Q1 2025 Whitecap Resources Inc Earnings Call
Good morning, My name is Joana and that will be your conference operator today.
Speaker Change: At this time I would like to welcome everyone to Whitecap resources Q1, 2025 results conference call. All lines have been placed on mute to prevent any background noise. After.
After the Speakers' remarks, there will be a question and answer session.
Speaker Change: If he would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question. Please press Star then the number two.
Mr. Abraham: I would now like to turn it over to white caps, President and CEO. Mr. Abraham you May begin your conference call.
Mr. Abraham: Thanks, very much I appreciate that and good morning, everyone and thank you for joining US there are four members of our management team here with me today.
Speaker Change: Our senior Vice President and CFO, Tom Kim our senior Vice President business development.
Speaker Change: And information technology, Dave Mama Kit, our senior Vice President of production operations Joel Armstrong.
Speaker Change: Vice President West Division Joy, one in a race prison each division, Chris Bourne actually their slide members of our team with US today before we get started today I would like to remind everybody that all statements made by the <unk>.
Speaker Change: During this call are subject to the same forward looking disclaimer and advisory that we set forth in our news release issued yesterday afternoon.
Speaker Change: Well that's opened up a lot of success in 2024 has continued into the first part of 2025 with excellent first quarter operational and financial results. We were very pleased with the strong asset level performance along with the team's execution of a very active fortune rig 86, well first quarter drilling program.
Speaker Change: 2025 has started off on the right foot and we expect to have strong performance to continue through the year.
Speaker Change: First quarter production of 179151 theory per day with over 6000 be reap a day above our internal forecast of 173000 barrel per day.
Speaker Change: Production from new wells was higher than I.
Speaker Change: Expectations, particularly in our Montney Duvernay and glauconite assets, leading the way. In addition, our base production continues to outperform our type curve projection over the longer term.
Speaker Change: Julien Chris will provide additional details on production outperformance.
Speaker Change: With respect to the pending combination with Ferring.
Now, let's turn made March the 10th.
Speaker Change: Joined information circular has been filed and shareholder votes are scheduled for me. The six we've already received competition Bureau approval on the <unk> transaction is expected to close on May 12 at that time or shortly thereafter, we will issue updated 2025 guidance for the combined company.
Speaker Change: We're very much looking forward to combining these outstanding assets and teams together to create a leading light oil condensate and natural gas producer focused on improving long term sustainability and profitability to drive superior returns to our shareholders our strategic priorities as we continue through the curve.
Speaker Change: Commodity pricing and market volatility remain unchanged with our focus on balance sheet management and capital discipline.
Speaker Change: Our management team has been through multiple cycles. Most recently through the pandemic environment in 2020 as well as in 2015, 16 time period and utilizing both periods of market dislocation to help transform what cash into the company. It is today.
Speaker Change: Maintaining balance sheet strength is a top part.
Speaker Change: Which will allow us to navigate through the curve.
Speaker Change: Certainty and insurance insurers, we continued to provide strong risk adjusted returns.
Speaker Change: Now to our debt and equity holders are balance sheet isn't exactly excellent shape at the end of the first quarter and this strength has maintained pool for the various combination with forecasted net debt of $3 $5 billion at year end, which represents a debt to annualized funds flow ratio of one times at our stress.
Speaker Change: Test case in a $50 <unk> and $2 equal price it would be still under one five times.
Speaker Change: Our friends from.
Speaker Change: Consistent with past periods of commodity price weakness.
Speaker Change: You have the flexibility to optimize our capital program across both our unconventional and conventional assets to prioritize free funds flow returning on capital investing and balance sheet strength, what kind of a dividend is an important component of our total returns to shareholders and is fully funded.
Speaker Change: Or below $50 a W. T I.
Speaker Change: And in combination with the strength of our balance sheet provides consistent and stable returns for shareholders through commodity price cycles, we remain focused on continuing to drive down.
Speaker Change: Of course, an increasing capital efficiencies to improve the long term profitability and sustainability of our business.
Speaker Change: We have the asset base.
Speaker Change: Presses operating teams and management are aligned to fully successful execute execute on these strategic priorities I will now pass it off to joy for Moores our remarks on our unconventional results.
Joy Moores: Hey, Brett.
Joy Moores: Our unconventional montney and Duvernay assets continued to perform exceptionally well driven by strong execution and the growing benefits of our unconventional development workflows.
Joy Moores: These were closed now embedded across our teams are yielding repeatable results in informing our long range planning efforts.
Joy Moores: That came up our first wine rack HUD has now reached the 180 days on production achieving an I P 180 rate of 1100, Boe's a day with 39% liquids.
Joy Moores: This is a strong result, and importantly, when viewed in tandem with observed and interpreted bottom hole flowing conditions strengthens our confidence in this development strategy. On these lands are of particular interest the rate of drawdown is lower than relevant offset wells and condensate to gas ratios are being sustained at higher values than those offsets, indicating improved reservoir coverage.
Joy Moores: Our second wine rack pad recently came on line two permanent facilities and early results are promising as rates and pressures are conforming to expectations established on the first part of that.
Joy Moores: With these results in hand, we have elected to spud, our third wine rack pad. The six five pad and look forward to further validating the designs broader application across our future inventory to keep up.
Joy Moores: The catwalk, we successfully drilled and completed our first triple bench pad in northwest talk about 16 or 17.
Joy Moores: So flow tests have been encouraging.
Joy Moores: Observed frac behavior, including how the wells treated and how the three benches interacted with each other and also parent wells conforms to our expectations.
Joy Moores: This provides an important early validation point for this configuration.
Joy Moores: The pet has been tied into permanent facilities and we look forward to sharing more information on these wells as it becomes available.
Joy Moores: Also in CAC Lac were drilling a new four well pad at the southeast Cockler area using six wells per section spacing building off the inter well spacing success, we saw in 2023.
Joy Moores: It must be wrong, we did experience some brief downtime in January and February stemming from an unexpected outage on one of our four compressors that are five and nine facility that necessitated a reduction in throughput by about 25% for just over a month.
Joy Moores: Since then production has returned to our facilities condensate constrained capacity of about 17500 Boe's per day.
Joy Moores: Our next pad in the area will be drilled in the second half of 2025 with production expected in early 2026 has plenty of capacity becomes available.
Joy Moores: Well performance continues to impress with long term aggregate production exceeding expectations by more than 20%.
Joy Moores: This can be attributed to both our development configuration as well as production strategy of optimizing economic well recoveries through deliberate drawdown management throughout the early productive life of the wells.
Joy Moores: And Ah Berland area, we have just brought on line. Another two months at wells initial rates. After 90 days are just over a thousand boe's per day of which just over 500 barrels a day is condensate.
Joy Moores: These results, which exceed our internal expectations for this localized area by approximately 14% are an important confirmatory data point.
Joy Moores: We are investigating targeted debottlenecking to support modest programs in this area in the years to come.
Joy Moores: Finally, our mature or 413 facility continues to advance on schedule.
Joy Moores: With 90% of long lead equipment, now ordered and detailed engineering well underway. We remain firmly on track for commissioning in late 'twenty 'twenty six to early 'twenty 'twenty seven.
Joy Moores: This facility will unlock 35000 to 40000 Boe's per day of high impact Montney production with the potential for significantly more in phase two.
Joy Moores: Our two recent delineation wells in the area continued to exceed expectations, which is helping to continue to build confidence in our long term development plans in the area.
Joy Moores: The first well at 13 of 21 has now been on production for more than a 180 days and has achieved an IP 181 80 of just over 1300 Boe's a day.
Joy Moores: <unk> 39 per cent liquids, including 420 barrels a day of condensate.
Joy Moores: The second well at 13F 35 with 120 days production.
Joy Moores: It was achieved in Q1 'twenty of roughly 650 barrels a day of which 23% of liquids, including 245 barrels a day of condensate.
Joy Moores: As noted in our last earnings call those liquids percentages would be expected to increase by 10% to 15% once they flow into deep cut facilities, which would be the case once our fourth routine facility is online.
Speaker Change: With that I will now pass it over to Chris Bohn to talk about our conventional assets.
Chris Bohn: Thanks Joanne.
Chris Bohn: First quarter operational results and our conventional assets, where strong overcoming weather related delays in February to exceed expectations across multiple regions in particular, our central Alberta, Cardium and glauconite assets drove a significant portion of the conventional outperformance to the first three months of the year.
Chris Bohn: Of note, we observe the impact that asset base diversification and collaboration between operating teams can have on results as our most recent wapiti cardium wells are significantly exceeding initial expectations. After updating our completion model based on learnings of our unconventional program.
Chris Bohn: These are our first cardiome wells drilled at Wapiti since Q4 of 2022, taking advantage of available infrastructure in the area.
Chris Bohn: The first three wells with I P. 90 data are averaging 650 Boe per day, with 81% liquids, which is 44% above our area type curve.
Chris Bohn: The success here is aided by an optimized completion design, which was established using workflows from our unconventional assets.
Chris Bohn: On these wells following a detailed technical review it was determined that we could realize superior results with tighter cluster spacing and higher proppant intensity.
Chris Bohn: Results from this year's development are being reviewed for read through an application on this and similar assets.
Chris Bohn: A clear example of how cross asset technical learnings is strengthening our overall portfolio.
Chris Bohn: We're also excited we also exceeded our expectations with our glauconite program in the first quarter mono bore drilling has now been fully implemented delivering 10% cost savings and expanding the economic reach of our inventory.
Chris Bohn: Infrastructure access improvements have also supported additional volumes and recent well results are trending above type curve. Our most recent five development wells that have over 90 days of production history are yielding an average IP 90 rate of 963 Boe per day, 52% liquids per well, which exceeds our type curve expectations by <unk> <unk>.
Chris Bohn: 27%.
Chris Bohn: This includes our most prolific well results to date in the block and I with our 436, well achieving an IP 90 in excess of 2000 Boe per day with 42% liquids.
Chris Bohn: We drilled 64 57.8 net wells in Saskatchewan during the first quarter with results meeting or exceeding our expectations.
Chris Bohn: The quality of our inventory coupled with short cycle times of strong market access provides wake up the flexibility to quickly augment our development activity in response to changing price environments and evolving business priorities. This adaptability strengthens our business and reinforces our competitive edge I will now pass the baton to further discuss our funding.
Chris Bohn: As a result.
Chris Bohn: Thanks, Chris first quarter funds flow was $446 million or 75 cents per share, which was up 17% compared to the first quarter last year and 7% higher than the fourth quarter of 2024.
Chris Bohn: After capital expenditures of 398 million free funds flow was 48 million.
Chris Bohn: W. T I averaged over $102 per barrel on a Canadian dollar basis during the first quarter with equal prices, averaging just over $2 per D. J.
Chris Bohn: First quarter operating and transportation costs totaled $15 92 per Boe E. Two.
Chris Bohn: Two 5% lower than Q1 2024 at $16 33 per Boe.
Chris Bohn: And consistent with the previous quarter.
Chris Bohn: We incurred cash taxes of $56 million or $3 50 per Boe equating.
Chris Bohn: Equating to 11% of pre tax funds flow.
Chris Bohn: After dividends of $107 million net debt remained below 1 billion, representing a debt to annualized first quarter funds flow of only <unk> six times.
Chris Bohn: On combination with Varian, we are forecasting net debt of $3 5 billion at year end based on current commodity prices and we will provide updated forecast when the transaction closes or shortly after.
Chris Bohn: Our revolving credit facility is expected to increase to 3 billion from 2 billion concurrent with the closing of the Varian combination.
Chris Bohn: This will provide us with greater than 1 billion of liquidity and allows us to be opportunistic with future bond issuances to provide additional liquidity if we so choose.
Chris Bohn: As grant previously discussed our number one priority is to maintain our balance sheet strength through commodity price cycles.
Chris Bohn: Do this by ensuring that we said less than or fund flow and keep our absolute level of debt flat.
Chris Bohn: Pro forma the Varian combination our base breakeven, where we can fund the dividend and maintenance capital is at $55 W. T.
Chris Bohn: And two dollar heiko.
Chris Bohn: We can further reduce it reduce this firstly through realizations of 210 million identified synergies on the Varian combination.
Chris Bohn: Keep in mind. This does not include any infrastructure synergies, which would look to realize longer term.
Secondly, in a sub $50 W. T I environment drilling activity slows down significantly as returns are not supportive.
Chris Bohn: And industry production is declining.
Chris Bohn: 2020, when oil averaged $43 per barrel, we saw our a D C. A T cost decreased 13% to 15%.
Chris Bohn: If we use 10% cost deflation on capital and 5% on operating costs. We can further reduce our breakeven by 280 million.
Chris Bohn: Lastly, natural gas prices have recently improved owing to the increased demand as LNG, Canada nears closer to first cargos and increasing north American demand through Gulf Coast LNG.
Chris Bohn: Natural gas prices are currently trading in excess of $3 in 2026.
Chris Bohn: By increasing the price of natural gas from two to $3. This would increase our funds flow by 200 million.
Chris Bohn: The combination of these three factors lowered our maintenance capital requirements by $200 million to $1 7 billion and increases their funds flow by 400 million, which allows us to be fully funded both maintenance capital and dividends at U S $47 per barrel W. T I and $3 a coal price.
Grant: With that I'll turn it over to grant for his closing remarks.
Grant: Thanks, Chris.
Grant: Thanks, Tom and Chris enjoy for your comments. The first quarter was another reminder of the strength of our asset base and our team's technical and operational expertise and extracting incremental value on these assets to provide strong returns to shareholders.
Grant: Well results continue to exceed expectations and successful development strategies are being transferred across the portfolio to continue to continuously improve our inventory and long term sustainability and profitability.
Grant: Very excited to bring the best of Whitecap endurance technical operating and financial teams together to drive even stronger returns for shareholders into the future and look forward to closing the transaction on May 12.
Grant: Our teams are currently working to optimize our go forward capital investments by seeking efficiencies in the combined operations high grading inventory repaying our development rig lines and more efficiently utilizing the combined infrastructure. We look forward to sharing more of these plans along with her.
Grant: For 2026 budget, an updated five year plan as we progressed through the balance of this year.
Speaker Change: With that I will now turn the call over to the operator Joanna for any questions. Thank you.
Grant: Thank you.
Joanna: Ladies and gentlemen, as stated if you do have a question. Please press star followed by one on your Touchtone phone you will hear about today.
Grant: Right.
Grant: Sure.
Grant: Your question. Please press star followed by Chip <unk>.
Speaker Change: But if you are using a speaker phone please lift your handset before pressing any case.
Grant: Please go ahead and Presto and now that you have a question.
Speaker Change: First question comes from Patrick or Mark at HED Capital markets. Please go ahead.
Mark: Thanks, Good morning, guys and congratulations on the competition Bureau approval look forward to that vote on May six and closing this transaction I guess.
Mark: First question here is just with respect to the $280 million in deflationary cost savings here I understand about two thirds as capital one third would be on the operational front. If maybe you could sort of unpack what the key drivers here are on that $280 million and then in turn.
Mark: Achieving that is that is this something you expect right away or is there a timeframe around this milestone.
Hey, Patrick it's a ton there. Thanks for that question I mean, I think we both recognize that lots of things change when we're talking about oil below $50 W. T I and I think when you look at you know our history over the last 15 year period of time, we've been able to successfully navigate through that.
Mark: Volatility and continue to maintain our balance sheet strength, which is the primary objective.
Mark: As a company here.
Speaker Change: When we think about what happened in 2020 and keep in mind here, Patrick our balance sheet is in a way better position today than it was when the COVID-19 environment that had so when you look at our balance sheet at one times debt to cash flow at $50 oil it would be one four times.
Speaker Change: <unk> debt to cash flow, we were slightly above two and a half times back in 2020, not requiring any type of covenant relief from our banks here. So we do have to look at a $50 pricing environment very much holistically in terms of the sustainability and durability.
Speaker Change: Of our business model here now what we've indicated here is our experience in 2020, which was sub $50. We saw cost deflation both on capital and operating costs are in the tune of somewhere between 13% to 15% now.
Speaker Change: All of this here, which is meant to be illustrative the capital that we've reduced in terms of deflation was 10% and 5% on operating costs in order to drive the $280 million again, it's illustrative to see what happens at $50 and our experience in 2020, there a bit.
Speaker Change: Queen 13% to 15%. So just trying to show how things can quickly change obviously at a higher pricing environment, we would expect to see inflation.
Speaker Change: Yeah.
Speaker Change: Okay. Thank you and maybe in the same vein, but a little bit more philosophical.
Speaker Change: So you've got to 5% long term growth trajectory here, but you can kind of pivot around higher and lower rates at any given time.
Speaker Change: And appreciating that some of these things are chunky and long lead time, but maybe you could give some insight into sort of the benchmarking prices, where you would be at the lower end of that band the midpoint and the higher end of the growth trajectory at any given time.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah, Patrick it's a it's Tom again here I.
Speaker Change: I think ultimately when we think about growth rates. It comes back to the returns that we can achieve on the capital that we're deploying and.
Speaker Change: And the free cash flow that we're able to generate a lot of these particular assets here. So two very important parameters that are critical for us when we're looking at capital allocation number one is capital payout how quickly we get our money back and are we profitable with the capital that we're deploying so are a profit to investment ratios are import.
When making these decisions here when.
Speaker Change: When you look at Whitecap on a standalone basis, we're targeting between 3% to 5% growth various five year plan had them about 7% growth.
Speaker Change: On combination I would say that 3% to 5% makes sense on a combined basis.
Speaker Change: Producing 370000 viewers per day, the lower end of that growth rate I would say would be you know somewhere.
Speaker Change: Somewhere between 60 to $70 W. T I and the higher end of that growth rate would be between 70 to $80 W. T. I a that would be the band that we're working with at this time.
Speaker Change: Okay. Thank you very much.
Patrick: Thanks, Patrick.
Thank you as a reminder, ladies and gentlemen, if you do have any questions. Please press star followed by the one on your Touchtone phone.
Speaker Change: Next question comes from Dennis Fong at CIBC Global markets. Please go ahead.
Dennis Fong: Hi, good morning, and thanks for taking the questions I guess first off I appreciate that incremental color around the flexibility and a number of different commodity price environments.
Dennis Fong: Wanted to shift to kind of my line of questioning as to a couple of other things. The first is can you talk a little bit around the cost controls that you're focused on with respect to the construction of the litter facility, obviously understanding the financing structure.
Speaker Change: So the project, but how are you guys managing some of the costs in a way that you feel are are.
Speaker Change: Don't want to get better necessarily but but done in a thoughtful way whether it would be for the build out of that facility or the ability to expand into.
Speaker Change: Into a second phase are there down the line.
Speaker Change: Yeah, Dennis I can take that one it's showing long here so.
Speaker Change: I mean, the fundamental part of of the design for US has always come back to the appropriate planning and of course strong that that too, but the facility is going to be asked to do and that goes back of course, the subsurface and the technical debt that goes into that so to that end planning for this facility has been underway for quite some time.
Speaker Change: And to your point there are in advance of course of the deal or the partnership we made with Pgi.
Speaker Change: So it's through that planning process, we've been very deliberate in terms of figuring out what that facility at.
Speaker Change: <unk> to look like.
Speaker Change: And make sure that we stay on track with that because it's those shifts and changes that can introduce uncertainty in a buildup of this size and you know I'll draw back on our experience with with muscle.
Speaker Change: Our five and nine facility there same story, a deep technical understanding of what the facility is going to be asked to do.
Speaker Change: Before we start heading down that path and then of course. The story. There is is that it came online slightly ahead of schedule and of course on a budget like we've mentioned before so we're going to try to stay on the same path for tour as well of course, there are macro things that they can come in the way, but again.
Speaker Change: When you look at the fact that we've placed 90% of our long lead items.
Speaker Change:
Speaker Change: To this date are things are looking pretty good for the overall control of costs go forward.
Speaker Change: And so Dennis is Joel Armstrong here. This is a follow up on some comments from jewelry. So that the Latour facility is really templated from an existing facility that are same folks built cable up. So there are some nuances that are of course different but it's not like it's something that our folks have been built before so we have great confidence.
Speaker Change: But our cost structure and making sure that it's a long time.
Speaker Change: Great.
Speaker Change: Thank you I appreciate that color shifting gears, a little bit more so if we think about a lot of the previous corporate acquisitions or even after the acquisitions you completed in the past you've you've kind of shown a track record of quickly applying like whitecap best practices to help improve efficiencies.
Speaker Change: And then in this kind of last update you've talked a lot about like the wine rack style development, especially hum.
Speaker Change: The wine rack style development can you see or have you how would you maybe compare and contrast, your style of development versus that of Barron and if so like what are some of the maybe the puts and takes that you see here and how quickly would you want to I will call. It attempt applying some of the learnings that you have or so forth on on.
Speaker Change: The acquired lands.
Speaker Change: Hey, Dennis show again, so yeah with with respect to the Varun assets M of.
Speaker Change: Of course, we've been looking at those assets for quite some time as you might imagine just as we're observing our peers and their associated development.
Speaker Change: So as a result, we do have some ideas of what might apply on those land I think the important part to remind ourselves there as you know as we look to combine the two companies get the two technical teams together figure out what what has been working on these lands and importantly, Dennis honestly find out what hasn't been working as well and.
Speaker Change: And start to incorporate those into our go forward long term development plan, which is in keeping with our strategy to date, which is really maximizing the economic returns on an acreage basis.
Speaker Change: Irrespective of any any sort of a particular initiative and you talked about the keyboard benching one as an example, with their lands being adjacent to ours and touching in many places you can guess, we do see a certain amount of read through but just like anything it's not going to be universal. So I would definitely say that there will be there.
Speaker Change: Things that we would like to unpack.
Speaker Change: And we'll definitely look to speak more on that is as our as our teams get together and get a better a better handle on that.
Speaker Change: Hey, Dennis this is Chris here, so I just want to expand on Joey's comments, there just more so from the conventional perspective echo a lot of those comments in particular and and for US I mean, I think the team's done such a great job in particular with advancing their open hole multilateral initiatives. So definitely some some key learnings there for us.
Speaker Change: As that applies to our other Saskatchewan asset bases.
Speaker Change: You know among some other things are of course being some of the EUR initiatives that they've they've spent a lot of time and efforts on so we're going to continue to you know combine those those focused efforts going forward as at the end of the day. It does make us a more sustainable and stronger entity Hum in the backdrop of spending that that they have spent to date on their EUR initiatives. So definitely some strengthening mechanisms there.
Speaker Change: For us and we're looking forward to the pro forma entity.
Speaker Change: Great.
Speaker Change: Great that color I'll turn it back.
Speaker Change: Okay.
Speaker Change: And at this time gentlemen, we have no other questions registered please proceed.
Speaker Change: Thank you Joanna and thanks to each of you on the line today and.
Speaker Change: We will continue to support us on our journey, we look forward to reporting back to you with continued success in advancement as we move forward with the combined company.
Speaker Change: Coming very soon.
Speaker Change: Goodbye for now.
Speaker Change: Yeah.
Speaker Change: Thank you, Sir ladies and gentlemen, this does.
Speaker Change: 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.
Speaker Change: Okay.