Whitecap Resources Inc. Q1 2023 Earnings Call
Currently positive outperforming our type curve by a wide margin with two wells, adding a secondary impact from improving upwards of 30 inventory locations and offsetting sections.
Lastly, I want to touch on cost inflation we.
We experienced 2% to 4% inflation in the first quarter compared to the fourth quarter of 2022 on both capital and operating costs. The two most significant contributors on capital costs or frac spreads and tubular.
And power labor on operating costs. Despite the continued inflationary pressures, we still anticipate being within our capital guidance of $900 million to $950 million for the year and on operating costs, we're expecting the trend towards under $13 per Boe in.
In the fourth quarter with higher production volumes.
I will now pass it on a time to discuss our financial results.
Thanks, Joe.
A strong first quarter generating $448 million of funds flow or <unk> 73 per fully diluted share on capital spending of $254 million, resulting in $194 million of free funds flow of approximately 32 per fully diluted share.
While first quarter Wty prices averaged approximately 76 U S per barrel with the weak Canadian dollar WTO averaged over $100 Canadian per barrel.
<unk> averaged $3 <unk> per <unk> in the quarter significantly below our budget price deck and as grant mentioned.
This resulted in us reallocating a portion of our capital towards higher netback assets.
As part of our funds flow netback, we recorded a cash tax expense of <unk> 93 per Boe or approximately $13 million. This equates to an approximate pre funds flow tax rate of 3% as the year progresses, we will adjust the tax rate based on our forecast for full year cash tax expense and true up on our current expense in the subsequent quarters.
Prior to the final full year assessment.
We caution that the tax rate can be volatile over the course of the year and May result in larger variations in our quarterly recorded expense at the end of the first quarter, we had $3 9 billion of tax pools remaining.
In the first quarter, we completed the disposition of noncore assets for proceeds of approximately $400 million and as such we've removed $426 4 million from assets held for sale and $110 9 million from liabilities on assets held for sale on our balance sheet.
Our net debt at the end of the first quarter was $1 $47 billion as we reduced net debt by over $400 million since the end of 2022 and over $700 million since the closing of the <unk> acquisition in the third quarter of 2022, and now have over $1 8 billion of liquidity on our credit facilities.
We remain focused on balance sheet strength and anticipate that we will reach our $1 3 billion net debt milestone sometime in mid 2023 at current strip prices.
I'll now pass it back to grant for his closing remarks.
Thanks, Todd in 2023, <unk> is well positioned to digitally delivered strong performance on both cash returns and per share growth to shareholders were 12, Montney Duvernay wells scheduled to come on production before the end of the year at the same time. We also expect the glauconite program in Central Alberta, and a lighter oil drilling program.
Throughout Saskatchewan and will continue to be successful and provide modest growth and strong free cash flow generation for our company.
But the capital allocation changes to address the lower natural gas price environment. Our production additions will now be more weighted towards the second half of the year and our fourth quarter production is expected to average approximately 170000 Boe per day. This represents a growth rate of 10% from the fourth quarter of 2022 after adjusting for the dispositions.
<unk> completed.
Earlier this year that we spoken up.
Lastly, I want to take the time to pay special tribute.
Thanks to Greg Fletcher, who has chosen not to stand for reelection to our board of directors at the upcoming AGM in mid May.
Greg has been a founding director with White cap and has provided valuable guidance to our company over the past 13 years.
I'll, let Greg will continue to be a supporter of whitecap divided insights to us on a go forward basis sincere. Thanks from all of Us Greg.
We're also pleased to.
Now that Vineeta Maguire has agreed to stand for election at our board of directors at the upcoming AGM and Regeneron meeting Benita brings a wealth of industry experience and we are looking forward to her joining the board and having her assist as for our business into the future.
With that I will now turn the call over to our operator Sylvia for any questions. Thank you.
Thank you, Sir ladies and gentlemen ask David if you do have a question. Please press star followed by one.
You will hear a three pronged acknowledging your request and should you wish to withdraw your question simply press Star followed by two and we do ask that you see using a speaker phone. Please lift the handset before pressing entities. Please go ahead and breast are one now if you do have any questions.
And your first question will be from Luke Davis at RBC. Please go ahead.
Hey, good morning, guys.
Wondering if you could just provide some specifics on outages in terms of volume.
The supply chain issues and just how it impacted Q1, and then how would that impact the balance of the year.
Can you repeat that just one more time with my.
Troubles hearing that sorry.
Yes I was.
Wondering if you could just provide a few more specifics just in terms of the outages and supply chain issues and what the actual impact was on on Q1, and then through the balance of the year.
Yeah, Hey look it's Tom here, Yes, I mean, the supply chain issue effectively and if you all can provide some more details around this but it was much contamination that.
Ultimately resulted in waxing issues on the surface there that created 60 day delays effectively of the two pads that we drilled late in 2022. So what we're expecting is from a Q2 perspective production volumes to be relatively flat.
And then as we bring in on the both the Montney the Duvernay pads. There, we'll see production increase both in Q3 and Q4 and as Grant mentioned, we're looking at about 170000 Boe's per day.
Average production for fourth quarter of this year.
Got you that's helpful. And then can you expand a little bit just on your initial comments.
Regarding inflation.
Or anything you're doing to mitigate that and then I know its pretty early still about what your expectations would be heading into 2024 in terms of capital outlay.
Yes, Joel here.
I mean, we're just don't forbid for the balance of R.
Our program in 2023, but early indications suggest that we're at least going to be flat if not.
Some cost recovery in the balance of the year, so that would be our expectation.
Okay, I think it goes to from a we're able to two.
Make commitments.
On a.
On larger program.
More activity that will be consistent throughout this year and run through and actually increase into 2000 and.
Into 2024 or so.
That actually acts to stable.
Stabilized with our service providers that they're going to be consistent and growing with us as we move forward.
Okay.
Great. That's helpful. Thank you.
Thank you next question will be from Jack Austin Jackie Capital. Please go ahead.
Hi, guys can you hear me.
Yes, hi, Ken Thank you.
Austin Congrats on another solid quarter. So I know you guys are approaching the debt target here about $200 million away.
And I can see that you guys are planned to increase about 5% and you say, 3% to 8% annual growth and I see the reserves as well so I'm kind of asking is what's the plan after the dividend increase from there like whats the.
Plans after that would you consider going to like just getting rid of all the debt and or even going to.
100% return to shareholders or how do you see really beyond the once the dividend Kris happens I know, it's a bit of a tough question to ask is it depends on oil prices and everything else, but yes.
Yes first of all once we achieve our $1 3 billion.
That milestone that we provided increasing our dividend up to that 73 cents a share and then what we're looking for is true too from a dividend perspective, specifically as have our dividend grow at the pace that we grow our business going forward and right now we're projecting between 3% to 8% per share growth per year.
And the <unk>.
75% of our free cash flow to be returned back to our shareholders in either of the form of dividends.
Ongoing consistent basis, as well as share buybacks and the other 25% of the free funds flow to be used to what we'll call reduced debt on our balance sheet.
And that is really.
The purpose of that we think that having that as part of our capital structure is important.
Because of the return characteristics, we're getting in this pricing environment. So our return on invested capital is so strong that what we should be doing.
Using a responsible level of debt so we've instead of running a.
With no debt, we stress tested our organization down to $50 oil and $3 gas and at those levels, you're probably not going to look to our expectation is not to grow aggressively.
And we want to keep our debt to cash flow well under one times. So that's a stressed asset level that we use at.
At the $50 level <unk> level. So ultimately you will see us looking to increase our dividend commensurate with our growth rate into the organization as we move forward.
Sounds great. Thank you and just one more little question I know you can't answer directly but it is as a company looking at any big.
M&A like I know you this afternoon.
Lots of of that targeting the key active or not.
Not at this particular time, what we wanted to do this year as demonstrated on the assets that we have under management.
We are.
We're just going to look to operational execution and performance and optimizing our assets as best we possibly can.
And again it goes consistent with our financial strategy of looking to continue to walk down the amount of leverage we have.
Certainly as John talked about.
Plenty of capacity of $1 $8 billion at this particular time once we get to the $1 3 billion.
But 2023 is a year focused on operational performance.
And putting our business development initiatives on hold.
And looking we can look at that into 2024 25, as we move forward.
Awesome. Thank you very much congrats on the quarter again.
Next question will be from Patrick O'brien ATB capital markets. Please go ahead.
Hey, guys. Good morning, and thanks for providing some color in terms of the outlook for the return of capital strategy post the $1 $3 billion milestone I was also curious on that maybe I'll move to my other question just very quickly.
With the shift of some capital away from the Montney outlet tour over to the Duvernay here just wondering in the current sort of pricing paradigm, where on a relative basis oil is strong relative to gas.
Is this something that we can anticipate to be more structural in terms of the way that youre directing capital out into 2024, and 2025 and beyond will there be sort of more emphasis on these volatile oil rich duvernay windows relative to gas your money targets.
Yes.
From our perspective, I think that we have to.
Be aware of.
The pricing.
Pricing environment around us and Thats from crude oil and natural gas differentials.
The effect of the Canadian dollar. So overall, what we can say is that.
<unk>.
We're looking at the highest netback assets that we can generate on a longer term basis, our principal growth is going to come up.
We believe from the Montney and secondarily from the.
Duvernay, but that's not to say that the balance of our assets in central Alberta.
Saskatchewan.
The growth they provide a very significant amount of free cash flow for us and it's how we allocate that moving forward.
With the backdrop of.
And we're looking at it from a structural perspective.
$2 or sub $2 gas.
We're not trying to grow that business overly aggressively in.
And we're coming into a summer time period.
The natural gas.
<unk> does have.
On impact.
It's interesting.
If I can comment on it this way 66% of our production.
Oil and liquids, but if generates between $8, 89% to 92% of our cash flow.
From 66% of our production.
Which would mean that the natural gas side is important to us. It is as we move forward, but from a cash generation perspective. It is just as important as the oil and liquids.
Part of our business.
Okay. Thank you very much.
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 Josef Schachter.
Energy Research. Please go ahead.
Thank you for taking my call.
Yeah.
Grant on Joel.
First thing on the portfolio now.
We've had some non core asset dispositions are you happy where you are right now or are there still some assets that are noncore.
<unk> help you get quicker to hit that target.
Yes, we're very happy very pleased with the portfolio of opportunities we have with US right now we're not looking for future dispositions.
At this particular time again as we as we cycled through our business longer term when assets become.
With limited growth on a go forward basis or limited value opportunity for us we will look to monetize but we think we did a very good job and we'll call monetizing the assets that we werent putting capital towards over the next five year period of time, so with the suite of assets. We have today the inventory we have.
We're very comfortable with the assets that we have and won't be looking for dispositions at this particular time.
Okay Super and probably with the success of the four well pad at the Botany op meeting your type curve.
52% of liquids versus your expectation of 40.
Has that changed around your tier one locations and you end up.
Because of the success you are having.
Many more locations with you than you thought you might have had when you did the acquisition.
Yes.
Sorry, Joseph I don't think I don't know.
Not going to have an impact on the balance of our inventory and cash while we still have a pile of tier one.
Locations to drill there.
And how many wells would you be looking to thrill is it a drill to fill situation.
Well I think the ongoing strategy is going to be.
Our balance of.
<unk> Maas row tour in cable <unk>, and just managing all of those particular place so.
Retirement go through capital allocation.
That's the context that we're thinking of.
Just to add onto that.
What we're looking at in the Montney and <unk> referenced.
As we talked about with the <unk> mature rest Haven.
On the Montney side and then we also have other montney assets.
Hello, et cetera, what we'll call more of the conventional players, but K, Bob we're looking at the Montney to about 20% to 25 wells a year.
The cable <unk> Duvernay play, we're looking anywhere between 5% to eight wells per year at this particular time now.
Commodity price dependent results dependent we can move capital around and that's the I think it's the benefit of the program that we have in northern Alberta, but also with the benefit we have on <unk>.
Assets right across from from southeast Saskatchewan through to the deep patient of Alberta, So we can actually ultra programs around and we have to be.
Cautious that that doesn't happen on Justin.
Overnight, we have to be very thoughtful in our planning on those going forward.
Ultimately I think that we have an exceptional blend of opportunities in front of us.
With the principal growth largest exposure to growth coming from the Montney and Duvernay Apple came on.
Yes.
Thank you and at this time, we have no further questions. Please proceed.
Okay, well, thanks, everyone and thanks for the four.
Our directions today I don't want to thank each of you for taking the time and interest.
Listen to this call today, and we look forward to updating you on our progress over the next several months as we move through the balance of 'twenty three 'twenty four until then thanks very much 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 and all the rest of your day.
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