Second, many commentators refer to O & G companies enjoying substantial cash flows, that many companies are paying down debt at a rapid rate, and that once paid down the companies will return surplus to shareholders in one form or another. What is the state of WCP’s balance sheet in this regard....do they have much debt? Is it being paid down at a rapid rate or does the dividend use up a lot of its cash flow? And if they are paying down debt, when will it be done and what do you think they might do with surplus cash, given its already healthy dividend?
Third, last week there was a headline about WCP doing a sale of part of an asset with Pembina, but it seems most of the sale proceeds were going to a Pembina subsidiary to further the operations of the asset. Is that correct, or can you discern exactly what is going on? And regardless, what does this transaction mean to WCP’s prospects going forward?
One company but lots of different issues. Many thanks for your excellent service.
1) The TSX energy sector is up 10% YTD, and WCP is up 14%, not including dividends. So it has done better than most. Investors remain skeptical of the sector despite low valuations. This could be due to interest rates, worry on the economy, concern over 'green' alternatives or pretty much any other explanation. 2) WCP $1.3B in debt, which is about 8 months' cash flow. Debt is down $500M since the end of 2022. There is a new tax on buybacks but we think that will still be the strategy. WCP could pay special dividends so it is not committed to a higher regular dividend in a cyclical industry. It has said it will allocated $200M in buybacks in the second half of 2024. 3) Pembina is buying a working interest in the Kaybob processing facility. PGI (Pembina subsidiary) becomes the operator, but WCP also at the time entered into a take-or-pay agreement for priority access. Thus, the net cash to WCP is not expected to be material because of this secondary agreement. Essentuially WCP retains priority but is not committed as the operator any more. We would not view it as hugely significant in terms of any changed outlook.