CIBCHave a $16.00 target. GLTA
EQUITY RESEARCH
May 11, 2022 Flash Research
SPARTAN DELTA CORP.
Q1/22 First Look: In-line Quarter, Staying On Course
Our Conclusion
Spartan delivered an in-line quarter with production, capex, and cash flow in
line with Street estimates. The company is ~30% through its 2022 drilling
program with five completed wells currently behind pipe, which should help
mitigate declines in a typically quieter Q2/22. Management left its 2022
guidance unchanged and provided a 0.5x D/CF target before it would seek to
increase capital spending or return capital to shareholders, which we expect
will occur with its Q2/22 results in August. We believe management is setting
the company up for a solid H2/22 from an operational standpoint, and see
this update as being positive for the stock.
Key Points
Headline metrics meet expectations with production slightly ahead,
cash flow just shy of our estimate. Production of 72.6 MBoe/d was ahead
of our estimate of 71.6 MBoe/d and Street at 71.1 MBoe/d, while capital
spending of $108MM was in line with our estimate and Street at $110MM.
Cash flow of $0.92/sh was below our estimate of $0.97/sh and in line with
Street at $0.92/sh.
Guidance remains unchanged for 2022. The company indicated that it is
assessing strategies to maximize shareholder returns, including increasing
its capital budget and returning capital. However, the company stopped short
of offering any additional details until it reached a D/CF target of 0.5x
(annualized adjusted funds flow), which we expect will occur with Q2/22
results. Operating and transportation costs in the quarter were in line with our
expectations after Spartan guided these higher earlier in 2022, while royalties
were 30% lower than our estimate.
Development program on track with strong liquids production at Gold
Creek and a handful of wells behind pipe. The Gold Creek Montney wells
are showing strong liquids production with the Gold Creek West pad
producing 793 Boe/d (55% liquids) in April after ~6 months of production and
the Gold Creek East pad producing 1,566 Boe/d (59% liquids) after 76 days
on production. Spartan had five completed wells sitting behind pipe after the
quarter, two in the Deep Basin and three in the Montney. The company
expects to drill an additional 12-14 wells in the Deep Basin and 14-15
additional wells in the Montney for the remainder of 2022.
S&P/TSX Composite Index addition is likely, with SDE more than 25%
above the size threshold. The measurement period ends May 19 with an
announcement date set for June 3. An index addition will drive an
incremental demand of 4.5x average daily volume (ADV) for the shares on
June 17. The cut-off VWAP for the shares is $8.75