Energy Prospectus

At the time of this post VRN was trading for $7.53US.

TipRanks: "In the last 3 months, 6 ranked analysts set 12-month price targets for VRN. The average price target among the analysts is $10.50US. The 6 price targets range from $9.41 to $11.58," < Only two of the energy sector analysts have updated their price targets since Veren announce strong Q2 results on July 24.
> RBC Capital rates it a BUY with a price target of $9.41US
> BMO Capital rates it a BUY with a price target of $10.14US

TipRanks rates both the RBC and the BMO analysts that cover Canadian upstream companies as "5-Star".

My valuation increases by $0.25 to $11.50US per share ($15.54Cdn per share).
> My 2024 forecast model is based on the mid-point of the Company's 2024 production guidance of 191,000 to 199,000 Boepd. Based on their bullish operations update, my guess is that actual 2024 production ends up near the high end of their guidance.
> Veren's 2024 production exit rate should be near 200,000 Boepd because 60% of the 2024 wells will be completed in 2H 2024.
> 65% of production is liquids and Veren's revenues are heavily weighted to oil.
> The Company's realized Q2 oil prices were $7 to $10 Cdn per barrel higher (depending on quality) than their realized oil prices in Q1. < Declining oil price differentials in Western Canada are giving all of our Canadian companies a nice revenue boost.
> Veren has a lot of high-quality development drilling locations ("Running Room"), and this year's drilling program should increase their proved reserves.
> At 12/31/2023 Veren's PV10 Net Asset Value was $9.60Cdn/share. Since they are paying down debt and increasing 1P reserves, their PV10 NAV should be much higher at 12/31/2024.
> They are paying down debt and they have re-structured their debt. They have zero drawn on their asset-based credit facility as of today. < Veren has NO NEAR TERM DEBT ISSUES.
> My current valuation is based on 4X annualized operating cash flow per share. If 2H 2024 results prove up my forecast model, a higher valuation multiple should be justified in early 2025.
> Veren pays quarterly dividends of $0.115 for annualized yield of ~4.4%. < It is a classic "Growth + Income" company, which is the primary reason I keep it in the Sweet 16.

OPERATIONAL HIGHLIGHTS

Average production in second quarter 2024 was 192,648 boe/d, comprised of approximately 65 percent oil and liquids.

The Company continued to demonstrate the strength of its operational execution in the Alberta Montney, delivering the top four oil and liquids producing wells in the Western Canadian Sedimentary Basin ("WCSB") based on recent monthly liquids volumes. During second quarter, Veren also drilled a new pacesetter well in its Gold Creek area of the play. This well, which was a part of an eight-well pad, was drilled in 9.0 days with the overall pad averaging 11.3 days per well, an improvement of 3.0 days compared to the Company's average drill time in the area since entering the play. Veren will continue to focus on realizing further efficiencies through drilling optimization, consistent rig utilization and knowledge transfer across its assets.

During the quarter, the Company brought on stream its first fully-operated pad in its Karr West area of the Alberta Montney, utilizing Veren's optimized drilling and completions design. This pad generated an average peak 30-day rate of 1,300 boe/d per well (65% liquids). The Company is in the process of bringing 11 wells on stream in its Gold Creek area which were completed in late second quarter and expects to bring an additional 22 wells on stream in the Alberta Montney through the remainder of 2024.

In the Kaybob Duvernay, the Company continues to realize strong and consistent well results, with three of its recent wells ranking within the top five oil and liquids producing wells in the Duvernay based on monthly liquids volumes. Veren brought three pads on stream in the Volatile Oil window during second quarter, one of which has been on stream for over 30 days with an average peak 30-day rate of 1,300 boe/d per well (75% liquids). Veren plans to bring an additional 22 wells on stream in the Kaybob Duvernay through the remainder of 2024.

In its Saskatchewan operations, the Company continues to advance its decline mitigation projects to further enhance its long-term sustainability and excess cash flow generation. Veren remains on track to convert approximately 70 producing wells to water injection wells in 2024, further supporting its current base decline rate of approximately 15 percent in Saskatchewan.

OUTLOOK

Veren remains on track to meet its 2024 annual average production guidance of 191,000 to 199,000 boe/d with development capital expenditures of $1.4 to $1.5 billion.

The Company expects to generate approximately $825 million of excess cash flow in 2024, based on US$80/bbl WTI and $1.70/Mcf AECO for the full year. Given the timing of its development program and expected production growth through the remainder of the year, 60 percent of Veren's full year excess cash flow is expected to be realized in the second half of 2024.

The Company will continue to return 60 percent of its excess cash flow to shareholders through its base dividend and share repurchases. The balance of Veren's excess cash flow remains directed toward debt reduction, with the Company expected to reduce its net debt to $2.8 billion by year-end 2024 at US$80/bbl WTI, or 1.1 times adjusted funds flow.

Veren is in the initial stages of its annual budgeting process and plans to provide its 2025 outlook along with an updated five-year plan later this year. Similar to prior years, the Company's 2025 budget will remain disciplined and flexible with a focus on allocating capital to its highest return assets with attractive payback periods. The Kaybob Duvernay and Alberta Montney assets, which rank in the top quartile in Veren's portfolio, are expected to garner the majority of its capital, alongside continued investment in decline mitigation programs throughout Saskatchewan to further enhance Veren's excess cash flow profile.

The Company will continue to focus on its strategic priorities of operational execution, further strengthening its balance sheet and increasing its return of capital to shareholders.

Note from HFI Research
Yesterday, Veren (VRN:CA)—formerly Crescent Point Energy—reported second-quarter results that were in line with expectations.

During the quarter, production came in at 192,648 boe/d, in line with analyst consensus expectations. This is below the first quarter’s 198,551 boe/d due to asset dispositions made in June. The second-quarter production result puts Veren on track to achieve management’s full-year guidance of 195,000 boe/d, as management expects production to increase to the high-190,000s boe/d by the fourth quarter and to more than 200,000 boe/d in 2025.

Financial results were broadly in line with analyst expectations and didn’t present any surprises. The company generated $197 million of free cash flow and $543 of proceeds from asset sales during the quarter. Cash flow broken out by quarter can be seen below.

The company allocated the cash proceeds from the asset sale together with cash on hand to reduce net debt by $620 million, pay $72 million of dividends, and repurchase $42 million in shares. Capital allocation was in line with management’s previous guidance and our own expectations.