Whitecap Resources Inc

TSX:WCP

Good morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to Whitecap Resources Q1 2025 Results Conference Call. [Operator Instructions] I would now like to turn it over to Whitecap's President and CEO, Mr. Grant Fagerheim. You may begin your conference call.

Thanks very much, Joanna. I appreciate that. Good morning, everyone, and thank you for joining us. There are 4 members of our management team here with me today. Our Senior Vice President and CFO, Thanh Kang; our Senior Vice President, Business Development and Information Technology, Dave Mombourquette; our Senior Vice President of Production and Operations, Joel Armstrong; our Vice President of West Division, Joey Wong; and our Vice President, East division, Chris Bullin. Actually, there's 5 members of our team with us today.

Before we get started today, I would like to remind everybody that all statements made by the company during this call are subject to the same forward-looking disclaimer and advisory that we set forth in our news release issued yesterday afternoon. The momentum that brought us success in 2024 has continued into the first part of 2025 with excellent first quarter operational and financial results. We are very pleased with the strong asset level performance, along with the team's execution of a very active 14-rig 86-well first quarter drilling program.

2025 has started off on the right foot, and we expect that strong performance to continue through the year. First quarter production of 179,151 BOE per day was over 6,000 BOE per day above our internal forecast of 173,000 BOE per day as production from newer wells was higher than expectations, particularly in our Montney, Duvernay and Glauconite assets leading the way.

In addition, our base production continues to outperform our expected type curve projection over the longer term. Joey and Chris will provide additional details on production outperformance. With respect to the pending combination with Veren that is announced on March 10, a joint information circular has been filed and shareholder votes are scheduled for May 6. We have already received Competition Bureau approval and the transaction is expected to close on May 12.

At that time or shortly thereafter, we will issue updated 2025 guidance for the combined company. We are very much looking forward to combining these outstanding assets and teams together to create a leading light oil, condensate and natural gas producer focused on improving long-term sustainability and profitability to drive superior returns to our shareholders. Our strategic priorities as we continue through the current commodity price and market volatility remain unchanged with a focus on balance sheet management and capital discipline.

Our management team has been through multiple cycles, most recently through the pandemic environment in 2020 as well as in 2015, '16 time period and utilizing both periods of market dislocation to help transform Whitecap into the company it is today. Maintaining balance sheet strength is our top priority, which will allow us to navigate through the current market uncertainty and ensures we continue to provide strong risk-adjusted returns to our debt and equity holders. Our balance sheet is in excellent shape at the end of the first quarter, and this strength is maintained pro forma the Veren combination with forecasted net debt of $3.5 billion at the year-end, which represents a debt to annualized funds flow ratio of 1x.

At our stress test case of $50 WTI and $2 AECO price, it would be still under 1.5x funds flow. Consistent with past periods of commodity price weakness, we have the flexibility to optimize our capital program across both our unconventional and conventional assets to prioritize free funds flow, returning on capital investing and balance sheet strength. Whitecap's dividend is an important component of our total returns to shareholders and is fully funded at or below $50 WTI and in combination with the strength of our balance sheet, provides consistent and stable returns for shareholders through commodity price cycles.

We remain focused on continuing to drive down controllable costs and increasing capital efficiencies to improve the long-term profitability and sustainability of our business. We have the asset base, processes, operating teams and management aligned to fully successful execute on these strategic priorities.

I will now pass it off to Joey for more remarks on our unconventional results.

Thanks, Grant. Our unconventional Montney and Duvernay assets continue to perform exceptionally well, driven by strong execution and the growing benefits of our unconventional development workflows. These workflows now embedded across our teams are yielding repeatable results and informing our long-range planning efforts. At Kaybob, our first wine rack pad has now reached 180 days on production, achieving an IP180 rate of 1,100 BOEs a day with 39% liquids. This is a strong result and importantly, when viewed in tandem with observed and interpreted bottom hole flowing conditions, strengthens our confidence in this development strategy on these lands.

Of particular interest, the rate of drawdown is lower than relevant offset wells and condensate to gas ratios are being sustained at higher values than those offsets, indicating improved reservoir coverage. Our second wine rack pad recently came online through permanent facilities and early results are promising as rates and pressures are conforming to expectations established on the first pilot pad. With these results in hand, we have elected to spud our third wine rack pad, the 605 pad and look forward to further validating the design's broader application across our future inventory at Kaybob.

At Kakwa, we've successfully drilled and completed our first triple bench pad in Northwest Kakwa at 16 of 17. Initial flow tests have been encouraging. Observed frac behavior, including how the wells treated and how the 3 benches interacted with each other and offset parent wells conformed to our expectations. This provides an important early validation point for this configuration. The pad has been tied into permanent facilities, and we look forward to sharing more information on these wells as it becomes available.

Also in Kakwa, we're drilling a new 4-well pad at the Southeast Kakwa area using 6 wells per section spacing, building off the inter-well spacing success we saw in 2023. At Musreau, we did experience some brief downtime in January and February, stemming from an unexpected outage on one of our 4 compressors at our 5-9 facility that necessitated a reduction in throughput by about 25% for just over a month. Since then, production has returned to our facility's condensate constrained capacity of about 17,500 BOEs per day.

Our next pad in the area will be drilled in the second half of 2025 with production expected in early 2026 as plant capacity becomes available. Well performance continues to impress with long-term aggregate production exceeding expectations by more than 20%. This can be attributed to both our development configuration as well as production strategy of optimizing economic well recoveries through deliberate drawdown management throughout the early productive life of the wells.

In our Berland area, we have just brought online another 2 Montney wells. Initial rates after 90 days are just over 1,000 BOEs per day, of which just over 500 barrels a day is condensate. These results, which exceed our internal expectations for this localized area by approximately 14% are an important confirmatory data point. We are investigating targeted debottlenecking to support modest programs in this area in the years to come.

Finally, at Lator, our 413 facility continues to advance on schedule. With 90% of long lead equipment now ordered and detailed engineering well underway, we remain firmly on track for commissioning in late 2026 to early 2027. This facility will unlock 35,000 to 40,000 BOEs per day of high-impact Montney production with the potential for significantly more in Phase 2.

Our 2 recent delineation wells in the area continue to exceed expectations, which is helping to continue to build confidence in our long-term development plans in the area. The first well at 13 of 21 has now been on production for more than 180 days and has achieved an IP180 of just over 1,300 BOEs a day. 39% liquids, including 420 barrels a day of condensate.

The second well at 13 of 35 with 120 days production has achieved an IP120 of roughly 650 BOEs a day, of which 23% liquids, including 245 barrels a day of condensate. As noted in our last earnings call, those liquids percentages would be expected to increase by 10% to 15% once they flow into deep cut facilities, which will be the case once our 413 facility is online.

With that, I will now pass it over to Chris Bullin to talk about our conventional assets.

Thanks, Joey. First quarter operational results in our conventional assets were strong, overcoming weather-related delays in February to exceed expectations across multiple regions. In particular, our Central Alberta Cardium and Glauconite assets drove a significant portion of the conventional outperformance through the first 3 months of the year.

Of note, we observed the impact that asset-based diversification and collaboration between operating teams can have on results as our most recent Wapiti Cardium wells are significantly exceeding initial expectations after updating our completion model based on learnings of our unconventional program. These are our first Cardium wells drilled at Wapiti since Q4 of 2022, taking advantage of available infrastructure in the area.

The first 3 wells with IP90 data are averaging 650 BOE per day with 81% liquids, which is 44% above our area type curve. The success here is aided by an optimized completion design, which was established using workflows from our unconventional assets. On these wells, following a detailed technical review, it was determined that we could realize superior results with tighter cluster spacing and higher proppant intensity.

Results from this year's development are being reviewed for read-through and application on this and similar assets. It's a clear example of how cross-asset technical learnings is strengthening our overall portfolio. We're also excited -- we also exceeded our expectations with our Glauconite program in the first quarter. Monobore drilling has now been fully implemented, delivering 10% cost savings and expanding the economic reach of our inventory.

Infrastructure access improvements have also supported additional volumes and recent well results are trending above type curve. Our most recent 5 development wells that have over 90 days of production history are yielding an average IP90 rate of 963 BOE per day, 52% liquids per well, which exceeds our type curve expectations by 27%. This includes our most prolific well results to date in the Glauconite with our 436 well achieving an IP90 in excess of 2,000 BOE per day with 42% liquids. We drilled 64 57.8 net wells in Saskatchewan during the first quarter with results meeting or exceeding our expectations.

The depth and quality of our inventory, coupled with short cycle times and strong market access, provides Whitecap the flexibility to quickly augment our development activity in response to changing price environments and evolving business priorities. This adaptability strengthens our business and reinforces our competitive edge. I will now pass it to Thanh to further discuss our financial results.

Thanks, Chris. First quarter funds flow was $446 million or $0.75 per share, which was up 17% compared to the first quarter last year and 7% higher than the fourth quarter of 2024. After capital expenditures of $398 million, free funds flow was $48 million. WTI averaged over $102 per barrel on a Canadian dollar basis during the first quarter, with AECO prices averaging just over $2 per GJ.

First quarter operating and transportation costs totaled $15.92 per BOE, 2.5% lower than Q1 2024 at $16.33 per BOE and consistent with the previous quarter. We incurred cash tax of $56 million or $3.50 per BOE, equating to 11% of pretax funds flow. After dividends of $107 million, net debt remained below $1 billion, representing a debt to annualized first quarter funds flow of only 0.6x.

On combination with Veren, we are forecasting net debt of $3.5 billion at year-end based on current commodity prices, and we'll provide updated forecast when the transaction closes or shortly after.

Our revolving credit facility is expected to increase to $3 billion from $2 billion concurrent with the closing of the Veren combination. This will provide us with greater than $1 billion of liquidity and allows us to be opportunistic with future bond issuances to provide additional liquidity if we so choose.

As Grant previously discussed, our #1 priority is to maintain our balance sheet strength through commodity price cycles. We do this by ensuring that we spend less than our funds flow and keep our absolute level of debt flat. Pro forma the Veren combination, our base breakeven, where we can fund the dividend and maintenance capital is at $55 WTI and $2 AECO. We can further reduce this, firstly, through realizations of our $210 million identified synergies on the Veren combination.

Keep in mind, this does not include any infrastructure synergies, which we'd look to realize longer term. Secondly, in a sub-$50 WTI environment, drilling activity slows down significantly as returns are not supportive of growth and industry production is declining. In 2020, when oil averaged $43 per barrel, we saw our DCE&T costs decrease 13% to 15%.

If we use 10% cost deflation on capital and 5% on operating costs, we can further reduce our breakeven by $280 million. Lastly, natural gas prices have recently improved, owing to the increased demand as LNG Canada nears closer to first cargoes and increasing North American demand through Gulf Coast LNG. AECO natural gas prices are currently trading in excess of $3 in 2026.

By increasing the price of natural gas from $2 to $3, this would increase our funds flow by $200 million. The combination of these 3 factors lowers our maintenance capital requirements by $200 million to $1.7 billion and increases our funds flow by $400 million, which allows us to be fully funded both maintenance capital and dividends at USD 47 per barrel WTI and $3 AECO price.

With that, I'll turn it over to Grant for his closing remarks.

Thanks, Thanh, Chris. and Joey for your comments. The first quarter was another reminder of the strength of our asset base and our team's technical and operational expertise in extracting incremental value on these assets to provide strong returns to shareholders. While results continue to exceed expectations and successful development strategies are being transferred across the portfolio to continuously improve our inventory and long-term sustainability and profitability.

We are very excited to bring the best of Whitecap and Veren's technical operating and financial teams together to drive even stronger returns for shareholders into the future and look forward to closing the transaction on May 12. Our teams are currently working to optimize our go-forward capital investments by seeking efficiencies in the combined operations, high-grading inventory, rephasing our development and rig lines and more efficiently utilizing the combined infrastructure.

We look forward to sharing more of these plans along with our full 2026 budget and updated 5-year plan as we progress through the balance of this year.

With that, I will now turn the call over to the operator, Joanna, for any questions. Thank you.

[Operator Instructions] First question comes from Patrick O'Rourke at ATB Capital Markets.

Congratulations on the Competition Bureau approval. Look forward to that vote on May 6 and closing this transaction. I guess first question here is just with respect to the $280 million in deflationary cost savings here. I understand about 2/3 is capital, 1/3 would be on the operational front.

If maybe you could sort of unpack what the key drivers here are on that $280 million. And then in terms of achieving that, is this something you expect right away? Or is there a time frame around this milestone?

Patrick, it's Thanh here. Thanks for that question. I mean, I think we both recognize that lots of things change when we're talking about oil below $50 WTI. And I think when you look at our history, over the last 15-year period of time, we've been able to successfully navigate through that volatility and continue to maintain our balance sheet strength, which is the primary objective as a company here.

When we think about what happened in 2020, and keep in mind here, Patrick, our balance sheet is in a way better position today than it was when the COVID environment had hit. So when you look at our balance sheet at 1x debt to cash flow at $50 oil, it'd be 1.4x debt to cash flow. We were slightly above 2.5x back in 2020, not requiring any type of covenant relief from our banks here. So we do have to look at a $50 pricing environment very much holistically in terms of the sustainability and durability of our business model here.

Now what we've indicated here is our experience in 2020, which was sub $50. We saw cost deflation, both on capital and operating costs in the tune of somewhere between 13% to 15%. Now in our analysis here, which is meant to be illustrative, the capital that we've reduced in terms of deflation was 10% and 5% on operating costs in order to drive the $280 million.

Again, it's illustrative to see what happens at $50 and our experience in 2020 there between 13% to 15%. So just trying to show how things can quickly change. Obviously, in a higher pricing environment, we would expect to see inflation.

Okay. And maybe in the same vein, but a little bit more philosophical, you've got the 5% long-term growth trajectory here, but you can kind of pivot that around higher and lower rates at any given time. And appreciating that some of these things are chunky and long lead time, but maybe you could give some insight into sort of the benchmarking prices where you would be at the lower end of that band, the midpoint and the higher end of the growth trajectory at any given time.

Yes, Patrick, it's Thanh again here. I think ultimately, when we think about growth rates, it comes back to the returns that we can achieve on the capital that we're deploying, and the free cash flow that we're able to generate on these particular assets here. So 2 very important parameters that are critical for us when we're looking at capital allocation. Number one is capital payout, how quickly we get our money back. And are we profitable with the capital that we're deploying. So our profit-to-investment ratios are important when making these decisions here.

When you look at Whitecap on a stand-alone basis, we're targeting between 3% to 5% growth. Veren's 5-year plan had them about 7% growth. On combination, I would say that 3% to 5% makes sense on a combined basis if we're producing 370,000 BOEs per day. The lower end of that growth rate, I would say, would be somewhere between $60 to $70 WTI and the higher end of that growth rate would be between $70 to $80 WTI. That would be the band that we're working with at this time.

[Operator Instructions] Next question comes from Dennis Fong at CIBC Global Markets.

I guess, first off, I appreciate that incremental color around the flexibility in a number of different commodity price environments. I wanted to shift kind of my line of questions to a couple of other things.

The first is, can you talk a little bit around the cost controls that you're focused on with respect to the construction of the Lator facility? Obviously, understanding the financing structure of this facility project. But how are you guys managing some of the costs in a way that you feel are -- I don't want to say better necessarily, but done in a thoughtful way, whether it be for the build-out of this facility or the ability to expand into a second phase further down the line?

Yes, Dennis, I can take that one. It's Joey Wong here. So I mean the fundamental part of the design for us has always come back to the appropriate planning. And of course, drawing that back to what the facility is going to be asked to do, and that comes back, of course, to the subsurface and the technical that goes into that.

So to that end, planning for this facility has been underway for quite some time. And to your point there, in advance, of course, of the deal or the partnership we made with PGI. So through that planning process, we've been very deliberate in terms of figuring out what that facility ought to look like. And make sure that we stay on track with that because it's those shifts and changes that can introduce uncertainty in a build of this size.

And I'll draw back on our experience with Musreau, our 5-9 facility there, same story, a deep technical understanding of what the facility is going to be asked to do before we start heading down that path. And then, of course, the story there is that it came online slightly ahead of schedule and of course, under budget, like we've mentioned before.

So we're going to try to stay on the same path for Lator as well. Of course, there are macro things that can come in the way. But again, when you look at the fact that we've placed 90% of our long lead items to this date, things are looking pretty good for the overall control of costs go forward.

And Dennis, it's Joel Armstrong here. Just to follow up on some comments from Joey. So the Lator facility is really templated from an existing facility that our same folks built at Kaybob. So there are some nuances that are, of course, different, but it's not like it's something that our folks haven't built before. So we have great confidence in our cost structure and making sure that it's on time.

Great. I appreciate that color. Shifting gears a little bit more. So if we think about a lot of the previous corporate acquisitions or even asset acquisitions you've completed in the past, you've kind of shown a track record of quickly applying like Whitecap best practices to help improve efficiencies. And then in this kind of last update, you've talked a lot about like the wine rack style development, especially just the wine rack style development. Can you see -- or how have you may be compared or contrasted your style of development versus that of Veren? And if so, like what are some of the -- maybe the puts and takes that you see here? And how quickly would you want to, we'll call it, attempt applying some of the learnings that you have or so forth on the acquired land.

Dennis, it's Joey again. So yes, with respect to the Veren assets, of course, we've been looking at those assets for quite some time, as you might imagine, just as we're observing our peers and their associated development. So as a result, we do have some ideas of what might apply on those lands. I think the important part to remind ourselves there is as we look to combine the 2 companies, get the 2 technical teams together, figure out what has been working on these lands. And importantly, Dennis, honestly, find out what hasn't been working as well and start to incorporate those into a go-forward long-term development plan, which is in keeping with our strategy to date, which is really maximizing the economic returns on an acreage basis, irrespective of any sort of particular initiative.

And you talked about the Kaybob benching one as an example, with their lands being adjacent to ours and touching in many places, you can guess we do see a certain amount of read-through. But just like anything, it's not going to be universal. So I would definitely say that there will be things that we would like to unpack, and we'll definitely look to speak more on that as our teams get together and get a better handle on that.

Dennis, it's Chris here. So I just want to expand on Joey's comments there, just more so from the conventional perspective. Yes, echo a lot of those comments in particular. And for us, I mean, I think that the Veren team has done such a great job, in particular, with advancing their open hole multilateral initiatives.

So definitely some key learnings there for us as that applies to our other Saskatchewan asset bases -- among some other things, of course, being some of the EOR initiatives that they've spent a lot of time and efforts on. So we're going to continue to combine those focused efforts going forward as at the end of the day, it does make us a more sustainable and stronger entity in the backdrop of the spending that they have spent to date on their EOR initiatives. So definitely some strengthening mechanisms there for us. And yes, we're looking forward to this pro forma entity.

And at this time, gentlemen, we have no other questions registered. Please proceed.

Thank you, Joanna, and thanks to each of you on the line today and who continue to support us on our journey. We look forward to reporting back to you with continued success and advancement as we move forward with the combined company coming very soon. All the best. Goodbye for now.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.