I am updating my forecast/valuation model for Vital based on the guidance that they provided below. My 2024 forecast assumes that all of the convertible equity used for the three Delaware Basin Acquisitions is converted to common stock in 2024. Now that I have 2024 guidance and know that Vital has a lot more running room in the Permian Basin, I am raising my valuation multiple to 3.5 X annualized operating cash flow per share.
After these deals close, VTLE will be a potential target for a much larger company. "The small fish eat the tiny fish and the large fish eat the small fish in this business."
Pro Forma 2024 Outlook
Vital Energy expects to realize operational synergies associated with a larger, consolidated Delaware position and the ability to optimize activity levels between the Midland and Delaware basins. The Company plans to prioritize returns and Free Cash Flow generation and expects to invest $100 - $125 million in the newly acquired assets in 2024, representing less than half of the previous operators’ activity levels.
Through the addition of recent hedges, the Company has significantly derisked its 2024 Free Cash Flow and leverage outlook, underpinning acquisition cash flows and returns. Vital Energy has hedged approximately 75% of expected 2024 pro forma oil volumes at an average price of approximately $75 per barrel WTI.
The following table provides a pro forma full-year 2024 outlook in comparison to the Company’s previously-released outlook.
Stand Alone VTLE FY-24E Pro Forma VTLE FY-24E
Total production (MBOE/d) 86.0 - 90.0 2024: 109.0 - 115.0
Oil production (MBO/d) 41.2 - 44.2 2024: 53.0 - 57.0
Incurred capital expenditures, excluding non-budgeted acquisitions ($ MM) $650 - $710 $750 - $850
Turn-in-lines (# of wells, gross) 70 - 75 87 - 92
Average rig count 3.0 4.0
Vital Energy (VTLE) Update - Sept 14
Vital Energy (VTLE) Update - Sept 14
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Vital Energy (VTLE) Update - Sept 14
First to update PT:
Gabriele Sorbara at Siebert Williams Shank & Co
5-Star rated analyst by TipRanks
Increases his price target by $14 to $96.00 and rates VTLE a BUY
IMO Gabriele is one of the best energy sector analysts.
Gabriele Sorbara at Siebert Williams Shank & Co
5-Star rated analyst by TipRanks
Increases his price target by $14 to $96.00 and rates VTLE a BUY
IMO Gabriele is one of the best energy sector analysts.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Vital Energy (VTLE) Update - Sept 14
I listened to the replay of Vital conference call this morning. You should all listen to the replay, which is now on their website.
The three acquisitions announced yesterday combine to be a "Game Changer" for this company. Adding a lot of high-quality "Running Room" in the Permian Basin, which should draw a lot more attention from investors.
> Significant increase in free cash flow in 2024.
> The Company will run four operated drilling rigs, just one more than they were running. Keeping capex way below operating cash flow.
> Free cash flow in 2024 will be used to pay of lots off debt. < A good thing.
> By the end of 2024 the balance sheet will be in great shape, assuming just $80 WTI. My models all assume $90 WTI for 2024. If oil prices do move over $90, I expect Vital to add at least one more operated rig in the Delaware Basin.
> The increased scale of the Company (112,000 boepd with 55,000 bopd) should draw a lot more attention from the Wall Street Gang. Stifel was on the call, so I expect them to increase their price target, which was $122 before yesterday.
> Based on my forecast, Vital's operating cash flow will go over $1Billion in 2024. With just one month of additional production from the acquired assets, Q4 2023 operating cash flow should exceed $245 million.
> The increased scale also makes VTLE a prime takeover target, increasing my valuation multiple to 3.5 X operating CFPS.
> If their actual results and detailed guidance for 2024 confirm by forecast assumptions, a higher valuation multiplier will be justified.
My current valuation increases by $7 to $141. < I expect Vital's PV10 Net Asset Value to be close to this valuation at year end 2023.
The three acquisitions announced yesterday combine to be a "Game Changer" for this company. Adding a lot of high-quality "Running Room" in the Permian Basin, which should draw a lot more attention from investors.
> Significant increase in free cash flow in 2024.
> The Company will run four operated drilling rigs, just one more than they were running. Keeping capex way below operating cash flow.
> Free cash flow in 2024 will be used to pay of lots off debt. < A good thing.
> By the end of 2024 the balance sheet will be in great shape, assuming just $80 WTI. My models all assume $90 WTI for 2024. If oil prices do move over $90, I expect Vital to add at least one more operated rig in the Delaware Basin.
> The increased scale of the Company (112,000 boepd with 55,000 bopd) should draw a lot more attention from the Wall Street Gang. Stifel was on the call, so I expect them to increase their price target, which was $122 before yesterday.
> Based on my forecast, Vital's operating cash flow will go over $1Billion in 2024. With just one month of additional production from the acquired assets, Q4 2023 operating cash flow should exceed $245 million.
> The increased scale also makes VTLE a prime takeover target, increasing my valuation multiple to 3.5 X operating CFPS.
> If their actual results and detailed guidance for 2024 confirm by forecast assumptions, a higher valuation multiplier will be justified.
My current valuation increases by $7 to $141. < I expect Vital's PV10 Net Asset Value to be close to this valuation at year end 2023.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Vital Energy (VTLE) Update - Sept 14
Hedges
For a company of this size, they must hedge their bets. Plus, the debt holders probably require it.
I know we'd all love for our upstream companies to get full benefit of higher oil & gas prices, but commodity price risk is real and smart management teams know that locking in positive cash flow is wise. When I worked at Hess we ALWAYS hedged enough future production on acquired assets to lock in payout within three years.
Go to Las Vegas if you want to gamble your retirement money.
Vital has ~73% of 2024 oil production hedged that leads to a realized oil price of ~$79/bbl in my model for 2024.
Vital has ~41% of 2024 natural gas production hedged that leads to a realized natural gas price of ~$2.59/mcf net of regional differentials in 2024, but before gathering and processing expenses. The low gas prices shown in my model are because this company reports realized natural gas prices net of gathering and processing expenses.
The Company's 2024 production mix is approximately 49% crude oil, 27% natural gas and 24% NGLs. So, if natural gas and NGL prices move higher, which I expect in 2024, then my stock valuation has some upside to my forecast in 2H 2024.
Additional Upside: When Vital starts paying a decent dividend, they will get a lot more investment from "Growth & Income" fund managers. Management knows this, which is why it was discussed on this mornings conference call.
For a company of this size, they must hedge their bets. Plus, the debt holders probably require it.
I know we'd all love for our upstream companies to get full benefit of higher oil & gas prices, but commodity price risk is real and smart management teams know that locking in positive cash flow is wise. When I worked at Hess we ALWAYS hedged enough future production on acquired assets to lock in payout within three years.
Go to Las Vegas if you want to gamble your retirement money.
Vital has ~73% of 2024 oil production hedged that leads to a realized oil price of ~$79/bbl in my model for 2024.
Vital has ~41% of 2024 natural gas production hedged that leads to a realized natural gas price of ~$2.59/mcf net of regional differentials in 2024, but before gathering and processing expenses. The low gas prices shown in my model are because this company reports realized natural gas prices net of gathering and processing expenses.
The Company's 2024 production mix is approximately 49% crude oil, 27% natural gas and 24% NGLs. So, if natural gas and NGL prices move higher, which I expect in 2024, then my stock valuation has some upside to my forecast in 2H 2024.
Additional Upside: When Vital starts paying a decent dividend, they will get a lot more investment from "Growth & Income" fund managers. Management knows this, which is why it was discussed on this mornings conference call.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Vital Energy (VTLE) Update - Sept 14
141!!! I'd be happy with 40 % of that, I'm selling it at $ 56 if it ever gets there again.anyone want my shares worth 141 for 56?
Mgt appears more focused on keeping their jobs then taking care of shareholders
Mgt appears more focused on keeping their jobs then taking care of shareholders
Re: Vital Energy (VTLE) Update - Sept 14
Paying a whopping 10.125 % on the 5 yr notes
https://www.sec.gov/Archives/edgar/data/1528129/000110465923100512/tm2321383-1_424b5.htm
https://www.sec.gov/Archives/edgar/data/1528129/000110465923100512/tm2321383-1_424b5.htm
Re: Vital Energy (VTLE) Update - Sept 14
While the deal might have capped some shorter term momentum, I’m optimistic this is a step towards a longer term re-rate.
Re: Vital Energy (VTLE) Update - Sept 14
Early on with Earthstone, Dan touted the Mgmt. team as part of the valuation. In the Earthstone merger deal, the market sent ESTE (the seller) up and Permian Resources (PR - The buyer) sideways, so the market obviously thought highly of the deal. Here, good Mgmt. produced, in part, a good deal.
For the Vital deal, we don't know what the market thought regarding the Sellers because it's not a public valuation, but we do know what they think of the move from the Buyer's perspective - DOWN!. And, people on the inside knew too, and someone was telling someone to "SELL" because while the rest of the oil complex moved up for 10-15 days, this stock trended down to sideways during the weeks leading up to the deal, and then a pronounced down upon announcement of their deal.
This stock is high beta, and combined with a pop in oil prices, we should have gotten paid but now we know what put a lid on the upside volatility for Vital. This is a Mgmt. misstep just like Talos was a Mgmt. misstep when they allowed themselves to be taken to the cleaners by the Mexican Govt.
Mediocre Mgmt. teams don't necessarily become better. Sure, Mgmt. might get bailed out by a higher commodity price, but that's not value add (like Earthstone), and clearly THIS WEEK is not good news if you hold/held the stock. This Mgmt. team virtue signaled a more green, environmentally friendly company when they changed their name; I should have known this stock was "cheap" for a reason.
For the Vital deal, we don't know what the market thought regarding the Sellers because it's not a public valuation, but we do know what they think of the move from the Buyer's perspective - DOWN!. And, people on the inside knew too, and someone was telling someone to "SELL" because while the rest of the oil complex moved up for 10-15 days, this stock trended down to sideways during the weeks leading up to the deal, and then a pronounced down upon announcement of their deal.
This stock is high beta, and combined with a pop in oil prices, we should have gotten paid but now we know what put a lid on the upside volatility for Vital. This is a Mgmt. misstep just like Talos was a Mgmt. misstep when they allowed themselves to be taken to the cleaners by the Mexican Govt.
Mediocre Mgmt. teams don't necessarily become better. Sure, Mgmt. might get bailed out by a higher commodity price, but that's not value add (like Earthstone), and clearly THIS WEEK is not good news if you hold/held the stock. This Mgmt. team virtue signaled a more green, environmentally friendly company when they changed their name; I should have known this stock was "cheap" for a reason.
Re: Vital Energy (VTLE) Update - Sept 14
My 2 cents... when I step back and look at the weekly charts, as of 9:07 CST the price is back to where it closed on Aug 4th. If we believe (and I'm looking for Dan's revised models) that the company is worth more now than 6 weeks ago, this could be a great opportunity.
Re: Vital Energy (VTLE) Update - Sept 14
My updated forecast model for VTLE has been posted to the EPG website.
2024 Forecast
$485.5 million net income ($15.08/share)
$1,038.9 million operating cash flow ($32.26/share)
2024 Forecast
$485.5 million net income ($15.08/share)
$1,038.9 million operating cash flow ($32.26/share)
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Vital Energy (VTLE) Update - Sept 14
They floated the secondary at $ 54 and couldn't bring it upon themselves to say what the price was.
Traded right thru that to 52.30 today from a high 62.87 10 days ago. Value destruction of 17 %, with crude being up over $5 bbl in same time span.
When you can't explain a bizarre move call it a strategic decision which will re rate to $150 a share or more. The market has spoken on what they think of the deal.
I expect sell side to put on glowing reports in next few days so they can dump shares the firm bought at $54
Traded right thru that to 52.30 today from a high 62.87 10 days ago. Value destruction of 17 %, with crude being up over $5 bbl in same time span.
When you can't explain a bizarre move call it a strategic decision which will re rate to $150 a share or more. The market has spoken on what they think of the deal.
I expect sell side to put on glowing reports in next few days so they can dump shares the firm bought at $54
Re: Vital Energy (VTLE) Update - Sept 14
I have seen too many large acquisitions at the top of the market ultimately fail. This one being financed with high rate debt. As the acquired properties are from private companies an investor is left taking the word of management as to quality of the operations and acreage. Time will tell but I am not impressed with this one. Looks too much to me to be an effort to significantly grow for the sake of growth.
Re: Vital Energy (VTLE) Update - Sept 14
I think sl68 is short VTLE.
Re: Vital Energy (VTLE) Update - Sept 14
Thanks for getting that update right out Dan, this one is looking pretty interesting at this point. It will be interesting to see if any of the other analysts follow Siebert's lead and move up their price targets.
Am I right that they set new hedges anticipating the new production from the acquisitions even before they've closed? I realize the deals will probably all close but you never know for sure.
The ink on your update was not even dry before it became slightly obsolete -- they did a secondary offering for another 2.75M shares. Not exactly sure why they thought they needed to do this -- about half of their consideration was already in the form of stock.
Using your pro-forma forecast of next year's EBITDA coming in at right around $1.2B the EV/EBITDA multiple looks like it will be under 3 by year-end (with a little debt pay-down from FCF). This looks like a pretty low multiple for a company that is growing as much as VTLE is.
Am I right that they set new hedges anticipating the new production from the acquisitions even before they've closed? I realize the deals will probably all close but you never know for sure.
The ink on your update was not even dry before it became slightly obsolete -- they did a secondary offering for another 2.75M shares. Not exactly sure why they thought they needed to do this -- about half of their consideration was already in the form of stock.
Using your pro-forma forecast of next year's EBITDA coming in at right around $1.2B the EV/EBITDA multiple looks like it will be under 3 by year-end (with a little debt pay-down from FCF). This looks like a pretty low multiple for a company that is growing as much as VTLE is.
Re: Vital Energy (VTLE) Update - Sept 14
Vital did add more hedges and now have ~72.8% of 2024 oil hedged at a blended price of ~$75/bbl.
My forecast is that their realized price will be ~$79/bbl net of cash settlements on their hedges and regional price differentials.
~40% of their 2024 natural gas is hedged with Swaps at ~$3.47, which is actually higher than my assumptions that HH ngas will average $3.25 next year.
None of their NGLs are hedged.
My 2024 revenue forecast is $1,875.3 million.
TipRanks' revenue forecast of $1.6 billion for 2024 is too low because Gabriele Sorbara at Siebert Williams Shank & Co (rated 5-Star by TipRanks) is the only analysts that has submitted a new forecast. The other six analysts that follow VTLE are still working on it. Gabriele's updated price target is $96/share. The other six analysts have price targets ranging from $54 to $122.
Note that my 2024 is based on 32.2 million shares (up from 18.6 million shares in Q2). My forecast assumes all of the convertible equity is converted to common stock in 2024. That is highly unlikely.
My forecast is that their realized price will be ~$79/bbl net of cash settlements on their hedges and regional price differentials.
~40% of their 2024 natural gas is hedged with Swaps at ~$3.47, which is actually higher than my assumptions that HH ngas will average $3.25 next year.
None of their NGLs are hedged.
My 2024 revenue forecast is $1,875.3 million.
TipRanks' revenue forecast of $1.6 billion for 2024 is too low because Gabriele Sorbara at Siebert Williams Shank & Co (rated 5-Star by TipRanks) is the only analysts that has submitted a new forecast. The other six analysts that follow VTLE are still working on it. Gabriele's updated price target is $96/share. The other six analysts have price targets ranging from $54 to $122.
Note that my 2024 is based on 32.2 million shares (up from 18.6 million shares in Q2). My forecast assumes all of the convertible equity is converted to common stock in 2024. That is highly unlikely.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Vital Energy (VTLE) Update - Sept 14
>convertible equity is converted to common stock in 2024. That is highly unlikely.
I think its highly likely and the only reason they did the convertible route is because shareholders have to vote for the share increases by mid next year. This was a stopgap measure. It would be unlikely if the price fell below the conversion price in which case they keep them and earn the coupon.
It certainly dilutes the c/s whether or not they convert
I think its highly likely and the only reason they did the convertible route is because shareholders have to vote for the share increases by mid next year. This was a stopgap measure. It would be unlikely if the price fell below the conversion price in which case they keep them and earn the coupon.
It certainly dilutes the c/s whether or not they convert