Whitecap Resources (TSX: WCP) is a Canadian oil and natural gas producing company, operating primarily in Western Canada. Despite easing oil prices, the company has generated an impressive 44.9% gain from its May lows, while its stock is up 12.9% year to date. Along with the strategic combination with Veren, its solid second-quarter performance appears to have improved investors’ sentiments, driving its stock price higher.
In light of recent developments, we will review WCP’s quarterly performance, growth potential, and valuation to assess whether the stock presents attractive buying opportunities at these levels.
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WCP’s second-quarter performance
WCP posted an impressive second-quarter performance in July, with its total average production standing at 292,754 boe/d (barrels of oil equivalent per day). Its production represents a 5% increase per share compared to the same quarter of the previous year and a 2% increase from the prior quarter. The addition of new production facilities and optimization of downtime led to its production growth.
Moreover, the company completed the strategic combination with Veren in May, thereby becoming the seventh-largest oil and natural gas company in Canada. The company generated a funds flow of $713 million or $0.75/share, representing a 5.6% increase from the previous year’s quarter. The company also made capital investments of $409 million during the quarter, thereby generating free cash flow of $314 million.
Amid its healthy cash flows, WCP has returned $298 million to its shareholders with monthly dividends and share repurchases. The company has also renewed its share-repurchase program in the second quarter, allowing it to repurchase 122.1 million shares by May 22, 2026. These share repurchases could lower the company’s outstanding shares by 10%. The company also closed the quarter with net debt of $3.3 billion, resulting in a net debt-to-annualized funds flow ratio of one, which appears healthy. Additionally, its unutilized net debt of $1.6 billion offers a substantial financial flexibility to sail through this volatile macro environment. Now, let’s look at its growth prospects.
WCP’s growth prospects
Despite the growing transition towards cleaner energy, oil and natural gas remain the primary sources, accounting for 56% of the energy mix in 2024. Additionally, in its recent Global Outlook report, ExxonMobil has stated that the share of oil and natural gas in the global energy mix could decrease by just 1% over the next 25 years, reaching 55% by 2050. Therefore, rising energy demand could benefit oil and natural gas producers, including WCP.
Moreover, WCP has planned to invest $1.2 billion in the second half of this year, strengthening its production capabilities. Additionally, the company has made substantial progress in integrating Veren’s assets and workforce, capturing early synergies by consolidating corporate costs and strengthening its credit profile. The company’s management anticipates realizing additional gains in capital efficiency and operating cost savings within the next six to 12 months by leveraging shared learnings and expertise from the consolidated portfolio.
Amid these growth initiatives, WCP projects its average daily production in the second half to come between 363,000 and 368,000 boe/d, representing a substantial increase from the first half. Additionally, the company projects to deliver steady long-term organic growth of 3–5%. Therefore, the company’s growth prospects look healthy.
Investors’ takeaway
Despite its solid returns over the last few months, WCP trades at an attractive next-12-month price-to-sales multiple of 2.2, while its price-to-book multiple stands at 1.2. Additionally, the company pays a monthly dividend of $0.0608/share, translating into a forward dividend yield of 6.67%. Considering its healthy growth prospects, improving financial position, and attractive valuation, I believe WCP would be an attractive buy at these levels.
