Whitecap Resources Inc.

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. 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 the number one on your telephone keypad. If you would like to withdraw your question, please press star, then the number two. 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 four members of our management team here with me today. Our Senior Vice President and CFO, Ton Kang. Our Senior Vice President, Business Development and Information Technology, Dave Marmerkett. Our Senior Vice President, Production and Operations, Joel Armstrong. our Vice President of the West Division, Joey Wong, and our Vice President of the East Division, Chris Bullen. 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 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 to have strong performance to continue through the year. First quarter production of 179,151 BUE per day was over 6,000 BUE per day above our internal forecast of 173,000 BUE 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 tight 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 the 10th, a joint information circular has been filed and shareholder votes are scheduled for May 6th. We have already received Competition Bureau approval and the transaction is expected to close on May 12th. 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 the 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 to the company it is today. Maintaining balance sheet strength is a top priority which will allow us to navigate through the current uncertainty and ensure 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 with forecasted net debt of $3.5 billion at the year end. which represents a debt-to-annualized funds flow ratio of one times. At our stress test case of $50 WTI and $2 ACO 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. WhatCaps 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 successfully execute on these strategic priorities. I will now pass it off to Joey for more remarks on our unconventional results.

Thanks, Brent. 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 KBOB, 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 6 of 5 pad, and look forward to further validating the design's broader application across our future inventory at KBOT. At CAQA, we've successfully drilled and completed our first triple bench pad in northwest CAQA 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 facility's condensate-constrained capacity of about 17,500 buoys 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 Burland area, we have just brought online another two Monty 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 de-bottlenecking 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 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 II. 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 13 of 21 has now been on production for more than 180 days and has achieved an IP180 of just over 1,300 buis 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 1,650 BOEs a day, of which 23% of liquids, including 245 barrels a day of condensate. As noted in our last earnings call, those liquid 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 Bullen to talk about our conventional assets.

Thanks, Joey. First quarter operational results in our conventional assets were strong. over coming weather related delays in February to exceed expectations across multiple regions. In particular, our central Alberta cardium and glock night assets drove a significant portion of the conventional performance to the first three months of the year. Of note, we observe 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 three 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 profit 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 also exceeded our expectations with our Glock and I 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 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 IP 90 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 on to further discuss our financial results.

Thanks, Chris. First quarter fund 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 fund flow was $48 million, WTI averaged over $102 per barrel on a Canadian dollar basis during the first quarter with ACO prices averaging just over $2 per GJ. First quarter operating and transportation costs total $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 pre-tax funds flow. After dividends of $107 million, net debt remained below $1 billion, representing a debt-to-annualized first-quarter funds flow of only 0.6 times. On combination with Barron, we are forecasting net debt of $3.5 billion 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 $3 billion from $2 billion concurrent with the closing of the VARIN 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 number one 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. Proform of the varying combination, our base break-even where we can fund the dividend and maintenance capital is at $55 WTI and $2 ACO. We can further reduce this firstly through realizations of our $210 million identified synergies on the varying 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 break-even 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. Eco-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 three factors lowers our maintenance capital requirements by $200 million to $1.7 billion and increases our fund flow by $400 million, which allows us to be fully funded, both maintenance capital and dividends, at U.S. $47 per barrel WTI and $3 ACO price. With that, I'll turn it over to Grant for his closing remarks.

Thanks a lot, Chris. Thanks, Tom, 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 the 12th. Our teams are currently working to optimize our go-forward capital investments by seeking efficiencies in combined operations, high-grading inventory, repaging 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.

Thank you. Ladies and gentlemen, as stated, if you do have a question, please press star followed by one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. And should you wish to withdraw your question, please press star followed by two. We do ask that if you are using a speakerphone to please lift your hands up before pressing any keys. Please go ahead and press star one now if you have a question. First question comes from Patrick Orwork at ATB Capital Markets. Please go ahead.

Thanks. Good morning, guys, and congratulations on the Competition Bureau approval. Look forward to the vote on May 6th 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 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 million, and then in terms of achieving that, is this something you expect right away, or is there a timeframe around this milestone?

Hey, Patrick, it's Twan 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 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 one times debt to cash flow, at $50 oil, it'd be 1.4 times debt to cash flow. We were slightly above two and a half 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. 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 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.

Okay, thank you. And maybe in the same vein, but a little bit more philosophical, you know, 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?

Yeah, Patrick, it's Ton 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 white cap on a standalone basis, we're targeting between 3% to 5% growth. Varan's five-year plan had them about 7% growth. On combination, I would say that 3% to 5% makes sense on a combined basis for producing 370,000 VOEs 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.

Okay. Thank you very much. Thanks, Patrick.

Thank you. As a reminder, ladies and gentlemen, if you do have any questions, please press star followed by the one on your touchtone phone. Next question comes from Dennis Fong at CIBC Global Markets. Please go ahead.

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 wanted to shift kind of my line of questioning to a couple 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 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 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?

Yeah, 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, you know, 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.

And Dennis, this is Joel Armstrong here. Just to follow up on some comments from Joey. So the Latour facility is really templated from an existing facility that our same folks built at KBOPS. 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. 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've completed in the past, you've kind of shown a track record of quickly applying like 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 wine. just the wine rack style development. Can you see or how have you maybe compared or contrasted your style of development versus that of Varon? And if so, 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?

Hey, 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, 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 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 KBOB 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 here. So I just want to expand on Joey's comments there, just more so from the conventional perspective. Yeah, I echo a lot of those comments in particular. And for us, I mean, you know, I think that the Varon team's done such a great job in particular with advancing their open-hole multilateral initiatives. So definitely some key learnings there for us, you know, as that applies to our other Saskatchewan asset bases. You know, 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, you know, combine those focused efforts going forward as, at the end of the day, it does make us a more sustainable and stronger entity, you know, in the backdrop of the spending that they have you know, spent a date on their EOR initiative. So, definitely some strengthening mechanisms there for us, and, yeah, we're looking forward to this ProForm entity.

Great. I appreciate that, Collar. I'll turn it back.

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. 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.