In an Oct. 31 research note, iA Securities analyst Michael Charlton reported that Whitecap Resources Inc.'s (WCP:TSX) Q3/19 production was a beat and its new joint venture adds potential upside.
In Q3/19, Whitecap produced about 68,255 barrels of oil equivalent per day (68,255 boe/d), which surpassed iA Securities' estimate and was within guidance, Charlton noted. This resulted from Whitecap spending less capital than expected. The company is on pace to meet its average annual production of 70,000–72,000 boe/d with capital spending at about $400 million.
"The quarter was active as Whitecap drilled 104 (89.9 net) wells, advancing all its core areas and enhancing and expanding its assets to maximize shareholder value, supportive of its long-term dividend and growth model," Charlton commented.
As for Q3/19 cash flow, it was about $154.3 million, or $0.37 per share, reflecting a sequential decrease of about 12% "but tight (within 1%) to our forecasts," indicated Charlton. This resulted from, one, lower realized prices of $52.76 per barrel of oil equivalent (boe), down about 10% from Q2/19. Lower netbacks was a second contributor. They dropped by about 15% to $27.92 per boe due to reduced realized prices and slightly higher operating and transportation costs.
Looking forward, Whitecap's 2020 budget is between $360 and $380 million, annual production guidance is about 71,000–72,000 boe/d and plans are to drill about 150 wells, Charlton pointed out. "With the 2020 capital budget set, Whitecap remains well positioned to post modest production growth and free cash flow, which is anticipated to be split between debt reductions and a return of capital to shareholders," he wrote.
Finally, Charlton summarized Whitecap's recent joint venture with a private Montney exploration firm. During the two-year earn-in period, Whitecap will garner up to a 65% working interest in 34 (21.5 net) sections in the oil window of the Montney with about 144 possible drilling locations. After the earn-in, the company will operate about 88% of the lands and have a 65% working interest in those as well as a 50% working interest in the lands it will not operate.
IA Securities has a Strong Buy recommendation and a target price of CA$7.75 per share on Whitecap Resources, whose stock is currently trading at about CA$4.05 per share.
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Disclosures from iA Securities, Whitecap Resources Inc., Research Update, October 31, 2019
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