Q4 2020 Whitecap Resources Inc Earnings Call

Good morning, My name is Joanna and I'll be your conference operator today.

At this time I would like to welcome everyone to Whitecap resources fourth quarter and year end 'twenty 'twenty results conference call.

Lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

Like to ask a question during this time simply press Star then the number one on your telephone keypad.

If he would like to ask a question. Please press Star then the number two.

I would now like to turn the conference over to Mike <unk>, President and CEO, Mr. Graham Baker you.

You may begin your conference call.

Good morning, everyone and thank you for joining us. This morning, I'm joined by four members of our senior management team, our CFO Tom King as.

As well as Darin Dunlop, our VP of engineering.

Armstrong Vice President of production on operations and day, Mark Mckenna, Vice President business development information technology.

Before we get started the day I would like to remind everybody.

All statements made by the company. During this call are subject to the same forward looking disclaimer and advisory that we set forth on our news release issued.

Yesterday.

In 2020 of the energy sector experienced significant volatility in commodity price as a result of unprecedented demand destruction from the COVID-19 pandemic with rapidly changing market conditions. The whitecap team was focused on a strategy that protected the business our balance sheet and our liquidity, while also providing stable returns to our shareholders.

We prioritize the balance sheet by halting the drilling program in mid March to reduce capital outflows, reducing costs where possible.

Putting operating G&A as well as our monthly dividend the combined efforts of the entire whitecap team allowed us to deliver strong financial and operational results with continued emphasis on maintaining an excellent health and safety record both in the field and in the office.

Our 2020 annual average production was 68662 BOE per day on a disciplined capital program of $195 $9 million strong net backs generated funds flow of $433 9 million and allowed us to provide $87 3 million and dividend payments.

Shareholders, while improving our balance sheet, but approximately $110 million and debt reductions on a total payout ratio of 65%, including capital and dividend.

Despite the industry headwinds in 2020, our strong financial position top quality asset base and dedicated team of people put us in an enviable position to play a role in the consolidation phase of our energy sector.

With the announced strategic combinations of any oil resources and torque oil and gas now that both business combinations of closed we are in increasing our monthly dividend by 6%.

In essence 18 cents per share per year effective with the March dividend payable in April.

On the on the NAR transaction, we had expected no debt on closing and are pleased to advise the amongst the books were finalized there was a positive working capital balance of approximately $29 million, primarily due to higher commodity prices.

Production on the retail assets is trending slightly better than forecast on the torque transaction, we have been working very closely with their team on our first quarter drilling program.

So the capital Handoff and transition also was very seamless production on torque assets is trending as anticipated.

As part of our tour closing, we're very pleased to announce that Mary Jo case has now been added to whitecap sport.

A directors and she will serve as a member of the audit Committee and our corporate governance and compensation Committee.

Yes.

With the limited amount of capital spending in 2020, we saw a modest decline in proved developed producing reserves.

We're able to maintain one P and two P reserves at strong F DNA metrics, which Darren will be discussing in a few moments.

The health and safety of our employees and consultants has always been a priority at whitecap and even more so now that the pandemic environment, we are living through the policies and procedures put in place to minimize operational disruptions due to the COVID-19 were successful in 2020 credit to our vice President of health safety and environment like nervous.

Along with the entire team for the successful handling of our Covid pandemic. Thus far I'm also pleased to advise that our 2020 safety and environmental performance will accept was exceptional.

Now I'd like to pass on to Joel Armstrong to comment on some of our health safety and environment accomplishments in 2020.

Thanks Grant.

Whitecap, we've always placed health safety and environment is a top priority within the organization and in 2020, we tested our existing policies and procedures, while implementing new ones to protect all staff on maintaining our operations.

I'm pleased to report that in 2020, we posted a combined employee and contractor total recordable injury frequency rate of 0.26 lost time frequency rate of zero debt.

Great equals our best annual safety performance, and we will be among the best frequency rates posted an industry in 2020.

We reduced overall environmental release volumes from the previous year for a third straight year volumes were reduced by 36% year over year. This was achieved through an active and well resourced asset integrity program and the implementation of early detection systems.

We also reduced absolute emissions on emissions intensity for a third straight year and at the same time continuing to sequester approximately 2 million tons with Sidoti.

These outcomes combined to grow our net negative emitter status in 2020.

Lastly, despite a reduced capital program, we spent approximately $5 7 million on liability reductions in Alberta, British Columbia, and Saskatchewan we've.

Got it 84, well bores in 2020 and received reclamation certificates on 20 locations.

With that I'll pass it on and Darin and discuss our 2020 year end reserves evaluation.

Thanks Joel.

As grant mentioned earlier, we prioritize the balance sheet in 2020 by limiting capital expenditures to only 196 million on more than 50% decrease from 2019.

Despite the lower capital, we fully replaced our production and maintained our reserves balance of year over year.

For both the proven and proven plus probable categories.

Our total proved F DNA cost decreased 18% year over year to $14 74 per Boe.

The proved plus probable decreased 41% to $12 51 per Boe.

PDP up DNA was acceptable at $19 25 per Boe on.

Although higher than previous years due to abnormally low oil prices and subsequently reduced capital expenditure program.

The average price forecast used for our reserves valuation declined year over year by approximately $20 Canadian per barrel.

If you back out the impact of the decline in price forecast, our PDP conversion performance would have been in the range of approximately $10 a Boe.

Yeah.

Whitecap has assembled a very strong and predictable reserve base, which was increased by over 36% by the torque in nal transactions.

306, 497, and 703 million Boe on a PDP <unk> and <unk> basis.

Assuming an effective and effective date of December 31, 2020.

The combined F. DNA metrics would have been $14 25, 14, 49, and $11 73 per Boe on a PDP <unk> and <unk> basis.

These attractive metrics are in spite of the fact that one we have seen a significant rise in our equity price since the announcement of the acquisition acquisition, which impacted the purchase price.

And two we elected to take a very conservative approach with the Nal undeveloped reserves only booking 16 of the 662 gross drilling locations we have identified.

Our ongoing technical review over the last five months indicates that we will be able to increase the level of booking on L. A assets.

Stature in future years.

Our solid reserve base combined with our current on book inventory of over 2400, net drilling locations or will enable us to meet or exceed our financial goals for many years to come.

With that I'll pass it on to time to provide some color on our financial results.

Thanks, Darren 2020 was a very volatile year for crude oil prices with W. Ti trading as low as negative $37 63.

As high as $63 and 27 U S per barrel.

<unk> $39 40 in 2020.

And finally, the Canadian heavy oil differential traded between $4 34, and $23.26, averaging $12.60 U S per barrel for the year.

On the natural gas front equaled traded between $1 seven and $3 21, an average $2 on 11 cents Canadian per D. J.

Whitecap average realized crude oil price prior to the impact of hedges on tariffs was $42 19 per barrel in 2020 compared to $66 on 11th.

In 2019, a 36% decrease.

Our average realized natural gas price prior to the impact of hedges and tariffs with $2 39 per Mcf in 2020 compared to $1 95 in 2019 at 23% increase.

The royalty rate in 2020 of $13 four per cent was lower than the 2019 rate of 17, 9%, primarily due to lower crude oil prices.

Operating expenses were $11 84 per BOE in 2020 a.

A decrease of 4% from 2019.

The decrease in operating expenses in 2020 is attributed to cost reduction initiatives in response to the low commodity price environment and was partially offset by lower annual production volumes.

Transportation expenses in 2020 of $2 36.

We're consistent with 2019.

G&A expense of 82 per BOE in 2020, with 15% lower than 2019 due to onetime cost reduction initiatives.

The DDA rate of $14 23 per Boe compared.

Compared to $18 75 in 2019.

The decrease was primarily attributed to an accounting impairment charge of $2 8 billion in the first quarter relating to significant decreases to forecasted benchmark commodity prices.

At year end as commodity prices improved in addition to reserve adds and certain seek to use were identified as indicators of impairment reversal and we recorded an impairment reversal of $432 2 million in the fourth quarter.

Approximately 60% of the impairment reversal is due to pricing and 40% due to increased reserves.

Stock based compensation expense of $18 1 million was recorded in 2020 compared to $16 7 million in 2019.

The increase is attributed to $5 5 million realized loss on total return swaps related to settlements in 2020 <unk>.

Compared to <unk> 2 million realized gain in 2019.

This was partially offset by a $3 3 million increase in unrealized gains on total return swaps, resulting from new contracts entered into the second quarter of 2020 and the subsequent increase in share price in the fourth quarter of 2020.

Funds flow for the year with $433 9 million per $1 six per share, which generated a total payout ratio of 65%, which is after capital investment and dividends paid to our shareholders.

Whitecap balance sheet remained strong with year end net debt of 1.08 billion on total capacity of $1 77 billion.

Our debt to EBITDA ratio was two two times and are even if the interest ratio was 111, two times, both well within our debt covenants.

I'll now pass it onto Grand for comments on 'twenty, one and his closing remarks.

Thanks, very much time, it's been an exciting and energizing start from 2021 with a busy first quarter drilling program underway, along with integrating the new staff on assets within whitecap.

But we're excited about the 2021 budget at this point is set up at an average production rate of approximately 100000 Boe per day on capital investments of $280 million to $300 million.

Our budget using $60 <unk> and $2 50 per GJ eco generates approximately $810 million of funds flow with free funds flow of approximately $520 million and a total payout ratio of less than 50% at 49%. Despite.

Despite the recent surge in commodity prices, we have elected not to increase our capital spending plans at this time and maintain our 2021 capital guidance at $280 to 300 million.

We have now fully integrated that anyhow and torque assets into our budget strategies and will look to rapidly move forward on optimizing the returns from these assets within our broad and exciting portfolio of opportunities.

Ultimately, 30% of our post Q on drilling program will take place on acquired Nal and torque assets.

The base torque in any oil producing assets continue to perform at or above our expectations at the time of acquisition.

So the current strong pricing environment continue we will further consider our options to accelerate production per share growth or increase.

<unk> increased returns to.

Capital to shareholders.

We are prudently layered in both crude oil and natural gas hedges for the strength in both commodities.

We're now at 41% hedged in the first half of 2021 and 36% in the second half of 2021 for crude oil and 44% hedged in the first half of 2021 and 36 in the second half of 2021 for natural gas.

With our prudent hedge positions.

Even at $40 <unk>, we are generating discretionary funds flow of $123 million after capital and after dividends.

We continue to remain disciplined and we'll focus on balance sheet strength and significant free funds flow generation, which will allow us to end 2021 with net debt of approximately $1 billion on total capacity of $2 billion in.

On debt to EBITDA ratio of one one times.

We look forward to providing future updates on the 2021 drilling program the integration and optimization of the acquired assets as well as the opportunities identified by our new energy team.

Our team is at Whitecap is energized and excited for opportunities are in front of us.

As we advance through 2021 and into the future.

On behalf of our management team our board of directors I would like to thank you.

On the shareholders and all stakeholders for your interest and support of Whitecap.

With that I will turn the call over to Joana for any questions.

Thank you.

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

At this time gentlemen, with appear to have no questions registered you May proceed.

Well, thanks, very much trying to as we completed the quarterly earnings call I would like to thank you for your continued support.

Whitecap and wish you the best Hills through this disruptive Covid environment, we ought to also want to welcome all of the new NGL and torque staff to our operations and look forward to working with you as we proceed into the future.

All of our shareholders happy investing have a great day. Thank you.

Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today.

Again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.

Yeah.