Morningstar | ARC Resources Continues to Be Fairly Valued
We are lowering our fair value estimate on no-moat ARC Resources to CAD 9.50 per share from CAD 12. The change is driven by lower near-term commodity price estimates coupled with lower crude price realizations due to pipeline shortages. The shares are now trading near CAD 8.50, in 3-star territory. Accordingly, we suggest that potential investors remain on the sidelines.Although the company’s Montney production possesses a low-cash-cost structure, full-cycle break-even prices approximate $4 per thousand cubic feet for Henry Hub. Additionally, current resources can support only about a decade of activity. Consequently, ARC will need to increase its capital spending to acquire or develop additional resources to support our forecast levels. We are maintaining our no-moat rating.
ARC Resources is engaged in the exploration for, development and production of crude oil, natural gas and natural gas liquids in western Canada. As of Dec 31 2011, net proven reserves for light and medium oil, heavy oil, natural gas and natural gas liquids were 87,905 thousand barrels, 1,801 thousand barrels, 1,197 billion cubit feet and 15,002 thousand barrels, respectively.
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