Whitecap Resources increases dividends and extends CO2 contract

Whitecap Resources Inc. ("Whitecap" or the "Company") (TSX: WCP) announced a 26% increase to their monthly dividend as they expect to reach $1.3 billion net debt¹ milestone on or before September 30, 2023. They also advised that they have signed a CO₂ supply contract extension for volumes delivered to the Weyburn Unit CO₂ enhanced oil recovery project ("Weyburn Project") and have released a 2023 Environmental, Social and Governance ("ESG") Report.

DIVIDEND INCREASE

Upon closing of the XTO acquisition on August 31, 2022, they had established net debt targets of $1.8 billion and $1.3 billion. On achieving these targets, they are committed to increasing dividends to $0.58 per share and $0.73 per share (annualized), respectively. In January 2023, they achieved the first net debt milestone of $1.8 billion and increased the monthly dividend to $0.0483 per share. They now expect to achieve the $1.3 billion net debt milestone on or before September 30, 2023, and the Board of Directors has approved a 26% increase to  monthly dividend to $0.0608 per share, effective with the October 2023 dividend, payable in November 2023. This equates to an annual dividend of $0.73 per share, up from $0.36 per share prior to the XTO acquisition.

Since September 2022, they have reduced the net debt by approximately $900 million and returned over $400 million to shareholders through dividends plus share buybacks.

The net debt target of $1.3 billion is important to Whitecap as it represents a Debt/EBITDA ratio² of 1.0x at their stress tested commodity price assumptions of US$50/bbl WTI and $3.00/GJ AECO and is currently 0.6x at current strip prices. It is also an important milestone for shareholders as it will now return 75% of free funds flow¹ back to shareholders. Capital returns to shareholders will be comprised of the increased annual dividend of $0.73 per share and will be supplemented with share buybacks and/or special dividends. Given the variability in quarterly capital programs due to spring break up, they plan to update progress and measurement of these returns on a semi-annual basis. With consideration of total proven net asset value³ and the permanent improvement to our capital structure, our current preference is share repurchases over special dividends. They continue to be opportunistic on our share repurchases and target larger block trades when available.

Whitecap is in a very healthy position with their strong balance sheet and a balanced portfolio of high-quality drilling opportunities. The East Division (~90,000 boe/d) generates significant operating free funds flow¹ through its low decline and high netback assets, and the West Division (~70,000 boe/d), with Montney and Duvernay assets, provides a large resource base, significant reserves and inventory for decades of sustainable per share growth.

WEYBURN CONTRACT EXTENSION

As operator and 65.3% working interest owner of the Weyburn Project, they have signed a CO₂ purchase and sale extension agreement to December 31, 2034 with SaskPower for the purchase of CO₂ that is captured at the Boundary Dam Power Station, Unit 3 in Estevan, Saskatchewan. The Weyburn Project has safely sequestered over 40 million tonnes of CO₂ since first receiving captured CO₂ emissions. This project demonstrates the commitment that the Saskatchewan Government continues to provide leadership on, moving the province to a lower carbon economy while providing long term reliable and affordable power to its constituents.

The Weyburn Project has world-class attributes that provide significant benefits to Whitecap as well as many different stakeholder groups:

·      Acquisition Payout. The Weyburn Project currently produces approximately 15,000 boe/d⁴ (net to Whitecap) of 30-degree API crude oil and generates an annual operating netback¹ of over $200 million at US$75/bbl WTI. By the end of 2023, it is forecasted that the asset will have generated over $800 million of cumulative operating free funds flow to Whitecap, leading to a forecasted full payout¹ of the $940 million purchase price in 2024 at current strip prices⁵ which is less than 7 years after acquiring the asset.

·      Long Life Reserves. A reliable source of CO₂ supply is integral to the Weyburn Project maintaining a decline rate of below 5% as well as increasing the recovery factor of an asset that was first discovered in the early 1950's. To date, the asset has recovered over 500 million barrels of oil, with our year-end 2022 independent reserve evaluation³ indicating the asset is expected to produce for the next 50 years and recover a total of over 700 million barrels of oil. By utilizing CO₂ to enhance the recovery factor of the Weyburn oil pool, they are minimizing the surface impact required to replace production declines of a product that continues to see an increase in global demand.

·      Carbon Sequestration. Since first injection in the year 2000, the Weyburn project has safely sequestered over 40 million tonnes of CO₂. The internal modelling suggests that the ultimate CO₂ storage capacity of this partially depleted oil reservoir is 115 million tonnes, which at the current injection rate of approximately 2 million tonnes per year, provides for over 35 more years of CO₂ injection capability.

·      Project Benefits. The Weyburn Project provides significant economic benefits to the Province of Saskatchewan with a direct impact of 120 jobs and annual economic benefits of approximately $350 million⁶. Whitecap is proud to be associated with a project that has led the way for carbon capture, utilization and storage ("CCUS") projects, and we expect that knowledge gained from this project will provide significant benefits to future CCUS projects both in Canada and around the world.

ESG REPORT

Whitecap has released its 2023 ESG report which can be found on their website at www.wcap.ca/sustainability/esg-report. The 2022 results, discussion of objectives and commitments, and performance against established targets are all provided in this full comprehensive report. Whitecap is proud of its recent accomplishments and will continue to advance our ESG performance in the years to come.

NOTES
¹    Net debt is a capital management measure. Full payout and operating free funds flow are supplementary financial measures. Operating netback and free funds flow are non-GAAP financial measures. Refer to the Specified Financial Measures section in this press release for additional disclosure and assumptions.
²   Debt to EBITDA ratio is a specified financial measure that is calculated in accordance with the financial covenants in our credit agreement.
³    Refer to the Oil and Gas Advisories section for additional disclosure regarding how we calculate net asset value and for reserves information.
⁴   Disclosure of production on a per boe basis in this press release consists of the constituent product types and their respective quantities disclosed herein. Refer to Barrel of Oil Equivalency and Production & Product Type Information in this press release for additional disclosure.
⁵   Based on the following strip commodity pricing and exchange rate assumptions for Sep-Dec 2023: US$80.62/bbl WTI, $2.93/GJ AECO, USD/CAD of $1.35.
⁶   Gross capital expenditures prior to CO₂ purchases plus operating expenses and royalties.