ARC Resources Ltd. Reports Third Quarter 2019 Financial and Operational Results and Announces $500 Million Capital Program for 2020
CALGARY, Nov. 7, 2019 /CNW/ - (ARX - TSX) ARC Resources Ltd. ("ARC" or the "Company") is pleased to report its third quarter 2019 financial and operational results and announce its 2020 capital program of $500 million. ARC's unaudited condensed interim consolidated financial statements and notes ("financial statements") and ARC's Management's Discussion and Analysis ("MD&A") as at and for the three and nine months ended September 30, 2019 are available on ARC's website at www.arcresources.com and on SEDAR at www.sedar.com.
ARC delivered average daily production of 134,813 barrels of oil equivalent ("boe") per day in the third quarter of 2019, with a continued focus on the expansion of its high-value liquids production in the Montney. ARC completed the Dawson Phase I & II liquids-handling upgrade early in the fourth quarter of 2019, and is advancing construction of the Dawson Phase IV gas processing and liquids-handling facility, the Company's next major development project, which is anticipated to be brought on-stream in the second quarter of 2020. With final transportation arrangements at Sunrise coming into effect at the beginning of the fourth quarter of 2019, ARC plans to operate the Sunrise Phase II facility at or near its processing capacity of 240 MMcf per day of natural gas for the remainder of 2019 and will capitalize on the recent strengthening of winter natural gas pricing.
ARC generated funds from operations (1) of $145.4 million ($0.41 per share) and $524.6 million ($1.48 per share) for the three and nine months ended September 30, 2019, respectively, and paid $53.1 million ($0.15 per share) and $159.3 million ($0.45 per share) in dividends to shareholders during the same periods.
ARC expects that production will increase through the remainder of the year with final transportation arrangements at Sunrise that came into effect at the beginning of the fourth quarter of 2019 and all major planned turnarounds and associated downtime for the year now completed. Full-year 2019 average daily production is expected to be near the midpoint of the guidance range of 136,000 to 142,000 boe per day. ARC plans to invest approximately $150 million in the fourth quarter of 2019 to substantially complete major infrastructure, establishing a new, larger production base of approximately 155,000 to 161,000 boe per day for ARC in 2020.
(1) |
Refer to Note 13 "Capital Management" in ARC's financial statements and to the sections entitled, "Funds from Operations" and |
Key takeaways from ARC's financial and operational results for the third quarter of 2019 include:
Production |
Delivered average production of 134,813 boe per day. Increased liquids production |
Funds from |
Generated funds from operations of $145.4 million ($0.41 per share). Weaker commodity |
Capital Program |
Continued to focus on investments that will support liquids production growth |
Operational |
Demonstrated excellent cost control and safety performance with the completion of several |
Natural Gas Sales |
Realized the benefits of ARC's physical and financial diversification program for natural |
Balance Sheet |
ARC's net debt (1) to annualized funds from operations ratio was 1.3 times at September |
Returns to |
Distributed $53.1 million ($0.15 per share) of dividends to shareholders. |
2020 Budget |
Announced a capital program of $500 million for 2020, representing a decrease of 29 per |
For additional commentary on ARC's financial and operational results for the third quarter of 2019 as well as details pertaining to ARC's 2020 budget, view the following videos: "Myron's Minute", "ARC Resources Q3 2019 Financial and 2020 Budget Review", and "ARC Resources Q3 2019 Operations and 2020 Budget Review" available on ARC's website at www.arcresources.com.
2020 Budget Overview
ARC's board of directors ("the Board") has approved a $500 million capital program for 2020 that centres around capital discipline, balance sheet strength, delivering profitable projects to shareholders, and generating funds from operations to fully fund its dividend and all capital requirements. Notably, ARC will complete the Dawson Phase IV gas processing and liquids-handling facility in the second quarter of 2020. Planned investment levels for 2020 represent a 29 per cent decrease from forecasted 2019 investment levels.
ARC plans to keep its gas plants at or near capacity through 2020 while maximizing liquids production and cash flow generation. 2020 average production is expected to be between 155,000 and 161,000 boe per day, representing an increase of approximately 14 per cent from 2019.
With lower facility and infrastructure capital investments in 2020 compared to the last several years, funds from operations generated in 2020 are expected to fund ARC's dividend obligations of $212 million and ARC's capital program of $500 million. ARC's objective will be to maintain a targeted net debt to annualized funds from operations ratio of less than 1.5 times.
For details on ARC's 2020 capital program and production, funding of the 2020 budget, and formal 2020 guidance, refer to the "2020 Budget" section of this news release.
(1) |
Refer to Note 13 "Capital Management" in ARC's financial statements and to the section entitled "Capitalization, Financial |
ORGANIZATIONAL UPDATE
ARC is pleased to announce the following appointment.
Director Appointment
Mr. Farhad Ahrabi has been appointed to ARC's board of directors, effective immediately. Mr. Ahrabi has over 35 years of experience in international oil and gas operations and has extensive expertise in liquefied natural gas ("LNG"), including currently as the Chief Executive Officer of Cameron LNG, overseeing the construction of a US$10 billion, three-train liquefaction facility near the Gulf of Mexico in the United States ("US"). Mr. Ahrabi previously worked in Canada for three years with a major international company assessing LNG opportunities in British Columbia. Mr. Ahrabi holds a Bachelor of Science in Chemical Engineering from the University of Wales and a Doctorate degree from the University of Exeter in the United Kingdom. With his varied international background in the energy industry, Mr. Ahrabi's experience will successfully contribute to ARC's commercial and technical expertise. ARC is pleased to welcome Mr. Ahrabi to the Board.
FINANCIAL AND OPERATIONAL RESULTS
Three Months Ended |
Nine Months Ended |
|||||
(Cdn$ millions, except per share amounts, boe amounts, |
June 30, 2019 |
September 30, 2019 |
September 30, 2018 |
September 30, 2019 |
September 30, 2018 |
|
and common shares outstanding) |
||||||
FINANCIAL RESULTS |
||||||
Net income (loss) |
94.4 |
(57.2) |
45.1 |
(17.4) |
54.1 |
|
Per share (1) |
0.27 |
(0.16) |
0.13 |
(0.05) |
0.15 |
|
Funds from operations (2) |
193.0 |
145.4 |
205.0 |
524.6 |
610.4 |
|
Per share (1) |
0.54 |
0.41 |
0.58 |
1.48 |
1.73 |
|
Dividends |
53.1 |
53.1 |
53.0 |
159.3 |
159.2 |
|
Per share (1) |
0.15 |
0.15 |
0.15 |
0.45 |
0.45 |
|
Capital expenditures, before land and net property |
||||||
acquisitions (dispositions) |
174.2 |
161.9 |
169.3 |
549.8 |
547.8 |
|
Total capital expenditures, including land and net |
||||||
property acquisitions (dispositions) |
173.3 |
159.8 |
73.1 |
546.8 |
353.5 |
|
Net debt outstanding (2) |
829.2 |
945.5 |
667.8 |
945.5 |
667.8 |
|
Common shares outstanding, weighted average |
||||||
diluted (millions) |
353.9 |
353.4 |
354.0 |
353.4 |
353.8 |
|
Common shares outstanding, end of period (millions) |
353.4 |
353.4 |
353.4 |
353.4 |
353.4 |
|
OPERATIONAL RESULTS |
||||||
Production |
||||||
Crude oil (bbl/day) (3) |
18,272 |
16,782 |
23,867 |
17,763 |
24,595 |
|
Condensate (bbl/day) |
10,230 |
10,846 |
8,158 |
9,772 |
6,884 |
|
Crude oil and condensate (bbl/day) |
28,502 |
27,628 |
32,025 |
27,535 |
31,479 |
|
Natural gas (MMcf/day) |
596.4 |
595.4 |
574.2 |
607.9 |
559.0 |
|
Natural gas liquids ("NGLs") (bbl/day) |
7,041 |
7,952 |
7,687 |
7,395 |
6,804 |
|
Total (boe/day) (4) |
134,938 |
134,813 |
135,410 |
136,253 |
131,451 |
|
Average realized prices, prior to gain or loss on risk |
||||||
management contracts |
||||||
Crude oil ($/bbl) |
70.26 |
64.79 |
78.62 |
66.30 |
75.54 |
|
Condensate ($/bbl) |
71.38 |
65.70 |
85.28 |
67.44 |
83.15 |
|
Natural gas ($/Mcf) |
1.74 |
1.54 |
2.15 |
2.04 |
2.19 |
|
NGLs ($/bbl) |
7.71 |
5.25 |
35.26 |
12.50 |
33.36 |
|
Oil equivalent ($/boe) (4) |
23.04 |
20.46 |
30.12 |
23.24 |
29.53 |
|
Netback ($/boe) (4)(5) |
||||||
Commodity sales from production |
23.04 |
20.46 |
30.12 |
23.24 |
29.53 |
|
Royalties |
(1.28) |
(1.26) |
(2.90) |
(1.36) |
(2.64) |
|
Operating expense |
(5.05) |
(5.05) |
(6.04) |
(5.11) |
(6.28) |
|
Transportation expense |
(3.00) |
(2.97) |
(2.75) |
(2.97) |
(2.66) |
|
Netback |
13.71 |
11.18 |
18.43 |
13.80 |
17.95 |
|
Realized gain on risk management contracts |
1.97 |
2.29 |
1.58 |
1.96 |
2.17 |
|
Netback including realized gain on risk management |
||||||
contracts |
15.68 |
13.47 |
20.01 |
15.76 |
20.12 |
|
TRADING STATISTICS (6) |
||||||
High price |
9.61 |
7.85 |
15.90 |
10.49 |
15.90 |
|
Low price |
6.37 |
5.37 |
12.70 |
5.37 |
11.88 |
|
Close price |
6.41 |
6.31 |
14.40 |
6.31 |
14.40 |
|
Average daily volume (thousands of shares) |
2,255 |
1,838 |
1,246 |
2,127 |
1,266 |
|
(1) |
Per share amounts (with the exception of dividends) are based on weighted average diluted common shares. |
(2) |
Refer to Note 13 "Capital Management" in ARC's financial statements and to the sections entitled, "Funds from Operations" and "Capitalization, Financial Resources and |
(3) |
Approximately 3,700 barrels per day of non-core crude oil production was divested in 2018. |
(4) |
ARC has adopted the standard six thousand cubic feet of natural gas to one barrel of oil ratio when converting natural gas to boe. Boe may be misleading, particularly if |
(5) |
Non-GAAP measure that does not have any standardized meaning under International Financial Reporting Standards and therefore may not be comparable to similar |
(6) |
Trading prices are stated in Canadian dollars on a per share basis and are based on intra-day trading on the Toronto Stock Exchange. |
COMMODITY PRICE ENVIRONMENT
Crude Oil and Condensate
Average global crude oil prices decreased in the third quarter of 2019, and despite ongoing geopolitical tensions and uncertainty around global demand growth, continue to be relatively range-bound. In Canada, crude oil differentials remained relatively narrow throughout the period with the Alberta government choosing to extend the mandated production curtailments into 2020. ARC's physical oil production has not been impacted by the mandated production curtailment; however, its corporate crude oil and condensate realizations continue to benefit from the narrower price differentials.
Natural Gas
Natural gas benchmark prices experienced weakness across North America in the third quarter of 2019. In the US, lower LNG exports due to facility downtime and export pipeline project delays resulted in lower demand, while in western Canada, extensive third-party pipeline maintenance placed significant downward pressure on pricing. In the near term, natural gas storage in the Western Canadian Sedimentary Basin is entering withdrawal season at multi-year lows, providing a constructive backdrop for winter natural gas prices; and recent changes to TC Energy's NOVA Gas Transmission Limited ("NGTL") System's flow priorities have improved the outlook for western Canadian natural gas prices for the summer of 2020 and are expected to reduce pricing volatility through future periods of maintenance.
ARC maintains a strategy to physically and financially diversify its realized natural gas price to multiple North American downstream sales points in order to mitigate the impact of pricing volatility and to increase exposure to more attractive markets. 51 per cent of ARC's corporate natural gas volumes are exposed to a combination of US Midwest, Henry Hub, Malin, and Dawn pricing hubs in 2020, and 36 per cent of corporate natural gas volumes are exposed to AECO and Station 2 prices. The remaining 13 per cent is financially hedged. As a result of this diversification strategy, ARC seeks to capture higher margins for its natural gas production than if it were solely exposed to local markets.
FINANCIAL REVIEW
Balance Sheet and Capital Allocation
ARC maintains financial flexibility through its strong balance sheet, with $945.5 million of net debt outstanding at September 30, 2019, and a net debt to annualized funds from operations ratio of 1.3 times. ARC had an additional $1.2 billion of credit capacity available at the end of the third quarter of 2019.
In 2019, ARC expects to generate funds from operations in excess of its 2019 dividend obligations of $212 million and its sustaining capital requirements of approximately $400 million. Funds from operations in excess of dividend and sustaining capital requirements, and the redeployment of cash proceeds from previously completed non-core dispositions, are being invested in key development projects at Dawson and Ante Creek.
Net Income (Loss)
ARC recorded a net loss of $57.2 million (loss of $0.16 per share) in the third quarter of 2019 compared to net income of $94.4 million ($0.27 per share) in the second quarter of 2019. The quarter-over-quarter decrease in earnings is primarily attributed to a decrease in income tax recovery, increased impairment charges relating to financial assets, and lower commodity sales from production due to lower commodity prices. ARC also recognized an increased unrealized loss on the mark-to-market on ARC's risk management contracts and foreign exchange on the revaluation of ARC's US dollar-denominated debt.
ARC recognized a net loss of $17.4 million (loss of $0.05 per share) for the nine months ended September 30, 2019 compared to net income of $54.1 million ($0.15 per share) for the nine months ended September 30, 2018. The year-over-year decrease in earnings is primarily attributed to lower commodity sales from production, no recorded gain from the disposal of non-core assets in 2019 to-date compared to a gain recorded in the comparative period of 2018, and the recognition of impairment charges relating to financial assets. Partially offsetting these items was an increase in income tax recovery, a reduced unrealized loss on foreign exchange, and lower royalties and operating expense.
Funds from Operations
ARC generated funds from operations of $145.4 million ($0.41 per share) in the third quarter of 2019 compared to funds from operations of $193.0 million ($0.54 per share) in the second quarter of 2019. Lower commodity sales due to lower price realizations, a reduced current tax recovery, and increased general and administrative ("G&A") expense recognized for ARC's share-based compensation plans were the most significant drivers of the quarter-over-quarter decrease in funds from operations.
ARC generated funds from operations of $524.6 million ($1.48 per share) for the nine months ended September 30, 2019, a decrease of $85.8 million ($0.25 per share) relative to funds from operations of $610.4 million ($1.73 per share) for the nine months ended September 30, 2018. The decrease in funds from operations was largely driven by lower commodity sales due to weaker price realizations and decreased crude oil production. Partially offsetting the decrease in commodity sales revenue were reduced current tax expense as well as lower royalties and operating expense.
The following table details the change in funds from operations for the third quarter of 2019 relative to the second quarter of 2019 and the nine months ended September 30, 2019 relative to the nine months ended September 30, 2018.
Funds from Operations Reconciliation |
Q2 2019 to Q3 2019 |
2018 YTD to 2019 YTD |
||||
$ millions |
$/share (1) |
$ millions |
$/share (1) |
|||
Funds from operations for the three months ended June 30, 2019 |
193.0 |
0.54 |
||||
Funds from operations for the nine months ended September 30, 2018 |
610.4 |
1.73 |
||||
Volume variance |
||||||
Crude oil and liquids |
(2.9) |
(0.01) |
(69.9) |
(0.20) |
||
Natural gas |
0.7 |
— |
28.7 |
0.08 |
||
Price variance |
||||||
Crude oil and liquids |
(15.9) |
(0.05) |
(128.9) |
(0.36) |
||
Natural gas |
(11.1) |
(0.01) |
(25.2) |
(0.08) |
||
Sales of commodities purchased from third parties |
15.7 |
0.04 |
(31.9) |
(0.09) |
||
Interest income |
(0.2) |
— |
(2.0) |
(0.01) |
||
Other income |
(0.8) |
— |
1.4 |
— |
||
Realized gain on risk management contracts |
4.2 |
0.01 |
(5.1) |
(0.01) |
||
Royalties |
0.1 |
— |
44.4 |
0.13 |
||
Expenses |
||||||
Commodities purchased from third parties |
(16.7) |
(0.05) |
32.1 |
0.09 |
||
Operating |
(0.6) |
— |
35.0 |
0.10 |
||
Transportation |
— |
— |
(15.2) |
(0.04) |
||
G&A |
(6.8) |
(0.02) |
7.5 |
0.02 |
||
Interest and financing (2) |
0.3 |
— |
1.1 |
— |
||
Current tax |
(14.5) |
(0.04) |
47.5 |
0.13 |
||
Realized gain (loss) on foreign exchange |
0.9 |
— |
(5.3) |
(0.01) |
||
Funds from operations for the three months ended September 30, 2019 |
145.4 |
0.41 |
||||
Funds from operations for the nine months ended September 30, 2019 |
524.6 |
1.48 |
||||
(1) |
Per share amounts are based on weighted average diluted common shares. |
(2) |
Excludes accretion of asset retirement obligations. |
Physical Marketing and Financial Risk Management
ARC's crude oil and liquids production continues to generate meaningful cash flow, contributing 67 per cent of total commodity sales revenue in the third quarter of 2019. A significant portion of ARC's liquids production is made up of conventional light oil and condensate, which realized average pricing of $64.79 per barrel and $65.70 per barrel, respectively, in the third quarter of 2019. For the nine months ended September 30, 2019, ARC's crude oil and liquids production comprised 61 per cent of total commodity sales revenue with average realized pricing of $66.30 per barrel for crude oil and $67.44 per barrel for condensate.
In managing its natural gas price risk exposure, ARC's physical diversification and financial risk management activities have enhanced corporate natural gas price realizations. ARC's financial risk management program provides additional cash flow protection. Summarized in the following table are the positive impacts that ARC's physical natural gas diversification and financial risk management activities had on the Company's realized natural gas price for the three and nine months ended September 30, 2019.
Realized Natural Gas Price Including Realized Gain on Risk |
Three Months Ended September 30, 2019 |
Nine Months Ended September 30, 2019 |
Management Contracts ($/Mcf) |
||
Average price before diversification activities |
1.02 |
1.45 |
Diversification activities |
0.52 |
0.59 |
Realized gain on risk management contracts (1) |
0.61 |
0.53 |
Realized natural gas price including realized gain on risk |
||
management contracts |
2.15 |
2.57 |
(1) |
Realized gain on risk management contracts is not included in ARC's realized natural gas price. |
The total realized gain on risk management contracts for the three and nine months ended September 30, 2019 was $28.4 million and $72.9 million, respectively, and the fair value of ARC's risk management contracts at September 30, 2019 was $73.7 million. ARC will continue to monitor commodity prices and execute on its risk management program to reduce the volatility of its funds from operations and to support its dividend and capital programs. For details pertaining to ARC's risk management program and for a summary of the average oil and natural gas volumes associated with ARC's risk management contracts as at September 30, 2019, refer to Note 14 "Financial Instruments and Market Risk Management" in ARC's financial statements.
Netback
Summarized in the following table are the components of ARC's netback for the third quarter of 2019 relative to the second quarter of 2019 and for the nine months ended September 30, 2019 relative to the nine months ended September 30, 2018.
Three Months Ended |
Nine Months Ended |
|||||
Netback ($/boe) |
September 30, 2019 |
June 30, 2019 |
% Change |
September 30, 2019 |
September 30, 2018 |
% Change |
Commodity sales from production |
20.46 |
23.04 |
(11) |
23.24 |
29.53 |
(21) |
Royalties |
(1.26) |
(1.28) |
(2) |
(1.36) |
(2.64) |
(48) |
Operating expense |
(5.05) |
(5.05) |
— |
(5.11) |
(6.28) |
(19) |
Transportation expense |
(2.97) |
(3.00) |
(1) |
(2.97) |
(2.66) |
12 |
Netback |
11.18 |
13.71 |
(18) |
13.80 |
17.95 |
(23) |
Realized gain on risk |
||||||
management contracts |
2.29 |
1.97 |
16 |
1.96 |
2.17 |
(10) |
Netback including realized gain |
||||||
on risk management contracts |
13.47 |
15.68 |
(14) |
15.76 |
20.12 |
(22) |
ARC's netback and ARC's netback including realized gain on risk management contracts decreased 18 per cent and 14 per cent, respectively, in the third quarter of 2019 relative to the second quarter of 2019. The decrease is primarily due to lower commodity prices in the period.
ARC's netback and ARC's netback including realized gain on risk management contracts decreased 23 per cent and 22 per cent, respectively, for the nine months ended September 30, 2019 relative to the nine months ended September 30, 2018. The decrease is due to lower commodity prices, and is partially offset by a year-over-year decrease in ARC's royalties and operating expense.
ARC's royalties per boe for the third quarter of 2019 were relatively unchanged from the second quarter of 2019, and ARC's royalties per boe for the nine months ended September 30, 2019 decreased 48 per cent from the nine months ended September 30, 2018. The year-over-year decrease in royalties reflects the sliding scale effect that lower crude oil and liquids pricing has on royalty rates, and also reflects the increase in ARC's natural gas and condensate production, which have generally been subject to lower relative royalty rates compared to crude oil production. ARC's royalties for the three and nine months ended September 30, 2019 were $15.6 million and $50.3 million, respectively.
ARC's operating expense per boe for the third quarter of 2019 was unchanged from the second quarter of 2019, and ARC's operating expense per boe for the nine months ended September 30, 2019 decreased 19 per cent from the nine months ended September 30, 2018. The year-over-year reduction in ARC's operating expense is the result of bringing on new Montney production with lower relative costs to operate in combination with the disposition of non-core assets with higher relative costs to operate throughout 2018. ARC's operating expense for the three and nine months ended September 30, 2019 was $62.6 million and $190.2 million, respectively. ARC expects its full-year operating expense to be at the lower end of the 2019 guidance range of $5.00 to $5.35 per boe.
ARC's transportation expense per boe for the third quarter of 2019 was relatively unchanged from the second quarter of 2019, and ARC's transportation expense per boe for the nine months ended September 30, 2019 increased 12 per cent relative to the nine months ended September 30, 2018. The year-over-year increase in transportation expense primarily reflects higher trucking charges and pipeline tariffs related to increased condensate and natural gas production in northeast British Columbia. ARC's transportation expense for the three and nine months ended September 30, 2019 was $36.8 million and $110.6 million, respectively.
OPERATIONAL REVIEW
ARC's position in the Montney resource play is made up of approximately 1,000 net sections of land (approximately 671,000 net acres), with production from these assets representing greater than 90 per cent of total corporate production. Owned-and-operated infrastructure affords ARC greater control over costs and liquids recoveries, strong safety and environmental performance, and the ability to manage a flexible pace of development. ARC is a leader in sustainability practices and is committed to continue reducing its greenhouse gas ("GHG") emissions intensity and freshwater usage through responsible development activities.
Capital Expenditures
ARC invested $161.9 million in the third quarter of 2019 to drill 26 wells (14 liquids-rich wells and 12 oil wells) and complete 29 wells. Capital investment in the period was also directed at completing the Dawson Phase I & II liquids-handling upgrade and advancing the Dawson Phase IV facility and the Ante Creek facility's oil expansion projects.
ARC invested $549.8 million during the nine months ended September 30, 2019 to drill 70 wells (46 liquids-rich wells and 24 oil wells), complete 68 wells, and advance the projects at Dawson and Ante Creek. ARC plans to invest approximately $150 million in the fourth quarter of 2019 to substantially complete major infrastructure, establishing a new, larger production base of approximately 155,000 to 161,000 boe per day for ARC in 2020.
The following table outlines the number of wells drilled and completed for the nine months ended September 30, 2019.
Nine Months Ended September 30, 2019 |
||||
Area |
Wells Drilled |
Wells Completed |
||
Dawson |
34 |
20 |
||
Parkland/Tower |
8 |
18 |
||
Sunrise |
— |
9 |
||
Attachie West |
10 |
4 |
||
Ante Creek |
7 |
7 |
||
Pembina |
11 |
10 |
||
Total |
70 |
68 |
||
Production
ARC achieved average production of 134,813 boe per day in the third quarter of 2019, comprised of 27,628 barrels per day of light oil and condensate, 7,952 barrels per day of NGLs, and 595 MMcf per day of natural gas. While total production was unchanged from the prior quarter, increased production at Parkland/Tower and Sunrise offset planned downtime at Dawson Phase I & II and Ante Creek.
Production for the nine months ended September 30, 2019 averaged 136,253 boe per day, which was made up of 27,535 barrels per day of light oil and condensate, 7,395 barrels per day of NGLs, and 608 MMcf per day of natural gas. Adjusting for the 4,700 boe per day of non-core production that was disposed of throughout 2018, total production increased seven per cent year-over-year and is the result of ARC's continued focus on developing the liquids-rich lower Montney horizon in the greater Dawson area, as well as increased natural gas production at the Sunrise Phase II facility.
ARC expects that production will increase through the remainder of the year with final transportation arrangements at Sunrise that came into effect at the beginning of the fourth quarter of 2019 and all major planned turnarounds and associated downtime for the year now completed. Full-year 2019 average daily production is expected to be near the midpoint of the guidance range of 136,000 to 142,000 boe per day.
Dawson
ARC's Dawson property in northeast British Columbia is a Montney natural gas and liquids-rich natural gas play comprised of 137 net sections (approximately 89,000 net acres).
ARC's current focus at Dawson is to develop the higher liquids-yield areas of the field, investing $230 million during the nine months ended September 30, 2019 to drill 34 wells, complete 20 wells, and advance work on two key infrastructure projects. At Dawson Phase I & II, the final work required for the liquids-handling upgrade was completed in the third quarter of 2019 and the facility was commissioned early in the fourth quarter of 2019. The upgrade adds approximately 3,000 barrels per day of liquids-handling capacity (of which approximately 2,000 barrels per day is condensate). At Dawson Phase IV, construction of the facility continued in the period with all major equipment now on site. Similar to Dawson Phase III, waste heat recovery units are being installed on the gas-powered turbines used to power the Dawson Phase IV facility in order to reduce the facility's emissions. The combined emissions for the Dawson Phase III and IV facilities are expected to be reduced by approximately 78,000 tonnes of CO2 equivalent per year due to ARC's investment in the waste heat recovery units. The pre-drilling of wells to initially fill Dawson Phase IV has commenced and the facility remains on schedule to be brought on-stream in the second quarter of 2020.
Production averaged 38,513 boe per day in the third quarter of 2019, and was made up of 208 MMcf per day of natural gas, 2,069 barrels per day of condensate, and 1,799 barrels per day of NGLs. Third quarter 2019 production decreased 12 per cent relative to the prior quarter due to planned downtime for maintenance at the Dawson Phase I & II facility.
Parkland/Tower
ARC's Parkland/Tower property is a Montney condensate and liquids-rich natural gas play in northeast British Columbia that consists of 94 net sections (approximately 61,000 net acres). ARC's focus at Parkland/Tower is to drive strong cash flow generation, investing $114 million during the nine months ended September 30, 2019 to drill eight wells and complete 18 wells.
Production averaged 35,624 boe per day in the third quarter of 2019, representing an increase of nine per cent from the prior quarter with new wells being brought on production during the period. Production was comprised of 10,087 barrels per day of light oil and condensate, 4,302 barrels per day of NGLs, and 127 MMcf per day of natural gas.
Sunrise
ARC's Sunrise property is a Montney natural gas play in northeast British Columbia where ARC has a land position of 32 net sections (approximately 21,000 net acres). Production averaged 189 MMcf per day in the third quarter of 2019, representing an increase of 15 per cent from the prior quarter when operations had been adversely impacted by third-party pipeline restrictions and outages. ARC invested $26 million during the nine months ended September 30, 2019 to complete and tie-in nine natural gas wells to the Sunrise Phase II facility.
With final transportation arrangements for an incremental 60 MMcf per day of natural gas production coming into effect at the beginning of the fourth quarter of 2019, ARC plans to operate the Sunrise Phase II facility at or near its processing capacity of 240 MMcf per day for the remainder of 2019. When the facility is operating at its processing capacity, ARC expects the area's operating expense to be less than $0.30 per Mcf. ARC will continue to manage its Sunrise production levels depending on prevailing natural gas prices.
Attachie
ARC's Attachie property is a Montney condensate play located in northeast British Columbia where ARC has a land position of 308 net sections (approximately 202,000 net acres). Production at Attachie West averaged 2,495 boe per day in the third quarter of 2019, comprised of 1,255 barrels per day of condensate and 7 MMcf per day of natural gas.
ARC is focused on advancing the Attachie West asset towards commercialization. Capital investment during the nine months ended September 30, 2019 totaled $79 million, which included infrastructure investments and the drilling of 10 wells. Four of these wells were completed in the third quarter of 2019 and initial production results are expected in the fourth quarter of 2019. The liquids processing capacity at Attachie West's battery is 3,500 barrels per day and natural gas production is currently being processed through third-party infrastructure.
ARC continues to advance planning for the Attachie West Phase I gas processing and liquids-handling facility, and has obtained regulatory approval for the construction of multiple phases of development in the area and approval for the natural gas sales line that will tie into third-party pipeline infrastructure. ARC has also built an owned-and-operated access road to help reduce the area's operating expense and improve capital efficiencies.
Ante Creek
ARC has a land position of 259 net sections at Ante Creek (approximately 166,000 net acres), a Montney light oil play in northern Alberta that generates strong cash flows and profitable returns. Production in the third quarter of 2019 decreased nine per cent from the prior quarter to average 14,919 boe per day (approximately 50 per cent light oil and liquids). The decrease in production was due to downtime associated with planned maintenance conducted in the period in preparation for the facility's oil expansion in 2020.
ARC invested $57 million during the nine months ended September 30, 2019 to drill and complete seven oil wells and to advance the Ante Creek facility's oil expansion project. All equipment for the project has been ordered and construction has commenced with the project on schedule to be brought on-stream in the second quarter of 2020.
Pembina
ARC's Alberta Cardium assets in Pembina deliver high-quality, light oil production and generate attractive cash flows, where ARC has a land position of 217 net Cardium sections (approximately 139,000 net acres). The overriding objective in the area is to manage production declines and maximize cash flow generation through modest drilling programs. ARC invested $31 million during the nine months ended September 30, 2019 to drill 11 wells and complete 10 wells. Production averaged 9,898 boe per day in the third quarter of 2019, representing a decrease of two per cent from the prior quarter. Production at Pembina is made up of over 80 per cent light oil and liquids.
OUTLOOK
2019 Guidance
In 2019, ARC plans to invest $700 million and expects full-year average daily production to be near the midpoint of the guidance range of 136,000 to 142,000 boe per day. ARC's full-year 2019 guidance estimates and a review of 2019 year-to-date actual results are outlined in the following table.
2019 Guidance |
2019 YTD |
% Variance from Guidance |
|
Production |
|||
Crude oil and condensate (bbl/day) |
26,000 - 30,000 |
27,535 |
— |
Natural gas (MMcf/day) |
620 - 630 |
607.9 |
(2) |
NGLs (bbl/day) |
6,500 - 7,000 |
7,395 |
6 |
Total (boe/day) |
136,000 - 142,000 |
136,253 |
— |
Expenses ($/boe) |
|||
Operating |
5.00 - 5.35 |
5.11 |
— |
Transportation |
2.90 - 3.10 |
2.97 |
— |
G&A expense before share-based compensation expense |
1.10 - 1.30 |
1.16 |
— |
G&A - share-based compensation expense (1) |
0.20 - 0.35 |
0.24 |
— |
Interest and financing (2) |
0.75 - 0.90 |
0.83 |
— |
Current income tax expense (recovery) as a per cent of funds |
|||
from operations (3) |
(3) - 2 |
(2) |
— |
Capital expenditures before land and net property |
|||
acquisitions (dispositions) ($ millions) |
700 |
549.8 |
N/A |
Weighted average shares (millions) |
353 |
353 |
— |
(1) |
Comprises expense recognized under the Restricted Share Unit ("RSU") and Performance Share Unit ("PSU") Plans, Share |
(2) |
Excludes accretion of asset retirement obligations. |
(3) |
The current income tax estimate varies depending on the level of commodity prices. |
ARC's 2019 guidance is based on full-year 2019 estimates; certain variances exist between 2019 year-to-date actual results and 2019 full-year guidance estimates due to the cyclical and seasonal nature of operations. ARC expects full-year 2019 actual results to closely approximate guidance.
- 2019 year-to-date natural gas production is below the 2019 guidance range. As incremental production at Sunrise is brought on-stream in the fourth quarter of 2019, ARC expects that natural gas production will be within the guidance range of 620 to 630 MMcf per day for the year.
- 2019 year-to-date NGLs production is above the 2019 guidance range due to stronger than anticipated results from lower Montney development across ARC's Montney asset base.
2020 BUDGET
ARC's board of directors has approved a $500 million capital program for 2020 that centres around capital discipline, balance sheet strength, delivering profitable projects to shareholders, and generating funds from operations to fully fund its dividend and all capital requirements. Notably, ARC will complete the Dawson Phase IV gas processing and liquids-handling facility in the second quarter of 2020. Planned investment levels for 2020 represent a 29 per cent decrease from forecasted 2019 investment levels. ARC's Montney businesses are highly efficient and corporate decline rates are managed below 30 per cent. ARC will execute the 2020 capital program in a safe and environmentally responsible manner.
ARC plans to keep its gas plants at or near capacity through 2020 while maximizing liquids production and cash flow generation. 2020 average production is expected to be between 155,000 and 161,000 boe per day, representing an increase of approximately 14 per cent from 2019.
- Crude oil and condensate production is expected to be in the range of 27,000 to 31,000 barrels per day.
- Natural gas production is expected to be in the range of 715 to 725 MMcf per day.
- NGLs production is expected to be in the range of 8,500 to 9,000 barrels per day.
Demonstrating its continued operational excellence through infrastructure ownership and operatorship, ARC expects its corporate operating expense to continue trending down from 2019 levels to a range of $4.55 to $4.95 per boe.
2020 Capital Program and Production
The following table details ARC's capital program by area, including capital expenditures for 2019 and 2020 and number of wells planned for 2020. ARC's transition towards larger-scaled multi-well pads will require only nine well pads for drilling activities in 2020.
Capital Expenditures and Wells Drilled (1) |
2019 Guidance |
2020 Budget Capital Expenditures (2) ($ millions) |
2020 Budget Wells Drilled (operated) |
Dawson |
298 |
231 |
39 |
Parkland/Tower |
135 |
96 |
6 |
Sunrise |
27 |
40 |
8 |
Attachie |
84 |
30 |
— |
Ante Creek |
101 |
79 |
12 |
Pembina |
39 |
11 |
— |
Other (3) |
16 |
13 |
— |
Total |
700 |
500 |
65 |
(1) |
Includes both operated and non-operated properties. |
(2) |
Land expenditures and net property acquisitions and dispositions are not included as these amounts are unbudgeted. |
(3) |
Other capital expenditures comprise capitalized G&A expense, including a portion of share-based compensation plan expense, |
The following table details ARC's expected capital expenditures by classification for 2019 and 2020.
Capital Expenditures by Classification ($ millions) |
2019 Guidance |
2020 |
Geological and geophysical |
12 |
9 |
Drilling and completions |
489 |
422 |
Plant and facilities |
187 |
58 |
Corporate assets |
12 |
11 |
Capital expenditures, before land and net property |
||
acquisitions (dispositions) |
700 |
500 |
The following table details ARC's expected production by area for 2019 and 2020.
Expected Annualized Production by Area (1)(2) (boe/day) |
2019 Guidance (Midpoint) |
2020 Budget (Midpoint) |
Dawson |
45,000 |
59,000 |
Parkland/Tower |
32,000 |
29,000 |
Sunrise |
32,000 |
36,000 |
Attachie Pilot |
3,000 |
5,000 |
Ante Creek |
15,000 |
18,000 |
Pembina |
10,000 |
10,000 |
Other (3) |
2,000 |
1,000 |
Total (4) |
139,000 |
158,000 |
(1) |
Includes both operated and non-operated properties. |
(2) |
Does not incorporate the potential impact that TC Energy's changes to the NGTL System's flow restrictions may have on ARC's |
(3) |
Other comprises production for ARC's non-core properties. |
(4) |
Total production denotes the midpoints of the production guidance ranges of 136,000 to 142,000 boe per day for 2019 and |
Dawson
ARC's focus will be to complete the Dawson Phase IV facility, ARC's next major development project. The facility is expected to be brought on-stream in the second quarter of 2020, adding natural gas sales capacity of approximately 90 MMcf per day and will have the ability to handle up to 7,500 barrels per day of condensate and 3,000 barrels per day of NGLs. Condensate and NGLs production is expected to grow over time and stabilize at approximately 3,000 barrels per day and 1,500 barrels per day, respectively. Approximately $24 million of the 2020 budget is planned for facility and infrastructure capital at Dawson Phase IV and long-term takeaway capacity for production associated with the facility has been secured.
The Dawson Phase IV facility, along with the recently completed Dawson Phase I & II liquids-handling upgrade and repatriation of production previously being processed by a third party, will provide meaningful production growth in 2020 while enabling ARC to increase its high-value liquids production and cash flow generation in the greater Dawson area. Development will primarily be targeted towards the liquids-rich lower Montney.
Parkland/Tower
ARC's focus will be to drive cash flow generation through the development of the liquids-rich lower Montney horizon at Parkland. To accommodate for this development, ARC plans to optimize its existing Parkland sweet facility by converting it to a sour facility. Approximately $23 million of the $31 million total facility and infrastructure capital required for the project will be invested in 2020; long-lead items will be purchased to ensure the project remains on schedule to meet its targeted first half of 2021 in-service date.
Sunrise
ARC's focus will be to maintain production through existing infrastructure at or near capacity throughout 2020 in order to maximize cash flow generation. When the facility is operating at its processing capacity of 240 MMcf per day of natural gas, ARC expects the area's operating expense to be less than $0.30 per Mcf. ARC will continue to manage its Sunrise production levels depending on prevailing natural gas prices.
Attachie
ARC's focus will be to advance and continue planning for the first major phase of development at Attachie West. To achieve this, the remaining six wells on the multi-well pad that was drilled in 2019 will be completed and 3D seismic data will be acquired and integrated into the overall development plan for the area.
Ante Creek
ARC's focus will be to grow light oil production with the completion of the Ante Creek facility's oil expansion, which is expected to be brought on-stream in the second quarter of 2020. The oil expansion will increase gas processing capacity by approximately 15 MMcf per day in 2020, allowing light oil volumes to grow by approximately 1,500 barrels per day in 2020 and approximately 2,500 barrels per day in 2021. Approximately $8 million of the 2020 budget is planned for facility and infrastructure capital at Ante Creek.
Pembina
ARC's focus will be to manage production declines and maximize cash flow generation from this light oil asset.
Funding of the 2020 Budget
ARC's $500 million capital budget for 2020 was determined based on a variety of commodity price scenarios and assumes the continuation of the Company's $0.05 per share monthly dividend through 2020. All of the approved capital projects are expected to provide attractive rates of return at prevailing commodity prices. ARC's objective is to generate funds from operations to fully fund its dividend and all capital requirements.
Balance sheet strength and long-term financial flexibility are top priorities for ARC. With lower facility and infrastructure capital investments in 2020 compared to the last several years, funds from operations generated in 2020 are expected to fund ARC's dividend obligations of $212 million and ARC's capital program of $500 million. ARC's objective will be to maintain a targeted net debt to annualized funds from operations ratio of less than 1.5 times. ARC's risk management program will reduce volatility in funds from operations and project economics, and ARC expects to continue to add risk management contract positions for future years.
2020 Guidance
The corporate guidance for 2020 was determined based on a variety of commodity price scenarios and economic conditions; certain guidance estimates may fluctuate with changes in commodity prices. ARC's guidance provides shareholders with information relevant to Management's expectations for results of operations, excluding any potential acquisition or disposition activities, for 2020. Readers are cautioned that the guidance may not be appropriate for any other purpose.
ARC will continue to take steps to mitigate expected commodity price volatility, including managing its pace of development, focusing on capital and operating efficiencies, executing financial and physical marketing diversification programs, and protecting its strong financial position, with a targeted net debt to annualized funds from operations ratio of between 1.0 and 1.5 times. ARC will continue to screen projects for profitability and will adjust investment levels and the pace of development, if required, to ensure balance sheet strength is protected.
ARC's full-year 2020 guidance estimates are outlined in the following table.
2020 Guidance |
||
Production |
||
Crude oil and condensate (bbl/day) |
27,000 - 31,000 |
|
Natural gas (MMcf/day) (1) |
715 - 725 |
|
NGLs (bbl/day) |
8,500 - 9,000 |
|
Total (boe/day) (1) |
155,000 - 161,000 |
|
Expenses ($/boe) |
||
Operating |
4.55 - 4.95 |
|
Transportation |
3.10 - 3.30 |
|
G&A expense before share-based compensation expense |
1.00 - 1.20 |
|
G&A - share-based compensation expense (2) |
0.30 - 0.45 |
|
Interest and financing (3) |
0.65 - 0.80 |
|
Current income tax expense (recovery) as a per cent of funds from operations (4) |
(2) - 3 |
|
Capital expenditures before land and net property acquisitions (dispositions) ($ millions) |
500 |
|
(1) |
Does not incorporate the potential impact that TC Energy's changes to the NGTL System's flow restrictions may have on ARC's |
(2) |
Comprises expense recognized under the RSU and PSU Plans, Share Option Plan, and LTRSA Plan, and excludes compensation |
(3) |
Excludes accretion of asset retirement obligations. |
(4) |
The current income tax estimate varies depending on the level of commodity prices. |
Abandonment and Reclamation Activities
ARC maintains a leadership position in responsible development practices and manages strong corporate liability ratios in both Alberta and British Columbia. ARC has an active abandonment and reclamation program for inactive wells, pipelines, and leases across its asset base and expects abandonment and reclamation spending to be approximately $25 million in 2020.
Dividend
The $0.05 per share monthly dividend is a key component of ARC's long-term returns to shareholders. ARC continually assesses dividend levels in light of commodity prices and economic conditions, capital investment programs, and production levels to ensure that dividends are in line with the Company's long-term strategy and objectives. The dividend is reviewed regularly by the Board.
FORWARD-LOOKING INFORMATION AND STATEMENTS
This news release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect," "anticipate," "continue," "estimate," "objective," "ongoing," "may," "will," "project," "should," "believe," "plans," "intends," "strategy," and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: as to ARC's infrastructure development plans and the timing for completion thereof; as to ARC's expected capital budget for 2019 and 2020; as to production trends for the remainder of 2019 and full-year daily production for 2019 and 2020 in the introductory paragraphs of this news release; ARC's 2020 budget (including the planned capital expenditures, projected average daily production, the source of funding for the 2020 budget, and targeted net debt to annualized funds from operations) under the heading "2020 Budget Overview"; as to ARC's views on future commodity prices and planned natural gas diversification activities under the heading "Commodity Price Environment"; as to ARC's ability to generate funds from operations in excess of its 2019 dividend obligations and its 2019 sustaining capital requirements; as to expectations with respect to full-year operating expense under the heading "Financial Review"; as to its production and infrastructure plans for the remainder of 2019 and beyond; as to planned production processing volumes and timelines; as to its plans for reducing GHG emissions and freshwater usage under the heading "Operational Review"; as to production trends for the remainder of 2019 and full-year daily production for 2019; as to ARC's full-year 2019 guidance estimates (including production, expenses, income tax, and capital expenditures); as to ARC's 2020 budget; as to ARC's planned infrastructure projects for 2020 and the cost attributed thereto; as to ARC's sustaining capital requirements in 2020; as to ARC's drilling plans and strategies, and associated benefits therefrom; as to volumes to be processed at ARC's gas plants in 2020; as to 2020 daily average production (including as between crude oil and condensate, natural gas, and NGLs); as to the source of funds to satisfy ARC's 2020 dividend obligations, sustaining capital requirements, and planned capital expenditures; as to ARC's capital expenditures in 2019 and 2020 by area (including wells to be drilled); as to estimates of capital expenditures on major infrastructure projects (including processing capacities, on-stream dates, and corresponding production additions); as to ARC's anticipated net debt to annualized funds from operations ratio for fiscal 2020; and as to ARC's abandonment and reclamation spending in 2020 under the heading "Outlook".
The forward-looking information and statements contained in this news release reflect several material factors, expectations, and assumptions of ARC, including, without limitation: the production performance of ARC's oil and natural gas assets; the cost and competition for services throughout the oil and gas industry in 2020 and beyond; the results of exploration and development activities during 2020; the general continuance of current industry conditions including commodity and forward strip pricing; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty, and regulatory regimes; the accuracy of the estimates of ARC's reserve and resource volumes; the continuation of the monthly $0.05 dividend per share; certain commodity price and other cost assumptions for 2020 and beyond; the retention of ARC's key properties; ARC's knowledge and past experience with developing major infrastructure projects will be applicable to similar projects in the future; and the continued availability of adequate debt and equity financing and funds from operations to fund its planned expenditures. ARC believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable, but no assurance can be given that these factors, expectations and assumptions will prove to be correct.
The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of ARC's products; changes to government regulations including royalty rates, taxes, and environmental and climate change regulation; market access constraints or transportation interruptions, unanticipated operating results, or production declines; changes in development plans of ARC or by third-party operators of ARC's properties, increased debt levels or debt service requirements; inaccurate estimation of ARC's oil and gas reserve and resource volumes; limited, unfavorable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time-to-time in ARC's public disclosure documents (including, without limitation, those risks identified in this news release and in ARC's Annual Information Form).
The internal projections, expectations or beliefs underlying the 2020 capital budget and corporate outlook from 2019 to 2020 and beyond are subject to change in light of ongoing results prevailing economic circumstances, commodity prices and industry conditions and regulations. ARC's financial outlook for 2019, 2020 and beyond provides shareholders with relevant information on Management's expectations for results of operations, excluding any potential acquisitions or dispositions, for such time periods. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted and ARC's 2019 and 2020 guidance may not be appropriate for other purposes. The forward-looking information and statements contained in this news release speak only as of the date of this news release, and ARC assumes no obligation to publicly update or revise such information or statements to reflect new events or circumstances, except as may be required pursuant to applicable laws.
ARC Resources Ltd. is one of Canada's largest conventional oil and gas companies with an enterprise value of approximately $3.3 billion. ARC's common shares trade on the Toronto Stock Exchange under the symbol ARX.
ARC RESOURCES LTD.
Myron M. Stadnyk
President and Chief Executive Officer
For further information about ARC Resources Ltd., please visit our website at www.arcresources.com
or contact:
Investor Relations
E-mail: [email protected]
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.
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