Whitecap Resources Inc. announced on Dec. 14 that it has now closed its previously announced acquisition of high quality light oil assets in southeast Saskatchewan which includes current production of approximately 14,800 boepd for cash consideration of $940 million before closing adjustments.
Whitecap purchased the operating interest in the Weyburn Unit from Cenovus Energy Ltd. It is the largest, and first, CO2 miscible flood enhanced oil recovery operation in Saskatchewan. The project draws on carbon dioxide produced from the Dakota Gasification Company’s plant at Beulah, N.D., and SaskPower’s Boundary Dam 3 Integrated Carbon Capture and Storage Project, near Estevan.
The sale was one of four major asset sales Cenovus undertook as a way to raise funds to support its buyout of the oilsands operations of its partner, ConocoPhillips. The same day this deal closed, Cenovus announced it was planning on laying off 500 to 700 staff members. “Cenovus is also planning additional workforce reductions of approximately 15 per cent and expects to achieve further cost efficiencies through continued improvements in areas such as drilling performance, development planning and optimized scheduling of oil sands well start-ups,” Cenovus said in a press release.
Crude oil prices remain well supported in the US$55 to US$60/bbl WTI range relative to Whitecap’s crude oil price assumption of US$54/bbl WTI used when they announced the acquisition on Nov. 13. The attributes of the acquisition include a low production decline rate of 3.7 per cent, high operating netbacks, a long reserve life index and growth opportunities that have strong capital efficiencies. The acquisition is accretive on all key operational and financial measures and is an underpinning asset that will provide significant free funds flow annually.
Concurrent with closing of the acquisition, Whitecap’s borrowing base has been increased to $1.7 billion from $1.3 billion. As part of the $1.7 billion borrowing base increase, Whitecap intends to issue $195 million in senior secured notes which will have an annual coupon rate of 3.9 per cent and mature in 9 years. The closing of the senior secured notes is expected to be on December 20, 2017, at which time Whitecap will then have $595 million of term debt at very attractive long-term fixed interest rates with terms of five, seven and nine years. These notes, combined with the resulting bank credit facility of $1.1 billion, provide Whitecap with $1.7 billion of total borrowing capacity. Whitecap continues to maintain a strong balance sheet with 2018 estimated net debt to funds flow of 1.6 times and considerable financial flexibility with approximately 50 per cent of their net debt under long-term notes and approximately $500 million of unutilized credit capacity based on our estimated 2018 net debt.
