30
ARC ANNUAL 07
Management’s Discussion & Analysis
Further, the Trust will be subject to a Federal income tax on distributions commencing on January 1, 2011. The Trust’s management is reviewing the options for structural changes and is working closely with legal and business advisors to determine a course of action and potential restructuring to maximize value in the best interest of unitholders.
2007 Annual Financial and Operational Results Following is a discussion of ARC’s 2007 annual financial and operating results.
FINANCIAL HIGHLIGHTS (CDN $ millions, except per unit and volume data) Cash flow from operating activities Cash flow from operating activities per unit (1) Net income Net income per unit (2) Distributions per unit (3) Distributions as a per cent of cash flow from operating activities Average daily production (boe/d) (4)
2007
2006
% Change
704.9 3.35 495.3 2.39 2.40 71 62,723
734.0 3.59 460.1 2.28 2.40 66 63,056
(4) (7) 8 5 8 (1)
(1)
Per unit amounts are based on weighted average trust units outstanding plus trust units issuable for exchangeable shares at year-end.
(2)
Based on net income after non-controlling interest divided by weighted average trust units outstanding excluding trust units issuable for exchangeable shares.
(3)
Based on number of trust units outstanding at each cash distribution date.
(4)
Reported production amount is based on company interest before royalty burdens. Where applicable in this MD&A natural gas has been converted to barrels of oil equivalent (“boe”) based on 6 mcf:1 bbl. The boe rate is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the well head. Use of boe in isolation may be misleading.
NET INCOME Net income in 2007 was $495.3 million ($2.39 per unit), an increase of $35.2 million from $460.1 million ($2.28 per unit) in 2006. This resulted from a $13 million gain on the sale of the Trust’s long-term investment as well as a significant future income tax recovery of $121.3 million, attributed to the reduction in legislated future corporate income tax rates in addition to recording a future tax asset for tax legislation commencing in 2011 related to ARC Energy Trust.
CASH FLOW FROM OPERATING ACTIVITIES Cash flow from operating activities decreased by four per cent in 2007 to $704.9 million from $734 million in 2006. The decrease in 2007 cash flow from operating activities is detailed in the following table. ($ millions) ($ per trust unit) 2006 Cash flow from Operating Activities Volume variance Price variance Cash gains on risk management contracts Royalties Expenses: Transportation Operating (1) Cash G&A Interest Taxes Realized foreign exchange gain Weighted average trust units Non-cash and other items (2) 2007 Cash flow from Operating Activities (1)
Excludes non-cash portion of LTIP expense recorded in operating costs.
(2)
Includes the changes in non-cash working capital and expenditures on site restoration and reclamation.
(% variance)
734.0 (6.5) 27.6 (15.1) 2.8
3.59 (0.03) 0.14 (0.07) 0.01
(1) 4 (2) -
(1.9) (23.9) (9.6) (5.2) 0.4 (0.4) 2.7 704.9
(0.01) (0.11) (0.05) (0.03) (0.10) 0.01 3.35
(3) (1) (1) (4)