Post by
retiredcf on Sep 27, 2024 9:17am
CIBC
Have a $34.00 target. GLTA
EQUITY RESEARCH
September 26, 2024 Company Update
ARC RESOURCES LTD.
An Early Look At Attachie: Valuation Thoughts And Public Data
Insights
Our Conclusion
While we see consensus estimates reflecting a successful ramp-up of the
project in the next six months, we continue to see Attachie Phase 1 as being
a meaningful catalyst for ARC. We expect the free cash flow will drive
incremental cash returns to shareholders through 2025 and 2026, which
would be supportive for the stock. With the ramp-up of the project rapidly
approaching, we provide an overview of Attachie Phase 1 in this publication,
and expect to provide incremental views following the site tour next week.
Key Points
Satellite imagery shows a nest of activity at Attachie Phase I. ARC
indicated at the beginning of September that its plant construction is over
90% complete. The company also indicated it has drilled 37 of the initial 40
wells required for startup, with 28 wells having been fracture stimulated.
Satellite imagery captured in August 2024 corroborates the bulk of
equipment in place at the Attachie gas plant. The site is also expected to
have water recycling capability, and has two large storage reservoirs. ARC
has a license to draw up to 1,250 e3m3 per year from the Halfway River to
support oil and gas activities.
Public data demonstrates condensate volumes poised to increase over
the coming months. While we are careful not to put too much weight on
well results that have limited run time, we do see promising initial tests in the
public domain. An average initial condensate weighting of ~55% in public
data is consistent with ARC’s messaging of a 60% liquids weighting at
Attachie. We expect that this will support strong economics from the project,
particularly with the prevailing weakness in natural gas pricing.
The Landscape Planning Pilot (LPP) introduced by the Halfway River
First Nation (HRFN) is consistent with ARC’s approach to development.
The pilot was introduced in June 2024 and aims to mitigate cumulative
effects of oil and gas development. The pilot uses a collaborative approach
with project proponents and the BC government, which balances treaty rights
and economic development. We view the LPP as a positive for Attachie as it
outlines a clear framework for managing industrial development across a
large portion of ARC’s land base.
Net asset value depth remains sizeable for ARX, with Attachie Phase 1
potentially representing ~$5/share. On our base commodity price deck, we
calculate a net asset value for ARC at ~$39/share. Attachie overall is a
sizeable portion of our NAV, and on a standalone basis we value Phase 1 of
Attachie at ~$5/share