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CALGARY, May 1, 2013 /CNW/ - Vermilion Energy Inc. ("Vermilion" or the "Company") (TSX, NYSE: VET) is pleased to report interim operating and unaudited financial results for the three months ended March 31, 2013.
Annual General and Special Meeting Webcast
As Vermilion's Annual General and Special Meeting is being held today, May 1, 2013 at 1:30 PM MST at the Metropolitan Centre, Calgary, Alberta, there will not be a first quarter conference call, however, a presentation will be given by Mr. Lorenzo Donadeo, President & CEO after the conclusion of the formal part of this meeting. Please visit http://www.vermilionenergy.com/ir/eventspresentations.cfm and click on webcast under upcoming events to view the presentation which will commence at approximately 1:45 PM MST.
|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 price for natural gas in the Netherlands, quoted in MWh of natural gas per hour per day, 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|
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:
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. 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 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.
Initial production and short-term rates are not necessarily indicative of long-term performance or of ultimate recovery.
In accordance with National Instruments 51-101, 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.
|Three Months Ended|
|($M except as indicated)||Mar 31,||Dec 31,||Mar 31,|
|Petroleum and natural gas sales||309,576||241,233||310,488|
|Fund flows from operations 1||163,629||141,737||151,122|
|Fund flows from operations ($/basic share)||1.65||1.43||1.56|
|Fund flows from operations ($/diluted share)||1.61||1.41||1.54|
|Net earnings per share ($/basic share)||0.53||0.58||0.67|
|Asset retirement obligations settled||1,388||8,424||766|
|Cash dividends ($/share)||0.60||0.57||0.57|
|Net dividends 1||44,080||37,967||37,566|
|% of fund flows from operations, gross||36%||40%||36%|
|% of fund flows from operations, net||27%||27%||25%|
|Total net dividends, capital expenditures and asset retirement obligations settled 1||225,937||203,426||132,692|
|% of fund flows from operations||138%||144%||88%|
|% of fund flows from operations (excluding the Corrib project)||127%||129%||80%|
|Net debt 1||744,762||677,231||530,031|
|Crude oil (bbls/d)||23,583||23,699||24,492|
|Natural gas (mmcf/d)||82.16||68.34||80.39|
|Average realized prices|
|Crude oil and NGLs ($/bbl)||103.98||96.74||113.99|
|Natural gas ($/mcf)||6.77||7.15||5.77|
|Production mix (% of production)|
|% priced with reference to WTI||24%||25%||23%|
|% priced with reference to AECO||18%||14%||18%|
|% priced with reference to European gas||18%||17%||16%|
|% priced with reference to Dated Brent||40%||44%||43%|
|Netbacks ($/boe) 1|
|Fund flows netback||43.89||46.07||42.30|
|Average reference prices|
|WTI (US $/bbl)||94.37||88.18||102.93|
|Dated Brent (US $/bbl)||112.55||110.02||118.49|
|Average foreign currency exchange rates|
|CDN $/US $||1.01||0.99||1.00|
|Share information ('000s)|
|Shares outstanding - basic||99,462||99,135||96,838|
|Shares outstanding - diluted 1||102,380||101,913||99,557|
|Weighted average shares outstanding - basic||99,301||98,944||96,644|
|Weighted average shares outstanding - diluted||101,349||100,425||98,191|
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
Performance during the first quarter of 2013 highlights Vermilion's strong operations and the benefits of global commodity exposure. Vermilion achieved consolidated production volumes of 38,707 boe/d and record quarterly fund flows from operations of $163.6 million. Vermilion was active in the first quarter drilling in Canada, Australia and France, positioning the Company for growth for the remainder of 2013.
Vermilion's global commodity exposure continues to afford the Company a significant competitive advantage with 40% of first quarter production volumes comprised of Brent-based crude and 18% comprised of high-netback European gas. Vermilion's Brent-based crude realized an average price of $113.34 per bbl, generating a nearly 30% premium over the Edmonton Sweet index which reflects pricing for Canadian light crude. The Company's Netherlands natural gas production received an average price $10.09 per mcf, a premium of $6.76 per mcf or over 200% compared to an average first quarter price of $3.33 per mcf for AECO natural gas in Canada. Vermilion's significant exposure to international pricing for the Company's high-netback liquids and European gas, enabled fund flows from operations growth of 15% quarter-over-quarter and outpaced production growth of 7%.
Canadian development activities continue to be focused on the full scale development of the Cardium light oil play. The Company's well performance to date remains consistent and continues to outpace that of most peers in the area, demonstrating the quality of Vermilion's land position in the West Pembina region. Since entering the play in 2009, the Company has drilled 201 gross wells (140 net) in the Cardium and increased production to over 8,400 boe/d. Vermilion continues to advance on a drilling and completions learning curve, including the implementation of water-based fracturing systems and multi-well pad drilling, and is currently the only Company in the region employing long reach wells (greater than one mile in length). Having generated a significant reduction in costs by drilling longer reach 1.5 mile horizontal wells, Vermilion is planning on drilling a higher percentage of 1.5 mile wells and potentially several 2.0 mile pilot wells over the remainder of 2013. Drilling longer horizontal wells has allowed the company to reduce well costs from more than $5 million per section to approximately $3 million per section in the first quarter of 2013. With a significant drilling inventory identified in its full Cardium development plan, Vermilion anticipates inventory to last five to six years at a drilling rate of 40 to 60 wells per year.
In the Mannville formation, positioned below the Cardium in the stratigraphic column, the Company has a significant inventory of liquids-rich natural gas horizontal drilling prospects. Vermilion plans to drill six gross (3.2 net) horizontal Mannville wells in 2013. Initial production results are now available from the first two wells in the Mannville program. The first well (50% Vermilion working interest) was put on production during the first quarter at a rate of 3.6 mmcf/d of natural gas and 515 bbls/d of condensate1. Subsequent to the end of the first quarter, the second well (82% working interest) was put on production at a rate of 2.6 mmcf/d of natural gas and 100 bbls/d of condensate2.
In the first quarter, Vermilion drilled and cored a third vertical stratigraphic test well in the Duvernay liquids-rich natural gas resource play. The Company has amassed 272 net sections in the Edson area capturing the full breadth of the liquids-rich natural gas fairway for approximately $74 million ($425 per acre). Vermilion's Duvernay rights largely underlie the Company's Cardium and Mannville positions, allowing for potential infrastructure, operational and timing advantages should full-field development of the Duvernay commence. The Duvernay has the potential to provide Vermilion with very significant development opportunities in its core Canadian operating region, and may deliver production growth into the latter half of the decade and beyond.
Australian activity in the first quarter of 2013 focused on the drilling program at Wandoo. Two sidetrack horizontal laterals from existing wells were drilled, including the longest horizontal section drilled at Wandoo to date at 3,400 metres. The first well was spud in early February, completed in mid-March, and put on production at an initial rate of approximately 3,000 bbls/d of oil3 prior to the end of the first quarter. The second well was spud in mid-March, and put on production at an initial rate of approximately 6,000 bbls/d of oil4 subsequent to the end of the first quarter. The jack-up drilling rig was demobilized and released in early April. The new sidetracks tested several drilling and geological concepts at Wandoo, including extreme long-reach horizontal drilling and further exploitation of the less-developed southern part of the field. The results will be incorporated into the geologic and numerical reservoir simulation models of Wandoo, with the objective of expanding and improving the Company's long-term drilling inventory. While the initial production rates are indicative of the high productivity that can be generated through extreme long reach horizontal drilling in this very permeable reservoir, the Company intends to significantly restrict production from these wells after an initial production period to maximize long-term resource recovery. Vermilion anticipates maintaining production levels between 6,000 and 8,000 boe/d in Australia for the foreseeable future with drilling programs approximately every 18 to 24 months. Australia continues to generate strong netbacks and garners pricing at a premium to the Dated Brent index and incurs no transportation cost as production is sold directly from the platform.
During the first quarter of 2013, Vermilion began a five well drilling program in the Champotran field including four infill wells as a part of a waterflood expansion and one field extension test well. The Company had two wells drilled and a further two spud at the end of the first quarter. Additional activities in France included workovers, recompletions and facilities upgrades in the Paris and Aquitaine basins. Vermilion's 2012 acquisitions were a natural addition to the Company's asset base in France and further secured the Company's position as the leading oil producer in France. Vermilion continues to work toward integration of these assets and the identification of further opportunities to decrease the current cost structure and increase production through optimized operations, water flood management and development drilling. Vermilion's French assets are consistent with the Company's sustainable growth-and-income model, with low base decline rates, high quality Brent-based production, strong cash flow generation and numerous long-term investment opportunities.
Vermilion continues permitting and drilling preparations in the Netherlands with respect to a three well drilling campaign planned for 2013. The Company's Garijp debottlenecking project was completed in the first quarter of 2013, enabling incremental production from the existing Vinkega-1 well and first gas from Vinkega-2 in the second quarter. Facility construction for Langezwaag-1 is ongoing with production additions anticipated in the second quarter of 2013. The Company is looking to increase activity in the Netherlands to maintain a rolling inventory of production-adding projects with the intent to ultimately establish a reliable long-term growth profile. In March, the Company was awarded an exploration license for the Akkrum concession, located directly between Vermilion's existing Gorredijk and Leeuwarden concessions. Covering more than 54,000 acres, the Akkrum concession adds to the Company's already significant land position and future projects in the Netherlands.
In Ireland, the tunnel boring machine was installed on December 16, 2012 and has begun tunneling activities related to the completion of the nine kilometer onshore pipeline for Corrib. Tunneling, construction and installation, commissioning and start-up are anticipated to take approximately two years to complete with first gas anticipated in late 2014 or early 2015. Peak production is expected to be reached in mid-2015 with production levels of approximately 55 mmcf/d (9,000 boe/d) net to Vermilion.
Vermilion remains positioned to deliver strong operational and financial performance over the next several years. The Company continues to target growth of approximately 30% to 50,000 boe/d in 2015 and fund flows from operations growth of approximately 40% over the same period (assuming current commodity pricing indications are realized). Near-to-medium term growth is expected to be driven by continued Cardium and Mannville development in Canada, high-netback natural gas in the Netherlands, and first gas from Corrib in late 2014 or early 2015. France and Australia production are anticipated to provide reliable production as well as significant cash flow during this time from Brent-based pricing, with the potential to provide production growth as Vermilion expands its technical work to mature investment projects in these areas.
Additional medium and long-term growth is expected to be generated by the Company's New Growth Initiative which is focused on the identification and development of emerging resource plays in Canada and the greater European region, including the Duvernay liquids-rich natural gas resource. As an example of the Company's greater European effort, Vermilion has acquired an exploration permit for 2.34 million acres in Morocco. This opportunity is consistent with the Company's low-cost, early-entry strategy to secure large positions in unconventional shale oil and natural gas plays, providing significant optionality and potential for growth into the latter half of the decade.
Vermilion increased its monthly dividend 5.3% in the first quarter of 2013, from $0.19 to $0.20 per share. The increase became effective for the January 2013 dividend paid February 15, 2013. Based on increasing certainty for Corrib development timing and the strength of anticipated future cash flows from a variety of sources, the Company is committed to providing a reliable and growing dividend stream to investors.
On March 12, 2013, Vermilion shares began trading on the New York Stock Exchange under the ticker symbol "VET". As an international oil and gas producer, the Company believes the secondary listing may assist in broadening its investor base and increasing trading liquidity.
Vermilion's conservative fiscal management and capital discipline leaves the Company well positioned to execute its growth-and-income model and provide growth to investors on a per share basis. The management and directors of Vermilion continue to hold approximately 8% of the outstanding shares and remain committed to delivering superior rewards to all stakeholders. Continuing to be acknowledged for excellence in its business practices, Vermilion was recognized for the fourth consecutive year by the Great Place to Work® Institute in both Canada and France. Vermilion ranked as the 22nd Best Workplace in Canada among more than 315 companies. Vermilion's France subsidiary ranked as the 27th Best Workplace in the country.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is Management's Discussion and Analysis ("MD&A"), dated April 30, 2013, of Vermilion Energy Inc.'s ("Vermilion" or the "Company") operating and financial results as at and for the three months ended March 31, 2013 as 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, 2013 and the audited consolidated financial statements for the year ended December 31, 2012 and 2011, 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, 2013 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.
"Fund flows from operations (excluding the Corrib project)" represents fund flows from operations excluding expenses related to the Corrib project. Management believes that by excluding expenses related to the Corrib project, fund flows from operations (excluding the Corrib project) provides a useful measure of Vermilion's ability to generate cash from its current producing assets.
The most directly comparable GAAP measure to fund flows from operations and fund flows from operations (excluding the Corrib project) is cash flows from operating activities.
Cash flows from operating activities as presented in Vermilion's consolidated statements of cash flows are reconciled to fund flows from operations and fund flows from operations (excluding the Corrib project) as follows:
|Three Months Ended|
|Mar 31,||Dec 31,||Mar 31,|
|Cash flows from operating activities||190,712||99,907||124,887|
|Changes in non-cash operating working capital||(28,471)||33,406||25,469|
|Asset retirement obligations settled||1,388||8,424||766|
|Fund flows from operations||163,629||141,737||151,122|
|Expenses related to the Corrib project||1,855||2,023||2,364|
|Fund flows from operations (excluding the Corrib project)||165,484||143,760||153,486|
"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, both as presented in Vermilion's consolidated statements of changes in shareholders' equity. Dividends both before and after the dividend reinvestment plan are reviewed by management and are assessed as a percentage of fund flows from operations to analyze the amount of cash that is generated by Vermilion which is being used to fund dividends. Dividends declared is the most directly comparable GAAP measure to net dividends.
"Total net dividends, capital expenditures and asset retirement obligations settled" are net dividends plus the following amounts from Vermilion's consolidated statements of cash flows: drilling and development, exploration and evaluation, dispositions and asset retirement obligations settled.
"Total net dividends, capital expenditures and asset retirement obligations settled (excluding the Corrib project)" are total net dividends, capital expenditures and asset retirement obligations settled excluding drilling and development and asset retirement obligations settled relating to the Corrib project.
Total net dividends, capital expenditures and asset retirement obligations settled and total net dividends, capital expenditures and asset retirement obligations settled (excluding the Corrib project) are reviewed by management and are assessed as a percentage of fund flows from operations and fund flows from operations (excluding the Corrib project) to analyze the amount of cash that is generated by Vermilion that is available to repay debt and fund potential future acquisitions and capital expenditures.
Dividends declared, total net dividends, capital expenditures and asset retirement obligations settled and total net dividends, capital expenditures and asset retirement obligations settled (excluding the Corrib project) are reconciled to their most directly comparable GAAP measures as follows:
|Three Months Ended|
|Mar 31,||Dec 31,||Mar 31,|
|Issuance of shares pursuant to the dividend reinvestment plan||(15,532)||(18,468)||(17,558)|
|Drilling and development||179,520||151,157||87,896|
|Exploration and evaluation||9,576||5,878||6,464|
|Asset retirement obligations settled||1,388||8,424||766|
|Total net dividends, capital expenditures and asset retirement obligations settled||225,937||203,426||132,692|
|Capital expenditures and asset retirement obligations settled related to the Corrib project||(16,520)||(18,092)||(9,482)|
|Total net dividends, capital expenditures and asset retirement obligations settled (excluding the Corrib project)||209,417||185,334||123,210|
"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:
|Mar 31,||Dec 31,|
"Netbacks" are per boe and per mcf measures used in operational and capital allocation decisions.
"Diluted shares outstanding" is the sum of shares outstanding at the period end plus outstanding awards under Vermilion's equity based compensation plan, based on current estimates of future performance factors and forfeitures. The most directly comparable GAAP measure is shares outstanding.
Shares outstanding is reconciled to diluted shares outstanding as follows:
|Mar 31,||Dec 31,||Mar 31,|
|('000s of shares)||2013||2012||2012|
|Potential shares issuable pursuant to the equity based compensation plan||2,918||2,778||2,719|
|Diluted shares outstanding||102,380||101,913||99,557|
Vermilion drilled 24 (22.5 net) wells during the first quarter of 2013, including 20 (20 net) operated Cardium horizontal wells and one (0.1 net) non-operated Cardium horizontal well. Since entering the play in 2009, the Company has drilled a total of 201 (140 net) wells in the Cardium. In the first quarter of 2013, Vermilion completed its third vertical test well in the Duvernay and drilled two (1.3 net) Mannville liquids-rich natural gas wells.
Vermilion commenced its Champotran drilling program with two wells drilled and two wells spud at the end of the first quarter. The Company completed a number of workovers in both the Paris and Aquitaine basins. Vermilion continues to work towards the full integration of the assets acquired through two separate transactions in 2012 and the identification of further optimization and infill drilling opportunities.
Operating activities in the first quarter focused on facility maintenance and site construction. Surface facilities for Vinkega-2 and Langezwaag-1 are under construction, with first gas for both wells anticipated in the second quarter of 2013. The Company's debottlenecking project at Garijp was completed in the first quarter, ahead of schedule, and will enable incremental production additions from Vinkega-2 and other wells to be brought on-stream. In March, Vermilion was awarded the exploration license for the Akkrum concession, covering more than 54,000 acres and located between the Company's existing Gorredijk and Leeuwarden concessions.
Vermilion conducted a two well drilling program at Wandoo during the first quarter of 2013. These wells were horizontal sidetracks from existing well bores. The first well was spud early February and completed mid-March, the second was then spud and completed late March. The rig was demobilized and released subsequent to quarter end.
|Three Months Ended||% change|
|Mar 31,||Dec 31,||Mar 31,||Q1/13 vs.||Q1/13 vs.|
|Crude oil & NGLs (bbls/d)||9,301||9,089||8,876||2%||5%|
|Natural gas (mmcf/d)||41.04||31.41||41.83||31%||(2%)|
|% of consolidated||41%||40%||40%|
|Crude oil (bbls/d)||10,330||9,843||10,270||5%||1%|
|Natural gas (mmcf/d)||4.21||3.91||3.48||8%||21%|
|% of consolidated||29%||29%||28%|
|Natural gas (mmcf/d)||36.91||33.03||35.08||12%||5%|
|% of consolidated||16%||15%||15%|
|Crude oil (bbls/d)||5,287||5,873||6,648||(10%)||(20%)|
|% of consolidated||14%||16%||17%|
|Crude oil & NGLs (bbls/d)||25,014||24,875||25,866||1%||(3%)|
|% of consolidated||65%||69%||66%|
|Natural gas (mmcf/d)||82.16||68.34||80.39||20%||2%|
|% of consolidated||35%||31%||34%|