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CALGARY, May 2, 2014 /CNW/ - Vermilion Energy Inc. ("Vermilion", "We", "Our", "Us" or the "Company") (TSX, NYSE: VET) is pleased to report operating and unaudited financial results for the three months ended March 31, 2014.
|(1)||Additional GAAP Financial Measure. Please see the "Additional and Non-GAAP Financial Measures" section of Management's Discussion and Analysis.|
Vermilion is pleased to announce the appointment of Michael Kaluza to the position of Vice President, Canada Business Unit, effective May 1, 2014. This appointment is in consideration of Mr. Kaluza's continued contribution to the strong operational performance and growth of the Canadian Business Unit. Mr. Kaluza joined Vermilion in February, 2013 as Director, Canada Business Unit. Mr. Kaluza has over 30 years of operations and executive management experience, and has a Bachelor of Science Petroleum Engineering (Honors) from Montana College of Mineral, Science and Technology (1985).
ANNUAL GENERAL MEETING WEBCAST
As Vermilion's Annual General Shareholders Meeting is being held today, May 2, 2014 at 10:00 AM MST at the Metropolitan Centre, 333 - 4th Avenue S.W., Calgary, Alberta, there will not be a first quarter conference call, however, a presentation will be given by Mr. Lorenzo Donadeo, Chief Executive Officer, concluding the formal business portion of the meeting.
Please visit http://event.on24.com/r.htm?e=767750&s=1&k=C4F147D23B8BF55755DD4BEA2DAA9D3F or Vermilion's website at http://www.vermilionenergy.com/ir/eventspresentations.cfm and click on webcast under the upcoming events to view the webcast which will commence at approximately 10:15 AM MST.
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; operational and financial performance; estimated reserve quantities and the discounted present value of future net cash flows from such reserves; petroleum and natural gas sales; future production levels (including the timing thereof) and rates of average annual production growth; estimated contingent resources and prospective resources; exploration and development plans; acquisition and disposition plans and the timing thereof; operating and other expenses, including the payment and amount 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 and estimates of resources and associated expenditures; 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.
All oil and natural gas reserve information contained in this document has been prepared and presented in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. The actual oil and natural gas reserves and future production will be greater than or less than the estimates provided in this document. The estimated future net revenue from the production of oil and natural gas reserves does not represent the fair market value of these reserves. 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.
|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|
|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 day-ahead price for natural gas in the Netherlands, quoted in MWh of natural gas, at the Title Transfer Facility Virtual Trading Point operated by Dutch TSO Gas Transport Services|
|PRRT||Petroleum Resource Rent Tax, a profit based tax levied on petroleum projects in Australia|
|Three Months Ended|
|($M except as indicated)||Mar 31,||Dec 31,||Mar 31,|
|Petroleum and natural gas sales||381,183||325,108||309,576|
|Fund flows from operations (1)||205,363||163,660||163,629|
|Fund flows from operations ($/basic share)||2.01||1.61||1.65|
|Fund flows from operations ($/diluted share)||1.97||1.58||1.61|
|Net earnings ($/basic share)||1.00||1.00||0.53|
|Asset retirement obligations settled||2,651||5,426||1,388|
|Cash dividends ($/share)||0.645||0.600||0.600|
|% of fund flows from operations||32%||37%||36%|
|Net dividends (1)||47,122||42,433||44,080|
|% of fund flows from operations||23%||26%||27%|
|% of fund flows from operations||120%||120%||138%|
|% of fund flows from operations (excluding the Corrib project)||111%||111%||127%|
|Net debt (1)||966,310||749,685||744,762|
|Ratio of net debt to annualized fund flows from operations (1)||1.2||1.1||1.1|
|Crude oil (bbls/d)||27,318||26,039||23,583|
|Natural gas (mmcf/d)||103.32||78.96||82.16|
|Average realized prices|
|Crude oil and NGLs ($/bbl)||111.62||106.00||103.98|
|Natural gas ($/mcf)||7.99||7.29||6.77|
|Production mix (% of production)|
|% priced with reference to WTI||25%||25%||24%|
|% priced with reference to AECO||17%||17%||18%|
|% priced with reference to TTF||19%||15%||18%|
|% priced with reference to Dated Brent||39%||43%||40%|
|Netbacks ($/boe) (1)|
|Fund flows from operations netback||47.76||43.32||43.89|
|Average reference prices|
|WTI (US $/bbl)||98.68||97.46||94.37|
|Edmonton Sweet index (US $/bbl)||90.43||82.53||87.42|
|Dated Brent (US $/bbl)||108.22||109.27||112.55|
|Average foreign currency exchange rates|
|CDN $/US $||1.10||1.05||1.01|
|Share information ('000s)|
|Shares outstanding - basic||102,453||102,123||99,462|
|Shares outstanding - diluted (1)||105,167||104,869||102,380|
|Weighted average shares outstanding - basic||102,278||101,961||99,301|
|Weighted average shares outstanding - diluted (1)||104,171||103,426||101,349|
|(1)||The above table includes additional GAAP and non-GAAP financial measures which may not be comparable to other companies. Please see the "ADDITIONAL AND NON-GAAP FINANCIAL MEASURES" section of Management's Discussion and Analysis.|
MESSAGE TO SHAREHOLDERS
In 2014, we are celebrating Vermilion's 20th anniversary as a publicly traded company. It has been a demanding, but also a tremendously rewarding, time to be a publicly traded oil and gas company in Canada. During the last 20 years, the Canadian oil and gas industry has encountered numerous challenges and we are particularly proud of our demonstrated ability to navigate those challenges to the benefit of our shareholders. In spite of the evolutionary changes our Company has undertaken over the years to respond to those challenges, the one thing that has remained constant, since our inception, is our commitment to stewarding our Company in the best interests of our shareholders. We are pleased that our efforts have been both recognized and supported by our shareholders, resulting in a compound average total return including dividends, as of April 30, 2014, of 36.6% per annum since inception. We are also proud of the consistency of those returns for our shareholders. Over the last one, three, five, ten and 15 calendar-year periods, we have reliably delivered double-digit compound average total returns of 24.6%, 14.5%, 24.0%, 18.6% and 25.5%, respectively.
Perhaps more important to both our current and prospective shareholders, we currently believe Vermilion is better situated for continued growth and success that at any other time in our history. With the anticipated growth of fund flows from operations(1), the continued strength of our operations and our expansive and growing opportunity base, we remain confident that we are positioned to deliver continued strong operational and financial performance in the future, while continuing to provide a reliable and growing dividend stream to our shareholders.
While we are confident that the assets in our current portfolio contain significant opportunity for growth for years to come, we also find ourselves uniquely positioned to advantageously grow and further diversify our opportunity base through potential acquisition activity in both Canadian and international markets. In Canada, we are faced with an over-supplied asset market with few well-capitalized acquirers. Volatile commodity pricing, rising capital costs and limited access to capital have forced many Canadian oil and gas companies to place quality assets on the market in hopes of repositioning their businesses. With Vermilion's access to relatively low cost capital, a conservative balance sheet with significant borrowing capacity, and significant near-term free cash flow(1) growth on the horizon with Corrib slated to come on production in mid-2015, we are uniquely positioned to compete and transact should suitable opportunities arise. We believe we are similarly positioned in global markets. While international asset markets remain substantially less liquid than in Canada, we find ourselves well-positioned and facing limited competition for assets that may come available in our selective regions of interest.
Diversification across our product mix has been one of the keys to our success and the consistency of our performance since we first entered France in 1997. During the first quarter, we remained advantaged by our balanced exposure to a diversified portfolio of commodities and pricing dynamics. Over and above the positive price differentials we received for our Dated Brent-based crude and European gas production, we also benefited from the continued devaluation of the Canadian dollar against both the U.S. dollar and the Euro. Our crude volumes in France and Australia continue to attract a meaningful consolidated premium to the Dated Brent crude index, which in turn has traded persistently above the West Texas Intermediate (WTI) index. With the added benefit of the weak Canadian dollar, our French and Australian crude volumes realized a consolidated average Canadian price of $121.57/boe (US$110.52/boe) versus a WTI reference price of $108.55/boe (US$98.68/boe), a positive differential of $13.02/boe (US$11.83/boe). Our Canadian crude volumes also benefited quarter-over-quarter from the weaker Canadian dollar, as well as from strong U.S. Midwest refining demand, pipeline takeaway capacity improvements, and growing crude-by-rail volumes, which helped to narrow the differential between Edmonton Sweet index prices and WTI. Our average realized price for Canadian crude production increased from $86.87/boe in the fourth quarter of 2013 to $95.25/boe in the first quarter of 2014. Our ongoing exposure to Canadian natural gas also enabled us to benefit, during the first quarter of 2014, from the meaningful increase in AECO index pricing to $5.21/GJ in the first quarter of 2014 as compared to $3.51/GJ in the prior quarter. Moreover, our Canadian natural gas exposure grew during the first quarter of 2014, in part due to the success of our Mannville condensate-rich natural gas drilling program. While Title Transfer Facility (TTF) index pricing softened modestly quarter-over-quarter, it remained strong relative to North American natural gas prices. Our European gas production, which originates from the Netherlands and Germany and is priced against TTF, received an average realized price of $10.29/mcf ($9.75/GJ).
While devaluation of the Canadian dollar results in a positive, outsized impact on fund flows from operations, thereby improving our overall payout ratio, it does increase the cost of our foreign denominated capital expenditures in Canadian dollar terms. To-date in 2014, devaluation of the Canadian dollar has translated to an increase in actual and anticipated capital expenditures for full-year 2014, as measured in Canadian dollars, of approximately $30 million. Combined with an additional $15 million of anticipated drilling-related capital spending, we are now forecasting full-year 2014 E&D capital expenditures of approximately $635 million (inclusive of anticipated E&D capital spending attributable to our acquisition of Elkhorn Resources Inc.).
The first quarter of 2014 marks another quarter of high activity and effective operational execution for our Company. We achieved significant quarter-over-quarter production growth in the first quarter of 2014, largely attributable to an active and successful drilling and completions program in Canada. Our Cardium production averaged more than 10,400 boe/d in the first quarter, and hit a new monthly record of approximately 11,300 boe/d in the month of March. Cardium production levels grew 12% over fourth quarter 2013 levels due to an active capital program that included 14 (13.3 net) new Cardium wells brought on production, and better-than-forecasted production volumes from several of our two-mile extended reach horizontal Cardium wells. Operating netbacks(1) related to our Cardium development averaged more than $70/boe in the first quarter. During 2014, we anticipate drilling more than 30 net Cardium wells. With respect to natural gas, we also continue to achieve better-than-forecasted results from our Mannville condensate-rich development program. Production volumes from Mannville development wells drilled in 2013 and 2014 averaged more than 3,000 boe/d during the first quarter of 2014. In 2014, we plan to drill eight (5.7 net) Mannville wells, and we expect drilling activity to increase in future years as we continue to develop the play and expand our inventory of economic prospects.
We continue to appraise our position in the Duvernay condensate-rich resource play, where we have amassed 317 net sections at the relatively low cost of approximately $76 million ($375/acre). Our position comprises three largely contiguous blocks in the Edson, West Pembina and Niton areas. To date, we have drilled three vertical stratigraphic test wells, and are currently drilling our first two horizontal appraisal wells. The first horizontal appraisal well is located in the down-dip part of our Edson block, where condensate yields are expected to be lower than the average in our overall land position. We selected this location because of its proximity to one of our vertical stratigraphic test wells, allowing us to conduct micro-seismic monitoring while we frac the horizontal well in the third quarter of 2014. Our second horizontal appraisal well, which we operate at a 34.8% working interest, is located along a shared lease-line in the Pembina block to allow partner participation. Completion of this second well, also employing micro-seismic monitoring, is also expected to occur during the third quarter. We anticipate that the horizontal well production results and interpreted fracture geometries from the micro-seismic data on both horizontal appraisal wells will assist us in optimizing completions on future horizontal wells. We are confident that we will be able to project the results to higher condensate yield drilling locations as we move to the northeast in our acreage position, which encompasses the entire breadth of the condensate-rich window. Our Duvernay rights generally underlie our Cardium oil and Mannville condensate-rich gas rights, which creates the potential for infrastructure, operational, and timing advantages if we progress to full development of the Duvernay resource play. In combination, 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.
On March 18, 2014, we announced that we had entered into an arrangement agreement to acquire Elkhorn Resources Inc., a private southeast Saskatchewan producer. On April 29, 2014, we announced completion of the acquisition for total consideration of $427 million. Total consideration comprised the assumption of an estimated $42 million of debt, $180 million of cash, and the issuance of 2.8 million common shares of Vermilion valued at approximately $205 million (based on the closing price per Vermilion common share of $72.50 on the Toronto Stock Exchange on April 29, 2014). The assets consist of high netback, light oil producing assets in the Northgate region of southeast Saskatchewan and include approximately 57,000 net acres of land (approximately 80% undeveloped), seven oil batteries, and preferential access to 50% or greater capacity at a solution gas facility that is currently under construction. Production from the assets is projected to average approximately 3,750 boe/d (97% crude oil) during 2014. More than 90% of the current production base is operated by Vermilion. We have currently identified approximately 175 (152 net) potential drilling locations targeting the Midale, Frobisher, Bakken, and Three Forks/Torquay formations.
We were also active in our European operations during the first quarter of 2014. In France, we kicked off our 2014-drilling program during the first quarter of 2014 with the drilling of our Parentis-224 (PS-224) well. We are currently evaluating results from the PS-224 well, which was the first of a nine-well drilling program that will target drilling in the Champotran, Cazaux, Parentis and Tamaris fields in France in 2014. We also continued to complete preparations for the phased transfer of our Vic Bihl natural gas production, which is currently shut-in, from the Lacq gas processing facility, where it was previously handled, to an alternative third party facility. We currently anticipate approximately 850 mcf/d of our Vic Bihl gas production will be back on-stream in the third quarter of 2014. The remainder of the shut-in gas production, approximately 3,400 mcf/d, at Vic Bihl is not expected to be back on production until late-2015. With our continued expansion in France, our French business has become well positioned to be an organic oil growth asset featuring low base decline rates, high netbacks from Dated Brent-based production, strong cash flow generation and high capital efficiencies on development projects.
In the Netherlands, we drilled the first two wells (Leeuwarden-102 and Hempens-01) of our planned seven-well 2014 drilling program during the first quarter. The Leeuwarden-102 well is being tested in a partially-depleted Vlieland sa