Editor’s Note: Ideas from HFI Research is a separate paid subscription from HFI Research. Whitecap Resources is not a holding in the HFI Portfolio.
By: Jon Costello
Note: Dollar references are to Canadian dollars unless otherwise specified.
Whitecap Resources' (WCP:CA) second-quarter results mark a new chapter in my Veren investment. Longtime readers may recall that I purchased Veren shares for the HFIR Energy Income Portfolio in the fourth quarter of last year at an average price of US$4.93. Now that WCP has acquired Veren, the shares are valued at US$7.80, for a 63.4% total return.
Veren had been an unusually large investment for the portfolio. Whitecap is now its largest holding by a wide margin.
WCP’s acquisition of Veren closed on May 12, and while I wasn’t a fan of the transaction due to the low price paid by WCP, I’m pleased that the combined entity under CEO Grant Fagerheim is executing superbly.
WCP is a hold at its current price, mainly due to our expectation of weak oil prices over the next four quarters. Increased production from OPEC+, Brazil, Guyana, and other regions (apparently, now even Venezuela is at play) is likely to cause global oil inventories to build and keep prices depressed. WCP shares will be challenged to rise significantly from their current price of $10.60 in the absence of higher oil prices.