CALGARY,
AB, Aug. 11, 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 three and six months ended June 30, 2022, a 33% dividend increase and our
Return of Capital Framework.
The unaudited interim financial statements and management
discussion and analysis for the three and six months
ended June 30, 2022 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
- Q2 2022 fund flows from operations ("FFO")(1) was
$453 million ($2.75/basic share)(2) and free cash
flow ("FCF")(3) was $340
million ($2.07/basic
share)(4), an increase of 16% and 12%, respectively from
the prior quarter. The increases were primarily due to higher
commodity prices. Cash flow from operating activities was
$530 million in Q2 2022, including
the impact from asset retirement obligations settled and changes in
non-cash operating working capital.
- Pro forma Q2 2022 FFO and FCF incorporating the incremental
36.5% ownership in Corrib was $536
million ($3.26/basic share)
and $422 million ($2.56/basic share), respectively. As a reminder,
all FCF from the Corrib acquisition accrues to Vermilion as at
January 1, 2022 and will be netted
off the approximate $600 million
purchase price at the time of closing which we expect to occur in
Q4 2022.
- With clear line of sight to achieving our next
mid-cycle(5) debt target, we are pleased to outline our
formal return of capital framework. We intend to return an
increasing amount of capital to shareholders as debt levels
decrease using a debt grid to guide near-term Return of Capital
allocation decisions.
- In conjunction with our Q2 2022 release, we announced a 33%
increase to our Q3 2022 quarterly cash dividend to $0.08 CDN per share which equates to an annual
dividend of $0.32 CDN per share, or
approximately $53 million. Dividends
will remain a key component of our return of capital framework as
we seek to provide shareholders with a resilient and increasing
base dividend; however, we will limit the annual cash dividend to
approximately 10% of our mid-cycle FFO.
- Based on our Return of Capital Allocation Grid, recent
commodity strip(6) and internal estimates, we anticipate
returning up to 25% of FCF in 2H 2022 and up to 50% - 75% of FCF in
2023. We will consider various options to return capital; including
share buybacks, regular and special dividends and a potential
substantial issuer bid. Based on our review of a number of
valuation data points, we expect the majority of the incremental
capital return to be in the form of share buybacks initially.
- In early July 2022, we announced
the approval of a normal course issuer bid ("NCIB") for the
purchase of up to 16,076,666 common shares, representing
approximately 10% of Vermilion's public float as at June 22, 2022. To date, we have repurchased 1.25
million common shares for $35
million.
- Net earnings were $363 million in
Q2 2022, an increase of 28% from the prior quarter due to higher
commodity prices and net hedging gains.
- Cash flow used in investing activities totaled $613 million in the second quarter including
exploration and development ("E&D") capital
expenditures(7) of $113
million and acquisition capital of $522 million.
- The Leucrotta acquisition closed on May
31, 2022 and the assets have been successfully integrated
into Vermilion. We are now focused on completing the 6-well
Montney pad that was drilled in Q2
2022. The Mica asset significantly increases the depth and quality
of our North American inventory and is expected to add multiple
decades of development that will enhance FCF to the business.
- Long-term debt in Q2 2022 was $1.5
billion and net debt(8) was $1.6 billion, resulting in our net debt to
trailing FFO ratio decreasing to 1.1 times(9) compared
to 1.2 times in the prior quarter.
- Production in Q2 2022 averaged 84,868 boe/d(10) a
decrease of 2% from the previous quarter, primarily due to planned
and unplanned downtime.
- Production from our North American operations averaged 58,027
boe/d(10) in Q2 2022, an increase of 3% from the prior
quarter primarily due to the Leucrotta acquisition, which closed on
May 31, 2022.
- Production from our International operations averaged 26,840
boe/d(10) in Q2 2022, a decrease of 9% from the prior
quarter primarily due to natural decline, offshore drilling delays
and unplanned downtime in Australia.
- As a result of forest fire related downtime in France, offshore drilling delays in
Australia, combined with
inflationary pressure, we are increasing our 2022 capital budget by
$50 million to $550 million. Annual production guidance,
excluding the Corrib acquisition volumes, remains unchanged at
86,000 to 88,000 boe/d. Our exit rate forecast of 95,000 to 100,000
boe/d, including the Corrib acquisitions volumes, also remains
unchanged.
- We released the annual update to our online sustainability
report in July 2022. Notable
highlights include the decrease in our Scope 1 emission intensity
to .018 tCO2e per throughput operated boe, in line with our target
to reduce our 2019 baseline of .019 tCO2e per throughput operated
boe by 15% to 20% by 2025, and coverage of our Corrib Biodiversity
Action Plan achievements.
(1)
|
Fund flows from
operations (FFO) is a total of segment 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 (gain) on
derivatives, plus realized gain (loss) on foreign exchange and
realized other income. 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 basic share is a 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 FFO (total of segments measure) and basic 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 measure can be found in the
"Non-GAAP and Other Specified Financial Measures" section of this
document.
|
|
|
(3)
|
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 evaluation and exploration 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.
|
|
|
(4)
|
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.
|
|
|
(5)
|
Mid-cycle cycle
commodity prices: WTI US$55.00/bbl; AECO $3.43/mmbtu ($3.25/GJ);
TTF $12.50/mmbtu.
|
|
|
(6)
|
2022 full year average
reference prices as at July 18 2022: Brent US$104.59/bbl; WTI
US$97.74/bbl; LSB = WTI less US$3.69/bbl; TTF $51.72/mmbtu; NBP
$39.28/mmbtu; AECO $5.88/mmbtu; CAD/USD 1.28; CAD/EUR 1.36 and
CAD/AUD 0.90. 2023 full year average reference prices as at July
18, 2022: Brent US$88.40/bbl; WTI US$82.98/bbl; LSB = WTI less
US$5.07/bbl; TTF $51.32/mmbtu; NBP $47.32/mmbtu; AECO $5.44/mmbtu;
CAD/USD 1.30; CAD/EUR 1.35 and CAD/AUD 0.88.
|
|
|
(7)
|
Capital expenditures is
a non-GAAP financial measure that is the sum of drilling and
development costs and exploration and evaluation costs from the
Consolidated Statements of Cash Flows. More information and a
reconciliation to primary financial statement measures can be found
in the "Non-GAAP and Other Specified Financial Measures" section of
this document.
|
|
|
(8)
|
Net debt is a capital
management measure comparable to long-term debt and is comprised of
long-term debt (excluding unrealized foreign exchange on swapped
USD borrowings) plus adjusted working capital (see below). More
information and a reconciliation to primary financial statement
measures can be found in the "Non-GAAP and Other Specified
Financial Measures" section of this document.
|
|
|
(9)
|
Net debt to trailing
FFO is a supplementary financial measure and is not a standardized
financial measure under IFRS. It may not be comparable to similar
measures disclosed by other issuers and is calculated using net
debt (capital management measure) and FFO (total of segment
measure). The measure is used to assess the ability to repay debt.
Information in this document is included by reference; refer to the
"Non-GAAP and Other Specified Financial Measures" section of this
document.
|
|
|
(10)
|
Please refer to
Supplemental Table 4 "Production" of the accompanying Management's
Discussion and Analysis for disclosure by product type.
|
($M except as
indicated)
|
Q2
2022
|
Q1
2022
|
Q2
2021
|
YTD
2022
|
YTD
2021
|
Financial
|
|
|
|
|
|
Petroleum and natural
gas sales
|
858,844
|
810,179
|
407,179
|
1,669,023
|
775,316
|
Cash flows from
operating activities
|
530,364
|
341,053
|
253,406
|
871,417
|
372,553
|
Fund flows from
operations
|
452,901
|
389,868
|
172,942
|
842,769
|
334,993
|
Fund
flows from operations ($/basic share) (1)
|
2.75
|
2.40
|
1.07
|
5.16
|
2.09
|
Fund
flows from operations ($/diluted share) (1)
|
2.68
|
2.32
|
1.05
|
5.00
|
2.06
|
Net earnings
|
362,621
|
283,954
|
451,274
|
646,575
|
951,238
|
Net
(loss) earnings ($/basic share)
|
2.20
|
1.75
|
2.79
|
3.96
|
5.94
|
Cash flows used in
investing activities
|
612,634
|
110,330
|
97,238
|
722,964
|
171,897
|
Capital expenditures
(2)
|
113,153
|
85,344
|
79,176
|
198,497
|
162,539
|
Acquisitions
|
522,223
|
6,712
|
12,519
|
528,935
|
12,912
|
Asset retirement
obligations settled
|
4,300
|
6,320
|
3,321
|
10,620
|
10,344
|
Cash dividends
($/share)
|
0.06
|
0.06
|
—
|
0.12
|
—
|
Dividends
declared
|
9,913
|
9,767
|
—
|
19,680
|
—
|
% of
fund flows from operations (3)
|
2 %
|
3 %
|
— %
|
2 %
|
— %
|
Payout
(4)
|
127,366
|
101,431
|
82,497
|
228,797
|
172,883
|
% of
fund flows from operations
|
28 %
|
26 %
|
48 %
|
27 %
|
52 %
|
Free Cash
Flow
|
339,748
|
304,524
|
93,766
|
644,272
|
172,454
|
Long-term
debt
|
1,527,217
|
1,380,568
|
1,769,866
|
1,527,217
|
1,769,866
|
Net debt
(7)
|
1,588,668
|
1,365,014
|
1,854,195
|
1,588,668
|
1,854,195
|
Net debt to four
quarter trailing fund flows from operations
|
1.1
|
1.2
|
3.2
|
1.1
|
3.2
|
Operational
|
Production
(8)
|
|
|
|
|
|
Crude oil and condensate (bbls/d)
|
36,783
|
37,090
|
38,354
|
36,936
|
38,777
|
NGLs
(bbls/d)
|
8,113
|
8,342
|
8,695
|
8,227
|
8,386
|
Natural gas (mmcf/d)
|
239.83
|
244.69
|
235.72
|
242.25
|
234.86
|
Total (boe/d)
|
84,868
|
86,213
|
86,335
|
85,537
|
86,306
|
Average realized
prices
|
|
|
|
|
|
Crude oil and condensate ($/bbl)
|
138.55
|
120.23
|
79.06
|
129.48
|
75.21
|
NGLs
($/bbl)
|
51.86
|
46.94
|
25.43
|
49.38
|
27.32
|
Natural gas ($/mcf)
|
16.50
|
17.41
|
5.24
|
16.96
|
5.37
|
Production mix (% of
production)
|
|
|
|
|
|
%
priced with reference to WTI
|
39 %
|
37 %
|
38 %
|
38 %
|
38 %
|
%
priced with reference to Dated Brent
|
16 %
|
17 %
|
17 %
|
16 %
|
17 %
|
%
priced with reference to AECO
|
29 %
|
29 %
|
30 %
|
29 %
|
29 %
|
%
priced with reference to TTF and NBP
|
16 %
|
17 %
|
15 %
|
17 %
|
16 %
|
Netbacks
($/boe)
|
|
|
|
|
|
Operating netback (5)
|
72.57
|
59.72
|
25.90
|
66.15
|
25.74
|
Fund
flows from operations ($/boe) (6)
|
58.82
|
50.79
|
22.04
|
54.81
|
21.85
|
Operating expenses
|
14.89
|
14.61
|
12.72
|
14.75
|
12.79
|
General and administration expenses
|
2.04
|
1.85
|
1.46
|
1.95
|
1.51
|
Average reference
prices
|
|
|
|
|
|
WTI
(US $/bbl)
|
108.41
|
94.29
|
66.07
|
101.35
|
61.96
|
Dated Brent (US $/bbl)
|
113.78
|
101.40
|
68.83
|
107.59
|
64.86
|
AECO
($/mcf)
|
7.24
|
4.74
|
3.09
|
5.99
|
3.12
|
TTF
($/mcf)
|
38.08
|
39.79
|
10.76
|
38.93
|
9.54
|
Share information
('000s)
|
Shares outstanding -
basic
|
165,222
|
162,784
|
161,893
|
165,222
|
161,893
|
Shares outstanding -
diluted (1)
|
170,969
|
169,797
|
168,903
|
170,969
|
168,903
|
Weighted average shares
outstanding - basic
|
164,518
|
162,374
|
161,546
|
163,452
|
160,226
|
Weighted average shares
outstanding - diluted (1)
|
169,169
|
168,340
|
165,034
|
168,517
|
162,553
|
(1)
|
Fund flows from
operations per share (basic and diluted) are supplementary
financial measures and are not a standardized financial measures
under IFRS and may not be comparable to similar measures disclosed
by other issuers. They are calculated using FFO (total of segments
measure) and basic/diluted shares outstanding. 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)
|
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.
|
(3)
|
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.
|
(4)
|
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.
|
(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 and Other
Specified Financial Measures" section of this document.
|
(6)
|
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.
|
(7)
|
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
Global commodity prices continued to strengthen through the
second quarter, driving another quarter of record fund flows from
operations ("FFO") and free cash flow ("FCF") for Vermilion. FFO
was $453 million (cash flows from
operating activities of $530
million), representing a 16% increase over the prior
quarter. Exploration and development ("E&D") capital
expenditures were $113 million in Q2
2022, resulting in quarterly FCF of $340
million. Free cash flow in Q2 2022 was used to partially
fund the Leucrotta acquisition which closed on May 31, 2022. The remainder of the Leucrotta
purchase price was funded with debt which resulted in a slight
increase in Q2 2022 net debt to $1.6
billion; however, with the increase in FFO our net debt to
trailing FFO ratio decreased to 1.1x.
We have successfully integrated the Leucrotta assets and
assembled a Mica asset team which is now focused on completing the
6-well Montney pad that was
drilled in Q2 2022. We are excited to have these assets in our
portfolio and look forward to scaling up development in the years
ahead. The Mica asset significantly increases the depth and quality
of our North American inventory and is expected to add multiple
decades of development and enhance FCF to the business.
Closing of the Corrib acquisition continues to progress as we
move closer to obtaining all remaining partner and government
approvals. We expect the transaction to close in the fourth quarter
with an estimated closing cash payment in the range of $100 to $150
million after adjusting for the FCF accrued throughout the
year. Pro forma Q2 2022 FFO and FCF incorporating the incremental
36.5% ownership in Corrib was $536
million and $422 million,
respectively.
We remain on track to achieve our next debt target of
$1.2 billion by the end of 2022, and
with this clear line of sight we are pleased to outline our formal
return of capital framework which will see an increasing proportion
of FCF returned to shareholders as debt levels decrease. Over the
past two years we have been focused on balancing debt reduction and
portfolio enhancement, all with the goal of maximizing value and
the return of capital to our shareholders over the long term.
Vermilion is in a very strong position from both an asset base and
financial perspective. We announced two strategic acquisitions over
the past year, funded with free cash flow, and will have reduced
debt by approximately $1 billion,
relative to Q2 2020 debt levels, by the end of this
year(1). While we will continue to keep a close eye on
debt and reduce it even further to ensure we maintain a strong
balance sheet through all commodity cycles, we are now in a
position to increase our return of capital to shareholders. We are
confident that our globally diversified asset base combined with
our disciplined approach to capital allocation will generate value
for our shareholders over the long-term. Further details on our
return of capital framework is outlined below.
Return of Capital
Vermilion declared a quarterly cash dividend of $0.06 CDN per share in Q2 2022 which was paid on
July 15, 2022. With two strong
quarters now behind us and a clear line of sight to achieving our
next mid-cycle(2) debt target of $1.2 billion, we are now in a position to return
a greater proportion of free cash flow to our shareholders.
Vermilion has a long history of returning capital to its
shareholders primarily through dividends. Dividends will remain a
key component of our return of capital framework as we seek to
provide shareholders with a resilient and increasing base dividend;
however, we will limit the annual cash dividend outlay to
approximately 10% of our mid-cycle FFO. In conjunction with our Q2
2022 release, we announced a 33% increase to our Q3 2022 quarterly
cash dividend to $0.08 CDN per share
which equates to an annual dividend of $0.32
CDN per share or approximately $53
million based on the current number of shares outstanding.
At this dividend per share level, we have significant capacity to
increase the base dividend and plan to provide ratable increases
over time.
In addition to strengthening our balance sheet, Vermilion has
made other structural improvements to its business by increasing
our International production weighting through European natural gas
exposure while also enhancing our North American inventory with a
high quality long-life Montney
asset. These structural improvements, combined with the strong
fundamental outlook for global commodities will further underpin
our ability to return capital to shareholders. The amount of FCF
available for return of capital will increase as debt levels
decrease based on the illustrative grid outlined below. This grid
is not intended to be prescriptive quarter-to-quarter but will be
used as a tool to guide near-term Return of Capital allocation
decisions while taking into account other capital requirements such
as further debt reduction, asset retirement obligations and
acquisitions.
Return of Capital
Allocation Grid
|
Mid-Cycle
D/FFO
|
Ratio
|
>1.5x
|
1.0x - 1.5x
|
0.5x - 1.0x
|
<0.5x
|
Net Debt
|
$MM
|
>1,500
|
1,000 -
1,500
|
500 - 1,000
|
<500
|
FCF
Distribution
|
%
|
up to 25%
|
up to 50%
|
up to 75%
|
up to 90%
|
Based on our Return of Capital Allocation Grid, recent commodity
strip(3) and internal estimates, we anticipate returning
up to 25% of FCF in 2H 2022 and up to 50% - 75% of FCF in 2023
while reducing debt to a target of $850
million by the end of 2023, which implies an undrawn
$1.6 billion credit facility. We will
consider various options to return capital; including share
buybacks, regular and special dividends and a potential substantial
issuer bid. Based on a number of datapoints reviewed, we expect the
majority of the incremental capital return to be in the form of
share buybacks initially. In early July
2022, we announced the approval of a normal course issuer
bid ("NCIB") for the purchase of up to 16,076,666 common shares,
representing approximately 10% of Vermilion's public float as at
June 22, 2022. To date, we have
repurchased 1.25 million common shares for $35 million. We look forward to providing
continued updates on our return of capital initiatives through the
second half of this year and throughout 2023 as we carefully weigh
capital allocation decisions against various uses of excess free
cash flow with a view of acting in the long-term interests of
shareholders.
Q2 2022 Operations Review
North America
Production from our North American operations averaged 58,027
boe/d(4) in Q2 2022, an increase of 3% from the prior
quarter primarily due to the Leucrotta acquisition which closed on
May 31, 2022. Drilling and completion
activity in west-central Alberta
and south-east Saskatchewan was
limited during the second quarter due to spring breakup. During the
second quarter, we completed one (1.0 net) well and brought on
production one (0.6 net) condensate-rich Mannville natural gas well in west-central
Alberta, and we drilled one (1.0
net) well and completed two (2.0 net) wells in south-east
Saskatchewan. Following the
announcement of the Leucrotta acquisition in late March 2022, we assembled our Mica asset team and
focused on integrating the assets and working closely with the
Leucrotta team in drilling the first six (6.0 net) well
Montney pad. Drilling was
successfully completed during the second quarter and the team is
now focused on completion activities. While we remain optimistic
that an agreement on natural resource activity reviews will be
reached between the BC Government and the Blueberry River First
Nations in due course, our team has a plan to continue drilling on
the Alberta side of the Mica
property in 2023 should we see further delays in permit
approvals.
In the United States, we
drilled four (3.8 net) wells of our planned six (5.8 net)
operated Turner wells and completed two (2.0 net) wells during the
second quarter. Three (2.8 net) wells are two-mile lateral wells
which are significantly more economic than one-mile laterals. One
(1.0 net) well was brought on production during the second quarter
while the remaining wells will be completed and brought on
production during the third quarter. In addition, one (0.4 net)
two-mile non-operated Turner well is planned for drilling in Q4
2022.
International
Production from our International operations averaged 26,840
boe/d(4) in Q2 2022, a decrease of 9% from the prior
quarter primarily due to natural decline and offshore drilling
delays in Australia. In
Australia, the drilling of our
two-well program was delayed by approximately one month due to
unexpected maintenance and repairs on the third-party contracted
rig. Drilling commenced late in the second quarter and is expected
to finish in early September with production to start shortly
thereafter. In Europe, much of our
activity during the second quarter was focused on preparing for our
2H 2022 drilling campaign which will include two (1.1 net) wells in
Netherlands, three (3.0 net) wells
in Hungary and two (2.0 net wells)
in Croatia.
Outlook and Guidance Update
Our Q3 2022 capital program is well underway as we finish up the
drilling program in Australia,
complete and tie in the remaining Turner wells in the US, execute
our south-east Saskatchewan
drilling program and complete the 6-well Montney pad at Mica. In Europe, we are making final preparations for
an active drilling campaign to commence in the third quarter and
continue through the fourth quarter. Early in the third quarter, a
forest fire near our Cazaux field in southern France resulted in approximately 1,500 bbl/d
of production being temporarily shut-in which will impact Q3
production in France.
Our Q3 2022 production will include a full quarter contribution
from the Leucrotta acquisition and new production from the US and
south-east Saskatchewan drilling
programs; however, these volumes will be partially offset by the
Australia drilling delay and fire
related downtime in France. Taking
all this into account, we expect Q3 2022 production to be in-line
with Q2 2022.
As a result of forest fire related downtime in France, offshore drilling delays in
Australia, combined with
inflationary pressure, we are increasing our 2022 capital budget by
$50 million to $550 million. We are maintaining our annual
production guidance of 86,000 to 88,000 boe/d, excluding the Corrib
acquisition volumes. We plan to update our production guidance once
we have greater certainty on timing of the Corrib close. Our exit
rate forecast of 95,000 to 100,000 boe/d, including Corrib
acquisition volumes, remains unchanged.
Commodity Hedging
Vermilion hedges to manage commodity price exposures and
increase the stability of our cash flows. In aggregate, as of
August 9, 2022, we have 36% of our
expected net-of-royalty production hedged for the remainder of
2022. With respect to individual commodity products, we have hedged
64% of our European natural gas production, 20% of our oil
production, and 41% of our North American natural gas volumes for
the remainder of 2022, respectively. Please refer to the Hedging
section of our website under Invest With Us for further details
using the following link:
https://www.vermilionenergy.com/invest-with-us/hedging.cfm.
Board of Directors
Vermilion recently announced the appointment of Mr. Myron Stadnyk to our Board of Directors. Mr.
Stadnyk brings over 35 years of business and industry knowledge,
with extensive experience in senior leadership, cost management,
operational effectiveness, governance, health, safety, and
environment. He most recently served as the President and Chief
Executive Officer of ARC Resources Ltd. where he led ARC's
transformation from a royalty trust to a top-tier Montney producer demonstrating outstanding
strategic leadership. Prior to ARC, Mr. Stadnyk worked at a major
oil and gas company in both domestic and international operations.
He currently serves as a member of the Board of Directors for
Crescent Point Energy Corp., Prairie Sky Royalty Ltd. and the
University of Saskatchewan Engineering
Trust.
Mr. Stadnyk holds a Bachelor of Science in Mechanical
Engineering from the University of
Saskatchewan and is a graduate of the Harvard
Business School Advanced Management Program. He is a member of
the Association of Professional Engineers and Geoscientists of
Alberta and served as
a Governor for the Canadian Association of Petroleum Producers
for over 10 years.
(Signed
"LorenzoDonadeo")
|
|
(Signed
"DionHatcher")
|
|
|
|
LorenzoDonadeo
|
|
DionHatcher
|
Executive
Chairman
|
|
President
|
August 11,
2022
|
|
August 11,
2022
|
(1)
|
Based on actuals,
internal company estimates and 2022 forward strip pricing as at
July 18, 2022.
|
(2)
|
Mid-cycle cycle
commodity prices: WTI US$55.00/bbl; AECO $3.43/mmbtu ($3.25/GJ);
TTF $12.50/mmbtu.
|
(3)
|
2022 full year average
reference prices as at July 18 2022: Brent US$104.59/bbl; WTI
US$97.74/bbl; LSB = WTI less US$3.69/bbl; TTF $51.72/mmbtu; NBP
$39.28/mmbtu; AECO $5.88/mmbtu; CAD/USD 1.28; CAD/EUR 1.36 and
CAD/AUD 0.90. 2023 full year average reference prices as at July
18, 2022: Brent US$88.40/bbl; WTI US$82.98/bbl; LSB = WTI less
US$5.07/bbl; TTF $51.32/mmbtu; NBP $47.32/mmbtu; AECO $5.44/mmbtu;
CAD/USD 1.30; CAD/EUR 1.35 and CAD/AUD 0.88.
|
(4)
|
Please refer to
Supplemental Table 4 "Production" of the accompanying Management's
Discussion and Analysis for disclosure by product type.
|
Non-GAAP and Other Specified Financial Measures
This earnings release and other materials release by Vermilion
includes financial measures that are not standardized, specified,
defined, or determined under IFRS and are therefore considered
non-GAAP or other specified financial measures and may not be
comparable to similar measures presented by other issuers. These
financial measures include:
Fund flows from operations (FFO): A total of
segments measure most directly comparable to net earnings. FFO is
comprised of sales excluding royalties, transportation, operating,
G&A, corporate income tax, PRRT, 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.
|
Q2
2022
|
|
Q2
2021
|
|
YTD
2022
|
|
YTD
2021
|
|
$M
|
|
$/boe
|
|
$M
|
|
$/boe
|
|
$M
|
|
$/boe
|
|
$M
|
|
$/boe
|
Sales
|
858,844
|
|
111.55
|
|
407,179
|
|
51.93
|
|
1,669,023
|
|
108.54
|
|
775,316
|
|
50.60
|
Royalties
|
(83,553)
|
|
(10.85)
|
|
(41,456)
|
|
(5.29)
|
|
(154,860)
|
|
(10.07)
|
|
(77,902)
|
|
(5.08)
|
Transportation
|
(20,153)
|
|
(2.62)
|
|
(21,834)
|
|
(2.78)
|
|
(37,422)
|
|
(2.43)
|
|
(38,855)
|
|
(2.54)
|
Operating
|
(114,617)
|
|
(14.89)
|
|
(99,737)
|
|
(12.72)
|
|
(226,800)
|
|
(14.75)
|
|
(195,978)
|
|
(12.79)
|
General and
administration
|
(15,691)
|
|
(2.04)
|
|
(11,432)
|
|
(1.46)
|
|
(29,911)
|
|
(1.95)
|
|
(23,162)
|
|
(1.51)
|
Corporate income tax
(expense) recovery
|
(69,501)
|
|
(9.03)
|
|
(691)
|
|
(0.09)
|
|
(115,173)
|
|
(7.49)
|
|
654
|
|
0.04
|
PRRT
|
(2,019)
|
|
(0.26)
|
|
(1,459)
|
|
(0.19)
|
|
(8,728)
|
|
(0.57)
|
|
(2,873)
|
|
(0.19)
|
Interest
expense
|
(21,074)
|
|
(2.74)
|
|
(18,862)
|
|
(2.41)
|
|
(35,897)
|
|
(2.33)
|
|
(38,097)
|
|
(2.49)
|
Realized loss on
derivatives
|
(79,778)
|
|
(10.36)
|
|
(39,574)
|
|
(5.05)
|
|
(224,001)
|
|
(14.57)
|
|
(65,207)
|
|
(4.26)
|
Realized foreign
exchange (loss) gain
|
(2,297)
|
|
(0.30)
|
|
(1,958)
|
|
(0.25)
|
|
(1,547)
|
|
(0.10)
|
|
(7,139)
|
|
(0.47)
|
Realized other
income
|
2,740
|
|
0.36
|
|
2,766
|
|
0.35
|
|
8,085
|
|
0.53
|
|
8,236
|
|
0.55
|
Fund flows from
operations
|
452,901
|
|
58.82
|
|
172,942
|
|
22.04
|
|
842,769
|
|
54.81
|
|
334,993
|
|
21.86
|
Equity based
compensation
|
(7,499)
|
|
|
|
(10,536)
|
|
|
|
(32,868)
|
|
|
|
(27,076)
|
|
|
Unrealized gain (loss)
on derivative instruments (1)
|
168,058
|
|
|
|
(79,408)
|
|
|
|
(52,736)
|
|
|
|
(73,966)
|
|
|
Unrealized foreign
exchange (loss) gain (1)
|
(32,267)
|
|
|
|
(18,298)
|
|
|
|
7,870
|
|
|
|
(44,208)
|
|
|
Accretion
|
(13,746)
|
|
|
|
(10,863)
|
|
|
|
(27,384)
|
|
|
|
(21,370)
|
|
|
Depletion and
depreciation
|
(140,763)
|
|
|
|
(149,651)
|
|
|
|
(275,003)
|
|
|
|
(255,664)
|
|
|
Deferred tax (expense)
recovery
|
(63,497)
|
|
|
|
(63,526)
|
|
|
|
(7,404)
|
|
|
|
(234,754)
|
|
|
Gain on business
combinations
|
—
|
|
|
|
17,198
|
|
|
|
—
|
|
|
|
17,198
|
|
|
Impairment
reversal
|
—
|
|
|
|
593,606
|
|
|
|
192,094
|
|
|
|
1,256,472
|
|
|
Unrealized other
expense
|
(566)
|
|
|
|
(190)
|
|
|
|
(763)
|
|
|
|
(387)
|
|
|
Net
earnings
|
362,621
|
|
|
|
451,274
|
|
|
|
646,575
|
|
|
|
951,238
|
|
|
(1)
|
Unrealized gain (loss)
on derivative instruments, Unrealized foreign exchange (loss) gain,
and Unrealized other expense are line items from the respective
Consolidated Statements of Cash Flows.
|
Free cash flow (FCF): A non-GAAP financial measure
most directly comparable to cash flows from operating activities.
FCF is comprised of fund flows from operations less drilling and
development costs and exploration and evaluation costs. The measure
is used to determine the funding available for investing and
financing activities including payment of dividends, repayment of
long-term debt, reallocation into existing business units and
deployment into new ventures.
($M)
|
Q2
2022
|
Q2
2021
|
2022
|
2021
|
Cash flows from
operating activities
|
530,364
|
253,406
|
871,417
|
372,553
|
Changes in non-cash
operating working capital
|
(81,763)
|
(83,785)
|
(39,268)
|
(47,904)
|
Asset retirement
obligations settled
|
4,300
|
3,321
|
10,620
|
10,344
|
Fund flows from
operations
|
452,901
|
172,942
|
842,769
|
334,993
|
Drilling and
development
|
(109,488)
|
(77,703)
|
(192,329)
|
(157,215)
|
Exploration and
evaluation
|
(3,665)
|
(1,473)
|
(6,168)
|
(5,324)
|
Free cash
flow
|
339,748
|
93,766
|
644,272
|
172,454
|
2023+ FFO and FCF: A forward-looking total of segments
measure and a forward-looking non-GAAP measure; the equivalent
historical measures FFO and FCF have been disclosed above.
Capital expenditures: A non-GAAP financial measure that
is calculated as the sum of drilling and development costs and
exploration and evaluation costs from the Consolidated Statements
of Cash Flows and is most directly comparable to cash flows used in
investing activities. We consider capital expenditures to be a
useful measure of our investment in our existing asset base.
Capital expenditures are also referred to as E&D capital.
($M)
|
Q2
2022
|
Q2
2021
|
2022
|
2021
|
Drilling and
development
|
109,488
|
77,703
|
192,329
|
157,215
|
Exploration and
evaluation
|
3,665
|
1,473
|
6,168
|
5,324
|
Capital
expenditures
|
113,153
|
79,176
|
198,497
|
162,539
|
Net debt: A capital management measure in accordance
with IAS 1 "Presentation of Financial Statements" that is most
directly comparable to long-term debt. Net debt is comprised of
long-term debt (excluding unrealized foreign exchange on swapped
USD borrowings) plus adjusted working, capital and represents
Vermilion's net financing obligations after adjusting for the
timing of working capital fluctuations.
Net debt to four quarter trailing fund flows from
operations: A supplementary financial measure that is
calculated as net debt (capital measure) over the FFO (total of
segments measure) from the preceding four quarters. The measure is
used to assess the ability to repay debt.
|
As at
|
($M)
|
Jun 30,
2022
|
Dec 31,
2021
|
Long-term
debt
|
1,527,217
|
1,651,569
|
Adjusted working
capital deficit
|
65,394
|
9,284
|
Unrealized FX on
swapped USD borrowings
|
(3,943)
|
(16,067)
|
Net
debt
|
1,588,668
|
1,644,786
|
|
|
|
Ratio of net debt to
four quarter trailing fund flows from operations
|
1.1
|
1.8
|
Adjusted working capital: 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, a capital measure disclosed
above.
|
As at
|
($M)
|
Jun 30,
2022
|
Dec 31,
2021
|
Current
assets
|
530,098
|
472,845
|
Current derivative
asset
|
(36,412)
|
(19,321)
|
Current
liabilities
|
(958,674)
|
(746,813)
|
Current lease
liability
|
10,602
|
15,032
|
Current derivative
liability
|
388,992
|
268,973
|
Adjusted working
capital deficit
|
(65,394)
|
(9,284)
|
Payout and payout % of FFO: A non-GAAP financial
measure and non-GAAP ratio respectively most directly comparable to
dividends declared. Payout is comprised of dividends declared plus
drilling and development costs, exploration and evaluation costs,
and asset retirement obligations settled. The measure is used to
assess the amount of cash distributed back to shareholders and
reinvested in the business for maintaining production and organic
growth. The reconciliation of the measure to primary financial
statement measure can be found below. Management uses payout and
payout as a percentage of FFO (also referred to as the payout or
sustainability ratio).
Dividends % of FFO: A supplementary financial
measure that is calculated as dividends declared divided by FFO
(total of segments measure). The measure is used by management as a
metric to assess the cash distributed to shareholders.
($M)
|
Q2
2022
|
Q2
2021
|
YTD
2022
|
YTD
2021
|
Dividends
declared
|
9,913
|
—
|
19,680
|
—
|
% of
fund flows from operations
|
2 %
|
— %
|
2 %
|
— %
|
Drilling and
development
|
109,488
|
77,703
|
192,329
|
157,215
|
Exploration and
evaluation
|
3,665
|
1,473
|
6,168
|
5,324
|
Asset retirement
obligations settled
|
4,300
|
3,321
|
10,620
|
10,344
|
Payout
|
127,366
|
82,497
|
228,797
|
172,883
|
% of
fund flows from operations
|
28 %
|
48 %
|
27 %
|
52 %
|
Operating netback: Is a non-GAAP financial measure
most comparable to primary financial measure net earnings and is
calculated as sales less royalties, operating expense,
transportation costs, PRRT, and realized hedging gains and losses
presented on a per unit basis. Management assesses operating
netback as a measure of the profitability and efficiency of our
field operations.
Fund flows from operations per boe: A supplementary
financial measure that is calculated as FFO (total of segments
measure) 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.
Management's Discussion and Analysis and Consolidated
Financial Statements
To view Vermilion's Management's Discussion and Analysis and
Interim Condensed Consolidated Financial Statements for the three
and six months ended June 30, 2022 and 2021, please refer to
SEDAR (www.sedar.com) or Vermilion's website
at https://www.vermilionenergy.com/invest-with-us/reports-filings.cfm.
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 free cash flow generation and returning capital to
investors when economically warranted, augmented by value-adding
acquisitions. 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 by leading ESG rating agencies for our transparency on
and management of key environmental, social and governance issues.
In addition, we emphasize strategic community investment in each of
our operating areas.
Employees and directors hold approximately 4% of our outstanding
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; sustainability (Environment, Social, and
Governance or ESG) data and performance; estimated volumes of
reserves and resources; petroleum and natural gas sales; future
production levels and the timing thereof, including Vermilion's
2022 guidance, and rates of average annual production growth; 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; statements regarding the
growth and size of Vermilion's future project inventory, and the
wells expected to be drilled in 2022; exploration and development
plans and the timing thereof; Vermilion's ability to reduce its
debt; statements regarding Vermilion's hedging program, its plans
to add to its hedging positions, and the anticipated impact of
Vermilion's hedging program on project economics and free cash
flows; the potential financial impact of climate-related risks;
acquisition and disposition plans and the timing thereof; operating
and other expenses, including the payment and amount of future
dividends; 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 and current evolutions with
relation to sustainability/ESG reporting methodologies; 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.
This document contains metrics commonly used in the oil and gas
industry. These oil and gas metrics do not have any standardized
meaning or standard methods of calculation and therefore may not be
comparable to similar measures presented by other companies where
similar terminology is used and should therefore not be used to
make comparisons. 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.
This document may contain references to sustainability/ESG data
and performance that reflect metrics and concepts that are commonly
used in such frameworks as the Global Reporting Initiative, the
Task Force on Climate-related Financial Disclosures, and the Value
Reporting Foundation (Sustainability Accounting Standards Board).
Vermilion has used best efforts to align with the most commonly
accepted methodologies for ESG reporting, including with respect to
climate data and information on potential future risks and
opportunities, in order to provide a fuller context for our current
and future operations. However, these methodologies are not yet
standardized, are frequently based on calculation factors that
change over time, and continue to evolve rapidly. Readers are
particularly cautioned to evaluate the underlying definitions and
measures used by other companies, as these may not be comparable to
Vermilion's. While Vermilion will continue to monitor and adapt its
reporting accordingly, the Company is not under any duty to update
or revise the related sustainability/ESG data or statements except
as required by applicable securities laws.
Financial data contained within this document are reported in
Canadian dollars, unless otherwise stated.
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SOURCE Vermilion Energy Inc.