CALGARY,
AB, March 8, 2023 /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 year ended December 31, 2022.
The audited financial statements, management discussion and
analysis and annual information form for the year ended
December 31, 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
Year-end 2022 Results
- 2022 fund flows from operations ("FFO")(1) was a
record $1.6 billion ($10.00/basic share)(2), representing a
year-over year increase of 78%, including the impact of
$406 million of realized hedging
losses and $223 million of temporary
European windfall taxes.
- 2022 exploration and development ("E&D") capital
expenditures(3) were $552
million, resulting in record free cash flow
("FCF")(4) of $1.1 billion
($6.62/basic share)(5),
representing a year-over-year increase of 99%, including the impact
of hedging losses and temporary windfall taxes.
- Record FCF in 2022 allowed us to fund over $500 million of strategic acquisitions, reduce
net debt by over $300 million and
return over $100 million to our
shareholders through dividends and share buybacks. We exited the
year with net debt(6) of $1.3
billion, resulting in a net debt to trailing FFO
ratio(7) of 0.8 times at December
31, 2022.
- Following the reinstatement of our quarterly dividend in Q1
2022 and the approval of a normal course issuer bid ("NCIB") in Q3
2022, we declared $46 million in
dividends and repurchased $72 million
of Vermilion shares in 2022, representing 11% of FCF.
- Net earnings were $1.3 billion
($8.03/basic share) for 2022,
representing a 14% increase over the prior year.
- Production in 2022 averaged 85,187 boe/d(8) which is
consistent with 2021 production levels.
- Total proved plus probable ("2P") reserves increased 9% from
the prior year to 523 mmboe(9). Including acquisitions,
we replaced 234% of production on a proved plus probable basis and
increased our total proved plus probable reserve life index to 16.8
years.
- The after-tax net present value of 2P reserves(9),
discounted at 10%, increased 36% from the prior year to
$8.9 billion ($54.72/basic share), with proved developed
producing ("PDP") reserves making up more than 50% of this
value.
- 2P finding, development and acquisition ("FD&A") costs,
including changes in future development costs ("FDC") were
$19.22/boe, resulting in a 2022 2P
FD&A Operating Recycle Ratio of 4.4 times.
Fourth Quarter 2022 Results
- Q4 2022 FFO was $284 million
($1.74/basic share)(2),
including the full year impact of the temporary European windfall
tax of $223 million. Without the
temporary windfall tax, FFO would have been $507 million ($3.11/basic share), in line with the prior
quarter.
- Q4 2022 E&D capital expenditures(3) were
$169 million, resulting in FCF of
$115 million ($0.70/basic share)(5), including the
full year impact of the temporary European windfall tax noted
above. Without the impact of the temporary windfall tax, FCF would
have been $338 million ($2.07/basic share), an increase of 4% over the
prior quarter.
- Q4 2022 production averaged 85,450 boe/d(8) an
increase of 1% from the previous quarter. During the fourth
quarter, production was impacted by unplanned downtime in
Australia, cold weather and
third-party downtime in North
America and the delayed startup of our six-well Montney pad in Alberta.
- Production from our North American operations averaged 58,499
boe/d(8) in Q4 2022, an increase of 2% from the prior
quarter primarily due to new production from our Montney assets in Canada and a full quarter contribution from
our 2022 drilling program in the United
States.
- Production from our International operations averaged 26,953
boe/d(8) in Q4 2022, a decrease of 1% from the prior
quarter, primarily due to natural decline in Netherlands and Germany, as well as lower than anticipated
production in Australia due to
unplanned downtime.
Outlook
- The Corrib acquisition has a planned close on March 31, 2023. This acquisition is expected to
add approximately 7,000 boe/d of European gas production which was
incorporated from March 31, 2023
onwards in our original production guidance of 87,000 to 91,000
boe/d.
- Subsequent to year-end, we signed an agreement to sell
approximately 5,500 boe/d of non-core light oil production in
southeast Saskatchewan for total
cash consideration of $225 million,
before closing adjustments. The transaction has an effective date
of September 1, 2022 and is expected
to close in March 2023. The net
proceeds will be used to pay down debt.
- Taking into account the southeast Saskatchewan asset sale and Australia downtime, we are revising our 2023
production guidance to 82,000 to 86,000 boe/d. Our 2023 capital
budget remains unchanged at $570
million.
- In conjunction with our Q4 2022 release, we declared a
quarterly cash dividend of $0.10 CDN
per share for Q1 2023, representing a 25% increase over the prior
quarterly dividend. In addition, we resumed share buybacks in early
January 2023, and have repurchased
1.1 million shares in 2023 to date.
($M except as
indicated)
|
Q4
2022
|
Q3
2022
|
Q4
2021
|
2022
|
2021
|
Financial
|
|
|
|
|
|
Petroleum and natural
gas sales
|
842,693
|
964,678
|
765,915
|
3,476,394
|
2,079,761
|
Cash flows from
operating activities
|
495,195
|
447,608
|
250,352
|
1,814,220
|
834,453
|
Fund flows from
operations (1)
|
284,220
|
507,876
|
322,173
|
1,634,865
|
919,862
|
Fund
flows from operations ($/basic share) (2)
|
1.74
|
3.10
|
1.99
|
10.00
|
5.71
|
Fund
flows from operations ($/diluted share) (2)
|
1.70
|
3.01
|
1.93
|
9.71
|
5.58
|
Net earnings
|
395,408
|
271,079
|
344,588
|
1,313,062
|
1,148,696
|
Net
earnings ($/basic share)
|
2.42
|
1.65
|
2.12
|
8.03
|
7.13
|
Cash flows used in
investing activities
|
168,053
|
168,275
|
134,873
|
1,059,292
|
469,700
|
Capital expenditures
(3)
|
169,305
|
184,015
|
145,807
|
551,817
|
374,796
|
Acquisitions
|
4,558
|
6,220
|
23,633
|
539,713
|
130,965
|
Asset retirement
obligations settled
|
16,508
|
10,386
|
13,039
|
37,514
|
28,525
|
Repurchase of
shares
|
—
|
71,659
|
—
|
71,659
|
—
|
Cash dividends
($/share)
|
0.08
|
0.08
|
—
|
0.28
|
—
|
Dividends
declared
|
13,058
|
13,031
|
—
|
45,769
|
—
|
% of
fund flows from operations (10)
|
5 %
|
3 %
|
— %
|
3 %
|
— %
|
Payout
(11)
|
198,871
|
207,432
|
158,846
|
635,100
|
403,321
|
% of
fund flows from operations (11)
|
70 %
|
41 %
|
49 %
|
39 %
|
44 %
|
Free cash flow
(4)
|
114,915
|
323,861
|
176,366
|
1,083,048
|
545,066
|
Long-term
debt
|
1,081,351
|
1,409,507
|
1,651,569
|
1,081,351
|
1,651,569
|
Net debt
(6)
|
1,344,586
|
1,412,052
|
1,644,786
|
1,344,586
|
1,644,786
|
Net debt to four
quarter trailing fund flows from operations
(7)
|
0.8
|
0.8
|
1.8
|
0.8
|
1.8
|
Operational
|
Production
(8)
|
|
|
|
|
|
Crude oil and condensate (bbls/d)
|
38,915
|
37,315
|
36,264
|
37,530
|
38,143
|
NGLs
(bbls/d)
|
7,497
|
7,901
|
8,461
|
7,961
|
8,325
|
Natural gas (mmcf/d)
|
234.23
|
234.12
|
238.16
|
238.18
|
233.64
|
Total (boe/d)
|
85,450
|
84,237
|
84,417
|
85,187
|
85,408
|
Average realized
prices
|
|
|
|
|
|
Crude oil and condensate ($/bbl)
|
115.02
|
123.02
|
96.88
|
123.89
|
83.78
|
NGLs
($/bbl)
|
39.93
|
44.64
|
47.27
|
45.95
|
34.44
|
Natural gas ($/mcf)
|
17.43
|
24.68
|
17.89
|
18.99
|
9.53
|
Production mix (% of
production)
|
|
|
|
|
|
%
priced with reference to WTI
|
38 %
|
38 %
|
38 %
|
38 %
|
38 %
|
%
priced with reference to Dated Brent
|
18 %
|
17 %
|
16 %
|
16 %
|
17 %
|
%
priced with reference to AECO
|
30 %
|
30 %
|
28 %
|
30 %
|
29 %
|
%
priced with reference to TTF and NBP
|
14 %
|
15 %
|
18 %
|
16 %
|
16 %
|
Netbacks
($/boe)
|
|
|
|
|
|
Operating netback (12)
|
70.00
|
78.42
|
48.07
|
70.15
|
34.06
|
Fund
flows from operations ($/boe) (13)
|
35.08
|
67.07
|
40.73
|
52.65
|
29.54
|
Operating expenses
|
16.81
|
16.64
|
14.24
|
15.75
|
13.27
|
General and administration expenses
|
1.65
|
1.90
|
2.20
|
1.86
|
1.70
|
Average reference
prices
|
|
|
|
|
|
WTI
(US $/bbl)
|
82.65
|
91.56
|
77.19
|
94.23
|
67.92
|
Dated Brent (US $/bbl)
|
88.71
|
100.85
|
79.73
|
101.19
|
70.73
|
AECO
($/mcf)
|
4.64
|
4.16
|
4.66
|
5.25
|
3.62
|
TTF
($/mcf)
|
38.36
|
75.56
|
38.86
|
48.35
|
19.86
|
Share information
('000s)
|
Shares outstanding -
basic
|
163,227
|
162,883
|
162,261
|
163,227
|
162,261
|
Shares outstanding -
diluted (14)
|
168,616
|
168,574
|
168,746
|
168,616
|
168,746
|
Weighted average shares
outstanding - basic
|
163,105
|
163,947
|
162,247
|
163,489
|
161,172
|
Weighted average shares
outstanding - diluted (14)
|
167,397
|
168,494
|
166,519
|
168,426
|
164,765
|
(1)
|
Fund flows from
operations (FFO) is a total of segments measure comparable to net
earnings that is comprised of sales less royalties, transportation,
operating, G&A, corporate income tax, PRRT, windfall taxes,
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. FFO does not have a standardized meaning under IFRS
and therefore may not be comparable to similar measures provided by
other issuers. 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 share (basic and diluted) are supplementary
financial measures and are not a standardized financial measures
under IFRS, and therefore may not be comparable to similar measures
disclosed by other issuers. They are calculated using FFO (a total
of segments measure) and basic/diluted 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 measures can be found in the "Non-GAAP and
Other Specified Financial Measures" section of this
document.
|
(3)
|
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.
|
(4)
|
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 exploration and evaluation 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.
|
(5)
|
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.
|
(6)
|
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 (defined as current
assets less current liabilities, excluding current derivatives and
current lease liabilities). 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 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.
|
(8)
|
Please refer to
Supplemental Table 4 "Production" of the accompanying Management's
Discussion and Analysis for disclosure by product type.
|
(9)
|
Estimated gross proved,
developed and producing, total proved, and total proved plus
probable reserves as evaluated by GLJ Petroleum Consultants Ltd.
("GLJ") in a report dated February 14, 2023 with an effective date
of December 31, 2022 (the "2022 GLJ Reserves Report"). Net present
value of discounted cash flows as provided in the 2022 GLJ Reserves
Report.
|
(10)
|
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.
|
(11)
|
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.
|
(12)
|
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.
|
(13)
|
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.
|
(14)
|
Diluted shares
outstanding represent the sum of shares outstanding at the period
end plus outstanding awards under the Long-term Incentive Plan
("LTIP"), based on current estimates of future performance factors
and forfeiture rates.
|
Message to Shareholders
In 2022, we delivered on our strategic priorities and continued
to re-position Vermilion for long term success. Due to the robust
free cash flow generation of our international and diversified
assets, we reduced net debt by $300
million and completed $500
million of strategic acquisitions, despite incurring
$406 million of realized hedging
losses and $223 million of temporary
windfall taxes. To increase our exposure to premium priced European
gas, we progressed the high rate of return Irish Corrib
consolidation deal, which we plan to close on March 31, 2023. In Canada, our Montney acquisition increased the depth and
quality of our North American inventory. With lower debt and an
even stronger asset base, we announced our return of capital
framework and returned over $100
million to our shareholders with the reinstatement of a
quarterly dividend in Q1 2022 and commencement of a share buyback
program in Q3 2022. We exited the year with net debt of
$1.3 billion, or 0.8 times trailing
FFO, which is less than half the leverage ratio from the prior
year. These results translated into a total shareholder return in
excess of 50% including share price appreciation and dividends. We
remain committed to reducing debt even further, which will allow
for increasing return of capital to our shareholders in the future.
Our next debt target remains $1.0
billion of net debt, which we anticipate achieving by the
end of 2023 or early 2024, depending on commodity prices.
Production in Q4 2022 averaged 85,450 boe/d, representing a 1%
increase over Q3 2022. Annual average production was 85,187 boe/d,
which is consistent with 2021 production levels. During the fourth
quarter, production was impacted by unplanned downtime in
Australia, cold weather and
third-party downtime in North
America, and the delayed startup of our six-well
Montney pad in Alberta. We generated $284 million of FFO and $115 million of FCF in Q4 2022, which includes
the $223 million full year impact of
temporary windfall taxes. The temporary windfall tax was approved
by the European Union on September 30,
2022, and was applied retroactively for 2022 in the
countries where we operate, therefore we have reflected the full
amount in our Q4 2022 financial results.
Our exposure to global commodity prices is a key driver of our
strong financial results and remains a strategic advantage for
Vermilion. European gas prices were particularly strong in 2022,
averaging nearly $50/mmbtu (TTF) for
the year and reaching over $120/mmbtu
(TTF) during the summer. While European gas prices have moderated
in recent months due to a much warmer than average winter in
Europe, the forward price for the
balance of 2023 and 2024 is approximately $20/mmbtu, which is six to seven times higher
than forward Canadian AECO prices and four to five times higher
than forward NYMEX prices.
We completed the strategic acquisition of Leucrotta Exploration
in 2022, marking Vermilion's entry into the prolific Montney resource play. This acquisition has
significantly enhanced the depth and quality of Vermilion's
drilling inventory as reflected by the 9% increase in our 2022
proved plus probable reserve life index of 16.8 years. We are in
the early stages of developing this long-life asset as we focus on
optimizing the existing infrastructure in both Alberta and British
Columbia in 2023 and further plans for the build out of the
necessary infrastructure to support our future expansion plans.
Subsequent to the end of the year, the British Columbia government announced
agreements with Blueberry River First Nations and other Treaty 8
First Nations, outlining guidelines pertaining to future resource
development in the region. We view this as a positive development.
Our British Columbia assets are
located outside of Blueberry River First Nations' High Value Areas
and are on predominantly private freehold land where we continue to
receive permits. We believe this will help facilitate the timely
approval of future permits required to expand our Montney development in British Columbia.
Asset Disposition
Subsequent to year-end, we signed an agreement to sell certain
assets in southeast Saskatchewan.
The assets are comprised of approximately 5,500 boe/d of non-core
light oil production spread across the greater Arcola and Queensdale areas of southeast
Saskatchewan. Total cash
consideration is $225 million, before
closing adjustments. Following our entry into the Montney, these mature assets were unlikely to
attract capital. The divestment was part of our strategy to
re-position Vermilion for long term success by high-grading our
North American inventory, reducing unit cost and accelerating the
timeline of achieving our debt reduction targets. The transaction
has an effective date of September 1,
2022 and is expected to close in March 2023. The net proceeds will be used to pay
down our revolving credit facility.
Outlook and Guidance Update
The Corrib acquisition has a planned close on March 31, 2023. We estimate a net cash payment of
approximately $200 million at close
and expect the acquisition to payout in approximately one year,
based on forward commodity prices. This acquisition is expected to
add approximately 7,000 boe/d of European gas production, which was
reflected from March 31, 2023 onwards
in our original production guidance of 87,000 to 91,000 boe/d.
Taking into account the southeast Saskatchewan asset sale and Australia downtime, we are revising our 2023
production guidance to 82,000 to 86,000 boe/d. Our 2023 capital
budget remains unchanged at $570
million as there was minimal capital allocated to the assets
being sold.
Our Q1 2023 drilling program is off to a strong start and is
expected to deliver higher production in Canada during the first quarter, however
extended maintenance downtime in Australia will result in lower corporate
production in Q1 2023. Production from the Wandoo field in
Australia was temporarily shut-in
during December 2022 for maintenance.
We have identified additional maintenance requirements and, as a
precautionary measure, have elected to complete a detailed
inspection of the entire facility and conduct all necessary repairs
at this time. These actions are expected to minimize future
downtime. We expect Australia
production to be offline for all of Q1 2023 and to restart in Q2
2023. As a result of the Australia
downtime and the southeast Saskatchewan asset sale, Q1 2023 corporate
production is expected to be in the range of 80,000 to 82,000
boe/d.
We continue to deleverage our balance sheet and prioritize
profitability, debt reduction and return of capital over production
growth. As announced with our 2023 budget, we expect to allocate up
to 25% of FCF to shareholder returns through the base dividend and
share repurchases, which recommenced in early January 2023. To date, we have repurchased 1.1
million shares in 2023 and 3.5 million shares in total under our
existing NCIB. In addition, we announced a 25% increase to the Q1
2023 base dividend to $0.10 per share
which will be payable on April 17,
2023. We look forward to providing further updates on our
return of capital strategy as we make progress towards our next
debt target.
Q4 2022 Operations Review
North America
Production from our North American operations averaged 58,499
boe/d in Q4 2022, an increase of 2% from the prior quarter
primarily due to new well production from our Montney assets in Canada and a full quarter contribution from
our 2022 drilling program in the United
States. In Alberta, we
drilled twelve (10.6 net), completed ten (8.2 net), and brought on
production seven (6.9 net) Mannville liquids rich gas wells, while at
Mica we drilled one (1.0 net) well and brought on production the
six (6.0 net) wells from our first Montney pad. The six well Montney pad was brought on production in late
November and saw rates increase through the balance of the year as
the wells cleaned up. Total production from our Montney assets averaged 7,500 boe/d during the
month of December. In December, drilling commenced on a follow up
three-well pad in Alberta which is
expected to be completed and tied in during the first half of 2023.
During the fourth quarter of 2022 we received three permits in
British Columbia, including one of
the permits to construct a 16,000 boe/d battery and to drill a
multi-well pad in British
Columbia. We also signed agreements to acquire 11 sections
of adjacent land at Mica, further consolidating our contiguous land
base and increasing our Tier 1 inventory.
In Saskatchewan, we drilled
seven (5.5 net) wells, completed ten (6.9 net) wells, and brought
on production twelve (6.7 net) wells in southeast Saskatchewan. No drilling or completion
activity occurred in the United
States in the fourth quarter as the team focused on
preparation for the 2023 drilling program which will commence in Q2
2023.
International
Production from our International operations averaged 26,953
boe/d in Q4 2022, a decrease of 1% from the prior quarter,
primarily due to natural decline in Netherlands and Germany, as well as lower than anticipated
production in Australia due to
unplanned downtime. This was largely offset by higher production in
France and Ireland. Production from the fire-related
downtime in France was gradually
restored through the fourth quarter of 2022 and has been fully
restored subsequent to year end. Ireland production increased 1% in Q4 2022
compared to the previous quarter as the Corrib facility experienced
strong operational run time during the quarter.
During the fourth quarter we drilled one (1.0 net) oil well in
Germany, which was brought on
production in Q1 2023. We also continued to advance our deep well
gas exploration and development plans in Germany as we prepare for our first well to be
drilled in the fourth quarter of 2023. In the Netherlands, we drilled one (0.5 net) gas
well which encountered a 19 metre gas column and is expected to be
brought on production in the first half of 2023. We drilled two
(2.0 net) exploratory wells in Croatia, however, neither of the wells
encountered commercial hydrocarbons.
2022 Reserve Report
Our 2022 total proved plus probable reserves increased 9% from
the prior year to 523 mmboe(2). The after-tax net
present value of proved plus probable reserves(2),
discounted at 10%, increased 36% from the prior year to
$8.9 billion ($54.72/basic share) at December 31, 2022, with proved developed
producing reserves making up more than 50% of this value. The
increase is primarily due to the acquisition of Leucrotta and
positive economic revisions resulting from stronger commodity
prices. Including acquisitions, we replaced 234% of production on a
proved plus probable basis at an FD&A cost (including future
development costs) of $19.22/boe,
resulting in a 2022 total proved plus probable FD&A Operating
Recycle Ratio of 4.4 times. On an organic basis, we added proved
plus probable reserves at an F&D cost (including future
development costs) of $22.66/boe,
resulting in a 2022 total proved plus probable F&D Operating
Recycle Ratio of 3.7 times. Our total proved plus probable reserve
life index increased by 9% in 2022 to 16.8 years, reflecting our
continuous focus on enhancing the asset base. Over the past decade
we have successfully increased our reserve life index by
approximately 40% through the combination of organic development
and strategic acquisitions. Given the early stage of our
Montney development, we expect
further recognition of Montney
reserves in the coming years as we progress development of this
play.
The following table provides a summary of company interest
reserves by reserve category and region on an oil equivalent basis.
Please refer to Vermilion's 2022 Annual Information Form for the
year ending December 31, 2022 ("2022
Annual Information Form") for detailed information by country and
product type.
BOE
(mboe)
|
Proved Developed
Producing
|
Proved Developed
Non-Producing
|
Proved
Undeveloped
|
Proved
|
Probable
|
Proved Plus
Probable
|
North
America
|
133,879
|
6,882
|
103,909
|
244,670
|
167,375
|
412,045
|
International
|
54,738
|
7,220
|
6,501
|
68,459
|
42,286
|
110,745
|
Vermilion
|
188,617
|
14,101
|
110,411
|
313,129
|
209,661
|
522,790
|
The following table summarizes the finding and development costs
and associated operating recycle ratios by reserve category for the
three-year period ending December 31,
2022:
|
2022
|
3-Year
Average
|
|
PDP
|
1P
|
2P
|
PDP
|
1P
|
2P
|
Finding and Development
Costs, including FDC (F&D) ($/boe) (3)
|
$22.93
|
$24.47
|
$22.66
|
$16.64
|
$18.51
|
$23.65
|
Finding, Development
and Acquisition Costs, including FDC (FD&A) ($/boe)
(3)
|
$35.10
|
$29.09
|
$19.22
|
$21.76
|
$21.08
|
$18.78
|
|
|
|
|
|
|
|
F&D Operating
Recycle Ratio * (4)
|
3.65
|
3.42
|
3.70
|
2.80
|
2.52
|
1.97
|
FD&A Operating
Recycle Ratio * (4)
|
2.39
|
2.88
|
4.36
|
2.14
|
2.21
|
2.48
|
The following table provides a reconciliation of changes in company
interest reserves by reserve category and region. Please refer to
Vermilion's 2022 Annual Information Form for detailed information
by country and product type.
1P
(mboe)
|
North
America
|
International
|
Vermilion
|
December 31,
2021
|
223,478
|
78,574
|
302,052
|
Discoveries
|
—
|
—
|
—
|
Extensions &
Improved Recovery
|
26,614
|
717
|
27,330
|
Technical
Revisions
|
(6,536)
|
(3,101)
|
(9,637)
|
Acquisitions
|
18,895
|
—
|
18,895
|
Dispositions
|
(61)
|
(17)
|
(78)
|
Economic
Factors
|
3,292
|
2,367
|
5,659
|
Production
|
(21,013)
|
(10,080)
|
(31,093)
|
December 31,
2022
|
244,669
|
68,459
|
313,128
|
2P
(mboe)
|
North
America
|
International
|
Vermilion
|
December 31,
2021
|
357,780
|
123,227
|
481,007
|
Discoveries
|
—
|
—
|
—
|
Extensions &
Improved Recovery
|
47,369
|
3,223
|
50,592
|
Technical
Revisions
|
(24,889)
|
(8,054)
|
(32,943)
|
Acquisitions
|
48,113
|
—
|
48,113
|
Dispositions
|
(143)
|
(26)
|
(169)
|
Economic
Factors
|
4,827
|
2,456
|
7,283
|
Production
|
(21,013)
|
(10,080)
|
(31,093)
|
December 31,
2022
|
412,045
|
110,745
|
522,790
|
Additional information about our 2022 GLJ Reserves Report can be
found in our 2022 Annual Information Form on our website at
www.vermilionenergy.com and on SEDAR at www.sedar.com.
Commodity Hedging
Vermilion hedges to manage commodity price exposures and
increase the stability of our cash flows. In aggregate, as of
March 8, 2023, we have 15% of our
expected net-of-royalty production hedged for the remainder of
2023. With respect to individual commodity products, we have hedged
50% of our European natural gas production, 0% of our crude oil
production, and 13% of our North American natural gas volumes for
the remainder of 2023, 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.
Organizational Update
Mr. Dion Hatcher has been
promoted to the role of President and Chief Executive Officer, and
appointed as a member of the Board of Directors of the Company,
effective March 7, 2023. Mr. Hatcher
was promoted to President on January 1,
2022 and previously held the positions of Vice President,
North America, Vice President of
Canadian Business Unit, and various other roles of increasing
responsibility during his 17 year tenure with the company. The
Executive Committee structure will remain in place and will
continue to be used by the organization to review and approve key
organizational, financial, operational and strategic decisions for
the Company. This leadership structure has proven to be a highly
collaborative decision-making model that draws upon the collective
knowledge, experience, business acumen and skills of the senior
management team.
"On behalf of the Board, I would like to congratulate Dion on
his promotion to President and Chief Executive Officer. Since
taking on the role of President in January
2022, Dion has demonstrated strong leadership skills with
the vision to lead Vermilion into the future. He is fully aligned
with Vermilion's conservative business principles, its focus on
long term value creation, and its values and corporate culture. We
look forward to his contribution to the Board" said Robert Michaleski, Vermilion's Chairman.
(Signed "Dion Hatcher")
Dion Hatcher
President and Chief Executive Officer
March 8, 2023
(1)
|
Please refer to
Supplemental Table 4 "Production" of the accompanying Management's
Discussion and Analysis for disclosure by product type.
|
|
|
(2)
|
Estimated gross proved,
developed and producing, total proved, and total proved plus
probable reserves as evaluated by GLJ Petroleum Consultants Ltd.
("GLJ") in a report dated February 14, 2023 with an effective date
of December 31, 2022 (the "2022 GLJ Reserves Report"). Net present
value of discounted cash flows as provided in the 2022 GLJ Reserves
Report.
|
|
|
(3)
|
F&D (finding and
development) and FD&A (finding, development and acquisition)
costs are used as a measure of capital efficiency and are
calculated by dividing the applicable capital expenditures for the
period, including the change in undiscounted FDC (future
development capital), by the change in the reserves, incorporating
revisions and production, for the same period.
|
|
|
(4)
|
Operating Recycle Ratio
is a non-GAAP ratio that is calculated by dividing the Operating
Netback (non-GAAP measure), excluding realized hedging gain (loss)
and PRRT, by the cost of adding reserves (F&D and FD&A
cost). For the purposes of calculating 2022 Operating Recycle
Ratios, this netback number was $83.81. More information can be
found in the "Non-GAAP Financial Measures and Other Specified
Financial Measures" section of this document.
|
Non-GAAP and Other Specified Financial Measures
This report and other materials released 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:
Total of Segments Measures
Fund flows from operations (FFO): Most directly
comparable to net earnings, FFO is comprised of sales excluding
royalties, transportation, operating, G&A, corporate income
tax, PRRT, windfall taxes, 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.
|
Q4
2022
|
Q4
2021
|
2022
|
2021
|
|
$M
|
$/boe
|
$M
|
$/boe
|
$M
|
$/boe
|
$M
|
$/boe
|
Sales
|
842,693
|
103.99
|
765,915
|
96.82
|
3,476,394
|
111.95
|
2,079,761
|
66.81
|
Royalties
|
(68,303)
|
(8.43)
|
(58,785)
|
(7.43)
|
(306,017)
|
(9.85)
|
(186,122)
|
(5.98)
|
Transportation
|
(21,976)
|
(2.71)
|
(19,033)
|
(2.41)
|
(78,896)
|
(2.54)
|
(77,161)
|
(2.48)
|
Operating
|
(136,247)
|
(16.81)
|
(112,680)
|
(14.24)
|
(489,034)
|
(15.75)
|
(413,013)
|
(13.27)
|
General and
administration
|
(13,344)
|
(1.65)
|
(17,374)
|
(2.20)
|
(57,677)
|
(1.86)
|
(52,877)
|
(1.70)
|
Corporate income tax
expense
|
(41,958)
|
(5.18)
|
(32,234)
|
(4.07)
|
(208,153)
|
(6.70)
|
(30,166)
|
(0.97)
|
Windfall
taxes
|
(222,859)
|
(27.50)
|
—
|
—
|
(222,859)
|
(7.18)
|
—
|
—
|
PRRT
|
(5,045)
|
(0.62)
|
(5,544)
|
(0.70)
|
(18,318)
|
(0.59)
|
(15,688)
|
(0.50)
|
Interest
expense
|
(22,506)
|
(2.78)
|
(16,279)
|
(2.06)
|
(82,858)
|
(2.67)
|
(73,075)
|
(2.35)
|
Realized loss on
derivatives
|
(43,940)
|
(5.42)
|
(189,598)
|
(23.97)
|
(405,894)
|
(13.07)
|
(327,384)
|
(10.52)
|
Realized foreign
exchange gain (loss)
|
18,845
|
2.33
|
(2,395)
|
(0.30)
|
15,195
|
0.49
|
(6,613)
|
(0.21)
|
Realized other
(expense) income
|
(1,140)
|
(0.14)
|
10,180
|
1.29
|
12,982
|
0.42
|
22,200
|
0.71
|
Fund flows from
operations
|
284,220
|
35.08
|
322,173
|
40.73
|
1,634,865
|
52.65
|
919,862
|
29.54
|
Equity based
compensation
|
(5,377)
|
|
(6,666)
|
|
(44,390)
|
|
(41,565)
|
|
Unrealized gain (loss)
on derivative instruments (1)
|
549,693
|
|
172,265
|
|
540,801
|
|
(181,094)
|
|
Unrealized foreign
exchange (loss) gain (1)
|
(47,405)
|
|
7,122
|
|
(84,464)
|
|
(64,963)
|
|
Accretion
|
(16,501)
|
|
(10,983)
|
|
(58,170)
|
|
(43,552)
|
|
Depletion and
depreciation
|
(171,926)
|
|
(148,216)
|
|
(577,134)
|
|
(571,688)
|
|
Deferred tax
expense
|
(196,733)
|
|
(14,834)
|
|
(288,707)
|
|
(187,343)
|
|
Gain on business
combinations
|
—
|
|
—
|
|
—
|
|
17,198
|
|
Impairment
reversal
|
—
|
|
23,922
|
|
192,094
|
|
1,302,619
|
|
Unrealized other
expense
|
(563)
|
|
(195)
|
|
(1,833)
|
|
(778)
|
|
Net
earnings
|
395,408
|
|
344,588
|
|
1,313,062
|
|
1,148,696
|
|
(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.
|
Non-GAAP Financial Measures and Non-GAAP Ratios
Free cash flow (FCF): 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)
|
Q4
2022
|
Q4
2021
|
2022
|
2021
|
Cash flows from
operating activities
|
495,195
|
250,352
|
1,814,220
|
834,453
|
Changes in non-cash
operating working capital
|
(227,483)
|
58,782
|
(216,869)
|
56,884
|
Asset retirement
obligations settled
|
16,508
|
13,039
|
37,514
|
28,525
|
Fund flows from
operations
|
284,220
|
322,173
|
1,634,865
|
919,862
|
Drilling and
development
|
(157,849)
|
(119,002)
|
(528,056)
|
(339,390)
|
Exploration and
evaluation
|
(11,456)
|
(26,805)
|
(23,761)
|
(35,406)
|
Free cash
flow
|
114,915
|
176,366
|
1,083,048
|
545,066
|
Adjusted working capital: 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
|
($M)
|
Dec 31,
2022
|
Dec 31,
2021
|
Current
assets
|
714,446
|
472,845
|
Current derivative
asset
|
(162,843)
|
(19,321)
|
Current
liabilities
|
(892,045)
|
(746,813)
|
Current lease
liability
|
19,486
|
15,032
|
Current derivative
liability
|
55,845
|
268,973
|
Adjusted working
capital
|
(265,111)
|
(9,284)
|
Capital expenditures: Calculated as the sum of drilling
and development costs and exploration and evaluation costs from the
Consolidated Statements of Cash Flows and most directly comparable
to cash flows used in investing activities. We consider capital
expenditures to be a useful measure of our investment in our
existing asset base. Capital expenditures are also referred to as
E&D capital.
($M)
|
Q4
2022
|
Q4
2021
|
2022
|
2021
|
Drilling and
development
|
157,849
|
119,002
|
528,056
|
339,390
|
Exploration and
evaluation
|
11,456
|
26,805
|
23,761
|
35,406
|
Capital
expenditures
|
169,305
|
145,807
|
551,817
|
374,796
|
Operating netback: Most directly comparable to 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.
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).
($M)
|
Q4
2022
|
Q4
2021
|
2022
|
2021
|
Dividends
Declared
|
13,058
|
—
|
45,769
|
—
|
% of
fund flows from operations
|
5 %
|
— %
|
3 %
|
— %
|
Drilling and
development
|
157,849
|
119,002
|
528,056
|
339,390
|
Exploration and
evaluation
|
11,456
|
26,805
|
23,761
|
35,406
|
Asset retirement
obligations settled
|
16,508
|
13,039
|
37,514
|
28,525
|
Payout
|
198,871
|
158,846
|
635,100
|
403,321
|
% of
fund flows from operations
|
70 %
|
49 %
|
39 %
|
44 %
|
Capital Management Measure
Net debt: Is in accordance with IAS 1 "Presentation
of Financial Statements" and is most directly comparable to
long-term debt. Net debt is comprised of long-term debt (excluding
unrealized foreign exchange on swapped USD borrowings) plus
adjusted working, capital and represents Vermilion's net financing
obligations after adjusting for the timing of working capital
fluctuations.
|
As at
|
($M)
|
Dec 31,
2022
|
Dec 31,
2021
|
Long-term
debt
|
1,081,351
|
1,651,569
|
Adjusted working
capital
|
265,111
|
9,284
|
Unrealized FX on
swapped USD borrowings
|
(1,876)
|
(16,067)
|
Net
debt
|
1,344,586
|
1,644,786
|
|
|
|
Ratio of net debt to
four quarter trailing fund flows from operations
|
0.8
|
1.8
|
Supplementary Financial Measures
Net debt to four quarter trailing fund flows from
operations: Calculated as net debt (capital management measure)
over the FFO (total of segments measure) from the preceding four
quarters. The measure is used to assess the ability to repay
debt.
Dividends % of FFO: 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)
|
Q4
2022
|
Q4
2021
|
2022
|
2021
|
Dividends
Declared
|
13,058
|
—
|
45,769
|
—
|
% of
fund flows from operations
|
5 %
|
— %
|
3 %
|
— %
|
Drilling and
development
|
157,849
|
119,002
|
528,056
|
339,390
|
Exploration and
evaluation
|
11,456
|
26,805
|
23,761
|
35,406
|
Asset retirement
obligations settled
|
16,508
|
13,039
|
37,514
|
28,525
|
Payout
|
198,871
|
158,846
|
635,100
|
403,321
|
% of
fund flows from operations
|
70 %
|
49 %
|
39 %
|
44 %
|
Fund flows from operations per boe: 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
Consolidated Financial Statements for the year ended December 31, 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
and unconventional 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.
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 information
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; statements regarding the return of
capital, the flexibility of Vermilion's capital program and
operations; business strategies and objectives; operational and
financial performance; estimated volumes of reserves and resources;
petroleum and natural gas sales; future production levels and the
timing thereof, including Vermilion's 2023 guidance, and rates of
average annual production growth; the effect of changes in crude
oil and natural gas prices, changes in exchange and inflation
rates; 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 wells expected to be
drilled in 2023; 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,
interest rates, and inflation 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 or involving 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.
View original content to download
multimedia:https://www.prnewswire.com/news-releases/vermilion-energy-inc-announces-results-for-the-year-ended-december-31-2022-301766382.html
SOURCE Vermilion Energy Inc.