Whitecap rides waves of change

Moves into ranks of Canada’s top 10 publicly traded oil and gas companies with takeover of Torc Oil & Gas in C$900 million deal

Gary Park

for Petroleum News

Whitecap Resources is pulling out the stops to bolster its position in the ranks of Canada’s mid-sized oil and natural gas producers, opting for takeovers rather than organic growth.

In its biggest strike yet, Whitecap is buying Torc Oil & Gas in a C$565 million all-stock deal, while assuming debt estimated at C$335 million.

Once the transaction closes early in 2021, Whitecap estimates it will pump out 100,000 barrels of mostly light-grade oil equivalent per day

The deal comes four months after the company announced it was acquiring privately held NAL Resources for C$155 million to gain output of 27,000 boe per day.

“We believe this is a good time for consolidation,” said Whitecap Chief Executive Officer Grant Fagerheim.

“We believe sale and size does matter,” he said. “If you are not advancing or growing you are regressing.”

Completion of the takeover will make Whitecap the ninth largest publicly traded oil and gas company in Canada, with an enterprise value of about C$4 billion.

Cody Kwong of Stifel FirstEnergy said that by rounding up Torc and NAL, Whitecap will gain more attention from investors by positioning itself as a “consolidator of choice.”

“You’re in an M&A market that favors a buyer. It’s a lot more efficient to add barrels through acquisition than it is to do it on an organic basis by drilling,” he said.

“If the M&A market is hot for you, you don’t want to just nibble at the edges if there’s an opportunity. You want to make a big sting when you can.”

Jeremy McCrea, an analyst at Raymond James, said that as many companies seek buyers because of their heavy debt loads and constrained investment capital, the market is rewarding mergers that bring together well-run companies in no need of rescue.

In order to attract more attention “so that you can get access to outside equity” companies must pursue size, he suggested.

Companies good fit

Torc’s major shareholder with a 29% stake is the Canadian Pension Plan Investment Board, which manages C$456 billion in contributions from workers and employers.

The buying opportunities have grown with word from Imperial Oil (69.6% owned by ExxonMobil) that it is writing down up to C$1.2 billion of mostly oil sands assets it never expects to develop, while it concentrates on natural gas prospects that are rich in petroleum liquids.

That moves comes after France’s Total said earlier this year it was taking a US$8 billion impairment on the value of its mainly Canadian oil sands holdings.

Canadian Natural Resources, which acquired debt-laden Painted Pony Energy for C$461 million earlier this year, said it plans to hike its capital budget to C$3.2 billion in 2021 (up C$500 million from 2020), and boost output by 5% or 62,000 boe per day to 1.23 million boe per day.

Canadian Natural Resources President Tim McKay said that “as COVID-19 works through the system we will see what the demand does to pricing. If we see shipping opportunities (Enbridge’s Line 3 and the Trans Mountain expansion in 2022) come to fruition in terms of egress (to the U.S. and Asia) and pricing we are nimble enough to adjust.”

With its inventory of longer-life assets Canadian Natural said it has near- and mid-term growth potential to add 245,000-285,000 boe per day.

Production in Alberta is forecast to dip by 250,000 bpd this year, reflecting shut-ins following the spring price collapse, but is expected