Turning Oil into Dividends
Vitesse’s business mission is to return capital to stockholders from free cash flow generated from its capital allocation model targeting non-operated interests in oil & gas assets in major onshore US producing regions. Favored assets are located in plays where advancing technology can positively affect future returns. A fixed common stock dividend is management’s preferred vehicle to return capital to stockholders. The current quarterly dividend is $0.50/share and will be paid on December 29, 2023, to shareholders of record on December 15, 2023. Vitesse’s senior management owns 23% of the common shares outstanding, aligning its interests with shareholders. The company’s asset base is concentrated in the core areas of the Bakken oil play in the Williston Basin of North Dakota. YE22 proved reserves totaled 45.9 MMBOE. The Bakken accounted for ~90% of YE22 proved reserves and ~92% of 3Q23 production. Growth in the underlying asset base is fueled by acquisitions of non-operated interest in near-ready drilling opportunities and producing assets. Management relies on a proprietary data-management system fed by lease and well statistics to high-grade its capital allocation process and drive returns. The midpoint of Vitesse’s FY23 and preliminary FY24 production outlook implies ~12% Y/Y growth in both years. Vitesse’s asset base is leveraged to oil. Oil accounts for 69% and 92% of our FY24 production and revenue estimates, respectively. Our FY24 adjusted EBITDA estimate is $182 million based on an $80/bbl average NYMEX oil price. Low leverage is a key element of Vitesse’s business strategy. At the close of 3Q23, net debt totaled $54.2 million, representing an annualized leverage ratio of 0.4x. Our estimates suggest Vitesse could generate substantial free cash flow through YE24 to support management’s capital return ambitions. Assuming $80/bbl NYMEX oil, our FY24 estimates imply a dividend coverage ratio of 1.7x. Vitesse trades at 5.2x and 4.1x our FY23 and FY24 adjusted EBITDA estimates, respectively. The current dividend yield is 8.4%.
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