On October 19, 2006, Harvest Energy was the first Canadian energy trust to acquire a refinery and become an integrated oil and gas company.

An oil refinery is a manufacturing facility that transforms crude oil into a variety of refined products. The type and mix of refined products generated depends on the facility’s processing units, the quality of the crude oil or other material put into the refinery, and the specific refining process. Examples of refined products include gasoline of different grades, diesel fuel, jet fuel, furnace oil and heavier fuel oil.

The North Atlantic refinery is a 115,000 barrel per day hydrocracking refinery, optimally configured to process medium sour crude oil (24-34° API, 1-3% sulphur). As a Clean Fuels refinery, 100% of North Atlantic’s gasoline and ultra low sulphur diesel (ULSD) products meet or exceed current and future anticipated environmentally driven specifications. North Atlantic is one of the newest refineries in North America, and is situated on an ice-free, deep-water bay on the east coast of Canada. Since Newfoundland is an island, transportation of the crude oil feedstock and exported refined products is all done via ship, and because of its unique location, Very Large Crude Carriers (VLCC’s) can dock right at our jetty, eliminating the need to trans-ship or offload off shore. Further, the refinery boasts an extensive land base which is conducive to expansion, and is well regarded by the local government, communities and employees.

The refinery purchases and processes a medium gravity, sour grade of crude oil which is very similar in quality to the oil that we produce in western Canada. This effectively vertically integrates our upstream and downstream businesses, and creates a natural financial hedge. Due to the type of oil we process, we can economically source crude oil and other feedstock from numerous locations, including the Middle East, Latin America and Russia. Since our gasoline and distillate products meet the world’s highest specifications and because we have easy access to the ocean for shipping, there are numerous markets that can be supplied with our product, ensuring the best possible price.

Refinery Highlights:

Strategic location and logistics

• Ability to capture export product market arbitrage opportunities as products are sold in premium world markets (Boston, New York, Europe, other)
• Optimal crude oil and feedstocks are economically available from major export regions (Middle East, Russia, South America, other)
• Deep water, ice-free port enables VLCCs to deliver at jetty; no trans-shipment or offshore loading required
• 7-million barrels of tankage

Competitive advantages

• Processes medium sour crude oils (~34º API & ~3% Sulphur)
• Hydrocracking unit (higher liquid volume yield, higher distillate yields and lube feed vs. slurry oil byproduct as compared to FCC units)
• Able to produce 100% RBOB gasoline and 100% ULSD (current ULSD product meets 2010 Euro 5 standards)
• $1.15 to $1.65/bbl transportation advantage over USGC refiners
• One of North America’s newest refineries (no past “capacity creep”)
• Incremental expansion opportunities more economic than new build
• Expansion / upgrading projects under consideration provide attractive rates of return at current preliminary assumptions and provide a range of options for investment

Approximately 10% of our products are sold locally in Newfoundland (where we command more than 50% of the market share for jet fuel and heating oil), but on occasion, we have sold 100% of our product outside of Newfoundland into markets that need more stringent specifications and provide a better price. Commencing in 2008, we negotiated an agreement to directly supply high sulfur fuel oil (HSFO) to a large purchaser in the New York Harbour market, which results in a better realized price for Harvest. Boston and New York harbors are two key markets for North Atlantic’s products, but since purchasing the refinery in late 2006, we have also sold products in Europe, Chile, Singapore and California. Since the beginning of 2008, approximately 60% of our distillate sales outside of Newfoundland have gone to Europe. The broader energy industry, including the refining business, is subject to seasonality which results in commodity price variations throughout the year.

A significant benefit of holding a refining asset within a dividend paying structure is its relatively low annual capital maintenance (capex) requirements. Unlike an upstream business which can require maintenance capital of 50% or more of cash flow, a refinery only needs very modest annual cash flow reinvestment, which can be as low as 10%. The strong free cash flow generating characteristics of an infrastructure-type asset like a refinery further enhances the value of our integrated structure.