CALGARY, April 11, 2016 /CNW/ – Whitecap Resources Inc. (“Whitecap” or the “Company”) announces an increase to its 2016 capital program by $78 million to $148 million from the previous guidance of $70 million. The increased capital program will be funded by reducing the monthly dividend to $0.0233 per share ($0.28 per share annually) from the current monthly dividend level of $0.0375 per share ($0.45 per share annually) and increased funds flow. This proactive reallocation of funds flow will better position our Company to capture improving economics from recovering commodity prices by increasing capital towards profitable growth.
Capital Increase
Crude oil prices have recovered significantly from hitting a low of US$26/bbl in mid-February and are currently trading at approximately US$40/bbl. This price recovery combined with lower cost of services and our strong capital efficiency gains now allow us to achieve an acceptable level of return on capital employed which is the primary focus of our long term strategy. We have the ability to quickly increase or decrease our capital program as we operate essentially all of our core assets and have a deep understanding of our high quality drilling inventory. This ability to quickly adapt to the current commodity price environment ensures that our funds flow allocation between capital expenditures and dividends optimizes shareholder returns. The $78 million increase to the capital program to a total of $148 million will be spent on strong netback light oil projects in the 2H/2016 drilling an additional 47 (44.6 net) wells including 28 (26.6 net) Viking light oil wells in west central Saskatchewan, 10 (10 net) Cardium light oil wells in West Pembina and Ferrier, 5 (4.0 net) light oil horizontal wells in the Deep Basin, 2 (2.0 net) wells in Boundary Lake and 2 (2.0 net) wells at Elnora for a full year 2016 drilling program of 71 (67.8 net) wells.
The allocation of capital spending across our core assets is designed to optimally balance high cash netbacks with short payout production additions, reduction of our base declines, maintenance and optimization of our high quality inventory and strategic initiatives that allow us to quantify and enhance financial performance beyond the current budget cycle.
Dividend Reduction
To fund our increased capital program and maintain our balance sheet strength, we are reducing our monthly dividend by 38% to $0.0233 per share ($0.28 per share annually) from the current dividend level of $0.0375 per share ($0.45 per share annually) commencing with the April dividend. A cash dividend of $0.0233 per common share in respect of April operations will be paid on May 16, 2016 to shareholders of record on April 30, 2016. This dividend is an eligible dividend for the purposes of the Income Tax Act (Canada). The revised dividend will give Whitecap increased financial flexibility in the event that low prices persist for longer than anticipated but also as commodity prices increase, the ability to improve our balance sheet, increase production per share growth or raise the dividend.
Revised 2016 Guidance
We continue to focus on the long term sustainability of our growth plus dividend income model and now project a total payout ratio of 91% with $24 million of free funds flow after capital spending and dividend payments. The $78 million capital program added to the 2H/2016 drilling program increases 2016 exit production by 5,000 boe/d (14%) to 40,000 boe/d, positioning Whitecap for strong per share growth in 2017 when we anticipate crude oil prices to continue to improve. The revised monthly dividend allows us to have a more balanced allocation of funds flow and a target basic payout ratio of not greater than 35%. We anticipate having unutilized credit capacity of approximately $450 million on our current bank line of $1.2 billion and a Q4/2016 net debt to funds flow ratio of 2.5 times which will continue to provide us with significant financial flexibility and liquidity.
The 2016 revised budget is as follows:
2016 Revised |
2016 Previous |
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Average production (boe/d) |
39,500 |
38,800 |
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% Oil + NGLs |
76% |
75% |
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Funds flow ($MM) |
280 |
253 |
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Cash netbacks ($/boe) |
19.40 |
17.80 |
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Development capital spending ($MM) |
148 |
70 |
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Wells drilled (gross #) |
71 |
24 |
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Total dividends |
108 |
149 |
|||||
$ Per share (basic) |
0.28 |
0.45 |
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Total payout ratio |
91% |
87% |
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Net debt to funds flow |
2.7x |
3.0x |
|||||
WTI (US$/bbl) |
39.65 |
37.65 |
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CAD/USD exchange rate |
0.76 |
0.72 |
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Edmonton Par differential (C$/bbl) |
($4.00) |
($4.00) |
|||||
Natural gas (AECO C$/GJ) |
1.75 |
2.00 |
Outlook
We continue to be constructive on a crude oil price recovery in late 2016 or early 2017 when supply/demand fundamentals become more balanced. The increased 2H/2016 capital program has marginal impact to 2016 average production but rather positions our shareholders for a strong 2017 and longer term in order to best capitalize on an anticipated commodity price recovery. Our preliminary 2017 forecast includes capital spending of $150 million to increase our average production to 41,500 boe/d (5% per share), maintaining our revised annual dividend of $0.28 per share all within internally generated funds flow resulting in a total payout ratio of 90% based on a WTI price of US$45/bbl. As we have shown in 2015 and 2016, we have the flexibility to prudently adjust our capital spending to ensure we spend less than funds flow to maintain our balance sheet strength and remain a sustainable growth entity focused on profitability and shareholder returns.
Whitecap is committed to the long term growth plus dividend income model and continue to believe that we can provide shareholders with long term per share growth of 3-8% enhanced by a meaningful dividend, all within funds flow without the use of a dividend reinvestment program.