Vermilion Energy Inc. press release

Vermilion Energy Inc. Announces Results for the Three Months Ended March 31, 2024

2024-05-01

TSX - Toronto Stock Exchange · Canada

Canada NewsWire

CALGARY, AB , May 1, 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 months ended March 31, 2024.

[](https://mma.prnewswire.com/media/2402823/Vermilion_Energy_IncVermilion_Energy_IncAnnounces_Results_fo.pdf?p=original)

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

Q1 2024 fund flows from operations ("FFO") (1) was $431 million ( $2.68 /basic share) (2) and exploration and development ("E&D") capital expenditures (3) were $190 million , resulting in free cash flow ("FCF") (4) of $241 million ( $1.49 /basic share) (5) . Net debt (6) decreased by $134 million in Q1 2024 to $944 million , achieving our net debt target of $1 billion and representing a net debt to trailing FFO ratio (7) of 0.7 times, the lowest in over a decade. Vermilion returned $56 million to shareholders during Q1 2024, comprised of $19 million of dividends and $37 million of share buybacks. The Q1 2024 dividend represents a 20% increase over our previous quarterly dividend, aligned with our intention to provide ratable dividend increases as part of our return of capital framework. With the achievement of our $1 billion net debt, we increased our return of capital target to 50% of excess FCF on an annual basis and significantly increased our pace of share buybacks during the quarter, repurchasing and cancelling 2.4 million shares, including 1.0 million shares during the month of March and repurchasing an additional 1.0 million shares during the month of April. We 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 excess FCF. In conjunction with our Q1 2024 release, we announced a quarterly cash dividend of $0.12 per share, payable on July 15, 2024 to shareholders of record on June 28, 2024 . Production during the first quarter of 2024 averaged 85,505 boe/d (8) , comprised of 52,959 boe/d (8) from our North American assets and 32,546 boe/d (8) from our International assets. Production for the quarter was above the upper end of our Q1 2024 guidance range primarily due to strong operating performance from our Germany and United States assets. In Germany , we successfully drilled our first deep gas exploration well and are pleased to report that we discovered gas within the targeted zone. This well was drilled to a total depth of approximately 5,000 metres, representing the deepest well we have ever drilled in Europe . We plan to test the well during the second quarter and prepare for tie-in operations with an anticipated on-stream date of early 2025. We also plan to commence drilling on the second well (0.6 net) of our inaugural deep gas program in Q2 2024, which is a higher risk prospect targeting a very large structure that is expected to take three to four months to drill. In Croatia , construction of the gas plant on the SA-10 block is nearing completion which will add over 2,000 boe/d of European gas currently behind pipe. This production will contribute to FCF immediately upon start-up of the gas plant. In addition, we successfully completed drilling two of the four planned exploration wells on the SA-7 block, and completed drilling a third well subsequent to the quarter. All three wells drilled to date have discovered hydrocarbons in multiple zones which we expect will contribute to FCF in the years ahead. In Canada , construction of the 16,000 boe/d Mica Montney battery is nearing completion and remains scheduled for startup in late Q2 2024. We successfully completed the first six (6.0 net) BC Montney wells of our 2024 program and initial flowback results are in line with the strong performance seen on the original two wells on the 16-28 pad.

| ($M except as indicated) | Q1 2024 | Q4 2023 | Q1 2023 | | Financial | | | | | Petroleum and natural gas sales | 508,035 | 522,969 | 552,698 | | Cash flows from operating activities | 354,295 | 343,831 | 388,629 | | Fund flows from operations (1) | 431,358 | 372,117 | 253,167 | | Fund flows from operations ($/basic share) (2) | 2.68 | 2.27 | 1.56 | | Fund flows from operations ($/diluted share) (2) | 2.64 | 2.27 | 1.51 | | Net earnings (loss) | 2,305 | (803,136) | 380,332 | | Net earnings (loss) ($/basic share) | 0.01 | (4.91) | 2.34 | | Cash flows used in investing activities | 181,343 | 132,932 | 108,695 | | Capital expenditures (3) | 190,442 | 142,887 | 154,820 | | Acquisitions (9) | 9,752 | 25,724 | 251,772 | | Dispositions | — | 14,855 | 182,152 | | Asset retirement obligations settled | 4,975 | 28,937 | 2,554 | | Repurchase of shares | 36,409 | 28,736 | 30,141 | | Cash dividends ($/share) | 0.12 | 0.10 | 0.10 | | Dividends declared | 19,183 | 16,227 | 16,226 | | % of fund flows from operations (10) | 4 % | 4 % | 6 % | | Payout (12) | 214,600 | 188,051 | 173,600 | | % of fund flows from operations (11) | 50 % | 51 % | 69 % | | Free cash flow (4) | 240,916 | 229,230 | 98,347 | | Long-term debt | 933,506 | 914,015 | 933,463 | | Net debt (6) | 944,496 | 1,078,567 | 1,368,029 | | Net debt to four quarter trailing fund flows from operations (7) | 0.7 | 0.9 | 0.9 | | Operational | | | | | Production (8) | | | | | Crude oil and condensate (bbls/d) | 32,695 | 32,866 | 33,291 | | NGLs (bbls/d) | 7,046 | 7,412 | 7,896 | | Natural gas (mmcf/d) | 274.59 | 283.91 | 247.61 | | Total (boe/d) | 85,505 | 87,597 | 82,455 | | Average realized prices | | | | | Crude oil and condensate ($/bbl) | 104.26 | 107.91 | 98.62 | | NGLs ($/bbl) | 34.16 | 33.38 | 36.23 | | Natural gas ($/mcf) | 6.10 | 8.48 | 10.77 | | Production mix (% of production) | | | | | % priced with reference to WTI | 32 % | 29 % | 39 % | | % priced with reference to Dated Brent | 15 % | 17 % | 12 % | | % priced with reference to AECO | 32 % | 31 % | 34 % | | % priced with reference to TTF and NBP | 21 % | 23 % | 15 % | | Netbacks ($/boe) | | | | | Operating netback (12) | 62.07 | 57.48 | 46.33 | | Fund flows from operations ($/boe) (13) | 53.86 | 48.83 | 34.52 | | Average reference prices | | | | | WTI (US $/bbl) | 76.96 | 78.32 | 76.13 | | Dated Brent (US $/bbl) | 83.24 | 84.05 | 81.27 | | AECO ($/mcf) | 2.50 | 2.30 | 3.22 | | TTF ($/mcf) | 11.77 | 17.45 | 22.99 | | Share information ('000s) | | | | | Shares outstanding - basic | 159,859 | 162,271 | 162,261 | | Shares outstanding - diluted (14) | 164,044 | 166,456 | 168,874 | | Weighted average shares outstanding - basic | 161,221 | 163,335 | 162,585 | | Weighted average shares outstanding - diluted (14) | 163,648 | 163,335 | 167,857 |

| (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 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 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. | | | | | (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

The first quarter of 2024 was another strong quarter for Vermilion with continued operational momentum, achievement of our debt target, increased return of capital and advancement of our key growth projects that will underpin our long-term free cash flow ("FCF"). Production during Q1 2024 averaged 85,505 boe/d (1) , above the upper end of our Q1 2024 guidance range primarily due to strong operating performance from our Germany and United States assets. We generated $431 million of fund flows from operations ("FFO") and invested $190 million of E&D capital in Q1 2024, resulting in $241 million of FCF for the quarter. We returned $56 million of FCF to shareholders in Q1 2024 through dividends and share buybacks and reduced net debt by $134 million to $944 million . With the achievement of our $1 billion net debt target, we increased our return of capital target to 50% of excess FCF on an annual basis and significantly increased our pace of share buybacks during the quarter, repurchasing and cancelling 2.4 million shares, including 1.0 million shares during the month of March. We continued this pace subsequent to the quarter, and have repurchased an additional 1.0 million shares during the month of April. We plan to maintain a robust share buyback program in the months ahead as we manage towards an annual return of capital target of 50% of excess FCF, with the ultimate goal of increasing FCF per share.

Our 2024 capital program is progressing as planned, including advancements of all key growth projects including our Montney liquids-rich gas development, Germany deep gas exploration and Croatia gas development. In BC, construction of the 8-33 Montney battery is nearing completion. This battery will more than double our Montney infrastructure capacity to approximately 20,000 boe/d, which we intend to fill over the coming years as we build out our BC Montney asset, and lays the groundwork for future expansion to 28,000 boe/d. The successful completion and initial flowback results from our first Montney pad of 2024 continues to validate the quality of our BC Mica Montney asset, while continued optimization of our drilling and completion methods resulted in cost savings of approximately 15% compared to the previous BC drilling program. In Croatia , construction of the gas plant on the SA-10 block in Croatia is nearing completion which will add over 2,000 boe/d of European gas currently behind pipe. We expect our Croatia gas production from the SA-10 block to generate an operating netback over $50 per boe in 2024 due to having direct exposure to premium European gas prices.

Our European gas exploration program is off to a strong start. In Germany , we successfully drilled the first of two planned deep gas exploration wells and are pleased to report that we discovered gas within the target zone. This well was drilled to a total depth of approximately 5,000 metres, representing the deepest well we have ever drilled in Europe . We plan to test the well during the second quarter and prepare for tie-in operations with an anticipated on-stream date of early 2025. These initial results are very encouraging as it helps validate our geological model and sets the stage for a multi-year drilling campaign, which could provide Vermilion with years of organic production growth of high valued European gas. In Croatia , we successfully completed drilling two of the four planned exploration wells on the SA-7 block, and completed drilling a third well subsequent to the quarter. We discovered hydrocarbon in multiple zones from all three wells, which is very encouraging.

Vermilion is well positioned for the future, with a strong balance sheet and continued operational momentum which will support our recently enhanced return of capital framework. Our return of capital framework provides investors with a growing base dividend and meaningful share buyback program which we expect to augment with modest organic production growth in the future as we develop our growth assets. We will continue to focus on operational excellence and executing our 2024 plan while maintaining financial discipline, which will set the foundation for future profitable growth. We look forward to providing further updates on our key growth projects in the months ahead.

Q1 2024 Operations Review

North America

Production from our North American operations averaged 52,959 boe/d (1) in Q1 2024, a decrease of 2% from the previous quarter due to natural declines in Canada , partially offset by strong performance from non-operated Parkman wells in the United States that were brought on production in the quarter.

In the Deep Basin, we drilled three (3.0 net), completed three (3.0 net), and brought on production five (5.0 net) Mannville liquids-rich conventional natural gas wells. At Mica, we drilled and completed six (6.0 net) BC Montney liquids-rich shale gas wells in advance of the expected start-up of our 8-33 BC battery in late Q2 2024. In Saskatchewan , we drilled four (4.0 net), completed four (4.0 net), and brought on production four (4.0 net) light and medium crude oil wells, while in the United States , six (2.0 net) non-operated light and medium crude oil wells drilled in the prior quarter were completed and brought on production.

Construction of the 16,000 boe/d Mica Montney battery is nearing completion and remains scheduled for startup in late Q2 2024. We successfully completed the first six (6.0 net) BC Montney wells of our 2024 program and initial flowback results are in line with the strong performance seen on the first two wells on our 16-28 pad that were brought on production in 2023. These results are very positive as it continues to validate the quality of our BC Mica Montney asset. We continued to optimize our drilling and completion processes throughout our 2024 BC program, which resulted in cost savings of approximately 15% compared to the previous BC program. Our 2024 BC program used 17% less water than previous programs, reducing both costs and our environmental impact, and we saw further optimization through improved well design as well as design and execution on completion processes. A pilot program testing higher intensity completions aims to further improve the efficiency with which we develop our Montney asset.

International

Production from our International operations averaged 32,546 boe/d (1) in Q1 2024, a decrease of 3% over the previous quarter primarily due to natural declines in Ireland and Australia , partially offset by higher production in Germany on strong asset performance.