From RBC PT down to $10.00 from $12.00EQUITY RESEARCH MODEL UPDATE
October 31, 2024
Veren Inc.
Q3/24 - Holding Pattern
Our view: Veren's revision to 2025 guidance (vs street numbers) combined
with uncertainty surrounding well performance is likely to leave many
investors on the sidelines until operational momentum can be re-
established. While noting that the company now trades at a heavy discount
to peers, we expect that several quarters of operational strength will be
required to rebuild investor confidence.
Key points:
• Q3/24 - In Line. VRN reported Q3/24 production of 184,829 boe/d (RBC:
185,317 boe/d; Street: 185,480 boe/d) driving AFFO (f.d.) of $0.89 (RBC/
Street: $0.92/$0.88). Capital expenditures came in at $405mm (RBC/
Street: $400mm/$405mm). Veren exited Q3/24 with $3 billion in net
debt (RBC/Consensus: $2.9/$2.8bn), where the company now expects to
exit 2024 net debt at $2.5bn. In Q3, the company repurchased 1.3mm
shares for $13.7mm. YTD the company has repurchased ~7mm shares
for a total consideration of $66mm; the company continues to anticipate
FCF payout of 60% to shareholders (dividends and buybacks).
• 2024 and 2025 guidance - Reduced. VRN decreased 2024 midpoint
production guidance to 191,000 mboe/d (from 195 mboe/d) on
$1,475mm of capital (midpoint/upper end of previous guide) (from
$1,450mm) with 45% of its budget allocated to the Alberta Montney, 40%
toward the Kaybob Duvernay and 15% to Saskatchewan while returning
60% of its FCF. VRN unveiled its formal 2025 outlook that features
development capital spending in the range of $1.5bn (mid-point) (RBC:
$1.5bn), which is expected to drive average annual production in the
range of 188-196 mboe/d (Street: 202 mboe/d) with 85% of the budget
allocated to the Alberta Montney and Kaybob Duvernay and 15% in
Saskatchewan. VRN now expects production to grow to 250 mboe/d by
2029 (previous: 250 mboe/d by 2028).
• Operations update - Montney performance the focus. (1) Downward
revisions to the outlook were mainly predicated on recent Gold Creek and
Karr well results which have come in lower than company expectations
as detailed within Exhibit 3 and 4 of this report. We are optimistic
that updated completion designs will positively affect well rates, while
noting that the Montney 'edge' is likely to drive variable results across
the region; (2) at Gold Creek West, the company is currently expanding
facility capacity where VRN sees 1.8 mboe/d per well and bringing
on a 7-well pad (3) At Kaybob, the company brought three multi-well
Duvernay pads with IP30 rates of 800-1,300 boe/d (75% liquids) where
the company is bringing a pad onstream in Simonette in Q4; (4) In SE
Sask, the company brought on a step-out well on its eastern portion with
an IP30 rate of 250 bbl/d (100% light oil) using its OHML development
design.
• Reducing estimates. We revise our estimates lower to account for lower
production guidance and corresponding cash flows. Our CFPS estimates
fall by -2%/-5% in 2024 and 2025, driving our reduced target to $10/share
(prev $12/share).
RBC Dominion Securities Inc.
Michael Harvey, P.Eng. (Analyst)
(403) 299-6998, michael.harvey@rbccm.com
Nick Savoy (Associate)
(403) 299-7434, nick.savoy@rbccm.com
Outperform
TSX: VRN; CAD 8.38
Price Target CAD 10.00 ↓ 12.00
WHAT'S INSIDE
Rating/Risk Change Price Target Change
In-Depth Report Est. Change
Preview News Analysis
Scenario Analysis*
Downside
Scenario
6.00
23%
Current
Price
8.38
Price
Target
10.00
25%
Upside
Scenario
16.00
96%
*Implied Total Returns
Key Statistics
Shares O/S (MM): 616.4
Dividend: 0.46
Market Cap (MM): 5,165
Yield: 5.5%
Avg. Daily Volume: 7,417,579
RBC Estimates
FY Dec 2023A 2024E 2025E 2026E
CFPS Diluted 4.27 3.74 3.63 3.23
Prev. 3.83 3.81 3.42
P/CFPS 2.0x 2.2x 2.3x 2.6x
Oil (mbbl/d) 121.9 124.9 122.4 126.4
Prev. 126.4 127.1 126.8
Gas (mmcf/d) 224.9 397.2 410.6 458.2
Prev. 399.2 465.8 506.1
Prod (boe/d) 159,411 191,123 190,852 202,725
Prev. 192,912 204,707 211,135
All values in CAD unless otherwise noted.
Priced as of prior trading day's market close, EST (unless otherwise noted).
Disseminated: Oct 31, 2024 16:27EDT; Produced: Oct 31, 2024 16:27EDT
For Required Non-U.S. Analyst and Conf