CALGARY, AB, March 7, 2022 /PRNewswire/ - 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,
2021.
The audited financial statements, management discussion and
analysis and annual information form for the year
ended December 31, 2021 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
Fourth Quarter 2021 Results
- Q4 2021 fund flows from operations ("FFO")(1) was
$322 million, an increase of 23% from
the prior quarter. The increase was primarily due to higher
commodity prices, in particular European natural gas which
increased approximately 88% compared to the previous quarter.
- Cash flow from operating activities was $250 million in Q4 2021, after accounting for
asset retirement obligations settled and changes in non-cash
operating working capital.
- Net earnings increased to $345
million in Q4 2021, compared to a net loss of $147 million in the prior quarter. The
improvement in net earnings was primarily due to higher FFO and
lower unrealized hedging losses which is accounted for on a
mark-to-market basis.
- Production in Q4 2021 averaged 84,417 boe/d(2),
which was relatively consistent with the previous quarter. Cash
flow used in investing activities totaled $135 million and included exploration and
development ("E&D") capital expenditures of $146 million in the fourth quarter, resulting in
$176 million of free cash flow
("FCF")(3) which was used primarily for debt
reduction.
- Production from our International assets averaged 29,123
boe/d(2) in Q4 2021, an increase of 5% from the prior
quarter primarily due to higher production in the Netherlands and Ireland.
- On November 29, 2021 we announced
an agreement to consolidate an additional 36.5% working interest in
our operated Corrib project in Ireland for total consideration of
approximately $600 million, including
the anticipated contingent payment. The acquisition is highly
accretive and is expected to significantly enhance our free cash
flow profile and ability to return capital to shareholders. With an
effective date of January 1, 2022,
all of the estimated FCF of $500
million in 2022 will accrue to Vermilion and be netted off
the purchase at the time the deal closes, which we continue to
anticipate during the second half of 2022.
- Our board of directors have approved a quarterly dividend in
the amount of $0.06 per share,
payable on April 18, 2022. This
quarterly dividend represents less than 2% of our forecasted 2022
pro forma FFO which we estimate at approximately $2.3 billion with pro forma FCF of approximately
$1.9 billion and pro forma year-end
2022 net debt to FFO ratio of 0.2 times based on forward commodity
prices(4).
Year-end 2021 Results
- For the full year 2021, we generated $920 million of FFO and $545 million of FCF in 2021, representing a
year-over-year increase of 83% and 304%, respectively. The increase
was primarily due to stronger commodity prices.
- Cash flow from operating activities was $834 million in 2021, after accounting for asset
retirement obligations settled and changes in non-cash operating
working capital.
- We reduced long-term debt by $282
million and net debt(5) by $365 million in 2021 and exited the year with a
net debt to trailing funds flow ratio of 1.8 times(6),
less than half of what it was at the start of the year.
- We reported net earnings of $1.1
billion in 2021, compared to a $1.5
billion net loss in 2020. Our 2021 net earnings benefited
from stronger commodity prices and the reversal of asset impairment
charges from prior years due to the recovery in commodity
prices.
- We delivered average annual production of 85,408
boe/d(2) in 2021 which was at the top end of our
upwardly revised guidance range of 84,500 to 85,500 boe/d. Cash
flow used in investing activities totaled $470 million and included E&D capital
expenditures of $375 million which
was in line with our company guidance.
- Total proved plus probable reserves increased 3% from the prior
year to 481 mmboe(7). The increase is primarily due to
strategic acquisitions and positive economic revisions resulting
from stronger commodity prices. Including acquisitions, we replaced
146% of production on a proved plus probable basis and increased
our total proved plus probable reserve life index to 15.4
years.
- Proved plus probable ("2P") finding, development and
acquisition ("FD&A") costs, including changes in future
development costs ("FDC") were $10.91/boe. Our FD&A costs combined with our
top decile operating netbacks drove strong recycle ratios,
resulting in a 2021 2P FD&A Operating Recycle Ratio of 4.1
times.
- Vermilion maintained our industry-leading ESG performance based
on rankings by third party ratings agencies in 2021, ranking at the
top of our peer group in the S&P Global 2021 Corporate
Sustainability Assessment ("CSA"). We were also selected for The
Sustainability Yearbook 2022, which recognizes that our CSA
sustainability performance is within the top 15% of our industry
(S&P Global's Upstream Oil & Gas and Integrated
category).
(1)
|
Historical Fund flows
from operations (FFO) and proforma FFO are total of segments
measures/forward looking 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 on derivatives, plus realized
gain on foreign exchange and realized other income. More
information and a reconciliation to primary financial statement
measures can be found in the "Non-GAAP Financial Measures and Other
Specified Financial Measures" section of this document.
|
(2)
|
Please refer to
Supplemental Table 4 "Production" of the accompanying Management's
Discussion and Analysis for disclosure by product type.
|
(3)
|
Free cash flow (FCF)
and proforma FCF are non-GAAP financial measures/forward looking
non-GAAP financial measures comparable to cash flows from operating
activities and is comprised of FFO(1) 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 Financial Measures and Other
Specified Financial Measures" section of this document.
|
(4)
|
2022 full year
average reference prices as at March 2, 2022: Brent US$99.68/bbl;
WTI US$93.06/bbl; LSB = WTI less US$4.22/bbl; TTF $58.44/mmbtu; NBP
$57.47/mmbtu; AECO $4.72/mmbtu; CAD/USD 1.27; CAD/EUR 1.42 and
CAD/AUD 0.92.
|
(5)
|
Net debt is a capital
management measure comparable to long-term debt and is comprised of
long-term debt (excluding unrealized foreign exchange on swapped
USD borrowings) plus adjusted working capital (see below). More
information and a reconciliation to primary financial statement
measures can be found in the "Non-GAAP Financial Measures and Other
Specified Financial Measures" section of this document.
|
(6)
|
Net debt to trailing
FFO is a non-GAAP ratio and is not a standardized financial measure
under IFRS. It may not be comparable to similar measures disclosed
by other issuers and is calculated using net debt (capital
management measure) and FFO (total of segment measure). The measure
is used to assess the ability to repay debt. Information in this
document is included by reference, refer to the "Non-GAAP Financial
Measures and Other Specified Financial Measures" section of the
2021 fourth quarter Management's Discussion and Analysis available
on SEDAR at www.sedar.com.
|
(7)
|
Estimated gross
proved, developed and producing, total proved, and total proved
plus probable reserves as evaluated by GLJ Petroleum Consultants
Ltd. ("GLJ") in a report dated February 11, 2022 with an
effective date of December 31, 2021 (the "2021 GLJ Reserves
Report").
|
(8)
|
Adjusted working
capital is a non-GAAP financial measure defined as current assets
less current liabilities, excluding current derivatives and current
lease liabilities. The measure is used to calculate net debt,
capital measure disclosed above. More information and a
reconciliation to primary financial statement measures can be found
in the "Non-GAAP Financial Measures and Other Specified Financial
Measures" section of this document.
|
|
|
|
|
|
|
|
|
|
|
|
($M except as
indicated)
|
Q4
2021
|
Q3
2021
|
Q4
2020
|
2021
|
2020
|
Financial
|
|
|
|
|
|
|
|
|
|
|
Petroleum and natural
gas sales
|
765,915
|
|
538,530
|
|
316,198
|
|
2,079,761
|
|
1,119,545
|
|
Cash flows from
operating activities
|
250,352
|
|
211,548
|
|
135,102
|
|
834,453
|
|
500,152
|
|
Fund flows from
operations
|
322,173
|
|
262,696
|
|
135,212
|
|
919,862
|
|
502,065
|
|
Fund flows from operations ($/basic share)
(1)
|
1.99
|
|
1.62
|
|
0.85
|
|
5.71
|
|
3.18
|
|
Fund flows from operations ($/diluted share)
(1)
|
1.93
|
|
1.59
|
|
0.85
|
|
5.58
|
|
3.18
|
|
Net earnings
(loss)
|
344,588
|
|
(147,130)
|
|
(57,707)
|
|
1,148,696
|
|
(1,517,427)
|
|
Net (loss) earnings ($/basic share)
|
2.12
|
|
(0.91)
|
|
(0.36)
|
|
7.13
|
|
(9.61)
|
|
Cash flows used in
investing activities
|
134,873
|
|
162,930
|
|
50,618
|
|
469,700
|
|
401,434
|
|
Capital expenditures
(2)
|
145,807
|
|
66,450
|
|
59,894
|
|
374,796
|
|
367,202
|
|
Acquisitions
|
23,633
|
|
94,420
|
|
4,821
|
|
130,965
|
|
25,810
|
|
Asset retirement
obligations settled
|
13,039
|
|
5,142
|
|
7,271
|
|
28,525
|
|
14,278
|
|
Cash dividends
($/share)
|
—
|
|
—
|
|
—
|
|
—
|
|
0.575
|
|
Dividends
declared
|
—
|
|
—
|
|
—
|
|
—
|
|
90,067
|
|
%
of fund flows from operations (3)
|
—
|
%
|
—
|
%
|
—
|
%
|
—
|
%
|
18
|
%
|
Payout
(4)
|
158,846
|
|
71,592
|
|
67,165
|
|
403,321
|
|
463,270
|
|
%
of fund flows from operations
|
49
|
%
|
27
|
%
|
50
|
%
|
44
|
%
|
92
|
%
|
Free Cash
Flow
|
176,366
|
|
196,246
|
|
75,318
|
|
545,066
|
|
134,863
|
|
Long-term
debt
|
1,651,569
|
|
1,760,342
|
|
1,933,848
|
|
1,651,569
|
|
1,933,848
|
|
Net debt
(7)
|
1,644,786
|
|
1,778,052
|
|
2,009,325
|
|
1,644,786
|
|
2,009,325
|
|
Net debt to four
quarter trailing fund flows from operations
|
1.79
|
|
2.43
|
|
4.00
|
|
1.79
|
|
4.00
|
|
Operational
|
|
|
|
|
|
|
|
|
|
|
Production
(8)
|
|
|
|
|
|
|
|
|
|
|
Crude oil and condensate (bbls/d)
|
36,264
|
|
38,777
|
|
40,555
|
|
38,143
|
|
43,421
|
|
NGLs (bbls/d)
|
8,461
|
|
8,068
|
|
8,627
|
|
8,325
|
|
8,937
|
|
Natural gas (mmcf/d)
|
238.16
|
|
226.73
|
|
232.00
|
|
233.64
|
|
256.99
|
|
Total (boe/d)
|
84,417
|
|
84,633
|
|
87,848
|
|
85,408
|
|
95,190
|
|
Average realized
prices
|
|
|
|
|
|
|
|
|
|
|
Crude oil and condensate ($/bbl)
|
96.88
|
|
87.05
|
|
55.31
|
|
83.78
|
|
50.53
|
|
NGLs ($/bbl)
|
47.27
|
|
35.55
|
|
19.20
|
|
34.44
|
|
13.06
|
|
Natural gas ($/mcf)
|
17.89
|
|
9.20
|
|
4.13
|
|
9.53
|
|
2.77
|
|
Production mix (% of
production)
|
|
|
|
|
|
|
|
|
|
|
%
priced with reference to WTI
|
38
|
%
|
39
|
%
|
40
|
%
|
38
|
%
|
40
|
%
|
%
priced with reference to Dated Brent
|
16
|
%
|
18
|
%
|
17
|
%
|
17
|
%
|
16
|
%
|
%
priced with reference to AECO
|
28
|
%
|
28
|
%
|
27
|
%
|
29
|
%
|
28
|
%
|
%
priced with reference to TTF and NBP
|
18
|
%
|
15
|
%
|
16
|
%
|
16
|
%
|
16
|
%
|
Netbacks
($/boe)
|
|
|
|
|
|
|
|
|
|
|
Operating netback (5)
|
48.07
|
|
36.17
|
|
19.67
|
|
34.06
|
|
17.58
|
|
Fund flows from operations ($/boe) (6)
|
40.73
|
|
33.27
|
|
16.50
|
|
29.54
|
|
14.32
|
|
Operating expenses
|
14.24
|
|
13.21
|
|
13.00
|
|
13.27
|
|
11.89
|
|
General and administration expenses
|
2.20
|
|
1.56
|
|
2.27
|
|
1.70
|
|
1.73
|
|
Average reference
prices
|
|
|
|
|
|
|
|
|
|
|
WTI (US $/bbl)
|
77.19
|
|
70.56
|
|
42.66
|
|
67.92
|
|
39.40
|
|
Dated Brent (US $/bbl)
|
79.73
|
|
73.47
|
|
44.23
|
|
70.73
|
|
41.67
|
|
AECO ($/mcf)
|
4.66
|
|
3.60
|
|
2.64
|
|
3.62
|
|
2.23
|
|
TTF ($/mcf)
|
38.86
|
|
20.65
|
|
6.63
|
|
19.86
|
|
4.18
|
|
Share information
('000s)
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding -
basic
|
162,261
|
|
161,985
|
|
158,724
|
|
162,261
|
|
158,724
|
|
Shares outstanding -
diluted (1)
|
168,746
|
|
169,012
|
|
165,396
|
|
168,746
|
|
165,396
|
|
Weighted average
shares outstanding - basic
|
162,247
|
|
161,957
|
|
158,561
|
|
161,172
|
|
157,908
|
|
Weighted average
shares outstanding - diluted (1)
|
166,519
|
|
164,991
|
|
158,561
|
|
164,765
|
|
157,908
|
|
(1)
|
Fund flows from
operations per share (basic and diluted) are non-GAAP ratios and
are not a standardized financial measures 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/diluted
shares outstanding. The measure is used to assess the contribution
per share of each business unit. Information in this document is
included by reference, for more information refer to the "Non-GAAP
Financial Measures and Other Specified Financial Measures" section
of the 2021 fourth quarter Management's Discussion and Analysis
available on SEDAR at www.sedar.com.
|
(2)
|
Capital expenditures
is a non-GAAP financial measure that is the measure is the sum of
drilling and development and exploration and evaluation from the
Consolidated Statements of Cash Flows. More information and a
reconciliation to primary financial statement measures can be found
in the "Non-GAAP Financial Measures and Other Specified Financial
Measures" section of this document.
|
(3)
|
Dividends % FFO is a
non-GAAP ratio 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 Financial Measures and Other
Specified Financial Measures" section of this
document.
|
(4)
|
Payout and payout %
FFO are a non-GAAP financial measure and 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 Net Dividends and is comprised of net dividends
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 Financial Measures 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 Financial Measures
and Other Specified Financial Measures" section of this
document.
|
(6)
|
Fund flows from
operations per boe is a non-GAAP ratio 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.
Information in this document is included by reference, for further
information refer to the "Non-GAAP Financial Measures and Other
Specified Financial Measures" section of the 2021 fourth quarter
Management's Discussion and Analysis available on SEDAR at
www.sedar.com.
|
(7)
|
Prior period
comparatives have been revised. 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
2021 was transformational for Vermilion Energy. We entered 2021
with an over-leveraged balance sheet at four times net debt to
trailing funds flow, and our number one financial priority of net
debt reduction was reemphasized. With this goal in focus, we
announced a modest capital budget aimed at preserving liquidity,
maximizing free cash flow and reducing debt while positioning the
Company for long-term success. With the help of a strong commodity
pricing environment and our disciplined approach to allocating
capital, we not only achieved our objectives but were able to do so
at an accelerated pace. We reduced our net debt by $365 million in 2021 and exited the year with a
net debt to trailing funds flow ratio of 1.8 times, less than half
of what it was at the start of the year. In addition to
accelerating debt reduction, in 2021 we also announced an inventory
consolidation deal in the United
States and a high return, low risk European gas acquisition
to consolidate our operated natural gas asset in Ireland which will significantly enhance our
free cash flow profile and ability to return capital to investors.
Lastly, we completed our leadership transition in 2021 including
the internal promotion of several key individuals and the
appointment of Dion Hatcher as
President, effective January 1, 2022.
With this new leadership team in place, and a much stronger balance
sheet, Vermilion is in a position to move forward with its
long-term strategy of creating value for our shareholders. To this
end, we are reinstating a quarterly dividend in Q1 2022 and expect
to increase the return of capital to our shareholders over time as
further debt targets are achieved.
During the final quarter of the year, we delivered strong
financial and operating results while continuing to reduce debt.
All of the global commodity benchmarks that we have exposure to
increased in the fourth quarter as supply and demand fundamentals
strengthened. European natural gas prices were exceptionally
strong, increasing approximately 88% compared to the previous
quarter. The TTF benchmark averaged approximately $39/mmbtu during the fourth quarter and reached
close to $80/mmbtu towards the end of
December 2021 due to colder weather,
supply constraints and geopolitical tension in the region. Our
internationally diversified portfolio provides exposure to global
commodity prices which continues to be a key strategic advantage
for Vermilion. As a result of the strong commodity prices and
strong operational results that delivered stable production of
84,417 boe/d(1), we generated record FFO of $322 million in Q4 2021, representing a 23%
increase over the prior quarter and a 138% increase over Q4 2020.
We invested $146 million in E&D
capital expenditures during the fourth quarter 2021, resulting in
$176 million of FCF, the majority of
which was used to reduce debt. Cash flow from operating activities
was $250 million in Q4 2021, after
accounting for asset retirement obligations settled and changes in
non-cash operating working capital. Our net earnings increased to
$345 million in Q4 2021, representing
a $492 million increase compared to
the prior quarter net loss of $147
million. The increase was primarily due to higher FFO and
lower unrealized hedging losses which is accounted for on a mark to
market basis.
For the full year 2021, we delivered average annual production
of 85,408 boe/d(1) which was at the top end of our
upwardly revised guidance range of 84,500 to 85,500 boe/d. We
generated $920 million of FFO and
$545 million of FCF in 2021,
representing a year-over-year increase of 83% and 304%,
respectively. Cash flow from operating activities was $834 million in 2021 and net earnings was
$1.1 billion which benefited from the
reversal of asset impairment charges from prior years due to the
recovery in commodity prices.
Following the announcement in November
2021 of our agreement to consolidate an incremental 36.5%
interest in Corrib, the price for European gas has increased
significantly. Including the deal contingent hedges put in place
shortly after the deal was announced, we now forecast 2022 FCF from
the acquired Corrib interest of approximately $500 million, which represents over 80% of the
estimated purchase price, including the anticipated contingent
payment. The increase in European natural gas prices combined with
the deal contingent hedges, now implies an anticipated payback
period of less than two years and an IRR in excess of 50%, compared
to 41% at the time of announcement. This acquisition serves as
another example of the unique high IRR acquisition opportunities we
have access to in Europe, owing to
our long and successful operating history in the region. We will
continue to seek value adding acquisitions within our core areas in
Europe and throughout our global
portfolio. We have recently received competition clearance for the
Corrib acquisition from the Competition and Consumer Protection
Commission in Ireland while we
continue to advance all other requisite approvals. With an
effective date of January 1, 2022,
all interim FCF generated from the acquired interest in Corrib is
being accrued to Vermilion and will be netted off the purchase
price at the time the deal closes, which we continue to anticipate
during the second half of 2022.
On March 4, 2022 our board of
directors approved a quarterly dividend in the amount of
$0.06 per share, payable on
April 18, 2022. This quarterly
dividend represents less than 2% of our forecasted 2022 pro forma
FFO which we estimate at approximately $2.3
billion with pro forma FCF of approximately $1.9 billion and pro forma year-end 2022 net debt
to FFO ratio of 0.2 times based on forward commodity prices. We are
off to a strong start in 2022 and we will continue to prioritize
debt reduction until we achieve our next target level of
$1.2 billion of net debt. Based on
recent strip forward commodity prices we expect to reach this
targeted debt level in the second half of 2022. During 2022 we will
continue to evaluate the return of capital to our shareholders
which may include an increase to our quarterly dividend, share
buybacks, a special dividend, or any combination thereof. We
believe this is truly an exciting time for Vermilion and our
shareholders, and we look forward to providing updates as the year
progresses.
Q4 2021 Operations Review
North America
Production from our North American operations averaged 55,295
boe/d(1) in Q4 2021, a decrease of 3% from the prior
quarter primarily due to natural decline and unplanned downtime.
This impact was partially offset by new production from our
southeast Saskatchewan drilling
program in Canada. During the
fourth quarter 2021, we drilled seven (7.0 net) light oil wells in
southeast Saskatchewan and brought
on production seven (7.0 net) wells. In west-central Alberta, we commenced our condensate-rich
Mannville natural gas drilling
program where we drilled 14 (11.5 net) wells and completed nine
(8.96 net) wells. By executing the majority of this program in Q4
2021, ahead of the busy winter drilling season, we were able to
secure our preferred service providers and reduce overall costs,
resulting in approximately $85,000
savings per well. The wells were brought on production in early
2022.
No drilling or completion activity occurred in the United States during the fourth quarter
2021. Similar to our program in 2021, we plan to move an
experienced drilling crew from our Alberta winter program down to Wyoming in Q2 2022 to complete the six (5.9
net) well Turner drilling program which will include three (2.9
net) two-mile lateral wells which are significantly more economic
than one-mile laterals. In addition, one (0.3 net) two-mile
non-operated Turner well is planned for Q4 2022.
International
Production from our International assets averaged 29,123
boe/d(1) in Q4 2021, an increase of 5% from the prior
quarter primarily due to higher production in the Netherlands and Ireland. The
Netherlands operations benefited from strong performance
from the recently drilled Nijega well and successful optimization
work on several other wells. Ireland operations benefited from the absence
of planned maintenance activities. Elsewhere in Europe, we commenced drilling on our 2022
three-well program in Germany and
completed a small European gas acquisition to further consolidate
our interest in the region. No drilling or completion activity
occurred in France during the
quarter, however we have offset the majority of natural declines
through our ongoing workover campaign. In Croatia we received approval for the spatial
plan on the SA-10 gas plant where we continue to advance design
work and regulatory work in preparation for the 2023 tie-in of the
two standing gas wells that were drilled in 2019 and tested at 15
mmcf/d and 17 mmcf/d, respectively.
The higher production from our European assets was partially
offset by a planned turnaround in Australia which was successfully completed
during the quarter. Detailed engineering work and planning for the
two well Australia program
continued, with drilling expected to commence in Q2 2022.
2021 Reserve Report
Our 2021 total proved plus probable reserves increased 3% from
the prior year to 481 mmboe(2). The increase is
primarily due to strategic acquisitions and positive economic
revisions resulting from stronger commodity prices. Including
acquisitions, we replaced 146% of production on a proved plus
probable basis and increased our total proved plus probable reserve
life index to 15.4 years. Over the past twelve years we have
consistently maintained proved and proved plus probable reserve
life indexes at approximately eight and 13 years, respectively.
This consistency shows how we effectively manage our inventory and
acquisition strategy to optimize our reserve life to maximize
shareholder value. Acquisitions are a key part of our business, and
our internationally diversified asset base is a strategic advantage
as it provides us with access to value adding acquisition
opportunities around the world. Including acquisitions, we added
total proved plus probable reserves in 2021 at an FD&A cost
(including future development costs) of $10.91/boe, bringing our 3-year average total
proved plus probable FD&A cost (including future development
costs) down to $13.82/boe, compared
to $15.37/boe from the prior three
year average. Our low FD&A costs combined with our top decile
operating netbacks drive strong recycle ratios, resulting in a 2021
total proved plus probable FD&A Operating Recycle Ratio of 4.1
times and a 3-year average total proved plus probable FD&A
Operating Recycle Ratio of 2.1 times.
The following table provides a summary of company interest
reserves by reserve category and region on an oil equivalent basis.
Please refer to Vermilion's 2021 Annual Information Form for the
year ending December 31, 2021 ("2021
Annual Information Form") for detailed information by country and
product type.
|
|
|
|
|
|
|
BOE
(mboe)
|
Proved
Developed
Producing
|
Proved
Developed
Non-Producing
|
Proved
Undeveloped
|
Proved
|
Probable
|
Proved Plus
Probable
|
North
America
|
125,753
|
8,663
|
89,101
|
223,518
|
134,262
|
357,780
|
International
|
62,262
|
7,403
|
8,908
|
78,574
|
44,653
|
123,227
|
Vermilion
|
188,016
|
16,066
|
98,009
|
302,092
|
178,915
|
481,007
|
The following table summarizes the finding and development costs
and associated operating recycle ratios by reserve category for the
three-year period ending December 31,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
3-Year
Average
|
|
|
PDP
|
|
1P
|
|
2P
|
|
PDP
|
|
1P
|
|
2P
|
Finding and
Development Costs, including FDC (F&D) ($/boe)
(3)
|
$
|
9.32
|
$
|
12.41
|
$
|
11.99
|
$
|
12.97
|
$
|
13.47
|
$
|
14.95
|
Finding, Development
and Acquisition Costs, including FDC (FD&A) ($/boe)
(3)
|
$
|
10.66
|
$
|
12.64
|
$
|
10.91
|
$
|
13.43
|
$
|
13.71
|
$
|
13.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F&D Operating
Recycle Ratio * (4)
|
|
4.8
|
|
3.6
|
|
3.8
|
|
2.3
|
|
2.6
|
|
2.0
|
FD&A Operating
Recycle Ratio * (4)
|
|
4.2
|
|
3.6
|
|
4.1
|
|
2.2
|
|
2.6
|
|
2.1
|
The following table provides a reconciliation of changes in
company interest reserves by reserve category and region. Please
refer to Vermilion's 2021 Annual Information Form for detailed
information by country and product type.
|
|
|
|
1P
(mboe)
|
North
America
|
International
|
Vermilion
|
December 31,
2020
|
209,182
|
76,081
|
285,263
|
Discoveries
|
-
|
-
|
-
|
Extensions &
improved recovery
|
7,679
|
36
|
7,716
|
Technical
revisions
|
4,322
|
1,675
|
5,996
|
Acquisitions
|
11,168
|
7,236
|
18,404
|
Dispositions
|
(71)
|
-
|
(71)
|
Economic
factors
|
11,951
|
3,968
|
15,919
|
Production
|
(20,753)
|
(10,421)
|
(31,174)
|
December 31,
2021
|
223,478
|
78,574
|
302,052
|
2P
(mboe)
|
North
America
|
International
|
Vermilion
|
December 31,
2020
|
346,152
|
120,450
|
466,601
|
Discoveries
|
-
|
-
|
-
|
Extensions &
improved recovery
|
13,844
|
141
|
13,985
|
Technical
revisions
|
(5,416)
|
(2,756)
|
(8,172)
|
Acquisitions
|
14,188
|
10,510
|
24,699
|
Dispositions
|
(397)
|
-
|
(397)
|
Economic
factors
|
10,162
|
5,303
|
15,465
|
Production
|
(20,753)
|
(10,421)
|
(31,174)
|
December 31,
2021
|
357,780
|
123,227
|
481,007
|
Additional information about our 2021 GLJ Reserves Report can be
found in our 2021 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 1, 2022 we have 36% of our
expected net-of-royalty production hedged for the full year of
2022. With respect to individual commodity products, we have hedged
56% of our European natural gas production, 30% of our oil
production, and 30% of our North American natural gas volumes for
the full year 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.
Sustainability
Vermilion maintained our industry-leading ESG performance based
on rankings by third party ratings agencies in 2021, ranking at the
top of our peer group in the S&P Global 2021 Corporate
Sustainability Assessment ("CSA"). We were also selected for The
Sustainability Yearbook 2022, which recognizes that our CSA
sustainability performance is within the top 15% of our industry
(S&P Global's Upstream Oil & Gas and Integrated category).
For more information about our sustainability strategy and
performance see our Sustainability Report which can be found on our
Sustainability micro-site using the following link:
http://sustainability.vermilionenergy.com.
Board of Directors
Lorenzo Donadeo has confirmed his
plan to retire from the role of Executive Chairman of Vermilion's
Board of Directors, effective September 1,
2022. Lorenzo was a co-founder of Vermilion in 1994 and has
been a dedicated member of the senior leadership and board of
directors for the last 28 years. He retired as Chief Executive
Officer in 2016 and became Chairman of the Board at that time. In
May, 2020 he returned as Executive Chairman to facilitate an
orderly senior management transition and to strengthen the
Company's balance sheet.
Stated Lorenzo Donadeo, "I am
pleased with what we have accomplished in the last 2 years. We have
developed a thoughtful and effective succession plan in naming
Dion Hatcher as President and
combined with our strong senior leadership team, positions
Vermilion well for continued strong performance. In addition, we
significantly strengthened the balance sheet and have entered into
an agreement to strategically acquire additional premium priced
European gas production at an attractive purchase
price. Vermilion is currently generating record levels of
free cash flow that will allow us to provide strong returns to our
shareholders over the next several years".
Larry Macdonald will not be
standing for re-election to Vermilion's Board after over 20 years
of dedicated service to Vermilion. He will continue as a board
member until Vermilion's 2022 Annual General Meeting. Mr. Macdonald
has been instrumental in Vermilion's long-term success with a focus
on long term value creation and a strong commitment to providing a
safe work environment for all of Vermilion's employees and
contractors. Most recently in his role of Lead Director, Mr.
Macdonald provided independent thought and best practices to ensure
decisions were made in consideration of the interests of all
stakeholders. We would like to thank Mr. Macdonald for his strong
leadership and valuable contributions to Vermilion's long-term
success and wish him the best in his retirement.
As part of our planned board succession, Mr. Bob Michaleski will be appointed Lead Director
effective May 12, 2020 and will
assume the role of independent Chairman on Mr. Donadeo's departure,
effective September 1, 2022. Mr.
Michaleski has 41 years of experience in various senior management
and executive roles at Pembina Pipeline Corporation where he
oversaw Pembina's transformation from an Alberta-based oil pipeline company with an
enterprise value of approximately $450
million into one of North
America's leading integrated energy transportation and
midstream services company with an enterprise value of
approximately $12.5 billion, when he
retired in 2013. Mr. Michaleski was the Chief Executive Officer
from 2000 to 2013 and President from 2000 to 2012. Previously, he
was Vice President and Chief Financial Officer from 1997 to 2000,
Vice President of Finance from 1992 to 1997, Controller from 1980
to 1992, and Manager of Internal Audit from 1978 to 1980. He was a
director of Pembina from 2000 to 2020. He is currently a director
of Coril Holdings Ltd. (since 2003) and also a director of
Essential Energy Services Ltd. (since 2013). His focus on corporate
philanthropy and community engagement programs includes service to
the community in increasingly senior voluntary leadership roles
with the United Way of Calgary and
Area, including Co-Chair of the General Oil and Gas Division of the
United Way of Calgary and Area;
member of the Board of Directors; and Chair of the Board of
Directors.
Mr. Michaleski stated, "I look forward to serving as Lead
Director and eventually Board Chair at Vermilion. Vermilion has
delivered exceptional value to its shareholders over the last 28
years, providing $3.8 billion, or
$40.20 per share of dividends since
2003. I have a great deal of confidence in the senior leadership
team and board of directors, and I am fully aligned and committed
to Vermilion's corporate culture and strategic direction
established under Lorenzo's leadership."
Mr. Donadeo stated, "Bob knows Vermilion well and I am confident
that he will provide high quality board leadership that will
represent the interests of all stakeholders."
Vermilion's Executive Committee structure will continue and will
fill the role of Chief Executive Officer. It will be led by
Dion Hatcher, Vermilion's President.
Additional members include, Lars
Glemser, Vice President & Chief Financial Officer,
Darcy Kerwin, Vice President,
International & HSE, Bryce
Kremnica, Vice President, North
America, Gerard Schut, Vice
President, European Operations and Jenson
Tan, Vice President, Business Development. The Executive
Committee structure has been successfully utilized by Vermilion 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.
(Signed "Lorenzo
Donadeo")
|
|
(Signed "Dion
Hatcher")
|
|
|
|
Lorenzo
Donadeo
|
|
Dion
Hatcher
|
Executive
Chairman
|
|
President
|
March 4,
2022
|
|
March 4,
2022
|
(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 11, 2022 with an effective
date of December 31, 2021 (the "2021 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) by the cost of adding reserves
(F&D cost). More information can be found in the "Non-GAAP
Financial Measures and Other Specified Financial Measures" section
of this document.
|
Non-GAAP Financial Measures 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 financial measures or other specified measures and may not
be comparable to similar measures presented by other issuers. These
financial measures include:
Fund flows from operations: Fund flows from operations
(FFO) is 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, and realized loss on derivatives, plus realized
gain on foreign exchange 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.
Free cash flow: Free cash flow (FCF) represents a
non-GAAP financial measure most directly comparable to cash flows
from operating activities. FCF is comprised of funds flows from
operations less drilling and development and exploration and
evaluation expenditures. 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.
2022+ FFO and FCF: Forward looking non-GAAP measures, the
equivalent historical non-GAAP measure FFO and FCF has been
disclosed above.
|
|
|
|
|
($M)
|
Q4
2021
|
Q4
2020
|
2021
|
2020
|
Cash flows from
operating activities
|
250,352
|
135,102
|
834,453
|
500,152
|
Changes in non-cash
operating working capital
|
58,782
|
(7,161)
|
56,884
|
(12,365)
|
Asset retirement
obligations settled
|
13,039
|
7,271
|
28,525
|
14,278
|
Fund flows from
operations
|
322,173
|
135,212
|
919,862
|
502,065
|
Drilling and
development
|
(119,002)
|
(52,903)
|
(339,390)
|
(352,481)
|
Exploration and
evaluation
|
(26,805)
|
(6,991)
|
(35,406)
|
(14,721)
|
Free cash
flow
|
176,366
|
75,318
|
545,066
|
134,863
|
Capital expenditures: A non-GAAP financial measure that
is calculated as the sum of drilling and development and
exploration and evaluation from the Consolidated Statements of Cash
Flows. 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.
|
|
|
|
|
($M)
|
Q4
2021
|
Q4
2020
|
2021
|
2020
|
Drilling and
development
|
(119,002)
|
(52,903)
|
(339,390)
|
(352,481)
|
Exploration and
evaluation
|
(26,805)
|
(6,991)
|
(35,406)
|
(14,721)
|
Capital
expenditures
|
(145,807)
|
(59,894)
|
(374,796)
|
(367,202)
|
Net debt: Net debt is a capital management measure
in accordance with IAS 1 "Presentation of Financial Statements" and
is most directly comparable to long-term debt. Net debt is
comprised of long-term debt (excluding unrealized foreign exchange
on swapped USD borrowings) plus adjusted working capital and
represents Vermilion's net financing obligations after adjusting
for the timing of working capital fluctuations.
|
|
|
|
As
at
|
($M)
|
Dec 31,
2021
|
Dec 31,
2020
(revised)
|
Long-term
debt
|
1,651,569
|
1,933,848
|
Adjusted working
capital deficiency
|
9,284
|
35,258
|
Unrealized FX on
swapped USD borrowings
|
(16,067)
|
40,219
|
Net
debt
|
1,644,786
|
2,009,325
|
|
|
|
Ratio of net debt
to four quarter trailing fund flows from operations
|
1.79
|
4.00
|
Adjusted working capital: Represents 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.
|
|
|
|
Twelve Months
Ended
|
($M)
|
Dec 31,
2021
|
Dec 31,
2020
|
Current
assets
|
(472,845)
|
(260,993)
|
Current derivative
asset
|
19,321
|
16,924
|
Current
liabilities
|
746,813
|
433,128
|
Current lease
liability
|
(15,032)
|
(22,882)
|
Current derivative
liability
|
(268,973)
|
(130,919)
|
Adjusted working
capital deficiency
|
9,284
|
35,258
|
Net dividends: A non-GAAP measure most directly
comparable to declared dividends. We define net dividends as
dividends declared less proceeds received for the issuance of
shares pursuant to the Dividend Reinvestment Plan. Management
monitors net dividends and net dividends as a percentage of fund
flows from operations to assess our ability to pay dividends.
Payout: A non-GAAP Financial Measure most directly
comparable to net dividends and is comprised of net dividends plus
drilling and development costs, exploration and evaluation costs,
and asset retirement obligations settled, the measure is used to
assess the amount of cash distributed back to shareholders and
reinvested in the business for maintaining production and organic
growth. The reconciliation of the measure to primary financial
statement measure can be found below. Management uses payout and
payout as a percentage of fund flows from operations (also referred
to as the payout or sustainability ratio).
Dividends % FFO: A non-GAAP ratio and is calculated
as dividends divided by FFO. The ratio is used by management as a
metric to assess the cash distributed to shareholders.
|
|
|
|
|
|
|
|
|
($M)
|
Q4
2021
|
Q4
2020
|
2021
|
2020
|
Dividends
declared
|
—
|
|
—
|
|
—
|
|
90,067
|
|
Shares issued for the
Dividend Reinvestment Plan
|
—
|
|
—
|
|
—
|
|
(8,277)
|
|
Net
dividends
|
—
|
|
—
|
|
—
|
|
81,790
|
|
%
of fund flows from operations
|
—
|
%
|
—
|
%
|
—
|
%
|
18
|
%
|
Drilling and
development
|
119,002
|
|
52,903
|
|
339,390
|
|
352,481
|
|
Exploration and
evaluation
|
26,805
|
|
6,991
|
|
35,406
|
|
14,721
|
|
Asset retirement
obligations settled
|
13,039
|
|
7,271
|
|
28,525
|
|
14,278
|
|
Payout
|
158,846
|
|
67,165
|
|
403,321
|
|
463,270
|
|
%
of fund flows from operations
|
49
|
%
|
50
|
%
|
44
|
%
|
92
|
%
|
Operating netback: Is a non-GAAP ratio 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 non-GAAP ratio
and is 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.
Operating Recycle Ratio: A non-GAAP ratio that is
calculated by dividing the Operating Netback (non-GAAP measure) by
the cost of adding reserves (F&D cost). Management assesses
operating recycle ratio as a measure of the reinvestment of
earnings.
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 year
ended December 31, 2021 and 2020, 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 5% 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; estimated volumes of reserves and resources;
petroleum and natural gas sales; future production levels and the
timing thereof, including Vermilion's 2021 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 2021; exploration and development plans
and the timing thereof; Vermilion's ability to reduce its debt,
including its ability to redeem senior unsecured notes prior to
maturity; 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 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.
All crude oil and natural gas reserve and resource information
contained in this document has been prepared and presented in
accordance with National Instrument 51-101 Standards of
Disclosure for Oil and Gas Activities and the Canadian
Oil and Gas Evaluation Handbook. Reserves estimates have been made
assuming that development of each property in respect of which the
estimate is made will occur, without regard to the likely
availability of funding required for such development. The actual
crude oil and natural gas reserves and future production will be
greater than or less than the estimates provided in this
document.
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.
Financial data contained within this document are reported in
Canadian dollars unless otherwise stated.
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SOURCE Vermilion Energy Inc.