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message to unitholders

ARC Energy Trust (“ARC” or “the Trust”) had an extremely eventful

competition was restricted and ARC’s technical expertise in Star’s

year in 2003. A combination of strong commodity prices, the

two main operating areas gave us a unique advantage in

largest acquisition ever completed by ARC (Star Oil and Gas Ltd.

evaluating the assets. A key property gained in the acquisition

(“Star”)) and excellent drilling results contributed to a record year

was Dawson in northeast British Columbia. Dawson has an

for the Trust. ARC attained historic highs in its unit price; record

estimated 800 billion cubic feet of original gas-in-place in the

production, revenue and cash flow; and significantly

tight Triassic Montney formation underlying lands in which ARC

strengthened its balance sheet during the year with a year-end

now owns virtually a 100 per cent interest. ARC’s knowledge and

debt to cash flow ratio of 0.7 times.

experience in Ante Creek (also a tight Montney formation) was

Most importantly, 2003 marked the completion of a strategic transformation of the Trust. Since 2001, the Trust has evolved from a primarily acquisition company to one with a large inventory of internal development opportunities capable of sustaining production for an extended period of time without acquisitions. When ARC acquired Startech Energy Inc. (“Startech”) in 2001, our inventory of development opportunities expanded

crucial to our assessment of the potential of the Dawson property. Although it is still highly uncertain what the ultimate recovery of the large natural gas resource in Dawson will be, ARC and its independent evaluator have only recognized a 14 per cent proved reserve recovery for the property. We are confident that the ultimate recovery will significantly exceed this level following ongoing development of the field.

dramatically. More importantly, the staff who joined ARC from

The other key Star property was the Hatton area (which includes

Startech significantly strengthened our technical team, especially

Horsham and Crane Lake) in southwest Saskatchewan.

in the areas of geology and geophysics. This allowed us to pursue

Prior to the Star acquisition, ARC’s main natural gas producing

new opportunities for the development of our asset base and to

areas were Brooks and Jenner in southeast Alberta through

make larger value adding acquisitions for the Trust. As a result,

which ARC had developed significant shallow gas operating

2002 was a year in which we significantly expanded our drilling

expertise. Hatton is a similar operating area east of Jenner in

activities, particularly in Ante Creek where we developed a tight

Saskatchewan. The drilling density on the Hatton area lands is

Triassic Montney oil reservoir with great success. Heading into

roughly half of that of other operators in the area. ARC identified

2003, the Trust’s capital budget for internal development projects

up to 1,000 potential infill drilling locations on Star’s Hatton area

was set at a record $115 million that was expected to maintain

lands, only a small component of which were included in our

production at a level just below that achieved in 2002.

evaluation at the time of the acquisition. It is our expectation that

Early in 2003, Star became available for acquisition and ARC pursued this very unique opportunity. Star was a gas focused

most, if not all, of these wells will ultimately be drilled and will add significant value over time.

company with an intriguing combination of mature and very immature properties with significant further development potential. Given the size of Star (approximately 22,000 boe/d of production), a limited number of companies had the size and financial capacity to pursue the opportunity. As a result,



Annual Report


Annual Report