1997 MESSAGE TO UNITHOLDERS | 1997 FINANCIAL AND OPERATING STATS • MESSAGE TO UNITHOLDERS We have selected “performance” as the theme for this year’s annual report to highlight our results to date and to re-emphasize our commitment to generating superior returns for our unitholders. We are unequivocal in communicating to our unitholders that 1997 was a year of very strong performance. In creating ARC Energy Trust (the “Trust”), our vision was to build the premier “blue chip” conventional oil and gas trust in Canada. We have stated that our progress towards this goal would be measured by the quality of the assets acquired by the Trust, the development and application of management and technical expertise in all areas of the Trust’s activities and through generating superior long term investor returns. Based upon the results in each of these areas, we believe our progress towards realizing our vision is now well established. A key element of our performance in 1997 related to the implementation of a successful acquisition based going concern strategy which enhanced unitholder distributions and value. The Trust completed a number of transactions which resulted in a total net acquisition of $94.4 million of new oil and gas properties. Critical to the ongoing success of the Trust is the financial market support required to finance our acquisition program. The Trust was highly successful in receiving market support during 1997 with two equity financings completed for gross proceeds of $80.0 million. Another significant event was our decision to take over operatorship of the main producing properties in our Pembina core area. Field optimization activities and cost control measures which were initiated have already resulted in increased production and reduced operating costs. This improved performance will be of long term financial benefit to our unitholders. The ultimate measure of performance is investor returns. Our strategies and decisions have resulted in total returns to our unitholders that have been the highest among all new conventional oil and gas royalty trusts. Unitholder distributions generated in 1997 were $1.40 per unit, bringing total distributions during the Trust’s first 18 months of operation to $2.21 per unit. Including capital appreciation, this represents a 26 percent total return in the 18 months from inception to year end 1997 for our initial investors. As Manager of the Trust, we are committed to generating superior investor returns and our 1997 results demonstrate that we are performing well on that critical measure. ACQUISITION ACTIVITY Management of the Trust’s assets involves both the acquisition and disposition of oil and gas properties to capitalize on opportunities which develop in the market. The Trust had a very successful year in 1997 completing two major and two minor acquisitions for a total of $105.5 million. These transactions added 4,325 barrels of oil equivalent per day of production and 18.5 million barrels of oil equivalent of reserves to the Trust at an average purchase price of $5.42 per barrel of oil equivalent, net of Alberta Royalty Tax Credit expected to be received. In addition, the Trust completed three minor dispositions for a total of $11.1 million which included 425 barrels of oil equivalent per day of production and 1.7 million barrels of oil equivalent of reserves at an average sale price of $6.46 per barrel of oil equivalent. The result of these transactions was a net acquisition of $94.4 million for 3,900 barrels of oil equivalent per day of production and 16.8 million barrels of oil equivalent of reserves at an average price of $5.32 per barrel of oil equivalent. The net acquisitions replaced 490 percent of the Trust’s 1997 production and increased the Trust’s reserves and production by approximately 40 percent. The assets acquired in 1997 were very attractive in that they included additional interests in our core area of Pembina as well as interests in a number of high quality units in Alberta and Saskatchewan. The risked reserve life index of the new properties is 11.7 years which is consistent with that of our initial properties. At year end, the risked reserve life index for the Trust’s properties was 12.0 years. Our acquisition strategy will continue to be focused on acquiring additional interests in our existing core properties as well as establishing new core areas for the Trust. FINANCING ACTIVITY A crucial component of the Trust’s going concern strategy is the financial market support to finance growth through acquisitions. Market support for the Trust was demonstrated during 1997 with the completion of two financings, a private placement of 1.1 million special warrants at $11.00 per warrant for gross proceeds of $12.1 million which closed on March 25, 1997, and the issue of 6.5 million new trust units at $10.45 per unit for gross proceeds of $67.9 million which closed on May 21, 1997. At year end 1997, the number of outstanding units of the Trust was 25.6 million. FINANCIAL AND OPERATING PERFORMANCE Production during 1997 increased 24 percent to 9,425 barrels of oil equivalent per day from 7,600 barrels of oil equivalent per day in 1996 as a result of acquisitions completed during the year as well as positive results from field optimization efforts and infill drilling programs within existing properties. The Trust completed 1997 with an exit production rate of 10,750 barrels of oil equivalent per day, a 41 per cent increase over the 1996 exit production rate of 7,650 barrels of oil equivalent per day. The exit 1997 production mix was 59 percent crude oil and natural gas liquids and 41 percent natural gas. Crude oil and natural gas liquids prices for the year were $26.35 per barrel and $18.27 per barrel, respectively, while the average natural gas price was $1.82 per thousand cubic feet. Revenues for the year totaled $74.1 million, reflecting an overall average selling price of $21.54 per barrel of oil equivalent. Royalties and operating costs of $3.56 and $5.16 per barrel of oil equivalent resulted in an average netback of $12.82 per barrel of oil equivalent. Earnings and cash flow totaled $9.2 million ($0.40 per unit) and $37.8 million ($1.65 per unit) respectively for the year, resulting in total cash distributions to unitholders of $1.40 per unit for 1997. John P. Dielwart President and Chief Executive Officer • How do our 1997 numbers measure up?  Click here to find out. View another year: 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1997 | 1996