Whitecap Resources Inc.

Whitecap Resources Inc.

June 27, 2013 08:01 ET

Whitecap Resources Inc. Consolidates Working Interests in Its Valhalla and Garrington Light Oil Core Areas, Announces $170Million Financing, Dividend Increase and Provides Increased 2013 Guidance

CALGARY, ALBERTA--(Marketwired - June 27, 2013) -


Whitecap Resources Inc. ("Whitecap" or the "Company") (TSX:WCP) is pleased to announce that it has entered into an agreement to purchase certain strategic light oil assets located predominantly in its core Valhalla and Garrington operated areas of Alberta for total consideration of $173.6 million (the "Acquisition"). The Acquisition adds 2,900 boe/d (56 percent oil and NGLs) of high netback, low base decline production (16 percent current decline rate) in areas where Whitecap already operates 96 percent of the production.

The Acquisition will be funded through a concurrent $170 million bought deal financing (the "Financing") and Whitecap's existing credit facilities.


The light oil Acquisition continues to solidify and strengthen Whitecap's long-term sustainability while maintaining focus on our current core areas. The Acquisition consists of increasing our working interest in existing operated oil pools and associated infrastructure in areas where we have significant technical expertise and have provided our shareholders with a high return on investment. Whitecap will add no additional personnel with this Acquisition. In 2014, we estimate that production from the Acquisition will increase to an average of 3,200 boe/d from its current 2,900 boe/d and after planned capital expenditures on the acquired assets of $22.0 million, will generate total cash flow of $40.9 million, leaving significant accretive free cash flow of $18.9 million to Whitecap.


The Acquisition includes the remaining 50 percent working interest in the Valhalla Montney C waterflood that has been a key, underpinning asset for Whitecap since inception as well as various surrounding producing and undeveloped lands. Control of this asset at a 100 percent working interest will enable Whitecap to further advance and optimize the Montney C waterflood expansion where we have experienced a great deal of success as well as efficiently accelerate the implementation of waterfloods in certain surrounding oil pools.

Whitecap's recent results in Valhalla have been above expectations and include the following:

  • The last four horizontal multi-fractured wells within the Montney C waterflood have an average IP(30) of 470 boe/d which is 89 percent higher than previously forecasted.
  • Over the last 36 months we have seen new and incremental waterflood response on 11 producing wells with oil production on average increasing by 70 percent per well.
  • In the second quarter of 2013 Whitecap drilled and successfully tested a horizontal multi-fractured well that proved up an extension of the Montney C pool which will add 11.5 (net) additional locations to our current oil development inventory.

With further oil weighted drilling programs and increased waterflood response, Whitecap expects both the oil weighting and the associated cash flow netback in the area to increase over time.


The assets being purchased in Garrington increase our working interest to 91 percent in existing wells and the offsetting undeveloped lands will add 7.7 (net) high quality Cardium drilling locations. These drilling locations are immediately offsetting our existing lands where production results have been above our type curve expectations. The majority of the acquired lands are in an area of the Cardium trend which exhibit better than average reservoir characteristics which are anticipated to generate top tier results.

In summary, the highlighted benefits of the Acquisition for Whitecap shareholders are as follows:

  • Accretive to both 2013 and 2014 cash flow, production, reserves and net asset value per fully diluted share.
  • Decreases our forecast base decline to 29 percent in 2013 and 24 percent in 2014.
  • Reduces our total payout ratio and increases our pro forma free cash flow.
  • Increases our working interest in the Valhalla Montney C waterflood to 100 percent and the working interest in the acquired Garrington production to 91 percent.
  • Increases our light oil inventory by 19.2 (net) drilling locations and along with our previous working interest brings us to an average 96 percent working interest in the key asset areas.

The Acquisition generates free cash flow and further strengthens the sustainability of our dividend-growth strategy. We estimate the Acquisition will positively impact Whitecap's 2013 and 2014 forecasts as follows:

2013 (1) 2014
Average production (boe/d) 1,300 3,200
Cash flow ($MM) (2) (3) $16.6 $40.9
Development capital ($MM) $10.0 $22.0
Free cash flow ($MM) (3) $6.6 $18.9

Note: the impact on 2013 is based on a closing date of August 1, 2013 and therefore 2013 numbers do not represent full year 2013 average production, cash flow, development capital spending and free cash flow.


The Acquisition has the following characteristics:

Total purchase price $173.6 million
Current production 2,900 boe/d (56% light oil and NGLs)
Proved reserves (4) 11,068 Mboe (74% light oil and NGLs)
Proved NPV10 (5) $174.5 million
Proved plus probable reserves (4) 15,256 Mboe (73% light oil and NGLs)
Proved plus probable NPV10 (5) $217.1 million
Proved plus probable RLI (6) 14.4 years
Operating netback (2) (3) $35/boe

Acquisition metrics are as follows:

Current production $59,900/boe/d
2014 production $54,300/boe/d
2014 cash flow multiple 4.2x
Proved reserves $15.69/boe
Proved plus probable reserves $11.38/boe
Recycle ratio 3.1x


Since converting to a dividend-growth strategy in January 2013 our objective has been to maximize total shareholder return through a combination of sustainable dividends and per share growth in cash flow, production and reserves. Our balanced portfolio of both profitable low decline and high growth properties allows us to pay a meaningful dividend, while continuing to grow our business on a per share basis and also maintaining low leverage with a debt to cash flow ratio of under 1.5 times. As a result of our continuing operational success in conjunction with the Acquisition and Financing we anticipate our pro forma 2014 decline to be 24 percent, production and cash flow per share growth of 7 percent and an average 2014 debt to cash flow ratio of 1.0 times. Based on our improved decline profile, per share cash flow growth and Whitecap's financial strength, our board of directors has approved a 5 percent increase to our monthly dividend to $0.0525 per share starting with our October 2013 dividend payable in November 2013.


The Company's increased guidance for 2013, after giving effect to the Acquisition, Financing and dividend increase is as follows:

2013 Guidance

Average production (boe/d) 17,800 - 18,000 19,100 - 19,300 7%
Per share (fully diluted) 124 126 2%
% oil + NGLs 71 70 (1%)
Development capital ($MM) $170 $180 6%
Cash flow netback ($/boe) (2) (3) $40.00 $39.50 (1%)
Cash flow ($MM) (2) (3) $260 - 265 $275 - 280 6%
Per share (fully diluted) $1.80 $1.82 1%
Net debt to cash flow 1.3x 1.3x -

2013 Sustainability

Cash flow ($MM) (2) (3) $262 $277 6%
Development capital ($MM) $170 $180 6%
Dividends ($MM) $86 $91 5%
Free cash flow ($MM) (3) $6 $6 -
Total payout 98% 98% -

As a result of the Acquisition, Whitecap is increasing its capital program by $10 million to incorporate the additional 50 percent working interest in the 2013 Valhalla Montney Development program as well as accelerate certain components of the waterflood expansion and drill additional Cardium wells at Garrington.

The Company's preliminary guidance for 2014, after giving effect to the Acquisition, Financing and dividend increase is as follows:

2014 Estimate

Average production (boe/d) 19,200 22,400 17%
Per share (fully diluted) 129 135 5%
% oil + NGLs 72% 71% (1%)
Development capital ($MM) $180 $202 12%
Cash flow netback ($/boe) (2) (3) $40.00 $39.50 (1%)
Cash flow ($MM) (2) (3) $280 $323 15%
Per share (fully diluted) $1.88 $1.94 3%
Net debt to cash flow 1.2x 1.0x (17%)

2014 Sustainability

Cash flow ($MM) (2) (3) $280 $323 15%
Development capital ($MM) $180 $202 12%
Dividends ($MM) $89 $105 15%
Free cash flow ($MM) (3) $11 $16 45%
Total payout 96% 95% (1%)

The Acquisition provides Whitecap shareholders with a dividend increase of 5 percent starting in the fourth quarter of 2013, cash flow and production per share growth of 7 percent year over year in 2014, increased sustainability by reducing our total payout ratio and at the same time reducing our average 2014 debt to cash flow ratio to 1.0 times. Whitecap will continue to maintain and build on our significant free cash flow surplus of over $16 million in 2014 (after accounting for the dividend increase). We have the option to apply the surplus towards (a) continued debt reduction and increasing our financial strength (b) additional dividend increases over time or (c) increasing our cash flow and production per share growth through an increased capital program.

Notes to the tables:
(1) Partial year operating and financial information based on a closing date of August 1, 2013.
(2) Based on an Edmonton Par price of C$88.50/bbl, C$3.50/GJ AECO and CAD/USD exchange rate of $0.98 for balance 2013 and calendar 2014.
(3) Cash flow, free cash flow and operating netback are non-GAAP measures. Refer to the Non-GAAP measures section of this press release.
(4) Based on the Acquisition working interest reserves before the calculation for royalties, and before the consideration of the Acquisition royalty interest reserves. Reserves estimates are based on Whitecap's internal evaluation and were prepared by a member of Whitecap's management who is a qualified reserves evaluator in accordance with National Instrument 51-101 effective June 1, 2013.
(5) Before tax net present value based on a 10 percent discount rate and McDaniel & Associates Consultants Ltd.'s January 1, 2013 forecast prices.
(6) Based on current production of 2,900 boe/d.


GMP and NBF are acting as strategic advisors to Whitecap with respect to the Acquisition.


In connection with the Acquisition, Whitecap has entered into an agreement with a syndicate of underwriters co-led by GMP Securities L.P. ("GMP") and National Bank Financial Inc. (collectively, the "Underwriters"), pursuant to which the Underwriters have agreed to purchase for resale to the public, on a bought deal basis, 17,172,000 Subscription Receipts of Whitecap at a price of $9.90 per Subscription Receipt (the "Financing") to raise gross proceeds of approximately $170 million. All members of the Whitecap management team intend to participate in the Financing. The gross proceeds from the sale of Subscription Receipts will be held in escrow pending the completion of the Acquisition. If all outstanding conditions to the completion of the Acquisition (other than funding) are met on or before August 30, 2013, or such later date as may be agreed to by the Underwriters, the net proceeds from the sale of the Subscription Receipts will be released to Whitecap and each Subscription Receipt will be exchanged for one Whitecap Share for no additional consideration. If the Transaction is not completed by Whitecap on or before August 30, 2013, and the Underwriters have not agreed to extend such date then the purchase price for the Subscription Receipts shall be returned to subscribers, together with a pro rata portion of the interest accrued on the subscription funds attributable to the Subscription Receipts.

Completion of the Financings is subject to certain conditions including the receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange. The Selling Jurisdictions of this Financing will be the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia and Newfoundland and such other Canadian jurisdictions (other than Québec) as the Underwriters and the Company may agree. Subscription Receipts may also be sold in the United States on a private placement basis pursuant to exemptions from the registration requirements pursuant to Rule 144A and/or Regulation D of the United States Securities Act of 1933, as amended in a manner that does not require the Subscription Receipts or the Common Shares in the capital of the Company issued in exchange therefor, to be registered in the United States. The Subscription Receipts may also be sold in such other international jurisdictions as the Company and the Underwriters may agree. Closing of the Financing is expected to occur on July 18, 2013. Closing of the Acquisition is expected to occur on or about August 1, 2013.

This press release is not an offer of the securities for sale in the United States. The securities have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an exemption from registration. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.

The Acquisition is subject to customary industry closing conditions as well as the concurrent sale of all of the vendors' Canadian oil and gas business to two other purchasers.

Forward-Looking Statements and Other Advisories

This press release contains forward-looking statements and forward-looking information (collectively "forward-looking information") within the meaning of applicable securities laws relating to the Company's plans and other aspects of Whitecap's anticipated future operations, management focus, objectives, strategies, financial, operating and production results and business opportunities, including expected 2013 and 2014 production, product mix, cash flow, operating netbacks, net debt to cash flow, our capital expenditure program, drilling and development plans and the timing thereof and sources of funding. In addition, and without limiting the generality of the foregoing, this press release contains forward-looking information regarding the Acquisition and the benefits to be acquired therefrom including drilling and reserves potential, recovery factors, waterflood potential, decline rates, drilling inventory, recycle ratios, reserve life index, anticipated rates of return, operating costs, netbacks and other economics, production levels, and the impact of the Acquisition on Whitecap and its results and development plans, including, on its production, cash flow, net asset value, drilling inventory, production weighting, netbacks, decline rates, development capital spending and free cash flow, and the timing and anticipated closing date for the Acquisition and the Financing. Forward-looking information typically uses words such as "anticipate", "believe", "project", "expect", "goal", "plan", "intend" or similar words suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future. The forward-looking information is based on certain key expectations and assumptions made by Whitecap's management, including expectations and assumptions concerning prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labor and services; the impact of increasing competition; ability to market oil and natural gas successfully; Whitecap's ability to access capital, obtaining the necessary regulatory approvals, including the approval of the TSX and satisfaction of the other conditions to closing the Acquisition and the Financing.

Statements relating to "reserves" are also deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.

Although the Company believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Whitecap can give no assurance that they will prove to be correct. Since forward-looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties. The Acquisition and the Financing may not be completed on the anticipated time frames or at all and the Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that the Company will derive there from. Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide securityholders with a more complete perspective on Whitecap's future operations and such information may not be appropriate for other purposes.

Readers are cautioned that the foregoing lists of factors are not exhaustive. Additional information on these and other factors that could affect our operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

These forward-looking statements are made as of the date of this press release and Whitecap disclaims any intent or obligation to update publicly any forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

Non-GAAP Measures

This document contains the terms "cash flow", "free cash flow" and "operating netbacks" which do not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable with the calculation of similar measures by other companies. Whitecap uses cash flow, free cash flow and operating netbacks to analyze financial and operating performance. Whitecap feels these benchmarks are key measures of profitability and overall sustainability for the Company. Each of these terms is commonly used in the oil and gas industry. Cash flow, free cash flow and operating netbacks are not intended to represent operating profits nor should they be viewed as an alternative to cash flow provided by operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP. Cash flows are calculated as cash flows from operating activities less changes in non-cash working capital. Free cash flows are calculated as cash flow minus development capital expenditures. Operating netbacks are determined by deducting royalties, production expenses and transportation and selling expenses from oil and gas revenue.

Note: "Boe" means barrel of oil equivalent on the basis of 6 mcf of natural gas to 1 bbl of oil. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6 Mcf: 1 Bbl, utilizing a conversion ratio at 6 Mcf: 1 Bbl may be misleading as an indication of value.

Contact Information

  • Whitecap Resources Inc.
    Grant Fagerheim
    President & CEO
    Main Phone: (403) 266-0767
    (403) 266-6975 (FAX)

    Whitecap Resources Inc.
    Thanh Kang
    VP Finance & CFO
    Main Phone: (403) 266-0767
    (403) 266-6975 (FAX)

    Whitecap Resources Inc.
    500, 222 - 3 Avenue SW
    Calgary, AB T2P 0B4
    Main Phone: (403) 266-0767
    (403) 266-6975 (FAX)