U.S. Markets closed

BMO Remains Whitecap Resources Bull After Business Update

Jayson Derrick

The Candian TSX-listed oil and gas company Whitecap Resources Inc (TSX: WCP) (OTC: SPGYF) announced Monday that it will take a "more cautious approach" to manage costs and improve its balance sheet.

The Analyst

BMO Capital Markets analyst Ray Kwan maintained an Outperform rating on Whitecap Resources with a price target lowered from CA$7 ($5.26) to CA$6 ($4.51). 

The Thesis

Whitecap said it plans on reducing capital expenditures in the back half of 2019 by 17%, which should bring total 2019 capital expenditures to $400 million, or $50 million less than prior guidance.

The company's move to reduce capital and maximize free cash flow is the "right decision," Kwan said in a Monday note. (See his track record here.)

The analyst named the following takeaways from the company's plan:

  • The dividend payout can be sustained so long as WTI oil trades at $45 per barrel or above.
  • Average production guidance for 2019 remains unchanged at 70,000-72,000boe/d but exit fourth quarter production guidance was lowered from 77,000boe/d to 74,000-75,000boe/d.
  • Free cash flow post-dividend for 2019 is estimated by Kwan to be $124 million, which implies an all-in payout ratio of 81%. 2020's all-in payout ratio is modeled at 96%.
  • Separately, the company said it fixed $200 million of bank debt at an interest rate of 3.25% per year for the next five years. Whitecap's total net debt currently stands at $1.2 billion out of a total debt capacity of $1.77 billion.

Price Action

Over-the-counter Whitecap Resources shares were down 3.57% at $2.60 at the time of publication. 

Related Links:

'No Easy Way Out' For Occidental Petroleum, Says Bearish JPMorgan

Barclays Likes Chevron Better Than Exxon Right Now For Big Oil Investors

Latest Ratings for WCP

Date Firm Action From To
Aug 2019 Maintains Outperform

View More Analyst Ratings for WCP
View the Latest Analyst Ratings

See more from Benzinga

© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.