THE TD COWEN INSIGHTTHE TD COWEN INSIGHT Veren continues to take steps to reduce financial leverage without materially eroding volumes, CF or adding material expenses. YTD-2024 Veren has reduced net debt by $1.1bln. We expect Veren's net debt to approach $2.4bln by year-end - close to their stated target of <$2.2bln (1.0x 2024E D/CF). This could trigger an increase to the return of capital framework by H2/2025E at ~US$65 WTI (Fig. 5) Event: As Anticipated (here), Veren Divests HHRS Infrastructure Assets; Tweaks Guidance Impact: POSITIVE What Veren Sold:
Veren entered an agreement with Pembina Gas Infrastructure (PGI) to sell four oil batteries acquired through the Hammerhead transaction in 2023 (100% WI). Committed Take Or Pay Fee to Purchaser:
VRN entered a $50mm/yr, 15-year take-or-pay commitment. However, after recontacting other processing agreements, net fees are expected to increase by only $35mm/yr. What Veren Gets:
Operators on Non-Owned Facilities: In addition to the $400mm in cash proceeds, there are several benefits to Veren. Firstly, it will remain the operator on these assets and gains operatorship of four additional batteries in the area and 100% processing capacity at the Patterson Creek gas plant.
Option to Utilize an Additional $300mm of PGI Funding. PGI has also given the company the option to design, construct and operate potential new infrastructure expansions with PGI funding up to $300mm and VRN entering into similar take-or-pay agreements on such assets. This reduces the non-productive capex requirements in the 5-year plan. Our View:
The net processing cost implies an increase of ~$0.47/BOE based on our unchanged 2025E volume estimate of 204 mBOE/d. The metrics imply a 9% FCF yield.
We estimate the majority of the increase will be offset by lower interest costs. Our 2025E CFPS estimate is largely unchanged.
We estimate the company will exit this year with net debt of $2.4bln. We believe an increase to VRN's return of capital commitment (currently 60% of FCF through base dividends and NCIB) could come once net debt reaches $2.2bln which we expect byH2/25 under strip pricing.