A busy 12-18 months. WCP has acquired NAL Resources for $155M (1.6x 2021 DACF at $45 WTI), TORC Oil & Gas for $900M (4.8x 2021 DACF at $50 WTI), Kicking Horse Oil & Gas for $300M (2.0x 2022 DACF at $55 WTI), a private company in SE Saskatchewan for $67M (2.3x 2021 DACF at $65 WT), and three properties in its core areas for $343M (2.6x 2022 DACF at $65 WTI; Exhibit 1).
2022 to show fruit of the labour. WCP has built itself into a producer of 131 mboe/d (73% liquids). At strip prices, this will generate about $1,516M in cash flow. Netting off capex of $520M and lease payments of $14M leaves about $982M in FCF (before dividends). The company’s expected 2022 dividend is $163M, leaving an additional $819M of FCF (after dividends). Currently, we model the allocation of that FCF (after dividends) as 50% debt repayment and 50% share buybacks.
Balance sheet remains strong. After several acquisitions, the balance sheet remains healthy. We forecast a 2022E D/EBITDA (strip) at 0.6x. The company has a credit facility of $2B (committed until May 2026) of which about 60% is drawn.
Asset portfolio likely to remain. Whitecap has four core areas that span from NE BC down to SE Sask. Management is happy with the diversification and there are no plans for major asset sales. Although the last 18 months have been busy with acquisitions, we expect the pace to slow meaningfully. Although A&D is largely opportunistic, we expect the annual pace to be closer to $200M/yr of bolt-on acquisitions. Via lower spending and decline mitigation efforts (about 15%-20% of annual capex spend), the company has lowered its decline rate from the high 20% range to the low 20% range. Assuming a 21% decline rate and $21,000/boe/d in capital efficiencies suggests a sustaining capital figure of about $575M/year. The company’s base plan is to grow production 3%-5%/year
Kicking Horse volumes rise. The asset was bought with production of 7-8 mboe/d and is expected to hit 14 mboe/d in Q4 and to average 18-19 mboe/d in 2022. The type curves remain as expected, however the company was able to reduce well capital by 10%-15% to $9.2M-$9.5M/well. Economics in this area remain in the top quartile.
New Energy… waiting on the feds. Although the group continues to push forward initiatives with recent MOUs with operators in the Regina/Belle Plaine area, the bigger work cannot begin without more clarity from the federal government on CO2 capture incentives as well as EOR. Clearly EOR would be more beneficial to WCP as it would allow the company to better optimize its Weyburn asset. Unfortunately, the federal government has not shown much interest to date in encouraging the storage of CO2 via EOR projects. However, conversations are ongoing, and we expect Whitecap to hear from the federal government in Q1 or sometime in the spring. If the federal government does provide meaningful support, WCP would start on FEED (front-end engineering and design) work for a potential project. This would run $10M. For frame of reference, it's about 140 km from Regina (source of emitter) to Weyburn (source of CO2 storage via EOR).
Valuation looks compelling. WCP’s 2022 DAFCF yield (strip) of 21% compares favourably with its Canadian oil-weighted E&P, Canadian large cap, and U.S. peers at 20%, 16%, and 12% respectively