Cibc
NUVISTA ENERGY LTD. Q1/20 First Pass: Results As Expected And Appropriate Actions Being Taken Our Conclusion NuVista offered several of updates throughout the first three months of 2020, and as such, the companys Q1 results featured few surprises. Although Q1 activity level was high for NVA, it does place it on a solid footing with respect to future production additions for reduced capital, and we expect this management team will continue to take appropriate steps to protect the business. NVA benefits from an improving natural gas tape, but given its condensate weighting, we continue to see NVA remaining more reliant on a strong crude price. Based on our estimates, we see NVA needing ~$20/Bbl WTI to cover its cash flow netback (unhedged), and likely requiring >$40/Bbl WTI to increase reinvestment dollars, both of which are relatively low metrics that are likely to screen well versus peers. While we continue to favor the Montney exposure NVA offers, we maintain our Neutral rating on the shares. Key Points Headline metrics neutral versus expectations: Production of 52.1 Mboe/d came in a shade above Street expectations and our estimate (Street: 51.7 Mboe/d; CIBC: 51.8 Mboe/d). Capital spending of $129MM was lower than Street expectations by 7% and our estimate by 5% (Street: $139MM; CIBC: $135MM). Cash flow of $0.23/sh was effectively in line with Street expectations ($0.24/sh) and our estimate ($0.23/sh). Spending plans for 2020 prudently moderated and production guidance withdrawn: NVA reduced its spending plans to a range of $165MM - $175MM for the year, which is 11% lower than our expectation of $190MM. Having spent $129MM in Q1, 76% of the 2020 program has already been spent. We would note, however, that NVA does have considerable productive capacity due to its Q1 program, including 15 recently completed and tied-in wells, along with 14 DUCs, which should offer good footing to maintain 50-52 Mboe/d for the rest of 2020, and into 2021. Given the volatility in recent differentials for WCSB condensate, management indicated that it could restrict liquids-rich wells should commodity prices warrant, and we have fine-tuned our estimates for a reduced liquids weight over the balance of 2020. Borrowing base review delayed into May and government support programs being assessed to maintain liquidity: The company was 72% drawn on its $550MM credit facility at the end of Q1, which comes as no surprise given prior messaging. The borrowing base review has been delayed until May as the company looks to assess opportunities through government programs. As reflected by NVAs sizeable impairment this quarter owing to a lower price forecast, the downward price pressure could lead to a reduction in the companys $550MM facility capacity. However, we have seen similar delays from NVAs peers, and do not see the deferral as necessarily being portentous.