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Vermilion Energy Inc. Announces Results for the Three and Six Months Ended June 30, 2016

August 8, 2016

CALGARY, Aug. 8, 2016 /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, 2016. 

The unaudited financial statements and management discussion and analysis for the three and six months ended June 30, 2016, will be available on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com, on EDGAR at www.sec.gov/edgar.shtml, and on Vermilion's website at www.vermilionenergy.com.

HIGHLIGHTS

  • Achieved average production of 64,285 boe/d during Q2 2016, a decrease of 2% as compared to 65,389 boe/d in the prior quarter. Production increased 24% from 51,831 boe/d in Q2 2015, with higher volumes from our Irish, Netherlands, Australian, Canadian and US business units.

  • Fund flows from operations ("FFO") for Q2 2016 was $126.6 million ($1.10/basic share(1)), an increase of 35% quarter-over-quarter and a 2% decrease year-over-year. The quarter-over-quarter increase in FFO was attributable to higher commodity prices and lower operating expenses from our ongoing focus on cost reduction initiatives.

  • Irish production continued to ramp up during the quarter, with better than expected well deliverability and minimal downtime at Corrib since start up on December 30, 2015. With five of the six wells currently online, production averaged 47 mmcf/d (7,877 boe/d) net to Vermilion during Q2 2016, an increase of 39% versus the prior quarter. Following recertification activities associated with the third party gas distribution pipeline network during the quarter, production volumes at Corrib reached full plant capacity of approximately 65 mmcf/d (10,900 boe/d), net to Vermilion at the end of Q2 2016.

  • Completed our two-well sidetrack drilling program in Australia during the quarter. Both wells were drilled from the Wandoo B platform. The first well was placed on production at the end of June at an average rate of 2,000 bbls/d for the first month of production, with the second well placed on production during the last week of July at an average rate of 2,700 bbls/d.

  • On June 28, Vermilion entered into a definitive purchase and sale agreement for operated and non-operated interests in five oil and three gas producing fields in Germany from Engie E&P Deutschland GmbH, for total consideration of €33 million ($47.9 million), with an expected closing date in Q4 2016. Vermilion will assume operatorship of six of the eight producing fields. The assets are expected to produce approximately 2,000 boe/d (50% oil) in 2016. Proved plus probable reserves are estimated at 9.2 million boe(2) (74% proved developed producing(2)) based on an independent evaluation by GLJ Petroleum Consultants Ltd. with an effective date of December 31, 2015. Transaction metrics are estimated at approximately $24,000 per boe per day, $5.86 per boe of proved plus probable reserves(2) including future development capital (generating a 2P recycle ratio of 3.5 times based on projected 2016 netbacks), and 3.1 times estimated 2016 operating cash flow(1). The acquisition is expected to be accretive for all pertinent per share metrics including production, fund flows from operations(2), reserves and net asset value. The acquisition adds another low decline rate (approximately 10%) asset to our portfolio, and provides us with our first operated producing properties in Germany, further strengthening our presence in the country.

  • Our Profitability Enhancement Program ("PEP") initiative continues to generate tangible results, further strengthening our balance sheet and enhancing the long-term profitability of our business. PEP cost savings related to capital spending, operating expenses and G&A expenditures reached nearly $90 million for full-year 2015, and we expect to deliver a further $40 to $50 million of cost reductions for 2016. Year to date, we have reduced unit operating costs by 18% versus the prior year. Looking forward, we anticipate full-year unit operating expense to be lower than 2015, which would result in four consecutive years of improvement in unit operating costs, reflecting both increased volumes and our reduced cost structure.

  • Cost reductions in our project portfolio have allowed us to reinstate several projects to our capital program during the latter part of 2016 with only a modest change to our 2016 capital budget. Additions include the reinstatement of a four-well drilling program in the Champotran field in France, three (3.0 net) Cardium wells, and seven (4.0 net) Mannville wells in Canada. As a result of these additions, we expect to invest $240 million on exploration and development ("E&D") capital during 2016, as compared to our previous guidance of $235 million. Because the additions will occur in the latter part of the year, they will have little impact on 2016 production. Consequently, our full year production guidance of 62,500 to 63,500 boe/d, representing 10% per share production growth year-over-year, remains unchanged. We expect to produce at the upper end of this production guidance range.

  • As part of an ongoing effort to better define and disclose our future growth profile, we have accelerated certain parts of our annual budgeting process and expanded our efforts to look at the next two years instead of just 2017. While we will not disclose our formal budget guidance until late 2016, we are able to set approximate targets now for the next two years based on current forward commodity prices. At present, subject to unexpected changes in the commodity price outlook, we anticipate investing E&D capital of approximately $295 million in 2017 and $335 million in 2018. With these projected investment levels, we expect to deliver production of 69,000 to 70,000 boe/d in 2017 and 75,000 to 76,000 boe/d in 2018, representing year-over-year increases of approximately 9% for both years. A summary of our drilling locations by region and major play type can be found in our updated August 2016 investor presentation, located on the company website.

  • We plan to start prorating the Premium DividendTM component of our Dividend Reinvestment Plan by 25% in Q4 2016, beginning with our October dividend. Eligible shareholders who have elected to participate in the Premium DividendTM component will continue to receive a 1.5% premium on 75% of their shares, and will receive the regular cash dividend on the remaining 25% of their shares. Subject to unexpected changes in the commodity price outlook, it is our intent to continue increasing the proration during 2017, at the end of which there would be no further equity issuance under the Premium DividendTM component of our Dividend Reinvestment Plan.

  • On June 9, 2016, the four exploration blocks conditionally granted to Vermilion were ratified by the Republic of Croatia. The exploration blocks consist of approximately 2.35 million gross acres (100% working interest), with a substantial portion of the acreage located near existing crude oil and natural gas fields in northeast Croatia. Work obligations include typical exploration and appraisal activity with modest, back-loaded capital commitments. The initial five-year exploration period consists of two phases with an option to relinquish the blocks following the initial three-year phase.

  • Vermilion's MSCI ESG (Environment, Social and Governance) rating increased from BB to BBB for 2016, and our Governance Metrics score ranked in the 90th percentile globally. This follows our 9th-place ranking in the 2016 Corporate Knights Future 40 Responsible Corporate Leaders in Canada list (the highest ranking for an oil and gas company). These recognitions reflect Vermilion's continued focus on combining financial results with exemplary environmental, social and governance performance. Please refer to our Sustainability Report at http://sustainability.vermilionenergy.com/ for more information about our environmental and social stewardship. We expect to release our next Sustainability Report in August 2016.

(1)

Non-GAAP Financial Measure. Please see the "Non-GAAP Financial Measures" section of Management's Discussion and Analysis. 

(2)

Estimated proved plus probable and proved developed producing reserves attributable to the assets as evaluated by GLJ Petroleum Consultants Ltd. in a report dated June 27, 2016 with an effective date of December 31, 2015.

TMdenotes trademark of Canaccord Genuity Capital Corporation.

 

HIGHLIGHTS










Three Months Ended



Six Months Ended

($M except as indicated)

Financial

Jun 30,
2016

Mar 31,
2016

Jun 30,
2015



Jun 30,
2016

Jun 30,
2015

Petroleum and natural gas sales

212,855

177,385

264,331



390,240

460,216

Fund flows from operations

126,568

93,667

129,496



220,235

250,291


Fund flows from operations ($/basic share) (1)

1.10

0.83

1.18



1.93

2.31


Fund flows from operations ($/diluted share) (1)

1.09

0.82

1.17



1.91

2.28

Net (loss) earnings

(55,696)

(85,848)

6,813



(141,544)

8,088


Net (loss) earnings ($/basic share)

(0.48)

(0.76)

0.06



(1.24)

0.07

Capital expenditures

71,714

62,773

90,173



134,487

264,484

Acquisitions

8,550

870

480



9,420

515

Asset retirement obligations settled

2,200

2,024

1,218



4,224

4,325

Cash dividends ($/share)

0.645

0.645

0.645



1.290

1.290

Dividends declared

74,662

72,847

70,976



147,509

140,366


% of fund flows from operations

59%

78%

55%



67%

56%

Net dividends (1)

24,146

24,857

28,675



49,003

76,687


% of fund flows from operations

19%

27%

22%



22%

31%

Payout (1)

98,060

89,654

120,066



187,714

345,496


% of fund flows from operations

78%

96%

93%



85%

138%


% of fund flows from operations (excluding the Corrib project) (1)

N/A

N/A

76%



N/A

123%

Net debt

1,398,950

1,367,063

1,377,902



1,398,950

1,377,902

Ratio of net debt to annualized fund flows from operations

2.8

3.6

2.7



3.2

2.8

Operational

Production









Crude oil and condensate (bbls/d)

28,416

29,199

30,689



28,808

30,104


NGLs (bbls/d)

2,713

2,672

2,094



2,693

1,901


Natural gas (mmcf/d)

198.93

201.11

114.29



200.02

114.64


Total (boe/d)

64,285

65,389

51,831



64,837

51,113

Average realized prices









Crude oil, condensate and NGLs ($/bbl)

53.90

39.35

68.90



46.63

64.23


Natural gas ($/mcf)

3.53

3.76

4.86



3.65

5.06

Production mix (% of production)









% priced with reference to WTI

20%

20%

27%



20%

27%


% priced with reference to AECO

22%

25%

21%



24%

21%


% priced with reference to TTF and NBP

29%

26%

16%



28%

17%


% priced with reference to Dated Brent

29%

29%

36%



28%

35%

Netbacks ($/boe)









Operating netback

27.66

21.63

36.89



24.64

34.30


Fund flows from operations netback

21.90

16.12

26.76



19.00

27.83


Operating expenses

9.02

9.58

12.12



9.30

11.40

Average reference prices









WTI (US $/bbl)

45.59

33.45

57.94



39.52

53.29


Edmonton Sweet index (US $/bbl)

42.51

29.76

55.08



36.13

48.46


Dated Brent (US $/bbl)

45.57

33.89

61.92



39.73

57.95


AECO ($/mmbtu)

1.40

1.83

2.65



1.61

2.70


NBP ($/mmbtu)

5.78

5.97

8.42



5.88

8.71


TTF ($/mmbtu)

5.61

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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