Vermilion Energy Inc. press release

Vermilion Energy Inc. Announces Results for the Year Ended December 31, 2022

2023-03-08

TSX - Toronto Stock Exchange · Canada

Canada NewsWire

CALGARY, AB , March 8, 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 year ended December 31, 2022.

[](https://mma.prnewswire.com/media/2019107/Vermilion_Energy_IncVermilion_Energy_IncAnnounces_Results_fo.html)

The audited financial statements, management discussion and analysis and annual information form for the year ended December 31, 2022 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

Year-end 2022 Results

2022 fund flows from operations ("FFO") (1) was a record $1.6 billion ( $10.00 /basic share) (2) , representing a year-over year increase of 78%, including the impact of $406 million of realized hedging losses and $223 million of temporary European windfall taxes. 2022 exploration and development ("E&D") capital expenditures (3) were $552 million , resulting in record free cash flow ("FCF") (4) of $1.1 billion ( $6.62 /basic share) (5) , representing a year-over-year increase of 99%, including the impact of hedging losses and temporary windfall taxes. Record FCF in 2022 allowed us to fund over $500 million of strategic acquisitions, reduce net debt by over $300 million and return over $100 million to our shareholders through dividends and share buybacks. We exited the year with net debt (6) of $1.3 billion , resulting in a net debt to trailing FFO ratio (7) of 0.8 times at December 31, 2022 . Following the reinstatement of our quarterly dividend in Q1 2022 and the approval of a normal course issuer bid ("NCIB") in Q3 2022, we declared $46 million in dividends and repurchased $72 million of Vermilion shares in 2022, representing 11% of FCF. Net earnings were $1.3 billion ( $8.03 /basic share) for 2022, representing a 14% increase over the prior year. Production in 2022 averaged 85,187 boe/d (8) which is consistent with 2021 production levels. Total proved plus probable ("2P") reserves increased 9% from the prior year to 523 mmboe (9) . Including acquisitions, we replaced 234% of production on a proved plus probable basis and increased our total proved plus probable reserve life index to 16.8 years. The after-tax net present value of 2P reserves (9) , discounted at 10%, increased 36% from the prior year to $8.9 billion ( $54.72 /basic share), with proved developed producing ("PDP") reserves making up more than 50% of this value. 2P finding, development and acquisition ("FD&A") costs, including changes in future development costs ("FDC") were $19.22 /boe, resulting in a 2022 2P FD&A Operating Recycle Ratio of 4.4 times.

Fourth Quarter 2022 Results

Q4 2022 FFO was $284 million ( $1.74 /basic share) (2) , including the full year impact of the temporary European windfall tax of $223 million . Without the temporary windfall tax, FFO would have been $507 million ( $3.11 /basic share), in line with the prior quarter. Q4 2022 E&D capital expenditures (3) were $169 million , resulting in FCF of $115 million ( $0.70 /basic share) (5) , including the full year impact of the temporary European windfall tax noted above. Without the impact of the temporary windfall tax, FCF would have been $338 million ( $2.07 /basic share), an increase of 4% over the prior quarter. Q4 2022 production averaged 85,450 boe/d (8) an increase of 1% from the previous quarter. During the fourth quarter, production was impacted by unplanned downtime in Australia , cold weather and third-party downtime in North America and the delayed startup of our six-well Montney pad in Alberta . Production from our North American operations averaged 58,499 boe/d (8) in Q4 2022, an increase of 2% from the prior quarter primarily due to new production from our Montney assets in Canada and a full quarter contribution from our 2022 drilling program in the United States . Production from our International operations averaged 26,953 boe/d (8) in Q4 2022, a decrease of 1% from the prior quarter, primarily due to natural decline in Netherlands and Germany , as well as lower than anticipated production in Australia due to unplanned downtime.

Outlook

The Corrib acquisition has a planned close on March 31, 2023 . This acquisition is expected to add approximately 7,000 boe/d of European gas production which was incorporated from March 31, 2023 onwards in our original production guidance of 87,000 to 91,000 boe/d. Subsequent to year-end, we signed an agreement to sell approximately 5,500 boe/d of non-core light oil production in southeast Saskatchewan for total cash consideration of $225 million , before closing adjustments. The transaction has an effective date of September 1, 2022 and is expected to close in March 2023 . The net proceeds will be used to pay down debt. Taking into account the southeast Saskatchewan asset sale and Australia downtime, we are revising our 2023 production guidance to 82,000 to 86,000 boe/d. Our 2023 capital budget remains unchanged at $570 million . In conjunction with our Q4 2022 release, we declared a quarterly cash dividend of $0.10 CDN per share for Q1 2023, representing a 25% increase over the prior quarterly dividend. In addition, we resumed share buybacks in early January 2023 , and have repurchased 1.1 million shares in 2023 to date.

| ($M except as indicated) | Q4 2022 | Q3 2022 | Q4 2021 | 2022 | 2021 | | Financial | | | | | | | Petroleum and natural gas sales | 842,693 | 964,678 | 765,915 | 3,476,394 | 2,079,761 | | Cash flows from operating activities | 495,195 | 447,608 | 250,352 | 1,814,220 | 834,453 | | Fund flows from operations (1) | 284,220 | 507,876 | 322,173 | 1,634,865 | 919,862 | | Fund flows from operations ($/basic share) (2) | 1.74 | 3.10 | 1.99 | 10.00 | 5.71 | | Fund flows from operations ($/diluted share) (2) | 1.70 | 3.01 | 1.93 | 9.71 | 5.58 | | Net earnings | 395,408 | 271,079 | 344,588 | 1,313,062 | 1,148,696 | | Net earnings ($/basic share) | 2.42 | 1.65 | 2.12 | 8.03 | 7.13 | | Cash flows used in investing activities | 168,053 | 168,275 | 134,873 | 1,059,292 | 469,700 | | Capital expenditures (3) | 169,305 | 184,015 | 145,807 | 551,817 | 374,796 | | Acquisitions | 4,558 | 6,220 | 23,633 | 539,713 | 130,965 | | Asset retirement obligations settled | 16,508 | 10,386 | 13,039 | 37,514 | 28,525 | | Repurchase of shares | — | 71,659 | — | 71,659 | — | | Cash dividends ($/share) | 0.08 | 0.08 | — | 0.28 | — | | Dividends declared | 13,058 | 13,031 | — | 45,769 | — | | % of fund flows from operations (10) | 5 % | 3 % | — % | 3 % | — % | | Payout (11) | 198,871 | 207,432 | 158,846 | 635,100 | 403,321 | | % of fund flows from operations (11) | 70 % | 41 % | 49 % | 39 % | 44 % | | Free cash flow (4) | 114,915 | 323,861 | 176,366 | 1,083,048 | 545,066 | | Long-term debt | 1,081,351 | 1,409,507 | 1,651,569 | 1,081,351 | 1,651,569 | | Net debt (6) | 1,344,586 | 1,412,052 | 1,644,786 | 1,344,586 | 1,644,786 | | Net debt to four quarter trailing fund flows from operations (7) | 0.8 | 0.8 | 1.8 | 0.8 | 1.8 | | Operational | | | | | | | Production (8) | | | | | | | Crude oil and condensate (bbls/d) | 38,915 | 37,315 | 36,264 | 37,530 | 38,143 | | NGLs (bbls/d) | 7,497 | 7,901 | 8,461 | 7,961 | 8,325 | | Natural gas (mmcf/d) | 234.23 | 234.12 | 238.16 | 238.18 | 233.64 | | Total (boe/d) | 85,450 | 84,237 | 84,417 | 85,187 | 85,408 | | Average realized prices | | | | | | | Crude oil and condensate ($/bbl) | 115.02 | 123.02 | 96.88 | 123.89 | 83.78 | | NGLs ($/bbl) | 39.93 | 44.64 | 47.27 | 45.95 | 34.44 | | Natural gas ($/mcf) | 17.43 | 24.68 | 17.89 | 18.99 | 9.53 | | Production mix (% of production) | | | | | | | % priced with reference to WTI | 38 % | 38 % | 38 % | 38 % | 38 % | | % priced with reference to Dated Brent | 18 % | 17 % | 16 % | 16 % | 17 % | | % priced with reference to AECO | 30 % | 30 % | 28 % | 30 % | 29 % | | % priced with reference to TTF and NBP | 14 % | 15 % | 18 % | 16 % | 16 % | | Netbacks ($/boe) | | | | | | | Operating netback (12) | 70.00 | 78.42 | 48.07 | 70.15 | 34.06 | | Fund flows from operations ($/boe) (13) | 35.08 | 67.07 | 40.73 | 52.65 | 29.54 | | Operating expenses | 16.81 | 16.64 | 14.24 | 15.75 | 13.27 | | General and administration expenses | 1.65 | 1.90 | 2.20 | 1.86 | 1.70 | | Average reference prices | | | | | | | WTI (US $/bbl) | 82.65 | 91.56 | 77.19 | 94.23 | 67.92 | | Dated Brent (US $/bbl) | 88.71 | 100.85 | 79.73 | 101.19 | 70.73 | | AECO ($/mcf) | 4.64 | 4.16 | 4.66 | 5.25 | 3.62 | | TTF ($/mcf) | 38.36 | 75.56 | 38.86 | 48.35 | 19.86 | | Share information ('000s) | | | | | | | Shares outstanding - basic | 163,227 | 162,883 | 162,261 | 163,227 | 162,261 | | Shares outstanding - diluted (14) | 168,616 | 168,574 | 168,746 | 168,616 | 168,746 | | Weighted average shares outstanding - basic | 163,105 | 163,947 | 162,247 | 163,489 | 161,172 | | Weighted average shares outstanding - diluted (14) | 167,397 | 168,494 | 166,519 | 168,426 | 164,765 |

| (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 loss on derivatives, realized foreign exchange gain (loss), and realized other income. 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) | 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 14, 2023 with an effective date of December 31, 2022 (the "2022 GLJ Reserves Report"). Net present value of discounted cash flows as provided in the 2022 GLJ Reserves Report. | | (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. |

Message to Shareholders

In 2022, we delivered on our strategic priorities and continued to re-position Vermilion for long term success. Due to the robust free cash flow generation of our international and diversified assets, we reduced net debt by $300 million and completed $500 million of strategic acquisitions, despite incurring $406 million of realized hedging losses and $223 million of temporary windfall taxes. To increase our exposure to premium priced European gas, we progressed the high rate of return Irish Corrib consolidation deal, which we plan to close on March 31, 2023 . In Canada , our Montney acquisition increased the depth and quality of our North American inventory. With lower debt and an even stronger asset base, we announced our return of capital framework and returned over $100 million to our shareholders with the reinstatement of a quarterly dividend in Q1 2022 and commencement of a share buyback program in Q3 2022. We exited the year with net debt of $1.3 billion , or 0.8 times trailing FFO, which is less than half the leverage ratio from the prior year. These results translated into a total shareholder return in excess of 50% including share price appreciation and dividends. We remain committed to reducing debt even further, which will allow for increasing return of capital to our shareholders in the future. Our next debt target remains $1.0 billion of net debt, which we anticipate achieving by the end of 2023 or early 2024, depending on commodity prices.

Production in Q4 2022 averaged 85,450 boe/d, representing a 1% increase over Q3 2022. Annual average production was 85,187 boe/d, which is consistent with 2021 production levels. During the fourth quarter, production was impacted by unplanned downtime in Australia , cold weather and third-party downtime in North America , and the delayed startup of our six-well Montney pad in Alberta . We generated $284 million of FFO and $115 million of FCF in Q4 2022, which includes the $223 million full year impact of temporary windfall taxes. The temporary windfall tax was approved by the European Union on September 30, 2022 , and was applied retroactively for 2022 in the countries where we operate, therefore we have reflected the full amount in our Q4 2022 financial results.

Our exposure to global commodity prices is a key driver of our strong financial results and remains a strategic advantage for Vermilion. European gas prices were particularly strong in 2022, averaging nearly $50 /mmbtu (TTF) for the year and reaching over $120 /mmbtu (TTF) during the summer. While European gas prices have moderated in recent months due to a much warmer than average winter in Europe , the forward price for the balance of 2023 and 2024 is approximately $20 /mmbtu, which is six to seven times higher than forward Canadian AECO prices and four to five times higher than forward NYMEX prices.

We completed the strategic acquisition of Leucrotta Exploration in 2022, marking Vermilion's entry into the prolific Montney resource play. This acquisition has significantly enhanced the depth and quality of Vermilion's drilling inventory as reflected by the 9% increase in our 2022 proved plus probable reserve life index of 16.8 years. We are in the early stages of developing this long-life asset as we focus on optimizing the existing infrastructure in both Alberta and British Columbia in 2023 and further plans for the build out of the necessary infrastructure to support our future expansion plans. Subsequent to the end of the year, the British Columbia government announced agreements with Blueberry River First Nations and other Treaty 8 First Nations, outlining guidelines pertaining to future resource development in the region. We view this as a positive development. Our British Columbia assets are located outside of Blueberry River First Nations' High Value Areas and are on predominantly private freehold land where we continue to receive permits. We believe this will help facilitate the timely approval of future permits required to expand our Montney development in British Columbia .

Asset Disposition

Subsequent to year-end, we signed an agreement to sell certain assets in southeast Saskatchewan . The assets are comprised of approximately 5,500 boe/d of non-core light oil production spread across the greater Arcola and Queensdale areas of southeast Saskatchewan . Total cash consideration is $225 million , before closing adjustments. Following our entry into the Montney , these mature assets were unlikely to attract capital. The divestment was part of our strategy to re-position Vermilion for long term success by high-grading our North American inventory, reducing unit cost and accelerating the timeline of achieving our debt reduction targets. The transaction has an effective date of September 1, 2022 and is expected to close in March 2023 . The net proceeds will be used to pay down our revolving credit facility.