LinkedIn Contact UsContact Us
Menu

News

The information contained in news releases posted to this website was accurate at the time of posting, but may be superseded by subsequent news releases.

Sign up to automatically receive news releases from Vermilion. 

Vermilion Energy Inc. Announces Results for the Three Months Ended March 31, 2013

May 1, 2013

CALGARY, May 1, 2013 /CNW/ - Vermilion Energy Inc. ("Vermilion" or the "Company") (TSX, NYSE: VET) is pleased to report interim operating and unaudited financial results for the three months ended March 31, 2013.

HIGHLIGHTS

  • Recorded average production of 38,707 boe/d during the first quarter of 2013, compared to 36,265 boe/d in the fourth quarter of 2012. Quarter-over-quarter growth was primarily attributable to strong Canadian and European production volumes, partially offset by decreased Australia production due to drilling activities and cyclone downtime.

  • Generated fund flows from operations of $163.6 million ($1.65 per share) in the first quarter of 2013, as compared to $141.7 million ($1.43 per share) in the fourth quarter of 2012 and $151.1 million ($1.56 per share) in the first quarter of 2012.  Fund flows from operations for the first quarter of 2013 were 15% higher quarter-over-quarter and 8% higher year-over-year. Due to the timing of shipments, first quarter fund flows from operations were positively impacted by inventory draws in France and Australia of approximately 141,000 and 103,000 barrels, respectively, accounting for part of the increase in fund flows from operations.

  • Vermilion continues to benefit from strong pricing driven by significant exposure to Brent crude and high-netback European gas. Brent crude, representing 40% of the Company's production, averaged a US $18.18 per bbl premium to West Texas Intermediate and a US $25.13 per bbl premium to Edmonton Sweet index during the first quarter. Vermilion's natural gas production in the Netherlands, representing approximately 16% of production, received an average price of $10.09 per mcf during the first quarter of 2013.

  • Continued to grow production in the Company's Cardium light oil play in Western Canada as the Company continues with the long-term development of its position.  Vermilion has increased Cardium related production from approximately 1,000 boe/d in 2010 to over 8,400 boe/d during the first quarter of 2013.  Vermilion participated in the drilling of 20.1 net Cardium wells and the completion of 24.0 net Cardium wells during the first quarter of 2013.

  • Began horizontal development with the drilling of two gross wells in the Mannville liquids-rich gas play in the Drayton Valley area in west central Alberta. The first well (50% Vermilion working interest) was put on production during the first quarter at a rate of 3.6 mmcf/d of natural gas and 515 bbls/d of condensate1. Subsequent to the end of the first quarter, the second well (82% working interest) was put on production at a rate of 2.6 mmcf/d of natural gas and 100 bbls/d of condensate2.

  • Increased the Company's position in the Duvernay liquids-rich natural gas resource play with the acquisition of an additional 21.75 net sections in the first quarter, bringing Vermilion's total land position to 272 net sections. Vermilion's land position spans the breadth of the liquids-rich natural gas fairway, and was assembled for approximately $74 million dollars (approximately $425 per acre). In the first quarter, Vermilion completed its third Duvernay vertical appraisal well and is currently evaluating the results.

  • Awarded an exploration license for the Akkrum concession in the Netherlands.  The Akkrum concession consists of over 54,000 acres situated directly between the Company's existing Gorredijk and Leeuwarden concessions. Along with the Hemelum and Opmeer concessions awarded in 2012 and with over 70 prospects identified, Vermilion intends to increase its Netherlands activity and has begun planning and hiring to scale up operations and technical staff in the region.

  • Drilled two sidetracked laterals from existing wells in Australia, including the longest horizontal section drilled at Wandoo to date at 3,400 metres. The first well produced at an initial rate of approximately 3,000 bbls/d of oil3 prior to the end of the first quarter. Subsequent to the end of the first quarter, the second well produced at an initial rate of approximately 6,000 bbls/d of oil4. With a focus on maximizing oil recovery from the new wells, the Company intends to produce these wells at significantly restricted rates beginning in the second quarter of 2013. Vermilion expects to maintain production levels at Wandoo between 6,000 and 8,000 boe/d for the foreseeable future.

  • In Ireland, Corrib tunneling activities related to the completion of the nine kilometer onshore pipeline continued. Tunneling, construction and installation activities, commissioning and start-up are anticipated to take approximately two years to complete. First gas is anticipated in late 2014 or early 2015 and the project is expected to reach peak production levels in mid-2015.

  • In view of production results and well test data received to date, Vermilion is tightening its production guidance range for 2013 from the previously disclosed range of 39,000-40,500 boe/d to 39,500-40,500 boe/d.

  • Increased the monthly dividend 5.3% to $0.20 per share, which became effective for the January 2013 dividend paid on February 15, 2013.

  • Vermilion began trading on the New York Stock Exchange on March 12, 2013 under the ticker symbol "VET". As an international oil and gas producer, Vermilion believes the secondary listing may assist in broadening its shareholder base and improving share trading liquidity.

  • Recognized for the fourth consecutive year by the Great Place to Work® Institute in both Canada and France.  Vermilion ranked as the 22nd Best Workplace in Canada amongst 318 corporations that participated in the study, and is the only oil and gas company of its size to be included in this year's Top 25. Vermilion's French subsidiary ranked as the 27th Best Workplace in France.

Annual General and Special Meeting Webcast

As Vermilion's Annual General and Special Meeting is being held today, May 1, 2013 at 1:30 PM MST at the Metropolitan Centre, Calgary, Alberta, there will not be a first quarter conference call, however, a presentation will be given by Mr. Lorenzo Donadeo, President & CEO after the conclusion of the formal part of this meeting.  Please visit http://www.vermilionenergy.com/ir/eventspresentations.cfm and click on webcast under upcoming events to view the presentation which will commence at approximately 1:45 PM MST.

   
1 Three-week average production rate, at 1,050 psi flowing tubing pressure, at restricted rates due to separator capacity constraints.
2 One-week average production rate, at 1,420 psi flowing tubing pressure, at restricted rates due to compressor capacity constraints.
3 Production from sidetrack only, without motherbore contribution. Two-week average production rate under gas lift conditions. Final water cut was 20%.
4 Production from sidetrack lateral. Motherbore was abandoned. Five-day average production rate. No water production. 
   

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 (converted 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
TTF  the price for natural gas in the Netherlands, quoted in MWh of natural gas per hour per day, at the Title Transfer Facility Virtual Trading Point operated by Dutch TSO Gas Transport Services
$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 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;
  • 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 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 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;
  • 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.

Initial production and short-term rates are not necessarily indicative of long-term performance or of ultimate recovery.

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
($M except as indicated) Mar 31, Dec 31, Mar 31,
Financial 2013 2012 2012
Petroleum and natural gas sales 309,576 241,233 310,488
Fund flows from operations 1 163,629 141,737 151,122
  Fund flows from operations ($/basic share) 1.65 1.43 1.56
  Fund flows from operations ($/diluted share) 1.61 1.41 1.54
Net earnings 52,137 56,914 65,094
  Net earnings per share ($/basic share) 0.53 0.58 0.67
Capital expenditures 180,469 157,035 94,360
Acquisitions - 209,254 106,184
Asset retirement obligations settled 1,388 8,424 766
Cash dividends ($/share) 0.60 0.57 0.57
Dividends declared 59,612 56,435 55,124
Net dividends 1 44,080 37,967 37,566
  % of fund flows from operations, gross 36% 40% 36%
  % of fund flows from operations, net 27% 27% 25%
Total net dividends, capital expenditures and asset retirement obligations settled 1 225,937 203,426 132,692
  % of fund flows from operations 138% 144% 88%
  % of fund flows from operations (excluding the Corrib project) 127% 129% 80%
Net debt 1 744,762 677,231 530,031
Operational
Production      
  Crude oil (bbls/d) 23,583 23,699 24,492
  NGLs (bbls/d) 1,431 1,176 1,374
  Natural gas (mmcf/d) 82.16 68.34 80.39
  Total (boe/d) 38,707 36,265 39,265
Average realized prices      
  Crude oil and NGLs ($/bbl) 103.98 96.74 113.99
  Natural gas ($/mcf) 6.77 7.15 5.77
Production mix (% of production)      
  % priced with reference to WTI 24% 25% 23%
  % priced with reference to AECO 18% 14% 18%
  % priced with reference to European gas 18% 17% 16%
  % priced with reference to Dated Brent 40% 44% 43%
Netbacks ($/boe) 1      
  Operating netback 59.18 57.54 58.45
  Fund flows netback 43.89 46.07 42.30
  Operating expenses 14.10 14.18 13.31
Average reference prices      
  WTI (US $/bbl) 94.37 88.18 102.93
  Dated Brent (US $/bbl) 112.55 110.02 118.49
  AECO ($/GJ) 3.03 3.05 2.04
Average foreign currency exchange rates      
  CDN $/US $ 1.01 0.99 1.00
  CDN $/Euro 1.33 1.29 1.31
Share information ('000s)
Shares outstanding - basic 99,462 99,135 96,838
Shares outstanding - diluted 1 102,380 101,913 99,557
Weighted average shares outstanding - basic 99,301 98,944 96,644
Weighted average shares outstanding - diluted 101,349 100,425 98,191

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.

OPERATIONAL REVIEW AND OUTLOOK

Performance during the first quarter of 2013 highlights Vermilion's strong operations and the benefits of global commodity exposure. Vermilion achieved consolidated production volumes of 38,707 boe/d and record quarterly fund flows from operations of $163.6 million. Vermilion was active in the first quarter drilling in Canada, Australia and France, positioning the Company for growth for the remainder of 2013.

Vermilion's global commodity exposure continues to afford the Company a significant competitive advantage with 40% of first quarter production volumes comprised of Brent-based crude and 18% comprised of high-netback European gas. Vermilion's Brent-based crude realized an average price of $113.34 per bbl, generating a nearly 30% premium over the Edmonton Sweet index which reflects pricing for Canadian light crude. The Company's Netherlands natural gas production received an average price $10.09 per mcf, a premium of $6.76 per mcf or over 200% compared to an average first quarter price of $3.33 per mcf for AECO natural gas in Canada. Vermilion's significant exposure to international pricing for the Company's high-netback liquids and European gas, enabled fund flows from operations growth of 15% quarter-over-quarter and outpaced production growth of 7%.

Canadian development activities continue to be focused on the full scale development of the Cardium light oil play. The Company's well performance to date remains consistent and continues to outpace that of most peers in the area, demonstrating the quality of Vermilion's land position in the West Pembina region. Since entering the play in 2009, the Company has drilled 201 gross wells (140 net) in the Cardium and increased production to over 8,400 boe/d. Vermilion continues to advance on a drilling and completions learning curve, including the implementation of water-based fracturing systems and multi-well pad drilling, and is currently the only Company in the region employing long reach wells (greater than one mile in length). Having generated a significant reduction in costs by drilling longer reach 1.5 mile horizontal wells, Vermilion is planning on drilling a higher percentage of 1.5 mile wells and potentially several 2.0 mile pilot wells over the remainder of 2013. Drilling longer horizontal wells has allowed the company to reduce well costs from more than $5 million per section to approximately $3 million per section in the first quarter of 2013. With a significant drilling inventory identified in its full Cardium development plan, Vermilion anticipates inventory to last five to six years at a drilling rate of 40 to 60 wells per year.

In the Mannville formation, positioned below the Cardium in the stratigraphic column, the Company has a significant inventory of liquids-rich natural gas horizontal drilling prospects. Vermilion plans to drill six gross (3.2 net) horizontal Mannville wells in 2013. Initial production results are now available from the first two wells in the Mannville program. The first well (50% Vermilion working interest) was put on production during the first quarter at a rate of 3.6 mmcf/d of natural gas and 515 bbls/d of condensate1. Subsequent to the end of the first quarter, the second well (82% working interest) was put on production at a rate of 2.6 mmcf/d of natural gas and 100 bbls/d of condensate2.

In the first quarter, Vermilion drilled and cored a third vertical stratigraphic test well in the Duvernay liquids-rich natural gas resource play. The Company has amassed 272 net sections in the Edson area capturing the full breadth of the liquids-rich natural gas fairway for approximately $74 million ($425 per acre). Vermilion's Duvernay rights largely underlie the Company's Cardium and Mannville positions, allowing for potential infrastructure, operational and timing advantages should full-field development of the Duvernay commence. The Duvernay has the potential to provide Vermilion with very significant development opportunities in its core Canadian operating region, and may deliver production growth into the latter half of the decade and beyond.

Australian activity in the first quarter of 2013 focused on the drilling program at Wandoo. Two sidetrack horizontal laterals from existing wells were drilled, including the longest horizontal section drilled at Wandoo to date at 3,400 metres. The first well was spud in early February, completed in mid-March, and put on production at an initial rate of approximately 3,000 bbls/d of oil3 prior to the end of the first quarter. The second well was spud in mid-March, and put on production at an initial rate of approximately 6,000 bbls/d of oil4 subsequent to the end of the first quarter. The jack-up drilling rig was demobilized and released in early April. The new sidetracks tested several drilling and geological concepts at Wandoo, including extreme long-reach horizontal drilling and further exploitation of the less-developed southern part of the field. The results will be incorporated into the geologic and numerical reservoir simulation models of Wandoo, with the objective of expanding and improving the Company's long-term drilling inventory.  While the initial production rates are indicative of the high productivity that can be generated through extreme long reach horizontal drilling in this very permeable reservoir, the Company intends to significantly restrict production from these wells after an initial production period to maximize long-term resource recovery. Vermilion anticipates maintaining production levels between 6,000 and 8,000 boe/d in Australia for the foreseeable future with drilling programs approximately every 18 to 24 months. Australia continues to generate strong netbacks and garners pricing at a premium to the Dated Brent index and incurs no transportation cost as production is sold directly from the platform.

During the first quarter of 2013, Vermilion began a five well drilling program in the Champotran field including four infill wells as a part of a waterflood expansion and one field extension test well. The Company had two wells drilled and a further two spud at the end of the first quarter. Additional activities in France included workovers, recompletions and facilities upgrades in the Paris and Aquitaine basins. Vermilion's 2012 acquisitions were a natural addition to the Company's asset base in France and further secured the Company's position as the leading oil producer in France. Vermilion continues to work toward integration of these assets and the identification of further opportunities to decrease the current cost structure and increase production through optimized operations, water flood management and development drilling. Vermilion's French assets are consistent with the Company's sustainable growth-and-income model, with low base decline rates, high quality Brent-based production, strong cash flow generation and numerous long-term investment opportunities.

Vermilion continues permitting and drilling preparations in the Netherlands with respect to a three well drilling campaign planned for 2013. The Company's Garijp debottlenecking project was completed in the first quarter of 2013, enabling incremental production from the existing Vinkega-1 well and first gas from Vinkega-2 in the second quarter. Facility construction for Langezwaag-1 is ongoing with production additions anticipated in the second quarter of 2013. The Company is looking to increase activity in the Netherlands to maintain a rolling inventory of production-adding projects with the intent to ultimately establish a reliable long-term growth profile. In March, the Company was awarded an exploration license for the Akkrum concession, located directly between Vermilion's existing Gorredijk and Leeuwarden concessions. Covering more than 54,000 acres, the Akkrum concession adds to the Company's already significant land position and future projects in the Netherlands.

In Ireland, the tunnel boring machine was installed on December 16, 2012 and has begun tunneling activities related to the completion of the nine kilometer onshore pipeline for Corrib.  Tunneling, construction and installation, commissioning and start-up are anticipated to take approximately two years to complete with first gas anticipated in late 2014 or early 2015. Peak production is expected to be reached in mid-2015 with production levels of approximately 55 mmcf/d (9,000 boe/d) net to Vermilion.

Vermilion remains positioned to deliver strong operational and financial performance over the next several years. The Company continues to target growth of approximately 30% to 50,000 boe/d in 2015 and fund flows from operations growth of approximately 40% over the same period (assuming current commodity pricing indications are realized). Near-to-medium term growth is expected to be driven by continued Cardium and Mannville development in Canada, high-netback natural gas in the Netherlands, and first gas from Corrib in late 2014 or early 2015. France and Australia production are anticipated to provide reliable production as well as significant cash flow during this time from Brent-based pricing, with the potential to provide production growth as Vermilion expands its technical work to mature investment projects in these areas.

Additional medium and long-term growth is expected to be generated by the Company's New Growth Initiative which is focused on the identification and development of emerging resource plays in Canada and the greater European region, including the Duvernay liquids-rich natural gas resource. As an example of the Company's greater European effort, Vermilion has acquired an exploration permit for 2.34 million acres in Morocco.  This opportunity is consistent with the Company's low-cost, early-entry strategy to secure large positions in unconventional shale oil and natural gas plays, providing significant optionality and potential for growth into the latter half of the decade.

Vermilion increased its monthly dividend 5.3% in the first quarter of 2013, from $0.19 to $0.20 per share. The increase became effective for the January 2013 dividend paid February 15, 2013. Based on increasing certainty for Corrib development timing and the strength of anticipated future cash flows from a variety of sources, the Company is committed to providing a reliable and growing dividend stream to investors.

On March 12, 2013, Vermilion shares began trading on the New York Stock Exchange under the ticker symbol "VET".  As an international oil and gas producer, the Company believes the secondary listing may assist in broadening its investor base and increasing trading liquidity.

Vermilion's conservative fiscal management and capital discipline leaves the Company well positioned to execute its growth-and-income model and provide growth to investors on a per share basis. The management and directors of Vermilion continue to hold approximately 8% of the outstanding shares and remain committed to delivering superior rewards to all stakeholders. Continuing to be acknowledged for excellence in its business practices, Vermilion was recognized for the fourth consecutive year by the Great Place to Work® Institute in both Canada and France. Vermilion ranked as the 22nd Best Workplace in Canada among more than 315 companies. Vermilion's France subsidiary ranked as the 27th Best Workplace in the country.

   
1 Three-week average production rate, at 1,050 psi flowing tubing pressure, at restricted rates due to separator capacity constraints.
2 One-week average production rate, at 1,420 psi flowing tubing pressure, at restricted rates due to compressor capacity constraints.
3 Production from sidetrack only, without motherbore contribution. Two-week average production rate under gas lift conditions. Final water cut was 20%.
4 Production from sidetrack lateral. Motherbore was abandoned. Five-day average production rate. No water production. 
 

MANAGEMENT'S DISCUSSION AND ANALYSIS 

The following is Management's Discussion and Analysis ("MD&A"), dated April 30, 2013, of Vermilion Energy Inc.'s ("Vermilion" or the "Company") operating and financial results as at and for the three months ended March 31, 2013 as 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, 2013 and the audited consolidated financial statements for the year ended December 31, 2012 and 2011, 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, 2013 and comparative information have been prepared in Canadian dollars, except where another currency has been indicated, and in accordance with IAS 34, "Interim financial reporting", as issued by the International Accounting Standards Board.

NON-GAAP MEASURES

This report includes non-GAAP measures as further described herein.  These non-GAAP measures do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS" or, alternatively, "GAAP") and therefore may not be comparable with the calculations of similar measures for other entities.

"Fund flows from operations" represents cash flows from operating activities before changes in non-cash operating working capital and asset retirement obligations settled.  Management considers fund flows from operations and fund flows from operations per share to be key measures as they demonstrate Vermilion's ability to generate the cash necessary to pay dividends, repay debt, fund asset retirement obligations and make capital investments.  Management believes that by excluding the temporary impact of changes in non-cash operating working capital, fund flows from operations provides a useful measure of Vermilion's ability to generate cash that is not subject to short-term movements in non-cash operating working capital.

"Fund flows from operations (excluding the Corrib project)" represents fund flows from operations excluding expenses related to the Corrib project.  Management believes that by excluding expenses related to the Corrib project, fund flows from operations (excluding the Corrib project) provides a useful measure of Vermilion's ability to generate cash from its current producing assets.

The most directly comparable GAAP measure to fund flows from operations and fund flows from operations (excluding the Corrib project) is cash flows from operating activities.

Cash flows from operating activities as presented in Vermilion's consolidated statements of cash flows are reconciled to fund flows from operations and fund flows from operations (excluding the Corrib project) as follows:

    Three Months Ended
    Mar 31, Dec 31, Mar 31,
($M) 2013 2012 2012
Cash flows from operating activities 190,712 99,907 124,887
Changes in non-cash operating working capital   (28,471)   33,406 25,469
Asset retirement obligations settled 1,388 8,424 766
Fund flows from operations 163,629 141,737 151,122
Expenses related to the Corrib project 1,855 2,023 2,364
Fund flows from operations (excluding the Corrib project) 165,484   143,760   153,486

"Cash dividends per share" represents cash dividends declared per share by Vermilion.

"Net dividends" are dividends declared less proceeds received by Vermilion for the issuance of shares pursuant to the dividend reinvestment plan, both as presented in Vermilion's consolidated statements of changes in shareholders' equity.  Dividends both before and after the dividend reinvestment plan are reviewed by management and are assessed as a percentage of fund flows from operations to analyze the amount of cash that is generated by Vermilion which is being used to fund dividends.  Dividends declared is the most directly comparable GAAP measure to net dividends.

"Total net dividends, capital expenditures and asset retirement obligations settled" are net dividends plus the following amounts from Vermilion's consolidated statements of cash flows:  drilling and development, exploration and evaluation, dispositions and asset retirement obligations settled.

"Total net dividends, capital expenditures and asset retirement obligations settled (excluding the Corrib project)" are total net dividends, capital expenditures and asset retirement obligations settled excluding drilling and development and asset retirement obligations settled relating to the Corrib project.

Total net dividends, capital expenditures and asset retirement obligations settled and total net dividends, capital expenditures and asset retirement obligations settled (excluding the Corrib project) are reviewed by management and are assessed as a percentage of fund flows from operations and fund flows from operations (excluding the Corrib project) to analyze the amount of cash that is generated by Vermilion that is available to repay debt and fund potential future acquisitions and capital expenditures.

Dividends declared, total net dividends, capital expenditures and asset retirement obligations settled and total net dividends, capital expenditures and asset retirement obligations settled (excluding the Corrib project) are reconciled to their most directly comparable GAAP measures as follows:

    Three Months Ended
    Mar 31, Dec 31, Mar 31,
($M) 2013 2012  2012
Dividends declared 59,612 56,435 55,124
Issuance of shares pursuant to the dividend reinvestment plan (15,532) (18,468) (17,558)
Net dividends 44,080 37,967 37,566
Drilling and development 179,520 151,157 87,896
Dispositions (8,627) - -
Exploration and evaluation 9,576 5,878 6,464
Asset retirement obligations settled 1,388 8,424 766
Total net dividends, capital expenditures and asset retirement obligations settled 225,937 203,426 132,692
Capital expenditures and asset retirement obligations settled related to the Corrib project (16,520) (18,092) (9,482)
Total net dividends, capital expenditures and asset retirement obligations settled (excluding the Corrib project) 209,417 185,334 123,210

"Net debt" is the sum of long-term debt and working capital as presented in Vermilion's consolidated balance sheets.  Net debt is used by management to analyze the financial position and leverage of Vermilion.  The most directly comparable GAAP measure is long-term debt.

Long-term debt as presented in Vermilion's consolidated balance sheets is reconciled to net debt as follows:

  As At
  Mar 31, Dec 31,
($M) 2013 2012
Long-term debt 712,763 642,022
Current liabilities 391,708 355,711
Current assets    (359,709)    (320,502)
Net debt 744,762 677,231

"Netbacks" are per boe and per mcf measures used in operational and capital allocation decisions.

"Diluted shares outstanding" is the sum of shares outstanding at the period end plus outstanding awards under Vermilion's equity based compensation plan, based on current estimates of future performance factors and forfeitures. The most directly comparable GAAP measure is shares outstanding.

Shares outstanding is reconciled to diluted shares outstanding as follows:

  As At
  Mar 31, Dec 31,   Mar 31,
('000s of shares) 2013 2012 2012
Shares outstanding 99,462 99,135 96,838
Potential shares issuable pursuant to the equity based compensation plan 2,918 2,778 2,719
Diluted shares outstanding   102,380   101,913 99,557

OPERATIONAL ACTIVITIES  

Canada

Vermilion drilled 24 (22.5 net) wells during the first quarter of 2013, including 20 (20 net) operated Cardium horizontal wells and one (0.1 net) non-operated Cardium horizontal well. Since entering the play in 2009, the Company has drilled a total of 201 (140 net) wells in the Cardium. In the first quarter of 2013, Vermilion completed its third vertical test well in the Duvernay and drilled two (1.3 net) Mannville liquids-rich natural gas wells.

France

Vermilion commenced its Champotran drilling program with two wells drilled and two wells spud at the end of the first quarter. The Company completed a number of workovers in both the Paris and Aquitaine basins. Vermilion continues to work towards the full integration of the assets acquired through two separate transactions in 2012 and the identification of further optimization and infill drilling opportunities.

Netherlands

Operating activities in the first quarter focused on facility maintenance and site construction. Surface facilities for Vinkega-2 and Langezwaag-1 are under construction, with first gas for both wells anticipated in the second quarter of 2013. The Company's debottlenecking project at Garijp was completed in the first quarter, ahead of schedule, and will enable incremental production additions from Vinkega-2 and other wells to be brought on-stream.  In March, Vermilion was awarded the exploration license for the Akkrum concession, covering more than 54,000 acres and located between the Company's existing Gorredijk and Leeuwarden concessions.

Australia

Vermilion conducted a two well drilling program at Wandoo during the first quarter of 2013. These wells were horizontal sidetracks from existing well bores. The first well was spud early February and completed mid-March, the second was then spud and completed late March. The rig was demobilized and released subsequent to quarter end.

PRODUCTION

<
Vermilion Energy Inc.
3500, 520 3rd Avenue SW
Calgary, Alberta T2P 0R3
Phone: 1-403-269-4884
Fax: 1-403-476-8100
Investor Relations
Whistleblower
Community Investment
Emergency Contacts
    Three Months Ended   % change  
    Mar 31, Dec 31, Mar 31,   Q1/13 vs. Q1/13 vs.
    2013 2012 2012   Q4/12 Q1/12
Canada            
  Crude oil & NGLs (bbls/d) 9,301 9,089 8,876   2% 5%
  Natural gas (mmcf/d) 41.04 31.41 41.83   31% (2%)
  Total (boe/d) 16,140 14,323 15,848   13% 2%
  % of consolidated 41% 40% 40%      
France            
  Crude oil (bbls/d) 10,330 9,843 10,270   5% 1%
  Natural gas (mmcf/d) 4.21 3.91 3.48   8% 21%
  Total (boe/d) 11,032 10,495 10,850   5% 2%
  % of consolidated 29% 29% 28%      
Netherlands            
  NGLs (bbls/d) 96 70 72   37% 33%
  Natural gas (mmcf/d) 36.91 33.03 35.08   12% 5%
  Total (boe/d) 6,248 5,574 5,919   12% 6%
  % of consolidated 16% 15% 15%      
Australia            
  Crude oil (bbls/d) 5,287 5,873 6,648   (10%) (20%)
  % of consolidated 14% 16% 17%      
Consolidated            
  Crude oil & NGLs (bbls/d) 25,014 24,875 25,866   1% (3%)
  % of consolidated 65% 69% 66%      
  Natural gas (mmcf/d) 82.16 68.34 80.39   20% 2%
  % of consolidated 35% 31% 34%      
  Total (boe/d) 38,707 36,265 39,265