Pat McKeough responds to many requests from members of his Inner Circle for specific advice on specific stocks as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week we had a question from an Inner Circle member on two Canadian energy stocks. In spite of its name, Tourmaline Oil has 85% of its output in natural gas. Whitecap Resources has the greater part of its production in oil. Both companies enjoy rising production—in Whitecap’s case, spurred in part by acquisitions. Pat examines both companies’ prospects for continued production increases and whether their share prices—and Whitecap’s dividend—can keep on rising.

Q: Hi Pat: Can I have your view on Tourmaline Oil and Whitecap Resources? Thanks.

A: Tourmaline Oil (symbol TOU on Toronto; www.tourmalineoil.com), has identified over 7,200 oil and gas drilling locations in Western Canada and has the funds for exploration. That should let it keep raising its production.

Tourmaline’s daily output averaged a record 111,200 barrels of oil equivalent (including natural gas) in the first quarter of 2014, up 49.4% from 68,636 a year earlier. Cash flow per share doubled, to $1.28 from $0.64, mostly due to higher gas prices.

About 85% of Tourmaline’s output is natural gas. The company continues to benefit from higher gas prices.

Rising production and acquisitions spur dividend increase for Whitecap

Whitecap Resources (symbol WCP on Toronto; www.wcap.ca), produces and explores for oil and natural gas in Western Canada. Oil makes up 71% of its daily output; the remaining 29% is gas.

In the three months ended March 31, 2014, acquisitions increased Whitecap’s average daily output by 50.6%, to 26,508 barrels of oil equivalent (including gas) from 17,592 a year earlier. Its output has continued to rise and now stands at over 35,500 barrels per day.

The increased production, along with higher oil and gas prices, increased Whitecap’s cash flow by 57.3%, to $100.9 million from $64.2 million.

The company’s $446.0 million of debt is 10.9% of its market cap.

Whitecap continues to grow by acquisition. In January 2014, it spent $397.5 million to add to its holdings in west-central Saskatchewan’s Viking area. It funded the purchase by issuing 27.5 million shares. The move added 4,200 barrels of production a day.

In May 2014, the company closed its $678-million purchase of oil properties, mainly in its main Pembina Cardium/West Central area, and at Boundary Lake in northeastern B.C., just northwest of Whitecap’s core Valhalla region. The purchase added 6,500 barrels per day of production. Whitecap partially funded it with a $500-million share issue it made in April 2014.

The company has just raised its monthly dividend by 10.2%, to $0.0625 a share from $0.0567, for a 4.5% yield.

In the Inner Circle Q&A, Pat considers Tourmaline’s production outlook and cash flow forecast and whether its shares can continue to rise. He also looks at Whitecap’s prospects in light of the extra shares issued to fund acquisition and its impact on the company’s cash flow. He concludes with his clear buy-hold-sell advice on these two stocks.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

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Rising oil and gas prices can be very good for investors, but they can also put pressure on consumers. What is more important to you, rising share prices for your stocks, or lower prices on gasoline or heating bills?