National Bank
VET STOCK RATING TARGET EST. TOTAL RETURN (TSX; NYSE) C$17.85; US$13.38 Outperform (Unchanged) C$26.00 (Unchanged) 47.9%
Q2/23 Financial & Operating Results Results —
In Line Average production of 83 mboe/d was up 1% sequentially (-2% Y/Y) and in line with NBF and consensus forecasts of 82 mboe/d, each. Approximately 8 mboe/d of combined impacts related to the wildfires (now fully restored) and downtime in Australia was offset by strong performance elsewhere in the portfolio, notably Mica and Wyoming. CFPS of $1.48 (-2% Q/Q; -45% Y/ Y) was in line with consensus at $1.50, but below our estimate of $1.61. The miss relative to our estimate was primarily driven by higher-than-expected opex and cash taxes (incl. windfall), but partially negated by stronger-thanexpected natural gas price realizations. Vermilion generated FCF of ~$65 million during the quarter after capex of ~ $167 million and dividends of ~$16 million, implying a payout of 74%.
FCF was allocated towards $24 million of share buybacks (~1.5 mln shares) and debt reduction.
Operations & Guidance Update
Well results from the company's first drilled Mica pad at 16-28 have been encouraging, with average IP120 rates of ~1,200 boe/d (40% liquids) per well. As a result, Vermilion plans to drill ~10 additional wells in 2024 on/offsetting this pad. Importantly, the final permit for the proposed 16 mboe/d battery has been received, with construction expected to occur in 1H/2024. Elsewhere, the Wandoo platform in Australia is now expected to remain offline until the end of Q3 due to a pipe leak that was discovered following the recent startup. As a result, corporate production is expected to average 80-83 mboe/d in Q3 (flat Q/Q vs. our previous estimate of 88 mboe/d).
Including the planned turnaround activities at Corrib, FY production guidance remains unchanged at 82-86 mboe/d. We made minor tweaks to our production forecast to capture the Q3 guidance update. Our revised forecast calls for FY23 production of 82.5 mboe/d and associated H2 FCF of ~$380 million, with leverage compressing to ~0.9x by year-end.
We maintain our Outperform rating and $26.00 target price.