ARC Resources Ltd. reports record year-end results and reserves

Press Release

CALGARY, AB, Feb. 9, 2023 – (TSX: ARX) ARC Resources Ltd. (“ARC” or the “Company”) today reported its fourth quarter and year-end 2022 financial and operational results as well as its year-end 2022 reserves.

ARC generated record production and funds from operations per share in the fourth quarter of 2022. In 2022, annual average production, net income, funds from operations, and free funds flow were the highest of any year in ARC’s 26-year history.

HIGHLIGHTS

Fourth Quarter 2022 Results

ARC delivered record average production of 359,730 boe⁽¹⁾⁽²⁾ per day (61 per cent natural gas and 39 per cent crude oil and liquids). Production per share⁽³⁾ increased 16 per cent year-over-year and was in-line with Company guidance despite weather related downtime in December.
ARC generated free funds flow of $603 million⁽⁴⁾ ($0.96 per share)⁽⁵⁾, funds from operations of $986 million⁽⁶⁾($1.56 per share)⁽⁷⁾ and cash flow from operating activities of $878 million in the fourth quarter. ARC invested $383 million into capital expenditures⁽⁴⁾, in-line with Company guidance.
ARC’s market diversification strategy resulted in an average realized natural gas price of $8.31 per Mcf⁽⁷⁾; $2.73 per Mcf, or 49 per cent, greater than the average AECO 7A Monthly Index price.
ARC distributed 68 per cent or $411 million ($0.65 per share) of free funds flow for the period to shareholders through base dividends and share repurchases, with the remainder used to reduce net debt to $1.3 billion⁽⁶⁾ or 0.4 times funds from operations⁽⁶⁾.
ARC repurchased 17 million shares during the fourth quarter. Since renewing its NCIB on August 30, 2022, ARC has repurchased 35 million common shares, representing 53 per cent of its allotment under the current NCIB.
ARC recognized net income of $741 million ($1.18 per share), compared to net income of $678 million ($0.96 per share) in the fourth quarter of 2021.

Year-end 2022 Results

ARC generated record free funds flow in 2022 of $2.3 billion ($3.42 per share), representing a 58 per cent increase compared to 2021 free funds flow per share. ARC distributed 71 per cent or $1.6 billion ($2.43 per share) of free funds flow to shareholders with the remainder used to further strengthen ARC’s balance sheet by reducing debt by $0.7 billion and net debt by $0.5 billion.
In the second quarter of 2022, ARC entered into a long-term natural gas supply agreement with Cheniere Energy, Inc. (“Cheniere”). The agreement commences with the commercial operation of Train 7 of the Corpus Christi Stage III expansion which is expected in 2027. ARC will deliver natural gas to Cheniere through existing pipeline capacity and will receive a liquefied natural gas (“LNG”) price based on Platts JKM^TM (Japan Korea Marker), after deductions for fixed LNG shipping costs and a fixed liquefaction fee.
ARC recognized net income of $2.3 billion ($3.47 per share) compared to net income of $787 million ($1.25 per share) in 2021. Cash flow from operating activities was $3.8 billion and funds from operations were $3.7 billion ($5.60 per share).
ARC executed its 2022 capital program safely and efficiently. Cash flow used in investing activities totaled $1.4 billion, with capital expenditures of $1.4 billion delivering record average production of 345,613 boe per day (61 per cent natural gas and 39 per cent crude oil and liquids) in 2022.
Market diversification resulted in an average annual realized natural gas price of $8.15 per Mcf; $2.59 per Mcf, or 47 per cent greater than the average AECO 7A Monthly Index price for the period.
In January 2023, ARC received certification under Equitable Origin’s EO100^TM Standard for Responsible Development for its Ante Creek asset. With this certification and prior certifications received in 2022 for Kakwa and the Company’s northeast BC assets, 100 per cent of the Company’s assets are now certified under this global standard, representing the largest certified production base in Canada.

Year-end 2022 Reserves (1)(8)

ARC’s before-tax net present value (“NPV”) of proved plus probable (“2P”) reserves, discounted at 10 per cent, increased 49 per cent to $34.00 per share⁽⁹⁾ or $21.1 billion at December 31, 2022. The increase was driven by positive technical revisions and extensions and improved recovery, particularly at Kakwa, along with stronger commodity prices and reduced share count.
ARC grew its reserves per share in all categories between 14 per cent and 22 per cent. Proved producing (“PDP”) reserves increased 22 per cent per share to 549 MMboe, primarily due to out performance at Kakwa where PDP reserves increased by 17 per cent. PDP finding, development and acquisition (“FD&A”) costs including future development costs (“FDC”) of $8.31 per boe⁽¹⁰⁾ equated to a 5.2 times⁽¹⁰⁾ PDP recycle ratio.
2P reserve replacement from development has been 140 per cent of production or greater for 15 consecutive years, and at year-end 2022 just 17 per cent of ARC’s total drilling inventory was booked in the 2P category. ARC’s Attachie asset, which will drive the next phase of production and reserve growth, comprised less than four per cent of total 2P locations with just 34 undeveloped drilling locations booked.

ARC’s 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, 2022, are available on ARC’s website at www.arcresources.com and under ARC’s SEDAR profile at www.sedar.com. The disclosures under the sections entitled “Netback” and “Non-GAAP and Other Financial Measures” in ARC’s MD&A as at and for the three months and year ended December 31, 2022 (the “2022 Annual MD&A”) are incorporated by reference in this news release.


(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.
(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. Throughout this news release, crude oil and liquids (“crude oil and liquids”) refers to crude oil, condensate, and NGLs.
(3)	Represents average daily production divided by the diluted weighted average common shares outstanding for the respective three months ended December 31.
(4)	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 2022 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.
(5)	Non-GAAP ratio that is not a standardized financial measure under IFRS and may not be comparable to similar ratios disclosed by other issuers. Free funds flow, a non-GAAP financial measure, is used as a component of the non-GAAP ratio. See “Non-GAAP and Other Financial Measures” in the 2022 Annual MD&A for the non-GAAP ratio for the comparative period and other information relating to this non-GAAP ratio, which information is incorporated by reference into this news release.
(6)	See Note 16 “Capital Management” in the financial statements and “Non-GAAP and Other Financial Measures” in the 2022 Annual MD&A for information relating to this capital management measure, which information is incorporated by reference into this news release.
(7)	See “Non-GAAP and Other Financial Measures” in the 2022 Annual MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release.
(8)	GLJ Ltd. (“GLJ”) conducted an Independent Qualified Reserves Evaluation (“Reserves Evaluation”), dated February 8, 2023 and effective December 31, 2022, 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, 2023.
(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.
(10)	Non-GAAP 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 ratio, and capital expenditures and adjusted net capital acquisitions, both non-GAAP financial measures, are used as components of the non-GAAP ratio. See “Non-GAAP and Other Financial Measures” of this news release for the non-GAAP ratio for the comparative period and other information relating to this non-GAAP ratio.