Exploration & Production | Quarterly / Earnings Reports | First Quarter (1Q) Update

Vermilion Credits Cardium, Mannville Ops for Production Growth

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Vermilion Energy Inc. has reported operating and unaudited financial results for the three months ended March 31, 2014.

Highlights:

• Achieved average production of 46,677 boe/d during the first quarter of 2014, an increase of 14% as compared to 40,960 boe/d in the prior quarter and 21% compared to 38,707 boe/d in the first quarter of 2013.  The increase versus the prior quarter was largely attributable to robust performance from our Mannville condensate-rich natural gas drilling program and continued Cardium related additions in Canada, strong operational performance in the Netherlands andAustralia, as well as the addition of volumes related to our German acquisition.  The year-over-year increase was attributable to strong growth in Canada, the Netherlands and Australia, in addition to incremental volumes associated with our October 2013 acquisition in the Netherlands and the previously mentioned German acquisition.
• Based on the strength of operations during the first quarter of 2014, we are increasing our full-year 2014 production guidance from the current range of 47,500-48,500 boe/d to 48,000-49,000 boe/d.
• Generated fund flows from operations⁽¹⁾ in the first quarter of 2014 of $205.4 million ($2.01/basic share), an increase of more than 25% as compared to $163.7 million ($1.61/basic share) in the prior quarter and $163.6 million ($1.65/basic share) in the first quarter of 2013.  The increase was primarily attributable to significantly higher consolidated sales volumes.  The quarter-over-quarter increase was further attributable to meaningfully improved pricing in Canada for both oil and gas related production, partially offset by moderately weaker realized pricing for production in the Netherlands.
• We continued to benefit from our diversified commodity production mix in the first quarter of 2014.  During the first quarter, the Dated Brent (Brent) crude index continued to trade at an average premium of US$9.54/boe above the West Texas Intermediate (WTI) index and US$17.79/boe above Edmonton Sweet index pricing.  In addition, our exposure to Canadian natural gas enabled us to take advantage of a 62% increase in AECO natural gas pricing during the quarter.  While Title Transfer Facility (TTF) index pricing softened modestly quarter-over-quarter, it remained strong relative to North American natural gas prices.  Our European gas production, which is priced against TTF, received an average realized price of $10.29/mcf ($9.75/GJ).
• Continued devaluation of the Canadian dollar further contributed to growth in fund flows from operations, due to its positive impact on our U.S. dollar and Euro denominated commodity exposures. This contributed to a quarter-over-quarter increase in our realized consolidated crude and NGLs price of 5.3% and a 9.6% increase in our realized consolidated natural gas price, as expressed in Canadian dollars.
• While devaluation of the Canadian dollar results in a positive, outsized impact on fund flows from operations, thereby improving our overall payout ratio, it increases our foreign denominated capital expenditures in Canadian dollar terms.  To-date in 2014, devaluation of the Canadian dollar has translated to an increase in actual and anticipated capital expenditures for full-year 2014, as measured in Canadian dollars, of approximately $30 million.  Combined with an additional $15 million of drilling-related spending, we are now forecasting full-year 2014 exploration and development ("E&D") capital expenditures of approximately $635 million (inclusive of anticipated E&D capital spending attributable to our acquisition of Elkhorn Resources Inc.) as compared to previous guidance of $590 million.
• Effective February, 2014, we acquired a 25% contractual participation interest in a four-partner consortium in Germany.  The acquisition enables us to participate in the exploration, development, production and transportation of natural gas from the assets, which include four gas producing fields across 11 production licenses. The acquisition is expected to contribute approximately 2,300 boe/d of production in 2014.  In addition to the production licenses, a surrounding exploration license was also acquired pursuant to the acquisition.  The exploration and production licenses comprise 207,000 gross acres, of which 85% is in the exploration license.
• On March 18, 2014, we announced that we had entered into an arrangement agreement to acquire Elkhorn Resources Inc., a private southeast Saskatchewanproducer.  On April 29, 2014, we announced completion of the acquisition for total consideration of $427 million.  Total consideration comprised the assumption of an estimated $42 million of debt, $180 million of cash, and the issuance of 2.8 million common shares of Vermilion valued at approximately $205 million (based on the closing price per Vermilion common share of $72.50 on the Toronto Stock Exchange on April 29, 2014).  The assets consist of high netback, light oil producing assets in the Northgate region of southeast Saskatchewan and include approximately 57,000 net acres of land (approximately 80% undeveloped), seven oil batteries, and preferential access to 50% or greater capacity at a solution gas facility that is currently under construction. Production from the assets is projected to average approximately 3,750 boe/d (97% crude oil) during 2014.
• In Ireland, Corrib tunneling operations are approximately 95% completed, with approximately 300 metres of tunneling remaining.  Based on the current deterministic schedule for remaining construction and commissioning activities, we anticipate first gas from Corrib in approximately mid-2015. Peak production at Corrib is estimated at approximately 58 mmcf/d (approximately 9,700 boe/d) net to Vermilion.
• In 2014, we are celebrating our 20^th Anniversary as a publicly traded company.  This has been a rewarding period of growth and achievement for our company, and we are proud of our progress to date.  Most importantly, we are honored to have provided our shareholders with a compound average total return including dividends, as of April 30, 2014, of 36.6% per annum since our inception.  As we look forward, with the anticipated growth of our fund flows from operations in the current commodity environment, the continued strength of our operations, and our extensive opportunity base, we will redouble our efforts to provide continued strong operational and financial performance, and a reliable and growing dividend stream to investors.
• In keeping with our objective of providing reliable and growing dividends, we increased our monthly cash dividend by 7.5% to $0.215 per share ($2.58 per year), effective for the January dividend that was paid on February 15, 2014.
• As previously announced, we amended our Dividend Reinvestment Plan ("DRIP") to decrease the amount of additional shares participants in the DRIP are eligible to receive to 3% of their cash dividends, previously 5%.  All other provisions of our DRIP are unchanged.  The amendment is effective for the April dividend payable on May 15, 2014.  The record date for the April dividend was April 30, 2014.

Organizational Update

Vermilion is pleased to announce the appointment of Michael Kaluza to the position of Vice President, Canada Business Unit, effective May 1, 2014.  This appointment is in consideration of Mr. Kaluza's continued contribution to the strong operational performance and growth of the Canadian Business Unit.  Mr. Kaluza joined Vermilionin February, 2013 as Director, Canada Business Unit.  Mr. Kaluza has over 30 years of operations and executive management experience, and has a Bachelor of Science Petroleum Engineering (Honors) from Montana College of Mineral, Science and Technology (1985).