Q3 BEAT; ATTACHIE STARTS EARLY; 2025 FCF EST. REVISED HIGHER
THE TD COWEN INSIGHT
The catalyst we had been waiting for has arrived. ARC announced first production at Attachie - and it came a month earlier than we had expected. 2025 guidance has lower capex and higher volumes than we had previously modeled. This drives higher-than- expected FCF in 2025E (12% FCF yield) with virtually all of that being returned to equity holders via the increased dividend and buybacks.
Event: Q3 Results. Attachie Producing. 2025 Budget Impact: POSITIVE
Minor Production Beat, Large CFPS Beat: Q4 averaged 327 mBOE/d, which was ~2.5% ahead of TD/Consensus (319 mBOE/d). CFPS of $0.99, was well ahead of our overly conservative $0.84 forecast and that of Consensus $0.88. The beat relative to our estimate was due to higher volumes, higher realized pricing, and lower overall cash costs.
Earlier-Than-Expected Start to Attachie: Attachie was commissioned late October, with current production of 20 mBOE/d (ramping up to capacity of ~40 mBOE/d). Previously curtailed (here) Sunrise volumes were "partially restored in mid-October".
Our View: This is the operational milestone we had been anticipating for some time. The startup is ~1 month earlier than we had anticipated and will likely result in stronger than previously expected Q4 results, which are now guided to be as high as 385 mBOE/d (versus our prior forecast of 381 mBOE/d).
Large Dividend Bump Likely Reflects Expected Future CF From Attachie: ARC's strategy is to nudge its dividend higher in conjunction with its share count reduction and growth. Through 2024, we model a 3% reduction in the share count, yet we received an outsized 12% bump in the base dividend to $0.76 annualized (3.3% yield).
Shareholder Friendly Return Outlook for 2025E: For 2025, in addition to the cash yield of 3.3%, we anticipate ARC will repurchase 8% of its shares outstanding, while growing production by ~6% (versus Q3 levels assuming Sunrise had been on stream).
2025 Capital Budget - Capex Midpoint Slightly Lower, Production Midpoint Slightly Higher: The newly introduced 2025 budget sees ARX spending $1.6-1.7bln in 2025 (versus TD at $1.7bln previously). Meanwhile, the 2025 production guidance was set at 380-395 mBOE/d (versus TD at 384 mBOE/d previously).