Whitecap Resources Inc.

Good morning, my name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Whitecap Resources Q2 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. And if you would like to ask a question during this time, simply press star, then 1 on your telephone keypad. And if you would like to withdraw from the question queue, please press star, then number 2. And I would like to turn the conference over to Whitecaps President and CEO, Mr. Grant Fagerheim. Please go ahead, sir.

Thank you, Sylvie. Good morning, everyone, and thank you for joining us here today. Here with me are three members of our senior management team, our Senior Vice President and CFO, Ton Kang, our Senior Vice President, Engineering, Darren Dunlop, and our Senior Vice President, Business Development and Information Technology, Damon Burkett. Before we get started today, I would like to remind everybody that all the 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 that was issued yesterday afternoon. Our second quarter results emphasize the advantage that we have with our diversified asset base as we were able to partially mitigate the impact of the wildfires in north central Alberta through outperformance of our lighter oil-weighted Saskatchewan and central Alberta block development programs. In the second quarter, we generated $197 million of free funds flow, bringing our total free funds flow to $392 million in the first half of the year, of which 53%, or $208 million, has been returned to shareholders through our base dividend and share repurchases. During the second quarter, we spent $218 million, including $177 million of drilling and completions capital and $37 million of facility expenditures. We sped 43 gross, 41.6 net wells during the quarter, 34, 32.6 net of which were in our east division, where breakup conditions subsided earlier than anticipated, and our teams were able to get back in the field in June. Strong results across our east division have continued, and the team has done a tremendous job on both of our legacy assets, as well as those acquired over the past two-year period of time. In our west division, we commenced drilling nine wells, a three-well Montney pad at Kakwa, and six wells of our seven-well Duvernay program at Kaibab were stud in the second quarter. Since acquiring the XTO assets 10 months ago, we've been able to reduce net debt by $800 million from $2.2 billion at the end of the third quarter of 2022 to now $1.36 billion currently. The balance sheet is in pristine shape with debt to EBITDA at 0.6 times and $1.7 billion of unused debt capacity. The balance sheet has always been a priority for us and has allowed us to not only effectively manage through the commodity price cycles, but to also capture value enhancing opportunities on behalf of our shareholders. We are close to reaching our $1.3 billion debt milestone, which due to the wildfires has deferred this to the second half of the year. This is an important milestone for us as it represents debt to EBITDA ratio of less than one times using $50 WTI and a $3 per GJ April price assumption, which will then allow us to return 75% of our free funds back to shareholders, inclusive of the targeted $73 per share, $0.73 per share annual dividend. Given the significant growth we have undertaken over the last couple of years, we have realigned our business units into two divisions, East and West, to better streamline reporting processes and to drive operational excellence. The East division consists primarily of conventional assets which have lower decline rates, annual production growth rates of 1% to 2%, and generally outsize free funds flow of the capital expenditures. Our west division is primarily our unconventional resource plays, which include the Montney and the DuVernay, and will have a higher annual growth rate of 10% to 15% given the depth and quality of inventory in this division. Our extensive portfolio of 6,584 gross, 5,675 net drilling locations allows us to continue to generate significant pre-fund slow while growing 3% to 8% production per share to organic growing towards the 200,000 BUE per day over the next five-year period of time. As reported yesterday, results in our montane of CACWOD continue to be strong, with 82% of our wells drilled to date achieving payout in less than one year or less, some even paying out in less than five months. The free funds flow potential and results to date from this asset that validates our initial technical evaluation of the XTO assets. Furthermore, our teams continue to make significant strides in further enhancing their understanding of the Montney assets, and we believe the continual refinement of our development plans specific to individual areas and pad selection, such as targeted intervals within the Montney benches, wall spacing, completion design, and production operation efficiency, will further increase the return characteristics and profitability of this expansive set of assets moving forward. In our west division, we have now drilled and completed our first three-well pad and have commenced drilling our second pad, a four-well pad in the Duvernay. We look forward to having the first three wells tied into permanent facilities non-production in late August, while the four-well pad is expected to be on production in the fourth quarter. We are very encouraged by the execution of our drilling and completion operations to date, as well as our initial production test rates. Second quarter facilities capital included $15 million towards the expansion of our 3027 facility in the Valhalla region, as well as initial capital for our Musrell Lake battery. This battery is expected to be completed in the second quarter of 2024, allowing us to efficiently develop one of the most attractive areas in the Monteney that was acquired as part of the XTO transaction last year. Drilling operations at Muswell Lake are expected to begin later this year with production ads coinciding with the completion of the battery. Our longer term development planning for the larger undeveloped mountain acreage includes the expansion and increased utilization of current infrastructure as well as new infrastructure to support and maintain control over our unconventional growth plans. I will now pass the mic on to Ton to discuss our financial results.

Thanks Grant. Second quarter fund flow of $415 million or $0.68 per diluted share equates to a fund flow netback of approximately $31 per BOE. Strong liquids production, improved differentials on our sour and medium crude sold in Saskatchewan and one-time GCA adjustments all contributed positively to our netback in the quarter. Production shut-ins due to the Alberta wildfires resulted in increased per unit operating costs to over $15 per BOE in the second quarter. Going forward, we forecast operating costs will decrease to approximately $13 per BOE as we increase production in the back half of the year. As Grant mentioned, the balance sheet is in excellent shape with a debt-to-EBITDA ratio of only 0.6 times and $1.7 billion of unutilized capacity. Our balance sheet will continue to strengthen as we forecast net debt passing the $1.3 billion target and reaching approximately $1.2 billion by year-end based on current strip prices. At this point, we will have decreased net debt by $1 billion since the closing of the XCO transaction and returned over $500 million to shareholders through base dividends plus share repurchases. Our 2023 capital spending guidance remains unchanged at $900 to $950 million, and we've adjusted our annual production guidance to 157,000 to 159,000 BOEs to reflect the impact of the Alberta wildfires. Oil and liquids production has been stronger than forecasted through the first six months of the year, and in combination with some of the program changes we've made earlier this year, we're now expecting our annual liquids weighting to increase to 65% from 64% previously. I will now pass it back to Grant for his closing remarks.