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Vermilion Energy Inc. Announces Results for the Three and Six Months Ended June 30, 2015

August 10, 2015

CALGARY, Aug. 10, 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 and six months ended June 30, 2015.

HIGHLIGHTS

  • Average production of 51,831 boe/d for Q2 2015 exceeded prior quarter production of 50,386 boe/d by 3%.  The quarter-over-quarter increase was primarily due to successful drilling and workovers in France.  Canadian operations also contributed to the production increase through successful drilling and higher volumes from the commissioning of a natural gas processing facility in Saskatchewan in the prior quarter.  Partially offsetting these favorable impacts was the planned maintenance shutdown at our largest natural gas processing facility in the Netherlands.  Mid-stream and facility restrictions in Canada continued to negatively impact our production volumes in the second quarter of 2015.

  • Fund flows from operations ("FFO")(1) for Q2 2015 of $129.5 million ($1.18/basic share) represented an increase of 7% quarter-over-quarter. The increase in FFO from the prior quarter was attributable to higher oil prices, an inventory draw in Australia (due to the timing of crude liftings) as well as higher production in France, Australia and Canada.

  • Following a comprehensive review of 2015 development capital opportunities, Vermilion has elected to proceed with a two-well Australian sidetrack program and to also provide modest incremental capital funding for projects in Canada and France.  The Australian drilling program was previously deferred as part of our reduction in planned 2015 capital expenditures for exploration and development ("E&D).  Despite the recent renewed downturn in oil prices, the strong economics and operational efficiencies now associated with the Australia sidetrack program are sufficiently compelling to reinstate funding for the project.  Accordingly, Vermilion now expects E&D capital spending for 2015 of approximately $485 million, an increase of $70 million from our previous capital guidance of $415 million (but less than our original 2015 E&D capital budget of $525 million and 2014 E&D capital expenditures of $688 million).  We are maintaining our original production guidance of between 55,000 and 57,000 boe/d, assuming a mid-fourth quarter start-up for Corrib natural gas production and only modest production contributions in late 2015 from the incremental capital.

  • At our non-operated Corrib project in Ireland, all natural gas terminal systems have now been commissioned. Following minor remaining compressor maintenance, operator Shell E&P Ireland Limited ("SEPIL") expects to declare all wells, facilities and transport systems (both offshore and onshore) ready for service by the end of August.  SEPIL conducted a workover and production test of the Corrib P2 well during July, achieving a stabilized flow rate of 107 mmcf/d (17,830 boe/d)(3) gross.  The P2 well is expected be tied-in to the subsea production system during August, providing additional back-up to augment the deliverability of the other five wells in the Corrib field.  With respect to remaining regulatory approvals, a Final Determination for the Corrib Industrial Emissions License ("IEL") from the Irish Environmental Protection Agency ("EPA") and a Ministerial Consent from Ireland's Department of Communications, Energy and Natural Resources must be received prior to commencing natural gas production. In accordance with statutory guidelines on applicable review periods, the EPA is expected to issue its Final Determination on the IEL on or before mid-September. We now estimate that the Ministerial Consent process will be completed, and that production will commence, in the early-to-mid fourth quarter of 2015. Production at Corrib is expected to increase over the first six months after first gas to peak production levels estimated at approximately 58 mmcf/d (approximately 9,700 boe/d), net to Vermilion. While the final regulatory approvals are taking longer than we expected, we believe that we are very near the end of the regulatory process for Corrib. Our ability to maintain our 2015 production guidance (originally set in March 2014), despite foregoing approximately 3,000 net boe/d of planned calendar year average production from Corrib, is indicative of the operational and asset strength of our company. Moreover, we have maintained this production guidance while reducing 2015 capital expenditures by more than $200 million (over 30%) from 2014 levels.

  • During the second quarter, we drilled and completed two (1.9 net) successful extension wells in the Netherlands. These 93% working interest natural gas wells are located in the province of North Holland.  The first well, Slootdorp-06, targeted the Slochteren formation of the Rotliegend group, while the second well, Slootdorp-07, targeted two separate intervals of the Zechstein formation.  Gross stabilized test flow rates(2) were 23.1 mmcf/d (3,850 boe/d) for Slootdorp-06 and 11.9 mmcf/d (2,000 boe/d) and 2.4 mmcf/d (400 boe/d), respectively, for the lower and upper zones of Slootdorp-07.  The two wells are currently on sales at a combined facility-restricted rate of 21 mmcf/d (3,500 boe/d), net to Vermilion.

  • In late April, we started production from the successful four (4.0 net) well program in the Champotran field in the Paris Basin in France, executed in the first quarter.  These wells contributed approximately 800 bbls/d to our second quarter average production rate.  This was our third successive Champotran drilling program since 2013, with a cumulative total of 13 wells at a 100% success rate.

  • Subsequent to the end of the second quarter, we entered into a significant farm-in agreement in northwest Germany.  The farm-in provides Vermilion with participating interest in 850,000 net undeveloped acres in the North German Basin, in exchange for carrying 50% of the costs associated with the drilling and testing of six net exploration wells over the next five years.  The agreement also provides for the transfer to Vermilion of operatorship for the exploration phase and data spanning these lands.  A large number of crude oil and natural gas prospects and leads, primarily in the Rotliegend and Zechstein formations, have been identified on the lands.  The farm-in is consistent with our objective of steadily increasing our position in the sizable German exploration and production industry, and represents our first operated position in Germany.  The farm-in remains subject to customary conditions and regulatory approvals.

  • On June 3, 2015, we were conditionally awarded four exploration blocks in northeast Croatia near the Hungarian border, by the Croatian Hydrocarbon Agency.  This award remains subject to successful execution of a definitive contract acceptable to both Vermilion and the Government of the Republic of Croatia. The four exploration blocks consist of approximately 2.35 million gross acres with a substantial portion of the acreage located near existing crude oil and natural gas fields. Capital commitments on the four blocks are modest and back-loaded.  The initial 5-year exploration period consists of two phases with an option to relinquish the blocks following the initial 3-year phase.  In aggregate, our capital commitments, excluding an initial bonus payment of €1.3 million, total approximately €7.3 million over the three-year mandatory phase, followed by an additional €11.6 million during the remaining two-year optional phase.

  • We continue to direct considerable focus to our Profitability Enhancement Program ("PEP") initiative which supports the long-term profitability of our business.  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 savings related to capital spending, operating expense and G&A expenditures estimated at between $60 and $70 million for full-year 2015.

  • During the quarter, 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 $775 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 we expect to continue to remain, 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).

  • During the second quarter, 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 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.

  • 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), and 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 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://www.vermilionenergy.com/sustainability 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.
(2)     Slootdorp-06 (Slochteren) production test was performed over an 18-day period at a maximum choke of 64/64" with approximately 45% drawdown over the test period.  Slootdorp-07 (lower zone - Z2) production test was performed over a 4-hour test period at a maximum choke of 36/64" with approximately 35% drawdown over the test period.  Slootdorp-07 (upper zone - Z3) production test was performed over a 12-hour test period at a maximum choke of 16/64" with approximately 40% drawdown over the test period. This test result is not necessarily indicative of long-term performance or of ultimate recovery.
(3)     Corrib P2 well produces from the Sherwood sandstones.  The production test was performed over a 12-hour period at a maximum choke of 80/64", achieving a peak production rate of 113 mmcf/d and a stabilized flow rate of 107 mmcf/d with approximately 30% drawdown over the test period.  This test result is not necessarily indicative of long-term performance or of ultimate recovery.

Conference Call and Audio Webcast Details

Vermilion will discuss these results in a conference call to be held on Monday, August 10, 2015 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 61285178.  The replay will be available until midnight mountain time on August 17, 2015.

You may also listen to the audio webcast by going to http://event.on24.com/r.htm?e=1008324&s=1&k=F4CB45E944014BE7D369F641D1A3B805 or visit Vermilion's website at www.vermilionenergy.com/ir/eventspresentations.cfm.

HIGHLIGHTS                              
 
      Three Months Ended     Six Months Ended
($M except as indicated)     Jun 30,     Mar 31,     Jun 30,     Jun 30,     Jun 30,
Financial     2015     2015     2014     2015     2014
Petroleum and natural gas sales     264,331     195,885     387,684     460,216     768,867
Fund flows from operations (1)     129,496     120,795     216,076     250,291     421,439
  Fund flows from operations ($/basic share)     1.18     1.12     2.05     2.31     4.05
  Fund flows from operations ($/diluted share)     1.17     1.11     2.01     2.28     3.99
Net earnings     6,813     1,275     53,993     8,088     156,781
  Net earnings ($/basic share)     0.06     0.01     0.51     0.07     1.51
Capital expenditures     90,173     174,311     135,073     264,484     331,448
Acquisitions     480     35     381,139     515     559,366
Asset retirement obligations settled     1,218     3,107     2,381     4,325     5,032
Cash dividends ($/share)     0.645     0.645     0.645     1.290     1.290
Dividends declared     70,976     69,390     68,710     140,366     134,717
  % of fund flows from operations     55%     57%     32%     56%     32%
Net dividends (1)     28,675     48,012     49,561     76,687     96,683
  % of fund flows from operations     22%     40%     23%     31%     23%
Payout (1)     120,066     225,430     187,015     345,496     433,163
  % of fund flows from operations     93%     187%     87%     138%     103%
  % of fund flows from operations (excluding the Corrib project)     76%     173%     73%     123%     92%
Net debt (1)     1,377,902     1,388,603     1,168,998     1,377,902     1,168,998
Ratio of net debt to annualized fund flows from operations (1)     2.7     2.9     1.4     2.8     1.4
Operational
Production                              
  Crude oil (bbls/d)     28,916     28,181     30,184     28,550     28,759
  NGLs (bbls/d)     3,867     3,039     2,892     3,455     2,518
  Natural gas (mmcf/d)     114.29     115.00     114.08     114.64     108.73
  Total (boe/d)     51,831     50,386     52,089     51,113     49,398
Average realized prices                              
  Crude oil and NGLs ($/bbl)     68.90     58.25     109.89     64.23     110.73
  Natural gas ($/mcf)     4.86     5.26     6.19     5.06     7.04
Production mix (% of production)                              
  % priced with reference to WTI     27%     28%     30%     27%     27%
  % priced with reference to AECO     21%     20%     18%     21%     18%
  % priced with reference to TTF     16%     18%     18%     17%     19%
  % priced with reference to Dated Brent     36%     34%     34%     35%     36%
Netbacks ($/boe) (1)                              
  Operating netback     36.89     31.30     59.52     34.30     61.29
  Fund flows from operations netback     26.76     29.07     46.24     27.83     46.98
  Operating expenses     12.12     10.56     12.46     11.40     12.95
Average reference prices                              
  WTI (US $/bbl)     57.94     48.63     102.99     53.29     100.84
  Edmonton Sweet index (US $/bbl)     55.08     41.83     96.85     48.46     93.65
  Dated Brent (US $/bbl)     61.92     53.97     109.63     57.95     108.93
  AECO ($/GJ)     2.52     2.60     4.44     2.56     4.93
  TTF ($/GJ)     7.94     8.25     7.91     8.10     9.02
Average foreign currency exchange rates                              
  CDN $/US $     1.23     1.24     1.09     1.24     1.10
  CDN $/Euro     1.36     1.40     1.50     1.38     1.50
Share information ('000s)
Shares outstanding - basic     109,806     107,718     106,620     109,806     106,620
Shares outstanding - diluted(1)     112,626     110,761     109,371     112,626     109,371
Weighted average shares outstanding - basic     109,319     107,513     105,577     108,421     103,936
Weighted average shares outstanding - diluted     110,746     109,305     107,330     109,792     105,531

(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.

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 crude 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 crude 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
NGTL      NOVA Gas Transmission Ltd., a wholly owned subsidiary of TransCanada is the owner of a gas transmission system known as the NGTL system. The NGTL system is a 23,500 km pipeline that gathers natural gas for both use in Alberta, and to deliver it to provincial border points for export to North American markets.
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

After appearing to reach some degree of range-bound stability during the second quarter, crude oil prices have recently come under renewed pressure as a result of a number of macroeconomic uncertainties.  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.

As current European natural gas prices remain nearly triple those in Canada, a significant part of our strategic focus has been on maximizing our exposure to this advantageously priced commodity.  In 2014, we expanded our European natural gas production by nearly 50%

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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