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Vermilion Energy Inc. Announces Results for the Three and Nine Months Ended September 30, 2013

November 7, 2013

CALGARY, Nov. 7, 2013 /CNW/ - Vermilion Energy Inc. ("Vermilion", "We", "Our", "Us" or the "Company") (TSX, NYSE: VET) is pleased to report interim operating and unaudited financial results for the three and nine months ended September 30, 2013.

HIGHLIGHTS

  • Recorded average production of 41,510 boe/d during the third quarter of 2013, compared to 42,813 boe/d in the prior quarter and 36,546 boe/d in the third quarter of 2012.  The modest decrease in quarter-over-quarter production was attributable to seasonal changes in Canadian drilling and tie-in activity, turnaround activity in the Netherlands and management of available well deliverability in Australia, Canada and the Netherlands to achieve corporate production growth targets.  Year-over-year production growth of 14% was achieved through continued development of the Cardium and Mannville in Canada, and strong production additions from the 2013 drilling programs in France and Australia.

  • Generated fund flows from operations of $165.6 million ($1.63/share) in the third quarter of 2013, as compared to $174.6 million ($1.73/share) in the prior quarter and $137.1 million ($1.39/share) in the third quarter of 2012.  Fund flows from operations decreased 5% as compared to the prior quarter due to increased taxes in France and foreign exchange impacts, but increased 21% on a year-over-year basis.

  • We continue to benefit from our exposure to Brent-based crude oil, WTI-based crude oil, and European natural gas pricing.  Our Brent-based crude production represents approximately 45% of total production and 65% of total crude oil and liquids production.  Our Brent-based production continues to attract a consolidated premium of more than $4.00/bbl to the quoted Dated Brent reference price, which increased to US$110.37/bbl during the third quarter.  Our Canadian-based crude production also benefited as it is indirectly priced off the WTI reference price, which increased by US$11.60/bbl to US$105.82/bbl during the quarter.  Vermilion's natural gas production in the Netherlands received an average price of $10.18/mcf during the third quarter, compared to $2.43/mcf for AECO.

  • Strong operational performance across all of our operating regions continues to provide us with flexibility to manage the composition of produced volumes while exceeding our annual production targets.  With the contribution of production associated with our Netherlands acquisition, which closed October 10, 2013, we now expect to achieve average annual production volumes at the upper end of our current guidance range of 40,500 to 41,000 boe/d.  Our original 2013 guidance of 39,000 to 40,500 boe/d was previously increased following both the first and second quarters due to better-than-expected results from our capital program.  We expect to achieve organic production growth in all four of our business units in 2013 as compared to 2012.

  • Continued development of our extensive position in the high-quality West Pembina region of the Cardium light oil play.  During the third quarter, we drilled 16 (14.1 net) Cardium wells and brought 11 (10.6 net) Cardium wells on production.  The third quarter drilling program included five 1.5-mile and two 2-mile wells.  Based on strong results year-to-date, the remainder of the 2013 Cardium drilling program will comprise a higher percentage of 1.5-mile, 1.75-mile and 2-mile wells.

  • Drilled and completed our fifth operated Mannville well in 2013 and brought one well on production during the third quarter.  Average rate from the five operated wells to date is currently 2.3 mmcf/d sales gas and 340 bbls/d of condensate and NGLs (77% condensate), with the average well in its third month of production.

  • We continued to appraise our significant position in the Duvernay liquids-rich natural gas resource play where we have amassed a total land position of 321 net sections as of the end of the third quarter. Our land position, which spans the liquids-rich gas fairway in three contiguous blocks, has been assembled for approximately $76 million dollars ($375/acre). We currently anticipate spud of our first horizontal Duvernay well prior to year-end 2013, with completion planned for early 2014.

  • In Ireland, tunneling operations re-started on November 3, 2013.  Tunneling operations had been suspended following an industrial accident, which resulted in a fatality at the project worksite on September 8, 2013.  Onshore pipelining, offshore umbilical-laying, seismic acquisition and workover activities for our Corrib project were not impacted by the suspension.  The effective impact of the delay in tunneling operations is not fully determinable at this time, as a portion of the tunneling delay may be recouped through accelerated completion of other project activities.  However, based on an early review of our deterministic schedule for remaining construction and commissioning activities, we believe it is prudent to revise our expectations for timing of first gas to mid-2015 from earlier expectations for start-up at the end of 2014 or early 2015.  Following successful subsea well operations conducted on one of the production wells during the third quarter of 2013, we are increasing our peak production estimate at Corrib from 54 mmcf/d (9,000 boe/d) to approximately 58 mmcf/d (approximately 9,700 boe/d) net to Vermilion.

  • Subsequent to the third quarter, we announced the acquisition of interests in nine concessions in the Netherlands from Northern Petroleum PLC.  The acquisition closed on October 10, 2013, and is expected to add average production of approximately 400 boe/d in 2014 (taking into account working interest adjustments expected to occur upon reaching anticipated payout of certain license agreements).  The acquisition also adds 2.3 million boe of proved plus probable reserves(1) and 298,500 net acres of land, of which approximately 98% is currently undeveloped.

  • On November 6, 2013, we announced an agreement to acquire a 25% contractual participation interest in a four partner consortium in Germany from GDF Suez S.A. ("GDF").  The acquisition will enable us to participate in the exploration and development, production and transportation of natural gas from the assets which include four gas producing fields across eleven production licenses. The assets are estimated to produce at a company-interest average rate of approximately 18 mmcf/d (3,000 boe/d) in 2013 and have estimated proved plus probable reserves of 10.1 mmboe(2) net as of year-end 2013.  The assets are characterized by a low effective decline rate of approximately 16% annually and have an estimated reserve life index of approximately 9.2 years. In addition to the production licenses, a surrounding exploration license will also be acquired pursuant to the acquisition.  The exploration and production licenses comprise 204,000 gross acres, of which 85% is in the exploration license. The acquisition is well aligned with our European focus, and will increase our exposure to the strong fundamentals and pricing of European natural gas markets.  We believe that our experience with conventional and unconventional oil and gas development, coupled with new access to proprietary technical data, positions us for future development and expansion opportunities in both Germany and the greater European region.
(1) Estimated proved plus probable reserves attributable to the assets as evaluated by GLJ Petroleum Consultants Ltd ("GLJ") in a report dated September 16, 2013, with an effective date of December 31, 2012.
(2)   Estimated proved plus probable reserves attributable to the assets as evaluated by GLJ in a report dated November 5, 2013, with an effective date of December 31, 2013, using the GLJ (2013-10) price forecast.

Conference Call and Audio Webcast Details
Vermilion will discuss these results in a conference call to be held on Thursday, November 7, 2013 at 9:00 AM MST (11:00 AM EST).  To participate, you may call 1-888-231-8191 (Canada and US Toll Free) or 1-647-427-7450 (International and Toronto Area).  The conference call will also be available on replay by calling 1-855-859-2056 using conference ID number 68315493.  The replay will be available until midnight eastern time on November 14, 2013.

You may also listen to the audio webcast by clicking  http://event.on24.com/r.htm?e=688125&s=1&k=E3FCF72FABA97FDA33D6CABBBE208AFF 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
MWh  megawatt hour
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.

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     Nine Months Ended
($M except as indicated) Sept 30, June 30, Sept 30,     Sept 30, Sept 30,
Financial 2013 2013 2012     2013 2012
Petroleum and natural gas sales 327,185 311,966 284,838     948,727 841,870
Fund flows from operations 1 165,645 174,592 137,094     503,866 415,991
  Fund flows from operations ($/basic share) 1.63 1.73 1.39     5.01 4.26
  Fund flows from operations ($/diluted share) 1.61 1.71 1.37     4.94 4.21
Net earnings 67,796 106,198 30,798     226,131 133,708
  Net earnings per share ($/basic share) 0.67 1.05 0.31     2.25 1.37
Capital expenditures 135,661 78,118 106,255     394,248 295,503
Acquisitions 7,586 - -     7,586 106,184
Asset retirement obligations settled 2,738 2,370 1,968     6,496 5,315
Cash dividends ($/share) 0.60 0.60 0.57     1.80 1.71
Dividends declared 61,003 60,776 56,196     181,391 167,282
Net dividends 1 41,649 42,146 38,945     127,875 113,692
  % of fund flows from operations, gross 37% 35% 41%     36% 40%
  % of fund flows from operations, net 25% 24% 28%     25% 27%
Total net dividends, capital expenditures and asset retirement obligations              
  settled 180,048 122,634 147,168     528,619 414,510
  % of fund flows from operations 109% 70% 107%     105% 100%
  % of fund flows from operations (excluding the Corrib project) 87% 55% 93%     89% 88%
Net debt 1 700,286 674,368 549,491     700,286 549,491
Operational
Production              
  Crude oil (bbls/d) 26,664 26,638 23,047     25,640 24,062
  NGLs (bbls/d) 1,945 1,775 1,245     1,719 1,341
  Natural gas (mmcf/d) 77.41 86.40 73.52     81.97 77.50
  Total (boe/d) 41,510 42,813 36,546     41,020 38,320
Average realized prices              
  Crude oil and NGLs ($/bbl) 108.87 98.95 100.70     103.95 102.32
  Natural gas ($/mcf) 6.00 7.22 6.12     6.68 5.89
Production mix (% of production)              
  % priced with reference to WTI 24% 25% 23%     24% 23%
  % priced with reference to AECO 17% 17% 16%     17% 17%
  % priced with reference to European gas 14% 17% 17%     16% 17%
  % priced with reference to Dated Brent 45% 41% 44%     43% 43%
Netbacks ($/boe) 1              
  Operating netback 61.91 59.30 55.02     60.12 54.87
  Fund flows netback 43.60 44.90 38.66     44.13 39.44
  Operating expenses 12.17 12.36 13.27     12.87 12.78
Average reference prices              
  WTI (US $/bbl) 105.82 94.22 92.22     98.14 96.21
  Edmonton Sweet index (US $/bbl) 101.10 90.56 85.01     93.03 86.94
  Dated Brent (US $/bbl) 110.37 102.44 109.61     108.45 112.10
  AECO ($/GJ) 2.31 3.35 2.17     2.89 2.00
  Netherlands gas price ($/GJ) 9.94 10.14 9.06     10.17 9.38
Share information ('000s)
Shares outstanding - basic 101,787 101,418 98,729     101,787 98,729
Shares outstanding - diluted 1 104,195 103,735 101,149     104,195 101,149
Weighted average shares outstanding - basic 101,613 100,964 98,523     100,634 97,704
Weighted average shares outstanding - diluted 102,763 102,223 99,748     102,083 98,848
   
  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

Vermilion's strong performance year-to-date illustrates our consistent operational execution and the advantages of our global diversification strategy. To the end of the third quarter of 2013, we have achieved organic growth across all four of our operating regions.  In addition, subsequent to the third quarter of 2013, we announced two strategic acquisitions that further expand our European presence.

On October 1, 2013, we announced our agreement to acquire additional operating interests in nine operated onshore concessions (six in production or development and three exploration) and a non-operated interest in one offshore concession in the Netherlands for $27.5 million.  Four of the onshore concessions are located in the northeastern part of the Netherlands, in close proximity to our existing concessions.  The remaining onshore licenses provide new opportunity for Vermilion in the central region of the Netherlands.  We closed the acquisition on October 10, 2013.  Production from the acquired assets is expected to average approximately 400 boe/d in 2014 (after working interest adjustments expected to occur upon reaching anticipated payout of certain license agreements).  The production is comprised of 99% natural gas that is expected to produce an operating netback in-line with our current operating netback for natural gas in the Netherlands.  The acquisition also adds 2.3 mmboe of proved plus probable reserves(1) and 298,500 net acres of land, of which approximately 98% is currently undeveloped.  The acquisition increases our undeveloped land base in the Netherlands to more than 780,000 net acres.  We have identified several development opportunities on the assets that increase our already significant inventory of investment projects on our existing Netherlands land base.  The acquisition enhances our position as the second largest onshore natural gas producer in the Netherlands, and offers a strong fit with our current operations.

On November 6, 2013, we announced an agreement to acquire a 25% contractual participation interest in a four-partner consortium in Germany from GDF Suez S.A. ("GDF"), for a cash cost of approximately $170 million.  The consortium was formed in 1956 between industry leaders ExxonMobil Corporation ("ExxonMobil"), Wintershall Holding GmbH ("Wintershall"), BEB Erdgas und Erdöl GmbH ("BEB", a joint venture between ExxonMobil and Deutsche Shell AG.) and GDF.  The acquisition, which is expected to be completed prior to the end of January, 2014, will enable us to participate in the exploration and development, production and transportation of natural gas from the assets held by the consortium.  The assets are comprised of four gas producing fields across eleven production licenses.  Vermilion will also receive a 0.4% equity interest in Ergas Munster GmbH ("EGM"), a joint venture created in 1959 to jointly transport, process, and market gas in northwest Germany.  EGM partners include ExxonMobil, Wintershall, BEB, RWE Dea AG., and GDF.  The transportation interest will allow for our proportionate share of produced volumes to be processed, blended, and transported to designated gas consumers through the EGM network of approximately 2,000 kilometres of pipeline.  The assets are estimated to produce at a company-interest average rate of approximately 18 mmcf/d (3,000 boe/d) in 2013, and have net estimated year-end 2013 proved plus probable reserves of 10.1 mmboe(2).  The assets are further characterized by a low effective decline rate of approximately 16% annually and an estimated reserve life index of 9.2 years.  In addition to the production licenses, a surrounding exploration license will also be acquired pursuant to the acquisition.  The exploration and production licenses comprise 204,000 gross acres, of which 85% is in the exploration license.  Realized pricing for production from the assets is expected to be derived from the TTF price, less certain gas quality adjustments and marketing fees.  The Germany acquisition is also expected to be highly accretive for all pertinent metrics.  Assuming estimated 2013 net average daily production of 18 mmcf/d (3,000 boe/d) and a cash cost of $170 million, the acquisition metrics reflect a cash cost of approximately $57,000 per boe/d and $18.70/boe of estimated year-end 2013 proved plus probable reserves, including future development capital.  The acquisition represents Vermilion's entry into the German exploration and production business, a producing region with a long history of oil and gas development activity, low political risk, and strong marketing fundamentals.  Germany currently produces approximately 165 thousand barrels per day of oil and natural gas liquids(3) and 1.1 bcf per day of natural gas(3).  The acquisition represents a key entry opportunity into this sizable market, in the form of free cash flow(4) generating, low-decline assets with near-term development inventory in addition to longer-term, low-permeability gas prospectivity.  The acquisition is well aligned with our European focus, and will increase our exposure to the strong fundamentals and pricing of European natural gas markets.  The assets are located 300 kilometres to the east of our Netherlands assets, and share similar subsurface characteristics.  We believe that our experience with conventional and unconventional oil and gas development, coupled with new access to proprietary technical data, positions us for future development and expansion opportunities in both Germany and the greater European region.

We continue to benefit from our diversified product mix and growing exposure to European gas markets.  In the third quarter, 2013, our natural gas production in the Netherlands received an average price of $10.18/mcf.  This compares to $2.43/mcf for AECO, and US$3.56/mcf for NYMEX, affording us a significant competitive pricing advantage compared to North American natural gas producers.  We also continue to benefit from our strong exposure to Brent-based crude oil.  Brent-based crude production currently represents approximately 45% of our total production and 65% of our total crude oil and liquids production and continues to attract a consolidated premium of more than $4.00/bbl to the quoted Dated Brent reference price, which increased to US$110.37/bbl during the third quarter.  Our strong exposure to Brent-based crude production provides us a further pricing advantage compared to North American-focused producers.  While our relative pricing advantage remains a strong differentiator, the diversified nature of our production mix means we were also able to participate in, and benefit from, the strengthening of North American crude prices during the third quarter.  Our Canadian-based crude production, approximately 24% of our total production, receives pricing based on the Edmonton Sweet Index ("ESI").  The ESI averaged US$101.10/bbl during the third quarter, an increase of US$10.54/bbl versus the prior quarter.  Year-over-year, the ESI has increased more than US$16.00/bbl.  On balance, our exposure to diversified commodity markets reduces the volatility of our cash flows and lowers our risk profile.

The majority of our Canadian development activities during the third quarter continued to focus on our Cardium light oil play.  Well performance remains consistently strong, reflective of the high quality nature of the reservoir underlying our land position in the West Pembina region.  Since entering the play in 2009, we have drilled or participated in 219 (155.3 net) wells in the Cardium and increased production to over 9,000 boe/d. We continue to optimize completion technology and well design, and remain a leader in the utilization of long reach wells (greater than one mile in length) in development of the Cardium in West Pembina.  We have been able to demonstrate consistent production improvement and a significant reduction in per-section development costs through the use of long-reach 1.5-mile horizontal wells.  During the third quarter, we drilled five 1.5-mile, 1.75-mile and two 2-mile wells.  The remainder of the 2013 Cardium drilling program is expected to comprise an even higher percentage of 1.5-mile and 2-mile pilot wells.  The optimization of frac design and fluids, multi-well pads and drilling longer horizontal wells has enabled us to reduce well costs from more than $5 million per section at the outset of development in 2009 to approximately $3 million per section today.  Furthermore, in pursuit of ongoing well cost reduction and enhanced environmental stewardship, we have been testing several alternative processes for the recycling of frac flowback water.  During the third quarter we successfully treated frac flowback water, using a chemical treatment process, at rates equivalent to the highest frac flowback rate we typically experience.  Results to date indicate the potential for significant savings while also decreasing the environmental impact of our operations.  We have also initiated a water injection pilot to test applicability of water-flooding to this reservoir. Our per unit operating costs remain less than $6/boe for our operated Cardium production, resulting in strong operating netbacks of approximately $65/boe during the third quarter.

In addition to the Cardium, we have also begun development of our significant inventory of Mannville condensate-rich natural gas targets in the Drayton Valley area.  Year-to-date, we have drilled or participated in a total of eight (4.2 net) Mannville wells targeting the Ellerslie formation, with one (0.5 net) additional operated well and two (0.8 net) non-operated wells planned during the fourth quarter of 2013.  The average per well rate from our five-well operated program to-date in 2013 is currently 2.3 mmcf/d sales gas and 340 bbls/d of condensate and NGLs (77% condensate), with the average well in its third month of production.  We have achieved 100% success on the placement of the frac stages on all five wells.

We continue to appraise our position in the Duvernay liquids-rich natural gas resource play, where we have amassed 321 net sections at a cost of approximately $76 million ($375/acre).  Our position spans the breadth of the liquids-rich natural gas fairway, and comprises three largely contiguous blocks in the Edson, Drayton Valley and Niton areas.  To date, we have drilled three vertical stratigraphic test wells, and plan to spud our first horizontal well prior to the end of 2013, with completion anticipated to occur in 2014.  Our Duvernay rights generally underlie our Cardium and Mannville liquids-rich gas positions, allowing for potential infrastructure, operational, and timing advantages in full field development of the Duvernay.  Combined, our Cardium, Mannville, and Duvernay positions provide us with exploration and development opportunities in our core Canadian operating region that have the potential to deliver strong production and reserve growth into the latter half of the decade.

Capital expenditures in Australia during the third quarter of 2013 were mainly for repairs and maintenance activity.  During the first half of 2013, we drilled two sidetracks off existing wells in Australia.  The program included the drilling of a 3,400 metre horizontal leg, the longest horizontal section drilled to-date at Wandoo. The 2013 drilling program has been our most successful effort yet in Australia.  Both sidetracks were brought on production at restricted rates in April, demonstrating productive capacities in excess of 6,000 bbls/d and 3,000 bbls/d, respectively.  To meet current marketing agreements and provide long-term certainty to our customers, our current plan is to maintain production levels within our prior guidance of between 6,000 bbls/d and 8,000 bbls/d.  We anticipate maintaining these production levels in Australia for the foreseeable future with drilling programs approximately every two years. Wandoo's oil garners a premium of approximately US$7.00 to the Dated Brent index and incurs no transportation cost as production is sold directly at the platform, leading to very high netbacks.

Also during the first half of 2013, we concluded a five-well drilling program in the Champotran field in France.  All five of the wells were successful, with on-stream production rates in excess of 300 bbls/d per well and low water cuts.  In 2012, we completed two acquisitions that were natural additions to our asset base in France and further secured our position as the leading oil producer in the country.  We continue to integrate these assets and to identify further opportunities to increase production through seismic data acquisition, workovers, optimized water-flood management and development drilling.  Our French business is now an organic growth asset, featuring low base decline rates, high netbacks from Brent-indexed production, strong cash flow generation and high capital efficiencies on development projects.  We are increasing our France-based technical staffing to identify and execute additional investment opportunities in these large, complex, conventional light oil fields in both the Paris and Aquitaine Basins.

In the Netherlands, in addition to activities related to our acquisition of additional interests completed in October, 2013, we continued drilling preparations for a three-well drilling campaign to be initiated in December 2013.  Our Garijp debottlenecking project was completed in the first quarter of 2013, enabling incremental production from two wells previously drilled at Vinkega.  Surface facilities for the multi-zone Langezwaag-1 well (42% working interest) were completed and commissioned mid-way through the second quarter.  Netherlands production during the third quarter was curtailed to facilitate a turnaround at the Garijp Treatment Centre and the retrofitting of our Middenmeer Treatment Centre.  We intend to increase activity in the Netherlands each year to maintain a rolling inventory of projects so that each year's capital program will involve a combination of drilling new wells and the tie-in of previous successes.  Like our French Business Unit, we now consider our Netherlands Business Unit to be an organic growth business, and we are increasing our technical staffing in the Netherlands to turn our substantial inventory of prospect leads into drillable projects.

In Ireland, tunneling operations re-started effective November 3, 2013.  Tunneling operations had been suspended following an industrial accident, which resulted in a fatality at the project worksite, on September 8, 2013.  Onshore pipelining, offshore umbilical-laying, seismic acquisition and workover activities for our Corrib project were not impacted by the suspension.  The effective impact of the delay in tunneling operations is not fully determinable at this time, as a portion of the tunneling delay may be recouped through accelerated completion of other project activities.  However, based on an early review of our deterministic schedule for remaining construction and commissioning activities, we believe it is prudent to revise our expectations for timing of first gas to mid-2015 from earlier expectations for start-up at the end of 2014 or early 2015.  Following successful subsea well operations conducted during the third quarter of 2013, we are increasing our peak production estimate at Corrib from 54 mmcf/d (9,000 boe/d) to approximately 58 mmcf/d (approximately 9,700 boe/d) net to Vermilion.

Strong operational performance across all of our operating regions continues to provide us with flexibility to manage the composition of produced volumes while exceeding our initial annual production targets.  With the contribution of production associated with our Netherlands acquisition, completed in October 2013, we now expect to achieve average annual production volumes at the upper end of our guidance range of 40,500 to 41,000 boe/d.  Our original 2013 guidance of 39,000 to 40,500 boe/d was previously increased following both the first and second quarters due to better-than-expected results from our capital program.

Development capital for 2013 is currently estimated at $530 million, an increase of approximately $45 million from our original guidance of $485 million.  The increase is attributable primarily to the impact of a weaker Canadian dollar as compared to foreign exchange rates at the time of our original guidance, a delay in the timing of rig arrival for our Australian drill program (originally anticipated to occur in late 2012) which shifted expenditures into 2013, and minor additions to our capital work scope during 2013 (such as the addition of the Champotran southern extension well in France).  The Australian drilling program occurred in the first half of 2013, a period during which the Canadian dollar weakened significantly against the Australian dollar, reaching near all-time lows in March and April 2013.  The Canadian dollar has also experienced significant weakness versus the Euro, particularly during the second half of 2013, translating into higher Canadian dollar-denominated capital expenditures than originally planned.  Conversely, though the weaker Canadian dollar has driven up capital spending, it has also resulted in higher Canadian dollar-denominated fund flows from operations(4) from our foreign jurisdictions, through the translation of foreign currency-denominated revenues into Canadian dollars.  Our operations continue to perform strongly, generating organic production growth across all four operating regions in a capital-efficient manner.  Assuming commodity prices remain near current levels for the remainder of this year, we anticipate that we will fully fund our net dividends(4) and development capital expenditures (excluding capital investment at Corrib) with fund flows from operations(4) during 2013.

In the first quarter of 2013 Vermilion shares began trading on the New York Stock Exchange under the ticker symbol "VET".  As an international oil and gas producer, we believe the secondary listing will assist in broadening our investor base and increasing trading liquidity.

We believe we remain positioned to deliver strong operational and financial performance over the next several years.  We continue to target annual organic production growth of approximately 5% along with providing reliable and growing dividends.  Near term growth and cash flow are expected to be driven by continued Cardium and Mannville development in Canada, oil development activities in France, and high-netback natural gas drilling in the Netherlands.  A significant increment of production growth and free cash flow growth is expected from Corrib beginning mid- 2015 with the first full year of production from the project in 2016.  Our Australian Business Unit is expected to provide steady production as well as significant free cash flow.

We increased our monthly dividend by 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.  With the anticipated growth of fund flows from operations, the continued strength of our operations, and our expansive opportunity base (including our recently announced acquisition in the Netherlands and our proposed acquisition in Germany), we are confident we can achieve our future growth objectives and continue to provide a reliable and growing dividend stream to investors.  We believe our balance sheet remains well positioned to execute its capital-efficient growth-and-income model and fund Corrib development through to first gas while remaining within an acceptable net debt-to-fund flows from operations(4) ratio.  Corrib is expected to provide a further significant increase to our projected free cash flow upon first gas production.

Our conservative fiscal management and capital discipline leaves us well positioned to execute our 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 our business practices, Vermilion was recognized for the fourth consecutive year by the Great Place to Work® Institute in both Canada and France.  We ranked as the 22nd Best Workplace in Canada among more than 315 companies. Our French unit ranked as the 27th Best Workplace in the country.

(1)   Estimated proved plus probable reserves attributable to the assets as evaluated by GLJ Petroleum Consultants Ltd ("GLJ") in a report dated September 16, 2013, with an effective date of December 31, 2012.
(2)   Estimated proved plus probable reserves attributable to the assets as evaluated by GLJ in a report dated November 5, 2013, with an effective date of December 31, 2013, using the GLJ (2013-10) price forecast.
(3)   U.S. Energy Information Administration website (www.eia.gov); quoted 2012 total oil supply and 2012 dry natural gas production.
(4)   See non-GAAP measures disclosures in the Management's Discussion and Analysis for the three and nine months ended September 30, 2013.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following is Management's Discussion and Analysis ("MD&A"), dated November 6, 2013, of Vermilion Energy Inc.'s ("Vermilion", "We", "Our", "Us" or the "Company") operating and financial results as at and for the three and nine months ended September 30, 2013 as compared with the corresponding periods in the prior year.

This discussion should be read in conjunction with the unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 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 and nine months ended September 30, 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

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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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