HIGHLIGHTS
- ARC delivered first quarter 2024 production of 352,328 boe(1)Â per day (63 per cent natural gas and 37 per cent crude oil and liquids(2)). Production increased four per cent year-over-year, and eight per cent on a per share(3)Â basis.
- ARC generated funds from operations of $607 million(4)Â ($1.01 per share(5)) and recognized cash flow from operating activities of $636 million ($1.06 per share).
- Market diversification contributed to a realized natural gas price of $3.19 per Mcf in the first quarter. This represents a 56 per cent premium to the average AECO 7A Monthly Index price of $2.05 per Mcf, and an increase relative to the NYMEX Henry Hub benchmark of US$2.24 per MMBtu (C$3.02 per MMBtu).
- Operating expense of $4.26 per boe and transportation expense of $5.35 per boe were both below the bottom end of 2024 Company guidance.
- Free funds flow registered at $102 million(6)Â ($0.17 per share(7)) in the first quarter, while capital expenditures totalled $505 million(6). ARC recognized net income of $185 million ($0.31 per share).
- ARC distributed approximately 114 per cent of free funds flow, or $117 million, to shareholders during the first quarter. ARC intends to return essentially all free funds flow to shareholders through the base dividend and share repurchases in 2024.
- ARC declared dividends of $102 million or $0.17 per share and repurchased 0.6 million common shares for $15 million under its normal course issuer bid (“NCIB”).
- The 2024 capital budget and production guidance remain unchanged. Planned capital expenditures remain between $1.75 to $1.85 billion(8)Â and full-year production is forecast to average between 350,000 and 360,000 boe per day (63 per cent natural gas and 37 per cent crude oil and liquids).
- Attachie Phase I remains on-schedule and on-budget with several milestones achieved during the first quarter. Full-productive capacity of 40,000 boe per day (40 per cent natural gas, 60 per cent crude oil and liquids) is anticipated for the first quarter of 2025, with commissioning volumes expected late 2024.
- On April 4, 2024, ARC announced a long-term liquefaction tolling services agreement with Cedar LNG Partners LP. Under this agreement, ARC will deliver approximately 200 MMcf per day of natural gas for liquefaction for a term of 20 years commencing with commercial operations anticipated in the second half of 2028.
- ARC has also entered into a non-binding Heads of Agreement with an investment-grade rated company for the purchase and sale of an equivalent volume of LNG offtake, approximately 1.5 million tonnes per annum of LNG.
- As of March 31, 2024, ARC’s long-term debt balance was $1.1 billion and its net debt balance was $1.3 billion(4) or 0.5 times funds from operations(4).
ARC’s unaudited condensed interim consolidated financial statements and notes (the “financial statements”) and Management’s Discussion and Analysis (“MD&A”) as at and for the three months ended March 31, 2024, are available on ARC’s website at www.arcresources.com and under ARC’s SEDAR+ profile at www.sedarplus.ca. The disclosure under the section entitled “Non-GAAP and Other Financial Measures” in ARC’s MD&A as at and for the three months ended March 31, 2024 (the “Q1 2024 MD&A”) is incorporated by reference into this news release.
| (1) | ARC has adopted the standard six thousand cubic feet (“Mcf”) of natural gas to one barrel (“bbl”) of crude oil ratio when converting natural gas to barrels of oil equivalent (“boe”). Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different than the energy equivalency of the 6:1 conversion ratio, utilizing the 6:1 conversion ratio may be misleading as an indication of value. |
| (2) | Throughout this news release, crude oil (“crude oil”) refers to light, medium, and heavy crude oil product types as defined by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Condensate is a natural gas liquid as defined by NI 51-101. Throughout this news release, natural gas liquids (“NGLs”) comprise all natural gas liquids as defined by NI 51-101 other than condensate, which is disclosed separately. Throughout this news release, crude oil and liquids (“crude oil and liquids”) refers to crude oil, condensate, and NGLs. |
| (3) | Represents average daily production divided by the diluted weighted average common shares outstanding for the respective three months ended March 31. |
| (4) | See Note 8 “Capital Management” in the financial statements and “Non-GAAP and Other Financial Measures” in the Q1 2024 MD&A for information relating to this capital management measure, which information is incorporated by reference into this news release. |
| (5) | See “Non-GAAP and Other Financial Measures” in the Q1 2024 MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release. |
| (6) | Non-GAAP financial measure that is not a standardized financial measure under International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS Accounting Standards”) and may not be comparable to similar financial measures disclosed by other issuers. See “Non-GAAP and Other Financial Measures” in the Q1 2024 MD&A for information relating to this non-GAAP financial measure, which information is incorporated by reference into this news release. See “Non-GAAP and Other Financial Measures” of this news release for the most directly comparable financial measure disclosed in ARC’s current financial statements to which such non-GAAP financial measure relates and a reconciliation to such comparable financial measure. |
| (7) | Non-GAAP ratio that is not a standardized financial measure under IFRS Accounting Standards and may not be comparable to similar financial measures disclosed by other issuers. Free funds flow, a non-GAAP financial measure, is used as a component of the non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in the Q1 2024 MD&A for the non-GAAP ratio for the comparative period and other information relating to this non-GAAP ratio, which information is incorporated by reference into this news release. |
| (8) | Refer to the section entitled “About ARC Resources Ltd.” contained within the Q1 2024 MD&A for historical capital expenditures, which information is incorporated by reference into this news release. |
FINANCIAL AND OPERATIONAL RESULTS
| (Cdn$ millions, except per share amounts(1), boe amounts, | Three Months Ended | ||
| and common shares outstanding) | December 31, 2023 | March 31, 2024 | March 31, 2023 |
| FINANCIAL RESULTS | |||
| Net income | 506.3 | 185.4 | 574.9 |
| Per share | 0.84 | 0.31 | 0.93 |
| Cash flow from operating activities | 698.9 | 636.3 | 540.3 |
| Per share(2) | 1.16 | 1.06 | 0.87 |
| Funds from operations | 699.2 | 606.9 | 717.4 |
| Per share | 1.16 | 1.01 | 1.16 |
| Free funds flow | 154.7 | 102.3 | 230.0 |
| Per share | 0.26 | 0.17 | 0.37 |
| Dividends declared | 101.7 | 101.6 | 91.9 |
| Per share | 0.17 | 0.17 | 0.15 |
| Cash flow used in investing activities | 434.3 | 499.8 | 397.4 |
| Capital expenditures | 544.5 | 504.6 | 487.4 |
| Long-term debt | 1,148.9 | 1,144.0 | 1,056.0 |
| Net debt | 1,317.1 | 1,336.1 | 1,264.7 |
| Common shares outstanding, weighted average dilutedÂ
(millions) |
602.8 | 598.4 | 619.2 |
| Common shares outstanding, end of period (millions) | 596.9 | 596.7 | 611.2 |
| OPERATIONAL RESULTS | |||
| Production | |||
| Crude oil and condensate (bbl/day) | 85,805 | 82,672 | 78,969 |
| Natural gas (MMcf/day) | 1,380 | 1,322 | 1,264 |
| NGLs (bbl/day) | 49,474 | 49,411 | 48,800 |
| Total (boe/day) | 365,248 | 352,328 | 338,377 |
| Average realized price | |||
| Crude oil ($/bbl)(2) | 93.34 | 83.83 | 92.78 |
| Condensate ($/bbl)(2) | 99.09 | 94.58 | 104.10 |
| Natural gas ($/Mcf)(2) | 3.33 | 3.19 | 5.89 |
| NGLs ($/bbl)(2) | 21.97 | 25.65 | 28.59 |
| Average realized price ($/boe)(2) | 38.69 | 37.49 | 50.16 |
| Netback | |||
| Commodity sales from production ($/boe)(3) | 38.69 | 37.49 | 50.16 |
| Royalties ($/boe)(3) | (5.14) | (4.15) | (7.96) |
| Operating expense ($/boe)(3) | (4.13) | (4.26) | (4.50) |
| Transportation expense ($/boe)(3) | (4.59) | (5.35) | (5.61) |
| Netback ($/boe)(3) | 24.83 | 23.73 | 32.09 |
| TRADING STATISTICS(4) | |||
| High price | 23.77 | 24.32 | 18.07 |
| Low price | 19.02 | 19.44 | 14.33 |
| Close price | 19.67 | 24.15 | 15.33 |
| Average daily volume (thousands of shares) | 4,271 | 3,343 | 5,949 |
| (1) | Per share amounts, with the exception of dividends, are based on weighted average diluted common shares. |
| (2) | See “Non-GAAP and Other Financial Measures” in the Q1 2024 MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release. |
| (3) | Non-GAAP ratio that is not a standardized financial measure under IFRS Accounting Standards and may not be comparable to similar financial measures disclosed by other issuers. Netback, a non-GAAP financial measure, is used as a component of the non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in the Q1 2024 MD&A for the non-GAAP ratio for the comparative period and other information relating to this non-GAAP ratio, which information is incorporated by reference into this news release. |
| (4) | Trading prices are stated in Canadian dollars on a per share basis and are based on intra-day trading on the Toronto Stock Exchange. |
OUTLOOK
ARC’s strategic priorities are to deliver sustainable free funds flow per share growth adhering to longstanding principles of capital discipline, profitability, and financial strength. The optimal path to achieve this over the next five years involves balancing organic Montney investment with margin expansion initiatives and a meaningful capital return that includes share repurchases and a growing base dividend.
Operational Update
Attachie Phase I Update
Attachie Phase I development is on schedule and on-budget, with first commissioning volumes expected before year-end, and full-productive capacity (40,000 boe per day; 60 per cent crude oil and natural gas liquids and 40 per cent natural gas) anticipated for the first quarter of 2025. ARC invested approximately $180 million at Attachie in the first quarter of 2024.
- Drilling and completion activity is progressing as planned. To date, ARC has drilled 22 of the approximately 40 wells required to fill the 40,000 boe per day plant capacity. The first Attachie Phase I pad was also completed in the first quarter.
- ARC completed the construction of a pipeline bridge, an important milestone in achieving the planned project timelines.
- Plant construction is approximately 60 per cent complete, and all major equipment is on-site.
- The natural gas sales line was completed in the fourth quarter 2023 and the liquids and gathering pipelines are greater than 70 per cent complete and progressing on schedule.
Attachie Phase I is also well on track to be electrified upon start-up. This will reduce ARC’s corporate emissions intensity and is expected to make Attachie Phase I one of the lowest emitting, condensate-rich natural gas developments in Canada.
Operations Update
First quarter production of 352,328 boe per day was two per cent above the mid-point of previously announced guidance for the period. The increase was primarily due to stronger-than-anticipated well productivity at its Sunrise asset.
Second quarter production is expected to average between 325,000 and 330,000 boe per day, and increase to an average of approximately 370,000 boe per day in the second half of 2024.
- Second quarter production guidance reflects planned turnaround activity underway at Kakwa and Greater Dawson, which is planned to coincide with third-party turnarounds and downtime to minimize overall downtime while maximizing overall price realizations.
- Production growth in the second half of 2024 is anticipated to be driven primarily by ARC’s condensate-rich assets at Kakwa, Greater Dawson, and Attachie, where commissioning volumes are expected later in the year.
2025 Outlook
The 2025 outlook is unchanged and outlined in the table below. The 2025 outlook incorporates lower anticipated capital spending relative to 2024 and approximately 10 per cent production growth reflecting a full-year contribution from Attachie Phase I. This is expected to drive a meaningful increase in free funds flow, which is planned to be returned to shareholders through a combination of a growing base dividend and share repurchases thereby, enhancing per share metrics.
| 2024 | 2025 | |
| Total production (boe/day) | 350,000 – 360,000 | 375,000 – 400,000 |
| Â Natural gas production (%) | 63Â % | 60Â % |
| Â Crude oil and liquids production (%) | 37Â % | 40Â % |
| Capital Expenditures ($ billions)(1) | 1.75 – 1.85 | 1.6 – 1.8 |
| Funds from Operations ($ billions)(2)(3) | 2.5 – 2.8 | 3.0 – 3.4 |
| (1) | Refer to the section entitled “About ARC Resources Ltd.” contained within the Q1 2024 MD&A for historical capital expenditures, which information is incorporated by reference into this news release. |
| (2) | Based on the forward curve at April 18, 2024 (2024: WTI US$79 per barrel; US$2.35/MMbtu NYMEX; C$1.90/Mcf AECO; 2025: WTI US$74 per barrel; US$3.50/MMbtu NYMEX; C$3.30Mcf AECO). |
| (3) | See Note 8 “Capital Management” in the financial statements and “Non-GAAP and Other Financial Measures” in the Q1 2024 MD&A for information relating to this capital management measure, which information is incorporated by reference into this news release. |
2024 Guidance
Production and capital expenditures guidance are unchanged, share-based compensation expense has been revised to reflect the impact of positive relative share price performance on outstanding awards. All other expenses are unchanged and operating expense and transportation expense are both tracking below the bottom end of company guidance.
- ARC plans to invest between $1.75 billion and $1.85 billion in capital expenditures for 2024.
- Production is forecast to average between 350,000 to 360,000 boe per day (63 per cent natural gas and 37 per cent crude oil and liquids).
ARC’s 2024 annual guidance, 2024 revised annual guidance, and a review of 2024 year-to-date results are outlined below.
| 2024 Guidance | 2024 Revised Guidance |
2024 YTDÂ
 Actual |
% Variance fromÂ
2024 Guidance |
|
| Production | ||||
| Crude oil and condensate (bbl/day) | 87,000 – 91,500 | — | 82,672 | (5) |
| Natural gas (MMcf/day) | 1,325 – 1,340 | — | 1,322 | — |
| NGLs (bbl/day) | 42,000 – 45,000 | — | 49,411 | 10 |
| Total (boe/day) | 350,000 – 360,000 | — | 352,328 | — |
| Expenses ($/boe)(1) | ||||
| Operating | 4.50 – 4.90 | — | 4.26 | (5) |
| Transportation | 5.50 – 6.00 | — | 5.35 | (3) |
| General and administrative (“G&A”) expense before share-based compensation expense | 1.05 – 1.25 | — | 1.34 | 7 |
| G&A – share-based compensation expense | 0.25 – 0.35 | 0.55 – 0.65 | 1.20 | 85 |
| Interest and financing(2) | 0.90 – 1.00 | — | 0.87 | (3) |
| Current income tax expense as a per cent of funds from operations(1) | 10 – 15 | — | 10 | — |
| Capital expenditures ($ billions)(3) | 1.75 – 1.85 | — | 0.50 | n/a |
| (1) | See “Non-GAAP and Other Financial Measures” in the Q1 2024 MD&A for an explanation of the composition of these supplementary financial measures, which information is incorporated by reference into this news release. |
| (2) | Excludes accretion of ARC’s asset retirement obligation. |
| (3) | Refer to the section entitled “About ARC Resources Ltd.” contained within the Q1 2024 MD&A for historical capital expenditures, which information is incorporated by reference into this news release. |
ARC’s 2024 corporate guidance is based on various commodity price scenarios and economic conditions; certain guidance estimates may fluctuate with commodity price changes and regulatory changes. ARC’s guidance provides readers with the information relevant to Management’s expectations for financial and operational results for 2024. Readers are cautioned that the guidance estimates may not be appropriate for any other purpose. Refer to the section entitled “Annual Guidance” in the Q1 2024 MD&A, available on ARC’s website at www.arcresources.com and under ARC’s SEDAR+ profile at www.sedarplus.ca.
FINANCIAL AND OPERATIONAL RESULTS
Production
- ARC’s production averaged 352,328 boe per day during the first quarter of 2024 (63 per cent natural gas and 37 per cent crude oil and liquids). Production increased four per cent year-over-year, and eight per cent on a per share basis.
- Kakwa production averaged approximately 175,000 boe per day in the first quarter (57 per cent crude oil and liquids). Production growth at Kakwa is anticipated in the second half of 2024 following planned turnaround activity in the second quarter that will result in lower volumes relative to the first quarter of 2024.
Funds from Operations, Cash Flow from Operating Activities, and Free Funds Flow
- First quarter 2024 funds from operations was $607 million ($1.01 per share), representing a decrease of 13 per cent from the fourth quarter of 2023. The decrease quarter over quarter was primarily driven by lower production and lower commodity prices. Partially offsetting these items were lower royalties and realized gains on risk management.
- Realized gains on risk management contracts totalled $17 million in the first quarter, compared to a loss of $20 million in the fourth quarter of 2023.
- ARC has approximately 25 per cent of its natural gas hedged at AECO for the remainder of 2024, through a combination of collars and swaps, at an average floor price of C$3.15 per GJ.
- ARC generated cash flow from operating activities of $636 million ($1.06 per share) and free funds flow of $102 million ($0.17 per share) during the first quarter of 2024.
The following table details the change in funds from operations for the first quarter of 2024 relative to the fourth quarter of 2023.
| Funds from Operations Reconciliation | $ millions | $/share(1) |
| Funds from operations for the three months ended December 31, 2023 | 699.2 | 1.16 |
| Production volumes | ||
| Crude oil and liquids | (37.7) | (0.06) |
| Natural gas | (22.3) | (0.04) |
| Commodity prices | ||
| Crude oil and liquids | (21.1) | (0.03) |
| Natural gas | (17.0) | (0.04) |
| Sales of commodities purchased from third parties | (24.0) | (0.04) |
| Other income | (1.6) | — |
| Realized gain on risk management contracts | 37.2 | 0.06 |
| Royalties | 39.8 | 0.07 |
| Expenses | ||
| Commodities purchased from third parties | 17.7 | 0.03 |
| Operating | 2.0 | — |
| Transportation | (17.2) | (0.03) |
| G&A | (28.9) | (0.05) |
| Interest and financing | 0.1 | — |
| Current income tax | (18.5) | (0.03) |
| Realized gain on foreign exchange | (0.1) | — |
| Other | (0.7) | — |
| Weighted average shares, diluted | — | 0.01 |
| Funds from operations for the three months ended March 31, 2024 | 606.9 | 1.01 |
| (1) | Per share amounts are based on weighted average diluted common shares. |
Shareholder Returns
- During the first quarter, ARC distributed 114 per cent of free funds flow or $117 million ($0.20 per share) to shareholders through a combination of dividends and share repurchases under its NCIB.
- During the first quarter 2024, ARC declared dividends of $102 million ($0.17 per share).
- ARC repurchased 0.6 million common shares under its NCIB at a weighted average price of $25.17 per share.
- Since commencing its initial NCIB in September 2021, ARC has repurchased approximately 18 per cent of total outstanding shares or 132 million common shares, at a weighted average price of $16.13 per share.
- ARC intends to continue to distribute essentially all of its free funds flow to shareholders in 2024.
Operating, Transportation, and General and Administrative Expense
Operating Expense
- ARC’s first quarter 2024 operating expense of $4.26 per boe was slightly lower than the Company’s guidance range of $4.50 to $4.90 due to lower power prices in Alberta.
Transportation Expense
- ARC’s first quarter 2024 transportation expense per boe of $5.35 increased by 17 per cent or $0.76 per boe from the fourth quarter of 2023 primarily due to an increase in natural gas pipeline tariffs.
- Transportation expense per boe for the quarter was lower than ARC’s guidance range of $5.50 to $6.00 per boe due to lower fuel gas expense and higher than anticipated volumes.
General and Administrative Expense
- ARC’s first quarter 2024 G&A expense before share-based compensation expense per boe of $1.34 decreased six per cent or by $0.09 per boe from the fourth quarter of 2023.
- Share-based compensation expense of $1.20 per boe was above the Company’s original guidance range due to high share price appreciation.
Cash Flow Used in Investing Activities and Capital Expenditures
- Cash flow used in investing activities was $500 million during the first quarter of 2024. Capital expenditures in the first quarter were $505 million.
- ARC drilled 38 wells and completed 24 wells during the quarter. Drilling focused primarily at Attachie, Kakwa, and Greater Dawson.
The following table details ARC’s first quarter 2024 drilling and completion activities by area.
| Three Months Ended March 31, 2024 | ||
| Area | Wells Drilled(1) | Wells Completed |
| Kakwa | 11 | 6 |
| Greater Dawson | 9 | 5 |
| Sunrise | 5 | 10 |
| Ante Creek | — | — |
| Attachie | 13 | 3 |
| Total | 38 | 24 |
| (1) | Excludes disposal wells. |
Physical Natural Gas Marketing
- ARC’s infrastructure ownership and committed takeaway capacity played a critical role in capturing incremental margin across North America in the first quarter.
- ARC’s average realized natural gas price during the first quarter was $3.19 per Mcf, 56 per cent higher than the average AECO 7A Monthly Index price for the period, and above the NYMEX Henry Hub benchmark price of US$2.24 per MMBtu.
- With the execution of the Cedar LNG agreement, ARC expects to achieve its long-term market diversification strategy, which includes linking approximately 25 per cent of its future natural gas production to international or LNG pricing.
Net Debt
- As of March 31, 2024, ARC’s long-term debt balance was $1.1 billion, and its net debt balance was $1.3 billion, or 0.5 times funds from operations.
- ARC targets its net debt to be less than 1.5 times funds from operations and manages its capital structure to achieve that target over the long-term.
- Long-term debt is comprised of $1.0 billion of senior notes outstanding and $150 million of syndicated credit facilities.
- ARC holds an investment-grade credit rating, which allows the Company to have access to capital and to manage a low-cost capital structure. ARC is committed to protecting its strong financial position by maintaining significant financial flexibility with its balance sheet.
Net Income
- ARC recognized net income of $185 million ($0.31 per share) during the first quarter of 2024, a decrease of $321 million ($0.53 per share) from the fourth quarter 2023. The decrease in net income compared to the prior quarter was primarily due to lower production and lower average realized commodity prices.
BOARD OF DIRECTORS UPDATE
ARC is pleased to announce that Michael Culbert is standing for election to the Board. Mr. Culbert has 35 years of extensive energy industry experience, including co-founding Progress Energy Canada Ltd. (“Progress”) where he held the role as President and Chief Executive Officer. Following the acquisition of Progress by Petronas’ Canadian subsidiary, Mr. Culbert held the role of Vice Chairman of PETRONAS Energy Canada Ltd. until 2020. Mr. Culbert currently serves on the Board of Directors of TC Energy Corporation.
CONFERENCE CALL
ARC’s senior leadership team will be hosting a conference call to discuss the Company’s first quarter 2024 results on Friday, May 10, 2024, at 8:00 a.m. Mountain Time (“MT”).
| Date | Friday, May 10, 2024 |
| Time | 8:00 a.m. MT |
| Dial-in Numbers | |
| Calgary | 587-880-2171 |
| Toronto | 416-764-8659 |
| Toll-free | 1-888-664-6392 |
| Conference ID | 68724534 |
| Webcast URL | https://app.webinar.net/aOxBjNpPy3e |
Callers are encouraged to dial in 15 minutes before the start time to register for the event. A replay will be available on ARC’s website at www.arcresources.com following the conference call.
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