Quarterly / Earnings Reports | Second Quarter (2Q) Update | Capital Markets | Capital Expenditure | Drilling Program

ARC Resources IDs 2016 Drilling Plans; Cash Flow

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   |    Thursday,July 30,2015

ARC Resources Ltd. has reported its Q2 2015 operating and financial results. Second quarter production averaged 109,900 boe per day and funds from operations were $206.3 million ($0.61 per share).

Highlights 

• ARC achieved strong second quarter 2015 production of 109,900 boe per day, which was within the second quarter guidance range of 107,000 to 110,000 boe per day. Second quarter 2015 natural gas production of 426 MMcf per day was up seven per cent and crude oil and liquids production of 38,892 barrels per day was down 12 per cent compared to the second quarter of 2014. First half 2015 production of 115,098 boe per day was seven per cent higher than the first half of 2014, with natural gas production increasing 15 per cent to 443 MMcf per day as a result of new wells coming on-stream at Sunrise, and crude oil and liquids production decreasing six per cent to 41,310 barrels per day due to lower capital activity in response to declining crude oil prices.
• Construction of the new 60 MMcf per day Sunrise gas processing facility continued ahead of schedule and under budget. TransCanada Pipelines (TCPL) began construction of its sales meter station during the second quarter, which is slated to be completed in mid-August. Commissioning of the plant is expected to begin prior to the end of August 2015, however, actual timing will depend on the completion and tie-in of the sales meter station.
• Second quarter and first half 2015 capital expenditures, before land and net property acquisitions and dispositions, totalled $98.4 million and $227.9 million, respectively, and were focused primarily on ARC's Montney lands in northeast British Columbia. 
• ARC grew its Montney landholdings in the second quarter of 2015 with the addition of 89 net sections in the highly prospective Montney oil and liquids-rich natural gas Attachie area; increasing its total Attachie land position to 279 net Montney sections. ARC has been piloting production in the area since 2011, and is further encouraged by industry well results offsetting the newly acquired lands.

Drilling Plans/Activity

• ARC has plans to drill three wells on the newly acquired lands in the second half of 2015, and two additional wells on existing lands in the winter of 2015/2016, with completions and evaluation of results expected to take place in 2016.
• ARC drilled 12 gross operated wells in the second quarter of 2015 (five oil wells and seven natural gas wells) and 37 gross operated wells in the first half of 2015 (22 oil wells, 13 natural gas wells, and two liquids-rich natural gas wells). ARC's first half 2015 activity levels were significantly lower than 2014 levels as certain capital projects were deferred to future periods in response to the decline in commodity prices.

Divestment

• During the second quarter of 2015, ARC divested certain non-core shallow gas assets located in southern Alberta with associated production of approximately 2,400 boe per day (98 per cent natural gas) and 12 MMboe of proved plus probable natural gas reserves. The divested properties, which are characterized with a higher relative cost profile compared to ARC's natural gas properties in the Montney region, comprised approximately 2,200 gross shallow gas wells (1,600 net wells), significantly reducing ARC's well count and associated abandonment liability.
• ARC's core principle of operational excellence was demonstrated in the first half of 2015 through several on-going initiatives, which resulted in lower operating costs and improved capital and operating efficiencies. With the decrease in commodity prices, ARC is focused on cost management by pursuing opportunities to reduce capital and operating expenses and defer certain discretionary spending where appropriate. ARC's second quarter and first half 2015 operating costs of $8.05 per boe and $7.63 per boe were 12 per cent and 16 per cent lower than comparable periods in 2014, respectively, and were attributed to certain realized cost savings and the addition of new production at lower relative costs to operate.
• ARC closed the quarter with a strong balance sheet including $878.1 million of net debt outstanding. At June 30, 2015, ARC had available credit and cash of approximately $1.35 billion taking into account ARC's working capital surplus. Net debt to 2015 annualized funds from operations ratio was 1.1 times and net debt was approximately 11 per cent of ARC's total capitalization at the end of the second quarter; both metrics are well within ARC's target levels.

2015 Budget Adjustment

• In response to the deterioration in commodity prices, on April 29, 2015, ARC announced a decrease to its 2015 planned capital program to $550 million. The reduced budget enables ARC to preserve its strong financial position while remaining focused on the long-term and advancing key strategic projects. The 2015 capital program is focused primarily on profitable development in the British Columbia Montney region, as projects in this area provide the highest rates of return and meet our investment hurdle rates at current commodity prices. ARC continues to see significant long-term value throughout its asset base and will resume development activities in other areas as reduced service costs are secured and economic conditions improve. ARC's full-year average production is expected to be in the range of 113,000 to 116,000 boe per day, which takes into account reduced 2015 capital spending and the divestment of 2,400 boe per day of non-core shallow gas production early in the second quarter of 2015. 
• As a result of significantly reduced drilling and completions activities in the first half of 2015 and scheduled maintenance activities during the third quarter, ARC expects third quarter production to decline to 104,000 to 107,000 boe per day. Based on the planned start-up of the new Sunrise gas plant and expanded Tower oil battery, production is expected to increase to 122,000 to 126,000 boe per day in the fourth quarter.
  

2016 Capital Program

• Assuming a 2016 capital program of approximately $600 million, ARC expects that full-year 2016 production should be in the range of 122,000 to 126,000 boe per day. ARC is well-positioned to fund the planned 2015 capital program, expected 2016 capital activities, and the Phase III Dawson Gas Plant development in 2017, given its strong balance sheet and proceeds received from the issuance of equity earlier in the year.