VAR Energi Investment Case
September 24, 2023
I bought shares in Var Energi, a mid-sized Norwegian offshore oil & gas company with an annual dividend yield of c. 14%. The stock dropped almost 10% intraday on 22 September 2023 after its second-largest shareholder, HitecVision, sold a 6.3% stake at NOK29. On the same day, the company’s CEO bought 371,813 shares at NOK 29 (worth $1 million). Insiders have been consistently buying shares over the past 12 months.
The company has been producing around 210-220kb/d of oil & gas since 2022 and plans to raise production by almost 60% by the end of 2025 (350kb/d). It is already the second-largest producer in the Norwegian Continental Shelf after Aker BP. It has a reasonable reserves life of 13 years. Once its $2.3bn acquisition of Neptune Energy is completed, the new company should add 66kb/d of production (+30%) and 265mn boe of 2P reserves (+25%).
Its assets are fairly competitive with about $15/boe operating costs which are likely to go down as production ramps up.
Management expects about $17.5-20bn cumulative operating cash flow (at $70-90/bl) during 2023-27 (5 years). Capex and financing costs are about $12bn, which leaves over $1bn available for shareholder distributions (over 14% FCF yield).
The company distributes 20-30% of operating cash flow on dividends (over the cycle, meaning the payout can be lower in a weak oil price environment which would be made up later if and when prices recover). Management targets a 30% payout for 2023.
The company has been producing around 210-220kb/d of oil & gas since 2022 and plans to raise production by almost 60% by the end of 2025 (350kb/d). It is already the second-largest producer in the Norwegian Continental Shelf after Aker BP. It has a reasonable reserves life of 13 years. Once its $2.3bn acquisition of Neptune Energy is completed, the new company should add 66kb/d of production (+30%) and 265mn boe of 2P reserves (+25%).
Its assets are fairly competitive with about $15/boe operating costs which are likely to go down as production ramps up.
Management expects about $17.5-20bn cumulative operating cash flow (at $70-90/bl) during 2023-27 (5 years). Capex and financing costs are about $12bn, which leaves over $1bn available for shareholder distributions (over 14% FCF yield).
The company distributes 20-30% of operating cash flow on dividends (over the cycle, meaning the payout can be lower in a weak oil price environment which would be made up later if and when prices recover). Management targets a 30% payout for 2023.
Thank you for reading this piece. I hope it was useful. Please consider sharing it with your friends who may also benefit from this.
DISCLAIMER: this publication is not investment advice. The main purpose of this publication is to keep track of my thought process to better assess future information and improve my decision making process. Readers should do their own research before making decisions. Information provided here may have become outdated by the time you read it. All content in this document is subject to the copyright of Hidden Value Gems. The author held a position in the stock discussed above at the time of writing. Please read the full version of Disclaimer here.