Whitecap Resources Inc. is making more money than it plans to spend — and for now is happy to let the surplus build, rather than spend more on growth projects.
Canada's fifth-largest oil and gas producer said its third-quarter profit rose about 60 per cent from a year earlier. It raised its dividend and lifted its production forecast for the third time this year.
Elevated oil prices did much of the work for the company's third-quarter performance.
Conflict in the Middle East kept global oil supply tight, and the light crude and condensate that make up most of Whitecap's output fetched prices close to the U.S. benchmark, West Texas Intermediate.
As a result, Whitecap earned about a third more per barrel than it did a year ago.
Analysts took notice. Michael Harvey of RBC Capital Markets described the quarter across Canada's oilpatch as a "beat and raise" — results that top expectations and push forecasts higher.
The company's peers also posted strong results this week.
Tamarack Valley Energy Ltd. raised its production outlook and posted increases in both net income and cash flow. On the service side of the industry, Precision Drilling Corp. said it's heading into one of its busiest winters in years.
Whitecap is also drilling faster than planned. Rather than slow down before year-end, Whitecap will keep its rigs running through the fourth quarter, adding about $100 million to this year's spending.
Most of the extra cash has gone to the balance sheet. Whitecap has cut its net debt by about $1.3 billion since the start of the year and expects to end 2026 with less than $2 billion owing.
Even so, the plan leaves well over $1 billion in free cash that has no assigned purpose. Ottawa's proposed productivity mega-deduction would add roughly another $400 million if it becomes law as drafted.
Whitecap says it will weigh share buybacks, a larger dividend, faster growth or small acquisitions. It is not committing to any of them yet.
"We are comfortable parking the excess free funds flow on our balance sheet in the short to medium term," chief executive Grant Fagerheim said on a call with analysts Thursday.
The stance highlights a tension in Ottawa's new tax measure. Prime Minister Mark Carney unveiled the deduction in September to make Canada the most attractive place in the G7 to invest, letting companies write off the full cost of new capital spending right away.
Whitecap, however, counts the tax savings as extra free cash flow, and for now it plans to hold that cash on its balance sheet rather than drill more with it.
Chief financial officer Thanh Kang echoed that patience. "The opportunities that are in front of us today will be thoughtfully considered, and we will not rush into anything," he said.
Where Whitecap is spending, it is leaning into its most valuable product. About three-quarters of next year's budget will go to its Montney and Duvernay shale assets, where the prize is condensate.
Condensate, a natural gas liquid, is blended with heavy oilsands bitumen so it can flow through pipelines.
And as oilsands output grows, so does demand for it. Whitecap expects its condensate production to rise sharply next year.
"As the fourth-largest condensate producer in Canada, we are positioned to supply the diluent needed to transport growing oilsands volumes," Fagerheim said.
He framed the company as well placed for a broader shift in Canadian energy. New pipeline capacity is opening markets for Western Canadian crude, while LNG exports and power-hungry data centres are adding demand for natural gas.
The proposed federal tax measure, Fagerheim added, "is expected to materially improve the competitiveness of the investment in the Canadian energy sector."
"Beyond the current price environment, Canada is increasingly well-positioned to grow its share of global energy supply," Fagerheim said.
The results also suggest Whitecap's $15 billion merger last year with Veren Inc. is paying off.
Since the deal closed, the combined company has grown production steadily, cut debt and returned about $1.5 billion to shareholders.
Whitecap's stock fell about four per cent Thursday. By mid-afternoon it was trading at $19.61 on the Toronto Stock Exchange, down from Wednesday's close of $20.43.
The decline partly tracked weaker crude. West Texas Intermediate fell more than two per cent on Thursday.
The company's shares had also run up sharply heading into the report. The stock had nearly doubled over the past year, and on Wednesday it closed just shy of its 52-week high.
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• Email: jarose@postmedia.com
