Highlights:

On March 31, 2009 Profound Energy entered into the support agreement with Paramount pursuant to which Paramount has offered to obtain all of the issued and outstanding shares of the company for a combination of cash and Paramount trust units. The total purchase price is about CAD112.9 million which comprises the assumption of outstanding debt and working capital deficiency anticipated at CAD61.5 million.

In addition to the offer, Paramount also agreed to buy 9,224,310 special warrants of Profound Energy on a private placement basis at a price of CAD0.75 per special warrant for total subscription proceeds of about CAD6.9 million. The private placement of special warrants closed on April 14, 2009. The special warrants are convertible into common shares of Profound Energy on a one-for-one basis. Conversion is automatic in certain events and at the option of Paramount in certain cases.

Subsequent to year-end, Profound Energy revised its credit facility agreement with its main lender whereupon the company’s borrowing base was decreased from CAD70 million to CAD62 million. The term of the credit facility has been extended until May 30, 2010, subject to semi-annual borrowing base redetermination.

Financial Review:

Production, revenues and funds flow from operations were all considerably lower in the first quarter of 2009 against the fourth quarter of 2008. Prices which had earlier fallen to an average of CAD56.87 per bbl of oil and NGL and CAD7.23 per mcf of gas in the fourth quarter continued to decline in the first quarter of 2009 to an average of CAD46.76 per bbl of crude oil & NGL and CAD5.31 per mcf of gas.

Overall, petroleum and natural gas sales declined to CAD9 million in the first quarter of 2009 from CAD14.3 million in the fourth quarter of 2008. Of this decline, CAD3.5 million is because of the falling commodity prices, and CAD1.8 million was because of decreased production.

Profound Energy’s production averaged 2,838 boe/day for the first quarter of 2009, down 14%, compared to 3,288 boe/day in the fourth quarter of 2008. Of this decline, about 165 boe/day is due to Profound Energy’s Grande Prairie 12-31 well being shut-in as the plant through which the gas is otherwise processed is not capable to handle the condensate volumes the well produces.

Profound Energy is in discussions with the plant operator to solve this problem and hopes to have the well back on production in the third quarter of 2009. Production volumes were also impacted by a five-day shut down at the company’s Carrot Creek facility, some minor volume shut-ins due to poor economics at existing prices and natural declines.

Funds flow from operations declined to CAD2.7 million in the first quarter of 2009 from CAD6.8 million in the fourth quarter of 2008, with the corresponding per share amounts decreasing to CAD0.07 per share in the first quarter of 2009 from CAD0.18 in the fourth quarter of 2008. Funds flow was strongly impacted by prices which fell by 26% from the fourth quarter of 2008 to the first quarter of 2009.

The average royalty rate for the first quarter of 2009 was 22.7%, compared to the fourth quarter of 2008 at 18.8%. The raise in the royalty rate is the result of the new royalty framework (NRF) which came into effect January 1, 2009, and adjustments to gas cost allowance credits due to earlier property dispositions.

The NRF is sensitive to both production rates and gas pricing; therefore, the effective royalty rate will differ depending on the price of natural gas. Under 2008 pricing, Profound Energy would have anticipated its effective royalty rates to rise considerably in 2009; however, the effects of these rates have been partly mitigated in early 2009 due to the low commodity prices.

Profound Energy’s average operating and transportation expense was CAD10.64 per boe in the first quarter of 2009 as compared to CAD12.71 per boe in the fourth quarter of 2008. Operating costs reduced in the first quarter as gas processing and major servicing costs decreased.

Gas processing decreased because of the acquisition of working interests in two plants at Carrot Creek and Clairmont. Also, the fourth quarter of 2008 comprised CAD566,000 of major servicing. No major servicing costs were incurred in the first quarter of 2009.

General and administrative expenses rose to CAD4.57 per boe in the first quarter of 2009 compared to CAD2.98 per boe in the fourth quarter of 2008. G&A costs comprised about CAD300,000 of costs associated with the Paramount offer.

Capital expenditures for the first quarter of 2009 totaled CAD5.7 million. Of this amount, CAD4.4 million was spent on drilling and completions, CAD0.9 million on equipping and facilities, CAD0.1 million on land and seismic, and CAD0.3 million on capitalized G&A and other miscellaneous items.

Profound Energy drilled two wells during the quarter; one horizontal well at Pembina and one vertical well at Carrot Creek. Three wells were concluded and one well tied-in. Facility costs included one tie-in at Pembina and the final costs related with the gas plant expansion at Carrot Creek, with production flowing on January 15, 2009.

The company has CAD203.9 million in tax pools at March 31, 2009.

Operations Overview:

Production

During the three months ended March 31, 2009, Profound Energy produced an average of 12.8 mmcf/day of gas and 702 bbls/day of oil and natural gas liquids for an average daily production of 2,838 boe/day.

Activity Update

Due to the drop in commodity prices, capital expenditures by the company in the first quarter of 2009 were curtailed. During the three months ended March 31, 2009, Profound Energy took part in one vertical well at Carrot Creek and one gross horizontal well at Pembina, resulting in two gross net successful gas wells. In addition to the drilling of the two gross wells, one well (0.6 net) recompletion was successfully undertaken.

At Carrot Creek, Profound Energy’s application for GPP for the Ostracod ‘AAA’ oil pool was approved by the Alberta Energy Resources conservation board on March 23, 2009. Earlier curtailed volumes from this pool are now on production.

On the Peace River Arch, negotiations to consolidate gas processing in the area have been finalized, and facilities work to debottleneck and optimize production will begin in about four weeks time. Construction is anticipated to take about four days, and once this consolidation has been done, Profound Energy anticipates a further 250 boe/day net of shut-in gas will be placed on production.

2009 Capital Program

Capital expenditures carry on to be considerably curtailed in response to the precipitous drop in commodity prices. Profound Energy will approach investment with a defensive posture for the remainder of the year and will keep capital spending for 2009 within anticipated cash flow.