Oil & Gas Still Matters.
Last month, my wife and I took a road trip to Alberta. The round trip covered over 2,000 kilometers. Along the way, we made several stops at gas stations to fill up. Each time, I couldn’t help but appreciate the convenience of just pulling in, filling up the tank in less than five minutes, and being back on the road. It made me think about how integral oil and gas still are to our daily lives, despite all the talk about transitioning to greener energy sources.
I’m bullish on energy, and I can’t shake the feeling that one day soon, we’ll wake up to headlines about a major geopolitical conflict that will send oil prices skyrocketing. With rising tensions across the globe, the world’s energy needs may become even more pronounced, and oil could once again find itself at the forefront. That's why I want to be ready to take advantage of the right opportunity when it comes. Everywhere I look, the global population is growing, and cities—big and small—are expanding. Despite the push for cleaner energy, I believe the world will still need more oil and gas in the coming years.
That said, I’m also mindful that a global economic downturn is looking more and more likely. If that happens, we could see oil prices fall sharply in the short term. For now, I’m being cautious and keeping a close watch on the market. While I’m bullish on the long-term prospects of energy, I want to be strategic about my timing and entry points into new positions, especially in this uncertain environment.
In this edition, I’m highlighting a Canadian oil and gas producer that I've been following closely for some time. This mid-tier company first caught my attention about a year ago, and it has grown impressively—from producing 15,000 boe/day in 2009 to 177,000 boe/day today. While I haven’t pulled the trigger just yet, I plan to add it to the portfolio soon. With the company set to report its Q3 results at the end of next month, I might wait until after the report to make my move.
Whitecap Resources
I’ve got to admit, I’m getting more bullish on oil and gas lately. The deeper I dive into research, the clearer it becomes that this sector isn’t fading. With the growing global demand for energy, oil and gas might be more essential in the near future than we expect. That’s why I’ve been keeping an eye out for a solid producer to add to my portfolio, and one company that’s caught my attention is Whitecap Resources. They’re not one of the massive oil giants, which I actually prefer—they’re more of a mid-tier player, giving them agility and focus that larger companies often lack.
Headquartered in Calgary, Whitecap is strategically positioned in some of Canada’s most prolific energy regions, including the Montney gas fields in Northern Alberta and BC, the Cardium oil play in Alberta, and the Viking and Southeast Saskatchewan oil plays. They’ve grown steadily over the years, thanks to smart acquisitions and solid management decisions. It’s this careful approach that’s helped them become a standout player in Western Canada’s oil and gas sector.
The company was founded in 2009, and in the early 2010s, Whitecap was producing around 15,000 barrels of oil equivalent per day (boe/d). By 2019, production had climbed to about 70,000 boe/d, largely due to acquisitions like the Western Saskatchewan oil assets and Beaumont Energy. By the end of 2020, Whitecap was producing an impressive 89,000 boe/d.
2021 was a transformative year for the company. Whitecap closed two major deals—the acquisition of NAL Resources and the strategic combination with TORC Oil & Gas. These moves pushed their production above 100,000 boe/d, a significant leap from just a few years prior. As of 2024, Whitecap’s production has surged to over 171,000 boe/d, solidifying their position as one of Canada’s leading mid-sized oil and gas companies.
This growth has been driven by Whitecap’s commitment to prudent, accretive acquisitions. By focusing on quality assets in core regions and integrating them seamlessly into their operations, Whitecap has consistently increased production while maintaining financial discipline. As they continue to grow, the company remains focused on strengthening its balance sheet, reducing debt, and maximizing shareholder returns.
Weyburn CCUS: A Game-Changer for Whitecap Resources
One of the most interesting and unique assets in Whitecap Resources' portfolio is the Weyburn Carbon Capture, Utilization, and Storage (CCUS) project. This isn’t just any oil field—it’s part of one of the world’s largest and most successful carbon capture initiatives. Whitecap owns a 65.3% working interest in the Weyburn field, which has become a key contributor not only to the company’s oil production but also to its environmental, social, and governance (ESG) credentials.
So, how does it work? Essentially, the Weyburn project involves injecting CO₂—captured from industrial sources—into the oil reservoir. The injected CO₂ helps to increase oil recovery by reducing the viscosity of the oil, making it easier to extract. This process, known as enhanced oil recovery (EOR), extends the life of the field while also sequestering the CO₂ underground, keeping it out of the atmosphere. Since the project started in 2000, it has stored over 30 million tonnes of CO₂, making it a leader in the global CCUS space.
The Weyburn CCUS project provides Whitecap with two key benefits. First, it allows the company to extract more oil from the Weyburn field than would otherwise be possible, which boosts production and revenue. Second, the project positions Whitecap as an environmentally responsible operator, contributing to its efforts to reduce greenhouse gas emissions while still producing vital energy resources. This makes Whitecap a more attractive investment for those looking for companies with a strong focus on sustainability and long-term value.
Overall, Weyburn CCUS is a win-win for Whitecap: it enhances their oil recovery efforts while helping to mitigate climate impact, all while contributing positively to the company’s bottom line.
Financial Overview: Strong Cash Flows and Shareholder Focus.
Looking at the most recent figures from Q2 2024, Whitecap Resources’ balance sheet holds up relatively well, even with some notable aspects that might initially raise questions. The company doesn’t hold any cash on its balance sheet, which might make some investors pause. Maybe I'm old-fashined but I like to see cash or at least net-cash on a balance sheet. But Whitecap’s strategy is clear: they use their robust cash flow to pay down debt and reward shareholders rather than let cash sit idle.
As of the end of Q2, Whitecap's net debt sits at $1.3 billion, (0.6x Debt to EBITDA) with a total credit capacity of $2.9 billion. The company has a debt-to-equity ratio of 0.24.
By the end of 2024, the goal is to bring net debt to $1 billion. A large part of this plan hinges on the recent sale of some non-core infrastructure assets, which brought in $520 million. These smart moves have improved Whitecap’s financial position, allowing them to be more flexible and ready to take advantage of opportunities as they arise.
On the cash flow front, Whitecap is hitting strong numbers. In Q2 alone, they generated $426 million in funds flow, with capital expenditures at $204 million. This resulted in $223 million in free funds flow—a healthy amount that’s being put to good use. The company is balancing its efforts between rewarding shareholders and reducing debt. So far in 2024, Whitecap has returned $220 million to its shareholders through a mix of dividends and share buybacks. With a monthly dividend yielding over 7%, Whitecap is clearly committed to keeping its investors happy. They’ve also allocated another $200 million for share buybacks in the second half of the year, which signals just how serious they are about shareholder returns.
Looking out into the next five years, Whitecap is targeting an average annual production growth rate of 5%, aiming to reach 215,000 boe/d by 2029. Over this five-year stretch, they’re forecasting $10 billion in funds flow, with $6 billion set aside for capital investments and $4 billion in free funds flow. $3 billion of that free cash flow is earmarked for returns to shareholders, and the remaining $1 billion is targeted for debt repayment, meaning Whitecap expects to be completely debt-free by 2029.
The company also boasts an impressive drilling portfolio, with over 6,400 total drilling locations across 2.5 million net acres, including 700,000 acres in the high-potential Montney and Duvernay regions. Their long-term production potential is good, with an eye on producing up to 550,000 boe/d in the future.
Whitecap’s approach to disciplined capital management and its clear commitment to growth make it a compelling play in the energy sector. With stable cash flows, a strong balance sheet, and a generous dividend, the company is well-positioned to deliver value both now and over the long haul.
Annual Financial Information
| In USD$ | 2023 | 2022 | 2021 | 2020 |
|---|---|---|---|---|
| Sales | $3,381M | $3,740M | $1,984M | $922M |
| Net Income (loss) | $889M | $1,676M | $1,776M | ($1,845M) |
| EPS | $1.46 | $2.70 | $2.97 | ($4.52) |
| Shares Outstanding | 609M | 621M | 603M | 408M |
| Cash | $0 | $0 | $0 | $0 |
| Total debt | $1.356B | $1.844B | $1.055B | $1.101B |
| Free Funds Flows | $788M | $1,496M | $696M | $254M |
| Dividends | $373M | $237M | $126M | $87M |
| Share repuchases | $122M | $243M | $164M | $11M |
| Working capital | -$56.1M | $218.2M | -$211M | -15M |
| Retained Earnings(deficit) | $655M | $165M | ($1,232M) | ($2,833M) |
| Avg. Production (boe/d) | 156,501 | 144,389 | 112,222 | 68,662 |
Why I like Whitecap Resources
Whitecap Resources is ticking a lot of boxes for me right now, and there are a few standout reasons why I’m particularly excited about adding this stock to the portfolio.
First, the valuation is attractive. Whitecap is trading at a single-digit price-to-earnings ratio, which immediately grabs my attention. It’s always a good sign when you can get into a solid company at a reasonable valuation, and that’s exactly what Whitecap offers right now.
Then there’s the dividend. I really like that Whitecap pays a monthly dividend, and with a yield of 7.33%, it’s hard to ignore. What’s even more appealing is that the dividend payout ratio is below 50%, meaning the company is paying out less than half of its free funds flow, which leaves plenty of room for sustainability and growth.
That kind of consistent cash flow coming in every month is perfect when you’re looking to lock in reliable income. The ex-dividend date is coming up on September 30th, with the dividend payout hitting around mid-month—something to keep in mind if you’re looking to capture that yield.
What makes Whitecap even more compelling for me is their strong cash flow. I like how the company is managing its finances—paying down debt while continuing to reward shareholders. They’ve been clear about their commitment to reducing their debt load, and that kind of financial discipline is something I appreciate.
Now, let’s talk about why I’m interested in oil and gas right now. With the conflicts currently unfolding in the Israel/Palestine/Lebanon/Iran region, alongside the ongoing escalation in the Ukraine-Russia war, I think there’s a strong possibility that oil will stay at elevated prices. That would be a positive for companies like Whitecap Resources, which could benefit from stable or rising oil prices in this uncertain environment.
On top of that, over the past year, I’ve been content parking my cash in GICs, which were yielding over 5%. But now, those same GICs are barely offering 4%. If the Bank of Canada continues to lower rates, it’s unlikely I’ll even be able to get 4% in a few months. With Whitecap, I have the opportunity to put some of that cash to work and lock in a 7.33% yield, paid monthly—a much more attractive return in the current climate.
That’s already a compelling reason to invest, but there’s more. I also view oil and gas as a hedge against a potential black swan event. Should any major geopolitical shock occur, like a sudden escalation in these conflicts, we could see oil prices spike overnight. In these uncertain times, having exposure to energy offers both income and a layer of protection against global volatility.
I plan to add Whitecap Resources to the portfolio in stages, starting with a 30% tranche. If the timing isn’t quite right and the stock dips, I’m prepared to add two more 35% tranches as it drops further. My intention is to hold WCP indefinitely, as I’m focused on companies with solid yields. With Whitecap’s 7.33% dividend, it aligns perfectly with my long-term strategy. That said, I’m waiting for a bit of a dip before buying my first tranche, and I’m targeting an entry price of around $9.90.
On High Alert: Election Tensions & Global Uncertainty
With just 45 days until the U.S. election, the geopolitical landscape is heating up in ways that are hard to ignore. The Russia-Ukraine conflict seems on the verge of escalation, especially if the U.S. and NATO proceed with providing Ukraine long-range missiles. Such a move could quickly shift the dynamics on the ground and add even more tension to an already volatile global situation.
Meanwhile, in the U.S., political and economic uncertainty is growing. Another assassination attempt on former President Donald Trump has added another layer of unpredictability to an already chaotic election season. Economically, gold prices continue to rise, recently hitting new highs—an indicator that investors are seeking safety. However, despite rising gold prices, troubling signs of a softening job market suggest that broader economic challenges could be on the horizon.
China’s economy is also under significant pressure. Deflation is becoming a growing concern, with ripple effects that could become severe. If households hold back on spending, it could spark a deflationary spiral, where lower revenues lead to layoffs and wage cuts, further reducing spending. Should this cycle continue, it could have a profound impact on the global economy.
Given all this uncertainty, it’s difficult to predict where we’ll stand by December 2024. We could just as easily see a black swan event—whether geopolitical or economic—that sends oil prices soaring, or we might face a wave of layoffs and recessionary pressures that pull stock and commodity prices lower.
In the U.S., the Federal Reserve has just announced a 0.50% rate cut, signaling their concerns about growing economic pressures. Here in Canada, I expect more rate cuts to follow before the year’s end as we face similar challenges. Declining GIC yields, now barely above 4%, reflect this new reality, and it’s becoming harder to park cash for a decent return as rates continue to drop.
Personally, I’m still holding over 85% cash in my portfolio. Most of that cash is in 1-year GICs that provide monthly income. I started locking in last October at 5.40%, and the most recent purchase was a GIC maturing in September 2025 at 4.13%. But with current GICs now yielding less than 4%, and with more rate cuts likely on the horizon, it’s becoming less attractive to keep such a large portion in cash.
That’s why I’m now seriously considering moving some of it into solid companies that offer strong, reliable dividends. I’m focused on building a portfolio that will provide me with consistent income, and I’m looking for yields above 6%.
For now, it’s a waiting game. With so much uncertainty looming on the geopolitical and economic fronts, I’m holding off on adding any new positions until the markets provide a clearer signal—or at least, a more attractive entry point. A correction seems inevitable, and when it comes, I want to be ready to act. In the meantime, I’m keeping a close eye on developments as we approach the U.S. elections, bracing for whatever volatility or opportunities may arise.
Portfolio Composition
| As of September 20th, 2024 | |
|---|---|
| Category | Portfolio Weight |
| Cash and GICs | 88.53% |
| Speculative Picks | 1.62% |
| Defensive Picks | 9.22% |
| Crypto | 0.64% |
| TOTAL | 100% |
Remember that the content of this newsletter is neither a stock recommendation nor investment advice. This is just something to consider. You can access my watchlist and portfolio through the link below. By clicking the link below you accept all responsibility for any potential losses that might result from buying any of the stocks mentioned in this newsletter.