Q4 2019 Earnings Call

And the reserves evaluation conference call no. That's all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and that's recession. If he would like to ask question. During this time simply press Star then the number one on your telephone keypad and if you would like to withdraw. Your question. Please press Star then number two and I would like to turn it over.

Two whitecaps, President and CEO Mr. Grant bigger Heim. Please go ahead.

Thank you.

Morning, everyone and thank you for joining us I'm joined by three members of our senior management team, our CFO torn carry as well as different.

You have engineering and Joel Armstrong VP operations and productions before we get started today I would like to remind everybody.

But all statements made by the company. During this call are subject to the same forward looking the disclaimer and advisory that we set forth in the fourth quarter and you're in news release issued earlier this morning.

We had an excellent here in terms of <unk> operational performance as well as being able to navigate through a volatile year for crude oil prices and Canadian differential pricing.

Original capital budget was set on December 18th 2018 at $425 million to $475 million.

And every average production of 70000 to 72000 Boe per day.

As a result at our strong organic operating results were able to reduce our capital down to $400 million.

But no change to our average production for the year.

The final Charlie for the year included achieving annual average production of 71050 <unk> per day.

One development capital spending of $404 million significantly below what was initially contemplated total capital, including net acquisitions was $407 million compared to $518 million in the prior year.

For program allowed us to improve our balance sheet strength $503 million to $1.19 billion [noise].

We were also able to enhance returned to shareholders by increasing the dividend by 5.6% effective with me and they dividend and purchase 4.6 million shares through the normal course issuer bid during the year [noise].

With respect to our money program. The first non operated well was drilled and completed in 2019 and on production on December the fifth the inflow from the first well, which was drilled drilled as a step out by or joint venture partner is as expected water cuts on the wells are still stabilizing and are consistent with the wells in the area.

[noise] well was far this removed from existing test so increased variability in results are expected.

Our first operated wells drilled uncompleted and we anticipate this well the onstream by mid March [noise].

Our second operated well was drilled with completion expected after break out. They also participated in a non operated well which is currently drilling.

Limited results today are within the range of expectations are we look forward to providing updates as the program progresses.

He will continue to prioritize both return on invested capital as well as return.

Oh capital to shareholders through dividend and opportunistic share buybacks.

He component of our strategy is to maintain a strong balance sheets and liquidity position and to manage commodity price risk [noise].

As I mentioned earlier net debt.

We ended the year was 1.19 billion [noise], resulting in 580 million unutilized capacity of our existing 1.77 billion dollar bank line, providing us with significant amount of financial flexibility.

We continue to extra execute on our hedging strategy.

Mitigate risk and now have 47% upper crude oil production hedged in the first half of 2020 and 40% hedged in the second half a year.

Tom will provide more details tour hedged portfolio later in the call.

Environmental social and governance issues remain topical not only in the investment community as well as well with our board of directors in 2019, we created the board level sustainability committee focused on evaluating risk and shrinking strengthening disclosure of our admissions and related factors [noise].

We believe that are used to performance. It's competitive he is a competitive advantage for wake up having ownership in operating one of the largest carbon capture utilization in storage projects in the world.

In this project in Weyburn Scotch when we start 1.8 million tons per year Seo to annually, which is more skewed to them, we admit corporately on an annual basis [noise].

We anticipate publishing or biannual sustainability report by mid year, 2020, which will include additional opportunities to improve carbon efficiency in the future.

Ill now pass on.

Two Joel Joel for comments on our he or she accomplishments in 2019 wells [noise].

Thanks, Graham [laughter] on health safety environment 2019 was another strong year for the company remain firmly committed to ensuring or assets are developed in a manner that minimizes adverse impacts to the environment at the same time, ensuring our employees and consultants or in a safe workplace.

In 2018, we posted a combined employee and contractor total recordable injury frequency rate of 0.61.

This rate is within our average range for the past three years, and well below oil and gas industry averages.

The total number of pipeline failures decreased for a third consecutive year well the same time growing our inventory of active pipe.

This trend speaks to a success for us it asset integrity team and their initiatives performed throughout the year.

[noise] clearly team is the fifth consecutive year, where we were able to reduce emission intensity and she and achieved significant reductions in both flared and bandit vented gas intensity.

The prior year, we safely stored more skewed to underground at waiver is part of our enhanced oil recovery process. Then we emitted from all operations, making white cap, the only intermediate oil and gas company with net negative direct and indirect initials.

Lastly, we executed on an aggressive asset retirement program spending $9.4 million on liability reduction in Alberta, British Columbia Alpha Scottrade.

We increased the number of wells abandoned by 20% in 2019 or 28 team and we'll continue to advance our asset retirement program going forward.

With that I'll pass it on a daring to discuss our year end reserves valuation.

Thanks Joel.

2019, with another strong year for white cap as we continue to focus on organic reserves growth.

We were able to successfully replaced production and increased reserves across all categories, while only spending 60% of our funds flow.

Our PDP, one Pete and two P. Reserve addition, replaced 100% hundred 33% and 169% of production respectively.

PDP one P M P reserves.

For debt adjusted share increased by seven nine and 11% respectively.

We achieved these increases not very cost effective manner, what the PDP <unk> DNA caught up $14.45 could be OE, resulting in a very profitable PDP recycle ratio of 2.1 time.

White cap is focused on maximizing our cost efficiency <unk> inorganically converting undeveloped reserves to cash flow.

A level of this efficiency as measured by PDP at MD and ours has been very consistent over the last five years. It has ranged between $11.25 and $14.46 per be we the averaged $13 in 13 cents per view we.

Which has resulted in average PDP we recycle.

Ratio of 2.3 times over this period.

We like the measure of PDP up Andy as it removes the subjectivity of undeveloped reserve booking practices and the associated changes in future development costs.

We believe PDP FNB and the associated recycle ratio is a true measure of our ability to economically support our business model and the dividend in the long term.

Our total proven F. DNA costs were $17, a 95 cents per be elite and R to P were $21 in six cents per be we generating recycle ratios, a 1.7 and 1.4 times respectively.

In addition to Pdps. Indeed, we also maintain an emphasis on one p. and Tupi grills.

This growth supplies, the feedstock for our PDP reserves and associated fund flow growth.

Over the last five years, we have grown our one p. into P. reserves by 134, and a 131% ought to be a week basis on an oil basis. This jumps to 167% for one be and 158% for two Pete.

This is more than kept pace with our PDP grown ensuring ample feedstock for us to sustainably grow fund flows.

The 2019 reserves evaluation includes expanded a aro liability as recommended by Cody.

The expanded definition of they are all now includes suspended in service wells.

Operating system.

Facilities and surface land development.

The 2019 Mcdaniel report included Arrow costs up 924.1 million Undiscounted or 114.9 million when discounted at 10%.

This is 167 million dollar increase over 2018, or just 26 million when discounted at 10%.

Our resulting total proved plus probable reserve value discounted at 10% now 6.3 billion.

With that I'll pass it onto tonks provide some color on our fan financial results.

Thanks, Darryl today, it will compare results from fourth quarter 2019 to the third quarter 2019.

Fund flow in the fourth quarter of 19 increased 20% 184.5 million compared to 154.3 million in previous quarter.

14.5 million of the increase was attributed to higher production volumes and 15.7 million was due to higher cash net back.

Hi, this pull for share increased 22% to 45 cents per share compared to the previous quarter.

Net loss for the quarter was 203.9 million or 50 cents per share the net loss during the quarter was due to a noncash accounting impairment expense of 296.9 million in our west Central Alberta, and west Central scattering business either.

The noncash accounting impairment expense was primarily due to the engineers price deck decreasing at December 31st 2019 compared to December 31st 2018.

On average U S T W. <unk> decreased by approximately 7% and Canadian MSW.

Crude oil prices decreased by approximately 6% across all years on the reserve engineers price deck.

I would expect going forward any significant changes to the engineers price that would result in additional impairment expense or reversal of previous years expenses.

Excluding the noncash accounting impairment expense.

Net income was 93 million for 23 cents per share.

[noise] Whitecaps balance sheet remains strong with year end net debt at 1.19 billion on total capacity of 1.77 billion our debt to EBITDA ratio was 1.6 times in 2019, a decrease of 4% compared to 2018.

On a risk management contracts for calendar year 2020, we have W.T.I. costless collars with a notional amount of 20000 barrels per day at an average price in Canadian dollars $64.39 by $83.06.

And a swap with the notional amount to 2000 barrels per day for the first half the year at a fixed Canadian price of $80 at 93 cents.

For further details and outstanding hedges referred to note five on our financial statements.

With respect to 2020, we're expecting to spend development capital of 350 to 370.

370 million of which 150 to 170 million will be spent in the first quarter.

Q1 production is expected to average between 71000 to 73000 Boe per day.

We're closely monitoring the recent drop in oil prices. So sure that are spending profile for the remainder of the year as well within our funds flow.

As a result of a current risk management program, our shallow decline assets and a strong capital efficiencies, we're able to withstand near term price volatility without altering our capital budget for the year.

Should oil prices remain low for an extended period of time, we will look to adjust their capital spending profile for the balance year.

We feel that we're well positioned in this environment with a cost of debt fixed and termed out a strong balance sheet and a dedicated and motivated team to continue to further enhance the return profile for white cap shareholders.

We look forward to making advances through 2020 and reporting back to you with our progress.

This concludes our remarks and we'll be happy to answer any of your question I will now turn it over to the operator. Thank you ladies and gentlemen, I stated if you don't have a question. Please press star followed by one on your Touchtone phone you want to hear eight suite on prompt acknowledging your request and should you wish to withdraw your question. Please press star followed by two.

And we do after that if you using a speakerphone. Please lift your handset before pressing any Keith.

Please go ahead and press Star one now if you had a question.

And your first question will be from Luke Davis RBC. Please go ahead.

[noise] Hey, good morning, guys just relating to the acquisition in Q1, just wondering how much incremental Oh, you would have taken out with that.

[noise] loans the numbers.

Right off the top my we'll get back to your thoughts nuke.

Sure well I'm not sure about.

And then just as a follow up wondering if you can comment broadly on what you're seeing in M&A market, and where you guys might see opportunity going forward.

[noise] Yeah, it's a ton here Luke you know I think you know our focus really is to look at transactions that complement our existing core areas here and similar to what we did with the this small acquisition for 16.2 million.

In the first quarter as well as the joint venture transaction that we did in the Montney. There those are the type of styles of transactions that we would look to focus on in 2020 here [noise].

Great. That's me thanks.

Thank you.

As a reminder, ladies and gentlemen, if you do have any questions. Please press star followed by one idea touchtone phone.

[noise] and at this time gentlemen, we have no other questions registered please proceed.

[noise] you want to thank each year for your interest in white cap in the progress Weve made to date, we understand that investing in the energy industry at this time.

He has been challenging.

You should know that we will continue to do everything we can to improve the returns for shareholders and an environmentally and socially responsible manner.

You have all the best for the day in the year. Thank you.

Thank you, Sir ladies and gentlemen, this doesn't do you conclude your conference call for today. Once again, thank you for attending and at this time, we do after two please disconnect your lines.

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