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Veren Inc.
2/27/2025
Good morning ladies and gentlemen. My name is John and I'll be your operator for Varen's 2024 Q4 and Fully Resolved Conference Call. This call is being recorded today and will be webcast along slide deck which can be found on Varen's website homepage. All amounts discussed today are in Canadian dollars with exception of West Texas Intermediate or WTI pricing which is quoted in U.S. dollars. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session for the members of the investment community. If you would like to ask a question over the phone line during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press star then the number two. During the call, the management may make projections or other forward looking statements regarding the future events or future financial performance. Any such statements are made subject to the forward looking information and NANCAP measure sections of the press release issued earlier today. I will now turn the call over to Craig Brixa, President and Chief Executive
Officer at Varen. Please go ahead, Mr. Brixa.
Thank you, Operator.
Welcome everyone to our Q4 2024 and Fully Resolved Conference Call. With me today are Ken Lamont, our Chief Financial Officer, and Justin Foray, our Senior Vice President, Operations and Marketing. Varen was successful in 2024 on many fronts. We safely integrated our Alberta, Montney assets into our corporate portfolio. We generated over $640 million of excess cash flow, realizing nearly a third in Q4. We returned 60% of our excess cash flow to shareholders through the base dividend and share of purchases. We reduced our net debt by 35% or $1.3 billion. We delivered strong reserve additions across all categories. We successfully disposed of non-core assets and entered into a strategic long-term infrastructure partnership. And we achieved an investment grade credit rating, which allowed us to diversify our capital structure and improve our overall cost of capital. In 2024, we generated annual average production of 191,000 biwi per day, including fourth quarter production of 189,000 biwi per day. Our Montney and Duvernay assets in Alberta accounted for nearly 80% of our Q4 production, equating to 10% growth compared to Q1. Our 2024 Independent Reserves Report demonstrates why we continue to be excited about the quality of our asset base. We organically replaced 173% of our 2024 production on a 2P basis and achieved positive technical revisions. The majority of our 2P additions came from the Alberta Montney, with the remainder coming from the Cape Ob-Duvernay. We replaced our production efficiently, generating a strong recycle ratio of 2.1 times based on our 2P F&D costs, including change in FDC. We continue to believe in the long-term sustainability and the future potential of our asset base, with over 65% of our premium drilling locations in the Alberta Montney and Cape Ob-Duvernay remaining unbooked. In the Alberta Montney, we continue to test the single-point entry completions designs in Carr. We are pleased with the initial results from the two multi-well pads we brought on stream in the late fourth quarter using this design. These pads generate an average peak 30-day rate of 1,270 biwi per day per well, which is 30% above the area type well. These wells also featured a high oil cut of 80%. We continue to invest in our gas egress infrastructure and infield optimization projects to increase our operational flexibility, minimize future downtime and enhance our ability to grow. We anticipate realizing future operational efficiency through both this investment and our previously announced strategic long-term partnership with Pemina Gas Infrastructure. In the Cape Ob-Duvernay, we are pleased by the consistent results we are generating. We brought on stream two multi-well pads in the fourth quarter that generated an average peak 30-day rate of 1,000 biwi per day per well, which is 25% above the area type well. These wells also featured a high condensate rate of 70%. We drilled several successful delineation wells in 2024 on both the east and west boundaries of our lands in Cape Ob, de-risking future drilling inventory in the area. Our 2025 program includes additional delineation in the liquids rich and lean gas windows. We have built an asset portfolio that is a strategic combination of quick payout short cycle assets in Alberta with our long cycle Saskatchewan properties that provide dependable excess cash flow. Our annual production guidance for 2025 is 188,000 to 196,000 biwi per day. We've had a strong start to the year delivering January production of 191,000 biwi per day. Our production growth is weighted to the second half of the year. This is driven by plant facilities downtime in the early part of the year and the timing of bringing on our multi-well pads. Our capital expenditures guidance of 1.48 billion to 1.58 billion is weighted to the first half of the year and includes $240 million or 15% directed to facilities as discussed earlier. This investment further solidifies our infrastructure needs to support our long term growth plans. We anticipate generating significant excess cash flow of $625 to $825 million this year based on $70 to $75 per barrel WTI pricing and $2.25 per MCF ACO. We continue to return 60% of our excess cash flow through our base dividend and share of purchases with the goal of increasing our returns over time. We are confident about our 2025 outlook and remain focused on operational execution, strengthening our balance sheet and returning capital back to our shareholders. I'd like to thank everyone for their ongoing support and I look forward to taking any questions. I'll now turn the call back to the operator to begin the Q&A.
Thank you. As a reminder for the members of the investment
community, if you would like to ask a question, please press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. We'll pause for a moment to
compile the Q&A roster. And we will now take the first question
and
this comes from the line of Amir Arif from ATB Capital. Please go ahead. Your line is now open.
Thanks. Good morning, guys. Just a few quick questions for you, Craig. Just first of all, just on the sliding sleeve tests, the car south pad results again are encouraging. Is there any additional color you can share for us? In terms of how those wells are holding up and if you feel that this has cracked the code in terms of how you want to do completions going forward in the area?
Good morning, Amir. And thanks for the question. So I can give you some color and I do have Justin here as well too so he could provide you some color. But you know, obviously, like we talked, the rates and you know me, Amir, I'm a bit of a rounder. So let's say 1300 ish BLE per day for the average of the six wells. We're very excited about that. We'll continue to optimize completions as we go forward, both using single point entry and plug and perf as we look across the field, but certainly with what we've seen from initial results on these, very strong. The other thing about them, Amir, is keep in mind the oil cuts on these have been significant too when you're in that realm of 80-ish percent. So really, you know, big oil wells and it's been positive on that front. You know, when you look at the assets or sorry, these first couple pads here over a call it a 45-60 day, we're certainly happy with how they've been hanging in and how the decline performance has been on that. And as you and I have discussed in the past, one of the other potentials about the single point entry is not only you know, some of that initial results, but also what does it do for the shallowing of the decline over the long term? So the date, excited and be really happier about how the two pads have come online.
And appreciate that color. And then just second question on the operating costs. They drop nicely just quarter over quarter. Just curious how much of that is just due to the higher volumes and how much of that is due to some of the plant, the bottlenecks and facility upgrades you were doing? Or if one, just curious if that's still coming in terms of further operating cost reduction from some of the facility optimization work?
So a lot of that Amir is, you know, as obviously you've got a big component of the field costs that we have are fixed, right? So as those volumes are coming where you'd expect them to be, that does bring down the the OPEX on the per BOE basis. So happy with that. The other thing that you alluded to is, you know, the bottlenecking work that we really started. It really started last year in about August, September, and we've been working diligently at that. We are starting to see some of the benefits of that on those that base level performance. You know, as you bleed off the pressures across the field, you can now flow more into not only into the facilities, but also into those pipelines that take it into the facility. So that's starting to show through and then that starts to show through in that that OPEX as it as it comes through and the dollars per BOE. So, you know, we'll continue to do that here. We've got big plans for Q1 and then into Q2 on deep bottlenecking. So ideally we start to see some consistent performance on that.
Sounds good. And then just one final question. Yep, and then just one final question if I can on just the capacity expansion at Goldcreek West. Is that progressing on time for the six to seven pad to be tied in into March or is that six to seven pad going to be into a new facility? Because I thought you were also building a new facility in that area. Or maybe.
No,
you've got some of the color right there for sure. So the six to seven pad itself, so phase three we're talking about here. We'll be coming on call it mid March. That flows into our three to 26 facility, Gold Creek West facility. And that expansion work has been going on through Q4 and into Q1 and happy to tell you that things from that standpoint look good as far as timing. So we'll be in good shape as far as processing capacity for that pad. So, you know, I don't expect any delays and you know what really helped us, Amir. I mean, let's be honest, not very often you get a January where a cold day is minus 20, right? So that certainly helped as far as some of that work going. But no, everything looks good as far as on time. And there is a little bit more facilities work that we're going to continue to do through Gold Creek through the front half of the year. Extremely excited about that area, Amir, with, you know, just the potential of some of those wells. So we've got a bit more work to do, but the facility itself is on time.
Perfect. Thanks.
Congrats on a great quarter. Thanks. Thanks for the questions.
Thank you. And the next question
comes from the line of Jeremy McCrae from BMO Capital Markets. Please go ahead. Your line is now open.
Gary, this relates to just some of the recent wells here coming on with the single point entry. So these wells are coming on, you know, 30% better on a BOE, 50% better on an oil basis. At what point do you look at your guidance and say, you know, if all of our wells start to come form like that, do we need to potentially look at revising our numbers up? How many wells would you like to see before you see that? Or what are some of the metrics you're looking for on that there?
Yeah, so thanks for the question, Jeremy, and good morning. So it's Craig here. And again, Justin's with me if he wants to provide any color. But, you know, again, Jeremy, we're really into February in the year. Extremely happy with how we entered the year and then how January looked on a production basis and really happy with the performance of these first two pads. And we'll see how things play out for the remainder of the year and what that means, you know, very comfortable with the market guidance that we have out now, the 188 to the 196. Things look certainly on track to be at those levels. So we'll see how things play out. We've got a couple of pads coming up here, and I know you're aware of over the next little bit. We have in March, we have the 6 to 7 phase 3 pad, which we're excited about. We also have a 12 to 36 pad that is kind of north car area, Jeremy, if you're familiar with that one on the map. So that one will be coming on in April. And that's a blend, mainly single point entry. But we do have a couple plug and person there too. So it's a good data set for us on a go forward basis. And then in the Duvernay, we've got a couple of pads here coming on just over the next month or so. So, you know, let's see how things go. But so far, so good, both on a well results basis as well as just overall production levels from the fields. So far, so good. Okay.
And maybe just a just a bit of a catch all just in terms of different M&A going on throughout the Montney. Is this something you guys are still interested in or just very happy with your current money Duvernay positions and maybe you're more likely yet finalizing some of this main dispositions?
You know, Jeremy, you know, our stance really hasn't changed on that over the last 12 months. If you remember, we've been letting everybody know that we're going to take a good solid pause as far as acquisitions and divestitures. We're extremely excited about the asset base that we were able to put together. Love the Duvernay, love the Montney, love how it pairs with the long cycle assets in Saskatchewan. Lots of opportunity in front of us. We've got a good five year plan that we feel really good about. So I think, you know, what we really need to do is to continue to demonstrate to the market. The quality of the assets and the quality of our execution. So that's my way of saying, you know, don't look for us to be doing anything on that front in the near term. Very happy with how things have been moving here into the new year.
Okay, perfect. And nice to see the stock moving here today this morning as well. Thanks, Jeremy.
Thank you. And the next question comes from the line of
Michael Spiker from HTM Research. Your line is now open. Please go ahead and ask your question.
Thank you. Morning, guys. Good quarter. A little more pep in the step this morning. It's good to see. I've got one question. I've got a few so you can tell me if I'm getting too into the weeds. But looking at some of the gas oil ratios on the Gold Creek, 7 to 17 and 15 to 16 pads, they've been lower initially and during early time production. So is that a function of shorter frac growth, not penetrating the upper part of the gas year sequence since you get less gas drive? Or how do you rationalize that kind of difference in early time gas oil ratios? And just generally, is there anything kind of notable you guys have noticed over the past few months producing these pads that have furthered the NCS sleeve single point entry thesis? Because the declines are a lot shallower than you would have expected. So I'm just kind of curious what the learnings have been over the last three months or so.
Thanks for the question, Michael. And so, you noted two of those pads from Q4 where we did the plug and pull per trials. One thing I would tell you that we're really encouraged about is how those wells or how those pads have continued to increase in production. We've been excited to see how those things have performed. And I think at some point in time, when you think of a cumed time plot, these wells will end up probably cuming where they should be against that relative or initial type well. So we're excited about how they've played out. As far as the GOR, you're right, the GOR is a little bit lower. We do think where the wells were landed and that style of completion may not aided in the height growth and really penetrated into a little bit of that gas. But these are early time results and we continue to analyze that, but certainly have been encouraged with how they have performed. All that said, our next batch in that area, we will try or we will move back to the single point entry system in there and see how those do on a relative basis. But certainly with 70 of those in the area, feel pretty good about the results that we'll expect from that under a single point system. And Justin, you've got a little color here as well.
Sorry, Michael, just on your question on GORs being a little bit lower. One thing we haven't noticed with those 7 to 17 wells is actually our flowing bottom hole pressure or the percent drawdown on those wells has been quite low. So those wells we are looking at optimizing and looking at different ways to be able to get that drawdown much lower in the well to help encourage that reservoir gas to come out. So again, look forward here in the next few months, next quarter or two for us to get those wells optimized and try to get that gas to come out.
And then the last thing I would say, Michael, even though you do those plug and perf trials, we still use basically 3 tons a meter and similar fluid rates so that fluid and profit went into that reservoir. It's just maybe it didn't maximize the height growth what we needed, but that certainly has obviously got a good stimulation on those wells and they are performing better than we had hoped or thought.
Okay, that's super helpful. I guess kind of just to follow up on that. I'm getting a little ahead of timelines here, but would there be an opportunity in the future possibly to replicate that NCS sleeve with extreme limited entry plug and perf? I know Shell did some of those kind of a few years ago and get the cost savings and maybe kind of try to pump harder with higher tier equipment. Has that been a discussion down the road or kind of just focused on getting NCS back on track and proving those results first?
Yeah, no. I mean, absolutely. You're thinking the same way we are. We always want to continue to optimize our completions design and it's going to end up being different, I'm sure, for different areas. We also always want to continue to optimize our cost structure and pound that down. And if you, you know, one of the learnings that we did have early on there, Michael, was in that quarter, as we could see the completions on that particular 7-17 pad, the performance wasn't what we had hoped. We did make that change on the 12-36 pad where we ended up going to three perf clusters per stage. So we're already starting to get a little bit more of a limited entry and getting that fluid rate per entry point a little bit higher. Now, certainly you can go down to where you have one perf per, sorry, one perf cluster per stage, but that's where you start to get a little bit dilutive on your cost structure. Right? So at that point in time, it doesn't make sense to do that. It makes a lot more sense to use the single point system. So these are things that we need to continue to work through. It's going to continue to evolve for us. We're going to continue to get better from a production standpoint and a cost structure standpoint. So, you know, that's why we're excited about how things have really started to play out here for us in January and how this is coming into the new year.
Okay, that's awesome. I appreciate that. I got one more and it might be a little gritty, but just on fan and fan sourcing. Okay, I have no pun intended on the grittiness, but I've seen some evolution of prop and minks, you know, 3050 heavy on the 5 of 23 and then 3050 and 100 measure, I guess 50, 140 on the 2 of 10. Is that a function of just fan sourcing or are you guys seeing different results with different kind of prop and blends?
It's Justin here again. So we have we have transitioned and in some cases to using some smaller sand to see if we can more effectively place that sand and more effectively get that prop type growth that we want that we think we need to get. So still an evolution there on on sand profit sizing as well, Michael.
Okay, guys, I really I appreciate that so much. Very excited for the rest of the year. Good job on the quarter. That was well
done. Turn it back to you guys now. Thanks, Michael.
Thank you. And the next question comes from the
line of Dennis from CIBC world markets. Your line is now open. Please go ahead.
Hi, good morning everyone and congrats on a great quarter there. They're pregnant team. My first question here is just related a little bit towards kind of a similar line of questioning. So given the incremental liquids content that you're seeing coming from the single point entry design, and I think Justin maybe partially alluded to it. How do you think that maybe plays into or maybe how do you think about adjusting the build out or utilization of gas lift in your operations as well as how you think about the development of the field or optimization of the field as you progress development, especially with the higher liquids content.
Hey, Dennis, it's Justin again here. So yeah, I mean, through the through the acquisition process and Spartan Delta and Hammerhead, we acquired a couple of different theories on on their gas lift and how they set up their pads. We're looking to to push gas lift. First of all, out to the pad level and then secondly, where we where we can utilize it transition to high pressure gas lift to be able to draw these down these wells down quicker. Now, when we do get even higher on the liquids content, we will be looking at possibly using the SP's. There are a couple in the field that that that are running and have run effectively over the over the years. In the past, in our predecessor companies that we're operating these fields. So again, I think it's instead of a standard operation or a standard fit for artificial lift. It's definitely something that's going to involve and be a pad by pad evaluation for us going forward.
Great, really appreciate that incremental
color there, Justin. My second question may be shifting towards net debt. You've obviously made a lot of progress through 2024. I guess this might be also addressing to Ken. Can you talk towards maybe your comfort level with your balance sheet today? And if kind of the like, obviously organic, the leveraging is kind of the primary way of lowering up standing debt. But are there any other options that you're looking at to maybe accelerate that process? And how should we be thinking about kind of your comfort level with where it stands today? Obviously, I'm extending you've made a lot of progress.
Yeah, it's that it's Craig here, Dennis. So thanks for the question. I'm going to I'll pass it to Ken. But, you know, the one thing I would notice is we did make significant progress on on our overall debt reduction last year. We did manage to get our balance sheet down to that called that 2.5 ish billion of absolute debt, which is down 35% year over year. And as we've noted in the past, you know, our near term debt target on an absolute level is about 2.2 billion dollars. And we see ourselves getting there here over the next call it 12 ish months when you think of just the excess cash flow generation from an organization and that that retained amount that we keep. But ideally, you know, and Dennis, you know, as well, and I mean, it's you talk to Ken and I, when you think of the business for the long term, we'd like to be somewhere in that neighborhood about 1.5 or 1.6 billion ish of absolute debt. So we'll continue to work towards that. And Ken is here and he'll give you some color just as how we're thinking to.
Yeah, I echo the same comments as Craig and then obviously what we're really excited about here, we look at 25 and then you look at the 5 year plan is just the amount of excess cash generation. And then obviously, as a function of that, how much we're able to retain. So. You know, if I look forward to 2025 here, I mean, we've got organically leveraging a 250 million dollars at a 70 dollar US WTI. So. You know, obviously, you know, these are these are good numbers, you know, and we're able to bring that debt to cash flow or that leverage down. I mean, how comfortable we are today. You know, we're very comfortable at a one, you know, basically a one time step to cash flow to Craig's comments. Obviously, we want to drive that lower. And so, yeah, I think the real setup here as we look at this year and then look beyond. You know, not only we are growing our production on 7% Kager, but we're growing our excess cash by 15%. And so year over year, you know, even with the growth program that we've got, we're building our excess cash generation and that's just going to accelerate the debt reduction and do leveraging. So. Happy with the setup. Obviously, we're going to remain remain committed to it. You know, we'll have our we'll have our base dividends there, which is sustainable here at lower oil prices. Every dollar in return of capital and above that's going to go to share repurchases and then obviously I keep you in that 40% for the balance sheet and strengthening that so like the setup and that's how we're going to go forward.
Thanks, Dennis. Appreciate that call. I'll turn it back. Thanks, Greg. Thanks. Thanks.
Thank you. And the next question comes from the
line of Luke Davis from Raymond James. Your line is now open. Please go ahead.
Yeah, thanks. Good morning guys. I wonder if you can just expand a little bit on some of the prior questions. First being related to your guidance looking a little bit conservative given how strong volumes have come on year to date. And some of the improvements we're seeing across portfolio. So just wondering if you can provide a little more detail around the parameters on the low end and the high end of the range and what's currently baked in there.
Yeah, so thanks Luke and good morning. Yeah. So again, our guidance is the 188 to 196. I think if you break it into halves on the year, we'll be in the neighborhood of 187 on the front half of the year and around 197 in the back half of the year on average. So if you think of it from a quarter perspective, we're going to be somewhere in the neighborhood of we're saying 183. And Q1 and about 200-ish to a little bit over 200 in the back half of the year. Keep in mind, Luke, we've got a couple things going on here in the backdrop. One, you know, with the capital program being a little bit more heavily weighted to the front half of the year. And then with pad timing, you know, you're spending all this money up front here in the front drilling these wells and getting these pads on. But we don't see a lot of that production coming to the back half of the year. So that puts a little bit of a downward pressure on the front. And then the other thing, you know, is, you know, as we alluded to a little bit earlier, we've got quite a bit of facilities work going on here in the backdrop. So, you know, even if you look into February, for an example, we did have some facilities that we had shut down to do some work on and all that plays into your numbers. So, I guess it's my way of saying we are comfortable with the range that we put out. Happy with the start we've had in January. And, you know, keep in mind, it's only February. So let's see how things continue to progress. But, you know, the setup is
so far so good on that front. I appreciate that. Just, yeah, no, super
helpful. Just one follow up. A lot of focus, obviously, in the Motney and Duvernay, but I'm wondering if you could just speak a little bit to the Saskatchewan side of the portfolio. You know, speak to some of the changes you're making down there, you know, things you like and related to M&A, no prior question was asked on the Motney specifically, but anything you can do there to kind of bulk that up or generally just how you're thinking about that side of the business?
Yeah, you know, Luke, again on that, I mean, super happy with how the portfolios come together, especially when you think of where we were called five years ago and the portfolio, what it looks like today, you know, the inventory, the short cycle assets in front of us between the Motney and the Duvernay, which we love both of them. And the other thing to keep in mind is the liquids in our play or our assets relative, you know, to some of the other ones out there, we're in that phase envelope in that 75 to 85%, whether it's condensate or oil. So love the inventory setup in front of us between those two. And then we really like that pairing of the long cycle assets in Saskatchewan. So, you know, I wouldn't look for us to do anything on the M&A front. You know, obviously, Luke, there's always little what I would call base business things that you do around your swaps and small little tuck ins and that thing that you always look to build out on the assets. But anything big, I wouldn't say is going to occur. And then when you look at Saskatchewan, you know, what we love about Saskatchewan is it's a little bit longer stage of its life cycle. So it's now shifted really into that EUR phase and whether it's the water flood or the polymer floods, we continue to advance that. And things on that front have looked good. It's just a nice low decline excess cash flow asset that pairs well with the short cycles that we have. And so with that in mind, you know, we do have a little bit of a drilling program going on out there now. And we bob and weave between somewhere between one and call it three-ish drilling rigs, not only throughout the year, but also throughout the five-year plan. And some of that is just the timing of breakup where, you know, you're familiar with those Luke where, you know, they're generally single well pads. It's not like you can get on a big pad and run through breakups. So Saskatchewan as a whole has been performing really well. And I think, you know, aside from polymer and water floods, the other thing that we've been doing is the open hole multilaterals in mainly in the Butte field area. And that's been exciting for us. So it's, you know, it's it's been a good, steady, consistent production base. And it's been just a good, steady, consistent execution on that program. So no real surprises there,
Luke. That's great. Appreciate it. That's it for me. Thanks for the questions.
Thank you. And there are no further questions on the line.
Thank you for joining today's appearance call. Parents investor relations department can be reached at -767-6923. Thank you and have a good day.