Annual Report - 2001 - ARC Resources Ltd.

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OBJECTIVE: FOCUS ON COST CONTROL TO ENHANCE THE TRUST’S
POSITION AS ONE OF THE LEADING OIL AND GAS ROYALTY TRUSTS
IN CANADA.
ACCOMPLISHMENT: Operating costs have remained low with total corporate
operating costs averaging $5.47/boe in 2001, a $0.55/boe increase over 2000 costs of
$4.92/boe. The major reason for the year-over-year increase, especially in the first half of
2001, was increased electricity costs which were experienced in Alberta. General and
Administrative (G&A) expenses have been held in line as well at $0.75/boe, a modest
increase over the $0.69/boe incurred in 2000. The Manager believes that the Trust
requires a complete technical team to properly manage the assets and unlock the future
potential of the asset base. In 2001, development geological and geophysical staff
additions were made and key management positions were filled in the areas of Human
Resources, Investor Relations and Business Development.
OBJECTIVE: MAINTAIN A CONSERVATIVE DEBT MANAGEMENT POLICY
TO EXECUTE THE TRUST’S COUNTER-CYCLICAL STRATEGY OF
ACQUIRING ASSETS WHERE POSSIBLE IN THE LOW POINT OF THE
COMMODITY PRICE CYCLE AND REDUCING DEBT IN PERIODS OF HIGH
CASH FLOW.
ACCOMPLISHMENT: The Trust’s objective is to be one of the most conservatively
capitalized conventional oil and gas trusts by controlling the use of debt. At year-end
2001, debt was $294 million or 1.1 times 2001 cash flow. With 2001 cash flow buoyed by
strong commodity prices, the Trust is expecting the debt to cash flow ratio to increase to
approximately 1.5 times 2002 cash flow with debt representing approximately 20 per
cent of total capitalization. In October 2001, the Trust issued 8.05 million new trust units
and raised $84 million of net proceeds under an equity offering. These proceeds
temporarily reduced debt and are earmarked to fund the Trust’s 2002 capital program. In
addition, the Trust made a deliberate move to revise its distribution policy in October of
2000 under which the Trust now may withhold up to 20 per cent of cash flow to finance
capital expenditures in order to assist in the replacement of a portion of production.
SUMMARY OF OTHER OBJECTIVES
The Trust had many other objectives in 2001 that were fulfilled, including those centered
around retaining and increasing the expertise of its workforce, the development of key
business relationships, prudent use of new technology and further development and
expansion of the Trust’s environmental, health and safety programs in order to be a
leader in the Canadian oil and gas industry.
ARC ENERGY TRUST AR 2001