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Vermilion Energy Inc. Announces Results for the Three and Nine Months Ended September 30, 2014

November 10, 2014

CALGARY, Nov. 10, 2014 /CNW/ - Vermilion Energy Inc. ("Vermilion", "We", "Our", "Us" or the "Company") (TSX, NYSE: VET) is pleased to report operating and unaudited financial results for the three and nine months ended September 30, 2014.

HIGHLIGHTS

  • Achieved average production of 49,920 boe/d during Q3 2014, a decrease of 4% as compared to 52,089 boe/d in the prior quarter and an increase of 20% compared to 41,510 boe/d in Q3 2013.  Lower quarter-over-quarter production was primarily due to a 7% decrease in Canada resulting from lower levels of drilling and completions activity during spring breakup, and managed production in Australia and the Netherlands consistent with overall corporate production targets.  Quarter-over-quarter declines from lower Canadian activity were partially offset by inclusion of a full quarter of production from our southeast Saskatchewan acquisition, which closed in late April 2014.  Q3 production volumes in the Netherlands were also affected by unscheduled downtime at our Garijp treating facility.

  • Generated fund flows from operations(1) in Q3 2014 of $197.9 million ($1.85/basic share), as compared to $216.1 million ($2.05/basic share) in the prior quarter and $165.6 million ($1.63/basic share) in Q3 2013.  The quarter-over-quarter decrease was primarily attributable to lower commodity pricing during Q3 2014, and a combined build in crude oil inventories in France and Australia of approximately 104,000 bbls.

  • Completed our first Duvernay horizontal appraisal well (35% working interest), which is located along a shared lease-line in the Pembina block.  This three-quarter mile long well was brought on production subsequent to the end of the third quarter and has produced for 16 days.  Raw gas rate has averaged 2.2 mmcf/d (expected sales gas rate of 1.8 mmcf/d after liquids shrink and plant fuel) with an estimated hydrocarbon liquids rate of approximately 180 bbls/d (approximately 60% pentanes plus).  The well is producing at restricted rates using a 12/64 inch downhole choke to generate an estimated flowing bottomhole pressure of 4,200 psi (approximately 55% drawdown).  Our second Duvernay horizontal appraisal well (100% working interest), located in the Edson block, is expected to be brought on production late in Q4 2014.

  • Drilled our first well in the Netherlands on lands acquired in October 2013.  The Diever-02 exploration well (45% working interest), in the Drenthe IIIb concession, encountered two well-developed gas bearing intervals (Akkrum and Slochteren) with a net pay thickness of approximately 36 metres.  A three-hour clean-up test was conducted on the Slochteren formation which delivered 25.7 mmcf/d of gas on a 40/64 inch choke with 2,615 psi flowing tubing pressure with no indications of pressure drop during the test(3).  The flow rate was limited by the 3.5 inch diameter of the tubing and the capacity of the test equipment.  The well is expected to be tied-in with production from the Slochteren formation in Q4 2015 at an estimated rate of approximately 1,000 boe/d, net to Vermilion.  The Akkrum formation will be perforated at a later date once the Slochteren formation has been fully produced.

  • Subsequent to the end of the third quarter, drilled a gas discovery well in the Netherlands at the Langezwaag-02 location (42.3% working interest) in the Gorredijk concession.  This extended reach well recorded significant gas shows in two metres of Vlieland Sandstone and 21 metres of Zechstein-2 Carbonate.  Open hole logs could not be run in the highly deviated well.  The Langezwaag-02 well was first flow tested from the Zechstein-2 Carbonate at 12.4 mmcf/d through a 48/64 inch choke at a flowing tubing pressure of approximately 1,300 psi. A second flow test in the Vlieland Sandstone yielded rates of 2.7 mmcf/d through a 32/64 inch choke at a flowing tubing pressure of approximately 960 psi.

  • Subsequent to the end of the third quarter, recorded first production from the Deblinghausen Z7a well (25% working interest) in Germany.  This well was drilled earlier in 2014 by operator ExxonMobil Production Deutschland GmbH, and encountered 81 metres of Zechstein Carbonate pay.  Initial gross production rates are approximately 16.5 mmcf/d of raw gas at a flowing tubing pressure of approximately 1,300 psi.

  • Successfully expanded our southeast Saskatchewan land base through the purchase at Crown land sales of an additional approximately 15,000 net acres of undeveloped land to the northwest of our existing lands at an average cost of approximately $1,860 per acre.

  • Completed our first acquisition in the United States at a cost of approximately $11.1 million. Through the transaction, we acquired approximately 68,000 acres of land (98% undeveloped) in the Powder River basin of northeastern Wyoming with current working interest production of approximately 200 bbls/d (100% oil), proved plus probable reserves estimated at 2.22 million boe (82% oil) and contingent resource of 10.02 million boe (82% oil). Transaction metrics, with no deduction for land value, equate to approximately $56,000 per boe/d and $20.98 per boe, including future development costs of approximately $35.3 million. The land base includes 53,000 net acres at an average operated working interest of 70% in a promising tight oil project in the Turner Sand at a depth of approximately 1,500 metres.

  • Our Corrib project in Ireland has continued to progress on schedule following the completion of tunnel boring operations in May 2014.  Project operator Shell Exploration & Production Ireland Ltd. (SEPIL) successfully completed offshore workover and pipeline operations during the third quarter.  SEPIL also significantly advanced tunnel outfitting, which is now estimated to be approximately 95% complete.  Remaining activities include completion of tunnel outfitting and grouting, commissioning of the gas processing facility, and finalization of operating permits.  We anticipate first gas from Corrib in approximately mid-2015, with peak production estimated at approximately 58 mmcf/d (approximately 9,700 boe/d) net to Vermilion.

  • We are revising our 2014 average annual production guidance from the previous range of 48,500-49,500 boe/d to a range of 49,000-49,500 boe/d, and expect full year production to be near the upper end of this new range.  We currently anticipate providing 2015 production and capital expenditure guidance in early December 2014.

  • We celebrated our 20th Anniversary as a publicly traded company in 2014.  This has been a rewarding period of growth and achievement for our company, and we are proud of our progress to date.  Most importantly, we are honored to have provided our shareholders with a compound average total return including dividends, as of September 30, 2014, of 36.4% per annum since our inception.  With the consistent strength of our operations and our extensive opportunity base, we will strive to provide continued strong financial performance, and a reliable and growing dividend stream to investors.

(1)     Additional GAAP Financial Measure.  Please see the "Additional and Non-GAAP Financial Measures" section of Management's Discussion and Analysis.
(2)     Estimated proved plus probable reserves and contingent resources attributable to the assets as evaluated by GLJ Petroleum Consultants Ltd. in a report dated October 28, 2014, with an effective date of July 1, 2014, using the GLJ (2014-07) price forecast.
(3)     Test results are not necessarily indicative of long-term production performance or of ultimate recovery.

Vermilion Energy Inc. Third Quarter 2014 Conference Call and Audio Webcast Details

Vermilion will discuss these results in a conference call to be held on Monday, November 10, 2014 at 9:00 AM MST (11:00 AM EST).  To participate, you may call 1-888-231-8191 (Canada and US Toll Free) or 1-647-427-7450 (International and Toronto Area).  The conference call will also be available on replay by calling 1-855-859-2056 using conference ID number 6117964.  The replay will be available until midnight eastern time on November 17, 2014.

You may also listen to the audio webcast at http://event.on24.com/r.htm?e=852632&s=1&k=79DE9E8E7910A2E76368C9BFBF328E76 or visit Vermilion's website at www.vermilionenergy.com/ir/eventspresentations.cfm.

DISCLAIMER

Certain statements included or incorporated by reference in this document may constitute forward looking statements or financial outlooks under applicable securities legislation.  Such forward looking statements or information typically contain statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", or similar words suggesting future outcomes or statements regarding an outlook.  Forward looking statements or information in this document may include, but are not limited to: capital expenditures; business strategies and objectives; operational and financial performance; estimated reserve quantities and the discounted present value of future net cash flows from such reserves; petroleum and natural gas sales; future production levels (including the timing thereof) and rates of average annual production growth; estimated contingent resources and prospective resources; exploration and development plans; acquisition and disposition plans and the timing thereof; operating and other expenses, including the payment and amount of future dividends; royalty and income tax rates; the timing of regulatory proceedings and approvals; and the timing of first commercial natural gas and the estimate of Vermilion's share of the expected natural gas production from the Corrib field.

Such forward looking statements or information are based on a number of assumptions all or any of which may prove to be incorrect.  In addition to any other assumptions identified in this document, assumptions have been made regarding, among other things: the ability of Vermilion to obtain equipment, services and supplies in a timely manner to carry out its activities in Canada and internationally; the ability of Vermilion to market crude oil, natural gas liquids and natural gas successfully to current and new customers; the timing and costs of pipeline and storage facility construction and expansion and the ability to secure adequate product transportation; the timely receipt of required regulatory approvals; the ability of Vermilion to obtain financing on acceptable terms; foreign currency exchange rates and interest rates; future crude oil, natural gas liquids and natural gas prices; and management's expectations relating to the timing and results of exploration and development activities.

Although Vermilion believes that the expectations reflected in such forward looking statements or information are reasonable, undue reliance should not be placed on forward looking statements because Vermilion can give no assurance that such expectations will prove to be correct.  Financial outlooks are provided for the purpose of understanding Vermilion's financial position and business objectives and the information may not be appropriate for other purposes.  Forward looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Vermilion and described in the forward looking statements or information.  These risks and uncertainties include but are not limited to: the ability of management to execute its business plan; the risks of the oil and gas industry, both domestically and internationally, such as operational risks in exploring for, developing and producing crude oil, natural gas liquids and natural gas; risks and uncertainties involving geology of crude oil, natural gas liquids and natural gas deposits; risks inherent in Vermilion's marketing operations, including credit risk; the uncertainty of reserves estimates and reserves life and estimates of resources and associated expenditures; the uncertainty of estimates and projections relating to production and associated expenditures; potential delays or changes in plans with respect to exploration or development projects; Vermilion's ability to enter into or renew leases on acceptable terms; fluctuations in crude oil, natural gas liquids and natural gas prices, foreign currency exchange rates and interest rates; health, safety and environmental risks; uncertainties as to the availability and cost of financing; the ability of Vermilion to add production and reserves through exploration and development activities; the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; uncertainty in amounts and timing of royalty payments; risks associated with existing and potential future law suits and regulatory actions against Vermilion; and other risks and uncertainties described elsewhere in this document or in Vermilion's other filings with Canadian securities regulatory authorities.

The forward looking statements or information contained in this document are made as of the date hereof and Vermilion undertakes no obligation to update publicly or revise any forward looking statements or information, whether as a result of new information, future events or otherwise, unless required by applicable securities laws.

All oil and natural gas reserve information contained in this document has been prepared and presented in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities.  The actual oil and natural gas reserves and future production will be greater than or less than the estimates provided in this document.  The estimated future net revenue from the production of oil and natural gas reserves does not represent the fair market value of these reserves.

Natural gas volumes have been converted on the basis of six thousand cubic feet of natural gas to one barrel of oil equivalent.  Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation.  A boe conversion ratio of six thousand cubic feet to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Financial data contained within this document are reported in Canadian dollars, unless otherwise stated.

ABBREVIATIONS

$M    thousand dollars
$MM    million dollars
AECO    the daily average benchmark price for natural gas at the AECO 'C' hub in southeast Alberta
bbl(s)    barrel(s)
bbls/d    barrels per day
bcf    billion cubic feet
boe    barrel of oil equivalent, including: crude oil, natural gas liquids and natural gas (converted on the basis of one boe for
    six mcf of natural gas)
boe/d    barrel of oil equivalent per day
GJ    gigajoules
mbbls    thousand barrels
mboe    thousand barrel of oil equivalent
mcf    thousand cubic feet
mcf/d    thousand cubic feet per day
mmboe    million barrel of oil equivalent
mmcf    million cubic feet
mmcf/d    million cubic feet per day
MWh    megawatt hour
NGLs    natural gas liquids
PRRT    Petroleum Resource Rent Tax, a profit based tax levied on petroleum projects in Australia
TTF    the day-ahead price for natural gas in the Netherlands, quoted in MWh of natural gas, at the Title Transfer Facility
    Virtual Trading Point operated by Dutch TSO Gas Transport Services
WTI    West Texas Intermediate, the reference price paid for crude oil of standard grade in US dollars at Cushing, Oklahoma
     

HIGHLIGHTS

        Three Months Ended     Nine Months Ended
($M except as indicated)       Sep 30,   Jun 30,     Sep 30,     Sep 30,     Sep 30,
Financial       2014   2014     2013     2014     2013
Petroleum and natural gas sales       344,688   387,684     327,185     1,113,555     948,727
Fund flows from operations (1)       197,898   216,076     165,645     619,337     503,866
  Fund flows from operations ($/basic share)       1.85   2.05     1.63     5.90     5.01
  Fund flows from operations ($/diluted share)       1.83   2.01     1.61     5.81     4.94
Net earnings       53,903   53,993     67,796     210,684     226,131
  Net earnings ($/basic share)       0.50   0.51     0.67     2.01     2.25
Capital expenditures       190,033   135,073     135,661     521,481     394,248
Acquisitions       40,847   381,139     7,586     600,213     7,586
Asset retirement obligations settled       4,677   2,381     2,738     9,709     6,496
Cash dividends ($/share)       0.645   0.645     0.600     1.935     1.800
Dividends declared       68,896   68,710     61,003     203,613     181,391
  % of fund flows from operations       35%   32%     37%     33%     36%
Net dividends (1)       48,480   49,561     41,649     145,163     127,875
  % of fund flows from operations       24%   23%     25%     23%     25%
Payout (1)       243,190   187,015     180,048     676,353     528,619
  % of fund flows from operations       123%   87%     109%     109%     105%
  % of fund flows from operations (excluding the Corrib project)       107%   73%     87%     97%     89%
Net debt (1)       1,243,438   1,168,998     700,286     1,243,438     700,286
Ratio of net debt to annualized fund flows from operations (1)       1.6   1.4     1.1     1.5     1.0
Operational                              
Production                              
  Crude oil (bbls/d)       29,147   30,184     26,664     28,890     25,640
  NGLs (bbls/d)       2,354   2,892     1,945     2,463     1,719
  Natural gas (mmcf/d)       110.52   114.08     77.41     109.33     81.97
  Total (boe/d)       49,920   52,089     41,510     49,574     41,020
Average realized prices                              
  Crude oil and NGLs ($/bbl)       102.49   109.89     108.87     108.02     103.95
  Natural gas ($/mcf)       5.74   6.19     6.00     6.60     6.68
Production mix (% of production)                              
  % priced with reference to WTI       28%   30%     24%     27%     24%
  % priced with reference to AECO       18%   18%     17%     18%     17%
  % priced with reference to TTF       18%   18%     14%     18%     16%
  % priced with reference to Dated Brent       36%   34%     45%     37%     43%
Netbacks ($/boe) (1)                              
  Operating netback       54.25   59.52     61.91     58.95     60.12
  Fund flows from operations netback       44.08   46.24     43.60     46.02     44.13
  Operating expenses       12.53   12.46     12.17     12.81     12.87
Average reference prices                              
  WTI (US $/bbl)       97.17   102.99     105.82     99.61     98.14
  Edmonton Sweet index (US $/bbl)       89.24   96.85     101.10     92.17     93.03
  Dated Brent (US $/bbl)       101.85   109.63     110.37     106.57     108.45
  AECO ($/GJ)       3.81   4.44     2.31     4.56     2.89
  TTF ($/GJ)       7.26   7.91     9.94     8.41     10.17
Average foreign currency exchange rates                              
  CDN $/US $       1.09   1.09     1.04     1.09     1.02
  CDN $/Euro       1.44   1.50     1.38     1.48     1.35
Share information ('000s)                              
Shares outstanding - basic       106,921   106,620     101,787     106,921     101,787
Shares outstanding - diluted (1)       109,749   109,371     104,195     109,749     104,195
Weighted average shares outstanding - basic       106,768   105,577     101,613     104,891     100,634
Weighted average shares outstanding - diluted (1)       108,290   107,330     102,763     106,582     102,083

(1)  The above table includes additional GAAP and non-GAAP financial measures which may not be comparable to other companies.  Please see the "ADDITIONAL AND NON-GAAP FINANCIAL MEASURES" section of Management's Discussion and Analysis.

MESSAGE TO SHAREHOLDERS

In 2014, we celebrated Vermilion's 20th anniversary as a publicly traded company.  It has been a demanding, but also a tremendously rewarding 20 years.  During this time, we have witnessed significant change and encountered many challenges to the industry, and we are particularly proud of our demonstrated ability to effectively navigate those challenges to the benefit of our shareholders.  Today's environment is no different.  The recent volatility in the capital markets, and more particularly in the energy sector (due to a rapid fall in commodity prices and near term price expectations), creates yet another opportunity for us to demonstrate the sustainability of our business model and the advantages of our diversified portfolio.  Vermilion's relative performance during this period has once again demonstrated the stable and defensive nature of our business, our strong positioning within the industry, and our shareholders' continued confidence in our ability to prosper.  Our balance sheet remains strong and we believe our longer-term focus, combined with our conservative approach and patience, will allow us to create further opportunity for our shareholders in the current environment.

Reflecting on Vermilion's record, we are pleased that our previous efforts have resulted in a compound average total return including dividends, as of September 30, 2014, of 36.4% per annum since inception. We are also proud of the consistency of those returns.  Over the last one, three, five, ten and 15 calendar-year periods, we have reliably delivered double-digit compound average total returns of 24.6%, 14.5%, 24.0%, 18.6% and 25.5%, respectively.

In spite of current commodity price weakness, we continue to believe that Vermilion is better situated for continued growth than at any other time in our history.  With the consistent performance of our operations and our expansive and growing opportunity base, we remain confident that we are positioned to deliver continued strong operational and financial performance in the future, while also providing a reliable and growing dividend stream to our shareholders.

We are confident that the assets in our current portfolio contain significant opportunity for growth for years to come.  In the current environment, we also find ourselves positioned to enhance growth in shareholder value and further diversify our opportunity base through acquisition activity in both North American and international markets.

In February 2014 we announced our entry into GermanyGermany has a long history of oil and gas development activity, low political risk and strong marketing fundamentals.  The acquisition provides us with entry into this sizable market, in the form of free cash flow(1) generating, low-decline assets with near-term development inventory in addition to longer-term, low-permeability gas prospectivity.  We believe that our conventional and unconventional expertise, coupled with new access to proprietary technical data, will position us for future development and expansion opportunities in both Germany and the greater European region.

In late April 2014 we announced the completion of our acquisition of Elkhorn Resources Inc., a private southeast Saskatchewan producer.  The acquired assets consist of high netback, light oil production in the Northgate region of southeast Saskatchewan and include approximately 57,000 net acres of land (approximately 80% undeveloped), seven oil batteries, and preferential access to 50% or greater capacity at a solution gas facility that is currently under construction.

In addition, we recently completed an $11.1 million transaction which marks our first acquisition in the United States, representing a low-cost entry position in the prolific Powder River Basin of northeastern Wyoming. The transaction provides a promising tight oil development project, and we have put in place the human resources necessary to support future organic growth and acquisitions in the region. Through the transaction, we acquired approximately 68,000 acres of land (98% undeveloped) with current working interest production of approximately 200 bbls/d (100% oil), proved plus probable reserves estimated at 2.2(2) million boe (82% oil) and contingent resource of 10.0(2) million boe (82% oil). Transaction metrics, with no deduction for land value, equate to approximately $56,000 per boe/d and $20.98 per boe, including future development costs of approximately $35.3 million. The land base includes 53,000 net acres at a 70% operated working interest in a promising tight oil project in the Turner Sand at a depth of approximately 1,500 metres. The most recently completed well on this land block (70% working interest) is currently producing approximately 220 bbls/d of oil in its fourth month of production, from an approximately 1,100 metre hydraulically-fractured horizontal lateral.

Looking ahead we see continued opportunity for expansion.  In North America, we are faced with an active asset market and we continue to see technology unlocking new opportunities for development.  With Vermilion's access to relatively low cost capital, our conservative balance sheet, and significant near-term free cash flow growth on the horizon (including from Corrib, which is expected to commence production in mid-2015), we are well positioned to compete and transact should suitable opportunities arise.  While international asset markets remain substantially less liquid than in North America, we similarly find ourselves well-positioned for assets that do become available in our selective regions of interest.

The third quarter of 2014 marks another quarter of consistent operational execution for our Company.  We continue to achieve strong results from our successful Mannville condensate-rich gas and Cardium light-oil development programs in Canada.  Our strong Cardium results reflect continued improvements in completions design and better-than-forecasted production v

Vermilion Energy Inc.
3500, 520 3rd Avenue SW
Calgary, Alberta T2P 0R3
Phone: 1-403-269-4884
Fax: 1-403-476-8100
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