ARC RESOURCES $18.38 (Toronto symbol ARX; Shares outstanding: 348.3 million; Market cap: $6.2 billion; TSINetwork Rating: Speculative; Dividend yield: 3.3%; www.arcresources.com) produces oil and natural gas in Western Canada. Its average daily output of 119,243 barrels of oil equivalent is 66% gas and 34% oil.
In the three months ended December 31, 2015, ARC’s cash flow per share dropped 26.6%, to $0.58 from $0.79 a year earlier. Production increased 1.1%, but its realized oil price fell 32.1%. Gas prices declined 37.6%.
Like many oil and gas producers, ARC is cutting exploration and development spending. In 2016, it will devote $390.0 million to this purpose. That’s down 29.1% from $550.0 in 2015.
Despite the lower investment, falling drilling costs should let ARC raise its average daily production to between 116,000 and 120,000 barrels in 2016. That’s up from 114,167 barrels for all of 2015.
To further conserve cash, ARC cut its monthly dividend by 50.0% with the March 2016 payment, to $0.05 from $0.10. The shares now yield 3.3%.
The stock trades at 7.9 times ARC’s cash flow per share, based on the latest quarter. That’s high, but it’s not unreasonable for a company with ARC’s long term growth potential.
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