Deals - Acquisition, Mergers, Divestitures | Capital Markets | Capital Expenditure - 2019

Operator to Drill 129 Wells in SE Saskatchewan in 2019

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Vermilion Energy provided an update to its Q3 2018 activities.  The three most notable items in the report include:

1. Acquired a 55,000 net acre position in the core of the Powder River Basin for $186 million

2. Completed acquisition of Spartan

3. Provided a guidance of $530 million for its 2019 development budget.

• 129 wells planned in SE Saskatchewan (Frac’d Midale) - acquired from Spartan

• 8 wells planned in the Powder River Basin

Highlights:

• Our Board of Directors has approved a 2019 E&D capital budget of $530 million, with associated production guidance of 101,000 to 106,000 boe/d. The midpoint of our 2019 production guidance reflects year-over-year growth of approximately 18%, or 7% on a per share basis, as compared to 2018. The 2019 program reflects a full year of development on the Spartan assets acquired this year, additional capital associated with the recently acquired assets in the Powder River Basin, and a significantly expanded drilling program in Europe.

• In the United States, Q3 2018 production averaged 2,979 boe/d, an increase of 280% from the prior quarter, due to the production associated with an acquisition we completed during the quarter and the completion of our first half 2018 drilling program. The acquired assets are located in the Powder River Basin in Campbell County, Wyoming, approximately 40 miles (65 kilometres) northwest of Vermilion's existing operations. The assets include approximately 55,700 net acres of land (approximately 96% working interest) and approximately 2,500 boe/d (63% oil and NGLs) of low decline production. Vermilion has identified 93 future drilling locations on this land targeting light oil in the Turner and Parkman tight sandstones.

• Fund flows from operations ("FFO") for Q3 2018 was $261 million ($1.71/basic share⁽¹⁾), an increase of 34% from the prior quarter (18% on a per share basis) driven by higher production volumes and higher commodity prices, partially offset by hedging losses. Year-over-year, FFO increased 99% as compared to Q3 2017 on higher production and commodity prices, partially offset by hedging losses.
  
  
• Q3 2018 production increased by 19% from the prior quarter to 96,222 boe/d. The increase was primarily due to the full quarter contribution from the Spartan acquisition and new production added from our 2018 drilling program.
  
  
• In Canada, production averaged 57,397 boe/d in Q3 2018, representing a 31% increase from the previous quarter primarily due to the Spartan acquisition.
  
  
• In the Netherlands, Q3 2018 production averaged 7,479 boe/d, an increase of 2% from the prior quarter. In mid-September, we brought the Eesveen-02 well (60% working interest) on production. The well is currently flowing at a restricted rate of 10 mmcf/d net, pursuant to the conditions of the permit, and is expected to produce at this rate through 2019. We continue to advance future drilling permits in preparation for an accelerated drilling program in future years.
  
  
• In Ireland, production from Corrib averaged 51 mmcf/d (8,563 boe/d) in Q3 2018, a 9% decrease from the prior quarter primarily due to a planned plant turnaround, which reduced production by approximately 450 boe/d net to Vermilion. Natural declines accounted for approximately 400 boe/d of the quarter-over-quarter decrease which is consistent with our numerical reservoir simulation, history-matched to production performance to-date. We continue to focus on activities associated with the transition of ownership and operatorship from Shell to Canada Pension Plan Investment Board ("CPPIB") and Vermilion, and anticipate receiving final approvals from the necessary authorities and closing the transaction before the end of 2018. As noted in our Q2 2018 release, although the longer than anticipated closing timeline will have a modest impact on our booked production, Vermilion will still benefit from all interim period cash flows from January 1, 2017 to closing as a reduction of purchase price.
  
  
• In Central and Eastern Europe, first gas production commenced from our Hungarian Mh-Ny-07 natural gas well (100% working interest) in the South Battonya concession. The well was brought on production mid-August, 2018 and contributed 195 boe/d to our Q3 2018 results, and is currently producing at a rate of 5.3 mmcf/d (880 boe/d).
  
  
• In Australia, production averaged 4,704 bbl/d in Q3 2018, representing a 14% increase from the previous quarter primarily due to reinstatement of production following well workover activity that was successfully completed in Q2 2018. Another key well workover was completed at the end of Q3 2018, which should restore additional production during Q4 2018. We have secured all necessary third party contracts and regulatory permits associated with the Q4 2018 two-well drilling program and expect the rig to arrive by the end of October. Our planned two-well drilling program should be completed in early January 2019.

2019 Capital Expenditure & Drilling Plans

In North America, our activity will continue to focus on our three core areas of west-central Alberta (condensate-rich gas), southeast Saskatchewan (light oil) and the Powder River Basin in Wyoming (light oil), all of which are products with advantaged market access and resulting lower basis differentials.  We plan to drill 19.0 (16.7 net) condensate-rich wells in west-central Alberta, 143 (129.0 net) light oil wells in southeas

In Europe, we expect to resume drilling in the Netherlands, significantly expand our drilling program in Central and Eastern Europe, commence our inaugural drilling campaign in Germany, and continue with our low risk development plans in France.  The majority of the new wells we plan to drill in Europe during 2019 will be targeting natural gas which continues to sell at a significant premium to North American gas prices.  In total, we plan to drill 19 (13.7 net) wells in Europe in 2019, representing our most active drilling program in Europe over our 21-year history.  This is more than three times the number of wells we drilled in 2018 and over 25% more than our previous high in Europe.