ARC Front final 3/4/02 9:25 AM Page 8
MESSAGE TO UNITHOLDERS
We have witnessed dramatic consolidation in the industry, with a significant reduction in the number of active companies, particularly the so-called “intermediates” and “seniors” which are loosely categorized as those companies producing 25,000 to 100,000 barrels of oil equivalent per day. The companies sold in 2001 have been acquired by many organizations, a number of them US-based companies with global assets. The consolidation of so many Canadian operating companies has produced a new wave of asset sales as companies are evaluating recently acquired assets and are rationalizing their property portfolios. We believe this will lead to significant new acquisition opportunities for ARC. With such opportunities in sight, there is growing investor interest in the royalty trust sector. We see another factor behind this trend of increasing favour of royalty trusts – the benefits to investors from the trust structure. ARC’s 28 per cent total return on investment for 2001 is superior to many alternative investment vehicles. In fact, based on the Trust’s formula for success – superior financial and operating expertise; acquiring high quality assets; applying technical expertise to maximize production and cash flow – the result has been superior rates of return since inception in 1996. At this point in time, the level and stability of returns provided by ARC is proving to be attractive to existing and new unitholders alike. Looking forward, however, the test is not what we have done, but what we will do. We want to share with you our plans for continuing this superior performance. TURN STRATEGIC ANALYSIS INTO ACTION
Commodity price volatility is an enduring industry condition. At inception, ARC resolved to provide superior long-term returns to investors and ARC management also identified the need to stabilize distributions and enhance the ability to capture opportunities throughout all phases of the business cycle. It was for this reason that we have always withheld a portion of our cash flow for reinvestment in our business. In 2000, we revised our distribution policy to withhold up to 20 per cent of cash flow for reinvestment. This allows us to maintain more stable distributions during all phases of the commodity price cycle, facilitate opportunistic and accretive acquisitions and maintain a strong balance sheet.