About Vermilion

  • Vision - To be recognized as the best high dividend oil & gas producer using a value driven growth strategy.  
  • Mission - To consistently deliver superior rewards to investors, employees, partners & the communities in which we operate.
  • Core Values - Excellence, Trust, Respect and Responsibility

Anthony Marino
President & Chief Executive Officer

Message to Shareholders

In early April, Vermilion held an investor day in Paris, France to provide investors and analysts with an opportunity to learn more about our company's strategy and global asset portfolio.  The event featured presentations from members of our executive team and senior leaders from each of Vermilion’s business units.  Our Investor Day was designed to achieve three main objectives: provide a more detailed description of our assets and projects; demonstrate the technical and management capabilities of Vermilion’s global operations leadership team; and emphasize the similarity of our overseas operations to North American operations through a field tour of our Paris Basin assets.  A copy of the Investor Day presentation and a replay of the webcast is available on our website at

It was fitting that Vermilion’s first Investor Day event in nearly seven years
coincided with the 20th anniversary of our first international acquisition.  It was in 1997 that Vermilion took the innovative step of expanding internationally by acquiring producing properties in France.  Since then, we have continued to strengthen and diversify our global asset portfolio, maintaining a disciplined focus on our three core regions of North America, Europe and Australia.  As was demonstrated throughout our Investor Day event, Vermilion’s diversification has played a key role in our historical success and remains instrumental to our growth-and-income model in the future.

Project Inventory Diversity

Vermilion’s diversified inventory of conventional and semi-conventional projects provides several competitive advantages for our company.  Diversification in commodity and price exposures allows us to select and invest in those projects that will generate the highest return for a given commodity price environment.  In addition, our focus on conventional and semi-conventional projects results in lower production decline rates as compared to our North American competitors that focus on shales or other ultra-tight reservoirs.  These lower decline rates significantly reduce our ongoing capital requirements and directly support the sustainability of our growth-and-income model.  At the same time, we continue to apply the best worldwide drilling and completion technologies to our conventional and semi-conventional assets to further enhance our rates of return.  While we are focused on conventional and semi-conventional projects, our inventory depth is more typical of an unconventional producer.  We have greatly expanded our project inventory over the past five years and it is stronger now than at any point in Vermilion’s history.

After more than two years of depressed industry activity, we are starting to see a modest recovery in activity levels as global oil markets begin to rebalance.  While this increased activity will lead to service cost reflation, we expect this to have less impact on Vermillion than our competitors.  A majority of our capital is directed to assets outside of North America where the services sector has not been exposed to severe boom-and-bust cycles.  As such, cost escalation pressures on our international operations are expected to be less significant.  Further, our semi-conventional asset base in North America requires significantly less sand, water and horsepower intensity in completions as compared to our shale and ultra-tight focused competitors.  As a result, we have relatively less exposure to the pressure pumping services segment, where services price reflation is expected to be most significant. 

Capital Investment and Production Source Flexibility

Our diversification provides significant flexibility to reallocate capital and production amongst business units as required to meet corporate targets.  This flexibility was recently demonstrated through the reallocation of 2017 capital and production targets due to the permitting delays in the Netherlands noted in our year-end 2016 release and Investor Day materials.  As discussed in the European Review section below, we now project that these permitting delays will result in the deferral of nearly 3,000 boe/d of Netherlands production for 2017 versus our original plan.  In response, we have reallocated a modest amount of additional capital from the Netherlands to Canada and intend to offset this current-year permitting-related production shortfall through increased production in other jurisdictions, primarily Canada and Australia.  Our expectation to maintain our 2017 production guidance of 69,000 – 70,000 boe/d despite the impact of these permitting delays, and without increasing consolidated exploration and development ("E&D") capital, demonstrates a key advantage of our diversification as well as the operational strength of our company.

Risk Reduction and Premium Pricing

Our global asset portfolio provides commodity diversification and premium pricing.  Commodity diversification reduces risk for our shareholders by increasing the stability of our cash flows and providing additional hedging options.  Approximately 55% of our oil-equivalent 2017 estimated production is priced with reference to Dated Brent and European natural gas benchmarks.  These commodities continue to trade at significant premiums as compared to their North American counterparts, improving our margins.  Our commodity exposure advantages, coupled with our focus on cost management, have allowed Vermilion to consistently deliver top quartile netbacks within our peer group.


Vermilion’s diversification has been a key element of our historical success and consistent record of market outperformance.  Our global asset portfolio generates significant free cash flow(1), while at the same time delivering consistent production growth, allowing us to sustainably deliver our growth-and-income model for our shareholders.  Our focus on three core regions, managed within a decentralized business unit structure with a highly capable leadership team, allows us to focus our efforts and effectively manage our global asset base.  In each region, we are a very technically-focused company that continues to add real value through high quality technical work and careful execution of our projects.  

Q1 2017 Review

Vermilion's first quarter production increased by 6% to 64,537 boe/d from 60,863 boe/d in the prior quarter.  This increase was primarily attributable to higher volumes in Canada related to the resumption of voluntarily curtailed production and organic growth from development activities, as well as incremental volumes from our German acquisition which closed near the end of last year.  We expect production volumes to continue increasing throughout 2017 with production volumes averaging between 69,000 to 70,000 boe/d for the year.

Fund flows from operations ("FFO") for Q1 2017 was $143.4 million ($1.21/basic share(1)) as compared to $149.6 million ($1.27/basic share) in Q4 2016.  This 4% decrease in FFO quarter-over-quarter is primarily attributable to a significant inventory build in France and Australia related to shipment timing.  The pre-tax FFO impact of the quarter-over-quarter change in inventory levels was approximately $15.5 million.  Based on anticipated shipment schedules, we expect that this inventory build will reverse over the course of the year, unwinding the FFO impact. Year-over-year, FFO increased by 53% as compared to Q1 2016 as a result of significantly higher commodity prices.  Vermilion generated net earnings of $44.5 million ($0.38/basic share) during the first quarter, representing a return to positive net income for the first time since Q2 2015.

While commodity prices have increased from the lows experienced in 2016, we continue to maintain our strict focus on cost management.  Per-unit operating expense of $9.35 per boe decreased by 11% during Q1 2017 as compared to the prior quarter and by 2% as compared to the year-earlier quarter. 

During the quarter, we issued US$300 million of eight-year senior unsecured notes at a coupon of 5.625% per annum.  This issuance was completed by way of a private offering and represented Vermilion's first issuance in the US debt markets.  Despite Vermilion's first-time issuer status, we were able to secure a very attractive interest rate, reflecting our track record of prudent fiscal management.  The issuance of US dollar denominated debt provides a natural hedge against our largely US dollar denominated revenue streams.  Subsequent to the quarter, we negotiated an extension of our credit facility with our banking syndicate to May 2021.  As a result of our projected liquidity requirements and the proceeds from this debt issuance, we elected to reduce our bank facility to $1.4 billion from $2.0 billion.

Effective with the April 2017 dividend payment, the allowable participation in the Premium DividendTM Component of our Premium DividendTM and Dividend Reinvestment Plan is now being prorated by 75%.  As such, eligible shareholders who have elected to participate in the Premium DividendTM Component now receive a 1.5% premium on 25% of their participating shares, and the regular cash dividend on the remaining 75% of their shares.  We plan to discontinue the Premium DividendTM Component of our Premium DividendTM and Dividend Reinvestment Plan beginning with the July 2017 dividend payment, such that there would be no further equity issuance under this program.  We also reduced the discount associated with the traditional component of our Premium DividendTM and Dividend Reinvestment Plan from 3% to 2% beginning with the January 2017 dividend. 


Production from Corrib averaged 64.8 mmcf/d (10,803 boe/d) in Q1 2017, representing 100% of rated plant capacity.  The project has continued to outperform expectations for well deliverability and downtime. Due to expected higher recovery efficiency resulting from better well-to-well communication, we have adjusted our field and well performance estimates, and now expect to maintain peak production plateau through Q1 2018 and potentially into Q2 2018.  Corrib is a highly efficient generator of free cash flow as a result of its highly-valued European gas product, absence of royalties, low operating expense, and low maintenance capital requirements.

In France, we drilled and completed our first wells in the Neocomian fields during Q1 2017.  Initial results from this four (4.0 net) horizontal well program are highly encouraging.  The first well was placed on production in early March and delivered an IP30 rate of 250 bbls/d versus our type curve expectations of 110 bbls/d.  The second well, which only has a completed horizontal section of 40% of the anticipated length due to drilling problems, was placed on production in late March at a rate of approximately 50 bbls/d at low drawdown during the initial production phase.  The production rate from this well is expected to increase as pump displacement and drawdown are turned up over time.  The remaining two wells have now been successfully drilled and cased with slotted liner through the full horizontal section targeted.  Reservoir quality indications from these two wells were positive, and we expect to have them on production during the second quarter. During the first quarter, we also completed and placed on production the four (4.0 net) Champotran wells we drilled in France in Q4 2016.  All wells are productive, with two exceeding expectations, and two below.  The combined IP30 oil rate from the four wells was 550 bbls/d.  Lastly, we drilled and placed a Vulaines horizontal sidetrack well on production during the quarter.  The well delivered an IP30 rate of 90 bbls/d prior to finishing the completion by acidizing the horizontal lateral.  Our ability to successfully execute a sidetracked horizontal lateral in Vulaines creates the opportunity for higher productivity multi-lateral horizontal development from existing wellbores.

As noted previously, permitting delays in the Netherlands have resulted in a reallocation of capital and production targets amongst business units.  Due to the delays in receiving final production permits for three of our wells, two wells are now producing at significantly restricted rates and a third well has been shut-in.  While we believe the final production permits for one of the wells will be received in 2017, we do not currently expect to receive the permits for the other two wells until 2018.  As such, we have reduced our full year 2017 average production forecast for the Netherlands to approximately 6,500 boe/d.  This compares to our initial 2017 Netherlands production plan of 9,400 boe/d which reflected our prior permitting timeline assumptions.  We intend to offset lower Netherlands volumes through increased production in other jurisdictions, primarily Canada and Australia, and have made no changes to our 2017 guidance targets for consolidated production or E&D capital.  In the Netherlands, two (1.0 net) wells that were in our original budget have been postponed and we have deferred the completion activities for the remaining two (1.0 net) exploration wells that we intend to drill this year to 2018.  In addition, we have reduced the scope of our planned seismic program in the Akkrum exploration concession.  Further information on these changes is included in our May 2017 investor presentation available on our website.  We expect the curtailed Netherlands volumes to be available for production during 2018.

In Germany, Vermilion assumed operatorship of the assets acquired near the end of 2016 from Engie E&P Deutschland GmbH.    Production from the acquired assets averaged approximately 2,000 boe/d during the quarter.  Vermilion commenced service rig operations on the acquired assets in February, and we have developed a work plan to implement identified optimization and workover projects.   In March 2017, we were awarded an exploration license in Lower Saxony comprising 150,000 gross acres (50,000 acres net to Vermilion) surrounding the acquired oil fields.  The Engie acquisition, our assumption of production operatorship and the additional exploration acreage further advance our objective of developing a material business unit in Germany. 

North America

In Canada, capital activity increased significantly during the first quarter as compared to Q1 of the prior year.  During Q1 2017, we drilled or participated in seven (5.1 net) Mannville wells, five (5.0 net) Cardium wells and 10 (8.3 net) Midale wells.  Eleven (7.1 net) Mannville wells, two (2.0 net) Cardium wells and eight (7.0 net) Midale wells were brought on production.  Individual well results from our Q1 2017 Mannville program exceeded our expectations with the majority displaying test productivity significantly above our average well performance to-date.  Lower Mannville wells tested during the quarter(2) include one well that tested at 8.0 mmcf/d with 190 bbls/d of free liquids, and a second well at 2.8 mmcf/d with 535 bbls/d of free liquids.  Based on early stage production results, oil rates from our Cardium and Midale wells are in-line with expectations while cost efficiencies continue to improve.  Cardium Drill, Complete, Equip and Tie-in (DCET) well costs averaged $2.3 million on a per-section basis for Q1 2017 as compared to $3.2 million during our last program in 2014.  Per well costs for our Midale play decreased to $1.7 million during Q1 2017 from $3.0 million in 2014.  These improvements largely resulted from an approximately 30% decrease in required drilling days achieved during the quarter as compared to the start in the Midale play in 2014.  The last five wells at the end of the Q1 2017 program achieved a further 25% reduction in drilling days.  During Q1, we also continued to advance an infrastructure project supporting the continued growth of our Upper Mannville development in the Ferrier area.  We plan to start the construction of a 14 mmcf/d compressor station in Q4 2017 with start-up scheduled for Q2 2018. 

In the United States, we drilled three (3.0 net) wells in our early stage Turner Sand play during the quarter.  The Q1 2017 program was designed to establish consistent drilling and completion procedures while reducing drilling times and overall capital costs.  Drilling times were reduced to 12 days from the previous 18 day average despite an approximately 20% increase in average lateral length.  Based on currently available data, while recognizing that some additional completion costs may still be incurred on the new wells, we project that the per well drilling and completion capital cost was reduced by approximately 25% from the previous program.  Two of the three wells have been completed and were placed on production in late March, while the third well is expected to be on production by late April.  The first two wells have been produced intermittently so far, with initial production performance that is comparable to the better wells drilled thus far in our East Finn project area.  During Q1 2017, we purchased overriding royalty interests on our lands (ranging from 0.83% to 5%) for US$1.5 million, further consolidating our position and enhancing our play economics.


Activities in Australia were largely centered around our debottlenecking project to further improve fluid handling capability on the Wandoo B platform.  Once completed, we expect that this infrastructure enhancement will allow us to increase oil production on the platform by 600 to 700 bbls/d later in 2017.  The two sidetrack wells we drilled in Q2 2016 continue to exhibit strong productive capability.  When utilized, combined oil production from these wells was approximately 4,000 bbls/d during Q1 2017.  These wells are produced intermittently to achieve business unit targets and meet oil sales contract commitments.  We do not expect to drill additional wells in Australia until 2019.

Environmental, Social & Governance

Vermilion was recently ranked 13th by Corporate Knights on the Future 40 Responsible Corporate Leaders in Canada list.  This marks the fourth year in a row that Vermilion has been recognized by Corporate Knights as one of Canada's top sustainability performers.  Vermilion continues to be the highest rated oil and gas company on the list.  This recognition reflects our strong focus on sustainability, transparency and performance regarding environmental, social and governance issues.

Board of Directors

Vermilion recently announced that Mr. William Roby will be appointed to the Board of Directors effective April 26, 2017.  Mr. Roby brings 33 years of experience in various senior management and executive positions primarily from a number of US and international management positions with Occidental Petroleum Corporation from 1997 to 2013, most recently as Senior Vice President, Worldwide Operations and Production/Facility Engineering.  From 2013 to 2014, he acted as Chief Operating Officer of Sheridan Production Company, LLC, a Houston based oil and gas company. Mr. Roby holds a Bachelor of Mechanical Engineering degree from Louisiana State University.

In addition, Mr. Claudio Ghersinich has advised that he will not be standing for re-election to Vermilion’s Board in 2017.  Mr. Ghersinich has been a director of Vermilion since 1994.  He was one of the three co-founders of Vermilion and served most recently as Executive Vice President, Business Development from 2005 to 2008.  Mr. Ghersinich was a key contributor to Vermilion’s success, and on behalf of Vermilion’s management and Board of Directors, we wish to thank him for his contributions to Vermilion, the Board, Audit and Independent Reserves Committees.  We wish Claudio the very best in his future endeavours.


(1)   Non-GAAP Financial Measure.  Please see the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis.

(2)   Well A (Ellerslie) production test was performed over a 2-day period.  The maximum choke size during the production test was 24.7mm.  Well A achieved a peak burnable gas production rate of 9.1 mmcf/d with a stabilized rate of 8.0 mmcf/d.  Well A also achieved a peak liquids production rate of 375 bbls/d with a stabilized rate of 190 bbls/d.  Well B (Ellerslie) production test was performed over a 2-day period.  The maximum choke size during the production test was 21.3mm.  Well B achieved a peak burnable gas production rate of 3.3 mmcf/d with a stabilized rate of 2.8 mmcf/d.  Well B also achieved a peak liquids production rate of 690 bbls/d with a stabilized rate of 535 bbls/d.  These test results are not necessarily indicative of long-term performance or of ultimate recovery.

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