Logan Energy Corp V.LGN

From Scotia this morning

[savyinvestor333]

• LGN-V: C$0.78
• Target: C$1.85
• Rating: Sector Outperform

Off Restriction: Duvernay Lands and Pouce Coupe Gas Plant Bolster Differentiated Growth Plan

OUR TAKE: Positive. We are off restriction on LGN following the close of its $50M equity raise. We like the company’s foray into the Duvernay. The Simonette lands offset several strong results, and we are intrigued by the potential at Ante Creek given the strong results to the south and emerging potential at Sturgeon Lake to the northeast. In our view, this kind of small “e” exploration is too often neglected in the current environment, and we credit LGN’s leadership for pursuing the potential value creation opportunity. We strongly favour E&P’s owning and operating their infrastructure, so the company’s decision to accelerate the Pouce Coupe gas plant is a great move in our view. We expect the facility to lower the company’s cost structure, enhance its development flexibility, and potentially open up consolidation opportunities. Overall, we strongly like LGN’s update and move to keep the balance sheet clean as it pursues its growth plan. We continue to believe the company is on the right path to generate significant value for shareholders.

KEY POINTS

Duvernay lands unveiled. LGN revealed a ~152 section Duvernay land position in the Greater Kaybob oil fairway (see Exhibit 2). The lands include ~56 net sections at Simonette partially overlapping its Montney lands. The company estimates ~50 drilling locations (3,600 metre laterals and 600 metre spacing), based on strong well control from one legacy producer (13-01) and several strong offsetting results from other companies (see Exhibits 3 and 4). LGN plans to drill and TIL one well in the play in 2025. At Ante Creek (Cornwall), LGN has amassed ~96 net sections of Duvernay rights. The company estimates ~90 net drilling locations and expects productivity similar to the Simonette Duvernay and above the solid results from the emerging Sturgeon Duvernay play to the northeast based on the reservoir characteristics (See exhibits 5 and 6). LGN drilled its first well in the play in Q2/24 (completion planned for 2025).

Accelerating the Pouce Coupe plant. LGN plans to use the proceeds from the offering and its increased credit facility (now $125M) to accelerate the construction and commissioning of its Pouce Coupe gas plant and associated infrastructure into mid-2025 (from 2026). The plant will have 40 mmcf/d raw gas capacity, with 7 mbbl/d of oil and 11 mbbl/d of water handling. The company estimates ~$32M for the plant, battery, and compression, and ~$15M for gathering and sales pipelines (it will look for partners to split costs on certain sales lines). LGN plans to TIL eight new wells when the plant is commissioned and increase area production to ~7.3 mboe/d through its own infrastructure by Q4/25. We like what we have seen from the company’s Pouce Coupe wells thus far (see Exhibits 7 and 8) and believe the move to pad drilling and owned and operated infrastructure should boost the returns from the play (see Exhibit 9 for lower opex and capex economic estimates).