Summary
Strathcona has ample reserves and a growing production. After the divestments in Q2/Q3 the balance sheet will become very strong. Strathcona is a profitable company with a low to medium low PE. Shareholder returns are decent and can increase after H2 to high levels
In my 84 oil and gas ranking model, Strathcona ranks in the top 10 at a high 8th position.
Divestments
There was a lot of activity around Strathcona Resources this week:
• Strathcona reported Q1 results.
• Strathcona sold the Montney Kakwa assets for C$ 1,695 M to ARC resources.
• Strathcona sold the Grand Prairie assets for C$ 850 M (C$ 750 M cash).
• Strathcona sold the Birchfield assets for C$ 291.5 M to Tourmaline.
• Strathcona made a hostile offer for MEG energy.
I have incorporated the divestments and the Q1 results into my ranking model. I will keep the MEG acquisition pending until there is more clarity on whether it will proceed or not.
Reserves
• Due to the divestments the proven reserves will reduce from 1,535 M BoE to 1,159 M bbl.
• The reserves will be 100% bitumen and heavy oil, without NGL or gas.
• The reserves are equivalent to >30 years of production.
Production
• Production in Q1 was 194.6 K BoE/d (as expected).Q1 production was well above Q4 (187.2 K BoE/d)
• Production fall in Q2 to 180 K BoE/d due to maintenance activities
• After the divestments, H2 production will reduce to about 120-125 K bbl/d (100% oil).
• 2025 production outlook is 150-160 K BoE/d.
• Strathcona want to grow the production in 2029 to 160 bbl/d and to 170 K bbl/d in 2031.
• I can see production growing further after 2031 to > 200 K bbl/d. See chart below.
- Strathcona production - Q1.jpg (31.13 KiB) Viewed 558 times
• Before the divestments, Strathcona at the end of Q1 already has a decent balance sheet.
• The Q1 equity ratio (=equity/balance sheet total) was a decent 51.8%, slightly below the 53.1% late 2024.
• Due to the divestments the equity ratio can improve to a very good 65%.
• Long term debt in Q1 was C$ 2,461 M.
• The cash from the divestments will reduce the debt in Q3 to minimal levels.
• As such a debt/EBITDA ratio is irrelevant.
• The balance sheet after the divestments will be very strong and will allow generous shareholder returns.
Profitability
• Strathcona is a profitable company.
• Q1 eps was C$ 205 M (eps=C$ 0.96)
• With WTI = $ 60-65/bbl I can see a 2025 eps of C$ 2.80-3.30 (PE is a medium/low8.5-9.8).
• After 2025 I can see the eps increasing to C$ 4.40-5.30 in 2029 (PE is a low 5.7-6.8).
Shareholder returns
• Strathcona is not buying back shares.
• The quarterly dividend was increased this month from C$ 0.27 to C$ 0.30.
• Without changes shareholder returns in 2025 will be 3.7%.
• However, with the strong balance sheet in H2 returns can be increased.
• With WTI at $ 60-65/bbl I can see returns going up to 8-10%.
Conclusions
Strathcona has ample reserves and a growing production. After the divestments in Q2/Q3 the balance sheet will become very strong. Strathcona is a profitable company with a low to medium low PE. Shareholder returns are decent and can increase after H2 to high levels
In my 84 oil and gas ranking model, Strathcona ranks in the top 10 at a high 8th position.