After the discussions about yen carry trades and market downturns have calmed down, the cost of oil remains high at over $75 per barrel. At the same time, market interest rates are decreasing as investors expect a reduction in Federal Reserve rates. Despite OPEC+ deciding to continue reducing production until 2025, the optimistic outlook for oil remains strong. You don’t have to be overly bullish on oil to consider investing in stocks with a 9% yield. Vitesse Energy ( VTS -0.22% ) . Here’s why.
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The dividend of Vitesse Energy.
Informing investors that it planned to increase its quarterly dividend Vitesse Energy shareholders were pleased to see an increase in the dividend from $0.50 per share to $0.525 per share in the first-quarter results. The upgraded dividend of $2.10 annually translates to a dividend yield of 9.2% as of June 28.
Vitesse Energy’s dividend may seem attractive, but many high-yield stocks in the past have failed to meet investors’ expectations. Therefore, the question arises: How reliable is Vitesse Energy’s dividend in the long term?
A dividend that is environmentally friendly and long-lasting.
If you are concerned about a decline in energy prices, Vitesse may not be the ideal choice for investment as it is an oil and gas company. Nevertheless, if you are not worried about energy price fluctuations, Vitesse can be a promising stock to consider purchasing. bullish on oil , content with the current oil price or may even be able to accept a slight decrease in the price.
The second viewpoint is a result of Vitesse’s strategy to protect its oil production through hedging. It is important to note that the company also produces gas but does not apply hedging to it. It is essential to understand that hedging is not foolproof, and it involves depending on the management’s judgment of market conditions and hedging requirements.
For individuals concerned about the oil price trend, it should be highlighted that Vitesse has been raising its open positions in crude oil swap contracts, which are used to protect against oil price fluctuations. These swaps involve agreements to exchange oil at a predetermined price for a specific duration. Instead of delving into the specifics of swap transactions, it is crucial to understand that Vitesse stands to gain financially if the oil price falls below the agreed-upon level.
Photo credit: Getty Images.
By the conclusion of 2023, Vitesse secured 40% of its projected oil production for 2024 at an average rate of $78.95 per barrel. This amounted to 1.68 million barrels for the following six quarters. Subsequently, the quantity rose to 2.45 million barrels over the subsequent seven quarters by the end of the first quarter. At the close of the second quarter, the amount stood at 2.18 million barrels for the next six quarters.
With oil production totaling 2.97 million barrels in 2023 and 1.67 million barrels in the initial half of 2024, it is evident that Vitesse has raised its hedging of oil production to alleviate concerns regarding a possible decline in oil prices.
Credit for the image goes to Getty Images.
Significant advancements in operations
Hedging involves separating the risk associated with management’s core competency, which can impact shareholders positively or negatively. This strategy mainly involves expanding production by holding minority stakes in wells as a non-operator, particularly in the Bakken oil field located in North Dakota.
Therefore, it is crucial for the company to show that it can effectively obtain assets and increase production. cash flow As a result, the recent second-quarter earnings report indicates that it is expected to achieve this by 2024.
The management aims to boost oil and natural gas production from 11,889 barrels of oil equivalent per day (Boe/d) to a range between 13,000 Boe/d and 14,000 Boe/d by 2024. This target was reaffirmed during the earnings presentation, with reported production rates of 13,504 Boe/d in the second quarter and 13,030 Boe/d in the first half. These numbers are commendable, especially considering the acquisition of additional oil assets by Vitesse in the second quarter. CFO James Henderson stated in early May that these assets are expected to significantly increase production and cash flows, particularly by late 2024 and the end of 2025.
A stock to buy
Vitesse is poised for significant production growth with oil production on the rise in the latter half of the year, following a first half that already met the lower end of the annual rate. Additionally, the company’s hedging activities are aiding in mitigating potential losses, albeit at the expense of limiting potential gains. Overall, Vitesse continues to be a favorable option for investors seeking income and seeking to capitalize on the current oil prices.
