Arc Resources' (AETUF) CEO Myron Stadnyk on Q4 2015 Results - Earnings Call Transcript

| About: Arc Resources (AETUF)

Arc Resources Ltd (OTCPK:AETUF) Q4 2015 Earnings Conference Call February 11, 2016 9:00 AM ET

Executives

David Carey - SVP, Capital Markets

Myron Stadnyk - President and CEO

Van Dafoe - SVP and CFO

Terry Anderson - SVP and COO

Bevin Wirzba - SVP, Business Development

Analysts

Jeremy McCrea - Raymond James

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the ARC Resources Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there'll be a question-and-answer session. [Operator Instructions] Please note that we will be taking questions first from analysts and institutional shareholders. [Operator Instructions] As a reminder, this conference call is being broadcast live on the Internet and recorded.

I would now like to turn the conference call over to David Carey, Senior Vice President, Capital Markets. Please go ahead, Mr. Carey.

David Carey

Good morning and welcome to ARC Resources year end 2015 conference call. I'm here this morning with Myron Stadnyk, ARC's President and Chief Executive Officer; Van Dafoe, Senior Vice President and Chief Financial Officer; Terry Anderson, Senior Vice President and Chief Operating Officer; Bevin Wirzba, Senior Vice President, Business Development, and members of our Investor Relations team.

This morning Myron, Terry and Van will make a few brief opening statements and then we will open the phone lines for questions. Myron?

Myron Stadnyk

Thank you, David. Good morning. I'd like to thank you for taking the time to be with us on this conference call. We've just announced some of our best operational results in our history. And that being said the last 18 months have been a very challenging environment for our industry, with the commodity prices continuing to fall.

Over that time period, we've taken many steps to control our destiny, all the while being true to our core principles of maintaining a strong balance sheet, having conservative debt ratios and only investing in projects that we believe are profitable and continue -- while continuing to pay a dividend to our shareholders. This has resulted in ARC having amongst the lowest debt to trailing cash flow ratios in our industry.

So looking back at last year, in 2015, we significantly reduced our capital budget from what we had planned at the outset and despite that reduction in capital, we completed our Sunrise Gas Plant, we added our oil properties in Tower in Q4. So we grew our business on an annual basis by 2% and ended up with Q4 being very strong in the 119,000 range.

In addition, we delivered exceptionally low finding and development cost. We replaced 200% of our production from the drill bit for the 8th year in a row. We worked hard on our operating cost and cut $50 million out of the operating cost and these are the lowest per BOE operating costs that we've had in a decade. We continue to transform and we sold $90 million of non-core properties. And at the same time, we added 200 more sections of Montney lands for our future business.

This was transforming us to one of North America's most efficient operators. As we've sold our properties and concentrated our activities on fewer larger properties, we've reduced our staff count by 15%. In response to the lower commodity environment we've significantly reduced bonuses and we've now frozen salaries for a second year in a row. Our focus on creating value, while maintaining a strong financial position is a cornerstone of our business. For several years, I've been talking about targeting a payout ratio of about 30% as being what we would view as optimal to run our business long term.

Based on our long term view of commodity prices, our mandate of balance sheet strengths and looking at our outstanding investment opportunities in some of North America's lowest cost plays, we've decided that now is the time to right size our 2016 capital budget and our monthly dividend. The 2016 capital budget has now been set at 390 million and our dividend set at $0.05 per month. With these decisive actions, we believe we are well positioned to continue to create value for our shareholders by paying a dividend while investing in value creating projects for both the near term and the longer term horizon.

With those opening remarks, I'll ask Van to briefly comment on our financial highlights.

Van Dafoe

Thanks, Myron. I'll be brief so that we can get to the Q&A. I'll start with funds from operations for the quarter, $201 million or $0.58 per share and for the full year, 773 million or $2.27 per share. Our net debt for the year ended at 985 million, that's 1.3 times trailing debt to cash flow, and that's down from 1.25 billion at the end of 2014. Our debt targets for 2016, is to live within cash flow. So any changes in our debt, is going to come from fluctuations in the Canadian dollar as our U.S. denominated debt.

Our team has done a good job of putting our hedges -- putting hedges in places to smooth out cash flow. So for 2016, we have 10,000 barrels a day of oil and 175 million a day of gas hedged. At year end, our mark-to-market was just over $400 million.

Terry, if you'd like to say a few words on operations.

Terry Anderson

Sure. Thanks, Van. Our operational results have been truly outstanding. We continue to hit our volume numbers while reducing operating and capital cost. While our costs are down, our drilling results keep getting better. One well from our 2015 Tower drilled has already reached a 100,000 barrels of cumulative oil production, while two others will soon have produced over 100,000 barrels of oil, two months faster than our previous best wells.

We are seeing similar exceptional results at Sunrise and Dawson, all of which contributed to our exceptionally low finding and development cost of just $6.97 per BOE for our proved plus probable reserves. We've knocked $900 million off of our future development costs and have substantially grown our resources on our northeast BC Montney asset. We now have total gas in place of 90 trillion cubic feet and almost 10 billion barrels of oil in place. Details are available in our reserves release.

Our 2016 capital program is focused on these core assets. We'll keep our current facilities in northeast BC full, we'll continue the construction of our Dawson Phase III gas plant with expected completion in late 2017 and we'll drill four new wells in Attachie to advance our pilot production and further delineate the large land base.

With those comments, operator, we now open up the phone lines to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Jeremy McCrea from Raymond James. Your line is open.

Jeremy McCrea

Just a quick question on your Tower pad here, you say you're reaching 100,000 barrels of oil within the first couple -- a couple of months sooner. There's two questions here, one is, is there anything different that you did with this recent pad versus the pad that came on in 2014? And just going up to Attachie, what kind of completion design do you plan to do up there for -- with your wells and when could we probably expect some of those results?

Terry Anderson

It's Terry Anderson here. So, Jeremy, so the competitions really haven't changed much from 2014. The thing that we are doing better is actually managing the production of these high rate wells. And so, now, we're not trying to turn on all of these wells at the same time and pinching them back and having troubles to controlling the flow of these wells. So now, we're turning these wells on systematically, so that we can flow them at decent rates and it's easier to manage that.

As for Attachie, we're actually planning to take the same completion design from Tower up to Attachie and try to recreate the same completion up in Attachie. So we're quite excited with that opportunity of taking that completion design up there and seeing what the results will be.

Myron Stadnyk

Jeremy, its Myron, just to add to that, the big moves in Tower over the past three years have been tightening the frac spacing from 60 meters to 25 meters, higher pump pressures and optimizing the use of the fluids. And the exciting part for us in Attachie is that the wells that the public data is on the two wells on the West where we've queued a couple of hundred thousand barrels of condensate. Those wells have the frac design from three years ago which is again as what we would consider too just on the frac spacing between the fracs and we're going to tighten that up and make it more like Tower. So that's what we're trying to do at Attachie West.

Operator

[Operator Instructions] Mr. Carey, there are no further questions at this time, please continue.

David Carey

Okay. Thank you, Christie. Well, thank you very much to everybody who took the time to listen in this morning. We don't often do conference calls, we just felt with the change in dividend, we wanted to provide people the opportunity to ask us some questions and I look forward to continuing dialog in the future with people.

Myron Stadnyk

Thank you.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating, please disconnect your lines.

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