Earnings call transcript: ARC Resources Q3 2025 misses EPS estimates, stock falls

ARC Resources Ltd. reported its third-quarter 2025 earnings, revealing a notable miss on both earnings per share (EPS) and revenue forecasts. The company's EPS came in at 0.37 USD, significantly below the anticipated 0.549 USD, representing a surprise of -32.6%. Revenue also fell short, reaching 1.36 billion USD against a forecast of 1.37 billion USD. Following the announcement, ARC Resources' stock dropped by 8.77%, closing at 26.17 USD.

Key Takeaways

• ARC Resources' EPS and revenue missed expectations, causing a significant stock decline.
• The company achieved a 10% year-over-year increase in total production.
• ARC's free cash flow for Q3 2025 was CAD 283 million, exceeding expectations by 80%.
• The company continues its strategy of returning capital to shareholders through share buybacks and dividends.

Company Performance

ARC Resources demonstrated robust operational performance with a 10% year-over-year increase in total production, reaching 360,000 barrels of oil equivalent (BOE) per day. The company also reported record condensate production of 114,000 barrels per day, marking a 30% increase from the previous year. Despite these operational gains, financial performance fell short of market expectations, impacting investor sentiment.

Financial Highlights

• Revenue: 1.36 billion USD (missed forecast by 0.73%)
• Earnings per share: 0.37 USD (missed forecast by 32.6%)
• Free cash flow: CAD 283 million (80% above expectations)
• Share buybacks: 6.5 million shares purchased for CAD 170 million

Earnings vs. Forecast

ARC Resources reported an EPS of 0.37 USD, falling short of the forecasted 0.549 USD, which translates to a negative surprise of 32.6%. Revenue also slightly missed expectations, coming in at 1.36 billion USD compared to the anticipated 1.37 billion USD. This underperformance contrasts with the company's previous quarters, where it generally met or exceeded forecasts.

Market Reaction

Following the earnings release, ARC Resources' stock experienced a decline of 8.77%, closing at 26.17 USD. This drop reflects investor disappointment in the company's earnings miss and revenue shortfall. The stock's performance contrasts with its 52-week high of 31.56 USD, indicating a challenging market environment for the company.

Outlook & Guidance

Looking ahead, ARC Resources has outlined a 2026 budget of CAD 1.8-1.9 billion, with expected production between 405,000 and 420,000 BOE per day. The company plans to invest heavily in well-related activities, allocating 80% of its capital to this area. ARC also anticipates approximately CAD 1.5 billion in free cash flow for 2026, supported by its long-term LNG agreements set to commence in late 2026/2027.

Executive Commentary

Terry Anderson, CEO of ARC Resources, emphasized the company's strategic focus on long-term growth and shareholder returns. "We created a budget that supports our long-term strategy of investing in our assets to grow free cash flow while returning a meaningful amount of capital to our shareholders," Anderson stated. COO Armin Jahangiri added, "The objective here is that we want to make sure we find that right balance between recovering resource and making sure that we can recover it at a decent capital efficiency."

Risks and Challenges

• Market volatility and commodity price fluctuations could impact financial performance.
• Execution risks associated with new projects and expansions.
• Regulatory changes and environmental policies may affect operations.
• Potential for increased competition in the natural gas market.

Q&A

During the earnings call, analysts inquired about the development strategy for Attachie phase II, with management discussing the optimization of well and frac design. Questions also focused on the company's capital efficiency and profitability, highlighting the break-even WTI price for phase II at around the low 60s.

Full transcript - ARC Resources Ltd. (ARX) Q3 2025:

Conference Operator: Good morning, ladies and gentlemen, and welcome to ARC Resources Q3 2025 earnings conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, November 7, 2025. I would now like to turn the conference over to Terryn Boulet. Please go ahead.

Terryn Boulet, Investor Relations, ARC Resources: Thank you, Operator. Good morning, everyone, and thank you for joining us for our third quarter earnings conference call. Joining me today are Terry Anderson, President and Chief Executive Officer; Kris Bibby, Chief Financial Officer; Armin Jahangiri, Chief Operating Officer; Ryan Berrett, Senior Vice President, Marketing. Before I turn it over to Terry and Kris to take you through our third quarter results, I'll remind everyone that this conference call includes forward-looking statements and non-GAAP measures, with the associated risks outlined in the earnings release and our MD&As. All dollar amounts discussed today are in CAD unless otherwise stated. Finally, the press release, financial statements, and MD&A are available on our website, as well as CDER. Following our prepared remarks, we'll open the line to questions. With that, I'll turn it over to our President and CEO, Terry Anderson. Terry, please go ahead.

Terry Anderson, President and Chief Executive Officer, ARC Resources: Good morning, everyone, and thank you for joining us today. This morning, we'll discuss our third quarter results and the 2026 budget. After that, I'll hand it over to Kris to review our financial results and provide a little more color on our plans for next year. Beginning with the quarter, overall, we executed a safe, efficient capital program and remained focused on profitability over BOEs, delivering solid operational and financial results. Third quarter production averaged approximately 360,000 BOE per day, which represents a 10% increase year over year and a 13% increase on a per-share basis. This included a record high, 114,000 barrels per day of condensate, driven primarily from Kakwa and Attachie. In the quarter, we generated CAD 283 million of free cash flow and returned it all to shareholders.

This is a result of our low-cost structure and a balanced commodity mix that includes a high proportion of condensate. At Kakwa, which is our largest condensate asset, production averaged 206,000 BOE per day. This was above expectations due to better-than-anticipated performance from the assets we acquired in July. With the integration complete, we have now identified and advanced optimization opportunities to further enhance profitability on those assets and the overall property. Moving on to Attachie, third quarter production averaged approximately 27,000 BOE per day, which was below our expectations. However, condensate production was 13,000 barrels per day, which is a relatively strong number that drives the returns on this asset. Our recent focus has been on optimizing our well design based on what we have learned to date to improve predictability and performance.

We are seeing evidence of our optimization initiatives on the most recent pads that were successfully drilled and completed as planned and will be on production in Q4. For 2026, we expect concentrated production to increase to 15,000 barrels per day, which is in line with our original plan, and total production between 30,000 and 35,000 BOE per day. At Sunrise, our low-cost natural gas asset, we curtailed approximately 360 million cubic feet per day, or 60,000 BOE per day, during the quarter when Western Canadian natural gas prices were weak. This allowed us to preserve resource and defer capital. In the backdrop of strengthening fundamentals and higher natural gas prices, we resumed production in late October. A core part of our natural gas business is our transportation portfolio. Having long-term, low-cost access to key demand markets in the U.S.

has been instrumental in allowing us to maintain high natural gas margins when AECO prices are low. During the third quarter, we realized a natural gas price of CAD 2.75 per MCF and compared to the AECO monthly index of CAD 1 per MCF. As an extension to our natural gas marketing, our long-term LNG agreements will take effect in late 2026 or 2027. ARC will deliver approximately 140 million cubic feet per day of natural gas to Cheniere's Corpus Christi Stage 3 project and, in return, receive JKM pricing less about CAD 5.50 per MCF. Our strategy is to diversify our natural gas sales over the long term by accessing global natural gas prices. Moving on to next year's budget and our strategic priorities.

The 2026 budget will deliver higher production, lower capital, and higher free cash flow compared to 2025 and aligns with our long-term strategy to grow free funds flow per share. Our budget of CAD 1.8 billion-CAD 1.9 billion will generate annual production between 405,000 and 420,000 BOE per day and concentrated production of approximately 110,000 barrels per day. Operationally, the focus will be, first, to continue to deliver consistent results and capture cost reduction opportunities to achieve a best-in-class cost structure, and second, to apply the learnings we've gained from our first full year of production at Attachie to improve capital efficiencies and profitability. These results will inform the optimal development plan to maximize profits for Attachie phase II. At the current forward prices, ARC expects to generate approximately CAD 1.5 billion in free cash flow.

With this balance sheet strong, we once again intend to return essentially all free cash flow to shareholders. As evidence of this, we are pleased to announce an 11% increase in our base dividend this quarter, alongside a significant step-up in share repurchases. We continue to believe that the combination of growing base dividend and share buybacks is the optimal way to return capital to shareholders. With that, I'll hand it over to Kris.

Kris Bibby, Chief Financial Officer, ARC Resources: Thanks, Terry. Good morning, everyone. First, I'll discuss our quarterly results, followed by an overview of our 2026 budget and resulting guidance. The quarter itself was ahead of expectations. Relative to analyst estimates, production was in line, while funds from operations was 10% above, and free cash flow of CAD 283 million was 80% above expectations. As mentioned, we returned all of that free cash flow to shareholders during the quarter. We were particularly active and opportunistic on our share buyback, investing CAD 170 million to purchase 6.5 million shares. Since we introduced the NCIB in 2021, we've repurchased and retired a total of 155 million common shares, reducing the share count by roughly 21%. Moving on to production, ARC delivered average production of 360,000 BOEs per day, which represents a 10% increase year over year, a 13% increase on a per-share basis.

Record condensate and oil production of 114,000 barrels per day represents a 30% increase from the prior year, driven by Attachie and the Capco acquisition that closed in July. Production from our newly acquired Capco assets delivered at the higher end of our internal expectations, averaging around 40,000 BOE per day in the quarter, which included roughly 13,000 barrels per day of condensate. We invested approximately CAD 500 million this quarter, drilling 50 wells and completing 36. Activity focused primarily on our condensate-rich assets at Capco, Greater Dawson, and Attachie. With the closing of the Capco acquisition from Strathcona in July, we ended the quarter with net debt of approximately CAD 3.1 billion, implying a debt-to-cash flow ratio of approximately one times. We view this as an appropriate amount of leverage for our business, given our low-cost structure and deep drilling inventory.

For the 2026 budget, we plan to invest CAD 1.8 billion-CAD 1.9 billion, which represents approximately CAD 100 million decrease from 2025. Capital program is expected to generate 11% production growth, with average production between 405,000 and 420,000 BOEs per day, of which 40% is liquids. In 2026, year-over-year growth will be driven by our two biggest condensate assets. First, at Attachie, where we expect stronger organic volumes, and second, at Kakwa, where we will have a full year with the recently acquired assets. We plan to allocate 80% of the capital towards well-related activities. The remainder is earmarked for facilities and maintenance, a nominal amount towards phase II at Attachie, and certain margin expansion initiatives. As one example, we are investing about CAD 40 million towards water infrastructure and disposal at Kakwa.

This investment will pale in less than a year by lowering operating costs while improving safety by reducing our reliance on trucking. As mentioned at current strip pricing, we will generate approximately CAD 1.5 billion of free cash flow, or roughly 10% of our market cap. For the fourth consecutive year, essentially all free cash flow will be returned to shareholders through our growing base dividend and continued share repurchases. With that, I'll pass it back to Terry for closing remarks.

Terryn Boulet, Investor Relations, ARC Resources: Thanks, Kris. In 2026, ARC will celebrate 30 years of being a proud, responsible Canadian energy producer. We created a budget that supports our long-term strategy of investing in our assets to grow free cash flow while returning a meaningful amount of capital to our shareholders, providing an attractive and sustainable return. Our outlook is strong. We're fortunate to have amassed long-duration, top-tier Montney assets. We've built a large network of company-owned infrastructure, and we have the best people to execute on our plan to deliver sustainable value to our shareholders. With that, we can open the line to questions.

Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press the star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press the star followed by the number two. With that, our first question comes from the line of Michael Harvey with RBC Capital Markets. Please go ahead.

Kris Bibby, Chief Financial Officer, ARC Resources: Yeah, thanks. Good morning, guys. Just a couple of questions. I guess the first one, maybe just walk us through some of the key learnings you've taken from Attachie phase I and kind of how those would be applied to phase II, what changes would be applied just given the passage of time and kind of how would that affect cost, productivity, etc. The second one is just a little broader. How do you compare the two options, the first being going ahead with phase II, the second being just deferring for a longer period and just kind of buying back $1 billion or so in stock per year and staying flat? Lots of moving parts. I suspect that's a hot topic in the boardroom. I'd just love to get a bit of color on how you folks would kind of think through that complex topic.

Terryn Boulet, Investor Relations, ARC Resources: Hey, Michael, it's Terry. Why don't I start with your second question? We've always stated that we are focused on improving our per-share metrics. Obviously, Armin will touch on some of the learnings here for phase II because we want to make sure that we are going to be the most capital-efficient when we move into that second phase. We're focused on the profitability side. For us, where our shares are trading today, it's a good use of capital to be buying back our shares. There's going to be times where it makes more sense to buy back our shares, and there's going to be times where we're going to invest more. That's exactly what we had laid out in our long-term plan. When we're not investing in our assets, we're going to be buying back the shares.

It all ends up at the same spot of improving our per-share metrics and, in particular, the free cash flow per share.

Armin Jahangiri, Chief Operating Officer, ARC Resources: Yeah, Michael, on your first question, most of our focus in terms of learnings are going to be on subsurface optimization of our well and frac design. Some of the activities already started, as Terry mentioned in his remarks, that we are going to see the result of them in the next few months. That is going to really help us better understand the capital efficiency. What we are trying to do is to find that balance between recovery factor and capital efficiency and make sure not only phase II, but also the remainder of phase I development activity is set up for success. In terms of cost, obviously, with improvement in capital efficiency, we have to look at exactly what the cost numbers are going to be. What we are trying to achieve, as Terry mentioned, is profitability.

Kris Bibby, Chief Financial Officer, ARC Resources: Gotcha. Just to close it out, do you have an updated break-even WTI number of where you think the phase II project would give you your specified hurdle rate? Has that kind of changed? Maybe just so folks can come up with a benchmark where it looks good and where it looks kind of less good? I'm not sure if you've updated that number or not.

Armin Jahangiri, Chief Operating Officer, ARC Resources: Hey, Mike, it's Kris here. I mean, I'm not sure we've given a specific number previously, but based on what Armin and Terry are saying, we don't see the future go-forward cost changing. Like we've previously talked about, in the 60s range, we'd be comfortable driving ahead. The reality is oil macro backdrop right now is quite weak. We do want to take the time, get the learnings in-house, and in the meantime, buy back the shares. The reality is, even absent the learnings, there's no growth capital really being deployed into our sector right now. I'm not sure now would be the right time to really be deploying a lot of growth capital. We'll take that into account. I mean, if it's well above 60, obviously, we'd be very comfortable. If it's below 60, it's still probably economic.

It's going to depend on where the shares are trading at the time, trying to make sure we are achieving the best rate of return on the capital we are deploying.

Kris Bibby, Chief Financial Officer, ARC Resources: Got it. Appreciate the detail, guys.

Conference Operator: The next question comes from Colleen Ackermann with Bank of America. Please go ahead.

Hey, good morning, guys. I want to start with Attachie on the well cost. Total spend in full year 2026 is CAD 275 million. You're bringing on 14 wells. The simple EBITDA by BOE map points to pretty costly wells, but this is not a normal year. Can you kind of talk to us about the path towards a maintenance capital number and remind us what that is? The number that I have in my head is about CAD 150 million.

Armin Jahangiri, Chief Operating Officer, ARC Resources: Yeah. Some of the numbers you see in terms of the capital for next year includes additional capital beyond drilling and completions activity. We have some phase II pre-spend included in that number, in addition to that seismic and some water-related infrastructure. The per well cost is not exactly a straight calculation of the numbers, as you mentioned. As far as your overall capital cost estimate for sustaining is concerned, your numbers are relatively accurate. Remember that this is the second year, so we still are dealing with higher declines in the assets. As we get into the subsequent years, we have to see those numbers are going to come down.

I appreciate that. My second question relates to phase II. Now, in 2026, you're doing work to finalize the development pattern before taking that FID. Can you kind of talk about what a success case will look like? How are you scoring things like per well productivity, or maybe that's measured on a per-pad level? Are you pushing productivity to the edge with your completion intensity? Is there kind of an element in there of defining what the areal extent is to which these best practices are applicable? Just trying to understand what the targets are that will allow you to move forward.

We definitely see an opportunity to improve the profitability and capital efficiency based on some of the early production results that we have seen from phase I. The objective here, as I said earlier, is that we want to make sure we find that right balance between recovering resource and making sure that we can recover it at a decent capital efficiency. That is going to really inform our plan moving into phase II.

Got it. I appreciate that. Thank you for taking my questions.

Conference Operator: If you would like to ask a question, please press the star one on your telephone keypad. Your next question comes from the line of Jamie Kubick with CIBC. Please go ahead.

Yeah, good morning, and thanks for taking my question. Just wanted to ask a little bit more on Attachie. Can you talk a bit more on the underperformance seen in 2025? What led to the underperformance versus your second-half guidance of 35,000-40,000 BOE a day that was issued with Q2 results? I guess how much conservatism have you baked into the 2026 guide for Attachie? Just things like that would be great to understand. Thank you.

Terryn Boulet, Investor Relations, ARC Resources: Hey, Jamie, it's Terry here. The change in forecast is a result of the lower-than-expected production from one pad that came on stream in July here, which has impacted Q3 and Q4 production. The pad at the 701 is just showing higher water production, and it's taking a longer time to clean up. Some wells take longer to clean up on the water. Some are quicker. We still expect a stabilized water cut of around that 50-60%, which is very similar to Kakwa. Our wells are coming down to this. This well is just that closer to that 70-75%. We just need a little more time for it to clean up here.

Armin Jahangiri, Chief Operating Officer, ARC Resources: Jamie, I can handle the guidance side. What we focused on is we want to make sure we're sending out realistic guidance that we know we have a good shot at achieving. Hence, the little bit wider range, both at the corporate and then specifically at Attachie, where if we're at the high end of guidance, we're right where we should be. If we're at the lower end, then we're going to have to do some explaining for that asset. Corporately, at 405-420, that should be right where everyone's kind of expecting us to be. Pretty happy with how the budget came together and the overall guidance levels.

Okay. That's all for me. Thank you.

Thanks, Jamie.

Conference Operator: Once again, if you would like to ask a question, please press the star one on your telephone keypad. I am showing no further questions at this time. I would like to turn it back to Terryn Boulet for closing remarks.

Thanks, everyone. Have a great day.

Thank you. Ladies and gentlemen, this now concludes today's conference call. Thank you all for joining. You may now disconnect.

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