Post by
retiredcf on Sep 04, 2024 9:10am
CIBC
Have a $34.00 target. GLTA
EQUITY RESEARCH
September 4, 2024 Flash Research
ARC RESOURCES LTD.
Ops Update: Attachie Phase 1 Remains On Track And
Production Guidance Lowered For Q3
Our Conclusion
We take the update as mixed for ARC with Q3 production guidance adjusted lower, however the updates from Attachie look favorable to us, with drilling and plant construction indicated to be more than 90% complete. ARC also
announced a non-core, non-Montney asset disposition for $80MM, using the proceeds to repurchase shares. ARC also renewed its NCIB to purchase up to 10% of its outstanding shares and we expect the company to ramp up its share buyback activities in the coming months as capital spending
moderates. The stock trades at 4.3x 2025E EV/DACF versus peers at 3.6x on the CIBC price deck.
Key Points
Third-quarter production guided lower with continued shut-ins at
Sunrise. ARC lowered its Q3/24 production guidance to 315 MBoe/d - 330 MBoe/d from 330 MBoe/d - 335 MBoe/d, prior. This is below our estimate of 332.6 MBoe/d and consensus of 332.8 MBoe/d; however, we do not expect a material impact to Q3/24 cash flow estimates given the continued weakness
in natural gas prices. The company noted that lower production will drive lower capital spending in 2025 and hence increase free cash flow, all else being equal.
Attachie remains on track for Q4/24 commissioning. Project updates appear to be favorable in our view. The gas plant is noted as being greater than 90% complete. ARC has drilled 37 of the 40 initial wells, while 28 wells have been fracture stimulated.
Non-core asset disposition provides additional cash for share
repurchases. ARC announced the sale of non-core, non-Montney assets for total cash proceeds of $80MM. The company expects the proceeds from the transaction will be put towards share buybacks.
Share buybacks likely to accelerate in Q4/24. ARC renewed its NCIB to purchase up to ~59.4MM of its outstanding shares (10% float) in the next 12 months. We believe the company is poised to deliver strong free cash flow as Attachie Phase 1 comes online in Q4/24, which should see an acceleration of
buybacks.