Commodity Marketing

A focused commodity marketing strategy ensures ARC’s upstream production is moved to market in an efficient manner and receives an optimal price. To implement this strategy ARC has an in-house commodity marketing team with expertise in market dynamics and local infrastructure, enabling us to respond to supply and demand forces and industry changes.

ARC sells its production to a variety of refineries, marketers and end users. With geographically diverse operations and significant volumes of crude oil, natural gas and natural gas liquids, ARC’s marketing team must stay on top of the various market influences impacting each commodity stream and geographical region. ARC’s approach to commodity marketing includes: daily risk management and price risk diversification; relationship building with midstream players and purchasers; and proactive planning for future development opportunities. This strategy ensures that we remain nimble to respond to sudden changes, while being proactive to ensure that as we grow our production, we have established markets well in advance of bringing new production on-stream.

RealizedMonthlyOilPrice Chart

In 2012, record high North American oil and natural gas production, infrastructure constraints and refinery outages resulted in pipeline bottlenecks and over-supplied refineries. Natural gas prices fell to decade low levels with Canadian prices averaging $2.40 per mcf, down 35 per cent from 2011. ARC’s realized natural gas price averaged $2.62 per mcf in 2012, 32 per cent lower than 2011. Crude oil differentials

  • In 2012, ARC’s crude oil marketing strategies included diversification of purchasers and markets to reduce the impacts of pipeline apportionment, as well as some rail movement to optimize oil pricing.

experienced significant volatility. Canadian producers receive a discount from the North American WTI crude oil price, which is itself discounted from the international benchmark Brent crude oil price. During 2012, a high but volatile Brent crude oil price was supported by global market supply concerns and averaged US$111.68 per barrel. Despite the high international Brent prices, the North American WTI crude oil price was flat in 2012 relative to 2011, averaging US$94 per barrel. Canadian crude oil producers were further impacted by volatile crude oil differentials with the differential between WTI and Edmonton Par, ranging from a discount of $20 per barrel to a premium of $4 per barrel, averaging a discount of $8 per barrel in 2012. Producing mainly high quality light sweet oil ARC’s realized crude oil price only decreased eight per cent to average $82 per barrel in 2012.

In 2012, ARC’s crude oil marketing strategies included diversification of purchasers and markets to reduce the impacts of pipeline apportionment, as well as some rail movement to optimize oil pricing. Natural gas strategies in 2012 focused on optimization of existing facilities to extract maximum value for liquids entrained in the gas stream, which includes a tie-in of ARC’s planned Parkland gas plant expansion to a third party deep-cut gas plant to extract further natural gas liquids value for ARC.

The market outlook for 2013 is optimistic with a number of initiatives proposed or currently underway, which are expected to alleviate certain North American infrastructure limitations. These initiatives include new pipelines or pipeline expansions, refinery expansions and expanded rail infrastructure. Despite these initiatives, near-term price volatility can be expected to continue as infrastructure construction will take time to complete. Access to global LNG markets for Canadian production moved closer to a reality in the latter part of 2012. Several major pipeline projects are currently proposed to deliver natural gas from western Canada to proposed LNG facilities on the west coast of British Columbia. These projects are long-term in nature and in various stages of approval, and are not expected to influence pricing in 2013; however assuming that they are built, they are expected to have a positive impact on the long-term outlook for Canadian natural gas markets and pricing. In the near-term, natural gas liquids infrastructure within western Canada has become extremely constrained as increased liquids-rich production has put pressure on existing take-away and fractionation capacity. In 2012, ARC committed to a three-year purchase arrangement on a large percentage of our natural gas liquids production to ensure the production can move to market up until 2015 when fractionation capacity expansions are planned.