-$0.60
$7.00
bear -$0.60
base $2.74
bull $7.00
margin of safety $1.40
market price* $18.25
Business condition attached to the margin of safety
Borrowings on the credit facility are reduced to roughly $100 million or less and the dividend is covered by cash left after maintenance spending, so the company is no longer funding payouts and drilling with new debt.
Vitesse Energy owns small, non-operated working interests (average 3.5%) in 6,402 producing wells, mostly in the Bakken and Three Forks of North Dakota and Montana, plus positions in Colorado's DJ Basin and Wyoming's Powder River Basin. Wells are drilled and run by more than 30 operators; Vitesse pays its share of costs and receives its share of oil and gas. Since 2014 it has bought about 175 small packages of drilling rights (over $785 million). In March 2025 it bought Lucero Energy in an all-stock deal, adding operated Bakken wells. Proved reserves were 47.8 million barrels of oil equivalent at year-end 2025, roughly nine to ten years of production, with a pre-tax present value of $473 million on the SEC's pricing. How we measured earnings. We start with operating cash flow, remove swings in receivables and payables, and subtract stock compensation and the capital spending needed to keep production up. In a depleting business almost all drilling and acquisition spending is a cost of standing still: 2025 spending of $127.7 million was close to the $129.4 million of depletion charged. Only a modest slice, about 49 percent of the revenue increase, is treated as growth spending. On that basis earnings to owners were about $(7) million in 2023, $26 million in 2024 and $42 million in 2025. Three items matter. 2023 carried $32 million of one-time stock compensation around the spin-off, so we set that year aside. 2025 includes a one-time $24 million payment from operator Hess settling a dispute over deductions from oil and gas revenue, which we remove. Interest of about $9 million a year is added back, because the business's debt is subtracted separately below. That leaves about $31 million a year of business cash flow, the middle of the 2024 figure ($35 million) and the 2025 figure without the settlement ($28 million). Growth reconciliation: reported 2025 earnings per share rose 36 percent, but excluding the settlement they fell about 41 percent. We start the first year flat at the $31 million level. First-half 2026 cash flow was stronger, but that comes after Q1 2026 derivative losses that suggest higher commodity prices, and one stretch of prices is not enough to lift the level. What we credited and left out. Each case is a continuous story with no assumed growth. We credit only that the existing well base and the company's demonstrated reinvestment record (acquisitions and development through the 2020 downturn) keep cash flow going, then fade it as reserves run down. We left out production growth from new acquisitions, oil-price recovery and Lucero synergies because none is contracted or independently proven yet. Base case: $2.74 per share. $31 million a year for ten years, fading evenly to zero over the following ten years. The business is worth about $292 million. It owes about $174 million: $158.5 million on the revolving credit facility at June 30, 2026 (up from $124.5 million in December), less under $1 million of cash, $14 million of well-plugging obligations, and about $2.5 million for interest above 6 percent until the facility matures in October 2028. That leaves about $118 million for roughly 42.9 million shares. Bear case: $(0.60) per share. Cash flow of $20 million a year, the weakest comparable level we can see (2023 with normal stock compensation), for eight years and then fading over eight. That is worth about $161 million. Refinancing debt at about 8 percent costs about $16 million extra, on top of $172 million of debt and plugging obligations, or about $187 million owed. The company appears to owe about $26 million more than the business is worth. This rests on disclosed facts: lower oil prices already reduced reserves in 2025, operating costs per barrel rose from $10.00 to $10.92 with the Lucero wells, the credit line is redetermined twice a year against reserves, and dividends ($92 million in 2025) exceeded owner earnings. Bull case: $7.00 per share. $45 million a year for twelve years, then fading over twelve. That is worth about $474 million, matching the reserve value on SEC pricing, less about $174 million owed, leaving about $300 million. It requires the higher first-half 2026 cash flow to prove lasting and the acquisition record to keep offsetting depletion. What we tested. If only development spending counted as maintenance, excluding acquisitions, 2025 earnings would rise by about $6.6 million, which does not change the picture. The company itself cut its quarterly dividend from $0.5625 to $0.4375 in 2026, and in the first half of 2026 it borrowed about $34 million while paying $44 million of dividends, so payouts still exceed free cash. Some 2025 cash flow also came from deferred taxes ($9.8 million), meaning cash taxes may rise. What would make this wrong: sustained high oil prices would move results toward the bull case, while a smaller borrowing base or weak prices toward the bear. Figures we could not reconcile: the first-half 2026 quarterly filing was reviewed only in structured data, so the drivers of its cash flow are not confirmed.