Q3 2022 ARC Resources Ltd Earnings Call

President and CEO Terry Anderson Terry. Please go ahead.

Thanks, Dale and good morning, everyone a year ago, we laid out a plan that prioritize debt reduction and a balanced investment in our asset base with incremental shareholder returns. The primary takeaway from the quarter is we are executing to plan.

Production capital and operating expenses were in line with expectations and are tracking to guidance. Our financial performance has been exceptional and from a debt perspective, we are closing in on our long term debt target, which supports a greater proportion of free cash flow to shareholders.

The base dividend remains our primary method of returning capital to shareholders, which we have committed will grow as the business grows and as the share count is reduced this quarter, we announced a 25% increase to our dividend the fourth increase in the past six quarters, which remains sustainable through the commodity price cycle.

We also continue to invest through share buybacks. They are an effective and accretive use of capital under what we believe are conservative pricing assumptions since renewing our NCI b at the end of August we have bought back approximately 30% of the new NCI be allotment growing free cash flow per share is up.

Focus and we are executing on that by investing profitably in our assets and reducing the share count.

I'll touch on a few operational items related to the quarter and also the 2023 capital budget before I turn it over to Chris to walk you through more details of our financial results.

Our tile condensate fundamentals were strong and we capitalize on that as the largest condensate producer in Canada.

Our condensate production was up 6% year over year to 82000 barrels per day, and we realized $110 per barrel for our product in a seasonally lower demand environment.

The fundamental outlook for condensate moving forward a similarly strong notwithstanding the macro uncertainty we are experiencing.

It is a loan product in western Canada, where demand exceeds supply by approximately 250000 barrels per day. Meanwhile, supply is growing slightly in response to high prices, but remains governed by high decline rates and Bruce discipline, as we head into a seasonally strong demand environment.

Okay.

Since inception, <unk> has been a balance sheet first company.

At quarter end long term debt was reduced by approximately $100 million to $1 1 billion.

With net debt of $1 5 billion.

The net debt approaches $1 billion, which is the value of our notes senior notes outstanding.

Amount of free cash flow. It is returned to shareholders logically increases.

We demonstrated this commitment in the third quarter, we returned 94% of our free cash flow to shareholders through a combination of base dividends and share repurchases.

This is a trend we anticipate continuing into 2023.

As it pertains to free cash flow allocation, our longstanding commitment to return capital remains.

We continue to challenge our internal views on the optimal way to return capital today. We believe it is a combination of growing base dividend and reducing the share count when the shares are trading below intrinsic value.

We measure intrinsic value in different ways, but always anchored unreasonable lower commodity prices and today, we believe that value exceeds the share price.

Finally, moving forward, we will continue to reinvest in our assets in a disciplined manner and as announced intend to allocate between 50 and 100% of our free cash flow to shareholders up from our previous 50% to 80%.

This will come through in the form of base dividends and share repurchases assuming repurchases repurchasing our shares provides value than it does today.

Since initiating the <unk> in September of 2021 arc has repurchased 93 million shares or 13% of the shares outstanding at that time at an average price of $15.

We recognize we cannot predict or control commodity prices, we have scale and the best assets, a strong balance sheet and excellent people across the company to deliver attractive and sustainable returns for our shareholders.

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

Thanks, Chris.

We have met with an increasing number of investors over the past year. There is more interest in this sector than I can recall for quite some time it spans different geographies investor mandates and time horizons, there could be several factors driving this for one different factors have contributed to a prolonged period of underinvestment in industry.

Capital spending is roughly half of what it was a decade ago and yet demand and therefore prices strong.

The globalization of natural gas via the LNG Buildout in North America is a positive development for Canada and <unk> specifically.

Third it could be the change in behavior that has improved corporate return on capital.

In addition to these factors there is definitely a heightened focus on energy security underscoring I'm more accepted view that commodities, we produce for them a critical part of the energy ecosystem and will remain that way for a very long time.

For arc, we are positioning our company over the past several decades to play a leading role in this regard we've amassed a world class asset base and infrastructure network and have a long standing culture of capital discipline operational excellence and ESG leadership.

Even though we cannot exactly predict future commodity prices. Our strategy is built to withstand and thrive through all parts of the cycle like we have for the past 26 years.

I have never been more confident in where <unk> is heading and we look forward to delivering sustainable value for many years to come.

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

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'll hear us three ton crop acknowledging your request if you'd like to withdraw your request. Please press star followed by two if you're using a speaker phone. Please lift your handset before pressing any keys.

Your first question comes from the line.

Michael Harvey from RBC capital markets. Your line is open.

Yeah sure. Thanks, Good morning, guys I just had a question on <unk>, obviously lots of wells.

There are this year and next I was just wondering kind of what's working well there from a from an operational perspective, just as the drilling density increase.