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ARC Resources Ltd. Reports Record Year-end 2021 Results and Reserves

CALGARY, AB, Feb. 9, 2022 /CNW/ - (TSX: ARX) ARC Resources Ltd. ("ARC" or the "Company") today reported its fourth quarter and year-end 2021 financial and operational results as well as its year-end 2021 reserves.

ARC Resources Ltd. (CNW Group/ARC Resources Ltd.)
ARC Resources Ltd. (CNW Group/ARC Resources Ltd.)

2021 was a transformative year for ARC, marked by the acquisition of Seven Generations Energy Ltd. ("Seven Generations"), which closed on April 6, 2021 (the "Business Combination"). Coupled with its solid financial position, ARC delivered a record-low operating expense and the highest free funds flow per share in its 25-year history, illustrating the underlying profitability and quality of ARC's business.

HIGHLIGHTS

Fourth Quarter 2021 Results

  • ARC recognized net income of $678 million ($0.96 per share), compared to net income of $121 million ($0.34 per share) during the fourth quarter of 2020.

  • ARC delivered average production of 345,831 boe(1)(2) per day (62 per cent natural gas and 38 per cent crude oil and liquids) to generate cash flow from operating activities of $669 million and funds from operations of $834 million(3) ($1.19 per share)(4).

  • ARC's market diversification activities and enhanced scale continued to drive strong price realizations. ARC's average realized natural gas price of $6.45 per Mcf(4) was $1.51 per Mcf greater than the average AECO 7A Monthly Index price, while ARC's average realized condensate price was $96.90 per barrel(4).

  • Cash flow used in investing activities was $269 million. ARC invested $375 million into capital expenditures(5), which were allocated across the Company's Alberta and northeast British Columbia ("BC") assets, and included accelerating approximately $50 million of its 2022 capital expenditure budget for Attachie West Phase I to begin securing long-lead items. Accordingly, ARC's 2022 capital expenditure guidance has been lowered to a range of $1.15 to $1.25 billion.

  • ARC generated free funds flow of $459 million(5) ($0.65 per share)(6), returning $289 million ($0.41 per share), or 63 per cent to shareholders through a combination of dividends and share repurchases. The remaining free funds flow generated in the period was used to strengthen ARC's balance sheet, with ARC exiting 2021 with long-term debt of $1.7 billion and net debt of $1.8 billion(3) or 0.8 times funds from operations(3).

Year-end 2021 Results

  • ARC recognized net income of $787 million ($1.25 per share) in 2021, compared to a net loss of $547 million ($1.55 per share) in 2020. Cash flow from operating activities was $2.0 billion and funds from operations were $2.4 billion ($3.85 per share).

  • ARC maintained its industry-leading safety performance, surpassing eight years without an employee lost-time incident, and delivered an operating expense of $3.86 per boe(4), the lowest annual operating expense per boe in the Company's 25-year history, reflecting the low cost structure associated with owning and operating its infrastructure.

  • ARC executed its 2021 capital program safely and efficiently. Cash flow used in investing activities totalled $808 million, with capital expenditures of $1,062 million delivering record annual average production of 302,003 boe per day (63 per cent natural gas and 37 per cent crude oil and liquids).

  • ARC successfully integrated Seven Generations and has now captured approximately $190 million in synergies, significantly surpassing initial expectations of $110 million in annual savings due to synergies of the Business Combination.

  • ARC advanced its marketing strategy by entering into its first long-term gas supply agreement to deliver approximately 150 million cubic feet ("MMcf") per day of natural gas from ARC's Sunrise facility to an LNG Canada participant. The agreement, as previously announced in November 2021, will commence with the start-up of LNG Canada.

  • Free funds flow per share was the highest in ARC's 25-year history. ARC generated $1.4 billion ($2.16 per share) of free funds flow, which included nine months of contribution from the Kakwa asset acquired through the Business Combination. ARC delivered an 18 per cent return on average capital employed(7) ("ROACE").

  • ARC declared dividends of $181 million or $0.286 per share(4) in 2021, and since September 2021, has repurchased 33.6 million of its common shares outstanding at a weighted average price of $11.34 per share for total consideration of $381 million.

Year-end 2021 Reserves(1)(8)

  • ARC nearly doubled its reserves volumes and tripled its reserves value through high-value liquids additions from the Business Combination and strong organic additions across ARC's portfolio. Year-end 2021 proved producing ("PDP") reserves increased by 88 per cent to 503 million boe ("MMboe"), total proved ("TP") reserves increased by 96 per cent to 1,185 MMboe, and proved plus probable ("2P") reserves increased by 90 per cent to 1,761 MMboe at year-end 2021.

  • ARC's before-tax net present value ("NPV") of 2P reserves, discounted at 10 per cent, substantially increased to $15.9 billion or approximately $23.00 per share(9) at December 31, 2021. The year-over-year increase was driven by additions from the Business Combination, positive organic technical revisions, and stronger average commodity prices. ARC's 2P NPV is based on the development of approximately 15 per cent of the Company's total internal inventory estimate; Attachie comprises less than four per cent of total 2P locations.

ARC's audited 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, 2021, are available on ARC's website at www.arcresources.com and under ARC's SEDAR profile at www.sedar.com. The disclosure under the section "Non-GAAP and Other Financial Measures" in ARC's MD&A as at and for the three months and year ended December 31, 2021 (the "2021 Annual MD&A") is incorporated by reference into 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, with the exception of reserves data presented under the section "2021 Reserves". Throughout this news release, crude oil and liquids ("crude oil and liquids") refers to crude oil, condensate, and NGLs.

(3)

See "Non-GAAP and Other Financial Measures" in the 2021 Annual MD&A for information relating to this capital management measure, which information is incorporated by reference into this news release.

(4)

See "Non-GAAP and Other Financial Measures" in the 2021 Annual MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release.

(5)

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 2021 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.

(6)

Non-GAAP financial ratio that is not a standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Free funds flow, a non-GAAP financial measure, is used as a component of the non-GAAP financial ratio. See "Non-GAAP and Other Financial Measures" in the 2021 Annual MD&A for the non-GAAP financial ratio for the comparative period and other information relating to this non-GAAP financial ratio, which information is incorporated by reference into this news release.

(7)

Non-GAAP financial ratio that is not a standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Adjusted earnings before interest and taxes and average capital employed, each non-GAAP financial measures, are used as components of the non-GAAP financial ratio. See "Non-GAAP and Other Financial Measures" in the 2021 Annual MD&A for the non-GAAP financial ratio for the comparative period and other information relating to this non-GAAP financial ratio, which information is incorporated by reference into this news release.

(8)

GLJ Ltd. ("GLJ") conducted an Independent Qualified Reserves Evaluation ("Reserves Evaluation"), effective December 31, 2021, 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, 2022.

(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.

FINANCIAL AND OPERATIONAL RESULTS


Three Months Ended

Year Ended

(Cdn$ millions, except per share amounts(1), boe amounts, and common shares outstanding)

September 30,

2021

December 31,
2021

December 31,

2020(2)

December 31,
2021

December 31,

2020(2)

FINANCIAL RESULTS






Net income (loss)

53.6

678.0

120.8

786.6

(547.2)

Per share

0.07

0.96

0.34

1.25

(1.55)

Cash flow from operating activities

615.0

668.7

201.1

2,006.5

655.7

Per share(3)

0.85

0.95

0.57

3.20

1.86

Funds from operations

765.4

833.6

212.0

2,415.4

667.6

Per share

1.06

1.19

0.60

3.85

1.89

Free funds flow

497.0

458.7

135.3

1,353.6

324.4

Per share

0.69

0.65

0.38

2.16

0.92

Dividends declared

47.1

69.5

21.3

181.4

106.3

Per share

0.066

0.10

0.06

0.286

0.30

Cash flow used in investing activities

228.8

268.7

79.3

808.1

364.3

Capital expenditures

268.4

374.9

76.7

1,061.8

343.2

Long-term debt

1,849.0

1,705.3

701.9

1,705.3

701.9

Net debt

1,926.4

1,828.7

693.5

1,828.7

693.5

Common shares outstanding, weighted average diluted

(millions)

723.1

703.0

354.3

627.3

353.4

Common shares outstanding, end of period (millions)

711.7

693.5

353.4

693.5

353.4

OPERATIONAL RESULTS






Production






Crude oil (bbl/day)

8,639

7,857

15,554

10,435

15,726

Condensate (bbl/day)

77,539

74,220

14,715

59,958

13,519

Crude oil and condensate (bbl/day)

86,178

82,077

30,269

70,393

29,245

Natural gas (MMcf/day)

1,300

1,293

783

1,149

739

NGLs (bbl/day)

50,891

48,299

8,678

40,084

9,112

Total (boe/day)

353,657

345,831

169,468

302,003

161,564

Average realized price






Crude oil ($/bbl)(3)

77.43

92.11

48.14

75.08

42.62

Condensate ($/bbl)(3)

85.72

96.90

53.55

86.04

47.62

Natural gas ($/Mcf)(3)

4.67

6.45

2.88

4.82

2.26

NGLs ($/bbl)(3)

27.92

27.65

18.03

26.16

12.69

Average realized price ($/boe)(3)

41.88

50.87

23.29

41.48

19.20

Netback






Commodity sales from production ($/boe)(3)

41.88

50.87

23.29

41.48

19.20

Royalties ($/boe)(3)

(3.38)

(5.44)

(1.04)

(3.64)

(0.81)

Operating expense ($/boe)(3)

(3.58)

(3.50)

(3.97)

(3.86)

(3.94)

Transportation expense ($/boe)(3)

(4.93)

(5.47)

(2.97)

(4.79)

(2.98)

Netback ($/boe)(4)

29.99

36.46

15.31

29.19

11.47

TRADING STATISTICS(5)






High price

11.95

13.34

7.20

13.34

8.39

Low price

7.51

10.20

5.66

5.88

2.42

Close price

11.87

11.50

6.00

11.50

6.00

Average daily volume (thousands of shares)

3,034

3,173

1,582

3,160

2,082

(1)

Per share amounts, with the exception of dividends, are based on weighted average diluted common shares.

(2)

Comparative figures represent ARC's results prior to the closing of the Business Combination on April 6, 2021, and therefore do not reflect historical data from Seven Generations.

(3)

See "Non-GAAP and Other Financial Measures" in the 2021 Annual MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release.

(4)

Non-GAAP financial ratio that is not a standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Netback, a non-GAAP financial measure, is used as a component of the non-GAAP financial ratio. See "Non-GAAP and Other Financial Measures" in the 2021 Annual MD&A for the non-GAAP financial ratio for the comparative period and other information relating to this non-GAAP financial ratio, which information is incorporated by reference into this news release.

(5)

Trading prices are stated in Canadian dollars on a per share basis and are based on intra-day trading on the Toronto Stock Exchange.


OUTLOOK

  • Building on the momentum generated in 2021, ARC's near-term priority is to provide investors with an attractive total return by balancing profitable reinvestment in the Company's assets with meaningful returns of capital delivered to shareholders. In 2022, ARC plans to sustain its current levels of production, increase productive capacity at Sunrise, and proceed with development at Attachie once the BC regulatory environment becomes more certain. While commodity prices are robust, ARC will remain disciplined and does not plan to accelerate capital investments in growth projects beyond what is planned at Sunrise and Attachie. Instead, ARC plans to allocate surplus funds from operations to debt reduction and returns to shareholders.

  • Between 50 and 80 per cent of free funds flow generated in 2022 will be delivered to shareholders through the base dividend and share repurchases, with the balance directed to further strengthening ARC's financial position.

2022 Guidance

  • ARC is lowering its 2022 capital expenditure guidance by $50 million to a revised range of $1.15 to $1.25 billion. This reduction reflects the portion of the original 2022 capital expenditure budget for Attachie West Phase I that was accelerated into 2021. Production and all other previously disclosed guidance for 2022 remain unchanged. ARC continues to expect that it will offset inflationary pressures in 2022 through continued efficiency improvement initiatives.


2022

Guidance

2022 Revised Guidance

Production



Crude oil (bbl/day)

7,000 - 9,000

7,000 - 9,000

Condensate (bbl/day)

72,000 - 78,000

72,000 - 78,000

Crude oil and condensate (bbl/day)

79,000 - 87,000

79,000 - 87,000

Natural gas (MMcf/day)

1,240 - 1,280

1,240 - 1,280

NGLs (bbl/day)

49,000 - 51,000

49,000 - 51,000

Total (boe/day)

335,000 - 350,000

335,000 - 350,000

Expenses ($/boe)(1)



Operating

4.00 - 4.50

4.00 - 4.50

Transportation

4.50 - 5.00

4.50 - 5.00

General and administrative ("G&A") expense before share-based compensation expense

0.80 - 0.90

0.80 - 0.90

G&A - share-based compensation expense

0.30 - 0.40

0.30 - 0.40

Interest and financing

0.55 - 0.65

0.55 - 0.65

Current income tax expense as a per cent of funds from operations(1)

1 - 6

1 - 6

Capital expenditures ($ billions)

1.2 - 1.3

1.15 - 1.25

(1) See "Non-GAAP and Other Financial Measures" in the 2021 Annual MD&A for an explanation of the composition of this supplementary financial measure, which information is incorporated by reference into this news release.

  • For a summary of ARC's full-year 2021 actuals for production, expenses, and capital expenditures, as compared to guidance, see "Annual Guidance" in the 2021 Annual MD&A.

OPERATIONAL RESULTS

Cash Flow Used in Investing Activities and Capital Expenditures

  • Cash flow used in investing activities was $269 million during the fourth quarter of 2021. Of this, ARC invested $375 million into capital expenditures. In addition to drilling 47 wells and completing 29 wells, ARC accelerated approximately $50 million of the 2022 capital expenditure budget for Attachie West Phase I into the fourth quarter of 2021 to begin securing long-lead items.

  • ARC's cash flow used in investing activities totalled $808 million in 2021, of which $1,062 million was invested into capital expenditures. During the year, ARC drilled 141 wells, completed 132 wells, and brought on-stream two small infrastructure optimization and expansion projects at Sunrise and Parkland. The following table details ARC's 2021 capital activity by area.


Year Ended December 31, 2021

Area

Wells Drilled(1)

Wells Completed(1)

Kakwa(2)

65

61

Greater Dawson

45

38

Sunrise

18

18

Ante Creek

13

15

Total

141

132

(1) Wells drilled and completed for operated assets only.

(2) Assets acquired through the Business Combination, which closed on April 6, 2021.

  • By leveraging the Company's expertise in the Montney and the increased scale achieved through the Business Combination, ARC captured drilling and completions efficiency improvements of approximately $60 million in 2021, exceeding initial expectations of $25 million.

  • At Kakwa, ARC expects that capital expenditures required to sustain production could be reduced by approximately 10 per cent over time, as the Company continues to evaluate the results from implementing wider well spacing and modifications to its well and pad design. Initial results indicate improved resource deliverability and therefore greater overall profitability of the Kakwa asset.

Production and Operating Expense

Production

  • ARC's production averaged 345,831 boe per day during the fourth quarter of 2021 (62 per cent natural gas and 38 per cent crude oil and liquids), decreasing two per cent from the third quarter of 2021 due to unplanned third-party infrastructure outages in the period.

  • Full-year 2021 production averaged a record 302,003 boe per day (63 per cent natural gas and 37 per cent crude oil and liquids). Strong operational performance and excellent facility run-times across all areas resulted in full-year average production reaching the high end of the Company's guidance range of 287,000 to 302,000 boe per day.

Operating Expense

  • ARC's fourth quarter 2021 operating expense per boe of $3.50 decreased two per cent from the third quarter of 2021.

  • ARC demonstrated excellent cost control by delivering an operating expense per boe of $3.86 for the year, the lowest annual operating expense per boe in the Company's 25-year history. Consequently, ARC's full-year 2021 operating expense per boe was one per cent below the Company's guidance range of $3.90 to $4.40.

Physical Marketing

Average Realized Prices

  • ARC's expanded sales portfolio has significantly enhanced the Company's ability to generate value through its physical marketing activities. During the fourth quarter of 2021, ARC's average realized natural gas price of $6.45 per Mcf was $1.51 per Mcf, or 31 per cent greater than the average AECO 7A Monthly Index price.

  • Strong liquids pricing also helped drive commodity sales from production higher in the fourth quarter of 2021. ARC's average realized condensate price of $96.90 per barrel increased 13 per cent, and ARC's average realized crude oil price of $92.11 per barrel increased 19 per cent relative to the third quarter of 2021. ARC's average realized NGLs price of $27.65 per barrel was unchanged.

Transportation Arrangements

  • ARC has right-sized its natural gas transportation agreement with Alliance Pipeline. The four-year deal includes renewal rights and takes effect on November 1, 2022.

  • ARC continues to execute its strategy of diversifying the markets where the Company sells natural gas. Through this strategy, ARC gains exposure to increases in regional pricing as well as mitigates price concentration risk. The following table details the sales markets where ARC's natural gas volumes are exposed in 2022.

Natural Gas Sales Market

2022 Natural Gas Sales Exposure(1)

Midwest US

45%

Western Canadian Sedimentary Basin

23%

Malin

12%

Henry Hub

11%

Dawn

9%

Total

100%

(1) Natural gas sales exposure based on internal volume and marketing assumptions, adjusted for ARC's heat content, and prior to financial risk management contracts.

Transportation Expense

  • ARC's fourth quarter 2021 transportation expense per boe of $5.47 increased 11 per cent from the third quarter of 2021 due to a one-time charge of $14 million associated with a legacy condensate and NGLs transportation contract.

  • ARC's full-year 2021 transportation expense per boe of $4.79 was in line with guidance of $4.50 to $5.00.

FINANCIAL RESULTS

Financial Position

  • ARC exited 2021 with a long-term debt balance of $1.7 billion and net debt of $1.8 billion or 0.8 times funds from operations. During the fourth quarter of 2021, ARC reduced long-term debt by $144 million and net debt by $98 million. ARC has significantly bolstered its financial position since the closing of the Business Combination, having reduced net debt by approximately $0.6 billion or 25 per cent.

  • As of December 31, 2021, the Company had $1.0 billion of senior notes outstanding and $0.7 billion in borrowings under its $2.0 billion credit facility.

Returns to Shareholders

ARC distributed $289 million ($0.41 per share), or 63 per cent of free funds flow to shareholders during the fourth quarter of 2021 through a combination of dividends and share repurchases.

Dividends

  • ARC declared a quarterly dividend of $70 million or $0.10 per share during the fourth quarter of 2021, representing a 52 per cent increase from the Company's previous quarterly dividend of $0.066 per share.

  • ARC declared dividends of $181 million or $0.286 per share in 2021. A growing dividend remains ARC's primary mechanism of returning capital to shareholders over the long term.

  • Share Repurchases

  • ARC repurchased 18.5 million common shares during the fourth quarter of 2021 at a weighted average price of $11.87 per share for total consideration of $220 million.

  • Since its normal course issuer bid ("NCIB") commenced on September 1, 2021, ARC has repurchased 33.6 million common shares at a weighted average price of $11.34 per share for total consideration of $381 million, representing 4.6 per cent of total shares outstanding.

Net Income

  • ARC recognized net income of $678 million ($0.96 per share) in the fourth quarter of 2021, compared to net income of $54 million ($0.07 per share) in the third quarter of 2021. Increased commodity sales from production, driven by higher average realized commodity prices, and reduced losses on ARC's risk management contracts were partially offset by an increase in ARC's income tax expense.

  • ARC recognized net income of $787 million ($1.25 per share) during the year ended December 31, 2021, compared to a net loss of $547 million ($1.55 per share) during the year ended December 31, 2020.

Cash Flow from Operating Activities, Funds from Operations, and Free Funds Flow

Cash Flow from Operating Activities

  • Fourth quarter and full-year 2021 cash flow from operating activities were $669 million and $2.0 billion, respectively.

Funds from Operations

  • ARC generated funds from operations of $834 million ($1.19 per share) during the fourth quarter of 2021, increasing by $68 million ($0.13 per share) from the third quarter of 2021. Increased commodity sales from production were partially offset by higher realized losses on ARC's risk management contracts and increased royalties.

  • During the fourth quarter of 2021, ARC recorded a $14 million current income tax recovery, primarily attributed to the recognition of investment tax credits and scientific research and experimental development deductions related to expenditures made in prior periods.

  • The following table details the change in funds from operations for the fourth quarter of 2021 relative to the third quarter of 2021.

Funds from Operations Reconciliation

$ millions

$/share(1)

Funds from operations for the three months ended September 30, 2021

765.4

1.06

Production volumes



Crude oil and liquids

(38.4)

(0.06)

Natural gas

(3.1)

Commodity prices



Crude oil and liquids

85.9

0.13

Natural gas

211.5

0.29

Sales of commodities purchased from third parties

0.2

Other income

2.5

Realized loss on risk management contracts

(142.6)

(0.20)

Royalties

(63.0)

(0.09)

Expenses



Commodities purchased from third parties

(10.4)

(0.01)

Operating

5.1

0.01

Transportation

(13.9)

(0.02)

G&A

(5.5)

(0.01)

Transaction costs

(0.8)

Interest and financing

35.5

0.05

Current income tax

14.1

0.02

Realized gain (loss) on foreign exchange

(6.2)

(0.01)

Other

(2.7)

Weighted average shares, diluted

0.03

Funds from operations for the three months ended December 31, 2021

833.6

1.19

(1) Per share amounts are based on weighted average diluted common shares.

  • ARC generated funds from operations of $2.4 billion ($3.85 per share) in 2021, an increase of $1.7 billion ($1.96 per share) from 2020.

Free Funds Flow

  • ARC generated free funds flow of $459 million ($0.65 per share) during the fourth quarter of 2021. $289 million or 63 per cent of free funds flow was allocated to returns to shareholders, with the remaining free funds flow allocated to strengthening ARC's balance sheet.

  • Full-year 2021 free funds flow totalled $1.4 billion ($2.16 per share), increasing $1.0 billion ($1.24 per share) from 2020.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE ("ESG") REVIEW

ARC has a long track record of leadership in ESG performance. Over the past decade, ARC was one of few North American energy producers to reduce its absolute emissions, while simultaneously growing its production profitably. ARC remains committed to responsible resource development, reducing absolute emissions, and is evaluating several opportunities across the energy value chain to bolster its position as an ESG leader.

ARC has recently received the following recognitions for its leading ESG performance:

  • ARC's ongoing promotion of diversity and inclusion was recognized in 2021, with the Company's inclusion in the Bloomberg Gender Equality Index for the second consecutive year. ARC was the only Canadian exploration and production company included in the index. ARC has achieved its target of 30 per cent female representation at the Board of Directors and executive levels.

  • ARC completed the annual Equitable Origin EO100TM assessment for its Kakwa asset, maintaining its certification as a responsible energy developer. ARC is currently undergoing the certification process for its northeast BC assets.

2021 RESERVES

  • The acquisition of the Kakwa asset roughly doubled ARC's reserves volumes, while development additions replaced greater than 100 per cent of production in all reserves categories, reflecting ARC's successful operational execution throughout 2021. Through development additions, PDP reserves increased by 119 per cent, TP reserves increased by 132 per cent, and 2P reserves increased by 143 per cent.

  • ARC's before-tax NPV for 2P reserves, discounted at 10 per cent, was $15.9 billion, or approximately $23.00 per share at December 31, 2021, tripling from ARC's 2P NPV at December 31, 2020.

  • As the largest pure-play Montney producer, ARC has decades of top-tier drilling inventory within its portfolio. At December 31, 2021, ARC has booked approximately 900 gross 2P locations, representing approximately 15 per cent of the Company's total gross internal inventory estimates. 2P locations at Attachie account for less than four per cent of total 2P locations.

  • ARC's NPV was determined using GLJ forecast pricing and foreign exchange rates at January 1, 2022, with a 10-year average WTI price of US$72 per barrel and a 10-year average AECO price of $3.35 per million British thermal units ("MMBtu").

  • FDC for 2P reserves totalled $7.4 billion at December 31, 2021 as compared to $3.2 billion at December 31, 2020.

(1)

Non-GAAP financial 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 financial ratio, and capital expenditures and adjusted net capital acquisitions, both non-GAAP financial measures, are used as components of the non-GAAP financial ratio. See "Non-GAAP and Other Financial Measures" of this news release for the non-GAAP financial ratio for the comparative period and other information relating to this non-GAAP financial ratio.


Reserves Reconciliation

Reserves Reconciliation

Company Gross(1)

Light, Medium,
and Heavy Oil(2)

(Mbbl)

Tight Oil

(Mbbl)

NGLs(3)

(Mbbl)

Total Oil

and NGLs(4)

(Mbbl)

Natural

Gas(5)

(MMcf)

Oil Equivalent

(Mboe)

Proved Producing







Opening Balance, December 31, 2020

24,516

10,984

31,828

67,238

1,203,981

267,991

Extensions and Improved Recovery(6)

1,233

34,549

35,782

443,873

109,761

Technical Revisions

4

(10)

4,355

4,350

90,266

19,394

Acquisitions

243

126,209

126,452

712,101

245,135

Dispositions

(23,206)

(1,527)

(24,732)

(41,579)

(31,662)

Economic Factors

429

79

508

10,641

2,282

Production

(827)

(2,916)

(36,511)

(40,254)

(419,198)

(110,120)

Ending Balance, December 31, 2021

487

9,962

158,983

169,433

2,000,085

502,780

Total Proved







Opening Balance, December 31, 2020

32,911

19,538

84,110

136,558

2,799,765

603,185

Extensions and Improved Recovery(6)

1,622

28,004

29,626

519,252

116,168

Technical Revisions

(10)

(719)

7,364

6,634

97,848

22,942

Acquisitions

243

310,020

310,263

1,702,602

594,030

Dispositions

(31,586)

(2,276)

(33,862)

(82,267)

(47,574)

Economic Factors

651

766

1,417

29,239

6,290

Production

(827)

(2,916)

(36,511)

(40,254)

(419,198)

(110,120)

Ending Balance, December 31, 2021

488

18,418

391,476

410,381

4,647,242

1,184,922

Proved plus Probable







Opening Balance, December 31, 2020

42,690

32,434

137,536

212,660

4,297,945

928,984

Extensions and Improved Recovery(6)

1,673

33,175

34,848

615,745

137,472

Technical Revisions

(21)

(1,622)

5,319

3,676

54,509

12,761

Acquisitions

281

439,749

440,030

2,451,784

848,660

Dispositions

(41,189)

(3,145)

(44,333)

(118,302)

(64,050)

Economic Factors

749

240

990

35,708

6,941

Production

(827)

(2,916)

(36,511)

(40,254)

(419,198)

(110,120)

Ending Balance, December 31, 2021

654

30,598

576,364

607,616

6,918,191

1,760,648

(1)

Amounts may not add due to rounding.

(2)

Light, Medium, and Heavy Oil includes light, medium, and heavy crude oil product types, as light and medium oil make up less than one per cent of total light, medium, and heavy crude oil and is therefore considered to be immaterial.

(3)

Condensate and pentanes plus represented 52 per cent of PDP NGLs reserves, 60 per cent of TP NGLs reserves, and 61 per cent of 2P NGLs reserves for the respective opening balances at December 31, 2020. Condensate and pentanes plus represent 62 per cent of PDP NGLs reserves, 66 per cent of TP NGLs reserves, and 67 per cent of 2P NGLs reserves for the respective ending balances at December 31, 2021.

(4)

Total Oil and NGLs represents the summation of Light, Medium, and Heavy Oil, Tight Oil, and NGLs.

(5)

Natural Gas includes shale gas and conventional natural gas product types, as conventional natural gas makes up less than one per cent of total gas and is therefore considered to be immaterial.

(6)

Reserves additions for discoveries, infill drilling, improved recovery, and extensions are combined and reported as "Extensions and Improved Recovery".


Net Present Value Summary

  • For a summary of the GLJ forecast pricing and foreign exchange rates used to evaluate ARC's reserves, see "2021 Independent Qualified Reserves Evaluation" of this news release.

($ millions)

Undiscounted

Discounted at 10%

Before-tax NPV(1)(2)



Proved Producing

7,375

5,601

Proved Developed Non-producing

1,306

953

Proved Undeveloped

9,477

4,770

Total Proved

18,158

11,325

Probable

11,314

4,571

Proved plus Probable

29,472

15,895

After-tax NPV(1)(2)(3)(4)



Proved Producing

6,778

5,227

Proved Developed Non-producing

992

722

Proved Undeveloped

7,160

3,425

Total Proved

14,929

9,374

Probable

8,615

3,420

Proved plus Probable

23,544

12,794

(1)

Amounts may not add due to rounding.

(2)

Based on NI 51-101 company net interest reserves and GLJ forecast pricing and foreign exchange rates and costs at January 1, 2022.

(3)

Based on ARC's estimated tax pools at December 31, 2021.

(4)

The after-tax NPV of the future net revenue attributed to ARC's crude oil and natural gas properties reflects the tax burden on the properties on a standalone basis and does not necessarily reflect the business entity tax-level situation or tax planning. For information at the business entity level, see "Taxes" in the 2021 Annual MD&A.


Finding, Development and Acquisition ("FD&A") Costs


  • ARC delivered a 2P F&D cost, including FDC, of $7.28 per boe(1) from development additions in 2021, continuing to demonstrate the high-quality nature of its Montney assets and the Company's ability to consistently deliver strong well results through efficient development planning and operational execution. Including net acquisitions and dispositions, ARC's 2P FD&A cost, including FDC, was $10.39 per boe(1).

  • The year-over-year increase in F&D costs reflects the Company's higher proportion of liquids reserves within its portfolio as a result of the Business Combination.


F&D Cost(2)

($/boe)

FD&A Cost(2)

($/boe)

F&D Recycle

Ratio(2)

FD&A Recycle Ratio(2)

Proved Producing(3)





2021

8.48

16.75

3.4

1.7

2020

4.29

4.33

2.7

2.6

2019

9.74

9.85

1.4

1.4

Three-year Average(4)

7.69

14.02

2.7

1.5

Total Proved(3)





2021

7.78

12.68

3.8

2.3

2020

2.60

2.07

4.4

5.5

2019

5.64

5.66

2.5

2.5

Three-year Average(4)

5.80

11.07

3.6

1.9

Proved plus Probable(3)





2021

7.28

10.39

4.0

2.8

2020

2.34

1.89

4.9

6.1

2019

4.82

4.84

2.9

2.9

Three-year Average(4)

5.07

9.38

4.1

2.2

(1)

Non-GAAP financial ratio that is not a standardized financial measure under IFRS and may not be comparable to similar financial measures disclosed by other issuers. Capital expenditures and adjusted net capital acquisitions, both non-GAAP financial measures, are used as components of the non-GAAP financial ratio. See "Non-GAAP and Other Financial Measures" of this news release for the non-GAAP financial ratio for the comparative period and other information relating to this non-GAAP financial ratio.

(2)

F&D and FD&A costs and recycle ratios take into account reserves revisions during the year on a per boe basis, and include FDC.

(3)

The aggregate of the exploration and development costs incurred in the financial year and the changes during that year in estimated FDC may not reflect the total F&D and FD&A costs related to reserves additions for that year.

(4)

Three-year average F&D and FD&A costs are calculated as the total capital expenditures over the three prior years divided by the total reserves additions over the three prior years. The three-year average recycle ratio is calculated as the three-year F&D or FD&A costs divided by the three-year average netback per boe.

ORGANIZATIONAL UPDATE

ARC is pleased to announce the following changes to its senior leadership team:

  • Lara Conrad — Chief Development Officer (ARC employee since 2011)

  • Armin Jahangiri — Chief Operating Officer (ARC employee since 2014)

  • Ryan Berrett — Senior Vice President, Marketing (ARC employee since 2003)

  • Lisa Olsen — Senior Vice President, People and Corporate (ARC employee since 2008)

For biographies of ARC's senior leadership team members, see ARC's website at www.arcresources.com.

CONFERENCE CALL

ARC's senior leadership team will be holding a conference call to discuss the Company's 2021 year-end results on Friday, February 11, 2022, at 8:00 a.m. Mountain Time ("MT").

Date

Friday, February 11, 2022

Time

8:00 a.m. MT

Dial-in Numbers


Calgary

587-880-2171

Toronto

416-764-8659

Toll-free

1-888-664-6392

Conference ID

03374224

Webcast URL

https://produceredition.webcasts.com/starthere.jsp?ei=1525226&tp_key=ddc32bf441

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 at www.arcresources.com for 30 days following the conference call.

CONSOLIDATED BALANCE SHEETS (unaudited)

As at

Cdn$ millions

December 31, 2021

December 31, 2020




ASSETS



Current assets



Cash and cash equivalents

0.4

Inventory

22.3

1.6

Accounts receivable

672.0

145.9

Prepaid expense

35.6

8.4

Risk management contracts

0.1

6.0


730.0

162.3

Long-term investment

2.5

Exploration and evaluation assets

277.9

214.9

Property, plant and equipment

9,265.6

4,284.3

Right-of-use assets

856.1

44.5

Goodwill

248.2

248.2

Total assets

...

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