Whitecap Resources Inc.
(WCP-T) C$9.19
Ups Dividend with YE Results (Many data points pre-released)
Event
Reports Q4 Results, Dividend Increased, Guidance Unchanged
Impact: NEUTRAL
Key Data Points Pre-Released, CFPS as Expected: Recall that on February 14, Whitecap released YE-2021 reserves, Q4 production, operating netback, and full- year 2021 capex (see here). What was not formally released was Q4 2021 CFPS of $0.55, which was in line with our estimate ($0.55) and Consensus ($0.54). 2022 guidance was reiterated and we have made immaterial revisions to our estimates.
Dividend Once Again Increased (this time by 33%). Whitecap previously articulated a strategy to return 50% of FCF to shareholders in 2022. Consistent with this strategy, Whitecap announced it is increasing the base dividend by 33% to $0.03/ month (from $0.0225). This new dividend level represents an annualized yield of 3.8% and consumes 22% of TD-estimated FCF at our below-strip price assumptions.
Significant FCF for Additional Shareholder Returns: To achieve its shareholder return target, we estimate an incremental $273 million could be redirected towards equity holders through additional base dividend increases and/or buybacks - equating to 5% of its current market cap. With Whitecap sensitizing base-dividend sustainability down to US$45/bbl WTI, we suspect NCIB purchase will continue to be a large part of the return-of-capital offering.
Continued New Energy Unit Initiatives:
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WCP has linked its carbon price at Joffre to WTI in 2023+. With CO2 credits under
the TIER program, it expects to completely offset the cost of CO2 used at Joffre at WTI US<$80/bbl.
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As announced by Wolf Midstream yesterday, Whitecap has entered into a proposal with Wolf and First National Capital Investment Partnership to manage a carbon sequestration hub in Alberta. This is incremental to the previously announced Saskatchewan Carbon Hub initiatives. At this time, details regarding the magnitude/cadence of capital associated with these projects and potential IRR hurdles have yet to be determined or disclosed.
TD Investment Conclusion
We recommend Whitecap based on management's long history of execution, strong FCF profile, well-established asset base, and carbon negative status.