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CALGARY, May 8, 2015 /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, 2015.
|(1)||Additional GAAP Financial Measure. Please see the "Additional and Non-GAAP Financial Measures" section of Management's Discussion and Analysis.|
ANNUAL GENERAL MEETING WEBCAST
As Vermilion's Annual General Shareholders Meeting is being held today, May 8, 2015 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=975216&s=1&k=8EF642AF4951C1D3776D76241E30DC52 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 position 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.
|AECO||the daily average benchmark price for natural gas at the AECO 'C' hub in southeast Alberta|
|bbls/d||barrels per day|
|bcf||billion cubic feet|
|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)|
|boe/d||barrel of oil equivalent per day|
|HH||Henry Hub, a reference price paid for natural gas in US dollars at Erath, Louisiana|
|mboe||thousand barrel of oil equivalent|
|mcf||thousand cubic feet|
|mcf/d||thousand cubic feet per day|
|mmboe||million barrel of oil equivalent|
|mmcf||million cubic feet|
|mmcf/d||million cubic feet per day|
|NGLs||natural gas liquids|
|PRRT||Petroleum Resource Rent Tax, a profit based tax levied on petroleum projects in Australia|
|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|
|WTI||West Texas Intermediate, the reference price paid for crude oil of standard grade in US dollars at Cushing, Oklahoma|
MESSAGE TO SHAREHOLDERS
While crude oil indices have risen from the 5-year lows reached during Q1 2015, the global price environment for crude oil remained depressed as we exited the first quarter of 2015. Although this price environment poses significant challenges for many energy sector participants, Vermilion remains comparatively well-positioned given our disciplined approach to financial management and our commodity diversification. In particular, our exposure to European natural gas markets, where fundamentals and pricing remain strong, is a key advantage differentiating Vermilion from its competitors.
Current European natural gas prices are more than triple those in North America, and our planned 2015 capital activities will allow us to continue to take advantage of this opportunity. In 2014, we expanded our European natural gas business with our entry into Germany, a producing region with a long history of development activity and strong market fundamentals. This acquisition increased our existing European natural gas production base by nearly 50% in 2014. With continued organic growth in our Netherlands gas production combined with additional gas production from our Corrib project in Ireland, we expect that European gas will comprise nearly 35% of total production by Q4 2015. In 2016, with a full year of Corrib production and assuming no changes in commodity pricing, European natural gas may generate as much as 45% of Vermilion's FFO(1).
Notwithstanding the general weakness in crude prices globally, the advantages of international crude exposure in fiscally competitive regions like France and Australia were also evident during Q1 2015. The operating netback from our Brent-based crude oil sales in Australia and France was a blended $44.76/boe, as compared to operating netbacks of $31.68/boe from WTI-based crude oil sales in North America.
In response to the depressed crude oil and North American natural gas price environment, we previously announced a reduction in our 2015 exploration and development program to $415 million, representing a 40% decrease versus 2014. With this reduction, assuming average WTI pricing for 2015 in the mid-$50 range, we would expect our cash inflows to nearly match our net cash outflows (excluding Corrib related capital expenditures). Despite this significant reduction in planned capital expenditures, we remain on target to achieve the lower end our original full year 2015 production guidance of 55,000 to 57,000 boe/d. This represents year-over-year production growth exceeding 10%, and we expect to achieve consolidated organic production growth in each quarter of 2015.
To further enhance the long-term and sustainable profitability of our business, we reinstated our Profitability Enhancement Program ("PEP"). Prior installments of PEP achieved strong results in both the 1998 industry downturn and the financial crisis of 2008-2009. Based on savings identified to-date, our third installment of PEP is expected to result in cost reductions estimated at between $50 and $60 million for full-year 2015 capital spending, operating expense and G&A. This is reflected in Q1 2015 operating expense per unit, which is 15% lower than Q4 2014 and 22% lower than Q1 2014.
Our European capital programs remain robust. In France, we completed a successful four (4.0 net) well drilling program at Champotran during Q1 2015. Subsequent to Q1 2015, all four wells were tied-in and are currently producing at a combined average rate of 980 bbls/d. This was our third successive drilling program since 2013, comprising a cumulative 13 wells at Champotran, with a 100% drilling success rate. After-tax rates of return associated with our Champotran oil drilling program remain in excess of 100%(2) at today's oil prices. The remainder of our 2015 capital expenditures in France will target highly economic workovers and optimization projects, as well as infrastructure and facility maintenance. During the second quarter, we expect to restore approximately 2 mmcf/d of shut-in natural gas production from our Vic Bilh field.
In the Netherlands, we plan to drill three (2.4 net) wells during Q2 2015 with volumes from these wells, if successful, expected to be on-stream during the second half of 2015. Subsequent to the end of Q1 2015, we reached total depth and logged the first well in our 2015 Netherlands drilling program, the Slootdorp-06 well in the province of North Holland (93% working interest). Based on electric logs, this well is a field-extending discovery, logging 71 m of gross gas column in the Rotliegend Sand. Production from the Slootdorp-06 well is expected to begin during the second half of 2015.
In Germany, our operating partner is drilling one (0.25 net) well in 2015, which was spudded late in Q1 2015. If successful, production from this well should be on-stream in mid-Q3 2015.
Our Corrib project in Ireland has continued to progress as expected. Remaining work includes the ongoing testing of all systems and processes required for the safe operation of the Bellanaboy gas processing terminal. The Irish Environmental Protection Agency issued its Proposed Determination for the Corrib Industrial Emissions License ("IEL") in April 2015. Based on remaining terminal activities and typical approval timelines for the final form of the IEL, we estimate that the most likely date for start-up is approximately mid-year, with a modest range of outcomes around that estimate. Production at Corrib is expected to increase over the first few months toward peak production levels estimated at approximately 58 mmcf/d (approximately 9,700 boe/d) net to Vermilion.
With strong fundamentals in our international operations and the significant flexibility offered by our Canadian asset base, we reduced our 2015 investment activity as compared to prior years. In our Cardium light-oil resource play, economics remain robust with capital investment rates of return in excess of 30%(2) . Results to-date have been strong, with better-than-forecasted production volumes on our two-mile extended reach horizontal wells. In Q1 2015, we participated in the drilling of only seven (3.1 net) Cardium wells in the quarter, which represents our planned Cardium drilling activities for 2015 (compared to 30 to 50 net wells in previous years). For the remainder of 2015, we will be focused predominately on the completion and tie-in of previously drilled wells. Our Mannville condensate-rich conventional natural gas play remains the most economic play in our Canadian portfolio with current rates of return in excess of 85%(2). During Q1 2015, we participated in drilling 13 (8.9 net) wells, representing approximately half of our planned 28 (16.0 net) well program for 2015. In Saskatchewan, we reduced our drilling activity to five (4.1 net) wells in 2015, all of which were drilled in Q1 2015. New well results in our downdip Midale play in Saskatchewan have been better than we expected at the time we entered this region in 2014. Duvernay drilling activities have been deferred to beyond 2015 as we monitor the performance of our two appraisal wells drilled in 2014. We achieved increased Canadian production despite having approximately 1,600 boe/d of production offline as a result of plant capacity restrictions and interruptible service curtailments on the NGTL system.
Our balance sheet remains a further source of strength. Subsequent to Q1 2015, we negotiated with our lenders for a further expansion and extension of our existing revolving credit facilities from $1.75 billion to $2 billion, which was previously increased from $1.5 billion in Q1 2015. Taking into account the most recent expansion to our credit facility, we have approximately $820 million of borrowing capacity available. The facility, which matures in May 2019, is fully revolving up to the date of maturity and subject to standard form covenants (discussed in the "Financial Position Review" section of our MD&A). We are, and expect to continue to be, in compliance with all applicable debt covenants, and expect to maintain our current dividend of $0.215 per share per month ($2.58 per share per year). With a nearly balanced budget at current commodity prices, we currently anticipate our balance sheet leverage to remain at current levels assuming current commodity prices, and then to naturally de-lever with the addition of FFO from our Corrib asset in the second half of 2015. While this represents higher financial leverage than we would normally carry, it is lower than the debt ratios of the majority of our peers, and should allow us the flexibility to manage our business effectively by providing continued growth and returns for shareholders in the current price environment.
Vermilion was recently ranked 15th by Corporate Knights on the Future 40 Responsible Corporate Leaders in Canada list (the highest ranking for an oil and gas company, and improved from our debut ranking of 32nd last year). We were also named Top International Producer of the year by The Explorers and Producers Association of Canada. This recognition reflects Vermilion's continued focus on achieving robust shareholder returns combined with environmental, social and governance performance. Our non-financial initiatives and performance are also articulated in the company's first annual CDP submission and sustainability report in 2014. Strong workplace practices and a culture that respects both people and communities are key elements in our success.
Subsequent to Q1 2015, Vermilion was pleased to announce that for a sixth consecutive year, it has been recognized by the Great Place to Work® Institute as a Best Workplace in Canada and France. Vermilion was also recognized for a second consecutive year as a Best Workplace in the Netherlands in 2015, after becoming eligible for ranking in 2014. Vermilion is the only energy company in its category to rank on the Best Workplaces lists in Canada and the Netherlands, and the highest scoring energy company on the Best Workplaces list in France.
The management and directors of Vermilion continue to hold approximately 6% of the outstanding shares and remain committed to delivering superior rewards to all stakeholders. In spite of the challenges posed by the current business environment, we continue to believe that Vermilion is situated for long-term, diversified growth. We remain confident that the assets in our portfolio can support organic growth for years to come, and in the current environment, we also find ourselves well positioned to take advantage of potential acquisition activity in both North American and international markets. Our long-term focus on the creation of real value through our technical capabilities, combined with our conservative financial approach and patience, should allow us to compete and transact for the benefit of our existing shareholders if suitable opportunities arise.
|(1)||The above discussion includes additional GAAP and non-GAAP 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.|
|(2)||Economics calculated using the following commodity price deck assumptions: $55/bbl WTI; $60/bbl Dated Brent; $2.75/mmbtu AECO; US$3.00/mmbtu Nymex; $9.00/mmbtu Title Transfer Facility (Netherlands); CAD/USD 1.20; CAD/EUR 1.40|
|Three Months Ended|
|($M except as indicated)||Mar 31,||Dec 31,||Mar 31,|
|Petroleum and natural gas sales||195,885||306,073||381,183|
|Fund flows from operations (1)||120,795||185,528||205,363|
|Fund flows from operations ($/basic share)||1.12||1.73||2.01|
|Fund flows from operations ($/diluted share)||1.11||1.71||1.97|
|Net earnings ($/basic share)||0.01||0.55||1.00|
|Asset retirement obligations settled||3,107||6,247||2,651|
|Cash dividends ($/share)||0.645||0.645||0.645|
|% of fund flows from operations||57%||37%||32%|
|Net dividends (1)||48,012||48,139||47,122|
|% of fund flows from operations||40%||26%||23%|
|% of fund flows from operations||187%||119%||120%|
|% of fund flows from operations (excluding the Corrib project)||173%||106%||111%|
|Net debt (1)||1,388,603||1,265,650||966,310|
|Ratio of net debt to annualized fund flows from operations (1)||2.9||1.7||1.2|
|Crude oil (bbls/d)||28,181||28,846||27,318|
|Natural gas (mmcf/d)||115.00||107.42||103.32|
|Average realized prices|
|Crude oil and NGLs ($/bbl)||58.25||78.64||111.62|
|Natural gas ($/mcf)||5.26||5.90||7.99|
|Production mix (% of production)|
|% priced with reference to WTI||28%||28%||25%|
|% priced with reference to AECO||20%||20%||17%|
|% priced with reference to TTF||18%||16%||19%|
|% priced with reference to Dated Brent||34%||36%||39%|
|Netbacks ($/boe) (1)|
|Fund flows from operations netback||29.07||38.67||47.76|
|Average reference prices|
|WTI (US $/bbl)||48.63||73.15||98.68|
|Edmonton Sweet index (US $/bbl)||41.83||66.79||90.43|
|Dated Brent (US $/bbl)||53.97||76.27||108.22|
|Average foreign currency exchange rates|
|CDN $/US $||1.24||1.14||1.10|
|Share information ('000s)|
|Shares outstanding - basic||107,718||107,303||102,453|
|Shares outstanding - diluted(1)||110,761||110,334||105,167|
|Weighted average shares outstanding - basic||107,513||107,102||102,278|
|Weighted average shares outstanding - diluted||109,305||108,646||104,171|
|(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.|
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is Management's Discussion and Analysis ("MD&A"), dated May 7, 2015, of Vermilion Energy Inc.'s ("Vermilion", "We", "Our", "Us" or the "Company") operating and financial results as at and for the three months ended March 31, 2015 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, 2015 and the audited consolidated financial statements for the year ended December 31, 2014 and 2013, 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, 2015 and comparative information have been prepared in Canadian dollars, except where another currency is indicated, and in accordance with IAS 34, "Interim Financial Reporting", as issued by the International Accounting Standard Board ("IASB").
This MD&A includes references to certain financial measures which do not have standardized meanings prescribed by International Financial Reporting Standards ("IFRS"). As such, these financial measures are considered additional GAAP or non-GAAP financial measures and therefore are unlikely to be comparable with similar financial measures presented by other issuers. These additional GAAP and non-GAAP financial measures include:
For a full description of these and other non-GAAP financial measures and a reconciliation of these measures to their most directly comparable GAAP measures, please refer to "ADDITIONAL AND NON-GAAP FINANCIAL MEASURES".
Vermilion is a Calgary, Alberta based international oil and gas producer focused on the acquisition, development and optimization of producing properties in North America, Europe, and Australia. We manage our business through our Calgary head office and our international business unit offices.
This MD&A separately discusses each of our business units in addition to our corporate segment.
We first issued 2015 capital expenditure guidance of $525 million on December 8, 2014. We subsequently adjusted our 2015 capital expenditure guidance to $415 million on February 27, 2015, in response to the continued weakness in commodity prices. The $110 million reduction in capital reflects lower planned activity levels, including the deferral of our Australian drilling campaign. Despite the reduction in our capital budget, we are maintaining our previous production guidance of 55,000-57,000 boe/d.
The following table summarizes our 2015 guidance:
|Date||Capital Expenditures ($MM)||Production (boe/d)|
|2015 - Guidance|
|2015 Guidance||December 8, 2014||525||55,000 to 57,000|
|2015 Guidance||February 27, 2015||415||55,000 to 57,000|
Vermilion strives to provide investors with reliable and growing dividends in addition to sustainable, global production growth. The following table, as of March 31, 2015, reflects our trailing one, three, and five year performance:
|Total return (1)||Trailing One Year||Trailing Three Year||Trailing Five Year|
|Dividends per Vermilion share||$2.58||$7.34||$11.90|
|Capital appreciation per Vermilion share||-$15.80||$7.24||$17.86|
|Total return per Vermilion share||-19.1%||31.7%||84.1%|
|Annualized total return per Vermilion share||-19.1%||9.6%||13.0%|
|Annualized total return on the S&P TSX High Income Energy Index||-22.1%||-3.6%||0.2%|
|(1)||The above table includes non-GAAP financial measures which may not be comparable to other companies. Please see the "ADDITIONAL AND NON-GAAP FINANCIAL MEASURES" section of this MD&A.|
CONSOLIDATED RESULTS OVERVIEW
|Three Months Ended||http://www.vermilionenergy.com/files/historical-press-releases/2015/2015-05-08 - First Quarter Earnings Results.pdf
Vermilion Energy Inc.
3500, 520 3rd Avenue SW
Calgary, Alberta T2P 0R3