ARC Energy Trust announces a $575 million capital budget for 2010
John Dielwart, ARC's Chief Executive Officer, said, "Strong production from 2009 provides a platform for a period of growth beginning in 2010 and continuing for several years beyond. Commissioning of the new Dawson gas plant early in the second quarter of 2010 should propel ARC exit volumes to greater than 73,000 boe per day and work has already begun on the Phase 2 gas plant for proposed commissioning in early 2011. On the oil side, we will be expanding our horizontal drilling programs at Pembina, Ante Creek and Goodlands as we follow-up on successful results achieved to date."
"Our focus on risk managed value creation has served our investors well. Our approach to running the business has not changed with this budget. More capital has been dedicated to expansion, as we believe that moving into a period of measured growth is the best way to create value from our Montney assets. In addition, a meaningful exploration component is included in this budget to address the 'what's next' component of our strategy," added
Highlights of the 2010 Budget
- The capital budget has been set at $575 million with key initiatives
being:
- Significant near-term growth from our Montney assets
- Diversified investment in our base assets, primarily directed to
the application of horizontal drilling and multi-stage fracture
completion technology on our oil properties
- Funding of exploration initiatives intended to identify areas for
future growth
- Advancement of our CO(2) enhanced oil recovery projects
- Over 40 per cent of the expenditures ($250 million) will be spent to
increase production from the Montney assets in northeast British
Columbia through the commissioning of a 60 mmcf per day gas plant
early in the second quarter of 2010. Included in this number are
funds for the drilling of the operated and non-operated horizontal
wells required to maintain production at approximately 115 mmcf per
day once the new plant comes onstream. We also have funds allocated
to the design and construction of the Dawson Phase 2 gas plant and
for the drilling of the horizontal wells required to fill the plant
when it starts-up early in 2011.
- A total of 66 horizontal wells, requiring an expenditure of $104
million will be targeted at the further development of our oil
resource plays at Pembina, Garrington, Ante Creek, Goodlands and
southeast Saskatchewan
- Nine per cent of the budget will be directed towards exploration
opportunities with the goal of providing future growth engines for
the entity
- Seven per cent of the budget will continue and expand on the
inventory of enhanced oil recovery projects from Weyburn,
Saskatchewan to Redwater, Alberta
- A production target for 2010 of 68,000 to 70,000 boe per day
comprising approximately 44 per cent crude oil and NGLs and 56 per
cent natural gas with an exit rate of over 73,000 boe per day
representing the replacement of approximately 11,000 boe per day of
decline and growth of 10,000 boe per day relative to our 2009 exit
rate
- Operating costs in 2010 are predicted to be $10.30 per boe, which is
two per cent lower than 2009 estimated costs
Capital Program
The
Based on 2010 budget projections, ARC will drill approximately 203 gross wells (187 net) on its operated properties. Approximately half will be vertical wells and half will be horizontal wells with 96 wells targeting oil and 107 wells targeting natural gas. On ARC's non-operated properties we anticipate our partners will drill 91 gross wells (18 net) with ARC's share of expenditures being approximately
2010
Capital
($millions) Operated
Core (Op + wells
Districts Non-Op) (gross) Gas/Oil Comment
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NEBC/NWAB 293 51 Gas/Oil Dawson and other areas
NORTHAB 43 8 Oil Primarily Ante Creek
REDWATER 27 12 Oil Includes EOR
PEMBINA 54 32 Oil Includes 17 Hz wells
CENTRAL 42 19 Gas/Oil Includes 9 Hz wells
SEAB/SWSK 19 50 Gas Primarily Shallow gas
SESK/MB 67 31 Oil Includes 24 Hz wells
and EOR
CORPORATE 30 - -
Total 575 203
ARC expects to allocate over 50 per cent of the capital budget to the northeast British Columbia - northwest Alberta region. At Dawson, in northeast British Columbia, we plan to spend
In 2010 we will also focus on exploration, delineation and technological development within the West Montney assets as we further advance our understanding of the significant resources that we believe we have in the area. On the West Montney lands,
Another property where ARC is deploying horizontal drilling and completion technology is Ante Creek in northern Alberta where
At Redwater, in central Alberta, we plan to spend
An emphasis on the development of oil resource plays has lead to the allocation of
Throughout ARC's other core areas, numerous development activities will take place. In Central Alberta, ARC will devote approximately
The non-operated budget capital for 2010 is included in the previous numbers and will be dominated by activity in Weyburn, Midale and Instow, Saskatchewan as well as the Montney program in the Sunrise area of northeast British Columbia.
Corporate capital of
The budgeted capital expenditures for 2010, by type are:
2008 2009 2010
($ millions) (Actual) (Estimate)(1) (Budget)
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Development 232 174 351
Development - Facilities 13 75 49
Maintenance 21 12 23
Optimization 12 9 14
Land & Seismic 139 11 7
Unconventional gas 22 20 8
Enhanced Oil Recovery 51 28 40
Exploration 45 14 48
Other 14 22 35
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Total 549 365 575
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(1) ARC announced an increase to its 2009 estimated budget in the third
quarter financial release dated November 5, 2009 from $350 million to
$365 million.
2008 2009 2010
Operated Wells Drilled (gross) (Actual) (Estimate) (Budget)
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Natural gas wells 139 112 107
Oil wells 93 35 96
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Total 232 147 203
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Capital Budget by Area: 2008 2009 2010
($ millions) (Actual) (Estimate) (Budget)
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Northeast British Columbia &
Northwest Alberta 230 199 293
Northern Alberta 58 32 43
Pembina 38 24 54
Central Alberta 37 25 42
Southeast Alberta & Southwest
Saskatchewan 22 12 19
Southeast Saskatchewan & Manitoba 113 46 67
Redwater 36 13 27
Corporate 15 14 30
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Total 549 365 575
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Alberta Total 209 122 233
Saskatchewan and Manitoba Total 129 55 72
British Columbia Total 211 188 270
The allocation of capital expenditures for exploration and development activities by area and the number and types of wells to be drilled is dependent upon results achieved and is subject to review and modifications by management on an ongoing basis throughout the year.
Impact of Royalty Changes
Effective
Throughout the first nine months of 2009, the Trust's total corporate royalty rate was 16 per cent as compared to 18 per cent in 2008 as a result of the changes to the royalty programs whereby lower commodity prices throughout 2009 resulted in a lower corporate royalty rate. ARC expects to benefit from the royalty incentive programs in 2010 and 2011 as it executes a capital program that includes significant development plans in British Columbia. The Trust expects that the 2010 total corporate royalty rate will be in the 15 to 21 per cent range depending upon commodity prices and the level of incentives realized, as illustrated in the following table.
Corporate Royalty Rate - 2010 Estimated
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Edmonton posted oil
(Cdn$/bbl)(1) $ 50.00 $ 60.00 $ 70.00 $ 80.00 $ 90.00
AECO natural gas
(Cdn$/GJ)(1) $ 5.00 $ 6.00 $ 7.00 $ 8.00 $ 9.00
Total Corporate Royalty
Rate(2)(3) 15% 16% 18% 20% 21%
(1) Canadian dollar denominated prices before quality differentials.
(2) Estimated corporate royalty rates based on guidelines that are
subject to change.
(3) Corporate royalty rate includes Crown, Freehold and Gross Override
royalties for all jurisdictions in which the Trust operates.
Production Volumes
Targeted annual production volumes for 2010 are expected to be approximately 68,000 to 70,000 boe per day, which includes an estimate of downtime for unplanned outages. Production is expected to grow to approximately 70,000 boe per day in the second quarter with the commissioning of the new Dawson gas plant and continue to grow through the remainder of the year to an exit rate of approximately 73,000 boe per day. This new production level will provide a strong platform for continued growth in 2011 as we work towards the construction of the Dawson Phase 2 gas plant.
The anticipated 2010 volumes do not reflect any potential acquisitions or dispositions. Through the normal course of business, minor acquisitions and dispositions are expected to occur that could impact the forecasted volumes.
The low operating cost of the Montney production additions, will contribute to a two per cent decrease in per boe operating costs from the 2009 estimated value of
General and Administrative ("G&A") Expense
ARC expects total G&A expenses including the Whole Unit Plan expenses to be approximately
ARC's 2010 budgeted G&A includes estimated payments of
Following is a summary of estimated 2010 cash and non-cash G&A expenses:
($ millions, except per boe amounts)
2008 2009 2010
Actual Estimate Budget
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Cash G&A expenses
(before LTIP) $ 38.8 $ 40.6 $ 51.3
Cash LTIP expense $ 21.3 $ 12.7 $ 22.6
Total Cash G&A $ 60.1 $ 53.3 $ 73.9
Non-Cash LTIP expense $ 1.1 $ (4.6) $ 1.8
Total G&A expense $ 61.2 $ 48.7 $ 72.1
Cash G&A expense (before LTIP)
per boe $ 1.63 $ 1.75 $ 2.00
Cash LTIP expense per boe $ 0.90 $ 0.55 $ 0.90
Non-Cash LTIP expense per boe $ 0.05 $ (0.20) $ (0.05)
Total G&A expense per boe $ 2.57 $ 2.10 $ 2.85
Risk Management
As part of its overall strategy to protect cash flow ARC uses a variety of instruments to hedge crude oil, natural gas, foreign exchange rates, electrical power costs and interest rates.
For 2010, the Trust has in place protection on both crude oil and natural gas on volumes extending to the fourth quarter with greater volumes on the earlier periods of the year. ARC continues to watch for opportunities to meaningfully protect the 2010 capital budget and will take positions in natural gas and or crude oil at levels that will provide significant certainty on rates of return. The following table provides a summary of ARC positions as of
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Q4 2009 Q1 2010 Q2 2010
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Crude Oil C$/bbl bbl/day C$/bbl bbl/day C$/bbl bbl/day
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Sold Call 82.68 7,000 95.85 7,000 97.63 6,000
Bought Put 67.30 9,500 75.31 7,000 76.33 6,000
Sold Put 42.60 2,500 NA - NA -
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Natural Gas CDN$/GJ GJ/day CDN$/GJ GJ/day CDN$/GJ GJ/day
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Sold Call 5.52 93,370 6.80 5,000 6.80 5,000
Bought Put 4.84 93,370 6.80 5,000 6.80 5,000
Sold Put 4.50 20,000 NA - NA -
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Q3 2010 Q4 2010
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Crude Oil US$/bbl bbl/day US$/bbl bbl/day
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Sold Call 97.63 6,000 97.63 6,000
Bought Put 76.33 6,000 76.33 6,000
Sold Put NA - NA -
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Natural Gas CDN$/GJ GJ/day CDN$/GJ GJ/day
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Sold Call 6.80 5,000 6.80 5,000
Bought Put 6.80 5,000 6.80 5,000
Sold Put NA - NA -
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(1) The prices and volumes noted above represent averages for several
contracts. The average price for the portfolio of options listed
above does not have the same payoff profile as the individual option
contracts. Viewing the average price of a group of options is for
indicative purposes only. In addition to positions shown here, ARC
has entered into additional basis positions, power positions, and an
energy equivalent swap for the fourth quarter of 2009.
(2) Please refer to the Trust's website at www.arcenergytrust.com under
"Hedging Program" within the "Investor Relations" section for details
on the Trust's current hedging position.
Funding of the 2010 Capital Program
The
Reclamation Fund
As at
Detailed Guidance -
2008 2009 2010
Production (Actual) (Estimate) (Budget)
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Oil (bbls/d) 28,513 27,500 27,100 - 28,000
NGLs (bbls/d) 3,861 3,500 3,067 - 3,200
Gas (mmcf/d) 196.5 195 227 - 233
Total (boe/d) 65,126 63,500 68,000 - 70,000
2008 2009 2010
Costs and Expenses ($/boe) (Actual) (Estimate) (Budget)
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Operating costs 10.13 10.50 10.30
Transportation costs 0.80 0.90 1.00
G&A expenses 2.48 2.10 2.85
Interest 1.39 1.30 1.40
Weighted average units
outstanding including
units held for exchangeable
shares (millions) 216 238 240
The 2010 Guidance provides unitholders with information on Management's expectations for results of operations, excluding any acquisitions for 2010. Readers are cautioned that the 2010 Guidance may not be appropriate for other purposes.
This press release contains forward-looking statements as to the Trust's internal projections, expectations or beliefs relating to future events or future performance, including the Trust's Detailed Guidance for 2010 and the amount and type of 2010 budgeted capital expenditures set forth herein. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expects", "projects", "plans", "anticipates" and similar expressions. These statements represent management's expectations or beliefs concerning, among other things, future capital expenditures and future operating results and various components thereof or the economic performance of ARC Energy Trust ("ARC" or "the Trust"). The projections, estimates and beliefs contained in such forward-looking statements are based on management's assumptions relating to the production performance of ARC's oil and gas assets, the cost and competition for services throughout the oil and gas industry in 2010, the results of exploration and development activities during 2010, the market price for oil and gas, expectations regarding the availability of capital, estimates as to the size of reserves and resources, and the continuation of the current regulatory and tax regime in
ARC Energy Trust is one of Canada's largest conventional oil and gas royalty trusts with an enterprise value of approximately
Note: Barrels of oil equivalent (BOEs) may be misleading, particularly if used in isolation. In accordance with NI 51-101, a BOE conversion ratio for natural gas of 6 Mcf:1bbl has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
ARC RESOURCES LTD.
John P. Dielwart,
Chief Executive Officer
%SEDAR: 00001245E %CIK: 0001029509
For further information: Investor Relations, E-mail: [email protected], Telephone: (403) 503-8600, Fax: (403) 509-6417, Toll Free 1-888-272-4900, ARC Resources Ltd., 2100, 440 - 2nd Avenue S.W., Calgary, AB, T2P 5E9, www.arcenergytrust.com
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