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OUR TAKE: Mixed. LGN’s Q1/24 results came in below expectations due to unplanned downtime from the 6-18 Pouce Coupe Montney pad. Importantly, production has been restored and April volumes are back on track. We expect the market to look through this temporary blip, but see any potential weakness as a great buying opportunity. The company made minor tweaks to its 2024 guidance (higher oil production, slightly higher opex, lower gas prices). Looking ahead, LGN has several important wells slated to come onstream and drive production growth in 2H/24, with four TILs in Simonette and Lator areas set to be key catalysts. Overall, we see the Q1/24 results as a minor bump in the road for an otherwise compelling growth story.
KEY POINTS
Q1/24 results lag on unplanned downtime. Production of ~7.0 mboe/d (67% gas) came in ~11% behind the Street (~3% behind us), while price realizations of $39.27/boe were ~4% behind. Opex of $14.64/boe was ~16% worse than consensus, with unplanned downtime at Pouce Coupe impacting both volumes and costs. LGN noted that a pipeline failure limited volumes from the 6-18 pad and reduced quarterly production by ~0.9 mboe/d and increased costs due to the required maintenance expenses and take-or-pay penalties (as well as workovers in other areas). AFF of ~$10.2M ($0.02/share) came in ~24% below the Street on the lower volumes and higher costs. Capex of $35M was ~6% below consensus and left the company with positive working capital of ~$16M exiting the quarter. Importantly, our read on the April 2024 public production data has Pouce Coupe back above 3.3 mboe/d (>45% liquids) for the month with fulsome contributions from the 6-18 pad, versus ~0.8 mboe/d (<40% liquids) in March 2024. See Exhibit 1 for detailed results versus consensus expectations (Slight Negative).
Several important wells on the horizon. During Q1/24 LGN drilled three new wells - one each at Pouce Coupe, Simonette, and Lator. The company currently has three Pouce Coupe wells, three Simonette wells, and one Lator well in progress setting up for several important well results in 2H/24. The Lator well is particularly interesting to us due to its proximity to a pair of impressive XTO (now Whitecap Resources) wells that have each recovered >4 Bcf of sales gas and >300 mbbl of condensate to date, with current CGRs of ~50 bbl/mmcf. The three Simonette wells (4-10 pad) offset the legacy 13-35 well (~2.8 Bcf of sales gas and ~95 mbbl of condensate from a <2,400 metre lateral with a very low intensity completion) and LGN’s 14-33 well, while the Pouce Coupe pad offsets the company’s recent high-rate 6-18 pad (see Exhibits 3 and 4).
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