Q3 2024 ARC Resources Ltd Earnings Call

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Operator: Good morning, my name is Ivo and I will be your conference operator today.

Speaker Change: Good morning, My name is evil and I'll be your conference operator today at this time I would like to welcome everyone to the arc resources third quarter 'twenty 'twenty four earnings conference call.

Operator: At this time, I would like to welcome everyone to the ARC Resources 3rd Quarter 2024 Earnings Conference Call. All lines have been placed in order to prevent any background noise.

All lines have been placed on mute prevent any background noise. After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press star followed by the number two thank you.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star, followed by the number two. Thank you.

Dale Lewko: Mr. Lewko, you may begin your conference.

Mr. Luca: Mr. Luca you May begin your conference.

Terry Anderson: Thank you, Operator.

Mr. Luca: Thank you operator, good morning, everyone and thank you for joining us for our third quarter earnings Conference call. Joining me today are Terry Anderson, President and Chief Executive Officer, Chris Maybe Chief Financial Officer, Armen, Jan Gary Chief Operating Officer, Lara Conrad Chief Development Officer, and Ryan Berrett Senior Vice President.

Terry Anderson: Good morning, everyone, and thank you for joining us for our third quarter earnings conference call. Joining me today are Terry Anderson, President and Chief Executive Officer, Chris Bibby, Chief Financial Officer, Armin Jahangiri, Chief Operating Officer, Lara Conrad, Chief Development Officer, and Ryan Berrett, Senior Vice President, Marketing.

Marketing.

Terry Anderson: Before I turn it over to Chris and Terry to talk you through our third quarter results and 2025 budget, 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 in our MD&A. All dollar amounts discussed today are in Canadian dollars, unless otherwise stated. Finally, the press release, financial statements, and MD&A are all available on our website, as well as CDAR Play. Following our prepared remarks, we'll open the line to questions.

Before I turn it over to Christian Terry to talk you through our third quarter results and 2025 budget 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.

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

Following our prepared remarks, we'll open the line to questions with that.

Terry Anderson: With that, I'll turn it over to our president and CEO, Terry Anderson.

Speaker Change: I'll turn it over to our President and CEO Terry Anderson. Please go ahead.

Terry Anderson: Terry, please go ahead.

Terry Anderson: Thanks Dale, and good morning everyone. I want to begin by stating that ARC's longstanding principles of safety, capital discipline, and operational excellence are embedded in our culture, and were once again evident in the quarter. We delivered strong operational results, and in October, we successfully commissioned the first phase at ATACHI, which is our eighth major Monteney development project. In addition, we continue to deliver on our commitment to shareholder returns, announcing a 12% dividend increase while continuing to buy back shares, both proof points that reaffirm our conviction in our business. Looking ahead, our assets asset base are performing very well with Hitachi on stream, ARC is positioned to deliver a significant step change in free cash flow per share growth in 2025.

Terry Anderson: Thanks, Dale and good morning, everyone.

Terry Anderson: I want to begin by stating that our long standing principles of safety capital discipline operational excellence are embedded in our culture and we're once again evident in the quarter.

Terry Anderson: We delivered strong operational results and in October we successfully commissioned the first phase out Hitachi, which is our eighth major Montney development project.

Terry Anderson: In addition, we continued to deliver on our commitment to shareholder returns announcing a 12% dividend increase while continuing to buy back shares both proof points that reaffirm our conviction in our business.

Terry Anderson: In your head or assets asset base are performing very well with Hitachi on stream arc is positioned to deliver a significant step change in free cash flow per share growth in 2025.

Terry Anderson: To expand on the quarter, we delivered average production of 327,000 BOE per day. This included 89,000 barrels per day of light oil and condensate, representing 20% growth quarter over quarter. This increase in condensate contributed to high margins and strong free cash flow generation, offsetting weak Western Canadian natural gas prices. We also maintain 2024 guidance as high deliverability at CACLA helped offset voluntary natural gas curtailment at our Sunrise Asset. The strong CAQA performance was partly the result of FRAC design changes the team implemented earlier this year. Production at CAQA averaged 180,000 BOE per day and at times was producing in excess of 200,000 BOE per day.

Terry Anderson: To expand on the quarter, we delivered average production of 327000 BOE per day. This included 89000 barrels per day of light oil and condensate representing 20% growth quarter over quarter. This increase in condensate contributed to high margins and strong free cash flow generation.

Terry Anderson: Offsetting weak western Canadian natural gas prices.

Terry Anderson: We also maintained 2024 guidance as high deliverability at calculate helped offset voluntary natural gas curtailments at our Sunrise asset.

Terry Anderson: This drove strong cash flow performance was partly the result of Frac design changes the team implemented earlier this year production at Cockler averaged 180000 Boe per day and at times was producing in excess of 200000 BOE per day. This is a great example of the technical strength of our people.

Terry Anderson: This is a great example of the technical strengths of our people and our commitment to continuous improvement. While Sunrise is one of the lowest cost dry gas assets in North America, the decision to curtail production showed our disciplined approach to profitability. As Western Canadian natural gas prices stayed low, we elected to shut in approximately 250 million cubic feet per day to preserve resource for a period of higher prices. And currently, we're able to leverage our dual connected infrastructure and redirect gas to more attractively priced markets in the U.S. This resulted in higher realized pricing and better margin.

Terry Anderson: And our commitment to continuous improvement.

Terry Anderson: While Sunrise is one of the lowest cost dry gas assets in North America. The decision to curtail production showed our disciplined approach to profitability as.

Terry Anderson: Cause western Canadian natural gas prices stay low we elected to shut in approximately 250 million cubic feet per day to preserve resource for a period of higher pricing.

Terry Anderson: And currently we're able to leverage our dual connected infrastructure and redirect gas to more attractively priced markets in the U S.

Terry Anderson: This resulted in higher realized pricing and better margins.

Terry Anderson: An additional benefit of curtailing Sunrise production is we can defer $20 to $30 million of capital next year that we would have spent maintaining production. In mid-October, we restored some volumes at sunrise when natural gas prices recovered above levels required to exceed our hurdle rate.

Terry Anderson: An additional benefit of curtailing Sunrise production is we can defer 20 to 30 million of capital next year that we would have spent maintaining production.

Terry Anderson: In mid October we restore some volumes at Sunrise when natural gas prices recovered above levels required to exceed our hurdle rates we.

Terry Anderson: We have said this before, but it's worth mentioning again. ARC will always operate with a profitability over BOE mindset. And our operational decisions at Sunrise are a proof point of this.

Terry Anderson: We have said this before but it's worth mentioning again arc will always operate with a profitability over Bowie mindset and our operational decisions at Sunrise are a proof point of this.

Terry Anderson: Moving on to attach. Back in May of 2023, when we announced we were proceeding with Phase 1, we committed to an 18-month construction time frame. Today, 18 months later, I'm pleased to announce we've delivered on this promise and have commissioned Phase 1 on time, on budget, and most importantly, safely. The achievement is the culmination of years of development planning, stakeholder and Indigenous engagement, and detailed technical work. Project management is what we do well. In total, this project involved more than 3 million combined work hours for construction and commissioning with our service providers. And I am proud of the way our team has executed this project, demonstrating once again that operational excellence and safety are core to how ARC operates.

Terry Anderson: Moving on to attach it.

Terry Anderson: Back in May of 2023, when we announced we are proceeding with phase one we committed to an 18 month construction timeframe. Today 18 months later I'm pleased to announce we delivered on this promise and have commissioned phase one on time on budget and most importantly safely.

Terry Anderson: The achievement is the culmination of years of development planning stakeholder and indigenous engagement and detailed technical work.

Terry Anderson: Project management is what we do well.

Terry Anderson: In total this project involved more than 3 million combined work hours for construction and commissioning with our service providers and I'm proud of the way. Our team has executed this project demonstrating once again that operational excellence and safety are core to how our arc operates.

Terry Anderson: Today, Hitachi is producing about 20,000 B.O.E. a day, of which 11,000 barrels per day is condensate. With our startup drilling and completion activities nearing completion, we are right on track to ramp up to our productive capacity of 40,000 DOE per day by year end. Hitachi is a critical part of achieving the profitable growth embedded in our long-term plan, so to see it come together is very exciting. Thank you to the whole team at ARC for successfully executing this project and for your continued focus on safe and efficient operations across our company.

Speaker Change: Today attach he is producing about 20000 BOE a day of which 11000 barrels per day is condensate with.

Terry Anderson: With our startup drilling and completion activities nearing completion, we are right on track to ramp up to our productive capacity of 40000 daily per day by year end.

Terry Anderson: Attach is a critical part of achieving the profitable growth embedded in our long term plan so to see it come together is very exciting.

Terry Anderson: Thank you to the whole team at arc for successfully executing this project and for your continued focus on safe and efficient operations across our company.

Terry Anderson: Moving on to the budget. Next year we have all the pieces in place to deliver a meaningful increase in free cash flow per share. Our capital budget of $1.6 to $1.7 billion is expected to deliver a record average production of $380,000 to $395,000 BOE per day, representing 10% production growth, 20% growth in concept production, and a concurrent 10% reduction in capital expenditures compared to 2024. We expect this program to more than double free cash flow to about 1.5 billion dollars at strip pricing, which we plan to return to shareholders through a growing base dividend and share repurchase.

Terry Anderson: Moving on to the budget.

Terry Anderson: Next year, we have all the pieces in place to deliver a meaningful increase in free cash flow per share.

Terry Anderson: Our capital budget of one six to $1 $7 billion is expected to deliver a record average production of 380000 to 395000 Boe per day, representing 10% production growth, 20% growth in condensate production and a concurrent 10% reduction in capital.

Terry Anderson: Expenditures compared to 2024.

Terry Anderson: We expect this program to more than double our free cash flow to about one $5 billion at strip pricing, which we plan to return to shareholders through a growing base dividend and share repurchases.

Terry Anderson: Hitachi is set to deliver approximately $500 million in asset-level cash flow on an annual basis. It will also increase margins by adding high-value condensate while cash costs per BOE remain flat. The result is a combination of production growth and margin expansion as we grow attached.

Terry Anderson: Apache is set to deliver approximately 500 million in asset level cash flow on an annual basis.

Terry Anderson: It will also increase margins by adding high value condensate, while cash cost per Boe remained flat.

Terry Anderson: The result is a combination of production growth and margin expansion as we grow attach heat.

Terry Anderson: The improvement in the implied capital efficiencies compared to 2024 is driven by three main factors. First, we get the benefits of a full year of production from ATACI Phase 1. Second, with the infrastructure investments at ATACI Complete, 90% of the capital is directed towards well-related activities, which drive a strong return on invested capital. And lastly, we are benefiting from better capital efficiencies at some of our core Montney assets, like Capla and Sunrise.

Terry Anderson: The improvement in the implied capital efficiencies compared to 'twenty 'twenty four is driven by three main factors.

Terry Anderson: First we get the benefits of a full year of production from attach your phase one SEC.

Terry Anderson: Second with the infrastructure investments at attach a complete 90% of the capital is directed towards well related activities, which drive a strong return on invested capital and lastly, we are benefiting from better capital efficiencies at some of our core montney assets White cap and Sunrise.

Terry Anderson: Before I turn it over to Chris, I'd like to touch on Itachi Phase 2. As a reminder, Phase 2 is a near replica of Phase 1, a 40,000 BLE per day facility that is comprised of approximately 60% of liquids of which the majority is condensate. We are ready to advance phase two as part of our long term plan. We expect to include the capital investments with the 2026 budget with an on stream date of 2028. To date, we have taken steps to gain further confidence in the regulatory environment, we maintain positive relationships with the First Nations with whom we operate, and the returns are well above our hurdle rates under low commodity price scenarios.

Terry Anderson: Before I turn it over to Chris I'd like to touch on attach your phase two.

Speaker Change: As a reminder, phase two is a near replica of phase 140000 Boe per day facility that is comprised of approximately 60%.

Speaker Change: Liquidity of which the majority is <unk>.

Terry Anderson: <unk>.

Terry Anderson: We are ready to advance phase two as part of our long term plan. We expect to include the capital investments with the 'twenty 'twenty six budget with an on stream date of 2028 today.

Terry Anderson: To date, we have taken steps to gain further confidence in the regulatory environment, we maintain positive relationships with the first nations with whom we operate and the returns are well above our hurdle rates under low commodity price scenarios phase.

Terry Anderson: Phase two lies in the heart of the constant rich areas of the Montagne. As a result, we expect growth and margin expansion to continue as we introduce higher margin Atachi barrels into our base production.

Terry Anderson: Phase two lies in the heart of the condensate rich areas of the Montney.

Terry Anderson: As a result, we expect growth and margin expansion to continue as we introduce higher margin Hitachi barrels into our base production and.

Terry Anderson: In summary, our conviction in Phase 2 remains strong, and we look forward to sharing more as we continue to advance this project.

Speaker Change: In summary, our conviction in phase two remains strong and we look forward to sharing more as we continue to advance this project with that ill turn it over to dress.

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

Chris Bibby: Thanks, Terry, and good morning, everyone. First, I'll touch on the quarter. We delivered average production of $327,000 BOEs per day, generated funds from operations of $592 million. Production was 2% above analyst expectations, while cash flow was 12% higher than analyst forecast. Third quarter production was at the upper end of our previously guided range of 315,000 to 330,000 BOEs per day. The increase relative to our expectation was driven by strong wealth productivity at CAC. This contributed to light oil and condensate production, which averaged 89,000 barrels per day in the quarter, representing a 20% growth on a quarter-over-quarter basis and 4% year-over-year.

Speaker Change: Thanks, Gerry and good morning, everyone.

Speaker Change: First I'll touch on the quarter, we delivered average production of 327000 Boe's per day generated funds from operations of $592 million.

Speaker Change: Production was 2% above analyst expectations.

Terry Anderson: Cash flow was 12% higher than I was forecasting.

Terry Anderson: Third quarter production was at the upper end of our previously guided range of 315 to 330000 Boe's per day.

Terry Anderson: The increase relative to our expectations was driven by strong well productivity a calculus.

Terry Anderson: This contributed to light oil and condensate production, which averaged 89000 barrels per day in the quarter, representing a 20% growth quarter on on a quarter over quarter basis at 4% year over year.

Chris Bibby: Over the past several months, ARC has consistently been recognized in several top well reports across a few of our assets. The most recent is screening with nine of the top 10 oil and liquids wells in Alberta in September. Despite the recent volatility in WTI, condensate demand remains robust and is notable by the tight differentials, with condensate currently trading at a premium to WTI. We continue to manage risk and exercise discipline across our business. This quarter, we elected to curtail a portion of our natural gas production at sunrise to limit our exposure to weak Western Canadian based natural gas pricing, where prices were especially weak.

Terry Anderson: Over the past several months arc has consistently been recognized in several top level reports across a few of our assets the.

Terry Anderson: The most recent as screening with nine of the top 10 oil and liquids wells in Alberta in September.

Terry Anderson: Despite the recent volatility in W. T H.

Terry Anderson: Condensate group demand remains robust and is notable by the tight differentials with condensate currently trading at a premium to W. T.

Terry Anderson: We continue to manage risk and exercise discipline across our business.

Terry Anderson: This quarter, we elected to curtail a portion of our natural gas production at Sunrise to limit our exposure to weak western Canadian based natural gas pricing.

Speaker Change: Races were especially weak.

Chris Bibby: As a result, we realized a natural gas price of $1.78 Canadian per MCF in the quarter, which was effectively double the local eco-market. Looking back, the decision to shut in gas realized real resulted in a realized natural gas price that was 20 cents greater at a corporate level than if we elected to produce the gas. By doing this, we preserve the resource for a period when prices are higher, realize higher margins, and are able to defer $20 to $30 million of capital expenditures previously earmarked to sustain production in 2025. In our view, this was a simple decision and something we will continue to consider as we think about optimizing our assets to create value.

Terry Anderson: As a result, we realized a natural gas price of $1 78 Canadian per Mcf in the quarter, which was effectively double the local equal market.

Terry Anderson: Looking back to the decision to shut in gas realized.

Terry Anderson: That resulted in a realized natural gas price that was 20 greater at a corporate level than if we elected to produce the guests.

Terry Anderson: By doing this we preserve the resource for a period when prices are higher realized higher margins and are able to defer $20 million to $30 million of capital expenditures previously earmarked to sustain production in 2025.

Terry Anderson: In our view this was a simple decision and something we will continue to consider as we think about optimizing our assets to create value.

Chris Bibby: To this end, while natural gas prices are at low levels today, demand in North America from LNG and power generation is set to grow at an accelerated pace in 2025, which we believe will drive a positive fundamental shift in supply demand. For ARC, we have amassed a deep inventory in the money, which sits well below the marginal cost needed to supply this demand growth. We have a transportation portfolio underpinning that resource that allows us to deliver our natural gas to key demand markets in North America. Our natural gas diversification will extend internationally, beginning in 2026, when our first LNG contract with Chenier takes effect.

Terry Anderson: To this end well natural gas prices are at low levels today <unk>.

Terry Anderson: Demand in North America from LNG and power generation is set to grow at an accelerated pace in 2025, which we believe will drive a positive fundamental shift in supply demand.

Terry Anderson: For arc, we have amassed a deep inventory in the Montney, which is well below the marginal cost needed to supply this demand growth.

Terry Anderson: We have a transportation portfolio underpinning that resource that allows us to deliver our natural gas demand markets in North America.

Terry Anderson: Our natural gas diversification will extend internationally beginning in 2026 on our first LNG contract with Cheniere takes effect.

Chris Bibby: Moving on to capital, we invested approximately $460 million in the quarter, including roughly $200 million to complete our first phase at Attach. After investment, our business yielded $135 million of free cash flow in the quarter. In terms of capital returns, we distributed $220 million to our shareholders this quarter through a combination of dividends and share buybacks. This included the $135 million of free cash flow in the quarter, as well as $80 million of proceeds from a non-core asset disposition.

Terry Anderson: Moving on to capital, we invested approximately $460 million in the quarter.

Terry Anderson: <unk> roughly $200 million to complete our first phase at attaching.

Terry Anderson: After investments our business yielded $135 million of free cash flow in the quarter.

Terry Anderson: In terms of capital returns, we distributed $220 million to our shareholders. This quarter through a combination of dividends and share buybacks. This included the $135 million of free cash flow in the quarter as well as $80 million of proceeds from a non core asset disposition.

Chris Bibby: Looking ahead with Hitachi Phase 1 on stream and production at sunrise partially restored, we are anticipating a record production, record quarter production in the fourth quarter, with average production between 380,000 and 385,000 BOEs per day. This will result in a full year production at the low end of our 2024 production guidance range, despite the natural gas curtailments, which reduced our full year average production by approximately 10,000 BOEs per day. Put differently, if we did not curtail any natural gas production, we would expect it to reach the top end of our production guidance for 2020. Finally, to round out the quarter, we exited with $1.6 billion of net debt and $1.4 billion of long-term debt.

Terry Anderson: Looking ahead with attach your phase one on stream production at Sunrise, partially restored we are anticipating a record production record quarter production in the fourth quarter with.

Terry Anderson: With average production between 380 and 385000 Boe's per day.

Terry Anderson: As a result in the full year production at the low end of our 2024 production guidance range. Despite the natural gas curtailments, which reduced our full year average production by approximately 10000 Boe's per day.

Terry Anderson: Put differently, if we did not curtail any natural gas production, we would expect it to reach the top end of our production guidance for 2024.

Terry Anderson: Finally to round out the quarter, we exited with $1 6 billion of net debt and $1 4 billion of long term debt.

Chris Bibby: This is a comfortable level of debt given the asset quality and inventory depth that underpins our business and implies a net debt to cash flow ratio of roughly 0.6 times.

Terry Anderson: This is a comfortable level of debt given the asset quality and the inventory depth that underpins our business and implies a net debt to cash flow ratio of roughly 0.6 times.

Chris Bibby: Turning to the 2025 budget, we put forth a capital program that emphasizes profitability and balances organic growth with a meaningful capital return. The $1.6 to $1.7 billion budget results in 10% production growth or reinvesting approximately 50% of cash flow at strip pricing of U.S. $60 WTI and $2.40 Canadian ACO. We estimate our program to generate about $3.2 billion of cash flow and approximately $1.5 billion of free cash flow. For the third straight year, we intend to return essentially all free cash flow to shareholders. Based on our guidance, the budget represents a record year in terms of natural gas and condensate production, with average production of 380,000 to 395,000 BOEs per day, including approximately 105,000 barrels per day of light oil and condensate.

Terry Anderson: Turning to the 2020 by budget.

Terry Anderson: We put forth a capital program that emphasizes profitability and balances organic growth meaningful capital return.

Terry Anderson: The one six to $1 $7 billion budget results in 10% production growth, while reinvesting approximately 50% of cash flow at strip pricing of U S $60.

Terry Anderson: W Ti and $2 40 Canadian April.

Terry Anderson: We estimate our program to generate about $3 $2 billion of cash flow and approximately $1 $5 billion of free cash flow for the third straight year, we intend to return essentially all free cash flow to shareholders.

Terry Anderson: Based on our guidance the budget represents a record year in terms of natural gas and condensate production with average production of 380 to 395000 Boe's per day, including approximately 105000 barrels per day of light oil and condensate.

Chris Bibby: This reflects stable production at ARC's base assets of about 350,000 BOEs per day and a full year of production at Hitachi of between 35,000 and 40,000 BOEs per day. Capital expenditures represent a roughly $200 million decrease year-over-year as we conclude the infrastructure investments in Hitachi Phase 1 and incorporate some of the capital efficiency gains we have observed at CAQA and Sunrise. Margin expansion in 2025 reflects a higher condensate weighted production mix, along with all in cash costs on a dollars per BOE basis that are expected to be flat to slightly down year over year. Based on dividends of approximately $400 million, or a 3% yield, the budget implies $1.1 billion of free funds flow after dividends, which could be used to repurchase roughly 8% of our shares outstanding, based on the share price yesterday.

Terry Anderson: This reflects stable production base assets of a 350000 boe's per day, and a full year of production that attach <unk> of between 35% 40000 Boe's per day.

Terry Anderson: Capital expenditures represent a roughly $200 million decrease year over year as we conclude the infrastructure investments in Hitachi phase one and incorporate some of the capital efficiency gains we have observed at <unk> and Sunrise.

Terry Anderson: Margin expansion in 2025 reflects a higher condensate weighted production mix along with all in cash costs on a dollars per Boe basis that are expected to be flat to slightly down year over year.

Terry Anderson: Based on dividends of approximately $400 million or a 3% yield the bunch of implies $1 $1 billion of free funds flow after dividends, which could be used to repurchase roughly 8% of our shares outstanding based on the share price yesterday.

Chris Bibby: This aligns directly with our long-term plan to profitably grow on a per share basis while continuing to return capital to shareholders.

Terry Anderson: This aligns directly with our long term plan to profitably grow on a per share basis, while continuing to return capital to shareholders.

Chris Bibby: Maintaining a strong balance sheet and resilient business are CORD-ARC. Net debt to cash flow is approximately 0.6 times and less than one times at $50 US WTI and $2.50 US Henry Hub. The capital program and dividend are fully funded by cash flow at below U.S. $50 WTI and U.S. $2.50 Henry Hub, a result of ARC's low-cost structure, balanced commodity mix, and owned and operated infrastructure.

Terry Anderson: Maintaining a strong balance sheet and a resilient business our core to arc <unk>.

Terry Anderson: Net debt to cash flow was approximately 0.6 times and less than one times at $50 USW Ti and $2 50.

Terry Anderson: U S Henry hub the.

Terry Anderson: The capital program and dividend are fully funded by cash flow at below <unk> 50, <unk> and U S $2 50 Henry hub.

Terry Anderson: <unk> of our low cost structure balanced commodity mix and owned and operated infrastructure.

Terry Anderson: With that, I'll give it back to Terry for some closing remarks.

Speaker Change: With that I'll give it back to Terry for some closing remarks.

Terry Anderson: Thanks, Chris. To close, we are on track to achieve the goals introduced with our long-term plan a year and a half ago. We have achieved the first milestone in bringing Hitachi on stream, and this sets the stage to triple free cash flow per share to greater than $4 by 2028.

Terry Anderson: Thanks, Chris.

Terry Anderson: To close we are on track to achieve the goals introduced with our long term plan a year and a half ago. We have achieved the first milestone in bringing attaching on stream and this sets the stage to tripled free cash flow per share to greater than $4 by 2028.

Terry Anderson: Finally, I want to again thank all of our staff for their continued focus, discipline, and hard work in delivering exceptional results across all aspects of our business. I also want to thank our investors that joined us on the Attachi tour. It was a great opportunity to showcase what we have collectively worked so hard to achieve over the past few years. We appreciate your continued support.

Terry Anderson: Finally, I want to again, thank all of our staff for their continued focus discipline and hard work in delivering exceptional results across all aspects of our business.

Terry Anderson: Also want to thank our investors that joined US on the taxi tour is a great opportunity to showcase what we have collectively worked so hard to achieve over the past few years. We appreciate your continued support.

Operator: Thank you. With that, we can open the line up for questions.

Terry Anderson: You.

Terry Anderson: With that we can open the lineup for questions.

Terry Anderson: Okay.

Operator: Thank you.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by number two. If you are using a speakerphone, please lift the handset before pressing any key.

Terry Anderson: Thank you, ladies and gentlemen, who will now begin the question and answer session should you have a question. Please press star followed by number one on your Touchtone phone, you'll hear a problem that Johan has been waste should you wish to decline from the polling process. Please press star followed by number two.

Terry Anderson: If you're using a speaker phone please sleep the handset before pressing any keys one moment. Please for your first question.

Operator: One moment, please, for your first question.

Terry Anderson: Okay.

Michael Harvey: Your first question comes from the line of Michael Harvey of RBC Company.

Speaker Change: Your first question comes from the line of Michael Harvey of RBC Company. Your line is now open. Please ask your question.

Michael Harvey: Your line is now open, please ask your question. Yeah, sure. Good morning, everybody. Just a couple for me.

Speaker Change: Yeah sure good morning, everybody.

Terry Anderson: Just a couple for me I guess, the first one maybe for per layer or arm and I mean, just wondering if you could give us some.

Lara Conrad: I guess the first one maybe for Lara or Armin. I mean, just wondering if you could give us some early color on the well performance at Atachi. I know we're kind of early days here, but just anything like, you know, number of wells currently producing to hit that 20,000, initial IPs, condensate ratios, that kind of stuff would be helpful to the extent you can provide any high-level detail.

Terry Anderson: Early color on the well performance at Hitachi I know, we're kind of early days here, but.

Terry Anderson: Anything like the number of wells currently producing 20000 initial Ips condensate ratio is that kind of stuff.

Speaker Change: It would be helpful to the extent you can.

Speaker Change: Any high level detail and then the second one maybe for Ryan or or others as LNG, Canada, given you any indication of when they might start taking your.

Ryan Berrett: The second one maybe for Ryan or others. Has LNG Canada given you any indication of when they might start taking your sunrise gas into phase one? And maybe just remind us what kind of effect that'll have on your pricing realizations at the point that that does happen.

Terry Anderson: Your sunrise gas into phase one.

Terry Anderson: And maybe just remind us what kind of effect that will have on your pricing.

Terry Anderson: Realizations.

Speaker Change: The point that that does happen thats it for me.

Michael Harvey: That's it for me.

Michael Harvey: Thanks, Mike.

Terry Anderson: Thanks, Mike <unk> here yeah.

Lara Conrad: Lara here. Yeah, thanks for the question. As far as initial rates, everything we see out of Hitachi is coming on as we expected. Just like you don't see us release rates when we first bring on a well, I don't want to get into specifics because we've got a lot of water coming back.

Speaker Change: Yes. Thanks for the question as far as initial rates everything we see out of the Kashi is coming on as we expected.

Speaker Change: Just like you don't see us release rates when we first bring on a well I don't want to get into specifics because he's got a lot of water coming back the wells are still cleaning up.

Lara Conrad: You know, the wells are still cleaning up, but really happy to see gas and strong condensate volumes from these early wells and look forward to talking about it more as we get into more stabilized production from Hitachi.

Speaker Change: But really happy to see gas and condensate volumes from these early wells and look forward to talking about it more as we get into more stabilized production from Hitachi.

Ryan Berrett: Hey, Mike, it's Ryan. Just on your question on LNG Canada, we are expecting our volumes to start flowing sometime in the first half of 2025. We haven't been given any further notification than that. As you know, the pricing on that deal with Shell is a modest premium to ACO, so we wouldn't expect material changes to our gas price realization.

Ryan Berrett: Hey, Mike It's Ryan.

Ryan Berrett: On your question on LNG, Canada.

Speaker Change: We are expecting our volumes to start flowing sometime in the first half of 2025, we haven't been given any further notification that that as you know the pricing on that on that deal with shell is a modest premium to eco. So we wouldn't expect material changes to our gas price realizations.

Michael Harvey: Gotcha. Thanks for the comments, guys.

Speaker Change: Got it thanks for the comments guys.

Speaker Change: Yes.

Kalei Akamine: Your next question comes from the line of Kalei Akamine. from Bank of America. Your line is now open. Please ask your question. Hey, good morning, guys. Thanks for getting me on.

Speaker Change: Your next question comes from the line of Kelly are coming.

Speaker Change: From Bank of America. Your line is now open please ask your question.

Speaker Change: Hey, good morning, guys. Thanks for getting me on.

Chris Bibby: For my first question, I want to address the soft gas market in ACO. Can you talk a little bit more about your plan to manage this winter? Why not just keep Sunrise off for an extended period, perhaps until Canada LNG helps shift the market into a new balance?

Ryan Berrett: For my first question I want to address the soft gas market in Asia can you talk a little bit more about your plan to manage this winter why not just keep sunrise off for an extended period, perhaps until Canada LNG helped shift the market into a new balance.

Chris Bibby: Good morning, Clay, it's Chris here. You know, what we outlined with our second quarter release, when we initially guided the market that we were going to bring some production off at Sunrise, you know, we talked about a couple of different price points. The most important one price point for us, and Terry's mentioned it quite a few times, is in our full cycle breakeven, we don't want to produce the resource below what is required to achieve our targeted return rates. And for an asset like Sunrise, you know, that number is somewhere in the $1 to $1.30 range.

Ryan Berrett: You bet good morning, Glenn It's Chris here.

Ryan Berrett: What we outlined with our second quarter release, when we initially.

Ryan Berrett: <unk> guided the market that we were going to bring some some production off at Sunrise, we talked about a couple of different price points. The most important one price point for us and Terry has mentioned it quite a few times is full.

Ryan Berrett: <unk> cycled breakeven, we don't want to produce the resource below what is required to achieve our targeted return rates and for an asset like sunrise that number somewhere in the dollar to $1 30 range. So as we saw April coming back above those <unk>.

Chris Bibby: So as we saw ACO coming back above those amounts, and we can make our hurdle rates, it makes sense to bring that asset back on. We are not constrained by inventory in any way, shape or form at our assets. So if we can make our hurdle rates and run a profitable asset, we think it makes sense to do so. You know, if somebody was short a little inventory, that decision might get changed, and you might want to save all of it for a different day. But given our inventory length, it makes sense and it increases the profitability of the overall organization to continue to run it.

Ryan Berrett: And we can make our hurdle rates it makes sense to bring that asset back on we're not constrained by inventory in any way shape or form at our assets. So if we can make our hurdle rates and run a profitable asset we think that we think it makes sense to do so.

Ryan Berrett: If somebody was short a little inventory that decision might get changed and you might want to save all of it for a different day, but given our inventory length. It makes sense and it increases the profitability of the overall organization to continue to run. It you have seen us we've used the word partially restored production at Sunrise and really what we are doing.

Chris Bibby: You have seen us, we've used the word partially restored production at Sunrise, and really what we are doing there is limiting our exposure to Station 2, which is another local market here in western Canada, as pricing has not yet achieved our hurdle rates. So we'll wait until that does happen before we bring that production back on.

Ryan Berrett: There is limiting our exposure to station too which is another local market here in western Canada as pricing has not yet achieved our hurdle rate. So we'll wait until that does happen before we bring that production back on.

Chris Bibby: Chris, I appreciate that. I guess the rub here is that condensate players like you don't need a high gas price to get your economics to work, but gas is still going for a pretty cheap price. So kind of thinking about your business commercially, what options do you have to get more gas out of Basin? This quarter, one of your U.S. peers announced a new LNG agreement on an existing facility as somebody seemingly gave up their space. I'm wondering if you're seeing similar opportunities on the market, and if you were, would you lean into it? Yeah, it's a good question.

Speaker Change: Chris I appreciate that I guess, the rub here as that condensate players like you don't need a high gas price to get your economics to work, but gas is still going through a pretty cheap price. So kind of thinking about your business commercially what options do you have to get more gas out of basin. This quarter one of your U S peers announced.

Speaker Change: Our new LNG agreements on an existing facility at somebody's seemingly gave up their space wondering if youre seeing similar opportunities on the market and if you were would you lean into it.

Speaker Change: Yeah. It's a good question as you as you know we move about 50% of our gas already into the U S. It's something that we're continuously watching for capacity as you say that comes up on export pipelines.

Chris Bibby: You know, as you as you know, we move about 50% of our gas already into the US. It's something that we're continuously watching for capacity, as you say, that comes up on export pipelines. You know, the export pipelines in Canada are fully subscribed and fully flowing. So it's not it's not opportunities that come up every day, but we're definitely watching it. As you know, we do have our LNG contract starting in 2026. So this is a bit of a longer term view for us. And as you look at our exposures to Western Canadian gas prices next year, they're roughly, you know, roughly 30% of our gas production.

Speaker Change: Export pipelines in Canada are fully subscribed and fully slowing.

Speaker Change: So it's not it's not opportunities that come up every day, but we're definitely watching it as.

Speaker Change: As you know, we do have our LNG contracts starting in 2026. So this is a bit of a longer term view for us and as you look at our exposures to western Canadian gas prices next year, they're roughly.

Speaker Change: Roughly 30% of our gas production. So it is very.

Chris Bibby: So it is very, very minimal for us our exposure to Western Canada.

Ryan Berrett: Very minimal for us our exposure to Western Canada.

Chris Bibby: Thanks, I appreciate it.

Speaker Change: Thanks I appreciate it.

Ryan Berrett: Yep.

Ryan Berrett: Okay.

George Silverstein: Your next question comes from the line of George Silverstein of UBS.

Speaker Change: Your next question comes from the line of George Silverstein of UBS. Your line is now open. Please ask your question.

Josh Silverstein: Your line is now open, please ask your question. Yeah, thanks. Morning, guys. It's Josh Silverstein at UBS. Great to see the startup at phase one at Hitachi.

Speaker Change: Yeah. Thanks, Good morning, guys, it's Josh Silverstein at UBS.

Speaker Change: Great to see the startup at phase one of it attached.

Armin Jahangiri: You know, on the site to run some of the comments that you talked about, you know, the next focus, which would be on phase two, what lessons learned from phase one might you be able to apply to phase two for either faster development or the ability to leverage the existing infrastructure that's there for lower cost? Yeah, thanks for the question.

Speaker Change: On the site to run some of the commentary you talked about the next focus which would be on phase two.

Speaker Change: <unk> learned from phase one by email might you be able to apply to phase two for either faster development or the ability to leverage the existing infrastructure, that's there for lower costs.

Speaker Change: Yeah. Thanks for the question this is armen.

Armin Jahangiri: This is Armin. So, so phase two, as Terry mentioned, is going to be almost an exact replica as phase one in terms of the facility design. It definitely benefits from some of the infrastructure we've already invested and built in the area. So that is definitely a savings and opportunity for more efficient execution of the project. As we move to phase two, in terms of cost, the team has looked into the design of the facility to find and identify opportunities to make it more efficient and make the process a lot streamer from the purpose of construction, as well as the operation of the facility.

Speaker Change: So so phase two as Terry mentioned is going to be almost an exact replica as phase one in terms of the facility design. It definitely benefits from some of the infrastructure <unk> already invested and built in the area. So that is definitely a savings and opportunity for more.

Speaker Change: <unk> execution of the project as we move to phase III in terms of costs. The team has looked into the design of the facility to find and identify opportunities to make it more efficient and make the process a lot of the steamer stream assume from the perfect purpose of construction as well as the operation of the facility so and all that.

Armin Jahangiri: So, in all likelihood, I guess the sheer fact that we are just basically repeating what we've done and all the investment we have done in the area already is going to make us a lot more efficient as it comes to phase. That's helpful.

Speaker Change: Who do I guess.

Speaker Change: The sheer fact that via just basically repeating what we've done and all the investment we have done in the area already is going to make us a lot more efficient as it comes to phase II.

Speaker Change: Got it that's helpful and then just on the productivity uplift.

Lara Conrad: And then just on the talk about productivity uplift, this is a big asset. I'm curious if the uplift you're seeing or the improvements you're seeing are concentrated in one area. Is it across the basin and how you're thinking of maybe, you know, shifting your program this year relative to 2024, or sorry, next year relative to 2024, to take advantage of some of that productivity. Thanks. Thanks, Josh, for the question.

Speaker Change: This is a big asset I'm curious if the uplift you're seeing of the improvements youre seeing are concentrated in one area is it across the basin and how youre thinking of.

Speaker Change: Maybe shifting your program this year relative to 224 or sorry next year relative to 2024 to take advantage of some of the productivity.

Speaker Change: Thanks, Josh for the question Laura here, yes.

Lara Conrad: Laura here. Yeah, so, you know, When you're designing your wells, you really want to make sure you maximize your connectivity to the reservoir. The completion design shift that we've done is really targeted at that. So it would apply across the entire field. It's not really limited to one area. When we're drilling at Kaqua, you know, we're managing our super pad capacities as well. So, as you mentioned, it's a big asset, 180,000 buoys a day. So we do have activity throughout the asset. And we've made that same design shift across all of our operation. Got it.

Speaker Change: Yes, so you know.

Speaker Change: Yeah.

Speaker Change: When you're designing your well you really want to make sure you maximize your connectivity to the reservoir.

Ryan Berrett: The completion design shift that we've done is really targeted at out so it would apply across the entire field, it's not really limited to one area. When we're drilling a cafe, we're managing our super pad capacities as well so.

Speaker Change: As you mentioned it is a big <expletive> out of 180000 Boe's a day. So we do have activity throughout the asset and we've made that same design shift across all of our operations.

Ryan Berrett: Okay.

Josh Silverstein: Thanks, guys.

Speaker Change: Got it thanks guys.

Operator: Once again, everyone, to ask a question, please press star followed by number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by number two.

Speaker Change: Once again, everyone to ask a question. Please press star followed by number one on your Touchtone phone, you'll hear a problem that you had this been waste should you wish to decline from the polling process. Please press star followed by number two if you are.

Operator: If you are using a speakerphone, please lift the handset before pressing any key.

Speaker Change: We're using a speaker phone please lift the handset before pressing any Keith.

Travis Wood: Your next question comes from the line of Travis Wood of National Bank Finance. Your line is now open. Please ask your question. Yeah, my question was asked, but it sets up well with the last question, just as a follow-up. Armin, you kind of talked about the infrastructure spend, the strategic planning around Phase 1 and Phase 2, but can you help us quantify what that would mean on an efficiency capture? So, obviously, the ads that attach here are highly efficient on a capital efficiency measure for 2025. What kind of compression could that look like with the cost savings on the infrastructure spend from Phase 1 and Phase 2 for the future volumes as a percentage?

Speaker Change: Your next question comes from the line of Travis Wood of National Bank Financial Your line is now open. Please ask your question.

Speaker Change: Yes. My question was asked but it sets up well with the last question just as a follow up.

Ryan Berrett: I mean, you kind of talked about.

Ryan Berrett: The infrastructure spend the strategic planning around phase, one and phase two.

Ryan Berrett: But can you help us quantify what that would mean on an efficiency capture so.

Speaker Change: Obviously, the ads that attach year highly efficient on our capital efficiency measure for 2025, what kind of compression could that look like with the cost savings on the infrastructure spend from phase one and phase two.

Speaker Change: For the future volumes.

Speaker Change: As a as a percentage or.

Travis Wood: how if you think there's a better way to think about that, just trying to figure out the efficiency gain on that production ad for for the phase two volume.

Ryan Berrett: If you think there's a better way to think about that just trying to figure out the efficiency gain on that production at for for the phase two volumes.

Armin Jahangiri: So just to be clear, in 2025, we are not spending any money on Phase 2. So basically, our budget for Phase 2 is less than $10 million. When it comes to actual execution of Phase 2, that is currently scheduled for 2026, and it's going to be spent over 26 and 27 years for the 2028 on-stream timeline. I think we've quantified that in the past, that we estimate about $70 million of savings associated with the joint infrastructure. This is some of the stuff that we've already done to right-size the pipes and have the water infrastructure and some of the equipment already set up in a way that can handle the extra 40,000 BOE of production coming through the condensate terminal that we have at 7 of 17.

Speaker Change: So just to be clear in 2025, we are not spending any money on phase II.

Speaker Change: So basically our budget for phase two is less than 10 million Bucks.

Speaker Change: When it comes to the actual execution of phase III that is currently a schedule for 2006 and is going to be spent over 26% 27 years.

Ryan Berrett: For the 2028 on stream timeline.

Ryan Berrett: I think we've quantified that in the past that we estimated about $70 million of savings associated with the joint infrastructure. So this is some of the stuff that we've already done to rightsize the pipes and water.

Ryan Berrett: Water infrastructure and some of it.

Ryan Berrett: Equipment already set up in a way that can handle the extra 40000 Boe of production coming through them to condensate.

Ryan Berrett: Now that we have at 717, so some of the stuff has already been put in place and I think so.

Armin Jahangiri: So some of the stuff has already been put in place, and I think the way we have quantified that is about $70 million of savings associated with Phase 2. Having said that, from Phase 1 to Phase 2, we are realizing some inflationary pressure. I mean, the time that we sanctioned the project and purchased the equipment for Phase 1, we were in a different environment. Our expectation for Phase 2, despite all of that, is to be able to keep the cost flat at roughly $800 million to basically build the infrastructure and all the associated wells to fill up that facility.

Ryan Berrett: We have quantified we have quantified that as about $17 million so far.

Ryan Berrett: Our of savings associated with phase II, having said that from phase one to phase two we are realizing some inflationary pressure I mean, the time that we sanctioned sanction that project and purchased equipment for phase Phase one you go in a different environment.

Ryan Berrett: Our expectation for phase III. Despite all of that is to be able to keep the cost flat at roughly $800 million.

Ryan Berrett: To basically build the infrastructure and on all of the Astros associated wells to fill up that facility.

Armin Jahangiri: The other thing that I can add is that we have also realized some efficiency gains through the drilling and completions activity as we've resumed operation in Hitachi. That is something that Phase 1 and Phase 2 are going to benefit from as we develop the new property, obviously, as well as continue to drill for Phase 1 to keep the facility full. That's perfect.

Speaker Change: The thing that I can add is that we have also realized some efficiency gains through the drilling and completions activity.

Ryan Berrett: We resumed operation and Hitachi that is something that phase one and phase two are going to benefit from as we develop.

Ryan Berrett: The new property, obviously as well as that continues to drill for phase one to keep the facility full.

Travis Wood: Really appreciate that detail, Armin.

Speaker Change: That's perfect really appreciate the detail that's all from me.

Travis Wood: That's all for me.

Patrick O'rourke: Your next question comes from the line of Patrick O'Rourke from ATB Capital Market. Your line is now open. Please ask your question. Good morning, guys. Thanks for the comprehensive rundown. I think you've touched on a lot of the operational and reservoir-related questions.

Speaker Change: Your next question comes from the line of Patrick <unk> from ATB capital markets. Your line is now open. Please ask your question.

Speaker Change: Good morning, guys. Thanks for the comprehensive rundown I think you've touched on a lot of the operational and reservoir related questions. I guess this would be a little bit more on the strategic side in terms of the return of capital plan.

Patrick O'rourke: I guess this would be a little bit more on the strategic side in terms of the return of capital plan. Obviously, you've raised the dividend here. I think you spoke to an estimation of about 8% of the flow being bought back in 2025 under the context of the current share price and free cash flow yield that you have there. I'm just wondering if maybe you could give us some view into when you say balanced return of capital between a dividend and buybacks, how you define the parameters in terms of that balance. What's the right amount to the dividend versus the share buybacks?

Speaker Change: You've raised the dividend here I think you spoke to an estimation of about 8% of the flow being bought back in 2025 under the context of the current share price and free cash flow.

Speaker Change: Yield that you have there, but I'm just wondering if maybe you could give us some.

Speaker Change: Are you into the when you say balance return of capital between the dividend and buybacks how do you define the parameters.

Speaker Change: In terms of that balance what's the right amount of the dividend versus share buybacks is it based on breakeven, which I think you alluded to being about 50 Bucks to fund the capex and the dividend.

Patrick O'rourke: Is it based on breakeven, which I think you alluded to being about $50 to fund the CapEx and the dividend? Or is there some sort of other formula that helps you define that kind of divide between the two mechanisms?

Speaker Change: Or is there some sort of other formula that helps you define that kind of divide between the two mechanisms.

Speaker Change: Yeah.

Chris Bibby: You bet, Patrick. Thanks for the question. It's Chris here. I'll start and Terry might jump in at the end as well. When we talked about a balanced capital allocation, really what we're talking about is our three main buckets. And that's where we talk about, you know, trying to have roughly 50% of our cash flow going back into the assets of the organization, both to fund sustaining capital as well as growth capital. And then that obviously leaves us the remaining 50%. 15% of that we believe is a very defensible and sustainable dividend policy. When you see us bump the dividend here this quarter, on-strip will be a little lower than that next year.

Speaker Change: You bet Patrick Thanks for the questions, Chris here, I'll start and Terry might jump in at the end as well.

Speaker Change: When we talked about a balanced capital allocation really what we're talking about is our three main buckets.

Speaker Change: And Thats why we talk about trying to have roughly 50% of our cash flow going back into the assets of the organization both to fund sustaining capital as well as growth capital.

Speaker Change: And then that obviously leaves us the remaining 50% 50.

Speaker Change: 15% of that we believe is a very defensible and sustainable dividend policy.

Speaker Change: When you see us bumped the dividend here this quarter on strip will be a little lower than that next year. So we just want to make sure we're being very prudent on that and then that leaves roughly 35% of that cash flow amount that we've that we've currently allocated to share buybacks and that that results in the.

Chris Bibby: So we just want to make sure we're being very prudent on that. And then that leaves roughly 35% of that cash flow amount that we've currently allocated to share buybacks. And that results in roughly 8% potential stock retirements here over the next 12 months. So when we talk about the balance, it's about those three main buckets. We don't have a specific rule as in terms of dollar amounts that need to go into buybacks versus dividends. But if you look over the last 12 months, dividends is taking more of the free cash flow than buybacks has.

Speaker Change: Roughly 8% potential stock or a retirement here over the next 12 months. So when we talk about the balance it's about those three main buckets. We don't have a specific rule is in terms of dollar amounts that need to go into into buybacks versus dividends.

Speaker Change: But as it if you look over the last 12 months dividends. It is taking more of the free cash flow and buybacks has but you would think in the next 12 months, it's going to reverse with probably some significant dollars going to the buyback side of the equation.

Chris Bibby: So you would think in the next 12 months, it's going to reverse with probably some significant dollars going to the buyback side of the equation.

Speaker Change: Yes.

Patrick O'rourke: Okay, thank you very much.

Speaker Change: Okay. Thank you very much that's all for me.

Operator: That's all for me. We do not have any further questions at this time.

Speaker Change: We do not have any further questions at this time presenters. Please continue.

Operator: Presenters, please continue. Alright, thanks everyone for joining today.

Speaker Change: Alright, thanks, everyone for joining today that concludes the call. Thank you.

Operator: That concludes the call.

Operator: Thank you.

Operator: This concludes today's conference call. Thank you for your participation and you may now disconnect.

Speaker Change: This.

Speaker Change: Today's conference call. Thank you for your participation and you may now disconnect.