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OUR TAKE: Positive. We recently spent time with SDE’s management on a visit to the company’s water storage and active drilling and completion sites in the Willesden Green Duvernay play in Central Alberta. While we have been impressed with the way the company entered the play and its initial results, we are arguably even more impressed with the organization and order evident in SDE’s operations in the field - especially considering the early stage of its Duvernay operations. We also gained further confirmation that SDE’s leadership has (and is continuing to) put a lot of intellectual effort into its development of the play and were highly impressed by the commitment and strength of the personnel in the field. While SDE’s Duvernay comes with the risks associated with any early stage play, we believe the company is off to a strong start and is approaching its development in the right way. Moreover, with the stock trading at <1.5x its PDP NAV, we see significant upside potential with a close to free option on Duvernay development. We also see SDE as one of the top beneficiaries from improving Western Canadian market dynamics (~60% gas production, with ~70% AECO exposure in 2026). In summary, we believe this is a great time to buy SDE.
KEY POINTS
Estimate updates - back to guided capex. We reduced our 2025 capex estimates and Duvernay drilling expectations for SDE with our April 2025 price deck change (link); however, SDE reiterated its budget with Q1/25 results and noted that it is comfortable with its plan based on WTI prices of US$60/bbl or higher. While our Scotiabank GBM price deck is below that threshold for 2025, the strip remains firmly above US$60/bbl. Given the strength in the strip and our confidence in SDE’s Duvernay plans, we have taken our 2025 capex and production forecasts back to $325M and 40.1 mboe/d, respectively (from $275M and 39 mboe/d). We have also boosted our 2026 and 2027 capex by ~10%, resulting in ~8% higher production and ~13% higher Cash Flows for both years. Our SOA NAV (flat US$60/bbl and US$4.00/mmBtu) is up ~4% on the increased drilling expectations and our updated type curves (discussed below). We estimate that the Duverany could be worth $3.50/share to $4.50/share (i.e., potentially more than the current share price).
Preparation is half the battle. We continue to be very impressed by SDE’s move into the West Shale Basin Duvernay. In just ~18 months, the company built a position of over 320,000 net acres from scratch (see Exhibit 1). We estimate the entry cost at <$400/acre and <$0.2M per location - both of which are exceptional metrics for entry into a potentially highly economic oil play. Moreover, the fact that SDE built its low cost land position between two established and active Duvernay operators (Batex Enery Corp. [BTE-T; SP; Kevin Fist Covered] and Paramount Resources Ltd. [POU-T; SO]) makes the feat even more impressive (see Exhibit 2).
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