CIBC comments on resultFirst Look: Q2/23 Results Ahead Of Expectations
Whitecap reported Q2/23 results which were ahead of our expectations and consensus. Variances to our estimates stem primarily from higher light oil and condensate realizations partially offset by lower-than-expected NGL realizations. Key takeaways from the quarter include continued strong results out of Kakwa Montney wells and commencement of the Duvernay program in the second quarter, including Whitecap’s first three-well pad and a subsequent four-well pad in late June. Focus on lowering outstanding leverage is continuing, with the company expecting to achieve its $1.3 billion net debt milestone in H2/23 (given current strip).
Financial And Operating Takeaways:
• Q2/23 results. Production of 147,166 Boe/d was in line with our estimate of 146,369 Boe/d and the consensus estimate of 145,200 Boe/d. Adjusted FFO per share of $0.68 was above our estimate and consensus of $0.63 by ~8% (range of $0.61 to $0.78). Capex of ~$218 million was in line with our estimate of ~$218 million and ~6% above the consensus estimate of ~$205 million.
• Return of capital. In Q2/23, $88 million was returned to shareholders through the base dividend ($0.58 per share annualized), and there were no share repurchases. Whitecap finished the quarter with net debt of $1.36 billion with a focus on achieving its $1.3 billion target. We expect Q3 to be a heavier quarter for capital spending, suggesting the $1.3 billion target could be achieved in early Q4/23 on current strip. When this target is achieved, FCF allocation to shareholder returns is expected to increase to 75% including an increase to an annualized $0.73/share dividend.
• 2023 guidance. Capital spending of $900 million - $950 million remains unchanged while production expectations were adjusted to 157 MBoe/d – 159 MBoe/d mid-quarter from 160 MBoe/d – 162 MBoe/d as a result of the wildfires. The company reported no significant damage to assets with all production having been turned back online from the wildfires.
• Operational update. 43 wells (41.6 net) were spud in Q2, 34 in the east division and nine in the west including the first three-well Duvernay pad at Kaybob and a three-well Montney pad at Kakwa. The company plans to spud 15 Montney wells (15.0 net) and bring eight wells (8.0 net) on production before year end. Kakwa has continued to show strong results with 82% of the wells with greater than three months of production having achieved or are expected payout in less than 12 months.
• Valuation. Whitecap trades at a 2024E EV/DACF multiple of 4.2x and a 2024E FCF yield of 7%, vs. the oil-weighted SMID cap group at 3.2x and 16%, respectively