CIBCHave a $19.50 target. GLTA
EQUITY RESEARCH
November 30, 2022 Flash Research
SPARTAN DELTA CORP.
Strategic Repositioning And Preliminary 2023 Budget
Our Conclusion
Spartan announced a strategic repositioning process which could see the
outright sale of the company, or divestiture of individual assets. Spartan has a broad asset portfolio, but indicated that it has focused its efforts on
developing Karr and Gold Creek with strong results. We therefore see
Spartan as likely holding on to these assets and focusing on consolidating this region of the Montney, while seeking to divest the Deep Basin or Simonette. The company’s 2023 capital budget is in line with the Street, but ahead on production, which implies better capital efficiencies and less inflation that previously expected. Overall, we see this as a positive update for the company, with the potential to realize value for the portfolio that Spartan has assembled since its inception in 2019.
Key Points
Repositioning process being explored prior to a significant return of
capital strategy. The stock trades at 2.4x 2023E EV/DACF on strip versus
peers at 3.3x, which is a substantial discount despite having a clean balance sheet and substantial drilling inventory. Our net asset value (NAV) on strip pricing is $17.24/sh, which consists primarily of the Gold Creek/Karr Montney and the Deep Basin. Spartan has focused its development efforts on Gold Creek and Karr with strong results, therefore we see its Deep Basin, Simonette, Pouce Coupe, and Flatrock assets as being the more likely divestiture candidates. The Deep Basin is the most mature asset in the company’s portfolio, making up ~50% of the company’s production. In our NAV we carry this asset at $900MM-$1,000MM or $6.80/sh. We ascribe minimal value in our NAV to Pouce Coupe, Flatrock, and Simonette for a combined total of $185MM ($1.34/sh) despite these assets having substantial inventory upside that could offer synergies to neighboring operators. We believe the proceeds could be used to support a substantial issuer bid, fund accelerated development of Gold Creek and Karr, or consolidate a larger position in the Montney.
2023 spending guidance in line with better-than-expected production.
Capital spending for 2023 was guided to $430MM, which is in line with our estimate of $425MM and the Street at $424MM. Production was guided to 80 MBoe/d-82 MBoe/d, which is ahead of our estimate and the Street at 77 MBoe/d. Management has included a 5% inflationary impact in its cost assumptions next year.