(ARX - TSX, VII - TSX) ARC Resources Ltd. ("ARC" or the
"Company") is pleased to announce that it has closed its strategic
Montney combination with Seven Generations Energy Ltd. ("Seven
Generations") to create the premier Montney producer and leader in
responsible energy development (the "Business Combination"). ARC is
now Canada’s largest condensate producer, third-largest natural gas
producer, and sixth-largest upstream energy company.
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As the largest pure-play Montney producer, ARC owns over 1.1
million net acres of Montney land and has a deep inventory of
high-return, de-risked core development opportunities with
significant commodity and geographic diversity. ARC produces
approximately 340,000 barrels of oil equivalent ("boe") per day,
comprising approximately 138,000 barrels per day of liquids and
approximately 1.2 billion cubic feet ("Bcf") per day of natural
gas. The Company’s low cost structure, excellent environmental,
social, and governance ("ESG") performance, and superior ability to
optimize revenue streams are supported by an extensive network of
owned-and-operated infrastructure, with natural gas processing and
sales capacity totaling approximately 1.5 Bcf per day. Exercising
capital discipline, operating safely and efficiently, maintaining a
top-decile balance sheet, and executing an active commodity price
risk management program continue to be hallmarks of the
organization.
With its compelling ability to generate free funds flow, low
debt levels, leading ESG performance, and a sustainable dividend,
ARC is a differentiated investment opportunity with significant
optionality for future capital allocation, positioned to create
significant shareholder value in 2021 and beyond. Immediately
following the close of the Business Combination, ARC will be
focused on successfully integrating the two companies to become a
more efficient business. The Company will be focused on delivering
on expected cost savings and synergies of approximately $160
million annually, which includes financing costs that are
approximately $50 million lower than they would have been had the
Seven Generations senior notes remained outstanding. Free funds
flow will initially be directed at strengthening the Company’s
financial position. Incremental returns to shareholders and
investment in profitable growth at ARC’s highly prospective
Attachie asset are expected to be considered when net debt to
annualized funds from operations reaches the low end of the
Company’s target range of 1.0 to 1.5 times, which, at current
forward commodity prices, is expected to occur by year-end 2021.
ARC expects to provide formal 2021 guidance for the Company, on a
post-Business Combination basis, in early May 2021.
The Business Combination was structured through a plan of
arrangement under the Canada Business Corporations Act, where Seven
Generations shareholders received 1.108 common shares of ARC for
each class "A" common share of Seven Generations (a "7G Share")
held. The 7G Shares are expected to be delisted from the Toronto
Stock Exchange on or before April 9, 2021.
Capital Structure
ARC is committed to protecting its strong financial position by
maintaining significant financial flexibility. To ensure ample
liquidity, ARC has syndicated a $2.0 billion unsecured extendible
revolving credit facility with a maturity date of 2024 (the "Credit
Facility"). As of April 6, 2021, the Credit Facility has
approximately $1.2 billion of available liquidity.
On March 10, 2021, ARC completed the issuance of two tranches of
private unsecured notes of $1.0 billion aggregate principal amount
with a weighted average interest rate of 2.965% and average term of
7.75 years (the "Notes"). The Notes were assigned a provisional
rating of BBB with a stable trend by DBRS Morningstar, assuming the
successful completion of the Business Combination. On April 6,
2021, ARC used the proceeds from the Notes, combined with draws on
the Credit Facility, to repay and/or defease all of Seven
Generations’ outstanding senior notes, including US$114 million
aggregate principal amount of Seven Generations’ outstanding 6.875%
senior notes due 2023, US$700 million aggregate principal amount of
Seven Generations’ outstanding 5.375% senior notes due 2025, and
US$378 million aggregate principal amount of Seven Generations’
outstanding 6.750% senior notes due 2023.
As of April 6, 2021, ARC has approximately $2.4 billion of net
debt outstanding, excluding capital leases. At current forward
commodity prices and with a strong deleveraging plan in place, ARC
expects its net debt balance will be reduced to the low end of the
Company’s target range of 1.0 to 1.5 times annualized funds from
operations by year-end 2021.
With the Company’s refinancing complete and a lower overall cost
of capital, ARC expects to immediately realize significant interest
savings. Following the Business Combination, financing costs are
expected to be approximately $50 million lower than they would have
been had the Seven Generations senior notes remained outstanding.
ARC is currently one of only three natural gas companies in North
America with the ability to issue investment-grade debt and will
continue to prioritize conservative debt levels.
ARC has 724 million common shares outstanding as of April 6,
2021.
Governance and Leadership
ARC is committed to maintaining the highest standards of
corporate governance and risk management. The Company will benefit
from the experience of Hal Kvisle as independent Chair, Marty
Proctor as Vice-Chair, and Farhad Ahrabi, David Collyer, Susan
Jones, William McAdam, Michael McAllister, Kathleen O’Neill, M.
Jacqueline Sheppard, Leontine van Leeuwen-Atkins, and Terry
Anderson as directors. ARC will continue to promote diversity and
inclusion within the organization by maintaining a minimum of 30
per cent female representation at the Board level and participating
in initiatives like the 30% Club and the Bloomberg Gender-Equality
Index.
ARC’s leadership team brings together the strengths and talents
of both ARC and Seven Generations. The members of the senior
leadership team are:
- Terry Anderson – President and Chief Executive Officer
- Kris Bibby – Senior Vice President and Chief Financial
Officer
- David Holt – Senior Vice President and Chief Operating
Officer
- Lara Conrad – Senior Vice President, Development
- Armin Jahangiri – Senior Vice President, Capital Projects
ARC’s executive office will remain headquartered in Calgary,
Alberta, with field offices located in Grande Prairie, Alberta,
Dawson Creek, British Columbia, and Drayton Valley, Alberta.
Forward-looking Information and Statements
This news release contains certain forward-looking statements
and forward-looking information (collectively referred to as
"forward-looking information") within the meaning of applicable
securities legislation about current expectations about the future,
based on certain assumptions made by ARC. Although ARC believes
that the expectations represented by such forward-looking
information are reasonable, there can be no assurance that such
expectations will prove to be correct. Forward-looking information
in this news release is identified by words such as "expect",
"will", "continue", "target", or similar expressions and includes
suggestions of future outcomes, including statements about the
characteristics of ARC following the completion of the Business
Combination; the timing of issuing formal 2021 guidance for ARC on
a post-Business Combination basis; the ability of ARC to generate
free funds flow and the anticipated uses thereof; the timing of
achieving ARC's target range of net debt to annualized funds from
operations; anticipated cost savings and synergies; the anticipated
benefits stemming from the leadership and experience of ARC's
directors; ARC's intentions to maintain a threshold level of female
representation at the Board level; and the locations of ARC's
headquarters and field offices.
Readers are cautioned not to place undue reliance on
forward-looking information as ARC's actual results may differ
materially from those expressed or implied. ARC undertakes no
obligation to update or revise any forward-looking information
except as required by law. Developing forward-looking information
involves reliance on a number of assumptions and consideration of
certain risks and uncertainties, some of which are specific to ARC
and others that apply to the industry generally. Material factors
or assumptions on which the forward-looking information in this
news release include: ARC's ability to successfully integrate the
business of Seven Generations; access to sufficient capital to
pursue any development plans; ARC's ability to issue securities;
the impacts the Business Combination may have on the current credit
ratings of ARC; forecast commodity prices and other pricing
assumptions; forecast production volumes based on business and
market conditions; the accuracy of outlooks and projections
contained herein; projected capital investment levels, the
flexibility of capital spending plans, and associated sources of
funding; achievement of further cost reductions and sustainability
thereof; applicable royalty regimes, including expected royalty
rates; future improvements in availability of product
transportation capacity; opportunity for ARC to pay dividends and
the approval and declaration of such dividends by the board of
directors of ARC; cash flows, cash balances on hand, and access to
the Credit Facility being sufficient to fund capital investments;
foreign exchange rates; near-term pricing and continued volatility
of the market; the ability of ARC's existing pipeline commitments
and financial hedge transactions to partially mitigate a portion of
ARC's risks against wider price differentials; estimates of
quantities of oil, natural gas, and liquids from properties and
other sources not currently classified as proved; accounting
estimates and judgments; future use and development of technology
and associated expected future results; ARC's ability to obtain
necessary regulatory approvals; the successful and timely
implementation of capital projects or stages thereof; the ability
to generate sufficient cash flow to meet current and future
obligations; estimated abandonment and reclamation costs, including
associated levies and regulations applicable thereto; ARC's ability
to obtain and retain qualified staff and equipment in a timely and
cost-efficient manner; ARC's ability to carry out transactions on
the desired terms and within the expected timelines; forecast
inflation and other assumptions inherent in the guidance of ARC;
the retention of key properties; the continuance of existing tax,
royalty, and regulatory regimes; the accuracy of the estimates of
each of ARC's and Seven Generations' reserve volumes; ARC's ability
to access and implement all technology necessary to efficiently and
effectively operate its assets; the ongoing impact of novel
coronavirus COVID-19 ("COVID-19") on commodity prices and the
global economy; and other risks and uncertainties described from
time to time in the filings made by ARC with securities regulatory
authorities.
The forward-looking information in this news release also
includes financial outlooks and other related forward-looking
information (including production and financial-related metrics)
relating to ARC following the completion of the Business
Combination, including: the expectations of ARC regarding the
impact of the Business Combination on free funds flow, net debt,
production, and net debt to annualized funds from operations. Any
financial outlook and forward-looking information contained in this
news release regarding prospective financial performance or
financial position is based on reasonable assumptions about future
events, including economic conditions and proposed courses of
action based on the assessment by Management of ARC of the relevant
information that is currently available. These projections may also
be considered to contain future-oriented financial information or a
financial outlook. The actual results will likely vary from the
amounts set forth herein and such variations may be material.
Readers are cautioned that any such financial outlook and
forward-looking information contained herein should not be used for
purposes other than those for which it is disclosed herein. Such
information was made as of the date of this news release and ARC
disclaims any intention or obligation to update or revise any such
information, whether as a result of new information, future events,
or otherwise, unless required pursuant to applicable law.
The risk factors and uncertainties that could cause actual
results to differ materially from the anticipated results or
expectations expressed in this news release, include: the ability
of ARC to realize the anticipated benefits of, and synergies from,
the Business Combination and the timing thereof; failure to achieve
and sustain future cost reductions; the impacts of a changing risk
profile and possible subjection to a credit rating review, which
may result in a downgrade or negative outlook being assigned to
ARC; the ability of ARC to pay dividends and the approval and
declaration of such dividends by the board of directors of ARC;
potential undisclosed liabilities unidentified during the due
diligence process; the interpretation of the Business Combination
by tax authorities; the success of business integration; the
ability to access or implement some or all of the technology
necessary to efficiently and effectively operate the assets and
achieve expected future results; volatility of and other
assumptions regarding commodity prices; the duration of the market
downturn; a resurgence in cases of COVID-19, which has occurred in
certain locations, and the possibility of which in other locations
remains high and creates ongoing uncertainty that could result in
restrictions to contain the virus being re-imposed or imposed on a
more strict basis, including restrictions on movement and
businesses; the extent to which COVID-19 impacts the global economy
and harms commodity prices; the extent to which COVID-19 and
fluctuations in commodity prices associated with COVID-19 impacts
the business, results of operations, and financial condition, all
of which will depend on future developments that are highly
uncertain and difficult to predict, including, but not limited to
the duration and spread of the pandemic, its severity, the actions
taken to contain COVID-19 or treat its impact, and how quickly
economic activity normalizes; the success of new COVID-19 workplace
policies and the ability of people to return to workplaces;
continued liquidity being sufficient to sustain operations through
a prolonged market downturn; the effectiveness of risk management
programs, including the impact of derivative financial instruments,
the success of hedging strategies, and the sufficiency of liquidity
positions; product supply and demand; accuracy of share price and
market capitalization assumptions; market competition, including
from alternative energy sources; risks inherent in marketing
operations, including credit risks, exposure to counterparties and
partners, including ability and willingness of such parties to
satisfy contractual obligations in a timely manner; the ability to
maintain desirable net debt ratios; the ability to access various
sources of debt and equity capital, generally, and on acceptable
terms; the ability to finance growth and sustaining capital
expenditures; changes in credit ratings; changes to dividend plans;
the ability to utilize tax losses in the future; accuracy of
reserves, future production, and future net revenue estimates; the
potential for variation in the quality of the Montney formation;
unanticipated results from exploration and development activities;
accuracy of accounting estimates and judgments; the ability to
replace and expand oil and gas reserves; potential requirements
under applicable accounting standards for impairment or reversal of
estimated recoverable amounts of some or all of assets or goodwill
from time to time; the ability to maintain relationships with
partners and to successfully manage and operate integrated
businesses; reliability of assets including in order to meet
production targets; potential disruption or unexpected technical
difficulties in developing new products and manufacturing
processes; the occurrence of unexpected events such as fires,
severe weather conditions, explosions, blow-outs, equipment
failures, transportation incidents, and other accidents or similar
events; marketing margins; cost escalations, including inflationary
pressures on operating expenses, including labour, materials, and
increased insurance deductibles or premiums; potential failure of
products to achieve or maintain acceptance in the market; risks
associated with fossil fuel industry reputation and litigation
related thereto; risks associated with technology and equipment,
including potential cyberattacks; risks associated with climate
change and assumptions relating thereto; the ability to secure
adequate and cost effective product transportation including
sufficient pipeline or alternate transportation, including to
address any gaps caused by constraints in the pipeline system or
storage capacity; availability of, and the ability to attract and
retain, critical talent; possible failure to obtain and retain
qualified staff and equipment in a timely and cost-efficient
manner; changes in labour relationships; changes in the regulatory
framework in any of the locations in which ARC operates, including
changes to the regulatory approval process and land-use
designations, royalty, tax, environmental, greenhouse gas, carbon,
climate change, and other laws or regulations, or changes to the
interpretation of such laws and regulations, as adopted or
proposed, the impact thereof and the costs associated with
compliance; the expected impact and timing of various accounting
pronouncements, rule changes, and standards; changes in general
economic, market, and business conditions; the impact of production
agreements among Organization of the Petroleum Exporting Countries
("OPEC") and non-OPEC members; political and economic conditions;
the occurrence of unexpected events such as pandemics, war,
terrorist threats, and the instability resulting therefrom; and
risks associated with existing and potential future lawsuits,
shareholder proposals, and regulatory actions.
Additional information about assumptions, risk factors, and
uncertainties on which the forward-looking information is based and
that could cause ARC's actual results to differ materially from any
estimates or projections of future performance or results expressed
or implied by such forward-looking statements are described in the
joint management information circular of ARC and Seven Generations
dated March 1, 2021 and the documents incorporated by reference
therein, which are available on ARC's website at
www.arcresources.com, as applicable, and on ARC's SEDAR profile at
www.sedar.com and are incorporated by reference herein.
Barrels of Oil Equivalent
Natural gas volumes have been converted to boe on the basis of
six thousand cubic feet ("Mcf") to one barrel ("bbl"). Boe may be
misleading, particularly if used in isolation. A 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 value
equivalency at the wellhead. Given that the value ratio based on
the current price of crude oil compared with natural gas is
significantly different from the energy equivalency conversion
ratio of 6:1, utilizing a conversion on a 6:1 basis is not an
accurate reflection of value.
Advisory – Credit Ratings
Credit ratings are intended to provide investors with an
independent measure of credit quality of an issue of securities.
Credit ratings are not recommendations to purchase, hold, or sell
securities and do not address the market price or suitability of a
specific security for a particular investor. There is no assurance
that any rating will remain in effect for any given period of time
or that any rating will not be revised or withdrawn entirely by the
rating agency in the future if, in its judgment, circumstances so
warrant.
About ARC
ARC is the largest pure-play Montney producer and one of
Canada’s largest dividend-paying energy companies, featuring
low-cost operations and leading ESG characteristics. 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 TSX
under the symbol ARX.
For further information about ARC Resources Ltd., please visit
ARC’s website at www.arcresources.com.
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version on businesswire.com: https://www.businesswire.com/news/home/20210406005611/en/
Investor Relations: IR@arcresources.com Telephone: (403)
503-8600 Fax: (403) 509-6427 Toll Free: 1-888-272-4900
Kris Bibby Senior Vice President and Chief Financial Officer ARC
Resources Ltd. 403-503-8675 KBibby@arcresources.com
Martha Wilmot Investor Relations Analyst ARC Resources Ltd.
403-509-7280 MWilmot@arcresources.com
ARC Resources (TSX:ARX)
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