(TSX: ARX)ARC Resources Ltd. (“ARC” or the “Company”) today reported its fourth quarter and year-end 2024 financial and operational results as well as its year-end 2024 reserves.
HIGHLIGHTS
Fourth Quarter 2024 Results
— ARC delivered record quarterly production of 382,341 boe(1) per day (62 per cent natural gas and 38 per cent crude oil and liquids(2)), in line with fourth quarter guidance of between 380,000 and 385,000 boe per day. Production increased five per cent compared to the fourth quarter of 2023, and seven per cent on a per share basis(3).
— Condensate and light oil production during the fourth quarter averaged approximately 103,000 barrels per day, the highest in ARC's 29-year history, and a 20 per cent increase year-over-year. This growth was driven primarily by initial production from Attachie Phase I and strong well productivity at Kakwa.
— Attachie production continued to increase in December, averaging approximately 29,000boe per day, and included approximately 18,000 barrels per day of condensate and natural gas liquids.
— Kakwa production during the fourth quarter averaged approximately 195,000 boe per day, including approximately 105,000 barrels per day of condensate and natural gas liquids.
— The deliberate natural gas production curtailments at Sunrise during the third and fourth quarters of 2024 reduced full-year average production by approximately 10,500 boe per day. In alignment with ARC's commitment to long-term profitability, Sunrise production was restored in the fourth quarter as natural gas prices recovered. This curtailment preserved resource for periods when prices are higher and allowed ARC to defer a portion of the capital originally planned for 2025.
— ARC realized funds from operations of $770 million(4) ($1.30 per share)(5) and cash flow from operating activities of $651 million ($1.10 per share) during the fourth quarter. ARC generated free funds flow of $420 million(6) ($0.71 per share(7)) and recognized net income of $370 million ($0.63 per share).
— ARC realized a natural gas price of $2.58 per Mcf(5), 77 per cent greater than the average AECO 7A Monthly Index price of $1.46 per Mcf.
— ARC reported capital expenditures of $350 million(6) in the fourth quarter, which contributed to total capital expenditures of $1.85 billion in 2024, within Company guidance.
— During the quarter, ARC declared dividends of $112 million or $0.19 per share, and repurchased 2.2 million common shares for $52 million under its normal course issuer bid (“NCIB”). Net debt decreased by $225 million compared to the third quarter of 2024. As of December 31, 2024, net debt was 1.3 billion(4) or 0.5 times funds from operations(4).
Year-end 2024 Highlights
— ARC recognized funds from operations of $2.5 billion ($4.15 per share) and free funds flow of $627 million ($1.05 per share) in 2024. ARC distributed 99 per cent of free funds flow to shareholders through its base dividend and share repurchases. In 2024, ARC declared dividends of $416 million and repurchased 8.5 million shares under its NCIB.
— In the third quarter of 2024, ARC's Board of Directors (the “Board”) approved a 12 per cent increase to the quarterly dividend, from $0.17 per share to $0.19 per share ($0.68 per share to $0.76 per share, per annum).
— In the third quarter of 2024, ARC disposed of certain non-core,non-Montney assets for total cash proceeds of $80 million. The proceeds were allocated to share repurchases.
— In April 2024, ARC announced a long-term liquefaction tolling services agreement with Cedar LNG Partners LP. Under this agreement, ARC will deliver approximately 200 MMcf per day of natural gas for liquefaction for a term of 20 years commencing with commercial operations anticipated in the second half of 2028.
— ARC also entered into a non-binding Heads of Agreement with an investment-grade rated company for the purchase and sale of an equivalent volume of LNG offtake, approximately 1.5 million tonnes per annum of LNG.
— Combined, operating and transportation costs registered at $9.89 per boe in 2024, slightly below the bottom end of ARC's guidance range.
— In 2024, ARC's annual average realized natural gas price of $2.37 per Mcf was 65 per cent or $0.93 per Mcf greater than the average AECO 7A Monthly Index price. This marks the 12th consecutive year that ARC's market diversification strategy resulted in a realized natural gas price that exceeded AECO by 20 per cent or greater.
2024 Reserves(1)(8)
— ARC reported record reserves across all categories in 2024. Proved producing (“PDP”) and proved plus probable (“2P”) reserves increased by five per cent compared to 2023.
— ARC's before-tax net present value (“NPV”) of 2P reserves, discounted at 10 per cent, increased six per cent from 2023 to $40.66 per share(9) at December 31, 2024. The 2P NPV considers the development of 23 per cent of ARC's internally identified inventory, providing a runway for future development and reserve growth.
— At year-end 2024, 72 per cent of the 672 MMbbl of 2P NGL reserves were recognized as condensate.
— ARC booked an additional 50 MMboe of 2P reserves at Attachie, resulting in total booked 2P reserves of 174MMboe. At year-end 2024, 146 undeveloped locations were booked at Attachie, representing nine per cent of ARC's internal inventory estimate at Attachie.
— ARC reported positive technical revisions in all categories (PDP, total proved (“1P”), and 2P) due to relative outperformance across several assets, most notably at Kakwa. Positive technical revisions and extensions represented a 28 per cent increase to 2023 PDP reserves.
— The modified completion design at Kakwa has been favourably reflected in the reserve report. ARC received a moderate increase in reserves per undeveloped location, while positive technical revisions contributed an additional 41 million barrels of oil equivalent reserves to the proved category.
ARC's consolidated financial statements and notes (the “financial statements”) and Management's Discussion and Analysis (“MD&A”) as at and for the three months and year ended December 31, 2024, are available on ARC's website at www.arcresources.com and under ARC's SEDAR+ profile at www.sedarplus.ca. The disclosure under the section entitled “Non-GAAP and Other Financial Measures” in ARC's MD&A as at and for the three months and year ended December 31, 2024 (the “2024 Annual MD&A”) is incorporated by reference into this news release.
FINANCIAL AND OPERATIONAL RESULTS
OUTLOOK
ARC achieved record results in a pivotal year for the organization. Key milestones that were achieved reinforced ARC's confidence in achieving the goals of its long-term plan introduced in 2023. ARC executed its capital program within budget and delivered one of its most efficient Montney programs since drilling the first horizontal Montney well in 2005. Concurrently, ARC successfully commissioned its first phase of Attachie, providing line of sight to long-term growth at its condensate-rich natural gas asset. ARC delivered on its objectives while upholding its long-standing principles of safety, capital discipline, and financial strength.
2025
In 2025, ARC plans to demonstrate the growth in free funds flow with the first phase of Attachie onstream. ARC expects to deliver record condensate and natural gas production, coupled with a reduction in capital expenditures. The result is a notable increase in free funds flow per share and a 25 per cent return on average capital employed(1)(2) under forward curve pricing assumptions. With a deep Montney inventory and financial strength, ARC plans to once again return essentially all free funds flow to shareholders in 2025. Additional priorities include:
— Kakwa: ARC plans to focus its development program in the condensate-rich regions of the asset, capitalizing on the operational momentum in 2024. The enhancements in completion design implemented in 2024 have resulted in industry leading well productivity.
— Attachie: Integrate production data to identify efficiencies for future development.
— Margin Expansion: ARC anticipates an increase in operating and free funds flow margins in 2025. The increase is driven by a higher condensate-weighted production mix from Attachie and stable cash costs on a per boe basis.
— Marketing: Finalize the sale and purchase agreement for the associated LNG offtake from Cedar LNG. Once executed, approximately 25 per cent of ARC's projected natural gas production will be exposed to international pricing by 2030.
Attachie Update
ARC's first phase of Attachie is operating as planned. Since commissioning the facility in October, production has steadily increased to greater than 30,000 boe per day, with no safety incidents.
— Current production exceeds 30,000 boe per day, with the production mix greater than 60 per cent condensate and natural gas liquids, and includes approximately 15,000 barrels per day of condensate.
— First quarter 2025 production at Attachie is expected to average between 30,000 and 35,000 boe per day (approximately 60 per cent condensate and natural gas liquids). Full-year production is expected to average approximately 37,500 boe per day (approximately 60 per cent condensate and natural gas liquids).
Attachie Phase II
— Consistent with its long-term plan, ARC remains on track to formalize plans for Attachie Phase II, with investment expected to begin in 2026 and anticipated production in 2028.
— Phase II envisions a similar development program and facility design to that of Phase I, which includes a facility capacity of 40,000 boe per day (60 per cent condensate and natural gas liquids, and 40 per cent natural gas).
2025 Guidance
The 2025 capital program and Company guidance are unchanged since announced in November 2024.
— Planned capital expenditures of between $1.6 to $1.7 billion(1).
— Average annual production of between 380,000 and 395,000 boe per day (61 per cent natural gas and 39 per cent crude oil and liquids).
— Based on the forward curve and Company guidance, ARC estimates 2025 free funds flow of between $1.7 and $1.9 billion(2), essentially all of which is earmarked for shareholder returns via the base dividend and share repurchases. The free funds flow estimate in 2025 does not account for the potential impact from US tariffs.
ARC's 2025 corporate guidance is based on various commodity price scenarios and economic conditions discussed below; certain guidance estimates may fluctuate with commodity price changes and regulatory changes. Production guidance does not incorporate natural gas curtailments due to periods of low pricing. ARC is prepared to curtail natural gas production if prices do not meet ARC's return requirements. ARC's guidance provides readers with the information relevant to Management's expectations for financial and operational results for 2025. Readers are cautioned that the guidance estimates may not be appropriate for any other purpose.
ARC's 2024 and 2025 annual guidance and a review of 2024 actual results are outlined below:
FINANCIAL AND OPERATIONAL RESULTS
Production
Fourth Quarter 2024
— ARC generated record production averaging 382,341 boe per day during the fourth quarter of 2024 (62 per cent natural gas and 38 per cent crude oil and liquids). Production increased five per cent compared to the fourth quarter of 2023, and seven per cent on a per share basis.
— The increase was driven by initial production from Attachie Phase I, and strong well productivity at Kakwa which more than offset natural gas curtailments at Sunrise that occurred during the third and fourth quarters.
— Production at Kakwa for the quarter averaged 195,362 boe per day, and included 104,793 barrels per day of condensate and natural gas liquids.
— Attachie Phase I contributed an average of 16,950 boe per day (61 per cent condensate and natural gas liquids) to fourth quarter average production.
Full-Year 2024
— Full-year production averaged 347,908 boe per day (63 per cent natural gas and 37 per cent crude oil and liquids). Crude oil and liquids production was in line with Company guidance, while natural gas production was slightly below full-year guidance due to ARC's deliberate production curtailments at its Sunrise asset.
— The natural gas production curtailments at Sunrise during periods from July through November impacted full-year average production by approximately 10,500 boe per day.
— By curtailing production at Sunrise, ARC preserved margins, conserved volumes for periods when natural gas prices are higher, and deferred some capital expenditures initially scheduled for 2025.
2025
— Production in the first quarter of 2025 is estimated to average between 370,000 and 375,000 boe per day (63 per cent natural gas and 37 per cent crude oil and liquids).
— Attachie Phase I is expected to contribute average production in the first quarter between 30,000 and 35,000 boe per day (approximately 60 per cent condensate and natural gas liquids), and full year average production of approximately 37,500 boe per day (approximately 60 per cent condensate and natural gas liquids).
Funds from Operations, Cash Flow from Operating Activities, and Free Funds Flow
— Fourth quarter 2024 funds from operations were $770 million ($1.30 per share), representing an increase of $178 million ($0.31 per share) compared to the third quarter of 2024. This increase was driven primarily by initial production at Attachie Phase I and high well productivity at Kakwa. ARC generated $420 million of free funds flow ($0.71 per share) during the quarter.
— In 2024, ARC generated funds from operations of $2.5 billion ($4.15 per share) and cash from operating activities of $2.3 billion ($3.94 per share). Full-year 2024 free funds flow was $627 million ($1.05 per share) of which essentially all was returned to shareholders.
The following table details the change in funds from operations for the fourth quarter of 2024 relative to the third quarter of 2024.
The following table details the change in funds from operations for the fourth quarter of 2024 relative to the fourth quarter of 2023.
Shareholder Returns
— In 2024, ARC returned 99 per cent of free funds flow to shareholders through the base dividend and share repurchases.
— ARC repurchased 8.5 million common shares under its NCIB at a weighted average price of $23.81 per share, equating to 1.4 per cent of the opening balance at December 31, 2024.
— In the third quarter of 2024, the Board approved an increase of 12 per cent to the Company's quarterly dividend, from $0.17 per share to $0.19 per share.
— During the fourth quarter 2024, ARC declared dividends of $112 million ($0.19 per share) and repurchased 2.2 million common shares under its NCIB at a weighted average price of $23.73 per share.
— Since commencing its initial NCIB in September 2021, ARC has repurchased approximately 19 per cent of total outstanding shares or 140 million common shares, at a weighted average price of $16.60 per share.
— ARC intends to continue to distribute essentially all of its free funds flow to shareholders on a full-year basis in 2025.
Operating, Transportation, and General and Administrative Expense
Operating Expense
— ARC's fourth quarter 2024 operating expense of $4.18 per boe was below Company guidance and 15 per cent or $0.72 per boe lower than the previous quarter due to higher production and lower planned maintenance activity.
— Full-year 2024 operating expense of $4.68 per boe was in-line with Company guidance.
— Operating expense per boe in 2025 is anticipated to average between $4.50 and $4.90 per boe.
Transportation Expense
— ARC's fourth quarter 2024 transportation expense per boe of $5.03 was lower than ARC's guidance range of $5.50 to $6.00 per boe primarily due to lower fuel gas expense related to lower natural gas prices.
— ARC's full-year 2024 transportation expense of $5.21 per boe was below ARC's guidance range of $5.50 to $6.00 per boe primarily due to lower than forecast fuel gas expense related to lower natural gas prices.
General and Administrative Expense
— ARC's fourth quarter 2024 general and administrative expense per boe of $1.87 increased 25 per cent or by $0.37 per boe from the third quarter of 2024. General and administrative expense per boe for the quarter was within Company guidance.
— ARC's full-year 2024 general and administrative expense of $1.95 per boe was slightly above the Company guidance range of $1.60 to $1.90 per boe primarily due to share-based compensation expense driven by share price appreciation.
Cash Flow Used in Investing Activities and Capital Expenditures
— Cash flow used in investing activities was $423 million during the fourth quarter of 2024. Capital expenditures in the quarter were $350 million. ARC drilled 34 wells and completed 35 wells during the fourth quarter, focused mainly at Kakwa, Attachie, and Greater Dawson.
— ARC executed its 2024 capital program safely and efficiently. Cash flow used in investing activities was $1.9 billion. ARC invested $1.85 billion in capital expenditures to drill 159 wells and complete 144 wells. Capital expenditures for the year were directly in-line with Company guidance.
The following table details ARC's 2024 drilling and completions activities by area.
Physical Natural Gas Marketing
— In the fourth quarter, ARC realized an average natural gas price of $2.58 per Mcf, $1.12 or 77 per cent greater than the average AECO 7A Monthly Index price for the period.
— Full-year 2024 ARC realized an average natural gas price of $2.37 per Mcf, 65 per cent higher than the average AECO 7A Monthly Index price, largely as a result of marketing diversification activities.
— ARC anticipates executing a sale and purchase agreement in the first quarter of 2025 with an investment-grade company for the entirety of ARC's LNG offtake associated with the Cedar LNG Project.
— With the execution of the sale and purchase agreement, ARC expects to achieve its long-term market diversification strategy, of linking approximately 25 per cent of its future natural gas production to international pricing.
Net Debt
— As at December 31, 2024, ARC's long-term debt balance was $1.4 billion, and its net debt balance was $1.3 billion, or 0.5 times funds from operations.
— ARC targets its net debt to be less than 1.5 times funds from operations and manages its capital structure to achieve that target over the long-term.
— Long-term debt is comprised of $1.0 billion of senior notes outstanding and $0.4 billion drawn on the syndicated credit facilities.
— ARC holds an investment-grade credit rating, which allows the Company to have access to capital and to manage a low-cost capital structure. ARC is committed to maintaining its strong financial position.
Net Income
— ARC recognized net income of $370 million ($0.63 per share) during the fourth quarter of 2024, a 13 per cent increase compared to the prior quarter. The increase in net income compared to the prior quarter was primarily due to an increase in production.
— ARC recognized net income of $1.1 billion ($1.88 per share) during the year ended December 31, 2024, compared to net income of $1.6 billion ($2.61 per share) in 2023. The decrease in net income compared to the prior year was primarily due to lower average realized commodity prices.
2024 RESERVES
Highlights
— ARC reported record reserves in 2024 across all categories, including PDP, 1P, and 2P. PDP and 2P reserves increased by five per cent compared to 2023.
— ARC's before-tax NPV for 2P reserves of $24.0 billion (discounted at 10 per cent) registers as the highest in ARC's 29-year history, and equates to $40.66 per share. ARC's 2P NPV includes the development of 23 per cent of ARC's internal estimate of drilling inventory.
— ARC's before-tax PDP NPV of $16.55 per share, discounted at 10 per cent, increased 18 per cent year-over-year. PDP reserves increased across every property, with the NPV increase driven primarily by the condensate reserve additions at Attachie.
— ARC's NPV was determined using Three Consultant Average (“3CA”) forecast pricing and foreign exchange rates at January 1, 2025, with a 10-year average WTI price of US$79.92 per barrel and a 10-year average AECO price of $3.66 perMMBtu.
— In 2024, ARC replaced 182 per cent of its 2P reserves. For the 17th consecutive year, 2P reserve replacement from development has been 140 per cent of produced reserves or greater. This record began with Phase I of its Montney development at Dawson, which was commissioned in 2008.
— PDP reserves increased 31 MMboe or five per cent to 622 MMboe (increased six per cent on a per share basis) driven by positive technical revisions and drilling extensions.
— 2P reserves of 2,098 MMboe were a company record, driven by organic reserve growth at Attachie, Kakwa, and Greater Dawson. Attachie comprised 14 per cent of total 2P locations with 146 undeveloped drilling locations booked.
— ARC booked 50 MMboe of 2P reserves at Attachie, resulting in total booked 2P reserves of 174 MMboe and representing approximately seven years of development at Attachie Phase I. The 146 undeveloped locations booked at year-end 2024 represent nine per cent of ARC's internal inventory estimate at Attachie, providing a runway for future reserve growth.
— PDP finding, development and acquisition (“FD&A”) costs, including future development capital (“FDC”) of $11.45 per boe(1) equated to a 1.9 times(2) PDP FD&A recycle ratio.
— FDC for 2P reserves totalled $10.3 billion at December 31, 2024 as compared to $10.0 billion at December 31, 2023. Total FDC equates to 6.2 times ARC's 2025 capital expenditure guidance, or approximately 2.8 times 2025 ARC's estimated 2025 funds from operations based on current forward strip pricing.
— ARC's reserve life index (“RLI”) is 4.4 years on a PDP basis and 14.8 years on a 2P basis.
Reserves Reconciliation
Net Present Value Summary
For a summary of the 3CA forecast pricing and foreign exchange rates used to evaluate ARC's reserves, see “2024 Independent Qualified Reserves Evaluation” of this news release.
Finding, Development and Acquisition Costs
— ARC continues to demonstrate the profitability and consistency of its Montney assets through low finding and development (“F&D”) costs.
— ARC delivered a 2P F&D cost, including FDC, of $9.19 per boe(1) ($7.98 per boe excluding FDC), compared to 2023 2P F&D of $9.17 per boe ($5.98 per boe excluding FDC).
— Including net acquisitions and dispositions, ARC's 2P FD&A cost, including FDC, was $8.90 per boe(1) ($7.70 per boe excluding FDC), compared to 2023 2P FD&A of $9.03 per boe ($5.89 per boe excluding FDC).
FD&A costs are provided including and excluding the change in FDC in the table below.
CONFERENCE CALL
ARC's senior leadership team will be hosting a conference call to discuss the Company's fourth quarter and full-year 2024 results on Friday, February 7, 2025, at 8:00 a.m. Mountain Time (“MT”).
Callers are encouraged to dial in 15 minutes before the start time to register for the event. A replay will be available on ARC's website at www.arcresources.com following the conference call.
CONSOLIDATED BALANCE SHEETS(unaudited)
As at
Refer to the accompanying notes to ARC's consolidated financial statements as at and for the year ended December 31, 2024, which are available on ARC's website at www.arcresources.com and under ARC's SEDAR+ profile at www.sedarplus.ca.
CONSOLIDATED STATEMENTS OF INCOME (unaudited) For the three months and years ended December 31
Refer to the accompanying notes to ARC's consolidated financial statements as at and for the year ended December 31, 2024, which are available on ARC's website at www.arcresources.com and under ARC's SEDAR+ profile at www.sedarplus.ca.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) For the three months and years ended December 31
Refer to the accompanying notes to ARC's consolidated financial statements as at and for the year ended December 31, 2024, which are available on ARC's website atwww.arcresources.com and under ARC's SEDAR+ profile at www.sedarplus.ca.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) For the years ended December 31
Refer to the accompanying notes to ARC's consolidated financial statements as at and for the year ended December 31, 2024, which are available on ARC's website at www.arcresources.com and under ARC's SEDAR+ profile at www.sedarplus.ca.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the three months and years ended December 31
Refer to the accompanying notes to ARC's consolidated financial statements as at and for the year ended December 31, 2024, which are available on ARC's website atwww.arcresources.com and under ARC's SEDAR+ profile at www.sedarplus.ca.
NON-GAAP AND OTHER FINANCIAL MEASURES
Throughout this news release and in other materials disclosed by the Company, ARC employs certain measures to analyze its financial performance, financial position, and cash flow. These non-GAAP and other financial measures are not standardized financial measures under IFRS Accounting Standards and may not be comparable to similar financial measures disclosed by other issuers. The non-GAAP and other financial measures should not be considered to be more meaningful than generally accepted accounting principles (“GAAP”) measures which are determined in accordance with IFRS Accounting Standards, such as net income, cash flow from operating activities, and cash flow used in investing activities, as indicators of ARC's performance.
Non-GAAP Financial Measures
Capital Expenditures
ARC uses capital expenditures to monitor its capital investments relative to those budgeted by the Company on an annual basis. ARC's capital budget excludes acquisition or disposition activities as well as the accounting impact of any accrual changes and payments under certain lease arrangements. The most directly comparable GAAP measure to capital expenditures is cash flow used in investing activities. The following table details the composition of capital expenditures and its reconciliation to cash flow used in investing activities.
Free Funds Flow
ARC uses free funds flow as an indicator of the efficiency and liquidity of ARC's business, measuring its funds after capital investment available to manage debt levels, pay dividends, and return capital to shareholders through share repurchases. ARC computes free funds flow as funds from operations generated during the period less capital expenditures. Capital expenditures is a non-GAAP financial measure. By removing the impact of current period capital expenditures from funds from operations, Management monitors its free funds flow to inform its capital allocation decisions. The most directly comparable GAAP measure to free funds flow is cash flow from operating activities. The following table details the calculation of free funds flow and its reconciliation to cash flow from operating activities.
Adjusted Net Capital Acquisitions
Adjusted net capital acquisitions is a non-GAAP financial measure used in the determination of FD&A costs, which is a non-GAAP ratio. Adjusted net capital acquisitions is useful as it provides a measure of cash, debt, and share consideration used to acquire crude oil and natural gas assets during the period, net of cash provided by the disposal of any crude oil and natural gas assets during the period. The most directly comparable GAAP measure to adjusted net capital acquisitions is acquisition of crude oil and natural gas assets. The following table details the calculation of adjusted net capital acquisitions and its reconciliation to acquisition of crude oil and natural gas assets.
Non-GAAP Ratios
Finding and Development Costs
ARC calculates F&D costs as capital expenditures divided by the change in reserves within the applicable reserves category. ARC calculates F&D costs, including FDC, as the sum of capital expenditures and the change in FDC required to bring the reserves on production, divided by the change in reserves within the applicable reserves category. Capital expenditures, a non-GAAP financial measure, is used as a component of F&D costs. Management uses F&D costs as a measure of capital efficiency for organic reserves development.
Finding, Development and Acquisition Costs
ARC calculates FD&A costs as the sum of capital expenditures and adjusted net capital acquisitions divided by the change in reserves within the applicable reserves category, inclusive of changes due to acquisitions and dispositions. ARC calculates FD&A costs, including FDC, as the sum of capital expenditures, adjusted net capital acquisitions, and the change in FDC required to bring the reserves on production, divided by the change in reserves within the applicable reserves category, inclusive of changes due to acquisitions and dispositions. Capital expenditures and adjusted net capital acquisitions, both non-GAAP financial measures, are used as components of FD&A costs. Management uses FD&A costs as a measure of capital efficiency for organic and acquired reserves development.
Recycle Ratio
ARC calculates recycle ratio by dividing the netback per boe by F&D or FD&A costs. Netback per boe is a non-GAAP ratio that uses netback, a non-GAAP financial measure, as a component. Capital expenditures, a non-GAAP financial measure, is used as a component of F&D costs. Capital expenditures and adjusted net capital acquisitions, both non-GAAP financial measures, are used as components of FD&A costs. Management uses recycle ratio to relate the cost of adding reserves to the expected cash flows to be generated.
Supplementary Financial Measures
Before-tax Proved plus Probable Net Present Value per Share
Before-tax 2P NPV per share is comprised of the before-tax NPV for 2P reserves, discounted at 10 per cent, as determined in accordance with NI 51-101, divided by divided by common shares outstanding at the end of the period.
2024 INDEPENDENT QUALIFIED RESERVES EVALUATION
GLJ conducted a Reserves Evaluation, effective December 31, 2024, which was prepared in accordance with definitions, standards, and procedures in the COGE Handbook and NI 51-101. The Reserves Evaluation was based on Three Consultant Average forecast pricing and foreign exchange rates at January 1, 2025, as outlined in the table below. These forecasts reflect current market conditions as defined by current forward commodity prices as at December 31, 2024. This aligns with the COGE Handbook, effective April 1, 2021, which states that major benchmark commodity price forecasts, up to and including the second full forecast year, should not deviate from current forward commodity prices by more than 20 per cent.
Reserves included herein are stated on a company gross basis (working interest before deduction of royalties without the inclusion of any royalty interest) unless otherwise noted.
ARC's crude oil and natural gas reserves statement for the year ended December 31, 2024, including complete disclosure of the Company's crude oil and natural gas reserves and other crude oil and natural gas information in accordance with NI 51-101, will be disclosed in ARC's Annual Information Form for the year ended December 31, 2024, which will be available on or before March 31, 2025 on ARC's website at www.arcresources.com and under ARC's SEDAR+ profile at www.sedarplus.ca.
Summary of Three Consultant Average January 1, 2025Forecast Prices and Inflation Rate Assumptions
Definitions of Oil and Gas Reserves
Reservesare estimated remaining quantities of crude oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on the analysis of drilling, geological, geophysical, and engineering data; the use of established technology; and specified economic conditions, which are generally accepted as being reasonable. Reserves are classified according to the degree of certainty associated with the estimates as follows:
Proved Reservesare those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
Probable Reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
Information Regarding Disclosure on Crude Oil and Natural Gas Reserves and Operational Information
In accordance with Canadian practice, production volumes and revenues are reported on a company gross basis, before deduction of Crown and other royalties, and without including any royalty interests, unless otherwise stated. Unless otherwise specified, all reserves volumes in this news release (and all information derived therefrom) are based on company gross reserves using forecast prices and costs.
This news release contains metrics commonly used in the crude oil and natural gas industry. These metrics do not have standardized meanings and may not be comparable to similar metrics disclosed by other issuers. See “Non-GAAP and Other Financial Measures” of this news release and the definitions of reserve replacement, reserves life index and finding and development costs below. Management uses these metrics for its own performance measurements and to provide shareholders with measures to compare ARC's performance over time; however, such measures are not reliable indicators of ARC's future performance and future performance may not compare to the performance in previous periods.
— Reserves replacement is calculated by dividing the annual reserves additions, in boe, by ARC's annual production, in boe. Management uses this measure to determine the relative change of its reserves base over a period of time.
— Reserves life index (“RLI”) is calculated by dividing the reserves by the average annual production for that period. Management uses this measure to determine the relative change of its reserves base over a period of time. PDP RLI is calculated by dividing the proved developed producing reserves by the average annual production for that period. 2P RLI is calculated by dividing the proved plus probable reserves by the average annual production for that period. Management uses this measure to determine the relative change of its reserves base over a period of time.
— Finding and development costs are calculated as capital expenditures divided by the change in reserves within the applicable reserves category. See “Non-GAAP and Other Financial Measures” for additional information about this metric.
This news release contains estimates of the NPV of the Company's future net revenue from reserves associated with ARC's assets. Such amounts do not represent the fair market value of such reserves. The recovery and reserve estimates provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. The NPV of the assets' base production is a snapshot in time and is based on the reserves evaluated using applicable pricing assumptions. It should not be assumed that the undiscounted or discounted NPV of future net revenue attributable to the assets represents the fair market value of those assets. The estimates for reserves for individual properties may not reflect the same confidence level as estimates of reserves for all properties due to the effects of aggregation. The recovery and reserve estimates of crude oil, natural gas liquids and natural gas reserves are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates relied upon for NPV calculations, herein.
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 regarding 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: ARC's intentions to return free funds flow to shareholders through the base dividend and share repurchases and the anticipated amounts thereof; ARC's 2025 capital budget and guidance including, among others, planned capital expenditures, anticipated free funds flow, anticipated average annual production and the components thereof, anticipated operating expenses, transportation expenses, G&A expenses before share-based compensation expense, G&A expenses, interest and financing expenses and current income tax as a per cent of funds from operations; expectations regarding base dividends and share repurchases; expectations with respect to Attachie Phase I, including anticipated production volumes, the components thereof and the anticipated timing and benefits related thereto; ARC's planned investments at Attachie Phase I; the amount and timing of investment in Attachie Phase II and anticipated benefits therefrom; the anticipated production volumes and the components thereof from Attachie Phase II; ARC's drilling plans and the anticipated timing thereof; ARC's development and investment plans at Kakwa and anticipated benefits therefrom; ARC's expectations regarding its ability to generate free funds flow and ability to reinvest funds from operations; ARC's expectations regarding production levels in 2025; ARC's expectations regarding transportation expense; the anticipated benefits of the Cedar LNG agreements and timing thereof; ARC's expectations regarding entering into a sale and purchase agreement for the entirety of ARC's LNG offtake associated with the Cedar LNG Project and the anticipated timing and benefits thereof; ARC's expectations regarding reaching its long-term market diversification strategy and anticipated timing thereof; ARC's 2025 outlook, the components thereof, expectations and the rationale behind such anticipated production and growth; anticipated production in the first quarter of 2025; anticipated runway for future reserves growth; net debt targets; expectations regarding operating expense per boe; and other statements. Further, statements relating to reserves and resources are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future. In addition, forward-looking information may include statements attributable to third-party industry sources. There can be no assurance that the plans, intentions, or expectations upon which these forward-looking statements are based will occur.
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. The material assumptions on which the forward-looking information in this news release are based, and the material risks and uncertainties underlying such forward-looking information, include: volatility of commodity prices; adverse economic conditions; political uncertainty; lack of capacity in, and/or regulatory constraints and uncertainty regarding, gathering and processing facilities, pipeline systems, and railway lines; indigenous land and rights claims; compliance with environmental regulations; risks relating to climate change, including transition and physical risks; ARC's ability to recruit and retain a skilled workforce and key personnel; development and production risks; project risks; risks relating to failure to obtain regulatory approvals; reputational risks; risks relating to a changing investor sentiment; asset concentration; risks relating to information technology systems and cyber security; risks related to hydraulic fracturing; liquidity; inflation, cost management and interest rates; third-party credit risks; variations in foreign exchange rates; risks relating to royalty regimes; the impact of competitors; lack of adequate insurance coverage; inaccurate estimation of ARC's reserve volumes; limited, unfavorable or a lack of access to capital markets; market access constraints or transportation interruptions, unanticipated operating results or production declines; increased debt levels or debt service requirements; increased costs; potential regulatory and industry changes stemming from the results of court actions affecting regions in which ARC holds assets; ARC's ability to successfully integrate and realize the anticipated benefits of completed or future acquisitions and divestitures; access to sufficient capital to pursue any development plans; that the 10 per cent advalorem rates of duty imposed by the Executive Branch of the United States Government on the importation of Canadian energy products into the United States after March 4, 2025 will not take effect; that the Canadian federal and provincial governments will not impose production curtailments or export controls or restrictions or other protectionist economic policies affecting the Canadian energy industry as a result of an escalation of any trade dispute with Canada's trading parties; forecast commodity prices and other pricing assumptions with respect to ARC's 2025 capital expenditure budget; assumptions with respect to ARC's 2025 guidance; ARC's ability to issue securities and to repurchase its securities under the NCIB; ARC's ability to continue purchasing under its NCIB; that conditions precedent to the liquefaction tolling services agreement with Cedar LNG Partners LP will be met; that the terms and conditions of the sale and purchase agreement to be entered into will be as expected; that the Cedar LNG project will be completed on the timelines anticipated; that counterparties to ARC's various agreements will comply with their contractual obligations; expectations and projections made in light of ARC's historical experience; data contained in key modeling statistics; assumptions with respect to global economic conditions and the accuracy of ARC's market outlook expectations for 2025; suspension of or changes to guidance, and the associated impact to production; forecast production volumes based on business and market conditions; the accuracy of outlooks and projections contained herein; that future business, regulatory, and industry conditions will be within the parameters expected by ARC, including with respect to prices, margins, demand, supply, product availability, supplier agreements, availability, and cost of labour and interest, exchange, and effective tax rates; projected capital investment levels, the flexibility of capital spending plans, and associated sources of funding; the ability of ARC to complete capital programs and the flexibility of ARC's capital structure; opportunity for ARC to pay dividends and the approval and declaration of such dividends by the Board; the existence of alternative uses for ARC's cash resources which may be superior to payment of dividends or effecting repurchases of outstanding common shares; cash flows, cash balances on hand, and access to ARC's credit facility and other long-term debt being sufficient to fund capital investments; the ability of ARC's existing pipeline commitments and financial risk management transactions to partially mitigate a portion of ARC's risks against wider price differentials; business interruption, property and casualty losses, or unexpected technical difficulties; estimates of quantities of crude oil, natural gas, and liquids from properties and other sources not currently classified as proved; future use and development of technology and associated expected future results; 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; the retention of key assets; the continuance of existing tax, royalty, and regulatory regimes; estimates with respect to commodity pricing; and other assumptions, risks, and uncertainties described from time to time in the filings made by ARC with securities regulatory authorities, including those risks contained under the heading “Risk Factors” in ARC's management's discussion and analysis for the year ended December 31, 2024.
ARC's future shareholder distributions, including but not limited to the payment of dividends, if any, and the level thereof is uncertain. Any decision to pay dividends on ARC's shares (including the actual amount, the declaration date, the record date and the payment date in connection therewith and any special dividends) will be subject to the discretion of the Board and may depend on a variety of factors, including, without limitation, ARC's business performance, financial condition, financial requirements, growth plans, expected capital requirements and other conditions existing at such future time including, without limitation, contractual restrictions and satisfaction of the solvency tests imposed on ARC under applicable corporate law. Further, the actual amount, the declaration date, the record date and the payment date of any dividend are subject to the discretion of the Board. There can be no assurance that ARC will pay dividends in the future.
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, including, but not limited to: production, capital expenditures, operating expenses, transportation expenses, G&A expenses before share-based compensation expense, G&A expenses – share based compensation expense, interest and financing expenses, and current income tax as a per cent of funds from operations. The internal projections, expectations, or beliefs are based on the 2025 capital budget, which is subject to change in light of ongoing results, prevailing economic conditions, commodity prices, and industry conditions and regulations. These financial outlook and other related forward-looking statements are also subject to the same assumptions, risk factors, limitations, and qualifications as set forth above. Any financial outlook and forward-looking information implied by such forward-looking statements are described in ARC's 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.sedarplus.ca and are incorporated by reference herein.
The forward-looking information contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking information included in this news release are made as of the date of this news release and, except as required by applicable securities laws, ARC undertakes no obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise.
About ARC
ARC Resources Ltd. is a pure-play Montney producer and one of Canada's largest dividend-paying energy companies, featuring low-cost operations. 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.comTelephone: (403) 503-8600Fax: (403) 509-6427Toll Free: 1-888-272-4900ARC Resources Ltd.Suite 1500, 308 – 4 Avenue SWCalgary, AB T2P 0H7
SOURCE ARC Resources Ltd.
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