CALGARY, ALBERTA–(Marketwired – May 10, 2016) – Whitecap Resources Inc. (“Whitecap” or the “Company”) (TSX:WCP) is pleased to announce that it has entered into an agreement to purchase premium oil assets (“Assets”) in western Canada for cash consideration of $595 million. The Assets are located in southwest Saskatchewan and add 11,600 boe/d (98% oil) of low decline operated production and include significant facility infrastructure for future growth (the “Acquisition”).
The Acquisition will be funded through a concurrent $470 million bought deal financing (the “Financing”) and Whitecap’s existing credit facilities.
The Acquisition is consistent with Whitecap’s return on capital strategy focusing on large oil in place assets that have significant development upside remaining. The Assets include 11,600 boe/d (98% oil) of low decline medium gravity oil within a concentrated area, approximately 10 miles west of Swift Current, Saskatchewan. The majority of this production is operated (78%) and is processed through a vast infrastructure network consisting of 23 oil batteries and 1 gas plant. The majority of the production (92%) is under active waterflood and enhanced oil recovery (“EOR”) which has resulted in a base decline that is very predictable and stable at 5% historically (conservatively forecasted in our 2016 budget at 10%). Capital spending incurred on the EOR projects to date totals approximately $600 million net or 84% of the total anticipated project costs.
The production profile characteristics of the Assets further enhance Whitecap’s current suite of premium oil assets in western Canada and strengthens our ability to grow funds flow and production per share while providing a dividend to shareholders all within funds flow and without the use of a dividend reinvestment program (“DRIP”). The Acquisition immediately reduces our base decline rate and increases our production under waterflood and EOR from 54% to 63%.
There are significant growth opportunities identified on the Assets including 659 (487 net) drilling locations, as well as an additional 2,400 boe/d from 228 (157 net) optimization and recompletion opportunities.
In addition to the development drilling and optimization inventory, there are numerous opportunities to potentially enhance the performance of the Assets which have not been currently forecasted including:
- Forecasted operating costs of $16.71/boe are based on historical performance of the Assets. Offsetting analog properties have demonstrated 25% lower operating costs. With Whitecap’s proven track record of lowering operating costs on acquired assets, there is the potential for a reduction of $2.50/boe in operating costs which would result in an incremental $10.6 million per year in funds flow.
- The existing infrastructure has proven incremental capacity to increase production by at least 25%, or 3,000 boe/d before facility expansion needs to be considered.
- The production efficiency estimates for reservoirs requiring horizontal multi-fractured completions in our forecast used historical performance from analog properties where there has not been an active drilling program since early 2014. Since that time completion designs and techniques have advanced significantly and we anticipate being able to achieve and possibly exceed these optimized rates with our drilling program.
- There are an additional 7 EOR opportunities on the Assets and $119 million ($83 million net) in operated modular and portable facilities that can be incorporated into the development of these new EOR opportunities. Development of these opportunities will occur as existing EORs mature and commodity prices support economic development.
The Assets generate free funds flow and further strengthen the sustainability of our dividend growth strategy. We estimate the Acquisition will positively impact Whitecap’s 2016 and 2017 forecasts as follows:
|Average production (boe/d)||5,800||12,400|
|Funds flow ($MM)||$34||$100|
|Development capital ($MM)||$27||$55|
|Note: Current production from the Assets is 11,600 boe/d. The impact on 2016 is based on an estimated closing date of June 23, 2016 and therefore 2016 numbers do not represent full year 2016 average production, funds flow, development capital spending and free funds flow. Funds flow is based on an operating netback of $15.80/boe in 2016 and $22.06/boe in 2017. Operating netback, funds flow and free funds flow are non-GAAP measures. Refer to the Non-GAAP measures section of this press release.|
The Acquisition has an estimated asset retirement obligation of $38.4 million discounted at 10 percent and an excellent Licensee Management Rating (“LMR”) of 4.37.
After giving effect to the Financing, the Acquisition is accretive on key measures including 11% on total proved plus probable reserves and 12% on 2017 funds flow and production per share.
SUMMARY OF THE TRANSACTION
The Acquisition has the following key characteristics:
|Purchase price||$595 million|
|Current production||11,600 boe/d (98% oil and NGLs)|
|Base production decline||< 10%|
|Proved reserves (1) (2)||51,568 Mboe (99% oil and NGLs)|
|Proved NPV10 (2)||$705.6 million|
|Proved plus probable reserves (1)||79,096 Mboe (99% oil and NGLs)|
|Proved plus probable NPV10 (1) (2)||$1,075.8 million|
|Proved plus probable RLI (3)||18.7 years|
|2016 operating netback (4)||$15.80/boe|
|2017 operating netback (4)||$22.06/boe|
|(1)||Gross reserves are the Assets’ total working interest reserves before the deduction of any royalties and including any royalty interests receivable on the Assets. Gross reserve 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 April 1, 2016.|
|(2)||Before tax net present value based on a 10 percent discount rate and McDaniel & Associates Consultants Ltd.’s April 1, 2016 forecast prices. Estimated values of future net revenues do not represent the fair market value of the reserves.|
|(3)||Based on current production of 11,600 boe/d.|
|(4)||Operating netback is a non-GAAP measure. Refer to the Non-GAAP measures section of this press release.|
Acquisition metrics are as follows:
|Run rate funds flow multiple (1)||8.9x|
|2017 funds flow multiple (2)||6.0x|
|Proved reserves (3) (4)||$11.54/boe|
|Proved plus probable reserves (3) (4)||$7.52/boe|
|(1)||Calculated as $595 million / (11,600 boe/d x $15.80/boe x 365 days)|
|(2)||Calculated as $595 million / (12,400 boe/d x $22.06/boe x 365 days)|
|(3)||Gross reserves are the Assets’ total working interest reserves before the deduction of any royalties and including any royalty interests receivable on the Assets. Gross reserve estimates are based on Whitecap’s internal evaluation and were prepared by a member of Whitecap’s management who is a qualified reserves evaluator in accordance with National Instrument 51-101 effective April 1, 2016.|
|(4)||Before tax net present value based on a 10 percent discount rate and McDaniel & Associates Consultants Ltd.’s April 1, 2016 forecast prices. Estimated values of future net revenues do not represent the Fair Market Value of the reserves.|
INCREASED 2016 GUIDANCE
The Acquisition provides Whitecap with a higher oil weighting and lower decline profile which not only provides funds flow and production per share accretion, but also enhances Whitecap’s long term sustainability. Our total payout ratio decreases from 86% in 2016 to 78% in 2017 resulting in free funds flow after development capital and dividends.
The following is the Company’s increased guidance for 2016, after giving effect to the Acquisition and Financing:
|2016 Guidance||Pre-Acquisition||Post-Acquisition||% Change|
|Average production (boe/d)||39,500||45,300||15%|
|Per share (fully diluted)||124||130||5%|
|% oil and NGLs||76%||79%||3%|
|Cash netback ($/boe) (1)||$21.40||$20.50||(4%)|
|Funds flow ($MM) (1)||$309||$340||10%|
|Per share (fully diluted)||$0.97||$0.97||–|
|Development capital ($MM)||$148||$175||18%|
|Q4 Net debt to funds flow (1)||2.4x||2.4x||–|
|(1)||Cash netback, funds flow and Q4 net debt to funds flow are non-GAAP measures. Refer to the Non-GAAP measures section of this press release.|
In connection with the Acquisition, Whitecap has entered into an agreement with a syndicate of underwriters co-led by National Bank Financial Inc. and TD Securities Inc. (collectively, the “Underwriters”), pursuant to which the Underwriters have agreed to purchase for resale to the public, on a bought deal basis, 51,087,000 subscription receipts (“Subscription Receipts”) of Whitecap at a price of $9.20 per Subscription Receipt for gross proceeds of approximately $470 million. Members of the Whitecap Board of Directors, management team and employees 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 and all necessary approvals for the Financing and the Acquisition have been obtained on or before August 31, 2016, the net proceeds from the sale of the Subscription Receipts will be released from escrow to Whitecap and each Subscription Receipt will be exchanged for one common share of Whitecap for no additional consideration. If the Acquisition is not completed on or before August 31, 2016, then the purchase price for the Subscription Receipts will be returned to subscribers, together with a pro rata portion of interest earned on the escrowed funds.
The Subscription Receipts will be distributed by way of a short form prospectus in all provinces of Canada except Quebec and Prince Edward Island and in the United States, the United Kingdom and certain other jurisdictions as the Company and the Underwriters may agree on a private placement basis. Completion of the Acquisition and the Financing is subject to certain conditions including the receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange. Closing of the Financing is expected to occur on May 30, 2016 and the Acquisition is expected to close on or about June 23, 2016.
This press release is not an offer of the Subscription Receipts or underlying Shares for sale in the United States. The Subscription Receipts and underlying Shares many not be offered or sold in the United States absent registration or an exemption from registration. The Subscription Receipts and underlying Shares will not be publicly offered in the United States. The Subscription Receipts and underlying Shares have not been and will not be registered under the U.S. Securities Act, or any state securities laws.