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OUR TAKE: Positive. LGN’s Q4/24 Adjusted Funds Flow (AFF) came in ahead of expectations on lower-than-expected cash costs. Capex also come in below expectations and guidance, due to ~$6M being shifted into 2025. The company reiterated the rest of its 2025 guidance and is off to a quick start on its drilling program, with the full suite of Simonette wells expected onstream by the end of Q1/25. We are particularly interested in seeing results from the 06-06 North Simonette Montney and Duvernay oil wells and the 16-13 South Simonette Lower Montney wells. We also see the 2H/25 Pouce Coupe Montney production ramp and Ante Creek Duvernay exploration well as key catalysts for the second half of 2025. While the stock has had a rough ride to start the year (like much of the Canadian E&P group), we believe the catalyst profile and growth outlook should help get the stock back on track. We continue to see LGN as a compelling small cap growth story with considerable upside potential.
KEY POINTS
Q4/24 AFF ahead on lower costs. Production of ~9.5 mboe/d (68% natural gas) was in line with expectations. Post hedging realizations of ~$33.96/boe were slightly below consensus on the higher natural gas weighting, while cash costs of ~$14.81/boe were ~19% better than consensus with beats in every category (including opex below $10/boe). AFF of ~$17M ($0.03/share) came in ~15% ahead of the Street on the lower cash costs. Capex (excluding A&D) of $39M was ~$6M below Street expectations, resulting in a ~30% lower outspend and ~25% lower year-end net debt. See Exhibit 1 for detailed results versus consensus expectations (Positive).
2025 guidance reiterated. LGN maintained its 2025 production guidance at 13.65 mboe/d, and shifted the ~$6M of deferred capex from Q4/24 into the 2025 program (now $201M). The company left the balance of its line item expectations unchanged.
Several key wells on the horizon. LGN continues to guide to five net drills (eight gross) and TILs (six gross) at Simonette, one TIL in the Duvernay (the Ante Creek DUC), and nine drills and TILs in the Pouce Coupe Montney. At Simonette, the company has completed its planned drilling and completion operations, with four the six wells onstream (and the remaining two expected on before the end of Q1/25). At Pouce Coupe, LGN continues to expect to commission its 4-19 facility during Q2/25 and TIL the nine new wells by August 2025 (~8.0 mboe/d expected for 2H/25). Elsewhere, the company plans to TIL its Ante Creek Duvernay well during the summer and spud two Flatrock Montney wells during Q4/25.
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