From National BankQ1/23 Operating & Financial Results Q1/23 Operating & Financial Results In Line
YGR reported first quarter operating and financial results in line with expectations, including average production of 12.4 mboe/d (+6% Q/Q; 42% liquids) and associated CFPS of $0.32 (vs. consensus $0.35). Results for the quarter were driven by a 6% volume expansion (including an 11% increase in gas production), generated on a 109% payout ratio. Realizations were down -22% Q/Q, along with a sizeable decrease in cash netback (-31% Q/Q) which was eased by a cash cost reduction of -2%, while the company noted that some cost increases due to inflation are still a factor. Corporate leverage increased slightly to 1.0x D/CF in Q1, while net debt was decreased by $12.9 mln during the quarter, a 10% decrease, leaving net debt of $122 mln at quarter end.
Operations and Capital Budget Update
During the quarter, YGR drilled eight and completed nine wells, while leaving an additional five drilled but uncompleted wells to support momentum through the year. As noted above, the company noted some cost increases are a result of persisting inflationary pressures, but most cost increases are attributable to increased regulatory burdens facing the industry; as a result, the company has increased staff and allocated additional resources to these issues. The company has revised guidance for 2023, citing the increased snowfall this winter and associated deferral of activity, deciding to decrease capital spending (from $125 to ~$112 mln) until field conditions improve.
Year-end debt was brought up to a midpoint of $90 mln (from $75 mln) while production for FY23 remains at 13.0 mboe/d. Lastly, funds flow for the year has been brought down ~$40 mln to reflect the reduction in natural gas prices.
Maintain Sector Perform & $4 Target (circa 125 % upside my comment)
Despite the curtailment of activity and deteriorating gas prices, the company provided steady production while continuing to pay down debt at a significant clip, exemplifying the sustainability of the business and ultimately providing increased option value and returns; YGR is poised for a 23% return profile (vs. peers 21%) on leverage of 0.3x (vs. peers 0.2x) while trading at 1.4x 2024e EV/ DACF (vs. peers 2.5x).