2005 MESSAGE TO UNITHOLDERS | 2005 FINANCIAL AND OPERATING STATS  • MESSAGE TO UNITHOLDERS On July 11, 2006, ARC will celebrate its 10th anniversary. Investors who participated in that original $10 initial public offering have received $16.23 per unit (including the January 15, 2006 distribution) in distributions and have seen their units appreciate in price to $26.49 on December 31, 2005, which represents a compound annual return of 28 per cent over nine and one-half years. We have seen our production base grow from 9,566 boe per day in 1996 to 56,254 boe per day in 2005 and our employee count grow from just a handful at inception to the 305 we have today. With our history of proven performance we have delivered exceptional value to our unitholders; more importantly, we believe that the assets we have accumulated and the opportunities that exist for material incremental value creation within those assets have positioned ARC for an even more promising future. Since inception, we have believed that high quality, long-life assets should comprise the core of our portfolio. Some of the first assets that helped create the Trust are in the Pembina area in Alberta, an area well known for these key attributes. Building upon this solid foundation, ARC’s evolution into a technically oriented oil and gas producer truly began with the acquisition of Startech Energy in 2001 and was solidified with the acquisition of Star Oil and Gas Ltd. in 2003. ARC’s most recent 2005 acquisitions of assets in the Pembina and Redwater areas continue this legacy and perfectly fi t ARC’s criteria to acquire assets with significant upside potential that time, technology enhancements and a positive commodity price environment will allow us to capitalize on. During 2005, ARC’s unitholders enjoyed the most profitable year in the Trust’s history, with an annual total return of 62 per cent – the second highest return in the conventional oil and gas trust sector. This stellar performance was due in no small part to record oil and natural gas prices during the year. The price of West Texas Crude (“WTI”) oil traded in a range of US$41.60 per barrel to an unprecedented high of US$70.50 per barrel and averaged US$56.61 per barrel during 2005. North American natural gas traded in a range of Cdn$5.90 per GJ at AECO to Cdn$14.00 per GJ during the year and averaged Cdn$8.36 per GJ. This strong commodity price environment resulted in an average total return in the sector of 37 per cent. The fact that ARC’s performance exceeded the sector average by 60 per cent indicates that something beyond commodity prices accounted for our stellar performance. Last year marked a major milestone in the evolution of the Canadian royalty trust and income fund sector when Standard and Poors announced that royalty trusts and income funds would become eligible for inclusion in their benchmark index. This opened the door for significant incremental institutional interest in the sector. For a sector that has traditionally traded on yield, the focus has shifted as this new group of investors are concerned with quality of assets, cost structure and management expertise. In each of these areas, ARC stands tall. In the second quarter of 2005, a leading independent research firm ranked ARC as number one in terms of asset quality among large cap trusts. This ranking was re-affirmed in a January 2006 updated review of the sector. ARC’s market performance in 2005 reflected the recognition of ARC as one of the leading trusts in the sector, regardless of which measure one uses to make such an assessment. The impact of high commodity prices was clearly evident in the Trust’s financial results for 2005. Revenue before hedging was $1.17 billion, cash flow totaled $640 million, distributions were $377 million and net income was $357 million, all new records for the Trust. There are many implications to this record cash flow environment for the Trust and the industry as a whole. Utilization rates measuring the availability of people, equipment and rigs are running at all time high rates, stretching the oil and gas industry to its limits. The well count for the Canadian oil and gas sector reached an all time high of 21,999 well completions. With utilization rates at all time highs, costs are escalating significantly across the sector. Despite these5 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 fi eld 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 profi le perfectly. They are long life, 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 fi eld. 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 fi lds and will be actively looking to apply its learned expertise from these fi elds to other assets where CO2 recovery techniques may prove beneficial. In particular, we believe Redwater is a prime candidate for a CO2 flood and was acquired with that future potential as a primary consideration. It is important to note that ARC did not include any value for CO2 upside potential in the acquisition economics for these properties. The acquisition metrics were based on the production currently associated with these fields and any future upside associated with enhanced recovery techniques will be a direct uplift to ARC. The implementation of a CO2 flood and an associated increase in production from Pembina and Redwater will take time – perhaps three to five years or longer; however, ARC has always been a long-term thinker regarding its assets and these projects are expected to play a significant role in our future. RISK MANAGEMENT We have always believed that protecting the stability of our distributions is very important. ARC began executing a new hedging strategy in late 2004 that primarily focused on the purchase of puts to minimize ARC’s downside on a portion of its production, while providing full participation in price increases. Through this strategy, ARC’s hedging cost will be no higher than the premium paid for these transactions, which is known when it enters into the contracts. ARC believes that this strategy is like buying insurance – it protects a portion of ARC’s production from any unexpected downside that could materialize over the course of a year due to world events beyond its control, but leaves that production open to the full upside in the event of material upward price spikes. Though ARC did collapse most of its fi xed hedge contracts in late 2004, it still had a few contracts in place that were capped transactions at a fixed price considerably below 2005 prices and as a result ARC incurred cash hedging losses of $87.6 million. These large losses are behind ARC as it carries on with its current hedging strategy, which allows ARC to participate in price upside on its production. The one exception to this strategy is a three-way collar transaction which will remain in effect through 2009 on 5,000 boe per day of production associated with the NPCU and Redwater acquisitions that limits ARC’s full participation in price increases to US$90 but provides downside protection at US$55.00. The average cost of this price protection over the life of the contract is US$0.91 per barrel. This was done to protect the projected returns from this acquisition as the acquired production carries materially higher operating costs than our base production and we believe that it is important to protect the price and hence our returns over the next four years. IN MEMORIAM I acknowledge with much regret and sadness that ARC lost an important member of its Board of Directors in 2005. Mr. John Beddome passed away on May 10, 2005. He was a member of ARC’s Board since inception and contributed his wealth of knowledge and experience in the oil and gas industry to ARC and the community at large. His contribution to ARC’s Board will be missed. NEW BOARD MEMBER ARC is pleased to have added Mr. Herb Pinder to its Board of Directors effective January 1, 2006. Mr. Pinder brings an extensive business background to ARC covering several industries and a broad knowledge of corporate governance gained through his experience as a director on various public company boards over the last 20 years. Mr. Pinder holds a Bachelor of Arts degree from the University of Saskatchewan, an LL.B from the University of Manitoba and an MBA from Harvard University Graduate School of Business. Currently, Mr. Pinder is the President of the Goal Group, a private equity management firm located in Saskatoon, Saskatchewan. I know Mr. Pinder will make a strong contribution to ARC and I look forward to working closely with him in the future. THE FUTURE The future is not without its challenges. As costs continue to increase in 2006, it will be challenging for ARC to mitigate rising operating costs and General and Administrative costs (“G&A costs”). We experienced a 28 per cent G&A cost increase in 2005 as ARC needed to respond aggressively with its cost compensation programs to retain its employee in an industry that is currently unable to fill over 1,000 positions across various technical disciplines. Significant additional G&A cost increases are also expected for 2006. Our skilled and dedicated employees have delivered ARC’s proven past and we believe they will be the key to delivering on the promising future that exists for the Trust. ARC’s strategy of acquiring high quality long-life assets and exploiting them to their full potential has stood the test of time and has resulted in an asset base that is widely recognized as being one of the best in the sector. We believe we are only as strong as our people. The powerful combination of one of the highest quality technical teams in the industry and our opportunity rich assets provide us with a very promising future. John P. Dielwart President and Chief Executive Officer • How do our 2005 numbers measure up?  Click here to find out. View another year: 2007 | 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | 1999 | 1998 | 1997 | 1996