CIBC Surf the wave
Whitecap reported Q1/15 results after market yesterday that were ahead on production and essentially in line on cash flow. Actual Q1 production of 38,351 Boe/d (74% oil and NGLs) was 4% above both our forecast of 37,000 Boe/d and consensus of 36,758 Boe/d, and 6% higher than the company's initial forecast of 36,200 Boe/d for the quarter. Cash flow of $0.43/share was within a penny of both our estimate of $0.42/share and consensus of $0.44/share. The production beat was attributed primarily to better capital efficiencies across the company's core areas (details on page 3), as well as to an incremental 800 Boe/d of production from the earlier-thanexpected ramp-up of production at its Elnora Nisku pool in March (originally budgeted for mid-year). We note that cash flow was in line despite the production beat primarily due to lower-thanexpected realized pricing. As a result of stronger-than-expected production and higher efficiencies, Whitecap has reduced its budget slightly by 3% to $235MM (from $242MM) while maintaining its 2015 production guidance of 39,700 Boe/d. We note that the revised capital program includes and incremental $3MM allocated to waterflood projects and facility optimizations. Whitecap spent $76MM on development activities in Q1 (20% lower than the company's initial forecast) to drill a total of 33 (30.9 net) wells. For the remainder of 2015, the company is planning to drill 96 (86.0 net) wells, of which 42 (42.0 net) will be at its recently acquired Kerrobert Viking property, as well as 12 (7.6 net) Cardium wells at West Pembina and 4 (3.5 net) wells in the Boundary Lake area. Implications We maintain our Sector Outperformer rating with an unchanged price target of $18.50. We consider WCP to be our top pick today owing to its defensive sustainability, operational execution, and reasonable relative valuation. Whitecap currently trades at a 2015E EV/DACF multiple of 9.4x and a P/Risked NAV multiple of 91% (vs. the group averages of 8.8x and 87%), while providing investors with a current yield of 5.3% (vs. the group average of 5.2%).