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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' Q4 2025 Earnings: A Strong Finish to the Year

ARC Resources Limited reported a robust Q4 2025, with funds from operations of $874 million, 11% above expectations, and free cash flow of $415 million, 40% above analyst estimates. The company's earnings per share (EPS) came in at $0.4527, beating expectations of $0.365. Revenue growth was driven by record production of 408,000 BOE per day, up 7% year-over-year and 10% on a per share basis. The strong production performance was led by condensate and oil production, which reached 119,000 barrels per day. ARC's 2025 reserves were also a record across all categories, with a 15% increase on a PDP basis and 10% on a proved plus probable basis.

Publication Date: Feb -08

📋 Highlights
  • Record Production Growth:: Achieved 408,000 BOE/day, up 7% YoY and 10% per share, with condensate/oil production at 119,000 barrels/day.
  • Strong Financial Performance:: Q4 funds from operations of $874M (11% above expectations) and free cash flow of $415M (40% above forecasts), with 2025 free funds flow doubling to $1.3B.
  • Shareholder Returns:: Returned 75% of free funds flow via $514M share repurchases and $452M in dividends, reflecting robust capital allocation.
  • Reserve Value Growth:: 2025 reserves increased 15% (PDP) and 10% (proved+probable), with $39/share NPV for 2P reserves, underscoring asset quality.

Operational Highlights

The company's operational performance was highlighted by its ability to achieve a natural gas price of $3.77 per Mcf, nearly $1.50 per Mcf above AECO. This was a significant achievement, demonstrating ARC's ability to navigate the complex natural gas market. The company's management team discussed the current state of their assets, including Attachie, Kakwa, and others, noting that they are reassessing their development plan at Attachie due to underperforming Upper Montney wells. As Terry Anderson emphasized, "we are focused on long-term value creation for shareholders and making the right business decisions, even if unpopular, to manage risk and create value."

Capital Allocation and Return to Shareholders

ARC returned 75% of free funds flow to shareholders in 2025, repurchasing 20 million common shares for $514 million and declaring dividends of $452 million. The company's balance sheet remains strong, with $2.9 billion of net debt and approximately 0.9x 2025 cash flow. For 2026, ARC plans to continue to return essentially all free cash flow to shareholders, with an expected $1.2 billion of free funds flow. Analysts estimate revenue growth of 1.9% for the next year.

Valuation and Outlook

ARC's valuation metrics suggest a reasonable price for the company's shares. The P/E Ratio is 10.26, while the EV/EBITDA ratio is 5.47. The Dividend Yield is 3.42%, and the Free Cash Flow Yield is 9.34%. These metrics indicate that ARC's shares are reasonably priced, considering the company's strong financial performance and growth prospects. With a ROE of 15.52% and ROIC of 9.19%, ARC is generating strong returns on equity and invested capital.

3. NewsRoom

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ARC Resources Q4 Earnings Call Highlights

Feb -07

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Assessing ARC Resources (TSX:ARX) Valuation After Recent Share Price Weakness

Feb -07

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ARC Resources Ltd (AETUF) Q4 2025 Earnings Call Highlights: Record Production and Strategic ...

Feb -06

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ARC Resources Reports Lower Profit, Higher Revenue for Fourth Quarter

Feb -05

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Arc Resources: Q4 Earnings Snapshot

Feb -05

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ARC RESOURCES LTD. REPORTS YEAR-END 2025 RESULTS AND RESERVES

Feb -05

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ARC Resources Maintained at Outperformer By CIBC Ahead of Q4 Results; Price Target Kept at C$27.50

Feb -02

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TPH Energy Research With 2025 CDN Oil Sands and Upstream Recap

Dec -31

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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

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Coterra Energy

A-Score: 6.9/10

Value: 7.0

Growth: 4.4

Quality: 7.6

Yield: 9.0

Momentum: 5.5

Volatility: 7.7

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Paramount Resources

A-Score: 6.7/10

Value: 8.3

Growth: 7.9

Quality: 7.6

Yield: 8.0

Momentum: 3.0

Volatility: 5.3

1-Year Total Return ->

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ARC Resources

A-Score: 6.7/10

Value: 6.5

Growth: 6.0

Quality: 7.5

Yield: 6.0

Momentum: 6.0

Volatility: 8.0

1-Year Total Return ->

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Black Stone Minerals

A-Score: 6.5/10

Value: 5.5

Growth: 3.7

Quality: 7.9

Yield: 10.0

Momentum: 2.5

Volatility: 9.3

1-Year Total Return ->

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Kimbell Royalty Partners

A-Score: 6.1/10

Value: 5.3

Growth: 3.7

Quality: 6.2

Yield: 10.0

Momentum: 2.5

Volatility: 8.7

1-Year Total Return ->

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Civitas Resources

A-Score: 6.1/10

Value: 9.5

Growth: 6.1

Quality: 6.7

Yield: 10.0

Momentum: 1.0

Volatility: 3.0

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

22.83$

Current Price

22.83$

Potential

-0.00%

Expected Cash-Flows