Scotia Capital analyst Cameron Bean thinks Whitecap Resources Inc.’s (WCP-T) deal to acquire XTO Energy Canada for $1.7-billion suggests there’s upside in the stock prices he covers in other mid-cap energy names that have assets in the Montney region, many of which could now be takeover candidates.
“While the XTO assets come with an extensive land base, we see a higher level of delineation and at least as many clearly defined development locations from some names in our coverage group. Moreover, our coverage group trades at a material discount to the headline metrics from the transaction,” Mr. Bean said in a note to clients.
“We believe this points to valuation upside for the group, based our view that larger producers will continue to pursue deals to consolidate inventory rich assets,” he added.
The analyst sees Kelt Exploration Ltd. (KEL-T), Crew Energy Inc. (CR-T), and potentially Spartan Delta Corp. (SDE-T) as possible candidates to be taken over, and at premium valuations, due to their large Montney land positions and relatively low valuations. Meanwhile, he says Advantage Oil & Gas Ltd. (AAV-T) and Birchcliff Energy Ltd. (BIR-T) hold well delineated Montney land and extensive infrastructure positions that he thinks are materially undervalued in the market.
Imperial Oil Ltd. (IMO-T) said late Tuesday that it and ExxonMobil Canada have agreed to sell XTO and its Montney and Duvernay oil and gas-producing areas of central Alberta to Whitecap.
The sale is expected to close before the end of the third quarter, subject to regulatory approvals.
Analysts generally were supportive of the transaction.
“Overall, we view the event as positive for Imperial Oil with the public sale process of an asset that saw limited capital or management focus in recent years,” commented ATB Capital Markets analyst Patrick O’Rourke in a note.
He also saw it positive for Whitecap, and nudged up his price target on the stock to C$15.50 from $15. “While the nominal price at first blush is clearly very large, the assets were highly coveted (with a unique contiguous nature and large, mostly undeveloped, 639,000 net acres adjacent to core Montney developments) and subject to a competitive public sales process. The acquired inventory now positions WCP as a material Montney player with a long and expansive development inventory potential,” he said.