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Whitecap continues to pay one of the better dividends out there for an oil company. I believe the risks are minimal when investing in Whitecap given their strong management team. However, I do believe that the price of oil is due to increase and we are coming into seasonal strength of natural gas. However, I think the assets the company gained are well worth the price paid here.
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The timing of the deal is a little less than ideal as the share price is at a low, so $155 million in stock is worth a bit more than some would like. Further depression in oil prices will lead the company down a road where further dividend cuts may be required. Acquiring NAL helps reduce that risk slightly, but it still remains. The largest risk to any oil investment remains the price of oil itself. These are just a few of the things that set Whitecap apart. This move will allow Whitecap to refinance its debt (as needed) in more favorable conditions over the next couple of years.Īt the end of the day, Whitecap remains fiscally strong with no near-term maturities due, a very strong hedge book with $51 million in gains in Q2 alone and 45% and 42% of oil and gas hedged for the second half of the year respectively, and premium assets with high netbacks that allow for positive cash flow even in this current commodity environment. Whitecap's increased scale and financial strength are expected to enhance its credit profile and reduce its cost of capital. This strengthens the balance sheet by maintaining plenty of liquidity to manage commodity price volatility over the next year. As mentioned off the top, by giving NAL shareholders roughly 12.5% stake, 2021 estimated debt to EBITDA decreases 25% to 1.9x (assuming $45 oil). The company was set to produce ~60,000 barrels a day for 2021 which can now be bumped to ~81,000. This deal will boost production volume by ~37% and help shift the company more towards natural gas, and away from oil. It was anticipated that they were looking to cheap assets given the cheap commodity prices. This is a great move for Whitecap given the current environment. This is based on netbacks of $12.50 per barrel and WTI being $45, and AECO hanging at $2.50/GJ. This should bring in an extra $100 million in net operating income for 2021. Production in 2021 is expected to be around 22,000 barrels a day (55% oil and NGLs) with a stable production decline rate of 19%. They currently produce ~ 27,000 barrels a day. NAL operates out of Whitecap's core areas (West Central Alberta, West Central Saskatchewan, and Southeast Saskatchewan). Being an all-stock transaction is important given the current state as it will decrease Whitecap's leverage ratio by 25% in 2021. The deal is worth roughly $155 million and was paid for the all-in stock. Whitecap made news last Monday (August 31st) with an agreement to acquire Manulife Financial ( MFC) subsidiary NAL Resources. (Source: Google) Acquisitions? In A Pandemic?
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Note: All prices are in Canadian dollars unless otherwise stated. Whitecap is a must-own oil stock if you are a believer in a comeback for the industry. The stock is looking to make a move over the 200-day moving average and has plenty of support on the downside. Whitecap is doing this while maintaining a very healthy 6% dividend. The deal is worth roughly ~$155 million and is an all-stock deal. Whitecap Resources ( OTCPK:SPGYF) has joined the party and picked up privately owned NAL Resources. In an environment where we expect to see some consolidation in the oil and gas industry, we are finally starting to see more and more of it.