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

CALGARY, AB, Feb. 9, 2023 /CNW/ - (TSX: ARX) ARC Resources Ltd. ("ARC" or the "Company") today reported its fourth quarter and year-end 2022 financial and operational results as well as its year-end 2022 reserves.

ARC generated record production and funds from operations per share in the fourth quarter of 2022. In 2022, annual average production, net income, funds from operations, and free funds flow were the highest of any year in ARC's 26-year history.

HIGHLIGHTS

Fourth Quarter 2022 Results

• ARC delivered record average production of 359,730 boe⁽¹⁾⁽²⁾ per day (61 per cent natural gas and 39 per cent crude oil and liquids). Production per share⁽³⁾ increased 16 per cent year-over-year and was in-line with Company guidance despite weather related downtime in December.
• ARC generated free funds flow of $603 million⁽⁴⁾ ($0.96 per share)⁽⁵⁾, funds from operations of $986 million⁽⁶⁾ ($1.56 per share)⁽⁷⁾ and cash flow from operating activities of $878 million in the fourth quarter. ARC invested $383 million into capital expenditures⁽⁴⁾, in-line with Company guidance.
• ARC's market diversification strategy resulted in an average realized natural gas price of $8.31 per Mcf⁽⁷⁾; $2.73 per Mcf, or 49 per cent, greater than the average AECO 7A Monthly Index price.
• ARC distributed 68 per cent or $411 million ($0.65 per share) of free funds flow for the period to shareholders through base dividends and share repurchases, with the remainder used to reduce net debt to $1.3 billion⁽⁶⁾ or 0.4 times funds from operations⁽⁶⁾.
• ARC repurchased 17 million shares during the fourth quarter. Since renewing its NCIB on August 30, 2022, ARC has repurchased 35 million common shares, representing 53 per cent of its allotment under the current NCIB.
• ARC recognized net income of $741 million ($1.18 per share), compared to net income of $678 million ($0.96 per share) in the fourth quarter of 2021.

Year-end 2022 Results 

• ARC generated record free funds flow in 2022 of $2.3 billion ($3.42 per share), representing a 58 per cent increase compared to 2021 free funds flow per share. ARC distributed 71 per cent or $1.6 billion ($2.43 per share) of free funds flow to shareholders with the remainder used to further strengthen ARC's balance sheet by reducing debt by $0.7 billion and net debt by $0.5 billion.
• In the second quarter of 2022, ARC entered into a long-term natural gas supply agreement with Cheniere Energy, Inc. ("Cheniere"). The agreement commences with the commercial operation of Train 7 of the Corpus Christi Stage III expansion which is expected in 2027. ARC will deliver natural gas to Cheniere through existing pipeline capacity and will receive a liquefied natural gas ("LNG") price based on Platts JKM^TM (Japan Korea Marker), after deductions for fixed LNG shipping costs and a fixed liquefaction fee.
• ARC recognized net income of $2.3 billion ($3.47 per share) compared to net income of $787 million ($1.25 per share) in 2021. Cash flow from operating activities was $3.8 billion and funds from operations were $3.7 billion ($5.60 per share).
• ARC executed its 2022 capital program safely and efficiently. Cash flow used in investing activities totaled $1.4 billion, with capital expenditures of $1.4 billion delivering record average production of 345,613 boe per day (61 per cent natural gas and 39 per cent crude oil and liquids) in 2022.
• Market diversification resulted in an average annual realized natural gas price of $8.15 per Mcf; $2.59 per Mcf, or 47 per cent greater than the average AECO 7A Monthly Index price for the period.
• In January 2023, ARC received certification under Equitable Origin's EO100^TM Standard for Responsible Development for its Ante Creek asset. With this certification and prior certifications received in 2022 for Kakwa and the Company's northeast BC assets, 100 per cent of the Company's assets are now certified under this global standard, representing the largest certified production base in Canada.

Year-end 2022 Reserves⁽¹⁾⁽⁸⁾

•  ARC's before-tax net present value ("NPV") of proved plus probable ("2P") reserves, discounted at 10 per cent, increased 49 per cent to $34.00 per share⁽⁹⁾ or $21.1 billion at December 31, 2022. The increase was driven by positive technical revisions and extensions and improved recovery, particularly at Kakwa, along with stronger commodity prices and reduced share count.
•  ARC grew its reserves per share in all categories between 14 per cent and 22 per cent. Proved producing ("PDP") reserves increased 22 per cent per share to 549 MMboe, primarily due to out performance at Kakwa where PDP reserves increased by 17 per cent. PDP finding, development and acquisition ("FD&A") costs including future development costs ("FDC") of $8.31 per boe⁽¹⁰⁾ equated to a 5.2 times⁽¹⁰⁾ PDP recycle ratio.
•  2P reserve replacement from development has been 140 per cent of production or greater for 15 consecutive years, and at year-end 2022 just 17 per cent of ARC's total drilling inventory was booked in the 2P category. ARC's Attachie asset, which will drive the next phase of production and reserve growth, comprised less than four per cent of total 2P locations with just 34 undeveloped drilling locations booked.

ARC's consolidated financial statements and notes (the "financial statements") and Management's Discussion and Analysis ("MD&A") as at and for the three months and year ended December 31, 2022, are available on ARC's website at www.arcresources.com and under ARC's SEDAR profile at www.sedar.com. The disclosures under the sections entitled "Netback" and "Non-GAAP and Other Financial Measures" in ARC's MD&A as at and for the three months and year ended December 31, 2022 (the "2022 Annual MD&A") are incorporated by reference in this news release.

FINANCIAL AND OPERATIONAL RESULTS

OUTLOOK

ARC is well positioned to build on its 2022 record performance over the next several years. Kakwa continues to exhibit strong performance and ARC has regained operational momentum in British Columbia ("BC") following the receipt of permits on freehold lands in late 2022.

• ARC has resumed activity in BC. With more than 95 per cent of its existing BC production base on freehold land, the Company is well positioned as it continues to receive freehold permits required to fully execute its 2023 capital program. This includes the 80 MMcf/day natural gas expansion at Sunrise, one of ARC's most profitable assets with near zero emissions.
• In January 2023, the BC government and several of the Treaty 8 First Nations reached agreements regarding future resource development in the province. ARC is evaluating the details of the agreements while engaging and collaborating with its neighbouring Indigenous communities in BC. After understanding the new regulatory process, the Company will be in a position to make a decision as it relates to sanctioning of Attachie West Phase I.
• Total project costs for Attachie West Phase I remain unchanged and are estimated to be approximately $700 million. This includes capital required for the construction of the facility and initial wells required to fill it. Phase I is estimated to pay out in approximately two years based on US$70 per barrel WTI and $3.50 per GJ AECO.

2023 Guidance

ARC's 2023 preliminary corporate guidance is unchanged since its announcement in November 2022. ARC continues to monitor inflation and work proactively with its partners across the supply chain to ensure it has sufficient access to services to safely and efficiently execute its program.

• In 2023, ARC intends to invest $1.8 billion⁽¹⁾ in capital expenditures and deliver average production of approximately 345,000 to 350,000 boe per day (60 per cent natural gas and 40 per cent crude oil and liquids).
• In 2024, capital expenditures are expected to decrease to between $1.5 billion and $1.6 billion with average production forecasted to average approximately 350,000 boe per day (60 per cent natural gas and 40 per cent crude oil and liquids).
• Lower anticipated capital requirements in 2024 to sustain a higher level of production is expected to be a result of i) lower base declines at Kakwa, ii) lower investment in infrastructure at Kakwa, and iii) the absence of the one-time investment required in 2023 to restore BC production.

ARC's 2022 and 2023 annual guidance and a review of 2022 actual results are outlined below:

• ARC's 2022 financial and operational results were largely within guidance. ARC's G&A expense before share-based compensation expense per boe was above guidance as a result of increased employee compensation and corporate costs. Transportation expense per boe was three per cent above guidance reflecting higher fuel gas expense from stronger commodity prices. Interest and financing was slightly above the guidance range as short-term borrowing rates increased throughout 2022.

Free Funds Flow Allocation

ARC's goal is to provide shareholders with an attractive total return while adhering to the Company's guiding principles of balance sheet strength, capital discipline, and a focus on profitability. This is achieved through profitable investments in its assets, complemented by a meaningful return of capital that grows over time. 

In 2023, ARC anticipates that the proportion of free funds flow allocated to shareholders will increase towards the upper half of its free funds allocation range of between 50 to 100 per cent. Greater operating momentum in BC along with further strengthening of the balance sheet supports an increasing proportion of free funds flow returned to shareholders.

• Base dividend and base dividend growth compounded by share repurchases below intrinsic value remain the optimal mechanism to return capital.
• In 2022, ARC repurchased 10 per cent of its issued and outstanding shares through the NCIB and increased the base dividend by 50 per cent. ARC intends to continue to grow the base dividend with the underlying profitability of the business, and increase it on a per share basis as shares are retired through the NCIB or other means.
• The current dividend level remains sustainable through the current commodity cycle.

FINANCIAL AND OPERATIONAL RESULTS

Production and Operating Expense

Production

• ARC's production averaged 359,730 boe per day during the fourth quarter of 2022 (61 per cent natural gas and 39 per cent crude oil and liquids). Production per share increased 16 per cent compared to the fourth quarter of 2021 and was in-line with Company guidance despite cold weather and unplanned downtime that impacted volumes in December.
• Production increased by five per cent in the fourth quarter compared to the third quarter of 2022. This increase was driven by growth at Kakwa, which averaged 188,183 boe per day (59 per cent crude oil and liquids and 41 per cent natural gas).
• Capital efficiencies have improved at Kakwa through wider well spacing along with a revised frac design that lowers water intensity and overall costs after adjusting for inflation.
• Full-year production averaged a record 345,613 boe per day (61 per cent natural gas and 39 per cent crude oil and liquids). Production was in-line with guidance and represented a 14 per cent increase from average daily production in 2021.
• First quarter production in 2023 is expected be lower than the fourth quarter of 2022 due to unplanned third-party outages. Production is expected to be fully restored in February 2023 and full-year production guidance is unchanged due to stronger than forecast base production offsetting the impact from these outages.

Operating Expense

• ARC's fourth quarter 2022 operating expense of $4.37 per boe decreased seven per cent from the third quarter of 2022, due to lower planned maintenance activity and higher production. In 2022, ARC's operating expense of $4.44 per boe was in-line with the Company's guidance range of $4.00 to $4.50.
• Operating expense per boe in 2023 is anticipated to average between $4.60 and $5.00 per boe. In 2024, the water infrastructure investment at Kakwa is expected to reduce corporate operating expense by $0.50 per boe once it is commissioned by reducing trucking and third-party disposal costs, while lowering emissions.

Free Funds Flow, Funds from Operations, and Cash Flow from Operating Activities

Free Funds Flow

• ARC generated free funds flow of $603 million ($0.96 per share) during the fourth quarter of 2022. ARC distributed 68 per cent or $411 million ($0.65 per share) of free funds flow to shareholders through a combination of dividends and share repurchases under its NCIB.
• In 2022, ARC generated record free funds flow of $2.3 billion ($3.42 per share), of which 71 per cent or $1.6 billion ($2.43 per share) was distributed to shareholders.

Funds from Operations and Cash Flow from Operating Activities

• ARC generated funds from operations of $986 million ($1.56 per share) during the fourth quarter of 2022, increasing by $33 million ($0.11 per share) from the third quarter of 2022. Lower realized losses on ARC's risk management contracts were partially offset by increased royalties.
• Fourth quarter and full-year 2022 cash flow from operating activities was $878 million and $3.8 billion, respectively.

The following table details the change in funds from operations for the fourth quarter of 2022 relative to the third quarter of 2022.

Cash Flow Used in Investing Activities and Capital Expenditures

• In the fourth quarter 2022, ARC's cash flow used in investing activities was $351 million. Of this, ARC invested $377 million into capital expenditures to drill 42 wells and complete 20 wells, primarily in Kakwa.
• ARC executed its 2022 capital program safely and efficiently. Cash flow used in investing activities totalled $1.4 billion and delivered record annual production. In addition to drilling 134 wells and completing 126 wells, ARC invested in infrastructure at Sunrise and the electrification of its Dawson Phase III and IV facilities.

The following table details ARC's 2022 capital activity by area.

Returns to Shareholders

Dividends

• In the first quarter of 2022, ARC's board of directors (the "Board") approved an increase of 20 per cent to the Company's quarterly dividend, from $0.10 per share to $0.12 per share.
• Subsequently in the third quarter of 2022, ARC's Board approved an increase of 25 per cent to the Company's quarterly dividend, from $0.12 per share to $0.15 per share, beginning with its dividend payable on January 16, 2023 to shareholders of record on December 30, 2022.
• During the fourth quarter and full-year 2022, ARC declared dividends of $93 million ($0.15 per share) and $318 million ($0.49 per share), respectively.
• The dividend serves as a permanent mechanism to return capital to shareholders over the long term. ARC's dividend is designed to grow with the underlying profitability of the business, and be sustainable through the commodity cycle, as the number of shares are reduced through the NCIB.

Share Repurchases

• Since commencing its initial NCIB in September 2021, ARC has repurchased approximately 15 per cent of total outstanding shares, or 107 million common shares, at a weighted average price of $15.55 per share.
• During the fourth quarter of 2022, ARC repurchased 17 million common shares under its NCIB at a weighted average price of $18.57 per share.
• In 2022, ARC returned 71 per cent of free funds flow to shareholders through a growing base dividend and share repurchases.
• Since renewing its NCIB on August 30, 2022, ARC has repurchased 35 million common shares, representing 53 per cent of its current NCIB allotment.
• ARC will continue to repurchase common shares when the intrinsic value of the Company's common shares exceeds the current market trading price. ARC determines the intrinsic value using a discounted cash flow framework under lower commodity price assumptions and a range of discount rates.

Physical Marketing

• ARC's infrastructure ownership and committed takeaway capacity to end markets played a critical role in mitigating AECO volatility and capturing additional margin in periods of price volatility in North America.
• ARC's average realized natural gas price during the fourth quarter was $8.31 per Mcf, 49 per cent higher than the average AECO 7A Monthly Index price for the period. Market diversification included 170,000 MMBtu per day of physical exposure to Malin, where the PG&E Malin daily price averaged US$14.42 per Mcf during the fourth quarter.
• Full-year 2022 market diversification activities resulted in an average realized natural gas price of $8.15 per Mcf; $2.59 per Mcf, or 47 per cent, greater than the average AECO 7A Monthly Index price.

Transportation Expense

• ARC's fourth quarter 2022 transportation expense per boe of $5.70 decreased six per cent from the third quarter of 2022. The decrease from the third quarter of 2022 reflects slightly lower fuel gas expense.
• ARC's transportation expense per boe of $5.90 for 2022 increased 23 per cent compared to the full-year 2021. The increase reflects higher fuel gas expense with a corresponding increase to commodity sales from production.

Net Debt

• As of December 31, 2022, ARC's long-term debt balance was $1.0 billion, and its net debt balance was $1.3 billion, or 0.4 times funds from operations.
• ARC targets its net debt to be in the range of 1.0 to 1.5 times funds from operations at mid-cycle commodity prices.
• Long-term debt is comprised solely of $1.0 billion of senior notes outstanding. There were no borrowings under the Company's credit facility as of December 31, 2022.
• During the year, ARC reduced its long-term debt by $0.7 billion and its net debt by $0.5 billion.
• In the fourth quarter of 2022, ARC renewed its credit facility, extending the maturity date by one year to October 2026, and elected to reduce the credit facility capacity from $2.0 billion to $1.8 billion.
• ARC holds an investment-grade credit rating, which allows the Company to have access to capital and to manage a low-cost capital structure. ARC is committed to protecting its strong financial position by maintaining significant financial flexibility with its balance sheet.

Net Income

• ARC recognized net income of $741 million ($1.18 per share) during the fourth quarter of 2022, an increase of $63 million ($0.22 per share) from the same period in the prior year.
• In 2022, ARC recognized net income of $2.3 billion ($3.47 per share), compared to net income of $787 million ($1.25 per share) in 2021.
• The increase in net income compared to the prior year was primarily due to higher commodity sales from production.

ESG INITIATIVES

ARC continues to be recognized for its industry-leading ESG performance. The application of emissions reduction technologies has been the primary driver behind the Company's top-tier environmental performance advancement of technologies through the lifecycle will remain a key priority.

• EO100™ Certification – In January 2023, ARC achieved certification of its Ante Creek asset under Equitable Origin's EO100™ Standard for Responsible Energy Development. With this certification and prior certifications received in 2022 for Kakwa and the Company's northeast BC assets, 100 per cent of the Company's assets are now certified under this global standard, representing the largest certified production base in Canada.
• Dawson Electrification - ARC's emissions intensity in BC is among the lowest in North America. In 2023, ARC will invest approximately $16 million to continue the electrification of its Dawson phase III and IV facilities. Once complete, electrification will result in an emissions reduction of approximately 140,000 tonnes, which is equivalent to removing 28,000 cars or one per cent of passenger vehicles in BC off the road each year.
• Carbon Capture & Sequestration Hub - In 2022, ARC was awarded an evaluation permit from the Government of Alberta that allows ARC to evaluate the feasibility of a carbon capture and sequestration ("CCS") hub near Kakwa. The evaluation permit preserves ARC's access to pore space in the region, while providing the opportunity to evaluate the technical, economic and commercial feasibility of a CCS hub.

2022 RESERVES

Highlights

For the 15th consecutive year, 2P reserve replacement from development has been 140 per cent of produced reserves or greater since the Company's flagship Dawson asset was commissioned in 2008. At year-end 2022, ARC's $34.00 per share before-tax NPV of 2P reserves registers as the highest in its 26-year history, and is based on the development of just 17 per cent of ARC's internal estimate of drilling inventory.

• ARC's before-tax NPV for 2P reserves, discounted at 10 per cent, was $21.1 billion, or approximately $34.00 per share at December 31, 2022, increasing 49 per cent from ARC's 2P NPV per share at December 31, 2021. This is based on the development of approximately 900 gross 2P locations, which represents just 17 per cent of the Company's total gross internal inventory estimates.
• ARC's before-tax NPV of $34.00 per share is based on the development of approximately 900 gross 2P locations, which represents just 17 per cent of the Company's total gross internal inventory estimates. 2P locations at Attachie account for less than four per cent of total 2P locations with just 34 undeveloped locations booked at year-end 2022.
• ARC's before-tax NPV for PDP reserves was $8.1 billion, or $13.00 per share, an increase of 61 per cent per share compared to 2021.
• ARC's reserves increased between 14 per cent and 22 per cent on a per share basis, reinvesting 39 per cent of funds from operations.
• PDP reserves increased nine per cent (22 per cent per share) with notable positive technical revisions as a result of strong well performance, particularly at Kakwa. Positive technical revisions accounted for a nine per cent increase in PDP volumes, with Kakwa seeing the largest volume add with an 11 per cent increase in PDP volumes.
• PDP FD&A including FDC costs of $8.31 per boe resulted in a 5.2 times PDP recycle ratio.
• ARC's reserve life index increased on a PDP, Total Proved, and 2P basis in 2022, driven by strong technical revisions and drilling extensions.
• ARC's NPV was determined using GLJ forecast pricing and foreign exchange rates at January 1, 2023, with a 10-year average WTI price of US$80 per barrel and a 10-year average AECO price of $4.66 per million British thermal units ("MMBtu").
• FDC for 2P reserves totaled $9.1 billion at December 31, 2022 as compared to $7.4 billion at December 31, 2021. The increase in FDC is primarily due to higher inflation expectations; 2P FDC equates to five times 2023 capital expenditure guidance or 2.5 times 2022 funds from operations.

Reserves Reconciliation

Net Present Value Summary

For a summary of the GLJ forecast pricing and foreign exchange rates used to evaluate ARC's reserves, see "2022 Independent Qualified Reserves Evaluation" of this news release.

Finding, Development and Acquisition Costs

• ARC delivered a 2P finding and development ("F&D") cost, including FDC, of $16.18 per boe⁽¹⁾ ($7.42 per boe excluding FDC) from development additions in 2022, continuing to demonstrate the high-quality nature of its Montney assets and the Company's ability to consistently deliver strong well results through efficient development planning and operational execution. Including net acquisitions and dispositions, ARC's 2P FD&A cost, including FDC, was $16.18 per boe⁽¹⁾ ($7.39 per boe excluding FDC).
• The year-over-year increase in F&D costs including FDC reflects significant increase in FDC driven by inflation.
• FD&A costs are provided including and excluding the change in FDC in the table below.

CONFERENCE CALL

ARC's senior leadership team will be hosting a conference call to discuss the Company's fourth quarter and full-year 2022 results on Friday, February 10, 2022, at 8:00 a.m. Mountain Time ("MT").

Callers are encouraged to dial in 15 minutes before the start time to register for the event. A replay will be available on ARC's website at www.arcresources.com following the conference call.

CONSOLIDATED BALANCE SHEETS (unaudited)
As at

Refer to the accompanying notes to ARC's consolidated financial statements as at and for the year ended December 31, 2022, which are available on ARC's website at www.arcresources.com and under ARC's SEDAR profile at www.sedar.com.

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the three months and years ended December 31

Refer to the accompanying notes to ARC's consolidated financial statements as at and for the year ended December 31, 2022, which are available on ARC's website at www.arcresources.com and under ARC's SEDAR profile at www.sedar.com.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)
For the three months and years ended December 31

Refer to the accompanying notes to ARC's consolidated financial statements as at and for the year ended December 31, 2022, which are available on ARC's website at www.arcresources.com and under ARC's SEDAR profile at www.sedar.com.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
For the years ended December 31

Refer to the accompanying notes to ARC's consolidated financial statements as at and for the year ended December 31, 2022, which are available on ARC's website at www.arcresources.com and under ARC's SEDAR profile at www.sedar.com.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the three months and years ended December 31

Refer to the accompanying notes to ARC's consolidated financial statements as at and for the year ended December 31, 2022, which are available on ARC's website at www.arcresources.com and under ARC's SEDAR profile at www.sedar.com.

NON-GAAP AND OTHER FINANCIAL MEASURES

Throughout this news release and in other materials disclosed by the Company, ARC employs certain measures to analyze its financial performance, financial position, and cash flow. These non-GAAP and other financial measures are not standardized financial measures under IFRS and may not be comparable to similar financial measures disclosed by other issuers. The non-GAAP and other financial measures should not be considered to be more meaningful than generally accepted accounting principles ("GAAP") measures which are determined in accordance with IFRS, such as net income, cash flow from operating activities, and cash flow used in investing activities, as indicators of ARC's performance.

Non-GAAP Financial Measures

Capital Expenditures

ARC uses capital expenditures to monitor its capital investments relative to those budgeted by the Company on an annual basis. ARC's capital budget excludes acquisition or disposition activities as well as the accounting impact of any accrual changes and payments under certain lease arrangements. The most directly comparable GAAP measure to capital expenditures is cash flow used in investing activities. The following table details the composition of capital expenditures and its reconciliation to cash flow used in investing activities.

Free Funds Flow

ARC uses free funds flow as an indicator of the efficiency and liquidity of ARC's business, measuring its funds after capital investment available to manage debt levels, pay dividends, and return capital to shareholders through share repurchases. ARC computes free funds flow as funds from operations generated during the period less capital expenditures. Capital expenditures is a non-GAAP financial measure. By removing the impact of current period capital expenditures from funds from operations, Management monitors its free funds flow to inform its capital allocation decisions. The most directly comparable GAAP measure to free funds flow is cash flow from operating activities. The following table details the calculation of free funds flow and its reconciliation to cash flow from operating activities.

Adjusted Net Capital Acquisitions

Adjusted net capital acquisitions is a non-GAAP financial measure used in the determination of FD&A costs, which is a non-GAAP ratio. Adjusted net capital acquisitions is useful as it provides a measure of cash, debt, and share consideration used to acquire crude oil and natural gas assets during the period, net of cash provided by the disposal of any crude oil and natural gas assets during the period. The most directly comparable GAAP measure to adjusted net capital acquisitions is acquisition of crude oil and natural gas assets. The following table details the calculation of adjusted net capital acquisitions and its reconciliation to acquisition of crude oil and natural gas assets.

Non-GAAP Ratios

Finding and Development Costs

ARC calculates F&D costs as capital expenditures divided by the change in reserves within the applicable reserves category. ARC calculates F&D costs, including FDC, as the sum of capital expenditures and the change in FDC required to bring the reserves on production, divided by the change in reserves within the applicable reserves category. Capital expenditures, a non-GAAP financial measure, is used as a component of F&D costs. Management uses F&D costs as a measure of capital efficiency for organic reserves development.

Finding, Development and Acquisition Costs

ARC calculates FD&A costs as the sum of capital expenditures and adjusted net capital acquisitions divided by the change in reserves within the applicable reserves category, inclusive of changes due to acquisitions and dispositions. ARC calculates FD&A costs, including FDC, as the sum of capital expenditures, adjusted net capital acquisitions, and the change in FDC required to bring the reserves on production, divided by the change in reserves within the applicable reserves category, inclusive of changes due to acquisitions and dispositions. Capital expenditures and adjusted net capital acquisitions, both non-GAAP financial measures, are used as components of FD&A costs. Management uses FD&A costs as a measure of capital efficiency for organic and acquired reserves development.

Recycle Ratio

ARC calculates recycle ratio by dividing the netback per boe by F&D or FD&A costs. Netback per boe is a non-GAAP ratio that uses netback, a non-GAAP financial measure, as a component. Capital expenditures, a non-GAAP financial measure, is used as a component of F&D costs. Capital expenditures and adjusted net capital acquisitions, both non-GAAP financial measures, are used as components of FD&A costs. Management uses recycle ratio to relate the cost of adding reserves to the expected cash flows to be generated.

Supplementary Financial Measures

Before-tax Proved plus Probable Net Present Value per Share

Before-tax 2P NPV per share is comprised of the before-tax NPV for 2P reserves, discounted at 10 per cent, as determined in accordance with NI 51-101, divided by diluted weighted average common shares.

2022 INDEPENDENT QUALIFIED RESERVES EVALUATION

GLJ conducted a Reserves Evaluation, effective December 31, 2022, which was prepared in accordance with definitions, standards, and procedures in the COGE Handbook and NI 51-101. The Reserves Evaluation was based on GLJ forecast pricing and foreign exchange rates at January 1, 2023, as outlined in the table below. These forecasts reflect current market conditions as defined by current forward commodity prices as at December 31, 2022. This aligns with the COGE Handbook, effective April 1, 2021, which states that major benchmark commodity price forecasts, up to and including the second full forecast year, should not deviate from current forward commodity prices by more than 20 per cent.

Reserves included herein are stated on a company gross basis (working interest before deduction of royalties without the inclusion of any royalty interest) unless otherwise noted. ARC's crude oil and natural gas reserves statement for the year ended December 31, 2022, including complete disclosure of the Company's crude oil and natural gas reserves and other crude oil and natural gas information in accordance with NI 51-101, will be disclosed in ARC's Annual Information Form for the year ended December 31, 2022, which will be available on or before March 31, 2023 on ARC's website at www.arcresources.com and under ARC's SEDAR profile at www.sedar.com.

Definitions of Oil and Gas Reserves

Reserves are estimated remaining quantities of crude oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on the analysis of drilling, geological, geophysical, and engineering data; the use of established technology; and specified economic conditions, which are generally accepted as being reasonable. Reserves are classified according to the degree of certainty associated with the estimates as follows:

Proved Reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.

Probable Reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.

Information Regarding Disclosure on Crude Oil and Natural Gas Reserves and Operational Information

In accordance with Canadian practice, production volumes and revenues are reported on a company gross basis, before deduction of Crown and other royalties, and without including any royalty interests, unless otherwise stated. Unless otherwise specified, all reserves volumes in this news release (and all information derived therefrom) are based on company gross reserves using forecast prices and costs.

This news release contains metrics commonly used in the crude oil and natural gas industry. These metrics do not have standardized meanings and may not be comparable to similar metrics disclosed by other issuers. See "Non-GAAP and Other Financial Measures" of this news release and the definition of reserve replacement below. Management uses these metrics for its own performance measurements and to provide shareholders with measures to compare ARC's performance over time; however, such measures are not reliable indicators of ARC's future performance and future performance may not compare to the performance in previous periods.

• Reserves replacement is calculated by dividing the annual reserves additions, in boe, by ARC's annual production, in boe. Management uses this measure to determine the relative change of its reserves base over a period of time.

This news release discloses drilling inventory in two categories: (i) proved plus probable locations; and (ii) unbooked locations. Proved plus probable locations are derived from the Reserves Evaluation conducted by GLJ and account for drilling locations that have associated proved plus probable reserves. Unbooked locations referenced in this news release were prepared internally by management of ARC based on the Company's prospective acreage and an assumption as to the number of wells that can be drilled per section based on industry standard practice and internal review including evaluation of applicable geologic, seismic, engineering, production and reserves information. These unbooked locations do not have attributed reserves or resources and are therefore unbooked locations. Of the 5,200 total drilling locations identified herein, 888 are proved plus probable and 4,312 are unbooked locations. There is no certainty that ARC will drill all such unbooked locations and if drilled, there is no certainty that such locations will result in additional oil and gas reserves or production. The drilling locations which ARC will actually drill wells, including the number and timing thereof is ultimately dependent upon the availability of funding, regulatory approvals, seasonal restrictions, oil and natural gas prices, costs, actual drilling results and additional reservoir information that is obtained and other factors. 

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 regarding 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 "anticipate", "believe", "ongoing", "may", "expect", "estimate", "plan", "will", "project", "continue", "target", "strategy", "upholding", or similar expressions, and includes suggestions of future outcomes. In particular, but without limiting the foregoing, this news release contains forward-looking information with respect to: ARC's 2023 guidance, including planned capital expenditures (and the commodity prices at which such capital expenditures are fully funded by funds from operations), production guidance, production estimates and expenses; the anticipated decrease in capital expenditure and production forecast for 2024 and the anticipated timing thereof; the expectation that transportation costs will decrease over the balance of the year on a per unit basis; statements with respect to the 2023 capital budget including the planned investment and allocation of the 2023 capital budget; the long-term natural gas supply agreement with Cheniere and the anticipated timing and benefits thereof; the anticipated investments in sanctioning Attachie West Phase I, should the regulatory environment in BC support such investment; the ability of the Attachie asset to drive production and reserve growth; the expectation that ARC's operating expense per boe will decrease due to higher production volumes; the anticipated operation expenses per boe in 2023; the anticipated reduction in corporate operating expense as a result of the water infrastructure investment at Kakwa and the anticipated timing thereof; plans to allocate surplus funds from operations to returns to shareholders; the anticipated increase in free funds flow allocations to shareholders; the continued assessment of dividends and payment thereof; ARC's plans with respect to growing its dividend and increasing the dividend on a per share basis as shares are retired through the NCIB or other means; ARC's investment to continue electrification of the Dawson facilities and the expected benefits therefrom; ARC's target net debt to funds from operations ratio at mid-cycle commodity prices; ARC's 2023 guidance estimates; and other statements. Further, statements relating to reserves are deemed to be forward-looking information, as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future. In addition, forward-looking information may include statements attributable to third-party industry sources. There can be no assurance that the plans, intentions, or expectations upon which these forward-looking statements are based will occur.

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. The material assumptions on which the forward-looking information in this news release are based, and the material risks and uncertainties underlying such forward-looking information, include: ARC's ability to successfully integrate and realize the anticipated benefits of completed or future acquisitions and divestitures; access to sufficient capital to pursue any development plans; ARC's ability to issue securities and to repurchase its securities under the NCIB; ARC's ability to meet and maintain certain targets, including with respect to emissions-related reductions and ESG performance; expectations and projections made in light of ARC's historical experience; data contained in key modeling statistics; the potential implementation of new technologies and the cost thereof; forecast commodity prices and other pricing assumptions with respect to ARC's 2023 capital expenditure budget; continuing uncertainty of the impact of the June 29, 2021 BC Supreme Court ruling in Blueberry River First Nations (Yahey) v. Province of British Columbia on BC and/or federal laws or policies affecting resource development in northeast BC and potential outcomes of the negotiations between Blueberry River First Nations and the Government of BC; assumptions with respect to global economic conditions and the accuracy of ARC's market outlook expectations for 2023, 2024 and in the future; suspension of or changes to guidance, and the associated impact to production; the assumption that the regulatory environment will be able to support ARC's investment in the execution of Attachie West Phase I, including that regulatory authorities in BC will resume granting approvals for oil and gas activities relating to drilling, completions, testing, processing facilities, and production and transportation infrastructure in 2023 on time frames, and terms and conditions, consistent with past practice; forecast production volumes based on business and market conditions; the accuracy of outlooks and projections contained herein; that future business, regulatory, and industry conditions will be within the parameters expected by ARC, including with respect to prices, margins, demand, supply, product availability, supplier agreements, availability, and cost of labour and interest, exchange, and effective tax rates; projected capital investment levels, the flexibility of capital spending plans, and associated sources of funding; the ability of ARC to complete capital programs and the flexibility of ARC's capital structure; 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; the existence of alternative uses for ARC's cash resources which may be superior to payment of dividends or effecting repurchases of outstanding common shares; cash flows, cash balances on hand, and access to ARC's 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 risk management transactions to partially mitigate a portion of ARC's risks against wider price differentials; business interruption, property and casualty losses, or unexpected technical difficulties; estimates of quantities of crude 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 generally; potential regulatory and industry changes stemming from the results of court actions affecting regions in which ARC holds assets; risks and uncertainties related to oil and gas interests and operations on Indigenous lands; 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 assets; the continuance of existing tax, royalty, and regulatory regimes; GLJ Ltd.'s estimates with respect to commodity pricing; ARC's ability to access and implement all technology necessary to efficiently and effectively operate its assets; and other assumptions, risks, and uncertainties described from time to time in the filings made by ARC with securities regulatory authorities.

The forward-looking information contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking information included in this news release are made as of the date of this news release and, except as required by applicable securities laws, ARC undertakes no obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise.

About ARC

ARC Resources Ltd. is a pure-play Montney producer and one of Canada's largest dividend-paying energy companies, featuring low-cost operations and leading ESG performance. 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 Toronto Stock Exchange under the symbol ARX.

ARC RESOURCES LTD.

Please visit ARC's website at www.arcresources.com or contact Investor Relations:
E-mail: [email protected]
Telephone: (403) 503-8600
Fax: (403) 509-6427
Toll Free: 1-888-272-4900
ARC Resources Ltd.
Suite 1200, 308 - 4 Avenue SW
Calgary, AB  T2P 0H7

SOURCE ARC Resources Ltd.