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ARC Resources Ltd T.ARX

Alternate Symbol(s):  AETUF

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

Post by MyHoneyPoton Jan 09, 2022 5:30pm
408 Views
Post# 34298335

Model ARX should Pursue - Example

Model ARX should Pursue - ExampleRerating for TOU and they Transform the Energy Space
Energy stock are significant undervalued, and a repricing is about to hit the marketplace.

Royalty Structure

Royalty Companies like Topaz and Freehold royalties claim to be trusts, that pay dividends. They are tied to the same commodity prices, they carry low debt, usually less than 1X Adjusted Income, and they pay out 43% in the case of Freehold and 54% in the case of Topaz of their adjusted Income to shareholders. For this they get a share value that is somewhere between 17-19 times the divided paid. ( FRU 43%, TPZ 54% payout)
 
Share Buybacks

Share buybacks are an effective tool if your stock is significantly undervalued, for example if you were going to move your company to a Royalty Structure, you would want to buy back as many shares as you could as quickly as possible. However, if you spend two years buying back your share, you may miss your window of opportunity, the timing might be wrong, or you are at the wrong end of the business cycle. (Generally my opinion is that Management does not want to return capital to share holders or are not confident they can provide a sustainable dividend, so they pursue share buy back, My Opinion)
 
Energy Stocks are Transitioning to Trusts Models

Look at what TOU has done, they have reduced their debt to eight hundred million however they have TPZ shares that pay them 50 million a year, and the Topaz shares themselves are worth 930 million, so TOU is debt free.
 
What Should Management Objective Be? What is Management Doing?

Really you need / want to maximize the value of your stock for shareholders. (TOU)

Capital Budget      - includes growth                                             (Capital all accounted for)
Debt                        - zero net debt                                                (No debt focus)
Share Float            -  three hundred and thirty  million shares.     (No Share Buyback required)
Dividend Income   -   fifty million in annual dividends from TPZ  (Dividend Income)
 
How would TOU look like a Trust

Debt          -They have zero net debt better than any current Trust. (Zero )
Float          -They have reasonable share float. (330 million shares)
Growth      - Growth built into the Capex (Moderate Growth is part of the plan 3%)
Dividends  - TPZ provides 50 million in interest.
Income      -  They have 2262 million of adjusted income projected ( $74 WTI, $3.82/Mcf U.S)
 
Dividends

In 2021 TOU paid out $1.75 a share in dividends.
This is based on 330 million shares about 577 million dollars or 25% for the 2022 adjust income projection. 

TOU now has no other objectives but to return capital to shareholders and maximize the share value. 
 
Using TPZ as a comparison 54% Adjusted Income Payout

Topaz returns 54% of its adjusted income to share holders and they trade at 19X the dividend paid (5.29%).
TOU paid 2262 * .54 = 1221 million in dividends or TOU $3.70 share

TOU stock should trade at least $70.30. (Using these metrics)
 
Using TPZ  metrics as a comparison TOU pays out 75% Adjusted Income Payout

TOU paid 2262 * .75 = 1696 million in dividends or TOU $5.14 share

The stock should trade at least $97.60 based on TPZ evaluation.  
 
Rerating is In Order


  • TOU has no need to accumulate any more cash.
  • Production increases will not be rewarded by shareholders.
  • They need to be a reliable generator of sustainable dividends.
 
TOU will have a better model that Royalty Trust, growth is built into their Capex, and they can pay all the funds out, they have no debt or share purchase objectives that they need to pursue.
 
IMHO
 

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