From Scotia Bank Solid Finish to 2016; Sparky and Shaunavon Showing Strong
OUR TAKE: SGY's Q4/16 results were in line with expectations, with an ~300 boe/d beat on exit production guidance. Wells from the company's core southwest Saskatchewan and Valhalla Doig plays continue to deliver highly economic results and more recent wells from the southeast Alberta Sparky play are showing solid potential.
With the recent weakness in SGY's share price and the company's relatively high sensitivity to oil prices, we see the name as a solid candidate to rebound when the slide in oil prices reverses.
We maintain our Sector Perform rating.
KEY POINTS
Solid finish to 2016.
Q4/16 production came in at 12.8 mboe/d (the volumes were implied in the company's year-end 2016 reserves release) and adjusted CFPS of $0.10 was in line with our estimate and consensus. SGY delivered December 2016 production of ~13.8 mboe/d – ahead of its exit guidance of 13.5 mboe/d and only ~0.2 mboe/d below its 2017 average production guidance. The company spent ~$23.5M of E&D capital during the quarter (~$74M for the year) and made an ~$15M Montney oil acquisition in the Valhalla area.
Operations update: Sparky and Shaunavon success.
SGY has increased its production through the Eyehill battery (Sparky play) to 1,800 boe/d from ~470 boe/ d in Q2/16. On average (cumulative; calendar day), SGY's 2016 wells in the play are performing ~5% ahead of our type curve and the company's 2015 wells through their first approximately five months onstream. The company has drilled six development wells at Eyehill in Q1/17 and plans to drill additional wells in the area (as well as in Provost and Betty Lake) in 2H/17. In the Shaunavon, SGY drilled 24 wells during 2016, with average (cumulative; calendar day) results tracking ~9% ahead of our type and ~22% ahead of the company's 2015 wells.
Through its drilling and waterflood implementation activities, SGY has identified three development/waterflood project sub-areas on its asset base in the play. The company has also begun to test extendedreach horizontal wells in the Rapdan area, with two drilled (one already flowing back). At Valhalla, SGY drilled three (1.97 net) wells during Q1/17 (completions expected during Q2/17).