Logan Energy Corp V.LGN

Scotia reiterates $1.85 target

[Westcoastenergy]

Logan Energy Corp.

• LGN-V: C$0.70
• Target: C$1.85
• Rating: Sector Outperform

Off Restriction: Simonette Deal Bolsters Oil Growth Potential

OUR TAKE: Positive. We are off restriction on LGN following the close of its $45M equity raise (upsized from $35M). We like the acquisition of ~50% working interest in the Grand Tierra Energy, Inc. (GTE-T; not covered) Simonette Montney assets and retirement of the GORR on a portion of LGN’s existing lands. The deal continues the company’s work to build critical mass in the area and create a strong runway for future growth (for itself or a potential acquirer). We particularly like the acquisition of the South Simonette Lower Montney interests. Previous operators have drilled impressive oil wells on the lands and LGN estimates ~22 net drilling locations that will tie-into its existing infrastructure. Our financial and NAV estimates are largely unchanged on the combined effects of the deal, offering, and updated guidance. Looking ahead, we see several catalysts for the stock in 2025, including the production ramp at Pouce Coupe (now 2H/25 vs. Q4/25 previously), initial Duvernay results from Ante Creek and Simonette, and Lower Montney results at the South Simonette lands (see our October 3, 2024 note for more details on the first two catalysts).

KEY POINTS

Acquisition details. LGN acquired ~0.8 mboe/d (48% liquids) of Simonette Montney production with 933 mboe of PDP reserves, 25 net (52.5 gross) sections of Montney rights with ~45 company estimated net drilling locations, a 50% working interest in key infrastructure (including an oil battery and 9.0 mmbbl water reservoir), and the 16 sections of 5% to 10% GORR rights on its current asset base (~0.6 mboe/d of current production and 38 net future locations) for ~$62.8M (inclusive of closing adjustments and a ~$2.7M drilling carry). Assuming ~$30,000/boe/d for the production and ~$10M for the GORR (likely conservative if LGN accelerates drilling on the lands), we estimate the inventory valuation at ~$1,800/acre or ~$0.6M/location. LGN expects the deal to yield >$20M of synergies over a five-year period on the elimination of redundant infrastructure spending and operating cost reductions. See Exhibit 1 for a map of the assets and LGN’s existing asset base.

Lower Montney assets look like a great addition. With the deal, LGN adds ~12.5 net (25 gross) sections of Lower Montney rights with ~22.2 net (41 gross) drilling locations at South Simonette, where the company already owns a 100% working interest in the Middle Montney. The Lower Montney has delivered strong, oil weighted results to date from four wells (see Exhibit 2). LGN estimates per well EURs from the layer at ~520 mbbl, with >100% IRR and <12-month payback period at US$70/bbl WTI. The company’s estimates are comparable to our type curves (see Exhibit 3). We see this as a great addition to the company’s portfolio given the strong drilling results to date and the overlap with LGN’s existing asset base and infrastructure.