ARC Resources Ltd T.ARX

ARC should trade 60% higher

[MyHoneyPot]

Here are some thoughts, in a comparison with TOU which is their most like company.

Arc produced 335,701 boe a day, while TOU sold 414.387 boe equivalent of energy a day.

Arc value of their boe is 34.90 while TOU value is 24.67

This means that an  ARC boe is worth 41.46% more than an ARC boe.

This means that CF wise.

 Arc = 34.90 * 335,701 *90 = $1,054,436,841  More cash flow for ARC 
TOU= 24.67 * 414387 *90 =    $920,063,456

This means that ARC Produced 15% more Cash Flow than Tourmaline.


Operation Costs

ARC = Op cost 4.53 Trans 4.49  Royalties 3.02  = 22.86    + Hedge Loss = 20.89  50.7% uplift
TOU = Op cost 3.70 Trans 3.99  Royalties 1.51  = 15.47    + Hedge Loss = 13.86
 
So every boe that ARC produces they get 50% more dollars than TOU


This is essentially FFO, Funds From Operations without all the balance sheet stuff, and management compensations and other income sources.

(Hedge Losses Included)
So essentially

ARC FFO  =  22.86 * 335,701  boe * 90day = 690,671,237   33% more FFO than TOU
TOU FFO =  13.86  * 414387   boe * 90day = 516,906,343
 
Comments

• Tou hedging loss was $1.60 a boe compare to Arc 1.97 a boe
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• Arc’s costs are higher but they are process 3X the liquids
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• TOU underspent this quarter in Capex while are has a average capex quarter they outspent TOU by 80 million in the quarter on Capex.
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• Tourmaline has a market cap of 11 Billion Arc market cap is 6.8 billion, tourmaline is trading at a 62% premium to ARC and I believe ARC out performed it this quarter.
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• Both have good balance sheet and TOU has off loaded debt in monetization of assets in Topaz and ARC still own all assets and have no royalty overrides. (Kakwa alone has 3 billion worth of infrastructure)

Conclusion

Arx had a great quater and should be trading 60% higher to have the same market evaluation at TOU, but ARC generates more cash flow, more FFO, and is worth a whole lot more money than TOU in my opinion. The are currently producing 33% more FFO than Tourmailine, they spent 80 million more capex this quater. 

If the capex spend was the same ARC and TOU would generate very similar cash flow. TOU report the number a little different than ARC.

ARC should be a 17 dollar stock. 

Up UP and Away

IMHO

[PabloLafortune]

is the Q2 unrealized hedging loss $453M? If so thats $14 a barrel. And if Q3 and Q4 commodity prices are higher, not only is that $453M not coming back but a lot of it becomes realized while more unrealized is added to the kitty.

[sunsurfer11]

My understanding how it works...they have to mark up or down the npv of the entire hedge to market conditions...so the hedge is now carried at todays prices...if tomorrow price increases..more loss..if tomorrow price goes down..the you have a hedge gain..the entire hedge to the last barrel is shown at market now..no expecting much more loss unless ng goes to $5

[PabloLafortune]

Thank you. Not easy for me to follow but yes it will come out in the wash as part of realized losses later so its double counting of sorts. Btw, Tourmalines unrealized was $164M in Q2. Implies that they have a lot less hedges and will benefit more than ARX in a rising price environment and vice versa. ARC essentially hedges 4x more. Also reviewing the md&a, corp netback for ARX was $17.82

[Robertboblaw]

If we are able to pay down a sizeable amount of debt go forward, anyone think tracking 50% of the value of TOU is possible?

[Robertboblaw]

Ignore my post about tracking the value of TOU. Let's just get that debt paid down imo go forward.

[Robertboblaw]

The ceiling on the oil/condy hedges in 2022 improve to almost $60. Im not 100% sure how these types of hedges with floors and ceilings work, but if the true ceiling is $58 with no added "complexities" or whatever that could bring it down, it's not a deal breaker imo. Anyone feel free to comment on next year's hedges if I'm off base. Even if oil prices maintain or go say 10

[Robertboblaw]

I'm going to put some work on these hedges next while, to work out how their hedging position might improve/not improve going forward compared to Q2. Also these types of hedges If I'm not mistaken are more complex than traditional hedges so it wouldn't hurt to familiarize myself with them going forward.

[altagold]

ARC SHOULD TRACK TOU,   ARC  SHOULD BE A $20 STOCK IF TOU IS  AT  $30   ARC HAS MORE UPSIDE IN SHARE PRICE UP UP AND AWAY WE GO