Quarterly / Earnings Reports | Second Quarter (2Q) Update

Arc Resources Reports Q2 2019 Results, Ops Update

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   |    Wednesday,July 31,2019

ARC Resources Ltd. reported its Q2 2019 results.

Ops Review

ARC's position in the Montney resource play is made up of approximately 1,100 net sections of land (approximately 707,000 net acres), with production from these assets representing greater than 90 per cent of total corporate production. ARC's history of disciplined execution in the Montney has positioned the Company to deliver excellent capital and operating efficiencies and generate strong rates of return on its projects. Owned-and-operated infrastructure affords ARC greater control over costs and the degree of its liquids recovery, strong safety and environmental performance, and the ability to manage a flexible pace of development. ARC looks to optimize well designs and maximize well value, pursue technological advancements, and work with service providers to preserve its competitively low cost structure. ARC is a leader in sustainability practices and is committed to reducing its GHG emissions intensity and freshwater usage through responsible development activities. ARC actively monitors market conditions and executes a strategy that proactively secures takeaway capacity for future development projects, mitigates the impact of third-party infrastructure outages, and diversifies ARC's sales portfolio to ensure that production gets to market at optimal pricing.

Capital Expenditures

ARC invested $174.2 million, before land and net property acquisitions and dispositions, to drill 23 liquids-rich wells and complete six wells, and invest in infrastructure in the second quarter of 2019. ARC's first half 2019 capital investment of $387.9 million, before land and net property acquisitions and dispositions, was directed at drilling 44 wells (32 liquids-rich wells and 12 oil wells) and completing 34 wells. ARC continues to invest in the advancement of ARC's next major phase of development at Dawson Phase IV, as well as the Dawson Phase I & II and Ante Creek 10-36 facility upgrades.

With its 2019 capital program of $700 million, ARC continues to focus on capital discipline, and will maintain production through existing facility infrastructure at or near capacity while investing in building out future processing capacity.

The following table outlines the number of wells drilled and completed in each of ARC's core operating areas for the first half of 2019.

Production

ARC's average daily production in the second quarter of 2019 was 134,938 boe per day, comprised of 28,502 barrels per day of light oil and condensate, 7,041 barrels per day of NGLs, and 596 MMcf per day of natural gas. As expected, production was three per cent lower than the first quarter of 2019, with planned maintenance activities and third-party pipeline outages causing decreases in natural gas production at Dawson and Sunrise. Crude oil and liquids production was higher than the first quarter of 2019 due to increased light oil production at Ante Creek and increased condensate production at Parkland/Tower.

Average daily production of 136,985 boe per day in the first half of 2019 was made up of 27,487 barrels per day of light oil and condensate, 7,111 barrels per day of NGLs, and 614 MMcf per day of natural gas. Average daily production increased six per cent relative to the first half of 2018 and was predominantly the result of ARC's continued focus on the liquids-rich lower Montney horizon at Dawson and Parkland, and increased natural gas production at the Sunrise Phase II facility. Partially offsetting these increases to production was the disposal of approximately 4,700 boe per day of non-core production throughout 2018.

ARC anticipates that production will ramp up through the second half of 2019 with final transportation arrangements expected to come into effect at Sunrise in the second half of 2019, and with initial production from the first four wells of a new multi-well pad at the liquids-rich Attachie West area planned to be brought on-stream in the fourth quarter of 2019. Full-year 2019 average daily production is expected to be within the guidance range of 136,000 to 142,000 boe per day.

Dawson

ARC's flagship Dawson property in northeast British Columbia is a low-cost Montney natural gas and liquids-rich natural gas play where ARC has a land position of 137 net sections (approximately 89,000 net acres). The Dawsonplay delivers strong economics and cash flows at prevailing commodity prices.

ARC conducted its first major turnaround at the Dawson Phase III gas processing and liquids-handling facility in the second quarter of 2019. The turnaround, which was scheduled to coincide with third-party pipeline maintenance, was completed ahead of schedule and under budget. Due to the planned downtime associated with the turnaround, production at Dawson decreased eight per cent relative to the first quarter of 2019 to average 43,500 boe per day. Second quarter 2019 production was comprised of 237 MMcf per day of natural gas, 2,500 barrels per day of condensate, and 1,500 barrels per day of NGLs.

ARC continues to focus its development at Dawson on the higher liquids areas of the field, and invested $148 million during the first half of 2019 to drill 20 wells, complete five wells, and to advance work on the two key infrastructure projects being developed in the area. The Dawson Phase I & II liquids-handling upgrade is being developed to support ARC's broad shift to liquids-rich lower Montney development. A 10-day outage is planned at the facility during the third quarter of 2019 to allow for the completion of the upgrade, which is expected to be operational by year-end 2019. At Dawson Phase IV, pile driving activities and shop fabrication of major equipment continued in the second quarter of 2019. The facility remains on schedule to be brought on-stream in the second quarter of 2020.

Parkland/Tower

ARC's Parkland/Tower property is a Montney play in northeast British Columbia that consists of 94 net sections (approximately 61,000 net acres), which produce predominantly light oil and condensate with liquids-rich gas. With contiguous lands, the Parkland and Tower areas share ARC owned-and-operated infrastructure and processing capacity.

Production at Parkland/Tower averaged 32,600 boe per day in the second quarter of 2019, representing an eight per cent increase from the first quarter of 2019 due to new wells being brought on production during the period. Production was comprised of 9,200 barrels per day of light oil and condensate, 3,600 barrels per day of NGLs, and 119 MMcf per day of natural gas. Of the 32,600 boe per day produced in the second quarter of 2019, 5,000 boe per day (approximately 45 per cent condensate and NGLs) was directed to the Dawson Phase III facility for processing and sales via the Parkland-Dawson interconnect pipeline.

Capital investment at Parkland/Tower in 2019 is primarily focused on driving strong cash flow generation. ARC invested $112 million during the first half of 2019 to drill eight wells and complete 13 wells. New wells at Tower are now being classified as condensate-rich natural gas wells.

Sunrise

ARC has a land position of 32 net sections at Sunrise (approximately 21,000 net acres), a prolific dry natural gas Montney play in northeast British Columbia, where production averaged 165 MMcf per day in the second quarter of 2019. Second quarter production was 10 per cent lower than the first quarter of 2019 due to third-party pipeline restrictions and outages that affected ARC's operations in the period. To protect the area's netback, ARC continues to manage its Sunrise production levels depending on prevailing natural gas prices.

During the second quarter of 2019, ARC successfully redirected 60 MMcf per day of existing natural gas production that had previously been processed through a third-party facility to ARC's operated Sunrise Phase II gas processing facility. With the repatriation of these volumes, ARC expects to realize a significant reduction in the area's operating expense with the elimination of third-party processing fees. An additional 60 MMcf per day of incremental processing capacity at the Sunrise Phase II facility will be available once final transportation arrangements come into effect in the second half of 2019. The timing of the production being brought on-stream will be commodity-price dependent.

ARC invested $25 million at Sunrise during the first half of 2019 to complete and tie-in nine natural gas wells to the Sunrise Phase II facility.

Attachie

ARC's Attachie property is a Montney condensate and liquids-rich natural gas play located in northeast British Columbia where ARC has a land position of 308 net sections (approximately 202,000 net acres). With its condensate-rich production profile, significantly over-pressured reservoir, large contiguous land position, and proven multi-layer development potential, Attachie West remains an attractive investment opportunity within ARC's portfolio. Production at Attachie West averaged 3,000 boe per day in the second quarter of 2019, comprised of 1,500 barrels per day of condensate and 8 MMcf per day of natural gas.

The work currently being completed at Attachie West is advancing the asset towards commercialization in the most economic manner possible. ARC invested $47 million at Attachie West during the first half of 2019, which included the drilling of a 10-well pad in the second quarter of 2019 as well as infrastructure investments. The multi-well pad is focused on well design optimization to maximize well productivity and improve capital efficiencies. Completion activities for four of the 10 wells are scheduled to commence in the third quarter of 2019, with initial production expected in the fourth quarter of 2019. The liquids processing capacity at Attachie West's battery is 3,500 barrels per day and natural gas production is currently being processed through third-party infrastructure.

Capital investment in the first half of 2019 was also focused on advancing the planning for the Attachie West Phase I gas processing and liquids-handling facility. This included obtaining regulatory approval for construction of multiple phases of development in the area, as well as approval for the sales line that will tie into the North Montney Mainline. Construction of the ARC owned-and-operated access road, which extends over 20 kilometers and will help reduce the area's operating expense and improve capital efficiencies, is nearing completion.

Ante Creek

ARC has a land position of 314 net sections at Ante Creek (approximately 201,000 net acres), a Montney light oil play in northern Alberta that generates strong cash flows and profitable returns. Second quarter 2019 production increased 10 per cent relative to the first quarter of 2019 to average 16,400 boe per day (approximately 50 per cent light oil and liquids), which was the result of new wells being brought on production during the quarter.

ARC invested $41 million during the first half of 2019, which was directed at drilling six oil wells, completing seven wells, and advancing the Ante Creek 10-36 facility expansion project. The facility expansion, which will allow ARC to grow its light oil volumes in the area, remains on schedule to be brought on-stream in the second quarter of 2020.

Pembina

ARC's Alberta Cardium assets in Pembina deliver high-quality, light oil production, and generate attractive cash flows with major infrastructure already in place. ARC has a land position of 217 net Cardium sections in Pembina (approximately 139,000 net acres), where second quarter 2019 production averaged 10,100 boe per day, of which over 80 per cent was light oil and liquids production. Approximately $7 million of capital was invested during the first half of 2019, with ARC's current focus at Pembina being to manage production declines and maximize cash flow generation through modest drilling programs.

Outlook

ARC's revised 2019 capital program of $700 million is focused on capital discipline and maintaining ARC's strong financial position and dividend. The 2019 budget includes investment in multi-year infrastructure development projects that will add facility capacity at Dawson in northeast British Columbia and at Ante Creek in northern Alberta; production associated with these infrastructure projects is expected to be added in 2020. ARC plans to maintain its existing facility infrastructure at or near capacity in 2019, with annual average production expected to be in the range of 136,000 to 142,000 boe per day. Additional details on ARC's 2019 revised capital program can be found in the June 20, 2019 news release entitled, "ARC Resources Ltd. Updates Its 2019 and 2020 Capital Expenditure Plans". This news release was an update and did not restate all of the budgetary information that did not change from ARC's original 2019 budget. Please refer to the November 8, 2018 news release entitled, "ARC Resources Ltd. Announces $775 Million Capital Program for 2019 That Will Advance Multi-year Infrastructure Development Projects at Attachie West, Dawson, and Ante Creek". Both news releases are available on ARC's website at a href="http://www.arcresources.com/" rel="nofollow">www.arcresources.com and as filed on SEDAR at a href="http://www.sedar.com/" rel="nofollow">www.sedar.com.

ARC will continue to take steps to mitigate expected commodity price volatility, including managing its pace of development, focusing on capital and operating efficiencies, executing financial and physical marketing diversification programs, and to protect its strong financial position, with a targeted net debt to annualized funds from operations ratio of between 1.0 and 1.5 times. ARC will continue to screen projects for profitability and will adjust investment levels and the pace of development, if required, to ensure balance sheet strength is protected.

ARC's capital budgets exclude land purchases and property acquisitions and dispositions. ARC will continue to pursue opportunities to consolidate its land position and grow its presence in key operating areas through land purchases and property acquisitions, and evaluate its asset portfolio on a continuous basis with a view to selling assets that do not meet ARC's investment guidelines. Through the normal course of business, acquisitions and dispositions may occur that could impact the expected production for the year.

The following revisions have been made to ARC's full-year 2019 guidance estimates:

• Total production is expected to be in the range of 136,000 to 142,000 boe per day, with crude oil and condensate production expected to be in the range of 26,000 to 30,000 barrels per day and NGLs production expected to be in the range of 6,500 to 7,000 barrels per day. The guidance for natural gas production is unchanged and is expected to be in the range of 620 to 630 MMcf per day.
  
  
• Operating expense has been reduced to a range of $5.00 to $5.35 per boe to reflect cost savings realized through the first half of 2019 and to better represent the Company's current operating expense levels.
  
  
• Transportation expense has been increased to a range of $2.90 to $3.10 per boe as ARC continues to mitigate the impact of third-party pipeline outages and optimize its netback by securing additional downstream transportation arrangements.
  
  
• G&A expense relating to ARC's share-based compensation expense has been reduced to a range of $0.20 to $0.35 per boe to reflect the impact that ARC's lower share price had on ARC's share-based compensation expense in the first half of 2019.
  
  
• Interest expense has been reduced to a range of $0.75 to $0.90 per boe to better represent ARC's anticipated interest expense for the balance of 2019.
  
  
• Current income taxes have been reduced to a range of a recovery of three per cent to an expense of two per cent of funds from operations due to the benefit realized on the Accelerated Investment Incentive deductions becoming substantively enacted in the first half of 2019, as well as an expected decrease in taxable income related to decreased commodity prices and a reduction in the Alberta general corporate income tax rate.

Other Updates

ARC achieved strong financial and operational results in the second quarter of 2019, delivering average daily production of 134,938 barrels of oil equivalent ("boe") per day and generating net income of $94.4 million ($0.27per share) and funds from operations ⁽¹⁾ of $193.0 million ($0.54 per share). ARC's lower Montney development activities continue to grow the Company's high-value condensate production, driving a six per cent increase in crude oil and liquids production in the second quarter of 2019 relative to the first quarter of 2019 to total 35,543 barrels per day. As expected, the impacts of planned maintenance activities and third-party pipeline maintenance and outages in the second quarter of 2019 resulted in natural gas production decreasing six per cent relative to the first quarter of 2019 to total 596 MMcf per day.

During the period, ARC adjusted its planned 2019 capital expenditure program from $775 million to $700 million. The adjusted capital expenditure program is consistent with ARC's principles to maintain a strong balance sheet, deliver a sustainable dividend to shareholders, and demonstrate capital discipline amidst a volatile commodity price backdrop. The 2019 capital program advances construction of the Dawson Phase IV gas processing and liquids-handling facility, the Company's next major development project, which is anticipated to be brought on-stream in the second quarter of 2020. ARC plans to maintain production through existing facility infrastructure at or near capacity in 2019, with annual average production expected to be in the range of 136,000 to 142,000 boe per day.

ARC recently announced a reduction to its planned 2019 capital program from $775 million to $700 million and its planned 2020 capital program to a range of $550 million to $625 million. The Dawson Phase IV project will be completed by mid-year 2020. This new project will provide additional funds from operations to further strengthen ARC's long-term business. With this investment completed, excess funds from operations after dividends and sustaining capital ⁽²⁾ will be used to consider options such as debt reduction and future development opportunities.

Commodity Prices

ARC employs an integrated approach to its physical marketing and financial risk management programs, which is underpinned by a strong understanding of market fundamentals. ARC uses market fundamental analysis to set a view on the outlook for commodity prices to drive decisions across the business. This detailed analysis provides the basis for ARC's financial hedging and physical marketing strategies, which help to reduce cash flow volatility, diversify price risk, and also supports ARC's strategic planning and budgeting processes. ARC regularly monitors commodity prices and market conditions and has the flexibility to adjust the investment levels and pace of development of its capital plans accordingly to protect its strong financial position.

Crude Oil and Condensate

Average global crude oil prices increased in the second quarter of 2019, with supply levels impacted by OPEC members' compliance with output cuts and US-imposed sanctions on Iran and Venezuela, and demand levels impacted by the ongoing trade dispute between China and the US. Locally, Canadian crude oil differentials remained relatively narrow throughout the period, with the Alberta government continuing to limit local producers' crude oil output. While ARC's physical oil production has not been impacted by the mandated production curtailment, its corporate crude oil and condensate realizations have benefited from the tighter differentials. The majority of ARC's crude oil production is made up of conventional light oil and condensate, which continue to realize premium pricing relative to heavier crude oil grades.

Natural Gas

US production neared record highs and western Canadian production was adversely impacted by third-party pipeline maintenance activities in the second quarter of 2019, causing relative weakness across all major North American natural gas benchmark prices. ARC maintains a strategy to physically and financially diversify its realized natural gas price to multiple North American downstream sales points in order to mitigate the impact of pricing volatility and to increase exposure to more attractive markets. Approximately 48 per cent of ARC's corporate natural gas volumes are exposed to a combination of US Midwest, Henry Hub, Malin, and Dawn pricing hubs in 2019, and 24 per cent of corporate natural gas volumes are exposed to AECO and Station 2 prices. The remaining 28 per cent is financially hedged. As a result of this diversification strategy, ARC seeks to capture higher margins for its natural gas production than if it were solely exposed to local markets.

Financials

Balance Sheet and Capital Allocation

ARC is disciplined in maintaining financial flexibility through its strong balance sheet, with $829.2 million of net debt ⁽¹⁾ outstanding at June 30, 2019, and a net debt to annualized funds from operations ratio of 1.1 times. Including its working capital surplus, ARC had an additional $1.3 billion of cash and credit capacity available at the end of the second quarter of 2019. ARC's credit facility was undrawn at June 30, 2019.

In 2019, ARC expects to generate funds from operations ⁽¹⁾ in excess of its 2019 dividend obligations of approximately $210 million and its sustaining capital ⁽²⁾ requirements of approximately $400 million. Funds from operations in excess of dividend and sustaining capital requirements, and the redeployment of cash proceeds from previously completed non-core dispositions, are being invested in key development projects at Dawson and Ante Creek.

Net Income (Loss)

ARC recognized net income of $94.4 million ($0.27 per share) in the second quarter of 2019 compared to net loss of $54.6 million ($0.15 per share) in the first quarter of 2019. The quarter-over-quarter increase in earnings is primarily attributed to a reduction in the unrealized loss recorded on the mark-to-market of ARC's risk management contracts, an increase in total income tax recoveries related to the benefit realized on the Accelerated Investment Incentive deductions and reduced provincial tax rates becoming substantively enacted in the period, and lower G&A expense, reflecting the decrease in the fair value of ARC's share-based compensation plans due to the depreciation in ARC's common share price during the second quarter of 2019. The impact of these items was partially offset by a decrease in commodity sales from production.

ARC recognized net income of $39.8 million ($0.11 per share) in the first half of 2019 compared to net income of $9.0 million ($0.03 per share) in the first half of 2018. The increase in earnings is primarily attributed to an increase in income tax recoveries and an increase in unrealized gain on foreign exchange resulting from the revaluation of ARC's US dollar-denominated debt. Partially offsetting these items was no recorded gain from the disposal of non-core assets in the first half of 2019 compared to a gain recorded in the first half of 2018, and lower commodity sales from production.

Funds from Operations

ARC recorded funds from operations of $193.0 million ($0.54 per share) in the second quarter of 2019, representing an increase of $6.8 million ($0.01 per share) relative to first quarter 2019 funds from operations of $186.2 million ($0.53 per share). The quarter-over-quarter increase was made up of several offsetting items, with increased cash tax recoveries ($0.07 per share), improved commodity sales revenue from crude oil and liquids ($0.06 per share), and lower G&A expense ($0.03 per share), all increasing funds from operations. Lower commodity sales revenue caused by lower natural gas prices ($0.18 per share) reduced funds from operations in the second quarter of 2019 relative to the first quarter of 2019.

ARC recorded funds from operations of $379.2 million ($1.07 per share) in the first half of 2019, a decrease of $26.2 million ($0.08 per share) relative to first half 2018 funds from operations of $405.4 million ($1.15 per share). Lower commodity sales from crude oil and liquids due to both a decrease in volumes and pricing, a reduced realized gain on risk management contracts, and increased transportation expense were the primary drivers in lower funds from operations year-over-year. Partially offsetting these items were higher commodity sales from natural gas due to higher volumes and improved pricing, and lower current tax expense, royalties and operating expense.

The following table details the change in funds from operations for the second quarter of 2019 relative to the first quarter of 2019 and the first half of 2019 relative to the first half of 2018.

Physical Marketing and Financial Risk Management

Driven by the quarter-over-quarter increase in benchmark crude oil and condensate prices, ARC's crude oil and liquids production comprised 67 per cent of total commodity sales revenue in the second quarter of 2019. The majority of ARC's liquids production is made up of conventional light oil and condensate, which realized average pricing of $70.26 per barrel and $71.38 per barrel, respectively. For the first half of 2019, ARC's crude oil and condensate production comprised 58 per cent of total commodity sales revenue, and realized average pricing of $67.01 per barrel and $68.47 per barrel, respectively.

In managing its natural gas price risk exposure, ARC's physical diversification and financial risk management activities have helped to increase ARC's exposure to more attractive North American markets and enhance corporate natural gas price realizations. ARC's financial risk management program provides additional cash flow protection. Summarized in the following table are the positive impacts that ARC's physical natural gas diversification and financial risk management activities had on the Company's realized natural gas price for the three and six months ended June 30, 2019.

The total realized gain on risk management contracts for the three and six months ended June 30, 2019 was $24.2 million and $44.5 million, respectively, and the fair value of ARC's risk management contracts at June 30, 2019was $104.5 million. ARC will continue to monitor commodity prices and execute on its risk management program to reduce the volatility of its funds from operations and to support its dividend and capital program. For details pertaining to ARC's risk management program and for a summary of the average oil and natural gas volumes associated with ARC's risk management contracts as at June 30, 2019, refer to Note 13 "Financial Instruments and Market Risk Management" in ARC's financial statements.

Netback

Summarized in the following table are the components of ARC's netback for the second quarter of 2019 relative to the first quarter of 2019 and the first half of 2019 relative to the first half of 2018.

ARC's netback and ARC's netback including gain on risk management contracts decreased 17 per cent and 13 per cent, respectively, in the second quarter of 2019 relative to the first quarter of 2019. The decrease in ARC's netback is primarily due to the weakening of natural gas prices in the period.

ARC's netback and ARC's netback including gain on risk management contracts decreased 15 per cent and 16 per cent, respectively, in the first half of 2019 relative to the first half of 2018. The decrease in ARC's netback is due to lower crude oil and liquids pricing, and is partially offset by a year-over-year decrease in ARC's royalties and operating expense.

ARC's royalties for the second quarter of 2019 decreased 16 per cent from the first quarter of 2019 and reflect the sliding scale effect that lower natural gas prices had on royalty rates. ARC's royalties for the first half of 2019 decreased 44 per cent from the first half of 2018 and reflect the sliding scale effect that lower crude oil and liquids prices had on royalty rates. The year-over-year decrease also reflects the increase in ARC's natural gas production, which is generally subject to lower relative royalty rates compared to crude oil and liquids production. ARC's royalties for the three and six months ended were $15.7 million and $34.7 million, respectively.

ARC's operating expense for the second quarter of 2019 decreased four per cent from the first quarter of 2019. Lower-than-expected costs incurred to conduct the first major turnaround at the Dawson Phase III facility, the successful repatriation of 60 MMcf per day of natural gas production at Sunrise, and the deferral of planned maintenance and workover activities due to wet weather conditions were the primary contributors to the quarter-over-quarter decrease in ARC's operating expense. ARC's operating expense for the first half of 2019 decreased 20 per cent from the first half of 2018 and is the combination of bringing on new Montney production with lower relative costs to operate, and disposing of non-core assets with higher relative costs to operate throughout 2018. ARC's operating expense for the three and six months ended June 30, 2019 was $62.0 million and $127.6 million, respectively.

ARC's transportation expense for the second quarter of 2019 was relatively unchanged from the first quarter of 2019, whereas ARC's transportation expense for the first half of 2019 increased 14 per cent relative to the first half of 2018. The year-over-year increase in transportation expense primarily reflects higher trucking charges and pipeline tariffs related to increased condensate and natural gas volumes associated with new production in northeast British Columbia. Additionally, tariffs for transportation agreements, which have been temporarily assigned to a third party as part of ARC's physical marketing diversification efforts, increased transportation expense, however these costs are directly offset by increases to commodity sales from production. There is no impact to ARC's netback or funds from operations as a result of these agreements. ARC's transportation expense for the three and six months ended June 30, 2019 was $36.8 million and $73.8 million, respectively.

Sustainability Performance

Responsible development practices have been engrained in ARC's long-term strategy of risk-managed value creation since inception. Strong environmental and health and safety performance underpins ARC's sustainable future growth.

ARC continues to differentiate itself as a leader in producing some of the lowest GHG emissions per unit of boe production within the Canadian energy industry. Since 2017, ARC has invested in facility and multi-well pad electrification projects at its Dawson, Parkland, and Sunrise fields. As a result of these investments, ARC's GHG emissions intensity was reduced by 17 per cent relative to 2017, to 0.019 tonnes of CO₂ equivalent per boe in 2018. During this same time frame, absolute GHG emissions were reduced by 11 per cent despite production increasing by eight per cent. ARC is on track to achieve its 25 per cent GHG emissions intensity reduction target by the end of 2021, relative to its 2017 baseline levels.

ARC is committed to responsible water management. In the second quarter of 2019, ARC completed its three-year plan to invest $55 million on water-related projects, which were executed with the overall objective of improving capital efficiencies, reducing operational risks, and increasing the recycling of produced water for the Company's hydraulic fracturing operations. As part of this plan, ARC successfully constructed and added a combined 700,000 cubic metres of water storage capacity in the Ante Creek, Dawson, Parkland, and Sunrise fields. ARC also completed construction of an ARC owned-and-operated produced water recycling facility in Parkland, allowing for the reuse of nearly all of the produced water from the field. ARC expects robust economic returns on this investment and anticipates that it will reduce water access costs and risks as ARC continues to develop its core operating areas. As a result of these investments, ARC's freshwater usage was reduced by 25 per cent from 2017 to 2018, with now approximately 20 per cent of the Company's water requirements coming from non-produced sources.

Strong safety and spill management performance also continue to be critical components of ARC's strong sustainability performance. In 2018, ARC recorded zero lost-time incidents for its employees and contractors, and reduced the Company's total spill volumes by 65 per cent from 2017 to 2018.