2009 was another strong year for NAL and our teams have delivered a substantial list of accomplishments. I am pleased to provide this update on NAL’s achievements last year and to share with you how the momentum generated in 2009 will drive performance and results in 2010.

Transactions Adding Opportunity
Throughout 2009, the Trust completed several significant land transactions that further consolidated NAL’s position in the Cardium oil resource. The first transaction was the joint venture (“JV”) partnership with a senior industry partner in June 2009. In this agreement, the partners agreed to a three year term on approximately 150 gross sections of land prospective for Cardium oil and multiple natural gas horizons in central Alberta. The second transaction was the acquisition of Spearpoint Energy, that also included a multi-year farm-in agreement with BP Canada granting NAL exclusive access to approximately 900,000 acres of developed and undeveloped acreage.

Reserves Performance
In addition to an active year in acquisition activity, the Trust completed a comprehensive oil weighted capital development program which delivered a 41 percent increase in total proved and probable (“P+P”) reserves to 103.0 million boe. This has translated into an increase in the Trust’s P+P reserve life index (“RLI”) to 9.2 years from 8.2 years over the past three years even though the production forecast used in calculating RLI has increased by 34 percent over that same three year period. 

Over the past three years, NAL has directed a majority of its development capital toward oil projects that tend to carry higher capital costs but deliver higher netbacks. As a result, the Trust’s three year average finding and development (“F&D”) costs of $15.66 per boe proved and $17.21 per boe P+P, drive recycle ratios of 2.3 and 2.1 times respectively.

Financial Strength & Flexibility
In 2009, NAL successfully completed two financings and increased its bank lines by $100 million from $450 million to $550 million largely as a result of reserves added throughout the year. At year end 2009, NAL had approximately $320 million of available capacity on these lines. The first financing activity, completed on May 28, 2009, was a trust unit equity offering of $86 million. The second, was an offering of $115 million of convertible unsecured debentures with a coupon of 6.25 percent which closed on December 3, 2009. Both issues received strong retail and institutional support.

Subsequent to year end, on April 14,2010, the Trust successfully completed a $100 million equity financing to fund an increased capital program, and further strengthen its balance sheet position to complete future transactions. 
 
Future Direction
Looking forward to 2010 and beyond, NAL management’s key objectives have not changed: delivering on our guidance; adding assets, new opportunities and people; maintaining financial strength; and achieving strong total returns. These areas of focus have driven consistently strong performance and returns for NAL and its unitholders since 1996.

On conversion from a trust to a corporation, NAL plans to convert to a dividend paying corporation in the fall of 2010. By itself, the change in structure from a trust to corporation, does not affect our business plan or our disciplined operational and financial focus.

NAL’s Board will continue to assess the Trust’s dividend and payout policy based upon commodity prices, NAL’s asset base and opportunities, and other market factors. Assuming commodity prices remain consistent with current levels, the Trust has no plans to change the $0.09 per month distribution in 2010. After conversion, the Trust’s total return will be driven by a combination of yield and growth, with yield remaining a strong component of the overall return. Specific payout and dividend levels will be determined closer to the time of conversion.

Selective Performance Metrics From Trust Inception (May 1996)


Sustainable Performance
The table above summarizes NAL’s consistently strong track record of delivering growth, value and returns to our unitholders since 1996.

This performance would not be possible without the dedication and support of our staff in the field and in the Calgary office, our management team, our Board of Directors and our partner, Manulife. I would like to extend a special thank you to Mr. Charles J. Caty, who will be stepping down as Chairman of the Board of NAL at the Annual General Meeting in May. Mr.Caty is the founding Chair of NAL and has served in that capacity since the Trust’s inception in 1996. His strategic guidance and consistent presence has been invaluable to the Board and management.

The Trust’s active focus on assets, opportunities, people and returns will continue in 2010 with a goal to provide consistent performance for our unitholders. On behalf of the Executive and the Board, I thank you for your interest and ongoing support of NAL Oil & Gas Trust.

Andrew B. Wiswell
President & Chief Executive Officer