|
|
|
|
||
Scotia synopsis and full report re: SparkyCourtesy of blondeBond: Scotiabank on SGY: Target C$3Sparky Acquisition Adds to Inventory; Dividend Bumped Up OUR TAKE: SGY's latest Sparky acquisition (the company completed two similar deals in 2017) further bolsters its position in the play and adds ~10% more locations to its drilling inventory. The company has made significant progress in the play by more than doubling production to ~7.0 mboe/d over the past two years and stands to benefit from higher returns and more rapid paybacks as oil prices strengthen. We expect the assets, which had a Q1/18 field netback in line with SGY's and have a similar forward decline rate, to fit well into SGY's portfolio and provide the company with a solid suite of drilling and waterflood opportunities. KEY POINTS Sparky acquisition. SGY will acquire ~620 boe/d (83% oil), ~2.9 mmboe of 2P reserves, and >35 net Sparky drilling locations from Altura Energy Inc. (ATU-V; not covered) for ~$28.4M (~5x Q1/18 annualized cash flow and ~$46,000/boe/d). The package is complementary to SGY's Eye Hill and Macklin assets (see Exhibit 3) and delivered an ~$23/boe netback in Q1/18 (SGY estimates ~$30/boe at US$65/bbl WTI and US$47/bbl WCS – modestly below the annualized strip for 2018). With the deal, SGY estimates its Sparky inventory growing >10% to ~340 net locations (~12 years of drilling). SGY expects the transaction to close by the end of May 2018. ~5% dividend bump. With improving oil prices and the acquisition, SGY is increasing its annual dividend ~5.3% to $0.10/share (from $0.095/share) effective June 15, 2018. Based on the closing share price prior to the transaction, SGY's yield increased to ~3.9% (from ~3.7%). We estimate the company's 2018E payout ratio at ~96% (our deck; ~89% on strip) before A&D and ~112% (our deck; ~104% on strip) including A&D. Capital budget and guidance change. SGY has increased its 2018E E&D capital budget to $105M (from $98.8M) with the addition of a Valhalla well (and related facility capital) to its 2H/18 drilling program. With the increase and the acquisition, SGY has revised its annual average and exit production guidance to ~16.6 mboe/d and ~17.2 mboe/d, respectively (from ~16.2 mboe/d and ~16.7 mboe/d, respectively). |
return to message board, top of board |