CLASSIFICATION SHEET

This document relates to the following request:

f November 25, 2009

References: YCO/IJ ,Pl/LAGU/Q 147090 I 5M-ORBN

Vermilion Energy Trust

I. Key topics: Luxembourg finance branch

2. Name of the advisor : PwC ~------

3. Corporate groue's name, or fund sponsor: Vermilion Energy Trust

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ENTR~J:' 6. Date of receipt:

1 6 DEC. 2009

For the attention of Mr. Marius Kohl

Administration des Contributions Directcs Bureau d'imposition Societes VJ 18, rue du Fo1t Wedell L-2982 Luxembourg

November 25, 2009

References: VCO/TLPT/LAGU/Q14709015M-ORBN

Vermilion Energy T rust

PriccwatcrhouscCoopcrs Societe ii responsabilite limilce Reviseur d'entreprises 400, route d'Esch B.P. 1443 L-1 014 Luxembourg Telephone+ 352 494848-1 f acsimile -t 352 494848-2900 www.pwc.com/lu info@lu.pwc.com

BUREAU D'IMPOSITION SOC. 6 ENTR.:E

1 6 DEC. 2009

Vermilion Luxembourg Finance Branch - formation in progress Vermilion Hungary Limited Liability Company

Dear Mr. Kohl,

In our capacity of tax consultant of the above-mentioned client, please find below the tax treatment applicable to the transactions foreseen by our client. This letter aims at confirming the condusions reached during our today's meeting and will serve as a basis for the preparation of the tax returns of the Luxembourg branch involved.

A. Background

I. Vermilion Energy Trust ("VET") is a Calgary, Alberta based international oil and gas producer listed on the Toronto Stock Exchange (VET.un) and trading over-thc­counter in the United States. Daily production is approximately 19,500 barrels of mostly light sweet crude oil and 65 million cubic feet of natural gas from properties in Western Canada, Australia, France and the Netherlands. Vermilion operates over 90% of its properties supported by an outstanding team of dedicated professionals.

2. Vermilion was set up in 1994 as a junior exploration and production company. The company converted to the energy trust model in 2003 and began distributing a portion of its cash flow to its investors.

3. Since 1994 VET has issued approximately $350 million in total equity and since January 2003 has distributed more than $800 million back to its unitholders.

R.C.S. Luxc111buurg 13 65 477 - TVA LU 17564447

4. On July 2009, VET completed its agreement to acquire working interest in the Corrib field located approximately 83 kilometers off the northwest coast of Ireland. VET is expected to invest an additional amount which will vary from approximately USD 400 million to USD 300 million depending on the date when first commercial gas from the field is achieved. Once on-stream, the production from Corrib is expected to increase Vermilion's total annualized production by approximately 30% and generate significant operating cash Oow. The acquisition was carried out through the French branch of the group.

B. Reorganization - Steps related to the Luxembourg Branch

5. Vermilion France Holding SAS ("Vfl I") which is holding the investment in Ireland is an indirect subsidiary of VET formed and existing under the Jaws of France. ln order to create a new intra-group financing structure and in support of group liquidity management, VFH is intending to establish a liungarian subsidiary ("I lunCo") in the form of a Hungarian limited liability company (in process of formation).

6. HunCo will allocate cash and/or intra-group loan assets to a Luxembourg branch (the "Lux Branch"). These assets will be managed by the Lux Branch and the Lux Branch will use its funds to carry out intra-group financing activities. At a first stage, the funds should be mainly used to finance the activities in Ireland. In the medium term, the Lux Branch should consider lending to other entities in the group and other activities ancillary to financing may also be considered. The initial funds allocated to the branch by the head office would be approximately between EUR 85 million and EUR I 00 million. In the frame of its financing activity, the Lux Branch is expected to grant loans for an amount up to EUR 340 million. For your convenience, the simplified structure of the group after the restructuring is attached in Appendix I. The detailed implementation steps are described in Appendix 2.

C. Registration and operation of the Lux Branch

7. The Lux Branch will be registered in Luxembourg and will have the following available to it:

• an office space and its own Luxembourg address; • all necessary materials to carry out its activities, e.g. desk, dedicated

telephone and fax number; • branch name displayed at the branch premises; • registration of the branch with the Luxembourg social security; • own accounting records held at the branch's premises; • own bank accounts; • one employee on its payroll;

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• one manager resident in Luxembourg who will be effectively in charge of the daily management of the branch's assets and will make the related decisions regarding the branch's activity and assets in Luxembourg.

8. Furthermore, the following documents will be kept in Luxembourg and made available upon request, as well as the other documentation related to the activity of the branch:

• the decision of the board of directors of I TunCo for the creation of the Lux Branch;

• a copy of the leasing agreement, if any; • a copy of the contract for a local bank account; • a copy of the registration documents with the Luxembourg Trade Register; • a copy of the employment contract of the Branch Manager; • a copy of the payroll; and • a copy of the minutes of each board meeting deciding to allocate assets or

funds to the branch.

D. Applicable tax regime

9. Based on the arguments detailed in the Appendix 3, the Luxembourg tax treatment of the Lux Branch will be the following:

I 0. The Lux Branch will be treated as a permanent establishment of HunCo in Luxembourg. As such, profits of HunCo attributable to the Lux Branch will be taxed in Luxembourg.

11. Considering that the activity of the Lux Branch will consist of loan financing, it will be assimilated to a financial enterprise and wil l be allowed to deduct a deemed interest in connection with the financial assets recorded at its level.

12. From a Luxembourg tax perspective (corporate tax, municipal business tax and net wealth tax), the cash or financial assets allocated to the Lux Branch will be considered financed as fol lows: 2% by equity, 6% by subordinated debt and 92% by regular debt.

13. The Lux Branch will be considered to realise an appropriate and acceptable profit with respect to Article 7 of the Luxembourg-Hungary treaty and Articles 56 and 164 of the Luxembourg Income Tax Law ("LITL") provided that its income from the financing activity will amount to the interest income realised on the 2% of the assets deemed financed by equity plus a spread in relation to the portion of the assets deemed financed by the subordinated and the regular debts (please see appendix 3).

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14. An acceptable and appropriate spread for the initial amount of funds (i.e. EUR 85 -100 million) will be of 0,0938% of the total amount of assets deemed to be financed by the subordinated debt (i .e. 6%) plus 0,125% of the total amount of assets deemed to be financed by the regular debt (i.e. 92%).

15. If in a certain financial year, the financial outstanding amount is beyond EUR 187,5 million and up to EUR 500 million, an acceptable and appropriate spread will be constituted by 0,0625% of the total amount of assets deemed financed by subordinated debt (6%) plus 0,0938% of the total amount of assets deemed to be financed by the regular debt (i.e. 92%).

16. Any cash or accrued interest receivables received by the Lux Branch as repayment of principal or payment of interest will be regarded for tax purposes as automatically repatriated to the Hungarian head office and then immediately reallocated to the Lux Branch in the same cu1Tency in the form of equity, subordinated debt and debt in the same proportion as described above (i.e.: 2% equity, 6% subordinated debt, 92% debt).

17. A deemed debt deduction corresponding to 98% of the financial assets recorded at the level of the Lux Branch will be recognized for Net Wealth Tax purposes.

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We remain at your disposal should you need any further information and would like to thank you for the attention that you will give to our letter.

Yours sincerely,

Partner

Appendices

Appendix I: Appendix 2: Appendix 3:

ivier Buscheman Director

Simplified structure of the group after the restructuring Implementation steps Details on the Luxembourg tax treatment

This tax agreement is based on the facts as presented to PricewaterhouseCoopers Sari as al the date the advice was given. The agreement is dependent on specific facts and circumstances and may not be appropriate to any party other than the one for which it was prepared. This tax agreement was prepared with only the interests of PwC Calgmy's client, Vermilion Energy Trust, in miml, and was not planned or carried out in contemplation of any use by any other party. PricewaferhouseCoopers Serr/, its parlners, employees and or agenfs, neither owe nor accept any duty of care or any responsibility to any other party, whether in contract or in tort (including without limitation, negligence or breach of statutory duty) however arising, and shall not be liable in respect of any loss, damage or expense of whatever nature which is caused tu any other par1y.

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Simplified structure of the group after the restructuring

,, Fr'nch subs

Vermilion Energy Trust

(YET-Canada)

\

~

group financing

Appendix 1

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Appendix 2

Implementation steps

A. Corporate Structuring Transactions

Step I: fncorporation of the Hungarian Finance Company

Before the end of the year 2009, VFH incorporates HunCo. VFH subscribes for one quota ofHunCo for consideration of EUR 100,000.

Step 2: Formation of a Luxembourg Finance Branch

Shortly after its incorporation, HunCo forms a Luxembourg Finance Branch m Luxembourg city.

B. Refinancing Transactions

The following steps describe the transfer of the credit faci lity in place between Vermilion Energy Ireland Limited ("VEIL"), a Cayman incorporated and Irish resident company, and VET Finance Limited ("VET FIN"), a Barbados company, to the Lux Branch.

Step 3: Vermilion Resources Ltd ("VRL") Obtains External Financing

On January, 20 l 0, VRL makes an additional drawdown on its credit facility.

Step 4: VRL Funds VET FIN

On January, 20 I 0, VRL funds VET FIN either by granting a loan to VET FIN or by acquiring new shares in VET FIN.

Step 5: VET FIN Loans to Vermilion REP SAS C"VREP")

It is cunently envisaged that a new credit facility would be put in place between VET fTN and VREP. The maximum credit limit will be EUR 340 million.

Step 6: VREP Funds VFH

On January, 2010, VREP funds VFII either by granting a loan to VfII or by acquiring new shares in VFH.

Step 7: VFH Subscribes for Additional Capital in HunCo

On January, 20 l 0, VFH acquires additional shares in HunCo in exchange for cash.

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Step 8: HunCo Allocates Additional Assets to Lux Branch

On January, 20 I 0, l lunCo allocates EUR 85 - I 00 million of cash and the necessary amount of cash to cover the operational expenses to Lux Branch.

Step 9: Lux Branch Purchases the Credit Facility in Place between VET FlN and VEIL From VET FIN

The maximum credit envisaged under the facility agreement is 340 million.

It is currently envisaged that the initial credit facility balance acquired from VEIL would be converted to approximately four loans subsequent to the acquisition. Then, the balance in the credit facility would be rolled into terms loans on a regular basis. The terms of the loans could differ. Alternatively, after the first initial balance is converted, the credit facility could terminate and Lux Branch could enter into separate term loans with VEIL.

C. Subsequent Financing Transactions

The following steps describe the steps required to provide subsequent project financing to VEIL after the establishment of the Hungarian structure as depicted in Steps 1 to 2 above.

Step I 0: VRL Borrows Funds

VRL draws down an additional amount on its credit facility.

Step 11: VRL Funds VET FIN

VRL funds VET FIN either by granting a loan to VET FIN or by acquiring new shares in VET FIN.

Step 12: VET flN Loans to VREP or capitalize VREP

VET FIN lends the Euro equivalent of the funds received in Step 11 to VREP.

Step 13: VREP Funds VFH

VREP funds Vf.'H either by granting a loan to VFI I or by acquiring new shares in VFH.

Step 14: VFI I Subscribes for Additional Capital in I IunCo

VFH acquires additional shares in HunCo by transferring cash.

Step 15: HunCo Allocates Additional Assets to Lux Branch

I lunCo allocates cash to Lux Branch.

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Step 16: Lux Branch Loans to VEIL

Lux Branch lends the funds to VEIL ("Lux Loan l ").

Step 17: HunCo Loans to VEIL

JiunCo lends to VEIL ("IlunCo Loan 1 ").

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Appendix 3

Details on the Luxembourg tax treatment

A. Lux em bou rg Tax Law

I. According to Article 156(1) LlTL, commercial profits derived in Luxembourg by non-residents are taxable when they are directly or indirectly derived by a permanent establishment in Luxembourg.

2. Permanent establishment is defined in § 16 of Steueranpassungs-Gesetz ("StAnpG") as follows:

"A permanent establishment in the sense of tax law is evety fixed piece of equipment or place which serves for the operation of an estab/;shed business. A permanent establishment includes [. . .] branches [. . .] ".

3. Based on the facts stated in section C above, the Lux Branch that will be formed by HunCo will meet the permanent establishment qualification as defined by the Luxembourg tax law.

4. Therefore HunCo will be subject to Luxembourg tax on any commercial profits attributable to its Luxembourg branch pursuant to Article 156 LITL.

B. Double tax treaty between Luxembourg and Hungary

5. Article 5 of the double tax treaty dated 15 January 1990 between Luxembourg and Hungary (the "Treaty") states that for the purposes of the Treaty, the term permanent establishment means a fixed place of business through which the business of the enterprise is wholly or partly carried on and includes specifically a branch.

6. In this respect, the business of HunCo will consist in the financing of VEIL and could be extended to the financing of other group companies. Other activities ancillary to financing may also be considered. Part of the above activities will be transferred from IIunCo to its Lux Branch.

7. The Lux Branch will have an office space, all the necessary materials to carry out its activities in Luxembourg, its own bank accounts as well as one employee and one manager resident in Luxembourg who will effectively be in charge of the financing related issues, as well as the daily management of the branch.

8. Based on the above, the Lux Branch will be considered as a fixed place of business through which the business of HunCo will be wholly or partly carried on and will

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therefore constitute a permanent establishment of HunCo in Luxembourg within the meaning of Article 16 St/\npG and for the purposes of Article 5 of the Treaty.

C. Taxation of branch profits

9. According to Article 7(1) of the Treaty:

"The profits of an enterprise of a Contracting Stale shall be taxable only in that Stale unless the ente1prise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be /a-:(ed in the other State but only so much of them as is attributable to that permanent establishment."

l 0. Accordingly, the profits of IrunCo attributable to the Lux Branch will be taxed in Luxembourg. The profits of Hun Co, which are not attributable to the Lux Branch, will not be taxable in Luxembourg.

D. Determination of the taxable base of the Lux Branch

D.1. Income Tax

11. The commentary to Article 7 of the OECD model tax convention on income and capital specifically refers to the attribution of profits to a permanent establishment and, more specifically, to the deductible expenses which should be allowed at the level of the branch.

12. According to the new commentaries to the OECD model tax convention, the "separate enterprise" principle will apply to the taxation of the Lux Branch 1•

13. In this respect, Article 7(2) of the OECD model tax convention explicitly states the following:

"Su~ject to the provisions of paragraph 3, where an ente1prise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be allributed to that permanent establishment the profits which ii might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the entetprise of which it is a permanent establishment."

14. The OECD approach is to disallow deductions for internal debts and receivables. However, the commentary to Article 7 states that special consideration must be

1 § 14 and following of the new commentary dated July 18, 2008, on Article 7 of the OECD model tax convention

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given to interest payments made by different parts of a financial enterprise in view of the speci fie nature of their business.

15. ln this respect, the OECD acknowledges that financial enterprises must be allowed to deduct interest payments accrued in respect of transactions between the head office and the permanent establishment since the financing activity is inherent to the company's business.

16. A financial enterprise is generally understood to apply to the banking sector, but it must be borne in mind that there are other enterprises, which, although not subject to banking regulations, have an activity which consists wholly or mainly in performing financial transactions.

17. Considering that the Lux Branch of HunCo will have a financial activity, HunCo and its Lux Branch can be considered as a financial enterprise for their overall activity.

18. In order to comply with the principle of "separate enterprise", the Lux Branch will be allowed to deduct for tax purposes interest charges that the Lux Branch would have incurred if it had been considered an independent enterprise.

l 9. Therefore, the Lux Branch will be allowed to deduct a deemed interest 111

connection with the financial assets recorded at the level of the Lux Branch.

20. The Luxembourg financial regulations provide for a certain solvency ratio2

whereby the funding of financial assets should normally be structured as follows :

• 8% equity (part of the 8% equity may consist in assimilated equity i.e., subordinated debt, normally within the limit of 50% of the aggregate 8% equity), and,

• 92% normal debt.

21. Furthermore as per the law dated April 5, 1993 regulating the financial sector, the funding of a branch established by a financial enterprise originating in the EC is not subject to a debt to equity ratio. This gives flexibility in the way the solvency ratio may be appl ied in the case at hand to the Lux Branch.

22. Therefore for the purposes of calculating the deemed interest deduction, the funding of the Lux Branch will be considered to be in line with the financial regulations to the extent it is structured as follows:

• 2% of the funding should be regarded as equity;

2 Circulairc CSSF 2000/ I 0, page 22.

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• 6% should be regarded as subordinated debt, and

• 92% should be regarded as normal debt.

23. Based on the above, the tax treatment of the income deriving from the financial activities will be as follows:

• the income realized on 2% of the loan receivables deemed financed by equity will be fully taxable in Luxembourg.

• an acceptable level of interest charges will be computed on an amount corresponding to 6% of the loan receivables in relation to the subordinated debt of the Lux Branch towards lfunCo. This interest will be considered as a deemed interest which will be fully tax deductible. A minimal margin will remain in the Lux Branch further to this deemed interest deduction, as further mentioned below.

• an acceptable level of interest charges will be computed on an amount corresponding to 92% of the loan receivables in relation to the regular debt of the Lux Branch towards HunCo. This interest will be considered as a deemed interest which will be fully tax deductible. A minimal margin will remain in the Lux Branch further to this deemed interest deduction, as further mentioned below.

24. After the deemed interest deduction, the taxable base of the Lux Branch will be comparable to the taxable base of an independent company. The above margins plus the commercial profit realised in relation to the 2% of the financial assets financed by equity, will be subject to corporate income tax and municipal income tax at the aggregate rate in force (i.e., 28.59% for Luxembourg city for the tax year 2009) at the date hereof.

25. Taking into account the amounts involved and provided that the Lux Branch will not bear any financial or foreign exchange risk, the Lux Branch will be deemed to realize an appropriate and acceptable profit with respect to Article 7 of the Treaty and Articles 56 and 164 LITL.

26. Except otherwise decided by the Board of Directors of HunCo, the cash or receivables, received by the Lux Branch as repayment of principal or as payment of accrued interest per the financial assets held by the Lux Branch will be regarded as automatically repatriated to the branch head office and then immediately reallocated to the Lux Branch in the form of equity, subordinated debt and debt in the same proportion as described above (i.e., 2% equity, 6% subordinated debt, 92% debt);

27. Similarly, any accrued interest receivable will be regarded for tax purposes as repatriated to the Lux Branch head office on the same day it becomes due or

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compounds and then immediately reallocated to the Lux Branch in the fonn and proportion described above.

28. Any reallocation of assets from the Lux Branch to HunCo will not have any Luxembourg tax impacts.

29. The tax treatment of additional loan receivables that may be allocated to the Lux Branch in the future will follow the same principles as the ones described above.

D.2. Applicable margins

30. An acceptable and appropriate spread for the initial amount of funds (i.e. EUR 85 -100 million) will be of 0,0938% of the total amount of assets deemed to be financed by the subordinated debt (i.e. 6%) plus 0, 125% of the total amount of assets deemed to be financed by the regular debt (i .e. 92%).

31. If in a certain financial year the financial outstanding amount is beyond 187,5 million and up to EUR 500 million, an acceptable and appropriate spread will be constituted by 0,0625% of the total amount of assets deemed financed by subordinated debt (6%) plus 0,0938% of the total amount of assets deemed to be financed by the regular debt (i.e. 92%).

D.3. Net Wealth Tax

32. The Lux Branch will be subject to net wealth tax in Luxembourg as of the first of January of every year, computed on the basis of its unitary value as of the closing date of each preceding accounting year.

33. 98% of the Lux Branch funding will be deductible for the calculation of the unitary value of the Lux Branch. Consequently, the taxable basis for net wealth tax in relation to the Lux Branch's activities will therefore be constituted by 2% of the net assets plus the taxable profit of the year after tax.

34. As mentioned above, any accrued interest receivable or cash from repayment of principal or interest, whether reinvested in financial assets or kept as such, will be regarded as repatriated to the Lux Branch's head office on the same day it becomes due or compounds, and then immediately reallocated to the Lux Branch in the forms and proportions described above.

35. The Lux Branch may decide to reduce its net wealth tax liability subject to the conditions and limitations established in §8a of the Property and Securities Valuation Act.

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LE GOUVERNEMENT DU GRAND-DUCHE DE LUXEMBOURG Administration de:s contributions directes

Bureau d'imposition

Societes 6

For the attention of Valery Civilio PricewaterhouseCoopers 400, route d'Esch B.P. 1443 L - 1014 Luxembourg

Companies involved : Vermilion Energy Trust - Tax number in process

25 November 2009

Dear Sir,

Further to your letter dated 25 November 2009 and reference VCO/ILPl/LAGU/Q14709015M­ORBN relating lo the transactions that the group Vermilion Energy Trust would like to conduct, I find the contents of said letter to be in compliance with current tax legislation and administrative practice.

It is understood that my above confirmation may only be used within the framework of the transactions contemplated by the abovementic!led letter and that the principles described in your letter shall not apply ipso facto to other situations.

18, rue du Fort Wedell

Luxembourg

Tel.: (352) 40.800-3118

Fax: (352) 40.800-3100

Le priJposef u bureau

d'impositio; Societes 6

Mar,i is Kohl

·'.\dresse postale

:..-2982 Luxembourg .impotsdirects.public.lu