Business Overview and History

Vitesse Energy, Inc. (VTS) is a non-operated oil and gas company focused on generating consistent returns for its shareholders through disciplined investments in proven, low-risk basins. With a steadfast commitment to its dividend-first strategy and a prudent approach to capital allocation, Vitesse has carved out a unique niche in the industry, positioning itself as a trusted partner for leading operators.

Vitesse Energy was founded in 2011 by Bob Gerrity and Brian Cree, seasoned industry veterans with a deep understanding of the dynamics that shape the non-operated business model. The company's origins can be traced back to the Williston Basin in North Dakota and Montana, where Vitesse's founders recognized the long-term potential of this prolific basin and began assembling a portfolio of non-operated working interests and royalties.

In its early years, Vitesse focused on building its asset base through smaller acquisitions and participating in new well development projects led by established operators in the region. This strategy allowed the company to gradually expand its footprint while maintaining a low-risk profile.

A significant milestone in Vitesse's growth came in 2018 when the company, then known as Vitesse Energy, LLC, received an investment from Jefferies Capital Partners, an affiliate of Jefferies Financial Group Inc. This influx of capital provided Vitesse with the resources to accelerate its growth strategy and pursue larger acquisition opportunities.

In 2023, Vitesse underwent a major corporate restructuring that transformed the company into an independent, publicly traded entity. This transition was accomplished through a spin-off from Jefferies Financial Group Inc. As part of this process, Vitesse Energy, Inc. acquired Vitesse Oil, LLC, further expanding its portfolio of non-operated oil and gas interests and solidifying its position in the industry.

Throughout its history, Vitesse has demonstrated resilience in the face of industry challenges. During the 2020 oil price downturn triggered by the COVID-19 pandemic, the company leveraged its conservative balance sheet and effective hedging strategies to navigate the crisis successfully. This ability to weather market volatility has been a hallmark of Vitesse's approach to risk management.

Today, Vitesse Energy, Inc. maintains its focus on the Bakken and Three Forks formations of the Williston Basin, with a diverse portfolio of working interests and royalties. The company has also expanded its operations to include assets in the Denver-Julesburg Basin in Colorado and Wyoming, and the Powder River Basin in Wyoming. Vitesse's experienced management team and data-driven investment approach have been instrumental in guiding the company through its growth and evolution over the past 13 years.

Vitesse employs a proprietary database called Luminis to direct its investment decisions, emphasizing the acquisition of non-operated minority working and mineral interests. This strategy allows the company to leverage the expertise of leading operators while maintaining a diversified portfolio of high-quality assets.

Financial Performance and Ratios

Vitesse's financial performance over the past several years has been marked by stability and consistency. For the fiscal year 2023, the company reported total revenue of $233.91 million, with a net loss of $19.74 million. Operating cash flow for 2023 was strong at $141.94 million, while free cash flow stood at $21.28 million.

As of the company's most recent quarterly report (Q2 2024), Vitesse reported total revenue of $66.60 million, a substantial 29% increase from the same period in the prior year. This growth was driven by a 19% increase in production volumes and a 9% increase in average realized prices before hedging. Net income for Q2 2024 was $10.93 million, with operating cash flow of $35.16 million. Free cash flow for the quarter was negative $2.50 million, primarily due to increased capital expenditures for acquisition and development activities.

The company's key financial ratios reflect its commitment to prudent financial management and value creation for shareholders. Vitesse's current ratio and quick ratio, measures of short-term liquidity, both stood at 0.83 as of June 30, 2024, while its debt-to-equity ratio was a conservative 0.22, highlighting the strength of its balance sheet.

Vitesse's capital expenditures for Q2 2024 totaled $37.6 million, bringing the year-to-date capital expenditures to $69.8 million, which is at the midpoint of their current guidance on an annualized basis. This reflects the company's ongoing investment in high-quality assets to drive long-term value.

Financials

Vitesse's financial performance demonstrates its ability to generate consistent returns for shareholders. The company's revenue growth, coupled with its disciplined approach to cost management, has resulted in strong profitability metrics. Vitesse's focus on maintaining a healthy balance sheet and generating free cash flow supports its dividend-first strategy and provides flexibility for future growth opportunities.

For the first half of 2024, Vitesse reported total revenue of $127.8 million, a 17% increase from the same period in the prior year. Net income for this period stood at $8.7 million, with an adjusted EBITDA of $74.6 million. The company's operating cash flow for the first half of 2024 was $74.6 million, while free cash flow amounted to negative $69.9 million, reflecting the company's strategic investments in acquisitions and development activities.

Liquidity

Vitesse maintains a strong liquidity position, which is crucial for navigating the cyclical nature of the oil and gas industry. As of June 30, 2024, the company had $0.12 million in cash and $130 million available under its $245 million borrowing base of the Revolving Credit Facility, which matures in April 2026. This robust liquidity profile provides Vitesse with ample financial flexibility to pursue growth opportunities and manage potential market volatility.

The company's conservative debt-to-equity ratio of 0.22 and robust cash flow generation provide a solid foundation for meeting its financial obligations and pursuing strategic initiatives. Vitesse's proactive hedging program further enhances its liquidity profile by providing a degree of insulation against commodity price volatility.

Operational Highlights and Guidance

Vitesse's production for the second quarter of 2024 averaged 13,504 barrels of oil equivalent per day (Boe/d), an 8% increase from the previous quarter and exceeding the company's previous guidance. The company's oil cut remained strong at 70%, underscoring the quality of its asset base. For the first six months of 2024, Vitesse's production averaged 13,030 Boe/d.

Oil production volumes increased by 23% to 859 MBbls in Q2 2024, while natural gas production increased by 10% to 2.22 MMcf. The company's oil price differential to the WTI benchmark was negative $5.90 per barrel during Q2 2024, compared to negative $3.78 per barrel in Q2 2023. Vitesse's realized natural gas price was $1.11 per Mcf in Q2 2024, representing a 52% realization relative to the NYMEX natural gas price.

Vitesse has continued to actively hedge its production, with 57% of its remaining 2024 oil volumes hedged at a weighted average price of $78 per barrel, and 2025 oil hedges in place at over $74 per barrel. This hedging strategy helps to stabilize cash flows and support the company's dividend commitments.

Despite the challenges posed by the volatile commodity price environment, Vitesse maintains a positive outlook for the remainder of 2024 and beyond. The company has reaffirmed its previously revised production and capital expenditure guidance for the year, reflecting its ability to navigate market fluctuations and deliver consistent results for its shareholders.

Risks and Challenges

As a non-operated player, Vitesse faces certain risks inherent to its business model, including its reliance on the operational decisions and execution of its partner operators. The company mitigates this risk by maintaining strong relationships with leading operators and conducting thorough due diligence on all acquisition opportunities.

Commodity price volatility is another key risk factor for Vitesse, as fluctuations in oil and gas prices can impact the company's revenue and profitability. The oil and gas industry has experienced significant commodity price volatility in recent years, driven by factors such as supply and demand imbalances, geopolitical events, and macroeconomic conditions. Vitesse's proactive hedging program, however, helps to insulate its cash flows and support its dividend commitments during periods of market turbulence.

Additionally, Vitesse's focus on the Bakken, Denver-Julesburg, and Powder River Basins exposes the company to regional factors, such as infrastructure constraints and regulatory changes, that could affect its operations. The company closely monitors these regional dynamics and adjusts its strategy accordingly to mitigate potential risks.

Conclusion

Vitesse Energy's unwavering commitment to its dividend-first strategy, combined with its disciplined approach to capital allocation and risk management, has positioned the company as a unique player in the non-operated oil and gas space. As Vitesse continues to leverage its extensive industry relationships and data-driven investment process, the company is well-poised to deliver consistent returns for its shareholders, regardless of market conditions.

With a strong balance sheet, a high-quality asset base, and a proven management team, Vitesse Energy remains an attractive investment opportunity for investors seeking exposure to the energy sector. The company's ability to navigate industry challenges, as demonstrated by its recent financial performance and operational achievements, underscores its resilience and potential for long-term value creation.