Earnings call transcript: Whitecap Resources Q1 2025 sees 17% funds flow rise

Whitecap Resources Inc. (Market cap: $3.43B) reported a strong financial performance in Q1 2025, with a 17% year-over-year increase in funds flow, totaling 446 million dollars. The company also achieved a 6,000 BOE/day production increase above forecasts. According to InvestingPro analysis, the stock appears undervalued against its Fair Value, with analysts maintaining a Strong Buy consensus. The company’s robust 9.1% dividend yield and attractive P/E ratio of 5.91 suggest significant potential for value investors.

Key Takeaways

• Funds flow per share increased by 7% from Q4 2024.
• Production exceeded forecasts by 6,000 BOE/day.
• Net debt reduced to below 1 billion dollars.
• Pending combination with Barron expected to enhance growth.
• Operational cost savings achieved through innovative drilling techniques.

Company Performance

Whitecap Resources demonstrated robust performance in Q1 2025, marked by a significant increase in funds flow and production levels. The company’s strategic focus on operational efficiency and innovation has resulted in cost savings and production gains. With an impressive Financial Health Score of "GREAT" on InvestingPro, and EBITDA of $1.35B, the company shows strong operational execution. The upcoming merger with Barron is expected to further strengthen Whitecap’s market position and growth prospects. Get access to 12+ exclusive ProTips and comprehensive analysis with an InvestingPro subscription.

Financial Highlights

• Funds flow: 446 million dollars, up 17% YoY
• Funds flow per share: 0.75 dollars, a 7% increase from Q4 2024
• Capital expenditures: 398 million dollars
• Free funds flow: 48 million dollars
• Net debt: below 1 billion dollars
• Debt to annualized funds flow: 0.6 times

Outlook & Guidance

Whitecap Resources is forecasting net debt of 3.5 billion dollars by year-end. The company maintains a base breakeven at 55 dollars WTI and 2 dollars AECO, with identified synergies of 210 million dollars from the Barron combination. The company is also exploring cost deflation to reduce maintenance capital.

Executive Commentary

• "We are very excited to bring the best of Whitecap and Barron’s technical operating and financial teams together," said Grant Fagerheim, CEO.
• "Our number one priority is to maintain our balance sheet strength through commodity price cycles," stated Tom Kang, CFO.
• "We have the asset base, processes, operating teams, and management aligned to fully successfully execute on these strategic priorities," added Grant Fagerheim.

Risks and Challenges

• Commodity price volatility could impact financial stability and growth.
• Integration challenges with Barron could delay expected synergies.
• Potential regulatory changes in the energy sector.
• Dependence on technological advancements for operational efficiency.
• Market competition from other energy producers.

Whitecap Resources’ Q1 2025 performance highlights its strategic focus on growth, operational efficiency, and market adaptability. With a beta of 1.93, investors should note the stock’s higher volatility compared to the market. The company’s upcoming merger with Barron and its innovative approaches to production and cost management position it well for future challenges and opportunities in the energy sector. For detailed insights and exclusive analysis, including the comprehensive Pro Research Report covering 1,400+ top stocks, visit InvestingPro.

Full transcript - Whitecap Resources Inc (WCP) Q1 2025:

Joanna, Conference Operator: 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 twenty twenty five Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

I would now like to turn it over to Whitecap’s President and CEO, Mr. Grant Fagerheim. You may begin your conference call.

Grant Fagerheim, President and CEO, Whitecap Resources: Thanks very much, Joanna. I appreciate that. Good morning, everyone, and thank you for joining us. There are four members of our management team here with me today, our Senior Vice President and CFO, Tom Kang our Senior Vice President, Business Development and Information Technology, Dave Mombourquette our Senior Vice President, Production and Operations, Joel Armstrong our Vice President, West Division, Joey Wong and our Vice President, East Division, Chris Bowen. Actually there’s five 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 twenty twenty five 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 to have 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 our anticipated 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 Barron 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, ’20 ’16 time period and utilizing both periods of market dislocation to help transform White Camp into the company it is today. Maintaining balance sheet strength is a top priority, which will allow us to navigate through the current 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 form a the Baron combination with forecasted net debt of $3,500,000,000 at year end, which represents a debt to annualized funds flow ratio of one times. At our stress test case of $50 WTI and $2 AECO price, it would be still under 1.5 times 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 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.

Joey Wong, Vice President, West Division, Whitecap Resources: 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 one hundred and eighty 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 wind 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’ve elected to spud our third wine rack pad, the six zero five pad and look forward to further validating the design’s broader application across our future inventory at Quevol. At Queball, we’ve successfully drilled and completed our first triple bench pad in Northwest Queball at 16 of 17. Initial flow tests have been encouraging.

Observed frac behavior including how the wells treated and how the three 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 four well pad at the Southeast Kakwa area using six wells per second spacing, building off the inter well spacing success we saw in 2023. At Musro, we did experience some brief downtime in January and February, stemming from an unexpected outage on one of our four compressors at our 509 facility that necessitated a reduction in throughput by about 25% for just over a month.

Since then, production has returned to our facilities condensate constrained capacity of about 17,500 BOEs per day. Our next pad in the area will be drilled in the second half of twenty twenty five with production expected in early twenty twenty six 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 two Montney wells.

Initial rates after ninety 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 Latour, 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 twenty twenty six to early twenty twenty seven.

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 two. Our two 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 thirteen of twenty one has now been on production for more than one hundred and eighty days and has achieved an IP180 of just over 1,300 BOEs a day, 39% liquids including four twenty barrels a day of condensate. The second well at 13 Of 35 with one hundred and twenty days production has achieved an IP120 of roughly sixteen fifty BOEs a day of which 23 liquids including two forty five 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 Bowen to talk about our conventional assets.

Chris Bowen, Vice President, East Division, Whitecap Resources: 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 Glockonite assets drove a significant portion of the conventional outperformance to the first three 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 twenty twenty two taking advantage of available infrastructure in the area.

The first three wells with IP90 data are averaging six fifty 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. Monoboard 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 five development wells that have over ninety days of production history are yielding an average IP90 rate of nine sixty three BOE per day, fifty two percent liquids per well, which exceeds our type curve expectations by 27%. This includes our most prolific well result to date in the Glockonite with our four thirty six well achieving an IP90 in excess of 2,000 BOE per day with 42% liquids.

We drilled 64, 50 seven point eight 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 Tom to further discuss our financial results.

Tom Kang, Senior Vice President and CFO, Whitecap Resources: Thanks, Chris. First quarter funds flow was $446,000,000 or $0.75 per share, which was up 17% compared to the first quarter last year and 7% higher than the fourth quarter of twenty twenty four. After capital expenditures of three ninety eight million dollars free funds flow was $48,000,000 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 twenty twenty four at $16.33 per BOE and consistent with the previous quarter. We incurred cash tax of $56,000,000 or $3.5 per BOE equating to 11% of pre tax funds flow.

After dividends of $107,000,000 net debt remained below $1,000,000,000 representing a debt to annualized first quarter funds flow of only 0.6 times. On combination with Barron, we are forecasting net debt of $3,500,000,000 at year end based on current commodity prices and we will provide updated forecasts when the transaction closes or shortly after. Our revolving credit facility is expected to increase to CAD3 billion from CAD2 billion concurrent with closing of the Varon combination. This will provide us with greater than $1,000,000,000 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 number one priority is to maintain our balance sheet strength through commodity price cycles.

We do this by ensuring that we send less than our funds flow and keep our absolute level of debt flat. Pro form a the Varon 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 $210,000,000 identified synergies on the bearing 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 both and industry production is declining.

In 2020, when oil averaged $43 per barrel, we saw our DCE and T cost decrease 13% to 15%. If we use 10% cost deflation on capital and 5% on operating costs, we can further reduce our breakeven by two eighty million dollars 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 $200,000,000 The combination of these three factors lowers our maintenance capital requirements by $200,000,000 to $1,700,000,000 and increases their funds flow by $400,000,000 which allows us to be fully funded both maintenance capital and dividends at US47 dollars per barrel WTI and $3 AECO price. With that, I’ll turn it over to Grant for his closing remarks.

Thanks,

Grant Fagerheim, President and CEO, Whitecap Resources: Thanh, Chris and Joy 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 Varon’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 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 five 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.

Joanna, Conference Operator: Thank First question comes from Patrick O’Rourke at ATB Capital Markets. Go ahead.

Patrick O’Rourke, Analyst, ATB Capital Markets: Thanks. Good morning, guys. And congratulations on the Competition Bureau approval. Look forward to the vote on May 6 and closing this transaction. Guess, first question here is just with respect to the $280,000,000 in deflationary cost savings here.

Understand about two thirds is capital, one third would be on the operational front. If maybe you could sort of unpack what the key drivers here are on that $280,000,000. And then in terms of achieving that, this something you expect right away or is there a timeframe around this milestone?

Tom Kang, Senior Vice President and CFO, Whitecap Resources: Hey, Patrick, it’s Tuan there. 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. I think when you look at our history over the last fifteen 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 one times debt to cash flow at $50 oil, it’d be 1.4 times debt to cash flow. We were slightly above 2.5 times 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 dollars 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 105% on operating costs in order to drive the $280,000,000 Again, it’s illustrative to see what happens at $50 in 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.

Patrick O’Rourke, Analyst, ATB Capital Markets: Okay, thank you. 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 pivot that around higher and lower rates at any given time. Appreciating that some of these things are chunky and long lead time, but maybe you could give some insight into 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.

Tom Kang, Senior Vice President and CFO, Whitecap Resources: 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 two 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 standalone basis, we’re targeting between 3% to 5% growth. Verint’s five year plan had them about seven percent growth. On combination, I would say that 3% to 5% makes sense on a combined basis for 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.

Dennis Fong, Analyst, CIBC Global Markets: Okay. Thank you very much.

Tom Kang, Senior Vice President and CFO, Whitecap Resources: Thanks, Patrick.

Joanna, Conference Operator: Thank you. Next question comes from Dennis Fong at CIBC Global Markets. Please go ahead.

Dennis Fong, Analyst, CIBC Global Markets: Hi, good morning and thanks for taking my questions. I guess first off, I appreciate that incremental color around the flexibility in a number of different commodity price environments. I just wanted to shift kind of my line of questioning to a couple of other things. The first is, you talk a little bit around the cost controls that you’re focused on with respect to the construction of the Latour 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 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?

Joey Wong, Vice President, West Division, Whitecap Resources: 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, 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. I’ll draw back on our experience with Musro, our 509 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 Latour 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.

Joel Armstrong, Senior Vice President, Production and Operations, Whitecap Resources: Dennis, it’s Joel Armstrong here. Just to follow-up on some comments from Joey. So that the Latour 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.

Dennis Fong, Analyst, CIBC Global Markets: Great. Thank you. 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 completed in the past, you’ve kind of shown a track record of quickly applying white cap 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 have you maybe compared or contrasted your style of development versus that of Barron? 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?

Joey Wong, Vice President, West Division, Whitecap Resources: Dennis, Joey again. So yeah, with respect to the Varon 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, 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 two companies, get the two 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 talk about the K Bob 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. Hey Dennis, it’s

Chris Bowen, Vice President, East Division, Whitecap Resources: 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, mean, think that the Verint 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, 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. Yes, we’re looking forward to this pro form a entity.

Dennis Fong, Analyst, CIBC Global Markets: Great. I appreciate that color. I’ll turn it back.

Joanna, Conference Operator: And at this time, gentlemen, we have no other questions registered. Please proceed.

Grant Fagerheim, President and CEO, Whitecap Resources: Thank you, Joanna, and thanks to each of you on the line today and who continue to support us on 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.

Joanna, Conference Operator: 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.

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