Vital Energy (VTLE) Valuation Update - May 13

[dan_s]

At the time of this post VTLE was trading at $18.34, up 8% on the day. < Just 27% of book value per share.

I have updated my forecast model for Vital's solid Q1 2025 results and updated guidance for the remainder of 2025. I expect them to exit the year with production of approximately 138,000 Boepd (~66,000 bpd of crude oil). My 2026 forecast is based on 138,000 Boepd, but if WTI does rebound to $75/bbl next year, Vital has a lot of "Running Room" (over 900 development drilling locations) that will be very profitable with oil at $70/bbl. < Vital's breakeven oil price is less than $55/bbl. and operating cash flow positive down to $30/bbl.

Due to their strong Q1 results, my valuation increases by $1 to $55/share, which is just 2X annualized operating cash flow per share. My 2025 CFPS forecast of $27.50 is actually less than the TipRanks' consensus CFPS forecast of $29.87.

Keys to my valuation:
> Very low commodity price risk: Vital has ~90% of their Q2 thru Q4 2025 oil hedges at over $70/bbl.
> 52,000 bopd of Q2 oil (~81%) is hedged with Swaps at $74.85/bbl.
> Natural gas price differentials are improving in the Permian Basin.
> Vital has free cash flow locked in for 2025, probably over $200 million, so near-term debt service is not a problem. The bankers recently approved their new revolver, so no liquidity problem.
> Vital is a profitable pure play on the Permian Basin that holds a lot of valuable leasehold. It is a Takeover Target at the current share price.
> Last but not least: "Impairment is not abandonment". The SEC/GAAP rules for the quarterly Full Cost Ceiling Test are just a calculation based on conservative assumptions, which BTW ignores Vital's hedges. Impairment expense is just taking a bunch of depletion in one quarter, which lowers the DD&A rate going forward.

Bottomline: As the FEAR of recession fades and oil prices rebound, this grossly oversold stock has a lot of upside.

My updated forecast/valuation model has been posted to the EPG website.