Logan Energy Corp V.LGN

From Scotia this Morning

[savyinvestor333]

Strong Pouce Coupe Wells Drive a Big Q4/23 Beat

OUR TAKE: Positive. LGN delivered very strong Q4/23 results, with production and AFF well ahead of expectations. Importantly, the company continues to drive down its opex, with the 2H/23 average at $13.48/boe vs. guidance at $14.75/boe/d (and initial guidance at $17.50/boe). LGN left its 2024 guidance (~8.7 mboe/d on ~$120M capex; $12.50/boe opex) and drilling plans (eight drills, seven completions, and six TILs) as is, with several important wells on tap for late 1H/24 and 2H/24 (notably, four TILs at Simonette and the initial Flatrock completion). Looking ahead, we see the next round of well results and potential land or assets additions as the key catalysts for the company over the balance of the year. Overall, we believe LGN is off to a great start, with encouraging initial well results, a deep development runway, and a leadership team with a strong track record of creating value for shareholders.

KEY POINTS

Q4/23 results well ahead of expectations. Production of ~7.5 mboe/d (65% gas) came in ~9% ahead of the Street (right in line with us), while price realizations of $41.44/boe were ~10% ahead. Opex of $11.82/boe was ~18% better than consensus (total cash costs of $20.29/boe beat our estimates by ~19%), resulting in AFF of ~$15.4M (~$0.03/share), beating the Street by >50% (and us by ~18%). Capex of $41M was in line with consensus, leaving the company with positive working capital of ~$42M exiting 2023 (Positive).

Exhibit 1 - LGN – Q4/23 Actuals versus Estimates

Source: Company Reports; Visible Alpha; FactSet; Scotiabank GBM Estimates.

• Quarterly Financials
• Yearly Financials

Historical price multiple calculations use FYE prices. All values in C$ unless otherwise indicated.
Source: FactSet; company reports; Scotiabank GBM estimates.

Qtly CFPS  (FD)	Q1	Q2	Q3	Q4	Year	EV/DACF
2022A
2023A	$0.00	$0.02	$0.01	$0.05	$0.07	18.1x
2024E	$0.02	$0.02	$0.03	$0.05	$0.12	7.8x
2025E	$0.05	$0.04	$0.06	$0.09	$0.24	4.2x

Oil volumes drive PDP growth. YE23 PDP reserves increased ~16% vs. the March 1, 2023 pre-spin out report to ~9.9 mboe, led by ~86% growth in oil bookings (now ~1.7 mmboe). We estimate the partial year FD&A costs at ~$27.00/boe (based on the production, capex, and reserves growth from March 1, 2023), implying a ~0.8x corporate recycle ratio on the Q4/24 cash flow netback of ~$22.40/boe. 1P and 2P bookings were up >240% and >380%, respectively (there were minimal undeveloped bookings on the March 2023 report). Overall, we see the initial results as solid given the company’s early stage focus on proof of concept and land aggregation.

 

Exhibit 2 - Key Estimate Sensitivities

Source: Company reports; FactSet; NGI; Scotiabank GBM estimates.

Strong Pouce Coupe well results. LGN’s three-well 6-18 pad delivered 90-day IP rates of ~902 boe/d (58% liquids) per well (see Exhibit 3). The initial oil rates are just ahead of our high-case type curve (283 mbbl oil EUR, 66% IRR and ~12 month payback period at flat C$90/bbl oil and $2.50/mmBtu AECO).

 

Next up, Simonette. LGN has successfully drilled the three-well 4-10 pad, offsetting its initial 14-33 well in the liquids-rich Montney window at Simonette (see Exhibit 4). The company plans to complete the wells following Spring break-up, with start-up slated for August 2024. LGN has also spud its initial well (13-34) on its recently acquired 14 sections at Lator, with start up expected in June 2024.

 

Exhibit 3 - LGN Pouce Coupe Montney Assets and Activity

Source: Company Reports.

Exhibit 4 - LGN South Simonette Montney Assets and Activity

Source: Company Reports.

Upsized Credit Facility. The company has increased the borrowing amount on its credit facility from $15M to $50M, effective March 18, 2024.

 

Hedges added. LGN added ~812 bbl/d of WTI swaps at a fixed price of ~CA$101.54 for the remainder of 2024, and added 15,000 GJ/d (CA$1.73/GJ) and 20,000 GJ/d (CA$1.63/GJ) of AECO 7A swaps for Q2/24 and Q3/24, respectively.