Annual Report - 2001 - ARC Resources Ltd.

PAGE 46
MANAGEMENT’S DISCUSSION AND ANALYSIS
OBJECTIVE: REPLACE ANNUAL PRODUCTION THROUGH COST EFFECTIVE
ACQUISITIONS AND DEVELOPMENT ACTIVITIES.
ACCOMPLISHMENT: In January, ARC closed the acquisition of all outstanding shares
of Startech Energy Inc. (“Startech”), using a unique plan of arrangement under which the
Trust acquired virtually all of the producing oil and gas assets and the Startech
shareholders retained several minor producing properties and the higher risk exploration
prospects for total consideration of $510 million. The Trust conducted an active
development drilling and exploitation program in 2001 directed towards enhancing the
Trust’s proven producing reserves and future production base. The acquisition and
development programs added 64 mmboe of established reserves replacing 407 per cent
of production at a cost of $9.75/boe. Since the Trust’s Initial Public Offering on July 11,
1996, the Trust has acquired and developed 223 mmboe of established reserves at a total
cost of $1.4 billion resulting in a finding, development and acquisition (FD&A) cost since
inception of $6.32/boe.
OBJECTIVE: MAINTAIN AN ACTIVE HEDGING PROGRAM TO ENHANCE
THE STABILITY AND PREDICTABILITY OF THE TRUST’S DISTRIBUTIONS.
ACCOMPLISHMENT: Hedging has and will continue to play a key role in the
management of the Trust. In addition to production levels, the major variables impacting
future distributions and unitholder returns are commodity prices in conjunction with the
Canadian/US exchange rate. The Manager of the Trust has developed a hedging
program approved by the Board (detailed later in this section) in order to provide stability
and greater certainty of distributions to unitholders. During 2001, the Trust’s distributions
ranged from $0.22 per month early in the year to $0.15 per month during the last quarter.
This 32 per cent decrease in distributions compares very favourably to the 54 per cent
decline in average commodity prices over the year from a high of $45.04/boe in the first
quarter to a low of $20.51/boe in the fourth quarter. For 2002, the Trust has hedged
approximately 56 per cent of oil production and 41 per cent of gas production at prices
materially greater than current market expectations. The main focus for 2002 will be to
take advantage of commodity price spikes which may occur to lock-in a comparable
portion of 2003 production at favourable prices.
ARC ENERGY TRUST AR 2001