Spartan Delta Corp.
(SDE-T) C$12.46
Q1 Largely In Line; Striking a Balance Between FCF and Growth
Event
Last night, Spartan Delta reported Q1 results.
Impact: NEUTRAL
Q1 Results Largely as Anticipated: Q1/22 production of 72.6 mBOE/d was in line with TD (72.5 mBOE/d) and modestly ahead of consensus (71.2 mBOE/d). CFPS of $0.94 was slightly below our forecast ($0.96); however, it met consensus ($0.94). Volumes were roughly flat q/q on a Q1 capital program of $108mm, which resulted in Q1 FCF of $54mm.
Likely Not Immune to Inflationary Pressures, But Budget Held For Now: Like the majority of other operators, Spartan Delta is seeing higher competition for services and materials; however, the company maintained its FY2022 capex budget of $330mm and reiterated average production guidance of 68.5-72.5 mBOE/d.
While Not Formalized, Return of Capital Framework Likely Coming: Spartan Delta highlighted that it will evaluate incremental shareholder return initiatives once D/CF reaches 0.5x - which we estimate will occur in Q2. We see plenty of room for potential return of capital, incremental growth, or further consolidation with FCF > $700mm through 2023 and a significant net cash position absent any of these actions (all on our lower-than-strip commodity price assumptions).
During the quarter, Spartan Delta drilled 12.0 and completed 14.5 net wells with a total of 9.5 net wells brought on production.
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In the Montney, three net wells were brought on stream at Gold Creek with recent average well rates totaling 1,566 BOE/d (49% oil/condensate, 11% NGLs). An additional three net wells were brought on production here subsequent to the quarter and early productivity is exceeding internal expectations.
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In the Deep Basin, two net wells brought on in Ferrier had an average IP60 of 2,254 BOE/d (21% liquids) while two net wells brought on in Brazeau had an average IP30 of 833 BOE/d (57% liquids). The company plans to drill an additional 14-15 net Montney wells and 12-14 net Deep Basin wells during the remainder of this year.
TD Investment Conclusion
Spartan Delta offers significant volume growth, exposure to high impact, liquids-rich areas of the Montney and Deep Basin, FCF and potential emerging shareholder return initiatives. Our estimates are only modestly impacted by this update and we remain BUY-rated.