TD updateWhitecap Resources Inc. (WCP-T)
CO2 Deal Highlights the Importance of EOR in Net Zero Future
Event Preliminary Agreement to Pursue Carbon Capture/Storage with Federated COOP
Impact: SLIGHTLY POSITIVE (Long Dated Preliminary Initiative)
WCP & FCL Sign 0.5 MTPA CCUS Memorandum of Understanding: In a press release and subsequent press conference, WCP and Federated Co-operatives Ltd. (FCL), announced that they have entered a memorandum of understanding (MOU) to capture, transport, and sequester CO2 from the FCL Ethanol Complex near Belle Plaine and the FCL Refinery Complex in Regina.
Initial Deal with FCL Has the Potential to Grow Into Something Larger: The carbon will be transported to Whitecap's EOR project in Weyburn and support future expansions. Beyond the two FCL facilities, the agreement contemplates infrastructure that could be used as a trunk line by other industrial emitters and/ or could provide CO2 to third-party upstream EOR projects. It was suggested on the public conference call that this infrastructure could be scaled up to ~2 MTPA should enough additional third-parties sign up.
Commercial Details Being Negotiated, But Combined Preliminary Capital Cost of ~$800 million (40% WCP): At this time, the details are limited with the terms of commercial agreements likely dependent on yet-to-be-announced federal government carbon credit initiatives. We anticipate the timing of such an announcement around year-end.
On a joint public conference call, we understand that FCL will own/fund the precombustion carbon capture infrastructure at its facilities at a cost of ~$510 million (preliminary), with Whitecap funding the compression, transportation, and storage of the carbon for EOR purposes at Weyburn for ~$300 million.
Project Timing Mid-Decade: FCL anticipates that its carbon capture facilities would be online at the Ethanol Complex in 2024 and the Refinery Complex in 2026, respectively.
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, and unique (and growing) carbon storage credentials. The company also features a long-standing track record of generating FCF and returning cash to shareholders through consistent dividend growth (last increase was in May) and active NCIB participation.