Spartan Delta Corp T.SDE

TD 2

[retiredcf]

As their target of $13.50 is already one of the highest on the street, they have decided to maintain it at this point. GLTA

Spartan Delta Corp.

(SDE-T) C$8.41

Q4/21 Beat Should Boost Confidence in Organic Growth Plan

Event

Reports YE-2021 Reserves, Pre-releases Q4/21 Data, and Tweaks 2022 Guidance.

Impact: POSITIVE

Q4/21 Volumes Materially Exceeded TD/Street Expectations; CFPS Also Beat:

Although FY-2021 results will be released around March 8, the company pre- released select data points. Q4/21 production averaged 72.4 mBOE/d, which materially exceeded both TD (65.7 mBOE/d) and consensus (64.6 mBOE/d). It appears that the unexpectedly strong volumes in the quarter were due to earlier- than-anticipated timing of tie-ins. Volumes increased 56% q/q as Q4/21 realized the full benefit of volumes from the Velvet acquisition (closed August 31). On stronger fourth-quarter volumes, Q4/21 CFPS of $0.80 also exceeded both TD ($0.78) and consensus ($0.74) expectations.

 Our View: The quarterly production beat is an early indicator of Spartan's ability to transition from a successful asset aggregator to an FCF-driven organic growth vehicle. Given Spartan's comparatively low valuation, we believe that continued signs of strong operational execution should result in multiple expansion.

Tweaks 2022 Capex Guidance to Reflect Stronger Commodity Prices than Previously Budgeted: Spartan has increased the commodity price assumptions underlying its budget to US$80/bbl WTI (from US$60/bbl) and $3.75/GJ AECO (from $3.25/GJ). This change results in $155mm of incremental CF. Spartan now intends to allocate $30mm of this to expand its capital program to $330mm (from $300mm). This incremental capital will primarily be spent on facilities for 2023 growth and two wells at Simonette. The midpoint of 2022 volume guidance has been increased by 500 BOE/d (68,500-72,500 BOE/d).

TD Investment Conclusion

Spartan is now a sizable intermediate E&P and should be viewed by investors with fresh eyes. Going forward, we expect relatively flat volumes in 2022 from the strong Q4/21, with 11% y/y growth in 2023. Even under our lower-than-strip pricing assumptions, we forecast net debt of only $273 million by YE-2022 (0.5x D/CF). Looking forward to 2023E, we forecast that Spartan will generate FCF equivalent to 16% of its market cap using TD’s commodity price assumptions. This results in a strong likelihood that equity holders will benefit from some combination of share buybacks and/or a potential dividend. For those looking at growth, Spartan offers the most compelling value in our junior coverage universe.

[TerribleEng]

Do none of these analysts think critically? They are spending $330M to hold production flat... which is actually a 5% drop from Jan 1. Then the year after spends $300MM and magically grows 11% Everyone is going to have to adjust after Q1... No way SDE is slamming max production through the Deep basin with AECO almost at $5.

[TouchDown12]

Great Thinking TE. Good to have you on this board. I hope we all make a pile as a result of our unconventional - but truer - point of view on SDE. GLTA. Long SDE TD12

[fauxtomato]

They had flush production from recently tied in wells to end 2021 and production will drop as drilling and completion takes a pause during spring break, but SDE is now putting in the momentum to spin the flywheel. I'd wager you're right that the previous guidance (70k-78k-84k from the old 'Three Year Plan') is on the low side Most of their acreage was underdeveloped for a couple