Veren Inc. (VRN.TO) Valuation Update - Nov. 16

[dan_s]

VRN.TO closed at $7.33Cdn ($5.19US) on November 15. The Company pays quarterly dividends of $0.115Cdn/share, so annualized yield is ~6.3%.

Veren's production increased by 20.5% year over year in 2023 and they are on pace for YOY production growth of ~20% in 2025. < It is a classic "Growth + Income" stock with lots of upside to my current valuation of $10.50US. My valuation is just 4X annualized operating CFPS.

VRN is down 25.1% YTD thanks to an impairment charge of $512.3Cdn million in Q1 and some disappointing well results in Q3.

I believe the market's over-reaction to this paragraph in the Company's Q3 press release has created a buying opportunity: "Veren tested a plug-and-perforation ("P&P") completions design on wells in the Gold Creek area of its Alberta Montney in 2024 as part of its efforts to continuously seek additional efficiencies. The Company brought on stream two multi-well pads in this area with average peak 30-day rates of 600 to 900 boe/d per well (60% light oil, 10% NGLs) and recently brought on stream two additional multi-well pads that have been flowing for less than 30 days, using the P&P design. These wells are economic and were completed at a lower cost than wells completed using the single-point entry ("SPE") design in this area. However, production has underperformed the SPE completed wells which generated an average peak 30-day rate of 1,200 boe/d per well in 2023. While significantly enhancing the Company's knowledge of the play, Veren has determined that the results do not support moving away from using SPE design in this area. The Company's development plan going forward, as reflected in its revised 2024 guidance, 2025 guidance and the five-year plan, incorporates the use of SPE design in the Gold Creek area."

MY TAKE: Veren's engineers tried a different well completion design and it did not work as well as expected. This does not lower the overall recoverable oil they have in the Gold Creek area. It definitely does not justify the stock selloff.

Note from HFI Research received 11/15/2024:
"Veren has been a problem child for six straight months. The stock has relentlessly declined as the market lost faith in management’s ability to operate reliably. Its shares most recently got slammed after the company reported disappointing well results while also lowering its 2025 production growth outlook.

I believe that at the current market valuation, investors are missing the fact that VRN sits on massive holdings of some of the highest-quality acreage in the Montney. The proof is in the pudding. Veren’s wells regularly feature among the best-producing wells in the WCSB. Recent transaction metrics imply that Veren’s market cap represents only 80% of its Montney position’s PDP value, according to acreage valuations I’ve reviewed and trust. Investors buying the stock today can get the remainder of Veren’s Montney position and the company’s large and attractive Duvernay position for free.

At this point, I see no more “shoes to drop,” so to speak, for Veren. A tremendous amount of negativity is already priced into the stock, though it may continue to suffer over the next few weeks due to year-end tax-loss selling.

I expect better well results over the next three to six months to send Veren's shares back to the low-to-mid $6 range for the U.S. listing. By late 2025, the market will once again be looking at the company hitting 200,000 boe/d over the subsequent 12 months. At that point, I expect the shares to trade around the levels seen in late 2023, above $7 for the U.S. listing if WTI remains below $80 per barrel at that time."

[dan_s]

Note from HFI Research this morning (Nov. 22). I agree with each of the bullet points.
VER.TO closed at $7.53Cdn on Nov. 21
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The dust is finally settling after Veren’s (VRN) (VRN:CA) third-quarter screwup that occurred three weeks ago. I thought the shares were a buy then and I believe they’re a buy right now.

Veren is exactly the kind of setup I look for in a stock investment for the following reasons:

> I understand why the shares are being sold.
> Sentiment toward the name is at historic lows.
> I can infer why the company is misunderstood and why its stock is mispriced.
> The shares are cheap and I can calculate the extent of the mispricing.
> Long-term prospects are overwhelmingly positive.
> I have identified catalysts that are likely to send the shares higher. < Q4 results should be good with a nice quarter-over-quarter increase in production. Full year 2024 operating cash flow should be over $2.2Cdn billion with over $650Cdn free cash flow.

If I’m right about each point, Veren shares should trade at sustainably higher levels in 12 to 18 months. Over the next three years, the offer total return upside of significantly more than 100%... < My current valuation is $10.50US per share (~$14.20Cdn) plus VRN pays a decent dividend with ~6.1% annualized yield.