An anonymous director reports

ARC RESOURCES LTD. REPORTS FIRST QUARTER 2023 RESULTS AND ANNOUNCES THE SANCTION OF ATTACHIE AND DIVIDEND INCREASE

ARC Resources Ltd. has released its first quarter 2023 financial and operational results, has noted the sanctioning of Attachie phase I, has provided revisions to its 2023 guidance, and has increased the dividend.

Highlights

Attachie phase I sanction and revised guidance

• The board has approved the sanction of Attachie phase I. The capital costs to construct and fill the facility are approximately $740-million. Attachie phase I is expected to deliver approximately 40,000 boe (barrels of oil equivalent) per day, and includes a 90 MMcf (million cubic feet) per day natural gas processing facility and 25,000 barrels per day of liquids-handling infrastructure. ARC anticipates achieving full productive capacity in the first half of 2025.
• ARC has updated its 2023 guidance to incorporate the sanction of Attachie phase I. The revised total capital budget is largely unchanged at $1.8-billion to $1.9-billion ($1.8-billion previously), and includes $250-million to $300-million at Attachie phase I. Offsetting the Attachie phase I capital expenditures is lower capital investment on ARC's base assets due to stronger production performance, and the removal of certain infrastructure projects.
• ARC increased production guidance in 2023 to average between 350,000 and 355,000 boe per day (previously 345,000 to 350,000 boe per day). The increase reflects stronger than forecast production from its base assets.

First quarter highlights and dividend increase

• ARC delivered first quarter 2023 average production of 338,377 boe per day (62 per cent natural gas and 38 per cent crude oil and liquids). Stronger than forecast base production more than offset third party downtime resulting in an upward revision to 2023 production guidance.
• ARC generated funds from operations of $717-million ($1.16 per share) and free funds flow of $230-million (37 cents per share). ARC recognized cash flow from operating activities of $540-million and net income of $575-million (93 cents per share).
  • Market diversification resulted in an average realized natural gas price of $5.89 per Mcf (thousand cubic feet), 36 per cent greater than the average AECO 7A Monthly Index price.
• ARC's board of directors has approved a 13-per-cent increase to the quarterly dividend, from 15 cents per share to 17 cents per share. This is a continuation of ARC's strategy to sustainably grow the dividend with the underlying profitability of the business, and on a per-share basis as the share count is reduced.
• ARC distributed 106 per cent or $243-million (39 cents per share) of free funds flow for the period to shareholders through base dividends and share repurchases. Net debt was maintained at $1.3-billion or 0.3 times funds from operations as ARC disposed of non-core assets for cash proceeds of $74-million and dedicated the proceeds to repurchasing shares.
  • ARC repurchased 10 million shares during the first quarter. Since renewing its normal course issuer bid (NCIB) on Sept. 1, 2022, ARC has repurchased 44 million common shares, representing 16 per cent of total outstanding shares.
• Capital expenditures in the first quarter registered at $485-million, while cash flow from investing activities of $397-million included the proceeds from the disposition of non-core assets. ARC drilled 46 wells and completed 34 wells across its Alberta and British Columbia (B.C.) assets.
• ARC entered into a non-binding memorandum of understanding for a 20-year agreement to supply and liquefy approximately 200 MMcf (million cubic feet) per day of natural gas with the Cedar LNG project in British Columbia. This represents the equivalent of 1.5 million tonnes per annum of LNG (liquid natural gas) or approximately one half of the facility's total production capacity. ARC is advancing a binding agreement and continues to pursue LNG offtake arrangements to increase its anticipated total exposure to internationally linked natural gas pricing.

ARC's consolidated financial statements and notes and management's discussion and analysis (MD&A) as at and for the three months ended March 31, 2023, are available on ARC's website and under ARC's SEDAR profile.

Outlook

ARC's strategic priorities are to deliver sustainable free funds flow per-share growth adhering to long-standing principles of capital discipline, profitability and financial strength. To achieve this, ARC has put forth a strategy that balances organic investment in its highest-return assets with a meaningful capital return that includes a growing base dividend and share repurchases when deemed a profitable investment. A milestone in achieving these goals includes advancing the development of Attachie in northeast British Columbia (NEBC).

Attachie phase I sanction

ARC is pleased to announce that Attachie phase I has been sanctioned by the board. Attachie is a multiphase development that spans approximately 300 net sections in NEBC, providing a multidecade development runway for condensate and low-emission natural gas. Attachie phase I is a 40,000 boe per day project with a capital cost of approximately $740-million to build and fill the facility. ARC has secured access to critical services and has taken steps to mitigate inflation across critical parts of the supply chain. Long-term takeaway capacity for all products has been secured to retain operational flexibility, maintain a low-cost structure and maximize profitability.

The development plan put forth aligns with the principles of the agreements reached between the B.C. government and Treaty 8 First Nations, which address the cumulative impacts of development of the neighbouring Treaty 8 territories. These recent agreements, combined with ARC's collaboration with the Treaty 8 First Nations, has provided confidence to proceed with the Attachie development. Through continued partnership and engagement, ARC is committed to advancing the project in a manner that protects the environmental and cultural values and contributes to the economic prosperity of Treaty 8 First Nations, while creating value for its shareholders and the province.

Attributes of Attachie phase I

Capital expenditures to develop Attachie phase I are estimated at $740-million. This includes the capital investment to construct the facility and drill approximately 39 wells to fill the facility. Included in the capital expenditures is approximately $65-million of investments for subsequent phases at Attachie.

Attachie phase I is estimated to deliver annual average production of approximately 40,000 boe per day (60 per cent crude oil and natural gas liquids and 40 per cent natural gas). Production is expected to commence in late 2024, with full productive capacity anticipated in the first half of 2025.

• Total facility capacity includes a 90 MMcf (million cubic feet) per day natural gas processing facility and 25,000 barrels per day of liquids-handling capacity.
• In its first full year of operations, ARC anticipates that Attachie phase I will contribute approximately $450-million to funds from operations, based on the April 20, 2023, forward curve.
• Estimated capital to sustain production is approximately $150-million per year over the initial five years after achieving productive capacity.

Consistent with its NEBC operations, ARC plans to electrify the natural gas processing facility upon commissioning. This will reduce ARC's emissions intensity and contribute meaningfully toward achieving its emissions intensity reduction targets. As part of the Attachie development program, ARC is investing in water recycling infrastructure that will significantly reduce fresh water use.

2023 guidance

ARC has updated its 2023 guidance to reflect stronger production and incorporate the sanction of Attachie phase I.

ARC intends to invest between $1.8-billion and $1.9-billion in capital expenditures (previously $1.8-billion). The company plans to invest $250-million to $300-million at Attachie phase I in 2023. The majority of the Attachie phase I investment in 2023 will be allocated toward long-lead items and infrastructure construction. Revised guidance includes approximately $70-million of capital inflation that has been realized year to date.

Offsetting the investment for Attachie phase I is lower capital investment required to sustain base production due to stronger than forecast well performance, and the removal of approximately $120-million of capital previously allocated for water infrastructure at Kakwa. In its place, ARC has secured a long-term agreement with a third party for water infrastructure and disposal at competitive terms. The agreement is expected to decrease associated operating costs by between $30-million and $60-million per year beginning in 2024.

Other guidance revisions include a three per cent decrease to operating costs per boe, and slight revisions to the production mix to reflect a higher natural gas weight as a result of the third party downtime in the first quarter, and updated timing of new well pads at Kakwa. All other expenses are unchanged.

ARC's 2023 preliminary annual guidance, 2023 revised annual guidance and a review of 2023 year-to-date results are outlined in the attached table.

Investor day

ARC will host an investor update on Thursday, June 22, 2023, in Toronto. The live event will feature presentations from the executive leadership team and will provide greater insight into ARC's long-term strategy, including asset-level detail and details of the Attachie phase I development.

Dividends

During the first quarter 2023, ARC declared dividends of $92-million (15 cents per share).

The board approved a 13-per-cent increase to the quarterly dividend, from 15 cents per share to 17 cents per share. The dividend increase is effective with the second quarter dividend payable on July 17, 2023, to shareholders of record on June 30, 2023.

Share repurchases

During the first quarter of 2023, ARC repurchased 10 million common shares under its NCIB at a weighted average price of $15.51 per share.

ARC has repurchased 44 million common shares since renewing its NCIB on Sept. 1, 2022, representing 67 per cent of its current NCIB allotment.

Since commencing its initial NCIB in September, 2021, ARC has repurchased approximately 16 per cent of total outstanding shares, or 116 million common shares, at a weighted average price of $15.54 per share.

The attached table details the change in funds from operations for the first quarter of 2023 relative to the fourth quarter of 2022.

Net income

ARC recognized net income of $575-million (93 cents per share) during the first quarter of 2023, a decrease of $166-million (25 cents per share) from the fourth quarter 2022.

Conference call

ARC's senior leadership team will be hosting a conference call to discuss the company's first quarter 2023 results on Friday, May 5, 2023, at 8 a.m. Mountain Time (MT).

About ARC Resources Ltd.

ARC Resources is the largest pure play Montney producer and one of Canada's largest dividend-paying energy companies, featuring low-cost operations and leading ESG (environmental, social and governance) 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.

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