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1. Company Snapshot

1.a. Company Description

ARC Resources Ltd.explores, develops, and produces crude oil, natural gas, and natural gas liquids in Canada.The company holds interests in the Montney properties located in northeast British Columbia and northern Alberta; and Pembina Cardium properties in central Alberta.


As of December 31, 2020, it had proved plus probable reserves of 929 millions of barrels of oil equivalent.ARC Resources Ltd.was founded in 1996 and is headquartered in Calgary, Canada.

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1.b. Last Insights on ARX

ARC Resources Ltd.'s recent performance was driven by strong earnings beat, with EPS exceeding expectations despite revenue lag. The company's Q4 profit fell 27% due to weak oil and gas prices, but analysts remain optimistic. UBS and Tudor, Pickering, Holt reiterated their buy ratings, with UBS raising its price target to C$35.00. Additionally, a recent analyst report suggests the company is undervalued by 45%, with a fair value estimate of C$44.61. The company's focus on increasing oil and gas production also contributed to its recent performance.

1.c. Company Highlights

2. ARC Resources Delivers Strong Q3, Driven by Record Condensate Production

ARC Resources reported a robust third quarter, with production averaging 360,000 BOE per day, a 10% increase year-over-year and 13% on a per-share basis, driven by record-high 114,000 barrels per day of condensate and oil. The company generated $283 million of free cash flow and returned it all to shareholders. However, the actual EPS came out at $0.37, missing estimates of $0.57. Revenue growth is expected to be 5.6% next year, indicating a strong outlook. With a P/E Ratio of 9.4 and an EV/EBITDA of 4.96, the stock appears to be reasonably valued.

Publication Date: Nov -13

📋 Highlights
  • Q3 Production Growth:: Averaged 360,000 BOE/day, reflecting a 10% YoY increase and 13% per-share growth, driven by record condensate/oil output of 114,000 bpd.
  • Free Cash Flow & Shareholder Returns:: Generated $283 million in free cash flow during Q3, with 100% returned to shareholders via dividends and share repurchases.
  • 2026 Capital Budget:: $1.8–1.9 billion allocated to drive 405,000–420,000 BOE/day production while reducing capital intensity and boosting free cash flow compared to 2025.
  • Condensate Production Target:: Maintains ~110,000 bpd of condensate in 2026, emphasizing higher-margin resource optimization.
  • Cost Efficiency Focus:: Stable go-forward operating costs projected at $60s per BOE, with flexibility to maintain profitability even if prices dip below $60/bbl.

Operational Highlights and Guidance

The 2026 budget will deliver higher production, lower capital, and higher free cash flow compared to 2025, aligning with the company's long-term strategy. ARC Resources expects to invest $1.8 billion to $1.9 billion, generating annual production between 405,000 and 420,000 BOE per day and condensate production of approximately 110,000 barrels per day. As Terry Anderson stated, "We created a budget that supports our long-term strategy of investing in our assets to grow free cash flow while returning a meaningful amount of capital to our shareholders."

Attachie Phase 1 Learnings and Phase 2 Plans

The company is applying learnings from Attachie Phase 1 to improve capital efficiencies and profitability in Phase 2. According to Armin Jahangiri, the objective is to "find that right balance between recovering resource and making sure we can recover it at a decent capital efficiency." The company is confident that it can improve profitability and capital efficiency in Phase 2 based on early production results from Phase 1.

Cost Structure and Profitability

ARC Resources is comfortable with its cost structure, with Kristen Bibby stating that the "future go-forward cost" is around the $60s range. The company's focus on profitability and optimizing well and frac design is expected to drive sustainable value for shareholders. With an ROE of 18.71% and an ROIC of 18.09%, the company is generating strong returns on its investments.

Valuation and Dividend Yield

3. NewsRoom

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Assessing ARC Resources (TSX:ARX) Valuation as Long-Term Growth Continues

Nov -20

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U.S. oil companies, energy investors 'looking at Canada again' amid flurry of deals

Nov -20

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Institutional investors return to Canadian E&Ps in Q3; buying selective, BMO Says

Nov -19

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ARC Resources Ltd (AETUF) Q3 2025 Earnings Call Highlights: Record Production and Strategic ...

Nov -08

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Arc Resources: Q3 Earnings Snapshot

Nov -06

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ARC RESOURCES LTD. REPORTS THIRD QUARTER 2025 RESULTS, ANNOUNCES 2026 BUDGET AND 11 PER CENT DIVIDEND INCREASE

Nov -06

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Will Weakness in ARC Resources Ltd.'s (TSE:ARX) Stock Prove Temporary Given Strong Fundamentals?

Nov -06

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Zacks Industry Outlook Highlights Canadian Natural Resources, Arc Resources and Baytex Energy

Oct -23

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4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (3.51%)

6. Segments

Condensate

Expected Growth: 3.5%

ARC Resources Ltd.'s condensate growth is driven by increasing demand from refineries, proximity to high-growth markets, and strategic infrastructure investments. Additionally, the company's focus on operational efficiency, cost reductions, and disciplined capital allocation contribute to its 3.5% growth rate.

Natural Gas

Expected Growth: 3.8%

ARC Resources Ltd.'s 3.8% natural gas growth is driven by increased production from its Montney and Pembina Cardium assets, improved well productivity, and strategic acquisitions. Additionally, favorable Canadian gas prices, growing demand from LNG exports, and efficient operations also contribute to this growth.

Commodities Purchased from Third Parties

Expected Growth: 3.2%

The 3.2% growth in Commodities Purchased from Third Parties at ARC Resources Ltd. is driven by increasing demand for energy products, strategic partnerships with suppliers, and efficient supply chain management. Additionally, favorable market conditions, improved operational efficiency, and a focus on cost optimization have contributed to this growth.

Royalties

Expected Growth: 3.0%

ARC Resources Ltd.'s 3.0% royalty growth is driven by increased oil and gas production, improved commodity prices, and strategic acquisitions. Additionally, the company's focus on operational efficiency, cost reductions, and investments in high-growth areas contribute to its royalty growth.

Natural Gas Liquids

Expected Growth: 3.6%

ARC Resources Ltd.'s 3.6% growth in Natural Gas Liquids is driven by increasing demand from petrochemicals and refining industries, coupled with strategic acquisitions and optimization of existing assets. Additionally, improved operational efficiencies and cost savings initiatives have contributed to the growth.

Crude Oil

Expected Growth: 4.2%

ARC Resources Ltd.'s 4.2% growth in Crude Oil is driven by increased production from its Montney and Pembina Cardium assets, improved operational efficiencies, and a favorable pricing environment. Additionally, the company's strategic acquisitions and divestitures have optimized its asset portfolio, further contributing to growth.

7. Detailed Products

Crude Oil

ARC Resources Ltd. produces high-quality crude oil from its oil wells in Western Canada.

Natural Gas

ARC Resources Ltd. extracts natural gas from its wells in Western Canada, providing a clean-burning fuel source.

Natural Gas Liquids (NGLs)

ARC Resources Ltd. produces NGLs, a group of hydrocarbons that include ethane, propane, and butane.

Condensate

ARC Resources Ltd. produces condensate, a type of light oil, from its wells in Western Canada.

8. ARC Resources Ltd.'s Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for ARC Resources Ltd. is medium due to the availability of alternative energy sources, but the company's focus on natural gas production reduces the impact of substitutes.

Bargaining Power Of Customers

The bargaining power of customers is low for ARC Resources Ltd. as the company sells its products to a diverse range of customers, reducing dependence on any one customer.

Bargaining Power Of Suppliers

The bargaining power of suppliers is medium for ARC Resources Ltd. as the company relies on a few key suppliers for equipment and services, but has some flexibility to negotiate prices.

Threat Of New Entrants

The threat of new entrants is low for ARC Resources Ltd. due to the high barriers to entry in the oil and gas industry, including significant capital requirements and regulatory hurdles.

Intensity Of Rivalry

The intensity of rivalry is high for ARC Resources Ltd. due to the competitive nature of the oil and gas industry, with many established players competing for market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 22.92%
Debt Cost 6.16%
Equity Weight 77.08%
Equity Cost 10.56%
WACC 9.55%
Leverage 29.74%

11. Quality Control: ARC Resources Ltd. passed 6 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Paramount Resources

A-Score: 6.8/10

Value: 8.2

Growth: 8.0

Quality: 7.6

Yield: 9.0

Momentum: 2.5

Volatility: 5.3

1-Year Total Return ->

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Stock-Card
ARC Resources

A-Score: 6.7/10

Value: 6.1

Growth: 6.0

Quality: 7.5

Yield: 6.0

Momentum: 6.0

Volatility: 8.3

1-Year Total Return ->

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Stock-Card
Coterra Energy

A-Score: 6.6/10

Value: 6.9

Growth: 4.4

Quality: 6.9

Yield: 9.0

Momentum: 4.5

Volatility: 7.7

1-Year Total Return ->

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Stock-Card
Black Stone Minerals

A-Score: 6.4/10

Value: 5.0

Growth: 3.7

Quality: 9.0

Yield: 10.0

Momentum: 1.5

Volatility: 9.3

1-Year Total Return ->

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Stock-Card
Civitas Resources

A-Score: 6.0/10

Value: 9.3

Growth: 6.2

Quality: 6.2

Yield: 10.0

Momentum: 1.0

Volatility: 3.0

1-Year Total Return ->

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Stock-Card
Kimbell Royalty Partners

A-Score: 5.4/10

Value: 2.7

Growth: 3.7

Quality: 5.6

Yield: 10.0

Momentum: 2.0

Volatility: 8.7

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

26.76$

Current Price

26.76$

Potential

0.00%

Expected Cash-Flows