Details:
• XTO Acquisition improves sustainability, long-run drilling inventory. Management provided incremental details on the underlying sustainability of the pro-forma business with the base decline rate increasing from 21% to 25%. However, this is offset by improved capital efficiencies of $18,000-19,000 per boe/d, down from $23,500 per boe/d on the base portfolio. The deal was also largely neutral from a netback perspective, given a favourable cost structure on the acquired assets with sub-$10/ boe operating costs. The company also highlighted the deal more than doubled its drilling inventory, which sets the company up for several decades of development. Management sees the total value of the assets acquired at roughly $7.2 billion at US $75/bbl WTI and C$4.50/GJ AECO.
• The acquired assets showcase robust economics. Management acquired 11,000 boe/d of Montney volumes, with the team adding 1,772 (1,693 net, 372 Tier 1) drilling locations and noting plans to drill 20-25 wells per year going forward. On acquired Duvernay assets, Whitecap acquired 21,000 boe/d of volumes, with 252 (217 net, 112 Tier 1) drilling locations, along with a 100% owned shallow cut facility; management plans to drill 4-8 Duvernay wells per year. Whitecap's Montney type curves pay out in 4-5 months on roughly $10.5 million in D&C cost, with P/I ratios of 2.1x/2.8x for the company's high/medium liquids type curves. By comparison, the Duvernay type curve pays out in roughly 6 months with a 1.7x P/I ratio on $11 million in D&C costs. Both are modelled on US$81 WTI and C$3.70/GJ AECO pricing by Whitecap.
• Improved return of capital strategy linked to debt reduction thresholds. Whitecap reiterated the value of the cash transaction with strong accretion metrics across the board. The company noted peak debt of roughly $2.1 billion following the deal on $3.1 billion in total funding capacity. Following the latest dividend increase to $0.44/share annually, management highlighted targeted 25-30% dividend increases upon reaching debt milestones of $1.8 billion (Q4/22) and $1.3 billion (H1/23). Management believes the targeted dividend payout of $0.73/share is fully sustainable down to US$50/bbl WTI and C$4/Gj AECO pricing. After this point, Whitecap plans to return 75% of free funds flow to shareholders through dividends and/or share buybacks with the balance allocated to the balance sheet/incremental M&A.
• 2022/23 pro-forma guidance reiterated. Management maintained its 2022 guidance with $620 million in capital spending driving volumes of 139,000 boe/d, inclusive of one quarter contribution from the XTO assets. In 2023, the team reiterated plans to grow the acquired assets to 36,000 boe/d, with $900 million to $1.1 billion in total capital spending driving volumes of 168,000-174,000 boe/d.