General

In general, the board of directors of Daylight Energy Ltd. (“Daylight Energy”) has been delegated substantially all of the Trust’s management decisions. The board in turn delegates routine operational and management decisions to Daylight Energy’s management team. It is the board’s responsibility to ensure that Daylight’s operating activities and financial reporting and disclosure comply with applicable securities legislation, applicable bylaws and regulations of the stock exchanges on which it trades, and accounting standards as practised in Canada. Unitholders are entitled to elect all of the board of directors of Daylight Energy pursuant to the terms of the Trust Indenture.

The articles of incorporation of Daylight Energy provide that the board of directors of Daylight Energy shall consist of a minimum of three and a maximum of ten directors. As of April 2005 Daylight has a fivemember board of directors, consisting of two inside directors, including the executive chairman, and three outside (independent) directors, all five of whom were put forward in the November 2004 Plan of Arrangement, and were approved by a vote of securityholders of Midnight Oil & Gas Ltd. These same five individuals are expected to stand for re-election at the Trust’s first annual meeting, to be held on May 26, 2005.

Following approval of the Plan of Arrangement, the board of directors elected members to serve on five committees: audit, reserves, compensation, technical services and corporate governance, and environmental. Each of these committees consists exclusively of outside directors.

Additional information in respect of corporate governance matters will be contained in the Trust’s 2005 information circular, which will be filed on SEDAR at www.sedar.com. Trust Indenture Pursuant to the Trust Indenture, Unitholders are entitled to direct the manner in which the Trust will vote its common shares in Daylight Energy at all meetings in respect of matters, relating to the election of the directors of Daylight Energy, approving Daylight Energy's financial statements and appointing auditors of Daylight Energy who shall be the same as the Trust’s auditors. Prior to the Trust voting its common shares in Daylight Energy, in respect of such matters, each Unitholder is entitled to vote in respect of the matter on the basis of one vote per Trust Unit held, and the Trust is required to vote its common shares in Daylight Energy in accordance with the result of the vote of Unitholders.

Decision Making

The Trust has entered into an administration agreement with Daylight Energy pursuant to which the board of directors of Daylight Energy has generally been delegated the Trust’s significant management decisions. This includes operational and management decision-making with respect to the oil and natural gas-producing assets held by Daylight Energy that produce substantially all of the cash flow available for distribution, via the Trust, to Unitholders; financial decision-making; hiring and firing of key personnel; administrative decision-making; and all other decision-making that arises in the normal course of doing business.

In particular, the Trustee has delegated to the board of directors of Daylight Energy responsibility for any and all matters relating to the following:

1. an offering;
2. ensuring compliance with all applicable laws, including in relation to an offering;
3. all matters relating to the content of any offering documents, the accuracy of the disclosure contained therein, and the certification thereof;
4. all matters concerning the terms of, and amendment from time to time of material contracts;
5. all matters concerning any underwriting or agency agreement providing for the sale of Trust Units or rights to Trust Units;
6. all matters relating to the redemption of Trust Units;
7. all matters relating to the voting rights on any investments in the assets of the trust or any subsequent investments;
8. all matters relating to the specific powers and authorities as set forth in the Trust Indenture.

The Trust Indenture gives to the board of directors of Daylight Energy the authority to exercise the rights, powers and privileges for all matters relating to the maximization of Unitholder value in the context of an offer including any Unitholder rights protection plan, any defensive action to an offer, any directors’ circular in response to an offer, any regulatory or court proceeding relating to an offer and any related or ancillary matter.

Distributions

Cash distributions are made on the 15th day (or if such date is not a business day, on the next business day) following the end of each calendar month to Unitholders of record on the last business day of each such calendar month or such other date as determined from time to time by the Trustee. Distributions are normally announced on a monthly basis in the context of prevailing and anticipated commodity prices.

Statement Of Corporate Governance Practices

The board of directors and management believes in the importance of good corporate governance and its effectiveness in promoting enhanced unitholder value. The Toronto Stock Exchange has required that listed entities disclose their approach to corporate governance, making particular reference to the guidelines set out in the December 1994 report of the Toronto Stock Exchange Committee on Corporate Governance. When a corporation's corporate governance system differs from these guidelines, it is required to give an explanation of the differences. The guidelines contained in the Toronto Stock Exchange report are not mandatory and the Toronto Stock Exchange report recognizes that the unique characteristics of individual entities will result in varying degrees of compliance with such guidelines. The board of directors and management will continue to monitor the current initiatives of the securities regulatory authorities in Canada with respect to corporate governance in order to ensure that our corporate governance practice complies with all applicable legal requirements.

The following summary also addresses each of the guidelines of the Toronto Stock Exchange with respect to corporate governance including an explanation of any divergence from the stated guidelines.

Toronto Stock Exchange Corporate Governance Guidelines		Do We Comply?		Comments
1. Board should explicitly assume responsibility for stewardship of the corporation, and specifically for: adoption of a strategic planning process; identification of principal risks of the corporation's business and ensure the implementation of appropriate riskmanagement systems; succession planning and monitoring senior management; communication policy; and integrity of internal control and management systems.		Yes		The board has full plenary powers and the statutory responsibilities to oversee the conduct of our business and to supervise management which is responsible for the day-to-day conduct of our business. The board's fundamental objectives are to enhance and preserve long-term unitholder value and to ensure that we meet our objectives on an ongoing basis. The board has acknowledged its responsibility for our stewardship, including responsibility for: the appointment of executive officers and for succession planning; the identification of our principal business risks and ensuring the implementation of appropriate systems to manage these risks; the approving of all financings and significant acquisitions or dispositions; ensuring the implementation and integrity of our internal control and management information systems; approval and monitoring our strategic planning; monitoring compliance with all significant policies and procedures and applicable laws and regulations; and ensuring timely and accurate reporting to unitholders of financial and other matters in accordance with applicable law. Three of the five members of the board are unrelated. Mr. Woods and Mr. Lambert are considered"inside" and "related" directors as they hold the position of Executive Chairman and President and CEO, respectively. All of the other directors are considered to be "outside" and "unrelated" directors as they have no business relationship with us other than ownership of trust units. We have a technical services and corporate governance committee composed exclusively of non-management and unrelated directors. The board of directors periodically assesses the effectiveness of the board, its committees and the individual directors. We provide orientation to new directors on an ad hoc basis upon them being invited to join the board of directors based upon the director's background and knowledge of our operations. The board of directors periodically examines the size of the board with respect to the view of its effectiveness. The board of directors believes that its current size is appropriate at this time. The compensation committee annually reviews the compensation of directors and provides a report to the board of directors. All committees of the board are composed exclusively of non-management directors. All committees are comprised exclusively of unrelated directors. The technical services and corporate governance committee has the responsibility for developing approaches to corporate governance. The President and CEO is accountable to the board for meeting corporate objectives. The board has delegated to the President and CEO the responsibility for the day-to-day management of our business, subject to compliance with plans and objectives approved from time to time by the board. All plans and corporate objectives are approved by the board. The board has functioned, and is of the view that it can continue to function, independently of management. Given our size and the nature of our business, the board does not believe that it is necessary to appoint a Chairman who is not a member of management and who is an "outside" and "unrelated" director. The board and any committee can meet in the absence of management at their discretion. The board has established an audit committee which is responsible for recommending the appointment of auditors, reviewing audit functions and the preparation of financial statements and reviewing and recommending for approval to the board all public disclosure information such as financial statements and prospectuses. The audit committee also ensures that management has effective internal control systems and meets from time-to-time with external auditors without management present. All of the members of the audit committee are non-management directors. Individual directors may engage outside advisors, at our expense, in appropriate circumstances.
2. Majority of directors should be unrelated.		Yes
3. Disclose for each director whether he or she is related, and how that conclusion was reached.		Yes
4. Appoint a committee composed exclusively of non-management directors, the majority of whom are unrelated, with the responsibility of proposing new board nominees and assessing directors.		Yes
5. Implement a process for assessing the effectiveness of the board, its committees and individual directors.		Yes
6. Provide orientation and education programs for new directors.		Yes
7. Examine the size of the board with a view to effectiveness and consider reducing the size of the Board.		Yes
8. Review compensation of directors in light of risks and responsibilities.		Yes
9. (a) Committees should generally be composed of non-management directors; and (b) a majority of committee members should be unrelated.		Yes
10. Appoint a committee responsible for approach to corporate governance issues.		Yes
11. (a) Define limits to management's responsibilities by developing mandates for: the board; and the CEO (b) The board should approve the CEO's corporate objectives.		Yes
12. Establish procedures to enable the board to function independently of management.		No
13. (a) Establish an audit committee with a specifically defined mandate. (b) All members of the audit committee should be non-management directors.		Yes
14. Implement a system to enable individual directors to engage outside advisors, at the corporation's expense.		Yes