Q2 2022 ARC Resources Ltd Earnings Call

July 29, 2022

Operator 2: Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the ARC Resources Q2 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then one on your telephone keypad. If you'd like to withdraw your question, please press star then the number two. Thank you. Mr. Lewko, you may begin your conference.

Operator: Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the ARC Resources Q2 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then one on your telephone keypad. If you'd like to withdraw your question, please press star then the number two. Thank you. Mr. Lewko, you may begin your conference.

Good morning, My name is Michelle and I will be your conference operator today.

At this time I would like to welcome everyone to the <unk>.

<unk> resources second quarter 2022 earnings conference call all.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

If you would like to ask a question. During this time simply press Star then one on your telephone keypad.

If you'd like to withdraw your question. Please press Star then the number two thank you.

Mr. Lucas you May begin your conference.

Dale Lewko: Thank you, operator. Good morning, everyone, and thank you for joining us for our Q2 earnings conference call. Joining me today are Terry Anderson, President and Chief Executive Officer, and Kris Bibby, Chief Financial Officer. Before I turn it over to Terry and Kris to take you through our Q2 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. Finally, the press release, financial statements, and MD&A are 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.

Thank you operator, good morning, everyone and thank you for joining us for our second quarter earnings Conference call. Joining me today are Terry Anderson, President and Chief Executive Officer.

This baby Chief Financial Officer, before I turn it over to Chris Terry Chris to take you through our second quarter results.

I will 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 finally, the press release financial statements and MD&A are 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.

Terry Anderson: Thanks, Dale, and good morning, everyone. We'll try to keep this conference call short, sweet, and to the point, as we know many people are on vacation and the rest of us want to go on vacation. I'll touch on a few noteworthy items before I turn the call over to Chris to discuss the financial highlights. First, the quarter itself was record setting. Free funds flow and funds from operations per share were the highest in our 26 years, and this allowed us to further strengthen our balance sheet and accelerate returns to shareholders. We reinvested one third of our cash flow into our assets to maintain production and generated CAD 677 million of free funds flow or CAD 1 per share, which is equivalent to 7% of our market cap.

Thanks, Dale and good morning, everyone. We'll try to keep this conference call is short suite and to the point as we know many people are on vacation and the rest of US wanted to go on vacation.

Touch on a few noteworthy items before I turn the call over to Chris to discuss the financial highlights first.

First the quarter itself was record setting free funds flow and funds from operation per share were the highest in our 2006 years and this allowed us to further strengthen our balance sheet and accelerate returns to shareholders.

We reinvested one third of our cash flow into our assets to maintain production and generated $677 million.

Our free funds flow or $1 per share, which is equivalent to 7% of our market cap, 60% of that was returned to shareholders through the dividend and share repurchases and the remainder was used to further strengthen our balance sheet.

Terry Anderson: 60% of that was returned to shareholders through the dividend and share repurchases, and the remainder was used to further strengthen our balance sheet. Reducing debt and the share count when your shares are dislocated from fair value are an excellent way to create value and represent permanent changes to our capital structure. We have now returned 11% of our market cap to shareholders over the past year through the growing base dividend and 10 months of share repurchases. Second, our operational momentum remains strong. Our scale and track record of operational excellence is helping to mitigate the tightness in supply chain and inflationary pressure on our business. Q2 production was directly in line with expectations, and all of our planned maintenance was completed safely, on time, and within budget.

Reducing debt and the share count when your shares are dislocated from fair value are an excellent way to create value and represent permanent changes to our capital structure. We.

We have now returned 11% of our market cap to shareholders over the past year to the growing base dividend and 10 months of share repurchases.

Second our operational momentum remains strong our scale and track record of operational excellence is helping to mitigate the tightness in supply chain and inflationary pressure on our business second quarter production was directly in line with expectations and all of our planned maintenance was completed safely on time.

And within budget.

Terry Anderson: As a result, we are set up for a strong growth over the H2 of the year at Kakwa, which continues to perform very well. Before I move on, I want to briefly reflect on Kakwa and the significant progress we've made. We've been able to take a world-class asset and implement ARC's operational excellence to make it even more profitable. That culture of continuous improvement and focus on capital efficiency has been a part of ARC for 26 years and is more evident today than ever. As an example, we are observing the benefits of wider well spacing. We are using less water in frack operations, which lowers cost and our environmental footprint without degradation of our well performance.

As a result, we are set up for a strong growth over the back half of the year at <unk>, which continues to perform very well before I move on I want to briefly reflect on <unk> and the significant progress. We've made we've been able to take a world class asset and implement our operational excellence to make it even more.

Profitable that culture of continuous improvement and focus on capital efficiency has been a part of arc for 2006 years and is more evident today than ever.

As an example, we are observing the benefits of wider well spacing, we are using less water in frac operations, which lowers cost and our environmental footprint without degradation of <unk>.

Our well performance.

Terry Anderson: Since acquiring the asset last April, we've maintained production in that 180,000 BOE a day range and generated a whopping CAD 2.3 billion of asset level free cash flow, around 40% of the acquisition price, a tremendous achievement by the team in only 18 months. As it relates to the supply chain, we have all the critical pieces in place to redeploy capital in BC once the regulatory framework is in place to do so. This will represent a step change for ARC, given the quality and scale of opportunities at assets like Sunrise and Attachie. As most of you know, Attachie is very similar to Kakwa, about 60% liquids, 40% gas, and the first phase of Attachie is a 40,000 BOE a day project, and we have four to five similar phases to develop.

Since acquiring the asset last April we maintained production in that 180000 BOE a day range and generated a whopping $2 3 billion of asset level free cash flow around 40% of the acquisition price a tremendous achievement by the team in only 18 months.

As it relates to the supply chain, we have all the critical pieces in place to redeploy capital in DC. Once the regulatory framework is in place to do so this will represent a step change for arc, given the quality and scale of opportunities at assets like Sunrise and attach.

As most of you know attach is very similar to <unk> about 60% liquids, 40% gas and the first phase of Hitachi is a 40000 BOE a day project and we have four to five similar phases to develop this will enable attached to reach a similar production level in the future as casually as to.

Terry Anderson: This will enable Attachie to reach a similar production level in the future as Kakwa is today. Sunrise, which is among the cleanest and most profitable dry gas asset in North America, sits adjacent to the Coastal GasLink, which will supply natural gas to LNG Canada upon startup in 2025. We are often asked how inflation is impacting our business. Well, first, we estimate a 10% to 15% inflation this year, both realized and anticipated. We have increased our capital spending guidance to reflect that. The majority of the increase is related to diesel and chemical price increases, which are related to the higher oil prices. Second, long-term planning and scale have been critical in ensuring we have access to material and high-quality services to execute our plans safely and efficiently.

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And Sunrise, which is among the cleanest and most profitable dry gas asset in North America sits adjacent to the coastal gas link, which will supply natural gas to LNG, Canada upon startup in 2025.

We are often asked how inflation is impacting our business. While first we estimate of 10% to 15% inflation this year, both realized and anticipated.

We have increased our capital spending guidance to reflect that the majority of the increase is related to diesel and chemical price increases which are related to the higher oil prices.

Second long term planning and scale have been critical in ensuring we have access to material and high quality services to execute our plan safely and efficiently.

Terry Anderson: These types of challenges during periods of high prices is not new, but years of underinvestment and lack of skilled workers are compounding the challenges today. For the time being, these and other factors are acting as governors on supply growth that we have not experienced in prior cycles. As mentioned, we increased our capital budget from CAD 1.2 billion to 1.4 billion. The majority of that is inflationary. However, it also includes water infrastructure investments and funds to manage long lead items to support 2023 activity. Production guidance was also revised up with higher liquids weighting due to our confidence at Kakwa and implies a 4% growth over the balance of the year. With that, I'll turn it over to Chris to walk us through the financial results.

These types of challenges during periods of high prices is not new by years of Underinvestment and lack of skilled workers are compounding the challenges today for.

For the time being these and other factors are acting as governors on supply growth that we have not experienced in prior cycles as.

As mentioned, we increased our capital budget from $1 2 billion to $1 4 billion. The majority of that is inflationary. However, it also includes water infrastructure investments and funds to manage long lead items to support 2023 activity.

Production guidance was also revised up with higher liquids weighting due to our confidence that CAC and implies a 4% growth over the balance of the year.

With that I'll turn it over to Chris to walk us through the financial results.

Kris Bibby: Thanks, Terry, and good morning, everyone. As Terry mentioned, we delivered on all aspects of our business during the quarter. Production capital spending were in line with expectations, and cash flow and free cash flow were the highest in our 26-year history. Our market diversification drove strong price realization. ARC realized a natural gas price of CAD 9 per MCF or CAD 2 above the AECO benchmark. Our transportation agreements allow us to market more than half of our natural gas to the United States, and enhance our margin by capitalizing on periods of volatility. ARC's reach will expand into the international markets in 2026 or 2027 when our contract with Cheniere takes effect. As a reminder, we will receive a price based on JKM with our all-in landing costs to that market roughly CAD 5 to 6 per MCF.

Thanks, Terry and good morning, everyone.

As Terry mentioned, we delivered on all aspects of our business during the quarter production and capital spending we're in line with expectations and cash flow and free cash flow were the highest in our 26 year history.

Diversification drove strong price realizations.

Arc realized natural gas price of $9, an mcf or $2 above vehicle benchmark.

Transportation agreements allow us to market more than half of our natural gas to the United States and enhance our margin by capitalizing on periods of volatility.

Arch reach will expand into the international markets in 'twenty, six or 'twenty seven.

Our contract with Cheniere takes effect as a reminder, we will receive a price based on J T M with our all in landed costs to that market roughly $5 to $6 per Mcf.

Kris Bibby: With additional capacity remaining on the Gulf Coast, we continue to explore additional opportunities to diversify to other markets where we are competitive. We are also the largest condensate producer in Canada, which made up approximately half of our revenue during the quarter. Condensate fundamentals remain strong. Supply is highly concentrated, and we consume roughly 250,000 barrels a day more than we produce here in Western Canada. During Q2, we realized nearly $140 a barrel, which is roughly equivalent to WTI once adjusted for the exchange rate. Altogether, ARC generated an operating netback of $50 a BOE and free cash flow that exceeded $20 a BOE in the quarter. Since inception, ARC has always been a balance sheet first company.

With additional capacity remaining on the Gulf Coast, we continue to explore additional opportunities to diversify to other markets, where we are competitive.

We're also the largest condensate producer in Canada.

Which made up approximately half of our revenue during the quarter.

Industry fundamentals remained strong.

Apply is highly concentrated we consume roughly 250000 barrels a day more than we produce here in western Canada.

During the second quarter, we realized nearly $140 a barrel, which is roughly equivalent to WTO I once adjusted for the exchange rate.

Altogether arc generated operating net back of $50, a Boe and free cash flow that exceeded $20 a boe in the quarter.

Since inception, <unk> has always been a balance sheet first company in the second quarter, we reduced debt by more than $300 million.

Kris Bibby: In Q2, we reduced debt by more than CAD 300 million or roughly CAD 0.50 per share. At Q2 end, we had CAD 1.5 billion of net debt, of which CAD 1 billion is through our investment-grade long-term senior notes. Record profitability has allowed us to strengthen our financial position much faster than we anticipated. In this price environment, we will quickly pay down our remaining bank line, leaving only the CAD 1 billion of senior notes outstanding. All else equal, we would expect returns to shareholders to accelerate as we approach the CAD 1 billion amount of net debt outstanding. Finally, ARC's capital allocation priorities have not changed.

Or roughly <unk> 50 per share.

At quarter end, we had $1 5 billion of net debt and of which $1 billion is through our investment grade long term senior notes.

Record profitability has allowed us to strengthen our financial position much faster than we anticipated and in this price environment. We will quickly pay down our remaining bank line, leaving only the $1 billion of senior notes outstanding.

All else equal, we would expect returns to shareholders to accelerate as we approach the $1 billion amount of net debt outstanding.

Finally, our capital allocation priorities have not changed as we look ahead, we will remain disciplined and invest in our most profitable assets, which will result in a roughly a 5% to 7% compound annual growth rate.

Kris Bibby: As we look ahead, we will remain disciplined and invest in our most profitable assets, which will result in roughly a 5% to 7% compound annual growth rate and allocate 50% to 80% of our free cash flow to shareholders through a growing base dividend, and share repurchases. Roughly 10 months ago, in September, we initiated our first NCIB. Since then, we have bought back 9% of our shares and returned CAD 1.1 billion to our shareholders, including the dividend. That's CAD 1.65 per share in roughly a 10-month period. As Terry mentioned, this is an excellent use of our capital and we intend to continue down this path and renew the NCIB in about a month's time.

And allocate 50% to 80% of our free cash flow to shareholders through a growing base dividend and share repurchases.

Roughly 10 months ago in September we initiated our first in CIB.

Since then we have bought back 9% of our shares and returned $1 $1 billion to our shareholders, including the dividend.

That's $1 65 per share and roughly a 10 month period.

As Terry mentioned this is an excellent use of our capital and we intend to continue down this path and renewed in CIB in about a month's time.

Kris Bibby: Should cash flow and profitability remain high and our share price remain disconnected from fair value, if we exhaust the next 10% NCIB, we will evaluate other measures such as significant issuer bids as a potential tool to add value. With that, I'll turn it back to Terry for our closing remarks.

Should cash flow and profitability remained high in our share price remained disconnected from fair value. If we exhaust the next 10% in CIB, we will evaluate other measures such as significant issuer bid as a potential tool to add value.

With that I'll turn it back to Terry for closing remarks.

Terry Anderson: Thanks, Chris. I'm excited where ARC is heading. The company has never been in a stronger position, and we're at an inflection point in our free cash flow growth. To help put things into perspective, it was 2008 when cash flow per share was last at a similar level to today. Oil averaged $125 per barrel, AECO was through CAD 10, and our stock was CAD 30 back then. Today, our company is much larger and stronger. Cash flow per share is 17% higher, production per share is 65% higher, and underpinned by a superior asset base and infrastructure network. It was a different environment back then, but I believe the pendulum swung too far a year or two ago, and it's starting to make its way back at a time when our company is performing at its best.

Thanks, Chris I'm excited where arc is heading the company has never been in a stronger position and we are at an inflection point in our free cash flow growth to help put things into perspective. It was 2008 when cash flow per share was <unk>.

Was last at a similar level to today oil averaged $125 per barrel equal was through $10 and our stock was $30 back then.

Today, our company is much larger and stronger cash flow per share is 17% higher production per share and 65% higher and underpinned by our superior asset base and infrastructure network. It was a different environment back then, but I leave the pendulum swung too far a year or two ago and it.

Starting to make its way back at a time when our company is performing at its best.

Terry Anderson: With that, I'll turn it back over to the operator and we can open the line up for questions.

With that I'll turn it back over to the operator, and we can open the line up for questions.

Operator 2: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by 1 on your touch tone phone. You will hear a three-tone prompt acknowledging your request, and your question will be polled in the order they are received. Should you wish to decline from the polling process, please press star followed by 2. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Patrick O'Rourke of ATB Capital Markets. Please go ahead.

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 1 on your touch tone phone. You will hear a three-tone prompt acknowledging your request, and your question will be polled in the order they are received. Should you wish to decline from the polling process, please press star followed by 2. If you're using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Patrick O'Rourke of ATB Capital Markets. Please go ahead.

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone.

You will hear three tone prompt acknowledging your request and your question will be pulled in the order the RBC.

Should you wish to decline from the polling process. Please press the star followed by the two.

If you are using a speaker phone please lift the handset before pressing any keith.

One moment. Please for your first question.

Your first question comes from Patrick O'rourke.

ETB capital markets. Please go ahead.

Patrick O'Rourke: Hey, good morning, guys. Happy to be on the ARC Resources call here this morning. Just a quick question with respect to Attachie and the potential for moving forward with this project. Obviously we're watching in terms of the regulatory environment and framework here, but just wondering if you know, if you do happen to come to the right regulatory framework, what the sort of cadence and timing of capital deployment and on stream for production would look like. Is there any seasonality that would slow that down or impact that in terms of the timing of those things? In terms of the capital for that particular project, do you think of it as drawing away from other initiatives, or do you think of that capital as completely incremental to the current outlook for the company?

Hey, good morning, guys happy to be on the ARCC resources call here. This morning.

Just a quick question with respect to attach and the potential for moving forward with this project.

Obviously, we're watching in terms of the regulatory environment and framework here, but.

Just wondering if you do happen to come to the right regulatory framework, what the sort of cadence and timing of capital deployment and on stream for production would look like.

Is there any seasonality that would slow that down or or impact that in terms of the timing of those things and then in terms of the capital for that particular project do you think of it as drawing away from other initiatives or do you think of that capital is completely incremental to the current.

Look for the company.

Terry Anderson: Thanks, Patrick, for the question. So as it relates to Attachie, as soon as we understand that resolution timing and we get that clarity, we're prepared to move on Attachie quickly. We're gonna do it in our disciplined manner, though. We're not just gonna drop everything we're doing in Kakwa and move the rigs over. We'll make sure it's in an efficient manner. Then once we move those rigs over and get that activity going, we believe it's gonna take 18 months to construct that facility and get it on stream. As for timing, like, we do not like to actually turn facilities on and commission them in the winter.

Thanks, Patrick for the question.

So as it relates to attach as soon as we find them.

It gets understand that.

Resolution timing and we get that clarity we're prepared to move on Hitachi quickly, we're going to do it in our disciplined manner, though we're not just going to drop everything we're doing in Kaplan moved the rigs over we'll make sure. It's in an efficient manner and then once we move those rigs over and get that activity going.

I believe it's going to take 18 months to still constructive.

Struck that facility and get it on stream as for timing.

We do not like to actually turn facilities on in commission them in the winter so that would be the only thing from a timing perspective in that 18 months that might push out a few months from that perspective. So.

Terry Anderson: That would be the only thing from a timing perspective in that 18 months that might push out a few months from that perspective. Also we like what we're seeing in Kakwa. We have the financial capability to continue progressing in Kakwa along with Sunrise and with Attachie. We look at it as just prudently adding on to our capital program and pursuing all the opportunities that we have already talked about being the Sunrise expansion, increasing Kakwa in that 180 to 200 thousand BOE a day range, and also be able to progress on Attachie.

And also we are we like what we're seeing in <unk>.

We have the financial capability to continue.

Progressing in CAC, well, along with Sunrise and with the attach and so we look at it as it just prudently adding on to our capital program and pursuing all of the opportunities that we have already talked about being the sunrise expansion.

Increasing cap law.

In that 180 to 200000 BOE a day range and also be able to progress on attach it still allows us to continue on with our share buybacks in there David planned dividend increases. So we can actually do it all in the financial.

Terry Anderson: This still allows us to continue on with our share buybacks and our planned dividend increases, so we can actually do it all in the financial capabilities that we have today.

Capabilities that we have today.

Okay, Great and then that's probably a great segue in terms of the return of capital framework here, just wondering youre going to probably exhaust the NCI be here in August there was mention of an S. B.

Patrick O'Rourke: Okay, great. That's probably a great segue in terms of the return of capital framework here. Just, you know, wondering, you're gonna probably exhaust the NCIB here in August. There was mention of an SIB in the release here. Of course we have, you know, the avenue of measured dividend growth. How do you think about timing in terms of dividend growth? How do you think about scale and scoping of that so that it's sustainable going forward? How does a sort of SIB potentially fit into all that framework if, you know, if you are able to buy back

In the release here and then of course, we have the avenue of measured dividend growth, how do you think about timing.

In terms of dividend growth, how do you think both scale and scoping of that so that it's sustainable going forward and then how does our sort of be potentially fit into all of that framework. If you will.

We're able to buyback.

Terry Anderson: More than 10% of your, or you're able to fully exhaust the 10% on the NCIB on an annual basis.

Patrick O'Rourke: More than 10% of your, or you're able to fully exhaust the 10% on the NCIB on an annual basis.

More than 10% of your Youre able to fully exhaust the 10% on the CIB on an annual basis.

Okay.

Kris Bibby: You bet. Thanks, Patrick. It's Kris here. Obviously, I think, and we alluded to this, we'll complete our existing NCIB here in the coming weeks. We'll apply to get a renewal of that NCIB in roughly a month's time. Really, that gives us quite a bit of flexibility on how we wanna move forward over the coming months, you know, coming 1 September. In the event that we do exhaust the NCIB or choose to take a dual pronged approach, we can investigate an SIB and make sure that we understand, you know, it is an effective tool to retire a large number of shares at a single point in time. You know, that is a tool that we'll look at and see if it makes sense at the time.

You bet, Thanks, Patrick its Chris here.

I think we alluded to this will complete our existing NCI would be here in the coming weeks.

We'll apply to get a renewal of bit in CIB in roughly a month's time and really that gives us quite a bit of flexibility on how we want to move forward over the coming months.

Coming September one.

In the event that we do exhaust.

In CIB or choose to take a dual pronged approach, we can investigate NFIB and make sure that we understand it is an effective tool to retire a large number of shares.

At a single point in time, so that is a tool that will we will look at it and see if it makes sense at the time and then as far as the dividend.

Kris Bibby: As far as the dividend, you know, we had a large increase to it last quarter, so we didn't think it was time to touch it this quarter. Ideally, we'd like to get to a scenario where we're looking at the dividend, reviewing it once per year. I think one of the more logical times to do that is when you're, you know, setting your guidance for the year, setting your capital plans for the year, when you're in a normal course environment. As you know, we'll test that dividend down to very low levels because clearly to be sustainable, it has to be sustainable in all pricing environments. We'll just run our stress testing and then make sure that we're comfortable we would not have to adjust it again.

The large increase to it last quarter. So we didn't think it was time to touch at this quarter ideally, we'd like to get to a scenario, where we're looking at the dividend reviewing it once per year.

One of the more logical time to do that is when you are setting your guidance for the year setting your capital plans for the year when Youre in a normal course environment.

As you know we will also we will test that dividend down to very low levels, because clearly to be sustainable it has to be sustainable in all pricing environments. So we'll just run our stress testing to make sure that we're comfortable we would not have to adjust it again.

Is there a certain sort of base case scenario in terms of commodity pricing that your stress testing down to now and has that changed with the inflationary environment.

Terry Anderson: Is there a certain sort of base case scenario in terms of commodity pricing that you're stress testing down to now? Has that changed with the inflationary environment?

Realistically.

Kris Bibby: Realistically, you know, there's no one downside scenario that we test to. We still stress test our business down to $45 US WTI and CAD 2 gas. And our, you know, the business is resilient at those levels. You know, it's an extreme scenario, but it does just show the strength of the underlying business that we have.

Theres no one downside scenario that we test we still try to stress test our business down to $45, USW Ti and $2 gas at our <unk>.

Businesses are resilient at those levels. So it's an extreme scenario, but it does just showed the strength of the underlying business that we have.

Terry Anderson: Okay, thank you very much.

Okay. Thank you very much.

Kris Bibby: Thanks, Patrick.

Thanks, Patrick.

Operator 2: Thank you. The next question comes from Michael Harvey of RBC Capital Markets. Please go ahead.

Operator: Thank you. The next question comes from Michael Harvey of RBC Capital Markets. Please go ahead.

Thank you. The next question comes from Michael <unk> of RBC capital markets. Please go ahead.

Michael Harvey: Yeah, sure. Thanks. Good morning. Just kind of building on the prior question. On the 2023 program, I guess, at what point would you need a green light from the BC government to start or preserve any kind of winter or full year 2023 drilling program there? Just trying to get a sense for kind of the decision points and the milestones on the calendar of when you kind of would have to make the call on the 2023 program and where you're putting the capital.

Yes sure. Thanks. Good morning, So just kind of building on the prior prior question. So on the 2023 program I guess at what point would you need a green light from the BC government.

To start or preserve any kind of winter or full year 2023 drilling program. There. So I'm just trying to get a sense for kind of the decision points and the milestones on the calendar of when you. When you kind of would have to make the call on the 22 program, where you're putting the capital.

Yeah. Good question, Michael It's terrie here so at the start of this year we planned.

Terry Anderson: Yeah, good question, Michael. It's Terry here. At the start of this year, we planned for the BC government and that resolution to come late in the year. With that, we were able to execute our business efficiently by just making the decision back then to say, "Okay, let's plan for it for the end of the year." If we know by the end of the like November timeframe coming into December, then we're already thinking about it and planning accordingly, then we'll be able to go back into BC and start executing our business for start of January 2023. That's kinda how we think that we have...

For the BC government and that resolution to come late in the year.

And with that we are able to execute our.

Our business efficiently by even by just making the decision back then to say, okay. Let's plan for it for the ended the year. If we know by the end of the late November timeframe coming into December and we're already thinking about it and planning. Accordingly, then we'll be able to go back into BC and start executing our.

Business for trend started January 2023, so that's kind of how we think that we have.

Terry Anderson: 'cause we're already thinking about it, we're already planning about it, so it doesn't take us long to actually switch gears and be able to execute on that.

Because we're already thinking about it we're already planning about it so it doesn't take us.

Long to actually switch gears and be able to execute on that.

Michael Harvey: Do you think it would take a period of time just to get the new or updated licenses and then, you know, train the people, move the rigs, all that kind of stuff? Or, what do you think is kind of the timeline on that, recognizing there's a whole bunch of things we just don't know?

And do you think it would take a period of time just to get the new or updated licenses.

And then train the people moving the rigs all that kind of stuff.

What do you think it is kind of the timeline on that are recognizing there's a whole bunch of things, we just don't know.

You know I think I'm done speculating on timing.

Terry Anderson: You know, I think I'm done speculating on timing. I still believe a lot of things that all parties at stake know how insignificant this is, and so I think it's going to happen. That means that they're already thinking about the process and how the OGC is going to be able to implement this in a timely manner to start approving permits. I really can't say for sure, Michael, on that. I know in conversations with OGC, this is on their minds too, that yeah, once the resolution is reached, then they're not just sitting there going, "Oh, now we have to figure out how to actually implement it." They're already thinking about that.

Yeah.

I still believe in a lot of things that they they all parties that stake and know how significant this is and so I think it's going to happen, but and that means that they are already thinking about that process and how the old GC is going to be able to implement this in a timely manner.

Start are approving permits so I really can't say for sure Michael on that but I know I know in conversations with O. G. C. This is on their minds to that.

Once the resolution is reached and they're not just sitting there going Oh now we have to figure out how to actually implemented they are already thinking about that so I think it should actually be.

Terry Anderson: I think it should actually be quite efficient, I guess, once the resolution comes to fruition.

Quite efficient I guess once the resolution comes to fruition.

Michael Harvey: Gotcha. Thanks for the color.

Got you thanks for the color.

Terry Anderson: Perfect. Thank you.

Perfect. Thank you.

Operator 2: Thank you. Once again, ladies and gentlemen, if you do have a question, please press star one at this time. The next question comes from Eric Nuttall of Ninepoint Partners. Please go ahead.

Operator: Thank you. Once again, ladies and gentlemen, if you do have a question, please press star one at this time. The next question comes from Eric Nuttall of Ninepoint Partners. Please go ahead.

Thank you.

Once again, ladies and gentlemen, if you do have a question. Please press star one at this time.

The next question comes from Eric Nuttall of Mega Point Partners. Please go ahead.

Eric Nuttall: Hey, guys. I'm happy to hear more and more talk of SIBs. I just wanted to circle back and get a little more specific. What would it take for you not to implement an SIB? You know, we've got you hitting your debt target by Q4 of this year. We all agree valuation is profoundly dislocated from fair value. You know, investigating SIB, I think Imperial proves that it's highly effective. I'm just curious, you know, the talk of investigating and whatnot. You know, the template is there, the playbook is there, the profound dislocation is there. Why what would it take for you not to do it, assuming strip pricing holds out?

Hey, guys Im happy to hear more and more talk of SAP.

I just wanted to circle back and get a little more specific.

What would it take for you not to implement an S. IV, we've got you're hitting your debt target by Q4. This year, we all agree a valuation that is profoundly.

Dislocated from fair value.

<unk> I think imperial proves that it is highly effective so I'm just curious.

Talking to investigate and whatnot.

The tin plate is there the playbook is there.

Yes.

Profound dislocations there so why why what would it take for you not to do it assuming strip pricing holds up.

Kris Bibby: Yep. Thanks, Eric. Fair question, and you know, I agree with everything you said. Realistically, you know, if pricing hangs in there and free cash flow stays where it is, it's likely that we would. The one caveat, and we've said this about the NCIB as well all along, like we are value investors. It has to be the best use of capital at the time. Given current valuations, you know, that certainly would be the case. If the valuation metrics change substantially, you know, we would just make sure that we still think that is the best use of capital at the time. If everything plays out, you know, under your scenario or even under our scenario, it's certainly a real possibility.

Yes, Thanks, Eric Fair question and I agree with everything you said and then realistically.

If if pricing hangs in there and free cash flow stays where it is.

It is likely that we would the one caveat and we've said this about the NCI V as well along like we are value investors. It has to be the best use of capital at the time and given current valuations.

That certainly would be the case, but if the valuation metrics changed substantially.

Just make sure that we still think that is the best use of capital at the time, but.

If everything plays out.

Under your scenario or even under our scenario.

It's certainly a real possibility, we say investigating Mike as you know we're a planning organization just like Terry was talking about on the execution of our capital program, we don't like to leave things to chat. So we just want to make sure that we understand exactly how we would execute at the pros and cons and some strategies around to make sure. It has the most effect.

Kris Bibby: When we say investigating, like as you know, we're a planning organization, just like Terry was talking about, on the execution of our capital program. We don't like to leave things to chance, so, we just wanna make sure that we understand exactly how we would execute it, the pros and the cons, and some strategies around to make sure it's the most effective, execution possible.

Execution possible.

So just to clarify so what I'm hearing is if strip pricing holds out if your share price doesn't reflect more closer to what we all think fair value is and if I'm right that you hit your leverage metrics in Q4 this year than we could be looking at SAP.

Eric Nuttall: Just to clarify, what I'm hearing is if strip pricing holds out, if your share price doesn't reflect more, you know, closer to what we all think fair value is, and if I'm right that you hit your leverage metrics in Q4 of this year, then we could be looking at SIB, you know, Q4 of this year. Is that what I'm hearing?

Q4, this year is that what I'm hearing.

Kris Bibby: Q4 of this year in 2022 is probably not an issue. You know, as we get the new NCIB in September, we expect we will go into that one pretty hard, and go from there. What I am saying is it is highly of interest, obviously subject to board approval, subject to TSX approval, those types of normal course things. If the business plays out as expected, the balance sheet's taken care of, and if that's a good use of capital, that's certainly what we'll intend to do.

Q4, this year and 'twenty two is probably not an issue.

As we get the new and CIB in September .

We expect we will we will go into that one pretty hard and go from there, but what I am saying is it is highly of interest obviously subject to board approval subject to <unk> approval those types of normal course things, but if the business plays out as expected the balance sheet is taken care of and that's a good use of capital Thats certainly what we will intend to do.

Operator 1: Perfect. Thank you.

Operator: Perfect. Thank you.

Terrific. Thank you thanks.

Kris Bibby: Thanks, sir.

Thanks, Eric.

Thank you.

Operator 2: Thank you. There are no further questions at this time. Please continue.

Operator: Thank you. There are no further questions at this time. Please continue.

There are no further questions at this time please continue.

Kris Bibby: Great. Thanks everyone for attending the call. Have a good weekend.

Great. Thanks, Thanks, everyone for attending the call have a good weekend.

Yes.

Operator 2: Thank you. Ladies and gentlemen, this does conclude your conference call for today. We ask that you please disconnect your lines and have a great day.

Operator: Thank you. Ladies and gentlemen, this does conclude your conference call for today. We ask that you please disconnect your lines and have a great day.

Thank you.

Ladies and gentlemen, this does conclude your conference call for today, we ask that you. Please disconnect your lines and have a great day.

Okay.

[music].

Okay.

Yes.

Sure.

Okay.

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