Our corporate responsibility. 2007
NORTHERN ALBERTA & BRITISH COLUMBIA
Dawson Grande Prairie Ante Creek
Redwater Edmonton NPCU Red Deer Delburne
CENTRAL ALBERTA Calgary Vancouver
Horsham Regina Hatton Crane Lake Weyburn Medicine Hat Lougheed
SE ALBERTA & SW SASKATCHEWAN
ARC Energy Trust, headquartered in Calgary, Alberta, is one of Canada’s largest conventional oil and gas royalty trusts with an enterprise value of over $4 billion at October 31, 2008. ARC was founded in 1996 and began trading on the Toronto Stock Exchange in July 1996. As an operating oil and gas company structured as a royalty trust, ARC acquires and develops high quality, long-life and lower-declining oil and gas properties in western Canada. ARC’s unitholders receive a monthly cash distribution from the Trust’s producing oil and gas assets owned by ARC Resources Ltd. ARC’s operations are distributed across six core areas: Central Alberta, Southeast Alberta/Southwest Saskatchewan, Northern Alberta/ British Columbia, Pembina, Redwater and Southeast Saskatchewan. We have field offices in Grande Prairie, Drayton Valley, Red Deer, Medicine Hat, and Estevan. ARC purchased its first assets in Manitoba in October 2006. ARC produced approximately 63,000 boe per day of oil and gas in 2007, comprised primarily of light/medium oil and sweet natural gas. ARC’s oil and natural gas production is sold into the North American market.
Financial and Operating Highlights December 31, 1996 December 31, 2007 (Inception) Revenue ($ millions) $ 31.9 $ 1,251.6 Cash flow from operating activities ($ millions) $ 18.3 $ 704.9 Production (boe/d) 9,566 62,723 Reserves (proved and probable, mmboe) Company interest 41.18 283.55 Gross reserves 286.37 Unit price $ 12.25 $ 20.40 Wells drilled (net wells) 0 220 Capitalization ($ billions) 188 $ 4,600 Employees 6 396
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We at ARC believe that corporate responsibility comprises our commitments to all our stakeholders: the people who own and work in our company, the people that we do business with, the communities where we live and operate in, government and other regulatory agencies that we interact with and the people of the provinces whose oil and gas we produce. We are committed to honest and respectful day-to-day interactions with all our stakeholders. Our enduring goal is to contribute to the well-being of all of these groups by implementing best practices in health, safety and environmental management, by following ethical business and labour practices, and by contributing to the economies of our communities through investments, jobs and support for various not-for-profit agencies.
About this Report..................................................................................................................................................2 A History of Corporate Responsibility at ARC..................................................................................................3 Presidentâ€™s Message..............................................................................................................................................4 Corporate Responsibility Management............................................................................................................. 7 Environment...........................................................................................................................................................9 Health and Safety................................................................................................................................................12 Employees.............................................................................................................................................................15 Communities........................................................................................................................................................18 Economic Impacts..............................................................................................................................................20 Performance Summary...................................................................................................................................... 23
About this Report This is ARC’s first corporate responsibility report and covers the 2006 and 2007 reporting years. Consequently, not all information that we would like to include is available. We have well developed tracking systems for environment, health and safety and are working to improve our social data management systems. We plan on improving our reporting in all areas in subsequent years. We see this report not only as a means to communicate with our stakeholders, but also as a management tool that will help us identify areas where we can improve performance with respect to our impact on society and the environment.
NOTES: • We plan on publishing a corporate responsibility report every two years • This report covers performance for the years ended 2005 – 2007. This does not capture all of ARC’s substantial work done earlier to ensure responsible operations • References to “ARC” or “the company” mean ARC Energy Trust, its subsidiaries and joint venture investments, unless the context indicates otherwise • Environmental data is reported for all facilities where ARC is the operator of record, regardless of ownership • All financial information is reported in Canadian dollars unless otherwise noted. Please refer to our 2007 Annual Report and Annual Information Form for more details on our financial performance • Except where noted, data does not cover contractors or temporary employees • Data measurement techniques and bases for calculations, if not obvious, are included with the data • Key performance indicators were determined through review of the Canadian Association of Petroleum Producers (CAPP) Stewardship Program, the Global Reporting Initiatives (GRI) G3 Sustainability Reporting Guidelines, and stakeholder and staff input. Under the G3 we have achieved a C level of reporting according to the application levels laid out by the GRI. The GRI index, on page 24 indicates where you can find specific disclosures • The accuracy of this report is of vital concern to ARC and our stakeholders. Senior management and relevant staff have reviewed all information in this report, and believe it is an accurate representation of our performance. ARC undertakes a variety of internal and external assurance activities on information presented in this report, including financial, environmental, health and safety performance, management systems and compliance audits. Third-party assurance of this report at this point would be premature given our ongoing work to close gaps in our data management systems • Performance graphs are included throughout the report, and statistical data are provided in a table on page 23 • Please visit our website for additional information in the “Health, Safety and Environment” section at www.arcresources.com
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS This Corporate Responsibility Report contains forward-looking statements that may be identified by words like “outlook,” “estimates” and similar expressions. These forward-looking statements are based on certain assumptions that involve a number of risks and uncertainties and are not guarantees of future performance. Actual results could differ materially as a result of changes to ARC’s plans, the impact of changes in commodity prices, general economic, market and business conditions as well as production development and operating performance and other risks associated with oil and gas operations.
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a history of corporate responsibility at ARC It takes a lot of time, integrity, effort, and diligence to build a responsible and successful company. That is why ARC began with and has maintained strong values since inception in 1996. We have always believed in doing what is right, not just what is required. Although this is the first time we have reported on our non-financial initiatives and performance, we have a proud history of responsible operations and governance. Highlights of our proactive business practices from the years that precede this reporting period include: • Right from inception one of our core beliefs has been involvement with communities, both from the corporate perspective and also supporting employees to contribute financially or through volunteerism • In 1996, ARC established a general reclamation fund, which has been used for reclaiming disturbed and contaminated lands throughout our asset portfolio. In 2006, we established an additional reclamation fund, specifically for our newly acquired Redwater properties • 2000 marked ARC’s first year of reporting our greenhouse gas emissions and management plans to the Voluntary Climate Registry. We received a Leadership Award for the Upstream Oil & Gas sector that year. Continued voluntary reporting to the Canadian Greenhouse Gas Registries, along with the CAPP Stewardship program, and now also the Carbon Disclosure Project, helps us measure and manage our environmental performance • In 2002, ARC acquired assets in southeast Saskatchewan that were wasting resources by flaring solution gas. To rectify the situation we built a solution gas plant in our Lougheed field and tied in gas production from the battery for processing, which reduced flaring and related air emissions • In 2004, the ARC Board of Directors established the Health, Safety and Environment (HSE) Committee to focus more Board attention on HSE and climate change issues • We acquired properties in Pembina and Redwater in 2005. This strategic move committed ARC to enhanced oil recovery (EOR) and has focused attention and resources on carbon capture and storage • Since our inception we have positively affected the economy, spending $1.7 billion on capital projects, $1.2 billion on operating activities and paying $1.3 billion in royalties, and $2.7 billion to our unitholders in distributions
president’s message We at ARC Energy Trust are committed to communicating openly with our stakeholders to give transparency to our business, operations, and our corporate philosophy. The evolution of ARC, as with any business, started with the basic concept of creating value for our investors. Much of our initial energy was spent on progressing ARC from a new company in 1996 to a successful business today. But there is a lot more to ARC than our solid financial and operating performance. We believe it is important to communicate our core beliefs and initiatives on the environment, health and safety, community interaction, and our involvement in the Canadian economy. This Corporate Responsibility report is ARC’s first publication to directly speak to these issues. Although this is the first time that we are compiling our corporate responsibility information and philosophy into a formal document, ARC has built its operations on a strong base of ethics since our inception. We at ARC have always placed high value on: • • • • • • •
Safety of our workplace Protection of the environment in which we operate Our social responsibility to communities in which we operate Setting high operating standards for our company and our employees Being a leader within our peer group Delivering long-term, continued value to our investors Our core beliefs that comprise our corporate culture
This report summarizes our successes, and highlights areas in which we commit to improve. ARC has always strived to be forward-looking and we believe that our employees and all of our stakeholders are interested in non-financial information on a company with whom they work, invest, and interact.
We at ARC Energy Trust are committed to communicating openly with our stakeholders to give transparency to our business, operations, and our corporate philosophy. The evolution of ARC, as with any business, started with the basic concept of creating value for our investors. Much of our initial energy was spent on progressing ARC from a new company in 1996 to a successful business today. There is a lot more to ARC than our solid financial and operating performance.
Environment We operate in an industry that affects the land, air, and water. Extracting fossil fuels requires the use of large machinery and the building of infrastructure in previously undeveloped areas, and often disturbs wildlife and vegetation. Our processes release emissions such as greenhouse gases and sulphur dioxide into the atmosphere. We use water and other resources during operations. Since ARC is made up of people who have a vested interest in keeping our environment safe and healthy for future generations, we strive to minimize environmental impacts during our operations to the extent reasonably and economically feasible. Once we are finished working in an area, we reduce our environmental footprint through reclamation activities. Our commitment to being a leader in our industry means proactively meeting or exceeding regulations to protect the environment and working with a cooperative spirit with public agencies in this regard. Through our participation in public reporting initiatives such as the Canadian Association of Petroleum Producer’s Stewardship Initiative, the Canadian GHG Challenge Registry, and the Carbon Disclosure Project, we gain access to information on best practices by others and can make continual improvements to our programs. A leading ethical fund company issued a report in 2007 where it ranked all energy companies on their environmental disclosure. ARC was the only trust that made it in the top ten rankings, amongst some of the leading energy companies in Canada. In 2007, ARC was included in the Jantzi Social Index in recognition for our commitment to the environment, community involvement, employee relations, human rights and corporate governance. Sustainable environmental practices are very much front and center in the news. Companies are encouraged by various advocacy and investor groups to take action. We are one of the few oil and gas operators who have a cash funded abandonment and reclamation fund. ARC actually has two reclamation funds – an unrestricted fund that is used for most of ARC’s reclamation projects and a restricted fund that is specifically targeted for reclamation activities in our Redwater field in Alberta. This field is important to us as it will form a basis for future greenhouse gas management projects, however, when ARC purchased Redwater, we assumed substantial reclamation obligations. Each quarter we withhold a portion of cash flow and fund ARC’s two reclamation funds. In 2007, we contributed $12 million into the funds. Our reclamation funds ensure that future stakeholders are not left carrying the entire financial burden of reclamation. An area of interest to ARC is carbon dioxide (CO2) injection into mature reservoirs. This process has been around for over 30 years and is used as a means to recover additional resources. As an added benefit, this process allows CO2 that would normally be emitted into the atmosphere to be safely sequestered below the ground. With Redwater, ARC has one of Canada’s largest fields that may be suitable for sequestering unwanted CO2 from large emitters such as upgraders and refineries. Additionally, this practice helps to extract incremental oil from mature fields, making more efficient use of already developed fields. It will be a few more years before we have commercially viable CO2 projects in Alberta. It will take legislation, and cooperation between emitters and end-users of CO2 before the required infrastructure is in place for larger scale projects. We are conducting a CO2 enhanced oil recovery pilot project at Redwater in 2008 to determine the commercial viability of a full scale CO2 injection project.
Health and Safety Protecting the health and safety of employees, contractors, and the public is paramount. ARC spends a significant amount of time on its health and safety programs. Whenever ARC purchases new properties, health and safety obligations are key considerations. Our health and safety programs are proactive and include educating our employees and contractors in safe working practices. Maintaining a strong health and safety record is challenging in today’s environment – especially on the contractor side – with increasing activity levels in the industry and much of the workforce less experienced than in the past. In spite of these challenges, ARC has consistently lowered our Lost Time Injury frequency to a level better than the industry average. We track and strive to improve our recordable injuries as a leading indicator of possible lost time accidents, and have initiated reporting near-misses so that we have a high level of awareness as to what activities could potentially result in injury. With no lost time accidents for employees in eleven of our twelve years of operations, we take pride in our performance, but every injury, no matter how minor, results in action.
We carry out internal and third party independent safety audits as soon as we acquire any property and upgrade faulty or hazardous equipment if any exists. We also carry out regular audits on our own facilities. ARC has emergency plans in place that prepare us for emergencies that can threaten people, the environment and our operations.
ecoNoMY Like any other business, our goal is to be a profitable company generating long-term value for our investors. We also believe that our role is to contribute to the prosperity of the Canadian economy at large. We infuse capital into the economy through employment in communities across the four western Canadian provinces, support of local not-for-profit organizations, distributions to our unitholders, payment for services to our suppliers and contractors, and payment of crown royalties and municipal taxes. ARC contributed $128 million in salaries, bonuses, and benefits over the past three years and since inception have spent $1.7 billion on capital projects, $1.2 billion on operating activities, paid $1.3 billion in royalties and distributed approximately $3 billion to our owners. Whenever ARC purchases a new asset, we infuse money and people into the areas to improve operations and use local goods and services as much as possible. Our contributions to the economy are significant, from spending on capital projects and operating activities, to royalty payments to governments, and distributions to our unitholders. The indirect economic impacts of ARC’s contributions then multiply, as investors and suppliers invest that income in the Canadian economy through the purchase of goods and services, payment of taxes, and the creation of new businesses.
coMMuNitY iNVoLVeMeNt Because communities give so much to ARC in terms of important infrastructure and access to resources, we believe in giving back to communities. Over time, governments have reduced their commitments in key areas of health and social programs, leaving business to pick up the slack. We are overwhelmed with requests for financial assistance for many deserving causes. We have made a corporate decision to focus on specific areas of support. These areas are: health and wellness, social services, sports and recreation, arts and culture, and education. In 2007, ARC donated over $1.7 million to a total of 258 organizations. ARC has made major commitments to the United Way, the Calgary Children’s Hospital, STARS air ambulance, the Canadian Sport Centre Calgary and the Alberta Cancer Foundation. We support some organizations on a one-time basis only, but we prefer to form partnerships for longer term development. Each of our field offices has the discretion to channel funds to community and social organizations in communities that host our operations and employees.
coNtiNuAL iMpRoVeMeNt We understand that we are not perfect and don’t always meet everyone’s expectations, but we are committed to operating our business in a responsible manner. Striving toward excellence is an integral part of our corporate philosophy. We have commenced corporate responsibility reporting even though we are not able to tell a complete story. We believe that corporate responsibility is essential and our stakeholders are interested in learning about ARC from all perspectives – not just the financial one. We have much more to do and we are working hard to get there. It is our goal to publish this report on a regular basis to keep our stakeholders apprised of our achievements, and our desire to do better in areas that need improvement.
John P. Dielwart President & Chief Executive Oﬃcer
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corporate responsibility management ARC is committed to the highest standards of corporate governance practices and procedures. As corporate governance continues to evolve, we constantly review, appraise and modify our programs to ensure that we meet current expectations for best practices. ARC’s approach to corporate governance meets the guidelines of National Instrument 58-101. To ensure that corporate responsibility is integrated throughout ARC, we have implemented numerous governance and management mechanisms. Board of Directors ARC’s Board of Directors consists of eight members, all of whom, except for the CEO, are “independent” directors within the meaning of Canadian Securities National Instrument 58-101. The Chairman of the Board is an independent director. Unitholders, shareholders and employees can provide input to the Board through various avenues. The annual general meeting process enables unitholders to introduce resolutions and topics for discussion. Employees are encouraged to ask any question on any topic of any senior company official. There is an email address for the Board, from which questions are directed to the Board when appropriate.
Board Committees The Board has established the following committees to address critical issues: Audit; Health, Safety and Environment (HSE); Human Resources and Compensation; Policy and Board Governance; Risk; and Reserves. In 2004, the ARC Board of Directors established the Health, Safety and Environment (HSE) Committee. The Committee meets four times a year and assists the Board in its responsibilities for oversight and due diligence by reviewing, reporting and making recommendations to the Board and management on the development and implementation of HSE policies, standards and practices. This committee meets separately with ARC management who has responsibility for such matters and reports to the Board. All members of the HSE Committee are independent directors. The HSE Committee’s mandate and other board mandates are available on our website.
The daily management of corporate responsibility commitments and implementation of programs is led by ARC’s senior management team. Our approach incorporates management systems, regular audits, and corrective action tracking.
Management Approach The strategic management of corporate responsibility is shared among numerous corporate groups: HSE, Human Resources, Corporate Services, Investor Relations, Land and Operations. These groups have a mandate to provide strategic-level support to ARC’s senior management team. The daily management of corporate responsibility commitments and implementation of programs is led by ARC’s senior officer and management teams. Our approach incorporates management systems (e.g., HSE Management System), regular audits, and corrective action tracking.
Policies We have adopted a range of mandatory policies to govern our behaviour and ensure ethical and responsible operations. One of our primary mechanisms for ensuring ethical conduct is our Code of Business Conduct and Ethics, which is described in the Employee section of this report. In addition to a wide-ranging Health, Safety and Environment Policy, we adhere to internally developed policies addressing: harassment and discrimination; compensation, benefits and leave; and whistleblower protection.
Stakeholder Engagement Stakeholder engagement is at the heart of corporate responsibility. We need to understand what our stakeholders care about so we can mutually develop beneficial solutions. The traditional definition of stakeholder is along the lines of “one who can be affected by or can affect a company’s operations.” This covers almost everyone. To engage in a more pragmatic manner we have categorized our primary stakeholders as: unitholders; employees; landowners and community members; governments; regulators; and suppliers and other business partners. We engage with any party that is interested in our company and its activities.
Political Activities and Contributions Our Code governs the political activities and contributions of employees and of the corporation. ARC does not contribute funds to any political parties in Canada or abroad. ARC participates in public policy debate on the federal and provincial level on subjects such as greenhouse gas legislation, provincial royalties and proposed changes to the tax regime for trusts.
The following sections describe how ARC tackles the areas we see as integral to operating responsibly. Each section presents the related commitments we have made, our management approach, select management issues, and our performance on select indicators.
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environment We understand that our operations have an affect on the environment and people. The majority of ARC’s operations are in areas with a long history of development. We work to maximize the effectiveness of existing infrastructure (e.g., roads, wells) and as a result, we tend to have fewer impacts on the land. Balancing this is the fact that as oil and gas reservoirs deplete, more energy and effort is required to extract the resource. But we also realize that the more efficiently we can extract resources - that is, with less energy and water inputs and less waste outputs - the more financially attractive our operations become. It is against this backdrop that we work to reduce our environmental impacts. Our Environmental Commitments ARC strives to exhibit leadership in the environmental arena. As stated in our HSE Policy, we will: • • • • •
meet or exceed regulations, industry standards, and stakeholder requirements integrate environmental management measures into our activities be prepared for emergencies monitor and assess performance maintain high standards for our various reporting initiatives
By the time of our next report we plan to: • explore subject areas where we can set quantitative environmental targets • refine our audit process by combining different types and assessing their effectiveness • improve our measurement and records systems
Greenhouse Gas Emissions 0.19
600000 500000 400000
To consistently live up to our commitments, we have been developing a robust environmental management system that comprises the following elements: • • • •
an environmental policy annual goals and objectives regular auditing, and quarterly reporting to the HSE Committee of the Board of Directors
We strive to continually improve our environmental management system to ensure that emerging trends, new technology, and government regulations are fully incorporated.
Our Management Approach
GHG intensity (tonnes/m3OE) Greenhouse Gas Emissions (CO2e tonnes/year) Note: The increase in the 2006 GHG was a result of the December 2005 acquisition of Redwater and NPCU.
We have a corporate HSE group that develops operating practices and procedures with HSE Co-ordinators located at our field offices. Together we ensure that a consistent environmental management process is executed through the company.
Managing Greenhouse Gas Emissions For any oil and gas company, reducing greenhouse gas (GHG) emissions is a considerable challenge. For ARC, it is a challenge we are addressing strategically and aggressively.
Air Emissions 05
Gas flared & Vented (103m3/yr)
Solution Gas Conservation Rate (%)
13,919 23,132 16,740
ARC has intentionally acquired oil reservoirs that we believe are prime candidates for enhanced oil recovery through the injection of carbon dioxide (CO2). If CO2 is captured from large sources and made available to us, we could sequester large amounts of carbon in our reservoirs, thereby reducing the amount of CO2 emitted into the atmosphere and increasing ultimate oil recovery. Currently there are no large quantities of CO2 being captured by emitters. Depending on what happens with carbon trading mechanisms in Canada and on availability of CO2 that would otherwise be emitted to the atmosphere, we could end up with significant carbon credits, as we expect to be able to sequester perhaps as much as 10,000 to 20,000 tonnes of C02 per day. This is equivalent to removing 2,000 to 4,000 vehicles from the roads daily (and over one million vehicles annually). In July 2008, ARC commenced a pilot C02 injection project in the Redwater area. Midway through 2007 ARC began the first phase of implementing a fugitive emission management program that will help us monitor and manage our fugitive emissions. We believe this program presents an opportunity to make emission reductions that would not otherwise occur. The program will continue through 2009 at which time we will assess the benefits of continued fugitive emission monitoring. Fugitive emissions are air pollutant releases not confined to a stack, duct, vent, tank or other identified sources. Current Alberta greenhouse gas regulations do not significantly affect ARC since we do not operate any facilities that qualify as a large final emitter. However, ARC does have an interest in 34 facilities that exceed the 3,000 tonnes per year Federal guideline. Subject to elaboration of the full federal guidelines, the impact on ARC’s operations is minimal at this time. We are continuously working on improving our data management processes in order to obtain consistent, accurate, and verifiable data. We feel the benefits associated with quality data management will become increasingly valuable as the regulatory environment clarifies and strengthens.
Managing Obligations ARC actively reclaims abandoned oil and gas leases and roads. This involves returning our sites to a state equivalent to conditions prior to disturbance. We actively use soil treatment facilities rather than land farming techniques or landfills. This allows us to return native soils during the reclamation process. We have recently received approval for, and built, a bio-remediation facility in the Redwater field to facilitate the treatment of hydrocarbon contaminated soils in the Redwater area.
ARC maintains an active reclamation fund in which we set aside funds annually to ensure we are able to address current and future liabilities. The balance of this fund, on December 31, 2007 stood at $26.1 million with annual contributions of $12 million. The Trust has estimated the net present value of its total asset retirement obligations to be $140 million as at December 31, 2007. Since 2005, ARC has spent $32.3 million on reclamation activities.
Greenhouse Gas Emissions
Water Use m3 Withdrawn
From 2005 to 2007, our CO2 emissions have increased 84 per cent, largely as the result of a purchase of mature oil and gas assets from another operator. We have had a 43 per cent increase in carbon intensity (tonnes CO2e/m3OE) in the same period.
A major contributor to this increase is our Redwater field that requires significant energy use to move the amount of fluids produced each day, and consequently generates more indirect GHG emissions. We acquired our Redwater properties in December 2005 fully aware that gaining an excellent longterm CO2 sequestration reservoir meant increasing our corporate GHG emissions in the short-term. The Redwater field alone increased our GHG emissions by 54 per cent.
Spills and Leaks
Sulphur dioxide (SO2) emissions have increased slightly since 2005, likely due to the variable chemical signature of our production, not due to any specific programs. Benzene emissions (from glycol dehydrators) have declined 48 per cent from 2005 to 2007, primarily due to benzene management programs and regulatory guidelines. We believe that the solution gas conservation rate has improved because we are now receiving more accurate reporting from our Saskatchewan facilities.
Flaring has gone up 25 per cent since 2005. The increase is due to large flaring volumes in northeast British Columbia (from well testing) in 2006. ARC is one of the leading companies developing the Montney gas resource in northeast British Columbia and the lack of infrastructure in the near-term dictates that significant flaring during testing will continue. This is a priority concern for us and we will continue to pursue efforts to reduce this figure in the coming years. Notwithstanding significant efforts to reduce flaring, ARC is one of the leading companies developing the Montney gas resource in NE British Columbia and the lack of infrastructure in the near term dictates that significant flaring during testing will continue.
Number Volume (m3)
Water Use Our fresh water withdrawals have decreased by 28 per cent since 2005. This figure includes total surface and ground water diverted for use under license. We actively pursue and evaluate sources of non-potable water to meet our needs.
Wellsite Reclamation 1000
Spills and Leaks The number of reportable spills and leaks has varied year-to-year; however, our volume recovered continues to improve annually. The majority of occurrences are along pipelines and at fittings. When patterns emerge, we work to identify root causes and share learnings to prevent recurrence.
800 600 400 200
ARC has 985 abandoned wells, with reclamation complete at 483 of those sites. Of the remaining 502 sites, ARC is actively working on 190 leases while 312 leases are being evaluated.
Abandoned Wells Reclamations Completed Active Reclamations New Certificate
health and safety Certain aspects of the oil and gas industry are inherently hazardous. Heavy machinery, pressurized vessels, sour gas, and industrial processes present certain risks in the workplace and to the general public. Compounding safety issues is the current elevated activity level in our industry. The high activity levels mean that projects are on tighter deadlines and highly qualified labour is harder to find. Both of these situations lead to the potential for more safety incidents. ARC remains vigilant and proactive in ensuring employee and public safety. Our Health and Safety Commitments Our belief that people are our greatest asset is reflected in our commitment to the health and safety of our employees, contractors and the public. We will not compromise our safety standards to achieve corporate goals. Further, we will: • strive to achieve a high level of health and safety performance through the active management and engagement of all individuals involved in our operations • ensure the integrity of our systems and operations • be prepared for emergencies • invest in the well-being and development of our employees • monitor and assess our performance and continually improve our processes • meet or exceed regulations and industry standards By the time of our next report we plan to: • continue to enhance our audit system to ensure we are able to identify areas to implement improvements • update our Health and Safety Manual to ensure all policies and procedures meet or exceed regulatory requirements and expectations of our stakeholders • expand our communication with employees and contractors to ensure understanding of ARC’s health and safety objectives
Our Management Approach As described in the environment section of this report we have developed a comprehensive HSE management system. Our HSE management system includes, among other elements: a strong health and safety policy; annual goals and objectives; training; audits and performance reviews; and quarterly reporting to the HSE Committee of the Board of Directors. Our health and safety management system includes policies and procedures that address activities undertaken throughout the full life-cycle of our facilities: exploration, drilling and completions, operations, and decommissioning and reclamation. Any person entering an ARC site must have received a safety orientation first. The best time to address safety is before a job begins. Accordingly, ARC has implemented Job Hazard Assessment (JHA) as a standard operating practice. We recognize that all individuals are at risk and should be involved in job safety. Through a JHA, hazards are identified and either eliminated or controlled prior to commencing work. When a safety incident does occur, no matter how minor, ARC management is actively involved in the review, recommendations and follow-up. ARC promotes more comprehensive reporting by identifying potential trends and focusing on causation. Since the introduction of our “minor/near miss” form in 2005 our reporting has increased 112 per cent. In 2007, ARC launched the “Stop, Think, Report” campaign to reinforce the importance of Near Miss and Hazard Identification reporting. We believe that this program has contributed significantly to completing the 2007 calendar year with zero Lost Time Injuries (LTIs) for employees. ARC maintains detailed emergency response plans (ERPs) that allow us to manage emergencies of any type wherever we work or have facilities. Community members and government agencies are included in the development and testing of ERPs. Frequent training of our employees and contractors ensures the highest level of public safety.
Health and Safety 2005
0 3 32
0 1 29
0 0 23
Fatalities Lost Time Injuries (total) Medical Aid/Restricted Work Property damage; accidents Incidents with no visible injury or damage (including near miss/hazard indentification reporting)
note: data includes employees and contractors
Managing Contractors Contractors are essential to ARC’s success. We retain contractors for various services, but most of their activities are in the field where there is potential exposure to higher risk activities. ARC considers our contractors to be an integral part of our safety program and strives to eliminate all contractor injuries, occupational illnesses, and unsafe practices. Our contractor management program involves: • Pre-qualification: all of our contractors must have, as a minimum, a safety program, liability insurance, and Worker’s Compensation Board Clearance for the province in which they are working • Orientation: at the start of any new work program, ARC and contractors meet to discuss potential safety issues of the work and alternatives to mitigate hazards identified. This process is repeated for every new contractor that arrives on-site • Ongoing attention: Daily safety meetings and targeted training sessions are held during the work program. We also issue safety alerts to employees and contractors when we identify serious issues • Review: ARC regularly measures the health and safety performance of its contractors by having in-house and third-party audits conducted. If items requiring action are identified, we work with our contractor to improve the situation. If that fails we cease using the contractor We also hold annual educational workshops to assist the efforts of our on-site supervisors, contractors and operations staff in making all operations safer.
Managing Assets We have a fundamental responsibility to ensure that our equipment and facilities operate in a manner that does not place our employees or the public at risk and that the environmental impact of the operation of our assets is minimized. This responsibility is met by ensuring the integrity of our assets. For all of our oil and gas facilities, that consist of piping, pressure vessels, valves and other equipment, our Pressure Equipment Integrity Management System (PEIMS) implements preventive maintenance measures. These measures include training requirements for operations and maintenance personnel, in-service inspections and coordinating out-of-service inspections with planned outages. For our pipelines, we have a Pipeline Operating and Maintenance Manual that combines generic and site specific procedures and processes. This manual is in place to ensure long-term integrity of our pipelines and continued compliance with government regulations. Corrosion is the leading cause of pipeline failures. As such, we are utilizing state-of-the-art corrosion prediction software and are developing specific corrosion control strategies. Our Pipeline Integrity Management System (PLIMS) captures and communicates our best practices so that they can be incorporated into new pipeline designs and used in maintaining our existing pipeline infrastructure.
employees ARC sees its responsibility to employees as a moral imperative. These are our colleagues and often our friends. In a tight labour market, we need to offer a work environment that attracts, motivates, inspires, and retains employees. Although we expect a lot from each other, we balance our demands on employees with fair treatment, opportunities for development, and competitive compensation. Every position at ARC is seen as important to the success of our company. We have developed a corporate culture that values the contribution of each employee as an individual. We offer the advantages of a growing company while striving to maintain a small company feel. Our Commitments to Employees ARC operates in a competitive marketplace for the best employees with a wide range of talents. Our desire is to attract and retain the best and brightest people in our industry. To achieve this goal we have firm commitments to our employees. We will: • • • • • •
Treat all employees with dignity, respect, and fairness Value and respect employees’ rights Provide equal opportunity in all aspects of employment Not tolerate conduct that makes someone feel uncomfortable or unwelcome Offer a competitive compensation package that rewards individual contribution and shares in the company’s success Encourage continuous personal and career growth
Our Management Approach Our employee relations are managed by a corporate Human Resources team. In addition to performing the typical responsibilities of employee recruitment, and compensation and benefits management, our Human Resources team coordinates learning initiatives and wellness programs.
Our approach to attracting and retaining employees is to offer competitive, incentive-based compensation packages and the opportunity to develop, grow and advance personally. To support learning and career growth, we offer employees an education reimbursement program. ARC also sends employees on professional development training offered through local educational institutions or to conferences and seminars that focus on particular areas of professional, managerial, or technical development. We encourage work-life balance by holding regular wellness sessions for employees, which cover topics such as personal health, diet and nutrition, smoking cessation, financial education, and many other topics that deal with personal wellbeing. ARC wants to prepare the employees of today to take over leadership of the company tomorrow. We have established succession coaching and mentoring programs that train employees in managerial and executive leadership skills. ARC’s mentoring program is open to employees at all levels within the company.
Interacting with Employees ARC conducts a yearly survey entitled “Measuring the Strength of our Workplace”. The survey asks employees about mentorship, vision, values and culture, compensation and benefits. In the survey, we also provide each employee an opportunity to specifically identify three areas in which ARC performs well and suggestions for improving the way we do business. From the results of the survey, we have learned that communication is an area that needs improvement. In 2006, several initiatives were developed to improve communication. • Lunch sessions with the CEO where any employee can attend and pose questions • An anonymous question box on the corporate intranet where employees can pose any question and will receive an answer from a member of ARC’s senior management team • Quarterly meetings to update employees on the operations and financial performance of the company
Ensuring Ethical Conduct Our Code of Business Conduct and Ethics is the foundation upon which all ARC employees operate. It reflects our commitment to a culture of honesty, integrity, respect and accountability and outlines the basic principles and policies with which all employees are expected to comply. The Code addresses
ARC wants to prepare the employees of today to take over leadership of the company tomorrow. We have established succession coaching and mentoring programs that train employees in managerial and executive leadership skills. ARC’s mentoring program is open to employees at all levels within the company.
such issues as equal opportunity, harassment, conflict of interest, confidentiality, compliance, corruption and bribery, and political activity, among others. We updated the Code in 2006, a copy of which can be found on our website. Employees are required to annually sign off their review and commitment to upholding the Code. A hotline is available for employees to confidentially lodge any concerns about potential breaches of the Code.
Our Performance Diversity ARCâ€™s philosophy is to seek the best person for the position, regardless of gender, race, or other characteristic. We do not ask employees to self-identify, nor do we set diversity targets. However, we do track the percentage of women in our workforce (41 per cent) and as a proportion of management (19 per cent).
Workforce Between 2005 and 2007 our staffing levels increased by 129 employees. At year-end 2007, we had 396 permanent employees, 95 per cent of which are full time. None of our employees are unionized or covered by a collective bargaining agreement.
Turnover Our voluntary turnover rate of 4.8 per cent for 2007 compares favourably with the industry average of 10 per cent. The only discernable variance amongst different employee groups is a higher turnover rate in the 30-50 age group than other age groups.
Ethical Conduct Calls into the Whistle-blower Hotline often involve simple questions about how an employee should approach a certain situation. We also receive calls to report a potential breach of our Code of Business Conduct and Ethics on the Integrity Hotline. We follow up substantiated concerns with an internal investigation. There have been no incidents of discrimination reported. For the past two years our Privacy Officer has not received any complaints concerning release of private information.
Permanent Employees # of Employees
Voluntary Turnover Annual Turnover (%)
4 100 0
communities Our assets have often been a part of many communities for decades, and likely will be for decades to come. Therefore, we take the opportunity to become part of the community. As neighbours, we share a responsibility for the well-being of the communities where we operate. As a responsible community member we need to work collaboratively with our neighbours to achieve success. Because communities give so much to ARC in terms of important infrastructure and access to resources, we believe in contributing to these communities through direct involvement and charitable giving. ARC supports the communities we operate in through financial contributions to, and active partnerships with, various organizations. Responsible community citizenship also inspires us to communicate clearly and openly with our neighbours about our activities. Our Community Commitments Governments might grant us permits to operate, but community members grant us permission. We realize that we must continue to remain a responsible citizen if we hope to retain our social license to operate. To ensure responsible community citizenship, we will: • Communicate fairly and openly with communities in which we operate • Engage community residents and landowners in operating decisions • Contribute 0.5 per cent of our rolling three year average net income to charitable organizations By the time of our next report we plan to: • Identify metrics and begin measuring other components of our interactions and relationships with communities
Our Management Approach We focus our community interaction in two primary areas—stakeholder engagement and community investments. ARC follows a decentralized approach to community outreach because it puts decision making closest to the action.
At a minimum, we solicit community input into our proposed or existing activities through public consultation as specified in industry and regulatory guidelines. We often expand our efforts to engage with nearby residents and landowners on an ongoing basis. Open communication with our neighbors allows all involved to detect concerns, evolving problems or crises early, and to avoid miscommunication. We engage stakeholders through open houses, public meetings, one-on-one meetings, print and the web. Our vision for community investments is to focus on programs that address fundamental community issues such as poverty, child hunger, family violence and homelessness to name a few. There are many deserving programs in our communities and we receive many requests for support. ARC’s philosophy is to support as many as possible but select strategic initiatives for financial commitments on a multi-year basis. We focus our charitable investments in the following areas: • • • • •
Health & Wellness Social services Arts & Culture Community Education
Charitable Contributions $ Thousands
2000 1500 1000
Charitable Contributions 2007 5% 2%
We apply the following criteria when making a funding decision: • • • •
The extent of ARC’s presence in the area The perceived need is compelling and does not duplicate existing services or facilities The charity fits with our values and culture The services or activities provided are without regard to race, religion, creed, sex or sexual orientation • The soliciting organization is financially viable and efficiently and ethically managed • The sponsoring organization is a tax-registered, non-profit group or its equivalent We place high value on community participation and encourage our employees to contribute to the communities in which they live and work. Between 20 and 25 per cent of our budget for charitable donations is available to field offices in Grande Prairie, Drayton Valley, Red Deer, Medicine Hat, Redwater and Estevan.
20% Health Education Community
3% Social Services Arts Other
Inspiring Excellence In 2003, ARC created a partnership with the Canadian Sport Centre of Calgary (CSCC), one of the top Olympic sports training environments in the world. The partnership embraces the relationship between Olympic athletes and ARC’s culture of passion, commitment, balanced lifestyle, team effort and innovation. The partnership was developed to offer ARC employees opportunities to learn from successes, attitudes and behaviours of Canadian Olympic athletes and their support teams. The fundamental goal of the Inspiring Excellence initiative is to enrich the lives of ARC employees and their families while providing funding to the CSCC through involvement with Olympic athletes events and facilities. We hope that Inspiring Excellence will be an enduring part of life at ARC; fostering a desire for personal excellence at work and at home. The initiative is still running strong.
Charitable Contributions Thanks to our continuing strong profits we have been able to increase our charitable contributions over the years. Donations have increased 104 per cent since 2005. We have not designated specific proportions of our budget for the six focus areas. For 2007, the category receiving the largest proportion of our donations was Health & Wellness.
economic impacts “Wealth” literally means a condition of well-being. Our activities directly lead to generating and distributing wealth throughout society. Beyond our financial relationships with employees, suppliers, communities, unitholders and others, our operations contribute to other socio-economic dimensions of well-being. Although they cannot be measured by dollars, opportunities for human development, certainty through long-term agreements, and improvements to infrastructure are all important impacts ARC has on our stakeholders. A company benefits society and improves economic well-being by creating jobs and injecting cash into the economy through salaries, distribution payments to unitholders, and through payment of taxes and fees to governments. By the very nature of our corporate structure and focus, ARC is positioned as a long-term contributor to various economies. Our assets are characterized by long-life reserves, extensive production histories, low decline rates, and a diversified property mix. This results in attractive distributions to unitholders, low operating costs, more predictable supplier and employer relationships, and the opportunity to become a community citizen rather than a short-term visitor. Our Economic Commitments We are committed to creating long-term value for our unitholders, employees, communities and governments, suppliers and other stakeholders. Further, we are committed to: • • • •
Reinvesting earnings in employees, communities and capital Creating employment in our six main field offices and surrounding communities Preferring local suppliers Staying invested in Western Canada
Our Management Approach Our approach to creating value is not necessarily to grow the number of our assets, but to sustain and optimize assets. We work to make mature infrastructure economically viable again. By focusing on maintenance, retrofits and follow-up monitoring, we extend the life expectancy of previously neglected properties. In the words of the Coalition of Canadian Energy Trusts: “Capital-efficient trusts work to extract ‘every last drop’ from mature oil and gas reservoirs in Canada and invest in assets that major oil firms have deemed too small and time-consuming to develop.” Obviously as a trust our primary goal is to generate income for investors. We also see generating wealth for our other stakeholders as a major goal. We are working to ensure those most affected by our developments continue to share the economic benefits in the form of jobs, local purchases and investments in their communities. To be able to contribute to communities, suppliers, governments, and employees we need to remain financially successful. For complete information on our financial performance please see our Annual Report.
Developing Local Economies ARC is proud of our investment in the local economies of western Canada. Since inception, ARC’s cumulative capital spending in western Canada is $1.7 billion. ARC has distributed a total of $2.7 billion in cumulative distributions to our unitholders since 1996. ARC has paid out $1.3 billion in royalties to the provinces we operate in since 1996 and contributed $1.2 billion in operating costs to the economy. All of these contributions add to the Canadian economy at large through job creation both in small and large communities, and through money re-invested by unitholders into the purchase of goods and services and directed to other investments in their provinces and communities. Developing local supply chains brings benefits. We have worked with larger suppliers to make sure they have distribution centres in the same places as our field offices. We have worked directly with several small local suppliers to help develop their business and ensure they meet our requirements. Our commitment to responsible development influences how we choose suppliers. In addition to qualifying suppliers based on typical financial considerations, we assess their HSE performance and prefer to hire locally. Strong relationships with our suppliers and contractors are essential to our mutual success. ARC employs residents of the local communities in which we operate and has more than 150 field staff and consultants working in our six core areas. Because we operate in small, largely agricultural communities, we help to diversify the economy and allow rural residents to prosper in their own communities. For example, when ARC purchased the field of Redwater located in central Alberta, we hired new employees to maintain and enhance this older producing area that is fundamental to our CO2 sequestration strategy. Please see the Communities section of this report for further information on our community investments.
Wages & Benefits to Employees
Operating Expenses $ Million
Cash Flow from Operating Activities $ Million
Our Performance Operating Expenses Operating expenditures have increased by 54 per cent, to over $200 million of which a significant portion goes into the rural communities in western Canada. These figures include purchases of goods and services but exclude capital expenditures.
Distributions Paid to Unitholders Since inception in 1996, the Trust has distributed $21.03 per unit for a total of $2.66 billion. Furthermore, distributions remained at $0.20 per unit per month through 2007, a level that has been maintained since October 2005.
Royalties to Governments Our most significant economic impact on government finances is the payment of royalties. Since ARC distributes all of our taxable income to unitholders, we do not incur income taxes. Our capital and other taxes have totaled less than $4 million/year for the past three years.
Lease Payments to Landowners In addition to obtaining regulatory and social licenses to operate, we need to get approval from the landowner too. ARC makes lease payments to landowners for access to the resource. The figures in this graph do not include leases paid to the Crown, which have totaled $0.5 million/year for the past three years.
Distributions to Unitholders
Royalties to Governments $ Million
Lease Payments to Landowners
performance summary ARC is committed to measuring and reporting our sustainability performance in a transparent manner. When reliable data for performance indicators are not available, or when calculation methodologies for different years vary considerably we have left a blank in the table. We have included footnotes to provide clarity on definitions, boundary conditions, and other explanations. Production (BOE/day)
Environment Greenhouse Gas Emissions • Absolute (CO2e tonnes/yr) (1) 374,101 692,742 • Intensity (CO2e/m3OE) 0.129 0.194 SO2 (tonnes/yr) 2,381 2,461 Benzene (tonnes/yr) 4.67 5.43 Flared gas (103m3/yr) 12,771 21,884 Vented gas (103m3/yr) 1,149 1,249 Solution gas conservation rate 95.4% 94.7% Water use (m3/yr) 236,984 149,353 Reclamation • Abandoned wells 911 940 • Active reclamation ongoing 198 168 • Reclamation complete 428 472 • Certificates received 6 10 Spills and Leaks • Number of reportable spills 33 48 • Total volume (m3) 199 339 • Volume recovered (m3) 0 158 Number of fines and penalties 0 0
689,747 0.185 2,773 2.45 16,016 725 97.7% 171,298 985 190 483 11 32 440 332 0
Health and Safety Contractor and employee injury rates (per/200,000 hours worked) Lost time frequency - Employee 0.00 0.00 Lost time frequency - Contractor 0.44 0.10 Recordable frequency - Employee 0.33 0.24 Recordable frequency - Contractor 4.96 2.36 Fatalities - Employee/Contractor 0 0
0.00 0.00 0.94 1.88 0
Social Workforce profile • Full-time 313 375 • Part-time 11 14 Voluntary turnover (%) 10.14 5.87 Community investments ($ thousands) 856.7 1,298.4
378 18 4.83 1,742.3
Economic Royalties paid to governments ($ millions) 235.3 222.3 Distributions paid to unitholders ($ millions) 376.6 484.2 Payroll and benefits paid to employees ($ millions) 33.4 44.7 Payments to landowners ($ million) 8.5 11.1 Operating costs ($/boe) 6.9 8.5 Capital Expenditures ($ million) 365.1 496.3
219.4 498.0 50.2 12.4 9.5 439.7
Financial Revenues ($ millions) 1,165.2 1,230.5 Earnings ($ millions) 356.9 460.1 Cash flow from operating activities ($ millions) 639.5 760.6
1,251.6 495.3 704.9
The increase in 2006 CO2 emissions was a result of the December 2005 acquisition of very mature oil fields from another operator.
GRI content index This report has been prepared using the G3 version of the Global Reporting Initiativeâ€™s (GRI) Sustainability Reporting Guidelines. We self-declare this report as achieving Application Level C. For more information on the GRI please visit www.globalreporting.org Category
Strategy & Analysts
Page # 4-6
inside front cover
Primary brands, products, and/or services
inside front cover
inside front cover
Location of headquarters
inside front cover
Countries where ARC operates
inside front cover
Nature of ownership and legal form
inside front cover
Nature of markets served
inside front cover
Scale of the company
inside front cover
Significant changes during reporting period
inside back cover
Date of most recent previous report
Contact point for questions
2 inside back cover
Process for defining report content
Boundary of report
Limitations on report scope or boundary
Basis for reporting on non-wholly owned operations
Explanation of information restatements
Significant changes in measurement
List of GRI indicators addressed
Policy and current practice on external assurance of report
Governance, Commitments & Engagement
Governance structure, including major committees under the Board
Independence of Board chair
Independent, non-executive directors on Board
Mechanisms for shareholder participation
Organizational structure for economic, environmental and social management
Externally developed economic, environmental, and social charters, principles, or other initiatives
Stakeholder groups engaged
Basis for identification and selection of stakeholders with whom to engage
inside back cover
Approaches to stakeholder consultation
Direct economic value generated and distributed
Total water withdrawal by source
Total direct and indirect greenhouse gas emissions
10, 11, 23
NO, SO, and other significant emissions
10, 11, 23
Total number and volume of significant spills
Environmental non-compliance and fines
Breakdown of workforce
Total number and rate of employee turnover
Employees covered by collective bargaining agreements
Standard injury and lost day rates and fatalities
Total number of incidents of discrimination and actions taken
Participation in public policy development
Contributions to political parties
N/A = not applicable
19 21-23 11, 23
17 17 13, 23
Contact and Feedback We welcome and value your feedback on this report and our corporate responsibility activities. If you have any questions, comments or concerns, please contact us:
ARC Energy Trust Suite 2100, 440 - 2 Avenue SW Calgary, Alberta, Canada T2P 5E9 1-888-272-4900 (403) 503-8600 firstname.lastname@example.org
www.arcresources.com aﬃliations, Participation and recognition
In 2003, ARC’s first year of reporting to the CAPP Stewardship program, we achieved Gold level. ARC has achieved Platinum level ever since.
In 2007, ARC was added to the JSI, a common stock index of 60 Canadian companies that pass a set of broadly based environmental, social and governance rating criteria.
Measurement Abbreviations bbls
barrel of oil equivalent
carbon dioxide equivalent
thousand cubic feet
million cubic feet
million cubic feet equivalent
cubic metres of oil equivalent
thousand cubic metres
ARC has achieved Gold level performance with the Canadian GHG Challege Registry every year since 2000, except 2001 and 2006 (Silver).
ARC responded to the 2008 CDP questionnaire, and was recognized as being one of Canada’s Climate Disclosure Leaders.
Suite 2100, 440 - 2 Avenue SW Calgary, Alberta, Canada T2P 5E9 1-888-272-4900 (403) 503-8600