If you are looking for a lesser-known stock, you have come to the right place. You can bet your farm that you can hardly find an article about ARC Resources in the online financial publications. This is why you might be missing something.
Cracking ARC’s code
ARC is one of Canada’s largest energy producers and considers the Montney formation to be its major growth engine. The company owns significant Montney acreage which is complemented by liquids-rich Cardium properties in the mature field of Pembina area.
ARC has a 17-year history of consistently growing its production and reserves, and is well into the execution of an $830 million capital program for 2013, focused primarily on oil and liquids-rich gas development and infrastructure spending to facilitate future growth.
In Q1 2013, ARC had proved and probable (2P) reserves of 607 MMboe (31% oil and liquids), and produced 95,472 boepd (39% oil and liquids) without hurting its financial flexibility. It had net debt of $855 million with unused credit facilities of $1.1 billion, and the debt-to-cash-flow (D/CF) annualized ratio remained quite low at about 1.0 times.
Looking ahead
The company will continue its transition to pad drilling to minimize environmental footprint and optimize operational efficiency. The pad drilling programs decrease overall per well costs to drill, complete and tie-in, but result in longer lead times from the start of drilling until the wells commence production as all drilling and completion activities must be completed on all wells before they are brought on-stream at one time.
ARC expects Q2 and Q3 production to decrease relative to Q1 levels due to planned downtime for spring breakup and maintenance activities. Heavy snowfall in southeast Saskatchewan and Manitoba during Q1 2013 will likely result in restricted access to properties and potential delayed development activities in Q2 2013 due to wet conditions and the potential for flooding.
However, ARC expects Q4 production to increase as new wells are brought in production by year end. The company expects 2013 full year production to average between 93,000 and 97,000 boepd.
Is ARC truly cheap?
With enterprise value at $9 billion, ARC Resources trades at $94,300/boepd and $14.83/boe of 2P reserves. Where does ARC stand among the industry peers with a relatively balanced commodity mix? Well, let’s check out some of them below:
| Company | EV ($ million) | Production (boepd) | 2P Reserves (MMBoe) | Per Boepd | Per Boe |
| Penn West Petroleum | 9,000 | 142,800
(63% oil/liquids) | 676
(71% oil/liquids) | $63,000 | $13.31 |
| Pengrowth Energy | 4,300 | 78,100
(54% oil/liquids) | 462
(63% oil/liquids) | $55,100 | $9.31 |
| Enerplus | 4,550 | 87,183
(48% oil/liquids) | 346
(60% oil/liquids) | $52,200 | $13.15 |
| Bonavista Energy | 3,400 | 72,500
(37% oil/liquids) | 372
(38% oil/liquids) | $46,900 | $9.14 |
Penn West Petroleum Ltd (USA) (NYSE:PWE) is also progressing on the three-well thermal pilot at Harmon Valley South, which is expected to commence steam injection in the second half of 2013. The regulatory applications for the 10,000 bbl/d Seal Main Commercial Project were submitted in late 2012.
Pengrowth Energy Corp (USA) (NYSE:PGH) produces oil and gas from the Cardium formation and the Swan Hills Trend in Canada. To diversify its production, Pengrowth Energy Corp (USA) (NYSE:PGH) also owns the Lindbergh thermal bitumen project which is going to be commercially operational (first phase) by year end. The development of the first phase of the Lindbergh thermal project is proceeding on time and on budget, and Alberta’s Environmental Protection and Enhancement Act approval was received a few days ago.
The first phase of Lindbergh commercial development is expected to reach 12,500 bbl/d of bitumen by early 2015. This is expected to be low cost, low decline, stable production, with a 25 year reserve life. Pengrowth Energy Corp (USA) (NYSE:PGH) completed recently the sale of assets valued at $700 million, and this was taken into account for the calculations of the table above.
Enerplus Corp (USA) (NYSE:ERF) has a diversified asset base across a variety of resource plays that extend from the Bakken/Three Forks resource play in North Dakota to the liquids-rich Deep Basin area of the Western Canadian Sedimentary Basin, along with a large position in the Marcellus shale gas and significant waterflood operations in Canada.
Enerplus Corp (USA) (NYSE:ERF) has a capital budget of $685 million for 2013, with about 62% of the budget to be spent on the U.S. acreage. Enerplus also maintains its production exit rate of 84,000 to 88,000 boepd.
Bonavista Energy is geographically focused within select, multi-zone regions primarily in Alberta and British Columbia, targeting the Cardium formation along with Viking oil and the liquids rich Montney.
With a disciplined capital budget at $430 million for 2013, Bonavista plans to drill between 120 and 125 wells and expects to produce between 73,500 and 74,500 boepd by year end, representing an approximate 7% gain over 2012.
Foolish bottom line
I believe that you had better not jump aboard ARC’s train because the company isn’t in bargain territory currently. As shown above, there are several peers with a more oil-weighted production coupled with a more attractive valuation than ARC’s. I am not saying that ARC’s stock can’t climb higher from the current levels, but the odds are not in your favor.
Nathan Kirykos has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Should You Jump Aboard This Canadian Oil and Gas Producer? originally appeared on Fool.com and is written by Nathan Kirykos.
Nathan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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