ARC Resources Ltd. (ARX) Earnings Call Transcript & Summary

Good morning. My name is Harold Kvisle, and I'm the Chair of the Board of ARC Resources Limited. Welcome to the Annual Meeting of Shareholders of ARC. I am pleased that we're able to connect with so many of you today despite the extraordinary circumstances we continue to face with COVID-19. Although we are unable to meet in person, our goal today is to ensure that you are able to participate fully in your annual meeting. Our meeting today is hosted on the Lumi Virtual Shareholder Meeting platform. Instructions on how to ask questions and the voting procedure will appear on your screens. Before we commence the formal portion of the meeting and I introduce you to the other Directors and officers of ARC, I would like to take this opportunity to thank our employees, particularly those working in our field operations, whose commitment has allowed us to run our business without interruption through the last year. I would also like to acknowledge the contributions of those directors who recently departed the board following the closing of the acquisition of Seven Generations Energy Limited. First and foremost, John Dielwart, whose contributions to this organization over the last 25 years cannot be overstated. And also Herb Pinder, Bill Sembo and Nancy Smith. They brought great wisdom and experience to our Board, and I wish these 4 are all the best in the years ahead. At this time, I would like to introduce the Directors officers of ARC, who are online with us today. Starting with the directors, we have Michael G. McAllister, who joined the ARC Board in late 2020, bringing a wealth of industry experience and operational expertise to our Board. Susan Jones, Bill McAdam, Marty Proctor, Jackie Sheppard and Leontine van Leeuwen-Atkins, all of whom come to ARC from the Seven Generations Board of Directors bringing with them exceptionally diverse skills and backgrounds that will help drive our business forward. And of course, our continuing directors, including Farhad Ahrabi, David Collyer and Kathleen M. O’Neill. The officers online with us today are Terry Anderson, President and CEO; Kris Bibby, our Senior Vice President and Chief Financial Officer; David Holt, Senior Vice President, Chief Operating Officer; Lara Conrad, our Senior Vice President of Development; Armin Jahangiri, Senior Vice President of Capital Projects; Ryan Berrett, Vice President, Marketing; Sean Calder, Vice President, Production; Kristin Cerny, Vice President of Finance; Lynne Chrumka, Vice President of Geosciences; Brian Groundwater, Vice President, Engineering; Brian Newmarch, Vice President, Sustainability; Lisa Olsen, Vice President, People and Corporate; and Grant Zawalsky, our Corporate Secretary. The meeting will now come to order. I will act as chair of the meeting. Following the formation of our meeting today, Terry Anderson will make a few remarks on ARC's business. I will ask Grant Zawalsky to act as Secretary of the meeting, and Stephen Bandola and Erica Role, Representatives of Computershare Crust Company of Canada to active scrutineers. I have received a declaration from Computershare Trust Company of Canada as to the mailing of the meeting materials to our shareholders. The scrutineers' report has now been received, and I confirm that a quorum of shareholders is present at the meeting. I therefore declare that the meeting is regularly called and properly constituted for the transaction of business. We will conduct the voting today by electronic ballot on the Lumi platform. If you have previously voted, you do not need to vote again when prompted. By voting again, you will note any previous vote made prior to voting cutoff. To my knowledge, each resolution considered today will be passed by the proxies considered in advance of the meeting. Voting will be open for all resolutions at the same time, which will allow you to choose to vote on each resolution immediately or wait until the conclusion of discussion on each resolution prior to casting your vote. To vote, simply click on the for or withhold or against as applicable. You will see confirmation immediately above the voting buttons once you have submitted your choice. There will be an opportunity to ask questions on each resolution in turn. Once discussion on all items of business has concluded, voting will be closed on all resolutions. The results will be tallied by the scrutineer once voting is completed and will be provided at the end of the formal portion of the meeting. The detailed voting results will be disclosed by news release and will be posted on ARC's website after the meeting. The polls are now open on all resolutions. Next, I would like to formally place before the shareholders the financial statements of ARC for the year ended December 31, 2020, and the auditor's report thereon, which were previously distributed to shareholders and posted on ARC's website. Moving on, the next item of business is the election of directors of ARC. I will now entertain nominations for 11 positions as directors of ARC.

My name is Martha Wilmot and I nominate, Farhad Ahrabi, David Collyer, Susan Jones, Harold Kvisle, William McAdam, Michael McAllister, Kathleen O'Neil, Marty Proctor, Jacqueline Sheppard, Leontine van Leeuwen-Atkins and Terry Anderson as Directors of ARC.

Thank you. As there are no further nominations, I now declare the nominations closed. The Board of Directors of ARC has agreed to conduct the election on an individual basis for each director in accordance with our majority voting policy. Grant, are there any questions?

There are no questions.

The next item of business is the appointment of auditors of ARC.

My name is Martha Wilmot, and I move that PricewaterhouseCoopers LLP, Chartered Professional Accountants, be appointed as of ARC.

My name is Karen Boulder, and I second the motion.

Grant, are there any questions on this motion?

There are no questions on this motion.

Thank you. The next item of business is a nonbinding vote on our approach to executive compensation.

My name is Martha Wilmot and I move that the nonbinding advisory resolute concerning ARC's approach to executive compensation as set forth in the information circular of ARC dated May 11, 2021 be approved.

My name is Karen Boulder, and I second the motion.

Thank you. Grant, are there any questions?

There are no questions, Mr. Chairman.

Thanks. As we've now concluded each item of formal business, we will pause for a brief moment to allow shareholders to complete the online ballot. I would ask each shareholder to ensure they have submitted their votes, that would really appreciated. We'll pause for a brief moment here. [Voting]

The balloting is now closed. And I am advised by the scrutineers that all of the directors received a majority of votes in favor of election, and I declare those nominated as duly elected directors of ARC. PricewaterhouseCoopers has been appointed as auditors of ARC and in excess of 94% of the votes are in favor of the say on pay vote. Grant, are there any remaining questions from the floor?

There are no questions. I would then entertain a motion that the meeting be terminated.

I move that this meeting be terminated.

I second the motion.

I declare this meeting terminated, and I will now turn the meeting over to our CEO, Terry Anderson.

Thanks, Hal. And thank you to everyone who is joining us this morning. Before I get into my remarks, I also would like to echo Hal's comments and thank our long-serving directors who will not be standing for re-election. Each of you have played an instrumental role in helping guide our organization. You need to look no further than John Dielwart who alongside McMonWilligan, co-founded ARC Energy Trust 25 years ago. Thank you for your support and contributions. And on behalf of our shareholders and the people of ARC, we wish you all the best in your future endeavors. Now I want to spend a few minutes today looking at how ARC's strong performance and prudent decision-making in 2020 led us to the transformational business combination with Seven Generations, which has opened up even more opportunity for our company in the years ahead. To begin, we must reflect on the year that was -- 2020 was a year like no other, a global pandemic, coupled with a commodity war made for one of the most challenging years in ARC's history. Despite these unprecedented challenges, ARC stood by its principles and through prudent capital allocation decisions, risk management and excellent operational actions emerged through 2020, stronger and even more resilient. In the face of this adversity, we have continued to execute our strategy and deliver exceptional results. Over the course of the year, we brought the Dawson Phase IV facility on stream to further expand our low-cost Montney business. We bolstered a strong financial position through significant free funds flow generation. And most importantly, we kept our employees and contractors safe through a global pandemic. Our strong business results in 2020 allowed us to enter 2021 with significant momentum. And in April, ARC took a major step forward by successfully completing the business combination with Seven generations. Today, ARC is a much bigger, stronger and broaden energy company Currently, we have a production profile of approximately 340,000 BOE per day, making us Canada's largest producer of condensate and third largest producer of natural gas with our combined size, scale and focus in the Montney, the most economical prolific play in North America. We are uniquely positioned to deliver tremendous value to our shareholders in the years to come. ARC has a long-term focus on profitability and risk management, an investment-grade financial position that provides more financial flexibility and low cost of capital, decades of top-tier inventory providing a long runway of high-quality development opportunities with commodity and geographic optionality. We have exceptional free funds flow profile expecting to generate over $1 billion in free funds flow in 2021 alone. We have industry-leading ESG performance, which is an important focus area that sets us apart from our peer group. It's something that we know is not only valued by our investors and stakeholders, but is expected of us, and we agree and we have one of the lowest cost structures in North America, driven by our commitment to own and operate our facilities, along with a land base that is substantially all 100% working interest. And finally, we have a solid returns to shareholders with a 2.5% dividend yield today and free funds full optionality to increase later this year. This is where we sit today, the new ARC. We are excited about the opportunities that lie ahead of us as Canada's premier Montney company. While there certainly has been a lot of change at ARC over the course of the last year, we continue to operate our business with the same long-standing principles and values that have served us well over the past 25 years with respect, integrity, trust and community. These core values got our talented team of people every day and our guiding principles, which are centered on long-term focus on profitability, risk management, capital discipline, owned and operated infrastructure and operational excellence will continue to drive strong performance long into the future. Looking ahead to the balance of the year, ARC's plan for 2021 is quite simple. First, fully integrated Seven generations as quickly and efficiently as we can. Second, to strengthen our investment-grade financial position. Third, to sanction attach U.S. Phase 1, which will allow us to increase our free funds flow profile over the long term and deliver greater shareholder value. Fourth, to sustainably increase our dividend and initiate an NCIB to commence buying back shares. And finally, to remain focused on delivering leading ESG performance. Many of these actions will not only create immediate value for our shareholders but position our company to continue delivering tremendous value for many years to come. I want to thank our shareholders, old and new, for their continued support. Some of you have supported us since the very beginning with our IPO in 1996. and I want to especially thank you for believing in our story for the last 25 years. I would like to thank the employees, officers and directors of ARC for their dedication to driving our business forward to creating lasting value for our shareholders. Thank you, everyone.