NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2002 and 2001 (all tabular amounts in thousands, except per unit and volume amounts)
Structure of the Trust ARC Energy Trust (“the Trust”) was formed on May 7, 1996 pursuant to a trust indenture (the “Trust Indenture”). Computershare Trust Company of Canada was appointed as Trustee under the Trust Indenture. The beneficiaries of the Trust are the holders of the trust units. The Trust was created for the purposes of issuing trust units to the public and investing the funds so raised to purchase a royalty in the properties of ARC Resources Ltd. (“ARC Resources”). The Trust Indenture was amended on June 7, 1999 to convert the Trust from a closed-end to an open-ended investment trust. The Trust Indenture was most recently amended on May 23, 2000 to expand the scope of the business to include the investment in all types of energy business-related assets including, but not limited to, petroleum and natural gas-related assets, oil sands interests, electricity or power generating assets and pipeline, gathering, processing and transportation assets. The operations of the Trust consist of the acquisition, development, exploitation and disposition of these assets and the distribution of net cash proceeds from these activities to the unitholders.
Summary of Accounting Policies The consolidated financial statements have been prepared by management following Canadian generally accepted accounting principles (“GAAP”). The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from those estimated. In particular, the amounts recorded for depletion, depreciation and amortization of the petroleum and natural gas properties, deferred charges, and for site reclamation and abandonment are based on estimates of reserves and future costs. By their nature, these estimates, and those related to future cash flows used to assess impairment, are subject to measurement uncertainty and the impact on the financial statements of future periods could be material. Principles of Consolidation The consolidated financial statements include the accounts of the Trust and its subsidiaries. All inter-entity transactions have been eliminated. Property, Plant and Equipment The Trust follows the full-cost method of accounting. All costs of acquiring petroleum and natural gas properties and related development costs are capitalized and accumulated in one cost centre. Maintenance and repairs are charged against income, and renewals and enhancements which extend the economic life of the property, plant and equipment are capitalized. Gains and losses are not recognized upon disposition of petroleum and natural gas properties unless such a disposition would alter the rate of depletion by 20 per cent or more.