STRONG VOLUMES; BUT CF FELL SHORT ON COSTS
THE TD COWEN INSIGHT
Q2 production was strong, but CF fell shy of our estimate due to what appears to be our overly optimistic cash cost assumptions rather than a sequential increase in expenses. We view NuVista as an attractive combination of heavy C5+ exposure (75% of revenue), 10% y/ y growth through YE-25, and strong FCF generation that should allow for the repurchase of 9% of current S/O through YE-25.
Event: Reports Q2 Results
Impact: MIXED
Production of 83.2 mBOE was stronger and more liquids weighted than we had modeled (81.3 mBOE/d) and also modestly ahead of Consensus (82.0 mBOE/d). Volumes increased 4% q/q (17% y/y), with gas accounting for 60% of volumes (versus our estimate of 62%). However, the benefit from the volume tailwinds didn't percolate down to CF as nearly all expense line items on a per BOE basis were higher than we had modeled. This resulted in CFPS of $0.67, which was 7% below our forecast ($0.72) and below Consensus ($0.70).
Our View: CF fell shy of our estimate on costs; however, we're quick to note that we had modeled q/q per unit cost improvements. It's not as though aggregate cash expenses increased materially versus last q, but rather the cost savings we had modeled weren't realized. We continue to believe that with increased volumes, cash costs will continue to trend modestly lower, but we have taken a slightly more conservative view going forward.
Budget Unchanged, Lighter H2 Budget Drives Higher Back Half FCF: The $500mm capital budget is unchanged. Based on the unchanged budget, we estimate this will consume 56% of H2/24 CF, leaving $152 million (6% of the current market cap) available for share repurchases. Production guidance was tightened to 83.5-86 mBOE/d (from 83.0-87.0 mBOE/d previously).
Two Notable Operational Highlights from Q2:
Strong Wells From Latest Pipestone North Pad: NuVista posted an IP90 rate of 1,750
BOE/d (42% C5+), which represents a 25% increase to historical wells. Interestingly, this includes two infill wells that averaged 1,125 BOE/d (20% C5+). It appears the strong results are a combination of NuVista's refined well targeting, geological changes across the trend, and completion optimization.
Lower Montney Wells at Elmworth: NuVista drilled a 6 well pad at Elmworth that included a well targeting the Lower Montney. This posted an IP30 rate of 2,000 BOE/d with 30% C5+.