ARC Resources Ltd T.ARX

Alternate Symbol(s): AETUF

Energy Oil & Gas E&P

ARC Resources Ltd. is a Canadian energy company. It is focused on the exploration, development, and production of unconventional natural gas, condensate, natural gas liquids (NGLs), and crude oil in western Canada. Its operations are focused in the Montney region in Alberta and northeast British Columbia. Its operations in Alberta are located near Grande Prairie and the region includes Kakwa and Ante Creek. Kakwa is a condensate-rich and high-deliverability natural gas play with top-tier development opportunities. Its operations in northeast British Columbia are located near Dawson Creek and the region includes Greater Dawson, Sunrise, Attachie, and Septimus and Sundown. The Greater Dawson operating area includes Dawson Phases I, II, III and IV and Parkland. The Attachie is a condensate-rich, natural gas play primed for large-scale development. Sunrise is a dry natural gas play with a low-cost structure, well deliverability and direct connectivity to liquefied natural gas Canada.

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Post by retiredcfon Mar 04, 2021 8:52am

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Post# 32713253

More RBC

March 3, 2021

Whitecap Resources Inc.
Outlining the merits of a Pembina consolidation

Our view: We have outlined a hypothetical acquisition of ARC's Pembina Cardium asset, which we believe would make sense strategically, aligning well with Whitecap's focus on sustainability improvement. The Pembina package would be accretive on key metrics, adds scale in a core play, and eliminates complications associated with corporate consolidation.

Key points:

Pembina Cardium asset now considered 'non-core' by ARC. Following ARC's combination with VII (note here; covered by Michael Harvey), we anticipate the company to remain focused on its Montney asset base, which over time we believe could result in the divestiture of its Pembina Cardium asset. The asset consists of 205 net sections of land (88% w.i.), with production expected to average 6,500 boe/d (79% oil/ liquids) in 2021 on limited capital investment. PDP reserves currently sit at 31 mmboe (84% oil/liquids) with 2P of 55 mmboe (83% oil/ liquids). Pembina carries asset retirement obligations of ~$220 million undiscounted, amounting to about 15% of WCP corporately, which would likely factor into an acquisition price.
Sustainability profile would fit nicely within Whitecap's portfolio. In Exhibits 2-4 we have mapped out and plotted the decline profile of WCP's current asset base alongside ARC's Pembina asset. Pembina has been on active waterflood since December 2012, and exhibits a decline profile similar to that of WCP's broader production base. In addition, we believe limited investment in 2021 will enhance the sustainability characteristics of the asset (i.e. decline rate of ~15%). WCP currently has a strong foothold and significant internal expertise in the Cardium, which we expect would make integration seamless.
Accretive to production and CFPS at several price scenarios. Based on recent oil-weighted transaction metrics (Exhibit 5), we would view a bid price in the range of $20-30k/boe/d as reasonable. In our view, WCP could comfortably accommodate the $130-200 million acquisition with available credit facility capacity. Using the mid-point, we see strong accretion metrics with CFPS increasing 7%, production per share increasing 6%, and FCF increasing 9%. We have outlined several potential acquisition scenarios in Exhibit 6.
Plenty of liquidity to accommodate acquisitions. Assuming a deal would be funded with internal credit capacity, we forecast WCP to hold about $1.1/$0.5 billion in net debt at year-end 2021E/22E, mapping to a D/CF ratio of 1.0x/0.4x. This compares to our base case (pre- deal) estimate of 1.0x/0.3x, respectively, with incremental leverage quickly offset by the strong free cash flow characteristics of the Pembina Cardium asset.
Outperform recommendation. We maintain our Outperform rating and price target of $7.50/share. Whitecap shares trade at 4.5x/3.2x 2021E/22E EV/DACF vs peers at 3.5x/2.4x. In our view, a premium multiple is warranted by strong sustainability metrics, ample financial liquidity, and a seasoned management team.