Veren (VRN) is one of HFI's Top Picks - Dec 20

dan_s · Post by **dan_s** » Fri Dec 20, 2024 12:15 pm

Notes below are from HFI Research:

I’ve been harping on this Veren since early November. The shares can’t get a break, trading down day after day after day.

Count me among the bloodied knife catchers. I bought shares for our HFI Research Energy Income portfolio at $5.08 and again at $4.66.

Despite the horrible price action, I’m optimistic about this name. Here is a recap of some of the salient facts.

Management screwed up by completing a large batch of 12 wells with plug ’n perf instead of single-point entry. Bad on them.

Nearby wells, even offsetting wells, show results on par with previously drilled wells, indicating the problem is not one of geology but completion technique and risk management.

A chastened management team—which this one clearly is—is far less likely to repeat the same screw-up. The pressure is on to improve well results, and we believe management can execute.

VRN is one of the largest acreage holders in the Montney. Its acreage is more liquids-rich than its Montney peers. Despite the recent poor well results, VRN has drilled some of the best wells in the play.

Duvernay production will drive most of VRN’s growth.

VRN’s five-year plan has been delayed, but still holds the prospect for growth to levels of more than 245,000 boe/d over the next five years from the 191,000 boe/d guided for 2025.

The shares are trading at an EV/DACF of less than three times at $70 per barrel WTI. At $80 per barrel, they’re closer to 2.5 times, reflecting the shares’ bargain pricing.

Continued debt reduction will increase value for shareholders. Share buybacks made at current price levels will be highly accretive.

Assuming well results improve, VRN’s attractive return on capital amid anything but unsustainably low oil prices will drive investor sentiment toward the name higher.

The stock price will rebound with investor sentiment.
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At the current share price, VRN's dividend yield is 7.2%. PV10 NAV of just the Company's proved reserves is $9.60Cdn per share.