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Vermilion Energy Inc. Announces Results for the Three Months Ended March 31, 2015

May 8, 2015

CALGARY, May 8, 2015 /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 months ended March 31, 2015.

HIGHLIGHTS

  • Achieved average production of 50,386 boe/d during the first quarter of 2015, an increase of 2% as compared to 49,571 boe/d in the prior quarter, and 8% versus 46,677 boe/d during the first quarter of 2014.  Production increased in Canada, France and the Netherlands from the previous quarter due to successful drilling, workover and tie-in activity, more than offsetting mid-stream restrictions in Canada and modest decreases in production in other business units.  We continue to manage Australian production to maximize proceeds during this period of lower oil prices.        

  • Fund flows from operations ("FFO")(1) for Q1 2015 of $120.8 million ($1.12/basic share) represented a decrease of 35% quarter-over-quarter and 41% year-over-year.  The decrease in FFO was attributable to lower commodity prices and inventory builds (due to the timing of crude liftings in France and Australia), partially offset by lower operating expenses from our ongoing cost reduction program and a recovery of costs in France.

  • Concluded the successful drilling of a four (4.0 net) well program in France at our Champotran field in the Paris Basin.  Subsequent to Q1 2015, all four wells have been tied-in and are currently producing at a combined average production rate of approximately 980 bbls/d.  This was our third successive drilling program since 2013, comprising a total of 13 wells at Champotran, with a 100% drilling success rate.   

  • Initiated production from our Langezwaag-02 well in the Netherlands at a facility-limited rate of 4.0 mmcf/d from the Zechstein formation.  This discovery well on the Gorredijk concession was part of our 2014 drilling program.  Subsequent to the end of the Q1 2015, we reached total depth and logged the first well in our 2015 Netherlands drilling program.  Based on electric logs, the Slootdorp-06 well in the province of North Holland (93% working interest), is a field-extending discovery, logging 71 metres of gross gas column in the Rotliegend Sand.  Production from the Slootdorp-06 well is expected to commence in the second half of 2015.

  • Our Corrib project in Ireland has continued to progress as expected.  Project operator Shell E&P Ireland Limited ("SEPIL") is systematically preparing gas compression and other systems at the Bellanaboy gas processing terminal for the processing of offshore gas production from the field.  The Irish Environmental Protection Agency issued its Proposed Determination for the Corrib Industrial Emissions License ("IEL") in April.  Based on remaining terminal activities and typical approval timelines for the final form of the IEL, we estimate that the most likely date for start-up is approximately mid-year, with a modest range of outcomes around that estimate.  Production at Corrib is expected to increase over the first few months toward peak production levels estimated at approximately 58 mmcf/d (approximately 9,700 boe/d), net to Vermilion.

  • Despite a 40% reduction in planned capital spending for 2015 as compared to 2014, we are maintaining our original production guidance of between 55,000 and 57,000 boe/d. There is also no change to our 2015 capital spending guidance of $415 million.

  • To further enhance the long-term and sustainable profitability of our business in the current environment, we are also directing considerable focus to our Profitability Enhancement Program ("PEP") initiative.  Prior installments of PEP achieved strong results in both the 1998 industry downturn and the financial crisis of 2008-2009.  Based on savings identified to-date, our third installment of PEP will result in cost reductions estimated at between $50 and $60 million for full-year 2015 in capital spending, operating expense and G&A.  This is reflected in unit operating expense for Q1 2015 that is down 15% quarter-over-quarter, and down 22% year-over-year.

  • Subsequent to Q1 2015, we negotiated a further expansion and extension of our existing revolving credit facilities from $1.75 billion to $2 billion.  In Q1 2015, we had previously increased our credit facility from $1.5 billion to $1.75 billion.  After the most recent expansion to our credit facility, we have approximately $820 million of borrowing capacity available.  The facility, which matures in May 2019, is fully revolving up to the date of maturity and is subject to standard form covenants.  We are, and expect to continue to be, in compliance with all applicable debt covenants and maintain our current dividend of $0.215 per share per month ($2.58 per share per year).

  • During Q1 2015, Vermilion was awarded a judgment in the amount of €25 million for the costs incurred as a result of an oil spill at the Ambès oil terminal in France that occurred in 2007.  Vermilion expects to receive 50% of the judgment in Q2 2015, with the remainder due upon conclusion of the appeal process.  Based on the recent court decision and the conclusions of the expert engaged by the French court, Vermilion is highly confident that the award will be upheld.

  • Subsequent to Q1 2015, Vermilion was recognized by the Great Place to Work® Institute as a Best Workplace in Canada and France for the sixth consecutive year.  Vermilion was also recognized for a second consecutive year as a Best Workplace in the Netherlands in 2015, after becoming eligible for ranking in 2014.  Vermilion is the only energy company in the medium sized category to rank on the Best Workplaces lists in Canada and the Netherlands, and the highest scoring energy company on the Best Workplaces list in France. These Great Place to Work awards are a reflection of Vermilion's strong corporate culture which is a key driver of Vermilion's long-term strong corporate performance.

  • In addition, Vermilion was recently ranked 15th by Corporate Knights on the Future 40 Responsible Corporate Leaders in Canada list (the highest ranking for an oil and gas company, and an increase over the Company's debut ranking of 32nd last year), as well as being named Top International Producer of the year by The Explorers and Producers Association of Canada.  This recognition reflects Vermilion's continued focus on financial results combined with exemplary environmental, social and governance performance. Strong workplace practices and a culture that respects both people and communities are key elements in our success. Please refer to our Sustainability Report at http://sustainability.vermilionenergy.com/ for more information about our environmental and social stewardship.
(1)  Additional GAAP Financial Measure.  Please see the "Additional and Non-GAAP Financial Measures" section of Management's Discussion and Analysis.

ANNUAL GENERAL MEETING WEBCAST

As Vermilion's Annual General Shareholders Meeting is being held today, May 8, 2015 at 10:00 AM MST at the Metropolitan Centre, 333 - 4th Avenue S.W., Calgary, Alberta, there will not be a first quarter conference call, however, a presentation will be given by Mr. Lorenzo Donadeo, Chief Executive Officer, concluding the formal business portion of the meeting.

Please visit http://event.on24.com/r.htm?e=975216&s=1&k=8EF642AF4951C1D3776D76241E30DC52  or Vermilion's website at http://www.vermilionenergy.com/ir/eventspresentations.cfm and click on webcast under the upcoming events to view the webcast which will commence at approximately 10:15 AM MST.

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
HH    Henry Hub, a reference price paid for natural gas in US dollars at Erath, Louisiana
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

MESSAGE TO SHAREHOLDERS   

While crude oil indices have risen from the 5-year lows reached during Q1 2015, the global price environment for crude oil remained depressed as we exited the first quarter of 2015.  Although this price environment poses significant challenges for many energy sector participants, Vermilion remains comparatively well-positioned given our disciplined approach to financial management and our commodity diversification. In particular, our exposure to European natural gas markets, where fundamentals and pricing remain strong, is a key advantage differentiating Vermilion from its competitors.

Current European natural gas prices are more than triple those in North America, and our planned 2015 capital activities will allow us to continue to take advantage of this opportunity.  In 2014, we expanded our European natural gas business with our entry into Germany, a producing region with a long history of development activity and strong market fundamentals. This acquisition increased our existing European natural gas production base by nearly 50% in 2014.  With continued organic growth in our Netherlands gas production combined with additional gas production from our Corrib project in Ireland, we expect that European gas will comprise nearly 35% of total production by Q4 2015.  In 2016, with a full year of Corrib production and assuming no changes in commodity pricing, European natural gas may generate as much as 45% of Vermilion's FFO(1).

Notwithstanding the general weakness in crude prices globally, the advantages of international crude exposure in fiscally competitive regions like France and Australia were also evident during Q1 2015. The operating netback from our Brent-based crude oil sales in Australia and France was a blended $44.76/boe, as compared to operating netbacks of $31.68/boe from WTI-based crude oil sales in North America.

In response to the depressed crude oil and North American natural gas price environment, we previously announced a reduction in our 2015 exploration and development program to $415 million, representing a 40% decrease versus 2014.  With this reduction, assuming average WTI pricing for 2015 in the mid-$50 range, we would expect our cash inflows to nearly match our net cash outflows (excluding Corrib related capital expenditures).  Despite this significant reduction in planned capital expenditures, we remain on target to achieve the lower end our original full year 2015 production guidance of 55,000 to 57,000 boe/d. This represents year-over-year production growth exceeding 10%, and we expect to achieve consolidated organic production growth in each quarter of 2015.

To further enhance the long-term and sustainable profitability of our business, we reinstated our Profitability Enhancement Program ("PEP").  Prior installments of PEP achieved strong results in both the 1998 industry downturn and the financial crisis of 2008-2009.  Based on savings identified to-date, our third installment of PEP is expected to result in cost reductions estimated at between $50 and $60 million for full-year 2015 capital spending, operating expense and G&A. This is reflected in Q1 2015 operating expense per unit, which is 15% lower than Q4 2014 and 22% lower than Q1 2014.

Our European capital programs remain robust.  In France, we completed a successful four (4.0 net) well drilling program at Champotran during Q1 2015.  Subsequent to Q1 2015, all four wells were tied-in and are currently producing at a combined average rate of 980 bbls/d.   This was our third successive drilling program since 2013, comprising a cumulative 13 wells at Champotran, with a 100% drilling success rate. After-tax rates of return associated with our Champotran oil drilling program remain in excess of 100%(2) at today's oil prices.  The remainder of our 2015 capital expenditures in France will target highly economic workovers and optimization projects, as well as infrastructure and facility maintenance.  During the second quarter, we expect to restore approximately 2 mmcf/d of shut-in natural gas production from our Vic Bilh field.

In the Netherlands, we plan to drill three (2.4 net) wells during Q2 2015 with volumes from these wells, if successful, expected to be on-stream during the second half of 2015.   Subsequent to the end of Q1 2015, we reached total depth and logged the first well in our 2015 Netherlands drilling program, the Slootdorp-06 well in the province of North Holland (93% working interest).  Based on electric logs, this well is a field-extending discovery, logging 71 m of gross gas column in the Rotliegend Sand.  Production from the Slootdorp-06 well is expected to begin during the second half of 2015.

In Germany, our operating partner is drilling one (0.25 net) well in 2015, which was spudded late in Q1 2015.  If successful, production from this well should be on-stream in mid-Q3 2015.

Our Corrib project in Ireland has continued to progress as expected.  Remaining work includes the ongoing testing of all systems and processes required for the safe operation of the Bellanaboy gas processing terminal.  The Irish Environmental Protection Agency issued its Proposed Determination for the Corrib Industrial Emissions License  ("IEL") in April 2015.  Based on remaining terminal activities and typical approval timelines for the final form of the IEL, we estimate that the most likely date for start-up is approximately mid-year, with a modest range of outcomes around that estimate.  Production at Corrib is expected to increase over the first few months toward peak production levels estimated at approximately 58 mmcf/d (approximately 9,700 boe/d) net to Vermilion.

With strong fundamentals in our international operations and the significant flexibility offered by our Canadian asset base, we reduced our 2015 investment activity as compared to prior years.  In our Cardium light-oil resource play, economics remain robust with capital investment rates of return in excess of 30%(2) . Results to-date have been strong, with better-than-forecasted production volumes on our two-mile extended reach horizontal wells. In Q1 2015, we participated in the drilling of only seven (3.1 net) Cardium wells in the quarter, which represents our planned Cardium drilling activities for 2015 (compared to 30 to 50 net wells in previous years). For the remainder of 2015, we will be focused predominately on the completion and tie-in of previously drilled wells. Our Mannville condensate-rich conventional natural gas play remains the most economic play in our Canadian portfolio with current rates of return in excess of 85%(2).   During Q1 2015, we participated in drilling 13 (8.9 net) wells, representing approximately half of our planned 28 (16.0 net) well program for 2015. In Saskatchewan, we reduced our drilling activity to five (4.1 net) wells in 2015, all of which were drilled in Q1 2015. New well results in our downdip Midale play in Saskatchewan have been better than we expected at the time we entered this region in 2014.  Duvernay drilling activities have been deferred to beyond 2015 as we monitor the performance of our two appraisal wells drilled in 2014. We achieved increased Canadian production despite having approximately 1,600 boe/d of production offline as a result of plant capacity restrictions and interruptible service curtailments on the NGTL system.

Our balance sheet remains a further source of strength.  Subsequent to Q1 2015, we negotiated with our lenders for a further expansion and extension of our existing revolving credit facilities from $1.75 billion to $2 billion, which was previously increased from $1.5 billion in Q1 2015. Taking into account the most recent expansion to our credit facility, we have approximately $820 million of borrowing capacity available.  The facility, which matures in May 2019, is fully revolving up to the date of maturity and subject to standard form covenants (discussed in the "Financial Position Review" section of our MD&A).  We are, and expect to continue to be, in compliance with all applicable debt covenants, and expect to maintain our current dividend of $0.215 per share per month ($2.58 per share per year).  With a nearly balanced budget at current commodity prices, we currently anticipate our balance sheet leverage to remain at current levels assuming current commodity prices, and then to naturally de-lever with the addition of FFO from our Corrib asset in the second half of 2015. While this represents higher financial leverage than we would normally carry, it is lower than the debt ratios of the majority of our peers, and should allow us the flexibility to manage our business effectively by providing continued growth and returns for shareholders in the current price environment.

Vermilion was recently ranked 15th by Corporate Knights on the Future 40 Responsible Corporate Leaders in Canada list (the highest ranking for an oil and gas company, and improved from our debut ranking of 32nd last year). We were also named Top International Producer of the year by The Explorers and Producers Association of Canada.  This recognition reflects Vermilion's continued focus on achieving robust shareholder returns combined with environmental, social and governance performance. Our non-financial initiatives and performance are also articulated in the company's first annual CDP submission and sustainability report in 2014. Strong workplace practices and a culture that respects both people and communities are key elements in our success.

Subsequent to Q1 2015, Vermilion was pleased to announce that for a sixth consecutive year, it has been recognized by the Great Place to Work® Institute as a Best Workplace in Canada and FranceVermilion was also recognized for a second consecutive year as a Best Workplace in the Netherlands in 2015, after becoming eligible for ranking in 2014.  Vermilion is the only energy company in its category to rank on the Best Workplaces lists in Canada and the Netherlands, and the highest scoring energy company on the Best Workplaces list in France.

The management and directors of Vermilion continue to hold approximately 6% of the outstanding shares and remain committed to delivering superior rewards to all stakeholders.  In spite of the challenges posed by the current business environment, we continue to believe that Vermilion is situated for long-term, diversified growth.  We remain confident that the assets in our portfolio can support organic growth for years to come, and in the current environment, we also find ourselves well positioned to take advantage of potential acquisition activity in both North American and international markets.  Our long-term focus on the creation of real value through our technical capabilities, combined with our conservative financial approach and patience, should allow us to compete and transact for the benefit of our existing shareholders if suitable opportunities arise.

(1) The above discussion includes additional GAAP and non-GAAP 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.
(2)  Economics calculated using the following commodity price deck assumptions:  $55/bbl WTI; $60/bbl Dated Brent; $2.75/mmbtu AECO; US$3.00/mmbtu Nymex; $9.00/mmbtu Title Transfer Facility (Netherlands); CAD/USD 1.20; CAD/EUR 1.40

HIGHLIGHTS

      Three Months Ended
($M except as indicated)     Mar 31,     Dec 31,     Mar 31,
Financial     2015     2014     2014
Petroleum and natural gas sales     195,885     306,073     381,183
Fund flows from operations (1)     120,795     185,528     205,363
  Fund flows from operations ($/basic share)     1.12     1.73     2.01
  Fund flows from operations ($/diluted share)     1.11     1.71     1.97
Net earnings     1,275     58,642     102,788
  Net earnings ($/basic share)     0.01     0.55     1.00
Capital expenditures     174,311     166,243     196,375
Acquisitions     35     1,652     178,227
Asset retirement obligations settled     3,107     6,247     2,651
Cash dividends ($/share)     0.645     0.645     0.645
Dividends declared     69,390     69,119     66,007
  % of fund flows from operations     57%     37%     32%
Net dividends (1)     48,012     48,139     47,122
  % of fund flows from operations     40%     26%     23%
Payout (1)     225,430     220,629     246,148
  % of fund flows from operations     187%     119%     120%
  % of fund flows from operations (excluding the Corrib project)     173%     106%     111%
Net debt (1)     1,388,603     1,265,650     966,310
Ratio of net debt to annualized fund flows from operations (1)     2.9     1.7     1.2
Operational                  
Production                  
  Crude oil (bbls/d)     28,181     28,846     27,318
  NGLs (bbls/d)     3,039     2,822     2,140
  Natural gas (mmcf/d)     115.00     107.42     103.32
  Total (boe/d)     50,386     49,571     46,677
Average realized prices                  
  Crude oil and NGLs ($/bbl)     58.25     78.64     111.62
  Natural gas ($/mcf)     5.26     5.90     7.99
Production mix (% of production)                  
  % priced with reference to WTI     28%     28%     25%
  % priced with reference to AECO     20%     20%     17%
  % priced with reference to TTF     18%     16%     19%
  % priced with reference to Dated Brent     34%     36%     39%
Netbacks ($/boe) (1)                  
  Operating netback     31.30     45.85     63.20
  Fund flows from operations netback     29.07     38.67     47.76
  Operating expenses     10.56     12.48     13.49
Average reference prices                  
  WTI (US $/bbl)     48.63     73.15     98.68
  Edmonton Sweet index (US $/bbl)     41.83     66.79     90.43
  Dated Brent (US $/bbl)     53.97     76.27     108.22
  AECO ($/GJ)     2.60     3.41     5.42
  TTF ($/GJ)     8.25     8.69     10.19
Average foreign currency exchange rates                  
  CDN $/US $     1.24     1.14     1.10
  CDN $/Euro     1.40     1.42     1.51
Share information ('000s)                  
Shares outstanding - basic     107,718     107,303     102,453
Shares outstanding - diluted(1)     110,761     110,334     105,167
Weighted average shares outstanding - basic     107,513     107,102     102,278
Weighted average shares outstanding - diluted     109,305     108,646     104,171

(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.


MANAGEMENT'S DISCUSSION AND ANALYSIS

The following is Management's Discussion and Analysis ("MD&A"), dated May 7, 2015, of Vermilion Energy Inc.'s ("Vermilion", "We", "Our", "Us" or the "Company") operating and financial results as at and for the three months ended March 31, 2015 compared with the corresponding period in the prior year.

This discussion should be read in conjunction with the unaudited condensed consolidated interim financial statements for the three months ended March 31, 2015 and the audited consolidated financial statements for the year ended December 31, 2014 and 2013, together with accompanying notes.  Additional information relating to Vermilion, including its Annual Information Form, is available on SEDAR at www.sedar.com or on Vermilion's website at www.vermilionenergy.com.

The unaudited condensed consolidated interim financial statements for the three months ended March 31, 2015 and comparative information have been prepared in Canadian dollars, except where another currency is indicated, and in accordance with IAS 34, "Interim Financial Reporting", as issued by the International Accounting Standard Board ("IASB").

This MD&A includes references to certain financial measures which do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS").  As such, these financial measures are considered additional GAAP or non-GAAP financial measures and therefore are unlikely to be comparable with similar financial measures presented by other issuers.  These additional GAAP and non-GAAP financial measures include:

  • Fund flows from operations: This additional GAAP financial measure is calculated as cash flows from operating activities before changes in non-cash operating working capital and asset retirement obligations settled.  We analyze fund flows from operations both on a consolidated basis and on a business unit basis in order to assess the contribution of each business unit to our ability to generate cash necessary to pay dividends, repay debt, fund asset retirement obligations and make capital investments.
  • Netbacks: These non-GAAP financial measures are per boe and per mcf measures used in the analysis of operational activities.  We assess netbacks both on a consolidated basis and on a business unit basis in order to compare and assess the operational and financial performance of each business unit versus other business units and third party crude oil and natural gas producers.

For a full description of these and other non-GAAP financial measures and a reconciliation of these measures to their most directly comparable GAAP measures, please refer to "ADDITIONAL AND NON-GAAP FINANCIAL MEASURES".

VERMILION'S BUSINESS

Vermilion is a Calgary, Alberta based international oil and gas producer focused on the acquisition, development and optimization of producing properties in North America, Europe, and Australia.  We manage our business through our Calgary head office and our international business unit offices.

This MD&A separately discusses each of our business units in addition to our corporate segment.

  • Canada business unit: Relates to our assets in Alberta and Saskatchewan.
  • France business unit: Relates to our operations in France in the Paris and Aquitaine Basins.
  • Netherlands business unit: Relates to our operations in the Netherlands.
  • Germany business unit: Relates to our 25% contractual participation interest in a four-partner consortium in Germany.
  • Ireland business unit: Relates to our 18.5% non-operated interest in the Corrib offshore natural gas field.
  • Australia business unit: Relates to our operations in the Wandoo offshore crude oil field.
  • United States business unit: Relates to our operations in Wyoming in the Powder River Basin.
  • Corporate: Includes expenditures related to our global hedging program, financing expenses, and general and administration expenses, primarily incurred in Canada and not directly related to the operations of a specific business unit.

GUIDANCE

We first issued 2015 capital expenditure guidance of $525 million on December 8, 2014.  We subsequently adjusted our 2015 capital expenditure guidance to $415 million on February 27, 2015, in response to the continued weakness in commodity prices. The $110 million reduction in capital reflects lower planned activity levels, including the deferral of our Australian drilling campaign. Despite the reduction in our capital budget, we are maintaining our previous production guidance of 55,000-57,000 boe/d.

The following table summarizes our 2015 guidance:

          Date           Capital Expenditures ($MM)           Production (boe/d)
2015 - Guidance                                
2015 Guidance       December 8, 2014           525           55,000 to 57,000
2015 Guidance       February 27, 2015           415           55,000 to 57,000
                                   

SHAREHOLDER RETURN

Vermilion strives to provide investors with reliable and growing dividends in addition to sustainable, global production growth.  The following table, as of March 31, 2015, reflects our trailing one, three, and five year performance:

Total return (1)     Trailing One Year       Trailing Three Year       Trailing Five Year
Dividends per Vermilion share     $2.58       $7.34       $11.90
Capital appreciation per Vermilion share     -$15.80       $7.24       $17.86
Total return per Vermilion share     -19.1%       31.7%       84.1%
Annualized total return per Vermilion share     -19.1%       9.6%       13.0%
Annualized total return on the S&P TSX High Income Energy Index     -22.1%       -3.6%       0.2%

(1)    The above table includes non-GAAP financial measures which may not be comparable to other companies.  Please see the "ADDITIONAL AND NON-GAAP FINANCIAL MEASURES" section of this MD&A.


CONSOLIDATED RESULTS OVERVIEW

      Three Months Ended     http://www.vermilionenergy.com/files/historical-press-releases/2015/2015-05-08 - First Quarter Earnings Results.pdf
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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