bad energy day all around but promising future....Scotia, as with others, has ARC as a top pick.
Q2/24 Results in Line and 2024 Guidance Confirmed; Dry Gas Volumes Curtailed to Preserve Value
OUR TAKE: Slight Positive. ARX delivered solid Q2/24 results, with production and AFF in line with expectations. Capex came in ~4% below the Street, resulting in a slightly lower outspend versus consensus. The company confirmed its 2024 guidance with production expected at the low end of the range due to the curtailment of ~250 mmcf/d of dry gas at Sunrise. Despite Sunrise’s position as one of the lowest cost gas assets in North America, we believe ARX is absolutely making the right decision to shut in volumes. We applaud the company’s decision to reduce its contribution to an oversupplied gas market and preserve molecules for a better price environment. Looking ahead, we see the production ramp at Attachie as the key near-term catalyst for ARX. We expect the company to ramp up its buyback as it winds down its project spending and see potential for a dividend increase in Q4/24.
KEY POINTS
Q2/24 results in line. Production of ~330 mboe/d (65% natural gas) hit the high end of guidance and was in line with expectations. Post hedging realizations of ~$35.48/boe came in ~5% below expectations, but lower-than-expected royalty expenses and current income taxes offset the deficit and put AFF of $503M ($0.84/share) in line with expectations. Capex of $532M was ~4% below consensus, resulting in a smaller-than-expected outspend ($29M). See Exhibit 1 for detailed results versus consensus expectations (Neutral).