Spartan Delta – 2024 results and reserves

[Petroleum economist]

Spartan Delta is a small Canadian gas producer, operating in Alberta and British Columbia. Spartan Delta reported 2024 results and preliminary reserves.

Summary
Spartan Delta 2024 results mostly exceeded expectations. Profits were above expectation due to better-than-expected realized energy prices. Production was slightly below expectation. Proven reserves increased and became more valuable due to a higher liquid ratio.
The 2024 balance sheet was a bit meagre and since 2024 has been reinforced with additional equity. Spartan Delta is very profitable. It has a very low PE. Short-term shareholder returns are unlikely as Spartan Delta wants to grow production and reserves in the Duvernay, with the assets in due time to be sold off to a third party.

In my oil and gas company ranking Spartan Delta sits at a high 4th position (out of 84).

Reserves
• Proven reserves increased by 7.4% from 154.5 M BoE (2023) to 165.9 M BoE.
• Oil and NGL reserves showed strong increases (+25%). Gas reserves stayed flat. The liquid share increased from 33% (2023) to 39% (2024).
• Part of the reserves growth originates from two acquisitions in the Duvernay basin.
• Details on reserves changes and the RRR are not yet available and will have to wait for the issue of 2024 annual information form.
• The 2024 proven reserves (165.9 M BoE) are equivalent to a good 11.4 years of 2025 production (industry average 9.5-10.0 years).
• The reserves allow for a moderate growth of production.
• Spartan has started an active drilling program in the Duvernay in 2025.
• It will drill 14 net wells and will bring on-stream 15 wells in the Duvernay. As such production in 2025 can jump and will result in additional proven reserves being booked in 2025.

Production
• Q4 production (38.5 K BoE/d) was above Q3 (37.2 K BoEd), confirming a growing production trend. I had expected 39.0 K BoE/d.
• At the end of Q4 5.0 K BoE/d came from the Duvernay.
• 2024 production (38.2 K BoE/d) is not comparable 2023 (53.3 K BoE). Spartan sold in 2023 its Montney basin assets.
• Spartan Delta provided a 2025 production outlook of 39-41 K BoE/d.
• In view of the high capex spend and the active drilling program, the 2025 outlook looks conservative. I expect for 2025 a production of 41.5-42.5 K BoE/d, possibly higher.
• After 2025 production can increase to 48-49 K BoE/d in 2029. Spartan has indicated that in 2029 25 K BoE/d can come from the Duvernay.
• With production focus shifting from the Deep basin to the Duvernay, fluids will contain more liquids.
• Fluids in Q4 were 10.9% oil/condensate, 24.2% NGL and 64.9% gas.

Balance sheet
• Long-term debt at the end of Q4 was C$ 120.9 M.
• The debt/EBITDA ratio was a good 0.8
• The equity ratio (=equity/balance sheet total) was a mediocre 50.5%.
• In Q1 2025 Spartan Delta issued 25.6 M new shares for C$ 97.8 M. This improved the equity ratio to a good 61.0% and the debt to C$ 23 M.
• The share issue was instigated as the 2025 FCF most likely will be negative due to high capital expenditure (C$ 300-325 M).
• The balance sheet does not allow shareholder returns in 2025. Returns could start in 2026 once the FCF turns positive.

Profitability
• Spartan is a profitable company.
• 2024 net profit was C$ 34.3 M (eps= C$ 0.20), which was a bit above my expectation of C$ 0.17.
• Realized oil, NGL, condensate and gas prices in Q4 2024 all were higher than expected.
• The effect of the Transmountain pipeline on realized oil and condensate process is evident. The delta of realized liquid prices versus WTI improved from -U$ 7.80/bbl in H1 to -US$ 2.08/bbl in H2.
• Depreciation/amortization costs were higher than expected, possibly as an effect of the Duvernay with higher decline rates.
• For 2025, with WTI at $ 70-75/bbl, I expect a profit of C$ 125-132 M (eps C$ 0.63=0.67). The PE is 5.2-5.4.
• After 2025, with a growing production and higher gas prices, the eps in 2029 can increase to C$ 1.26-1.36 (PE= very low 2.5-2.7).

Shareholder returns
• Spartan Delta has not paid any dividends since the C$ 9.50 special dividend in May 2023.
• In 2026, with a positive FCF due to higher gas prices and higher production, shareholder returns theoretically can start and grow to 13-15% in 2028/2029.
• New Duvernay acquisitions will push back returns to a later date in the future.
• It is evident that Spartan Delta want to grow production and reserves in the Duvernay, with the objective that the assets will be sold off in due time to a third party. Therefore, it is well possible that normal returns may never happen until a special dividend is announced after the sale of the company.

Conclusions
Spartan Delta 2024 results mostly exceeded expectations. Profits were above expectation due to better-than-expected realized energy prices. Production was slightly below expectation. Proven reserves increased and became more valuable due to a higher liquid ratio.
The 2024 balance sheet was a bit meagre and since 2024 has been reinforced with additional equity. Spartan Delta is very profitable. It has a very low PE. Short-term shareholder returns are unlikely as Spartan Delta wants to grow production and reserves in the Duvernay, with the assets in due time to be sold off to a third party.

In my oil and gas company ranking Spartan Delta sits at a high 4th position (out of 84).

[Petroleum economist]

Spartan Delta – Additional information on reserves bookings
Spartan Delta last week published its 2024 Annual Information Form (AIF). The AIF amongst others included the details of the changes in its proven reserves.

Early March Spartan had shared with the market that its proven reserves increased 7.4% from 154.5 M BoE (2023) to 165.9 M BoE (2024) and that the overall Reserves Replacement Ratio (RRR) was a good 1.62.

What is transpiring from the AIF is that the bulk (90%) of the reserves additions were autonomous (22.6 M BoE), and that only 2.9 M BoE were due to acquisitions. The distribution of the bookings over the fluids is remarkable. The overall RRR was 1.62, but the oil RRR was 21.3 (!), the NGL RRR was a good 1.43 and the gas RRR only 0.76.

As a consequence of the reserves bookings, the oil content of the Spartan Delta 2024 reserves increased from 5% to 11%, the NGL remained flat at 28% and the gas shrunk from 67% (2023) to 61% (2024).

Spartan Delta reserves and production are fast growing and are getting more liquid prone. Spartan Delta this week ranks a high 3rd amongst 85 oil and gas companies.

[dan_s]

Spartan Delta is going to be a "winner" for us. I like their "Buy, Build and Sell" strategy.

They will be completing 17 (15 net) new Duvernay horizontal oil wells this year, that should significantly increase their oil production.

Read our updated profile on Journey Energy (JOY.TO) than I have posted to the EPG website.