New Oil And Gas Projects Will Sustain Production Up To 400,000 Barrels Per Day Through 2030

Key Takeaways

• Vår Energi expects production growth and strategic projects to boost long-term revenue and earnings through increased production capacity and low-cost operations.
  
• Efficient integration of Neptune Energy Norge and strategic gas sales contribute to strong cash flows, profitability, and enhanced net margins.
  
• Departure of CFO, execution delays, price reliance, operational risks, and increased costs from emission efforts could impact Vår Energi's future earnings and margins.

Catalysts

Operates as an independent upstream oil and gas company on the Norwegian continental shelf in Norway.

• Vår Energi anticipates significant production growth over the next three quarters, with plans to add around 150,000 barrels of oil equivalent per day of new production. This is expected to boost revenues and earnings significantly by 2025 as production capacity increases.
  
• The company aims to sustain production between 350,000 to 400,000 barrels per day towards 2030 through maximizing recovery, infill drilling and advancing over 20 early-phase projects. This strategy will support long-term revenue and earnings stability and growth.
  
• Vår Energi's strategic gas sales have realized above-market prices, helping to maintain strong cash flows and net margins. The company plans to further capitalize on rising geopolitical tensions and robust Asian LNG demand by reducing fixed price exposure and increasing exposure to spot pricing.
  
• The integration of Neptune Energy Norge has been completed efficiently, and Vår Energi is on track to deliver approximately $500 million in post-tax synergies. This includes cost reductions and operational efficiencies that will positively impact net margins and profitability.
  
• The upcoming start-up of key projects like Johan Castberg and Halten East, which have low operating costs and high return rates, is projected to enhance profitability. These projects are expected to achieve break-even costs significantly below current market prices, which should improve net margins.

Vår Energi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vår Energi's revenue will grow by 6.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.8% today to 11.8% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $0.42) by about February 2028, up from $576.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.4 billion in earnings, and the most bearish expecting $900 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.1x on those 2028 earnings, down from 13.2x today. This future PE is greater than the current PE for the NO Oil and Gas industry at 5.3x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.05%, as per the Simply Wall St company report.

Vår Energi Future Earnings Per Share Growth

Risks

• The recent departure of CFO Stefano Pujatti could introduce instability or uncertainty in Var Energi's financial management, potentially affecting future earnings and the execution of strategic initiatives.
  
• Planned start-up delays, including the Balder X project's revised schedule, indicate execution risk that could postpone revenue generation and impact projected earnings growth timelines.
  
• The company's reliance on high oil and gas prices to maintain financial performance poses a risk if geopolitical or market dynamics cause significant price declines, potentially affecting future revenue.
  
• Despite planned production increases, maintenance shutdowns in key areas impacted recent production outputs, highlighting operational risks that could affect revenue and net margins if they persist.
  
• Increasing investments in electrification and emissions reduction efforts might lead to higher costs and capital expenditures, impacting net margins unless offset by increased efficiency or market incentives.

Valuation

• The analysts have a consensus price target of NOK42.347 for Vår Energi based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK46.46, and the most bearish reporting a price target of just NOK33.76.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $9.0 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of NOK34.27, the analyst price target of NOK42.35 is 19.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.