FANG - Vital Energy: Why I Sold My Shares (Downgrade)
2024-02-05 11:22:15 ET
Summary
- Vital Energy is a medium-sized oil and gas company that has made several acquisitions in the Permian field, similar to other companies in the sector.
- However, Vital Energy has no payouts and considerable debt, making it unattractive to yield-seekers.
- The company's focus has shifted away from natural gas and toward oil, but natural gas and natural gas liquids prices have fallen considerably.
Vital Energy, Inc. ( VTLE ) is a medium-sized oil and gas company with operations in the Midland and Delaware sub-basins of the vast Permian field. Similar to several others in the sector Vital Energy made acquisitions during 2023, effectively serving as a consolidator for private energy companies. This is similar to expansions by Earthstone Energy-now set to be acquired by Permian Resources Corporation ( PR ) - and to the many acquisitions made during several years by Diamondback Energy, Inc. ( FANG ).
However, with no payouts and considerable debt, Vital Energy's role as a Permian consolidator will not interest all third-party investors, certainly not yield seekers.
Last year I expected a turnaround just from Vital Energy's rebrand and focus away from natural gas and towards oil. I rated it a buy on that basis. Yet now, after its big deal year, I'm rating the company a sell because Vital has been more of a financial vehicle. It must service high-cost debt and does not pay dividends to investors. Moreover, while oil prices remain relatively stout, natural gas and natural gas liquids prices-a big part of VTLE's assets-have fallen considerably....
Vital Energy: Why I Sold My Shares (Downgrade)