ARC Resources Ltd T.ARX

MHP take on the results

[MyHoneyPot]

Very high cashflow number in fact i think i was on record guessing 600 million in FCF, so 603 million is in the ball park. 

Hedging

Hedging realized losses were 272 million, this means if ARX didn't have those losses their FCF would likely of been around 900 million dollars. (272 - 27.2 royalities = 300 million)

Instead because they had 317 million in unrealized hedging losses budgeted, they generated a hedging gain of 39.6 million (Accounting Magic). Just accounting mubo jumbo, meaning they over estimated what the hedging loss would be for the year by 39.6 million. 

Total heding losses for 2022 were 1279 million add 10% royality costs Hedge related losses 1.4 Billion approximately. (A industry record)

Kakwa Wells

ARX drilled 26 wells at Kakwa in Q4, and only completed 9. For the year they compled 81 well at Kakwa and ended the year with Kakwa producing 188,100 boe/day with more than 70,000 boe/day of condensate. Arc ended the year with at least 23 wells at Kakwa drilled not completed DUCS

So Kakwa looks ready for a good run in 2023 190-200 thousand a day. 

2023 Year to Shine

Oil prices are ok, but condensate premium has been like 9 dollars for January, so condensate is off to a good start in 2023 with people forcasting 120 WTI. 

Hedging losses will be significantly reduce in 2023, like they might loose about 1/4 of what they lost in 2022 on hedges. 

Capex is quite a bit higher in 2023, and it does not include Attachie if they get an agreement there. 

So i think that ARX is finally off to the races, should be a 25 dollar stock soon.

IMHO

[clamlinguine]

The girl who comments on the technical aspects of drilling sounded strong on the call, and was very positive on kakwa. I believe she said there are presently 1000 potential drill sites and they need 60 to 80 wells per year to maintain present production (180,000 boe?)

[Sunsurfer12]

MHP..looking at their cashflow stmt..they had a $317m gain (not loss) on unrealized hedges...an unrealized gain is a deduct from cashflow from what i remember?..at least the way i read it unless i should get off the sauce?  

[MyHoneyPot]

It looks to me like they took a big loss at the beginning of the year and called it unrealized hedging loss, it was essentially a forcast of the yearly hedge loss they anticipated.  Now in Q4 So from a cashflow perspective they get a realized loss that is real and impacts the FCF for that quarter. However for the income statement the unrealized hedging loss was greater than the actual loss

[Sunsurfer12]

Think your about mostly right..to simplify..in current q you have realized loss or gain depending on actual settled value..in current quarter you also forecast expected future gain or loss whoch is the unrealized gain or loss and this is adjisted quarterly.  When you have a gain or loss on your unrealized position in the quarter..then this is added back or subtracted from cash as its not a

[Squint1]

"Hedging realized losses were 272 million, this means if ARX didn't have those losses their FCF would likely of been around 900 million dollars. (272 - 27.2 royalities = 300 million)" Hedging losses or gains do not increase or decrease royalties.  Provincial governments are not not going to compensate you for hedging gains or losses.  As below FCF would be $880.9

[MyHoneyPot]

Oil at 100 dollars hedged at $50              Royality rate = 10% Receive $50 dollars for the sale of the boe of oil. You still pay $10 dollars in royality for that BOE of oil ( effective 20% royality rate) So the royality impact on the hedge commodity, means if oil is selling for a 100, and you receive 50 and still have to pay 10 dollars in royality, you

[Squint1]

Your earlier example showed the hedging losses being reduced by $27.2 million for the effect of royalties on the hedging losses.  There would be no such change and cash flow would be $880.9 million - not the $900 you quote.  See my calculation.

[MyHoneyPot]

Effectively if you hedge at 50 and oil is selling at 100, and royalities are 25%. The value you get for every boe is 25 dollars. unhedged boe of oil you would receive 75 dollars in revenue. hedged boe of oil you would receive 25 dollars.  So the hedged barrel is encumbered with a greater percentage of royalities then the unhedged boe. IMHO

[Quintessential1]

I think he may be right here mhp.  Using your analogy. $100 oil sold hedged at $50  10% royalty pay $10 royalty collect $40 and a $50 hedge loss. net $40 $100 oil sold at $100 unhedged 10% royalty pay $10  royalty collect $90 no hedge loss net $90 It is hypothetical anyway and the royalties do not add or subtract as much as the hedging. We get that the hedging sucked (whose

[iwpete]

in other words if an E&P co wants to do the right thing all they have to do is the opposite of what ARX does

[Squint1]

Hedging is a double edged sword that reduces risk.  For Q1 2023, they should be benefiting from the hedges given the low level of gas prices now.