ARC Resources Ltd. ($SHEL)

Welcome, everyone, and thanks for joining me to discuss Shell's acquisition of ARC Resources. Today, we want to talk about the strategic logic behind the acquisition, why it makes sense now and what it means for our business and our investors. Yesterday, we published a presentation together with our press release and today, we will make some brief comments before we go into Q&A. Let me start by saying that I'm really pleased that the Boards of both companies have unanimously supported the deal, which is expected to close in the second half of 2026 subject to regulatory approvals. We look forward to continuing to work with ARC's management and Board as we move towards completion. ARC couldn't be a better strategic fit for Shell. As we outlined at our Capital Markets Day, where we see value, we will take the opportunity to add high margin, low cost and lower carbon intensity production to our portfolio in areas where we have competitive advantages. ARC delivers exactly that. It is one of the largest pure-play operators in Canada's Montney Basin with a substantial portfolio of Tier 1 undeveloped inventory, which are complementary to Shell's assets. And importantly, it establishes a long duration growth platform. And it's not just the assets that I'm excited about. I'm also excited about the people. ARC brings an impressive high-performance culture that has consistently achieved best-in-class delivery in multiple spheres over multiple years, as you will have seen from the presentation that we published yesterday. By integrating ARC's liquid-rich gas portfolio into Shell, we are accelerating our integrated gas and liquid strategy with one transaction. Their acreage is highly contiguous with Shell's existing Grand Birch and Gold Creek assets and creates optionality across our portfolio, such as with LNG Canada. As we hope you know by now, every decision that we make is in pursuit of shareholder value creation. We believe this deal delivers that with double-digit returns above our hurdle rates add significant free cash flow of around $1.5 billion annually for the remainder of this decade and with upside beyond 2030. We've always said that we are focused on value over volume. But it's important to note that with the addition of 390,000 barrels per day on average, our expected compound annual production growth rate to 2030 increases from approximately 1% to 4% compared to 2025. Given all of this, we hope you can see exactly why we are very pleased with the acquisition. By combining ARC with our existing business, we established Canada as a new low-cost Heartland for Shell. We are the country's #1 LNG exporter and are now the third largest shale producer with a strong cost advantage versus basin peers. The assets we are acquiring are positioned well within the liquid-rich window of the Montney Basin in a stable jurisdiction, close to infrastructure and with low unit operating costs. Those operating costs are approximately 50% below Montney peers, complemented by strong carbon performance. Together, these characteristics materially strengthen our margins and portfolio resilience. In Bridge Colombia specifically, the acquisition expands our contiguous Montney position around Grand birch, now the primary supply source for LNG Canada Phase 1, creating clear upside through longer laterals, improved capital efficiency and greater leverage of our remote operations model. We expect to deliver meaningful synergies from combining our businesses, estimated at some $250 million per year by the end of year 1, with further upside linked to a potential FID for LNG Canada Phase II. And with our Scotford refining and chemicals complex, Quest and Polaris carbon capture developments, together with our mobility and lubricants businesses, Canada already showcases Shell's integrated model. ARC becomes an integral part of this attractive and strong value chain. As I said earlier, the combination of ARC's volumes and growth profile will drive significant incremental free cash flow while extending Shell's production base. Of the 390,000 barrels per day that ARC adds annually on average through to 2030 approximately 130,000 barrels of these are liquids that, over time, have priced at or around WTI. As we said in the press release, 70% of ARC's revenue is from liquids from only 40% of the volume. In essence, the value we are getting is from the liquids and the volume that we are accessing is natural gas, which we can upgrade to LNG if Phase II is sanctioned. And by 2035, we expect overall production growth across this portfolio to exceed 100,000 barrels per day, including the synergies I mentioned, we expect $1.5 billion of free cash flow based on our CMD '25 price assumptions of $70 per barrel real. Beyond 2030, the incremental free cash flow is expected to be around $2 billion on average subject to future growth decisions. Liquids will continue to be a core part of the investment case and will contribute up to 150,000 barrels per day of liquids by 2035. And that helps to close a significant portion of the liquids gap that we had previously identified. Natural gas remains equally important. If a final investment decision is taken on LNG Canada Phase II there is scope to redirect a substantial portion of gas volumes to higher-priced Asian LNG markets, creating meaningful incremental value beyond current assumptions. With that, I'll hand over to Sinead to walk through the financial and capital allocation rationale.

Thank you, Wael. Let me first take a step back and remind you of the capital allocation journey Shell has been on. When Wael became CEO in January 2023, we took a deliberate pause to reassess Shell's capital allocation model. This process articulated at Capital Markets Day 2023 focused on improving performance and unlocking value with urgency and discipline. This marked one of the most significant shifts in Shell's capital allocation history and has delivered peer-leading shareholder returns and improved valuation. That discipline positions us for this deal. During Sprint 1, we deliberately ruled major M&A, while we rebuilt trust an embedded rigor. By Capital Markets Day 2025, we made clear that any inorganic growth would focus on upstream and integrated gas. The acquisition of ARC fits the strategy perfectly. ARC shareholders will receive CAD 8.2 in cash, plus some 0.4 Shell shares per ARC share, representing a 20% premium to the 30-day VWAP. The transaction also offers continued participation in Shell's value creation, including an attractive dividend and share buybacks. For Shell shareholders, our improved equity valuation and relative outperformance of our shares means we've been able to structure the deal with 75% equity consideration. And from 2027, the deal is accretive on a free cash flow per share basis. This means we are accessing growth and long-duration free cash flows, whilst preserving the balance sheet strength and financial flexibility. As Wael alluded to earlier, I also want to emphasize that the capital we are allocating today is based on value, not volume. Our self-imposed discipline has enabled active capital recycling and portfolio high grading. For example, recently, we have divested noncore assets, such as the Colonial Pipeline and Jiffy Loops and multiples of approximately 9x EBITDA well above those of the growth portfolio we are acquiring and there is more to come. In addition, we have been disciplined with CapEx, consciously spending well within our capital budget, in essence, $21 billion in each of the last 2 years. The combination of these capital allocation choices has funded the cash component of this transaction, whilst allowing us to maintain a strong balance sheet. We will continue to remain disciplined with our capital allocation framework, which is unchanged. This means that we will absorb ARC's development spending within our existing guidance for 2027 and 2028 of $20 billion to $22 billion of cash CapEx. We will also continue to deliver on our commitment to pay out 40% to 50% of CFFO to our shareholders, which we consider as sacrosanct. And we hope that you see that when we say something, you can trust us to deliver. With that, I'll hand back to Wael.

Thanks, Sinead. And before going to Q&A, I want to recognize and thank our people. Despite ongoing geopolitical uncertainty, our teams have continued to execute safely and perform consistently. Without those people, we could not have reached this important milestone. This deal represents a turning point in our journey, and we're excited about this next phase as we have so much more to come. I look forward to welcoming ARC's employees to Shell and thank Terry, his team and ARC's Board for the company that they have built and for their professionalism and collaboration throughout the process. Last but not least, I would also like to thank our shareholders for their continued support. Now before I open up for questions, and now that we've closed off on the prepared remarks, let me maybe just share a few more reflections on where we are on this journey. If I step back now 3-plus years ago, we had set ourselves the task of making Shell the best performing, best returning company in the sector, implicitly building resilience as well as longevity into our portfolio. Now Phase 1, as Sinead has already talked about, has offered us the opportunity to be able to really lean the company, drive the simplification, enhance our capital discipline and most importantly, drive a performance culture in the company that has allowed us to consistently deliver the outcomes we had sought to deliver. Now having said all that, we still have a long way to go. We recognize that there is much more in the tank, and that is what we are going after. But what we said in Capital Markets Day 2025, is we also wanted to now pivot towards capital reallocation, unlock more value. And Sinead gave you a great example of some of the multiples that we have been able to realize in our divestments versus the multiple we are acquiring here. So I'm really pleased with that momentum. But I'm also pleased that, that has afforded us the opportunity to be able to take the step that we announced yesterday. An important step in that transformation that we are driving, that methodical transformation of the company and its culture. Now let's talk for a moment just about ARC. I think with ARC what I particularly have admired about this company. And by the way, this is a company that we have been looking at for more than 2 years now. What we have particularly admired is that it is sitting in one of the most prolific hydrocarbon basins in the world in the Montney basin, an exciting basin. And this company sits on some of the highest quality resources, the lowest cost resources the longest duration resources and some of the lowest carbon intensity resources in that basin. It will catapult us to one of the leaders in the basin, and it does so with a combination of staff whether it's the ARC folks that have, over the past 3 decades built a real culture of excellent capital allocation, a real focus on performance, operational performance and a value system that is very aligned with shells as well as combining our people on the ground, a team in Shell Canada, a team of around 3,000 that has actually outdelivered on all the promises that they had set. With more potential to be able to unlock, of course, as you combine those 2 organizations together. That is what excites me about this opportunity. And what we have put out there is a value for this acquisition that allows us not just to be able to unlock the value that is inherent within the $250 million plus per annum synergies that we expect to see. I expect my team to go after the upside that we have identified with this acquisition. And we see billions of dollars of potential upside. Yes, LNG Canada Phase II could be one of them but there is a lot more that we have been able to see. And that will require real hard work, and that is what I will hold my team to account on. And so having said all that, I do think -- this is a time -- this is a timely opportunity for us. I couldn't have asked for the stars to align in a better way, and we can talk about that as we get through the Q&A. But I think it's done at the right time for the right value, and most importantly, it allows us to really be buying a company that is first and foremost, in my mind, a liquid-rich player. It's a liquid-rich play that allows us to be able to, first and foremost, get the liquids, which deliver 70% of the value, and I see the gas as the upside, the upside that could be monetized either through the U.S. or into LNG value chain, which, of course, we have through LNG Canada Phase I and potentially even more through LNG Canada Phase II. And so my ask is don't look at this as the acquisition of a Canadian domestic E&P player that has a predominantly gas portfolio, actually look at it as a liquid rich addition to Shell with an upside of LNG that we are uniquely positioned to be able to unlock. Let me leave it there and now to go to Q&A. Luke, I think is our operator today. Let's please leave it to 1 to 2 questions per person, just to make sure that everyone gets the opportunity to ask their questions.

Our first caller is Alejandro Vigil from Santander.

And congratulations for the transaction. The first question is about the -- you discussed before, the timing of this transaction, $100 per barrel and you have always talked about countercyclical M&A, but also, you discussed that you have been looking at this for 2 years. So if you can elaborate on all these factors and why now this transaction?

Yes. Thanks, Alejandro. Let me maybe sort of step back then 2, 3 years ago, when we identified this target, we identified the strategic fit into Shell. And I've described some of those elements. But the stars hadn't aligned for a number of reasons. We didn't think our paper was -- we could not actually transact with our paper. That's why we were very patient in setting ourselves up to drive the performance, discipline, simplification, agenda that resulted in the outperformance in our shares. And of course, over the last 2 months, the macro has even pushed those shares even further. What you have seen over the last couple of months is, of course, ARC hasn't enjoyed some of that upside. It's been relatively flat against that macro. And we think there's a couple of elements at play there. It is partly seen as more gas indexed. I would encourage those of you who have the time this afternoon to actually watch Terry and the team presenting the ARC Resources to give you a sense of the WTI indexation that ARC is all about. In my mind, ARC is a WTI index company more so than an AECO index company. And hopefully, you will see some of that playing up. So we think there was a bit of a mispricing in that for ARC. And we think that the unique synergies that we brought allowed us to unlock a lot of that value. So where our share price was and the fact that ARC hasn't necessarily enjoyed the upside to crude prices. We were able to essentially bank that deal. And it's important to recognize we were able to transact at a breakeven for us that is continuing to be consistent with what we outlined at CMD '25. In other words, this deal is at a breakeven burdened at the level which we were very comfortable with on our reference prices putting aside the upside that we see in the current environment.

Our next caller is Josh Stone from UBS.

The assets themselves and particularly the [indiscernible] asset because that's one of the reasons the shares of underperforming. So how comfortable are you with the reservoir risk there and operational risk of that asset and a space [indiscernible] to when that could come in? What are you assuming with regards to that? And are there other things that you think Shell can do differently or things are not going to happen anyway that you can apply for that asset. So if you could just talk about attach and how you see that risk, that would be helpful.

Yes. Let me ask Sinead to say a few words on that.

Certainly. And thank you, Josh. Yes, indeed, when you look at a company like this, you're looking at the overall valuation of the company. And we've been looking at it as Wael said, for several years now. So as you'll see, there's one slide that's in that -- in the deck that we put forward, which shows you actually the different assets as they work through. So you can see it's almost in the order at which we have looked at them. So you can see it starts with Kakwa, you've got greater Dorsan, then you've got Sunrise and then you've got into Attachie as well. If you look at the numbers, more than 75% of their volumes are actually coming from the first 2 of those. So what you can see is if we were doing this deal, we wouldn't have been doing it for Attachie by itself. We're actually underwriting this transaction by virtue of the other assets that are there that we can already see. So that's where we get great comfort in it. We've had our technical teams all over this, and we have great confidence in the resource potential that's there. We've actually been really, really impressed with looking also at how Terry and his team have looked to unlock Attachie. They've tried different options. They looked at different spacing, they've looked at different frac intensity as well. So we've built all of that into our consideration and taking it in with our technical teams to be able to get great confidence in the fact that we can see how to take it forward. So fundamentally, we're underwriting the money that we're putting forward on this transaction, not because of attache but because of everything else. If you add the other assets in, you then add in the synergies that we feel we can unlock, including the joys of our trading and optimization business, which allows us to get international pricing if we did FID on Phase 2, but also, frankly, outside of that because we can manage to direct volumes into the U.S. and other locations that gives us great confidence in the underlying assets. So Attachie for us is actually upside at the end of the day, and we look forward to working with an amazing team who are really understanding the subsurface there in the current ARC people and being able to understand how to unlock that for really that uplift.

Our next caller is Alastair Syme from Citi.

Just ask about the capital frame. So ARC, had CapEx of something like $1.4 billion a year. And I think you're essentially saying this gets offset somewhere else in the Shell portfolio. So can you just explain how that offsetting is being done? And I guess what was -- what is or was marginal in the current portfolio that's now not going to be funded, if that makes sense.

Yes. Thanks for that. Sinead, please.

Indeed. So a couple of things here, probably to talk through Alastair as well. So you know we'd be very disciplined in terms of $20 billion to $22 billion has been our range. So what we're looking at is 2 aspects, of course, for '27 and '28, we said it will fit within our range. And how do we get comfort in that? Well, first and foremost, you can see that in the last couple of years, we've really been spending around about 21 billion, and that's been with inorganic acquisitions in there as well, we have the space to be able to absorb this. But beyond that, we've been actually looking at a capital reallocation approach. That's exactly what we've been doing. And hence, you've seen some of the divestments that have come through as well. So back to that point, I think I made in the prepared remarks earlier on, we've been both careful in terms of how we spend our CapEx, but we've also been thoughtful in terms of actually effectively recycling capital from those transactions, which we're divesting in downstream. So you can see that reallocation from our downstream portfolio into our Upstream and Integrated Gas portfolio giving us sufficient space to be able to absorb this quite easily.

Our next caller is Matt Lofting from JPMorgan.

I'll ask you 2. First, actually was just a follow-up on the capital allocation or reallocation point. I guess going back to CMD '25 Shell's framed reallocation of capital employed as being a key enabler of future at investment. If you consolidate the points that you've made over the last sort of 20 minutes, how would you recommend that the investors sort of see that reallocation piece, in particular, I think the point that Sinead made around there being more to come from that perspective as we look forward? And then second, I just wanted to ask you about Canada as a Heartland from a big picture perspective, have events of recent months in the Middle East, but also developments policy-wise in Canada, incrementally shaped Shell's thinking from that perspective in terms of the perceived relative attractiveness of Canada and of a second phase of LNG Canada in terms of meeting future Asia gas demand?

Thanks for that, Matt. Let me take the second question first, and then Sinead may leave you the first. As I said earlier, I think the important point here is the attraction of ARC was predated the current events in the Middle East. We have always believed in a diversified portfolio, even more so for our LNG footprint because it affords us the opportunity to meet our multiple different customer geographic points with multiple different supply points. Now LNG Canada, of course, has been -- LNG Canada Phase I, we have been watching how the venture is delivering and so far, very pleased with the momentum we have. And of course, we keep a very close eye on the regulatory environment and the government signals. I have to say we've been growing in confidence in the posture that the Canadian government has been taking, and we see it directly through the actions in our interactions with them both at the provincial and the federal level when it comes to enabling LNG Canada Phase II. This has been a significantly forward in terms of their conviction around LNG projects. And that has, of course, raised the likelihood of a potential opportunity moving forward. I think what -- when we look at Canada more holistically, we, of course, have a history of over 100 years in Canada. And what's particularly attractive about ARC and the position in Canada is it is not just a question of the LNG value chain, though that is a critical part of it. It's an understanding of the landscape in Canada. It is the adjacency to Groundbirch and Gold Creek, which allows us to unlock more value. And it's the fact that this is a consolidated focused set of assets in a very well-defined space in the Montney. You put all that together, plus the nontechnical tailwinds that we have been seeing and that undoubtedly helps as we take a decision like what we announced yesterday. Sinead?

And thanks, Matt. I absolutely love the question because it's just exciting to talk about the journey that we've been on. In Capital Markets Day, we were really clear as you say about the fact that we are going to be doing a capital reallocation journey throughout the next couple of years. . We talked then about the fact that we had 45 billion of underperforming assets, largely in downstream and renewables, which we're working hard to improve the performance of. But we also said to you that we would also look to unlock value where assets are not core to us. And we've talked about some of the ones, whether it was Colonial and Jiffy that Jiffy Lubes brought up earlier, which are not core, but that we were able to transact at very high multiples for us and then be able to put into other businesses. So what you're seeing us doing is being able to get price realization on some noncore assets, but also look to improve the 45 billion, and that's allowing us to really unlock opportunities such as this transaction and be able to improve the strength of interestingly, not just one, but 2 of the pillars of our core strategy. If you remember in Capital Markets Day, we said we wanted to be the leading integrated gas player. We also -- and LNG. We also talked about sustaining our material liquids position as well as improving our customer focus and trading aspects of it. It's really rare that you get the opportunity with a transaction such as this to be able to hit on 2 pillars of your strategy, and this does exactly that. So as an investor, you ask me what I think investors should be looking at. I think they should be excited about the fact that we're reallocating from parts of the business where we are either not the natural owner or where we need to improve to areas where we are leaders in them, and that looks pretty good in terms of the future performance of this company.

Our next caller is Doug Leggate from Wolfe Research.

While this gives you significant resource depth potentially to commit to long-term offtake agreements. I'm just wondering, strategically, how -- what does this do to your appetite to sell down your working interest potentially in LNG. [indiscernible] I think you did say we could have 1 or 2 questions. So if I could bolt on a quick one for Sinead. You're using flat real gas prices, which I think gets you to $4.50 and $5 in 2030, 2035, respectively strips quite a bit lower than that. What does the value look like at strip gas prices on your estimates?

Doug, thanks for those questions. Let me take the first and Sinead to take the second. I think on the on the resource depth and the LNG Canada sort of potential equity ownership. We are very comfortable with 40% equity interest in LNG Canada. We like that because of the unique nature of that location. We like the fact that you are 10 days sale away from Asia of course, with the challenges at the moment in the Middle East. Many of our customers are looking for diversified supplies and Canada is top of their list. And so it gives us a great opportunity to be able to hit Western Canadian gas into Asia, not to mention the low-cost nature of AECO and the ability to be able to create more value. So we're not necessarily looking at reducing our equity interest. What we are looking at is in part of that value chain where we are either not the natural owner or we see a lower return, such as, for example, in the midstream we will look at opportunities to decapitalize some of that and to recycle that capital back to Sinead's earlier point around prudent capital reallocation, we will look to redirect that capital into higher-return areas. Now we needed to invest at the time in that part of the value chain to enable the full value chain. But part of the muscle we are trying to build more and more in the organization is then to make sure that once we've enabled the project, we reallocate that capital towards higher value opportunities such as the cash that goes into an acquisition like this with the double-digit returns that an acquisition like this affords us. Sinead?

Yes. And thanks for the question, Doug. So indeed, when we talk about the fact that this company can deliver, we believe this acquisition will deliver some $1.5 billion of free cash flow per year. We're doing that based on the fact of what we're saying is $1.5 billion and more based on our CMD assumptions, which, as you know, were $70 real term, et cetera. Now we're not pricing this, of course, with some heroic assumptions. And frankly, this has not been priced off Henry Hub or anything else either. Our belief is that we will be able to deliver, of course, to the AECO prices, but actually at international prices as well. I'm well aware of AECO where it sits, and we're priced it with ACO as a significant discount to Henry Hub as well. But we're actually -- when we close the transaction, what you'll see us do is to start to outline our next CMG, all of the different price lines for this because Canada is becoming very material for us in the heartland, as Wael spoke to earlier.

Our next caller is Ferguson from [indiscernible]

Just hope you might be able to outline the opportunities that ARC's resource base has for growth in production. And maybe talk a little bit about how these opportunities compare with the existing opportunities that you have in your portfolio today?

Ferguson, I think I heard because it's sort of cracked a couple of times. It's outlining the opportunities that ARC affords and how do they compare against organic opportunities in our funnel. Is that right?

Yes. That's right.

Sinead if you want to go ahead with that.

Okay. Perfectly. So in terms of that, what has been really interesting to watch Terry and the team, what they've created here is they've created an amazing portfolio, which is very much about delivery on the existing assets, and we talked about CACs being the core of this earlier. But they've also created an amazing runway of future portfolio options. And I alluded to earlier the fact that Attachie is, of course, just one of those to unlock there's actually many of those that are in there as well. And they've got a great runway of different wells and strength that will need to be drilled as well coming through. They're very thoughtful in what they do, and that's part of what we're really excited to work with them on. It's just a great bunch of people who think through exactly how they do a measured derisking for each part of this portfolio. What we're seeing is that future runway is really exciting. When you combine that with our own options with Gold Creek and with Grandbridge together, there's a huge ability to optimize between the 2 and actually getting both sets of technical capability together to be able to unlock them is quite exciting. And that's actually what builds into our synergies that you see coming through. So that's a very exciting opportunity for us, and we've got a lot of parts of the synergies, which I'm sure we'll talk about later which has allowed us to avail of that. Of course, beyond that, we will also have a big decision coming up on Phase 2 and how that will look like combined with ARC is something that we do consider, of course, in terms of our hurdle risks we're very thoughtful by every decision that we make, but what they're offering to us and what we hope to be able to work together on is exciting.

Our next call is Lydia Rainforth from Barclays.

[indiscernible] which always feels appropriate for an acquisition. But 2 questions, if I could. Firstly, does this still leave you with a hole to fill post 2030. I think in the past, we've talked about it being about 350,000 barrels a day. I think when you're looking at the growth is 100,000 barrels a day close [indiscernible] I think about you just lifted the base? Or are we now kind of going that hole is now filled. So just clarify that for me. And then while you talked in your space about there being $1 billion of upside, can I just ask you to a little where you're talking billions of dollars. So can we just expand on that a little bit for me?

Yes, I'll start off and please Sinead add to both questions as you see fit. I think, firstly, it's important to recognize we weren't doing this transaction on the basis of just filling a gap. We were doing this transaction. We've been -- the team knows I've been jumping at the bit on this particular company for a couple of years now, but we were only going to do it if we could potentially demonstrate that we are able to unlock the value. In essence, to bank the value of the transaction and then create the upside that we needed to be able to make this a compelling investment opportunity, which is where we got to in the end. As I look into 2030, of course, we had already derisked our liquids volumes at the 2030. So this is now an additional amount that comes on top of that for 2030. If you look at 2035, we've typically talked about 350,000 barrels per day. And we said we had 10 years to continue to look at the right value accretive opportunities to be able to go there. Now I started off by talking about the strategic interest in ARC first and foremost, is the liquid-rich nature of the resource base, the 40% of the production, that is liquid, which is delivering 70% of the value. That grows to 150,000 barrels per day in 2035. So in essence, more than 35% of that gap that we had referenced at the moment is filled through that transaction. And that's a big step that we have taken. But we continue to, of course, look at what more we can do organically within our own portfolio. This doesn't include yet opportunities that we are pursuing in places like Venezuela, our exploration options that we are developing, some of the discussions that we have had in places like Libya and elsewhere in the Middle East and so on and so forth. And so this is an important contributor, but we continue to look, as Sinead said, to allocate capital for more growth both in our existing asset base and new opportunities as they emerge. On where is the upside? We've talked about LNG Canada Phase II, I think, already a few times in this discussion that creates real value for it. Important to recognize from a trading perspective, the only synergies we have banked as part of the $250 million are liquid-related synergies, right? So we haven't -- and this is very much driven by our fundamental belief that Canada will continue to be short, condensate for a long, long time. It's important at the moment from the U.S. We think that will continue for a very long time. Our traders have been operating in both Canada and in the U.S., and they are prime to be able to take advantage of some of those barrels and unlock more value out of them. But there is more trading and optimization opportunities to go. And that's what we will be looking at. There are integration opportunities with Grand Birch as we share infrastructure and start to look at opportunities there. And there are toll savings as well as part of that. Similarly, in Gold Creek, what can we slow down? What can we accelerate and how do we use some of that infrastructure together. And Sinead rightly said, we haven't banked a lot of the Attache upside because we still need to derisk it, but that is all to play for going forward to be able to unlock what could be in itself a couple of billion dollars of more synergies. There is CACA upside, that sits within there and so on and so forth. So when you pull all of that together, and of course, I'm not touching on potential SG&A synergies, which we see to be relatively small in the bigger context of things. but there are multiple plays within that. And I think that is what the team will be very much focused on. We've identified those upsides. And in the performance contracts with Cedric and the team as they look to deliver it, the delivery objective is the upside, not the base. The 250 million per annum in my mind, is in line with what we have tried to do over the last few years. When we have it, we have total line of sight to deliver on it. But then we play for the upside. We play to win, and that's where the few more billion dollars that we expect to unlock from this opportunity will play out. Sineand, anything that I've missed you wanted to raise?

I think you've said it very well. Just to remind you, Lydia, this is pretty exciting. It's only 13% of the overall deal size, which we banked in terms of the synergies that you can hear. So it's not, in any way, particularly large put the 2 companies together, you get the best of both, and you get our commercial expertise in there as well. And to your point, well, we look forward to seeing exactly how much value we can deliver on this above what we've already stated.

Our next caller is Jason Gabelman from TD Cowen.

. Yes. Congrats on the deal. I first wanted to go back to the free cash flow number, $1.5 billion. Two questions on that. So typically include interest or leases in their free cash flow number. So wondering if that's included in the $1.5 million? And if not, what that amount will be? And then there's -- I believe, with ARC some pricing exposure to TTF. So wondering what you're assuming from that standpoint in the free cash flow number. And I have a follow-up just on the liquids growth, which is obviously a focus of this deal I know you talk about 100,000 barrels of oil equivalent a day growth to 2035. How much of that is liquids versus gas and should we think about that really layering into the portfolio from 2030 to 2035?

Thanks, Jason. Just to knock off the last one quickly. So we've talked about 130,000 barrels per day of liquids by 2030, and we've talked about 150,000 barrels per day of liquids by 2035. So the increment that 20,000 barrels is indeed the growth in liquids we see between 2030 and 2035. But maybe give Sinead the opportunity to talk about some of the free cash flow numbers.

Yes. And I can only talk about it a little bit. So first point would be indeed on the free cash flow number, the $1.5 billion that we've given is one that we've priced out. I think it's fair to say, Jason, at our $70 CMD assumption. So you can see it's not actually linked to where we are today. So I would start on premise it, first of all, like that. You're right. It doesn't include the interest element of it, but it's very small in the relative scheme of things that is there. So I'm pretty comfortable that the $1.5 billion is certainly something that we can deliver on. I suggest you have a look at ARC and as Wael suggested, later on, Bill [indiscernible] their results and talk through some of their results later on. I would say on the pricing exposure to TTF, I can't really say anything about that. That's up to them to talk about their pricing exposure. If we close the deal, very happy to talk about the different exposures, specifically around some of the commercial agreements, but I wouldn't opine on that at this point. I hope you understand.

Our next caller is Mark Wilson from Jefferies.

I think you've clearly outlined the ARC opportunity. Could I first just give us a reminder of the variables in a potential LNG calendar Phase II FID. That's the first point. And then secondly, I'd like to ask, it's over a month -- just over a month since you published your LNG report 2026. It outlined variables on longer-term demand curves given Asian market renewables take-up or coal switching. And I'm just wondering if you see this conflict is significantly affecting industry long-term LNG demand assumptions either way.

Good. And I just want to make sure I picked up the first part of your question. It's -- what are the conditions precedent for Phase 2 on LNG Canada because it broke up.

Roughly, what was the calendar for Phase 2.

Calendar, sorry. Okay. Okay. Yes, let me touch on both of those. So the team has been very focused on both the safety and the continued ramp-up of LNG Canada Phase I. And -- we are very pleased with the performance that they have shown to continue to demonstrate actually one of the strongest commissioning and start-ups that we have seen compared to peers. So very pleasing to see that. They are also working heavily on creating the option for a final investment decision later this year, so towards end of this year. They've been working, of course, with the EPC contractors to be able to get a decent price line. They have been working with the Canadian Federal and provincial governments to be able to create the environment that is conducive for the investment. And so far, we continue to see good momentum. I suspect in the coming months, we will be at a point where the joint venture partners will be able to take a decision on that. So expect that towards -- or later in 2026. I would say it is too soon to start to opine on what the long term for LNG is. But I'll give a couple of comments. What is clear that for the short to medium term, we are going to continue to see tightness in the LNG markets. So we will have spoken about supply-demand balances for the last 3 to 4 years. And I think some of the prevailing logic out there was that we were going to be long supply. I think that has consistently been pushed out and likely to push -- to be pushed deeper that even further right now. If you also look at the longer term, the key elements that underpin our confidence in LNG are unchanged. The world continues to demand more and more energy. LNG continues to be one of the most versatile, flexible opportunities to be able to fulfill that demand and at a lower carbon footprint than many of the alternatives. And so what we continue to see is that the long-term dimensions of LNG are very, very attractive in multiple sectors, by the way. People talk about power, but a lot of the attraction is in transport and in industry. You put all of that together, the dynamics around the LNG market are going to continue to be positive. Maybe the final point I'll make is, not all LNG is born equal. Canadian LNG is, of course, advantaged by the feedstock by the AECO index gas, which we see will continue to be at a discount to Henry Hub. -- for a long period of time, given the amount of LNG being developed in the U.S. and some of the demands from a power perspective for AI growth. And so we do think AECO is at a unique advantage. And we do think that the distance -- the shipping distance means that it allows us to deliver that LNG at a lower cost. Add to it the fact that more and more of the Asian customers, given recent events are interested in diversification of their supplies and willing to pay a premium for that. We think that certain LNG in Canada Phase II is particularly well positioned to be able to meet some of those interesting demand points. And so that's where we stand at the moment.

Our next call is Christopher Kuplent from Bank of America.

Can I just raise the question or ask you for your rationale of using equity versus cash. Maybe you can put that into context with the attractiveness of maintaining your buybacks at the rate that you're now issuing equity versus perhaps increasing your DPS beyond the 4% rule that you've stuck to -- and maybe that's the same question or the second question, what your thoughts are regarding protecting the balance sheet. Where did you land in terms of using cash rather than equity? I presume it wasn't a request of many ARC shareholders, but you tell me if that's wrong.

Christopher, let me maybe -- I think you've touched on a quite a few points there. So maybe give Sinead the opportunity to frame the financial framework thinking and specifically the currency for this deal, and then I can supplement this as needed.

Absolutely. No and thanks for the question, Chris. Look, we've talked about capital allocation, how we think about it. So I appreciate the opportunity just to walk through what our thinking was in this case. First, let me just start with value. We have worked really hard, as you know, to be able to increase the value of our currency, increase the value of our shares to be able to actually use it in a transaction. Frankly, it's gone from being egregiously undervalued to MyCase to still undervalued, but not egregiously anymore, but still incredibly under values. But we've seen more and more of that hard work in terms of performance actually being converted into the share price, which has been helpful. So this is our opportunity to put it into something where we believe we can create even more value. And that's really what it comes down to. We're seeing that we, as Wael talked about the fact that we can buy long life, low cost, very attractive assets. which we don't believe that longevity was actually priced into the terminal value for those shares as well. We're purchasing something that frankly, was underappreciated and that we could do something special with and that's what the thought process was. But this is, of course, a wise and opportunity cost as you look through it. when you come down to it, your point of, is this about an acquisition or about share buybacks? We I'd say no, it's a wide and it's about acquisition and share buybacks. But it is true to say that the returns on our shares now because of where we've got the share price, nowhere near where it needs to be a lot more to go, I would say, does begin to compete with the returns of some of our segments. So it gives us a good discussion and a difficult conversation to have each time, but a great opportunity. The buybacks have enabled us to be able to do this transaction. They've enabled us to get our share price closer to where it should be, not where it should be in totality, but that asymmetry still exists. We're not going to give up on share buybacks now and not use them as a tool to create value. We now have more tools in our toolbox, which is wonderful because it means we have a choice to make each and every time. At the same time, of course, that decision of whether you use equity or cash. Well, hey, we're using the opportunity to strengthen the balance sheet, quite frankly. And we do that during good times, not just bad times. So we're doing it during a good time of being able to use it to create some form of predictability in Shell in terms of the actions we take through the bad times. And that's something that's been very important to us. So you made the comment at the end of that as to -- so that explains why, frankly, we chose to use equity in this case. -- rather than just simply use cash. But you also said you frankly didn't assume that it was the ARC shareholders who want to sell shares. Well, they get a great opportunity to be able to actually play a role in Shell going forward? -- in terms of a great returning stock with an awful lot more to go. And that's part of the attraction of this transaction as well.

If I could, then, Sinead, maybe just add a couple of points. I think we have been -- we have said time and time again that we are playing the long game here. We want to make sure that we are creating long-term shareholder value, and we have said that when oil prices drop or when they go up, creates unique opportunities to be able to create that long-term value. Rewind back 4 years since Sinead came in the seat, we have, in essence, bought back 1/4 of the company. I think we bought back around $60-plus billion worth of our shares. We bought that at an average price, if you convert from pounds to dollars of just over $30. And today, we are sitting at somewhere in the middle $40 range. So 50% or so just under 50% escalation in that. And that is the currency that we are partially using to acquire ARC. Do I believe our shares are undervalued? Absolutely. And this is why buybacks will continue to be a core part of our capital allocation thinking, preferentially continuing to make sure that some of those dollars go to buybacks. But as Sinead said, it's lovely that we are in a healthy position today where we are having competitive dynamic as to where best to contribute or where best to allocate that dollar of capital. And so that's one of the things we will continue to do time and time again, try to do the best that we can in allocating that capital for our shareholders. And as I said, that buyback continues to be a core part of our investment thesis going forward given the conviction that we see an attractive return to our shareholders as we do some of those buybacks. Thank you for the questions, Chris, and let us go to the next question.

Our final caller today is Lucas Herrmann from BNP.

Sinead, Wael, you saved actually because Chris just asked it, but if I could add a tag, competition issues. I presume there are no competition issues Yes, so it will be this transaction, but there's nothing you need to go through in terms of approval of significance .

There's regulatory approvals to go through Lucas, but we do not see showstoppers in the current context. And we think we are in a good position to be able to do what we need to do. But was that your only question, Lucas?

The allocation question, Chris, was well.

Thank you. Thanks for the question, Lucas. Well, I guess that gets us to the end. Thank you for your questions and for joining today's call. We appreciate the interest and are excited about this next phase of our journey. To summarize, this acquisition is firmly aligned with our long-standing strategy and it's underpinned by strong industrial logic and enhances our ability to deliver sustainable long-term value for our shareholders, which has been at the core of what we've been trying to do. We wish everyone a pleasant rest of the week and look forward to connecting again in just another week with our Q1 results. Thanks, everyone.