Vermilion Energy Inc. press release

Vermilion Energy Inc. Announces Results for the Three Months Ended March 31, 2023

2023-05-03

TSX - Toronto Stock Exchange · Canada

Canada NewsWire

CALGARY, AB , May 3, 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 months ended March 31, 2023.

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The unaudited interim financial statements and management discussion and analysis for the three months ended March 31, 2023 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

Q1 2023 fund flows from operations ("FFO") (1) was $253 million ( $1.56 /basic share) (2) and exploration and development ("E&D") capital expenditures (3) were $155 million , resulting in free cash flow ("FCF") (4) of $98 million ( $0.60 /basic share) (5) . Net earnings were $380 million ( $2.34 /basic share) for Q1 2023, primarily driven by acquisition and disposition activity in the quarter. Vermilion's average realized natural gas price of $10.77 per mcf was over three times higher than the average AECO benchmark index price for the quarter, as 32% of our Q1 2023 gas had direct exposure to European gas pricing. On a go-forward basis, with the Corrib Natural Gas Project ("Corrib") acquisition in Ireland now closed, approximately 40% of our gas is now priced off of European gas benchmarks. Repurchased 1.6 million common shares for $30 million and declared cash dividends of $16 million , for a total of $46 million returned to shareholders in the quarter. In conjunction with our Q1 2023 release, we announced a quarterly cash dividend of $0.10 per share, payable on July 17, 2023 to shareholders of record on June 30, 2023 . The base dividend was increased by 25% in Q1 2023, and has increased 67% from Q1 2022 to the current $0.10 per share per quarter. Q1 2023 production averaged 82,455 boe/d (8) a decrease of 4% from the previous quarter due to unplanned downtime in Australia , partially offset by new well production from our Alberta Deep Basin and Montney assets in Canada . Q1 2023 Montney drilling program delivered positive results as we continue to optimize the drilling and completion methods. The most recent two (2.0 net) wells drilled on our British Columbia lands were tied-in during the second half of March 2023 and produced at an average IP30 rate of 1,250 boe/d (15) (51% liquids). On March 31, 2023 we successfully closed the acquisition of an incremental 36.5% interest in Corrib, increasing Vermilion's operated interest to 56.5%. The acquisition adds approximately 7,000 boe/d of premium-priced, high netback, low emission European natural gas production, further strengthening Vermilion's international portfolio. The acquisition makes Vermilion the largest provider of domestic natural gas in Ireland . Made significant progress on our asset high-grading strategy during Q1 2023 with the closing of the Corrib acquisition and divestment of select non-core assets in southeast Saskatchewan . These asset high-grading initiatives serve to position Vermilion for long-term success by increasing our exposure to premium-priced European gas, redirecting capital to higher rate of return projects, and reducing our operating cost structure and asset retirement obligations.

| ($M except as indicated) | Q1 2023 | Q4 2022 | Q1 2022 | | Financial | | | | | Petroleum and natural gas sales | 552,698 | 842,693 | 810,179 | | Cash flows from operating activities | 388,629 | 495,195 | 341,053 | | Fund flows from operations (1) | 253,167 | 284,220 | 389,868 | | Fund flows from operations ($/basic share) (2) | 1.56 | 1.74 | 2.40 | | Fund flows from operations ($/diluted share) (2) | 1.51 | 1.70 | 2.32 | | Net earnings | 380,332 | 395,408 | 283,954 | | Net earnings ($/basic share) | 2.34 | 2.42 | 1.75 | | Cash flows used in investing activities | 108,695 | 168,053 | 110,330 | | Capital expenditures (3) | 154,820 | 169,305 | 85,344 | | Acquisitions (14) | 251,772 | 4,558 | 6,712 | | Dispositions | 182,152 | — | — | | Asset retirement obligations settled | 2,554 | 16,508 | 6,320 | | Repurchase of shares | 30,141 | — | — | | Cash dividends ($/share) | 0.10 | 0.08 | 0.06 | | Dividends declared | 16,226 | 13,058 | 9,767 | | % of fund flows from operations (9) | 6 % | 5 % | 3 % | | Payout (11) | 173,600 | 198,871 | 101,431 | | % of fund flows from operations (10) | 69 % | 70 % | 26 % | | Free cash flow (4) | 98,347 | 114,915 | 304,524 | | Long-term debt | 933,463 | 1,081,351 | 1,380,568 | | Net debt (6) | 1,368,029 | 1,344,586 | 1,365,014 | | Net debt to four quarter trailing fund flows from operations (7) | 0.9 | 0.8 | 1.2 | | Operational | | | | | Production (8) | | | | | Crude oil and condensate (bbls/d) | 33,291 | 38,915 | 37,090 | | NGLs (bbls/d) | 7,896 | 7,497 | 8,342 | | Natural gas (mmcf/d) | 247.61 | 234.23 | 244.69 | | Total (boe/d) | 82,455 | 85,450 | 86,213 | | Average realized prices | | | | | Crude oil and condensate ($/bbl) | 98.62 | 115.02 | 120.23 | | NGLs ($/bbl) | 36.23 | 39.93 | 46.94 | | Natural gas ($/mcf) | 10.77 | 17.43 | 17.41 | | Production mix (% of production) | | | | | % priced with reference to WTI | 39 % | 38 % | 37 % | | % priced with reference to Dated Brent | 12 % | 18 % | 17 % | | % priced with reference to AECO | 34 % | 30 % | 29 % | | % priced with reference to TTF and NBP | 15 % | 14 % | 17 % | | Netbacks ($/boe) | | | | | Operating netback (11) | 46.33 | 70.00 | 59.72 | | Fund flows from operations ($/boe) (12) | 34.52 | 35.08 | 50.79 | | Operating expenses | 18.66 | 16.81 | 14.61 | | General and administration expenses | 2.71 | 1.65 | 1.85 | | Average reference prices | | | | | WTI (US $/bbl) | 76.13 | 82.65 | 94.29 | | Dated Brent (US $/bbl) | 81.27 | 88.71 | 101.40 | | AECO ($/mcf) | 3.22 | 4.64 | 4.74 | | TTF ($/mcf) | 22.99 | 38.36 | 39.79 | | Share information ('000s) | | | | | Shares outstanding - basic | 162,261 | 163,227 | 162,784 | | Shares outstanding - diluted (13) | 168,874 | 168,616 | 169,797 | | Weighted average shares outstanding - basic | 162,585 | 163,105 | 162,374 | | Weighted average shares outstanding - diluted (13) | 167,857 | 167,397 | 168,340 |

| (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) | 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. | | | | | (15) | Initial 30-day production ("IP30") for the Company's most recent two (2.0 net) wells drilled on our British Columbia lands averaged 1,250 boe/d per well. IP30 consisted of 49% light and medium crude oil, 2% NGLs, and 49% shale gas, using a conversion of six mcf of gas to one barrel of oil, based on field level estimates for the first 30 full days of production following the tie-in of the well. |

Message to Shareholders

The first quarter of 2023 was an active quarter for Vermilion, as we executed our winter drilling program in Canada while also closing two strategic transactions to further high-grade our portfolio. We invested $155 million of exploration and development capital during Q1 2023, primarily focused on our winter drilling campaign in Canada , which included drilling and completion activity in Alberta , British Columbia and southeast Saskatchewan . We continue to make significant progress on our Montney development through further optimization of the drilling and completion process. Our most recent two (2.0 net) wells drilled on our British Columbia lands were tied-in during the second half of March 2023 and produced at an average IP30 rate of 1,250 boe/d (1) (51% liquids). In addition, we completed the sale of select southeast Saskatchewan assets during the quarter and closed the acquisition of an incremental 36.5% ownership in the Corrib Natural Gas Project ("Corrib") in Ireland . These two transactions, combined with the Mica Montney acquisition completed in 2022, were all part of our asset high-grading strategy, which serves to position Vermilion for long-term success by increasing our exposure to premium-priced European gas, expanding our North American inventory, redirecting capital to higher rate of return projects, and reducing our operating cost structure and asset retirement obligations.

Production in the first quarter averaged 82,455 boe/d, which included the impact of Australia maintenance downtime as previously reported. We generated $253 million of fund flows from operations ("FFO") in Q1 2023, resulting in $98 million of free cash flow ("FCF"), which was used to fund our base dividend, share repurchases and acquisitions. Including the dividend and share repurchases, we returned over $46 million of capital to our shareholders. Net debt of $1.37 billion at the end of Q1 2023, represented 0.9 times trailing FFO.

We will continue to allocate the majority of FCF to debt reduction until we achieve our next net debt target of $1 billion . The majority of the incremental capital return beyond the base dividend will be in the form of share buybacks, as we believe our common shares remain significantly undervalued. To date, we have repurchased 2.2 million common shares in 2023 and 4.6 million in total under our existing NCIB. We plan to renew our NCIB in July 2023 and based on our current pace of share repurchases and base dividend, we anticipate returning 25% to 30% of FCF to shareholders in 2023, depending on commodity prices. Once we achieve our $1 billion debt target we plan to increase our return of capital to shareholders and will communicate the specific targets at that time.

Over the past two years we have focused on strengthening the balance sheet and high-grading the asset base to position Vermilion for long-term success. We have made significant progress on both of these fronts, and while we will continue to advance these initiatives, we will now place an even greater focus on operational execution throughout our asset base. In Canada , we will continue to develop and grow our strategic Montney position where we are seeing very encouraging results from recently drilled wells. In the United States we will continue to develop and grow our Turner oil play in the Powder River Basin while also testing new prospects across our Wyoming land base, including the Niobrara and Parkman formations. In Europe , we will continue to advance our deep gas exploration and development plans in Germany and new gas development in Croatia . We have a large land base with significant gas resource potential in both Germany and Croatia and we will continue to work with the respective governments in each country to identify opportunities for Vermilion to assist in developing their domestic supply of natural gas.

Q1 2023 Operations Review

North America

Production from our North American operations averaged 60,046 boe/d (2) in Q1 2023, an increase of 3% from the prior quarter primarily due to new production from our Alberta Deep Basin and Montney assets in Canada . In Alberta , we drilled seven (3.1 net), completed ten (6.3 net), and brought on production nine (7.6 net) Mannville liquids rich conventional natural gas wells, while at Mica we drilled six (6.0 net), completed five (5.0 net), and brought on production four (4.0 net) Montney liquids rich shale gas wells. We also completed two small tuck-in acquisitions within our Montney and Alberta Deep Basin assets during the quarter.

We continue to focus on optimizing the drilling and completion process on our Mica Montney assets and are seeing improved results from new wells. Our most recent two (2.0 net) wells drilled on our British Columbia lands were tied-in during the second half of March 2023 and produced at an average IP30 rate of 1,250 boe/d (1) (51% liquids). We are encouraged by these recent results and we continue to work through the permitting process for the planned 16,000 boe/d battery in British Columbia , which will facilitate the next phase of expansion on our Montney asset. We received one additional permit in Q1 2023 and are confident we will receive the remaining permit required to proceed with the construction of the battery in the near future.

In Saskatchewan , we drilled three (3.0 net), completed three (3.0 net), and brought on production four (4.0 net) light and medium crude oil wells. In the United States , we drilled five (2.1 net), completed two (0.7 net), and brought on production two (0.7 net) light and medium crude oil wells in Wyoming . All of the wells drilled in the United States were two-mile lateral wells, which are significantly more economic than one-mile laterals. During the quarter we participated in two non-operated Parkman wells and one non-operated Niobrara well, the results from which will enhance our understanding of these formations as it relates to future development prospects on our Powder River Basin acreage in Wyoming . We have a large land base with approximately 15,000 net acres in the Powder River Basin prospective for the Niobrara and the Parkman formations. Our six (5.3 net) well operated Turner drilling program is currently underway with all wells expected to be completed and on-stream by the third quarter.

International

Production from our International operations averaged 22,408 boe/d (2) in Q1 2023, a decrease of 17% from the prior quarter, primarily due to unplanned downtime in Australia , which was offline during the first quarter for maintenance. In Europe , production in the Netherlands increased over the prior quarter due to volumes from a new well brought online during the quarter, and production in France was fully restored following forest fire-related downtime in the second half of 2022. A nationwide strike in France affected several of the refineries in France in late March and April; however, the strike has not had any material impact on our operations.