TSX Commentary

ARC Energy Trust (AET.UN): $20.33 – Montney Drives Impressive Reserves Growth and FD&A
Outperform, Average Risk, Price Target: $24.00 (prev. $23.00)
ARC’s Q4/09 results were ahead of our expectation and broadly in line with consensus. RBC CM has increased its price target to $24. ARC reported year-end reserves (2P) of 379 mmboe, +18% from last year. Growth was primarily driven by Montney reserve additions at Dawson and the Sunrise/Sunset blocks. FD&A costs (incl. FDC) were $11.55/boe, a result RBC CM expects will rank among the best in our coverage universe. While ARC’s reserves performance this year was excellent, the Upper Montney holds the potential to drive a similar level of growth for the next 3-4 years as booked recovery factors remain low, particularly on the Sunrise/Sunset and Septimus acreage where offset operators have had strong drilling results. While Dawson will clearly be the near-term growth driver for ARC, the 2010 capital budget includes several initiatives that could add material value over time, including: (i) Testing of other zones in NE BC, notably the Lower Montney at Sunrise/Sunset; (ii) The drilling of 17 horizontal Cardium wells at Pembina, which will test various geological settings and completion techniques and may lead to a substantially larger program in 2011; and (iii) Delineation of the substantial undeveloped land on the properties recently acquired at Ante Creek.