Whitecap Resources (TSE: WCP) acquires, develops, and produces crude oil and natural gas. It focuses on the Boundary Lake, Valhalla, West Central Alberta, West Central Saskatchewan, and Southwest Saskatchewan.
The company recently announced that it has agreed to acquire XTO Energy Canada for a price tag of C$1.9 billion, or C$1.7 billion net of working capital. The acquisition will be funded with debt, leaving the company with C$2.1 billion of net debt upon closing. For reference, this would translate to a debt-to-EBITDA ratio of 0.8 times, which is expected to decrease to 0.6 times by the end of the year.
Whitecap Resources appears to be paying a very attractive price for XTO Energy. The company estimates that at the net purchase price of C$1.7 billion, the acquisition will generate a 15% free funds flow yield in 2023. This assumes WTI oil prices of US$85 per barrel and natural gas prices of C$4.50/GJ AECO natural gas.
In addition, the acquisition will be accretive on a per-share basis. At the assumed commodity prices above, free funds flow per share would increase from C$1.48 to C$1.77 in 2023, equating to an increase of 20%. Despite this, the stock is down 5.7% on the day at the time of writing.
Dividend
For income-oriented investors, WCP pays a 3.85% dividend yield on an annualized basis. When taking a look at Whitecap’s historical dividend yield, you can see that it has trended downwards:
At 3.85%, the current yield is on the low end of the range, indicating that income-oriented investors are paying a premium relative to yields they have been able to receive in the past.
Analyst Recommendations
Whitecap Resources has a Strong Buy consensus rating based on eight Buys and one Hold assigned in the past three months. The average WCP price forecast of $15.02 implies 58.2% upside potential.
Final Thoughts
Whitecap’s acquisition of XTO Energy Canada appears to be a good move for the company, as it is accretive and attractively valued. In addition, the company has the backing of analysts who rate it a Strong Buy. As a result, investors looking for energy exposure might want to consider Whitecap.
