Q2 2023 ARC Resources Ltd Earnings Call

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Great. 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, Chris <unk>, Chief Financial Officer Art, <unk>, Gary Chief Operating Officer, Lara Conrad Chief Development Officer, and Ryan Berrett Senior Vice.

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Before I turn it over to Terry and Chris to take you through our second quarter results I'll remind everyone that this conference call includes forward looking statements and non-GAAP and other financial measures. The press release financial statements and MD&A are available on our website as well as SEDAR.

Finally, 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.

Thanks, Dale and good morning, everyone.

Before I get into the quarter I want to quickly summarize our long term strategy that we laid out at our Investor day in June. The main takeaways are first we will continue to pursue a balanced approach to capital allocation to achieve the best overall return for our shareholders.

Reinvesting about 50% of our cash flow into our assets, including attached E will yield 5% annual production growth over the next five years and condensate rich natural gas.

Second we will dedicate free cash flow to shareholder returns through dividends and share repurchases. When you combine this with organic growth, we forecast free cash flow per share to triple by 2028.

Third the Montney is a world class and arc is the largest montney producer. We have we have more than 1 million acres of high quality montney lands to develop with the capability to grow to 500000 Boe per day and remain flat for decades.

Finally is the extension of our gas our gas marketing strategy to include LNG. Our goal is to dedicate 25% of our future natural gas production to international markets, which we believe is a key differentiator for our <unk> to.

To date, we've made excellent progress through our agreement with Cheniere off the U S Gulf Coast, and an Mou with Cedar LNG and we continue to pursue other opportunities to achieve this goal.

Now, let's move on to the quarter, if I were to summarize we executed to plan and overcame a challenging operating environment due to the Alberta wildfires. While we are fortunate that the wildfires did not impact any of our infrastructure, we experienced minor disruptions due to downtime on third party pipeline.

Our owned and operated infrastructure and dual connectivity played a key role in limiting this production impact to 4000 Boe per day I'm extremely proud of how our people responded and demonstrated the safety first mentality that is so critical to our success.

In addition, the team execute an efficient capital program that included several significant turnarounds at our CAC with field all of which were completed both on time and within budget.

<unk> averaged approximately 345000 Boe per day in the quarter. This is up 13% year over year on a per share basis.

Our annual production guidance is unchanged and we have strong operational momentum heading into the back half of the year, where we are forecasting average production of approximately 360000 Boe per day.

Looking ahead, we are focused on the efficient execution of our base capital program and the advancement of attach a phase one.

Year to date, we invested roughly $25 million at attaching on purchasing major equipment and construction activities. We are progressing as planned by preparing the site and right of way for the plant and the gas sales and installation construction will ramp up in the second half of the year with no change to the <unk>.

Previously announced $740 million project cost.

We also completed two additional projects I'd like to highlight the first is the expansion at Sunrise, which adds an additional 80 million cubic feet a day of processing capacity brings the total capacity at Sunrise to 360 million cubic feet. A day. The project was completed within budget and will support.

<unk> growth in 2024 as planned Sunrise.

Sunrise is direct connected to coastal gas link.

Which allows us to supply natural gas to shell at the startup of LNG, Canada. This supports our strategy of delivering low cost low emission natural gas to international market for decades to come.

The electrification of our das in three and four facilities.

With this project complete all our gas plants in northeast BC are fully electrified and powered by renewable hydroelectricity from the BC grid.

This is a critical component of our emissions reduction strategy in total electrification of our facilities in northeast BC avoids 420000 tons of Cotwo equivalent in greenhouse gas emissions every year the equivalent of taking more than 91000 cars off the road.

With that I'll turn it over to Chris to go through our financial results for the quarter.

Thanks, Terry good morning, everyone.

Q2 production was in line with our expectations and analysts estimates while funds from operations per share registered roughly 5% ahead of consensus production.

Production of 344000 BOE per day increased 2% year over year, and 13% per share on a per share basis and.

And we maintain our full year production guidance of 350000 to.

355000 Boe per day.

Funds from operations in the second quarter was $560 million and although April was down significantly quarter over quarter arc as the largest condensate producer benefits from strong condensate pricing, which registered at $93 Canadian per barrel in the quarter.

To that end, our business remains resilient and profitable in the current price environment, a reflection of our low cost structure asset quality and balanced commodity mix.

After capital expenditures of $417 million, we generated $144 million of free cash flow in the quarter or <unk> 24 per share.

Our realized natural gas price of $2 83 per Mcf was about a 20% premium to the equal benchmark again, capitalizing on our marketing and transportation portfolio, which is an asset in <unk> itself.

We also continue to actively manage price risk and volatility as we invested in attaching.

Our natural gas is about 25% hedged throughout the balance of this year and just 20% of our natural gas is exposed to floating equal in the summer of 'twenty, three and 'twenty four.

In terms of capital returns arc returned a 110% of our free cash flow to shareholders through the dividend and share repurchases in the quarter.

And through six months, we have returned 90% net of proceeds from divestitures of free cash flow to shareholders.

Since September of 2021, when we initiated our share buybacks.

Arc has repurchased 119 million shares representing roughly 16% of the shares outstanding at the beginning of the purchases.

We intend to once again renew the in CIB in September for an additional 10% as we believe it's an attractive return opportunity for our shareholders.

Our financial position remains in excellent shape and is corridor strategy net.

Net debt was unchanged at $1 3 billion in the quarter, representing 0.4 times funds from operations.

Net debt is within our long term target range of one to $1 5 billion.

And equates less to less than one times cash flow at <unk> 50 dollar WTO.

And $2.50 Canadian April.

As a result, we intend to return all free cash flow to shareholders.

Finally, circling back to 2023 guidance capital and production were unchanged along with all other cost guidance.

We forecast average production of 350000 to 355000 Boe per day, which implies roughly 360000 boe's per day in the second half of 2023.

Capital budget of one eight to $1 $9 billion is also unchanged and is inclusive of $250 million to $300 million of investments at attached.

We expect to disclose formal 2024 guidance in November with our Q3 results.

<unk> focus will be on an efficient base capital program and on completing attach your phase, one which will set us up for a step change in our business in 2025, as we recently outlined in our Investor day.

Ill pass it back to Terry for some closing remarks.

Thanks, Chris.

In June we laid out a five year plan at our Investor day that we are executing on.

Disciplined investment in our world class assets reduced the share count increase the dividend and execute on margin expansion opportunities to deliver significant value to our shareholders.

Now commodity prices will fluctuate between now and then and other factors could shape or change our course, but that is nothing new to arc and is why our track record of being both disciplined and nimble are so critical in delivering strong results.

With that I'll open the line to questions.

Thank you, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a tone prompt acknowledging your request and if you would like to withdraw from the question queue. Please press star followed by two and if you are using a speaker phone, we do ask that you.

Please lift the handset before pressing any keys. Please go ahead and press Star one now if you have any questions.

And your first question will be from Gerrick, Jamie Kubik at CIBC. Please go ahead.

Yes, good morning, and thanks for taking my question here I got a couple but just been.

I'm seeing a bunch of headlines on water restrictions in north East BC just curious if this is.

Impacting our can if you can talk about how it might impact you in the second half if at all thanks.

Hi, Jamie this is armen.

It is not going to impact us we have pretty much all the water we need.

Water storage ponds, we also have access to a fairly dedicated water recycling facility that really helps us with managing risk like this.

Okay.

That's great and then on the quarter just.

Various if you can talk about how you think NGL price realizations evolve in the second half of.

23, just given the weakness in Q2.

Hey, Jamie It's Ryan, Yes, we would expect some modest price increases versus Q2, but generally for the year relatively flat.

Okay, and then maybe last one from me just on Cedar LNG.

Just what are the next steps for that project from March standpoint.

Hey, Jim its Ryan again, yes, we are working through the long term tolling agreement with Cedar LNG and we've commenced discussions with off takers and continued to proceed throughout the rest of the year.

Okay. Thanks, I'll turn it back.

Thank you once again as a reminder, ladies and gentlemen, if you do have any questions. Please press star one now on your telephone keypad.

And at this time it appears we have no further questions. Please proceed with closing remarks.

Alright, thanks, Thanks, operator, and thanks, everyone for joining the call that concludes the call for the day. Thank you.

Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines and enjoy the rest of your day.

With regard.