2024 production guidance slightly below consensus. 2024 production guidance came in 2%/3% below RBC/consensus estimates, amounting to an implied 11% y/y increase in production; management expects growth to be weighted to H2/24 given TMX linefill, exiting the year above 21,500 boe/d. Additionally, management expects to have its entire nine section Marten Hills core area under waterflood; the company currently has six sections (3,000 bbl/d) under waterflood and expects the 2024 EOR program to drive stabilized production of more than 4,000 bbl/d.
Capital program lighter than anticipated, exploration a continued focus. Headwater's 2024 capital program is 10%/9% below prior RBC/consensus estimates, with management splitting the budget between maintenance and growth ($135 million, 60 wells), waterfloods ($25 million, 12 multi-leg injection wells), and exploration ($20 million, 10 wells). Headwater did not disclose additional detail on lands acquired outside of the Clearwater, though this exploration budget includes four exploration wells focused on non-Clearwater opportunities.
Operational updates across the portfolio. Headwater highlighted continued success at its first two Marten Hills West waterflood pilots, stabilizing at 200 bbl/d of production; management expects an additional 300 bbl/d in 2024. The company also highlighted exploration/step-out successes in the Clearwater A, extending its southern pool boundaries by a mile and also seeing early favourable indications of a four-mile step-out to the east. The company also highlighted its 'StingWray' well design applied in Seal which achieved an IP30 rate of 130 bbl/d, a 65% improvement over the original 8-leg multilateral discovery well in the region; Headwater will drill 5-10 delineation wells at Seal, inclusive of further tests of its 'StingWray' design. McCully was placed back on production on December 1st, with 80% of volumes through March 2024 hedged at C$18.50/mcf, implying $16 million of FCF.
Clean balance sheet, continued commitment to return of capital. Headwater's 2024 budget is predicated on US$70/bbl WTI and C$73.30/bbl WCS pricing, with the company anticipating $275 million in AFFO and maintaining a positive exit adjusted working capital balance of $58 million. Management reiterated its commitment to the base dividend at $0.40/share annually (6.2% yield)