Morningstar DBRS Maintains Under Review With Positive Implications Status of Whitecap Resources Inc., Following Proposed Acquisition of Veren Inc.; One-Notch Upgrade More Likely After Status Is Removed

DBRS, Inc. (Morningstar DBRS) maintained the Under Review with Positive Implications status that was initially placed on Whitecap Resources Inc.'s (Whitecap or the Company) credit ratings on March 11, 2025. This action followed Whitecap's announcement that it entered into a definitive business combination 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, including assumption of Veren's net debt (the Transaction). The Transaction is expected to close before May 30, 2025.

The Under Review with Positive Implications status is based on Morningstar DBRS' opinion that the Transaction materially improves Whitecap's business risk profile, which more than offsets a forecast modest increase in Whitecap's leverage. The Under Review with Positive Implications status also reflects the expectation that the combination of Whitecap and Veren's assets, located adjacent to one another and concentrated in the Alberta Montney and Duvernay, is likely to immediately yield good corporate, operating, and capital synergies. Previously, Morningstar DBRS indicated that at the close of the Transaction, it may assign a Positive trend to the Company's existing credit ratings or, at maximum, a one-notch credit rating upgrade.

Since March 11, 2025, Morningstar DBRS reviewed additional information regarding the Transaction and has developed more comfort with the likelihood that corporate, operating, and capital synergies will be realized. Looking ahead, additional synergies are likely to be derived through infrastructure optimizations. These cost-related synergies should help Whitecap to gradually reduce higher initial leverage. Incorporating these expectations, Morningstar DBRS forecasts Whitecap's pro forma lease-adjusted debt-to-cash flow ratio to remain less than 1.50 times (x) on a normalized basis. In summary, Morningstar DBRS believes that the Transaction will materially improve Whitecap's business risk profile and that its financial risk profile, although initially weaker, will support a one notch credit rating upgrade.

Morningstar DBRS intends to remove the Under Review with Positive Implications status once all regulatory approvals have been secured and the Transaction has closed. Incorporating its current base case commodity price assumptions, Morningstar DBRS will likely upgrade the credit ratings by one notch at Transaction closure. However, in the interim, if oil and gas prices or Whitecap's and Veren's operating performance materially weaken, and/or the financial terms of the Transaction significantly change, it could alter the outcome of Whitecap's Under Review with Positive Implications status.

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 (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 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 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 ESG 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 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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