Morningstar DBRS Places Whitecap Resources Inc.'s Credit Ratings Under Review With Positive Implications, Following the Announcement of Its Proposed Acquisition of Veren Inc.

DBRS, Inc. (Morningstar DBRS) placed all credit ratings of Whitecap Resources Inc. (Whitecap or the Company) Under Review with Positive Implications. On March 10, 2025, Whitecap announced that it has entered into a definitive business combination agreement (the Agreement) with Veren Inc. (Veren; rated BBB (low), Under Review with Positive Implications) to combine in an all-share transaction valued at approximately $15 billion, inclusive of net debt. Under the terms of the Agreement, Veren shareholders will receive 1.05 common shares of Whitecap for each Veren common share held. The combined company will be the largest producer in the Kaybob Duvernay and Alberta Montney, the largest landholder in the Alberta Montney, and a prominent light oil producer in Saskatchewan. The combined company will be led by Whitecap's existing management team under the Whitecap name with four Veren directors joining the Whitecap board of directors, including the current president and chief executive officer of Veren, Craig Bryksa. The transaction is expected to close before May 30, 2025. The Under Review with Positive Implications status reflects Morningstar DBRS' opinion that the combined company's overall risk profile will be stronger relative to Whitecap's stand-alone risk profile, given the material improvement in the business risk profile offsetting a moderate weakening in the financial risk profile.

The combined company will have 370,000 barrels oil equivalent (boe) per day of corporate production (63% liquids), with significant overlap across both the Duvernay and Montney unconventional and Saskewatchewan conventional assets. This represents about a 112% increase in production relative to 174,225 boe per day total production reported by Whitecap for full-year 2024 on a stand-alone basis. Pro forma the Agreement, the combined company's YE2024 proved gross reserves equate to approximately 1,545.2 million boe, and proved and probable gross reserves equate to about 2,336.6 million boe.

Morningstar DBRS believes that the combination of Whitecap and Veren assets, located adjacent to one another and concentrated in the Duvernay and Alberta Montney, are likely to immediately yield good operating and capital synergies. Looking ahead, additional synergies are likely to be derived through infrastructure optimizations. Morningstar DBRS estimates no significant change to Whitecap's hydrocarbon production mix from the proposed combination. Morningstar DBRS believes the Agreement is material enough to improve the Company's business risk profile, related to size, operating efficiency, and the ability to withstand market volatility.

With the assumption of Veren's debt, Morningstar DBRS' credit rating action reflects a moderate initial increase in Whitecap's debt leverage. On a pro forma basis at YE2024, the combined company had $3.47 billion gross debt and $4.21 billion lease-adjusted gross debt. Also at YE2024, Morningstar DBRS estimated the combined company's lease-adjusted debt-to-cash flow ratio to increase to pro forma 1.07 times (x) from 0.70x for Whitecap on a stand-alone basis. Morningstar DBRS expects Whitecap to gradually pay the additional debt down, but given vagaries about future energy prices, the timing is uncertain. Morningstar DBRS also notes that the Company expects to continue to pay the annual dividend of $0.73 per share post-close of the transaction.

Morningstar DBRS intends to resolve the Under Review with Positive Implications status once all regulatory approvals have been secured and the Agreement has closed. When resolved, Morningstar DBRS may assign a Positive trend to the Company's credit ratings or, at maximum, a one-notch credit rating upgrade.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS  
There were no Environmental/Social/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 at https://dbrs.morningstar.com/research/437781 (August 13, 2024).

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

(B) Weighting of FRA Factors 
In the analysis of Whitecap, 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 Whitecap, 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 & Gas, Oilfield Services, Pipeline, and Midstream Energy Industries (August 12, 2024), https://dbrs.morningstar.com/research/437739.

Morningstar DBRS credit ratings may use of 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.

-- Morningstar DBRS Global Corporate Criteria (February 3, 2025), https://dbrs.morningstar.com/research/447186.

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: found at: https://dbrs.morningstar.com/research/431153.

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.

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