News Releases

Advantage Announces 1st Quarter Results 2008

May 14, 2008


    (TSX: AVN.UN, NYSE: AAV)

    CALGARY, May 14 /CNW/ - Advantage Energy Income Fund ("Advantage" or the
"Fund") is pleased to announce its unaudited operating and financial results
for the first quarter ended March 31, 2008.Three months Three months
                                                        ended        ended
                                                       March 31,    March 31,
    Financial and Operating Highlights                   2008         2007
    -------------------------------------------------------------------------
    Financial ($000, except as otherwise indicated)

    Revenue before royalties(1)                       $ 188,505    $ 135,502
      per Trust Unit(2)                               $    1.37    $    1.25
      per boe                                         $   62.52    $   51.90
    Funds from operations                             $  94,618    $  65,645
      per Trust Unit(3)                               $    0.68    $    0.59
      per boe                                         $   31.37    $   25.14
    Distributions declared                            $  50,021    $  50,206
      per Trust Unit(3)                               $    0.36    $    0.45
    Expenditures on property and equipment            $  66,903    $  49,696
    Working capital deficit(4)                        $  35,375    $  31,896
    Bank indebtedness                                 $ 563,500    $ 354,443
    Convertible debentures (face value)               $ 224,587    $ 180,730
    Trust Units outstanding at end of period (000)      139,273      115,050
    Basic weighted average Trust Units (000)            137,599      108,332

    Operating
    Daily Production
      Natural gas (mcf/d)                               125,113      114,324
      Crude oil and NGLs (bbls/d)                        12,281        9,958
      Total boe/d @ 6:1                               33,133       29,012
    Average prices (including hedging)
      Natural gas ($/mcf)                             $    8.23    $    8.06
      Crude oil and NGLs ($/bbl)                      $   84.83    $   58.64

    (1) includes realized derivative gains and losses
    (2) based on basic weighted average Trust Units outstanding
    (3) based on Trust Units outstanding at each distribution record date
    (4) working capital deficit excludes derivative assets and liabilities



                           MESSAGE TO UNITHOLDERS

    Record Funds from Operations and Payout Ratio:

    -   A record level of funds from operations during the first quarter 2008
        resulted in a payout ratio of 53% which is the lowest in the history
        of Advantage and reinforces our strategy to finance our capital
        program out of cash flow. Funds from operations for the first quarter
        of 2008 increased 44% to $94.6 million and 15% to $0.68 per Trust
        Unit compared to $65.6 million or $0.59 per Trust Unit for the same
        period of 2007.
    -   The Fund declared three distributions during the quarter totaling
        $0.36 per Trust Unit. Since inception, the Fund has distributed
        $929.8 million or $16.62 per Trust Unit.
    -   Production volumes in the first quarter of 2008 increased 14% to
        33,133 boe/d compared to 29,012 boe/d in the first quarter of 2007.
        First quarter 2008 production volumes were impacted by extreme cold
        weather (as low as -50 degrees Celsius) during late January and early
        February. Operating costs for the first quarter were also impacted
        due to one-time frozen equipment and well repairs.
    -   Natural gas production for the first quarter of 2008 increased 9% to
        125.1 mmcf/d, compared to 114.3 mmcf/d reported in the first quarter
        of 2007. Crude oil and natural gas liquids production increased 23%
        to average 12,281 bbls/d compared to 9,958 bbls/d in the first
        quarter of 2007.

    Highly Successful First Quarter 2008 Drilling Program Confirms Pool
    Extensions & Adds Significant Productivity:

    -   The Q1 2008 drilling program was highly successful and surpassed
        internal expectations. New natural gas and oil pool extensions were
        confirmed and at quarter end approximately 3,000 boe/d of behind pipe
        productivity remains to be brought on-stream. The behind pipe volumes
        will be brought on through the second quarter and over the balance of
        2008 to offset declines.
    -   Capital spending for the quarter was on-track at $66.9 million net
        and included the drilling of 53 gross (38 net) wells at 98% success
        rate.
    -   At Martin Creek in Northeast British Columbia, a ten well drilling
        program was completed and confirmed extensions of the natural gas
        pool boundaries by 4 to 5 miles in several directions in this high
        potential property. In addition, a new productive horizon was tested
        in several wellbores which confirmed a larger areal extent and
        commercial production rates. Martin Creek will provide many years of
        future drilling potential.
    -   At Nevis in Central Alberta, four successful horizontal light oil
        wells were drilled as part of the continued development of our large
        Wabamum pool. With respect to coal bed methane development in the
        Horseshoe Canyon formation, sixteen successful wells were drilled
        prior to the end of the first quarter on lands acquired from Sound
        Energy Trust. The wells have excellent initial productivities ranging
        from 125 mcf/d to 250 mcf/d. Drilling will resume after spring
        break-up and several phases of future drilling potential for both
        light oil and natural gas have been identified.
    -   At Glacier in Northwest Alberta, five vertical delineation wells were
        drilled into the Montney formation and results are on-track with our
        expectations. A horizontal well development program and additional
        vertical delineation wells are being planned for the balance of 2008.
        Advantage's extensive 83 section land block is located directly
        adjacent to the Swan Lake and Tupper pool projects where significant
        drilling and infrastructure development is ongoing.
    -   At Willesden Green in Central Alberta, a new light oil pool was
        discovered and continued exploitation of natural gas in this area is
        yielding successful results and provides future follow-up drilling
        locations.
    -   With continued drilling success and a highly attractive suite of
        assets, Advantage has over 5 years of conventional drilling inventory
        and is well positioned to additionally capitalize on the significant
        natural gas resource play in the Montney formation at our Glacier and
        Stoddart properties.

    Looking Forward - Improving Commodity Prices could generate Surplus
    Cash Flow

    -   With recent improvements in the natural gas pricing outlook and
        including our commodity risk management positions for 2008, we
        anticipate generating cash flow in excess of our capital budget and
        current distribution requirements. Surplus cash flow provides
        security to our current distribution level and affords us flexibility
        to increase our highly efficient capital program, capitalize on
        acquisition opportunities or to reduce debt.
    -   We are reiterating our 2008 annual guidance with capital expenditures
        of $125 to $145 million and production of 32,000 to 34,000 boe/d with
        a 62% weighting to natural gas. Royalty rates are estimated to range
        between 17 to 19%. Operating costs are forecasted to be $12.50 to
        $13.30 per boe.
    -   Production during the second and third quarters will be impacted by
        several large third party facilities outages required for maintenance
        turnarounds which are common each year in western Canada. The large
        number of third party facilities turnarounds currently scheduled in
        the second quarter is anticipated to reduce production below first
        quarter levels.
    -   Advantage's intention is to continue to be a cash distributing entity
        after 2010. We will continue to closely monitor industry dynamics and
        are considering a number of alternative structures in order to
        maximize after-tax value for Unitholders. Advantage's significant tax
        pools of $1.7 billion afford us flexibility to evaluate many options
        in this regard.MANAGEMENT'S DISCUSSION & ANALYSIS

    The following Management's Discussion and Analysis ("MD&A"), dated as of
May 14, 2008, provides a detailed explanation of the financial and operating
results of Advantage Energy Income Fund ("Advantage", the "Fund", "us", "we"
or "our") for the three months ended March 31, 2008 and should be read in
conjunction with the consolidated financial statements contained within this
interim report and the audited financial statements and MD&A for the year
ended December 31, 2007. The consolidated financial statements have been
prepared in accordance with Canadian generally accepted accounting principles
("GAAP") and all references are to Canadian dollars unless otherwise
indicated. All per barrel of oil equivalent ("boe") amounts are stated at a
conversion rate of six thousand cubic feet of natural gas being equal to one
barrel of oil or liquids.

    Non-GAAP Measures

    The Fund discloses several financial measures in the MD&A that do not
have any standardized meaning prescribed under GAAP. These financial measures
include funds from operations, funds from operations per Trust Unit and cash
netbacks. Management believes that these financial measures are useful
supplemental information to analyze operating performance, leverage and
provide an indication of the results generated by the Fund's principal
business activities prior to the consideration of how those activities are
financed or how the results are taxed. Investors should be cautioned that
these measures should not be construed as an alternative to net income, cash
provided by operating activities or other measures of financial performance as
determined in accordance with GAAP. Advantage's method of calculating these
measures may differ from other companies, and accordingly, they may not be
comparable to similar measures used by other companies.
    Funds from operations, as presented, is based on cash provided by
operating activities before expenditures on asset retirement and changes in
non-cash working capital. Funds from operations per Trust Unit is based on the
number of Trust Units outstanding at each distribution record date. Cash
netbacks are dependent on the determination of funds from operations and
include the primary cash revenues and expenses on a per boe basis that
comprise funds from operations. Funds from operations reconciled to cash
provided by operating activities is as follows:Three months ended
                                                 March 31
    ($000)                                   2008         2007      % change
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                          $  81,593    $  50,520          62%
    Expenditures on asset retirement         4,965        4,009          24%
    Changes in non-cash working capital      8,060       11,116        (27)%
    -------------------------------------------------------------------------
    Funds from operations                $  94,618    $  65,645          44%
    -------------------------------------------------------------------------Forward-Looking Information

    The information in this report contains certain forward-looking
statements. These statements relate to future events or our future
performance. All statements other than statements of historical fact may be
forward-looking statements. Forward-looking statements are often, but not
always, identified by the use of words such as "seek", "anticipate", "plan",
"continue", "estimate", "expect", "may", "will", "project", "predict",
"potential", "targeting", "intend", "could", "might", "should", "believe",
"would" and similar expressions. These statements involve substantial known
and unknown risks and uncertainties, certain of which are beyond Advantage's
control, including: the impact of general economic conditions; industry
conditions; changes in laws and regulations including the adoption of new
environmental laws and regulations and changes in how they are interpreted and
enforced; fluctuations in commodity prices and foreign exchange and interest
rates; stock market volatility and market valuations; volatility in market
prices for oil and natural gas; liabilities inherent in oil and natural gas
operations; uncertainties associated with estimating oil and natural gas
reserves; competition for, among other things, capital, acquisitions of
reserves, undeveloped lands and skilled personnel; incorrect assessments of
the value of acquisitions; changes in income tax laws or changes in tax laws,
royalty regimes and incentive programs relating to the oil and gas industry
and income trusts; geological, technical, drilling and processing problems and
other difficulties in producing petroleum reserves; obtaining required
approvals of regulatory authorities and other risk factors set forth in
Advantage's Annual Information Form which is available at
www.advantageincome.com and www.sedar.com. Advantage's actual results,
performance or achievement could differ materially from those expressed in, or
implied by, such forward-looking statements and, accordingly, no assurances
can be given that any of the events anticipated by the forward-looking
statements will transpire or occur or, if any of them do, what benefits that
Advantage will derive from them. Except as required by law, Advantage
undertakes no obligation to publicly update or revise any forward-looking
statements.Overview

                                            Three months ended
                                                 March 31
                                             2008         2007      % change
    -------------------------------------------------------------------------
    Cash provided by operating
     activities ($000)                   $  81,593    $  50,250          62%
    Funds from operations ($000)         $  94,618    $  65,645          44%
      per Trust Unit(1)                  $    0.68    $    0.59          15%

    (1) Based on Trust Units outstanding at each distribution record date.Cash provided by operating activities increased 62%, funds from
operations increased 44%, and funds from operations per Trust Unit increased
15% for the three months ended March 31, 2008, as compared to the same period
of 2007. Cash provided by operating activities and funds from operations were
impacted by significantly increased revenues due to higher commodity prices
and additional production from the acquisition of Sound Energy Trust
("Sound"), which closed on September 5, 2007. The financial and operating
results from the acquired Sound properties are included in the three month
period ended March 31, 2008, but are not included in the corresponding 2007
period. Funds from operations per Trust Unit increased for the three months
ended March 31, 2008 compared to 2007 mainly due to higher commodity prices
relative to the increased weighted average Trust Units outstanding. When
compared to the fourth quarter of 2007, funds from operations increased 17%
due to stronger commodity prices, offset by a modest decrease in production.
Natural gas prices, excluding hedging, increased 4% and crude oil and NGL
prices, excluding hedging, increased 51% for the three months ended March 31,
2008 compared to the same period of 2007. Natural gas prices, excluding
hedging, increased 27% and crude oil and NGL prices, excluding hedging,
increased 17% for the three months ended March 31, 2008 as compared to the
immediate preceding quarter.
    The primary factor that causes significant variability of Advantage's
cash provided by operating activities, funds from operations, and net income
is commodity prices. Refer to the section "Commodity Prices and Marketing" for
a more detailed discussion of commodity prices and our price risk management.Distributions

                                           Three months ended
                                                 March 31
                                            2008         2007       % change
    -------------------------------------------------------------------------
    Distributions declared ($000)        $  50,021    $  50,206            -
      per Trust Unit(1)                  $    0.36    $    0.45        (20)%

    (1) Based on Trust Units outstanding at each distribution record date.Total distributions in the first quarter of 2008 were approximately equal
to those for the same period in 2007. Although the Fund had more Trust Units
outstanding during the first quarter of 2008, there was a 20% reduction in the
monthly distribution per Trust Unit. For the period ended March 31, 2008, the
monthly distribution was $0.12 per Trust Unit, equating to $0.36 for the
quarter while the monthly distribution for the quarter ended March 31, 2007
was $0.15 per Trust Unit equating to $0.45 for the quarter. In December 2007,
we decreased the monthly distribution to $0.12 per Trust Unit due to the
continued weak natural gas prices at that time. To mitigate the persisting
risk associated with low commodity prices and the resulting negative impact on
cash flows, the Fund implemented a hedging program with 54% of natural gas
production and 38% of crude oil production, net of royalties, hedged for 2008
(see "Commodity Price Risk" section for a more detailed discussion of our
price risk management). As commodity prices have strengthened in early 2008,
the current environment in combination with our hedging program provides
strong support for continuation of the current distribution level.
    Distributions from the Fund to Unitholders are entirely discretionary and
are determined by Management and the Board of Directors. We closely monitor
our distribution policy considering forecasted cash flows, optimal debt
levels, capital spending activity, working capital requirements, and other
potential cash expenditures. Distributions are announced monthly and are based
on the cash available after retaining a portion to meet such spending
requirements. The level of distributions are primarily determined by cash
flows received from the production of oil and natural gas from existing
Canadian resource properties and will be susceptible to the risks and
uncertainties associated with the oil and natural gas industry generally. If
the oil and natural gas reserves associated with the Canadian resource
properties are not supplemented through additional development or the
acquisition of additional oil and natural gas properties, our distributions
will decline over time in a manner consistent with declining production from
typical oil and natural gas reserves. Therefore, distributions are highly
dependent upon our success in exploiting the current reserve base and
acquiring additional reserves. Furthermore, monthly distributions we pay to
Unitholders are highly dependent upon the prices received for such oil and
natural gas production. Oil and natural gas prices can fluctuate widely on a
month-to-month basis in response to a variety of factors that are beyond our
control. Declines in oil or natural gas prices will have an adverse effect
upon our operations, financial condition, reserves and ultimately on our
ability to pay distributions to Unitholders. The Fund attempts to mitigate the
volatility in commodity prices through our hedging program. It is our
long-term objective to provide stable and sustainable distributions to the
Unitholders, while continuing to grow the Fund. However, given that funds from
operations can vary significantly from month-to-month due to these factors,
the Fund may utilize various financing alternatives, including our credit
facility, as an interim measure to maintain stable distributions.Revenue

                                           Three months ended
                                                 March 31
    ($000)                                  2008         2007       % change
    -------------------------------------------------------------------------
    Natural gas excluding hedging        $  89,994    $  78,333          15%
    Realized hedging gains                   3,710        4,620        (20)%
    -------------------------------------------------------------------------
    Natural gas including hedging        $  93,704    $  82,953          13%
    -------------------------------------------------------------------------
    Crude oil and NGLs excluding hedging $  96,104    $  50,939          89%
    Realized hedging gains (losses)         (1,303)       1,610       (181)%
    -------------------------------------------------------------------------
    Crude oil and NGLs including hedging $  94,801    $  52,549          80%
    -------------------------------------------------------------------------
    Total revenue                        $ 188,505    $ 135,502          39%
    -------------------------------------------------------------------------Natural gas, crude oil and NGLs revenues, excluding hedging, increased
significantly for the three months ended March 31, 2008, as compared to 2007.
This improvement has been due to a 14% increase in total daily production,
primarily attributed to the acquisition of Sound, which closed on September 5,
2007, and higher commodity prices. Realized natural gas prices, excluding
hedging, increased 4%, while realized crude oil and NGL prices, excluding
hedging, increased a substantial 51%. For the three months ended March 31,
2008 and 2007 the Fund recognized natural gas and crude oil hedging gains of
$2.4 million and $6.2 million, respectively. The Fund enters derivative
contracts whereby realized hedging gains and losses partially offset commodity
price fluctuations, which can positively or negatively impact revenues.Production

                                           Three months ended
                                                 March 31
                                            2008         2007       % change
    -------------------------------------------------------------------------
    Natural gas (mcf/d)                    125,113      114,324           9%
    Crude oil (bbls/d)                       9,851        7,557          30%
    NGLs (bbls/d)                            2,430        2,401           1%
    -------------------------------------------------------------------------
    Total (boe/d)                           33,133       29,012          14%
    -------------------------------------------------------------------------
    Natural gas (%)                            63%          66%
    Crude oil (%)                              30%          26%
    NGLs (%)                                    7%           8%The Fund's total daily production averaged 33,133 boe/d for the three
months ended March 31, 2008, an increase of 14% from the same period of 2007.
In particular, crude oil production has increased 30%, which has been
significantly beneficial due to higher crude oil pricing relative to natural
gas. The increase in production is primarily attributable to the Sound
acquisition, which closed September 5, 2007. Total daily production for the
quarter was 3% lower compared to the fourth quarter of 2007, mainly due to
natural declines and extreme cold weather conditions that caused brief
production outages in late January and February. For 2008, we expect
production to average approximately 32,000 to 34,000 boe/d, weighted 62% to
natural gas.Commodity Prices and Marketing

    Natural Gas
                                           Three months ended
                                                 March 31
    ($/mcf)                                 2008         2007       % change
    -------------------------------------------------------------------------
    Realized natural gas prices
      Excluding hedging                  $    7.90    $    7.61          4 %
      Including hedging                  $    8.23    $    8.06          2 %
    AECO monthly index                   $    7.13    $    7.46         (4)%Realized natural gas prices, excluding hedging, were slightly higher for
the three months ended March 31, 2008 than the same period of 2007. However,
our realized natural gas price, excluding hedging, increased 27% as compared
to the fourth quarter of 2007. As North America progressed through the
2007/2008 winter season, inventory levels that had been historically high over
the last couple of years quickly reduced down to a normal five-year average.
In addition, reduced liquefied natural gas imports into the US and the
slowdown in natural gas drilling in Western Canada has provided upward price
support. These developments have been encouraging and we continue to believe
that the long-term pricing fundamentals for natural gas remain strong. These
fundamentals include (i) the continued strength of crude oil prices, which has
eliminated the economic advantage of fuel switching away from natural gas,
(ii) significantly less natural gas drilling in Canada projected for 2008,
which will reduce productivity to offset declines, (iii) the increasing focus
on resource style natural gas wells, which have high initial declines and
require a higher threshold economic price than conventional gas drilling and
(iv) the demand for natural gas for the Canadian oil sands projects.Crude Oil and NGLs

                                           Three months ended
                                                 March 31
    ($/bbl)                                 2008         2007       % change
    -------------------------------------------------------------------------
    Realized crude oil prices
      Excluding hedging                  $   88.15    $   59.03          49%
      Including hedging                  $   86.69    $   61.40          41%
    Realized NGLs prices
      Excluding hedging                  $   77.25    $   49.93          55%
    Realized crude oil and NGLs prices
      Excluding hedging                  $   85.99    $   56.84          51%
      Including hedging                  $   84.83    $   58.64          45%
    WTI ($US/bbl)                        $   97.96    $   58.12          69%
    $US/$Canadian exchange rate          $    1.00    $    0.85          18%Realized crude oil and NGLs prices, excluding hedging, increased 51% for
the three months ended March 31, 2008, as compared to the same period of 2007.
Advantage's crude oil prices are based on the benchmark pricing of West Texas
Intermediate Crude ("WTI") adjusted for quality, transportation costs and
$US/ $Canadian exchange rates. Advantage's realized crude oil price has not
increased to the same extent as WTI, owing to the Canadian dollar achieving
parity with the US dollar, and the widening of Canadian crude oil
differentials relative to WTI. The price of WTI fluctuates based on worldwide
supply and demand fundamentals. There has been significant price volatility
experienced over the last several years whereby WTI has reached historic high
levels. Many developments have resulted in the current price levels, including
significant continuing geopolitical issues, general market speculation and
ongoing supply concerns. As a result, prices have continued to increase, with
WTI recently surpassing US$120/bbl. It is worth noting that demand has
remained resilient even as the United States, the world's largest crude oil
consumer, experiences an economic slowdown. Currently there is no consensus on
how long a US slowdown may last and how it may affect crude oil pricing.
Regardless whether the current price level is sustainable or a short-term
anomaly, we believe that the pricing fundamentals for crude oil remain strong
with many factors affecting the continued strength including (i) supply
management and supply restrictions by the OPEC cartel, (ii) ongoing civil
unrest in Venezuela, Nigeria, and the Middle East, (iii) strong world wide
demand, particularly in China, India and the United States and (iv) North
American refinery capacity constraints.

    Commodity Price Risk

    The Fund's operational results and financial condition will be dependent
on the prices received for oil and natural gas production. Oil and natural gas
prices have fluctuated widely during recent years and are determined by
economic and, in the case of oil prices, political factors. Supply and demand
factors, including weather and general economic conditions as well as
conditions in other oil and natural gas regions, impact prices. Any movement
in oil and natural gas prices could have an effect on the Fund's financial
condition and therefore on the distributions to holders of Advantage Trust
Units. As current and future practice, Advantage has established a financial
hedging strategy and may manage the risk associated with changes in commodity
prices by entering into derivatives. Although these commodity price risk
management activities could expose Advantage to losses or gains, entering
derivative contracts helps us to stabilize cash flows and ensure that our
capital expenditure program is substantially funded by such cash flows. To the
extent that Advantage engages in risk management activities related to
commodity prices, it will be subject to credit risk associated with
counterparties with which it contracts. Credit risk is mitigated by entering
into contracts with only stable, creditworthy parties and through, frequent
reviews of exposures to individual entities.

    The Fund has fixed the commodity price on anticipated production as
follows:Approximate
                               Production
                             Hedged, Net of    Average           Average
    Commodity                  Royalties     Floor Price      Ceiling Price
    -------------------------------------------------------------------------
    Natural gas - AECO
      April to June 2008            66%      Cdn$7.22/mcf      Cdn$7.22/mcf
      July to September 2008        64%      Cdn$7.22/mcf      Cdn$7.22/mcf
      October to December 2008      62%      Cdn$7.64/mcf      Cdn$7.64/mcf
      -----------------------------------------------------------------------
      Total 2008                    54%      Cdn$7.52/mcf      Cdn$7.66/mcf
      -----------------------------------------------------------------------
      January to March 2009         60%      Cdn$7.87/mcf      Cdn$7.87/mcf
    Crude Oil - WTI
      April to June 2008            47%      Cdn$94.39/bbl     Cdn$94.39/bbl
      July to September 2008        46%      Cdn$94.39/bbl     Cdn$94.39/bbl
      October to December 2008      45%      Cdn$94.39/bbl     Cdn$94.39/bbl
      -----------------------------------------------------------------------
      Total 2008                    38%      Cdn$94.07/bbl     Cdn$94.07/bbl
      -----------------------------------------------------------------------
      January to March 2009         32%      Cdn$95.84/bbl     Cdn$95.84/bblFor the three month period ended March 31, 2008, we recognized in income
a realized derivative gain of $2.4 million (March 31, 2007 - $6.2 million)
upon the regular monthly settlement of these financial contracts. As at
March 31, 2008, the fair value of the derivatives outstanding and to be
settled from April 2008 to March 2009 was a net liability of approximately
$59.0 million (December 31, 2007 - $2.2 million net asset). For the three
months ended March 31, 2008, $61.2 million (March 31, 2007 - $12.0 million)
was recognized in income as an unrealized derivative loss due to changes in
the fair values of these contracts since December 31, 2007. The valuation of
the derivatives is the estimated fair value to settle the contracts as at
March 31, 2008 and is based on pricing models, estimates, assumptions and
market data available at that time. As such, the recognized amounts are not
cash and the actual gains or losses realized on eventual cash settlement can
vary materially due to subsequent fluctuations in commodity prices as compared
to the valuation assumptions. The Fund does not apply hedge accounting and
current accounting standards require changes in the fair value to be included
in the consolidated statement of income and comprehensive income as an
unrealized derivative gain or loss with a corresponding derivative asset and
liability recorded on the balance sheet. These derivative contracts will
settle from April 2008 to March 2009 corresponding to when Advantage will
receive revenues from production at similarly high prices.Royalties

                                           Three months ended
                                                 March 31
                                            2008         2007       % change
    -------------------------------------------------------------------------
    Royalties ($000)                     $  33,881    $  26,165          29%
      per boe                            $   11.24    $   10.02          12%
    As a percentage of revenue,
     excluding hedging                       18.2%        20.2%       (2.0)%Advantage pays royalties to the owners of mineral rights from which we
have leases. The Fund currently has mineral leases with provincial
governments, individuals and other companies. Royalties have increased in
total for 2008 due to the increase in revenue from higher production and
commodity prices. Royalties as a percentage of revenue, excluding hedging,
decreased compared to the first quarter of 2007. As royalty rates are
generally dependent on prices and individual well production levels, our
average royalty rates will vary as the nature of our properties change through
ongoing development activities and acquisitions. We expect the royalty rate to
be in the range of 17% to 19% for 2008 given the current environment.Operating Costs

                                           Three months ended
                                                 March 31
                                            2008         2007       % change
    -------------------------------------------------------------------------
    Operating costs ($000)               $  40,272    $  30,270          33%
      per boe                            $   13.36    $   11.59          15%Total operating costs increased 33% for the three months ended March 31,
2008 compared to the first quarter of 2007. The increase in total operating
costs is due mainly to the Sound acquisition with total operating costs
increasing only 2% as compared to the fourth quarter of 2007. Operating costs
per boe increased 15% for the three months ended March 31, 2008 compared to
the three months ended March 31, 2007, due to increased operating costs per
boe as a result of the higher percentage of oil properties from the Sound
acquisition. Operating costs per boe increased just 7% compared to the fourth
quarter of 2007 due to the modestly lower production and one-time incremental
costs that are frequently incurred during the winter season, especially
related to winter only access areas. We will continue to be opportunistic and
proactive in pursuing programs that will improve our operating cost structure.
Consistent with this strategy, the Fund entered hedges for power costs, one of
our more significant operating costs, of 3.0 MW at $54.00/MWh for 2008. We
expect that operating costs per boe will be in the range of $12.50 to $13.30
for the 2008 year.General and Administrative

                                           Three months ended
                                                 March 31
                                            2008         2007       % change
    -------------------------------------------------------------------------
    General and administrative
     expense ($000)                      $   7,232    $   4,716          53%
      per boe                            $    2.40    $    1.81          33%
    Employees at March 31                      163          135          21%General and administrative ("G&A") expense has increased 53% for the
three months ended March 31, 2008 compared to the three months ended March 31,
2007 due to higher staff levels from the Sound acquisition and a one-time
payment to terminate an office lease arrangement. Total G&A was relatively
comparable to the fourth quarter of 2007.Management Internalization

                                           Three months ended
                                                 March 31
                                            2008         2007       % change
    -------------------------------------------------------------------------
    Management internalization ($000)    $   2,491    $   5,369        (54)%
      per boe                            $    0.83    $    2.06        (60)%In 2006, the Fund and the Manager reached an agreement to internalize the
pre-existing management contract arrangement. As part of the agreement,
Advantage agreed to purchase all of the outstanding shares of the Manager
pursuant to the terms of the Arrangement, thereby eliminating the management
fee and performance incentive effective April 1, 2006. The Trust Unit
consideration issued in exchange for the outstanding shares of the Manager was
placed in escrow for a 3-year period and is being deferred and amortized into
income as management internalization expense over the specific vesting periods
during which employee services are provided. The management internalization is
lower for the quarter since one third vested and was paid in June 2007 while
the remaining two thirds continues to be amortized to income.Interest

                                           Three months ended
                                                 March 31
                                            2008         2007       % change
    -------------------------------------------------------------------------
    Interest expense ($000)              $   7,766    $   5,187          50%
      per boe                            $    2.58    $    1.99          30%
    Average effective interest rate           5.6%         5.4%         0.2%
    Bank indebtedness at March 31 ($000)   563,500      354,443          59%Total interest expense increased 50% and 30% per boe for the three months
ended March 31, 2008 as compared to the three months ended March 31, 2007.
These increases primarily reflect the additional debt assumed by the fund from
the Sound acquisition on September 5, 2007. Interest expense versus the fourth
quarter of 2007 was reasonably comparable. We monitor the debt level to ensure
an optimal mix of financing and cost of capital that will provide a maximum
return to our Unitholders. Our current credit facilities have been a favorable
financing alternative with an effective interest rate of only 5.6% for the
three months ended March 31, 2008. The Fund's interest rates are primarily
based on short term Bankers Acceptance rates plus a stamping fee.Interest and Accretion on Convertible Debentures

                                           Three months ended
                                                 March 31
                                            2008         2007       % change
    -------------------------------------------------------------------------
    Interest on convertible
     debentures ($000)                   $   4,187    $   3,238          29%
      per boe                            $    1.39    $    1.24          12%
    Accretion on convertible
     debentures ($000)                   $     720    $     599          20%
      per boe                            $    0.24    $    0.23           4%
    Convertible debentures maturity
     value at March 31 ($000)            $ 224,587    $ 180,730          24%Interest and accretion on convertible debentures has increased compared
to 2007 due to Advantage assuming Sound's 8.75% and 8.00% convertible
debentures on the acquisition. The increased interest and accretion from the
additional debentures has been slightly offset by the maturation of the 10%
convertible debentures with a face value of $1.4 million on November 1, 2007.
The interest and accretion per boe for the quarter is slightly higher as our
convertible debentures outstanding have somewhat increased relative to our
level of production.Depletion, Depreciation and Accretion

                                           Three months ended
                                                 March 31
                                            2008         2007       % change
    -------------------------------------------------------------------------
    Depletion, depreciation & accretion
     ($000)                              $  76,880    $  63,918          20%
      per boe                            $   25.50    $   24.48           4%Depletion and depreciation of fixed assets is provided on the
"unit-of-production" method based on total proved reserves. Accretion
represents the increase in the asset retirement obligation liability each
reporting period due to the passage of time. The depletion, depreciation and
accretion ("DD&A") provision has increased 20% for the three months ended
March 31, 2008 compared to 2007 due to considerable increases in daily
production volumes, mainly from the Sound acquisition. On a per boe basis,
DD&A has only increased 4% as increases in our fixed assets from prior
acquisitions and development activities have resulted in proved reserve
additions similar to prior experience. We evaluate the recoverability of our
petroleum and natural gas assets each reporting period to ensure the carrying
amount does not exceed the fair value. When the carrying amount is not
assessed to be recoverable, an impairment loss is recognized. There has been
no impairment of the Fund's petroleum and natural gas properties under
Canadian GAAP since inception.

    Taxes

    Current taxes paid or payable for the quarter ended March 31, 2008
amounted to $0.7 million, compared to $0.3 million expensed for the same
period of 2007. The higher current taxes are due to the increased Saskatchewan
properties and activity within these properties from the Sound acquisition.
Current taxes primarily represent Saskatchewan resource surcharge, which is
based on the petroleum and natural gas revenues within the province of
Saskatchewan.
    Future income taxes arise from differences between the accounting and tax
bases of the assets and liabilities. For the three months ended March 31,
2008, the Fund recognized a future income tax reduction of $22.7 million
compared to $16.6 million for the same period of 2007. As at March 31, 2008,
we had a future income tax liability balance of $44.1 million, compared to
$66.7 million at December 31, 2007.
    Under the Fund's current structure, payments are made between the
operating company and the Fund transferring income tax obligations to
Unitholders and as a result no cash income taxes would be paid by the
operating company or the Fund prior to 2011. However, the Specified Investment
Flow-Through Entity ("SIFT") tax legislation was enacted on June 22, 2007
altering the tax treatment by subjecting income trusts to a two-tier tax
structure, similar to that of corporations, whereby the taxable portion of
distributions paid by trusts will be subject to tax at the trust level and at
the Unitholder level. The rules are effective for tax years beginning in 2011
for existing publicly-traded trusts. The effect of the new tax law was
recognized in the future income tax expense and liability for the year ended
December 31, 2007. Canadian generally accepted accounting principles require
that a future income tax liability be recorded when the book value of assets
exceeds the balance of tax pools.Net Income (Loss)

                                           Three months ended
                                                 March 31
                                            2008         2007       % change
    -------------------------------------------------------------------------
    Net income (loss) ($000)             $ (24,122)   $     341     (7,174)%
      per Trust Unit - Basic and diluted $   (0.18)   $    0.00            -Net loss for the three months ended March 31, 2008 was $24.1 million, a
significant decrease as compared to the net income for the three months ended
March 31, 2007. Although higher production and commodity prices resulted in
considerable increased revenues, this was more than offset by an unrealized
loss on derivatives of $61.2 million compared to $12.0 million for the three
months ended March 31, 2007. The unrealized loss on derivatives is due to
improved forward commodity prices as compared to the prices per the open
derivative positions. The recognized amounts are not cash and the actual gains
or losses realized on eventual cash settlement can vary materially due to
subsequent fluctuations in commodity prices. The Fund does not apply hedge
accounting and current accounting standards require changes in the fair value
to be included in the consolidated statement of income and comprehensive
income as an unrealized derivative gain or loss with a corresponding
derivative asset and liability recorded on the balance sheet. These derivative
contracts will settle from April 2008 to March 2009 corresponding to when
Advantage will receive revenues from production at similarly high prices.Cash Netbacks

                               Three months ended        Three months ended
                                 March 31, 2008            March 31, 2007
                               $000        per boe       $000        per boe
    -------------------------------------------------------------------------
    Revenue                 $ 186,098    $   61.72    $ 129,272    $   49.51
    Realized gain on
     derivatives                2,407         0.80        6,230         2.39
    Royalties                 (33,881)      (11.24)     (26,165)      (10.02)
    Operating costs           (40,272)      (13.36)     (30,270)      (11.59)
    -------------------------------------------------------------------------
    Operating               $ 114,352    $   37.92    $  79,067    $   30.29
    General and
     administrative(1)         (7,093)       (2.35)      (4,716)       (1.81)
    Interest                   (7,766)       (2.58)      (5,187)       (1.99)
    Interest on convertible
     debentures                (4,187)       (1.39)      (3,238)       (1.24)
    Income and capital taxes     (688)       (0.23)        (281)       (0.11)
    -------------------------------------------------------------------------
    Funds from operations   $  94,618    $   31.37    $  65,645    $   25.14
    -------------------------------------------------------------------------

    (1) General and administrative expense excludes unit-based compensation
        expense.Funds from operations of Advantage for the quarter ended March 31, 2008
increased to $94.6 million from $65.6 million in the first quarter of 2007,
due primarily to additional production from the Sound acquisition and greatly
improved commodity prices. The cash netback per boe for the three months ended
March 31, 2008 increased 25% to $31.37 from $25.14. The higher cash netback
per boe is primarily due to stronger crude oil and natural gas prices, offset
partially by higher operating costs and interest on bank indebtedness and
convertible debentures. Operating costs have steadily increased over the past
year due to significantly higher field costs associated with supplies and
services that have resulted from the high level of industry activity, an
overall industry labour cost increase, and higher relative operating costs
from the Sound acquisition. The higher interest expense has been due to the
additional bank indebtedness and convertible debentures assumed on the Sound
acquisition relative to the corresponding production. When compared to the
fourth quarter of 2007, funds from operations per boe increased 23%, clearly
demonstrating the significant improvement in commodity prices.

    Contractual Obligations and Commitments

    The Fund has contractual obligations in the normal course of operations
including purchases of assets and services, operating agreements,
transportation commitments, sales contracts and convertible debentures. These
obligations are of a recurring and consistent nature and impact cash flow in
an ongoing manner. The following table is a summary of the Fund's remaining
contractual obligations and commitments. Advantage has no guarantees or
off-balance sheet arrangements other than as disclosed.Payments due by period

    ($ millions)          Total     2008     2009     2010     2011     2012
    -------------------------------------------------------------------------
    Building leases     $  14.4  $   3.1  $   4.1  $   4.1  $   1.8  $   1.3
    Capital leases          7.4      1.2      2.1      2.2      1.9        -
    Pipeline/
     transportation         5.3      3.0      1.9      0.4        -        -
    Convertible
     debentures(1)        224.6      5.4     87.0     69.9     62.3        -
    -------------------------------------------------------------------------
    Total contractual
     obligations        $ 251.7  $  12.7  $  95.1  $  76.6  $  66.0  $   1.3
    -------------------------------------------------------------------------

    (1) As at March 31, 2008, Advantage had $224.6 million convertible
        debentures outstanding. Each series of convertible debentures are
        convertible to Trust Units based on an established conversion price.
        The Fund expects that the obligations related to convertible
        debentures will be settled either directly or indirectly through the
        issuance of Trust Units.

    (2) Bank indebtedness of $563.5 million has been excluded from the
        contractual obligations table as the credit facilities constitute a
        revolving facility for a 364 day term which is extendible annually
        for a further 364 day revolving period at the option of the
        syndicate. If not extended, the revolving credit facility is
        converted to a two year term facility with the first payment due one
        year and one day after commencement of the term.Liquidity and Capital Resources

    The following table is a summary of the Fund's capitalization structure.($000, except as otherwise indicated)                     March 31, 2008
    -------------------------------------------------------------------------
    Bank indebtedness (long-term)                                $   563,500
    Working capital deficit(1)                                        35,375
    -------------------------------------------------------------------------
    Net debt                                                     $   598,875
    -------------------------------------------------------------------------
    Trust Units outstanding (000)                                    139,273
    Trust Unit closing market price ($/Trust Unit)               $     11.79
    -------------------------------------------------------------------------
    Market value                                                 $ 1,642,029
    -------------------------------------------------------------------------
    Convertible debentures maturity value (long-term)            $   214,328
    Capital lease obligations (long-term)                              5,332
    -------------------------------------------------------------------------
    Total capitalization                                         $ 2,460,564
    -------------------------------------------------------------------------

    (1) Working capital deficit includes accounts receivable, prepaid
        expenses and deposits, accounts payable and accrued liabilities,
        distributions payable, and the current portion of capital lease
        obligations and convertible debentures.Unitholders' Equity and Convertible Debentures

    Advantage has utilized a combination of Trust Units, convertible
debentures and bank debt to finance acquisitions and development activities.
    As at March 31, 2008, the Fund had 139.3 million Trust Units outstanding.
During the three months ended March 31, 2008, 1,006,673 Trust Units were
issued as a result of the Premium Distribution™, Distribution Reinvestment
and Optional Trust Unit Purchase Plan (the "Plan"), generating $9.6 million
reinvested in the Fund and representing an approximate 20% participation rate
(for three months ended March 31, 2007, 1,069,989 Trust Units were issued
under the Plan, generating $12.4 million reinvested in the Fund). As at
May 14, 2008, Advantage had 139.6 million Trust Units issued and outstanding.
    At both March 31, 2008 and December 31, 2007, the Fund had $224.6 million
convertible debentures outstanding that were immediately convertible to
9.8 million Trust Units based on the applicable conversion prices. During the
period ended March 31, 2008, $25,000 debentures were converted resulting in
the issuance of 1,001 Trust Units. As at May 14, 2008, the convertible
debentures outstanding have not changed from March 31, 2008.
    Advantage has a Trust Units Rights Incentive Plan for external directors
as approved by the Unitholders of the Fund. A total of 500,000 Trust Units
have been reserved for issuance under the plan with an aggregate of 400,000
rights granted since inception. The initial exercise price of rights granted
under the plan may not be less than the current market price of the Trust
Units as of the date of the grant and the maximum term of each right is not to
exceed ten years with all rights vesting immediately upon grant. At the option
of the rights holder, the exercise price of the rights can be adjusted
downwards over time based upon distributions paid by the Fund to Unitholders.
As at May 14, 2008, 150,000 Trust Unit Rights remain outstanding.

    Bank Indebtedness, Credit Facility and Other Obligations

    At March 31, 2008, Advantage had bank indebtedness outstanding of
$563.5 million. The Fund has a $710 million credit facility agreement
consisting of a $690 million extendible revolving loan facility and a $20
million operating loan facility. The current credit facilities are secured by
a $1 billion floating charge demand debenture, a general security agreement
and a subordination agreement from the Fund covering all assets and cash
flows. Bank indebtedness increased $16.1 million since December 31, 2007 as a
significant portion of our 2008 capital expenditure program was incurred
during the first quarter.
    Advantage had a working capital deficiency of $35.4 million as at
March 31, 2008. Our working capital includes items expected for normal
operations such as trade receivables, prepaids, deposits, trade payables and
accruals as well as the current portion of capital lease obligations and
convertible debentures. Working capital varies primarily due to the timing of
such items, the current level of business activity including our capital
program, commodity price volatility, and seasonal fluctuations. Advantage has
no unusual working capital requirements. We do not anticipate any problems in
meeting future obligations as they become due given the strength of our funds
from operations. It is also important to note that working capital is
effectively integrated with Advantage's operating credit facility, which
assists with the timing of cash flows as required.
    Advantage has capital lease obligations on various pieces of equipment
used in its operations. The total amount of principal obligation outstanding
at March 31, 2008 is $6.6 million, bearing interest at rates ranging from 5.5%
to 6.7%, and is secured by the related equipment. The leases expire at dates
ranging from December 2009 to August 2010.Capital Expenditures

                                                          Three months ended
                                                               March 31
    ($000)                                                 2008         2007
    -------------------------------------------------------------------------
    Land and seismic                                  $   4,170    $   2,340
    Drilling, completions and workovers                  36,744       27,135
    Well equipping and facilities                        25,598       20,110
    Other                                                   391          111
    -------------------------------------------------------------------------
                                                      $  66,903    $  49,696
    Property acquisitions                                     -       12,851
    Property dispositions                                   (91)        (427)
    -------------------------------------------------------------------------
    Total capital expenditures                        $  66,812    $  62,120
    -------------------------------------------------------------------------Advantage's growth strategy has been to acquire properties in or near
areas where we have large land positions, shallow to medium depth drilling
opportunities, and a balance of year round access. We focus on areas where
past activity has yielded long-life reserves with high cash netbacks.
Advantage is very well positioned to selectively exploit the highest
value-generating drilling opportunities given the size, strength and diversity
of our asset base. As a result, the Fund has a high level of flexibility to
distribute its capital program and ensure a risk-balanced platform of
projects. Our preference is to operate a high percentage of our properties
such that we can maintain control of capital expenditures, operations and cash
flows.
    For the three month period ended March 31, 2008, the Fund spent a net
$66.9 million and drilled a total of 38 net (53 gross) wells at a 98% success
rate. Total capital spending in the quarter included $16.8 million at Martin
Creek, $9.2 million at Glacier, $7.8 million at Nevis, $6.2 million at Sousa,
$6.0 million at Willesden Green, $4.8 million at Brazeau, $3.2 million at Chip
Lake, and $2.5 million at Southeast Saskatchewan.
    The following table summarizes the various funding requirements during
the three months ended March 31, 2008 and 2007 and the sources of funding to
meet those requirements.Sources and Uses of Funds

                                                          Three months ended
                                                               March 31
    ($000)                                                 2008         2007
    -------------------------------------------------------------------------
    Sources of funds
      Funds from operations                           $  94,618    $  65,645
      Increase in bank indebtedness                      16,074            -
      Decrease in working capital                         2,035            -
      Property dispositions                                  91          427
      Units issued, net of costs                            (42)     104,100
    -------------------------------------------------------------------------
                                                      $ 112,776    $ 170,172
    -------------------------------------------------------------------------
    Uses of funds
      Expenditures on property and equipment          $  66,903    $  49,696
      Distributions to Unitholders                       40,302       39,538
      Expenditures on asset retirement                    4,965        4,009
      Reduction of capital lease obligations                606          351
      Decrease in bank indebtedness                           -       56,131
      Property acquisitions                                   -       12,851
      Increase in working capital                             -        7,596
    -------------------------------------------------------------------------
                                                      $ 112,776    $ 170,172
    -------------------------------------------------------------------------


    Quarterly Performance

                                  2008                      2007
    ($000, except as
     otherwise indicated)          Q1           Q4           Q3           Q2
    -------------------------------------------------------------------------
    Daily production
      Natural gas (mcf/d)     125,113      128,556      115,991      108,978
      Crude oil and NGLs
       (bbls/d)                12,281       12,895       10,014        8,952
      Total (boe/d)            33,133       34,321       29,346       27,115

    Average prices
      Natural gas ($/mcf)
        Excluding hedging   $    7.90    $    6.23    $    5.62    $    7.54
        Including hedging   $    8.23    $    6.97    $    6.35    $    7.52
        AECO monthly index  $    7.13    $    6.00    $    5.62    $    7.37
      Crude oil and NGLs
       ($/bbl)
        Excluding hedging   $   85.99    $   73.40    $   69.03    $   61.84
        Including hedging   $   84.83    $   70.40    $   68.51    $   61.93
        WTI ($US/bbl)       $   97.96    $   90.63    $   75.33    $   65.02

    Total revenues (before
     royalties)             $ 188,505    $ 165,951    $ 130,830    $ 125,075
    Net income (loss)       $ (24,122)   $  13,795    $ (26,202)   $   4,531
      per Trust Unit -
       basic and diluted    $   (0.18)   $    0.10    $   (0.22)   $    0.04
    Funds from operations   $  94,618    $  80,519    $  62,345    $  62,634
    Distributions declared  $  50,021    $  57,875    $  55,017    $  52,096


                                  2007                      2006
    ($000, except as
     otherwise indicated)          Q1           Q4           Q3           Q2
    -------------------------------------------------------------------------
    Daily production
      Natural gas (mcf/d)     114,324      117,134      122,227       70,293
      Crude oil and NGLs
       (bbls/d)                 9,958        9,570        9,330        6,593
      Total (boe/d)            29,012       29,092       29,701       18,309

    Average prices
      Natural gas ($/mcf)
        Excluding hedging   $    7.61    $    6.90    $    5.89    $    6.18
        Including hedging   $    8.06    $    7.27    $    5.90    $    6.18
        AECO monthly index  $    7.46    $    6.36    $    6.03    $    6.28
      Crude oil and NGLs
       ($/bbl)
        Excluding hedging   $   56.84    $   54.58    $   67.77    $   68.69
        Including hedging   $   58.64    $   55.86    $   67.77    $   68.69
        WTI ($US/bbl)       $   58.12    $   60.21    $   70.55    $   70.75

    Total revenues (before
     royalties)             $ 135,502    $ 127,539    $ 124,521    $  80,766
    Net income (loss)       $     341    $   8,736    $   1,209    $  23,905
      per Trust Unit -
       basic and diluted    $    0.00    $    0.08    $    0.01    $    0.38
    Funds from operations   $  65,645    $  62,737    $  63,110    $  42,281
    Distributions declared  $  50,206    $  58,791    $  60,498    $  53,498The table above highlights the Fund's performance for the first quarter
of 2008 and also for the preceding seven quarters. Production significantly
increased in the third quarter of 2006 as the Ketch acquisition closed on June
23, 2006 and was fully integrated with Advantage. The second quarter of 2007
encountered a temporary production decrease as expected due to several
facility turnarounds that had been planned for that period. Increases in the
2007 third and fourth quarter financial and operating results are due to the
acquisition of Sound that closed on September 5, 2007. Production declined
slightly in the first quarter of 2008, compared to the fourth quarter of 2007,
as a result of natural declines and normal poor winter weather conditions that
can cause brief production outages. Advantage's revenues and funds from
operations increased significantly beginning in the third quarter of 2006
primarily due to the production from the merger with Ketch. Revenues and funds
from operations surged again in the fourth quarter of 2007 due to the Sound
acquisition, partially offset by lower natural gas prices. Revenues and funds
from operations continued to increase in the first quarter of 2008 due to
higher realized commodity prices. Net income was lower in the first three
quarters of 2007 due to reduced natural gas prices realized during the
periods, amortization of the management internalization consideration and
increased depletion and depreciation expense due to the Ketch merger. Net
income increased in the fourth quarter of 2007 due to the full integration of
the Sound acquisition and stronger crude oil prices. A net loss was recognized
in the first quarter of 2008 due to significant unrealized losses on hedging
positions for the period from April 2008 to March 2009.

    Critical Accounting Estimates

    The preparation of financial statements in accordance with GAAP requires
Management to make certain judgments and estimates. Changes in these judgments
and estimates could have a material impact on the Fund's financial results and
financial condition.
    Management relies on the estimate of reserves as prepared by the Fund's
independent qualified reserves evaluator. The process of estimating reserves
is critical to several accounting estimates. The process of estimating
reserves is complex and requires significant judgments and decisions based on
available geological, geophysical, engineering and economic data. These
estimates may change substantially as additional data from ongoing development
and production activities becomes available and as economic conditions impact
crude oil and natural gas prices, operating costs, royalty burden changes, and
future development costs. Reserve estimates impact net income through
depletion and depreciation of fixed assets, the provision for asset retirement
costs and related accretion expense, and impairment calculations for fixed
assets and goodwill. The reserve estimates are also used to assess the
borrowing base for the Fund's credit facilities. Revision or changes in the
reserve estimates can have either a positive or a negative impact on net
income and the borrowing base of the Fund.
    Management's process of determining the provision for future income
taxes, the provision for asset retirement obligation costs and related
accretion expense, and the fair values assigned to any acquired company's
assets and liabilities in a business combination is based on estimates. These
estimates are significant and can include reserves, future production rates,
future crude oil and natural gas prices, future costs, future interest rates,
future tax rates and other relevant assumptions. Revisions or changes in any
of these estimates can have either a positive or a negative impact on asset
and liability values and net income.
    In accordance with GAAP, derivative assets and liabilities are recorded
at their fair values at the reporting date, with unrealized gains and losses
recognized directly into net income and comprehensive income in the same
period. The fair value of derivatives outstanding is an estimate based on
pricing models, estimates, assumptions and market data available at that time.
As such, the recognized amounts are not cash and the actual gains or losses
realized on eventual cash settlement can vary materially due to subsequent
fluctuations in commodity prices as compared to the valuation assumptions.

    Controls and Procedures

    The Fund has established procedures and internal control systems to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with GAAP. Management of the Fund is committed to providing timely,
accurate and balanced disclosure of all material information about the Fund.
Disclosure controls and procedures are in place to ensure all ongoing
reporting requirements are met and material information is disclosed on a
timely basis. The Chief Executive Officer and Vice-President, Finance and
Chief Financial Officer, individually, sign certifications that the financial
statements, together with the other financial information included in the
regular filings, fairly present in all material respects the financial
condition, results of operations, and cash flows as of the dates and for the
periods presented in the filings. The certifications further acknowledge that
the filings do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated or that is necessary to make a
statement not misleading in light of the circumstances under which it was
made, with respect to the period covered by the filings. During the three
months ended March 31, 2008, there were no significant changes that would
materially affect, or are reasonably likely to materially affect, the internal
controls over financial reporting.
    Because of inherent limitations, internal control over financial
reporting may not prevent or detect misstatements and even those systems
determined to be effective can provide only reasonable assurance with respect
to the financial statement preparation and presentation. Further, projections
of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

    Outlook

    The Fund's 2008 Budget, as approved by the Board of Directors, retains a
high degree of activity and focus on drilling in many of our key properties
where a high level of success was realized through 2007. Capital has also been
directed to delineate the Montney natural gas resource play at Glacier in
Northwest Alberta and to accommodate facility expansions and enhanced recovery
schemes as necessary.
    For 2008, we are forecasting production to be in the range of 32,000 to
34,000 boe/d. Advantage's 2008 capital expenditures budget is estimated to be
approximately $125 to $145 million with approximately 143 gross (88 net)
wells. A highly successful winter program has been completed at Martin Creek,
Glacier, Nevis and Willesden Green and will be followed by a relatively even
paced program in Q3 and Q4 of 2008 in several other properties. Capital
spending is estimated to be split evenly between oil and gas activities.
    Per unit operating costs on an annual basis are expected to range between
the $12.50 to $13.30/boe range. Advantage is continuing with several operating
cost reduction initiatives throughout 2008 to help offset these increases and
we have begun to realize some key achievements in this area. We expect
industry servicing and maintenance costs to generally remain stable in 2008
with some potential for natural gas related costs to increase during the
latter part of 2008 if natural gas pricing continues to improve.
    On October 25, 2007, the Alberta Provincial Government announced changes
to royalties for conventional oil, natural gas and oil sands that will become
effective January 1, 2009. Preliminary indications are that the changes will
have a negligible impact on Advantage since we have a significant number of
lower rate wells within our long life properties producing in Alberta.
Advantage also has a significant Horseshoe Canyon coal bed methane drilling
inventory that can be pursued which will also have a favorable royalty
treatment due to lower rate per well characteristics. Our exposure in
Northeast British Columbia and Saskatchewan also affords us further
flexibility with mitigating the royalty impact in our capital program. We
expect our royalty rates to range from 17% to 19% in 2008.
    Advantage's funds from operations in 2008 will continue to be impacted by
the volatility of crude oil and natural gas prices and the $US/$Canadian
exchange rate. Additional hedging has been completed for 2008 to i) stabilize
cash flows and ii) ensure that the Fund's capital program is substantially
funded out of cash flow. Approximately 54% of our natural gas production, net
of royalties, is now hedged for the 2008 calendar year at a floor of
$7.52 Canadian per mcf. Advantage has also hedged 38% of its 2008 crude oil
production, net of royalties, at an average price of $94.07 Canadian per bbl.
    Advantage will continue to follow its strategy of acquiring properties
that provide low risk development opportunities and enhance long-term cash
flow. Advantage will also continue to focus on low cost production and reserve
additions through low to medium risk development drilling opportunities that
have arisen as a result of the acquisitions completed in prior years and from
the significant inventory of drilling opportunities that has resulted from the
Ketch and Sound acquisitions.
    Looking forward, Advantage's high quality assets combined with a greater
than five year conventional drilling inventory, exposure to the Montney
natural gas resource play and excellent tax pools provides many options for
the Fund and we are committed to maximizing value generation for our
Unitholders.

    Additional Information

    Additional information relating to Advantage can be found on SEDAR at
www.sedar.com and the Fund's website at www.advantageincome.com. Such other
information includes the annual information form, the annual information
circular - proxy statement, press releases, material contracts and agreements,
and other financial reports. The annual information form will be of particular
interest for current and potential Unitholders as it discusses a variety of
subject matter including the nature of the business, structure of the Fund,
description of our operations, general and recent business developments, risk
factors, reserves data and other oil and gas information.

    March 14, 2008CONSOLIDATED FINANCIAL STATEMENTS

    Consolidated Balance Sheets

                                                      March 31,  December 31,
    (thousands of dollars)                                2008          2007
    -------------------------------------------------------------------------
                                                    (unaudited)
    Assets
    Current assets
      Accounts receivable                          $   109,829   $    95,474
      Prepaid expenses and deposits                     18,538        21,988
      Derivative asset (note 9)                            597         7,027
    -------------------------------------------------------------------------
                                                       128,964       124,489
    Derivative asset (note 9)                                -           174
    Fixed assets (note 2)                            2,174,243     2,177,346
    Goodwill                                           120,271       120,271
    -------------------------------------------------------------------------
                                                   $ 2,423,478   $ 2,422,280
    -------------------------------------------------------------------------
    Liabilities
    Current liabilities
      Accounts payable and accrued liabilities     $   135,629   $   122,087
      Distributions payable to Unitholders              16,713        16,592
      Current portion of capital lease obligations
       (note 3)                                          1,252         1,537
      Current portion of convertible debentures
       (note 4)                                         10,148         5,333
      Derivative liability (note 9)                     59,602         2,242
    -------------------------------------------------------------------------
                                                       223,344       147,791
    Derivative liability (note 9)                            -         2,778
    Capital lease obligations (note 3)                   5,332         5,653
    Bank indebtedness (note 5)                         563,500       547,426
    Convertible debentures (note 4)                    208,083       212,203
    Asset retirement obligations (note 6)               62,167        60,835
    Future income taxes                                 44,051        66,727
    -------------------------------------------------------------------------
                                                     1,106,477     1,043,413
    -------------------------------------------------------------------------
    Unitholders' Equity
    Unitholders' capital (note 7)                    2,039,137     2,027,065
    Convertible debentures equity component
     (note 4)                                            9,632         9,632
    Contributed surplus (note 7)                         2,210         2,005
    Accumulated deficit (note 8)                      (733,978)     (659,835)
    -------------------------------------------------------------------------
                                                     1,317,001     1,378,867
    -------------------------------------------------------------------------
                                                   $ 2,423,478   $ 2,422,280
    -------------------------------------------------------------------------
    Commitments (note 11)

    see accompanying Notes to Consolidated Financial Statements



    Consolidated Statements of Income (Loss), Comprehensive Income (Loss)
    and Accumulated Deficit

                                                  Three months  Three months
                                                         ended         ended
    (thousands of dollars, except for per             March 31,     March 31,
     Trust Unit amounts) (unaudited)                      2008          2007
    -------------------------------------------------------------------------
    Revenue
      Petroleum and natural gas                    $   186,098   $   129,272
      Realized gain on derivatives (note 9)              2,407         6,230
      Unrealized loss on derivatives (note 9)          (61,186)      (12,029)
      Royalties                                        (33,881)      (26,165)
    -------------------------------------------------------------------------
                                                        93,438        97,308
    -------------------------------------------------------------------------
    Expenses
      Operating                                         40,272        30,270
      General and administrative                         7,232         4,716
      Management internalization (note 7)                2,491         5,369
      Interest                                           7,766         5,187
      Interest and accretion on convertible
       debentures                                        4,907         3,837
      Depletion, depreciation and accretion             76,880        63,918
    -------------------------------------------------------------------------
                                                       139,548       113,297
    -------------------------------------------------------------------------
    Loss before taxes                                  (46,110)      (15,989)
    Future income tax reduction                        (22,676)      (16,611)
    Income and capital taxes                               688           281
    -------------------------------------------------------------------------
                                                       (21,988)      (16,330)
    -------------------------------------------------------------------------
    Net income (loss) and comprehensive
     income (loss)                                     (24,122)          341
    Accumulated deficit, beginning of period          (659,835)     (437,106)
    Distributions declared                             (50,021)      (50,206)
    -------------------------------------------------------------------------
    Accumulated deficit, end of period             $  (733,978)  $  (486,971)
    -------------------------------------------------------------------------
    Net income (loss) per Trust Unit (note 7)
      Basic and diluted                            $     (0.18)  $      0.00
    -------------------------------------------------------------------------

    see accompanying Notes to Consolidated Financial Statements



    Consolidated Statements of Cash Flows
                                                  Three months  Three months
                                                         ended         ended
                                                      March 31,     March 31,
    (thousands of dollars) (unaudited)                    2008          2007
    -------------------------------------------------------------------------
    Operating Activities

    Net income (loss)                              $   (24,122)  $       341
    Add (deduct) items not requiring cash:
      Unrealized loss on derivatives                    61,186        12,029
      Unit-based compensation                              139             -
      Management internalization                         2,491         5,369
      Accretion on convertible debentures                  720           599
      Depletion, depreciation and accretion             76,880        63,918
      Future income tax                                (22,676)      (16,611)
    Expenditures on asset retirement                    (4,965)       (4,009)
    Changes in non-cash working capital                 (8,060)      (11,116)
    -------------------------------------------------------------------------
    Cash provided by operating activities               81,593        50,520
    -------------------------------------------------------------------------
    Financing Activities

    Units issued, net of costs (note 7)                    (42)      104,100
    Increase (decrease) in bank indebtedness            16,074       (56,131)
    Reduction of capital lease obligations                (606)         (351)
    Distributions to Unitholders                       (40,302)      (39,538)
    -------------------------------------------------------------------------
    Cash provided by (used in) financing activities    (24,876)        8,080
    -------------------------------------------------------------------------
    Investing Activities

    Expenditures on property and equipment             (66,903)      (49,696)
    Property acquisitions                                    -       (12,851)
    Property dispositions                                   91           427
    Changes in non-cash working capital                 10,095         3,520
    -------------------------------------------------------------------------
    Cash used in investing activities                  (56,717)      (58,600)
    -------------------------------------------------------------------------
    Net change in cash                                       -             -
    Cash, beginning of period                                -             -
    -------------------------------------------------------------------------
    Cash, end of period                            $         -   $         -
    -------------------------------------------------------------------------

    Supplementary Cash Flow Information
      Interest paid                                $     8,566   $     7,005
      Taxes paid                                   $       154   $       361

    see accompanying Notes to Consolidated Financial Statements



                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    March 31, 2008 (unaudited)

    All tabular amounts in thousands except as otherwise indicated.

    The interim consolidated financial statements of Advantage Energy Income
    Fund ("Advantage" or the "Fund") have been prepared by management in
    accordance with Canadian generally accepted accounting principles using
    the same accounting policies as those set out in note 2 to the
    consolidated financial statements for the year ended December 31, 2007,
    except as described below. The interim consolidated financial statements
    should be read in conjunction with the audited consolidated financial
    statements of Advantage for the year ended December 31, 2007 as set out
    in Advantage's Annual Report.


    1.  Changes in Accounting Policies

        (a) Capital disclosures

        On January 1, 2008, the Fund adopted CICA Handbook Section 1535,
        Capital Disclosures. This Section establishes standards for
        disclosing information about an entity's capital and how it is
        managed to enable users of financial statements to evaluate the
        entity's objectives, policies and procedures for managing capital.
        The adoption of this Section requires that information on capital
        management be included in the notes to the consolidated financial
        statements (note 10). This new standard does not have any effect on
        our financial position or results of operations.

        (b) Comparative figures

        Certain comparative figures have been reclassified to conform to the
        current year's presentation.

    2.  Fixed Assets

                                                   Accumulated
                                                 Depletion and      Net Book
        March 31, 2008                      Cost  Depreciation         Value
        ---------------------------------------------------------------------
        Petroleum and natural gas
         properties                  $ 3,088,611   $   919,903   $ 2,168,708
        Furniture and equipment           10,920         5,385         5,535
        ---------------------------------------------------------------------
                                     $ 3,099,531   $   925,288   $ 2,174,243
        ---------------------------------------------------------------------

                                                   Accumulated
                                                 Depletion and      Net Book
        December 31, 2007                   Cost  Depreciation         Value
        ---------------------------------------------------------------------
        Petroleum and natural gas
         properties                  $ 3,016,243   $   844,671   $ 2,171,572
        Furniture and equipment           10,548         4,774         5,774
        ---------------------------------------------------------------------
                                     $ 3,026,791   $   849,445   $ 2,177,346
        ---------------------------------------------------------------------

        During the three months ended March 31, 2008, Advantage capitalized
        general and administrative expenditures directly related to
        exploration and development activities of $3,279,000 (March 31,
        2007 - $1,969,000).

    3.  Capital Lease Obligations

        The Fund has capital leases on a variety of fixed assets. Future
        minimum lease payments at March 31, 2008 consist of the following:


        2008                         $     1,200
        2009                               2,040
        2010                               2,200
        2011                               1,925
        -----------------------------------------
                                           7,365
        Less amounts representing
         interest                           (781)
        -----------------------------------------
                                           6,584
        Current portion                   (1,252)
        -----------------------------------------
                                     $     5,332
        -----------------------------------------

    4.  Convertible Debentures

        The balance of debentures outstanding at March 31, 2008 and changes
        in the liability and equity components during the three months ended
        March 31, 2008 are as follows:

                                9.00%        8.25%        8.75%        7.50%
        ---------------------------------------------------------------------
        Debentures
         outstanding        $   5,392    $   4,867    $  29,839    $  52,268
        ---------------------------------------------------------------------
        Liability component:
          Balance at
           Dec. 31, 2007    $   5,333    $   4,767    $  29,382    $  50,671
          Accretion of
           discount                25           23           76          226
          Converted to Trust
           Units                    -            -            -            -
        ---------------------------------------------------------------------
          Balance at
           March 31, 2008   $   5,358    $   4,790    $  29,458    $  50,897
        ---------------------------------------------------------------------
        Equity component:
          Balance at
           Dec. 31, 2007    $     229    $     248    $     852    $   2,248
          Converted to
           Trust Units              -            -            -            -
        ---------------------------------------------------------------------
          Balance at
           March 31, 2008   $     229    $     248    $     852    $   2,248
        ---------------------------------------------------------------------


                                6.50%        7.75%        8.00%        Total
        ---------------------------------------------------------------------
        Debentures
         outstanding        $  69,927    $  46,766    $  15,528    $ 224,587
        ---------------------------------------------------------------------
        Liability component:
          Balance at
           Dec. 31, 2007    $  68,092    $  44,360    $  14,931    $ 217,536
          Accretion of
           discount               183          151           36          720
          Converted to Trust
           Units                  (25)           -            -          (25)
        ---------------------------------------------------------------------
          Balance at
           March 31, 2008   $  68,250    $  44,511    $  14,967    $ 218,231
        ---------------------------------------------------------------------
        Equity component:
          Balance at
           Dec. 31, 2007    $   2,971    $   2,286    $     798    $   9,632
          Converted to Trust
           Units                    -            -            -            -
        ---------------------------------------------------------------------
          Balance at
           March 31, 2008   $   2,971    $   2,286    $     798    $   9,632
        ---------------------------------------------------------------------

        During the three months ended March 31, 2008, $25,000 debentures were
        converted resulting in the issuance of 1,001 Trust Units (March 31,
        2007 - Nil).

    5.  Bank Indebtedness

        Advantage has a credit facility agreement with a syndicate of
        financial institutions which provides for a $690 million extendible
        revolving loan facility and a $20 million operating loan facility.
        The loan's interest rate is based on either prime, US base rate,
        LIBOR or bankers' acceptance rates, at the Fund's option, subject to
        certain basis point or stamping fee adjustments ranging from 0.00% to
        1.25% depending on the Fund's debt to cash flow ratio. The credit
        facilities are secured by a $1 billion floating charge demand
        debenture, a general security agreement and a subordination agreement
        from the Fund covering all assets and cash flows. The credit
        facilities are subject to review on an annual basis with the next
        renewal due in June 2008. Various borrowing options are available
        under the credit facilities, including prime rate-based advances, US
        base rate advances, US dollar LIBOR advances and bankers' acceptances
        loans. The credit facilities constitute a revolving facility for a
        364 day term which is extendible annually for a further 364 day
        revolving period at the option of the syndicate. If not extended, the
        revolving credit facility is converted to a two year term facility
        with the first payment due one year and one day after commencement of
        the term. The credit facilities contain standard commercial covenants
        for facilities of this nature. The only financial covenant is a
        requirement for Advantage Oil & Gas Ltd. ("AOG") to maintain a
        minimum cash flow to interest expense ratio of 3.5:1, determined on a
        rolling four quarter basis. Breach of any covenant will result in an
        event of default in which case AOG has 20 days to remedy such
        default. If the default is not remedied or waived, and if required by
        the majority of lenders, the administrative agent of the lenders has
        the option to declare all obligations of AOG under the credit
        facilities to be immediately due and payable without further demand,
        presentation, protest, or notice of any kind. Distributions by AOG to
        the Fund (and effectively by the Fund to Unitholders) are
        subordinated to the repayment of any amounts owing under the credit
        facilities. Distributions to Unitholders are not permitted if the
        Fund is in default of such credit facilities or if the amount of the
        Fund's outstanding indebtedness under such facilities exceeds the
        then existing current borrowing base. Interest payments under the
        debentures are also subordinated to indebtedness under the credit
        facilities and payments under the debentures are similarly
        restricted. For the three months ended March 31, 2008, the effective
        interest rate on the outstanding amounts under the facility was
        approximately 5.6% (March 31, 2007 - 5.4%).

    6.  Asset Retirement Obligations

        A reconciliation of the asset retirement obligations is provided
        below:

                                                  Three months
                                                         ended    Year ended
                                                      March 31,  December 31,
                                                          2008          2007
        ---------------------------------------------------------------------
        Balance, beginning of period               $    60,835   $    34,324
        Accretion expense                                1,037         2,795
        Assumed in Sound acquisition                         -        16,695
        Liabilities incurred                             5,260        13,972
        Liabilities settled                             (4,965)       (6,951)
        ---------------------------------------------------------------------
        Balance, end of period                     $    62,167   $    60,835
        ---------------------------------------------------------------------

    7.  Unitholders' Equity

        (a) Unitholders' capital

            (i)   Authorized

                  Unlimited number of voting Trust Units

            (ii)  Issued

                                               Number of Units        Amount
        ---------------------------------------------------------------------
        Balance at December 31, 2007               138,269,374   $ 2,036,121
        Distribution reinvestment plan               1,006,673         9,598
        Issued for cash, net of costs                        -           (42)
        Issued on conversion of debentures               1,001            25
        Management internalization forfeitures          (4,193)          (84)

        ---------------------------------------------------------------------
                                                   139,272,855   $ 2,045,618
        ---------------------------------------------------------------------
        Management internalization escrowed
         Trust Units                                                  (6,481)
        ---------------------------------------------------------------------
        Balance at March 31, 2008                                $ 2,039,137
        ---------------------------------------------------------------------

        On June 23, 2006, Advantage internalized the external management
        contract structure and eliminated all related fees for total original
        consideration of 1,933,208 Advantage Trust Units initially valued at
        $39.1 million and subject to escrow provisions over a 3-year period,
        vesting one-third each year beginning June 23, 2007. For the three
        months ended March 31, 2008, a total of 4,193 Trust Units issued for
        the management internalization were forfeited (March 31, 2007 -
        10,784 Trust Units) and $2.5 million has been recognized as
        management internalization expense (March 31, 2007 - $5.4 million).
        As at March 31, 2008, 1,189,429 Trust Units remain held in escrow
        (December 31, 2007 - 1,193,622 Trust Units).

        During the three months ended March 31, 2008, 1,006,673 Trust Units
        (March 31, 2007 - 1,069,989 Trust Units) were issued under the
        Premium Distribution™, Distribution Reinvestment and Optional
        Trust Unit Purchase Plan, generating $9.6 million (March 31, 2007 -
        $12.4 million) reinvested in the Fund.

        (b) Contributed surplus

                                                  Three months
                                                         ended    Year ended
                                                      March 31,  December 31,
                                                          2008          2007
        ---------------------------------------------------------------------
        Balance, beginning of period               $     2,005   $       863
        Unit-based compensation                            205         1,255
        Expiration of convertible debentures equity
         component                                           -            59
        Exercise of Trust Unit Rights                        -          (172)
        ---------------------------------------------------------------------
        Balance, end of period                     $     2,210   $     2,005
        ---------------------------------------------------------------------

        (c) Trust Units Rights Incentive Plan

                                                        Number         Price
        ---------------------------------------------------------------------
        Balance at December 31, 2007                   150,000   $      9.20
        Exercised                                            -             -
        Reduction of exercise price                          -         (0.36)
        ---------------------------------------------------------------------
        Balance at March 31, 2008                      150,000   $      8.84
        ---------------------------------------------------------------------
        Expiration date                                    June 17, 2008
        ---------------------------------------------------------------------

        (d) Net income (loss) per Trust Unit

        The calculation of basic and diluted net income (loss) per Trust Unit
        are derived from both income (loss) available to Unitholders and
        weighted average Trust Units outstanding calculated as follows:

                                                  Three months  Three months
                                                         ended         ended
                                                      March 31,     March 31,
                                                          2008          2007
        ---------------------------------------------------------------------
        Income (loss) available to Unitholders
          Basic and diluted                        $   (24,122)  $       341
        ---------------------------------------------------------------------
        Weighted average Trust Units outstanding
          Basic                                    137,599,070   108,331,960
          Trust Units Rights Incentive Plan                  -        28,042
          Management Internalization                         -       221,180
        ---------------------------------------------------------------------
          Diluted                                  137,599,070   108,581,182
        ---------------------------------------------------------------------

        The calculation of diluted net income per Trust Unit excludes all
        series of convertible debentures for the three months ended March 31,
        2008 and 2007 as the impact would be anti-dilutive. Total weighted
        average Trust Units issuable in exchange for the convertible
        debentures and excluded from the diluted net income per Trust Unit
        calculation for the three months ended March 31, 2008 were 9,846,967
        (March 31, 2007 - 8,334,453). As at March 31, 2008, the total
        convertible debentures outstanding were immediately convertible to
        9,846,252 Trust Units (March 31, 2007 - 8,334,453).

        All of the Trust Unit Rights and Management Internalization escrowed
        Trust Units have been excluded from the calculation of diluted net
        income per Trust Unit for the three months ended March 31, 2008, as
        the impact would be anti-dilutive. Total weighted average Trust Units
        issuable in exchange for the Trust Unit Rights and Management
        Internalization escrowed Trust Units and excluded from the diluted
        net income per Trust Unit calculation for the three months ended
        March 31, 2008 were 20,185 and 559,073, respectively.

    8.  Accumulated Deficit

        Accumulated deficit consists of accumulated income and accumulated
        distributions for the Fund since inception as follows:

                                                      March 31,  December 31,
                                                          2008          2007
        ---------------------------------------------------------------------
        Accumulated Income                         $   195,866   $   219,988
        Accumulated Distributions                     (929,844)     (879,823)
        ---------------------------------------------------------------------
        Accumulated Deficit                        $  (733,978)  $  (659,835)
        ---------------------------------------------------------------------

        For the three months ended March 31, 2008 the Fund declared
        $50.0 million in distributions representing $0.36 per distributable
        Trust Unit (three months ended March 31, 2007 - $50.2 million in
        distributions representing $0.45 per distributable Trust Unit).

    9.  Financial Instruments

        Financial instruments of the Fund include accounts receivable,
        deposits, accounts payable and accrued liabilities, distributions
        payable to Unitholders, bank indebtedness, convertible debentures and
        derivative assets and liabilities.

        Accounts receivable and deposits are classified as loans and
        receivables and measured at amortized cost. Accounts payable and
        accrued liabilities, distributions payable to Unitholders and bank
        indebtedness are all classified as other liabilities and similarly
        measured at amortized cost. As at March 31, 2008, there were no
        significant differences between the carrying amounts reported on the
        balance sheet and the estimated fair values of these financial
        instruments due to the short terms to maturity and the floating
        interest rate on the bank indebtedness.

        The Fund has convertible debenture obligations outstanding, of which
        the liability component has been classified as other liabilities and
        measured at amortized cost. The convertible debentures have different
        fixed terms and interest rates (note 4) resulting in fair values that
        will vary over time as market conditions change. As at March 31,
        2008, the estimated fair value of the total outstanding convertible
        debenture obligation was $224.7 million (December 31, 2007 -
        $215.4 million). The fair value of the liability component of
        convertible debentures was determined primarily based on a discounted
        cash flow model assuming no future conversions and continuation of
        current interest and principal payments as well as taking into
        consideration the current public trading activity of such debentures.
        The Fund applied discount rates of between 6.75 and 7% considering
        current available market information, assumed credit adjustments, and
        various terms to maturity.

        Advantage has an established strategy to manage the risk associated
        with changes in commodity prices by entering into derivatives, which
        are recorded at fair value as derivative assets and liabilities with
        gains and losses recognized through earnings. As the fair value of
        the contracts varies with commodity prices, they give rise to
        financial assets and liabilities. The fair values of the derivatives
        are determined through valuation models completed by third parties.
        Various assumptions based on current market information were used in
        these valuations, including settled forward commodity prices,
        interest rates, foreign exchange rates, volatility and other relevant
        factors. The actual gains and losses realized on eventual cash
        settlement can vary materially due to subsequent fluctuations in
        commodity prices as compared to the valuation assumptions.

        Credit Risk

        Accounts receivable, deposits, and derivative assets are subject to
        credit risk exposure and the carrying values reflect Management's
        assessment of the associated maximum exposure to such credit risk.
        Substantially all of the Fund's accounts receivable are due from
        customers and joint operation partners concentrated in the Canadian
        oil and gas industry. As such, accounts receivable are subject to
        normal industry credit risks. Advantage mitigates such credit risk by
        closely monitoring significant counterparties and dealing with a
        broad selection of partners that diversify risk within the sector.
        The Fund's deposits are primarily due from the Alberta Provincial
        government and are viewed by Management as having minimal associated
        credit risk. To the extent that Advantage enters derivatives to
        manage commodity price risk, it may be subject to credit risk
        associated with counterparties with which it contracts. Credit risk
        is mitigated by entering into contracts with only stable,
        creditworthy parties and through frequent reviews of exposures to
        individual entities. In addition, the Fund generally enters into
        derivative contracts with investment grade institutions that are
        members of Advantage's credit facility syndicate to further mitigate
        associated credit risk.

        Liquidity Risk

        The Fund is subject to liquidity risk attributed from accounts
        payable and accrued liabilities, distributions payable to
        Unitholders, bank indebtedness, convertible debentures, and
        derivative liabilities. Accounts payable and accrued liabilities,
        distributions payable to Unitholders and derivative liabilities are
        primarily due within one year of the balance sheet date and Advantage
        does not anticipate any problems in satisfying the obligations due to
        the strength of cash provided by operating activities and the
        existing credit facility. The Fund's bank indebtedness is subject to
        a $710 million credit facility agreement which mitigates liquidity
        risk by enabling Advantage to manage interim cash flow fluctuations.
        The credit facility constitutes a revolving facility for a 364 day
        term which is extendible annually for a further 364 day revolving
        period at the option of the syndicate. If not extended, the revolving
        credit facility is converted to a two year term facility with the
        first payment due one year and one day after commencement of the
        term. The terms of the credit facility are such that it provides
        Advantage adequate flexibility to evaluate and assess liquidity
        issues if and when they arise. Additionally, the Fund regularly
        monitors liquidity related to obligations by evaluating forecasted
        cash flows, optimal debt levels, capital spending activity, working
        capital requirements, and other potential cash expenditures. This
        continual financial assessment process further enables the Fund to
        mitigate liquidity risk.

        Advantage has several series of convertible debentures outstanding
        that mature from 2008 to 2011 (note 4). Interest payments are made
        semi-annually with excess cash provided by operating activities. As
        the debentures become due, the Fund can satisfy the obligations in
        cash or issue Trust Units at a price determined in the applicable
        debenture agreements. This settlement alternative allows the Fund to
        adequately manage liquidity, plan available cash resources and
        implement an optimal capital structure.

        To the extent that Advantage enters derivatives to manage commodity
        price risk, it may be subject to liquidity risk as derivative
        liabilities become due. While the Fund has elected not to follow
        hedge accounting, derivative instruments are not entered for
        speculative purposes and Management closely monitors existing
        commodity risk exposures. As such, liquidity risk is mitigated since
        any losses actually realized are subsidized by increased cash flows
        realized from the higher commodity price environment.

        Interest Rate Risk

        The Fund is exposed to interest rate risk to the extent that bank
        indebtedness is at a floating rate of interest and the Fund's maximum
        exposure to interest rate risk is based on the effective interest
        rate and the current carrying value of the bank indebtedness. The
        Fund monitors the interest rate markets to ensure that appropriate
        steps can be taken if interest rate volatility compromises the Fund's
        cash flows. A 1% interest rate fluctuation for the three months ended
        March 31, 2008 could potentially have impacted net income by
        approximately $1.0 million for that period.

        Price and Currency Risk

        Advantage's derivative assets and liabilities are subject to both
        price and currency risks as their fair values are based on
        assumptions including forward commodity prices and foreign exchange
        rates. The Fund enters derivative financial instruments to manage
        commodity price risk exposure relative to actual commodity production
        and does not utilize derivative instruments for speculative purposes.
        Changes in the price assumptions can have a significant effect on the
        fair value of the derivative assets and liabilities and thereby
        impact net income. It is estimated that a 10% change in the forward
        natural gas prices used to calculate the fair value of the natural
        gas derivatives at March 31, 2008 could impact net income by
        approximately $15.6 million for the three months ended March 31,
        2008. As well, a change of 10% in the forward crude oil prices used
        to calculate the fair value of the crude oil derivatives at March 31,
        2008 could impact net income by $9.0 million for the three months
        ended March 31, 2008. A change of 10% in the forward power prices
        used to calculate the fair value of the power derivatives at March
        31, 2008 could impact net income by $0.1 million for the three months
        ended March 31, 2008. A similar change in the currency rate
        assumption underlying the derivatives fair value does not have a
        material impact on net income.

        As at March 31, 2008 the Fund had the following derivatives in place:

    Description of
     Derivative     Term             Volume                    Average Price
    -------------------------------------------------------------------------
    Natural gas - AECO

      Fixed    April 2008 to      14,217 mcf/d                  Cdn$6.85/mcf
       price    October 2008
      Fixed    April 2008 to       9,478 mcf/d                  Cdn$7.25/mcf
       price    October 2008
      Fixed    April 2008 to      14,217 mcf/d                  Cdn$7.83/mcf
       price    October 2008
      Fixed    April 2008 to      14,217 mcf/d                  Cdn$7.10/mcf
       price    March 2009
      Fixed    April 2008 to      14,217 mcf/d                  Cdn$7.06/mcf
       price    March 2009
      Fixed    November 2008 to   14,217 mcf/d                  Cdn$7.77/mcf
       price    March 2009
      Fixed    November 2008 to    4,739 mcf/d                  Cdn$8.10/mcf
       price    March 2009
      Fixed    November 2008 to   14,217 mcf/d                  Cdn$9.45/mcf
       price    March 2009

    Crude oil - WTI

      Fixed    February 2008 to   2,000 bbls/d                 Cdn$90.93/bbl
       price    January 2009
      Collar   February 2008 to   2,000 bbls/d       Sold put  Cdn$70.00/bbl
                January 2009                    Purchase call Cdn$105.00/bbl
                                                         Cost   Cdn$1.52/bbl
      Fixed    April 2008 to      2,500 bbls/d                 Cdn$97.15/bbl
       price     March 2009

    Electricity - Alberta Pool Price

      Fixed    January 2008 to          3.0 MW                 Cdn$54.00/MWh
       price    December 2008

        As at March 31, 2008, the fair value of the derivatives outstanding
        resulted in an asset of approximately $597,000 (December 31, 2007 -
        $7,201,000) and a liability of approximately $59,602,000 (December
        31, 2007 - $5,020,000). For the three months ended March 31, 2008,
        $61,186,000 was recognized in income as an unrealized derivative loss
        (March 31, 2007 - $12,029,000) and $2,407,000 was recognized in
        income as a realized derivative gain (March 31, 2007 - $6,230,000).

    10. Capital Management

        The Fund manages its capital with the following objectives:

        -  To ensure sufficient financial flexibility to achieve the ongoing
           business objectives including replacement of production, funding
           of future growth opportunities, and pursuit of accretive
           acquisitions; and
        -  To maximize Unitholder return and provide stable distributions
           that will enhance the Trust Unit value.

        Advantage monitors its capital structure and makes adjustments
        according to market conditions in an effort to meet its objectives
        given the current outlook of the business and industry in general.
        The capital structure of the Fund is composed of working capital
        (excluding derivative assets and liabilities), bank indebtedness,
        convertible debentures, capital lease obligations and Unitholders'
        equity. The Fund internally views convertible debentures as another
        form of equity as it is expected that the obligations will be settled
        either directly or indirectly through the issuance of Trust Units.
        Advantage may manage its capital structure by issuing new Trust
        Units, obtaining additional financing either through bank
        indebtedness or convertible debenture issuances, refinancing current
        debt, issuing other financial or equity-based instruments, adjust the
        amount of monthly distributions, suspend or renew its distribution
        reinvestment plan, adjust capital spending, or dispose of non-core
        assets. The capital structure is reviewed by Management and the Board
        of Directors on an ongoing basis. Advantage's capital structure as at
        March 31, 2008 is as follows:

                                                              March 31, 2008
        ---------------------------------------------------------------------

        Bank indebtedness (long-term)                            $   563,500
        Working capital deficit(1)                                    35,375
        ---------------------------------------------------------------------
        Net debt                                                     598,875
        Trust Units outstanding market value                       1,642,029
        Convertible debentures maturity value (long-term)            214,328
        Capital lease obligations (long-term)                          5,332
        ---------------------------------------------------------------------
        Total                                                    $ 2,460,564
        ---------------------------------------------------------------------

        (1) Working capital deficit includes accounts receivable, prepaid
            expenses and deposits, accounts payable and accrued liabilities,
            distributions payable, and the current portion of capital lease
            obligations and convertible debentures.

        The Fund's bank indebtedness is governed by a $710 million credit
        facility agreement (note 5) that contains standard commercial
        covenants for facilities of this nature. The only financial covenant
        is a requirement for AOG to maintain a minimum cash flow to interest
        expense ratio of 3.5:1, determined on a rolling four quarter basis.
        The Fund is in compliance with all credit facility covenants. As
        well, the borrowing base for the Fund's credit facilities is
        determined through utilizing the regular reserve estimates. Revision
        or changes in the reserve estimates can have either a positive or a
        negative impact on the borrowing base of the Fund. Advantage's
        issuance of convertible debentures is limited by its Trust Indenture
        which currently restricts the issuance of additional convertible
        debentures to 25% of market capitalization subsequent to issuance.
        Advantage's Trust Indenture also provides for the issuance of an
        unlimited number of Trust Units. However, through new tax
        legislation, an income trust is restricted to doubling its market
        capitalization as it stands on October 31, 2006 by growing a maximum
        of 40% in 2007 and 20% for the years 2008 to 2010. In addition, an
        income trust may replace debt that was outstanding as of October 31,
        2006 with new equity or issue new, non-convertible debt without
        affecting the normal growth percentage. As a result of the "normal
        growth" guidelines, the Fund is permitted to issue approximately
        $2.0 billion of new equity from October 31, 2006 to January 1, 2011,
        which we believe is adequate for any growth we expect to incur. If an
        income trust exceeds the established limits on the issuance of new
        trust units and convertible debt that constitute normal growth, the
        income trust will be immediately subject to the Specified Investment
        Flow-Through Entity tax legislation whereby the taxable portion of
        distributions paid will be subject to tax at the trust level.

        Management of the Fund's capital structure is facilitated through its
        financial and operational forecasting processes. The forecast of the
        Fund's future cash flows is based on estimates of production,
        commodity prices, forecast capital and operating expenditures, and
        other investing and financing activities. The forecast is regularly
        updated based on new commodity prices and other changes, which the
        Fund views as critical in the current environment. Selected forecast
        information is frequently provided to the Board of Directors.

        The Fund's capital management objectives, policies and processes have
        remained unchanged during the three month period ended March 31,
        2008.

    11. Commitments

        Advantage has several lease commitments relating to office buildings.
        The estimated remaining annual minimum operating lease rental
        payments for buildings are as follows:

        2008                         $     3,083
        2009                               4,126
        2010                               4,141
        2011                               1,735
        2012                               1,314
        -----------------------------------------
                                     $    14,399
        -----------------------------------------%SEDAR: 00016522E          %CIK: 0001259995



For further information:

For further information: Investor Relations, Toll free: 1-866-393-0393;
ADVANTAGE ENERGY INCOME FUND, 700, 400 - 3rd Avenue SW, Calgary, Alberta, T2P
4H2, Phone: (403) 718-8000, Fax: (403) 718-8300, Web Site:
www.advantageincome.com, E-mail: advantage@advantageincome.com


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