Whitecap Q1 results

[Petroleum economist]

Whitecap reported solid Q1 results. Production is growing, the balance sheet is sound, the profitability is good, unit costs are low and high shareholder returns are high.

Production
• Q1 production (169.7 K BoE/d) was well above the Q1 outlook (163.5 K BoE/d).
• The 2024 outlook was increased by 2 K BoE/d to 169-172 K BoE/d.
• Production grew by 9% versus Q1 2023, with growth concentrated in gas (+18%) and NGL (+16%). Oil only grew by 3%.
• Whitecap has ample proven reserves (792 M BoE). Reserves are equivalent to 13.4 years of 2024 production, which is well above industry average (9.5-10 years). Whitecap can grow the next few years at a rate of 5-7% per year.
• As the Q1 composition (52/11/36) deviates from the reserves composition (40/20/39), gas and especially NGL production will continue to grow faster than oil.

Balance sheet
• The balance sheet is very healthy.
• Solvency slightly decreased, from 57% (2023) to 56.3% (Q1 2024).
• With 50% of the free cash flow heading towards the balance sheet, solvency late 2024 should be an excellent 60%.
• Debt/EBITDA ratio is a low 0.7.
• The balance sheet allows shareholder returns.

Profitability
• Whitecap reported a net profit of C$ 59.8 M (eps C$ 0.10).
• The net profit was impacted by non-cash losses (-C$ 92 M) on future oil and gas hedging. I tend to ignore these losses, as they will come back in my models as future cash losses in the rest of 2024 and in 2025/2026.
• Gas revenues are only 9% of the total revenues. Extended low gas prices therefor will not have a major impact on the future net profits.
• Unit costs are a low US$ 26.45/BoE.
• Using WTI = $ 80-85/bbl, I expect a net profit (excl. non-cash hedging) of C$ 705 -800 M (eps = C$ 1.18-1.34).
• The PE in 2024 is a medium 8.0-9.1.
• With growing production and higher gas prices, the PE in 2025/2026 can reduce to 6.0-7.5.

Shareholder returns
• Total dividends paid in Q1 equaled C$ 0.18.
• Whitecap did not buy back any shares in Q1, as the free cash flow was minimal (-C$ 8.7 M). The free cash flow in Q1 was low as 39-40% of the 2024 capex (C$ 900-1,100 M is concentrated in Q1 (C$ 393 M).
• The free cash flow in Q2 and onwards will recover towards a Whitecap 2024 estimate of C$ 700 M).
• I expect that share buybacks will restart in Q2.
• I expect for 2024 a high shareholder yield of 8.9%.

Conclusion
Whitecap ranks 7th out of 72 oil and gas companies that I track. This is due to its strong reserves, a growing production, a sound balance sheet, good profitability, and high shareholder returns, partially offset by a medium PE although this should improve.
I think Whitecap is a good investment.

[Fraser921]

What's your top 3? Why do these guys issue so many shares?

[Fraser921]

https://seekingalpha.com/article/4686932?gt=d595ea7132f2a963

[Petroleum economist]

Fraser, shares went up from 409 M (late 2020) to 598 M (late 2022) through a series of acquisitions which were paid partially by shares. Reserves more than doubled from 362 M BoE (2020) to 802 M BoE (2022)

My current top 5 is: (1) Ring Energy, (2) Riley Exploration, (3) Inplay Oil, (4) Vital Energy and (5) Silverbow Resources. The top 5 is based on a ranking system for 72 oil and gas companies.

Ranking model
I prepare for 72 companies earnings estimates over time.

For the period 2024-2026 earnings, I use a cost model comparable to Dan’s cost models with exception that I use for all the companies the same WTI oil price, NGL price and Henry Hub gas price, corrected with historic deltas.

2024-2026 shareholder returns are based on Companys' outlooks, FCF predictions, status of the balance sheet and an anticipated pay-out ratio.

For earnings and shareholder returns after 2026, I link the 2026 estimates/returns to a long-term production profile deduced from proven reserves and the RRR.

The long-term earnings are corrected with reinvestment of the anticipated dividend/share buy backs. The corrected long-term earnings per share are discounted back to 2024.
Discounting factors vary per company. The discounting factors reflects quantified risks for solvency, debt/liabilities, normalized free cash flow, unit costs, reserves/RRR, fluid composition, market value and a "personal" judgement factor.

The resulting NPV for each company, I divide by the share price. This factor I use this to rank the 72 companies.

Results
In the ranking there is a limited group of 14 companies which are a cut above the rest. There are also considerable differences between these 14. Then there is a large (52) middle group of companies with minimal differences and there are a few (6) companies which fall though the floor.

Does it work?
The ranking model works well. In 2024, applying equal weight to the top companies, I am at +18.7%, 6.2% ahead of the market (12.9% = average of the 72 companies). In 2023 this was 14% for the whole year.
Plotting ranking versus 2024 performance shows a good correlation between a company’s ranking and its share performance, albeit with some significant individual deviations.

Interested?
If you are interested to know more on the details of the ranking system or the results, than please drop me a private message with our email address. I will send you a set of PowerPoint slides with more details and the ranking as of last Friday.

[Fraser921]

Thanks for the info. I've owned all 5 at one time or the other.