Vital Energy (VTLE) Q4 Results - Feb 19

[dan_s]

After the markets closed on Wednesday, Vital Energy reported Q4 results.

Fourth-Quarter 2024 Financial and Operations Summary

Financial Results. The Company reported a net loss of $359.4 million, or $(9.59) per diluted share, which included a non-cash pre-tax impairment loss on oil and gas properties of $481.3 million, and Adjusted Net Income of $86.5 million, or $2.30 per adjusted diluted share. < Non-cash items like Impairment and Mark-to-Market adjustments on the value of hedges do not impact Adjusted Operating Cash Flow. Therefore, they don't impact my stock valuations. Vital's Adjusted Net Income of $86.5 million beat my Q4 forecast of $61.0 million.

Cash flows from operating activities were $257.2 million, Adjusted Operating Cash Flow of $336.8 million and Adjusted Free Cash Flow of $110.8 million. < This beat my forecast of $274.8 million Adjusted Operating Cash Flow.

Production. Vital Energy's total and oil production exceeded the high end of guidance, averaging 147,819 BOE/d and 69,827 BO/d, respectively. Volumes were driven by better-than-expected production from the Point Energy assets.

Capital Investments. Total capital investments, excluding non-budgeted acquisitions and leasehold expenditures, were $226 million, including approximately $17 million of additional drilling and completions investments related to increased working interest and carried interest and $5 million from acceleration of activity into the fourth quarter.

Investments included $190 million for drilling and completions, $22 million in infrastructure investments, $8 million in other capitalized costs and $6 million in land, exploration and data-related costs.

Operating Expenses. LOE during the period was $8.89 per BOE, below guidance of $9.35 per BOE, as the Company integrated its Point Energy assets. Lower expenses were primarily related to reduced workover activity on the Point Energy assets during integration. < Higher production volumes than my forecast and lower operating expenses per BOE are why Vital's

General and Administrative Expenses. General and administrative expenses totaled $1.95 per BOE for fourth-quarter 2024, in line with guidance. General and administrative expenses, excluding long-term incentive plan ("LTIP") and transaction expenses were $1.71 per BOE. Cash LTIP expenses were $0.02 per BOE and reflected the decrease in Vital Energy's common stock price during the third quarter. Non-cash LTIP expenses were $0.22 per BOE.

Liquidity. At December 31, 2024, the Company had $880 million drawn on its $1.5 billion senior secured credit facility and cash and cash equivalents of $40 million.

"We strengthened our business in 2024 through enhanced scale, optimized assets and a lengthened runway of high-quality inventory," said Jason Pigott, President and Chief Executive Officer. "We successfully integrated our largest ever asset purchase in the Delaware Basin and early results positively impacted our operating and financial performance. Vital Energy continues to show that our talented people can capture important synergies from acquisitions while expanding inventory."

"In 2025, our primary goals are reducing costs, maximizing Adjusted Free Cash Flow generation, absolute debt reduction, and extending and enhancing our existing inventory," continued Pigott. "Our inventory provides us with ample high-return development opportunities and a strong outlook for Adjusted Free Cash Flow generation. Recent operational achievements, like horseshoe wells, are creating new efficiencies and allowing us to develop highly productive, stranded leasehold. We will continue to focus on optimizing our asset base to achieve our cash flow and debt repayment targets."

2025 Outlook

Vital Energy's 2025 development plan is designed to maximize cash flow to facilitate debt repayment, supported by its robust hedge position. In comparison to the Company's earlier projections, the finalized 2025 outlook has lower capital investment levels and slightly lower oil production. In 2025, the Company expects to generate approximately $330 million of Adjusted Free Cash Flow at $70 per barrel WTI.

Capital Investments. Vital Energy plans to invest $825 - $925 million in 2025, excluding non-budgeted acquisitions and leasehold expenditures. Efficiencies and lower costs are driving capital investments approximately 3% lower than earlier projections while expecting to complete approximately the same net lateral feet as in 2024.

Production. The Company expects total production of 134.0 - 140.0 MBOE/d and oil production of 62.5 - 66.5 MBO/d. Production is approximately 3% lower than earlier projections. The shortfall is related to operational delays and the underperformance of a seven-well development package in Upton County.

Operating Expenses. The Company has made significant progress reducing operating expenses through integration of its Point Energy assets. Some workover expense was deferred from fourth-quarter 2024 into the first quarter of 2025. Average LOE for the two quarters is expected to be around $9.20 per BOE, putting the Company on pace to achieve LOE below $9.00 per BOE by the end of 2025.

Oil-Weighted Inventory

The Company has continued to extend and enhance its inventory of high-return development locations. At year-end 2024, Vital Energy had approximately 925 locations with an average breakeven WTI oil price of around $50 WTI. Approximately 400 of these locations breakeven below $50 per barrel WTI. Additionally, there are an additional approximately 250 locations that can be added to inventory pending successful delineation.

2024 Proved Reserves

Vital Energy's total proved reserves at year-end 2024 were 455.3 MMBOE (40% oil, 70% developed). The standardized measure of discounted net cash flows was $4.22 billion and the PV-10 value was $4.51 billion utilizing SEC benchmark pricing of $75.48 per barrel WTI for oil ($76.76 per barrel average realized price) and $2.13 per MMBtu Henry Hub for natural gas ($0.85 per Mcf average realized price).

[Petroleum economist]

Vital Energy 2024 results – good profit and production, disappointing reserves.

Summary
Vital 2024 adjusted results were above expectation. 2024 production and profit were higher than expected. Vital reported a 2024 net loss due a large non-cash impairment charge on oil and gas properties. The reported 2024 proven reserves were disappointing. Proven reserves are well below my expectation and will result in a lower long-term production profile and profits. The balance sheet us mediocre and will need reinforcement in 2025/2026. After 2026 high shareholder returns can start. Profitability is good and the PE is low.

Reserves
• 2024 proven reserves were 453 M BoE, up 48 M BoE from 405 M BoE in 2023.
• Reserves growth was for 69 M BoE due to acquisitions.
• The 69 M BoE from acquisitions is disappointing. I had expected an extra 91-92 M BoE, based on 88.2 M BoE from the Point Energy acquisition and 3-4 M BoE from the 54 wells with 1.85 K BoE/d bought from Henry (February 2024).
• The 88.2 M BoE from Point Energy are based on 80% of the Point Energy 2023 reserves, equal to 93.9 M BoE minus 5.7 M BoE of produced volumes in 2024.
• Vital did provide an explanation for the low volumes.
• The explanation possibly it sits in the $ 481 M impairment charge taken on oil and gas properties. It could be that due diligence on reserves has failed. Northern Oil and Gas, which bought 20% of Point Energy in 2024 did not report a 2024 impairment charge.
• 2024 Reserves Replacement Ratio (RRR) fell short on expectations. With production of 49 M BoE and bookings of 30 M BoE, the 2024 RRR was a disappointing 30/49= 0.61.
• The 2019-2024 RRR is 0.66, below industry average RRR of 0.85-0.90.
• 2024 reserves are equivalent to a low 8.8 years of 2025 production. Industry average is 9.5-10 years.
• Reserves and RRR combined point to a general decline in future production.

Production
• Q4 production (147.8 K BoE/d) was well above Vital guidance (137-143 K BoE/d), and also above my expectation (143 K BoE/d).
• Q4 (147.8 K BE/d) was 14.5 K BoE/d above Q3 ( 133.3 K BoE/d). The Point Energy acquisition at 15.5 K BoE/d contributed for the full quarter and only 10 days in Q3. Without Point Energy, production was flat.
• 2025 outlook is $ 130-140 K BoE/d. indicating a flat to slow declining production. Q1 outlook is 135-141 K BoE/d.
• My 2025 forecast was 141 K BoE/d. This as Vital is always conservative in their outlooks.
• After 2025 decline will set in. With reduced reserves, I now expect production to fall with 2%/year to 130 K BoE/d in 2029, where previous I assumed Vital could keep production flat at 140 K BoE/d until 2028.

Balance sheet
• The Vital balance sheet is not strong.
• Late 2024 long-term debt was $ 2,454 M, up $ 845 M from the $ 1,609 M in late 2023. The increase is due to the $ 880 M Point Energy acquisition. Combined with a 2024 EBITDA of $ 1 260 B, the debt EBITDA was a high 1.88.
• Late 2024 equity ratio (=equity/balance sheet total) was a mediocre 45.9%. The equity ratio was down 8.2% on late 2023 (54.1%). Part of the reduction in the equity ratio is due to a $ 481 M impairment charge on oil and gas properties.
• The balance sheet needs reinforcement in 2025and does not allow shareholder returns in 2025 and 2026

Profitability
• Adjusted profit was $ 270 M (eps=$ 7.20). The adjusted profit was higher than the eps=$ 5.69 that I had expected.
• Good news was that realized gas prices recovered from -$ 0.18/MM Btu negative (Q3) to $ 0.59/MM Btu positive(Q4). The gas price was well above my expectation. Thie recover of the gas price can be partially contributed to the start of the Matterhorn pipeline in west Texas.
• Net loss in 2024 was -$ 173.5 M due to a $ 481.3 M pre-tax non-cash impairment charge on oil and gas properties Details on the charge were not provided.
• For 2025, with WTI = $ 70-75/bbl, I expect an eps of $ 19.50-11.25 (PE = low 3.2-3.4).
• After 2025, with a slowly declining production and higher gas prices, the eps can hoover around 2025 levels.

Shareholder returns
• In view of the balance sheet, shareholder returns in 2025 and 2026 are unlikely.
• Shareholder returns can start in 2027.
• Assuming that 50-60% of the FCF is allocated to shareholder returns, yield from 2027 onwards can be 10-12%.

Conclusions
Vital 2024 adjusted results were slightly above expectation. 2024 production and profit were higher than expected. Vital reported a 2024 net loss due a large impairment charge on oil and gas properties. The reported 2024 proven reserves were disappointing. Proven reserves are well below my expectation and will result in a lower long-term production profile and profits. The balance sheet us mediocre and will need reinforcement in 2025/2026. After 2026 high shareholder returns can start. Profitability is good and the PE is low.

In my oil and gas companies ranking Vital now sits at 26th position out of 84, just outside the top 25.

[knusser58]

Hi Dan,
do you know by when you shall post your updated worksheet on Vital Energy?
Regards,
Klaus