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OUR TAKE: Slight Positive. LGN’s Q1/25 Cash Flows came in below expectations on higher-than-expected cash costs and capex. The company reiterated the rest of its 2025 guidance, but noted that it is reviewing its planned activity for the next ~12 months in light of weak oil prices. More positively, the company released strong initial results from its first two Simonette Lower Montney well (+25% vs. our base type curve oil rate) and an exceptional initial result from its first Simonette Duveray well (+15% vs. our high case type curve oil rate). Given that the successful advancement of the asset base is the key catalyst for LGN, we believe strong well results from two emerging horizons are enough to offset the modestly weaker-than-expected Q1 results. Looking ahead, we 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
Q1/25 AFF behind on lower production and higher costs. Production of ~10 mboe/d (66% natural gas) fell short of the streets expectations by ~3% (and ours by ~5%), as the company faced challenging surface conditions during the quarter and chose to let its Simonette Duvernay well soak prior to commencing production. Post hedging realizations of ~$38.82/boe were ~8% ahead of consensus on higher natural gas realizations, while cash costs of ~$20.55/boe were ~16% above consensus due to higher royalties and operating expenses. AFF of ~$16M ($0.025/ share) came in ~5% below the Street (~10% below us) on the higher cash costs. Capex (excluding A&D) of $96M was ~29% ahead of Streets expectations (~23% ahead of ours), resulting in a ~39% higher-than-expected outspend (32% versus us). See Exhibit 1 for detailed results versus consensus expectations (Slight Negative).
Key well results
2025 guidance reiterated. LGN maintained its 2025 production guidance at 13.65 mboe/d, and made no changes to its planned capital program (before A&D) of $201M. The company left the balance of its line item expectations unchanged. LGN noted that it is reevaluating its 2H/25 and 1H/26 activity plans in light of the recent oil price weakness. However, the company noted that any changes would not have a major impact on its 2025 production.
Operations update. At Pouce Coupe, LGN has drilled both the five-well 07-12 pad and the four-well 14-17 pad. Completion operations are underway on the 07-12 pad, with TIL expected by July 2025. The company expects to TIL the 14-17 pad in August 2025. Commissioning of the 4-19 natural gas processing plant is on track for late Q2/25, with close of the previously announced 35% non-operating interest sale set to follow. At Simonette, the strong production from the 13-12 Duvernay well delayed the TIL of 09-11 Montney well. That well is now cleaning up and producing at stronger rates than the offsetting 05-11 well.
Hedging update. LGN has hedged 34% of its oil and condensate production for the balance of 2025, down ~2% from Q4/24. Additionally, the company has 20,000 Gj/d of its natural gas production fixed at a price of $2.56/Gj (an increase of $0.17/gj over Q4/24), from April 2025 to March 2026. The company has also fixed 15,000 Gj/d of its gas production at $3.14 from April 2026 to March 2027.
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