NuVista Energy: The Impressive Production Growth Continues

seekingalpha03-27

NuVista Energy Ltd. is a Canadian oil and natural gas producer, with a majority of its production coming from natural gas.The company has achieved impressive production growth over time and is ...

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(OTCPK:NUVSF) is a Canadian oil & natural gas producer. It is listed in Canada (TSX:NVA:CA), and it reports in Canadian Dollars. I last covered NuVista about 7 months ago, and that article can be found here. The company has the majority of its production coming from natural gas, as illustrated by the figures below. However, as much as 64% of 2023 revenues came from condensate sales, which was due to a relatively strong condensate price of C$100/bbl in 2023 and weaker natural gas prices. Figure 1 - Source: NuVista Quarterly ReportsFigure 2 - Source: NuVista Q4-23 MDA One thing that makes NuVista relatively unique is the extremely impressive production growth over time. The company in 2023 produced 77,185 boe/d and is guiding for 85,000 boe/d in 2024. Given the impressive track record of production growth, there is little reason to doubt the 2024 guidance. The company is expected to continue to have a high growth rate beyond 2024. If we use the 2024 guidance figure, the company will grow production by 185% compared to 2017, when the company produced 29,783 boe/d. This impressive growth rate has been achieved without blowing out the share count, and the production per share over the same time period is a very impressive 139%. That is a figure very few peers can come close to. Figure 3 - Source: NuVista Quarterly Reports The stock price performance of NuVista has over the last year been marginally positive, underperforming many of its peers substantially. That is in my view primarily due to its large production of natural gas, where prices have been much weaker compared to oil. Figure 4 - Source: Koyfin In this article, I will review the latest quarterly result, the valuation, and share my general views on the company. Q4 23 Result The Q4 23 production was particularly strong for NuVista at 85,924 boe/d, above guidance, even if that figure is expected to retrace some in Q1 24. The company is expecting production to go above 90,000 boe/d later in the year. The strong production together with a good concentrate price of C$99/boe in the Q4 led to healthy cash flows. Figure 5 - Source: NuVista Quarterly Reports The company reported C$202M in adjusted funds flow and C$71M in adjusted free cash flow, which are relatively good numbers. Much of the free cash flow during 2022 was used to deleverage, but the company is satisfied with the current debt level and has lately used the free cash flow more for buybacks. The net debt to 2023 adjusted funds flow is only 0.2. NuVista does not pay dividends. Figure 6 - Source: NuVista Quarterly Reports In the figures below, we can see the sales, netback, and some costs over time. An operating netback at or slightly below C$30/boe is far from the highest among Canadian oil & natural gas producers, but it still a respectable number given the high percentage of natural gas production. The declining trend over the last few quarters in operating and transportation expenses has helped offset the decline in netback due to lower energy prices. Figure 7 - Source: NuVista Quarterly ReportsFigure 8 - Source: NuVista Quarterly Reports During the full year 2023, we can in the figure below see that the adjusted netback was not that far off a couple of peers, which have higher percentages of production coming from liquids and consequently a higher sales price. The low operating cost is the main reason. Figure 9 - Source: Quarterly Reports Reserves NuVista did in conjunction with the Q4 result also announce a reserve update, where the proved developed reserves increased by 14% year-over-year (“YoY”) or 20% on a per share basis. Total proved plus probable reserves also grew 6% YoY or 12% on a per share basis. The company did in 2023 and has in most prior years been able to replace its annual production by a decent margin, so there are no concerns about reserves. Figure 10 - Source: NuVista Corporate Presentation Valuation & Conclusion The forward-looking EV to EBITDA for NuVista Energy is 3.6, which is far from an expensive valuation. However, we are presently at the higher end of the last 18 months' trading range, even if it is worth keeping in mind that it with more conservative natural gas price assumptions. Figure 11 - Source: Koyfin NuVista is an impressive company, with a strong operating history. It has grown production consistently over time and has decreased the share count lately. The company is generating relatively good cash flows even with weaker natural gas prices. If we were to see a recovery in natural gas prices, NuVista Energy Ltd. stock is likely to do very well given the conservative assumptions imbedded in its shares. So, for anyone that wants to bet on a near-term recovery in natural gas prices, NuVista Energy is likely a quality choice. I remain more cautious on natural gas prices in the near term. We have seen some production curtailments being announced recently in North America, but if often takes longer to work through inventory than one might think. So, I am neutral on NuVista Energy Ltd. stock.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2422641810"}