Q4 2022 Whitecap Resources Inc Earnings Call

What time period have increased by 23% on a per share basis, while total proved reserves per share have increased by 49% for.

With a before tax proved net present value at 10% discount rate of $19 per share based on our independent reserve evaluation.

In addition to growing our asset base and future drilling inventory, we continue to focus on cash returns to shareholders.

Re resetting our dividend early in 2020.

We had an internal target to get our dividend back to 2014 levels through strategic acquisitions and free cash flow growth, we anticipate reaching our net debt target of $1 3 billion over the next several months and increasing our Devin dividend to <unk> 73 per share on a per annum basis.

Cash returns to shareholders have been and continue to be a core priority for us.

We continue to be an ROE added upstream producer with 64% of our production being oil and natural gas liquids and 36% natural gas.

Although 36% of our production is natural gas it only represents 14% of our revenues and therefore, the recent decrease in natural gas prices is not as impactful as the cash flows as one might have expected.

Remain bullish on long term North American natural gas prices were the continued build out of LNG export capacity the use of natural gas as a transition fuel for industries, such as power generation and for Western Canadian prices, specifically it is encouraging to hear the commentary from shell last week, the second phase of LNG can.

It is progressing we also have a very positive outlook for crude oil prices well into the future as a result of the massive underinvestment and has created a near term near to.

Medium term supply demand imbalance.

With these comments I'll now pass on to Joel.

Armstrong to comment on our operations. Thanks Joan.

Thanks Grant.

Our company has experienced rapid growth over the past two years, we are proud to say that we've maintained our strong safety record.

Fourth quarter in line with our trailing 12 months and to your averages.

We're always seeking out ways to improve our operations and safety is an integral part of this.

We're also pleased to report that in 2022, we decommissioned over 200 well bores.

The active surface reclamation activities on over 200 sites and received 52 reclamation certificates.

We spent $20 million net on decommissioning activities. This past year and as discussed in September we have $37 million included in our 2023 budget for decommissioning activities.

Strong execution in the fourth quarter resulted in production of 166392 Boe per day, which was above our guidance of 165000 Boe per day, despite having 10000 Boe shut in due to extreme cold weather in late December .

Fourth quarter spending of $179 million resulted in drilling 50, and 35 two net wells.

Switching over current operations, we've had an active first quarter and recently hit our peak 12 drilling rigs and plan to run an average of 10 drilling rigs in the first quarter prior to breakup drilling 75 wells.

We had forecasted inflation, peaking in the first quarter of 2023 and remaining relatively stable as part of our 2023 budget, which is based on U S $80 per barrel WTS.

And we will continue to monitor our key cost inputs for both California operations in real time.

I'll now pass it on to Darren to discuss our reserves about reserves evaluation.

Thanks Joel.

We are very pleased with the results of our year end reserve evaluation is performed by our independent reserve engineer Mcdaniel.

Through our successful 2022 organic capital program PDP F&D costs continue to decrease.

2022, PDP F&D cost of $13 20 per Boe.

It was down 19% from last year and 40% from 2020 and resulted in a very strong PDP F&D recycle ratio of three six times.

Our capital efficiency and converting undeveloped reserves to producing reserves was better than forecast.

A testament to the strength of our assets as well as our execution.

Holding the <unk> assets into our reserves resulted in a per share growth of 19%, 49% and 61%.

For PDP total proved and total proved plus probable reserves respectively.

Pro forma our recent dispositions.

We had now have over 6500 identified locations on their asset base of which only 36% have been booked in our reserve report.

This inventory provides us with over 25 years of profitable and sustainable growth.

Outperformance of our existing southeast, Saskatchewan, Frobisher, Horizontals and waiver unit wells combined with our central Alberta block, an attic wells contributed to almost 11 million Boe and positive technical revisions to our PDP reserves.

Or approximately 3% of our clothing balance.

And the <unk> P cases, these positive technical revisions were offset by proactive negative adjustment in some of our legacy assets.

Including some of those which have been disposed already.

These adjustments resulted in minor technical revisions of less than <unk>, five and one 5% of the closing.

Balances in both one P to P cases, which is well within expectation.

I will now pass it onto Tom to discuss our financial results.

Thanks, Darren we had a record financial results in 2022 with funds flow of over $2 3 billion or $3 74 per share generating free funds flow of over $1 6 billion.

$480 million of total returns to shareholders were split approximately 50 50 between dividends and share repurchases.

Net income for 2022 was $1 7 billion or $2 70 per share compared to net income of $1 8 billion or $2 95 per share in 2021.

Net income decreased primarily due to a larger noncash impairment reversal of $1 9 billion in 2021 compared to $661 million in 2022.

Set by higher funds flow.

For the fourth quarter, we generated funds flow of $594 million or <unk> 97 per share in free funds flow of $415 million.

We paid $67 million of dividends and reduced net debt by approximately $300 million in the fourth quarter, resulting in year end net debt of $1 9 billion.

Our year end debt to EBITDA ratio was <unk> seven times and EBITDA to interest ratio of 45 times, we're well within our covenant of less than four times and greater than three five times respectively.

Subsequent to yearend, we closed three non strategic dispositions, which resulted in $426 $4 million of assets and $110 9 million of the associate decommissioning liabilities being reclassified as held for sale on the balance sheet.

The dispositions, bringing our current net debt to approximately $1 5 billion, giving us $1 6 billion of available debt capacity and a forecast of debt to EBITDA ratio of <unk> seven times at current strip prices.

I will now pass it back to Brad for his closing remarks.

Thanks, very much Todd.

For 2023, our production guidance is unchanged at 160000.

To 160 to 2000 <unk> per day.

Capital of between $900 million to $950 million.

$80 per barrel W DTI and a $3 per GJ equal.

Cash funds flow of approximately $1 8 billion.

Possible of $900 million.

We look forward to utilizing the significant free funds flow generated in 2023 to meet our near term financial milestones.

Milestones include number one achieving net debt of $1 3 billion number two further increasing our dividend to <unk> 73 per share a 26% increase from our current dividend of <unk> 58 per share program and number three returning a total of 75% of our free funds flow back to shareholders, which include.

The base dividend of 73 per share supplemented with share repurchases.

The remaining 25% of our few points will be directed towards further strengthening our balance sheet with net debt estimated to be between one to one 2 billion.

Prior to the year end 2023.

Looking out for the next five year period of time at a 3% to 8% per annum organic production goals.

We can grow to over 200000 boe's per day generating over $4 5 billion.

Free cash flow or $7 35 per share.

How do you $75 <unk> and 350 nickel price.

Hum.

D J.

This would use up only one sixth of our identified drilling inventory that was spoken to earlier beyond 2023, we look to enhance our 2000 and.

200000, do we prevail data growth target with business development initiatives focus on increasing per share profitability and sustainability should the opportunities present themselves.

Although this 2023 year has begun with a significant amount of oil and gas price volatility. We are excited about the upcoming year.

Continued progress towards our financial and operational goals, while generating strong returns for our shareholders.

I will now turn the call back to our operator for any questions you might have thank.

Thank you everyone.

Thank you Sir.

Ladies and gentlemen, as stated if you do have a question. Please press star followed by one on your Touchtone phone you will hear a sweet home prompt acknowledging you can request and should you wish to withdraw your question simply press star followed by too we do ask that you.

If you're using a speaker phone please lift the handset before pressing entities. Please go ahead and press Star one now if you have any questions.

And your first question will be from Jack Austin at Janney capital.

Hey, guys can you hear me.

You bet.

So congratulations on the great year I loved it. So I just have one kind of question and then I know you guys have been very clear on the $50 and then $3 50.

<unk> ability, but I'm, just wondering if and we have OPEC hanging over us too it's likely it's very unlikely that this doesn't happen, but if it does happen would you guys cut like capital expenditures expenditures you have about $925 million and can you just give some more color on I know, it's very small chance, but if.

If it came down to $50 you are below that thank you.

Tom do you want to go ahead.

Yes for sure.

Thanks for that question there.

I think the way that we look at the business down at that $50 level, though we're certainly bullish on oil.

Oil and natural gas on the longer term here at that level I would say that we wouldn't be looking to grow our business.

We're looking at maintaining our level of production and so the $930 million would be much lower than that it would be about $700 to maintain.

Our production at about 161000 Boe's per day, so there's a lot of.

Ability for us to withstand that volatility even at that low price and still fund our maintenance capital as well as the dividend program and so on.

We look at lower pricing scenarios. The most important thing for us, which we've focused over the last few years here is maintaining low leverage and so getting to that $1 3 billion is critically important for us, but we'll be somewhere between one to $1 $2 billion by the end of this year here, which gives us even more financial flexibility in a lower pricing.

<unk> here so.

Answer your question for sure we would be cutting capital.

Our objective here on the dividend even at the 73% level is to continue to maintain that but more importantly continue to grow it commensurate with our production growth rate of about 3% to 8%.

Okay. Thank you very much guys love it. Thank you.

Thank you.

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

And your next question will be from Christopher Jones at Haywood Securities. Please go ahead.

Hey, gentlemen, I just wanted to ask a question on slide 11 about looking are employing new well designed to improve well performance.

Maybe just talk a little bit about some of the specific changes you've made on the completion side and then maybe on the backend what have you seen from a sort of a per well EUR or a decline profile and any any associated cost creep associated there. Thanks.

Yes, perhaps Joel you or Andrew or Dan wants to take this question.

Christopher It's Joel here.

I guess just speaking to completion design.

More specifically in the Montney every every well every pad.

Go through several iterations through.

Jim mechanical.

Geological Engineering spacing, so every single well.

Looked at differently, it's not really a carbon copy from from one completion to the next overall design mechanics are always very similar plug and perf of course.

Outside of that I think we've proven up or our other plays.

Cardiome glauconite.

Sort of completion design.

Yes, no real no real major changes on that.

In terms of on the cost side I don't think.

As we talked about earlier, we're starting to see.

We're seeing our kind of our peak inflation in Q1.

We've tweaked, where we could to try and maintain our cost structure best possible.

I don't foresee any upward pressure right now at the current commodity pricing.

If there is a correction in commodity pricing, we will expect to see.

The capital side.

Relate to that.

Don't know if there's anything else I can offer on that Darren.

No.

Area with Joel thing, we look at a lot of factors when designing our development program and that changes, obviously that frac design and Wellbore design, where we place wells on that and in that is includes our outlook on pricing.

So different spacings for different pricing regimes.

Okay very helpful. Thank you.

Thank you next question will be from Peter Linda Investor. Please go ahead.

Yes, good morning, gentlemen.

Got a question on your ex deal acquisition.

What plans do you have for this year.

Have you started drilling on it yet since you acquired it.

And.

Basically how much you're going to spend on these lands in 2023 and by the way great results.

Peter I'll start off and then I'll ask John to continue one we certainly have began drilling on these bonds and just.

For clarity we have.

When we bought the Montney.

The acreage that we bought from next year, we had a 65% working interest on the cash flow allows us already to the previous acquisition that we've done.

With kicking horse so we've been on these.

Over two year period of time.

With activity, but specific to our activity. This year, maybe Tom we can talk about how we're looking to capitalize on a number of wells, where we're lucky.

Well for 2023.

Yes for sure so this year as.

As we mentioned our capital budget is between $900 million to $950 million, 45% of that budget is going to be allocated to our northern Alberta business unit there.

Which 24 wells will be in the Montney and right now we're anticipating three wells in the Duvernay there.

36% is going to be allocated to our Saskatchewan business unit and then the remaining 17% in central Alberta.

Both keeping production relatively flat.

Our anticipation in the Montney in particular.

Is to grow that.

38000 Boe's per day.

And when you look at our target over the next five years to get to 200000 Boe's per day that has the montney growing to about 65000 Boe's per day there. So that's good.

I had mentioned we have been drilling in the Montney already.

Being 65% working interest in CAC, Lynn <unk> being 35%, there and we would've drilled 12 wells in 2022, so look to continue to.

To expand on that with the additional 24 wells in 2023.

Is it fair to say that you are pleased with the results so far.

Yes for sure I think.

What we'll look to do with the results that we've seen last year as well as build on it through our first quarter capital programs here with more data points, we will look for a more fulsome operational update as part of our first quarter results.

Right. Thank you very much.

Thanks Peter.

Thank you next question will be from Anthony Linton at Barclays. Please go ahead.

Hey, good morning, guys and congratulations on a strong year.

Just one question a couple of questions from me just just to start there's a line in the release obviously the focus for 2023 remains on operational execution.

There's a line in the release talking about business development activities beyond 2023, just wondering how that might look as you kind of think about it and you think about the opportunities today.

Yeah.

I'll take a stab at that first lien asking hey, Barb.

This presents to jump in so this is a year and we wanted you to ensure joy to our shareholders.

As of year for operational excellence, what we wanted to do is make sure that.

We have such a very strong inventory of opportunities within the organization. This is 2023 is your team to ensure that we are.

Refine our operational capabilities.

Making sure that we execute strong execution on that.

As you've heard Joel talking earlier about some of the.

Well placement in some of the well design.

A year for us to really focus on that activity as we move through 2023.

So on the business development front will be a quiet year for us it'll be a much quieter year by half since 2021 and 'twenty two.

As we look to.

Really drive performance from organic and that's why we say beyond 2023, yes, there's opportunities.

Can't compete or add to our inventory.

High quality inventory and long term profitability and sustainability will look to do that.

As we move forward, but really 2023, we wanted to ensure from our perspective the shareholders understand that this is a year.

Interim we'll call it organic growth.

Optimization from our existing assets.

Okay, that's great to hear thanks, and then.

Maybe just coming back to the five year growth plan looking at that 3% to 8% production growth I know you've talked about that in the past how does how does the capital allocation across your business units kind of evolve over that time frame.

Sure Sean do you want to.

I'm just kind of comment on that.

Yes, it's Todd here I mean, if you look at our business today. There are three business units, we're looking at central Alberta, Saskatchewan and in Northern Alberta.

Saskatchewan in Central Alberta.

Really our free cash flow generating business units. So what we will look to do within that portfolio is really keep it relatively flat, 1% to 2% growth over the next five year period of time.

Key growth area for us will definitely be coming from northern Alberta with its primarily the.

Reagan.

Montney and the Charlie Lake area. There. So we're looking to grow that somewhere in that 15% per annum over the next five year period of time, so the capital allocation that we're looking at in 2023, as I mentioned, 45% in northern Alberta, 36% in Saskatchewan and 17 in central Alberta that should remain relatively stable.

Over the next five years.

Just a small note on that Anthony.

Tom referenced Vegas meeting.

Duvernay Duvernay, yes, sorry about that.

[laughter] gotcha, Okay awesome, that's great color I'll turn it back thanks.

Thank you next question is from Patrick O'brien at <unk> capital markets. Please go ahead.

Hey, good morning, guys.

I just wanted to clarify something I heard in the opening salvo, there and see how it sort of evolved here and are a little bit of a scenario analysis I believe that it was mentioned that you guys are going to be running 10 rigs up in full breakup.

Just wondering how that looks in the second half of the year from a rig count perspective, and then Tom mentioned sort of a maintenance capital level at $708 million.

At 160 ish.

161000 Boe per day.

What sort of rig count would be required to sustain that going forward.

Joel I'll turn it over to you that works.

Yes, I mean, Patrick we're it's Joel here.

We're spending $320 million in Q3 versus say $2 60 for Q1, so it will be at a similar rig count than what we are right now.

I don't think we will see 12, but on that 10 to 11 rigs in Q3.

Okay, and then in the downside scenario I think it's unlikely from a commodity price perspective as well.

Sort of rig count would be required.

Why.

You are talking.

The dollar.

<unk> scenario.

Yes.

Okay.

Patrick I don't we're kind of making up numbers here, but.

700, 870 rigs to kind of maintain our base level somewhere in there.

Yes, you could add Darrin here, yes, you could probably just take a ratio would be reasonable estimate.

Okay.

And then kind of as a second question shifting gears here I know that gas revenue as a percentage of overall revenue is fairly low here, but.

Are you guys looking at.

Anything on the more sophisticated gas marketing, Brian here some of your peers sell gas into the mid continent, California.

Yields any anything that youre looking at from a business development front on that perspective that could potentially extract a little bit more value.

Scott.

We are certainly looking at that at this particular time.

First of all to understand where we came from we talked about.

2020, we were producing about 60 million a day and now we're about three <unk>.

20 to 330 million a day of natural gas. So this is a big change for us. So we're looking at is not.

Just only the pricing centers in North America, but also offshore into LNG markets. So we are looking to.

Ultra will color where.

Where are we take our products to them.

The key is transportation to make sure that we can transfer transport it to the market centers and then when would you on each one of the market centers.

And that work is aggressively ongoing so we will come back in.

As we move through this year, we'll have more of an update as it relates to the 2023 years.

Update on that Patrick.

Okay. Thank you very much.

Thank you and at this time gentlemen, we have no further questions registered please proceed.

Thank you Silvia well, thanks to each of you for taking the time and interest and listen to our call today, and we will look forward to updating you on our progress numerous different items as we move through the next several months. So thanks very much enjoy your day all the best.

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.

Okay.

Okay.

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