Vermilion Energy Inc. press release
Vermilion Energy Inc. Announces Results for the Three and Nine Months Ended September 30, 2023
TSX - Toronto Stock Exchange · Canada
Canada NewsWire
CALGARY, AB , Nov. 1, 2023 /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 nine months ended September 30, 2023.
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The unaudited interim financial statements and management discussion and analysis for the three and nine months ended September 30, 2023 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
Q3 2023 fund flows from operations ("FFO") (1) was $270 million ( $1.65 /basic share) (2) and exploration and development ("E&D") capital expenditures (3) were $126 million , resulting in free cash flow ("FCF") (4) of $144 million ( $0.88 /basic share) (5) . Year-to-date net earnings of $566 million ( $3.45 /basic share) driven by strong price realization and acquisition and disposition activity. The TTF natural gas benchmark price in Europe averaged $14.11 per mcf in Q3 2023, which was over five times higher than the average AECO benchmark index price for the quarter. Approximately 35% of Vermilion's Q3 2023 gas production had direct exposure to European gas pricing. Net debt (6) decreased to $1.2 billion , representing a trailing net debt-to-FFO ratio (7) of 1.2 times. In conjunction with our Q3 2023 release, we announced a quarterly cash dividend of $0.10 per share, payable on January 15, 2024 to shareholders of record on December 29, 2023 . Given the improving FCF profile of the business, we are now targeting to return 30% of FCF to shareholders in 2023, compared to the prior range of 25 to 30%, until we achieve our net debt target of $1 billion . Under current strip pricing, we anticipate achieving this debt target in Q1 2024 at which time we intend to increase the amount of capital returned to shareholders via the base dividend and share repurchases. We plan to communicate an update to our return of capital framework with our 2024 budget release. Production during the third quarter of 2023 averaged 82,727 boe/d (8) , which was at the top end of our Q3 2023 guidance range, primarily due to the successful restart of the Wandoo facility in Australia in early September 2023 and the accelerated maintenance turnaround at Corrib, which was completed five days ahead of schedule. In Australia , our wells continue to produce at strong rates following the restart of the Wandoo facility, and the business is forecasted to contribute approximately 4,000 bbls/d in Q4 2023. In Ireland , Corrib is forecasted to produce approximately 10,000 boe/d (net to Vermilion) of premium-priced European gas in Q4 2023. As a result of strong operational execution and performance across our portfolio, we are maintaining our 2023 annual production guidance of 82,000 to 86,000 boe/d. We have completed the site preparation and awarded all major contracts for the 16,000 boe/d Mica Montney battery. The majority of construction is scheduled to occur in the first half of 2024 with the battery expected to be operational by mid-2024 . We continued to advance our deep gas exploration and development plans in Germany , and commenced drilling on the first well of our two well winter drilling program in October 2023 . In addition, we have started site preparation for the gas plant in Croatia , which is scheduled for start-up in mid-2024, subject to ongoing regulatory approvals processes, and will facilitate production from the SA-10 block where we have previous gas discoveries.
| ($M except as indicated) | Q3 2023 | Q2 2023 | Q3 2022 | YTD 2023 | YTD 2022 | | Financial | | | | | | | Petroleum and natural gas sales | 475,532 | 471,356 | 964,678 | 1,499,586 | 2,633,701 | | Cash flows from operating activities | 118,436 | 173,632 | 447,608 | 680,697 | 1,319,025 | | Fund flows from operations (1) | 270,218 | 247,109 | 507,876 | 770,494 | 1,350,645 | | Fund flows from operations ($/basic share) (2) | 1.65 | 1.51 | 3.10 | 4.70 | 8.25 | | Fund flows from operations ($/diluted share) (2) | 1.62 | 1.48 | 3.01 | 4.61 | 8.01 | | Net earnings | 57,309 | 127,908 | 271,079 | 565,549 | 917,654 | | Net earnings ($/basic share) | 0.35 | 0.78 | 1.65 | 3.45 | 5.61 | | Cash flows used in investing activities | 170,404 | 164,404 | 168,275 | 443,503 | 891,239 | | Capital expenditures (3) | 125,639 | 166,845 | 184,015 | 447,304 | 382,512 | | Acquisitions (14) | 5,238 | (9,716) | 6,220 | 247,294 | 535,155 | | Dispositions | — | — | — | 182,152 | — | | Asset retirement obligations settled | 13,582 | 11,893 | 10,386 | 28,029 | 21,006 | | Repurchase of shares | 11,645 | 24,316 | 71,659 | 66,102 | 71,659 | | Cash dividends ($/share) | 0.10 | 0.10 | 0.08 | 0.30 | 0.20 | | Dividends declared | 16,367 | 16,430 | 13,031 | 49,023 | 32,711 | | % of fund flows from operations (9) | 6 % | 7 % | 3 % | 6 % | 2 % | | Payout (10) | 155,588 | 195,168 | 207,432 | 524,356 | 436,229 | | % of fund flows from operations (10) | 58 % | 79 % | 41 % | 68 % | 32 % | | Free cash flow (4) | 144,579 | 80,264 | 323,861 | 323,190 | 968,133 | | Long-term debt | 966,505 | 913,785 | 1,409,507 | 966,505 | 1,409,507 | | Net debt (6) | 1,242,522 | 1,321,100 | 1,412,052 | 1,242,522 | 1,412,052 | | Net debt to four quarter trailing fund flows from operations (7) | 1.2 | 1.0 | 0.8 | 1.2 | 0.8 | | Operational | | | | | | | Production (8) | | | | | | | Crude oil and condensate (bbls/d) | 31,417 | 29,342 | 37,315 | 31,407 | 37,064 | | NGLs (bbls/d) | 7,344 | 6,538 | 7,901 | 7,261 | 8,117 | | Natural gas (mmcf/d) | 263.80 | 283.63 | 234.12 | 265.09 | 239.51 | | Total (boe/d) | 82,727 | 83,152 | 84,237 | 82,849 | 85,099 | | Average realized prices | | | | | | | Crude oil and condensate ($/bbl) | 106.94 | 96.64 | 123.02 | 100.64 | 127.34 | | NGLs ($/bbl) | 27.77 | 28.11 | 44.64 | 30.89 | 47.82 | | Natural gas ($/mcf) | 6.32 | 7.37 | 24.68 | 8.08 | 19.50 | | Production mix (% of production) | | | | | | | % priced with reference to WTI | 34 % | 32 % | 38 % | 35 % | 38 % | | % priced with reference to Dated Brent | 13 % | 12 % | 17 % | 12 % | 17 % | | % priced with reference to AECO | 34 % | 33 % | 30 % | 34 % | 29 % | | % priced with reference to TTF and NBP | 19 % | 23 % | 15 % | 19 % | 16 % | | Netbacks ($/boe) | | | | | | | Operating netback (11) | 49.30 | 43.66 | 78.42 | 46.42 | 70.20 | | Fund flows from operations ($/boe) (12) | 35.76 | 32.35 | 67.07 | 34.19 | 58.86 | | Operating expenses | 16.26 | 17.91 | 16.64 | 17.60 | 15.37 | | General and administration expenses | 2.77 | 2.63 | 1.90 | 2.70 | 1.93 | | Average reference prices | | | | | | | WTI (US $/bbl) | 82.26 | 73.80 | 91.56 | 77.40 | 98.09 | | Dated Brent (US $/bbl) | 86.76 | 78.39 | 100.85 | 82.14 | 105.35 | | AECO ($/mcf) | 2.61 | 2.45 | 4.16 | 2.76 | 5.38 | | TTF ($/mcf) | 14.11 | 15.04 | 75.56 | 17.39 | 51.64 | | Share information ('000s) | | | | | | | Shares outstanding - basic | 163,666 | 164,294 | 162,883 | 163,666 | 162,883 | | Shares outstanding - diluted (13) | 167,904 | 168,530 | 168,574 | 167,904 | 168,574 | | Weighted average shares outstanding - basic | 163,946 | 164,997 | 163,947 | 163,848 | 163,619 | | Weighted average shares outstanding - diluted (13) | 166,392 | 167,364 | 168,494 | 167,167 | 168,658 |
| (1) | Fund flows from operations (FFO) is a total of segments measure comparable to net earnings that is comprised of sales less royalties, transportation, operating, G&A, corporate income tax, PRRT, windfall taxes, interest expense, 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 a 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) is a non-GAAP financial measure comparable to cash flows from operating activities and is comprised of FFO less drilling and development and exploration and evaluation expenditures. 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 trailing FFO 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) | 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. | | (10) | 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. | | (11) | 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. | | (12) | 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. | | (13) | 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. | | (14) | 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 deficit or surplus. 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. |
Message to Shareholders
Production during the third quarter of 2023 averaged 82,727 boe/d (1) , which was at the top end of our Q3 2023 guidance range, primarily due to the successful restart of the Wandoo facility in Australia in early September 2023 and the accelerated maintenance turnaround at Corrib, which was completed five days ahead of schedule. We would like to thank all of our staff in Australia and Ireland for the safe and efficient execution of these large scale maintenance programs. Health, Safety and the Environment is our number one priority and we take great pride in these accomplishments. With all production back online, we remain on target to achieve our Q4 2023 guidance range of 86,000 to 89,000 boe/d and full year guidance range of 82,000 to 86,000 boe/d.
We generated $270 million of fund flows from operations ("FFO") in Q3 2023 and invested $126 million of E&D capital, resulting in $144 million of free cash flow ("FCF") - an 80% increase over the prior quarter. This level of FCF allowed us to fund our current asset retirement obligations, lease payments and the base dividend, with the excess FCF allocated to debt reduction and share repurchases. Net debt at the end of Q3 2023 decreased 6% to $1.2 billion , representing a trailing net debt-to-FFO ratio of 1.2 times.
Our Q4 2023 capital program is well underway as we embark on exciting new growth projects in North America and Europe . We broke ground on the Mica Montney BC battery construction in August 2023 and will continue to progress this project over the next several months. This key piece of infrastructure will underpin the future development and growth of our Mica Montney asset. In Germany , we recently commenced drilling on our first of two planned exploration gas wells, which is a natural extension of the successful drilling campaigns we have executed over the past two decades in neighboring Netherlands . With success from our Germany exploration drilling program, we believe our land base of approximately 700,000 net acres can support a multi-year drilling campaign, providing Vermilion with years of organic production growth of high valued European gas. In Croatia , we started site preparation for the gas plant, which is scheduled for start-up in 2024 and will facilitate production from the SA-10 block where we have previous gas discoveries.
We continue to provide our investors with a diversified commodity exposure, of which approximately 20% is European gas. Both prompt and forward European gas prices have stabilized in recent months in the low- $20 per mmbtu range. This is well below the prices seen at this time last year, during the height of the Russian invasion of Ukraine , which prompted the European Union to take the extraordinary measure of levying a windfall tax for 2022 and 2023. To date, there has been no extension of the windfall tax by the EU into 2024, which is in line with the EU's statement that the measure was exceptional and strictly temporary. Given the stability of European gas prices and a more constructive outlook on European regulatory policy, we have been actively hedging more European gas to support our future investment in this region. We have hedged 38% of our 2024 European gas production at an average floor price of $33 per mmbtu and 20% of our 2025 European gas production at an average floor price of $22 per mmbtu. These hedges enable us to lock in future FFO, providing greater certainty on achieving our near-term debt targets while enhancing our future return of capital to shareholders.
It is an exciting time for Vermilion and its shareholders. We are gaining operational momentum with Australia now back online, Mica BC battery and Croatia gas plant construction underway and spudding of our first Germany gas exploration well. Second, we have direct exposure to premium priced European gas, which remains in extremely tight supply. We are pleased with our current hedge levels and will continue to lock in these strong prices. Third, we are seeing the benefits of the strategic asset high-grade and focus on debt reduction. Vermilion is well positioned to deliver a significant increase in 2024 FCF. With this, we are on track to achieve our debt target in Q1 2024 and intend to increase our return of capital to shareholders.
Q3 2023 Operations Review
North America
Production from our North American operations averaged 56,758 boe/d (1) in Q3 2023, an increase of 5% from the prior quarter primarily due to the strong recovery following fire-related downtime in the Deep Basin and new production from our recent drilling program in the United States .
In the Deep Basin, we drilled two (2.0 net) and completed one (1.0 net) Mannville liquids rich conventional natural gas wells. At Mica we brought on production four (4.0 net) Montney liquids rich shale gas wells drilled on our Alberta lands earlier in the year. Production from these wells allows us to fill existing throughput capacity in Alberta while we focus on expanding infrastructure on our British Columbia lands. In Saskatchewan , we drilled ten (9.3 net), completed nine (8.3 net), and brought on production eight (7.3 net) light and medium crude oil wells.
In the United States , we brought on production five (2.7 net) light and medium crude oil wells in Wyoming , driving a 21% increase in production relative to the prior quarter.
We continue to advance the build-out of our Mica Montney BC asset. We have completed the site preparation and awarded all major contracts for the 16,000 boe/d battery, and the facility modules are currently being fabricated. The majority of construction is scheduled to occur in the first half of 2024 with the battery expected to be operational by mid-2024. With the additional capacity provided by this battery, we are able to move forward with the growth phase of our Mica Montney asset, and plan to drill 11 wells on or offsetting our recent 16-28 BC pad as part of our upcoming winter drilling program.
International
Production from our International operations averaged 25,969 boe/d (1) in Q3 2023, a decrease of 11% from the prior quarter, primarily due to a 30-day planned turnaround at the Corrib facility in Ireland and natural declines, partially offset by the resumption of production in Australia following the restart of the Wandoo facility.