Risk Managed Value Creation
ARC Resources is a mid-sized dividend paying oil and gas company
with near-term growth prospects, and is located in Calgary, Alberta.
FINANCIAL AND OPERATIONAL HIGHLIGHTS • ARC's third quarter average production of 94,515 boe per day was up six per cent from the third quarter of 2012 and year-to-date average production of 94,471 boe per day was two per cent higher than 2012. Strong performance at Pembina and higher production at Ante Creek and Parkland/Tower contributed to increased production in 2013. ARC expects fourth quarter 2013 production to increase as new pad wells are brought on production at Ante Creek. ARC expects 2013 full year production to average between 94,000 and 97,000 boe per day. • During the third quarter, construction continued on ARC's 60 mmcf per day Parkland/Tower gas processing and liquids handling facility. Construction is on schedule and commissioning started in the fourth quarter. ARC expects the facility to be on-stream by early 2014 with potential for earlier start-up in late Q4 2013 pending the progress of ongoing commissioning work. ARC has drilled and completed 16 wells on two pads at Tower and 13 wells on four pads at Parkland which are currently being tied-in to the new facility. • Third quarter and year-to-date 2013 commodity sales revenues of $417.4 million and $1.2 billion were up 27 per cent and 18 per cent, respectively, relative to 2012 levels. The increase was due to higher realized crude oil and natural gas prices. Although crude oil and liquids production accounted for 38 per cent and 39 per cent of third quarter and year-to-date production, respectively, they contributed approximately 77 per cent and 73 per cent of third quarter and year-to-date sales revenues, respectively, due to the strength of crude oil prices relative to natural gas prices. • Third quarter funds from operations were $220.4 million ($0.71 per share), up 34 per cent from the third quarter of 2012. Year-to-date funds from operations were $624.0 million ($2.01 per share), 22 per cent higher than the comparable period of 2012. The increase in third quarter and year-to-date 2013 funds from operations was primarily due to higher production and higher crude oil and natural gas prices in 2013. • ARC's third quarter 2013 funds from operations included realized hedging gains of $5.6 million on ARC's commodity, foreign currency and power hedging contracts. Year-to-date 2013 funds from operations included realized hedging gains of $11.8 million on ARC's commodity, foreign currency and power hedging contracts. • Operating income was $73.3 million ($0.23 per share) in the third quarter of 2013, 176 per cent higher than the third quarter of 2012. Year-to-date operating income of $174.9 million ($0.56 per share) was up 68 per cent relative to the comparable period of 2012 due primarily to higher production and higher crude oil and natural gas prices in 2013. • Third quarter capital expenditures, prior to crown land purchases and net property dispositions, totaled $250.3 million, resulting in year-to-date capital spending of $652.2 million. ARC's capital program focused primarily on oil and liquids-rich opportunities at Parkland/Tower, Ante Creek, Pembina, southeast Saskatchewan and Manitoba along with spending on natural gas development at Dawson. ARC drilled 51 gross operated wells in the third quarter of 2013 (45 oil wells, two liquids-rich natural gas wells and four natural gas wells), resulting in 141 gross operated wells being drilled in the first nine months of 2013 (118 oil wells, 14 liquids-rich natural gas wells and nine natural gas wells). ARC's board of directors approved an increase to the 2013 capital program from $830 million to $860 million, excluding land and net property acquisitions, to accelerate certain capital projects originally planned for 2014, to replace divested production and to drill additional wells at Ante Creek, offsetting competitor wells. • During the third quarter, ARC divested of certain non-core assets located in northern Alberta and the greater Pembina area for gross proceeds of approximately $54 million. The divested assets had associated production of approximately 1,700 boe per day (approximately 75 per cent natural gas) and proved plus probable reserves of 5.6 mmboe. Through the first nine months of 2013, ARC received total gross proceeds of approximately $90 million from non-core asset divestments with associated production of approximately 2,000 boe per day (65 per cent natural gas) and proved plus probable reserves of 7.1 mmboe. • ARC completed $21.5 million of land purchases and “tuck-in” acquisitions in key development areas during the third quarter ($34.8 million in the first nine months of 2013). Acquisitions targeted primarily the Montney and Pembina Cardium regions. ARC has grown its Montney land holdings from 724 net sections to 888 net sections during 2013 with the most significant additions being at Ante Creek and Attachie. • ARC closed the third quarter with a strong balance sheet including total available credit facilities of $2 billion and debt of $780.7 million drawn. ARC had available credit of approximately $1 billion after a working capital deficit. Net debt to annualized year-to-date funds from operations ratio was 1.1 times and net debt was approximately
ARC Resources THIRD QUARTER 2013
ten per cent of ARC's total capitalization at the end of the third quarter; both metrics are well within ARC's target levels. • ARC paid a dividend of $0.30 per share to shareholders for the third quarter of 2013 and has confirmed a dividend of $0.10 per share to shareholders for October 2013 to be paid on November 15, 2013. ARC has conditionally declared a dividend of $0.10 per share, payable monthly for November and December 2013 and January 2014, subject to confirmation by monthly news release and subject to any further resolution of the Board of Directors. ARC has maintained the monthly dividend at $0.10 per share or higher since inception in 1996, with payments totaling $29.48 per share since inception through October 15, 2013. • ARC's board of directors has approved a $915 million capital program for 2014 which is expected to deliver 17 per cent annual production growth in 2014. Additional details can be found in the November 6, 2013 news release titled “ARC Resources Ltd. Announces a $915 million Capital Program Targeting 17 per cent Growth in Production in 2014” filed on SEDAR at www.sedar.com.
DIVIDENDS ARC paid dividends totaling $0.30 per share for the third quarter of 2013. The Board of Directors has confirmed a dividend of $0.10 per share for October 2013, payable on November 15, 2013, and has conditionally declared a monthly dividend of $0.10 per share for November 2013 through January 2014 payable as follows: Ex-dividend date Record date Payment date Per share amount October 29, 2013 October 31, 2013 November 15, 2013 $0.10 (1) November 27, 2013 November 29, 2013 December 16, 2013 $0.10 (2) December 29, 2013 December 31, 2013 January 15, 2014 $0.10 (2) January 29, 2014 January 31, 2014 February 18, 2014 $0.10 (2) (1) Confirmed on October 16, 2013. (2) Conditionally declared, subject to confirmation by news release and further resolution by the Board of Directors. ARC's shareholders may receive dividend payments in the form of cash or may elect to receive dividend payments in the form of common shares through the company's Stock Dividend Program (“SDP”). Shareholders may reinvest cash dividends into additional common shares of ARC through the Dividend Reinvestment Plan (“DRIP”). Participation in the SDP or DRIP is optional. Shareholders will continue to receive dividend payments in cash unless they choose to participate in the SDP or DRIP. Shareholders, wherever resident, are encouraged to consult their own tax advisors regarding the tax consequences to them of receiving cash or stock dividends. During the first nine months of 2013, ARC declared dividends of $280.0 million, of which $8.0 million was issued in the form of common shares under the SDP and $89.5 million was reinvested into ARC shares through the DRIP.
ARC Resources THIRD QUARTER 2013
Proceeds received from the DRIP and reduced cash dividend payments resulting from shares issued under the SDP are a source of funding for ARC's capital programs. For additional details regarding the SDP and DRIP including terms, eligibility, and enrollment procedures, please see our website at www.arcresources.com. The dividends have been designated as eligible dividends under the Income Tax Act (Canada). The declaration of the dividends is conditional upon confirmation by news release and is subject to any further resolution of the Board of Directors. Dividends are subject to change in accordance with ARC's dividend policy depending on a variety of factors and conditions existing from time-to-time, including fluctuations in commodity prices, production levels, capital expenditure requirements, debt service requirements, operating expenses, royalty burdens, foreign exchange rates and the satisfaction of solvency tests imposed by the Business Corporations Act (Alberta) for the declaration and payment of dividends. See “Outlook” for additional discussion regarding Dividends. OUTLOOK The foundation of ARC's business strategy is “risk-managed value creation”. High quality assets, operational excellence, financial strength, and top talent are the key principles underpinning ARC's business strategy. ARC's goal is to create shareholder value in the form of regular dividends and anticipated capital appreciation relating to future growth. ARC is focused on value creation, with the dividend being a key component of our business strategy. We believe that we are well positioned to sustain current dividend levels despite the volatile commodity price environment. ARC's dividend payout ratio was 43 per cent of funds from operations for the third quarter of 2013, a level which we believe is reasonable given the current commodity price environment. Going forward, as we grow our production and funds from operations, we expect that our dividend payout ratio will naturally decline to a level that provides even greater financial flexibility. Our business model is dynamic and we continually assess dividend levels and capital spending in light of current and forecast market conditions. ARC has executed a strong capital program to date in 2013, spending $652.2 million with a focus on oil and liquid-rich gas development and infrastructure spending to facilitate future growth. ARC’s Board of Directors approved an increase to the 2013 capital program from $830 million to $860 million. The additional $30 million will be utilized to accelerate projects in the fourth quarter of 2013, primarily to drill additional wells at Ante Creek and Sunrise, which were originally planned for 2014. ARC expects to deliver modest production growth of approximately three per cent in 2013 with more significant growth coming on in 2014 upon commissioning the new Parkland/Tower gas processing and liquids handling facility. ARC has grown its presence in the Montney to 888 net sections through the acquisition of 164 net sections of land to date in 2013, primarily at Ante Creek and Attachie. The divestment of non-core gas weighted assets to date in 2013 yielded proceeds of approximately $90 million, further strengthening ARC's balance sheet and will be used to fund ARC's 2013 and 2014 capital programs. ARC’s Board approved a 2014 capital program of $915 million, with a continued focus on oil and liquids-rich gas development to capitalize on the strength of crude oil prices and natural gas development spending in low cost, high rate of return natural gas projects. ARC expects 2014 production to be in the range of 110,000 to 114,000 boe per day, representing approximately 17 per cent production growth relative to estimated 2013 levels. A significant portion of the 2014 production growth will come from the Parkland/Tower area with the start-up of the new 60 mmcf per day gas processing and liquids handling facility in late 2013 or early 2014. ARC will pursue the most cost effective means of financing its 2014 capital program through a combination of funds from operations, DRIP proceeds, reduced cash dividend payments resulting from shares issued under the SDP, existing credit facilities, and proceeds from potential non-core property dispositions. The 2014 planned capital program excludes unbudgeted amounts for the acquisition of land and small producing properties. For more information on the 2014 capital budget please see the November 6, 2013 news release titled “ARC Resources Ltd. Announces a $915 million Capital Program Targeting 17 per cent Growth in Production in 2014”. Due to strong production to date in 2013 and with an increased capital program in 2013, ARC has updated its full year 2013 production guidance to be in the range of 94,000 - 97,000 boe per day, previously 93,000 to 97,000 boe per day. ARC's planned 2013 capital expenditure program of $860 million excludes unbudgeted amounts for the acquisition of land and small producing properties.