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Birds of a feather

Notes on Whitecap Resources' takeover of Invicta Energy and Crescent Point's shift from buying to drilling

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Mar 19, 2013

by Max Fawcett

Whitecap Resources (TSE:WCP) has been something of a darling among analysts and industry insiders of late, and it’s unlikely that its latest transaction will do anything to dull that sheen. The company, which converted last year to a dividend-paying outfit, has acquired Invicta Energy (CVE:VCA) in a cash and share deal worth $60.2 million. As a result, it will add an estimated 500 barrels of oil per day in production and 2P (proven and probable) reserves of three million barrels of oil equivalent along with a footprint of undrilled acreage in Lucky Hills, one of the most prolific parts of the Saskatchewan Viking play.

FirstEnergy likes the deal, and maintains its $12 target price along with the conviction that it can continue paying out its 6.5 per cent dividend with ease. “Our proforma modeling shows this acquisition to be slightly accretive to cash flow per share,” Cody Kwong said, “without tax¬ing the balance sheet which we now show to be 1.4 times debt/cash flow (forward) in what we continue to believe is one of the few sustainable dividend paying business models in our universe.”

Crescent Point Energy (TSE:CPG), a company that’s grown its production by making precisely the kind of accretive deals that Whitecap appears to have struck with Invicta Energy, announced its 4Q12 and year-end results late last week. Of note, in addition to better than anticipated production and cash flow and another year of reserve growth, is the fact that the company intends to pull back on making acquisitions in favour of drilling out some of its considerable inventory of land. “After a year marked by a flurry of acquisition activity, with the company spending over $3 billion to consolidate and enter new core areas, Crescent Point plans to focus on its organic efforts in 2013 and will have no shortage of opportunities across its asset base,” FirstEnergy’s Kwong said in a report. “Given the robust momentum exiting the fourth quarter, the company is off to a good start in 2013 with what we anticipate should be another stellar quarter to start off a new year. With our forecast unchanged we have maintained our Outperform ranking and $49.50 per share target price.”

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