From RBC
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