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 Q3 2024 Results and 2025 Budget Conference Call. Note that 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. If you would like to ask a question during this time, simply press star then number one on your telephone keypad. And if you would like to withdraw your question, Please press start and number two. And I would like to turn it over to Whitecaps president and CEO, Mr. Grant Fagerheim. Please go ahead.

Thanks, Sylvia, and good morning, everyone, and thank you for joining us. There are five members of our management team here with me today, our senior vice president and chief financial officer, Ton Kang, our senior vice president, business development and information technology, Dave Monbriquette, and our senior vice president, production and operations, Joel Armstrong. our Vice President of the West Division, Joy Wong, and our Vice President, East Division, Chris Bullen. 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 earlier this morning. I'm once again very pleased to report that we had another strong quarter, both operationally and financially, achieving average production above our forecast at 173,000 302 BUE per day and generating funds flow of $409 million or 68 cents per share. In particular, our liquids production continues to outperform our expectations as condensate production from our Montney assets at Musgrove and Duvernay assets at KBOB has held in better than we had expected and we continue to see strong production from our southeast Saskatchewan publisher drilling program. We invested $273 million to drill 67 wells, 63.8 net wells, resulting in $136 million of free funds flow generated in the quarter and $350 million of free funds flow generated for the nine months of 2024. We returned over $200 million to shareholders during the third quarter, including $108 million of dividends and $117 million of share repurchases on our normal course issuer bid. Our asset level performance and operational execution has exceeded our expectations through the first nine months of 2024. At present, we are tracking above our previous annual guidance of 167,000 to 172,000 BUE per day and now expect to average 172,500 BUE per day in our third production guidance increase for the year. Turning to 2025. Our budget plan incorporates our current well designs and development strategies that have led to operational success so far in 2024. The budget includes capital investments of $1.1 to $1.2 billion to achieve average production of $176,000 to $180,000 per day, representing 5% per share growth at the midpoint of the range. Our capital allocation process is integrated in the region's compete for capital across both of our divisions, focusing on capital payout and profitability. Our 2025 capital investments, split evenly between our unconventional and conventional assets, reflect the highly economic inventory of both types of assets and is optimized for long-term sustainability. For 2025, our focus on our conventional assets is to maintain production between 110,000 to 115,000 BUE per day, 75% to 80% liquids, while improving capital efficiencies and expanding our inventory duration. Historically, we have had great success finding ways to improve our conventional inventory through updated drilling designs, longer laterals, refined development plans, or simply better operational execution. As such, we expect we will continue to be successful with our inventory enhancement initiatives and extend the duration and contributions from our conventional assets for many years to come. On our unconventional asset base, which includes our Montane and Duvernay assets, in 2025, we are focused on maximizing throughput of our operated facilities at Masrow and Cabot as we build out our next phase of growth at Latour for startup in 2027. We have achieved initial success in our approach to the unconventional development and customization of drilling and completion design, including both horizontal and vertical inter-well spacing across each of our Montane and Duvernay assets, and expect this to continue in 2025. These assets are forecasted to grow at an annual rate between 10% to 15% well into the future. Joey and Chris will provide additional details on our 2025 plans for each division. I will now pass this on to Tom to further discuss our financial results and our 2025 budget. Tom? Thanks, Grant.

Third quarter funds flow was strong at $409 million, or $0.68 per diluted share. WTI prices averaged over $100 per barrel Canadian during the quarter as the low Canadian dollar continues to benefit Whitecaps revenues. AECO natural gas prices averaged $0.65 per GJ in the quarter and contributed to less than 3% of our revenues. We realized hedging gains of $14.9 million in the quarter, of which $12.6 million was attributed to our natural gas hedges. Current tax expense of $53 million was 48% lower than the previous quarter, as we recognized $33 million in capital gains on the partial disposition of our KBOB and Muzzleville facilities in the second quarter. In addition, the lower commodity price outlook for the remainder of the year prompted a true-up to taxes paid in the first half and resulted in an overall decrease to cash taxes paid. As Grant mentioned, we expect to now exceed the top end of our previous guidance to average 172,500 BUEs per day in 2024, which puts our Q4 production at approximately 170,000 BUEs per day. This takes into account the lower CAPEX spending in the fourth quarter of $200 million and timing of production additions. For 2025, our production guidance of 176,000 to 180,000 BUEs per day is forecast to generate $1.6 billion to $1.7 billion in funds flow at U.S. $70 per barrel WTI and $2.50 per GJ ACO. Our main cost assumptions for 2025 include royalties of approximately 16%, operating costs approximately $14 per BOE, transportation costs of $2.10 per BOE, and cash tax equating to 11% to 12% of pre-tax funds flow. Our G&A per BOE at $1 per BOE is one of the lowest in the sector. We'll also direct approximately $40 to $45 million on abandonment and reclamation activities on our assets in 2025. Our balance sheet at the end of the third quarter is in excellent shape with net debt of $1.4 billion, which equates to a debt-to-EBITDA ratio of only 0.6 times. Upon closing of the PGI transaction, which is pending regulatory approval, pro forma net debt is expected to be approximately $1 billion or a debt to EBITDA ratio of only 0.5 times. With our bank credit facility now unsecured and a public investment grade rating of BBB low by DBRS, this positions us well to issue bonds in the near term to diversify our debt structure and reduce our cost of borrowing. I will now pass it off to Joey for more remarks on our West Division results and 2025 plans. Thanks, Don.

2024 has been an exceptional year for our Montigny and Duvernay assets on both execution and performance. While results have exceeded expectations across the board, and we are realizing the benefits of our technical analyses on our operational efficiencies. Since our update at our investor day in June, we have continued to realize better efficiencies on our Montigny and Duvernay operations with improvements on our key performance indicators, including drilling meters per day, completions, tonnage per day, and completion's water intensity. 2025 will see us building on these successes as we plan to drill 30 wells across our Montigny and Duvernay focus areas of Kaibab, Kakwa, Musroe and Latour with 34 wells expected to come online in the year. Growth associated with this activity is expected to be 10% year-over-year or 20% exit-to-exit, meeting our expectations of 10% to 15% annualized growth over the next five years and beyond. In KBOB, we are about to bring online another five-well pad, which will mark 15 operated wells online. We are seeing results of our efforts and technical work since acquiring the asset in the third quarter of 2022. Adjustments to our development plans have included longer laterals, larger casing size, and the introduction of a vertical inter-well offset, otherwise known as wine racking or benching. 2025 will see us spud an additional 20 DuVernay wells, which will have our 15-7 gas processing facility running at full capacity, and we will look at that point to offload excess production to a nearby third-party facility, which will occur sometime in the second half of the year. At Musro, our 5-9 battery is operating at full condensate capacity and approximately 80-90% of gas compression capacity, resulting in overall area production around 17,000-18,000 BOEs per day. Excluding three days of downtime in Q2 associated with brief, unplanned third-party interruptions, runtime at the facility has exceeded 99%, and we are very pleased that everything is running as expected. Initial condensate to gas ratios have come in on the higher end of expectations, currently in the range of 330 barrels per million standard cubic feet of gas, as compared to a facility design of 250 to 300. With the initial pads also showing stronger than expected overall inflow, We are currently full with three pads, which is ahead of schedule, as we had anticipated to be full with our fourth pad. That fourth pad is expected to come online later this year, at which point we will evaluate performance of the individual wells and prioritize throughput through the battery to maximize overall value. We have also received regulatory approval to commence injection at our adjacent water disposal well, which is expected to handle the water from our new wells and save on operating costs moving forward. 2025 will see the drilling of one more four-well pad expected to come online later in the year. If outperformance continues throughout subsequent development programs, we'll give consideration to either moderating the pace of development or expanding our facility, both of which would be compelling options and provide excellent economic returns. For 2025, we forecast our Muzrow asset to generate $150 million of free operating income after capital expenditures. a significant achievement considering we spot our first well into this asset just over a year ago in late 2023. At CAQA, we're planning to drill another four-well pad in the southeast portion of our acreage in 2025, which is a follow-up to our two successful three-well pads at wider spacing of six wells per section versus the offsetting precedent of eight. Approximately 20 kilometers to the northwest, we've just spud a three-well pad targeting the D3, D2, and lower middle Montney in a triple bench configuration. This portion of our acreage lends itself to this approach given the observed high porosity in each of the three benches. Results from this pad are expected in mid 2025. At Latorre, progression of technical due diligence, planning and design work is well underway. Everything is coming together as expected and we still expect to bring the facility on production in late 2026 or early 2027. Well activity has been and will remain targeted until we're ready to drill start-up wells beginning sometime in 2026. Information gathered along the way will inform our overall development plans in both the near and longer term. Lastly, we have just spud two Montney wells at Burland as follow-ups to our successful 2023 results. While the economic returns of these wells fit nicely within our portfolio, the limited running room has the area limited to smaller programs at this time while we evaluate a potential expansion of a larger activity set in the years to come. These wells produce into available capacity at third-party infrastructure, and we expect these wells to come online sometime in early 2025. With that, I will now pass it over to Chris Bullen, Vice President of our East Division, to talk about our conventional assets.

Thanks, Joey. On the conventional side of our business, we are also building on the strengths of a very successful 2024 operational year that has delivered outperformance relative to our expectations across our focus plays, along with advancing inventory enhancements initiatives. In 2025, we plan to drill 190 wells across Alberta and Saskatchewan. This low decline, high net back asset base is a key differentiator for us as it provides 70% of our corporate free cash flow and provides Whitecap with a strong foundation for long-term sustainability and profitability. Thanks to our active capital programs and exceptional technical teams, progression of efficiencies has continued. and is expected to continue in the years to come, boosting the already strong economics and extending the lifespan of these assets. In Alberta, we'll drill 30 wells next year, mainly targeting the gloconite in southwestern Alberta and the cardium at West Pamina. Our momentum in the gloconite play continues with the successful drilling of three monobores, reducing costs by 10% per well, a key enhancement initiative. Following a detailed operational and geological review, including analysis of our recent operating results, we plan to utilize monobores on the majority of our 2025 locations. Success from our 2025 program would give us enough confidence to apply this approach on the majority of our remaining inventory, resulting in improvement in NPV 10 and lowering our development costs as part of our five-year plan. This is another example of continued efficiencies gained on our operated assets and is a testament to our commitment and culture of continuous improvement. In addition to these improvements, we are also seeking to expand our prolific gloconite inventory set with targeted delineation wells, along with advancing secondary plays, including the Ellerslie, Spirit River, and Belly River, given our enviable land position. In western Saskatchewan, we have planned 100 wells, 79 of which target light oil in the Viking Formation, with the balance targeting our low-decline enhanced oil recovery prospects in southwest Saskatchewan. In the Elrose area, we're continuing to test extended reach horizontal wells with laterals up to 1.5 miles as a key enhancement initiative to improve upon capital efficiencies by reducing overall development capital. At current prices, we expect these wells to pay out in only 11 months, making this program highly efficient. In eastern Saskatchewan, we're targeting the Frobisher Formation with 39 planned wells. As discussed at length, the economics of these wells are top decile and we're always looking for ways to expand our inventory on this asset. One such enhancement initiative has been to target the State A formation by an open-hole multilateral drilling design. The State A is a much tighter part of the upper Frobisher formation and therefore has not been targeted historically. Our first open-hole multilateral targeting this zone is showing promising early results and if successful, could significantly extend the lifespan of this asset with the potential to add approximately two to three years of highly economic wells to our inventory set in our eastern Saskatchewan region. At our world-class CO2 enhanced oil recovery project in Wavering, Saskatchewan, we'll drill 21 wells next year, which include the mix of new phase rollouts and infill wells within the Wavering unit. We've seen strong results from our CO2 flood rollout programs over the past four years, with this property being a significant contributor to the free cash flow generation of the company. With that, I'll turn it back over to Grant for his closing remarks.

Thanks, Chris, and Joy, for your remarks. Looking back at our accomplishments over the past several years, we are pleased with the strong foundation we've laid for 2025 and for years to come. The asset base that we've assembled, combined with the technical rigor and analysis that our teams contribute to the planning, execution, and analysis phases of our programs has yielded very strong results. Our 2025 budget is a reflection of this, and we are looking forward to executing on our plans. for Canadian oil and gas is positive as the recent completion of the Trans Mountain Pipeline expansion and the initial flows through the Coastal GasLink Pipeline to the LNG Canada facility will provide access and better pricing to global markets. Whitecap is committed to responsible development of our resources while providing strong returns to our shareholders. Again, in 2025, we will return a minimum of over $400 million in base dividends back to our shareholders in addition to sustainable production per share growth. Our budget will remain flexible to changes in commodity prices as we are able to quickly scale back our programs at lower prices or increase our program spending with higher prices. We are committed to balanced growth with enhanced returns to shareholders at higher prices. Our priority is to generate long-term sustainable and profitable growth and we're excited to build upon the success that we've achieved to date. I would also like to provide a huge thank you to our employees and contractors for your relentless efforts to bring success to Whitecap. Not only do these individuals prioritize results, they place an even greater emphasis on safety and the betterment of the communities in which we live and operate. In addition, our employees have also been very involved in various community fundraising initiatives and volunteering initiatives through the summer months and now into the fall. that our employees take on to pass good fortunes on to what they enjoy with others. With that, I'll now turn the call over to the operator, Sylvie, for any questions. Thank you.

Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch-down phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. And if you're using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star 1 now if you have any questions. And your first question will be from Travis Wood at National Bank. Please go ahead.

Yeah, good morning and thanks for the detailed remarks there, guys. Two areas I want to focus on. First, at Muzzro, Is growth there limited by infrastructure, or is it inventory-based as you think about the five-year plan expansion possibilities?

I can take that one there, Joey Wong here. The answer to it is it's going to be a little bit of both. When you build out a facility, you have to take into account what kind of a runway you're building for, what kind of a horizon you're looking for. In the Musroe area, somewhere in that range of 50 to 60 inventory locations, we're figuring the facility right now at its 20,000 VOEs per day capacity is about that right duration to have us not overcapitalizing and not also pinched. Again, that said, as I mentioned in the remarks there, we do have some pretty impressive results here. So we would give consideration to, like I mentioned, either

drawing out that capital cadence and thereby just improving capital efficiencies which is which is great or uh doing some targeted de-bottlenecking which could marginally uh increase about we're not talking about like a doubling or anything like that on the facility okay okay perfect and then um just shifting to latour um obviously it's kind of within the longer range plan from a growth perspective but you talk about some due diligence through 2025 What are those and what types of things should we be looking for as you go through that in 2025 and how will you benchmark those?

Travis, Joey again. Thanks for that question as well. It's going to be a mix of observation of technical data that we see off of our lands. Of course, there's operators around us and then operations on our land. As you're aware, we're drilling the two wells this year and the two wells next year. And those are very intentional wells where we're going to be trying to ensure that we have a full understanding, not just aerially, like throughout the land base, but then within that vertical stack of how the performance is going to be. And to us, it's not just the performance on a well delivery point of view. It's also on execution. So making sure that as we look to, you know, develop this area pretty materially, as we're at full fill-up mode there with a couple rigs running in the area specifically, that we are running in a pretty narrow range of expectations, like I say, on both the inputs and the outputs. So it's going to be a mix of everything from a technical point of view. There, Travis.

Okay. I appreciate the color on both of those. I'll turn it back.

Thank you. Next question will be from Patrick O'Rourke at ATB Capital Markets. Please go ahead.

Hey, guys. Good morning, and thank you for taking my question. I guess the first thing I'd just like to understand is with the 2025 budget, you talk about $400 million, maybe a little bit more than that in dividend payments, and if you take the midpoint, you probably have a bit of excess free cash flow beyond that. Can you maybe speak to your priorities on that excess free cash flow between continuing to whittle away at the debt, share buybacks, and then perhaps what the parameters around dividend growth would be and what sort of timeframe investors would be thinking about you evaluating those on.

Sure. Thanks, Patrick. It's Ton here. With respect to the dividend, we're certainly comfortable around the sustainability of it, and what I mean by that is we look at it being fully funded, both the dividend and our maintenance capital down to $50 WTI and $2 gas. Longer term, we do want to increase the dividend, consistent with our targeted growth rate, in that 3% to 8% production per share growth. At this time, though, given the yield at about 7%, and where Whitecap is currently trading at, our focus would be on share buybacks. When we look at our return of capital framework being 75% of our free cash flow, this would be after our capital spending of that $1.1 to $1.2 billion there. So 75% back to our shareholders in the form of either dividends or share buybacks. We think that's a healthy return back to our shareholders there. So it's important for us to continue to improve our balance sheet. I mean, it's in excellent shape right now. But we'll still continue to direct 25% of our free cash flow back to the balance sheet. And this will allow us to capture future opportunities, including a more aggressive share buyback program as we think about the business going forward here.

Okay, thank you. And then just on the operational side, maybe this is a little bit further on some of the questions that Travis was asking. You know, I look back to the 2024 budget and the well allocation between the Duvernay and the Montney favored the Montney in terms of the number of spuds that were forecast there. This year, it's sort of reversed and, you know, almost completely flipped in terms of the ratio. And I'm wondering, you know, what is the key driver there? Is this an economic view or is this more about managing... kind of the infrastructure and timing of infrastructure additions and or the inventory as you spoke to before.

Yeah, I can take that one there as well as Joey here. So yeah, the answer to that one is pretty simple and actually contained in your question there. It's both economics and infrastructure. As we're all aware, we've seen some really compelling results from the area on our operated lands and As we've noted, we found some pretty good efficiencies along the way on the execution side. So with respect to that available capacity, as it stands right now, we have a plant that's currently putting through about 110 million a day of gas on a raw basis. So by the time we then utilize that available offload that we spoke to at the nearby third-party plant, we have the ability to get up to about 200 million a day out of the area. So that will take our production from in and around that 20,000 BOEs a day that we're seeing right now up to something in the range of 30,000 to 35,000 BOEs a day or slightly higher than that. So really it's just, like I said, a matter of taking advantage of really good inventory and available infrastructure.

Okay. Thank you very much.

Thank you. Next question will be from Luke Davis at Raymond James. Please go ahead.

Yeah, thanks. Good morning, guys. Just had a quick question on the 2025 guidance. You know, the run rate on liquids ratio within corporate volumes is about 65% as a Q3. A couple point drop into 2025, and you kind of noted performance across the board on the liquid side of things. So is that a function of higher weighting to drilling in the west part of the business? Is it a function of, you know, facility constraints or something else that I'm not thinking about?

Yeah, Luke, Joey Wong here. Yeah, that's just going to come as a result of the balance of the capital program, like you indicated there. There's nothing that's holding us back on a facility or infrastructure side. When it comes to allocating that capital right now, of course, given the commodity prices in front of us, you know, you can kind of see that in how we've prioritized specifically our unconventional development is targeting those liquids anchored projects inventory sets there. And then, of course, like we identified there, with a healthy amount, roughly half going to the conventional side to keep that roughly flat and including the 75% to 80% liquid that we're seeing on that side.

Yeah, and the only thing I'd add there, Luke, is that this year we're averaging about 64% liquids, and there's a slight decline to that, obviously, as we continue to build out the Montigny and the Duvernay And that's expected to average about 63% in 2025.

That's helpful. Thanks. And I guess just beyond that, would you expect any material changes through the back end of 2025 or into 2026?

You mean in terms of the liquids waiting there, Luke?

That's right. Yeah. Just given how the growth is structured.

Yeah, you know, as we look at our five-year plan, you know, that decreases to somewhere in that 60% at the end of the five years. So still, majority of our, you know, production as well as our cash flows are driven by the liquids portion of it. So it'll go from 64% currently to 63% and then ultimately to about 60% at the end of the five years.

Great, helpful. Thank you.

Thank you. As a reminder, ladies and gentlemen, if you have any questions, please press star followed by one on your touchtone phone. And your next question will be from Michael Spiker at HTM Research. Please go ahead.

Good morning, guys. Thanks for taking my question. Congrats on the outperformance this quarter. You'll have to see it. I just have a question on the 2025 capital budget in the unconventional business unit. Looks like you guys are planning on spending about $575 million at the midpoint to drill and complete around 32 wells. Do you guys have any color just around the balance of that allocation towards infrastructure projects and half-cycle spending, so drilling completion spending, and what kind of, I estimate, kind of $250 million would go towards full-cycle spending and what projects that'll tackle? Thanks, guys.

Yeah, I'll take a first crack at that here. It's Ton, and then Joey can comment more on the details there. So, you know, within our $1.1 to $1.2 billion project, There's about $165 million or 14% of our budget that we're allocating towards infrastructure spending there. And that's split between about $95 million on our unconventional, which is really around compression and water handling, and then the remainder, $65 million, on our conventional assets. And that's really just normal course optimization initiatives. So pretty similar, I would say, to what we allocated in 2024 at about $150 million. So that would be, you know, where the bulk of the capital and the infrastructure is being allocated towards.

Any other questions, Sylvie? Michael, did you have any further questions?

No, no, thanks.

Thank you. And at this time, Mr. Fagerheim, we have no other questions registered. Please proceed.

Okay, well, thank you, Sylvia, and we want to thank everyone for joining us and listening in today. Wishing you all the best, and we look forward to continuing success and coming back to the success that we've been having to date. Thanks very much for listening in.

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.