Whitecap Resources Inc. Announces Transition to a Sustainable Intermediate Light Oil Dividend-and-Growth Company and 2013 Guidance

CALGARY, Nov. 20, 2012 /CNW/ - Whitecap Resources Inc. ("Whitecap", "we", "us", "our" or the "Company") (TSX: WCP) is pleased to announce its plans to transition to a pre-eminent intermediate size light oil producer focused on paying sustainable dividends and delivering long term per share growth.

STRATEGIC RATIONALE

Since inception Whitecap has delivered 33 percent compounded annual production growth on a fully diluted per share basis. We have strategically acquired and integrated light oil assets that have predictable production profiles, shallow declines, strong netbacks, and large repeatable light oil development drilling inventories. All these factors allow us to seamlessly transition to a dividend-and-growth model that can support sustainable dividend payments to our shareholders and also provide continuing annual per share growth of 3 to 5 percent.

Our assets currently under management provide high operating netbacks and, when combined with our low corporate cost structure, generate strong cash flow netbacks which will allow us to fully fund our planned dividend payments and capital program through internally generated funds from operations. Our basic payout ratio for 2013 is expected to be 32 percent and we anticipate total capital spending and dividend payments to represent less than 95 percent of our funds from operations.

We at Whitecap believe we have the key attributes to successfully transition to a sustainable income plus dividend-and-growth model.

Sustainability Criteria Whitecap Resources Inc.
Strong Capital Efficiencies
  • Strong production replacement costs and recycle ratios
  • Light oil focused capital program driving drill bit capital efficiencies of $25,000 to $30,000 per boe/d
Solid Netbacks
  • Oil-weighted production generates high operating netbacks of $43.00/boe and cash flow  netbacks of $39.00/boe (2013 estimate)
  • 71 percent oil and NGL weighting
Low Decline Rate
  • Base decline of 31 percent in 2013 to support dividend and reinvestment in core light oil resource areas
  • Base decline forecast to decrease with the change in growth profile; 27 percent in 2014 and 23 percent in 2015
Significant Drilling Inventory
  • Large inventory of oil-weighted, highly economic drilling locations
  • >850 (10+ years) low risk light oil development drilling locations
Strong Hedging Program
  • Strong hedging program to mitigate risks associated with fluctuation in commodity prices which in turn provides greater predictability over funds from operations and dividend payments
  • Currently hedged 49 percent of 2013 crude oil production, net of royalties at an average floor price of C$99.77/bbl
  • Currently hedged 38 percent of 2013 natural gas production, net of royalties at an average floor price of C$3.26/mcf
  • We anticipate hedging up to 75 percent of volumes, net of royalties using a rolling 3 year price risk management program
Clean Balance Sheet
  • Clean balance sheet to provide financial and operational flexibility
  • Expect to exit 2012 with net debt of $335 million on a $450 million credit facility
  • 2013 estimated debt to funds from operations of 1.2x - 1.3x
Strong Management Team
  • A disciplined and experienced management team with a track record of sustained per share growth, operational efficiency and value creation

2013 GUIDANCE

2013 will be a transitional year for Whitecap as we advance from a high growth energy company to a dividend-and-growth entity with focus on sustainable dividend payments while maintaining emphasis on per share growth in production, reserves and funds from operations.

For 2013, Whitecap is pleased to announce that our Board of Directors has approved a $152 million capital program and an initial monthly dividend policy of $0.05 per share commencing January 2013 with the first dividend payment in February 2013, all of which is anticipated to be funded through funds from operations. Our dividend policy is reviewed monthly and is based on a number of factors including current and future commodity prices, foreign exchange rates, our commodity hedging program, current operations and future investment opportunities.  Each dividend declaration will be confirmed by a monthly press release.

In each of our core operating areas the funds from operations we forecast for 2013 are in excess of the forecasted capital spending in these areas which enables us to not only grow production but distribute excess funds from operations to our shareholders. The 2013 capital program will focus on advancing the development of our core areas, specifically targeting the Cardium, Viking and Montney oil reservoirs, which make up 97% of our current production and opportunities.  We have demonstrated a track record of success in these plays which we will continue to execute in the new model.

We plan to drill between 70 - 75 (65 - 70 net) light oil wells for the year including five (3.5 net) wells to advance the Valhalla North Montney waterflood project, 32 (31.4 net) horizontal Cardium oil wells split equally between the Garrington and greater Pembina areas of Alberta, 33 (30.1 net) horizontal Viking oil wells in the Lucky Hills area in western Saskatchewan, and two (1.8 net) oil wells in the Fosterton area of southwest Saskatchewan.

2013 summary guidance as follows:

  2013 Budget 2012 Forecast % Change
Average production (boe/d) 16,800 - 17,000 14,000 21%
      Per MM shares (fully diluted) 124 115 8%
      % Oil + NGLs 71% 69% 2%
       
Exit production (boe/d) 17,000 - 17,400 16,900 - 17,100 3%
       
Funds from operations ($mm) 240 - 245 190 29%
      Per share ($fully diluted) 1.77 - 1.80 1.56 15%
       
Operating netback ($/boe) 43.00 42.00 2%
Cash flow netback ($/boe) 39.00 37.50 4%
       
Development capital spending ($mm) 150 - 155 235 - 240 (35%)
Wells drilled (gross #) 70 - 75 105 - 110 (32%)
       
Net debt to funds from operations 1.2x - 1.3x 1.8x (33%)
       
Edmonton Par (C$/bbl) 85.00 86.35 (2%)
AECO gas price (C$/GJ) 3.30 2.31 43%
CAD/USD exchange rate 1.0 1.0 -

As with 2012, we anticipate experiencing commodity price volatility in 2013 and continue to believe that crude oil should average between $80 - $95 WTI. We also expect the differential between WTI and Edmonton Par to continue to be volatile while transportation alternatives are continually being developed either by pipeline or rail out of western Canada.  Our light oil production attracts a much tighter price differential than heavy oil and we remain active on mitigating negative price differentials while optimizing our realized commodity price and cash flow netbacks.

OUTLOOK FOR THE FUTURE

Since we initially contemplated dividend payments in February 2012 we have done a significant amount of stress testing on our modeling assumptions; considering commodity prices, decline rates, capital efficiencies, and debt levels to ensure long-term sustainability. We believe that over the next three years we are capable of providing a reliable and sustainable dividend of $0.60 per share per year with the objective to increase the dividend paid over time while providing 3 - 5 percent annual per share growth.

On behalf of our Board of Directors and our entire team, I would like to thank you for your support of Whitecap to date. We also look forward to the transition to a dividend-and-growth company and reporting back to you with our progress in 2013 and beyond.

Note Regarding Forward Looking Statements and Other Advisories

This press release contains forward-looking statements and forward-looking information (collectively "forward-looking information") within the meaning of applicable securities laws relating to the Company's plans and other aspects of our anticipated future operations, management focus, strategies, financial, operating and production results and business opportunities. Forward-looking information typically uses words such as "anticipate", "believe", "project", "expect", "goal", "plan", "intend" or similar words suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future, including statements about our strategy, plans and focus, future dividends and dividend policy, forecast annual per share growth, the source of funding of dividend payments, planned capital expenditures and the source of funding of our capital program, projected  payout ratios and dividend yields, expected future production and product mix, forecast operating and financial results including funds from operations and operating and cash flow netbacks, future decline rates, drilling inventories and drilling plans, hedging plans and the benefits to be obtained from our hedging program, anticipated debt levels and our debt to funds from operations ratio, forecasted commodity prices and differentials, forecasted exchange rates and anticipated production costs, recycle ratios and capital efficiencies.

The forward-looking information is based on certain key expectations and assumptions made by our management, including expectations and assumptions concerning prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; ability to efficiently integrate assets and employees acquired through acquisitions, ability to market oil and natural gas successfully and our ability to access capital.

Although we believe that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Whitecap can give no assurance that they will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties. Our actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that we will derive therefrom. Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide securityholders with a more complete perspective on our future operations and such information may not be appropriate for other purposes.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect our operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

These forward-looking statements are made as of the date of this press release and we disclaim any intent or obligation to update publicly any forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

Non-GAAP Measures

This press release contains the terms "funds from operations", "operating netbacks" and "cash flow netbacks", which do not have a standardized meaning prescribed by GAAP and therefore may not be comparable with the calculation of similar measures by other companies. Whitecap uses funds from operations, operating netbacks and cash flow netbacks to analyze financial and operating performance. Whitecap believes these benchmarks are key measures of profitability and overall sustainability for the Company. These terms are commonly used in the oil and gas industry. Funds from operations, operating netbacks and cash flow netbacks are not intended to represent operating profits nor should they be viewed as an alternative to funds from operations provided by operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP. Funds from operations are calculated as funds from operations from operating activities excluding transaction costs less changes in non-cash working capital. Operating netbacks are determined by deducting royalties, production expenses and transportation and selling expenses from oil and gas revenue. Cash flow netbacks are determined by deducting general and administrative and interest and financing expenses from the operating netback. The Company calculates funds from operations per share using the same method and shares outstanding that are used in the determination of earnings per share.

"Boe" means barrel of oil equivalent on the basis of 6 mcf of natural gas to 1 bbl of oil. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6: 1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

 

SOURCE: Whitecap Resources Inc.

For further information:

Grant Fagerheim, President & CEO
or
Thanh Kang, VP Finance & CFO

Whitecap Resources Inc.
500, 222 - 3 Avenue SW
Calgary, AB T2P 0B4

Main Phone (403) 266-0767
Fax (403) 266-6975