Canada NewsWire
CALGARY, Nov. 14, 2016
CALGARY, Nov. 14, 2016 /CNW/ - Whitecap Resources Inc. ("Whitecap" or the "Company") (TSX: WCP) is pleased to announce that its Board of Directors has approved a $300 million capital budget for 2017 that is anticipated to deliver top quartile production per share growth of 15%. The 2017 capital program and the annual dividend of $0.28 per share is expected to be fully funded by internally generated funds flow without the use of a dividend re-investment program.
2017 Budget
We are excited about the outlook for our company as we have been able to strategically assemble and integrate an enviable suite of high quality oil assets that have predictable production profiles, balanced decline rates, strong netbacks and a large repeatable development drilling inventory. The 2017 capital budget is designed to achieve meaningful production per share growth in combination with enhancing Whitecap's net asset value and sustainability. This is accomplished by balancing our capital program between short payout and high rate of return projects and waterflood and enhanced oil recovery ("EOR") projects for long-term value creation and decline mitigation. Whitecap's overarching objective is to provide sustainable returns for our shareholders by focusing on cost discipline and return on capital employed. We maintain the operational flexibility to either reduce our capital program if commodity prices significantly weaken from current levels or potentially accelerate our capital program in the second half of 2017 if there is a meaningful and sustained improvement in commodity prices. We have stress tested our capital budget down to a WTI price of US$40/bbl which results in a total payout ratio of 104% and net debt to funds flow of 2.2x for 2017 compared to our current budget forecast which results in a total payout ratio of 75% and net debt to funds flow of 1.3x using a WTI price of US$55/bbl.
The capital investment of $300 million in 2017 includes the drilling of 187 (163.8 net) development oil wells which are anticipated to deliver annual production of 57,000 boe/d compared to 45,700 boe/d in 2016, an increase of 25% (15% per share). We plan to allocate $234 million of our capital program towards drilling, completion, equipping and tie-in of new wells, along with recompletions and workovers of existing wells, $38 million on waterflood and EOR projects, $16 million on facilities and $12 million on health, safety, environment and other costs. Of the $234 million in drilling capital, 30% or $71 million is anticipated to target EOR/waterflood pools that exhibit shallower decline profiles and produce at lower decline rates for a longer period of time compared to typical resource play wells.
We will continue to apply extended reach horizontal ("ERH") drilling technology to enhance economic returns in each of our core areas. We have a robust inventory of 3,040 (2,455.2 net) oil development drilling locations of which 22% or 654 (534.3 net) wells are ERH locations.
West Central Saskatchewan
Whitecap's Viking resource play in west central Saskatchewan has high operating netbacks and short payouts which drive exceptional economic rate of returns. Our capital efficiencies continue to exceed expectations with 2016 average IP(30) rates 15% above our budget forecast. We plan on spending approximately $94 million or 31% of our capital budget in this area including the drilling of 113 (102.8 net) light oil horizontal wells of which 59 (55.0 net) are ERH wells. We project that $5 million will be allocated to facility and pipeline upgrades and $8 million on waterflood projects including the drilling of horizontal injectors and the conversion/optimization of vertical and horizontal injectors.
Southwest Saskatchewan
This newly acquired asset has multi-zone potential with target formations being the Atlas, Success, Roseray and Shaunavon. These targets provide an enviable balance of repeatable and predictable resource plays and high impact conventional infill drilling opportunities. Production from the area has a very low and predictable base decline rate which is underpinned by multiple active waterflood and EOR projects, many of which have significant optimization upside. Whitecap plans to be active in this area in 2017 by investing $42 million or 14% of our capital budget which includes the drilling of 24 (15.9 net) horizontal oil wells, allocating $5 million towards facility and infrastructure spending and investing $17 million on waterflood and EOR developments.
The total capital investment of $42 million includes $14 million for polymer costs associated with our three active Alkaline-Surfactant-Polymer ("ASP") floods. All three floods are performing at or above budget expectations with oil production rates inclining or remaining flat. In particular, our operated Fosterton ASP is performing approximately 25% above expectations with oil cuts increasing more rapidly than forecast. Current production from the ASP's is approaching 2,500 boe/d net to Whitecap, up from 2,200 boe/d at time of acquisition and is forecast to increase further to 2,700 boe/d in 2017.
West Central Alberta
Whitecap plans on investing approximately $66 million or 22% of our capital budget in our Cardium resource play in west central Alberta which includes the drilling of 28 (24.0 net) light oil horizontal wells of which 12 (11.1 net) are ERH wells. We anticipate $7 million will be spent on waterflood projects including a horizontal injector drill and vertical injector conversions. These EOR activities will optimize the historical waterfloods within the West Pembina units as well as reactivate waterfloods outside of the units.
Whitecap's Elnora pool continues to be a significant source of free funds flow as we anticipate only investing $6 million on this property for continued pressure maintenance and optimization of the waterflood including the drilling of 2 (2.0 net) wells.
Northwest Alberta and British Columbia
The Deep Basin continues to be a high growth area for us in 2017 and the effective use of ERH drilling methods under the terms of the Modernized Royalty Framework which comes into effect January 1, 2017 is anticipated to significantly enhance the economics and returns in this area. We plan on investing $57 million or 19% of our capital budget in this area which includes the drilling of 5 (4.7 net) Dunvegan light oil wells and 7 (7.0 net) Cardium light oil wells at Wapiti of which 3.0 (2.8 net) in total are ERH locations. We anticipate $7 million will be invested on facilities and infrastructure to handle the increased production volumes and to improve netbacks.
Due to the shallow decline rate at Boundary Lake, less capital investment is required to grow the area's production. We plan on investing only $23 million or 8% of our capital budget which includes the drilling of 7 (6.4 net) oil wells of which 5 (4.8 net) are horizontal wells and $8 million will be spent on facilities, infrastructure and waterflood expansion. This drilling program is designed to improve upon the results of our highly successful 5 well drilling and waterflood optimization programs in 2015 and 2016.
The Valhalla North asset is a more mature property where limited capital will be spent and the focus will be on optimizing and continuing to re-pressurize the existing waterflood for future development and drilling. We will be drilling 1 (1.0 net) well in this area in 2017.
2017 Budget Summary
| | | | |
| 2016 Forecast | 2017 Budget | % Change | |
Average production (boe/d) | 45,700 | 57,000 | 25% | |
| Per share (fully diluted) | 133 | 153 | 15% |
| % oil and NGLs | 78% | 82% | 4% |
Cash netbacks ($/boe) (1) | $22.50 | $25.78 | 15% | |
Funds flow ($MM) (1) | $376 | $536 | 43% | |
| Per share (fully diluted) | $1.09 | $1.44 | 32% |
Development capital ($MM) (1) | $175 | $300 | 71% | |
Total dividends | $117 | $103 | (12%) | |
| Per share | $0.35 | $0.28 | (20%) |
Free funds flow ($MM) | $84 | $133 | 58% | |
Total payout ratio (1) | 78% | 75% | (3%) | |
Net debt to funds flow (1) | 2.2x | 1.3x | (41%) | |
| | | | |
WTI (US$/bbl) | 43.54 | 55.00 | 26% | |
Edmonton Par Differential (US$/bbl) | (3.37) | (3.50) | 4% | |
CAD/USD exchange rate | 0.76 | 0.78 | 3% | |
Natural gas (AECO C$/GJ) | 2.02 | 3.00 | 49% |
|
(1) Refer to the Non-GAAP Measures section of this press release for additional disclosures and assumptions. |
Three Year Outlook
We anticipate crude oil prices to remain volatile in 2017 and, therefore, have based our business plans on a WTI price range of US$40/bbl to US$60/bbl to achieve long-term production per share growth of 5-8% and to pay a sustainable and growing dividend within funds flow while maintaining a strong balance sheet.
Over the next three years, we anticipate investing a total of $1.2 billion including $185 million into waterflood and EOR projects for decline mitigation which will continue to enhance our long-term sustainability and allow us to grow and pay a meaningful dividend within funds flow. Subject to commodity prices, the following is our forecast for the next three years:
| Development Capital | Average Production (boe/d) | Production Per Share Growth |
2017 | $300 million | 57,000 | 15% |
2018 | $420 million | 61,000 – 62,000 | 8% |
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