Androsov
Logan Energy (OTCPK:LOECF) recently announced that the company plant (for which the company raised some cash in the past), to process gas at Pouce Coupe is now going to begin operations. This startup plans to connect 9 wells for a material second half increase in production. This is evidence that a major part of the aggressive production growth plans are now on track. More importantly this natural gas plant comes online at a time when a recovery of natural gas prices is expected. Such a scenario could raise the expected return on this project. The startup also clears the way for the largest part of the aggressive second-half growth.
Most investors may recall how many in a commodity industry expand production when prices peak. Rarely do you see what we all learn in business school about how expansion projects during cyclical downturns are generally safer (with far more upside than downside). This is one of those projects that fits the business school teachings about how to expand in a commodity industry.
Logan Energy Capital Guidance For Fiscal Year 2025 (Logan Energy Corporate Presentation May 2025)
At this point, the Pouce Coupe goals mentioned above are more than halfway complete. There is an expectation of very roughly 5,000 BOED growth as a result of this completion.
Plus, the company will likely begin to gain some bargaining power now that production has passed the critical 10,000 BOED and is well on its way to another critical point of roughly 20,000 BOED (or maybe 25,000 BOED).
What is going to happen now is that cash flow will be far more significant to the future of the company because it will be coming from operations. Some of these potential opportunities may still require cash raises. But it is extremely possible that the company will be increasingly able to self-finance these opportunities now that a significant amount of based production should be established by the end of the fiscal year.
More importantly, this management may be willing to take advantage of consolidation opportunities as they become available. The first step was to get to a size where there is established production and an attractive stock price. After that comes the rollup opportunities.
This will be one of the few companies that grows right through any recession because it is starting from a relatively small production base. But also, the costs of operating in the areas where the company has acreage appears to be low.
Last Article
The last article noted that oil and condensate production should grow faster than overall production. The major idea here is to lower the corporate breakeven while increasing company profitability by focusing on the production of more valuable products.
That is not the only way to do this as the company has also drilled some rather large wells for the area. They almost always increase profitability and reduce the corporate breakeven provided the production mix is within a certain (usually wide) range.
(Note: Logan Energy is a Canadian company that reports using Canadian dollars.)
Logan Energy Fiscal Year 2025 Budget (Logan Energy Corporate Presentation May 2025)
Keep in mind that in Canada, the start of the fire season often means that the Spring Breakup period is largely coming to an end. Therefore, this company, like many others, is going to get going on plans for the second half of the fiscal year (if it has not already started).
The recent announcement tells the market that the current plan is continuing along the lines originally budgeted. The nice part is the plan is reinforced without management actually having to state it.
What is likely to happen in the following fiscal year is consolidation of all the accomplishments and gains. Growth will likely slow into the 20% range (unless there is another deal). But this year should put the company firmly into the black along with a fairly conservative capital structure.
Interestingly, "old production" is not the issue here that it is with many existing competitors. So, costs could settle into a relatively lower level due to that lack of older, higher cost production.
Going Forward
Readers may remember that this company experienced a broken pipe during the early startup stages that heavily influenced operating expense per barrel (because production was very low at the time).
Logan Energy Earnings Trend As A Public Company (Logan Energy Corporate Presentation May 2025)
That incident is unlikely to happen again. Even if it did, it would be unlikely to influence per barrel costs as significantly as it did in the previous fiscal year because production will be probably (roughly) double the levels compared to when that incident happened.
Instead, operating costs are likely to continue to trend lower on a per BOE basis now that production should exit around 20,000 BOED by the end of the fiscal year.
Canada has both conventional and unconventional opportunities in the current "hot spot". Therefore, we will have to see how the production maintenance budget follows production growth.
Summary
The company met a significant milestone in get the natural gas processing plant to operating status. As a result, plans remain on track for significant production growth in the current fiscal year.
This is still a strong buy growth situation. Canada does have some natural gas export ability that is about to come online. As with the United States, there is at least talk about adding to that ability one way or another.
The whole situation bodes well for natural gas production. In the meantime, the production also has a growing percentage of liquids production which also aids profitability increase until exports actually begin.
As has been noted all along. This management has considerable experience building and selling companies. I would therefore consider holding these shares until management sells the company.