CALGARY, AB, Oct. 28, 2021 /CNW/ – Whitecap Resources Inc. (“Whitecap” or the “Company”) (TSX: WCP) is pleased to report its operating and unaudited consolidated financial results for the three and nine months ended September 30, 2021.
MESSAGE TO SHAREHOLDERS
Whitecap is pleased to report another exceptional quarter of operating and financial performance. We achieved average production in the third quarter of 115,935 boe/d which was 1,935 boe/d higher than our forecast of 114,000 boe/d as both our base production and new well results continue to outperform our expectations. We remain disciplined on capital investments with only $135 million invested in the third quarter compared to our forecast of $165 million.
Record quarterly funds flow of $294 million ($0.46 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.
We highlight the following third quarter financial and operating results:
Operational Excellence. Third quarter production of 115,935 boe/d (75% liquids) was 12% 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).
Whitecap Resources Permit Last 12 Months
Significant Free Funds Flow. Record funds flow of $294 million ($0.46 per share) was 59% 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% higher than the prior year quarter and 11% higher than the second quarter.
Increasing Cash Returns to Shareholders. Whitecap paid $31 million ($0.05 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 ($0.14 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% to $0.0225 per share.
Consolidating Core Areas. Whitecap closed the acquisition of a private company in Southeast Saskatchewan for $67 million. The acquisition adds approximately 1,600 boe/d (94% light oil) and 23 net sections of land (99% 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 ratio of 1.2x at the end of the third quarter and is expected to be 0.9x 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.
OPERATIONS UPDATE
Whitecap has significantly increased its production by 74% to 115,935 boe/d in the third quarter compared to 66,681 boe/d in the prior year quarter through our strategic acquisitions which closed in 2021. Our 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 BC
The most exciting developments in this business unit are associated with our Karr and Kakwa Montney assets. Since Whitecap took over operatorship of the Kakwa asset, we completed and brought on production 4 (4.0 net) wells with very encouraging results. The wells averaged 1,195 boe/d (47% liquids) per well over the first 30 days on production which includes a post frac clean-up period and in aggregate are currently producing 5,300 boe/d (47% liquids).
Average well costs of $10 million for these four wells are lower than our original expectations, with our 2022 budget incorporating a 5-10% improvement from our original estimate of $10.7 million per well and the potential for further improvements.
Our 02/13-1 Montney well at Karr, which was completed with an optimized frac design, has produced 275 Mboe (63% liquids) in the 203 days it has been on production. We will be spudding a 4 well pad at Karr offsetting the 02/13-1 well in the third quarter of 2022.
This business unit also contains our Charlie Lake assets in Northwest Alberta. The 2021 program included 2 (1.7 net) development wells and 1 (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% liquids) per well on average capital cost per well of $4.4 million.
Central Alberta
Our Central Alberta business unit contains more mature assets, and diligent reservoir management and development design have improved capital efficiencies in this area. We recently drilled a conceptual horizontal well to initiate redevelopment into an extension of our Garrington area. The well was drilled with an advanced horizontal well bore and stimulation design and has significantly exceeded our expectations with an IP(60) rate of 682 boe/d (90% liquids) which is 42% above our budget expectations. We have identified 50 (31.6 net) analogous drilling locations, primarily two-mile ERH wells, in this area.
We also drilled 2 (2.0 net) two-mile ERH Cardium oil wells in the Kaybob/Rosevear area on lands acquired in 2021. We modified the wellbore placement and stimulation based on our advanced reservoir modelling and experience. These wells have recently been brought on production, with initial results indicating that our modifications were effective. Our redesign has resulted in a 25% reduction to drill and complete costs compared to previous wells.
Western Saskatchewan
The results from our 2021 Viking program have exceeded our expectations as our team continues to use geological review and recovery enhancement techniques to improve, and add to, our drilling inventory. We drilled 37 (32.5 net) Viking wells to date in 2021, all of which are ERH’s. On an IP(180) basis, we have outperformed our budget expectations by 34% so far this year while maintaining capital costs.
In Southwest Saskatchewan, we drilled 27 (20.5 net) wells year to date, highlighted by significant cost improvements from our Lower Shaunavon program. Average well costs since we entered the play in 2018 have decreased approximately 30% to $1.2 million and spud to rig release times have decreased approximately 30% to 5 days with the potential to further reduce to $1.0 million per well and 4 days, respectively.
Eastern Saskatchewan
The integration of acquired assets in Southeast 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% liquids) which is double the rate of our initial dual leg budget expectations.
At Weyburn, we made another step change in the design and optimization of our CO2 enhanced oil recovery (“EOR”) development. Year to date, we drilled 6 (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 our budget expectations for a CO2 EOR infill well. As a result, we increased our long-term production forecasts, incorporating the improved results into future design of CO2 flood development programs.
OUTLOOK
The continued operational success and recent corporate activities are advancing Whitecap towards our short and long-term targets, within our stated priorities of balance sheet strength, modest growth (3-5%) and sustainable and growing return of capital to shareholders through dividends and share buybacks.
We are well on track towards achieving our 2021 average production of 111,000 – 112,000 boe/d (76% liquids) on development capital investment of $425 – $435 million, putting us in a strong position to achieve our 2022 average production of 121,000 – 123,000 boe/d (73% liquids) on capital spending of $470 – $490 million.
We closed the Weyburn royalty sale for $188 million on October 26, 2021, further solidifying our balance sheet strength and our expectation of reaching our net debt target of $1 billion by year end 2021. Our balance sheet is in pristine condition with an expected debt to EBITDA ratio of 0.9x at year end 2021.
In addition to recently increasing our base monthly dividend by 38% to $0.0225 per share, we have committed to returning 50% of 2022 discretionary funds flow back to our shareholders through further dividend increases and/or share buybacks. We will direct the remaining 50% towards our balance sheet to provide increased financial flexibility for continued advancement of our business through targeted acquisitions and/or New Energy initiatives to enhance total shareholder returns.
We are 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 we move 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 our assets.
On behalf of our management team and Board of Directors, we would like to thank our shareholders for their ongoing support and look forward to providing updates as we progress through the remainder of the year and into 2022.
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