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CALGARY, Aug. 2, 2012 /CNW/ - Vermilion Energy Inc. ("Vermilion" or the "Company") (TSX - VET) is pleased to report interim operating and unaudited financial results for the three and six months ended June 30, 2012.
Conference Call and Audio Webcast Details
Vermilion will discuss these results in a conference call to be held on Thursday, August 2, 2012 at 9:00 AM MST (11:00 AM EST). To participate, you may call toll free 1-877-407-9205 (North America) or 1-201-689-8054 (International). The conference call will also be available on replay by calling 1-877-660-6853 (North America) or 1-201-612-7415 (International) using account number 286 and conference ID number 395902. The replay will be available until midnight eastern time on August 19, 2012.
You may also listen to the audio webcast by clicking www.investorcalendar.com/IC/CEPage.asp?ID=168841 or visit Vermilion's website at www.vermilionenergy.com/ir/eventspresentations.cfm.
|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 of natural gas, natural gas liquids and crude oil 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 in U.S. dollars at Cushing, Oklahoma for crude oil of standard grade|
|AECO||the daily average Alberta natural gas price as traded on the Natural Gas Exchange|
|PRRT||Petroleum Resource Rent Tax, a profit based tax levied on petroleum projects in Australia|
|GAAP||Canadian Generally Accepted Accounting Principles or, alternatively,IFRS|
|IFRS||International Financial Reporting Standards or, alternatively, GAAP|
Certain statements included or incorporated by reference in this document may constitute forward looking statements under applicable securities legislation. 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:
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:
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. 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 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.
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.
|($M except as indicated)||Three Months Ended||Six Months Ended|
|June 30,||March 31,||June 30,||June 30,||June 30,|
|Petroleum and natural gas sales||246,544||310,488||278,297||557,032||508,037|
|Fund flows from operations 1||127,775||151,122||119,299||278,897||221,084|
|Fund flows from operations ($/basic share)||1.30||1.56||1.32||2.87||2.47|
|Fund flows from operations ($/diluted share)||1.28||1.54||1.30||2.82||2.43|
|Net earnings per share ($/basic share)||0.39||0.67||0.90||1.06||1.21|
|Acquisitions, including acquired working capital deficiencies 1||-||110,282||(190)||110,282||38,101|
|Asset retirement obligations settled||2,581||766||9,612||3,347||11,243|
|Cash dividends ($/share)||0.57||0.57||0.57||1.14||1.14|
|Less: Issuance of shares pursuant to the dividend reinvestment plan||(18,781)||(17,558)||(14,084)||(36,339)||(27,060)|
|Net dividends 1||37,181||37,566||37,337||74,747||75,303|
|% of fund flows from operations, gross||44%||36%||43%||40%||46%|
|% of fund flows from operations, net||29%||25%||31%||27%||34%|
Total net dividends, capital expenditures and asset retirement
|% of fund flows from operations||105%||88%||111%||96%||131%|
|% of fund flows from operations (excluding the Corrib project)||93%||80%||90%||86%||114%|
|Net debt 1||524,610||530,031||434,549||524,610||434,549|
|Crude oil (bbls/d)||24,658||24,492||20,820||24,576||20,671|
|Natural gas (mcf/d)||78,629||80,393||77,952||79,512||76,131|
|% priced with reference to WTI||23%||23%||15%||23%||15%|
|% priced with reference to AECO||18%||18%||20%||18%||21%|
|% priced with reference to Dated Brent||59%||59%||65%||59%||64%|
|Average selling price|
|Crude oil and NGLs ($/bbl)||100.07||113.99||115.04||103.17||106.04|
|Natural gas ($/mcf)||5.79||5.77||6.43||5.78||6.17|
|Netbacks ($/boe) 1|
|Fund flows netback||39.40||42.30||37.22||39.85||35.16|
|Average reference prices|
|WTI (US $/bbl)||93.49||102.93||102.56||98.21||98.33|
|Dated Brent (US $/bbl)||108.19||118.49||117.36||113.34||111.16|
|Average foreign exchange rates|
|CDN $/US $||1.01||1.00||0.97||1.01||0.98|
|Share information ('000s)|
|Basic shares outstanding||98,330||96,838||90,322||98,330||90,322|
|Diluted shares outstanding 1||101,249||99,557||92,438||101,249||92,438|
|Weighted average shares outstanding|
|Basic shares outstanding||97,937||96,644||90,135||97,291||89,682|
|Diluted shares outstanding||99,923||98,191||91,514||99,000||90,902|
|1 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 solid performance during the second quarter of 2012 reflects the continued strength of the Company's international operations and the advantages of its global commodity exposure. The Company maintained stable production volumes of 39,168 boe/d in the second quarter of 2012 supported by strong operational performance across all of its key regions. Year over year, Vermilion's production has grown by more than 11%, attributable to continued growth in Canadian-based Cardium light oil production and the addition of approximately 2,200 boe/d in France related to the Company's acquisition of certain working interests in the Paris and Aquitaine basins in January 2012.
Vermilion's global commodity exposure continues to set the Company apart from its peers with approximately 43% of year to date production comprised of Brent-based crude and a further 15% comprised of Netherlands natural gas which realized a price of $9.65 per mcf during the first six months of 2012. The Company's strong leverage to global commodity markets, through its diversified international operations, places Vermilion in a strong competitive position relative to its Canadian peers who are faced with significant exposure to soft North American natural gas prices and a continued discount for Canadian-based crude products relative to WTI, which is expected to remain at a significant discount to Brent-based crudes for the foreseeable future.
During the second quarter of 2012, Canadian-based Edmonton Sweet crude differentials remained wide while Canadian natural gas prices at AECO softened a further 12% to approximately $1.90 per mcf. Many of Vermilion's Canadian peers have been significantly impacted and, while Vermilion is not immune to these price effects, the Company's netbacks remain relatively robust as a result of its significant exposure to Brent crude related pricing for its production in France and Australia and the continued strength of natural gas pricing in the Netherlands, which averaged $9.55 per mcf during the second quarter. Whereas Canadian crudes indexed to Edmonton Sweet were priced at an approximate $10.00 per barrel discount to average WTI pricing of $93.49 per barrel, Vermilion continued to see strong relative pricing for its Brent crude which averaged $108.19 per barrel during the quarter, an approximate $25 per barrel advantage versus Edmonton Sweet indexed crudes.
Vermilion continues to experience better than expected operational performance across all of its key operating regions providing the Company with significant flexibility in the management of its operations. As a result, with the release of its first quarter 2012 operating and financial results, Vermilion announced an increase to its 2012 planned capital expenditures to approximately $450 million, a 21% increase from its previous budget of $373 million announced in December 2011. The additional capital will target Cardium drilling and completions in the second half of 2012 and effectively increases Vermilion's planned 2012 drilling program to approximately 40 net Cardium wells. As the majority of this incremental activity is scheduled to take place in the latter part of the year, it is not expected to materially impact anticipated 2012 consolidated production volumes. In addition, given the current weakness in natural gas prices in Canada, the Company plans to temporarily shut-in approximately 6 mmcf/d (1,000 boe/d) of low profitability Canadian natural gas volumes during the second half of 2012. The Company intends to bring this production back on-stream later in the year to meet certain lessee obligations and in anticipation of potentially higher seasonal pricing. Despite the planned shut-in of approximately 15% of the Company's Canadian natural gas production for most of the second half, Vermilion currently anticipates achieving average 2012 production volumes toward the middle or upper end of current guidance of between 37,000 and 38,000 boe/d, while further improving profitability.
The Company's Canadian development activities will continue to focus primarily on the full scale development of the Cardium light oil play. Vermilion's well performance remains consistent and continues to outpace that of other operators in the West Pembina region. The Company has made significant strides in reducing average per well costs to between $3.5 and $3.7 million per well, and transportation costs continue to decrease as Vermilion ties-in and processes greater volumes through its newly constructed oil processing facility. At the end of the second quarter of 2012, Vermilion drilled or participated in approximately 91.3 net wells, 81.2 of which were on production. With an identified inventory at the beginning of 2012 of approximately 300 additional economic prospects in the West Pembina region, Vermilion has a drilling inventory that is expected to last at least six years at an expected drilling rate of 40 to 60 wells per year. That inventory may grow as Vermilion achieves continuous improvement in costs and productivity in this resource play, and seeks to consolidate existing land positions within the West Pembina operating region. A further 120 prospects have been identified on Vermilion's legacy acreage; they are viewed as having marginal economics in the current environment but could be drilled in future years if technological improvements, costs or commodity prices change sufficiently to improve the economics of these prospects.
Vermilion continues to benefit from strong volumes from three Australian offshore wells brought on production in the fall of 2010 and has identified additional infill drilling opportunities at Wandoo that should enable it to maintain production levels between 6,000 and 8,000 boe/d for the foreseeable future, dependent on the timing of future drilling programs. The Company is currently planning to initiate a two to three well drilling program in late 2012 with related production additions anticipated in early 2013. Wandoo continues to be a strong cash flow generator attracting pricing at a meaningful premium to the Dated Brent index for crude oil with no transportation costs as a result of production being inventoried and sold directly at the platform.
In January 2012, Vermilion announced that it had closed the previously announced acquisition of certain working interests in six producing fields located in the Paris and Aquitaine basins in France. The assets are expected to average approximately 2,200 boe/d of production in 2012, weighted 86% to high quality Brent-based crude, and add an estimated 6.7 million boe1 of proved plus probable reserves (96% crude oil). Vermilion paid approximately $106 million at closing of the acquisition reflecting a cost of approximately $48,200 per flowing boe and $15.80 per boe of proved plus probable reserves as evaluated by GLJ and effective December 31, 2011. The acquired assets consist of interests in the Itteville (79%), Vert Le Grand (90%), Vert Le Petit (100%), La Croix Blanche (100%) and Dommartin-Lettrée (56%) fields in the Paris Basin and the Vic Bilh (73%) field in the Aquitaine Basin. Vermilion previously held the remaining non-operated working interests in each of the Itteville, Vert Le Grand and Vic Bilh fields and now holds a 100% operated working interest in each of the acquired fields with the exception of the Dommartin-Lettrée field in the Paris Basin, in which the Company now holds a 56% non-operated interest. The acquisition was a natural addition to Vermilion's existing France asset base and is well aligned with the Company's strategic objective to maintain and consolidate its core operating areas and to increase its operating control where feasible. The acquired assets further strengthen Vermilion's position as the leading oil producer in France, and with a significant weighting toward high quality oil, are expected to provide robust netbacks in the current commodity price environment. Vermilion is in the preliminary stages of evaluating these new properties and believes it has identified numerous areas where it can reduce the current cost structure of these assets and increase production over time through optimized production operations, waterflood management and exploitation of infill development opportunities.
During the second quarter, Vermilion drilled the first of two planned wells in the Netherlands for 2012. The Vinkega-2 development well, located in the Gorredijk concession, is targeting the Rotliegend sandstone and is a follow-up drill to the Company's successful discovery well, Vinkega-1, drilled in 2009. The well was rig-released at the end of June following successful drilling operations which were completed on time and on budget. The Company has commenced testing operations and is currently awaiting final test results and analysis. Vermilion currently plans to commence drilling of a second Netherlands well during the third quarter of 2012. Additionally, production volumes from the 2009 De Hoeve-1 well were brought on production in May 2012, with ongoing planning and permitting activities for tie-in of production volumes from the 2011 drilling campaign in late 2012 or early 2013. Looking forward, Vermilion intends to maintain a rolling inventory of projects such that each year will involve a combination of new wells and tie-in of prior successes.
In Ireland, the Corrib partners have received all key approvals enabling preparation and construction of the tunnelling site for the onshore pipeline. On January 22, 2012, the period for appeals of the regulatory permits expired with no appeals remaining outstanding, effectively bringing the regulatory approval phase of the project to a close. The Corrib partners have turned over the site to the tunnelling contractor who will prepare the site and install the tunnel boring machine, scheduled to arrive in August 2012, in advance of tunneling operations which are scheduled to commence during the fourth quarter of 2012. First gas at Corrib is currently anticipated to occur in late 2014.
Beginning in late 2010, the Company launched its New Growth Initiative forming two teams of senior technical professionals focused on the identification and capture of positions in Canada and Europe to provide the Company with exposure to new and emerging unconventional shale oil and natural gas development opportunities with the potential to deliver meaningful production and reserves growth over the next five to ten years and beyond. As a result of this initiative, the Company has invested a cumulative $84 million since late 2010 to acquire undeveloped lands in Canada with prospective exposure to one emerging shale oil and two liquids-rich gas resource opportunities. Including a recent purchase of crown land subsequent to the second quarter of 2012, Vermilion has actively acquired a total of 408.5 net sections of undeveloped land in Canada with unconventional development opportunities. As a result of these acquisitions, the Company now holds several large and contiguous land blocks with exposure to emerging resource plays in Canada including 227 net sections on the Duvernay trend in the Greater Edson area. To date, Vermilion has re-entered an existing vertical wellbore on one of the blocks to test the Duvernay resource play and has completed one "mini" fracture operation to analyze the local rock mechanics in the zone of interest. In the coming months, the Company intends to complete a full scale vertical fracture in the Duvernay zone to evaluate potential reservoir performance, hydrocarbon content and gather additional technical information about the play. Over the next 12 to 24 months, the Company expects to complete more drilling and testing operations on the Duvernay and other acquired positions in addition to working toward the continued identification and capture of further opportunities in its key operating regions of Canada, Europe and Australia.
Vermilion remains positioned to deliver strong operational and financial performance over the next several years. The Company anticipates growing production by approximately 35% to 50,000 boe/d in 2015 through the continued development of its significant portfolio of organic growth opportunities. Combined with an anticipated 50% growth in fund flows from operations over that same period, Vermilion remains confident of its ability to maintain a stable dividend for investors with the potential for dividend growth over time. Near term development will continue to focus on high netback oil and European natural gas opportunities, including light oil production growth from the Cardium play in Western Canada and continued development of high netback natural gas prospects in the Netherlands. In addition, with the regulatory process now complete, Vermilion and its partners are positioned to complete construction of the onshore pipeline, the final remaining phase of development for the Company's Corrib natural gas project in Ireland. With five wells currently drilled, tested and ready for production and construction of related pipelines and facilities largely complete, the Corrib project is anticipated to deliver approximately 55 mmcf/d (9,000 boe/d) of net production to Vermilion when it comes on stream in late 2014 providing strong production and cash flow growth for the Company in 2015. Beyond 2015, growth is anticipated to come from the development of new and emerging resource plays in Canada and Europe supported by relatively stable production in Australia, France and Ireland that is expected to deliver significant cash flows to enable the funding of these new growth opportunities.
The Company's conservative fiscal management and limited use of equity to finance its growth objectives should ensure that future growth is realized on a per share basis for investors. The management and directors of Vermilion continue to control approximately 8% of the outstanding shares and remain committed to delivering superior rewards to all stakeholders. Further, the Company continues to be recognized for excellence in its business practices. In the first quarter of 2012, Vermilion was recognized for the third consecutive year by the Great Place to Work® Institute in both Canada and France. Vermilion ranked as the 25th Best Workplace in Canada among more than 230 companies that participated in the study while Vermilion's France office ranked as the 24th Best Workplace in France.
1 Estimated proved plus probable reserves attributable to the assets as evaluated by GLJ Petroleum Consultants Ltd. ("GLJ") in a report dated October 14, 2011 with an effective date of December 31, 2011.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is Management's Discussion and Analysis ("MD&A"), dated August 1, 2012, of Vermilion Energy Inc.'s ("Vermilion" or the "Company") operating and financial results as at and for the three and six months ended June 30, 2012 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 six months ended June 30, 2012 and the audited consolidated financial statements for the year ended December 31, 2011 and 2010, 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 six months ended June 30, 2012 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.
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. The most directly comparable GAAP measure is cash flows from operating activities.
"Fund flows from operations (excluding the Corrib project)" represents fund flows from operations excluding transportation expense related to the Corrib project. Transportation expense related to the Corrib project pertains to a ship or pay agreement and, as there is a ceiling on the total payments due in relation to the associated pipeline, these expenses essentially represent a prepayment for future pipeline transportation services.
Cash flows from operating activities as presented in Vermilion's consolidated statements of cash flows are reconciled to fund flows from operations as follows:
|Three Months Ended||% change||Six Months Ended||% change|
|June 30,||March 31,||June 30,||Q2/12 vs.||Q2/12 vs.||June 30,||June 30,||2012 vs.|
|Cash flows from operating activities||123,485||124,887||61,930||248,372||188,547|
Changes in non-cash
operating working capital
|Asset retirement obligations settled||2,581||766||9,612||3,347||11,243|
|Fund flows from operations||127,775||151,122||119,299||(15%)||7%||278,897||221,084||26%|
related to the Corrib project
Fund flows from operations
(excluding the Corrib project)
"Acquisitions, including acquired working capital deficiencies" are the sum of "Property acquisitions" as presented in Vermilion's consolidated statements of cash flows, plus any working capital deficiencies acquired as a result of those acquisitions. Management considers acquired working capital deficiencies to be an important element of a property acquisition.
Property acquisitions as presented in Vermilion's consolidated statements of cash flows are reconciled to acquisitions, including acquired working capital deficiencies as follows:
|Three Months Ended||% change||Six Months Ended||% change|
|June 30,||March 31,||June 30,||Q2/12 vs.||Q2/12 vs.||June 30,||June 30,||2012 vs.|
|Acquired working capital deficiencies||-||4,098||-||4,098||-|
|Acquisitions, including acquired|
|working capital deficiencies||-||110,282||(190)||(100%)||100%||110,282||38,101||189%|
"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:
|June 30,||Dec 31,|
"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. Dividends both before and after the dividend reinvestment plan are reviewed by management and are also assessed as a percentage of fund flows from operations to analyze how much of the cash that is generated by Vermilion is being used to fund dividends. Dividends declared are the most directly comparable GAAP measures to net dividends.
Dividends declared as presented in Vermilion's consolidated statements of changes in shareholders' equity are reconciled to net dividends as follows:
Three Months Ended
PDF available at: http://www.vermilionenergy.com/files/historical-press-releases/2012/2012-08-02 - Second Quarter Results.pdf
Vermilion Energy Inc.
3500, 520 3rd Avenue SW
Calgary, Alberta T2P 0R3