CALGARY, Jan. 19, 2016 /CNW/ – Whitecap Resources Inc. (“Whitecap” or the “Company”) announces that in response to the severe decline in crude oil prices in the past few weeks, we are implementing multiple initiatives to adapt to the lower prices. Our priority in the current commodity price environment is to protect our balance sheet and to re-calibrate our business plan to ensure long-term sustainability while being positioned for an eventual commodity price recovery.
Capital Reduction
Whitecap’s Board of Directors have agreed to a 53% reduction to our 2016 capital program to $70 million from our previous guidance on December 15, 2015 of $150 million. The deterioration in crude oil prices has dramatically affected our project economics and we therefore believe that reducing our capital spending in this environment will maximize long-term value for our shareholders as we continue to focus on return on capital employed. The revised 2016 capital program of 23 (22.3 net) wells includes 15 (14.8 net) Viking light oil wells in west central Saskatchewan, 5 (4.9 net) Cardium light oil wells in West Pembina and Ferrier, 2 (2.0 net) light oil horizontal wells in the Deep Basin and 1.0 (0.6 net) well in Boundary Lake. Our corporate focus on waterfloods across our asset base creates a low base production decline rate of 20% and provides a stable base level of production and funds flow which requires lower sustaining capital requirements. This revised capital program allows us to generate sufficient funds flow to maintain a total payout ratio of less than 100% at current strip pricing.
Facility Agreement
Whitecap is funding its revised 2016 capital program by way of a $70 million disposition of certain Whitecap production facilities to a third party. Whitecap will maintain control of the facilities as operator and will pay the purchaser an annual tariff for the life of the agreement, but will also retain all third party processing revenues generated. Whitecap has the option to repurchase the facilities at any time. The annual cost of the arrangement has been positively offset by other operating cost and G&A reductions.
Dividend Reduction
As a result of current crude oil prices below US$30/bbl WTI and our focus on our balance sheet and long-term sustainability, we are reducing our monthly dividend by 40% to $0.0375 per share ($0.45 per share annually) from the current dividend level of $0.0625 per share ($0.75 per share annually) commencing with the February dividend payable on March 15, 2016. This will reduce Whitecap’s cash requirements by approximately $91 million annually and at the same time continue to provide our shareholders with a meaningful dividend that is sustainable longer term. We remain focused on ensuring the dividend is fully funded through internally generated funds flow without the use of a dividend reinvestment program or bank debt.
Revised 2016 guidance
Whitecap continues to focus on the long-term sustainability of our dividend-growth model and our objective of internally funding our business remains unchanged. Our revised guidance reduces our total payout ratio to 85% and provides $38 million of free funds flow after capital spending and dividend payments. We anticipate having 38% of unutilized credit capacity on our current bank line of $1.2 billion which provides us with financial flexibility and liquidity should commodity prices deteriorate further. Our price forecast for crude oil is now US$30/bbl WTI in Q1/2016, US$35/bbl WTI in Q2/2016, US$40/bbl WTI in Q3/2016 and US$45/bbl WTI in Q4/2016.
The 2016 revised budget is as follows:
2016 Revised |
2016 Previous |
||
Average production (boe/d) |
37,000 |
40,100 |
|
% Oil + NGLs |
75% |
77% |
|
Funds flow ($MM) |
251 |
374 |
|
Cash netbacks ($/boe) |
18.50 |
25.50 |
|
Development capital spending ($MM) |
70 |
150 |
|
Wells drilled (gross #) |
23 |
88 |
|
Total dividends |
143 |
226 |
|
$ Per share (basic) |
0.45 |
0.75 |
|
Total payout ratio |
85% |
100% |
|
Net debt to funds flow |
3.0x |
2.2x |
|
WTI (US$/bbl) |
37.50 |
46.25 |
|
CAD/USD exchange rate |
0.70 |
0.75 |
|
Edmonton Par differential (C$/bbl) |
($4.00) |
($4.00) |
|
Natural gas (AECO C$/GJ) |
2.50 |
2.40 |
Our re-calibrated business plan positions us well for continued weakness in commodity prices but also provides significant free funds flow should crude oil prices be higher than forecast. Below we provide our free funds flow sensitivities to higher crude oil prices which increases to $176 million at WTI US$50.00/bbl.
WTI (US$/bbl) |
40.00 |
45.00 |
50.00 |
CAD/USD exchange rate |
0.70 |
0.71 |
0.72 |
Edmonton Par differential (C$/bbl) |
($4.00) |
($4.00) |
($4.00) |
AECO gas price (C$/GJ) |
2.50 |
2.50 |
2.50 |
Cash netbacks ($/boe) |
21.25 |
25.55 |
28.75 |
Production (boe/d) |
37,000 |
37,000 |
37,000 |
Funds flow ($MM) |
288 |
346 |
389 |
Development capital ($MM) |
70 |
70 |
70 |
Dividends ($MM) |
143 |
143 |
143 |
Free funds flow ($MM) |
75 |
133 |
176 |
Total payout ratio (%) |
74 |
62 |
55 |
Net debt to funds flow |
2.4x |
1.9x |
1.6x |
SUMMARY
The past year has been volatile and challenging, however, the financial and operational strength of Whitecap has allowed us to be well positioned going into 2016. In response to the dramatic drop in crude oil prices we are taking concrete steps to protect our balance sheet. This includes reducing our capital program, disposing of certain production facilities while maintaining operational control and reducing our dividend which in aggregate provides us with $233 million of additional financial liquidity in addition to maintaining a total payout ratio below 100%. As a result we anticipate having approximately $455 million of unutilized credit capacity on our current bank line of $1.2 billion.
Our outlook for the future remains constructive as it relates to commodity price improvement, cost of services decreasing, and the ability to generate acceptable economic rates of return on capital invested. We will take advantage of this time to reduce our controllable costs, advance decline rate mitigation initiatives, so that we are well positioned to provide strong shareholder returns in the future.
While the current environment is difficult and challenging, we are fortunate to have a group of very dedicated and determined employees and an experienced Board of Directors who are prepared to do what it takes to position Whitecap for the brighter days ahead.