Energy Prospectus

Introduction
After I established that Canadian gas producers Peyto Exploration, Paramount Resources and Tourmaline rank high, I decided to look around to see if I could find more Canadian gas producers with similar reserves and balance sheets. I found one: NuVista Energy.
Size wise Nuvista (540 MM scfe/d) is smaller than Paramount (600 MM scfe/d) and Peyto (720 MM scfe/d), and a lot smaller than Tourmaline (3,300 MM scfe/d). I checked on the EPG forum, but nobody ever has written anything about Nuvista.

Summary
• NuVista Energy is a mid-size Canadian gas producer (market value US$ 2.1 B, 540 MM scfe/d), operating in the Alberta Deep basin in western Canadian.
• Nuvista produces from conventional gas/condensate reservoirs.
• NuVista Energy has ample reserves and a high RRR, which allow substantial growth of production. Growth is constrained by the gas market.
• The balance sheet is very strong and NuVista is very profitable.
• Shareholder returns will dip in 2024, but should show a strong recovery in 2025/2026 and beyond.

Reserves
• Nuvista has ample reserves.
• Proven reserves late 2023 were 2.411 tcfe, equivalent to a high 12.9 years of 2024 production (industry average 9.5-10 years).
• The reserves grew autonomous with 13.7% from 2.121 tcfe (2019) to 2.411 tcfe (2024).
• RRR over the period 2019-2023 was a high 1.78, well above industry average (1.02).
• Reserves and RRR enable substantial growth of production. Growth rate is limited by the gas market.

Production
• Production has been growing with 8-9%/year since 2019.
• Production in Q1 2024 (481 MM scfe/d) was -6.5% below Q4 2023 (516 MM scfe/d). This is in line with a normal seasonal swing.
• Q2 2024 outlook is 480-498 MM scfe/d is slightly higher than Q1. The outlook includes a reduction of 20 MM scfe/d for planned Q2 facility shutdowns.
• With new treatment capacity on line, Q3/Q4 production will increase to 510-540 MM scfe/d.
• 2024 outlook (498-522 MM scfe/d) is 10% above 2023 (463 MM scfe/d), demonstrating a continued growth trend.
• For 2025/2026 Nuvista has firm gas sales for 480 MM scf/d. The rest of the marketing will “float” at various hubs. To be conservative I assume a production growth of 3-4% per year to 566 MM scfe/d (2025) and 572 MM scfe/d (2026).
• Nuvista has indicated that over time volumes can grow to 690 MM scfe/d. In line with this I assume a growth 3-4%/year from 2027 till 2032, till production reaches 690 MM scfe/d. level. NuVista hopes to reach this level earlier.
• Fluid composition is 60.1% gas, 30.3% condensate and 8.8% NGL.
• As fluid composition (60/40) is almost aligned with reserves (64/36), fluid composition changes in the future will be limited.

Balance sheet
• The balance sheet is extremely sound.
• Solvency in Q1 2024 was a high 68.2%, with limited requirement for further reinforcement.
• Net debt was a minimal C$ 179 M. Combined with an EBITDA of C$ 660 M, debt/EBITDA is a very low 0.25.
• I expect the balance sheet to remain strong in the future.
• The balance sheet allows generous return of funds to shareholders.

Profitability
• Royalties are a reasonable 8-10% of revenues.
• Unit costs are $ 3.16/MM Btu, influenced by the 39% liquid content. Corrected for liquids, the unit costs reduce to a medium $ 2.00/MM Btu.
• Condensate/NGL are 40% of the fluids, but liquid sales constitute 72% of the revenues.
• Condensates sell at a $ 7/bbl discount to WTI. I have not yet included any improvements due to the start of the Trans Mountain pipeline in H2 2024. This is a future upside.
• Canada is slowly running short on NGL’s. As such Nuvista expects strengthening of the local NGL market. This is left as a future upside.
• Realized gas prices are on par with Henry Hub gas prices. 14% of gas production in 2024 hedged.
• NuVista reported for Q1 a net profit of C$ 35.8 M (eps C$ 0.17).
• For 2024, with WTI at 75-80/bbl and gas at $ 3.50/Mm Btu, I expect a 2024 net profit of C$ 260-290 M (eps=C$ 1.26-1.42, PE=8.8-9.9).
• With higher gas prices and more production and gas prices at $ 4.00/MM Btu, in 2025 the eps can increase to C$ 2.20-2.43 (PE=5.5-6.1) and in 2026 to C$ 2.63-2.86 (PE=4.7-5.1).
• NuVista is very profitable.

Shareholder returns
• NuVista targets to return 75% of the free cash flows to shareholders.
• Nuvista does not pay dividends. Shareholder returns are though share buy backs.
• Nuvista bought back in 2023 15.3 M shares (7.4% of total).
• For 2024, with lower gas prices, share buybacks will go lower.
• In Q1 2024 Nuvista bought back 1.3 M shares. Continuation of this trend in Q2-Q4 will result in a yield of 2.5%. I expect it to be a bit higher and to reach 3.5-4.0%.
• With a recovery of gas prices, yield can go up to 6.3% (2025) and 9% (2026). After 2026 yield can increase further.

Conclusions
NuVista Energy has ample reserves and a high RRR and a growing production. The balance sheet is very strong and NuVista is very profitable. Shareholder returns will dip in 2024, but should show a strong recovery in 2025/2026 and beyond.
Nuvista ranks a high 9th in my oil and gas company ranking and could be an attractive investment.


Canadian gas producers versus American gas producers
• Based on their ranking, Canadian gas producers such as Peyto (6th), Nuvista (9th), Paramount (15th) and Tourmaline(21st) look more attractive than their American counterparts (Gulfport(31st), Range Resources (41st), Coterra (50th), Chesapeake (51th), EQT (53rd) and Antero (67th)).
• Canadian companies tend to grow faster, have lower unit costs, more reserves, and stronger cash flows.
• Canadian companies get a larger portion of their revenues from liquid sales. The liquids from Canadian companies are richer and contain more valuable C5-C10 components.
If you expect an upswing in gas prices, then Canadian gas producers certainly are worth to be considered.

If anybody has any suggestions for other oil and gas companies I could consider for my oil and gas ranking, then just let me know though a private message. If you send me an email address, I will share the companies already included, with complete ranking and an explanation of the ranking process.

North American natural gas prices should be much higher a year from now if we have a normal winter. La Nina winters are usually colder in the eastern half of the U.S. Realized natural gas prices in South Texas, the Haynesville and Appalachia should increase the most. Permian Basin ngas prices will improve, but continue to be much lower than Henry Hub gas price due to the West Texas pipeline shortage.

Natural gas prices in Western Canada will improve, but still lag behind U.S. prices.

Gas prices
Dan has a valid point when he states:” La Nina winters are usually colder in the eastern half of the U.S. Realized natural gas prices in South Texas, the Haynesville and Appalachia should increase the most”.

The statement however needs some qualification. I assume Dan is referring to realized hub prices like Henry Hub, Chicago, Transco, etc. and not necessarily to company realized gas prices.

Hub gas prices versus company realized gas prices
Canadian gas prices (AECO) are typically $ 1.00-1.50/MM Btu below Henry Hub. That does not mean that realized gas prices of Canadian gas companies are below those of American companies.

If I look at 2023 realized gas prices, then I see that the realized gas prices of Canadian companies are very similar to those of American companies:
• Canadian companies: Peyto Exploration +$0.08/MM Btu, Nuvista: +$0.63/MM Btu, Paramount -$ 0.29/MM Btu, Tourmaline -$ 0.13/MM Btu.
• US companies: Gulfport -$ 0.15/MM Btu, Range Resources -$ 0.31/MM Btu, Coterra -$ 0.34/MM Btu, Chesapeake -$ 0.22/MM Btu, EQT -$ 0.04/MM Btu, Antero +$0.16/MM Btu.
Above are realized delta ‘s in 2023 versus a Henry Hub price of $ 2.54/MM btu – all in US dollars.

The explanation is that Canadian companies tend to sell 65-75% of their volumes under firm contracts and only 25%-35% at hubs. Hub prices variations have only a limited influence on the average realized price.

Comparing Canadian gas companies and American gas companies
Ranking is for me the main reason to prefer Canadian companies. Ranking looks wide and considers realized prices, fluid composition, reserves, production growth, shareholder returns, cash flows, balance sheets health, etc. I apply the ranking now to 76 American and Canadian oil and gas companies.

Gas companies ranking
• Canadian companies ranking: Peyto Exploration 6th, Nuvista: 11th, Paramount 21st, Tourmaline 29th.
• US companies ranking: Gulfport 31st, Range Resources 41th, Coterra 48th, Chesapeake 49th, EQT 53rd. Antero 66th.
• Canadian companies rank higher than American ones.

I appreciate that ranking is a bit abstract, and therefor below I have shown some of the parameter which influence ranking

Shareholder returns in 2024
• Canadian companies: Peyto Exploration 9.0%, Nuvista: 3.3%, Paramount 5.7%, Tourmaline 5.8%.
• American companies: Gulfport 4.2%, Range Resources 0.9%, Coterra 4.6%, Chesapeake 4.2%, EQT 1.6%, Antero 0.4%.
• Canadian companies provide higher 2024 shareholder returns.

Fluid composition
• Canadian companies: Peyto 13.2%, Nuvista: 39.8%, Paramount 47.4%, Tourmaline 24.5%.
• American companies: Gulfport 9.1%, Range Resources 30.2%, Coterra 29.0%, Chesapeake 8.1%, EQT 5.0%, Antero 35.4%.
• Canadian companies tend to have a higher liquid content.

Liquid revenues
• Canadian companies: Peyto 32.6%, Nuvista: 69.8%, Paramount 82.0%, Tourmaline 47.5%.
• American companies: Gulfport 20.9%, Range Resources 47.1%, Coterra 59.1%, Chesapeake 13.5%, EQT 11.1%, Antero 52%.
• Canadian companies tend to receive a higher percentage of their revenues from liquid sales and are not so sensitive to gas price fluctuations.

Price Earnings ratio in 2024 (HH = $ 2.50/MM Btu) and 2026 (HH= $ 4.00/MM Btu)
• Canadian companies - PE in 2024: Peyto 8.5, Nuvista: 9.4, Paramount 11.7 Tourmaline 20.9.
• American companies - PE in 2024: Gulfport 11.7, Range Resources 15.6, Coterra 14.4 Chesapeake 31.0, EQT 43.3, Antero 54.0.

• Canadian companies - PE in 2026: Peyto 4.6, Nuvista: 4.9 Paramount 6.8, Tourmaline 8.1,
• American companies - PE in 2026: Gulfport 6.4, Range Resources 11.0, Coterra 8.6 Chesapeake 7.5, EQT 7.5, Antero 12.2.
• Canadian gas companies on average have a lower PE ratio, both in 2024 and 2026.