Peters & Co. Limited 2018 Energy Conference. September 11, 2018

Transcription

1 Peters & Co. Limited 2018 Energy Conference September 11, 2018

2 Advisory Statements Forward-looking Information and Statements This presentation contains forward-looking information as to ARC s internal projections, expectations or beliefs relating to future events or future performance and includes information as to our future well inventory in our core areas, our exploration and development drilling and other exploitation plans for 2018 and beyond, and related production expectations, costs and cash flow, expenses, our plans for constructing and expanding facilities, the volume of ARC's oil and gas reserves and the volume of ARC's oil and gas resources in the northeast British Columbia Montney ( NE BC Montney ), the recognition of additional reserves and the capital required to do so, the life of ARC's reserves, the volume and product mix of ARC's oil and gas production, future results from operations and operating metrics. These statements represent Management s expectations or beliefs concerning, among other things, future operating results and various components thereof or the economic performance of ARC. The projections, estimates and beliefs contained in such forward-looking statements are based on Management's assumptions relating to the production performance of ARC s oil and gas assets, the cost and competition for services, the continuation of ARC s historical experience with expenses and production, changes in the capital expenditure budgets, future commodity prices, continuing access to capital and the continuation of the current regulatory and tax regime in Canada and necessarily involve known and unknown risks and uncertainties, such as changes in oil and gas prices, infrastructure constraints in relation to the development of the Montney in British Columbia, risks associated with the degree of certainty in resource assessments and including the business risks discussed in ARC s annual and quarterly MD&A and other continuous disclosure documents, and related to Management s assumptions, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause actual results to differ materially from those predicted. Other than the 2018 Guidance, which is discussed quarterly, ARC does not undertake to update any forward-looking information in this document whether as to new information, future events or otherwise except as required by securities laws and regulations. We have adopted the standard of 6 Mcf:1 barrel 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 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 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. Non-GAAP Measures Throughout this presentation, ARC uses the terms operating netback ( netback ) and return on average capital employed ( ROACE ) to analyze financial and operating performance. These non-gaap measures do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures presented by other entities. Netback ARC calculates netback on a total and per boe basis as sales less royalties, operating and transportation expenses. ARC discloses netbacks both before and after the effect of realized gains or losses on risk management contracts. Realized gains or losses represent the portion of risk management contracts that have settled in cash during the period and disclosing this impact provides Management and investors with transparent measures that reflect how ARC s risk management program can impact its netback. Management feels that its netback is a key industry benchmark and a measure of performance for ARC that provides investors with information that is commonly used by other crude oil and natural gas producers. The measurement on a boe basis assists Management and investors with evaluating operating performance on a comparable basis. Return on Average Capital Employed ARC calculates ROACE, expressed as a percentage, as net income plus interest and total income taxes (recovery) divided by the average of the opening and closing capital employed for the 12 months preceding period end. Capital employed is the total of net debt plus shareholders equity. ROACE since inception is the annual average net income plus interest and total income taxes (recovery) for the years 1996 to 2017 divided by the average of the opening and closing capital employed over the same period. Refer to the "Capital Management" note in ARC s financial statements for additional discussion on net debt. ARC uses ROACE as a measure of operating performance, to measure how effectively Management utilizes the capital it has been provided and to demonstrate to shareholders that capital has been used wisely over the long term.

3 ARC at a Glance A Leading Montney Producer Committed to Long-term Value Creation and Shareholder Returns $6 billion Enterprise Value Proven Strategy of Risk-managed Value Creation 22 Years of Success Global Reach 55% Canada 35% US 10% Abroad 8 th Largest Canadian Conventional Producer Low-cost Producer Diversified Market Access Preserves Margins 470 Valued Employees

4 ARC Is Building Sustainable Montney Businesses Businesses Sustain Production and Generate Free Cash Flow at Low Reinvestment Rates 150,000 Montney Businesses Montney Production Sunrise Phase II 120,000 Cardium & Non-core Production Dawson Phase III 90,000 Parkland/Tower Phase II Sunrise Phase I Tower Battery Expansion 60,000 Dawson Phase I Dawson Phase II Ante Creek Phase I 30, Non-core Dispositions

5 ARC s Vision & Principles of Business To Deliver Industry-leading Returns via Per Share Growth in Funds from Operations and Dividends Disciplined Capital Allocation Sustaining Capital Requirements Net Gas Well Count 29% Three-year Average F&D Costs Operating Expenses 61% Focus on Efficiency Improvements % % Physical Market Access and Financial Risk Management Multiple Sales Points including US Midwest, US Pacific Northwest, Henry Hub, Dawn, AECO, Station 2 hubs ~$0.8 billion of realized cash gains on risk management contracts since 2009

6 ARC s Plan ARC s Plan Is Fully Funded and Demonstrates Our Ongoing Focus on Profitability, Sustainability and Creating Optionality Monthly dividend of $0.05 per share Brought on Dawson Phase III Sustain Montney businesses Maintain consistent investment levels Sold Saskatchewan assets Rebuilt liquids production from divestments Build 3,000 bbl per day battery at Attachie West Bring on Sunrise Phase II (additional 120 MMcf/day in service) Eliminated DRIP and SDP plans 118,671 boe per day Achieved success in Lower Montney and Attachie 122,937 boe per day Progress Sunrise Phase II (60 MMcf/day in service by year-end) 130,000 to 134,000 boe per day Progress multiple largescale projects, leading to per share production and cash flow growth Attachie West Phase I Dawson Phase I & II liquidshandling enhancements Dawson Phase IV Maintain Share Count

7 ARC s Proven Development Model Inventory at All Stages Allows for Self-funding and Full-cycle Returns across Portfolio Growth for Future Phase Development Phase Free Cash Flow Phase Exploration Appraisal / Piloting Develop to Commercialize Invest in Infrastructure Geographic and Commodity Diversity Optimization Maintenance Development to Sustain Cash Flow Redw ater Pembina Daw son Phase I & II Ante Creek (Central) Sunrise Phase I Parkland/Tower Phase I & II Net Cash Flow + Daw son Phase III Attachie West (Pilot) Sunrise Phase II Daw son Phase IV Attachie West Phase I Ante Creek (South) Parkland/Tower Phase III Daw son Phase V Pouce Coupe Septim us Attachie East Sundown 2018 Budget $690 million (1) (1) Includes $25 million of non-core and corporate capital. Growth & Development Capital $275 million Sustaining Capital $390 million

8 ARC Has Optionality in the Montney ARC s Montney Assets Are Strategically Located BC AB 1,000m Lower Montney 10 kpa/m Line Commodity Optionality Oil and Liquids 2,000m Red Creek Attachie Tower Pouce Coupe Septimus Parkland Sunset Sunrise Dawson 3,000m Sundown Dry Gas Ante Creek 1,000m Egress Optionality Geographic Optionality Multi-layer Optionality Condensate-rich Gas 2,000m Montney Erosional Edge

9 ARC Has Identified Multiple Layers to Develop Significant Future Delineation Opportunities with the Development of Efficient and Sustainable Resource Base Attachie Septimus Sunrise Tower Parkland Dawson Pouce Coupe Upper Montney Montney A Montney B Montney C Lower Montney Montney D Montney E Existing Horizontal Wells, Development Existing Horizontal Wells, Pilots Potential Horizontal Wells

10 ARC Is Growing Its Liquids Production Development Activities in the Lower Montney Are Focused on Growing Liquids Production (1) Development activities at Dawson and Parkland will underpin condensate production growth at Dawson Phase III, which has liquids-handling capacity of 7,500 bbl/day Dawson-Parkland interconnect is expected to be in service by late 2018 and will allow ARC to invest in Lower Montney wells at Dawson and Parkland on the basis of profitability Progress infrastructure upgrade at Dawson Phase I & II to accommodate additional liquids production 2017 to Q Lower Montney Drilled and Completed Wells Wells Planned for 2018 Dawson-Parkland Interconnect (1) Only Low er Montney w ells are displayed.

11 ARC s Attachie Asset Has Strong Liquids Potential Attachie West Is a Leading Development Opportunity within ARC s Portfolio Condensate-rich Production Profile pad Upper Montney Significantly Over-pressured Reservoir Extensive, Multi-layer Contiguous Land Position pad pad Lower Montney ARC Wells ARC Attachie West Production Pilots ARC Attachie West 2017 Multi-well Pad ARC Attachie East Delineation Wells ARC Wells Drilled in 2017 Existing Horizontal Wells, Development Existing Horizontal Wells, Pilots Potential Horizontal Wells

12 ARC s Parkland Delivering Strong Lower Montney Results Parkland Lower Montney Well Has Similar Free Liquids Production to the Best Wells at Tower and Attachie 200 Cumulative Oil & Condensate Production (1) Cumulative Oil & Condensate Production (Mbbl) Parkland F11-04 Attachie (Lower Montney, ~2,400 m) (Upper Montney, ~1,950 m) Attachie B13-26 (Upper Montney, ~1,900 m) Tower 7-12 West Pad Average (Upper Montney, ~2,500 m) The Beast Attachie (Upper Montney, ~2,800 m) ,000 1,200 Days on Production Attachie Attachie B13-26 Tower 7-12 West Pad Average Attachie Parkland F11-04 (1) Lengths in meters noted are lateral w ell lengths.

13 ARC s Dawson Phase IV Cash Flow Model As With Each Project ARC Advances, Dawson Phase IV Will Generate Significant Free Cash Flow and Strong Full-cycle Returns Development Timeline: 2018 to 2020: Facility and infrastructure spending 2019 to 2020: Pre-drill ~36 wells to fill facility 2021: Drill ~10 wells per year to sustain business Dawson Phase IV Gas Processing Capacity: 90 MMcf/day Liquids-handling Capacity: 7,500 bbl/day On-stream: ,000 30,000 25,000 20,000 15,000 10,000 5,000 $0 0 00) F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F 2029F -5,000-10,000 00) 00) Field Netback Capital Expenditures, excluding Facility Expenditures Facility Expenditures Net Cash Flow Production -15,000-20,000-25,000-30,000

14 ARC Has a Premium Oil & Liquids Production Mix 68% of ARC s H Sales Revenue Was Derived from Oil & Liquids Production 90% of ARC s liquids production is made up of premium light oil and condensate ARC s Crude Oil & Condensate Production Mix Crude Oil & Condensate Benchmark Pricing 11% % US$/barrel % 1% 35 Light ( > 35 API ) 25 Medium ( 25 to 35 API ) Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jun-18 Condensate ( > 50 API ) Heavy ( < 25 API ) Mixed Sweet Blend Condensate WTI Western Canadian Select

15 ARC Manages an Advantaged Diversification Strategy ARC Is Physically and Financially Diversifying to Downstream Markets to Manage Risk and to Achieve Optimal Pricing Less than 5% of ARC s expected total sales revenue is exposed to AECO and Station 2 for the remainder of 2018 ARC s Corporate Natural Gas Price ARC s Natural Gas Diversification (1)(2) Cdn$/Mcf $3.15 $3.34 $3.24 $2.96 $0.78 $0.92 $0.74 $0.39 $0.32 $1.05 $0.19 $0.63 $2.04 $2.17 $2.18 $ Q Q % of Total Production 100% 75% 50% 25% 0% 4% 4% 4% 6% 4% 7% 9% 34% 37% 19% 8% 7% 11% 2% 17% 23% 23% 21% 26% 19% 15% Bal 2018 Cal 2019 Cal 2020 Realized Gains on Risk Management Contracts Diversification Activities Average Price before Diversification Activities Hedged Midwest US Floating Dawn Floating AECO Floating Henry Hub Floating Station 2 Floating Pac-NW US Floating (1) Based on production assumptions for sanctioned projects. (2) Hedged includes all physical and financial fixed price swaps and collars at AECO, Station 2, and Henry Hub.

16 ARC Can Sustain the Business at Low Prices Disposition Proceeds Have Given ARC the Ability to Counter-cyclically Invest in Growth Projects Total Forecasted Inflows & Outflows (1) 2017 to 2019 ARC can sustain the business in a US$50/bbl WTI & Cdn$1.50/GJ AECO price environment Net A&D Proceeds and Excess Funds from Operations Funds from Operations (~40% Gas) ~$400 million/year Dawson Phase III Sunrise Phase II Dawson Phase IV Funds from Operations (~60% Oil & Liquids) ~$200 million/year Sources of Cash Dividend Sustaining Capital Growth Capital (1) Sustaining and grow th capital expenditures are before land and net property acquisitions and dispositions. Capital Efficiencies $10,000/boe/day Capital Efficiencies $15,000/boe/day

17 ARC Is Positioned for Continued Long-term Profitability Low Sustaining Capital Requirements, Efficient Investment of Growth Capital and Low-cost Funding Decisions Lead to Profitability Return on Average Capital Employed (1) 30% ROACE of 10% since Inception ROACE Trailing Three-year ROACE 20% 10% 0% (10%) (1) Non-GAAP measure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to Non-GAAP Measures in the Advisory Statements to this presentation.

18 ARC Is Committed to Strong ESG Performance ARC s Leadership Culture Is Reflected in Its ESG Practices In 10 years of formal sustainability reporting, ARC has achieved the following: 47% reduction in recordable injury rates for employees 43% reduction in greenhouse gas intensity 31% increase in the percentage of women in supervisory or professional positions Recognitions and Rankings: MSCI Global Sustainability Index Jantzi Social Index FTSE Russell s FTSE4Good Index Series CDP Participant for nine consecutive years Joined the 30% Club in 2018 Globe and Mail Board Games (Ranked 26 out of 242 companies with a score of 90/100) Brendan Wood International (Ranked #1 in peer group for Confidence in Corporate Strategy in 2018) 2016 Canadian Coalition for Good Governance: Best Disclosure of Corporate Governance and Executive Compensation Practices 2017 & 2018 IR Magazine Awards: Best IR in Energy Sector, Grand Prix for Mid-Cap, Best Financial Reporting, Best Use of Technology, Best Investor Relations Officer, Best IR by a CEO (2018 only) 2017 IR Magazine Global Top 50 For more information, visit

19 Why Invest in ARC? A Differentiated Investment with Tremendous Opportunity Competitive Cost Structure Profitable Investment Deep Project Inventory Long-term Value Creation Top-tier Assets Owned Infrastructure Industry-leading Operational Efficiencies Market Access Concentrated Asset Base Strong Expertise Balance Sheet Strength Full-cycle Returning Projects Disciplined Execution Managed Pace and Decline Technology Deployment Montney and Cardium Project Potential (boe/day) Growth for Future Development Free Cash Flow Per Share Growth Sustainable Dividend Next Decade Sunrise III Septimus I & II Attachie West II Attachie Central I & II Attachie East I & II Pouce Coupe Sundown Project Options Next Five Years Sanctioned: Follow-on Options: Sunrise II Attachie West I Dawson IV Ante Creek II Parkland/Tower III Dawson V Base Production Montney Cardium 2017