Post by
retiredcf on Nov 14, 2024 11:27am
CIBC
Same projection as TD. GLTA
EQUITY RESEARCH
November 13, 2024 Earnings Update
LOGAN ENERGY CORP.
Q3/24 Results: Lower Operating Costs Drive Cash Flow Beat
Our Conclusion
Logan posted a cash flow beat on meaningfully lower unit operating costs
during the quarter, driven by production growth and lighter maintenance
spending. Logan’s Simonette well results are consistent with our
expectations, but it remains to be seen if the exploratory well at Lator will be
successful after weak initial results. We do not include Lator as part of our
NAV estimate; therefore, the result is not thesis-changing. Logan warned that
it may miss its full-year production guidance due to shut-in gas volumes that
are uneconomic, but its cash flow guidance remains unchanged. On our
revised estimates, the stock is trading at 3.9x 2025E EV/DACF versus peers
at 4.1x on the CIBC price deck.
Key Points
Cash flow beats on in-line production and capital spending driven by
lower-than-expected cash costs. Production of 9.9 MBoe/d was in line with
our estimate of 9.8 MBoe/d and ahead of consensus of 9.6 MBoe/d. Adjusted
funds flow of $17.8MM beat our estimate of $15.2MM and consensus of
$14.7MM. Logan reported capital spending of $31MM for the quarter, in line
with our estimate of $32MM and consensus of $30MM. Per-unit operating
costs were significantly lower in the quarter, down 39% year-over-year,
driven by higher production volumes and following planned and unplanned
maintenance expenditures during H1/24.
Simonette well results are tracking in line with expectations, which is
encouraging, while the success of exploratory well at Lator remains to
be seen. Logan indicated that its single exploratory well at Lator continues to
clean up with elevated water cuts after 25 days on production and limited run
time due to third-party pipeline challenges. Lator is not included in our net
asset value (NAV); therefore, a weak result here is not thesis-altering.
Logan’s three-well 4-10 pad in South Simonette used a plug-and-perf
completion design, which delivered an IP90 that is consistent with our type
curve assumptions, but initial rates on this follow-up pad are below its
predecessor at 14-33 that used an NCS completion. The 4-10 wells had an
average IP90 of 5,620 Mcfe/d and 79 Bbl/MMcf of condensate (34% liquids)
versus our type curve which assumes initial rates of 6,000 Mcfe/d and 85
Bbl/MMcf of condensate. The 14-33 pad drilled in 2023 had initial rates of
9,588 Mcfe/d and 87 Bbl/MMcf of condensate. Logan intends to revert to the
previous completion design on subsequent pads.
Production guidance may not be achieved in 2024, but cash flow
unaffected by shut ins. Logan indicated that it currently has 670 Boe/d of
uneconomic gas production shut-in in NEBC. The company also cites project
deferrals and weak initial performance at Lator as factors that may drive the
guidance miss this year. That said, Logan indicated that its cash flow
guidance remains unchanged despite the shut-in production.