Q2 2024 ARC Resources Ltd Earnings Call
Terry Anderson: Operational momentum into the second half of the year. In terms of production, the base assets performed in line with our expectations. Sunrise was the exception, having greatly outperformed. In natural gas production, over the initial 12-month period, was only a 25% increase in cost. Effectively, we are reducing the total number of wells and total capital spent to recover the same amount of resource. The net effect is a 10% reduction in sustaining capital at Sunrise annually and a lower break even. It's also worth highlighting these type curve changes will reduce the full cycle break even in the upper Montney to approximately a dollar 10 per MCS.
Into the second half of the year.
Terry Anderson: In terms of production, the base assets performed in line with our expectations. However, Sunrise was the exception, having greatly outperformed. Late last year, we changed the well design in the upper Montney, and we are now seeing the benefits, which has resulted in a positive revision to our type curve. On a per well basis, these changes are expected to yield a 40% increase in natural gas production over the initial 12-month period, with only a 25% increase in cost.
In terms of production the base assets performed in line with our expectations.
Sunrise was the exception having greatly outperformed late last year, we changed the well design in the upper Montney. We are now seeing the benefits, which has resulted in a positive revision to our type curve.
On a per well basis. These changes are expected to yield a 40% increase in natural gas production over the initial 12 month period with only a 25% increase in cost.
Terry Anderson: Effectively, we are reducing the total number of wells and total capital spent to recover the same amount of resource. The net effect is a 10% reduction in sustaining capital at sunrise annually and a lower break-even.
Secondly, we are reducing the total number of wells and total capital spent to recover the same amount of resource that net effect is a 10% reduction in sustaining capital at Sunrise annually and a lower breakeven.
Terry Anderson: It's also worth highlighting these type curve changes will reduce the full cycle break even in the upper Montney to approximately $1.10 per MCF. As many of you know, Sunrise has a long inventory runway and is directly connected to LNG Canada, making it a great option for us to supply natural gas to the project beginning early next year. Turning to our capital investments, we executed an efficient program that focused on advancing attache while remaining active at our condensate-rich assets at CAQA and Greater Dawson. This is expected to drive record condensate volumes for the organization by year end.
It's also worth highlighting these type curve changes will reduce the full cycle breakeven in the upper montney to approximately $1 10 per Mcf.
Terry Anderson: As many of you know, Sunrise has a long inventory runway and is directly connected to LNG Canada, making it a great option for us to supply natural gas to the project beginning early next year. Turning to our capital investments, we execute an efficient program that focused on advancing attachee while remaining active at our cornstake rich assets at Kaqua and Greater Dawson. This is expected to drive record cornstake volumes for the organization by year end. At attachee phase one is on schedule and on budget with a project sitting at approximately 75% complete. As of today, the plant is near in completion with the final outstanding pieces of equipment now on site.
As many of you know Sunrise has a long inventory runway and his direct connected to LNG, Canada, making it a great option for us to supply natural gas to the project beginning early next year.
Turning to our capital investments, we executed an efficient program that focused on advancing attach heat while remaining active at our condensate rich assets at <unk> and greater Dawson. This is expected to drive record condensate volumes for the organization by year end.
Terry Anderson: At Hitachi, phase one is on schedule and on budget with the project sitting at approximately 75% complete. As of today, the plant is nearing completion, with the final outstanding pieces of equipment now on site. We have drilled 30 of the 40 wells required to fill the 40,000 BOV per day capacity and have completed 20.
At attaching phase one is on schedule and on budget with our projects sitting at approximately 75% complete.
As of today. The plant is nearing completion with the final outstanding pieces of equipment now on site we.
Terry Anderson: We have drilled 30 of the 40 wells required to fill the 40,000 beauty per day capacity and have completed 20 electrification of the project. At startup, it is on trap with construction and installation of critical infrastructure complete and ready to be energized. And the liquids gathering lines and pipelines are on schedule and near in completion. As one shareholder reminded me a while ago, the only percent complete staff that actually matters is the 100% one.
We have drilled 30 of the 40 wells required to fill the 40000 Boe per day capacity and have completed 20 <unk>.
Terry Anderson: Electrification of the project as startup is on track with construction and installation of critical infrastructure complete and ready to be energized. And the liquids gathering lines and pipelines are on schedule and nearing completion. As one shareholder recently reminded me, the only percent complete staff that actually matters is the 100% one.
Electrification of the project that startup is on track with construction and installation of critical infrastructure complete and ready to be energized and our liquids gathering lines and pipelines are on schedule and nearing completion.
Speaker Change: As one shareholder reminded me a while ago the only percent complete staff that actually matters, it's 100% one.
Terry Anderson: Therefore, we will not be complacent, and we will remain focused on executing on our key deliverables for phase one. I look forward to providing another update in October and showing firsthand the progress we have made on this exciting growth project during our first ever investor tour at ATT&CK. Moving on, I'd like to highlight a couple of key developments that are of strategic importance to ARC. The first was an agreement that was recently announced by the government of B.C.
Terry Anderson: Therefore, we will not be complacent, and we will remain focused on executing on our key deliverables for phase one.
Therefore, we will not be complacent and we will remain focused on executing on our key deliverables for phase one.
Terry Anderson: I look forward to providing another update in October and showing firsthand the progress we have made at this exciting growth project at our first ever investor to our attachee.
I look forward to providing another update in October and showing firsthand. The progress we have made at this exciting growth project at our first ever Investor Tour at Hitachi.
Moving on I'd like to highlight a couple of key developments that are of strategic importance to arc <unk>.
Terry Anderson: Moving on, I'd like to highlight a couple of key developments that are of strategic importance to ARC. The first was an agreement that was recently announced by the government of BC and the Halfway River First Nation, which included a landscape planning pilot that further de-risked the long-term development plan at ARC's attachee asset. The agreement outlines a new framework that will exempt ARC from the disturbance cap for attachee that was previously implemented under the blueberry agreement. Under this landscape planning pilot, ARC will be the sole oil and gas producer exempt from the disturbance caps in this area.
Terry Anderson: and the Halfway River First Nation, which included a landscape planning pilot that further de-risked the long-term development plan at Arcetaxi, Alaska. The agreement outlines a new framework that will exempt ARC from the disturbance cap for a TACHI that was previously implemented under the Blueberry Agreement. Under this landscape planning pilot, ARC will be the sole oil and gas producer exempt from the disturbance caps in this area. ARC's inclusion in this pilot is directly tied to our commitment to being a best-in-class, responsible energy producer and the strong relationship we have established with the Halfway River First Nation over the past 20 years. I'd like to thank Chief Hunter and the council for their partnership.
The first was an agreement that was recently announced by the government of BC and the halfway River first nation, which included a landscape planning pilot that further de risk the long term development plan at <unk> ataxia asset.
The agreement outlines a new framework that will exempt from the disturbance cap for Apache that was previously implemented under the blueberry agreement.
Under this landscape planning pilot arc will be the sole.
Oil and gas producer exempt from the disturbance caps in this area.
Terry Anderson: ARC's inclusion in this pilot is directly tied to our commitment to being a best-in-class responsible energy producer and the strong relationship we have established with the Halfway River First Nation over the past 20 years. I'd like to thank Qi Hunter and Council for their partnership. I'm truly proud of the collaborative efforts to advance responsible development in Northeast BC.
Speaker Change: ARX inclusion in this pilot is directly tied to our commitment to being a best in class responsible energy producer and the strong relationship we have established with the halfway River first nation over the past 20 years.
Speaker Change: I would like to thank G Hunter and counsel for their partnership I'm truly proud of the collaborative efforts to advance responsible development in northeast BC.
Terry Anderson: I'm truly proud of the collaborative efforts to advance responsible development in Northeast B.C. Also last quarter, we witnessed the positive FID for Cedar LNG. In June, I had the opportunity to attend the celebration event and see firsthand the impact this project will have on Canada, B.C., and the Haisla Nation.
Speaker Change: Also last quarter, we witnessed the positive <unk> of <unk>.
Terry Anderson: Also last quarter we witnessed the positive FID of Cedar LNG. In June, I had the opportunity to attend the celebration event and see first-hand the impact this project will have on Canada, BC, and the Highland Nation. This is an important project and one we are excited to be part of. ARC will deliver approximately 200 million cubic feet per day of natural gas to the project. Approximately half of the facility's capacity for a term of 20 years, which is anticipated to begin in late 2028. We continue to make excellent progress related to the sale and purchase agreement of the associated LNG off-take and are on track to have this completed by the end of this year.
Cedar LNG and.
Speaker Change: In June I had the opportunity to attend the celebration event and see firsthand. The impact. This project will have on Canada, BC Hydro a nation.
Terry Anderson: This is an important project and one we are excited to be part of. ARC will deliver approximately 200 million cubic feet per day of natural gas to the project, approximately half of the facility's capacity for a term of 20 years, which is anticipated to begin in late 2028. We continue to make excellent progress related to the sale and purchase agreement for the associated LNG offtake and are on track to have this completed by the end of this year.
Speaker Change: This is an important project and one we are excited to be part of.
Speaker Change: <unk> will deliver approximately 200 million cubic feet per day of natural gas to the project approximately half of this facility's capacity for a term of 20 years, which is anticipated to begin in late 2028.
We continue to make excellent progress related to the sale and purchase agreement of the associated LNG Offtake and are on track to have this completed by the end of this year.
Terry Anderson: Together with the two other LNG agreements with Shania that take effect later this decade, ARC will meet our target of having approximately 25% of future natural gas supply physically delivered to and priced off of international prices.
Terry Anderson: Together with the two other LNG agreements with Chenier that take effect later this decade, ARC will meet its target of having approximately 25% of future natural gas supply physically delivered to and priced off of international prices. In the short term, we are operating in a cyclical bottom for natural gas, while current state prices exceed $100 Canadian per barrel. With a balanced commodity mix and as the largest condensate producer in Canada, we have considerable flexibility to maximize returns across our assets.
Speaker Change: Together with the two other LNG agreements with Cheniere that take effect later this decade arc will meet our target of having approximately 25% of future natural gas supply physically delivered to and priced off of international prices.
Terry Anderson: In the short term, we are operating in a cyclical bottom for natural gas. We'll come to say price and exceed $100 Canadian per barrel. With a balanced commodity mix and as the largest corn state producer in Canada, we have considerable flexibility to maximize the returns across our asset base. ARC is a very disciplined company focused on profitability over BLE's. With natural gas prices below a dollar, we have elected to shut in 250 million cubic feet per day at Sunrise, which is our only dry gas asset. This represents about 18% of our natural gas production, which will be easily restored when prices recover.
Speaker Change: In the short term, we are operating in a cyclical bottom for natural gas, while condensate prices exceed $100 Canadian per barrel.
Speaker Change: With a balanced commodity mix and as the largest condensate producer in Canada, we have considerable flexibility to maximize the returns across our asset base.
Terry Anderson: ARC is a very disciplined company focused on profitability over BOE. With natural gas prices below $1, we have elected to shut in 250 million cubic feet of gas per day at sunrise, which is our only dry gas asset. This represents about 18% of our natural gas production, which will be easily restored when prices recover. And while Sunrise has a cash breakeven at $0.65 per MCF and is one of the lowest cost assets in North America, we are not meeting full cycle returns below $1 per MCF.
Speaker Change: Arc is a very disciplined company focused on profitability over Boe.
Speaker Change: With natural gas prices below a dollar.
Speaker Change: We have elected to shut in 250 million cubic feet per day at Sunrise, which is our only dry gas asset.
Speaker Change: This represents about 18% of our natural gas production, which will be easily restored when prices recover.
Terry Anderson: While sunrise has a cash break even at 65 cents per MCF and is one of the lowest cost assets in North America, we are not meeting full cycle returns below a dollar per MCF. We have considerable operating momentum in our corn state rich assets as greater Dawson, Kaqua, and Attachee. Combined, these assets will drive record corn state volumes for ARC by year and through 2025. As we look out to the second half of the year and into 2025, everything within our control is working in our favor. We are focused as an organization on efficient execution and are getting very close to delivering a meaningful increase in profitability with the commissioning of our first phase to Attachee.
Speaker Change: And while Sunrise has a cash breakeven at <unk> 65 per Mcf and is one of the lowest cost assets in North America, we are not meaningful cycle returns below $1 per Mcf.
Terry Anderson: We have considerable operating momentum in our constant rich assets at Greater Dawson, CAQA, and attached. Combined, these assets will drive record compensated volumes for ARC by year-end and through 2025. As we look out to the second half of the year and into 2025, everything within our control is working in our favor. We are focused as an organization on efficient execution and are getting very close to delivering a meaningful increase in profitability with the commissioning of our first phase detached. With that, I'll turn it to Chris.
Speaker Change: We have considerable operating momentum in our condensate rich assets at greater Dawson CAC and attaching.
Speaker Change: Combined these assets will drive record condensate volumes for our by year end and through 2025.
Speaker Change: As we look out to the second half of the year and into 2025 everything within our control is working in our favor we.
Speaker Change: We are focused as an organization on efficient execution and are getting very close to delivering a meaningful increase in profitability with the commissioning of our first phase detached.
Chris: With that, I'll turn it to Chris. Thanks, Terry. Good morning, everyone. First, on the quarter itself, second quarter production of 330,000 buoys per day and cash loafers share of 84 cents. We're both directly in line with our internal forecast and analyst expectations. Production was at the top end of the production range of 325 to 330,000 buoys per day that was previously guided to for the second quarter, while capital spending of $530 million registered slightly below consensus and included $180 million of investment at a taxi as we advance phase one. We expect that second quarter production will be the low print this year, reflecting all the scheduled maintenance that was concentrated in the quarter.
Speaker Change: With that I'll turn it to Chris.
Chris: Thanks, Terry and good morning, everyone.
Chris: Thanks, Terry, and good morning, everyone. First on the quarter itself, second quarter production of 330,000 BOEs per day and cash flow per share of $0.84. We are both directly in line with our internal forecast and analyst expectations. Production was at the top end of the production range of 325,000 to 330,000 BOEs per day that was previously guided to for the second... While capital spending of $530 million registered slightly below consensus and included $180 million of investment at Hitachi as we advance phase one.
Chris: So in the quarter itself second quarter production of 330000 Boe's per day in cash flow per share of <unk> 84 for.
Chris: We're both directly in line with our internal forecast and analyst expectations.
Speaker Change: Production was at the top end of the production range of 325 to 330000 Boe's per day that was previously guided to for the second quarter capital spending of $530 million Richard slightly below consensus and included a $180 million of investment at Apache as we advanced phase one.
Chris: We expect that second quarter production will be the low point this year, reflecting all of the scheduled maintenance that was concentrated in the quarter.
Chris: We expect that second quarter production will be the lowest print this year. Reflecting all the scheduled maintenance that was concentrated in the, we expect fourth quarter production to be about 17% higher at approximately 385,000 BOEs per day as we restore sunrise production and get some contribution from Hitachi late in the year. Funds from operations in the second quarter were $503 million.
Chris: We expect fourth quarter production to be about 17% higher at approximately 385,000 buoys per day. As we restore sunrise production and get some contribution from Attachee late in the year. Funds from operation in the second quarter was $503 million. Natural gas prices were low in both the US and Canada, averaging $1.40 at Aiko and Canada, and $1.90 at Henry Hub in the US. However, condensate average $104 Canadian per barrel, contributing to an operating netback of $18.50 per Buoy. This highlights both the low-cost nature of our assets and the benefits of a diversified commodity mix that include a high proportion of condensate.
Chris: We expect fourth quarter production to be about 17% higher at approximately 385000 Boe's per day as we restore sunrise production and get some contribution from Hitachi late in the year.
Speaker Change: Funds from operation in the second quarter was $503 million natural gas prices were low in both the U S and Canada, averaging $1 40 at equal in Canada, and $1 90 at Henry hub in the U S. However, condensate averaged $104 Canadian per barrel contributing to an operating netback of $18 50.
Chris: Natural gas prices were low in both the U.S. and Canada, averaging $1.40 at ACO in Canada and $1.90 at Henry Hub in the U.S. However, condensate averaged $104 Canadian per barrel, contributing to an operating net back of $18.50 per BOE. This highlights both the low-cost nature of our assets and the near-term outlook for ACO. However, we were fortunate enough to have the foresight to limit our exposure to ACO.
Speaker Change: <unk> per Boe.
Speaker Change: This highlights both the low cost nature of our assets and the benefits of a diversified commodity mix that include a high proportion of condensate.
Chris: The near-term outlook for Aiko remains challenged. However, we were fortunate enough to have the foresight to limit our exposure to Aiko. With the production curtailment at sunrise, we're able to use the optionality in our transportation portfolio to reduce our Station Two volumes in BC to zero and sell minimum volumes into Aiko spot market throughout the rest of the summer. Extending our natural gas view out a few months, the fundamental outlook will be structurally different. Current prices will or certainly certainly should, if people are acting rational, force shut-ins, or to minimum slow activity. Later this year, Western Canada will experience a material increase in natural gas demand, as LNG Canada ramps up, directing more than 10% of our current supply off the West Coast.
Chris: The near term outlook for Eco remains challenged however, we were fortunate enough to have the foresight to limit our exposure to April.
Chris: With the production curtailment at Sunrise, we're able to use the optionality in our transportation portfolio to reduce our Station 2 volumes in BC to zero and sell minimum volumes into the ACO Spot Market throughout the rest of the summer. By extending our natural gas view out a few months, the fundamental outlook will be structurally different.
Speaker Change: With the production curtailment at Sunrise, we're able to use the optionality in our transportation portfolio to reduce our station to volumes in BC to zero and so minimum volumes into eco spot market throughout the rest of the summer.
Speaker Change: Extending our natural gas view at a few months the fundamental outlook will be structurally different current prices will certainly certainly should if people are acting rational forced shut ins or at a minimum slow activity.
Chris: Current prices will, or certainly should, force shut-ins or, at a minimum, slow activity. Later this year, Western Canada will experience a material increase in natural gas demand as LNG Canada ramps up, directing more than 10% of our current supply off the West Coast. As a result, we expect significant price volatility that will, at times, need to be high enough to incent additional supply growth to backfill this.
Speaker Change: After this year Western Canada will experience a material increase in natural gas demand is there.
Speaker Change: LNG, Canada ramps up directing more than 10% of our current supply off the west coast.
Chris: As a result, we expect significant price volatility that will, at times, need to be high enough to incent additional supply growth to backfill this incremental demand. Beyond the next few years, we've been anticipating incremental 2.5 to 3 BCF per day of growth demand growth from LNG capacity or the subsequent four to seven years from LNG Canada Phase Two, Wood Fiber, and Cedar LNG, all of which allocated capacity on existing pipelines.
Speaker Change: As a result, we expect significant price volatility that will at times need to be high enough to incent additional supply growth to backfill this incremental demand.
Speaker Change: Beyond the next few years, we would anticipate an incremental two five to three bcf per day of growth growth demand demand growth for LNG capacity over the subsequent four to seven years from LNG, Canada Phase III wood fiber and Cedar LNG, all of which allocated capacity on existing pipelines.
Chris: Beyond the next few years, we would anticipate an incremental 2.5 to 3 BCF per day of demand growth from LNG capacity over the subsequent 4 to 7 years from LNG Canada Phase II, wood fiber, and cedar LNG, all of which have allocated capacity on existing pipelines. Moving on to capital returns, through the first six months of the year, ARC has returned 115% of free cash flow to shareholders through share repurchases and dividends.
Chris: Moving on to capital returns. Through the first six months of the year, ARCH has returned a hundred and fifteen percent of free cash flow to shareholders through share repurchases and dividends. On a quarter-to-quarter basis, this will fluctuate; on a full-year basis, we expect to return essentially all free funds flow to shareholders, similar to what we did in 2023. The amount of capital that we will return will materially increase beginning in the fourth quarter of this year with the completion of a taxi phase one. Since September of 2021, when we initiated share buybacks, ARCH has repurchased 132 million shares at an average price of approximately $16 per share, representing 18% of the shares outstanding at that time.
Speaker Change: Moving on to capital returns.
Speaker Change: Through the first six months of the year arc has returned 115% of free cash flow to shareholders through share repurchases and dividends.
Chris: On a quarter-to-quarter basis, this will fluctuate, but on a full-year basis, we expect to return essentially all pre-fund flow to shareholders, similar to what we did in 2020. The amount of capital that we will return will materially increase beginning in the fourth quarter of this year with the completion of Hitachi phase one. Since September of 2021, when we initiated share buybacks, ARC has repurchased 132 million shares at an average price of approximately $16 per share, representing 18% of the shares outstanding at that time.
Speaker Change: On a quarter to quarter basis. This will fluctuate on a full year basis, we expect to return essentially all free funds flow to shareholders similar to what we did in 2023.
Speaker Change: The amount of capital that we will return will materially increase beginning in the fourth quarter of this year with the completion of attach your phase one.
Speaker Change: Since September of 2021, when we initiated share buybacks arc has repurchased 132 million shares at an average price of approximately $16 per share representing 18% of the shares outstanding at that time.
Chris: It was a good investment then, and we believe it remains a profitable investment today. We intend to once again renew our NCIB in September for an additional 10% of the public flow. At quarter N, net debt increased slightly to $1.5 billion as capital investment plus dividends slightly exceeded our cash flow. This is in part due to the $180 million invested attachee combined with low gas prices and a heavy turnaround quarter. ARC always has been and will remain a balance sheet first organization. We exited the quarter with debt to cash flow of approximately 0.6 times trailing cash flow and approximately $1.3 billion of undrawn credit capacity.
Chris: It was a good investment then, and we believe it remains a profitable investment today. We intend to once again renew our NCIB in September for an additional 10% of the public float. At quarter end, net debt increased slightly to $1.5 billion as capital investment plus dividends slightly exceeded our cash flow.
Speaker Change: It was a good investment them and we believe it remains a profitable investment today.
Speaker Change: Tend to once again renew or in CIB in September for an additional 10% of the public float.
Speaker Change: At quarter end net debt increased slightly to $1 5 billion as capital investment plus dividends slightly exceeded our cash flow.
Chris: This is in part due to the $180 million invested at Tachi, combined with low gas prices and a heavy turnaround quarter. ARC always has been and will remain a Balance Sheet First organization. We exited the quarter with a debt-to-cash flow of approximately 0.6 times trailing cash flow and approximately $1.3 billion of undrawn credit capacity. Finally, I'll wrap up with guidance and then turn it back to Terry.
Speaker Change: This is in part due to the $180 million invested attach a combined with low gas prices and a heavy turnaround quarter.
Speaker Change: <unk> always has been and will remain our balance sheet first organization.
Speaker Change: Did the quarter with net debt to cash flow of approximately 0.6 times trailing cash flow and approximately $1 3 billion.
Speaker Change: Undrawn credit capacity.
Chris: Finally, I'll wrap up with guidance, and then turn it back to Terry. Production, cost, and capital spending guidance in 2024 were all unchanged, inclusive of the natural gas shut-ins at Sunrise. We anticipate full-year production to average between 350 to 360,000 BOEs per day on an unchanged capital program between $1.75 and $1.85 billion. Where average production falls on the range will be influenced by the duration of the natural gas shut-ins at Sunrise with our current expectation to be at the lower end of the range. Fourth quarter production, as Terry mentioned, is expected to average between 380 and 385,000 BOEs per day.
Speaker Change: Finally, I'll wrap up with guidance and then turn it back to Terry.
Speaker Change: Production cost and capital spending guidance in 2024, we're all unchanged inclusive of the natural gas shut ins at Sunrise.
Chris: Production costs and capital spending guidance in 2024 were all unchanged, inclusive of the natural gas shut-ins at Sunrise. We anticipate full-year production to average between 350,000 to 360,000 DOEs per day on an unchanged capital program of between $1.75 and $1.85 billion. Where average production falls in the range will be influenced by the duration of the natural gas shut-ins at sunrise, with our current expectation to be at the lower end of the range.
Speaker Change: We anticipate full year production to average between 350 to 360000 Boe per day.
Terry: Unchanged capital program between $1, 75, and $1 85 billion.
Terry: Where average production falls in the range will be influenced by the duration of the natural gas shut ins at Sunrise with their current expectation to be at the lower end of the range.
Chris: Fourth quarter production, as Terry mentioned, is expected to average between 380,000 and 385,000 BOEs per day. Under this scenario, that would incorporate the restored gas production at Sunrise, condensate-rich growth at Greater Dawson and Kakwa, and some contribution from Attachments.
Speaker Change: Fourth quarter production as Terry mentioned is expected to average between 380 and 385000 Boe's per day under this scenario that would incorporate the restored gas production at Sunrise condensate rich growth at greater to us and in Capa and some contribution from attaching.
Chris: Under this scenario, that would incorporate the restored gas production at sunrise, condensate-rich growth at greater Dawson and CACWA, and some contribution from attaching.
Chris: As we look ahead to 2025 and beyond, ARC remains on track to achieving its goals of the long-term plan introduced last year. In 2025, our shareholders will benefit from the first full year of attached production, representing a 10% increase in our production with a commensurate decrease in capital spending. As a result, we would expect free fund flow to be approaching $3 per share at current strip pricing, which is planned to be returned to shareholders. In terms of how we return that free cash flow to shareholders, our view is not changed. We return all free cash flow to shareholders in the form of share repurchases and a growing base dividend.
Speaker Change: As we look ahead to 2025 and beyond arc remains on track to achieving its goals of the long term plan introduced last year.
Chris: As we look ahead to 2025 and beyond, ARC remains on track to achieving its goals of the long-term plan introduced last year. In 2025, ARC shareholders will benefit from the first full year of Atachi production, representing a 10% increase in our production, with a commensurate decrease in capital spending. As a result, we would expect free funds flow to be approaching $3.00 per share at current strip prices, which is planned to be returned to shareholders.
Speaker Change: In 2025, our shareholders will benefit from the first full year of attach your production representing a 10% increase in our production with a commensurate decrease in capital spending.
Speaker Change: As a result, we would expect free funds flow to be approaching $3 per share at current strip pricing, which is planned to be returned to shareholders.
Chris: In terms of how we return that free cash flow to shareholders, our view has not changed. We return all free cash flow to shareholders in the form of share repurchases and a growing base dividend. The balance sheet remains strong, so the need for debt repayment is low. Our business is bulletproof at the bottom of the cycle, and we return a deep drilling inventory in some of the most profitable assets in North America. So there's no requirement for M&A to backfill that inventory. We plan to disclose formal 2025 guidance in November with our Q3 results. With that, I'll turn it back to Terry for closing comments.
Speaker Change: In terms of how we return that free cash flow to shareholders. Our view has not changed.
Speaker Change: We return all free cash flow to shareholders in the form of share repurchases and a growing base dividend balance.
Chris: Balance sheet remains strong, so the need for debt repayment is low. Our business is bulletproof at the bottom of the cycle, and we return a deep inventory drilling, deep drilling inventory in some of the most profitable assets in North America. So there's no requirement for emanated backfill that inventory.
Speaker Change: Balance sheet remains strong so the need for debt repayment is low our businesses bullet proof of the bottom of the cycle and we return a deep inventory of drilling deep drilling inventory and some of the most profitable assets in North America.
Speaker Change: So there is no requirement for M&A to backfill that inventory.
Chris: We plan to disclose formal 2025 guidance in November with our Q3 results.
Speaker Change: We plan to disclose formal 2025 guidance in November with our Q3 results with that I'll turn it back to Terry for closing comments.
Terry Anderson: With that, I'll turn it back to Terry for closing comments. Thanks, Chris. I want to close by highlighting the excitement in the organization about the positive momentum as we approach the backhouse of the year and think about 2025. We are realizing operational efficiencies across our assets and attach its progressing as planned with first volumes later this year. Together, these milestones will drive a significant change in our business, beginning later this year and extending well through the decade. Thank you to all our shareholders for your trust as we execute the plan.
Terry: Thanks, Chris.
Terry Anderson: I want to close by highlighting the excitement in the organization about the positive momentum as we approach the back half of the year and think about 2025. We are realizing operational efficiencies across our assets, and Atachi is progressing as planned with first volumes later this year. Together, these milestones will drive a significant change in our business, beginning later this year and extending well through the decade. Thank you to all our shareholders for your trust as we execute this plan. With that, thank you, and we can open the line up for questions.
Terry: I want to close by highlighting the excitement in the organization about the positive momentum as we approach the back half of the year and think about 2025.
Speaker Change: We are realizing operational efficiencies across our assets and Hitachi is progressing as planned with first volumes. Later this year together. These milestones will drive a significant change in our business. Beginning later this year and extending wells through the decade.
Speaker Change: Thank you to all our shareholders for your trust as we execute the plan.
Terry Anderson: With that, thank you, and we can open the line up for questions.
Speaker Change: With that thank you and we can open the lineup for questions. Thank.
Operator: Thank you, sir. Ladies and gentlemen, as mentioned earlier, if you would like to ask a question, please press star followed by a one on your touch. on phone. You will then hear A3 tone prompt acknowledging your request. If you would like to withdraw from the question queue, you will need to press star followed by two. And if you're using a speaker phone, please list the handset before pressing any keys. Please go ahead and press star one now if you do have a question.
Operator: Ladies and gentlemen, as mentioned earlier, if you would like to ask a question, please press star followed by 1 on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. If you would like to withdraw from the question queue, you will need to press star followed by 2. And if you're using a speakerphone, please lift the handset before pressing any keys. Please go ahead and press star 1 now if you do have a question. Your first question will be from Josh Silverstein at UBS. Please go ahead.
Speaker Change: Thank you Sir.
Speaker Change: Ladies and gentlemen, as mentioned earlier, if you would like to ask a question. Please press star followed by one on your Touchtone phone.
Speaker Change: We'll then hear <unk> don't prompt acknowledging your request if you would like to withdraw from the question queue, you will need to press star followed by two and if youre using a speaker phone. Please lift the handset before pressing any keys. Please go ahead and press Star one now if you do have a question.
Josh Silverstein: Your first question will be from Josh Silverstein at UBS. Please go ahead. Good morning, guys.
Speaker Change: Your first question will be from Josh Silverstein of UBS. Please go ahead.
Josh Silverstein: Hey, Thanks, good morning, guys.
Josh Silverstein: Hey, thanks. Good morning, guys. Now that we're getting closer to the startup of Hitachi, I just wanted to see if you could walk through a little bit more detail as to how the ramp looks.
Chris: Now that we're getting closer to the start-up of Attachee, I just wanted to see if you can walk through a little bit more details as to how the ramp looks. Does condensate start before gas or vice versa, or does everything kind of come online together through kind of rent through the first quarter? Thanks. I can grab it. Thanks, Josh, for the question. Chris here.
Josh Silverstein: Now that we're getting closer to the startup of Apache I just wanted to see if you can walk through a little bit more details as to how the ramp looks.
Chris: Does condensate start before gas or vice versa? Or does everything kind of come online together through kind of right through the first quarter? Thanks.
Josh Silverstein: Is there does condensate start before gas or vice versa, or does everything kind of come online together through kind of a read through the first quarter.
Speaker Change: I can grab it.
Josh Silverstein: I can grab it. Thanks, Josh, for the question. Chris here. So, as we've kind of been hinting at here, we would expect the ramp period to actually occur late 2024, so that we will effectively be running, attaching Phase 1 in Q1 of 2025, effectively full. So, in late 2024, we'll ramp it up and then keep it flat throughout Q1 of 2025.
Josh Silverstein: Thanks, Josh for the question.
Josh Silverstein: Chris here, so as we've kind of been hinting at here, we would expect the ramp period to actually occur late 2024.
Chris: As we've kind of been handing out here, we would expect the ramp period to actually occur late 2024, so that we will effectively be running Attachee Phase 1 in Q1 of 2025 effectively fault. So late 2024 will ramp it and then keep it flat throughout Q1 of 2025. Gotcha.
Josh Silverstein: So that we will effectively be.
Josh Silverstein: Running Apache phase one in Q1 of 2025 effectively full so late 24, we'll wrap it and then keep it flat throughout Q1 of 2025.
Speaker Change: Okay got you and then.
Chris: Gotcha. And then, Chris, you mentioned some comments there as far as the balance sheet and then the return on capital profile. I imagine maybe there is some debt reduction you want to do in the back half of this year, but as you get that pre-cash flow inflection, do you think about 100% of pre-cash flow going towards shoulder returns? Or do you actually want to build some cash for the next investment phase of attaching?
Chris: And then Chris, you've mentioned some comments there as far as the bound sheet and then the return of capital profile. I imagine maybe there are some that reduction you want to do in the back half of this year, but as you get that pre-cash flow inflection, do you think about 100% of pre-cash flow going towards shoulder returns or do you actually want to build some cash for the next investment phase of Attachee? So what we do is we look at it on an annual basis, so effectively kind of like a 12-month payout period, and we say essentially all pre-cash flow going back to shareholders on an annual basis.
Speaker Change: Because you mentioned some comments there as far as the balance sheet and then the return of capital profile.
Speaker Change: I imagine maybe there is some debt reduction you want to do in the back half of this year, but as you get that free cash flow inflection do you think about a 100% of free cash flow going towards shareholder returns or do you actually want to build some cash for the next investment phase of attaching.
Speaker Change: Yes, so what we do is we look at it on a on an annual basis or so effectively kind of like a 12 month payout period, and we say essentially all free cash flow going back to shareholders on an annual basis. So we've accumulated a little bit of that here in the first half of the year. So the intention would be by the by the end of the year or shortly thereafter.
Chris: So what we do is we look at it on an annual basis, so effectively, kind of like a 12-month payout period, and we say essentially all free cash flow is going back to shareholders on an annual basis. So we've accumulated a little bit of debt here in the first half of the year, so the intention would be by the end of the year or shortly thereafter, we'll balance that out so that on an annual basis, payout will be very close to 100%.
Chris: So we've accumulated a little bit of debt here in the first half of the year. So the intention would be, by the end of the year, shortly thereafter, we'll balance that out so that on an annual basis, payout will be very close to 100%. And then as we roll forward in the next couple of years, you know, we're more than comfortable to use our bound sheet to develop these assets, so we will maintain that effectively essentially all pre-cash flow going back to share it all was going forward. Great. Thanks, Chris. Thank you.
Josh Silverstein: After we will balance that out so that on an annual basis payment will be very close to 100% and then as we roll forward in the next couple of years, we're more than comfortable to use our balance sheet.
Chris: And then as we roll forward in the next couple of years, you know, we're more than comfortable using our balance sheet to develop these assets, so we will maintain that effectively, all free cash flow going back to shareholders going forward.
Josh Silverstein: To develop these assets so we will maintain that effectively essentially all.
Josh Silverstein: Free cash flow going back to shareholders going forward.
Josh Silverstein: Okay.
Josh Silverstein: Great. Thanks, Chris. Thank you.
Speaker Change: Great. Thanks, Chris.
Speaker Change: Thank you.
Josh Silverstein: Yeah.
Patrick: Again, please a reminder to press star one if you have any questions. And your next question will be from Patrick or Rick at ATB Capital. Please go ahead. Hey guys, good morning, and thank you for taking my question here. Just a couple of quick things.
Patrick O'rourke: Again, please a reminder to press star 1 if you have any questions. And your next question will be from Patrick O'Rourke at ATB Capital. Please go ahead.
Speaker Change: Again, Please a reminder to press star one if you have any questions.
Josh Silverstein: And your next question will be from Patrick O'rourke.
Speaker Change: <unk> capital. Please go ahead.
Patrick O'rourke: Hey, guys. Good morning, and thank you for taking my question here just a couple of quick things so.
Patrick O'rourke: Hey guys, good morning, and thank you for taking my question here. Just a couple of quick things. Q220 for production looks to be sort of the lowest level that we've seen since the acquisition of 7Gen back in 2021, obviously due to planned turnaround activity. If you guys could maybe sort of elaborate on the turnaround that took place and then maybe, sort of from a cycle perspective, when we can expect turnaround activity of the same order of magnitude going forward or how often you expect this level of turnarounds to happen going forward.
Armin Jahangiri: So Q224 production looks to be sort of the lowest level that we've seen since the acquisition of 7 Gen back in 2021. Obviously, due to plan turnaround activity. If you guys could maybe sort of elaborate on the turnaround that took place and then maybe, you know, sort of from a cycle perspective when we can expect turnaround activity in the same order of magnitude going forward or how often you expect this level of turnaround to happen going forward.
Patrick O'rourke: Q2, 'twenty four production looks to be sort of the lowest level that we've seen since the acquisition of <unk> back in 2021.
Speaker Change: Obviously due to planned turnaround activity. If you guys could maybe sort of elaborate on the turnaround that took place and then maybe sort of from.
Speaker Change: Cycle perspective, when we can expect turnaround activity in the same order of magnitude going forward or how often do you expect this level of turnarounds to happen going forward.
Armin Jahangiri: Patrick, Armin, here. So the turnaround is really a, you know, a maintenance activity that we do, let's say, every three to four years. It's really a subject to the facility and what we discover in the previous turnaround activities for large facilities. Expectation is to see turnaround to this level of magnitude every three to four years. So to really say the impact on production is, I guess, subject to the year because you have to look at what level of activity you have happening at that year and how do they overlap with each other. I think it is important to note that these are important activities to make sure that we maintain our production from the integrity of the app.
Speaker Change: Yes, Patrick Armenia, so the turnaround is really a.
Unnamed Speaker: So, the turnaround is really a maintenance activity that we do, let's say, every three to four years. It is really subject to the facility and what we discover in the previous turnaround activities. For large facilities, the expectation is to see turnaround to this level of magnitude every three to four years. So to really say the impact on production is, I guess, subject to the year because you have to look at what level of activity you have happening in that year and how they overlap with each other. I think it is important to note that these are important activities to make sure that we maintain our production from the integrity of the asset.
Patrick Armenia: And maintenance activity that we do let's say every three to four years.
Speaker Change: It's really subject to the facility and what we discover in the previous turnaround activities for large facilities expectation is to see turnaround to this level of magnitude every three to four years, so to really say the impact on production is subject to the year because you have to look at what level of activity you have happening.
Speaker Change: At that year, and how do they overlap with each other.
Speaker Change: I think it is it is important to note that these are important and activities to make sure that we maintain our production from the integrity of the assets.
Armin Jahangiri: Yeah, thanks for that, and you know, obviously, turnarounds are very important. The second question, you spoke to sort of the ramp on Attachee, but in the press release, you talked to being about 75% complete from an operational perspective of the buildout of the facility and everything that needs to go on there. Can you maybe walk us through sort of what the remaining steps and milestones are before commissioning?
Speaker Change: Yes, thanks for that and obviously turnarounds are very important.
Patrick O'rourke: Yeah, thanks for that. Obviously, turnarounds are very important. Second question, you spoke about the ramp on ATACI, but in the press release, you talked about being about 75% complete from an operational perspective of the build-out of the facility and everything that needs to go on there. Can you maybe walk us through sort of what the remaining steps and milestones are before commissioning?
Speaker Change: Second question, you spoke to sort of the ramp on Hitachi, but.
Speaker Change: In the press release, you talked to being about 75% complete.
Speaker Change: From an operational perspective.
Speaker Change: Build out of that facility and everything that needs to go on there can you maybe walk us through sort of what the remaining steps and milestones are before commissioning.
Armin Jahangiri: Yeah, Patrick Armin here again. So most of the mechanical work is done, so 75% is really a judgment number that we are using currently for the state of the project. Most of the mechanical work is done, like maybe 90% or 95%, as Terry said. All the critical equipment is on location. So the bulk of activity at this point is focused on electrical and instrumentation work to really get the plan to the level that we can start commissioning in Q4. Okay, thank you. Thank you.
Speaker Change: Yes, Patrick Army here again, so most of the mechanical work is done so 75% is really a judgments and numbers that we are using currently for for this state of the project most of the mechanical work is done.
Armin Jahangiri: Yeah, Patrick Armin here again. So most of the mechanical work is already done. So 75% is really a judgment number that we are using currently for the state of the project. Most of the mechanical work is done, like maybe 90%, 95%. As Terry said, all the critical equipment is on location. So the bulk of activity at this point is focused on electrical and instrumentation work to really get the plant to the level that we can start commissioning.
Speaker Change: Like maybe 90%, 95% as Terry said all the critical equipment is on location. So the bulk of activity. At this point is is focused on electrical and instrumentation work to really get the plan to the level that we can start commissioning in Q4.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you next question will be from Jamie Kubik at CIBC. Please go ahead.
Jamie Kubik: Thank you. The next question will be from Jamie Kubik at CIBC. Please go ahead.
Jamie Kubik: Next question will be from Jamie Kubik at CIBC. Please go ahead. Yeah, good morning, and thank you for taking my question. With respect to the shut-ins that this underlies, a couple of questions on that. Can you just talk about maybe the price sensitivity of when you would maybe look to bring those volumes back online? And then also with respect to the 250 million cubic feet of the shut-ins, are produced 360 million cubic feet of the day there in Q2. Can you just talk about the remaining volumes and how you're thinking about price sensitivity on those?
Jamie Kubik: Good morning, and thank you for taking my question. With respect to the shut-ins at Sunrise, I have a couple of questions on that. Can you just talk about maybe the price sensitivity of when you would maybe look to bring those volumes back online? And then also, with respect to the 250 million cubic feet a day that is shut in, ARC produced 360 million cubic feet a day there in Q2. Can you just talk about the remaining volumes and how you're thinking about price sensitivity on those? Thank you.
Jamie Kubik: Good morning, and thank you for taking my question with respect to the shut ins that Sunrise a couple of questions on that can you just talk about maybe the price sensitivity of when you would maybe look to bring those volumes back online.
Speaker Change: And then also with respect to the 250 million cubic feet a day shut in.
Speaker Change: Shut in.
Speaker Change: <unk> produced 360 million cubic feet a day there in Q2.
Speaker Change: Can you just talk about the remaining volumes and how youre thinking about price sensitivity on those thank you.
Jamie Kubik: Thank you.
Chris: You bet, Jamie. It's Chris here. I'll take a stab and see if anybody has anything to add, but you know, in terms of pricing, and that's why in the release we did highlight, and Terry mentioned as well, you know, 65 cents, roughly cash operating costs. And then the other metric we wanted to have out there was the roughly, you know, dollar tenish break even on it. So it kind of gives you an idea of where we're thinking. We've said repeatedly that we don't care about BOEs, and we want to add value. So if we're not adding value, we're not going to give away the molecules.
Speaker Change: You bet, Jamie it's Chris here I'll take a stab and see if anybody has anything to add but.
Chris: You bet, Jamie. It's Chris here.
Chris: I'll take a stab and see if anybody has anything to add. But, you know, in terms of pricing, and that's why in the release we did highlight, and Terry mentioned as well, $0.65 in cash operating costs. And then the other metric we wanted to have out there was the roughly $1.10-ish break-even point on it. So it kind of gives you an idea of where we're thinking. We've said repeatedly that we don't care about BOEs and that we want to add value.
Speaker Change: In terms of pricing and Thats why in the release, we did highlight and Terry mentioned as well 65 roughly.
Speaker Change: Cash operating cost and then the other metric we wanted to have out there was the roughly $1 10 ish breakeven on it. So it kind of gives you an idea of where we're thinking.
Speaker Change: We've said repeatedly that we don't care about <unk> and we want to add value. So if we're not adding value, we're not going to give away the molecules.
Chris: So if we're not adding value, we're not going to give away the molecules. You know, it does have a small added benefit of being able to defer some capital going forward if we're not producing the molecules now.
Chris: You know, it does have a small added benefit of, you know, being able to defer some capital going forward if we're not producing the molecules now. So what's going to happen is, as we go forward, we would expect, you know, Aiko and the Western Canadian market to normalize to more reasonable price levels. There's no one specific dollar amount that, you know, we've decided we're going to bring this production back. It'll be about the context of the market at the time. So, you know, what's happening on the supply demand and where inventory as we make that decision?
Speaker Change: It does have a small added benefit of being able to defer some capital going forward, if we're not producing molecules now so.
Chris: So what's going to happen is, as we go forward, we would expect ACO and the Western Canadian market to normalize to more reasonable price levels. There's no one specific dollar amount that we've decided we're going to bring this production back to. It'll be about the context of the market at the time. So, you know, what's happening with supply and demand, and where are inventories as we make that decision? I mean, it wouldn't help our pricing if, you know, as soon as we bring Sunrise back on, prices go way back down again. So that's one of the factions.
Speaker Change: What's going to happen is that as we go forward we would expect.
Speaker Change: And the western Canadian market to normalize to more reasonable price levels.
Speaker Change: There's no one specific dollar amount.
Speaker Change: We've decided we're going to bring this production back it'll be about the context of the market at the time, so whats happening on the supply demand and where inventories.
Speaker Change: As we make that decision I mean, it wouldnt it wouldnt help our pricing.
Chris: I mean, it wouldn't, it wouldn't help our pricing if, you know, as soon as we bring Sunrise back on, pricing goes way back down again. So that's one of the factions. And then the other one on how was 250 the right number realistically? What we're trying to do is limit our exposure to the Western Canadian market and focus on the downstream markets. So you heard, heard me mention, you know, we've got no exposure to station two, which is even weaker than Aiko. And we're limiting our cash exposure. We've got less than 100 million a day exposed to Aiko Cash at this time.
Speaker Change: As soon as we bring sunrise back on pricing goes way back down again, so that's one of the factions and then.
Speaker Change: The other one on how was $2 50, the right number realistically what we're trying to do is limit our exposure to the western Canadian market and focus on the downstream market.
Chris: And then there's the other one: how is $250 the right number? Realistically, what we're trying to do is limit our exposure to the Western Canadian market and focus on the downstream markets. So you heard me mention, you know, we've got no exposure to Station 2, which is even weaker than ACO, and we're limiting our cash exposure. We've got less than $100 million a day exposed to ACO cash at this time. And, you know, we always need a little bit of flexibility and have some gas flowing, but that's kind of what we're doing, trying to limit the Western Canadian exposure and focus on the downstream.
Speaker Change: So you heard me mentioned, we've got no exposure to station too, which is even weaker than April and we are limiting our cash exposure, we've got less than a 100 million a day exposed to.
Speaker Change: April cash at this time, and we always need a little bit of flexibility.
Chris: And, you know, we always need a little bit of flexibility and have some gas flowing, but that's kind of what we're doing: trying to limit the Western Canadian exposure and focus on the downstream.
Speaker Change: Some gas flowing but.
Speaker Change: That's kind of what we're doing is trying to limit the western Canadian exposure and focus on the downstream.
Chris: and the reason we've kind of also chose to leave gas flowing through the facility, things change very quickly. it was a relatively small market in terms of a few hundred million a day can really move the needle on the supply demand, so we want to be able to ramp this facility back up relatively quickly when we see the right price signals that it makes sense to do so.
Chris: And the reason we've kind of also chosen to leave gas flowing through the facility is that things change very quickly. It was a relatively small market in terms of a few hundred million a day can really move the needle on supply and demand. So we want to be able to ramp this facility back up relatively quickly when we see the right price signals that it makes sense to do so.
Speaker Change: And the reason we've kind of also chose to leave gas flowing through that facility things change very quickly.
Speaker Change: Was it relatively.
Speaker Change: Small market in terms of.
Speaker Change: A few hundred million a day can really move the needle on the supply and demand. So we want to be able to ramp that facility back up relatively quickly when we see the right price signals that it makes sense to do so.
Jamie Kubik: Okay, that's a good color. That's the only question I had. Thank you.
Jamie Kubik: Okay, that's a good color. That's the only question I had. Thank you.
Speaker Change: Okay. That's good color. That's the only question I had thank you.
Jamie Kubik: Thanks, Jamie.
Operator: A reminder, ladies and gentlemen, to press star followed by one if you do have any questions. And at this time, Mr. Lewko, we have no other questions registered. Please proceed.
Speaker Change: A reminder, ladies and gentlemen to press star followed by one if you do have any questions.
Operator: A reminder, ladies and gentlemen, to press the star followed by 1 if you have any questions. And at this time, Mr. Lewko, we have no other questions registered. Please proceed.
Jamie Kubik: And at this time, Mr. Luca we have no other questions registered please proceed.
Dale Lewko: Great, thank you everyone for joining the call. That concludes the call. Have a good weekend.
Mr. Luca: Great. Thank you everyone for joining the call that concludes the call have a good weekend.
Dale Lewko: Thank you everyone for joining the call. That concludes the call. Have a good weekend.
Operator: 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.
Speaker Change: 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.
Operator: 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.
Jamie Kubik: [music].