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Provident News Release Archive

Provident Announces Strong 2011 First Quarter Results, 50 percent increase in Growth Capital Budget and May Cash Dividend

May 11, 2011

CALGARY, May 11, 2011 /CNW/ - Provident Energy Ltd. (Provident) (TSX:PVE) (NYSE:PVX) today announced its 2011 first quarter interim financial and operating results and expanded its 2011 capital budget to $130 million and the May cash dividend of $0.045 per share.

All values are in Canadian dollars.

"Provident performed very well during the first quarter of 2011. Our strong first quarter results were driven by higher sales volumes and robust product margins." said President and Chief Executive Officer, Doug Haughey. "Provident is well positioned to drive future growth from the Montney and Marcellus natural gas plays, as well as from opportunities surrounding the Alberta oilsands."

First Quarter Summary

First quarter financial statements are reported under International Financial Reporting Standards

    <<
    -   Gross operating margin grew by 13 percent to $100 million in the
        first quarter of 2011, up from $89 million in 2010, reflecting
        stronger sales volumes and product margins when compared to the first
        quarter of 2010.
    -   Adjusted EBITDA(1) was $61 million for the first quarter of 2011, an
        increase of 18 percent from $52 million in 2010. The increase
        reflects higher operating margins from both Redwater West and Empress
        East, which increased contributions by 19 percent and 16 percent,
        respectively.
    -   Adjusted funds flow from continuing operations(2) increased 13
        percent to $54 million ($0.20 per share) in the first quarter of
        2011, compared to $47 million ($0.18 per unit) in 2010, largely due
        to a 13 percent increase in gross operating margin.
    -   Dividends paid to shareholders totaled $0.14 per share resulting in a
        payout ratio of 75 percent of distributable cash flow from continuing
        operations(3) for the first quarter of 2011.
    -   Total debt decreased by 5 percent to $451 million at March 31, 2011,
        from $474 million at December 31, 2010. At March 31, 2011, Provident
        had approximately $361 million of remaining capacity available under
        its $500 million revolving term credit facility.
    -   Total debt to Adjusted EBITDA(1) for the twelve months ended March
        31, 2011 was 1.9 to one compared to 2.1 to one for the year ended
        December 31, 2010.
    -   Capital expenditures from continuing operations were $24 million
        primarily directed towards cavern development and terminalling
        infrastructure at the Corunna facility, cavern and brine pond
        development at the Redwater fractionation facility, as well as
        various pipeline improvements and developments.

    (1) Adjusted EBITDA is earnings before interest, taxes, depreciation,
        amortization, and other non-cash items - see "Reconciliation of Non-
        GAAP measures". Adjusted EBITDA presented above is from continuing
        operations and excludes the onetime buyout of financial derivative
        instruments, strategic review and restructuring costs.
    (2) Adjusted funds flow from continuing operations excludes strategic
        review and restructuring costs.
    (3) Distributable cash flow is presented as adjusted funds flow from
        continuing operations, net of sustaining capital spending.
    >>

2011 Growth Capital Increased

Provident has increased its 2011 growth capital budget from approximately $70 million to approximately $105 million. The 50 percent increase provides an additional $35 million of growth capital, which includes $24 million directed towards the new growth initiatives as described below, approximately $18 million of scope enhancements and cost increases at Corunna, offset by the deferral of a previously announced $7 million debottlenecking initiative at Redwater until 2012 to align the project timing with the start-up of incremental volumes that will be secured at the Younger facility as a result of the Septimus to Younger pipeline project currently underway.

1. Redwater Cavern Development Accelerated

Driven by substantial demand for new storage services at Redwater, Provident plans to deploy an additional $14 million in 2011 towards cavern and related infrastructure development, including the drilling of a new previously unannounced cavern during the summer of 2011. With this new addition, Provident will have five caverns or approximately 2.5 million barrels of storage capacity in various stages of development at Redwater. One of these caverns may be designated as a replacement in the future, as required.

2. Empress East NGL Infrastructure Project Announced

Provident has approved $10 million of additional growth capital in 2011 to develop a new project that will provide incremental NGL volumes into Provident's Empress East System. Details regarding the project will be released once commercial arrangements have been finalized.

Septimus to Younger Pipeline Project on Track

During the first quarter, Provident announced an agreement between Provident Energy Ltd., AltaGas Ltd., and a senior producer, to construct a 16-inch rich gas pipeline from a Montney gas plant to the AltaGas/Provident Younger deep cut natural gas processing facility in northeastern British Columbia. Under the agreement, Provident and AltaGas will each own a 30 percent interest in the project. The 25 kilometre pipeline will serve as a trunk line to support the gathering of up to 250 million cubic feet per day of natural gas from the liquids-rich Montney area. The estimated cost to complete the pipeline is approximately $30 million, of which Provident has committed to spend $9 million which was included as part of the original 2011 capital budget.

2011 Sustaining Capital Unchanged

Management is maintaining the previously disclosed sustaining capital budget for 2011 of approximately $25 million. Provident plans to spend approximately $11 million on normal course maintenance operations and approximately $14 million in onetime replacement costs representing the sustaining capital component for the Taylor to Boundary Lake pipeline project. Management estimates a future annual run rate of approximately $8 million to $12 million for sustaining capital requirements.

Adjusted EBITDA Guidance Unchanged

Given current forward pricing, management is maintaining its 2011 Adjusted EBITDA guidance range of $200 million to $250 million, subject to market and operational assumptions including normal weather conditions. This guidance is based, in part, on average price assumptions for April through December 2011 of U.S. WTI crude $100.60/bbl, AECO gas $3.60/GJ, Cdn/U.S. dollar exchange rate of $0.97, and a Mont Belvieu propane price at 55 percent of crude oil. This guidance also assumes that extraction premiums at Empress for 2011 will be near the high end of the historical average range between $1 and $7 per gigajoule.

May 2011 Cash Dividend

The May cash dividend of $0.045 per share is payable on June 15, 2011 and will be paid to shareholders of record on May 26, 2011. The ex-dividend date will be May 24, 2011. Provident's 2011 annualized dividend rate is $0.54 per common share. Based on the current annualized dividend rate and the TSX closing price on May 10, 2011 of $8.86, Provident's yield is approximately 6 percent.

For shareholders receiving their dividends in U.S. funds, the May 2011 cash dividend will be approximately US$0.05 per share based on an exchange rate of 1.0406. The actual U.S. dollar dividend will depend on the Canadian/U.S. dollar exchange rate on the payment date and will be subject to applicable withholding taxes.

Adoption of International Financial Reporting Standards (IFRS) Reporting

In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards and requires publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. This adoption date requires the restatement, for comparative purposes, of amounts reported by Provident for the annual and quarterly periods within the year ended December 31, 2010, including the opening statement of financial position as at January 1, 2010. Provident's first quarter 2011 interim consolidated financial statements reflect this change in accounting standards.

2011 First Quarter Conference Call

A conference call has been scheduled for Thursday, May 12, 2011 to discuss details regarding the 2011 first quarter results at 7:30 a.m. MDT (9:30 a.m. Eastern). To participate, please dial 416-695-6617 or 800-396-7098 approximately 10 minutes prior to the conference call. An archived recording of the call will be available for replay until May 19, 2011 by dialing 905-694-9451 or 800-408-3053 and entering passcode 2134082. Provident will also provide a replay of the call on its website at www.providentenergy.com.

Provident Energy Ltd. is a Calgary-based corporation that owns and manages a natural gas liquids (NGL) infrastructure and logistics business. Provident's Midstream facilities are strategically located in Western Canada and in the premium NGL markets in Eastern Canada and the U.S. Provident provides monthly cash dividends to its shareholders and trades on the Toronto Stock Exchange and the New York Stock Exchange under the symbols PVE and PVX, respectively.

This news release contains certain forward-looking statements concerning Provident, as well as other expectations, plans, goals, objectives, information or statements about future events, conditions, results of operations or performance that may constitute "forward-looking statements" or "forward-looking information" under applicable securities legislation. Such statements or information involve substantial known and unknown risks and uncertainties, certain of which are beyond Provident's control, including the impact of general economic conditions in Canada and the United States, 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, increased competition, the lack of availability of qualified personnel or management, pipeline design and construction, fluctuations in commodity prices, foreign exchange or interest rates, stock market volatility and obtaining required approvals of regulatory authorities.

Such forward-looking statements or information are based on a number of assumptions which may prove to be incorrect. In addition to other assumptions identified in this news release, assumptions have been made regarding, among other things, commodity prices, operating conditions, capital and other expenditures, and project development activities.

Although Provident believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Provident can give no assurance that such expectations will prove to be correct. Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Provident and described in the forward-looking statements or information.

The forward-looking statements or information contained in this news release are made as of the date hereof and Provident undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise unless so required by applicable securities laws. The forward-looking statements or information contained in this news release are expressly qualified by this cautionary statement.

Consolidated financial and operational highlights

    <<
    ($ 000s except per share data)               Three months ended March 31,
    -------------------------------------------------------------------------
                                          2011           2010       % Change
    -------------------------------------------------------------------------
    Product sales and service
     revenue                        $  519,100     $  472,940             10
    -------------------------------------------------------------------------
    Funds flow from continuing
     operations(1)                  $   53,585         46,839             14
    Funds flow from discontinued
     operations(1)                           -     $   12,678           (100)
    -------------------------------------------------------------------------
    Funds flow from operations(1)   $   53,585     $   59,517            (10)
    -------------------------------------------------------------------------
    Adjusted EBITDA - continuing
     operations(2)                  $   61,242     $   51,442             19
    Adjusted funds flow from
     continuing operations(3)       $   53,585     $   47,325             13
     Per weighted average share
      - basic and diluted           $     0.20     $     0.18             11
    Percent of adjusted funds flow
     from continuing operations, net
     of sustaining capital spending,
     paid out as declared dividends         75%           104%           (28)
    Adjusted EBITDA excluding
     strategic review and
     restructuring costs -
     continuing operations(2)       $   61,242     $   51,928             18
    Dividends to shareholders       $   36,324     $   47,634            (24)
     Per share                      $     0.14     $     0.18            (25)
    Net (loss) income from
     continuing operations          $  (11,985)    $   24,058              -
     Per weighted average share
      - basic and diluted           $    (0.04)    $     0.09              -
    Net loss                        $  (11,985)    $  (50,921)           (76)
     Per weighted average share
      - basic and diluted           $    (0.04)    $    (0.19)           (77)
    Capital expenditures
     - continuing operations        $   24,072     $    6,973            245
    Acquisitions - continuing
     operations                            $ -     $   22,074
    Weighted average shares
     outstanding (000s)
     - basic and diluted               268,918        264,498              2
    Provident Midstream NGL sales
     volumes (bpd)                     116,864        113,279              3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Consolidated
    -------------------------------------------------------------------------
                                         As at          As at
                                      March 31,   December 31,
    ($ 000s)                              2011           2010       % Change
    -------------------------------------------------------------------------
    Capitalization
     Long-term debt (including
      current portion)              $  451,323     $  473,754             (5)
     Shareholders' equity           $  546,816     $  588,207             (7)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Represents cash flow from operations before changes in working
        capital and site restoration expenditures.
    (2) Adjusted EBITDA is earnings before interest, taxes, depreciation,
        amortization, and other non-cash items - see "Reconciliation of Non-
        GAAP measures".
    (3) Adjusted funds flow from continuing operations excludes strategic
        review and restructuring costs.
    >>

Management's Discussion & Analysis

The following analysis provides a detailed explanation of Provident's operating results for the three months ended March 31, 2011 compared to the three months ended March 31, 2010 and should be read in conjunction with the consolidated financial statements of Provident. This analysis has been prepared using information available up to May 11, 2011.

Provident operates a midstream business in Canada and the United States and extracts, processes, markets, transports and offers storage of natural gas liquids (NGLs) within the integrated facilities at Younger in British Columbia, Redwater and Empress in Alberta, Kerrobert in Saskatchewan, Sarnia in Ontario, Superior in Wisconsin and Lynchburg in Virginia. Effective in the second quarter of 2010, Provident's Canadian oil and natural gas production business ("Provident Upstream" or "COGP") was accounted for as discontinued operations and comparative figures have been reclassified to conform with this presentation (see note 17 of the interim consolidated financial statements). As a result of Provident's conversion from an income trust to a corporation, effective January 1, 2011, references to "common shares", "shares", "share based compensation", "shareholders", "performance share units", "PSUs", "restricted share units", "RSUs", "premium dividend and dividend reinvestment share (DRIP) purchase plan", and "dividends" should be read as references to "trust units", "units", "unit based compensation", "unitholders", "performance trust units", "PTUs", "restricted trust units", "RTUs", "premium distribution, distribution reinvestment (DRIP) and optional unit purchase plan", and "distributions", respectively, for periods prior to January 1, 2011.

The reporting focuses on the financial and operating measurements management uses in making business decisions and evaluating performance. This analysis contains forward-looking information and statements. See "Forward-looking information" at the end of the analysis for further discussion.

The Company prepares its financial statements in accordance with Canadian generally accepted accounting principles as set out in the Handbook of the Canadian Institute of Chartered Accountants ("CICA Handbook"). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards ("IFRS"), and requires publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. This adoption date requires the restatement, for comparative purposes, of amounts reported by Provident for the annual and quarterly periods within the year ended December 31, 2010, including the opening consolidated statement of financial position as at January 1, 2010. Provident's first quarter 2011 interim consolidated financial statements reflect this change in accounting standards. For more information, see "Change in accounting policies".

The analysis refers to certain financial and operational measures that are not defined in generally accepted accounting principles (GAAP) in Canada. These non-GAAP measures include funds flow from operations, adjusted funds flow from continuing operations, adjusted EBITDA and further adjusted EBITDA to exclude strategic review and restructuring costs.

Management uses funds flow from operations to analyze operating performance. Funds flow from operations is reviewed, along with debt repayments and capital programs in setting monthly dividends. Funds flow from operations as presented is not intended to represent cash flow from operations or operating profits for the period nor should it be viewed as an alternative to cash provided by operating activities, net earnings or other measures of financial performance calculated in accordance with Canadian GAAP. All references to funds flow from operations throughout this report are based on cash provided by operating activities before changes in non-cash working capital and site restoration expenditures. See "reconciliation of non-GAAP measures".

Management uses adjusted EBITDA to analyze the operating performance of the business. Adjusted EBITDA as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculation of similar measures for other entities. Adjusted EBITDA as presented is not intended to represent cash provided by operating activities, net earnings or other measures of financial performance calculated in accordance with Canadian GAAP. All references to adjusted EBITDA throughout this report are based on earnings before interest, taxes, depreciation, amortization, and other non-cash items ("adjusted EBITDA"). See "reconciliation of non-GAAP measures".

"Adjusted funds flow from continuing operations" and "Adjusted EBITDA excluding strategic review and restructuring costs"

Two additional non-GAAP measures of "Adjusted funds flow from continuing operations" and "Adjusted EBITDA excluding strategic review and restructuring costs" have been provided and are also used in the calculation of certain ratios. The adjusted non-GAAP measures are provided as an additional measure to evaluate the performance of Provident's pure-play Midstream infrastructure and logistics business and to provide additional information to assess future funds flow and earnings generating capability. See "reconciliation of non-GAAP measures".

Recent developments

Corporate conversion

On January 1, 2011, the Trust completed a conversion from an income trust structure to a corporate structure pursuant to a plan of arrangement. The conversion resulted in the reorganization of the Trust into a publicly traded, dividend-paying corporation under the name "Provident Energy Ltd." Under the plan of arrangement, former holders of trust units of the Trust received one common share in Provident Energy Ltd. in exchange for each trust unit held in the Trust. Holders of the outstanding convertible debentures are entitled, upon conversion, to receive common shares in Provident Energy Ltd. on the same basis that they were entitled to receive trust units of the Trust prior to the corporate conversion.

This arrangement has been accounted for on a continuity of interests basis and accordingly, the consolidated financial statements reflect the financial position, results of operations and cash flows as if Provident Energy Ltd. had always carried on the business formerly carried on by the Trust. Assets, liabilities and equity balances have been carried over at the same amount as was previously recognized in the Trust.

Offer to purchase convertible debentures

On January 13, 2011, in connection with the corporate conversion, Provident Energy Ltd. announced an offer to purchase for cash its 6.5% convertible debentures maturing on August 31, 2012 (the "C series") and its 6.5% convertible debentures maturing on April 30, 2011 (the "D series") at a price equal to 101 percent of their principal amounts plus accrued and unpaid interest. The offer was completed on February 21, 2011 and resulted in Provident taking up and cancelling $4.1 million principal amount of C series debentures and $81.3 million principal amount of D series debentures. The transaction resulted in Provident recognizing a loss on repurchase of $1.2 million in financing charges in the consolidated statement of operations. The total offer price, including accrued and unpaid interest, was funded by Provident Energy Ltd.'s existing revolving term credit facility. Following the completion of the offer, approximately $94.9 million principal amount of the C series debentures and approximately $68.6 million principal amount of the D series debentures remained outstanding in accordance with their terms (also see note 18 - Subsequent events of the interim consolidated financial statements).

Septimus to Younger pipeline project

On March 2, 2011, Provident announced an agreement between Provident Energy Ltd., AltaGas Ltd. ("AltaGas"), and a senior producer, to construct a 16-inch rich gas pipeline from a Montney gas plant to the AltaGas/Provident Younger deep cut natural gas processing facility in northeastern British Columbia. Under the agreement, Provident and AltaGas will each own a 30 percent interest in the project. The 25 kilometre pipeline will serve as a trunk line to support the gathering of up to 250 million cubic feet per day of natural gas from the liquids-rich Montney area. The estimated cost to complete the pipeline is approximately $30 million, of which Provident has committed to spend $9 million.

Public offering of convertible unsecured subordinated debentures

On May 10, 2011, Provident issued $150 million aggregate principal amount of convertible unsecured subordinated debentures (the Debentures). Provident has granted to the underwriters an over-allotment option to purchase up to an additional $22.5 million aggregate principal amount of Debentures, exercisable in whole or in part any time for a period of up to 30 days following closing of the offering. The Debentures bear interest at 5.75% per annum, payable semi-annually in arrears on June 30 and December 31 each year commencing December 31, 2011 and mature on December 31, 2018.

Provident intends to initially use the net proceeds from the offering to repay indebtedness under its credit facility which will then be available to be drawn, as required, to fund the redemption of all of the outstanding principal amount of Provident's 6.5% convertible debentures maturing on August 31, 2012 and for general corporate purposes.

Redemption of outstanding 6.5% convertible unsecured subordinated debentures

On April 18, 2011, Provident announced its intention to redeem all of the outstanding aggregate principal amount of the 6.5% convertible unsecured debentures (the 6.5% Debentures) maturing on August 31, 2012 at a redemption price equal to $1,000 in cash per $1,000 principal amount of 6.5% Debentures, plus accrued and unpaid interest, as of the redemption date of May 25, 2011. Interest on the 6.5% Debentures will cease to be payable from and after the redemption date. As of May 10, 2011, there was approximately $95 million aggregate principal amount of 6.5% Debentures outstanding.

Reconciliation of non-GAAP measures

Provident calculates earnings before interest, taxes, depreciation, amortization, and other non-cash items (adjusted EBITDA) and adjusted EBITDA excluding strategic review and restructuring costs within its MD&A disclosure. These are non-GAAP measures. A reconciliation between adjusted EBITDA and loss from continuing operations before taxes follows:

    <<
    Continuing operations                        Three months ended March 31,
    -------------------------------------------------------------------------
    ($ 000s)                              2011           2010       % Change
    -------------------------------------------------------------------------
    Income before taxes             $   18,418     $    6,532            182
    Adjusted for:
    Financing charges                   11,386          6,151             85
    Unrealized loss on financial
     derivative instruments             17,408         31,598            (45)
    Depreciation and amortization       10,865         10,702              2
    Unrealized foreign exchange
     loss and other                        183            628            (71)
    Loss on revaluation of
     conversion feature of
     convertible debentures              4,762              -              -
    Non-cash share based
     compensation recovery              (1,780)        (4,169)           (57)
    -------------------------------------------------------------------------
    Adjusted EBITDA                 $   61,242     $   51,442             19
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Adjusted for:
    Strategic review and
     restructuring costs            $       -      $      486           (100)
    -------------------------------------------------------------------------
    Adjusted EBITDA excluding
     strategic review and
     restructuring costs            $   61,242     $   51,928             18
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

The following table reconciles funds flow from operations and adjusted funds flow from continuing operations with cash provided by operating activities:

    <<
    Reconciliation of funds flow
     from continuing operations                  Three months ended March 31,
    -------------------------------------------------------------------------
    ($ 000s)                              2011           2010       % Change
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                     $   76,500     $   80,761             (5)
    Change in non-cash operating
     working capital                   (22,915)       (22,283)             3
    Site restoration expenditures -
     discontinued operations                 -          1,039           (100)
    -------------------------------------------------------------------------
    Funds flow from operations          53,585         59,517            (10)
    -------------------------------------------------------------------------
    Funds flow from discontinued
     operations                              -        (12,678)          (100)
    Strategic review and
     restructuring costs                     -            486           (100)
    -------------------------------------------------------------------------
    Adjusted funds flow from
     continuing operations          $   53,585     $   47,325             13
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Funds flow from continuing operations and dividends

    <<
                                                 Three months ended March 31,
    -------------------------------------------------------------------------
    ($ 000s, except per share data)       2011           2010       % Change
    -------------------------------------------------------------------------
    Funds flow from continuing
     operations and dividends
    Funds flow from continuing
     operations                     $   53,585     $   46,839             14
    Adjusted funds flow from
     continuing operations(1)       $   53,585     $   47,325             13
     Per weighted average share
      - basic and diluted           $     0.20     $     0.18             11
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Declared dividends              $   36,324     $   47,634            (24)
     Per share                      $     0.14     $     0.18            (25)
    Percent of adjusted funds flow
     from continuing operations,
     net of sustaining capital
     spending, paid out as declared
     dividends                              75%           104%           (28)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Adjusted funds flow from operations excludes strategic review and
        restructuring costs.
    >>

First quarter 2011 adjusted funds flow from continuing operations was $53.6 million, a 13 percent improvement from the $47.3 million recorded in the first quarter of 2010 and consistent with a 13 percent increase in gross operating margins during the first quarter of 2011 compared to the first quarter of 2010.

Declared dividends in the first quarter of 2011 totaled $36.3 million, 75 percent of adjusted funds flow from continuing operations, net of sustaining capital spending. This compares to $47.6 million of declared distributions in the first quarter of 2010, 104 percent of adjusted funds flow from continuing operations, net of sustaining capital spending.

Outlook

The following outlook contains forward-looking information regarding possible events, conditions or results of operations in respect of Provident that is based on assumptions about future economic conditions and courses of action. There are a number of risks and uncertainties which could cause actual events or results to differ materially from those anticipated by Provident and described in the forward-looking information. See "Forward-looking information" in this MD&A for additional information regarding assumptions and risks in respect of Provident's forward-looking information.

Given current forward pricing, management is maintaining its 2011 adjusted EBITDA guidance range of $200 million to $250 million, subject to market and operational assumptions including normal weather conditions. This guidance is based, in part, on average price assumptions for April through December 2011 of U.S. WTI crude $100.60/bbl, AECO gas $3.60/GJ, Cdn/U.S. dollar exchange rate of $0.97, and a Mont Belvieu propane price at 55 percent of crude oil. This guidance also assumes that extraction premiums at Empress for 2011 will be near the high end of the historical average range between $1 and $7 per gigajoule. Similar to prior years, due to the seasonal nature of the demand and pricing for natural gas liquids (NGL) products, Provident anticipates higher adjusted EBITDA will be generated in the first and fourth quarters of 2011.

Provident has increased its 2011 growth capital budget from approximately $70 million to approximately $105 million. The 50 percent increase provides an additional $35 million of growth capital, which includes $24 million directed towards the new growth initiatives as described below, approximately $18 million of scope enhancements and cost increases at Corunna, offset by the deferral of a previously announced $7 million debottlenecking initiative at Redwater until 2012 to align the project timing with the start-up of incremental volumes that will be secured at the Younger facility as a result of the Septimus to Younger pipeline project currently underway.

1. Redwater Cavern Development Accelerated

Driven by substantial demand for new storage services at Redwater, Provident plans to deploy an additional $14 million in 2011 towards cavern and related infrastructure development, including the drilling of a new previously unannounced cavern during the summer of 2011. With this new addition, Provident will have five caverns or approximately 2.5 million barrels of storage capacity in various stages of development at Redwater. One of these caverns may be designated as a replacement in the future, as required.

2. Empress East NGL Infrastructure Project Announced

Provident has approved $10 million of additional growth capital in 2011 to develop a new project that will provide incremental NGL volumes into Provident's Empress East System. Details regarding the project will be released once commercial arrangements have been finalized.

During the first quarter of 2011, Provident announced an agreement between Provident Energy Ltd., AltaGas Ltd., and a senior producer, to construct a 16-inch rich gas pipeline from a Montney gas plant to the AltaGas/Provident Younger deep cut natural gas processing facility in northeastern British Columbia. Under the agreement, Provident and AltaGas will each own a 30 percent interest in the project. The 25 kilometre pipeline will serve as a trunk line to support the gathering of up to 250 million cubic feet per day of natural gas from the liquids-rich Montney area. The estimated cost to complete the pipeline is approximately $30 million, of which Provident has committed to spend $9 million which was included as part of the original 2011 capital budget.

During the first quarter of 2011, Provident began construction to upgrade and replace an aging section of the Taylor to Boundary Lake Pipeline on its Liquids Gathering System. Provident plans to spend $28 million in 2011 to complete the project, half of which will be allocated as growth capital.

Management is maintaining the previously disclosed sustaining capital budget for 2011 of approximately $25 million. Provident plans to spend approximately $11 million on normal course maintenance operations and approximately $14 million in onetime replacement costs representing the sustaining capital component for the Taylor to Boundary Lake pipeline project. Management estimates a future annual run rate of approximately $8 million to $12 million for sustaining capital requirements.

Provident continues to pursue new business development opportunities around all of its facilities with a specific focus on the Montney and Marcellus natural gas plays, as well as from opportunities surrounding the Alberta oilsands.

Provident Midstream operating results review

The Midstream business

Provident's Midstream business extracts, processes, stores, transports and markets NGLs and offers these services to third party customers. In order to aid in the understanding of the business, this MD&A provides information about the associated business activities of the Midstream operation comprising Empress East, Redwater West and Commercial Services. The assets are integrated across Canada and the U.S., and are also used to generate fee-for-service income. The business is supported by an integrated supply, marketing and distribution function that contributes to the overall operating margin of the Company.

Provident's integrated marketing and distribution arm has offices in Calgary, Alberta, Sarnia, Ontario, and Houston, Texas and operates under the brand name Kinetic. Rather than selling NGL produced by the Empress East and Redwater West facilities at the plant gate, the marketing and logistics group utilizes Provident's integrated suite of transportation, storage and logistics assets to access markets across North America. Due to its broad marketing scope, Provident's NGL products are priced based on multiple pricing indices. These indices generally correspond with the four major NGL trading hubs in North America which are located in Mont Belvieu, Texas, Conway, Kansas, Edmonton, Alberta, and Sarnia, Ontario. Mont Belvieu, the largest NGL trading center, serves as the reference point for NGL pricing in North America. By strategically building inventories of specification products during lower priced periods which can then be distributed into premium-priced markets across North America during periods of high seasonal demand, Provident is able to optimize the margins it earns from its extraction and fractionation operations. Provident's marketing group also generates arbitrage trading margins by taking advantage of trading opportunities created by locational price differentials.

Market environment

Provident's performance is closely tied to market prices for NGL and natural gas, which can vary significantly from period to period. The key reference prices impacting Midstream gross operating margins are summarized in the following table:

    <<
    Midstream business reference prices          Three months ended March 31,
    -------------------------------------------------------------------------
                                          2011           2010       % Change
    -------------------------------------------------------------------------
    WTI crude oil (US$ per barrel)  $    94.10     $    78.71             20
    Exchange rate (from US$ to
     Cdn$)                                0.99           1.04             (5)
    WTI crude oil expressed in Cdn$
     per barrel                     $    92.78     $    81.93             13
    AECO natural gas monthly index
     (Cdn$ per gj)                  $     3.58     $     5.08            (30)
    Frac Spread Ratio (1)                 25.9           16.1             61
    Mont Belvieu Propane (US$ per
     US gallon)                     $     1.40     $     1.25             12
    Mont Belvieu Propane expressed
     as a percentage of WTI                 62%            67%            (7)
    Market Frac Spread in Cdn$ per
     barrel (2)                     $    50.34     $    38.92             29
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Frac spread ratio is the ratio of WTI expressed in Canadian dollars
        per barrel to the AECO monthly index (Cdn$ per gj).
    (2) Market frac spread is determined using average spot prices at Mont
        Belvieu, weighted based on 65% propane, 25% butane, and 10%
        condensate, and the AECO monthly index price for natural gas.
    >>

The NGL pricing environment in the first quarter of 2011 was significantly stronger than in the first quarter of 2010. The average first quarter 2011 WTI crude oil price was US$94.10 per barrel, representing an increase of 20 percent compared to the first quarter of 2010. The impact of higher WTI crude oil prices was partially offset by the strengthening of the Canadian dollar relative to the U.S. dollar in the first quarter of 2011 compared to the first quarter of 2010. Propane prices were also stronger than in the comparative period, tracking the increase in crude oil prices and reflecting North American supply resulting from above average exports and stronger demand from the petrochemical sector. The Mont Belvieu propane price averaged US$1.40 per U.S. gallon (62 percent of WTI) in the first quarter of 2011, compared to US$1.25 per U.S. gallon (67 percent of WTI) in the first quarter of 2010. Butane and condensate sales prices were also much improved in the first quarter of 2011, also reflective of higher crude oil prices and steady petrochemical and oilsands demand for these products.

The first quarter 2011 AECO natural gas price averaged $3.58 per gj compared to $5.08 per gj during the first quarter of 2010, a decrease of 30 percent. While low natural gas prices are generally favorable to NGL extraction and fractionation economics, a sustained period in a low priced gas environment may impact the availability and overall cost of natural gas and NGL mix supply in western Canada, as natural gas producers may elect to shut-in production or reduce drilling activities. Continued softness in natural gas prices have improved market frac spreads but have also caused increased extraction premiums paid for natural gas supply in western Canada, particularly at Empress.

The margins generated from Provident's extraction operations at Empress, Alberta and Younger, British Columbia are determined primarily by "frac spreads", which represent the difference between the selling prices for propane-plus and the input cost of the natural gas required to produce the respective NGL products. Frac spreads can change significantly from period to period depending on the relationship between crude oil and natural gas prices (the "frac spread ratio"), absolute commodity prices, and changes in the Canadian to U.S. dollar foreign exchange rate. Traditionally a higher frac spread ratio and higher crude oil prices will result in stronger extraction margins. Differentials between propane-plus and crude oil prices, as well as location price differentials will also impact frac spread. Natural gas extraction premiums and costs relating to transportation, fractionation, storage and marketing are not included within frac spreads, however these costs are included when determining operating margin.

Market frac spreads averaged $50.34 per barrel during the first quarter of 2011, representing a 29 percent increase from $38.92 per barrel during the first quarter of 2010. Higher frac spreads were a result of higher NGL sales prices combined with a lower AECO natural gas price. While Provident benefits directly from higher frac spreads at its Younger facility, the benefit of higher market frac spreads in the first quarter of 2011 was offset at Empress by continued high costs for natural gas supply in the form of extraction premiums. Empress extraction premiums increased approximately 30 percent when compared to the first quarter of 2010 and are primarily a result of low volumes of natural gas flowing past the Empress straddle plants and increased competition for NGLs as a result of higher frac spread ratios. While Empress border flow increased five percent to an average of approximately 5.7 bcf per day in the first quarter of 2011 compared to the first quarter of 2010, Empress border flow rates remain low compared to historical averages. Lower natural gas throughput directly impacts production at the Empress facilities which in turn reduces the supply of propane-plus available for sale in Sarnia and in surrounding eastern markets. Tighter supply at Sarnia may have a positive impact on eastern sales prices relative to other major propane hubs, including Mont Belvieu and Sarnia, during periods of high demand.

Provident has partially mitigated the impact of lower natural gas based NGL supply at Empress through the purchase of NGL mix supply in western Canada. In the first quarter of 2010, Provident completed the construction of a truck rack at its Provident Empress facility and began trucking in NGL mix supply on April 1, 2010. The mix is then transported to the premium-priced Sarnia market for fractionation and sale. Provident is also purchasing NGL mix supply from other Empress plant owners and in the Edmonton market. While gross operating margins benefit from the addition of NGL mix supply, per unit margins are impacted as margins earned on frac spread gas extraction are typically higher than margins earned on NGLs purchased on a mix basis.

Industry propane inventories in the United States were approximately 26 million barrels as at the end of the first quarter of 2011, representing a decrease of approximately two million barrels compared to the prior year quarter, and are approximately four million barrels below the five year historical average. Inventory levels are at the lower range of the five year historical average primarily due to the continued strong demand from the petrochemical sector and above average exports from the U.S. Gulf Coast to Central and South American markets. Canadian industry propane inventories were approximately two million barrels at the end of the first quarter of 2011, one million barrels lower than the end of the first quarter of 2010 and one million barrels lower than the historic five year average. Propane inventories have decreased compared to the prior year quarter primarily due to strong winter demand for propane in 2011.

Provident Midstream business performance

Provident Midstream results can be summarized as follows:

    <<
                                                 Three months ended March 31,
    -------------------------------------------------------------------------
    (bpd)                                 2011           2010       % Change
    -------------------------------------------------------------------------
    Redwater West NGL sales volumes     62,632         61,962              1
    Empress East NGL sales volumes      54,232         51,317              6
    -------------------------------------------------------------------------
    Provident Midstream NGL sales
     volumes                           116,864        113,279              3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                 Three months ended March 31,
    -------------------------------------------------------------------------
    ($ 000s)                              2011           2010       % Change
    -------------------------------------------------------------------------
    Redwater West margin         $      52,725     $   44,191             19
    Empress East margin                 32,808         28,178             16
    Commercial Services margin          14,943         16,528            (10)
    -------------------------------------------------------------------------
    Gross operating margin             100,476         88,897             13
    Realized loss on financial
     derivative instruments            (24,606)       (22,092)            11
    Cash general and administrative
     expenses                          (13,842)       (13,721)             1
    Realized foreign exchange loss
     and other                            (786)        (1,156)           (32)
    -------------------------------------------------------------------------
    Adjusted EBITDA excluding
     strategic review and
     restructuring costs                61,242         51,928             18
    Strategic review and
     restructuring costs                     -           (486)          (100)
    -------------------------------------------------------------------------
    Adjusted EBITDA              $      61,242     $   51,442             19
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Gross operating margin

Midstream gross operating margin during the first quarter of 2011 totaled $100.5 million, an increase of 13 percent compared to the same period in the prior year. The increase in operating margin is the result of a higher contribution from both Redwater West and Empress East by 19 percent and 16 percent, respectively, partially offset by a 10 percent decrease in operating margin from Commercial Services.

Redwater West

Provident purchases NGL mix from various natural gas producers and fractionates it into finished products at the Redwater fractionation facility near Edmonton, Alberta. Redwater West also includes natural gas supply volumes from the Younger NGL extraction plant located at Taylor in northeastern British Columbia. The Younger plant supplies specification NGLs to local markets as well as NGL mix supply to the Fort Saskatchewan area for fractionation and sale. The feedstock for Redwater West is primarily NGL mix rather than natural gas, therefore frac spreads have a smaller impact on operating margin than in Empress East.

Also located at the Redwater facility is Provident's industry leading rail-based condensate terminal, which serves the heavy oil industry and its need for diluent. Provident's condensate terminal is the largest of its size in western Canada. In the latter half of 2009, Provident placed two 500,000 barrel storage caverns into condensate service at Redwater. Income generated from the condensate terminal and caverns which relates to third-party terminalling and storage is included within Commercial Services, while income relating to proprietary condensate marketing activities remains within Redwater West.

The first quarter 2011 operating margin for Redwater West was $52.7 million, an increase of 19 percent compared to $44.2 million in the first quarter of 2010. Strong first quarter 2011 results were primarily due to an increase in ethane sales volumes as well stronger market pricing and higher frac spreads at Younger which resulted in higher per barrel product margins being realized on all NGL products. Overall, Redwater West NGL sales volumes averaged 62,632 barrels per day in the first quarter of 2011, slightly higher than the prior year quarter. Higher sales volumes can be largely attributed to increase production which was driven by strong year over year contracting for NGL supply. During the contracting season for the April 2010/2011 NGL year, Provident was able to replace prior year production declines and gain new incremental sources of NGL mix supply. Provident has also benefited from additional gas supply volumes at the Younger extraction plant as a result of the recently completed South Peace Pipeline. The South Peace Pipeline brings natural gas from the rapidly developing Montney area in northeast British Columbia to Younger for processing.

Ethane margins were higher in the first quarter of 2011 relative to the comparative period, benefiting from an increase in production as well as a higher per barrel product margin. Propane margins were flat in the first quarter of 2011 compared to the prior year quarter as lower volumes were offset by higher per barrel product margins. Butane margins increased as a result of strong refinery demand and increases in market prices in the first quarter of 2011. Condensate sales also contributed to the increased Redwater West gross operating margin in the first quarter of 2011 as increased market prices offset slightly lower condensate sales volumes.

Empress East

Provident extracts NGLs from natural gas at the Empress straddle plants and sells finished products into markets in central Canada and the eastern United States. The margin in the business is determined primarily by frac spreads. Demand for propane is seasonal and results in inventory that generally builds over the second and third quarters of the year and is sold in the fourth quarter and the first quarter of the following year.

Empress East gross operating margin was $32.8 million in the first quarter of 2011 compared to $28.2 million in the same quarter of 2010. The 16 percent increase was due to increased sales volumes associated with strong demand for propane in the first quarter of 2011 when compared to the same quarter of 2010 as well as strong refinery demand for butane in the first quarter of 2011. Overall, Empress East NGL sales volumes averaged 54,232 barrels per day, a six percent increase compared to the first quarter of 2010. Stronger market prices for propane plus products and lower gas prices resulted in higher frac spreads which was also beneficial to gross operating margin. The positive impacts of strong demand, higher NGL sales prices and a lower AECO natural gas price were offset by increased premiums paid to purchase natural gas in the Empress market.

Commercial Services

Provident also utilizes its assets to generate income from fee-for-service contracts to provide fractionation, storage, NGL terminalling, loading and offloading services. Income from pipeline tariffs from Provident's ownership in NGL pipelines is also included in this activity. Provident is currently in the process of developing three additional 500,000 barrel underground storage caverns which will be primarily contracted out on a fee-for service basis.

Commerical Services operating margin in the first quarter of 2011 was $14.9 million, representing a decrease of 10 percent compared to the same period in 2010. The decrease in margin was primarily associated with decreased condensate terminalling revenues partly as a result of the termination of a multi-year condensate storage and terminalling services agreement as well as the completion in mid-2010 of the Enbridge Southern Lights pipeline, which transports condensate from the United States to the Edmonton area.

Earnings before interest, taxes, depreciation, amortization, accretion, and non-cash items ("adjusted EBITDA")

First quarter 2011 adjusted EBITDA excluding strategic review and restructuring costs increased to $61.2 million from $51.9 million in the first quarter of 2010 reflecting higher gross operating margins from both Redwater West and Empress East.

Capital expenditures

Midstream capital expenditures for the first quarter of 2011 totaled $24.1 million compared to $7.0 million in the first quarter of 2010. First quarter capital expenditures of $19.1 million were primarily directed towards cavern development and terminalling infrastructure at the Provident Corunna facility near Sarnia, Ontario, cavern and brine pond development at the Redwater fractionation facility in Redwater, Alberta as well as various pipeline improvements and developments and office related capital. An additional $5.0 million was directed to sustaining capital activities, including $3.8 million associated with the replacement of the Taylor to Boundary Lake Pipeline. In the first quarter of 2010, capital expenditures of $5.7 million were primarily directed towards cavern development at the Redwater fractionation facility, the construction of a truck rack at the Provident Empress plant and office related capital. An additional $1.3 million was directed to sustaining capital activities.

Net loss

    <<
    Consolidated                                 Three months ended March 31,
    -------------------------------------------------------------------------
    ($ 000s, except per share data)       2011           2010       % Change
    -------------------------------------------------------------------------
    Net (loss) income from
     continuing operations          $  (11,985)    $   24,058              -
    Net loss from discontinued
     operations                              -        (74,979)          (100)
    -------------------------------------------------------------------------
    Net loss                        $  (11,985)    $  (50,921)           (76)
    -------------------------------------------------------------------------
    Per weighted average share
     - basic and diluted (1)        $    (0.04)    $    (0.19)           (77)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Based on weighted average number of shares outstanding.
    >>

In the first quarter of 2011, Provident recorded net loss of $12.0 million compared to $50.9 million in the comparable 2010 quarter. Net loss in the first quarter of 2010 was impacted by a net loss from discontinued operations of $75.0 million.

Net loss from continuing operations for the first quarter of 2011 was $12.0 million, compared to net income of $24.1 million in the first quarter of 2010. Higher adjusted EBITDA and lower unrealized losses on financial derivative instruments were more than offset by increased deferred tax expense and higher financing charges. In the first quarter of 2011, Provident incurred a deferred tax expense of $30.4 million compared to a $17.6 million deferred tax recovery in the same period in 2010.

Taxes

    <<
    Continuing operations                        Three months ended March 31,
    -------------------------------------------------------------------------
    ($ 000s)                              2011           2010       % Change
    -------------------------------------------------------------------------
    Current tax expense             $       10     $      107            (91)
    Deferred income tax expense
     (recovery)                         30,393        (17,633)             -
    -------------------------------------------------------------------------
                                    $   30,403     $  (17,526)             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

As a result of Provident's adoption of IFRS, the balance of deferred income taxes on the December 31, 2010 statement of financial position has increased by $22.3 million when compared to the previous Canadian GAAP amount (see note 5 of the interim consolidated financial statements). This IFRS difference is primarily due to the tax rate applied to temporary differences associated with SIFT entities. Under previous Canadian GAAP, Provident used the rate expected to be in effect when the timing differences reverse. However, under IFRS, Provident is required to use the highest rate applicable for undistributed earnings in these entities. Upon conversion to a corporation on January 1, 2011, these timing differences are now measured under IFRS using a corporate tax rate and, as a result, the majority of the IFRS difference at December 31, 2010 for deferred income taxes has reversed through first quarter 2011 net earnings, resulting in incremental deferred tax expense of approximately $24 million. The deferred tax recovery in the first quarter of 2010 is primarily driven by losses created by interest deductions at the incorporated subsidiary level under the previous Trust structure and unrealized losses on financial derivative instruments.

Financing charges

    <<
    Continuing operations                        Three months ended March 31,
    -------------------------------------------------------------------------
    ($ 000s, except as noted)             2011           2010       % Change
    -------------------------------------------------------------------------
    Interest on bank debt           $    1,753     $      981             79
    Interest on convertible
     debentures                          5,931          4,046             47
    Discontinued operations portion          -           (532)          (100)
    -------------------------------------------------------------------------
    Total cash financing charges    $    7,684     $    4,495             71
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average interest rate
     on all long-term debt                 5.8%           4.3%            35
    Loss on purchase of convertible
     debentures                          1,232              -              -
    Accretion and other non-cash
     financing charges                   2,470          2,399              3
    Discontinued operations portion          -           (743)          (100)
    -------------------------------------------------------------------------
    Total financing charges         $   11,386     $    6,151             85
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Financing charges increased in the first quarter of 2011 as compared to the same quarter in 2010. Higher interest rates have resulted in higher interest expense on bank debt in the first quarter of 2011 relative to the prior year quarter. Following the Upstream sale in the second quarter of 2010, Provident entered into a new credit agreement which included an increase in borrowing rates to current market pricing. In addition, the prior period includes an allocation of interest expense and associated financing charges to discontinued operations. Financing charges also increased in the first quarter of 2011 relative to the prior year quarter as a result of a new series of convertible debentures that were issued in November 2010 and a loss on purchase of convertible debentures in February 2011.

Commodity price risk management program

Provident's disciplined risk management program utilizes financial derivative instruments to provide protection against commodity price volatility and protect a base level of operating cash flow. Provident has entered into financial derivative contracts through March 2013 to protect the spread between the purchase cost of natural gas and the sales price of propane, butane and condensate. The program also reduces foreign exchange risk due to the exposure arising from the conversion of U.S. dollars into Canadian dollars, interest rate risk and fixes a portion of Provident's input costs.

The commodity price derivative instruments Provident uses include put and call options, costless collars, participating swaps, and fixed price products that settle against indexed referenced pricing.

Provident's credit policy governs the activities undertaken to mitigate non-performance risk by counterparties to financial derivative instruments. Activities undertaken include regular monitoring of counterparty exposure to approved credit limits, financial reviews of all active counterparties, utilizing International Swap Dealers Association (ISDA) agreements and obtaining financial assurances where warranted. In addition, Provident has a diversified base of available counterparties.

Management continues to actively monitor commodity price risk and continues to mitigate its impact through financial risk management activities. Subject to market conditions, Provident's intention is to hedge approximately 50 percent of its natural gas and NGL volumes on a rolling 12 month basis. Also, subject to market conditions, Provident may add additional positions as appropriate for up to 24 months. A summary of Provident's current financial derivative positions is available on Provident's website at www.providentenergy.com/bus/riskmanagement/commodity.cfm.

A summary of Provident's risk management contracts executed during the first quarter of 2011 is contained in the following table.

Activity in the First Quarter:

    <<
                            Volume                                  Effective
    Year Product          (Buy)/Sell                      Terms        Period
    -------------------------------------------------------------------------
    2011 Crude Oil       1,334  Bpd     US $105.27 per bbl(2)(8)    April 1 -
                                                                December 31
                         2,059  Bpd     US $100.36 per bbl(2)(9)    April 1 -
                                                                December 31
         Natural Gas    (9,578) Gjpd      Cdn $3.76 per gj(3)(8)    April 1 -
                                                                December 31
         Propane         1,055  Bpd  US $1.2487 per gallon(4)(8)    April 1 -
                                                                December 31
         Normal Butane     891  Bpd  US $1.6235 per gallon(6)(8)    April 1 -
                                                                December 31
                        (1,883) Bpd  US $1.7187 per gallon(5)(9)    April 1 -
                                                                December 31
                           815  Bpd  US $1.7975 per gallon(5)(8)  October 1 -
                                                                December 31
         ISO Butane       (793) Bpd  US $1.7456 per gallon(7)(9)    April 1 -
                                                                December 31
    2012 Crude Oil       2,364  Bpd     US $102.54 per bbl(2)(8)  January 1 -
                                                                   March 31
                         2,390  Bpd      US $97.16 per bbl(2)(9)  January 1 -
                                                                   March 31
         Natural Gas   (10,265) Gjpd      Cdn $4.25 per gj(3)(8)  January 1 -
                                                                December 31
         Normal Butane  (1,995) Bpd  US $1.6576 per gallon(5)(9)  January 1 -
                                                                   March 31
         ISO Butane     (1,091) Bpd  US $1.6954 per gallon(7)(9)  January 1 -
                                                                   March 31
    2013 Natural Gas   (15,000) Gjpd      Cdn $4.58 per gj(3)(8)  January 1 -
                                                                   March 31
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The above table represents a number of transactions entered into over
        the first quarter of 2011
    (2) Crude Oil contracts are settled against NYMEX WTI calendar average.
    (3) Natural gas contracts are settled against AECO monthly index.
    (4) Propane contracts are settled against Mont Belvieu C3 TET.
    (5) Normal Butane contracts settled against Mont Belvieu NON TET NC4.
    (6) Normal Butane contracts settled against Mont Belvieu TET NC4.
    (7) ISO Butane contracts are settled against Mont Belvieu TET IC4.
    (8) Midstream Frac Spread contracts.
    (9) Midstream margin contracts.
    >>

Settlement of commodity contracts

The following table summarizes the impact of financial derivative contracts settled during the first quarters of 2011 and 2010.

    <<
    Realized loss on financial              Three months ended March 31,
     derivative instruments                  2011                  2010
    -------------------------------------------------------------------------
    ($ 000s except volumes)                     Volume(1)           Volume(1)
    -------------------------------------------------------------------------
     Crude oil                        $ (4,423)      0.2  $ (7,213)      0.7
     Natural gas                        (3,041)      6.6   (16,079)      5.2
     NGL's (includes propane, butane)  (18,140)      1.7       535       0.3
     Foreign exchange                      264               1,135
     Electricity                           722                (100)
     Interest rate                          12                (370)
    -------------------------------------------------------------------------
    Realized loss on financial
     derivative instruments           $(24,606)           $(22,092)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The above table represents aggregate net volumes that were
        bought/sold over the periods. Crude oil and NGL volumes are listed in
        millions of barrels and natural gas is listed in millions of
        gigajoules.
    >>

The realized loss on financial derivative instruments for the first quarter of 2011 was $24.6 million compared to $22.1 million in the comparable 2010 quarter. The majority of the realized loss in the first quarter of 2011 was driven by NGL derivative sales contracts settling at a contracted price lower than the current market NGL's market prices, natural gas purchase derivative contracts in the Midstream business settling at a contracted price higher than the market natural gas prices during the settlement period as well as crude oil derivative sales contracts settling at contracted crude oil prices lower than the crude oil market prices during the settlement period. The comparable first quarter 2010 realized loss was driven mostly by natural gas purchase derivative contracts in the Midstream business settling at a contracted price higher than the market natural gas prices during the settlement period and crude oil derivative sales contracts settling at contracted crude oil prices lower than the crude oil market prices during the settlement period.

Liquidity and capital resources

    <<
    Consolidated
    -------------------------------------------------------------------------
                                      March 31,   December 31,
    ($ 000s)                              2011           2010       % Change
    -------------------------------------------------------------------------
    Long-term debt - revolving term
     credit facility                $  133,928     $   72,882             84
    Long-term debt - convertible
     debentures (including current
     portion)                          317,395        400,872            (21)
    Working capital surplus
     (excluding financial derivative
     instruments)                      (50,160)       (79,633)           (37)
    -------------------------------------------------------------------------
    Net debt                        $  401,163     $  394,121              2
    -------------------------------------------------------------------------
    Shareholders' equity (at book
     value)                            546,816        588,207             (7)
    -------------------------------------------------------------------------
    Total capitalization at book
     value                          $  947,979     $  982,328             (3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total net debt as a percentage
     of total book value
     capitalization                         42%            40%             5
    -------------------------------------------------------------------------
    >>

Midstream revenues are received at various times throughout the month. Provident's working capital position is affected by commodity price changes as well as by seasonal fluctuations that reflect changing inventory balances in the Midstream business. Typically, Provident's inventory levels will increase in the second and third quarters when product demand is lower, and will decrease during the fourth and first quarters when product demand is at its highest. Provident relies on funds flow from operations, external lines of credit and access to equity markets to fund capital programs and acquisitions.

Substantially all of Provident's accounts receivable are due from customers in the oil and gas, petrochemical and refining and midstream services and marketing industries and are subject to credit risk. Provident partially mitigates associated credit risk by limiting transactions with certain counterparties to limits imposed by Provident based on management's assessment of the creditworthiness of such counterparties. In certain circumstances, Provident will require the counterparties to provide payment prior to delivery, letters of credit and/or parental guarantees. The carrying value of accounts receivable reflects management's assessment of the associated credit risks.

Long-term debt and working capital

The Trust entered into a credit agreement (the "Credit Facility") as of June 29, 2010, among the Trust, National Bank of Canada as administrative agent and a syndicate of Canadian chartered banks and other Canadian and foreign financial institutions (the "Lenders"). Pursuant to the Credit Facility, the Lenders have agreed to provide Provident with a credit facility of $500 million which under an accordion feature can be increased to $750 million at the option of the Trust, subject to obtaining additional commitments. The Credit Facility also provides for a separate $60 million Letter of Credit facility. As part of the corporate conversion on January 1, 2011, the Credit Facility was amended to reflect the assignment of the Credit Facility from the Trust to Provident Energy Ltd. which has assumed all covenants and obligations in respect of the Credit Facility following the conversion.

The terms of the Credit Facility provide for a revolving three year period expiring on June 28, 2013 (subject to customary extension provisions) secured by all of the assets of the Company and its subsidiaries. Provident may draw on the facility by way of Canadian prime rate loans, U.S. base rate loans, banker's acceptances, LIBOR loans, or letters of credit. As at March 31, 2011, Provident had drawn $138.9 million (including $2.4 million presented as a bank overdraft in accounts payable and accrued liabilities) or 28 percent of its Credit Facility (December 31, 2010 - $75.5 million or 15 percent). Included in the carrying value at March 31, 2011 were financing costs of $2.2 million (December 31, 2010 - $2.4 million). At March 31, 2011 the effective interest rate of the outstanding Credit Facility was 4.0 percent (December 31, 2010 - 4.1 percent). At March 31, 2011 Provident had $48.4 million in letters of credit outstanding (December 31, 2010 - $47.9 million) that guarantee Provident's performance under certain commercial and other contracts.

The following table shows the change in Provident's working capital position.

    <<
    -------------------------------------------------------------------------
                                         As at          As at
                                      March 31,   December 31,
    ($ 000s)                              2011           2010         Change
    -------------------------------------------------------------------------
    Current Assets
    Cash and cash equivalents       $        -     $    4,400     $   (4,400)
    Accounts receivable                190,841        206,631        (15,790)
    Petroleum product inventory         98,807        106,653         (7,846)
    Prepaid expenses and other
     current assets                      1,848          2,539           (691)
    Financial derivative
     instruments                         1,521            487          1,034
    Current Liabilities
    Accounts payable and accrued
     liabilities                       231,611        227,944         (3,667)
    Cash distribution payable            9,725         12,646          2,921
    Current portion of convertible
     debentures                         68,528        148,981         80,453
    Financial derivative
     instruments                        53,262         37,849        (15,413)
    -------------------------------------------------------------------------
    Working capital deficit         $  (70,109)    $ (106,710)    $   36,601
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

The ratio of long-term debt (including current portion) to adjusted EBITDA from continuing operations excluding buyout of financial derivative instruments and strategic review and restructuring costs for the twelve months ended March 31, 2011 was 1.9 to one compared to annual 2010 long-term debt to adjusted EBITDA from continuing operations excluding buyout of financial derivative instruments and strategic review and restructuring costs of 2.1 to one.

Share capital

On January 1, 2011, the Trust completed a conversion from an income trust structure to a corporate structure pursuant to a plan of arrangement. The conversion resulted in the reorganization of the Trust into a publicly traded, dividend-paying corporation under the name "Provident Energy Ltd." Pursuant to the conversion, unitholders exchanged all of their trust units for common shares on a one-for-one basis (see notes 1 and 12 of the interim consolidated financial statements).

Under Provident's Premium Dividend and Dividend Reinvestment (DRIP) purchase plan 0.9 million shares were issued or are to be issued in the first quarter of 2011 representing proceeds of $6.9 million (2010 - 0.9 million trust units for proceeds of $6.9 million).

At March 31, 2011 management and directors held less than one percent of the outstanding common shares.

Capital related expenditures and funding

    <<
                                                 Three months ended March 31,
    -------------------------------------------------------------------------
    ($ 000s)                              2011           2010       % Change
    -------------------------------------------------------------------------
    Capital related expenditures
    Capital expenditures            $  (24,072)    $   (6,973)           245
    Site restoration expenditures
     - discontinued operations               -         (1,039)          (100)
    Acquisitions                             -        (22,074)          (100)
    -------------------------------------------------------------------------
    Net capital related
     expenditures                   $  (24,072)    $  (30,086)           (20)
    -------------------------------------------------------------------------
    Funded by
    Funds flow from operations net
     of declared dividends to
     shareholders and DRIP proceeds $   24,179     $   18,806             29
    Cash provided by investing
     activities from discontinued
     operations                              -        150,286           (100)
    Repayment of debentures            (86,285)             -              -
    Increase (decrease) in
     long-term debt                     60,802       (164,590)             -
    Change in working capital,
     including cash                     25,376         25,584             (1)
    -------------------------------------------------------------------------
    Net capital related expenditure
     funding                        $   24,072     $   30,086            (20)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Provident has funded its net capital expenditures with funds flow from operations and long-term debt. In 2010, cash provided by investing activities from discontinued operations, which includes proceeds on sale of assets from the first quarter sales of oil and natural gas assets in West Central Alberta and the investment in Emerge Oil and Gas Inc., was applied to Provident's revolving term credit facility.

Share based compensation

Share based compensation includes expenses or recoveries associated with Provident's restricted and performance share plan. Share based compensation is recorded at the estimated fair value of the notional shares granted. Compensation expense associated with the plan is recognized in earnings over the vesting period of each grant. The expense or recovery associated with each period is recorded as non-cash share based compensation (a component of general and administrative expense). A portion relating to operational employees at field and plant locations is also allocated to operating expense. For the three months ended March 31, 2011, Provident recorded share based compensation expense from continuing operations of $4.9 million (2010 - $3.0 million) and made related cash payments of $6.3 million (2010 - $6.9 million). The expense was higher in 2011 as a result of an increase in the period of Provident's share trading price upon which the compensation is based. At March 31, 2011, the current portion of the liability totaled $10.9 million (December 31, 2010 - $7.4 million) and the long-term portion totaled $4.5 million (December 31, 2010 - $10.4 million).

Discontinued operations (Provident Upstream)

On June 29, 2010, Provident completed a strategic transaction in which Provident combined the remaining Provident Upstream business with Midnight Oil Exploration Ltd. ("Midnight") to form Pace Oil & Gas Ltd. pursuant to a plan of arrangement under the Business Corporations Act (Alberta). Under the arrangement, Midnight acquired all outstanding shares of Provident Energy Resources Inc., a wholly-owned subsidiary of Provident Energy Trust which held all of the producing oil and gas properties and reserves associated with Provident's Upstream business. Effective in the second quarter of 2010, Provident's Upstream business is accounted for as discontinued operations.

Dividends and distributions

The following table summarizes dividends and distributions paid as declared by Provident since inception:

    <<
                                              Distribution / Dividend Amount
    Per share / unit                                    (Cdn$)       (US$)(i)
    -------------------------------------------------------------------------
    2001 Cash Distributions paid as declared
     - March 2001 - December 2001                  $     2.54     $     1.64
    2002 Cash Distributions paid as declared             2.03           1.29
    2003 Cash Distributions paid as declared             2.06           1.47
    2004 Cash Distributions paid as declared             1.44           1.10
    2005 Cash Distributions paid as declared             1.44           1.20
    2006 Cash Distributions paid as declared             1.44           1.26
    2007 Cash Distributions paid as declared             1.44           1.35
    2008 Cash Distributions paid as declared             1.38           1.29
    2009 Cash Distributions paid as declared             0.75           0.67
    2010 Cash Distributions paid as declared             0.72           0.72
    -------------------------------------------------------------------------
    Inception to December 31, 2010
     - Cash Distributions paid as declared         $    15.24     $    11.99
    -------------------------------------------------------------------------
    Capital Distribution - June 29, 2010                 1.16           1.10
    -------------------------------------------------------------------------
    Total inception to December 31, 2010
     Cash Distributions and Capital Distribution   $    16.40     $    13.09
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    2011 Cash Dividends paid
     as declared
    Record Date                  Payment Date
    January 20, 2011             February 15, 2011 $    0.045     $    0.046
    February 24, 2011            March 15, 2011         0.045          0.046
    March 22, 2011               April 15, 2011         0.045          0.047
    -------------------------------------------------------------------------
    Total Cash Dividends paid
     as declared                                   $    0.135     $    0.139
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (i) Exchange rate based on the Bank of Canada noon rate on the payment
        date.
    >>

Change in accounting policies

(i) Recent accounting pronouncements

The IASB issued IFRS 9 in November 2009 which addresses the classification and measurement of financial assets and replaces the multiple category and measurement model in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income. If the latter is selected, dividends are recognized in profit or loss to the extent they are not clearly representing a return of investment. However, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely.

The IASB added requirements for financial liabilities in October 2010 which primarily carried forward existing requirements in IAS 39 - Financial Instruments - Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit or loss would generally be recorded in other comprehensive income.

This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.

(ii) International Financial Reporting Standards (IFRS)

The Company prepares its financial statements in accordance with Canadian generally accepted accounting principles as set out in the Handbook of the Canadian Institute of Chartered Accountants ("CICA Handbook"). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards ("IFRS"), and requires publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. This adoption date requires the restatement, for comparative purposes, of amounts reported by Provident for the annual and quarterly periods within the year ended December 31, 2010, including the opening consolidated statement of financial position as at January 1, 2010.

Provident's first quarter 2011 interim consolidated financial statements reflect this change in accounting standards. Provident's basis of preparation and adoption of IFRS is described in note 2 of the interim consolidated financial statements. Significant accounting policies and related accounting judgments, estimates, and assumptions can be found in notes 3 and 4 of the interim consolidated financial statements. The effect of the Company's transition to IFRS, including transition elections, and reconciliations of the statements of financial position and the statements of operations between previous Canadian GAAP and IFRS is presented in note 5 to the interim consolidated financial statements.

Business risks

The energy industry is subject to risks that can affect the amount of funds flow from operations available for the payment of dividends to shareholders, and the ability to grow. These risks include but are not limited to:

    <<
    -   capital markets, credit and liquidity risks and the ability to
        finance future growth; and
    -   the impact of Canadian governmental regulation on Provident.
    >>

The midstream industry is subject to risks that can affect the amount of cash flow available for the payment of dividends to shareholders, and the ability to grow. These risks include but are not limited to:

    <<
    -   operational matters and hazards including the breakdown or failure of
        equipment, information systems or processes, the performance of
        equipment at levels below those originally intended, operator error,
        labour disputes, disputes with owners of interconnected facilities
        and carriers and catastrophic events such as natural disasters,
        fires, explosions, fractures, acts of eco-terrorists and saboteurs,
        and other similar events, many of which are beyond the control of
        Provident;
    -   the Midstream NGL assets are subject to competition from other gas
        processing plants, and the pipelines and storage, terminal and
        processing facilities are also subject to competition from other
        pipelines and storage, terminal and processing facilities in the
        areas they serve, and the gas products marketing business is subject
        to competition from other marketing firms;
    -   exposure to commodity price, exchange rate and interest rate
        fluctuations;
    -   reduction in the volume of throughput or the level of demand;
    -   the ability to attract and retain employees;
    -   increasing operating and capital costs;
    -   regulatory intervention in determining processing fees and tariffs;
    -   reliance on significant customers;
    -   government and regulatory risk;
    -   changes to environmental regulations; and
    -   environmental, health and safety risks.
    >>

Provident strives to minimize these business risks by:

    <<
    -   employing and empowering management and technical staff with
        extensive industry experience and providing competitive remuneration;
    -   adhering to a disciplined commodity price risk management program to
        mitigate the impact that volatile commodity prices have on cash flow
        available for the payment of dividends;
    -   marketing natural gas liquids and related services to selected,
        credit worthy customers at competitive rates;
    -   maintaining a competitive cost structure to maximize cash flow and
        profitability;
    -   maintaining prudent financial leverage and developing strong
        relationships with the investment community and capital providers;
    -   adhering to strict guidelines and reporting requirements with respect
        to environmental, health and safety practices; and
    -   maintaining an adequate level of property, casualty, comprehensive
        and directors' and officers' insurance coverage.
    >>

Readers should be aware that the risks set forth herein are not exhaustive. Readers are referred to Provident's annual information form, which is available at www.sedar.com, for a detailed discussion of risks affecting Provident.

Share trading activity

The following table summarizes the share trading activity of Provident for the three months ended March 31, 2011 on both the Toronto Stock Exchange and the New York Stock Exchange:

    <<
                                                                         Q1
    -------------------------------------------------------------------------
    TSE - PVE (Cdn$)
    High                                                          $     9.03
    Low                                                           $     7.62
    Close                                                         $     9.03
    Volume (000s)                                                     31,800
    -------------------------------------------------------------------------
    NYSE - PVX (US$)
    High                                                          $     9.30
    Low                                                           $     7.78
    Close                                                         $     9.27
    Volume (000s)                                                     75,349
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    >>

Forward-looking information

This MD&A contains forward-looking information under applicable securities legislation. Statements which include forward-looking information relate to future events or Provident's future performance. Such forward-looking information is provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes, such as making investment decisions. All statements other than statements of historical fact are forward-looking information. In some cases, forward-looking information can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. Forward-looking information in this MD&A includes, but is not limited to, business strategy and objectives, capital expenditures, acquisition and disposition plans and the timing thereof, operating and other costs, budgeted levels of cash dividends and the performance associated with Provident's natural gas midstream, NGL processing and marketing business. Specifically, the "Outlook" section in this MD&A may contain forward-looking information about prospective results of operations, financial position or cash flows of Provident. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual events or results to differ materially from those anticipated by Provident and described in the forward-looking information. In addition, this MD&A may contain forward-looking information attributed to third party industry sources. Undue reliance should not be placed on forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not occur. Forward-looking information in this MD&A includes, but is not limited to, statements with respect to:

    <<
    -   Provident's ability to benefit from the combination of growth
        opportunities and the ability to grow through the capital markets;
    -   Provident's acquisition strategy, the criteria to be considered in
        connection therewith and the benefits to be derived therefrom;
    -   the emergence of accretive growth opportunities;
    -   the ability to achieve an appropriate level of monthly cash
        dividends;
    -   the impact of Canadian governmental regulation on Provident;
    -   the existence, operation and strategy of the commodity price risk
        management program;
    -   the approximate and maximum amount of forward sales and hedging to be
        employed;
    -   changes in oil, natural gas and NGL prices and the impact of such
        changes on cash flow after financial derivative instruments;
    -   the level of capital expenditures;
    -   currency, exchange and interest rates;
    -   the performance characteristics of Provident's midstream, NGL
        processing and marketing business;
    -   the growth opportunities associated with the midstream, NGL
        processing and marketing business;
    -   the availability and amount of tax pools available to offset
        Provident's cash taxes; and
    -   the nature of contractual arrangements with third parties in respect
        of Provident's midstream, NGL processing and marketing business.
    >>

Although Provident believes that the expectations reflected in the forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct. Provident can not guarantee future results, levels of activity, performance, or achievements. Moreover, neither Provident nor any other person assumes responsibility for the accuracy and completeness of the forward-looking information. Some of the risks and other factors, some of which are beyond Provident's control, which could cause results to differ materially from those expressed in the forward-looking information contained in this MD&A include, but are not limited to:

    <<
    -   general economic and credit conditions in Canada, the United States
        and globally;
    -   industry conditions associated with the NGL services, processing and
        marketing business;
    -   fluctuations in the price of crude oil, natural gas and natural gas
        liquids;
    -   interest payable on notes issued in connection with acquisitions;
    -   governmental regulation in North America of the energy industry,
        including income tax and environmental regulation;
    -   fluctuation in foreign exchange or interest rates;
    -   stock market volatility and market valuations;
    -   the impact of environmental events;
    -   the need to obtain required approvals from regulatory authorities;
    -   unanticipated operating events;
    -   failure to realize the anticipated benefits of acquisitions;
    -   competition for, among other things, capital reserves and skilled
        personnel;
    -   failure to obtain industry partner and other third party consents and
        approvals, when required;
    -   risks associated with foreign ownership;
    -   third party performance of obligations under contractual
        arrangements; and
    -   the other factors set forth under "Business risks" in this MD&A.
    >>

Readers are cautioned that the foregoing list is not exhaustive of all possible risks and uncertainties. With respect to developing forward-looking information contained in this MD&A, Provident has made assumptions regarding, among other things:

    <<
    -   future natural gas, crude oil and NGL prices;
    -   the ability of Provident to obtain qualified staff and equipment in a
        timely and cost-efficient manner to meet demand;
    -   the regulatory framework regarding royalties, taxes and environmental
        matters in which Provident conducts its business;
    -   the impact of increasing competition;
    -   Provident's ability to obtain financing on acceptable terms;
    -   the general stability of the economic and political environment in
        which Provident operates;
    -   the timely receipt of any required regulatory approvals;
    -   the timing and costs of pipeline, storage and facility construction
        and expansion and the ability of Provident to secure adequate product
        transportation;
    -   currency, exchange and interest rates; and
    -   the ability of Provident to successfully market its NGL products.
    >>

Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used. Forward-looking information contained in this MD&A is made as of the date hereof and Provident undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. The forward-looking information contained in this MD&A is expressly qualified by this cautionary statement.

    <<
    Quarterly table

    Financial information by quarter (IFRS)
    -------------------------------------------------------------------------
    ($ 000s except for per share and operating amounts)                 2011
    -------------------------------------------------------------------------
                                                                       First
                                                                     Quarter
    -------------------------------------------------------------------------
    Product sales and service revenue                               $519,100
    Funds flow from continuing operations(1)                        $ 53,585
    Funds flow from continuing operations per share
     - basic and diluted                                            $   0.20
    Adjusted EBITDA - continuing operations(2)                      $ 61,242
    Adjusted funds flow from continuing operations(3)               $ 53,585
    Adjusted funds flow from continuing operations per share
     - basic and diluted                                            $   0.20
    Net loss                                                        $(11,985)
    Net loss per share
     - basic and diluted                                            $  (0.04)
    Shareholder dividends                                           $ 36,324
    Dividends per share                                             $   0.14
    Provident Midstream NGL sales volumes (bpd)                      116,864
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Represents cash flow from operations before changes in working
        capital.
    (2) Adjusted EBITDA is earnings before interest, taxes, depreciation,
        amortization, and other non-cash items - see "Reconciliation of Non-
        GAAP measures".
    (3) Adjusted funds flow from continuing operations.

    Quarterly table

    Financial information by quarter (IFRS)
    -------------------------------------------------------------------------
    ($ 000s except for per
     unit and operating
     amounts)                                     2010
    -------------------------------------------------------------------------
                          First      Second      Third    Fourth      Annual
                        Quarter     Quarter    Quarter   Quarter       Total
    -------------------------------------------------------------------------
    Product sales and
     service revenue  $ 472,940  $  366,125  $ 363,767 $ 543,725 $ 1,746,557
    Funds flow from
     continuing
     operations(1)    $  46,839  $ (171,334) $  43,642 $  74,133 $    (6,720)
    Funds flow from
     continuing
     operations per unit
     - basic          $    0.18  $    (0.65) $    0.16      0.28 $     (0.03)
     - diluted        $    0.18  $    (0.65) $    0.16      0.26 $     (0.02)
    Adjusted EBITDA -
     continuing
     operations(2)    $  51,442  $ (176,403) $  52,538 $  86,342 $    13,919
    Adjusted funds flow
     from continuing
     operations(3)    $  47,325  $   39,152  $  43,642 $  76,002 $   206,121
    Adjusted funds flow
     from continuing
     operations per unit
     - basic          $    0.18  $     0.15  $    0.16      0.28 $      0.77
     - diluted(4)     $    0.18  $     0.15  $    0.16      0.27 $      0.74
    Adjusted EBITDA
     excluding buyout of
     financial
     derivative
     instruments and
     strategic review and
     restructuring costs
     - continuing
        operations(2) $  51,928  $   34,083  $  52,538 $  88,211 $   226,760
    Net (loss) income $ (50,921) $  (40,944) $   8,979 $  72,380 $   (10,506)
    Net (loss) income
     per unit
     - basic          $   (0.19) $    (0.15) $    0.03      0.27 $     (0.04)
     - diluted(4)     $   (0.19) $    (0.15) $    0.03      0.25 $     (0.03)
    Unitholder
     distributions    $  47,634  $   47,794  $  47,990 $  48,221 $   191,639
    Distributions per
     unit             $    0.18  $     0.18  $    0.18      0.18 $      0.72
    Provident Midstream
     NGL sales volumes
     (bpd)              113,279      94,030     95,388   121,627     106,075
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Represents cash flow from operations before changes in working
        capital and site restoration expenditures.
    (2) Adjusted EBITDA is earnings before interest, taxes, depreciation,
        amortization, and other non-cash items - see "Reconciliation of Non-
        GAAP measures".
    (3) Adjusted funds flow from continuing operations excludes realized loss
        on buyout of financial derivative instruments and strategic review
        and restructuring costs.
    (4) Includes dilutive impact of convertible debentures.

    Quarterly table

    Financial information by quarter (Canadian GAAP)(1)
    -------------------------------------------------------------------------
    ($ 000s except for
     per unit and
     operating amounts)                             2009
    -------------------------------------------------------------------------
                          First     Second      Third    Fourth       Annual
                        Quarter    Quarter    Quarter   Quarter        Total
    -------------------------------------------------------------------------
    Product sales and
     service revenue  $ 477,056  $ 333,354  $ 339,661 $ 480,420  $ 1,630,491
    Funds flow from
     continuing
     operations(2)    $  57,349  $  14,456  $  24,859 $  51,190  $   147,854
    Funds flow from
     continuing
     operations per unit
     - basic and
     diluted          $    0.22  $    0.06  $    0.09 $    0.19  $      0.57
    Adjusted EBITDA -
     continuing
     operations(3)    $  65,095  $  20,383  $  25,569 $  57,182  $   168,229
    Adjusted funds flow
     from continuing
     operations(4)    $  57,623  $  21,858  $  24,859 $  52,769  $   157,109
    Adjusted funds flow
     from continuing
     operations per unit
     - basic and
     diluted          $    0.22  $    0.08  $    0.09 $    0.20  $      0.60
    Adjusted EBITDA
     excluding buyout of
     financial
     derivative
     instruments and
     strategic review and
     restructuring costs
     - continuing
     operations(3)    $  65,369  $  27,785  $  25,569 $  58,761  $   177,484
    Net (loss) income $ (40,284) $ (80,061) $  51,663 $ (20,338) $   (89,020)
    Net (loss) income
     per unit - basic and
     diluted          $   (0.16) $   (0.31) $    0.20 $   (0.08) $     (0.34)
    Unitholder
     distributions    $  54,511  $  47,012  $  47,238 $  47,456  $   196,217
    Distributions per
     unit             $    0.21  $    0.18  $    0.18 $    0.18  $      0.75
    Provident Midstream
     NGL sales volumes
     (bpd)              141,669    102,799     98,229   111,912      113,528
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The financial information for 2009 is presented in Canadian GAAP as
        these periods are prior to the January 1, 2010 transition date for
        IFRS.
    (2) Represents cash flow from operations before changes in working
        capital and site restoration expenditures.
    (3) Adjusted EBITDA is earnings before interest, taxes, depreciation,
        amortization and other non-cash items - see "Reconciliation of Non-
        GAAP measures".
    (4) Adjusted funds flow from continuing operations excludes realized loss
        on buyout of financial derivative instruments and strategic review
        and restructuring costs.

    PROVIDENT ENERGY LTD.
    CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
    Canadian dollars (000s)
    (unaudited)
                                           As at         As at         As at
                                        March 31,  December 31,    January 1,
                                            2011          2010          2010
    -------------------------------------------------------------------------
    Assets
    Current assets
     Cash and cash equivalents      $          -  $      4,400  $      7,187
     Accounts receivable                 190,841       206,631       216,786
     Petroleum product inventory
      (note 6)                            98,807       106,653        58,779
     Prepaid expenses and other current
      assets                               1,848         2,539         4,803
     Financial derivative instruments
      (note 15)                            1,521           487         5,314
     Assets held for sale (note 17)            -             -       186,411
    -------------------------------------------------------------------------
                                         293,017       320,710       479,280
    Non-current assets
     Investments                               -             -        18,733
     Exploration and evaluation assets
      (note 17)                                -             -        24,739
     Property, plant and equipment
      (note 7)                           850,171       833,790     1,422,156
     Intangible assets (note 8)          115,503       118,845       132,478
     Goodwill (note 9)                   100,409       100,409       100,409
     Deferred income taxes (note 14)      42,223        72,699             -
    -------------------------------------------------------------------------
                                    $  1,401,323  $  1,446,453  $  2,177,795
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current liabilities
     Accounts payable and accrued
      liabilities                   $    231,611  $    227,944  $    221,417
     Cash dividends payable                9,725        12,646        13,468
     Current portion of convertible
      debentures (note 10)                68,528       148,981             -
     Financial derivative instruments
      (note 15)                           53,262        37,849        86,441
     Liabilities held for sale (note
      17)                                      -             -         2,792
    -------------------------------------------------------------------------
                                         363,126       427,420       324,118
    Non-current liabilities
     Long-term debt - revolving term
      credit facility (note 10)          133,928        72,882       264,776
     Long-term debt - convertible
      debentures (note 10)               248,867       251,891       240,486
     Decommissioning liabilities (note
      11)                                 57,804        57,232       127,800
     Long-term financial derivative
      instruments (notes 10 and 15)       36,978        29,187       103,403
     Other long-term liabilities (note
      13)                                 13,804        19,634        12,496
     Deferred income taxes (note 14)           -             -        37,765
    -------------------------------------------------------------------------
                                         854,507       858,246     1,110,844
    Shareholders' equity
    Share capital (note 12)            2,873,186             -             -
    Unitholders' contributions (note
     12)                                       -     2,866,268     2,834,177
    Contributed surplus                      684           684           684
    Accumulated deficit               (2,327,054)   (2,278,745)   (1,767,910)
    -------------------------------------------------------------------------
                                         546,816       588,207     1,066,951
    -------------------------------------------------------------------------
                                    $  1,401,323  $  1,446,453  $  2,177,795
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these interim consolidated
    financial statements.

    PROVIDENT ENERGY LTD.
    CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
    Canadian dollars (000s except per share amounts)
    (unaudited)
                                                          Three months ended
                                                                    March 31,
                                                   --------------------------
                                                         2011           2010
                                                   --------------------------
    Product sales and service revenue (note 16)     $ 519,100      $ 472,940
    Loss on financial derivative instruments
     (note 15)                                        (42,014)       (53,690)
    -------------------------------------------------------------------------
                                                      477,086        419,250
    Expenses
     Cost of goods sold                               407,605        374,898
     Production, operating and maintenance              6,161          3,748
     Transportation                                     4,858          5,397
     Depreciation and amortization                     10,865         10,702
     General and administrative                        12,062          9,552
     Strategic review and restructuring                     -            486
     Financing charges                                 11,386          6,151
     Loss on revaluation of conversion feature of
      convertible debentures (note 15)                  4,762              -
     Foreign exchange loss and other                      969          1,784
    -------------------------------------------------------------------------
                                                      458,668        412,718
    -------------------------------------------------------------------------
    Income from continuing operations before taxes     18,418          6,532
    -------------------------------------------------------------------------
    Current tax expense                                    10            107
    Deferred tax expense (recovery) (note 14)          30,393        (17,633)
    -------------------------------------------------------------------------
                                                       30,403        (17,526)
    -------------------------------------------------------------------------
    Net (loss) income from continuing operations      (11,985)        24,058
    Net loss from discontinued operations (note 17)         -        (74,979)
    -------------------------------------------------------------------------
    Net loss and comprehensive loss for the period  $ (11,985)     $ (50,921)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net (loss) income from continuing operations
     - basic and diluted                            $   (0.04)     $    0.09
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Net loss per share
     - basic and diluted                            $   (0.04)     $   (0.19)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these interim
    consolidated financial statements.

    PROVIDENT ENERGY LTD.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
    Canadian dollars (000s)
    (unaudited)
                                                          Three months ended
                                                                    March 31,
                                                -----------------------------
                                                         2011           2010
                                                -----------------------------
    Cash provided by operating activities
     Net (loss) income for the period from
      continuing operations                      $    (11,985)    $   24,058
     Add (deduct) non-cash items:
      Depreciation and amortization                    10,865         10,702
      Non-cash financing charges and other              2,507          1,655
      Loss on purchase of convertible debentures
       (note 10)                                        1,232              -
      Non-cash share based compensation recovery       (1,780)        (4,169)
      Unrealized loss on financial derivative
       instruments                                     17,408         31,598
      Loss on revaluation of conversion feature
       of convertible debentures (note 15)              4,762              -
      Unrealized foreign exchange loss and other          183            628
      Deferred tax expense (recovery)                  30,393        (17,633)
    -------------------------------------------------------------------------
    Continuing operations                              53,585         46,839
    Discontinued operations                                 -         12,678
    -------------------------------------------------------------------------
                                                       53,585         59,517
    Site restoration expenditures related to
     discontinued operations                                -         (1,039)
    Change in non-cash operating working
     capital                                           22,915         22,283
    -------------------------------------------------------------------------
                                                       76,500         80,761
    -------------------------------------------------------------------------
    Cash used for financing activities
     Repayment of debentures                          (86,285)             -
     Increase (decrease) in long-term debt             60,802       (164,590)
     Declared dividends to shareholders               (36,324)       (47,634)
     Issue of shares, net of issue costs                6,918          6,923
     Change in non-cash financing working
      capital                                          (2,922)           132
    -------------------------------------------------------------------------
                                                      (57,811)      (205,169)
    -------------------------------------------------------------------------
    Cash (used for) provided by investing
     activities
     Capital expenditures                             (24,072)        (6,973)
     Acquisitions                                           -        (22,074)
     Change in non-cash investing working
      capital                                             983          1,050
     Investing activities from discontinued
      operations                                            -        150,286
    -------------------------------------------------------------------------
                                                      (23,089)       122,289
    -------------------------------------------------------------------------
    Decrease in cash and cash equivalents              (4,400)        (2,119)
    Cash and cash equivalents, beginning of
     period                                             4,400          7,187
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period $              -     $    5,068
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Supplemental disclosure of cash flow
     information
     Cash interest paid including debenture
      interest                               $          6,601     $    4,198
     Cash taxes (received) paid              $         (1,480)    $    1,195
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these interim
    consolidated financial statements.

    PROVIDENT ENERGY LTD.
    CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
    Canadian Dollars (000s)
    (unaudited)
                  Share   Unitholders' Contributed  Accumulated        Total
                capital contributions      surplus      deficit       equity
    -------------------------------------------------------------------------
    Balance -
     December 31,
     2010     $       - $   2,866,268  $       684 $ (2,278,745) $   588,207
    Cancelled on
     conversion to
     a corporation
     effective
     January 1,
     2011                  (2,866,268)                            (2,866,268)
    Issued on
     conversion to
     a corporation
     effective
     January 1,
     2011     2,866,268                                            2,866,268
    Net loss and
     comprehensive
     loss for the
     period           -             -            -      (11,985)     (11,985)
    Proceeds on
     issuance of
     shares       6,918             -            -            -        6,918
    Dividends         -             -            -      (36,324)     (36,324)
    -------------------------------------------------------------------------
    Balance -
     March 31,
     2011   $ 2,873,186 $           -  $       684 $ (2,327,054) $   546,816
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Balance -
     January 1,
     2010   $         - $   2,834,177  $       684 $ (1,767,910) $ 1,066,951
    Net loss and
     comprehensive
     loss for the
     period           -             -            -      (50,921)     (50,921)
    Proceeds on
     issuance of
     trust units      -         6,923            -            -        6,923
    Distributions     -             -            -      (47,634)     (47,634)
    -------------------------------------------------------------------------
    Balance -
     March 31,
     2010   $         - $   2,841,100  $       684 $ (1,866,465) $   975,319
    -------------------------------------------------------------------------
    The accompanying notes are an integral part of these interim
    consolidated financial statements.
    >>

Notes to the Interim Consolidated Financial Statements

(Tabular amounts in Cdn $ 000's, except share and per share amounts)

(unaudited)

For the period ended March 31, 2011

1. Structure of the Company

Provident Energy Ltd. (the "Company" or "Provident") is incorporated under the Business Corporations Act (Alberta) and domiciled in Canada. The address of its registered office is 2100, 250 - 2nd Street S.W. Calgary, Alberta. Provident owns and manages a natural gas liquids ("NGL") midstream business and was established as a result of the conversion from an income trust structure, Provident Energy Trust (the "Trust"), to a corporate structure pursuant to a plan of arrangement. The conversion resulted in the reorganization of the Trust into a publicly traded, dividend-paying corporation under the name "Provident Energy Ltd." effective January 1, 2011. Under the plan of arrangement, former holders of trust units of the Trust received one common share in Provident Energy Ltd. in exchange for each trust unit held in the Trust.

Pursuant to the conversion, the Company acquired, directly and indirectly, the same assets and business that the Trust owned immediately prior to the effective time of the conversion and assumed all of the obligations of the Trust. In accordance with the conversion, the Trust was dissolved effective January 1, 2011 and thereafter ceased to exist. The principal undertakings of Provident Energy Ltd. and its predecessor Provident Energy Trust are collectively referred to as "the Company" or "Provident" and include the accounts of Provident and its subsidiaries and partnerships.

The conversion was accounted for on a continuity of interests basis. Accordingly, the consolidated financial statements reflect the financial position, results of operations and cash flows as if Provident Energy Ltd. had always carried on the business formerly carried on by the Trust. As a result of Provident's conversion from an income trust to a corporation, effective January 1, 2011, references to "common shares", "shares", "share based compensation", "shareholders", "performance share units", "PSUs", "restricted share units", "RSUs", "premium dividend and dividend reinvestment share (DRIP) purchase plan ", and "dividends" were formerly referred to as "trust units", "units", "unit based compensation", "unitholders", "performance trust units", "PTUs", "restricted trust units", "RTUs", "premium distribution, distribution reinvestment (DRIP) and optional unit purchase plan", and "distributions", respectively, for periods prior to January 1, 2011.

The Company's financial results for any individual quarter are not necessarily indicative of results to be expected for the full year. Interim period revenues and earnings are typically sensitive to weather and market conditions. In particular, demand and pricing for NGL products is typically seasonal and tends to result in periods of lower sales volumes during the second and third quarters as inventory is built up for sales in peak demand periods in the fourth quarter and first quarter of the following year when sales volumes are typically higher.

2. Basis of preparation and adoption of IFRS

The Company prepares its financial statements in accordance with Canadian generally accepted accounting principles as set out in the Handbook of the Canadian Institute of Chartered Accountants ("CICA Handbook"). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards ("IFRS"), and requires publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly, the Company has commenced reporting on this basis in these interim consolidated financial statements. In the financial statements, the term "Canadian GAAP" refers to Canadian GAAP before the adoption of IFRS.

These interim consolidated financial statements have been prepared in accordance with IFRS applicable to the preparation of interim financial statements, including IAS 34 - Interim Financial Reporting and IFRS 1 - First- time Adoption of International Financial Reporting Standards. Subject to certain transition elections disclosed in note 5, the Company has consistently applied the same accounting policies in its opening IFRS statement of financial position at January 1, 2010 and throughout all of the periods presented, as if these policies had always been in effect. Note 5 discloses the impact of the transition to IFRS on the Company's reported financial position and financial performance, including the nature and effect of significant changes in accounting policies from those used in the Company's consolidated financial statements for the year ended December 31, 2010.

The policies applied in these interim consolidated financial statements are based on IFRS issued and outstanding as of May 11, 2011, the date the Board of Directors approved the statements. Any subsequent changes to IFRS that are given effect in the Company's annual consolidated financial statements for the year ended December 31, 2011 could result in restatement of these interim consolidated financial statements including the transition adjustments recognized on change-over to IFRS.

The interim consolidated financial statements should be read in conjunction with the Company's Canadian GAAP annual consolidated financial statements for the year ended December 31, 2010.

3. Significant accounting policies

The following accounting policies apply to the continuing operations of the Company. Policies applicable to the former Upstream oil and gas operations are disclosed in note 17 - Discontinued operations.

i) Principles of consolidation

The consolidated financial statements include the accounts of Provident Energy Ltd. and all direct and indirect subsidiaries and partnerships. All intercompany transactions, balances and unrealized gains and losses from intercompany transactions are eliminated on consolidation.

ii) Financial instruments

Financial assets and liabilities are classified as financial assets or liabilities at fair value through profit or loss, loans and receivables, held to maturity investments, available for sale financial assets, or other financial liabilities, as appropriate. When financial assets and liabilities are initially recognized, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Provident determines the classification of its financial assets at initial recognition. The Company's financial assets include cash and cash equivalents, accounts receivable, financial derivative instruments and investments.

Financial Assets

a) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss includes financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. The Company's financial derivative instruments, including embedded derivatives, are classified as held for trading. Gains or losses on financial derivative instruments are recognized in profit or loss.

b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are subsequently carried at amortized cost using the effective interest method less any allowance for impairment. Amortized cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognized in the income statements when the loans and receivables are derecognized or impaired, as well as through the amortization process. The Company's accounts receivables are included in this financial asset category.

c) Cash and cash equivalents

Cash and cash equivalents include short-term investments with an original maturity of three months or less when purchased.

Financial Liabilities

a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Financial derivative instruments, including embedded derivatives, are classified as held for trading. Gains and losses on liabilities held for trading are recognized in profit and loss.

b) Other liabilities

Other liabilities are recorded initially at fair value of the consideration received less any related transaction costs. Subsequent to initial recognition, the balances are measured at amortized cost using the effective interest method. Gains and losses are recognized in the income statement when the liabilities are derecognized and through amortization expense recorded as financing charges. The Company's accounts payable, accrued liabilities other than share based compensation, cash distribution payable, long-term debt and convertible debentures are included within this financial liability category (also see item xiii).

iii) Property, plant & equipment

The initial cost of an asset comprises its purchase price or construction costs directly attributable to bringing the asset into operation, the initial estimate of the decommissioning obligation, and for qualifying assets, borrowing costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognized net in profit or loss.

Midstream assets

Midstream facilities, including natural gas liquids storage facilities and natural gas liquids processing and extraction facilities are carried at cost less accumulated depreciation and accumulated impairment losses and are depreciated at a component level on a straight-line basis over the estimated service lives of the assets, which range from 25 to 35 years. Capital assets related to pipelines are carried at cost less accumulated depreciation and accumulated impairment losses and are depreciated at a component level using the straight-line method over their economic lives of approximately 35 years.

Minimum NGL product and cavern bottoms

The minimum NGL product is the minimum volume of NGL product needed as a permanent inventory to maintain adequate reservoir pressures and deliverability rates throughout the withdrawal season within the Company's owned assets. All tanks, caverns or other storage reservoirs require a minimum level of product in the storage caverns to maintain a minimum pressure. Below this minimum pressure, products cannot be readily extracted for sale. Minimum NGL product and cavern bottoms within the Company's owned assets are presented as part of Midstream assets within property, plant and equipment and are not depreciated.

Pipeline fills

Pipeline fills represent the petroleum based product purchased for the purpose of charging the pipeline system and partially filling the petroleum product storage tanks with an appropriate volume of petroleum products to enable the commercial operation of the facilities and pipeline for all Company owned pipelines and tanks. Pipeline fills within Provident's pipelines are presented as part of Midstream assets within property, plant and equipment and are not depreciated. Holdings of pipeline fills in third party carriers are recorded as product inventory.

Office equipment and other

Office equipment and other assets are carried at cost less accumulated depreciation and accumulated impairment losses and are generally depreciated on a straight-line basis over their estimated useful lives. The estimated useful lives for office equipment and other assets are as follows:

    <<
    Office equipment                            5 - 6 years
    Computer hardware & software                3 - 4 years
    Leasehold improvements & other                 10 years
    >>

Major maintenance and repairs, inspection, turnarounds and derecognition

Major maintenance and turnarounds are tracked on a project basis and reviewed by management for potential capitalization. These costs are depreciated on a straight-line basis over a period which represents the estimated period before the next planned maintenance or turnaround. All other maintenance costs are expensed as incurred. Expenditures on major maintenance or repairs comprise the cost of replacement parts of assets, inspection costs and overhaul costs. Where an asset or part of an asset that was separately depreciated and is now written off is replaced and it is probable that future economic benefits associated with the item will flow to the Company, the expenditure is capitalized. In instances where an asset part is not separately considered a component, the replacement value is used to estimate the carrying amount of the replaced assets, and the previous carrying amount is immediately expensed.

Impairment of property, plant and equipment

For operating assets, the impairment test is performed at the cash generating unit level and for office equipment and other assets, the impairment test is performed at the individual asset level. A cash generating unit is determined to be the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Values of assets are reviewed for impairment when indicators of such impairment exist. If any indication of impairment exists, an estimate of the asset's recoverable amount is calculated. The recoverable amount is determined as the higher of the fair value less costs to sell for the asset and the asset's value in use. If the carrying amount of the asset exceeds its recoverable amount, the asset is deemed impaired and an impairment loss is recognized in profit or loss so as to reduce the carrying amount of the asset to its recoverable amount.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company makes an estimate of the recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss.

iv) Intangible assets

Intangible assets acquired separately are recognized at cost upon initial recognition. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, the cost model is applied requiring the intangible asset to be carried at cost less any accumulated amortization and accumulated impairment losses. Provident will assess whether the useful lives of intangible assets are finite or indefinite. Intangible assets with finite useful lives are assessed for impairment whenever there is an indication that the intangible asset may be impaired and amortized on a straight-line basis over the estimated useful lives of the assets, which range from a period of 12 to 15 years. The amortization expense of intangible assets with finite lives is recognized in depreciation and amortization expense in profit or loss.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds, if any, and the carrying amount of the asset and are recognized in profit or loss when the asset is derecognized.

v) Joint arrangements

A joint arrangement exists when a contractual arrangement exists that establishes shared decision making over the joint activities. Joint control is defined as the contractually agreed sharing of the power to govern the financial and operating policies of a venture so as to obtain benefits from its activities.

Joint operations

A joint operation involves the use of assets and other resources of the Company and other venturers rather than the establishment of a corporation, partnership, or other entity. The Company recognizes in its financial statements the assets it controls and the liabilities it incurs and its share of the revenue and expenses from the sale of goods or services by the joint operation arrangement.

Joint assets

A joint asset involves joint control and offers joint ownership by the Company and other venturers of assets contributed to or acquired for the purpose of the joint arrangement, without the formation of a corporation, partnership, or other entity. The Company accounts for its share of the joint assets, its share of jointly incurred liabilities with other venturers, any revenue from the sale or use of its share of the output of the joint asset, and any expenses incurred in relation to its interest in the joint asset from the sale of goods or services by the joint asset.

vi) Leases

Operating lease payments are recognized as an expense in the statement of operations on a straight-line basis over the lease term.

vii) Product inventory

Inventories of product are valued at the lower of cost and net realizable value based on market prices. Cost is determined using the weighted average costing method and comprises direct purchase costs, costs of production, extraction and fractionation costs, and transportation costs.

viii) Goodwill

Goodwill is initially measured at cost which represents the excess of the cost of an acquired enterprise over the net of the amounts assigned to assets acquired and liabilities assumed. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Goodwill does not generate cash flows independently of other assets or groups of assets, and often contributes to the cash flows of multiple cash generating units. As a result, for the purpose of impairment testing, goodwill is monitored at the operating business level.

When a cash generating unit is disposed of, goodwill associated with the operation is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the disposed operation.

Goodwill is not amortized. Rather, Provident assesses goodwill for impairment at least annually and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the group of cash generating units that comprise the Midstream business to which the goodwill relates. The recoverable amount is determined based on a fair value less cost to sell calculation using cash flow projections from financial forecasts. If the carrying amount exceeds the recoverable amount of the group of cash generating units that comprise the Midstream business, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. Provident performs its annual impairment test of goodwill as at December 31.

ix) Decommissioning liabilities

A decommissioning liability is recognized when the Company has a present legal or constructive obligation to dismantle and remove a facility or an item of property, plant and equipment and restore the site on which it is located, and when a reliable estimate of that liability can me made. Normally an obligation arises for a new facility upon construction or installation. An obligation for decommissioning may also crystallize during the period of operation of a facility through a change in legislation or a decision to terminate operations.

When a liability for decommissioning cost is recognized, a corresponding amount equivalent to the provision is also recognized as part of the cost of the related property, plant and equipment. The amount recognized represents management's estimate of the present value of the estimated future expenditures of dismantling, demolition and disposal of the facilities, remediation and restoration of the surface land as well as an estimate of the future timing of the costs to be incurred. These costs are subsequently depreciated as part of the costs of the facility or item of property, plant and equipment. Any changes in the estimated timing of the decommissioning or decommissioning cost estimates are accounted for prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment.

The Company uses a nominal risk free discount rate. The accretion of the decommissioning liability is included as a financing charge.

x) Share based compensation

Provident uses the fair value method of valuing the compensation plans whereby notional shares are granted to employees. The fair value of these notional shares is estimated and recorded as share based compensation (a component of general and administrative expenses). A portion relating to operational employees at field and plant locations is allocated to operating expense. The offsetting amount is recorded as accrued liabilities or other long-term liabilities. A realization of the expense and a resulting reduction in cash provided by operating activities occurs when a cash payment is made. The fair value measurement is determined at each reporting date using information available at that date.

xi) Share dilution

The dilutive effect of convertible debentures is determined using the "if-converted" method whereby the outstanding debentures at the end of the period are assumed to have been converted at the beginning of the period or at the time of issue if issued during the year. Amounts charged to income or loss relating to the outstanding debentures are added back to net income for the diluted calculation.

xii) Income taxes

Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the end of the reporting period, and include any adjustment to tax payable in respect of previous years.

Deferred income tax

Provident follows the liability method for calculating deferred income taxes. Differences between the amounts reported in the financial statements of the Company and its corporate subsidiaries and their respective tax bases are applied to tax rates in effect to calculate the deferred tax asset or liability. The effect of any change in income tax rates is recognized in the current period income or equity, as appropriate.

Deferred tax assets are recognized for the carry-forward of unused tax losses and unused tax credits to the extent that it is probable that taxable profits will be available against which the unused tax losses/credits can be utilized. Deferred income tax assets are recognized for all deductible temporary differences, carry- forward of unused tax credits and unused tax losses.

Deferred income tax liabilities are provided in full for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Discounting of deferred tax assets and liabilities is not permitted.

Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statement of operations.

xiii) Convertible debentures

The Company's convertible debentures are compound financial instruments consisting of a financial liability and an embedded conversion feature. In accordance with IAS 39, the embedded derivatives are required to be separated from the host contracts and accounted for as stand-alone instruments.

Debentures containing a cash conversion option allow Provident to pay cash to the converting holder of the debentures, at the option of the Company. As such, the conversion feature is presented as a financial derivative liability within long term financial derivative instruments. On initial recognition, convertible debentures with a cash conversion option are measured using a method whereby the fair value of the embedded financial derivative instrument is measured using an option pricing model, with the residual amount allocated to the debt component.

Debentures without a cash conversion option are settled in shares on conversion, and therefore the conversion feature is presented within equity, in accordance with its contractual substance. On initial recognition, the convertible debentures without a cash conversion feature are measured using the residual method whereby the debt component was recognized at fair value, with the conversion feature as the residual.

Subsequent to initial recognition, the debt portion, net of issue costs, is accounted for at amortized cost using the effective interest rate method, whereby the residual value of the debt is accreted up to the face value of the debentures. For debentures containing a cash conversion option, the conversion feature is measured at fair value through profit and loss at each reporting date, with any unrealized gains or losses arising from fair value changes reported in the statement of operations. Upon conversion, the corresponding portions of the debt and equity are removed from those captions and transferred to share capital.

xiv) Revenue recognition

Revenue associated with the sale of product owned by Provident is recognized when title passes from Provident to its customer.

Revenues associated with the services provided where Provident acts as agent are recorded on a net basis when the services are provided. Revenues associated with the sale of natural gas liquids storage services are recognized when the services are provided.

xv) Foreign currency translation

The consolidated financial statements are presented in Canadian dollars, which is Provident's functional and presentation currency. Provident's subsidiaries with foreign operations have a functional currency of Canadian dollars. Transactions in foreign currencies are initially recorded at the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the balance sheet date, non-monetary items measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions, and revenues and expenses are translated using the exchange rates as at the dates of the initial transactions, with the exception of depreciation and amortization which is translated on the same basis as the related assets. Translation gains and losses are included in income in the period in which they arise.

xvi) Accounting standards issued but not yet applied

International Financial Reporting Standard 9, Financial Instruments ("IFRS 9")

The IASB issued IFRS 9 in November 2009 which addresses the classification and measurement of financial assets and replaces the multiple category and measurement model in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments, and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income. If the latter is selected, dividends are recognized in profit or loss to the extent they are not clearly representing a return of investment. However, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely.

The IASB added requirements for financial liabilities in October 2010 which primarily carried forward existing requirements in IAS 39 - Financial Instruments - Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit or loss would generally be recorded in other comprehensive income.

This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.

4. Significant accounting judgments, estimates and assumptions

The preparation of financial statements requires management to make judgments, estimates and assumptions based on currently available information that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and judgments are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual results could differ from those estimated. By their very nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of future periods could be material.

In the process of applying the Company's accounting policies, management has made the following judgments, estimates, and assumptions which have the most significant effect on the amounts recognized in the consolidated financial statements:

Inventory

Due to the inherent limitations in metering and the physical properties of storage caverns and pipelines, the determination of precise volumes of natural gas liquids held in inventory at such locations is subject to estimation. Actual inventories of natural gas liquids can only be determined by draining of the caverns. By their very nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of future periods could be material.

Impairment indicators

The recoverable amounts of cash generating units and individual assets have been determined based on the higher of value in use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions.

Goodwill is tested for impairment annually and at other times when impairment indicators exist. Impairment is determined for goodwill by assessing the recoverable amount of the group of cash generating units that comprise the Midstream business to which the goodwill relates. In assessing goodwill for impairment, it is reasonably possible that the commodity price assumptions, sales volumes, supply cost, discount rates, and tax rates may change which may then impact the recoverable amount of the group of cash generating units which comprise the Midstream business and may then require a material adjustment to the carrying value of goodwill.

For the Midstream business, it is reasonably possible that these assumptions may change which may then impact the recoverable amounts of the cash generating units and may then require a material adjustment to the carrying value of its tangible and intangible assets. The Company monitors internal and external indicators of impairment relating to its tangible and intangible assets.

Decommissioning and restoration costs

Decommissioning and restoration costs will be incurred by the Company at the end of the operating life of certain of the Company's facilities and properties. The ultimate decommissioning and restoration costs are uncertain and cost estimates can vary in response to many factors including changes to relevant legal and regulatory requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing and amount of expenditure can also change, for example, in response to changes in laws and regulations or their interpretation. In determining the amount of the provision, assumptions and estimates are required in relation to discount rates. As a result, there could be significant adjustments to the provisions established which would affect future financial results.

The decommissioning provisions have been created based on Provident's internal estimates. Assumptions, based on the current economic environment, have been made which management believe are a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly to take into account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning works required which will reflect market conditions at the relevant time.

Income taxes

The Company follows the liability method for calculating deferred income taxes. Differences between the amounts reported in the financial statements of the Company and its subsidiaries and their respective tax bases are applied to tax rates in effect to calculate the deferred tax liability. In addition, the Company recognizes the future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the Company to make significant estimates related to the expectations of future cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the deferred tax assets and liabilities recorded at the balance sheet date could be impacted. Additionally, future changes in tax laws in the jurisdictions in which the Company operates could limit the ability of the Company to obtain tax deductions in future periods.

Contingencies

By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events.

Share based compensation

The Company uses the fair value method of valuing compensation expense associated with the Company's share based compensation plan whereby notional shares are granted to employees. Estimating fair value requires determining the most appropriate valuation model for a grant of equity instruments, which is dependent on the terms and conditions of the grant. The assumptions are discussed in note 13. Actual payments made on settlement may differ from estimates and the difference could be material.

Financial derivative instruments

The Company's financial derivative instruments are initially recognized on the statement of financial position at fair value based on management's estimate of commodity prices, share price and associated volatility, foreign exchange rates, interest rates, and the amounts that would have been received or paid to settle these instruments prior to maturity given future market prices and other relevant factors. By their nature, these estimates are subject to measurement uncertainty and the effect on the financial statements of future periods could be material.

5. Transition to IFRS

Provident has prepared its financial statements in accordance with Canadian GAAP for all periods up to and including the year ended December 31, 2010. These financial statements for the three months ended March 31, 2011 are the first the Company has prepared in accordance with IFRS. The Company has prepared these financial statements which comply with IFRS applicable for periods beginning on or after January 1, 2011 and the significant accounting policies meeting those requirements are described in note 3.

The effect of the Company's transition to IFRS are summarized in this note as follows:

i) Transition elections;

ii) Reconciliation of the consolidated statements of financial position, including shareholders' equity, as previously reported under Canadian GAAP to IFRS, and

iii) Reconciliation of the consolidated statements of operations as previously reported under Canadian GAAP to IFRS.

i) Transition elections

Provident has prepared its IFRS opening consolidated statement of financial position as at January 1, 2010, its date of transition to IFRS. In the preparation of this opening statement of financial position, IFRS 1 allows first-time adopters certain exemptions from the general requirement to apply IFRS retrospectively. Provident has applied the following transition exceptions and exemptions to full retrospective application of IFRS:

a) Business combinations - Provident has elected not to apply IFRS 3 retrospectively to business combinations that occurred prior to transition to IFRS on January 1, 2010. Rather, the Company has elected to apply IFRS 3 relating to business combinations prospectively from January 1, 2010. As such previous Canadian GAAP balances relating to business combinations entered into before that date, including goodwill, have been carried forward without adjustment.

b) Changes in decommissioning, restoration and similar liabilities - IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities requires specified changes in a decommissioning, restoration or similar liability to be added to or deducted from the cost of the asset to which it relates. The adjusted depreciable amount of the asset is then depreciated prospectively over its remaining useful life. However, IFRS 1 allows Provident to measure decommissioning, restoration and similar liabilities as at the date of transition to IFRS in accordance with IAS 37 rather than reflecting the impact of changes in such liabilities that occurred before the date of transition to IFRS.

c) Property, plant and equipment - The deemed cost of oil and natural gas properties at January 1, 2010, the date of transition to IFRS, was determined by reference to IFRS 1 - First-time Adoption of International Financial Reporting Standards. Upon adoption, the Company has elected to apply the full cost exemption to measure oil and gas assets in the development or production phases by allocating the carrying value determined under Canadian GAAP to cash generating units pro rata using proved and probable reserve values on the date of transition. In addition, any differences arising from the adoption of IFRS from previous Canadian GAAP for decommissioning liabilities related to the Upstream business have been recognized in accumulated deficit on the transition date in accordance with IFRS 1.

d) Arrangements containing leases - IFRS 1 allows a first-time adopter to apply the transitional provisions in IFRIC 4 - Determining whether an Arrangement contains a Lease, which allows a first- time adopter to determine whether an arrangement existing at the date of transition to IFRS contains a lease on the basis of facts and circumstances existing at that date. As a first-time adopter, Provident made the same determination of whether an arrangement contained a lease in accordance with previous Canadian GAAP as that required by IFRIC 4 but at a date other than that required by IFRIC 4.

ii) The following is a reconciliation of the consolidated statements of financial position, including shareholders' equity, as previously reported under Canadian GAAP to IFRS:

    <<
    ($000's)                                               December 31, 2010
    ------------------------------------------------------------------------
                               Note         CDN GAAP         Adj        IFRS
    ------------------------------------------------------------------------
    Assets
    Current assets
     Cash and cash equivalents                 4,400           -       4,400
     Accounts receivable                     206,631           -     206,631
     Petroleum product
     inventory                 A              83,868      22,785     106,653
     Prepaid expenses and other
      current assets                           2,539           -       2,539
     Financial derivative
      instruments                                487           -         487
     Assets held for sale      I                   -           -           -
    ------------------------------------------------------------------------
                                             297,925      22,785     320,710
    Investments                                    -           -           -
    Exploration and evaluation I
     assets                                        -           -           -
    Property, plant and
     equipment                 A, B, D, I    832,250       1,540     833,790
    Intangible assets                        118,845           -     118,845
    Goodwill                                 100,409           -     100,409
    Deferred income taxes      G              50,375      22,324      72,699
    ------------------------------------------------------------------------
                                           1,399,804      46,649   1,446,453
    ------------------------------------------------------------------------
    Liabilities
    Current liabilities
     Accounts payable and accrued
      liabilities                            227,944           -     227,944
     Cash dividends payable                   12,646           -      12,646
     Current portion of
      convertible debentures                 148,981           -     148,981
     Financial derivative
      instruments                             37,849           -      37,849
     Liabilities held for sale I                   -           -           -
    ------------------------------------------------------------------------
                                             427,420           -     427,420
    Long-term debt - revolving
     term credit facility                     72,882           -      72,882
    Long-term debt - convertible
     debentures                              251,891           -     251,891
    Decommissioning
     liabilities               B, I           22,057      35,175      57,232
    Long-term financial
     derivative                C
     instruments                              19,601       9,586      29,187
    Other long-term
     liabilities               F              18,735         899      19,634
    Deferred income taxes      G, I                -           -           -
    ------------------------------------------------------------------------
                                             812,586      45,660     858,246
    Shareholders' equity
    Unitholders' contributions             2,866,268           -   2,866,268
    Convertible debentures
     equity                    C
     component                                25,092     (25,092)          -
    Contributed surplus        C               2,953      (2,269)        684
    Accumulated deficit        H          (2,307,095)     28,350 (2,278,745)
    ------------------------------------------------------------------------
                                             587,218         989     588,207
    ------------------------------------------------------------------------
                                           1,399,804      46,649   1,446,453
    ------------------------------------------------------------------------
    ($000's)                                                  March 31, 2010
    ------------------------------------------------------------------------
                               Note         CDN GAAP         Adj        IFRS
    ------------------------------------------------------------------------
    Assets
    Current assets
     Cash and cash equivalents                 5,068           -       5,068
     Accounts receivable                     226,003           -     226,003
     Petroleum product
      inventory                A              30,491      21,876      52,367
     Prepaid expenses and other
      current assets                           2,491           -       2,491
     Financial derivative
      instruments                              5,435           -       5,435
     Assets held for sale      I                   -           -           -
    ------------------------------------------------------------------------
                                             269,488      21,876     291,364
    Investments                                1,733           -       1,733
    Exploration and evaluation I
     assets                                        -      25,549      25,549
    Property, plant and
     equipment                 A, B, D, I  1,761,921    (400,154)  1,361,767
    Intangible assets                        129,070           -     129,070
    Goodwill                                 100,409           -     100,409
    Deferred income taxes      G                   -           -           -
    ------------------------------------------------------------------------
                                           2,262,621    (352,729)  1,909,892
    ------------------------------------------------------------------------
    Liabilities
    Current liabilities
     Accounts payable and accrued
      liabilities                            211,500           -     211,500
     Cash dividends payable                   13,600           -      13,600
     Current portion of
      convertible debentures                       -           -           -
     Financial derivative
      instruments                            106,968           -     106,968
     Liabilities held for sale I                   -           -           -
    ------------------------------------------------------------------------
                                             332,068           -     332,068
    Long-term debt - revolving
     term credit facility                    100,186           -     100,186
    Long-term debt - convertible
     debentures                              241,631           -     241,631
    Decommissioning
     liabilities               B, I           60,136      71,781     131,917
    Long-term financial
     derivative instruments    C             111,041           -     111,041
    Other long-term
     liabilities               F              10,361           -      10,361
    Deferred income taxes      G, I          126,969    (119,600)      7,369
    ------------------------------------------------------------------------
                                             982,392     (47,819)    934,573
    Shareholders' equity
    Unitholders' contributions             2,841,100           -   2,841,100
    Convertible debentures
     equity component          C              15,940     (15,940)          -
    Contributed surplus        C               2,953      (2,269)        684
    Accumulated deficit        H          (1,579,764)   (286,701) (1,866,465)
    ------------------------------------------------------------------------
                                           1,280,229    (304,910)    975,319
    ------------------------------------------------------------------------
                                           2,262,621    (352,729)  1,909,892
    ------------------------------------------------------------------------
    ($000's)                                                 January 1, 2010
    ------------------------------------------------------------------------
                               Note         CDN GAAP         Adj        IFRS
    ------------------------------------------------------------------------
    Assets
    Current assets
     Cash and cash equivalents                 7,187           -       7,187
     Accounts receivable                     216,786           -     216,786
     Petroleum product
      inventory                A              37,261      21,518      58,779
     Prepaid expenses and other
      current assets                           4,803           -       4,803
     Financial derivative
      instruments                              5,314           -       5,314
     Assets held for sale      I                   -     186,411     186,411
    ------------------------------------------------------------------------
                                             271,351     207,929     479,280
    Investments                               18,733           -      18,733
    Exploration and evaluation I
     assets                                        -      24,739      24,739
    Property, plant and
     equipment                 A, B, D, I  2,025,044    (602,888)  1,422,156
    Intangible assets                        132,478           -     132,478
    Goodwill                                 100,409           -     100,409
    Deferred income taxes      G                   -           -           -
    ------------------------------------------------------------------------
                                           2,548,015    (370,220)  2,177,795
    ------------------------------------------------------------------------
    Liabilities
    Current liabilities
     Accounts payable and accrued
      liabilities                            221,417           -     221,417
     Cash dividends payable                   13,468           -      13,468
     Current portion of
      convertible debentures                       -           -           -
     Financial derivative
      instruments                             86,441           -      86,441
     Liabilities held for sale I                   -       2,792       2,792
    ------------------------------------------------------------------------
                                             321,326       2,792     324,118
    Long-term debt - revolving
     term credit facility                    264,776           -     264,776
    Long-term debt - convertible
     debentures                              240,486           -     240,486
    Decommissioning
     liabilities               B, I           61,464      66,336     127,800
    Long-term financial
     derivative instruments    C             103,403           -     103,403
    Other long-term
     liabilities               F              12,496           -      12,496
    Deferred income taxes      G, I          162,665    (124,900)     37,765
    ------------------------------------------------------------------------
                                           1,166,616     (55,772)  1,110,844
    Shareholders' equity
    Unitholders' contributions             2,834,177           -   2,834,177
    Convertible debentures
     equity                    C
     component                                15,940     (15,940)          -
    Contributed surplus        C               2,953      (2,269)        684
    Accumulated deficit        H          (1,471,671)   (296,239) (1,767,910)
    ------------------------------------------------------------------------
                                           1,381,399    (314,448)  1,066,951
    ------------------------------------------------------------------------
                                           2,548,015    (370,220)  2,177,795
    ------------------------------------------------------------------------
    iii) The following is a reconciliation of the consolidated statements of
    operations as previously reported under Canadian GAAP to IFRS:

                                                                  Year ended
    ($000s)                                                December 31, 2010
    ------------------------------------------------------------------------
                                  Notes     CDN GAAP         Adj        IFRS
    ------------------------------------------------------------------------
    Product sales and service
     revenue                               1,746,557           -   1,746,557
    Loss on financial derivative
     instruments                            (124,800)          -    (124,800)
    ------------------------------------------------------------------------
                                           1,621,757           -   1,621,757
    ------------------------------------------------------------------------
    Expenses
      Cost of goods sold          A        1,397,901      (1,266)  1,396,635
      Production, operating and
       maintenance                            18,504           -      18,504
      Transportation                          18,442           -      18,442
      Depreciation and
       amortization               D, E        45,718      (1,243)     44,475
      General and administrative              36,671           -      36,671
      Strategic review and
       restructuring                          13,782           -      13,782
      Financing charges           B, E        29,723       2,528      32,251
      Loss on revaluation of
       conversion feature of
       convertible debentures     C                -         433         433
      Gain on sale of assets,
       foreign exchange and other             (3,826)          -      (3,826)
    ------------------------------------------------------------------------
                                           1,556,915         452   1,557,367
    ------------------------------------------------------------------------
    Income from continuing
     operations before taxes                  64,842        (452)     64,390
    ------------------------------------------------------------------------
      Current tax (recovery) expense          (6,956)          -      (6,956)
      Deferred income tax
       recovery                   G          (31,694)     (9,177)    (40,871)
    ------------------------------------------------------------------------
                                             (38,650)     (9,177)    (47,827)
    ------------------------------------------------------------------------
     Net income for the period from
      continuing operations                  103,492       8,725     112,217
     Net loss from discontinued   I
      operations                            (438,587)    315,864    (122,723)
    ------------------------------------------------------------------------
     Net loss for the period                (335,095)    324,589     (10,506)
    ------------------------------------------------------------------------
                                                          Three months ended
    ($000s)                                                   March 31, 2010
    ------------------------------------------------------------------------
                                  Notes  CDN GAAP (1)        Adj        IFRS
    ------------------------------------------------------------------------
    Product sales and service
     revenue                                 472,940           -     472,940
    Loss on financial derivative
     instruments                             (53,690)          -     (53,690)
    ------------------------------------------------------------------------
                                             419,250           -     419,250
    ------------------------------------------------------------------------
    Expenses
      Cost of goods sold          A          375,256        (358)    374,898
      Production, operating and
       maintenance                             3,748           -       3,748
      Transportation                           5,397           -       5,397
      Depreciation and
       amortization               D, E        10,764         (62)     10,702
      General and administrative               9,552           -       9,552
      Strategic review and
       restructuring                             486           -         486
      Financing charges           B, E         5,640         511       6,151
      Loss on revaluation of
       conversion feature of
       convertible debentures     C                -           -           -
      Gain on sale of assets,
       foreign exchange and other              1,784           -       1,784
    ------------------------------------------------------------------------
                                             412,627          91     412,718
    ------------------------------------------------------------------------
    Income from continuing
     operations before taxes                   6,623         (91)      6,532
    ------------------------------------------------------------------------
      Current tax (recovery) expense             107           -         107
      Deferred income tax
       recovery                   G          (17,338)       (295)    (17,633)
    ------------------------------------------------------------------------
                                             (17,231)       (295)    (17,526)
    ------------------------------------------------------------------------
     Net income for the period from
      continuing operations                   23,854         204      24,058
     Net loss from discontinued   I
      operations                             (84,313)      9,334     (74,979)
    ------------------------------------------------------------------------
     Net loss for the period                 (60,459)      9,538     (50,921)
    ------------------------------------------------------------------------
    (1) The figures presented above for the three months ended March 31, 2010
        have been reclassified from those previously reported under Canadian
        GAAP to reflect discontinued operations presentation for the Canadian
        oil and natural gas production "Provident Upstream" or "COGP"
        business (see note 17).
    >>

Explanatory notes to the IFRS 1 transition adjustments:

Note: The following items address the transition adjustments applicable to continuing operations. For a description of the transition adjustments applicable to discontinued operations, see item I.

A. Petroleum product inventory - Product inventory required to be stored in third party pipelines as pipeline fill was recorded in property, plant and equipment ("PP&E") under previous Canadian GAAP. Under IFRS, these amounts are recorded as part of petroleum product inventory. Upon transition to IFRS, $21.5 million has been transferred from PP&E to petroleum product inventory. The additional inventory has been processed through the inventory costing calculations with a corresponding impact on cost of goods sold of $0.4 million in the first quarter of 2010 and $1.3 million for the year ended December 31, 2010. Inventory required for linefill and cavern bottoms in assets owned by Provident remains capitalized in PP&E.

B. Decommissioning liabilities - The amounts recorded under previous Canadian GAAP were the estimated future cash flows discounted at the Company's average credit-adjusted risk free rate of seven percent. Under IFRS, the amounts are discounted using a risk free rate of four percent. Provident recorded an adjustment to increase the decommissioning liabilities for continuing operations by $34.4 million with an offsetting increase in PP&E of $23.3 million and accumulated deficit of $11.1 million representing the pre-2010 earnings impact of this adjustment. The impact of this adjustment on first quarter 2010 earnings and annual 2010 earnings was additional accretion expense of $0.2 million and $0.7 million, respectively.

C. Convertible debentures equity component - Under previous Canadian GAAP, the portion of initial value associated with the conversion feature of a convertible debenture is classified as a separate component of equity. As a consequence of Provident's status as an income Trust in 2010, IFRS requires the conversion feature of convertible debentures to be classified as a financial instrument on transition and marked-to-market each reporting period. Since the conversion feature of the debentures outstanding on January 1, 2010 was sufficiently out-of-the-money, the fair value of this feature was determined to be nil. As a result, the Canadian GAAP balance of the equity component of convertible debentures at January 1, 2010 of $15.9 million, as well as $2.3 million of related balances in contributed surplus, have been reclassified to accumulated deficit on the transition date.

In addition, in the fourth quarter of 2010, a new convertible debenture was issued by Provident. Under previous Canadian GAAP, the portion of the initial value of the debenture associated with the conversion feature of $9.2 million was recorded as a separate component of equity. Under IFRS, the value of this conversion feature has been reclassified to long-term financial derivative instruments in the statement of financial position. Under IFRS, Provident is also required to mark-to-market this conversion feature at each reporting period, which resulted in the Company recording an unrealized loss of approximately $0.4 million in the fourth quarter of 2010 in loss on revaluation of conversion feature of convertible debentures in the statement of operations with a corresponding offset to long- term financial derivative instruments.

D. Depreciation and amortization - IFRS requires that depreciation be calculated at a component level, which resulted in additional depreciation expense from continuing operations of $0.3 million in the first quarter of 2010 and $0.7 million for the year ended December 31, 2010.

E. Financing charges - Under IFRS, accretion expense associated with decommissioning liabilities is recorded as a financing charge. Under previous Canadian GAAP, accretion expense from continuing operations of $0.3 million for the first quarter of 2010 and $1.9 million for the year ended December 31, 2010 related to asset retirement obligations was recorded under depletion, depreciation and accretion expense. Accordingly, these amounts have been reclassified from depletion, depreciation and accretion expense to financing charges. As a result of this change, the caption depletion, depreciation and accretion expense has been changed to be depreciation and amortization expense.

The balances recorded under previous Canadian GAAP as interest on bank debt and interest and accretion on convertible debentures are now included under financing charges under IFRS.

F. Other long-term liabilities - Included in other long-term liabilities are obligations associated with residual Upstream properties. Under previous Canadian GAAP, these obligations were calculated using an average credit-adjusted risk free rate of seven percent. Under IFRS, the obligations are discounted using a risk free rate of four percent which resulted in Provident recording an adjustment of $0.9 million in 2010.

G. Deferred income taxes - The transition adjustment associated with continuing operations was $13.1 million. This IFRS difference is primarily due to the tax rate applied to temporary differences associated with SIFT entities. Under previous Canadian GAAP, Provident used the rate expected to be in effect when the timing differences reverse. However, under IFRS, Provident is required to use the highest rate applicable for undistributed earnings in these entities. In addition, IFRS requires the calculation of deferred taxes related to foreign exchange differences on balances denominated in foreign currencies. The 2010 net income from continuing operations impact of IFRS differences on deferred taxes was an additional recovery of $9.2 million, resulting in a total adjustment of $22.3 million at December 31, 2010.

Upon conversion to a corporation on January 1, 2011, all timing differences are now measured under IFRS using a corporate tax rate and, as a result, the majority of the IFRS differences at December 31, 2010 for deferred income taxes has reversed through first quarter 2011 net earnings as a deferred tax expense.

H. Accumulated deficit - The following is a summary of transition adjustments to the Company's accumulated deficit from Canadian GAAP to IFRS:

    <<
    ------------------------------------------------------------------------
                                                           2010
    ------------------------------------------------------------------------
    ($ millions)          Note      December 31      March 31     January 1
    ------------------------------------------------------------------------
    Accumulated deficit as
     reported under Canadian
     GAAP                          $   (2,307.1) $   (1,579.8) $   (1,471.7)
    IFRS transition
     adjustments increase
     (decrease) on opening
     statement of
     financial position
     related to continuing
     operations:
     Petroleum product    A
      inventory                             0.4           0.4           0.4
     Decommissioning      B
      liabilities                         (11.1)        (11.1)        (11.1)
     Convertible
      debentures          C                18.2          18.2          18.2
     Other long-term      F
      liabilities                          (0.9)         (0.9)         (0.9)
     Deferred income
     taxes                G                13.1          13.1          13.1
    -----------------------------------------------------------------------
                                           19.7          19.7          19.7
    IFRS transition
     adjustments increase
     (decrease) on opening
     statement of
     financial position
     related to discontinued
     operations:
     Impairment on
      Upstream            I
      oil and gas properties             (391.5)       (391.5)       (391.5)
     Decommissioning      I
      liabilities                         (36.1)        (36.1)        (36.1)
     Deferred income
     taxes                I               111.7         111.7         111.7
    -----------------------------------------------------------------------
                                         (315.9)       (315.9)       (315.9)
    -----------------------------------------------------------------------
    Total net impact on
     opening statement of
     financial position            $     (296.2) $     (296.2) $     (296.2)
    -----------------------------------------------------------------------
    IFRS transition
     adjustments increase
     (decrease) net income
     from continuing
     operations:
     Cost of goods sold   A        $        1.3  $        0.4  $          -
     Loss on financial    C
      derivative instruments               (0.4)            -             -
     Depreciation and     D, E
      amortization                          1.2           0.1             -
     Financing charges    B, E             (2.5)         (0.5)            -
     Deferred income
      taxes               G                 9.1           0.2             -
    -----------------------------------------------------------------------
                                            8.7           0.2             -
    IFRS transition
     adjustments increase
     (decrease) net income
     from
     discontinued operations:
     Depletion expense    I                40.2          23.1             -
     Loss on sale of oil
      and                 I
      gas properties                       (8.1)         (8.1)            -
     Loss on sale of      I
      discontinued operations             296.0             -             -
     Deferred income
      taxes               I               (12.2)         (5.7)            -
    -----------------------------------------------------------------------
                                          315.9           9.3
    -----------------------------------------------------------------------
    Total net impact on
     statement of operations       $      324.6  $        9.5  $          -
    -----------------------------------------------------------------------
    Accumulated deficit as
     reported under IFRS           $   (2,278.7) $   (1,866.5) $   (1,767.9)
    -----------------------------------------------------------------------
    >>

I. Discontinued operations - There are a number of IFRS adjustments associated with the Upstream business impacting both the statement of financial position on the date of transition, January 1, 2010 and 2010 net earnings from discontinued operations. However, the total impact of the combined differences related to the Upstream business on Provident's equity balance at December 31, 2010 was nil. Explanatory notes to the IFRS 1 transition reconciliations for discontinued operations are summarized in the following table:

    <<
                                                         2010
    ------------------------------------------------------------------------
    Discontinued operations
     ($ millions)          Note      December 31      March 31    January 1
    ------------------------------------------------------------------------
    IFRS transition
     adjustments increase
     (decrease) on opening
     statement
     of financial position:
     Impairment on Upstream   1
      oil and gas properties       $       (391.5)  $    (391.5) $    (391.5)
     Decommissioning          2
      liabilities                           (36.1)        (36.1)       (36.1)
     Deferred income taxes    5             111.7         111.7        111.7
    ------------------------------------------------------------------------
                                           (315.9)       (315.9)      (315.9)
    IFRS adjustments increase
     (decrease) net income on
     statement
     of operations:
     Depletion expense        1              40.2          23.1            -
     Loss on sale of oil and  3
      gas properties                         (8.1)         (8.1)           -
     Loss on sale of          6
      discontinued operations               296.0             -            -
     Deferred income taxes    5             (12.2)         (5.7)           -
    ------------------------------------------------------------------------
                                            315.9           9.3            -
    ------------------------------------------------------------------------
    Net impact on accumulated
     deficit                       $            -  $     (306.6) $    (315.9)
    ------------------------------------------------------------------------
    >>

1) Property, plant and equipment - On transition to IFRS, Provident elected to use the IFRS 1 exemption for its Upstream oil & gas assets, allowing for the allocation of historical book values as reported under previous Canadian GAAP to the individual cash generating units on a pro rata basis. If this election is made, each of the cash generating units is required to be tested for impairment. Any impairment loss is recorded in accumulated deficit on the transition date. Accordingly, Provident recorded a $391.5 million impairment loss on transition to IFRS. The lower carrying value for the Upstream assets on transition resulted in a lower loss on sale of the business in the second quarter of 2010 compared to previous Canadian GAAP.

In addition, upon transition to IFRS, Provident had the option to continue to calculate depletion similar to previous Canadian GAAP using a reserve base of only proved reserves or to use proved plus probable reserves. Provident has elected to use proved plus probable reserves under IFRS. The combination of a lower carrying value due to the impairment loss on transition and the larger depletion base resulted in lower depletion charges related to the Upstream business under IFRS of $23.1 million in the first quarter of 2010 and $40.2 million for the year ended December 31, 2010. This difference is also offset in the loss on sale of the Upstream business in the second quarter of 2010.

2) Decommissioning liabilities - The amounts recorded under previous Canadian GAAP were the estimated future cash flows discounted at the Company's average credit-adjusted risk free rate of seven percent. Under IFRS, the amounts are discounted using a risk free rate of four percent. The adjustment related to the Upstream business, was an increase of the decommissioning liabilities by $36.1 million with the offset to accumulated deficit.

3) Assets held for sale - IFRS requires that assets held for sale be presented separately on the statement of financial position. Previous Canadian GAAP made an exception to this rule for certain upstream oil and gas related transactions. The sale of West Central Alberta assets held in the Upstream business was announced in December 2009. Therefore, assets and associated decommissioning liabilities of $186.4 million and $2.8 million, respectively, related to this transaction have been presented separately on the statement of financial position, at their fair value, determined with reference to the negotiated sales price adjusted for earnings between December 31, 2009 and the date of closing on March 1, 2010. This transaction resulted in a loss on sale of $8.1 million in the first quarter of 2010.

4) Exploration and evaluation ("E&E") expenditures - IFRS requires that E&E expenditures be presented separately from PP&E on the statement of financial position. Provident has segregated approximately $24.7 million of its PP&E in accordance with the IFRS 1 full cost exemption as at January 1, 2010. In the first and second quarters of 2010, an additional $0.8 million and $0.2 million was incurred, respectively, which also was classified as E&E. The costs consist primarily of land that relates to Upstream undeveloped properties which has not been depleted but rather is assessed for impairment when indicators suggest the possibility of impairment.

5) Taxes - The transition adjustment for deferred income taxes on transition to IFRS is primarily due to changes in the carrying amount of Upstream assets on the January 1, 2010 statement of financial position and the corresponding impact on temporary differences used to determine the deferred income tax balance. As a result, an adjustment of $111.7 million was recorded with an offset amount recorded in accumulated deficit. Additionally, a reduction in deferred income tax recoveries of $5.7 million and $12.2 million were incurred in the first quarter of 2010 and for the year ended December 31, 2010, respectively, primarily as a result of lower depletion expense under IFRS.

6) Loss on sale of discontinued operations - The loss on sale of discontinued operations was impacted by each of the IFRS adjustments 1 through 5 listed above, resulting in an IFRS adjustment to the loss on sale of discontinued operations of $296.0 million, net of tax.

6. Petroleum product inventory

When inventories are sold, the carrying amount of those inventories is recognized as an expense in the period in which the related revenue is recognized. In the first quarter of 2011, the Company recognized $407.6 million (2010 - $374.9 million) of product inventory as an expense in cost of goods sold. The amount of any write- down of inventories to net realizable value and all losses of inventories are recognized as an expense and included in cost of goods sold in the period the write-down or loss occurs. Any reversals of write-downs are also included in cost of goods sold. In the first quarter of 2011 and 2010, no write-down or reversal of write- downs of inventories were recognized in the statement of operations.

7. Property, plant and equipment

    <<
                                                            Oil &
                                   Office                 natural
                      Midstream equipment                     gas
    ($000s)              assets   & other    Subtotal  properties       Total
    -------------------------------------------------------------------------
    Cost:
    Balance as at
     January 1,
      2010          $  886,442 $  47,174 $   933,616 $ 2,682,180 $  3,615,796
    Additions           55,768       920      56,688      38,444       95,132
    Acquisitions        22,456         -      22,456       5,117       27,573
    Disposals                -    (2,603)     (2,603) (2,725,741) (2,728,344)
    -------------------------------------------------------------------------
    Balance as at
     December 31, 2010 964,666    45,491   1,010,157           -    1,010,157
    Additions           23,867       205      24,072           -       24,072
    Reclassification of
     accumulated DD&A   (1,765)        -      (1,765)          -      (1,765)
    Other                    -      (167)       (167)          -        (167)
    Removal of fully
     depreciated assets      -   (23,025)    (23,025)          -     (23,025)
    ------------------------------------------------------------------------
    Balance as at
     March 31, 2011 $  986,768 $  22,504 $ 1,009,272 $         - $ 1,009,272
    ------------------------------------------------------------------------
    Accumulated
     depletion,
     depreciation and
     amortization:
    Balance as at
     January 1,
      2010          $  116,656 $  27,786 $   144,442 $ 2,049,198 $ 2,193,640
    Depletion,
     depreciation and
     amortization for
     the period         25,729     7,056      32,785     123,940     156,725
    Disposals                -      (860)       (860) (2,173,138) (2,173,998)
    ------------------------------------------------------------------------
    Balance as at
     December 31, 2010 142,385    33,982     176,367           -     176,367
    Depletion,
     depreciation and
     amortization for
     the period          6,148     1,376       7,524           -       7,524
    Reclassification of
     accumulated DD&A   (1,765)        -      (1,765)          -      (1,765)
    Removal of fully
     depreciated assets      -   (23,025)    (23,025)          -     (23,025)
    ------------------------------------------------------------------------
    Balance as at
     March 31, 2011 $  146,768 $  12,333 $   159,101 $         - $   159,101
    ------------------------------------------------------------------------
    Net book value:
    Net book value
     as at
     January 1,
      2010          $  769,786 $  19,388 $   789,174 $   632,982 $ 1,422,156
    Net book value
     as at
     December 31,
      2010          $  822,281 $  11,509 $   833,790 $         - $   833,790
    Net book value
     as at
     March 31, 2011 $  840,000 $  10,171 $   850,171 $         - $   850,171
    ------------------------------------------------------------------------
    >>

Septimus to Younger pipeline project

On March 2, 2011, Provident announced an agreement between Provident Energy Ltd., AltaGas Ltd. ("AltaGas"), and a senior producer, to construct a 16-inch rich gas pipeline from a Montney gas plant to the AltaGas/Provident Younger deep cut natural gas processing facility in northeastern British Columbia. Under the agreement, Provident and AltaGas will each own a 30 percent interest in the project. The 25 kilometre pipeline will serve as a trunk line to support the gathering of up to 250 million cubic feet per day of natural gas from the liquids-rich Montney area. The estimated cost to complete the pipeline is approximately $30 million, of which Provident has committed to spend $9 million.

8. Intangible assets

    <<

                                 Remaining
                                      amor-
                         Useful   tization
    As at March 31,        life     period             Accumulated  Net book
     2011                (years)    (years)     Cost  amortization     value
    ------------------------------------------------------------------------
    Midstream contracts
     and customer
     relationships           15       9.75  $183,100    $   78,298 $ 104,802
    Other intangible
     assets             12 - 15       9.75    16,308         5,607    10,701
    ------------------------------------------------------------------------
    Total                                   $199,408    $   83,905 $ 115,503
    ------------------------------------------------------------------------
                                  Remaining
                                      amor-
                         Useful   tization
    As at December         life     period             Accumulated  Net book
    31, 2010             (years)    (years)     Cost  amortization     value
    ------------------------------------------------------------------------
    Midstream contracts
     and customer
     relationships           15         10  $183,100    $   75,062 $ 108,038
    Other intangible
     assets             12 - 15         10    16,308         5,501    10,807
    ------------------------------------------------------------------------
    Total                                   $199,408    $   80,563 $ 118,845
    ------------------------------------------------------------------------
                                       Midstream
                                       contracts
                                             and         Other
                                        customer    intangible
    ($000s)                        relationships        assets        Total
    -----------------------------------------------------------------------
    Net book value at January 1,
     2010                            $   121,238  $     11,240  $   132,478
    2010 amortization                    (13,200)         (433)     (13,633)
    -----------------------------------------------------------------------
    Net book value at December 31, 2010  108,038        10,807      118,845
    Amortization for the period           (3,236)         (106)      (3,342)
    -----------------------------------------------------------------------
    Net book value at March 31, 2011 $   104,802  $     10,701  $   115,503
    -----------------------------------------------------------------------
    >>

9. Goodwill

Provident performed a goodwill impairment test at January 1, 2010 and December 31, 2010 which determined that the recoverable amount of the group of cash generating units that comprise the Midstream business was in excess of the respective carrying value. Accordingly, no write-down of goodwill was required. The recoverable amount was determined based on a fair value less costs to sell calculation using cash flow projections from financial forecasts approved by management covering a 10 year period. Key assumptions upon which management based its determinations of the recoverable amount for the goodwill in 2010 include operating margins which are projected to increase by approximately 3% by 2020, attributable to capital expenditures and expected growth in the fee-for-service business, combined with a positive commodity pricing outlook and a weighted average discount rate of 10.5%. The forecast included future commodity price assumptions based on forward commodity price curves effective at December 31, 2010 with the assumption that prices will stabilize at approximately US$92.00/bbl for WTI crude oil and $5.00/mmbtu for AECO natural gas by 2014 and increase at inflationary rates thereafter.

10. Long-term debt

    <<
                                                        As at          As at
                                                     March 31,   December 31,
                                                         2011           2010
    ------------------------------------------------------------------------
    Revolving term credit facility                $   133,928    $    72,882
    ------------------------------------------------------------------------
    Convertible debentures                            248,867        251,891
    Current portion of convertible debentures          68,528        148,981
    ------------------------------------------------------------------------
                                                      317,395        400,872
    ------------------------------------------------------------------------
    Total                                         $   451,323    $   473,754
    ------------------------------------------------------------------------
    >>

i) Revolving term credit facility

The terms of the Credit Facility provide for a revolving three year period expiring on June 28, 2013 (subject to customary extension provisions) secured by all of the assets of the Company and its subsidiaries. Provident may draw on the facility by way of Canadian prime rate loans, U.S. base rate loans, banker's acceptances, LIBOR loans, or letters of credit. As at March 31, 2011, Provident had drawn $138.9 million (including $2.4 million presented as a bank overdraft in accounts payable and accrued liabilities) or 28 percent of its Credit Facility (December 31, 2010 - $75.5 million or 15 percent). Included in the carrying value at March 31, 2011 were financing costs of $2.2 million (December 31, 2010 - $2.4 million). At March 31, 2011 the effective interest rate of the outstanding Credit Facility was 4.0 percent (December 31, 2010 - 4.1 percent). At March 31, 2011 Provident had $48.4 million in letters of credit outstanding (December 31, 2010 - $47.9 million) that guarantee Provident's performance under certain commercial and other contracts.

ii) Convertible debentures

On January 13, 2011, in connection with the corporate conversion, Provident Energy Ltd. announced an offer to purchase for cash its 6.5% convertible debentures maturing on August 31, 2012 (the "C series") and its 6.5% convertible debentures maturing on April 30, 2011 (the "D series") at a price equal to 101 percent of their principal amounts plus accrued and unpaid interest. The offer was completed on February 21, 2011 and resulted in Provident taking up and cancelling $4.1 million principal amount of C series debentures and $81.3 million principal amount of D series debentures. The transaction resulted in Provident recognizing a loss on repurchase of $1.2 million in financing charges in the consolidated statement of operations. The total offer price, including accrued and unpaid interest, was funded by Provident Energy Ltd.'s existing revolving term credit facility. Following the completion of the offer, approximately $94.9 million principal amount of the C series debentures and approximately $68.6 million principal amount of the D series debentures remain outstanding in accordance with their terms. Also, see note 18 - Subsequent events.

Provident may elect to satisfy interest and principal obligations on the convertible debentures by the issuance of shares. For the three months ended March 31, 2011 and 2010, no debentures were converted to shares at the election of debenture holders. Included in the carrying value at March 31, 2011 were financing costs of $8.2 million (December 31, 2010 - $9.0 million). The following table details each outstanding convertible debenture.

    <<
    Convertible             As at               As at
     Debentures     March 31, 2011   December 31, 2010
    ------------------------------------------------------------------------
    ($000s
     except
     conver-                                                      Conversion
     sion      Carrying      Face  Carrying      Face    Maturity  price per
     pricing)     value     value     value     value        date   share (1)
    ------------------------------------------------------------------------
    6.5%
     Convertible                                         April 30,
     Deben-
     tures    $  68,528 $  68,642   148,981 $ 149,980        2011 $    12.40
    6.5%
     Convertible                                             Aug. 31,
     Deben-
     tures       92,564    94,949    96,084    98,999        2012      11.56
    5.75%
     Convertible                                             Dec. 31,
     Deben-
     tures      156,303   172,500   155,807   172,500        2017      10.60
    ------------------------------------------------------------------------
              $ 317,395 $ 336,091 $ 400,872 $ 421,479
    ------------------------------------------------------------------------
    (1) The debentures may be converted into shares at the option of the
        holder of the debenture at the conversion price per share.
    >>

The conversion feature of convertible debentures is presented at fair value as a long-term financial derivative instrument rather than as a component of equity on the consolidated statement of financial position (see note 15).

11. Decommissioning liabilities

Provident's decommissioning liabilities are based on its net ownership in property, plant and equipment and represents management's estimate of the costs to abandon and reclaim those assets as well as an estimate of the future timing of the costs to be incurred. Estimated cash flows have been discounted at Provident's nominal risk free rate of four percent and an inflation rate of two percent has been estimated for future years.

The total undiscounted amount of future cash flows required to settle the decommissioning liabilities is estimated to be $207.3 million (December 31, 2010 - $207.3 million). The estimated costs include such activities as dismantling, demolition and disposal of the facilities as well as remediation and restoration of the surface land. Payments to settle the decommissioning liabilities are expected to occur subsequent to the closure of the facilities and related assets. Settlement of these liabilities is expected to occur within the next 15 to 35 years.

    <<
                                                          Three months ended
                                                                    March 31,
    ------------------------------------------------------------------------
    ($000s)                                                 2011        2010
    ------------------------------------------------------------------------
    Carrying amount, beginning of period             $    57,232 $   127,800
    Acquisitions                                               -       3,902
    Settlement of liabilities during the period -
     discontinued operations                                   -      (1,039)
    Accretion of liability - continuing operations           572         512
    Accretion of liability - discontinued operations           -         742
    ------------------------------------------------------------------------
    Carrying amount, end of period                   $    57,804 $   131,917
    ------------------------------------------------------------------------
    >>

12. Share capital

On January 1, 2011, the Trust completed a conversion from an income trust structure to a corporate structure pursuant to a plan of arrangement on the basis of one common share in Provident Energy Ltd. in exchange for each trust unit held in the Trust. The conversion resulted in the reorganization of the Trust into a publicly traded, dividend-paying corporation under the name "Provident Energy Ltd."

i) Share capital

    <<
                                                     Number of        Amount
    Common Shares                                       shares         (000s)
    ------------------------------------------------------------------------
    Issued on conversion to a corporation effective
     January 1, 2011                               268,765,492   $ 2,866,268
    Issued pursuant to the dividend reinvestment
     plan                                              607,137         4,521
    To be issued pursuant to the dividend
     reinvestment plan                                 273,943         2,397
    ------------------------------------------------------------------------
    Balance at March 31, 2011                      269,646,572     2,873,186
    ------------------------------------------------------------------------
    Provident has an unlimited number of common shares authorized for
    issuance.
    >>

ii) Unitholders' contributions

    <<
                                                     Number of        Amount
    Trust Units                                          units         (000s)
    ------------------------------------------------------------------------
    Balance at January 1, 2010                     264,336,636   $ 2,834,177
    Issued pursuant to the distribution
     reinvestment plan                               4,002,565        28,635
    To be issued pursuant to the distribution
     reinvestment plan                                 426,291         3,456
    ------------------------------------------------------------------------
    Balance at December 31, 2010                   268,765,492   $ 2,866,268
    Cancelled on conversion to a corporation
     effective January 1, 2011                    (268,765,492)   (2,866,268)
    ------------------------------------------------------------------------
    Balance at March 31, 2011                                -             -
    ------------------------------------------------------------------------
    >>

The basic and diluted per share amounts were calculated based on the weighted average number of shares outstanding of 268,918,493 (2010 - 264,497,839).

13. Share based compensation

i) Restricted/Performance share units

Certain employees of Provident are granted restricted share units (RSUs) and/or performance share units (PSUs), both of which entitle the employee to receive cash compensation in relation to the value of a specific number of underlying notional share units. The grants are based on criteria designed to recognize the long term value of the employee to the organization. RSUs typically vest evenly over a period of three years commencing at the grant date. Payments are made on the anniversary dates of the RSU to the employees entitled to receive them on the basis of a cash payment equal to the value of the underlying notional share units. PSUs vest three years from the date of grant and can be increased to a maximum of double the PSUs granted or a minimum of nil PSUs depending on the Company's performance based on certain benchmarks.

The fair value estimate associated with the RSUs and PSUs is expensed in the statement of operations over the vesting period. At March 31, 2011, $10.9 million (December 31, 2010 - $7.4 million) is included in accounts payable and accrued liabilities for this plan and $4.5 million (December 31, 2010 - $10.4 million) is included in other long-term liabilities. The following table reconciles the expense recorded for RSUs and PSUs.

    <<
                                                 Three months ended March 31,
    ------------------------------------------------------------------------
                                                          2011          2010
    ------------------------------------------------------------------------
    General and administrative                     $     4,539   $     2,720
    Production, operating and maintenance expense          382           240
    ------------------------------------------------------------------------
                                                   $     4,921   $     2,960
    ------------------------------------------------------------------------
    >>

The following table provides a continuity of the Company's RSU and PSU plans:

    <<
    Units outstanding                                     RSUs          PSUs
    ------------------------------------------------------------------------
    Opening balance, January 1, 2011                 1,175,008     2,443,581
    Grants                                             468,601       453,555
    Reinvested through notional dividends               20,599        30,110
    Exercised                                         (517,553)     (722,082)
    Forfeited                                               (6)            -
    ------------------------------------------------------------------------
    Ending balance March 31, 2011                    1,146,649     2,205,164
    ------------------------------------------------------------------------
    >>

At March 31, 2011, all RSUs and PSUs have been valued at a share price of $9.03 and, as at March 31, 2011 each PSU has been valued using a multiplier of 1.25, 1.30, and 1.00, for the 2009, 2010, and 2011 grants, respectively.

14. Income taxes

Prior to conversion to a corporation effective January 1, 2011, IFRS requires temporary differences at the Trust level to be reflected at the highest rate at which individuals would be taxed on undistributed profits. Upon corporate conversion, deferred tax balances are determined using the applicable statutory rate for corporations.

Income tax expense is recognized based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rate used for the year ended December 31, 2010 and for the three months ended March 31, 2011 was 33.4% and 27.4%, respectively.

15. Financial instruments

The following table is a summary of the net financial derivative instruments liability:

    <<
                                                        As at          As at
                                                     March 31,   December 31,
    ------------------------------------------------------------------------
    ($ 000s)                                             2011           2010
    ------------------------------------------------------------------------
    Crude oil                                          60,335         28,313
    Natural gas                                        18,130         19,102
    NGL's (includes propane, butane)                     (755)        10,363
    Foreign exchange                                   (1,288)           (28)
    Electricity                                        (1,509)          (421)
    Interest                                             (542)          (366)
    Conversion feature of convertible debentures       14,348          9,586
    ------------------------------------------------------------------------
    Total                                          $   88,719    $    66,549
    ------------------------------------------------------------------------
    >>

For convertible debentures containing a cash conversion option, the conversion feature is measured at fair value through profit and loss at each reporting date, with any unrealized gains or losses arising from fair value changes reported in the consolidated statement of operations. This resulted in Provident recording a $4.8 million loss on revaluation on the conversion feature of convertible debentures in the first quarter of 2011 (2010 - nil).

The following table summarizes the impact of the loss on financial derivative instruments during the three months ended March 31, 2011 and 2010. The loss on revaluation of conversion feature of convertible debentures is not included in the table as it is separately disclosed on the statement of operations.

    <<
    Loss on financial derivative                 Three months ended March 31,
     instruments                                    2011                2010
    ------------------------------------------------------------------------
    ($ 000s except volumes)                    Volume (1)          Volume (1)
    ------------------------------------------------------------------------
    Realized loss on financial
     derivative instruments
     Crude oil                      $   (4,423)      0.2  $   (7,213)    0.7
     Natural gas                        (3,041)      6.6     (16,079)    5.2
     NGL's (includes propane, butane)  (18,140)      1.7         535     0.3
     Foreign exchange                      264                 1,135
     Electricity                           722                  (100)
     Interest rate                          12                  (370)
    ------------------------------------------------------------------------
                                       (24,606)              (22,092)
    Unrealized loss on financial
     derivative instruments            (17,408)              (31,598)
    ------------------------------------------------------------------------
    Loss on financial derivative
     instruments                    $  (42,014)           $  (53,690)
    ------------------------------------------------------------------------
    (1)The above table represents aggregate net volumes that were bought/sold
       over the periods. Crude oil and NGL volumes are listed in millions of
       barrels and natural gas is listed in millions of gigajoules.
    >>

16. Product sales and service revenue

For the three months ended March 31, 2011, included in product sales and service revenue is $76.7 million (2010 - $67.9 million) associated with the U.S. midstream operations.

17. Discontinued Operations (Provident Upstream)

On June 29, 2010, Provident completed a strategic transaction in which Provident combined the remaining Provident Upstream business with Midnight Oil Exploration Ltd. ("Midnight") to form Pace Oil & Gas Ltd. ("Pace") pursuant to a plan of arrangement under the Business Corporations Act (Alberta) (the "Arrangement") Under the Arrangement, Midnight acquired all outstanding shares of Provident Energy Resources Inc., a wholly-owned subsidiary of Provident Energy Trust which held all of the producing oil and gas properties and reserves associated with Provident's Upstream business. Total consideration from the transaction was $423.7 million, consisting of $115 million in cash and approximately 32.5 million shares of Pace valued at $308.7 million at the time of the closing. Associated transaction costs were $8.1 million. Under the terms of the Arrangement, Provident unitholders divested a portion of each of their Provident units to receive 0.12225 shares of Pace, which was recorded as a non-cash distribution by the Trust, valued at $308.7 million. Provident recorded a loss on sale of $79.8 million and $58.1 million in future tax recovery related to this transaction. This transaction completed the sale of the Provident Upstream business in a series of transactions between September 2009 to June 2010.

The following table presents information on the net loss from discontinued operations.

    <<
                                                Three months ended March 31,
    -----------------------------------------------------------------------
    Net loss from discontinued operations (000's)       2011           2010
    -----------------------------------------------------------------------
    Revenue                                       $        -     $   53,677
    -----------------------------------------------------------------------
    Loss from discontinued operations before
     taxes                                                 -        (88,029)
    Current tax expense                                    -             (1)
    Future income tax recovery                             -         13,051
    -----------------------------------------------------------------------
    Net loss from discontinued operations for the
     period                                       $        -     $  (74,979)
    -----------------------------------------------------------------------
    Per unit
     - basic and diluted                          $        -     $    (0.28)
    -----------------------------------------------------------------------
    (1)In the first quarter of 2010, interest expense of $0.5 million was
       allocated to discontinued operations on a prorata basis calculated as
       the proportion of net assets of the Upstream business to the sum of
       total net assets of the Trust plus long-term debt.
    >>

Assets held for sale

IFRS requires that assets held for sale be presented separately on the statement of financial position. Previous Canadian GAAP made an exception to this rule for certain upstream oil and gas related transactions. The sale of West Central Alberta assets held in the Upstream business was announced in December 2009. Therefore, assets and associated decommissioning liabilities of $186.4 million and $2.8 million, respectively, related to this transaction have been presented separately on the January 1, 2010 statement of financial position, at their fair value, determined with reference to the negotiated sales price adjusted for earnings between December 31, 2009 and the date of closing on March 1, 2010. This transaction resulted in a loss on sale of $8.1 million in the first quarter of 2010.

Additional accounting policies

Accounting policies solely related to Provident's Upstream business are as follows:

i) Financial instruments

Financial Assets

a) Available for sale

The Company's investments are classified as available for sale financial assets. A gain or loss on an available for sale financial asset shall be recognized directly in other comprehensive income, except for impairment losses and foreign exchange gains and losses. When the investment is derecognized or determined to be impaired, the cumulative gain or loss previously recorded in equity is recognized in profit or loss.

ii) Property, plant & equipment

Oil and natural gas properties

Oil and natural gas properties are stated at cost, less accumulated depletion and depreciation and accumulated impairment losses. Costs incurred subsequent to the determination of technical feasibility and commercial viability and the costs of replacing parts of property, plant and equipment are recognized as oil and natural gas properties only when they increase the future economic benefits embodied in the specific properties to which they relate. All other expenditures are recognized in profit or loss as incurred. Such capitalized oil and natural gas properties represent costs incurred in developing proved and probable reserves and bringing in or enhancing production from such reserves and are accumulated on a cost centre basis.

Development costs

Expenditures on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including unsuccessful development or delineation wells, is capitalized within property, plant and equipment.

Depletion

The provision for depletion and depreciation for oil and natural gas assets is calculated, at a component level using the unit-of-production method based on current period production divided by the related share of estimated total proved and probable oil and natural gas reserve volumes, before royalties. Production and reserves of natural gas and associated liquids are converted at the energy equivalent ratio of 6,000 cubic feet of natural gas to one barrel of oil. In determining its depletion base, the Company includes estimated future costs for developing proved and probable reserves, and excludes estimated salvage values of tangible equipment and the cost of exploration and evaluation assets.

iii) Exploration and Evaluation assets

Pre-license costs

General prospecting and evaluation costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the income statement in the period in which they are incurred.

Exploration and evaluation costs

Once the legal right to explore has been acquired, all costs incurred to assess the technical feasibility and commercial viability of resources are capitalized as exploration and evaluation ("E&E") intangible assets until the drilling of the well is complete and the results have been evaluated. These costs may include costs of license acquisition, technical services and studies, seismic acquisition, exploration drilling and testing, directly attributable overhead and administration expenses, including remuneration of production personnel and supervisory management, the projected costs of retiring the assets (if any), and any activities in relation to evaluating the technical feasibility and commercial viability of extracting mineral resources. Such items are initially measured at cost. After initial recognition, the Company measures E&E costs using the cost model whereby the asset is carried at cost less accumulated impairment losses.

Intangible exploration assets are not depleted and carried forward until the Company has determined the technical feasibility and commercial viability of extracting a mineral resource. If no reserves are found and management determines that the Company no longer intends to develop or otherwise extract value from the discovery, the costs are written off to profit or loss. Upon determination of proven and probable reserves, E&E assets attributable to those reserves are first tested for impairment at the cash generating unit level, and then reclassified to oil and natural gas properties, a separate category within property, plant and equipment. Once these costs have been transferred to property, plant and equipment, they are subject to impairment testing at the cash generating unit level similar to other oil and natural gas assets within property, plant and equipment.

iv) Joint Arrangements

Certain of the Company's activities in the Upstream business were conducted through interests in jointly controlled assets and operations, where the Company has a direct ownership interest in and jointly control the assets and/or operations of the venture. Accordingly, the income, expenses, assets, and liabilities of these jointly controlled assets and operations are included in the consolidated financial statements of the Company in proportion to the Company's interest.

v) Decommissioning liabilities

For upstream operations, the amount recognized represents management's estimate of the present value of the estimated future expenditures to abandon and reclaim the Company's net ownership in wells and facilities determined in accordance with local conditions and requirements as well as an estimate of the future timing of the costs to be incurred.

Decommissioning is likely to occur when the fields are no longer economically viable. This in turn depends on future oil and gas prices, which are inherently uncertain.

vi) Significant accounting judgments, estimates and assumptions

Reserves base

The Company's reserves have been evaluated in accordance with the Canadian Oil and Gas Evaluation Handbook Volumes 1 and 2 ("COGEH") and comply with the standards that govern all aspects of reserves as prescribed in National Instrument 51-101 (NI 51-101). Under NI 51-101, proved reserves are defined as having a high degree of certainty to be recoverable. Probable reserves are defined as those reserves that are less certain to be recovered than proved reserves. The targeted levels of certainty, in aggregate, are at least 90 percent probability that the quantities recovered will equal or exceed the estimated proved reserves and at least 50 percent probability that the quantities recovered will equal or exceed the sum of the estimated proved plus probable reserves. Under NI 51-101 standards, proved plus probable are considered a "best estimate" of future recoverable reserves.

The estimation of oil and gas reserves is a subjective process. Forecasts are based on engineering data, projected future rates of production, estimated commodity prices, and the timing of future expenditures. The Company expects reserve estimates to be revised based on the results of future drilling activity, testing, production levels, and economics of recovery based on cash flow forecasts. Future development costs are estimated using assumptions as to number of wells required to produce the reserves, the cost of such wells and associated production facilities, and other capital costs.

Carrying value of oil and gas assets

Oil and gas development and production properties are depreciated on a unit-of-production basis at a rate calculated by reference to proved plus probable reserves and incorporate the estimated future costs of developing and extracting those reserves.

The calculation of unit-of production rate of amortization could be impacted to the extent that actual production in the future is different from current forecast production based on proved plus probable reserves. This would generally result from significant changes in any of the factors or assumptions used in estimating reserves and could include:

    <<
    -   Changes in proved plus probable reserves;
    -   The effect on proved plus probable reserves of differences between
        actual commodity prices and commodity price assumptions; or
    -   Unforeseen operational issues.
    >>

Impairment indicators

The recoverable amounts of cash generating units and individual assets have been determined based on the higher of value in use calculations and fair values less costs to sell. These calculations require the use of estimates and assumptions.

For the Upstream business, it is reasonably possible that the commodity price assumptions may change which may then impact the estimated life of the field and may then require a material adjustment to the carrying value of its tangible and intangible assets. The Company monitors internal and external indicators of impairment relating to its tangible and intangible assets.

Impairment of available for sale financial assets

The Company classifies certain assets as available for sale and recognizes movements in their fair value in equity. Subsequent to initial recognition, when the fair value declines, management makes assumptions about the decline in value whether it is an impairment that should be recognized in profit or loss.

18. Subsequent events

Public offering of convertible unsecured subordinated debentures

On May 10, 2011, Provident issued $150 million aggregate principal amount of convertible unsecured subordinated debentures (the Debentures). Provident has granted to the underwriters an over-allotment option to purchase up to an additional $22.5 million aggregate principal amount of Debentures, exercisable in whole or in part any time for a period of up to 30 days following closing of the offering. The Debentures bear interest at 5.75% per annum, payable semi-annually in arrears on June 30 and December 31 each year commencing December 31, 2011 and mature on December 31, 2018.

Provident intends to initially use the net proceeds from the offering to repay indebtedness under its credit facility which will then be available to be drawn, as required, to fund the redemption of all of the outstanding principal amount of Provident's 6.5% convertible debentures maturing on August 31, 2012 and for general corporate purposes.

Redemption of outstanding 6.5% convertible unsecured subordinated debentures

On April 18, 2011, Provident announced its intention to redeem all of the outstanding aggregate principal amount of the 6.5% convertible unsecured debentures (the 6.5% Debentures) maturing on August 31, 2012 at a redemption price equal to $1,000 in cash per $1,000 principal amount of 6.5% Debentures, plus accrued and unpaid interest, as of the redemption date of May 25, 2011. Interest on the 6.5% Debentures will cease to be payable from and after the redemption date. As of May 10, 2011, there was approximately $95 million aggregate principal amount of 6.5% Debentures outstanding.

For further information: Provident Energy Ltd., Investor and Media Contact:,Glen Nelson, Investor Relations, (403) 231-6710, info@providentenergy.com; Corporate Head Office: 2100, 250 - 2nd Street SW, Calgary, Alberta T2P 0C1, (403) 296-2233 or Toll Free: 1-800-587-6299, (403) 264-5820 (FAX), www.providentenergy.com