Good morning, ladies and gentlemen, and welcome to the ARC Resources Limited Q1 2026 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 today, Wednesday, April 29, 2026. I would now like to turn the conference over to Dale Lewko. Please go ahead, sir.
Thank you, operator. Good morning, everyone, and thank you for joining us for our first 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, and Ryan Berrett, Senior Vice President, Marketing. Before I turn it over to Terry and Kris to take you through our first quarter results, I will 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&A. All dollar amounts discussed today are in Canadian dollars unless otherwise stated. Also, please note that we will not address questions on the events leading up to the signing of the definitive agreement with Shell.
We plan to disclose that information to the market at the time of mailing of our management information circular for the transaction, which we expect to do in the next 30 days. Finally, the press release, financial statements, and MD&A are available on our website as well as SEDAR. 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.
Good morning, everyone, and thank you for joining us today. This morning, I'll provide a brief discussion of the Shell acquisition of ARC that was announced this week and provide an overview of our first quarter results. After that, I'll turn it over to Kris to discuss our financial performance. On Monday, ARC announced that we have entered into a definitive arrangement agreement to be acquired by Shell for approximately CAD 22 billion, including debt. Over our 30-year history, we have built a high-quality Canadian energy company. The strategy was never to build and sell. We have always known that ARC's competitive strengths and attributes of the business would be attractive to others. We are a low-cost producer of a long runway of world-class Montney assets, and we've assembled a team with a high-performance culture and technical depth that has been critical to our success.
Through this transaction, we capture tremendous value and become part of a truly dynamic global energy leader, capable of realizing the full potential of our business. We join an organization that shares our core values and commitment to safety, community, and responsible energy development. I want to thank our people, our employees, and contractors for their commitment and contribution to ARC over the past 30 years. Your leadership in operational excellence and continuous improvement has led ARC to be the exceptional company that we are today and will support Shell in achieving their strategy tomorrow. Before I get into our Q1 results, I'd like to speak briefly to safety. Thanks to the focus and discipline of our employees and contractors, we delivered another strong quarter of safety performance. On behalf of our leadership team, thank you for your ongoing commitment to keeping our people and work sites safe.
Turning now to the quarter. 2026 is off to a good start with strong operational and financial results. In a year marked so far by geopolitical instability and commodity price volatility, ARC has demonstrated the value of being Canada's largest condensate producer and having natural gas diversification to key demand markets in the U.S. Together, this contributed to about CAD 1 billion of cash flow and CAD 500 million in free cash flow this quarter. Q1 production was just shy of 420,000 BOE per day, another record for ARC. This represented a 12% increase year-over-year and 17% on a per-share basis. Condensate production averaged more than 111,000 bbl per day. On top of the strength in global oil prices, condensate markets are also tight.
Over the past month, condensate has traded at a CAD 8 per bbl premium to WTI, with condensate prices in the second quarter to date averaging greater than CAD 125 per bbl. While liquids drew the headlines, natural gas prices in certain U.S. markets were also strong earlier in the year. We have structured our natural gas marketing portfolio to capitalize on these volatile conditions as we have proven to consistently capture asymmetric upside when these price dislocations occur. In the first quarter, ARC realized a natural gas price of CAD 4.51 per Mcf, which was 81% higher than the local AECO benchmark. Our market diversification strategy put in place years ago is a sustainable competitive advantage for our business.
We have low-cost transport in place to sell approximately 50% of our natural gas to premium markets south of the border, which has translated to higher natural gas margins. Turning to operations, there are a few notable things contributing to our performance. At Kakwa, our largest condensate asset, we had really strong well performance. Production averaged approximately 208,000 BOE per day. We also captured and realized operational and cost synergies from the Kakwa assets we acquired last year. As a reminder, we expanded our footprint at Kakwa with the completion of two tuck-in acquisitions. The most recent was a CAD 160 million tuck-in acquisition in Northwest Kakwa, which extends our condensate inventory at our most profitable asset. Next, we had better than forecast production at Greater Dawson, which represents about one quarter of our production.
This is largely due to stronger well performance from enhanced completion designs and our culture of continuous improvement. At Attachie, production held steady in the quarter, averaging approximately 29,000 BOE per day. This included 13,000 bbl per day of condensate. Activity was limited to the completion of our first Lower Montney pad. Overall, we are continuing to advance our learnings and remain confident in the asset and our ability to realize its potential. With that, I'll turn it over to Kris.
Thanks, Terry. Good morning, everyone. Our operating and financial performance surpassed analyst estimates again this quarter. Production of 419,000 BOEs a day was 1% above analyst forecasts, while cash flow per share was 7% above. We generated CAD 460 million of free cash flow, which is approximately 75% above analyst expectations, driven by lower capital spending and higher cash flow. Capital investment in the first quarter was close to CAD 510 million. We drilled a total of 26 wells and completed 43, mainly at Kakwa and Greater Dawson. Of the CAD 460 million free cash flow generated in the quarter, we returned CAD 256 million to shareholders through share buybacks and our base dividend.
We retired roughly 5 million shares for approximately CAD 137 million and declared dividends of CAD 120 million. The remaining free cash flow was directed to debt repayment following the close of the CAD 160 million capital acquisition. As a result, net debt was essentially flat quarter-over-quarter at approximately CAD 2.9 billion or roughly 0.9x net debt to cash flow. Moving on to our 2026 guidance, it's unchanged from when we first announced it last November. ARC plans to invest between CAD 1.8 billion and CAD 1.9 billion and produce between 405,000 and 420,000 BOEs per day, including approximately 110,000 bbl per day of condensate. At current forward curve, we expect to generate about CAD 1.7 billion of free cash flow.
With that, I'll pass it back to Terry.
Thanks, Kris. ARC Resources has always operated our business with long-term profitability in mind, and it's being made possible by the distinct competitive advantages of our business we've established over our 30 years. We have scale as Canada's largest Montney and condensate producer, a large inventory runway in a world-class asset, a differentiated marketing portfolio that cannot be replicated, and an exceptional team with a proven track record of performance. All these attributes will be fully realized by Shell and strengthen its business. Perhaps most importantly, it will be executed maintaining our culture of operational excellence and safety that both companies have a shared commitment to achieve. Together, we look forward to delivering on Canada's exciting energy future. Thank you. Operator, you can open the line to questions.
Thank you ladies and gentlemen we will now begin the question and answer session. And if you wish to ask a question, please press star one on your touch-pad phone and wait for your name to be announced. Once again, star and one if you wish to ask a question. Please stand while we compile the Q&A roster. Thank you.
Thank you. We will now take our first question, and this comes from Sam Burwell from Jefferies. Your line is now open. Please go ahead.
Good morning, guys, congratulations on getting the deal done. Shell went over its plans yesterday. I'm just curious, was it always your plan to grow gas volumes to feed the Cedar and the Cheniere LNG supply contracts? Was the plan to keep gas production roughly flat through 2030 and just reduce exposure to local and other markets?
Hey, Sam Burwell. It's Kris Bibby here. I think, you know, you saw in our previous disclosures that we had a lot of optionality in the portfolio, so we had enough gas within Canada to supply those contracts. Whether we chose to grow gas production to backfill the volumes that were being diverted was one of the options, but it was always gonna be dependent on what our view of local gas prices were at the time. We hadn't committed one way or the other, but we had the optionality in the portfolio.
Okay, gotcha. With respect to local gas prices, do you guys have any volumes curtailed at Sunrise or anywhere else right now? I mean, Station 2 pricing is not great under CAD 1. I'm just curious, like, did you have much Station 2 exposure left now that you are selling 150 Mcf to Shell and LNG Canada at this point?
Yeah. Hey, Sam, it's Ryan. You know, we don't have any production shut in at this current time. It's something obviously, you know, from past history we will do if gas prices aren't sustainable to be profitable in our business. At this time, we don't have any production shut in.
All right. Thank you, guys. Appreciate it.
Thank you. The next question comes from Jamie Kubik from CIBC. Your line is now open. Please go ahead.
Yeah, good morning, and thanks, guys. I just had a question that we've received from a number of investors over the past few days. You know, why is ARC selling now? You know, was this a competitive process? Can you just talk a bit about the nuances around that, Terry and team? Thanks very much.
Hey, Jamie, it's Kris here. We did say at the beginning, we are not able to talk about any of the events leading up or through to the signing of the definitive agreement, so I'm sorry, we can't answer that.
Okay. Forgive me, I missed the first part of that, but I appreciate the color, so I'll hand it back.
No problem. Thanks, Jamie.
Thank you. Once again, for those who want to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. Once again, star and one if you wish to ask a question. Once again, star and one if you wish to ask a question. No questions had came through. I'll now hand the call over back to Dale Lewko. Please go ahead, sir.
All right. Thanks, everyone. That concludes the call.
Thank you. This concludes our conference call for today. Thank you all for participating. You may now disconnect.