ex99_2.htm


Baytex Energy Trust
Consolidated Balance Sheets
(thousands of Canadian dollars) (unaudited)
	March 31, 2009			December 31, 2008
ASSETS
Current assets
Cash	$	687		$	-
Accounts receivable		98,292			87,551
Crude oil inventory		1,301			332
Financial instruments (note 13)		61,522			85,678
		161,802			173,561

Future tax asset		420			-
Petroleum and natural gas properties		1,613,499			1,601,017
Goodwill		37,755			37,755
	$	1,813,476		$	1,812,333

LIABILITIES
Current liabilities
Accounts payable and accrued liabilities	$	140,994		$	164,279
Distributions payable to unitholders		11,817			17,583
Bank loan		272,421			208,482
Future tax liability		18,180			25,358
		443,412			415,702

Long-term debt (note 3)		224,004			217,273
Convertible debentures (note 4)		10,219			10,195
Asset retirement obligations (note 5)		50,270			49,351
Deferred obligations		63			74
Future tax liability		177,781			192,411
Financial instruments (note 13)		1,420			-
		907,169			885,006


UNITHOLDERS’ EQUITY
Unitholders’ capital (note 6)		1,138,974			1,129,909
Conversion feature of debentures (note 4)		498			498
Contributed surplus (note 8)		22,120			21,234
Accumulated other comprehensive income (note 2)		18,751			-
Deficit		(274,036	)		(224,314	)
		906,307			927,327
	$	1,813,476		$	1,812,333
Commitments and contingencies (note 14)
See accompanying notes to the consolidated financial statements.

Baytex Energy Trust

Consolidated Statements of Income and Comprehensive Income

(thousands of Canadian dollars) (unaudited)

	Three Months Ended March 31
	2009			2008
Revenue
Petroleum and natural gas	$	150,943		$	264,448
Royalties		(21,728	)		(44,987	)
Loss on financial instruments (note 13)		(2,920	)		(17,719	)
		126,295			201,742
Expenses
Operating		39,160			37,744
Transportation and blending		37,842			51,070
General and administrative		8,734			7,151
Unit-based compensation (note 8)		1,688			2,082
Interest (note 11)		8,124			8,720
Foreign exchange loss (note 12)		3,999			7,518
Depletion, depreciation and accretion		55,204			50,458
		154,751			164,743
Income (loss) before taxes and non-controlling interest		(28,456	)		36,999
Tax expense (recovery) (note 10)
Current expense		2,189			2,514
Future recovery		(22,155	)		(2,478	)
		(19,966	)		36
Income (loss) before non-controlling interest		(8,490	)		36,963
Non-controlling interest (note 7)		-			(1,115	)
Net income (loss)	$	(8,490	)	$	35,848
Other comprehensive income
Foreign currency translation adjustment (note 2)		18,751			-
Comprehensive income	$	10,261		$	35,848

Net income (loss) per trust unit (note 9)
Basic	$	(0.09	)	$	0.42
Diluted	$	(0.09	)	$	0.41

Weighted average trust units (note 9)
Basic		98,066			85,254
Diluted		98,066			90,693

Consolidated Statements of Deficit

(thousands of Canadian dollars, except per unit amounts) (unaudited)

	Three Months Ended March 31
	2009			2008
Deficit, beginning of period	$	(224,314	)	$	(239,727	)
Net income (loss)		(8,490	)		35,848
Distributions to unitholders		(41,232	)		(47,857	)
Deficit, end of period	$	(274,036	)	$	(251,736	)

See accompanying notes to the consolidated financial statements.

Baytex Energy Trust

Consolidated Statements of Cash Flows

(thousands of Canadian dollars) (unaudited)

	Three Months Ended March 31
	2009			2008
CASH PROVIDED BY (USED IN):

Operating activities
Net income (loss)	$	(8,490	)	$	35,848
Items not affecting cash:
Unit-based compensation (note 8)		1,688			2,082
Unrealized foreign exchange loss (note 12)		4,622			7,010
Depletion, depreciation and accretion		55,204			50,458
Accretion on debentures and notes (notes 3 & 4)		434			364
Unrealized loss on financial instruments (note 13)		28,069			7,171
Future tax (recovery)		(22,155	)		(2,478	)
Non-controlling interest (note 7)		-			1,115
		59,372			101,570
Change in non-cash working capital		(22,854	)		19,779
Asset retirement expenditures		(451	)		(394	)
Decrease in deferred obligations		(11	)		(10	)
		36,056			120,945

Financing activities
Increase (decrease) in bank loan		63,145			(43,702	)
Payments of distributions		(39,438	)		(37,280	)
Issue of trust units, net of issuance costs (note 6)		702			3,791
		24,409			(77,191	)

Investing activities
Petroleum and natural gas property expenditures		(47,664	)		(51,003	)
Disposition of petroleum and natural gas properties		16			(581	)
Change in non-cash working capital		(12,087	)		7,830
		(59,735	)		(43,754	)
Impact of foreign exchange on cash balances (note 2)		(43	)		-
Change in cash		687			-
Cash, beginning of period		-			-
Cash, end of period	$	687		$	-

See accompanying notes to the consolidated financial statements.

Baytex Energy Trust

Notes to the Consolidated Financial Statements

Three Months ended March 31, 2009 and 2008

(all tabular amounts in thousands, except per unit amounts) (unaudited)

1. BASIS OF PRESENTATION

Baytex Energy Trust (the “Trust”) was established on September 2, 2003 under a Plan of Arrangement involving the Trust and Baytex Energy Ltd. (the “Company”). The Trust is an open-ended investment trust created pursuant to a trust indenture. Pursuant to the Plan of Arrangement, the Company became a subsidiary of the Trust.

The consolidated financial statements include the accounts of the Trust and its subsidiaries and have been prepared by management in accordance with Canadian generally accepted accounting principles.

The interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the annual consolidated financial statements of the Trust as at December 31, 2008, except as noted below. The interim consolidated financial statements contain disclosures, which are supplemental to the Trust’s annual consolidated financial statements. Certain disclosures, which are normally required to be included in the notes to the annual consolidated financial statements, have been condensed or omitted. The interim consolidated financial statements should be read in conjunction with the Trust’s annual consolidated financial statements and notes thereto for the year ended December 31, 2008.

2. CHANGES IN ACCOUNTING POLICIES

Effective January 1, 2009, the Trust adopted the following new accounting standards that were issued by the Canadian Institute of Chartered Accountants (“CICA”): Section 3064 “Goodwill and Intangible Assets” and EIC-173 “Credit Risk and the Fair Value of Financial Assets and Financial Liabilities”. These standards were adopted prospectively.

Goodwill and Intangible Assets

Section 3064 establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets subsequent to its initial recognition. Standards concerning goodwill are unchanged from the standards included in the previous Section 3062.

Credit risk and the fair value of financial assets and liabilities

EIC-173 provides guidance on how to take into account credit the credit risk of an entity and counterparty when determining the fair value of financial assets and financial liabilities, including derivative instruments. The adoption of the EIC had no impact on the consolidated financial statements of the Trust.

Change in currency translation

The Trust’s foreign operations are considered to be “self-sustaining operations”, financially and operationally independent, as of January 1, 2009. As a result, the accounts of the self-sustaining foreign operations are translated using the current rate method whereby assets and liabilities are translated using the exchange rate in effect at the balance sheet date (1.2602), while revenues and expenses are translated using the average exchange rate for the period (1.2456). Translation gains and losses are deferred and included in other comprehensive income in unitholders’ equity.

Previously, foreign operations were considered to be integrated and were translated using the temporal method. Under the temporal method, monetary assets and liabilities were translated at the period end exchange rate while other assets and liabilities were translated at the historical rate. Revenues and expenses were translated at the average monthly rate except for depletion, depreciation and accretion, which were translated on the same basis as the assets to which they relate. Translation gains and losses were included in the determination of net income for the period.

This change was adopted prospectively on January 1, 2009 resulting in a currency translation adjustment of $15.4 million upon adoption with a corresponding increase in petroleum and natural gas properties. An additional $3.4

million was recognized in the first quarter of 2009, resulting in a balance of $18.8 million in accumulated other comprehensive income.

Future Accounting Pronouncements

Business Combinations

Section 1582 establishes principles and requirements of the acquisition method for business combinations and related disclosures. The purchase price is to be based on trading data at the closing date of the acquisition, not the announcement date of the acquisition, and most acquisition costs are to be expensed as incurred. This standard applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011 with earlier application permitted. The Trust plans to adopt this standard prospectively effective January 1, 2011. The impact from adoption of this standard on the Trust’s accounting of future business combinations has not yet been determined.

Consolidated Financial Statements

Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. The Trust plans to adopt this standard prospectively effective January 1, 2011. The impact from adoption of this standard on the Trust’s accounting of future business combinations has not yet been determined.

International Financial Reporting Standards ("IFRS")

In April 2008, the CICA published the exposure draft "Adopting IFRS in Canada". The exposure draft proposes to incorporate IFRS into the CICA Accounting Handbook effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. At this date, publicly accountable enterprises will be required to prepare financial statements in accordance with IFRS. The Trust has performed a diagnostic analysis that identifies differences between the Trust's current accounting policies and IFRS. At this time, the Trust is evaluating the impact of these differences to determine the potential impact on its consolidated financial statements and assessing the need for amendments to existing accounting policies in order to comply with IFRS.

3. LONG-TERM DEBT


	March 31, 2009			December 31, 2008
10.5% senior subordinated notes (US$247)	$	311			$	303
9.625% senior subordinated notes (US$179,699)		226,457				220,059
		226,768				220,362
Discontinued fair value hedge		(2,764	)			(3,089	)
	$	224,004			$	217,273

The Company has US$0.2 million senior subordinated notes bearing interest at 10.5% payable semi-annually with principal repayable on February 15, 2011. These notes are unsecured and are subordinate to the Company’s bank credit facilities.

The Company also has US$179.7 million senior subordinated notes bearing interest at 9.625% payable semi-annually with principal repayable on July 15, 2010. These notes are unsecured and are subordinate to the Company’s bank credit facilities. After July 15 in each of the following years, these notes are redeemable at the Company’s option, in whole or in part, with not less than 30 nor more than 60 days’ notice at the redemption prices (expressed as percentage of the principal amount of the notes) of 100% for 2009 and thereafter. These notes are carried at amortized cost net of a discontinued fair value hedge of $6.0 million recorded on adoption of CICA Handbook Section 3865 “Hedges”. The notes will accrete up to the principal balance at maturity using the effective interest method. Accretion expense of $0.4 million had been recorded for the first quarter of 2009 ($0.3 million in the first quarter of 2008). The effective interest rate is 10.6%.

4. CONVERTIBLE UNSECURED SUBORDINATED DEBENTURES

In June 2005, the Trust issued $100.0 million principal amount of 6.5% convertible unsecured subordinated debentures for net proceeds of $95.8 million. The debentures pay interest semi-annually and are convertible at the option of the holder at any time into fully paid trust units at a conversion price of $14.75 per trust unit. The debentures mature on December 31, 2010, at which time they are due and payable.

The debentures have been classified as debt net of the fair value of the conversion feature which has been classified as unitholders’ equity. This resulted in $95.2 million being classified as debt and $4.8 million being classified as equity. The debt portion will accrete up to the principal balance at maturity, using the effective interest rate of 7.6%. The accretion and the interest paid are expensed as interest expense in the consolidated statement of income and comprehensive income. If the debentures are converted to trust units, a portion of the value of the conversion feature under unitholders’ equity will be reclassified to unitholders’ capital along with the principal amounts converted.

	Number of Debentures			Convertible Debentures			Conversion Feature of Debentures
Balance, December 31, 2007		16,620		$	16,150			$	796
Conversion		(6,222	)		(6,052	)			(298	)
Accretion		-			97				-
Balance, December 31, 2008		10,398		$	10,195			$	498
Conversion		-			-				-
Accretion		-			24				-
Balance, March 31, 2009		10,398		$	10,219			$	498

5. ASSET RETIREMENT OBLIGATIONS


	March 31, 2009			December 31, 2008
Balance, beginning of period	$	49,351			$	45,113
Liabilities incurred		214				871
Liabilities settled		(451	)			(1,443	)
Acquisition of liabilities		-				1,536
Disposition of liabilities		(101	)			(904	)
Accretion		989				3,802
Change in estimate(1)		266				376
Foreign exchange		2				-
Balance, end of period	$	50,270			$	49,351

(1) Change in status of wells and change in the estimated costs of abandonment and reclamations are factors resulting in a change in estimate.

The Trust’s asset retirement obligations are based on the Trust’s net ownership in wells and facilities. Management estimates the costs to abandon and reclaim the wells and the facilities and the estimated time period during which these costs will be incurred in the future. These costs are expected to be incurred over the next 50 years. The undiscounted amount of estimated cash flow required to settle the retirement obligations at March 31, 2009 is $269.5 million. Estimated cash flow has been discounted at a credit-adjusted risk free rate of 8.0 percent and an estimated annual inflation rate of 2.0 percent.

6. UNITHOLDERS’ CAPITAL

The Trust is authorized to issue an unlimited number of trust units.
	Number of Units		Amount
Balance, December 31, 2007		84,540	$	821,624
Issued on conversion of debentures		422		6,350
Issued on conversion of exchangeable shares		2,787		86,888
Issued on exercise of trust unit rights		1,386		10,653
Transfer from contributed surplus on exercise of trust unit rights		-		5,105
Issued on acquisition of Burmis Energy Inc. net of issuance costs		6,383		151,903
Issued pursuant to distribution reinvestment plan		2,167		47,386
Balance, December 31, 2008		97,685	$	1,129,909
Issued on exercise of trust unit rights		220		702
Transfer from contributed surplus on exercise of trust unit rights		-		802
Issued pursuant to distribution reinvestment plan		574		7,561
Balance, March 31, 2009		98,479	$	1,138,974

7. NON-CONTROLLING INTEREST

The exchangeable shares of the Company are presented as a non-controlling interest on the consolidated balance sheet because they fail to meet the non-transferability criteria necessary in order for them to be classified as equity. Net income has been reduced by an amount equivalent to the non-controlling interest proportionate share of the Trust’s consolidated net income with a corresponding increase to the non-controlling interest on the balance sheet.

	Number of Exchangeable Shares			Amount
Balance, December 31, 2007		1,566		$	21,235
Exchanged for trust units		(1,566	)		(24,593	)
Non-controlling interest in net income		-			3,358
Balance, December 31, 2008		-		$	-
Balance, March 31, 2009		-		$	-

On May 30, 2008, the Trust announced that the Company had elected to redeem all of its exchangeable shares outstanding on August 29, 2008. In connection with this redemption, Baytex ExchangeCo Ltd. exercised its overriding “redemption call right” to purchase such exchangeable shares from holders of record. Each exchangeable share was exchanged for units of the Trust in accordance with the exchange ratio in effect at August 28, 2008. As at March 31, 2009 and December 31, 2008, there were no exchangeable shares outstanding.

8. TRUST UNIT RIGHTS INCENTIVE PLAN

The Trust has a Trust Unit Rights Incentive Plan (the “Plan”) whereby the maximum number of trust units issuable pursuant to the Plan is a “rolling” maximum equal to 10.0% of the outstanding trust units plus the number of trust units which may be issued on the exchange of outstanding exchangeable shares. Any increase in the issued and outstanding trust units will result in an increase in the number of trust units available for issuance under the Plan, and any exercises of rights will make new grants available under the Plan, effectively resulting in a re-loading of the number of rights available to grant under the Plan. Trust unit rights are granted at the volume weighted average trading price of the trust units for the five trading days prior to the date of grant, vest over three years and have a term of five years. The Plan provides for the exercise price of the rights to be reduced to account for future distributions, subject to certain performance criteria.

The Trust recorded compensation expense of $1.7 million for the three months ended March 31, 2009 ($2.1 million in the first quarter of 2008) related to the rights granted under the Plan.

The Trust uses the binomial-lattice model to calculate the estimated weighted average fair value of $1.64 per unit for rights issued during the three months ended March 31, 2009 ($3.23 per unit in the first quarter of 2008). The following assumptions were used to arrive at the estimate of fair values:

	Three Months Ended March 31
	2009		2008
Expected annual exercise price reduction	$	1.50	$	2.36
Expected volatility		39% - 43%		28%
Risk-free interest rate		1.88% - 2.60%		3.78% - 4.17%
Expected life of right (years)	Various (1)		Various (1)

(1) The binomial-lattice model calculates the fair values based on an optimal strategy, resulting in various expected life of unit rights. The maximum term is limited to five years by the Plan.

The number of unit rights outstanding and exercise prices are detailed below:

	Number of rights			Weighted average exercise price (1)
Balance, December 31, 2007		7,662		$	14.67
Granted		2,838		$	19.27
Exercised		(1,386	)	$	7.69
Cancelled		(665	)	$	21.79
Balance, December 31, 2008		8,449		$	14.58
Granted		303		$	13.43
Exercised		(220	)	$	3.19
Cancelled		(13	)	$	17.28
Balance, March 31, 2009		8,519		$	14.47

(1) Exercise price reflects grant prices less reduction in exercise price as discussed above.

The following table summarizes information about the unit rights outstanding at March 31, 2009:

Range of Exercise Prices		Number Outstanding at March 31, 2009		Weighted Average Remaining Term (years)		Weighted Average Exercise Price		Number Exercisable at March 31, 2009		Weighted Average Exercise Price
$	1.00 to $ 6.00		535		0.8	$	3.77		535	$	3.77
$	6.01 to $11.00		1,304		1.6	$	7.97		1,304	$	7.97
$	11.01 to $16.00		727		3.7	$	14.76		234	$	14.71
$	16.01 to $21.00		5,908		3.7	$	16.76		1,631	$	16.63
$	21.01 to $26.03		45		4.1	$	25.51		-		-
$	1.00 to $26.03		8,519		3.2	$	14.47		3,704	$	11.60

The following table summarizes the changes in contributed surplus:

Balance, December 31, 2007	$	18,527
Compensation expense		7,812
Transfer from contributed surplus on exercise of trust unit rights (1)		(5,105	)
Balance, December 31, 2008	$	21,234
Compensation expense		1,688
Transfer from contributed surplus on exercise of trust unit rights (1)		(802	)
Balance, March 31, 2009	$	22,120

(1) Upon exercise of rights, contributed surplus is reduced with a corresponding increase in unitholders' capital.

9. NET INCOME (LOSS) PER UNIT

The Trust applies the treasury stock method to assess the dilutive effect of outstanding trust unit rights on net income per unit. The weighted average exchangeable shares outstanding during the period, converted at the period-end exchange ratio, and the trust units issuable on conversion of convertible debentures, have also been included in the calculation of the diluted weighted average number of trust units outstanding:

	Three Months Ended March 31
	2009								2008
	Net (Loss)			Trust Units		Net (Loss) per Unit			Net Income		Trust Units		Net Income per Unit
Net income (loss) per basic unit	$	(8,490	)		98,066	$	(0.09	)	$	35,848		85,254	$	0.42
Dilutive effect of trust unit rights		-			-					-		1,634
Conversion of convertible debentures		-			-					206		1,106
Exchange of exchangeable shares		-			-					1,115		2,699
Net income (loss) per diluted unit	$	(8,490	)		98,066	$	(0.09	)	$	37,169		90,693	$	0.41

For the quarter ended March 31, 2009, 7.6 million trust unit rights (first quarter of 2008 - 3.9 million) and 0.7 million units (first quarter of 2008 – nil) that would be issued on the conversion of the convertible debentures were excluded in calculating the weighted average number of diluted trust units outstanding as they were anti-dilutive.

10. TAX EXPENSE (RECOVERY)

The provision for (recovery of) taxes has been computed as follows:
	Three Months Ended March 31
	2009			2008
Income (loss) before taxes and non-controlling interest	$	(28,456	)	$	36,999
Expected taxes at the statutory rate of 29.60% (2008 – 30.90%)		(8,423	)		11,432
Increase (decrease) in taxes resulting from:
Net earnings of the Trust		(13,306	)		(15,763	)
Non-taxable portion of foreign exchange loss		1,177			1,060
Effect of change in tax rate		(166	)		(191	)
Effect of change in opening tax pool balances		2,956			-
Effect of change in valuation allowance		(4,967	)		-
Unit-based compensation		500			643
Other		74			341
Future tax (recovery)		(22,155	)		(2,478	)
Current tax expense		2,189			2,514
Total tax (recovery) expense	$	(19,966	)	$	36

11. INTEREST EXPENSE

The Trust incurred interest expense on its outstanding debt as follows:

	Three Months Ended March 31
	2009		2008
Bank loan and other	$	2,552	$	3,743
Convertible debentures		177		298
Long-term debt		5,395		4,679
Total interest	$	8,124	$	8,720

12. SUPPLEMENTAL INFORMATION

	Three Months Ended March 31
	2009		2008
Interest paid	$	12,133	$	12,395
Current income taxes	$	2,939	$	439

	Three Months Ended March 31
	2009			2008
Unrealized foreign exchange loss	$	4,622		$	7,010
Realized foreign exchange (gain) loss		(623	)		508
Total foreign exchange loss	$	3,999		$	7,518

13. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Trust’s financial assets and liabilities are comprised of cash, accounts receivable, accounts payable and accrued liabilities, distributions payable to unitholders, bank loan, financial instruments, long-term debt, convertible debentures and deferred obligations.

Categories of Financial Instruments

Under Canadian generally accepted accounting principles, financial instruments are classified into one of the following five categories: held-for-trading, held to maturity, loans and receivables, available-for-sale and other financial liabilities. The carrying value and fair value of the Trust’s financial instruments on the consolidated balance sheet are classified into the following categories:

	March 31, 2009						December 31, 2008
	Carrying Value			Fair Value			Carrying Value			Fair Value
Financial Assets
Held for trading
Cash	$	687		$	687		$	-		$	-
Derivatives designated as held for trading		61,522			61,522			85,678			85,678
Total held for trading	$	62,209		$	62,209		$	85,678		$	85,678
Loans and receivables
Accounts receivable	$	98,292		$	98,292		$	87,551		$	87,551
Total loans and receivables	$	98,292		$	98,292		$	87,551		$	87,551
Financial Liabilities
Held for trading
Derivatives designated as held for trading	$	(1,420	)	$	(1,420	)		-			-
Total held for trading	$	(1,420	)	$	(1,420	)		-			-

Other financial liabilities
Accounts payable and accrued liabilities	$	(140,994	)	$	(140,994	)	$	(164,279	)	$	(164,279	)
Distributions payable to unitholders		(11,817	)		(11,817	)		(17,583	)		(17,583	)
Bank loan		(272,421	)		(272,421	)		(208,482	)		(208,482	)
Long-term debt		(224,004	)		(220,823	)		(217,273	)		(200,557	)
Convertible debentures		(10,219	)		(10,918	)		(10,195	)		(9,837	)
Deferred obligations		(63	)		(63	)		(74	)		(74	)
Total other financial liabilities	$	(659,518	)	$	(657,036	)	$	(617,886	)	$	(600,812	)

The estimated fair values of the financial instruments have been determined based on the Trust’s assessment of available market information. These estimates may not necessarily be indicative of the amounts that could be realized or settled in a market transaction. The fair values of financial instruments, other than bank loan and long-term

borrowings, approximate their book amounts due to the short-term maturity of these instruments. The fair value of the bank loan approximates its book value as it is at a market rate of interest. The fair value of the long-term debt is based on the trading value of the instrument. The fair value of the convertible debentures has been calculated based on the lower of trading value and the present value of future cash flows associated with the debentures.

Financial Risk

The Trust is exposed to a variety of financial risk, including market risk, credit risk and liquidity risk. The Trust monitors and, when appropriate, utilizes derivative contracts to manage its exposure to these risks. The Trust does not enter into derivative contracts for speculative purposes.

Market Risk

Market risk is the risk that the fair value or future cash flows of financial assets or liabilities will fluctuate due to movements in market prices. Market risk is comprised of foreign currency risk, interest rate risk and commodity price risk.

Foreign currency risk

The Trust is exposed to fluctuations in foreign currency as a result of its U.S. dollar denominated notes, crude oil sales based on U.S. dollar indices and commodity contracts that are settled in U.S. dollars. The Trust’s net income and cash flow will therefore be impacted by fluctuations in foreign exchange rates.

To manage the impact of currency rate fluctuations, the Trust may enter into agreements to fix the Canada – U.S. exchange rate.

At March 31, 2009, the Trust had in place the following currency swaps:

	Period	Amount	Swap Price (1)
Swap	January 1, 2009 to December 31, 2009	USD 10.0 million per month	CAD/USD 1.2386
Swap	January 1, 2010 to December 31, 2010	USD 5.0 million per month	CAD/USD 1.2300

(1) Exchange rate is weighted average

The following table demonstrates the effect of exchange rate movement on net income before taxes and non-controlling interest due to changes in the fair value of its currency swap as well as gains and losses on the revaluation of U.S. dollar denominated monetary assets and liabilities at March 31, 2009.

$0.10 Increase/Decrease in CAD/USD Exchange Rate
Gain/loss on currency swap	$	253
Gain/loss on other monetary assets/liabilities		13,964
Impact on income before taxes and non-controlling interest	$	14,217

The carrying amounts of the Trust’s foreign currency denominated monetary assets and liabilities at the reporting date are as follows:

	Assets		Liabilities
	March 31, 2009	December 31, 2008	March 31, 2009	December 31, 2008
U.S. dollar denominated	USD 65,388	USD 84,070	USD 207,558	USD 191,571

Subsequent to March 31, 2009, the Trust added the following currency swap:

	Period	Amount	Swap Price
Swap	January 1, 2010 to December 31, 2010	USD 3.0 million per month	CAD/USD 1.2030

Interest rate risk

The Trust’s interest rate risk arises from its floating rate bank loan. As at March 31, 2009, $272.4 million of the Trust’s total debt is subject to movements in floating interest rates. An increase or decrease of 100 basis points in interest rates would impact cash flow for the three months ended March 31, 2009 by approximately $0.7 million.

Commodity Price Risk

The Trust monitors and, when appropriate, utilizes financial derivative agreements or fixed price physical delivery contracts to manage the risk associated with changes in commodity prices. The use of derivative instruments is governed under formal policies and is subject to limits established by the Board of Directors of the Company. Under the Trust’s risk management policy, financial instruments are not used for speculative purposes.

When assessing the potential impact of commodity price changes, a 10% increase in commodity prices could have resulted in an addition to the unrealized loss in the first quarter of 2009 of $8.4 million relating to the financial derivative instruments outstanding as at March 31, 2009, while a 10% decrease could have resulted in a reduction to the loss of $8.6 million.

At March 31, 2009, the Trust had the following commodity derivative contracts:

Oil	Period	Volume	Price	Index
Price collar	Calendar 2009	2,000 bbl/d	USD 90.00 – 136.40	WTI
Price collar	Calendar 2009	2,000 bbl/d	USD 110.00 – 172.70	WTI


Gas	Period	Volume	Price	Index
Price collar	April 1, 2009 to December 31, 2010	5,000 GJ/d	CAD 5.00 – 6.30	AECO

The commodity derivative contracts are marked to market at the end of each reporting period, with the following reflected in the income statement:

	Three Months Ended March 31
	2009			2008

Realized gain (loss) on financial instruments	$	25,149		$	(10,548	)
Unrealized (loss) on financial instruments		(28,069	)		(7,171	)
Loss on financial instruments	$	(2,920	)	$	(17,719	)

Subsequent to March 31, 2009, the Trust added the following commodity derivative contract:


Oil	Period	Volume	Price	Index
Fixed	Calendar 2010	575 bbl/d	USD 64.00	WTI

Physical contracts

At March 31, 2009, the Trust had the following crude oil supply contracts:

Heavy Oil	Period	Volume	Price(1)
Price Swap – WCS Blend	Calendar 2009	10,340 bbl/d	WTI x 67.0%
Price Swap – WCS Blend	April 1, 2009 to August 30, 2009	775 bbl/d	WTI x 80.0%
Price Swap – WCS Blend	April 1, 2009 to August 30, 2009	775 bbl/d	WTI less US$10

(1) Price is weighted average

Subsequent to March 31, 2009, the Trust added the following physical crude oil supply contracts:

Heavy Oil	Period	Volume	Price
Price Swap – WCS Blend	January 1, 2010 to December 31, 2010	2,500 bbl/d	$US51.04
Price Swap – Condensate	January 1, 2010 to December 31, 2010	575 bbl/d	WTI plus US$2.25 -$2.60

At March 31, 2009, the Trust had the following natural gas physical sales contract:

Gas	Period	Volume	Price/GJ
Price Collar	Calendar 2009	5,000 GJ/d	$7.00 - $7.95

Subsequent to March 31, 2009, the Trust added the following physical gas sales contract:

Gas	Period	Volume	Price/GJ
Price Collar	Calendar 2010	5,000 GJ/d	$5.00 - $6.28

At March 31, 2009, the Trust had the following power contracts:

Power	Period	Volume	Price/MWh
Fixed	October 1, 2008 to December 31, 2009	0.6 MW/hr	$78.61
Fixed	October 1, 2008 to December 31, 2009	0.6 MW/hr	$79.92
Fixed	March 1, 2009 to June 30, 2010	0.6 MW/hr	$76.89

Liquidity risk

Liquidity risk is the risk that the Trust will encounter difficulty in meeting obligations associated with financial liabilities. The Trust manages its liquidity risk through cash and debt management. As at March 31, 2009, the Trust had available unused bank credit facilities in the amount of $160 million. The Trust believes it has sufficient funding capacity through its credit facilities to meet foreseeable borrowing requirements.

The timing of cash outflows (excluding interest) relating to financial liabilities are outlined in the table below:

	Total		1 year		2-3 years		4-5 years		Beyond 5 years
Accounts payable and accrued liabilities		140,994		140,994		-		-		-
Distributions payable to unitholders		11,817		11,817		-		-		-
Bank loan (1)		272,421		272,421		-		-		-
Long-term debt (2)		226,768		-		226,768		-		-
Convertible debentures (2)		10,398		-		10,398		-		-
Deferred obligations		63		46		14		3		-
		662,461		425,278		237,180		3		-

(1) The bank loan is a 364-day revolving loan with the ability to extend the term. In May 2009, the Trust reached agreement with its lending syndicate to extend the maturity of our loan to June 30, 2010.

(2) Principal amount of instruments.

Credit risk

Credit risk is the risk that a counterparty to a financial asset will default resulting in the Trust incurring a loss. Most of the Trust’s accounts receivable relate to oil and natural gas sales and are exposed to typical industry credit risks. The Trust manages this credit risk by entering into sales contracts with only creditworthy entities and reviewing its exposure to individual entities on a regular basis. Credit risk may also arise from financial derivative instruments. The maximum exposure to credit risk is equal to the carrying value of the financial assets.

The carrying amount of accounts receivable is reduced through the use of an allowance for doubtful accounts and the amount of the loss is recognized in net income.

As at March 31, 2009, accounts receivable include a $10.2 million balance over 90 days (December 31, 2008 - $9.9 million). A balance of $2.4 million (December 31, 2008 - $2.4 million) has been set up as allowance for doubtful accounts.

14. COMMITMENTS AND CONTINGENCIES

At March 31, 2009, the Trust had operating lease and transportation obligations as summarized below:

			Payments Due Within										Beyond
	Total		1 year		2 years		3 years		4 years		5 years		5 years
Operating leases	$	41,817	$	2,886	$	3,594	$	3,868	$	3,749	$	3,991	$	23,729
Processing and transportation agreements		20,589		8,406		7,320		4,658		164		41		-
Total	$	62,406	$	11,292	$	10,914	$	8,526	$	3,913	$	4,032	$	23,729

Other

At March 31, 2009, there were outstanding letters of credit aggregating $2.3 million (December 31, 2008 - $2.3 million) issued as security for performance under certain contracts.

In connection with a purchase of properties in 2005, Baytex became liable for contingent consideration whereby an additional amount would be payable by Baytex if the price for crude oil exceeds a base price in each of the succeeding six years. An amount payable was not reasonably determinable at the time of the purchase; therefore, such consideration should be recognized only when the contingency is resolved. As at March 31, 2009, additional payments totaling $5.3 million have been paid under the agreement and have been recorded as an adjustment to the original purchase price of the properties. It is currently not determinable if further payments will be required under this agreement; therefore, no accrual has been made.

The Trust is engaged in litigation and claims arising in the normal course of operations, none of which could reasonably be expected to materially affect the Trust’s financial position or reported results of operations.

15. CAPITAL STRUCTURE

The Trust’s objectives when managing capital are to: (i) maintain financial flexibility in its capital structure; (ii) optimize its cost of capital at an acceptable level of risk; and (iii) preserve its ability to access capital to sustain the future development of the business through maintenance of investor, creditor and market confidence.

The Trust considers its capital structure to include total monetary debt and unitholders’ equity. Total monetary debt is a non-GAAP term which we define to be the sum of monetary working capital, which is current assets less current liabilities (excluding non-cash items such as future income tax assets or liabilities and unrealized financial derivative gains or losses), the principal amount of long-term debt and the balance sheet value of the convertible debentures.

The Trust’s financial strategy is designed to maintain a flexible capital structure consistent with the objectives above and to respond to changes in economic conditions and the risk characteristics of its underlying assets. In order to maintain the capital structure, the Trust may adjust the amount of its distributions, adjust its level of capital spending, issue new units, issue new debt or sell assets to reduce debt.

The Trust monitors capital based on current and projected ratios of total monetary debt to cash flow and the current and projected level of its undrawn bank credit facilities. The Trust’s objectives are to maintain a total monetary debt to cash flow from operations ratio of less than two times and to have access to undrawn bank credit facilities of not less than $100 million. The total monetary debt to cash flow from operations ratio may increase beyond two times, and the undrawn credit facilities may decrease to below $100 million at certain times due to a number of factors, including acquisitions, changes to commodity prices and changes in the credit market. To facilitate management of the total monetary debt to cash flow from operations ratio and the level of undrawn bank credit facilities, the Trust continuously monitors its cash flow from operations and evaluates its distribution policy and capital spending plans.

The Trust’s financial objectives and strategy as described above have remained substantially unchanged over the last two completed fiscal years. These objectives and strategy are reviewed on an annual basis. The Trust believes its financial metrics are within acceptable limits pursuant to its capital management objectives.

The Trust is subject to financial covenants relating to its bank loan, senior subordinated notes and convertible debentures. The Trust is in compliance with all financial covenants.

On June 22, 2007, new tax legislation modifying the taxation of specified investment flow-through entities, including income trusts such as the Trust, was enacted (the “New Tax Legislation”). The New Tax Legislation will apply a tax at the trust level on distributions of certain income from trusts. The New Tax Legislation permits “normal growth” for income trusts through the transitional period ending December 31, 2010. However, “undue expansion” could cause the transitional relief to be revisited, and the New Tax Legislation to be effective at a date earlier than January 1, 2011. On December 15, 2006, the Department of Finance released guidelines on normal growth for income trusts and other flow-through entities (the “Guidelines”). Under the Guidelines, trusts will be able to increase their equity capital each year during the transitional period by an amount equal to a safe harbour amount. The safe harbour amount is measured by reference to a trust’s market capitalization as of the end of trading on October 31, 2006. The safe harbour amounts are 40% for the period from November 2006 to the end of 2007, and 20% per year for each of 2008, 2009 and 2010. The safe harbour amounts are cumulative allowing amounts not used in one year to be carried forward to a future year. Two trusts can merge without being impacted by the growth limitations. Limits are not impacted by non-convertible debt-financed growth, but rather focus solely on the issuance of equity to facilitate growth.

On December 4, 2008, the Minister of Finance announced changes to the Guidelines to allow an income trust to accelerate the utilization of the safe harbour amounts for each of 2009 and 2010 so that the safe harbour amounts for 2009 and 2010 are available on and after December 4, 2008. This change does not alter the maximum permitted expansion threshold for an income trust, but it allows an income trust to use its safe harbour amount remaining as of December 4, 2008 in a single year, rather than staging a portion of the safe harbour amount over the 2009 and 2010 years.

Subsequent to the year end, the Federal Government introduced draft tax legislation which included the above mentioned changes to the Guidelines as part of Canada's Economic Action Plan. This legislation received Royal Assent on March 12, 2009, and was therefore passed into law. The Trust continues to review the impact of the future taxation of distributions on its business strategy but at this time has made no decision as to the ultimate legal form under which it will operate post 2010.

For the Trust, the safe harbour amounts were approximately $730 million for 2006/2007 and approximately $365 million for each of the subsequent three years with any unused amount carrying forward to the next year. The Trust did not issue equity in excess of its safe harbour amounts during 2006/2007 or 2008 or the first quarter of 2009. As at December 31, 2008, the Trust had an unused safe harbour amount of $596.6 million that was carried forward, resulting in a safe harbour amount of $1,317.5 million for 2009/2010. As at March 31, 2009, the Trust had not exceeded its safe harbour amounts. Subsequent to the end of the first quarter, The Trust issued $115 million in equity as discussed below in subsequent events (note 16).

16. SUBSEQUENT EVENTS

On April 14, 2009, the Trust closed its bought deal equity financing resulting in the issuance of 7,935,000 trust units (including 1,035,000 trust units issued pursuant to the exercise in full of the over-allotment option granted to the underwriters) at $14.50 per trust unit for total gross proceeds of $115,057,500. The net proceeds of the offering will initially be used by the Trust for general working capital purposes, which may ultimately be used to fund its capital expenditure program or to retire or repay outstanding indebtedness.

In May 2009, the Company reached agreement with its lending syndicate to increase the amount of its credit facilities from $485.0 million to $515.0 million effective July 1, 2009, and extend the maturity of the facilities to June 30, 2010.