PREDICTABLE Q2/24, WITH ATTACHIE ON TRACK
THE TD COWEN INSIGHT
We generally favour C5+ rich and light-oil exposed producers relative to more gas-weighted options until the supply balance tightens and inventory levels normalize. Within this logic, ARC remains our TOP PICK for condensate-weighted entities. Looking out to 2025, ARC will be done with the capital associated with Attachie Phase 1 and start benefiting from the higher volumes/CF/FCF from the project.
Event: Reports Q2/24 Results, Curtails Sunrise Gas, but Guidance Unchanged Impact: SLIGHTLY POSITIVE
Q2/24 Operating and Financial Results as Expected: ARC reported Q2/24 production of 330 mBOE/d, which was in line with TD (331 mBOE/d) and consensus (328 (mBOE/d). CFPS of $0.84 was also generally in line with our forecast ($0.82) and exactly in line with consensus ($0.84). Volumes were down 6% q/q. Recall that production was impacted by planned maintenance at Kakwa (Kakwa contracted 16 mBOE/d q/q), which had already been reflected in our forecasts.
Curtails 0.25 Bcf/d at Sunrise (Dry Gas). Guidance Unchanged, but Targeting the Low End of Prior Range: ARC announced that it is curtailing (beginning mid-July) 0.25 Bcf/d of natural gas at Sunrise due to weak pricing (despite its view of full-cycle supply cost of $1.10/mcf). With efficiency improvements seen on the property (40% higher IP365 volumes at 25% more capital), the asset appears to have outperformed expectations.
Our View
This represents ~two-thirds of Sunrise's Q2A gas production. In our view, the curtailments: i) avoid further exacerbating the oversupplied WCSB; ii) are another example of Canadian producers' unwillingness to supply gas to the market regardless of price (other examples include the recent completion deferrals from both TOU and CNQ); and iii) could provide additional production tailwinds into 2025, resulting in lower-than- forecast capex.
We anticipate flat (but slightly more liquids-weighted) production in Q3/24 due to newly announced curtailments, then forecast volumes ramping up materially (~15%) in Q4/24 with the restoration of the curtailed Sunrise volumes (pricing-dependent), and then some contribution from Attachie.
Attachie Budget and Timing Reiterated: ARC reiterated the planned timing of Attachie's official startup (Q4/24) and the full capacity (~40 mBOE/d) milestone (Q1/25). Work at the project is nearing completion, with 3/4 of the planned 40 Phase 1 wells now drilled and 1/2 of the planned wells already completed.
Our View: Although the company is planning a site tour in early October, we understand that the project will not be running. Electrical work will continue into December.