Whitecap provides revised outlook for 2015, maintains sustainability and financial strength

CALGARY, Dec. 16, 2014 /CNW/ - In response to the dramatic drop in crude oil prices over the past six weeks, Whitecap's Board of Directors and Management felt it prudent and necessary to revise our budget outlook for 2015. Our capital program for 2015 will be reduced by 32% to $245 million from $360 million in order to maintain our financial flexibility and to provide continuous long term sustainability for our shareholders. The capital reduction will allow Whitecap to still grow production per share by 5% in 2015 and maintain the monthly dividend at $0.0625/share all within a total payout ratio of less than 100%.

2015 REVISED CAPITAL SPENDING
The proactive re-alignment of our disciplined 2015 capital program to adjust for the current commodity price environment allows us to focus on the most profitable projects with the highest rate of return within our extensive inventory of drilling locations. The revised capital program balances the need for quick well payouts along with strategic initiatives that are important to our long term sustainability.

We have reduced our 2015 drilling program from 180 (145.2 net) to 99 (81.5 net) wells in addition to deferring $12 million in facility and infrastructure capital. The majority of these reductions/deferrals have been applied in regions that can easily be accelerated should the commodity price environment improve sooner than anticipated. Our revised capital program consists of drilling 53 (45.1 net) Viking horizontal wells in Saskatchewan, 11 (8.6 net) Cardium horizontal wells in southwest Alberta, 19 (16.2 net) Cardium horizontal wells in Pembina, 8 (7.5 net) Dunvegan horizontal wells in northwest Alberta and 8 (4.1 net) horizontal oil wells at Boundary Lake in British Columbia.  

The revised capital spending for 2015 will enable us to more effectively apply operational and reservoir enhancements and efficiencies to our future programs. In addition, we anticipate that as a result of the reduced spending, our 2016 base decline rate will decrease to 20% from the previously stated 23%.

MAINTAIN DIVIDEND
Our current monthly dividend of $0.0625/share remains intact and sustainable despite the recent collapse in oil prices and we anticipate maintaining our current dividend through these difficult times. Whitecap does not have a dividend reinvestment program and anticipates the dividend to be fully funded within internally generated cash flows. Based on our current share price, the dividend yield is approximately 7%.

Given our disciplined approach to the dividend policy, our Board of Directors and Management have chosen to defer our previously announced monthly dividend increase to $0.07/share in January 2015 until such time as commodity prices recover. Although Whitecap could proceed with the increase and maintain a total payout ratio below 100%, given the current volatility and lack of clarity in the commodity price environment, we believe that at this time it is more prudent to protect our balance sheet and maintain a larger amount of free cash flow, with a very defensible total payout ratio of 95% in 2015. Whitecap will continue to evaluate its long-term dividend policy as strength returns to the commodity price environment

HEDGING
Our ongoing risk management program provides us with the ability to withstand the current weakness in commodity prices and provides stability in our funds from operations to continue our targeted per share organic growth of 3-5% and pay our monthly dividend without putting our balance sheet at risk. In the first half of 2015, 61% of our crude oil production is hedged at C$98.61/bbl, 41% in the second half of 2015 at $97.15/bbl and in 2016 24% is hedged at a fixed price of C$97.71/bbl. In 2015, 32% of our natural gas production is hedged at C$3.98/mcf and in 2016 13% is hedged at C$3.79/mcf. The mark to market value of our current hedges is an asset of approximately $154 million.

FINANICAL STRENGTH
Whitecap's objective since converting to a dividend/growth model in 2013 is to fund our capital expenditures and dividend payments with internally generated cash flows. We recently completed our interim borrowing base review and have been provided an indicative lending value of approximately $1.2 billion. At this time we have elected to maintain the borrowing base at the current $1.0 billion and will re-evaluate at our next review scheduled for May 2015. Our anticipated net debt at the end of 2014 is approximately $800 million, providing us with ample liquidity as we move through 2015 with a focus on keeping our net debt relatively flat year over year.

REVISED 2015 GUIDANCE
The quality of our high netback, low decline assets and associated drilling inventory, when combined with the strength of our technical staff, provides us with the ability to proactively manage our capital program to better align with the prevailing commodity price environment. We will continue to closely monitor the commodity price outlook and should prices continue to remain below $65/bbl, we have the flexibility to further reduce our drilling program as we move through 2015. We also have the option of accelerating our capital program at any time as all of the necessary regulatory approvals are in place.

Revised 2015 guidance as follows:

			2015 New			2015 Previous			% Change
Average production (boe/d)			37,500			40,000			(6%)
Per MM shares (fully diluted)			144			154			(6%)
% Oil + NGLs			76%			76%			-
Funds from operations ($MM)			461			584			(21%)
$ Per share (fully diluted)			1.77			2.25			(21%)
Cash flow netback ($/boe)			33.70			40.00			(16%)
Development capital spending ($MM)			245			360			(32%)
Wells drilled (gross #)			99			180			(45%)
Free cash flow ($MM)			25			10			170%
Total payout ratio			95%			98%			(4%)
Net debt to funds from operations			1.7x			1.3x			38%
WTI (US$/bbl)			65.00			85.00			(24%)
Edmonton Par differential (US$/bbl)			(7.00)			(6.00)			(17%)
CAD/USD exchange rate			0.85			0.88			(3%)
AECO gas price (C$/GJ)			3.25			3.80			(14%)

We are sensitive to current commodity prices below our budgeted crude oil price of WTI US$65/bbl and provide the following analysis of Whitecap's sustainability under different commodity price assumptions:

WTI (US$/bbl)			55.00			65.00			75.00			85.00
Edmonton Par differential (US$/bbl)			(7.00)			(7.00)			(7.00)			(7.00)
CAD/USD exchange rate			0.83			0.85			0.87			0.89
AECO gas price (C$/GJ)			3.25			3.25			3.25			3.25
Cash flow netback ($/boe)			30.50			33.70			36.50			39.30
Average production target (boe/d)			36,500			37,500			37,500			37,500
Production per share growth			3%			5%			5%			5%
($ millions)
Funds from operations			403			461			500			538
Development capital spending			(220)			(245)			(245)			(245)
Dividends paid			(191)			(191)			(191)			(191)
Free cash flow			(5)			25			64			102
Total payout ratio			101%			95%			87%			81%
Net debt to funds from operations			1.9x			1.7x			1.5x			1.4x

SUMMARY
Despite a 24% reduction to the average forecasted WTI price for 2015 we still anticipate delivering 5% production per share growth, maintaining our current dividend rate and at the same time increasing our free cash flow by 170% to $25 million and reducing our total payout ratio to 95%. The increase to our free cash flow and reduction in our total payout ratio provides us with additional capacity to withstand lower commodity prices. We remain committed to providing shareholders with organic per share growth and sustainable dividends within a total payout ratio at or under 100%.

Note Regarding Forward-Looking Statements and Other Advisories

This press release contains forward-looking statements and forward-looking information (collectively "forward-looking information") within the meaning of applicable securities laws relating to the Company's plans and other aspects of our anticipated future operations, management focus, strategies, financial, operating and production results and business opportunities. Forward-looking information typically uses words such as "anticipate", "believe", "project", "expect", "goal", "plan", "intend" or similar words suggesting future outcomes, statements that actions, events or conditions "may", "would", "could" or "will" be taken or occur in the future. In particular, this press release contains forward-looking information relating to our ongoing business plan, strategy and targets, industry conditions, commodity prices, 2015 capital program and allocation thereof, waterflood plans, future production, decline rates, cash flow, funds from operations, netbacks, future dividend payments and dividend policy, payout ratio, net debt, hedging strategies, drilling inventory, development and drilling plans, and potential growth.

The forward-looking information is based on certain key expectations and assumptions made by our management, including expectations and assumptions concerning prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; ability to efficiently integrate assets and employees acquired through acquisitions, ability to market oil and natural gas successfully and our ability to access capital.

Although we believe that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Whitecap can give no assurance that they will prove to be correct.  Since forward-looking information addresses future events and conditions, by its very nature they involve inherent risks and uncertainties. Our actual results, performance or achievement could differ materially from those expressed in, or implied by, the forward-looking information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will transpire or occur, or if any of them do so, what benefits that we will derive therefrom.  Management has included the above summary of assumptions and risks related to forward-looking information provided in this press release in order to provide securityholders with a more complete perspective on our future operations and such information may not be appropriate for other purposes.

Readers are cautioned that the foregoing lists of factors are not exhaustive.  Additional information on these and other factors that could affect our operations or financial results are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com).

These forward-looking statements are made as of the date of this press release and we disclaim any intent or obligation to update publicly any forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

Non-GAAP Measures

This press release includes non-GAAP measures as further described herein. These non-GAAP measures do not have a standardized meaning prescribed by International Financial Reporting Standards ("IFRS" or, alternatively, "GAAP") and therefore may not be comparable with the calculation of similar measures by other companies.

"Free cash flow" is determined by deducting development capital and dividend payments from funds from operations.

"Funds from operations" represents cash flow from operating activities adjusted for changes in non-cash working capital, transaction costs, settlement of decommissioning liabilities and termination fees received. Management considers funds from operations and funds from operations per share to be key measures as they demonstrate Whitecap's ability to generate the cash necessary to pay dividends, repay debt, fund settlement of decommissioning liabilities and make capital investments. Management believes that by excluding the temporary impact of changes in non-cash operating working capital, funds from operations provides a useful measure of Whitecap's ability to generate cash that is not subject to short-term movements in non-cash operating working capital.

"Operating netbacks" are determined by deducting royalties, production expenses and transportation and selling expenses from oil and gas revenue. Operating netbacks are per boe measures used in operational and capital allocation decisions.

"Cash flow netbacks" are determined by deducting cash general and administrative and interest expense from Operating netbacks.

"Total payout ratio" is calculated as development capital plus cash dividends declared divided by funds from operations.

"Net debt" is calculated as bank debt plus working capital surplus or deficit adjusted for risk management contracts. Net debt is used by management to analyze the financial position and leverage of Whitecap.

"Boe" means barrel of oil equivalent on the basis of 6 mcf of natural gas to 1 bbl of oil. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.  In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6: 1, utilizing a conversion on a 6: 1 basis may be misleading as an indication of value.

SOURCE: Whitecap Resources Inc.

Grant Fagerheim, President and CEO or Thanh Kang, VP Finance and CFO, Whitecap Resources Inc., 500, 222 - 3 Avenue SW, Calgary, AB T2P 0B4, Main Phone [phone], Fax [phone]

Related Links

www.wcap.ca