Vermilion Energy Inc. Announces Results for the Year Ended December 31, 2022
Press Release
CALGARY, AB, March 8, 2023 – 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.
ILR4
