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Vermilion Energy Inc. Announces 2017 Year-End Summary Reserves and Resource Information

March 1, 2018

CALGARY, March 1, 2018 /CNW/ - Vermilion Energy Inc. ("Vermilion", the "Company", "We" or "Our") (TSX, NYSE: VET) is pleased to announce summary 2017 year-end reserves and resource information.  The estimates of reserves and resources and other oil and gas information contained in this news release have been estimated by GLJ Petroleum Consultants Ltd. ("GLJ") effective as at December 31, 2017 and prepared in accordance with National Instrument 51-101 "Standards of Disclosure for Oil and Gas Activities" of the Canadian Securities Administrators ("NI 51-101") and the Canadian Oil and Gas Evaluation Handbook ("COGEH").  For additional information about Vermilion, including Vermilion's statement of reserves data and other information in Form 51-101F1, report on reserves data by independent qualified reserves evaluator or auditor in Form 51-101F2 and report of management and directors on oil and gas disclosure in Form 51-101F3, please review the Company's Annual Information Form for the year ended December 31, 2017, to be filed on March 1, 2018 and available on SEDAR at www.sedar.com and on the SEC's EDGAR system at www.sec.gov/edgar.shtml.

HIGHLIGHTS

  • Total proved ("1P") reserves increased by 0.5% to 176.6 mmboe, while total proved plus probable ("2P") reserves increased 3% to 298.5 mmboe. We replaced 103% and 134% of production at the 1P and 2P levels respectively in 2017.

  • Finding and Development ("F&D")(2) and Finding, Development and Acquisition ("FD&A")(2) costs, including Future Development Capital ("FDC") for 2017 on a 2P basis increased to $10.57/boe and $11.24/boe, compared to $5.57/boe and $6.62/boe in 2016, respectively. Our three-year F&D and FD&A costs, including FDC, on a 2P basis were $8.23/boe and $8.87/boe, respectively. The largest driver of the increase in F&D cost was the strengthening of the Euro relative to the Canadian dollar in GLJ's foreign exchange rate forecast as compared to the previous year, which increased FDC for our European properties. Operating Recycle Ratio(3) (including FDC) was 2.8x in 2017.

  • Proved Developed Producing ("PDP") reserves increased by 1.3% to 123.8 mmboe at an average F&D cost (including FDC) of $12.41/boe resulting in a PDP Operating Recycle Ratio(3) (including FDC) of 2.4x. PDP reserves represent 70% of 1P reserves.

  • At year-end 2017, 2P reserves were comprised of 29% Brent-based light crude, 15% North American-based light crude, 12% natural gas liquids, 19% European natural gas and 25% North American natural gas.

  • We continued to build our strong resource base in our West Pembina area in Alberta. We added 29 (23.9 net) 2P locations in the condensate-rich portion of the Mannville gas play in West Pembina at an average reserves addition per well of approximately 520 mboe. The West Pembina-Mannville reserves are Vermilion's largest resource base, representing over 40% of total Canadian 2P reserves at December 31, 2017.

  • In the Ferrier area of Alberta we added nine (7.1 net) 2P locations in the liquids-rich Mannville gas play at an average reserve addition per well of approximately 1,100 mboe.

  • Our independent GLJ 2017 Resource Assessment(4) indicates risked low, best, and high estimates for contingent resources in the Development Pending category of 107.3(4) mmboe, 176.7(4) mmboe, and 253.6(4) mmboe, respectively. The GLJ 2017 Resource Assessment also indicates risked low, best, and high estimates for contingent resources in the Development Unclarified category of 7.5(4) mmboe, 32.8(4) mmboe, and 46.1(4) mmboe, respectively. Over 80% of our risked contingent resources reside in the Development Pending category. Prospective resources were assessed at risked low, best and high estimates of 51.5(4) mmboe, 153.4(4) mmboe, and 260.4(4) mmboe. Our contingent and prospective resource bases remain a source of reserve additions, with 20.5 mmboe of contingent resources and 1.7 mmboe of prospective resources converted to 2P reserves during 2017.

(1)

As evaluated by GLJ Petroleum Consultants Ltd. ("GLJ") in a report dated February 1, 2018 with an effective date of December 31, 2017.

(2)

F&D (finding and development) and FD&A (finding, development and acquisition) costs are used as a measure of capital efficiency and are calculated by dividing the applicable capital expenditures for the period, including the change in undiscounted future development capital ("FDC"), by the change in the reserves, incorporating revisions and production, for the same period.

(3)

"Operating Recycle Ratio" is a measure of capital efficiency calculated by dividing the Operating Netback by the cost of adding reserves (F&D cost).  "Operating Netback" is calculated as sales less royalties, operating expense, transportation costs, PRRT and realized hedging gains and losses presented on a per unit basis.

(4)

Vermilion retained GLJ to conduct an independent resource evaluation dated February 1, 2018 to assess contingent and prospective resources across all of the Company's key operating regions with an effective date of December 31, 2017 (the "GLJ 2017 Resource Assessment").  The aggregate associated chance of development for each of the low, best and high estimate for contingent resources in the Development Pending category are 84%, 83% and 82%, respectively.  The aggregate associated chance of development for each of the low, best and high estimate for contingent resources in the Development Unclarified category are 56%, 46% and 47%, respectively.  The aggregate associated chance of commerciality for each of the low, best and high estimate for prospective resources in the Prospect category are 23%, 22% and 22%, respectively.  There is uncertainty that it will be commercially viable to produce any portion of the resources.  For further information, see the "Contingent Resources" section of this news release.

 

DISCLAIMER

Certain statements included or incorporated by reference in this news release 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 news release may include, but are not limited to:

  • capital expenditures;
  • business strategies and objectives;
  • 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 of future dividends;
  • royalty and income tax rates;
  • the timing of regulatory proceedings and approvals; 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 the Company to obtain equipment, services and supplies in a timely manner to carry out its activities in Canada and internationally;
  • the ability of the Company 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 the Company 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 development activities.

Although the Company 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 the Company can give no assurance that such expectations will prove to be correct.  Financial outlooks are provided for the purpose of understanding the Company's financial strength 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 the Company 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 the Company'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, costs and expenses;
  • potential delays or changes in plans with respect to exploration or development projects or capital expenditures;
  • the Company'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 the Company to add production and reserves through exploration and development activities;
  • general economic and business conditions;
  • 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 the Company; and
  • other risks and uncertainties described elsewhere in the annual information form of the Company for the year ended December 31, 2017 or in the Company's other filings with Canadian securities authorities.

The forward-looking statements or information contained in this news release are made as of the date hereof and the Company 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.

RESERVES, FUTURE NET REVENUE AND OTHER OIL AND GAS INFORMATION

The following is a summary of the oil and natural gas reserves and the value of future net revenue of Vermilion as evaluated by GLJ, independent petroleum engineering consultants in Calgary in a report dated February 1, 2018 with an effective date of December 31, 2017 (the "GLJ 2017 Reserves Evaluation").  The GLJ 2017 Reserves Evaluation was prepared in accordance with National Instrument 51-101 and COGEH. 

Reserves and other oil and gas information in this news release is effective December 31, 2017 unless otherwise stated.

All evaluations of future net production revenue set forth in the tables below are stated after overriding and lessor royalties, Crown royalties, freehold royalties, mineral taxes, direct lifting costs, normal allocated overhead and future capital investments, including abandonment and reclamation obligations.  Future net production revenues estimated by the GLJ 2017 Reserves Evaluation do not represent the fair market value of the reserves.  Other assumptions relating to the costs, prices for future production and other matters are included in the GLJ 2017 Reserve Evaluation.  There is no assurance that the future price and cost assumptions used in the GLJ 2017 Reserves Evaluation will prove accurate and variances could be material.

Reserves for Australia, Canada, France, Germany, Ireland, the Netherlands and the United States are established using deterministic methodology.  Total proved reserves are established at the 90 percent probability (P90) level.  There is a 90 percent probability that the actual reserves recovered will be equal to or greater than the P90 reserves.  Total proved plus probable reserves are established at the 50 percent probability (P50) level.  There is a 50 percent probability that the actual reserves recovered will be equal to or greater than the P50 reserves.

Estimates of reserves have been made assuming that development of each property, in respect of which estimates have been made, will occur without regard to the availability of funding required for that development.

With respect to finding and development costs, the aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that year.

Pricing used in the forecast price estimates is set forth in the table below and referenced in the notes to subsequent tables.

Table 1: Forecast Prices used in Estimates (1)


Light Crude Oil and
& Medium Crude Oil



Crude Oil



Conventional
Natural Gas
Canada



Conventional
Natural Gas
Europe



Natural Gas
Liquids

Inflation
Rate

Exchange
Rate

Exchange
Rate

Year

WTI
Cushing
Oklahoma
($US/bbl)



Edmonton
Par Price
40? API
($Cdn/bbl)



Cromer
Medium
29.3? API
($Cdn/bbl)



Brent Blend
FOB
North Sea
($US/bbl)



AECO
Gas Price
($Cdn/MMBtu)



National Balancing
Point
(UK)
($US/MMBtu)



FOB
Field Gate
($Cdn/bbl)

Percent
Per Year

($US/$Cdn)

($Cdn/EUR)

2017

50.88



62.78



59.90



54.16



2.16



5.63



46.67

1.60

0.77

1.46

Forecast























2018

59.00



70.25



65.34



65.50



2.20



6.25



56.85

2.00

0.79

1.49

2019

59.00



70.25



65.34



63.50



2.54



6.50



53.46

2.00

0.79

1.46

2020

60.00



70.31



65.39



63.00



2.88



6.75



53.18

2.00

0.80

1.44

2021

66.00



72.84



67.74



66.00



3.24



7.00



54.74

2.00

0.81

1.42

2022

69.00



75.61



70.32



69.00



3.47



7.15



56.37

2.00

0.82

1.40

2023

72.00



78.31



72.83



72.00



3.58



7.30



58.31

2.00

0.83

1.39

2024

75.00



81.93



76.19



75.00



3.66



7.45



60.94

2.00

0.83

1.39

2025

78.00



85.54



79.55



78.00



3.73



7.60



63.57

2.00

0.83

1.39

2026

80.33



88.35



82.16



80.33



3.80



7.75



65.61

2.00

0.83

1.39

2027

81.88



90.22



83.90



81.88



3.88



7.90



66.96

2.00

0.83

1.39

Thereafter

+2.0%/yr



+2.0%/yr



+2.0%/yr



+2.0%/yr



+2.0%/yr



+2.0%/yr



+2.0%/yr

+2.0%/yr

0.83

1.39

Note:


(1)

The pricing assumptions used in the GLJ Report with respect to net present value of future net revenue (forecast) as well as the inflation rates used for operating and capital costs are set forth above.  The NGL price is an aggregate of the individual natural gas liquids prices used in the Total Proved plus Probable evaluation.  GLJ is an independent qualified reserves evaluator appointed pursuant to NI 51-101.

 

All forecast prices in the tables above are provided by GLJ.  For 2017, the price of crude oil in the United States is based on WTI. The benchmark price for Canadian crude oil is Edmonton Par and Canadian natural gas is priced against AECO.  The benchmark price for Australia, France and Germany crude oil is Dated Brent.  The price of our natural gas in Ireland is based on the NBP index.  The price of Vermilion's natural gas in the Netherlands and Germany is based on the TTF day/month-ahead index, as determined on the Title Transfer Facility Virtual Trading Point.   For the year ended December 31, 2017, the average realized sales prices before hedging were $57.64 per bbl (United States) for WTI, $51.36 per bbl for Canadian-based crude oil, condensate and NGLs and $2.34 per Mcf for Canadian natural gas, $73.99 per bbl (Australia), $67.08 per bbl (France) for Brent-based crude oil, $7.19 per Mcf (Ireland), $7.18 per Mcf (Netherlands), and $6.38 per Mcf (Germany).

The following table summarizes the capital expenditures made by Vermilion on oil and gas properties for the year ended December 31, 2017:

Table 2: Capital Costs Incurred


Acquisition Costs





(M$)

Proved
Properties


Unproved
Properties


Exploration
Costs


Development
Costs


Total
Costs

Australia




29,896


29,896

Canada

22,011




148,211


170,222

Croatia



2,764



2,764

France



2,294


69,026


71,320

Germany



3,366


5,710


9,076

Hungary



2,596



2,596

Ireland




544


544

Netherlands



16,468


14,956


31,424

United States

3,403




19,058


22,461

Total

25,414



32,103


287,401


344,918

 

The following table sets forth the reserve life index based on total proved and proved plus probable reserve and fourth quarter 2017 production of 72,821 boe/d.

Table 3: Reserve Life Index

Commodity

Production


Reserve Life Index (years)


Fourth Quarter 2017


Total Proved


Proved Plus Probable

Crude oil, condensate and natural gas liquids (bbl/d)

33,109


8.5


13.8

Natural gas (mmcf/d)

238.27


5.1


9.1

Oil Equivalent (boe/d)

72,821


6.6


11.2

 


 

The following tables provide reserves data and a breakdown of future net revenue by component and production group using forecast prices and costs.  For Canada, the tables following include Alberta gas cost allowance.

The following tables may not total due to rounding.

Table 4: Oil and Gas Reserves - Based on Forecast Prices and Costs (1)


Light Crude Oil & Medium
Crude Oil



Heavy Oil



Tight Oil



Conventional Natural Gas


Gross (2)



Net (2)



Gross (2)



Net (2)



Gross (2)



Net (2)



Gross (2)



Net (2)


(Mbbl)



(Mbbl)



(Mbbl)



(Mbbl)



(Mbbl)



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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