# WhiteCap Resources Inc. (WCP.TO)



## saad1253 (Sep 11, 2011)

Hi there I am contemplating the Energy portion of my portfolio and I have narrowed it down to three companies. WhiteCap Resources, Suncor and Cenovous Energy. Any thoughts or preferences? Thanks


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## AltaRed (Jun 8, 2009)

Whitecap is a radically different company than either Suncor or Cenovous. What are you trying to achieve?


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## saad1253 (Sep 11, 2011)

I was looking at mainly growth potential with the energy pick. I understand WCP pays the highest dividend of the three, which is just gravy on top


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## doctrine (Sep 30, 2011)

Suncor is the best, in my opinion, if you want capital growth. I think Whitecap is fairly valued at $11-12 and you won't be seeing much growth.


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## Toronto.gal (Jan 8, 2010)

saad1253 said:


> I understand *WCP pays the highest dividend *of the three, which is just gravy on top


There are other factors to consider before purchasing, not yield alone. As well, keep in mind that dividend payments are not guaranteed, and can be reduced or suspended altogether.

This company bought a jr. stock of mine back in 2011, Compass Petroleum. At the time, I decided to take the cash instead of any WCP stock offer, as it had represented a good profit for me when adding the stock appreciation + premium offered, and also because WCP was trading at around a year high, so I had figured that I could buy the stock at a later time, if I so desired.

But I had forgotten about WCP until I read your post, and see that the stock subsequently dropped about 40% [from 10+ to $6+], so I made the right choice to sell. Pity that I did not analyze/follow the stock after that, to have bought at the lower price, but simply forgot about it.

Will look into it now, but don't think that I'll buy at current price.

Have a long position in SU.


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## saad1253 (Sep 11, 2011)

Thanks for the input . What could be a good entry point for Suncor? Considering that its close to 52 week highs. Usually the consesus seems to be anything under 30 is a steal. But after a recent run up and Buffet buying it, it would have to drop over 15% to get back to those levels.


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## Toronto.gal (Jan 8, 2010)

saad1253 said:


> 1. Considering that its close to 52 week highs.
> 2. Usually the consesus seems to be anything under 30 is a steal.


*1.* Yes, but when it comes to the volatility of oil prices, go further back, ie: 2011-Q1 [what made oil rise then/what is happening now in the ME/what could make oil prices drop/rise further?]. 
*2.* So where were you in 2011-Q4, and 07/2012, when stock was trading below $30 both times?

I initially purchased in the low $30's way back in 2010, and have accumulated since.


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## AltaRed (Jun 8, 2009)

saad1253 said:


> Thanks for the input . What could be a good entry point for Suncor? Considering that its close to 52 week highs. Usually the consesus seems to be anything under 30 is a steal. But after a recent run up and Buffet buying it, it would have to drop over 15% to get back to those levels.


So wait until that happens... even if it takes 2 years to get there due to some event such as a prolonged oil price drop, pipeline transportation issue, Suncor facility fire/issue, etc. There is nothing that says you have to own the stock any time this year or next, is there? Patience is a virtue.


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## doctrine (Sep 30, 2011)

On the other hand, if oil increases back to $150 a barrel or even higher, which wouldn't surprise me at all, Suncor could easily rebound to it's 2007 price of $70 a share, which would still be a double despite the recent run-up.


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## Beaver101 (Nov 14, 2011)

To buy or not to buy? That's the $30 or $70 question on SU ... :biggrin:


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## HaroldCrump (Jun 10, 2009)

I am not sure WTI crude at $150 would necessarily mean $70 share price for SU.
This is not 2007.
Crude oil at those levels is unsustainable, as we saw in the summer/fall of 2008.

IMHO, WTI at $150 would indicate a better upside for natural gas industry, incl. drilling, services, fracking, etc. rather than the Canadian Western Heavy producers.


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## saad1253 (Sep 11, 2011)

Beaver101 said:


> To buy or not to buy? That's the $30 or $70 question on SU ... :biggrin:


Excellent point ... I may have to wait for a bit of a correction before going in


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## sylyconvalley (Apr 22, 2013)

this thread has come to my attn since we are talking oil here.
barring disruptions the trend atm is down.
If the fed is dovish i expect another attack at the 108 line.
the spread is widening again against the Brent .... thks Goldman Sachs.... i mean they live on trading also right?
they are amazingly good at that . one cannot say it differently.
i think 1 day ago i mentioned that to james 4 beach.
we break the 102 level selling will accelerate.
the mkt saw heavy selling on volume today.
there is just too much length in the futures mkt.
we could not clear the 108 mark , even though we had social unrest in Egypt and extremely oversold US dollar and gold prices staying afloat.
remember that oil is also a seasonal commodity per se.
Harold ... the ratio between oil and Natural gas is not what it used to be.
i do not use it any longer.
it was a good indicator when Natural gas prices were 12 bux pre shale Era and the GOM was responsible for 40% of in house production of NG.
oil at 150 would not mean much to natural gas since the large source of dry and wet gas is from shale resources.
the proportion is minimum. trust me.
as for suncor i would buy on weakness.


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## saad1253 (Sep 11, 2011)

Thanks for the explanation, very informative indeed.


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## Killer Z (Oct 25, 2013)

Another good day for Whitecap .....growth + dividends ..... what more can you ask for?


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## gardner (Feb 13, 2014)

http://online.wsj.com/article/PR-CO-20140820-911963.html



> Whitecap Resources Inc. Announces Acquisition of a Controlling Interest in a Premier Sweet Light Oil Pool, $125 Million Financing, Increased Dividend by 12% and Increased 2014 Guidance


If the 12% increase in dividend is real, then today's 7% price increase is still a bargain.


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## yyz (Aug 11, 2013)

And it's almost 6 months until you will actually receive the first increased dividend payment.That seems a little strange to announce that far in advance.


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## Canuck (Mar 13, 2012)

yyz said:


> And it's almost 6 months until you will actually receive the first increased dividend payment.That seems a little strange to announce that far in advance.


I thought that as well.

Still happy though, gotta love this stock right now


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## OurBigFatWallet (Jan 20, 2014)

I like Whitecap. Seems well run and definitely has some upside potential for the future. Of course I am biased toward dividend payers. I chose Surge Energy over Whitecap but I may just set aside some for Whitecap in the future


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## mars (Mar 11, 2014)

yyz said:


> And it's almost 6 months until you will actually receive the first increased dividend payment.That seems a little strange to announce that far in advance.


I would say the reason for the delay in paying out the increased dividend is that the increase is tied to an acquisition they have made. The integration of the new purchase is going to be accretive to earnings which allows for the large dividend increase. The announcement of the increased dividend was made at the same time as the finalization of the purchase. I bought WCP over a year and a half ago when it was trading at just over $8 and I've been dripping the dividend since that time. Needless to say I've been happy with my purchase and continue to hold it.


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## gardner (Feb 13, 2014)

Dipped my toe in this morning at 14.22 -- already down to 14.10. Fingers crossed.


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## newfoundlander61 (Feb 6, 2011)

Picked a few shares up today.


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## newfoundlander61 (Feb 6, 2011)

Purchased WCP last week at $10.69, managed to sell my holdings today at $11.17 during todays up tick.Taking a break from the oil sector for now.


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## Freedom45 (Jan 29, 2011)

Anyone else currently holding Whitecap? I initiated a small position around $10.90 a few months back.

Thoughts on their purchase of Beaumont Energy yesterday?


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## Feruk (Aug 15, 2012)

Thoughts on the deal: really good if the waterflood works.


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## Getafix (Dec 29, 2014)

So wondering if anyone's looking at WCP at these prices. Getting near the 52w low, yield is 6%+. Getting tempted!


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## AltaRed (Jun 8, 2009)

Still too early to consider the oils in my opinion. While OPEC link below expects a balanced market in 2016, I think that is over optimistic, i.e. overly aggressive demand growth, and I don't think they have fully considered the Iran factor.

http://www.reuters.com/article/2015/07/13/us-opec-oil-idUSKCN0PN12420150713

If you believe current oil futures, we could be looking at sub-$60 oil for years to come (assuming no wild cards).


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## Ponderling (Mar 1, 2013)

I bought about 10k of this recently. A small part of our holdings. I wanted to increase my energy exposure in something that spat out a reasonable dividend payout ratio. (confession - I also hold CPG and the payout ratio there is getting ridiculous.) 

I am not expecting any sudden move in oil prices, or any other part of the economy - I just stick bits of funds in all sectors in this 'mad money' account, and rebalance as I put more finds in over time. 
The TFSA and RRSP holdings are ala couch potato - this non registered account is on spot where a bit of fun on individual stocks is done.


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## doctrine (Sep 30, 2011)

WCP tends to have the most visibility in their estimates, which I like. Mostly to see where and how the pain will begin; WCP is supposed to be one of the best with some of the lowest declines in their wells.

They posted their 2016 outlook along with their 3rd quarter results about 3-4 weeks ago: http://boereport.com/2015/11/10/whi...s-third-quarter-2015-results-and-2016-budget/

Bottom line: their worst case estimate for 2016 is WTI at $50 and nat gas at $2.75. WTI is barely hanging onto $40 and nat gas is $2.20. Their dividend is not sustainable at current prices and my guess if WTI stays below $50, the dividend will be cut in the next 3-6 months.

Look at Q3 results: average oil price was $51, but their hedging produced almost $10 on top of that, so they realized in excess of $60/barrel in USD. 

There is a lot of pain ahead in 2016 as the vast majority of the really good hedges disappear, if oil doesn't rise above $50.


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## My Own Advisor (Sep 24, 2012)

I'm tempted. Near 52-week low (a good time to buy most stocks), 7% yield (for now). Could be a takeover target for CNQ or HSE.


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## leeder (Jan 28, 2012)

It's an interesting name that I look at on and off for the past year. I haven't pulled the trigger because I have been very happy with staying away E&P oil and gas companies since I sold CPG last year. 

I don't see this as a takeover target though. If it does get an offer, the company trying to acquire would need to offer a significant premium to WCP, considering how financially healthy the company is.


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## newfoundlander61 (Feb 6, 2011)

Purchased today @$9 Per Share for my TFSA.


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## AltaRed (Jun 8, 2009)

In their 2016 guidance yesterday. they are electing to reduce capex spend 27% rather than reduce dividend to maintain a 100% payout ratio (at $US40 oil and a 75 cent loonie). Should have been the other way around in my opinion.

They are also banking on an oil price increase to US$45 for 2Q, US$50 for 2H2016. Time will tell.


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## doctrine (Sep 30, 2011)

At their estimates, which include $40US WTI for 1H2016, they are goign to lose 4% production. What does that tell you is happening now at $35-36 oil? And WCP is one of the best. Very telling at how dire it is for oil production companies at these levels.

To be honest, I thought that companies would have started pulling back earlier. It appears no one is willing to invest less than cash flow, so they continually reinvest all cash flow, but even doing so they are going to be losing production. I think that is when you know the game is starting to be up, in terms of hoping for making up for lower prices with higher production.


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## My Own Advisor (Sep 24, 2012)

I don't get why they wouldn't dial back production sooner, either. This goes for all the players in the industry. They obviously know something I don't, but I've always read that oil needs to be in the $50-60 range for oil sand companies to make a profit.


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## AltaRed (Jun 8, 2009)

My Own Advisor said:


> I don't get why they wouldn't dial back production sooner, either. This goes for all the players in the industry. They obviously know something I don't, but I've always read that oil needs to be in the $50-60 range for oil sand companies to make a profit.


It depends on whether you are talking about cash operating costs, variable and fixed operating costs (fixed costs being things like security, lighting), or 'all in' full cycle costs. Until the oil price drops to the point where oil revenue does not cover variable costs (including royalties), it is cheaper to keep producing generating positive cash flow than to shut in. Everyone is in that situation and thus why no one 'can' decrease production until they hit that wall.


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## doctrine (Sep 30, 2011)

doctrine said:


> Bottom line: their worst case estimate for 2016 is WTI at $50 and nat gas at $2.75. WTI is barely hanging onto $40 and nat gas is $2.20. Their dividend is not sustainable at current prices and my guess if WTI stays below $50, the dividend will be cut in the next 3-6 months.


Dividend reduced by 40%, only took 1 month.

http://www.theglobeandmail.com/repo...ing-and-production-forecasts/article28271531/

With a 53% reduction in capital spending in addition to dividend reduction, they now have an effective payout ratio of 100% (less with some dispositions). Production will fall by 8% this year over previous guidance which was for a small increase. Now you can see the pain - this is one of the best oil producers, and they still need an average price of $37.50 WTI in 2016 in order to maintain debt to cash flow of 3 times and will still lose 8% of their production.

Good management I suppose to stay ahead of this, but really they could have just cut the dividend entirely.


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## james4beach (Nov 15, 2012)

Share price is only down to 2011 / 2012 levels. It's not like it's fallen that much.


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## Freedom45 (Jan 29, 2011)

Averaged down a bit by picking up a few shares at $6.30 this morning. I would have preferred to see the dividend suspended temporarily, but this certainly gives them a bit more breathing room than no cut at all.


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## CPA Candidate (Dec 15, 2013)

All of these companies should immediately cut their dividends to zero if they are to survive. This stiff upper lip nonsense is going to kill them. Dividends are a distribution of excess earnings not required to maintain or grow a company. Paying a dividend while reducing production makes no sense.


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## newfoundlander61 (Feb 6, 2011)

I managed to sell the last of my WCP shares at $8.01 a while back, that worked out.


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## godblsmnymkr (Jul 15, 2015)

pretty amazing reversal in this today.


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## newfoundlander61 (Feb 6, 2011)

Its a Traders market for sure.


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## nobleea (Oct 11, 2013)

Nice gains over the past 4 days. I'm in at about 7.60.

In the Canadian oil field, Whitecap is considered one of the better managed small operators. Good portfolio.


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## spdr1812 (Apr 8, 2016)

WCP moving forward .. with current oil price , opec issues as always , and canadian economy / future prez down south .. ?


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## londoncalling (Sep 17, 2011)

Whitecap Resources strikes deal to buy Kicking Horse for $300M in cash and shares (msn.com)


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## doctrine (Sep 30, 2011)

WCP bought XTC for $1.7B and increased their dividend by 22% and cash flow by about the same amount per-share. A huge acquisition.

But they could have simply bought back 29% of their shares for the same price and increased their cash flow and dividend by more immediately. Sigh. The stock is down quite a bit on an up day. My assessment is this is management empire building. If it was shareholder returns, they would have just bought back their shares. Still, they think they can increase their dividend by another 65% in 18 months.


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## AltaRed (Jun 8, 2009)

Neither Imperial Oil nor ExxonMobil Canada would have sold that XTO Canada interest unless they had gotten a fair deal (cash flow multiple per flowing barrel, etc) so clearly Whitecap bought to bulk up, perhaps consolidate some operations, and get cost savings that way. There is value in economies of scale at least some of the time.

Added: As an additional comment, whenever the mother ship of multi-nationals buy out a company like ExxonMobil did with XTO for the US assets, their International affiliates are expected to fold the International assets, e.g. XTO Canada, into their local operations. Often they are not a good fit and they go on the block after a few years. This could be one of those scenarios.

Those kinds of things happened when Exxon bought Mobil, Chevron bought Texaco and BP bought Amoco. In those cases, a lot of the International assets were eventually sold.


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## londoncalling (Sep 17, 2011)

It will be interesting to see how this move plays out for WCP. One good thing about the deal is that it is an all cash purchase. After getting burned by CPG's attempt to empire build during the last energy bull I am less reluctant to get excited when acquisitions happen. Without looking closer at the deal and WCP financial position (i know they have a lot of free cash but have no idea of current debt) I will keep my comments more general and not specific to WCP or the purchase. If we are in a long energy bull and this is a one off for WCP it is likely a good acquisition. If it is the start of growth at any cost it will not end well. One of the key differentiators is share dilution. If a company has to rely heavily on share offerings to finance purchases because they cannot get reasonable financing through traditional lending it becomes more of a gamble than a purchase. Doctrine's suggestion would definitely have provided better near term return to shareholders.


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## doctrine (Sep 30, 2011)

Imperial/Exxon got an excellent price. This acquisition is really striking all of the wrong notes for me. Less cash flow to shareholders, more debt, more waiting, more growth and exposure to inflated costs, less accretive than buying back their own depressed shares.

WCP has an attractive dividend but when you consider they were at a 30% FCF yield, 4.5% is not very much. They are giving back just a tiny portion of that FCF where the remainder goes to Exxon/Imperial for the next 18 months as well as into the ground.

I'm trying to stick with less risk and WCP has moved up the risk chart for me and broken my investment thesis, so I'm out for now after adding at $8.95 just last week, looking for a replacement or maybe adding to another company I already own to maintain my exposure. Maybe next year when the debt comes down it will start to look better. WCP was by far the worst performer out of all ~7 of my O&G stocks.


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## Gumball (Dec 22, 2011)

doctrine said:


> Imperial/Exxon got an excellent price. This acquisition is really striking all of the wrong notes for me. Less cash flow to shareholders, more debt, more waiting, more growth and exposure to inflated costs, less accretive than buying back their own depressed shares.
> 
> WCP has an attractive dividend but when you consider they were at a 30% FCF yield, 4.5% is not very much. They are giving back just a tiny portion of that FCF where the remainder goes to Exxon/Imperial for the next 18 months as well as into the ground.
> 
> I'm trying to stick with less risk and WCP has moved up the risk chart for me and broken my investment thesis, so I'm out for now after adding at $8.95 just last week, looking for a replacement or maybe adding to another company I already own to maintain my exposure. Maybe next year when the debt comes down it will start to look better. WCP was by far the worst performer out of all ~7 of my O&G stocks.


Doctrine - curious which other stocks are now on your radar now that WCP has soured on you. I appreciate your assessment of the company you posted above..


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## jargey3000 (Jan 25, 2011)

re WCP...coulda, woulda, shoulda [email protected] around $12....... but, as usual, I got a little greedy...🙁


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## Numbersman61 (Jan 26, 2015)

These sre prized assets that were purchased in a competitive bidding process. There were a number of potential buyers - Tourmaline, ARC, CNRL - come to mind. The fact that Whitecap won is simply that there were the highest bidder. Did they pay too much? Will they be able to handle their debt? Are they planning a stock issue? Clearly, this a transformative event for Whitecap and I believe Grant Fagerheim can make it succeed. I first had dealings with Grant some 39 years ago when he was at Sceptre Resources. At the time, I was impressed with his business acumen and professionalism. In my view, he has only got better - he is a Pro.


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## Covariance (Oct 20, 2020)

Numbersman61 said:


> These sre prized assets that were purchased in a competitive bidding process. There were a number of potential buyers - Tourmaline, ARC, CNRL - come to mind. The fact that Whitecap won is simply that there were the highest bidder. Did they pay too much? Will they be able to handle their debt? Are they planning a stock issue? Clearly, this a transformative event for Whitecap and I believe Grant Fagerheim can make it succeed. I first had dealings with Grant some 39 years ago when he was at Sceptre Resources. At the time, I was impressed with his business acumen and professionalism. In my view, he has only got better - he is a Pro.


The company has no plans to sell shares as it is funded with cash and upsized term loan. Leverage looks manageable. I'll be watching this one. They plan to improve the production from these properties which I gather were under invested for some time as the previous owner declared them non-strategic. We'll see what they can do to grow production and cashflow.


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## jargey3000 (Jan 25, 2011)

🤞😁🤞


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## doctrine (Sep 30, 2011)

Gumball said:


> Doctrine - curious which other stocks are now on your radar now that WCP has soured on you. I appreciate your assessment of the company you posted above..


Considering TVE as a WCP replacement. While they also recently did an acquisition, it was less than 5% of market cap, as opposed to 30%; and it will be paid within months, not years, and is more accretive. Maybe greater upside.


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## zinfit (Mar 21, 2021)

Exxon made a major commitment to the ESG crowd to reduce their fossil fuel reliance and to refocus on renewals. Don't know if this was part of the motivation for this sale. Overall Whitecap has one of the most diverse set of holdings. Everything from the SK Bakken formation to the Montney. Their management is very respected. It has a strong balance sheet . I am thinking this is a positive accretive acquisition. Apparently it fits very well with its existing position in this formation. I have a fair sized position and I am not selling .


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## doctrine (Sep 30, 2011)

There are unfortunately just so many reasons not to like this acquisition of XTC from Imperial/Exxon. Any acquisition with oil > $100 is highly suspect especially when shares are so undervalued, and this is a huge one at 30% of their market cap. If they bought back $1.7B of shares instead of buying this company for $1.7B, they could have _exceeded_ all of their post-acquisition metrics on cash flow per share and production per share _today_ instead of 2 years from now, and they wouldn't have to dump $300-400M a year into new capital expenditures. And they could then just buy another $1.7B shares next year too. It is not an accretive acquisition at all - at best neutral, but that requires oil to stay high since they bought high. They are dependent on high oil prices now for at least 2 years.

WCP has a vision for a larger oil company that was NOT communicated to shareholders just a month ago. This looks like misleading investors to me and is upsetting. The celebrated 22% increase in the dividend is less than $50M a year out of more than $1.25 billion expected free cash flow, when just a month ago they explicitly promised to give 50% - well more than $600 million - to shareholders, at a minimum. Instead, all of that juicy free cash flow that investors have been waiting 8 years of pain for since WCP fell from $18 a share in 2014 goes to Exxon/Imperial oil and to oil service companies for growth, and interest in a tripling of debt.

It's not really surprising the company is at a new 6 month low in stock price despite oil at $110. I.e. despite oil going from $80 to $110, WCP is flat/down and the XEG index is up 25%.


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## AltaRed (Jun 8, 2009)

I agree with Doctrine. Brett Fagerheim is on an ego trip and should be fired.


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## londoncalling (Sep 17, 2011)

Mr. Fagerheim is on Bloomberg markets today to speak on the matter. Will try and post the link when it is up on their site. There were other bidders in the running for those assets. Not sure at what price the deal makes sense. If prices go up from here and stay high for a few years it will be a good deal. I am not sure we will remain at these levels longer term. He is expecting oil to remain in the range of $85-$125 longer term.


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## zinfit (Mar 21, 2021)

AltaRed said:


> I agree with Doctrine. Brett Fagerheim is on an ego trip and should be fired.


I guess he wants to follow in the footsteps of Murray Edwards who built CNQ into a giant sized energy company. Fagerheim is well respected in the energy sector. Notwithstanding I did trim my position. I wonder if we will see some deals in the Canadian energy patch. There are smaller players like Headwaters Resources and Pipestone who have assets in the right locations.


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