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M ESSAG E TO U N ITHOLDE RS

AR 2005

upward cost pressures, ARC’s operating costs in 2005 were $6.93 per barrel of oil equivalent, an increase of just 3.3 per cent from 2004. This is a significant achievement when considering service and supply costs increased between five and 20 per cent for many of the services ARC utilizes in the field.

Economic Environment Forecasts for commodity prices from analysts and economists of major banks remain bullish for 2006 for various reasons and it appears that we can expect another eventful year with regards to energy prices. Various economic, weather related and geo-political factors kept the markets jittery and quick to react to news in 2005, and we expect the same in 2006. All of the uncertainties that can affect crucial oil and gas supply around the globe have raised the threshold for oil prices so that US$50.00 WTI has become an acceptable norm and prices below that level would most likely be unsustainable. Following this Message to Unitholders, we provide a list of 10 factors that we believe will be important themes influencing commodity prices in 2006.

Acquisitions On December 6, 2005, ARC announced two major long-life asset acquisitions along with an accompanying equity financing. ARC purchased shares in wholly owned subsidiary companies of Imperial Oil Resources and ExxonMobil Canada Energy that owned a 45.57 per cent working interest in the North Pembina Cardium Unit (“NPCU”) and of Imperial Oil Resources that owned a principal interest in the Redwater oil field in central Alberta. ARC funded these acquisitions initially with debt and then repaid a portion of the debt with the proceeds of the equity offering. The assets purchased are legacy assets that comprise two of the largest light oil fields in western Canada. To date, over a billion barrels have been recovered from these fields and ARC estimates 900 million barrels remain unrecovered – approximately 500 million barrels attributable to ARC.

The acquired assets fit ARC’s profile perfectly. They are longlife, light oil assets with potential to add to ARC’s production for the long-term. The assets have a 20 year reserve life index and have increased ARC’s reserves by approximately 16 per cent and reserves per unit by approximately 10 per cent. The Trust’s proved plus probable reserve life index has increased 5.7 per cent to 12.9 years, the longest in our history. The Pembina NPCU asset is in an area that ARC knows well. Over the years, ARC has amassed large holdings in the area - when ARC was formed in 1996, it began its operations with ownership in properties in the Pembina field. Nine years later, the Berrymoor Cardium Unit, the MIPA blocks, and the Lindale Cardium Unit are still key properties for ARC. Earlier in 2005, ARC purchased additional interests in the Berrymoor Unit and the Buck Creek property and ARC now operates all of its principal assets in the Pembina field. Over the years, ARC has proven its ability to extract incremental value in the Pembina area. The acquisition of the NPCU interest enhances our interest in this oil producing area and provides for a promising future. ARC now has a resource base of over 750 million barrels of light and medium oil that is not expected to be recovered under current plans. None of this resource is currently reflected in our reserves estimates. Time, commodity prices and developments in technology will all play a role in determining how much of this oil will ultimately be recovered. A large percentage of this resource is in Redwater, Pembina and southeastern Saskatchewan – all areas that we believe to be amenable to the application of enhanced recovery techniques such as CO2 miscible floods to recover additional oil from our resource base. Two of the largest CO2 floods in Canada are at the Weyburn and Midale oil fields in Saskatchewan; ARC has an ownership interest in both these fields and will be actively looking to apply its learned expertise from these fields to other assets where CO2 recovery techniques may prove beneficial. In particular, we believe Redwater is a prime candidate for a

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2005  

Annual Report

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