Morningstar DBRS Places Veren Inc.'s Credit Ratings Under Review With Positive Implications, Following Agreement to Combine With Whitecap Resources Inc.

DBRS Limited (Morningstar DBRS) placed Veren Inc.'s (Veren or the Company) Issuer Rating and Senior Unsecured Notes (Senior Notes) credit rating of BBB (low) Under Review with Positive Implications. These credit rating actions follow the announcement that the Company has entered into a definitive business combination agreement whereby Veren and Whitecap Resources Inc. (Whitecap; rated BBB (low), Under Review with Positive Implications) will combine (the Combined Entity) their operations in an all-stock transaction valued at approximately $15.0 billion, including net debt. The Combined Entity will continue to operate as Whitecap, and Morningstar DBRS expects the Senior Notes to be pari passu with Whitecap's unsecured debt obligations at the close of the transaction. Under the terms of the agreement, each common shareholder of Veren will receive 1.05 common shares of Whitecap. The transaction has been unanimously approved by the board of directors of both companies and is structured as a plan of arrangement. Subject to applicable regulatory, court, and common shareholder approvals, the transaction is expected to close before May 30, 2025. The Under Review with Positive Implications status reflects Morningstar DBRS' opinion that the Combined Entity's overall risk profile will be stronger relative to Veren's stand-alone risk profile, given the material improvement in the business risk profile and a modest improvement in the financial risk profile.

The material improvement in the Combined Entity's business risk profile (compared with Veren as a stand-alone entity) is underpinned by the increase in size, reserve quality, and ability to withstand market volatility. Relative to Veren, on a pro forma basis, the Combined Entity's (1) average production (based on reported production in 2024) increases by 94% to approximately 370,000 barrels of oil equivalent (boe) per day; and (2) YE2024 proven reserves increase by 109% to 1,545 million boe. The Combined Entity will become the seventh-largest oil and gas producer in the Western Canadian Sedimentary Basin, with significant land holdings in the Alberta Montney and Duvernay. The Combined Entity's proved reserve life and proved developed reserve life are also modestly better relative to stand-alone Veren. In addition, the combination is expected to result in more than $200 million in synergies, including $110 million in operating and corporate cost synergies and $100 million in capital cost synergies. The Company expects to identify incremental synergies through optimization of the Combined Entity's infrastructure footprint.

Morningstar DBRS expects the Combined Entity's financial risk profile to be modestly stronger relative to Veren's stand-alone financial risk profile despite the increase in total debt (pro forma lease-adjusted debt at YE2024: $4.21 billion). The improvement is a result of the combination of Whitecap's lower level of debt (lease-adjusted debt at YE2024: $1.14 billion) and expected synergies from the combination. The Combined Entity's pro forma lease-adjusted debt-to-cash flow ratio at YE2024 was 1.07 times (x) compared with 1.34x at stand-alone Veren.

Morningstar DBRS expects to resolve the Under Review with Positive Implications status by the close of the transaction. Based on Morningstar DBRS' current base-case commodity price assumptions, when resolved, there may be a Positive trend on the Company's credit ratings or, at maximum, a one-notch credit rating upgrade. Morningstar DBRS will review additional information as it becomes available and provide an update if there is additional clarity on the direction of credit ratings at the close of the transaction. Morningstar DBRS notes that the uncertainty over U.S. tariffs has injected volatility into the outlook for crude oil demand and commodity prices. A downward revision to Morningstar DBRS' base-case commodity price assumptions could have a negative impact on the credit ratings.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) CONSIDERATIONS
ESG considerations had a relevant effect on the credit analysis.

Environmental (E) Factors
The following Environmental factor(s) had a relevant effect on the credit analysis: Morningstar DBRS considers the impact of both the physical risk and transition risk associated with climate change¿with the transition risk deemed to be more substantial. Morningstar DBRS considered carbon and greenhouse gas (GHG) costs as a relevant Environmental factor for Veren. This factor is relevant because the ever-increasing environmental regulations in Canada targeting the reduction of GHG emissions will likely limit the growth potential and add costs for all oil and gas companies in Canada.

There were no Social or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of Veren, the BRA factors were considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of Veren, the FRA factors were considered in the order of importance contemplated in the methodology.

(C) Weighting of the BRA and the FRA
In the analysis of Veren, the BRA carries greater weight than the FRA.

Notes:
All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in the Oil and Gas, Oilfield Services, Pipeline and Midstream Energy Industries (August 12, 2024), https://dbrs.morningstar.com/research/437739.

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577