TORC Oil & Gas Ltd. VREYD

Final Analysis Report (RBC)

[retiredcf]

January 15, 2021

TORC Oil & Gas Ltd. End of an Era

Our view: We are downgrading TORC shares to Sector Perform following its acquisition by Whitecap Resources. Each TORC share will be exchanged for 0.57 Whitecap shares, leaving limited room for near-term outperformance relative to the surviving entity. The deal is expected to close February 25, 2021.

Key points:

Whitecap Resources acquires TORC Oil & Gas in an at-market, all-stock transaction. TORC shareholders will receive 0.57 Whitecap shares for each TORC share held. TORC shareholders will hold roughly 22% of the combined entity following the anticipated close of the transaction on February 25. See our recent note here.

Estimate changes. We have revised our estimates to reflect updated guidance from Whitecap; Q1 capital is expected to be in the range of $40 million, with 22 gross (20.7 net) wells drilled. Production volumes for 2021 are expected to be in the range of 22,000 boe/d, a decline of approximately 15% y/y. Our production estimates decrease by 13/15% in 2021/2022. CFPS falls by 1%/1% in 2021E/22E, driven by changes to our commodity price deck, see the note here.

Downgrading to Sector Perform, raising price target. We have downgraded TORC shares to Sector Perform (previously Outperform) and bumped our price target to $3.00/share (from $2.25/share) following its acquisition by Whitecap Resources. Our new price target is in-line with the 0.57 exchange ratio per the transaction, given the current price of Whitecap shares.