CALGARY, Feb. 10 /CNW/ -- CALGARY, Feb. 10 /CNW/ - (ARX - TSX) ARC Resources Ltd. ('ARC') announces the results for the fourth quarter and the year ended December 31, 2010.
<< Three Months Ended Twelve Months Ended December 31 December 31 2010 2009 2010 2009 ------------------------------------------------------------------------- FINANCIAL (Cdn$ millions, except per share and per boe amounts) Revenue before royalties 329.3 278.6 1,213.7 978.2 Per share(1) 1.16 1.17 4.59 4.16 Cash flow from operating activities(2) 186.2 143.2 673.9 497.4 Per share(1) 0.66 0.60 2.55 2.11 Net income (loss) (6.3) 66.2 260.8 225.1 Per share(1) (0.01) 0.28 0.99 0.96 Operating income(3) 50.4 61.7 244.2 181.2 Per share(1) 0.18 0.26 0.92 0.77 Distributions 82.8 70.9 313.5 298.5 Per unit(1) 0.30 0.30 1.20 1.28 Capital expenditures 159.1 117.3 590.9 359.6 Net debt outstanding(4) 872.7 902.4 872.7 902.4 OPERATING Production Crude oil (bbl/d) 27,417 27,415 27,341 27,509 Natural gas (mmcf/d) 311.5 189.0 254.2 194.0 Natural gas liquids (bbl/d) 5,355 3,597 4,245 3,689 Total (boe/d) 84,686 62,520 73,954 63,538 Average prices Crude oil ($/bbl) 76.08 72.61 73.85 62.24 Natural gas ($/mcf) 3.83 4.58 4.21 4.18 Natural gas liquids ($/bbl) 55.10 46.12 53.98 40.67 Oil equivalent ($/boe) 42.18 48.35 44.88 42.07 Operating netback ($/boe) Commodity and other revenue (before hedging) 42.26 48.42 44.96 42.17 Transportation costs (1.08) (0.92) (1.10) (0.89) Royalties (6.03) (7.94) (7.14) (6.37) Operating costs (9.01) (9.91) (9.70) (10.19) Netback before hedging 26.14 29.65 27.02 24.72 Realized gain (loss) on risk management contracts 2.50 (0.42) 2.20 0.54 Netback after hedging 28.64 29.23 29.22 25.26 ------------------------------------------------------------------------- EQUITY (millions) Shares outstanding, end of period 284.4 239.0 284.4 239.0 Weighted average shares(5) 283.7 238.5 264.2 235.4 ------------------------------------------------------------------------- TRADING STATISTICS (Cdn$, except volumes) based on intra-day trading High 26.04 21.89 26.04 21.89 Low 20.42 19.06 18.77 11.73 Close 25.41 19.94 25.41 19.94 Average daily volume (thousands) 1,299 963 1,197 1,057 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Prior to the conversion to a corporation, ARC had 'units' outstanding instead of 'shares'. In all cases, the term per share can be interpreted as per unit prior to December 31, 2010. Per share amounts (with the exception of per unit distributions, which are based on the number of trust units outstanding at each distribution record date) are based on diluted common shares. (2) Cash flow from operating activities is a GAAP measure. Historically, management has disclosed cash flow from operations as a non-GAAP measure calculated using cash flow from operating activities less the change in non-cash working capital and the expenditures on site restoration and reclamation as they appear on the Consolidated Statements of Cash Flows. Cash flow from operations for the fourth quarter of 2010 would be $202.6 million ($0.71 per share) and $680.6 million ($2.58 per share) for the full year 2010. (3) Operating income is a non-GAAP measure and is calculated using net income (loss) less significant one-time items and items that are not indicative of operating performance. For 2010 and 2009, operating income was derived using net income (loss) less unrealized gains/losses on risk management contracts, net of tax, and unrealized foreign exchange gains/losses on US$ denominated debt, net of tax. (4) Net debt excludes current unrealized amounts pertaining to risk management contracts and the current portion of future income taxes. (5) Diluted common shares.
- On December 31, 2010, ARC completed its conversion from a trust to a dividend paying corporation after receiving securityholders' approval on December 15, 2010. ARC's business activities remain unchanged and all officers and directors remain the same. The common shares of ARC now trade on the Toronto Stock Exchange under the symbol ARX.
- ARC increased its proved plus probable reserves by 29 per cent to 487 million barrels of oil equivalent ('mboe') reflecting continued success in executing both its capital development program and strategic acquisitions throughout 2010. Internal capital development activities contributed 91.3 mboe of additional proved plus probable reserves while 44 mboe of proved plus probable reserves were added as a result of ARC's August 2010 acquisition of Storm Exploration Inc. ('Storm') and other minor acquisitions throughout the year. The 2010 Finding and Development ('F&D') costs for proved plus probable reserves were $6.47 per barrel of oil equivalent ('boe') before consideration of future development capital ('FDC') while Finding, Development, and Acquisition ('FD&A') costs were $9.21 per boe. Additional information on the reserves evaluation can be found in the 'ARC Resources Ltd. 2010 Year-end Reserves Increase by 29 per cent' news release dated February 10, 2011 and filed on SEDAR at www.sedar.com.
- Production volumes for the quarter averaged a record 84,686 boe per day, a 22,166 boe per day or 35 per cent increase compared to the fourth quarter of 2009. The increase in production is attributable to the successful start-up of the 60 mmcf per day Dawson gas plant in the second quarter, the acquisition of Storm on August 17, 2010 which contributed 8,800 boe per day during the fourth quarter and a successful 2010 drilling program. With the planned shutdown of the Dawson gas plant for four weeks in the first quarter of 2011 to facilitate the tie-in of the Phase two construction and the disposition of 3,400 boe per day on January 31, 2011, ARC expects first quarter 2011 production to be between 76,500 and 77,500 boe per day. Full year 2011 production guidance of between 84,000 and 87,000 boe per day remains unchanged.
- Cash flow from operating activities was $186.2 million ($0.66 per share) in the fourth quarter of 2010, a 30 per cent increase from the $143.2 million ($0.60 per share) achieved in the fourth quarter of 2009, reflecting increased production volumes, higher crude oil prices and increased cash gains on risk management contracts. Continued strengthening of world oil prices contributed to a five percent increase in ARC's realized fourth quarter 2010 crude oil price of $76.08 per barrel while natural gas prices, still depressed by high inventory levels and increased natural gas production in the United States, remain relatively unchanged from the third quarter of 2010 price of $3.79 per mcf to the fourth quarter of 2010 price of $3.83 per mcf.
- Operating income, a non-GAAP measure that adjusts net income by significant one-time items that are not indicative of operating performance, was $50.4 million in the fourth quarter of 2010, an 18 per cent decrease from the $61.7 million achieved in the fourth quarter of 2009 due to increases in operating and depletion expense arising from higher volumes, and increases in general and administrative and interest expense offsetting increases in revenue. Net income decreased $72.5 million in the fourth quarter of 2010 from the fourth quarter of 2009, resulting in a net loss of $6.3 million due to an unrealized loss on risk management contracts of $64.4 million, net of tax.
- ARC recorded cash hedging gains of $65 million in 2010 primarily associated with the hedging of natural gas. Approximately 50 per cent of 2011 expected production is hedged and approximately 30 per cent of 2012 production is hedged to protect future cash flow, to provide more certainty in achieving projected returns on capital expenditures and to assist in providing more stable, ongoing dividend payments.
- Capital expenditures for the fourth quarter totaled $159.1 million as ARC drilled 30 oil wells and 10 natural gas wells with a 100 per cent success rate. Year-to-date capital expenditures totaled $590.9 million, $34.1 million below 2010 guidance of $625 million as a result of enhanced cost effectiveness and a focus on high impact capital projects. Included in the $590.9 million annual capital expenditures are $61 million of land expenditures and $25 million on leasehold expenditure costs associated with ARC's corporate office move in May of 2010.
- ARC's Board of Directors has approved a $625 million capital expenditures budget for 2011 that will allow for continued growth. The capital program will focus on oil and liquids rich natural gas opportunities at Pembina and Ante Creek in Alberta, southeast Saskatchewan and Parkland in British Columbia as well as continued development of the Montney gas opportunities in northeast British Columbia.
- ARC continues to have a very strong balance sheet with a net debt to annual cash flow from operating activities ratio of 1.3 times and debt representing approximately 11 per cent of ARC's total capitalization.
- On January 31, 2011, ARC announced the closing of the disposition of approximately 3,400 boe per day and approximately 14.7 million boe of proved plus probable reserves associated with minor properties in central Alberta for proceeds of $170 million. If these proceeds had been received prior to year-end, ARC's net debt to annual cash flow from operating activities would have been 1.0 times.
- The Board of Directors has conditionally declared a dividend of $0.10 per share payable monthly for the remaining two months of the first quarter of 2011. The dividends have been designated as eligible dividends under the Income Tax Act (Canada) and are payable as follows:
Ex-dividend date Record date Payment date Amount ---------------- ----------- ------------ ------
February 24, 2011 February 28, 2011 March 15, 2011 $0.10 per share March 29, 2011 March 31, 2011 April 15, 2011 $0.10 per share
The declaration of the dividends are conditional upon confirmation by a monthly press release and are subject to further resolution of the Board of Directors to reflect any change in dividend levels in accordance with the dividend policy of ARC and may vary 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 costs, 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.
The dividend payable on February 15, 2011 was declared on January 17, 2011 at $0.10 per share.
RESOURCE PLAY DEVELOPMENT UPDATE --------------------------------
- British Columbia Montney
Production from the entire British Columbia Montney Resource Play ('BC Montney'), which includes Dawson, West Montney and Parkland, averaged 163 mmcf per day of natural gas and 1,600 barrels per day of liquids for the fourth quarter of 2010. The fourth quarter was also the first full quarter of production from ARC's Parkland property acquired as part of the August 17, 2010 Storm acquisition.
During the fourth quarter of 2010, ARC spent $53.8 million on development activities in the BC Montney area including drilling three horizontal wells and completing one vertical and eight horizontal wells.
Construction of the Phase two portion of the Dawson gas plant is well underway. Completion is still expected for the first quarter of 2011 with commissioning and start-up occurring early in the second quarter of 2011. The Phase two gas plant is expected to double ARC's Dawson operated gas plant processing capacity from 60 mmcf per day to 120 mmcf per day at a cost of approximately $45 million. To date, ARC has incurred $30.8 million on construction costs.
- Ante Creek Montney
Engineering and design work was initiated on the 30 mmcf per day Ante Creek gas plant. Completion of this long cycle time project is expected for the first quarter of 2012 and the final cost for the plant is estimated to be approximately $40 million. ARC drilled three oil wells into the Montney formation in the fourth quarter. As a result of a successful 2010 drilling program in Ante Creek, fourth quarter volumes have increased seven per cent from the third quarter of 2010 to a record 8,032 boe per day. Approximately 42 per cent of fourth quarter production consisted of oil and natural gas liquids.
- Cardium
During the fourth quarter, ARC drilled nine wells into the Cardium formation. ARC continues to be encouraged by the results, with an initial 30 day production average of 200 barrels of oil per day for the 12 wells brought on production during the fourth quarter of 2010. ARC expects to spend $90 million in 2011 by drilling 42 horizontal Cardium locations in order to further develop this reservoir. In addition, extensive work is also planned on waterflood management in order to optimize reservoir recoveries. ARC operates approximately 25 per cent of the Pembina Cardium oil field with an average 65 per cent working interest in 166 gross sections (126 net).
- Enhanced Oil Recovery Initiatives
During the fourth quarter of 2010, CO(2) injection was completed at the Redwater enhanced oil recovery pilot project. ARC will conduct a technical analysis to determine to what extent the pilot has been successful in mobilizing incremental volumes of oil. While the pilot project may indicate enhanced recovery, the outlook for crude oil prices and the cost and availability of CO(2) will be determining factors in ARC's ability to achieve commercial viability for a full scale EOR scheme at Redwater.
MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ >>
This management's discussion and analysis ('MD&A') is ARC Resources Ltd. ('ARC' or the 'Corporation') management's analysis of its financial performance and significant trends or external factors that may affect future performance. It is dated
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