CALGARY, AB, Jan. 18, 2021 /CNW/ - Vermilion Energy Inc.
("Vermilion", "We", "Our", "Us" or the "Company") (TSX, NYSE: VET)
is pleased to announce its 2021 exploration and development
("E&D") capital budget and associated production guidance.
Highlights
- E&D capital budget of $300
million is a balanced and disciplined budget focused on
maximizing returns and free cash flow ("FCF")(1) to
facilitate debt reduction.
- Annual average production guidance of 83,000 to 85,000 boe/d
reflects a transition to a more efficient, level-loaded capital
program.
- At the midpoint of production guidance and using the
January 13, 2021 commodity strip,
Vermilion expects to generate in excess of $200 million of free cash flow with a payout
ratio less than 65%, including the impact from existing
hedges.
- E&D capital budget is fully funded at a WTI oil price of
approximately $37/bbl on an unhedged
basis, assuming all other commodity prices held at the January 13, 2021 commodity strip.
- Additional capital projects will be considered for drilling
later in the year if market conditions are supportive.
2021 Budget and Production Guidance
Vermilion's Board of Directors has approved an E&D capital
budget of $300 million for 2021,
representing a 17% reduction from 2020. The Company's primary focus
for 2021 is to preserve liquidity and reduce debt while positioning
the Company for long-term sustainability. As a result, the capital
budget was designed to maximize returns and free cash flow while
retaining the flexibility to adjust investment levels depending on
commodity prices. In addition, following a review of our global
asset base, we have reorganized the business and reporting lines
into two core regions, North
America and International.
The allocation of capital in 2021 will be more level-loaded
compared to recent years. While the transition to a more
level-loaded capital program will result in lower annual average
production for 2021, it is expected to deliver better overall
capital efficiencies and lead to a more manageable production base
going forward. Approximately 31% of the 2021 capital budget will be
invested during the first quarter, compared to approximately 65% in
2020. This $300 million capital
program is expected to deliver annual average production of 83,000
to 85,000 boe/d.
During the budgeting process, close attention was paid to the
return and payback period of each individual project under various
commodity price scenarios. Given the strong recovery in European
and North American natural gas prices throughout the second half of
2020 and into 2021, Vermilion's condensate-rich natural gas
projects in Alberta and
conventional natural gas projects in the
Netherlands provided the strongest return profiles. As a
result, the majority of the first half 2021 drilling program will
be allocated to these projects. Vermilion's light oil projects in
southeast Saskatchewan,
Wyoming and France also screened well under strip pricing
at the time of evaluation, however the size of the program has been
scaled back in 2021. With the recent strengthening of global oil
prices, the economics of these oil projects has further improved
and additional drilling will be considered during the second half
of the year if market conditions remain supportive.
Based on the midpoint of our production guidance and using the
January 13, 2021 commodity strip,
Vermilion expects to generate in excess of $200 million of free cash flow with a payout
ratio less than 65%, including the impact from existing hedges. Our
$300 million capital program is fully
funded at a WTI oil price of approximately $37/bbl on an unhedged basis, assuming all other
commodity prices held at the January 13,
2021 commodity strip. Vermilion has approximately 32% of its
total production hedged for 2021, including 46% of its 2021 natural
gas production and approximately 19% of its 2021 crude oil
production, using a combination of swaps and three-way contracts
(https://www.vermilionenergy.com/invest-with-us/hedging.cfm), while
retaining significant leverage to further improvements in commodity
prices.
Excess free cash flow net of reclamation and abandonment
expenditures will be allocated to debt reduction as the Company
remains committed to reducing its net debt(2)-to-fund
flows from operations ("FFO") ratio to less than 1.5x over time. As
our leverage profile improves, we will continue to review our
long-term shareholder return policy to determine the appropriate
time to reinstate a dividend and/or share buyback
program.
North America
In North America, we plan to
invest approximately $165 million of
capital, representing a reduction of 37% compared to 2020. This
program includes the drilling of ten (9.6 net) Mannville condensate-rich natural gas wells in
Alberta, 25 (22.1 net) light oil
wells in southeast Saskatchewan
and four (3.9 net) light oil wells in Wyoming. In addition to these wells, the
Company will also bring on production five (5.0 net) Mannville condensate-rich natural gas wells
drilled in Q4 2020. Additional light oil wells in southeast
Saskatchewan and Wyoming have been identified for drilling
during the second half of 2021 if market conditions are
supportive.
International
We plan to invest approximately $135
million across our international assets, representing an
increase of 35% compared to 2020. The 2021 drilling program
includes two (1.5 net) natural gas wells in the Netherlands, one (1.0 net) natural gas
well in Croatia and one (1.0 net)
oil well in Hungary. Capital
activity in France and
Germany will be primarily focused
on well workovers to preserve production. Several oil wells have
been identified in France for
drilling during the second half of 2021 if market conditions are
supportive. In addition, the previously drilled Burgmoor Z5 well
(46% working interest) in Germany
is expected to be brought on production in 2021. Capital activity
in our remaining international jurisdictions will be focused
primarily on maintenance activities, including a 1-week planned
turnaround in Ireland and 3 weeks
of planned maintenance downtime in Australia. As part of the review of our global
asset base, we have decided to explore certain farm out
opportunities to reduce exposure to higher risk assets in
Europe as part of managing
corporate risk and to refocus the organization.
E&D Capital
Investment by Region
|
|
|
|
|
Country
|
2021 Budget*
($MM)
|
2020 Budget**
($MM)
|
2021 vs. 2020
% Change
|
2021
Net Wells
|
2020
Net Wells
|
North
America
|
165
|
260
|
(37)
|
%
|
35.6
|
83.0
|
International
|
135
|
100
|
35
|
%
|
3.5
|
1.0
|
Total E&D
Capital Expenditures
|
300
|
360
|
(17)
|
%
|
39.1
|
84.0
|
E&D Capital
Investment by Category
|
|
|
|
Category
|
2021 Budget*
($MM)
|
2020 Budget**
($MM)
|
2021 vs. 2020
% Change
|
Drilling, completion,
new well equipment and tie-in, workovers and
recompletions
|
185
|
280
|
(34)
|
%
|
Production equipment
and facilities
|
90
|
65
|
38
|
%
|
Seismic, land and
other
|
25
|
15
|
67
|
%
|
Total E&D
Capital Expenditures
|
300
|
360
|
(17)
|
%
|
*2021 Budget reflects foreign exchange assumptions of
CAD/USD 1.27, CAD/EUR 1.56, and CAD/AUD 0.99. ** 2020 Budget
figures based on midpoint of current guidance.
Conference Call and Webcast Details
Vermilion will discuss its 2021 capital budget and production
guidance in a conference call and webcast presentation on
Tuesday, January 19, 2021 at
7:00 AM MT (9:00 AM ET). To participate, call 1-888-231-8191
(Canada and US Toll Free) or
1-647-427-7450 (International and Toronto
Area). A recording of the conference call will be available
for replay by calling 1-855-859-2056 and using conference ID
3783416 from January 19, 2021 at
10:00 AM MT to February 2, 2021 at 9:59
PM MT.
You may also access the webcast at
https://produceredition.webcasts.com/starthere.jsp?ei=1420715&tp_key=6141ab16fe.
The webcast link, along with conference call slides, will be
available on Vermilion's website at
https://www.vermilionenergy.com/ir/eventspresentations.cfm under
Upcoming Events prior to the conference call.
(1)
|
This document
references free cash flow which is not specified, defined, or
determined under International Financial Reporting Standards
("IFRS") and is therefore considered non-GAAP financial measures
and may not be comparable to similar measures presented by other
issuers. Free cash flow represents fund flows from operations in
excess of capital expenditures and is used to determine the funding
available for investing and financing activities, including payment
of dividends, repayment of long-term debt, reallocation to existing
business units, and deployment into new ventures.
|
|
|
(2)
|
This document
references net debt which does not have a standardized meaning and
may not be comparable to similar measures presented by other
issuers. Net debt is a measure of capital in accordance with IAS 1
"Presentation of Financial Statements". See Capital Disclosures in
the notes to Vermilion's financial statements for further
information.
|
About Vermilion
Vermilion is an international energy producer that seeks to
create value through the acquisition, exploration, development and
optimization of producing assets in North
America, Europe and
Australia. Our business model
emphasizes organic production growth augmented with value-adding
acquisitions, along with returning capital to investors when
economically warranted. Vermilion's operations are focused on the
exploitation of light oil and liquids-rich natural gas conventional
resource plays in North America
and the exploration and development of conventional natural gas and
oil opportunities in Europe and
Australia.
Vermilion's priorities are health and safety, the environment,
and profitability, in that order. Nothing is more important to us
than the safety of the public and those who work with us, and the
protection of our natural surroundings. We have been recognized as
a top decile performer amongst Canadian publicly listed companies
in governance practices, as a Climate Leadership level (A-)
performer by the CDP, and a Best Workplace in the Great Place to
Work® Institute's annual rankings in Canada, the
Netherlands and Germany. In
addition, Vermilion emphasizes strategic community investment in
each of our operating areas.
Employees and directors hold approximately 5% of our fully
diluted shares and are committed to delivering long-term value for
all stakeholders. Vermilion trades on the Toronto Stock Exchange
and the New York Stock Exchange under the symbol VET.
Disclaimer
Certain statements included or incorporated by reference in this
document may constitute forward-looking statements or financial
outlooks under applicable securities legislation. Such
forward-looking statements or information typically contain
statements with words such as "anticipate", "believe", "expect",
"plan", "intend", "estimate", "propose", or similar words
suggesting future outcomes or statements regarding an outlook.
Forward looking statements or information in this document may
include, but are not limited to: capital expenditures and
Vermilion's ability to fund such expenditures; Vermilion's
additional debt capacity providing it with additional working
capital; the flexibility of Vermilion's capital program and
operations; business strategies and objectives; operational and
financial performance; petroleum and natural gas sales; future
production levels and the timing thereof, including Vermilion's
2021 guidance; the effect of changes in crude oil and natural gas
prices, changes in exchange rates and significant declines in
production or sales volumes due to unforeseen circumstances; the
effect of possible changes in critical accounting estimates; wells
expected to be drilled in 2021; exploration and development plans
and the timing thereof; Vermilion's ability to reduce its debt;
statements regarding Vermilion's hedging program and the
anticipated impact of Vermilion's hedging program on project
economics and free cash flows; acquisition and disposition plans
and the timing thereof; operating and other expenses; royalty and
income tax rates and Vermilion's expectations regarding future
taxes and taxability; and the timing of regulatory proceedings and
approvals.
Such forward-looking statements or information are based on a
number of assumptions, all or any of which may prove to be
incorrect. In addition to any other assumptions identified in this
document, assumptions have been made regarding, among other things:
the ability of Vermilion to obtain equipment, services and supplies
in a timely manner to carry out its activities in Canada and internationally; the ability of
Vermilion to market crude oil, natural gas liquids, and natural gas
successfully to current and new customers; the timing and costs of
pipeline and storage facility construction and expansion and the
ability to secure adequate product transportation; the timely
receipt of required regulatory approvals; the ability of Vermilion
to obtain financing on acceptable terms; foreign currency exchange
rates and interest rates; future crude oil, natural gas liquids,
and natural gas prices; and management's expectations relating to
the timing and results of exploration and development
activities.
Although Vermilion believes that the expectations reflected in
such forward-looking statements or information are reasonable,
undue reliance should not be placed on forward-looking statements
because Vermilion can give no assurance that such expectations will
prove to be correct. Financial outlooks are provided for the
purpose of understanding Vermilion's financial position and
business objectives, and the information may not be appropriate for
other purposes. Forward-looking statements or information are based
on current expectations, estimates, and projections that involve a
number of risks and uncertainties which could cause actual results
to differ materially from those anticipated by Vermilion and
described in the forward-looking statements or information. These
risks and uncertainties include, but are not limited to: the
ability of management to execute its business plan; the risks of
the oil and gas industry, both domestically and internationally,
such as operational risks in exploring for, developing and
producing crude oil, natural gas liquids, and natural gas; risks
and uncertainties involving geology of crude oil, natural gas
liquids, and natural gas deposits; risks inherent in Vermilion's
marketing operations, including credit risk; the uncertainty of
reserves estimates and reserves life and estimates of resources and
associated expenditures; the uncertainty of estimates and
projections relating to production and associated expenditures;
potential delays or changes in plans with respect to exploration or
development projects; Vermilion's ability to enter into or renew
leases on acceptable terms; fluctuations in crude oil, natural gas
liquids, and natural gas prices, foreign currency exchange rates
and interest rates; health, safety, and environmental risks;
uncertainties as to the availability and cost of financing; the
ability of Vermilion to add production and reserves through
exploration and development activities; the possibility that
government policies or laws may change or governmental approvals
may be delayed or withheld; uncertainty in amounts and timing of
royalty payments; risks associated with existing and potential
future law suits and regulatory actions against Vermilion; and
other risks and uncertainties described elsewhere in this document
or in Vermilion's other filings with Canadian securities regulatory
authorities.
The forward-looking statements or information contained in this
document are made as of the date hereof and Vermilion undertakes no
obligation to update publicly or revise any forward-looking
statements or information, whether as a result of new information,
future events, or otherwise, unless required by applicable
securities laws.
All crude oil and natural gas reserve and resource information
contained in this document has been prepared and presented in
accordance with National Instrument 51-101 Standards of
Disclosure for Oil and Gas Activities and the Canadian
Oil and Gas Evaluation Handbook. Reserves estimates have been made
assuming that development of each property in respect of which the
estimate is made will occur, without regard to the likely
availability of funding required for such development. The actual
crude oil and natural gas reserves and future production will be
greater than or less than the estimates provided in this
document.
Natural gas volumes have been converted on the basis of six
thousand cubic feet of natural gas to one barrel of oil equivalent.
Barrels of oil equivalent (boe) may be misleading, particularly if
used in isolation. A boe conversion ratio of six thousand cubic
feet to one barrel of oil is based on an energy equivalency
conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.
Financial data contained within this document are reported in
Canadian dollars unless otherwise stated.
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SOURCE Vermilion Energy Inc.