Whitecap posted Q1 results that were very bleak to say the least.
The company posted a massive loss, around $2.1 billion or $5.17 per share. Now, they say it is because of an impairment charge of $2.9 billion.
If you don't know what an impairment charge is, it's essentially the write-off of useless goodwill. And if you're unsure of what goodwill is, it is essentially money that is deemed in excess of fair value during an acquisition. A very generic example, if a company is valued at $100 but has a strong brand that the purchasing company pays a $100 premium for, $100 would go into goodwill. Or, say the acquired company has a lot of patents and designs, the value of those could go into goodwill.
In even simpler terms, if a company has $10 million in assets and $1 million in liabilities yet sells for $13 million, $4 million of that would go into goodwill. ($10 million - $1 million = $9 million company value.) You'll find goodwill on most companies balance sheets.
Anyways, Whitecap says that there will be further impairment charges ahead, which will significantly effect their net income.
WhiteCap reported netbacks of $22. So, the company isn't in a horrendous situation. But, they're still in it tough. Realized prices in the quarter were down significantly year over year and on average between crude, NGLs and natural gas the company saw a 27% reduction in realized prices. And this isn't even in a quarter with full COVID impacts.
In my opinion (Dan), I see the dividend getting outright suspended. Which for current investors sucks, but for prospective investors it could bring even better prices. The company has a healthier balance sheet than most junior producers and has enough assets to manage liabilities over the next year.
Overall to answer your question do I feel it would be a good risk reward scenario if its price dips due to a dividend cut, I would say yes. Do I also reiterate the fact that you really need to understand how much you're risking investing in a junior oil and gas company during this market, and could it go south just as fast as it could go up? Yes as well.