WHITECAP - WINS MASSIVELY IN XTO PURCHASE JULY 4/ 2022
WHITECAP RESOURCES - PURCHASE OF XTO
Whitecap Resources ( WCP ) steps up to the plate , and hits a bases loaded home run , the only issue is it's only the 3rd inning. We had the massive downfall of oil - Gas stocks in 2014 , and never recovered , then , finally the covid crisis that just sunamied the entire sector world wide . We even saw negative oil prices , yes people paying you to take there oil !
If your like me , and have been around pre 2014 , you not only have thick skin , you might actually be a zombie ! However , for those of you who have stuck it out , you might agree with me and my comments , you might not. If you don't, I look forward to your polite rebuttals , with the intention of learning , or bringing awerensss to myself , or the rest of us here at Stockhouse !
PHASE 1 :
During the early days of Covid , we saw mergers , purchases , that were fire sales , and company's like WCP , made out extremely well , for the record so did others such as ARC with the purchase of Seven Generations , or CPG - with the asset they purchased from SHELL . I am pulling these from memory , as I am not getting paid, to get exact facts , but you get the idea! So these purchases / acquisitions looking back , were incredible deals for the purchasers ! It's actually been some time now , that we have had decent oil - gas pricing , and by that I mean above $60 dollars BOE .
PHASE 2:
I see another phase in the industry taking place , and it's foundational consolidation. . Analysts have said this is coming , and really not much has taken place until now. Whitecap is hoping , that like the fire sale prices of early Covid , this $100 dollar plus BOE cycle is early days , and here to stay , and if it is , and there right , this will be the best deal for them to date by miles . For reference , someone mentioned Cresent point energy and there purchase of assets from Lightsteam near the end of the bull run in 2014. Do you know the price per barrel metric on this light oil acquisition in Saskatchewan? It was well over 100k Per flowing barrel , and I believe it was 110k . The price had already begun to tank as this purchase was closing , and that is why it's memorable ! We are paying if I remember correctly 58k per flowing barrel , on a under developed not just producing , but 20 year inventory of Tier one drill sites
Frankly , if this business is about survival , and not instant gratification, WCP is bullit proof , this was as I said a home run , unless they outlaw gas , and who knows it is the energy business ! Lol
The metrics are good , but what I think , and most of us already know, is the cost to drill is getting hit by inflation , and there is a labour shortage , so buying barrels producing at the point of purchase gives the buyer an exact cost per barrel , versus growing production , and the unknown ? I am in the camp of buying production at least for now . I think this deal will turn out to be the beginning of a larger movement in the industry to consolidate, and I beleive the prices they paid are the FLOOR , and will be the new bidding point for others , to what will be a rising cost to aquire barrels , versus produce.
CURRENT STRIP PRICING :
Someone said earlier today , that this was the worst deal in the history of this sector . Keep in mind this deal doesn't close until Aug 31/2022 . The debt taking 200 M of cash surplus in XTO , will be 2.1 B In 4 months, WCP suggest at current strip pricing they - we , will be at 1.8 B Net debt at year end . They then say at 85 dollar WTI and 4.50 Aeco ( my memory again ) will be at 1.3 B net debt first half of 2023 . Redirect states in his post regarding CIBC's analysis of this deal at current strip pricing we will be at 1.3 B by end of first Q 2023 . This suggests that at current strip pricing we will be at 800M net debt or 200 M below current net debt at end of 2ndQ . We didn't issue shares ? So .......if I am wrong , it won't be the first time , but does that not suggest we will have 200 M less than current net debt , and have paid for the entire purchase of XTO ? Worst deal in the history ? I think for the seller possibly , but not WCP. ( 210 M covers current dividend for reference at $ 0.36 , so it's significant ! )
FINAL COMMENT:
WCP states in there " DIVIDEND REPAYMENT AND RETURN IF CAPITAL FRAMEWORK " that upon hitting 1.8 B in net debt ( year end potentially sooner ) they will pay out 12-15 cents more annually in dividends , and at the magical marker of 1.3 B net debt they will additionally pay out to $0.73 annually . So baes on Fridays closing the new dividend beginning in July paid 4.926 % annually . The milesone dividend paid at 1.3 B net debt target will be a little more than double todays current dividend of approx. 4% or 8% ! So if your adding today , or like many of you , your ACB is well below todays share price , and you are getting into some incredible monthly returns ! ( congrats by the way ) your seeing 8 % on your base cost investment on todays per share price .
Now the kicker here is they say they will return to shareholders 75% or all Discretionary free cash flow once they hit $1.3 B net debt . CIBC suggests they are making $500 B plus DFCF at todays strip pricing or 2 B annually on a go forward basis . Keep in mind this is after cap-ex and dividend obligations . So 75% of 2 B is 1.5 B or divided by 600 M shares Is $2.50 cents per share . So current dividend at this point is $0.73 cents , along with $2.50 or 75% of DFCF is $3.23 per share in either buy backs or special dividends !
Conclusion - I am hanging onto my shares until November , and re assessing , as I don't see the $15- $16 price being hit until October at best , at that point I will re evaluate . I like property . Waiting for the rates to bring some deals my way .
To the long term holders, what is scary , is the movement to clean energy , so well I would never think of selling this holding ever , it's incredibly hard to think past even 3 months . Best of luck !!
The end !
WARNING : I AM A TOTAL IDIOT , DO NOT BELIEVE A THING I WRITE , AND MAKE YOUR OWN CONCUSIONS ...... BY CHECKING ALL THE FACTS AND EVEN THEN BE AWARE !
Hope you enjoyed this in some small way
Craig