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Whitecap Resources Inc. — Management Reports 2021
Feb 24, 2021
42473_rns_2021-02-24_f4cf10ba-5523-46be-bdcb-0117fa80e89e.pdf
Management Reports
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MANAGEMENT’S DISCUSSION AND ANALYSIS
The following management’s discussion and analysis (“MD&A”) of financial condition and results of operations for Whitecap Resources Inc. (the “Company” or “Whitecap”) is dated February 24, 2021 and should be read in conjunction with the Company’s audited annual consolidated financial statements and related notes for the year ended December 31, 2020 and our Annual Information Form for the year ended December 31, 2020. These audited annual consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), in Canadian dollars, except where indicated otherwise. Accounting policies adopted by the Company are set out in the notes to the audited annual consolidated financial statements for the year ended December 31, 2020. The audited annual consolidated financial statements of Whitecap have been prepared by management and approved by the Company’s Board of Directors. The MD&A should also be read in conjunction with Whitecap’s disclosure under “Non-GAAP Measures” and “Forward-Looking Information and Statements” below. Additional information respecting Whitecap, is available on the SEDAR website (www.sedar.com) and on our website (www.wcap.ca).
DESCRIPTION OF BUSINESS
Whitecap is a Calgary based oil and gas company that is engaged in the business of acquiring, developing and holding interests in petroleum and natural gas properties and assets. Whitecap's common shares are traded on the Toronto Stock Exchange (“TSX”) under the symbol WCP.
2020 ANNUAL FINANCIAL AND OPERATIONAL RESULTS
Production
Whitecap’s average production volumes and commodity splits were as follows:
| Three | months ended | Year ended | ||
|---|---|---|---|---|
| December 31 | December 31 | |||
| 2020 | 2019 | 2020 | 2019 | |
| Crude oil (bbls/d)(1) | 48,527 | 58,044 | 52,656 | 55,413 |
| NGLs (bbls/d) | 4,874 | 4,805 | 4,982 | 4,503 |
| Natural gas (Mcf/d)(1) | 62,289 | 70,811 | 66,146 | 66,801 |
| Total(boe/d)(2) | 63,783 | 74,651 | 68,662 | 71,050 |
Notes:
(1) References to crude oil or natural gas production in the above table and elsewhere in this MD&A refer to the light crude oil and medium crude oil and conventional natural gas, respectively, product types as defined in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.
(2) Disclosure of production on a per boe basis in this MD&A consists of the constituent product types and their respective quantities disclosed in this table.
Exhibit 1
Production Split Twelve Months Ended December 31, 2020
Production Split Twelve Months Ended December 31, 2019
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16%
7%
77%
Crude oil NGLs Natural gas
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16%
6%
78%
Crude oil NGLs Natural gas
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In the three months ended December 31, 2020, average production volumes decreased 15 percent to 63,783 boe/d from 74,651 boe/d for the three months ended December 31, 2019. Year to date, average production volumes decreased three percent to 68,662 boe/d from 71,050 boe/d for the same period in 2019. The lower 2020 production volumes were attributed to the planned reduction to our 2020 capital program to provide greater financial flexibility and balance sheet strength, in response to the sharp decline in global commodity prices.
Our crude oil and NGL weightings in the quarter and year ended December 31, 2020 were generally consistent with the same periods in 2019.
Petroleum and Natural Gas Sales
A breakdown of petroleum and natural gas sales is as follows:
| Three | months ended | Year ended | ||
|---|---|---|---|---|
| December 31 | December 31 | |||
| ($000s) | 2020 | 2019 | 2020 | 2019 |
| Crude oil | 212,135 | 343,985 | 813,083 | 1,337,035 |
| NGLs | 10,078 | 7,763 | 30,549 | 33,832 |
| Natural gas | 16,276 | 17,442 | 57,924 | 47,609 |
| Petroleum and natural gas revenues | 238,489 | 369,190 | 901,556 | 1,418,476 |
| Tariffs | (3,188) | (2,885) | (11,979) | (12,459) |
| Processing & other income | 4,308 | 3,457 | 18,721 | 17,869 |
| Marketing revenue | 5,572 | 7,214 | 23,600 | 30,353 |
| Petroleum and naturalgas sales | 245,181 | 376,976 | 931,898 | 1,454,239 |
Exhibit 2
Petroleum and Natural Gas Revenues Petroleum and Natural Gas Revenues Twelve Months Ended December 31, 2020 Twelve Months Ended December 31, 2019
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6% 3% [3%]
4%
90% 94%
Crude oil NGLs Natural gas Crude oil NGLs Natural gas
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Petroleum and natural gas revenues in the fourth quarter of 2020 decreased 35 percent to $238.5 million from $369.2 million in the fourth quarter of 2019. The decrease of $130.7 million consists $58.4 million attributed to lower crude oil production volumes and $72.3 million attributed to lower realized crude oil prices. Petroleum and natural gas revenues in 2020 decreased 36 percent to $901.6 million from $1,418.5 million in 2019. The decrease of $516.9 million consists of $453.3 million attributed to lower realized crude oil prices and $63.6 million attributed to lower production volumes.
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Benchmark and Realized Prices
Average benchmark and realized prices are as follows:
| Three | months ended | Year ended | ||
|---|---|---|---|---|
| December 31 | December 31 | |||
| 2020 | 2019 | 2020 | 2019 | |
| Average benchmark prices | ||||
| WTI (US$/bbl) (1) | 42.66 | 56.96 | 39.40 | 57.03 |
| Exchange rate (US$/C$) | 1.30 | 1.32 | 1.34 | 1.33 |
| WTI (C$/bbl) | 55.53 | 75.19 | 52.52 | 75.69 |
| MSW Par at Edmonton ($/bbl) (2) | 49.98 | 67.99 | 45.17 | 69.05 |
| Fosterton Par at Regina ($/bbl) | 47.81 | 61.27 | 41.43 | 64.95 |
| Midale Par at Cromer ($/bbl) | 55.16 | 72.44 | 50.50 | 74.38 |
| AECO natural gas ($/Mcf) (3) | 2.64 | 2.48 | 2.23 | 1.76 |
| Average realized prices (4) | ||||
| Crude oil ($/bbl) | 47.52 | 64.42 | 42.19 | 66.11 |
| NGLs ($/bbl) | 22.48 | 17.56 | 16.75 | 20.58 |
| Naturalgas ($/Mcf) | 2.84 | 2.68 | 2.39 | 1.95 |
| Combined($/boe) | 40.64 | 53.76 | 35.88 | 54.70 |
Notes:
(1) WTI represents the calendar month average of West Texas Intermediate oil.
(2) Mixed Sweet Blend (“MSW”).
(3) AECO represents the AECO 5A Daily Index price.
(4) Prior to the impact of hedging activities and tariffs.
Whitecap’s weighted average realized price prior to the impact of hedging activities and tariffs decreased 24 percent to $40.64 per boe in the fourth quarter of 2020 compared to $53.76 per boe in the fourth quarter of 2019. Whitecap’s weighted average realized price prior to the impact of hedging activities and tariffs decreased 34 percent to $35.88 per boe in 2020 compared to $54.70 per boe in 2019.
The WTI price decreased by 25 percent to average US$42.66 per barrel in the fourth quarter of 2020 compared to US$56.96 per barrel in the fourth quarter of 2019. The WTI price decreased by 31 percent to average US$39.40 per barrel in 2020 compared to US$57.03 per barrel in 2019. The MSW par oil prices decreased by 26 percent to average $49.98 per barrel in the fourth quarter of 2020 compared to $67.99 per barrel in the fourth quarter of 2019. The MSW par oil price decreased by 35 percent to average $45.17 per barrel in 2020 compared to $69.05 per barrel in 2019. The decreases are primarily due to the COVID19 global pandemic and the decline in global demand. Throughout 2020, the WTI price experienced significant volatility, trading from a low of negative US$37.63 to a high of US$63.27.
The Company’s realized crude oil price in southwest Saskatchewan is based on the Fosterton par price at Regina. The Fosterton oil price decreased 22 percent to average $47.81 per barrel in the fourth quarter of 2020 compared to $61.27 per barrel in the fourth quarter of 2019. The decrease is primarily due to weakening WTI pricing, partially offset by a strengthening Fosterton differential. The strengthened differential was due to the reduced crude oil supply in the Western Canadian Sedimentary Basin, which was a result of shut-in production due to low commodity prices. Fosterton par oil prices decreased 36 percent to average $41.43 per barrel in 2020 compared to $64.95 per barrel in 2019. The decrease is primarily due to lower WTI pricing resulting from lower demand caused by the COVID-19 global pandemic. The decrease was exacerbated by the Fosterton differential weakening relative to WTI in the twelve months ended December 31, 2020.
The Company’s realized crude oil price in southeast Saskatchewan is based on the Midale par price at Cromer. The Midale par price decreased 24 percent to average $55.16 per barrel in the fourth quarter of 2020 compared to $72.44 per barrel in the fourth quarter of 2019. Midale par oil prices decreased 32 percent to average $50.50 per barrel in 2020 compared to $74.38 per barrel in 2019. The decreases are primarily due lower WTI prices resulting from a record decrease in demand caused by the COVID-19 global pandemic and reduced refinery throughput in North America.
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The AECO daily spot price increased six percent to average $2.64 per Mcf in the fourth quarter of 2020 compared to an average of $2.48 per Mcf in the fourth quarter of 2019. AECO daily spot price increased 27 percent to average $2.23 per Mcf in 2020 compared to an average of $1.76 per Mcf in 2019. The increases are primarily due to improved export pipeline efficiencies within the Western Canadian Sedimentary Basin, including access to interruptible service and storage. AECO prices were also supported by decreased North American supply as a result of reduced drilling activity and production shut-ins of natural gas and associated natural gas wells and tightening basis differentials to Henry Hub.
The natural gas liquids realized price increased 28 percent to average $22.48 per barrel in the fourth quarter of 2020 compared to $17.56 per barrel in the fourth quarter of 2019. The increase is primarily due to higher contracted propane and butane prices. The natural gas liquids realized price decreased 19 percent to average $16.75 per barrel in 2020 compared to $20.58 per barrel in 2019. The decrease is primarily due to COVID-19 related demand decreases, product oversupply and a reduction in benchmark pricing tied to WTI, specifically in the first half of 2020. The decrease in the first half of 2020 was partially offset by higher realized prices in the second half of 2020.
Risk Management and Hedging Activities
Whitecap maintains an ongoing risk management program to reduce the volatility of revenues in order to fund capital expenditures and pay cash dividends to shareholders.
The Company realized a gain of $10.6 million and $90.9 million on its commodity risk management contracts for the quarter and year ended December 31, 2020, respectively. The unrealized gains and losses are a result of the non-cash change in the mark-to-market values period over period. The significant assumptions made in determining the fair value of financial instruments are disclosed in Note 4 to the Company’s audited annual consolidated financial statements for the year ended December 31, 2020.
| Three months ended | Three months ended | Year ended | Year ended | |
|---|---|---|---|---|
| December 31 | December 31 | |||
| Risk Management Contracts($000s) | 2020 | 2019 | 2020 | 2019 |
| Realized gain (loss) on commodity contracts | 10,649 | (2,535) | 90,925 | (20,284) |
| Unrealizedloss oncommodity contracts | (26,603) | (24,707) | (7,381) | (87,875) |
| Net gain (loss) on commodity contracts | (15,954) | (27,242) | 83,544 | (108,159) |
| Realized gain (loss) on interest rate contracts(1) | (546) | 204 | (1,397) | 434 |
| Unrealized gain (loss) on interest rate contracts(1) | 460 | 2,706 | (10,380) | 3,864 |
| Realized gain (loss) on equity contracts(2) | (1,441) | 159 | (5,526) | 159 |
| Unrealized gainonequity contracts(2) | 20,713 | 1,256 | 4,597 | 1,256 |
| Netgain(loss)on risk management contracts | 3,232 | (22,917) | 70,838 | (102,446) |
Notes:
(1) The gain (loss) on interest rate risk management contracts is included in interest and financing expenses.
(2) The gain (loss) on equity contracts is included in stock-based compensation expenses.
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Exhibit 3
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Change in Risk Management Net Liability
September 30, 2020 to December 31, 2020
15
10
12.4
5
0
(5) (9.2)
(5.8)
(10)
(11.3)
(15)
(8.7)
(20)
Exhibit 4
Change in Risk Management Net Asset (Liability)
December 31, 2019 to December 31, 2020
100
80 73.8
(2.9)
60
40
20
1.9
0
(20) (84.0) (11.3)
$ Millions
$ Millions
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At December 31, 2020, the following risk management contracts were outstanding with an asset fair market value of $8.7 million and a liability fair market value of $20.0 million:
WTI Crude Oil Derivative Contracts
| Volume | Bought Put Price | Sold Call Price | Swap Price | ||||
|---|---|---|---|---|---|---|---|
| Type | Term | (bbls/d) | (C$/bbl) (1) | (C$/bbl) (1) | (C$/bbl) (1) | ||
| Swap | (2) | 2021 | Jan - Mar | 9,000 | 54.40 | ||
| Swap | 2021 | Jan - Jun | 4,000 | 58.25 | |||
| Swap | 2021 | Apr - Jun | 4,000 | 60.33 | |||
| Swap | 2021 | Jul - Dec | 2,000 | 60.00 | |||
| Collar | (3) | 2021 | Jan - Jun | 9,000 | 54.67 | 67.52 | |
| Collar | 2021 | Jul-Dec | 2,000 | 52.00 | 65.00 |
Notes:
(1) Prices reported are the weighted average prices for the period.
(2) 1,000 bbls/d are extendable through the second quarter of 2021, as a swap, with a price of C$57.05/bbl at the option of the counterparties through the exercise of a one-time option on March 31, 2021.
(3) 4,000 bbls/d are extendable through the second half of 2021, as a swap, with a weighted average price of C$64.55/bbl at the option of the counterparties through the exercise of a one-time option on June 30, 2021.
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WTI Crude Oil Differential Derivative Contracts
| Volume | Swap Price | ||||
|---|---|---|---|---|---|
| Type | Term | (bbls/d) | Basis (1)(2) | (C$/bbl) (3) | |
| Swap | 2021 | Jan - Dec | 4,000 | MSW | 6.25 |
| Swap | 2021 | Jan-Jun | 3,000 | WCS | 15.53 |
Notes:
(1) Mixed Sweet Blend (“MSW”).
(2) Western Canadian Select (“WCS”).
(3) Prices reported are the weighted average prices for the period.
Natural Gas Derivative Contracts
| Volume | Swap Price | |||
|---|---|---|---|---|
| Type | Term | (GJ/d) | (C$/GJ) (1) | |
| Swap | 2021 | Jan - Mar | 29,000 | 2.82 |
| Swap | 2021 | Jan - Dec | 20,000 | 2.26 |
| Swap | 2021 | Apr -Oct | 20,000 | 2.40 |
Note:
(1) Prices reported are the weighted average prices for the period.
Interest Rate Contracts
| Amount | Fixed Rate | ||||
|---|---|---|---|---|---|
| Type | Term | ($000s) | (%) (1) | Index (2) | |
| Swap | Aug 6, 2019 | Aug 6, 2024 | 200,000 | 1.554 | CDOR |
Notes:
(1) Rates reported are the weighted average rates for the period.
(2) Canadian Dollar Offered Rate (“CDOR”).
Equity Derivative Contracts
| Notional Amount | ||||
|---|---|---|---|---|
| Type | Term | ($000s) (1) | Share Volume | |
| Swap | Jan 1, 2021 | Oct 1, 2021 | 14,667 | 3,342,300 |
| Swap | Jan 1, 2021 | Oct 1, 2022 | 15,338 | 3,467,300 |
| Swap | Jan 1, 2021 | Oct 1, 2023 | 2,083 | 997,300 |
Note:
(1) Notional amount is calculated as the share volume for the period multiplied by the weighted average prices for the period
Contracts entered into subsequent to December 31, 2020
WTI Crude Oil Derivative Contracts
| Volume | Swap Price | ||||
|---|---|---|---|---|---|
| Type | Term | (bbls/d) | (C$/bbl) (1) | ||
| Swap | 2021 | Apr - Jun | 8,500 | 67.98 | |
| Swap | 2021 | Jul - Sep | 4,000 | 73.02 | |
| Swap | (2) | 2021 | Jul - Dec | 12,000 | 66.05 |
| Swap | 2022 | Jan-Jun | 4,000 | 64.54 |
Notes:
(1) Prices reported are the weighted average prices for the period.
(2) 2,000 bbls/d are extendable through the first half of 2022, as a swap, with a price of C$68.00/bbl at the option of the counterparties through the exercise of a one-time option on December 31, 2021.
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WTI Crude Oil Differential Derivative Contracts
| Volume | Swap Price | ||||
|---|---|---|---|---|---|
| Type | Term | (bbls/d) | Basis (1)(2) | (C$/bbl) (3) | |
| Swap | 2021 | Apr - Jun | 8,000 | MSW | 5.34 |
| Swap | 2021 | Jul - Sep | 3,000 | MSW | 5.18 |
| Swap | 2021 | Jul - Dec | 3,000 | MSW | 6.15 |
| Swap | 2021 | Apr - Jun | 1,000 | WCS | 16.00 |
| Swap | 2021 | Jul - Sep | 2,000 | WCS | 17.85 |
| Swap | 2021 | Oct- Dec | 3,000 | WCS | 17.15 |
Notes:
(1) Mixed Sweet Blend (“MSW”).
(2) Western Canadian Select (“WCS”).
(3) Prices reported are the weighted average prices for the period.
Natural Gas Derivative Contracts
| Volume | Swap Price | |||||
|---|---|---|---|---|---|---|
| Type | Term | (GJ/d) | (C$/GJ) (1) | |||
| Swap | 2021 | Apr - | Sep | 9,000 | 2.61 | |
| Swap | 2021 | Apr - | Oct | 6,000 | 2.37 | |
| Swap | 2021 | Nov- | 2022 | Mar | 12,000 | 2.89 |
Note:
(1) Prices reported are the weighted average prices for the period.
Royalties
| Royalties | ||||
|---|---|---|---|---|
| Three months ended | Year ended | |||
| December 31 | December 31 | |||
| ($000s, except per boe amounts) | 2020 | 2019 | 2020 | 2019 |
| Royalties | 34,592 | 60,975 | 121,004 | 253,763 |
| As a % of petroleum and natural gas revenues | 14.5 | 16.5 | 13.4 | 17.9 |
| $ per boe | 5.89 | 8.88 | 4.82 | 9.79 |
Royalties as a percentage of revenues in the fourth quarter of 2020 were 14.5 percent compared to 16.5 percent in the fourth quarter of 2019. Royalties as a percentage of revenues were 13.4 percent in 2020 compared to 17.9 percent in 2019. The decreases were primarily attributable to lower realized pricing across all core areas, as well as favourable prior period adjustments in 2020, compared to 2019.
Whitecap pays royalties to the provincial governments and mineral owners in Alberta, Saskatchewan and British Columbia. Each province has separate royalty regimes which impact Whitecap’s overall corporate royalty rate.
Operating Expenses
| Operating Expenses | ||||
|---|---|---|---|---|
| Three months ended | Year ended | |||
| December 31 | December 31 | |||
| ($000s, except perboe amounts) | 2020 | 2019 | 2020 | 2019 |
| Operating expenses | 70,176 | 81,414 | 297,512 | 320,960 |
| $ per boe | 11.96 | 11.85 | 11.84 | 12.38 |
Operating expenses per boe in the fourth quarter of 2020 increased one percent to $11.96 per boe compared to $11.85 per boe in the fourth quarter of 2019. The increase in operating expenses per boe is primarily attributed to higher per boe fixed operating expenses as a result of lower production volumes.
Operating expenses per boe decreased four percent to $11.84 per boe in 2020 compared to $12.38 per boe in 2019. The decrease was primarily attributed to operating expense reduction initiatives by the Company in 2020 as well as lower workover costs in 2020 compared to 2019.
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Transportation Expenses
| Transportation Expenses | ||||
|---|---|---|---|---|
| Three | months ended | Year ended | ||
| December 31 | December 31 | |||
| ($000s, except per boe amounts) | 2020 | 2019 | 2020 | 2019 |
| Transportation expenses | 13,309 | 16,480 | 59,215 | 58,627 |
| $ per boe | 2.27 | 2.40 | 2.36 | 2.26 |
Transportation expenses per boe in the fourth quarter of 2020 decreased five percent to $2.27 per boe compared to $2.40 per boe in the fourth quarter of 2019. The decrease is primarily due to lower pipeline tariffs in West Central Saskatchewan.
Transportation expenses increased four percent to $2.36 per boe in 2020 compared to $2.26 in 2019. The increases were primarily attributed to higher shipping rates in Northwest Alberta & British Columbia (“NABC”), as well as an increased production weighting in NABC, which has higher transportation expenses per boe than the Company average.
Transportation expenses per boe will fluctuate quarterly based on pipeline connectivity or downtime, weather, shipper status and pipeline shipping arrangements. When Whitecap has shipper status, pipeline tariffs incurred by the Company are included in transportation expenses. When Whitecap does not have shipper status, pipeline tariffs incurred by commodity purchasers subsequent to the delivery of the Company’s product are charged back to Whitecap and are netted against petroleum and natural gas sales.
Operating Netbacks
The components of operating netbacks are shown below:
| Three months ended | Three months ended | Year ended | ||
|---|---|---|---|---|
| December 31 | December 31 | |||
| Netbacks ($/boe) | 2020 | 2019 | 2020 | 2019 |
| Petroleum and natural gas revenues | 40.64 | 53.76 | 35.88 | 54.70 |
| Tariffs | (0.54) | (0.42) | (0.48) | (0.48) |
| Processing & other income | 0.73 | 0.50 | 0.74 | 0.69 |
| Marketing revenue | 0.95 | 1.05 | 0.94 | 1.17 |
| Petroleum and natural gas sales | 41.78 | 54.89 | 37.08 | 56.08 |
| Realized hedging gain (loss) | 1.81 | (0.37) | 3.62 | (0.78) |
| Royalties | (5.89) | (8.88) | (4.82) | (9.79) |
| Operating expenses | (11.96) | (11.85) | (11.84) | (12.38) |
| Transportation expenses | (2.27) | (2.40) | (2.36) | (2.26) |
| Marketing expenses | (0.97) | (1.05) | (0.94) | (1.14) |
| Operating netbacks (1) | 22.50 | 30.34 | 20.74 | 29.73 |
Note:
(1) Operating netbacks are a non-GAAP measure which is defined under the Non-GAAP Measures section of this MD&A.
General and Administrative (“G&A”) Expenses
| Three months ended | Three months ended | Year ended | ||
|---|---|---|---|---|
| December 31 | December 31 | |||
| ($000s, except per boe amounts) | 2020 | 2019 | 2020 | 2019 |
| Gross G&A costs | 8,734 | 11,296 | 41,630 | 48,551 |
| Recoveries | (2,640) | (4,967) | (13,556) | (16,447) |
| Capitalized G&A | (1,409) | (1,410) | (7,399) | (7,277) |
| G&A expenses | 4,685 | 4,919 | 20,675 | 24,827 |
| $ per boe | 0.80 | 0.72 | 0.82 | 0.96 |
The decrease in gross G&A costs in the quarter and year ended December 31, 2020 compared to the same periods in 2019 is primarily attributed to cost reduction initiatives by the Company in response to the collapse of global commodity prices in early 2020 and the Canada Emergency Wage Subsidy (“CEWS”) received from the Government of Canada. For the quarter and year ended December 31, 2020, reductions
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to general and administrative expenses of $0.8 million and $3.8 million, respectively, were recognized relating to CEWS.
The decreases in recoveries for quarter and year ended December 31, 2020, compared to the same periods in 2019, are primarily due to lower capital expenditures as well as operating expense reduction initiatives by the Company in 2020.
Capitalized G&A in the quarter and year ended December 31, 2020 was consistent compared to the same periods in 2019.
G&A expenses per boe in the fourth quarter of 2020 increased 11 percent to $0.80 per boe compared to $0.72 per boe in the fourth quarter of 2019. The increase is primarily attributable to lower production volumes in the fourth quarter of 2020, compared to the same period in 2019.
G&A expenses per boe decreased 15 percent to $0.82 per boe in 2020 compared to $0.96 per boe in the same period in 2019. The decrease on a per boe basis is primarily attributed to lower gross G&A costs, partially offset by lower recoveries and lower production volumes for year ended December 31, 2020 compared to the same period in 2019.
Share-based Awards
| Share-based Awards | ||||
|---|---|---|---|---|
| Three | months ended | Year ended | ||
| December 31 | December 31 | |||
| ($000s, except per boe amounts) | 2020 | 2019 | 2020 | 2019 |
| Stock-based compensation | 12,832 | 7,073 | 22,646 | 24,407 |
| Realized (gain) loss on equity contracts | 1,441 | (159) | 5,526 | (159) |
| Unrealized gain on equity contracts | (20,713) | (1,256) | (4,597) | (1,256) |
| Capitalized stock-based compensation | (2,719) | (1,463) | (5,458) | (6,249) |
| Stock-based compensation expenses | (9,159) | 4,195 | 18,117 | 16,743 |
| $ per boe | (1.56) | 0.61 | 0.72 | 0.65 |
In the quarter and year ended December 31, 2020, the Company recorded stock-based compensation of $12.8 million and $22.6 million, respectively. The increase in stock-based compensation and capitalized stock-based compensation for the three months ended December 31, 2020, compared to the same period in 2019, is primarily attributable to an increase in the fair value of cash-settled awards, resulting from an increase to Whitecap’s share price in the fourth quarter of 2020. The decrease in stock-based compensation and capitalized stock-based compensation for the year ended December 31, 2020, compared to the same period in 2019, is primarily attributable to equity-settled share awards granted in 2020 which had a lower grant date fair value than awards vesting in 2020.
Stock-based compensation will fluctuate with changes to the expected payout multipliers associated with the performance awards, vesting of existing grants, additional grants under the Award Incentive Plan, as well as changes in fair value for awards that are accounted for as cash-settled.
In the quarter and year ended December 31, 2020, the unrealized gains on equity contracts were the result of increases in the fair value of the total return contracts, resulting from an increase in share price in the fourth quarter of 2020.
Award Incentive Plan
The Company implemented an Award Incentive Plan effective April 30, 2013. The Award Incentive Plan has time-based awards and performance awards which may be granted to directors, officers, employees of the Company and other service providers. Effective January 1, 2017, independent outside directors will receive only time-based awards as the primary form of long-term compensation. As at December 31, 2020, the maximum number of common shares issuable under the plan shall not at any time exceed 3.755 percent of the total common shares outstanding. Vesting is determined by the Company’s Board of Directors. Timebased awards and performance awards issued to employees of the Company and independent outside directors have vesting periods ranging from 1 to 3 years. In the year the awards vest for insiders, the awards vest in two tranches with one half of such awards vesting February 1 and one half vesting October.
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Each time-based award may in the Company’s sole discretion, entitle the holder to be issued the number of common shares designated in the time-based award plus dividend equivalents or payment in cash. Decisions regarding settlement method for insider and non-insider awards are mutually exclusive. On October 1, 2018, consistent with the terms of the Award Incentive Plan, awards vesting for insiders were settled in cash. As a result, the remaining insider awards were accounted for as cash-settled, resulting in the recognition of share award liabilities on the consolidated balance sheet. Performance awards are also subject to a performance multiplier. This multiplier, ranging from zero to two, will be applied on vesting and is dependent on the performance of the Company relative to predefined corporate performance measures set by the Board of Directors for the associated period.
A forfeiture rate is estimated on the grant date and is adjusted to reflect the actual number of awards that vest. Based on the terms of the Award Incentive Plan, the fair value of share awards is equal to the underlying share price on grant date. The fair value of awards that are accounted for as cash-settled transactions are subsequently adjusted to the underlying share price at each period end. Performance awards are also adjusted by an estimated payout multiplier. The resulting stock-based compensation expense is recognized on a straight-line basis over the vesting period, with a corresponding increase to contributed surplus in the case of awards accounted for as equity-settled, or accounts payable and sharebased compensation liability in the case of awards accounted for as cash-settled. Upon the vesting of the awards that are accounted for as equity-settled, the associated amount in contributed surplus is recorded as an increase to share capital.
At December 31, 2020, the Company had 7.9 million awards outstanding.
Interest and Financing Expenses
| Interest and Financing Expenses | ||||
|---|---|---|---|---|
| Three months ended | Year ended | |||
| December 31 | December 31 | |||
| ($000s, except per boe amounts) | 2020 | 2019 | 2020 | 2019 |
| Interest | 10,424 | 12,569 | 43,526 | 52,270 |
| Realized (gain) loss on interest rate contracts | 546 | (204) | 1,397 | (434) |
| Unrealized (gain) loss on interest rate | (460) | (2,706) | 10,380 | (3,864) |
| contracts | ||||
| Interest and financing expenses | 10,510 | 9,659 | 55,303 | 47,972 |
| $ per boe | 1.79 | 1.41 | 2.20 | 1.85 |
Interest and financing expenses per boe increased 27 percent to $1.79 per boe in the fourth quarter of 2020 compared to $1.41 per boe in the fourth quarter of 2019. The increase on a per boe basis was primarily attributable to a lower unrealized gain on interest rate contracts in the fourth quarter of 2020, which are included in interest and financing expenses, partially offset by lower interest rates compared to the same period in 2019.
Interest and financing expenses per boe increased 19 percent to $2.20 per boe in 2020 compared to $1.85 per boe in 2019. The increase on a per boe basis was primarily attributable to the unrealized loss on interest rate contracts in 2020, partially offset by lower interest rates in 2020 compared to 2019.
Depletion, Depreciation and Amortization (“DD&A”)
| Three | months ended | Year ended | ||
|---|---|---|---|---|
| December | December 31 | |||
| ($000s, except per boe amounts) | 2020 | 2019 | 2020 | 2019 |
| Depletion, Depreciation and Amortization | 73,766 | 134,277 | 357,651 | 486,230 |
| $ per boe | 12.57 | 19.55 | 14.23 | 18.75 |
DD&A per boe decreased 36 percent to $12.57 per boe in the fourth quarter of 2020 compared to $19.55 per boe in the fourth quarter of 2019. DD&A per boe decreased 24 percent to $14.23 per boe in 2020 compared to $18.75 per boe in 2019. The decreases on a per boe basis are primarily attributed to a $2.8 billion impairment to property, plant and equipment (“PP&E”) recognized in the first quarter of 2020.
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DD&A per boe will fluctuate from one period to the next depending on the amount and type of capital spending, the recognition or reversal of impairments, the amount of reserves added and production volumes. The depletion rates are calculated on proved and probable oil and natural gas reserves, taking into account the future development costs to produce the reserves.
Impairment Expense (Reversal)
| Three months ended | Three months ended | Year ended | ||
|---|---|---|---|---|
| December 31 | December 31 | |||
| ($000s) | 2020 | 2019 | 2020 | 2019 |
| PP&E impairment (reversal) | (432,169) | 296,914 | 2,369,424 | 296,914 |
| Goodwill impairment | - | - | 122,682 | - |
| Impairment expense(reversal) | (432,169) | 296,914 | 2,492,106 | 296,914 |
PP&E Impairment
At March 31, 2020, the Company determined that carrying amounts of each of the Company’s cash generating units exceeded their fair value less cost of disposal (“FVLCD”):
| ($000s) | FVLCD | Carrying Value | Impairment |
|---|---|---|---|
| Northwest Alberta & British Columbia | 521,508 | 1,164,965 | 643,457 |
| Southeast Saskatchewan | 559,345 | 900,438 | 341,093 |
| Southwest Saskatchewan | 387,844 | 895,683 | 507,839 |
| West Central Alberta | 549,188 | 1,287,248 | 738,060 |
| West Central Saskatchewan | 360,167 | 931,311 | 571,144 |
| Total | 2,378,052 | 5,179,645 | 2,801,593 |
The full amount of the impairment was attributed to PP&E and, as a result, a total impairment loss of $2.8 billion was recorded in impairment expense. The impairment expense in 2020 was primarily a result of lower forecast benchmark commodity prices at March 31, 2020 compared to December 31, 2019. Additionally, as a result of increased volatility in the market, the after-tax discount rate used to determine the FVLCD increased from 10 percent as at December 31, 2019 to 13 percent as at March 31, 2020. The three percent increase in the after-tax discount rate resulted in the recognition of an additional $908.3 million in PP&E impairment, included in the total impairment loss of $2.8 billion above.
At December 31, 2020, the Company determined that the FVLCD of each of the company’s CGUs exceeded their carrying amounts:
| ($000s) | FVLCD | Carrying Value | Reversal |
|---|---|---|---|
| Northwest Alberta & British Columbia | 598,537 | 450,523 | (148,014) |
| Southeast Saskatchewan | 653,971 | 553,255 | (100,716) |
| Southwest Saskatchewan | 440,316 | 317,008 | (123,308) |
| West Central Alberta | 539,659 | 490,537 | (49,122) |
| West Central Saskatchewan | 323,806 | 312,797 | (11,009) |
| Total | 2,556,289 | 2,124,120 | (432,169) |
The full amount of the impairment reversal was attributed to PP&E and, as a result, a total impairment reversal of $432.2 million was recorded in impairment expense. The impairment reversal was primarily a result of higher forecast benchmark commodity prices and increases to proved plus probable reserves within certain CGUs at December 31, 2020 compared to March 31, 2020.
Goodwill impairment
In the year ended December 31, 2020, the Company determined that the corporate carrying amount, consisting of PP&E and goodwill net of associated deferred income tax, of $2.5 billion exceeded the recoverable amount of $2.4 billion. The full amount of the impairment was attributed to goodwill and, as a result, an impairment loss of $122.7 million was recorded in impairment expense. The impairment expense in 2020 was primarily a result of lower forecast benchmark commodity prices at March 31, 2020 compared to December 31, 2019.
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Taxes
For the quarter and year ended December 31, 2020, the Company recognized a deferred income tax expense of $116.9 million and recovery of $573.0 million, respectively, compared to a deferred income tax recovery of $65.7 million and $47.5 million, respectively, for the same periods in 2019. The deferred income tax recovery in the year ended December 31, 2020 was primarily due to impairments recognized in the period.
The following gross deductions are available for deferred income tax purposes:
| December 31 | December 31 | ||
|---|---|---|---|
| ($000s) | 2020 | 2019 | Annual Deductibility |
| Undepreciated capital cost | 486,932 | 610,658 | Various rates, primarily 25% |
| declining balance | |||
| Canadian development expense | 569,499 | 683,907 | 30% declining balance |
| Canadian oil & gas property expense | 1,508,070 | 1,653,727 | 10% declining balance |
| Non-capital loss carryforward | 974,051 | 688,645 | 100% |
| Share issue costs | 2,911 | 10,714 | 20% straight line |
| Total | 3,541,463 | 3,647,651 |
Gain on Acquisition
As part of the acquisition of Hyak Energy ULC (“Hyak”), Whitecap recognized a gain of $28.1 million for the year ended December 31, 2020. The gain represents the excess of the $45.2 million total identifiable net assets acquired over the $17.0 million cash consideration paid.
Net Income (Loss)
For the quarter and year ended December 31, 2020, the Company recognized a net income of $332.0 million and a net loss of $1.8 billion, respectively, compared to net losses of $203.9 million and $155.9 million for the same periods in 2019, respectively. The following changes impacted the net income (loss):
| Three months ended | Year ended | |
|---|---|---|
| ($000s) | December 31 | December 31 |
| 2019 Net Loss | (203,946) | (155,873) |
| Change in impairment expenses | 729,083 | (2,195,192) |
| Decrease in petroleum and natural gas sales | (131,795) | (522,341) |
| Increase in interest and financing expenses | (851) | (7,331) |
| Change in stock-based compensation | 13,354 | (1,374) |
| Change in deferred income tax expense / recovery | (182,599) | 525,535 |
| Change in risk management contracts | 11,288 | 191,703 |
| Decrease in royalties | 26,383 | 132,759 |
| Decrease in depletion, depreciation and amortization | 60,511 | 128,579 |
| Change in gain on acquisition | - | 28,147 |
| Decrease in operating expenses | 11,238 | 23,448 |
| Decrease in marketing expenses | 1,484 | 5,997 |
| Decrease in G&A expenses | 234 | 4,152 |
| Other net changes | (2,433) | (3,182) |
| 2020 Net Income(Loss) | 331,951 | (1,844,973) |
The factors causing these changes are discussed in the preceding sections.
Cash Flow from Operating Activities, Funds Flow and Payout Ratios
Management considers funds flow to be a key measure of operating performance as it demonstrates Whitecap’s ability to generate the cash necessary to pay dividends, repay debt, make capital investments, and/or to repurchase common shares under the Company’s normal course issuer bid (“NCIB”). Management believes that by excluding the temporary impact of changes in non-cash operating working capital, funds flow 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. Funds flow is not a standardized measure
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and, therefore, may not be comparable with the calculation of similar measures by other entities.
Whitecap reports funds flow in total and on a per share basis. Refer to Note 5(e) "Capital Management" in the Company’s audited annual consolidated financial statements for the year ended December 31, 2020.
The following table reconciles cash flow from operating activities to funds flow and free funds flow:
| Three months ended | Three months ended | Year ended | ||
|---|---|---|---|---|
| December 31 | December 31 | |||
| ($000s) | 2020 | 2019 | 2020 | 2019 |
| Cash flow from operating activities | 96,334 | 162,887 | 450,175 | 645,358 |
| Changes in non-cash workingcapital | 8,316 | 21,659 | (16,294) | 30,252 |
| Funds flow (1) | 104,650 | 184,546 | 433,881 | 675,610 |
| Expenditures on PP&E | 21,713 | 98,762 | 195,886 | 403,977 |
| Free funds flow (2) | 82,937 | 85,784 | 237,995 | 271,633 |
| Dividends paid or declared | 17,468 | 35,018 | 87,276 | 138,341 |
| Basic payout ratio (%) (2) | 17 | 19 | 20 | 20 |
| Total payout ratio (%) (2) | 37 | 72 | 65 | 80 |
| Funds flow per share, basic | 0.26 | 0.45 | 1.06 | 1.64 |
| Funds flow per share, diluted | 0.25 | 0.45 | 1.06 | 1.63 |
| Dividendspaid or declaredper share | 0.04 | 0.09 | 0.21 | 0.34 |
Notes:
(1) Refer to Note 5(e) "Capital Management" in the audited annual consolidated financial statements.
(2) Free funds flow, basic payout ratio and total payout ratio are non-GAAP measures which are defined under the Non-GAAP Measures section of this MD&A.
Dividends are only declared once they are approved by the Company’s Board of Directors. The Board of Directors reviews Whitecap’s dividend policy on a monthly basis.
Cash flow from operating activities for the quarter and year ended December 31, 2020, was $96.3 million and $450.2 million, respectively, compared to $162.9 million and $645.4 million for the same periods in 2019.
The following changes impacted cash flow from operating activities:
| Three months ended | Year ended | |
|---|---|---|
| ($000s) | December 31 | December 31 |
| 2019 Cash flow from operating activities | 162,887 | 645,358 |
| Change in net income/ loss | 535,897 | (1,689,100) |
| Change in deferred income tax expense / recovery | 182,599 | (525,535) |
| Change in depletion, depreciation and amortization | (60,511) | (128,579) |
| Change in unrealized risk management contracts | (15,315) | (69,591) |
| Change in gain on acquisition | - | (28,147) |
| Change in impairment expenses | (729,083) | 2,195,192 |
| Net change in non-cash working capital items | 13,343 | 46,546 |
| Other net changes | 6,517 | 4,031 |
| 2020 Cash flow from operatingactivities | 96,334 | 450,175 |
Funds flow for the quarter and year ended December 31, 2020, was $104.7 million and $433.9 million, respectively, compared to $184.5 million and $675.6 million for the same periods in 2019. The decreases in funds flow are primarily attributed to lower commodity prices.
Free funds flow for the quarter and year ended December 31, 2020 was $82.9 million and $238.0 million, respectively, compared to $85.8 million and $271.6 million for the same periods in 2019. The decreases in free funds flow are attributed to lower funds flow, partially offset by lower capital expenditures in 2020.
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Capital Expenditures
| Capital Expenditures | ||||
|---|---|---|---|---|
| Three | months ended | Year ended | ||
| December 31 | December 31 | |||
| ($000s) | 2020 | 2019 | 2020 | 2019 |
| Land and geological | 1,197 | 476 | 2,071 | 4,374 |
| Drilling and completions | 14,430 | 70,850 | 158,083 | 332,856 |
| Investment in facilities | 4,162 | 25,982 | 27,514 | 58,863 |
| Capitalized administration | 1,409 | 1,410 | 7,399 | 7,277 |
| Corporate and other assets | 515 | 44 | 819 | 607 |
| Expenditures on PP&E | 21,713 | 98,762 | 195,886 | 403,977 |
| Property acquisitions | 26 | 410 | 5,381 | 4,016 |
| Property dispositions | - | (266) | - | (978) |
| Corporate acquisition | - | - | 18,417 | - |
| Total capital expenditures | 21,739 | 98,906 | 219,684 | 407,015 |
For the quarter and year ended December 31, 2020, expenditures on PP&E totaled $21.7 million and $195.9 million, respectively, with 86 percent and 95 percent, respectively, spent on drilling, completions and facilities.
For the quarter and year ended December 31, 2020, Whitecap’s drilling activity was as follows:
| Three months ended | Three months ended | Year ended | ||
|---|---|---|---|---|
| December 31, 2020 | December 31, 2020 | |||
| Gross | Net | Gross | Net | |
| Northwest Alberta & British Columbia | 1 | 1.0 | 13 | 8.2 |
| Southeast Saskatchewan (1) | - | - | 7 | 4.3 |
| Southwest Saskatchewan (2) | - | - | 22 | 13.5 |
| West Central Alberta (3) | - | - | 6 | 5.2 |
| West Central Saskatchewan (4) | 2 | 0.9 | 32 | 26.4 |
| Total | 3 | 1.9 | 80 | 57.6 |
Notes:
(1) Includes 2 (1.2 net) injection wells in the year ended December 31, 2020.
(2) Includes 2 (1.8 net) injection wells in the year ended December 31, 2020.
(3) Includes 1 (0.9 net) injection well in the year ended December 31, 2020.
(4) Includes 3 (3.0 net) injection wells in the year ended December 31, 2020.
For the quarter and year ended December 31, 2019, Whitecap’s drilling activity was as follows:
| Three months ended | Three months ended | Year ended | ||
|---|---|---|---|---|
| December 31, 2019 | December 31, 2019 | |||
| Gross | Net | Gross | Net | |
| Northwest Alberta & British Columbia | 4 | 3.4 | 26 | 21.0 |
| Southeast Saskatchewan | 6 | 3.4 | 6 | 3.4 |
| Southwest Saskatchewan (1) | 6 | 4.4 | 48 | 37.0 |
| West Central Alberta (2) | - | - | 18 | 17.1 |
| West Central Saskatchewan (3) | 10 | 8.6 | 95 | 87.8 |
| Total | 26 | 19.8 | 193 | 166.3 |
Notes:
(1) Includes 3 (1.7 net) injection wells in the year ended December 31, 2019.
(2) Includes 3 (2.6 net) injection wells in the year ended December 31, 2019.
(3) Includes 2 (2.0 net) injection wells in the year ended December 31, 2019.
Corporate Acquisitions
On January 15, 2020, the Company completed the acquisition of all of the issued and outstanding common shares of Hyak for $16.2 million in cash, net of acquired working capital.
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Decommissioning Liability
At December 31, 2020, the Company’s decommissioning liability balance was $1.0 billion ($859.1 million at December 31, 2019) for future abandonment and reclamation of the Company’s properties. The increase in the decommissioning liability at December 31, 2020 compared to December 31, 2019 is primarily attributed to revisions in estimates as a result of Whitecap adopting new provincial guidance issued by British Columbia, combined with a decrease in the risk-free rate from 1.8 percent at December 31, 2019 to 1.2 percent at December 31, 2020. Estimates are based on both operational knowledge of the properties and updated industry guidance provided by the Alberta Energy Regulator, the Saskatchewan Ministry of the Economy, and the BC Oil and Gas Commission. The estimates are reviewed quarterly and adjusted as new information regarding the liability is determined.
Exhibit 5
==> picture [370 x 217] intentionally omitted <==
----- Start of picture text -----
Change in Decommissioning Liability
December 31, 2019 to December 31, 2020
1,200 161.2 1,046.7
1,000 859.1 3.5 16.0 12.6
800
(5.7)
600
400
200
-
$ Millions
----- End of picture text -----
Capital Resources and Liquidity
Credit Facilities
At December 31, 2020, the Company had a $1.175 billion credit facility with a syndicate of banks. The credit facility consists of a $1.1 billion revolving syndicated facility and a $75 million revolving operating facility, with a maturity date of May 31, 2023. As at December 31, 2020 the amount drawn on the credit facilities was $506.5 million. Prior to any anniversary date, being May 31 of each year, Whitecap may request an extension of the then current maturity date, subject to approval by the banks. Following the granting of such extension, the term to maturity of the credit facilities shall not exceed four years. The credit facility provides that advances may be made by way of direct advances, banker’s acceptances or letters of credit/guarantees. The credit facility bears interest at the bank's prime lending or bankers' acceptance rates plus applicable margins. The applicable margin charged by the bank is dependent upon the Company’s debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio for the most recent quarter. The bankers’ acceptances bear interest at the applicable banker’s acceptance rate plus an explicit stamping fee based upon the Company’s debt to EBITDA ratio. The credit facilities are secured by a floating charge debenture on the assets of the Company.
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The following table lists Whitecap’s financial covenants as at December 31, 2020:
| Covenant Description | December 31, 2020 | |
|---|---|---|
| Maximum Ratio | ||
| Debt to EBITDA (1) (2) | 4.00 | 2.21 |
| Minimum Ratio | ||
| EBITDA to interest expense (1) | 3.50 | 11.15 |
Notes:
(1) The EBITDA used in the covenant calculation is adjusted for non-cash items, transaction costs and extraordinary and nonrecurring items such as material acquisitions or dispositions.
(2)
The debt used in the covenant calculation includes bank indebtedness, letters of credit, and dividends declared.
At December 31, 2020, the Company was compliant with all covenants provided for in the credit agreement. Copies of the Company’s credit agreements may be accessed through the SEDAR website (www.sedar.com).
Senior Secured Notes
At December 31, 2020, the Company had issued $595 million senior secured notes. The notes rank equally with Whitecap’s obligations under its credit facility.
The terms, rates and principals of the Company’s outstanding senior notes are detailed below:
| ($000s) | |||
|---|---|---|---|
| Issue Date | Maturity Date | Coupon Rate | Principal |
| January 5, 2017 | January 5, 2022 | 3.46% | 200,000 |
| May 31, 2017 | May 31, 2024 | 3.54% | 200,000 |
| December 20, 2017 | December 20, 2026 | 3.90% | 195,000 |
| Balance at December 31,2020 | 595,000 |
The senior secured notes are subject to the same debt to EBITDA ratio and EBITDA to interest expense ratio described under the credit facility. At December 31, 2020, the Company was compliant with all covenants provided for in the lending agreements.
Equity
On May 14, 2020, the Company announced the approval of its renewed NCIB by the TSX (the “2020 NCIB”). The 2020 NCIB allows the Company to purchase up to 20,406,799 common shares over a period of twelve months commencing on May 21, 2020.
On May 16, 2019, the Company announced the approval of its renewed NCIB by the TSX (the “2019 NCIB”). The 2019 NCIB allows the Company to purchase up to 20,657,914 common shares over a period of twelve months commencing on May 21, 2019.
On May 16, 2018, the Company announced the approval of its renewed NCIB by the TSX (the “2018 NCIB”). The 2018 NCIB allowed the Company to purchase up to 20,864,806 common shares over a period of twelve months commencing on May 18, 2018.
Purchases are made on the open market through the TSX or alternative platforms at the market price of such common shares. All common shares purchased under the NCIB are cancelled. The total cost paid, including commissions and fees, is first charged to share capital to the extent of the average carrying value of Whitecap’s common shares and the excess is charged to contributed surplus.
16
The following table summarizes the share repurchase activities during the period:
| Three months ended | Three months ended | Year ended | ||
|---|---|---|---|---|
| December 31 | December 31 | |||
| (000s except pershare amounts) | 2020 | 2019 | 2020 | 2019 |
| Shares repurchased | - | - | 2,634 | 4,621 |
| Average cost ($/share) | - | - | 3.87 | 4.25 |
| Amounts charged to | ||||
| Share capital | - | - | 10,197 | 19,628 |
| Share repurchase cost | - | - | 10,197 | 19,628 |
The Company is authorized to issue an unlimited number of common shares. At February 24, 2021, there were 597.3 million common shares and 7.0 million share awards outstanding.
Liquidity
The Company generally relies on funds flow, equity issuances and its credit facility to fund its capital requirements, dividend payments and provide liquidity. From time to time, the Company accesses capital markets to meet its additional financing needs and to maintain flexibility in funding its capital programs. Future liquidity depends primarily on funds flow, existing credit facilities and the ability to access debt and equity markets. All repayments on the revolving production and operating facilities are due at the term maturity date. As none of the facilities mature within the next year, the liabilities are considered to be noncurrent. At December 31, 2020, the Company had $667.6 million of unutilized credit to cover any working capital deficiencies. The Company believes that available credit facilities combined with anticipated funds flow will be sufficient to satisfy Whitecap’s 2021 development capital program and dividend payments for the 2021 fiscal year.
Contractual Obligations
Whitecap has contractual obligations in the normal course of business which may include purchase of assets and services, operating agreements, transportation commitments, sales commitments, royalty obligations, lease rental obligations, employee agreements and debt. These obligations are of a recurring, consistent nature and impact Whitecap’s cash flows in an ongoing manner. The Company is committed to future payments under the following agreements:
| ($000s) | 2021 | 2022 | 2023 | 2024+ | Total |
|---|---|---|---|---|---|
| Lease liabilities (1) | 14,651 | 14,984 | 15,959 | 35,147 | 80,741 |
| Service agreements | 2,299 | 2,300 | 2,296 | 8,564 | 15,459 |
| Transportation agreements | 22,078 | 28,862 | 23,738 | 113,257 | 187,935 |
| CO2purchase commitments | 39,011 | 39,791 | 40,588 | 60,753 | 180,143 |
| Long-term debt (1) | 21,605 | 214,761 | 14,685 | 926,777 | 1,177,828 |
| Total | 99,644 | 300,698 | 97,266 | 1,144,498 | 1,642,106 |
Note: (1) These amounts include the notional principal and interest payments.
Related Party Transactions
The Company has retained the law firm of Burnet, Duckworth & Palmer LLP (“BD&P”) to provide Whitecap with legal services. A director of Whitecap is a partner of this firm. During the quarter and year ended December 31, 2020, the Company incurred $0.1 million and $0.4 million for legal fees and disbursements, respectively ($0.2 million and $0.4 million for the quarter and year ended December 31, 2019, respectively). These amounts have been recorded at the amounts that have been agreed upon by the two parties. The Company expects to retain the services of BD&P from time to time. At December 31, 2020 a $0.1 million payable balance ($0.1 million – December 31, 2019) was outstanding.
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Subsequent Events
NAL Resources Limited (“NAL”) Strategic Combination
On January 4, 2021, the Company closed the previously announced strategic combination with NAL (the “NAL Transaction”). Whitecap issued approximately 58.3 million Whitecap common shares in exchange for all the issued and outstanding NAL shares to the Manufacturers Life Insurance Company (the “NAL Vendor”).
The assets acquired by Whitecap pursuant to the NAL Transaction consisted of primarily light oil assets overlapping more than 80 percent of Whitecap's asset base in west central Alberta, west central Saskatchewan and southeast Saskatchewan. Following completion of the NAL Transaction, NAL was amalgamated into Whitecap. On closing of the NAL Transaction, Whitecap entered into an investor rights agreement and a registrations rights agreement with the NAL Vendor which provides the NAL Vendor with certain board observer rights, pro rata participation rights in future equity issuances and future registration rights.
TORC Oil & Gas (“TORC”) Strategic Combination
On February 24, 2021, the Company closed the previously announced strategic combination with TORC (the “TORC Transaction”). Whitecap issued approximately 129.8 million Whitecap common shares to former TORC shareholders in exchange for all the issued and outstanding TORC shares.
Credit Facility Increase
Concurrent with the closing of the TORC Transaction Whitecap’s credit facility was increased by $230 million to $1.405 billion from $1.175 billion. The credit facility consists of a $1.33 billion revolving syndicated facility and a $75 million revolving operating facility, with a maturity date of May 31, 2023.
Dividend Increase
In connection with the TORC Transaction, Whitecap’s Board of Directors has approved an increase the Company’s monthly dividend from $0.01425 per common share to $0.01508 per common share ($0.18096 per Common Share annualized). The dividend increase is expected to be effective with the March 2021 dividend payable in April 2021.
Changes in Accounting Policies Including Initial Adoption
There were no changes that had a material effect on the reported net income (loss) or net assets of the Company except as discussed below.
Government Grants
Government grants are recognized when there is reasonable assurance that the Company will comply with the conditions attaching to it, and that the grant will be received. Grants related to income are presented in the Consolidated Statement of Comprehensive Loss and are deducted in reporting the related expense. Grants related to assets are presented in the Consolidated Balance Sheet by deducting the grant in arriving at the carrying amount of the asset.
Standards Issued but not yet Effective
There are no other standards or interpretations issued, but not yet adopted, that are anticipated to have a material effect on the reported net income (loss) or net assets of the Company.
Off Balance Sheet Arrangements
The Company does not have any special purpose entities nor is it party to any arrangements that would be excluded from the balance sheet other than commitments disclosed in Note 21 to the Company’s audited annual consolidated financial statements for the year ended December 31, 2020.
Critical Accounting Estimates
Whitecap’s financial and operating results may incorporate certain estimates including:
-
estimated revenues, royalties and operating expenses on production as at a specific reporting date but for which actual revenues and expenses have not yet been received;
-
estimated capital expenditures on projects that are in progress;
18
-
estimated depletion, depreciation and accretion that are based on estimates of oil and gas reserves that the Company expects to recover in the future, commodity prices, estimated future salvage values and estimated future capital costs;
-
estimated fair values of derivative contracts that are subject to fluctuation depending upon the underlying commodity prices and foreign exchange rates;
-
estimated value of decommissioning liabilities that are dependent upon estimates of future costs, timing of expenditures and the risk-free rate;
-
estimated income and other tax liabilities requiring interpretation of complex laws and regulations. All tax filings are subject to audit and potential reassessment after the lapse of considerable time;
-
estimated stock-based compensation expense using the Black-Scholes option pricing model;
-
· estimated fair value of business combinations and goodwill requires management to make assumptions and estimates about future events. The assumptions and estimates with respect to determining the fair value of PP&E and exploration and evaluation assets acquired generally require the most judgment and include estimates of reserves acquired, forecast benchmark commodity prices and discount rates; and
-
estimated recoverable amounts are based on estimated proved plus probable reserves, production rates, oil and gas prices, future costs, discount rates and other relevant assumptions.
The Company has hired individuals and consultants who have the skills required to make such estimates and ensures that individuals or departments with the most knowledge of the activity are responsible for the estimates. Furthermore, past estimates are reviewed and compared to actual results, and actual results are compared to budgets in order to make more informed decisions on future estimates.
Business Risks
Whitecap’s exploration and production activities are concentrated in the Western Canadian Sedimentary Basin, where activity is highly competitive and includes a variety of different-sized companies. Whitecap is subject to a number of risks that are also common to other organizations involved in the oil and gas industry. Such risks include finding and developing oil and gas reserves at economic costs, estimating amounts of recoverable reserves, production of oil and gas in commercial quantities, marketability of oil and gas produced, fluctuations in commodity prices, stock market volatility, debt service which may limit timing or amount of dividends as well as market price of shares, financial and liquidity risks and environmental and safety risks.
In order to reduce exploration risk, Whitecap employs or contracts highly qualified and motivated professionals who have demonstrated the ability to generate quality proprietary geological and geophysical prospects. Whitecap has retained an independent engineering consulting firm that assists the Company in evaluating recoverable amounts of oil and gas reserves. Values of recoverable reserves are based on a number of variable factors and assumptions such as commodity prices, projected production, future production costs and government regulations. Such estimates may vary from actual results.
The Company mitigates its risk related to producing hydrocarbons through the utilization of current technology and information systems. In addition, Whitecap strives to operate the majority of its prospects, thereby maintaining operational control. When the Company does not operate, it relies on its partners in jointly owned properties to maintain operational control.
Whitecap is exposed to market risk to the extent that the demand for oil and gas produced by the Company exists within Canada and the United States. External factors beyond the Company’s control may affect the marketability of oil and gas produced. These factors include commodity prices and variations in the Canada–United States currency exchange rate which, in turn responds to economic and political circumstances throughout the world. Oil prices are affected by worldwide supply and demand fundamentals while natural gas prices are affected by North American supply and demand fundamentals. Whitecap uses futures and options contracts to hedge its exposure to the potential adverse impact of commodity price volatility. The primary objective of the risk management program is to provide a measure of stability to Whitecap dividends and its capital development program.
Exploration and production for oil and gas is capital intensive. In addition to funds flow, the Company accesses the equity markets as a source of new capital. In addition, Whitecap utilizes bank financing to support ongoing capital investments which exposes the Company to fluctuations in interest rates on its
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bank debt. Funds flow also fluctuates with changing commodity prices. Equity and debt capital are subject to market conditions, and availability may increase or decrease from time to time.
The Company's business, operations and financial condition has been significantly adversely affected by COVID-19. Actions taken to reduce the spread of COVID-19 have resulted in volatility and disruptions in regular business operations, supply chains and financial markets, as well as declining trade and market sentiment. COVID-19 as well as other factors have resulted in the deepest drop in crude oil prices that global markets have seen since 1991. With the rapid spread of COVID-19 and additional oil supply that came on-stream in 2020, oil prices and global equity markets have deteriorated significantly in 2020 and are expected to remain volatile. The extreme supply / demand imbalance caused a reduction in industry spending in 2020. COVID-19 also poses a risk on the financial capacity of Whitecap's contract counterparties and potentially their ability to perform contractual obligations. These difficulties have been exacerbated in Canada and recently in the United States by political and other actions resulting in uncertainty surrounding regulatory, tax, royalty changes and environmental regulation. The extent to which Whitecap's operational and financial results are affected by COVID-19 will also depend on additional actions taken by business and governments in response to the pandemic and the speed and effectiveness of responses to combat the virus.
Additional information regarding risk factors including, but not limited to, business risks is available in our Annual Information Form, a copy of which may be accessed through the SEDAR website (www.sedar.com).
Environmental Risks
General Risks
Oil and gas exploration and production can involve environmental risks such as litigation, physical and regulatory risks. Physical risks include the pollution of the environment, climate change and destruction of natural habitat, as well as safety risks such as personal injury. The Company works hard to identify the potential environmental impacts of its new projects in the planning stage and during operations. The Company conducts its operations with high standards in order to protect the environment, its employees and consultants, and the general public. Whitecap maintains current insurance coverage for comprehensive and general liability as well as limited pollution liability. The amount and terms of this insurance are reviewed on an ongoing basis and adjusted as necessary to reflect current corporate requirements, as well as industry standards and government regulations. Without such insurance, and if the Company becomes subject to environmental liabilities, the payment of such liabilities could reduce or eliminate its available funds or could exceed the funds the Company has available and result in financial distress.
Climate Change Risks
Our exploration and production facilities and other operations and activities emit greenhouse gasses ("GHG") which may require us to comply with federal and/or provincial GHG emissions legislation. Climate change policy is evolving at regional, national and international levels, and political and economic events may significantly affect the scope and timing of climate change measures that are ultimately put in place to prevent climate change or mitigate our effects. The direct or indirect costs of compliance with GHG-related regulations may have a material adverse effect on our business, financial condition, results of operations and prospects. Some of our significant facilities may ultimately be subject to future regional, provincial and/or federal climate change regulations to manage GHG emissions. In addition, climate change has been linked to long-term shifts in climate patterns and extreme weather conditions both of which pose the risk of causing operational difficulties.
Additional information regarding risk factors including, but not limited to, environmental risks is available in our Annual Information Form, a copy of which may be accessed through the SEDAR website (www.sedar.com).
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Selected Annual Information
| Selected Annual Information | |||
|---|---|---|---|
| ($000s, except as noted) | 2020 | 2019 | 2018 |
| Financial | |||
| Petroleum and natural gas revenues | 901,556 | 1,418,476 | 1,519,845 |
| Funds flow (1) | 433,881 | 675,610 | 704,420 |
| Basic ($/share) (1) | 1.06 | 1.64 | 1.69 |
| Diluted ($/share) (1) | 1.06 | 1.63 | 1.67 |
| Net income (loss) | (1,844,973) | (155,873) | 65,128 |
| Basic ($/share) | (4.52) | (0.38) | 0.16 |
| Diluted ($/share) | (4.52) | (0.38) | 0.15 |
| Expenditures on PP&E | 195,886 | 403,977 | 440,499 |
| Property acquisitions | 5,381 | 4,016 | 35,249 |
| Property dispositions | - | (978) | (11,681) |
| Corporate acquisitions | 18,417 | - | 53,916 |
| Total assets | 3,381,410 | 5,358,465 | 5,958,964 |
| Net debt | 1,083,029 | 1,193,267 | 1,296,330 |
| Common shares outstanding (000s) | 409,234 | 409,619 | 414,063 |
| Dividends paid or declared per share | 0.21 | 0.34 | 0.32 |
| Operational | |||
| Average daily production | |||
| Crude oil (bbls/d) | 52,656 | 55,413 | 58,511 |
| NGLs (bbls/d) | 4,982 | 4,503 | 4,397 |
| Naturalgas(Mcf/d) | 66,146 | 66,801 | 69,042 |
| Total(boe/d) | 68,662 | 71,050 | 74,415 |
Note:
(1) Refer to Note 5(e) "Capital Management" in the financial statements and to the section entitled "Cash Flow from Operating Activities, Funds Flow and Payout Ratios " contained within this MD&A.
In the past three years, fluctuations in production volumes and realized commodity prices have impacted the Company's petroleum and natural gas revenues and funds flow. In 2020, due to weak crude oil prices, the Company reduced capital spending compared to the prior year with the focus on further strengthening the balance sheet by reducing net debt. As a result of the decreased capital program, production volumes were lower than the prior year. Net income (loss) has fluctuated over the past three years due to changes in funds flow, impairment expense (reversal) and unrealized derivative gains and losses which fluctuate with the changes in forward commodity prices.
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Summary of Quarterly Results
| Summary of Quarterly Results | |
|---|---|
| 2020 | 2019 |
| ($000s, except as noted) Q4 Q3 Q2 Q1 |
Q4 Q3 Q2 Q1 |
| Financial Petroleum and natural gas revenues 238,489 248,283 150,467 264,317 Funds flow (1) 104,650 119,320 78,134 131,777 Basic ($/share) (1) 0.26 0.29 0.19 0.32 Diluted ($/share) (1) 0.25 0.29 0.19 0.32 Net income (loss) 331,951 12,835 (78,285) (2,111,474) Basic ($/share) 0.81 0.03 (0.19) (5.17) Diluted ($/share) 0.81 0.03 (0.19) (5.17) Expenditures on PP&E 21,713 14,075 21,301 138,797 Property acquisitions 26 71 5,208 76 Property dispositions - - - - Corporate acquisition - 268 - 18,149 Total assets 3,381,410 3,122,924 3,114,151 3,220,706 Net debt 1,083,029 1,151,409 1,238,956 1,271,014 Common shares outstanding (000s) 409,234 408,286 408,181 408,000 Dividends paid or declared per share 0.04 0.04 0.04 0.09 Operational Average daily production Crude oil (bbls/d) 48,527 51,456 54,067 56,631 NGLs (bbls/d) 4,874 4,693 5,288 5,077 Naturalgas(Mcf/d) 62,289 63,191 68,712 70,466 |
369,190 331,317 374,730 343,239 184,546 154,306 175,537 161,221 0.45 0.37 0.42 0.39 0.45 0.37 0.42 0.39 (203,946) 42,277 58,357 (52,561) (0.50) 0.10 0.14 (0.13) (0.50) 0.10 0.14 (0.13) 98,762 153,848 26,463 124,904 410 2,020 196 1,390 (266) (89) 44 (667) - - - - 5,358,465 6,075,973 5,968,862 6,120,622 1,193,267 1,241,579 1,189,750 1,297,412 409,619 410,562 412,907 413,158 0.09 0.09 0.08 0.08 58,044 53,245 55,155 55,199 4,805 4,399 4,417 4,386 70,811 63,663 66,231 66,486 |
| Total(boe/d) 63,783 66,681 70,807 73,452 |
74,651 68,255 70,611 70,666 |
Note:
(1) Refer to Note 5(e) "Capital Management" in the financial statements and to the section entitled "Cash Flow from Operating Activities, Funds Flow and Payout Ratios" contained within this MD&A.
Over the past eight quarters, fluctuations in production volumes and realized commodity prices have impacted the Company's petroleum and natural gas revenues and funds flow. Net income (loss) has fluctuated due to changes in funds flow, impairment expense and unrealized derivative gains and losses which fluctuate with the changes in forward commodity prices and exchange rates. Capital expenditures and production volumes have fluctuated over time as a result of the timing of acquisitions and the impact of market conditions on the Company’s development capital expenditures.
The following outlines the significant events over the past eight quarters:
In the fourth quarter of 2020, the Company announced that it had entered into the TORC Transaction. The TORC Transaction closed on February 24, 2021.
In the third quarter of 2020, the Company announced that it had entered into the NAL Transaction. The NAL Transaction closed on January 4, 2021.
In the first quarter of 2020, due to the weak crude oil prices, the Company reduced its expected 2020 capital spending program from $350 - $370 million to $200 - $210 million and reduced its monthly dividend per share from $0.0285 to $0.01425, in order to strengthen its financial position. Additionally, as a result of lower forecast benchmark commodity prices at March 31, 2020 compared to December 31, 2019, the Company recognized impairments of $2.9 billion, of which $2.8 billion was attributed to PP&E and $0.1 billion was attributed to goodwill.
In 2019, the Company reduced capital spending compared to the prior year with the focus on further strengthening the balance sheet by reducing net debt. As a result of the decreased capital program, production volumes were slightly lower than the prior year.
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In the fourth quarter of 2019, the Company recognized an impairment of $296.9 million attributed to PP&E. The impairment expense in 2019 was primarily a result of lower forecast benchmark commodity prices at December 31, 2019 compared to December 31, 2018.
DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures (“DC&P”), as defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings , are designed to provide reasonable assurance that information required to be disclosed in the Company’s annual filings, interim filings or other reports filed, or submitted by the Company under securities legislation is recorded, processed, summarized and reported within the time periods specified under securities legislation and include controls and procedures designed to ensure that information required to be so disclosed is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Chief Executive Officer and the Chief Financial Officer of Whitecap evaluated the effectiveness of the design and operation of the Company’s DC&P. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that Whitecap’s DC&P were effective as at December 31, 2020.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
Internal control over financial reporting (“ICFR”), as defined in National Instrument 52-109, includes those policies and procedures that:
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pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of Whitecap;
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are designed to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of Whitecap are being made in accordance with authorizations of management and Directors of Whitecap; and
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are designed to provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
The Chief Executive Officer and the Chief Financial Officer are responsible for establishing and maintaining ICFR for Whitecap. They have, as at the financial year ended December 31, 2020, designed ICFR, or caused it to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. In May 2013, The Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) issued an updated Internal Control-Integrated Framework (“2013 Framework”) replacing the Internal Control - Integrated Framework (1992). The control framework Whitecap’s officers used to design the Company’s ICFR is the 2013 Framework.
Under the supervision of the Chief Executive Officer and the Chief Financial Officer, Whitecap conducted an evaluation of the effectiveness of the Company’s ICFR as at December 31, 2020 based on the COSO Framework. Based on this evaluation, the officers concluded that as of December 31, 2020, Whitecap maintained effective ICFR.
It should be noted that while Whitecap’s officers believe that the Company’s controls provide a reasonable level of assurance with regard to their effectiveness, they do not expect that the DC&P and ICFR will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, but not absolute, assurance that the objectives of the control system are met.
There were no changes in Whitecap’s ICFR during the year ended December 31, 2020 that materially affected, or are reasonably likely to materially affect, the Company’s ICFR.
NON-GAAP MEASURES
This MD&A includes non-GAAP measures as further described herein. These non-GAAP measures do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable with the calculation of similar measures by other companies. Management believes that the presentation of these non-GAAP measures provides useful information to investors and shareholders as the measures provide
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increased transparency and the ability to better analyze performance against prior periods on a comparable basis.
“Basic payout ratio” is calculated as dividends paid or declared divided by funds flow. Management believes that basic payout ratio provides a useful measure of Whitecap's dividend policy and the amount of funds flow retained by the Company for capital reinvestment.
“Free funds flow” represents funds flow less expenditures on PP&E. Management believes that free funds flow provides a useful measure of Whitecap's ability to increase returns to shareholders and to grow the Company’s business. Previously, Whitecap also deducted dividends paid or declared in the calculation of free funds flow. The Company believes the change in presentation better allows comparison with both dividend paying and non-dividend paying peers. See “Cash Flow from Operating Activities, Funds Flow and Payout Ratios” for a reconciliation of cash flow from operating activities to free funds flow.
“Operating netbacks” are determined by adding marketing revenue and processing & other income, deducting realized hedging losses or adding realized hedging gains and deducting tariffs, royalties, operating expenses, transportation expenses and marketing expenses from petroleum and natural gas revenues. Operating netbacks are per boe measures used in operational and capital allocation decisions. Presenting operating netbacks on a per boe basis allows management to better analyze performance against prior periods on a comparable basis.
“Total payout ratio” is calculated as dividends paid or declared plus expenditures on PP&E, divided by funds flow. Management believes that total payout ratio provides a useful measure of Whitecap's capital reinvestment and dividend policy, as a percentage of the amount of funds flow.
BOE PRESENTATION
Boe means barrel of oil equivalent. All boe conversions in this MD&A are derived by converting gas to oil at the ratio of six thousand cubic feet (“Mcf”) of natural gas to one barrel (“Bbl”) of oil. Boe may be misleading, particularly if used in isolation. A Boe conversion rate of 1 Bbl : 6 Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio of oil compared to natural gas based on currently prevailing prices is significantly different than the energy equivalency ratio of 1 Bbl : 6 Mcf, utilizing a conversion ratio of 1 Bbl : 6 Mcf may be misleading as an indication of value.
FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements contained in this MD&A constitute forward-looking statements and are based on Whitecap’s beliefs and assumptions based on information available at the time the assumption was made. By its nature, such forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forwardlooking statements. The Company believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.
This MD&A contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "estimate", "objective", "ongoing", "may", "will", "project", "believe", “measure”, “stability”, “depends”, “could”, “sustainability” and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this MD&A contains forward-looking information and statements pertaining to the following: the expected closing date of the TORC Transaction; Whitecap’s focus and strategy; Whitecap’s commodity risk management program and the benefits to be derived therefrom; management’s belief that funds flow is a useful measure; the amount of future decommissioning liabilities; future liquidity and financial capacity; sources of funding the Company’s capital program; transportation expenses, stock-based compensation expenses; belief that available credit facilities combined with anticipated funds flow will be sufficient to satisfy Whitecap’s 2021 development capital program and dividend payments for the 2021 fiscal year; Whitecap’s deductions available for deferred income tax purposes and the terms of Whitecap’s future contractual obligations.
The forward-looking information and statements contained in this MD&A reflect several material factors and expectations and assumptions of Whitecap including, without limitation: that Whitecap will continue to
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conduct its operations in a manner consistent with past operations; the general continuance or improvement in current industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; the impact (and the duration thereof) that the COVID-19 pandemic will have on (i) the demand for crude oil, NGLs and natural gas, (ii) our supply chain, including our ability to obtain the equipment and services we require, and (iii) our ability to produce, transport and/or sell our crude oil, NGLs and natural gas; the ability of OPEC+ nations and other major producers of crude oil to reduce crude oil production and thereby arrest and reverse the steep decline in world crude oil prices; the accuracy of the estimates of Whitecap’s reserve volumes; the impact of increasing competition; the general stability of the economic and political environment in which Whitecap operates; the ability of Whitecap to obtain qualified staff, equipment and services in a timely and cost efficient manner; the ability of Whitecap to efficiently integrate assets and employees acquired through acquisitions; the timing of the completion of the TORC Transaction and receipt of applicable regulatory approvals and on terms contemplated; drilling results; the ability of the operator of the projects which the Company has an interest in to operate in a safe, efficient and effective manner; field production and decline rates; the ability to reduce operating costs; the ability to replace and expand oil and natural gas reserves through acquisition, development or exploration; the timing and costs of pipeline, storage and facility construction and expansion; the ability of the Company to secure adequate product transportation; future petroleum and natural gas prices; currency, exchange and interest rates; the continued availability of adequate debt and equity financing and cash flow to fund Whitecap’s planned expenditures; and the ability to maintain dividends. Whitecap believes the material factors, expectations and assumptions reflected in the forwardlooking information and statements are reasonable, but no assurance can be given that these factors, expectations and assumptions will prove to be correct.
The forward-looking information and statements included in this MD&A are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of Whitecap’s products; impact of the COVID-19 pandemic and the ability of the Company to carry on operations as contemplated in light of the COVID-19 pandemic; determinations by OPEC and other countries as to production levels; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in Whitecap’s development plans or by third party operators of Whitecap’s properties; competition from other producers; inability to retain drilling rigs and other services; failure to realize the anticipated benefits of acquisitions; incorrect assessment of the value of acquisitions; delays resulting from or inability to obtain required regulatory approvals; increased debt levels or debt service requirements; inaccurate estimation of Whitecap’s oil and gas reserve volumes; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time to time in Whitecap’s public disclosure documents (including, without limitation, those risks identified in this MD&A) and may be accessed through the SEDAR website (www.sedar.com).
The forward-looking information and statements contained in this MD&A speak only as of the date of this MD&A, and Whitecap does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.
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