Q2 2025 ARC Resources Ltd Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to the ARC Resources Ltd.'s second quarter 2025 earnings conference call. At this time, our lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Friday, August 1st, 2025. I would now like to turn the conference over to Dale Lewko, Manager of Capital Markets. Please go ahead.

Good morning, ladies and gentlemen, and welcome to the ark resources. Limited second quarter 2025 earnings conference call at this time, I'll answer only mode following the presentation. We will conduct a question and answer session.

If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Friday, August 1, 2025. I would now like to turn the conference over to Deluco, Manager of our Capital Markets. Please go ahead.

Dale Lewko: Thank you, operator. Good morning, everyone, and thank you for joining us for our second quarter earnings conference call. Joining me today are Terry Anderson, President and Chief Executive Officer; Kris Bibby, Chief Financial Officer; Armin Jahangiri, Chief Operating Officer; and Ryan Berrett, Senior Vice President of Marketing. Before I turn it over to Terry and Kris to take you through our second quarter results, I will 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 available on our website as well as SEDAR. Following our prepared remarks, we will open the line to questions. With that, I will turn it over to our President and CEO, Terry Anderson.

Thank you, operator. Good morning, everyone. And thank you for joining us. For our second quarter earnings conference call joining me today are Terry Anderson, president, and chief executive officer

Chris Debbie Chief Financial Officer.

Apartment, Jack and giri. Chief Operating Officer and Ryan, Barrett, senior vice, president marketing.

Before I turn it over to Terri and Chris to take you through our second quarter results, I'll remind everyone that this conference conference call includes forward-looking statements and non-gaap and other Financial measures with the associated. Risks outlined in earnings release and our mdna.

all dollar amounts discussed today are in Canadian dollars unless otherwise stated

by the press release financial statements and mdna are available on our website, as well as see. Our

Following or prepared remarks, we'll open the line to questions.

Dale Lewko: Terry, please go ahead.

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

Terry Anderson: Thanks, Dale, and good morning, everyone. Today, I would like to walk you through our Q2 results, provide an operational update on some of our key assets, and share a little more insight into our most recent announcements, including the Kakwa acquisition and a new land acquisition at Attachie Phase 1. After that, I will hand it over to Kris, who will go through our financial results and revised guidance. Beginning with the quarter, production averaged approximately 357,000 BOE per day, which represents an 8% increase year over year and an 11% increase on a per-share basis. Production was about 40% liquids and 60% natural gas and included 100,000 barrels per day of light oil and condensate. This represents a more condensate-weighted production mix with the addition of Attachie Phase 1. This quarter, we continue to realize the benefits of a diversified commodity mix and long-term transportation to the U.S.

Thanks Dale, and good morning everyone. Today. I'd like to walk you through our Q2 results, provide an operational update on some of our key assets and share a little more insight into our most recent announcements, including the kakwa acquisition and a new land acquisition. Had a Tachi. After that, I'll hand it over to Chris who will go through our financial results and revised guidance.

Beginning with the quarter.

Year-over-year and 11% increase on a per share basis.

Production was about 40% liquids and 60% natural gas and included 100,000 barrels per day of light oil and condensate. This represents a more condensate weighted production mix with addition of attache

Terry Anderson: for our natural gas. We generated $186 million of free funds flow, and with a strong balance sheet, we returned all of it to our shareholders through the base dividend and share buybacks. We believe buying back our shares represents an accretive use of capital, so we plan to return essentially all free cash flow to shareholders in this manner for the foreseeable future. Turning now to Kakwa, second quarter production averaged approximately 170,000 BOE per day, including about 66,000 barrels per day of condensate. In early July, we closed our agreement to acquire Kakwa assets from Strathcona, which adds approximately 40,000 BOE per day of production, including 11,000 barrels per day of condensate. The assets are directly adjacent to our existing development, extending the inventory duration of Kakwa to 15 years.

This quarter, we continue to realize the benefits of a diversified commodity mix and long-term transportation to the us for our Natural Gas.

We generated 186 million dollars of free funds flow. And with a strong balance sheet, we returned all of it to our shareholders, through the base dividend and share BuyBacks.

We Believe buying back our shares represents an increase of use of capital. So we we plan to return, essentially, all free cash flow to shareholders in this manner, for the foreseeable future.

Turning. Now, to capla second quarter production average to approximately 170,000 Boe per day, including about 66,000 barrels per day of condensate,

In early July, we closed our agreement to acquire a Kappa assets from strap Kona, which adds approximately 40,000, Boe per day of production, including 11,000 barrels per day of Kate.

Terry Anderson: In addition, the Mutney lands are 100% working interest and include owned and operated infrastructure that supports our low-cost structure and provides additional operational flexibility. Since closing, the integration has gone well. I am pleased with how our staff have integrated this asset into our portfolio in a short time. The team is engaged, and we are seeing some positive preliminary results out of the new asset. Right now, we are focused on optimizing the area infrastructure and the go-forward development plan. The strategy moving forward at Kakwa is to maintain production at approximately 205,000 to 210,000 BOE per day and optimize free cash flow. Moving over to Attachie Phase 1, production during Q2 averaged approximately 27,000 BOE per day, including 16,000 barrels per day of condensate and liquids.

The assets are directly adjacent to our existing development, extending the inventory duration of caca to 15 years.

In addition, the Monty lands are 100% working interest and include owned and operated infrastructure that supports our low-cost structure and provides additional operational flexibility.

Since closing the integration has gone. Well,

I'm pleased with how our staff have integrated this asset into our portfolio in a short time.

The team is engaged and we are seeing some positive preliminary results out of the new asset.

Right now, we are focused on optimizing the area infrastructure and the go forward development plan.

The strategy moving forward at caca is to maintain production at approximately, 205 to 210,000 Boe per day, and optimize free cash flow.

Terry Anderson: Production came in lower than forecast due to unplanned third-party downtime and production emulsion, both of which were resolved late in the quarter. Today, the plant is operating as expected. Attachie Phase 1 production reached 39,000 BOE per day at a point in June, including strong condensate production of approximately 21,000 barrels per day. Our last three pads have been successfully drilled and completed as planned and are being placed on production as I speak. This will provide momentum into the second half of the year, where we expect Attachie Phase 1 production to average between 35,000 and 40,000 BOE per day. We continue to evaluate ways to optimize capital efficiencies and returns at Attachie Phase 1. One example is we have trials in the ground at wider interwell spacing and higher intensity fracs that are generating results above our tight curve.

Moving over to the Tachi production, during the second quarter average, approximately 27,000 Boe per day including 16,000 barrels per day of connait and liquids.

Production came in lower than forecast, due to unplanned third-party, downtime, and production. Emotion. Both of which were were were resolved late in the quarter.

Today the plant is operating as expected. Attache production reached 39,000 HBU per day at a point in June, including strong, conseil production of approximately, 21,000 barrels per day.

Our last three paths have been successfully drilled and completed as planned, and they are being placed on production as I speak.

This will provide momentum into the second half of the Year, where we expect attache production to averaged between 35 and 40,000 Boe per day.

We continue to evaluate ways to optimize Capital efficiencies and returns at attache.

Terry Anderson: Through the initial six months, the average well from this trial pad produced approximately 107,000 barrels of condensate, or around 600 barrels per day. We remain confident in the long-term profitability at Attachie Phase 1. Reservoir deliverability is strong and performing in line with our expectations, and we are advancing Phase 2 in alignment with our long-term strategy. We are investing $50 million towards Phase 2 this year into site preparation and the purchase of long lead items for the facility. In addition, we are excited to have acquired more land at Attachie Phase 1 through a unique development agreement with Saa Daneza Energy, a limited partnership owned by Halfway River First Nation. The agreement will allow for development of up to 36 new contiguous sections of land located immediately northwest of Attachie Phase 1.

1 example is we have trials in the ground at wider interwell, spacing and higher, intensity fracks that are generating results above our type curve.

Through the initial, 6 months, the average, well from this trial pad, produced, approximately 170,000 107,000, barrels of condensate, or around, 600 barrels per day. We remain confident in the long term profitability at attache.

Reservoir deliverability is strong and performing in line with our expectations. And we are advancing phase to in alignment with our long-term strategy.

We are investing $50 million towards Phase 2 this year, into site preparation and the purchase of long lead items for the facility.

In addition, we're excited to have acquired more land at aachi. Through a, you unique development agreement, with sa danisa energy, a limited partnership owned by halfway River First Nation.

Terry Anderson: This is in the condensate-rich area of the Mutney, offering the potential to develop some of the highest quality acreage in Western Canada. This agreement increases our Attachie Phase 1 position by more than 10% to greater than 360 sections, extending our long development runway at one of the largest condensate-rich assets in Canada. We look forward to integrating this opportunity into our long-term development strategy at Attachie Phase 1 and working alongside Saa Daneza Energy. Finally, I will speak to Sunrise, which is our low-cost dry gas asset. During the second quarter, we maintained our commitment to profitability by electing to curtail between 75 to 200 million cubic feet per day of natural gas production due to low natural gas prices.

The agreement will allow for development of up to 36 new continuous sections of land located, immediately Northwest of Itachi.

This is the in this is in the connait, rich area of the montney offering the potential to develop some of the highest quality acreage in western Canada.

This agreement increases our attache position by more than 10% to greater than 3660 sections.

Is the largest constate Rich Assets in Canada?

We look forward to integrating this opportunity in into our long-term development strategy and atachi and working alongside side. Danny s energy.

Finally, I'll speak to Sunrise which is our low-cost dry gas asset.

Terry Anderson: This effectively eliminated ARC Resources Ltd.'s cash exposure to Western Canadian natural gas pricing, thereby preserving capital and resource for periods when prices are higher and meet our threshold for profitability. Currently, we have shut in all dry gas production, approximately 360 million cubic feet per day, or 60,000 BOE a day, which will be fully restored when natural gas prices recover. We expect that will be later this year as the ramp-up in LNG Canada coincides with the conclusion of seasonal pipeline maintenance that is underway today. With that, I'll hand it over to Kris.

During the second quarter, we maintained our commitment to profitability by electing to curtail between 75, to 200 million cubic feet per day of natural gas production due to low natural gas prices.

This effectively, eliminated arcs, cash exposure, to Western Canadian natural, gas pricing, thereby preserving capital and resource for periods when prices are higher and meet our threshold for profitability.

Currently, we have shut in all dry gas production, approximately 360 million cubic feet per day, or 60,000 Boe per day, which will be fully restored when natural gas prices recover.

We expect that will be later this year as the ramp up in LNG, Canada, coincides with the conclusion of seasonal pipeline maintenance that is underway today.

With that, I'll hand it over to Chris.

Dale Lewko: Thanks, Terry. Good morning, everyone. I will discuss our quarterly financial results followed by an overview of our guidance. As it relates to the quarter, we delivered average production of 357,000 BOEs per day, which was in line with analysts' expectations. Cash flow of $1.17 per share was 5% above analysts' estimates on average, while free cash flow of $186 million was approximately 90% above analysts' estimates as capital spending came in below expectations. Light oil and condensate production was roughly 100,000 barrels per day in the quarter, a 34% increase from the same quarter last year. Despite the volatility in WTI, condensate fundamentals remain constructive. Demand is strong, inventories are low, and supply is simply difficult to grow. Typically, differentials for condensate are seasonally wide in Q2. However, this quarter, condensate traded in line with WTI, the narrowest spread for the second quarter in four years.

Thanks Terry. Good morning everyone.

I'll discuss our quarterly Financial results followed by an overview, or a guidance.

As it relates to the quarter, we delivered average production of 357,000 barrels of oil equivalent per day, which was in line with analysts' expectations.

Cash flow of 1.17 per share was 5% above analysts estimates on average while free cash flow of 186 million was approximately 90% of analyst estimates as capital spending came in below expectations.

Light oil and condensate production was roughly 100,000 barrels per day in the quarter. A 34% increase from the same quarter last year.

Despite the volatility in WTI condensate fundamentals, remain constructive.

Demand is strong, inventories are low. And Supply is simply difficult to grow.

Dale Lewko: Turning to natural gas, we continue to realize natural gas prices above the local benchmarks by utilizing our transportation portfolio to reach more attractive end markets in the U.S. In the second quarter, ARC realized an average natural gas price of $3.19 per MCF, which was up $1.12 higher than the ACO average price of $2.07 per MCF. Western Canadian natural gas prices are low in our view and will remain low until recovery later this year. Prices are well below the cost of supply, and Western Canada is in the early days of a material increase in demand as LNG Canada ramps up. This project will ultimately direct greater than 10% of local supply off the west coast of Canada, which should support narrower basis and strong natural gas prices locally.

Typically, differentials for condensate are seasonally wide in Q2; however, this quarter, condensate traded in line with WTI, resulting in the narrowest spread for the second quarter in four years.

Turning to Natural Gas, we continue to realize natural. Gas prices, is above the local benchmarks, by utilizing our transportation portfolio. To reach more attractive and markets in the US.

In the second quarter, Barkley lies, an average natural gas, price of $3.19 per mcf.

which was up $1.12, which was $1.12 higher than the ACO average price of $2.07 per Mcf.

Western Canadian natural gas prices are low in our view and will remain low until recovery later this year.

Prices are well below the cost of supply, and Western Canada is in the early days of a material increase in demand as LNG Canada ramps up.

This project will ultimately direct greater than 10% of local Supply off the west coast of Canada, which should support narrow basis and strong natural gas prices locally.

Dale Lewko: Moving to capital returns, the $186 million of free cash flow we generated in the quarter was returned to shareholders through our base dividend and share buybacks. For the third straight year, we plan to distribute essentially all free cash flow to shareholders as the balance sheet remains strong. To that end, as Terry mentioned, we closed the Kakwa acquisition on July 2nd. The acquisition was funded entirely with debt, and consistent with our guiding principles, we retained significant financial strength and flexibility. We raised $1 billion of unsecured notes in June, a new $500 million two-year term loan, and increased the borrowing capacity under our existing credit facilities to $2 billion. Moving on to our outlook, we updated our 2025 guidance to incorporate the Kakwa acquisition, natural gas shut-ins at Sunrise, and first half actuals at Attachie.

Moving to Capital returns.

The 186 million of free cash flow. We generated in the quarter was returned to shareholders through our base dividend and share BuyBacks.

for the third straight year, we plan to distribute, essentially, all free cash flow to shareholders as the balance sheet remains strong

To that end is Terry mentioned we close the calculation on July 2nd.

The Acquisitions was funded entirely with debt and consistent with our guiding principles. We retain significant financial strength and flexibility.

We raised 1 billion dollars of unsecured notes. In June a new 500 million 2-year Term Loan and increased the boring capacity under existing credit facilities to 2 billion dollars.

Dale Lewko: Full-year production guidance is expected to be between 385,000 and 395,000 BOEs per day. This increase in full-year guidance incorporates the Kakwa acquisition and is offset by the natural gas shut-ins that occurred during the second quarter and extended into the third quarter and also reflects the slower ramp-up rate at Attachie in the first half of the year. Production during the second half of the year is forecast to be greater than 410,000 BOEs per day, including approximately 120,000 barrels of light oil and condensate. This reflects production from our acquired assets at Kakwa, restored production at Sunrise late in the year, and Attachie volumes between 35,000 to 40,000 BOEs per day. In terms of capital, we expect to invest between $1.85 billion and $1.95 billion in 2025, an increase from the previous guidance of $1.6 billion to $1.7 billion.

Moving on to our Outlook, we updated our 2025 guidance to incorporate the caca acquisition natural gas shutdowns at Sunrise and first half, actual. Is that a Tachi?

For the full year, production guidance is expected to be between 385,000 and 395,000 barrels of oil equivalent per day.

This increase in full year guidance, incorporates a caco acquisition and is offset by the Natural Gas. Shut in that occurred during the second quarter and extended into the third quarter and also reflects the slower ramp experience at attache in the first half of the year.

Production during the second half of the year is forecast to be greater than 410,000 bees per day, including approximately 120,000 barrels of light oil and condensate.

This reflects production from our required assets at taqwa restored production at Sunrise late in the year and attaching volumes between 35 to 40,000 Boise per day.

Dale Lewko: This increase reflects $150 million to sustain production on the acquired Kakwa assets and approximately $50 million of investment towards Attachie Phase 2. Finally, operating cost guidance increased $0.50 per BOE to between $5 and $5.50 per BOE. The increase on a per BOE basis is driven by higher water handling costs at Kakwa, lower Sunrise volumes from shut-ins, and the Kakwa acquisition. The Sunrise asset has a very low operating cost as a dry gas asset, so curtailing production naturally increases operating costs corporately on a per BOE basis. At strip pricing and based on our updated guidance, we expect to generate approximately $1.4 billion of free cash flow. Once again, we plan to return essentially all of it to shareholders through a growing base dividend and additional share repurchases. With that, I'll pass it back to Terry for some closing remarks.

Increase from the previous guidance of 1.6 to 1.7 billion.

This increase reflects $150 million to sustain production on the acquired Caca assets and approximately $ million of investment towards Attache Phase 2.

Finally, operating cost guidance increased by $0.50 per HBU to between $5.00 and $5.50 per Bowie.

Increase on a per view. Basis is driven by higher water, handling costs at kakwa lower Sunrise, volumes from shut ins and the cap acquisition.

The sunrise asset has a very low operating cost at the dry gas asset. So curtailing production naturally increases operating costs corporately on a per Boe basis.

At strip pricing and based on our updated guidance, we expect to generate approximately 1.4 billion dollars of free cash flow.

Once again, we plan to return, essentially all of it to shareholders through a growing base dividend and additional share repurchases.

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

Terry Anderson: Thanks, Chris. To close, we remain committed to executing our strategy to grow free cash flow per share through profitable investment in the Montney and share buybacks. With our recent acquisition at Kakwa and the land consolidation at Attachie Phase 1, we have further extended our top-tier Montney inventory, reinforcing our position as the largest Montney producer with decades of development ahead of us. Over the near term, we are focused on operational execution at Attachie Phase 1, optimizing our recently acquired asset at Kakwa and capturing capital efficiencies across our asset base. We are on track to drive record production and condensate volumes in the back half of the year and, at current strip prices, generate approximately $1.4 billion of free cash flow this year, all of which we intend to return to shareholders. Thank you for your continued support. Operator, you can open the line to questions.

Thanks Chris.

To close, we remain committed to executing our strategy to grow free cash flow per share through profitable investment in the Montney and share buybacks.

with our recent acquisition at Kaka and the land consolidation at Itachi, we have further extended our top, tier Monty inventory, reinforcing our position, as the largest Monty producer with Decades of development ahead of us,

Over the near-term. We are focused on operational execution at Itachi optimizing. Our recently acquired asset at a caca and capturing Capital efficiencies across our asset base.

We are on track to drive record production and condensate volumes in the back half of the year. And at current strip, prices generate, approximately 1.4 billion of free cash flow this year, all of which we intend to return to shareholders.

Thank you for your continued support.

Operator, you can open the line to questions.

Operator: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. The first question comes from Sam Burwell at Jefferies. Please go ahead.

Thank you.

Ladies and gentlemen we will now begin the question and answer session. Should you have a question please? Press the star followed by the 1 on your touchtone phone, you will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press the star, followed by the 2.

And if you are using a speakerphone, please lift the handset before pressing any keys.

The first question comes from Sam Burwell at Jeffrey's please go ahead.

Sam Burwell: Hey, good morning, guys. You called out the solid early results from the pad that was trialing wider spacing and the more intense completion. Just curious, what sort of incremental capital, if any, is required for that? How much wider is the spacing and how much more intensely are the completion designs?

Hey, good morning, guys. Um, you called out the, the solid, uh, early results from the, uh, pad that was, uh, trialing a wider spacing in the, uh, more intense, uh, completion. So, just curious, like, what sort of incremental Capital if any is, is required for that? Like, how much wider is the spacing and how much more intensely are the, um, completion designs?

Armin Jahangiri: Hey, Sam, this is Armin Jahangiri. It is hard to answer that question because, obviously, as you increase the interval of spacing, you require less well bores or fewer wells. But at the same time, you increase or expend some of that capital that you save from drilling the well into fracking. So, I would say probably you can assume that you are remaining effectively neutral by moving capital from one bucket to the other.

Uh hey Sam, this is Armen. Um, it's uh...

It's hard to answer that question because obviously, as you increase the interval spacing, you require less well bars or fewer Wells, but at the same time you increase or spend some of that Capital that you save from drilling the wall into fracking. So I would say, probably you can assume that it's your remaining effectively neutral by moving capital from 1 bucket to the other.

Sam Burwell: Okay, great. That's helpful. A peer of yours called out that there's heavy August pipeline maintenance, which is restricting natural gas egress and helping drive ACO to its currently low levels. Do you share that view? Do you think it can be resolved once that maintenance is complete? Related to that, what's your view of the LNG Canada ramp thus far? Is it in line with your expectations or a little bit slower than you anticipated?

Okay, great, that that's helpful. Um, and then a, a peer review of yours, uh, called out that there's heavy August um, pipeline maintenance, which is a restricting gas degress and, and helping Drive Echo. So it's currently low levels. Um, but you, I mean, first of all, share that with you. Do you think it can be resolved once that maintenance is complete? And then I guess, sort of related to that. I mean, what's your view of the LNG? Canada ramp thus far as it in line with your expectations or a little bit slower than you anticipated?

Kris Bibby: Yeah, hey, Sam. This is Ryan. In terms of the pipeline maintenance, obviously, I think that is correct. We're seeing extremely low prices here in Western Canada right now. Some of it was projected. Some of it is obviously a result of continued supply being maintained. When we look at LNG Canada, I think when we look at the projects that happen on the Gulf Coast, we actually thought LNG Canada's quite in line and actually maybe slightly ahead of where some of those project startups have been. So we were fully expecting volatility, and obviously, we're seeing that today. Moving throughout September, October, I think we expect to see prices recover back to our normalized level.

Yeah. Hey Sam. Um, this is Ryan. Um, yeah, just in terms of the pipeline maintenance. Obviously, I think that that is correct. Uh, we're seeing extremely low prices here in western Canada right now. Um, some of it was projected, some of it is obviously a result of continued Supply uh, being maintained when we look at LG Canada, I think when you know what, or when we look at the, the projects that happen on the Gulf Coast, we actually thought LG Canada's uh quite in line and actually maybe slightly ahead of where some of those projects startups have been. So, you know, we were fully expecting volatility and, um, obviously we're seeing that today, uh, moving moving throughout, um, you know, September, October. I think we expect to see price recover back to our uh, normalized level.

Sam Burwell: Okay, understood. Thank you.

Okay, understood. Thank you.

Operator: Thank you. The next question comes from Patrick O'Rourke at ATB Capital Markets. Please go ahead.

Thank you. The next question comes from Patrick or work at ATB Capital markets, please go ahead.

Patrick O'rourke: Hey, guys, good morning, and thank you for taking my question. You started off in the prepared remarks talking about the attractiveness of share buybacks right now and directing 100% of free cash flow towards them. I just wonder, from a philosophical perspective, and certainly, we would agree with the accretion there based on our modeling, but from a philosophical perspective, there is probably some benefit to consistent and ratable dividend growth as well to the cost equity here. So wondering what your view is on the right level and how you sort of triangulate on that.

Started off in the prepared remarks talking about the attractiveness of uh share BuyBacks right now, uh and directing 100% of free cash flow towards. Um, I just wonder from a philosophical perspective and, you know, certainly we would agree with the accretion, they're based on our modeling, but from a philosophical perspective, there's probably some benefit to consistent and readable dividend growth as, as well, uh, to the cost Equity here. So wondering, uh, what your view is on the the right level. Um and how you sort of uh triangulate on that.

Kris Bibby: You bet. Hey, Patrick, it's Kris here. Obviously, we have favored share buybacks in terms of a gross amount over the last couple of years, but the dividend is core shareholder returns. I think we've communicated pretty clearly what we are attempting to do is have an annual dividend increase. So we have not had a dividend increase yet this year, but it's certainly still something we review every quarter. If you recall, in our balanced capital allocation approach, what we would like to see is a dividend payout ratio of cash flow of roughly 15%. I think in the quarter, we were right around 16%, and for the year, we are forecast around 14%. So that certainly gives us a bit of room to play. In the fullness of time, dividends are going to be a material portion of shareholder returns.

You, hey, Patrick. It's it's Chris here. Um, you know, obviously we have favored share of Buybacks in terms of a gross amount over the last couple of years. Uh, but the dividend is core shareholder returns. I think we've, we've communicated pretty clearly what we're attempting to do is have an annual dividend increase. Um, and so we have not had a dividend increase yet this year, but, uh, it's certainly still something we review, uh, every quarter. And if you recall kind of, in our our balance Capital allocation approach, what we would like to see is is a dividend payout ratio of cash flow of roughly. 15%. I think in the quarter we were uh right around 16% and for the year we're forecast around 14. So that's certainly you know gives us a bit of room to play but in the fullness of time, you know, Dividends are going to be a material portion of shareholder.

Kris Bibby: So we want to make sure that we've got a balance between both dividends and cash in people's hands as well as retiring the share count in addition to profitably growing in the Kakwa. If you think of 50% of the cash flow going back into the ground, growing the asset base and production levels by roughly 3% on a CAGR basis, roughly 15% going out the door in dividends, that remains about 35% for share buybacks as well. We think that's the optimal level right now given we don't have to deleverage the balance sheet.

Returns. Uh so we want to make sure that we've got a balance between both uh dividends and cash in in people's hands as well as as retiring the share count in addition to profitably growing in the money. So you know, if you think of 50% of the cash flow going back into the ground growing, the the asset base and production Levels by roughly 3% on a kegger basis. Uh, roughly 15% going out the door, uh, in dividends and that really remains about 35% for share BuyBacks as well. We think that's the optimal level right now. Given, we don't have to deleverage the balance sheet.

Patrick O'rourke: Yeah, great. That is very helpful there. Then just going over to the OpEx costs and the change in the guidance here, you sort of had three sources driving that. I think the Sunrise shut-ins are probably pretty obvious that that would push it up. If you had to break that amount that it is pushed up, how would you break it down between the three sources? Then just on the water handling, is that something that is transitory or is that a little bit more structural going forward?

Yeah, great that's uh very helpful there and then, um, just going over to the op costs and and the change in the guidance here you sort of at 3 sources driving that uh I think the the sunrise shut-ins are are probably pretty obvious that that would push it up. But if you had to break that, um, amount that it's pushed up down up up here down, um, how would you break it down between the 3 sources and then just on the water handling? Is that something that's transitory or is that a little bit more structural going forward?

Armin Jahangiri: Patrick, Armin here. Some of it is going to go away, and some is obviously because of, I guess, the new portfolio. The Sunrise shut-in obviously has a BOE impact, so that impacts the dollar per BOE. The other part is associated with a new asset. As we learn more about the asset, we will find ways to optimize the operating costs there. The other component of that is related to operational things in Kakwa field as we move produce water. As we look at maybe those buckets, maybe you can look at one-third, one-third, one-third in terms of the impact, in terms of the increase. Obviously, some of those are stuff we are planning and spending a bit more capital over the next few years we can start to curtail or impact.

uh, Patrick Armand here so uh,

Some of it, uh, is going to go away. Uh, and some is obviously because of I guess, the new portfolio. So the sunrise shedding obviously has a Boe impact so that impacts the dollar per Boe, uh, the other part is associated with the new asset. Um, so obviously, as we learn more about the asset, we'll find ways to optimize the operating costs there. And the other component of that is related to operation of things in caca field as we move uh, produce water. So um, as we look at maybe those bucket, maybe you can look at 1/3 1/3 1/3. Um, in terms of the impact in terms of the increase um and obviously some of those are stuffed with with planning and spending a bit more Capital over the next few years we can start to to curtail or impact.

Kris Bibby: Okay. Thank you very much.

Okay, thank you very much.

Operator: Thank you. The next question comes from Aaron Bilkoski at TD Cowen. Please go ahead.

Aaron Bilkoski: Thanks. Good morning. Would you guys be able to talk a bit about how you intend to spread Attachie Phase 1 CapEx across 2026 and 2027?

Thank you. The next question comes from Aaron Bill Kowski at TD Cowen. Please go ahead.

Thanks, good morning. Um, would you guys be able to talk a bit about how you intend to spread attachee, Phase 2 capex across 2026 and 2027.

Kris Bibby: Aaron, it's Kris here. It's a little early to say with any confidence. We are just going through the costing and timing of it. If you use Attachie Phase 1 as an example, a total cost of roughly $750 million, roughly we spent $350 million in the first year and $450 million in the second year. So it is going to be, we would expect, pretty even. As you recall, once we sanction a project, really that just shifts over to Armin and his team, and it is up to them to deploy the capital as efficiently as they can. We do not worry about it too much from a quarter-to-quarter basis just to get the project done as efficiently and safely as possible.

Aaron it's it's Chris here. Um it's a little early to say it with any confidence, we're just going through, you know, the costing and and timing of it. If you use Phase 1 as an example, uh you know, total cost of of roughly 750 uh million dollars roughly. We spent 350 in the first year and 450 in the second year. So it's going to be we would expect pretty even but as you recall once we uh, you know, sanction a project, um, really that that just shifts over to arm and it's, and it's his team and it's up to them to deploy the capital uh, as efficiently as they can. We, we don't worry about it too much from a quarter to quarter basis, just to get the project done as efficiently and safely as possible.

Aaron Bilkoski: Okay, thanks. Maybe I can ask a follow-up question on CapEx. This is more on the corporate level. It looks like you plan to only spend marginally more CapEx in 2026 than in 2025 despite ramping up capital at Attachie Phase 1. What areas are you planning on spending less on next year?

In 2025 despite wrapping up Capital at Itachi. What areas are you buying on spending Less on next year?

Kris Bibby: As we are just getting into the planning phase for 2026, as I mentioned, the big moving parts, you are going to have Attachie Phase 1 capital coming down as we are over our initial high decline and into more of a stabilized rate. You obviously heard us mention a little bit less capital at Sunrise from the shut-ins that we are currently experiencing. Then we will be obviously bumping it up a bit annualized for the new Kakwa assets, which in 2025 happened to be a bit back half weighted. We would not expect it to be double what we are spending this year in terms of the $150. Then, as you mentioned, we will be adding in, we would expect, subject to sanction, some capital for Phase 2 of Attachie. So several moving parts, and we will finalize that in the coming months here.

Aaron Bilkoski: Thanks. One final question from me on the dry natural gas shut-ins. Is there a price you would look to restore those volumes?

You know, as as we're just getting into the planning phase for for 26, as I mentioned, you know, the the big moving Parts uh you're going to have Phase 1, attache Capital coming down as as we are over our uh, you know, initial High Decline and into more of a, a stabilized rate. Uh, you obviously just mentioned a little bit less Capital at Sunrise from from the shutdowns that we're currently experiencing, uh, and then we will be bumping it up a bit, uh, annualized for the new CAC assets, which in 25 to be a bit back half weighted. So, uh, we wouldn't expect it to be double what we're spending this year, in terms of the 150. Uh, and then, as you mentioned, we will be adding in. We would expect a subject to sanction. Uh, some capital for for Phase 2 of attaching. So several, moving parts and and we'll finalize that in the coming months here.

Thanks 1. Final question for me on the dry gas. Shut ins. Is there a price? You'd look to restore those. Um, volumes.

Kris Bibby: Yeah, I can grab on that one as well. Historically, what we have talked about is full cycle supply cost at Sunrise in the $1.15 to $1.25 range. Something consistently above that, especially given that we do expect to be in a more constructive pricing environment in the not-too-distant future. We just refuse to waste the resource when we do not have to wait that long to make a better rate of return on those assets and make sure that we are operating profitably.

Yeah, I can grab on that one as well. I mean, historically, what we've talked about is, you know, full cycle supply costs at Sunrise, you know, in the $1.15 to $1.25 range. Um, so something, you know, consistently above that, especially given that we do expect to be in a more constructive pricing environment in the not.

2 distant future. We just, we refuse to waste the resource, what we don't have to wait, uh, that long, uh, to to make a better rate of return, uh, on those assets and and make sure that we're off operating profitably.

Aaron Bilkoski: Perfect. Thanks. I appreciate the answers.

Perfect. Thanks. I appreciate the answers.

Operator: Thank you, ladies and gentlemen. As a reminder, should you have any questions, please press star one. The next question comes from Jamie Kubik at CIBC Capital Markets. Please go ahead.

Thank you, ladies and gentlemen, as a reminder, should you have any questions please, press star 1?

The next question comes from Jamie cubic at CIBC, please. Go ahead.

Jamie Kubik: Yeah, good morning. Expanding a little bit on Aaron's question there on the capital spending changes. For the second half change that you outlined in the capital spending increase this year, can you get into some of the specifics that you have on slide eight for us? Incremental capital being spent at Attachie, it looks like there are two less wells being drilled there. Can you talk about what that CapEx is being dedicated to aside from the $50 million that you are bringing forward for Phase 2? Can you talk a little bit more on the Kakwa spending increase as well? Thanks.

Yeah, good morning. Just um, expanding maybe a little bit on Erin's question there on the capital spending changes, um, for the second half change that, that you outlined in the capital spending increase this year. Maybe can you can you get into some of the specifics that you have on slide 8 for us? Just incremental Capital being spent and attached to? It looks like there's 2 less Wells being drilled there. Can you, can you just talk about what that capex is being dedicated to aside from the 50 million that you're bringing forward for Phase 2? And can you talk a little bit more on the, on the CAC? We're spending increase as well.

Thanks.

Armin Jahangiri: Yes, Jamie, this is Armin. So Attachie, the extra capital we are spending there is primarily to advance some field construction in preparation for Phase 2. We are taking advantage of the, I guess, seasonal weather conditions to advance that phase. It just basically allows us to maintain project timelines by spending that capital and being more efficient from a capital deployment perspective. Other than that, in Attachie, it is only D&C, drilling and completions activity, and there is no other capital that goes in the ground. In terms of Kakwa, obviously, the incremental, the big bucket, the $150 million is the capital that is for that Strathcona Kakwa East asset. That is effectively what was planned for the remainder of the year, and that has been carried forward to ARC. So we are going to execute exactly the plan that was laid out there.

Yes, Jamie, this is Armen. So, uh, regarding Itachi, um, the extra capital we are spending there is primarily to advance some field construction in preparation for Phase 2. We're taking advantage of the, I guess, seasonal weather conditions to, uh, to advance that phase. It just basically allows us to maintain project timelines.

By spending that Capital, um, and be more efficient, uh, from a capital deployment perspective. Uh, other than that, in atachi is only DNC Drilling and completions activity. And there's no other Capital that goes in the ground.

Um, in terms of caca, the obviously the incremental the big bucket 150 million dollar is the capital that is uh is for that strap corner.

Armin Jahangiri: The other $50 million bucket, you know, this time of the year, it gives us the flexibility to be able to optimize the schedule as we approach the end of the year. There are some white space. There are things we can do to optimize the production for next year. So it gives us some flexibility to deploy that capital to manage production and capital for 2026.

Kakawa East asset. Um, that's effectively what was planned for the remainder of the year. And that's been carried forward to Arkansas. And so we are going to execute exactly the plan that was laid out there, um, and the other 50 million bucket. Um, you know, this time of the year, it's um, it it gives us the flexibility to be able to optimize the schedule as we approach the end of the year. You know, there are some white space, there are things we can do to optimize the production for next year. So it gives us some flexibility to deploy that capsule to to manage production and capital for 2026.

Jamie Kubik: Okay, sorry. Can I maybe just ask you to expand a little bit on Attachie Phase 1, like outside of the $50 million? Because I guess slide eight has Attachie Phase 1 spending going from $360 million to $425 million to $475 million this year. So that would be over and above the $50 million that is going there. Are the completions more expensive? Just anything else on that side, Armin Jahangiri, if you do not mind.

Okay. Sorry could I could I maybe just ask you to expand a little bit on attache like outside of the 50 million because I guess slide 8 has

Armin Jahangiri: No. So Jamie, we talked about some of the design optimization in Attachie Phase 1 that Terry alluded to earlier on, like higher intensity fracs. Obviously, we have to spend a bit more money on some of that stuff. In addition to that, some mitigation measures for casing deformation that we experienced at the beginning of the year. We have put some of that in the ground to be able to manage that. The last few pads that we have completed, we have not seen any casing deformation. Some of that is associated with that. We can go through more details if required, one-on-one.

Attached to spending going from 360 to 425 to 475 this year. So that would be, um, you know, over and above the 50 million that, that is going there. Is there are the completions more expensive, just anything else on that side or even if you don't mind,

So some of that is associated with that, we can go through more details if if required um 1-on-1.

Jamie Kubik: Okay, that's great. I appreciate it. I'll hand it back.

Okay, that's great. I appreciate it. I'll hand it back.

Operator: Thank you. The next question comes from Kalei Akamine at Bank of America. Please go ahead.

Kalei Akamine: Good morning, guys. I want to follow up on the Kakwa CapEx. The $150 million increase that we are seeing second half of this year, I suppose that is the cost of you guys taking over Strathcona's plan. You guys have better best practices than they do, and that is going to bring this cost down. On a full-year basis, what is your best guess on the incremental capital from that new asset? Where do you guys think you can take it?

Thank you. The next question comes from Kelly Akamine at Bank of America. Please go ahead.

Good morning guys. Um I want to follow up on the Catholic capex. So the 150 million dollar increase that we're seeing second half is zero I suppose that's the cost of you guys taking over stress. Cone is planned but you guys have better best practices and they do and that's going to bring this cost down. So on a 4 year basis, what's your best? Guess on that the incremental capital from that new asset and where do you guys think you can take it?

Kris Bibby: Kelly, it's Kris here. You know, it's really the $150 you are seeing in the second half of the year. We took over this asset mid-drilling of pads and stuff like that. So, that's kind of what activities they had planned. For 2026, it's a little bit early to get too carried away on details, but high level, the way you can kind of think about it, or at least the way that we've been thinking about it, if you think of roughly 40,000 BOEs a day, plus or minus, at a capital efficiency of roughly $15,000 a flowing barrel, you are going to be in that $200-ish million. So, whether that's $200, $225, it's kind of high level what you can think of. Obviously, what the teams right now are doing, integrating the asset and incorporating it into our development plans.

Okay, clay, it's it's Chris here. Um, you know it's really the 150 you're seeing in the second half of the year. Uh we we took over this asset you know, mid drilling of pads and stuff like that. So it's really that's kind of what activities they had planned for 26. It's a little bit early to get 2 car away on details, but high level the way you can kind of, think about it, or at least the way that we've been thinking about it. If you think of roughly 40,000 bees a day plus, or minus at a, at a capital efficiency of roughly 15,000 dollars a flowing Barrel. You're going to be in that 200 million. So whether that's 200 225 is kind of

Kris Bibby: You will get some more details on that later this year when we release the 2026 budget.

High level, what you can what you can think of obviously what the teams right now are doing, integrating the asset incorporating, it into our development plans, uh, and you'll get some more details on that, uh, you know, later this year, when we release the 26 budget.

Kalei Akamine: Okay, I appreciate that detail, Kris. Second question goes to LNG supply agreements. There are a lot of new LNG projects that are taking FID or about to take FID. Your peers are announcing new supply agreements. I imagine it is with them. When you look at the contracts that are out there, do you think that these new agreements are attractive as what you signed in the past? Are you interested in adding more to your marketing book?

Got it. I appreciate that, Chris. Um, the second question goes to LNG supply agreements. There's a lot of new LNG projects that are taking FID or are about to take FID. Your peers are announcing new supply agreements, and I imagine it's with them. When you look at the contracts that are out there, do you think that these new agreements are as attractive as what you had signed in the past? And are you interested in adding more to your marketing book?

Ryan Berrett: Yeah, this is Brian. Thanks for the question. Starting with your second question there, we are really happy with where our exposures are. We have talked pretty transparently about having about a third of our gas priced in Western Canada, a third of our gas priced in the U.S., and a third of our gas priced internationally by the end of the decade. If you look at where our portfolio sits, we are pretty much in line with that. I would say no further contracts at this time. When we look at the cost structure that we have in our agreements, again, we are very happy with those. We were early entrants into these agreements, and we feel that has been beneficial for us.

Yeah, this is Brian. Thanks for the question. I think. Starting with your second question there, we're really happy with where our exposures are. We've talked pretty transparently about having about a third of our gas priced in western Canada. A third of our gas price in the US and the third of our gas priced internationally by the end of the decade. And if you look at where our portfolio sits, uh, we're pretty much in line with that. So I would say, um, you know, no further, uh, no further contracts at this time. When we look at the cost structure uh that we have uh in in our agreements. Uh again we're very happy with those. Um we were early entrance into these agreements and um we feel that's been beneficial for us.

Kalei Akamine: Got it. Thank you.

Got it. Thank you.

Operator: Thank you, ladies and gentlemen. Again, if you have any questions, please press star one now. This does conclude today's Q&A session. I will turn the call back over to Dale Lewko for closing comments.

Thank you, ladies and gentlemen. Again, if you have any questions please press star 1 now

This does conclude today's Q&A session, I will turn the call back over to do for closing comments.

Dale Lewko: All right, that concludes the call. Thanks, everyone. Have a good day.

All right, that concludes the call. Thanks everyone. Have a good day.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your line.