketcapitalizationisanindicationoftheenterprisevalue.Totalcapitalizationiscalculatedasmarketcapitalizationandcurrentliabilities,lesscurrentassetsandlongterminvestments,excludingtheriskmanagementassetandliabilities.Totalcapitalizationisusedbymanagement tomeasuretheproportionofnetdebtintheTrust’scapitalstructure.
FORwARD-LOOkING INFORmATION
Certainstatementscontainedinthisreportconstituteforward-lookingstatementsandarebasedontheTrust’sbeliefsandassumptionsbasedoninformationavailableatthetimetheassumptionwasmade.Byitsnature,suchforward-lookinginformationinvolvesknownandunknownrisks,uncertaintiesandotherfactorsthatmaycauseactualresultsoreventstodiffermateriallyfromthoseanticipatedinsuchforward-lookingstatements.TheTrustandCrescentPointResourcesInc.(“CPRI”)believetheexpectationsreflectedinthoseforward-lookingstatementsarereasonablebutnoassurancecanbegiventhattheseexpectationswillprovetobecorrectandsuchforward-lookingstatementsshouldnotbeundulyreliedupon.Thesestatementsspeakonlyasofthedateofthisreport.
Thematerialassumptionsinmakingtheseforward-lookingstatementsaredisclosedinthisanalysisundertheheadings“CashDistributions”,“CapitalExpenditures”,“AssetRetirementObligation”,“LiquidityandCapitalResources”,“CriticalAccountingEstimates”and“NewAccountingPronouncements”.
MANAGEMENT’SDISCUSSIONANDANALYSIS
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Thisdisclosurecontainscertainforward-lookingestimatesthatinvolvesubstantialknownandunknownrisksanduncertainties,certainofwhicharebeyondCrescentPoint’scontrol,includingtheimpactofgeneraleconomicconditions;industryconditionsincludingchangesinlawsandregulationsincludingtheadoptionofnewenvironmentallawsandregulationsandchangesinhowtheyareinterpretedandenforced;increasedcompetitionandthelackofavailabilityofqualifiedpersonnelormanagement;fluctuationsincommodityprices,foreignexchangeorinterestrates;stockmarketvolatility;andobtainingrequiredapprovalsofregulatoryauthorities.Inaddition,therearenumerousrisksanduncertaintiesassociatedwithoilandgasoperationsandtheevaluationofoilandgasreserves.Therefore,CrescentPoint’sactualresults,performanceorachievementcoulddiffermateriallyfromthoseexpressedin,orimpliedby,theseforward-lookingestimatesandifsuchactualresults,performanceorachievementstranspireoroccur,orifanyofthemdoso,therecanbenocertaintyastowhatbenefitsCrescentPointwillderivetherefrom.
Abarrelofoilequivalent(“boe”)isbasedonaconversionrateofsixthousandcubicfeetofnaturalgastoonebarrelofoil.
RESuLTS OF OPERATIONS
PRODUCTION
CrescentPoint’sproductionincreased36percentyear-over-yearduetotheacquisitionofMissionOil&GasInc.(“Mission”),InnovaExplorationLtd.(“Innova”),severalotheracquisitionscompletedin2007andtheTrust’ssuccessfuldrillingprogram.TheMissionacquisitionclosedonFebruary9,2007andaddedover7,000boe/dofhighquality,longlife,lightoilandnaturalgasassets,includingmorethan5,000boe/dfromtheViewfieldBakkenresourceplay.TheInnovaacquisitionclosedonOctober22,2007andaddedover4,300boe/dofhighquality,longlife,lightoilandnaturalgasassets,includingmorethan2,800boe/dfromtheViewfieldBakkenresourceplay.TheseacquisitionsaddedanewcoreareafortheTrustintheViewfieldareaofsoutheastSaskatchewan.ContributingtotheincreaseinproductionwereminorpropertyacquisitionsintheViewfieldBakkenareaanddrillingof149 (107.0net)wellsfocusedprimarilyinsoutheastSaskatchewan.
TheTrust’sweightingtooilincreasedto87percentforthe2007year,athreepercentincreaseover2006.TheincreaseintheTrust’soilweightingisprimarilytheresultoftheMissionandInnovaacquisitionswhichwerefocusedonlightoilassets.
�007 �006 % ChangeCrudeoilandNGL(bbls/d) 24,349 17,417 40
Naturalgas(mcf/d) 22,610 19,833 14
Total(boe/d) 28,117 20,723 36
CrudeoilandNGL(%) �7 84 3
Naturalgas(%) �3 �6 (3)
Total(%) �00 �00 -
MARKETINGANDPRICES
TheTrust’ssellingpriceforoilincreased12percentover2006,primarilyduetonarrowercorporateoildifferentialsasincreasesintheUS$benchmarkpricewerelargelyoffsetbyastrongerCanadiandollar.CrescentPoint’soildifferentialnarrowedsignificantlyfrom$15.25perbblin2006to$10.52perbblin2007,duetobothchangesinmarketconditionsandanimprovementintheTrust’scrudeoilqualityasaresultoftheViewfieldBakkenlightoilpropertiesacquiredthroughtheMissionandInnovaacquisitions.
TheTrust’saveragesellingpriceforgaswascomparabletothe2006yearwithaslightincreaseofthreepercent.ThiscomparestoatwopercentdeclineintheAECOdailygasprice.ThevariationintheTrust’sgaspricecomparedtotheAECOdailypricereflectstheTrust’sportfolioofgasmarketingcontractsandtheadditionofhighheatcontentgasproductionassociatedwiththeacquiredViewfieldBakkenarea.
MANAGEMENT’SDISCUSSIONANDANALYSIS
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AVERAGESELLINGPRICES (�) �007 �006 % ChangeCrudeoilandNGL($/bbl) 67.33 60.03 ��Naturalgas($/mcf) 6.52 6.33 3Total($/boe) 63.55 56.52 ��
(1)Theaveragesellingpricesreportedarebeforerealizedfinancialinstrumentlossesandtransportationcharges.
BENCHMARKPRICING �007 �006 % ChangeWTIcrudeoil(US$/bbl) 72.40 66.25 �
WTIcrudeoil(Cdn$/bbl) 77.85 75.28 3
AECOnaturalgas (�)(Cdn$/mcf) 6.44 6.54 (�)
Exchangerate–US$/Cdn$ 0.93 0.88 6
(1)TheAECOnaturalgaspricereportedistheaveragedailyspotprice.
FINANCIALINSTRUMENTSANDRISKMANAGEMENT
ManagementofcashflowvariabilityisanintegralcomponentofCrescentPoint’sbusinessstrategy.ChangingbusinessconditionsaremonitoredregularlyandreviewedwiththeBoardofDirectorstoestablishriskmanagementguidelinesusedbymanagementincarryingouttheTrust’sstrategicriskmanagementprogram.Theriskexposureinherentinmovementsinthepriceofcrudeoilandnaturalgas,fluctuationsintheUS/Cdndollarexchangerate,changesinthepriceofpowerandinterestratemovementsonlong-termdebtareallproactivelymanagedbyCrescentPointthroughtheuseofderivativeswithreputable,financiallysoundcounterparties.TheTrustconsidersthesecontractstobeaneffectivemeanstomanagecashflow.
TheTrust’scrudeoilandnaturalgasfinancialinstrumentsarereferencedtoWTIandAECO,unlessotherwisenoted.CrescentPointutilizesavarietyoffinancialinstrumentsincludingswaps,collarsandputstoprotectagainstdownwardcommoditypricemovementswhileprovidingtheopportunityforsomeparticipationduringperiodsofrisingprices.
CrescentPointhadarealizedfinancialinstrumentlossforoilof$10.8millionforthe2007yearcomparedtoa$30.4millionlossin2006.Thedecreaseinthelossisattributabletohigheraveragefinancialinstrumentpricesforoil.TheTrust’seffectivefinancialinstrumentoilpriceincreasedapproximately$11.98perbarrel,from$63.24perbarrelin2006to$75.22perbarrelin2007.
Thefollowingisasummaryoftherealizedfinancialinstrumentgains(losses)onoilandgascontracts:
($000,exceptperboeandvolumeamounts) �007 �006 % ChangeAveragecrudeoilvolumeshedged(bbls/d) 11,190 6,917 6�
Crudeoilrealizedfinancialinstrumentloss (10,752) (30,410) (65)
perbbl (1.21) (4.78) (75)
Averagenaturalgasvolumeshedged(GJ/d) 3,173 ��7 246
Naturalgasrealizedfinancialinstrumentgain 853 �7 ��0
permcf 0.10 0.01 �00
Averagebarrelsofoilequivalenthedged(boe/d) 11,691 7,062 66
Totalrealizedfinancialinstrumentloss (9,899) (30,323) (67)
perboe (0.96) (4.01) (76)
TheTrusthasnotdesignatedanyofitsriskmanagementactivitiesasaccountinghedgesundertheCanadianInstituteofCharteredAccountants(the“CICA”)section3855and,accordingly,hasmarked-to-marketitsfinancialinstruments.TheTrust’sunrealizedfinancialinstrumentslossforthe2007yearwas$105.4millioncomparedtoa$13.9millionunrealizedfinancialinstrumentgainin2006.Thelossforthe2007yearisattributabletothesignificantincreaseintheCdn$WTIbenchmarkpriceatDecember31,2007comparedtoDecember31,2006,andanincreaseinthevolumehedged,partiallyoffsetbyanincreaseintheaveragehedgeprice.CrescentPointhasthefollowingfinancialinstrumentcontractsinplaceasatMarch3,2008:
MANAGEMENT’SDISCUSSIONANDANALYSIS
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FINANCIALWTICRUDEOILCONTRACTS-CANADIANDOLLAR
Term ContractVolume (bbls/d)
Average SwapPrice ($Cdn/bbl)
Average Bought
Put Price ($Cdn/bbl)
Average SoldCall
Price ($Cdn/bbl)
Average PutPremium ($Cdn/bbl)
�00�January–June Swap 1,000 72.73January–September Swap 250 68.10January–December Swap 7,000 77.73February–December Swap 500 93.00April–December Swap 750 89.70July–December Swap 1,000 73.52October–December Swap 250 70.80January–June Collar 250 65.00 82.00January–December Collar 3,500 73.50 88.57July–December Collar 250 70.00 91.00January–December Put 3,500 72.58 (6.66)2008 Weighted Average 16,521 78.48 72.85 88.44 (6.66)�00�January–March Swap 2,750 77.68April–June Swap 2,750 77.58January–June Swap 1,250 74.99July–September Swap 3,000 74.07July–December Swap 1,000 76.41October–December Swap 3,000 74.37January–December Swap 4,000 82.78January–March Collar 250 75.00 87.00April–June Collar 250 75.00 83.00January–June Collar 1,250 70.00 81.01January–September Collar 250 70.00 79.00January–December Collar 3,000 74.25 89.05July–September Collar 250 70.00 84.05July–December Collar 1,250 69.00 80.37October–December Collar 500 70.00 85.93January-December Put 3,250 70.46 (6.03)2009 Weighted Average 16,000 79.28 71.78 86.20 (6.03)�0�0January–March Swap 3,500 76.22April–June Swap 2,750 74.38January–September Swap 2,250 79.51April–September Swap 750 75.53July–September Swap 2,750 75.00October–December Swap 5,250 89.57January–December Swap 750 89.00January–June Collar 500 70.00 80.50January–September Collar 2,000 73.75 86.26July–September Collar 500 70.00 81.75October–December Collar 2,250 80.22 97.48January–December Collar 1,000 83.50 96.63January–September Put 1,000 71.00 (4.82)October–December Put 1,000 72.00 (4.85)January–December Put 750 73.00 (4.22)2010 Weighted Average 11,561 80.99 75.48 90.54 (4.56)�0��January–June Swap 500 96.20January - June 2011 Weighted Average 500 96.20
MANAGEMENT’SDISCUSSIONANDANALYSIS
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FINANCIALAECONATURALGASCONTRACTS-CANADIANDOLLAR
ContractVolume (GJ/d)
Average Bought
Put Price ($Cdn/GJ)
Average SoldCall
Price ($Cdn/GJ)Term
�00�January–March Collar 2,000 6.75 8.00
April–October Collar 2,000 6.75 7.75
2008January-OctoberWeightedAverage 2,000 6.75 7.82
FINANCIALINTERESTRATECONTRACTS-CANADIANDOLLAR
ContractPrincipal ($Cdn)
FixedAnnual
Rate (%)TermJanuary2008–May2008 Swap 50,000,000 4.41
January2008–February2009 Swap 50,000,000 4.37
January2008–November2010 Swap 75,000,000 4.35
FINANCIALPOWERCONTRACTS-CANADIANDOLLAR
ContractVolume (MW/h)
FixedRate ($Cdn/MW/h)Term
January2008–December2008 Swap 3.0 63.25
PHYSICALPOWERCONTRACTS–CANADIANDOLLAR
ContractVolume (MW/h)
FixedRate ($Cdn/MW/h)Term
January2008–December2009 Swap 1.0 82.45
January2009–December2009 Swap 3.0 81.25
REVENUES
Oilrevenueswere$598.4millionin2007comparedwith$381.7millionin2006.The57percentincreaseinoilsalesrelatesprimarilytoincreasesinproductionresultingfromthe2007acquisitionsofMissionandInnova,severalotheracquisitionscompletedin2007andtheTrust’ssuccessfuldrillingprogram.AnarrowingofcorporateoildifferentialsduetoimprovementsintheTrust’scrudequalityalongwithhighermarketoilpricesfurthercontributedtotheincreaseinrevenuesthroughouttheyear.
Naturalgassalesincreased17percentinthe2007yearprimarilyduetotheincreaseinproductionintheyearresultingfrom2007acquisitionsandtheTrust’ssuccessfuldrillingprogram.
($000)(�) �007 �006 % ChangeCrudeoilandNGLsales 598,364 381,655 57
Naturalgassales 53,811 45,836 �7
Revenues 652,175 427,491 53
(1)Revenueisreportedbeforetransportationchargesandrealizedfinancialinstruments.
MANAGEMENT’SDISCUSSIONANDANALYSIS
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TRANSPORTATIONEXPENSES
Transportationexpenseperboeincreased28percentcomparedto2006.Theincreaserelatestopropertiesacquiredinthepastyearandtheirproximitytomarket,alongwithpipelineconstraintissuesinsoutheastSaskatchewanwhichbeganinthefourthquarterof2006andcontinuedthrough2007.GrowingproductionvolumesinsoutheastSaskatchewanandincrementalimportsfromotherareashaveexceededcapacityofthearea’smajoroilgatheringsystem,EnbridgePipelines(Saskatchewan).Effortstomaintaincrudesalesledtoincrementaltruckingcostsinthe2007year.Expansionofthegatheringsystemisexpectedtobecompletedmid-yearof2008.
($000,exceptperboeamounts) �007 �006 % ChangeTransportationexpenses 17,725 10,175 74
Perboe 1.73 1.35 ��
ROYALTYEXPENSES
Royaltieswere18percentofrevenuein2007comparedto21percentofrevenuein2006.ThedecreaseisprimarilyduetolowerroyaltyratesonthepropertiesacquiredthroughtheMissionandInnovaacquisitions.FurthercontributingtotheTrust’slowerroyaltyrateareroyaltyincentivesonnewproductionassociatedwiththeTrust’ssuccessfuldrillingprograminsoutheastSaskatchewan.
CrescentPointcompletedaninitialevaluationoftheOctober25,2007royaltyannouncementbytheProvinceofAlbertaandconcludedthattheroyaltychangeswillhaveminimalimpactontheTrust’scurrentproduction,operationsandcashflows.
($000,exceptperboeamounts) �007 �006 % ChangeTotalroyalties 118,915 90,013 3�
Asa%ofoilandgassales ��% ��% (3)
Perboe 11.59 11.90 (3)
OPERATINGEXPENSES
Operatingexpenseperboefor2007remainedconsistentwiththe2006yearwithaslightincreaseofonepercent.Theincreaseinoperatingcostsperboefortheyearreflectshighercostsexperiencedforrepairsandmaintenanceandonetimecostsfromapartneronanon-operatedpropertyduringthefirsthalfof2007.TheseincreaseswerepartiallyoffsetbythereductioninoperatingcostsresultingfromtheMissionandInnovaacquisitionsandtheloweroperatingcoststructureassociatedwiththeViewfieldBakkenarea.
($000,exceptperboeamounts) �007 �006 % ChangeOperatingexpenses 94,918 69,424 37
Perboe 9.25 9.18 �
MANAGEMENT’SDISCUSSIONANDANALYSIS
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NETBACKS
CrescentPoint’snetback,afterrealizedfinancialinstruments,forthe2007yearincreased33percentfrom$30.08perboeto$40.02perboeprimarilyduetothehighnetbackproductionassociatedwiththeViewfieldBakkenareaacquiredin2007.TheViewfieldBakkenoperatingnetbackrealizedfor2007was$62.09perboe.Alsocontributingtotheimprovednetbackwerelowerrealizedfinancialinstrumentlossesin2007resultingfromhigherfinancialinstrumentprices.
CrudeOil andNGL ($/bbl)
Natural Gas
($/mcf)
�007 Total
($/boe)
�006 Total
($/boe)%
ChangeAveragesellingprice 67.33 6.52 63.55 56.52 ��
Royalties (12.06) (1.42) (11.59) (11.90) (3)
Operatingexpenses (8.97) (1.84) (9.25) (9.18) �
Transportation (1.79) (0.22) (1.73) (1.35) ��
Netbackpriortorealizedfinancialinstruments 44.51 3.04 40.98 34.09 �0
Realizedgain(loss)onfinancialinstruments (1.21) 0.10 (0.96) (4.01) (76)
Netback 43.30 3.14 40.02 30.08 33
GENERALANDADMINISTRATIVEEXPENSES
Generalandadministrativeexpenseperboeforthe2007yeardecreasedsevenpercentfrom2006.Thedecreaseistheresultofhigherlegalandprofessionalfeesin2006thatwereincurredinpreparationfortheMarch2007reorganization.Inaddition,theacquisitionscompletedintheyearbytheTrusthaveaddedsignificantproductionvolumeswithminimalincrementalgeneralandadministrativeexpenses.
Capitalizedgeneralandadministrativeexpenseincreasedby78percentin2007from$2.6millionto$4.6million.Thisreflectsthesignificantincreaseintheacquisitionanddevelopmentcapitalexpenditurelevelsin2007.
($000,exceptperboeamounts) �007 �006 % ChangeGeneralandadministrativecosts 19,965 14,863 34
Capitalized (4,607) (2,591) 7�
Generalandadministrativeexpenses 15,358 12,272 25
Perboe 1.50 1.62 (7)
RESTRICTEDUNITBONUSPLAN
TheTrusthasaRestrictedUnitBonusPlanandunderthetermsofthisplan,theTrustmaygrantrestrictedunitstodirectors,officers,employeesandconsultants.Restrictedunitsvestat331/3percentoneachofthefirst,secondandthirdanniversariesofthegrantdateoratadateapprovedbytheBoardofDirectors.Restrictedunitholdersareeligibleformonthlydistributions,immediatelyupongrant.
ThemaximumnumberoftrustunitsissuableundertheRestrictedUnitBonusPlanis5,000,000units.TheTrusthad1,486,050restrictedunitsoutstandingatDecember31,2007comparedwith1,043,628unitsoutstandingatDecember31,2006.
TheTrustrecordedcompensationexpenseandcontributedsurplusof$14.4millionin2007,basedonfairvalueoftheunitsonthedateofgrant,anincreaseof28percentover2006.Thecashdistributionsonrestrictedunitsincreasedfrom$1.2millionforthe2006yearto$2.0millionforthe2007year.Theincreaseinthenumberofrestrictedunitsandcorrespondingunit-basedcompensationexpenseisattributabletothegrowthintheTrust’soperationsandindustrypressurestoretainandattracthighqualityemployees.
MANAGEMENT’SDISCUSSIONANDANALYSIS
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($000,exceptperboeamounts) �007 �006 % ChangeCashunit-basedcompensationexpense 1,997 1,162 7�
Non-cashunit-basedcompensationexpense 14,378 11,254 ��
Total 16,375 12,416 3�
Perboe 1.60 1.64 (�)
INTERESTEXPENSE
Interestexpenseperboeincreased17percentin2007.ThisincreaseisattributabletoincreasedamountsdrawnoncreditfacilitiesreflectingthegrowthoftheTrustandhighereffectiveinterestratesresultingfromanincreaseintheprimeratethroughthemajorityoftheyear.CrescentPointactivelymanagesexposuretofluctuationsininterestratesthroughinterestrateswapsandshorttermbanker’sacceptances(refertoFinancialInstrumentsandRiskManagementsectionabove).
($000,exceptperboeamounts) �007 �006 % ChangeInterestexpense 21,805 13,673 59
Perboe 2.12 1.81 �7
DEPLETION,DEPRECIATIONANDAMORTIZATION
Thedepletion,depreciationandamortization(“DD&A”)rateincreasedto$23.67perboeforthe2007yearfrom$18.31perboein2006.ThehigherDD&ArateisdueprimarilytotheMissionandInnovaacquisitionscompletedin2007whichcarriedahighercostperboethantheTrust’sexistingproperties.
($000,exceptperboeamounts) �007 �006 % ChangeDepletion,depreciationandamortization 242,923 138,511 75
Perboe 23.67 18.31 ��
TAXES
CapitalandothertaxexpenseconsistsofSaskatchewanCorporationCapitalTaxResourceSurcharge.Capitalandothertaxexpenseforthe2007yearincreased36percentduetoanincreaseintheTrust’sSaskatchewanbasedrevenuesprimarilyasaresultoftheMissionandInnovaacquisitionscompletedin2007.
In2007,afutureincometaxexpenseof$21.2millionwasincludedinincomecomparedtoa$16.6millionrecoveryin2006.
OnMarch1,2007,theTrustcompletedareorganizationoftheTrustanditssubsidiaries.ThereorganizationresultedintheexistingbusinessoftheTrust,whichwascarriedonthroughlimitedpartnershipsandcorporations,beingcarriedonthroughalimitedpartnershipindirectlyownedbytheTrust.IntheTruststructure,paymentsaremadebetweentheoperatingentitiesandtheTrusttransferringboththeincomeandtaxliabilitytotheunitholders.Asaresultofthereorganization,CrescentPointrecordedafuturetaxrecoveryof$158.8millioninthefirstquarter.
OnOctober31,2006,theFinanceMinisterannouncedtheFederalGovernment’splanregardingthetaxationofincometrusts.Currently,distributionspaidtounitholders,otherthanreturnsofcapital,areclaimedasadeductionbytheTrustinarrivingattaxableincomewherebytaxiseliminatedattheTrustlevelandispaidbytheunitholders.OnJune12,2007,theFederalGovernment’sBillC-52,whichincludedlegislationtotaxpubliclytradedtrusts,wassubstantivelyenactedasdefinedunderCanadianGAAP.Asaresultofthisnewlegislation,anew31.5percenttaxwillbeappliedtodistributionsfromCanadianpublicincometrusts.ThenewtaxisnotexpectedtoapplytoCrescentPointuntilJanuary1,2011asatransitionperiodappliestopubliclytradedtruststhatexistedpriortoNovember1,2006.Asaresultofthischangeinlegislation,afutureincometaxliabilityandfuturetaxexpenseof$152.3millionwas
MANAGEMENT’SDISCUSSIONANDANALYSIS
AR | 07 Crescent Point Energy Trust ��
recognizedinthesecondquarterof2007.ThefutureincometaxrepresentsthetaxabletemporarydifferencesofCrescentPointtaxeffectedat31.5percent,whichistheratethatwasapplicabletotrustsin2011underlegislationinplaceinJune2007.
OnOctober30,2007,theFinanceMinisterannounced,aspartofthe2007EconomicStatement,changestothetaxsystemincludingreductionofthecorporateincometaxratefrom22.1percentto15percentby2012.Thereductionswillbephasedinbetween2008and2012.LegislationenactingthemeasuresannouncedintheEconomicStatementreceivedRoyalAssentonDecember14,2007.Thereductioninthegeneralcorporatetaxratewillalsoapplytothetaxationofincometrusts,reducingthecombinedfederalanddeemedProvincialtaxratefordistributionsto29.5percentin2011and28percentin2012.Theseratechangeswerereflectedinthefutureincometaxprovisionrecordedinthefourthquarter.
TheTrustrecordedfuturetaxexpensesof$18.0millioninthefourthquarterof2007primarilyasaresultofthechangeintemporarydifferences,partiallyoffsetbythefuturetaxrecoveryof$23.3millionresultingfromthefederaltaxratereductions.
AtDecember31,2007,theTrusthadtaxpoolsofapproximately$1.0billionconsistingofintangibleresourcepools,tangiblepoolsandtrustunitissuecosts.
OnFebruary26,2008,thefederalgovernmentannouncedthatbeginningwiththe2009taxationyear,theprovincialcomponentofthetrusttaxwillbebasedonthegeneralprovincialcorporatetaxrateineachprovinceinwhichthetrusthasapermanentestablishmentinsteadofthedeemed13percentprovincialtaxrate.OnDecember20,2007,theFinanceMinisterannouncedtechnicalamendmentstoprovidesomeclarificationtotheTrusttaxlegislation.AspartoftheannouncementtheMinisterindicatedthatthefederalgovernmentintendstoprovidelegislationin2008topermitincometruststoconverttotaxableCanadiancorporationswithoutanyunduetaxconsequencestoinvestorsortheTrust.ManagementandtheBoardofDirectorscontinuetoreviewtheimpactofthistaxonourbusinessstrategy.
($000) �007 �006 % ChangeCapitalandothertaxexpense 15,394 11,314 36
Futureincometaxexpense(recovery) 21,173 (16,560) (���)
CASHFLOWANDNETINCOME
Cashflowfromoperationsincreasedfrom$189.1millionin2006to$355.9millionin2007.Cashflowfromoperationsperunit-dilutedincreased18percentfrom$2.98to$3.51perunit-diluted.Theincreaseincashflowfromoperationsandcashflowperunit-dilutedisprimarilytheresultoftheTrust’sincreasedproductionattributabletotheMissionandInnovaacquisitionsandincreasedcorporatenetbacksdrivenbyimprovedcorporateoildifferentialsreflectingthelightoilproductionintheViewfieldBakkencoreareaandhigheroilprices.
Cashflowfromoperatingactivitiesincreasedfrom$177.4millionin2006to$332.6millionin2007.Cashflowfromoperatingactivitiesperunit-dilutedincreased18percentfrom$2.79to$3.28perunit-diluted.Theincreaseincashflowfromoperatingactivitiesandcashflowfromoperatingactivitiesperunit-dilutedisaresultofthesamefactorsdescribedabove,offsetslightlybychangesinworkingcapital.
Netincomeforthe2007yeardecreasedtoalossof$32.2millionfromincomeof$68.9millionin2006,primarilyasaresultofthe$105.4millionunrealizedfinancialinstrumentlossin2007comparedtoa$13.9millionunrealizedfinancialinstrumentgainin2006.Thisfluctuationwastheresultofahigher$CdnWTIbenchmarkpriceatDecember31,2007comparedtotheprioryearandhigherhedgedvolumes.
AsnotedintheFinancialInstrumentsandRiskManagementsection,theTrusthasnotdesignatedanyofitsriskmanagementactivitiesasaccountinghedgesundertheCanadianInstituteofCharteredAccountants(the“CICA”)section3855and,accordingly,
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30 Crescent Point Energy Trust AR | 07
hasmarked-to-marketitsfinancialinstruments.Changesintheforwardvalueofthesefinancialinstrumentsarerecordedinnetincome.TheTrust’soffsettingphysicalsalesandassetsarenotmarked-to-marketand,assuch,changesintheforwardvalueoftheseassetsarenotrecordedinnetincome.Asaresult,changesintheforwardpriceofcrudeoilandnaturalgasimpacttheTrust’snetincomefromyeartoyear.ExcludingtheTrust’sunrealizedfinanciallossof$105.4million,netincomefor2007was$73.3million.
($000,exceptperunitamounts) �007 �006 % ChangeCashflowfromoperations 355,910 189,135 ��
Cashflowfromoperationsperunit–diluted 3.51 2.98 ��
Cashflowfromoperatingactivities 332,605 177,426 �7
Cashflowfromoperatingactivitiesperunit–diluted 3.28 2.79 ��
Netincome(loss) (32,167) 68,947 (147)
Netincome(loss)perunit–diluted (�) (0.32) 1.05 (�30)
(1)Netincomeperunit–dilutediscalculatedbydividingthenetincomebeforenon-controllinginterestbythedilutedweightedaveragetrustunits,excludingthecashportionof unitbasedcompensation.
CASH DISTRIBuTIONS
TheTrustmaintainedmonthlydistributionsof$0.20perunitduring2007.CrescentPoint’sriskmanagementstrategyminimizescorporatepricevolatilitywhichhasprovidedtheTrustwiththeabilitytomaintainsustainabledistributionsthroughperiodsoffluctuatingmarketprices.
Cashdistributionsincreasedby63percentin2007comparedto2006.Theriseindistributionsrelatestotheincreaseinthetrustunitsoutstandingprimarilyasaresultof2007corporateacquisitions,aboughtdealequityfinancinginSeptember2007andtheTrust’sdistributionreinvestmentprograms.
Thefollowingtableprovidesareconciliationofcashdistributions:
($000,exceptperunitamounts) �007 �006 % ChangeAccumulatedcashdistributions,beginningofyear 290,442 140,165 �07
Cashdistributionsdeclaredtounitholders (�) 245,108 150,277 63
Accumulatedcashdistributions,endofyear 535,550 290,442 84
Accumulatedcashdistributionsperunit,beginningofyear 7.26 4.86 49
Cashdistributionsdeclaredtounitholdersperunit (�) 2.40 2.40 -
Accumulatedcashdistributionsperunit,endofyear 9.66 7.26 33
(1) Cashdistributionsreflectthesumoftheamountsdeclaredmonthlytounitholders,includingdistributionsundertheDRIPandPremiumDRIPplans.
Forthe2007year,cashflowfromoperatingactivities(includingchangesinnon-cashworkingcapital)of$332.6millionexceededcashdistributionsof$245.1million.Thiswasconsistentwiththetrendin2006and2005.
Cashdistributionsof$245.1millionforthe2007yearexceededthenetlossof$32.2million.Thisisconsistentwithdistributionsinthe2005and2006years.Netincomeincludessignificantnon-cashchargesthatdonotimpactcashflowwhichin2007were$388.1millionfortheyear.Thenon-cashchargesalsoincludefluctuationsinfutureincometaxesduetochangesintaxratesandtaxrules,unrealizedgainsandlossesonfinancialinstrumentsandunit-basedcompensationwhichincludesasignificantnon-cashcomponent.
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CrescentPointdoesnotanticipatecashdistributionswillexceedcashflowfromoperatingactivities,howeveritislikelytheywillexceednetincomeasnotedabovegiventhesignificantnon-cashitemsthatarerecordedsuchasfutureincometaxes,DD&A,unit-basedcompensationandunrealizedlossesonfinancialinstruments.Further,thecashflowfromoperatingactivitiescanbesignificantlyimpactedbylargefluctuationsinworkingcapitaladjustmentsthatmayvaryquarter-to-quarterbutleveloutovertheperiod.Thedistributionspaidtounitholdersrepresentareturnontheirinitialinvestmentandisnotintendedtobeareturnofcapital.
AnobjectiveoftheTrust’sdistributionpolicyistoprovideunitholderswithrelativelystableandpredictablemonthlydistributions. AnadditionalobjectiveistoretainaportionofcashflowtofundongoingdevelopmentandoptimizationprojectsdesignedtoenhancethesustainabilityoftheTrust’scashflow.AlthoughtheTruststrivestoprovideunitholderswithstableandpredictablecashflows,thepercentageofcashflowfromoperationspaidtounitholderseachmonthmayvaryaccordingtoanumberoffactors,includingfluctuationsinresourceprices,exchangeratesandproductionrates,reservesgrowth,thesizeofdevelopmentdrillingprogramsandtheportionthereoffundedfromcashflowandtheoveralllevelofdebtoftheTrust.TheactualamountofthedistributionsareatthediscretionoftheBoardofDirectors.Intheeventthatcommoditypricesarehigherthananticipatedandacashsurplusdevelops,suchsurplusmaybeusedtoincreasedistributions,reducedebtand/orincreasethecapitalprogram.
TheTrusthasastrongbalancesheetandabalanced3.5yearderivativeprofileandis,therefore,wellpositionedtosustaindistributionsovertimeasCrescentPointcontinuestoexploitanddevelopitsassetbaseandactivelyidentifyandevaluateacquisitionopportunities.Asdiscussedabove,therearemanyfactorsimpactingtheTrust’sabilitytosustaindistributions.TheTrustcontinuestomonitorthesefactorsinconnectionwithsettingdistributionlevels.
�007 �006 2005Cashflowfromoperatingactivities 332,605 177,426 94,247
Netincome(loss) (32,167) 68,947 38,509
Cashdistributionspaidorpayable 245,108 150,277 74,591
Excess(shortfall)ofcashflowsfromoperatingactivitiesovercashdistributionspaid 87,497 27,149 19,656
Excess(shortfall)ofnetincome(loss)overcashdistributionspaid (277,275) (81,330) (36,082)
TAxATION OF CASH DISTRIBuTIONS
Cashdistributionsarecomprisedofareturnoncapitalportion(taxable)andareturnofcapitalportion(taxdeferred).ForcashdistributionsreceivedbyCanadianresidentsoutsideofaregisteredpensionorretirementplaninthe2007taxationyear,thedistributionsare75percenttaxablefortheJanuary1–March1,2007taxationyearand100percenttaxableforthe March2,2007–December31,2007taxationyear,forCanadianincometaxpurposes.
During2007,acorporatereorganizationoftheTrustanditssubsidiarieswascompleted.Asaresultofthisreorganization,the Trusthadtwotaxationyearswithinthe2007calendaryear.ThefirstisfromJanuary1–March1,2007andthesecondisfrom March2–December31,2007.Theamountofthedistributionswhicharetaxableineachofthetwotaxationyearsisoutlinedin thetablebelow.UnitholderswhoheldtheirunitsthroughouttheyearwillreceiveaseparateT3slipforeachofthetaxationyears.
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3� Crescent Point Energy Trust AR | 07
ThefollowingtableoutlinesthebreakdownofthecashdistributionsperunitpaidorpayablebytheTrustwithrespecttotherecorddatesfromJanuary31,2007toDecember31,2007forCanadianincometaxpurposes:
RecordDate PaymentDate
TaxableAmount (Box26Other
Income)TaxableCapitalGain
Amount(�)
TaxDeferredAmount (Box42Returnof
Capital)TotalCashDistribution
January31,2007 February15,2007 $0.1500 - $0.0500 $0.20
February28,2007 March15,2007 $0.1500 - $0.0500 $0.20
March31,2007 April16,2007 $0.1960 $0.0040 - $0.20
April30,2007 May15,2007 $0.1960 $0.0040 - $0.20
May31,2007 June15,2007 $0.1960 $0.0040 - $0.20
June30,2007 July16,2007 $0.1960 $0.0040 - $0.20
July31,2007 August15,2007 $0.1960 $0.0040 - $0.20
August31,2007 September17,2007 $0.1960 $0.0040 - $0.20
September30,2007 October15,2007 $0.1960 $0.0040 - $0.20
October31,2007 November15,2007 $0.1960 $0.0040 - $0.20
November30,2007 December17,2007 $0.1960 $0.0040 - $0.20
December31,2007 January15,2008 $0.1960 $0.0040 - $0.20
TOTAL PER TRUST UNIT $2.26 $0.04 $0.10 $2.40
(1)Thetaxablecapitalgainrepresents50percentofthecapitalgainwhichwillbereportedinBox21oftheT3slips.
INvESTmENTS IN mARkETABLE SECuRITIES
DuringtheyearendedDecember31,2007,theTrustownedsharesofpubliclytradedexplorationandproductioncompanies.Inaccordancewithnewaccountingstandardsforfinancialinstruments,inthefirstquarterof2007,theTrustmarked-to-marketitsinvestmentinmarketablesecurities.Thecarryingamountof$171,000atDecember31,2006wasincreasedto$1.6millionatJanuary1,2007toreflectthefairvalueoftheinvestment.Theunrealizedgainof$1.5millionatJanuary1,2007wasrecordedthroughretainedearnings.Inthesecondquarterof2007,theTrustsoldthesecuritiesforarealizedgainof$1.4million.
Inthefourthquarterof2007,theTrustreceived1.5millionsharesofapubliclytradedexplorationandproductioncompanyfor$1.00pershareor$1.5millioninconnectionwithadispositionofproperties.ThefairvalueatDecember31,2007was$1.4million,resultinginanunrealizedlossoninvestmentof$150,000recordedthroughtheincomestatement.
LONG-TERm INvESTmENTS
DuringtheyearendedDecember31,2007,theTrustpurchased2.2millionsharesofInnovaExplorationLtd.apubliclytradedexplorationandproductioncompanyforanaveragepriceofapproximately$7.51pershareor$16.6million.TheTrustacquiredallremainingsharesofInnovaExplorationLtd.inOctober2007(refertoCapitalExpendituressectionbelow).
Duringthefourthquarterof2007,theTrustpurchased2.0millionsharesofPilotEnergyLtd.(“Pilot”),apubliclytradedexplorationandproductioncompanyforanaveragepriceofapproximately$2.90pershareor$5.9million.TheTrustacquiredtheremainingsharesonJanuary16,2008,withtheclosingoftheacquisitionofPilot(refertoSubsequentEventNote17(b)).ThefairvalueatDecember31,2007was$6.4millionresultinginanunrealizedgainoninvestmentof$470,000recordedthroughtheincomestatement.
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CAPITAL ExPENDITuRES
CURRENTYEAR
TheTrustclosedthreecorporateacquisitionsin2007fornetconsiderationofapproximately$1.0billionincludingclosingadjustmentsandnetdebtassumed($1.2billionwasallocatedtoproperty,plantandequipment).TheTrustalsoclosedpropertyacquisitionsfortotalconsiderationofapproximately$20.4million,apropertydispositionfor$3.4million,andrecordedpurchasepriceadjustmentsonpreviouslyclosedacquisitionsfortheyearendedDecember31,2007of$1.8million($20.6millionwasallocatedtoproperty,plantandequipment,netofdispositions).Theacquisitionscompletedin2007werepredominantlyfocusedintheViewfieldBakkenareaofsoutheastSaskatchewan.
OnFebruary9,2007,theTrustclosedtheacquisitionofMissionOil&GasInc.,apubliclytradedcompanywithpropertiesintheViewfieldareaofsoutheastSaskatchewanforconsiderationofapproximately$627.8million,includingclosingadjustmentsandnetdebtassumed.Theacquisitionaddedproductionof7,000boe/d,includingmorethan5,000boe/dfromtheBakkenresourceplay.ThepurchasewasfundedthroughtheTrust’sexistingbanklinesandtheissuanceofapproximately29.2milliontrustunits.
OnSeptember5,2007,theTrustclosedtheacquisitionofaprivatecorporationwithpropertiesintheWilmarandBrowningareasofsoutheastSaskatchewanforconsiderationofapproximately$18.9millionincludingnetdebtassumed.Thepurchasewasfundedthroughthetransferof605,815trustunitsandcashof$121,000fromtheTrust’sexistingbanklines.
OnOctober22,2007,theTrustpurchased97percentoftheissuedandoutstandingsharesofInnovaExplorationLtd.,apubliclytradedcompanywithpropertiesintheViewfieldareaofsoutheastSaskatchewan.OnOctober25,2007,theTrustacquiredtheremainingsharesoutstanding.Theshareswerepurchasedfortotalconsiderationof$402.9million,includingassumedbankdebtandworkingcapital.Theacquisitionaddedproductionof4,300boe/d,includingmorethan2,800boe/dfromtheViewfieldBakkenresourceplay.ThepurchasewaspaidthroughtheTrust’sexistingbanklines.
TheTrust’sdevelopmentcapitalexpendituresfortheyear2007were$227.9million,comparedto$110.0millionforthesameperiodin2006.In2007,149wells(107.0net)weredrilledwithasuccessrateof99percent.
SUBSEQUENTEVENTS
Subsequenttotheyearend,onJanuary14,2008,theTrustannounceditsinvestmentinShelterBayEnergyInc.(“ShelterBay”),aprivateBakkenlightoilgrowthcompany.ShelterBaywillbemanagedthroughaTechnicalServicesAgreementwithCrescentPoint,willacceleratedevelopmentoftheBakkenlightoilresourceplayinsoutheastSaskatchewanandfollowasimilarbusinessplantotheTrusttodevelop,exploitandacquirelightoilandnaturalgaspropertiesinwesternCanada.CrescentPointwillinitiallyinvestupto$60millioninShelterBay,whichwillbefinancedfromavailablelinesofcredit,andwillrepresenta20percentinterestinShelterBay.
InconnectionwiththeShelterBayannouncement,CrescentPointannouncedthattheTrusthadenteredintoanagreement(the“Agreement’)withLandexPetroleumCorp.(“Landex”),aprivateoilandgascompanytoacquireallofitsissuedandoutstandingsharesbywayofaplanofarrangement(the“Arrangement”)fortotalconsiderationofapproximately$310millionwhichincludestheassumptionof$16millionofnetdebt.Landexshareholderswillreceiveamaximumof$295millioncashandupto$75millionoftrustunitsbasedonanexchangerateof0.632trustunitsforeachLandexshare.
SubsequenttotheenteringintooftheAgreement,thepartiesamendedandrestatedtheAgreement(the“AmendedAgreement’)suchthatShelterBayhasagreedtocompletetheacquisitionofLandexpursuanttotheArrangement.UnderthetermsoftheAmendedAgreement,Landexshareholderswillreceiveamaximumof$275millioncash,upto$75millionoftrustunitsbasedonanexchangerateof0.632trustunitsforeachLandexshare,andaminimumof$20milliontoamaximumof$60millionShelterBayshares.UnderthetermsoftheAmendedAgreementCrescentPointwouldacquirethenonBakkenassetsofLandexfor$80millionandShelterBaywouldacquiretheBakkenassetsofLandexfor$230million,forcombinedconsiderationof$310million. TheArrangementissubjecttoLandexshareholderapprovalandisexpectedtocloseinlateMarch2008.
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Alsosubsequenttotheyearend,onJanuary16,2008,theTrustclosedtheacquisitionofPilotEnergyLtd.,apubliclytradedcompanywithpropertiesintheViewfieldBakkenareaofsoutheastSaskatchewanbywayofaPlanofArrangementfortotalconsiderationofapproximately$76.0millionbeforeclosingadjustmentsandincludingnetdebt(basedonatrustunitpriceof$22.48).ThepurchasewasfundedthroughtheTrust’sexistingbanklinesandissuanceof2.9milliontrustunits.
($000) �007 �006 % ChangeCapitalacquisitions(net) (�) (�) 1,068,406 507,929 ��0
Developmentcapitalexpenditures 227,923 109,995 �07
Capitalizedadministration 4,607 2,591 7�
Officeequipment(�) 3,258 647 404
Total 1,304,194 621,162 ��0
(1) Capitalacquisitionsrepresenttotalconsiderationforthetransactionsincludingbankdebtandworkingcapitalassumed. (2)Comparativeprioryearresultshavebeenrestatedtoconformtocurrentyearpresentation.
TheTrust’sbudgetedcapitalprogramfor2008isapproximately$225million,notincludingacquisitions.TheTrustsearchesforopportunitiesthatalignwithstrategicparametersandevaluateseachprospectonacase-by-casebasis.TheTrust’sacquisitionsareexpectedtobefinancedthroughbankdebtandnewequityissuanceswhereapplicablewithinthefederalgovernment’sSafeHarbourLimitsonequityissuance.
GOODwILL
Thegoodwillbalanceof$68.4millionasatDecember31,2007isattributabletothecorporateacquisitionsofTappitResourcesLtd.,CapioPetroleumCorporationandBulldogEnergyInc.duringtheperiod2003through2005.TheTrustperformedagoodwillimpairmenttestatDecember31,2007andnoimpairmentofgoodwillexists.
ASSET RETIREmENT OBLIGATION
Theassetretirementobligationincreasedby$20.2millionduring2007.Thisincreaserelatestoliabilitiesof$17.7millionrecordedinrespectofthreecorporateandseveralminorpropertyacquisitions(netofonedisposition)andnewwellsdrilledintheyearandaccretionexpenseof$4.4million,reducedbyactualexpendituresincurredintheyearof$1.9million.TheBoardofDirectorsandmanagementreviewtheadequacyofthefundannuallyandadjustcontributionsasnecessary.
Thereclamationfundincreasedbyapproximately$700,000during2007.Thisincreaserelatestocontributionsofapproximately$2.6million,partiallyoffsetbyexpendituresof$1.9million.TheBoardofDirectorsapprovedcontributionsof$0.25perbarrelofproductionbeginningJanuary1,2007.
LIquIDITy AND CAPITAL RESOuRCES
AtDecember31,2007,theTrusthadasyndicatedcreditfacilitywithninebanksandanoperatingcreditfacilitywithoneCanadiancharteredbank.During2007,theTrustreceivedincreasesfrom$470millionto$800millionintheamountavailableunderitscombinedcreditfacilities.TheincreaseintheborrowingbasereflectstheincreaseintheTrust’sreservebaseandtheMissionandInnovaacquisitions.AsatDecember31,2007,theTrusthadbankdebtof$595.9million,leavingunutilizedborrowingcapacityof$204.1million.
AsatDecember31,2007,CrescentPointwascapitalizedwith19percentnetdebtand81percentequity,athreepercentchangefromDecember31,2006.TheTrust’snetdebttocashflowatDecember31,2007was1.8times(December31,2006–1.2times).TheTrust’sprojectednetdebtto12monthcashflowis1.0times.
MANAGEMENT’SDISCUSSIONANDANALYSIS
AR|07CrescentPointEnergyTrust35
TheTrust’sabilitytoraisenewequitywillbelimitedbytheSafeHarbourLimitguidelinesasannouncedbytheFederalGovernment.TheFederalGovernment’sdecisiontotaxincometrustshascreateduncertaintyinthecapitalmarketsregardingthefutureofthetrustsector.However,CrescentPointbelievesthatithassufficientcapitalresourcestomeetitsobligationsgiventheTrust’ssignificantunutilizedborrowingcapacityavailableandsuccessraisingnewequitywithintheguidelinesasdemonstratedfrom2006throughearly2008.
CAPITALIZATIONTABLE($000,EXCEPTUNIT,PERUNITANDPERCENTAMOUNTS) December31,2007 December31,2006
Bankdebt 595,984 254,438
Workingcapital (�) 54,104 (26,533)
Netdebt(�) 650,088 227,905
Trustunitsoutstanding 113,760,732 69,531,952
Marketpriceatendofyear(perunit) 24.81 17.60
Marketcapitalization 2,822,404 1,223,762
Totalcapitalization 3,472,492 1,451,667
Netdebtasapercentageoftotalcapitalization(%) �� �6
Annualcashflowfromoperations 355,910 189,135
Netdebttocashflow (�) 1.8 1.2
(1)Workingcapitalandnetdebtincludelong-terminvestments,butexcludetheriskmanagementliabilitiesandassets. (2)Thenetdebtreflectsthefinancingofacquisitions,howeverthecashflowonlyreflectscashflowsgeneratedfromtheacquiredpropertiessincetheclosingdatesof theacquisitions.
uNITHOLDERS’ EquITy
AtDecember31,2007,CrescentPointhad113,760,732trustunitsissuedandoutstandingcomparedto69,531,952trustunitsatDecember31,2006.Theincreasebymorethan44.2milliontrustunitsrelatesprimarilytothecorporateacquisitionscompletedin2007,theboughtdealfinancinginSeptember2007andtheTrust’sdistributionreinvestmentprograms.
TheTrustissued29.2milliontrustunitstoMissionshareholdersatapriceof$17.37pertrustunitonclosingoftheacquisitiononFebruary9,2007.OnSeptember5,2007,theTrusttransferred605,815trustunitsat$20.02perunitinconnectionwiththeacquisitionofaprivatecorporationowningpropertiesintheWillmarandBrowningareasofsoutheastSaskatchewan.
TheTrustandasyndicateofunderwritersclosedaboughtdealequityfinancingonSeptember25,2007pursuanttowhichthesyndicatesold8.9milliontrustunitsforgrossproceedsof$165.1million($18.55pertrustunit).
FortheyearendedDecember31,2007,thedistributionreinvestmentandpremiumdistributionreinvestmentplansresultedinanadditional5.3milliontrustunitsbeingissuedatanaveragepriceof$18.96raisingatotalof$100.7million.Participationlevelsintheseplansaveragedapproximately44percent.Thecashraisedthroughthesealternativeequityprogramsisusedtoreducebankdebt.
InDecember2007,theTrustannouncedthatasaresultofthefederalgovernmentSafeHarbourLimitsonequityissuancesforincometrusts,theDRIP,PremiumDRIPandOptionalUnitPurchaseprogramswouldbesuspendeduntilfurthernoticebeginningwiththemonthofDecember2007.
CrescentPoint’stotalcapitalizationincreased139percentto$3.5billionatDecember31,2007comparedto$1.5billionatDecember31,2006,withthemarketvalueofthetrustunitsrepresenting81percentofthetotalcapitalization.Theincreaseincapitalizationisattributabletotheincreaseinthenumberofunitsoutstandingalongwithasignificantappreciationintheunittradingprice.During2007,theTrust’sunitstradedintherangeof$15.89to$24.93withanaveragedailytradingvolumeof510,501units.
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36 Crescent Point Energy Trust AR | 07
Subsequenttotheyearend,onJanuary8,2008,theTrustandasyndicateofunderwritersclosedaboughtdealequityfinancingpursuanttowhichthesyndicatesold5.2milliontrustunitsforgrossproceedsof$125million($24.25pertrustunit).Inaddition,onJanuary16,2008,theTrustclosedtheacquisitionofPilot.TheTrustissued2.9milliontrustunitstoPilotshareholdersatapriceof$22.48pertrustunitonclosingoftheacquisition.
CONTRACTuAL OBLIGATIONS AND COmmITmENTS
TheTrusthasassumedvariouscontractualobligationsandcommitmentsinthenormalcourseofoperations.ThefollowingtablesummarizestheTrust’scontractualobligationsandcommitmentsasatDecember31,2007:
CONTRACTUALOBLIGATIONSSUMMARY($000) ExpectedPayoutDate
Total �00� 2009-2010 2011-2012 After2012
OperatingLeases(�) (�) 34,838 5,170 10,325 7,618 11,725
PremiumsonPutContracts 15,041 8,505 6,536 - -
(1) Operatingleasesincludesleasesforofficespace,equipmentandvehicles. (2) IncludedinoperatingleasesarerecoveriesofrentexpenseonofficespacetheTrusthasacquiredthroughvariousacquisitionsandhassubleasedouttoothertenants.
OFF BALANCE SHEET ARRANGEmENTS
TheTrusthasoff-balancesheetfinancingarrangementsconsistingofvariousleaseagreements.Allleaseshavebeentreatedasoperatingleaseswherebytheleasepaymentsareincludedinoperatingexpensesorgeneralandadministrativeexpensesdependingonthenatureofthelease.NoassetorliabilityvaluehasbeenassignedtotheseleasesinthebalancesheetasofDecember31,2007.AlloftheleaseagreementamountshavebeenreflectedintheContractualObligationsandCommitmentstableabove,whichwereenteredintointhenormalcourseofoperations.
CRITICAL ACCOuNTING ESTImATES
ThepreparationoftheTrust’sfinancialstatementsrequiresmanagementtoadoptaccountingpoliciesthatinvolvetheuseofsignificantestimatesandassumptions.Theseestimatesandassumptionsaredevelopedbasedonthebestavailableinformationandarebelievedbymanagementtobereasonableundertheexistingcircumstances.Neweventsoradditionalinformationmayresultintherevisionoftheseestimatesovertime.AsummaryofthesignificantaccountingpoliciesusedbyCrescentPointcanbefoundinNote2totheDecember31,2007consolidatedfinancialstatements.Thefollowingdiscussionoutlineswhatmanagementbelievestobethemostcriticalaccountingpoliciesinvolvingtheuseofestimatesandassumptions.
DEPLETION,DEPRECIATIONANDAMORTIZATION(“DD&A”)
CrescentPointfollowstheCICAaccountingguidelineAcG-16onfullcostaccountingintheoilandgasindustrytoaccountforoilandgasproperties.Underthismethod,allcostsassociatedwiththeacquisitionof,explorationfor,andthedevelopmentofnaturalgasandcrudeoilreservesarecapitalizedandcostsassociatedwithproductionareexpensed.Thecapitalizedcostsaredepletedusingtheunit-of-productionmethodbasedonestimatedprovedreservesusingmanagement’sbestestimateoffutureprices(seeOilandGasReservesdiscussionbelow).
Reserveestimatescanhaveasignificantimpactonearnings,astheyareakeycomponentinthecalculationofdepletion.AdownwardrevisioninareserveestimatecouldresultinahigherDD&Achargetoearnings.Inaddition,ifnetcapitalizedcostsaredeterminedtobeinexcessofthecalculatedceiling,whichisbasedlargelyonreserveestimates(seeAssetImpairmentdiscussionbelow),theexcessmustbewrittenoffasanexpensechargedagainstearnings.Intheeventofapropertydisposition,proceedsarenormallydeductedfromthefullcostpoolwithoutrecognitionofagainorlossunlessthereisachangeintheDD&Arateof 20percentorgreater.
MANAGEMENT’SDISCUSSIONANDANALYSIS
AR | 07 Crescent Point Energy Trust 37
ASSETRETIREMENTOBLIGATION
Uponretirementofitsoilandgasassets,theTrustanticipatesincurringsubstantialcostsassociatedwithassetretirementactivities.Estimatesoftheassociatedcostsaresubjecttouncertaintyassociatedwiththemethod,timingandextentoffutureretirementactivities.Aliabilityforthesecostsandarelatedassetarerecordedusingthediscountedassetretirementcostsandthecapitalizedcostsaredepletedonaunit-of-productionbasisovertheassociatedreservelife.Accordingly,theliability,therelatedassetandtheexpenseareimpactedbychangesintheestimatesandtimingoftheexpectedcostsandreserves(seeOilandGasReservesdiscussionbelow).
ASSETIMPAIRMENT
Producingpropertiesandunprovedpropertiesareassessedannually,oraseconomiceventsdictate,forpotentialimpairment.Impairmentisassessedbycomparingtheestimatedundiscountedfuturecashflowstothecarryingvalueoftheasset.Thecashflowsusedintheimpairmentassessmentrequiremanagementtomakeassumptionsandestimatesaboutrecoverablereserves(seeOilandGasReservesdiscussionbelow),futurecommoditypricesandoperatingcosts.Changesinanyoftheassumptions,suchasadownwardrevisioninreserves,adecreaseinfuturecommodityprices,oranincreaseinoperatingcostscouldresultinanimpairmentofanasset’scarryingvalue.
PuRChASE PRICE AllOCATION
Businessacquisitionsareaccountedforbythepurchasemethodofaccounting.Underthismethod,thepurchasepriceisallocatedtotheassetsacquiredandtheliabilitiesassumedbasedonthefairvalueatthetimeofacquisition.Theexcesspurchasepriceoverthefairvalueofidentifiableassetsandliabilitiesacquiredisgoodwill.Thedeterminationoffairvalueoftenrequiresmanagementtomakeassumptionsandestimatesaboutfutureevents.Theassumptionsandestimateswithrespecttodeterminingthefairvalueofproperty,plantandequipmentacquiredgenerallyrequiresthemostjudgmentandincludeestimatesofreservesacquired(seeOilandGasReservesdiscussionbelow),futurecommodityprices,anddiscountrates.Changesinanyoftheassumptionsorestimatesusedindeterminingthefairvalueofacquiredassetsandliabilitiescouldimpacttheamountsassignedtoassets,liabilities,andgoodwillinthepurchasepriceallocation.Futurenetearningscanbeaffectedasaresultofchangesinfuturedepletionanddepreciation,assetimpairmentorgoodwillimpairment.
GOODWILLIMPAIRMENT
Goodwillissubjecttoimpairmenttestsannually,oraseconomiceventsdictate,bycomparingthefairvalueofthereportingentitytoitscarryingvalue,includinggoodwill.Ifthefairvalueofthereportingentityislessthanitscarryingvalue,agoodwillimpairmentlossisrecognizedastheexcessofthecarryingvalueofthegoodwillovertheimpliedvalueofthegoodwill.Thedeterminationoffairvaluerequiresmanagementtomakeassumptionsandestimatesaboutrecoverablereserves(seeOilandGasReservesdiscussionbelow),futurecommodityprices,operatingcosts,productionprofiles,anddiscountrates.Changesinanyoftheseassumptions,suchasadownwardrevisioninreserves,adecreaseinfuturecommodityprices,anincreaseinoperatingcostsoranincreaseindiscountratescouldresultinanimpairmentofalloraportionofthegoodwillcarryingvalueinfutureperiods.
OILANDGASRESERVES
Reservesestimates,althoughnotreportedaspartoftheTrust’sfinancialstatements,canhaveasignificanteffectonnetearningsasaresultoftheirimpactondepletionanddepreciationrates,assetretirementprovisions,assetimpairments,purchasepriceallocations,andgoodwillimpairment(seediscussionoftheseitemsabove).IndependentpetroleumreservoirengineeringconsultantsperformevaluationsoftheTrust’soilandgasreservesonanannualbasis.However,theestimationofreservesisaninherentlycomplexprocessrequiringsignificantjudgment.Estimatesofeconomicallyrecoverableoilandgasreservesarebaseduponanumber
MANAGEMENT’SDISCUSSIONANDANALYSIS
3� Crescent Point Energy Trust AR | 07
ofvariablesandassumptionssuchasgeoscientificinterpretation,commodityprices,operatingandcapitalcostsandproductionforecasts,allofwhichmayvaryconsiderablyfromactualresults.Theseestimatesareexpectedtoberevisedupwardordownwardovertime,asadditionalinformationsuchasreservoirperformancebecomesavailable,oraseconomicconditionschange.
FUTUREINCOMETAXES
ThedeterminationoftheTrust’sincomeandothertaxliabilitiesrequiresinterpretationofcomplexlawsandregulationsofteninvolvingmultiplejurisdictions.Alltaxfilingsaresubjecttoauditandpotentialreassessmentafterthelapseofconsiderabletime.Accordingly,theactualincometaxliabilitymaydiffersignificantlyfromthatestimatedandrecorded.
TheTrustTaxLegislationresultsinataxapplicableatthetrustleveloncertainincomefrompubliclytradedmutualfundtrustsatratesoftaxcomparabletothecombinedfederalandprovincialcorporatetaxandtreatsdistributionsasdividendstotheUnitholders.ExistingtrustswillhaveatransitionperiodandthenewtaxwillapplyinJanuary2011.
NEw ACCOuNTING PRONOuNCEmENTS
ACCOUNTINGCHANGESINTHECURRENTYEAR
Financial Instruments
OnJanuary1,2007,theTrustadoptedtheCICAHandbooksections3855“FinancialInstrumentsRecognitionandMeasurement”,3865“Hedges”,3861“FinancialInstruments–DisclosureandPresentation”,1530“ComprehensiveIncome,”and3251“Equity”.OtherthantheeffectontheInvestmentinMarketableSecuritiesasdescribedintheabovesection,theadoptionofthefinancialinstrumentsstandardshasnotaffectedthecurrentorcomparativeyearbalancesontheconsolidatedfinancialstatementsasallfinancialinstrumentsidentifiedhavebeenfairvalued.
Section3855requiresthatallfinancialassetsbeclassifiedasheld-for-trading,available-for-sale,held-to-maturity,orloansandreceivablesandthatallfinancialliabilitiesmustbeclassifiedasheld-for-tradingorother.Financialassetsandfinancialliabilitiesclassifiedasheld-for-tradingaremeasuredatfairvaluewithchangesinthosefairvaluesrecognizedinearnings.Financialassetsheld-to-maturity,loansandreceivables,andotherfinancialliabilitiesaremeasuredatamortizedcostusingtheeffectiveinterestmethodofamortization.Available-for-salefinancialassetsaremeasuredatfairvaluewithunrealizedgainsandlosses,includingchangesinforeignexchangerates,beingrecognizedinothercomprehensiveincome.Investmentsinequityinstrumentsclassifiedasavailable-for-salethatdonothaveaquotedmarketpriceinanactivemarketaremeasuredatcost.Accordingly,theinvestmentinmarketablesecuritiesbalanceof$171,000atJanuary1,2007consistingofaninvestmentinapubliclytradedexplorationandproductioncompany,wasfairvaluedatJanuary1,2007to$1.6million.Underprospectiveapplication,the$1.5milliongainwasrecordedasanadjustmenttoopeningretainedearnings.
DuringthethreemonthperiodendedJune30,2007,theTrustsoldtheinvestmentinmarketablesecurities.Asaresult,thechangeintheunrealizedgainoninvestmentof$1.5millionwasrecordedthroughtheincomestatementandarealizedgainwasrecordedfor$1.4million.
DuringthethreemonthperiodendedDecember31,2007,theTrustreceived1.5millionsharesofapubliclytradedexplorationandproductioncompanyfor$1.00pershareor$1.5millioninconnectionwithadispositionofproperties.ThefairvalueatDecember31,2007was$1.4million,resultinginanunrealizedlossoninvestmentof$150,000recordedthroughtheincomestatement.DuringthethreemonthsendedDecember31,2007,theTrustalsopurchased2.0millionsharesofPilotEnergyLtd.,apubliclytradedexplorationandproductioncompanyforanaveragepriceofapproximately$2.90pershareor$5.9million.TheTrustacquiredtheremainingsharesonJanuary16,2008,withtheclosingofPilotEnergyLtd.acquisition(refertoSubsequentEventNote17(b)below).ThefairvalueatDecember31,2007was$6.4millionresultinginanunrealizedgainoninvestmentof$470,000recordedthroughtheincomestatement.
MANAGEMENT’SDISCUSSIONANDANALYSIS
AR | 07 Crescent Point Energy Trust 3�
Section1530establishesnewstandardsforreportingcomprehensiveincome,consistingofNetIncomeandOtherComprehensiveIncome(“OCI”).OCIisthechangeinequity(netassets)ofanentityduringareportingperiodfromtransactionsandothereventsfromnon-ownersourcesandexcludesthoseresultingfrominvestmentsbyownersanddistributionstoowners.TheTrusthasnosuchtransactionsandeventswhichwouldrequirethedisclosureofOCIfortheyearendedDecember31,2007.Anychangesintheseitemswouldbepresentedinaconsolidatedstatementofcomprehensiveincome.
FUTUREACCOUNTINGCHANGES
TheCICAissuednewaccountingstandards,CICAAccountingStandardHandbookSection3862,“FinancialInstruments–Disclosures”andSection3863“FinancialInstruments–Presentation”.Thesestandardsrequireentitiestoprovidedisclosuresintheirfinancialstatementsthatenableuserstoevaluatethesignificanceoffinancialinstrumentstotheentity’sfinancialpositionandperformance.Italsorequiresthatentitiesdisclosethenatureandextentofrisksarisingfromfinancialinstrumentsandhowtheentitymanagesthoserisks.Thestandardsestablishpresentationguidelinesforfinancialinstrumentsandnon-financialderivativesanddealswiththeclassificationoffinancialinstruments,fromtheperspectiveoftheissuer,betweenliabilitiesandequity,theclassificationofrelatedinterest,dividends,lossesandgains,andthecircumstancesinwhichfinancialassetsandfinancialliabilitiesareoffset.ThisstandardiseffectiveforfiscalyearsbeginningonorafterOctober1,2007.Increaseddisclosurewillberequiredonthenatureandextentofrisksarisingfromfinancialinstrumentsandhowtheentitymanagesthoserisks.
TheCICAissuedSection1535,“CapitalDisclosures”.TheapplicationoftheserecommendationswillprovidereadersoffinancialstatementswithinformationpertinenttotheTrust’sobjectives,policiesandprocessesformanagingcapital.IncreaseddisclosureofquantitativedataregardingwhatisconsideredcapitalandwhethertheTrustisincompliancewithallexternallyimposedcapitalrequirementsandconsequencesofnon-compliancewillbedisclosed.ThisstandardiseffectiveforfiscalyearsbeginningonorafterOctober1,2007.
TheCICAissuedSection3064,“GoodwillandOtherIntangibleAssets”,replacingSection3062,“GoodwillandOtherIntangibleAssets”andSection3450,“ResearchandDevelopmentCosts”.Thisnewstandardestablishesstandardsfortherecognition,measurement,presentationanddisclosureofgoodwillandintangibleassetssubsequenttoitsinitialrecognition.StandardsconcerninggoodwillareunchangedfromthestandardsincludedinthepreviousSection3062.ThisstandardiseffectiveonJanuary1,2009.TheTrusthasnotassessedtheimpactofthisstandardonitsfinancialstatements.
OuTSTANDING TRuST uNIT DATA
AsatMarch3,2008,theTrusthad121,669,469trustunitsoutstanding.
MANAGEMENT’SDISCUSSIONANDANALYSIS
40CrescentPointEnergyTrustAR|07
SELECTED ANNuAL INFORmATION
($000exceptperunitamounts) �007 �006 2005
Totalrevenue 652,175 427,491 251,076
Netincome(loss)(�) (32,167) 68,947 38,509
Netincome(loss)perunit(�) (0.32) 1.12 1.12
Netincome(loss)perunit-diluted(�) (0.32) 1.05 1.12
Cashflowfromoperatingactivities 332,605 177,426 94,247
Cashflowfromoperatingactivitiesperunit 3.30 2.88 2.75
Cashflowfromoperatingactivitiesperunit-diluted 3.28 2.79 2.61
Cashflowfromoperations 355,910 189,135 109,785
Cashflowfromoperationsperunit 3.54 3.07 3.20
Cashflowfromoperationsperunit-diluted 3.51 2.98 3.04
Workingcapital(�) (54,104) 26,533 31,165
Totalassets 2,613,432 1,373,466 808,297
Totalliabilities 1,196,429 467,086 375,632
Netdebt(�) 650,088 227,905 194,545
Totallong-termfinancialliabilities 59,652 11,697 4,590
Weightedaveragetrustunits(thousands)(3) 102,059 63,569 36,086
Cashdistributions 245,108 150,277 74,591
Cashdistributionsperunit 2.40 2.40 2.14
(1) Netincomeandnetincomebeforediscontinuedoperationsandextraordinaryitemsarethesame. (2) Workingcapitalandnetdebtincludelong-terminvestments,butexcludetheriskmanagementliabilitiesandassets. (3) Thetrustunitsissuableonconversionoftheexchangeablesharesreflecttheweightedaverageexchangeablesharesoutstandingconvertedattheexchangeratioineffectat theendoftheyear.Forthe2006amounts,theexchangeableshareratioappliedistheoneineffectfortheOctober27,2006redemption.
CrescentPoint’srevenue,cashflowfromoperationsandassetshaveincreasedsignificantlyfromtheyearendedDecember31,2005throughtheyearDecember31,2007duetonumerouscorporateandpropertyacquisitionsandtheTrust’ssuccessfuldrillingprogram,whichhaveresultedinhigherproductionvolumes.Thisfactorcombinedwithfavourablecommoditypricesresultingfromhighermarketpricesandnarrowercorporateoildifferentialshaveproducedtheincreasesrealizedinthetablenotedabove.Netincomethrough2005to2007hasfluctuatedprimarilyduetounrealizedfinancialinstrumentgainsandlossesonoilandgascontracts,whichfluctuatewithchangesinmarketconditionsalongwithfluctuationsinthefutureincometaxexpenseandrecovery.
MANAGEMENT’SDISCUSSIONANDANALYSIS
AR|07CrescentPointEnergyTrust41
SummARy OF quARTERLy RESuLTS
($000,exceptperunitamounts)
�007 �006
Q4 Q3 Q� Q� Q4 Q3 Q� Q�Revenues 214,748 164,368 144,179 128,880 100,960 119,365 113,790 93,376
Netincome(loss)(1)(5) (90,348) 18,410 (117,773) 157,544 6,918 39,588 19,260 3,181
Netincome(loss)perunit(1)(5) (0.80) 0.18 (1.17) 1.83 0.10 0.61 0.32 0.06
Netincome(loss)perunit-diluted(1)(5) (0.80) 0.18 (1.17) 1.80 0.10 0.58 0.31 0.02
Cashflowfromoperatingactivities 99,070 80,722 102,637 50,176 39,313 50,910 49,683 37,520
Cashflowfromoperatingactivitiesperunit 0.88 0.79 1.02 0.58 0.58 0.78 0.84 0.71
Cashflowfromoperatingactivitiesperunit-diluted 0.87 0.78 1.01 0.58 0.56 0.75 0.81 0.68
Cashflowfromoperations 112,572 92,215 78,248 72,875 43,843 52,774 52,282 40,236
Cashflowfromoperationsperunit 1.00 0.90 0.78 0.84 0.64 0.81 0.88 0.76
Cashflowfromoperationsperunit-diluted 0.99 0.89 0.77 0.84 0.63 0.78 0.85 0.73
Workingcapital(�) (54,104) (9,908) (23,346) 13,044 26,533 29,354 29,840 25,946
Totalassets 2,613,432 2,106,227 2,051,979 2,076,521 1,373,466 1,351,245 1,294,214 1,188,260
Totalliabilities 1,196,429 555,233 656,693 534,299 467,086 448,483 503,903 452,648
Netdebt(�) 650,088 208,554 353,416 340,612 227,905 212,073 241,371 206,991
Totallong-termfinancialliabilities 59,652 - 7,286 16,107 11,697 8,650 18,791 16,097
Weightedaveragetrustunits-diluted(thousands)(3) 114,623 104,074 101,681 87,537 69,764 67,810 61,372 54,958
Capitalexpenditures(4) 506,231 80,488 58,835 658,640 32,925 94,548 116,487 377,202
Cashdistributions 67,971 63,206 60,320 53,611 41,322 39,890 36,123 32,942
Cashdistributionsperunit 0.60 0.60 0.60 0.60 0.60 0.60 0.60 0.60
(1) Netincomeperunit–dilutediscalculatedbydividingthenetincomebeforenon-controllinginterestbythedilutedweightedaveragetrustunits,excludingthecashportionof unit–basedcompensation. (2)Workingcapitalandnetdebtincludelong-terminvestments,butexcludetheriskmanagementliabilitiesandassets. (3)Thetrustunitsissuableonconversionoftheexchangeablesharesreflecttheweightedaverageexchangeablesharesoutstandingconvertedattheexchangeratioineffectattheendof theyear.Forthefourthquarter2006amounts,theexchangeableshareratioappliedistheoneineffectfortheOctober27,2006redemption. (4)Capitalexpendituresincludescapitalacquisitions.Capitalacquisitionsrepresenttotalconsiderationforthetransactionsincludingbankdebtandworkingcapitalassumed. Priorperiodresultshavebeenrestatedtoconformtocurrentperiodpresentation. (5)Netincomeforthefirstquarterof2007includesthe$158.8millionfutureincometaxrecoveryresultingfromtheMarch1,2007reorganization.Netincomeforthesecond quarterof2007includesthe$152.3millionfutureincometaxexpenseresultingfromtheJune12,2007BillC-52BudgetImplementationActthatwassubstantivelyenacted.
CrescentPoint’srevenuehasincreasedduetoseveralpropertyandcorporateacquisitionscompletedoverthepasttwoyearsandtheTrust’ssuccessfuldrillingprogram.TheoverallgrowthoftheTrust’sassetbasealsocontributedtothegeneralincreaseincashflowfromoperationsandcashflowfromoperatingactivities.Netincomethrough2006and2007hasfluctuatedprimarilyduetounrealizedfinancialinstrumentgainsandlossesonoilandgascontracts,whichfluctuatewiththechangesinmarketconditionsalongwithfluctuationsinthefutureincometaxexpense(recovery).TheMarch1,2007internalreorganizationresultedina$158.8millionfuturetaxrecoveryinthefirstquarterof2007.BillC-52becamesubstantivelyenactedonJune12,2007,resultinginthefuturetaxexpenseof$152.3millioninthesecondquarterof2007.Capitalexpendituresfluctuatedthroughthisperiodasaresultoftimingofacquisitions.ThegeneralincreaseincashflowsfromoperationsandoperatingactivitiesthroughoutthelasteightquartershasallowedtheTrusttomaintainstablemonthlycashdistributionsoverthepasttwoyears.
MANAGEMENT’SDISCUSSIONANDANALYSIS
42CrescentPointEnergyTrustAR|07
FOuRTH quARTER REvIEw
Thefollowingarethemainhighlightsforthefourthquarterof2007:
• TheTrustspent$95.4millionondevelopmentcapitalactivitiesinthefourthquarter,includingthedrillingof37(28.9net)wellswitha100percentsuccessrateaddingover1,800boe/dinitialinterestproduction.
• TheTrustexceededitsfourthquarteraveragedailyproductiontarget,producing33,351boe/dforthequarter.Thisrepresentsa56percentincreasefrom21,369boe/dproducedinthefourthquarterof2006.TheincreaseresultedfromtheMissionandInnovaacquisitionscompletedin2007andtheTrust’ssuccessfuldrillingprogram.
• CrescentPoint’scashflowfromoperationsincreasedby157percentto$112.6millioninthefourthquarterof2007,comparedto$43.8millioninthefourthquarterof2006.TheincreaseisprimarilyduetotheTrust’sincreasedproductionandincreasedcorporatenetbacksduetonarrowercorporateoildifferentialsasaresultoftheMissionandInnovaacquisitions.
• CrescentPointmaintainedconsistentmonthlydistributionsof$0.20perunit,totaling$0.60perunitforthefourthquarterof2007.
• TheTrustcontinuedtoexecuteitscorestrategyofmanagingcommoditypriceriskusingacombinationoffixedpriceswaps,costlesscollars,andputoptioninstruments.AsatMarch3,2008,theTrusthadhedged60percent,57percent,41percent,and 2percentofproduction,netofroyaltyinterest,for2008,2009,2010andthefirstsixmonthsof2011,respectively.
• OnOctober22,2007,theTrustpurchased97percentoftheissuedandoutstandingsharesofInnovaExplorationLtd.,apubliclytradedcompanywithpropertiesintheViewfieldareaofsoutheastSaskatchewan.OnOctober25,2007,theTrustacquiredtheremainingsharesoutstanding.Theshareswerepurchasedfortotalconsiderationof$402.9million,includingassumedbankdebtandworkingcapital($472.0millionwasallocatedtoproperty,plantandequipment).ThepurchasewaspaidforthroughtheTrust’sexistingbanklines.
• InOctober2007,theamountavailableundertheTrust’screditfacilitywasincreasedfrom$600to$800millionreflectingthegrowthintheTrust’slendingbaseandthecompletionoftheInnovaExplorationLtd.acquisition.
INTERNAL CONTROLS
DisclosurecontrolsandprocedureshavebeendesignedtoensurethatinformationrequiredtobedisclosedbyCrescentPointisaccumulatedandcommunicatedtoCrescentPoint’smanagementasappropriatetoallowtimelydecisionsregardingrequireddisclosure.CrescentPoint’sChiefExecutiveOfficerandChiefFinancialOfficerhaveconcluded,basedontheirevaluationasoftheendoftheperiodcoveredbytheannualfilings,thatCrescentPoint’sdisclosurecontrolsandproceduresfortheyearendedDecember31,2007areeffectiveandprovidereasonableassurancethatmaterialinformationrelatedtoCrescentPointismadeknowntothembyotherswithintheTrust.CrescentPoint’sChiefExecutiveOfficerandChiefFinancialOfficerhavedesignedorcausedtobedesignedundertheirsupervision,internalcontrolsoverfinancialreportingrelatedtotheTrusttoprovidereasonableassuranceregardingthereliabilityoftheTrust’sfinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithCanadianGAAP.
During2007,theTrustengagedexternalconsultantstoassistindocumentingandassessingtheTrust’sdesignofinternalcontrolsoverfinancialreporting.NomaterialchangesintheTrust’sinternalcontroloverfinancialreportingwereidentifiedduringtheyearendedDecember31,2007thathasmateriallyaffected,orarereasonablylikelytomateriallyaffect,theTrust’sinternalcontroloverfinancialreporting.
ItshouldbenotedthatwhileManagementbelievesthatCrescentPoint’sdisclosurecontrolsandproceduresprovideareasonablelevelofassurancewithregardtotheireffectiveness,theydonotexpectthatthedisclosurecontrolsandproceduresorinternalcontrolsoverfinancialreportingwillpreventallerrorsandfraud.Acontrolsystem,nomatterhowwellconceivedoroperated,canprovideonlyreasonable,butnotabsolute,assurancethattheobjectivesofthecontrolsystemaremet.
MANAGEMENT’SDISCUSSIONANDANALYSIS
AR|07CrescentPointEnergyTrust43
BuSINESS RISkS AND PROSPECTS
CrescentPointisexposedtoseveraloperationalrisksinherentinexploiting,developing,producingandmarketingcrudeoilandnaturalgas.Theserisksincludebutarenotlimitedto:
• Economicriskoffindingandproducingreservesatareasonablecost;
• Relianceonreserveestimatesfortheyearaswellasonacquisitions;
• Financialriskofmarketingreservesatanacceptablepricegivenmarketconditions;
• Fluctuationsinforeigncurrencyandexchangerates;
• Operationalmattersrelatedtononoperatedproperties;
• Delaysinbusinessoperations,pipelinerestrictions,blowouts;
• Debtservice,indebtednessmaylimittimingoramountofdistributionsaswellasmarketpriceoftrustunits;
• Oilandgasmarketishighlycompetitive;
• Sufficientliquidityforfutureoperations;
• CostofcapitalrisktocarryouttheTrust’soperations;
• Unforeseentitledefects;
• Aboriginallandclaims;
• Lossofkeypersonnel;
• UncertaintyofGovernmentPolicychanges;
• Theriskofcarryingoutoperationswithminimalenvironmentalimpact;and
• Operationalhazardsandavailabilityofinsurance.
CrescentPointstrivestomanageorminimizetheserisksinanumberofways,including:
• Employingqualifiedprofessionalandtechnicalstaff;
• Concentratinginalimitednumberofareaswithlowcostexploitationanddevelopmentobjectives;
• Utilizingthelatesttechnologyforfindinganddevelopingreserves;
• Constructingquality,environmentallysensitive,safeproductionfacilities;
• Maximizingoperationalcontrolofdrillingandproducingoperations;
• Mitigatingpriceriskthroughstrategichedging;and
• Adheringtoconservativeborrowingguidelines.
MANAGEMENT’SDISCUSSIONANDANALYSIS
44CrescentPointEnergyTrustAR|07
HEALTH, SAFETy AND ENvIRONmENT POLICy
Thehealthandsafetyofemployees,contractors,visitorsandthepublic,aswellastheprotectionoftheenvironment,isofutmostimportancetoCrescentPoint.TheTrustendeavourstoconductitsoperationsinamannerthatwillminimizebothadverseeffectsandconsequencesofemergencysituationsby:
• Complyingwithgovernmentregulationsandstandards;
• Conductingoperationsconsistentwithindustrycodes,practicesandguidelines;
• Ensuringprompt,effectiveresponseandrepairtoemergencysituationsandenvironmentalincidents;
• ProvidingtrainingtoemployeesandcontractorstoensurecompliancewithTrustsafetyandenvironmentalrulesandprocedures;
• Promotingtheaspectsofcarefulplanning,goodjudgment,implementationoftheTrust’sprocedures,andmonitoringTrustactivities;
• Communicatingopenlywithmembersofthepublicregardingouractivities;and
• AmendingtheTrust’spoliciesandproceduresasmayberequiredfromtimetotime.
CrescentPointbelievesthatallemployeeshaveavitalroleinachievingexcellenceinenvironmental,healthandsafetyperformance.Thisisbestachievedthroughcarefulplanningandthesupportandactiveparticipationofeveryoneinvolved.
OuTLOOk
CrescentPoint’s2008guidanceisasfollows:
�00�
Production
OilandNGL(bbls/d) 30,125
Naturalgas(mcf/d) 26,250
Total(boe/d) 34,500
Cashflowfromoperations($000) 527,000
Cashflowfromoperationsperunit–diluted($) 4.21
Cashdistributionsperunit($) 2.40
Payoutratio–perunit–diluted(%) 57
Capitalexpenditures($000) (�) 225,000
Wellsdrilled,net �06
Pricing
Crudeoil–WTI(US$/bbl) 92.50
Crudeoil–WTI(Cdn$/bbl) 92.50
Naturalgas–Corporate(Cdn$/mcf) 8.00
Exchangerate(US$/Cdn$) 1.00
(1)Theprojectionofcapitalexpendituresexcludesacquisitions,whichareseparatelyconsideredandevaluated.
AdditionalinformationrelatingtoCrescentPoint,includingtheTrust’srenewalannualinformationform,isavailableon SEDARatwww.sedar.com.
AR|07CrescentPointEnergyTrust45
MANAGEMENT’SRESPONSIBLITYFORFINANCIALREPORTINGThemanagementofCrescentPointEnergyTrustisresponsibleforthepreparationofallinformationincludedinthisAnnualReport. The consolidated financial statements have been prepared in accordance with Canadian generally acceptedaccountingprinciplesandincludecertainestimatesthatreflectmanagement’sbestestimatesandjudgments.Managementhasdeterminedsuchamountsonareasonablebasisinordertoensurethatthefinancialstatementsarepresentedfairlyinallmaterialrespects.Thefinancial informationcontainedelsewhereinthisAnnualReporthasbeenreviewedtoensureconsistencywiththatintheconsolidatedfinancialstatements.
Management has developed andmaintains an extensive system of internal accounting controls that provide reasonableassurancethatalltransactionsareaccuratelyrecorded,thatthefinancialstatementsrealisticallyreporttheTrust’soperatingandfinancialresults,andthattheTrust’sassetsaresafeguarded.ManagementbelievesthatthissystemofinternalcontrolshasoperatedeffectivelyfortheyearendedDecember31,2007.
PricewaterhouseCoopersLLP,anindependentfirmofcharteredaccountants,wasappointedbyaresolutionoftheBoardofDirectorstoauditthefinancialstatementsoftheTrustandprovideanindependentprofessionalopinion.PricewaterhouseCoopersLLPwasappointedtoholdsuchofficeuntilthenextannualmeetingoftheunitholdersoftheTrust.
The Board of Directors, through its Audit Committee, has reviewed the financial statements including notes theretowithmanagementandPricewaterhouseCoopersLLP.ThemembersoftheAuditCommitteearecomposedofindependentdirectorswhoarenotemployeesoftheTrust.TheBoardofDirectorshasapprovedtheinformationcontainedinthefinancialstatementsbasedontherecommendationoftheAuditCommittee.
ScottSaxberg GregTisdale PresidentandChiefExecutiveOfficer ChiefFinancialOfficer March10,2008
46CrescentPointEnergyTrustAR|07
AUDITORS’REPORT
TotheUnitholdersofCrescentPointEnergyTrust
WehaveauditedtheconsolidatedbalancesheetsofCrescentPointEnergyTrustasatDecember31,2007and2006andtheconsolidatedstatementsofoperations,comprehensiveincomeanddeficitandcashflowsfortheyearsthenended.TheseconsolidatedfinancialstatementsaretheresponsibilityoftheTrust’smanagement.Ourresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudits.
WeconductedourauditsinaccordancewithCanadiangenerallyacceptedauditingstandards.Thosestandardsrequirethatweplanandperformanaudittoobtainreasonableassurancewhetherthefinancialstatementsarefreeofmaterialmisstatement.Anauditincludesexamining,onatestbasis,evidencesupportingtheamountsanddisclosuresinthefinancialstatements.Anauditalsoincludesassessingtheaccountingprinciplesusedandsignificantestimatesmadebymanagement,aswellasevaluatingtheoverallfinancialstatementpresentation.
Inouropinion,theseconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionoftheTrustasatDecember31,2007and2006andtheresultsofitsoperationsanditscashflowsfortheyearsthenendedinaccordancewithCanadiangenerallyacceptedaccountingprinciples.
CharteredAccountants Calgary,Alberta March10,2008
AR|07CrescentPointEnergyTrust47
CONSOLIDATEDBALANCESHEETS
AsatDecember31
2007 �006($000)
ASSETS
Current assets
Cash - 205
Accountsreceivable 102,800 53,279
Investmentsinmarketablesecurities(Note15) 1,385 �7�
Prepaidsanddeposits 2,218 4,509
Riskmanagementasset(Note15) 451 586
106,854 58,750
Long-terminvestment(Note15&17(b)) 6,386 30,020
Reclamationfund(Note7) 2,436 1,725
Riskmanagementasset(Note15) - 466
Property,plantandequipment(Note5&6) 2,429,406 1,214,155
Goodwill 68,350 68,350
Totalassets 2,613,432 1,373,466
LIABILITIES
Currentliabilities
Accountspayableandaccruedliabilities 144,141 53,053
Cashdistributionspayable 22,752 8,598
Bankindebtedness(Note8) 595,984 254,438
Riskmanagementliability(Note15) 63,819 7,581
826,696 323,670
Assetretirementobligation(Note9) 66,074 45,829
Riskmanagementliability(Note15) 59,652 11,697
Futureincometaxes(Note13) 244,007 85,890
Totalliabilities 1,196,429 467,086
UNITHOLDERS’EQUITY
Unitholders’capital(Note10) 1,826,423 1,045,929
Contributedsurplus(Note11) 15,086 9,150
Deficit(Note12) (424,506) (148,699)
Totalunitholders’equity 1,417,003 906,380
Totalliabilitiesandunitholders’equity 2,613,432 1,373,466Commitments(Note16)
Seeaccompanyingnotestotheconsolidatedfinancialstatements.
ApprovedonbehalfoftheBoardofDirectors:
GeraldA.Romanzin D.HughGillard Director Director
48CrescentPointEnergyTrustAR|07
CONSOLIDATEDSTATEMENTSOFOPERATIONS,COMPREHENSIVEINCOME(LOSS)ANDDEFICITFortheyearsendedDecember31 ($000,exceptperunitamounts) 2007 �006
REVENUE
Oilandgassales 652,175 427,491
Royalties (118,915) (90,013)
Financialinstruments
Realizedlosses (9,899) (30,323)
Unrealizedgains(losses)(Note15) (105,426) 13,859
417,935 321,014
EXPENSES
Operating 94,918 69,424
Transportation 17,725 10,175
Generalandadministrative 15,358 12,272
Unit-basedcompensation(Note11) 16,375 12,416
Interestonbankindebtedness(Note8) 21,805 13,673
Depletion,depreciationandamortization 242,923 138,511
Accretiononassetretirementobligation(Note9) 4,431 3,220
413,535 259,691
Incomebeforetaxes 4,400 61,323
Capitalandothertaxes 15,394 11,314
Futureincometaxexpense(recovery)(Note13) 21,173 (16,560)
Netincome(loss)beforenon-controllinginterest (32,167) 66,569
Non-controllinginterest - 2,378
Net income (loss) and comprehensive income (loss) for the year (32,167) 68,947
Deficit,beginningofyear (148,699) (67,369)
Changeinaccountingpolicy(Note3) 1,468 -
Cashdistributionspaidordeclared (245,108) (150,277)
Deficit, end of the year (Note 12) (424,506) (148,699)
Net income (loss) per unit (Note 14)
Basic (0.32) 1.12
Diluted (0.32) 1.05
Seeaccompanyingnotestotheconsolidatedfinancialstatements.
AR|07CrescentPointEnergyTrust49
FortheyearsendedDecember31 ($000,exceptperunitamounts) 2007 �006
CASHPROVIDEDBY(USEDIN) OPERATINGACTIVITIES
Netincome(loss)fortheyear (32,167) 68,947
Itemsnotaffectingcash
Non-controllinginterest - (2,378)
Futureincometaxes(Note13) 21,173 (16,560)
Unit-basedcompensation(Note11) 14,378 11,254
Depletion,depreciationandamortization 242,923 138,511
Accretiononassetretirementobligation(Note9) 4,431 3,220
Realizedgainonsaleofinvestment(Note3) (1,402) -
Unrealizedlosses(gains)onfinancialinstruments(Note15) 105,426 (13,859)
Unrealizedlossesoninvestment(Note3) 1,148 -
Assetretirementexpenditures(Note9) (1,855) (1,018)
Changeinnon-cashworkingcapital
Accountsreceivable 19,753 (6,932)
Prepaidexpensesanddeposits 2,291 2,589
Accountspayable (43,494) (6,348)
332,605 177,426
INVESTINGACTIVITIES
Developmentcapitalandotherexpenditures (235,788) (113,234)
Capitalacquisitions,net(Note5) (401,034) (362,186)
Proceedsonsaleofinvestment(Note3) 1,573 -
Reclamationfundnetcontributions (711) (1,484)
Long-terminvestment(Note15&17(b)) (5,912) -
Changeinnon-cashworkingcapital
Accountsreceivable (11,667) (3,553)
Accountspayable 48,417 15,175
(605,122) (465,282)
FINANCINGACTIVITIES
Issueoftrustunits,netofissuecosts 253,926 425,202
Restrictedunitvests (833) (1,377)
Increaseinbankindebtedness 250,173 11,366
Cashdistributions (245,108) (150,277)
Changeinnon-cashworkingcapital
Cashdistributionspayable 14,154 2,830
272,312 287,744
DECREASE IN CASH (205) (���)
CASH AT BEGINNING OF YEAR 205 3�7
CASH AT END OF YEAR - 205
Seeaccompanyingnotestotheconsolidatedfinancialstatements.
CONSOLIDATEDSTATEMENTSOFCASHFLOW
50CrescentPointEnergyTrustAR|07
NOTESTOCONSOLIDATED FINANCIALSTATEMENTS
DECEMBER31,2007AND2006
1. STRuCTuRE OF THE TRuST
CrescentPointEnergyTrust(“theTrust”)isanopen-endedunincorporatedinvestmenttrustcreatedonSeptember5,2003pursuanttoaDeclarationofTrustandPlanofArrangementoperatingunderthelawsoftheProvinceofAlberta.OlympiaTrustCompanyisthetrustee,CPRIistheadministratoroftheTrustandthebeneficiariesoftheTrustaretheunitholders.
OnMarch1,2007,theTrustcompletedareorganizationoftheTrustanditssubsidiaries.ThereorganizationresultedintheexistingbusinessoftheTrust,whichwascarriedonthroughalimitedpartnershipandcorporations,beingcarriedonthroughalimitedpartnership,directlyandindirectlyownedbytheTrust.
TheprincipalundertakingoftheTrust’soperatingentities,CrescentPointResourcesLimitedPartnershipalongwithitsgeneralpartner,CrescentPointGeneralPartnerCorp.istoacquire,holddirectlyorindirectly,interestsinoilandgasproperties.TheadministratoroftheTrust’sbusinessisCrescentPointResourcesInc.
2. SIGNIFICANT ACCOuNTING POLICIES
A)PRINCIPLESOFCONSOLIDATION
TheconsolidatedfinancialstatementsincludetheaccountsoftheTrustanditssubsidiaries.Anyreferenceto“theTrust”throughouttheseconsolidatedfinancialstatementsreferstotheTrustanditssubsidiaries.AlltransactionsbetweentheTrustanditssubsidiarieshavebeeneliminated.
B)JOINTVENTURES
CertainoftheTrust’sdevelopmentandproductionactivitiesareconductedjointlywithothersthroughunincorporatedjointventures.TheaccountsoftheTrustreflectitsproportionateinterestinsuchactivities.
C)PROPERTY,PLANTANDEQUIPMENT
TheTrustfollowsthefullcostmethodofaccountingforpetroleumandnaturalgaspropertiesandequipment,wherebyallcostsofacquiringpetroleumandnaturalgaspropertiesandrelateddevelopmentcostsarecapitalizedandaccumulatedinonecostcentre.Suchcostsincludeleaseacquisitioncosts,geologicalandgeophysicalexpenditures,costsofdrillingbothproductiveandnon-productivewells,relatedplantandproductionequipmentcostsandrelatedoverheadcharges.Maintenanceandrepairsarechargedagainstincome,whereasrenewalsandenhancementswhichextendtheeconomiclifeofthepropertiesandequipmentarecapitalized.
Gainsandlossesarenotrecognizedupondispositionofpetroleumandnaturalgaspropertiesunlesssuchadispositionwouldaltertherateofdepletionby20percentormore.
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DEPLETION,DEPRECIATIONANDAMORTIZATION
Depletionofpetroleumandnaturalgaspropertiesiscalculatedusingtheunit-of-productionmethodbasedontheestimatedprovedreservesbeforeroyalties,asdeterminedbyindependentengineers.Naturalgasreservesandproductionareconvertedtoequivalentbarrelsofoilbasedupontherelevantenergycontent(6:1).Thedepletionbaseincludescapitalizedcosts,plusfuturecoststobeincurredindevelopingprovenreservesandexcludestheunimpairedcostofunprovedland.Costsassociatedwithunprovedpropertiesarenotsubjecttodepletionandareassessedperiodicallytoascertainwhetherimpairmenthasoccurred.Whenprovedreservesareassignedorthevalueoftheunprovedpropertyisconsideredtobeimpaired,thecostoftheunprovedpropertyortheamountofimpairmentisaddedtocostssubjecttodepletion.
Tangibleproductionequipmentisdepreciatedonastraight-linebasisoveritsestimatedusefullifeof15years.Officefurniture,equipmentandmotorvehiclesaredepreciatedonadecliningbalancebasisatratesrangingfrom10percentto30percent.
CEILINGTEST
Alimitisplacedontheaggregatecarryingvalueofproperty,plantandequipment,whichmaybeamortizedagainstrevenuesoffutureperiods(the“ceilingtest”).Theceilingtestisanimpairmenttestwherebythecarryingamountofproperty,plantandequipmentiscomparedtotheundiscountedcashflowsfromprovedreservesusingmanagement’sbestestimateoffutureprices.Ifthecarryingvalueexceedstheundiscountedcashflows,animpairmentlosswouldberecordedagainstincome.Theimpairmentismeasuredastheamountbywhichthecarryingamountofproperty,plantandequipmentexceedsthediscountedcashflowsfromprovedandprobablereserves.
D)RECLAMATIONFUND
TheTrustestablishedareclamationfundeffectiveJuly1,2004tofundfutureassetretirementobligationcostsandenvironmentalemissionsreductioncosts.TheBoardofDirectorshasapprovedcontributionsof$0.25perbarrelofproductionbeginningJanuary1,2007.PriortoJanuary1,2007,contributionsrangedfrom$0.15to$0.20perbarrelofproduction.Additionalcontributionsaremadeatthediscretionofmanagement.
E)ASSETRETIREMENTOBLIGATION
TheTrustrecognizesthefairvalueofanassetretirementobligationintheperiodinwhichitisincurred.Theobligationisrecordedasaliabilityonadiscountedbasiswhenincurred,withacorrespondingincreasetothecarryingamountoftherelatedasset.Overtimetheliabilitiesareaccretedforthechangeintheirpresentvalueandthecapitalizedcostsaredepletedonaunit-of-productionbasisoverthelifeofthereserves.Revisionstotheestimatedtimingofcashflowsortheoriginalestimatedundiscountedcostwouldalsoresultinanincreaseordecreasetotheobligationandrelatedasset.
F) GOODWILL
TheTrustmustrecordgoodwillrelatingtoacorporateacquisitionwhenthetotalpurchasepriceexceedsthefairvalueforaccountingpurposesofthenetidentifiableassetsandliabilitiesoftheacquiredcompany.Thegoodwillbalanceisassessedforimpairmentannuallyatyear-endoraseventsoccurthatcouldresultinanimpairment.Impairmentisrecognizedbasedonthefairvalueofthereportingentity(“consolidatedTrust”)comparedtothebookvalueofthereportingentity.IfthefairvalueoftheconsolidatedTrustislessthanthebookvalue,impairmentismeasuredbyallocatingthefairvalueoftheconsolidatedTrusttotheidentifiableassetsandliabilitiesasiftheTrusthasbeenacquiredinabusinesscombinationforapurchasepriceequaltoitsfairvalue.TheexcessofthefairvalueoftheconsolidatedTrustovertheamountsassignedtotheidentifiableassetsandliabilitiesistheimpliedvalueofthegoodwill.Anyexcessofthebookvalueofgoodwillovertheimpliedvalueofgoodwillistheimpairmentamount.Impairmentischargedtoearningsandisnottaxaffected,intheperiodinwhichitoccurs.Goodwillisstatedatcostlessimpairmentandisnotamortized.
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52CrescentPointEnergyTrustAR|07
G)UNIT-BASEDCOMPENSATION
ThefairvaluebasedmethodofaccountingisusedtoaccountfortherestrictedunitsgrantedundertheRestrictedUnitBonusPlan.Compensationexpenseisdeterminedbasedontheestimatedfairvalueoftrustunitsonthedateofgrant.Thecompensationexpenseisrecognizedoverthevestingperiod,withacorrespondingincreasetocontributedsurplus.Atthetimetherestrictedunitsvest,theissuanceofunitsisrecordedwithacorrespondingdecreasetocontributedsurplusandincreasetounitholders’equity.
H)INCOMETAXES
TheTrustfollowstheliabilitymethodofaccountingforincometaxes.Underthismethod,incometaxliabilitiesandassetsarerecognizedfortheestimatedtaxconsequencesattributabletodifferencesbetweentheamountsreportedinthefinancialstatementsoftheTrustanditscorporatesubsidiariesandtheirrespectivetaxbase,usingsubstantivelyenactedfutureincometaxrates.Theeffectofachangeinincometaxratesonfuturetaxliabilitiesandassetsisrecognizedinincomeintheperiodinwhichthechangeoccurs.Temporarydifferencesarisingonacquisitionsresultinfutureincometaxassetsandliabilities.Currently,theTrustisataxableentityundertheIncomeTaxAct(Canada)andistaxableonlyonincomethatisnotdistributedordistributabletotheunitholders.Effectivein2011,theTrust’sdistributionsaretaxable.Accordingly,incometaxliabilitiesandassetshavebeenrecognizedontheTrust’stemporarydifferencesatthesubstantivelyenactedrateapplicabletotheperiodsinwhichthetemporarydifferencesreverse.
I) FINANCIALINSTRUMENTS
TheTrustusesfinancialinstrumentsandphysicaldeliverycommoditycontractsfromtimetotimetoreduceitsexposuretofluctuationsincommodityprices,foreignexchangeratesandinterestrates.TheTrustalsomakesinvestmentsincorporationsfromtimetotimeinconnectionwiththeTrust’sacquisitionanddivestureactivities.
Allfinancialassetsmustbeclassifiedasheld-for-trading,available-for-sale,held-to-maturity,orloansandreceivablesandallfinancialliabilitiesmustbeclassifiedasheld-for-tradingorother.Financialassetsandfinancialliabilitiesclassifiedasheld-for-tradingaremeasuredatfairvaluewithchangesinthosefairvaluesrecognizedinearnings.Financialassetsheld-to-maturity,loansandreceivables,andotherfinancialliabilitiesaremeasuredatamortizedcostusingtheeffectiveinterestmethodofamortization.
TheTrusthasnotdesignatedanyofitsriskmanagementactivitiesasaccountinghedgesandaccordinglymarks-to-marketitsfinancialinstrumentswiththeresultinggainsandlossesrecordedinthestatementofoperations.
TheTrusthaselectedtoclassifyitsinvestmentsinmarketablesecuritiesandlongterminvestmentsasheldfortrading,andaccordingly,marks-to-markettheinvestmentswiththeresultinggainorlossbeingrecordedinthestatementofoperations.
J) NON-CONTROLLINGINTEREST
Duringthe2006year,theTrusthadanon-controllinginterestrecordedinrespectoftheissuedandoutstandingexchangeablesharesofCrescentPointResourcesLtd.(“CPRL”),apredecessorcorporatesubsidiaryoftheTrust,inaccordancewithEIC-151.Theintentisthatexchangeablesharesofasubsidiarywhicharetransferabletothirdparties,outsideoftheconsolidatedentity,representanon-controllinginterestinthesubsidiary.
Theexchangeablesharesissuedpursuanttotheconversiontoatrustwereinitiallyrecordedattheirpro-ratapercentageofcarryingvalueofCPRLequity,whiletheexchangeablesharesissuedpursuanttotheacquisitionofTappitResourcesLtd.wererecordedattheirfairvalue.Whentheexchangeablesharesrecordedatcarryingvalueareconvertedintotrustunits,theconversionisrecordedasanacquisitionofthenon-controllinginterestatfairvalueandisaccountedforasastepacquisition.Uponconversionoftheexchangeableshares,thefairvalueofthetrustunitsissuedisrecordedintheunitholders’capital,andthedifferencebetweenthecarryingvalueofthenon-controllinginterestandthefairvalueofthetrustunitsisrecordedasproperty,plantandequipment.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
AR|07CrescentPointEnergyTrust53
Thenon-controllinginterestontheconsolidatedbalancesheetrepresentsthebookvalueofexchangeablesharesplusaccumulatedearningsattributabletotheoutstandingshares.Thenon-controllinginterestontheincomestatementrepresentsthenetearningsattributabletotheexchangeableshareholdersfortheyearbasedonthetrustunitsissuableforexchangeablesharesinproportiontothetotaltrustunitsissuedandissuableateachyearend.
K)REVENUERECOGNITION
Revenuesassociatedwithsalesofcrudeoil,naturalgasandnaturalgasliquidsarerecognizedwhentitlepassestothepurchaser.
L) CASHANDCASHEQUIVALENTS
Cashandcashequivalentsincludeshort-terminvestmentswithamaturityofthreemonthsorlesswhenpurchased.
M)MEASUREMENTUNCERTAINTY
Certainitemsrecognizedinthefinancialstatementsaresubjecttomeasurementuncertainty.TherecognizedamountsofsuchitemsarebasedontheTrust’sbestinformationandjudgment.Suchamountsarenotexpectedtochangemateriallyinthenearterm.Theyincludetheamountsrecordedforfutureincometaxes,depletion,depreciation,amortizationandassetretirementcostswhichdependonestimatesofoilandgasreservesortheeconomiclivesandfuturecashflowsfromrelatedassets.
3. CHANGES IN ACCOuNTING POLICIES
OnJanuary1,2007,theTrustadoptedtheCICAHandbooksections3855“FinancialInstrumentsRecognitionandMeasurement”,3865“Hedges”,3861“FinancialInstruments–DisclosureandPresentation”,1530“ComprehensiveIncome,”and3251“Equity”.OtherthantheeffectontheInvestmentinMarketableSecuritiesasdescribedinthesectionbelow,theadoptionofthefinancialinstrumentsstandardshasnotaffectedthecurrentorcomparativeperiodbalancesontheconsolidatedfinancialstatementsasallfinancialinstrumentsidentifiedhavebeenfairvalued.
FinancialInstruments
Section3855requiresthatallfinancialassetsbeclassifiedasheld-for-trading,available-for-sale,held-to-maturity,orloansandreceivablesandthatallfinancialliabilitiesmustbeclassifiedasheld-for-tradingorother.Financialassetsandfinancialliabilitiesclassifiedasheld-for-tradingaremeasuredatfairvaluewithchangesinthosefairvaluesrecognizedinearnings.Financialassetsheld-to-maturity,loansandreceivables,andotherfinancialliabilitiesaremeasuredatamortizedcostusingtheeffectiveinterestmethodofamortization.Available-for-salefinancialassetsaremeasuredatfairvaluewithunrealizedgainsandlosses,includingchangesinforeignexchangerates,beingrecognizedinothercomprehensiveincome.Investmentsinequityinstrumentsclassifiedasavailable-for-salethatdonothaveaquotedmarketpriceinanactivemarketaremeasuredatcost.TheTrusthaselectedtoclassifytheinvestmentinmarketablesecuritiesasheldfortrading.Accordingly,theinvestmentinmarketablesecuritiesbalanceof$171,000atJanuary1,2007consistingofaninvestmentinapubliclytradedexplorationandproductioncompany,wasfairvaluedatJanuary1,2007to$1.6million.Underprospectiveapplication,the$1.5milliongainwasrecordedasanadjustmenttoopeningretainedearnings.
DuringthethreemonthperiodendedJune30,2007,theTrustsoldtheinvestmentinmarketablesecurities.Asaresult,thechangeintheunrealizedgainoninvestmentof$1.5millionwasrecordedthroughtheincomestatementandarealizedgainwasrecordedfor$1.4million.
DuringthethreemonthperiodendedSeptember30,2007,theTrustpurchased2.2millionsharesofInnovaExplorationLtd.,apubliclytradedexplorationandproductioncompany,foranaveragepriceofapproximately$7.51pershareor$16.6million.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
54CrescentPointEnergyTrustAR|07
TheTrustacquiredtheremainingsharesinOctober2007inconnectionwiththeclosingoftheInnovaExplorationLtd.acquisition(refertoFinancialStatementNote5(c)below).ThefairvalueatSeptember30,2007was$16.6million,unchangedfromthecarryingvalue.Accordingly,therewasnoadjustmentrequiredtomarktheinvestmenttomarket.
DuringthethreemonthperiodendedDecember31,2007,theTrustreceived1.5millionsharesofapubliclytradedexplorationandproductioncompanyfor$1.00pershareor$1.5millioninconnectionwithadispositionofproperties.ThefairvalueatDecember31,2007was$1.4million,resultinginanunrealizedlossoninvestmentof$150,000recordedthroughtheincomestatement.DuringthethreemonthsendedDecember31,2007,theTrustalsopurchased2.0millionsharesofPilotEnergyLtd.,apubliclytradedexplorationandproductioncompanyforanaveragepriceofapproximately$2.90pershareor$5.9million.TheTrustacquiredtheremainingsharesonJanuary16,2008,withtheclosingofPilotEnergyLtd.acquisition(refertoSubsequentEventNote17(b)below).ThefairvalueatDecember31,2007was$6.4millionresultinginanunrealizedgainoninvestmentof$470,000recordedthroughtheincomestatement.
Derivativeinstrumentsarealwayscarriedatfairvalueandreportedasassetswheretheyhaveapositivefairvalueandasliabilitieswheretheyhaveanegativefairvalue.Derivativesmaybeembeddedinotherfinancialinstruments.Underthenewfinancialinstrumentsstandardsthederivativesembeddedinotherfinancialinstrumentsarevaluedasseparatederivativeswhentheireconomiccharacteristicandrisksarenotclearlyandcloselyrelatedtothoseofthehostcontract;thetermsoftheembeddedderivativearethesameasthoseofafreestandingderivative;andthecombinedcontractisnotheld-for-trading.Whenanentityisunabletomeasurethefairvalueoftheembeddedderivativeseparately,thecombinedcontractistreatedasafinancialassetorliabilitythatisheld-for-tradingandmeasuredatfairvaluewithchangesthereinrecognizedinearnings.TheTrustwaspreviouslymarkingtomarketitsderivativeinstrumentsand,accordinglytherewasnoadjustmentrequiredonadoptionofthisaccountingstandard.
Thefairvalueofafinancialinstrumentoninitialrecognitionisnormallythetransactionprice,i.e.thefairvalueoftheconsiderationgivenorreceived.Subsequenttoinitialrecognition,thefairvaluesarebasedonquotedmarketpricewhereavailablefromactivemarkets,otherwisefairvaluesareestimatedbaseduponmarketpricesatreportingdateforothersimilarassetsorliabilitieswithsimilartermsandconditions,orbydiscountingfuturepaymentsofinterestandprincipalatestimatedinterestratesthatwouldbeavailabletotheTrustatthereportingdate.
Hedges
Section3865replacestheguidanceformerlyinSection1650,“ForeignCurrencyTranslation”andAccountingGuideline13,“HedgingRelationships”byspecifyinghowhedgeaccountingisappliedandwhatdisclosuresarenecessarywhenitisapplied. TheTrustdoesnothaveanyderivativeinstrumentsthathavebeendesignatedashedges.Accordingly,theTrustismarkingtomarketitsfinancialinstruments.
ComprehensiveIncome
Section1530establishesnewstandardsforreportingthedisplayofcomprehensiveincome,consistingofNetIncomeandOtherComprehensiveIncome(“OCI”).OCIisthechangeinequity(netassets)ofanentityduringareportingperiodfromtransactionsandothereventsfromnon-ownersourcesandexcludesthoseresultingfrominvestmentsbyownersanddistributionstoowners.TheTrusthasnosuchtransactionsandeventswhichwouldrequirethedisclosureofOCIfortheyearendedDecember31,2007.Anychangesintheseitemswouldbepresentedinaconsolidatedstatementofoperationsandcomprehensiveincome.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
AR|07CrescentPointEnergyTrust55
Equity
Section3251replacessection3250,“Surplus”andestablishesstandardsforthepresentationofequityandchangesinequityduringreportingperiod,includingchangesinAccumulatedOtherComprehensiveIncome(“AccumulatedOCI”).AnycumulativechangesinOCIwouldbeincludedinAccumulatedOCIandbepresentedasanewcategoryofShareholder’sEquityontheconsolidatedbalancesheet.AstheTrusthasnoOCItransactions,theTrustdoesnothaveanyAccumulatedOCI.
4. FuTuRE ACCOuNTING CHANGES
TheCICAissuednewaccountingstandards,CICAAccountingStandardHandbookSection3862,“FinancialInstruments-Disclosures”andSection3863“FinancialInstruments–Presentation”.Thesestandardsrequireentitiestoprovidedisclosuresintheirfinancialstatementsthatenableuserstoevaluatethesignificanceoffinancialinstrumentstotheentity’sfinancialpositionandperformance.Italsorequiresthatentitiesdisclosethenatureandextentofrisksarisingfromfinancialinstrumentsandhowtheentitymanagesthoserisks.Thestandardsestablishpresentationguidelinesforfinancialinstrumentsandnon-financialderivativesanddealswiththeclassificationoffinancialinstruments,fromtheperspectiveoftheissuer,betweenliabilitiesandequity,theclassificationofrelatedinterest,dividends,lossesandgains,andthecircumstancesinwhichfinancialassetsandfinancialliabilitiesareoffset.ThisstandardiseffectiveforfiscalyearsbeginningonorafterOctober1,2007.Increaseddisclosurewillberequiredonthenatureandextentofrisksarisingfromfinancialinstrumentsandhowtheentitymanagesthoserisks.
TheCICAissuedSection1535,“CapitalDisclosures”.TheapplicationoftheserecommendationswillprovidereadersoffinancialstatementswithinformationpertinenttotheTrust’sobjectives,policiesandprocessesformanagingcapital.IncreaseddisclosureofquantitativedataregardingwhatisconsideredcapitalandwhethertheTrustisincompliancewithallexternallyimposedcapitalrequirementsandconsequencesofnon-compliancewillbedisclosed.ThisstandardiseffectiveforfiscalyearsbeginningonorafterOctober1,2007.
TheCICAissuedSection3064,“GoodwillandOtherIntangibleAssets”,replacingSection3062,“GoodwillandOtherIntangibleAssets”andSection3450,“ResearchandDevelopmentCosts”.Thisnewstandardestablishesstandardsfortherecognition,measurement,presentationanddisclosureofgoodwillandintangibleassetssubsequenttoitsinitialrecognition.StandardsconcerninggoodwillareunchangedfromthestandardsincludedinthepreviousSection3062.Thisstandardiseffectiveon January1,2009.TheTrusthasnotassessedtheimpactofthisstandardonitsfinancialstatements.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
56CrescentPointEnergyTrustAR|07
5. CAPITAL ACquISITIONS AND DISPOSITIONS
A)ACQUISITIONOFMISSIONOIL&GASINC.
OnFebruary9,2007,theTrustpurchasedalltheissuedandoutstandingsharesofMissionOil&GasInc.,apubliclytradedcompanywithpropertiesintheViewfieldareaofsoutheastSaskatchewanfortotalconsiderationof$627.8million,includingassumedbankdebtandworkingcapital($708.2millionwasallocatedtoproperty,plantandequipment).ThepurchasewaspaidforthroughtheTrust’sexistingbanklinesandissuanceofapproximately29.2milliontrustunitsandwasaccountedforasabusinesscombinationusingthepurchasemethodofaccounting.TheTrustowned3.8millionsharesofMissionOil&GasInc.priortotheclosingwhichitpurchasedfor$7.90pershareor$30.0millioninNovember2005.
($000)
NET ASSETS ACqUIRED
Riskmanagementasset 2,063
Property,plantandequipment 708,161
Workingcapitaldeficiency (5,922)
Bankdebt (47,751)
Assetretirementobligation (8,285)
Futureincometaxes (74,167)
Totalnetassetsacquired 574,099
CONSIDERATION
Cash 62,767
Trustunitsissued(29,178,562trustunits) 506,832
Acquisitioncosts 4,500
Totalpurchaseprice 574,099
B)ACQUISITIONOFAPRIVATECORPORATION
OnSeptember5,2007,theTrustpurchasedalltheissuedandoutstandingsharesofaprivatecorporationwithpropertiesintheWillmarandBrowningareasofsoutheastSaskatchewanfortotalconsiderationof$18.9millionincludingassumedbankdebtandworkingcapital($19.6millionwasallocatedtoproperty,plantandequipment).Thepurchasewaspaidforwithcashof$121,000fromtheTrust’sexistingbanklinesand605,815trustunitsandwasaccountedforasabusinesscombinationusingthepurchasemethodofaccounting.
($000)
NET ASSETS ACqUIRED
Property,plantandequipment 19,638
Workingcapitaldeficiency (275)
Bankdebt (6,266)
Assetretirementobligation (6�7)
Totalnetassetsacquired 12,400
CONSIDERATION
Cash ���
Trustunitsissued(605,815trustunits) 12,129
Acquisitioncosts 150
Totalpurchaseprice 12,400
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AR|07CrescentPointEnergyTrust57
C)ACQUISITIONOFINNOVAEXPLORATIONLTD.
OnOctober22,2007,theTrustpurchased97percentoftheissuedandoutstandingsharesofInnovaExplorationLtd.,apubliclytradedcompanywithpropertiesintheViewfieldareaofsoutheastSaskatchewan.OnOctober25,2007,theTrustacquiredtheremainingsharesoutstanding.Theshareswerepurchasedfortotalconsiderationof$402.9million,includingassumedbankdebtandworkingcapital($472.0millionwasallocatedtoproperty,plantandequipment).ThepurchasewaspaidthroughtheTrust’sexistingbanklinesandwasaccountedforasabusinesscombinationusingthepurchasemethodofaccounting.TheTrustowned2.2millionsharesofInnovaExplorationLtd.priortotheclosingwhichitpurchasedfor$7.51pershareor$16.6millioninSeptember2007.
($000)
NET ASSETS ACqUIRED
Property,plantandequipment 471,958
Riskmanagementliability (1,431)
Workingcapitaldeficiency (22,361)
Bankdebt (37,355)
Assetretirementobligation (4,816)
Futureincometaxes (62,776)
Totalnetassetsacquired 343,219
CONSIDERATION
Cash 338,145
Acquisitioncosts 5,074
Totalpurchaseprice 343,219
D)PROPERTYACQUISITIONSANDDISPOSALS
DuringtheyearendedDecember31,2007,theTrustclosedpropertyacquisitionsfortotalconsiderationofapproximately$20.4millionandapropertydispositionfor$3.4million($18.8millionnetofdispositionswasallocatedtoproperty,plantandequipment).TheTrustrecordedpurchasepriceadjustmentsonpreviouslyclosedacquisitionsfortheyearendedDecember31,2007of$1.8million.
6. PROPERTy, PLANT AND EquIPmENT
December31,2007 ($000) Cost
Accumulateddepletion, depreciationand
amortization NetPetroleumandnaturalgasproperties 2,330,613 448,101 1,882,512
Productionequipment 606,418 63,878 542,540
Officefurnitureandequipment 7,237 2,883 4,354
2,944,268 514,862 2,429,406
December31,2006 ($000) Cost
Accumulateddepletion, depreciationand
amortization NetPetroleumandnaturalgasproperties 1,181,422 238,401 943,021
Productionequipment 300,693 31,392 269,301
Officefurnitureandequipment 3,979 2,146 1,833
1,486,094 271,939 1,214,155
AtDecember31,2007,unprovedlandcostsof$312.7million(2006–$33.9million)havebeenexcludedfromcostssubjecttodepletion.Futuredevelopmentcostsof$719.6million(2006–$147.3million)areincludedincostssubjecttodepletion.
GeneralandadministrativeexpensescapitalizedbytheTrustduringtheyearwere$4.6million(2006–$2.6million).Thecapitalizedadministrationcostsdonotincludeanyrelatedunit-basedcompensationcosts.
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58CrescentPointEnergyTrustAR|07
TheceilingtestcalculationatDecember31,2007indicatedthatthenetrecoverableamountfromprovedreservesexceededthenetcarryingvalueofthepetroleumandnaturalgaspropertiesandequipment.ThefollowingarethepricesthatwereusedintheDecember31,2007ceilingtest:
AveragePriceForecast (�)
�00� �00� �0�0 �0�� �0�� �0�3 2014 2015 �0�6 �0�7 �0��+(�)
WTI($US/bbl) 92.00 88.00 84.00 82.00 82.00 82.00 82.00 82.00 82.02 83.66 2.0%
Exchangerate 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
WTI($Cdn/bbl) 92.00 88.00 84.00 82.00 82.00 82.00 82.00 82.00 82.02 83.66 2.0%
AECO($Cdn/mcf) 6.75 7.55 7.60 7.60 7.60 7.60 7.80 7.97 8.14 8.31 2.0%
(1) Thebenchmarkpriceslistedaboveareadjustedforqualitydifferentials,heatcontent,distancetomarketandotherfactorsinperformingourceilingtest.
(2)Percentagechangerepresentsthechangeineachyearafter2017totheendofthereservelife.
7. RECLAmATION FuND
Thefollowingtablereconcilesthereclamationfund:
($000) �007 �006
Balance,beginningofyear 1,725 241
Contributions 2,566 2,502
Actualexpenditures (1,855) (1,018)
Balance,endofyear 2,436 1,725
8. BANk INDEBTEDNESS
TheTrusthasasyndicatedcreditfacilitythatwasexpandedfromseventoninebanksinOctober2007andanoperatingcreditfacilitywithoneCanadiancharteredbank.DuringtheyearendedDecember31,2007,theamountavailableunderthecombinedcreditfacilitieswasincreasedfrom$470.0millionto$800.0million.TheTrusthaslettersofcreditintheamountof$440,000outstandingatDecember31,2007.
ThecreditfacilitiesbearinterestattheprimerateplusamarginbasedonaslidingscaleratiooftheTrust’sdebttocashflows.TheTrustalsomanagesitsdebtfacilitythroughacombinationofbankacceptancesandinterestrateswaps.ThecreditfacilityissecuredbytheoilandgasassetsownedbytheTrust’swhollyownedsubsidiaries.
ThecashinterestpaidintheyearendedDecember31,2007was$25.4million(2006-$15.2million).
9. ASSET RETIREmENT OBLIGATION
ThetotalfutureassetretirementobligationwasestimatedbymanagementbasedontheTrust’snetownershipinallwellsandfacilities.Thisincludesallestimatedcoststoreclaimandabandonthewellsandfacilitiesandtheestimatedtimingofthecoststobeincurredinfutureperiods.TheTrusthasestimatedthenetpresentvalueofitstotalassetretirementobligationtobe$66.1millionatDecember31,2007(December31,2006-$45.8million)basedontotalestimatedundiscountedcashflowstosettletheobligation$153.3million(December31,2006-$104.0million).Theexpectedperioduntilsettlementrangesfrom2yearstoamaximumof50years,withthecostsexpectedtobepaidoveranaverageof10yearsforwellsand30yearsforfacilities.Theestimatedcashflowshavebeendiscountedusingacreditadjustedriskfreerateofreturnofeightpercentandaninflationrateoftwopercent.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
AR|07CrescentPointEnergyTrust59
Thefollowingtablereconcilestheassetretirementobligation:
($000) �007 �006
Assetretirementobligation,beginningofyear 45,829 33,275
Liabilitiesincurred 2,101 1,211
Liabilitiesacquiredthroughcapitalacquisitions(net) 15,568 9,141
Liabilitiessettled (1,855) (1,018)
Accretionexpense 4,431 3,220
Assetretirementobligation,endofyear 66,074 45,829
10. uNITHOLDERS’ CAPITAL
A)AUTHORIZED
Anunlimitednumberofvotingtrustunitshasbeenauthorized.
B)ISSUEDANDOUTSTANDING
TheTrusthasadistributionreinvestmentplan(the“RegularDRIP”)andapremiumdistributionreinvestmentplan(the“PremiumDRIP”).TheRegularDRIPpermitseligibleunitholderstodirecttheirdistributionstothepurchaseofadditionalunitsat95percentoftheaveragemarketprice,asdefinedintheplan.ThePremiumDRIPpermitseligibleunitholderstoelecttoreceive102percentofthecashtheunitholderwouldotherwisehavereceivedonthedistributiondate.TheadditionalcashdistributedtothePremiumDRIPunitholdersisfundedthroughtheissuanceofadditionaltrustunitsintheopenmarket.ParticipationintheRegularandPremiumDRIPissubjecttoprorationbytheTrust.UnitholderswhoparticipateineithertheRegularDRIPorthePremiumDRIParealsoeligibletoparticipateintheOptionalUnitPurchasePlanasdefinedintheplan.
InDecember2007,theTrustannouncedthatasaresultofthefederalgovernmentSafeHarbourLimitsonequityissuancesforincometrusts,theDRIP,PremiumDRIPandOptionalUnitPurchaseprogramswouldbesuspendeduntilfurthernoticebeginningwiththemonthofDecember2007.
OnSeptember25,2007,theTrustandasyndicateofunderwritersclosedaboughtdealequityfinancingpursuanttowhichthesyndicatesold8,900,000trustunitsforgrossproceedsof$165.1million($18.55pertrustunit).
�007 �006Numberof trust units
Amount ($000)
Numberoftrust units
Amount ($000)
Trustunits,beginningofyear 69,531,952 1,083,948 41,745,784 502,879
Issuedforcash 8,900,000 165,095 18,546,000 395,424
Issuedoncapitalacquisitions 29,784,377 518,961 4,663,884 101,923
Issuedonconversionofexchangeableshares - - 1,444,213 25,608
Issuedonvestingofrestrictedunits (�) 236,127 4,859 190,221 2,889
Issuedpursuanttothedistributionreinvestmentplans 5,308,276 100,660 2,604,619 49,984
Tobeissuedpursuanttothedistributionreinvestmentplans - - 337,231 5,241
Trustunits,endofyear 113,760,732 1,873,523 69,531,952 1,083,948
Cumulativeunitissuecosts - (47,100) - (38,019)
Totalunitholders’capital,endofyear 113,760,732 1,826,423 69,531,952 1,045,929
(1) Theamountoftrustunitsissuedonvestingofrestrictedunitsisnetoftrustunitspurchasedinthemarkettosatisfytheissuanceoftrustunitsundertherestrictedunit bonusplanandemployeewithholdingtaxes.
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60 Crescent Point Energy Trust AR | 07
11. RESTRICTED uNIT BONuS PLAN
TheTrusthasaRestrictedUnitBonusPlan.UnderthetermsoftheRestrictedUnitBonusPlan,theTrustmaygrantrestrictedunitstodirectors,officers,employeesandconsultants.Restrictedunitsvestat331/3percentoneachofthefirst,secondandthirdanniversariesofthegrantdate.Restrictedunitholdersareeligibleformonthlydistributionsontheirrestrictedunits,immediatelyupongrant.
TheunitholdershaveapprovedamaximumnumberoftrustunitsissuableundertheRestrictedUnitBonusPlanof5,000,000trustunits.
Asummaryofthechangesintherestrictedunitsoutstandingundertheplanisasfollows:
�007 �006
Restrictedunits,beginningofyear 1,043,628 589,555
Granted 898,476 848,426
Exercised (434,557) (354,967)
Forfeited (21,497) (39,386)
Restrictedunits,endofyear 1,486,050 1,043,628
TheTrustrecordedcompensationexpenseandcontributedsurplusof$14.4millionintheyearendedDecember31,2007 (2006-$11.3million),basedontheamortizationofthefairvalueoftheunitsonthedateofgrant.Additionally,theTrustrecorded$2.0million(2006–$1.1million)ofcashdistributionsonrestrictedunits.Thetotalcashandnon-cashunitbasedcompensationrecordedintheyearwas$16.4million(2006-$12.4million).
Asummaryofthechangesinthecontributedsurplusisasfollows:
($000) �007 �006
Contributedsurplus,beginningofyear 9,150 4,409
Unitbasedcompensation 14,516 11,615
Exercisedrestrictedunits (8,442) (6,513)
Forfeitedrestrictedunits (�3�) (36�)
Contributedsurplus,endofyear 15,086 9,150
12. DEFICIT
Thedeficitbalanceiscomposedofthefollowingitems:
($000) �007 �006
Accumulatedearnings 111,044 141,743
Accumulatedcashdistributions (535,550) (290,442)
Deficit (424,506) (148,699)
Duringtheyear,presentationchangesweremadetocombinethepreviouslyreportedaccumulatedearningsandaccumulatedcashdistributionfiguresonthebalancesheetintoasingledeficitbalance.TheTrusthashistoricallypaidcashdistributionsinexcessofaccumulatedearningsascashdistributionsarebasedoncashflowfromoperatingactivitiesbeforechangesinnon-cashworkingcapitalgeneratedinthecurrentyearwhileaccumulatedearningsarebasedoncashflowfromoperatingactivitiesbeforechangesinnon-cashworkingcapitalgeneratedinthecurrentyearlessadepletion,depreciation,andaccretionexpenserecordedonoriginalproperty,plant,andequipment,unrealizedfinancialinstrumentgains/lossesandothernon-cashcharges.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
AR | 07 Crescent Point Energy Trust 6�
13. INCOmE TAxES
In2007,incometrusttaxlegislationwaspassedresultinginatwo-tieredtaxstructuresubjectingdistributionstothefederalcorporateincometaxrateplusadeemed13percentprovincialincometaxattheTrustlevelcommencingin2011.Currently,distributionspaidtounitholders,otherthanreturnsofcapital,areclaimedasadeductionbytheTrustinarrivingattaxableincomewherebytaxiseliminatedattheTrustlevelandispaidbytheunitholders.Asaresult,thefuturetaxpositionoftheTrust,theparententity,isnowrequiredtobereflectedintheconsolidatedfutureincometaxcalculation.
OnMarch1,2007,theTrustcompletedareorganizationoftheTrustanditssubsidiaries.ThereorganizationresultedintheexistingbusinessoftheTrust,whichwascarriedonthroughlimitedpartnershipsandcorporations,beingcarriedonthroughalimitedpartnershipindirectlyownedbytheTrust.IntheTruststructure,paymentsaremadebetweentheoperatingentitiesandtheTrusttransferringboththeincomeandtaxliabilitytotheunitholders.Asaresultofthereorganization,CrescentPointrecordedafuturetaxrecoveryof$158.8millioninthefirstquarter.
OnOctober31,2006,theFinanceMinisterannouncedtheFederalGovernment’splanregardingthetaxationofincometrusts.OnJune12,2007,BillC-52BudgetImplementationAct,2007wassubstantivelyenactedbytheCanadianfederalgovernment,whichcontainslegislationtotaxpubliclytradedtrustsinCanada.Asaresult,anew31.5percenttaxwillbeappliedtodistributionsfromCanadianpublicincometrusts.ThenewtaxisnotexpectedtoapplytoCrescentPointuntil2011asatransitionperiodappliestopubliclytradedtruststhatexistedpriortoNovember1,2006.TheimpactofthesubstantiveenactmentoftrusttaxationwasthatCrescentPointrecordeda$152.3millionfutureincometaxliabilityandfutureincometaxexpenseinthesecondquarterof2007.
OnOctober30,2007,theFinanceMinisterannouncedareductionofthecorporateincometaxratefrom22.1percentto15percentby2012.Thereductionswillbephasedinbetween2008and2012.LegislationenactingthemeasuresreceivedRoyalAssentonDecember14,2007.Thereductioninthegeneralcorporatetaxratewillalsoapplytothetaxationofincometrusts,reducingthecombinedfederalanddeemedProvincialtaxratefordistributionsto29.5percentin2011and28percentin2012.
ThetaxprovisiondiffersfromtheamountcomputedbyapplyingthecombinedCanadianfederalandprovincialstatutoryincometaxratestoincomebeforefutureincometaxasfollows:
($000) �007 �006
Incomebeforeincometaxes 4,400 61,323
Statutoryincometaxrate 33.72% 36.53%
Expectedprovisionforincometaxes 1,484 22,401
Internalreorganization (158,817) -
Initialrecognitionoftaxliability 152,346 -
Effectofchangeincorporatetaxrates (23,337) (5,623)
Capitalandothertaxexpense 15,394 11,314
Non-deductibleCrowncharges - 5,359
Resourceallowance - (4,466)
Changeinamountsnotsubjecttotaxandother 49,497 (34,231)
Futureincometaxexpense(recovery) 36,567 (5,246)
ThefutureincometaxliabilityoftheTrustatDecember31,2007of$244.0millioniscomprisedoffuturetaxliabilitiesrelatedtocapitalassetsinexcessoftaxvalueof$263.3million,afuturetaxassetrelatedtoassetretirementobligationsof$18.6millionandotheritemsof$0.7million.
AtDecember31,2007,theTrusthadtaxpoolsofapproximately$1.0billionconsistingofintangibleresourcepools,tangiblepoolsandtrustunitissuecosts.
ThecashcapitaltaxespaidduringtheyearendedDecember31,2007were$14.0million(2006-$13.2million).
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
6� Crescent Point Energy Trust AR | 07
14. PER TRuST uNIT AmOuNTS
Thefollowingtablesummarizestheweightedaveragetrustunitsusedincalculatingnetincomepertrustunit:
�007 �006
Weightedaveragetrustunits 100,670,407 61,542,223
Trustunitsissuableonconversionofexchangeableshares(�) - 1,178,761
Dilutiveimpactofrestrictedunits 1,388,254 847,832
DILUTIvE TRUST UNITS AND ExCHANGEABLE SHARES (1) 102,058,661 63,568,816
(�) Thetrustunitsissuableonconversionoftheexchangeablesharesreflecttheweightedaverageexchangeablesharesoutstandingconvertedattheexchangeratioineffectat theendoftheyear.OnOctober27,2006,theTrustpurchasedallissuedandoutstandingexchangeableshares.
15. FINANCIAL INSTRumENTS AND RISk mANAGEmENT
A)FAIRVALUES
TheTrust’sfinancialinstrumentsrecognizedontheconsolidatedbalancesheetincludecash,accountsreceivable,prepaids,deposits,thereclamationfund,accountspayable,andaccruedliabilitiesandbankindebtedness.Thefairvalueofthesefinancialinstrumentsapproximatestheircarryingamountsduetotheirshort-termnature.
B)CREDITRISK
AsubstantialportionoftheTrust’saccountsreceivablearewithcustomersintheoilandgasindustryandaresubjecttonormalindustrycreditrisks.
C) INTEREST RATE RISk
TheTrustisexposedtointerestrateriskondebtinstrumentstotheextentofchangesintheprimeinterestrate.
D)INVESTMENTS
TheTrustmakesinvestmentssharesofpubliclytradedoilandgascompaniesfromtimetotime.TheTrustisexposedtofluctuationsinthevalueassignedtothesharesinthemarket.TheTrusthasdesignatedtheseinvestmentsasheldfortradingandassuch,theyhavebeenmarked-to-market.
FortheyearendedDecember31,2007,theunrealizedlossoninvestmentswas$1.1million.Thisiscomprisedofa$1.5millionunrealizedlossonmarketablesecuritiesinthesecondquarterof2007,anunrealizedgainof$470,000onthelongterminvestmentinthefourthquarterof2007andanunrealizedlossof$150,000onthemarketablesecuritiesinthefourthquarterof2007.
E)RISKMANAGEMENT
TheTrusthasenteredintofixedpriceoil,gasandpowercontractsalongwithinterestrateswapstomanageitsexposuretofluctuationsinthepriceofcrudeoil,gas,powerandinterestratesondebt.
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
AR | 07 Crescent Point Energy Trust 63
ThefollowingisasummaryofthefinancialinstrumentcontractsinplaceasatDecember31,2007:
FINANCIALWTICRUDEOILCONTRACTS-CANADIANDOLLAR
Term ContractVolume (bbls/d)
Average Swap Price
($Cdn/bbl)
Average Bought
Put Price ($Cdn/bbl)
Average Sold
CallPrice ($Cdn/bbl)
Average Put
Premium ($Cdn/bbl)
�00�
January–June Swap 1,000 72.73
January–September Swap 250 68.10
January–December Swap 7,000 77.73
July–December Swap 1,000 73.52
October–December Swap 250 70.80
January–June Collar 250 65.00 82.00
January–December Collar 3,500 73.50 88.57
July–December Collar 250 70.00 91.00
January–December Put 3,500 72.58 (6.66)
2008 Weighted Average 15,500 76.90 72.85 88.44 (6.66)
�00�
January–March Swap 2,750 77.68
April–June Swap 2,750 77.58
January–June Swap 1,250 74.99
July–September Swap 3,000 74.07
July–December Swap 1,000 76.41
October–December Swap 3,000 74.37
January–December Swap 2,750 78.38
January–March Collar 250 75.00 87.00
April–June Collar 250 75.00 83.00
January–June Collar 1,250 70.00 81.01
January–September Collar 250 70.00 79.00
January–December Collar 2,750 73.55 88.14
July–September Collar 250 70.00 84.05
July–December Collar 1,250 69.00 80.37
October–December Collar 500 70.00 85.93
January–December Put 3,250 70.46 (6.03)
2009 Weighted Average 14,500 76.84 71.45 85.49 (6.03)
�0�0
January–March Swap 3,500 76.22
April–June Swap 2,750 74.38
January–September Swap 2,250 79.51
April–September Swap 750 75.53
July–September Swap 2,750 75.00
October–December Swap 1,000 87.00
January–June Collar 500 70.00 80.50
January–September Collar 2,000 73.75 86.26
July–September Collar 500 70.00 81.75
October–December Collar 1,250 78.40 96.24
January–September Put 1,000 71.00 (4.82)
2010 Weighted Average 7,486 77.51 73.07 86.78 (4.82)
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
64CrescentPointEnergyTrustAR|07
FINANCIALAECONATURALGASCONTRACTS–CANADIANDOLLAR
ContractVolume (GJ/d)
AverageBought Put Price ($Cdn/GJ)
AverageSold CallPrice ($Cdn/GJ)Term
�00�January–March Collar 2,000 6.75 8.00April–October Collar 2,000 6.75 7.752008January–OctoberWeightedAverage 2,000 6.75 7.82
FINANCIALINTERESTRATECONTRACTS–CANADIANDOLLAR
ContractPrincipal ($Cdn)
FixedAnnual Rate (%)Term
January2008–May2008 Swap 50,000,000 4.41January2008–February2009 Swap 50,000,000 4.37January2008–November2010 Swap 75,000,000 4.35
FINANCIALPOWERCONTRACT–CANADIANDOLLARContract
Volume (MW/h)
FixedRate ($Cdn/MW/h)Term
January2008–December2008 Swap 3.0 63.25
PHYSICALPOWERCONTRACTS–CANADIANDOLLAR
ContractVolume (MW/h)
FixedRate ($Cdn/MW/h)Term
January2008–December2009 Swap 1.0 82.45
January2009–December2009 Swap 3.0 81.25
TheTrusthastwophysicalpowercontractsandonefinancialpowercontract.Thephysicalcontractshavenotbeenmarked-to-market.TheunrealizedlossonthephysicalcontractsatDecember31,2007is$312,000.
ThefollowingtablereconcilesthemovementinthefairvalueoftheTrust’scommodity,power,foreignexchangeandinterestratecontracts:
($000) �007 �006
Riskmanagementasset,beginningofyear 1,052 -
Acquiredthroughcapitalacquisitions 2,063 -
Unrealizedmark-to-marketgain(loss) (2,664) 1,052
Riskmanagementasset,endofyear 451 1,052
Less:currentriskmanagementasset,endofyear (451) (586)
Longtermriskmanagementasset,endofyear - 466
($000) �007 �006
Riskmanagementliability,beginningofyear 19,278 32,085
Acquiredthroughcapitalacquisitions 1,431 -
Unrealizedmark-to-marketloss(gain) 102,762 (12,807)
Riskmanagementliability,endofyear 123,471 19,278
Less:currentriskmanagementliability,endofyear (63,819) (7,581)
Longtermriskmanagementliability,endofyear 59,652 11,697
NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS
AR|07CrescentPointEnergyTrust65
16. COmmITmENTS
AtDecember31,2007,theTrusthadcontractualobligationsandcommitmentsforofficespace,equipment,vehiclesandpremiumsonputcontracts:
($000)
�00� 13,675
�00� 10,524
�0�0 6,337
�0�� 4,087
�0�� 3,531
(1) IncludedintheabovecommitmentsarerecoveriesofrentexpenseonofficespacetheTrusthasacquiredthroughvariousacquisitionsandhassubleasedouttoothertenants.
17. SuBSEquENT EvENTS
A)EQUITYFINANCINGS
OnJanuary8,2008,theTrustandasyndicateofunderwritersclosedaboughtdealequityfinancingpursuanttowhichthesyndicatesold5,155,000trustunitsforgrossproceedsof$125.0million($24.25pertrustunit).
B)ACQUISITIONOFPILOTENERGYLTD.
OnJanuary16,2008,theTrustclosedtheacquisitionofPilotEnergyLtd.,apubliclytradedcompanywithpropertiesintheViewfieldBakkenareaofsoutheastSaskatchewanbywayofaPlanofArrangementfortotalconsiderationofapproximately$76.0millionbeforeclosingadjustmentsandincludingnetdebt(basedonatrustunitpriceof$22.48).ThepurchasewasfundedthroughtheTrust’sexistingbanklinesandissuanceof2.9milliontrustunits.TheTrustowned2.0millionsharesofPilotEnergyLtd.priortotheclosingwhichitpurchasedfor$2.90pershareor$5.9millioninNovember2007.
C)INVESTMENTINSHELTERBAYENERGYINC.ANDACQUISITIONOFNONBAKKENASSETSOFLANDEXPETROLEUMCORP.
OnJanuary14,2008,theTrustannounceditsinvestmentinShelterBayEnergyInc.(“ShelterBay”),aprivateBakkenlightoilgrowthcompany.ShelterBaywillbemanagedthroughaTechnicalServicesAgreementwithCrescentPoint,willacceleratedevelopmentoftheBakkenlightoilresourceplayinsoutheastSaskatchewanandfollowasimilarbusinessplantotheTrusttodevelop,exploitandacquirelightoilandnaturalgaspropertiesinwesternCanada.CrescentPointwillinitiallyinvestupto$60millioninShelterBay,whichwillbefinancedfromavailablelinesofcredit,andwillrepresenta20percentinterestinShelterBay.
CrescentPointalsoannouncedonJanuary14,2008thattheTrusthasenteredintoanagreement(the“Agreement’)withLandexPetroleumCorp.(“Landex”),aprivateoilandgascompanytoacquireallofitsissuedandoutstandingsharesbywayofaplanofarrangement(the“Arrangement”)fortotalconsiderationofapproximately$310millionwhichincludestheassumptionof$16millionofnetdebt.Landexshareholderswillreceiveamaximumof$295millioncashandupto$75millionoftrustunitsbasedonanexchangerateof0.632trustunitsforeachLandexshare.
SubsequenttotheenteringintooftheAgreementthepartiesamendedandrestatedtheAgreement(“the“AmendedAgreement’)suchthatShelterBayhasagreedtocompletetheacquisitionofLandexpursuanttotheArrangement.UnderthetermsoftheAmendedAgreement,Landexshareholderswillreceiveamaximumof$275millioncash,upto$75millionoftrustunitsbasedonanexchangerateof0.632trustunitsforeachLandexshare,andaminimumof$20milliontoamaximumof$60millionShelterBayshares.
UnderthetermsoftheAmendedAgreement,CrescentPointwillacquirethenonBakkenassetsofLandex,for$80millionandShelterBaywillacquiretheBakkenassetsofLandexfor$230million,forcombinedconsiderationof$310million.TheArrangementissubjecttoLandexshareholderapprovalandisexpectedtocloseinlateMarch2008.
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66 Crescent Point Energy Trust AR | 07
InitialfundingforShelterBayisexpectedtobe$300million,ofwhichCrescentPointwillinvest$60million,or20percent,whichCrescentPointwillfinancethroughitsexistingbanklines.UndertheAmendedAgreementLandexshareholdersareexpectedtoelecttoreceiveaminimumof$20milliontoamaximumof$60millionofShelterBaysharesinconsiderationfortheLandexBakkenassets.Theremaining$180millionto$220millionininitialfundingwillberaisedviaaprivateplacementofShelterBayshares.TheprivateplacementisexpectedtocloseinlateMarch2008.
18. COmPARATIvE INFORmATION
Certaininformationprovidedforthepreviousyearhasbeenrestatedtoconformtothecurrentyearpresentation.
DirectorsPeter Bannister, Chairman (1) (3)
Paul Colborne (2) (4)
Ken Cugnet (3) (4) (5)
Hugh Gillard (1) (2) (3)
Gerald Romanzin (1) (5)
Scott Saxberg (4)
Greg Turnbull (2) (5)
Officers Scott Saxberg
President and Chief Executive Officer
Greg Tisdale
Chief Financial Officer
C. Neil Smith
Vice President, Engineering and Business Development
Dave Balutis
Vice President, Geosciences
Tamara MacDonald
Vice President, Land
Ken Lamont
Controller and Treasurer
Head OfficeSuite 2800, 111 – 5th Avenue SW
Calgary, Alberta T2P 3Y6
Tel: (403) 693-0020
Fax: (403) 693-0070
Toll Free: (888) 693-0020
BankerThe Bank of Nova Scotia
Calgary, Alberta
AuditorPricewaterhouseCoopers LLP
Calgary, Alberta
Legal CounselMcCarthy Tétrault LLP
Calgary, Alberta
(1) Member of the Audit Committee of the Board of Directors
(2) Member of the Compensation Committee of the Board of Directors
(3) Member of the Reserves Committee of the Board of Directors
(4) Member of the Health, Safety and Environment Committee of the Board of Directors
(5) Member of the Corporate Governance and Nominating Committee
Evaluation Engineers GLJ Petroleum Consultants Ltd.
Calgary, Alberta
Sproule Associates Ltd.
Calgary, Alberta
Registrar and Transfer AgentInvestors are encouraged to contact
Crescent Point’s Registrar and Transfer
Agent for information regarding their security holdings:
Olympia Trust Company
2300, 125 – 9 Avenue SE
Calgary, Alberta T2G 0P6
Tel: (403) 261-0900
Stock ExchangeToronto Stock Exchange – TSX
Stock SymbolCPG.UN
Investor Contacts Scott Saxberg
President and Chief Executive Officer
(403) 693-0020
Greg Tisdale
Chief Financial Officer
(403) 693-0020
Trent Stangl
Manager, Marketing and Investor Relations
(403) 693-0020
Des
igne
d by
Bry
an M
ills
Irade
sso