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Vermilion Energy Inc. Announces Strong Production and Reserves Growth in 2012

March 4, 2013

CALGARY, March 4, 2013 /CNW/ - Vermilion Energy Inc. ("Vermilion" or the "Company") (TSX - VET) is pleased to report interim operating and unaudited financial results for the three months and year ended December 31, 2012.

HIGHLIGHTS

  • Recorded average production of 37,803 boe/d in 2012, an increase of 7% as compared to 35,202 boe/d in 2011. Fourth quarter 2012 production remained relatively flat at 36,265 boe/d compared to 36,546 boe/d in the third quarter of 2012 and 36,654 boe/d in the fourth quarter of 2011. Fourth quarter production was lower than capability due to the shut-in of certain dry gas production in Canada with the objective of securing higher sales prices for this product in the future, and was modestly reduced by downtime associated with both planned and unplanned platform maintenance activities in Australia. The increase in annual production volumes is largely attributable to strong growth in Cardium light oil production in Canada and incremental Brent-based crude production associated with the first of two France acquisitions completed by Vermilion in 2012.

  • Generated fund flows from operations ("FFO") of $557.7 million ($5.69 per share) for full year 2012, compared to $474.3 million ($5.22 per share) in 2011. Fourth quarter 2012 FFO was $141.7 million ($1.43 per share), compared to $137.1 million ($1.39 per share) in the third quarter of 2012 and $136.9 million ($1.46 per share) in the fourth quarter of 2011. Fourth quarter and full year 2012 FFO was adversely affected by the timing of shipments which resulted in combined France and Australia crude oil inventory builds of approximately 260,000 bbls and 215,000 bbls, respectively.

  • Closed 2012 with net debt of $677.2 million and a net debt to 2012 FFO ratio of 1.2 times.

  • Achieved significant growth in Cardium light oil production which averaged more than 7,600 boe/d in 2012, doubling from 2011 average production of approximately 3,800 boe/d. Vermilion continues to advance its Cardium light oil play, participating in the drilling of 72 (51.6 net) wells during the year. Improvements in well design and completions, including the implementation of water- based fracture technologies, multi-well pad drilling, and extended horizontal sections, have resulted in a meaningful reduction in well costs from more than $5 million per section at the start of development to approximately $3 million per section in the fourth quarter of 2012.

  • Increased the Company's exposure to Brent-based crude oil production through the completion of two acquisitions in France. In January 2012, the Company acquired certain working interests in six producing fields in the Paris and Aquitaine basins, which added more than 2,000 boe/d of incremental production volumes.  In December 2012 Vermilion completed a further acquisition of approximately 850 boe/d of 100% working interest light Brent-based crude oil production in the Paris Basin. Both of these transactions were characterized by strong acquisition metrics and were comprised of assets well aligned to Vermilion's pre-existing French operations, further strengthening the Company's position as the leading oil producer in France.

  • In Ireland, Corrib tunneling activities related to completion of its nine kilometre onshore pipeline project commenced in late December 2012.  Tunneling, construction and installation activities, commissioning and start-up are anticipated to take approximately two years to complete. The project is anticipated to produce first gas in late 2014 or early 2015 and to reach peak production levels in mid-2015.

  • In 2012, Vermilion announced a significant position in the emerging Duvernay liquids-rich natural gas resource play. The Company has currently assembled 270 net sections of largely contiguous lands, diversified across the breadth of the liquids-rich natural gas fairway, at a cost of approximately $74 million or $425 /acre.  During 2012, the Company completed two vertical appraisal wells and has completed a third vertical appraisal well subsequent to year-end.  Vermilion's Duvernay rights underlie the Company's existing Cardium and Mannville development projects, providing the potential to leverage existing Company infrastructure and to generate timing, operational and infrastructure cost advantages.

  • An independent reserve assessment completed by GLJ Petroleum Consultants Ltd. ("GLJ") with an effective date of December 31, 2012, resulted in an increase of 9.1% in total proved ("1P") reserves to 105.3 million boe, while total proved plus probable ("2P") reserves increased 12.7% to 164.9 million boe.

  • An independent resource assessment completed by GLJ with an effective date of December 31, 2012, indicate a best estimate for contingent and prospective resources of 160.9 million boe and 249.4 million boe, respectively. Reserve life index increased to 12.5 years for 2P reserves and 8.0 years for 1P reserves based on year-end 2012 reserves estimates and annualized fourth quarter 2012 production.

  • Vermilion announced Board of Directors approval of a 5.3% increase in the monthly cash dividend to $0.20 per share. This was the second increase since initiating a dividend ten years ago. The Company has never reduced its dividend. The increase became effective for the January 2013 dividend paid on February 15, 2013.

  • Vermilion ranked first in its peer group for total shareholder return for the year ending December 31, 2012. The Company generated a positive total return to investors of 19.6% for the year, compared to a peer group average of negative 18.1%.  Over the past five years, Vermilion has generated a compound annualized rate of return of 13.1%, compared to a peer group average of 6.2%.

Reserves and resources information in this news release is a summary only and is subject to the information set forth in Vermilion's news release dated March 4, 2013 entitled "Vermilion Energy Inc. Announces 2012 Year-end Summary Reserves and Resource Information".

Conference Call and Audio Webcast Details

Vermilion will discuss these results in a conference call to be held on Monday, March 4, 2013 at 9:00 AM MST (11:00 AM EST).  To participate, you may call toll free 1-877-407-9205 (North America) or 1-201-689-8054 (International).  The conference call will also be available on replay by calling 1-877-660-6853 (North America) or 1-201-612-7415 (International) using conference ID number 407099.  The replay will be available until midnight eastern time on March 11, 2013.

You may also listen to the audio webcast by clicking www.investorcalendar.com/IC/CEPage.asp?ID=170376 or visit Vermilion's website at www.vermilionenergy.com/ir/eventspresentations.cfm.

ABBREVIATIONS

bbl(s)    barrel(s)
mbbls    thousand barrels
bbls/d    barrels per day
mcf    thousand cubic feet
mmcf    million cubic feet
bcf    billion cubic feet
mcf/d    thousand cubic feet per day
mmcf/d    million cubic feet per day
GJ    gigajoules
boe    barrel of oil equivalent, including: crude oil, natural gas liquids and natural gas on the basis of one boe for six mcf of natural gas
mboe    thousand barrel of oil equivalent
mmboe    million barrel of oil equivalent
boe/d    barrel of oil equivalent per day
NGLs    natural gas liquids
WTI    West Texas Intermediate, the reference price paid for crude oil of standard grade in U.S. dollars at Cushing, Oklahoma
AECO    the daily average benchmark price for natural gas at the AECO 'C' hub in southeast Alberta
$M    thousand dollars
$MM    million dollars
PRRT    Petroleum Resource Rent Tax, a profit based tax levied on petroleum projects in Australia
     

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;
  • reserve or resource quantities and the discounted present value of future net cash flows from such reserves or resources;
  • petroleum and natural gas sales;
  • future production levels (including the timing thereof) and rates of average annual production growth;
  • 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;
  • 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 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 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 plans;
  • 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 and resource estimates and reserves life;
  • 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 and convert resources to 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.

In accordance with National Instruments 51-101, 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.

HIGHLIGHTS                          
                           
      Three Months Ended     Year Ended
($M except as indicated)     Dec 31,     Sept 30,     Dec 31,     Dec 31, Dec 31,
Financial     2012      2012      2011      2012  2011 
Petroleum and natural gas sales     241,233      284,838      275,172      1,083,103  1,031,570 
Fund flows from operations 1     141,737      137,094      136,883      557,728  474,336 
  Fund flows from operations ($/basic share)     1.43      1.39      1.46      5.69  5.22 
  Fund flows from operations ($/diluted share)     1.41      1.37      1.44      5.62  5.14 
Net earnings     56,914      30,798      (30,243)     190,622  142,821 
  Net earnings per share ($/basic share)     0.58      0.31      (0.32)     1.94  1.57 
Capital expenditures     157,035      106,255      152,251      452,538  490,780 
Acquisitions     209,254          12,777      315,438  50,878 
Asset retirement obligations settled     8,424      1,968      7,559      13,739  23,071 
Cash dividends ($/share)     0.57      0.57      0.57      2.28  2.28 
Dividends declared     56,435      56,196      53,871      223,717  207,846 
Net dividends 1     37,967      38,945      37,069      151,659  148,765 
  % of fund flows from operations, gross     40%     41%     39%     40% 44%
  % of fund flows from operations, net     27%     28%     27%     27% 31%
Total net dividends, capital expenditures and asset retirement obligations     203,426      147,168      196,879      617,936  662,616 
  % of fund flows from operations     144%     107%     144%     111% 140%
  % of fund flows from operations (excluding the Corrib project)     129%     93%     131%     99% 123%
Net debt 1     677,231      549,491      428,961      677,231  428,961 
Return on shareholders' equity                       14% 12%
Operational
Production                          
  Crude oil (bbls/d)     23,699      23,047      22,096      23,971  20,979 
  NGLs (bbls/d)     1,176      1,245      1,312      1,299  1,355 
  Natural gas (mcf/d)     68,344      73,524      79,478      75,200  77,207 
  Total (boe/d)     36,265      36,546      36,654      37,803  35,202 
Average realized prices                          
  Crude oil and NGLs ($/bbl)     96.74      100.70      105.49      101.07  104.58 
  Natural gas ($/mcf)     7.15      6.12      6.57      6.17  6.35 
Production mix (% of production)                          
  % priced with reference to WTI     25%     23%     21%     24% 17%
  % priced with reference to AECO     14%     16%     20%     16% 21%
  % priced with reference to European gas     17%     17%     16%     17% 16%
  % priced with reference to Dated Brent     44%     44%     43%     43% 46%
Netbacks ($/boe) 1                          
  Operating netback     57.54      55.02      54.86      55.48  51.53 
  Fund flows netback     46.07      38.66      40.60      40.96  36.93 
  Operating expenses     14.18      13.27      12.01      13.10  12.64 
Average reference prices                          
  WTI (US $/bbl)     88.18      92.22      94.06      94.20  95.12 
  Dated Brent (US $/bbl)     110.02      109.61      109.31      111.58  111.27 
  AECO ($/GJ)     3.05      2.17      3.01      2.26  3.43 
Average foreign currency exchange rates                          
  CDN $/US $     0.99      0.99      1.02      1.00  0.99 
  CDN $/Euro     1.29      1.25      1.38      1.29  1.38 
Share information ('000s)
Shares outstanding                          
  Basic     99,135      98,729      96,430      99,135  96,430 
  Diluted 1     101,913      101,149      98,778      101,913  98,778 
Weighted average shares outstanding                          
  Basic     98,944      98,523      93,616      98,016  90,878 
  Diluted     100,425      99,748      95,082      99,294  92,272 
  The above table includes non-GAAP measures which may not be comparable to other companies.  Please see the "Non-GAAP
Measures" section of Management's Discussion and Analysis.
   

2012 IN REVIEW AND 2013 OUTLOOK

The strength of Vermilion's global commodity exposure and continued robust operations were highlighted in 2012.  The Company's operating and fund flows netbacks, both before and after tax, continued to improve in 2012, while many of Vermilion's Canadian peers struggled with low Canadian gas prices and wide differentials for Canadian crude products relative to West Texas Intermediate (WTI), which itself remains at a significant discount to Brent-based crude.  The Company complimented this positive price exposure with steady execution across its operating regions. Year-over-year total production increased 7%, driven by the acquisition of Brent-based oil in France and a 14% increase in Canadian production despite the intentional shut-in of significant dry natural gas production volumes during the second half of the year.

The pricing differentials witnessed in 2011 continued throughout 2012 with Brent-based crude averaging a US$17.38 /bbl premium to WTI. This afforded Vermilion a significant competitive advantage with approximately 43% of 2012 production volumes comprised of Brent-based crude production and a further 17% comprised of high-netback European gas.  Vermilion's European gas received an average price of $9.70 /mcf in 2012 as compared to a realized average price of $2.52 /mcf for natural gas indexed to AECO in Canada. The Company's global commodity profile and increasing exposure to crude oil and liquids enabled it to achieve year-over-year growth in fund flows from operations of nearly 18%, outpacing production growth of 7%.  In the near term, growth in fund flows from operations is expected to continue to outpace production growth as the Company continues to benefit from its global exposure and increasing leverage to high netback oil and European gas production.

Development capital spending was $452.5 million in 2012 compared to $490.8 million in 2011. 2012 spending was in-line with the most recent guidance (November 14, 2012) of $450 million.  During 2012, Vermilion completed two acquisitions in France for total consideration of $181.1 million as well as payment of the final installment for the Corrib acquisition of $134.3 million (US$135 million).

Vermilion focused its 2012 Canadian activities on continued development of the Cardium light oil play. Average Cardium related production of over 7,600 boe/d was double 2011 production of 3,800 boe/d.  Vermilion's per well production rates have remained consistently above its peers in the West Pembina region reflecting the high quality of the reservoir underlying the Company's land base.  At the current drilling rate of 40 to 60 wells per year, production is anticipated to reach a peak of 12,000 to 14,000 boe/d in the next two to three years.  In any resource play, cost containment is key.  Completion of the Company's 15,000 bbl/d oil battery in 2011 has enabled Vermilion to achieve top quartile operating costs of less than $6 /bbl on operated production and provides the necessary infrastructure for full scale development of the Cardium light oil play.  Furthermore, the Company's continued implementation of improved completion technology and well design, including the implementation of water-based fracture technologies, multi-well pad drilling, and extended horizontal sections, has resulted in a meaningful reduction in well costs from more than $5 million per section at the start of development to approximately $3 million per section in the fourth quarter of 2012.  As development progresses, the Company anticipates the drilling of additional long-reach horizontal wells which should continue to drive well costs lower on a per section basis. At the end of 2012, Vermilion had drilled 119 net physical (132 net section equivalent) Cardium wells and carried a drillable inventory of 261 net section equivalent Cardium wells resulting in a five-to-six year inventory of drillable locations at the current pace of development.  The Company has also identified a further 120 prospective locations which are currently classified as contingent due to their marginal economics in the current pricing environment, but could be drilled in the future with improvements in technology, costs or commodity prices.  For 2013, development activities in Canada will focus primarily on continued development of the Cardium with plans for an approximate 50 (42 net) well Cardium program in addition to a 6 (2.3 net) well Mannville liquids-rich gas program.

During the year, the Company announced a significant position in the emerging Duvernay liquids-rich natural gas resource play. To date, Vermilion has amassed 270 net sections in two large contiguous land blocks spanning the full breadth of the liquids-rich natural gas fairway. Leveraging its early entry strategy, the Company has been able to build this position at a cost of approximately $425 /acre. During 2012, the Company completed two vertical appraisal wells, and has completed a third vertical appraisal well subsequent to year-end.  Vermilion's Duvernay rights underlie the Company's existing Cardium development project, providing the potential to leverage existing Company infrastructure to create timing, operational and infrastructure cost advantages. In addition to its Cardium and Duvernay rights in the region, the Company also has a large inventory of more conventional, Mannville based liquids-rich natural gas development opportunities including the Ellerslie, Notikewin and Fahler zones. With the addition of the Duvernay, Vermilion now has exposure to three distinct development opportunities in this core operating region that have the potential to deliver growth for the Company into the second half of the decade.

Vermilion continues to benefit from strong Brent-based pricing on its Australia production, enhancing the Wandoo field's contribution as a strong cash flow generator for the Company. A drilling program originally planned for late 2012 was deferred due to delayed receipt of the offshore drilling rig. Subsequent to year-end Vermilion has received a drilling rig and commenced drilling of its two-well program at Wandoo. The two wells will be sidetracks that utilize existing well bores and are expected to come on-stream shortly following their completion in the second quarter of 2013.  However, with the cyclone season typically occurring from December through March, there is the potential for the Company to experience some weather related delays. Vermilion believes it can sustain production at Wandoo of approximately 6,000 and 8,000 bbls/d for the foreseeable future with subsequent drill programs expected to occur approximately every two years.

In France, the Company completed two separate acquisitions in addition to its annual workover and recompletions programs. In January 2012, the Company acquired certain working interests in six producing fields located in the Paris and Aquitaine basins for a cash cost of approximately $106 million. With incremental production of more than 2,000 boe/d and an estimated 6.7(1) million boe of proved plus probable reserves (96% crude oil), the acquisition reflected the advantage of Vermilion's international exposure adding Brent crude production and reserves at attractive acquisition metrics of approximately $48,000 per boe/d and $15.80 /boe of proved plus probable reserves(1). In December 2012, Vermilion completed a further acquisition of approximately 850 boe/d of 100% working interest Brent crude oil production in the Paris Basin, with proved plus probable developed producing reserves(2) of approximately 6.3 million boe at December 31, 2012. Vermilion paid approximately $75 million for the acquisition, resulting in acquisition metrics of approximately $88,000 per boe/d and $12.00 /boe of proved plus probable developed producing reserves(2). Both acquisitions were complimentary to the Company's existing France assets and further strengthened Vermilion's position as the leading oil producer in France.  For 2013, Vermilion will continue to focus on its annual workover and recompletion programs in addition to a four-well infill drilling program in the Champotran field. The Company will also work toward fully integrating its 2012 acquisitions and identifying further optimization and cost reduction opportunities.

In the Netherlands, Vermilion completed the tie-in of the De Hoeve-1 exploration well (previously drilled in 2009) during the second quarter of 2012, followed by the drilling of two new gas wells in the second (Vinkega-2) and third (Eernwoude-2) quarters of 2012. The Eernwoude-2 well was subsequently brought on production late in the fourth quarter of 2012.  Also during the fourth quarter, the Company received the necessary partner approvals and initiated a project to debottleneck the Garijp gas gathering system, planned for completion during the second quarter of 2013 that is expected to enable production from the Vinkega-2 well to be brought on-stream.  Pipeline construction for the Company's Langezwaag-1 well (drilled in the fourth quarter of 2011) was completed late in 2012, and the well is currently expected to come on production following completion of surface facilities in the second quarter of 2013.  In December of 2012, Vermilion was awarded an exploration license for the Opmeer concession, comprising more than 56,000 acres and located directly west of the Company's existing Slootdorp concession.  For 2013, Vermilion is planning a two-to-three-well drilling program in the Netherlands.

In Ireland, the Corrib tunnel boring machine has been installed and tunneling activities related to completion of the nine kilometre onshore pipeline project commenced on December 16, 2012. Tunneling, construction and installation activities, commissioning and start-up are anticipated to take approximately two years to complete.  With five wells currently drilled, tested and ready for production, and construction of related pipelines and facilities largely complete, the project is anticipated to produce first gas in late 2014 or early 2015, and to reach peak production levels of approximately 55 mmcf/d (9,000 boe/d) net to Vermilion in mid-2015.

Vermilion currently expects average production volumes between 39,000 and 40,500 boe/d for 2013, with the mid-point of that range representing approximately 5% production growth over 2012. Looking forward, Vermilion remains positioned to deliver on its production goal of 50,000 boe/d in 2015.  Over the next several years, the Company anticipates growth to be driven by continued development of the Cardium light oil play in Western Canada, high-netback natural gas drilling opportunities in the Netherlands, and the onset of production at Corrib. France and Australia production is anticipated to remain relatively stable over that same time period while generating significant free cash flow given the strong weighting toward Brent-based crude oil production. The Company's medium-term and longer-term growth is anticipated to come from focused development of emerging resource plays in Canada and the greater European region.

As a means to positioning Vermilion for participation in medium to longer-term resource-based growth opportunities, the Company launched its New Growth Initiative in early 2010 to identify and secure low-cost, early-entry positions in emerging resource opportunities in Canada and the grea

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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