Yangarra Resources – Solid Q1 results

[Petroleum economist]

Yangarra is a small Canadian gas producer, producing conventional gas and NGL in the Cardium sands in Alberta.

Summary
Q1 production was as expected, with an increase in production for the rest of 2025 foreseen. The balance sheet is in a reasonable shape but can do with some reinforcement. Profitability is good and the PE is very low. There will be no shareholder returns in 2025, but returns can start in 2026 and reach very decent levels. In my 85 oil and gas company ranking, Yangarra ranks in the top 10 at a high 3rd position.

Production
• Q1 production (10,330 BoE/d) was in line with my estimate of 10,500 BoE/d and slightly (1%) above the 10,207 BoE/d in Q4.
• The 2025 production outlook was reiterated at 11.25-11.75 K BoE/d, indicating that production in the rest of 2025 will be above Q1
• I expect Yangarra in 2025 to be around the middle of the guidance at 11.4 K BoE/d, 9% above 2024 (10.5 K BoE/d).
• After 2025 the production in principle can grow. Yangarra proven reserves (84.2 M BoE) are equivalent to 20.5 years of 2025 production.
• Yangarra management financially is very conservative, ensuring that it does not overcommitting itself unless it is sure that there is a gas market for its exports and also keeping an eye on the oil price.
• Based on above I am assuming that production in 2026-2029 will remain flat at the 11.3 K BoE/d 2025 level.
• Fluid composition is 19% oil, 22% NGL and 59% gas.

Balance sheet
• The balance sheet is in a reasonable shape.
• Q1 equity ratio (=equity/balance sheet total) was a high 64.5%, slightly above the 64.2% late 2024.
• The equity per share (C$ 5.73 per share) is 6.7 times higher than the current share price. This factor is higher than in any other company that I track.
• Long term debt is too high. Q1 long-term debt (C$ 118.5 M) was up from the C$ 115.8 M in late 2024.
• The debt/EBITDA ratio is heading for a reasonable 1.1 in 2025.
• Yangarra wants to reduce the debt to C$ 80 M before it will implement shareholder returns.
• I assume the C$ 80 M limit will be reached in early 2026.
• Shareholder returns therefor will not happen in 2025 but can start in 2026.

Profitability
• Yangarra is a profitable company.
• Q1 eps (C$ 0.05) was just above my expectation and also above Q4 (C$ 0.04). Operating tax and royalties were lower than expected.
• With WTI=$ 60-65/bbl, I expect for 2025 an eps of C$ 0.26-0.27. The PE is a very low 2.9-3.2.
• In 2029, with no production growth, the eps can level out C$ 0.26-0.29 (PE = 3.2-3.7).
• With a higher production in 2029 will come with a higher eps and a lower PE.
• Royalties are a low 6.5-7.0% of revenues.
• Unit costs (inclusive interest depreciation and overheads) are a medium US$ 2.78/MM Btu.

Shareholder returns
• Yangarra has never returned funds to shareholders.
• Corporate strategy is to reduce the debt to C$ 80 M before shareholder returns will be started.
• Based the balance sheet, I believe that shareholder returns can start in 2026 at 6-7% and thereafter can go up to levels of 11-15% in 2029.

Conclusions
Q1 production was as expected, with an increase in production for the rest of 2025 foreseen. The balance sheet is in a reasonable shape but can do with some reinforcement. Profitability is good and the PE is very low. There will be no shareholder returns in 2025, but returns can start in 2026 and reach very decent levels. In my 85 oil and gas company ranking, Yangarra ranks in the top 10 at a high 3rd position.