Whitecap Resources Inc. (“Whitecap” or the “Company”) (TSX: WCP) is pleased to report its operating and audited financial results for the quarter and year ended December 31, 2021.
Selected financial and operating information is outlined below and should be read with Whitecap’s audited annual consolidated financial statements and related management’s discussion and analysis for the three and twelve months ended December 31, 2021 which are available at www.sedar.com and on our website at www.wcap.ca.
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FINANCIAL AND OPERATING HIGHLIGHTS
| Three months ended December 31 | Twelve months ended December 31 | |||
| Financial ($000s except per share amounts) | 2021 | 2020 | 2021 | 2020 |
| Petroleum and natural gas revenues | 785,795 | 238,489 | 2,526,322 | 901,556 |
| Net income (loss) | 223,841 | 331,951 | 1,776,667 | (1,844,973) |
| Basic ($/share) | 0.36 | 0.81 | 2.97 | (4.52) |
| Diluted ($/share) | 0.35 | 0.81 | 2.95 | (4.52) |
| Funds flow (1) | 350,559 | 104,650 | 1,098,631 | 433,881 |
| Basic ($/share) (1) | 0.56 | 0.26 | 1.84 | 1.06 |
| Diluted ($/share) (1) | 0.55 | 0.25 | 1.82 | 1.06 |
| Dividends paid or declared | 42,298 | 17,468 | 126,070 | 87,276 |
| Per share | 0.07 | 0.04 | 0.21 | 0.21 |
| Expenditures on property, plant and equipment | 134,922 | 21,713 | 428,408 | 195,886 |
| Total payout ratio (%) (1) | 51 | 37 | 50 | 65 |
| Net debt (1) | 1,154,637 | 1,083,029 | 1,154,637 | 1,083,029 |
| Operating | ||||
| Average daily production | ||||
| Crude oil (bbls/d) | 79,315 | 48,527 | 75,387 | 52,656 |
| NGLs (bbls/d) | 10,568 | 4,874 | 10,418 | 4,982 |
| Natural gas (Mcf/d) | 180,820 | 62,289 | 158,501 | 66,146 |
| Total (boe/d) (2) | 120,020 | 63,783 | 112,222 | 68,662 |
| Average realized price (3) | ||||
| Crude oil ($/bbl) | 89.40 | 47.52 | 77.90 | 42.19 |
| NGLs ($/bbl) | 52.24 | 22.48 | 41.16 | 16.75 |
| Natural gas ($/Mcf) | 4.97 | 2.84 | 3.91 | 2.39 |
| Total ($/boe) | 71.17 | 40.64 | 61.68 | 35.88 |
| Netbacks ($/boe) | ||||
| Petroleum and natural gas revenues | 71.17 | 40.64 | 61.68 | 35.88 |
| Tariffs | (0.48) | (0.54) | (0.43) | (0.48) |
| Processing & other income | 0.68 | 0.73 | 0.74 | 0.74 |
| Marketing revenue | 4.33 | 0.95 | 3.78 | 0.94 |
| Petroleum and natural gas sales | 75.70 | 41.78 | 65.77 | 37.08 |
| Realized hedging gain (loss) | (8.13) | 1.81 | (5.94) | 3.62 |
| Royalties | (13.09) | (5.89) | (10.15) | (4.82) |
| Operating expenses | (13.49) | (11.96) | (13.58) | (11.84) |
| Transportation expenses | (2.12) | (2.27) | (2.20) | (2.36) |
| Marketing expenses | (4.34) | (0.97) | (3.80) | (0.94) |
| Operating netbacks (1) | 34.53 | 22.50 | 30.10 | 20.74 |
| Share information (000s) | ||||
| Common shares outstanding, end of period | 615,824 | 409,234 | 615,824 | 409,234 |
| Weighted average basic shares outstanding | 627,831 | 408,468 | 598,601 | 408,371 |
| Weighted average diluted shares outstanding | 634,183 | 411,807 | 603,094 | 410,880 |
| Notes: | |
| (1) | Total payout ratio and operating netbacks do not have a standardized meaning under GAAP. Funds flow and net debt are capital management measures. Refer to Specified Financial measures in this press release for additional disclosure and assumptions. |
| (2) | Disclosure of production on a per boe basis in this press release consists of the constituent product types and their respective quantities disclosed in this table. |
| (3) | Prior to the impact of hedging activities and tariffs. |
MESSAGE TO SHAREHOLDERS
2021 was a transformational year for Whitecap, with the successful execution and integration of approximately $2.0 billion of strategic acquisitions during the cyclical lows of the recent commodity price cycle which have now significantly improved the profitability and sustainability of our business. This combined with the efficient execution of our $428 million development capital program resulted in record annual production of 112,222 boe/d (76% liquids) and production in the fourth quarter of 120,020 boe/d (75% liquids), driving record annual funds flow of $1.1 billion or $1.82 per share, an increase from the prior year of 153% and 72% respectively.
In 2021, free funds flow1 after capital totaled $670 million or $1.11 per share, an increase from the prior year of 182% and 92% respectively. This allowed us to increase our dividend by 58% in 2021 and repurchase over 24 million common shares for total capital returned to shareholders1 of $290 million compared to $98 million in the prior year, an increase of 196%.
Whitecap’s balance sheet is in excellent condition with debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio1 of 0.9x in 2021. We have significant financial flexibility and liquidity with year end net debt of $1.2 billion on total capacity of $2 billion. All our remaining debt has been termed out and the average cost of borrowing is low at 3.25%.
We highlight the following 2021 financial and operating results:
- Transformational Acquisitions. Successfully completed and integrated four corporate acquisitions and two asset acquisitions, resulting in record annual production of 112,222 boe/d compared to 68,662 boe/d in the prior year, an increase of 63% and 11% per share. The acquisitions consolidated our core areas, increasing working interests and providing for financial and operational synergies to increase profitability.
- Free Funds Flow Generation. In 2021, Whitecap generated $544 million of discretionary funds flow1 after development capital of $428 million and dividends of $126 million. The combination of low decline assets that reduce maintenance capital requirements and high impact assets that generate quick capital payouts will allow Whitecap’s balanced portfolio to drive continued profitability into the future.
- Return of Capital Strategy. Whitecap increased its base dividend three times in 2021, from $0.171 per share annually up to $0.27 per share annually. The top priority for our return of capital strategy is a sustainable and growing base dividend in combination with the targeted use of our normal course issuer bid (“NCIB”). In 2021, we repurchased 24.3 million shares at an average share price of $6.75 for a total investment of $164.2 million. We intend to renew the NCIB for another year upon expiry on May 20, 2022.
- Balance Sheet Strength. Whitecap’s year end debt to EBITDA ratio was 0.9x and EBIDTA to interest ratio was 26.1x well within our bank covenants of not greater than 4.0x and not less than 3.5x respectively. Year end net debt of $1.2 billion on total capacity of $2.0 billion provides significant financial flexibility.
- Significant Focus on Asset Retirement Obligations. Whitecap is a strong steward of the environment and with an ongoing focus on reducing our environmental footprint we are pleased to report that we abandoned a total of 369 wells in 2021, an increase of 344% from the prior year.
Dividend Increase
We have successfully integrated our strategic acquisitions and with both strong operational execution to date and commodity prices higher than forecast, Whitecap is well positioned to deliver significant free funds flow in 2022 and beyond. We forecast generating $2.0 billion of funds flow based on current strip prices which translates to approximately $1.5 billion of free funds flow in 2022.
Given our priority to return capital to shareholders, our Board of Directors has approved a 33% increase to our monthly dividend to $0.03 per share, from $0.0225 per share previously, which equates to $0.36 per share on an annual basis. The increase will take effect beginning with the March dividend, payable in April 2022. Inclusive of the dividend increase, Whitecap expects to fully fund its go forward capital programs and the increased dividend with funds flow down to US$45/bbl WTI. The annualized dividend of $226 million represents only 11% of forecasted 2022 funds flow.
New Energy
Whitecap advanced many initiatives related to our involvement in the energy transition during 2021, most notably signing two memorandums of understanding with large industrial parties in the Regina/Belle Plaine area for transportation and permanent sequestration of captured CO2. Potential captured emissions from these two sources are estimated at 0.8 – 1.5 million tonnes of CO2 per year which will support our plans to build a carbon/hydrogen hub in this area to further assist decarbonization efforts at other large industrial sites. Whitecap’s experience and technical expertise with permanently sequestering 38 million tonnes of CO2 at the Weyburn project make us a natural and trustworthy fit for carbon sequestration.
We continue to advance several new initiatives towards commercialization and ultimately new revenue sources for the Company. Recent developments include:
- Joffre CO2 Credit Generation. During the first quarter of 2022, we successfully applied for our Joffre CO2 EOR project to be included in Alberta’s Technology Innovation and Emissions Reduction (“TIER”) program as well as extended our contract with our CO2 supply source. Our CO2 cost is linked to WTI and beginning in 2023 we expect to fully offset the cost of CO2 with credits generated under the TIER program at a crude oil price of approximately US$80/bbl or lower.
- Saskatchewan Carbon Hub Update. We now have in place three signed memorandums of understanding for our carbon hub in the Regina/Belle Plaine area. Aggregate potential CO2 emissions from the three sources range from 0.9 to 1.6 million tonnes of CO2 per year.
- Alberta Carbon Hub Announcement. Wolf Midstream (“Wolf”), Whitecap, First Nation Capital Investment Partnership (consisting of Alexander First Nation, Alexis Nakota Sioux Nation, Enoch Cree Nation and Paul First Nation) and Heart Lake First Nation recently announced a proposal to manage a saline aquifer carbon sequestration hub which would serve all industrial facilities in the Alberta Industrial Heartland region. We believe that our experience with carbon sequestration, along with Wolf’s experience operating the Alberta Carbon Trunk Line, and our collective ability to provide a timely, low cost decarbonization solution will be an attractive option for area facilities, including the industrial parties such as Air Products, that have already offered support to the project.
Sustainability Linked Loan
We are also pleased to announce that we are transitioning to a Sustainability Linked Loan (“SLL”) on our credit facility with our bank syndicate that includes pricing adjustments related to two key emission reduction performance targets. There is no change to our existing pricing grid and covenants. The SLL has a cumulative pricing adjustment of 5 basis points to the applicable margin, as well as a pricing adjustment of up to 1 basis point to the standby fee that can result in price increases or decreases depending on performance. Whitecap’s Key Performance Indicators (“KPIs”) for this loan are a 15% reduction to its scope 1 and 2 greenhouse gas emissions intensity by 2025, and a 30% reduction to its methane emissions intensity by 2025. Both KPIs utilize 2020 emissions intensity as the baseline. This SLL is a continuation of our commitment towards environment, social and governance best practices and by linking sustainability performance targets to our credit facility there is a direct financial benefit to meeting our emission reduction goals.
Outlook
Whitecap is well positioned to take advantage of the current market environment, with a business plan that will generate substantial returns to our shareholders while continuing to advance our strategy to improve our long-term profitability and sustainability, which also includes new energy initiatives as we transition to a lower carbon business. Our guidance for 2022 average production of 130,000 – 132,000 boe/d (73% liquids) and capital spending of $510 – $530 million is unchanged. On behalf of our employees, management team and Board of Directors, we would like to thank our shareholders for their support and look forward to updating you on our progress throughout the year.
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