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Vermilion Energy Inc. Announces Results for the Year Ended December 31, 2018 and 2018 Reserves and Resources Information

February 28, 2019

CALGARY, Feb. 28, 2019 /CNW/ - Vermilion Energy Inc. ("Vermilion", "We", "Our", "Us" or the "Company") (TSX, NYSE: VET) is pleased to report operating and financial results for the year ended December 31, 2018 along with our 2018 reserves and resources information.

The audited financial statements, management discussion and analysis, and annual information form for the year ended December 31, 2018, will be available on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com, on EDGAR at www.sec.gov/edgar.shtml, and on Vermilion's website at www.vermilionenergy.com.

Highlights

  • Q4 2018 production averaged 101,621 boe/d, representing a 6% increase over the prior quarter, primarily due to strong performance from our Netherlands, Canadian and US business units.
  • 2018 production increased by 28% year-over-year to 87,270 boe/d (10% on a per share basis), within 1% of the mid-point of our guidance range.
  • Fund flows from operations ("FFO")(1) for Q4 2018 was $222 million ($1.46/basic share(1)), down 15% from the previous quarter as higher production was more than offset by lower commodity prices. FFO in 2018 was $839 million ($5.96/basic share(1)), an increase of 39% from the prior year (19% on a per share basis), due to higher production volumes and commodity prices, which were partially offset by $111 million of realized hedging losses.
  • Net earnings in 2018 were $272 million ($1.93/basic share), representing a 336% increase over the prior year (271% on a per share basis). We generated a Return on Capital Employed(1) ("ROCE") of 9%, compared to our 5-year average ROCE of 4%.
  • Production in the Netherlands in Q4 2018 averaged 8,749 boe/d, an increase of 17% from the prior quarter. The increase is primarily due to the benefit of a full quarter contribution from the Eesveen-02 well (60% working interest), which we brought on production late in the third quarter at a restricted rate of 10 mmcf/d net.
  • In Ireland, production from the Corrib Natural Gas Project (the "Corrib Project") averaged 52 mmcf/d (8,672 boe/d) in Q4 2018, an increase of 1% from the prior quarter. On November 30, 2018, we assumed operatorship of the Corrib Project and completed the transfer of Shell E&P Ireland Limited ("SEPIL") along with an incremental 1.5% working interest in the Corrib Project to Vermilion from Nephin Energy Holdings Limited, a wholly owned subsidiary of Canada Pension Plan Investment Board ("CPPIB"). Cash consideration at closing was $9 million, which was more than offset by the assumption of $15 million in positive net working capital associated with the acquisition.
  • In Canada, production averaged a record 60,814 boe/d in Q4 2018, representing an increase of 6% from the previous quarter. The increase was primarily due to new well completions in both our southeast Saskatchewan assets and Alberta assets.
  • In the United States, Q4 2018 production averaged 3,545 boe/d, an increase of 19% from the prior quarter, due to a full quarter of production associated with the Powder River Basin acquisition completed in the prior quarter.
  • In Australia, production averaged 4,174 bbl/d in Q4 2018, down 11% from the previous quarter primarily due to a planned shutdown for maintenance and other downtime which was required to allow drilling of two new wells. We commenced drilling of the B15 and B16 wells in early November 2018 and completed the wells in late January 2019. The wells were tested in February 2019. The B15 well tested at an oil rate of 8,800 bbls/d over a 48-hour period and the B16 well tested at an oil rate of 7,600 bbls/d over a 36-hour period(2). We plan to intermittently produce the new wells at restricted rates to maximize long-term value.
  • Our 2018 reserves as evaluated by GLJ as at December 31, 2018 are as follows:
    • Proved plus probable ("2P") reserves increased 63% from year-end 2017 to 488.1(3) mmboe. We replaced 187% of 2P reserves through development activities and 695% including acquisitions. Our 2P finding and development ("F&D") cost(4) was $7.79 per boe, including future development capital ("FDC")(4), resulting in an organic 2P Operating Recycle Ratio(5) (including FDC) of 4.1x compared to 2.8x in 2017.
    • Proved ("1P") reserves increased 69% from year-end 2017 to 298.2(3) mmboe. We replaced 157% of 1P reserves through development activities and 481% including acquisitions. Our 1P F&D cost was $13.49 per boe, including FDC, resulting in an organic 1P Operating Recycle Ratio(5) (including FDC) of 2.3x.
    • Proved developed producing ("PDP") reserves increased 55% from year-end 2017 to 192.1(3) mmboe. We replaced 130% of PDP reserves through development activities and 314% including acquisitions. Our PDP F&D cost was $15.65 per boe, including FDC, resulting in an organic PDP Operating Recycle Ratio(5) (including FDC) of 2.0x.
  • Our independent 2018 GLJ Resources Report(6) indicates risked low, best, and high estimates for contingent resources in the Development Pending category of 156(6) mmboe, 240(6) mmboe, and 334(6) mmboe respectively, increases of 45%, 36% and 32% from year-end 2017. The GLJ 2018 Resources Report also indicates risked low, best, and high estimates for contingent resources in the Development Unclarified category of 11(6) mmboe, 37(6) mmboe, and 53(6) mmboe respectively, increases of 47%, 13% and 15% from year-end 2017. Over 86% of our risked contingent resources reside in the Development Pending category. Prospective resources were assessed at risked low, best and high estimates of 55(6) mmboe, 161(6) mmboe, and 284(6) mmboe respectively, increases of 7%, 5% and 9% from year-end 2017. Our contingent and prospective resource bases remain a source of reserve additions, with 17 mmboe of contingent resources converted to 2P reserves during 2018.(6)
  • Vermilion was named to the CDP Climate Leadership Level (-A) for the second consecutive year in 2018. We were the only Canadian oil and gas company and one of only two North American oil and gas companies to receive this designation, ranking Vermilion in the top 5% of oil and gas companies globally. Vermilion ranked second within the oil and gas sector, and was among the top quartile of all companies in the S&P/TSX Composite Index in the annual Globe and Mail Board Games evaluation for 2018. We were also a finalist for the Finance and Sustainability Initiative's award for Best Sustainability Report in the Non-Renewable Resources - Oil and Gas category for our 2017 Sustainability Report, an award which we won last year for our 2016 Sustainability Report.

(1)

Non-GAAP Financial Measure.  Please see the "Non-GAAP Financial Measures" section of the accompanying Management's Discussion and Analysis.



(2)

B15ST1 well tested oil at an average rate of 8,769 bbls/d and zero barrels of water per day ("bwpd") over a 48-hour period at a flowing wellhead pressure of 900 kpa (130 psi) on a 100% open choke (130 mm or 5.1 inch diameter) with applied gas-lift of 22,000 m3/d (775 mcf/d).  The well was estimated to be flowing with a 30% drawdown of reservoir pressure.




B16ST2 well tested oil at an average rate of 7,600 bbls/d and 770 bwpd over a 36-hour period at a flowing wellhead pressure of 900 kpa (130 psi) on a 100% open choke (130 mm or 5.1 inch diameter) with applied gas-lift of 45,000 m3/d (1,590 mcf/d).  The well was estimated to be flowing with a 15% drawdown of reservoir pressure.



(3)

Estimated proved and proved plus probable reserves as evaluated by GLJ Petroleum Consultants Ltd. ("GLJ") in a report dated February 7, 2019 with an effective date of December 31, 2018 (the "2018 GLJ Reserves Report").



(4)

F&D (finding and development) and FD&A (finding, development and acquisition) costs are used as a measure of capital efficiency and are calculated by dividing the applicable capital expenditures for the period, including the change in undiscounted FDC (future development capital), by the change in the reserves, incorporating revisions and production, for the same period.



(5)

Operating Recycle Ratio is a measure of capital efficiency calculated by dividing the Operating Netback by the cost of adding reserves (F&D cost).  Operating Netback is calculated as sales less royalties, operating expense, transportation costs, PRRT and realized hedging gains and losses presented on a per unit basis.



(6)

Vermilion retained GLJ to conduct an independent resource evaluation dated February 7, 2019 to assess contingent and prospective resources across all of the Company's key operating regions with an effective date of December 31, 2018 (the "GLJ 2018 Resources Report").  The aggregate associated chance of development for each of the low, best and high estimate for contingent resources in the Development Pending category are 82%, 81% and 81%, respectively.  The aggregate associated chance of commerciality for each of the low, best and high estimate for prospective resources in the Prospect category are 24%, 23% and 24%, respectively.  There is uncertainty that it will be commercially viable to produce any portion of the resources.  Project maturity subclass development pending is defined as contingent resources where resolution of the final conditions for development is being actively pursued (high chance of development.  Project maturity subclass development unclarified is defined as contingent resources when the evaluation is incomplete and there is ongoing activity to resolve any risks or uncertainties.  Prospective resources are defined as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from unknown accumulations by application of future development projects.  There is no certainty that it will be commercially viable to produce any portion of the contingent resources or that Vermilion will produce any portion of the volumes currently classified as contingent resources.  There is no certainty that any portion of the prospective resources will be discovered.  If discovered, there is no certainty that it will be commercially viable to produce any portion of the prospective resources or that Vermilion will produce any portion of the volumes currently classified as prospective resources.  Please refer to Vermilion's 2018 Annual Information Form for further information on Vermilion's contingent resources and prospectus resources.

 












($M except as indicated)

Q4 2018


Q3 2018


Q4 2017



2018


2017

Financial











Petroleum and natural gas sales

456,939


508,411


317,341



1,678,117


1,098,838

Fund flows from operations

222,342


260,705


181,253



838,652


602,565

Fund flows from operations ($/basic share) (1)

1.46


1.71


1.49



5.96


5

Fund flows from operations ($/diluted share) (1)

1.44


1.69


1.47



5.89


4.92

Net earnings (loss)

323,373


(15,099)


8,645



271,650


62,258

Net earnings (loss) ($/basic share)

2.12


(0.1)


0.07



1.93


0.52

Capital expenditures

163,580


146,185


74,303



518,214


320,449

Acquisitions

2,689


198,173


3,048



1,759,425


27,637

Asset retirement obligations settled

6,562


2,986


3,216



15,765


9,334

Cash dividends ($/share)

0.690


0.690


0.645



2.715


2.580

Dividends declared

105,310


105,192


78,653



388,111


311,397

% of fund flows from operations


47%



40%



43%




46%



52%

Net dividends (1)

100,195


100,872


56,836



339,060


200,904

% of fund flows from operations


45%



39%



31%




40%



33%

Payout (1)

270,337


250,043


134,355



873,039


530,687

% of fund flows from operations


122%



96%



74%




104%



88%

Net debt

1,929,529


2,034,086


1,371,790



1,929,529


1,371,790

Ratio of net debt to annualized fund flows from operations

2.17


1.95


1.89



2.30


2.28

Operational

Production











Crude oil and condensate (bbls/d)

47,678


47,152


27,830



39,182


27,721

NGLs (bbls/d)

7,815


6,839


5,279



6,366


4,194

Natural gas (mmcf/d)

276.77


253.38


238.27



250.33


216.64

Total (boe/d)

101,621


96,222


72,821



87,270


68,021

Average realized prices











Crude oil and condensate ($/bbl)

66.19


85.84


74.12



79.16


67.00

NGLs ($/bbl)

25.69


27.97


29.28



26.33


25.00

Natural gas ($/mcf)

5.83


5.35


5.23



5.45


4.91

Production mix (% of production)











% priced with reference to WTI


37%



37%



21%




32%



20%

% priced with reference to Dated Brent


18%



18%



24%




20%



26%

% priced with reference to AECO


26%



26%



25%




26%



25%

% priced with reference to TTF and NBP


19%



19%



30%




22%



29%

Netbacks ($/boe)











Operating netback (1)

27.58


34.85


30.77



31.59


29.24

Fund flows from operations netback

23.79


29.69


27.13



26.47


24.34

Operating expenses

12.04


11.13


9.76



11.26


9.79

Average reference prices











WTI (US $/bbl)

58.81


69.50


55.40



64.77


50.95

Edmonton Sweet index (US $/bbl)

32.51


62.68


54.26



53.65


48.49

Saskatchewan LSB index (US $/bbl)

44.03


63.35


54.04



56.46


47.85

Dated Brent (US $/bbl)

67.76


75.27


61.39



71.04


54.27

AECO ($/mcf)

1.56


1.19


1.69



1.50


2.16

NBP ($/mcf)

11.03


10.95


8.70



10.35


7.49

TTF ($/mcf)

10.91


10.92


8.36



10.23


7.43

Average foreign currency exchange rates











CDN $/US $

1.32


1.31


1.27



1.30


1.30

CDN $/Euro

1.51


1.52


1.50



1.53


1.46

Share information ('000s)

Shares outstanding - basic

152,704


152,497


122,119



152,704


122,119

Shares outstanding - diluted (1)

156,173


155,747


125,140



156,173


125,140

Weighted average shares outstanding - basic

152,588


152,432


121,858



140,619


120,582

Weighted average shares outstanding - diluted (1)

153,880


153,839


123,450



142,335


122,408

(1)

The above table includes non-GAAP financial measures which may not be comparable to other companies.  Please see the "Non-GAAP Financial Measures" section of Management's Discussion and Analysis.

Message to Shareholders

In 2018, we drilled a total of 148.9 net wells and completed four acquisitions within our existing core areas, including the acquisition of Spartan Energy during Q2 2018, making this our most active year ever in terms of both organic and M&A activity.  As a result, we delivered record annual production of 87,270 boe/d, representing a year-over-year increase of 28%, or 10% on a per share basis.  Similarly, we increased our proved plus probable reserves by 63% to 488.1 mmboe(3), reflecting a year-over-year increase of 31% on a per share basis.

Our 2018 acquisitions added high netback, low decline and free cash flow(1) generating producing assets while also significantly expanding our future project inventory.  We are very disciplined in our M&A approach and apply a rigorous strategic framework, comprehensive technical evaluation methodology, and consistent decision criteria for any assets that we consider in our three operating regions.  Prior to 2018, we had been less active in M&A in North America due to the overly competitive nature of the North American market and consequent lower M&A returns as compared to Europe.  However, market conditions became more favourable under our criteria in North America in 2018, and we were able to opportunistically conclude the Spartan acquisition, a Saskatchewan/Manitoba waterflood purchase, a Powder River Basin stacked zone land and production acquisition, and the consolidation of additional Corrib interest.  These important acquisitions enhanced our margins, reduced risk in our operating and financial profiles, expanded our development project inventory, increased our oper

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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