Bullboard - Stock Discussion Forum TORC Oil & Gas Ltd. VREYD

Energy Oil & Gas E&P

TORC Oil & Gas Ltd engages in the exploration, development, and production of oil and natural gas reserves in the southeast Saskatchewan area. Crude oil constitutes an overwhelming majority of the production mix the company gathers from its assets. TORC gains access to its assets through government issued royalties and uses various techniques to identify hydrocarbon reservoirs. The company... see more

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OTCPK:VREYD - Post Discussion

TORC Oil & Gas Ltd. > TD (WCP)

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Post by retiredcf on Dec 11, 2020 8:16am

TD (WCP)

Whitecap Resources Inc.

(WCP-T) C$4.82

Acquisition of TORC Enhances FCF Proposition and Adds Scale Event

Whitecap announced a proposed combination with TORC Oil & Gas on December 8. With this note, Dustin Besaw is assuming primary coverage.

Impact: POSITIVE

On December 8, Whitecap announced that it had entered into a proposed combination with TORC, whereby Whitecap will issue 0.57 shares per TORC share ($2.48/share) and the assumption of $335mm of TORC debt. The transaction is expected to close by February 25, 2021 and is supported by CPPIB and TORC insiders. Whitecap also announced an increase to its dividend effective March 2021 to $0.181/share annually (from $0.171).
We believe significant asset overlap and expected synergies will drive material near-term accretion potential. TORC brings a substantial complementary footprint in both SE Saskatchewan and in the Cardium, which further enhances Whitecap's scale in both plays. $15mm of near-term synergies are expected from the transaction ($5mm G&A; $6mm interest; $4mm operational).
Preliminary pro forma 2021 outlook includes production of 99-101 mBOE/d and capex of $280-300mm. Whitecap's standalone budget remains unchanged while spending on the acquired TORC assets in 2021 is expected to be limited to $30mm post closing. While this results in reduced production on TORC's assets from current levels, it is expected to drive a significant reduction in the production decline rate to 19% (from 24%), resulting in a pro forma corporate decline of 17%.
Whitecap will pivot even more toward sustainability and focus on FCF. We forecast that pro forma Whitecap will generate production per share growth of 5% from 2020 levels while only spending 63% of cash flow, assuming futures pricing. This translates into FCF of $330mm (on futures strip pricing), which equates to a FCF yield of 12%. This is a material increase from our prior forecast for stand- alone Whitecap while our 2021E D/CF forecast remains virtually unchanged. We further outline our expected enhancements to FCF in Exhibit 2.

TD Investment Conclusion

The biggest positives, in our view, are the enhanced scale, the improved FCF profile and ability to continue to execute on potentially accretive acquisitions. Our forecasts improve on the back of the transaction while our target price increases to $5.50 (from $3.25 prior), which on futures pricing equates to 6.5x 2021E EV/DACF and we reiterate our BUY rating.