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Actual 2005

% Change

2006 Guidance




Expenses ($/boe): Operating costs Transportation G&A expenses – cash G&A expenses – stock compensation plans Interest Taxes

7.00 0.70 1.25 0.60 0.75 0.15

6.93 0.70 1.34 0.74 0.83 0.19

(1) – 7 23 11 –

8.65 0.70 1.70 0.65 1.40 0.15

Capital expenditures ($ millions)




Weighted average trust units and units issuable (millions)




Production (boe/d)

AR 2005

2005 Revised Guidance


Following is a summary of the Trust’s 2006 Guidance issued by way of news release on December 6, 2005:

Actual 2005 results were in line with 2005 guidance except for G&A expenses, which were higher because of increased staff compensation costs and expected payments under the Long-term Employee Incentive Plan. Interest costs increased because of acquisitions, which were made during the year and partially funded by debt.

2006 Cash Flow and Hedging Sensitivity Below is a table that illustrates sensitivities to pre-hedged cash flow with operational changes and changes to the business environment:

Business environment


Oil price (US$WTI/bbl) (1) Natural gas price (Cdn$AECO/mcf) (1) CAD/USD exchange rate Interest rate on debt

$ $ $

Operational Liquids production volume (bbl/d) Gas production volumes (mmcf/d) Operating expenses per boe Cash G&A expenses per boe (1)

$ $

55.00 10.55 0.87 4.1% 31,000 181.0 8.60 1.70

Impact on Annual Cash Flow Change $/Unit $ $ $

1.00 0.10 0.01 1.0%

$ $ $ $

0.05 0.03 0.06 0.03

1.0% 1.0% 1.0% 10.0%

$ $ $ $

0.02 0.02 0.01 0.02

Analysis does not include the effect of derivative contracts.

Assessment of Business Risks The ARC management team is focused on long-term strategic planning and has identified the key risks, uncertainties and opportunities associated with the Trust’s business that can impact the financial results as follows: VOLATILITY OF OIL AND NATURAL GAS PRICES The Trust’s operational results and financial condition, and therefore the amount of distributions paid to the unitholders will be dependent on the prices received for oil and natural gas production. Oil and gas prices have fluctuated widely during recent years and are determined by economic and in the case of oil prices, political factors. Supply and demand factors, including weather and general economic conditions as well as conditions in other oil and natural gas regions impact prices. Any movement in oil and natural gas prices could have an effect on the Trust’s financial condition and therefore on the distributions to the holders of trust units. ARC may manage the risk associated with changes in commodity prices by entering into oil or natural gas price derivative contracts. If ARC engages in activities to manage its commodity price exposure, the Trust may forego the benefits it would otherwise experience if commodity prices were to increase. In addition, commodity derivative contracts activities could expose ARC to losses. To the extent that ARC engages in risk management activities related to commodity prices, it will be subject to credit risks associated with counterparties with which it contracts. VARIATIONS IN INTEREST RATES AND FOREIGN EXCHANGE RATES Variations in interest rates could result in a significant increase in the amount the Trust pays to service debt, resulting in a decrease in distributions to unitholders. World oil prices are quoted in US dollars and the price received by Canadian producers is therefore affected by the Canadian/US dollar exchange rate that may fluctuate over time. A material increase in the value of the Canadian dollar may negatively impact the Trust’s net production revenue. In addition, the exchange rate for the Canadian 45


Annual Report


Annual Report