We hosted a retail presentation with Whitecap Resources, led by Grant Fagerheim (CEO) and Thanh Kang (CFO), following Q3/23 results released in October (note here); see below for additional details:
Details:
2024 guidance incorporates longer-term infrastructure/EOR capital to enhance the sustainability of the business. Whitecap reiterated its 2024 guidance with 162-168 kboe/d (RBCe: 165 kboe/d) and capital spend of $1.0-$1.2B (RBCe: $1.2B, +26% y/y, including $315 million on infrastructure/EOR). Management outlined the importance of its $165/$150 million in infrastructure/ EOR spend to support long-term organic growth ambitions to reach 200 kboe/d by the end of 2027 (5% CAGR y/y) while maintaining a base decline rate at sub-25%. Corporate growth is expected to be driven by the West Division (Montney/Duvernay) at a 12% CAGR to reach 110 kboe/d, while the East Division remains essentially flat at 90 kboe/d.
Depth of inventory limits the need for M&A, though balance sheet provides plenty of optionality. Whitecap reiterated that M&A was not needed in 2023 with the company focused on organic growth balanced with continued debt reduction and return of capital. While we believe the door remains open for strategic opportunities, management emphasized that it does not need additional inventory given 25+ years of inventory supporting a 5% annual growth rate with payouts in <1.2 years. Key criteria for M&A include the need to compete for capital within the top quartile of the current portfolio and strategic fit (i.e., around core areas to enhance scale and capture cost synergies). As of Q3/23, Whitecap holds $1.8B in unutilized capacity on its $3.1B credit facility.
Competitive RoC framework. Since October (note here), Whitecap reached its $1.3B net debt threshold triggering a 75% return of FCF through a mix of its base dividend ($0.73/share) and NCIB utilization. As expected, Whitecap continues to prioritize (in order): flexibility and balance sheet strength, the base dividend, and the NCIB. Whitecap reiterated plans to deliver on ratable dividend increases in the coming years aligned with production growth, along with an increased allocation to the NCIB given management's view on the current valuation; Whitecap's internal estimate for its PDP/1P reserves sit at $8/$16 per share with management noting that it prefers to utilize its NCIB when the stock trades at a discount to 1P.