Haywood Capital Markets Energy Research Analyst Christopher Jones reported in a April 5 research note that Haywood views Whitecap Resources Inc.'s (WCP:TSX) recently announced "sizeable acquisition in the Alberta Montney as being on point of the team's strategy of consolidating quality assets at strong metrics."
In the report, Haywood Capital Markets outlined the details of Whitecap Resources' acquisition of a private Montney producer for total consideration of CA$300 million in a combination cash and stock deal. The transaction is expected to close prior to the end of May 2021.
The analyst noted that Whitecap has now executed over CA$1.4 billion in asset or corporate deals since the beginning of 2020, which in aggregate has added approximated 53,000 boe/d of production.
On April 5, 2021, Whitecap Resources entered into an agreement with private producer Kicking Horse Oil & Gas which owns assets in Alberta's Kakwa region. The transaction brings to Whitecap about 8,000 boe/d of production along with 89 Mboe of added 2P reserves. In addition, the purchase includes 60 net sections of Alberta Montney land hosting 575 gross drilling locations that include 178 tier 1 locations. The analyst noted that Whitecap's management team estimates the free cash flow (FCF) breakeven price to be around US$38/bbl, which, he stated, could perhaps be lowered through further improvements and pad development.
The analyst stated that Whitecap's plans for integrating the asset will be centered upon optimizing production volumes to maximize FCF generation. Whitecap plans to accomplish this by swiftly commencing development drilling with an estimated CA$155 million capital program through December 2022 with the objective of growing and maintaining production at about 18,500 boe/d.
The analyst stated that Whitecap's operating activities this year includes the addition of four net wells, which are expected to come online by year-end 2021, that are forecasted to add ~CA$72 million in annualized FCF.
The analyst noted that Whitecap Resources' management team has a lengthy track record of executing on production and growing reserves. Haywood Capital Markets believes that Whitecap is well positioned to navigate the current weakness in Canadian light oil prices on account of its strong balance sheet, low declines and strong capital efficiencies.
The analyst further pointed out that Whitecap's low-risk, cost-efficient business model generates meaningful cash flow at prevailing commodity prices.
As the world is now focused upon ESG issues concerning fossil fuels and carbon emissions, according to the Hayward report, Whitecap is "the only E&P that we are aware of that is already net-carbon negative." This assertion is based on the fact that Whitecap is the operator of the Weyburn CO2 storage field in S.E. Saskatchewan that stores more CO2 than the firm emits directly or indirectly emits.
Analyst Jones advised that a larger and stronger Whitecap is now in a better position to gain market attention due to its "robust FCF profile, strong liquidity, high light oil margins, and management execution."
Haywood Capital Markets indicated that it is maintaining a "Buy" rating for Whitecap Resources and a target price of CA$8.00/share. The company's shares are trading at around CA$5.91/share.
[NLINSERT]Disclosure:
1) Stephen Hytha compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
Disclosures from Haywood Securities, Whitecap Resources Inc., April 5, 2021
Analyst Certification: I, Christopher Jones, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.
Important Disclosures
Other material conflict of interest of the research analyst of which the research analyst or Haywood Securities Inc. knows or has reason to know at the time of publication or at the time of public appearance: n/a.
Research policy available here.
