Scotia calls for a FCF Beat in Q4 - Summary and Overview
Canadian Montney and Natural Gas E&P: Q4/21 Reporting Preview
OUR TAKE: Mixed. We have updated the operating and financial estimates for our coverage universe based on public Q4/21 production data and recent company operations updates. Our production estimates are broadly in line with the Street, with CR (-5.3%) and BIR (-2.1%) as our most notable differences. For CFPS, we have SDE (+8.2%), KEL (+6.7%), and PEY (+4.4%) ahead of the Street and AAV (-3.7%) modestly below consensus expectations.
We have also included an analysis of consensus estimate dispersion for 2022 and 2023 CFPS and production (see Exhibits 6 and 7) and the trailing 12-quarter beat / miss record for our coverage names (see Exhibits 8 and 9).
Notable production forecasts. We are expecting a production miss from CR (-5.3%; medium confidence), but anticipate Q4/21 and 2021 volumes to come in above the lower bound of the company’s guidance range (28 mboe/d for Q4/21 and 26 mboe/d for 2021). We also have BIR (-2.1%; high confidence) slightly below the Street due to NGL processing disruptions and cold weather freeze-offs experienced in the quarter. For the majority of our names, we estimate combined production to be broadly in line with consensus based on our analysis of public Q4/21 production data. Refer to our recent Production Monitor Report for further commentary on our production estimates.
Notable cash flow forecasts. We have SDE (+8.2%) ahead of the Street on higher-than-expected production and expect KEL (+6.7%) to beat on higher liquids volumes. We also anticipate a beat from PEY (+4.4%) — likely on a higher commodity price realization forecast (note: we expect realizations to be muddy this quarter, so we are not especially confident in this call — see below). On the other end, we have AAV (-3.7%) modestly below consensus on our lower liquids production estimate. See Exhibits 10 to 33 for our Q4/21 forecasts and consensus estimates and trends.
Key themes we are watching for. We expect a few themes to hold sway over Q4/21 results. Notably, 1) The volatility of Q4/21 commodity prices and the divergence between spot and monthly natural gas prices could roil commodity price realizations and hedging gains / losses. While we have tried to account for these factors in our forecasts, we expect to see some surprises during reporting; 2) We expect to see higher Q4/21 unit operating costs due to both the emerging inflationary pressures and the extreme cold weather that hit western Canada in December 2021; 3) Most of our names have recently released formal 2022 capital budgets and production guidance (see Exhibit 5), so it is likely too early for significant revisions. Nevertheless, we expect inflation to impact the sector in 2022 and will be looking for commentary on cost increases and other pressures (e.g., supply chain issues and materials or equipment shortages).