CALGARY, AB, Feb. 9, 2022 /CNW/ - (TSX: ARX) ARC
Resources Ltd. ("ARC" or the "Company") today reported its fourth
quarter and year-end 2021 financial and operational results as well
as its year-end 2021 reserves.
2021 was a transformative year for ARC, marked by the
acquisition of Seven Generations Energy Ltd. ("Seven Generations"),
which closed on April 6, 2021 (the
"Business Combination"). Coupled with its solid financial position,
ARC delivered a record-low operating expense and the highest free
funds flow per share in its 25-year history, illustrating the
underlying profitability and quality of ARC's business.
HIGHLIGHTS
Fourth Quarter 2021 Results
- ARC recognized net income of $678
million ($0.96 per share),
compared to net income of $121
million ($0.34 per share)
during the fourth quarter of 2020.
- ARC delivered average production of 345,831
boe(1)(2) per day (62 per cent natural gas and 38 per
cent crude oil and liquids) to generate cash flow from operating
activities of $669 million and funds
from operations of $834
million(3) ($1.19
per share)(4).
- ARC's market diversification activities and enhanced scale
continued to drive strong price realizations. ARC's average
realized natural gas price of $6.45
per Mcf(4) was $1.51 per
Mcf greater than the average AECO 7A Monthly Index price, while
ARC's average realized condensate price was $96.90 per barrel(4).
- Cash flow used in investing activities was $269 million. ARC invested $375 million into capital
expenditures(5), which were allocated across the
Company's Alberta and northeast
British Columbia ("BC") assets,
and included accelerating approximately $50
million of its 2022 capital expenditure budget for Attachie
West Phase I to begin securing long-lead items. Accordingly, ARC's
2022 capital expenditure guidance has been lowered to a range of
$1.15 to $1.25
billion.
- ARC generated free funds flow of $459
million(5) ($0.65
per share)(6), returning $289
million ($0.41 per share), or
63 per cent to shareholders through a combination of dividends and
share repurchases. The remaining free funds flow generated in the
period was used to strengthen ARC's balance sheet, with ARC exiting
2021 with long-term debt of $1.7
billion and net debt of $1.8
billion(3) or 0.8 times funds from
operations(3).
Year-end 2021 Results
- ARC recognized net income of $787
million ($1.25 per share) in
2021, compared to a net loss of $547
million ($1.55 per share) in
2020. Cash flow from operating activities was $2.0 billion and funds from operations were
$2.4 billion ($3.85 per share).
- ARC maintained its industry-leading safety performance,
surpassing eight years without an employee lost-time incident, and
delivered an operating expense of $3.86 per boe(4), the lowest annual
operating expense per boe in the Company's 25-year history,
reflecting the low cost structure associated with owning and
operating its infrastructure.
- ARC executed its 2021 capital program safely and efficiently.
Cash flow used in investing activities totalled $808 million, with capital expenditures of
$1,062 million delivering record
annual average production of 302,003 boe per day (63 per cent
natural gas and 37 per cent crude oil and liquids).
- ARC successfully integrated Seven Generations and has now
captured approximately $190 million
in synergies, significantly surpassing initial expectations of
$110 million in annual savings due to
synergies of the Business Combination.
- ARC advanced its marketing strategy by entering into its first
long-term gas supply agreement to deliver approximately 150 million
cubic feet ("MMcf") per day of natural gas from ARC's Sunrise
facility to an LNG Canada participant. The agreement, as previously
announced in November 2021, will
commence with the start-up of LNG Canada.
- Free funds flow per share was the highest in ARC's 25-year
history. ARC generated $1.4 billion
($2.16 per share) of free funds flow,
which included nine months of contribution from the Kakwa asset
acquired through the Business Combination. ARC delivered an 18 per
cent return on average capital employed(7)
("ROACE").
- ARC declared dividends of $181
million or $0.286 per
share(4) in 2021, and since September 2021, has repurchased 33.6 million of
its common shares outstanding at a weighted average price of
$11.34 per share for total
consideration of $381 million.
Year-end 2021 Reserves(1)(8)
- ARC nearly doubled its reserves volumes and tripled its
reserves value through high-value liquids additions from the
Business Combination and strong organic additions across ARC's
portfolio. Year-end 2021 proved producing ("PDP") reserves
increased by 88 per cent to 503 million boe ("MMboe"), total proved
("TP") reserves increased by 96 per cent to 1,185 MMboe, and proved
plus probable ("2P") reserves increased by 90 per cent to 1,761
MMboe at year-end 2021.
- ARC's before-tax net present value ("NPV") of 2P reserves,
discounted at 10 per cent, substantially increased to $15.9 billion or approximately $23.00 per share(9) at December 31, 2021. The year-over-year increase
was driven by additions from the Business Combination, positive
organic technical revisions, and stronger average commodity prices.
ARC's 2P NPV is based on the development of approximately 15 per
cent of the Company's total internal inventory estimate;
Attachie comprises less than four
per cent of total 2P locations.
ARC's audited consolidated financial statements and notes
(the "financial statements") and Management's Discussion and
Analysis ("MD&A") as at and for the three months and year ended
December 31, 2021, are available on ARC's website at
www.arcresources.com and under ARC's SEDAR profile at
www.sedar.com. The disclosure under the section "Non-GAAP and Other
Financial Measures" in ARC's MD&A as at and for the three
months and year ended December 31,
2021 (the "2021 Annual MD&A") is incorporated by
reference into this news release.
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(1)
|
ARC has adopted the
standard six thousand cubic feet ("Mcf") of natural gas to one
barrel ("bbl") of crude oil ratio when converting natural gas to
barrels of oil equivalent ("boe"). Boe may be misleading,
particularly if used in isolation. A boe conversion ratio of 6
Mcf:1 bbl is based on an energy equivalency conversion method
primarily applicable at the burner tip and does not represent a
value equivalency at the wellhead. Given that the value ratio based
on the current price of crude oil as compared to natural gas is
significantly different than the energy equivalency of the 6:1
conversion ratio, utilizing the 6:1 conversion ratio may be
misleading as an indication of value.
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(2)
|
Throughout this news
release, crude oil ("crude oil") refers to light, medium, and heavy
crude oil product types as defined by National Instrument 51-101
Standards of Disclosure for Oil and Gas Activities ("NI
51-101"). Condensate is a natural gas liquid as defined by NI
51-101. Throughout this news release, natural gas liquids ("NGLs")
comprise all natural gas liquids as defined by NI 51-101 other than
condensate, which is disclosed separately, with the exception of
reserves data presented under the section "2021 Reserves".
Throughout this news release, crude oil and liquids ("crude oil and
liquids") refers to crude oil, condensate, and NGLs.
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(3)
|
See "Non-GAAP and
Other Financial Measures" in the 2021 Annual MD&A for
information relating to this capital management measure, which
information is incorporated by reference into this news
release.
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(4)
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See "Non-GAAP and
Other Financial Measures" in the 2021 Annual MD&A for an
explanation of the composition of this supplementary financial
measure, which information is incorporated by reference into this
news release.
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(5)
|
Non-GAAP financial
measure that is not a standardized financial measure under
International Financial Reporting Standards ("IFRS") and may not be
comparable to similar financial measures disclosed by other
issuers. See "Non-GAAP and Other Financial Measures" in the
2021 Annual MD&A for information relating to this non-GAAP
financial measure, which information is incorporated by reference
into this news release. See "Non-GAAP and Other Financial
Measures" of this news release for the most directly comparable
financial measure disclosed in ARC's current financial statements
to which such non-GAAP financial measure relates and a
reconciliation to such comparable financial measure.
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(6)
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Non-GAAP financial
ratio that is not a standardized financial measure under IFRS and
may not be comparable to similar financial measures disclosed by
other issuers. Free funds flow, a non-GAAP financial measure, is
used as a component of the non-GAAP financial ratio. See
"Non-GAAP and Other Financial Measures" in the 2021 Annual
MD&A for the non-GAAP financial ratio for the comparative
period and other information relating to this non-GAAP financial
ratio, which information is incorporated by reference into this
news release.
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(7)
|
Non-GAAP financial
ratio that is not a standardized financial measure under IFRS and
may not be comparable to similar financial measures disclosed by
other issuers. Adjusted earnings before interest and taxes and
average capital employed, each non-GAAP financial measures, are
used as components of the non-GAAP financial ratio. See
"Non-GAAP and Other Financial Measures" in the 2021 Annual
MD&A for the non-GAAP financial ratio for the comparative
period and other information relating to this non-GAAP financial
ratio, which information is incorporated by reference into this
news release.
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(8)
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GLJ Ltd. ("GLJ")
conducted an Independent Qualified Reserves Evaluation ("Reserves
Evaluation"), effective December 31, 2021, which was prepared in
accordance with definitions, standards, and procedures in the
Canadian Oil and Gas Evaluation ("COGE") Handbook and NI 51-101.
The Reserves Evaluation was based on GLJ forecast pricing and
foreign exchange rates at January 1, 2022.
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(9)
|
See "Non-GAAP and
Other Financial Measures" of this news release for an
explanation of the composition of this supplementary financial
measure, which information is incorporated by reference into this
news release.
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FINANCIAL AND OPERATIONAL RESULTS
|
Three Months
Ended
|
Year
Ended
|
(Cdn$ millions,
except per share amounts(1), boe amounts,
and common shares outstanding)
|
September
30,
2021
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December
31,
2021
|
December
31,
2020(2)
|
December
31,
2021
|
December
31,
2020(2)
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FINANCIAL
RESULTS
|
|
|
|
|
|
Net income
(loss)
|
53.6
|
678.0
|
120.8
|
786.6
|
(547.2)
|
Per share
|
0.07
|
0.96
|
0.34
|
1.25
|
(1.55)
|
Cash flow from
operating activities
|
615.0
|
668.7
|
201.1
|
2,006.5
|
655.7
|
Per
share(3)
|
0.85
|
0.95
|
0.57
|
3.20
|
1.86
|
Funds from
operations
|
765.4
|
833.6
|
212.0
|
2,415.4
|
667.6
|
Per share
|
1.06
|
1.19
|
0.60
|
3.85
|
1.89
|
Free funds
flow
|
497.0
|
458.7
|
135.3
|
1,353.6
|
324.4
|
Per share
|
0.69
|
0.65
|
0.38
|
2.16
|
0.92
|
Dividends
declared
|
47.1
|
69.5
|
21.3
|
181.4
|
106.3
|
Per share
|
0.066
|
0.10
|
0.06
|
0.286
|
0.30
|
Cash flow used in
investing activities
|
228.8
|
268.7
|
79.3
|
808.1
|
364.3
|
Capital
expenditures
|
268.4
|
374.9
|
76.7
|
1,061.8
|
343.2
|
Long-term
debt
|
1,849.0
|
1,705.3
|
701.9
|
1,705.3
|
701.9
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Net debt
|
1,926.4
|
1,828.7
|
693.5
|
1,828.7
|
693.5
|
Common shares
outstanding, weighted average diluted
(millions)
|
723.1
|
703.0
|
354.3
|
627.3
|
353.4
|
Common shares
outstanding, end of period (millions)
|
711.7
|
693.5
|
353.4
|
693.5
|
353.4
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OPERATIONAL
RESULTS
|
|
|
|
|
|
Production
|
|
|
|
|
|
Crude oil
(bbl/day)
|
8,639
|
7,857
|
15,554
|
10,435
|
15,726
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Condensate
(bbl/day)
|
77,539
|
74,220
|
14,715
|
59,958
|
13,519
|
Crude oil and
condensate (bbl/day)
|
86,178
|
82,077
|
30,269
|
70,393
|
29,245
|
Natural gas
(MMcf/day)
|
1,300
|
1,293
|
783
|
1,149
|
739
|
NGLs
(bbl/day)
|
50,891
|
48,299
|
8,678
|
40,084
|
9,112
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Total
(boe/day)
|
353,657
|
345,831
|
169,468
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302,003
|
161,564
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Average realized
price
|
|
|
|
|
|
Crude oil
($/bbl)(3)
|
77.43
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92.11
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48.14
|
75.08
|
42.62
|
Condensate
($/bbl)(3)
|
85.72
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96.90
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53.55
|
86.04
|
47.62
|
Natural gas
($/Mcf)(3)
|
4.67
|
6.45
|
2.88
|
4.82
|
2.26
|
NGLs
($/bbl)(3)
|
27.92
|
27.65
|
18.03
|
26.16
|
12.69
|
Average realized price
($/boe)(3)
|
41.88
|
50.87
|
23.29
|
41.48
|
19.20
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Netback
|
|
|
|
|
|
Commodity sales from
production ($/boe)(3)
|
41.88
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50.87
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23.29
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41.48
|
19.20
|
Royalties
($/boe)(3)
|
(3.38)
|
(5.44)
|
(1.04)
|
(3.64)
|
(0.81)
|
Operating expense
($/boe)(3)
|
(3.58)
|
(3.50)
|
(3.97)
|
(3.86)
|
(3.94)
|
Transportation expense
($/boe)(3)
|
(4.93)
|
(5.47)
|
(2.97)
|
(4.79)
|
(2.98)
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Netback
($/boe)(4)
|
29.99
|
36.46
|
15.31
|
29.19
|
11.47
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TRADING
STATISTICS(5)
|
|
|
|
|
|
High price
|
11.95
|
13.34
|
7.20
|
13.34
|
8.39
|
Low price
|
7.51
|
10.20
|
5.66
|
5.88
|
2.42
|
Close
price
|
11.87
|
11.50
|
6.00
|
11.50
|
6.00
|
Average daily volume
(thousands of shares)
|
3,034
|
3,173
|
1,582
|
3,160
|
2,082
|
(1)
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Per share amounts,
with the exception of dividends, are based on weighted average
diluted common shares.
|
(2)
|
Comparative figures
represent ARC's results prior to the closing of the Business
Combination on April 6, 2021, and therefore do not reflect
historical data from Seven Generations.
|
(3)
|
See "Non-GAAP and
Other Financial Measures" in the 2021 Annual MD&A for an
explanation of the composition of this supplementary financial
measure, which information is incorporated by reference into this
news release.
|
(4)
|
Non-GAAP financial
ratio that is not a standardized financial measure under IFRS and
may not be comparable to similar financial measures disclosed by
other issuers. Netback, a non-GAAP financial measure, is used as a
component of the non-GAAP financial ratio. See "Non-GAAP and
Other Financial Measures" in the 2021 Annual MD&A for the
non-GAAP financial ratio for the comparative period and other
information relating to this non-GAAP financial ratio, which
information is incorporated by reference into this news
release.
|
(5)
|
Trading prices are
stated in Canadian dollars on a per share basis and are based on
intra-day trading on the Toronto Stock Exchange.
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OUTLOOK
- Building on the momentum generated in 2021, ARC's near-term
priority is to provide investors with an attractive total return by
balancing profitable reinvestment in the Company's assets with
meaningful returns of capital delivered to shareholders. In 2022,
ARC plans to sustain its current levels of production, increase
productive capacity at Sunrise, and proceed with development at
Attachie once the BC regulatory
environment becomes more certain. While commodity prices are
robust, ARC will remain disciplined and does not plan to accelerate
capital investments in growth projects beyond what is planned at
Sunrise and Attachie. Instead, ARC
plans to allocate surplus funds from operations to debt reduction
and returns to shareholders.
- Between 50 and 80 per cent of free funds flow generated in 2022
will be delivered to shareholders through the base dividend and
share repurchases, with the balance directed to further
strengthening ARC's financial position.
-
- A growing dividend remains ARC's primary long-term mechanism of
returning capital to shareholders. The dividend is designed to grow
with the underlying profitability of the business and be
sustainable during extended periods of low commodity prices.
- Share repurchases will continue to be executed, as the
intrinsic value of ARC's shares under lower commodity price
assumptions exceeds the current market trading price.
- ARC remains fully prepared to execute its Attachie West Phase I
development project once the BC regulatory environment supports
such investment.
- At this time, ARC believes anticipated returns generated by
mergers and acquisitions do not compete with those generated by
investing in ARC's common shares or developing its assets
organically.
2022 Guidance
- ARC is lowering its 2022 capital expenditure guidance by
$50 million to a revised range of
$1.15 to $1.25
billion. This reduction reflects the portion of the original
2022 capital expenditure budget for Attachie West Phase I that was
accelerated into 2021. Production and all other previously
disclosed guidance for 2022 remain unchanged. ARC continues to
expect that it will offset inflationary pressures in 2022 through
continued efficiency improvement initiatives.
|
2022
Guidance
|
2022 Revised
Guidance
|
Production
|
|
|
Crude oil
(bbl/day)
|
7,000 -
9,000
|
7,000 -
9,000
|
Condensate
(bbl/day)
|
72,000 -
78,000
|
72,000 -
78,000
|
Crude oil and
condensate (bbl/day)
|
79,000 -
87,000
|
79,000 -
87,000
|
Natural gas
(MMcf/day)
|
1,240 -
1,280
|
1,240 -
1,280
|
NGLs
(bbl/day)
|
49,000 -
51,000
|
49,000 -
51,000
|
Total
(boe/day)
|
335,000 -
350,000
|
335,000 -
350,000
|
Expenses
($/boe)(1)
|
|
|
Operating
|
4.00 -
4.50
|
4.00 -
4.50
|
Transportation
|
4.50 -
5.00
|
4.50 -
5.00
|
General and
administrative ("G&A") expense before share-based compensation
expense
|
0.80 -
0.90
|
0.80 -
0.90
|
G&A - share-based
compensation expense
|
0.30 -
0.40
|
0.30 -
0.40
|
Interest and
financing
|
0.55 -
0.65
|
0.55 -
0.65
|
Current income tax
expense as a per cent of funds from
operations(1)
|
1 - 6
|
1 -
6
|
Capital expenditures
($ billions)
|
1.2 - 1.3
|
1.15 -
1.25
|
(1) See "Non-GAAP
and Other Financial Measures" in the 2021 Annual MD&A for
an explanation of the composition of this supplementary financial
measure, which information is incorporated by reference into this
news release.
|
- For a summary of ARC's full-year 2021 actuals for production,
expenses, and capital expenditures, as compared to guidance, see
"Annual Guidance" in the 2021 Annual MD&A.
OPERATIONAL RESULTS
Cash Flow Used in Investing Activities and Capital
Expenditures
- Cash flow used in investing activities was $269 million during the fourth quarter of 2021.
Of this, ARC invested $375 million
into capital expenditures. In addition to drilling 47 wells and
completing 29 wells, ARC accelerated approximately $50 million of the 2022 capital expenditure
budget for Attachie West Phase I into the fourth quarter of 2021 to
begin securing long-lead items.
- ARC's cash flow used in investing activities totalled
$808 million in 2021, of which
$1,062 million was invested into
capital expenditures. During the year, ARC drilled 141 wells,
completed 132 wells, and brought on-stream two small infrastructure
optimization and expansion projects at Sunrise and Parkland. The
following table details ARC's 2021 capital activity by area.
|
Year Ended
December 31, 2021
|
Area
|
Wells
Drilled(1)
|
Wells
Completed(1)
|
Kakwa(2)
|
65
|
61
|
Greater
Dawson
|
45
|
38
|
Sunrise
|
18
|
18
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Ante Creek
|
13
|
15
|
Total
|
141
|
132
|
(1) Wells drilled and
completed for operated assets only.
|
(2) Assets acquired
through the Business Combination, which closed on April 6,
2021.
|
- By leveraging the Company's expertise in the Montney and the increased scale achieved
through the Business Combination, ARC captured drilling and
completions efficiency improvements of approximately $60 million in 2021, exceeding initial
expectations of $25 million.
- At Kakwa, ARC expects that capital expenditures required to
sustain production could be reduced by approximately 10 per cent
over time, as the Company continues to evaluate the results from
implementing wider well spacing and modifications to its well and
pad design. Initial results indicate improved resource
deliverability and therefore greater overall profitability of the
Kakwa asset.
Production and Operating Expense
Production
- ARC's production averaged 345,831 boe per day during the fourth
quarter of 2021 (62 per cent natural gas and 38 per cent crude oil
and liquids), decreasing two per cent from the third quarter of
2021 due to unplanned third-party infrastructure outages in the
period.
- Full-year 2021 production averaged a record 302,003 boe per day
(63 per cent natural gas and 37 per cent crude oil and liquids).
Strong operational performance and excellent facility run-times
across all areas resulted in full-year average production reaching
the high end of the Company's guidance range of 287,000 to 302,000
boe per day.
Operating Expense
- ARC's fourth quarter 2021 operating expense per boe of
$3.50 decreased two per cent from the
third quarter of 2021.
- ARC demonstrated excellent cost control by delivering an
operating expense per boe of $3.86
for the year, the lowest annual operating expense per boe in the
Company's 25-year history. Consequently, ARC's full-year 2021
operating expense per boe was one per cent below the Company's
guidance range of $3.90 to
$4.40.
Physical Marketing
Average Realized Prices
- ARC's expanded sales portfolio has significantly enhanced the
Company's ability to generate value through its physical marketing
activities. During the fourth quarter of 2021, ARC's average
realized natural gas price of $6.45
per Mcf was $1.51 per Mcf, or 31 per
cent greater than the average AECO 7A Monthly Index price.
- Strong liquids pricing also helped drive commodity sales from
production higher in the fourth quarter of 2021. ARC's average
realized condensate price of $96.90
per barrel increased 13 per cent, and ARC's average realized crude
oil price of $92.11 per barrel
increased 19 per cent relative to the third quarter of 2021. ARC's
average realized NGLs price of $27.65
per barrel was unchanged.
Transportation Arrangements
- ARC has right-sized its natural gas transportation agreement
with Alliance Pipeline. The four-year deal includes renewal rights
and takes effect on November 1,
2022.
- ARC continues to execute its strategy of diversifying the
markets where the Company sells natural gas. Through this strategy,
ARC gains exposure to increases in regional pricing as well as
mitigates price concentration risk. The following table details the
sales markets where ARC's natural gas volumes are exposed in
2022.
Natural Gas Sales
Market
|
2022 Natural Gas
Sales Exposure(1)
|
Midwest US
|
45%
|
Western Canadian
Sedimentary Basin
|
23%
|
Malin
|
12%
|
Henry Hub
|
11%
|
Dawn
|
9%
|
Total
|
100%
|
(1) Natural gas sales
exposure based on internal volume and marketing assumptions,
adjusted for ARC's heat content, and prior to financial risk
management contracts.
|
Transportation Expense
- ARC's fourth quarter 2021 transportation expense per boe of
$5.47 increased 11 per cent from the
third quarter of 2021 due to a one-time charge of $14 million associated with a legacy condensate
and NGLs transportation contract.
- ARC's full-year 2021 transportation expense per boe of
$4.79 was in line with guidance of
$4.50 to $5.00.
FINANCIAL RESULTS
Financial Position
- ARC exited 2021 with a long-term debt balance of $1.7 billion and net debt of $1.8 billion or 0.8 times funds from operations.
During the fourth quarter of 2021, ARC reduced long-term debt by
$144 million and net debt by
$98 million. ARC has significantly
bolstered its financial position since the closing of the Business
Combination, having reduced net debt by approximately $0.6 billion or 25 per cent.
- As of December 31, 2021, the
Company had $1.0 billion of senior
notes outstanding and $0.7 billion in
borrowings under its $2.0 billion
credit facility.
Returns to Shareholders
ARC distributed $289 million
($0.41 per share), or 63 per cent of
free funds flow to shareholders during the fourth quarter of 2021
through a combination of dividends and share repurchases.
Dividends
- ARC declared a quarterly dividend of $70
million or $0.10 per share
during the fourth quarter of 2021, representing a 52 per cent
increase from the Company's previous quarterly dividend of
$0.066 per share.
- ARC declared dividends of $181
million or $0.286 per share in
2021. A growing dividend remains ARC's primary mechanism of
returning capital to shareholders over the long term.
- Share Repurchases
- ARC repurchased 18.5 million common shares during the fourth
quarter of 2021 at a weighted average price of $11.87 per share for total consideration of
$220 million.
- Since its normal course issuer bid ("NCIB") commenced on
September 1, 2021, ARC has
repurchased 33.6 million common shares at a weighted average price
of $11.34 per share for total
consideration of $381 million,
representing 4.6 per cent of total shares outstanding.
Net Income
- ARC recognized net income of $678
million ($0.96 per share) in
the fourth quarter of 2021, compared to net income of $54 million ($0.07
per share) in the third quarter of 2021. Increased commodity sales
from production, driven by higher average realized commodity
prices, and reduced losses on ARC's risk management contracts were
partially offset by an increase in ARC's income tax expense.
- ARC recognized net income of $787
million ($1.25 per share)
during the year ended December 31,
2021, compared to a net loss of $547
million ($1.55 per share)
during the year ended December 31,
2020.
Cash Flow from Operating Activities, Funds from Operations,
and Free Funds Flow
Cash Flow from Operating Activities
- Fourth quarter and full-year 2021 cash flow from operating
activities were $669 million and
$2.0 billion, respectively.
Funds from Operations
- ARC generated funds from operations of $834 million ($1.19
per share) during the fourth quarter of 2021, increasing by
$68 million ($0.13 per share) from the third quarter of 2021.
Increased commodity sales from production were partially offset by
higher realized losses on ARC's risk management contracts and
increased royalties.
- During the fourth quarter of 2021, ARC recorded a $14 million current income tax recovery,
primarily attributed to the recognition of investment tax credits
and scientific research and experimental development deductions
related to expenditures made in prior periods.
- The following table details the change in funds from operations
for the fourth quarter of 2021 relative to the third quarter of
2021.
Funds from
Operations Reconciliation
|
$
millions
|
$/share(1)
|
Funds from operations
for the three months ended September 30, 2021
|
765.4
|
1.06
|
Production
volumes
|
|
|
Crude oil and
liquids
|
(38.4)
|
(0.06)
|
Natural gas
|
(3.1)
|
—
|
Commodity
prices
|
|
|
Crude oil and
liquids
|
85.9
|
0.13
|
Natural gas
|
211.5
|
0.29
|
Sales of commodities
purchased from third parties
|
0.2
|
—
|
Other
income
|
2.5
|
—
|
Realized loss on risk
management contracts
|
(142.6)
|
(0.20)
|
Royalties
|
(63.0)
|
(0.09)
|
Expenses
|
|
|
Commodities purchased
from third parties
|
(10.4)
|
(0.01)
|
Operating
|
5.1
|
0.01
|
Transportation
|
(13.9)
|
(0.02)
|
G&A
|
(5.5)
|
(0.01)
|
Transaction
costs
|
(0.8)
|
—
|
Interest and
financing
|
35.5
|
0.05
|
Current income
tax
|
14.1
|
0.02
|
Realized gain (loss) on
foreign exchange
|
(6.2)
|
(0.01)
|
Other
|
(2.7)
|
—
|
Weighted average
shares, diluted
|
—
|
0.03
|
Funds from operations
for the three months ended December 31, 2021
|
833.6
|
1.19
|
(1) Per share amounts
are based on weighted average diluted common shares.
|
- ARC generated funds from operations of $2.4 billion ($3.85
per share) in 2021, an increase of $1.7
billion ($1.96 per share) from
2020.
Free Funds Flow
- ARC generated free funds flow of $459
million ($0.65 per share)
during the fourth quarter of 2021. $289
million or 63 per cent of free funds flow was allocated to
returns to shareholders, with the remaining free funds flow
allocated to strengthening ARC's balance sheet.
- Full-year 2021 free funds flow totalled $1.4 billion ($2.16
per share), increasing $1.0 billion
($1.24 per share) from 2020.
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE ("ESG") REVIEW
ARC has a long track record of leadership in ESG performance.
Over the past decade, ARC was one of few North American energy
producers to reduce its absolute emissions, while simultaneously
growing its production profitably. ARC remains committed to
responsible resource development, reducing absolute emissions, and
is evaluating several opportunities across the energy value chain
to bolster its position as an ESG leader.
ARC has recently received the following recognitions for its
leading ESG performance:
- ARC's ongoing promotion of diversity and inclusion was
recognized in 2021, with the Company's inclusion in the Bloomberg
Gender Equality Index for the second consecutive year. ARC was the
only Canadian exploration and production company included in the
index. ARC has achieved its target of 30 per cent female
representation at the Board of Directors and executive levels.
- ARC completed the annual Equitable Origin EO100TM
assessment for its Kakwa asset, maintaining its certification as a
responsible energy developer. ARC is currently undergoing the
certification process for its northeast BC assets.
2021 RESERVES
- The acquisition of the Kakwa asset roughly doubled ARC's
reserves volumes, while development additions replaced greater than
100 per cent of production in all reserves categories, reflecting
ARC's successful operational execution throughout 2021. Through
development additions, PDP reserves increased by 119 per cent, TP
reserves increased by 132 per cent, and 2P reserves increased by
143 per cent.
-
- Reserves were replaced at attractive finding and development
("F&D") costs, which resulted in F&D recycle ratios,
including future development costs ("FDC"), ranging from 3.4 times
to 4.0 times(1).
- ARC's before-tax NPV for 2P reserves, discounted at 10 per
cent, was $15.9 billion, or
approximately $23.00 per share at
December 31, 2021, tripling from
ARC's 2P NPV at December 31,
2020.
- As the largest pure-play Montney producer, ARC has decades of top-tier
drilling inventory within its portfolio. At December 31, 2021, ARC has booked approximately
900 gross 2P locations, representing approximately 15 per cent of
the Company's total gross internal inventory estimates. 2P
locations at Attachie account for
less than four per cent of total 2P locations.
- ARC's NPV was determined using GLJ forecast pricing and foreign
exchange rates at January 1, 2022,
with a 10-year average WTI price of US$72 per barrel and a 10-year average AECO price
of $3.35 per million British thermal
units ("MMBtu").
- FDC for 2P reserves totalled $7.4
billion at December 31, 2021
as compared to $3.2 billion at
December 31, 2020.
-
- FDC of $4.4 billion was added due
to the acquisition of the Kakwa asset.
- FDC of $0.2 billion was removed
for the disposition of ARC's Pembina asset.
(1)
|
Non-GAAP financial
ratio that is not a standardized financial measure under IFRS and
may not be comparable to similar financial measures disclosed by
other issuers. Netback per boe, a non-GAAP financial ratio, and
capital expenditures and adjusted net capital acquisitions, both
non-GAAP financial measures, are used as components of the non-GAAP
financial ratio. See "Non-GAAP and Other Financial Measures"
of this news release for the non-GAAP financial ratio for the
comparative period and other information relating to this non-GAAP
financial ratio.
|
Reserves Reconciliation
Reserves
Reconciliation
Company
Gross(1)
|
Light,
Medium,
and Heavy Oil(2)
(Mbbl)
|
Tight
Oil
(Mbbl)
|
NGLs(3)
(Mbbl)
|
Total
Oil
and
NGLs(4)
(Mbbl)
|
Natural
Gas(5)
(MMcf)
|
Oil
Equivalent
(Mboe)
|
Proved
Producing
|
|
|
|
|
|
|
Opening Balance,
December 31, 2020
|
24,516
|
10,984
|
31,828
|
67,238
|
1,203,981
|
267,991
|
Extensions and
Improved Recovery(6)
|
—
|
1,233
|
34,549
|
35,782
|
443,873
|
109,761
|
Technical
Revisions
|
4
|
(10)
|
4,355
|
4,350
|
90,266
|
19,394
|
Acquisitions
|
—
|
243
|
126,209
|
126,452
|
712,101
|
245,135
|
Dispositions
|
(23,206)
|
—
|
(1,527)
|
(24,732)
|
(41,579)
|
(31,662)
|
Economic
Factors
|
—
|
429
|
79
|
508
|
10,641
|
2,282
|
Production
|
(827)
|
(2,916)
|
(36,511)
|
(40,254)
|
(419,198)
|
(110,120)
|
Ending Balance,
December 31, 2021
|
487
|
9,962
|
158,983
|
169,433
|
2,000,085
|
502,780
|
Total
Proved
|
|
|
|
|
|
|
Opening Balance,
December 31, 2020
|
32,911
|
19,538
|
84,110
|
136,558
|
2,799,765
|
603,185
|
Extensions and
Improved Recovery(6)
|
—
|
1,622
|
28,004
|
29,626
|
519,252
|
116,168
|
Technical
Revisions
|
(10)
|
(719)
|
7,364
|
6,634
|
97,848
|
22,942
|
Acquisitions
|
—
|
243
|
310,020
|
310,263
|
1,702,602
|
594,030
|
Dispositions
|
(31,586)
|
—
|
(2,276)
|
(33,862)
|
(82,267)
|
(47,574)
|
Economic
Factors
|
—
|
651
|
766
|
1,417
|
29,239
|
6,290
|
Production
|
(827)
|
(2,916)
|
(36,511)
|
(40,254)
|
(419,198)
|
(110,120)
|
Ending Balance,
December 31, 2021
|
488
|
18,418
|
391,476
|
410,381
|
4,647,242
|
1,184,922
|
Proved plus
Probable
|
|
|
|
|
|
|
Opening Balance,
December 31, 2020
|
42,690
|
32,434
|
137,536
|
212,660
|
4,297,945
|
928,984
|
Extensions and
Improved Recovery(6)
|
—
|
1,673
|
33,175
|
34,848
|
615,745
|
137,472
|
Technical
Revisions
|
(21)
|
(1,622)
|
5,319
|
3,676
|
54,509
|
12,761
|
Acquisitions
|
—
|
281
|
439,749
|
440,030
|
2,451,784
|
848,660
|
Dispositions
|
(41,189)
|
—
|
(3,145)
|
(44,333)
|
(118,302)
|
(64,050)
|
Economic
Factors
|
—
|
749
|
240
|
990
|
35,708
|
6,941
|
Production
|
(827)
|
(2,916)
|
(36,511)
|
(40,254)
|
(419,198)
|
(110,120)
|
Ending Balance,
December 31, 2021
|
654
|
30,598
|
576,364
|
607,616
|
6,918,191
|
1,760,648
|
(1)
|
Amounts may not add
due to rounding.
|
(2)
|
Light, Medium, and
Heavy Oil includes light, medium, and heavy crude oil product
types, as light and medium oil make up less than one per cent of
total light, medium, and heavy crude oil and is therefore
considered to be immaterial.
|
(3)
|
Condensate and
pentanes plus represented 52 per cent of PDP NGLs reserves, 60 per
cent of TP NGLs reserves, and 61 per cent of 2P NGLs reserves for
the respective opening balances at December 31, 2020. Condensate
and pentanes plus represent 62 per cent of PDP NGLs reserves, 66
per cent of TP NGLs reserves, and 67 per cent of 2P NGLs reserves
for the respective ending balances at December 31, 2021.
|
(4)
|
Total Oil and NGLs
represents the summation of Light, Medium, and Heavy Oil, Tight
Oil, and NGLs.
|
(5)
|
Natural Gas includes
shale gas and conventional natural gas product types, as
conventional natural gas makes up less than one per cent of total
gas and is therefore considered to be immaterial.
|
(6)
|
Reserves additions
for discoveries, infill drilling, improved recovery, and extensions
are combined and reported as "Extensions and Improved
Recovery".
|
Net Present Value Summary
- For a summary of the GLJ forecast pricing and foreign exchange
rates used to evaluate ARC's reserves, see "2021 Independent
Qualified Reserves Evaluation" of this news release.
($
millions)
|
Undiscounted
|
Discounted at
10%
|
Before-tax
NPV(1)(2)
|
|
|
Proved
Producing
|
7,375
|
5,601
|
Proved Developed
Non-producing
|
1,306
|
953
|
Proved
Undeveloped
|
9,477
|
4,770
|
Total
Proved
|
18,158
|
11,325
|
Probable
|
11,314
|
4,571
|
Proved plus
Probable
|
29,472
|
15,895
|
After-tax
NPV(1)(2)(3)(4)
|
|
|
Proved
Producing
|
6,778
|
5,227
|
Proved Developed
Non-producing
|
992
|
722
|
Proved
Undeveloped
|
7,160
|
3,425
|
Total
Proved
|
14,929
|
9,374
|
Probable
|
8,615
|
3,420
|
Proved plus
Probable
|
23,544
|
12,794
|
(1)
|
Amounts may not add
due to rounding.
|
(2)
|
Based on NI 51-101
company net interest reserves and GLJ forecast pricing and foreign
exchange rates and costs at January 1, 2022.
|
(3)
|
Based on ARC's
estimated tax pools at December 31, 2021.
|
(4)
|
The after-tax NPV of
the future net revenue attributed to ARC's crude oil and natural
gas properties reflects the tax burden on the properties on a
standalone basis and does not necessarily reflect the business
entity tax-level situation or tax planning. For information at the
business entity level, see "Taxes" in the 2021 Annual
MD&A.
|
Finding, Development and Acquisition ("FD&A")
Costs
- ARC delivered a 2P F&D cost, including FDC, of $7.28 per boe(1) from
development additions in 2021, continuing to demonstrate the
high-quality nature of its Montney
assets and the Company's ability to consistently deliver strong
well results through efficient development planning and operational
execution. Including net acquisitions and dispositions, ARC's 2P
FD&A cost, including FDC, was $10.39 per boe(1).
- The year-over-year increase in F&D costs reflects the
Company's higher proportion of liquids reserves within its
portfolio as a result of the Business Combination.
|
F&D
Cost(2)
($/boe)
|
FD&A
Cost(2)
($/boe)
|
F&D
Recycle
Ratio(2)
|
FD&A Recycle
Ratio(2)
|
Proved
Producing(3)
|
|
|
|
|
2021
|
8.48
|
16.75
|
3.4
|
1.7
|
2020
|
4.29
|
4.33
|
2.7
|
2.6
|
2019
|
9.74
|
9.85
|
1.4
|
1.4
|
Three-year
Average(4)
|
7.69
|
14.02
|
2.7
|
1.5
|
Total
Proved(3)
|
|
|
|
|
2021
|
7.78
|
12.68
|
3.8
|
2.3
|
2020
|
2.60
|
2.07
|
4.4
|
5.5
|
2019
|
5.64
|
5.66
|
2.5
|
2.5
|
Three-year
Average(4)
|
5.80
|
11.07
|
3.6
|
1.9
|
Proved plus
Probable(3)
|
|
|
|
|
2021
|
7.28
|
10.39
|
4.0
|
2.8
|
2020
|
2.34
|
1.89
|
4.9
|
6.1
|
2019
|
4.82
|
4.84
|
2.9
|
2.9
|
Three-year
Average(4)
|
5.07
|
9.38
|
4.1
|
2.2
|
(1)
|
Non-GAAP financial
ratio that is not a standardized financial measure under IFRS and
may not be comparable to similar financial measures disclosed by
other issuers. Capital expenditures and adjusted net capital
acquisitions, both non-GAAP financial measures, are used as
components of the non-GAAP financial ratio. See "Non-GAAP and
Other Financial Measures" of this news release for the non-GAAP
financial ratio for the comparative period and other information
relating to this non-GAAP financial ratio.
|
(2)
|
F&D and FD&A
costs and recycle ratios take into account reserves revisions
during the year on a per boe basis, and include FDC.
|
(3)
|
The aggregate of the
exploration and development costs incurred in the financial year
and the changes during that year in estimated FDC may not reflect
the total F&D and FD&A costs related to reserves additions
for that year.
|
(4)
|
Three-year average
F&D and FD&A costs are calculated as the total capital
expenditures over the three prior years divided by the total
reserves additions over the three prior years. The three-year
average recycle ratio is calculated as the three-year F&D or
FD&A costs divided by the three-year average netback per
boe.
|
ORGANIZATIONAL UPDATE
ARC is pleased to announce the following changes to its senior
leadership team:
- Lara Conrad — Chief Development
Officer (ARC employee since 2011)
- Armin Jahangiri — Chief
Operating Officer (ARC employee since 2014)
- Ryan Berrett — Senior Vice
President, Marketing (ARC employee since 2003)
- Lisa Olsen — Senior Vice
President, People and Corporate (ARC employee since 2008)
For biographies of ARC's senior leadership team members, see
ARC's website at www.arcresources.com.
CONFERENCE CALL
ARC's senior leadership team will be holding a conference call
to discuss the Company's 2021 year-end results on Friday, February 11, 2022, at 8:00 a.m. Mountain Time ("MT").
Date
|
Friday, February 11,
2022
|
Time
|
8:00 a.m.
MT
|
Dial-in
Numbers
|
|
Calgary
|
587-880-2171
|
Toronto
|
416-764-8659
|
Toll-free
|
1-888-664-6392
|
Conference
ID
|
03374224
|
Webcast
URL
|
https://produceredition.webcasts.com/starthere.jsp?ei=1525226&tp_key=ddc32bf441
|
Callers are encouraged to dial in 15 minutes before the start
time to register for the event. A replay will be available on ARC's
website at www.arcresources.com for 30 days following the
conference call.
CONSOLIDATED BALANCE SHEETS (unaudited)
As at
Cdn$
millions
|
December 31,
2021
|
December 31,
2020
|
|
|
|
ASSETS
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
—
|
0.4
|
Inventory
|
22.3
|
1.6
|
Accounts
receivable
|
672.0
|
145.9
|
Prepaid
expense
|
35.6
|
8.4
|
Risk management
contracts
|
0.1
|
6.0
|
|
730.0
|
162.3
|
Long-term
investment
|
2.5
|
—
|
Exploration and
evaluation assets
|
277.9
|
214.9
|
Property, plant and
equipment
|
9,265.6
|
4,284.3
|
Right-of-use
assets
|
856.1
|
44.5
|
Goodwill
|
248.2
|
248.2
|
Total
assets
|
11,380.3
|
4,954.2
|
|
|
|
LIABILITIES
|
|
|
Current
liabilities
|
|
|
Accounts payable and
accrued liabilities
|
761.5
|
125.0
|
Current portion of
lease obligations
|
109.3
|
15.3
|
Current portion of
long-term debt
|
—
|
146.7
|
Current portion of
other deferred liabilities
|
90.5
|
—
|
Current portion of
asset retirement obligation
|
15.0
|
19.0
|
Dividends
payable
|
69.5
|
21.3
|
Risk management
contracts
|
465.3
|
40.4
|
|
1,511.1
|
367.7
|
Risk management
contracts
|
171.9
|
44.4
|
Long-term portion of
lease obligations
|
760.0
|
33.9
|
Long-term
debt
|
1,705.3
|
555.2
|
Long-term incentive
compensation liability
|
40.8
|
32.0
|
Other deferred
liabilities
|
154.2
|
16.3
|
Asset retirement
obligation
|
535.3
|
522.7
|
Deferred
taxes
|
574.2
|
591.4
|
Total
liabilities
|
5,452.8
|
2,163.6
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
Shareholders'
capital
|
7,221.1
|
4,658.2
|
Contributed
surplus
|
46.3
|
36.5
|
Deficit
|
(1,337.4)
|
(1,904.1)
|
Accumulated other
comprehensive loss
|
(2.5)
|
—
|
Total shareholders'
equity
|
5,927.5
|
2,790.6
|
Total liabilities and
shareholders' equity
|
11,380.3
|
4,954.2
|
Refer to the accompanying notes to ARC's consolidated financial
statements as at and for the year ended December 31, 2021, which are available on ARC's
website at www.arcresources.com and under ARC's SEDAR profile at
www.sedar.com.
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the three months and years ended December 31
|
Three Months
Ended
|
Year
Ended
|
(Cdn$ millions,
except per share amounts)
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
Commodity sales from
production
|
1,618.5
|
363.1
|
4,572.6
|
1,135.5
|
Royalties
|
(172.7)
|
(16.1)
|
(400.7)
|
(47.5)
|
Sales of commodities
purchased from third parties
|
329.9
|
4.9
|
938.9
|
37.7
|
Revenue from
commodity sales
|
1,775.7
|
351.9
|
5,110.8
|
1,125.7
|
|
|
|
|
|
Interest
income
|
0.1
|
0.1
|
1.9
|
0.8
|
Other
income
|
3.5
|
4.6
|
15.6
|
8.7
|
Gain (loss) on risk
management contracts
|
103.4
|
49.3
|
(1,041.6)
|
(15.4)
|
Total revenue,
interest income, other income, and gain (loss) on risk management
contracts
|
1,882.7
|
405.9
|
4,086.7
|
1,119.8
|
|
|
|
|
|
Commodities purchased
from third parties
|
322.4
|
4.4
|
903.9
|
37.8
|
Operating
|
111.5
|
62.0
|
425.4
|
233.3
|
Transportation
|
174.2
|
46.2
|
528.3
|
176.2
|
Exploration and
evaluation
|
—
|
7.1
|
—
|
7.1
|
General and
administrative
|
46.0
|
22.9
|
167.0
|
91.9
|
Transaction
costs
|
—
|
—
|
22.1
|
—
|
Interest and
financing
|
24.2
|
9.9
|
126.1
|
45.6
|
Impairment (reversal
of impairment) of financial assets
|
2.0
|
(0.2)
|
4.0
|
12.9
|
Depletion,
depreciation and amortization
|
320.1
|
128.4
|
1,063.6
|
523.6
|
Impairment (reversal
of impairment)
|
—
|
—
|
(137.5)
|
750.3
|
Gain on foreign
exchange
|
(5.5)
|
(24.8)
|
(11.3)
|
(4.0)
|
Total
expenses
|
994.9
|
255.9
|
3,091.6
|
1,874.7
|
Net income (loss)
before income taxes
|
887.8
|
150.0
|
995.1
|
(754.9)
|
|
|
|
|
|
Provision for
(recovery of) income taxes
|
|
|
|
|
Current
|
(14.0)
|
8.1
|
33.7
|
(26.8)
|
Deferred
|
223.8
|
21.1
|
174.8
|
(180.9)
|
Total income taxes
(recovery)
|
209.8
|
29.2
|
208.5
|
(207.7)
|
|
|
|
|
|
Net income
(loss)
|
678.0
|
120.8
|
786.6
|
(547.2)
|
|
|
|
|
|
Net income (loss) per
share
|
|
|
|
|
Basic
|
0.97
|
0.34
|
1.26
|
(1.55)
|
Diluted
|
0.96
|
0.34
|
1.25
|
(1.55)
|
Refer to the accompanying notes to ARC's consolidated financial
statements as at and for the year ended December 31, 2021, which are available on ARC's
website at www.arcresources.com and under ARC's SEDAR profile at
www.sedar.com.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (unaudited)
For the three months and years ended December 31
|
Three Months
Ended
|
Year
Ended
|
(Cdn$
millions)
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
Net income
(loss)
|
678.0
|
120.8
|
786.6
|
(547.2)
|
Items that may be
reclassified to the consolidated statements of income in subsequent
periods:
|
|
|
|
|
Net unrealized loss on
foreign currency translation adjustment
|
(0.9)
|
—
|
(2.5)
|
—
|
Comprehensive income
(loss)
|
677.1
|
120.8
|
784.1
|
(547.2)
|
Refer to the accompanying notes to ARC's consolidated financial
statements as at and for the year ended December 31, 2021, which are available on ARC's
website at www.arcresources.com and under ARC's SEDAR profile at
www.sedar.com.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY (unaudited)
For the years ended December 31
(Cdn$
millions)
|
Shareholders'
Capital
|
Contributed
Surplus
|
Deficit
|
Accumulated
Other
Comprehensive
Loss
|
Total
Shareholders' Equity
|
|
|
|
|
|
|
January 1,
2020
|
4,658.3
|
32.2
|
(1,250.6)
|
—
|
3,439.9
|
Comprehensive
loss
|
—
|
—
|
(547.2)
|
—
|
(547.2)
|
Recognized under
share-based compensation plans
|
(0.1)
|
4.3
|
—
|
—
|
4.2
|
Dividends
declared
|
—
|
—
|
(106.3)
|
—
|
(106.3)
|
December 31,
2020
|
4,658.2
|
36.5
|
(1,904.1)
|
—
|
2,790.6
|
Comprehensive
income
|
—
|
—
|
786.6
|
(2.5)
|
784.1
|
Issued upon close of
Business Combination
|
2,903.5
|
10.5
|
—
|
—
|
2,914.0
|
Recognized under
share-based compensation plans
|
0.3
|
3.3
|
—
|
—
|
3.6
|
Recognized on
exercise of share options
|
17.7
|
(4.0)
|
—
|
—
|
13.7
|
Repurchase of shares
for cancellation
|
(321.1)
|
—
|
(24.1)
|
—
|
(345.2)
|
Change in liability
for share purchase commitment
|
(37.5)
|
—
|
(14.4)
|
—
|
(51.9)
|
Dividends
declared
|
—
|
—
|
(181.4)
|
—
|
(181.4)
|
December 31,
2021
|
7,221.1
|
46.3
|
(1,337.4)
|
(2.5)
|
5,927.5
|
Refer to the accompanying notes to ARC's consolidated financial
statements as at and for the year ended December 31, 2021, which are available on ARC's
website at www.arcresources.com and under ARC's SEDAR profile at
www.sedar.com.
CONSOLIDATED STATEMENTS OF CASH
FLOWS (unaudited)
For the three months and years ended December 31
|
Three Months
Ended
|
Year
Ended
|
(Cdn$
millions)
|
2021
|
2020
|
2021
|
2020
|
|
|
|
|
|
CASH FLOW FROM
OPERATING ACTIVITIES
|
|
|
|
|
Net income
(loss)
|
678.0
|
120.8
|
786.6
|
(547.2)
|
Add items not
involving cash:
|
|
|
|
|
Unrealized loss (gain)
on risk management contracts
|
(384.9)
|
(40.5)
|
534.2
|
89.6
|
Accretion of asset
retirement obligation
|
2.6
|
1.5
|
9.5
|
6.3
|
Impairment (reversal of
impairment) of financial assets
|
2.0
|
(0.2)
|
4.0
|
12.9
|
Depletion, depreciation
and amortization
|
320.1
|
128.4
|
1,063.6
|
523.6
|
Impairment (reversal of
impairment)
|
—
|
—
|
(137.5)
|
750.3
|
Exploration and
evaluation
|
—
|
7.1
|
—
|
7.1
|
Unrealized loss (gain)
on foreign exchange
|
(7.3)
|
(26.3)
|
(22.2)
|
2.1
|
Deferred
taxes
|
223.8
|
21.1
|
174.8
|
(180.9)
|
Other
|
(0.7)
|
0.1
|
2.4
|
3.8
|
Net change in other
liabilities
|
(56.4)
|
2.7
|
(224.8)
|
7.6
|
Change in non-cash
working capital
|
(108.5)
|
(13.6)
|
(184.1)
|
(19.5)
|
Cash flow from
operating activities
|
668.7
|
201.1
|
2,006.5
|
655.7
|
|
|
|
|
|
CASH FLOW USED IN
FINANCING ACTIVITIES
|
|
|
|
|
Draw of long-term
debt under revolving credit facilities
|
2,605.2
|
468.9
|
6,628.7
|
2,209.2
|
Issuance of senior
notes
|
—
|
—
|
1,000.0
|
—
|
Repayment of long-term
debt
|
(2,739.7)
|
(567.5)
|
(8,304.7)
|
(2,387.9)
|
Proceeds from exercise
of share options
|
3.4
|
—
|
13.9
|
—
|
Repurchase of
shares
|
(229.2)
|
—
|
(340.6)
|
—
|
Repayment of principal
relating to lease obligations
|
(19.8)
|
(3.9)
|
(63.0)
|
(18.1)
|
Cash dividends
paid
|
(47.1)
|
(21.3)
|
(133.1)
|
(102.7)
|
Cash flow used in
financing activities
|
(427.2)
|
(123.8)
|
(1,198.8)
|
(299.5)
|
|
|
|
|
|
CASH FLOW USED IN
INVESTING ACTIVITIES
|
|
|
|
Cash acquired upon
close of Business Combination
|
—
|
—
|
4.9
|
—
|
Acquisition of crude
oil and natural gas assets
|
(0.2)
|
(0.2)
|
(1.1)
|
(0.2)
|
Disposal of crude oil
and natural gas assets
|
0.7
|
1.8
|
79.7
|
1.8
|
Property, plant and
equipment development expenditures
|
(371.7)
|
(75.3)
|
(1,051.5)
|
(334.6)
|
Exploration and
evaluation asset expenditures
|
(0.7)
|
(0.2)
|
(2.3)
|
(0.7)
|
Long-term
investment
|
(2.5)
|
—
|
(2.5)
|
—
|
Change in non-cash
working capital
|
105.7
|
(5.4)
|
164.7
|
(30.6)
|
Cash flow used in
investing activities
|
(268.7)
|
(79.3)
|
(808.1)
|
(364.3)
|
|
|
|
|
|
DECREASE IN CASH
AND CASH EQUIVALENTS
|
(27.2)
|
(2.0)
|
(0.4)
|
(8.1)
|
CASH AND CASH
EQUIVALENTS, BEGINNING OF PERIOD
|
27.2
|
2.4
|
0.4
|
8.5
|
CASH AND CASH
EQUIVALENTS, END OF PERIOD
|
—
|
0.4
|
—
|
0.4
|
The following are
included in cash flow from operating activities:
|
|
|
|
|
Income taxes paid
(received) in cash
|
5.2
|
—
|
56.9
|
(24.8)
|
Interest paid in
cash
|
14.5
|
4.1
|
118.9
|
41.0
|
Refer to the accompanying notes to ARC's consolidated financial
statements as at and for the year ended December 31, 2021, which are available on ARC's
website at www.arcresources.com and under ARC's SEDAR profile at
www.sedar.com.
NON-GAAP AND OTHER FINANCIAL MEASURES
Throughout this news release and in other materials disclosed by
the Company, ARC employs certain measures to analyze its financial
performance, financial position, and cash flow. These non-GAAP and
other financial measures are not standardized financial measures
under IFRS and may not be comparable to similar financial measures
disclosed by other issuers. The non-GAAP and other financial
measures should not be considered to be more meaningful than
generally accepted accounting principles ("GAAP") measures which
are determined in accordance with IFRS, such as net income (loss),
cash flow from operating activities, and cash flow used in
investing activities, as indicators of ARC's performance.
Non-GAAP Financial Measures
Capital Expenditures
ARC uses capital expenditures to measure its capital investment
level compared to the Company's annual budgeted capital
expenditures. ARC's budgeted capital expenditures exclude any
acquisition or disposition activities as well as the accounting
impact of any accrual changes and payments under lease
arrangements. The directly comparable GAAP measure to capital
expenditures is cash flow used in investing activities. The
following table details the composition of capital expenditures and
its reconciliation to cash flow used in investing activities.
|
Three Months
Ended
|
Year
Ended
|
($
millions)
|
December 31,
2021
|
December 31,
2020
|
December 31,
2021
|
December 31,
2020
|
Cash flow used in
investing activities
|
268.7
|
79.3
|
808.1
|
364.3
|
Cash acquired upon
close of Business Combination
|
—
|
—
|
4.9
|
—
|
Acquisition of crude
oil and natural gas assets
|
(0.2)
|
(0.2)
|
(1.1)
|
(0.2)
|
Disposal of crude oil
and natural gas assets
|
0.7
|
1.8
|
79.7
|
1.8
|
Change in non-cash
working capital
|
105.7
|
(5.4)
|
164.7
|
(30.6)
|
Other property, plant
and equipment ("PP&E")(1)
|
—
|
1.2
|
5.5
|
7.9
|
Capital
expenditures
|
374.9
|
76.7
|
1,061.8
|
343.2
|
(1)
|
Other PP&E
comprises non-cash capitalized costs related to the Company's
right-of-use asset depreciation and share-based
compensation.
|
Free Funds Flow
ARC uses free funds flow as an indicator of the efficiency and
liquidity of ARC's business, measuring its funds after capital
expenditures available to manage debt levels, pay dividends, and
return capital to shareholders. ARC computes free funds flow as
funds from operations generated during the period less capital
expenditures. Capital expenditures is a non-GAAP financial measure.
By removing the impact of current period capital expenditures from
funds from operations, Management monitors its free funds flow to
inform its capital allocation decisions. The most directly
comparable GAAP measure to free funds flow is cash from operating
activities. The following table details the calculation of free
funds flow and its reconciliation to cash flow from operating
activities.
|
Three Months
Ended
|
Year
Ended
|
($
millions)
|
December 31,
2021
|
December 31,
2020
|
December 31,
2021
|
December 31,
2020
|
Cash flow from
operating activities
|
668.7
|
201.1
|
2,006.5
|
655.7
|
Net change in other
liabilities
|
56.4
|
(2.7)
|
224.8
|
(7.6)
|
Change in non-cash
operating working capital
|
108.5
|
13.6
|
184.1
|
19.5
|
Funds from
operations
|
833.6
|
212.0
|
2,415.4
|
667.6
|
Capital
expenditures(1)
|
(374.9)
|
(76.7)
|
(1,061.8)
|
(343.2)
|
Free funds
flow
|
458.7
|
135.3
|
1,353.6
|
324.4
|
(1)
|
Certain additional
disclosures for these specified financial measures have been
incorporated by reference. See "Cash Flow Used in Investing
Activities, Capital Expenditures, Acquisitions and
Dispositions" in the 2021 Annual MD&A.
|
Adjusted Net Capital Acquisitions
Adjusted net capital acquisitions is a non-GAAP financial
measure used in the determination of FD&A costs, which is a
non-GAAP financial ratio. Adjusted net capital acquisitions is
useful as it provides a measure of cash, debt, and share
consideration used to acquire crude oil and natural gas assets
during the period, net of cash provided by the disposal of any
crude oil and natural gas assets during the period. The most
directly comparable GAAP measure to adjusted net capital
acquisitions is acquisition of crude oil and natural gas assets.
The following table details the calculation of adjusted net capital
acquisitions and its reconciliation to acquisition of crude oil and
natural gas assets.
|
Year
Ended
|
Year Ended
|
($
millions)
|
December 31,
2021
|
December 31,
2020
|
Acquisition of crude
oil and natural gas assets
|
1.1
|
0.2
|
Add:
|
|
|
Total consideration in
Business Combination
|
2,914.0
|
—
|
Debt acquired in
Business Combination
|
1,712.7
|
—
|
Remove:
|
|
|
Disposal of crude oil
and natural gas assets
|
(79.7)
|
(1.8)
|
Adjusted net capital
acquisitions
|
4,548.1
|
(1.6)
|
Non-GAAP Financial Ratios
Finding and Development Costs
ARC calculates F&D costs as capital expenditures divided by
the change in reserves within the applicable reserves category. ARC
calculates F&D costs, including FDC, as the sum of capital
expenditures and the change in FDC required to bring the reserves
on production, divided by the change in reserves within the
applicable reserves category. Capital expenditures, a non-GAAP
financial measure, is used as a component of F&D costs.
Management uses F&D costs as a measure of capital efficiency
for organic reserves development.
Finding, Development and Acquisition Costs
ARC calculates FD&A costs as the sum of capital expenditures
and adjusted net capital acquisitions divided by the change in
reserves within the applicable reserves category, inclusive of
changes due to acquisitions and dispositions. ARC calculates
FD&A costs, including FDC, as the sum of capital expenditures,
adjusted net capital acquisitions, and the change in FDC required
to bring the reserves on production, divided by the change in
reserves within the applicable reserves category, inclusive of
changes due to acquisitions and dispositions. Capital expenditures
and adjusted net capital acquisitions, both non-GAAP financial
measures, are used as components of FD&A costs. Management uses
FD&A costs as a measure of capital efficiency for organic and
acquired reserves development.
Recycle Ratio
ARC calculates recycle ratio by dividing the netback per boe by
F&D or FD&A costs. Netback per boe is a non-GAAP financial
ratio that uses netback, a non-GAAP financial measure, as a
component. Capital expenditures, a non-GAAP financial measure, is
used as a component of F&D costs. Capital expenditures and
adjusted net capital acquisitions, both non-GAAP financial
measures, are used as components of FD&A costs. Management uses
recycle ratio to relate the cost of adding reserves to the expected
cash flows to be generated.
Supplementary Financial Measures
Before-tax Proved plus Probable Net Present Value per
Share
Before-tax 2P NPV per share is comprised of the before-tax NPV
for 2P reserves, discounted at 10 per cent, as determined in
accordance with NI 51-101, divided by diluted weighted average
common shares.
2021 INDEPENDENT QUALIFIED RESERVES EVALUATION
GLJ conducted a Reserves Evaluation, effective December 31, 2021, which was prepared in
accordance with definitions, standards, and procedures in the COGE
Handbook and NI 51-101. The Reserves Evaluation was based on GLJ
forecast pricing and foreign exchange rates at January 1, 2022, as outlined in the table below.
These forecasts reflect current market conditions as defined by
current forward commodity prices as at December 31, 2021. This aligns with the COGE
Handbook, effective April 1, 2021,
which states that major benchmark commodity price forecasts, up to
and including the second full forecast year, should not deviate
from current forward commodity prices by more than 20 per cent.
Reserves included herein are stated on a company gross basis
(working interest before deduction of royalties without the
inclusion of any royalty interest) unless otherwise noted. ARC's
oil and gas reserves statement for the year ended December 31, 2021, including complete disclosure
of the Company's oil and gas reserves and other oil and gas
information in accordance with NI 51-101, will be disclosed in
ARC's Annual Information Form for the year ended December 31, 2021, which will be available on or
before March 31, 2022 on ARC's
website at www.arcresources.com and under ARC's SEDAR profile at
www.sedar.com.
GLJ Price
Forecast(1)
|
WTI Crude Oil (US$/bbl)
|
Edmonton Light Oil (Cdn$/bbl)
|
NYMEX Henry
Hub Natural Gas (US$/MMBtu)
|
AECO Natural Gas (Cdn$/MMBtu)
|
Foreign
Exchange (US$/Cdn$)
|
2022
|
2021
|
2022
|
2021
|
2022
|
2021
|
2022
|
2021
|
2022
|
2021
|
2022
|
73.00
|
51.50
|
87.97
|
60.78
|
3.80
|
2.80
|
3.40
|
2.67
|
0.790
|
0.765
|
2023
|
69.01
|
54.50
|
81.89
|
63.82
|
3.50
|
2.85
|
3.10
|
2.60
|
0.790
|
0.760
|
2024
|
67.24
|
57.79
|
79.32
|
68.14
|
3.15
|
2.90
|
3.15
|
2.60
|
0.790
|
0.760
|
2025
|
68.58
|
58.95
|
80.91
|
69.67
|
3.21
|
2.95
|
3.21
|
2.65
|
0.790
|
0.760
|
2026
|
69.96
|
60.13
|
82.53
|
71.22
|
3.28
|
3.01
|
3.28
|
2.71
|
0.790
|
0.760
|
2027
|
71.35
|
61.33
|
84.18
|
72.80
|
3.34
|
3.07
|
3.34
|
2.76
|
0.790
|
0.760
|
2028
|
72.78
|
62.56
|
85.86
|
74.42
|
3.41
|
3.13
|
3.41
|
2.81
|
0.790
|
0.760
|
2029
|
74.24
|
63.81
|
87.58
|
76.07
|
3.48
|
3.19
|
3.48
|
2.87
|
0.790
|
0.760
|
2030
|
75.72
|
65.09
|
89.32
|
77.59
|
3.55
|
3.25
|
3.55
|
2.92
|
0.790
|
0.760
|
2031(2)
|
77.24
|
|
91.11
|
|
3.62
|
|
3.62
|
|
0.790
|
0.760
|
Escalate
thereafter at
|
+2.0%
per
year
|
+2.0%
per year
|
+2.0%
per
year
|
+2.0%
per year
|
+2.0%
per
year
|
+2.0%
per year
|
+2.0%
per
year
|
+2.0%
per year
|
0.790
|
0.760
|
(1)
|
GLJ assigns a value
to ARC's existing physical diversification contracts for natural
gas to consuming markets across North America based upon GLJ's
forecast differential to NYMEX Henry Hub, contracted volumes, and
transportation expense. No incremental value was assigned to
potential future contracts that were not in place on December 31,
2021.
|
(2)
|
Escalated at two per
cent per year starting in 2032 in the January 1, 2022 GLJ price
forecast with the exception of foreign exchange, which remains
flat.
|
Definitions of Oil and Gas Reserves
Reserves are estimated remaining quantities of crude
oil and natural gas and related substances anticipated to be
recoverable from known accumulations, as of a given date, based on
the analysis of drilling, geological, geophysical, and engineering
data; the use of established technology; and specified economic
conditions, which are generally accepted as being reasonable.
Reserves are classified according to the degree of certainty
associated with the estimates as follows:
Proved Reserves are
those reserves that can be estimated with a high degree of
certainty to be recoverable. It is likely that the actual remaining
quantities recovered will exceed the estimated proved reserves.
Probable Reserves are
those additional reserves that are less certain to be recovered
than proved reserves. It is equally likely that the actual
remaining quantities recovered will be greater or less than the sum
of the estimated proved plus probable reserves.
Information Regarding Disclosure on Oil and Gas Reserves and
Operational Information
In accordance with Canadian practice, production volumes and
revenues are reported on a company gross basis, before deduction of
Crown and other royalties, and without including any royalty
interests, unless otherwise stated. Unless otherwise specified, all
reserves volumes in this news release (and all information derived
therefrom) are based on company gross reserves using forecast
prices and costs.
This news release contains metrics commonly used in the oil and
gas industry. These metrics do not have standardized meanings and
may not be comparable to similar metrics disclosed by other
issuers. See "Non-GAAP and Other Financial Measures" of this
news release and the definition of reserve replacement below.
Management uses these metrics for its own performance measurements
and to provide shareholders with measures to compare ARC's
performance over time; however, such measures are not reliable
indicators of ARC's future performance and future performance may
not compare to the performance in previous periods.
- Reserves replacement is calculated by dividing the
annual reserves additions, in boe, by ARC's annual production, in
boe. Management uses this measure to determine the relative change
of its reserves base over a period of time.
FORWARD-LOOKING INFORMATION AND STATEMENTS
This news release contains certain forward-looking statements
and forward-looking information (collectively referred to as
"forward-looking information") within the meaning of applicable
securities legislation about current expectations regarding the
future, based on certain assumptions made by ARC. Although ARC
believes that the expectations represented by such forward-looking
information are reasonable, there can be no assurance that such
expectations will prove to be correct. Forward-looking information
in this news release is identified by words such as "anticipate",
"believe", "ongoing", "may", "expect", "estimate", "plan", "will",
"project", "continue", "target", "strategy", "upholding", or
similar expressions and includes suggestions of future outcomes. In
particular, but without limiting the foregoing, this news release
contains forward-looking information with respect to: expected
changes to ARC's 2022 capital expenditure guidance; ARC's near-term
priorities; ARC's plans to sustain production, increase productive
capacity at Sunrise, and proceed with the development of Attachie
West Phase I once the BC regulatory environment becomes more
certain; plans to remain disciplined and plans to not accelerate
capital investments in growth projects beyond what is planned at
Sunrise and Attachie; plans to
allocate surplus funds from operations to debt reduction and
returns to shareholders; ARC's objectives with respect to growing
its dividend and share repurchases under its NCIB; plans to execute
Attachie West Phase I development once the BC regulatory
environment supports such investment; ARC's 2022 guidance including
planned capital expenditures, production guidance, and expectations
that it will offset inflationary pressures through continued
efficiency improvement initiatives; ARC's continued evaluation of
the results from implementing wider well spacing and modifications
to the well and pad design at Kakwa; expectations that capital
expenditures required to sustain production at Kakwa will be
reduced by approximately 10 per cent over time; ARC's expectations
with respect to its natural gas transportation agreement with
Alliance Pipeline; expected sales markets to which ARC will be
exposed in 2022; ARC's continued commitment to responsible resource
development, plans to reduce its absolute emissions, and plans to
bolster its position as an ESG leader; ARC's continued promotion of
diversity and inclusion; ARC's anticipated future development
costs; GLJ's price forecasts and foreign exchange rates; and
similar statements. Further, statements relating to reserves are
deemed to be forward-looking information, as they involve the
implied assessment, based on certain estimates and assumptions,
that the resources and reserves described can be profitably
produced in the future. In addition, forward-looking information
may include statements attributable to third-party industry
sources. There can be no assurance that the plans, intentions, or
expectations upon which these forward-looking statements are based
will occur.
Readers are cautioned not to place undue reliance on
forward-looking information as ARC's actual results may differ
materially from those expressed or implied. ARC undertakes no
obligation to update or revise any forward-looking information
except as required by law. Developing forward-looking information
involves reliance on a number of assumptions and consideration of
certain risks and uncertainties, some of which are specific to ARC
and others that apply to the industry generally. The material
assumptions on which the forward-looking information in this news
release are based, and the material risks and uncertainties
underlying such forward-looking information, include: ARC's ability
to successfully integrate and realize the anticipated benefits of
the Business Combination as well as other completed or future
acquisitions and divestitures; access to sufficient capital to
pursue any development plans; ARC's ability to issue securities and
to repurchase its securities under the NCIB; ARC's ability to meet
and maintain certain targets, including with respect to
emissions-related reductions and ESG performance; expectations and
projections made in light of ARC's historical experience; data
contained in key modeling statistics; the potential implementation
of new technologies and the cost thereof; forecast commodity prices
and other pricing assumptions with respect to ARC's 2022 capital
expenditure budget; continuing uncertainty of the impact of the
June 29, 2021 BC Supreme Court ruling
in Blueberry River First Nations
(Yahey) v. Province of British
Columbia on BC and/or federal laws or policies affecting
resource development in northeast BC and potential outcomes of the
ongoing negotiations between Blueberry River First Nations and the
Government of BC; assumptions with respect to global economic
conditions and the accuracy of ARC's market outlook expectations
for 2022 and in the future; suspension of or changes to guidance,
and the associated impact to production; the assumption that the
regulatory environment will be able to support ARC's investment in
the execution of Attachie West Phase I, including that regulatory
authorities in BC will resume granting approvals for oil and gas
activities relating to drilling, completions, testing, processing
facilities, and production and transportation infrastructure in
2022 on time frames, and terms and conditions, consistent with past
practice; forecast production volumes based on business and market
conditions; the accuracy of outlooks and projections contained
herein; the accuracy of the reserves information contained herein
and the assumptions and risks involved in the evaluation of such
reserves; that future business, regulatory, and industry conditions
will be within the parameters expected by ARC, including with
respect to prices, margins, demand, supply, product availability,
supplier agreements, availability, and cost of labour and interest,
exchange, and effective tax rates; projected capital investment
levels, the flexibility of capital spending plans, and associated
sources of funding; the ability of ARC to complete capital programs
and the flexibility of ARC's capital structure; applicable royalty
regimes, including expected royalty rates; future improvements in
availability of product transportation capacity; opportunity for
ARC to pay dividends and the approval and declaration of such
dividends by the board of directors of ARC; the existence of
alternative uses for ARC's cash resources which may be superior to
payment of dividends or effecting repurchases of outstanding common
shares; cash flows, cash balances on hand, and access to ARC's
credit facility being sufficient to fund capital investments;
foreign exchange rates; near-term pricing and continued volatility
of the market; the ability of ARC's existing pipeline commitments
and financial hedge transactions to partially mitigate a portion of
ARC's risks against wider price differentials; business
interruption, property and casualty losses, or unexpected technical
difficulties; estimates of quantities of crude oil, natural gas,
and liquids from properties and other sources not currently
classified as proved; accounting estimates and judgments; future
use and development of technology and associated expected future
results; ARC's ability to obtain necessary regulatory approvals
generally; potential regulatory and industry changes stemming from
the results of court actions affecting regions in which ARC holds
assets; risks and uncertainties related to oil and gas interests
and operations on Indigenous lands; the successful and timely
implementation of capital projects or stages thereof; the ability
to generate sufficient cash flow to meet current and future
obligations; estimated abandonment and reclamation costs, including
associated levies and regulations applicable thereto; ARC's ability
to obtain and retain qualified staff and equipment in a timely and
cost-efficient manner; ARC's ability to carry out transactions on
the desired terms and within the expected timelines; forecast
inflation and other assumptions inherent in the guidance of ARC;
the retention of key assets; the continuance of existing tax,
royalty, and regulatory regimes; GLJ's estimates with respect to
commodity pricing; ARC's ability to access and implement all
technology necessary to efficiently and effectively operate its
assets; the ongoing impact of COVID-19 on commodity prices and the
global economy; and other assumptions, risks, and uncertainties
described from time to time in the filings made by ARC with
securities regulatory authorities.
The forward-looking information contained herein are expressly
qualified in their entirety by this cautionary statement. The
forward-looking information included in this news release are made
as of the date of this news release and, except as required by
applicable securities laws, ARC undertakes no obligation to
publicly update such forward-looking information to reflect new
information, subsequent events or otherwise.
About ARC
ARC Resources Ltd. is a pure-play Montney producer and one of Canada's largest dividend-paying energy
companies, featuring low-cost operations and leading ESG
performance. ARC's investment-grade credit profile is supported by
commodity and geographic diversity and robust risk management
practices around all aspects of the business. ARC's common shares
trade on the Toronto Stock Exchange under the symbol ARX.
ARC RESOURCES LTD.
Please visit ARC's website at
www.arcresources.com or contact Investor Relations:
E-mail: IR@arcresources.com
Telephone: (403) 503-8600
Fax: (403) 509-6427
Toll Free: 1-888-272-4900
ARC Resources Ltd.
Suite 1200, 308 - 4 Avenue SW
Calgary, AB T2P 0H7
SOURCE ARC Resources Ltd.