BOE Intel spotlight on ARC Resources – licencing activity in BC up sharply

ARC Resources reported its Q4 late last week. Production of 359,730 boe/d was a record number for the company, and was about 3% ahead of consensus analyst’s estimates which were in the 349-351 mboe/d range. Production was also up 5% from Q3 2022. On a per share basis, volumes grew 16% year over year thanks to the reduction in share count from its NCIB. Guidance for 2023 is 345-350 mboe/d as the company has been holding volumes more or less flat since the Seven Generations acquisition, while the company looks to grow volumes on a per share basis by buying back its own stock through its NCIB. Free cash flow continues to go towards the balance sheet, dividends, and share buybacks.

Condensate production made a slight new high in the quarter at 82,855 bbl/d of condensate, although 2023 guidance suggests that growth will moderate as ARC is guiding towards condensate production of 79,000-81,000 bbl/d for the full year. The mid-point of that guidance would suggest about 2% growth in condensate volumes for the full year relative to the 2022 average of 78,489 bbl/d. ARC remains the largest condensate producer in Canada after the acquisition of Seven Generations in 2021.

2023 guidance was unchanged from its November update, although the company did mention that it “continues to monitor inflation and work proactively with its partners across the supply chain to ensure it has sufficient access to services.” The company did provide expense guidance and using BOE Intel, we can compare that guidance to what we have been seeing historically from ARC.

ARC 2023 operating expense guidance is $4.60-$5.00/boe.

• BOE Intel – Q4 2022 saw a slight downtick in operating expenses to $4.40/boe, down from $4.70/boe in Q2 and Q3. ARC appears to be guiding to a gradual increase to these numbers as it carefully watches inflation. ARC’s operating costs are well below industry median operating costs of $11.90/boe.

ARC 2023 G&A guidance is $1.10-$1.30/boe including share based compensation.

• BOE Intel – If achieved, this will be a significant reduction in G&A cost structure, as the company averaged $1.69/boe in 2022. Industry median G&A is $1.55/boe.

ARC is guiding to transportation costs of $5.50-$6.00/boe in 2023.

• BOE Intel – having recently peaked at $6.30/boe in Q2 2022, transportation costs have trended downward the last two quarters, back into the range of the company’s guidance.

NE BC Operations – industry licencing activity is taking off 

While the company did not formally sanction its Attachie project in NE BC as of yet, it does continue to refer to this asset as its “leading development opportunity” and “expects the new agreements to facilitate sanctioning of Attachie phase 1 in 2023.”

Licencing activity in the province continues to explode higher following the agreement between the province of BC and the Blueberry River First Nations. Since the beginning of the year, 245 licences have been issued in BC, almost exclusively for Montney wells. Of those 245, ARC has 16 licences. Interestingly, the licencing activity did not resume all at once, as ARC has been able to get a total of 64 licences in BC over the last 3 months, out of an industry total of 372. According to the company’s presentation, none of ARC’s land in BC is in the Blueberry River First Nation “high value area.”

In total across BC and Alberta, we can see on BOE Intel that ARC Resources has licenced 125 wells in the last three months.

For more information on BOE Intel, click here.