Analyst: E&P Co. Offers Robust FCF Profile and Liquidity with High Light Oil Margins

April 17, 2021

Source: Streetwise Reports   04/14/2021

Haywood Capital Markets reported that since the start of 2020 Whitecap Resources Inc. has added ~53,000 boe/d of production, establishing itself “as a core holding in the quality yield + growth in energy space.”

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.


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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.

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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.

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