Veren – 2024 results

[Petroleum economist]

Duvernay and in Southwest Saskatchewan.

Summary
2024 reserves were above expectation thanks to high autonomous reserves bookings. Q4 production exceeded Q3 production, thus indicating that the problems with well designs experienced in Q3 are in the past. The balance sheet improved thanks to divestments and the 2024 FCF and is strong. The profitability is good, with oil prices higher than expected. The PE is very low. Shareholder returns are high.

Reserves
• 2024 gross proven reserves( P1) of 739.1 M BoE were down 3.8% versus 2023 (768.3 M BoE),
• The reduction was due to the 2024 sale of Saskatchewan assets (Flat Lake and Battrum) with associated reserves of 73.1 M BoE (92% liquids).
• 2024 Reserves Replacement Ratio ( RRR) was a high 1.61 and well above 2023 RRR (0.73). Industry average RRR is 0.95-1.02. The 2024 RRR was the highest in the last six years.
• 2024 reserves are equivalent to a good 10.6 years of 2025 production. Industry average is 9.5-10.0 years.
• Due to the Flat Lake and Battrum disposition which had 91% liquids, the proven reserves have become gassier. The liquid content of the proven reserves dropped from 64.6% to 60.6%.
• 2024 oil reserves (261.2 M bbl) were down 15% versus 2023 (307.0 M bbl).
• 2024 gas reserves (1.745 tcf) were up 7% versus 2023 )1.629 tcf).
• NGL reserves (187 M bbl) were almost flat versus 2023 (189 M bbl).
• Proven + probable reserves (P2) declined from 1,202 M BoE to 1.133 M BoE.

Production
• Q4 production (188.7 K BoE/d) was 2% above Q2 (184.8 K BoE/d), indicating that the effect of failed well concept in Q3 did not carry on in Q4.
• Q4 production was below Q1 (198.5 K BoE/d) and Q2 (195.2 K BoE/d), but these periods included 13.5 K BoE/d of the Flat Lake and Battrum assets which were sold to Saturn oil.
• The repeat of the 2025 outlook of 188-196 K BoE/d is a bit of a disappointment.
• The midpoint of the 2025 outlook (192 K BoE/d) is almost identical to the January production (191 K BoE/d) and thew outlook is not encouraging for the Veren stated ambition to grow the production to 250 K BoE/d in 2029. If I assume that production can grow with a high 5% per year after 2025, then 2029 production will reach 235 K BoE/d, not 250 K BoE/d. Let us hope that the 2025 outlook is a case of underpromise and overdeliver.
• The indicated 2025 liquids content of 65% is well above the reserves liquids content (60.4%), meaning that production over time will become gassier.

Balance sheet
• The Veren balance sheet is strong.
• The late 2024 equity ratio (=equity/balance sheet total) was a good 57.5%, an improvement of 3.7% versus late 2023 (53.8%).
• 2024 long-term debt (C$ 1,940 M) reduced with a major -C$ 1,226 M from the high C$ 3,186 M in 2023. The debt reduction came from the C$ 600 M received for the sales Saskatchewan assets and the rest from the 2024 FCF.
• The 2024 debt/EBITDA ratio was very good at< 0.8.
• The balance sheet allows ample shareholder returns.

Profitability
• Veren is a very profitable company
• 2024 adjusted profit was $ 848.8. M (eps $ 1.37). The adjusted ignores a.o. a Q1 impairment of C$ 512 M.
• The discount of the realized oil price relative to WTI improved with US$ 3/bbl thanks to the impact of the start of the Trans Mountain pipeline.
• With WTI = 70-75/bbl, the 2025 eps can be C$ 1.64-1.94. The PE is a low 3.6-4.2.
• After 2025, with a growing production and higher gas prices, the eps can increase to C$ 2.0-3.50 (PE=2.8-3.3).

Shareholder returns
• Veren targets to return 60% of the FCF to shareholders
• Quarterly dividend is set at C$ 0.115 or C$ 0.60 per year. The dividend equates to a return of 6.6%
• Veren bought back 10.4 M shares in 2024 for C$ 101 M.
• With a higher FCF in 2025 I can see this increasing to C$ 250 M, equivalent to 5.9% of the shares. Total shareholder returns in 2-25 can reach 12.5%, increasing thereafter to > 15%
•

Conclusions
2024 reserves were above expectation thanks to high autonomous reserves bookings. Q4 production exceeded Q3 production, thus indicating that the problems with well designs experienced in Q3 are in the past. The balance sheet improved thanks to divestments and the 2024 FCF and is strong. The profitability is good, with oil prices higher than expected. The PE is very low. Shareholder returns are high.

Veren ranks a high 6th in my 84 oil and gas companies ranking.