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Whitecap Resources Inc. announces first quarter 2020 results and total 2020 reductions of $300 Million


CALGARY – Whitecap Resources Inc. (“Whitecap” or the “Company”) (TSX: WCP) is pleased to report its operating and unaudited consolidated financial results for the three months ended March 31, 2020.

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 for the three months ended March 31, 2020 which are available at www.sedar.com and on our website at www.wcap.ca.

FINANCIAL AND OPERATING HIGHLIGHTS

Three months ended March 31

Financial ($000s except per share amounts)

2020

2019

Petroleum and natural gas revenues

264,317

343,239

Net loss

(2,111,474)

(52,561)

  Basic ($/share)

(5.17)

(0.13)

  Diluted ($/share)

(5.17)

(0.13)

Funds flow

131,777

161,221

  Basic ($/share)

0.32

0.39

  Diluted ($/share)

0.32

0.39

Dividends paid or declared

34,906

33,466

  Per share

0.09

0.08

Expenditures on property, plant and equipment (“PP&E”)

138,797

124,904

Total payout ratio (%) (1)

132

98

Property acquisitions

76

1,390

Property dispositions

(667)

Corporate acquisition

18,149

Net debt

1,271,014

1,297,412

Operating

Average daily production

  Crude oil (bbls/d)

56,631

55,199

  NGLs (bbls/d)

5,077

4,386

  Natural gas (Mcf/d)

70,466

66,486

 Total (boe/d) (2)

73,452

70,666

Average realized price (3)

  Crude oil ($/bbl)

47.48

63.60

  NGLs ($/bbl)

12.30

27.90

  Natural gas ($/Mcf)

2.18

2.72

 Total ($/boe)

39.54

53.97

Netbacks ($/boe)

  Petroleum and natural gas revenues

39.54

53.97

  Tariffs

(0.46)

(0.56)

  Processing & other income

0.33

0.51

  Blending revenue

1.30

1.87

  Petroleum and natural gas sales

40.71

55.79

  Realized hedging gain (loss)

2.96

(0.48)

  Royalties

(5.84)

(9.32)

  Operating expenses

(12.20)

(12.68)

  Transportation expenses

(2.33)

(2.20)

  Blending expenses

(1.19)

(1.79)

Operating netbacks (1)

22.11

29.32

Share information (000s)

Common shares outstanding, end of period

408,000

413,158

Weighted average basic shares outstanding

408,622

413,458

Weighted average diluted shares outstanding

414,182

415,933

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)

Disclosure of production on a per boe basis in this press release consists of the constituent product types and their respective quantities disclosed in this table.

(3)

Prior to the impact of hedging activities and tariffs.

MESSAGE TO SHAREHOLDERS

In the first quarter, Whitecap’s underlying operating results exceeded the high end of our estimates. Our financial results were also strong as the economic shocks caused by the COVID-19 pandemic and the battle for market share between the world’s largest oil producers were not felt until late in the quarter. We achieved average production of 73,452 boe/d which was higher than our forecast of 72,000 – 73,000 boe/d and capital expenditures were $138.8 million which was lower than our forecast of $140 – $150 million. Whitecap’s operating netback in the first quarter remained robust at $22.11 per boe, generating funds flow of $131.8 million or $0.32 per share.

Net income, however, for the first quarter was negatively impacted by the severe economic dislocation that has led to a significant decrease to current and forecasted crude oil prices. This resulted in a non-cash accounting charge of $2.9 billion to our net book value. Revisions to forecasted crude oil prices could result in reversals or additional impairment charges impacting net income.

Whitecap entered this economic crisis in a position of strength with total credit capacity of $1.77 billion. We exited the quarter with net debt at $1.27 billion with $500 million of unused credit capacity available. 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 first quarter debt to EBITDA ratio was 1.7 times and EBITDA to interest ratio was 14.0 times. (1)

(1) 

Refer to Note 11(a) “Bank Debt” in the unaudited interim consolidated financial statements for the period ended March 31, 2020.

 

Outlook

Our phase one actions taken, as reported on March 17, 2020 to fortify our balance sheet and strengthen our financial position, included:

  • The reduction of our 2020 capital program to $200 – $210 million from $350 – $370 million previously, a reduction of approximately $160 million or 44%.
  • A reduction to the Company’s monthly dividend per share from $0.0285 to $0.01425, effective for the April dividend payable in May 2020 which resulted in $70 million of cash retained annually.

 

We have now taken the following additional actions as part of our phase two planning:

  • A bottom-up analysis of our operating expenses resulting in an immediate reduction of $20 million and an additional $22 million of targeted reductions for a total anticipated decrease of $42 million in 2020. This is a 12% decrease compared to our original 2020 guidance. The reductions incorporate fee renegotiations, reduced consumption and pricing, workforce optimizations and deferral of activity.
  • Our general and administrative (“G&A”) costs per boe are already among the lowest in the sector when compared to our oil-weighted peers, and we have reduced G&A expenses a further $8 million to $19 million, a decrease of 30% compared to our original 2020 guidance. The reductions include a voluntary 10% reduction to management salaries and board of director cash compensation and, where possible, we have reduced non-discretionary spending and minimized or eliminated discretionary costs.
  • Reduced annual 2020 capital expenditures by a further $20 million to $190 million compared to $210 million previously.
  • An immediate deferral of approximately 2,000 boe/d of uneconomic production as a result of current crude oil prices. Our remaining production is generating positive operating income on strip prices for the remainder of the year. 2020 average production is now expected to be 65,000 – 67,000 boe/d. Given the continued weakness to near term global crude oil prices and the potential for involuntary curtailments as a result of pending storage constraints in North America over the coming months, we are prepared to defer additional production volumes as necessary.

 

Total cash reductions identified for 2020 from our phase one and phase two actions have totalled approximately $300 million. The cost reduction efforts on operating, general & administrative and royalty expenses are ongoing. In addition, our projected capital plans and dividend payments provide us with additional cash management levers which could be used to allow us to continue to navigate through the current challenging environment.

Whitecap entered this pandemic and economic crisis with several competitive advantages including:

  • Strong financial position. Whitecap has a committed 4-year credit facility that is not subject to annual redeterminations. We exited the first quarter well within our debt covenants with approximately $500 million of available liquidity and no near-term debt maturities with only $200 million due January 2022.
  • Our robust hedge portfolio in 2020 allows us to mitigate the collapse in near term crude oil prices and significantly wider Canadian crude oil price differentials which have created negative cash flows for many oil and gas producers. We are forecasting commodity hedging gains of $200 million in 2020 based on strip prices.
  • Since inception, we have focused our acquisitions strategy on premium assets with high funds flow netbacks and lower production decline rates. This disciplined approach has allowed our asset base to still generate positive funds flow in this low crude oil price environment.
  • Over the years, we have continued to invest in enhanced oil recovery projects due to the low decline characteristics of these assets and, in combination with minimal capital investments for the balance of this year, we are now expecting to exit 2020 with a production decline rate of approximately 13 – 15%. The benefit to us is a much lower capital intensity requirement moving forward.
  • Our people. Thank you to our employees, consultants and contract operators for their strength, resilience and relentless drive to position our Company to be the lowest cost producer we possibly can and to continue to operate with the highest health, safety and environmental standards every day. We would also like to thank our board of directors for their ongoing support and guidance as we navigate through the most challenging environment our industry has perhaps ever faced.

 

Our priorities through this pandemic and economic crisis are the health and safety of our employees, consultants and contract operators and maintaining our credit capacity and liquidity through disciplined management of costs to ensure we spend within funds flow. Our competitive advantages allow us to make rational economic decisions in the near and medium-term to initially protect shareholder value during this period of extreme market dislocation but, more importantly, to position Whitecap to create greater long-term value and growth for shareholders when the environment improves.

We believe that mergers and acquisitions in the industry will occur and are necessary for a meaningful recovery in the sector. Whitecap is well positioned with our sustainable income and growth strategy to not only survive but to continue to look for opportunities internally and through industry consolidation to provide enhanced shareholder returns.

On behalf of our management team and board of directors, we would like to thank our shareholders for their patience and support as we navigate and pursue opportunities through these unprecedented times. Wishing everyone good health and safety through these disruptive times.

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, April 30, 2020.

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.



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