Pembina And Redwater

Production Steady and Development Continues

Pembina was ARC’s first operated core area and remains an excellent Trust asset due to its low decline rate and long economic reserve life. This area produces high quality light, sweet oil and has an economic reserve life in excess of 50 years. Since 1996, ARC has drilled 48 wells in Pembina. Most of the properties are under waterflood with resulting long-term, stable production rates and high reserves recovery. In 2005, ARC further strengthened its position in the Pembina area with the acquisition of a 45.57 per cent working interest in the North Pembina Cardium Unit # 1 (NPCU) and a principal interest in the Redwater field. In 2007 production in Pembina and Redwater decreased very slightly to 13,703 boe/d compared with 13,950 boe/d in 2006.

Area In Detail

Key Property - Redwater

Redwater is another major area with exciting opportunities for ARC and its unitholders. Redwater is one of the largest oil pools in Canada with 1.3 billion barrels of original oil in place. It was discovered in 1948 and was drilled up to 40 acre spacing by 1955. ARC purchased its initial working interest in the area in December 2005. Current production in Redwater is 4,300 boe per day of high netback light oil. ARC’s average working interest in our operated wells is 98 per cent. ARC was able to increase production by 13 per cent in 2007 by following disciplined production practices, reactivating old wells, and drilling eight new Leduc wells on structural highs identified by a small 3-D seismic survey.

In 2008, we have budgeted $32 million of capital for Redwater. We plan to shoot a significant 3-D seismic program to follow-up on the success of the 2007 program and to provide better understanding of this reservoir for our long-term conventional and EOR plans. We plan to drill at least seven vertical and two horizontal Leduc wells and continue to reactivate old wells. We also plan to drill three vertical and three horizontal wells targeting the Viking formation.

The most exciting prospect for Redwater is the CO2 enhanced oil recovery potential. If a CO2 flood at Redwater is proven to be commercially viable, it could potentially provide an incremental 15,000 boe per day of production. EOR could access anywhere from five to 15 per cent of the original oil in place – anywhere from 50 to 165 mmboe to ARC’s interest. Under an EOR program, the reservoir could take in 5,000 to 15,000 tonnes of CO2 per day – equivalent to the total emissions of one or two refineries/upgraders. To assess the potential for a successful EOR project at Redwater, we need to first conduct a pilot project on a small area of the reservoir to study the effect of CO2 injection. We have drilled wells, submitted the appropriate applications to the government for approval of a CO2 pilot, secured a source of CO2 and begun to purchase the required equipment and plan to begin injecting CO2 in mid-2008. We expect that it will take 12 to 18 months before we will know if the pilot has been successful.

Considerable uncertainty exists over when and even if large scale commercial CO2 projects are viable in Alberta. It will take cooperation from all parties – governments, emitters and producers to make EOR through CO2 injection commercially viable.

Key Property - Pembina

Assets in the Pembina area were a key piece of the properties purchased to form ARC in 1996. These long reserve life index assets - 17.2 years - have a low rate of decline and should provide production for years to come. ARC’s operated production volumes averaged 7,100 boe per day (9,400 boe per day including nonoperated) during 2007. In 2007, ARC spent $32 million in the area. We drilled 28 new Cardium wells within Berrymoor, NPCU, Lindale, MIPA and Buck Creek. We continued to optimize our waterflood with eight new injection conversions and various other chemical stimulations and facility expansions. In 2008, we forecast a $41 million budget, targeting 43 drilling locations. Of these wells, 33 will be Cardium infill locations focused on achieving 80-acre spacing and 10 wells will target shallow gas and NGC horizons.

Like Redwater, Pembina is an excellent candidate for CO2 EOR. A portion of the Pembina capital will be directed to preliminary pilot activities to evaluate the potential for CO2 EOR projects.

Information updated to year end 2007

Field Office

Superintendent-Pembina: Gord Hallgren
6421 - 50th Avenue, Drayton Valley, Alberta T7A 1R8
Tel: (780) 542-5552-----Fax: (780) 542-7552

Superintendent-Redwater: Peter Dickson
P.O. Box 1090, Redwater, Alberta T0A 2W0
Tel: (780) 942-6515-----Fax: (780) 942-6539