Vital Energy (VTLE) Q2 Results - Aug 8

[dan_s]

Second-Quarter 2024 Highlights

Delivered Company-record quarterly total and oil production, producing 129.4 thousand barrels of oil equivalent per day ("MBOE/d") and 59.2 thousand barrels of oil per day ("MBO/d"), respectively < Beat my forecast (122,000 Boepd with 57,340 bbls of oil per day) by a wide margin. Vital is an "under-promise and over-deliver" company.

Reported capital investments of $210.0 million, excluding non-budgeted acquisitions and leasehold expenditures

Reported net income of $36.7 million, Adjusted Net Income of $55.0 million < In line with my forecast of $57.5 million net income.
and cash flows from operating activities of $338.4 million < Beat my forecast.

Generated Consolidated EBITDAX1 of $290.4 million and Adjusted Free Cash Flow of $44.7 million

Successfully executed three horseshoe wells in Upton County and organically added ~120 long-lateral horseshoe wells to the Company's development inventory while eliminating 84 short-lateral locations < "Horseshoe Wells" are this year's best idea.

Announced the acquisition of the assets of Point Energy Partners ("Point") in July, which is expected to add approximately 15.5 MBOE/d of production and 68 gross oil-weighted locations at closing < Expected to close in September.

Increased the Company's 2025 oil hedges to 15.4 million barrels at approximately $75 per barrel WTI

"Our team continues to deliver strong results as our optimized development strategy enhances well productivity on acquired properties," stated Jason Pigott, President and Chief Executive Officer. "In addition to achieving record quarterly production, we are organically adding low-breakeven inventory locations across our leasehold as we successfully implement the technology to drill long-lateral horseshoe wells. Combined with our strategic acquisition of the assets of Point, we have increased our inventory of estimated sub-$50 per barrel WTI breakeven inventory to 395 locations."

"We remain committed to maintaining a strong capital structure," continued Mr. Pigott. "In conjunction with our highly accretive acquisition of the assets of Point, we substantially increased our hedge position to underpin our cash flows and support debt reduction. Our recent acquisitions have significantly expanded the scale of our Permian Basin position and we are focused on building value through increasing well productivity, lowering costs and organically adding high-return inventory to maximize cash flow generation."

Vital's strong Q2 results and increased "Running Room" deserves a higher valuation multiple than I have been using (just 3.25 X CFPS).

[dan_s]

This is important to understanding my valuation of VTLE:

From their Q2 press release:

Vital Energy continues to organically increase its high-return development inventory, demonstrating the ability to utilize horseshoe drilling technology across its leasehold. During the quarter, the Company converted 84 short-lateral locations to 42 long-lateral horseshoe locations, 30 of which breakeven below an estimated $50 per barrel WTI.

Additionally, the Company organically added 77 new long-lateral horseshoe locations on its existing acreage position with an estimated average breakeven of approximately $57 per barrel WTI.

In July 2024, the Company announced the signing of a definitive agreement to acquire the assets of Point. Upon closing, the transaction is expected to add 68 gross inventory locations with an estimated average breakeven oil price of $47 per barrel WTI.

Following closing of the Point acquisition (expected to close late Q3), Vital Energy will have added approximately 100 new locations to its oil-weighted inventory in 2024, increasing total inventory to approximately 885 high-return locations, net of development activity through the first half of 2024. At current activity levels, this represents more than a decade of drilling inventory with an estimated average breakeven of less than $55 per barrel WTI.