Vital Energy (VTLE) Valuation Update - Aug 17

[dan_s]

I have finished my review of our updated profile on Vital Energy and it will be available on the EPG website later today. It will be emailed to all of our members.

I have lowered my valuation multiple from 3.25X to 3X annualized operating cash flow per share because of the increased debt they will be taking on when they close the Point Energy Acquisition in September. I don't think this company is over-leveraged. Strong free cash flow is locked in by their hedging program through 2025.

My valuation is $94/share, only that low because of the very low multiple that I am using to value it.

Since the acquisition should be immediately accretive to operating cash flow and Vital is already free cash flow positive, the additional debt service should not be an issue. They have more than enough liquidity to close the transaction in September. The large banks behind Vital and NOG have reviewed and approved the transaction.

Based on Ryder Scott's conservative evaluation of the assets being acquired, Vital and their partner Northern Oil & Gas (NOG) are getting quality assets with solid current production and lots of high-quality "Running Room". Vital's Debt to EBITDA should be down to 1.3X by mid-2025.

As I have posted here many times, Vital is being built for sale. In Q4 2024 it will be larger than Earthstone Energy was when Permian Resources acquired it. The PV10 of Vital's proved reserves should be over $5 billion on December 31, 2024. PV10 Net Asset Value should be over $60/share of just their 1P reserves.

There is nothing that I can see which justifies this stock trading at less than 1.5 X 2024 operating cash flow per share.