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I managed to sell the last of my WCP shares at $8.01 a while back, that worked out.
WhiteCap Resources Inc. (WCP.TO)
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pretty amazing reversal in this today.
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Its a Traders market for sure.
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WCP bought XTC for $1.7B and increased their dividend by 22% and cash flow by about the same amount per-share. A huge acquisition.
But they could have simply bought back 29% of their shares for the same price and increased their cash flow and dividend by more immediately. Sigh. The stock is down quite a bit on an up day. My assessment is this is management empire building. If it was shareholder returns, they would have just bought back their shares. Still, they think they can increase their dividend by another 65% in 18 months.
But they could have simply bought back 29% of their shares for the same price and increased their cash flow and dividend by more immediately. Sigh. The stock is down quite a bit on an up day. My assessment is this is management empire building. If it was shareholder returns, they would have just bought back their shares. Still, they think they can increase their dividend by another 65% in 18 months.
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Neither Imperial Oil nor ExxonMobil Canada would have sold that XTO Canada interest unless they had gotten a fair deal (cash flow multiple per flowing barrel, etc) so clearly Whitecap bought to bulk up, perhaps consolidate some operations, and get cost savings that way. There is value in economies of scale at least some of the time.
Added: As an additional comment, whenever the mother ship of multi-nationals buy out a company like ExxonMobil did with XTO for the US assets, their International affiliates are expected to fold the International assets, e.g. XTO Canada, into their local operations. Often they are not a good fit and they go on the block after a few years. This could be one of those scenarios.
Those kinds of things happened when Exxon bought Mobil, Chevron bought Texaco and BP bought Amoco. In those cases, a lot of the International assets were eventually sold.
Added: As an additional comment, whenever the mother ship of multi-nationals buy out a company like ExxonMobil did with XTO for the US assets, their International affiliates are expected to fold the International assets, e.g. XTO Canada, into their local operations. Often they are not a good fit and they go on the block after a few years. This could be one of those scenarios.
Those kinds of things happened when Exxon bought Mobil, Chevron bought Texaco and BP bought Amoco. In those cases, a lot of the International assets were eventually sold.
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It will be interesting to see how this move plays out for WCP. One good thing about the deal is that it is an all cash purchase. After getting burned by CPG's attempt to empire build during the last energy bull I am less reluctant to get excited when acquisitions happen. Without looking closer at the deal and WCP financial position (i know they have a lot of free cash but have no idea of current debt) I will keep my comments more general and not specific to WCP or the purchase. If we are in a long energy bull and this is a one off for WCP it is likely a good acquisition. If it is the start of growth at any cost it will not end well. One of the key differentiators is share dilution. If a company has to rely heavily on share offerings to finance purchases because they cannot get reasonable financing through traditional lending it becomes more of a gamble than a purchase. Doctrine's suggestion would definitely have provided better near term return to shareholders.
Imperial/Exxon got an excellent price. This acquisition is really striking all of the wrong notes for me. Less cash flow to shareholders, more debt, more waiting, more growth and exposure to inflated costs, less accretive than buying back their own depressed shares.
WCP has an attractive dividend but when you consider they were at a 30% FCF yield, 4.5% is not very much. They are giving back just a tiny portion of that FCF where the remainder goes to Exxon/Imperial for the next 18 months as well as into the ground.
I'm trying to stick with less risk and WCP has moved up the risk chart for me and broken my investment thesis, so I'm out for now after adding at $8.95 just last week, looking for a replacement or maybe adding to another company I already own to maintain my exposure. Maybe next year when the debt comes down it will start to look better. WCP was by far the worst performer out of all ~7 of my O&G stocks.
WCP has an attractive dividend but when you consider they were at a 30% FCF yield, 4.5% is not very much. They are giving back just a tiny portion of that FCF where the remainder goes to Exxon/Imperial for the next 18 months as well as into the ground.
I'm trying to stick with less risk and WCP has moved up the risk chart for me and broken my investment thesis, so I'm out for now after adding at $8.95 just last week, looking for a replacement or maybe adding to another company I already own to maintain my exposure. Maybe next year when the debt comes down it will start to look better. WCP was by far the worst performer out of all ~7 of my O&G stocks.
Doctrine - curious which other stocks are now on your radar now that WCP has soured on you. I appreciate your assessment of the company you posted above..
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re WCP...coulda, woulda, shoulda [email protected] around $12....... but, as usual, I got a little greedy...🙁
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These sre prized assets that were purchased in a competitive bidding process. There were a number of potential buyers - Tourmaline, ARC, CNRL - come to mind. The fact that Whitecap won is simply that there were the highest bidder. Did they pay too much? Will they be able to handle their debt? Are they planning a stock issue? Clearly, this a transformative event for Whitecap and I believe Grant Fagerheim can make it succeed. I first had dealings with Grant some 39 years ago when he was at Sceptre Resources. At the time, I was impressed with his business acumen and professionalism. In my view, he has only got better - he is a Pro.
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The company has no plans to sell shares as it is funded with cash and upsized term loan. Leverage looks manageable. I'll be watching this one. They plan to improve the production from these properties which I gather were under invested for some time as the previous owner declared them non-strategic. We'll see what they can do to grow production and cashflow.
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🤞😁🤞
Considering TVE as a WCP replacement. While they also recently did an acquisition, it was less than 5% of market cap, as opposed to 30%; and it will be paid within months, not years, and is more accretive. Maybe greater upside.
Exxon made a major commitment to the ESG crowd to reduce their fossil fuel reliance and to refocus on renewals. Don't know if this was part of the motivation for this sale. Overall Whitecap has one of the most diverse set of holdings. Everything from the SK Bakken formation to the Montney. Their management is very respected. It has a strong balance sheet . I am thinking this is a positive accretive acquisition. Apparently it fits very well with its existing position in this formation. I have a fair sized position and I am not selling .
There are unfortunately just so many reasons not to like this acquisition of XTC from Imperial/Exxon. Any acquisition with oil > $100 is highly suspect especially when shares are so undervalued, and this is a huge one at 30% of their market cap. If they bought back $1.7B of shares instead of buying this company for $1.7B, they could have exceeded all of their post-acquisition metrics on cash flow per share and production per share today instead of 2 years from now, and they wouldn't have to dump $300-400M a year into new capital expenditures. And they could then just buy another $1.7B shares next year too. It is not an accretive acquisition at all - at best neutral, but that requires oil to stay high since they bought high. They are dependent on high oil prices now for at least 2 years.
WCP has a vision for a larger oil company that was NOT communicated to shareholders just a month ago. This looks like misleading investors to me and is upsetting. The celebrated 22% increase in the dividend is less than $50M a year out of more than $1.25 billion expected free cash flow, when just a month ago they explicitly promised to give 50% - well more than $600 million - to shareholders, at a minimum. Instead, all of that juicy free cash flow that investors have been waiting 8 years of pain for since WCP fell from $18 a share in 2014 goes to Exxon/Imperial oil and to oil service companies for growth, and interest in a tripling of debt.
It's not really surprising the company is at a new 6 month low in stock price despite oil at $110. I.e. despite oil going from $80 to $110, WCP is flat/down and the XEG index is up 25%.
WCP has a vision for a larger oil company that was NOT communicated to shareholders just a month ago. This looks like misleading investors to me and is upsetting. The celebrated 22% increase in the dividend is less than $50M a year out of more than $1.25 billion expected free cash flow, when just a month ago they explicitly promised to give 50% - well more than $600 million - to shareholders, at a minimum. Instead, all of that juicy free cash flow that investors have been waiting 8 years of pain for since WCP fell from $18 a share in 2014 goes to Exxon/Imperial oil and to oil service companies for growth, and interest in a tripling of debt.
It's not really surprising the company is at a new 6 month low in stock price despite oil at $110. I.e. despite oil going from $80 to $110, WCP is flat/down and the XEG index is up 25%.
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Mr. Fagerheim is on Bloomberg markets today to speak on the matter. Will try and post the link when it is up on their site. There were other bidders in the running for those assets. Not sure at what price the deal makes sense. If prices go up from here and stay high for a few years it will be a good deal. I am not sure we will remain at these levels longer term. He is expecting oil to remain in the range of $85-$125 longer term.
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