Veren Inc T.VRN

Impact: POSITIVE TD reveiw-Aaron Bilkoski

[Mrlongpants]

Impact: POSITIVE

Announces Increased Shareholder Returns: CPG increased the base quarterly dividend by 50% to $0.045/sh (3% yield). This equates to an incremental $34mm/yr cash commitment. This follows a prior increase in September (link). Incrementally, CPG stated its intention to repurchase $100mm shares (~3% of S/O) via the NCIB. Our View:
We estimate the dividend level will only consume 5% of 2022E FCF under our US$67/bbl WTI assumption. Moreover, we estimate $680 million of excess CF beyond capex/dividend/NCIB in 2022E. For sensitivities under various oil prices refer to Exhibit 5. Given CPG’s discounted valuation combined with our view of strong operational execution, improving underlying business fundamentals, and looming Duvernay catalysts, we view the NCIB commitment positivity.
CPG could reduce debt to $1.5 billion (0.8x 2022E D/CF) by YE-2022E. Although CPG stopped short of a formulaic FCF-based return of capital strategy, given two recent base dividend increases and a stated commitment to the NCIB, we believe increased cash will be directed to shareholders as debt is reduced. 2022 Production Guidance Nudged Higher, 2022 Capex Budget as Expected: CPG increased its 2022 production guidance to 133-137 mBOE/d (from 131-135 mBOE/d). Volume guidance were modestly more gas-weighted than we had modeled. The formal 2022 capital budget of $825-900 million aligns with the previously announced preliminary budget and our expectations. Duvernay Well Costs Tracking Well. Results to Come Shortly: The company is indicating Kaybob Duvernay DCE&T well costs of $8.75 million, which is ~$1.5mm million below the expectation at the time of the acquisition. Interestingly, this comes despite the company utilizing a more intensive frac. In terms of catalysts, we expect volumes (and well results) to materialize in Q1/2022 with three of the four spud Duvernay wells expected to be on stream.
TD Investment Conclusion
We encourage investors to revisit CPG as we believe it offers a strong conventional oil-weighted asset base, material FCF, comfortable leverage, a sustainable base dividend (with room to grow), and near-term Duvernay catalysts at a low valuation.

GLTALongs

[TheBridge]

Mr. Longpants, thanks for posting this article. I was particularly interested in their statement that, "CPG could reduce debt to $1.5 billiion by YE-2022. I would hope that they continue reducing debt even after reaching that target as both the share price and dividends would also keep increasing, if all other thing remain supportive.

[CashHungry]

I suspect CPG will not refinance any of their outstanding term notes.  If you check out page 11 of the Dec. presentation you will see that the expiration dates of the notes are evenly distributed over the next several years with ample cashflow each year to pay each note off entirely while still supporting buybacks and dividends.  In a few years CPG will be debt free, meaning no