Q1 2023 ARC Resources Ltd Earnings Call

May 5, 2023

Dale Lewko: I'll remind everyone that this conference call includes forward-looking statements and non-GAAP 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.

I will include 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 will 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 get into the details of the Q1 performance here shortly, but before we do, I'd like to begin with Attachie. This is an exciting day for ARC and one that we've been looking forward to for quite some time. We've officially sanctioned the first phase of Attachie development. This is an important milestone which triggers the next stage of profitable growth for our company and for our shareholders. Anyone who has been following ARC understands that Attachie is a flagship development for us. So let me remind you why. First, asset quality. Attachie is a world-class condensate-rich natural gas play in the heart of the Montney. It has all the characteristics of a high-quality asset, a deep over-pressured reservoir with scale and economics that competes with the best plays in North America. Second, scale.

Thanks, Dale and good morning, everyone will get into the details of the Q1 performance here shortly but before we do I'd like to begin with attached.

This is an exciting day for arc and one that we've been looking forward to for quite some time, we've officially sanctioned the first phase of Apache development.

This is an important milestone, which triggers the next stage of profitable growth for our company and for our shareholders.

Anyone who has been following arc understands that Hitachi is a flagship development for us. So let me remind you why first asset quality attached as a world class condensate rich natural gas play in the heart of the Montney. It has all the characteristics of a high quality asset a deep over.

Pressured reservoir with scale and economics that competes with the best plays in North America.

Second scale over the past decade arc has accumulated 300 net contiguous sections at attached with approximately 9 billion barrels of liquids and over 30 Tcf of gas in place.

Terry Anderson: Over the past decade, ARC has accumulated 300 net contiguous sections at Attachie with approximately 9 billion barrels of liquids and over 30 TCF of gas in place. To date, we have identified more than 1,500 drilling locations, more than 95% of which are unbooked, which can support at least four similar-sized phases to what we are advancing with phase one. With these attributes, Attachie has the scale to replicate Kakwa in terms of production and profitability. Third, strong economics. Attachie is one of our highest return investment opportunities in our portfolio. We are investing approximately CAD 740 million for phase one, which at today's forward curve will generate about CAD 300 million of free cash flow annually.

To date, we have identified more than 500 drilling locations more than 95% of which are on booked which can support at least for a similar sized phases. So while we are advancing with phase one with these attributes attach has the scale to replicate capa in terms of production.

And profitability.

And third strong economics.

<unk> is one of our highest return investment opportunities in our portfolio. We are investing approximately $740 million for phase one which at today's forward curve will generate about $300 million of free cash flow annually.

Terry Anderson: Project execution is one of ARC's greatest strengths, and over the past several years, our technical teams have narrowed in on the optimal development plan, which includes the adoption of some best practices from Kakwa. Attachie is set up to be our most efficient project to date. With today's announcement, we are starting work immediately on the first phase of this development. Phase one production is approximately 40,000 BOE per day, which will come on stream in 2024, late 2024, and achieve full production in early 2025. Our team has done an excellent job in planning and preparing for today, which has been instrumental in mitigating risks to both project costs and schedule. We are on track for an 18-month construction time. Long lead items have been secured, and we have the development plan in place to achieve it.

Project execution is one of our greatest strengths.

Over the past several years, our technical teams have narrowed in on the optimum development plan, which includes the adoption of some best practices from Cath lab attach.

Attach is set up to be our most efficient project to date.

So with today's announcement, we are starting work immediately on the first phase of this development.

Phase one production is approximately 40000 Boe per day, which will come on stream in 2020 for late 2024 and achieved full production in early 2025.

Our team has done an excellent job in planning and preparing for today, which has been instrumental in mitigating risks to both project cost and schedule. We are on track for an 18 month construction time.

Long lead items have been secured and we have the development plan in place to achieve it.

Terry Anderson: We are ready to proceed from a subsurface, surface, and commercial perspective. The design for the 90 million cubic feet a day gas processing facility is complete, and all major infrastructure, including the 25,000 barrels per day of liquids handling, is ready to construct. In addition, takeaway capacity has been secured for both phase 1 and for future phases. Attachie will also be one of the most responsibly developed projects of its kind. Consistent with our other assets in Northeast BC, we plan to electrify the project, which will result in a low emissions profile. The facilities plan also includes water recycling infrastructure that will substantially reduce overall freshwater usage. As it relates to permitting, we have confidence there is a clear path forward following the recent agreements between the BC government and the Treaty 8 First Nations.

We are ready to proceed from a subsurface surface and commercial perspective, they're designed for the 90 million cubic feet a day gas processing facilities complete.

And all major infrastructure, including the 25000 barrels per day of liquids handling is ready to construct.

In addition, takeaway capacity has been secured for both phase one and for future phases.

Attach you will also be one of the most responsibly developed project of its kind consistent with our other assets in northeast BC, We plan to electrify the project, which will result in a low emissions profile. The facilities plan also includes water recycling infrastructure that will.

<unk> reduced overall freshwater usage.

As it relates to permitting we have confidence there is a clear path forward. Following the recent agreements between the BC government and the Treaty eight first nations.

Terry Anderson: This has allowed us to carefully plan and prepare for project execution. Over the past five years, we have worked closely with the Treaty 8 First Nations, and over that time, we have evolved our development plan to ensure the community's needs and priorities are met. Moving forward, we'll continue to collaborate with the communities neighboring our projects to ensure our development practices demonstrate our commitment to responsible development, balanced economic prosperity, and honor treaty rights. Now, I'd like to touch on some notable items related to our strong Q1 performance. First, the combination of higher production with less capital is having positive implications on free cash flow. Capital spending is trending below expectations and production was ahead of our forecast despite some third-party downtime in the quarter. This was due to better performance from our base assets, resulting in an upward revision to annual production guidance.

This has allowed us to carefully plan and prepare for project execution.

Over the past five years, we have worked closely with the treaty eight first nation and over that time, we've evolved our development plan to ensure the community's needs and priorities are met.

Moving forward, we will continue to collaborate with the communities neighboring our projects to ensure our development practices demonstrate our commitment to responsible development balance economic prosperity and honor Treaty rights.

Now I'd like to touch on some notable items related to our strong Q1 performance.

First the combination of higher production with less capital is having positive implications on free cash flow.

Capital spending is trending below expectations and production was ahead of our forecast. Despite some third party downtime in the quarter. This was due to better performance from our base assets, resulting in an upward revision to annual production guidance.

Terry Anderson: Above all else, we delivered strong results safely. My team hears this at length. Safety is truly our number one priority. In an industry where capital preservation and discipline is under the microscope of investors, it is critical that we never waver on our commitment to safety. Not only does it ensure our employees go home safely, but it forms our culture, allows us to attract top talent, and strengthens relationships with our suppliers and counterparties. Thank you very much to our team for consistently delivering on this safety commitment. Continuing on our strategy to sustainably increase our dividend, we also announced a 13% dividend increase, our fifth increase over the past two years. A combination of better profitability and lower share count are the primary factors. This will continue and only accelerate with the commencement of Attachie.

Above all else, we delivered strong results safely my team hears this at length safety is truly our number one priority.

In an industry, where capital preservation and discipline is under the microscope of the investors. It is critical that we never waiver on our commitment to safety.

Not only does it ensure our employees go home safely, but it forms our culture allows us to attract top talent and strengthen relationships with our suppliers and counterparties.

Thank you very much to our team for consistently delivering on this safety commitment.

Continuing on our strategy to sustainably increase our dividend, we also announced a 13% dividend increase our fifth increase over the past two years.

Combination of better profitability and lower share count are the primary factors. This will continue and only accelerate with the commencement of attaching.

Terry Anderson: We also advanced our goal to further diversify our end markets with the announcement of our third natural gas supply agreement to Cedar LNG. We announced a non-binding MoU to supply 200 million cubic feet a day of natural gas to the project for 20 years, commencing around 2027. We are very pleased with the relationship with Cedar and the progress we've made to date as we work towards definitive agreements. With that, I'll turn it over to Chris to walk through the details on the quarter and positive changes to our go-forward plan.

We also advanced our goal to further diversify our end markets with the announcement of our third natural gas supply agreement to Cedar LNG, We announced a nonbinding Mou to supply 200 million cubic feet a day of natural gas to the project for 20 years commencing around 2027.

We are very pleased with our relationship with Cedar and the progress we've made to date as we work towards definitive agreements.

With that I'll turn it over to Chris to walk through the details on the quarter and positive changes to our go forward plan.

[Company Representative] (ARC Resources): Thanks, Terry. Good morning, everyone. I'll provide some additional context on the quarter and 2023 guidance and then send it back to Terry for closing remarks before we get into the Q&A. To summarize the quarter, we leveraged our competitive strengths, and the outcome was stronger production and lower costs that resulted in positive revisions to 2023 guidance. Specifically, production guidance was increased to average 350,000 to 355,000 BOE a day, after averaging 338,000 BOE per day in Q1 2023. Second, capital budget was essentially unchanged at approximately CAD 1.8 billion, despite an additional incremental CAD 250 to 300 million of capital for Attachie. The benefits of infrastructure ownership and takeaway optionality were particularly relevant this quarter.

Kris Bibby: Thanks, Terry. Good morning, everyone. I'll provide some additional context on the quarter and 2023 guidance and then send it back to Terry for closing remarks before we get into the Q&A. To summarize the quarter, we leveraged our competitive strengths, and the outcome was stronger production and lower costs that resulted in positive revisions to 2023 guidance. Specifically, production guidance was increased to average 350,000 to 355,000 BOE a day, after averaging 338,000 BOE per day in Q1 2023. Second, capital budget was essentially unchanged at approximately CAD 1.8 billion, despite an additional incremental CAD 250 to 300 million of capital for Attachie. The benefits of infrastructure ownership and takeaway optionality were particularly relevant this quarter.

Thanks, Sara good morning, everyone I'll provide some additional context on the quarter and 2023 guidance and then send it back to Terry for closing remarks, before we get into the Q&A.

To summarize the quarter, we leveraged our competitive strengths come with stronger production and lower costs resulted in positive revisions to 2023 guidance.

Specifically production guidance was increased averaged 350000 to 355000 BOE a day after averaging 338000 Boe per day in the first quarter of 2023 and.

And second capital budget was essentially unchanged at approximately $1 8 billion.

Despite an additional incremental $250 million to $300 million of capital for Apache.

The benefits of infrastructure ownership and takeaway Optionality, we're particularly relevant this quarter.

[Company Representative] (ARC Resources): Production of 338,000 BOE per day included a 7,000 BOE a day loss from third-party pipeline outage, and the team limited downtime by warming up our facilities and leveraging our transportation optionality to maximize margins and minimize volume loss. Cash flow registered 5% above analyst forecasts, and we generated CAD 230 million of free cash flow, which was nearly double the median analyst forecast. Quarterly free cash flow can certainly be timing related on the capital, but in this case, there is a positive carry through to our go forward outlook. Once again, this quarter, realized pricing was a meaningful contributor to our profitability. ARC realized a natural gas price of around CAD 5.90 per Mcf, which was 36% above the AECO average.

Kris Bibby: Production of 338,000 BOE per day included a 7,000 BOE a day loss from third-party pipeline outage, and the team limited downtime by warming up our facilities and leveraging our transportation optionality to maximize margins and minimize volume loss. Cash flow registered 5% above analyst forecasts, and we generated CAD 230 million of free cash flow, which was nearly double the median analyst forecast. Quarterly free cash flow can certainly be timing related on the capital, but in this case, there is a positive carry through to our go forward outlook. Once again, this quarter, realized pricing was a meaningful contributor to our profitability. ARC realized a natural gas price of around CAD 5.90 per Mcf, which was 36% above the AECO average.

Production of 338000 BOE per day included a 7000 BOE a day loss from third party pipeline outage and the team limited downtime by warming up our facilities and leveraging our transportation optionality to maximize margins and minimize volume loss.

Cash flow registered 5% above analyst forecast and we generated $230 million of free cash flow, which was nearly double the median analysts' forecasts.

Quarterly free cash flow can certainly be timing related on the capital but in this case there is a positive carry through to our go forward outlook.

Once again this quarter realized pricing was a meaningful contributor to our profitability.

<unk> realized natural gas price of around $5 90, an mcf, which was 36% above <unk> average.

[Company Representative] (ARC Resources): Costs also registered at the bottom end of guidance, which resulted in CAD 230 million of free cash flow from the quarter and a 25% free cash flow margin adjusting for hedging costs. Now shifting to shareholder returns. In 2022, we returned 71% of our free cash flow to shareholders through dividends, and share repurchases. In 2023, we will return essentially all free cash flow to shareholders now that the balance sheet is where we want it from a leverage perspective. In Q1, we followed through on this commitment and returned 100% of our free cash flow to shareholders and also dedicated CAD 74 million of proceeds from non-core asset sales to buy back additional shares. Our preferred method to return capital remains a growing base dividend and share repurchases.

Kris Bibby: Costs also registered at the bottom end of guidance, which resulted in CAD 230 million of free cash flow from the quarter and a 25% free cash flow margin adjusting for hedging costs. Now shifting to shareholder returns. In 2022, we returned 71% of our free cash flow to shareholders through dividends, and share repurchases. In 2023, we will return essentially all free cash flow to shareholders now that the balance sheet is where we want it from a leverage perspective. In Q1, we followed through on this commitment and returned 100% of our free cash flow to shareholders and also dedicated CAD 74 million of proceeds from non-core asset sales to buy back additional shares. Our preferred method to return capital remains a growing base dividend and share repurchases.

Costs also registered at the bottom end of guidance with resulting in $230 million of free cash from the quarter and a 25% free cash flow margin adjusting for hedging costs.

Now shifting to shareholder returns in 2022, we returned 71% of our free cash flow to shareholders through dividends and share repurchases.

In 2023, we will return essentially all free cash flow to shareholders now at the balance sheet is where we want it from a leverage perspective.

In the first quarter, we followed through on this commitment and returned 100% of our free cash flow to shareholders and also dedicated $74 million of proceeds from noncore asset sales to buyback additional shares.

Our preferred method to return capital remain a growing base dividend and share repurchases.

[Company Representative] (ARC Resources): We view these options as fundamentally sound when the expected return on our shares is attractive like it is today. Now, shifting to 2023 guidance. It is a theme to the quarter. I would summarize it as finding ways to do more with less without sacrificing safety, efficiency, or the long-term needs of the business. As I mentioned, we increased production guidance by 5,000 BOE a day to 350 to 355 thousand BOE a day, and capital was essentially unchanged at CAD 1.8 to 1.9 billion. On Attachie specifically, we're confident in the progress we've made to date. We have cleared the site in preparation for construction, and through supply chain management, we've reduced or mitigated some inflation risk.

Kris Bibby: We view these options as fundamentally sound when the expected return on our shares is attractive like it is today. Now, shifting to 2023 guidance. It is a theme to the quarter. I would summarize it as finding ways to do more with less without sacrificing safety, efficiency, or the long-term needs of the business. As I mentioned, we increased production guidance by 5,000 BOE a day to 350 to 355 thousand BOE a day, and capital was essentially unchanged at CAD 1.8 to 1.9 billion. On Attachie specifically, we're confident in the progress we've made to date. We have cleared the site in preparation for construction, and through supply chain management, we've reduced or mitigated some inflation risk.

We view these options is fundamentally sound when they expected return on our shares as attractive like it is today.

Now shifting to 2023 guidance.

This is a theme to the quarter I would summarize it is finding ways to do more with less without sacrificing safety efficiency or the.

Long term needs of the business.

As I mentioned, we previous we increased production guidance by 5000 BOE a day to 350 to 355000 barrels a day and capital was essentially unchanged at one eight to $1 9 billion.

On the <unk>, specifically, we're confident in the progress we've made to date, we have cleared the site in preparation for construction and through supply chain management, we reduced or mitigated some inflation risk.

[Company Representative] (ARC Resources): Phase one capital of CAD 740 million includes the investments to complete the facility, infrastructure, and liquids handling, and drill and complete the approximately 39 wells it takes to fill the facility. It does also include approximately CAD 65 million of infrastructure investment for subsequent phases of Attachie. This year, we anticipate spending CAD 250 to 300 million at Attachie, with the remainder to be deployed in 2024. First production is anticipated by the end of 2024, and we expect to achieve the approximately 40,000 BOEs per day early in 2025.

Kris Bibby: Phase one capital of CAD 740 million includes the investments to complete the facility, infrastructure, and liquids handling, and drill and complete the approximately 39 wells it takes to fill the facility. It does also include approximately CAD 65 million of infrastructure investment for subsequent phases of Attachie. This year, we anticipate spending CAD 250 to 300 million at Attachie, with the remainder to be deployed in 2024. First production is anticipated by the end of 2024, and we expect to achieve the approximately 40,000 BOEs per day early in 2025.

Phase one capital of $740 million includes the investments to complete the facility infrastructure and liquids handling and drill and complete the approximately 39 wells it takes to fill that facility.

It does also include approximately $65 million of.

Of infrastructure investments for subsequent phases of Apache.

This year, we anticipate spending $250 million to $300 million add attached with the remainder to be deployed in 2024.

First production is anticipated by the end of 2024, and we expect to achieve the approximately 40000 Boe's per day early in 2025.

[Company Representative] (ARC Resources): Capital to stay in the facility will average roughly CAD 150 million per year over the initial 5 years, with the initial years skewing much higher as it is normal course with any new development when production is flush and decline rates are at their highest. In terms of where capital is being removed in the 2023 budget to accommodate the Attachie spend, there are two main areas. First, we simply need to drill fewer wells than previously forecasted. This is due to a stronger production performance across all of our base assets. Second, we executed a third-party agreement within an existing infrastructure network, with a third party with an existing infrastructure network of water handling capability in the area.

Kris Bibby: Capital to stay in the facility will average roughly CAD 150 million per year over the initial 5 years, with the initial years skewing much higher as it is normal course with any new development when production is flush and decline rates are at their highest. In terms of where capital is being removed in the 2023 budget to accommodate the Attachie spend, there are two main areas. First, we simply need to drill fewer wells than previously forecasted. This is due to a stronger production performance across all of our base assets. Second, we executed a third-party agreement within an existing infrastructure network, with a third party with an existing infrastructure network of water handling capability in the area.

Capital sustained the facility, where average roughly $150 million per year over the initial five years with the initial year skewing much higher as it isn't normal course with any new development. When production is flush and decline rates are at their highest.

In terms of where capital is being removed in the 2023 budget to accommodate the attach expense there are two main areas.

First we simply need to drill fewer wells than previously forecasted. This is due to a stronger production performance across all of our base assets.

And second we executed a third party agreement with an existing infrastructure network.

Cattle, sorry, with a third party with an existing infrastructure network of water handling capability in the area. This is expected to reduce operating costs by 30% to $60 million beginning.

[Company Representative] (ARC Resources): This is expected to reduce operating costs by CAD 30 to 60 million beginning in 2024, and at the same time allows us to remove CAD 120 million of capital previously earmarked for water infrastructure in the Kakwa area. In terms of our financial forecast, at strip pricing, which is near our mid-cycle pricing levels, ARC can fund Attachie, the revised higher dividend, and buy back substantial amounts of our stock with forecast cash flow. Attachie will add approximately CAD 300 million of free cash flow annually or greater than CAD 0.50 per share. Equally important, in a low price environment, the business is fully funded.

Kris Bibby: This is expected to reduce operating costs by CAD 30 to 60 million beginning in 2024, and at the same time allows us to remove CAD 120 million of capital previously earmarked for water infrastructure in the Kakwa area. In terms of our financial forecast, at strip pricing, which is near our mid-cycle pricing levels, ARC can fund Attachie, the revised higher dividend, and buy back substantial amounts of our stock with forecast cash flow. Attachie will add approximately CAD 300 million of free cash flow annually or greater than CAD 0.50 per share. Equally important, in a low price environment, the business is fully funded.

Beginning in 2024 and at the same time allows us to remove $120 million of capital previously earmarked for water infrastructure in the capital area.

In terms of our financial forecast at strip pricing, which is near our mid cycle pricing levels Art can fund Apache the revised higher dividend and buyback substantial amounts of our stock with forecast cash flow.

Attached you will add approximately $300 million of free cash flow annually or greater than 50 per share.

Equally important in a low price environment the business is fully funded.

[Company Representative] (ARC Resources): At $50 US WTI and CAD 2.50 AECO, we can fund Attachie and sustain the business and dividend with fund flow. In a more constructive price environment, all else equal, we will direct excess free fund flow to increasing shareholder returns. Looking ahead to 2024, our objectives are simple. Sustain our base business in a capital efficient manner and complete Attachie phase one, setting us up to deliver a material increase in free cash flow growth in 2025, which does happen to coincide with, well, LNG Canada is expected to come on stream. While LNG is not a prerequisite for this project or for ARC, it certainly represents a structural change in Western Canadian gas demand that our market has not yet experienced. With that, I'll pass it back to Terry for some closing remarks.

Kris Bibby: At $50 US WTI and CAD 2.50 AECO, we can fund Attachie and sustain the business and dividend with fund flow. In a more constructive price environment, all else equal, we will direct excess free fund flow to increasing shareholder returns. Looking ahead to 2024, our objectives are simple. Sustain our base business in a capital efficient manner and complete Attachie phase one, setting us up to deliver a material increase in free cash flow growth in 2025, which does happen to coincide with, well, LNG Canada is expected to come on stream. While LNG is not a prerequisite for this project or for ARC, it certainly represents a structural change in Western Canadian gas demand that our market has not yet experienced. With that, I'll pass it back to Terry for some closing remarks.

At $50 USW Ti and $2 50 April we can fund attached and sustain the business and dividend with funds flow.

In a more constructive price environment, all else equal, we will direct excess free funds flow to increasing shareholder returns.

Looking ahead to 2024 objectives are simple sustained our base business in a capital efficient manner and complete attach a phase one setting us up to deliver a material increase in free cash flow growth in 2025, which does happen to coincide with Wella LNG, Canada is expected to come on stream.

While LNG is not a prerequisite for this project or for arc. It certainly represents a structural change in western Canadian gas demand that our market is not yet experienced and.

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

Terry Anderson: Thanks, Chris. I'm very excited about our strong performance and where we are heading. Our base business has momentum, and we're delivering on strategic priorities, which are to maintain a strong balance sheet, improve our per share metrics, and grow the dividend as we execute on these priorities. Instrumental in delivering on these strategic priorities, we sanctioned Attachie. It's been a long time coming, and I recall a few quarters ago mentioning an upcoming inflection point in our business. The path was less clear at the time, but we've made significant progress since then. With today's announcement, we've reached a major milestone in advancing our business. To summarize, we are ready to execute. While there's a lot of hard work between now and commissioning Attachie, this is where we shine as an organization.

Thanks, Chris.

I am very excited about our strong performance and where we are heading our basement business has momentum and we're delivering on strategic priorities, which are to maintain a strong balance sheet improve our per share metrics and grow the dividend as we execute on these priorities.

And instrumental in delivering on these strategic priorities, we sanctioned attached.

It's been a long time coming and I recall, a few quarters ago mentioning an upcoming inflection point in our business.

Path was less clear at the time, but we've made significant progress. Since then with today's announcement, we have reached a major milestone in advancing our business.

So to summarize we are ready to execute and while there is a lot of hard work between now and commissioning attach this is where we shine as an organization operational excellence has been the backbone of our success over the past 26 years and I'm extremely confident in our team's ability to execute and deliver strong.

Terry Anderson: Operational excellence has been the backbone of ARC's success over the past 26 years, and I'm extremely confident in our team's ability to execute and deliver strong results once again. Thanks, operator. Let's open the lines up for questions.

Our results once again.

Thanks, operator, let's open the lines up for questions.

Operator: Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. Again, that's star followed by the number one on your touchtone phone. If you would like to withdraw your request, please press star followed by the number two. Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Harvey from RBC. Please go ahead.

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

Good luck with all your request please press star followed by the number.

Please standby, while we compile the Q&A roster.

Your first question comes from the line of Michael Hardy from RBC. Please go ahead.

Michael Harvey: Yeah, sure. Good morning. Just a couple of questions on Attachie. I guess first you mentioned you do have the takeaway for the gas. Just wondering if you've arranged the same on the liquids front in any material infrastructure investments which might be required to move both the gas and the liquids. I guess just a longer term question on Attachie. I know you still have to build phase one here, but as you think about the next 10 or 20 years, just wondering any broad thoughts on how many phases you think the lands can support without overcapitalizing and just thoughts on kind of broad volumes. I know you've broad peak volumes. I know you compared it to Kakwa a little bit there.

Yes, sure good morning, Jeff.

A couple of questions on Hitachi I guess first you mentioned you do have the takeaway for the gas just wondering if you've arranged the same on the liquids front and any material infrastructure investments which might be required.

To move both the gas and the liquids and then I guess just a longer term question on Apache I know you still have to build phase one year, but as you think about the next.

10, or 20 years, just wondering any broad thoughts on how many phases do you think the lands can support.

Without over capitalizing and just thoughts on kind of broad volumes I know you've brought peak volumes I know you compared it to grow a little bit there.

Terry Anderson: Great question, Michael. Thanks. It's Terry here. On Attachie, yes, we have the takeaway on the liquid side. We have the takeaway on the gas side. We are prepared to execute on this project with everything in hand here. It's good from that perspective. As for bigger picture, yes, this 40,000 BOE a day is the first phase. We see another four phases on top of that. We think that Attachie has the potential to be replicate Kakwa, so that's 180,000 BOE a day, roughly. Both properties are very similar, 60% liquid, so it's a great analog for us, Kakwa and Attachie. That's kind of what we're thinking down longer term for the size of Attachie.

Great question, Michael Thanks, It's terrie here so on attach yes, we have the takeaway on the liquid side, we have the takeaway on the gas side, we are prepared to execute on this project with everything in hand here. So it's good from that perspective, so as for bigger picture yet thus far.

40000 BOE a day as the first phase we see another four phases on top of that we think that attach he has the potential to be replicate cashless. So that 180000 BOE a day roughly both properties are very similar 60% liquids. So it's it's a <unk>.

Great analog for us <unk> and attach so that's kind of what were thinking down longer term for the size of attached.

Michael Harvey: Great. Thanks for that.

Great Thanks for that.

Terry Anderson: Welcome.

Welcome.

Operator: Thank you. Again, just a reminder, should you have a question, please press star followed by the number one on your touchtone phone. Your next question comes from the line of Mike Dunn from Stifel. Please go ahead.

Thank you.

Again, just to remind us if you have a question. Please press star followed by the number one on your Touchtone. Following your next question comes from the line of Mike <unk> from Stifel. Please go ahead.

Mike Dunn: Well, thanks. I think Michael Harvey asked the main part of my question, but maybe, you know, in your disclosures, you talked about CAD 65 million of the CAD 740 million being for future phases. Is that how we should think about, I guess, the scope of work, reduced scope of work for a future phase? Would that be sort of proportionate or would there be other synergies there with a phase two that wouldn't be captured with that number? I have a follow-up question.

Well thanks.

Mike Harvey.

The main part of my question, but.

Maybe I know in your disclosures you talked about $65 million of the 740 being for future phases.

How we should think about I guess.

<unk>.

We wanted to think about.

The.

Scope of work.

Reduced scope of work for a future phase would that be sort of proportionate or would there be other other synergies there with the phase two that wouldn't be captured with that number and I have a follow up question.

Armin Jahangiri: Hey, Michael, this is Armin. The CAD 65 million that the team referred to is primarily the capital that we are spending in building the infrastructure in a manner that is suitable for multiple phases of development. Obviously, the phase one will take the burden of all these infrastructure costs. When we come back to do phase two, we don't have to spend as much money, obviously, because we have some of these pipes and infrastructure already available.

Hey, Michael this is armen, so the $65 million at the team refer to as primarily.

The capital that we're spending in.

And building the infrastructure in a manner that is suitable for multiple phases of development.

So obviously the phase one will take the burden of all of these infrastructure costs.

But when we come back to do phase two we don't have to spend as much money, obviously, because we have some of these pipeline infrastructure already available.

Mike Dunn: Thanks, Armin. I guess my second question is a separate topic, but I think for the last maybe few weeks, we've seen a dip in the condensate price relative to WTI. Is that anything else other than like seasonal spring maintenance downtime in the oil sands, or is there anything else going on there? Thanks.

Thanks, Arvind and I guess my second question is a separate topic, but.

I think for the last maybe few weeks, we've seen a dip in the condensate price relative to <unk>.

Is that anything else other than like seasonal spring maintenance downtime in the oil sands or is there anything else going on there. Thanks.

[Company Representative] (ARC Resources): Hey, Mike, it's Chris here. Yeah, we would attribute that just to seasonality at this point in time. Certainly nothing structural happening.

Kris Bibby: Hey, Mike, it's Chris here. Yeah, we would attribute that just to seasonality at this point in time. Certainly nothing structural happening.

Hey, Mike It's Chris here. So, yes, we would attribute that just to seasonality at this point in time, certainly nothing structural happening.

[Company Representative] (ARC Resources): As you recall, the outlook for condensate going forward is extremely strong. It's the only product we are short in Western Canada. Longer term, we structurally still see a huge benefit to being the largest producer of condensate.

Kris Bibby: As you recall, the outlook for condensate going forward is extremely strong. It's the only product we are short in Western Canada. Longer term, we structurally still see a huge benefit to being the largest producer of condensate.

And as you recall the outlook for condensate going forward is extremely strong.

The only product we are short in western Canada. So.

Longer term, we structurally still see a huge benefit to being the largest producer of condensate.

Mike Dunn: Yeah, I agree. That's all from me, Chris. Thanks, folks.

Yes, I agree.

That's all from me, Chris Thanks folks.

[Company Representative] (ARC Resources): Thank you.

Kris Bibby: Thank you.

Operator: Thank you. Your next question comes from the line of Travis Wood from National Bank Financial. Please go ahead.

Yes.

Thank you.

Your next question comes from the line of Travis Wood from National Bank Financial. Please go ahead.

Travis Wood: Yeah, thanks. Good morning, guys. My question, I just wanna understand the flow or kind of the waterfall chart. I think you guys have done a good job explaining the shifts in capital allocation across the program here to effectively fund Attachie. Could you walk through those chunks again and how they kinda triangulate back to the CAD 250 to 300? And then is there any change to at Sunrise as well from a capital program or expansions on top of the drilling program there as you get set for LNG? Thank you.

Yes. Thanks. Good morning, guys. My question I, just wanted to understand the flow or kind of the waterfall chart. I think you guys have done a good job.

Explaining the shifts in and capital allocation across the program here to effectively fund the tacky.

Could you walk through those chunks again, and how they kind of triangulate back to the $2 5300, and then is there any change.

Two.

Andres as well from a capital program or expansion.

On top of that the drilling program there.

For LNG.

[Company Representative] (ARC Resources): You bet, Travis. It's Chris here. I'll take a stab. I mean, realistically, there's the two main areas where we're pulling capital from the business. The CAD 120 million related to the Kakwa water infrastructure is pretty straightforward. We are just pulling that capital with the third-party service agreement we have that'll handle the water for us. Then the other area is just base outperformance, and this is across all of the asset base. What that really does, it allows us to drill less and still maintain the production at levels where we want. That really results in the remaining quantum.

Kris Bibby: You bet, Travis. It's Chris here. I'll take a stab. I mean, realistically, there's the two main areas where we're pulling capital from the business. The CAD 120 million related to the Kakwa water infrastructure is pretty straightforward. We are just pulling that capital with the third-party service agreement we have that'll handle the water for us. Then the other area is just base outperformance, and this is across all of the asset base. What that really does, it allows us to drill less and still maintain the production at levels where we want. That really results in the remaining quantum.

EBIT drivers, it's Chris here I'll take a stab I mean.

Realistically there is the two main areas, where we're pulling capital from the business.

The $120 million related to the capital water.

<unk> is pretty pretty straightforward, we're just pulling that capital with a third party service agreement, we have that will that will handle the water for us.

And then the other area is just.

Base outperformance and this is across all of the <unk>.

All of the asset base and what that really does it allows us to drill less and still maintain the production at levels, where we want.

And that really results in the remaining quantum when you add those two together it is a roughly $250 million.

[Company Representative] (ARC Resources): When you add those two together, you know, it is a roughly CAD 250 million of capital that we can pull, that you know allows us the luxury of being able to sanction Attachie and not having to change capital guidance very much. Because of that base production outperformance, that's what allowed us to also at the same time actually increase our production guidance range.

Kris Bibby: When you add those two together, you know, it is a roughly CAD 250 million of capital that we can pull, that you know allows us the luxury of being able to sanction Attachie and not having to change capital guidance very much. Because of that base production outperformance, that's what allowed us to also at the same time actually increase our production guidance range.

Of capital that we can pull.

That gives us allows us the luxury of being able to sanction attached and not having to change.

Production, sorry capital guidance very much and then because of that base production outperformance. That's what allowed us to to also at the same time actually increase our production guidance range.

Travis Wood: Okay. In that 130, is there, is it kind of across each of the assets, or is there any additional infrastructure there, specifically at Sunrise, I guess, as we were thinking about the facility expansion?

Okay, and any and that 130 as there.

Is it kind of across each each of the assets or is there any any additional infrastructure there specifically at Sunrise I guess as we're thinking about the facility expansion.

[Company Representative] (ARC Resources): Right. Sorry, I forgot to address your Sunrise component. So it is across the asset base, where we're able to pull some of that capital from. Some of it is at Kakwa where we pushed out some activity into 2024. Then sort of some other drilling at Dawson and places like that where we're able just to pull some capital. As far as Sunrise, no change to the plans there, where we would expect to have that expansion full in early 2024.

Kris Bibby: Right. Sorry, I forgot to address your Sunrise component. So it is across the asset base, where we're able to pull some of that capital from. Some of it is at Kakwa where we pushed out some activity into 2024. Then sort of some other drilling at Dawson and places like that where we're able just to pull some capital. As far as Sunrise, no change to the plans there, where we would expect to have that expansion full in early 2024.

Great sorry, I forgot to address your Sunrise component. So it is across the asset base.

We were able to to pull some of that capital from some of it is that <unk> pushed out.

Some some activity into 2024, and then sort of some other drilling at Dawson and places like that where we're able just to pull some capital and as far as Sunrise no change to the plans there where we would expect to have that.

That expansion full.

In early in 'twenty four.

Operator: Thank you. Just a reminder, should you have a question, please press star followed by the number one on your touchtone phone. There are no further questions at this time. I'd now like to turn the call back over to Mr. Lewko for any closing remarks.

Thank you.

Just a reminder, so do you have a question. Please press star followed by the number one on a touchtone phone.

Okay.

There are no further questions at this time I'd now like to turn the call back over to Mr. Luca for any closing remarks.

Dale Lewko: All right. Thanks, everyone. That concludes the call. Thank you.

Alright, thanks, everyone that concludes the call. Thank you.

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

Okay.

Thank you, Sir ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a lovely day.

Q1 2023 ARC Resources Ltd Earnings Call

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