Headwater Exploration Inc.
Q1/24 in line with consensus, pushing ahead on new exploration blocks
TSX: HWX | CAD 8.35 | Sector Perform | Price Target CAD 8.00
Sentiment: Neutral
Headwater pre-released Q1/24 production of approximately 19,500 boe/d (in line with consensus) and provided a detailed operational update related to its exploration and waterflood programs. Management continues to delineate the company's growing Clearwater portfolio, opening a door for future development across its 520 net sections in the Clearwater fairway (in addition to 175 net sections of non-Clearwater acreage). The company's commitment to exploratory growth is paying off, with a 51% y/y increase in 2P reserves in 2023 (see more here). While management did outline several constructive exploration results, we await longer-term rates and regional extensions to further derisk newer exploration blocks. The company is set to report Q1/24 results May 9, 2024 AMC.
Details:
Q1/24 volumes in line with guidance. Management pre-released in-line Q1/24 production volumes of roughly 19,500 boe/d (RBCe: 19,433 boe/d, Consensus 19,700 boe/d). 2024 annualized guidance of 20,000 boe/d was reiterated, with growth capital added into the second half to align with TMX (note here).
Constructive results at Marten Hills West. In Q1/24, HWX drilled 14 wells, including 10/3/1 Clearwater A Producers/A Injectors/ E exploration test. In the Clearwater A pool, the company's first full section waterflood is now completed and showing signs of stabilized production at 200 bbls/d (management expects this to increase to 300 bbl/d). In Clearwater E, initial results from the exploration test at 00/04-35-076-02W5 achieved an IP15 rate of 155 bbls/d of 24 API oil (before being shut in for breakup) - validating HWX's roughly 15 sections of land covering the Clearwater E pool. At Clearwater G, HWX plans to drill three test wells in Q2/24, covering ground north and south of the initial discovery well (7-076-02W5).
Pursuing organic growth opportunities. Headwater's Heart River/Seal/Handel areas all progressed in Q1/24, with the company now holding 23/52/56 sections of land in each region. At Heart River, a six-leg lateral test well (00/06-36-076-16W5) is currently producing 120 bbls/d; more testing is expected in Q4/24. At Seal, a 12-leg Bluesky test well (17,000 meters of reservoir exposure) was drilled and is expected to produce this month and four delineation wells (three Stingwray wells) are being drilled at Falher B and D. At Handel, a single-leg well was placed on production in March and is currently being optimized to understand future potential in the area.
Nipisi impacted by breakup. In addition to the aforementioned shut-in Clearwater E test well, two multi-lateral exploration wells in the West Nipisi expansion area (Clearwater F and G) were prematurely shut-in in March due to warmer spring weather. Although they were only able to capture five days of production from the 00/05-18-77-11W5 well (90 bbls/d), management was encouraged by drilling results at both locations and noted they'll pick up where they left off in Q1/25 when winter access is restored.