Q: I am thinking of selling my Vermilion shares VET and using the funds to buy shares of MEG since I want to keep my oil and gas exposure at the same weight (about 15 per cent of the portfolio.) This swap of oil producers is predicated on that MEG is already returning 50 per cent of FCF to shareholders while VET is only returning 30 per cent. According to both compannies corporate presentations both companies play to allocate more FCF to shareholders when lower debit levels are achieved in 2024. I liked VET from its exposure to high gas prices in Europe but when Ireland introduced a windfall tax on VET it definitely took a shine off of Vet's future. What do you think of changing VET for MEG. I also have some CPG, CJ, TOU, WCP, and BTE so I don't want to add to them.
5i Research Answer:
In addition to the points mentioned, MEG is much larger and has much better stock momentum. Debt has really come down, and it now is generating $1.3B in cash flow (last 12 months). Decent growth is expected next year and growth is expected to be 2X the rate of VET. We would be comfortable with this switch. Note VET is cheaper, but MEG does look better right now.