Spartan Delta Corp.
(SDE-V) C$3.60
Improved 2021 Outlook and Updating Our Commodity Price Forecasts
Event
Yesterday morning, Spartan Delta announced an operational update and revised 2021 guidance. We are updating our estimates for this release and our revised commodity price forecasts (published this morning). With this note, Dustin Besaw is assuming primary coverage.
Impact: POSITIVE
This morning, we are updating our commodity price forecasts, which include increasing our 2021 WTI price assumption to US$48.00/bbl (from US$42.00/ bbl) and slightly lowering our 2021 NYMEX and AECO price assumptions to US $2.75/mcf (from US$2.90/mcf) and C$2.65/mcf (from C$2.85/mcf), respectively. We have also updated our 2020 estimates to include actual commodity pricing for the full year.
Yesterday, the company announced several positive revisions to 2021 corporate guidance. Although 2021 capex remains largely unchanged at $43mm (from $40mm-$43mm), production is now expected to average 29-31 mBOE/d (from 27-29 mBOE/d) as a result of higher-than-expected Q4/20 volumes (+5% from previous guidance) and capital for two new wells moving from H2/21 into the first quarter. The company also announced three acquisitions for a total consideration of $7.1mm. These acquisitions include minimal current production (105 BOE/d); however, they come with 28 net Montney sections, which could add meaningful future inventory and growth opportunities in the play.
Cost-structure improvements drive substantial increase in cash netbacks (and FCF). 2021 opex guidance has been reduced to $5.10/BOE (from $6.00), while G&A has moved lower to $1.40/BOE (from $1.50) on higher volumes. Combined with our revised commodity price assumptions, our 2021 cash netback improves by 29% and we now expect FCF generation of $46mm (up from $23mm). We forecast that the company will exit this year with a net cash position of $32mm.
Concurrent with our updated commodity-price deck, we are introducing our 2022 estimates across our coverage universe. We believe that Spartan Delta will remain committed to FCF, but will also provide investors with a solid PPS growth rate of 9%.
TD Investment Conclusion
In our view, Spartan Delta has one of the highest FCF yields under coverage while featuring a top-tier balance sheet and liquidity position to take advantage of further acquisition opportunities. Our estimates improve, driving an increase in our target price to $6.00 (from $5.00), and we remain BUY-rated based on a 67% return.