Whitecap has the highest analysts’ rating of its Canadian energy peers with 17 buys and no holds or sells. The stock has gained 7 per cent this year for a market value of $3.6-billion.Larry MacDougal/The Canadian Press
Whitecap Resources Inc. has done more deals in the last three years than any other Canadian energy company and is primed to do more – if prices come down.
While the light-oil producer is eyeing "quite a long list" of assets in western Canada, sellers' expectations have yet to converge with buyers', chief executive officer Grant Fagerheim said. That's even after the slump in crude pulled the Standard & Poor's/TSX Composite energy index down by almost a third in the past year.
"In this lower-price environment, if we remain here for a period of time, I think expectations will come down and there might be more transactions completed as we move forward," Mr. Fagerheim, 56, said in a phone interview from Calgary on Friday.
The average premium paid for Canadian oil and gas explorers acquired this year is 36 per cent, according to data compiled by Bloomberg. Whitecap has done about nine deals valued at $3-billion in the past three years, the most of any Canadian company though less in value than Crescent Point Energy Corp. which executed eight deals worth $4.6-billion.
"Generally, long term you're looking somewhere between 12 to 20 per cent as a premium," Mr. Fagerheim said.
Whitecap has the highest analysts' rating of its Canadian energy peers with 17 buys and no holds or sells. The stock has gained 7 per cent this year for a market value of $3.6-billion, making it the fourth best performer on the S&P/TSX energy index, which has lost 13 per cent. Whitecap fell 2.5 per cent to $11.95 at 9:43 a.m. in Toronto as oil prices declined.
The Calgary-based company's most recent acquisition was Beaumont Energy Inc. for $563-million completed on May 1, according to the data. Mr. Fagerheim said the company looks for deals that complement its existing light-oil operations, with assets that can be grown by investing only 60 per cent of the property's cash flow on an annual basis.
Whitecap considered purchasing parts of Teine Energy Ltd.'s portfolio in southwestern Saskatchewan earlier this year but balked at an outright takeover, Mr. Fagerheim said.
"They didn't fit from our technical perspective, they didn't fit the asset profile that we like," he said. Ken Hillier, Teine's chief financial officer, said in an e-mail the company doesn't comment on speculation.
Whitecap's capital budget and dividend payout is generally equal to or less than the cash flow it brings in, Cody Kwong, an analyst at FirstEnergy Capital Corp., said by phone from Calgary. The company pays out only 39 cents in dividends for every dollar of cash flow, according to data compiled by Bloomberg.
Whitecap's operations in Alberta and Saskatchewan also have a low corporate decline rate, which means it doesn't need to replace as many barrels per year as some of its peers, allowing them to maintain production on a lower capital budget, Mr. Kwong said.
"I think Whitecap is one of the very few that can take advantage of a down-market," the analyst said.
The company's dividend may be one reason it's attracting U.S. investors. It's only one of five producers paying a dividend among the 11 Canadian exploration and production companies worth between $1-billion and $4-billion (U.S.).
Whitecap's dividend is sustainable through 2015 and 2016, even if the price of oil stays low, thanks in part to hedging on West Texas Intermediate, the North American benchmark crude price, Mr. Fagerheim said.
Whitecap has 51 per cent of its oil production hedged at $99.15 (Canadian) per barrel for 2015 and 27 per cent hedged at $99.18 for 2016, Mr. Fagerheim said.
The company will get a "two-fold uplift" when crude recovers as he expects through 2016, Mr. Fagerheim said.