ARC Resources Ltd T.ARX

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June 5, 2024

ARC Resources Ltd.
Highlights from the RBC Global Energy, Power & Infrastructure Conference

TSX: ARX | CAD 24.72 | Outperform | Price Target CAD 28.00

Sentiment: Neutral

We hosted Terry Anderson (President & Chief Executive Officer), Kristin Cerny (VP Finance) and Ryan Berrett (Senior VP Marketing) at the RBC Global Energy, Power & Infrastructure Conference in New York, with discussions mainly revolving around its core Attachie development, LNG prospects and the broader M&A market.

• KeyConferenceTakeaways.ThemajorityofthesessioncovereddevelopmentsatAttachie,wherethecompanyhasdrilled25/40 wells required to fill Phase 1 (~40,000 boe/d), with the prospect over time potentially as large as Kakwa (~180,000 boe/d) in up to 5 phases. Liquids pipelines are 80-90% complete and plant construction (notably electrical instrumentation) is progressing on schedule. The company noted that Attachie Phase 2 is still to be expected onstream for 2028. Price wise, ultimately the goal is to hold roughly 25-30% of LNG-exposed price points (currently LNG Canada Phase 1 and Cheniere contracts are in place).

• Return of Capital - Remains the Focus. ARX distributed $117mm via dividends ($102mm) and share buybacks (0.6mm shares for $15mm) during the first quarter. ARX returned 96% of its FCF (net of divestitures) to shareholders in 2023. We expect that return of capital to shareholders will increase following the completion and commissioning of Attachie Phase 1.

• 2024 & 2025 Outlook. ARX reiterated its 2024 capital budget of $1.8 billion (mid-point) driving FY24 volumes of 355 mboe/ d (mid-point). The company also reiterated its 2025 production guidance of 388 mboe/d (mid-point) on capital of $1.7bn. Cumulative capex in 24/25 equates to roughly 63% of projected AFFO on our RBC deck with the remaining earmarked for shareholder returns. The company noted that it continues to evaluate strategic marketing agreements that would ultimately be synergistic to its plans in 2024 and beyond.

• Commodity price exposure. ARX has a commodity mix of 63% natural gas, 36% NGLs, 1% oil for 2024. The company has hedged ~28% of its natural gas for 2024, with ~38% of its natural gas marketing allocation to NYMEX and the US Midwest, ~11% to Malin and ~43% to the WCSB with its average hedged price of C$3.30/mcf. The company's recent market diversification highlights signing of an MOU with Cedar LNG (2027+), Cheniere Energy (2027+), LNG Canada (2025+) which poises the company to have global LNG pricing exposure in the coming years and looking to pursue more LNG deals in the future.

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Really liking this report.  Especially this part: " The company has hedged ~28% of its natural gas for 2024, with ~38% of its natural gas marketing allocation to NYMEX and the US Midwest, ~11% to Malin and ~43% to the WCSB with its average hedged price of C$3.30/mcf."  NYMEX is up 30% this month on already better than WCSB pricing and Malin is always a cash cow especially