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Vermilion Energy Inc. Announces Results for the Year Ended December 31, 2020 and 2020 Reserves Information

March 8, 2021

CALGARY, AB, March 8, 2021 /CNW/ - Vermilion Energy Inc. ("Vermilion", "We", "Our", "Us" or the "Company") (TSX: VET) (NYSE: VET) is pleased to report operating and financial results for the year ended December 31, 2020 along with our 2020 reserves information.

The audited financial statements, management discussion and analysis and annual information form for the year ended December 31, 2020 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

  • In 2020, we generated $502 million of fund flows from operations ("FFO")(1) and $135 million of free cash flow ("FCF")(1) after investing $367 million on exploration and development ("E&D") capital expenditures. This resulted in a payout ratio of 92% including reclamation and abandonment expenditures and dividends paid earlier in the year.

  • In Q4 2020, we generated $135 million of FFO and invested $60 million of E&D capital, resulting in FCF of $75 million which went toward debt reduction. After funding reclamation and abandonment expenditures and minor acquisitions, we reduced the amount outstanding under our revolving credit facility by approximately $175 million over the second half of 2020, leaving us with over $500 million of liquidity available at year-end.

  • Achieved 2020 average production of 95,190 boe/d(2), slightly above the midpoint of our guidance range of 94,000 to 96,000 boe/d. Q4 2020 production averaged 87,848 boe/d(2), reflecting the impact from a capital program executed predominately during the first part of 2020 with limited drilling activity over the second half of the year.

  • Production from our North American assets averaged 58,774 boe/d(2) in Q4 2020, a decrease of 10% from the prior quarter primarily due to natural decline. The majority of our 2020 North American drilling program was executed during the first half of the year with limited new production added during the second half of the year.

  • Production from our International assets averaged 29,073 boe/d(2) in Q4 2020, a decrease of 5% from the prior quarter primarily due to a planned turnaround in Australia and natural decline.

  • Total proved plus probable reserves decreased 7% from the prior year to 467 mmboe, as evaluated by GLJ as at December 31, 2020(3). The decrease is primarily due lower capital activity levels and economic impacts.

  • Proved plus probable reserve life index remains in excess of 13.

  • During Q4 2020, we announced several management changes including the appointments of Mr. Dion Hatcher and Mr. Darcy Kerwin to the newly created roles of Vice President, North America and Vice President, International and HSE, respectively. In lieu of filling the role of COO, Mr. Hatcher and Mr. Kerwin will jointly fulfill the duties and continue to emphasize our focus on cost-control and safe, efficient, profitable operations.

  • Vermilion was ranked at the top of our peer group in 2020 in the SAM Corporate Sustainability Assessment ("CSA"). We were also selected for The Sustainability Yearbook 2021, which reflects that our CSA sustainability performance is within the top 15% of our industry (SAM's Upstream Oil & Gas and Integrated category). Vermilion's 2020 Sustainability Report can be found on our website using the following link:
    http://sustainability.vermilionenergy.com/

  • Subsequent to the end of the year we announced a disciplined and balanced E&D capital budget of $300 million for 2021, along with production guidance of 83,000 to 85,000 boe/d. The budget is focused on maximizing returns and FCF in order to facilitate debt reduction and preserve liquidity. Based on the mid-point of our 2021 production and capital expenditure guidance and assuming US$60/bbl WTI oil prices for the balance of the year, we expect to generate over $350 million of FCF in 2021, which will be used to reduce our debt.

 

(1)

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



(2)

Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type.



(3) 

Estimated gross proved, developed and producing, total proved, and total proved plus probable reserves as evaluated by GLJ Petroleum Consultants Ltd. ("GLJ") in a report dated February 12, 2021 with an effective date of December 31, 2020 (the "2020 GLJ Reserves Report").

 












($M except as indicated)

Q4 2020


Q3 2020


Q4 2019


2020


2019

Financial






Petroleum and natural gas sales

316,198


282,020


388,802


1,119,545


1,689,863

Fund flows from operations

135,212


114,776


215,592


502,065


908,055

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

0.85


0.73


1.38


3.18


5.87

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

0.85


0.73


1.38


3.18


5.82

Net (loss) earnings

(57,707)


(69,926)


1,477


(1,517,427)


32,799

    Net (loss) earnings ($/basic share)

(0.36)


(0.44)


0.01


(9.61)


0.21

Capital expenditures

59,894


31,330


100,625


367,202


523,164

Acquisitions

4,821


6,720


9,165


25,810


38,472

Asset retirement obligations settled

7,271


2,305


7,352


14,278


19,442

Cash dividends ($/share)



0.690


0.575


2.760

Dividends declared



107,702


90,067


427,311

    % of fund flows from operations

— %


—%


50%


18%


47%

Net dividends (1)



97,502


81,790


392,374

    % of fund flows from operations

— %


—%


45%


16%


43%

Payout (1)

67,165


33,635


205,479


463,270


934,980

    % of fund flows from operations

50 %


29%


95%


92%


103%

Net debt

2,105,983


2,136,219


1,993,194


2,105,983


1,993,194

Net debt to four quarter trailing fund flows from operations

4.19


3.67


2.20


4.19


2.20

Operational

Production (2)






    Crude oil and condensate (bbls/d)

40,555


43,240


46,261


43,421


47,902

    NGLs (bbls/d)

8,627


9,509


8,160


8,937


7,984

    Natural gas (mmcf/d)

232.00


256.34


260.72


256.99


266.82

    Total (boe/d)

87,848


95,471


97,875


95,190


100,357

Average realized prices






    Crude oil and condensate ($/bbl)

55.31


52.77


71.25


50.53


74.42

    NGLs ($/bbl)

19.20


15.04


14.63


13.06


13.61

    Natural gas ($/mcf)

4.13


2.34


3.61


2.77


3.58

Production mix (% of production)






    % priced with reference to WTI

40%


40%


40%


40%


39%

    % priced with reference to Dated Brent

17%


17%


17%


16%


18%

    % priced with reference to AECO

27 %


28%


26%


28%


25%

    % priced with reference to TTF and NBP

16%


15%


17%


16%


18%

Netbacks ($/boe)







    Operating netback (1)

19.67


16.29


27.53


17.58


29.25

    Fund flows from operations netback

16.50


12.95


24.40


14.32


24.77

    Operating expenses

13.00


10.21


12.52


11.89


12.01

    General and administration expenses

2.27


1.35


1.88


1.73


1.61

Average reference prices and foreign exchange rates






    WTI (US $/bbl)

42.66


40.93


56.96


39.40


57.03

    Edmonton Sweet index (US $/bbl)

38.59


37.42


51.59


34.08


52.15

    Saskatchewan LSB index (US $/bbl)

38.96


37.57


51.58


34.14


52.50

    Dated Brent (US $/bbl)

44.23


43.00


63.25


41.67


64.30

    AECO ($/mcf)

2.64


2.24


2.48


2.23


1.76

    NBP ($/mcf)

6.99


3.67


5.38


4.30


5.90

    TTF ($/mcf)

6.63


3.51


5.36


4.18


5.90

    CDN $/US $

1.30


1.33


1.32


1.34


1.33

    CDN $/Euro

1.55


1.56


1.46


1.53


1.49

Share information ('000s)










Shares outstanding - basic

158,724


158,308


156,290


158,724


156,290

Shares outstanding - diluted (1)

165,396


163,800


159,912


165,396


159,912

Weighted average shares outstanding - basic

158,561


158,307


155,950


157,908


154,736

Weighted average shares outstanding - diluted (1)

158,561


158,307


156,180


157,908


156,094

(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 the accompanying Management's Discussion and Analysis.

(2)

Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type.

Message to Shareholders

Vermilion started 2020 on a strong footing in what appeared to be a constructive outlook for commodity prices. That all changed in mid-February as the effects from the COVID-19 pandemic started to take hold. As we are all too aware now, the pandemic had devastating effects on the global economy and commodity prices. As commodity prices collapsed, we took swift and decisive action, making drastic changes to our business in order to protect the balance sheet and preserve financial liquidity. We reduced our 2020 capital program in March, suspended our dividend in April and, with other cost saving initiatives, reduced over $550 million combined of annualized cash outflows. In the months following, we made several changes to our executive leadership team and undertook a global organizational review to improve profitability and long-term sustainability. While these collective decisions were difficult to make, we can look back now with confidence and know that they were in the best interests of the Company. Not only did Vermilion successfully navigate this downturn, we have made several structural changes to our business that will improve our long-term sustainability and add value for our shareholders over the coming years.

One of the themes emerging from the COVID-19 pandemic is an increased awareness and focus on environmental, social and governance ("ESG") matters and the energy transition. Vermilion has been focused on ESG for well over a decade and we take great pride in our ESG leadership within the mid-cap energy space. Sustainability is fundamental to our business which is reflected in our consistently strong results and rankings from external ESG agencies, including Vermilion's recent inclusion in The Sustainability Yearbook 2021 based on the SAM (now S&P Global) Corporate Sustainability Assessment. We maintained our disciplined focus on ESG through 2020 despite the challenges caused by COVID-19, and we are committed to progressing our ESG initiatives in the future as we see Vermilion being a key contributor to the energy transition. As such, we are currently developing a comprehensive, long-term ESG strategy that will be fully integrated into our business with clear objectives, including further targets for emissions reductions. This new ESG strategy and associated targets are expected to be in place by mid-2021.

Despite all the challenges in 2020, we still managed to execute a $367 million exploration and development ("E&D") capital program and deliver annual average production of 95,190 boe/d(2) which is slightly above the midpoint of our guidance range of 94,000 to 96,000 boe/d. In 2020, we executed a front-end weighted capital program whereby approximately 65% of our E&D capital was invested in Q1 2020, resulting in peak production of over 100,000 boe/d in Q2 2020 and declining to 87,848 boe/d in Q4 2020. Through our profitability review, we have determined that this allocation of capital is not the most efficient and increases the challenges of managing our production base over time. We have incorporated these learnings into our 2021 budget and are targeting a much more level-loaded capital program in 2021, as was outlined in our budget announcement in January.

The volatile commodity environment in 2020 saw WTI oil prices peak above US$60/bbl at the beginning of the year and collapse to an unprecedented negative price in April as global storage levels surged following the stay-at-home measures put in place around the world. The WTI benchmark averaged US$39.40/bbl for 2020, compared to US$57.03/bbl in 2019. European natural gas prices experienced similar volatility as a result of the pandemic-induced demand destruction. The TTF benchmark traded below C$2/mcf in May but recovered to over C$8/mcf by December, averaging $4.30/mcf for the full year, compared to $5.90/mcf in 2019. Fortunately, we had the majority of our European conventional natural gas production hedged through the summer months at much higher prices, which offset some of this price weakness.

We generated $502 million of fund flows from operations ("FFO")(1) in 2020 and $135 million of free cash flow ("FCF")(1), which more than covered the dividends paid earlier in the year, along with reclamation and abandonment expenditures and minor acquisitions. In Q4 2020, we generated $135 million of FFO and invested $60 million of E&D capital, resulting in FCF of $75 million which went toward debt reduction. After accounting for reclamation and abandonment expenditures and minor acquisitions, we reduced the amount outstanding under our revolving credit facility by approximately $175 million during the second half of 2020, leaving us with over $500 million of liquidity available at year-end. Based on the mid-point of our 2021 production and capital expenditure guidance and assuming US$60/bbl WTI oil prices for the balance of the year, we expect to generate over $350 million of FCF in 2021, which will be used to further reduce our debt.

It has been a challenging year for the oil and gas industry and Vermilion; however, we are pleased with what our Company has accomplished under the circumstances. While we still have lots of work to do, we believe our Company is on a much stronger footing today and is better positioned for long-term value creation. Vermilion has a world class asset base comprised of highly efficient, low decline conventional oil and natural gas producing assets that generate strong free cash flow. These assets provide risk reducing attributes owing to their global diversification and global commodity exposure, and also provide significant leverage to recovering global commodity prices. In the near-term, all of our free cash flow will be allocated to debt reduction, but as we begin to make more meaningful progress towards our debt targets, we will review our long-term shareholder return policy to determine the appropriate time to reinstate a dividend and/or share buyback program. We would like to thank our shareholders for their ongoing support and look forward to providing further updates on our 2021 program as the year progresses.

We would like to share with you the news that Larry MacDonald, our Lead Director, has recently been awarded the Order of Canada. This award is made to individuals who have demonstrated "outstanding achievement and merit of the highest degree, especially in service to Canada or to humanity at large". This is absolutely a remarkable achievement for Larry and is a reflection of the significant personal contributions he has made for the disadvantaged, not only in Canada but also globally, over his lifetime. Larry has been a member of our Board of Directors since 2002 and we are proud to be associated with such an outstanding individual.

Q4 2020 Operations Review

North America

Production from our North American assets averaged 58,774 boe/d in Q4 2020, a decrease of 10% from the prior quarter primarily due to natural decline. The majority of our 2020 North American drilling program was executed during the first half of the year with limited new production added during the second half of the year. We resumed drilling activity in Alberta in the fourth quarter, drilling seven (6.6 net) Mannville wells and completing two (1.6 net) wells which were brought on production prior to year-end. The remaining five (5.0 net) wells were completed and brought on production in early 2021. No drilling or completion activity occurred in southeast Saskatchewan or Wyoming during the fourth quarter, however we expect to resume drilling in these areas in Q2 2021.

International

Production from our International assets averaged 29,073 in Q4 2020, a decrease of 5% from the prior quarter primarily due to a planned turnaround in Australia and natural decline. In Australia, we successfully completed an 11-day planned maintenance turnaround, which included the tie in of a new sediments management system which is expected to improve facility operating efficiency.

Activity in our European operating areas was primarily focused on maintenance, well work-over activities and planning for the 2021 drilling campaign in the Netherlands, Hungary and Croatia. All drilling permits have been received for our 2021 European drilling campaign, along with the production license for the Burgmoor Z5 well (46% working interest) in Germany which is scheduled to start-up in the second half of 2021. In France, we obtained the necessary authorization for trucking our Paris Basin light crude oil in advance of the Grandpuits refinery closure in Q1 2021. The refinery recently ceased all oil refining operations and we have begun trucking our light crude oil to other refineries in France without any disruption to our field operations. We will continue to evaluate transportation options and remain optimistic we can find a cost effective long-term solution.

2020 Reserve Report

Our 2020 total proved plus probable reserves decreased 7% from the prior year to 467 mmboe(3). The decrease is primarily due to lower commodity price assumptions and lower capital activity levels in 2020. Despite these revisions our total proved plus probable reserve life index remains greater than 13 years while our total proved plus probable 3-year F&D operating recycle ratio remains over 2 times, owing to our high netback production base. In an effort to reduce costs, the Company did not complete a resource evaluation this year.

The following table provides a summary of company interest reserves by reserve category and region on an oil equivalent basis. Please refer to Vermilion's 2020 Annual Information Form for the year ending December 31, 2020 ("2020 Annual Information Form") for detailed information by country and product type.

 








BOE (mboe)

Proved Developed
Producing

Proved Developed
Non-Producing

Proved
Undeveloped

Proved

Probable

Proved Plus
Probable

North America

124,376

5,652

79,155

209,183

136,969

346,152

International

60,977

7,112

7,992

76,081

44,370

120,451

Vermilion

185,353

12,764

87,147

285,264

181,339

466,603

 

The following table summarizes the finding and development costs and associated operating recycle ratios by reserve category for the three-year period ending December 31, 2020:

 




3-Year Average


PDP

1P

2P

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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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