Lower oil and gas prices offset a 5.5% production increase in the most recent quarter for this producer as its cash flow fell 6.9% during the most-recent quarter.
However, low debt and lots of cash mean the company should comfortably weather any extended price depression for oil and gas.
The stock trades at just 2.6 times the company’s 2020 cash flow forecast.
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Canadian Natural Resources Stock Guide: What to look for in Canadian Energy Stocks and more
ARC RESOURCES (Toronto symbol ARX; www.arcresources.com) produces oil and natural gas in Western Canada. Its average output of 139,054 barrels of oil equivalent per day is 74% natural gas and 26% oil.
ARC’s primary assets are in one of Canada’s most extensive shale gas and oil regions, the Montney formation of northeast British Columbia and northern Alberta. The company also has holdings in the Cardium formation in Alberta’s Pembina oil field. ARC estimates that it has proved and probable reserve of approximately a billion barrels of oil equivalent with a reserve life of more than 17 years.
In the quarter ended June 30, 2019, cash flow per share fell 6.9%, to $0.54 from $0.58 a year earlier. ARC’s output rose 5.5%. However, lower oil and gas prices offset the higher production.
Energy Stocks: Strong balance sheet powers a safe dividend
The company’s long-term debt stands at $748.2 million, or a manageable 38% of its market cap. ARC also holds cash of $50.7 million. The strong balance sheet—at a time when most producers are struggling with high debt—results from the December 2016 sale of all of the company’s properties in southeastern Saskatchewan for $700 million.
ARC expects to spend $775 million on exploration and development for all of 2019. That’s up 14.0% from the $680 million it spend in 2018. The company aims to spend between $550 million and $625 million in 2020. ARC’s focus on its high-return Montney properties in Northeastern B.C. should continue to spur production.
The stock trades at just 2.6 times the forecast 2020 cash flow of $2.23 per share. The company’s shares yield a high 10.5%, and the dividend, while not guaranteed, appears safe.
ARC Resources (TSE:ARX) shares are down 81% from 5 years ago. Last year, ARC Resources shareholders lost 57% (including dividends). The stock price is down 14% in the last thirty days. This should give you an idea of how the company is doing.
Thanks for your comment. ARC Resources, symbol ARX on Toronto, is down along with most other energy stocks.
Oil and natural gas prices are likely to remain volatile over the next year or so or more. Even so, we feel most investors will benefit from keeping a portion of their stock portfolios in the resources sector—including oil and gas stocks.
The direction of oil and gas prices depends on a lot of things, particularly economic growth rates around the world. Meanwhile, though, well-established companies in the industry have taken advantage of the setback to pick up properties and employees who might be harder to find in more prosperous times.
ARC Resources has positive cash flow—it’s forecast to report $2.23 a share next year, and it has manageable debt. Its high dividend, which is far from guaranteed, appear safe.
We still see ARC Resources as a buy.
On a more general level:
The resource sector is subject to wide and unpredictable swings in the prices it gets for its products. In the rising phase of the business cycle, when business is booming, resource demand expands faster than resource supply, so resource prices shoot up. This balloons profits at resource companies. When the economy slumps, resource prices fall, and this drags down resource profits and stock prices.
In addition to rising and falling with the business cycle, however, resource stocks have a history of rising along with long-term inflationary trends. This gives then a rare ability: they provide a hedge against inflation.
We do recommend that most investors should maintain some exposure to the Resources sector—as part of a well balanced portfolio….but, as we have mentioned from time to time, conservative or income-seeking investors may want to emphasize utilities and Canadian banks for their high, generally secure dividends. However, they’ll still want to spread their investments out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources, Consumer, Finance and Utilities.
Re: “proved and probable reserve of approximately million barrels of oil equivalent”
At the rate of 139,054 barrels per day, a million barrels reserve should last about a week. Is there a number missing there?
I have hard time understanding why this company merits a buy rating when it looks like everyone else is selling it. If this is a turn around story then there should be an explanation on what the company did wrong and whether or not they have chance to recover. An insanely high dividend is a red flag. What<s good in such a high dividend if the company loses half of its value?
Thanks for your question. ARC Resources, symbol ARX on Toronto, is down along with most other energy stocks.
Oil and natural gas prices are likely to remain volatile over the next year or so or more. Even so, we feel most investors will benefit from keeping a portion of their stock portfolios in the resources sector—including oil and gas stocks.
The direction of oil and gas prices depends on a lot of things, particularly economic growth rates around the world. Meanwhile, though, well-established companies in the industry have taken advantage of the setback to pick up properties and employees who might be harder to find in more prosperous times.
ARC Resources has positive cash flow—it’s forecast to report $2.23 a share next year, and it has manageable debt. Its high dividend, which is far from guaranteed, appear safe. We still see ARC Resources as a buy.
On a more general level:
The resource sector is subject to wide and unpredictable swings in the prices it gets for its products. In the rising phase of the business cycle, when business is booming, resource demand expands faster than resource supply, so resource prices shoot up. This balloons profits at resource companies. When the economy slumps, resource prices fall, and this drags down resource profits and stock prices.
In addition to rising and falling with the business cycle, however, resource stocks have a history of rising along with long-term inflationary trends. This gives then a rare ability: they provide a hedge against inflation.
We do recommend that most investors should maintain some exposure to the Resources sector—as part of a well balanced portfolio….but, as we have mentioned from time to time, conservative or income-seeking investors may want to emphasize utilities and Canadian banks for their high, generally secure dividends. However, they’ll still want to spread their investments out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources, Consumer, Finance and Utilities.
ARC expects to spend $775 million on exploration and development for all of 2019. That’s down from its original plan to spend $700 million.
Is $775M not more than $700 M?
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Canadian Natural Resources Stock Guide: What to look for in Canadian Energy Stocks and more
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ARC Resources (TSE:ARX) shares are down 81% from 5 years ago. Last year, ARC Resources shareholders lost 57% (including dividends). The stock price is down 14% in the last thirty days. This should give you an idea of how the company is doing.
Thanks for your comment. ARC Resources, symbol ARX on Toronto, is down along with most other energy stocks.
Oil and natural gas prices are likely to remain volatile over the next year or so or more. Even so, we feel most investors will benefit from keeping a portion of their stock portfolios in the resources sector—including oil and gas stocks.
The direction of oil and gas prices depends on a lot of things, particularly economic growth rates around the world. Meanwhile, though, well-established companies in the industry have taken advantage of the setback to pick up properties and employees who might be harder to find in more prosperous times.
ARC Resources has positive cash flow—it’s forecast to report $2.23 a share next year, and it has manageable debt. Its high dividend, which is far from guaranteed, appear safe.
We still see ARC Resources as a buy.
On a more general level:
The resource sector is subject to wide and unpredictable swings in the prices it gets for its products. In the rising phase of the business cycle, when business is booming, resource demand expands faster than resource supply, so resource prices shoot up. This balloons profits at resource companies. When the economy slumps, resource prices fall, and this drags down resource profits and stock prices.
In addition to rising and falling with the business cycle, however, resource stocks have a history of rising along with long-term inflationary trends. This gives then a rare ability: they provide a hedge against inflation.
We do recommend that most investors should maintain some exposure to the Resources sector—as part of a well balanced portfolio….but, as we have mentioned from time to time, conservative or income-seeking investors may want to emphasize utilities and Canadian banks for their high, generally secure dividends. However, they’ll still want to spread their investments out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources, Consumer, Finance and Utilities.
Re: “proved and probable reserve of approximately million barrels of oil equivalent”
At the rate of 139,054 barrels per day, a million barrels reserve should last about a week. Is there a number missing there?
Thanks for spotting that! We have fixed it.
I have hard time understanding why this company merits a buy rating when it looks like everyone else is selling it. If this is a turn around story then there should be an explanation on what the company did wrong and whether or not they have chance to recover. An insanely high dividend is a red flag. What<s good in such a high dividend if the company loses half of its value?
Thanks for your question. ARC Resources, symbol ARX on Toronto, is down along with most other energy stocks.
Oil and natural gas prices are likely to remain volatile over the next year or so or more. Even so, we feel most investors will benefit from keeping a portion of their stock portfolios in the resources sector—including oil and gas stocks.
The direction of oil and gas prices depends on a lot of things, particularly economic growth rates around the world. Meanwhile, though, well-established companies in the industry have taken advantage of the setback to pick up properties and employees who might be harder to find in more prosperous times.
ARC Resources has positive cash flow—it’s forecast to report $2.23 a share next year, and it has manageable debt. Its high dividend, which is far from guaranteed, appear safe. We still see ARC Resources as a buy.
On a more general level:
The resource sector is subject to wide and unpredictable swings in the prices it gets for its products. In the rising phase of the business cycle, when business is booming, resource demand expands faster than resource supply, so resource prices shoot up. This balloons profits at resource companies. When the economy slumps, resource prices fall, and this drags down resource profits and stock prices.
In addition to rising and falling with the business cycle, however, resource stocks have a history of rising along with long-term inflationary trends. This gives then a rare ability: they provide a hedge against inflation.
We do recommend that most investors should maintain some exposure to the Resources sector—as part of a well balanced portfolio….but, as we have mentioned from time to time, conservative or income-seeking investors may want to emphasize utilities and Canadian banks for their high, generally secure dividends. However, they’ll still want to spread their investments out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources, Consumer, Finance and Utilities.
ARC expects to spend $775 million on exploration and development for all of 2019. That’s down from its original plan to spend $700 million.
Is $775M not more than $700 M?
Thanks for catching that typo. Corrected.