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Comments (81)

Quarter Section profile picture
Bummer about the share price, I thought we'd see $30 again.
Michael Fitzsimmons profile picture
Quarter - yeah, I remember thinking there was no way the stock could go under $40. And here we are at $25 on the NYSE.
saratogahawk profile picture
I doubled my position near the recent low 20s lows so I feel pretty good about VET now. My most expensive chunk was at a little over 30 so VET is doing okay by me with the dividend. I agree that hedging hasn’t proven too beneficial for many of the oils the last few years. But VETs hedges look to come off in the majority by the end of 2019. If oil prices stay here or move higher I would like to see them avoid hedges in anticipation of an oil price upswing as I anticipate.
Michael Fitzsimmons profile picture
sara - but meantime, the stock continues to miss out on yet another oil price recovery! Sad. Very poor top-level management of what is an otherwise excellent asset base. Seems to me management has very effectively taken out any upside potential in the shares due to commodity price increases. Yet the stock still seems to react to the downside when the price of oil falls. Not sure a 7-8% yield is worth it.

That said, if you bought in the low $20's, you're probably good. I stopped buying. Every time I did, the stock dove another 10%. I don't want to tell you what my cost basis is ... too embarrassed! I bought into the Corrib hype ... big mistake, despite the fact that Corrib is printing money for the company. Just never considered that management would apparently piss it all away on hedging losses. I mean can anyone even remember the last time VET delivered a clean and very strong EPS report? I can't ... even through multiple oil price recoveries and strong Euro gas pricing!
saratogahawk profile picture
Michael I probably wont tell you what my cost basis is in OBE. Now that’s a disaster.
saratogahawk profile picture
Ive been moving away from the E&Ps because they haven’t been able to rebuild a good base. I have moved broadly into the midstreams as I think the opportunities look really good for the next few years. I hold ENB, EPD, ET, PBA, IPPLF and NGL. So far I’m doing fine here. I did moved into Anadarko APC last week We shall see.
Dale Roberts profile picture
Hey Michael, @Michael Fitzsimmons I know you know your #$% in this space. I asked Sure Dividend for his top Canadian picks. Ben came back with two big Canadians banks, they're hard to beat, and Vermilion. Wondering what you think of Vermilion today. It's had a revenue boost to say the least.

Things are looking good? Some of my readers were 'surprised'.


Michael Fitzsimmons profile picture
Hi Dale - well, I have been wrong about VET for a long long time. Management has effectively taken out any upside potential with their massive hedging program to protect the dividend. They need to adopt the COP model: cut the dividend, stop hedging, and let the strength of the diversified global portfolio work for shareholders!

I have yet to see the Q4 report ... but I am sure it will likely be another disappointment with a bunch of hedging losses.

It pains me to say all this ... I have been a shareholder for a long time, waiting for this company to deliver on its upside potential. But quarter after quarter management figures out a way to disappoint. I think they need a change at the top.
Dale Roberts profile picture
So obviously you don't think things are improving. I wrote a quick blog piece if you can check it out and comment. There is some support for this. I thought things were getting better, not worse?


Dale Roberts profile picture
I see you did drop by thanks for that.

Quarter Section profile picture
I added on the drop.
Michael Fitzsimmons profile picture
Good move .. the stock should have been up 2.6% today, not down. Note that after the market closed Moody said the transaction was "credit positive":


When was the last time you saw a deal in the oil patch be credit positive for the buyer? lol I can't remember ever seeing one. Wow, what a deal for VET. Yet the market still trashes the stock. Amazing how unloved the Canadian energy sector is!
Quarter Section profile picture
No one likes the PM.
Michael Fitzsimmons profile picture
Hey guys - I just submitted an article on this deal. Please keep an eye out for it and let me know what you think about my take. I have to be honest that my heart sank when I saw the headline .. while all other energy stocks are rallying VET continues to be stuck in the mud and of course the market reaction was negative (down 2.6% today). But I have to say after looking at the deal metrics, and the higher percentage of oil acquired, it looks pretty solid to me. The company is now estimating over half-a-billion bucks in free cash flow this year at the current strip. That's around $3.30/share!
jayhawkfan247 profile picture
Agree - at first glance, it seems to be very positive. VET seems to make really solid purchases.
BeaBaggage profile picture
I saw a bulletin that the Netherlands was phasing out/slowing down NG production in Groningen field (earthquakes)
( VET has approx. 10k/mo BOE ng production, big part of their EU assets and growing in NL )

.. thought of VET immediately..but this is not their field, apparently XOM/RDS ...VET's activity and acreage is located west and south of this field.. here is the Groningen news.. http://tinyurl.com/ybj...

the only reason I bring it up is first France is phasing out any o/ng production by 2040 and now this by NL.. I guess the EU wants to get around by bikes and freeze or get its gas from potentially unfriendly countries? should be good for US LNG though.. VET has a big commitment to EU.

At some point there has to be pushback on this when political tides turn imo..these are important high netback assets to VET.. always something w headline risk in energy these days.. 1st q should be good for VET..share price still hanging out near 1yr lows although chart looks better as it bounced off $39CA area... Bea
Michael Fitzsimmons profile picture
Hi Bea - yeah, and VET already commented on the French legislation and they are in good shape there. And I agree, VET should have an excellent Q1 due to strong price realizations ... would have been much better if they didn't have to hedge to protect cash flow, but it is what it is. I do think the stock is quite a good value here! But I have been saying that for some time. And of course VET gets lumped in with "Canadian" energy companies, that are in a deep recession (depression?) and that doesn't help. Hopefully the Q1 report will make it clear to investors that VET is not an oil sands producer lol
BeaBaggage profile picture
more I think about the NL decision, the better it is for VET w it's other NG interests in Ireland and prospective places like Croatia and Hungary etc.
Michael Fitzsimmons profile picture
Yeah - pretty good for STO too. Just going to strengthen their strong Euro-Gas market position.
Tommyboy918 profile picture
Great read I been watching. Sold OXY for VET. I plan on a long stay.
Michael Fitzsimmons profile picture
Hello Tommyboy - I wish you success and it should make you feel good that you got into VET at a lower (much lower ...) price than I did and the yield is much higher.
netgenx profile picture
Hi Michael,
We seem destined to be on different sides of the VET discussion again - LOL
I think VET is a moderate buy in here.
As you say Canadian energy cos. are out of favour, but VET isn't really that Canadian in it's asset base. Management has been pretty solid over the years building up the company, so I wouldn't hang an albatross on just yet and their balance sheet is strong enough to assure me that they'll still be around in 5 years while we wait for Shell's call on NG to come in.
As far as the hedging, you mention that it is something of a zero sum game and to a degree I agree, but the ability to smooth out income does have advantages. The hedge book is just insurance. Sometimes it's useful sometimes not, but without knowing the details of when they were put in place I find it hard to be too critical; I don't remember too many calls for $60+ oil last July -
just sayin'
cheers - -rick
Michael Fitzsimmons profile picture
Hi Rick - yes, I mentioned in the article that Canadian companies are way out of favor and also that the majority of VET's production is outside of Canada. They remind me of a much (much) smaller version of COP in some ways (nice Brent and EuroGas exposure).

But on the hedging, if you have read my articles on VET, it is very much an issue. They are having to hedge to protect the dividend. COP took the opposite approach, cut the dividend, and doesn't hedge at all. Look at the two stocks over the past couple of years. At the end of the day, it's total returns that matter (dividend + capital appreciation). And when you post an $80 million quarterly derivatives loss (and bury it in the EPS report so far down that nobody sees it...) versus $8.6 million in net income ... at some point, don't shareholders wonder if the COP way isn't better? Wouldn't it be better to get a ~3% dividend and 20% capital appreciation as opposed to a 6% dividend an no capital appreciation? This is what is happening now ... a big rise in Brent/WTI and EuroGas, but VET was so hedged that it did not fully participate in the "good times" and was watching from the cheap seats. COP did and still is participating. Thx
I feel better when more than one non sell side independent analyst agree. VET dividend very tempting!! But all Canadian oil companies currently are despised. Watching SU and VET for a better entry price, hopefully!!! Watching Brent carefully!!!
Michael Fitzsimmons profile picture
Yup - I agree, the Canadian energy sector is even more out of favor than the US energy sector (and that is really saying something).
Richard band profitable investing also likes VET, you are not alone.
Michael Fitzsimmons profile picture
Hello rrr - great ... but Richard's research is behind a paywall and I am free :)
BeaBaggage profile picture
free for 10 days only..get it now! tick tick tick...lol
I can see you are Irish, I graduated from ND class of 1978. Spanish surname but paternal grandmother Irish. Used to play in basketball court, no idea he was priced recruit in football. Very good basketball player. A little better football player.
Rod Willmot profile picture
I have never seen market action on VET respond to quarterly reports. It's always expectations-of-the-hour on the price of oil. So long as oil prices are less than convincingly fantastic, VET will keep trading in a range.
Michael Fitzsimmons profile picture
Hi Rod - I've been holding for years and I would agree with that ... although one would have thought that a 7% increase in the dividend and a fairly strong report (minus the hedging loss....) would have gotten some additional attention. That said, I did notice the stock traded up +1.5% on the NYSE on Friday on ~50% higher volume than on average. But yeah, VET on the NYSE does trade on Brent and US$/C$ movement. Thx
Long VET, thanks for the article. This is a good stock, the market will see it one day.
Michael Fitzsimmons profile picture
Thanks Fabien - I hope you are right!
is the 6.7% yield U.S. dollars or Canadian
Michael Fitzsimmons profile picture
Hello wizen - good question so let me recap that as of today:

1US$ = 1.29 C$

The new C$0.23/share (C$2.76) equates to ~US$2.14.

VET is currently trading at $32 on the NYSE, for a yield of 6.7%. And that is a "real" yield if you are a US investor holding shares in a qualified retirement account because VET's dividend would then be shielded from the foreign tax (i.e. nothing will be with-held from the dividend payment into your qualified retirement account). Thx
Thanks for the clarification. I've been buying on the dips. At 32 this might be the best investment one can make.
Michael Fitzsimmons profile picture
Yeah, if you're an American it's hard to argue with 6.7% (more than 2x the 10- and 30-year Treasuries) especially when their appears to be operational upside given the very strong EuroGas market and the pending takeover of Corrib operations from Shell.
Michael Fitzsimmons profile picture
Hi jstratt - you're more bullish on energy than I am ... I am still diversifying out of energy rather than putting more in, but if I was buying energy, I'd go with Chevron over Exxon every time (please see my articles on that subject). And note that CVX's huge Australian LNG projects are going to benefit from the recent pop in Asian LNG price due to XOM's force majeure on its PNG LNG exports due to the earthquake. Regardless, I do believe VET is undervalued. But as I said in an early comment, I made that observation at $40 too!
jstratt profile picture
Yes I am bullish in areas of O&G but not as much as you might think. I just have a fair value target on several companies.

Those companies that have turned a corner and generate FCF at $50 Oil are positioned well. XOM generated $14.7 bil in FCF in 2017. Add in the major Oil discoveries and XOM has changed my view. I do own some CVX.
Michael Fitzsimmons profile picture
Hey jstratt - yes, Exxon (finally...) had a great year with the drill-bit mostly due to Guyana - which has continued this year with their #7 discovery announced just last week:


In addition, Exxon's reserves report was bullish (an RRR of 183% - the best in many years). And liquids represented 57% of the reserves, up from 53% in 2016. So things are looking up on the drilling side of the equation.

That said, for at least the next couple of years I suspect Chevron is going to keep doing what it has been over the past 1, 3, 5, and 10-year periods: outperform Exxon.
jstratt profile picture
Thanks for an excellent article!

I think for the moment you are right. Most investors dont care because they arent sure what the risks are with VET, Oil, and Stocks.

Today I added XOM near 52 week lows. I will take that lower risk with a 4% dividend. If COP hits $52 I will add some shares. Might even buy some CNQ or SU if they break below $30. All great companies that seem to have turned the corner. OXY at $65 or less offers closer to a 5% dividend that Morningstar thinks can grow at $50 Oil.

I guess I am saying that we have entered a moment where Oil might provide excellent long term returns. However containing risk might increase the chances of being able to hold thru troubled times.

If we should have a blowout market drop today or soon I might take more risk and buy some CPG, APA, DVN or EOG. It has been a difficult month for Oil shares which seem priced as if Oil was $40 rather than $60.
BeaBaggage profile picture
Great update on VET, Michael, of course on another useless analyst conf call, no one asked about barely incr reserves and that stood out to you and me. I have reviewed about 25 conf calls so far on my stocks and watch list and I'd say maybe 2-3 of them you get decent questions and some detail over and above MD&A and financials..

on VET they skated around the prospects for Cent. EU imo on those questions yet mgmt. is playing that up in presentations and lease ownership? 1 well drilled in Hungary..good result..but more wait and see. caution is fine but this was puzzling. Seems like Cent EU gas would be great to provide EU w more resource in like of RU and Ukraine/ Mideast gas..

I'd rather see div incr $$ go to continue to pay down debt given the uncertainty of commodity pricing..hedging is important to protect the div and capex..(look what happened to Bonterra..) I think they should have hedged oil more personally I think oil is more vulnerable than NG but we'll see..

mkt volatility may finally give me a chance to buy at US30 for a long term hold. Bea
Michael Fitzsimmons profile picture
Hi Bea - I totally agree, and of course no questions or discussion on the big issue with VET (hedging). And boy do you have to dig through VET's reports to find out the hedging impact because of course they didn't mention it in the EPS pressor nor highlight it. As I reported, an $80 million loss in Q4 on unrealized derivatives was 9x the size of net income (!). So I go back to my previous SA article on VET "is hedging a zero-sum game". While I understand the desire to hedge the currently bullish Euro-gas market, and the need to protect cash-flow, clearly the company missed out on significant upside in oil prices during full-year 2017. So I go back to my original question: what good is it to hedge production to protect a 5-6% dividend yield if the price of the stock falls 20-50% because you are no longer exposed to the upside in commodity prices and miss out - or largely don't participate - on the "good times"? Seems like VET watched the commodity price rebound from the cheap seats ... but we did get a 7% increase in the dividend. Yet the stock remains down over 50% from its high ...
jimklawyer profile picture
beabaggage, just pulling some VET share prices out of a hat, I'm thinking that the $26.50 to $28.50 range from early April of 2016 might be a range of interest if someone wanted to add to or start a position.

As Fitzsimmons' article and your comment proves, apparently the fundamentals and management decisions regarding VET's performance over the past two years or so haven't resulted in anything other than a sideways to down chart over two years.

Maybe the $29 to $30 level from early July of last year will hold but that level along with the mid to high $26 to $28 level likely depends on the macro situation of oil and natgas prices for the rest of this year. Valuations of almost any individual energy name seem to be trading as if lower for longer is coming back.
BeaBaggage profile picture
thanx jimk..good chart review.. agree the chart lows probably need to be tested..seems like I am always adjusting my watch list entry prices down these days, not trying to pick a low -I like the company of course..but why give up 2-5$? fundies + technical has been my strategy for years....appreciated.. Bea
anthonymaw profile picture
I wonder how much of VET is held in ETFs ? Canadian energy sector ETFs are selling off on an increasingly bearish sentiment, with Canadian politics bending over to environmentalists and aboriginal groups opposing pipeline expansion and like all ETFs, indiscriminately throws out the good with the bad. I'm long VET too despite being underwater on my position. The temptation to sell or set stop loss limit orders is offset by the great dividend and prospects for dividend growth.
Michael Fitzsimmons profile picture
Hi Anthony - it's a good question, but of course the energy sector on both sides of the border are selling off big-time. Trump's steel tariffs are going to put more pressure on them. Sigh.

And don't feel bad, I am underwater in VET as well ... significantly so. But I haven't sold a share and certainly wouldn't sell at the current price. But of course I thought the same thing at $40!
BeaBaggage profile picture
agree passive selling/buying is a big factor these days.. sentiment drives the group and good thrown out w bad when it is negative as now ( see this in MLPs, Utilities, r/e) ..

not familiar w CA etfs but maybe you are..I do see Vanguard in the Ownership tab under MSN Money but RBC is biggest holder, probably? an etf product too.. here is link.. http://bit.ly/2t9ijKZ
Michael Fitzsimmons profile picture
Not surprisingly, RBC is the biggest holder (7.4%) according to Yahoo:


I didn't see your name in the top-10 Bea (nor mine...) lol
Thank you for the article!
Michael Fitzsimmons profile picture
You bet - thanks for reading caben.
galicianova profile picture
Indeed a relevant question, given X$ would it make more sense to add it to Enb or VET? -long both!
enb will has dividend increases every year, vet will not. i cannot decides here...
Michael Fitzsimmons profile picture
I'm not putting any more money toward either until they start to perform better. Dividend increases are great ... but what good is a 5-10% dividend increase if the price of the stock goes down by 20% (or more)?
Depends on the length of your holding period and your expectations. 1/2 my, position at $11 and 1/2 @$34, buying more @$25-30, has been fairly reliable over the years.
I care! :) Thanks for the article Michael.
Michael Fitzsimmons profile picture
Hi Curtis - yeah, I guess that makes at least two of us! Very surprised that VET seems to get painted with the same brush as all the other Canadian energy companies these days given its international production profile and exposure to Brent and Euro-gas. Hopefully some big investor will discovery it one day.
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