Spartan Delta Corp T.SDE

Another positive review by Scotia

[Westcoastenergy]

E&P

Spartan Delta Corp.

• SDE-T: C$3.77
• Target: C$6.00
• Rating: Sector Outperform

Q2/24 Cash Flows Ahead; the Duvernay Is the Catalyst

OUR TAKE: Neutral. SDE delivered solid Q2/24 results with Adjusted Funds Flow (AFF) slightly ahead of the Street on lower cash costs and Free Cash Flow well ahead on lower-than-expected capex. The company reiterated its 2024 capital budget and production guidance, but shifted ~$20M of capital from the Deep Basin to the Duvernay to accelerate its development plans on its new assets. We like the move given the weak gas price environment and importance of the Duvernay to the story. SDE also increased its Pembina / Willesden Green land position by ~15,000 net acres to ~177,000 net ares and filled in some checkerboard gaps in its core block. With Paramount Resources Ltd. (POU-T; SO) active just to the south and Baytex Energy Corp. (BTE-T; SP) drilling to the north, we expect news flow from these companies to shine a bright light on the play over the next several quarters.

KEY POINTS

Q2/24 cash flows ahead. Production of ~38.6 mboe/d (68% natural gas) was in-line with expectations with slightly higher oil and condensate weighting. AFF of $40M ($0.22/share) came in ~3% ahead of the Street on slightly lower cash costs (royalties, opex, and transportation). Capex of $23M was >40% below consensus, resulting in FCF of $17M materially outpacing expectations. See Exhibit 1 for detailed results versus consensus expectations (Slight Positive).