Vermilion Energy Inc. press release

Vermilion Energy Inc. Announces Results for the Three and Six Months Ended June 30, 2024

2024-07-31

TSX - Toronto Stock Exchange · Canada

Canada NewsWire

CALGARY, AB , July 31, 2024 /CNW/ - Vermilion Energy Inc. ("Vermilion", "We", "Our", "Us" or the "Company") (TSX: VET) (NYSE: VET) is pleased to report operating and condensed financial results for the three and six months ended June 30, 2024.

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The unaudited interim financial statements and management discussion and analysis for the three and six months ended June 30, 2024 will be available on the System for Electronic Document Analysis and Retrieval Plus ("SEDAR+") at www.sedarplus.ca , on EDGAR at www.sec.gov/edgar.shtml , and on Vermilion's website at www.vermilionenergy.com .

Highlights

Production during Q2 2024 averaged 84,974 boe/d (8) (53% natural gas and 47% crude oil and liquids), comprised of 54,987 boe/d (8) from our North American assets and 29,987 boe/d (8) from our International assets. Production for the quarter was at the upper end of our Q2 2024 guidance range and represents an increase of 2% year-over-year, and 6% year-over-year on a per share basis, primarily due to Australia , as well as the start-up of the 8-33 BC battery on our Mica Montney asset, which facilitated higher production from our recent 16-28 BC Montney wells. Given the strong operational performance year-to-date, and anticipation of new production growth during the second half of the year in Mica and Croatia offsetting planned downtime, we are increasing our annual production guidance to 83,000 to 86,000 boe/d (from 82,000 to 86,000 boe/d previously), while maintaining our capital budget guidance of $600 to $625 million . Q2 2024 fund flows from operations ("FFO") (1) was $237 million ( $1.48 /basic share) (2) and exploration and development ("E&D") capital expenditures (3) were $111 million , resulting in free cash flow ("FCF") (4) of $126 million ( $0.79 /basic share) (5) . The decrease in FFO from the prior quarter (Q1 2024 - $431 million ) was primarily driven by lower realized commodity hedge gains. Vermilion returned $66 million to shareholders during Q2 2024, comprised of $19 million of dividends and $47 million of share buybacks, representing 62% of excess FCF ("EFCF") (4) . We repurchased and cancelled 2.8 million shares during Q2 2024 and plan to maintain a robust pace of share buybacks in the months ahead as we manage towards an annual return of capital target of 50% of EFCF. We have repurchased and cancelled 6.1 million shares year-to-date, and have reduced our outstanding common shares to 157.3 million at July 31, 2024 . Net debt (6) decreased by $38 million in Q2 2024 to $907 million , representing a net debt to trailing FFO ratio (7) of 0.7 times and the lowest debt level in over a decade. In conjunction with our Q2 2024 release, we announced a quarterly cash dividend of $0.12 per share, payable on October 15, 2024 to shareholders of record on September 27, 2024 . In Germany , we are currently equipping our first deep gas exploration well with production tubing in advance of a planned well test later this quarter. We continue to prepare for tie-in operations for this well, with an anticipated on-stream date of early 2025. We plan to commence drilling on the second exploration well (0.6 net) in the coming weeks. On the SA-10 block in Croatia , we completed construction of the gas plant and tied in the first of the two standing wells in late Q2 2024. The second well was tied in early Q3 2024 and production is ramping up, increasing our exposure to strong European natural gas prices. On the SA-7 block in Croatia , we drilled one (0.6 net) exploration well and completed two (1.2 net) wells from the prior quarter. The first well tested over 300 bbls/d (15) of light oil, while the second well tested at 4.5 mmcf/d (15) of natural gas. Subsequent to the quarter we completed drilling on the final well (0.6 net) of this four well program, and discovered hydrocarbons across multiple zones, representing a 100% success rate on this four-well exploration drilling campaign. In Canada , construction of the 16,000 boe/d BC Montney battery was completed during the quarter, with wells from our 16-28 pad tied-in prior to start-up. The completion of this battery was an important milestone in our BC Montney development and provides a runway for future production growth on our Montney asset. We anticipate the wells from our recently completed 9-21 BC pad to be on line by late Q3 2024. These wells were completed in significantly less time than previous wells and used approximately 30% less water, resulting in approximately 15% completion cost savings as we continue to drive efficiencies in our Mica Montney operations. We released the annual update to our sustainability reporting in July 2024 . Our 2023 Scope 1 emission intensity is in line with our target to reduce our 2019 baseline by 15% to 20% by 2025. The full report is available at https://www.vermilionenergy.com/sustainability .

| ($M except as indicated) | Q2 2024 | Q1 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | Financial | | | | | | | Petroleum and natural gas sales | 478,925 | 508,035 | 471,356 | 986,960 | 1,024,054 | | Cash flows from operating activities | 266,322 | 354,295 | 173,632 | 620,617 | 562,261 | | Fund flows from operations (1) | 236,703 | 431,358 | 247,109 | 668,061 | 500,276 | | Fund flows from operations ($/basic share) (2) | 1.48 | 2.68 | 1.51 | 4.16 | 3.05 | | Fund flows from operations ($/diluted share) (2) | 1.47 | 2.64 | 1.48 | 4.11 | 2.99 | | Net earnings (loss) | (82,425) | 2,305 | 127,908 | (80,120) | 508,240 | | Net earnings (loss) ($/basic share) | (0.52) | 0.01 | 0.78 | (0.50) | 3.10 | | Cash flows used in investing activities | 153,025 | 181,343 | 164,404 | 334,368 | 273,099 | | Capital expenditures (3) | 110,610 | 190,442 | 166,845 | 301,052 | 321,665 | | Acquisitions (9) | 5,450 | 9,752 | (9,716) | 15,202 | 242,056 | | Dispositions | — | — | — | — | 182,152 | | Asset retirement obligations settled | 11,745 | 4,975 | 11,893 | 16,720 | 14,447 | | Repurchase of shares | 46,555 | 36,409 | 24,316 | 82,964 | 54,457 | | Cash dividends ($/share) | 0.12 | 0.12 | 0.10 | 0.24 | 0.10 | | Dividends declared | 18,981 | 19,183 | 16,430 | 38,164 | 16,430 | | % of fund flows from operations (10) | 8 % | 4 % | 7 % | 6 % | 3 % | | Payout (12) | 141,336 | 214,600 | 195,168 | 355,936 | 195,168 | | % of fund flows from operations (11) | 60 % | 50 % | 79 % | 53 % | 39 % | | Free cash flow (4) | 126,093 | 240,916 | 80,264 | 367,009 | 178,611 | | Long-term debt | 915,364 | 933,506 | 913,785 | 915,364 | 913,785 | | Net debt (6) | 906,715 | 944,496 | 1,321,100 | 906,715 | 1,321,100 | | Net debt to four quarter trailing fund flows from operations (7) | 0.7 | 0.7 | 1.0 | 0.7 | 1.0 | | Operational | | | | | | | Production (8) | | | | | | | Crude oil and condensate (bbls/d) | 32,879 | 32,695 | 29,342 | 32,787 | 31,305 | | NGLs (bbls/d) | 7,196 | 7,046 | 6,538 | 7,121 | 7,213 | | Natural gas (mmcf/d) | 269.39 | 274.59 | 283.63 | 271.99 | 265.72 | | Total (boe/d) | 84,974 | 85,505 | 83,152 | 85,240 | 82,805 | | Average realized prices | | | | | | | Crude oil and condensate ($/bbl) | 108.93 | 104.26 | 96.64 | 106.49 | 97.66 | | NGLs ($/bbl) | 31.61 | 34.16 | 28.11 | 32.87 | 32.53 | | Natural gas ($/mcf) | 5.69 | 6.10 | 7.37 | 5.90 | 8.94 | | Production mix (% of production) | | | | | | | % priced with reference to WTI | 32 % | 32 % | 32 % | 32 % | 35 % | | % priced with reference to Dated Brent | 15 % | 15 % | 12 % | 15 % | 11 % | | % priced with reference to AECO | 33 % | 32 % | 33 % | 33 % | 34 % | | % priced with reference to TTF and NBP | 20 % | 21 % | 23 % | 21 % | 20 % | | Netbacks ($/boe) | | | | | | | Operating netback (12) | 40.32 | 62.07 | 43.66 | 51.44 | 44.98 | | Fund flows from operations ($/boe) (13) | 30.87 | 53.86 | 32.35 | 42.61 | 33.43 | | Average reference prices | | | | | | | WTI (US $/bbl) | 80.57 | 76.96 | 73.80 | 78.76 | 74.97 | | Dated Brent (US $/bbl) | 84.94 | 83.24 | 78.39 | 84.09 | 79.83 | | AECO ($/mcf) | 1.18 | 2.50 | 2.45 | 1.84 | 2.84 | | TTF ($/mcf) | 13.62 | 11.77 | 15.04 | 12.69 | 19.03 | | Share information ('000s) | | | | | | | Shares outstanding - basic | 158,174 | 159,859 | 164,294 | 158,174 | 164,294 | | Shares outstanding - diluted (14) | 161,672 | 164,044 | 168,530 | 161,672 | 168,530 | | Weighted average shares outstanding - basic | 159,525 | 161,221 | 164,997 | 160,373 | 164,997 | | Weighted average shares outstanding - diluted (14) | 161,069 | 163,648 | 167,364 | 162,022 | 167,364 |

| (1) | Fund flows from operations (FFO) is a total of segments measure comparable to net (loss) earnings that is comprised of sales less royalties, transportation, operating, G&A, corporate income tax, PRRT, windfall taxes, interest expense, equity based compensation settled in cash, realized gain (loss) on derivatives, realized foreign exchange gain (loss), and realized other income (expense). The measure is used to assess the contribution of each business unit to Vermilion's ability to generate income necessary to pay dividends, repay debt, fund asset retirement obligations, and make capital investments. FFO does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures provided by other issuers. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. | | | | | (2) | Fund flows from operations per share (basic and diluted) are supplementary financial measures and are not standardized financial measures under IFRS, and therefore may not be comparable to similar measures disclosed by other issuers. They are calculated using FFO (a total of segments measure) and basic/diluted shares outstanding. The measure is used to assess the contribution per share of each business unit. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. | | | | | (3) | Capital expenditures is a non-GAAP financial measure that is the sum of drilling and development costs and exploration and evaluation costs from the Consolidated Statements of Cash Flows. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. | | | | | (4) | Free cash flow (FCF) and excess free cash flow (EFCF) are non-GAAP financial measures comparable to cash flows from operating activities. FCF is comprised of FFO less drilling and development and exploration and evaluation expenditures and EFCF is FCF less payments on lease obligations and asset retirement obligations settled. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. | | | | | (5) | Free cash flow per basic share is a non-GAAP supplementary financial measure and is not a standardized financial measure under IFRS and may not be comparable to similar measures disclosed by other issuers. It is calculated using FCF and basic shares outstanding. | | | | | (6) | Net debt is a capital management measure comparable to long-term debt and is comprised of long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities). More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. | | | | | (7) | Net debt to four quarter trailing fund flows from operations is a supplementary financial measure and is not a standardized financial measure under IFRS. It may not be comparable to similar measures disclosed by other issuers and is calculated using net debt (capital management measure) and FFO (total of segment measure). The measure is used to assess the ability to repay debt. Information in this document is included by reference; refer to the "Non-GAAP and Other Specified Financial Measures" section of this document. | | | | | (8) | Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. | | | | | (9) | Acquisitions is a non-GAAP financial measure that is calculated as the sum of acquisitions and acquisitions of securities from the Consolidated Statements of Cash Flows, Vermilion common shares issued as consideration, the estimated value of contingent consideration, the amount of acquiree's outstanding long-term debt assumed, and net acquired working capital. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. | | | | | (10) | Dividends % of FFO is a supplementary financial measure that is not standardized under IFRS and may not be comparable to similar measures disclosed by other issuers, calculated as dividends divided by FFO. The ratio is used by management as a metric to assess the cash distributed to shareholders. Reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. | | | | | (11) | Payout and payout % of FFO are a non-GAAP financial measure and a non-GAAP ratio, respectively, that are not standardized under IFRS and may not be comparable to similar measures disclosed by other issuers. Payout is comparable to dividends declared and is comprised of dividends declared plus drilling and development costs, exploration and evaluation costs, and asset retirement obligations settled, while the ratio is calculated as payout divided by FFO. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. | | | | | (12) | Operating netback is a non-GAAP financial measure comparable to net earnings and is comprised of sales less royalties, operating expense, transportation costs, PRRT, and realized hedging gains and losses. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. | | | | | (13) | Fund flows from operations per boe is a supplementary financial measure that is not standardized under IFRS and may not be comparable to similar measures disclosed by other issuers, calculated as FFO by boe production. Fund flows from operations per boe is used by management to assess the profitability of our business units and Vermilion as a whole. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP and Other Specified Financial Measures" section of this document. | | | | | (14) | Diluted shares outstanding represent the sum of shares outstanding at the period end plus outstanding awards under the Long-term Incentive Plan ("LTIP"), based on current estimates of future performance factors and forfeiture rates. | | | | | (15) | Zbjegovaca-1 Istok well (60% working interest) tested at an average rate of 314 bbls/d during a 14-hour flow period with an average flowing wellhead pressure of 54psi on a 0.75 inch diameter choke. The flow test continued an additional 16 hours at reduced choke sizes (0.625" and 0.5") to obtain necessary reservoir information and to minimize flaring. Load fluid was recovered, and no formation water was produced during the test. A final shut-in wellhead pressure of 1077psi and bottom hole pressure of 2828psi were recorded following the flow test. The tested zone was the Okoli formation which was encountered at at 1991mMD and a 47.5m oil column was logged with 12m of net reservoir and average effective porosity of 14%. Additional untested formations were also discovered. The Poljana was encountered at 1838mMD and a 63m oil column was logged with 39m of net reservoir and an average porosity of 11%, the Bujavica was encountered at 1194mMD and a 26m gas column was logged with 15.8m of net reservoir and average porosity of 21%. The test results are not necessarily indicative of long-term performance or ultimate recovery. | | | | | | Meduric-1 Istok well (60% working interest) tested at an average rate of 4.5 mmcf/d during a 2.5-hour flow period with a stabilized flowing wellhead pressure of 653psi on a 0.5 inch diameter choke. The flow test continued an additional 19 hours at reduced choke sizes (0.25", 0.3125", 0.375") to obtain necessary reservoir data and to minimize flaring. Load fluid was recovered, and no formation water was produced during the test. A final shut-in wellhead pressure of 1639psi and bottom hole pressure of 1784psi were recorded following the flow test. The tested zone was the Poljana formation which was encountered at 1236mMD and a 16m gas column was logged with 11.7m of net reservoir and an average porosity of 21%. Additional, untested formation were also discovered. The Bregi was encountered at 981mMD and a 23m gas column was logged with 13m of net reservoir and an average porosity of 27%, the Kutinski was encountered at 594mMD and a 14m gas column was logged with 10m of net reservoir and an average porosity of 32%. The test results are not necessarily indicative of long-term performance or ultimate recovery. |

Message to Shareholders

During the second quarter we achieved key operational milestones with the completion and startup of the Mica Montney battery in British Columbia and the SA-10 gas plant in Croatia . In Canada , we completed the Mica Montney battery and tied in production from the 16-28 pad during the second quarter, and subsequent to the quarter we completed fracking operations on the 9-21 pad which we expect to bring online in late Q3 2024. The startup of the Mica Montney battery will allow us to nearly double our Montney production to approximately 14,000 boe/d in 2025 and provides the platform for future expansion to 28,000 boe/d with further de-bottlenecking of infrastructure in the coming years. In Croatia , we commissioned the gas plant on the SA-10 block slightly ahead of schedule and currently have both wells on production. Bringing these wells on production will support the European gas weighting in our portfolio – approximately 40% of our corporate natural gas production, or over 100 mmcf/d – and allows us to take advantage of strong natural gas prices in Croatia , where gas sells at a premium to other European natural gas benchmarks. Over the past two years we have grown our European natural gas production by over 15%, and we continue to organically grow our European natural gas franchise. TTF Day Ahead natural gas prices averaged $13.62 /mmbtu in Q2 2024, representing a 16% increase over Q1 2024, and are expected to further strengthen in the second half of this year and 2025, based on the forward strip. The TTF forward price is currently trading at approximately $17 /mmbtu for 2025, which we have been actively hedging. For 2025 we have approximately 42% of our European natural gas production hedged at an average floor price of $17 /mmbtu.

We are also pleased to report test results from the first two wells on the SA-7 exploration block in Croatia . The first well tested over 300 bbls/d (2) of light oil, while the second well tested at 4.5 mmcf/d (2) of natural gas. We recently completed drilling the fourth well of our SA-7 exploration program and are pleased to report that we discovered gas in this well, representing 100% success rate on our four-well exploration drilling campaign. We plan to test the remaining two wells in the second half of 2024 while evaluating our future development plans for this block. These four new discoveries are very encouraging as they serve to prove up our exploration land and validate our geological evaluations, while setting the foundation for future growth in Croatia . In Germany , we are currently equipping our first deep gas exploration well with production tubing in advance of a planned well test later this quarter. Drilling of the second deep gas exploration well in Germany will commence in the coming weeks and is expected to extend into the fourth quarter. We are excited about the long-term development potential of our Germany and Croatia assets and expect these two countries to provide organic growth in the years ahead.