Have a $1.75 target. GLTA
Intriguing Our Conclusion
Logan posted a mixed update with cash flow missing on higher-than-
expected operating costs and royalties, partially offset by higher-than-
expected sales revenue. Gathering systems at Pouce Coupe are near
capacity, which is currently a headwind for new well productivity, although
Logan’s recent well results are still tracking better than prior vintages. A
planned turnaround in Simonette, along with spending associated with the
pipeline integrity outage that occurred in Q1/24, drove operating costs higher
than expected, but costs are expected to be materially lower in the back half
of 2024. We believe the company will demonstrate strong production growth
in H2/24, and near-term catalysts include well results at Simonette and Lator,
along with the company’s plans for 2025. The stock is trading at 3.9x 2025E
EV/DACF on the CIBC price deck versus peers at 3.8x.
Key Points
Headline metrics mixed with production shy of expectations, capital
spending in line, and a cash flow miss. Production of 7,277 Boe/d (36%
liquids) was shy of our estimate of 7,499 Boe/d (37% liquids) and Street at
7,335 Boe/d (34% liquids). Logan indicated that planned downtime at its
Simonette gas plant reduced Q2/24 production by 360 Boe/d. Capital
spending of $46MM was in line with our estimate of $45MM while Street was
at $31MM. Cash flow of $8.9MM was below our estimate of $13.0MM and
Street at $9.9MM.
Well results at Pouce Coupe facing gathering system headwinds, but
initial rates still exceed prior vintages. Logan’s three-well pad at Pouce
Coupe was brought online in May with an IP60 of 685 Boe/d (63% liquids).
The company indicated that its gathering system is near capacity and hence
operating at high pressures, inhibiting unrestricted flow of the new wells.
Nonetheless, initial rates on these wells exceeds Logan’s 2023 IP60 average
of 574 Boe/d (70% liquids) at Pouce Coupe, according to public data. The
company has one well onstream at Lator and a three-well pad onstream at
Simonette, which we expect could appear in public data by late September.
Operating costs are expected to move lower in H2/24 following planned
turnaround, debottlenecking, and pipeline maintenance. The company
guided H2/24 operating costs to $10.00/Boe - $10.50/Boe versus our prior
estimate of $11.50/Boe and Street at $10.78/Boe. While operating costs
likely were a negative surprise to Street estimates for Q2/24, go-forward
consensus costs could move lower following this update. In 2025, the Street
is expecting $10.87/Boe, which similarly could move lower with H2/24
operating costs at or below $10.50/Boe.
Executive appointments are consistent with prior messaging from
management. Brendan Paton, currently VP Engineering and COO, will be
appointed President and COO while Richard McHardy will continue to act as
CEO.