Whitecap Resources Inc T.WCP

Scotia more conservative $12 target

[Westcoastenergy]

Very positive review

Whitecap Resources Inc.

• WCP-T: C$10.75
• Target: C$12.00
• Rating: Sector Perform

Strong Q1 Performance Drives Production Guidance Increase

OUR TAKE: Positive. WCP’s Q1 CFPS and production beat consensus by 3%. Management noted that production exceeded expectations throughout its portfolio, but the strongest outperformance was in the Montney and Glauconite. 2024 production guidance was increased by 1% to 167-172 mboe/d to reflect the company’s YTD performance. Capex guidance is unchanged.

KEY POINTS

Solid Q1 results. WCP’s Q1/24 CFPS of $0.64 beat consensus of $0.62 by 3%. This cash flow beat was driven by strong production partially offset by lower than expected hedging gains and higher opex. Total production averaged 169.7 mboe/d during the quarter compared to consensus of 164.1 mboe/d (+3%). Liquids production averaged 108.2 mbbl/d vs the Street at 106.0 mbbl/d (+2%). Management noted that production exceed expectations in both the West and East divisions and that results were particularly strong in the Glauconite and Montney. March production averaged over 175 mboe/d due to the startup of the Musreau battery and flush volumes from the company’s Q1 drilling program. Capital spending during the quarter totaled $393M, which is 6% lower than consensus. During Q1/24, WCP had negative free cash flow of $10M vs Street estimates of a $48M outspend.

Production guidance increased. WCP has increased its 2024 production guidance by 2 mboe/d to 167-172 mboe/d (+1%) because YTD production has exceeded expectations. The mid-point of WCP’s production guidance is 1% higher than 2024 production consensus of 167.4 mboe/d. Capex guidance remains unchanged at $0.9-$1.1B. Management expects opex per boe to improve throughout 2024.

Progressing Montney development. Commissioning and startup of the Musreau battery started at the end of Q1. Sales volumes through the facility started two weeks ahead of schedule and the project was ~10% under budget. At Kakwa, WCP’s two recent 3-well pads continue to show strong results. Note that these wells were drilled to a wider six wells per section spacing. The most recent 3-well pad at 03-21B has an average IP90 rate of 1,830 boe/d/well (34% liquids), which is 20% above expectations. Based on this outperformance, WCP is considering using this spacing strategy on other assets in the Montney and Duvernay. WCP’s 2-well pad at Lator has an average IP150 rate of 1,580 boe/d/well (42% liquids), which is 17% above management’s forecast.

Exceeding expectations in the Duvernay. WCP’s first seven wells in the Duvernay are 22% above expectations with average IP150 rates of 1,498 boe/d/well (35% liquids).

Capital allocation. WCP previously hit its net debt target and is returning 75% of FCF to shareholders in the form of dividends and SBBs.