Whitecap Resources Inc.

Suite 3800, 525 – 8th Avenue SW Calgary, AB T2P 1G1
Phone 403.266.0767  •  Website: www.wcap.ca
Content updated periodically  •  Last update August 24, 2018

Ticker Symbol: WCP-T

View All Posts Tagged WCP-T

FINANCIAL HIGHLIGHTS

Large Cap – Energy Producer

Book Value (30/06/18) – $7.79

Shares Outstanding

417.5M

Current Price (24/08/18)

$8.69

Market Capitalization

$3.6B

Attractive Purchase

<$8.25

Q2/18 Actual Production

(85% Liquids)

75,813 boe/d
Table Pounding BUY

<$7.75

Enterprise Value

(Debt $1.3B)

$4.9B

Enterprise Value/boe

$64,633

Dividend

($0.027/month)

$0.324

Yield

3.7%

12 Month Target

$12.00

Bull Market Peak

$20.00

BACKGROUND

Whitecap was formed in June 2008 with a focus on long life oil assets and has grown by acquisition and development. It now has six core areas of which three are in Saskatchewan, two in Alberta and one in British Columbia.

Its last deal was done in December 2017 when it bought the SE Saskatchewan assets of Cenovus Energy. It bought the long life Weyburn carbon-dioxide enhanced oil project for cash of $940M and financed the acquisition via the sale of 48.3M shares at a price of $8.80 per share which raised $425M gross to help finance the equity portion of the deal. A debt deal of $195M at 3.9% was also issued to pay for the deal. Production at the time was 11,500 boe/d.

Their most active area is the Viking with a drilling inventory at year end 2017 of 910 wells and they are planning to drill 132 wells in this area in 2018. The second most active area is SW Saskatchewan where they will drill 60 wells out of an inventory of 618 wells (Chart #1).

WCP is focused on lowering its decline rate and with the acquisition of Weyburn has lowered this rate to 19% for the corporate average which results in generating a lot of free cash flow (Chart #2). Weyburn itself has a very low 3.5% decline rate (Chart #3). Production currently in this area is around 14,400 boe/d.

Chart #1

Core Areas of Operation

Whitecap Resources Inc.

Source: Whitecap Resources Inc. Corporate Presentation July 2018

Chart #2

Estimated 2018 Decline Rate

Whitecap Resources Inc.

Source: Whitecap Resources Inc. Corporate Presentation July 2018

Chart #3

Southeast Saskatchewan – Long Life, Low Decline Assets

Whitecap Resources Inc.

Source: Whitecap Resources Inc. Corporate Presentation July 2018

INVESTMENT PARAMETERS: PEOPLE

At December 2017, WCP had 250 full time employees including 133 at head office and 117 field employees.

TitleManagementShares Owned
CEO & PresidentGrant Fagerheim2.7M
VP Production & OperationsJoel Armstrong209K
VP ExplorationDaniel Christensen745K
VP EngineeringDarin Dunlop382K
TitleManagementShares Owned
CFOThanh Kang564K
VP LandGary Lebsack393K
VP Business DevelopmentDavid Mombourquette1.1M
VP FinanceJeffrey Zdunick156K

Source: www.sedi.ca August 2018

INVESTMENT PARAMETERS: PROJECTS

Whitecap had exposure to 4,796 gross oil wells and 139 gross natural gas wells at December 31, 2017 and 280K net undeveloped acres.

Their conventional projects include:

  • Southwest Saskatchewan where they have multi-zone potential and will drill 60 wells this year up from 38 wells in 2017 (Chart #4). IP30 for Shaunavon horizontal wells is 138 boe/d and for Atlas wells 157 boe/d.
  • Saskatchewan Viking should see 131 wells drilled this year up from 125 in 2017. IP30s are 150 boe/d from ERH (extended reach) wells and 113 boe/d from standard wells (Chart #5).
Chart #4

Southwest Saskatchewan – Stable Production in a Multi-zone Area

Whitecap Resources Inc.

Source: Whitecap Resources Inc. Corporate Presentation July 2018

Chart #5

Saskatchewan Viking Oil – Top Decile Resource Play

Whitecap Resources Inc.

Source: Whitecap Resources Inc. Corporate Presentation July 2018

Chart #6

Cardium Resource Play – Repeatable Low Risk Growth

Whitecap Resources Inc.

Source: Whitecap Resources Inc. Corporate Presentation July 2018

Chart #7

Deep Basin Light Oil – Dunvegan and Cardium Oil

Whitecap Resources Inc.

Source: Whitecap Resources Inc. Corporate Presentation July 2018

  • The Cardium in West Central AB should see 21 wells this year down from 32 last year (Chart #6). Wells can do IP30 of 240 boe/d for ERH wells and 196 on average for standard wells. The oil here is 40 degree API and waterfloods are increasing the recoverable percentage of oil in place.
  • The Deep Basin of Alberta should see 19 horizontal wells in 2018, down from 23 last year. These wells into the Dunvegan and the Cardium can see IP30s of 270 boe/d for the Dunvegan and 359 boe/d for the Cardium (Chart #7). There have been some great Dunvegan wells announced by competitors with IP30’s of over 800 boe/d. If the completion technique and horizontal length is used by WCP, this could be a much bigger win for the company. This area has the most growth potential for the company. The area here produces light sweet oil.

INVESTMENT PARAMETERS: FINANCIAL CAPACITY

Whitecap had revenues of $433M in Q2/18 on production of 75,813 boe/d (85% liquids). Funds flow was $196M or $0.47 per share. This was a nice lift from Q1/18 at $368M of revenues and $251M in Q2/17. Funds flow in Q1/18 was $166M and in Q2/17 $122M.

Operating expenses rose to $11.29/boe from $10.64/boe as a result of the acquisitions in Saskatchewan, however these are pretty decent numbers for an oil producing entity.

Operating netbacks in Q2/18 were $31.75/boe up from $26.95 in Q2/17 due to the improved commodity price environment.

Capex in Q2/18 was $66M, up modestly from $64.5M in Q2/17. Note this compares to funds flow of $196M, therefore generating significant free cash flow of $97.5M. The total capex budget for 2018 is $450M (Chart #8).

WCP used the excess to pay down debt ($91M in Q2/18), increase its dividend and for a NCIB (normal course issuer bid) to buy back stock. In Q2/18 it bought back 635K shares at $8.85 per share and for the first half bought back 1.945M shares at an average cost of $8.78. The total spend on buybacks for the first half of 2018 was $17.1M. WCP will show good growth in 2018 while generating funds to pay a rising dividend (Chart #9).

Chart #8

Capital Discipline

Whitecap Resources Inc.

Source: Whitecap Resources Inc. Corporate Presentation July 2018

Chart #9

Significant Growth within Funds Flow

Whitecap Resources Inc.

Source: Whitecap Resources Inc. Corporate Presentation July 2018

Whitecap’s payout ratio (capex and dividends) has been below 100% since 2014 (Chart #10). I expect them to remain as prudent in the coming years. A rising dividend is very likely once we see stronger crude prices when we enter 2019 and the new Energy Bull Market has begun in earnest.

WCP has had a fluctuating dividend which has been paid out to shareholders. Starting at $0.05 per month in January 2013, it was lifted to $0.0525 per share in October 2013, to $0.0567 in January 2014, then to $0.0625 in May 2014, lowered to $0.0375 in February 2016, lowered again in April 2016 to $0.0233 per share monthly. In 2017 with rising cash flows it started to raise them again. In December 2017 it was raised to $0.0245 per month and in January 2018 to $0.0257 per month and in June to the current rate of $0.027 per month or $0.324 which provides a yield of 3.7% currently.

Whitecap’s current corporate profile is in Chart #11.

WCP currently plans on a capex budget of $130-150M in Q3/18 and of $40-60M in Q4/18. We expect them to raise their Q4 spend moderately as we get into the late fall.

Chart #10

Capital Discipline

Whitecap Resources Inc.

Source: Whitecap Resources Inc. Corporate Presentation July 2018

Chart #11

Significant Growth within Funds Flow

Whitecap Resources Inc.

Source: Whitecap Resources Inc. Corporate Presentation July 2018

Quarterly Results

Whitecap Resources Inc.

Valuation Comparisons

Whitecap Resources Inc.

Source: Corporate results and SER forecasts

  • Our 12 Month Target of $12.00 implies a total return of over 50% with dividends at our Attractive Purchase price. The stock would be a very Attractive Purchase below $8.25 per share, and a Table Pounding BUY under $7.75. Our Bull Market Peak Target of $20.00 per share reflects our forecast of >$2.00 cash flow and a 10X multiple or of book value growing to >$13 per share and the stock trading at over 1.5x book value as it did in 2014, 2015 and 2017.

Annual Financials

Whitecap Resources Inc.

Source: Corporate results and SER forecasts

Balance of Evidence

POSITIVES

  • We see WCP as having a strong balance sheet so that they can make further acquisitions to consolidate their core areas.
  • WCP can raise its dividend materially in a sustained crude oil price environment of over $100/b for WTI which we see occurring in the 2020+ period.
  • Their Deep Basin has lots of growth potential and should be able to grow to 12-15,000 boe/d in the coming years from the 8-9,000 boe/d currently.
  • With their current core area WCP could grow to 120,000 boe/d.
  • WCP is a great deal maker and we see this continuing. Their acquisitions of Imperial Oil’s Boundary asset in 2014, of Husky’s SW Saskatchewan assets in 2016 and of Cenovus’ Weyburn property were excellent deals and very accretive for shareholders.

ISSUES OF CONCERN

  • Egress issues are impacting growth for most companies in the sector. If WCP wants to grow it will need to resolve these issues when making acquisitions.
  • Buying out competitors to increase their ownership of core areas will become more difficult as commodity prices rise.
  • Access to service industry equipment will get more expensive and less available as energy prices take off in the coming years. We see WCP having excellent relationships so while the cost may go up the access to equipment should not be a problem.

WHITECAP RESOURCES INC. (WCP-T)

Whitecap Resources Inc.

Source: stockcharts.com August 24, 2018

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