Q3 2023 Whitecap Resources Inc Earnings Call

Good morning, My name is Sylvie and I will be your conference operator today at this time I would like to welcome everyone to Whitecap resources Q3, 2023 results and 2020 for budget conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a 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 the conference over to White caps, President and CEO. Mr. Graham. Please go ahead Sir.

Thanks, Sylvia and good morning, everyone and thank you for joining us here this morning.

Here with me today are members of our management team, our senior Vice President and CFO Ken <unk>.

Our senior Vice President of production and operations Joel Armstrong.

Our senior Vice President business development and <unk>.

<unk>, we also have Troy Wong, our vice President of the West Division and Chris Bohn, Our Vice President of our Eastern Division joining us for the first time here today before we get started I would like to remind everybody that all statements made by the company. During this call are subject to the same forward looking disclaimer and advisory that we set forth.

In our news release issued yesterday afternoon.

I'm happy to report that our third quarter was very successful both operationally and financially.

Active third quarter drilling program resulted in $281 million of capital spending and the drilling of 76 gross successful wells, which generated production of over 157000 Boe per day.

When we announced our first quarter results.

We had reallocated.

Reallocated portions of our capital program to higher oil weighted assets and since then our liquids production has outperformed our expectations.

Total liquids production, including oil condensate and Ngls with over 103000 Boe's per day in the third quarter and with crude oil prices, averaging $110 Canadian dollars per barrel, we were able to generate $466 million of funds flow and $184 million of free funds flow.

After our dividend payment of $88 million.

We allocated approximately $100 million of free funds flow to our balance sheet, resulting in the achievement of our $1 $3 billion debt milestone that we had set earlier.

Over the past three years Whitecap has undertaken a large transformation increasing from approximately <unk> <unk>.

60000 Boe per day.

Up to approximately 160000 Boe per day today through a series of transactions with the <unk> transaction last summer being the largest at $1 $88 billion Hasnt.

It was an all cash deal.

We were able to significantly increase current and future value for our shareholders, while protecting our balance sheet through the commodity price cycles.

We will now returned 75% of our free funds flow to our shareholders through our 73 cents per share dividend on an annual basis on share repurchases under our ntis.

Since first implementing our base dividend in 2013, we are focused on strong cash returns to shareholders along with continually growing our business. Our focus will continue to provide moderate annual organic.

Production growth of 3% to 8% per year.

Growing our dividend commensurate with our targeted annual growth rate I will now pass it onto Tom to discuss our financial results Tom.

Thanks, Brad and excellent quarter for Whitecap with production funds flow in free funds flow being the highest so far in 2023 and net debt at its lowest as mentioned our third quarter funds flow was $466 million or 76 cents per fully diluted share, which was 12% higher relative to the second quarter.

Impacting our third quarter funds flow was current income tax expense of 44 million, which equates to approximately 9% of pre tax funds flow for the quarter and four 5% for the nine months ended.

We recalculate current taxes quarterly based on current strip prices at strip prices are volatile this will cause fluctuations in our quarterly current tax expense as year to date accruals you need to be chewed up for 2023, we are forecasting a full year current tax rate of 4% to 6% of pre tax funds flow. This will increase to 10 to 15.

<unk> percent in 2024, as 100% deductible pools will be fully exhausted.

Sylvie: Good morning, my name is Sylvie and I will be your conference operator today.

Sylvie: At this time, I would like to welcome everyone to Whitecap Resources, Q3, 2023 Results, and 2024 Budget Conference Call. Note that all lines have been placed on mute to prevent any background noise.

As grant mentioned, our balance sheet is in great shape, and hitting our $1 3 billion net debt milestone is key to managing through commodity price volatility.

Our third quarter debt to EBITDA ratio was 0.6 times a week.

Sylvie: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then number one on your telephone keypad. And if you would like to withdraw your question, please press star then number two.

Now have over $1 8 billion of liquidity on our credit facilities.

As a reminder, approximately 90% of our liquids production is linked to light oil or condensate pricing and although differentials on these products have widened slightly into the fourth quarter. The largest decreases that we've seen in heavy oil prices are less impactful to our funds flow.

Grant Fagerheim: And I would like to turn the conference over to Whitecap's president and CEO, Mr. Grant Fagerheim. Please go ahead sir. Thanks Sylvie and good morning everyone and thank you for joining us here this morning. Here with me today, I have five members of our management team, our senior race president and CFO, Tom Kang, our senior race president, production and operations, Joel Armstrong, our senior race president, business development, and IT, Dave Bomberquette. We also have Joey Wong, our vice president of the West Division, and Chris Bullin, our vice president of our East Division joining us for the first time here today.

As discussed in the press release.

Yesterday afternoon, we anticipate our full year 2023 production to come in at the low end of our guidance range and with inflationary pressures at approximately 10% above our original expectations, we anticipate our full year capital to be at the high end of our guidance range at approximately $950 million.

Early time outperformance of our Montney type curves has improve the economics through quicker payoffs. However at this time, we have not made any adjustments to our expected reserves on a per well basis and along with temporary suspensions of existing wells to complete fracking operations of new wells and some unplanned downtime, we now expect annual production.

Grant Fagerheim: Before we get started, I would like to remind everybody that all statements made by the company during this call are subject to the same forward looking disclaimer and advisory that we set forth in our news release issued yesterday afternoon. I'm happy to report that our third quarter was very successful both operationally and financially. Our active third quarter drilling program resulted in 281 million dollars of capital spending and the drilling of 76 gross successful wells was generated production of over 157,000 B.E, per day.

To be 157000 <unk> per day.

I will now pass it back to grant for his remarks on the 2020 for budget.

Thanks, John.

The 22020 budget, we put forward last evening represents meaningful progress towards our organic production goal.

Grant Fagerheim: When we announced our first quarter results, we had reallocated portions of our capital program to hire oil weighted assets. Since then, our liquid production has outperformed our expectations. Total liquid production, including oil, condensate and NGLs, was over 103,000 B.E, per day in the third quarter. With crude oil prices averaging $110 Canadian dollars per barrel, we were able to generate $466 million of funds flow and $184 million of free funds flow. After our dividend payment of $88 million, we allocated approximately $100 million of free funds flow to our balance sheet, resulting in the achievement of our $1.3 billion debt milestone that we had set earlier.

Over 200000 BOE per day by the end of 2027, along with meeting our near term goals of high free cash flow.

Generation and increasing our net asset value.

Longer term.

Our board of directors approved the 2020 for budget.

$1 billion to $1 2 billion, which is expected to generate average production of 162 to 168000 BOE per day, we plan to drill approximately two five to 258 wells and invest $165 million on infrastructure projects.

$150 million on EUR projects, our West Division will be allocated approximately $600 million to drill 42 wells, 80% of this capital will include 28 wells, which will be in the Montney and duvernay.

Grant Fagerheim: Over the past three years, White Cap has undertaken a large transformation increasing from approximately $60,000 B.E, per day up to approximately $160,000 B.E, per day today through a series of transactions with the XCO transaction last summer being the largest at $1.88 billion. As an all cash deal, we were able to significantly increase current and future value for our shareholders while protecting our balance sheet through the commodity price cycles. We will now return 75% of our free funds flow to our shareholders through our 73 cent per share dividend on an annual basis and share repurchases under our NCIB.

The focus assets within our division the significant depth of Montney and Duvernay inventory supports higher growth and increased profitability with greater scale in the West Division, we anticipate investing a $130 million of the $165 million towards infrastructure projects. The three primary projects are 20000 people.

Per day battery, which will serve service mezro area to the north of our <unk> development and is scheduled to be completed in the second quarter of 2024.

The other two projects will support the next stage of our development in the Duvernay and keyboard and our long term growth plans for the Montney development in regulatory region.

With regards to our infrastructure spending and Buildout.

Grant Fagerheim: Since first implementing a base dividend in 2013, we have focused on strong cash returns to shareholders, along with continually growing our business. Our focus will continue to provide moderate annual organic production growth of 3 to 8% per year, while growing our dividend commensurate with our targeted annual growth rate.

It's our intention to build facilities that we have plans to produce through retain operational control and consider selling down our interest as strategic partners in the future. If it is beneficial to our operations and our venture financial position at the time.

For our East Division, we are allocating approximately 500 million.

Tom Kang: I will now pass it on to Tom to discuss our financial results. Thanks, Brett. An excellent quarter for White Cap, with production, funds flow, and free funds flow being the highest so far in 2023 and net debt at its lowest. As mentioned, our third quarter funds flow was $466 million or 76 cents per fully diluted share, which was 12% higher relative to the second quarter. Impacting our third quarter funds flow was current income tax expense of $44 million, which equates to approximately 9% of pre-tax funds flow to the quarter and 4.5% for the nine months ended.

Through all of 215 wells across our central Alberta and Saskatchewan.

To focus on.

For our East Division is to hold production relatively flat and continue to generate outsized free cash flow for the company. We have also allocated approximately 150 million to EUR product initiatives to improve.

On our already low decline rate and our sustainability over the longer term.

One of the many challenges that our business has faced over the past years has been the impact of inflation has had on our cost control since the beginning of 'twenty. Three 2020, 'twenty three we have experienced approximately a 10% inflation on our capital and operating cost higher than what we expected when we released our budget 2023 budget.

Tom Kang: We recalculate current taxes quarterly based on current strip prices. As strip prices are volatile, this will cause fluctuations in our quarterly current tax expense as year-to-date accruals need to be true up. For 2023, we are forecasting a full year current tax rate of 4 to 6% of pre-tax funds flow. This will increase to 10 to 15% in 2024, as our 100% deductible pools will be fully exhaust. As Grant mentioned, our balance sheet is in great shape and hitting our 1.3 billion net debt milestone is key to managing through commodity price volatility.

The main drivers of inflation have consistently consistently being steel labor raw materials on the capital cost side labor and power costs have been higher than expected on the operating cost side for 2024, we have modeled certain costs to stay relatively flat, while we do expect some inflationary pressures.

Pressures to persist and labor power and Frac sand at.

At current prices, we forecast $1 $8 billion of funds flow in 2024, which generate $700 million of.

Tom Kang: Our third quarter debt to EBITDA ratio was 0.6 times and we now have over 1.8 billion of liquidity on our credit facilities. We have increased decreases that we have seen in heavy oil prices are less impactful to our funds flow.

Free funds flow using the mid point of our capital guidance.

I'll pass.

The phone off to Joey for my remarks on our West Division results and 2020 for budget Joy.

Thanks, Brett.

Our 'twenty 'twenty four budget for the West Division, we will take our Montney program to the north of our main copper development and then tomorrow.

We are currently running two rigs in the area and they've had a good start to drilling operations on our first two four well pads.

Tom Kang: As discussed in the press release yesterday afternoon, we anticipate our full year 2023 production to come in at the low end of our guidance range and with inflationary pressures at approximately 10% above our original expectations, we anticipate our full year capital to be at the high end of our guidance range at approximately 950 million. Early time out performance of our Monte type curves has improved the economics through quicker pales. However, at this time, we have not made any adjustments to our expected reserves on a per well basis and along with temporary suspensions of existing wells to complete fracking operations of new wells and some unplanned downtime. We now expect annual production to be 157,000 DOE's per day.

Given the need for infrastructure, we took additional time to plan our development at most ROE and now plan to develop to drill a total of 16 wells that Missouri by the end of 2024 eight of which will be spud in Q4 of this year and eight wells in 2024.

The first thing well scheduled to come on production with the completion of our battery in the second quarter.

The battery will be pipeline connected to the cap system will help to fully capitalize on our identified 55 drilling locations over 16 sections at Mizuho.

Depending on factors, such as geology, offsetting wells and localized reservoir characteristics, we will be drilling both single bench as well as multi as well as multi bench pads. We're looking forward to the results from our most row development in the second half of 'twenty 'twenty four.

Another area that I wanted to touch on with Berlin, and given the completion of two standing ducks that were drilled in the drilled by the previous operator in 2019.

Grant Fagerheim: I will now pass it back to Grant for his remarks on the 2024 budget. Thanks, John. The 2024 budget we put forward last evening represents meaningful progress towards our organic production goal of over 200,000 DOE per day by the end of 2020. 7, along with meeting our near-term goals of high pre-cash flow generation and increasing our net asset value longer term. Our Board of Directors approved the 2024 budget of 1 billion to 1.2 billion, which is expected to generate average production of 162 to 168,000 DOE per day.

Given the size of this area was not a significant focus as we were evaluating this acquisition. However, it is pipeline connected to an existing third party gas plant and if these two wells continue to outperform expectations. This area could attract more spending to develop the approximately 100 identified locations.

Now moving on to the Duvernay, we are very pleased with the results from our first three wells into the play with an average IP 90 rates of approximately 500 boe's per day per well with both rates and liquid rates above our expectations. Our second pad of four well pad at 11 2014 was brought on production on October 15th and we're very encouraged with early time data.

Grant Fagerheim: We plan to drill approximately 258 wells and invest $165 million on infrastructure projects and $150 million on EOR projects. Our West Division will be allocated approximately $600 million to drill 42 wells. 80% of this capital will include 28 wells, which will be in the Montany and the Duvernay. The focus assets within our division, the significant depth of Montany and Duvernay inventory supports higher growth and increased profitability with greater scale. In the West Division, we anticipate investing $139 million of the $165 million towards infrastructure projects.

Drilling and completion operations on these first two pads have been executed very well and we feel confident that our team can continue this trend with the 11 Duvernay wells planned for 2024.

With a 100% working interest ownership of the 15th to southern gas processing facility and keyboard each incremental ton that we bring on production in the duvernay improve the utilization of that facility and improve the overall profitability of the area.

The gathering system upgrades that we're making in 2024 will help facilitate future development on the west portion of our acreage at keyboard and help fill that plant up by the end of 2025.

Pass it onto Chris for his comments on the East Division.

Thanks Joey.

Grant Fagerheim: The three primary projects are the 20,000 DOE per day battery, which will serve service to the Missouri area to the north of our CACWAR development and is scheduled to be completed in the second quarter of 2024. The other two projects will support the next stage of our development in the Duvernay and K-BOB and our long-term growth plans for the Montany development in the Latour region.

These divisions looking to follow up on what has so far been a successful 2023 with a strong 2020 for our assets across each region from central Alberta to both western and Eastern Saskatchewan have all outperformed expectations for 2024, we plan to drill 215 wells in the East Division approximately 65% of these wells will be.

Correct. It towards quick payout short cycle light oil weighted assets in the Viking and Washington, Saskatchewan and in the progress your eastern Saskatchewan.

Grant Fagerheim: With regards to our infrastructure spending and build out, it is our intention to build facilities that we have plans to produce through, retain operational control, and consider selling down our interest to strategic partners in the future if it is beneficial to our operations and our financial position at the time, for our East Division. We are allocating approximately $500 million to real 215 wells across central Alberta and Saskatchewan. The focus on for our East Division is to hold production of relatively flat and continue to generate outsize free cash flow for the company. We have also allocated approximately $150 million to EOR initiatives to improve on our already low decline rate and our sustainability over the longer term.

Current prices are.

Areas of cheap capital payout in only five months.

The second theme that is prevalent with our teams in each division is the constant drive to improve on our already highly economic inventory, we are continually increasing lateral lengths and drilling more extended reach horizontal wells across each play type providing for better efficiencies across our asset base. We're also drilling more dual and Triple League laterals in our publisher focused eastern says.

Got you on assets, which accounts for about 80% of our 2024 program.

In addition to the above we have recently piloted our first open hole multilateral in the Viking in the <unk> area. This well just came on production. So there are no results report just yet however, if we are successful here. We believe this could enhance a substantial portion of our Viking inventory.

Grant Fagerheim: One of the many challenges that our business has faced over the past years has been the impact of inflation, has had on our cost control. Since beginning of 2003, 2023, we have experienced approximately a 10% inflation on our capital and operating costs higher than what we expected when we released our budget, 2023 budget. The main drivers of inflation have consistently been steel, labor, raw materials on the capital cost side, while labor and power costs have been higher than expected on the operating cost side.

We are also allocating approximately $150 million to you our initiatives for 2024.

Our EUR projects are a key differentiator for whitecap as a low decline rate and subsequent low maintenance capital required requirements are coupled with the high netback nature of our light oil weighted assets, which helps to generate strong free cash flow for the company.

The majority of our capital will be directed towards the waiver in Seo to project, where we are very pleased to have recently signed an extension with SPC and the boundary dam facility received to supply to the end of 'twenty 34 with that I'll turn it back over to grant for his closing remarks.

Grant Fagerheim: For 2024, we have modeled certain costs to stay relatively flat, while we do expect some inflationary pressures to persist in labor, power and fraction. At current prices, we forecast $1.8 billion of funds flow in 2024, which generates $700 million of free funds flow using the midpoint of our capital guidance.

Thanks, Chris and Joey we're very excited about 2024 capital program and how we positioned white cap for long term, including our current assets, our extensive drilling inventory and as importantly, the dedicated and very capable capable personnel, we have within our company.

Joey Wong: I will now pass the phone off to Joy from all the marks on our West Division results in 2024 budget. Joy? Thanks, friend.

Joey Wong: Our 2024 budget for the West Division will take our Montany program to the north of our main capital development and into Muzzrow. We are currently running two rigs in the area and have had a good start to drilling operations on our first two four well paths. Given the need for infrastructure, we took additional time to plan our development at Muzzrow and now plan to develop to drill a total of 16 well that Muzzrow by the end of 2024, eight of which will be spud in Q4 of this year and eight wells in 2024.

We have over 3000 locations in our West division that can sustain a consistent growth rate of 10% over the next 25 years with recent results supporting our outlook for this division. We also have 3500 drilling locations within our East Division that will provide significant free cash flow to the company with various technical initiatives underway to further enhance.

Our lighter oil weighted inventory and future growth.

Lastly, I'm very pleased that our Canadian energy sector is on the cusp of adding significant pipeline takeaway capacity for both crude oil and natural gas over the next two years, thereby allowing Canadian production.

Joey Wong: The first eight well is scheduled to come on production with the completion of our battery in the second quarter. The battery, which will be pipeline connected to the cap system will help the fully capitalize on our identified 55 drilling locations over 16 sections at Muzzrow. Depending on factors such as geology, offsetting wells and localized reservoir characteristics, we will be drilling both single bench as well as multi-bench paths. We are looking forward to the results from our Muzzrow development in the second half of 2024.

Complies with high standard.

Environmental standards to.

To reach foreign markets, not only should our pricing realizations improve but having greater certainty of our products that are getting to markets that need the most.

Should we do something that we are all product as Canadians with that I'll now turn the call over to the operator Sylvia for any questions.

Joey Wong: Another area that I wanted to touch on was Berlin and given the completion of two standing ducks that were drilled by the previous operator in 2019. Given its size, this area was not as significant focus as we were evaluating this acquisition. However, it is pipeline connected to the existing third party gas plant and if these two wells continue to outperform expectations, this area could attract more spending to develop the approximately 100 identified locations.

Thank you, Sir ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Dutch Thompson.

You will then hear a suite.

Acknowledging your request and if you would like to withdraw from the question queue simply press star followed by two.

Speaker phone, we ask that you please lift the handset.

Joey Wong: Now moving on to the duvernate, we are very pleased with the results from our first three wells into the play with an average IP-90 rates of approximately 1500 buoys per day per well with both rates and liquid rates above our expectations. Our second pad, a four well pad at 11 and 14 was brought on production on October 15 and we are very encouraged with early time data. Both drilling and completion operations on these first two paths have been executed very well and we feel confident that our team can continue this trend with the 11 duvernate wells plans for 2024.

Before pressing any keys. Please go ahead and Bristol one now if you have a question.

And your first question will be from Dennis Fong at CIBC. Please go ahead.

Hi, good morning.

Thanks for taking my questions. My first one really is just around free.

Free cash allocation you reach your $1 3 billion dollar targets.

Here very recently.

But can you talk towards the mechanics on returning free cash flow via buybacks I know, there's the component of our allocation after you've.

Joey Wong: With a 100% working interest, ownership of the 15 to 7 gas processing facility in K-bob, each incremental pad that we bring on production in the DuVernay improves the utilization of that facility and improves the overall profitability of the area. The gathering system upgrades that we're making in 2024 will help facilitate future development on the West portion of our acreage at K-bob and help fill that plant out by the end of 2025.

We will call it paid the dividend component, but can you talk a little bit around the management of cash through time as well as.

The buyback program. Please thanks.

Sure. It's Tom here. Thanks for that question here, Dennis So with respect to.

Chris Bullin: I'll now pass it on to Chris for his comments on the East Division. Thanks, Joey. The East Division is looking to follow up on what has so far been a successful 2023 with a strong 2024. Our assets across each region from Central Alberta to both Western and Eastern Saskatchewan have all outperformed expectations. For 2024, we plan to drill 215 wells in the East Division. Approximately 65% of these wells will be directed towards quick payout, short cycle, light oil weighted assets in the Viking, in Western Saskatchewan, and in the Probe sure in Eastern Saskatchewan.

The share buybacks on the free cash flow allocation.

In the fourth quarter here, you know basically based on strip pricing, we have about $125 million on Yancey I V.

To get to that 75% of free cash flow that goes back to shareholders. So we'll look to do is once we finalize what that funds flow looks like for the fourth quarter sometime in March February March next year.

We'll look to execute on the NCI b.

Going forward in 2024.

No you know from a capital spending perspective, the highest capex is going to be in the first quarter in the third quarter and they will have lighter capital spending in the second quarter and fourth quarter. So we will look at everything on a six month basis really the first half of the year, we will look to finalize what our free funds flow looks like and then start looking at executing on the NCI V. So its a sick.

Chris Bullin: At current prices, our type of areas achieve capital payout in only five months. The second theme that is prevalent with our teams in the East Division is the constant drive to improve on our already highly economic inventory. We are continually increasing lateral lengths and drilling more extended reach horizontal wells across each play type, providing for better efficiencies across our asset base. We are also drilling more dual and triple league laterals in our Probe sure focused Eastern Saskatchewan assets, which accounts for about 80% of our 2024 program.

Month look back effectively to make sure that we're.

We're very confident that we are generating that free funds flow before we spend it on the NCI D.

Yes.

Great I appreciate that color my follow up on that question is in the press release, you highlighted <unk> billion dollar I don't know.

Chris Bullin: In addition to the above, we have recently piloted our first open hole multilateral in the Viking in the Elrose area. This well just came on production so there are no results report just yet. However, if we are successful here, we believe this could enhance the substantial portion of our Viking inventory. We are also allocating approximately $150 million to EOR initiatives for 2024. Our EOR projects are key differentiator for WCAP as a low decline rate and subsequent low maintenance capital required requirements are coupled with the high net back nature of our light oil weighted assets, which helps to generate strong free cash flow for the company.

I'd call that next target, but the expectation of achieving a $1 billion of net debt in 2024.

Is that a stopping point or is the view that you want to further shrink the balance sheet or bill dry powder on a ongoing basis and does that potentially impact or influence. The way you look at allocating free cash flow. Once you reach I guess that next level.

Chris Bullin: The majority of our EOR capital will be directed towards the Weber and CO2 project, where we are very pleased to have recently signed an extension with SPC in the boundary dam facility for CO2 supply to the end of 2034.

Yeah, I think that when we look at where our debt levels are right now it's very low I mean were 0.6 times debt to EBITDA at the $1 billion, whereas euro five times debt to EBITDA. There. So you know as.

As we continue to allocate 75% of free funds flow back to shareholders, 25% against the balance sheet, you could potentially see us drive down even lower levels of debt and I think given the volatility that we're seeing in the market here specifically on the price of oil.

Grant Fagerheim: With that, I will turn it back over to Grant for his closing remarks. Thanks, Chris and Joy. We are very excited about 2024 capital program and how we position WCAP for a long term, including our current assets, our extensive drilling inventory, and as importantly, the dedicated and very capable personnel we have within our company. We have over 3,000 locations in our West Division that can sustain a consistent growth rate of 10% over the next 25 years with recent results supporting our EOR for this division. We also have 3,500 drilling locations within our East Division that will provide significant pre-cash flow to the company with various technical initiatives underway to further enhance our light oil weighted inventory and future growth.

Oil and.

And the higher cost of borrowing I think youre going to see a higher cost of borrowing for a longer period of time here, so having lower levels of debt.

Prudent thing from our perspective here, but the reality is as we continue to grow our business, 3% to 8% I think we've put together a very strong 2020 for budget here, but we're always going to look for ways to enhance that model as we move into 2024 and beyond here and having that flexibility in your balance sheet really provides that off.

<unk> for our shareholders.

Just a follow on to that.

I do think as Tom was speaking to it.

Grant Fagerheim: Lastly, I am very pleased that our Canadian energy sector is on the cusp of adding significant pipeline takeaway capacity for both crude oil and natural gas over the next two years. Thereby allowing Canadian production that complies with high standards, our environmental standards to reach foreign markets. Not only should our pricing realizations improve, but having greater certainty of our products as we are getting to markets that need the most should we be something that we are all proud of as Canadian.

Our debt capacity at this particular time online at $3 1 billion and just under $1 $3 billion drawn we have a very significant amount of significant capacity of $1 8 billion.

When we look at.

This relative to.

Our share buybacks I mean, we've always said maintain a priority to.

Run within a responsible level of debt on the buyback side, we look at our intrinsic values as well from a PDP basis as well as that total proved and this is a good time to be buying back our shares. So all of that will go into the mix.

Unknown Executive: Thank you, sir.

That is true ensuring that we're just focused on creating as much value for shareholders as we possibly can.

Sylvie: Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, simply press star followed by two.

Supplementing the budget that we do have out there through share buybacks through any acquisition activity that may come forward.

We will continue to look at that as well, but that's all starts with protecting our shareholders today and creating as much value as a future as we possibly can.

Sylvie: And if using a speakerphone, we ask that you please lift the hands up before pressing any keys. Please go ahead and press star one now if you have a question.

Dennis Fong: And your first question will be from Dennis Fong at CIBC. Please go ahead. Hi, good morning, and thanks for taking my questions.

Great. Thanks, I appreciate the color from both of you I'll turn it back.

Thank you.

Tom Kang: My first one really is just around free cash allocation. You reach your $1.3 billion target here very recently. But can you talk towards the mechanics on returning free cash flow via buyback? I know there's the component of allocation after you've called it paid the dividend component, but can you talk a little bit around the management of cash through time as well as the buyback program? Please, thanks.

Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone.

And your next question will be from Patrick O'rourke.

Capital markets. Please go ahead.

Hey, good morning, guys and thanks for taking my question.

Just looking through the specifics of the budget for 2020, so you've got about $130 million allocated to infrastructure for the West unit now.

<unk> had some time in appreciating that things can shift around a little bit I know you mentioned potentially drilling some wells that barrel Linda at some point in the future sort of what is your current infrastructure and processing capacity. There and then in terms of that $130 million, how will that evolve.

Tom Kang: Sure, Tom here. Thanks for that question here, Dennis. So with respect to the share buybacks on the free cash flow allocation in the fourth quarter here, you know, basically based on strip pricing. We have about 125 million on the NC IB. In order to get to that 75% of free cash flow that goes back to shareholders. So what we'll look to do is once we finalize what that funds flow looks like for the fourth quarter sometime in March, February, March next year, we'll look to execute on the NC IB.

As we move out.

Into the outer years kind of a multiyear plan here.

You hit a point where.

You know that drops off and that will enhance the capital efficiencies or do you think that that's more of like a annual run rate.

Yes.

Tom Kang: Going forward in 2024, you know, from a capital spending perspective, the highest cap ex is going to be in the first quarter and the third quarter and then we'll have later capital spending in the second quarter and fourth quarter. So we'll look at everything on a six month basis. Really the first half of the year, we'll look to finalize what our free funds flow looks like and then start looking at executing on the NC IB. So it's a six month look back effectively to make sure that we're very confident that we are generating that free funds flow before we spend it on the NC IB.

Patrick just regarding the infrastructure build out in.

And what we'll call the West Division, it's our it's our intention to continue to have as I mentioned in my previous comments operational control and build out our infrastructure in front of the drilling program that we're drilling programs that we do have.

Unknown Executive: Great. Appreciate that color.

Today.

The the growth potential that we have available to us.

<unk> would be about another somewhere in that neighborhood of another 30000 barrels a day of capacity today, but we want to stay in front of that with infrastructure build out.

And retaining operational control as we move forward.

We look at that.

Tom Kang: My follow up on that question is in the press release, you highlighted a billion dollar. I don't want to call that next target, but the expectation of achieving a billion dollars of net debt in 2024. Is that a stopping point or is the view that you want to further shrink the balance sheet or build drive powder on an ongoing basis? And does that potentially impact or influence the way you look at allocating free cash flow once you reach, I guess, that next level?

We're talking about $130 million this year.

There will be a long build ordering an infrastructure here and whether its our capital or they.

They don't want to call competitors capital or third parties and there will be an inordinate amount of capital. That's spent on infrastructure out here and these can be measured on a one year basis their misery.

For the longer term.

They are in place for up to 40 year period of time. So we're very mindful of that and what we want to do is make sure that we're in front of them with building our infrastructure and our preferred areas, we want to be so when we drill our wells, we can actually bring them on production. So that's how we think about as far as 25 in <unk>.

Tom Kang: Yeah. I think that when we look at where our debt levels are right now, it's very low. I mean, we're 0.6 times debt to EBITA at the billion dollars, we're 0.5 times debt to EBITA there. So as we continue to allocate 75% of free funds flow back to shareholders, 25% against the balance sheet, you could potentially see us drive down even lower levels of debt. And I think given the volatility that we're seeing in the market here specifically on the price of oil and the higher cost of borrowing, I think you're going to see a higher cost of borrowing for a longer period of time here.

Six we havent done a detailed analysis on that but you would expect similar type build out.

Programs in excess of $100 million, a year going forward that would be our expectation.

And I would just add that you know it's really in the context of the one to $1 2 billion that we're forecasting for this year, but it'll be very similar I think as we look forward in 2025 and 26 in that one to $1 2 billion inclusive of the facility spend that we're looking at.

Tom Kang: So having lower levels of debt is a prudent thing from our perspective here, but the reality is, as we continue to grow our business, 3 to 8%. I think we put together a very strong 2024 budget here, but we're always going to look for ways to enhance that model as we move into 2024 and beyond here. And having that flexibility in your balance sheet really provides that optionality for our shareholders.

Okay. Thank you.

Thank you again as a reminder, ladies and gentlemen, if you would like to ask a question at this time. Please press star followed by one on your Touchtone phone.

Okay.

Grant Fagerheim: Just to follow on to that, you know, I do think as Tom was speaking to it, our debt capacity at this particular time, our line at $3.1 billion and just under $1.3 billion is drawn. We have a very significant amount of a significant capacity of $1.8 billion. But on the buyback side, we look at our intrinsic values as well, from a PDP basis, as well as that total fruit. And this is a very good time to buy back our shares.

And at this time Mr figure Hanmi. It appears we have no other questions.

Okay. Thank you Silvia and once again I would like to thank each of you for taking the time and interest in listening on our call today.

Excited about to complete the balance of our 2023 program and to advance our company forward with a strong 2020 for budget and we will be increasing total returns to shareholders. We look forward to updating you on our progress through the remainder of 'twenty three 'twenty four all the best have a good day. Thank you.

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.

Grant Fagerheim: So all that will go into the mix as to ensuring that we're just focused on creating as much value for shareholders as we possibly can and supplementing the budget that we do have out there through share buybacks, through any acquisition activity that may come forward. We'll continue to look at that as well. But that all starts with protecting our shareholders today and creating as much value in the future as we possibly can.

[music].

Yeah.

Unknown Executive: Great. Thanks. Appreciate the color from both of you.

[music].

Unknown Executive: I'll turn it back. Thank you.

Sylvie: As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch on the phone.

Patrick: And your next question will be from Patrick or work at APB Capital Markets. Please go ahead. Okay.

Unknown Executive: Good morning, guys. And thanks for taking my question. Just looking through the specifics of the budget for 2024, I know you've got about $130 million allocated to infrastructure for the West unit. Now they've had some time and appreciating the things can shift around a little bit. I know you mentioned, you know, potentially drilling some wells up Berlin, at some point in the future. Sort of what is your current infrastructure and processing capacity there?

Unknown Executive: And then in terms of that 130 million, how will that evolve as we move out into the outer years of kind of the multi year plans here? Because at the hit a point where, you know, that drops off and that'll enhance the capital efficiency. Are you think that that's more of like an annual run rate? Yeah. Thanks, Patrick.

Unknown Executive: Just regarding the infrastructure builds out in what we'll call the West division. It's our intention to continue to have, as I mentioned in my previous comments, operational control, and builds out our infrastructure in front of the drilling program. That we're drilling programs that we do have today. The growth potential that we have available to us would be about another somewhere in that neighborhood of another 30,000 barrels day of capacity today. But we want to stay in front of that with infrastructure build out and retaining operational control as we move forward.

Yeah.

[music].

Unknown Executive: How we look at that, you know, we're talking about 130 million dollars this year. There will be a long build out of infrastructure here, whether it's our capital or, you know, we'll call it competitors capital or third parties. There will be an indoor amount of capital that's spent on infrastructure out here. And these can't be measured on a one-year basis. They're measured for the longer term. You know, they're in place for up to 40-year period of time.

Unknown Executive: So, you know, we're very mindful of that. And what we want to do is make sure that we're in front of it with building out our infrastructure in the preferred areas we want to be. So when we grill our wells, we can actually bring them on production. So that's how we think about as far as 25 and 26. We haven't done a detailed analysis on that. But you would expect similar type build out programs in excess of $100 million a year going forward.

Unknown Executive: That would be our expectation. And I would just add that it's really in the context of the 1 to 1.2 billion that we're forecasting for this year, but it'll be very similar. I think as we look forward in 2025 and 26 and that 1 to 1.2 billion inclusive of the facility spends that we're looking at.

Unknown Executive: Okay, thank you. Thank you.

Yeah.

Sylvie: Again, as a reminder, ladies and gentlemen, if you would like to ask a question at this time, please press start followed by one on your touch on the phone. And at this time, Mr Fagerheim, it appears we have no other questions. Okay, thank you Sylvie.

Yeah.

[music].

Grant Fagerheim: And once again, I'd like to thank each of you for taking the time and interest to listen on our call today. We are excited about to complete the balance of our 2023 program and to advance our company forward with a strong 2024 budget and will be increasing total returns to shareholders. We look forward to updating you on our progress through the remainder of 23 and 24.

Unknown Executive: All the best. Have a good day. Thank you. Thank you, sir.

Sylvie: Ladies and gentlemen, this doesn't need to conclude your conference call for today.

Unknown Executive: Once again, thank you for attending and at this time we do ask that you please disconnect your lines. Thank you very much. David Mombourquette, David Mombourquette, John David Mombourquette, David Mombourquette, John David Mombourquette, David Mombourquette, John