The average price in 2002 for West Texas Intermediate crude oil he past year was characterized by extreme volatility in was US$26.10/bbl, the second highest average since 1990. oil and gas commodity prices, a seller’s market for oil Canadian natural gas spot prices opened the year at and gas assets and a business environment that led to $3.18/mcf, increased to over $5.00/mcf in April and declined an increase in the size and number of royalty and to $1.28/mcf in July. Prices rallied to $6.33/mcf in December income trusts. Despite the challenge of volatile commodity and closed the year at $5.70/mcf. The average price for the prices, ARC Energy Trust maintained stable distributions year was $4.08/mcf which was 35 per cent lower than 2001. throughout the year. We remained absolutely true to our Commodity price cycles are a fact of life in our industry but long-standing policies and processes that are designed to seldom have we been exposed to such extreme price create long-term value for our unitholders. Stability and fluctuations in such a compressed predictability of distributions remain time period. The price volatility was key objectives for the Trust. During STABILITY AND significantly influenced by concerns 2002, we again demonstrated our about near-term supplies of crude oil commitment to leadership in our PREDICTABILITY and near to long-term supplies of sector by becoming the first natural gas. conventional oil and gas royalty trust OF DISTRIBUTIONS to eliminate its external management The fourth quarter rally in oil prices REMAIN KEY contract and all associated fees. resulted from a combination of supply disruptions associated with An important issue facing our industry OBJECTIVES FOR civil unrest in Venezuela and concern in 2002 was Canada ratifying the Kyoto THE TRUST. over a possible attack on Iraq by the Protocol that commits our industry and United States. While we expect both country to significant reductions in of these issues to be resolved in greenhouse gas emissions. As the 2003, it will take time to rebuild depleted inventories and current Chairman of the Canadian Association of Petroleum consequently, we expect higher prices than the analyst Producers (“CAPP”), I was extensively involved in all discussions average forecast of US$24.00/bbl. between our industry and various government bodies regarding this issue. While we believe the Kyoto Protocol is severely The current strength of natural gas prices is directly associated flawed for the country as a whole, we do not expect its with below normal inventory levels and concern about the implementation will have a material impact on our business North American natural gas industry’s ability to replace due to the nature of the Trust’s assets. production on an on-going basis. High natural gas prices have occurred despite the dampening of demand caused by the Looking forward to 2003 and beyond, I believe that our historic prolonged poor performance of the United States’ economy. approach to managing the Trust’s business through all cycles Improved performance by the U.S. economy should increase of the market will continue to deliver superior returns to demand causing further strain in an already tight natural gas our unitholders. market. Therefore, while consensus forecasts call for an average Canadian gas price of $5.00/mcf in 2003, we believe Commodity Price Environment there is a strong probability of higher actual prices than most Oil prices began 2002 at US$21.00/bbl and fell below analysts predict. US$18.00/bbl in mid-January. Prices recovered to almost US$33.00/bbl in December and closed the year at US$31.20/bbl.