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Whitecap remains top pick in dividend paying space, says Dundee Capital

Last updated: 06:17 18 Dec 2014 AEDT, First published: 07:17 18 Dec 2014 AEDT

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Whitecap Resources (TSE:WCP) had its top pick status reiterated by Dundee Capital Markets Wednesday, as the Canadian light oil producer lowered its capital budget for next year and deferred its planned dividend increase.

Analysts at Dundee rate the company a buy, and increased their price target to $14.00 from $13.75 previously.

"We view its clean balance sheet, robust hedge book, sustainable payout ratio and dependable management team as key hallmarks that will attract investors looking to high grade amidst the current commodity price volatility," analyst Brian Kristjansen wrote in a note released to investors earlier today.

"Given some measure of crude oil price stability we would also expect the stock to be one of the first to positively respond."

The company revised its capital budget for next year to $245 million from $360 million, which Dundee said is the right move, and is only slightly lower than the capital markets firm's $267 million forecast. It also announced higher forecast production of 37,500 barrels of oil equivalent per day (boe/d), versus Dundee's 37,211 boe/d, as locations are high graded. 

Whitecap is now planning to drill 99 wells, down from the original 180, while a portion of planned facility and infrastructure capital spending was also deferred.

Meanwhile, the oil producer also deferred its dividend increase for the sake of sustainability and free cash flow, Dundee said. It had planned to bolster its dividend to 84 cents per share annually, from the existing 75 cents per share, which was to take effect in January.

"This keeps the balance sheet even cleaner at 1.4x (from 1.6x) and keeps the key sustainability ratios lower at 38% simple and 87% total payout (vs. dividend peer averages of 40% and 120%, respectively)," Kristjansen said.

"The company has been given indicative lending value of approximately $1.2 billion but have elected to maintain the current borrowing base of $1.0 billion, still providing ample liquidity to take advantage of consolidation opportunities should they arise as we suspect they will," the analyst continued.

Whitecap Resources is focused on light-oil weighted production derived from the Cardium in East Pembina and Garrington Alberta, the waterflooded Montney/Sexsmith at Valhalla and the Viking in southwest Saskatchewan.

Shares added 8.5 percent to C$11.92 on Wednesday as of 3:00pm ET.

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