An anonymous director reports

ARC RESOURCES LTD. REPORTS SECOND QUARTER 2023 RESULTS

ARC Resources Ltd. has released its second quarter 2023 financial and operational results.

Highlights:

• ARC delivered second quarter 2023 production of 343,630 barrels of oil equivalent (boe) (1) per day (63 per cent natural gas and 37 per cent crude oil and liquids (2)). Production increased 2 per cent year over year and 13 per cent on a per-share (3) basis:
  • Second quarter production was impacted by approximately 4,100 boe per day related to the wildfires in Alberta. Production was fully restored in the quarter, with June production averaging 355,000 boe per day. ARC's assets, including its infrastructure, did not sustain any damages.
• ARC generated funds from operations of $561-million (4) (92 cents per share (5)) and free funds flow of $144-million (6) (24 cents per share (7)). ARC recognized cash flow from operating activities of $551-million (90 cents per share) and net income of $279-million (46 cents per share).
• ARC distributed approximately 110 per cent of free funds flow or $159-million to shareholders during the second quarter. Through the first six months of 2023, ARC has returned 107 per cent of free funds flow to shareholders (90 per cent net of proceeds from divestitures):
  • ARC declared dividends of $104-million or 17 cents per share and repurchased 3.1 million common shares for $55-million under its normal course issuer bid (NCIB).
  • Since renewing its NCIB on Sept. 1, 2022, ARC has repurchased 47 million common shares, representing 72 per cent of its allotment under the current NCIB. ARC intends to continue to allocate free funds flow to share repurchases and plans to renew the NCIB for an additional 10 per cent of the public float (as defined by the TSX) on Sept. 1, 2023, subject to review and approval by the TSX.
• Capital expenditures in the second quarter totalled $417-million (6).
• Through the first half of 2023, capital expenditures totalled $904-million, representing approximately 50 per cent of the 2023 capital budget. During the second quarter, ARC completed its 80-million-cubic-feet-per-day (mmcf per day) Sunrise facility expansion and executed turnarounds at Kakwa, both on time and within budget. In addition, the company drilled 32 wells and completed 49 wells, providing operational momentum for the second half of 2023.
• Guidance for 2023 is unchanged. Planned capital expenditures remain between $1.8-billion and $1.9-billion (8) and full-year production is forecast to average between 350,000 and 355,000 boe per day (62 per cent natural gas and 38 per cent crude oil and liquids).
• As of June 30, 2023, ARC's long-term debt balance was $1.1-billion and its net debt balance was $1.3-billion (4) or 0.4 times funds from operations (4).

ARC's unaudited condensed consolidated financial statements and notes (the financial statements), and the management's discussion and analysis (MD&A), as at and for the three and six months ended June 30, 2023, are available on ARC's website and under ARC's SEDAR+ profile. The disclosure under the section entitled non-GAAP (generally accepted accounting principles) and other financial measures in ARC's MD&A as at and for the three and six months ended June 30, 2023 (the Q2 2023 MD&A), is incorporated by reference into this news release.

(1) ARC has adopted the standard 6,000 cubic feet (mcf) of natural gas to one barrel (bbl) (6:1) 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 6,000 cubic feet to one barrel 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 with 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 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. 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) refer 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 June 30.

(4) See note 10, capital management, in the financial statements and non-GAAP and other financial measures in the Q2 2023 MD&A for information relating to this capital management measure, which information is incorporated by reference into this news release.

(5) See non-GAAP and other financial measures in the Q2 2023 MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release.

(6) Non-GAAP financial measure that is not a standardized financial measure under international financial reporting standards (IFRS) and may not be comparable with similar financial measures disclosed by other issuers. See non-GAAP and other financial measures in the Q2 2023 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.

(7) Non-GAAP ratio that is not a standardized financial measure under IFRS and may not be comparable with similar financial measures 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 Q2 2023 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.

(8) Refer to the about ARC Resources section contained within the Q2 2023 MD&A for historical capital expenditures, which information is incorporated by reference into this news release.

Guidance and outlook

2023 guidance

Guidance for 2023 is unchanged and outlined in the attached table.

• Full-year 2023 production is forecast to average between 350,000 and 355,000 boe per day (62 per cent natural gas and 38 per cent crude oil and liquids), which implies average production of approximately 360,000 boe per day in the second half of 2023, driven primarily from volume growth at Kakwa, Greater Dawson and Sunrise.
• ARC plans to invest between $1.8-billion and $1.9-billion in capital expenditures for 2023, unchanged from previous guidance.

Refer to the annual guidance section in ARC's MD&A for the three and six months ended June 30, 2023, available on ARC's website and under ARC's SEDAR+ profile.

Outlook

Now in its 28th year of operations, ARC has transformed to become the largest condensate producer and largest Montney producer in Canada, establishing its large Montney position early and investing in organic development and countercyclical acquisitions and divestitures. The focus remains centred on delivering sustainable and profitable growth, adhering to its guiding principles of capital discipline, financial strength, high-quality assets and people, and returns to shareholders.

The characteristics of ARC today -- scale, investment-grade credit rating, high-quality Montney resource -- have enabled ARC to execute agreements that extend its marketing strategy globally through long-term liquefied natural gas (LNG) supply agreements. Underpinning this strategy, is low-emission, low-cost Montney growth in British Columbia and Alberta, which includes the Sunrise expansion in the near term and the development that is under way at its landmark Attachie asset. Attachie phase I, the first phase of several at Attachie, is on track to be on stream in 2025:

• Total anticipated capital investment to bring phase I on stream remains unchanged at $740-million.
• Full productive capacity of approximately 40,000 boe per day (40 per cent natural gas and 60 per cent crude oil and liquids) is anticipated to be on stream in the first half of 2025.
• Long-term takeaway capacity for all products has been secured for multiple phases.

ARC provided a five-year financial outlook through 2028 as part of its investor update in June, 2023, which incorporates a second phase of Attachie development. A replay of the investor update along with the investor presentation can be found on ARC's website.

Financial and operational results

Production:

• ARC's production averaged 343,630 boe per day during the second quarter of 2023 (63 per cent natural gas and 37 per cent crude oil and liquids).
• Second quarter production was impacted by approximately 4,100 boe per day related to the wildfires in Alberta and associated downtime on third party pipelines and infrastructure. Owned and operated infrastructure and dual-connected facilities were critical in minimizing the operating and financial impact. Production was fully restored in the second quarter, with June production averaging approximately 355,000 boe per day.
• Production in the second half of the year is forecast to average approximately 360,000 boe per day. The increase in production, compared with the first half of the year, will be driven primarily from Kakwa, Greater Dawson and Sunrise returning to full production levels.
• At Kakwa, ARC has improved efficiencies and extended its inventory duration:
  • ARC has observed an 18-per-cent improvement in well productivity due to improved well design progressions and wider interwell spacing.
  • With approximately 55 per cent of Kakwa undeveloped, ARC is able to sustain production at approximately 180,000 boe per day for the next 15 years.

Funds from operations, cash flow from operating activities and free funds flow

Funds from operations and cash flow from operating activities:

• Second quarter 2023 funds from operations were $561-million ($0.92 per share), representing a decrease of $157-million from the first quarter of 2023. This decrease was driven by lower commodity prices. Partially offsetting lower commodity prices were slightly higher production volumes and lower realized losses on risk management contracts. Second quarter risk management losses of $9-million decreased $141-million from the first quarter of 2023.
• Second quarter 2023 cash flow from operating activities was $551-million, increasing by $11-million (three cents per share) from the first quarter of 2023.

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

Free funds flow:

• ARC generated free funds flow of $144-million (24 cents per share) during the second quarter of 2023.
• ARC intends to return essentially all free funds flow to shareholders in 2023 through a combination of dividends and share repurchases.

Shareholder returns

Dividends and share repurchases:

• During the second quarter, ARC distributed 110 per cent or $159-million (26 cents per share) of free funds flow to shareholders through a combination of dividends and share repurchases under its NCIB:
  • On May 4, 2023, 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 was effective with the second quarter dividend payable on July 17, 2023, to shareholders of record on June 30, 2023.
  • During the second quarter 2023, ARC declared dividends of $104-million (17 cents per share).
  • ARC repurchased $3.1-million common shares under its NCIB at a weighted average price of $16.88 per share.
• In the first six months of 2023, ARC returned 107 per cent of free funds flow to shareholders (90 per cent net of proceeds from divestitures).
• ARC has repurchased 47 million common shares since renewing its NCIB on Sept. 1, 2022, representing 72 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 119 million common shares at a weighted average price of $15.59 per share.
• ARC intends to renew its NCIB on Sept. 1, 2023, for an additional 10 per cent of the public float, subject to review and approval by the TSX.

Operating and transportation expense

Operating expense:

• ARC's second quarter 2023 operating expense of $4.81 per boe was in line with the 2023 guidance range of $4.45 to $4.85 per boe.
• Operating expense per boe increased 7 per cent or by 31 cents per boe quarter over quarter, reflecting the completion of planned turnaround activity.

Transportation expense:

• ARC's second quarter 2023 transportation expense per boe of $5.34 decreased by 27 cents per boe from the first quarter of 2023 and was slightly below ARC's guidance range of $5.50 to $6 per boe. The decrease is primarily due to lower fuel gas expense related to lower commodity prices.

Cash flow used in investing activities and capital expenditures:

• Capital expenditures in the second quarter registered at $417-million. ARC drilled 32 wells and completed 49 wells during the second quarter, focused mainly at Kakwa and Sunrise. Other investment focused on completing the Sunrise facility expansion, turnaround activity at Kakwa, and the electrification of the Dawson III and IV facilities.
• Cash flow used in investing activities was $464-million during the second quarter of 2023. During the six months ended June 30, 2023, cash flow used in investing activities was $862-million. Of this, ARC invested $902-million in capital expenditures to drill 78 wells and complete 83 wells.

The attached table details ARC's capital activity by area during the first six months of 2023.

Physical marketing and risk management:

• In the second quarter, ARC realized an average natural gas price of $2.83 per mcf, 20 per cent higher than the average AECO 7A Monthly Index price for the period.
• ARC has approximately 25 per cent of its natural gas hedged in 2023, primarily through costless collars and weighted to the summer months.
• The company continues to evaluate opportunities to supply natural gas to international markets through long-term LNG supply agreements. ARC has takeaway capacity in place to execute on such agreements, with plans to market approximately 25 per cent of its future natural gas production to international markets.

Net debt:

• As of June 30, 2023, ARC's long-term debt balance was $1.1-billion and its net debt balance was $1.3-billion or 0.4 times funds from operations.
• ARC targets its net debt to be approximately 1.0 times funds from operations and manages its capital structure to achieve that target over the long term:
  • Long-term debt comprises $1.0-billion of senior notes outstanding and $100-million in borrowings under the company's credit facility.
• ARC holds an investment-grade credit rating, which allows the company to have access to capital and manage a low-cost capital structure. ARC is committed to protecting its strong financial position by maintaining significant financial flexibility with its balance sheet.

Net income:

• ARC recognized net income of $279-million (46 cents per share) during the second quarter of 2023, a decrease of $296-million (47 cents per share) from the first quarter of 2023.

ESG (environmental, social and governance) initiatives

In the second quarter, ARC completed the electrification of its Dawson III and IV facilities. As a result, all of the company's major natural gas plants in northeast British Columbia are now powered by renewable hydroelectricity, which avoids GHG emissions of approximately 420,000 tCO2e per year. This project was supported in part through funding provided by the Province of British Columbia.

ARC plans to publish its 2022 ESG performance data and highlights in the third quarter of 2023.

Conference call

ARC's senior leadership team will be hosting a conference call to discuss the company's second quarter 2023 results on Thursday, Aug. 3, 2023, at 8 a.m. Mountain Time.

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 following the conference call.

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 with 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 that are determined in accordance with IFRS, such as net income, cash flow from operating activities and cash flow used in investing activities, as indicators of ARC's performance.

About ARC Resources Ltd.

ARC 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.

We seek Safe Harbor.