News Releases

Advantage Announces 3rd Quarter Results 2008

Nov 13, 2008


    (TSX: AVN.UN, NYSE: AAV)

    CALGARY, Nov. 13 /CNW/ - Advantage Energy Income Fund ("Advantage" or the
"Fund") is pleased to announce its unaudited operating and financial results
for the third quarter ended September 30, 2008.Financial and Operating Highlights

                                    Three months ended    Nine months ended
                                       September 30          September 30
                                      2008       2007       2008       2007
    -------------------------------------------------------------------------
    Financial ($000, except as
     otherwise indicated)
    Revenue before royalties(1)    $195,384   $130,830   $592,757   $391,407
      per Trust Unit(2)            $   1.39   $   1.09   $   4.27   $   3.43
      per boe                      $  65.51   $  48.46   $  66.52   $  50.32
    Funds from operations          $ 93,345   $ 62,345   $291,717   $190,624
      per Trust Unit(3)            $   0.66   $   0.51   $   2.08   $   1.64
      per boe                      $  31.31   $  23.10   $  32.73   $  24.52
    Distributions declared         $ 50,743   $ 55,017   $151,128   $157,319
      per Trust Unit(3)            $   0.36   $   0.45   $   1.08   $   1.35
    Expenditures on property and
     equipment                     $ 67,744   $ 32,418   $156,279   $107,792
    Working capital deficit(4)     $ 72,928   $ 24,666   $ 72,928   $ 24,666
    Bank indebtedness              $540,078   $521,144   $540,078   $521,144
    Convertible debentures (face
     value)                        $219,195   $281,273   $219,195   $281,273
    Trust Units outstanding at
     end of period (000)            141,333    133,847    141,333    133,847
    Basic weighted average Trust
     Units (000)                    140,192    120,080    138,806    114,132

    Operating
    Daily Production
      Natural gas (mcf/d)           122,627    115,991    123,611    113,104
      Crude oil and NGLs (bbls/d)    11,980     10,014     11,920      9,641
      Total boe/d @ 6:1           32,418     29,346     32,522     28,492
    Average prices (including
     hedging)
      Natural gas ($/mcf)          $   7.55   $   6.35   $   8.32   $   7.30
      Crude oil and NGLs ($/bbl)   $ 100.02   $  68.51   $  95.24   $  63.11

    (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 liabilites


                           MESSAGE TO UNITHOLDERS
    Funds from Operations and Production Increases, Cumulative
    Distributions Exceed $1 Billion:

    -   Strong natural gas and crude oil pricing and solid operational
        results generated a strong level of funds from operations during the
        third quarter of 2008 resulting in a payout ratio of 54%.

    -   Funds from operations for the third quarter of 2008 increased 50% to
        $93.3 million and 29% to $0.66 per Trust Unit compared to $62.3
        million or $0.51 per Trust Unit for the same period of 2007.

    -   Production volumes in the third quarter of 2008 increased 10% to
        32,418 boe/d compared to 29,346 boe/d in the third quarter of 2007.
        Third quarter production was negatively impacted by an extended third
        party facility outage at the Waterton gas plant which affects our
        Lookout Butte property. Approximately 1,100 boe/d (73% natural gas)
        was curtailed in August 2008 and is not expected to be back on-stream
        until January 2009. Despite this outage, our stable production
        platform, excellent drilling results and optimization work
        contributed to maintaining our production levels.

    -   Natural gas production for the third quarter of 2008 increased 6% to
        122.6 mmcf/d, compared to 116.0 mmcf/d reported in the third quarter
        of 2007. Crude oil and natural gas liquids production increased 20%
        to average 11,980 bbls/d compared to 10,014 bbls/d in the third
        quarter of 2007.

    -   Operating costs for the third quarter was $13.82 per boe which
        included additional maintenance work undertaken during the summer as
        well as the impact of increased costs due to the higher commodity
        price environment during the first half of 2008.

    -   The Fund declared three distributions during the quarter totaling
        $0.36 per Trust Unit. Since inception, the Fund has distributed $1.0
        billion or $17.34 per Trust Unit.

    Drilling & Completion Activities Progressing & Capital Expenditures
    Increased at our Glacier Montney Natural Gas Resource Play

    -   Subsequent to our first quarter drilling which resulted in five
        vertical delineation wells, we have drilled two additional vertical
        wells and five horizontal wells since July 2008. Well completions,
        testing and additional drilling is progressing as planned with no
        significant delays or mechanical issues. Advantage has also received
        regulatory approval and is in the process of constructing a new 22 km
        natural gas pipeline and installing additional compression, which
        will provide further gas handling capacity in 2009.

    -   On October 6, 2008, Advantage's Board of Directors approved a further
        increase of $50 million to the 2008 capital budget, which has
        resulted in an annual budget total of $250 million. The increased
        funds will be directed at our Glacier property to further progress
        program activities and strategic investments.

    -   We look forward to reporting well results and development plans
        around year end 2008.

    Excellent Results Continue on our Conventional Assets

    -   Total capital spending for the quarter was $75.3 million net, of
        which $67.7 million is related to exploitation and development
        activities, and $ 7.6 million for a complimentary acquisition at our
        Nevis property.

    -   During the third quarter, 37 gross (28.3 net) wells were drilled at a
        100% success rate. Year to date drilling activity has resulted in 94
        gross (70 net) wells at a 99 % success rate.

    -   At Nevis in Central Alberta:

        -  Eleven gross (10.5 net) horizontal light oil wells have been
           drilled to date and are exceeding initial budgeted productivities.
           Several wells achieved initial rates in excess of 300 boe/d with
           drilling at four wells per section. Future upside potential at
           Nevis will include additional reserves recovery from downspacing
           and enhanced recovery opportunities.

        -  During the third quarter, 22 gross (16.3 net) Horseshoe Canyon
           coal bed methane wells were drilled which amounts to a total of 36
           gross (28.3 net) wells for 2008 on the lands acquired from Sound
           Energy Trust. The wells continue to demonstrate excellent initial
           productivities ranging from 125 to 250 mcf/d. Several years of
           future light oil and natural gas drilling opportunities remain in
           our Nevis property.

        -  Additionally, a complimentary acquisition for $7.6 million
           resulted in increasing our working interest ownership in 8
           sections of land and provides for future drilling locations on 4
           additional sections which will provide increased production,
           reserves and further upside to the Horseshoe Canyon coal bed
           methane drilling initiative.

    -   At Northville in Northwest Alberta, three wells were successfully
        drilled in the third quarter for multi-zone natural gas targets.
        Results indicate a gross combined initial rate of 3.6 mmcf/d and
        production will be brought on-stream in the fourth quarter. This
        success has identified several potential locations for future
        drilling.

    -   At Boundary Lake in Northwest Alberta, a new gas plant was brought
        on-stream in September 2008 which will process gas from two very
        prolific wells in the Halfway formation which were previously tested
        at gross initial rates of 5 to 7 mmcf/d per well. Production will be
        limited between 2 to 3 mmcf/d due to sour processing capacity but we
        expect this property to produce very flat for some time. Additional
        locations have also been identified.

    -   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.

    Hedging Update

    -   Advantage maintains a hedging program to reduce cash flow volatility.
        For the fourth quarter of 2008, we have 65% of our net natural gas
        production hedged at an average AECO price of $7.64 Canadian per mcf.
        For the first quarter of 2009, we have 62% of our net natural gas
        production hedged at an average AECO price of $7.87 Canadian per mcf.

    -   For the full year 2009, natural gas hedges have been secured for
        approximately 37% of our net production at an average AECO price of
        $8.38 Canadian per mcf or equivalent to approximately NYMEX $8.60 US
        per mmbtu. Details on our hedging program are available on our
        website.

    Looking Forward

    -   Our 2008 annual guidance includes capital expenditures of $250
        million and production of 32,000 to 33,000 boe/d with a 63% weighting
        to natural gas. Royalty rates are estimated to range between 18% and
        20%. Operating costs are forecasted to be $13.40 to $13.90 per boe
        due to cost escalations resulting from the higher commodity price
        environment that has increased electrical power costs, third party
        processing fees and the cost of maintenance and services. We expect
        that costs should begin to moderate if a lower commodity price
        environment remains for a sustained period.

    -   Production at our Lookout Butte property in Southern Alberta was
        curtailed in August 2008 due to an extended third party facility
        outage at the Waterton gas plant where a significant modification
        project is underway. Estimates provided by the third party indicate
        their gas plant could be down until January 2009. Shut-in production
        at Lookout Butte is approximately 1,100 boe per day.

    -   Market valuations in the oil and gas sector have been significantly
        eroded due to credit concerns and reduced commodity prices stemming
        from slowing global economies. Our highly efficient and large
        conventional drilling inventory combined with the significant upside
        potential in our Montney natural gas resource play will provide the
        platform for Advantage to outperform as we persevere through this
        market cycle.

    -   Advantage's current 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. Advantage's significant tax pools of $1.7 billion affords
        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
November 13, 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 and nine months ended September 30, 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            Nine months ended
                     September 30                  September 30
                    2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Cash provided
     by operating
     activities   $115,521  $ 65,314       77%  $290,996  $165,766       76%
    Expenditures
     on asset
     retirement        344     1,128     (70)%     6,291     4,835       30%
    Changes in
     non-cash
     working
     capital       (22,520)   (4,097)     450%    (5,570)   20,023    (128)%
    -------------------------------------------------------------------------
    Funds from
     operations   $ 93,345  $ 62,345       50%  $291,717  $190,624       53%
    -------------------------------------------------------------------------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.

    OverviewThree months ended            Nine months ended
                     September 30                  September 30
                    2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Cash provided
     by operating
     activities
     ($000)       $115,521  $ 65,314       77%  $290,996  $165,766       76%
    Funds from
     operations
     ($000)       $ 93,345  $ 62,345       50%  $291,717  $190,624       53%
      per Trust
       Unit(1)    $   0.66  $   0.51       29%  $   2.08  $   1.64       27%

    (1) Based on Trust Units outstanding at each distribution record date.Cash provided by operating activities and funds from operations have
increased significantly as compared to 2007 due to considerably higher
revenue. The increased revenue has been primarily due to improved commodity
prices and higher production. Our financial results have benefited
substantially from the Sound Energy Trust ("Sound") acquisition, which closed
on September 5, 2007. The financial and operating results from the acquired
Sound properties are included in all 2008 figures but are only included in the
three and nine month periods ended September 30, 2007 effective from the
closing date. Funds from operations per Trust Unit have also increased
significantly, but not in the same proportion as funds from operations due to
the higher number of Trust Units outstanding for 2008. Trust Units outstanding
has increased due to Trust Units issued in exchange for the Sound acquisition
and our distribution reinvestment plan that allows Unitholders to purchase
Trust Units in exchange for their regular monthly distributions.
    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.

    DistributionsThree months ended            Nine months ended
                     September 30                  September 30
                    2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Distributions
     declared
     ($000)       $ 50,743  $ 55,017      (8)%  $151,128  $157,319      (4)%
      per Trust
       Unit(1)    $   0.36  $   0.45     (20)%  $   1.08  $   1.35     (20)%

    (1) Based on Trust Units outstanding at each distribution record date.Advantage's monthly distribution is currently $0.12 per Trust Unit and
has been at that level since December 2007. The monthly distribution for
January to November 2007 was $0.15 per Trust Unit. Commodity prices
strengthened in early 2008 providing strong support for the distribution level
and our 2008 capital program. However, commodity prices have recently softened
and we continue to closely monitor the future price outlook and potential
impact on our capital program and distribution level. To mitigate the risk
associated with lower commodity prices, we have entered into a number of
commodity derivative contracts.
    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.
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. Furthermore, 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. 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            Nine months ended
                     September 30                  September 30
    ($000)          2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Natural gas
     excluding
     hedging      $ 97,618  $ 60,022       63%  $303,299  $213,115       42%
    Realized
     hedging
     gains
     (losses)      (12,480)    7,687    (262)%   (21,631)   12,171    (278)%
    -------------------------------------------------------------------------
    Natural gas
     including
     hedging      $ 85,138  $ 67,709       26%  $281,668  $225,286       25%
    -------------------------------------------------------------------------
    Crude oil and
     NGLs
     excluding
     hedging      $119,000   $63,598       87%  $330,370  $164,908      100%
    Realized
     hedging
     gains
     (losses)       (8,754)     (477)   1,735%   (19,281)    1,213  (1,690)%
    -------------------------------------------------------------------------
    Crude oil and
     NGLs
     including
     hedging      $110,246  $ 63,121       75%  $311,089  $166,121       87%
    -------------------------------------------------------------------------
    Total revenue $195,384  $130,830       49%  $592,757  $391,407       51%
    -------------------------------------------------------------------------

    Revenues have increased significantly for 2008 due to additional
production, primarily from the Sound acquisition, as well as stronger
commodity prices. The higher revenue has been partially offset by our realized
hedging losses that have also resulted from the higher commodity prices
realized during the period. 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            Nine months ended
                     September 30                  September 30
                    2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Natural gas
     (mcf/d)       122,627   115,991        6%   123,611   113,104        9%
    Crude oil
     (bbls/d)        9,566     7,750       23%     9,576     7,308       31%
    NGLs (bbls/d)    2,414     2,264        7%     2,344     2,333        -%
    -------------------------------------------------------------------------
    Total (boe/d)   32,418    29,346       10%    32,522    28,492       14%
    -------------------------------------------------------------------------
    Natural gas (%)     63%       66%                 63%       66%
    Crude oil (%)       30%       26%                 29%       26%
    NGLs (%)             7%        8%                  8%        8%The Fund's total daily production averaged 32,418 boe/d for the three
months and 32,522 boe/d for the nine months ended September 30, 2008, an
increase of 10% and 14%, respectively. Production increases were realized
primarily due to the Sound acquisition and follow-up drilling results.
Production for the three months ended September 30, 2008 was higher than the
32,015 boe/d realized in the second quarter of 2008 demonstrating the Fund's
stable production platform and highly successful drilling program. Production
of 1,100 boe/d at our Lookout Butte property in Southern Alberta will continue
to be shut in during the fourth quarter by an extended third party facility
outage that began in August 2008 at the Waterton gas plant where a significant
modification project is underway. Original estimates provided by the third
party indicated a potential outage of approximately 55 to 75 days. However,
subsequent information now indicates that the plant will be down until January
2009. For 2008, we expect production to average approximately 32,000 to 33,000
boe/d, weighted 63% to natural gas.Commodity Prices and Marketing

    Natural Gas
                  Three months ended            Nine months ended
                     September 30                  September 30
    ($/mcf)         2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Realized
     natural gas
     prices
      Excluding
       hedging    $   8.65  $   5.62       54%  $   8.95  $   6.90       30%
      Including
       hedging    $   7.55  $   6.35       19%  $   8.32  $   7.30       14%
    AECO monthly
     index        $   9.27  $   5.62       65%  $   8.58  $   6.81       26%Realized natural gas prices, excluding hedging, were considerably higher
for the three and nine months ended September 30, 2008 compared to 2007 but
have decreased approximately 16% from the second quarter of 2008. The
2007/2008 winter season in North America caused inventory levels that had been
high prior to winter, to decline to approximately the five-year average. In
addition, reduced liquefied natural gas imports into the US and the slowdown
in natural gas drilling in Western Canada provided upward price support in the
first half of this year. However, during the third quarter of 2008, we have
seen a softening of natural gas prices with increased inventory levels from
higher US domestic natural gas production and the worldwide financial crisis
that appears to be pushing North America into a recession. We believe that
longer-term pricing fundamentals for natural gas will be supported due to: (i)
less liquefied natural gas imports to North America due to the higher natural
gas prices in other countries, (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            Nine months ended
                     September 30                  September 30
    ($/bbl)         2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Realized crude
     oil prices
      Excluding
       hedging    $ 112.35  $  70.22       60%  $ 104.52  $  64.60       62%
      Including
       hedging    $ 102.40  $  69.55       47%  $  97.17  $  65.21       49%
    Realized NGLs
     prices
      Excluding
       hedging    $  90.60  $  64.95       39%  $  87.37  $  56.55       55%
    Realized crude
     oil and NGL
     prices
      Excluding
       hedging    $ 107.96  $  69.03       56%  $ 101.15  $  62.65       61%
      Including
       hedging    $ 100.02  $  68.51       46%  $  95.24  $  63.11       51%
    WTI ($US/bbl) $ 118.13  $  75.33       57%  $ 113.38  $  66.22       71%
    $US/$Canadian
     exchange
     rate         $   0.96  $   0.96        -%  $   0.98  $   0.91        8%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. For the three and nine months ended
September 30, 2008, WTI increased 57% and 71%, respectively. Advantage's
realized crude oil price may not change to the same extent as WTI, due to
changes in the $US/$Canadian exchange rate, and changes in 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 reached historic high
levels in 2008 but has now declined to approximately US$55/bbl due to reduced
demand and the worldwide financial crisis that appears to be pushing North
America into a recession. The impact from this decrease in WTI will be
somewhat mitigated for Advantage due to the strengthening US dollar relative
to the Canadian dollar. Regardless of this significant volatility, 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 relative worldwide demand,
particularly in China and India 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. Currently, the Fund has fixed the
commodity price on anticipated production as follows:Approximate Production            Average
    Commodity             Hedged, Net of Royalties            Price
    -------------------------------------------------------------------------
    Natural gas - AECO

      October to December
       2008                           65%                  Cdn$7.64/mcf
      -----------------------------------------------------------------------
      Total 2008                      56%                  Cdn$7.52/mcf
      -----------------------------------------------------------------------
      January to March
       2009                           62%                  Cdn$7.87/mcf
      April to June 2009              29%                  Cdn$8.76/mcf
      July to September
       2009                           29%                  Cdn$8.76/mcf
      October to December
       2009                           29%                  Cdn$8.76/mcf
      -----------------------------------------------------------------------
      Total 2009                      37%                  Cdn$8.38/mcf
      -----------------------------------------------------------------------

    Crude Oil - WTI

      October to December
       2008                           49%                  Cdn$94.39/bbl
      -----------------------------------------------------------------------
      Total 2008                      40%                  Cdn$94.07/bbl
      -----------------------------------------------------------------------
      January to March
       2009                           34%                  Cdn$95.84/bblFor the nine month period ended September 30, 2008, we recognized in
income a realized derivative loss of $40.9 million on settled derivative
contracts (September 30, 2007 - $13.4 million realized derivative gain). As at
September 30, 2008, the fair value of derivative contracts remaining to be
settled was an approximate $7.0 million net asset (December 31, 2007 - $2.2
million net asset) resulting in the recognition of a $4.8 million unrealized
derivative gain for the nine months ended September 30, 2008 due to changes in
fair value since December 31, 2007. The valuation of the derivatives is the
estimated fair value to settle the contracts as at September 30, 2008 and is
based on pricing models, estimates, assumptions and market data available at
that time. As such, the unrealized 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. These fair values are extremely sensitive to assumptions
regarding forward commodity prices as demonstrated from our recognized $128.7
million unrealized derivative gain during the third quarter of 2008 as
commodity prices decreased and the $121.7 million net derivative liability
recognized at June 30, 2008 is now valued as a $7.0 million net asset. 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 outstanding derivative contracts will settle from October 2008 to
December 2009 corresponding to when Advantage will receive revenues from
production.Royalties

                  Three months ended            Nine months ended
                     September 30                  September 30
                    2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Royalties
     ($000)       $ 42,957  $ 22,601       90%  $123,011  $ 71,515       72%
      per boe     $  14.40  $   8.37       72%  $  13.80  $   9.19       50%
    As a
     percentage
     of revenue,
     excluding
     hedging          19.8%     18.3%     1.5%      19.4%     18.9%     0.5%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 due to the increase in revenue from higher production and commodity
prices. Royalties as a percentage of revenue, excluding hedging, have
increased as higher prices generally attract a higher royalty rate. Royalty
rates are dependent on prices and individual well production levels such that
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 18% to 20% for the remainder of 2008 given the current
environment.Operating Costs

                  Three months ended            Nine months ended
                     September 30                  September 30
                    2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Operating
     costs ($000) $ 41,229  $ 30,790       34%  $121,418  $ 87,979       38%
      per boe     $  13.82  $  11.40       21%  $  13.63  $  11.31       21%Total operating costs increased 34% for the three months and 38% for the
nine months ended September 30, 2008 as compared to 2007, mainly due to
increased production from the Sound acquisition, which closed September 5,
2007. Total operating costs for the three months ended September 30, 2008 was
slightly up from $39.9 million incurred in the three months ended June 30,
2008. Operating costs per boe increased 21% for both the three and nine months
ended September 30, 2008 but was comparable to the $13.70 realized during the
second quarter of 2008. Operating costs have increased from 2007 due to cold
weather conditions and higher power costs in the first half of 2008, lower
production volumes resulting from several third party facility turnaround
maintenance outages in the second and third quarter of 2008, a higher
percentage of oil properties which incur higher operating costs than gas
properties, and escalating costs including chemicals, gas processing fees, and
transportation. We will continue to be opportunistic and proactive in pursuing
optimization initiatives that will improve our operating cost structure. We
expect that operating costs per boe will be in the range of $13.40 to $13.90
for the remainder of the 2008 year.General and Administrative

                  Three months ended            Nine months ended
                     September 30                  September 30
                    2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    General and
     administrative
     expense
     ($000)       $  6,300  $  4,699       34%  $ 19,295  $ 14,276       35%
      per boe     $   2.11  $   1.74       21%  $   2.17  $   1.84       18%
    Employees at
     September 30                                    170       171      (1)%

    Total general and administrative ("G&A") expense has increased 34% and 35%
for the three and nine months ended September 30, 2008. The higher total G&A
expense has been primarily due to an increase in average staff levels that
have resulted from the Sound acquisition, general growth of the Fund, and a
one-time payment to terminate an office lease that occurred in the first
quarter of 2008.

    Management Internalization

                  Three months ended            Nine months ended
                     September 30                  September 30
                    2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Management
     internalization
     ($000)       $  1,021  $  2,455     (58)%  $  5,951  $ 13,174     (55)%
      per boe     $   0.35  $   0.91     (62)%  $   0.67  $   1.69     (60)%In 2006, the Fund and Advantage Investment Management Ltd. (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 three and nine
months ended September 30, 2008 as one third vested and was paid in June 2007
with an additional one third vested and paid in June 2008.Interest

                  Three months ended            Nine months ended
                     September 30                  September 30
                    2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Interest
     expense
     ($000)       $  6,579  $  6,242        5%  $ 21,463  $ 16,434       31%
      per boe     $   2.21  $   2.31      (4)%  $   2.41  $   2.11       14%
    Average
     effective
     interest rate     4.8%      5.9%   (1.1)%       5.2%      5.6%   (0.4)%
    Bank
     indebtedness
     at
     September 30
     ($000)                                     $540,078  $521,144        4%Total interest expense has increased as compared to 2007 primarily due to
the additional debt assumed by the Fund from the Sound acquisition on
September 5, 2007. However, interest expense per boe for the third quarter of
2008 has decreased as compared to the second quarter of 2008 and the third
quarter of 2007 due to the lower effective interest rate on a reduced average
debt level. 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 5.2% for the nine months ended September 30,
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            Nine months ended
                     September 30                  September 30
                    2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Interest on
     convertible
     debentures
     ($000)       $  4,156  $  3,910        6%  $ 12,547  $ 10,441       20%
      per boe     $   1.39  $   1.45      (4)%  $   1.41  $   1.34        5%
    Accretion on
     convertible
     debentures
     ($000)       $    712  $    644       11%  $  2,152  $  1,848       16%
      per boe     $   0.24  $   0.24        -%  $   0.24  $   0.24        -%
    Convertible
     debentures
     maturity
     value at
     September 30
     ($000)                                     $219,195  $281,273     (22)%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 partially offset by the maturation of both the
10% convertible debentures with a face value of $1.4 million on November 1,
2007 and the 9% convertible debentures with a face value of $5.4 million on
August 1, 2008. The interest per boe for the third quarter of 2008 is now
slightly lower as compared to prior periods as our convertible debentures
outstanding have decreased relative to our level of production.Depletion, Depreciation and Accretion

                  Three months ended            Nine months ended
                     September 30                  September 30
                    2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Depletion,
     depreciation
     and accretion
     ($000)       $ 78,420  $ 68,743       14%  $230,004  $194,026       19%
      per boe     $  26.29  $  25.46        3%  $  25.81  $  24.94        3%Depletion and depreciation of property and equipment is provided on the
"unit-of-production" method based on total proved reserves. The depletion,
depreciation and accretion ("DD&A") provision has increased in total due to
the increase in production and fixed assets in comparison to the three and
nine months ended September 30, 2007, mainly attributed to the Sound
acquisition. The slight increase in the DD&A rates per boe compared to the
prior year is due to high capital expenditures in 2008 and the higher value
assigned to the Sound acquisition than accumulated from prior development
activities.

    Taxes

    Current taxes paid or payable for the quarter ended September 30, 2008
amounted to $0.8 million, as compared to the $0.4 million expensed for the
same period of 2007. 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 September 30,
2008, the Fund recorded a future income tax expense of $28.4 million. The
expense is primarily due to the change in the net derivative liability
position of $121.7 million as at June 30, 2008 to a net derivative asset
position of $7.0 million as at September 30, 2008.
    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.
    On July 14, 2008, the Department of Finance released draft legislative
proposals to facilitate the conversion of SIFT trusts into corporations. In
general, the rules are meant to ensure that existing SIFTs can choose to
reorganize as corporations on a tax efficient basis without undue tax effects
for unitholders and the SIFT trust. It is expected that the draft legislative
proposals will form part of a bill to be introduced into Parliament later in
2008. Management continues to review the impact of the SIFT tax on its
business strategy and the Fund's organizational structure.Net Income (Loss)

                  Three months ended             Nine months ended
                     September 30                  September 30
                    2008      2007    % change    2008      2007    % change
    -------------------------------------------------------------------------
    Net income
     (loss)
     ($000)       $113,391  $(26,202)   (533)%  $ 74,900  $(21,330)   (451)%
      per Trust
       Unit
        - Basic   $   0.81  $  (0.22)   (468)%  $   0.54  $  (0.19)   (384)%
        - Diluted $   0.79  $  (0.22)   (459)%  $   0.54  $  (0.19)   (384)%Advantage has experienced significant net income for 2008 as compared to
2007 and has exceeded all prior years. Higher production and commodity prices
in the three and nine months ended September 30, 2008 resulted in considerable
increased revenue. Also, net income for the third quarter of 2008 was
particularly high as a result of a $128.7 million unrealized gain on
derivatives. The unrealized gain on derivatives is due to depressed forward
commodity prices as compared to prices as at June 30, 2008. The unrealized
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 October 2008 to
December 2009 corresponding to when Advantage will receive revenues from
production.Cash Netbacks

                                                Three months ended
                                                   September 30
                                             2008                2007
                                        $000     per boe    $000     per boe
    -------------------------------------------------------------------------
    Revenue                           $216,618  $  72.63  $123,620  $  45.79
    Realized gain (loss) on
     derivatives                       (21,234)    (7.12)    7,210      2.67
    Royalties                          (42,957)   (14.40)  (22,601)    (8.37)
    Operating costs                    (41,229)   (13.82)  (30,790)   (11.40)
    -------------------------------------------------------------------------
    Operating                         $111,198  $  37.29  $ 77,439  $  28.69
    General and administrative(1)       (6,300)    (2.11)   (4,543)    (1.68)
    Interest                            (6,579)    (2.21)   (6,242)    (2.31)
    Interest on convertible
     debentures(1)                      (4,156)    (1.39)   (3,910)    (1.45)
    Income and capital taxes              (818)    (0.27)     (399)    (0.15)
    -------------------------------------------------------------------------
    Funds from operations             $ 93,345  $  31.31  $ 62,345  $  23.10
    -------------------------------------------------------------------------


                                                Nine months ended
                                                   September 30
                                             2008                2007
                                        $000     per boe    $000     per boe
    -------------------------------------------------------------------------
    Revenue                           $633,669  $  71.11  $378,023  $  48.60
    Realized gain (loss) on
     derivatives                       (40,912)    (4.59)   13,384      1.72
    Royalties                         (123,011)   (13.80)  (71,515)    (9.19)
    Operating costs                   (121,418)   (13.63)  (87,979)   (11.31)
    -------------------------------------------------------------------------
    Operating                         $348,328  $  39.09  $231,913  $  29.82
    General and administrative(1)      (20,224)    (2.27)  (13,491)    (1.73)
    Interest                           (21,463)    (2.41)  (16,434)    (2.11)
    Interest on convertible
     debentures(1)                     (12,547)    (1.41)  (10,441)    (1.34)
    Income and capital taxes            (2,377)    (0.27)     (923)    (0.12)
    -------------------------------------------------------------------------
    Funds from operations             $291,717  $  32.73  $190,624  $  24.52
    -------------------------------------------------------------------------
    (1) General and administrative expense excludes non-cash unit-based
        compensation expense. Interest on convertible debentures excludes
        non-cash accretion expense.Funds from operations of Advantage increased for both the three and nine
months ended September 30, 2008, compared to corresponding periods in 2007,
due primarily to additional production from the Sound acquisition and higher
commodity prices. Cash netbacks per boe are also higher due to stronger
realized commodity prices. Increased cash netbacks were partially offset by
realized losses on derivatives, and increased operating expenses and
royalties. Realized hedging losses resulted from the higher commodity price
environment as the Fund entered derivative contracts to lessen commodity price
fluctuations, which can positively or negatively impact cash flows and
resulting distributions. Operating costs have steadily increased over the past
year due to significantly higher field costs associated with supplies and
services, an overall industry labour cost increase, and higher relative
operating costs from the Sound acquisition. Specific to the Fund, we have
experienced production outages caused by weather and turnaround shut-downs in
2008 and a higher percentage of oil properties which incur higher operating
costs than gas properties. Royalties have increased as would be expected since
they are generally based on current 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           $ 11.2  $  0.9  $  3.8  $  3.9  $  1.5  $  1.1
    Capital leases               6.6     0.4     2.1     2.2     1.9       -
    Pipeline/transportation      5.6     1.1     3.2     1.0     0.3       -
    Convertible debentures(1)  219.2       -    87.0    69.9    62.3       -
    -------------------------------------------------------------------------
    Total contractual
     obligations              $242.6  $  2.4  $ 96.1  $ 77.0  $ 66.0  $  1.1
    -------------------------------------------------------------------------
    (1) As at September 30, 2008, Advantage had $219.2 million convertible
        debentures outstanding (excluding interest payable during the various
        debenture terms). Each series of convertible debentures are
        convertible to Trust Units based on an established conversion price.
        All remaining obligations related to convertible debentures have the
        option to be settled through the issuance of Trust Units.

    (2) Bank indebtedness of $540.1 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)                 September 30, 2008
    -------------------------------------------------------------------------
    Bank indebtedness (long-term)                                 $  540,078
    Working capital deficit(1)                                        72,928
    -------------------------------------------------------------------------
    Net debt                                                      $  613,006
    -------------------------------------------------------------------------
    Trust Units outstanding (000)                                    141,333
    Trust Units closing market price ($/Trust Unit)               $     9.86
    -------------------------------------------------------------------------
    Market value                                                  $1,393,543
    -------------------------------------------------------------------------
    Convertible debentures maturity value (long-term)             $  184,489
    Capital lease obligation (long term)                          $    4,680
    -------------------------------------------------------------------------
    Total capitalization                                          $2,195,718
    -------------------------------------------------------------------------

    (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.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 the obligations can be settled 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, adjusting the amount of
monthly distributions, suspending or renewing its distribution reinvestment
plan, adjusting capital spending, or disposing of non-core assets. The capital
structure is reviewed by Management and the Board of Directors on an ongoing
basis.
    In recent months, global markets have experienced a significant downturn
due to the ongoing worldwide financial crisis. This situation has
significantly impacted the ability to raise capital and appears to be pushing
North America towards a potential recession. Despite this situation, the Fund
continues to generate funds from operations sufficient to meet our current
monthly distribution, and maintain our planned capital program and fund
further expenditures. 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. This continual financial assessment process further
enables the Fund to mitigate risks. The Fund continues to satisfy all
liabilities and commitments as they come due. We have an established $710
million credit facility agreement with a syndicate of financial institutions;
the balance of which utilized at September 30, 2008 was only $540 million.
This facility was just renewed in June 2008 and is not subject for another
renewal until June 2009. The Fund additionally has several convertible
debentures that will mature in 2009, but we have the right to settle such
obligations though the issuance of Trust Units. The Fund remains committed to
its current capital expenditure budget of $250 million for fiscal 2008 as it
is important to bring on additional production to offset natural reserve
declines and to grow the Fund. However, we will continually monitor our
capital expenditures program and make adjustments as needed in order to remain
self-sufficient within our funds from operations through the foreseeable
future.
    The current economic situation has also placed additional pressure on
commodity prices. Crude oil has dropped from a historic high to approximately
US$55/bbl. The impact from this decrease in WTI will be somewhat mitigated for
Advantage due to the strengthening US dollar relative to the Canadian dollar.
Natural gas prices that have been improving this year after a couple of years
of continued weakness, have started to decline once again due to the economic
situation as well as increased inventory levels from strong injections. The
net effect for the Fund from prolonged weak commodity prices would be
reductions in operating netbacks and funds from operations. This risk has been
somewhat mitigated through our commodity hedging program.
    To summarize, we implemented a strategy for 2008 to maximize self
sufficiency such that funds from operations will satisfy our distribution,
capital program and other expenditure requirements. We executed a hedging
program to help protect our funds from operations. Advantage has additional
available capital through our credit facility to finance future business
activities and we do not anticipate any problems meeting obligations. As a
result, we feel that Advantage has implemented adequate strategies to protect
our business as much as possible in this environment. However, as with all
companies, we are still exposed to risks as a result of the current economic
situation and the potential duration. We continue to closely monitor the
possible impact on our business and strategy, and will make adjustments as
necessary with prudent management.

    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 September 30, 2008, the Fund had 141.3 million Trust Units
outstanding. During the nine months ended September 30, 2008, 2,918,047 Trust
Units were issued as a result of the Premium Distribution™, Distribution
Reinvestment and Optional Trust Unit Purchase Plan (the "Plan"), generating
$30.7 million reinvested in the Fund and representing an approximate 20%
participation rate (for nine months ended September 30, 2007, 2,862,545 Trust
Units were issued under the Plan, generating $34.3 million reinvested in the
Fund). As at November 13, 2008, Advantage had 141.8 million Trust Units issued
and outstanding.
    At September 30, 2008, the Fund had $219.2 million convertible debentures
outstanding that were immediately convertible to 9.5 million Trust Units based
on the applicable conversion prices (December 31, 2007 - $224.6 million
outstanding and convertible to 9.8 million Trust Units). During the nine
months ended September 30, 2008, $25,000 debentures were converted resulting
in the issuance of 1,001 Trust Units and the 9.00% debentures matured on
August 1, 2008, resulting in a cash payment of $5,392,000 to the debenture
holders. As at November 13, 2008, the convertible debentures outstanding have
not changed from September 30, 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.
In 2008, all remaining 150,000 outstanding rights were exercised at $8.60 per
right for total cash proceeds of $1,290,000.

    Bank Indebtedness, Credit Facility and Other Obligations

    At September 30, 2008, Advantage had bank indebtedness outstanding of
$540.1 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
collateralized 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. As well, the borrowing base for the Fund's credit
facilities is determined through utilizing our 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. In June 2008, the Fund
renewed its credit facilities for a further year with the next annual review
scheduled to occur in June 2009.
    Advantage had a working capital deficiency of $72.9 million as at
September 30, 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 September 30, 2008 is $6.0 million, bearing interest at effective rates
ranging from 5.5% to 6.7%, and is collateralized by the related equipment. The
leases expire at dates ranging from December 2009 to August 2010.Capital Expenditures

                                      Three months ended   Nine months ended
                                         September 30        September 30
    ($000)                              2008      2007      2008      2007
    -------------------------------------------------------------------------
    Land and seismic                  $  5,312  $    221  $  9,493  $  4,142
    Drilling, completions
     and workovers                      44,017    22,156    90,186    64,766
    Well equipping and facilities       18,198     9,751    55,774    38,325
    Other                                  217       290       826       559
    -------------------------------------------------------------------------
                                      $ 67,744  $ 32,418  $156,279  $107,792
    Acquisition of Sound Energy Trust        -    22,374         -    22,374
    Property acquisitions                7,621         -     7,621    12,851
    Property dispositions                    -         -       (91)     (427)
    -------------------------------------------------------------------------
    Total capital expenditures        $ 75,365  $ 54,792  $163,809  $142,590
    -------------------------------------------------------------------------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 September 30, 2008, the Fund spent a net
$75.4 million. The majority of the capital expenditures for this quarter
related to completions, tie-ins and the addition of new facilities related to
bringing production on-stream. A complimentary acquisition of $7.6 million was
closed in September that increased our working interest ownership and drilling
inventory in the Horseshoe Canyon coal bed methane lands at Nevis. Total
capital spending in the quarter included $24.8 million at Glacier, $24.2
million at Nevis, $2.7 million at Chip Lake, and $2.1 million at Willesden
Green.
    On October 6, 2008, the Board of Directors approved an increase of $50.0
million to the 2008 capital expenditures budget, bringing the 2008 total
capital expenditure budget to $250.0 million. The increased capital spending
will be primarily directed towards drilling, infrastructure and strategic
investments in our Montney natural gas resource play at Glacier in Northwest
Alberta.

    Sources and Uses of Funds

    The following table summarizes the various funding requirements during
the nine months ended September 30, 2008 and 2007 and the sources of funding
to meet those requirements:Nine months ended
                                                             September 30
    ($000)                                                  2008      2007
    -------------------------------------------------------------------------
    Sources of funds
      Funds from operations                               $291,717  $190,624
      Decrease in working capital                           11,203         -
      Units issued, net of costs                             1,248   104,240
      Property dispositions                                     91       427
      Increase in bank indebtedness                              -     2,611
    -------------------------------------------------------------------------
                                                          $304,259  $297,902
    -------------------------------------------------------------------------
    Uses of funds
      Expenditures on property and equipment              $156,279  $107,792
      Distributions to Unitholders                         120,108   121,900
      Property acquisitions                                  7,621    12,851
      Decrease in bank indebtedness                          7,348         -
      Expenditures on asset retirement                       6,291     4,835
      Convertible debentures repayment                       5,392         -
      Reduction of capital lease obligations                 1,220     2,584
      Increase in working capital                                -    25,566
      Acquisition of Sound Energy Trust                          -    22,374
    -------------------------------------------------------------------------
                                                          $304,259  $297,902
    -------------------------------------------------------------------------The Fund generated significantly higher funds from operations during the
first nine months of 2008 compared to 2007 due to higher production levels and
a stronger commodity price environment. As a result, the Fund has been able to
adequately finance its capital expenditures and distributions to Unitholders
while modestly reducing our debt level. However, given the recent global
financial crisis, economic concerns and softening commodity prices, we will be
closely monitoring our future sources and uses of funds.Quarterly Performance

                                               2008                    2007
    ($000, except as
     otherwise indicated)           Q3          Q2          Q1          Q4
    -------------------------------------------------------------------------
    Daily production
      Natural gas (mcf/d)        122,627     123,104     125,113     128,556
      Crude oil and NGLs
       (bbls/d)                   11,980      11,498      12,281      12,895
      Total (boe/d)               32,418      32,015      33,133      34,321
    Average prices
      Natural gas ($/mcf)
        Excluding hedging      $    8.65   $   10.33   $    7.90   $    6.23
        Including hedging      $    7.55   $    9.18   $    8.23   $    6.97
        AECO monthly index     $    9.27   $    9.35   $    7.13   $    6.00
      Crude oil and NGLs
       ($/bbl)
        Excluding hedging      $  107.96   $  110.15   $   85.99   $   73.40
        Including hedging      $  100.02   $  101.34   $   84.83   $   70.40
        WTI ($US/bbl)          $  118.13   $  124.00   $   97.96   $   90.63
    Total revenues (before
     royalties)                $ 195,384   $ 208,868   $ 188,505   $ 165,951
    Net income (loss)          $ 141,813   $ (14,369)  $ (24,122)  $  13,795
      per Trust Unit
       - basic                 $    1.01   $   (0.10)  $   (0.18)  $    0.10
       - diluted               $    0.98   $   (0.10)  $   (0.18)  $    0.10
    Funds from operations      $  93,345   $ 103,754   $  94,618   $  80,519
    Distributions declared     $  50,743   $  50,364   $  50,021   $  57,875


                                               2007                    2006
    ($000, except as
     otherwise indicated)           Q3          Q2          Q1          Q4
    -------------------------------------------------------------------------
    Daily production
      Natural gas (mcf/d)        115,991     108,978     114,324     117,134
      Crude oil and NGLs
       (bbls/d)                   10,014       8,952       9,958       9,570
      Total (boe/d)               29,346      27,115      29,012      29,092
    Average prices
      Natural gas ($/mcf)
        Excluding hedging      $    5.62   $    7.54   $    7.61   $    6.90
        Including hedging      $    6.35   $    7.52   $    8.06   $    7.27
        AECO monthly index     $    5.62   $    7.37   $    7.46   $    6.36
      Crude oil and NGLs
       ($/bbl)
        Excluding hedging      $   69.03   $   61.84   $   56.84   $   54.58
        Including hedging      $   68.51   $   61.93   $   58.64   $   55.86
        WTI ($US/bbl)          $   75.33   $   65.02   $   58.12   $   60.21
    Total revenues (before
     royalties)                $ 130,830   $ 125,075   $ 135,502   $ 127,539
    Net income (loss)          $ (26,202)  $   4,531   $     341   $   8,736
      per Trust Unit
       - basic                 $   (0.22)  $    0.04   $    0.00   $    0.08
       - diluted               $   (0.22)  $    0.04   $    0.00   $    0.08
    Funds from operations      $  62,345   $  62,634   $  65,645   $  62,737
    Distributions declared     $  55,017   $  52,096   $  50,206   $  58,791The table above highlights the Fund's performance for the third quarter
of 2008 and also for the preceding seven quarters. Production during the
2006/2007 winter was consistent until we experienced a decrease in the second
quarter of 2007 due to several facility turnarounds at that time. The Sound
acquisition closed on September 5, 2007, and significantly increased
production for the third and fourth quarters of 2007. Production has gradually
decreased through the first half of 2008 due to natural declines, wet and cold
weather delays, and facility turnarounds. Production leveled off and increased
modestly in the third quarter of 2008 as new wells were brought on production
and facility turnarounds were completed. Financial results, particularly
revenues and funds from operations, have increased through to the second
quarter of 2008, as both commodity prices and production steadily increased
over that timeframe. However, revenues and funds from operations slightly
declined in the third quarter of 2008, as commodity prices have weakened. We
experienced a net loss in the third quarter of 2007 due to a significant drop
in natural gas prices realized at that time, amortization of the management
internalization consideration and increased depletion and depreciation
expense. Net income increased in the fourth quarter of 2007 due to the full
integration of the Sound acquisition and moderately improved commodity prices.
Net losses were realized in the first and second quarters of 2008, primarily
as a result of significant unrealized losses on commodity derivative contracts
for future periods. Commodity price declines in the third quarter of 2008 gave
rise to significant unrealized gains on these same derivative contracts, and
in turn the Fund reported record high net income.

    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 unrealized 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.

    International Financial Reporting Standards ("IFRS")

    In February 2008, the Accounting Standards Board of the Canadian
Institute of Chartered Accountants confirmed that publicly accountable
entities will be required to adopt IFRS effective January 1, 2011, including
preparation of comparative financial information. Management is currently
evaluating the effects of adopting IFRS on its financial statements and is in
the planning stage, including assessment and evaluation of key differences
between Canadian GAAP and IFRS. Upon completion of this initial diagnosis
stage, we will be organizing a detailed project plan to ensure all accounting
differences are dealt with and implemented in a timely manner such that
Advantage's financial statements are prepared in accordance with IFRS by the
required deadline.

    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 nine
months ended September 30, 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 for the remainder of the year, 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 and 2008. 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
33,000 boe/d. Advantage's 2008 capital expenditures budget was originally $145
million to drill approximately 143 gross (88 net) wells. On June 27, 2008, the
Board approved an increase of $55 million to the capital budget, bringing the
2008 total capital budget to $200 million. On October 6, 2008, the Board
approved a subsequent increase of $50 million which will bring the 2008 total
capital budget to $250 million. The additional capital spending will be
directed primarily towards the Montney natural gas resource play at Glacier in
Northwest Alberta. During the first quarter of 2008, the Fund drilled five
vertical delineation wells in the Glacier property which helped confirm
geological formations, reservoir productivity and pool continuity. Additional
activity will be pursued during the balance of 2008 to further define longer
term development plans. The Glacier property is accessible through most of the
year and three rigs commenced additional drilling in July. Further investment
will be made towards infrastructure and strategic positioning.
    Operating costs on an annual basis are expected to range between $13.40
and $13.90 per boe. Industry supply, servicing and maintenance costs have
increased during the first nine months of 2008 driven primarily from higher
crude oil and natural gas prices. In particular, we have seen significant
increases from electrical power costs, processing fees, steel and chemicals.
We expect that costs should begin to moderate if a lower commodity price
environment remains for a sustained period.
    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. Royalty rates will be commodity price sensitive and
dependent on individual well productivity. Advantage has a significant number
of lower rate wells producing within our long life Alberta properties. We also
have 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. If the current higher price commodity
environment were to continue, we would expect our future royalty rates to be
higher than what we have historically experienced under the current royalty
regime. We anticipate our royalty rates will range from 18% to 20% for the
2008 year.
    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. Hedging has been completed for 2008 and 2009 to stabilize cash
flows by reducing the volatility in realized commodity prices. Approximately
65% of our natural gas production, net of royalties, is hedged for the fourth
quarter of 2008 at an average price of $7.64 Canadian per mcf. Advantage has
also hedged 49% of its fourth quarter 2008 crude oil production, net of
royalties, at an average price of $94.39 Canadian per bbl. For the first
quarter of 2009, we have 62% of our natural gas production hedged at $7.87
Canadian per mcf. For the calendar year 2009, we have 37% hedged at $8.38
Canadian per mcf.
    Advantage will continue to follow its strategy of acquiring properties
that provide highly economic development opportunities to enhance long-term
cash flow. Advantage will also continue to focus on efficient 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.

    November 13, 2008CONSOLIDATED FINANCIAL STATEMENTS

    Consolidated Balance Sheets

                                                  September 30,  December 31,
    (thousands of dollars)                                2008          2007
    -------------------------------------------------------------------------
                                                    (unaudited)
    Assets
    Current assets
      Accounts receivable                          $    97,093   $    95,474
      Prepaid expenses and deposits                     18,333        21,988
      Derivative asset (note 10)                        14,064         7,027
    -------------------------------------------------------------------------
                                                       129,490       124,489
    Derivative asset (note 10)                           1,209           174
    Fixed assets (note 3)                            2,124,454     2,177,346
    Goodwill                                           120,271       120,271
    -------------------------------------------------------------------------
                                                   $ 2,375,424   $ 2,422,280
    -------------------------------------------------------------------------

    Liabilities
    Current liabilities
      Accounts payable and accrued liabilities     $   135,658   $   122,087
      Distributions payable to Unitholders              16,960        16,592
      Current portion of capital lease
       obligations (note 4)                              1,290         1,537
      Current portion of convertible
       debentures (note 5)                              34,446         5,333
      Derivative liability (note 10)                     8,248         2,242
    -------------------------------------------------------------------------
                                                       196,602       147,791
    Derivative liability (note 10)                           8         2,778
    Capital lease obligations (note 4)                   4,680         5,653
    Bank indebtedness (note 6)                         540,078       547,426
    Convertible debentures (note 5)                    179,825       212,203
    Asset retirement obligations (note 7)               63,770        60,835
    Future income taxes                                 51,105        66,727
    -------------------------------------------------------------------------
                                                     1,036,068     1,043,413
    -------------------------------------------------------------------------

    Unitholders' Equity
    Unitholders' capital (note 8)                    2,065,729     2,027,065
    Convertible debentures equity component
     (note 5)                                            9,403         9,632
    Contributed surplus (note 8)                           287         2,005
    Accumulated deficit (note 9)                      (736,063)     (659,835)
    -------------------------------------------------------------------------
                                                     1,339,356     1,378,867
    -------------------------------------------------------------------------
                                                   $ 2,375,424   $ 2,422,280
    -------------------------------------------------------------------------
    Commitments (note 12)

    see accompanying Notes to Consolidated Financial Statements



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

    (thousands of dollars,        Three months ended       Nine months ended
     except for per Trust       Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
     Unit amounts) (unaudited)      2008        2007        2008        2007
    -------------------------------------------------------------------------
    Revenue
      Petroleum and natural
       gas                    $  216,618  $  123,620  $  633,669  $  378,023
      Realized gain (loss) on
       derivatives (note 10)     (21,234)      7,210     (40,912)     13,384
      Unrealized gain (loss)
       on derivatives (note 10)  128,718         (53)      4,836      (1,956)
      Royalties                  (42,957)    (22,601)   (123,011)    (71,515)
    -------------------------------------------------------------------------
                                 281,145     108,176     474,582     317,936
    -------------------------------------------------------------------------

    Expenses
      Operating                   41,229      30,790     121,418      87,979
      General and administrative   6,300       4,699      19,295      14,276
      Management internalization
       (note 8)                    1,118       2,455       6,048      13,174
      Interest                     6,579       6,242      21,463      16,434
      Interest and accretion on
       convertible debentures      4,868       4,554      14,699      12,289
      Depletion, depreciation
       and accretion              78,420      68,743     230,004     194,026
    -------------------------------------------------------------------------
                                 138,514     117,483     412,927     338,178
    -------------------------------------------------------------------------
    Income (loss) before taxes   142,631      (9,307)     61,655     (20,242)
    Future income tax expense
     (reduction)                  28,422      16,496     (15,622)        165
    Income and capital taxes         818         399       2,377         923
    -------------------------------------------------------------------------
                                  29,240      16,895     (13,245)      1,088
    -------------------------------------------------------------------------
    Net income (loss) and
     comprehensive income
     (loss)                      113,391     (26,202)     74,900     (21,330)
    Accumulated deficit,
     beginning of period        (798,711)   (534,536)   (659,835)   (437,106)
    Distributions declared       (50,743)    (55,017)   (151,128)   (157,319)
    -------------------------------------------------------------------------
    Accumulated deficit,
     end of period            $ (736,063) $ (615,755) $ (736,063) $ (615,755)
    -------------------------------------------------------------------------
    Net income (loss) per
     Trust Unit (note 8)
      Basic                   $     0.81  $    (0.22) $     0.54  $    (0.19)
      Diluted                 $     0.79  $    (0.22) $     0.54  $    (0.19)
    -------------------------------------------------------------------------

    see accompanying Notes to Consolidated Financial Statements



    Consolidated Statements of Cash Flows

                                  Three months ended       Nine months ended
    (thousands of dollars)      Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
     (unaudited)                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Operating Activities
    Net income (loss)         $  113,391  $  (26,202) $   74,900  $  (21,330)
    Add (deduct) items not
     requiring cash:
      Unrealized loss (gain)
       on derivatives           (128,718)         53      (4,836)      1,956
      Unit-based compensation          -         156        (929)        785
      Management
       internalization             1,118       2,455       6,048      13,174
      Accretion on
       convertible debentures        712         644       2,152       1,848
      Depletion, depreciation
       and accretion              78,420      68,743     230,004     194,026
      Future income taxes         28,422      16,496     (15,622)        165
    Expenditures on asset
     retirement                     (344)     (1,128)     (6,291)     (4,835)
    Changes in non-cash
     working capital              22,520       4,097       5,570     (20,023)
    -------------------------------------------------------------------------
    Cash provided by
     operating activities        115,521      65,314     290,996     165,766
    -------------------------------------------------------------------------
    Financing Activities
    Units issued, net of
     costs (note 8)                  323        (246)      1,248     104,240
    Increase (decrease) in
     bank indebtedness            (7,868)     35,373      (7,348)      2,611
    Convertible debenture
     repayment                    (5,392)          -      (5,392)          -
    Reduction of capital
     lease obligations              (308)       (514)     (1,220)     (2,584)
    Distributions to
     Unitholders                 (39,476)    (42,595)   (120,108)   (121,900)
    -------------------------------------------------------------------------
    Cash used in financing
     activities                  (52,721)     (7,982)   (132,820)    (17,633)
    -------------------------------------------------------------------------
    Investing Activities
    Expenditures on property
     and equipment               (67,744)    (32,418)   (156,279)   (107,792)
    Property acquisitions         (7,621)          -      (7,621)    (12,851)
    Property dispositions              -           -          91         427
    Acquisition of Sound
     Energy Trust                      -     (22,374)          -     (22,374)
    Changes in non-cash
     working capital              12,565      (2,540)      5,633      (5,543)
    -------------------------------------------------------------------------
    Cash used in investing
     activities                  (62,800)    (57,332)   (158,176)   (148,133)
    -------------------------------------------------------------------------
    Net change in cash                 -           -           -           -
    Cash, beginning of period          -           -           -           -
    -------------------------------------------------------------------------
    Cash, end of period       $        -  $        -  $        -  $        -
    -------------------------------------------------------------------------

    Supplementary Cash Flow
     Information
      Interest paid           $   12,497  $    6,977  $   31,076  $   24,153
      Taxes paid              $      621  $      244  $    1,413  $    1,074

    see accompanying Notes to Consolidated Financial Statements



                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

    September 30, 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

        Effective 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 11). 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.

        (c) Recent accounting changes not implemented

            (i) Goodwill and intangible assets

            In February 2008, the CICA issued Section 3064, Goodwill and
            Intangible Assets, replacing Section 3062, Goodwill and Other
            Intangible Assets and Section 3450, Research and Development
            Costs. The new Section will become effective January 1, 2009.
            Management has evaluated the new Section and there will be no
            impact for the financial statements of the Fund. The only
            applicable item for the Fund is goodwill, and the standards
            concerning goodwill are unchanged from the prior standard.

            (ii) International Financial Reporting Standards ("IFRS")

            In February 2008, the CICA Accounting Standards Board confirmed
            that IFRS will replace Canadian GAAP effective January 1, 2011
            for publicly accountable enterprises. Management is currently
            evaluating the effects of all current and pending pronouncements
            of the International Accounting Standards Board on the financial
            statements of the Fund, and is developing a plan for
            implementation.

    2.  Sound Energy Trust Acquisition

        On September 5, 2007, Advantage acquired all of the issued and
        outstanding Trust Units and Exchangeable Shares of Sound Energy Trust
        ("Sound") for $21.4 million cash consideration, 16,977,184 Advantage
        Trust Units and $0.9 million of acquisition costs. Sound Unitholders
        and Exchangeable Shareholders could elect to receive 0.30 Advantage
        Trust Units for each Sound Trust Unit or receive $0.66 in cash and
        0.2557 Advantage Trust Units for each Sound Trust Unit. All of the
        Sound Exchangeable Shares were exchanged for Advantage Trust Units on
        the same ratio as the Sound Trust Units based on the conversion ratio
        in effect at the effective date of the acquisition. Sound was an
        energy trust engaged in the development, acquisition and production
        of natural gas and crude oil in western Canada. The acquisition is
        being accounted for using the "purchase method" with the results of
        operations included in the consolidated financial statements as of
        the closing date of the acquisition.

        The purchase price has been allocated as follows:

        Net assets acquired and             Consideration:
         liabilities assumed:

        Fixed assets           $ 514,060    16,977,184 Trust
        Accounts receivable       27,656     Units issued          $ 228,852
        Prepaid expenses and                Cash                      21,403
         deposits                  3,873    Acquisition costs
        Derivative asset, net      2,797     incurred                    904
        Bank indebtedness       (107,959)                         -----------
        Convertible debentures  (101,553)                          $ 251,159
        Accounts payable and                                      -----------
         accrued liabilities     (40,023)
        Future income taxes      (29,430)
        Asset retirement
         obligations             (16,695)
        Capital lease
         obligations              (1,567)
                              -----------
                               $ 251,159
                              -----------

        The value of the Trust Units issued as consideration was determined
        based on the weighted average trading value of Advantage Trust Units
        during the two-day period before and after the terms of the
        acquisition were agreed to and announced. The allocation of the
        purchase price has been revised in 2008 due to the realization of
        estimates. As a result, fixed assets increased $4.4 million, accounts
        receivable increased $0.2 million, and accounts payable and accrued
        liabilities increased $4.6 million.

    3.  Fixed Assets

                                                  Accumulated
                                                 Depletion and    Net Book
        September 30, 2008               Cost     Depreciation      Value
        ---------------------------------------------------------------------
        Petroleum and natural gas
         properties                  $ 3,189,397   $ 1,070,105   $ 2,119,292
        Furniture and equipment           11,374         6,212         5,162
        ---------------------------------------------------------------------
                                     $ 3,200,771   $ 1,076,317   $ 2,124,454
        ---------------------------------------------------------------------

                                                  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 nine months ended September 30, 2008, Advantage
        capitalized general and administrative expenditures directly related
        to exploration and development activities of $8,574,000
        (September 30, 2007 - $6,000,000).

    4.  Capital Lease Obligations

        The Fund has capital leases on a variety of fixed assets. Future
        minimum lease payments at September 30, 2008 consist of the
        following:

        2008                                $     400
        2009                                    2,040
        2010                                    2,200
        2011                                    1,925
        ----------------------------------------------
                                                6,565
        Less amounts representing interest       (595)
        ----------------------------------------------
                                                5,970
        Current portion                        (1,290)
        ----------------------------------------------
                                            $   4,680
        ----------------------------------------------

    5.  Convertible Debentures

        The balance of debentures outstanding at September 30, 2008 and
        changes in the liability and equity components during the nine months
        ended September 30, 2008 are as follows:

                                   9.00%       8.25%       8.75%       7.50%
        ---------------------------------------------------------------------
        Debentures
         outstanding          $        -  $    4,867  $   29,839  $   52,268
        ---------------------------------------------------------------------
        Liability component:
          Balance at
           December 31, 2007  $    5,333  $    4,767  $   29,382  $   50,671
          Accretion of
           discount                   59          69         228         680
          Converted to Trust
           Units                       -           -           -           -
          Matured                 (5,392)          -           -           -
        ---------------------------------------------------------------------
          Balance at
           September 30, 2008 $        -  $    4,836  $   29,610  $   51,351
        ---------------------------------------------------------------------
        Equity component:
          Balance at
           December 31, 2007  $      229  $      248  $      852  $    2,248
          Converted to Trust
           Units                       -           -           -           -
          Expired                   (229)          -           -           -
        ---------------------------------------------------------------------
          Balance at
           September 30, 2008 $        -  $      248  $      852  $    2,248
        ---------------------------------------------------------------------


                                   6.50%       7.75%       8.00%       Total
        ---------------------------------------------------------------------
        Debentures
         outstanding          $   69,927  $   46,766  $   15,528  $  219,195
        ---------------------------------------------------------------------
        Liability component:
          Balance at
           December 31, 2007  $   68,092  $   44,360  $   14,931  $  217,536
          Accretion of
           discount                  554         452         110       2,152
          Converted to Trust
           Units                     (25)          -           -         (25)
          Matured                      -           -           -      (5,392)
        ---------------------------------------------------------------------
          Balance at
           September 30, 2008 $   68,621  $   44,812  $   15,041  $  214,271
        ---------------------------------------------------------------------
        Equity component:
          Balance at
           December 31, 2007  $    2,971  $    2,286  $      798  $    9,632
          Converted to Trust
           Units                       -           -           -           -
          Expired                      -           -           -        (229)
        ---------------------------------------------------------------------
          Balance at
           September 30, 2008 $    2,971  $    2,286  $      798  $    9,403
        ---------------------------------------------------------------------

        During the nine months ended September 30, 2008, $25,000 debentures
        (September 30, 2007 - $5,000 debentures) were converted resulting in
        the issuance of 1,001 Trust Units (September 30, 2007 - 375 Trust
        Units). The principal amount of 9.00% convertible debentures matured
        on August 1, 2008 and the Fund settled the obligation by payment of
        $5.4 million in cash.

    6.  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
        1.50% depending on the Fund's debt to cash flow ratio. The credit
        facilities are collateralized 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
        review due in June 2009. 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. The credit facilities also prohibit the
        Fund from entering into any derivative contract where the term of
        such contract exceeds two years or the aggregate of such contracts
        hedge greater than 60% of the Fund's estimated oil and gas
        production. 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 nine months ended September 30, 2008, the
        effective interest rate on the outstanding amounts under the facility
        was approximately 5.2% (September 30, 2007 - 5.6%).

    7.  Asset Retirement Obligations

        A reconciliation of the asset retirement obligations is provided
        below:

                                                   Nine months
                                                         ended    Year ended
                                                  September 30,  December 31,
                                                          2008          2007
        ---------------------------------------------------------------------
        Balance, beginning of period               $    60,835   $    34,324
        Accretion expense                                3,132         2,795
        Assumed in Sound acquisition                         -        16,695
        Liabilities incurred and change
         in estimates                                    6,094        13,972
        Liabilities settled                             (6,291)       (6,951)
        ---------------------------------------------------------------------
        Balance, end of period                     $    63,770   $    60,835
        ---------------------------------------------------------------------

    8. 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               2,918,047        30,652
        Issued for cash, net of costs                        -           (42)
        Issued on conversion of debentures               1,001            25
        Issued on exercise of Trust Unit rights        150,000         1,981
        Management internalization forfeitures          (5,111)         (103)
        ---------------------------------------------------------------------
                                                   141,333,311   $ 2,068,634
        ---------------------------------------------------------------------
        Management internalization escrowed
         Trust Units                                                  (2,905)
        ---------------------------------------------------------------------
        Balance at September 30, 2008                            $ 2,065,729
        ---------------------------------------------------------------------

        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 nine
        months ended September 30, 2008, a total of 5,111 Trust Units issued
        for the management internalization were forfeited (September 30, 2007
        - 21,459 Trust Units) and $6.0 million has been recognized as
        management internalization expense (September 30, 2007 -
        $13.2 million). As at September 30, 2008, 574,062 Trust Units remain
        held in escrow (December 31, 2007 - 1,193,622 Trust Units).

        During the nine months ended September 30, 2008, 2,918,047 Trust
        Units (September 30, 2007 - 2,862,545 Trust Units) were issued under
        the Premium Distribution™, Distribution Reinvestment and Optional
        Trust Unit Purchase Plan, generating $30.7 million (September 30,
        2007 - $34.3 million) reinvested in the Fund.

        Effective June 25, 2002, a Trust Units Rights Incentive Plan for
        external directors was established and approved with a total of
        500,000 Trust Units reserved for issuance and an aggregate of 400,000
        rights granted since inception. At December 31, 2007, 150,000 rights
        remained outstanding under the plan, all of which were exercised at
        $8.60 per right in 2008 for total cash proceeds of $1,290,000.
        Contributed surplus of $691,000 in respect of these rights has been
        transferred to Unitholders' capital. No Trust Unit Rights are
        outstanding as of September 30, 2008.

        (b) Contributed surplus

                                                   Nine months
                                                         ended    Year ended
                                                  September 30,  December 31,
                                                          2008          2007
        ---------------------------------------------------------------------
        Balance, beginning of period               $     2,005   $       863
        Unit-based compensation                         (1,256)        1,256
        Expiration of convertible debentures
         equity component                                  229            58
        Exercise of Trust Unit Rights                     (691)         (172)
        ---------------------------------------------------------------------
        Balance, end of period                     $       287   $     2,005
        ---------------------------------------------------------------------

        (c) Net income (loss) per Trust Unit

        The calculations 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 ended         Nine months ended
                             Sept. 30,    Sept. 30,    Sept. 30,    Sept. 30,
                                 2008         2007         2008         2007
        ---------------------------------------------------------------------
        Income (loss)
         available to
         Unitholders
          Basic           $   113,391  $   (26,202) $    74,900  $   (21,330)
          Interest and
           accretion on
           convertible
           debentures           4,133            -            -            -
        ---------------------------------------------------------------------
          Diluted         $   117,524  $   (26,202) $    74,900  $   (21,330)
        ---------------------------------------------------------------------
        Weighted average
         Trust Units
         outstanding
          Basic           140,192,094  120,079,919  138,806,106  114,131,771
          Trust Units
           Rights
           Incentive Plan           -            -       22,339            -
          Management
           Internalization    318,490            -      539,752            -
          Convertible
           debentures       8,775,293            -            -            -
        ---------------------------------------------------------------------
          Diluted         149,285,877  120,079,919  139,368,197  114,131,771
        ---------------------------------------------------------------------

        The calculation of diluted net income per Trust Unit excludes all
        series of convertible debentures for the nine months ended
        September 30, 2008 and for both the three and nine months ended
        September 30, 2007 as the impact on these periods 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 nine months ended September 30,
        2008 was 9,775,877. 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 and nine months
        ended September 30, 2007 were 9,389,620 and 8,690,007 Trust Units,
        respectively. The calculation of diluted net income per Trust Unit
        excludes the 8.75% series of convertible debentures for the three
        months ended September 30, 2008 as the impact of that series would be
        anti-dilutive. Total weighted average Trust Units issuable in
        exchange for the 8.75% convertible debentures and excluded from the
        diluted net income per Trust Unit calculation for the three months
        ended September 30, 2008 was 860,658 Trust Units. As at September 30,
        2008, the total convertible debentures outstanding were immediately
        convertible to 9,529,075 Trust Units (September 30, 2007 - 12,069,078
        Trust Units).

        All of the outstanding Trust Unit Rights were fully exercised during
        the second quarter of 2008, and accordingly are not part of the
        calculation of diluted net income per Trust Unit for the three months
        ended September 30, 2008. All of the Trust Units Rights have been
        excluded from the calculation of diluted net income per Trust Unit
        for the three and nine months ended September 30, 2007, as the impact
        would have been anti-dilutive. Total weighted average Trust Units
        issuable in exchange for the Trust Unit Rights excluded from the
        diluted net income per Trust Unit calculation for the three and nine
        months ended September 30, 2007 were 39,171 and 43,558 respectively.
        All of the Management Internalization escrowed Trust Units have been
        excluded from the calculation of diluted net income per Trust Unit
        for the three and nine months ended September 30, 2007, as the
        effects would have been anti-dilutive. Total weighted average Trust
        Units issuable in exchange for the Management Internalization
        escrowed Trust Units and excluded from the diluted net income per
        Trust Unit calculation for the three and nine months ended
        September 30, 2007 were 302,126 and 396,508, respectively.

    9.  Accumulated Deficit

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


                                                  September 30,  December 31,
                                                          2008          2007
        ---------------------------------------------------------------------
        Accumulated Income                         $   294,888   $   219,988
        Accumulated Distributions                   (1,030,951)     (879,823)
        ---------------------------------------------------------------------
        Accumulated Deficit                        $  (736,063)  $  (659,835)
        ---------------------------------------------------------------------

        For the nine months ended September 30, 2008, the Fund declared
        $151.1 million in distributions, representing $1.08 per distributable
        Trust Unit (nine months ended September 30, 2007 - $157.3 million
        representing $1.35 per distributable Trust Unit).

    10. 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 September 30, 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 5) resulting in fair values that
        will vary over time as market conditions change. As at September 30,
        2008, the estimated fair value of the total outstanding convertible
        debenture obligation was $217.1 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 5 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 internally and 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 5). 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 nine months ended
        September 30, 2008 could potentially have impacted net income by
        approximately $2.9 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 September 30, 2008 could impact net income by
        approximately $9.8 million for the nine months ended September 30,
        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
        September 30, 2008 could impact net income by $4.4 million for the
        nine months ended September 30, 2008. A change of 10% in the forward
        power prices used to calculate the fair value of the power
        derivatives at September 30, 2008 does not have a material impact on
        net income for the nine months ended September 30, 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
        September 30, 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
      Fixed    April 2009 to       9,478 mcf/d                  Cdn$8.66/mcf
       price    December 2009
      Fixed    April 2009 to       9,478 mcf/d                  Cdn$8.67/mcf
       price    December 2009
      Fixed    April 2009 to       9,478 mcf/d                  Cdn$8.94/mcf
       price    December 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 September 30, 2008, the fair value of the derivatives
        outstanding resulted in an asset of approximately $15,273,000
        (December 31, 2007 - $7,201,000) and a liability of approximately
        $8,256,000 (December 31, 2007 - $5,020,000). For the nine months
        ended September 30, 2008, $4,836,000 was recognized in income as an
        unrealized derivative gain (September 30, 2007 - $1,956,000
        unrealized derivative loss) and $40,912,000 was recognized in income
        as a realized derivative loss (September 30, 2007 - $13,384,000
        realized derivative gain).

    11. 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 the obligations can be settled 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, adjusting
        the amount of monthly distributions, suspending or renewing its
        distribution reinvestment plan, adjusting capital spending, or
        disposing 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 September 30, 2008 is as follows:

                                                                September 30,
                                                                        2008
        ---------------------------------------------------------------------
        Bank indebtedness (long-term)                            $   540,078
        Working capital deficit(1)                                    72,928
        ---------------------------------------------------------------------
        Net debt                                                     613,006
        Trust Units outstanding market value                       1,393,543
        Convertible debentures maturity value (long-term)            184,489
        Capital lease obligations (long-term)                          4,680
        ---------------------------------------------------------------------
        Total                                                    $ 2,195,718
        ---------------------------------------------------------------------

        (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 6) 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 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 nine month period ended September 30,
        2008.

    12. Commitments

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

        2008                       $       962
        2009                             3,862
        2010                             3,878
        2011                             1,471
        2012                             1,072
        ---------------------------------------
                                   $    11,245
        ---------------------------------------Advisory


    The information in this release 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
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; and obtaining required approvals of
regulatory authorities. 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.




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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