Whitecap Resources Inc T.WCP

RE:More RBC

[Ocalaman]

retiredcf wrote: Their upside scenario target is $18.00. GLTA

August 4, 2016

Whitecap Resources Inc. Q2/16 - Fundamentals shine

Our view: Whitecap Resources' Q2/16 blew past RBC and Street consensus on strong base asset performance with minimal capex providing clear evidence of underlying portfolio quality, in our minds. We reiterate our Outperform rating and $15 price target.

Key points:

• Fundamentals shine. Whitecap's Q2/16 production of 40,388 boe/d (74% liquids) outpaced its 38,500 boe/d guidance target on better than expected operational performance from its base assets. CFPS of $0.29 was 16% better than RBC and Street consensus of $0.25. In addition to the 5% top-line beat, key sources of variation to our CFPS estimate include: $0.25/boe lower cash costs, mainly transportation royalties, and $1.58/boe higher hedging gains. Cash flow netbacks climbed to $25.72/boe (up 44% QoQ) while E&D spending of $16 million was on the low end of $15-25 million guidance, which in our minds is clear evidence of Whitecap's underlying portfolio quality. Whitecap left its 45,300 boe/d average production guidance and $175 million capex program unchanged, providing healthy cushion ahead.

• Heavy dose of extended reach drilling ahead. Whitecap will dial up activity in H2/16 with 67 gross wells planned, including 30 extended reach horizontals (ERHZ), targeting a 51,000 boe/d exit rate. Costs continue to be a tailwind with meaningful reductions realized in the Viking, with hz's tracking at $620k/well, and go-forward assumptions for Pembina Cardium ERHZ's down by 13%. Given the execution track record and operating momentum, we are raising our 2017 production outlook to 54,000 boe/d with a $12,500/boe capital efficiency metric, which reflects Q4/16 weighted capex.

• Financial outlook: FCF positive. At our WTI oil price outlook of $45/bbl in 2016 and $59/bbl in 2017, we calculate Whitecap's effective payout ratios at 77% and 60% respectively. Our basic payout ratio of 19% in 2017 leaves room to increase the dividend down the road. Whitecap exited Q2/16 with $834 million of funded debt vs our $863 million estimate, which did not factor in a minor $25 million Viking disposition. Whitecap's 2016E and 2017E net-debt-to-trailing-cash-flow ratios maps to 2.2x and 1.2x vs 3.6x and 3.7x for intermediate peers at RBC's deck.

• Discounted P/NAV valuation attractive given portfolio quality and financial outlook. Whitecap trades at 2016E and 2017E EV/DACF multiples (ex. hedging) of 13.3x and 7.2x (vs. oil-weighted peers at 12.5x and 7.6x) and a P/NAV ratio of 1.0x (vs. 1.1x for peers) at RBC's price deck despite its strong relative financial and operational performance.

• Reiterating Outperform rating and $15.00 price target. Our one- year price target reflects a 1.0x multiple of the $14.96/share sum of our $10.44/adjusted base NAV plus $4.52/share from risked resource development. Our target 1.0x multiple and rating reflects Whitecap’s strong track record of execution, above-average recycle ratios, and diversified portfolio strategy 

to be totally transparent you need to know thier caveat around the $18.00 and its total change which includes the dividend

"Upside scenario Our upside valuation of $18.00 reflects 10% higher recoveries from Whitecap’s Cardium and Viking programs above our type curve assumptions, which results in improving capital efficiencies and potential for dividend growth. Our upside case maps to 1.1x P/NAV (fully-risked NAV) and 21.7x 2016E EV/DACF (exc. hedging) multiples, with no change to our commodity outlook."