Vår Energi: Premium Pricing Is Normalizing, I'm At 'BUY'

The energy sector has been a rollercoaster in 2025, with geopolitical tensions, volatile commodity prices, and macroeconomic headwinds testing even the most resilient companies. Amid this turbulence, Norwegian oil and gas giant Vår Energi (OSE: VAR) has quietly solidified its position as a premium pricing play, with its Q1 2025 results underscoring a normalization of pricing power. Let’s unpack why this stock is worth a “BUY” at current levels.

The Case for Premium Pricing: Data-Driven Evidence

Vår Energi’s Q1 results reveal a key trend: its realized prices are converging with market benchmarks, validating its thesis of “premium pricing normalization.” Let’s break down the numbers:

1. Gas Pricing Dominance:
2. In Q1 2025, the company’s realized gas price hit $87/boe, nearly matching the average spot market reference price. This is a stark improvement from Q1 2024, when gas fetched just $67/boe.

4. Gas now accounts for 35% of production (up from 32% in Q4 2024), and fixed-price contracts for Q2 and Q3 2025 are locked in at $89/boe and $84/boe, respectively—both above current spot estimates.

5. Crude Oil Resilience:

6. Despite a year-over-year dip, crude prices averaged $76/boe, outperforming Jefferies’ $72/boe forecast. Sequentially, this is an improvement from Q4 2024’s $73/boe.

7. Production Momentum:

8. Q1 net production averaged 272 kboepd, slightly below consensus (277 kboepd) due to seasonal factors. However, management reaffirmed its full-year 2025 guidance of 330–360 kboepd, targeting the midpoint.
10. By Q4 2025, the company aims to surpass 400 kboepd, driven by ramp-ups at Johan Castberg and Halten East, which began production in March 2025.

Why the ‘BUY’ Call Holds Up

Despite short-term hiccups, the data points to a sustainable upward trajectory:

• Valuation:
• Analysts project a 2025 EPS of $0.41, a 275% jump from 2024. With a consensus price target of $39.54, the stock trades at a P/E ratio of ~93x, which may seem high, but it reflects investor confidence in long-term growth.

• Balance Sheet Strength:

• A $340 million non-cash gain from NOK appreciation offset cash outflows like a $212 million tax payment and a $270 million dividend. This highlights financial flexibility, even amid macro headwinds.

• Strategic Hedging:

• Fixed-price contracts for Q2 and Q3 mitigate downside risks from commodity volatility. With gas contracts at $89/boe and $84/boe, Vår Energi is insulated against potential price slumps.

• Analyst Consensus:

• While Q1 results missed estimates, the consensus price target remains unchanged at $39.54, and recommendations range from “Hold” to “Strong Buy.” Analysts like Desjardins’ Chris MacCulloch note that the company’s production ramp-up plans are credible and underpin its premium pricing narrative.

Risks to Consider

No investment is without risks. Key concerns include:
- Production Delays: The Johan Castberg and Halten East fields must ramp up as promised to hit the 400 kboepd target.
- Commodity Volatility: Lower oil prices (e.g., Desjardins’ $60/bbl WTI forecast for 2025) could pressure margins.
- Geopolitical Risks: U.S. steel tariffs and OPEC+ policies remain wild cards.

However, the Q1 reaffirmed guidance and gas pricing resilience suggest management has contingency plans.

Conclusion: The ‘BUY’ Case is Strong

Vår Energi is executing its strategy to normalize premium pricing through strategic hedging, new field ramp-ups, and diversified production. With gas prices aligning with spot markets and production poised to surge in H2 2025, the stock offers a high-reward, high-conviction opportunity.

The $39.54 consensus price target implies a 35% upside from current levels (NOK 29.12 as of April 16). Even with risks, the data—400 kboepd targets, fixed-price contracts, and 275% EPS growth—supports a “BUY” rating.

Final Takeaway: Vår Energi is a premium pricing play with legs. The normalization thesis is real, and the stock is primed to capitalize on it.

This analysis is based on public financial disclosures and third-party estimates as of April 2025.