Earnings Transcript for AETUF - Q2 Fiscal Year 2023
Operator:
Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the ARC Resources Second Quarter 2023 Earnings Conference Call.[Operator Instructions] Mr. Lewko, you may begin your conference.
Dale Lewko:
Great. Thank you, operator. Good morning, everyone, and thank you for joining us for our second quarter earnings conference call. Joining me today are Terry Anderson, President and Chief Executive Officer; Kris Bibby, Chief Financial Officer; Armin Jahangiri, Chief Operating Officer; Lara Conrad, Chief Development Officer; and Ryan Berrett, Senior Vice President, Marketing. Before I turn it over to Terry and Kris to take you through our second quarter results, I'll remind everyone that this conference call includes forward-looking statements and non-GAAP and other financial measures. The press release, financial statements and MD&A are available on our website as well as SEDAR. Finally, following our prepared remarks, we'll open the line to questions. With that, I'll turn it over to our President and CEO, Terry Anderson. Terry, please go ahead.
Terry Anderson:
Thanks, Dale, and good morning, everyone. Before I get into the quarter, I want to quickly summarize our long-term strategy that we laid out at our Investor Day in June. The main takeaways are
Kristen Bibby:
Thanks, Terry. Good morning, everyone. Q2 production was in line with our expectations and analyst estimates, while funds from operations per share registered roughly 5% ahead of consensus. Production of 344,000 BOE per day increased 2% year-over-year and 13% per share on a per share basis. And we maintained our full year production guidance of 350,000 to 355,000 BOEs per day. Funds from operations in the second quarter was $560 million. And although AECO was down significantly quarter-over-quarter, ARC as the largest condensate producer benefits from strong condensate pricing, which registered at CAD 93 per barrel in the quarter. To that end, our business remains resilient and profitable in the current price environment, a reflection of our low cost structure, asset quality and balanced commodity mix. After capital expenditure of $417 million, we generated $144 million of free cash flow in the quarter or $0.24 per share. ARC's realized natural gas price of $2.83 per Mcf was about a 20% premium to the AECO benchmark, again capitalizing on our marketing and transportation portfolio, which is an asset in and of itself. We also continue to actively manage price risk and volatility as we invest in Attachie. Our natural gas is about 25% hedged throughout the balance of this year, and just 20% of our natural gas is exposed to floating AECO in the summers of '23 and '24. In terms of capital returns, ARC returned 110% of our free cash flow to shareholders through the dividend and share repurchases in the quarter. And through 6 months, we've returned 90% net of proceeds from divestitures of free cash flow to shareholders. Since September of 2021 when we initiated our share buybacks, ARC has repurchased 119 million shares, representing roughly 16% of the shares outstanding at the beginning of the purchases. We intend to once again renew the NCIB in September for an additional 10% as we believe it's an attractive return opportunity for our shareholders. Our financial position remains in excellent shape and is core to our strategy. Net debt was unchanged at $1.3 billion in the quarter, representing 0.4x funds from operations. Net debt is within ARC's long-term target range of $1 billion to $1.5 billion and equates less -- to less than 1x cash flow at USD 50 WTI and CAD 2.50 AECO. As a result, we intend to return all free cash flow to shareholders. Finally, circling back to 2023 guidance. Capital and production were unchanged, along with all other cost guidance. We forecast average production of 350,000 to 355,000 BOE per day, which implies roughly 360,000 BOEs per day in the second half of 2023. Capital budget of $1.8 billion to $1.9 billion is also unchanged and is inclusive of $250 million to $300 million of investments at Attachie. We expect to disclose formal 2024 guidance in November with our Q3 results. The focus will be on an efficient base capital program and on completing Attachie Phase 1, which will set us up for a step change in our business in 2025, as we recently outlined in our Investor Day. With that, I'll pass it back to Terry for some closing remarks.
Terry Anderson:
Thanks, Kris. In June, we laid out a five-year plan at our Investor Day that we are executing on
Operator:
[Operator Instructions] And your first question will be from Jamie Kubik at CIBC.
Jamie Kubik:
I have a couple, but I've just been seeing a bunch of headlines on water restrictions in Northeast BC. Just curious if this is impacting ARC. And if you can talk about how it might impact you in the second half, if at all?
Armin Jahangiri:
Jamie, this is Armin. It is not going to impact us. We have pretty much all the water we need in our water storage ponds. We also have access to a fairly dedicated water recycling facility that really helps us with managing risks like this.
Jamie Kubik:
Okay. That's great. And then on the quarter, just curious if you can talk about how you think NGL price realizations evolve in the second half of '23, just given the weakness in Q2?
Ryan Berrett:
Jamie, it's Ryan. Yes, we would expect some modest price increases versus Q2, but generally for the year, relatively flat.
Jamie Kubik:
Okay. And then maybe last one from me just on Cedar LNG. Just what are the next steps for that project from ARC's standpoint?
Ryan Berrett:
Jamie, it's Ryan again. Yes, we are working through the long-term tolling agreement with Cedar LNG, and we've commenced discussions with off-takers and continue to proceed throughout the rest of the year.
Operator:
[Operator Instructions] And at this time, it appears we have no further questions. Please proceed with closing remarks.
Dale Lewko:
All right. Thanks, operator, and thanks, everyone, for joining the call. That concludes the call for the day. Thank you.
Operator:
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.