Vitesse Energy Notes

January 29, 2023 Update

  • Andrew Walker doesn’t like it.

January 20, 2023 Update

Jefferies (JEF) spun off Vitesse Energy (VTS) on January 13, beginning regular way trading on January 16. Shareholders received 1 share of VTS for every 8.49668 shares of JEF. The transaction is intended to be tax-free.

Vitesse produces about $300 million annually in revenue, generating earnings from its interests in oil assets in the shale basins in the US, which have been supported by the current commodity price environment. The spin-off could be attractive if it’s sold indiscriminately. Here’s its Form 10 and slide deck.

Vitesse Energy is trading around $16. Its best comp is Northern Oil & Gas (NOG) which trades at 3.5x EBITDA. At that multiple, VTS is worth $17.50. In diving deeper into Vitesse there are a couple things that made me modestly more negative on Vitesse: 1) The company hasn’t generated that much free cash flow. $0 in 2019 and 2020, just $44MM in 2021 and on pace to generate $68MM in 2022. 2) This ties into my last point, but paying a $66MM annual dividend isn’t sustainable given the volatility in free cash flow generation. 3) The company is focused on non-operated interests. This means it owns minority stakes in wells acreage and must fund its pro-rata share of drilling costs. In other words, it doesn’t control when or how much capex it spends (reliant on the operators).

Notwithstanding the above, I like the high insider ownership (30%) and the limited debt load (less than 1x EBITDA). I think Vitesse would be interesting at the right price, but it might have to dip below $10 to get me interested.

November 9, 2022 Update

Jefferies (JEF) is set to spin off Vitesse Energy in Q4 this year, as a new separate publicly traded company, allowing Jefferies to focus on building out its investment banking and capital markets businesses.

The energy business produces about $300 million annually in revenue, gaining earnings from its interests in oil assets in the shale basins in the US, which have been supported by the current commodity price environment.

Jefferies has already sold Idaho Timber back in August, for a sale price of $239 million. The two transactions (spin-off and sale) will decrease Jefferies Merchant Banking portfolio net book value from $1.6 billion to under $1.0 billion.

On top of this, Jefferies has further streamlined its corporate structure by merging both Jefferies Group and Jefferies Financial Group on November 1st. This merger heavily plays to this corporate strategy of slimming down, becoming more cost effective, and focusing on one industry.Jefferies looks relatively attractive trading at 10x earnings. The spin-off could be attractive if it’s sold indiscriminately. Here’s its Form 10.  I expected Vitesse’s enterprise value to be $500MM or less. In the trailing twelve months, Vitesse has generated $158MM of adjusted EBITDA

July 21, 2022 Update

Jefferies Financial announced it is spinning off Vitesse Energy the company has a net tangible book value of $427m

As to Vitesse, we have been in business with Bob Gerrity and Brian Cree at Vitesse since 2013. During that time, they have shown themselves to be smart, strategic experts who have successfully grown and diversified Vitesse’s non-operating interests in oil and natural gas wells primarily in the Bakken formation. We believe in the Vitesse business and we believe that spinning off Vitesse to our Jefferies shareholders will ultimately unlock the fundamental value of Vitesse. We personally look forward to being meaningful direct shareholders of Vitesse and benefitting from its ongoing success.