CALGARY, AB, July 29, 2021 /CNW/ - (TSX:
ARX) ARC Resources Ltd. ("ARC" or the "Company") today reported its
second quarter 2021 financial and operational results.
SECOND QUARTER 2021 HIGHLIGHTS
- ARC successfully closed the strategic Montney combination with Seven Generations
Energy Ltd. ("Seven Generations") on April
6, 2021 (the "Business Combination"), to become the largest
pure-play Montney producer, and
remains well on track to deliver annual synergies of $160 million for 2022.
- ARC's board of directors (the "Board") has approved a 10 per
cent increase to ARC's quarterly dividend, from $0.06 per share to $0.066 per share. The dividend increase is
effective for ARC's third quarter 2021 dividend, payable on
October 15, 2021 to shareholders of
record on September 30, 2021, and
reflects ARC's conviction in its assets, increased profitability,
and the progress made to-date in delivering on the $160 million of annual synergies.
- ARC generated funds from operations(1) of
$542.5 million ($0.75 per share) and free funds
flow(2) of $249.7 million ($0.35 per share).
-
- Free funds flow was allocated to debt reduction and declaring
dividends of $43.5 million
($0.06 per share).
- Net debt excluding lease obligations(1) outstanding
was reduced by $270.8 million or 11
per cent and was 1.3 times annualized funds from operations at
period end.
- ARC delivered average daily production of 335,701
boe(3) per day (60 per cent natural gas and 40 per cent
crude oil and liquids)(4), which was
above guidance. Production in the period was impacted by
planned maintenance and turnaround activities across the Company's
asset base.
- ARC safely executed its active capital program, drilling 38
wells and completing 40 wells. Capital investments totalled
$292.8 million and included bringing
the Sunrise facilities expansion on-stream in May 2021.
- ARC disposed of its Pembina assets in the second quarter of
2021. Production guidance during the second half of 2021 is
unchanged at approximately 340,000 boe per day, while operating
expense guidance and crude oil production guidance have been
lowered to reflect the disposition. Production guidance for
condensate, natural gas, and NGLs remains unchanged.
A video update from ARC's senior management team and an updated
investor presentation are available on ARC's website at
www.arcresources.com. ARC's unaudited condensed interim
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, 2021,
are available on ARC's website at www.arcresources.com and under
ARC's SEDAR profile at www.sedar.com.
Notes:
|
(1)
|
Refer to Note 15
"Capital Management" in ARC's financial statements and to
the sections entitled "Funds from Operations" and
"Capitalization, Financial Resources and Liquidity" in ARC's
MD&A as at and for the three and six months ended June 30,
2021, available on ARC's website at www.arcresources.com and on
SEDAR at www.sedar.com.
|
(2)
|
Non-GAAP measure that
does not have any standardized meaning under International
Financial Reporting Standards ("IFRS") and therefore may not be
comparable to similar measures presented by other entities. Refer
to the section entitled "Non-GAAP Measures" in ARC's
MD&A for the three and six months ended June 30, 2021,
available on ARC's website at www.arcresources.com and on SEDAR at
www.sedar.com.
|
(3)
|
ARC has adopted the
standard six thousand cubic feet ("Mcf") 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.
|
(4)
|
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.
|
FINANCIAL AND OPERATIONAL RESULTS
|
|
|
|
Three Months
Ended
|
Six Months
Ended
|
(Cdn$ millions,
except per share amounts, boe amounts, and common shares outstanding)
|
March 31,
2021(1)
|
|
June 30,
2021
|
|
June 30,
2020(1)
|
|
June 30,
2021
|
|
June 30,
2020(1)
|
FINANCIAL
RESULTS
|
|
|
|
|
|
Net income
(loss)
|
178.0
|
|
(123.0)
|
|
(43.5)
|
|
55.0
|
|
(601.9)
|
Per
share(2)
|
0.50
|
|
(0.17)
|
|
(0.12)
|
|
0.10
|
|
(1.70)
|
Funds from
operations(3)
|
273.9
|
|
542.5
|
|
150.2
|
|
816.4
|
|
311.0
|
Per
share(2)
|
0.77
|
|
0.75
|
|
0.42
|
|
1.51
|
|
0.88
|
Free funds
flow(4)
|
148.2
|
|
249.7
|
|
106.1
|
|
397.9
|
|
97.1
|
Per
share(2)
|
0.42
|
|
0.35
|
|
0.30
|
|
0.74
|
|
0.27
|
Dividends
declared
|
21.3
|
|
43.5
|
|
21.3
|
|
64.8
|
|
63.8
|
Per
share(2)
|
0.06
|
|
0.06
|
|
0.06
|
|
0.12
|
|
0.18
|
Capital expenditures,
before undeveloped land purchases and
net property acquisitions (dispositions)
|
125.7
|
|
292.8
|
|
44.1
|
|
418.5
|
|
213.9
|
Total capital
expenditures, including undeveloped land
purchases and net property acquisitions (dispositions)
|
125.6
|
|
214.8
|
|
44.0
|
|
340.4
|
|
213.9
|
Net debt
outstanding(3)
|
613.6
|
|
2,986.7
|
|
961.1
|
|
2,986.7
|
|
961.1
|
Net debt excluding
lease obligations outstanding(3)
|
568.0
|
|
2,084.1
|
|
923.0
|
|
2,084.1
|
|
923.0
|
Common shares
outstanding, weighted average diluted (millions)
|
354.4
|
|
723.1
|
|
353.4
|
|
540.3
|
|
353.4
|
Common shares
outstanding, end of period (millions)
|
353.4
|
|
723.9
|
|
353.4
|
|
723.9
|
|
353.4
|
OPERATIONAL
RESULTS
|
|
|
|
|
|
Production
|
|
|
|
|
|
Crude oil
(bbl/day)
|
13,647
|
|
11,659
|
|
14,987
|
|
12,648
|
|
15,992
|
Condensate
(bbl/day)
|
13,812
|
|
73,459
|
|
13,239
|
|
43,800
|
|
12,251
|
Crude oil and
condensate (bbl/day)
|
27,459
|
|
85,118
|
|
28,226
|
|
56,448
|
|
28,243
|
Natural gas
(MMcf/day)
|
794.1
|
|
1,203.3
|
|
773.3
|
|
999.9
|
|
732.7
|
NGLs
(bbl/day)
|
10,620
|
|
50,020
|
|
9,405
|
|
30,429
|
|
8,779
|
Total
(boe/day)
|
170,430
|
|
335,701
|
|
166,510
|
|
253,522
|
|
159,146
|
Average realized
prices, prior to gain or loss on risk management contracts
|
|
|
|
|
|
Crude oil
($/bbl)
|
64.46
|
|
74.01
|
|
25.88
|
|
68.89
|
|
38.53
|
Condensate
($/bbl)
|
71.59
|
|
77.93
|
|
31.54
|
|
76.93
|
|
43.48
|
Natural gas
($/Mcf)
|
4.60
|
|
3.34
|
|
1.92
|
|
3.84
|
|
1.98
|
NGLs ($/bbl)
|
29.45
|
|
22.19
|
|
10.84
|
|
23.45
|
|
8.76
|
Oil equivalent
($/boe)
|
34.25
|
|
34.90
|
|
14.38
|
|
34.68
|
|
16.83
|
Netback
($/boe)(4)
|
|
|
|
|
|
Commodity sales from
production
|
34.25
|
|
34.90
|
|
14.38
|
|
34.68
|
|
16.83
|
Royalties
|
(1.69)
|
|
(3.02)
|
|
(0.38)
|
|
(2.58)
|
|
(0.73)
|
Operating
expense
|
(3.85)
|
|
(4.53)
|
|
(3.32)
|
|
(4.30)
|
|
(3.83)
|
Transportation
expense
|
(3.70)
|
|
(4.49)
|
|
(2.88)
|
|
(4.22)
|
|
(2.87)
|
Netback
|
25.01
|
|
22.86
|
|
7.80
|
|
23.58
|
|
9.40
|
Realized gain (loss) on
risk management contracts
|
(1.75)
|
|
(1.97)
|
|
2.10
|
|
(1.90)
|
|
1.69
|
Netback including
realized gain (loss) on risk management contracts
|
23.26
|
|
20.89
|
|
9.90
|
|
21.68
|
|
11.09
|
TRADING
STATISTICS(5)
|
|
|
|
|
|
High price
|
8.67
|
|
10.74
|
|
6.12
|
|
10.74
|
|
8.39
|
Low price
|
5.88
|
|
7.26
|
|
3.64
|
|
5.88
|
|
2.42
|
Close
price
|
7.72
|
|
10.55
|
|
4.56
|
|
10.55
|
|
4.56
|
Average daily volume
(thousands of shares)
|
3,125
|
|
3,309
|
|
2,177
|
|
3,218
|
|
2,692
|
(1)
|
Comparative figures
represent ARC's results prior to the closing of the Business
Combination on April 6, 2021, and therefore do not reflect
historical data from Seven Generations.
|
(2)
|
Per share amounts
(with the exception of dividends) are based on weighted average
diluted common shares.
|
(3)
|
Refer to Note 15
"Capital Management" in ARC's financial statements and to
the sections entitled "Funds from Operations" and
"Capitalization, Financial Resources and Liquidity" in ARC's
MD&A as at and for the three and six months ended June 30,
2021, available on ARC's website at www.arcresources.com and on
SEDAR at www.sedar.com.
|
(4)
|
Non-GAAP measure that
does not have any standardized meaning under IFRS and therefore may
not be comparable to similar measures presented by other entities.
Refer to the section entitled "Non-GAAP Measures" in ARC's
MD&A for the three and six months ended June 30, 2021,
available on ARC's website at www.arcresources.com and on SEDAR at
www.sedar.com.
|
(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.
|
BUSINESS COMBINATION WITH SEVEN GENERATIONS
On April 6, 2021, ARC successfully
closed the strategic Montney
combination with Seven Generations, issuing approximately 369.4
million shares to acquire all of the outstanding Seven Generations
shares and making ARC the largest pure-play Montney producer. On May 1, 2021, ARC amalgamated with Seven
Generations.
ARC expects to achieve annual synergies of approximately
$160 million for 2022, which will be
attained through a combination of corporate and finance cost
savings, operating efficiencies, market optimization opportunities,
and drilling and completions efficiencies. ARC estimates that over
half of the identified synergies have been captured to-date.
ARC has made significant progress in integrating the two
companies while maintaining business continuity and ensuring safe
and efficient operations. ARC expects to have fully integrated
Seven Generations by year-end 2021. Of note:
- Shared learnings and knowledge transfer is taking place across
ARC's expanded operations and within all disciplines to deliver
capital and operating efficiency improvements.
- The Kakwa field operations were integrated safely and
efficiently into ARC's broader asset portfolio.
- ARC is realizing improved purchasing power within its field
operations and capital programs due to its increased size and
scale.
- The transportation and sales portfolios of the two companies
have been fully integrated, providing ARC with a greater ability to
optimize transportation and fractionation capacity usage to
increase sales revenues.
ORGANIZATIONAL UPDATE
ARC announces that David Holt has
resigned from his position as Senior Vice President and Chief
Operating Officer, effective August 27,
2021. Through the Business Combination, David has played a
significant role in ensuring the safe and efficient execution of
ARC's expanded field operations. ARC thanks David for his valuable
contributions to the successful integration of ARC and Seven
Generations.
OPERATIONAL REVIEW
ARC's leading position in the Montney resource play features a deep
inventory of high-return, de-risked development opportunities. The
enhanced commodity and geographic diversity established through the
Business Combination provides significant optionality within ARC's
portfolio and improves the Company's ability to reduce development
risk and mitigate the impacts of future commodity price
volatility.
ARC processes the majority of its production through
owned-and-operated infrastructure. This affords the Company greater
control to deliver on its low cost structure and optimal liquids
recoveries, as well as the ability to optimize revenue streams, and
supports strong safety and environmental performance.
ARC is monitoring the recent Supreme Court of British Columbia judgment regarding a claim by
the Blueberry River First Nations against the Province of
British Columbia. ARC will
continue to work closely and respectfully with stakeholders and
neighbouring Indigenous communities.
Capital Expenditures
ARC invested $292.8 million during
the second quarter of 2021, drilling 38 wells and completing 40
wells. During the period, ARC commissioned the Sunrise facilities
expansion, bringing on-stream an additional 40 MMcf per day of
natural gas processing and sales capacity to the area. ARC also
advanced the Parkland/Tower facility sour conversion and expansion,
which remains on schedule to be completed in the third quarter of
2021.
ARC invested $418.5 million to
drill 53 wells and complete 72 wells during the first half of 2021.
The following table details ARC's capital activity by core
operating area.
|
Six Months Ended
June 30, 2021
|
|
Capital
Expenditures(1)
($
millions)
|
|
Wells
Drilled(2)
|
|
Wells
Completed(2)
|
Kakwa(3)
|
190.4
|
|
21
|
|
35
|
Greater
Dawson(4)
|
108.1
|
|
21
|
|
19
|
Sunrise
|
65.1
|
|
9
|
|
9
|
Ante Creek
|
25.7
|
|
2
|
|
9
|
Attachie
West
|
4.2
|
|
—
|
|
—
|
All
other(5)
|
25.0
|
|
—
|
|
—
|
Total
|
418.5
|
|
53
|
|
72
|
(1)
|
Undeveloped land
purchases and net property acquisitions and dispositions are not
included.
|
(2)
|
Wells drilled and
completed for operated assets only.
|
(3)
|
Assets acquired
through the Business Combination, which closed on April 6,
2021.
|
(4)
|
Comprises Dawson and
Parkland/Tower assets.
|
(5)
|
Comprises spending
and activity for ARC's non-core and corporate assets and includes
capitalized general and administrative ("G&A")
expenditures.
|
ARC expects full-year 2021 capital expenditures to be between
$950 million and $1.0 billion.
Production
ARC's production averaged 335,701 boe per day (60 per cent
natural gas and 40 per cent crude oil and liquids) during the
second quarter of 2021, with operations impacted by planned
turnaround and maintenance activities across the asset base.
The following table details ARC's production by core operating
area during the second quarter of 2021, relative to the first
quarter of 2021.
|
Three Months
Ended
|
|
June 30,
2021
|
March 31,
2021
|
|
Crude
Oil
(bbl/day)
|
|
Condensate
(bbl/day)
|
|
Natural
Gas
(MMcf/day)
|
|
NGLs
(bbl/day)
|
|
Total
(boe/day)
|
|
Total
(boe/day)
|
Kakwa(1)
|
—
|
|
60,319
|
|
437.6
|
|
39,633
|
|
172,890
|
|
180,774
|
Greater
Dawson(2)
|
1,344
|
|
10,189
|
|
427.5
|
|
8,439
|
|
91,219
|
|
99,003
|
Sunrise
|
—
|
|
14
|
|
259.2
|
|
29
|
|
43,242
|
|
40,913
|
Ante Creek
|
6,538
|
|
488
|
|
53.2
|
|
1,435
|
|
17,331
|
|
17,099
|
Attachie
West
|
—
|
|
2,232
|
|
12.2
|
|
148
|
|
4,418
|
|
4,593
|
All
other(3)
|
3,777
|
|
217
|
|
13.6
|
|
336
|
|
6,601
|
|
8,822
|
Total
|
11,659
|
|
73,459
|
|
1,203.3
|
|
50,020
|
|
335,701
|
|
351,204(4)
|
(1)
|
Assets acquired
through the Business Combination, which closed on April 6,
2021.
|
(2)
|
Comprises Dawson and
Parkland/Tower assets.
|
(3)
|
Comprises production
from ARC's non-core assets.
|
(4)
|
Represents production
of ARC plus Seven Generations for the three months ended March 31,
2021. Refer to the May 5, 2021 news release entitled "ARC
Resources Ltd. Reports First Quarter 2021 Results and Provides 2021
Guidance", available on ARC's website at www.arcresources.com
and on SEDAR at www.sedar.com.
|
ARC expects production to average approximately 340,000 boe per
day during the second half of 2021.
ESG REVIEW
ARC ranks amongst the best in the world for ESG performance in
the sector and remains committed to low-emission, responsible
energy development. ARC continues to evolve its market access
strategy through its pursuit of responsible natural gas supply
agreements that supply low-emission natural gas to North American
consumers. ARC plans to publish its 2020 ESG performance data and
highlights in the third quarter of 2021, with new ESG targets
expected to be released in the fourth quarter of 2021.
FINANCIAL REVIEW
Balance Sheet and Liquidity
At the core of ARC's long-term strategy is preserving a strong
balance sheet through all commodity price cycles and maintaining an
investment-grade credit rating to access low-cost debt. To achieve
this, ARC targets its net debt excluding lease obligations to be
within a range of 1.0 to 1.5 times annualized funds from operations
over the long term. As at June 30,
2021, ARC's net debt excluding lease obligations outstanding
was $2.1 billion or 1.3 times
annualized funds from operations.
ARC currently has ample liquidity, with approximately
$1.9 billion of undrawn credit
capacity. At current forward commodity prices, ARC expects to
reduce net debt excluding lease obligations outstanding to the low
end of the Company's targeted range by the third quarter of
2021.
Dividend Increase
The Board has approved a 10 per cent increase to ARC's quarterly
dividend, from $0.06 per share to
$0.066 per share. The dividend
increase is effective for ARC's third quarter 2021 dividend,
payable on October 15, 2021 to
shareholders of record on September 30,
2021. The ex-dividend date is September 29, 2021.
Profitable assets and a strong financial position ensure that
ARC's dividend is sustainable in a low commodity price environment.
Dividends will continue to be assessed to ensure that they are
aligned with the Company's capital allocation priorities.
Net Income (Loss)
ARC recognized a net loss of $123.0
million ($0.17 per share) in
the second quarter of 2021. Following the closing of the Business
Combination, ARC's netback increased due to higher volumes and
strong liquids realizations; however, the increased netback was
offset by increases in G&A expense, transaction costs, and
depletion, depreciation, and amortization. Additionally, ARC
recognized increased losses on its risk management contracts in the
period, driven by the acquisition of Seven Generations' risk
management contracts and the positions that ARC entered into to
de-risk its deleveraging plan.
ARC recognized net income of $55.0 million ($0.10 per share) in the first half of 2021,
compared to a net loss of $601.9 million ($1.70 per share) in the first half of 2020.
Funds from Operations and Free Funds Flow
ARC generated funds from operations of $542.5 million ($0.75 per share) during the second quarter of
2021. ARC's second quarter 2021 funds from operations were impacted
by planned turnaround and maintenance activities, which reduced
commodity sales from production and increased the Company's
operating expense. During the second quarter of 2021, ARC also
recognized increased realized losses on risk management contracts,
recognized higher G&A expense due to a larger workforce and
increased share-based compensation expense, and incurred
transaction costs resulting from the Business Combination. These
decreases to funds from operations were partially offset by a
reduced current tax expense in the second quarter of 2021 compared
to the first quarter of 2021.
ARC generated free funds flow of $249.7 million ($0.35 per share) during the second quarter of
2021. Free funds flow was used to fund the Company's dividend
obligations of $43.5 million
($0.06 per share) and to strengthen
the Company's balance sheet, reducing net debt excluding lease
obligations outstanding by $270.8
million or 11 per cent since the closing of the Business
Combination.
During the first half of 2021, ARC generated funds from
operations of $816.4 million
($1.51 per share) and free funds flow
of $397.9 million ($0.74 per share).
The following table details the change in funds from operations
for the second quarter of 2021 relative to the first quarter of
2021 and the change in funds from operations for the first half of
2021 relative to the first half of 2020.
|
Q1 2021 to Q2
2021
|
2020 YTD to 2021
YTD
|
|
$ millions
|
$/share(1)
|
$ millions
|
$/share(1)
|
Funds from operations
for the three months ended March 31, 2021(2)
|
273.9
|
|
0.77
|
|
|
|
Funds from operations
for the six months ended June 30, 2020(2)
|
|
|
311.0
|
|
0.88
|
Volume
|
|
|
|
|
Crude oil and
liquids
|
484.7
|
|
1.37
|
|
258.0
|
|
0.73
|
Natural gas
|
174.9
|
|
0.49
|
|
94.1
|
|
0.27
|
Price
|
|
|
|
|
Crude oil and
liquids
|
19.4
|
|
0.06
|
|
415.6
|
|
1.18
|
Natural gas
|
(138.1)
|
|
(0.39)
|
|
336.4
|
|
0.95
|
Sales of commodities
purchased from third parties
|
241.1
|
|
0.68
|
|
262.2
|
|
0.73
|
Interest
income
|
1.7
|
|
—
|
|
1.5
|
|
—
|
Other
income
|
(0.9)
|
|
—
|
|
8.4
|
|
0.02
|
Realized gain (loss)
on risk management contracts
|
(33.4)
|
|
(0.09)
|
|
(135.9)
|
|
(0.38)
|
Royalties
|
(66.7)
|
|
(0.19)
|
|
(97.4)
|
|
(0.28)
|
Expenses
|
|
|
|
|
Commodities purchased
from third parties
|
(228.9)
|
|
(0.65)
|
|
(252.8)
|
|
(0.72)
|
Operating
|
(79.3)
|
|
(0.22)
|
|
(86.2)
|
|
(0.24)
|
Transportation
|
(80.2)
|
|
(0.23)
|
|
(110.8)
|
|
(0.31)
|
G&A
|
(31.1)
|
|
(0.09)
|
|
(42.8)
|
|
(0.12)
|
Transaction
costs
|
(7.7)
|
|
(0.02)
|
|
(22.9)
|
|
(0.06)
|
Interest and
financing
|
(21.9)
|
|
(0.06)
|
|
(16.6)
|
|
(0.05)
|
Current income
tax
|
42.4
|
|
0.12
|
|
(82.5)
|
|
(0.23)
|
Realized gain (loss) on
foreign exchange
|
(8.1)
|
|
(0.02)
|
|
(21.5)
|
|
(0.06)
|
Other
|
0.7
|
|
—
|
|
(1.4)
|
|
—
|
Weighted average
shares, diluted
|
—
|
|
(0.78)
|
|
—
|
|
(0.80)
|
Funds from operations
for the three months ended June 30, 2021
|
542.5
|
|
0.75
|
|
|
|
Funds from operations
for the six months ended June 30, 2021
|
|
|
816.4
|
|
1.51
|
(1)
|
Per share amounts are
based on weighted average diluted common shares.
|
(2)
|
Comparative figures
represent ARC's results prior to the closing of the Business
Combination on April 6, 2021, and therefore do not reflect
historical data from Seven Generations.
|
Financial and Physical Price Management
ARC manages a strategic physical and financial diversification
program to increase ARC's exposure to downstream sales points
across North America. Following
the closing of the Business Combination, ARC quickly integrated the
sales portfolios of both companies to capitalize on several market
optimization opportunities. To date, ARC has:
- proactively managed pricing differentials for light oil and
condensate production to optimize revenues;
- optimized transportation and fractionation capacity usage;
and
- actively managed its natural gas sales portfolio to improve
realizations and adjust downstream exposures to align with ARC's
market views.
The following table summarizes ARC's average realized prices for
the second quarter of 2021 relative to the first quarter of 2021
and ARC's average realized prices for the first half of 2021
relative to the first half of 2020.
|
Three Months
Ended
|
Six Months
Ended
|
|
June 30,
2021
|
|
March 31,
2021(1)
|
|
% Change
|
|
June 30,
2021
|
|
June 30,
2020(1)
|
|
% Change
|
Average natural gas
price before diversification activities ($/Mcf)
|
3.37
|
|
3.19
|
|
6
|
|
3.34
|
|
2.10
|
|
59
|
Natural gas
diversification activities ($/Mcf)
|
(0.03)
|
|
1.41
|
|
(102)
|
|
0.50
|
|
(0.12)
|
|
(517)
|
Realized gain (loss)
on risk management contracts ($/Mcf)(2)
|
(0.18)
|
|
(0.21)
|
|
(14)
|
|
(0.19)
|
|
0.10
|
|
(290)
|
Average realized
natural gas price including realized gain (loss) on risk management
contracts ($/Mcf)
|
3.16
|
|
4.39
|
|
(28)
|
|
3.65
|
|
2.08
|
|
75
|
Average realized
crude oil price ($/bbl)
|
74.01
|
|
64.46
|
|
15
|
|
68.89
|
|
38.53
|
|
79
|
Average realized
condensate price ($/bbl)
|
77.93
|
|
71.59
|
|
9
|
|
76.93
|
|
43.48
|
|
77
|
Average realized NGLs
price ($/bbl)
|
22.19
|
|
29.45
|
|
(25)
|
|
23.45
|
|
8.76
|
|
168
|
Total average
realized commodity price ($/boe)
|
34.90
|
|
34.25
|
|
2
|
|
34.68
|
|
16.83
|
|
106
|
(1)
|
Comparative figures
represent ARC's results prior to the closing of the Business
Combination on April 6, 2021, and therefore do not reflect
historical data from Seven Generations.
|
(2)
|
Realized gain (loss)
on risk management contracts is not included in ARC's average
realized natural gas price.
|
ARC's risk management program reduces volatility in funds from
operations to support ARC's dividend, capital program, and
deleveraging plan. For the balance of 2021, ARC has hedged
approximately 50 per cent of both its expected crude oil and
condensate and natural gas production at levels that generate
profitable rates of return.
Netback
The following table details the components of ARC's netback for
the second quarter of 2021 relative to the first quarter of 2021
and ARC's netback for the first half of 2021 relative to the first
half of 2020.
|
Three Months
Ended
|
|
Six Months
Ended
|
($/boe)
|
June 30,
2021
|
|
March 31,
2021(1)
|
|
% Change
|
|
June 30,
2021
|
|
June 30,
2020(1)
|
|
% Change
|
Commodity sales from
production
|
34.90
|
|
34.25
|
|
2
|
|
34.68
|
|
16.83
|
|
106
|
Royalties
|
(3.02)
|
|
(1.69)
|
|
79
|
|
(2.58)
|
|
(0.73)
|
|
253
|
Operating
expense
|
(4.53)
|
|
(3.85)
|
|
18
|
|
(4.30)
|
|
(3.83)
|
|
12
|
Transportation
expense
|
(4.49)
|
|
(3.70)
|
|
21
|
|
(4.22)
|
|
(2.87)
|
|
47
|
Netback
|
22.86
|
|
25.01
|
|
(9)
|
|
23.58
|
|
9.40
|
|
151
|
Realized gain (loss)
on risk management contracts
|
(1.97)
|
|
(1.75)
|
|
13
|
|
(1.90)
|
|
1.69
|
|
(212)
|
Netback including
realized gain (loss) on risk management contracts
|
20.89
|
|
23.26
|
|
(10)
|
|
21.68
|
|
11.09
|
|
95
|
(1)
|
Comparative figures
represent ARC's results prior to the closing of the Business
Combination on April 6, 2021, and therefore do not reflect
historical data from Seven Generations.
|
ARC's second quarter 2021 netback decreased nine per cent
relative to ARC's first quarter 2021 netback and was driven by the
following:
- Increased royalties, reflecting the higher proportion of crude
oil and liquids production in ARC's sales mix resulting from the
Business Combination, which have higher average royalty rates than
natural gas.
- Increased operating expense, reflecting the planned turnaround
and maintenance activities conducted in the period.
- Increased transportation expense, reflecting the integration of
transportation arrangements associated with the Kakwa asset into
ARC's sales portfolio.
ARC's netback in the first half of 2021 increased 151 per cent
relative to the first half of 2020, mainly resulting from increased
commodity sales from production due to higher commodity prices and
higher average production. Partially offsetting the increase to
commodity sales from production were increased royalties, operating
expense, and transportation expense, reflecting the integration of
the Kakwa asset into ARC's asset portfolio.
OUTLOOK
2021 Guidance
ARC's 2021 capital budget of $950 million to $1.0 billion has been designed to maximize
free funds flow and enhance ARC's returns-focused value
proposition. While the primary focus for 2021 will be to
successfully integrate Seven Generations and realize anticipated
synergies, ARC will continue to maintain capital discipline to
maximize profitability and preserve a strong financial position.
ARC will also continue to uphold a strong safety culture and
advance its ESG leadership and performance. Through the balance of
2021, ARC plans to sustain production at Greater Dawson, Sunrise, Kakwa, and Ante
Creek.
ARC's 2021 crude oil production, total production, and operating
expense guidance have been revised to reflect the disposition of
ARC's Pembina assets. Production guidance for condensate, natural
gas, and NGLs remains unchanged.
ARC's production guidance estimates for the second half of 2021
are outlined below.
|
Q3 2021 to Q4
2021
Guidance(1)(2)
|
Crude oil
(bbl/day)
|
8,000 -
9,000
|
Condensate
(bbl/day)
|
72,000 -
78,000
|
Crude oil and
condensate (bbl/day)
|
80,000 -
87,000
|
Natural gas
(MMcf/day)
|
1,230 -
1,265
|
NGLs
(bbl/day)
|
50,000 -
53,000
|
Total
(boe/day)
|
335,000 -
350,000
|
(1)
|
The Business
Combination closed on April 6, 2021, and as such, 2021 guidance and
2021 revised guidance include ARC's financial and operational
results for the three months ended March 31, 2021 plus the
Company's expectations for the combined financial and operational
results of ARC's and Seven Generations' operations for the
remainder of 2021.
|
(2)
|
COVID-19 impacts on
demand and market volatility may impact ARC's future financial and
operational results. ARC will continuously monitor its guidance and
provide updates as deemed appropriate.
|
ARC's full-year 2021 guidance estimates and a review of 2021
year-to-date results are outlined below.
|
|
|
|
|
|
2021
Guidance(1)(2)
|
2021 Revised
Guidance(1)(2)
|
2021
YTD
Actual
|
% Variance from
2021 Revised
Guidance(3)
|
Crude oil
(bbl/day)
|
12,000 -
13,500
|
9,000 -
10,500
|
12,648
|
20
|
Condensate
(bbl/day)
|
55,000 -
60,000
|
55,000 -
60,000
|
43,800
|
(20)
|
Crude oil and
condensate (bbl/day)
|
67,000 -
73,500
|
64,000 -
70,500
|
56,448
|
(12)
|
Natural gas
(MMcf/day)
|
1,100 -
1,140
|
1,100 -
1,140
|
999.9
|
(9)
|
NGLs
(bbl/day)
|
40,000 -
42,000
|
40,000 -
42,000
|
30,429
|
(24)
|
Total
(boe/day)
|
290,000 -
305,000
|
287,000 -
302,000
|
253,522
|
(12)
|
Expenses
($/boe)
|
|
|
|
|
Operating
|
4.10 -
4.60
|
3.90 -
4.40
|
4.30
|
—
|
Transportation
|
4.50 -
5.00
|
4.50 -
5.00
|
4.22
|
(6)
|
G&A expense before
share-based
compensation expense(4)
|
0.90 -
1.00
|
0.90 -
1.00
|
1.21
|
21
|
G&A - share-based
compensation
expense(5)
|
0.30 -
0.45
|
0.30 -
0.45
|
0.54
|
20
|
Transaction
costs
|
0.20 -
0.30
|
0.20 -
0.30
|
0.50
|
67
|
Interest and
financing
|
0.70 -
0.80
|
0.70 -
0.80
|
0.83
|
4
|
Current income tax
expense as a
per cent of funds from operations
|
1 - 5
|
1 - 5
|
6
|
20
|
Capital expenditures
before
undeveloped land
purchases and
net property acquisitions
(dispositions) ($ millions)
|
950 -
1,000
|
950 -
1,000
|
419
|
N/A
|
(1)
|
The Business
Combination closed on April 6, 2021, and as such, 2021 guidance and
2021 revised guidance include ARC's financial and operational
results for the three months ended March 31, 2021 plus the
Company's expectations for the combined financial and operational
results of ARC's and Seven Generations' operations for the
remainder of 2021.
|
(2)
|
COVID-19 impacts on
demand and market volatility may impact ARC's future financial and
operational results. ARC will continuously monitor its guidance and
provide updates as deemed appropriate.
|
(3)
|
Reflects the
percentage variation from ARC's 2021 year-to-date actual results
and the current expectations of the Company.
|
(4)
|
Excludes transaction
costs associated with the Business Combination.
|
(5)
|
Comprises expense
recognized under all share-based compensations plans, with the
exception of the Deferred Share Unit Plans.
|
ARC's 2021 guidance is based on full-year estimates; certain
variances exist between 2021 year-to-date actual results and 2021
guidance estimates due to the timing of the Business Combination.
ARC expects full-year 2021 actual results to closely approximate
revised guidance.
Capital Allocation
ARC will continue to allocate capital where risk-adjusted
returns are greatest, while maintaining a strong financial position
and employing a portfolio approach that consists of profitable
growth, a meaningful dividend, and other capital return
measures.
At present, strong operational momentum and a positive commodity
backdrop are driving rapid debt reduction. As a result, ARC is on
track to sanction Attachie West Phase I in the fourth quarter of
2021. Attachie West Phase I is a profitable development project
that increases free funds flow per share in a number of commodity
price scenarios. Should future commodity prices remain strong and
in line with the current outlook, free funds flow is expected to
exceed the capital investment needs of the business, including what
is required to develop Attachie West Phase I. ARC is currently
evaluating alternative return of capital options for the Company's
anticipated excess free funds flow.
FORWARD-LOOKING INFORMATION AND STATEMENTS
This news release contains certain forward-looking statements
and forward-looking information (collectively referred to as
"forward-looking information") within the meaning of applicable
securities legislation about current expectations about the future,
based on certain assumptions made by ARC. Although ARC believes
that the expectations represented by such forward-looking
information are reasonable, there can be no assurance that such
expectations will prove to be correct. Forward-looking information
in this news release is identified by words such as "anticipate",
"believe", "ongoing", "may", "expect", "estimate", "plan", "will",
"project", "continue", "target", "strategy", "upholding", or
similar expressions and includes suggestions of future outcomes. In
particular, but without limiting the foregoing, this news release
contains forward-looking information with respect to: estimated
production amounts and quantities thereof; the expectations with
respect to the integration of Seven Generations; the anticipated
annual synergies for 2022 and the sources thereof; expected capital
expenditures for 2021; the continued integration of Seven
Generations' ESG initiatives; plans to publish ARC's 2020 ESG
performance data and highlights in the third quarter of 2021; the
anticipated reduction in net debt excluding lease obligations
outstanding; the continued assessment of dividends and the payment
thereof; plans to maintain capital discipline to maximize
profitability and preserve a strong financial position and plans to
uphold a strong safety culture and advance its ESG leadership and
performance; plans to sustain production at Greater Dawson, Sunrise, Kakwa, and Ante
Creek; the Company's guidance estimates; the continued allocation
of capital where risk-adjusted return are greatest; plans to
evaluate return of capital measures with excess free funds flow;
and other statements.
Readers are cautioned not to place undue reliance on
forward-looking information as ARC's actual results may differ
materially from those expressed or implied. ARC undertakes no
obligation to update or revise any forward-looking information
except as required by law. Developing forward-looking information
involves reliance on a number of assumptions and consideration of
certain risks and uncertainties, some of which are specific to ARC
and others that apply to the industry generally. Material factors
or assumptions on which the forward-looking information in this
news release include: ARC's ability to successfully integrate the
business of Seven Generations; access to sufficient capital to
pursue any development plans; ARC's ability to issue securities;
the impacts the Business Combination may have on the current credit
ratings of ARC; forecast commodity prices and other pricing
assumptions; forecast production volumes based on business and
market conditions; the accuracy of outlooks and projections
contained herein; projected capital investment levels, the
flexibility of capital spending plans, and associated sources of
funding; achievement of further cost reductions and sustainability
thereof; applicable royalty regimes, including expected royalty
rates; future improvements in availability of product
transportation capacity; opportunity for ARC to pay dividends and
the approval and declaration of such dividends by the board of
directors of ARC; cash flows, cash balances on hand, and access to
ARC's credit facility being sufficient to fund capital investments;
foreign exchange rates; near-term pricing and continued volatility
of the market; the ability of ARC's existing pipeline commitments
and financial hedge transactions to partially mitigate a portion of
ARC's risks against wider price differentials; estimates of
quantities of crude oil, natural gas, and liquids from properties
and other sources not currently classified as proved; accounting
estimates and judgments; future use and development of technology
and associated expected future results; ARC's ability to obtain
necessary regulatory approvals; the successful and timely
implementation of capital projects or stages thereof; the ability
to generate sufficient cash flow to meet current and future
obligations; estimated abandonment and reclamation costs, including
associated levies and regulations applicable thereto; ARC's ability
to obtain and retain qualified staff and equipment in a timely and
cost-efficient manner; ARC's ability to carry out transactions on
the desired terms and within the expected timelines; forecast
inflation and other assumptions inherent in the guidance of ARC;
the retention of key assets; the continuance of existing tax,
royalty, and regulatory regimes; the accuracy of the estimates of
each of ARC's and Seven Generations' reserve volumes; ARC's ability
to access and implement all technology necessary to efficiently and
effectively operate its assets; the ongoing impact of COVID-19 on
commodity prices and the global economy; and other risks and
uncertainties described from time to time in the filings made by
ARC with securities regulatory authorities.
The forward-looking information in this news release also
includes financial outlooks and other related forward-looking
information (including production and financial-related metrics)
relating to ARC following the completion of the Business
Combination, including: the expectations of ARC regarding the
impact of the Business Combination on free funds flow, net debt
excluding lease obligations outstanding, production, and net debt
excluding lease obligations outstanding to annualized funds from
operations. Any financial outlook and forward-looking information
implied by such forward-looking statements are described in the
joint management information circular of ARC and Seven Generations
dated March 1, 2021, and the
documents incorporated by reference therein, the MD&A, and
ARC's most recent annual information form, which are available on
ARC's website at www.arcresources.com and under ARC's SEDAR profile
at www.sedar.com and are incorporated by reference herein.
Advisory – Credit Ratings
Credit ratings are intended to provide investors with an
independent measure of credit quality of an issue of securities.
Credit ratings are not recommendations to purchase, hold, or sell
securities and do not address the market price or suitability of a
specific security for a particular investor. There is no assurance
that any rating will remain in effect for any given period of time
or that any rating will not be revised or withdrawn entirely by the
rating agency in the future if, in its judgment, circumstances so
warrant.
About ARC
ARC Resources Ltd. is the largest pure-play Montney producer and one of Canada's largest dividend-paying energy
companies, featuring low-cost operations and leading ESG
performance. ARC's investment-grade credit profile is supported by
commodity and geographic diversity and robust risk management
practices around all aspects of the business. ARC's common shares
trade on the Toronto Stock Exchange under the symbol ARX.
ARC RESOURCES LTD.
Please visit ARC's website at
www.arcresources.com or contact Investor Relations:
E-mail: IR@arcresources.com
Telephone: (403) 503-8600
Fax: (403) 509-6427
Toll Free: 1-888-272-4900
ARC Resources Ltd.
Suite 1200, 308 - 4 Avenue SW
Calgary, AB T2P 0H7
SOURCE ARC Resources Ltd.