Spartan Delta Corp T.SDE

TD Report

[retiredcf]

Spartan Delta Corp.

(SDE-T) C$14.78

Strategic Repositioning Process Unveiled

Event

Divests Gold Creek and Karr Montney Assets for $1.7bln. Creates SpinCo.

Impact: POSITIVE

We view this asset monetization as a successful outcome of the strategic repositioning process that Spartan initiated in late-2022. The outcome of the process is as follows:

Divested Production: 33 mBOE/d (January/February average) of Montney-focused production at Gold Creek and Karr was sold to Crescent Point for $1.7bln. The proceeds of this sale are planned to be distributed to Spartan shareholders in the form a $9.50/share dividend. The asset sale is expected to close on May 10, 2023, and the shareholder vote on the return of capital will be held on ~May 16, 2023. The metrics of divestiture were ~3.5x NOI at US$75/bbl - in line with the EV/DACF of public Montney peers, which is a fair valuation, in our view.

SpinCo: A new company called Logan Energy will be created and headed by Rick McHardy (President & CEO). Logan will receive 4.5 mBOE/d of Montney- focused production and 15.5 mmBOE of 2P reserves from Spartan that was not sold to Crescent Point. The production and associated lands are located across the Montney fairway - Simonette and Pouce Coupe in Alberta to Flatrock in BC. Spartan shareholders will receive 1 common share of Logan and 1 warrant with an exercise price at Logan's NAV of $0.35/share (exercisable before July 17, 2023). In addition, Logan will hold $104mm in cash (assuming all warrants are exercised and private placement is fully subscribed).

Spartan Delta: The remaining 40 mBOE/d of Deep Basin assets will remain in Spartan Delta. The company intends to pay periodic special dividends, with the first $0.10/share dividend payable on July 17.

TD Investment Conclusion

Although we view this as a positive outcome, we believe the near-term value is largely recognized. As such, we are decreasing our rating to HOLD (from Buy). We value standalone Spartan Delta (including Logan) at $6.50 per share. Incrementally, shareholders are likely to receive a cash dividend of $9.50/share when it distributes the sale proceeds from Gold Creek and Karr and a $0.10/share special dividend. See Exhibit 1 for valuation summary.

[cdnoilandgas]

Is it shareholders on record as of March 28, 2023 that receive the sale dividend, logan share/warrant? Or could I buy SDE today and still get the 9.50/dividend etc., not sure how all this works and timing. Thanks!