Q1 2024 ARC Resources Ltd Earnings Call

Dale Lewko: Before I turn it over to Terry and Chris to take you through our first quarter 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.

Chris to take you through our first quarter results I'll remind everyone that this conference call includes forward looking statements.

Chris: And non-GAAP and other financial measures with the associated risks outlined in the earnings release and our MD&A.

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

Speaker Change: Finally, the press release financial statements and MD&A are all available on our website as well as SEDAR.

Chris: Following our prepared remarks, we'll open the line to questions with that I'll turn it over to our President and CEO Terry Anderson Terry. Please go ahead.

Dale Lewko: Finally, the press release, financial statements, and MD&A are all available on our website, as well as CDAR. 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.

Terry Anderson: Thanks, Dale, and good morning, everybody. Q1 was another quarter of steady execution that resulted in strong operational and financial performance. Average production of 352,000 BOE per day was 2% above consensus and increased 8% on a per share basis compared to the first quarter of 2023. This now marks the 11th consecutive quarter where production per share has increased.

Terry Anderson: Q1 was another quarter of steady execution, which resulted in strong operational and financial performance.

Terry Anderson: Average production of 352000 BOE per day was 2% above consensus and increased 8% on a per share basis compared to the first quarter of 2023.

Terry Anderson: This now marks the 11th consecutive quarter, where our production per share has increased.

Terry Anderson: This aligns with our strategy to grow free cash flow per share by investing in our assets in a disciplined manner and buying back our shares when it's good value for investment. If I look back on the quarter and were to summarize, we executed a capital-efficient program, advanced our marketing strategy with another long-term LNG agreement, and completed several critical milestones for ATACI Phase 1. Discipline, efficiency, and execution, these are themes that have long underpinned our operational performance. At the asset level, we achieved better than expected operating performance, which drove the production outperformance relative to our forecast. This was largely due to revisions we've made in terms of how we developed the Sunrise Asset.

Terry Anderson: This aligns with our strategy to grow free cash flow per share by investing in our assets in a disciplined manner and buying back our shares when it's good value for investors like it is today.

Terry Anderson: If I look back on the quarter and were to summarize we executed in a capital efficient program advanced our marketing strategy with another long term LNG agreement and completed several critical milestones for our <unk> phase one.

Terry Anderson: Discipline efficiency and execution. These are themes that have long underpinned our operational excellence.

Terry Anderson: At the asset level, we achieved better than expected operating performance, which drove the production outperformance relative to our forecast. This was largely due to revisions. We've made in terms of how we develop the sunrise asset we recently modified the well layout at Sunrise to further improved capital efficiencies.

Terry Anderson: We recently modified the well layout at Sunrise to further improve capital efficiencies and lower the supply cost at what is already one of the most economical natural gas plays in North America. As a reminder, Sunrise is a tremendous resource with a long development runway, and it is now directly connected to Coastal GasLink, which supplies natural gas to the LNG Canada project. Moving to CAQA, in the quarter, we saw a production average of 175,000 BOE per day, which included 65,000 barrels per day of cotton.

Terry Anderson: And lower the supply cost at what is already one of the most economic natural gas plays in North America.

Terry Anderson: As a reminder, sunrise is a tremendous resource with long development runway and it is now direct connected to coastal gas link, which supplies natural gas to the LNG, Canada project.

Terry Anderson: Moving to <unk> in the quarter, we saw production averaged 175000 Boe per day, which included 65000 barrels per day of condensate. This is directly in line with our expectations as we plan to maintain <unk> production near this level going forward to optimize free cash flow.

Terry Anderson: This is directly in line with our expectations as we plan to maintain calf blood production near this level going forward to optimize free cash. For perspective, CAQA generated over $300 million of asset-level cash flow in the quarter. And since acquiring it in 2021, it has accumulated approximately $5 billion of asset-level free cash flow, well above what we paid for it. Looking ahead, following the turnaround activity we have planned in Q2 at CAQA, we anticipate growth in the second half of the year as we return to developing a higher condensate gas ratio region of the field. We have also implemented some FRAC design modifications here, and while it's still early, preliminary results are looking positive.

Terry Anderson: For perspective capital generated over $300 million.

Of asset level cash flow in the quarter.

Terry Anderson: And since acquiring it in 2021, it has accumulated approximately $5 billion of asset level free cash flow well above what we paid for the asset.

Terry Anderson: Looking ahead following the turnaround activity, we have planned in Q2 at <unk>, we anticipate growth in the second half of the year as we return to developing a higher condensate gas ratio region of the fields.

Terry Anderson: We have also implemented some frac design modifications here and while it's still early preliminary results are looking positive.

Terry Anderson: Turning to a few financial highlights, ARC generated $100 million of free cash flow in the quarter and returned all of that to our shareholders as planned. Of note, we achieve this free cash flow in a lower natural gas price environment and a more capital-intensive quarter as we complete TACI Phase 1. This validates the sustainability and resilience of our business, enabled by the competitive strengths established over the past 28 years, which include having a low-cost structure underpinned by our own and operated infrastructure, having a balanced commodity mix that includes being the largest condensate producer in Canada, and having a diversified transportation portfolio that allows us to sell our natural gas to key demand markets across North America and capture higher margins. ARC's diversified transportation portfolio stood out this We have discussed at length the benefits of market diversification.

Turning to a few financial highlights arc generated $100 million of free cash flow in the quarter and returned all of that to our shareholders as planned.

Terry Anderson: Note, we achieved this free cash flow in a lower natural gas price environment, and a more capital intensive quarter as we complete attached phase one this validates the sustainability and resilience of our business enabled by the competitive strengths established over the past 28 years.

Terry Anderson: Which include.

Terry Anderson: Having a low cost structure underpinned by our owned and operated infrastructure.

Terry Anderson: Having a balanced commodity mix that includes being the largest condensate producer in Canada, and having a diversified transportation portfolio.

Terry Anderson: It allows us to sell our natural gas to key demand markets across North America and capture higher margins.

Terry Anderson: Our diversified transportation portfolio stood out this quarter with our realized natural gas price of $3 19 per Mcf, which is greater than 150% of the <unk> benchmark.

Terry Anderson: We have discussed at length, the benefits of market diversification, our long term takeaway agreements to access U S markets have been a major contributor to corporate profitability in fact over the past 10 years arc has realized greater than a 125% of the <unk> benchmark on average.

Terry Anderson: Our long-term takeaway agreements to access U.S. markets have been a major contributor to corporate profitability. In fact, over the past 10 years, ARC has realized greater than 125% of the ACO benchmark on average. As an extension of this strategy, ARC has entered into long-term agreements to supply natural gas to LNG projects on the U.S. Gulf Coast and the Canadian West Coast. Most recently, we announced a 20-year agreement with Cedar LNG, whereby ARC will supply 200 million cubic feet of daily natural gas, commencing in the second half of 2028 when the project enters commercial operation.

Terry Anderson: As an extension of this strategy arc has entered into a long term agreement to supply natural gas to LNG projects on the U S Gulf Coast and the Canadian West Coast.

Most recently, we announced a 20 year agreement with Cedar LNG, whereby arc will supply 200 million cubic feet a day of natural gas commencing in the second half of 2028, when the project entered enters commercial operations.

Terry Anderson: Currently, ARC has entered into a non-binding heads of agreement with a global investment grade counterparty for the purchase and sale of these LNG volumes, for which we will receive international prices. We are now in the process of working towards definitive agreements, and we are pleased with the progress made to date. With this announcement, ARC has entered into three LNG supply agreements that will connect ARC's physical gas to global markets in return for international or LNG-based prices.

Terry Anderson: And currently arc has entered into a non binding heads of agreement with a global investment grade counterparty to the purchase and sale of these LNG volumes for which we will receive international pricing. We are now in the process of working towards definitive agreements and we are pleased with the progress made to date.

Terry Anderson: With this announcement arc has entered into three LNG supply agreements that will connect our physical gas to global markets and return for international or LNG based pricing. This will take effect in 2026 with our first generic contract and by the end of the decade, we will achieve our target.

Terry Anderson: This will take effect in 2026 with our first Chenier contract. And by the end of the decade, we'll achieve our target of marketing 25% of our natural gas production to global markets. Finally, I'll close with an update on Atachi.

Terry Anderson: Marketing, 25% of our natural gas production to global markets.

Terry Anderson: Finally, I'll close with an update on attached I am very pleased with the progress. Our team has achieved to date. This is a pivotal year for our company as attach you will add significant value over the next decade and it begins with phase one coming on stream later this year as a reminder, arc is three <unk>.

Terry Anderson: I am very pleased with the progress our team has achieved to date. This is a pivotal year for our company, as Atachi will add significant value over the next decade, and it begins with Phase I coming on stream later this year. As a reminder, ARC has 300 sections of contiguous Montney acreage at Atachi, and this asset has the scale to replicate Kaqua. This initial phase will add approximately 40,000 DOE per day in 2025, representing 10% production growth year-over-year, and the project is tracking on schedule and on budget with zero safety incidents.

Terry Anderson: <unk> sections of contiguous montney acreage at attaching and this asset has the scale to replicate capa, which is the largest condensate producing asset in Canada.

Terry Anderson: This initial phase will add approximately 40000 Boe per day in 2025, representing 10% production growth year over year and the project is tracking on schedule and on budget with zero safety incidents.

Terry Anderson: This past quarter, we've achieved a few important milestones worth highlighting. We recently completed a pipeline bridge that is key to our takeaway strategy. This was the single biggest critical path item to achieve our planned timeline, so we are pleased to complete it. We are on track with our drilling program, having now drilled 22 of 40 wells needed to initially fill the 40,000 BUE per day facility. Finally, we are making excellent progress towards electrifying Atache through BC Hydro, which will establish Atache as one of the lowest emission, condensate-rich natural gas developments in North America.

Terry Anderson: This past quarter, we've achieved a few important milestones worth highlighting.

We recently completed a pipeline bridge that is key to our takeaway strategy. This was the single biggest critical path item to achieve our planned timeline. So we are pleased to complete this.

Terry Anderson: We are on track with our drilling program, having now drilled 22 of 40 wells needed to initially filled a 40000 Boe per day facility.

Terry Anderson: Finally, we are making excellent progress towards electrifying attaching through BC hydro, which will establish the attach he is one of the lowest emissions condensate rich natural gas development in North America.

Terry Anderson: This will also lower our corporate emissions intensity and maintain our status as one of the lowest emissions producers in North America.

Terry Anderson: This will also lower our corporate emissions intensity and maintain our status as one of the lowest emissions producers in North America. To conclude, we are on track and focused on achieving the long-term plan we put forth a year ago. With that, I'll pass it over to Chris.

Terry Anderson: Conclude we are on track and focused on achieving the long term plan, we put forth a year ago.

Terry Anderson: With that I'll pass it over to Chris.

Chris: Thank you, Terry, and good morning, everyone. I'll provide some additional context on the quarter and financial results before turning it back to Terry for closing remarks, and then we'll get into some questions. In terms of operational performance, we delivered quarterly production of 352,000 BOEs per day, weighted 63% to natural gas and 37% to condensate and liquids. This was ahead of our first quarter guidance despite the extreme cold in January and provides good momentum to start the year.

Chris: Thank you Terry and good morning, everyone.

Chris: I'll provide some additional context on the quarter and financial results before turning it back to Terry for closing remarks, and then we'll get into some questions.

Chris: In terms of operational performance, we delivered quarterly production of 352000 Boe per day weighted 63% to natural gas and 37% to condensate and liquids.

Chris: This was ahead of our first quarter guidance. Despite the extreme cold in January that provides good momentum to start the year.

Chris: We generated first quarter cash flow of $607 million and free funds flow of $102 million, which were 3% and 8% above analysts' forecasts, respectively. Lower operating costs and lower capital spending contributed to the outperformance relative to analyst estimates. Operating and transportation expenses were both below the bottom end of company guidance, with operating costs specifically benefiting from lower power prices in Alberta.

Chris: We generated first quarter cash flow of $607 million in free funds flow of $102 million, which was 3% and 8% above analyst forecast respectively.

Chris: Lower operating costs and lower capital spending contributed to the outperformance relative relative to analysts' estimates.

Chris: Operating and transportation expenses were both below the bottom end of company guidance with operating costs, specifically benefiting from lower power pricing in Alberta.

Chris: G&A came in above guidance, primarily due to higher than budgeted share based compensation expense related to recent share price performance.

Chris: G&A came in above guidance primarily due to higher than budgeted share-based compensation expense related to recent share price performance. Starting with the liquid side of our business, we continue to see strong pricing realizations with condensate averaging over $94 in the quarter, and, in turn, condensate and crude oil represented roughly 60% of our revenue in the quarter. Terry already stole the thunder on price realizations on natural gas, but it is worth repeating. ARC realized an unhedged natural gas price of $3.19 per mcf Canadian, which compared to the ECO benchmark of $2.05 and the NIMAX Henry Hub of around US$2.25 or roughly $3 on a Canadian basis.

Chris: Starting with liquid side of our business, we continue to see strong pricing realizations with condensate averaging over $94 in the quarter, and then turn condensate and crude oil represented roughly 60% of our revenue in the quarter.

Chris: Terry already stole the Thunder on price realizations on natural gas, but it is worth repeating.

Chris: Park realized an unhedged natural gas price of $3 19 per Mcf, Canadian which compared to the April benchmark of $2 <unk> and the Nymex Henry hub of around U S $2 25, or roughly $3 on a Canadian basis.

Chris: In total, ARC invested $505 million in the quarter, right in line with our expectations, which included approximately $180 million of spending at Attaché Phase I. About 75% of the capital was invested in drilling and completion. With the balance directed mainly to facilities, including Hitachi Phase 1 and the SuperPAD we are constructing at CAC. As planned, net debt stayed flat quarter over quarter at $1.3 billion or approximately $0.5 times cash flow on a trailing basis, on a four-quarter basis.

Chris: In total our invested $505 million in the quarter right in line with our expectations, which included approximately $180 million of spending Apache phase one.

Chris: About 75% of the capital is invested in drilling and completions.

Chris: With the balanced directed mainly to facilities, including Hitachi phase, one and a super pad, where construction air cargo.

Chris: As planned net debt stayed flat quarter over quarter at $1 3 billion or approximately 0.5 times cash flow on a trailing basis four quarter basis.

Chris: We continue to demonstrate our commitment to a total balanced return, which includes returning essentially all free funds to shareholders. This quarter, dividends and share repurchases equated to 114% of free cash flow. Quarter-to-quarter, this will fluctuate, but on a full-year basis, we expect to return essentially all free funds to shareholders, very similar to what we did in 2020. There's no change in our thinking of the optimal way to return capital.

Chris: We continue to demonstrate our commitment to a total balanced return.

Chris: Which includes returning essentially all free funds flow to shareholders this quarter dividends and share repurchases equated to 114% of free cash flow quarter to quarter. This will fluctuate, but on a full year basis, we expect to return essentially all free funds to shareholders very similar to what we did in 2023.

Chris: There is no change in our thinking of the optimal way to return capital.

Chris: In our view, it is a growing base dividend combined with share repurchase. Not only is this a fundamentally sound and accretive use of capital, but we have received overwhelming support for this strategy from our shareholders. Since initiating our initial NCIB in September of 2021,

Chris: In our view it is a growing base dividend in combination with share repurchases.

Chris: Not only is this a fundamentally sound and accretive use of capital. We have received overwhelming support for this strategy from our shareholders.

Chris: Since initiating our initial in CIB in September of 2021.

Terry Anderson: We've invested over $2.1 billion to buy back 18% of the shares outstanding, and based on our current assumption, this trend will accelerate in 2025, given the expected increase in free cash flow with the addition of Tachi Phase I to our producing assets. Now looking ahead, production and capital spending guidance for 2024 remains unchanged. ARC anticipates investing approximately $1.8 billion, and full-year production is expected to average between 350,000 and 360,000 BOEs per day.

Chris: We've invested over $2 $1 billion to buy back 18% of the shares outstanding and based on our current assumption. This trend will accelerate in 2025, given the expected increase in free cash flow with the addition of attach your phase one to our producing assets.

Chris: Now looking ahead production and capital spending guidance in 2024 remains unchanged arc anticipates investing approximately $1 8 billion.

Chris: In full year production is expected to average between $350 and 360000 Boe's per day.

Terry Anderson: Second quarter production is expected to average between 325,000 to 330,000 BOEs per day before growing to an average of roughly 370,000 BOEs per day in the second half of the year. The decrease in Q2 reflects planned turnaround activity at Capco and Greater Dawson. These are planned to coincide with significant third-party turnarounds to minimize overall downtime. Operating momentum in the second half of the year will be driven by Capra and Greater Dawson, with some contributions from Hitachi as we look to begin commissioning this asset before year-end.

Chris: Second quarter production is expected to average between 325 to 330000 Boe per day before growing to an average of roughly 370000 Boe's per day in the second half of the year.

Chris: The decrease in Q2 reflects planned turnaround activity at Caf, one greater Dawson.

Chris: These are planned to coincide with significant third party turnarounds to minimize overall downtime.

Chris: Operating momentum in the second half of the year will be driven by capital and greater Dawson with some contributions from attach as we look to begin commissioning this asset before year end.

Terry Anderson: As we look ahead, the outlook through 2028 is largely unchanged from the five-year plan we provided a year ago. However, in 2025, we would expect a meaningful increase in production and free cash flow per share. This is largely driven by a 10% increase in production, reflecting a full year contribution from Atachi, and lower capital spending as we transition from growth to sustaining capital at Atachi Phase 1. At StripPricing, we forecast free funds flow per share to more than double to roughly $3 per share in 2025. With that, I'll turn it back to Terry for closing comments.

Chris: As we look ahead the outlook through 2028 is largely unchanged from the five year plan, we provided a year ago.

Chris: In 2025, we would expect a meaningful increase in production in free funds flow per share. This is largely driven by a 10% increase in production, reflecting a full year contribution from Hitachi and lower capital spending as we transition from growth to sustaining capital Apache phase one.

At strip at strip pricing, we forecast free funds flow per share to more than double to roughly $3 per share in 2025.

Chris: With that I'll turn it back to Terry for closing comments.

Terry Anderson: Thank you Chris.

Terry Anderson: Our strategic priorities are to deliver sustainable free cash flow per share growth, adhering to our long-standing principles of capital discipline, profitability, and financial strength. And we plan to deliver this by investing in our most profitable assets and balancing that with a meaningful return of capital that includes a growing base dividend and buying back our shares. I'm confident in our ability to achieve this.

Terry Anderson: Our strategic priorities are.

Terry Anderson: Ivor sustainable free cash flow per share growth adhering to our long standing principles of capital discipline profitability and financial strength.

Terry Anderson: And we plan to deliver this by investing in our most profitable assets and balancing that with a meaningful return of capital that includes a growing base dividend and buying back our shares.

Terry Anderson: I am confident in our ability to achieve this in many ways the momentum and enthusiasm I've observed across the organization reminds me of our initial Montney development at Dawson.

Terry Anderson: In many ways, the momentum and enthusiasm I've observed across the organization reminds me of our initial Montney development at Dawson. Fourteen years ago, we embarked on Dawson Phase 1, which had a facility capacity of 10,000 BOE per day. We learned a lot that year, and while we knew the Dawson asset had tremendous potential, we did not fully appreciate that the Dawson area would grow to its current level of approximately 100,000 BOE per day.

Terry Anderson: 14 years ago, we embarked on Dawson phase, one which had a facility capacity of 10000 Boe per day, we learned a lot that year and while we knew the Dawson asset had tremendous potential we did not fully appreciate that the Dawson area would grow to its current level of approximately 100000 Boe per day.

Terry Anderson: Now, we're on the verge of commissioning ATACHI, a much more significant development opportunity, with the first 40,000 BUE per day phase coming on stream later this year. While similarities exist relative to Dawson, one of the biggest differences is that we have a far better understanding of the development potential of the asset. Today, we have more experience, better technology, and a depth of Montigny knowledge all working together in our favor. This gives me confidence in our ability to efficiently execute and develop Atachi, and I'm truly proud to be part of this next chapter in our company's history.

Terry Anderson: Now we're on the verge of commissioning attached to a much more significant development opportunity with the first 40000 Boe per day phase coming on stream later this year, while similarities exists relative to Dawson one of the biggest differences is we have a far better understanding of the development.

Terry Anderson: All of the asset today.

Terry Anderson: Today, we have more experience better technology and depth of Montney knowledge, all working together in our favor. This gives me confidence in our ability to efficiently execute and develop attached and I'm truly proud to be part of this next chapter in our company's history.

Terry Anderson: So, thank you to all of our staff for your continued focus on profitably growing our business in a safe manner. With your support in executing our five-year plan, we are set to deliver significant shareholder value, nearly tripling free cash flow per share by 2028. With that, thank you, and we can open the line up for questions.

Terry Anderson: So thank you to all of our staff for your continued focus on profitably growing our business in a safe manner with your support in executing our five year plan. We are set to deliver significant shareholder value nearly tripling free cash flow per share by 2028.

Speaker Change: With that thank you and we can open the lineup 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 Don on your telephone keypad.

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 the 1 on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press star followed by 2. If you are using a speakerphone, please lift the handset before pressing any keys.

Speaker Change: John from Technology request questions will be taken in the order you received should you wish to cancel your request. Please press star followed with you. If you are using a speaker phone. Please lift the handset before pressing any Keith one moment. Please for your first question.

Operator: One moment, please, for your first question. Your first question comes from the line of Michael Harvey from RBC Capital Markets. Please go ahead.

Speaker Change: Your first question comes from the line of Michael Harvey from RBC Capital markets. Please go ahead.

Michael Harvey: Yeah, sure. Good morning, guys.

Michael Harvey: Yes sure. Good morning, guys. So just a couple of questions I guess as it relates to phase III.

Michael Harvey: So just a couple questions, I guess, as it relates to phase two, Atachi, 2028. Is there anything that would cause you guys to accelerate that a little bit earlier, whether it's commodity prices, performance, etc., or is 2028 kind of set in stone? And then just on the sunrise of performance, nice to see that. I guess when you start shipping gas to LNG Canada, just wanted to confirm that was the gas you were, in fact, going to be sending there to satisfy that commitment.

Michael Harvey: Attached.

Michael Harvey: 2020, I think is there anything that would cause you guys to accelerate that.

Michael Harvey: Little bit earlier.

Michael Harvey: Whether it's commodity prices performance et cetera, or is 2028 kind of set in stone and then.

Michael Harvey: Just on the Sunrise performance.

Michael Harvey: Nice to see that I guess, when you start shipping gas to LNG, Canada. Just wanted to confirm that was the gas you are in fact can be.

Michael Harvey: And then maybe for Ryan, maybe if you could just walk us through some of the pricing dynamics, if there is, what kind of benefit you'll see above and beyond station two, and then kind of how you backfill that on the West Coast system.

Michael Harvey: Going to be sending there to satisfy their commitment in them.

Maybe for Ryan maybe if you could just walk us through some of the.

Michael Harvey: Pricing dynamics, if there is what kind of benefit youll see above and beyond station too and then kind of how you backfill that on the on the West Coast system.

Terry Anderson: Hey, Mike. It's Terry Anderson.

Michael Harvey: Hey, Mike It's Terry Anderson I'll take your first question here and then turn it over to Ryan for the second one so phase III. It's still planned for 2028, we're trying to really be disciplined here and make sure. We're balancing our capital allocation and really focused on that reinvestment ratio around that 50% across the five.

Terry Anderson: I'll take your first question here and then turn it over to Ryan for the second one. So, Phase 2, it's still planned for 2028. We're trying to really be disciplined here and make sure we're balancing our capital allocation and really focused on that reinvestment ratio of around 50% across the five-year plan. So, if commodity prices are extremely robust, we'll obviously take that into consideration. But we're planning for a three-year cadence, and that's what it is. Ryan. Awesome. Hey Michael.

Michael Harvey: Year plan, so if commodity prices are extremely robust.

Ryan: Well, obviously take that into consideration.

But we're planning for the three year cadence and that's what it is.

Ryan Victor Berrett: So just in regards to your question on Sunrise, the gas that we will be feeding LNG Canada is a deal that we completed a couple of years ago with Shell. We are the only non-equity participant in LNG Canada to have a direct tie-in to CGL Pipeline. So this gas today is currently hitting ACO and will be redirected into Coastal GasLink likely sometime in early 2025.

Ryan: Brian Awesome, Hey, Michael Yes, So just in regards to your question on Sunrise. So the guests that we will that will be feeding the LNG, Canada is a deal that we completed a couple of years ago with shell. We are the only non equity participant in LNG, Canada have a direct tie in into CGM pipeline. So this gas today is key.

Ryan: Currently hit in April and it'll be redirect redirected into coastal gas link likely sometime in early 2025.

Ryan: And the pricing for that will be a modest premium to the <unk> benchmark.

Speaker Change: Great. Thanks, guys.

Operator: Thank you. And your next question comes from the line of Patrick O'Rourke from ATB Capital Markets. Please go ahead.

Speaker Change: Thank you and your next question comes from the line of Patrick <unk> from ETB capital markets. Please go ahead.

Patrick O'rourke: Good morning guys, and thanks for taking my question here. I'm just kind of curious about your 22 out of 40 wells into the program here at Hitachi of potentially hundreds, maybe thousands of wells that you're going to drill. Obviously, you guys have been pretty thoughtful over the years in terms of sort of augmenting and improving your processes. We saw that CAQA sort of widening of interwell spacing. It sounds like you've changed a bit of the wine racking on the horizontals at sunrise here as well.

Patrick: Good morning, guys and thanks for taking my question here.

Patrick: Im just kind of curious your 'twenty two of 40 wells into the program here at Hitachi of potentially hundreds maybe thousands of wells that youre going to drill.

Patrick: Obviously, you guys have been pretty thoughtful over the years in terms of.

Patrick: Sort of augmenting and improving your processes, we saw that sort.

Patrick: Sort of.

Widening of inner well spacing.

Patrick: It sounds like you have changed a bit of the wine racking the horizontals at Sunrise here as well just kind of curious as youre getting your hands on your arms around this project, how youre thinking about sort of well configuration design and completion design and.

Patrick O'rourke: Just kind of curious as you're getting your hands and your arms around this project, how you're thinking about sort of well configuration design and completion design and what could potentially come next as you sort of roll out what the opportunities are.

Patrick: What could potentially come next as he sort of rollout what the opportunities are.

Terry Anderson: So, Patrick, it's Terry here. So, obviously, we're early on in this project, and we're always going to be optimizing. We have the plan in place as to how we're drilling the wells right now, but we're going to, it's going to be optimized as we move through it, and we're going to incorporate So, just as a reminder, 2019 was the last time we drilled our 227 pad in that completion design, and so there are other wells in the area up north into Conoco's lands and around there that we're looking at and reevaluating and trying to optimize.

Terrie: So Patrick it's terrie here. So obviously, we're early into this project and we're always going to be optimizing.

Terrie: We have the plan in place as to how we're drilling the wells right now, but we're going to it's going to be optimized as we move through it and we're going to incorporate so just as a reminder, 2019 was the last time, we drilled our two 2007 pad and that completion design and so there is other wells in the area up north and <unk>.

Terrie: <unk> lands in around there that we're looking at and reevaluating and trying to optimize so without getting into details we're going to continue to optimize where we're at and that's no different than any other field in any any development that we've started and we're taking learnings from <unk> and incorporating that into it so I know.

Terry Anderson: So, without getting into details, we're going to continue to optimize where we're at, and that's no different than any other field in any development that we've started, and we've taken learnings from CAQA and incorporated that into it. So, I know I'm not specific on anything, but it's too early for us to get specific on how we're going to be changing things up.

Terrie: Not specific on anything, but it's too early for us to get specific on how we're going to be changing things up.

Patrick O'rourke: Okay, great. Just a quick one here, maybe building on Mike Harvey's question with respect to ATACHI Phase 2, before I've got to return a capital question too, but you guys, one of the things here is the electrification of ATACHI Phase 1 and the carbon footprint. Do you have power supply secured for the future phases already, or how does that market look for you?

Speaker Change: Okay great.

Speaker Change: A quick one here maybe building on Mike Harvey's question.

Speaker Change: With respect to Hitachi phase two before I got a return on capital question too but.

Speaker Change: Do you guys one of the things here is the electrification of Hitachi phase one in the carbon footprint do you have power supply secured for the future.

Speaker Change: Phases already or how does that market look for you.

Armin Jahangiri: Patrick, this is Armin. Yes, we have power available for phase two. We are working through the details in terms of all the transmission lines and everything to get power, but the plan would be for phase two to also be electric.

Speaker Change: Patrick This is armen, yes, we have power available for phase III, we are working through the details in terms of all of the transmission lines and everything to get power to the site, but the plan would be for phase two to be also electrified.

Patrick O'rourke: Okay, great. And then just finally here in terms of return on capital, you spoke to this a little bit in the prepared remarks, but between the dividend and share buyback, the dividend slightly outpaced the free cash flow in the first quarter. So just wondering if you could give a little bit of color on how you plan to manage that through the years. Is it sort of a level load, or is it going to look more like a free cash flow sweep from quarter to quarter?

Speaker Change: Okay, Great and then just finally in terms of the return of capital.

Speaker Change: You spoke to this a little bit in the prepared remarks, but between the dividend and share buybacks slightly outpaced the free cash flow in the first quarter. So just wondering if you could give a little bit of color with how you plan to manage that through the year or is it sort of a level load.

Or is it going to look more like a free cash flow sweep from quarter to quarter.

Chris: Hey, Patrick, it's Chris here. You know, yeah, so in 2023, you know, we were slightly above free cash flow in terms of distribution. Q1 at 114%. The way we really look at it, it's on an annual basis. So, it will come up and down quarter over quarter. For example, Q2, pretty heavy capital spend with lower production as well. So, I wouldn't be terribly surprised if we were marginally above our free cash flow in that quarter as well.

Speaker Change: Hey, Patrick it's Chris here.

Patrick: Yes, so in 'twenty two 'twenty three we were slightly above free cash flow in terms of distributions.

Chris: Q1 at 114% the way, we really look at it is on an annual basis. So it will it will come up and down quarter over quarter Q2 pretty heavy.

Capital spend with with lower production as well so I wouldn't be terribly surprised if were marginally above our free cash flow of macro as well, but second half of the year with a significantly higher production and pricing.

Chris: But the second half of the year with significantly higher production and pricing, we'll certainly bring that back in line would be the plan. So, there's no set formula on a quarter to quarter basis. Part of it is where the share is trading in terms of our times of buyback, and then balancing it out kind of on an annual basis is the plan. Okay, great, thanks.

Chris: Certainly bring that back in line would be the plan. So theres no set formula on a quarter to quarter basis part of it is where.

Chris: The shares trading in.

Chris: In terms of our times of buyback and then balancing kind of on an annual basis a supplier.

Chris: Okay, great. Thanks very much.

Okay, great. Thanks very much.

Speaker Change: Thank you.

Operator: Thank you. Once again, should you have a question, please press star followed by the 1 on your telephone keypad. And your next question comes from the line of Jamie Kubik from CIBC. Please go ahead.

Speaker Change: Thank you once again Jay do you have a question. Please press star followed by the one on your telephone keypad and your next question comes from the line of Jamie Kubik from CIBC. Please go ahead.

James Kubik: Yeah, good morning, and thanks for taking my question here. Maybe just with respect to Sunrise production during the quarter, correct me if I'm wrong, it was actually lower than Q4'23 levels. Can you just expand a little bit on the well-oil performance that you're talking about in that asset?

Yes, good morning, and thanks for taking my question here, maybe just with respect to Sunrise production during the quarter.

James Kubik: Correct me, if I'm wrong. It was actually lower than Q4 2003 levels can you just expand a little bit on the well performance that you're talking about in that asset.

Larissa Marianne Conrad: Yeah, thanks, Jamie. Lara Conrad here.

Speaker Change: Yeah, Thanks, Jamie <unk> out here and so overall as far as the well performance outperformance scale as we've changed our design at Sunrise, we used to drill three layers in the upper Montney and one in the lower and what we found is we can access the resource with just two layers in the upper and still maintaining that one in the lower <unk>.

Larissa Marianne Conrad: So, overall, as far as the well performance goes, we've changed our design at Sunrise. We used to drill three layers in the upper montan and one in the lower. And what we found is that we can access the resource with just two layers in the upper layer and still maintain that one in the lower. So, we have to increase our tonnage per meter intensity, but we're really finding that design is much improving the capital efficiency of what is already an excellent asset.

Speaker Change: So we have to up increase our tonnage per meter intensity that we're really finding that design as much improving the capital efficiency of what is already an excellent asset.

James Kubik: Okay, and then I know that you have stated gas processing capacity from that asset of 360 million cubic feet a day, but ARC has produced through that in previous quarters. Can you just talk about what the productive capacity is in the area from that region?

Speaker Change: Okay, and then I know that you have stated gas processing capacity from that asset of 360 million cubic feet a day, but arch produced through that.

Speaker Change: Previous quarters can you just talk about what the productive capacity is in the area from that region.

Armin Jahangiri: Yeah, Jamie, this is Armin. Yes, that plant's capacity is 360 million cubic feet. Obviously, when you're operating the plant, depending on the seasonal conditions, you could potentially put a bit more through the plants, but as far as plant capacity is concerned, it's 360 million cubic feet.

Armin: Yes, Jamie this is arming yes that plant's capacity is 360, obviously when you're operating the plan depending on the seasonal conditions, you could potentially put a bit more on through the plants, but.

As far as the plant capacity is 360 million cubic feet per day.

James Kubik: And then maybe just sticking with gas here. ECO and Station 2 pricing on Ford Strip is still pretty weak through the next... For six months below $1.50 a GJ, is there a chance that you delay bringing production on in that type of price environment and just defer until, you know, later in Q3 or Q4?

Speaker Change: Okay, Great and then maybe just sticking on Josh you're a cowen station to pricing on Ford strip still pretty weak through the next.

Speaker Change: $4 six months below a buck 50, a GJ is there a chance that you delay, bringing production on and that type of price environment and just defer until.

Speaker Change: Later in Q3 or Q4.

Chris: No, Jamie, it's Chris here. The plan right now is, you know, as you commented, pricing is not great, but it's still well in excess of what we need to make our rates of return. As a reminder, the only dry gas asset we have is Sunrise, and you've heard us talk about the low cost structure of that property. So it still makes sense to produce in that environment. However, heading into the second half of the year here, we do anticipate some stronger prices.

Speaker Change: No Jamie it's Chris here. The plan right now is not as you commented pricing is not great, but it's still.

Well in excess of what we need to make our rates of return.

Chris: Minder, the only dry gas asset, we havent sunrise and you've heard us talk about the low cost structure of that that property. So it still makes sense to produce in that environment.

Chris: Heading into the second half of the year here, where would you anticipate some stronger pricing.

James Kubik: Okay, great. And then maybe the last one for me is just with respect to Atache and Catcoa, can you just talk about water availability for ARC in these regions? The remaining completion programs in 2024, how do you expect to phase that in with water availability?

Speaker Change: Okay, Great and then maybe last one for me is just with respect to our Kashi and Canaccord can you just talk about water availability for arc in these regions.

Speaker Change: The remaining completion programs in 2024, and how you expect to phased out with water availability.

Armin Jahangiri: Yes, as far as ATACHI is concerned, Jamie, we have water in our ponds and we also have access to a long-term license, so we don't expect any issues or concerns with ATACHI, and CAQA benefits from the same exact situation. We have extensive water infrastructure built in the field already that supports all our drilling and completion activities for the year.

Speaker Change: Yes, as far as attach is concern Jamie we have water in our ponds and we also have access to a long term license. So we don't expect any issues or concerns and Hitachi and cash flow benefits from the same exact situation. We have extensive water infrastructure built in the field already that supports.

Speaker Change: <unk>.

Speaker Change: Drilling and completions activity for the year.

James Kubik: Okay, thank you. I'll turn it back. Thank you once again.

Speaker Change: Okay. Thank you I'll turn it back thanks.

Operator: Thank you. Once again, should you have a question, please press star, then the number 1 on your telephone keypad. There are no further questions at this time. Mr. Lewko, please proceed. All right, thanks.

Speaker Change: Thank you once again should you have a question. Please press Star then the number one on your telephone keypad.

Speaker Change: There are no further questions at this time Mr. Delco. Please proceed.

Dale Lewko: All right. Thank everyone for joining. Have a good day. That concludes the call.

Delco: Alright, thanks, everyone for joining have a good day good day that concludes the call.

Operator: Thank you. That concludes our conference for today. Thank you for participating. You may all disconnect.

Speaker Change: Thank you that concludes our conference for today. Thank you for participating you may all disconnect.