Strong production growth and deleveraging trajectory support investment-grade profile; current sub spread vs. Eni and peers offers compelling relative value
Vår Energi ASA, a leading independent oil and gas producer on the Norwegian Continental Shelf (NCS), demonstrates a solid credit profile supported by increasing production, stable leverage, disciplined financial policy, and strong strategic ties to its majority shareholder, Eni S.p.A. (63% ownership).
BBVA View: We are constructive on the name and are initiating coverage with a buy recommendation on both its seniors and only outstanding Hybrid
- Strong Growth in Operating Cash Flow: The ramp-up in production, particularly from ‘Johan Castberg’ (a major oil field project in the Barents Sea), will materially boost cash generation starting in late 2025. The asset’s low unit cost (~$4/bbl) will significantly improve margins, helping Vår generate excess cash even in a moderate oil price environment.
- Disciplined Shareholder Returns: While Vår maintains a consistent dividend payout strategy, the proportion of cash flows allocated to shareholder distributions is set to decline modestly in 2025 (the current payout is at the lower end of the range (25-30%), which we view as credit supportive), enabling higher internal retention of capital. Notably, there is no share buyback program planned, unlike some peers, which allows more financial flexibility and supports balance sheet strength
- Flexible Capital Spending: Approximately 70% of capex over 2025–2030 remains uncommitted, giving the company significant leeway to adjust investments based on market conditions and internal cash flows, further strengthening its ability to preserve credit metrics.