A man walks back to work at an oil rig drill.iznashih/Getty Images/iStockphoto
Whitecap Resources Inc.
Wednesday's close: $10.22 a share, down 12 cents
52-week trading range: $5.79 to $10.51 a share
Annual dividend: 60 cents a share for a yield of 5.9 per cent
Analysts' ratings: There were 14 buys, 2 holds and no sells, according to Bloomberg data. Target prices ranged from $10 a share as estimated by Haywood Securities analyst Robert Cooper to $13.50 a share by Stifel analyst Michael Zuk. Five analysts are currently restricted from making recommendations.
Recent history: Shares of the Calgary-based oil-weighted energy company have gained 18 per cent (including dividends) over the past year. Its shares began to gain momentum last fall as investors anticipated that the company would be joining the club of oil-patch dividend payers. Whitecap went public in 2010 after doing a reverse takeover of Spitfire Energy Ltd. Last November, it announced a 60-cent annual dividend, or 5 cents a month, as it pursues of a strategy of dividend growth by making acquisitions and growing existing assets. In March, Whitecap did a $60.2-million stock deal to acquire Invicta Energy Corp. to extend existing its oil-drilling operations in the Viking light oil play in Saskatchewan. On Monday, it announced a $110-million acquisition in the same area. Whitecap is financing the latest deal through a $90-million equity financing, and $20-million private placement of common shares. Investors will get an update on the company's plans when it reports first-quarter results on May 6.
Manager insight: Whitecap's expanding production and increasing cash flow should set the stage for a dividend increase later this year, says Rafi Tahmazian, an energy fund manager at Calgary-based Canoe Financial LP.
"It's one of our favourite intermediate oil and gas stocks," said Mr. Tahmazian, who bought Whitecap shares last fall. "It is not inconceivable that, if we get that bump, we could get another 3 to 5 cents in the annual [60 cent per share] distribution."
On the heels of its latest acquisition in Saskatchewan this week, Whitecap raised guidance for average oil production by 5 per cent to between 17,800 and 18,000 barrels a day, and cash flow by 5 per cent to $260-million to $263-million. Whitecap shares surged to a 52-week high on Tuesday.
Whitecap will soon be able to operate more profitably when it merges the recent acquisitions with existing light oil assets in the Viking area of southern Saskatchewan, he said. "When you take three assets in three different companies and bring them under one company, clearly you are going to have more efficiencies."
The company has also managed to issue enough equity to substantially cover off the costs of its second acquisition, he said. "We believe that the balance sheet remains very healthy...When you combine those two things, we would expect a dividend increase sometime in the second half of this year."
The biggest risk to Whitecap is the volatility in the broader market because the commodity price concerns have been significantly reduced since a big portion of its production is hedged, he said.
Mr. Tahmazian has a lot of confidence in management because of it strong track record. Its chief executive officer Grant Fagerheim built up Ketch Energy Ltd. and Cadence Energy Ltd. (formerly Kereco Energy) before selling the energy juniors.
"Whitecap is a different model," he said. "It is a more stable, distribution-type asset which would be way more suited to a royal trust. That is what it would be today if we were allowed to do them."