2014

Whitecap Resources Inc. Increases Viking Light Oil Exposure, Announces Dividend Increase and Provides Increased 2014 Guidance

CALGARY, Nov. 20, 2013 /CNW/ - Whitecap Resources Inc. ("Whitecap" or the "Company") (TSX: WCP) is pleased to announce that it has entered into an arrangement agreement (the "Arrangement Agreement") providing for the acquisition by Whitecap of all the issued and outstanding common shares of a private company ("PrivateCo") for total consideration of 27,535,867 Whitecap common shares (the "Transaction"). Whitecap will also be assuming the working capital surplus of PrivateCo, estimated at $3.0 million, after accounting for severance and transaction costs associated with the Transaction, as at December 31, 2013. Based on an agreed upon price of $12.00 per Whitecap share, the total consideration net of the working capital surplus is $327.4 million.

PrivateCo is a light oil-weighted energy company with operations primarily in the Kindersley (Whiteside) area of west central Saskatchewan which immediately offsets Whitecap's lands and Viking production in Kindersley (Lucky Hills). The Transaction includes a significant inventory of low-risk light oil development opportunities with quick payouts along with strategically operated oil and gas facilities and infrastructure.

STRATEGIC RATIONALE
PrivateCo has drilled and placed on production more than 70 horizontal Viking producers in the core area of Lucky Hills / Whiteside. These wells have generated top quartile results that are similar to our adjacent Lucky Hills wells which provide some of the best economic returns in the Dodsland Viking trend. Based on our analysis, Whitecap will be able to grow production from the properties being acquired while generating significant free cash flow. This fits well with our strategy of adding assets that have been adequately de-risked which provides us with a high level of confidence on future operational performance.

PrivateCo has extensive infrastructure in the Whiteside area that supports a low cost structure. All Whiteside wells are pipeline connected to PrivateCo's operated oil battery and associated gas is conserved, with liquids being recovered at a PrivateCo owned and operated gas plant. As a result, operating costs in the area are less than $8/boe and this, combined with the extremely attractive capital efficiencies and high operating netbacks, results in newly drilled wells generating significant free cash flow in their first year of production. The robust cash return on investment and quick payout of capital further enhances the sustainability of our dividend-growth strategy as we develop the 202 (177.2 net) drilling locations that have been identified in the Whiteside area of PrivateCo's lands.

The Whiteside core area contains approximately 22 sections of contiguous lands. The concentrated nature of the lands will allow for further reduction of costs with pad drilling, shorter tie-ins and facilities optimization. The 46 wells planned for 2014 on PrivateCo's lands can be seamlessly added to Whitecap's 2014 capital program with one additional drilling rig and minimal incremental G&A.

Lastly, Whitecap is partnered with PrivateCo in the Forgan area of Saskatchewan where our working interest will now increase from 32.5% to 65.0% and Whitecap obtains operatorship. This area has typically provided a lower production type curve than Lucky Hills and combined with a lower working interest has been developed at a much slower pace. Combined with PrivateCo's adjacent Totnes area, this area represents 118 sections of mostly undeveloped Crown Viking acreage. We have not included any additional locations on these lands at this time. As the play progresses, this area has the potential to support many additional years of economic Viking development. The consolidated interest and operatorship will provide greater flexibility in pursuing development strategies for the Forgan area.

The PrivateCo lands will generate free cash flow and further strengthen the sustainability of our dividend-growth strategy in the short- and long-term. We estimate the transaction to increase Whitecap's 2014 guidance as follows:

  2014
Average production 4,200 boe/d
Cash flow (1) (2) (3) $73.5 million
Development capital spending $45.0 million
Free cash flow (2) $28.5 million

Notes:
(1)      Based on an operating netback of $55.75/boe.
(2)      Cash flow, free cash flow and operating netback are non-GAAP measures. Refer to the Non-GAAP measures section of this press release.
(3)      Net of estimated cash tax of $12.0 million.

SUMMARY OF THE TRANSACTION
Through the Transaction, Whitecap is acquiring high quality, high netback light oil assets located primarily in the Whiteside area of west central Saskatchewan focused on the Viking formation. The acquired Viking assets are complementary to our existing operations and are immediately offsetting our Lucky Hills lands in west central Saskatchewan. PrivateCo has current production of approximately 4,000 boe/d (76% oil/NGLs) and a low-risk horizontal development drilling inventory of 202 (177.2 net) locations.

The Transaction has the following characteristics:

Total consideration $327.4 million
Current production 4,000 boe/d (76% oil/NGLs)
Proved reserves (1) 9,158 Mboe (76% oil/NGLs)
Proved plus probable reserves (1) 14,296 Mboe (77% oil/NGLs)
Proved plus probable RLI (2) 9.8 years
Operating netback (3) $55.75/boe

Notes:
(1)      Based on PrivateCo working interest reserves before the calculation for royalties, and before the consideration of PrivateCo's royalty interest reserves. Reserves estimates are based on Whitecap's internal evaluation and were prepared by a member of Whitecap's management who is a qualified reserves evaluator in accordance with National Instrument 51-101 effective October 1, 2013.
(2)    Based on current production of 4,000 boe/d.
(3)    Based on an Edmonton Par price of C$93/bbl, C$3.50/GJ AECO and CAD/USD exchange rate of 0.96.

The associated Transaction metrics are as follows:

Current production $81,900/boe/d
Proved reserves $35.75/boe
Proved plus probable reserves $22.90/boe
Proved plus probable reserves recycle ratio 2.4x

The Transaction on a leverage neutral basis is forecast to be 8% accretive on cash flow per share, 6% accretive on production per share, 8% accretive on net asset value per share and neutral on proved plus probable reserves per share to Whitecap, on a fully diluted basis.

DIVIDEND INCREASE
2013 has been a successful transitional year for Whitecap as we converted from a high growth energy company to an energy company focused on maximizing total shareholder return through a combination of sustainable dividends and per share growth in cash flow, production and reserves. Our operational success in 2013 in each of our core areas provides a solid growth platform for another year of strong returns for our shareholders in 2014. The Transaction provides incremental shareholder returns over and above our stand-alone case with a large inventory of 202 low-risk light oil drilling opportunities and payout of capital anticipated to be less than 9 months. Based on our near-term and longer-term production and cash flow per share growth and Whitecap's increased financial strength with pro forma 2014 debt to cash flow ratio of 1.0 times, our Board of Directors has approved an 8% increase to our monthly dividend to $0.0567 per share ($0.68 per share annualized) starting with our January 2014 dividend payable in February 2014. Whitecap believes this is a prudent increase that is sustainable long-term.

INCREASED 2014 GUIDANCE
The Transaction will increase Whitecap's 2014 oil-weighting, cash flow netback and production and cash flow per share while decreasing our net debt to cash flow ratio. The Company's increased guidance for 2014, after giving effect to the Transaction and dividend increase, is as follows:

2014 Estimate Whitecap
Pre-Transaction
Whitecap
Post-Transaction
% Increase
Average production (boe/d) 23,500 - 23,900 27,700 - 28,100 18%
  Per share (fully diluted) 134 137 2%
  % oil/NGLs 70% 71% 1%
Development capital ($MM) $210 $255 21%
Cash flow netback ($/boe) (1) (2) $38.00 $39.00 3%
Cash flow ($MM) (1) (2) $326-$332 $394-$400 21%
  Per share (fully diluted) $1.86 $1.95 5%
Net debt to cash flow 1.3x 1.0x (23%)

Notes:
(1)      Based on an Edmonton Par price of C$93.00/bbl, C$3.50/GJ AECO and CAD/USD exchange rate of 0.96.
(2)      Cash flow and operating netback are Non-GAAP measures. Refer to the Non-GAAP measures section of this press release.

PLAN OF ARRANGEMENT
Whitecap and PrivateCo have entered into an Arrangement Agreement pursuant to which Whitecap and PrivateCo have agreed that the Transaction will be undertaken by means of a plan of arrangement under the Business Corporations Act (Alberta). PrivateCo shareholders will receive 0.6493 of a Whitecap common share for each PrivateCo common share and subject to the terms and conditions of the Arrangement Agreement. The Arrangement Agreement contemplates that PrivateCo will hold a meeting of its shareholders on or prior to January 15, 2014 to permit shareholders to vote on the Arrangement.

The Board of Directors of PrivateCo unanimously supports the Transaction, has determined that the Transaction is in the best interest of PrivateCo and recommends that the shareholders of PrivateCo vote in favor of the Transaction. Certain PrivateCo shareholders, including all senior officers and directors who collectively hold over 44% of the issued and outstanding voting shares of PrivateCo (assuming exercise of performance shares), have entered into agreements with Whitecap pursuant to which they have agreed to vote their shares in favor of the Transaction at the PrivateCo shareholder meeting and have agreed to not dispose or trade the Whitecap shares except as follows: (a) 1/3 of such Whitecap shares shall be eligible for disposition at the Effective Time; (b) 1/3 of such Whitecap shares shall be eligible for disposition on the date that is 3 months after the Effective Date; and (c) the remaining Whitecap shares shall be eligible for disposition on the date that is 6 months after the Effective Date.

The Arrangement Agreement provides for non-solicitation covenants (subject to the fiduciary obligations of the Board of Directors of PrivateCo and the right of Whitecap to match any Superior Proposal (as defined in the Arrangement Agreement). The Arrangement Agreement, among other things, provides for mutual non‐completion fees of $11.6 million in the event the Transaction is not completed or is terminated by either party in certain circumstances. The Arrangement Agreement provides that completion of the Transaction is subject to certain conditions, including the receipt of all required regulatory approvals, including the approval of the TSX, the approval of the shareholders of PrivateCo and the approval of the Court of Queen's Bench of Alberta. The Transaction is anticipated to close in January 2014.

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 Whitecap's anticipated future operations, management focus, strategies, financial, operating and production results and business opportunities, including expected 2014 production, cash flow, operating netbacks, net debt to cash flow, our capital expenditure program, drilling and development plans and the timing thereof. In addition, and without limiting the generality of the foregoing, this press release contains forward-looking information regarding PrivateCo and the Transaction and the benefits to be acquired therefrom including drilling and reserve potential, anticipated rates of return, operating costs and other economics, production levels, and the impact of the Transaction on Whitecap and its results and development plans, including, on its production, cash flow, development capital spending and free cash flow, and the timing and anticipated closing date for the Transaction. 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. The forward-looking information is based on certain key expectations and assumptions made by Whitecap's 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 market oil and natural gas successfully, Whitecap's ability to access capital, obtaining the necessary shareholder and regulatory approvals, including the TSX and satisfaction of the other conditions to closing the Transaction.

Statements relating to "reserves" are also deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future.

Although the Company believes 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. The Transaction may not be completed on the anticipated time frames or at all and the Company's 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 the Company will derive there from. 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 Whitecap's 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 Whitecap disclaims 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 document contains the terms "cash flow", "free cash flow" and "operating netbacks" which do not have a standardized meaning prescribed by Canadian GAAP and therefore may not be comparable with the calculation of similar measures by other companies. Whitecap uses cash flow, free cash flow and operating netbacks to analyze financial and operating performance. Whitecap feels these benchmarks are key measures of profitability and overall sustainability for the Company. Each of these terms is commonly used in the oil and gas industry. Cash flow, free cash flow and operating netbacks are not intended to represent operating profits nor should they be viewed as an alternative to cash flow provided by operating activities, net earnings or other measures of financial performance calculated in accordance with GAAP. Cash flows are calculated as cash flows from operating activities less changes in non-cash working capital. Free cash flows are calculated as cash flow minus development capital expenditures. Operating netbacks are determined by deducting royalties, production expenses and transportation and selling expenses from oil and gas revenue.

Note: "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. Given 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 Mcf: 1 Bbl, utilizing a conversion ratio at 6 Mcf: 1 Bbl may be misleading as an indication of value.

SOURCE Whitecap Resources Inc.



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