TD updateRevises Guidance, Increases Dividend, Articulates Plan for 2022 FCF
Impact: POSITIVE
Pulls Capital Out of Spending Plans Through YE-2022: Between now and YE-2022, Whitecap articulated a plan that consumes $25 million less capex than the mid-point of the prior guidance. The company now intends to spend $430 million in 2021, which is ~$65 million higher than the mid-point of prior guidance. However, for 2022, Whitecap intends to spend $480 million - $90 million less than the mid-point of the prior range. The 2022 production guidance range is now 121-123 mBOE/d (unchanged from recent outlook of 122 mBOE/d).
Our View: We have lowered our capital assumption for Whitecap by $25 million (3%) through YE-2022 with a modest 1% increase in 2022E production. Despite a 37% increase in spot WTI and 130% increase in HH since the original budget was announced, Whitecap has not only held the line in go-forward spending but trimmed capex from the plan.
Dividend Increased 38%: The new monthly dividend of $0.0225/shr (from $0.01625/shr) equates to an annualized yield of 3.6% and consumes only 13% of 2022E CF and 18% of 2022E FCF (after sustaining capex). One of the First Canadian E&Ps to Formalize Plan for 2022E FCF: Whitecap announced that it intends to return 50% of discretionary CF (i.e., FCF after capex and current dividend) to shareholders via buybacks and incremental dividends. We estimate this equates to $341 million (7% of current market cap) of incremental shareholder returns beyond the base dividend.
Rapid Deleveraging in 2022E: Including the dividend increase (but excluding incremental shareholder returns or M&A), we forecast that WCP is on track to reduce net debt to only $360 million by YE-2022 (0.3x 2022E D/CF). Including the plan to direct 50% of discretionary CF to shareholders, our YE-2022E D/CF forecast would remain low at 0.5x.
TD Investment Conclusion We continue to recommend Whitecap for conventional oil exposure, given its diverse high-quality asset base, emerging exposure to liquid-rich Montney plays at Karr and Kawka, low balance-sheet leverage, unique carbon storage credentials, and a now clear strategy to return a large portion of discretionary CF to shareholders.