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Boost in bank line, positive operations at Whitecap prompts price target bump

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Whitecap Resources (TSE:WCP) yesterday announced that its bank line has been bolstered to $1.2 billion from the prior $1.0 billion, leaving the company $435 million of available credit capacity, as well as "more safety, more dry powder", wrote analysts at Dundee Capital Markets.

"While we had no qualms with the company's debt position (1.9x D/CF in 2015 is top quartile in our coverage universe) or available liquidity, the boost in bank line is certainly indicative of the company’s asset strength and offers increasing optionality to take advantage of what we expect to be an ultimately robust M&A market in the coming months," said Dundee analyst Brian Kristjansen in a note released to clients earlier Wednesday.

"We continue to believe that the strong get stronger in this environment, with high quality assets potentially shaking loose from more highly leveraged competitors and companies like Whitecap poised to take advantage."

The company, in a statement released March 3rd, also announced February production, which averaged 39,000 barrels of oil equivalent per day (boe/d), or 14 percent higher than Dundee's first quarter estimate of 34,159 boe/d, and 6 percent higher than management estimates.

The strong production was attributed to the company's successful first quarter drilling program, which included 32 wells across its core areas.

Dundee said that although Whitecap's annual production forecast of 36,000 boe/d was maintained, positive revisions are believed to be increasingly likely.

"Another potential source of pending outperformance could be the early ramp up of Elnora production, as approvals are in place for the waterflood and timing will be dependent upon facility construction," said Dundee's Kristjansen. 

"This is currently forecast to be completed two months earlier than the original July 1 deadline the company set for itself when it acquired the assets."

Whitecap is a light oil focused producer with Cardium assets in the Pembina and Garrington areas, as well as the waterflooded Montney property at Valhalla and Viking in southwest Saskatchewan.

Dundee said recent efforts in the Cardium, Deep Basin and Viking are meeting or exceeding type curves, particularly the 6-well per section downspacing trial in the Cardium at West Pembina.The company plans to broaden this application across the Cardium and may look to downspace to 8 wells per section.

Dundee retained its top pick status and buy rating for Whitecap, and increased its target price to $15.00 from $14.50 previously. Shares rose 0.7 percent to C$14.10 on Wednesday afternoon, extending year-to-date gains to more than 22 percent.

Quick facts: Whitecap Resources Inc.

Price: 4.05 CAD

TSX:WCP
Market: TSX
Market Cap: $1.66 billion
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