Whitecap Resources

[Petroleum economist]

I am running an oil and gas company ranking tool, which uses fundamental data for 70+ US oil and gas companies. Recently some companies have dropped out due to mergers (PDCE, ESTE, CPE, SWN, PXD, HES, ERF). To keep numbers up, I have added in some Canadian companies.

From the new companies, the one which really stands out for me is Whitecap Resources. It ranks high (4th out of 72). Whitecap is a small/midsize oil and gas company, operating in western Canada. Whitecap Resources has excellent reserves, a growing production, a sound balance sheet, good profitability and high shareholder returns. Details are below:

Reserves
• Proven reserves were 792 M BoE (2023), equivalent to a very solid 13.3 years of 2024 production, well above industry average of 9.5-10.0 years.
• Reserves have more than doubled since 2020, mostly due to the acquisitions from Torc Oil and Gas (2021) and XTO (2022).
• The RRR (1.40) in 2023 was very good
• The reserves enable continued growth of production.

Production
• Production has been growing steadily since 2019. Production grew 7% in 2023, from 144 K BoE/d (2022) to 156 K BoE/d. (2023). With the strong reserves, the production can keep on growing the next few years with 6%/year. Whitecap provided a production outlook for 2024 of 165-170 of BoE/d, indicating a production growth of 7.0%.
• The production is liquid dominated with 53.2% oil, 11.2% NGL and 35.2% gas.

Balance sheet
• Whitecap has a solid balance sheet.
• Solvency in 2023 is a good 54.6%
• Debt is C$ 1.2 B. The debt/EBITDA ratio is a low 1.2/2.1 = 0.55.
• The balance sheet is strong enough to enable generous shareholder returns.

Profitability
• Whitecap has a good profitability.
• Whitecap has only hedged 16.3% of its oil production, meaning it is fully profiting from the current upswing in oil prices.
• Unit costs (incl depreciation, general /administration, and interest) are low at US$ 26.31/BoE. This makes Whitecap robust under low oil prices.
• At WTI of $ 80-85/bbl (Whitecap sells oil at -US$ 7.30/bbl versus WTI), 2024 net profit could be C$ 840-940 M and the eps C$ 1.40-1.58. This means Whitecap has a medium low PE of 6.7-7.5.

Shareholder returns
• Whitecap paid in 2023 a dividend of C$ 0.62. For 2024 Whitecap has increased the monthly dividends to C$ 0.06.
• Whitecap bought back 14.3 M shares in 2023. FCF in 2024 is strong enough to assume that this can be repeated or even increased.
• The shareholder returns in 2024 are equivalent to a high 9.2%.

Conclusion: Whitecap is an attractive investment with ample reserves, growing production, a solid balance sheet, a good profitability and high shareholder returns.

[ChuckGeb]

Thanks for posting your analysis. Very helpful!

[dan_s]

Good stuff. All of the Canadian upstream companies that I follow trade at low multiples, partly due to the high differentials caused by lack of adequate pipeline takeaway capacity. The Trans Mountain Pipeline is already significantly lowering differentials in Canada.

We will discuss this topic at our Houston luncheon on April 23.

[Fraser921]

Thank you petroleum economist