Vermilion Energy Inc. press release

Vermilion Energy Inc. Announces Results for the Year Ended December 31, 2021

2022-03-07

TSX - Toronto Stock Exchange · Canada

Canada NewsWire

CALGARY, AB , March 7, 2022 /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, 2021.

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The audited financial statements, management discussion and analysis and annual information form for the year ended December 31, 2021 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

Fourth Quarter 2021 Results

Q4 2021 fund flows from operations ("FFO") (1) was $322 million , an increase of 23% from the prior quarter. The increase was primarily due to higher commodity prices, in particular European natural gas which increased approximately 88% compared to the previous quarter.

Cash flow from operating activities was $250 million in Q4 2021, after accounting for asset retirement obligations settled and changes in non-cash operating working capital.

Net earnings increased to $345 million in Q4 2021, compared to a net loss of $147 million in the prior quarter. The improvement in net earnings was primarily due to higher FFO and lower unrealized hedging losses which is accounted for on a mark-to-market basis.

Production in Q4 2021 averaged 84,417 boe/d (2) , which was relatively consistent with the previous quarter. Cash flow used in investing activities totaled $135 million and included exploration and development ("E&D") capital expenditures of $146 million in the fourth quarter, resulting in $176 million of free cash flow ("FCF") (3) which was used primarily for debt reduction.

Production from our International assets averaged 29,123 boe/d (2) in Q4 2021, an increase of 5% from the prior quarter primarily due to higher production in the Netherlands and Ireland .

On November 29, 2021 we announced an agreement to consolidate an additional 36.5% working interest in our operated Corrib project in Ireland for total consideration of approximately $600 million , including the anticipated contingent payment. The acquisition is highly accretive and is expected to significantly enhance our free cash flow profile and ability to return capital to shareholders. With an effective date of January 1, 2022 , all of the estimated FCF of $500 million in 2022 will accrue to Vermilion and be netted off the purchase at the time the deal closes, which we continue to anticipate during the second half of 2022.

Our board of directors have approved a quarterly dividend in the amount of $0.06 per share, payable on April 18, 2022 . This quarterly dividend represents less than 2% of our forecasted 2022 pro forma FFO which we estimate at approximately $2.3 billion with pro forma FCF of approximately $1.9 billion and pro forma year-end 2022 net debt to FFO ratio of 0.2 times based on forward commodity prices (4) .

Year-end 2021 Results

For the full year 2021, we generated $920 million of FFO and $545 million of FCF in 2021, representing a year-over-year increase of 83% and 304%, respectively. The increase was primarily due to stronger commodity prices.

Cash flow from operating activities was $834 million in 2021, after accounting for asset retirement obligations settled and changes in non-cash operating working capital.

We reduced long-term debt by $282 million and net debt (5) by $365 million in 2021 and exited the year with a net debt to trailing funds flow ratio of 1.8 times (6) , less than half of what it was at the start of the year.

We reported net earnings of $1.1 billion in 2021, compared to a $1.5 billion net loss in 2020. Our 2021 net earnings benefited from stronger commodity prices and the reversal of asset impairment charges from prior years due to the recovery in commodity prices.

We delivered average annual production of 85,408 boe/d (2) in 2021 which was at the top end of our upwardly revised guidance range of 84,500 to 85,500 boe/d. Cash flow used in investing activities totaled $470 million and included E&D capital expenditures of $375 million which was in line with our company guidance.

Total proved plus probable reserves increased 3% from the prior year to 481 mmboe (7) . The increase is primarily due to strategic acquisitions and positive economic revisions resulting from stronger commodity prices. Including acquisitions, we replaced 146% of production on a proved plus probable basis and increased our total proved plus probable reserve life index to 15.4 years.

Proved plus probable ("2P") finding, development and acquisition ("FD&A") costs, including changes in future development costs ("FDC") were $10.91 /boe. Our FD&A costs combined with our top decile operating netbacks drove strong recycle ratios, resulting in a 2021 2P FD&A Operating Recycle Ratio of 4.1 times.

Vermilion maintained our industry-leading ESG performance based on rankings by third party ratings agencies in 2021, ranking at the top of our peer group in the S&P Global 2021 Corporate Sustainability Assessment ("CSA"). We were also selected for The Sustainability Yearbook 2022, which recognizes that our CSA sustainability performance is within the top 15% of our industry (S&P Global's Upstream Oil & Gas and Integrated category).

| (1) | Historical Fund flows from operations (FFO) and proforma FFO are total of segments measures/forward looking measures comparable to cash flows from operating activities that is comprised of sales less royalties, transportation, operating, G&A, corporate income tax, PRRT, interest expense, and realized loss on derivatives, plus realized gain on foreign exchange and realized other income. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP Financial Measures and Other Specified Financial Measures" section of this document. | | (2) | Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. | | (3) | Free cash flow (FCF) and proforma FCF are non-GAAP financial measures/forward looking non-GAAP financial measures comparable to cash flows from operating activities and is comprised of FFO (1) less drilling and development and evaluation and exploration expenditures. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP Financial Measures and Other Specified Financial Measures" section of this document. | | (4) | 2022 full year average reference prices as at March 2, 2022: Brent US$99.68/bbl; WTI US$93.06/bbl; LSB = WTI less US$4.22/bbl; TTF $58.44/mmbtu; NBP $57.47/mmbtu; AECO $4.72/mmbtu; CAD/USD 1.27; CAD/EUR 1.42 and CAD/AUD 0.92. | | (5) | 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 (see below). More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP Financial Measures and Other Specified Financial Measures" section of this document. | | (6) | Net debt to trailing FFO is a non-GAAP ratio 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 Financial Measures and Other Specified Financial Measures" section of the 2021 fourth quarter Management's Discussion and Analysis available on SEDAR at www.sedar.com. | | (7) | 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 11, 2022 with an effective date of December 31, 2021 (the "2021 GLJ Reserves Report"). | | (8) | Adjusted working capital is a non-GAAP financial measure defined as current assets less current liabilities, excluding current derivatives and current lease liabilities. The measure is used to calculate net debt, capital measure disclosed above. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP Financial Measures and Other Specified Financial Measures" section of this document. |

| | | | | | | | | | | | | ($M except as indicated) | Q4 2021 | Q3 2021 | Q4 2020 | 2021 | 2020 | | | | | | | Financial | | | | | | | | | | | | Petroleum and natural gas sales | 765,915 | | 538,530 | | 316,198 | | 2,079,761 | | 1,119,545 | | | Cash flows from operating activities | 250,352 | | 211,548 | | 135,102 | | 834,453 | | 500,152 | | | Fund flows from operations | 322,173 | | 262,696 | | 135,212 | | 919,862 | | 502,065 | | | Fund flows from operations ($/basic share) (1) | 1.99 | | 1.62 | | 0.85 | | 5.71 | | 3.18 | | | Fund flows from operations ($/diluted share) (1) | 1.93 | | 1.59 | | 0.85 | | 5.58 | | 3.18 | | | Net earnings (loss) | 344,588 | | (147,130) | | (57,707) | | 1,148,696 | | (1,517,427) | | | Net (loss) earnings ($/basic share) | 2.12 | | (0.91) | | (0.36) | | 7.13 | | (9.61) | | | Cash flows used in investing activities | 134,873 | | 162,930 | | 50,618 | | 469,700 | | 401,434 | | | Capital expenditures (2) | 145,807 | | 66,450 | | 59,894 | | 374,796 | | 367,202 | | | Acquisitions | 23,633 | | 94,420 | | 4,821 | | 130,965 | | 25,810 | | | Asset retirement obligations settled | 13,039 | | 5,142 | | 7,271 | | 28,525 | | 14,278 | | | Cash dividends ($/share) | — | | — | | — | | — | | 0.575 | | | Dividends declared | — | | — | | — | | — | | 90,067 | | | % of fund flows from operations (3) | — | % | — | % | — | % | — | % | 18 | % | | Payout (4) | 158,846 | | 71,592 | | 67,165 | | 403,321 | | 463,270 | | | % of fund flows from operations | 49 | % | 27 | % | 50 | % | 44 | % | 92 | % | | Free Cash Flow | 176,366 | | 196,246 | | 75,318 | | 545,066 | | 134,863 | | | Long-term debt | 1,651,569 | | 1,760,342 | | 1,933,848 | | 1,651,569 | | 1,933,848 | | | Net debt (7) | 1,644,786 | | 1,778,052 | | 2,009,325 | | 1,644,786 | | 2,009,325 | | | Net debt to four quarter trailing fund flows from operations | 1.79 | | 2.43 | | 4.00 | | 1.79 | | 4.00 | | | Operational | | | | | | | | | | | | Production (8) | | | | | | | | | | | | Crude oil and condensate (bbls/d) | 36,264 | | 38,777 | | 40,555 | | 38,143 | | 43,421 | | | NGLs (bbls/d) | 8,461 | | 8,068 | | 8,627 | | 8,325 | | 8,937 | | | Natural gas (mmcf/d) | 238.16 | | 226.73 | | 232.00 | | 233.64 | | 256.99 | | | Total (boe/d) | 84,417 | | 84,633 | | 87,848 | | 85,408 | | 95,190 | | | Average realized prices | | | | | | | | | | | | Crude oil and condensate ($/bbl) | 96.88 | | 87.05 | | 55.31 | | 83.78 | | 50.53 | | | NGLs ($/bbl) | 47.27 | | 35.55 | | 19.20 | | 34.44 | | 13.06 | | | Natural gas ($/mcf) | 17.89 | | 9.20 | | 4.13 | | 9.53 | | 2.77 | | | Production mix (% of production) | | | | | | | | | | | | % priced with reference to WTI | 38 | % | 39 | % | 40 | % | 38 | % | 40 | % | | % priced with reference to Dated Brent | 16 | % | 18 | % | 17 | % | 17 | % | 16 | % | | % priced with reference to AECO | 28 | % | 28 | % | 27 | % | 29 | % | 28 | % | | % priced with reference to TTF and NBP | 18 | % | 15 | % | 16 | % | 16 | % | 16 | % | | Netbacks ($/boe) | | | | | | | | | | | | Operating netback (5) | 48.07 | | 36.17 | | 19.67 | | 34.06 | | 17.58 | | | Fund flows from operations ($/boe) (6) | 40.73 | | 33.27 | | 16.50 | | 29.54 | | 14.32 | | | Operating expenses | 14.24 | | 13.21 | | 13.00 | | 13.27 | | 11.89 | | | General and administration expenses | 2.20 | | 1.56 | | 2.27 | | 1.70 | | 1.73 | | | Average reference prices | | | | | | | | | | | | WTI (US $/bbl) | 77.19 | | 70.56 | | 42.66 | | 67.92 | | 39.40 | | | Dated Brent (US $/bbl) | 79.73 | | 73.47 | | 44.23 | | 70.73 | | 41.67 | | | AECO ($/mcf) | 4.66 | | 3.60 | | 2.64 | | 3.62 | | 2.23 | | | TTF ($/mcf) | 38.86 | | 20.65 | | 6.63 | | 19.86 | | 4.18 | | | Share information ('000s) | | | | | | | | | | | | Shares outstanding - basic | 162,261 | | 161,985 | | 158,724 | | 162,261 | | 158,724 | | | Shares outstanding - diluted (1) | 168,746 | | 169,012 | | 165,396 | | 168,746 | | 165,396 | | | Weighted average shares outstanding - basic | 162,247 | | 161,957 | | 158,561 | | 161,172 | | 157,908 | | | Weighted average shares outstanding - diluted (1) | 166,519 | | 164,991 | | 158,561 | | 164,765 | | 157,908 | |

| (1) | Fund flows from operations per share (basic and diluted) are non-GAAP ratios and are not a standardized financial measures under IFRS and may not be comparable to similar measures disclosed by other issuers, it is calculated using FFO (total of segments measure) and basic/diluted shares outstanding. The measure is used to assess the contribution per share of each business unit. Information in this document is included by reference, for more information refer to the "Non-GAAP Financial Measures and Other Specified Financial Measures" section of the 2021 fourth quarter Management's Discussion and Analysis available on SEDAR at www.sedar.com . | | (2) | Capital expenditures is a non-GAAP financial measure that is the measure is the sum of drilling and development and exploration and evaluation from the Consolidated Statements of Cash Flows. More information and a reconciliation to primary financial statement measures can be found in the "Non-GAAP Financial Measures and Other Specified Financial Measures" section of this document. | | (3) | Dividends % FFO is a non-GAAP ratio 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 Financial Measures and Other Specified Financial Measures" section of this document. | | (4) | Payout and payout % FFO are a non-GAAP financial measure and 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 Net Dividends and is comprised of net dividends 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 Financial Measures and Other Specified Financial Measures" section of this document. | | (5) | 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 Financial Measures and Other Specified Financial Measures" section of this document. | | (6) | Fund flows from operations per boe is a non-GAAP ratio 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. Information in this document is included by reference, for further information refer to the "Non-GAAP Financial Measures and Other Specified Financial Measures" section of the 2021 fourth quarter Management's Discussion and Analysis available on SEDAR at www.sedar.com. | | (7) | Prior period comparatives have been revised. Net debt is defined as 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). | | (8) | Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. |

Message to Shareholders

2021 was transformational for Vermilion Energy. We entered 2021 with an over-leveraged balance sheet at four times net debt to trailing funds flow, and our number one financial priority of net debt reduction was reemphasized. With this goal in focus, we announced a modest capital budget aimed at preserving liquidity, maximizing free cash flow and reducing debt while positioning the Company for long-term success. With the help of a strong commodity pricing environment and our disciplined approach to allocating capital, we not only achieved our objectives but were able to do so at an accelerated pace. We reduced our net debt by $365 million in 2021 and exited the year with a net debt to trailing funds flow ratio of 1.8 times, less than half of what it was at the start of the year. In addition to accelerating debt reduction, in 2021 we also announced an inventory consolidation deal in the United States and a high return, low risk European gas acquisition to consolidate our operated natural gas asset in Ireland which will significantly enhance our free cash flow profile and ability to return capital to investors. Lastly, we completed our leadership transition in 2021 including the internal promotion of several key individuals and the appointment of Dion Hatcher as President, effective January 1, 2022 . With this new leadership team in place, and a much stronger balance sheet, Vermilion is in a position to move forward with its long-term strategy of creating value for our shareholders. To this end, we are reinstating a quarterly dividend in Q1 2022 and expect to increase the return of capital to our shareholders over time as further debt targets are achieved.

During the final quarter of the year, we delivered strong financial and operating results while continuing to reduce debt. All of the global commodity benchmarks that we have exposure to increased in the fourth quarter as supply and demand fundamentals strengthened. European natural gas prices were exceptionally strong, increasing approximately 88% compared to the previous quarter. The TTF benchmark averaged approximately $39 /mmbtu during the fourth quarter and reached close to $80 /mmbtu towards the end of December 2021 due to colder weather, supply constraints and geopolitical tension in the region. Our internationally diversified portfolio provides exposure to global commodity prices which continues to be a key strategic advantage for Vermilion. As a result of the strong commodity prices and strong operational results that delivered stable production of 84,417 boe/d (1) , we generated record FFO of $322 million in Q4 2021, representing a 23% increase over the prior quarter and a 138% increase over Q4 2020. We invested $146 million in E&D capital expenditures during the fourth quarter 2021, resulting in $176 million of FCF, the majority of which was used to reduce debt. Cash flow from operating activities was $250 million in Q4 2021, after accounting for asset retirement obligations settled and changes in non-cash operating working capital. Our net earnings increased to $345 million in Q4 2021, representing a $492 million increase compared to the prior quarter net loss of $147 million . The increase was primarily due to higher FFO and lower unrealized hedging losses which is accounted for on a mark to market basis.

For the full year 2021, we delivered average annual production of 85,408 boe/d (1) which was at the top end of our upwardly revised guidance range of 84,500 to 85,500 boe/d. We generated $920 million of FFO and $545 million of FCF in 2021, representing a year-over-year increase of 83% and 304%, respectively. Cash flow from operating activities was $834 million in 2021 and net earnings was $1.1 billion which benefited from the reversal of asset impairment charges from prior years due to the recovery in commodity prices.