Message to Shareholders
Whitecap is pleased to report on our very strong first quarter 2021 update financial and operating results with record production of 95,828 boe/d, 5% higher than our original forecast of 90,000 – 92,000 boe/d on capital investments of $119 million, which was 7% lower than our forecast of $125 – $130 million. The outperformance continues to be driven by strong operational execution and the seamless integration of both the NAL and TORC combinations which closed on January 4, 2021 and February 24, 2021, respectively. Our first quarter funds flow netback was healthy at $21.78/boe compared to $17.83/boe in the fourth quarter of 2020, an increase of 22%. This allowed us to generate free funds flow of $69 million, even in a quarter where we anticipated having the highest level of capital spending in 2021.
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WHITECAP FIRST QUARTER 2021 UPDATE
- Achieved record production. Record production of 95,828 boe/d compared to 73,452 boe/d in the first quarter of 2020, an increase of 30% on an absolute basis and 3% per share. Compared to fourth quarter 2020 production of 63,783 boe/d, the increase was 50% on an absolute basis and 18% per share.
- Capital execution and discipline. The record production was achieved through an active first quarter drilling program and the closing of the NAL and TORC combinations. We invested $119 million which included drilling 53 (43.9 net) wells of which 38 (33.0 net) wells were in our Western Saskatchewan business unit, 6 (4.8 net) wells were in our Central Alberta business unit, and 9 (6.1 net) wells were in our Northern Alberta & British Columbia business unit.
- Generated strong funds flow. High funds flow netback of $21.78/boe resulted in funds flow of $188 million ($0.36 per share fully diluted) compared to $132 million ($0.32 per share fully diluted) in the first quarter of 2020, an increase of 42% on an absolute basis and 13% per share. Compared to fourth quarter 2020 funds flow of $105 million ($0.25 per fully diluted share), the increase was 79% on an absolute basis and 44% per share.
- Return of capital. In conjunction with the closing of the TORC combination, the Company increased its dividend by 6% to $0.181 per share annually. Total dividends of $24.2 million paid to shareholders in the quarter resulted in a conservative basic payout ratio of 13%.
- Sustainable business. Discretionary funds flow (after capital investments and dividend payments) of $45 million compared to negative discretionary funds flow of $42 million in the first quarter of 2020.
- Balance sheet strength. Net debt of $1.45 billion on total credit capacity of $2.0 billion results in approximately $0.6 billion of unused capacity, providing for significant financial flexibility. The Company’s credit facilities have two financial covenants being debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) not exceeding 4.0 times and EBITDA to interest not less than 3.5 times. Whitecap’s first quarter debt to EBITDA ratio was 1.8 times and EBITDA to interest ratio was 17.3 times. For additional details refer to Note 10(a) “Bank Debt” in the unaudited interim consolidated financial statements for the period ended March 31, 2021.
Subsequent to the quarter end, as press released on April 5, 2021, Whitecap announced the acquisition of Kicking Horse Oil & Gas Ltd. (“Kicking Horse”) which includes current production of 8,000 boe/d to be optimized at 18,000 – 19,000 boe/d in 2022 and highly economic Montney inventory of 575 (362.0 net) drilling locations. The acquisition further strengthens the sustainability of our dividend growth model through significantly enhanced per share metrics including funds flow, free funds flow and production. The acquisition is expected to close on or before May 31, 2021. Data source Whitecap Resources first Quarter 2021 update
New Energy
Our New Energy team is hard at work identifying new and expansion projects on our existing lands as well as exploring new opportunities that will best utilize our technical expertise and experience, including Carbon Capture Utilization and Storage (“CCUS”). Currently, we are sequestering approximately 2 million tonnes of CO2 per year which represents half of the 4 million tonnes per year of CO2 sequestered in Canada on an annual basis. We have existing infrastructure capacity to increase CO2 sequestered to over 4 million tonnes per year.
For the projects currently in operation (Joffre and Weyburn), we have over 80 million tonnes of remaining pore space capacity. We have identified a total of 250 million tonnes of pore space capacity for CCUS on our existing lands and anticipate with the initiatives we have underway having significantly higher capacity in the future. In addition, we have more than 20 years of CCUS experience and have the facilities and infrastructure that provide a strong foundation for Whitecap to quickly increase our sequestered volumes to assist other industry partners to find storage solutions for CO2 emissions.
The Joffre CCUS project was acquired as part of the NAL combination, and we have recently had significant success increasing the volume of CO2 being sequestered at this project that would otherwise be released into the atmosphere. In 2020, the project sequestered 21,500 tonnes of CO2 and under Whitecap’s management, our team was able to identify efficiencies which improved the current annual rate of sequestration to approximately 34,000 tonnes with the potential to further increase it to 45,000 tonnes of CO2 per annum.
We have also identified additional CCUS expansion opportunities that are currently being evaluated, and we are actively working with federal and provincial governments and industry partners to advance both new and existing projects.
Whitecap Outlook
We have had an exceptional start to the year and anticipate this momentum to continue in the second quarter with average production of approximately 112,000 boe/d. As we are now in spring break up, our capital spending in the second quarter will be significantly lower than the first quarter which is anticipated to be $55 – $60 million. This will allow us to generate significant free funds flow and potentially achieve our targeted $200 million of debt reduction by the end of the second quarter.
We remain constructive on crude oil prices as rising demand is driving supply scarcity premiums which we anticipate will result in higher prices in the back half of this year and into 2022. Despite our constructive outlook, we will remain disciplined on our capital plans and will continue to prioritize return of capital to our shareholders through dividend growth and further debt reduction. We are on track to achieve our 2021 guidance for average production of approximately 108,000 boe/d (76% liquids) on capital spending of $355 – $375 million, and we look forward to updating our shareholders on our progress throughout the year.
Oil & Gas News
Whitecap Well Permits & Wells Spud
The oil and gas industry is highly regulated by Government agencies. One of the responsibilities is to approve well permits. A well permit is the intent of an oil & gas operator to drill a new well. Well permits include oil wells, gas wells, water wells and more..
Spudding is the process of beginning to drill a well in the oil and gas industry. … After the surface hole is completed, the main drill bit—which performs the task of drilling to the total depth—is inserted and this process can also be referred to as “spudding in.” Source Whitecap Resources first Quarter 2021 update
Whitecap Operations Area Q1 2021
Viking is an established oil play that has produced oil and gas from conventional reservoirs since the 1950’s. From a geological point of view, the play has been delineated by more than 8,000 vertical wells. This is a low risk light oil resource style play with a large amount of original oil in place that is second only to the Cardium and has one of the lowest recoveries estimated at ~4%. The formation covers a large part of western Canada and extends over most of Saskatchewan. It is mostly gas bearing with oil production restricted to west-central Saskatchewan in the Kindersley-Dodsland area.
Midale operating area is located near Weyburn Saskatchewan. It began producing in 1953 and is forecast to continue to produce for an additional 50+ years. It has over 730 million original oil in place (“OOIP”) and its low decline production is supported by both water and CO2 enhanced oil recovery (“EOR”).
Cardium Play has been one of the largest oil fields in the Western Canada Sedimentary Basin with production history of almost six decades. The areas with highest liquid content are Lochend and East Pembina, the highest initial production is typically encountered in Lochend, Willesden Green and Ferrier areas.
Data Source – Whitecap Resources first Quarter 2021 update
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About Whitecap Resources
Whitecap Resources is a Canadian public oil company based in Calgary, Alberta, with operations in Alberta, Saskatchewan, and British Columbia. In 2018, it produced 74,415 barrels of energy per day, with 85% of production consisting of crude oil and other liquids. It is listed on the Toronto Stock Exchange.