Vermillion Signs Deal to Acquire 36.5% Stake in Corrib, Reinstates Dividend

Shares of Vermillion Energy Inc. (VET) gained 9% on Monday after the company announced its plans to acquire Equinor Energy Ireland Limited, which owns a 36.5% interest in Corrib Natural Gas Project, for $434 million. The deal is expected to close in the second half of 2022.

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Upon completion of the deal, the company expects 2022 full-year pro forma FFO per share accretion of nearly 33% and FCF per share accretion of 53% based on forward commodity prices. Also, the acquisition is anticipated to be 11% deleveraging in 2022 with incremental deleveraging and accretion expected from 2023.

With this acquisition, 23 mmboe of 2P reserves will be added and the company is expected to produce approximately 7,700 boe/d of natural gas in 2022. (See Vermilion stock charts on TipRanks)

Dividend Reinstatement

Meanwhile, Vermillion has announced to reinstate a $0.06 per share quarterly dividend from the first quarter of 2022. The company said its return of capital framework would be a staged approach and increase over time as further debt targets are achieved.

The Corrib acquisition is likely to improve the company’s FCF profile and ability to return additional capital to shareholders.

Price Target

Following the news, National Bank analyst Travis Wood upgraded Vermillion’s rating to Buy from Hold with a price target of $14.91 (upside potential of 50%).

The analyst sees improved free cash flow, bolstered by continued strength in U.K. natural gas pricing. “Vermilion’s exposure should support continued debt reduction and a sustainable base dividend,” the analyst adds.

The stock has a Moderate Buy consensus rating based on 2 Buys and 5 Holds. The average Vermilion price target of $12.89 implies 29.7% upside potential from current levels.

Smart Score

According to the TipRanks’ Smart Score rating system, Vermillion gets a 5 out of 10, which indicates that the stock is likely to perform in line with market averages.