An anonymous director reports
WHITECAP RESOURCES INC. REPORTS CONTINUED FINANCIAL AND OPERATIONAL MOMENTUM WITH THIRD QUARTER RESULTS
Whitecap Resources Inc. has released its operating and unaudited consolidated financial results for the three and nine months ended Sept. 30, 2021.
Selected financial and operating information is outlined in the associated table and should be read with Whitecap's unaudited interim consolidated financial statements and related management's discussion and analysis for the three and nine months ended Sept. 30, 2021, which are available at SEDAR and on the company's website.
FINANCIAL AND OPERATING HIGHLIGHTS
(in thousands except per-share amounts)
Three months ended Sept. 30 Nine months ended Sept. 30
Financial 2021 2020 2021 2020
Petroleum and natural gas revenues $678,115 $248,283 $1,740,527 $663,067
Net income (loss) 1,514,633 12,835 1,552,826 (2,176,924)
Basic (loss) ($/share) 2.40 0.03 2.64 (5.33)
Diluted (loss) ($/share) 2.37 0.03 2.62 (5.33)
Funds flow 293,741 119,320 748,072 329,231
Basic ($/share) 0.46 0.29 1.27 0.81
Diluted ($/share) 0.46 0.29 1.26 0.80
Dividends paid or declared 30,807 17,454 83,772 69,808
Per share 0.05 0.04 0.14 0.17
Expenditures on property, plant and equipment (PP&E) 135,204 14,075 293,486 174,173
Total payout ratio (%) 57 26 50 74
Property acquisitions 2,646 71 75,005 5,355
Property dispositions (loss) (2,287) - (2,354) -
Corporate acquisition 68,855 268 1,848,765 18,417
Net debt 1,313,871 1,151,409 1,313,871 1,151,409
Average daily production
Crude oil (bbl/d) 77,188 51,456 74,063 54,042
NGL (bbl/d) 10,279 4,693 10,368 5,018
Natural gas (mcf/d) 170,807 63,191 150,979 67,441
Total (boe/d) 115,935 66,681 109,594 70,300
Average realized price
Crude oil ($/bbl) 81.02 47.67 73.75 40.58
NGL ($/bbl) 45.64 19.57 37.36 14.89
Natural gas ($/mcf) 3.79 2.44 3.49 2.25
Total ($/boe) 63.58 40.47 58.17 34.42
Petroleum and natural gas revenues 63.58 40.47 58.17 34.42
Tariffs (loss) (0.43) (0.49) (0.41) (0.46)
Processing and other income 0.83 0.99 0.77 0.75
Marketing revenue 4.29 0.91 3.57 0.94
Petroleum and natural gas sales 68.27 41.88 62.10 35.65
Realized hedging gain (loss) (6.83) 1.65 (5.13) 4.17
Royalties (loss) (10.24) (5.61) (9.07) (4.49)
Operating (expenses) (13.71) (12.02) (13.61) (11.80)
Transportation (expenses) (2.29) (2.44) (2.23) (2.38)
Marketing (expenses) (4.32) (0.96) (3.60) (0.93)
Operating netbacks 30.88 22.50 28.46 20.22
Message to shareholders
Whitecap is pleased to report another exceptional quarter of operating and financial performance. The company achieved average production in the third quarter of 115,935 barrels of oil equivalent per day, which was 1,935 boe/d higher than the company's forecast of 114,000 boe/d as both the company's base production and new well results continue to outperform the company's expectations. The company remains disciplined on capital investments with only $135-million invested in the third quarter compared with the company's forecast of $165-million.
Record quarterly funds flow of $294-million (46 cents per share) resulted in discretionary funds flow of $128-million after capital investments of $135-million and dividends paid to shareholders of $31-million. Net income of $1.5-billion includes an after-tax impairment reversal of $1.4-billion due to increases in forward benchmark commodity prices.
The company highlights the following third quarter financial and operating results:
Operational excellence: Third quarter production of 115,935 boe/d (75 per cent liquids) was 12 per cent higher on a per-share basis than the prior-year quarter and slightly lower than the second quarter due to previously announced downtime at Weyburn, impacting third quarter production by approximately 1,600 boe/d (net to Whitecap).
Significant free funds flow: Record funds flow of $294-million (46 cents per share) was 59 per cent higher on a per-share basis than the prior-year quarter and resulted in free funds flow of $159-million in the third quarter. Operating netback of $30.88/boe was 37 per cent higher than the prior-year quarter and 11 per cent higher than the second quarter.
- Increasing cash returns to shareholders: Whitecap paid $31-million (five cents per share) in dividends during the third quarter along with repurchasing 3.1 million shares under its normal course issuer bid (NCIB). Year to date, Whitecap has paid $83.8-million (14 cents per share) in dividends and repurchased 5.1 million shares under its NCIB at a weighted average price of $5.98 per share. Since the beginning of the year, Whitecap has increased its monthly dividend by 58 per cent to 2.25 cents per share.
- Consolidating core areas: Whitecap closed the acquisition of a private company in southeastern Saskatchewan for $67-million. The acquisition adds approximately 1,600 boe/d (94 per cent light oil) and 23 net sections of land (99-per-cent working interest) in the Weir Hill area. Based on current strip prices, annual run rate operating income on the acquisition is $32-million.
- Balance sheet strength: Whitecap's balance sheet remains in excellent shape with a debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratio of 1.2 times at the end of the third quarter and is expected to be 0.9 times by the end of the year, based on strip prices. Whitecap's credit facility is a secured, covenant-based credit facility with an extendible four-year term and not subject to annual redeterminations. Subsequent to the quarter-end, Whitecap extended the maturity date on its credit facility to May 31, 2026, and, with strong support from its banking syndicate, has increased the credit facility to $1.6-billion. The credit facility, when combined with $595-million of private placement notes outstanding, results in total credit capacity of $2.2-billion, which provides Whitecap with significant financial flexibility.
Whitecap has significantly increased its production by 74 per cent to 115,935 boe/d in the third quarter compared with 66,681 boe/d in the prior-year quarter through the company's strategic acquisitions that closed in 2021. The company's shareholders are now participating in the full integration and advancement of development opportunities on the acquired assets in addition to strengthening commodity prices.
Northern Alberta and British Columbia
The most exciting developments in this business unit are associated with the company's Karr and Kakwa Montney assets. Since Whitecap took over operatorship of the Kakwa asset, it completed and brought on production four (4.0 net) wells with very encouraging results. The wells averaged 1,195 boe/d (47 per cent liquids) per well over the first 30 days on production, which includes a postfrac cleanup period and in aggregate are currently producing 5,300 boe/d (47 per cent liquids).
Average well costs of $10-million for these four wells are lower than the company's original expectations, with its 2022 budget incorporating a 5-to-10-per-cent improvement from its original estimate of $10.7-million per well and the potential for further improvements.
The company's 02/13-1 Montney well at Karr, which was completed with an optimized frac design, has produced 275 mboe (63 per cent liquids) in the 203 days it has been on production. The company will be spudding a four-well pad at Karr offsetting the 02/13-1 well in the third quarter of 2022.
This business unit also contains the company's Charlie Lake assets in northwestern Alberta. The 2021 program included two (1.7 net) development wells and one (0.8 net) extensional test in a new Charlie Lake horizon. The two-mile extended reach horizontal (ERH) development wells achieved strong results with average IP (180) rates of 1,236 boe/d (63 per cent liquids) per well on average capital cost per well of $4.4-million.
The company's central Alberta business unit contains more mature assets, and diligent reservoir management and development design have improved capital efficiencies in this area. The company recently drilled a conceptual horizontal well to initiate redevelopment into an extension of its Garrington area. The well was drilled with an advanced horizontal well bore and stimulation design and has significantly exceeded the company's expectations with an IP (60) rate of 682 boe/d (90 per cent liquids), which is 42 per cent above the company's budget expectations. The company has identified 50 (31.6 net) analogous drilling locations, primarily two-mile ERH wells, in this area.
The company also drilled two (2.0 net) two-mile ERH Cardium oil wells in the Kaybob/Rosevear area on lands acquired in 2021. The company modified the well bore placement and stimulation based on its advanced reservoir modelling and experience. These wells have recently been brought on production, with initial results indicating that the company's modifications were effective. The company's redesign has resulted in a 25-per-cent reduction to drill and complete costs compared with previous wells.
The results from the company's 2021 Viking program have exceeded its expectations as the company's team continues to use geological review and recovery enhancement techniques to improve, and add to, the company's drilling inventory. The company drilled 37 (32.5 net) Viking wells to date in 2021, all of which are ERHs. On an IP (180) basis, the company has outperformed its budget expectations by 34 per cent so far this year while maintaining capital costs.
In southwestern Saskatchewan, the company drilled 27 (20.5 net) wells year to date, highlighted by significant cost improvements from the company's Lower Shaunavon program. Average well costs since the company entered the play in 2018 have decreased approximately 30 per cent to $1.2-million and spud to rig release times have decreased approximately 30 per cent to five days with the potential to further reduce to $1.0-million per well and four days, respectively.
The integration of acquired assets in southeastern Saskatchewan has been seamless and significant benefits have been realized through strong collaboration between both prior and new team members. A total of 26 (22.8 net) Frobisher wells have been drilled in 2021 on these lands by Whitecap and its predecessors. Of these wells, 16 have more than 180 days of production history with an average IP (180) rate of 180 boe/d (93 per cent liquids), which is double the rate of the company's initial dual-leg budget expectations.
At Weyburn, the company made another step change in the design and optimization of its CO2 (carbon dioxide) enhanced oil recovery (EOR) development. Year to date, the company drilled six (3.9 net) wells of which two were injectors. The four producing wells have average IP (60) rates of 162 bbl/d of crude oil, which is double the company's budget expectations for a CO2 EOR infill well. As a result, the company increased its long-term production forecasts, incorporating the improved results into future design of CO2 flood development programs.
The continued operational success and recent corporate activities are advancing Whitecap toward the company's short- and long-term targets, within the company's stated priorities of balance sheet strength, modest growth (3 to 5 per cent) and sustainable and growing return of capital to shareholders through dividends and share buybacks.
The company is well on track toward achieving its 2021 average production of 111,000 to 112,000 boe/d (76 per cent liquids) on development capital investment of $425-million to $435-million, putting the company in a strong position to achieve its 2022 average production of 121,000 to 123,000 boe/d (73 per cent liquids) on capital spending of $470-million to $490-million.
The company closed the Weyburn royalty sale for $188-million on Oct. 26, 2021, further solidifying its balance sheet strength and its expectation of reaching its net debt target of $1-billion by year-end 2021. The company's balance sheet is in pristine condition with an expected debt to EBITDA ratio of 0.9 times at year-end 2021.
In addition to recently increasing its base monthly dividend by 38 per cent to 2.25 cents per share, the company has committed to returning 50 per cent of 2022 discretionary funds flow back to its shareholders through further dividend increases and/or share buybacks. The company will direct the remaining 50 per cent toward its balance sheet to provide increased financial flexibility for continued advancement of its business through targeted acquisitions and/or new energy initiatives to enhance total shareholder returns.
The company is expecting continued strength in both crude oil and natural gas prices for the fourth quarter of 2021 and into 2022. Fossil fuel energy continues to be critical for meeting global energy demand especially as the company moves into the colder winter season and will remain an important part of the energy transition for many years to come. Whitecap is well positioned to participate in the strong pricing environment while responsibly developing and producing the company's assets.
On behalf of the company's management team and board of directors, the company would like to thank its shareholders for their continuing support and looks forward to providing updates as it progresses through the remainder of the year and into 2022.
Conference call and webcast
Whitecap has scheduled a conference call and webcast to begin promptly at 9 a.m. Mountain Time (11 a.m. Eastern Time) on Thursday, Oct. 28, 2021.
The conference call dial-in number is: 1-888-390-0605 or 587-880-2175 or 416-764-8609.
A live webcast of the conference call will be accessible on Whitecap's website by selecting investors, then presentations and events. Shortly after the live webcast, an archived version will be available for approximately 14 days.
We seek Safe Harbor.
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