Veren Inc. ("Veren" or the "Company") (TSX: VRN) (NYSE: VRN) is pleased to announce its operating and financial results for the quarter ended June 30, 2024.
KEY HIGHLIGHTS
- Continued operational execution in Alberta Montney and Kaybob Duvernay with recent wells among the top in the WCSB.
- Generated $195 million of excess cash flow in second quarter, with 60 percent returned to shareholders.
- Reduced net debt by $620 million in second quarter with proceeds from non-core asset disposition and excess cash flow.
- Issued $1.0 billion of investment-grade senior notes, optimizing the balance sheet.
- Expect significant excess cash flow of $825 million in 2024 based on US$80/bbl WTI and $1.70/Mcf AECO for the full year.
"Our second quarter results demonstrate our continued focus on operational execution and further strengthening and optimizing of our balance sheet," said Craig Bryksa, President and CEO of Veren. "Continuing to build on our year-to-date momentum, we delivered additional efficiencies along with strong and consistent results in our Alberta Montney and Kaybob Duvernay assets. We also received an investment-grade credit rating during the quarter, reflecting our enhanced scale, sustainability and financial position, allowing us to access public debt markets and diversify our capital structure."
FINANCIAL HIGHLIGHTS
- Adjusted funds flow totaled $611.7 million during second quarter 2024, or $0.99 per share diluted, driven by a strong operating netback of $40.00 per boe.
- For the quarter ended June 30, 2024, development capital expenditures, which included drilling and development, facilities and seismic costs, totaled $350.6 million.
- Veren's net debt as at June 30, 2024 was $3.0 billion, reflecting a reduction of $620 million in the quarter. The Company reduced its net debt through a combination of proceeds received from its disposition of certain non-core assets in Saskatchewan and excess cash flow generated in second quarter.
- During the quarter, Veren was assigned an issuer rating of BBB (low), with a Stable trend, by DBRS Limited ("Morningstar DBRS"). This public investment-grade rating reflects the success of the Company's strategic transformation over the last few years, building scalable premium inventory, increasing production and cash flows, and strengthening and optimizing the balance sheet.
- In second quarter, Veren repaid senior note maturities totaling $316 million. As previously announced, the Company also issued $1.0 billion aggregate principal amount of investment-grade senior unsecured notes during the quarter, consisting of $550.0 million of 4.968% five-year notes priced at par and due June 2029, and $450 million of 5.503% 10-year notes priced at par and due June 2034. The net proceeds from the offering were used to repay existing indebtedness, including fully retiring Veren's bank term loan. This issuance of investment-grade notes is an important step in diversifying the Company's capital structure and improving its overall cost of capital.
- The Company has hedged 50 percent of its oil and liquids production and 30 percent of its natural gas production for the second half of 2024, net of royalty interest. In the first half of 2025, Veren has hedged 30 percent of its oil and liquids production and 30 percent of its natural gas production, net of royalty interest. The Company has also diversified its pricing exposure for natural gas, with the majority of its production through 2025 receiving a combination of fixed prices and pricing related to major U.S. markets.
- Veren reported net income of $261.0 million, or $0.42 per share diluted, for the quarter ended June 30, 2024.
RETURN OF CAPITAL HIGHLIGHTS
- During second quarter 2024, the Company's total return of capital to shareholders, including the base dividend, was $114.1 million. Veren remains committed to returning 60 percent of its annual excess cash flow to shareholders through a combination of dividends and share repurchases.
- The Company remained active on its normal course issuer bid ("NCIB") in second quarter, repurchasing 3.6 million shares for $42.4 million. Year-to-date, Veren has repurchased 5.4 million shares under its NCIB.
- Subsequent to the quarter, the Company's Board of Directors declared a quarterly cash base dividend of $0.115 per share payable on October 1, 2024, to shareholders of record on September 15, 2024.
OPERATIONAL HIGHLIGHTS
- Average production in second quarter 2024 was 192,648 boe/d, comprised of approximately 65 percent oil and liquids.
- The Company continued to demonstrate the strength of its operational execution in the Alberta Montney, delivering the top four oil and liquids producing wells in the Western Canadian Sedimentary Basin ("WCSB") based on recent monthly liquids volumes. During second quarter, Veren also drilled a new pacesetter well in its Gold Creek area of the play. This well, which was a part of an eight-well pad, was drilled in 9.0 days with the overall pad averaging 11.3 days per well, an improvement of 3.0 days compared to the Company's average drill time in the area since entering the play. Veren will continue to focus on realizing further efficiencies through drilling optimization, consistent rig utilization and knowledge transfer across its assets.
- During the quarter, the Company brought on stream its first fully-operated pad in its Karr West area of the Alberta Montney, utilizing Veren's optimized drilling and completions design. This pad generated an average peak 30-day rate of 1,300 boe/d per well (65% liquids). The Company is in the process of bringing 11 wells on stream in its Gold Creek area which were completed in late second quarter and expects to bring an additional 22 wells on stream in the Alberta Montney through the remainder of 2024.
- In the Kaybob Duvernay, the Company continues to realize strong and consistent well results, with three of its recent wells ranking within the top five oil and liquids producing wells in the Duvernay based on monthly liquids volumes. Veren brought three pads on stream in the Volatile Oil window during second quarter, one of which has been on stream for over 30 days with an average peak 30-day rate of 1,300 boe/d per well (75% liquids). Veren plans to bring an additional 22 wells on stream in the Kaybob Duvernay through the remainder of 2024.
- In its Saskatchewan operations, the Company continues to advance its decline mitigation projects to further enhance its long-term sustainability and excess cash flow generation. Veren remains on track to convert approximately 70 producing wells to water injection wells in 2024, further supporting its current base decline rate of approximately 15 percent in Saskatchewan.
OUTLOOK
Veren remains on track to meet its 2024 annual average production guidance of 191,000 to 199,000 boe/d with development capital expenditures of $1.4 to $1.5 billion.
The Company expects to generate approximately $825 million of excess cash flow in 2024, based on US$80/bbl WTI and $1.70/Mcf AECO for the full year. Given the timing of its development program and expected production growth through the remainder of the year, 60 percent of Veren's full year excess cash flow is expected to be realized in the second half of 2024.
The Company will continue to return 60 percent of its excess cash flow to shareholders through its base dividend and share repurchases. The balance of Veren's excess cash flow remains directed toward debt reduction, with the Company expected to reduce its net debt to $2.8 billion by year-end 2024 at US$80/bbl WTI, or 1.1 times adjusted funds flow.
Veren is in the initial stages of its annual budgeting process and plans to provide its 2025 outlook along with an updated five-year plan later this year. Similar to prior years, the Company's 2025 budget will remain disciplined and flexible with a focus on allocating capital to its highest return assets with attractive payback periods. The Kaybob Duvernay and Alberta Montney assets, which rank in the top quartile in Veren's portfolio, are expected to garner the majority of its capital, alongside continued investment in decline mitigation programs throughout Saskatchewan to further enhance Veren's excess cash flow profile.
The Company will continue to focus on its strategic priorities of operational execution, further strengthening its balance sheet and increasing its return of capital to shareholders.