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.

TSX:ARX - Post by User

ARC Resources Ltd

<< Previous

Bullboard Posts

Next >>

Post by retiredcfon May 26, 2021 8:18am

122 Views

Post# 33266292

TD Notes

Shareholders Feeling Stranded by Cabot's Direction Change...

Own ARX & TOU as High Quality, "Pre-merger Cabot" Alternatives For those who like liquids diversification, they offer that too

TD Investment Conclusion

Cabot (COG-US), the preeminent NEPA Marcellus pure-play, announced Monday that it has agreed to merge with Permian/Mid-Con E&P Cimarex (not covered) creating an entity with regional/play-type/commodity diversity. This change in strategy has likely stranded some shareholders. Cabot's share price declined 8% since the announcement. For those seeking alternative investment options to the pre-merger Cabot, we highlight two Canadian entities — ARC Resources (ARX-T) and Tourmaline Oil (TOU-T). Relative to pre-merger Cabot, both ARX and TOU are in many ways comparable and in some ways superior, specifically they offer:

Comparable Size, but Bigger Contributors to Domestic Supply: For 2022, we forecast Cabot's pre-merger production to be 392 mBOE/d (100% gas). For comparison, we forecast FY-2022 production of 348 mBOE/d for ARX and 438 mBOE/d for TOU. There was a time that Cabot offered superior scale, but following a bout of Canadian consolidation, this dynamic has changed. ARC and Tourmaline respectively control 8% and 13% of WCSB/Canadian gas supply. Cabot controls 8.5% of Appalachian supply and 2.6% of total U.S. volumes. [Exhibit 1]
Significant Running Room to Support Growth: One headwind facing Cabot was that market participants had started questioning the depth of the company's inventory due to parent/child degradation and future reliance on Upper Marcellus. In contrast, both ARC and Tourmaline offer comparable or materially larger footprints of land and significantly more undrilled inventory with scalable, capital- ready developments waiting in the wings. Specifically, ARX's next leg of material development will be from Attachie, while Tourmaline is incubating greater Conroy. [Exhibit 2]
Higher Supply Costs, but Comparable Per-BOE Full-cycle Profitability: On a full-cycle basis, we calculate that ARX (pro forma VII) can add production at a cost of $23.44/BOE (trailing two-year PDP F&D + 2022E cash costs), TOU can add volumes at $16.69/BOE and Cabot at $8.24/BOE. Given that ARX/TOU volumes are more liquids-weighted, we forecast full-cycle profitability per BOE of ARX/TOU to exceed pre-merger COG. [Exhibit 3]
Stronger FCF After Sustaining Capital: In the current post-growth environment, investors were attracted to Cabot's FCF and its strategy to return that FCF to investors. We highlight that both ARC and Tourmaline are generating more FCF in absolute terms ($mm), per BOE and per dollar of capital invested in the equity. [exhibits 4 & 5]
Comparably Low Balance Sheet Leverage: Cabot's balance sheet stood apart from its Appalachian peers with pre-merger YE-2022E D/CF of 0.3x. However, the Canadian peers have comparably robust balance sheets, with ARX/TOU having investment-grade credit and low leverage metrics — ARX (0.8x YE-2022E D/CF), TOU (0.3x YE-2022E D/CF). [exhibits 6 & 7]
ARX/TOU Trading at Lower Valuations than Pre-merger COG (Strip Pricing): Based on 2022E EV/DACF, ARX is trading at 3.7x, TOU at 4.0x, and COG at 4.9x.