Key points:
Q2/24 – Quality Beat on Liquids. WCP reported Q2/24 production of 177,314 boe/d (RBC: 170,015 boe/d; Street: 169,700 boe/d) driving AFFO (f.d.) of $0.71 (RBC/Street: $0.64/0.66). Capital expenditures came below expectations at $204mm (RBC/Street: $225mm/$212mm); $223 million ($0.37/share) in FCF was generated in the quarter. See Exhibit 1 for key variances and estimate changes which were driven by both higher volumes and also a stronger liquids component than we (and street) had expected.
Operations Update - In Good Shape. WCP's first eight wells from Musreau have experienced results above regional type curve (IP90: 1.6 mboe/ d). WCP is currently completing an additional four-well pad at Musreau targetting both D2/D3 Montney with production in Q3. WCP highlighted its results in the Frobisher with its recent wells achieving payout in less than 6 months (3x payout in 3 years) and plans on drilling 26 (23.8 net) wells in H2/24. In the Viking, WCP plans on drilling 32 (32.0 net) wells in H2/24. In the Glauc, the company brought 12 (11.7 net) new wells online, all well above initial expectations with 6 (6.0 net) wells planned H2/24.
2024 Guidance - Reiterated. Management reiterated 2024 production guidance of 167,000–172,000 boe/d; Capital spending of $0.9–1.1bn was unchanged (RBC: $1.1bn, 171.8 mboe/d) and we expect a longer-term run- rate of $1.2–1.4bn.
Return of Capital - A Key Focus. Whitecap exited Q2/24 with $1.3bn in net debt (RBC: $1.3bn) and is on track to reduce below $1.0bn in Q4/24 (including dispositions) while in tandem returning 75% of FCF through a mix of its base dividend ($0.73/share) and NCIB utilization. We model meaningful share buybacks through both 2024 ($203 million) and 2025 ($147 million). While we do not forecast acquisitions, though we view M&A as a core part of the long- term strategy; near-term we believe management is likely to focus on strategic tuck-ins, though larger strategic deals could come into play.
Increasing Estimates, Outperform. Our 2024/25 estimates increase slightly reflective of margin adjustments and an increase to our 2025 volume outlook (to 179,000 boe/d, 63% liquids). See additional details in Exhibit 1 of this report.