Whitecap Resources Inc. Q4/23 – Outlook Intact
Our view: Whitecap's Q4 was slightly weaker than expected, though management reiterated the outlook for 2024. In our view, the stock has recently lagged peers driven by the deterioration of the gas market combined with a perceived deal overhang. That said, oil/liquids remains the primary driver of economics and we believe management is currently focused on strategically additive tuck-in transactions within the oil business. As a result, we think relative positioning has improved somewhat and have left our Outperform recommendation unchanged.
Key points:
Q4/23 – volumes, CFPS slightly below our estimates. Q4/23 volumes of 166,554 boe/d (65% liquids) were below RBC/consensus estimates of 169,178/168,400 boe/d. CFPS (f.d.) of $0.76 came in slightly below RBC/in-line with consensus estimates of $0.78/$0.75. E&D capital totaled $199 million (excluding capitalized G&A), slightly below RBC/in-line with consensus estimates of $208/$200 million; see Exhibit 1 for key variances and estimate changes.
Outlook unchanged, strong asset performance across the board.
Management reiterated the outlook for 2024 with capital spending of $0.9-1.1B expected to drive volumes of 165-170 kboe/d (RBC: $1.1B, 168.4 kboe/d). The company highlighted strong performance across each core operating area with type curves generally outperforming initial expectations owing to rock quality and longer lateral wells (see Exhibit 1 for more details).
2023 reserves slightly lower y/y. Whitecap also released its 2023 reserve book with a 4%/1%/4% decrease in PDP/1P/2P reserves, though production replacement mapped to 107%/141%/107%. 2P FDC was roughly flat at $8.4 billion, with 2P FDC/2024E capex mapping to 8.4x (vs 8.8x in 2023). See Exhibit 2 for more details.
RoC a key focus. Whitecap exited Q4/23 with $1.39B in net debt (RBCe: $1.35B), with the company now below its long-term net debt target, triggering a 75% return of FCF through a mix of its base dividend ($0.73/ share) and NCIB utilization. We model $71/$130 million in share buybacks through 2024E/25E (likely paid on a trailing basis). We do not forecast M&A, though we believe this likely comes into play in 2024 with a focus on strategic tuck-ins within the oil portfolio.
Reiterating Outperform rating. We maintain our Outperform rating and $13/share target price. Whitecap trades at a slight premium to oil-weighted peers (Exhibit 3), which we believe is warranted given a sustainable FCF profile, ESG leadership, and seasoned management team. Management will host its Q4/23 conference call on February 22 at 11AM ET. Dial-in: 1-888-390-0605.