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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ARC Resources Ltd

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Post by Westcoastenergyon Nov 07, 2024 10:32am

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Post# 36300994

Scotia very bullish $35 target

ARC Resources Ltd.

ARX-T: C$23.08
Target: C$35.00
Rating: Sector Outperform

Firing on All Cylinders — Q3/24 Cash Flows Well Ahead, Dividend Increased, and 2025 Capex Reduced

OUR TAKE: Positive. ARX delivered strong Q3/24 results, with AFF and FCF well ahead of expectations on higher production and lower cash costs and capex. The company’s formal 2025 guidance came in better than expected, with modestly lower capex and transportation costs. The Attachie project is well on its way, with current volumes at ~20 mboe/d and trending toward the full 40 mboe/d capacity. With the project sanctioned, ARX ramped up its share repurchases during Q3/24 (~5.0M shares repurchased for ~$119M; ~0.8% of the previous outstanding) and announced a ~12% dividend increase to 19¢/quarter (~3.3% yield). With operations firing on all cylinders, we expect the company to deliver strong FCF in 2025 ($1.5B to $1.8B; >170% y/y growth) and return essentially all of it to shareholders. Longer-term, we see the stabilization of sustaining capex at Attachie Phase 1 (ARX estimates ~$150M by 2027-2028) and the formal announcement of Phase 2 (likely in the 2026 budget for 2028 commissioning) as key catalysts for the stock.

KEY POINTS

Q2/24 results in line. Production of ~327 mboe/d (61% natural gas) came in near the high end of guidance and beat expectations by ~3%. Post hedging realizations of ~$37.23/boe were in line with consensus, while cash costs of ~$17.28/boe were ~9% better than expectations on lower royalties, transport costs, G&A, and cash taxes. AFF of $592M ($0.99/share) beat the Street by ~12% on the higher volumes and lower costs. Capex of $459M was just below consensus expectations and contributed to FCF of $134M beating by >130%. See Exhibits 2 and 3 for detailed results versus consensus expectations (Positive).

2025 guidance features lower capex. ARX set its 2025 capital budget and production guidance at $1.6B to $1.7B (down from the preliminary range of$1.7B to $1.8B) and 380 mboe/d to 395 mboe/d (same mid point as the preliminary 375 mboe/d to 400 mboe/d range), respectively. The company lowered its transport cost range by ~50¢ versus its 2024 guidance (2025 at $5.00/boe to $5.50/boe). ARX confirmed its 2024 guidance and expects Q4/24 production to average 380 mboe/d to 385 mboe/d with contributions from the Attachie project and the restoration of the shut-in volumes from Sunrise (Positive).