Q3 2021 Whitecap Resources Inc Earnings Call

Continue with production, averaging 118000 Boe's per day in the fourth quarter and averaging 111700 Boe's per day for the full year for 2022, we are forecasting mid case average production of 122000 Boe's per day on capital spending of $480 million.

I will pass it back to grant for his closing remarks.

Thanks, very much John.

With the strategic acquisitions closed earlier in the year, we are now fully integrated and the rate of change for the better on the acquired assets, both technical and financial.

Has been remarkable as a reminder, our purchase price for the <unk> transaction was $155 million and through the first nine months of 2021, the assets have generated $150 million of operating income and are expected to generate $260 million annually based on our current strip pricing.

The torque assets have also generated over $200 million.

Of operating income in the first seven months and are expected to generate $360 million of operating income annually relative to the purchase price of approximately $1 billion.

We must also mention that we're very excited about the kicking horse asset as we have increased production by 50% to this point from 8000 BOE per day to 12000 Boe per day currently.

Our plan in 2022 is to ramp up production over the course of the year and expect to maintain average production.

In the 18% to $19 per day range and beyond that on strip prices. We currently project that this asset will generate $200 million.

Operating income in 2022, while spending $85 million of capital expenditures.

With regards to the new energy initiative, we put in place in late 2020.

We recently announced memorandum of understanding with Federated co op to use our carbon capture utilization and storage expertise and enhanced oil recovery project at waiver to assisting federated cooperative in achieving their emission reduction targets.

The waiver and asset continues to not only be very strategic as we look to advance solution for reducing greenhouse gas emissions, but also.

It's been a very significant contributor of free cash flow for Whitecap, we purchased the property in December of 2017, and since then have generated operating income of $600 million on capital expenditures, including Seo to purchases of $170 million <unk>.

Including the royalty sale proceeds of 188 and $1 $188 million, we recovered over 80% of the purchase price and still have significant upside remaining and the asset has a very low decline of less than 3% and a long producing reserve life index of 17 years.

The memorandum of understanding with Federated club as part of a larger strategy to develop a carbon hub and the greater Regina Saskatchewan area with the longer term potential as a hydrogen hub, we look forward to updating our shareholders on this.

Other new energy initiatives as they progress.

White cap strategy of moderate growth, 3% to 5% per year per share enhanced by strategic acquisitions has been very successful to date and we will continue to look for opportunities to enhance shareholder returns.

Setup for Canadian energy and in particular White count has not looked as strong and you're in many years with <unk>.

Just slightly over $80 in April.

At over $4 per GJ.

And when combined with weaker Canadian dollar low interest rate environment strong capital efficiencies. This results and records record free funds flow.

On strip prices White cap in 2022 is generating almost $900 million.

Discretionary free funds flow. This is after our capital program of $480 million and our base dividend of $171 million as previously communicated we.

We are committed to returning 50% of our 2022 discretionary funds flow to our shareholders, but the remaining 50% being allocated.

Towards our balance sheet to build dry powder for disciplined and targeted acquisitions as well as new energy initiatives.

We remain both optimistic and excited about <unk> future the returns to be generated for our shareholders and look forward to updating shareholders on our progress.

On behalf of our management team.

Our board of directors, we would like to thank our shareholders for your interest and support of Whitecap resources with that I'll turn the call over to Jessica for any questions you might have.

Thank you.

Ladies and gentlemen.

If you do you have a question please press star.

Followed by one on you touched on the phone.

We're here three tone prompt acknowledging your request and should you wish to withdraw your question simply press Star followed by Q, We do ask that if you're using a speaker phone. Please lift the handset before pressing.

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

Your first question is coming from Patrick O'rourke with ETV capital markets. Please go ahead.

Oh, Hey, guys. Good morning, Thanks for taking my call.

And question here.

Just wanted to ask you you know in terms of the deal.

Memorandum of understanding that you guys have with Federated co op sort of what the opportunity set on the cost.

Offset side is there that you're thinking about like what the quantum could be for investors and then.

As I as I understand it right now your your carbon injection you don't receive an offset credit for that is there a pathway to receiving credits there or something you can do with the new energy.

Initiatives to offset some of the risk in terms of potential rising carbon tax that we have here in Canada.

Obviously I cant on this Patrick but it's a complicated it ends up being quite a complicated answer number one just regarding the memoranda of understanding.

What we're waiting for.

To better understand commercial and economic terms is what the clean fuel standard is going to look like in Canada.

Where the.

Investment tax credit has to be established by the federal government. So as you know as our shareholders would know.

We pay for our <unk> at this particular time, we do not receive carbon credits on the other sides.

What youre referencing is offset credits.

What we're looking for is what the investment tax credit market will look like.

As well as what we're trying to do is minimize our cost of buying cotwo into the future. We have two contracts right now that expire in late 'twenty 2024, and one in 2026. So the two components are offsetting the cost with lower or no cost for taking Cotwo and then.

What is the carbon credit market look like and what the federal government are going to do as far as offset credits as they look to us escalate carbon tax from $40 a ton today to $170 a ton.

Is that going to look like on the credit side. So at this time.

We're just we think there is a large amount of upside and we also believe that the low.

The most efficient pathway to a lower carbon economy is through carbon capture although we have the technology on so we're waiting anxiously as I think most Canadians are as to what the.

The carbon offset market will look like going forward.

Yeah, I think we all are.

And then just maybe shifting gears a little bit here really impressive results at <unk> on the kicking horse wells there.

Thinking about the 43% liquids.

Kicking off of that are you guys able to breakdown.

How much of that is really high value condensate, obviously corn prices are extremely strong right now we have them at a premium to even Brent.

And then what percentage or sort of marketing you're doing on the NGL side of that 43%.

As we think of that is developing.

Yes, it's Darren here.

Yeah. The majority of the of that liquid volume is the field condensate.

I would say over and over 90% and.

As for the marketing of it I'll pass it on the ground.

Oh sure.

Yeah, what we're doing is marketing.

This particular time into the market centers in Alberta.

And then we're looking as we grow our production, we're looking for longer term arrangements.

There were in the market actively on at this particular time so.

Because it is such a new.

Ventura for US there, both the car and the <unk> side.

We're now getting substantial enough to be able to do longer term contracting for liquids.

Okay, great. Thank you very much.

Okay.

Thank you.

Ladies and gentlemen, if you do have a question. Please press star followed by one on your Touchtone phone.

Your next question comes from Joseph Zoster Shuster Energy Research. Please go ahead.

Good morning, Grant and fellows and congratulations on a very nice quarter on the integration of the acquisitions [laughter] great timing on that.

In this quarter you did.

Corporate acquisitions.

What's your feeling now on M&A.

A seller's market and you really have to be choosy.

And things that really fit into yours would you see economics that are upside.

Why not look at buying more land Israel land available in all your core areas I wouldn't assume land prices are very cheap and the governments will be pretty happy.

To put them up.

I'll have more revenue coming in from that side of the coin.

Yes, Thanks, Joseph and I appreciate the acknowledgement of the transactions we have done before just on M&A.

Our belief is that.

When we're looking at M&A opportunities, we always look at it.

Not the current price environment, but we look at what the three to four year price environment and our expectation of that what that would look like so at this particular time, it's always the I call. It the magic of crossing over between buyer and seller expectations.

Many sellers I expect.

The current pricing environment and.

The current pricing environment to us is actually out over a three to four year period of time that we expect it to be so.

You had referenced about.

Land prices and that goes back into the strategy around acquisitions.

We have a very strong inventory of opportunities we can capitalize on all the opportunities. We have now so it would have to compete.

On the acquisition side hits the.

They compete with our existing inventory of opportunities. So what we can do with those two.

<unk> forward and has to be a substantial amount of work, we get greater returns for our shareholders and demonstrates who will be more sustainable longer term as far as land prices land prices have come back quite markedly.

And.

We look at more specifically in the deep basin and up into the northern Alberta are very strong prices. So that's why I answered that in that context, as we don't have to chase land sales.

We will participate if they are in and around our existing assets, but we do not have to.

Chase prices up around because we have strong enough inventories in each one of our areas.

Okay.

Now for somebody who's not informed on this.

Once we know what the carbon credits are going to be.

Do you see this as something that gives you opportunities in new areas in Western Canada for storage.

It's something that you could take into eastern Canada into the states or given your tactic that could produce how how far of a range of business should we be looking at just in Saskatchewan, Alberta or something.

Even larger than that as you take the technologies and skill sets.

So we're.

Yeah, no just regarding carbon capture I think it is principally focused at this time in western Canada.

And what's interesting to note.

And Eastern Canada, I am sure. It may have some opportunities is not understood.

Understood geologically.

As Western Canada is so we have a very good understanding of where the partially depleted reservoirs are we have an understanding where ceilings storage could be it.

Could be effective and what's interesting to note and I think that I think it gets missed by many in Canada versus U S. Because of the land tenure system in Canada with US having the majority of land owned by the Crown him with the crown being whether it's provincial or federal government. The majority of provincial governments.

They are much easier to put together carbon storage opportunities versus what it is in the U S, where only about 10% to 13% of their lands are actually owned by Crown a majority of our owned by freeholders or the undivided interest there is.

Large undivided interest up to a 100 to 200 people on.

Even on a quarter section of land.

Participate and Thats why youre seeing many of the carbon storage projects in the U S that will go offshore.

Versus we have the added advantage in Canada, having a crown tenure system.

That has to be more clearly understood, including by our federal government. So.

We think that we're very well positioned Canadian energy producers and those that are in the carbon capture world have an opportunity to.

To really advance this and continue to demonstrate.

<unk>.

These new technologies that are available to us and being able to be utilized in western Canada.

And last one for me.

53 wells in the quarter and 109 for the first nine months, what do you see as the total well count for this year and what's your forecast given your budget for well count drilling in 2022.

Yeah, it's Darren here.

Let me pull these up but I believe in our budget.

Our budget release of loss.

Last week I guess it was 163 for the for the next year.

160 acre next year.

And.

And for the remainder of this year I don't have that off the top of my head here, but it's going to be with the acceleration although it is.

Acceleration is going to be 160 for this year and $124 eight net 49 40.

49% and 38 four net in the fourth quarter.

Okay.

Okay.

One last one for me sorry to push more and more.

How do you see the cost side going in for both drilling and fracking and other other inputs and what do you see.

The kind of the limitations like number of Frac crews.

Try can call they talked about 27, Frac crews available now and you know if.

They're gonna be a chance to get the 200 rigs are they really are in Canada. There just isn't enough frac crews. So maybe you can give us some inputs there.

Joseph Your one question over.

Right.

[laughter] anyway, let me hand, it off to Joel Armstrong VP operations can you talk about that thanks.

Joseph So obviously theres been a lot of.

Our margin expansion of the service providers.

Providers and you know we recognize that early in the process. So we have secured all of our critical services for the upcoming in Q4 and 23 early 2022 programs. So all our rigs are contracted we're aligned with our frac.

Frac Puppers.

No cost to return to pre pandemic and now we're starting to see margin expansion beyond that so.

You know, we don't carry current prices and are in our budget either so you know we're not carrying you know expanded capital costs either so we expect those two would balance each other out there is definitely a correlation between commodity prices and <unk>.

Service costs.

Okay Super well again, congratulations on the great quarter, and a great here and Uh huh.

Complementing deserted the extra question.

[laughter].

At this time gentlemen, we have no other questions registered please proceed.

Okay.

Okay well. Thank you everyone first of all I do want to say give a special shout out to our valued employees for their continued efforts.

Also to our board of directors for your support and guidance.

Over this past year and to everyone on the call for your continued interest in whitecap resources and sincere. Thanks to all have a good day, thanks very much.

Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.

Okay.