"The dominos that are propping this price up will more than likely fall....all IMHO
Simply put -- things as they are cannot continue through next winter"
Do you think VET'S management might agree? Overall their hedge book across all products and geographies averages 28% of total production (so far) for 2022. BUT their Euro-NG hedge book for 2022, including 70% of newly acquired Corrib production, is 55% at an average of $17.20 CDN/mmbtu (leaving lots of scope (45%) for better hedges forward or spot pricing).
They have always been very good hedges with a 2-year horizon. Invariably over a 2-year window, there are moments of opportunity to increase their judging advantageously (although nothing in history resembles today's super-duper-extra-special-windfall).
I say again, I sure hope we don't hear anything complaining about lost opportunity for the 55% if gas prices average over $17.20/mmbtu in 2022. By year-end, despite 2 unforeseen acquisitions ($75m US for Wyoming Turner Sands yielding $40+/b operating netbacks plus $500m Corrib yielding $130/boe revenue and $364m FCF in 2022), they expect to have only $1b debt on a blowout (with a lot less risk than other producers) $1.8b cash flow, yielding a D:CF ratio of .55x.
And their FCF will be $1.3b or $8+/sh., an increase over a very good 2021 of 184%.
Their newly announced dividend, a paltry (this won't take long to change) $.24 per year employs only 3% of cash flow. In 6-mos. debt will be a the Canajun gold standard (1x).
WTF will they do with all this manna from heaven?!?!?!?
Please allow me to provide a hint. From 2003 to 2020, VET paid $40/sh. in dividends. They never cut their dividend once until the carnage of early 2020.
I will say it again. I believe Lorenzo Donadeo reassert daily management control in 2019 to return to the conservative, moderate growth and income model that prevailed for almost 20 years. I believe that by the end of 2022, we will enjoy a dividend of at least $1/sh (a 6% current yield, 7.5% as recently a 2 weeks ago).
By the end of 2023, I think we have good shot of enjoying a dividend rate of +/-$2/sh., which would be a current purchase yield of about 11.5%. And, at that point, with a moderation of Euro-NG prices, approx. $1.5b cash flow, FCF of approx. $1.05b or $6.50/sh., it will require only 30.7% of FCF to support this 8.5x larger-than-today dividend.
And the remaining debt should largely be gone (maybe $200m), although the last 18 mos. has demonstrated that they are incorrigible sandbaggers.
Now,I will promise you that the above will not turn out quite like this. Why? Look no further than Corrib (or Wyoming). The difference between my estimates 3 months ago and now (ignoring the stupid good NG pricing in Yrup, no one could have foreseen them) are acquisitions. VET doesn't need to be debt free to guarantee the dividend into the future. And Corrib proved that the best investment they can make right now is buying more production (similar to WCP). So, they'll probably have $3-700m more debt but their D:CF ratio will emerge below .55x by year end, or they simply wouldn't pull the trigger.
God it must be fun to be Donadeo right now!!!
Regards,
Naamkat