Whitecap Resources Inc. is pleased to report its operating and unaudited consolidated financial results for the three and six months ended June 30, 2021.
MESSAGE TO SHAREHOLDERS
Whitecap's second quarter results were exceptional across all areas of the business, achieving record production of 116,799 boe/d which was 4% above our forecast of 112,000 boe/d, on capital investments of $39 million, which was approximately 30% below our forecast of $55 - $60 million. The record production in the second quarter includes 153 MMcf/d of natural gas, which is expected to increase as we continue to grow our Montney production in the second half of the year and in 2022. Our second quarter funds flow netback of $25.07/boe was 15% higher than the first quarter and resulted in funds flow of $267 million ($0.43 per share). Funds flow per share increased 126% compared to the prior year quarter and 19% compared to the first quarter of 2021.
Second quarter capital spending was moderate due to break-up conditions and the majority of capital spending was to bring the remaining wells drilled during the first quarter on production. Late in the second quarter we spudded 3 (2.5 net) wells to get a head start on our optimized second half program which includes 57 (42.2 net) wells.
Our second quarter production outperformance is mainly due to accelerated on production timing and higher than forecasted production rates from our first quarter drilling program on our Frobisher conventional assets in Eastern Saskatchewan, our Viking and Lower Shaunavon assets in Western Saskatchewan and our Charlie Lake assets in our Northwest Alberta and B.C. business unit. In addition, the base declines in some of our legacy and waterflood supported areas in Central Alberta and Western Saskatchewan were lower than forecasted.
We highlight the following second quarter financial and operating results:
- Production Momentum Continues. Second quarter production of 116,799 boe/d compared to 70,807 boe/d in the prior year quarter, which represents an increase of 65% on an absolute basis and 9% per share. Compared to first quarter production of 95,828 boe/d, it increased 22% on an absolute basis and 3% per share.
- Significant Funds Flow. Whitecap generated funds flow of $267 million in the second quarter, or $0.43 per share, compared to $0.19 per share in the prior year quarter and $0.36 per share in the first quarter of 2021. After capital investments, we generated $227 million of free funds flow during the second quarter.
- Increasing Returns to Shareholders. As press released on May 17, 2021, the monthly dividend was increased 8% to $0.01625 per share effective with the June dividend payable in July 2021. With increasing funds flow, a strong balance sheet and low decline asset base, return of capital to shareholders remains a priority for Whitecap. During the quarter, Whitecap repurchased 2.0 million common shares under its NCIB to offset share awards at a weighted average price of $5.57 per share.
- Balance Sheet Strength Maintained. Net debt of $1.4 billion on total credit capacity of $2.0 billion results in significant financial flexibility with approximately $0.6 billion of unused capacity. The Company's credit facilities have two financial covenants being debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") not exceeding 4.0 times and EBITDA to interest not less than 3.5 times. Whitecap's second quarter debt to EBITDA ratio was 1.4 times and EBITDA to interest ratio was 20.6 times. For additional details refer to Note 10 "Long-Term Debt" in the unaudited interim consolidated financial statements for the period ending June 30, 2021.
2021 ENVIRONMENTAL, SOCIAL AND GOVERNANCE ("ESG") REPORT
Whitecap is pleased to release its 2021 ESG Report which contains an increased emissions intensity reduction target to incorporate recent acquisitions as well as 2020 data. New to our report is a third-party limited assurance of select emissions metrics conducted by an independent firm which provides our Board and other stakeholders confidence in our 2020 emissions metrics.
Highlights from the report include:
- Increased Emission Intensity Target. After incorporating higher intensity acquisitions, we have chosen to increase our emission intensity reduction target to 30% by 2023 from 2019 levels. By increasing our reduction target to 30% from 20% previously, we are maintaining our target intensity of 0.0227 tonnes of carbon dioxide equivalent ("tCO2e") per boe and are committed to take our consolidated asset base to the same emission intensity endpoint.
- Emission Reductions Drive Net Greenhouse Gas ("GHG") Emissions Further Negative. The combination of a reduction in scope 1 and 2 emissions and another 2 million tonnes of CO2 sequestered in 2020 resulted in a reduction of our net GHG emissions (in alignment with The Greenhouse Gas Protocol) to negative 800,000 tCO2e. The Whitecap operated Weyburn Unit sequestered a significant proportion of the total CO2 sequestered in Canada in 2020.
- Company-wide Performance Measures. In 2021, we added climate-related performance criteria as a component of our employee and executive short-term incentive plan. Linking these criteria to our annual incentive plan is anticipated to help drive continuous improvement year over year and over the longer term. The Board of Directors Sustainability & Advocacy Committee provides ongoing oversight to ensure risks and opportunities of climate-related and other sustainability-based issues are appropriately managed.
- Our 2021 ESG Report can be found on our website with content, format and reporting methodology informed by the Sustainability Accounting Standards Board ("SASB"), recommendations from the Task Force on Climate-related Financial Disclosures ("TCFD") and the Global Reporting Initiative ("GRI").
With the NAL, TORC and the Kicking Horse acquisitions closed, Whitecap's sustainable business model is now even stronger. Disciplined acquisitions that enhance our per share metrics and improve our free funds flow profile are an important part of our strategy and we will continue to evaluate these opportunities.
Subsequent to the quarter end, we closed the acquisition of a private company with operations in Southeast Saskatchewan (the "Acquisition"). The Acquisition consolidates our land position in the Weir Hill area adding 23 net sections of land (99% working interest), where our conventional Frobisher drilling results so far this year have yielded top decile results. Assets from the Acquisition are forecasted to average 1,600 boe/d (94% light oil) in the second half of 2021. The total purchase price was $67 million, which equates to 2.3x operating income and a 29% free funds flow yield at US$65/bbl WTI.
With production momentum from recent operational outperformance and the Acquisition which is partially offset by unplanned downtime at Weyburn, we are increasing our 2021 average production guidance to 110,000 – 111,000 boe/d (76% liquids), a 3% increase from the previous guidance of 108,000 boe/d (76% liquids). Capital spending is unchanged at $355 - $375 million.
At current strip commodity prices, Whitecap is on track to deliver significant free funds flow and discretionary funds flow (after capital and dividends) in 2021, with $243 million of discretionary funds flow generated so far in 2021. We anticipate that our net debt will be $1.2 billion or lower by the end of the year resulting in $800 million of unutilized credit capacity and a debt to EBITDA ratio of 1.2 times.
Our preliminary production outlook for 2022 has been increased to 122,000 boe/d to incorporate the Acquisition, while our preliminary capital spending outlook remains at $560 - $580 million. At US$55 - $65/bbl WTI, we would generate $400 - $650 million of free funds flow and $280 - $530 million of discretionary funds flow after the $0.195 per share annual dividend, which allows us to have zero debt in three years. The sustainability of our business model continues to improve and our break-even of US$44/bbl WTI allows us to cover sustaining capital and the dividend with unhedged funds flow.
We continue to prioritize balance sheet strength and return of capital to shareholders, along with taking a disciplined approach to transactions which further strengthen our asset base and provide increased shareholder returns into the future.
On behalf of our management team and Board of Directors, we would like to thank our shareholders for their ongoing support and look forward to providing updates as we progress through the remainder of the year.