Bullboard - Stock Discussion Forum Headwater Exploration Inc CDDRF

Primary Symbol: T.HWX

Energy Oil & Gas E&P

Headwater Exploration Inc. is a Canadian resource company engaged in the exploration for and development and production of petroleum and natural gas in Canada. The Company has heavy oil production and reserves in the Clearwater/Falher formations in the Marten Hills, Greater Nipisi and Greater Peavine areas of Alberta and natural gas production and reserves in the McCully field near Sussex, New... see more

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Headwater Exploration Inc > RBC

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Post by retiredcf on Nov 08, 2024 8:21am

RBC

November 7, 2024

Headwater Exploration Inc.
Q3/24: Results Largely as Expected; Step-outs at Nipisi/Clay

TSX: HWX | CAD 7.07 | Sector Perform | Price Target CAD 9.00

Sentiment: Neutral

Headwater released solid Q3/24 results which featured a slight beat on production volumes of 20,342 boe/d, driving in-line CFPS of $0.35 on a capital program of $58 million. The company nudged up its 2024 capital and production guidance to $220 million and 20,250 boe/d respectively as noted below. In tandem with the release, management outlined several encouraging step-out results; we also await longer-term rates and regional extensions to further derisk newer exploration blocks.

Details:

• Q3/24 Results - Slight Beat on Volumes. HWX recorded Q3/24 production volumes of 20,342 boe/d (RBC: 20,039 boe/d; Street: 19,805 boe/d) driving AAFO (f.d) of $0.35/sh (RBC/Street: $0.34/0.35). Capital expenditures were slightly above expectations at $58mm (RBC/Street: $50/$51mm), with the quarterly program including 18 wells in Marten Hills West and successful multi- lateral exploration tests in both Little Horse and Clay. 2024 guidance was nudged up to 20,250 boe/d (from 20,000 boe/d), with the corresponding capital figure increased to $220mm. HWX's FY2025 budget is expected to be released in December.

• Balance Sheet - In Good Shape. Headwater maintains a strong balance sheet with positive working capital of $64 million, while generating $26 million in FCF for the quarter. As a result, the company expects to have capacity to pursue accelerated development (including the accelerated capital expenditures and strategic acquisitions) including beyond the Clearwater while retaining the flexibility to support its core base dividend (currently $0.40 per share, annualized).

• Core Activity - Marten Hills. In Q3/24, HWX drilled 18 wells within Marten Hills West; in the Clearwater E pool, the company has six producing wells testing the pool's regional borders estimated over 50 sections of HWX lands. Waterflooding is a highlight; the company has commenced secondary recovery at its 16-07 wells (2 wells) where it anticipates to expand its waterflood program coinciding with the development of the Clearwater E pool. The company noted that secondary recovery efforts in Marten Hills (Core) has had the effect of reducing its corporate declines by ~5% and corresponding maintenance capital requirements by $25mm/year.

• Pursuing organic growth opportunities. At Nipisi, the company had a successful Bluesky exploration well (12-leg) in Little Horse with an IP30 of 205 bbl/d (15 degree API), which validates the Bluesky pool to be 15-20 sections in size (an additional Bluesky test well will be drilled on the 20 section northern block in Q1/25). At Handel, HWX is shooting 3D seismic with the data anticipated to be processed by Q1/25 and new multilats drilled in H2/25. The company had a 7-leg McLaren multi-lat well at Clay producing an IP30 rate of 205 bbl/d (16 degree API). Its McCully (New Brunswick) asset is scheduled to be brought back on production in December with 83% of its production hedged at C$11.58/mmbtu, where the company expects the asset to generate ~ $12mm in FCF over the winter season.

• Land Acquisitions. HWX added 10.9 net sections of Clearwater land (current total: 539 sections) during the quarter, and a total of 192.5 net sections outside of the Clearwater.