Both are undervalued. SDE is likely to outperform all other natural gas based stocks with its outstanding capital efficiency and very high free cash flow profile. Birchcliff is not going to lag far behind.
I'm trying to compose your model in google sheets :-) For the model price for oil, is $100 CAD price the WCS price vs WTI? I'm trying to map what you have with the base case assumptions in the RBC Capital markets models. Thanks!
Do you see the current AECO pricing negatively affecting SDE? I am considering selling and buying more BIR instead, given their higher exposure to NYMEX
SDE has greater exposure to AECO than BIR to be sure, but the widening basis is seasonal (typically when the pipeline system undergoes maintenance) and both SDE and BIR have substantial basis hedges. Both appear fine to me.
Thanks Michael! You're factoring in some incredible growth, is that due to geology of their wells where they're able to grow production that much while keeping capex flat?
Hi Michael, I was able to take the model you have for SDE and use the model price assumptions for RBC base case so that I can do compare with the stocks in they cover. They are more conservative with the AECO prices for 2022 and 2023 (5.3 and 4.8 respectively). But on light oil side they are more bullish with WTI of 107 for 2022 and 114 in 2023. I used the delta % between 2022 and 2023 to model the realized Edmonton PAR price.
Here's a dashboard that does valuation compares with SDE integrated into it (RBC does not cover SDE)
Thanks. The charts are static and ignore the growth rates of the companies and their respective capital efficiencies. SDE adds production for a very low cost and a high return on capital, as does Birchcliff, Peyto and Tourmaline and to some extent ARX although ARX's use of hedges has strangled return on capital.
Spartan Delta's December 31, 2021 balance sheet shows a current derivatives liability of $52,783,000. I rounded up to $55. My 2022 number is an estimate which will no doubt change as the company records the actual difference between hedged and realized prices. The hedge contracts in place are set out in note 4 to the Q1 statements and included basis hedges which should be profitable somewhat offsetting price hedges which are likely to cause losses. As I read the statements, 2022 has lower hedging risk since the hedges are at better prices. I see a $3 per Mcf loss on 55,000 Mcf/day for 182 days through Q3 =~30 million offset by 85,000 x 182 x $2 - ~31 benefit of basis hedge through Q3, and a net benefit of ~$5 million for basis hedges in Q4, with first quarter hedge losses of $70 million, gets to my estimate for 2022 of $65 million. A lot of moving parts.
Great analysis Michael! Do you think Spartan is better valuation right now than BIR.TO ?
Both are undervalued. SDE is likely to outperform all other natural gas based stocks with its outstanding capital efficiency and very high free cash flow profile. Birchcliff is not going to lag far behind.
I'm trying to compose your model in google sheets :-) For the model price for oil, is $100 CAD price the WCS price vs WTI? I'm trying to map what you have with the base case assumptions in the RBC Capital markets models. Thanks!
WCS for heavy oil, Edmonton PAR for light. WTI not used for Canadian oils. The $100 in the model is the realized price for the grades sold by SDE.
Sweet! Great article. Anytime there's Trudoo bashing I am in!, especially when its warranted! Cheers.
Love it,
Keep the updates coming Michael
Do you see the current AECO pricing negatively affecting SDE? I am considering selling and buying more BIR instead, given their higher exposure to NYMEX
SDE has greater exposure to AECO than BIR to be sure, but the widening basis is seasonal (typically when the pipeline system undergoes maintenance) and both SDE and BIR have substantial basis hedges. Both appear fine to me.
Thanks Michael! You're factoring in some incredible growth, is that due to geology of their wells where they're able to grow production that much while keeping capex flat?
"climate nutters" - well put.
Wish to God I would of found your web pg. before I bought VUX.V & WCE.V early in July!
Hi Michael, I was able to take the model you have for SDE and use the model price assumptions for RBC base case so that I can do compare with the stocks in they cover. They are more conservative with the AECO prices for 2022 and 2023 (5.3 and 4.8 respectively). But on light oil side they are more bullish with WTI of 107 for 2022 and 114 in 2023. I used the delta % between 2022 and 2023 to model the realized Edmonton PAR price.
Here's a dashboard that does valuation compares with SDE integrated into it (RBC does not cover SDE)
bit.ly/oil-gas-screener
Hope this is helpful. And thank you again
Thanks. The charts are static and ignore the growth rates of the companies and their respective capital efficiencies. SDE adds production for a very low cost and a high return on capital, as does Birchcliff, Peyto and Tourmaline and to some extent ARX although ARX's use of hedges has strangled return on capital.
What’s up with SDE’s wild stock chart…$720 share price in 2006??
Did not exist in 2006. Chart seems to be a chart of Bellatrix before 2006. Spartan Delta acquired the Bellatrix assets out of its bankruptcy.
Hi Michael, in deriving the spreadsheet for your model, I noticed that for 2021 your figure for $55M hedge, I wasn't able to get that. I got $129M.
Since 2022 has higher hedging, I does feel like in your model having $55M in 2022 and $65M in 2023 might not be consistent.
I could be totally wrong.
Spartan Delta's December 31, 2021 balance sheet shows a current derivatives liability of $52,783,000. I rounded up to $55. My 2022 number is an estimate which will no doubt change as the company records the actual difference between hedged and realized prices. The hedge contracts in place are set out in note 4 to the Q1 statements and included basis hedges which should be profitable somewhat offsetting price hedges which are likely to cause losses. As I read the statements, 2022 has lower hedging risk since the hedges are at better prices. I see a $3 per Mcf loss on 55,000 Mcf/day for 182 days through Q3 =~30 million offset by 85,000 x 182 x $2 - ~31 benefit of basis hedge through Q3, and a net benefit of ~$5 million for basis hedges in Q4, with first quarter hedge losses of $70 million, gets to my estimate for 2022 of $65 million. A lot of moving parts.
Thank you Michael for your help. This makes a lot of sense. I understand SDE valuation much better because of your generous sharing.
HUGE thanks! I hope to be able to giveback to the community in the future in the same way that you have role modeled.
Thank you Michael for your posts. Great analysis!
Thank you for these posts.
Good on you!