Vermilion Energy Inc T.VET

Deep Basin Production - effectively 250,000 boe/d 25% Liquid

[MyHoneyPot]

I asked stockhouse to remove my last post. I am going to repost in a more meaningful way. 

Slide 20 from Corporate Presentation Link

65% of VET Production, (Deep Basin), produced 35 percent of the Companies projected FFO.

So 135,000 boe/day corporate means the deep basis in producing 87,750 boe/day, and that is generating 35% of their FFO

The amount of deep basin production VET would need, which is approximately 25% liquids to meet the FFO projection for 2025 is 250,000 boe/day

So effectively when compared to a deep basin producers that produces 250,000 boe/day Vet would have equivalent FFO.

So lets look at a deep basin producer PEY, who produces 120,000 boe a day, and third quarter issued a dividend that was not fully funded. They paid out 125% of FCF

PEY currently has a  3.4 billion dollar market cap, produced in Q3, 2024 120,000 boe/day 12% liquids. 1.36 billion currnt debt Q3 FFO 154 million. 125% payout ratio

So PEY in Q3 had no free cash flow (125% payout ratio), only 12 percent liquids, and only produces 120,000 boe/day in Q3.  With a Market cap of 3.4 billion dollars today. 

VET effectively has 250,000 boe/day of 25% liquids deep basin production (Proforma), in Q3 before the merger they had 275 million in FFO and FCF of 154 million.

VET currently has 2 billion in debt but effectively is twice the company on paper as Petyo, so their debt to trailing FFO is significantly less than Peyto. 

If VET had a market cap of 6.8 billion in line with PEY evaluation it would be trading for about $44 dollars. 

IMHO
MHP

[Gmcdonagh89]

Please do not use 1 quarters data for analytics, PEY had high 3rd quarter drilling which caused the high cash draw, on closer inspection you will find PEY has best in class management and  is a constant money generator with outstanding reliable div. ,note the 43% return for investors in 2024, my hope VET can replicate this in 2025 hence the reason I have bought in.

[MyHoneyPot]

I didn't really focus on FCF it was just an observation that they outspent their FCF in the third quarter, which are the last published numbers for PEY.  What i think were more significant was their FFO numbers and really that is what my analysis is based on.  Once WestBrick closes 87500 bou of 25% liquids production will come from the deep basin. That represents roughly 73% of

[Gmcdonagh89]

I think you should check the multiples to see who was saved by hedges!

[mnztr]

It does not take much tyo see  that VET is massively undervalued. And this hurts them as they have to pay cash for acquistions due to their low value stock. Its Mgmt that has failed to crate value. First by reneging on 100% FCF promise, not returning as much as promised to share holder and WE PAY. This time 1B in cash for an acquistion that should have been executed with stock, but VETs stock

[Overertune]

Energy stocks are all undervalued. They have tons of cash but very low PE. It is better to buy with cash to turn them into cash flow.

[Gmcdonagh89]

In agreement but asset quality still counts

[Gmcdonagh89]

I think you have just highlighted the biggest difference between VET and PEY and that's management competence and thus the higher multiple and 43% return for 2024, now not sure about 2026 and moving forward but 2025 should be excellent as well

[MyHoneyPot]

Well i don't really agree with that statement that PEY management is that much better, VET deep basin acerage is massive, and they have double the liquids ratio of PEY. Even the best management cannot make something out of nothing, and i think that 2 billion in debt could easily be carried by VET, a lot better then 1.43 billion carried by Peyto.  I actually think that VET will get

[mnztr]

Operationally VET management is decent, but in communications they are not good and pretty much destroyed the trust of institutional investors 

[geemonet]

Pey has hadded 40 mil shares in the same time vet has deleted 20 mil shares. Vet management is hiding success while they buy back shares. Pey is overplaying while printing shares. Vet management manages like a construction project, hide progress for a rainy day. 

[mnztr]

Hiding success is stupid. They had to take on 1B debt to buy that company because their share value is stinkingly low. That is 2.5 years of FCF. If their shares were $30 they coulda paid in stock, FCF accretive WIN WIN WIN!! 

[geemonet]

But like... Isn't that a company you want to be buying? Arent you as an investor looking for hidden value? I want to invest with a management team that does everything it can to keep their stock price down. 

[nearpeakfreak]

geemonet, keeping the share price down just to buy back shares is a terrible strategy. Shareholders hate it because we make money either through dividends out of free cash flow or share price appreciation. That creates  the risk of a company take over at an unfair price to all shareholders. Of coarse management does better than common share holders in a take over ie. change of control

[geemonet]

I can somewhat understand the downside of keeping the share price low during a period of share buy backs has the potential to lead to a take over. BUT, unless it's an all cash deal would you not expect to receive some shares of XYZ for the take over? Win win for you. You got a "better management" and also get to keep vet's assets. Who do we think would be interested in purchasing

[geemonet]

I think the choice to use cash instead of issue stock shows management's dedication to returning vet to it's roots of being a small float/large div company. 

[MyHoneyPot]

I think the way they report their debt profile is crazy, you can't add 50-60 thousand boe/day. Then use trailing debt to FFO, when you have instantly changed your FFO with a major acquisition.  Vet is a stock that is worth a lot more than it is currently trading at, and debt is cheap right now so i think this is a great acquistion.  They need to be less concerned about being cute

[mnztr]

I think they should be MORE concerned about being cute as everyone can see though it and it makes them look slimy. (or oily lol) 

[mnztr]

Companies have 2 currencies, stock or cash. When you use cash and slow down your buyback it the same thing. Now they have 1B less to buy back the stock, they were forced to pay cash as the buy would not take the other currency due to it being a distressed asset. If the stock was a properly valued price at say $25-30,  then they would have used stock. 

[geemonet]

Unless the company is doing so well that it can pay down it's debt AND buy back shares AND Increase the div.  What's to stop vet (legally) from printing 70 million shares tomorrow and paying off their debt?  Using debt to pay a dividend = bad Using debt to make a good purchase = good.  You assume vet couldnt print shares to buy westbrick I assume vet chose not to. 

[geemonet]

Unless the company is doing so well that it can pay down it@s debt AND buy back shares AND Increase the div.@ What@s to stop vet (legally) from printing 70 million shares tomorrow and paying off their debt?@ Using debt to pay a dividend = bad Using debt to make a good purchase = good.@ You assume vet couldnt print shares to buy westbrick I assume vet chose not to.@ Why have that credit

[mnztr]

Whats to stop it? A collapse in the stock price as they would need to dump those shares on the market unless they did a bought deal at a big discount. When you buy a company with stock those they become holders of yours stock or you pay them in convertible bonds to give them an incetive to hold 

[geemonet]

But then there would also  be no debt. Zero sum game. It amazes me that vet was BUYING BACK SHARES, while buying KKR's foray into the berta oil and GAS industry. They also own a part of Coastal Gas Link. Most of KKR's portfolio is nothing like westbrick, that's why they got such a good deal. They just put it on the credit card!!! On which they'll make the payments, while

[mnztr]

Collapsed shares price, no debt = ripe takeout target. You get bought CHEAP, and they sell of a few assets to pay for it. That is the price of having under valuied stocks and mgmt that has lost credibility with institutions. 

[geemonet]

Sweet, then we get shares of XYZ which just got a smokin deal and we ride it out with them. Win win. When they get to 150M shares things are going to change. They even point it out sneakily on their presentations. If they continue buying at the rate they're buying (250,000/17,000) per day they'll hit 150M shares in 240 trading days. Give or take a year. Pivot share back money to div that&

[geemonet]

Who would be looking at vet for a take over? Spitball some companies. 

[mnztr]

Anyone that operates close to VETS Canadian properties would be a possible candidate.