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Whitecap Resources Inc. Announces Record Funds Flow and Third Quarter 2018 Results


CALGARYNov. 1, 2018 /CNW/ – Whitecap Resources Inc. (“Whitecap” or the “Company”) (TSX: WCP) is pleased to report its operating and unaudited financial results for the three and nine months ended September 30, 2018.

Selected financial and operating information is outlined below and should be read with Whitecap’s unaudited interim consolidated financial statements and related Management’s Discussion and Analysis (“MD&A”) which are available at www.sedar.com and on our website at www.wcap.ca.

FINANCIAL AND OPERATING HIGHLIGHTS

Three months ended September 30

Nine months ended September 30

Financial ($000s except per share amounts)

2018

2017

2018

2017

Petroleum and natural gas revenues

446,018

239,170

1,247,448

739,864

Net income

69,532

3,689

58,162

107,761

Basic ($/share)

0.17

0.01

0.14

0.29

Diluted ($/share)

0.17

0.01

0.14

0.29

Funds flow

204,995

118,979

565,610

365,084

Basic ($/share)

0.49

0.32

1.35

0.99

Diluted ($/share)

0.49

0.32

1.35

0.98

Dividends paid or declared

33,778

25,851

98,684

77,450

Per share

0.08

0.07

0.24

0.21

Total payout ratio (%) (1)

73

97

82

98

Expenditures on PP&E

114,955

90,033

364,014

282,063

Property acquisitions

18,369

24,962

20,092

31,868

Property dispositions

(9,764)

(11,476)

(5,821)

Corporate acquisition

750

53,916

Net debt

1,288,259

842,897

1,288,259

842,897

Operating

Average daily production

Crude oil (bbls/d)

59,212

44,001

58,996

43,216

NGLs (bbls/d)

4,460

3,503

4,309

3,341

Natural gas (Mcf/d)

71,141

62,362

69,144

60,800

Total (boe/d)

75,529

57,898

74,829

56,690

Average realized price (2)

Crude oil ($/bbl)

77.24

53.85

72.73

56.54

NGLs ($/bbl)

40.07

28.42

38.23

28.05

Natural gas ($/Mcf)

1.35

2.09

1.64

2.85

Total ($/boe)

64.19

44.90

61.06

47.81

Netbacks ($/boe)

Petroleum and natural gas revenues              

64.19

44.90

61.06

47.81

Tariffs

(0.64)

(1.18)

(0.76)

(1.52)

Processing income

0.35

0.45

0.45

0.42

Blending revenue

0.24

0.25

Petroleum and natural gas sales

64.14

44.17

61.00

46.71

Realized hedging gain (loss)

(5.69)

0.08

(4.71)

(0.78)

Royalties

(11.27)

(5.89)

(10.89)

(6.71)

Operating expenses

(11.97)

(11.05)

(11.97)

(10.93)

Transportation expenses

(2.19)

(1.85)

(2.16)

(1.53)

Blending expenses

(0.24)

(0.20)

Operating netbacks (1)

32.78

25.46

31.07

26.76

Share information (000s)

Common shares outstanding, end of period

416,456

369,818

416,456

369,818

Weighted average basic shares outstanding

417,341

369,840

417,515

369,333

Weighted average diluted shares outstanding

420,055

371,995

419,842

371,536

Notes:

(1)

Total payout ratio and operating netbacks do not have a standardized meaning under GAAP. Refer to non-GAAP measures in this press release for additional disclosure and assumptions.

(2)

Prior to the impact of hedging activities and tariffs.

MESSAGE TO SHAREHOLDERS

Whitecap delivered another excellent quarter with strong operational and financial results. Production for the third quarter averaged 75,529 boe/d (84% oil and NGLs), approximately 1,000 boe/d higher than our internal forecast on lower than expected capital spending of $115 million. We now expect average annual production to increase to 74,500 boe/d on full year capital spending of approximately $450 million.

In the third quarter, we generated funds flow of $205 million ($0.49/share), invested $115 million to grow production per share and returned $33.8 million in dividends to shareholders which resulted in $56.2 million of free funds flow.

Property acquisitions in the third quarter totaled $18.4 million which included acquiring a facility working interest in the Deep Basin and a gross overriding royalty (“GORR”) acquisition at Weyburn. We also had non-core property dispositions of $9.8 million.

Ownership of the facilities in the Deep Basin eliminates down-time risk of oil production and related funds flow, allows Whitecap to be proactive and control the pace of development in our highest growth area and reduces processing fees paid. The GORR acquisition provides both near-term accretion to the Weyburn operating netback and long-term enhancement of the well economics.

Whitecap’s priority is to maintain a strong balance sheet. Net debt at the end of the quarter was approximately $1.3 billion on credit capacity of $1.7 billion and net debt to annualized Q3/18 funds flow ratio was 1.6 times. Despite the current wider than normal Canadian crude oil differentials, Whitecap continues to fund its organic growth program and dividend obligations well within the funds flow generated from its premium crude oil assets.

Q3/18 Highlights

  • Increased average production to 75,529 boe/d compared to 57,898 boe/d in Q3/17, an increase of 30% (16% per share). Whitecap’s oil and NGLs weighting continued to increase with Q3/18 at 84% compared to 82% in Q3/17.
  • Realized an operating netback (prior to hedges) of $38.47/boe compared to $25.38/boe in Q3/17, a 52% increase. Operating netback was $32.78/boe compared to $25.46/boe in Q3/17, a 29% increase.
  • Generated funds flow for the quarter of $205 million ($0.49 per share), an increase of 72% (53% per share) from Q3/17. Higher production volumes and realized prices in Q3/18 resulted in significantly higher funds flow.
  • Invested $115 million in expenditures on PP&E, drilling 76 (61.3 net) horizontal oil wells with a 100% success rate.
  • Achieved a total payout ratio of 73% including expenditures on PP&E and dividend payments.
  • Returned $42.2 million to shareholders through dividends and share repurchases.

Operational Update

Operational execution and performance in the third quarter continued to be exceptional. Overall, our programs were completed slightly ahead of schedule with results exceeding expectations on both cost and productivity. In the third quarter, we drilled a total of 76 (61.3 net) wells across our five management units (“MU”).

NW Alberta & BC

We drilled a total of 10 (7.3 net) horizontal oil wells in this MU of which 30% were extended reach horizontal (“ERH”) wells. This included 7 (4.3 net) Cardium and 3 (3.0 net) Dunvegan wells.

Our Wapiti Cardium program continues to outperform with average IP(90) rates 13% higher than our expectations with average cost per well as estimated. We continue to refine our operational and technical designs and anticipate cost reductions to our drill, complete, equip and tie-in (DCE&T) costs by 5 to 10% going forward. We have de-risked the primary potential of this asset base and will work towards the full development of this area from its current production of 5,400 boe/d to an estimated 15,000 boe/d over the next five years in addition to concurrently evaluating the potential for future enhanced reserve recovery.

West Central Alberta

The third quarter was quiet operationally in this MU with no drilling activity. However, we have been seeing very encouraging response from our unstimulated horizontal water injectors in our operated Cardium oil properties in West Pembina and are currently reviewing options to accelerate expansion of our operated waterflood redevelopment.

We have also seen very encouraging results from the reconfiguration and expansion of our Elnora Nisku oil pool waterflood where we have substantially mitigated natural declines through repressurization of the reservoir and improved sweep of the oil in place. This reconfiguration has resulted in the reactivation of two wells that added 200 boe/d at much lower water cuts than when they were originally shut-in.

West Central Saskatchewan

We had a very active third quarter in this MU drilling 33 (28.6 net) horizontal Viking oil wells of which 55% were ERH wells. The strong results we achieved in the second quarter continued into the third quarter with operational results outperforming our expectations. Our operating netback for this MU remained exceptionally strong at approximately $52/boe in the quarter.

In addition, we have seen very encouraging results in our Kerrobert waterfloods where we now have over 30 wells exhibiting positive influence from the water injection support with flattening production declines or, in some cases, inclining production. This response trend is significant enough to now be clearly seen over the past two years on a group production plot of the wells in our most mature waterflood area and indicates the potential of significant incremental reserve recovery. We are actively evaluating our opportunities to accelerate and/or expand our waterflood initiatives at Kerrobert and Dodsland.

Southwest Saskatchewan

Activity in the third quarter in this MU included the drilling of 26 (21.2 net) wells including 14 (12.3 net) Atlas, 3 (2.4 net) Upper Shaunavon, 2 (2.0 net) Lower Shaunavon, 2 (1.0 net) Roseray and 5 (3.5) Success Sand wells.

The two Lower Shaunavon wells exceeded expectations with an average IP(30) rate of 229 boe/d. These results have opened a new development area where we have identified and further de-risked upwards of 180 gross locations.

We have had exceptional results extending our Atlas oil development program in the Beverley area. The two extension wells we drilled in the quarter had an average IP(30) rate of 196 boe/d, 25% above our expectations. In addition, the Atlas waterflood pilot project we had initiated earlier has recently shown very encouraging results and we are moving ahead on expanding the waterflood pilot area from three sections to six sections with a line of sight to a full development across 20+ sections.

The remainder of our operated 2018 program, which has been completed for the year, continues to exceed our expectations.

Southeast Saskatchewan (Weyburn)

In the third quarter, we drilled 7 (4.2 net) wells and anticipate a further 9 (5.6 net) wells to be drilled in the fourth quarter. Of the 16 (9.8 net) wells planned for 2018, 6 (3.6 net) are new CO2/water injector drills. Results to date have met expectations.

We also purchased a Weyburn Unit GORR encumbrance for $12.5 million at a very attractive valuation. In addition to enhancing our netbacks in Weyburn, the acquisition greatly improves the economics on 57% of our future CO2 expansion areas which was the primary objective of this acquisition.

For the nine months ended September 30, 2018, the Weyburn asset contributed $145 million of operating income on capital expenditures of approximately $30 million resulting in a surplus of $115 million. The operating income was higher and capital spending was lower than our expectations when we acquired this asset in late December last year. The asset’s strong operating and financial performance continues to increase our confidence in the value of this asset into the future.

Corporately, across our asset base, we continue to see positive response from our enhanced oil recovery and waterflood development and expansion and anticipate being able to continue to positively impact our corporate base declines from the current 19%.

The drilling program for the remainder of the year is anticipated to be 35 (19.9 net) wells, including 13 (8.9 net) wells in west central Saskatchewan, 9 (5.6 net) wells in southeast Saskatchewan, 8 (4.4 net) wells in northwest Alberta and BC and 5 (1.0 net) wells in southwest Saskatchewan.

Outlook

West Texas Intermediate crude oil at approximately US$65/bbl remains robust and continues to be supported by strong oil demand, increasing geopolitical risk and a decrease in spare productive capacity globally. However, headwinds for Canadian oil producers remain. In the fourth quarter of 2018, the Western Canadian Select (“WCS”) differential for Canadian heavy crude significantly widened to approximately US$45/bbl from what was historically US$15 to US$20/bbl. Whitecap is predominately a light oil producer and the light oil differential (“MSW”) has also widened to approximately US$25/bbl from what was historically US$5 to US$8/bbl.

Whitecap has proactively mitigated the impact of the challenging differential environment by hedging approximately 32% of our Q4/18 light oil production at an average MSW differential of US$3.50/bbl and 54% of our Q4/18 medium oil production at an average WCS differential of US$15/bbl. In addition, Whitecap mitigates the impacts from pipeline apportionment through a diverse and growing portfolio of direct relationships with crude oil purchasers, refiners, pipelines, midstream operators and trucking providers. We optimize crude oil sales by utilizing our capacity at owned and operated facilities and storage assets across multiple pipelines and oil sales streams. We also utilize short and long-term firm pipeline transportation contracts and have apportionment protected our crude oil sales with certain purchasers. We are further insulated from pipeline apportionment as 50% of Whitecap’s crude oil production is downstream of current pipeline apportionment points and garners higher pricing.

We anticipate the extremely wide differential pricing environment to be temporary and see a line of sight to improving Canadian oil differentials in 2019 as U.S. Midwest refinery maintenance season comes to an end, increasing crude by rail takeaway, and activation of Enbridge’s Line 3 replacement expansion which should add 375,000 bbl/d of incremental export capacity around the end of 2019.

Whitecap continues to be well positioned to deliver meaningful returns to our shareholders with a solid balance sheet, strong operational performance and significant free funds flow. We look forward to releasing our 2019 budget on December 5, 2018.

On behalf of the Board of Directors and the Whitecap management team, we would like to thank our shareholders for their ongoing support.

Conference Call and Webcast

Whitecap has scheduled a conference call and webcast to begin promptly at 9:00 am MT (11:00 am ET) on Thursday, November 1, 2018.

The conference call dial-in number is: 1-888-390-0605 or (587) 880-2175 or (416) 764-8609

A live webcast of the conference call will be accessible on Whitecap’s website at www.wcap.ca by selecting “Investors”, then “Presentations & Events”. Shortly after the live webcast, an archived version will be available for approximately 14 days.

An archived recording of the conference call will also be available approximately two hours after the completion of the call until November 15, 2018 by dialing 1-888-390-0541, passcode 409325#.



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