Whitecap delivered another strong quarter with the successful execution of its $208 million capital program to achieve average production of 145,798 boe/d in the third quarter, well ahead of our internal expectations. Production per share1 increased 11% compared to the second quarter of this year and 30% compared to the same quarter in the prior year.
The efficient execution of our capital program and strong operational results generated $339 million of free funds flow6 in the third quarter, of which $138 million was returned to shareholders through our base dividend ($67 million) and share repurchases ($71 million) at an average cost of $8.45 per share.
We successfully closed the acquisition of XTO Energy Canada (“XTO”) on August 31st for net cash consideration of $1.7 billion, after working capital adjustments, resulting in quarter end net debt of $2.2 billion and a debt to EBITDA ratio7 of 0.8 times. Total credit capacity is now $3.1 billion providing us with significant financial flexibility going forward.
Whitecap drilled 84 (68.4 net) wells during the quarter including 60 (46.7 net) wells in Saskatchewan, 13 (12.0 net) wells in Central Alberta, and 11 (9.7 net) wells in Northern Alberta & B.C.
We highlight the following third quarter 2022 financial and operating results:
- Production Outperformance. Third quarter production of 145,798 boe/d included one month of the XTO acquired volumes and increased 30% per share compared to Q3/21. Outperformance on our base assets continued while execution of optimization opportunities contributed to production outperforming our internal expectations of 142,000 – 144,000 boe/d.
- Strong Funds Flow. Third quarter funds flow of $547 million or $0.88 per share was up 91% as compared to Q3/21. Funds flow per share was the second highest quarterly result in Company history, and includes the impact of one-time transaction costs of $11 million relating to the XTO acquisition and higher operating costs primarily related to third quarter Alberta power prices averaging over 80% and over 120% higher than Q2/22 and Q3/21, respectively.
- Return of Capital Focus. Dividends paid during the third quarter were $67 million or $0.11 per share, which were 22% and 137% higher on a per share basis than Q2/22 and Q3/21, respectively. Including $71 million of share repurchases under our normal course issuer bid (“NCIB”), total capital returned to shareholders was $138 million during the quarter.
- Balance Sheet Strength. Quarter end net debt of $2.2 billion represents a debt to EBITDA ratio of 0.8x and EBITDA to interest expense ratio7 of 55.2x, well within our covenant limits of not greater than 4.0x and not less than 3.5x, respectively. Our balance sheet is in excellent shape and provides significant financial flexibility to manage through commodity price cycles.
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Whitecap Wells Drilled in 2022
OUTLOOK
Integration of the XTO assets has been seamless given our existing expertise in the Montney. Since May 2021, we have brought on production 12 Montney wells with 4 more wells to be on stream by the end of the year, and we are expecting to drill another 23 (21.4 net) Montney wells at Kakwa in 2023. Our four-well 12-33 pad has now achieved an average production rate of 1,900 boe/d (36% liquids) per well over the first 120 days on production, while the three-well 14-13 pad has now been on for 270 days, achieving an average per well production rate of 1,660 boe/d (29% liquids)3. These results continue to exceed our initial expectations, further validating the high quality of inventory acquired.
We are currently operating 9 drilling rigs and we expect operational momentum to continue into the fourth quarter with average production increasing by 13% to approximately 165,000 boe/d (65% liquids). We now expect 2022 production to average 144,000 boe/d (70% liquids) which is at the high end of our previous guidance. Our expectations for 2022 capital expenditures of $670 – $690 million are unchanged which is expected to result in the Company reaching our $1.8 billion net debt milestone prior to year end at current strip prices8.
Our 2023 budget of $900 – $950 million and average production guidance of 170,000 – 172,000 boe/d (64% liquids) is unchanged and is expected to result in the Company reaching our final net debt milestone of $1.3 billion in mid-20238. Once we achieve our net debt milestone of $1.3 billion, we anticipate returning 75% of free funds flow back to shareholders which includes a targeted annual base dividend of $0.73 per share.
Whitecap Permit Summary
NEW ENERGY UPDATE
Whitecap’s New Energy team continues to advance our Fort Saskatchewan carbon hub with our partners in Alberta and our Belle Plaine/Regina carbon hub in Saskatchewan with spending on pre-FID (“final investment decision”) work, seismic and evaluation wells. In addition to these two projects, Whitecap, along with our partners, was successful in being selected by the Government of Alberta to pursue the development of two additional strategically located carbon hubs to transport and permanently sequester CO2 emissions captured from sources in Central and Southern Alberta.
- Rolling Hills Hub. Whitecap and AltaGas Ltd. (“AltaGas”) have partnered for a potential open-access carbon sequestration hub to the northwest of Calgary in Southern Alberta. The project has identified multiple CO2 emission sources in the area and includes facilities owned and operated by both Whitecap and AltaGas. The project’s next step is to commence a technical evaluation with a potential in-service date of 2026.
- Central Alberta Hub. Whitecap and Wolf Midstream have partnered for a potential open-access carbon sequestration hub east of Red Deer in Central Alberta. The hub will be connected to the Alberta Carbon Trunk Line and will leverage this existing infrastructure along with our subsurface knowledge in the area. The project’s next step is to commence a technical evaluation with a potential in-service date of 2027.
We will continue to advance these projects forward to provide safe and reliable transportation and storage solutions for industrial parties. We are confident that our technical expertise and experience operating existing carbon sequestration projects both in Saskatchewan and Alberta will provide the necessary support for industrial parties wishing to pursue decarbonization plans at an accelerated pace.
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 through the remainder of the year and into 2023.
Whitecap Energy News
