Logan Energy Corp V.LGN

Win win transaction

[Westcoastenergy]

Scotia is very bullish on this transaction for both companies.  I am pleased since I own shares in both.

Pouce Coupe Deals Are a Win-Win: TPZ Adds a Quality Counterparty; LGN Keeps Balance Sheet Strong

OUR TAKE: Positive. We believe the Pouce Coupe Montney gross overriding royalty (GORR) and infrastructure transactions between TPZ and LGN are a win-win. For TPZ, the deals add a new, growth focused counterparty with a strong leadership and a clear growth plan for the deal assets (which are proximal to TPZ’s existing Peace River interests). For LGN, the deals keep its balance sheet clean (~0.6x debt to cash flow on strip) and creates a relationship with a financial partner that could open up future opportunities. The stated deal metrics of ~8x NTM cash flow land in the sweet spot between the companies’ current market values, with TPZ trading at ~11x and LGN at ~3.5x 2026E DACF on current strip prices. We have updated our financial estimates for the transactions, with a modest cash flow decrease for LGN (~$0.01/share for 2026E, with reduced interest expense offsets some of the royalty and opex increase) and a ~2% EBITDA increase for TPZ in 2026E.

KEY POINTS

Transaction details. LGN and TPZ have agreed to a pair of deals covering LGN’s Pouce Coupe Montney oil assets (see Exhibit 1).

• In the first deal, LGN has closed the sale of a 2.5% GORR covering the 71 net section block for $17M (~7x NTM cash flow per LGN estimate). Production on the block averaged ~4.3 mboe/d in Q3/24 and will have capacity to grow to ~10 mboe/d with the planned infrastructure additions. LGN estimates ~118 Middle Montney drilling locations and has agreed to a $50M work commitment on the assets (already included in its 2025 budget).
• In the second deal, TPZ will acquire a 35% non-operating working interest in LGN’s 40 mmcf/d gas plant, compressor station and oil battery, set to come online in Q2/25 for $26M (~8x NTM cash flow per LGN estimate). The deal includes a 15-year take-or-pay commitment under which TPZ will not be required to pay opex or maintenance costs. Notably, the fees will be linked to AECO strip pricing on a sliding scale, providing LGN with a measure of protection against natural gas price fluctuations and TPZ with potential upside if AECO prices strengthen.

• 	Rating	1-Yr. Target	Return
  LGN-V*	SO	C$1.75	155.5%
  TPZ-T*	SO	C$36.00	49.0%