February 24, 2022
Whitecap Resources Inc.
Q4/21 - Pushing Forward on New Energy
Our view: Whitecap's quarter was largely pre-released with the company continuing to exhibit capital discipline and a sharp focus on shareholder returns. ESG remains a priority with Whitecap's New Energy Team identifying several long-term opportunities in CCS/Hydrogen and the company adding a sustainability feature to the credit facility. We reiterate our favourable view of the stock and have bumped our target price to $12/ share.
Key points:
Q4/21 volumes, CFPS pre-released. Volumes of 120 mboe/d were pre- released and drove CFPS of $0.55; key netback variances and estimate changes are noted in Exhibit 1. Capex of $135 million came in above consensus at $109 million (RBC: $142 million), closing the year at $428 million. Whitecap increased its dividend by 33% to $0.36/share annually, which compared to our forecast of $0.34/share.
New Energy Initiatives continue momentum into 2022. Whitecap has applied for its Joffre CO2 EOR project to be included in the Alberta TIER program and expects CO2 credits generated to fully offset carbon purchase costs in 2023. Whitecap also signed a third MOU in the Regina/Belle Plaine area, bringing aggregate CO2 emissions from its three signed agreements to 0.9-1.6 Mtpa. Additionally, management reiterated confidence in the recent Industrial Heartland's carbon hub proposal in providing a low-cost decarbonization solution with proven partners (see our note here).
2022 guidance unchanged. Whitecap maintained production and capital guidance following their TimberRock acquisition announced in December (see here). Whitecap is guiding for 2022 volumes of 130-132 mboe/d and capital spend of $510-$530 million. Capital guidance includes $85 million (16% of total) allocated towards EOR and HS&E initiatives along with 186 (151.0 net) wells drilled across the portfolio.
Estimate changes - minor tweaks. We have adjusted our model to incorporate Q4 actuals. Production remains largely unchanged for our forecast period, though CFPS decreases 2% in 2023E as a result of hedging impacts (Exhibit 1).
Balance sheet supports increased shareholder returns; Adding sustainability features to the credit facility. We forecast the company reaching a net cash balance by early Q2/23E, in-line with the broader coverage group reaching net cash by 2023E. Our forecasts include $220 million annual share buybacks and an additional 25% dividend increase in 2023. Our estimates do not incorporate the potential for additional M&A, though we view this as likely and targeted in core operating areas.
Raising target price and maintaining rating. We have increased our target price to $12/share and maintain our Outperform rating. Whitecap shares currently trade at 2.7x/2.0x 2022E/23E EV/DACF vs. peers at 2.7x/1.9x. In our view, a premium multiple is warranted by the company’s strong balance sheet, FCF profile, continued ESG leadership, and seasoned management team.