Annual Report - 2001 - ARC Resources Ltd.

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MANAGEMENT’S DISCUSSION AND ANALYSIS
Natural gas prices were very strong in the first quarter of 2001, but weakened
through the year. Despite the weakening trend, ARC’s average wellhead gas price
increased by 28 per cent to $5.72/mcf in 2001 from $4.48/mcf in 2000. ARC’s prices are
net of hedging and transportation costs. AECO Hub prices were $6.28 and $4.92/mcf for
2001 and 2000, respectively.
During 2001, ARC continued to follow a marketing strategy of diversifying its
sales and transportation portfolio in order to maximize production netbacks in
combination with diversification of contracts amongst a variety of credit worthy
counterparties in accordance with the Trust’s risk management policies.
HEDGING
In 1998, ARC established a Risk Management Committee to conduct its
hedging program with the following objectives:
* protect unitholder return on investment;
* stabilize monthly distributions;
* employ a portfolio approach to hedging – enter into a number of small positions that
build upon each other;
* participate in commodity price upturns to the greatest extent possible, while limiting
exposure to price downturns;
* ensure profitability of specific oil and gas properties that are more sensitive to changes
in market conditions.
The 2001 prices include a hedging gain of $0.22/mcf for natural gas and a loss
of $1.30/bbl for oil.
For 2002, ARC has hedged approximately 56 per cent of oil production
volumes and 41 per cent of natural gas production volumes utilizing a variety of contracts
under which the quantity and price of amounts hedged vary depending on the market
price of the commodity as detailed in the tables below.
Crude Oil
WTI (US$/bbl) Hedged Price (US$/bbl) % Hedged
$ 16.00 $ 21.93 43
$ 18.00 $ 24.26 56
$ 20.00 $ 26.00 56
$ 22.00 $ 25.47 56
$ 24.00 $ 24.77 56
$ 26.00 $ 24.02 56
Natural Gas
AECO (CDN$/mcf) Hedged Price (CDN$/mcf) % Hedged
$ 2.50 $ 4.00 41
$ 3.00 $ 4.01 41
$ 3.50 $ 4.02 41
$ 4.00 $ 4.16 41
$ 4.50 $ 4.21 41
ARC ENERGY TRUST AR 2001