Drilling & Completions | Quarterly / Earnings Reports | Second Quarter (2Q) Update | IP Rates-30-Day | Drilling Activity

Vermilion Sees 15% Upswing in Production; Talks US, International Ops

Share Print Bookmark    |    Monday,July 30,2018

Vermilion Energy reported its Q2 2018 results.

Highlights

- Q2 2018 production increased by 15% from the prior quarter to 80,625 boe/d. The increase was primarily due to the Spartan acquisition and production added from our Q1 2018 drilling program.

Q2 2018 Operations Review

Europe

In France, Q2 2018 production averaged 11,683 boe/d, an increase of 6% from the prior quarter. The increase was primarily due to production additions following the completion of our Q1 2018 drilling program in the Neocomian and Champotran fields. Production also benefited from less well downtime compared to the previous quarter, in addition to the successful execution of several workovers performed during the first half of the year.

In the Netherlands, Q2 2018 production averaged 7,335 boe/d, which was down 3% from the prior quarter.  Activity during the second quarter was focused on maintenance, well workovers, permitting and evaluation of 3D seismic acquired last year.  We have completed an initial assessment of the 3D seismic data and have identified 15 future drilling prospects, the majority of which can be reached from existing wellsites.  Subsequent to the end of the second quarter, we received regulatory approval for the production plan for the Eesveen-02 well.  This well produced at approximately 10 mmcf/d net to Vermilion during its extended production test last fall, and is expected to come on production in mid-August 2018.  We continue to pursue permitting of our planned three well (1.5 net) drilling program included in our original 2018 budget.  However, we believe delays in the permitting process, largely driven by regulatory bandwidth being consumed by the response to seismicity in the Groningen field, will push these wells out of this budget year.  More broadly, the Ministry of Economic Affairs recently published a policy letter reiterating its support for Small Fields development in the Netherlands.  We have detailed in our corporate presentation a new drilling schedule for the Netherlands, which takes into account regulatory delays in the near term, as well as our long-term plan for more time-efficient well proposals by utilizing a greater proportion of long reach wells to access new pools.  This schedule anticipates increasing the pace of our permitting and drilling activities in the Netherlands over time and continuing to grow our production base in this high-netback business unit.

In Ireland, production from Corrib averaged 57 mmcf/d (9,426 boe/d) in Q2 2018, a 7% decrease from the prior quarter due to natural declines and minor plant downtime related to external electricity supply issues.  Production declines were consistent with our numerical simulation of reservoir performance.  We made significant progress on activities associated with the transition of ownership and operatorship from Shell to CPPIB and Vermilion.  The transition has progressed well with all technical aspects being ready.  We now anticipate receiving final approvals from the necessary authorities and closing of the transaction in the second half of 2018.  Although this closing date is later than our original expectation, and will have a modest impact on our booked production from Ireland, Vermilion will still benefit from all interim period cash flows between January 1, 2017 and closing as a reduction of purchase price.

In Germany, production in Q2 2018 averaged 3,447 boe/d, a decrease of 9% from the previous quarter.  The decrease was primarily due to downtime at a non-operated gas processing facility resulting in 22 days of downtime during the quarter.  A portion of the volumes were brought back on-line mid-June; however, approximately two-thirds of the volumes affected by the downtime are not anticipated to come back on-line until later in the third quarter of 2018.  Our capital activity in Germany continues to focus on well workover and optimization projects on our operated assets and planning activities related to the Burgmoor Z5 well (46% working interest) to be drilled in early 2019.

In Hungary, activity during the second quarter of 2018 was primarily focused on preparations to bring our first exploratory well in the South Battonya concession, the Mh-Ny-07 well (100% working interest), on production during Q3 2018.  Work on pipeline and facility tie-in continues, and we anticipate bringing the well on production during August 2018.  Permitting activities have been initiated in preparation for the drilling of our second commitment well in the South Battonya concession in 2019.  In Croatia, we completed the first phase of our 2D seismic data acquisition, which revealed positive results on the 150 km of data obtained to date.  We have also begun permitting and planning activities in Croatia and Slovakia in preparation for our 2019 drilling campaigns.

Australia

In Australia, production averaged 4,132 bbl/d in Q2 2018, representing a 17% decrease from the previous quarter primarily due to downtime associated with well workover activity to optimize electrical submersible pump completions.  These maintenance activities have been completed and we expect to recover this production during the second half of the year.  Other activity during the second quarter was focused on preparing for our next drilling program.  We have elected to accelerate our originally planned 2019 Australia drilling campaign into Q4 2018.  There are several significant advantages to conducting this activity ahead of our original schedule.  First, a suitable rig is now working for another operator on the northwest shelf, while there is no assurance that such a rig could be mobilized at reasonable cost in 2019.  Second, the presence of the rig generates economies in mobilization and demobilization, support vessels and other services.  Third, offshore services are already tightening, and the potential for higher services costs exists in 2019.  Finally, engaging the rig that is currently operating on the northwest shelf should ensure that our wells are completed before the onset of cyclone season in Q1 2019.  Although the early drilling is not expected to contribute production in 2018, it will save approximately $12 million in capital compared to drilling in 2019 (even assuming no rebound in offshore services prices in 2019).  The total estimated cost for the two-well program is approximately $65 million.

Environmental, Social and Governance (“ESG”)

Vermilion’s MSCI ESG rating was recently re-affirmed as “A” for 2018, marking the second consecutive year Vermilion has scored at this level, and our Governance Metrics score ranked in the top decile globally.  Vermilion also scored 82 out of 100 on the annual ratings conducted by Sustainalytics, ranking at the top of our peer group.  Sustainalytics rates the sustainability of participating companies based on their environmental, social and governance performance.  Both of these ratings are a product of our commitment to maintaining leadership in sustainability and ESG performance.