Q4 2021 ARC Resources Ltd Earnings Call

February 11, 2022

Operator: Good morning, ladies and gentlemen, and welcome to the ARC Resources Ltd. Year-end 2021 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, 11 February 2022. I would now like to turn the conference over to Dale Lewko. Please go ahead.

Good morning, ladies and gentlemen, and welcome to the Arc resources limited year end 2021 earnings conference call.

At this time all lines are in listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you are quite immediate assistance. Please press star zero for the operator. This call is being recorded on Friday February 11th 2022, I would now like to turn conference over to Dale Lucco. Please go ahead.

Dale Lewko: Thank you, operator. Good morning, everyone, and thank you for joining us on our Q4 earnings conference call. Joining me on the call today are Terry Anderson, President and Chief Executive Officer, Kris Bibby, Chief Financial Officer, Armin Jahangiri, Chief Operating Officer, and Lara Conrad, Chief Development Officer. Before I turn it over to our executive team to take you through our Q4 and year-end results, I'll remind everyone that this conference call includes forward-looking statements and non-GAAP and other financial measures with the associated risks outlined in the earnings release in our MD&A. All dollar amounts discussed today are in Canadian dollars unless otherwise stated. The press release, financial statements and MD&A are also available on our website as well as SEDAR. Following our prepared remarks, we'll open the line to questions.

Thank you operator, good morning, everyone and thank you for joining us on our fourth quarter earnings Conference call. Joining me on the call today are Gary Anderson, President and Chief Executive Officer, Chris Baby, Chief Financial Officer, Arvin, Jan Gary Chief Operating Officer, and Lara Conrad Chief Development Officer.

Before I turn it over to our executive team to take you through our fourth quarter and year end results I'll remind everyone that this conference call includes forward looking statements and non-GAAP and other financial measures with the associated risks outlined in the earnings release and our MD&A.

All dollar amounts discussed today are in Canadian dollars, unless otherwise stated.

The press release financial statements and MD&A are also available on our website as well as SEDAR. Following our prepared remarks, we'll open the line to questions with that I'll turn it over to our President and CEO Terry Anderson Terry. Please go ahead.

Dale Lewko: With that, I'll turn it over to our President and CEO, Terry Anderson. Terry, please go ahead.

Terry Anderson: Hey, thanks, Dale, and good morning, everyone. Let me start by congratulating Armin and Lara on their appointments to our C-suite. They are proven leaders within our industry and have played an important role in our company over the past 10 years. People and assets are differentiators in our business, and I firmly believe ARC has the best of both. I'll keep my remarks relatively brief, touching on three key items before I pass it over to Kris. First, highlights from our record year. Second, an operational update that focuses on our learnings at Kakwa. Third, our outlook and priorities for 2022 and beyond. Let's begin with a brief look back at last year. Our Q4 results capped off an exceptional and transformational year for us.

Thanks, Dale and good morning, everyone. Let me start by congratulating Army and Laura on your appointments to our C suite they are proven.

Proven leaders within our industry and have played an important role in our company over the past 10 years people and assets are differentiators in our business.

We believe <unk> has the best of both.

I'll keep my remarks relatively brief touching on three key items before I pass it over to Chris first highlights from our record year second an operational update that focuses on our learnings at capa and third our outlook and priorities for 2022 and beyond.

So let's begin with a brief look back at last year, our fourth quarter results capped off an exceptional and transformational year for us with acquisition and integration of seven generations, we strengthened our competitive position and delivered a record year for our shareholders. The business combination was our first major acquisition.

Terry Anderson: With the acquisition and integration of Seven Generations, we've strengthened our competitive position and delivered a record year for our shareholders. The business combination was our first major acquisition in over a decade, and our 2021 results are proving that our patience paid off. We added high-quality assets and a team of great people at the right time in the cycle, and our company is more profitable as a result. 2021 was also a demonstration of how ARC operates disciplined allocators of capital with a continuous focus on operational efficiency. The result was record performance across several key measures. First, ARC generated CAD 1.4 billion in free cash flow, the highest in our 25-year history, driven by our low cost structure and strong commodity prices.

In over a decade.

Our 2021 results are proving that our patience has paid off.

Added high quality assets and a team of great people at the right time in the cycle and our company is more profitable as a result 2021 was also a demonstration of how our cooperates disciplined allocators of capital with our continuous focus on operational efficiency.

And the result was record performance across several several key measures first arc generated $1 4 billion in free cash flow the highest in our 25 year history, driven by our low cost structure and strong commodity prices.

Terry Anderson: Second, our field operations team delivered the lowest operating costs in ARC's history of CAD 3.86 per BOE, reinforcing that owning and operating our infrastructure is a competitive advantage. Finally, we delivered record average annual production of 302,000 BOE a day. This comes after a strong Q4 of 345,000 BOE a day. Other noteworthy achievements include the progress we've made deleveraging the business following the transaction. With the strong commodity price environment, we were able to aggressively pay down debt to well below 1x debt to cash flow, allowing us to return more of our profits to shareholders faster than we anticipated. ARC has now completed the integration.

Our field operations team delivered the lowest operating cost in art history of $3 86 per Boe.

Reinforcing that owning and operating our infrastructure is a competitive advantage and finally, we delivered record average annual production of 302000 BOE per day. This comes after a strong Q4 of 345000 BOE a day. Other noteworthy achievements include the progress we've made.

Deleveraging the business following the transaction with the strong commodity price environment, we're able to aggressively pay down debt to well below one times debt to cash flow, allowing us to return more of our profits to shareholders faster than we anticipated.

<unk> now completed the integration, we captured $190 million of synergies, which is well above the initial 110 million target due to lower financing costs and more recently operational and marketing efficiencies that far exceeded our expectations.

Terry Anderson: We captured CAD 190 million of synergies, which is well above the initial CAD 110 million target due to lower financing costs, and more recently, operational and marketing efficiencies that far exceeded our expectations. Finally, we leveraged our scale to secure a transaction with an LNG Canada participant to supply gas for the project, an example of our market diversification strategy and an important first step into LNG supply. As many of you know, this project is very material for Western Canada gas fundamentals, adding 2 Bcf a day demand at startup. Turning to operations, we were able to continue the momentum we achieved in Q3, and most importantly, we did it safely. Our team has now surpassed eight years without an employee lost time incident, an achievement that we are very proud of.

Finally, we leveraged our scale to secure a transaction with an LNG, Canada participant to supply gas for the project is an example of our market diversification strategy and an important first step into LNG supply as many of you know this projected very material for western Canada fundamental gas.

Fundamentals, adding two Bcf a day.

Demand at startup.

Turning to operations, we were able to continue the momentum we achieved in the third quarter and most importantly, we did it safely. Our team has now surpassed eight years without an employee lost time incidents and achievement that we are very proud of safety is our number one priority.

Terry Anderson: Safety is our number one priority. I'd also like to take a few moments to just discuss the progress we've made at Kakwa. This is a world-class asset, and we are realizing the benefits of integrating it into our portfolio. Simply put, we have made this high-quality asset even more profitable. In particular, I'm really pleased with how our people have come together and shared and applied what they have learned. Well costs have decreased by over 10% from drilling and completing the wells differently, and early indications show better deliverability by changing where and how we land the wells. Ultimately, this is encouraging, and we expect that we'll be able to reduce sustaining capital at Kakwa by approximately 10% over time. Finally, our priorities for 2022 have not changed.

Also like to take a few moments to discuss the progress. We've made at cap. This is a world class asset and we are realizing the benefits of integrating it into our portfolio.

We put we have made this high quality asset even more profitable in particular, I'm really pleased with how our people have come together and shared an implied what they've learned.

Well costs have decreased by over 10% from drilling and completing the wells differently and early indications show better deliverability by changing where and how we land. The wells. Ultimately this is encouraging and we expect that we will be able to reduce sustaining capital at <unk> by approximately 10% over time.

Our priorities for 2022 have not changed we put forth the budget in November that balances reinvestment in our highest return assets reduces emissions and prioritizes a meaningful return of capital to shareholders through the base dividend and share repurchases. We believe this generates optimal.

Terry Anderson: We put forth a budget in November that balances reinvestment in our highest return assets, reduces emissions, and prioritizes a meaningful return of capital to shareholders through the base dividend and share repurchases. We believe this generates the optimal risk-adjusted returns for our shareholders. Our near-term priorities are to safely and efficiently sustain production at our base assets and invest in our highest return projects like Sunrise and Attachie once the regulatory environment in BC supports it. To that end, we remain confident there will be resolution between the Blueberry River First Nations and the BC government in a timely manner. With that, I'll turn it over to Kris to go through some of our financial highlights.

Risk adjusted returns for our shareholders.

Our near term priorities are to safely and efficiently sustaining production at our base assets and invest in our highest return projects like Sunrise and attach heat once the regulatory environment in BC supports it.

To that end, we remain confident there will be resolution between the blueberry River first nation and the BC gather in a timely manner.

With that I'll turn it over to Chris to go through some of our financial highlights.

Kris Bibby: Thanks, Terry, and good morning, everyone. I'll briefly touch on a few additional highlights so that we can leave a lot of time for questions. We closed 2021 with a strong Q4. Cash flow is about 7% above consensus estimates, and we generated nearly half a billion dollars of free cash flow for the second quarter in a row. Of that, we returned over 60% to our shareholders through dividends and share repurchases, and allocated the balance towards debt reduction in line with our capital allocation framework we outlined late last year. We were able to rightsize the legacy Seven Generations Alliance Agreement, which will see us reducing our commitment at the end of 2022 to better align with our development plans.

Thanks, Terry and good morning, everyone.

I'll briefly touch on a few additional highlights so that we can leave a lot of time for questions.

We closed 221 with a strong fourth quarter cash flow is about 7% above consensus estimates and we generated nearly half a billion dollars of free cash flow for the second quarter Roe.

Of that we returned over 60% to our shareholders through dividends and share repurchases and allocated the balance towards debt reduction in line with our capital allocation framework, we outlined late last year.

We were able to right size the legacy seven generations Alliance agreement, which will see us reducing our commitment at the end of 2022 to better align with our developer clients.

Kris Bibby: Our market diversification strategy resulted in average realized natural gas prices in the quarter of CAD 6.50, CAD 1.50 above the HO-AECO benchmark. As volatility increases, we believe we have a competitive advantage in how and where we're able to market our products. We have exposure across 5 different natural gas markets here in North America, have significant inter-provincial flexibility given our infrastructure ownership, and we will continue to evaluate additional opportunities to reach markets outside North America. On the liquid side, our average realized condensate price was nearly CAD 100 a barrel in the quarter, which further supported our strong cash flow in the quarter. Profitability measures continue to improve. In 2021, ARC generated CAD 2.16 per share of free cash flow, a record in our 25-year history, and realized an 18% return on capital employed.

<unk> diversification strategy resulted in average realized natural gas prices in the quarter of $6 50.

$1 50 above the actual April benchmark.

As volatility increases we believe we have a competitive advantage in how and where we're able to market. Our products. We have exposure across five different natural gas markets in North America have significant intra provincial flexibility given our infrastructure ownership.

We'll continue to evaluate additional opportunities to reach markets outside North America.

On the liquid side, our average realized condensate price with nearly $100 a barrel in the quarter, which further support our strong cash flow in the quarter.

Profitability measures continued to improve in 2021 are generated $2 16 per share of free cash flow a record in our 25 year history and realized an 18% return on capital employed.

Kris Bibby: These results were not solely commodity price driven, but were due to structural improvement in the capital intensity of our business. ARC invested long-cycle growth capital in our early days, accumulating a large asset position, consolidating inventory, and building a massive infrastructure network to support a multi-decade development plan. We are now executing on that plan in a capital-efficient manner. With capital allocation top of mind, we have committed to return 50% to 80% of our free cash flow to shareholders, with the balance used for further debt reduction. The base dividend is our core mechanism to return capital and always has been, and we will continue to grow our base dividend with our business while ensuring it is sustainable through the cycle.

These results were not solely commodity price driven but were due to structural improvement in the capital intensity of our business <unk>.

<unk> invested long cycle growth capital in our early days accumulate a large asset position consolidating inventory and building a massive infrastructure network to support a multi decade development plan.

We're now executing on that plan in a capital efficient manner.

With capital allocation top of mind.

We are committed to returning 50% to 80% of our free cash flow to shareholders with the balance used for further debt reduction the base dividend is a core mechanism to return capital and always has been and we will continue to grow our base dividend with our business, while ensuring it is sustainable through the cycle. In addition, we will continue to return capital by reinvesting in our shares as they remain.

Kris Bibby: In addition, we will continue to return capital by reinvesting in our shares as they remain dislocated from the intrinsic value of our business, even under mid-cycle prices and double-digit discount rates. We have purchased approximately 5% of our shares since September, and we believe this is a very attractive return for our shareholders. Commodity prices are strong, but we are mindful that we operate in a volatile and unpredictable cyclical business. With that in mind, we will continue to be a balance sheet first company. Our capital program, including the dividend, can be funded with cash flow below $40 US WTI and $2 natural gas, a reflection of our low cost, high quality assets. With that, I'll turn it back to Terry for some closing remarks and questions.

It's located from the intrinsic value of our business, even under mid cycle prices and double digit discount rates.

We have purchased approximately 5% of our shares since September while we believe this is a very attractive return for our shareholders.

Commodity prices are strong, but we are mindful that we operate in a volatile and unpredictable cyclical business with.

That in mind, we will continue to be a balance sheet first company, our capital program, including the dividend can be funded with cash flow below $40, USW Gi and $2 natural gas reflection of our low cost high quality assets with that I'll turn it back to Terry for some closing remarks some questions.

Terry Anderson: Thanks, Chris. 2021 was a record year, and I'm excited for what is to come for ARC. We are observing in real time the need for responsible resource development as part of the global energy mix and the transition to a lower carbon economy. ARC has spent 25 years positioning itself to thrive in this environment with world-class assets and emissions performance, exceptional people, and leading cost structure. Today, we have the scale and proven operating track record that affords us numerous opportunities to reinvest in our business and provide a very competitive and sustainable return for our shareholders. With that, I'll turn it back to the operator for questions.

Thanks, Chris.

21 was a record year and I'm excited for what is to come for arc.

We are observing in real time, the need for a responsible resource development as part of the global energy mix.

The transition to a lower carbon economy arc has spent 25 years positioning itself to thrive in this environment with world class assets in admissions performance exceptional people and leading cost structure today, we have the scale and proven operating track record that affords us numerous opportunities.

To reinvest in our business and provide a very competitive and sustainable returns for our shareholders with.

With that I'll turn it back to the operator for questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your question will be pulled in the order they're received. Should you wish to decline from the polling process, please press star followed by two. If you are using a speaker phone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Travis Wood with National Bank. Please go ahead.

Thank you, ladies and gentlemen, when we now begin the question and answer session should you have a question. Please press star followed by one on you touched on cell you'll hear three Tom Brian . The command January question. Your question will be bold in there that they received should they wish you the glass in the building process. These fresh stifle like too if you're using a speaker phone. Please lift the handset before.

In any case one moment. Please for your first question.

First question comes from Travis Wood with National Bank. Please go ahead.

Travis Wood: Yeah, thanks. Good morning, everybody. I have a couple questions here. First, Terry, in your opening remarks, you mentioned, I think an attractive risk profile and how you're thinking about the NCIB, with, I think 50 to 80% of that free cash allocated to some sort of return of capital profile. How should we start thinking about dividend growth, especially as we start to appreciate the magnitude of the free cash that ARC's spitting out right now?

Yes, thanks, good morning, everybody.

I have a couple of questions here first.

Terry in your opening remarks, you mentioned I think an attractive risk profile and how youre thinking about the CIB.

With I think 50% to 80% of that free cash allocated to some sort of return of capital profile, how should we start thinking about dividend growth, especially as we start to appreciate the magnitude of the free cash that park's spitting out right now.

Terry Anderson: Yeah. Thanks, Travis, for the question. Yeah, the dividend growth, how we look at it is obviously we're trying to take a balanced approach to our capital allocation, being dividend growth, and share repurchases, obviously along with investing in our business. The way we look at it is we wanna have an annual dividend increase, and that kinda goes along with growing our business. We talk about that. We've talked about 5% compound annual growth in our business, and that's kinda what we think our annual dividend increase should be. We're trying to tie those two together. That's kind of how we are viewing the dividend growth for the future here.

Yeah. Thanks, Travis for the question so yeah the dividend growth.

We look at it is obviously, we are trying to take a balanced portfolio to our capital allocation being a dividend growth and share repurchases, obviously, along with investing in our business.

So the way we look at it is we want to have an annual dividend increase.

And that's kind of it goes along with growing our business. So we talk about that we've talked about 5% compound annual growth in our business.

That's kind of what we think our annual dividend increase should be so we're trying to tie those two together.

That's kind of how we are viewing the dividend growth for the future here.

Travis Wood: Okay. Then just, I mean, trying to appreciate that maybe we're at top end of a cycle, uncertain how long we drive along, but how can we think about stressing that, or how are you guys thinking about stressing it through the low cycles in terms of kind of what kind of commodity price assumptions you're running? Or where do you like to see the payout or leverage, or how are you thinking about that on a lower cycle basis just to ensure that sustainability of the base dividend?

Okay, and then just I mean, China appreciating that maybe.

End of a cycle uncertain, how long it we drive along but how can we think about stressing that.

Or how are you guys thinking about stressing it through the low cycles in terms of kind of what kind of.

Commodity price assumptions, youre, running or where do you like to see.

Payout or leverage or how are you thinking about that on a lower cycle basis, just to ensure that the sustainability of the base dividend.

Kris Bibby: Hey, Travis. It's Kris here. You know, I think the way we're trying to design the dividend policy is really so that just because prices are high, we wouldn't be increasing our dividend. What we are doing is targeting, you know, mid-cycle pricing, which we would currently define in that kind of $55 WTI and CAD 2.50 natural gas range, so that the payout's really kind of reasonable in there. What that will allow us to do is in times of higher pricing, you know, we'll have some more strength on the balance sheet. But if, when prices did dip below that, it doesn't cause you to have to readjust your dividend.

Hey, Travis its Chris here.

I think the way we're trying to design the dividend policy is really so that.

Just because prices are high we wouldn't be increasing our dividend. While we are doing is targeting mid cycle pricing, which.

We would currently defined and that kind of $55 <unk> and $2 50 natural gas range.

The payout is really kind of a reasonable amount of what that will allow us to do is in times of higher pricing.

Some more strength on the balance sheet, but if when prices did dip below that it doesn't cause you to have to readjust your dividend.

Kris Bibby: The other factor is obviously with, you know, very active NCIB in place, the absolute level of the dividend, you know, will grow at that 5%, but the per share metrics have the opportunity to grow a bit quicker than that, obviously.

And then the other factor is obviously with.

We're very active in CIB in place the absolute level of the dividend will grow at that 5%, but the per share metrics have the opportunity to grow a bit quicker than that obviously.

Travis Wood: Yeah. Okay. That makes sense. Thanks for that color. Just kind of one final one around this. You've been really active on the NCIB. Given kind of the plan for base dividend growth, nearing kind of 10% on the NCIB probably by mid-year, do you see the potential to run an SIB as well?

Okay.

Thanks for that and then just kind of one final one.

Around this.

<unk> been really active on the CIB.

Kind of.

The plan for base dividend growth.

And kind of 10% on the NCI be probably by mid year.

You see the potential to running S IV as well.

Kris Bibby: It's something we'll look at, Travis. I mean, we're halfway through the dividend NCIB program right now at 5%. We've got till September to finish off that program. You know, at this pace, I think we're comfortable that you know, we'll continue to monitor how the share price performs. Obviously, you know, it is an on/off switch, and as we get closer and closer to an ultimate you know, intrinsic value, we would have to reevaluate how we're returning our capital to shareholders.

It's something we'll look at Travis I mean, we're halfway through the dividend and CIB program right now at 5%, we've got until September to finish off that program.

This pace I think we're comfortable that we'll continue to monitor how the share price performance. Obviously it has an on off switch and as we get closer and closer to ultimate.

<unk> value, we would have to reevaluate how we are returning capital to shareholders.

Travis Wood: Okay. Just one final one here. Now you just sparked a thought. That intrinsic value, you kind of highlight the NAV on from the reserve report in the note. How do you guys think about intrinsic value internally? And do you put some goalposts of commodity prices around that intrinsic value as well?

Okay.

Just one final one here just sparked a thought that.

That intrinsic value you kind of highlight the NAV on from the reserve report in the note.

How do you guys think about intrinsic value.

And do you put some goalposts of commodity prices around that intrinsic value as well.

Kris Bibby: Yeah, you bet. We definitely do have some goalposts on the commodity prices. When we look at our intrinsic value, you know, we try again to match up with our dividend policy. At mid-cycle pricing, what would we look at an intrinsic value-based approach? Then when we look at buying back shares, you know, it is ultimately competing for capital. Are we better off buying shares and returning funds to shareholders that way, or is it better giving cash out? You know, currently, we have a strong preference for share buybacks in addition to the base dividend, which again, over the long term, the base dividend is really gonna be the primary return of capital mechanism.

Yeah, you bet. So we definitely do have some goalposts on the commodity prices when we look at our intrinsic value we try again to match up with our dividend policy.

At mid cycle pricing, what would we look at it at an intrinsic value based approach.

And then when we look at buying back shares. It is ultimately it's competing for capital. So are we better off.

Buying shares and returning.

Funds to shareholders that way or is it better giving cash out and currently we have a strong preference for share buybacks. In addition to the base dividend, which again over the long term the base dividend is really going to be the primary return of capital mechanism.

Travis Wood: Okay. That's fantastic. Thanks for the time. Thanks for taking the questions.

Okay. That's fantastic. Thanks, Thanks for the time, thanks for taking the questions.

Kris Bibby: Thanks, Travis.

Thanks Ross.

Operator: Thank you. Your next question comes from Jamie Kubik with CIBC. Please go ahead.

Thank you. Your next question comes from Jamie Kubik with CIBC. Please go ahead.

Jamie Kubik: Yeah. Good morning, and thank you for taking my question here. I have a couple. Maybe just with respect to operating costs. We saw OpEx trend lower through 2021 and

Yes, good morning, and thank you for taking my question here I have a couple.

Maybe just with respect to operating cost we saw opex to trend lower through 2021 in.

Jamie Kubik: Q4 end of the year at around 350 BOE. Your guidance for 2022 implies this increases a bit. Can you just talk a bit about where the inflation this year might happen versus last year, and how you sort of expect OpEx to trend through 2022?

Q4 ended the year at around $3 50 of Boe.

Your guidance for 2022 implies this increases a bit can.

Can you just talk a bit about where the inflation this year might happen versus last year, and how you sort of expect opex to trend through 2022.

Terry Anderson: Yeah. Thanks, Jamie Kubik, for the question on operating costs. Yeah, we had obviously amazing year last year on operating costs, so record low. The teams have done such a great job of integrating the Kakwa asset into our portfolio and with a real focus on costs, whether it's capital costs or operating costs, we wanna be that low cost producer. I think once again, just as I mentioned, owning and operating our infrastructure is helping us manage that cost. That's why it's so low. The difference between this year and going in to next year in our Kakwa field, we have a number of turnarounds on a lot of our compressors out there, so that we need to do.

Yeah. Thanks, Jamie for the question on operating costs, Yeah, We had how obviously amazing year last year on the operating costs a record level on the team's done such a great job of integrating the cackle asset into our portfolio and with a real focus on cost whether its capital costs or.

<unk> costs, we want to be that low cost producer and I think once again, just as I mentioned owning and operating our infrastructure is helping us manage that cost. So that's why it's so the difference between this year and going in to next year.

In our CAC with field, we have a number of.

Turnarounds on a lot of dark compressors out there so that we need to do and unfortunately, they are all bunched up at the same time in next year or this year is that time to actually be doing the maintenance on them. So it's kind of a one time.

Terry Anderson: Unfortunately, they are all bunched up at the same time in this year, that is the time to actually be doing the maintenance on them. It's kind of a one-time extra cost this year, and then we're gonna try to smooth that out over in the future so that all those costs aren't hitting in one year. That's really the difference. Otherwise, we're continuing to focus on driving those costs lower.

Extra cost this year and then we're going to try to smooth that out over in the future. So that you know all of those costs arent hitting in one year. So that's really the difference otherwise.

And to focus on driving those costs lower.

Jamie Kubik: Okay, great. That's helpful. Maybe sticking with Kakwa here. You did indicate sustaining capital in that asset could be reduced by 10% over time. You also highlight that the reduction in drilling completion costs in the asset year-on-year of about 15%, does the forward reduction of 10%, is that primarily the result of the reduced drilling and completion costs, or is there an additional step down that you see possibly coming as a result of something else at Kakwa?

Okay, Great. That's helpful and then maybe sticking with <unk> here.

You did indicate sustaining capital in that asset could be reduced by 10% over time.

So I'll highlight that the reduction in drilling completion costs in the asset year on year of about 16%.

Does does the forward reduction of 10% is that primarily the result of the reduced.

Drilling and completion costs or is there an additional step down that you see coming as a result of something else a character.

Armin Jahangiri: Yeah, Jamie, this is Armin. Yes, definitely, I guess, we continue to see efficiency improvements in Kakwa from an executional standpoint. There's obviously the inflationary pressure and supply chain challenges that we are also trying to offset, as we see operational efficiencies. I think Kakwa is also benefiting hugely from a lot of optimization that the team has done in that asset. Those optimizations play a huge role in terms of reducing the sustaining capital over time. I pass it over to Laura here because she has a lot more context on the optimization that the team has done.

Yeah. Jamie This is army, yes that definitely I guess, we continue to see efficiency improvements in cash flow from an execution standpoint.

David obviously, the inflationary pressure in supply chain challenges that we are also trying to offset.

And as we see operational efficiencies I think CAC was also benefiting hugely from that a lot of optimization that the team has done in that asset.

And.

Dose optimization play a huge role in terms of reducing sustaining capital over time so.

I pass it over to Laura here, because she has a lot more context on the optimization that the team has done.

Lara Conrad: Thanks, Armin. You know, the drilling and completions teams under Armin have done a fantastic job of reducing costs very quickly upon integration. Looking forward on the development team, you know, we've been working on the well spacing. I think that's something we've been talking about quite a lot over the past few months since we closed the deal, that we see the opportunity to widen out the spacing. That extra 10% looking forward on sustaining capital that Terry referred to is really as we implement that wider development plan. We think we can capture similar reserves and productivity, but with fewer wells.

Thanks, Armen yeah. So.

Julian completions teams into arm and have done a fantastic job of reducing costs very quickly upon integration looking forward on the development team.

Working on the well spacing I think that's something we've been talking about quite a lot over the past few months since we closed the deal that we see the opportunity to widen out the spacing and so that extra 10% look forward on sustaining capital that Terry referred to is really as we as we implement that wider development plan. We think we can.

Capture similar reserves and productivity, but with fewer wells.

Jamie Kubik: Okay, that's great. Maybe last one, just, dovetailing a bit off of what Travis was asking. You know, ARC really aggressive at repurchasing stock through 2021. We did see that taper a bit in January. Should we think of the slowdown in repurchases as some level of price sensitivity on where the stock is trading, or was it a bit more of a mechanical decision given the blackout period?

Okay, that's great and then maybe last one just dovetailed.

Dovetailing a bit off of what Travis was asking but.

Arc really aggressive at repurchasing stock through 2020 , one we did see that taper a bit in January should rethink of the slowdown in repurchases as some level of price sensitivity on where the stock is trading or was it a bit more of a mechanical decision given the blackout period.

Kris Bibby: Most of it is really probably, it's more mechanical in nature. When we go into blackout, you know, we do put in a automatic share purchase program. That was kind of more the function. If you recall, when we put it in place, we did try to message that, you know, we're gonna hit it pretty hard out of the gate for the first few months, which we did. We got a whole bunch of shares retired, what we think are very attractive prices. Now with the release out today, you know, we can get back into a bit more of a managed approach, for the next couple of months.

Most of it is real.

Probably it's more mechanical in nature, when we go into blackout, we do put in our automatic share purchase program and so that was kind of more of a function. If you recall when we put it in place we did try to message that we're going to hit it pretty hard out of the gate for the first few months, which we did we got a whole bunch of shares retired.

We think are very attractive prices.

And then now with the release out today.

We can get back into a bit more of a managed approach for the next couple of months.

Jamie Kubik: Okay, great. That's it for me. Thank you.

Okay.

That's it for me thank you.

Kris Bibby: Thanks.

Thanks.

Operator: Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press star one. There are no further questions at this time. You may proceed.

Thank you, ladies and gentlemen, as a reminder, if you have any questions. Please press star one.

There are no further questions at this time you May proceed.

Terry Anderson: Okay. Well, thank you, operator, and thank you to everyone who joined us today. Last year, the pillars that have defined ARC as an industry leader, world-class assets and people, operational excellence, leading ESG performance, and a long-term focus on profitability resulted in a record year for shareholders. This is the type of consistency and discipline that our shareholders have come to expect of us and will continue to guide us for the next 25 years. Thank you very much. Have a good day.

Okay, well. Thank you operator, and thank you to everyone, who joined US today last year. The pillars that have defined arc as an industry leader World class assets and people operational excellence, leading ESG performance and a long term focus on profitability resulted in a record year for shareholders. This is.

The type of consistency and discipline that our shareholders have come to expect of US and we will continue to guide us for the next 25 years. Thank you very much have a good day.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

Q4 2021 ARC Resources Ltd Earnings Call

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