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Streetwise Whitecap’s new acquisition has key backers, hot assets

Encana chairman interim president and CEO Clayton Woitas addresses shareholders during the company's annual general meeting in Calgary, Alberta, April 23, 2013.

Todd Korol/Reuters

Whitecap Resources struck yet another deal, its fifth in 2013. But with this one, there's a little more than meets the eye.

Publicly, Whitecap disclosed that it is buying an unnamed private company for $327-million in shares, adding that the target is already in production so its assets are much safer than development plays.

What the press release leaves out is that the junior energy player up for grabs is Home Quarter Resources Ltd., which is backed by the likes of Encana Corp. chairman Clayton Woitas, and its private shares have been on a hot run.

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Home Quarter more or less came from nothing. Roughly two years ago the company raised money at $2 per share and had to develop its assets from scratch. Investors who bought in early on have profited handsomely. The acquisition price amounts to about $8 per share.

Home Quarter also operates in the Viking formation, which is getting a lot of buzz in the energy world. Plus, its wells are in the Lucky Hills and Whiteside regions near Whitecap's operations, so Whitecap has a pretty good idea of what exactly it's buying.

Currently, Home Quarter produces 4,000 barrels of oil equivalent a day, and expects to generate free cash flow of $28.5-million next year.

Because the acquisition immediately boosts Whitecap's production profile, the company decided to boost its dividend by 8 per cent to 68 cents per share annually. Whitecap's shares are up 5 per cent on the news, putting its year-to-date return close to 42 per cent.

No doubt Whitecap now looks even more lucrative, and all the equity analysts have been singing its praises. But investors should make sure they do their homework. While the company is on a successful acquisition spree, there's no guarantee that all of its deals win pan out as planned.

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