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Oil market jitters holding back this Western producer

A man walks back to work at an oil rig drill.

iznashih/Getty Images/iStockphoto

Hi Lou, I would like to know your current perspective on Whitecap Resources? Thanks in advance! Liz

Hey Liz, thanks for the assignment. Whitecap Resources Inc. is a light oil focused producer with operations in Alberta and Saskatchewan. Management expects to increase 2013 production to between 16,800 and 17,000 barrels of oil equivalent per day. In 2012 output reached 14,000 boed.

The company has an estimated 10 plus years of drilling targets on their land base which should keep them active and profitable barring a substantial reduction in the price of oil which is a potential outcome that should not ignored. Bank of America recently called for the price of West Texas Intermediate to hit $50 a barrel by 2015 on increased production arising from North American shale formations.

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As with all investments make sure to watch how supply and demand are shaping up, and the price of the product or service that is offered. Falling prices are great for consumers but wreak havoc on suppliers and investors. An examination of the charts will identify how best to proceed with the shares of WCP.

The three-year chart tells the story of the changes that started in 2010 when the company was recapitalized. Since then the management team has substantially increased the share price and provided investors with an attractive flow of dividend income which currently yields 6.41 per cent. The advance that started in 2010 came to an end in February of 2012 when the shares topped out at $10.77. The RSI and the MACD signalled the increased selling pressure that took the shares to a low of $5.79 by June 25, 2012. The stock then caught a bounce off support in the $6 range and began the current advance that has the stock trading at $9.36 as of the close of trading on February 1, 2013.

The next question that has to be answered is if there is more gas left in the tank to take WCP through $9.50.

The six-month chart provides a close-up of the resistance that has formed at $9.50 and the lift that it got off of $9.20 on the announcement of the 127 per cent increase in its 2012 year end reserves. There are a number of positive patterns on the charts including an intact uptrend line and a golden cross. The RSI and MACD however are not indicating that the stock is ready to move through $9.50 just yet.

From the evidence presented there does seem to be more gas in the tank but that doesn't mean buy the stock and forget about it. Watch your investments every day and you will be rewarded for your diligence.

Make it a profitable day and happy capitalism!

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