These gains don't cause pain. A capital gain is the amount of money you pocket by selling one of your investments for more than you paid for it. Technically, capital gains only count for what's called a capital asset, but that's really just anything you own for investment purposes. Stocks and bonds obviously qualify, but your house and household furnishings can also count.

For tax purposes, capital gains are classified as either long-term (held for more than one year) or short-term (held for less than one year) and there are different tax implications for how long you hold onto a capital asset. For most long-term capital gains, you're taxed no more than 15% of the value of the asset. Short-term gains get taxed as regular income, so you pay the rate for the tax bracket you're in.

Capital gains can also be realized or unrealized. When you physically sell an asset like a stock, you've realized the capital gain. When you're holding the stock, and it has a value over its purchase price, but you're not selling it, you've got an unrealized gain, and you won't realize it until you sell.

In a perfect world, we'd all have capital gains. But no one¿s that smart or lucky. When the value of an asset at sale is below what you've paid for it, it's called a capital loss. The good news is that the government lets you count that loss against any gains you've had, lowering the taxes you pay. In fact, many people who sell a stock that has risen far over their purchase price tend to sell some stinkers, too, at the same time for the tax benefit. This is known as a capital-loss offset.

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Wednesday, August 06, 2008

Pengrowth Energy Trust Announces Second Quarter 2008 Results

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CALGARY, ALBERTA, Aug 6, 2008 (Marketwire via COMTEX) ----Pengrowth Corporation, administrator of Pengrowth Energy Trust (TSX:PGF.UN) (NYSE:PGH) (collectively "Pengrowth"), is pleased to announce the interim unaudited operating and financial results for the three month and six month periods ended June 30, 2008.

During the second quarter of 2008, Pengrowth generated record cash flow from operating activities of approximately $267.9 million ($1.08 per trust unit) as compared with $216.2 million ($0.87 per trust unit) in the first quarter of 2008 and $250.0 million ($1.02 per trust unit) in the same period last year. The increase in cash flow from operations quarter over quarter and compared to the prior year is due to higher commodity prices offset by realized commodity risk management losses, lower production volumes, higher royalties expense and higher operating costs.

Net loss of $118.7 million for the second quarter of 2008 increased by $62.1 million from the net loss recorded in the first quarter of 2008. Included in the net loss are unrealized losses on mark-to-market commodity risk management contracts of $352.6 million before taxes ($247.3 million after tax) compared to a $165.7 million before tax ($116.2 million after tax) unrealized loss in the first quarter of 2008. The net loss represents a $390.3 million reduction from net income recorded for the second quarter of 2007. The increase in net loss was partially offset by higher operating netbacks.

Distributions declared in the second quarter totaled $168.2 million versus $167.2 million during the first quarter of 2008 and $184.3 million in the second quarter last year. During the second quarter, Pengrowth distributed $0.675 per trust unit to its unitholders which is 63 percent of cash flow from operating activities. Pengrowth's distributions remained stable at $0.225 per trust unit per month, up to and including the most recently announced August 15, 2008 distribution.

Daily production decreased two percent in the second quarter of 2008 to 80,895 boe per day when compared to the first quarter of 2008 and approximately ten percent when compared to the second quarter of 2007. The decrease in the second quarter 2008 compared to the first quarter is mainly attributable to scheduled and unscheduled maintenance shutdowns. In addition to the maintenance shutdowns, the decrease from the same period last year is primarily due to the completion of the disposition program in the second half of 2007. Pengrowth anticipates full year average daily production in the range of 80,000 boe per day to 82,000 boe per day excluding any potential impact from the Accrete transaction and any other potential future acquisitions or dispositions.

Development capital for the second quarter of 2008 totaled $74.7 million, with approximately 77 percent spent on drilling and completions. Pengrowth participated in drilling 37 gross wells (23.8 net wells) with a success rate of 96 percent. In addition to the development capital, $3.4 million was spent at the Lindbergh oil sands project and $5.0 million spent on building improvements and information technology.

Subsequent to the end of the quarter, on July 23, 2008, Pengrowth entered into an agreement to acquire Accrete's interest in the Harmattan Area with associated production of 1,900 boe per day and reserves of 8.7 million boe on a proven and probable basis for gross proceeds of $120 million including liabilities.

Note regarding currency: all figures contained within this report are quoted in Canadian dollars unless otherwise indicated.

President's Message

To our valued unitholders,

I am pleased to announce the unaudited quarterly results for the three months and six months ended June 30, 2008.

During the second quarter the oil and gas sector, including Pengrowth, continued to enjoy robust commodity prices. Pengrowth realized an average price, after commodity risk management of $73.21 per boe, a 21 percent increase over first quarter average realized prices and a 35 percent increase over the same period last year. Pengrowth's operating netbacks increased 28 percent to $43.11 per boe compared to $33.65 per boe in the first quarter of 2008 and 46 percent compared to $29.56 in the second quarter of 2007.

Pengrowth generated record cash flow from operating activities during the second quarter of $267.9 million, a 24 percent increase over the previous quarter and a seven percent increase over the second quarter of 2007. The strong increase in cash flow from operating activities resulted from the continued strength in crude oil and natural gas prices, which more than offset the slightly lower production volumes and higher royalties.

Pengrowth's exposure to the higher crude oil prices is tempered somewhat by our risk management strategy and by the continued strength of the Canadian dollar in relation to the U.S. dollar. Crude oil prices are typically quoted in U.S. dollars and as such, Pengrowth's average realized crude oil price did not fully reflect the record high U.S. dollar benchmark crude oil prices set in the second quarter of the year. In addition, Pengrowth uses forward price swaps to manage its exposure to commodity price fluctuations, to provide a measure of stability to monthly cash distributions and to partially secure returns on significant new acquisitions at prices at or above levels which are implied in the analysis and negotiation of the transactions. Pengrowth was a particularly active acquisitor of assets during the second half of 2006 and early 2007 and as a result our hedging strategy was augmented at that time. Pengrowth's fixed price strategy is not intended to "beat the markets" but rather to reduce volatility. Light oil and natural gas hedging losses for the second quarter amounted to $96.0 million. For the remainder of 2008, Pengrowth has approximately 46 percent of liquids hedged at Cdn $77.71 per boe and 41 percent of natural gas hedged at Cdn $8.41 per mcf.

Strong price realizations on our heavy oil and NGLs somewhat offset the weaker realized prices on light crude oil. Realized prices on heavy oil and NGLs averaged $100.34 per bbl and $92.25 per bbl respectively, an increase of 60 percent and 38 percent from the first quarter 2008. Heavy oil continues to grow as a focus area for Pengrowth as heavy oil production increased six percent in the second quarter compared to the first quarter of 2008 and 14 percent compared to the second quarter 2007.

Distributions to unitholders during the quarter totaled $0.675 per trust unit. Pengrowth maintained the monthly distribution at $0.225 per trust unit up to and including the recently declared August 15, 2008 distribution. Distributions are mainly derived from producing and selling oil, natural gas and related products and as such, distributions are highly dependent on commodity prices. Pengrowth's board of directors continues to examine distributions on a monthly basis while considering overall market conditions and capital spending requirements when setting the distribution level each month.

Pengrowth aims to continue paying stable distributions while executing a prudent development program. As oil and gas assets are subject to natural production declines, it becomes necessary to invest capital to offset these declines through drilling and optimization activities. Capital expenditures are partially funded through withholding a portion of the cash flow from operating activities. The ratio of distributions declared over cash flow from operating activities, commonly referred to as payout ratio, in the second quarter was 63 percent. This ratio is significantly lower than the first quarter 2008 value of 77 percent mainly due to the higher cash flows resulting from stronger commodity prices.

Pengrowth has traditionally grown production through acquisitions, being one of the more active acquisitors in its sector. Subsequent to the end of the quarter, on July 23, 2008, Pengrowth entered into an agreement pursuant to which Pengrowth is scheduled to or will acquire all of the common shares of Accrete Energy Inc. for gross proceed of $120 million, which includes the assumption of $25 million of liabilities. Under the terms of the agreement, Pengrowth will assume Accrete's interest in the Harmattan Area with the remaining properties being acquired by a new growth company. The acquisition remains subject to regulatory approval and the approval of two-thirds of Accrete shareholders and is expected to close in the third quarter 2008.

Through the purchase of Accrete, Pengrowth will acquire

- Reserves of approximately 8.4 million barrels of oil equivalent (boe) on a proven and probable basis,

- Associated production of 1,900 boe per day (boe/d) of liquids rich natural gas and light oil.

- High working interest (75 percent), high netbacks and relatively low (approximately $6.00 per boe) operating costs

The metrics of the acquisition are very favorable and inline with the industry averages. The deal results in a price of $63,158 per boe per day on a flowing barrel basis and $14.29 per boe on a proven and probable reserve basis. The acquisition is Pengrowth's third in the area within the last two years and represents an excellent tuck in opportunity within the existing properties. Management is continuing to evaluate opportunities to add value on behalf of unitholders in the current unsettled conditions in world financial markets.

Daily production decreased two percent quarter over quarter to 80,895 boe per day. The two percent decrease is attributable to scheduled and unscheduled maintenance shutdowns at our operated and non-operated properties during the quarter. Compared to the same period last year, production levels reflect the impact from the disposition program completed in the second half of 2007, partially offset by ongoing development activities. Pengrowth continues to forecast full year 2008 production of 80,000 to 82,000 boe per day, excluding volumes from the Accrete transaction discussed earlier and any potential future acquisitions or dispositions.

Operating expenses increased ten percent from the first quarter of 2008 and 13 percent on a per boe basis due to the previously mentioned scheduled and unscheduled maintenance shutdowns. Expenses are further impacted by higher realized utility expenses resulting from a 25 percent increase in Alberta power prices during the quarter. Despite the higher operating expenses during the quarter, Pengrowth continues to anticipate full year operating expenses of $392 million or $13.20 per boe.

Development capital expenditures totaled $74.7 million during the quarter, with the majority of the expenditures being dedicated to development and optimization activities. For the first half of the year, capital expenditures amounted to $159.6 million, with approximately 81 percent of the expenditures dedicated to drilling, completions and facilities. Currently, Pengrowth anticipates a full year capital program of $367 million, an increase of $12 million from the previous estimate, with the majority of the additional capital being dedicated to land acquisitions. In addition to the development program, during the second quarter, Pengrowth made a $3.4 million investment at Lindbergh to continue the evaluation of its oil sands assets. Pengrowth expects to invest $20 million in 2008 to evaluate the Lindbergh oil sands assets. The focus of the capital program is to maximize unitholder returns through the allocation of capital on select high return projects, the active pursuit of improved reserve recovery including the CO2 pilot project at Judy Creek, continued improvements in ongoing operations and the development of new core focus areas such as our CBM program.

On July 14, 2008, the department of Finance released proposed amendments to the Income Tax Act (Canada) to facilitate the conversion of existing income trusts and other public flow through entities into corporations on a tax deferred basis for both a trust and its Canadian unitholders. The conversion rules would provide an existing income trust with tax efficient structuring options to convert to a corporate form. The conversion rules would be available to Pengrowth if Pengrowth determines to convert to a corporation. The transition provisions are only available to trusts that convert prior to 2013. Accordingly, Pengrowth has 4 1/2 more years before a final course of action would have to be adopted and Pengrowth can continue to have the benefit of its tax structure through December 31, 2010. Commencing in 2011, Pengrowth would be subject to the SIFT tax and would utilize existing tax pools to mitigate a portion of the SIFT tax, should it remain a trust for any period.

I am very pleased with the accomplishments our team achieved during the second quarter and I believe we are well positioned both operationally and financially for continued success in 2008. We look forward to the remainder of 2008 and will continue to strive forward with our mandate to provide exceptional growth and value to our unitholders.

James S. Kinnear, Chairman, President and Chief Executive Officer

August 6, 2008

 Summary
   of Financial and Operating Results Three Months ended Six Months ended (thousands, June 30 June 30 except per unit % % amounts)
   2008 2007 Change 2008 2007 Change ---------------------------------------------------------------------------- INCOME STATEMENT
   Oil and gas sales $ 550,623 $443,977 24 $1,008,229 $ 876,085 15 Net (loss) income $(118,650) $271,659 (144) $ (175,233) $
   201,825 (187) Net (loss) income per trust unit $ (0.48) $ 1.11 (143) $ (0.71) $ 0.82 (187) ----------------------------------------------------------------------------
   CASH FLOW Cash flows from operating activities $ 267,874 $249,960 7 $ 484,112 $ 386,389 25 Cash flows from operating activities
   per trust unit $ 1.08 $ 1.02 6 $ 1.95 $ 1.58 23 Distributions declared $ 168,159 $184,327 (9) $ 335,393 $ 367,861 (9) Distributions
   declared per trust unit $ 0.675 $ 0.75 (10) $ 1.350 $ 1.50 (10) Ratio of distributions declared over cash flows from operating
   activities 63% 74% 69% 95% Capital expenditures $ 83,060 $ 49,467 68 $ 176,594 $ 148,252 19 Capital expenditures per trust
   unit $ 0.33 $ 0.20 65 $ 0.71 $ 0.61 16 Weighted average number of trust units outstanding 248,489 245,127 1 247,873 244,745
   1 ---------------------------------------------------------------------------- BALANCE SHEET Working capital (1) $ (460,191)
   $ (451,579) 2 Property, plant and equipment $4,199,258 $4,633,861 (9) Long term debt $1,243,674 $1,038,328 20 Trust unitholders'
   equity $2,284,095 $2,913,152 (22) Trust unitholders' equity per trust unit $ 9.17 $ 11.86 (22) Currency (U.S.$/Cdn$) (closing
   rate at period end) 0.9990 0.8812 Number of trust units outstanding at period end 248,993 245,560 1 ----------------------------------------------------------------------------
   AVERAGE DAILY PRODUCTION Crude oil (barrels) 25,052 27,083 (7) 25,077 27,271 (8) Heavy oil (barrels) 8,242 7,254 14 7,991
   7,015 14 Natural gas (mcf) 234,028 280,667 (17) 237,618 278,096 (15) Natural gas liquids (barrels) 8,596 8,519 1 9,131 9,215
   (1) Total production (boe) 80,895 89,633 (10) 81,803 89,850 (9) TOTAL PRODUCTION (mboe) 7,361 8,157 (10) 14,888 16,263 (8)
   ---------------------------------------------------------------------------- PRODUCTION PROFILE Crude oil 31% 30% 31% 30%
   Heavy oil 10% 8% 10% 8% Natural gas 48% 52% 48% 52% Natural gas liquids 11% 10% 11% 10% ----------------------------------------------------------------------------
   AVERAGE REALIZED PRICES(after commodity risk management) Crude oil (per barrel) $ 83.88 $ 71.81 17 $ 81.63 $ 69.52 17 Heavy
   oil (per barrel) $ 100.34 $ 43.52 131 $ 82.13 $ 42.57 93 Natural gas (per mcf) $ 9.40 $ 7.61 24 $ 8.55 $ 7.76 10 Natural gas
   liquids (per barrel) $ 92.25 $ 56.42 64 $ 78.86 $ 52.81 49 Average realized price per boe $ 73.21 $ 54.39 35 $ 66.68 $ 53.85
   24 ---------------------------------------------------------------------------- (1) Prior year restated to conform to presentation
   adopted in current year. Summary of Trust Unit Trading Data Three Months ended Six Months ended June 30 June 30 (thousands,
   except per trust unit amounts) 2008 2007 2008 2007 TRUST UNIT TRADING PGH (NYSE) High $ 21.90 U.S. $ 19.84 U.S. $ 21.90 U.S.
   $ 19.84 U.S. Low $ 18.86 U.S. $ 16.45 U.S. $ 13.67 U.S. $ 15.82 U.S. Close $ 20.11 U.S. $ 19.09 U.S. $ 20.11 U.S. $ 19.09
   U.S. Value $392,743 U.S. $428,571 U.S. $ 650,299 U.S. $ 877,712 U.S. Volume 19,425 23,668 33,718 50,301 PGF.UN (TSX) High
   $ 21.56 $ 21.04 $ 21.56 $ 21.04 Low $ 19.17 $ 18.82 $ 14.16 $ 18.62 Close $ 20.50 $ 20.27 $ 20.50 $ 20.27 Value $569,706 $561,471
   $1,127,595 $1,306,290 Volume 28,004 28,348 58,759 66,090

The following discussion of financial results should be read in conjunction with the interim unaudited consolidated Financial Statements for the three months and six months ended June 30, 2008 of Pengrowth Energy Trust and is based on information available to August 5th, 2008.

Frequently Recurring Terms

For the purposes of this discussion, we use certain frequently recurring terms as follows: the "Trust" refers to Pengrowth Energy Trust, the "Corporation" refers to Pengrowth Corporation, "Pengrowth" refers to the Trust and its subsidiaries and the Corporation on a consolidated basis and the "Manager" refers to Pengrowth Management Limited.

Pengrowth uses the following frequently recurring industry terms in this discussion: "bbls" refers to barrels, "boe" refers to barrels of oil equivalent, "mboe" refers to a thousand barrels of oil equivalent, "mcf" refers to thousand cubic feet, "gj" refers to gigajoule and "mmbtu" refers to million British thermal units.

Advisory Regarding Forward-Looking Statements

This discussion contains forward-looking statements within the meaning of securities laws, including the "safe harbour" provisions of Canadian securities legislation and the United States Private Securities Litigation Reform Act of 1995. Forward-looking information is often, but not always, identified by the use of words such as "anticipate", "believe", "expect", "plan", "intend", "forecast", "target", "project", "guidance" "may", "will", "should", "could", "estimate", "predict" or similar words suggesting future outcomes or language suggesting an outlook. Forward-looking statements in this discussion include, but are not limited to, statements with respect to: reserves, 2008 production, production additions from Pengrowth's 2008 development program, royalty obligations, 2008 operating expenses, future income taxes, goodwill, asset retirement obligations, taxability of distributions, remediation and abandonment expenses, capital expenditures, general and administration expenses, proceeds from the disposal of properties and the impact of the changes to the Canadian tax legislation as details have yet to be provided. Statements relating to "reserves" are forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the reserves described exist in the quantities predicted or estimated and can profitably be produced in the future.

Forward-looking statements and information are based on Pengrowth's current beliefs as well as assumptions made by, and information currently available to, Pengrowth concerning anticipated financial performance, business prospects, strategies, regulatory developments, future oil and natural gas commodity prices and differentials between light, medium and heavy oil prices, future oil and natural gas production levels, future exchange rates, the proceeds of anticipated divestitures, the amount of future cash distributions paid by Pengrowth, the cost of expanding our property holdings, our ability to obtain equipment in a timely manner to carry out development activities, our ability to market our oil and natural gas successfully to current and new customers, the impact of increasing competition, our ability to obtain financing on acceptable terms and our ability to add production and reserves through our development and exploitation activities. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. Management reviews its assumptions for reasonableness at least quarterly and updates the "Outlook" section in our discussion as required.

By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks that predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and anticipations, estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to: the volatility of oil and gas prices; production and development costs and capital expenditures; the imprecision of reserve estimates and estimates of recoverable quantities of oil, natural gas and liquids; Pengrowth's ability to replace and expand oil and gas reserves; environmental claims and liabilities; incorrect assessments of value when making acquisitions; increases in debt service charges; the loss of key personnel; the marketability of production; defaults by third party operators; unforeseen title defects; fluctuations in foreign currency and exchange rates; inadequate insurance coverage; compliance with environmental laws and regulations; changes in tax and royalty laws; the failure to qualify as a mutual fund trust; and Pengrowth's ability to access external sources of debt and equity capital. Further information regarding these factors may be found under the heading "Business Risks" herein and under "Risk Factors" in Pengrowth's most recent Annual Information Form (AIF), and in Pengrowth's most recent consolidated financial statements, management information circular, quarterly reports, material change reports and news releases. Copies of the Trust's Canadian public filings are available on SEDAR at www.sedar.com. The Trust's U.S. public filings, including the Trust's most recent annual report form 40-F as supplemented by its filings on form 6-K, are available at www.sec.gov.

Pengrowth cautions that the foregoing list of factors that may affect future results is not exhaustive. When relying on our forward-looking statements to make decisions with respect to Pengrowth, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Furthermore, the forward-looking statements contained in this discussion are made as of the date of this discussion and Pengrowth does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent events and circumstances have occurred that are reasonably likely to cause actual results to differ materially from material forward-looking information for a period that is not yet complete or as otherwise required by law.

The forward-looking statements contained in this discussion are expressly qualified by this cautionary statement.

Critical Accounting Estimates

As discussed in Note 1 to the financial statements, the financial statements are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP). Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenues and expenses for the period ended.

The amounts recorded for depletion, depreciation and amortization of injectants, the provision for asset retirement obligations, goodwill and future taxes are based on estimates. The ceiling test calculation is based on estimates of proved reserves, production rates, oil and natural gas prices, future costs and other relevant assumptions. The amounts recorded for the fair value of risk management contracts and the unrealized gains or losses on the change in fair value are based on estimates. These estimates can change significantly from period to period. As required by National Instrument 51-101 (NI 51-101) Standards of Disclosure for Oil and Gas Activities, Pengrowth uses independent qualified reserve evaluators in the preparation of reserve evaluations. By their nature, these estimates are subject to measurement uncertainty and changes in these estimates may impact the consolidated financial statements of future periods.

Non-GAAP Financial Measures

This discussion refers to certain financial measures that are not determined in accordance with GAAP in Canada or the United States. These measures do not have standardized meanings and may not be comparable to similar measures presented by other trusts or corporations. Measures such as operating netbacks do not have standardized meanings prescribed by GAAP.

Historically, we used non-GAAP measures such as funds generated from operations, funds generated from operations per trust unit, distributable cash, distributable cash per trust unit and payout ratio because we believe they facilitate the understanding of the results of our operations and financial position. In response to guidance from the Canadian Institute of Chartered Accountants (CICA) and the Canadian Securities Administrators (CSA), we are now using the GAAP measure cash flow from operating activities instead of funds generated from operations. The principal difference is that cash flow from operating activities includes changes in non-cash working capital. We have discontinued the use of the terms distributable cash and distributable cash per trust unit.

Distributions can be compared to cash flow from operating activities in order to determine the amount, if any, of distributions financed through debt, short term borrowing or the issue of trust units. The current level of capital expenditures funded through retained cash, the issue of debt, short term borrowing or the issue of trust units can also be determined when it is compared to the difference in cash flow from operating activities and distributions paid in the financing section of the Statement of Cash Flows.

Management monitors the capital structure of the corporation using non-GAAP financial metrics, primarily net debt to the trailing twelve months Earnings Before Interest, Taxes, Depletion, Depreciation, Amortization, Accretion, and other non-cash items (EBITDA). Management believes that targeting a prudent ratio of net debt to trailing EBITDA is reasonable given the size of the company, its capital management objectives, growth strategy, uncertainty of oil and gas commodity prices and additional margin required from the debt covenants. If the ratio of net debt to trailing EBITDA reaches or exceeds certain levels, management would consider steps to reduce the ratio of net debt to trailing EBITDA. Those steps could include, but are not limited to, raising equity, selling assets, reducing capital expenditures or reducing distributions. Details of this measure are included in note 12 to the consolidated financial statements.

Conversion and Currency

When converting natural gas to equivalent barrels of oil within this discussion Pengrowth uses the industry standard of six thousand cubic feet to one barrel of oil equivalent. Barrels of oil equivalent may be misleading, particularly if used in isolation; a conversion ratio of six mcf of natural gas to one boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Production volumes, revenues and reserves are reported on a company interest gross basis (before royalties) in accordance with Canadian practice. All amounts are stated in Canadian dollars unless otherwise specified.

OVERVIEW

Pengrowth generated cash flow from operating activities for the second quarter of 2008 of $267.9 million, a 24 percent increase over the first quarter of 2008 and a seven percent increase over the second quarter of 2007. This increase in cash flow from operating activities is a result of higher realized commodity prices for oil, gas and natural gas liquids (NGLs) which more than offset the impact of lower volumes and higher royalty expenses. The higher commodity prices also contributed to a 28 percent increase in the operating netback from the first quarter of 2008 and a 46 percent increase from the second quarter of 2007.

The commodity risk management activities, which are utilized to partially secure returns from significant acquisitions and provide a level of stability to the trust's cash flow from operating activities, has limited to some extent the trust's ability to fully realize higher commodity prices. The strengthening of the Canadian dollar has also offset some of the effects of rising commodity prices.

RESULTS OF OPERATIONS

This discussion contains the results of Pengrowth Energy Trust and its subsidiaries.

Production

Average daily production decreased slightly in the second quarter of 2008 compared to the first quarter of 2008. The two percent decrease is attributable to scheduled and unscheduled maintenance shutdowns. In comparison to the second quarter of 2007, average daily production decreased ten percent as a result of non-core property divestments completed in the second half of 2007 partially offset by ongoing development activities. Daily production for the first half of 2008 decreased approximately nine percent compared to the same period of 2007. This is primarily due to the previously mentioned divestment of non-core properties.

At this time, Pengrowth anticipates 2008 full year production of 80,000 to 82,000 boe per day. This estimate excludes volumes resulting from the pending Accrete Energy Inc. transaction discussed further in Subsequent Events, as well as the impact from any potential future acquisitions or dispositions.

 Daily Production Three months ended Six months ended ----------------------------------------------------------------------------
   June 30, Mar 31, June 30, June 30, June 30, 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Light crude oil (bbls) 25,052 25,103 27,083 25,077 27,271 Heavy oil (bbls) 8,242 7,740 7,254 7,991 7,015 Natural gas (mcf)
   234,028 241,208 280,667 237,618 278,096 Natural gas liquids (bbls) 8,596 9,666 8,519 9,131 9,215 ----------------------------------------------------------------------------
   Total boe per day 80,895 82,711 89,633 81,803 89,850 ----------------------------------------------------------------------------

Light crude oil production volumes remained relatively stable in the second quarter of 2008 compared to the first quarter of 2008. Production volumes decreased seven percent in the second quarter of 2008 compared to the second quarter of 2007 and approximately eight percent for the first half on 2008 compared to the same period of 2007. The decreases are primarily attributable to the absence of volumes from divested properties of approximately 1,100 bbls per day and natural production decline, partly offset by successful development activity.

Heavy oil production increased six percent in the second quarter of 2008 compared to the first quarter of 2008 and 14 percent compared to the second quarter of 2007. Additional volumes came from development activity primarily at the Tangleflags property. These additional volumes were partially offset by production declines.

Natural gas production decreased three percent compared to the first quarter of 2008. Lower sales volumes at Judy Creek due to higher gas volumes used for miscible flood injections, planned maintenance shutdowns at the Olds Gas and the Fenn Big Valley Plants and a temporary production curtailment at Sable Offshore Energy Project (SOEP) were the main reasons for the decrease. Production volumes decreased 17 percent in the second quarter 2008 compared to the same period of 2007 and 15 percent for the first half of 2008 from the first half of 2007. These decreases are mainly attributable to maintenance shutdowns and the absence of approximately 21,000 mcf per day from divested properties.

Natural gas liquids (NGLs) production decreased approximately 11 percent in the second quarter of 2008 versus the first quarter of 2008. The decrease is attributable to lower NGL production sold at Judy Creek because additional volumes were used to meet miscible flooding requirements and maintenance shutdowns previously described. Offsetting the decrease was an additional condensate lift at SOEP. Second quarter production was stable when compared to the second quarter 2007 as well as for the first half of 2008 compared to the first half of 2007.

Pricing and Commodity Risk Management

Compared to the prior quarter, benchmark prices continued to increase; however, the company did not fully benefit due to the limiting effects of the risk management strategy and, in the case of second quarter 2008 compared to the second quarter of 2007, the stronger Canadian dollar.

As part of our risk management strategy, Pengrowth uses forward price swaps to manage its exposure to commodity price fluctuations to provide a measure of stability to monthly cash distributions and to partially secure returns on significant new acquisitions. As of June 30, 2008, Pengrowth has contracts for the remainder of 2008 and 2009 for approximately 19,000 bbls per day and 10,000 bbls per day of crude oil and 99,000 mcf per day and 63,000 mcf per day of natural gas, respectively. Each Cdn $1 per barrel change in future oil prices would result in approximately Cdn $7.1 million change in the value of the crude contracts. Similarly, each Cdn $0.50 per mcf change in future natural gas prices would result in approximately Cdn $20.6 million change in the value of the natural gas contracts. The changes in the fair value of the forward contracts directly affects net income through the unrealized amounts booked to the statement of income during the period. The effect on cash flows will be recognized separately only upon realization of the contracts, which could vary significantly from the unrealized amount recorded due to timing and prices when each contract is settled. However, if each contract were to settle at the contract price in effect at June 30, 2008, future revenue would be reduced by the $604 million unrealized commodity risk management losses that have been recorded. Pengrowth has fixed the Canadian dollar exchange rate at the same time that it swaps any U.S. dollar denominated commodity in order to protect against changes in the foreign exchange rate.

Pengrowth has not designated any outstanding commodity contracts as hedges for accounting purposes and therefore must record these contracts on the balance sheet at their fair value and recognize changes in fair value on the statement of income as unrealized commodity risk management gains or losses. There will continue to be volatility in earnings to the extent that the fair value of commodity contracts fluctuate however, these non-cash amounts do not impact Pengrowth's operating cash flows. Realized commodity risk management gains or losses are recorded in oil and gas sales on the statement of income.

 Average Realized Prices Three months ended
   Six months ended ---------------------------------------------------------------------------- June 30, Mar 31, June 30, June
   30, June 30, (Cdn$) 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Light crude oil (per bbl) 119.96 93.73 69.61 106.84 66.59 after realized commodity risk management 83.88 79.38 71.81 81.63
   69.52 Heavy oil (per bbl) 100.34 62.74 43.52 82.13 42.57 Natural gas (per mcf) 10.05 7.52 7.41 8.77 7.50 after realized commodity
   risk management 9.40 7.72 7.61 8.55 7.76 Natural gas liquids (per bbl) 92.25 66.96 56.42 78.86 52.81 ----------------------------------------------------------------------------
   Total per boe 86.26 64.07 53.10 75.04 52.17 after realized commodity risk management 73.21 60.30 54.39 66.68 53.85 ----------------------------------------------------------------------------
   Benchmark prices WTI oil (U.S.$ per bbl) 123.98 97.81 64.98 110.94 61.63 AECO spot gas (Cdn$ per gj) 8.86 6.76 6.99 7.81 7.03
   NYMEX gas (U.S.$ per mmbtu) 10.93 8.03 7.55 9.48 7.16 Currency (U.S.$/Cdn$) 0.99 1.00 0.90 0.99 0.88 ----------------------------------------------------------------------------
   Realized Commodity Risk Management Gains (Losses) Three months ended Six months ended ----------------------------------------------------------------------------
   June 30, Mar 31, June 30, June 30, June 30, 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Light crude oil ($ millions) (82.2) (32.8) 5.5 (115.0) 14.5 Light crude oil ($ per bbl) (36.08) (14.35) 2.20 (25.21) 2.93
   Natural gas ($ millions) (13.8) 4.4 5.1 (9.4) 12.9 Natural gas ($ per mcf) (0.65) 0.20 0.20 (0.22) 0.26 ----------------------------------------------------------------------------
   Combined ($ millions) (96.1) (28.4) 10.6 (124.4) 27.4 Combined ($ per boe) (13.06) (3.77) 1.29 (8.36) 1.68 ----------------------------------------------------------------------------

Commodity price contracts in place at June 30, 2008 are detailed in Note 13 to the consolidated financial statements. Additionally, the fair value of the outstanding contracts has been recorded on the balance sheet as a total net liability of $604 million at quarter end of which the majority is a current liability of $460 million. In the second quarter of 2007, the total net asset was $33 million, of which $25 million was current. An unrealized loss of $518 million resulting from the change in fair value from January 1 to June 30, 2008 has been recognized in the statement of income compared to an unrealized loss of $4 million for the same time period in 2007.

Oil and Gas Sales - Contribution Analysis

The following table includes the impact of realized commodity risk management activity.

 ($ millions) Three months ended ----------------------------------------------------------------------------
   June 30, % of Mar 31, % of June 30, % of Sales Revenue 2008 total 2008 total 2007 total ----------------------------------------------------------------------------
   Light crude oil 191.2 35 181.3 40 177.0 40 Natural gas 200.3 36 169.4 37 194.3 44 Natural gas liquids 72.2 13 58.9 13 43.8
   10 Heavy oil 75.3 14 44.2 10 28.6 6 Brokered sales/sulphur 11.6 2 3.8 - 0.3 - ----------------------------------------------------------------------------
   Total oil and gas sales 550.6 457.6 444.0 ---------------------------------------------------------------------------- ($
   millions) Six months ended ---------------------------------------------------------------------------- June 30, % of June
   30, % of Sales Revenue 2008 total 2007 total ----------------------------------------------------------------------------
   Light crude oil 372.6 37 343.2 39 Natural gas 369.7 37 390.5 45 Natural gas liquids 131.1 13 88.1 10 Heavy oil 119.5 12 54.0
   6 Brokered sales/sulphur 15.3 1 0.3 - ---------------------------------------------------------------------------- Total oil
   and gas sales 1,008.2 876.1 ----------------------------------------------------------------------------

Oil and Gas Sales - Price and Volume Analysis

The following table illustrates the effect of changes in prices and volumes on the components of oil and gas sales, including the impact of realized commodity risk management activity, for the second quarter of 2008 compared to the first quarter of 2008.

 ----------------------------------------------------------------------------
   ($ millions) Light oil Natural gas NGLs Heavy oil Other Total ----------------------------------------------------------------------------
   Quarter ended March 31, 2008 181.3 169.4 58.9 44.2 3.8 457.6 Effect of change in product prices 59.8 54.1 19.8 28.2 - 161.9
   Effect of change in sales volumes (0.4) (4.9) (6.5) 2.9 - (8.9) Effect of change in realized commodity risk management activities
   (49.5) (18.3) - - - (67.8) Other - - - - 7.8 7.8 ----------------------------------------------------------------------------
   Quarter ended June 30, 2008 191.2 200.3 72.2 75.3 11.6 550.6 ----------------------------------------------------------------------------

The following table illustrates the effect of changes in prices and volumes on the components of oil and gas sales including the impact of realized commodity risk management activity, for the first half of 2008 compared to the same period of 2007.

 ---------------------------------------------------------------------------- ($ millions) Light oil Natural
   gas NGLs Heavy oil Other Total ---------------------------------------------------------------------------- Period ended June
   30, 2007 343.2 390.5 88.1 54.0 0.3 876.1 Effect of change in product prices 183.7 54.7 43.3 57.5 - 339.2 Effect of change
   in sales volumes (24.8) (53.2) (0.3) 7.9 - (70.4) Effect of change in realized commodity risk management activities (129.5)
   (22.3) - - - (151.8) Other - - - 0.1 15.0 15.1 ----------------------------------------------------------------------------
   Period ended June 30, 2008 372.6 369.7 131.1 119.5 15.3 1,008.2 ----------------------------------------------------------------------------
   Processing and Other Income Three months ended Six months ended ----------------------------------------------------------------------------
   June 30, Mar 31, June 30, June 30, June 30, ($ millions) 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Processing & other income 10.8 4.5 5.0 15.3 9.7 $ per boe 1.47 0.59 0.62 1.02 0.60 ----------------------------------------------------------------------------

Processing and other income is primarily derived from interest earned, fees charged for processing and gathering third party gas, road use and oil and water processing. Second quarter 2008 included $4.3 million of interest income related adjustments to 2007 non-core property dispositions, $1.1 million related to a prior period Enhanced Oil Recovery (EOR) settlement and $1.2 million in equity income from Monterey Exploration Ltd.

This income represents the partial recovery of operating expenses reported separately.

 Royalties Three months ended Six months ended ----------------------------------------------------------------------------
   June 30, Mar 31, June 30, June 30, June 30, ($ millions) 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Royalty expense 125.6 98.2 84.0 223.8 165.6 $ per boe 17.05 13.05 10.30 15.03 10.18 ----------------------------------------------------------------------------
   Royalties as a percent of sales 22.8% 21.5% 18.9% 22.2% 18.9%

Royalties include crown, freehold and overriding royalties as well as mineral taxes. The royalty rate for the second quarter of 2008 is slightly higher than the first quarter 2008, primarily a reflection of higher average market prices used for the calculation of the royalty expense. Included in the second quarter of 2008 is a $4.8 million favourable adjustment for EOR settlement related to 2005. Additionally, sales include losses from realized commodity risk management contracts that have the effect of increasing royalty rates as a percentage of sales since royalty payments are based on revenue prior to commodity risk management activities. Royalty expense would represent 19.4 percent of sales for the second quarter of 2008 and 2007, excluding the effects of realized commodity risk management contracts.

The outlook for 2008 is that royalties will be slightly higher as a result of higher commodity prices. Royalties are expected to average approximately 23 percent of Pengrowth's sales.

 Operating Expenses Three months ended Six
   months ended ---------------------------------------------------------------------------- June 30, Mar 31, June 30, June 30,
   June 30, ($ millions) 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Operating expenses 109.7 99.5 112.1 209.2 213.1 $ per boe 14.89 13.22 13.74 14.05 13.10 ----------------------------------------------------------------------------

Operating expenses increased ten percent from the first quarter of 2008 or thirteen percent on a per boe basis. During the second quarter, maintenance costs increased by $4.5 million due to turnaround work at the Olds Gas Plant; and utility costs increased by $4.2 million from a 25 percent increase in Alberta power prices over the first quarter. Second quarter operating expenses are two percent lower in 2008 versus 2007. Turnaround work at Olds and the 31 percent increase in utility costs were more than offset by the absence of expenses relating to properties disposed of in 2007. Operating expenses for the first half of 2008 compared to the first half of 2007 decreased by $4.0 million. In addition to the Olds turnaround, higher utility costs, and offsetting expenses from the ConocoPhillips properties (the "CP properties") acquisition; reduced injection expenses at Weyburn, and lower maintenance at Judy Creek, Carson Creek and Red Earth offset higher maintenance at Swan Hills and Sable.

Pengrowth expects total operating expenses for 2008 of approximately $392 million or $13.20 per boe.

   Net Operating Expenses Three months ended Six months ended ----------------------------------------------------------------------------
   June 30, Mar 31, June 30, June 30, June 30, ($ millions) 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Net operating expenses 98.9 95.0 107.1 193.9 203.4 $ per boe 13.42 12.63 13.12 13.03 12.50 ----------------------------------------------------------------------------
   Included in the table above are operating expenses net of the previously reported processing and other income. Transportation
   Costs Three months ended Six months ended ---------------------------------------------------------------------------- June
   30, Mar 31, June 30, June 30, June 30, ($ millions) 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Light oil transportation 1.1 1.2 0.8 2.3 1.2 $ per bbl 0.50 0.51 0.34 0.50 0.25 Natural gas transportation 2.1 2.1 2.3 4.2
   4.5 $ per mcf 0.10 0.10 0.09 0.10 0.09 ----------------------------------------------------------------------------

Pengrowth incurs transportation costs for its product once the product enters a feeder or main pipeline to the title transfer point. The transportation cost is dependant upon third party rates and distance the product travels on the pipeline prior to changing ownership or custody. Oil transportation costs increased year-over-year due to the additional transportation incurred related to the CP properties; which Pengrowth began marketing in June 2007. Pengrowth has the option to sell some of its natural gas directly to premium markets outside of Alberta by incurring additional transportation costs. Pengrowth sells most of its natural gas without incurring significant additional transportation costs. Similarly, Pengrowth has elected to sell approximately 65 percent of its crude oil at market points beyond the wellhead but at the first major trading point, requiring minimal transportation costs.

 Amortization of Injectants for Miscible Floods Three months ended Six months ended ----------------------------------------------------------------------------
   June 30, Mar 31, June 30, June 30, June 30, ($ millions) 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Purchased and capitalized 7.0 3.8 5.9 10.8 10.6 Amortization 5.7 7.8 8.6 13.5 18.1 ----------------------------------------------------------------------------

The cost of injectants (primarily natural gas and ethane) purchased for injection in the miscible flood program is amortized equally over the period of expected future economic benefit. The cost of injectants purchased in 2007 and 2008 is amortized over a 24 month period. As of June 30, 2008, the balance of unamortized injectant costs was $24.6 million.

The amount of injectants purchased and capitalized in the second quarter 2008 was higher than the first quarter of 2008 due to the timing and the requirement of this ongoing program. It is expected that the program will require additional injectants in upcoming quarters and therefore higher amounts will be purchased. The value of Pengrowth's proprietary injectants is not recorded as an asset or a sale; the cost of producing these injectants is included in operating expenses.

Operating Netbacks

There is no standardized measure of operating netbacks and therefore operating netbacks, as presented below, may not be comparable to similar measures presented by other companies. Certain assumptions have been made in allocating operating expenses, other production income, other income and royalty injection credits between light crude, heavy oil, natural gas and natural gas liquids production.

Pengrowth recorded an average operating netback of $43.11 per boe in the second quarter of 2008 compared to $33.65 per boe in the first quarter of 2008 and $29.56 per boe for the second quarter of 2007. The increase in the netback in the second quarter compared to the first quarter of 2008 was a result of higher heavy oil and liquids price realizations partially offset by royalties. The increase from the second quarter of 2007 is a result of higher combined commodity prices and realized sulphur sales which are partially offset by higher royalties and operating costs.

The sales price used in the calculation of operating netbacks is after realized commodity risk management.

 -------------------------------------------------
   ------------------------------------------------- Three months ended Six months ended Combined Netbacks June 30, Mar 31, June
   30, June 30, June 30, ($ per boe) 2008 2008 2007 2008 2007 ------------------------------------------------- Sales price 73.21
   60.30 54.39 66.68 53.85 Other production income 1.59 0.50 0.04 1.04 0.02 -------------------------------------------------
   74.80 60.80 54.43 67.72 53.87 Processing and other income 1.47 0.59 0.62 1.02 0.60 Royalties (17.05) (13.05) (10.30) (15.03)
   (10.18) Operating expenses (14.89) (13.22) (13.74) (14.05) (13.10) Transportation costs (0.45) (0.44) (0.39) (0.44) (0.35)
   Amortization of injectants (0.77) (1.03) (1.06) (0.90) (1.11) ------------------------------------------------- Operating
   netback 43.11 33.65 29.56 38.32 29.73 ------------------------------------------------- -------------------------------------------------
   ------------------------------------------------- Three months ended Six months ended Light Crude Netbacks June 30, Mar 31,
   June 30, June 30, June 30, ($ per bbl) 2008 2008 2007 2008 2007 ------------------------------------------------- Sales price
   (after commodity risk management) 83.88 79.38 71.81 81.63 69.52 Other production income 0.76 0.01 0.08 0.38 0.06 -------------------------------------------------
   84.64 79.39 71.89 82.01 69.58 Processing and other income 1.87 0.71 0.34 1.29 0.34 Royalties (17.52) (15.44) (11.90) (16.48)
   (10.89) Operating expenses(1) (16.39) (15.52) (14.54) (15.96) (13.58) Transportation costs (0.50) (0.51) (0.34) (0.50) (0.25)
   Amortization of injectants (2.50) (3.40) (3.51) (2.95) (3.67) ------------------------------------------------- Operating
   netback 49.60 45.23 41.94 47.41 41.53 ------------------------------------------------- -------------------------------------------------
   ------------------------------------------------- Three months ended Six months ended Heavy Oil Netbacks June 30, Mar 31,
   June 30, June 30, June 30, ($ per bbl) 2008 2008 2007 2008 2007 ------------------------------------------------- Sales price
   100.34 62.74 43.52 82.13 42.57 Processing and other income 0.70 0.27 0.18 0.49 0.19 Royalties (15.07) (9.18) (5.33) (12.22)
   (5.29) Operating expenses(1) (11.60) (12.34) (14.45) (11.96) (13.75) ------------------------------------------------- Operating
   netback 74.37 41.49 23.92 58.44 23.72 ------------------------------------------------- -------------------------------------------------
   ------------------------------------------------- Three months ended Six months ended Natural Gas Netbacks June 30, Mar 31,
   June 30, June 30, June 30, ($ per mcf) 2008 2008 2007 2008 2007 ------------------------------------------------- Sales price
   (after commodity risk management) 9.40 7.72 7.61 8.55 7.76 Other production income 0.47 0.17 - 0.32 - -------------------------------------------------
   9.87 7.89 7.61 8.87 7.76 Processing and other income 0.28 0.12 0.16 0.20 0.16 Royalties (2.06) (1.64) (1.47) (1.85) (1.57)
   Operating expenses(1) (2.39) (2.03) (2.23) (2.21) (2.15) Transportation costs (0.10) (0.10) (0.09) (0.10) (0.09) -------------------------------------------------
   Operating netback 5.60 4.24 3.98 4.91 4.11 ------------------------------------------------- -------------------------------------------------
   ------------------------------------------------- Three months ended Six months ended NGLs Netbacks June 30, Mar 31, June
   30, June 30, June 30, ($ per bbl) 2008 2008 2007 2008 2007 ------------------------------------------------- Sales price 92.25
   66.96 56.42 78.86 52.81 Royalties (38.77) (23.45) (17.53) (30.66) (15.67) Operating expenses(1) (16.36) (12.28) (12.54) (14.20)
   (12.21) ------------------------------------------------- Operating netback 37.12 31.23 26.35 34.00 24.93 -------------------------------------------------
   (1) Prior Period restated to conform to presentation in the current period Interest Three months ended Six months ended ----------------------------------------------------------------------------
   June 30, Mar 31, June 30, June 30, June 30, ($ millions) 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Interest Expense 19.0 15.8 21.6 34.8 45.0 ----------------------------------------------------------------------------

Interest expense increased 20 percent in the second quarter of 2008 compared to the first quarter of 2008. Renewal fees for revolving credit facilities combined with unrealized mark-to-market losses on the Sable Remediation Trust Fund contributed to the increase. Interest expense decreased 23 percent in the first half of 2008 compared to the same time period of 2007. The decrease represents a lower average debt level in the period compared to the same time period of 2007 which included debt relating to the CP properties acquisition. Approximately half of Pengrowth's outstanding long term debt as at June 30, 2008 incurs interest that is payable in U.S. dollars and therefore the recorded amount of interest payable is subject to fluctuations in the U.S. dollar exchange rate.

 General and Administrative (G&A) Expenses Three months ended Six months ended ----------------------------------------------------------------------------
   June 30, Mar 31, June 30, June 30, June 30, ($ millions) 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Cash G&A expense 11.2 12.7 14.7 23.9 29.8 $ per boe 1.52 1.69 1.81 1.61 1.83 Non-cash G&A expense 2.0 2.6 1.5 4.6
   3.2 $ per boe 0.27 0.34 0.18 0.31 0.20 ---------------------------------------------------------------------------- Total
   G&A 13.2 15.3 16.2 28.5 33.0 Total G&A ($ per boe) 1.79 2.03 1.99 1.91 2.03 ----------------------------------------------------------------------------

The cash component of G&A for the second quarter of 2008 compared to the first quarter of 2008 decreased 12 percent primarily due to a favourable recovery of $0.9 million related to the 2007 dispositions. Cash G&A decreased $3.5 million in the second quarter of 2008 in comparison to the same time period of 2007 as the CP transition services fees ($1.4 million) and legal fees associated with ongoing litigation ($0.8 million) were not repeated in the current quarter. In the first half of 2008, cash G&A decreased $5.9 million compared to the first half on 2007. The decrease in the current year is due to the absence of the CP transition services fees of $3.0 million and lower legal fees of $1.6 million.

The non-cash component of G&A represents the compensation expense associated with Pengrowth's long term incentive programs including trust unit rights and deferred entitlement units (LTIP). The increase comparing the second quarter and the first half of 2008 to the same periods in 2007 is due to the higher expense resulting from granting additional trust units under the LTIP as a result of the increased number of employees from recent acquisitions.

Total general and administrative expenses per boe are expected to remain stable in 2008 when compared to 2007. On a per boe basis, G&A is anticipated to be $2.20 per boe for full year 2008, which includes non-cash G&A and anticipated management fees of approximately $0.40 per boe.

   Management Fees Three months ended Six months ended ----------------------------------------------------------------------------
   June 30, Mar 31, June 30, June 30, June 30, ($ millions) 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Management Fee 2.6 3.4 3.0 6.0 6.2 $ per boe 0.35 0.45 0.37 0.40 0.38 ----------------------------------------------------------------------------

Commencing July 1, 2006, for the remaining three year term, the maximum fees payable to the Manager are limited to 60 percent of the fees that would have been payable under the original agreement or $12 million, whichever is lower, plus certain expenses. The current agreement expires on June 30, 2009 and does not contain a further right of renewal. A special committee of the board of directors comprised of all independent members of the board was formed for the purpose of advising the board in connection with all matters pertaining to the orderly transition to a traditional corporate management structure at the end of the term.

Taxes

In determining its taxable income, the Corporation deducts payments made to the Trust, effectively transferring the income tax liability to unitholders thus reducing the Corporation's taxable income to nil. Under the Corporation's current distribution policy, at the discretion of the board, funds can be withheld to fund future capital expenditures, repay debt or used for other corporate purposes. If withholdings increased sufficiently or the Corporation's tax pool balances were reduced sufficiently, the Corporation could become subject to taxation on a portion of its income in the future. This can be mitigated through various options including the issuance of additional trust units, increased tax pools from additional capital spending, modifications to the distribution policy or potential changes to the corporate structure.

Bill C-52 Budget Implementation Act 2007

Bill C-52 modifies the taxation of certain flow-through entities including mutual fund trusts referred to as "specified investment flow-through" entities or "SIFTS" and the taxation of distributions from such entities (the "SIFT Legislation"). Bill C-52 applies a tax at the trust level on distributions of certain income from such a SIFT trust at a rate of tax comparable to the combined federal and provincial corporate tax rate. These distributions will be treated as dividends to the trust unitholders.

Pengrowth believes that it is characterized as a SIFT trust and, as a result, will be subject to Bill C-52 commencing on January 1, 2011 subject to the qualification below regarding the possible loss of the four year grandfathering period in the case of "undue expansion". Pengrowth may lose the benefit of the grandfathering period, which ends December 31, 2010, if Pengrowth exceeds the limits on the issuance of new trust units and convertible debt that constitute normal growth during the grandfathering period (subject to certain exceptions). The normal growth limits are calculated as a percentage of Pengrowth's market capitalization of approximately $4.8 billion on October 31, 2006. As of June 30, 2008, Pengrowth may issue approximately $2.4 billion of additional equity without offending the normal growth guidelines and may issue an additional $960 million for each of 2009 and 2010. The normal growth restriction on trust unit issuance is monitored by management as part of the overall capital management objectives. Pengrowth is in compliance with the normal growth restrictions.

Based on information released by the Department of Finance (Canada) (including the federal economic update on December 30, 2007), the proposed tax rate in 2011 will be 29.5 percent which is comprised of 16.5 percent federal tax and 13 percent tax rate on account of provincial tax. The federal component of the proposed tax on SIFTs is expected to be 15 percent in 2012 (28 percent total) and thereafter. In the February 28, 2008 Federal Budget it has been proposed that for tax years ending 2009 and later the provincial component of the SIFT tax will be based on the provincial corporate tax rate of each province in which the SIFT has a permanent establishment. For example, for a company operating only in Alberta, the SIFT rate would be 25 percent with a provincial rate of ten percent in 2012. The payment of this tax will reduce the amount of cash available for distribution to unitholders.

On July 14, 2008, Finance released for comment proposed amendments to the Income Tax Act (Canada) to facilitate the conversion of existing income trusts and other public flow through entities into corporations on a tax deferred basis. The conversion rules would provide an existing income trust with tax efficient structuring options to convert to a corporate form. The conversion rules would be available to Pengrowth if Pengrowth determines to convert to a corporation. The transition provisions are only available to trusts that convert prior to 2013. Accordingly, Pengrowth has 4 1/2 more years before a final course of action would have to be adopted and Pengrowth can continue to have the benefit of its tax structure through December 31, 2010. Commencing in 2011, Pengrowth would be subject to the SIFT tax and would utilize existing tax pools to mitigate a portion of the SIFT tax, should it remain a trust for any period.

Pursuant to the SIFT Legislation, the distribution tax will only apply in respect of distributions of income and will not apply to returns of capital. Pengrowth currently has available tax pool balances of approximately $3.0 billion, which will be considered in identifying the alternatives and timing of our response to the enactment of the SIFT Legislation.

Future Income Taxes

Future income tax is a non-cash item relating to temporary differences between the accounting and tax basis of Pengrowth's assets and liabilities and has no immediate impact on Pengrowth's cash flows. During the second quarter of 2008, Pengrowth recorded a future tax reduction of $110.7 million to reflect temporary differences primarily relating to the mark-to-market losses recorded.

 Depletion, Depreciation and Accretion Three months ended Six months ended
   ---------------------------------------------------------------------------- June 30, Mar 31, June 30, June 30, June 30, ($
   millions) 2008 2008 2007 2008 2007 ---------------------------------------------------------------------------- Depletion
   and depreciation 148.4 151.8 163.1 300.2 325.6 $ per boe 20.16 20.17 20.00 20.16 20.02 Accretion 6.9 6.8 6.5 13.7 13.0 $ per
   boe 0.94 0.90 0.79 0.92 0.80 ----------------------------------------------------------------------------

Depletion and depreciation of property, plant and equipment is calculated on the unit of production method based on total proved reserves. The lower depletion amounts for the second quarter 2008 and the first half of 2008 is directly attributable to the lower production volumes relative to the comparable periods.

Pengrowth's Asset Retirement Obligations (ARO) liability changes from net acquisitions and by the amount of accretion, which is a charge to net income over the lifetime of the producing oil and gas assets.

Asset Retirement Obligations

The total future ARO is based on management's estimate of costs to remediate, reclaim and abandon wells and facilities having regard for Pengrowth's working interest and the estimated timing of the costs to be incurred in future periods. Pengrowth has developed an internal process to calculate these estimates which considers applicable regulations, actual and anticipated costs, type and size of well or facility and the geographic location. Pengrowth has estimated the net present value of its total ARO to be $354 million as at June 30, 2008 (December 31, 2007 - $352 million), based on a total escalated future liability of $2,008 million (December 31, 2007 - $2,015 million). These costs are expected to be incurred over 50 years with the majority of the costs incurred between 2035 and 2054. A credit adjusted risk free rate of eight percent and an inflation rate of two percent per annum were used to calculate the net present value of the ARO.

Pengrowth takes a proactive approach to managing its well abandonment and site restoration obligations. There is an on-going program to abandon wells and reclaim well and facility sites. Through June 30, 2008, Pengrowth spent $10.4 million on abandonment and reclamation (June 30, 2007 - $4.5 million). Pengrowth expects to spend approximately $18 million in 2008 on remediation and abandonment, excluding contributions to remediation trust funds.

Capital Expenditures

During the first half of 2008, Pengrowth spent $176.6 million on development and optimization activities. The largest expenditures were at Harmattan and Olds ($13.2 million), Heavy Oil Properties ($13.6 million), Carson Creek ($12.2 million), Fenn Big Valley ($11.4 million), Red Earth ($11.4 million), Northeast B.C. ($11.2), Judy Creek ($7.8 million), and Deer Mountain ($7.3 million). In addition to development activities, $6.6 million was spent on the Lindbergh project and $10.3 million was spent on office premises.

 Three months ended Six months ended ----------------------------------------------------------------------------
   June 30, Mar 31, June 30, June 30, June 30, ($ millions) 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Seismic acquisitions(1)(2) 1.3 3.8 2.2 5.1 5.5 Drilling, completions and facilities (1) 57.4 72.3 33.1 129.7 112.7 Maintenance
   capital (1) 10.6 7.7 6.2 18.3 14.0 Land purchases 5.4 1.1 2.9 6.5 9.0 ----------------------------------------------------------------------------
   Development capital 74.7 84.9 44.4 159.6 141.3 Lindbergh Project 3.4 3.2 - 6.6 - Other capital 5.0 5.4 5.1 10.4 7.0 ----------------------------------------------------------------------------
   Total capital expenditures 83.1 93.5 49.5 176.6 148.3 ----------------------------------------------------------------------------
   Business acquisitions 0.3 (0.1) 0.6 0.2 923.3 Property acquisitions 16.9 0.7 - 17.6 - Proceeds on property dispositions 4.7
   (1.7) (197.3) 3.0 (272.0) ---------------------------------------------------------------------------- Net capital expenditures
   and acquisitions 105.0 92.4 (147.2) 197.4 799.6 ----------------------------------------------------------------------------
   (1) Prior year restated to conform to presentation adopted in current year. (2) Seismic acquisitions are net of seismic sales
   revenue.

Pengrowth currently anticipates the 2008 development capital program to be $367.0 million, an increase from the full year spending of $283.1 million in 2007. In addition, Pengrowth plans to spend $20.0 million to continue its evaluation of its oil sands asset at Lindbergh. Other capital expenditures in 2008 are expected to be $12.0 million in office premises which is a decrease from the 2007 spending of $26.6 million.

Acquisitions and Dispositions

During the second quarter of 2008, Pengrowth completed property acquisitions of approximately $16.9 million which included exercising a right of first refusal in Three Hills and purchasing additional working interest at Swan Hills. Proceeds from property dispositions at June 30, 2008 are negative due to adjustments related to the 2007 disposition program.

In the first half of 2007, Pengrowth closed the acquisition of the shares of four subsidiaries of Burlington Resources Canada Ltd., a subsidiary of ConocoPhillips, holding Canadian oil and natural gas producing properties and undeveloped lands for a purchase price of $1.0375 billion, prior to adjustments.

Working Capital

The working capital deficiency increased by $271 million from $190 million at December 31, 2007 to $460 million at June 30, 2008. Most of the increase in the working capital deficiency is attributable to an increase in risk management liability contracts, where there is a net non-cash current liability at June 30, 2008 of $461 million compared to $63 million at December 31, 2007. Liabilities on commodity risk management activities are estimated and recognized in the current period, but will only be settled during future period sales, at amounts which may be different than the amount estimated depending on future realized commodity prices. In contrast, the working capital deficiency increased by approximately $9 million comparing the second quarter of 2008 to the second quarter of 2007.

Pengrowth frequently operates with a working capital deficiency, as distributions relating to two production months are payable to unitholders at the end of any month, but cash flow from one month of production is still receivable. For example, at the end of June, distributions related to May and June production months being payable on July 15 and August 15, respectively. May's production revenue, received on June 25, is temporarily applied against Pengrowth's term credit facility until the distribution payment on July 15.

 Financial Resources and Liquidity Pengrowth's capital structure is as follows: ($ thousands) June 30,
   Dec 31, June 30, As at: 2008 2007 2007 ---------------------------------------------------------------------------- Term credit
   facilities $ 534,000 $ 513,998 $ 720,000 Senior unsecured notes 709,674 689,238 318,328 Working capital deficit excluding
   bank indebtedness (cash and term deposits) 453,684 191,620 124,386 Bank indebtedness (cash and term deposits) 6,507 (2,017)
   327,193 ---------------------------------------------------------------------------- Net debt excluding convertible debentures
   $ 1,703,865 $ 1,392,839 $ 1,489,907 ---------------------------------------------------------------------------- Convertible
   debentures 74,973 75,030 75,079 ---------------------------------------------------------------------------- Net debt including
   convertible debentures $ 1,778,838 $ 1,467,869 $ 1,564,986 ----------------------------------------------------------------------------
   June 30, Dec 31, June 30, Trailing twelve months ended 2008 2007 2007 ----------------------------------------------------------------------------
   Net income (loss) $ (17,406) $ 359,652 $ 287,677 Add: Interest expense 74,069 84,292 64,833 Future tax reduction (321,908)
   (264,612) (133,863) Depletion, depreciation, amortization and accretion 640,104 664,806 560,652 Other non-cash expenses 649,550
   90,497 6,723 ---------------------------------------------------------------------------- EBITDA $ 1,024,409 $ 934,635 $ 786,022
   ---------------------------------------------------------------------------- Net debt excluding convertible debentures to
   EBITDA 1.7 1.5 1.9 Net debt including convertible debentures to EBITDA 1.7 1.6 2.0 ----------------------------------------------------------------------------

The $311 million increase in net debt, excluding convertible debentures from December 31, 2007, is primarily attributable to an increased working capital deficit due to higher non-cash mark-to-market commodity risk management contract losses and Pengrowth's capital expenditures, offset by the net proceeds of property dispositions. This increase in net debt excluding convertible debentures resulted in the net debt excluding convertible debentures to trailing EBITDA multiple to be slightly higher than it was at December 31, 2007. The increase in net debt excluding convertible debentures of $214 million from the first half of 2007 to first half of 2008 was primarily due to unrealized mark-to-market losses offset by the repayment of debt from the proceeds of the 2007 disposition program. Net debt excluding convertible debentures to EBITDA for the trailing twelve months ended June 30, 2008 decreased compared to the same period in 2007 due to the inclusion of a full year of income from the CP properties.

Capital spending and acquisitions may be funded by the excess of cash flows from operating activities over distributions declared, through additional debt or the issuance of equity and property dispositions. The credit facilities and other sources of cash are expected to be sufficient to meet Pengrowth's near term capital requirements and provide the flexibility to pursue profitable growth opportunities. A significant decline in oil and natural gas prices could impact our access to bank credit facilities and our ability to fund operations, maintain distributions and pursue profitable growth opportunities.

Pengrowth has implemented an Equity Distribution Program which will permit Pengrowth to distribute up to 25,000,000 trust units from time to time until January of 2010 through the New York Stock Exchange (NYSE) or the Toronto Stock Exchange (TSX). No trust units were issued under the Equity Distribution Program during the quarter ended June 30, 2008.

At June 30, 2008, Pengrowth maintained a committed $1.2 billion term credit facility and a $50 million operating line of credit. The credit facilities were reduced by drawings of $535 million and by outstanding letters of credit of approximately $11 million.

Pengrowth remains well positioned to fund its 2008 development program and to take advantage of acquisition opportunities as they arise. At June 30, 2008, Pengrowth had approximately $699 million available to draw from its credit facilities.

Unitholders are eligible to participate in the Distribution Reinvestment Plan (DRIP). DRIP entitles the unitholder to reinvest cash distributions in additional units of the Trust. The trust units under the plan are issued from treasury at a five percent discount to the weighted average closing price of all trust units traded on the TSX for the 20 trading days preceding a distribution payment date. For the six month period ended June 30, 2008, 1.7 million trust units were issued for cash proceeds of $30 million under the DRIP compared to 1.3 million trust units for cash proceeds of $24 million at June 30, 2007.

Pengrowth does not have any off balance sheet financing arrangements.

Pengrowth's U.S. $600 million senior unsecured notes, U.K. Pound Sterling denominated Pounds Sterling 50 million senior unsecured notes and the credit facilities have certain financial covenants, which may restrict the total amount of Pengrowth's borrowings. The calculation for each financial covenant is based on specific definitions, is not in accordance with GAAP and cannot be readily replicated by referring to Pengrowth's financial statements. The financial covenants are different between the credit facilities and the senior unsecured notes and some of the covenants are summarized below:

1. Total senior debt should not be greater than three times Earnings Before Interest, Taxes, Depreciation, Amortization and other non-cash items (EBITDA) for the last four fiscal quarters

2. Total debt should not be greater than 3.5 times EBITDA for the last four fiscal quarters

3. Total senior debt should be less than 50 percent of total book capitalization

4. EBITDA should not be less than four times interest expense

In the event that Pengrowth enters into a significant acquisition, certain credit facility financial covenants are relaxed for two fiscal quarters after the close of the acquisition. Pengrowth may also make certain pro forma adjustments in calculating the financial covenant ratios.

The actual loan documents are filed on SEDAR as "Other" or "Material document". As at June 30, 2008, Pengrowth was in compliance with all its financial covenants. Failing a financial covenant may result in one or more of Pengrowth's loans being in default. In certain circumstances, being in default of one loan will, absent a cure, result in other loans to also be in default. In the event that Pengrowth was not in compliance with any one of the financial covenants in its credit facility or senior unsecured notes, Pengrowth would be in default of one or more of its loans and would have to repay the debt, refinance the debt or negotiate new terms with the debt holders and may have to suspend distributions to unitholders.

As a result of the October 2, 2006 business combination with Esprit Trust, Pengrowth assumed all of Esprit Trust's 6.5 percent convertible unsecured subordinated debentures (the "debentures"). The debentures mature on December 31, 2010. After December 31, 2008, Pengrowth may elect to redeem all or a portion of the outstanding debentures at a price of $1,050 per debenture or $1,025 per debenture after December 31, 2009. As at June 30, 2008, the principal amount of debentures outstanding was $74.7 million.

Cash Flows and Distributions

The following table provides cash flows from operating activities, net income and distributions declared with the excess (shortfall) over distributions and the ratio of distributions declared over cash flows from operating activities:

 ($ thousands, except
   per trust unit amounts) Three months ended Six months ended ----------------------------------------------------------------------------
   June 30, Mar 31, June 30, June 30, June 30, 2008 2008 2007 2008 2007 ----------------------------------------------------------------------------
   Cash flows from operating activities 267,874 216,238 249,960 484,112 386,389 Net income/(loss) (118,650) (56,583) 271,659
   (175,233) 201,825 Distributions declared 168,159 167,234 184,327 335,393 367,861 Distributions declared per trust unit 0.675
   0.675 0.75 1.350 1.50 Excess of cash flows from operating activities over distributions declared 99,715 49,004 65,633 148,719
   18,528 Per trust unit 0.40 0.20 0.27 0.60 0.08 Excess of net income/(Shortfall of net loss) over distributions declared (286,809)
   (223,817) 87,332 (510,626) (166,036) Per trust unit (1.15) (0.91) 0.35 (2.06) (0.68) Ratio of distributions declared over
   cash flows from operating activities 63% 77% 74% 69% 95%

Distributions typically exceed net income as a result of non-cash expenses such as unrealized losses on commodity risk management contracts; depletion, depreciation, and amortization; future income tax expense; trust unit based compensation; and accretion. These non-cash expenses result in a reduction to net income, with no impact to cash flow from operating activities. Pengrowth's goal is to optimize cash distributions on a per trust unit basis to our unitholders over time while enhancing the value of our trust units. Accordingly, we expect that distributions will exceed net income in most periods. In most periods, we would not expect distributions to exceed cash flows from operating activities. In the event distributions exceed cash flows from operating activities, the shortfall would be funded by available bank facilities. The most likely circumstance for this to occur would be where there is a significant negative impact to working capital during the reporting period. Notwithstanding the fact that cash flow from operating activities normally exceeds distributions, the difference is not sufficient to fund the capital spending required to fully replace production. That difference is funded by equity or a combination of equity and debt. Accordingly, we believe our distributions include a return of capital.

As a result of the depleting nature of Pengrowth's oil and gas assets, some level of capital expenditures is required to offset production declines while other capital is required to optimize facilities. Capital spending and acquisitions may be funded by the excess of cash flows from operating activities over distributions declared, through additional debt or the issuance of equity. Pengrowth does not deduct capital expenditures when calculating cash flows from operating activities. However, Pengrowth does deduct costs associated with environmental activities when calculating cash flows from operating activities.

Forecasted development capital spending in 2008 of $367 million will not be sufficient to replace the oil and gas reserves Pengrowth expects to produce during the year which could impact future distributions. Pengrowth has historically paid distributions at a level that includes a portion which is a return of capital to its investors. From time to time Pengrowth may issue additional trust units to fund capital programs and acquisitions. Investors can elect to participate in the distribution re-investment program.

Cash flows from operating activities are derived from producing and selling oil, natural gas and related products. As such, cash flow from operating activities is highly dependent on commodity prices. Pengrowth entered into forward commodity contracts to mitigate price volatility and to provide a measure of stability to monthly cash flows. Details of commodity contracts are contained in Note 13 to the financial statements.

The board of directors and management regularly review the level of distributions. The board considers a number of factors, including expectations of future commodity prices, capital expenditure requirements, and the availability of debt and equity capital. Pursuant to the Royalty Indenture, the board can establish a reserve for certain items including up to 20 percent of the Corporation's gross revenue to fund various costs including future capital expenditures, royalty income in any future period and future abandonment costs. As a result of the volatility in commodity prices, changes in production levels and capital expenditure requirements, there can be no certainty that Pengrowth will be able to maintain current levels of distributions and distributions can and may fluctuate in the future. In the current production and price environment, the possibility of suspending distributions in the near future is unlikely, but the absolute level may vary. Pengrowth has no restrictions on the payment of its distributions other than maintaining its financial covenants in its borrowings.

Cash distributions are generally paid to unitholders on or about the 15th day of the second month following the month of production. Pengrowth paid $0.675 per trust unit as cash distributions during the second quarter of 2008.

Taxability of Distributions

At this time, Pengrowth anticipates that 100 percent of 2008 distributions are taxable to Canadian residents.

Distributions paid to U.S. residents are treated as partnership distributions for U.S. federal tax purposes and are currently subject to a 15 percent Canadian withholding tax to the extent that such amounts represent a distribution of Pengrowth's income. Pursuant to the provisions of the Income Tax Act (Canada), distributions to U.S. unitholders of amounts in excess of Pengrowth's income (i.e. returns of capital) are also subject to a 15 percent Canadian withholding tax. On September 21, 2007, Canada and the United States signed the fifth protocol of the Canada-United States Tax Convention (the "Protocol") which proposes to increase the amount of Canadian withholding tax from 15 percent to 25 percent on distributions of income. The proposed increase in the Canadian withholding tax rate on distributions of income under the Protocol does not affect returns of capital which would still be subject to a 15 percent Canadian withholding tax. The increase will become effective no earlier than January 1, 2010. Residents of the U.S. should consult their individual tax advisors on the impact of any additional Canadian withholding tax and changes to the tax laws. As of December 14, 2007, Canada completed the steps required to give effect to the Protocol, however the U.S. has not yet ratified the Protocol. The Protocol will come into effect once it has been ratified by the United Sates and the two countries have formally notified each other that their procedures are complete. The Canadian withholding tax rate on distributions paid to unitholders in other countries varies based on individual tax treaties. For additional tax information relating to non-residents, please refer to our website www.pengrowth.com.

Summary of Quarterly Results

The following table is a summary of quarterly results for 2008, 2007 and 2006.

 Summary of Quarterly Results -------------------------------------------------------- 2008 Q1 Q2 ---------------------------------------------------------
   Oil and gas sales ($000's) 457,606 550,623 Net income/(loss) ($000's) (56,583) (118,650) Net income/(loss) per trust unit
   ($) (0.23) (0.48) Net income/(loss) per trust unit - diluted ($) (0.23) (0.48) Cash flow from operating activities ($000's)
   216,238 267,874 Distributions declared ($000's) 167,234 168,159 Distributions declared per trust unit ($) 0.675 0.675 Daily
   production (boe) 82,711 80,895 Total production (mboe) 7,527 7,361 Average realized price ($ per boe) 60.30 73.21 Operating
   netback ($ per boe) 33.65 43.11 ---------------------------------------------------------------------------- 2007 Q1 Q2 Q3
   Q4 ---------------------------------------------------------------------------- Oil and gas sales ($000's) 432,108 443,977
   420,704 425,249 Net income/(loss) ($000's) (69,834) 271,659 161,492 (3,665) Net income/(loss) per trust unit ($) (0.29) 1.11
   0.66 (0.01) Net income/(loss) per trust unit - diluted ($) (0.29) 1.10 0.66 (0.01) Cash flow from operating activities ($000's)
   136,429 249,960 217,630 196,325 Distributions declared ($000's) 183,534 184,327 172,109 166,631 Distributions declared per
   trust unit ($) 0.75 0.75 0.70 0.675 Daily production (boe) 90,068 89,633 85,654 84,331 Total production (mboe) 8,106 8,157
   7,880 7,758 Average realized price ($ per boe) 53.30 54.39 53.34 54.58 Operating netback ($ per boe) 29.87 29.56 32.66 29.56
   ---------------------------------------------------------------------------- 2006 Q1 Q2 Q3 Q4 ----------------------------------------------------------------------------
   Oil and gas sales ($000's) 291,896 283,532 287,757 350,908 Net income ($000's) 66,335 110,116 82,542 3,310 Net income per
   trust unit ($) 0.41 0.69 0.51 0.01 Net income per trust unit - diluted ($) 0.41 0.68 0.51 0.01 Cash flow from operating activities
   ($000's) 156,360 126,800 179,971 91,237 Distributions declared ($000's) 120,302 120,597 132,513 185,651 Distributions declared
   per trust unit ($) 0.75 0.75 0.75 0.75 Daily production (boe) 58,845 56,325 58,344 77,614 Total production (mboe) 5,296 5,126
   5,368 7,141 Average realized price ($ per boe) 55.04 54.91 53.67 49.24 Operating netback ($ per boe) 31.44 33.94 30.82 24.17

Production changes over these quarters as a result of the acquisitions completed by Pengrowth in the third and fourth quarters of 2006 and first quarter of 2007, offset by the property dispositions and operational issues experienced in the second half of 2007 and into the second quarter of 2008. Changes in commodity prices have positively affected oil and gas sales, which have been partially muted by risk management activity designed to lock-in returns from significant acquisitions. Net income in 2006, 2007 and 2008 has been impacted by non-cash charges, in particular depletion, depreciation and accretion, unrealized mark-to-market gains and losses, and future taxes. Cash flow has not been impacted by the non-cash charges, however, reflects the impact of higher operating and general and administrative costs.

Business Risks

The amount of distributions available to unitholders and the value of Pengrowth trust units are subject to numerous risk factors. As the trust units allow investors to participate in the net cash flow from Pengrowth's portfolio of producing oil and natural gas properties, the principal risk factors that are associated with the oil and gas business include, but are not limited to, the following influences:

- The prices of Pengrowth's products (crude oil, natural gas, and NGLs) fluctuate due to many factors including local and global market supply and demand, weather patterns, pipeline transportation and political stability.

- The marketability of our production depends in part upon the availability, proximity and capacity of gathering systems, pipelines and processing facilities. Operational or economic factors may result in the inability to deliver our products to market.

- Geological and operational risks affect the quantity and quality of reserves and the costs of recovering those reserves. Our actual results will vary from our reserve estimates and those variations could be material.

- Government royalties, income taxes, commodity taxes and other taxes, levies and fees have a significant economic impact on Pengrowth's financial results. Changes to federal and provincial legislation including implementation of the SIFT Legislation governing such royalties, taxes and fees could have a material impact on Pengrowth's financial results and the value of Pengrowth trust units.

- Pengrowth could loose its grandfathered status under the SIFT Legislation and become subject to old SIFT tax prior to January 1, 2011 if it exceeds the normal growth guidelines.

- Changes to the royalty regime in Alberta were announced on October 25, 2007. The full details required to accurately assess the impact are not known at this time but will reduce future cash flows and reserve valuations.

- Oil and gas operations carry the risk of damaging the local environment in the event of equipment or operational failure. The cost to remediate any environmental damage could be significant.

- Environmental laws and regulatory initiatives impact Pengrowth financially and operationally. We may incur substantial capital and operating expenses to comply with increasingly complex laws and regulations covering the protection of the environment and human health and safety. In particular, we may be required to incur significant costs to comply with future regulations to reduce greenhouse gas and other emissions.

- Pengrowth's oil and gas reserves will be depleted over time and our level of cash flow from operations and the value of our trust units could be reduced if reserves and production are not replaced. The ability to replace production depends on Pengrowth's success in developing existing reserves, acquiring new reserves and financing this development and acquisition activity within the context of the capital markets. Additional uncertainty with new legislation may limit access to capital or increase the cost of raising capital.

- Increased competition for properties will drive the cost of acquisitions up and expected returns from the properties down.

- Timing of Oil and Gas operations is dependent on gaining timely access to lands. Consultations, that are mandated by governing authorities, with all stakeholders (including surface owners, First Nations and all interested parties) are becoming increasingly time consuming and complex, and are having a direct impact on cycle times.

- A significant portion of our properties are operated by third parties. If these operators fail to perform their duties properly, or become insolvent, we may experience interruptions in production and revenues from these properties or incur additional liabilities and expenses as a result of the default of these third party operators.

- Increased activity within the oil and gas sector has increased the cost of goods and services and makes it more difficult to hire and retain professional staff.

- Changing interest rates influence borrowing costs and the availability of capital.

- Failing a financial covenant may result in one or more of Pengrowth's loans being in default. In certain circumstances, being in default of one loan will result in other loans to also be in default.

- Investors' interest in the oil and gas sector may change over time which would affect the availability of capital and the value of Pengrowth trust units.

- Inflation may result in escalating costs, which could impact unitholder distributions and the value of Pengrowth trust units.

- Continued uncertainty in the credit markets may restrict the availability or increase the cost of borrowing required for future development and acquisitions.

- Canadian / U.S. exchange rates influence revenues and, to a lesser extent, operating and capital costs.

- The value of Pengrowth trust units is impacted directly by the related tax treatment of the trust units and the trust unit distributions, and indirectly by the tax treatment of alternative equity investments. Changes in Canadian or U.S. tax legislation could adversely affect the value of our trust units. As 2011 approaches, the expectation of taxability of distributions may negatively impact the value of trust units.

These factors should not be considered exhaustive. Additional risks are outlined in the AIF of the Trust available on SEDAR at www.sedar.com.

Subsequent Event

On July 23, 2008, Pengrowth and Accrete Energy Inc. (Accrete) announced that they have entered into an agreement pursuant to which Pengrowth will acquire all of Accrete's interest in the Harmattan area through the acquisition of all of the common shares of Accrete. The balance of Accrete's properties will be acquired by a new exploration company ("Exploreco"). Pursuant to a Plan of Arrangement, Accrete shareholders will receive approximately 5 million Pengrowth trust units based on the ratio of 0.273 of a trust unit of Pengrowth for each Accrete common share they currently hold. As of the date of announcement total consideration was valued at $120 million, comprised of $95 million of Pengrowth trust units and $25 million of assumed liabilities. The acquisition will add 8.4 million boe of reserves and 1,900 boe of daily production. The transaction is subject to regulatory and Accrete shareholder approval and is anticipated to close in the third quarter of 2008.

Outlook

At this time, Pengrowth continues to forecast an average 2008 production rate of 80,000 to 82,000 boe per day from our existing properties. This estimate excludes the impact from the pending Accrete transaction and any other potential future acquisitions or divestitures.

Pengrowth's total operating expenses for 2008 are expected to be consistent with 2007 and are anticipated to be approximately $392 million; however per unit operating costs are estimated to increase to $13.20 per boe.

The outlook for 2008 royalty expense is expected to be approximately 23 percent of Pengrowth's sales.

General and administrative (G&A) expenses per boe are expected to remain stable in 2008 when compared to 2007. On a per boe basis, G&A is anticipated to be $2.20 per boe for full year 2008, which includes non-cash G&A and anticipated management fees of approximately $0.40 per boe.

Pengrowth currently anticipates capital expenditures for maintenance and development opportunities at existing properties of approximately $367 million for 2008. Two thirds of the 2008 program is expected to be spent on drilling and completions and the remainder of the budget is expected to be spent on facility maintenance and land and seismic purchases. In addition to the 2008 development capital program, Pengrowth expects to invest $20 million to continue its evaluation of its oil sands asset at Lindbergh and $12 million for office premises.

Pengrowth expects to spend approximately $18 million for 2008, excluding contributions to remediation trust funds, on remediation and abandonment.

Recent Accounting Pronouncements

Effective January 1, 2008, Pengrowth adopted new Canadian accounting standards related to capital disclosures. The new standards require disclosure about Pengrowth's objectives, policies and processes for managing capital. Refer to note 12 in the notes to the consolidated financial statements.

Effective January 1, 2008, Pengrowth adopted several new and revised Canadian accounting standards related to financial instruments disclosure and presentation. The new standards require additional disclosures regarding the nature and extent of the risks associated with financial instruments and how those risks are managed. The presentation standards for financial instruments under the new handbook section did not change significantly from the previous standards. Refer to note 13 in the notes to the consolidated financial statements.

Canadian Generally Accepted Accountin

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Home / Markets / Industries / Energy

Wednesday, August 06, 2008

Pengrowth Energy Trust Announces Second Quarter 2008 Results

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