CALGARY, AB, July 28, 2022 /CNW/ – (TSX: ARX) ARC Resources Ltd. (“ARC” or the “Company”) today reported its second quarter 2022 financial and operational results.
HIGHLIGHTS
- Second quarter 2022 production averaged 336,112 boe(1)(2) per day (60 per cent natural gas and 40 per cent crude oil and liquids).
- Cash flow from operating activities was $1,093 million and funds from operations was $1,030 million(3) ($1.52 per share)(4).
- Market diversification generated higher realized pricing than local benchmarks, enhancing strong commodity prices. ARC’s average realized natural gas price of $9.08 per Mcf(4) was $2.81 per Mcf higher than the average AECO 7A Monthly Index price. ARC’s average realized condensate price was $137.91 per barrel(4) compared to US$WTI of $108.52 per barrel.
- Record free funds flow of $677 million(5) or $1.00 per share(6) represented a 67 per cent increase in the second quarter of 2022 compared to the first quarter, and a 186 per cent increase compared to the same period in the prior year. ARC distributed approximately 60 per cent or $406 million ($0.60 per share)(4) of its free funds flow to shareholders, with the balance allocated to debt reduction.
- ARC declared dividends of $80 million or $0.12 per share(4) and repurchased 18.4 million common shares for $326 million under its normal course issuer bid (“NCIB”).
- ARC has repurchased 67.1 million common shares or approximately nine per cent of the total common shares outstanding since instituting the NCIB in September 2021, at an average price of $14.00 per share.
- ARC intends to complete the existing 10 per cent NCIB by the end of August 2022. Upon completion and subject to review and approval by the TSX, ARX intends to renew the NCIB for an additional 10 per cent of the public float (as defined by the TSX) outstanding at that time.
- As of June 30, 2022, ARC’s long-term debt balance was $1.2 billion and its net debt balance was $1.5 billion(3) or 0.4 times funds from operations(3).
- Cash flow used in investing activities was $364 million, of which $352 million was invested into capital expenditures(5). During the second quarter of 2022, ARC drilled 29 wells and completed 38 wells primarily in its Alberta operations.
- Capital spending and production guidance have been revised upwards to primarily reflect realized and anticipated inflation, along with additional water infrastructure in Kakwa and funds to manage longer supply chain related lead times that will support 2023 activity.
- Capital expenditure guidance for 2022 has increased from $1.15 to $1.25 billion to $1.35 to $1.45 billion.
- Production guidance for 2022 has increased from 335,000 to 350,000 boe per day to 340,000 to 350,000 boe per day.
ARC’s unaudited condensed consolidated financial statements and notes (the “financial statements”) and Management’s Discussion and Analysis (“MD&A”) as at and for the three and six months ended June 30, 2022, are available on ARC’s website at www.arcresources.com and under ARC’s SEDAR profile at www.sedar.com. The disclosure under the section entitled “Non-GAAP and Other Financial Measures” in ARC’s MD&A as at and for the three and six months ended June 30, 2022 (the “Q2 2022 MD&A”) is incorporated by reference into this news release.
(1) | ARC has adopted the standard six thousand cubic feet (“Mcf”) of natural gas to one barrel (“bbl”) of crude oil ratio when converting natural gas to barrels of oil equivalent (“boe”). Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different than the energy equivalency of the 6:1 conversion ratio, utilizing the 6:1 conversion ratio may be misleading as an indication of value. |
(2) | Throughout this news release, crude oil (“crude oil”) refers to light, medium, and heavy crude oil product types as defined by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”). Condensate is a natural gas liquid as defined by NI 51-101. Throughout this news release, natural gas liquids (“NGLs”) comprise all natural gas liquids as defined by NI 51-101 other than condensate, which is disclosed separately. Throughout this news release, crude oil and liquids (“crude oil and liquids”) refers to crude oil, condensate, and NGLs. |
(3) | See Note 10 “Capital Management” in the financial statements and “Non-GAAP and Other Financial Measures” in the Q2 2022 MD&A for information relating to this capital management measure, which information is incorporated by reference into this news release. |
(4) | See “Non-GAAP and Other Financial Measures” in the Q2 2022 MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release. |
(5) | Non-GAAP financial measure that is not a standardized financial measure under International Financial Reporting Standards (“IFRS”) and may not be comparable to similar financial measures disclosed by other issuers. See “Non-GAAP and Other Financial Measures” in the Q2 2022 MD&A for information relating to this non-GAAP financial measure, which information is incorporated by reference into this news release. See “Non-GAAP and Other Financial Measures” of this news release for the most directly comparable financial measure disclosed in ARC’s current financial statements to which such non-GAAP financial measure relates and a reconciliation to such comparable financial measure. |
(6) | Non-GAAP financial ratio that is not a standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Free funds flow, a non-GAAP financial measure, is used as a component of the non-GAAP financial ratio. See “Non-GAAP and Other Financial Measures” in the Q2 2022 MD&A for the non-GAAP financial ratio for the comparative period and other information relating to this non-GAAP financial ratio, which information is incorporated by reference into this news release. |
FINANCIAL AND OPERATIONAL RESULTS
(Cdn$ millions, except per share amounts(1), boe amounts, | Three Months Ended | Six Months Ended(2) | |||
and common shares outstanding) | March 31, 2022 | June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 |
FINANCIAL RESULTS | |||||
Net income (loss) | (69.4) | 762.9 | (123.0) | 693.5 | 55.0 |
Per share | (0.10) | 1.13 | (0.17) | 1.01 | 0.10 |
Cash flow from operating activities | 758.8 | 1,092.6 | 456.0 | 1,851.4 | 722.8 |
Per share(3) | 1.10 | 1.61 | 0.63 | 2.71 | 1.34 |
Funds from operations | 743.6 | 1,029.7 | 542.5 | 1,773.3 | 816.4 |
Per share | 1.08 | 1.52 | 0.75 | 2.59 | 1.51 |
Free funds flow | 410.3 | 677.3 | 249.7 | 1,087.6 | 397.9 |
Per share | 0.60 | 1.00 | 0.35 | 1.59 | 0.74 |
Dividends declared | 68.2 | 79.9 | 43.5 | 148.1 | 64.8 |
Per share | 0.10 | 0.12 | 0.06 | 0.22 | 0.12 |
Cash flow used in investing activities | 346.7 | 363.9 | 206.5 | 710.6 | 310.6 |
Capital expenditures | 333.3 | 352.4 | 292.8 | 685.7 | 418.5 |
Long-term debt | 1,578.7 | 1,247.6 | 2,016.9 | 1,247.6 | 2,016.9 |
Net debt | 1,695.5 | 1,511.4 | 2,084.1 | 1,511.4 | 2,084.1 |
Common shares outstanding, weighted average diluted
(millions) |
688.8 | 676.8 | 723.1 | 683.6 | 540.3 |
Common shares outstanding, end of period (millions) | 680.9 | 663.7 | 723.9 | 663.7 | 723.9 |
OPERATIONAL RESULTS | |||||
Production | |||||
Crude oil (bbl/day) | 7,892 | 8,297 | 11,659 | 8,096 | 12,648 |
Condensate (bbl/day) | 72,956 | 75,793 | 73,459 | 74,382 | 43,800 |
Crude oil and condensate (bbl/day) | 80,848 | 84,090 | 85,118 | 82,478 | 56,448 |
Natural gas (MMcf/day) | 1,280 | 1,219 | 1,203 | 1,249 | 1,000 |
NGLs (bbl/day) | 50,257 | 48,877 | 50,020 | 49,563 | 30,429 |
Total (boe/day) | 344,447 | 336,112 | 335,701 | 340,256 | 253,522 |
Average realized price | |||||
Crude oil ($/bbl)(3) | 111.48 | 134.52 | 74.01 | 123.35 | 68.89 |
Condensate ($/bbl)(3) | 119.15 | 137.91 | 77.93 | 128.76 | 76.93 |
Natural gas ($/Mcf)(3) | 5.98 | 9.08 | 3.34 | 7.50 | 3.84 |
NGLs ($/bbl)(3) | 27.94 | 34.16 | 22.19 | 31.03 | 23.45 |
Average realized price ($/boe)(3) | 54.10 | 72.31 | 34.90 | 63.14 | 34.68 |
Netback | |||||
Commodity sales from production ($/boe)(3) | 54.10 | 72.31 | 34.90 | 63.14 | 34.68 |
Royalties ($/boe)(3) | (7.81) | (11.10) | (3.02) | (9.45) | (2.58) |
Operating expense ($/boe)(3) | (4.04) | (4.66) | (4.53) | (4.35) | (4.30) |
Transportation expense ($/boe)(3) | (5.57) | (6.27) | (4.49) | (5.91) | (4.22) |
Netback ($/boe)(4) | 36.68 | 50.28 | 22.86 | 43.43 | 23.58 |
TRADING STATISTICS(5) | |||||
High price | 17.50 | 22.88 | 10.74 | 22.88 | 10.74 |
Low price | 11.66 | 14.81 | 7.26 | 11.88 | 5.88 |
Close price | 16.74 | 16.23 | 10.55 | 16.23 | 10.55 |
Average daily volume (thousands of shares) | 4,224 | 9,208 | 3,309 | 8,334 | 3,218 |
(1) | Per share amounts, with the exception of dividends, are based on weighted average diluted common shares. |
(2) | Comparative figures represent ARC’s results prior to the closing of the business combination with Seven Generations on April 6, 2021, and therefore do not reflect historical data from Seven Generations. |
(3) | See “Non-GAAP and Other Financial Measures” in the Q2 2022 MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release. |
(4) | Non-GAAP financial ratio that is not a standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Netback, a non-GAAP financial measure, is used as a component of the non-GAAP financial ratio. See “Non-GAAP and Other Financial Measures” in the Q2 2022 MD&A for the non-GAAP financial ratio for the comparative period and other information relating to this non-GAAP financial ratio, which information is incorporated by reference into this news release. |
(5) | Trading prices are stated in Canadian dollars on a per share basis and are based on intra-day trading on the Toronto Stock Exchange. |
OUTLOOK
ARC delivered on all aspects of the business in the second quarter of 2022 including the safe and efficient execution of the capital program and operations:
- Strong commodity prices across diversified markets combined with our low-cost structure and capital discipline resulted in free funds flow of $1.00 per share.
- Free funds flow per share reached a 26-year record level, allowing ARC to further strengthen its balance sheet and return additional capital to shareholders at a faster rate than anticipated.
- Planned maintenance was completed on time and within budget providing strong momentum for growth in the second half of the year.
While increased commodity prices and inflationary pressure have introduced tightness across the supply chain, ARC’s scale and disciplined approach to planning is mitigating the impact and ensures ARC has sufficient access across the supply chain to continue to efficiently execute its capital program.
ARC has increased capital expenditures and production guidance for 2022. All other cost guidance items are unchanged, with operating and transportation expenses expected to decrease over the balance of the year on a per boe basis. The capital increase primarily reflects realized and anticipated inflation, with a lesser amount towards water infrastructure investments at Kakwa and additional funds to manage longer supply chain related lead times that will support 2023 activity. At Kakwa, strong well performance is expected to support three to five per cent production growth in the second half of 2022, and sustained higher production levels in 2023. Should the regulatory environment in BC support investment, ARC is well-positioned to resume activity in an efficient manner, including the Sunrise expansion and sanctioning Attachie West Phase I.
- Capital expenditure guidance increased to $1.35 to $1.45 billion (from $1.15 to $1.25 billion).
- Production guidance increased to 340,000 to 350,000 boe per day (from 335,000 to 350,000 boe per day).
2022 Guidance
2022 Guidance | 2022 Guidance (July 2022) |
2022 YTD Actuals | % Variance from
2022 Guidance |
|
Production | ||||
Crude oil (bbl/day) | 7,000 – 9,000 | 8,000 – 9,000 | 8,096 | — |
Condensate (bbl/day) | 72,000 – 78,000 | 77,000 – 81,000 | 74,382 | (3) |
Crude oil and condensate (bbl/day) | 79,000 – 87,000 | 85,000 – 90,000 | 82,478 | (3) |
Natural gas (MMcf/day) | 1,240 – 1,280 | 1,240 – 1,260 | 1,249 | — |
NGLs (bbl/day) | 49,000 – 51,000 | 48,000 – 50,000 | 49,563 | — |
Total (boe/day) | 335,000 – 350,000 | 340,000 – 350,000 | 340,256 | — |
Expenses ($/boe)(1) | ||||
Operating | 4.00 – 4.50 | 4.00 – 4.50 | 4.35 | — |
Transportation | 5.35 – 5.75 | 5.35 – 5.75 | 5.91 | 3 |
G&A expense before share-based compensation expense | 0.80 – 0.90 | 0.80 – 0.90 | 0.92 | 2 |
G&A – share-based compensation expense | 0.60 – 0.70 | 0.60 – 0.70 | 0.83 | 19 |
Interest and financing(2) | 0.55 – 0.65 | 0.55 – 0.65 | 0.68 | 5 |
Current income tax expense as a per cent of funds from operations(1) | 3 – 8 | 3 – 8 | 8 | — |
Capital expenditures ($ billions)(3) | 1.15 – 1.25 | 1.35 – 1.45 | 0.7 | n/a |
(1) | See “Non-GAAP and Other Financial Measures” in the Q2 2022 MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release. |
(2) | Excludes accretion of ARC’s asset retirement obligation (“ARO”). |
(3) | See “About ARC Resources Ltd.” in the Q2 2022 MD&A for historical capital expenditures. |
OPERATIONAL RESULTS
Cash Flow Used in Investing Activities and Capital Expenditures
- Cash flow used in investing activities was $364 million during the second quarter of 2022, with the Company drilling 29 wells and completing 38 wells. Cash flow used in investing activities was $711 million during the first half of 2022, of which $686 million was invested into capital expenditures to drill 60 wells and complete 79 wells.
The following table details ARC’s capital activity by area during the first six months of 2022.
Six Months Ended June 30, 2022 | ||
Area | Wells Drilled(1) | Wells Completed(1) |
Kakwa | 50 | 45 |
Greater Dawson | 6 | 16 |
Sunrise | — | 9 |
Ante Creek | 4 | 9 |
Total | 60 | 79 |
(1) Wells drilled and completed for operated assets only. |
Production and Operating Expense
Production
- ARC’s production averaged 336,112 boe per day during the second quarter of 2022 (60 per cent natural gas and 40 per cent crude oil and liquids). Production was in line with guidance and slightly lower compared to the first quarter of 2022 due to planned maintenance and turnarounds, which were executed on time and within budget.
- Production in the second half of 2022 is expected to increase by three to five per cent compared to the second quarter, primarily driven by growth at Kakwa.
Operating Expense
- ARC’s second quarter 2022 operating expense per boe of $4.66 increased 15 per cent from the first quarter of 2022, primarily due to pass through input costs from higher commodity prices and planned maintenance.
- ARC’s operating expense per boe is expected to decrease over the balance of year due to higher production volumes.
Physical Marketing
Average Realized Prices
- End market diversification and liquids marketing enhanced strong pricing and supported high margins in the second quarter.
- ARC’s average realized natural gas price during the second quarter was $9.08 per Mcf, 45 per cent higher than the average AECO 7A Monthly Index price.
- ARC’s realized condensate price of $137.91 per barrel increased by 16 per cent compared to the first quarter. ARC’s average realized NGLs price of $34.16 per barrel increased by 22 per cent relative to the first quarter of 2022.
Transportation Expense
- ARC’s second quarter 2022 transportation expense per boe of $6.27 increased by 13 per cent from the first quarter of 2022 primarily due to higher fuel gas expense resulting from higher natural gas prices and other pass through fuel costs.
- ARC’s transportation expense is expected to decrease over the balance of year due to higher production volumes.
FINANCIAL RESULTS
Financial Position
- As of June 30, 2022, ARC’s long-term debt balance was $1.2 billion, and its net debt balance was $1.5 billion, or 0.4 times funds from operations.
- ARC targets its net debt to be in the range of 1.0 to 1.5 times funds from operations at mid-cycle commodity prices.
- Long-term debt comprised $1.0 billion of senior notes outstanding and $0.2 billion in borrowings under the Company’s $2.0 billion credit facility.
- During the quarter, ARC reduced long-term debt and net debt by $331 million and $184 million, respectively.
Returns to Shareholders
- ARC distributed approximately 60 per cent or $406 million ($0.60 per share) of free funds flow to shareholders during the second quarter of 2022 through a combination of dividends and share repurchases.
Dividends
- ARC declared dividends of $80 million or $0.12 per share during the second quarter of 2022.
- The dividend serves as the primary mechanism to return capital to shareholders over the long term. ARC’s dividend is designed to grow with the underlying profitability of the business and be sustainable through the commodity cycle.
Share Repurchases
- ARC repurchased 18.4 million common shares under its NCIB during the second quarter of 2022 at a weighted average price of $17.69 per share.
- ARC has repurchased approximately nine per cent of total shares outstanding since its NCIB commenced on September 1, 2021, or 67.1 million common shares at a weighted average price of $14.00 per share.
- ARC will continue to repurchase common shares when the intrinsic value of the Company’s common shares exceeds the current market trading price. ARC determines intrinsic value using much lower commodity price assumptions than the forward strip and a wide range of discount rates.
- ARC intends to renew its NCIB in September of 2022.
Net Income (Loss)
- ARC recognized net income of $763 million ($1.13 per share) during the second quarter of 2022, compared to a net loss of $69 million ($0.10 per share) during the first quarter of 2022.
- Higher commodity prices and decreases in losses on risk management contracts explained the majority of the increase in net income relative to the first quarter of 2022.
Cash Flow from Operating Activities, Funds from Operations, and Free Funds Flow
Cash Flow from Operating Activities
- Cash flow from operating activities was $1,093 million ($1.61 per share) during the second quarter of 2022, increasing by $334 million ($0.51 per share) from the first quarter of 2022.
Funds from Operations
- ARC generated funds from operations of $1,030 million ($1.52 per share) during the second quarter of 2022, representing an increase of $286 million ($0.44 per share) from the first quarter of 2022.
- Royalties of $340 million ($0.50 per share)(1) increased by $97 million from the first quarter of 2022, reflecting the impact of higher average realized commodity prices.
- ARC’s expected taxable income has also increased with stronger commodity prices, which resulted in ARC recording current income tax expense of $90 million ($0.13 per share)(1) during the second quarter of 2022.
- ARC’s second quarter 2022 general and administrative (“G&A”) expense of $36 million ($0.05 per share)(1) decreased by $35 million from the first quarter of 2022. The decrease in G&A expense primarily reflects the decrease in the fair value of the Company’s share-based compensation plans.
- The following table details the change in funds from operations for the second quarter of 2022 relative to the first quarter of 2022.
Funds from Operations Reconciliation | $ millions | $/share(2) |
Funds from operations for the three months ended March 31, 2022 | 743.6 | 1.08 |
Production volumes | ||
Crude oil and liquids | 42.3 | 0.07 |
Natural gas | (25.8) | (0.04) |
Commodity prices | ||
Crude oil and liquids | 174.4 | 0.26 |
Natural gas | 343.7 | 0.49 |
Sales of commodities purchased from third parties | (67.2) | (0.10) |
Other income | 1.4 | — |
Realized loss on risk management contracts | (140.5) | (0.20) |
Royalties | (97.3) | (0.14) |
Expenses | ||
Commodities purchased from third parties | 83.4 | 0.12 |
Operating | (17.1) | (0.02) |
Transportation | (19.1) | (0.03) |
G&A | 35.2 | 0.05 |
Interest and financing | (1.9) | — |
Current income tax | (35.0) | (0.05) |
Realized gain on foreign exchange | 9.5 | 0.01 |
Other | 0.1 | — |
Weighted average shares, diluted | — | 0.02 |
Funds from operations for the three months ended June 30, 2022 | 1,029.7 | 1.52 |
(1) | See “Non-GAAP and Other Financial Measures” in the Q2 2022 MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release. |
(2) | Per share amounts are based on weighted average diluted common shares. |
CONFERENCE CALL
ARC’s senior leadership team will be hosting a conference call to discuss the Company’s second quarter 2022 results on Friday, July 29, 2022, at 8:00 a.m. Mountain Time (“MT”).
Date | Friday, July 29, 2022 |
Time | 8:00 a.m. MT |
Dial-in Numbers | |
Calgary | 587-880-2171 |
Toronto | 416-764-8659 |
Toll-free | 1-888-664-6392 |
Conference ID | 44166497 |
Webcast URL | https://app.webinar.net/7PkDn3Kn5Nq |
Callers are encouraged to dial in 15 minutes before the start time to register for the event. A replay will be available on ARC’s website at www.arcresources.com following the conference call.