Vermilion Energy Inc. Announces Results for the Year Ended December 31, 2023 and Accelerated Return of Capital

2024-03-06

TSX - Toronto Stock Exchange · Canada

Canada NewsWire

CALGARY, AB , March 6, 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 year ended December 31, 2023.

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

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Highlights

Q4 2023 Results

Q4 2023 fund flows from operations ("FFO") (1) was $372 million ( $2.27 /basic share) (2) and exploration and development ("E&D") capital expenditures (3) were $143 million , resulting in free cash flow ("FCF") (4) of $229 million ( $1.40 /basic share) (5) . Net debt (6) decreased by $164 million in Q4 2023 to $1.1 billion , the lowest level in a decade and a 50% reduction from the peak in 2020. In addition, Vermilion returned $45 million to shareholders comprised of $16 million of dividends and $29 million of share buybacks. Production during the fourth quarter of 2023 averaged 87,597 boe/d (8) , comprised of 54,216 boe/d (8) from our North American assets and 33,381 boe/d (8) from our International assets. Q4 2023 production benefited from a full quarter of production from Australia and Ireland following maintenance downtime in the prior quarter, as well as increased production in the Netherlands due to new production from our 2023 drilling program.

Year End 2023 Results

2023 FFO (1) was $1,143 million ( $6.98 /basic share) (2) and E&D capital expenditures (3) were $590 million , resulting in FCF (4) of $552 million ( $3.37 /basic share) (5) . Net debt (6) decreased by $266 million in 2023 to $1.1 billion , representing a trailing net debt-to-FFO ratio (7) of under 1.0 times. In addition, Vermilion returned $160 million to shareholders, comprised of $65 million in dividends and $95 million of share buybacks. Reported a 2023 net loss of $238 million ( $1.45 /basic share) driven by non-cash impairment charges and dispositions, partially offset by strong price realization and acquisition activity. Excluding non-cash impairments, net earnings were $536 million ( $3.27 /basic share). Production during 2023 averaged 83,994 boe/d (8) , which was at the mid-point of our 2023 guidance range. Strong performance across many of our business units served to offset wildfire-related downtime in Canada and maintenance downtime in Australia . Year-end 2023 proved developed producing ("PDP") reserves were 173 mmboe (9) and total proved plus probable ("2P") reserves were 430 mmboe (9) , reflecting a reserve life index of 5.6 years and 14.0 years, respectively. The after-tax net present value of PDP reserves, discounted at 10%, is $3.2 billion (9) and the after-tax net present value of 2P reserves, discounted at 10%, is $5.7 billion (9) , or $28.72 per basic share (9) after deducting year-end net debt.

Outlook

In conjunction with our Q4 2023 release, we announced a quarterly cash dividend of $0.12 per share, payable on April 15, 2024 to shareholders of record on March 28, 2024 . This quarterly cash dividend represents a 20% increase over the prior quarterly dividend. Given our strong financial position and continued operational momentum, we are increasing our capital return target to 50% of excess FCF and will manage to this target on a full-year basis versus our previous effective date of April 1, 2024 . Year-to-date, we have repurchased and retired 1.4 million shares and plan to increase the pace of share buybacks starting immediately. Construction of the 16,000 boe/d Mica Montney battery is progressing as planned and remains on schedule for a mid-year start-up. With the additional capacity provided by this battery, we are able to move forward with the growth phase of our Mica Montney asset, and have drilled six wells on our 16-28 BC pad that will be completed and ready for tie-in during Q2 2024. We continued to advance our deep gas exploration and development plans in Germany , with drilling operations nearly complete on the first well of our program. We expect to reach total depth in the coming weeks and will then move the rig to the next location, where the second well of our program will be drilled during Q2 2024. In Croatia , we drilled the first exploration well on the SA-7 block in Q1 2024 and reached total measured depth of 2,371 metres, where we discovered hydrocarbons in multiple zones. We plan to evaluate and test these zones during the second quarter while commencing drilling on the second of four wells planned on the SA-7 block this year. Construction of the gas plant on the SA-10 block is progressing as planned and remains on schedule for a mid-year start-up.

| ($M except as indicated) | Q4 2023 | Q3 2023 | Q4 2022 | 2023 | 2022 | | Financial | | | | | | | Petroleum and natural gas sales | 522,969 | 475,532 | 842,693 | 2,022,555 | 3,476,394 | | Cash flows from operating activities | 343,831 | 118,436 | 495,195 | 1,024,528 | 1,814,220 | | Fund flows from operations (1) | 372,117 | 270,218 | 284,220 | 1,142,611 | 1,634,865 | | Fund flows from operations ($/basic share) (2) | 2.27 | 1.65 | 1.74 | 6.98 | 10.00 | | Fund flows from operations ($/diluted share) (2) | 2.27 | 1.62 | 1.70 | 6.98 | 9.71 | | Net (loss) earnings | (803,136) | 57,309 | 395,408 | (237,587) | 1,313,062 | | Net (loss) earnings ($/basic share) | (4.91) | 0.35 | 2.42 | (1.45) | 8.03 | | Cash flows used in investing activities | 132,932 | 170,404 | 168,053 | 576,435 | 1,059,292 | | Capital expenditures (3) | 142,887 | 125,639 | 169,305 | 590,191 | 551,817 | | Acquisitions (10) | 25,724 | 5,238 | 4,558 | 273,018 | 539,713 | | Dispositions | 14,855 | — | — | 197,007 | — | | Asset retirement obligations settled | 28,937 | 13,582 | 16,508 | 56,966 | 37,514 | | Repurchase of shares | 28,736 | 11,645 | — | 94,838 | 71,659 | | Cash dividends ($/share) | 0.10 | 0.10 | 0.08 | 0.40 | 0.28 | | Dividends declared | 16,227 | 16,367 | 13,058 | 65,248 | 45,769 | | % of fund flows from operations (11) | 4 % | 6 % | 5 % | 6 % | 3 % | | Payout (12) | 188,051 | 155,588 | 198,871 | 712,405 | 635,100 | | % of fund flows from operations (12) | 51 % | 58 % | 70 % | 62 % | 39 % | | Free cash flow (4) | 229,230 | 144,575 | 114,915 | 552,420 | 1,083,048 | | Long-term debt | 914,015 | 966,505 | 1,081,351 | 914,015 | 1,081,351 | | Net debt (6) | 1,078,567 | 1,242,522 | 1,344,586 | 1,078,567 | 1,344,586 | | Net debt to four quarter trailing fund flows from operations (7) | 0.9 | 1.2 | 0.8 | 0.9 | 0.8 | | Operational | | | | | | | Production (8) | | | | | | | Crude oil and condensate (bbls/d) | 32,866 | 31,417 | 38,915 | 31,727 | 37,530 | | NGLs (bbls/d) | 7,412 | 7,344 | 7,497 | 7,296 | 7,961 | | Natural gas (mmcf/d) | 283.91 | 263.80 | 234.23 | 269.83 | 238.18 | | Total (boe/d) | 87,597 | 82,727 | 85,450 | 83,994 | 85,187 | | Average realized prices | | | | | | | Crude oil and condensate ($/bbl) | 107.91 | 106.94 | 115.02 | 102.43 | 123.89 | | NGLs ($/bbl) | 33.38 | 27.77 | 39.93 | 31.54 | 45.95 | | Natural gas ($/mcf) | 8.48 | 6.32 | 17.43 | 8.17 | 18.99 | | Production mix (% of production) | | | | | | | % priced with reference to WTI | 29 % | 34 % | 38 % | 33 % | 38 % | | % priced with reference to Dated Brent | 17 % | 13 % | 18 % | 13 % | 16 % | | % priced with reference to AECO | 31 % | 34 % | 30 % | 33 % | 30 % | | % priced with reference to TTF and NBP | 23 % | 19 % | 14 % | 21 % | 16 % | | Netbacks ($/boe) | | | | | | | Operating netback (13) | 57.48 | 49.30 | 70.00 | 49.22 | 70.15 | | Fund flows from operations ($/boe) (14) | 48.83 | 35.76 | 35.08 | 37.90 | 52.65 | | Operating expenses | 15.35 | 16.26 | 16.81 | 17.03 | 15.75 | | General and administration expenses | 2.60 | 2.77 | 1.65 | 2.68 | 1.86 | | Average reference prices | | | | | | | WTI (US $/bbl) | 78.32 | 82.26 | 82.65 | 77.63 | 94.23 | | Dated Brent (US $/bbl) | 84.05 | 86.76 | 88.71 | 82.62 | 101.19 | | AECO ($/mcf) | 2.30 | 2.61 | 4.64 | 2.64 | 5.25 | | TTF ($/mcf) | 17.45 | 14.11 | 38.36 | 17.40 | 48.35 | | Share information ('000s) | | | | | | | Shares outstanding - basic | 162,271 | 163,666 | 163,227 | 162,271 | 163,227 | | Shares outstanding - diluted (15) | 166,456 | 167,904 | 168,616 | 166,456 | 168,616 | | Weighted average shares outstanding - basic | 163,335 | 163,946 | 163,105 | 163,719 | 163,489 | | Weighted average shares outstanding - diluted (15) | 163,335 | 166,392 | 167,397 | 163,719 | 168,426 |

| (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, 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 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 McDaniel & Associates Consultants Ltd. ("McDaniel") in a report dated March 5, 2024 with an effective date of December 31, 2023 (the "2023 McDaniel Reserves Report"). See Vermilion's annual information form for the year ended December 31, 2023 for additional information, including reserve pricing assumptions. Per share metrics calculated using basic shares outstanding at December 31, 2023. | | | | | (10) | 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. | | | | | (11) | 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. | | | | | (12) | 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. | | | | | (13) | 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. | | | | | (14) | 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. | | | | | (15) | 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

We made significant progress in 2023 towards our debt reduction and asset high-grading initiatives, while also advancing key growth projects in Canada , Germany , and Croatia . We closed the Corrib acquisition in Ireland and completed the disposition of select non-core assets in southeast Saskatchewan early in the year. These transactions further strengthened our asset base by adding more low emission, premium-priced European natural gas to our portfolio while divesting less efficient, higher cost assets in Canada . With this high-graded asset base, we were able to deliver on the midpoint of our annual production guidance of 84,000 boe/d despite wildfire-related downtime in Western Canada and unplanned downtime in Australia . Our ability to meet annual production guidance highlights the advantages of operating a diversified portfolio as we were able to reallocate capital to offset the production impacts in Canada and Australia . With strong operational performance in the fourth quarter, we achieved average production of 87,597 boe/d in Q4 2023, representing a 6% increase over the prior quarter.

Vermilion generated $1.1 billion of fund flows from operations ("FFO") in 2023, representing the second strongest year in the history of the company. After accounting for E&D capital expenditures, we generated $552 million of free cash flow ("FCF"), of which 29%, or $160 million ( $0.98 per share), was returned directly to shareholders through an increased dividend and share buybacks, and an additional $266 million ( $1.62 /share) was returned indirectly through debt reduction. Q4 2023 FFO and FCF was $372 million and $229 million , respectively, representing a 38% and 59% increase over the prior quarter, primarily due to higher production from our high-margin Australia and Ireland business units and tax adjustments. Net debt decreased by $266 million in 2023 to end the year at $1.1 billion , which is the lowest level in a decade and represents 0.9 times our annual FFO. This is a key milestone for the company as it aligns with our internal leverage target of one times net debt to FFO or less, and positions us for increasing shareholder returns, including a 20% increase to our quarterly dividend effective Q1 2024, previously announced with our 2024 budget.

As a result of the progress achieved on debt reduction, we are now able to accelerate our return of capital. The return of capital framework outlined with our 2024 budget release in December contemplated a capital return target of 30% of excess FCF ("EFCF") in Q1 2024, increasing to 50% of EFCF effective April 1, 2024 . Given our strong financial position and continued operational momentum, we now plan to increase our capital return target to 50% of EFCF on a full-year basis for 2024 with a corresponding increase in share buybacks starting immediately, as we continue to believe share buybacks represent a competitive use of capital.

Our disciplined focus on strengthening the balance sheet and high-grading the asset base, along with diligent capital allocation, has made the company much stronger and much more resilient today. We ended 2023 with a strong balance sheet and have continued our operational momentum from the fourth quarter into 2024. Our 2024 capital program is well underway and we are very pleased with how things are progressing on our three key growth initiatives in Canada , Germany and Croatia . The development of our gas prospects in Germany and Croatia will increase our exposure to premium-priced European gas, while the expansion of our Montney infrastructure in Canada will set the stage for long-term development and growth of this asset. We are excited about Vermilion's outlook and believe we have a robust portfolio capable of generating strong compounded returns for our shareholders through a combination of modest annual production growth, a resilient and growing base dividend and share buybacks.

We would like to thank all our stakeholders for their ongoing support and contributions, and we look forward to providing further updates on our 2024 operational and financial results as the year progresses.