dear fellow unitholders

Enerflex enjoyed a strong year in 2006 with solid gains in key measurements of performance. More importantly, our results reflect consistent growth over the past five years and substantial progress in the execution of our strategic plan.

Since 2002:

• Revenue has grown at a compound annual growth rate of 19%
• International revenue has tripled over this period from $92 million to $279 million, an annual compounded growth rate of 25%
• Earnings before interest, taxes, depreciation, and amortization (EBITDA) have increased at an annual compounded rate of 26%*
• Return on capital employed (ROCE) has increased from 6.9% to 16.1%*

*Net of one time trust conversion costs incurred in 2006.

The strong growth in international revenue, which has accelerated dramatically over the past two years, demonstrates that we are effectively executing our strategy of evolving into a globally focused provider of a wide range of value-added technologies and services.

Strategic Goals

• To achieve worldwide recognition as a premium provider of complete product and service solutions between the wellhead and the pipeline.
• Continue to deliver strong, consistent growth in revenues and profits by offering our customers the ability to cost effectively outsource their non-core activities.
• Develop technologies that clearly differentiate Enerflex in the worldwide market.

Domestic Market:

Our aim is to be recognized as far more than a leading provider of gas compression systems. Over the past two years we have developed our Variable Cost Production (VCP) initiative which involves Enerflex providing complete production, process and compression systems on a fee for throughput basis.

Today, we have the proven in-house capability to manufacture, install, maintain and operate complete production facilities. This offering provides significant benefits to producers in terms of return on capital, optimization of legacy assets and allowing greater focus on their core competency of finding and developing hydrocarbon reserves.

We are pleased with the progress of VCP which continues to make headway in gaining market acceptance. VCP will continue to grow, becoming a significant contributor of stable cash flow and profitability.

In addition, we are pursuing the field application of Flue Gas technology which involves capturing and compressing the exhaust gas stream from natural gas engines. Primarily used for under-balanced drilling and reservoir stimulation, this process has significant environmental and cost benefits. Field tests are ongoing with favourable initial results.

International Market:

There are three key components to our international strategy:

• Enerflex Global which provides international customers with a single point of contact, taking responsibility for the design and execution of projects up to $100 million in size.
• Regionalization, which establishes infrastructure and decision making capability within key market Regions around the world. This results in faster response to customer needs and a far better understanding of local market conditions and opportunities.
• The export of systems manufactured by Enerflex in Canada to support Enerflex Global and Regional activities.

2006 saw substantial progress on all three fronts as Enerflex Global was instrumental in the establishment of an engineering office in Kuala Lumpur, Malaysia and the successful completion of the $40 million El Wastani project in Egypt. AustralAsia, our largest International Region and the blueprint for future expansion of this concept, contributed approximately $154 million in revenue, including exports, an increase of 139% over 2005. Export shipments increased by 24% in 2006 over the prior year.

Market Conditions

The Canadian market is experiencing a moderation in demand for new equipment partly as a result of the decline in natural gas prices throughout the latter half of 2006. This has resulted in a slowing of new domestic order bookings for our Engineered Systems segment while both our Service and Production Services segments are maintaining their strong utilization and momentum.

We have been rewarded by our international strategy and investment. Markets outside Canada remain strong with new export orders and contracts from foreign countries increasing significantly in recent months to largely offset the tempering of domestic demand.

Trust Conversion:

On September 27, 2006, Enerflex Systems Ltd. received 99.9% shareholder approval to convert to an income trust which was subsequently finalized on October 2, 2006. This in turn resulted in the Company being renamed 'Enerflex Systems Income Fund' and on October 5, 2006, Enerflex Systems Income Fund units began trading on the TSX under the new symbol EFX.UN. Concurrently, a two for one unit split was completed.

On October 31, 2006, the Government of Canada unexpectedly announced a proposed tax on the distributions of income trusts. While final details of the legislation are not currently available, it is expected that there will be a four year grace period for trust conversions completed prior to October 31st, 2006. This four year period will provide ample time to determine an appropriate equity and balance sheet structure for Enerflex while allowing substantial tax savings to our equity holders during the interim period. The proposed legislation will not curtail our ability to grow.

Subsequent Event

On January 30, 2007, Enerflex purchased the assets of Powertec Beheer B.V. based in the Netherlands. This acquisition adds manufacturing expertise, strong gas engine aftermarket capability and a significant base of long-term service contract revenue to our existing European operations.

Integration is well under way and will result in Enerflex Europe having the size and critical mass to become our European Region, consistent with our Enerflex Global strategy.

In Conclusion

None of our success would be possible without the dedication and commitment of our employees. We would like to express our sincere thanks and appreciation to each of them for their commitment to integrity, safety and business performance. We would also like to thank our Board of Directors for their vision, guidance and commitment to strong corporate governance.

Finally, we would like to thank our unitholders for their support over the past year as we work hard to build Enerflex into a true world leader in our industry.

Sincerely,

[signed] "J. Blair Goertzen" J. Blair Goertzen President and Chief Executive Officer

[signed] "P. John Aldred" P. John Aldred Executive Chairman