CALGARY, AB, May 5, 2021 /CNW/ - (TSX: ARX) ARC Resources Ltd.
("ARC" or the "Company") today reported its first quarter 2021
financial and operational results and 2021 guidance following the
successful close of its strategic Montney combination (the "Business
Combination") with Seven Generations Energy Ltd. ("Seven
Generations").
FIRST QUARTER 2021 HIGHLIGHTS
- On February 10, 2021, ARC and
Seven Generations announced a definitive agreement to combine in an
all-share transaction to become the largest pure-play Montney producer. The Business Combination
closed on April 6, 2021, making ARC
Canada's largest condensate producer, third-largest natural gas
producer, and sixth-largest upstream energy company.
- Driven by strong average realized commodity prices and ARC's
continued focus on proactive market diversification activities, ARC
generated funds from operations(1) of $273.9 million ($0.77 per share) and recognized net income of
$178.0 million ($0.50 per share). ARC's average realized natural
gas price of $4.60 per Mcf was a 57
per cent premium to the average AECO 7A Monthly Index price.
-
- ARC's and Seven Generations' combined pro forma funds from
operations(1)(2) was $574.5
million.
- ARC generated free funds flow(3) of $148.2 million ($0.42 per share), which was allocated to paying
ARC's dividend of $21.3 million
($0.06 per share) and reducing the
Company's net debt excluding lease obligations(1)
outstanding by $125.5 million or 18
per cent. ARC's ratio of net debt excluding lease obligations to
annualized funds from operations was 0.5 times as of March 31, 2021.
-
- ARC's and Seven Generations' combined pro forma free funds
flow(2)(3) was $300.5
million.
- Supported by profitable half-cycle investments made in late
2020, the Company delivered record average daily production of
170,430 boe(4) per day (78 per cent natural gas and 22
per cent crude oil and liquids)(5).
-
- ARC's and Seven Generations' combined pro forma production was
351,204 boe per day (60 per cent natural gas and 40 per cent crude
oil and liquids).
- Capital investments totalled $125.7
million and were focused on drilling and completions
activities in Greater Dawson,
Sunrise, and Ante Creek. ARC drilled 15 wells and completed 32
wells, and progressed two small-scale infrastructure optimization
projects.
-
- ARC's and Seven Generations' combined pro forma capital
expenditures were $274.0
million.
- ARC demonstrated continued operational excellence by delivering
an operating expense of $3.85 per boe
through prudent cost control. ARC's operating expense was down
three per cent from the fourth quarter of 2020 and 13 per cent from
the first quarter of 2020.
- Exhibiting the underlying strength and profitability of the
business, as well as the Company's risk-managed approach to value
creation, ARC was assigned an investment-grade credit rating, which
lowers the Company's overall cost of debt.
Notes:
|
|
(1)
|
Refer to Note 9
"Capital Management" in ARC's unaudited condensed interim
consolidated financial statements and notes ("financial
statements") and to the sections entitled "Funds from
Operations" and "Capitalization, Financial Resources and
Liquidity" in ARC's Management's Discussion and Analysis
("MD&A").
|
(2)
|
Refer to the section
entitled "Combined Pro Forma Reconciliations" within this
news release for the calculations of Seven Generations' funds from
operations and free funds flow for the three months ended March 31,
2021.
|
(3)
|
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.
|
(4)
|
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.
|
(5)
|
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.
|
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 financial statements and MD&A as at
and for the three months ended March 31, 2021, are available
on ARC's website at www.arcresources.com and under ARC's SEDAR
profile at www.sedar.com.
Analyst and Investor Update
ARC will be hosting a virtual analyst and investor update at
9:00 a.m. (Calgary time) on May
27, 2021, where ARC's senior management team will provide an
update on ARC's business following the Business Combination. A live
webcast of the event will be available on ARC's website at
www.arcresources.com.
BUSINESS COMBINATION WITH SEVEN GENERATIONS
On February 10, 2021, ARC
announced that it entered into a strategic Montney combination with Seven Generations.
The Business Combination was structured through a plan of
arrangement under the Canada Business Corporations Act.
Through the transaction, Seven Generations shareholders received
1.108 common shares of ARC for each class "A" common share of Seven
Generations held. On April 6, 2021,
following the successful close of the Business Combination, ARC
issued approximately 369.4 million common shares to acquire all of
the outstanding Seven Generations class "A" common shares and Seven
Generations became a wholly-owned subsidiary of ARC. On
May 1, 2021, ARC amalgamated with
Seven Generations.
Building on excellent first quarter 2021 results, which were
underscored by record production and substantial free funds flow
generation, ARC is entering this transformational phase in a
position of significant strength. ARC is focused on successfully
integrating the two companies and delivering on expected cost
savings and synergies to become a more resilient, profitable, and
efficient business. Annual synergies of approximately $160 million are expected to be achieved by 2022
and will be attained through corporate and finance cost savings,
operating efficiencies, market optimization opportunities, and
drilling and completions efficiencies. With the Company's
refinancing completed at the close of the Business Combination,
finance costs are expected to be approximately $50 million lower than they would have been had
the Seven Generations senior notes remained outstanding.
For the balance of 2021, ARC plans to sustain production at its
core operating areas while maximizing free funds flow generation.
ARC anticipates generating significant free funds flow in 2021,
which will be used to strengthen the Company's financial position.
Following the Business Combination and based on current forward
commodity prices, ARC expects to reduce its ratio of net debt
excluding lease obligations to annualized funds from operations to
the low end of the Company's targeted range of 1.0 to 1.5 times by
year-end. Once the Company's debt reduction targets are met, ARC
will have increased optionality to invest in development at
Attachie as well as deliver
increased returns to shareholders. ARC will continue to pay its
quarterly dividend of $0.06 per
share.
This news release includes certain financial and operational
results of Seven Generations for the three months ended
March 31, 2021, which are derived
from the unaudited condensed interim consolidated financial
statements of Seven Generations as at and for the three months
ended March 31, 2021 (the "Seven
Generations Financial Statements"). The Seven Generations Financial
Statements have been prepared in accordance with IFRS following the
same accounting policies as the annual audited consolidated
financial statements of Seven Generations as at and for the years
ended December 31, 2020 and 2019.
Copies of the annual audited consolidated financial statements of
Seven Generations as at and for the years ended December 31, 2020 and 2019 are available under
Seven Generations' SEDAR profile at www.sedar.com. The Seven
Generations Financial Statements were reviewed and approved by the
Board of Directors of Seven Generations, consisting of ARC
management, on April 29, 2021, and
were reviewed by the Audit Committee of ARC on May 5, 2021. These results are included to
provide the reader with an understanding of how ARC established its
expectations of the financial and operational results of the
Company for the balance of 2021 and beyond following the completion
of the Business Combination. In this news release, when these
financial and operational results are added to the results of ARC
for the three months ended March 31,
2021, they are referred to as "combined pro forma" results
and assume the completion of the Business Combination as of such
date. The combined pro forma results stated herein do not have any
standardized meanings under IFRS and therefore may not be
comparable to similar measures presented by other entities. Refer
to the section entitled "Combined Pro Forma Reconciliations"
within this news release.
2021 GUIDANCE
The original 2021 capital budgets set out by both ARC and Seven
Generations had the goal of sustaining production while maximizing
free funds flow generation. With the Business Combination complete,
ARC's updated 2021 capital budget of $950
million to $1.0 billion is
designed to sustain production and maximize free funds flow
generation while centering around the Company's longstanding
principles of capital discipline, profitability, and financial
strength. Upholding ARC's and Seven Generations' strong safety
cultures, and advancing the Company's environmental, social, and
governance ("ESG") leadership and performance, are also top
priorities in 2021.
ARC plans to sustain production at Greater Dawson, Sunrise, Kakwa, and Ante Creek
through the balance of 2021, delivering average daily production of
between 290,000 boe per day and 305,000 boe per day, of which
approximately 60 per cent is natural gas and 40 per cent is crude
oil and liquids.
During the second quarter of 2021, ARC's field operations and
production will be affected by significant turnaround activity and
the anticipated impact of spring break-up. As such, ARC anticipates
its second quarter 2021 production will be approximately seven per
cent lower than the first quarter 2021 combined pro forma
production of 351,204 boe per day. Production during the second
half of 2021 is expected to average approximately 340,000 boe per
day.
ARC's 2021 guidance estimates, which incorporate the expected
impacts of the Business Combination, are outlined below.
|
|
|
|
|
Q1 2021
Actuals
|
Q2 2021 to Q4
2021
Guidance(1)(2)
|
2021
Guidance(1)(2)
|
Crude oil
(bbl/day)
|
13,647
|
|
12,000 -
13,500
|
12,000 -
13,500
|
Condensate
(bbl/day)
|
13,812
|
|
69,000 -
75,000
|
55,000 -
60,000
|
Crude oil and
condensate (bbl/day)
|
27,459
|
|
81,000 -
88,500
|
67,000 -
73,500
|
Natural gas
(MMcf/day)
|
794
|
|
1,200 -
1,255
|
1,100 -
1,140
|
NGLs
(bbl/day)
|
10,620
|
|
49,000 -
52,000
|
40,000 -
42,000
|
Total
(boe/day)
|
170,430
|
|
330,000 -
350,000
|
290,000 -
305,000
|
|
2021
Guidance(1)(2)
|
Expenses
($/boe)
|
|
Operating
|
4.10 -
4.60
|
Transportation
|
4.50 -
5.00
|
General and
administrative ("G&A") expense before share-based compensation
expense(3)
|
0.90 -
1.00
|
G&A - share-based
compensation expense(4)
|
0.30 -
0.45
|
Transaction
costs
|
0.20 -
0.30
|
Interest and
financing
|
0.70 -
0.80
|
Current income tax
expense as a per cent of funds from operations
|
1 -
5
|
Capital expenditures
before undeveloped land purchases and net property acquisitions
(dispositions)
($ millions)
|
950 -
1,000
|
(1) The Business
Combination closed on April 6, 2021 and as such, 2021 guidance
includes 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 remaining nine months 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) Excludes
transaction costs associated with the Business
Combination.
|
(4) Comprises expense
recognized under all share-based compensations plans, with the
exception of the Deferred Share Unit Plans.
|
Going forward, ARC estimates the annual capital requirements to
sustain production at approximately 340,000 boe per day are between
$1.0 billion and $1.1 billion.
OPERATIONAL REVIEW
ARC's leading position in the Montney resource play comprises more than 1.1
million net acres of land and 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 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 over its low cost structure, liquids recoveries and the
ability to optimize revenue streams, and supports strong safety and
environmental performance. Given the recent strength in NGLs
pricing, ARC is currently maximizing the liquids recoveries at its
processing facilities.
Capital Expenditures
ARC invested $125.7 million during
the first quarter of 2021 to drill 15 wells and complete 32 wells,
as well as progress two highly economical facility optimization
projects. The Sunrise Phase I and Phase II facilities expansion is
expected to be completed during the second quarter of 2021 and will
add 40 MMcf per day of low-cost natural gas processing and sales
capacity. The Parkland/Tower facility sour conversion and expansion
is scheduled to be completed in the third quarter of 2021, which
will support the continued development of the lower Montney horizon and add approximately 6 MMcf
per day of natural gas processing and sales capacity.
Including Seven Generations' capital expenditures for the Kakwa
asset, which totalled $148.3 million
to drill 21 wells and complete eight wells, the combined pro forma
capital expenditures for the first quarter of 2021 were
$274.0 million.
ARC's planned approach to developing the Kakwa asset is to
maximize free funds flow extraction through improved deliverability
and profitability. Over the next several years, ARC aims to keep
production relatively flat, at approximately 180,000 boe per day,
to moderate the asset's current decline rate of approximately 40
per cent. Leveraging Seven Generations' recent innovations on well
and pad designs, ARC plans to continue on the path of optimizing
the inter-well spacing for future pad development in the area to
maximize profitability. ARC will seek to realize additional capital
efficiency improvements through drilling and completions activities
and knowledge-sharing between ARC's and Seven Generations'
technical teams.
|
Three Months Ended
March 31, 2021
|
|
Capital
Expenditures(5)
($
millions)
|
Wells
Drilled(6)
|
Wells
Completed(6)
|
Greater
Dawson(1)
|
53.1
|
9
|
14
|
Sunrise
|
38.9
|
4
|
9
|
Ante Creek
|
17.9
|
2
|
9
|
Attachie
West
|
0.9
|
—
|
—
|
All
other(2)
|
14.9
|
—
|
—
|
Total
|
125.7
|
15
|
32
|
Kakwa(3)
|
148.3
|
21
|
8
|
Combined pro forma
capital
expenditures and
activities(4)
|
274.0
|
36
|
40
|
(1) Comprises Dawson
and Parkland/Tower assets.
|
(2) Comprises
spending and activity for ARC's non-core and corporate assets and
includes capitalized G&A.
|
(3) Assets acquired
through the Business Combination, which closed on April 6,
2021.
|
(4) Represents
capital expenditures and activities of ARC plus Seven Generations
for the three months ended March 31, 2021.
|
(5) Undeveloped land
purchases and net property acquisitions and dispositions are not
included.
|
(6) Wells drilled and
completed for operated assets only.
|
Production
ARC's first quarter 2021 production averaged 170,430 boe per
day, relatively unchanged from the fourth quarter of 2020.
Increased natural gas production at Dawson and Sunrise offset production impacts
from planned downtime to accommodate offset completions operations
at Tower and Ante Creek.
Including Seven Generations' production from the Kakwa asset,
which totalled 180,774 boe per day, the combined pro forma
production averaged 351,204 boe per day during the first quarter of
2021.
|
Three Months
Ended
|
|
March 31,
2021
|
December 31,
2020
|
|
Crude
Oil
(bbl/day)
|
Condensate
(bbl/day)
|
Natural
Gas
(MMcf/day)
|
NGLs
(bbl/day)
|
Total
(boe/day)
|
Total
(boe/day)
|
Greater
Dawson(1)
|
1,663
|
10,617
|
469
|
8,605
|
99,003
|
97,015
|
Sunrise
|
—
|
10
|
245
|
31
|
40,913
|
39,098
|
Ante Creek
|
6,641
|
445
|
51
|
1,448
|
17,099
|
18,274
|
Attachie
West
|
—
|
2,500
|
12
|
119
|
4,593
|
5,386
|
All
other(2)
|
5,343
|
240
|
17
|
417
|
8,822
|
9,695
|
Total
|
13,647
|
13,812
|
794
|
10,620
|
170,430
|
169,468
|
Kakwa(3)
|
—
|
59,038
|
477
|
42,262
|
180,774
|
190,139
|
Combined pro
forma
production(4)
|
13,647
|
72,850
|
1,271
|
52,882
|
351,204
|
359,607
|
(1) Comprises Dawson
and Parkland/Tower assets.
|
(2) Comprises
production from ARC's non-core assets.
|
(3) Assets acquired
through the Business Combination, which closed on April 6,
2021.
|
(4) Represents
production of ARC plus Seven Generations for the three months ended
March 31, 2021.
|
ESG REVIEW
ARC continues to advance initiatives in support of the Company's
leading ESG performance and overarching commitment to responsible
development. During the first quarter of 2021, ARC announced its
investment in Natural Gas Innovation Fund (NGIF)'s Cleantech
Ventures, an industry-led equity fund focused on advancing
technologies and solutions that enhance the environmental and
economic performance of the natural gas sector. The mandate of this
new fund is to invest in cleantech enterprises across the value
chain, from production, transmission, distribution, storage, and
end-use applications, as well as innovations leading to the
expanded production of emerging fuels like renewable natural gas
and hydrogen. ARC is committed to upholding its strong
environmental performance by reducing its greenhouse gas ("GHG")
emissions, including through planned electrification of its Dawson
Phase III and Phase IV facilities and through ongoing
electrification of well sites across the asset base. ARC currently
ranks as the producer with the lowest GHG emissions intensity
amongst its Canadian peers.
ARC has commenced its integration of Seven Generations' ESG
initiatives to formulate a cohesive ESG strategy that leverages the
strengths and shared learnings of each company.
FINANCIAL REVIEW
Capital Allocation
Managing reasonable debt levels, paying a sustainable dividend,
and delivering modest production growth through profitable
development activities are the basis for ARC's capital allocation.
Upon closing of the Business Combination, free funds flow generated
is being directed at strengthening the Company's financial
position. Once the Company's debt reduction targets are met, ARC
will have increased optionality to invest in development at
Attachie as well as deliver
increased returns to shareholders. ARC will continue to pay its
quarterly dividend of $0.06 per
share, and will consider modest dividend increases over time.
Balance Sheet and Liquidity
On March 10, 2021, ARC completed
the issuance of two tranches of private unsecured notes of
$1.0 billion aggregate principal
amount with a weighted average interest rate of 2.965% and an
average term of 7.75 years (the "2021 Notes"). The 2021 Notes are
rated BBB with a stable trend by DBRS Morningstar.
As of March 31, 2021, ARC had
$568.0 million of net debt excluding
lease obligations outstanding, and the ratio of net debt excluding
lease obligations to annualized funds from operations was 0.5
times. Seven Generations' net debt excluding lease obligations
outstanding as of March 31, 2021 was
approximately $1.8 billion. The
combined pro forma net debt excluding lease obligations as of
March 31, 2021 was approximately
$2.4 billion. Refer to the section
entitled "Combined Pro Forma Reconciliations" within this
news release for the calculation of Seven Generations' net debt
excluding lease obligations as at March 31,
2021.
Upon closing of the Business Combination, ARC obtained access to
additional liquidity with a new syndicated $2.0 billion unsecured extendible revolving
credit facility with a maturity date of 2024 (the "Credit
Facility"). ARC concurrently cancelled its former $950 million financial covenant-based syndicated
credit facility.
On April 6, 2021, ARC used the
proceeds from the 2021 Notes, combined with draws on the Credit
Facility, to repay and/or defease all of Seven Generations'
outstanding senior notes and repay the Seven Generations credit
facility. The principal outstanding on the senior notes totalled
US$1,192.0 million and had a weighted
average interest rate of 5.955%.
ARC has ample liquidity and a strong deleveraging profile in
2021, with approximately $1.2 billion
of undrawn credit capacity. Based on current forward commodity
prices, ARC expects its net debt excluding lease obligations
outstanding to be reduced to the low end of the Company's targeted
range of 1.0 to 1.5 times annualized funds from operations by
year-end.
Net Income
ARC recognized net income of $178.0
million ($0.50 per share)
during the first quarter of 2021. Compared to the fourth quarter of
2020, the increase in earnings was primarily the result of
increased commodity sales from production due to higher average
realized commodity prices. ARC also recognized a reversal of
impairment of $112.6 million on its
property, plant, and equipment during the first quarter of 2021,
primarily for the Northern Alberta
cash-generating unit as a result of increased forward commodity
pricing for crude oil and natural gas. Partially offsetting these
increases to earnings were losses recognized on ARC's risk
management contracts and increased current tax expense.
Funds from Operations and Free Funds Flow
ARC generated funds from operations of $273.9 million ($0.77 per share) during the first quarter of
2021, a 29 per cent increase from the fourth quarter of 2020.
Increased commodity sales from production due to higher average
realized commodity prices drove higher funds from operations in the
period, which was partially offset by increased current tax expense
and increased realized losses on risk management contracts.
Including the $300.6 million of funds
from operations generated by Seven Generations, the combined pro
forma funds from operations was $574.5
million during the first quarter of 2021. Refer to the
section entitled "Combined Pro Forma Reconciliations" within
this news release for the calculation of Seven Generations' funds
from operations for the three months ended March 31, 2021.
ARC generated free funds flow of $148.2 million ($0.42 per share) during the first quarter of
2021, an increase of $12.9 million
from the fourth quarter of 2020, despite higher capital investments
in the period. Free funds flow was used to pay the Company's
dividend obligations of $21.3 million
($0.06 per share) and to strengthen
the Company's balance sheet, reducing net debt excluding lease
obligations outstanding by $125.5
million or 18 per cent. Including the $152.3 million of free funds flow generated by
Seven Generations, the combined pro forma free funds flow was
$300.5 million during the first
quarter of 2021. Refer to the section entitled "Combined Pro
Forma Reconciliations" within this news release for the
calculation of Seven Generations' free funds flow for the three
months ended March 31, 2021.
|
$ millions
|
$/share(1)
|
Funds from operations
for the three months ended December 31, 2020
|
212.0
|
0.60
|
Volume
|
|
|
Crude oil and
liquids
|
(12.7)
|
(0.04)
|
Natural gas
|
(1.5)
|
—
|
Price
|
|
|
Crude oil and
liquids
|
53.3
|
0.14
|
Natural gas
|
123.1
|
0.35
|
Sales of commodities
purchased from third parties
|
14.2
|
0.04
|
Interest
income
|
(0.1)
|
—
|
Other
income
|
1.4
|
—
|
Realized gain (loss)
on risk management contracts
|
(35.6)
|
(0.10)
|
Royalties
|
(9.7)
|
(0.03)
|
Expenses
|
|
|
Commodities purchased
from third parties
|
(15.9)
|
(0.04)
|
Operating
|
3.0
|
0.01
|
Transportation
|
(10.6)
|
(0.03)
|
G&A and transaction
costs
|
(9.4)
|
(0.03)
|
Interest and
financing
|
0.4
|
—
|
Current income
tax
|
(36.9)
|
(0.10)
|
Realized gain (loss) on
foreign exchange
|
(1.2)
|
—
|
Other
|
0.1
|
—
|
Funds from
operations for the three months ended March 31,
2021
|
273.9
|
0.77
|
Seven Generations
funds from operations for the three months ended March 31,
2021(2)
|
300.6
|
|
Combined pro forma
funds from operations for the three months ended March 31,
2021(3)
|
574.5
|
|
(1) Per share amounts
are based on weighted average diluted common shares.
|
(2) The Business
Combination closed on April 6, 2021.
|
(3) Refer to the
section entitled "Combined Pro Forma Reconciliations" within
this news release for the calculation of Seven Generations' funds
from operations for the three months ended March 31,
2021.
|
Financial and Physical Price Management
ARC sells into multiple downstream markets across North America, and during the winter months,
elects to maximize its exposure to spot pricing to capture
anticipated strength in pricing owing to potentially cold weather.
Approximately 25 per cent of ARC's natural gas was sold into the
Midwest market during the first quarter of 2021, where regional
prices experienced significant strength and oftentimes traded at
premiums to other North American sales points. ARC maximized its
throughput of natural gas production to capture this strength in
natural gas pricing during the period, and as a result, realized an
incremental $101.1 million in cash
flows from its natural gas market diversification activities.
The following table summarizes ARC's average realized prices for
the first quarter of 2021 relative to the fourth quarter of
2020.
|
Three Months
Ended
|
|
March 31,
2021
|
December 31,
2020
|
% Change
|
Average natural gas
price before diversification activities ($/Mcf)
|
3.19
|
2.94
|
9
|
Natural gas
diversification activities ($/Mcf)
|
1.41
|
(0.06)
|
2,450
|
Realized loss on risk
management contracts ($/Mcf)(1)
|
(0.21)
|
(0.06)
|
(250)
|
Average realized
natural gas price including realized loss on risk
management contracts
($/Mcf)
|
4.39
|
2.82
|
56
|
Average realized
crude oil price ($/bbl)
|
64.46
|
48.14
|
34
|
Average realized
condensate price ($/bbl)
|
71.59
|
53.55
|
34
|
Average realized NGLs
price ($/bbl)
|
29.45
|
18.03
|
63
|
Total average
realized commodity price ($/boe)
|
34.25
|
23.29
|
47
|
(1) Realized loss on
risk management contracts is not included in ARC's average realized
natural gas price.
|
As of May 5, 2021, approximately
50 per cent of ARC's anticipated crude oil and condensate
production and approximately 50 per cent of ARC's anticipated
natural gas production is hedged for the balance of 2021.
Netback(1)
ARC's first quarter 2021 netback increased 63 per cent from the
fourth quarter of 2020. The higher netback was primarily due to an
increase in average realized commodity prices across ARC's
diversified sales portfolio. Increased transportation expense,
reflecting new transportation arrangements and increased pipeline
tolls, partially offset the impact of increased average realized
commodity prices, which was further offset by realized losses on
risk management contracts.
|
Three Months
Ended
|
($/boe)
|
March 31,
2021
|
December 31,
2020
|
% Change
|
Commodity sales from
production
|
34.25
|
23.29
|
47
|
Royalties
|
(1.69)
|
(1.04)
|
(63)
|
Operating
expense
|
(3.85)
|
(3.97)
|
3
|
Transportation
expense
|
(3.70)
|
(2.97)
|
(25)
|
Netback
|
25.01
|
15.31
|
63
|
Realized gain (loss)
on risk management contracts
|
(1.75)
|
0.56
|
(413)
|
Netback including
realized gain (loss) on risk management
contracts
|
23.26
|
15.87
|
47
|
(1) 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.
|
COMBINED PRO FORMA RECONCILIATIONS
Combined Pro Forma Funds from Operations
$ millions
|
For the three months
ended March 31, 2021
|
Seven
Generations
|
|
Cash provided by
operating activities
|
327.5
|
Change in non-cash
working capital
|
(53.1)
|
Change in other
long-term liabilities related to operating activities
|
26.2
|
Seven Generations
funds from operations
|
300.6
|
ARC funds from
operations(1)
|
273.9
|
Combined pro forma
funds from operations
|
574.5
|
(1) Refer to Note 9
"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.
|
Combined Pro Forma Free Funds Flow
$ millions
|
For the three months
ended March 31, 2021
|
Seven
Generations
|
|
Cash provided by
operating activities
|
327.5
|
Change in non-cash
working capital
|
(53.1)
|
Change in other
long-term liabilities related to operating activities
|
26.2
|
Funds from
operations
|
300.6
|
Investments in oil
and natural gas assets
|
(148.3)
|
Seven Generations
free funds flow
|
152.3
|
ARC free funds
flow(1)
|
148.2
|
Combined pro forma
free funds flow
|
300.5
|
(1) 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.
|
Combined Pro Forma Net Debt excluding Lease
Obligations
$ millions
|
As at March 31,
2021
|
Seven
Generations
|
|
Senior notes
|
1,536.8
|
Credit facility
draws
|
180.0
|
Long-term portion of
lease liabilities
|
50.1
|
Long-term portion of
share-based compensation liability
|
7.1
|
Current
assets
|
(411.8)
|
Current
liabilities
|
567.9
|
|
1,930.1
|
Current portion of risk
management assets
|
22.5
|
Current portion of risk
management liabilities
|
(115.6)
|
Net debt
|
1,837.0
|
Long-term portion of
lease liabilities
|
(50.1)
|
Seven Generations net
debt excluding lease obligations
|
1,786.9
|
ARC net debt
excluding lease obligations(1)
|
568.0
|
Combined pro forma
net debt excluding lease obligations
|
2,354.9
|
(1) Refer to Note 9
"Capital Management" in ARC's financial statements and to
the section entitled "Capitalization, Financial
Resources and Liquidity" in ARC's
MD&A.
|
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: the ability
of ARC to generate free funds flow and the anticipated uses
thereof; the anticipated impacts of turnaround activity and spring
break-up on production and field operations and the corresponding
decrease to production; estimated production amounts and quantities
thereof; the continued electrification of well sites across ARC's
asset base; the potential impact of COVID-19, its effect on demand
and market volatility, and its possible effect on ARC's future
financial and operational results; the anticipated synergies
expected to be attained through corporate and finance cost savings,
operating efficiencies, market optimization opportunities, and
drilling and completions efficiencies; the expected decrease in
costs resulting from the satisfaction of Seven Generations' senior
notes; the expected reduction in ARC's ratio of net debt excluding
lease obligations to annualized funds from operations; the expected
increased optionality resulting from reaching ARC's debt reduction
targets; the estimated annual capital requirements to sustain ARC's
production; the anticipated core areas of ARC's future production;
the planned approach to developing the Kakwa asset including plans
to continue on the path of optimizing the inter-well spacing for
future pad development in the area; ARC's continued commitment to
upholding strong environmental performance by reducing its GHG
emissions and a continued focus on a strong safety culture; the
anticipated timing and content of ARC's virtual analyst and
investor update; ARC's intention to monitor its guidance in respect
of COVID-19 and provide updates as required; ARC's priorities for
the remainder of 2021; the continued payment of ARC's quarterly
dividend and the value thereof; anticipated increases to
production; the anticipated creation of a cohesive ESG strategy and
the implementation thereof; impacts of and the timing of achieving
ARC's target range of net debt excluding lease obligations to
annualized funds from operations; anticipated cost savings and
synergies; 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
the 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, production, and net debt excluding
lease obligations 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
characteristics. 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.