2024 Investor Day Highlights Our Conclusion
Whitecap hosted its 2024 Investor Day which provided the technical drivers
for the company’s confidence in its depth of inventory and support for a 3%-
8% CAGR in production over the next five years to 215 MBoe/d. We believe
the relative performance through the day was partially related to a modest
crystallization of near-term profits given the share price strength over the last
few weeks going into the investor day. We would also add that capex (and
specifically infrastructure-directed capex at Lator) was not as broadly
understood by the market and concerns around deal-risk with the company
weighed on the share price through the day.
We believe there is upside to our numbers as the company is able to execute
on its five-year plan and as type curve revisions improve capital efficiency.
We reiterate our Outperformer rating and $15 price target.
Key Points
• On track to achieve 5% annual organic production growth in the
next five years with incremental upside of 20 MBoe/d. Further and
given the potential for upside revisions to type curves, we believe the
company could outperform the existing five-year plan as confidence
improves on the repeatability of developing multiple benches in the
Montney and Duvernay. Longer term, Whitecap is targeting a 26%
decline rate at the end of its five-year plan, which may adjust the
accelerated pace of production growth.
• Kaybob, Kakwa and Musreau to drive near-term growth, medium-
term growth to come from Lator as infrastructure catches up. We
view the market as now understanding the incremental capital spending
on infrastructure to drive medium-term production growth. Further, we
view the production growth over the five-year plan as relatively in line
with our expectations. We believe the market is taking a wait-and-see
approach to the potential monetization of existing processing and gather
infrastructure. A disposition of existing infrastructure assets or a
partnership with a third-party/midstream company could both drive an
accelerated de-leveraging event and a decrease in capex, which could
be accretive to longer-term free cash flow generation.
• Capital efficiency and operating cost reduction could drive further
return to shareholders. On strip, we expect $2.6 billion in cumulative
free cash flow will be returned to shareholders in a combination of base
dividends and share buybacks from 2024 to 2029 while maintaining less
than 1.0x Net Debt/EBITDA. With 10% capital efficiency improvement
and 5% operating cost reductions, there could be an additional ~$800
million available for allocation, which represents upside to our numbers.
• Valuation. Whitecap trades at a 2024E EV/DACF of 3.9x and a 2024E
FCF yield of 12% vs. the oil-weighted SMID cap group at 3.1x and 17%,
respectively.