Second Quarter 2016 Operations Review
- ARC achieved second quarter 2016 production of 117,695 boe per day, a decrease of five per cent from the first quarter of 2016, which reflects ARC's moderated pace of capital development in the first quarter of 2016 in response to depressed commodity prices, as well as a decrease of approximately 1,700 boe per day due to pipeline restrictions experienced during the second quarter. Second quarter 2016 natural gas production of 468 MMcf per day was five per cent lower and crude oil and liquids production of 39,771 barrels per day was seven per cent lower compared to the first quarter of 2016.
- First half 2016 production of 120,959 boe per day was five per cent higher than the first half of 2015. First half 2016 natural gas production of 479 MMcf per day was up eight per cent from the first half of 2015, and is largely the result of production from new wells flowing through the Sunrise gas plant, which came onstream mid-way through the third quarter of 2015. First half 2016 crude oil and liquids production of 41,191 barrels per day was relatively unchanged from the first half of 2015, with production from new wells flowing through the expanded Tower oil battery, which was commissioned mid-way through the fourth quarter of 2015, mostly offset by production declines in Alberta and Saskatchewan as a result of significantly reduced capital activity throughout 2015 and the first half of 2016.
- ARC expects production to decline further in the third quarter as a result of scheduled maintenance activities and anticipated third-party infrastructure restrictions, before modestly rebounding in the fourth quarter. We have increased our full-year average production guidance to a range of 118,000 to 122,000 boe per day, resulting in modest year-over-year growth.
- Second quarter 2016 funds from operations of $141.7 million ($0.40 per share) were down six per cent from first quarter 2016 funds from operations of $150.1 million ($0.43 per share). Decreased production, lower natural gas prices, higher current income taxes, increased royalty expenses and reduced realized gains on hedging contracts decreased ARC's funds from operations in the period. Partially offsetting these factors were higher crude oil prices, lower general and administrative expenses, lower transportation expenses, and modestly lower interest expense.
- First half 2016 funds from operations of $291.8 million ($0.83 per share) decreased 27 per cent from first half 2015 funds from operations largely as a result of lower realized crude oil and natural gas prices, partially offset by higher natural gas production volumes.
- Second quarter 2016 capital expenditures, before land and net property acquisitions and dispositions, totaled $112.6 million, an increase of approximately 90 per cent from first quarter 2016 spending. Capital investment was focused primarily on ARC's Montney assets in northeast British Columbia, where ARC drilled 10 operated wells (six oil wells and four natural gas wells). Capital spending in the quarter was also directed at progressing construction of the Dawson Phase III gas processing and liquids-handling facility and conducting completions activities throughout northeast British Columbia.
- First half 2016 capital expenditures, before land and net property acquisitions and dispositions, totaled $171.7 million and included 18 operated wells drilled (nine natural gas wells, six oil wells, two liquids-rich wells, and one service well).
- ARC successfully added to its working interest ownership in the Pembina Cardium area late in the second quarter of 2016, and in addition to the 2,200 boe per day transaction, we have entered into a separate binding sales agreement to acquire an additional 800 boe per day of Pembina assets expected to close mid-third quarter of 2016. The combined acquisitions will add approximately 3,000 boe per day of light, high-netback production (approximately 85 per cent liquids), which will result in an annual volume impact in 2016 of approximately 1,400 boe per day of production. ARC's deep understanding of the Cardium was a key advantage in enabling successful negotiations of these transactions. The combined acquisitions totaled $148 million for a flowing boe metric of $48,000 per boe per day and a proved developed producing reserve metric of $10.50 per boe, based on internal estimates. By increasing our average working interest, and hence control over the acquired assets, ARC significantly increased its ability to efficiently develop Pembina's considerable drilling inventory. Concurrently, ARC continued with its non-core asset divestment program during the second quarter of 2016, divesting the remainder of our low-netback, operated shallow gas assets in southern Alberta.
- Given the significant drilling results at Parkland/Tower and the proven liquids and natural gas potential in the area, ARC plans to proceed with the second phase of the 3-9 gas processing and liquids-handling facility. The facility expansion, which has already received regulatory approval, will add natural gas sales of approximately 60 MMcf per day and approximately 7,500 barrels per day of oil sales. The timing of the expanded Parkland/Tower facility is expected to be late 2018 or early 2019 depending on approval of future capital budgets that provide appropriate funding.
- ARC's second quarter 2016 operating expenses of $6.41 per boe increased five per cent compared to the first quarter of 2016, and was largely due to the decrease in volumes in the quarter as absolute operating expenses were effectively unchanged at $68.6 million.
- First half 2016 operating expenses of $6.25 per boe were 18 per cent lower relative to the first half of 2015 and were attributed to lower power prices throughout the period, diligent cost control efforts across ARC's field operations, and the disposition of properties with higher relative costs to operate. First half 2016 operating expenses on an absolute basis were $137.6 million. ARC has reduced operating expenses on a per boe basis by 40 per cent since 2009.
(Three Months ended June 30th)
|Crude Oil (bbl/d)||31,702||31,958|
|Natural gas (mmcf/d)||467.5||426.0|
|Natural Gas Liquids (bbl/d)||4,336||3,795|
|Total Production (boe/d)||117,695||109,900|
The following table summarizes the companies production by core area for three months ended June 30, 2016:
|Core Area (1)||Total (boe/d)||Oil (bbl/d)||Condensate (bbl/d)||Gas (mmcf/d)||NGL (bbl/d)|
|South Central AB (2)||4,406||3,386||33||4.9||175|
(1) Provincial references: "AB" is Alberta, "BC" is British Columbia, "SK" is Saskatchewan, "MB" is Manitoba.
(2) An additional 700 boe per day of non-core assets were disposed from this district toward the end of the second quarter of 2016.