June 28, 2022
WHITECAP RESOURCES INC. ACQUIRES XTO ENERGY CANADA IN AN ALL-CASH TRANSACTION AND INCREASES DIVIDEND BY 22%
CALGARY, ALBERTA – Whitecap Resources Inc. ("Whitecap" or the "Company") (TSX: WCP) is pleased to announce it has entered into a purchase and sale agreement to acquire XTO Energy Canada for total cash consideration of approximately $1.9 billion and the assumption of estimated positive working capital on closing for a net purchase price of $1.7 billion (the "Acquisition"). The Acquisition is expected to close before the end of the third quarter, subject to customary closing conditions, including the receipt of necessary regulatory approvals.
The acquired assets are currently producing approximately 32,000 boe/d1 (30% condensate and NGLs) from the Duvernay and Montney formations in Northwest Alberta, and include 672,000 (639,000 net) acres of land containing over 20 years of tier one drilling locations, and an operated 165 mmcf/d shallow cut gas processing facility servicing owned and third-party Duvernay volumes.
The Acquisition will be funded through existing credit facilities and a new committed 4-year term loan. On closing, Whitecap is expected to have net debt2 of $2.1 billion on total credit capacity of $3.1 billion and a debt to EBITDA ratio3 of 0.8 times, decreasing to 0.6 times at year end on current strip pricing.
STRATEGIC RATIONALE
The Acquisition significantly improves our free funds flow4 profile, adds top tier Montney inventory by expanding and consolidating certain working interests in Whitecap’s current Montney assets in the greater Kakwa, Alberta region, and represents an entry into the prolific liquids-rich Duvernay play at Kaybob. Further strategic attributes and transaction rationale include:
· Top Tier Montney & Duvernay Inventory. Montney lands acquired total 598,000 (567,000 net) acres, which increases Whitecap’s total acreage in the Montney by over 500% and adds 1,772 (1,693 net) Montney drilling locations providing decades of long-term sustainable production growth and free funds flow generation. Additionally, the Acquisition consolidates certain working interests at Kakwa, Alberta, from an average of 66% to 100% on approximately 22,000 gross acres.The Acquisition represents Whitecap’s entry into the prolific liquids-rich Duvernay play at Kaybob including 74,000 (72,000 net) acres with 252 (217 net) identified drilling locations.
· Increased Free Funds Flow. The acquired assets generate significant free funds flow resulting in free funds flow per share accretion of 20% in 2023 and 2024. Production is expected to grow to an optimized 50,000 to 60,000 boe/d over the next 3-5 years, allowing the Company to continue to focus on increasing shareholder returns at a more advanced pace.
· Enhanced Per Share Value. All-cash transaction drives accretion to key 2023 per share metrics including 27% on funds flow, 20% on free funds flow and 27% on production. Accretion on total proven plus probable reserves per share and net asset value per share5 are 50% and 28%, respectively6.
· Strong Balance Sheet. In connection with the Acquisition, Whitecap has obtained a financing commitment for a new $1.1 billion 4-year term loan which results in total credit capacity of $3.1 billion. On closing of the Acquisition, Whitecap is expected to have net debt of $2.1 billion, decreasing to $1.5 billion by year end, which would represent a debt to EBITDA ratio of 0.6 times on current strip pricing. This is expected to further decrease in 2023 to net debt of $800 million at year end, which would represent a debt to EBITDA ratio of 0.4 times at US$85/bbl WTI crude oil and C$4.50/GJ AECO natural gas.
· Increases Condensate and Natural Gas Exposure. Forecast 2023 production of 36,000 boe/d on the acquired assets consists of 27% condensate, 9% natural gas liquids and 64% natural gas volumes. On the back of a positive outlook for North American natural gas driven by increased natural gas exports and a focus on global energy security, the Acquisition allows Whitecap to deliver a more balanced portfolio and diversify its commodity revenue streams, gaining significant long-term exposure to North American natural gas prices and development optionality.
· Improves ESG7 Profile. The Acquisition contains attractive environmental attributes including an expected reduction in our corporate carbon intensity, driven by the increased focus on natural gas, along with minimal discounted asset retirement obligation of approximately $30 million. This is accretive to our existing ESG efforts, building on Whitecap’s globally leading carbon capture, utilization and storage projects and expertise.
· Attractive Acquisition Metrics. At US$85/bbl WTI crude oil and C$4.50/GJ AECO natural gas prices for 2023, the estimated net purchase price of $1.7 billion equates to 3.3 times operating funds flow8, a 15% free funds flow yield, and $10.63/boe on a total proved plus probable reserves basis (including estimated future development capital).
DIVIDEND INCREASE AND RETURN OF CAPITAL FRAMEWORK
The Acquisition provides Whitecap with approximately $200 million of incremental free funds flow per year allowing us to accelerate the return of capital to our shareholders. Effective with the July dividend payable in August, our Board of Directors has approved a 22% increase to the monthly dividend to $0.0367 per share, from $0.03 per share previously, which equates to $0.44 per share on an annual basis.
Following the close of the Acquisition, our balance sheet will remain a priority with net debt milestones of $1.8 billion which we expect to achieve before year end 2022 and $1.3 billion which we expect to achieve in the first half of 2023. We are targeting additional dividend increases of $0.12 - $0.15 per share annually on achieving each net debt milestone, resulting in a total targeted annualized dividend of $0.73 per share. Whitecap’s net debt milestone of $1.3 billion represents a debt to EBITDA ratio of less than 1.0 times at a stress test commodity price deck of US$50/bbl WTI and C$4.00/GJ AECO or 0.6 times at US$85/bbl WTI and C$4.50/GJ AECO. Upon achieving this milestone, we anticipate returning 75% of free funds flow back to shareholders with the balance used to position Whitecap for future business development opportunities.
PRO FORMA OUTLOOK
Whitecap is well positioned to continue to deliver strong total shareholder returns with enhanced free funds flow, improving capital efficiencies and a strong balance sheet.
Our revised 2022 forecast, assuming an October 1 closing date for the Acquisition, is as follows:
|
|
2022 Pre-Acquisition |
2022 Post-Acquisition |
% Change |
|
Average production (boe/d) |
130,000 – 132,000 |
138,000 – 140,000 |
6% |
|
Per million shares outstanding |
209 |
221 |
6% |
|
% oil and NGLs |
73% |
71% |
(2%) |
|
Funds flow ($MM) |
$2,240 |
$2,348 |
5% |
|
Per share |
$3.56 |
$3.74 |
5% |
|
Development capital9 ($MM) |
$570 |
$620 |
9% |
|
Free funds flow ($MM) |
$1,670 |
$1,728 |
3% |
|
Per share |
$2.66 |
$2.75 |
3% |
|
|
|
|
|
|
Crude Oil (WTI US$/bbl) |
$98.04 |
$98.04 |
- |
|
Edmonton Par Differential (US$/bbl) |
$2.87 |
$2.87 |
- |
|
CAD/USD exchange rate |
1.27 |
1.27 |
- |
|
Natural gas (AECO C$/GJ) |
$5.57 |
$5.57 |
- |
Our preliminary 2023 forecast is as follows:
|
|
2023 Pre-Acquisition |
2023 Post-Acquisition |
% Change |
|
Average production (boe/d) |
135,000 |
168,000 – 174,000 |
27% |
|
Per million shares outstanding |
216 |
273 |
27% |
|
% oil and NGLs |
73% |
65% |
(8%) |
|
Funds flow ($MM) |
$1,665 |
$2,108 |
27% |
|
Per share |
$2.66 |
$3.37 |
27% |
|
Development capital ($MM) |
$740 |
$900 - $1,100 |
35% |
|
Free Funds Flow ($MM) |
$925 |
$1,108 |
20% |
|
Per share |
$1.48 |
$1.77 |
20% |
|
|
|
|
|
|
Crude Oil (WTI US$/bbl) |
$85.00 |
$85.00 |
- |
|
Edmonton Par Differential (US$/bbl) |
$4.00 |
$4.00 |
- |
|
CAD/USD exchange rate |
1.28 |
1.28 |
- |
|
Natural gas (AECO C$/GJ) |
$4.50 |
$4.50 |
- |
ASSET DETAILS
The acquired assets are characterized by high production rates and reserves, efficient and highly economic liquids-rich assets with significant tier one drilling locations across the entire 672,000 (639,000 net) acres land position. Our initial plans are to grow this asset to 50,000 to 60,000 boe/d over the next 3-5 years, at which point there will still be 20 years of tier one drilling inventory to maintain production. Our budgeted wells for the Montney and Duvernay rank top decile among our asset base, and pro-forma the Acquisition the Montney and Duvernay will represent the highest proportion of long-term resource potential within our asset portfolio.
The reserves attributed to the Acquisition were evaluated by McDaniel & Associates Consultants Ltd. ("McDaniel") in a report effective as at May 1, 2022 (the "McDaniel Reserves Report") using the three consultant average price deck as at April 1, 2022 with WTI averaging US$80.78/bbl and AECO averaging C$3.70/GJ (2022 – 2026), which is lower than current strip prices. Of the 2,024 (1,910 net) drilling locations identified, 237 (213 net) are included in the McDaniel Reserves Report and 1,787 (1,697 net) are unbooked.
|
|
Proven Developed Producing |
Total Proven |
Total Proven plus Probable |
|
Reserves (MMboe - % liquids) |
49.7 (28%) |
226.0 (35%) |
403.2 (35%) |
|
Net Present Value ($ million - 10% Discount) |
$822 |
$2,452 |
$3,829 |
Montney
· The Acquisition consolidates certain working interests at Kakwa where recent wells drilled and completed by Whitecap have outperformed internal expectations. Whitecap has optimized its completion design on recent wells, and there will be no change to capital spending plans in this area as Whitecap already controls the pace of development.
· Whitecap’s total Montney acreage is now 683,000 (638,000 net) acres with a total of 2,226 (2,112 net) drilling locations.
· Montney production utilizes owned gathering and compression along with third-party gas processing in the area that has significant spare capacity. This provides ample room for production growth in the area.
· Liquids are currently trucked to processing facilities; however, the majority of these volumes will be transferred to a third-party pipeline, scheduled to be in service in the first half of 2023. Natural gas volumes will be transported to end markets via firm service on the Nova Gas Transmission Line.
Duvernay
· The Acquisition includes 100% ownership of the 15-07 gas processing facility which is a shallow cut facility with 165 mmcf/d of capacity. The facility currently processes the acquired Duvernay volumes along with third-party volumes from area producers. Ownership of this facility provides the Company with development optionality for future exploitation of the assets.
· Industry has made significant strides to improve the economics of the Duvernay over the past several years through refined drilling and completion techniques, quicker drilling times and improving production rates. We intend on utilizing these refined methods along with recent learnings from our Montney program to further improve the economics and free funds flow potential of the asset.
· Firm service for both liquids handling as well as natural gas egress is in place and will be utilized by Whitecap.
ADVISORS
National Bank Financial Inc. is acting as financial advisor to Whitecap on the Acquisition. National Bank Financial Markets and TD Securities are acting as joint bookrunners and co-lead arrangers with respect to the term loan facilities.
On behalf of our employees, management team and Board of Directors, we would like to thank our shareholders for their support and look forward to updating you on our progress throughout the year.
CONFERENCE CALL AND WEBCAST
Whitecap has scheduled a conference call and webcast to begin promptly at 9:00 am MT (11:00 am ET) on Wednesday, June 29, 2022.
The conference call dial-in number is: 1-888-390-0605 or (587) 880-2175 or (416) 764-8609
A live audio webcast of the conference call will be accessible on Whitecap's website at www.wcap.ca by selecting "Investors", then "Presentations & Events". Shortly after the live webcast, an archived version will be available.
For further information:
Grant Fagerheim, President & CEO
or
Thanh Kang, Senior Vice President & CFO
Whitecap Resources Inc.
3800, 525 – 8th Avenue SW
Calgary, AB T2P 1G1
(403) 266-0767
www.wcap.ca
InvestorRelations@wcap.ca
NOTES
1 Disclosure of production on a per boe basis in this press release consists of the constituent product types and their respective quantities disclosed elsewhere in this press release. Refer to Barrel of Oil Equivalency and Production and Product Type Information in this press release for additional disclosure.
2 Funds flow, funds flow per share and net debt are capital management measures. Refer to Specified Financial Measures in this press release for additional disclosure and assumptions.
3 Debt to EBITDA ratio is a specified financial measure that is calculated in accordance with the financial covenants in our credit agreement.
4 Free funds flow is a non-GAAP financial measure and free funds flow per share and free funds flow yield are non-GAAP ratios. Refer to Specified Financial Measures in this press release for additional disclosure and assumptions.
5 Refer to the Oil and Gas Advisories section for additional disclosure regarding how we calculate net asset value per share.
6 Reserves attributed to the Acquisition are based on the McDaniel Reserves Report. See Oil and Gas Advisories – Reserves.
7 ESG represents the commonly referred to acronym for the non-financial Environmental, Social and Governance factors impacting investor and stakeholder analysis.
8 Also referred to as “operating netback”. Operating netback is a non-GAAP financial measure. Refer to Specified Financial Measures in this press release for additional disclosure and assumptions.
9 Also referred to herein and/or in our other disclosure documents as “capital expenditures”.
Refer to full press release for forward-looking statements and advisories.
