Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to Whitecap Resources' first quarter 2020 results conference call. Note that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then number one on your telephone keypad. If you would like to withdraw your question, please press star then number two. I would now like to turn it over to Whitecap's President and CEO, Mr. Grant Fagerheim. You may begin your conference.
Thank you, Sylvie. Good morning, everyone, and thank you for joining us this morning. I'm joined by four members of our senior management team, our CFO, Thanh Kang, as well as Darin Dunlop, Vice President of Engineering, Joel Armstrong, Vice President of Production and Operations, and Dave Mombourquette, VP of Business Development. Before we get started today, I would like to remind everybody that all statements made by the company during this call are subject to the same forward-looking disclaimer and advisory that we set forth in our news release issued earlier this morning. Our first quarter results were strong from all aspects of the business. Our team did an excellent job on costs, reducing both capital and operating costs relative to our expectations. Our team kept our assets performing extremely well, with final production numbers coming in even higher than we increased our guidance provided to the market previously.
And we also closed two transactions and announced a third the first week of April, with the integration of all these going quite smoothly. Our first quarter average production was 95,828 BOE per day on a capital program of CAD 119 million, which included drilling 53 gross, 43.9 net wells. Our funds flow of CAD 188 million provided us with CAD 45 million of discretionary funds flow after the CAD 24 million dividend payment. Typically, the first quarter of our most active is our most active, and in Q1 2021 marks only the second time in the company's 11-year history that we generated positive discretionary funds flow after capital spending and dividends in the first quarter, which is a testament to the return characteristics of our company.
With spring breakup, reducing activity levels, as they always do in the second quarter, we now are expecting to generate over CAD 200 million of discretionary free funds flow in the first half of the year, allowing us to deliver on our targeted CAD 200 million debt repayment to further strengthen our balance sheet. I would like to now pass it on to Joel Armstrong to comment on some of our HSE results so far in 2021.
Thanks, Grant. The first quarter was our most active quarter from an operations standpoint since the larger restrictions and changes from COVID first impacted Western Canada in the spring of last year. COVID remains a significant challenge for our business, and the health and safety of our employees, contractors, and their families remain a top priority to us. I'm pleased to report a Q1 total recordable injury frequency rate of only 0.41, which is below our historical two-year average, even though total in-person hours increased by 8% relative to Q1 last year. With respect to carbon sequestration and emissions reductions from our existing assets, we made good progress in both Alberta and Saskatchewan. At Weyburn, we sequestered an additional 2 million tons of CO2 in 2020, bringing our total up to 36 million tons since the project began operations in the year 2000.
The pool has the capacity to store an additional 80 million tons of CO2, providing a significant remaining life in the project. The Joffre Project in Alberta is much smaller in scale, but since we took over from NAL at the start of this year, we've been able to double our average daily sequestration rate and expect to increase it further over the coming months. This is a good win for our Central Alberta team, especially during a very active Q1 drilling program. Lastly, we're on track to meet our 20% direct emission intensity reduction target from 2019 levels by the year 2023, and we've highlighted several initiatives in our latest corporate presentation. I'll now pass it on to Thanh to comment on our financial results.
Thanks, Joel. Crude oil prices improved through the quarter, with WTI beginning the quarter in the low 50s and ending around the $60 level, with Q1 averaging just below $58 per barrel. The Canadian light oil differential also improved through the quarter to average $5.24 per barrel discount to WTI, with recent differentials in the $4-$5 range. And finally, the Canadian heavy oil differential averaged approximately $12.50 per barrel for the quarter, with recent differentials in the $12-$13 range. For natural gas, AECO averaged just below CAD 3 per GJ in the quarter, with cold weather in February impacting prices to the upside. Our average realized crude oil price (this would be prior to the impact of hedges and tariffs was $65.11 per barrel in the first quarter, compared to $47.48 in Q1 of 2020, a 37% increase.
Our average realized natural gas price, prior to the impact of hedges and tariffs, was CAD 3.34 per MCF in the first quarter, compared to CAD 2.18 in Q1 2020, a 53% increase. Despite higher crude oil prices, our royalty rate of 14.5% was slightly below Q1 2020, primarily due to lower royalties associated with the acquired production and prior period adjustments. Operating expense was CAD 13.36 in the first quarter, a 10% increase from Q1 2020. Our full-year expectation of CAD 13.50-CAD 14 per BOE is unchanged, as the TORC assets were acquired carrying higher operating costs and were only incorporated in our results for 35 days in the quarter. Transportation expense in the first quarter was CAD 2.05 per BOE, slightly above the high end of our expected range of CAD 1.75-CAD 2.00, and we anticipate our full year to be within this range.
DD&A expenses came in as expected at CAD 1 per BOE in the first quarter, and we anticipate maintaining this level for the remainder of the year. We recognized approximately CAD 10 million of one-time transaction costs related to both the NAL and TORC combinations in the quarter. Funds flow for the first quarter, as Grant mentioned, was CAD 188 million, which equates to CAD 0.36 per share, generating a total payout ratio of 76% after capital investment and dividends paid to our shareholders. A couple of things I wanted to discuss a bit further, as outlined in our MD&A, the first being a facility acquisition for CAD 72 million in the quarter. So this relates to production facilities we sold to a third party in early 2016, where we would maintain control of the facilities as operator but paid an annual tariff or a lease payment for the life of the agreement.
We also had the option to purchase the facilities at any time, and we exercised that option at the end of March. This now eliminates annual lease payments of CAD 10 million, of which CAD 2 million of the annual payment was previously recognized as interest expense on our income statement, and the remaining CAD 8 million was recognized as part of the financing section on our cash flow statement, both of which now have been eliminated. The second item to point towards is the addition of approximately CAD 2 billion in tax pools from the two combinations that we closed in the quarter. So now we have CAD 5.5 billion in tax pools. At current strip prices, we don't anticipate being cash taxable until at least 2026. Whitecap's net debt on March 31st was CAD 1.45 billion on a total capacity of CAD 2 billion.
Our debt-to-EBITDA ratio was 1.8x , and our EBITDA to interest ratio was 17.3x , both well within our debt covenant. As Grant mentioned, we remain committed to allocating CAD 200 million of discretionary funds flow in 2021 towards our balance sheet. I'll now pass it on to Grant for his closing remarks.
Thanks, Thanh. This is an exciting time for our company with strong operational momentum, which will drive our free funds flow generation for the balance of the year. In addition, the ongoing technical and economic analysis by our new energy team has led us to many different potential opportunities. Whether they are in CCUS, lithium, hydrogen, or other aspects of the energy transition, we are hard at work evaluating these decarbonizing opportunities and will update the market as we have more information to share throughout the year. We've been asked a number of times about the federal government's announcement to exclude the federal tax credit specifically from enhanced oil recovery projects as it relates to CCUS projects, and admit that we were disappointed with the government's neglect of the benefits to all Canadians of these types of projects.
However, this does not preclude us from participating in other value-enhancing activities that our current CCUS projects can provide, such as carbon credits and reducing or eliminating the cost of CO2 used at Weyburn, Saskatchewan, and Joffre, Alberta. We've also had the opportunity to work with large emitters through CCUS projects to achieve their own emission reduction targets. We have been and will continue to work with the federal and provincial governments on shaping the Clean Fuel Standard and to find ways in which our technical expertise that comes with operating large-scale CCUS projects such as Weyburn can benefit many different stakeholders and Canada achieving its objectives of lowering carbon emissions into the future.
Our two projects at Joffre and Weyburn currently sequester half of the four million tons per year of CO2 that is sequestered in Canada, and we intend on being part of the growth in this number in the years to come. With that said, I want to reiterate our priorities, which is to focus on balance sheet strength and continually improve our free funds flow generation to increase return of capital back to our shareholders along with actively participating in the advancing new energy initiatives. Our team is hard at work on these priorities, and we look forward to providing you with updates on our progress throughout the year and into 2022. On behalf of our management and board of directors, we'd like to thank you, our shareholders, for your interest and support of Whitecap.
With that, I'll turn the call back over to Sylvie for any questions you might have. Thank you.
Thank you, Mr. Fagerheim. Ladies and gentlemen, as stated, if you do have a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. And if you should wish to withdraw your question, simply press star followed by two. We do ask that if you're using a speakerphone, to please lift your handset before pressing any keys. Please go ahead and press star one now if you do have a question. And your first question will be from Jeremy McCrea at Raymond James. Please go ahead.
Hi, guys. Just on the CCUS, I was just wondering if you could provide a little bit more detail and numbers associated with this plan, especially one of the comments that you made where you plan to help other industry partners. What kind of business plan are you thinking that this could really turn out to be here over the course of the next five, 10 years, just in terms of materiality, I guess?
We think it can be quite material, Jeremy, as far as the question is around carbon capture, utilization, and storage. All projects, existing emitters are currently trying to better understand what the credit capacity is going to be created from the federal government, as well as the provincial governments in both Alberta and Saskatchewan, and whether it's on new hydrogen projects that create even more CO2 or other projects that are existing at this particular time, the path forward is going to be through carbon capture and therefore can be very substantial, so all this is evolving. It's going to take a copious amount of capital on a go-forward basis for not just the Canadian space specific to oil and gas, but to all industrial users of energy.
As we move forward with hydrogen or any other particular projects, it is going to require the expertise of carbon capture, utilization, and storage.
I was going to say, maybe is the plan then to just continue to increase your infrastructure to do this and then just sell the credits off to other E&Ps in the sector then? Is that generally the long-term goal, I guess?
No. No. What we want to do is participate in all aspects of what we'll call this new energy platform, which is developing hydrogen projects on our own, and that will obtain carbon credits for that. As well as on the carbon capture side, what we're looking at is how can we best reduce our costs? Because currently, we're paying for CO2. How do we reduce our costs for the benefit of our shareholders and utilize our technology going forward? So it's multitasked, and that's where I think a lot of people are jumping ahead. This is going to take. This is going to play out over years to come, not over months to come, as we move forward. We're really in the informative stage of putting together strategies as with some of the larger producers, as well as what we'll call the pipelines and midstream asset managers as well.
But I think this goes not just to Western Canada. This goes to the entire country that we live in. And what we're trying to do is make sure that we capitalize on behalf of our shareholders going forward, using our technical expertise and experience moving forward.
Okay. Perfect. Thanks, Grant.
Thank you. Next question will be from Travis Wood at National Bank. Please go ahead.
Yeah. Good morning, guys. Question is just around the operational performance. You had posted some strong numbers on production. So if there was an outlier, you kind of hinted at integration and just kind of overall execution, but was there one particular asset that stood out to help drive that beat this quarter, or was it kind of a little bit of give and take across both the NAL consolidation, the TORC consolidation, and kind of the base asset as well?
Yeah. Travis, Darin here. It was spread out across several different assets in that all of them, which were, it was a significant beat, so all of them were significant in their own, so it wasn't a bunch of little ones. It was a bunch of big ones. I'll touch base on, I'll sort of walk through some of the most significant ones. The TORC first-quarter program and the conventional Frobisher, some of the results were exceptional, above what we had forecast, then we walk over to Weyburn. Our declines in some of our performance from last year's rollouts were still performing significantly above expectations, then we walk over to our Viking program. Our Q1 program, although not as robust as other years, added some volumes over and above our type curve.
But that being not as robust, also dropped. We didn't have as much volumes coming on, so we saw some reduced line pressures, and a lot of that outperformance was on our base production as well on the Viking. And then, to a smaller extent, we had some partial optimization of our Sturgeon pool that we acquired from NAL, with a lot more to come there. And I guess another couple of things to think about is we've had some exceptional results in our Charlie Lake drilling and our Montney Cardium Montney that wouldn't have impacted our Q1 numbers coming on late in Q1 and early in Q2. So we're rolling along pretty good here.
Okay. No, that's great. Appreciate the color, Gary, and that's all for me.
Thank you. Next question will be from Jordan McNiven at Tudor, Pickering, Holt. Please go ahead.
Thanks, guys. Just another one here on CCS. You referenced the ability to expand current operations. Sounds like plenty of favorable geology there. Are you able to also add a bit of color around, say, the availability of CO2 pipe capacity into your facilities and maybe incremental capture capacity that your partners might have?
Relative to the Weyburn Project, we can, this time, Jordan. We've got pipeline capacity that we could overdouble the amount of CO2 that we're capturing at this particular time. And that goes with the specified type of pipeline that is going to be used for infrastructure going forward. So at this time, into the Weyburn Project, and we've been waiting to advance that more carbon capture into waiting to see what the carbon credit cycle is going to look like through the federal government. So we'll continue to advance that, but we do have at least two times the capacity to increase that Weyburn. And then our Joffre project, we're continuing to, in Alberta, as Joel referenced earlier, we have capacity to increase that. We've almost doubled where we were at, where NAL was at at the particular time.
And then there's various other projects that we're looking at across Western Canada, primarily in Saskatchewan and Alberta, that we'll look to advance for the benefit of Saskatchewanites and Albertans, as well as all Canadians. So the pipeline capacity today that we have is sufficient for at least two times growth, but it's going to require much more capital from pipeliners, etc., moving forward into the future as well.
Okay. Perfect. Thanks. And any commentary around the kind of carbon sources, if you wanted that type of capture? Is there incremental ability to capture there? Do you think you'd have to enlist some new partners to take care of that side of things?
Yeah. Just, we're under non-disclosure agreements with several parties. What we're looking at right now, and there are several, numerous other sources. And rather than pointing specifically to them, what we can talk about is we know that if we talk about the largest emitters being whether it's on the concrete manufacturers, steel manufacturers, refiners, anything in the industrial world going forward that creates greenhouse gas emissions are considered. There's numerous different, several, lots of different sources, and they're all looking to reduce their carbon footprint going forward that aren't specific to energy companies. That's what's most unusual about this. And I think that's the understanding that the federal government's going to have to look into and understand further as we move into the future.
Perfect. Very helpful. Thanks, guys.
Thank you. As a reminder, ladies and gentlemen, if you do have any questions, please press star followed by one on your touch-tone phone. And your next question will be from Josef Schachter at Schachter Energy Research. Please go ahead.
Good morning, everyone, and congratulations on the nice quarter given the hedge losses that you had. My first question's on the accounting side for Thanh. We saw yesterday the first company take a reversal of impairments, Vermilion, and they reversed, I think, CAD 663 million, CAD 233 million in Alberta, CAD 290 million in Saskatchewan out of their CAD 1.56 billion they did a year ago in the quarter. You guys took CAD 2.9 billion in the quarter, CAD 2.8 billion of it from PP&E. Do you see reversing that at some point in the next while, and what are the determinants of making that decision to do the reversal of those impairment charges?
Yeah. Hey, Josef. It's Thanh here. Yeah. Every quarter under IFRS, we'll have to look at the indicators of impairment or impairment reversal, and we did that in the first quarter here. So things that would be considered would be significant changes from technical revisions from a reserves perspective. We look at what the benchmark commodity prices have been doing relative to the last forecast. And so for the end of the quarter here, we would have compared that against year-end and saw nothing significant that would have moved. Hence, there was no impairment reversal in the first quarter. As we look forward here, if commodity prices continue to improve, which we expect in the back half of the year here, we'll revisit that impairment test or the impairment reversal and look at it on a quarterly basis there.
So there could be potential for reversal depending on what the strip looks like as we move into the back half of 2021 here.
Okay.
Josef, just to jump in for one second, you had referenced really quickly about the hedging losses, and I want to make sure that you fully appreciate and everyone understands that these are not losses. What they are is opportunity losses. And our objective here has always been on the risk management strategy is to protect pricing downside while exposing our production and our shareholders to upside pricing into the future. So we want to make sure that we have enough cash flow to run our business from a capital perspective and pay a dividend on a go-forward basis. So they are all referenced, and some people don't understand that they're not losses. They're opportunity losses, which we're very comfortable with. And that goes to our collar strategy that we do have on pricing to ensure that we protect the economics of our capital going forward.
Yeah. That's a good point there, Grant. I mean, when we look at the downside protection with the hedge book that we have right now, even down to $40 WTI, we're not only able to fund our dividend and grow our business through our capital program, but we're actually generating 166 million of discretionary funds flow after capital and dividends. And that would be at $40 WTI. So I think that's a very important number as we think about 2022 and 2023 as well, is designing our hedge book so that it gives us that ability to fully fund ourselves in a very low pricing environment. As we mentioned, we're constructive on the back half of 2021 and into 2022 here, but I think we always have to keep in mind that we're trying to protect our base business as well.
Okay. Last on the accounting side, what's the share count? Are we looking at 632.2 million shares now?
That's correct. Yeah. That would be pro forma the Kicking Horse transaction.
Yep. Okay. Good. And then the last one for me, for Grant, you mentioned at the beginning that the integration is going smoothly. Can you talk about all of the systems, the accounting systems, the G&G systems, the land management systems, all of the integration? And you've mentioned that it's going smoothly. Was everybody on a similar platform, so that made it easy, or is it just the transfer is going easy? And then the second part of that would be the manpower. Where was the manpower at Whitecap prior to the first NAL deal? Where is your manpower now? And are you at a complement which will be stable, or is there going to be attrition going forward?
Josef, I'm going to. I've got Dave Mombourquette here, who is responsible for our information technology systems, and I'll let him talk to integration. On the people side, that's gone very smoothly. We're fortunate enough to. We were, prior to the two transactions and the third transaction now with Kicking Horse, we had 165 people in the organization, and now we have 245 individuals in the organization, and that is a combination of Whitecap as well as a few individuals from NAL, a fair amount of people from Torc, and then from industry, we've added about six people as well from industry at this particular time, so we think this is a fitting, well, it fits well into our G&A, and I'm only talking in the office.
When I talk about the responsibilities of our personnel, we have about, in total, about 450 people in the field that are either on full-time or contract as well. So.