HIGHLIGHTS
Attachie Phase I Sanction and Revised Guidance
- The Board has approved the sanction of Attachie Phase I. The capital costs to construct and fill the facility are approximately $740 million. Attachie Phase I is expected to deliver approximately 40,000 boe per day, and includes a 90 MMcf per day natural gas processing facility and 25,000 barrels per day of liquids-handling infrastructure. ARC anticipates achieving full productive capacity in the first half of 2025.
- ARC has updated its 2023 guidance to incorporate the sanction of Attachie Phase I. The revised total capital budget is largely unchanged at $1.8 billion to $1.9 billion(1) ($1.8 billion previously), and includes $250 million to $300 million at Attachie Phase I. Offsetting the Attachie Phase I capital expenditures is lower capital investment on ARC’s base assets due to stronger production performance, and the removal of certain infrastructure projects.
- ARC increased production guidance in 2023 to average between 350,000 and 355,000 boe per day (previously 345,000 to 350,000 boe per day). The increase reflects stronger than forecast production from its base assets.
First Quarter Highlights and Dividend Increase
- ARC delivered first quarter 2023 average production of 338,377 boe(2) per day (62 per cent natural gas and 38 per cent crude oil and liquids(3)). Stronger than forecast base production more than offset third-party downtime resulting in an upward revision to 2023 production guidance.
- ARC generated funds from operations of $717 million(4) ($1.16 per share)(5) and free funds flow of $230 million(6) ($0.37 per share)(7). ARC recognized cash flow from operating activities of $540 million and net income of $575 million ($0.93 per share) .
- Market diversification resulted in an average realized natural gas price of $5.89 per Mcf(5), 36 per cent greater than the average AECO 7A Monthly Index price.
- ARC’s Board of Directors (the “Board”) has approved a 13 per cent increase to the quarterly dividend, from $0.15 per share to $0.17 per share. This is a continuation of ARC’s strategy to sustainably grow the dividend with the underlying profitability of the business, and on a per share basis as the share count is reduced.
- ARC distributed 106 per cent or $243 million ($0.39 per share) of free funds flow for the period to shareholders through base dividends and share repurchases. Net debt was maintained at 1.3 billion(4) or 0.3 times funds from operations(4) as ARC disposed of non-core assets for cash proceeds of $74 million and dedicated the proceeds to repurchasing shares.
- ARC repurchased 10 million shares during the first quarter. Since renewing its Normal Course Issuer Bid (“NCIB”) on September 1, 2022, ARC has repurchased 44 million common shares, representing 16 per cent of total outstanding shares.
- Capital expenditures in the first quarter registered at $485 million(6), while cash flow from investing activities of $397 million included the proceeds from the disposition of non-core assets. ARC drilled 46 wells and completed 34 wells across its Alberta and British Columbia (“BC”) assets.
- ARC entered into a non-binding Memorandum of Understanding for a 20-year agreement to supply and liquefy approximately 200 MMcf per day of natural gas with the Cedar LNG Project in BC. This represents the equivalent of 1.5 million tonnes per annum of LNG or approximately one half of the facility’s total production capacity. ARC is advancing a binding agreement and continues to pursue LNG offtake arrangements to increase its anticipated total exposure to internationally linked natural gas pricing.
ARC’s consolidated financial statements and notes (the “financial statements”) and Management’s Discussion and Analysis (“MD&A”) as at and for the three months ended March 31, 2023, are available on ARC’s website at www.arcresources.com and under ARC’s SEDAR profile at www.sedar.com. The disclosures under the sections entitled “Netback” and “Non-GAAP and Other Financial Measures” in ARC’s MD&A as at and for the three months ended March 31, 2023 (the “Q1 2023 MD&A”) are incorporated by reference in this news release.
(1) |
Refer to the section entitled “About ARC Resources Ltd.” contained within the Q1 2023 MD&A for historical capital expenditures, which information is incorporated by reference into this news release. |
(2) |
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. |
(3) |
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. |
(4) |
See Note 10 “Capital Management” in the financial statements and “Non-GAAP and Other Financial Measures” in the Q1 2023 MD&A for information relating to this capital management measure, which information is incorporated by reference into this news release. |
(5) |
See “Non-GAAP and Other Financial Measures” in the Q1 2023 MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release. |
(6) |
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 Q1 2023 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. |
(7) |
Non-GAAP ratio that is not a standardized financial measure under IFRS and may not be comparable to similar ratios disclosed by other issuers. Free funds flow, a non-GAAP financial measure, is used as a component of the non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in the Q1 2023 MD&A for the non-GAAP ratio for the comparative period and other information relating to this non-GAAP 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 |
||
and common shares outstanding) |
December 31, 2022 |
March 31, 2023 |
March 31, 2022 |
FINANCIAL RESULTS |
|||
Net income (loss) |
741.0 |
574.9 |
(69.4) |
Per share |
1.18 |
0.93 |
(0.10) |
Cash flow from operating activities |
878.3 |
540.3 |
758.8 |
Per share(2) |
1.39 |
0.87 |
1.10 |
Funds from operations |
986.2 |
717.4 |
743.6 |
Per share |
1.56 |
1.16 |
1.08 |
Free funds flow |
602.9 |
230.0 |
410.3 |
Per share |
0.96 |
0.37 |
0.60 |
Dividends declared |
93.4 |
91.9 |
68.2 |
Per share |
0.15 |
0.15 |
0.10 |
Cash flow used in investing activities |
350.7 |
397.4 |
346.7 |
Capital expenditures |
383.3 |
487.4 |
333.3 |
Long-term debt |
990.0 |
1,056.0 |
1,578.7 |
Net debt |
1,301.5 |
1,264.7 |
1,695.5 |
Common shares outstanding, weighted average diluted (millions) |
630.3 |
619.2 |
688.8 |
Common shares outstanding, end of period (millions) |
620.9 |
611.2 |
680.9 |
OPERATIONAL RESULTS |
|||
Production |
|||
Crude oil (bbl/day) |
7,280 |
7,884 |
7,892 |
Condensate (bbl/day) |
82,855 |
71,085 |
72,956 |
Crude oil and condensate (bbl/day) |
90,135 |
78,969 |
80,848 |
Natural gas (MMcf/day) |
1,310 |
1,264 |
1,280 |
NGLs (bbl/day) |
51,311 |
48,800 |
50,257 |
Total (boe/day) |
359,730 |
338,377 |
344,447 |
Average realized price |
|||
Crude oil ($/bbl)(2) |
103.58 |
92.78 |
111.48 |
Condensate ($/bbl)(2) |
107.24 |
104.10 |
119.15 |
Natural gas ($/Mcf) |
8.31 |
5.89 |
5.98 |
NGLs ($/bbl)(2) |
28.86 |
28.59 |
27.94 |
Average realized price ($/boe)(2) |
61.17 |
50.16 |
54.10 |
Netback |
|||
Commodity sales from production ($/boe)(2) |
61.17 |
50.16 |
54.10 |
Royalties ($/boe)(2) |
(10.18) |
(7.96) |
(7.81) |
Operating expense ($/boe)(2) |
(4.37) |
(4.50) |
(4.04) |
Transportation expense ($/boe)(2) |
(5.70) |
(5.61) |
(5.57) |
Netback ($/boe)(3) |
40.92 |
32.09 |
36.68 |
TRADING STATISTICS(4) |
|||
High price |
20.49 |
18.07 |
17.50 |
Low price |
17.05 |
14.33 |
11.66 |
Close price |
18.25 |
15.33 |
16.74 |
Average daily volume (thousands of shares) |
4,259 |
5,949 |
4,224 |
(1) |
Per share amounts, with the exception of dividends, are based on weighted average diluted common shares. |
(2) |
See “Non-GAAP and Other Financial Measures” in the Q1 2023 MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release. |
(3) |
Non-GAAP ratio that is not a standardized financial measure under IFRS and may not be comparable to similar ratios disclosed by other issuers. Netback, a non-GAAP financial measure, is used as a component of the non-GAAP ratio. See “Netback” and “Non-GAAP and Other Financial Measures” in the Q1 2023 MD&A for the non-GAAP ratio for the comparative period and other information relating to this non-GAAP ratio, which information is incorporated by reference into this news release. |
(4) |
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’s strategic priorities are to deliver sustainable free funds flow per share growth adhering to longstanding principles of capital discipline, profitability, and financial strength. To achieve this, ARC has put forth a strategy that balances organic investment in its highest return assets with a meaningful capital return that includes a growing base dividend and share repurchases when deemed a profitable investment. A milestone in achieving these goals includes advancing the development of Attachie in northeast BC (“NEBC”).
Attachie Phase I Sanction
ARC is pleased to announce that Attachie Phase I has been sanctioned by the Board. Attachie is a multi-phase development that spans approximately 300 net sections in NEBC, providing a multi-decade development runway for condensate and low-emission natural gas. Attachie Phase I is a 40,000 boe per day project with a capital cost of approximately $740 million to build and fill the facility. ARC has secured access to critical services and has taken steps to mitigate inflation across critical parts of the supply chain. Long-term takeaway capacity for all products has been secured to retain operational flexibility, maintain a low cost structure, and maximize profitability.
The development plan put forth aligns with the principles of the agreements reached between the BC government and Treaty 8 First Nations, which address the cumulative impacts of development of the neighbouring Treaty 8 territories. These recent agreements, combined with ARC’s collaboration with the Treaty 8 First Nations, has provided confidence to proceed with the Attachie development. Through continued partnership and engagement, ARC is committed to advancing the project in a manner that protects the environmental and cultural values and contributes to the economic prosperity of Treaty 8 First Nations, while creating value for its shareholders and the Province.
Attributes of Attachie Phase I:
Capital expenditures to develop Attachie Phase I are estimated at $740 million. This includes the capital investment to construct the facility and drill approximately 39 wells to fill the facility. Included in the capital expenditures is approximately $65 million of investments for subsequent phases at Attachie.
Attachie Phase I is estimated to deliver annual average production of approximately 40,000 boe per day (60 per cent crude oil and natural gas liquids and 40 per cent natural gas). Production is expected to commence in late 2024, with full productive capacity anticipated in the first half of 2025.
- Total facility capacity includes a 90 MMcf per day natural gas processing facility and 25,000 barrels per day of liquids-handling capacity.
- In its first full-year of operations, ARC anticipates that Attachie Phase I will contribute approximately $450 million to funds from operations(1), based on the April 20, 2023 forward curve(2).
- Estimated capital to sustain production is approximately $150 million per year over the initial five years after achieving productive capacity.
Consistent with its NEBC operations, ARC plans to electrify the natural gas processing facility upon commissioning. This will reduce ARC’s emissions intensity and contribute meaningfully towards achieving its emissions intensity reduction targets. As part of the Attachie development program, ARC is investing in water recycling infrastructure that will significantly reduce fresh water use.
(1) Refer to the section entitled “About ARC Resources Ltd.” contained within the Q1 2023 MD&A for historical funds from operations, which information is incorporated by reference into this news release. |
(2) Forward curve as at April 20, 2023 (US$WTI $65.00 per barrel and US$4.25/Mcf NYMEX). |
2023 Guidance
ARC has updated its 2023 guidance to reflect stronger production and incorporate the sanction of Attachie Phase I.
ARC intends to invest between $1.8 billion and $1.9 billion in capital expenditures (previously $1.8 billion). The company plans to invest $250 million to $300 million at Attachie Phase I in 2023. The majority of the Attachie Phase I investment in 2023 will be allocated towards long-lead items and infrastructure construction. Revised guidance includes approximately $70 million of capital inflation that has been realized year-to-date.
Offsetting the investment for Attachie Phase I is lower capital investment required to sustain base production due to stronger than forecast well performance, and the removal of approximately $120 million of capital previously allocated for water infrastructure at Kakwa. In its place, ARC has secured a long-term agreement with a third-party for water infrastructure and disposal at competitive terms. The agreement is expected to decrease associated operating costs by between $30 million and $60 million per year beginning in 2024.
Other guidance revisions include a three per cent decrease to operating costs per boe, and slight revisions to the production mix to reflect a higher natural gas weight as a result of the third-party downtime in the first quarter, and updated timing of new well pads at Kakwa. All other expenses are unchanged.
ARC’s 2023 preliminary annual guidance, 2023 revised annual guidance, and a review of 2023 year-to-date results are outlined below:
2023 Preliminary Guidance |
2023 Revised Guidance |
2023 YTD Actual |
% Variance from 2023 Revised Guidance |
|
Crude oil (bbl/day) |
8,500 – 9,000 |
8,500 – 9,000 |
7,884 |
(7) |
Condensate (bbl/day) |
79,000 – 81,000 |
76,000 – 78,000 |
71,085 |
(8) |
Crude oil and condensate (bbl/day) |
87,500 – 90,000 |
84,500 – 87,000 |
78,969 |
(8) |
Natural gas (MMcf/day) |
1,260 – 1,270 |
1,295 – 1,305 |
1,264 |
(2) |
NGLs (bbl/day) |
47,000 – 49,000 |
49,000 – 51,000 |
48,800 |
— |
Total (boe/day) |
345,000 – 350,000 |
350,000 – 355,000 |
338,377 |
(3) |
Expenses ($/boe)(1) |
||||
Operating |
4.60 – 5.00 |
4.45 – 4.85 |
4.50 |
— |
Transportation |
5.50 – 6.00 |
5.50 – 6.00 |
5.61 |
— |
General and administrative (“G&A”) expense before share-based compensation expense |
0.85 – 0.95 |
0.85 – 0.95 |
1.18 |
24 |
G&A – share-based compensation expense |
0.25 – 0.35 |
0.25 – 0.35 |
(0.03) |
(112) |
Interest and financing(2) |
0.65 – 0.75 |
0.65 – 0.75 |
0.59 |
(9) |
Current income tax expense as a per cent of funds from operations(1) |
10 – 15 |
10 – 15 |
11 |
— |
Capital expenditures ($ billions)(3) |
1.8 |
1.8 – 1.9 |
0.5 |
n/a |
(1) |
See “Non-GAAP and Other Financial Measures” in the Q1 2023 MD&A for an explanation of the composition of these supplementary financial measures, which information is incorporated by reference into this news release. |
(2) |
Excludes accretion of ARC’s asset retirement obligation. |
(3) |
Refer to the section entitled “About ARC Resources Ltd.” contained within the Q1 2023 MD&A for historical capital expenditures, which information is incorporated by reference into this news release. |
Investor Day
ARC will host an Investor Update on Thursday, June 22, 2023 in Toronto. The live event will feature presentations from the executive leadership team and will provide greater insight into ARC’s long-term strategy, including asset-level detail and details of the Attachie Phase I development.
FINANCIAL AND OPERATIONAL RESULTS
Production
- First quarter production averaged 338,377 boe per day (62 per cent natural gas and 38 per cent crude oil and liquids).
- Strong base production more than offset the previously announced unplanned third-party downtime. The total impact from the unplanned third-party outages was approximately 7,000 boe per day in the quarter with production fully restored in late February.
- Kakwa delivered first quarter 2023 average production of 181,867 boe per day. Since acquiring the asset in 2021, Kakwa has contributed $3.7 billion to ARC’s free funds flow.
Funds from Operations, Cash Flow from Operating Activities, and Free Funds Flow
Funds from Operations and Cash Flow from Operating Activities
- First quarter 2023 funds from operations was $717 million ($1.16 per share), representing a decrease of $269 million from the fourth quarter of 2022. This decrease was primarily driven by lower production and lower commodity prices. Partially offsetting these items were as follows:
- G&A expense of $35 million ($0.06 per share) decreased by 38 per cent or $21 million from the fourth quarter of 2022 and was in-line with guidance. The decrease in G&A expense quarter over quarter primarily reflects the decrease in the fair value of share-based compensation liabilities.
- Realized losses on risk management contracts of $151 million decreased $128 million from the fourth quarter of 2022. ARC has approximately 25 per cent of its natural gas hedged in 2023, primarily through collars and weighted to the summer months.
- First quarter 2023 cash flow from operating activities was $540 million.
Free Funds Flow & Shareholder Returns
- ARC generated free funds flow of $230 million ($0.37 per share) during the first quarter of 2023.
- ARC distributed 106 per cent or $243 million ($0.39 per share) of free funds flow to shareholders through a combination of dividends and share repurchases under its NCIB.
- With net debt approaching the bottom end of ARC’s debt targets, ARC intends to return essentially all free funds flow to shareholders in 2023.
Dividends
- During the first quarter 2023, ARC declared dividends of $92 million ($0.15 per share).
- The Board approved a 13 per cent increase to the quarterly dividend, from $0.15 per share to $0.17 per share. The dividend increase is effective with the second quarter dividend payable on July 17, 2023 to shareholders of record on June 30, 2023.
Share Repurchases
- During the first quarter of 2023, ARC repurchased 10 million common shares under its NCIB at a weighted average price of $15.51 per share.
- ARC has repurchased 44 million common shares since renewing its NCIB on September 1, 2022, representing 67 per cent of its current NCIB allotment.
- Since commencing its initial NCIB in September 2021, ARC has repurchased approximately 16 per cent of total outstanding shares, or 116 million common shares, at a weighted average price of $15.54 per share.
The following table details the change in funds from operations for the first quarter of 2023 relative to the fourth quarter of 2022.
Funds from Operations Reconciliation |
$ millions |
$/share(1) |
Funds from operations for the three months ended December 31, 2022 |
986.2 |
1.56 |
Production volumes |
||
Crude oil and liquids |
(136.7) |
(0.22) |
Natural gas |
(56.0) |
(0.09) |
Commodity prices |
||
Crude oil and liquids |
(29.0) |
(0.04) |
Natural gas |
(275.2) |
(0.45) |
Sales of commodities purchased from third parties |
(89.5) |
(0.14) |
Interest and other income |
(0.2) |
— |
Realized loss on risk management contracts |
127.5 |
0.20 |
Royalties |
94.7 |
0.15 |
Expenses |
||
Commodities purchased from third parties |
67.8 |
0.11 |
Operating |
7.6 |
0.01 |
Transportation |
17.7 |
0.03 |
G&A |
21.0 |
0.03 |
Interest and financing |
4.5 |
0.01 |
Current income tax |
(8.5) |
(0.01) |
Realized loss on foreign exchange |
(17.0) |
(0.03) |
Other |
2.5 |
— |
Weighted average shares, diluted |
— |
0.04 |
Funds from operations for the three months ended March 31, 2023 |
717.4 |
1.16 |
(1) Per share amounts are based on weighted average diluted common shares. |
Operating and Transportation Expense
Operating Expense
- ARC’s first quarter 2023 operating expense was $4.50 per boe, slightly below the Company’s guidance range of $4.60 to $5.00 per boe.
- ARC revised its 2023 guidance to include a decrease in operating expenses to $4.45 to $4.85 (previously $4.60 – $5.00).
- ARC executed a third-party agreement for water disposal and related infrastructure at Kakwa. The agreement is expected to reduce operating costs by between $30 million and $60 million per year beginning in 2024.
Transportation Expense
- ARC’s first quarter 2023 transportation expense per boe of $5.61 decreased by two per cent from the fourth quarter of 2022 and was in-line with ARC’s guidance range of $5.50 to $6.00 per boe. The decrease is primarily related to lower fuel gas expense.
Cash Flow Used in Investing Activities and Capital Expenditures
- In the first quarter 2023, ARC’s cash flow used in investing activities was $397 million. Of this, ARC invested $485 million in capital expenditures to drill 46 wells and complete 34 wells.
- ARC disposed of certain non-core assets for cash proceeds of $74 million. These proceeds were subsequently used to repurchase ARC shares.
The following table details ARC’s capital activity by area during the first quarter of 2023.
Three Months Ended March 31, 2023 |
||
Area |
Wells Drilled(1)(2) |
Wells Completed(1) |
Kakwa |
28 |
21 |
Greater Dawson |
8 |
— |
Sunrise |
6 |
5 |
Ante Creek |
4 |
8 |
Total |
46 |
34 |
(1) Wells drilled and completed for operated assets only. |
(2) Excludes disposal wells. |
Physical Marketing and LNG
- During the first quarter, ARC’s infrastructure and committed takeaway capacity played a critical role in mitigating price volatility at AECO while capturing additional margin during periods of price volatility at various points in North America.
- ARC’s first quarter average realized natural gas price was $5.89 per Mcf, 36 per cent higher than the average AECO 7A Monthly Index price for the period.
- ARC’s 170,000 MMBtu per day of physical exposure to Malin represented approximately 13 per cent of its total production. During the first quarter, the PG&E Malin daily price averaged US$9.39 per Mcf.
- ARC entered into a non-binding Memorandum of Understanding for a 20-year agreement to supply and liquefy approximately 200 MMcf per day of natural gas with the Cedar LNG Project in BC. This represents the equivalent of 1.5 million tonnes per annum of LNG or approximately one half of the facility’s total production. ARC is advancing a binding agreement and continues to pursue LNG offtake arrangements to increase its anticipated total exposure to internationally linked natural gas pricing.
Net Debt
- As of March 31, 2023, ARC’s long-term debt balance was $1.1 billion, and its net debt balance was $1.3 billion, or 0.3 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 is comprised of $1.0 billion of senior notes outstanding and $0.1 billion in borrowings under the Company’s $1.8 billion credit facility.
- ARC holds an investment-grade credit rating, which allows the Company to have access to capital and to manage a low-cost capital structure. ARC is committed to protecting its strong financial position by maintaining significant financial flexibility with its balance sheet.
Net Income
- ARC recognized net income of $575 million ($0.93 per share) during the first quarter of 2023, a decrease of $166 million ($0.25 per share) from the fourth quarter 2022.
CONFERENCE CALL
ARC’s senior leadership team will be hosting a conference call to discuss the Company’s first quarter 2023 results on Friday, May 5, 2023, at 8:00 a.m. Mountain Time (“MT”).
Date |
Friday, May 5, 2023 |
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 |
96684414 |
Webcast URL |
https://app.webinar.net/BRjv830OJ7k |
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.
NON-GAAP AND OTHER FINANCIAL MEASURES
Throughout this news release and in other materials disclosed by the Company, ARC employs certain measures to analyze its financial performance, financial position, and cash flow. These non-GAAP and other financial measures are not standardized financial measures under IFRS and may not be comparable to similar financial measures disclosed by other issuers. The non-GAAP and other financial measures should not be considered to be more meaningful than generally accepted accounting principles (“GAAP”) measures which are determined in accordance with IFRS, such as net income, cash flow from operating activities, and cash flow used in investing activities, as indicators of ARC’s performance.
Non-GAAP Financial Measures
Capital Expenditures
ARC uses capital expenditures to monitor its capital investments relative to those budgeted by the Company on an annual basis. ARC’s capital budget excludes acquisition or disposition activities as well as the accounting impact of any accrual changes and payments under certain lease arrangements. The most directly comparable GAAP measure to capital expenditures is cash flow used in investing activities. The following table details the composition of capital expenditures and its reconciliation to cash flow used in investing activities.
Three Months Ended |
|||
($ millions) |
December 31, 2022 |
March 31, 2023 |
March 31, 2022 |
Cash flow used in investing activities |
350.7 |
397.4 |
346.7 |
Acquisition of crude oil and natural gas assets |
(0.1) |
(0.5) |
(0.8) |
Disposal of crude oil and natural gas assets |
— |
73.6 |
7.4 |
Long-term investments |
(3.3) |
(1.2) |
— |
Change in non-cash investing working capital |
30.1 |
16.0 |
(22.7) |
Other (1) |
5.9 |
2.1 |
2.7 |
Capital expenditures |
383.3 |
487.4 |
333.3 |
(1) Comprises non-cash capitalized costs related to the Company’s right-of-use asset depreciation and share-based compensation. |
Free Funds Flow
ARC uses free funds flow as an indicator of the efficiency and liquidity of ARC’s business, measuring its funds after capital investment available to manage debt levels, pay dividends, and return capital to shareholders through share repurchases. ARC computes free funds flow as funds from operations generated during the period less capital expenditures. Capital expenditures is a non-GAAP financial measure. By removing the impact of current period capital expenditures from funds from operations, Management monitors its free funds flow to inform its capital allocation decisions. The most directly comparable GAAP measure to free funds flow is cash flow from operating activities. The following table details the calculation of free funds flow and its reconciliation to cash flow from operating activities.
Free Funds Flow |
Three Months Ended |
||
($ millions) |
December 31, 2022 |
March 31, 2023 |
March 31, 2022 |
Cash flow from operating activities |
878.3 |
540.3 |
758.8 |
Net change in other liabilities |
13.9 |
13.7 |
40.8 |
Change in non-cash operating working capital |
94.0 |
163.4 |
(56.0) |
Funds from operations |
986.2 |
717.4 |
743.6 |
Capital expenditures(1) |
(383.3) |
(487.4) |
(333.3) |
Free funds flow |
602.9 |
230.0 |
410.3 |
(1) Certain additional disclosures for these specified financial measures have been incorporated by reference. See “Cash Flow used in Investing Activities, Capital Expenditures, Acquisitions, and Dispositions” in the Q1 2023 MD&A. |