Page 11

operations review

The Star acquisition provided ARC with numerous development

ARC had a very successful year in 2003 with reserve additions of

opportunities and as a result, 2003 proved to be the busiest year

84 mmboe prior to production, replacing 424 per cent

for drilling activity in ARC’s history. The Star assets are relatively

of the 19.8 mmboe of production at an average FD&A cost of

underdeveloped and hence opportunity rich. ARC’s expanded

$8.50 per boe, excluding future development capital (“FDC”) for

technical team immediately assessed the areas, evaluated the

proved plus probable reserves. Under the new NI 51-101 reserve

opportunities and prepared a development program. ARC’s

definitions, proved plus probable reserves are considered to be

existing assets and core areas also continued to have numerous

the “best estimate” of reserves and are therefore essentially

opportunities and were the subject of ongoing development and

comparable to established reserves quoted in prior years. Using

optimization activities in 2003. In the second and third quarters

definitions that include FDC, the annual FD&A cost was $10.54

of 2003, ARC carried out its largest shallow gas drilling program

per boe. On a three year rolling average basis, FD&A costs are

ever in southeast Alberta and southwest Saskatchewan. After the

$9.07 per boe excluding FDC for proved plus probable reserves

Star purchase, ARC’s Board approved an increase in the 2003

and $10.52 per boe including FDC. These reserve replacement

capital development budget to $150 million – the largest in ARC’s

costs continue to be among the lowest in the industry.

history. The high level of activity experienced in 2003 will continue into 2004 with a $175 million capital development budget approved by the Board. Drilling and development activities will continue in all of ARC’s core areas.

Excluding net acquisitions, finding and development (“F&D”) costs were $10.19 per boe on an annual basis excluding FDC for proved plus probable reserves and $12.06 per boe including FDC. On a three year rolling average basis, F&D costs are

ARC once again experienced upward pressure on operating costs

$10.49 per boe, excluding FDC for proved plus probable reserves

in 2003. The increased costs were associated with record high

and $11.97 per boe including FDC.

activity levels for the overall industry as a result of strong commodity prices and record high industry cash flow. Operating costs increased by 10 per cent in 2003 to $7.10 per boe from $6.45 per boe in 2002. This increase was primarily due to the impact of higher power costs in Alberta and increases in well service and work-over costs. These increases are consistent with those being experienced throughout the oil and gas industry. ARC strives to keep operating costs at their lowest level possible and consistently monitors costs on all of its properties.

Production volumes increased 28 per cent in 2003 to an average of 54,335 boe/d compared to 42,425 boe/d in 2002. The increase in production volumes was primarily due to the Star acquisition and excellent results from our drilling program. Oil production increased 11 per cent to 22,886 barrels per day, natural gas production increased 50 per cent to 164 million cubic feet per day (mmcfd) and natural gas liquids production increased 17 per cent to 4,086 barrels per day. ARC’s production mix in 2003 was balanced with approximately 50 per cent liquids and 50 per cent natural gas.

5

2003  

Annual Report

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