2019
A N N UA L R E P O R T
EXCELLENCE. TRUST. RESPECT. RESPONSIBILITY.INTERNATIONALLY DIVERSIFIED | SUSTAINABLE GROWTH AND INCOME Front Cover Theme
As illustrated by the front cover photo of our operations in Germany, Vermilion’s integration of sustainability
throughout our business recognizes that we are part of a larger whole: the environments and communities in which
we operate. We are therefore committed to conducting our activities in a manner that will protect the health and
safety of both. This includes understanding our role in the evolving energy transition within the broader context of the
United Nations Sustainable Development Goals (“SDGs”). We believe this approach, in which sustainability is
embedded in our corporate strategy, supports Vermilion’s long-term economic viability while building a better future
for our stakeholders through enhanced economic, environmental and community wellbeing.
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 2020 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 2020; 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.
Vermilion Energy Inc. ■ Page 1 ■ 2019 Annual Report
Abbreviations
$M
$MM
AECO
bbl(s)
bbls/d
boe
boe/d
GJ
LSB
mbbls
mcf
mmcf/d
NBP
NGLs
PRRT
tCO2e
TTF
WTI
thousand dollars
million dollars
the daily average benchmark price for natural gas at the AECO ‘C’ hub in Alberta
barrel(s)
barrels per day
barrel of oil equivalent, including: crude oil, condensate, natural gas liquids, and natural gas (converted on the basis of
one boe for six mcf of natural gas)
barrel of oil equivalent per day
gigajoules
light sour blend crude oil reference price
thousand barrels
thousand cubic feet
million cubic feet per day
the reference price paid for natural gas in the United Kingdom at the National Balancing Point Virtual Trading Point.
natural gas liquids, which includes butane, propane, and ethane
Petroleum Resource Rent Tax, a profit based tax levied on petroleum projects in Australia
tonnes of carbon dioxide equivalent
the price for natural gas in the Netherlands, quoted in megawatt hours of natural gas, at the Title Transfer Facility Virtual
Trading Point
West Texas Intermediate, the reference price paid for crude oil of standard grade in US dollars at Cushing, Oklahoma
Vermilion Energy Inc. ■ Page 2 ■ 2019 Annual Report
Highlights
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•
•
•
•
•
•
(1)
(2)
(3)
(4)
(5)
Fund flows from operations ("FFO") in Q4 2019 was $216 million ($1.38/basic share(1)), which is in line with the previous quarter despite a significant
inventory build in Australia. FFO in 2019 was a record $908 million ($5.87/basic share), representing an increase of 8% from the prior year primarily
due to higher production, partially offset by lower commodity prices.
Q4 2019 production averaged 97,875 boe/d, representing a 1% increase from the prior quarter, primarily due to higher performance in our US and
Netherlands business units. Annual average production for 2019 increased by 15% year-over-year to a record 100,357 boe/d, reflecting a full-
year contribution from the assets acquired in 2018 and organic growth from our Netherlands, Australia and US business units. Production per
share increased by 5% in 2019.
In the United States, Q4 2019 production averaged 5,683 boe/d, an increase of 15% from the prior quarter, primarily driven by contributions from
our Q3 2019 drilling program.
In the Netherlands, Q4 2019 production averaged 8,088 boe/d, an increase of 9% from the prior quarter, primarily due to the restoration of production
following planned and unplanned facility downtime in Q3 2019. During the fourth quarter, we successfully drilled and completed the Weststellingwerf
well (0.5 net), representing our first drilling activity in the Netherlands since 2017. We encountered three gas-bearing zones in the Vlieland,
Zechstein and Rotliegend formations. The Weststellingwerf well flowed at an initial gross rate of 14.7 mmcf/d(2) and is expected to be brought on
production during 2020.
In Canada, Q4 2019 production averaged 58,593 boe/d, up slightly from the prior quarter as strong results from new well completions more than
offset natural decline. During the quarter, we drilled one of our best ever condensate-rich Lower Mannville wells in Drayton Valley, achieving an
IP30 rate of 1,900 boe/d (60% liquids).
Our 2019 reserves as evaluated by GLJ as at December 31, 2019 are as follows:
◦
◦
◦
Proved plus probable ("2P") reserves increased 3% from year-end 2018 to 501.2(3) mmboe. We replaced 120% of 2019 production
through development activities and 136% including acquisitions. Our 2P finding and development ("F&D") cost(4) was $9.93 per boe,
including future development capital (“FDC”)(4), resulting in an organic 2P Operating Recycle Ratio(5) (including FDC) of 3.0x.
Proved ("1P") reserves increased 4% from year-end 2018 to 310.2(3) mmboe. We replaced 121% of 1P reserves through development
activities and 133% including acquisitions. Our 1P F&D cost was $11.90 per boe, including FDC, resulting in an organic 1P Operating
Recycle Ratio(5) (including FDC) of 2.5x.
Proved developed producing ("PDP") reserves increased 4% from year-end 2018 to 200.0(3) mmboe. We replaced 113% of PDP reserves
through development activities and 122% including acquisitions. Our PDP F&D cost was $12.71 per boe, including FDC, resulting in an
organic PDP Operating Recycle Ratio(5) (including FDC) of 2.3x.
Vermilion’s board of directors has approved a 50% reduction in our monthly dividend to $0.115 per share in response to weakness in commodity
prices and reduced global economic prospects following the outbreak of the novel coronavirus (COVID-19). The revised dividend will be effective
for the March dividend payable on April 15, 2020.
Non-GAAP Financial Measure. Please see the “Non-GAAP Financial Measures” section of the accompanying Management’s Discussion and Analysis.
The Weststellingwerf flow rate was 14.7 mmcf/d gross over a 24 hour period at a wellhead pressure of 1,625 psi. Initial flow rates are not necessarily indicative
of long-term performance or ultimate recovery.
Estimated company interest proved, developed and producing, total proved, and total proved plus probable reserves as evaluated by GLJ Petroleum
Consultants Ltd. (“GLJ”) in a report dated February 10, 2020 with an effective date of December 31, 2019 (the “2019 GLJ Reserves Report”).
F&D (finding and development) and FD&A (finding, development and acquisition) costs are used as a measure of capital efficiency and are calculated by
dividing the applicable capital expenditures for the period, including the change in undiscounted FDC (future development capital), by the change in the
reserves, incorporating revisions and production, for the same period.
Operating Recycle Ratio is a measure of capital efficiency calculated by dividing the Operating Netback by the cost of adding reserves (F&D cost). Operating
Netback is calculated as sales less royalties, operating expense, transportation costs, PRRT and realized hedging gains and losses presented on a per unit
basis.
Vermilion Energy Inc. ■ Page 3 ■ 2019 Annual Report
($M except as indicated)
Financial
Petroleum and natural gas sales
Fund flows from operations
Fund flows from operations ($/basic share) (1)
Fund flows from operations ($/diluted share) (1)
Net earnings (loss)
Net earnings (loss) ($/basic share)
Capital expenditures
Acquisitions
Asset retirement obligations settled
Cash dividends ($/share)
Dividends declared
% of fund flows from operations
Net dividends (1)
% of fund flows from operations
Payout (1)
% of fund flows from operations
Net debt
Net debt to four quarter trailing fund flows from operations
Operational
Production
Crude oil and condensate (bbls/d)
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
Average realized prices
Crude oil and condensate ($/bbl)
NGLs ($/bbl)
Natural gas ($/mcf)
Production mix (% of production)
% priced with reference to WTI
% priced with reference to Dated Brent
% priced with reference to AECO
% priced with reference to TTF and NBP
Netbacks ($/boe)
Operating netback (1)
Fund flows from operations netback
Operating expenses
General and administration expenses
Average reference prices
WTI (US $/bbl)
Edmonton Sweet index (US $/bbl)
Saskatchewan LSB index (US $/bbl)
Dated Brent (US $/bbl)
AECO ($/mcf)
NBP ($/mcf)
TTF ($/mcf)
Average foreign currency exchange rates
CDN $/US $
CDN $/Euro
Share information ('000s)
Shares outstanding - basic
Shares outstanding - diluted (1)
Weighted average shares outstanding - basic
Weighted average shares outstanding - diluted (1)
(1)
Q4 2019
Q3 2019
Q4 2018
2019
2018
388,802
215,592
1.38
1.38
1,477
0.01
100,625
9,165
7,352
0.690
107,702
50%
97,502
45%
205,479
95%
1,993,194
2.20
46,261
8,160
260.72
97,875
71.25
14.63
3.61
40%
17%
26%
17%
27.53
24.40
12.52
1.88
56.96
51.59
51.58
63.25
2.48
5.38
5.36
1.32
1.46
391,935
216,153
1.39
1.39
(10,229)
(0.07)
127,879
4,657
3,586
0.690
107,176
50%
98,316
45%
229,781
106%
2,001,870
2.19
47,242
7,772
253.36
97,239
73.45
6.14
2.43
39%
19%
26%
16%
28.22
23.73
11.55
1.50
56.45
51.79
52.01
61.94
1.06
4.50
4.40
1.32
1.47
456,939
222,342
1.46
1.44
323,373
2.12
163,580
2,689
6,562
0.690
105,310
47%
100,195
45%
270,337
122%
1,929,529
2.30
47,678
7,815
276.77
101,621
66.19
25.69
5.83
37%
18%
26%
19%
27.58
23.79
12.04
1.37
58.81
32.51
44.03
67.76
1.56
11.03
10.91
1.32
1.51
1,689,863
908,055
5.87
5.82
32,799
0.21
523,164
38,472
19,442
2.760
427,311
47%
392,374
43%
934,980
103%
1,993,194
2.20
47,902
7,984
266.82
100,357
74.42
13.61
3.58
39%
18%
25%
18%
29.25
24.77
12.01
1.61
57.03
52.15
52.50
64.30
1.76
5.90
5.90
1.33
1.49
1,678,117
838,652
5.96
5.89
271,650
1.93
518,214
1,759,425
15,765
2.715
388,111
46%
339,060
40%
873,039
104%
1,929,529
2.30
39,182
6,366
250.33
87,270
79.16
26.33
5.45
32%
20%
26%
22%
31.59
26.47
11.26
1.64
64.77
53.65
56.46
71.04
1.50
10.35
10.23
1.30
1.53
152,704
156,173
140,619
142,335
The above table includes non-GAAP financial measures which may not be comparable to other companies. Please see the “Non-GAAP Financial Measures”
section of the accompanying Management’s Discussion and Analysis.
156,290
159,912
154,736
156,094
152,704
156,173
152,588
153,880
156,290
159,912
155,950
156,180
155,505
159,260
155,254
155,421
Vermilion Energy Inc. ■ Page 4 ■ 2019 Annual Report
Message to Shareholders
We are now in the sixth year of a period of reduced energy prices that began in the second half of 2014, with the novel coronavirus (COVID-19) being
the latest event to produce a retracement in commodity markets. Throughout this period, we have maintained focus on profitability by grinding costs
out of all phases of our business ranging from field operations to financing expense, upgrading our capital project slate, and adapting our capital markets
model to focus even more acutely on returning capital to shareholders. In this environment, we have been unique among our traditional competitor
group in maintaining our dividend while still providing a moderate level of growth. We have paid a monthly dividend (or distribution in the trust era) for
the past 205 consecutive months, returning over $40 per share to shareholders over this period. During the energy downturn, we have put more
production, reserves and free cash flow behind each share despite dramatically lower capital budgets. While still modestly over 100%, we brought our
total payout ratio down to 103% in 2019, representing our lowest total payout ratio since before the financial crisis in 2008. Moreover, we are phasing
out the small level of remaining DRIP participation at the end of Q3 2020, resulting in 100% of dividends being paid in cash.
We are proud of this record of returning capital to shareholders while still providing per share growth. We think paying dividends is the right thing to
do. This model has kept us disciplined in a capital-intensive industry and has put substantial cash back in the hands of investors. As we started 2020,
our funding status continued to improve to a projected total payout ratio below 100%, driven by a significantly lower capital budget for 2020 as compared
to 2019, and by a modestly positive trend for oil prices. In that environment, we were confident in our ability to continue our monthly dividend at $0.23
while deleveraging our balance sheet. We were clear in stating that we would reevaluate the dividend in the event of a structural change in commodity
prices that could affect our ability to self-fund our combination of capital expenditures and dividends, and that we would prioritize balance sheet strength
over other objectives, including either growth or dividends.
The emergence of COVID-19 was an unanticipated event, and we do not claim any special expertise in assessing what the appropriate type or degree
of public health responses are to the outbreak. Nonetheless, we must make an assessment of its current and probable future market and economic
impacts. We observe that COVID-19 has dramatically altered individual, business and government behavior, and that these impacts are decidedly
negative for the outlook for global economic growth, commodity prices in general, and oil demand and prices in particular. We do not believe that the
long-term prospects for the oil and gas industry are likely to be significantly altered, and ultimately we expect a resumption of a positive trend for
commodity prices. However, we do think the recovery in oil prices that we began to experience at the outset of 2020 will be pushed back for an unknown
period. In the short-to-medium term, we believe COVID-19 represents a hard-to-quantify set of macro risks, probably lower in economic severity than
the financial crisis of 2008, but of a type that is also likely unprecedented in our lifetimes.
We have maintained our dividend though a number of other periods of downside volatility since the commodity crash of 2014, making all of the necessary
adjustments to costs and growth levels. During these periods, we continuously assessed our dividend policy in light of our top priority of balance sheet
strength. As we consider today’s economic and commodity outlook, we believe it is unlikely that we would achieve fully-funded status for our present
dividend at a reasonable level of capital expenditures. Therefore, we have determined that a reduction to our dividend is the most prudent course of
action at this time. Accordingly, our board of directors has approved a 50% reduction in our monthly dividend to $0.115 per share, or $1.38 on an
annualized basis. The revised dividend will be effective for the March dividend payable on April 15, 2020. At the current forward commodity strip, we
estimate a 2020 payout ratio of 99%, including previously declared dividends. Any excess cash generated beyond the dividend and capital requirements
will be allocated towards debt reduction at this time, while retaining the option of buying back shares through our NCIB program in an improved
macroeconomic environment.
We have had no operational impacts from COVID-19 to-date. We have business continuity plans for each of our business units and for our corporate
center that can be invoked if the outbreak significantly worsens and threatens our supply chain or workforce capabilities.
During 2019, Vermilion generated record cash flow, production and reserves despite a continued environment of challenging commodity prices. We
recorded FFO of $908 million in 2019 on a capital program of $523 million, which translated to free cash flow(1) generation of $385 million, also the
highest in our history. The resulting 2019 total payout ratio, after accounting for dividends and asset retirement obligations, was 103%. In Q4 2019,
we generated $216 million of FFO which was in line with the prior quarter despite a large inventory build in Australia due to the timing of crude liftings.
Net debt in 2019 increased modestly to $2.0 billion, however the net debt to trailing FFO ratio improved to 2.2x, compared to 2.3x in 2018. In addition
to an improving leverage profile, we also enhanced the quality of our balance sheet over the past year. We have recently received commitments to
extend our $2.1 billion covenant-based credit facility, resulting in a new a maturity date of May 2024. The closing of the extension remains subject to
customary closing conditions. In addition, in June 2019, we executed a cross currency interest rate swap on our 2025 US$300 million long-term senior
notes, converting our 5.625% interest cost on these notes to 3.275% for the remainder of their term. As a result of these initiatives, our pre-tax cost of
debt today is approximately 3.2% with a weighted-average remaining term of 4.4 years.
We delivered record production of 100,357 boe/d in 2019, representing year-over-year growth of 15%, or 5% on a per share basis. We achieved these
results despite several unexpected operational challenges throughout the year, including a third-party refinery outage in France and uncharacteristic
weather-driven delays in Canada. During the fourth quarter we tied-in two discoveries in Hungary and successfully drilled the Weststellingwerf well in
the Netherlands, marking our first drilling activity in that country in two and a half years. In the US, new well completions from our Q3 2019 program
Vermilion Energy Inc. ■ Page 5 ■ 2019 Annual Report
drove increased production from our North American region. Two months into the new year, the execution of our 2020 capital program is progressing
as planned. To mitigate the risk of another season of post-breakup weather delays, which affected our results in 2019, we are front-loading our 2020
capital program by scheduling most of our North American drilling activity into the first quarter.
Proved plus probable reserves increased by 3% year-over-year to 501.2 mmboe. The large majority of our new reserve additions were through organic
activities as we continue to enhance the recovery factor on existing assets and advanced resources to reserves in a number of our operating areas.
We added these reserves at an organic F&D cost of $9.93/boe, including FDC, resulting in an operating recycle ratio of 3.0x and funds flow recycle
ratio of 2.5x. Our F&D costs have been below $10.00/boe for the past three years (3-year average F&D of $9.38, including FDC), while growing our
liquids weighting. Driven by a capital-efficient project slate and a continued focus on cost improvements, our 3-year organic operating recycle ratio
stands at 3.2x. Our contingent and prospective resource bases remain a source of reserve additions, with 31.8 mmboe of contingent and 5.0 mmboe
of prospective resources converted to 2P reserves during 2019.
As we stated earlier, our top financial priority remains balance sheet strength. Both our debt-to-cash flow ratio and weighted-average interest rate
decreased in 2019, and our debt exposures are fully termed-out via our covenant-based bank facility and long-term notes. Nonetheless, we will continue
to be vigilant regarding commodity prices and resulting cash flows. It remains to be seen how long oil demand and economic growth will be suppressed
by the global reaction to COVID-19. Should we experience an even more-pronounced and protracted commodity downturn due to COVID-19 or any
other cause, we will be attentive to all forms of cash outlays, focusing first on capital investment levels, to protect the financial position of the company.
Q4 2019 Operations Review
Europe
In France, Q4 2019 production averaged 10,264 boe/d, representing a slight decrease from the prior quarter primarily due to weather-driven downtime
in the Aquitaine Basin. Production in the Paris Basin was relatively consistent with the prior quarter.
In the Netherlands, Q4 2019 production averaged 8,088 boe/d, an increase of 9% from the prior quarter. The increase was primarily due to the restoration
of production following planned and unplanned facility downtime in Q3 2019. During the quarter, we successfully drilled and completed the
Weststellingwerf well (0.5 net), representing our first drilling activity in the Netherlands since 2017. We encountered three gas-bearing zones in the
Vlieland, Zechstein and Rotliegend formations. The Weststellingwerf well flowed at an initial gross rate of 14.7 mmcf/d(2) and is expected to be brought
on production during 2020.
In Ireland, production averaged 42 mmcf/d (7,049 boe/d) in Q4 2019, a decrease of 2% from the prior quarter. The decrease was primarily due to
natural decline, partially offset by higher uptime at the Corrib natural gas processing facility compared to the prior quarter. As disclosed in our Q3 2019
release, we had 10 days of unplanned downtime in one of the plant auxiliary systems, which occurred at the end of Q3 2019 and continued into Q4
2019. Since assuming operatorship of Corrib at the end of 2018, we have reduced operating costs by approximately 20% and continue to evaluate
other optimization opportunities.
In Germany, Q4 2019 production averaged 3,373 boe/d, an increase of 3% from the prior quarter. The increase was primarily due to improved uptime
on our operated oil and natural gas assets, partially offset by unplanned downtime on our non-operated oil assets. Following the successful drilling of
the Burgmoor Z5 (46% working interest) well in 2019, the partner group has agreed to a tie-in plan which should allow for production early next year.
In Central and Eastern Europe ("CEE"), production averaged 276 boe/d following the tie-in of two discoveries from our 2019 drilling program late in the
year. In Hungary, we tied-in the Mh-21 (0.3 net) and Battonya E-09 (1.0 net) wells, drilled in the second and third quarters of 2019, respectively. The
wells were brought on production midway through the fourth quarter of 2019 at a restricted rate of approximately 600 boe/d net for the two wells combined.
In addition, we were provisionally awarded the Kadarkút exploration license in western Hungary during the quarter and we expect to receive final
government approvals in the first quarter of 2020. The license covers approximately 298,500 net acres and consists of primarily oil prospects. Most
of the license is covered by 3D seismic. The license term covers a four year period, with the option to extend the license for a further two years. In
Croatia, we continued to prepare for our 2020-2021 drilling programs, in addition to evaluating natural gas plant processing facility construction options,
which we expect to allow tie-in of our 2019 natural gas discoveries next year.
Vermilion Energy Inc. ■ Page 6 ■ 2019 Annual Report
North America
In Canada, production averaged 58,593 boe/d in Q4 2019, up slightly from the prior quarter. Strong results from new well completions in the quarter
more than offset natural decline. We drilled or participated in 26 (16.8 net) wells in the fourth quarter of 2019, eight (8.0 net) of which were drilled in
Alberta and 18 (8.8 net) drilled in Saskatchewan. During the quarter, we drilled one of our best ever condensate-rich Lower Mannville wells in Drayton
Valley, Alberta, achieving an IP30 rate of approximately 1,900 boe/d (60% liquids). In Ferrier, we drilled a liquids-rich Upper Mannville well which
delivered an IP30 rate of approximately 1,800 boe/d (15% liquids). We brought 33 (23.5 net) wells on production in Saskatchewan and four (4.0 net)
wells on production in Alberta during the quarter. We are currently in the midst of a very active Q1 2020 drilling campaign in Canada, with rig activity
in the quarter peaking at six rigs in Saskatchewan and four rigs in Alberta. We plan to complete the majority of our 2020 Canadian drilling program in
the first quarter of the year in order to avoid potential delays from an extended spring break-up season or unseasonably wet summer weather.
In the United States, Q4 2019 production averaged 5,683 boe/d, representing an increase of 15% from the prior quarter. The increase was primarily
due to a full quarter of contribution from the four wells we brought on production during the third quarter of 2019. These wells continue to perform in
line with our type curves, achieving an average IP90 rate of approximately 450 boe/d. We also began drilling two (1.98 net) wells in December 2019,
for which drilling finished in January 2020, and are currently undergoing completion. We currently have two rigs operating in our Hilight field in the
Powder River Basin. Similar to our Canadian business unit, we plan to execute a front-end weighted capital program in the United States, completing
our twelve (11.9 net) well 2020 drilling program in the first half of the year.
Australia
In Australia, production averaged 4,548 bbl/d in Q4 2019, a decrease of 18% from the previous quarter, primarily due to the planned shutdown of the
Wandoo platform for eight days to perform facility upgrades and regular maintenance. We recently began the installation of electric submersible pumps
on two wells and will continue to advance process optimization projects throughout 2020.
Dividend Reinvestment Plan
As previously announced, we are phasing out the Dividend Reinvestment Plan ("DRIP") in 2020 by prorating the available DRIP shares by 25% each
quarter starting in Q1 2020. It is our intention to increase this proration each quarter throughout the year, such that the DRIP will be eliminated at the
end of the third quarter of 2020.
Commodity Hedging
Vermilion hedges to manage commodity price exposures and increase the stability of our cash flows, providing additional certainty with regard to the
execution of our dividend and capital programs. In aggregate, as of February 24, 2020, we currently have 51% of our expected net-of-royalty production
hedged for Q1 2020. More than half of our Q1 2020 corporate hedge position consists of two-way collars and three-way structures, which allow
participation in price increases up to contract ceilings. For 2020 as a whole, approximately 42% of our production is hedged, with 63% of our hedge
position in participating structures.
With respect to individual products within our product mix, we have hedged 70% of anticipated European natural gas volumes for Q1 2020. We have
also hedged 78% of our anticipated full-year 2020 European natural gas volumes at prices which are expected to provide for strong project economics
and free cash flows. At present, 44% of our expected Q1 2020 oil production is hedged. For Q1 2020, 45% of our North American natural gas production
is priced away from AECO, with a variety of contracts to sell gas at the SoCal Border, Henry Hub, Saskatchewan and Wyoming.
Sustainability
We delivered another year of industry-leading performance as indicated by a number of important ESG rankings. The Company received a top quartile
ranking for our industry sector in SAM's 2019 Corporate Sustainability Assessment ("CSA"). The CSA analyzes sustainability performance across
economic, environmental, governance, and social criteria, and is the basis of the Dow Jones Sustainability Indices. Vermilion was ranked second in
our peer group in the Sustainalytics ESG (environment, social, governance) rankings. Vermilion's MSCI ESG rating increased to AA in 2019, and our
Governance Metrics score ranked in the top decile globally. We received ISS QualityScore decile ratings of 1 for both Environmental and Social, which
assess corporate disclosure and transparency practices in these areas, where 1 indicates the lowest risk. These rankings reflect our high degree of
ESG focus, and we will strive to continue to this record of high performance as we move forward.
Vermilion Energy Inc. ■ Page 7 ■ 2019 Annual Report
2019 Reserves and Resources
In 2019 we increased our reserves and resources predominantly through development activities. Based on the 2019 GLJ Reserves Report, our 2P
reserves increased 3% from year-end 2018 to 501.2(3) mmboe, while our 1P reserves increased 4% from year-end 2018 to 310.2(3) mmboe in 2019.
PDP reserves increased 4% from year-end 2018 to 200.0(3) mmboe. Our PDP reserves represent 65% of our 1P reserves.
The following table provides a summary of company interest reserves by reserve category and country on an oil equivalent basis. Please refer to
Vermilion's 2019 Annual Information Form for the year ending December 31, 2019 ("2019 Annual Information Form") for detailed by product type
information.
BOE (mboe)
Australia
Canada
CEE
France
Germany
Ireland
Netherlands
United States
Vermilion
Proved Developed
Producing
8,608
111,738
228
35,109
9,694
11,772
8,620
14,222
199,991
Proved Developed
Non-Producing
—
7,125
1,503
934
2,930
—
2,035
515
15,042
Proved
Undeveloped
—
72,764
—
4,920
1,157
—
450
15,886
95,177
Proved
8,608
191,627
1,731
40,963
13,781
11,772
11,105
30,623
310,210
Probable
4,552
109,262
972
18,729
12,959
6,002
9,875
28,673
191,024
Proved Plus
Probable
13,160
300,889
2,703
59,692
26,740
17,774
20,980
59,296
501,233
Through development activities, we replaced 120% of 2P reserves, 121% of 1P reserves and 113% of PDP reserves, respectively. Including acquisitions,
we replaced 136% of 2P reserves, 133% of 1P reserves and 122% of PDP reserves, respectively. Reserve additions included 15.0 million boe of
positive technical revisions at the 1P level.
Our Operating Recycle Ratio(5) (including FDC) at the 2P level was 3.0x in 2019. We have achieved F&D costs below $10.00/boe for the past three
years (3-year average F&D of $9.38, including FDC) as a result of our highly capital-efficient project slate and continued focus on cost improvements.
The following table summarizes the finding and development costs and associated operating recycle ratios by reserve category for the year ending
December 31, 2019:
Finding and Development Costs, including FDC (F&D)(4) ($/boe)
Finding, Development and Acquisition Costs, including FDC (FD&A)(4) ($/boe)
F&D Operating Recycle Ratio(5) (x)
FD&A Operating Recycle Ratio(5) (x)
PDP
$12.71
$12.69
2019
1P
$11.90
$11.82
2.3
2.3
2.5
2.5
2P
$9.93
$9.85
3.0
3.0
3-Year Average
1P
$12.71
$17.48
PDP
$13.66
$19.31
2.2
1.6
2.4
1.7
2P
$9.38
$13.84
3.2
2.2
In addition to our reserve base, we report contingent and prospective resources. According to the 2019 GLJ Resources Report, risked low, best, and
high estimates for our contingent resources in the Development Pending category were 139.0(6) mmboe, 236.8(6) mmboe, and 330.2(6) mmboe,
respectively. The 2019 GLJ Resources Report also indicates risked low, best, and high estimates for contingent resources in the Development Unclarified
category of 10.8(6) mmboe, 37.6(6) mmboe, and 54.1(6) mmboe, respectively. Over 86% of our best estimate risked contingent resources reside in the
Development Pending category. Prospective resources were assessed at risked low, best and high estimates of 51.9(6) mmboe, 179.2(6) mmboe, and
330.2(6) mmboe, respectively. Our contingent and prospective resource bases remain a source of reserve additions, with 31.8 mmboe of contingent
and 5.0 mmboe of prospective resources converted to 2P reserves during 2019.
The following table provides a reconciliation of changes in company interest reserves by reserve category and country. Please refer to Vermilion's 2019
Annual Information Form for detailed by product type information.
Vermilion Energy Inc. ■ Page 8 ■ 2019 Annual Report
1P (mboe)
December 31, 2018
Discoveries
Extensions & improved recovery
Technical revisions
Acquisitions
Dispositions
Economic factors
Production
December 31, 2019
2P (mboe)
December 31, 2018
Discoveries
Extensions & improved recovery
Technical revisions
Acquisitions
Dispositions
Economic factors
Production
December 31, 2019
Australia
Canada
CEE
France
Germany
Ireland Netherlands
9,668
—
—
1,007
—
—
—
(2,067)
8,608
181,938
491
20,981
7,019
3,847
(13)
(744)
(21,892)
191,627
131
1,725
—
(100)
—
—
—
(25)
1,731
43,467
—
551
806
—
—
(40)
(3,821)
40,963
12,990
844
470
743
—
—
—
(1,266)
13,781
13,094
—
—
1,511
—
—
—
(2,833)
11,772
11,804
—
720
1,601
—
—
—
(3,020)
11,105
Australia
Canada
CEE
France
Germany
Ireland Netherlands
14,480
—
—
747
—
—
—
(2,067)
13,160
284,835
1,044
31,200
1,190
5,350
(428)
(410)
(21,892)
300,889
190
2,686
—
(148)
—
—
—
(25)
2,703
63,918
—
810
(549)
—
—
(666)
(3,821)
59,692
25,733
1,250
920
103
—
—
—
(1,266)
26,740
20,576
—
—
31
—
—
—
(2,833)
17,774
22,200
—
1,131
669
—
—
—
(3,020)
20,980
United
States
25,146
—
4,254
2,368
561
—
—
(1,706)
30,623
United
States
56,213
—
2,693
1,143
953
—
—
(1,706)
59,296
Vermilion
298,236
3,060
26,976
14,955
4,408
(13)
(784)
(36,630)
310,210
Vermilion
488,145
4,980
36,754
3,186
6,303
(428)
(1,076)
(36,630)
501,233
Additional information about our 2019 GLJ Reserves Report and GLJ 2019 Resources Report can be found in our 2019 Annual Information Form on
our website at www.vermilionenergy.com and on SEDAR at www.sedar.com.
(signed “Anthony Marino”)
Anthony Marino
President & Chief Executive Officer
March 5, 2020
(1)
(2)
(3)
(4)
(5)
(6)
Non-GAAP Financial Measure. Please see the “Non-GAAP Financial Measures” section of the accompanying Management’s Discussion and Analysis.
The Weststellingwerf flow rate was 14.7 mmcf/d gross over a 24 hour period at a wellhead pressure of 1,625 psi. Initial flow rates are not necessarily indicative
of long-term performance or ultimate recovery.
Estimated company interest 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 10, 2020 with an effective date of December 31, 2019 (the “2019 GLJ Reserves Report”).
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.
Operating Recycle Ratio is a measure of capital efficiency calculated by dividing the Operating Netback by the cost of adding reserves (F&D cost). Operating
Netback is calculated as sales less royalties, operating expense, transportation costs, PRRT and realized hedging gains and losses presented on a per unit
basis.
Vermilion retained GLJ to conduct an independent resource evaluation dated February 10, 2020 to assess contingent and prospective resources across all of
the Company’s key operating regions with an effective date of December 31, 2019 (the “GLJ 2019 Resources Report”). The aggregate associated chance of
development for each of the low, best and high estimate for contingent resources in the Development Pending category are 83%, 81% and 81%, respectively.
The aggregate associated chance of commerciality for each of the low, best and high estimate for prospective resources in the Prospect category are 24%, 24%
and 24%, respectively. There is uncertainty that it will be commercially viable to produce any portion of the resources. Project maturity subclass development
pending is defined as contingent resources where resolution of the final conditions for development is being actively pursued (high chance of development).
Project maturity subclass development unclarified is defined as contingent resources when the evaluation is incomplete and there is ongoing activity to resolve
any risks or uncertainties. Prospective resources are defined as those quantities of petroleum estimated, as of a given date, to be potentially recoverable from
unknown accumulations by application of future development projects. There is no certainty that it will be commercially viable to produce any portion of the
Vermilion Energy Inc. ■ Page 9 ■ 2019 Annual Report
contingent resources or that Vermilion will produce any portion of the volumes currently classified as contingent resources. There is no certainty that any
portion of the prospective resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the
prospective resources or that Vermilion will produce any portion of the volumes currently classified as prospective resources. Please refer to Vermilion's 2019
Annual Information Form for further information on Vermilion’s contingent resources and prospective resources.
Vermilion Energy Inc. ■ Page 10 ■ 2019 Annual Report
Management's Discussion and Analysis
The following is Management’s Discussion and Analysis (“MD&A”), dated March 5, 2020, of Vermilion Energy Inc.’s (“Vermilion”, “we”, “our”, “us” or the
“Company”) operating and financial results as at and for the three months and year ended December 31, 2019 compared with the corresponding periods
in the prior year.
This discussion should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019 and 2018,
together with the accompanying notes. Additional information relating to Vermilion, including its Annual Information Form, is available on SEDAR
at www.sedar.com or on Vermilion’s website at www.vermilionenergy.com.
The audited consolidated financial statements for the year ended December 31, 2019 and comparative information have been prepared in Canadian
dollars and in accordance with International Financial Reporting Standards (“IFRS” or, alternatively, “GAAP”) as issued by the International Accounting
Standards Board ("IASB").
This MD&A includes references to certain financial and performance measures which do not have standardized meanings prescribed by IFRS. These
measures include:
•
•
•
Fund flows from operations: Fund flows from operations is a measure of profit or loss in accordance with IFRS 8 “Operating Segments”. Please
see "Segmented Information" in the "Notes to the Consolidated Financial Statements" for a reconciliation of fund flows from operations to net
earnings. We analyze fund flows from operations both on a consolidated basis and on a business unit basis in order to assess the contribution of
each business unit to our ability to generate income necessary to pay dividends, repay debt, fund asset retirement obligations, and make capital
investments.
Net debt: Net debt is a capital management measure in accordance with IAS 1 "Presentation of Financial Statements". Net debt is comprised of
long-term debt plus current liabilities less current assets and represents Vermilion's net financing obligations after adjusting for the timing of working
capital fluctuations. Net debt excludes lease obligations which are secured by a corresponding right-of-use asset. Please see "Capital disclosures"
in the "Notes to the Consolidated Financial Statements" for additional information.
Netbacks: Netbacks are per boe and per mcf performance measures used in the analysis of operational activities. We assess netbacks both on
a consolidated basis and on a business unit basis in order to compare and assess the operational and financial performance of each business unit
versus other business units and also versus third-party crude oil and natural gas producers.
In addition, this MD&A includes references to certain financial measures which are not specified, defined, or determined under IFRS and are therefore
considered non-GAAP financial measures. These non-GAAP financial measures are unlikely to be comparable to similar financial measures presented
by other issuers. For a full description of these non-GAAP financial measures and a reconciliation of these measures to their most directly comparable
GAAP measures, please refer to “Non-GAAP Financial Measures”.
Condensate Presentation
We report our condensate production in Canada and the Netherlands business units within the crude oil and condensate production line. We believe
that this presentation better reflects the historical and forecasted pricing for condensate, which is more closely correlated with crude oil pricing than with
pricing for propane, butane, and ethane (collectively “NGLs” for the purposes of this report).
Vermilion Energy Inc. ■ Page 11 ■ 2019 Annual Report
Guidance
On October 25, 2018, we released our 2019 capital budget and related guidance. On February 27, 2019, we deferred some activity to later in the year
and reallocated capital between business units, although the 2019 total budget and production guidance remained unchanged. On October 31, 2019,
we reduced our 2019 capital expenditure guidance to $520 million and our 2019 annual production guidance to 100,000 to 101,000 boe/d. Actual 2019
capital spending of $523 million was within 1% of our guidance and 2019 average production of 100,357 boe/d was approximately at the mid-point of
our revised guidance range.
On October 31, 2019, we released our 2020 capital budget and associated production guidance.
The following table summarizes our guidance:
Date
Capital Expenditures ($MM)
Production (boe/d)
2019 Guidance
2019 Guidance
2019 Guidance
2019 Actual Results
2020 Guidance
2020 Guidance
October 25, 2018
October 31, 2019
March 6, 2020
October 31, 2019
530
520
523
450
101,000 to 106,000
100,000 to 101,000
100,357
100,000 to 103,000
Vermilion Energy Inc. ■ Page 12 ■ 2019 Annual Report
Vermilion's Business
Vermilion is a Calgary, Alberta based international oil and gas producer focused on the acquisition, exploration, development, and optimization of
producing properties in North America, Europe, and Australia. We manage our business through our Calgary head office and our international business
unit offices. This MD&A separately discusses each of our business units in addition to our corporate segment.
Vermilion Energy Inc. ■ Page 13 ■ 2019 Annual Report
Consolidated Results Overview
Q4 2019
Q3 2019
Q4 2018
Q4/19 vs.
Q3/19
Q4/19 vs.
Q4/18
2019
2018
2019 vs.
2018
46,261
8,160
260.72
97,875
44,423
8,160
260.72
96,037
169
47,242
7,772
253.36
97,239
48,979
7,772
253.36
98,976
(159)
47,678
(2.1)%
7,815
276.77
101,621
5.0%
2.9%
0.7%
47,620
(9.3)%
7,815
276.77
5.0%
2.9%
101,563
(3.0)%
5
215,592
216,153
222,342
1.38
1,477
0.01
1.39
1.46
(10,229)
323,373
(0.07)
2.12
(0.3)%
(0.7)%
N/A
N/A
1,993,194
2,001,870
1,929,529
(0.4)%
0.690
0.690
0.690
—%
(3.0)%
4.4%
(5.8)%
(3.7)%
(6.7)%
4.4%
(5.8)%
(5.4)%
(3.0)%
(5.5)%
(99.5)%
(99.5)%
3.3%
—%
47,902
7,984
266.82
100,357
47,936
7,984
266.82
100,391
(12)
22.3%
25.4%
6.6%
15.0%
23.7%
25.4%
6.6%
15.6%
39,182
6,366
250.33
87,270
38,741
6,366
250.33
86,829
160
908,055
838,652
8.3%
5.87
32,799
0.21
5.96
(1.5)%
271,650
(87.9)%
1.93
(89.1)%
1,993,194
1,929,529
2.760
2.715
3.3%
1.7%
100,625
127,879
163,580
(21.3)%
(38.5)%
523,164
518,214
1.0%
9,165
28.00
17.25
4,657
47.00
45.31
2,689
73.00
45.08
38,472
176.00
153.38
1,759,425
185.00
147.93
Production
Crude oil and condensate (bbls/d)
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
Sales
Crude oil and condensate (bbls/d)
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
Build (draw) in inventory (mbbls)
Financial metrics
Fund flows from operations ($M)
Per share ($/basic share)
Net earnings (loss) ($M)
Per share ($/basic share)
Net debt ($M)
Cash dividends ($/share)
Activity
Capital expenditures ($M)
Acquisitions ($M)
Gross wells drilled
Net wells drilled
Financial performance review
Q4 2019 vs. Q3 2019
M
M
$
85
55
25
-5
-35
U n r e a li z e d
Net earnings of $1.5MM in Q4 2019 compared to a net loss of $10.2MM in Q3 2019
$34.1
$5.5
$45.3
$(10.2)
$(46.1)
$1.5
$(26.5)
$(0.6)
2 0 1 9
Q 3
i v a t i v e s ,
d e r
f o r e i g n
e x c h a n g e
D e p l e t i o n
a n d
d e p r e c i a t i o n
O t h e r
r m e n t
I m p a i
D e f e r
r e d
F u n d
t a x
f l o w s
r o m o p e r a t i o n s
f
2 0 1 9
Q 4
"Other" contains equity based compensation and unrealized other
• We recorded net earnings for Q4 2019 of $1.5 million ($0.01/basic share) compared to a net loss of $10.2 million ($0.07/basic share) in Q3 2019.
This quarter-over-quarter increase in net earnings was primarily driven by a net unrealized gain on derivatives and foreign exchange of $12.5
million (compared to a net unrealized loss of $32.8 million in Q3 2019) and a decrease in depletion and depreciation expense of $34.1 million.
This increase to net earnings was partially offset by an increase in deferred tax expense of $26.5 million and a $46.1 million impairment charge
recorded on our Corrib asset.
Vermilion Energy Inc. ■ Page 14 ■ 2019 Annual Report
Fund flows from operations of $215.6MM in Q4 2019 compared to $216.2MM in Q3 2019
300
M
M
$
225
150
$216.2
$16.8
$14.7
$2.8
$(34.2)
$(0.7)
9
1
0
2
Q 3
g
P ri c i n
s
e
a ti v
ri v
e
d
o f
e t
n
s
e
x
a
T
r
e
O t h
e
s
n
e
p
x
e
g
a ti n
r
e
p
o
o l u m e
v
n ,
r t a ti o
o
p
s
s
n
S a l e
a
t r
s ,
a lti e
y
R o
"Other" contains general and administration, interest, realized foreign exchange, and realized other
$215.6
9
1
0
2
Q 4
•
Fund flows from operations of $215.6 million during Q4 2019 was flat versus Q3 2019. We recorded lower sales volumes as the result of an
Australian inventory build during the current quarter. This decrease was offset by stronger natural gas prices and a tax recovery in the Netherlands.
Q4 2019 vs. Q4 2018
M
M
$
400
200
0
-200
Net earnings of $1.5MM in Q4 2019 compared to net earnings of $323.4MM in Q4 2018
$323.4
$42.7
$40.7
$(224.2)
$1.5
$(128.2)
$(46.1)
$(6.8)
2 0 1 8
Q 4
t a x
r e d
D e f e r
d e r
U n r e a li z e d
O t h e r
i v a t i v e s ,
e x c h a n g e
o n
b u s i n e s s
f o r e i g n
G a i n
c o m b i n a t i o n s
r m e n t
f l o w s
I m p a i
F u n d
r o m o p e r a t i o n s
f
2 0 1 9
Q 4
"Other" contains depletion and depreciation, equity based compensation, accretion, and unrealized other
• We recorded net earnings for Q4 2019 of $1.5 million ($0.01/basic share) compared to net earnings of $323.4 million ($2.12/basic share) in
Q4 2018. This change was primarily driven by a smaller unrealized derivative gain in the current quarter of $12.5 million (compared to an unrealized
derivative gain of $236.7 million in Q4 2018), the gain on business combinations of $128.2 million recorded in Q4 2018, and an impairment charge
of $46.1 million in Q4 2019.
Vermilion Energy Inc. ■ Page 15 ■ 2019 Annual Report
3% decrease in fund flows from operations from Q4 2018 to Q4 2019
$222.3
$21.7
$6.5
$3.9
$215.6
$(38.8)
M
M
$
300
250
200
150
2 0 1 8
Q 4
P r
d e r
i v a t i v e s
r a n s p o r
t
t a t i o n ,
i c i n g
o f
n e t
R o y a l t i e s ,
e x p e n s e
o p e r a t i n g
O t h e r
v o l u m e
S a l e s
2 0 1 9
Q 4
"Other" contains general and administration, corporate income taxes, interest, realized foreign exchange, and realized other
• We generated fund flows from operations of $215.6 million in Q4 2019, a 3% decrease from $222.3 million in Q4 2018 primarily due to lower sales
•
volumes. This decrease was partially offset by increased pricing net of derivatives.
Our consolidated realized price per boe decreased from $48.90/boe to $44.00/boe as a result of decreases in crude oil and European natural gas
pricing. However, we were able to mitigate the impact of lower commodity prices with our hedge program, resulting in a net increase to fund flows
from operations of $21.7 million.
2019 vs. 2018
Net earnings of $32.8MM in 2019 compared to net earnings of $271.7MM in 2018
$271.7
$69.4
M
M
$
400
200
0
-200
$(128.2)
$(66.1)
$(46.3)
$(46.1)
$(16.6)
$(5.0)
$32.8
2 0 1 8
f l o w s
f
r o m o p e r a t i o n s
b u s i n e s s
o n
G a i n
F u n d
c o m b i n a t i o n s
a n d
D e p l e t i o n
U n r e a li z e d
d e p r e c i a t i o n
i v a t i v e s ,
d e r
f o r e i g n
e x c h a n g e
r m e n t
I m p a i
t a x
r e d
D e f e r
O t h e r
2 0 1 9
"Other" contains equity based compensation and accretion
•
For the year ended December 31, 2019, net earnings of $32.8 million were recorded compared to net earnings of $271.7 million in 2018. The
decrease in net earnings is attributable to the gain on business combinations recorded in 2018 of $128.2 million, higher depletion and depreciation
expense of $66.1 million, an impairment charge recorded in 2019 of $46.1 million, and higher non-cash expenses and net unrealized losses on
derivatives and foreign exchange in the current year. The decreases were partially offset by a year-over-year increase in fund flows from operations
of $69.4 million.
Vermilion Energy Inc. ■ Page 16 ■ 2019 Annual Report
1,500
M
M
$
1,000
$838.7
500
2 0 1 8
8% increase in fund flows from operations from 2018 to 2019
$240.0
$(115.1)
$(32.8)
$(22.7)
$908.1
S a l e s
v o l u m e
r a n s p o r
t a t i o n ,
R o y a l t i e s ,
t
e x p e n s e
o p e r a t i n g
o f
n e t
i c i n g
P r
i v a t i v e s
d e r
O t h e r
2 0 1 9
"Other" contains general and administration, current income taxes, interest, realized foreign exchange and realized other
•
•
Fund flows from operations increased 8% for the year ended December 31, 2019 versus the same period in 2018 due to a 16% increase in sales
volumes, partially offset by related incremental expenses associated with the increased volumes.
Our consolidated realized price decreased by 13% from $52.95/boe to $46.12/boe due to weaker crude oil and natural gas pricing. We were able
to mitigate a portion of the impact of lower commodity prices with our hedge program. As a result, the $6.83/boe reduction in our realized price
was partially offset by a $5.81/boe increase in realized derivative gains.
Production review
Q4 2019 vs. Q3 2019
•
Consolidated average production of 97,875 boe/d during Q4 2019 increased by 1% compared to Q3 2019 production of 97,239 boe/d. Production
increased in the United States from wells brought online late in Q3 2019 and in the Netherlands due to planned and unplanned downtime in the
previous quarter. These increases were offset by lower production primarily due to the planned shutdown of the Wandoo platform in Australia for
eight days to perform facility upgrades and regular maintenance and five days of Corrib downtime in Ireland.
Q4 2019 vs. Q4 2018
•
Consolidated average production of 97,875 boe/d in Q4 2019 represented a decrease of 4% from Q4 2018 primarily as a result of production
decreases in Canada following delays in our 2019 capital program and natural decline in Ireland. These decreases were partially offset by continued
organic growth in the United States.
2019 vs. 2018
•
For the year ended December 31, 2019, consolidated average production of 100,357 boe/d represented an increase of 15% from the comparable
period in 2018 due to growth in Canada, the United States, Australia, and the Netherlands. In Canada and the United States, production increased
as a result of acquisitions in 2018 and continued organic growth. Production in Australia increased due to a successful two-well drilling program
completed in Q1 2019. In the Netherlands, production increased as a result of a new well brought on production in Q3 2018 and from a successful
workover program in the first half of 2019.
Vermilion Energy Inc. ■ Page 17 ■ 2019 Annual Report
Activity review
Q4 2019 capital expenditures of $100.6MM by business unit
Australia: 6%
Ireland: 1%
Germany: 5%
Netherlands: 10%
France: 9%
United States: 3%
Canada: 66%
•
For the three months ended December 31, 2019, capital expenditures of $100.6 million primarily related to activity in Canada, the Netherlands,
and France. In Canada, capital expenditures of $66.6 million included the drilling of 16 (15.2 net) operated wells in Alberta and Saskatchewan.
Capital expenditures of $9.7 million in the Netherlands related to drilling the Weststellingwerf well (0.5 net). In France, capital expenditures of $8.7
million related to our workover and optimization programs in the Aquitaine and Paris Basins. In the United States, capital expenditures of $3.1
million related to the drilling of two wells, which were rig released in the subsequent quarter.
Sustainability review
Dividends
•
Declared dividends of $0.23 per common share per month throughout 2019, resulting in total dividends declared of $2.76 per common share for
the year ended December 31, 2019.
Long-term debt and net debt
•
Long-term debt increased to $1.9 billion as at December 31, 2019 from $1.8 billion as at December 31, 2018. This increase was primarily a result
of increased borrowings on the revolving credit facility.
Net debt increased to $2.0 billion as at December 31, 2019, from $1.9 billion as at December 31, 2018, primarily due to increased borrowings on
our revolving credit facility.
The ratio of net debt to four quarter trailing fund flows from operations decreased to 2.20 (December 31, 2018 - 2.30) as the increase to net debt
was offset by higher four quarter trailing fund flows from operations.
•
•
Vermilion Energy Inc. ■ Page 18 ■ 2019 Annual Report
Benchmark Commodity Prices
Crude oil
WTI ($/bbl)
WTI (US $/bbl)
Edmonton Sweet index ($/bbl)
Edmonton Sweet index (US $/bbl)
Saskatchewan LSB index ($/bbl)
Saskatchewan LSB index (US $/bbl)
Canadian C5+ Condensate index ($/bbl)
Canadian C5+ Condensate index (US $/bbl)
Dated Brent ($/bbl)
Dated Brent (US $/bbl)
Natural gas
AECO ($/mcf)
NBP ($/mcf)
NBP (€/mcf)
TTF ($/mcf)
TTF (€/mcf)
Henry Hub ($/mcf)
Henry Hub (US $/mcf)
Average exchange rates
CDN $/US $
CDN $/Euro
Realized prices
Crude oil and condensate ($/bbl)
NGLs ($/bbl)
Natural gas ($/mcf)
Total ($/boe)
Q4 2019 Q3 2019 Q4 2018
Q4/19 vs.
Q3/19
Q4/19 vs.
Q4/18
2019
2018
2019 vs.
2018
75.19
56.96
68.10
51.59
68.09
51.58
69.97
53.01
83.49
63.25
2.48
5.38
3.68
5.36
3.67
3.30
2.50
1.32
1.46
71.25
14.63
3.61
44.00
74.55
56.45
68.39
51.79
68.68
52.01
68.70
52.02
81.80
61.94
1.06
4.50
3.07
4.40
3.00
2.94
2.23
1.32
1.47
73.45
6.14
2.43
43.04
77.71
58.81
42.96
32.51
58.18
44.03
60.08
45.47
89.54
67.76
1.56
11.03
7.31
10.91
7.23
4.82
3.65
0.9%
0.9%
(0.4)%
(0.4)%
(0.9)%
(0.8)%
1.8%
1.9%
2.1%
2.1%
134.0%
19.6%
19.9%
21.8%
22.3%
12.2%
12.1%
(3.2)%
(3.1)%
58.5%
58.7%
17.0%
17.1%
16.5%
16.6%
(6.8)%
(6.7)%
59.0%
(51.2)%
(49.7)%
(50.9)%
(49.2)%
(31.5)%
(31.5)%
1.32
1.51
—%
(0.7)%
—%
(3.3)%
66.19
25.69
5.83
48.90
(3.0)%
138.3%
48.6%
2.2%
7.6%
(43.1)%
(38.1)%
(10.0)%
75.67
57.03
69.19
52.15
69.66
52.50
70.13
52.86
85.31
64.30
1.76
5.90
3.97
5.90
3.97
3.49
2.63
1.33
1.49
74.42
13.61
3.58
46.12
83.94
64.77
69.53
53.65
73.17
56.46
79.08
61.02
92.07
71.04
1.50
10.35
6.76
10.23
6.69
4.01
3.09
(9.9)%
(11.9)%
(0.5)%
(2.8)%
(4.8)%
(7.0)%
(11.3)%
(13.4)%
(7.3)%
(9.5)%
17.3%
(43.0)%
(41.3)%
(42.3)%
(40.7)%
(13.0)%
(14.9)%
1.30
1.53
2.3%
(2.6)%
79.16
26.33
5.45
52.95
(6.0)%
(48.3)%
(34.3)%
(12.9)%
Q4 2019 realized crude oil and condensate price was a 5% premium to Edmonton Sweet Index
Dated Brent (32% of Q4 2019
sales volumes)
WTI (7% of Q4 2019 sales
volumes)
115.00
95.00
Canadian C5+ (9% of Q4 2019
sales volumes)
l
b
b
$
/
75.00
Crude oil and condensate
realized price
Saskatchewan LSB (45% of Q4
2019 sales volumes)
Edmonton Sweet index (7% of
Q4 2019 sales volumes)
55.00
35.00
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
•
Crude oil prices rose in Q4 2019 relative to Q3 2019, driven by improved sentiment on global oil demand growth, geopolitical risk events, and
supportive OPEC policy. By the end of Q4 2019, quarter-over-quarter WTI and Brent prices increased by 0.9% and 2.1% respectively, in
Canadian dollar terms. For the three months ended December 31, 2019, WTI and Brent prices in Canadian dollar terms decreased by 3.2%
and 6.8%, respectively, versus the comparable period in the prior year.
Vermilion Energy Inc. ■ Page 19 ■ 2019 Annual Report
•
•
•
•
•
•
•
In Canadian dollar terms, quarter-over-quarter, the Edmonton Sweet differential widened by $0.93/bbl to a discount of $7.09/bbl against WTI,
and the Saskatchewan LSB differential widened by $1.23/bbl to a discount of $7.10/bbl against WTI. This was mainly driven by the broader
market weakness experienced across all western Canadian grades in December 2019 due to the TC Energy Keystone pipeline spill announced
on October 30th, 2019 and subsequent western Canada inventory build that followed.
Vermilion's crude oil production benefits from light oil pricing and no exposure to significantly discounted heavy crude oil. Approximately 32%
of our Q4 2019 crude oil and condensate production was priced at the Dated Brent index (which averaged a premium to WTI of US$6.29/
bbl), while the remainder of our crude oil and condensate production was priced at the Saskatchewan LSB, Canadian C5+, Edmonton Sweet,
and WTI indices. Saskatchewan LSB, Canadian C5+, and Wyoming light-oil historically had lower differentials than the more significantly
constrained WCS and MSW markers, making Vermilion's North American crude oil production price-advantaged relative to other North American
benchmark prices.
Q4 2019 realized natural gas price was a $1.13/mcf premium to AECO
NBP (16% of Q4 2019 sales
volumes)
TTF (24% of Q4 2019 sales
volumes)
Natural gas realized price
Henry Hub (3% of Q4 2019
sales volumes)
AECO (56% of Q4 2019 sales
volumes)
f
c
m
$
/
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
In Canadian dollar terms, market prices for European natural gas (TTF and NBP) increased by 21.8% and 19.6% respectively in Q4 2019
compared to Q3 2019 as demand shifted seasonally due to winter heating consumption.
Natural gas prices at AECO in Q4 2019 increased by 134% compared to Q3 2019, due to both the seasonal shift to winter heating consumption
as well as improved access to storage and export markets as a result of the Canada Energy Regulator approving TC Energy’s Temporary
Service Protocol.
For Q4 2019, average European natural gas prices represented a $2.89/mcf premium to AECO and a $2.07/mcf premium to Henry Hub
pricing. Approximately 40% of our natural gas production in Q4 2019 benefited from this premium European pricing. As a result, our consolidated
natural gas realized price was a $1.13/mcf premium to AECO.
Quarter-over-quarter, the Canadian dollar strengthened slightly versus the Euro and USD
CDN $/Euro
CDN $/US $
/
X
F
$
N
D
C
1.55
1.45
1.35
1.25
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
For the three months ended December 31, 2019, the Canadian dollar remained flat against the US dollar quarter-over-quarter. The annual
average in 2019 was 2.3% weaker versus 2018.
For the three months ended December 31, 2019, the Canadian dollar strengthened 0.7% against the Euro quarter-over-quarter. The annual
average in 2019 was 2.6% stronger versus 2018.
Vermilion Energy Inc. ■ Page 20 ■ 2019 Annual Report
Canada Business Unit
Overview
Production and assets focused in West Pembina near Drayton Valley, Alberta and in southeast Saskatchewan and Manitoba.
•
Potential for three significant resource plays sharing the same surface infrastructure in the West Pembina region in Alberta:
– Mannville condensate-rich gas (2,400 - 2,700m depth) - in development phase
–
–
Southeast Saskatchewan light oil development:
–
Cardium light oil (1,800m depth) - modest investment at present
Duvernay condensate-rich gas (3,200 - 3,400m depth) - no investment at present
•
Targeting the Mississippian Midale (1,400 - 1,700m depth), Frobisher/Alida (1,200 - 1,400m depth) and Ratcliffe (1,800 - 1,900m) formations
Operational and financial review
Canada business unit
($M except as indicated)
Production and sales
Crude oil and condensate (bbls/d)
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
Production mix (% of total)
Crude oil and condensate
NGLs
Natural gas
Activity
Capital expenditures
Acquisitions
Gross wells drilled
Net wells drilled
Financial results
Sales
Royalties
Transportation
Operating
General and administration
Fund flows from operations
Netbacks ($/boe)
Sales
Royalties
Transportation
Operating
General and administration
Fund flows from operations netback
Realized prices
Crude oil and condensate ($/bbl)
NGLs ($/bbl)
Natural gas ($/mcf)
Total ($/boe)
Reference prices
WTI (US $/bbl)
Edmonton Sweet index ($/bbl)
Saskatchewan LSB index ($/bbl)
Canadian C5+ Condensate index ($/bbl)
AECO ($/mcf)
Q4 2019
Q3 2019
Q4 2018
Q4/19 vs.
Q3/19
Q4/19 vs.
Q4/18
2019
2018
2019 vs.
2018
27,399
7,005
145.14
58,593
27,682
6,632
145.14
58,504
29,557
6,816
146.65
60,814
(1.0)%
5.6%
—%
0.2%
(7.3)%
2.8%
(1.0)%
(3.7)%
28,266
6,988
148.35
59,979
21,154
5,914
129.37
48,630
33.6%
18.2%
14.7%
23.3%
47%
12%
41%
47%
12%
41%
49%
11%
40%
66,643
5,003
26.00
16.74
206,897
(24,127)
(10,384)
(60,931)
(7,424)
104,031
38.38
(4.48)
(1.93)
(11.30)
(1.38)
19.29
66.27
13.63
2.33
38.38
56.96
68.10
68.09
69.97
2.48
69,963
1,746
40.00
38.31
188,073
(23,909)
(10,404)
(57,851)
(5,793)
90,116
34.94
(4.44)
(1.93)
(10.75)
(1.08)
16.74
66.45
5.57
1.16
34.94
56.45
68.39
68.68
68.70
1.06
90,211
12,233
72.00
44.08
186,308
(25,584)
(11,129)
(62,064)
(2,150)
85,381
33.30
(4.57)
(1.99)
(11.09)
(0.38)
15.27
54.04
25.53
1.73
33.30
58.81
42.96
58.18
60.08
1.56
(4.7)%
(26.1)%
10.0%
0.9%
(0.2)%
5.3%
28.2%
15.4%
9.8%
0.9%
—%
5.1%
27.8%
15.2%
(0.3)%
144.7%
100.9%
9.8%
0.9%
(0.4)%
(0.9)%
1.8%
134.0%
11.1%
(5.7)%
(6.7)%
(1.8)%
245.3%
21.8%
15.3%
(2.0)%
(3.0)%
1.9%
263.2%
26.3%
22.6%
(46.6)%
34.7%
15.3%
(3.1)%
58.5%
17.0%
16.5%
59.0%
Vermilion Energy Inc. ■ Page 21 ■ 2019 Annual Report
47%
12%
41%
43%
13%
44%
293,744
24,064
152.00
132.86
828,070
(94,079)
(41,261)
(242,790)
(23,341)
426,599
277,857
1,573,964
173.00
135.93
671,172
(84,696)
(29,912)
(177,499)
(6,057)
373,008
37.82
(4.30)
(1.88)
(11.09)
(1.07)
19.48
67.70
13.00
1.77
37.82
57.03
69.19
69.66
70.13
1.76
37.81
(4.77)
(1.69)
(10.00)
(0.34)
21.01
70.16
26.20
1.54
37.81
64.77
69.53
73.17
79.08
1.50
5.7%
23.4%
11.1%
37.9%
36.8%
285.4%
14.4%
—%
(9.9)%
11.2%
10.9%
214.7%
(7.3)%
(3.5)%
(50.4)%
14.9%
—%
(11.9)%
(0.5)%
(4.8)%
(11.3)%
17.3%
Production
•
Q4 2019 production increased slightly from the prior quarter as production from new well completions more than offset natural decline. In addition,
production in Q3 2019 was negatively impacted by planned turnaround activity and other unplanned, weather-related downtime. Quarterly production
decreased 4% year-over-year primarily due to delays in our 2019 capital program caused by abnormally wet weather in Alberta in Q3 2019.
Activity
Vermilion drilled 16 (15.2 net) operated wells and participated in the drilling of ten (1.6 net) non-operated wells in Canada during Q4 2019.
In Q4 2019, we drilled eight (8.0 net) operated wells, completed four (4.0 net) operated wells, and brought on production four (4.0 net) operated
wells in Alberta.
In 2019, we drilled or participated in 22 (21.5 net) wells in Alberta.
In Q4 2019, we drilled eight (7.2 net) operated wells and participated in the drilling of ten (1.6 net) non-operated wells, completed twelve (11.8
net) operated wells and ten (1.6 net) non-operated wells, and brought 23 (21.9 net) operated wells and ten (1.6 net) non-operated wells on
production in Saskatchewan.
In 2019, we drilled or participated in 130 (111.4 net) wells in Saskatchewan.
The realized price for our crude oil and condensate production in Canada is linked to WTI and is subject to market conditions in western Canada
as reflected by the Saskatchewan LSB, Canadian Condensate C5+, and Edmonton Sweet index prices. The realized price of our natural gas in
Canada is based on the AECO index.
Q4 2019 sales increased 10% compared to Q3 2019 primarily due to higher realized natural gas and NGL prices. Quarter-over-quarter, our crude
oil and condensate production mix remained stable at approximately 50% of production.
Sales increased by 11% from Q4 2018 to Q4 2019 due to an increase in realized crude oil and condensate and natural gas prices partially offset
by a decrease in realized NGL prices and production.
For the year ended December 31, 2019 sales increased 23% compared to the prior year period primarily driven by a full-year impact to production
from the Spartan assets.
Q4 2019 royalties as a percentage of sales of 11.7% decreased from 12.7% in Q3 2019 as a result of an adjustment related to gas cost allowance
recorded in the prior quarter.
For the three months and year ended December 31, 2019, royalties as a percentage of sales of 11.7% and 11.4%, decreased from 13.7% and
12.6% in the comparable prior year periods. This decrease was due to the manner in which Alberta crude royalties are calculated which deferred
the royalty impact of lower oil prices in Q4 2018 into 2019, in addition to lower average royalty rates for new wells brought on production.
Alberta
–
Saskatchewan
–
–
–
Sales
•
•
•
•
•
•
Royalties
•
Transportation
•
Q4 2019 transportation expense on a per unit basis remained relatively consistent compared to Q3 2019 and Q4 2018. Transportation expense
on a dollar basis decreased in Q4 2019 as compared to Q4 2018 due to lower production.
For the year ended December 31, 2019, transportation expense on a per unit basis increased versus 2018 due to an increased weighting towards
crude oil production, which incurs higher transportation expense.
Operating
•
•
•
Q4 2019 operating expense on a dollar and per unit basis increased compared to Q3 2019 largely due to an increase in project activity.
Q4 2019 operating expense on a dollar and per unit basis remained relatively consistent compared to Q4 2018.
For the year ended December 31, 2019, operating expense increased on a dollar and per unit basis versus the comparable period in 2018. On a
dollar basis, the increase in operating expense was primarily due to higher production volumes during 2019. On a per unit basis, the increase in
operating expense was primarily attributable to an increased weighting towards crude oil production which has a higher associated per unit operating
expense.
General and administration
•
For the three months and year ended December 31, 2019, general and administrative expenses increased versus all comparable periods primarily
due to an increase in allocations from our Corporate segment and increased headcount costs.
Vermilion Energy Inc. ■ Page 22 ■ 2019 Annual Report
France Business Unit
Overview
•
•
•
•
Entered France in 1997.
Largest oil producer in France, constituting approximately three-quarters of domestic oil production.
Low base decline producing assets comprised of large conventional oil fields with high working interests located in the Aquitaine and Paris Basins.
Identified inventory of workover, waterflood, and infill drilling opportunities.
Operational and financial review
France business unit
($M except as indicated)
Production
Crude oil (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
Sales
Crude oil (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
Inventory (mbbls)
Opening crude oil inventory
Crude oil production
Crude oil sales
Closing crude oil inventory
Activity
Capital expenditures
Gross wells drilled
Net wells drilled
Financial results
Sales
Royalties
Transportation
Operating
General and administration
Current income taxes
Fund flows from operations
Netbacks ($/boe)
Sales
Royalties
Transportation
Operating
General and administration
Current income taxes
Fund flows from operations netback
Reference prices
Dated Brent (US $/bbl)
Dated Brent ($/bbl)
Q4 2019
Q3 2019
Q4 2018
Q4/19 vs.
Q3/19
Q4/19 vs.
Q4/18
2019
2018
2019 vs.
2018
10,264
—
10,264
10,454
—
10,454
227
944
(962)
209
8,745
—
—
77,781
(10,265)
(3,215)
(16,142)
(4,821)
(4,966)
38,372
80.87
(10.67)
(3.34)
(16.78)
(5.01)
(5.16)
39.91
63.25
83.49
10,347
—
10,347
11,112
—
11,112
297
952
(1,022)
227
18,139
—
—
81,676
(11,476)
(6,183)
(15,098)
(3,379)
(3,419)
42,121
79.89
(11.23)
(6.05)
(14.77)
(3.31)
(3.34)
41.19
61.94
81.80
11,317
0.82
11,454
10,975
0.82
11,111
293
1,041
(1,009)
325
17,008
—
—
85,889
(11,976)
(3,242)
(14,015)
(3,792)
(884)
51,980
84.02
(11.72)
(3.17)
(13.71)
(3.71)
(0.86)
50.85
(0.8)%
—%
(0.8)%
(5.9)%
—%
(5.9)%
(9.3)%
—%
(10.4)%
(4.7)%
—%
(5.9)%
(51.8)%
(48.6)%
(4.8)%
(10.6)%
(48.0)%
6.9%
42.7%
45.2%
(8.9)%
1.2%
(5.0)%
(44.8)%
13.6%
51.4%
54.5%
(3.1)%
(9.4)%
(14.3)%
(0.8)%
15.2%
27.1%
461.8%
(26.2)%
(3.7)%
(9.0)%
5.4%
22.4%
35.0%
500.0%
(21.5)%
(6.7)%
(6.8)%
67.76
89.54
2.1%
2.1%
10,435
0.19
10,467
10,752
0.19
10,783
325
3,809
(3,925)
209
74,641
4.00
4.00
326,699
(43,895)
(21,609)
(61,281)
(15,406)
(21,431)
163,077
83.01
(11.15)
(5.49)
(15.57)
(3.91)
(5.45)
41.44
64.30
85.31
11,362
0.21
11,396
11,012
0.21
11,047
197
4,147
(4,019)
325
79,758
5.00
5.00
360,602
(46,781)
(10,426)
(54,690)
(14,170)
(15,084)
219,451
89.44
(11.60)
(2.59)
(13.56)
(3.51)
(3.74)
54.44
(8.2)%
—%
(8.2)%
(2.4)%
—%
(2.4)%
(6.4)%
(9.4)%
(6.2)%
107.3%
12.1%
8.7%
42.1%
(25.7)%
(7.2)%
(3.9)%
112.0%
14.8%
11.4%
45.7%
(23.9)%
71.04
92.07
(9.5)%
(7.3)%
Vermilion Energy Inc. ■ Page 23 ■ 2019 Annual Report
Sales
•
•
Royalties
•
•
•
•
•
Transportation
•
Production
•
Q4 2019 production decreased 1% from the prior quarter primarily due to weather-related downtime in the Aquitaine Basin. Production in the Paris
Basin was relatively consistent with the prior quarter, benefitting from a full quarter of uninterrupted service at the Grandpuits refinery which restarted
in mid-August.
Activity
•
Our 2019 capital program included the drilling of four (4.0 net) wells in the Champotran field during the first half of the year. In addition to the drilling
activity, we continued our workover and optimization programs in the Aquitaine and Paris Basins throughout 2019.
Crude oil in France is priced with reference to Dated Brent.
Q4 2019 sales decreased by 5% versus Q3 2019 primarily due to a decrease in sales volumes, partially offset by an increase in prices, consistent
with the increase in the Dated Brent reference price.
For the three months and year ended December 31, 2019, sales decreased 9% versus the comparable periods in the prior year due to a decrease
in both the Dated Brent reference price and sales volumes.
Royalties in France relate to two components: RCDM (levied on units of production and not subject to changes in commodity prices) and R31
(based on a percentage of sales).
For the three months ended December 31, 2019, royalties as a percentage of sales of 13.2% were slightly lower than the comparable periods due
to an adjustment associated with the year-end royalty calculation which impacted Q4 2019.
For the year ended December 31, 2019, royalties as a percentage of sales of 13.4% remained relatively consistent with the prior year.
Transportation expense decreased in Q4 2019 compared to Q3 2019 due to the use of alternate delivery points and transportation methods during
the aforementioned third party refinery outage, which increased transportation costs in Q2 2019 and Q3 2019.
Transportation expense for the year ended December 31, 2019 increased versus the comparable period in the prior year due to the refinery outage.
Operating
•
For the three months and year ended December 31, 2019 operating expenses increased against all comparable periods on both a per unit and
dollar basis. The increases were primarily due to higher electricity prices in the current year periods.
General and administration
•
Fluctuations in general and administration expense for all comparable periods were due to the timing of expenditures and allocations from our
corporate segment.
Current income taxes
•
•
•
•
In France, current income taxes are applied to taxable income, after eligible deductions, at a statutory rate of 32.0%.
Current income taxes for the year ended December 31, 2019 versus the comparative period were higher, mainly due to realized derivative gains.
Current income taxes for Q4 2019 versus the comparative quarters were higher, mainly due to decreased tax deductions for depletion.
On December 28, 2019, the French Parliament approved the Finance Bill for 2020. The Finance Bill for 2020 provides for a progressive decrease
of the French corporate income tax rate for companies with sales below €250 million from 32.0% to 25.8% by 2022, with a reduction in 2020 to
28.9%.
Vermilion Energy Inc. ■ Page 24 ■ 2019 Annual Report
Netherlands Business Unit
Overview
•
•
•
•
Entered the Netherlands in 2004.
Second largest onshore operator.
Interests include 26 onshore licenses (all operated) and 17 offshore licenses (all non-operated).
Licenses include more than 930,000 net acres of land, 90% of which is undeveloped.
Operational and financial review
Netherlands business unit
($M except as indicated)
Production and sales
Condensate (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
Activity
Capital expenditures
Acquisitions
Gross wells drilled
Net wells drilled
Financial results
Sales
Royalties
Operating
General and administration
Current income taxes
Fund flows from operations
Netbacks ($/boe)
Sales
Royalties
Operating
General and administration
Current income taxes
Fund flows from operations netback
Realized prices
Condensate ($/bbl)
Natural gas ($/mcf)
Total ($/boe)
Reference prices
TTF ($/mcf)
TTF (€/mcf)
Q4 2019
Q3 2019
Q4 2018
Q4/19 vs.
Q3/19
Q4/19 vs.
Q4/18
2019
2018
2019 vs.
2018
90
47.99
8,088
9,651
—
2.00
0.51
25,215
(130)
(9,758)
(763)
11,198
25,762
33.88
(0.17)
(13.11)
(1.03)
15.05
34.62
73.51
5.57
33.88
5.36
3.67
82
44.08
7,429
3,028
—
—
—
18,729
(279)
(6,396)
(300)
(462)
11,292
27.40
(0.41)
(9.36)
(0.44)
(0.68)
16.51
69.12
4.49
27.40
4.40
3.00
112
51.82
8,749
9.8%
8.9%
8.9%
(19.6)%
(7.4)%
(7.6)%
2,454
(7,860)
—
—
52,937
(537)
(6,765)
(709)
(7,492)
37,434
65.77
(0.67)
(8.40)
(0.88)
(9.31)
46.51
69.95
10.95
65.77
10.91
7.23
218.7%
293.3%
34.6%
(53.4)%
52.6%
154.3%
N/A
128.1%
23.6%
(58.5)%
40.1%
134.1%
N/A
109.7%
6.4%
24.1%
23.6%
21.8%
22.3%
(52.4)%
(75.8)%
44.2%
7.6%
N/A
(31.2)%
(48.5)%
(74.6)%
56.1%
17.0%
N/A
(25.6)%
5.1%
(49.1)%
(48.5)%
(50.9)%
(49.2)%
91
49.10
8,274
23,605
908
2.00
0.51
112,857
(1,469)
(32,125)
(2,659)
3,961
80,565
37.37
(0.49)
(10.64)
(0.88)
1.31
26.67
72.44
6.16
37.37
5.90
3.97
90
46.13
7,779
17,483
(2,087)
—
—
165,916
(3,181)
(26,681)
(1,947)
(16,561)
117,546
58.44
(1.12)
(9.40)
(0.69)
(5.83)
41.40
74.85
9.71
58.44
1.1%
6.4%
6.4%
35.0%
(32.0)%
(53.8)%
20.4%
36.6%
N/A
(31.5)%
(36.1)%
(56.3)%
13.2%
27.5%
N/A
(35.6)%
(3.2)%
(36.6)%
(36.1)%
10.23
6.69
(42.3)%
(40.7)%
Vermilion Energy Inc. ■ Page 25 ■ 2019 Annual Report
Production
•
Q4 2019 production increased 9% from the prior quarter primarily due to the restoration of production following planned and unplanned facility
downtime in Q3 2019. Quarterly production decreased 8% year-over-year primarily due to Q4 2018 benefitting from the first full quarter of production
from the Eesveen-02 well, which was brought on production in September 2018, in addition to natural decline.
Activity
•
During Q4 2019, we successfully drilled and completed the Weststellingwerf well (0.5 net), representing our first drilling activity in the Netherlands
since 2017.
Sales
•
•
•
The price of our natural gas in the Netherlands is based on the TTF index.
Q4 2019 sales increased versus Q3 2019 consistent with increases in the TTF reference price and increased sales volumes.
For the three months and year ended December 31, 2019, sales decreased versus comparable periods consistent with decreases in the TTF
reference price.
Royalties
•
In the Netherlands, certain wells are subject to overriding royalties while some wells are subject to royalties that take effect only when specified
production levels are exceeded. As such, royalty expense may fluctuate from period to period depending on the amount of production from those
wells.
Royalties in Q4 2019 represented 0.5% of sales. Effective March 1, 2019, certain royalty rights were acquired which resulted in lower royalties.
Transportation
•
Our production in the Netherlands is not subject to transportation expense as gas is sold at the plant gate.
Operating
•
•
Operating expense on a per unit basis increased in Q4 2019 compared to Q3 2019 and Q4 2018 primarily as a result of the timing of activity.
For the year ended December 31, 2019, operating expense per unit increased compared to the prior year as a result of increased maintenance
activity, higher surface lease rentals and water disposal costs.
General and administration
•
Fluctuations in general and administration expense for all comparable periods were due to the timing of expenditures and allocations from our
corporate segment.
Current income taxes
•
In the Netherlands, current income taxes are applied to taxable income, after eligible deductions and a 10% uplift deduction applied to operating
expenses, eligible general and administration expenses, and tax deductions for depletion and asset retirement obligations, at a tax rate of 50%.
Current income taxes for the year ended December 31, 2019 versus the comparative period were lower mainly due to decreased TTF prices
resulting in decreased sales and other prior year adjustments.
Current income taxes for Q4 2019 versus the comparative quarters were lower mainly due to increased tax deductions for depletion, asset retirement
obligations, and other prior year adjustments.
On December 17, 2019, the Dutch government approved the 2020 Tax Plan. The Bill provides for reduced corporate tax rates from 25.0% in 2020
to 21.7% by 2021. Due to the tax regime applicable to natural gas producers in the Netherlands, the reduction to the corporate tax rate is not
expected to have a material impact to Vermilion taxes in the Netherlands.
•
•
•
•
Vermilion Energy Inc. ■ Page 26 ■ 2019 Annual Report
Germany Business Unit
Overview
•
•
•
•
Entered Germany in 2014 through the acquisition of a non-operated natural gas producing property.
Executed a significant exploration license farm-in agreement in 2015 and acquired operated producing properties in 2016.
Producing assets consist of seven gas and eight oil-producing fields with extensive infrastructure in place.
Significant land position of approximately 1.2 million net acres (97% undeveloped).
Operational and financial review
Germany business unit
($M except as indicated)
Production
Crude oil (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
Sales
Crude oil (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
Production mix (% of total)
Crude oil
Natural gas
Activity
Capital expenditures
Acquisitions
Gross wells drilled
Net wells drilled
Financial results
Sales
Royalties
Transportation
Operating
General and administration
Fund flows from operations
Netbacks ($/boe)
Sales
Royalties
Transportation
Operating
General and administration
Fund flows from operations netback
Realized prices
Crude oil ($/bbl)
Natural gas ($/mcf)
Total ($/boe)
Reference prices
Dated Brent (US $/bbl)
Dated Brent ($/bbl)
TTF ($/mcf)
TTF (€/mcf)
Q4 2019
Q3 2019
Q4 2018
Q4/19 vs.
Q3/19
Q4/19 vs.
Q4/18
2019
2018
800
15.44
3,373
629
15.44
3,202
845
14.54
3,269
864
14.54
3,287
913
16.94
3,736
970
16.94
3,794
(5.3)%
6.2%
3.2%
(27.2)%
6.2%
(2.6)%
(12.4)%
(8.9)%
(9.7)%
(35.2)%
(8.9)%
(15.6)%
24%
76%
26%
74%
24%
76%
917
15.31
3,468
881
15.31
3,432
1,004
15.66
3,614
1,065
15.66
3,675
26%
74%
28%
72%
5,177
1,456
—
—
11,531
(587)
(963)
(7,405)
(1,957)
619
39.14
(1.99)
(3.27)
(25.14)
(6.64)
2.10
77.58
4.96
39.14
63.25
83.49
5.36
3.67
4,229
947
—
—
11,320
(952)
(1,709)
(6,433)
(2,436)
(210)
37.43
(3.15)
(5.65)
(21.27)
(8.05)
(0.69)
76.51
3.92
37.43
61.94
81.80
4.40
3.00
4,580
706
—
—
21,897
(1,190)
(1,452)
(6,615)
(2,308)
10,332
62.74
(3.41)
(4.16)
(18.95)
(6.61)
29.61
75.53
9.72
62.74
67.76
89.54
10.91
7.23
22.4%
13.0%
1.9%
(38.3)%
(43.7)%
15.1%
(19.7)%
N/A
4.6%
(36.8)%
(42.1)%
18.2%
(17.5)%
N/A
1.4%
26.5%
4.6%
2.1%
2.1%
21.8%
22.3%
(47.3)%
(50.7)%
(33.7)%
11.9%
(15.2)%
(94.0)%
(37.6)%
(41.6)%
(21.4)%
32.7%
0.5%
(92.9)%
2.7%
(49.0)%
(37.6)%
(6.7)%
(6.8)%
(50.9)%
(49.2)%
21,684
7,570
2.00
0.71
57,312
(5,264)
(5,117)
(24,970)
(8,452)
13,509
45.75
(4.20)
(4.09)
(19.93)
(6.75)
10.78
80.22
5.64
45.75
64.30
85.31
5.90
3.97
15,806
1,665
—
—
82,449
(6,626)
(6,420)
(23,048)
(7,401)
38,954
61.47
(4.94)
(4.79)
(17.18)
(5.52)
29.04
84.14
8.70
61.47
71.04
92.07
10.23
6.69
2019 vs.
2018
(8.7)%
(2.2)%
(4.0)%
(17.3)%
(2.2)%
(6.6)%
37.2%
(30.5)%
(20.6)%
(20.3)%
8.3%
14.2%
(65.3)%
(25.6)%
(15.0)%
(14.6)%
16.0%
22.3%
(62.9)%
(4.7)%
(35.2)%
(25.6)%
(9.5)%
(7.3)%
(42.3)%
(40.7)%
Vermilion Energy Inc. ■ Page 27 ■ 2019 Annual Report
Production
•
Q4 2019 production increased 3% from the prior quarter due to better uptime on our operated oil and natural gas assets, partially offset by unplanned
downtime on our non-operated oil assets. Quarterly production decreased 10% year-over-year due to unplanned downtime on our operated and
non-operated oil and natural gas assets.
Activity
•
During Q4 2019, we continued to evaluate tie-in alternatives for the Burgmoor Z5 (46% working interest) well, which was tested early in the third
quarter of 2019. We expect production from this well to begin early next year. We also continued to evaluate and perform workover opportunities
on our operated assets.
Sales
•
•
•
•
Transportation
•
The price of our natural gas in Germany is based on the NCG and GPL indexes, which are both highly correlated to the TTF benchmark. Crude
oil in Germany is priced with reference to Dated Brent.
Q4 2019 sales were consistent versus Q3 2019 due to increases in crude oil and natural gas reference prices offset by a decrease in sales volumes.
For the three months and year ended December 31, 2019, sales decreased versus the comparable periods in 2018 due to decreases in crude oil
and natural gas reference prices, as well as a decrease in sales volumes.
Royalties
•
•
•
Our production in Germany is subject to state and private royalties on sales after certain eligible deductions.
Royalties as a percentage of sales were lower in Q4 2019 versus Q3 2019 due to an adjustment in Q4 2019 related to prior periods.
Royalties as a percentage of sales for the year ended December 31, 2019 compared to 2018 remained relatively consistent.
Transportation expense in Germany relates to costs incurred to deliver natural gas from the processing facility to the customer and deliver crude
oil to the refinery.
Transportation expense for the three months and year ended December 31, 2019 decreased compared to the prior periods due to the impact of
prior period adjustments associated with final billings from the transportation systems operators.
Operating
•
Operating expense for the three months and year ended December 31, 2019 increased versus the comparable periods due to higher costs
associated with facility maintenance and repairs.
General and administration
•
Fluctuations in general and administration expense for all comparable periods were due to the timing of expenditures and allocations from our
corporate segment.
Current income taxes
•
As a result of our tax pools in Germany, we did not incur current income taxes in the Germany Business Unit for the years ended
December 31, 2019 and 2018.
Vermilion Energy Inc. ■ Page 28 ■ 2019 Annual Report
Ireland Business Unit
Overview
•
•
•
Entered Ireland in 2009 with an investment in the offshore Corrib gas field.
The Corrib gas field is located offshore northwest Ireland and comprises of six offshore wells, offshore and onshore sales and transportation pipeline
segments, as well as a natural gas processing facility.
In Q4 2018, Vermilion assumed operatorship of the Corrib Natural Gas Project (the "Corrib Project") and increased its ownership stake by 1.5%
to 20% following the completion of a strategic partnership with Canada Pension Plan Investment Board (“CPPIB”).
Operational and financial review
Ireland business unit
($M except as indicated)
Production and sales
Natural gas (mmcf/d)
Total (boe/d)
Activity
Capital expenditures
Acquisitions
Financial results
Sales
Transportation
Operating
General and administration
Fund flows from operations
Netbacks ($/boe)
Sales
Transportation
Operating
General and administration
Fund flows from operations netback
Reference prices
NBP ($/mcf)
NBP (€/mcf)
Q4 2019
Q3 2019
Q4 2018
Q4/19 vs.
Q3/19
Q4/19 vs.
Q4/18
2019
2018
2019 vs.
2018
42.30
7,049
923
—
21,824
(1,008)
(2,854)
(484)
17,478
33.65
(1.55)
(4.40)
(0.75)
26.95
5.38
3.68
43.21
7,202
354
—
16,722
(1,130)
(3,136)
(1,436)
11,020
25.24
(1.71)
(4.73)
(2.17)
16.63
4.50
3.07
52.03
8,672
(2.1)%
(2.1)%
(18.7)%
(18.7)%
160.7%
559.3%
140
(5,572)
53,385
(1,115)
(4,497)
(2,037)
45,736
66.91
(1.40)
(5.64)
(2.55)
57.32
30.5%
(10.8)%
(9.0)%
(66.3)%
58.6%
33.3%
(9.4)%
(7.0)%
(65.4)%
62.1%
11.03
7.31
19.6%
19.9%
(59.1)%
(9.6)%
(36.5)%
(76.2)%
(61.8)%
(49.7)%
10.7%
(22.0)%
(70.6)%
(53.0)%
(51.2)%
(49.7)%
46.57
7,762
1,372
—
104,274
(4,459)
(12,431)
(2,491)
84,893
36.81
(1.57)
(4.39)
(0.88)
29.97
5.90
3.97
55.17
9,195
(15.6)%
(15.6)%
512.5%
224
(5,572)
205,150
(5,129)
(15,366)
(8,386)
176,269
61.12
(1.53)
(4.58)
(2.50)
52.51
(49.2)%
(13.1)%
(19.1)%
(70.3)%
(51.8)%
(39.8)%
2.6%
(4.1)%
(64.8)%
(42.9)%
10.35
6.76
(43.0)%
(41.3)%
Vermilion Energy Inc. ■ Page 29 ■ 2019 Annual Report
Production
•
Q4 2019 production decreased 2% from the prior quarter due to natural decline, partially offset by less downtime at the Corrib natural gas processing
facility compared to the prior quarter. Quarterly production decreased 19% year-over-year due to a combination of unplanned downtime and natural
decline.
Activity
•
Our 2019 capital program focused on planned turnarounds and optimization opportunities at the Corrib natural gas processing facility.
Sales
•
•
•
The price of our natural gas in Ireland is based on the NBP index.
Q4 2019 sales increased versus Q3 2019 primarily as a result of an increase in the NBP reference price.
Sales for the three months and year ended December 31, 2019 decreased versus the comparable periods consistent with decreases in the NBP
reference price and production volumes.
Royalties
•
Our production in Ireland is not subject to royalties.
Transportation
•
•
•
Transportation expense in Ireland relates to payments under a ship-or-pay agreement.
Transportation expense for Q4 2019 versus Q3 2019 and Q4 2018 remained relatively consistent.
Transportation expense for the year ended December 31, 2019 decreased versus the comparable period in the prior year due to a lower
ship-or-pay obligation in the current year.
Operating
•
For the three months and year ended December 31, 2019, operating expense decreased versus all comparable periods due to Vermilion's focus
on cost management following our appointment as operator in December 2018.
General and administration
•
Fluctuations in general and administration expense versus all comparable periods is primarily due to the timing of expenditures and allocations
from our corporate segment.
Current income taxes
•
Given the significant level of investment in Corrib and the resulting tax pools, we do not expect to incur current income taxes in the Ireland Business
Unit for the foreseeable future.
Vermilion Energy Inc. ■ Page 30 ■ 2019 Annual Report
Australia Business Unit
Overview
•
•
•
Entered Australia in 2005.
Hold a 100% operated working interest in the Wandoo field, located approximately 80 km offshore on the northwest shelf of Australia.
Production is operated from two off-shore platforms and originates from 20 producing wells including five dual lateral wells for a total of 25 producing
laterals.
• Wells that utilize horizontal legs (ranging in length from 500 to 3,000 plus metres) are located 600m below the seabed in approximately 55m of
water depth.
Operational and financial review
Australia business unit
($M except as indicated)
Production
Crude oil (bbls/d)
Sales
Crude oil (bbls/d)
Inventory (mbbls)
Opening crude oil inventory
Crude oil production
Crude oil sales
Closing crude oil inventory
Activity
Capital expenditures
Gross wells drilled
Net wells drilled
Financial results
Sales
Operating
General and administration
Current income taxes
Fund flows from operations
Netbacks ($/boe)
Sales
Operating
General and administration
PRRT
Corporate income taxes
Fund flows from operations netback
Reference prices
Dated Brent (US $/bbl)
Dated Brent ($/bbl)
Q4 2019
Q3 2019
Q4 2018
Q4/19 vs.
Q3/19
Q4/19 vs.
Q4/18
2019
2018
2019 vs.
2018
4,548
5,564
4,174
(18.3)%
9.0%
5,662
4,494
26.0%
2,691
6,517
4,401
(58.7)%
(38.9)%
5,416
4,342
24.7%
108
418
(247)
279
6,452
—
—
21,872
(8,438)
(1,477)
(1,948)
10,009
88.35
(34.09)
(5.97)
(5.87)
(2.00)
40.42
63.25
83.49
196
512
(600)
108
2,995
—
—
56,188
(11,876)
(1,260)
(6,222)
36,830
93.71
(19.81)
(2.10)
(9.72)
(0.66)
61.42
61.94
81.80
210
384
(405)
189
43,760
—
—
39,351
(15,757)
(1,391)
2,206
24,409
97.19
(38.92)
(3.44)
5.98
(0.53)
60.28
115.4%
(85.3)%
(61.1)%
(28.9)%
17.2%
(68.7)%
(72.8)%
(5.7)%
72.1%
184.3%
(39.6)%
203.0%
(34.2)%
(44.4)%
(46.4)%
6.2%
N/A
(59.0)%
(9.1)%
(12.4)%
73.5%
N/A
277.4%
(32.9)%
(6.7)%
(6.8)%
67.76
89.54
2.1%
2.1%
189
2,067
(1,977)
279
30,550
2.00
2.00
184,490
(49,810)
(4,940)
(34,354)
95,386
93.33
(25.20)
(2.50)
(13.13)
(4.25)
48.25
64.30
85.31
134
1,640
(1,585)
189
75,638
—
—
150,733
(53,199)
(4,918)
(11,419)
81,197
95.11
(33.57)
(3.10)
(3.04)
(4.16)
51.24
(59.6)%
22.4%
(6.4)%
0.4%
200.8%
17.5%
(1.9)%
(24.9)%
(19.4)%
331.9%
2.2%
(5.8)%
71.04
92.07
(9.5)%
(7.3)%
Vermilion Energy Inc. ■ Page 31 ■ 2019 Annual Report
Production
•
Sales
•
•
Operating
•
•
•
•
•
•
Q4 2019 production decreased 18% quarter-over-quarter primarily due to the planned shutdown of the Wandoo platform for eight days to perform
facility upgrades and regular maintenance. Quarterly production increased 9% year-over-year primarily due to the production contribution from
the two (2.0 net) well drilling program completed at the end of January 2019.
Production volumes are managed to targets while meeting long-term supply requirements of our customers.
Activity
•
Our 2019 capital program included the completion of our two (2.0 net) well drilling program at the end of January 2019, in addition to performing
various asset optimization projects and proactive maintenance.
Crude oil in Australia is priced with reference to Dated Brent and sold at an $8.02 premium to Dated Brent during 2019.
Q4 2019 sales decreased compared to Q3 2019 due to lower sales volumes resulting from more liftings in the prior quarter. This decrease in sales
volumes was partially offset by higher sales per bbl due to an increase in the Dated Brent reference price and premium received.
Sales increased for the three months and year ended December 31, 2019 versus the comparable periods in 2018, despite decreases in the Dated
Brent reference pricing, due to the timing of sales in the relevant periods.
Royalties and transportation
•
Our production in Australia is not subject to royalties or transportation expense as crude oil is sold directly at the Wandoo B platform.
Q4 2019 operating expense decreased compared to Q3 2019 on a dollar basis due to lower sales volumes in the fourth quarter. Operating expenses
are deferred on the balance sheet until oil is sold at which point the related expenses are recognized into income. On a per unit basis, operating
expenses increased in Q4 2019 compared to Q3 2019 due to the timing of major project activity.
For the year ended December 31, 2019, operating expense decreased on a per unit basis primarily due to lower diesel usage and helicopter costs,
coupled with increased production.
General and administration
•
Fluctuations in general and administration expense for all comparable periods are primarily due to the timing of expenditures and allocations from
our corporate segment.
Current income taxes
•
In Australia, current income taxes include both Petroleum Resource Rent Tax ("PRRT") and corporate income taxes. PRRT is a profit based tax
applied at a rate of 40% on sales less eligible expenditures, including operating expenses and capital expenditures. Corporate income taxes are
applied at a rate of 30% on taxable income after eligible deductions, which includes PRRT paid.
Current income taxes for the year ended December 31, 2019 versus the comparative period were higher mainly due to increased production
resulting in higher sales.
Current income taxes for Q4 2019 versus Q3 2019 were lower mainly due to decreased sales. Current income taxes for Q4 2019 versus Q4 2018
were higher mainly due to increased Q4 2018 PRRT tax deductions for the capital expenditures related to the drilling campaign.
Vermilion Energy Inc. ■ Page 32 ■ 2019 Annual Report
United States Business Unit
Overview
•
•
•
Entered the United States in 2014 and acquired additional producing assets in the Hilight field in 2018.
Interests include approximately 144,600 net acres of land (69% undeveloped) in the Powder River Basin of northeastern Wyoming.
Tight oil development targeting the Turner Sands at depths of approximately 1,500m (East Finn) and 2,600m (Hilight).
Operational and financial review
United States business unit
($M except as indicated)
Production and sales
Crude oil (bbls/d)
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
Production mix (% of total)
Crude oil
NGLs
Natural gas
Activity
Capital expenditures
Acquisitions
Gross wells drilled
Net wells drilled
Financial results
Sales
Royalties
Operating
General and administration
Fund flows from operations
Netbacks ($/boe)
Sales
Royalties
Operating
General and administration
Fund flows from operations netback
Realized prices
Crude oil ($/bbl)
NGLs ($/bbl)
Natural gas ($/mcf)
Total ($/boe)
Reference prices
WTI (US $/bbl)
WTI ($/bbl)
Henry Hub (US $/mcf)
Henry Hub ($/mcf)
Q4 2019
Q3 2019
Q4 2018
Q4/19 vs.
Q3/19
Q4/19 vs.
Q4/18
2019
2018
3,161
1,156
8.20
5,683
56%
20%
24%
3,132
575
—
—
22,885
(5,316)
(4,996)
(2,099)
10,474
43.77
(10.17)
(9.56)
(4.01)
20.03
66.65
20.69
1.73
43.77
56.96
75.19
2.50
3.30
2,722
1,140
6.38
4,925
55%
23%
22%
21,064
1,964
4.00
4.00
19,227
(4,874)
(4,400)
(2,005)
7,948
42.43
(10.76)
(9.71)
(4.43)
17.53
68.91
9.44
1.67
42.43
56.45
74.55
2.23
2.94
1,605
998
5.65
3,545
16.1%
1.4%
28.5%
15.4%
96.9%
15.8%
45.1%
60.3%
45%
28%
27%
2,881
3,674
1.00
1.00
14,625
(4,053)
(2,848)
(1,396)
6,328
44.85
(12.43)
(8.73)
(4.28)
19.41
70.78
26.81
3.29
44.85
58.81
77.71
3.65
4.82
(85.1)%
8.7%
19.0%
9.1%
13.5%
4.7%
31.8%
3.2%
(5.5)%
(1.5)%
(9.5)%
14.3%
(3.3)%
119.2%
3.6%
3.2%
0.9%
0.9%
12.1%
12.2%
56.5%
31.2%
75.4%
50.4%
65.5%
(2.4)%
(18.2)%
9.5%
(6.3)%
3.2%
(5.8)%
(22.8)%
(47.4)%
(2.4)%
(3.1)%
(3.2)%
(31.5)%
(31.5)%
2,531
996
6.89
4,675
54%
21%
25%
1,078
452
2.78
1,992
54%
23%
23%
57,196
3,799
8.00
8.00
75,364
(18,706)
(16,370)
(7,566)
32,722
44.17
(10.96)
(9.59)
(4.43)
19.19
68.67
17.88
2.15
44.17
57.03
75.67
2.63
3.49
40,837
191,740
6.00
6.00
38,465
(10,070)
(6,421)
(6,306)
15,668
52.90
(13.85)
(8.83)
(8.67)
21.55
79.18
28.02
2.67
52.90
64.77
83.94
3.09
4.01
2019 vs.
2018
134.8%
120.4%
147.8%
134.7%
40.1%
95.9%
85.8%
154.9%
20.0%
108.8%
(16.5)%
(20.9)%
8.6%
(48.9)%
(11.0)%
(13.3)%
(36.2)%
(19.5)%
(16.5)%
(11.9)%
(9.9)%
(14.9)%
(13.0)%
Vermilion Energy Inc. ■ Page 33 ■ 2019 Annual Report
Sales
•
Royalties
•
•
•
Production
•
Q4 2019 production increased 15% from the prior quarter due to a full quarter of contributions from the four wells we brought on production during
the third quarter of 2019, in addition to better uptime across our asset base. Quarterly production increased 60% year-over-year primarily due to
the contributions from our 2019 Hilight drilling program.
Activity
•
•
During Q4 2019, we began drilling two (1.98 net) Turner horizontal wells in the Hilight field, both of which were rig released in January 2020.
In 2019, we drilled eight (8.0 net) Turner horizontal wells in the Hilight field.
The price of our crude oil in the United States is directly linked to WTI and subject to local market differentials within the United States. The price
of our natural gas in the United States is based on the Henry Hub index.
For the three months and year ended December 31, 2019 versus all comparable periods, sales increased due to increased production, which more
than offset the decrease in lower commodity prices.
Our production in the United States is subject to federal and private royalties, severance tax, and ad valorem tax. In Hilight, approximately 65%
of the current production is subject to Fee royalties, 30% to Federal royalties and the remainder to State royalties. In East Finn, approximately
70% of the current production is subject to Federal royalties with the remainder split between State and Fee royalties.
For the three months and year ended December 31, 2019, royalties as a percentage of sales remained relatively consistent.
Operating
•
For the three months and year ended December 31, 2019 versus all comparable periods, operating expense increased primarily due to incremental
expenses associated with the year-over-year production increase.
General and administration
•
Fluctuations in general and administration expense for all comparable periods were due to the incremental staffing of the United States business
unit, timing of expenditures, and allocations from our corporate segment.
Current income taxes
•
As a result of our tax pools in the United States, we do not expect to incur current income taxes in the United States Business Unit for the foreseeable
future.
Vermilion Energy Inc. ■ Page 34 ■ 2019 Annual Report
Corporate
Overview
•
•
Our Corporate segment includes costs related to our global hedging program, financing expenses, and general and administration expenses that
are primarily incurred in Canada and are not directly related to the operations of our business units. Gains or losses relating to Vermilion's global
hedging program are allocated to Vermilion's business units for statutory reporting and income tax purposes.
Results of our activities in Central and Eastern Europe are also included in the Corporate segment.
Operational and financial review
Corporate
($M)
Production and sales
Natural gas (mmcf/d)
Total (boe/d)
Activity
Capital expenditures
Acquisitions
Gross wells drilled
Net wells drilled
Financial results
Sales
Royalties
Sales of purchased commodities
Purchased commodities
Operating
General and administration recovery (expense)
Current income taxes
Interest expense
Realized gain (loss) on derivatives
Realized foreign exchange gain (loss)
Realized other income
Fund flows from operations
Q4 2019
Q3 2019
Q4 2018
1.66
276
(98)
2,131
—
—
797
(254)
74,951
(74,951)
(59)
2,456
98
(19,169)
22,712
2,013
253
8,847
—
—
8,107
—
3.00
3.00
—
—
41,449
(41,449)
(2)
2,957
(250)
(19,661)
36,968
(3,348)
372
17,036
2.86
477
2,546
(492)
—
—
2,547
(534)
—
—
91
969
646
(20,827)
(28,319)
5,894
275
(39,258)
2019
0.42
70
20,372
2,131
6.00
5.30
797
(253)
221,274
(221,274)
(301)
5,879
(406)
(81,377)
84,219
(4,954)
7,700
11,304
2018
1.02
169
10,611
(285)
1.00
1.00
3,630
(813)
—
—
(110)
(2,744)
(513)
(72,759)
(111,258)
243
883
(183,441)
Vermilion Energy Inc. ■ Page 35 ■ 2019 Annual Report
Production
•
Q4 2019 production averaged 276 boe/d. In Hungary, we brought on production the Mh-21 (0.3 net) and Battonya E-09 (1.0 net) wells, drilled in
the second and third quarters of 2019, respectively. The wells were brought on production mid-way through the fourth quarter of 2019.
Activity
•
During the fourth quarter, we were provisionally awarded the Kadarkút exploration license in western Hungary. The license covers approximately
298,500 net acres and consists of primarily oil prospects. Most of the license is covered by existing 3D seismic and the agreement covers a four
year period, with the option to extend the license for a further two years.
Sales, royalties, and operating expense
•
•
Sales, royalties, and operating expense in the corporate segment in Q4 2019 and Q4 2018 relate to natural gas production in Hungary.
Sales of natural gas in Hungary are priced with reference to the TTF index less adjustments for processing. During the quarter we realized a price
of $5.22/mcf versus the $5.36/mcf benchmark price.
The calculation for royalties on natural gas in Hungary incorporates the Dated Brent benchmark prices and as a result the quarterly realized royalty
percentage will fluctuate depending on the relative pricing for TTF as compared to Dated Brent. As TTF weakened by 51% in Q4 2019 versus Q4
2018 while Dated Brent decreased 7% over the same period, our realized royalty rate increased to 32% in Q4 2019 versus 22% in Q4 2018.
Operating expense relates to contract operating costs, which equated to $2.30/boe during Q4 2019.
•
•
Purchased commodities
•
Purchased commodities and the associated sales relate to amounts purchased from third parties, primarily to manage positions on pipelines. There
is no net impact on fund flows from operations.
General and administration
•
Fluctuations in general and administration expense for the year ended December 31, 2019 versus all comparable periods were due to allocations
to the various business unit segments.
Current income taxes
•
Taxes in our corporate segment relate to holding companies that pay current taxes in foreign jurisdictions.
Interest expense
•
•
Interest expense in Q4 2019 remained relatively consistent compared to Q3 2019 and Q4 2018.
For the year ended December 31, 2019, interest expense increased versus the comparative period in 2018 due to higher drawings on the revolving
credit facility, partially offset by the impact of the USD-to-EUR cross-currency interest rate swaps entered into in Q2 2019.
Realized gain or loss on derivatives
•
The realized gain on derivatives for the year ended December 31, 2019 is related primarily to receipts for European natural gas and crude oil
hedges.
A listing of derivative positions as at December 31, 2019 is included in “Supplemental Table 2” of this MD&A.
•
Realized other income
•
Realized other income recognized in the year ended December 31, 2019, relates primarily to amounts received pursuant to a negotiated settlement
of a legal matter in Canada.
Vermilion Energy Inc. ■ Page 36 ■ 2019 Annual Report
Financial Performance Review
($M except per share)
Total assets
Long-term debt
Petroleum and natural gas sales
Net earnings
Net earnings per share
Basic
Diluted
Cash dividends ($/share)
($M except per share)
Petroleum and natural gas sales
Net earnings (loss)
Net earnings (loss) per share
Basic
Diluted
Dec 31, 2019
5,866,120
1,924,665
1,689,863
32,799
Dec 31, 2018
6,270,671
1,796,207
1,678,117
271,650
Dec 31, 2017
3,974,965
1,270,330
1,098,838
62,258
0.21
0.21
2.76
1.93
1.91
2.72
0.52
0.51
2.58
Q4 2019
388,802
1,477
Q3 2019
391,935
(10,229)
Q2 2019
428,043
2,004
Q1 2019
481,083
39,547
Q4 2018
456,939
323,373
Q3 2018
508,411
(15,099)
Q2 2018
394,498
(61,364)
Q1 2018
318,269
24,740
0.01
0.01
(0.07)
(0.07)
0.01
0.01
0.26
0.26
2.12
2.10
(0.10)
(0.10)
(0.46)
(0.46)
0.20
0.20
The following table shows the calculation of fund flows from operations:
Petroleum and natural gas sales
Royalties
Petroleum and natural gas revenues
Transportation
Operating
General and administration
PRRT
Corporate income taxes
Interest expense
Realized gain (loss) on derivative instruments
Realized foreign exchange gain (loss)
Realized other income
Fund flows from operations
Q4 2019
$M
388,802
(40,679)
348,123
(15,570)
$/boe
44.00
(4.60)
39.40
(1.76)
Q3 2019
$M
391,935
(41,490)
350,445
(19,426)
$/boe
43.04
(4.56)
38.48
(2.13)
Q4 2018
$M
456,939
$/boe
48.90
2019
$M
1,689,863
$/boe
46.12
2018
$M
1,678,117
(43,874)
(4.70)
(163,666)
(4.47)
(152,167)
413,065
44.20
1,526,197
41.65
1,525,950
(16,938)
(1.81)
(72,446)
(1.98)
(51,887)
$/boe
52.95
(4.80)
48.15
(1.64)
(110,583)
(12.52)
(105,192)
(11.55)
(112,470)
(12.04)
(440,078)
(12.01)
(357,014)
(11.26)
(16,569)
(1,453)
5,835
(19,169)
22,712
2,013
253
(1.88)
(0.16)
0.66
(2.17)
2.57
0.23
0.03
(13,652)
(5,826)
(4,527)
(19,661)
36,968
(3,348)
372
215,592
24.40
216,153
(1.50)
(0.64)
(0.50)
(2.16)
4.06
(0.37)
0.04
23.73
(12,814)
2,422
(7,946)
(20,827)
(28,319)
5,894
275
(1.37)
0.26
(0.85)
(2.23)
(3.03)
0.63
0.03
(58,976)
(25,947)
(26,283)
(81,377)
84,219
(4,954)
7,700
222,342
23.79
908,055
(1.61)
(0.71)
(0.72)
(2.22)
2.30
(0.14)
0.21
24.77
(51,929)
(4,824)
(38,753)
(72,759)
(111,258)
243
883
(1.64)
(0.15)
(1.22)
(2.30)
(3.51)
0.01
0.03
838,652
26.47
Fluctuations in fund flows from operations may occur as a result of changes in production levels, commodity prices, and costs to produce petroleum
and natural gas. In addition, fund flows from operations may be affected by the timing of crude oil shipments in Australia and France. When crude oil
inventory is built up, the related operating expense, royalties, and depletion expense are deferred and carried as inventory on the consolidated balance
sheet. When the crude oil inventory is subsequently drawn down, the related expenses are recognized.
Vermilion Energy Inc. ■ Page 37 ■ 2019 Annual Report
The following table shows a reconciliation from fund flows from operations to net earnings (loss):
($M)
Fund flows from operations
Equity based compensation
Unrealized (loss) gain on derivative instruments
Unrealized foreign exchange gain (loss)
Unrealized other expense
Accretion
Depletion and depreciation
Deferred tax
Gain on business combinations
Impairment
Net earnings (loss)
Q4 2019
215,592
(11,233)
(30,362)
42,848
(204)
(7,833)
(139,940)
(21,335)
—
(46,056)
1,477
Q3 2019
216,153
(15,564)
17,817
(50,679)
(347)
(8,701)
(174,077)
5,169
—
—
(10,229)
Q4 2018
222,342
(16,979)
273,096
(36,366)
(204)
(8,205)
(174,435)
(64,084)
128,208
—
323,373
2019
908,055
(64,233)
(57,427)
57,225
(825)
(32,667)
(675,177)
(56,096)
—
(46,056)
32,799
2018
838,652
(60,746)
109,326
(63,243)
(801)
(31,219)
(609,056)
(39,471)
128,208
—
271,650
Fluctuations in net income from period-to-period are caused by changes in both cash and non-cash based income and charges. Cash based items are
reflected in fund flows from operations. Non-cash items include: equity based compensation expense, unrealized gains and losses on derivative
instruments, unrealized foreign exchange gains and losses, accretion, depletion and depreciation expense, and deferred taxes. In addition, non-cash
items may also include gains resulting from business combinations or charges resulting from impairment or impairment reversals.
Equity based compensation
Equity based compensation expense relates primarily to non-cash compensation expense attributable to long-term incentives granted to directors,
officers, and employees under security-based arrangements, including the Vermilion Incentive Plan ("VIP"), a security-based compensation arrangement
("Five-Year Compensation Arrangement"), and the Deferred Share Unit Plan ("DSU Plan").
Equity based compensation expense in Q4 2019 decreased compared to Q3 2019 and Q4 2018, primarily due to a revision of performance factor in
Q4 2019. For the year ended December 31, 2019, equity based compensation expense increased versus the comparable period in 2018 primarily due
to a higher value of outstanding share awards in 2019.
Unrealized gain or loss on derivative instruments
Unrealized gain or loss on derivative instruments arise as a result of changes in forecasts for future prices and rates. As Vermilion uses derivative
instruments to manage the commodity price exposure of our future crude oil and natural gas production, we will normally recognize unrealized gains
on derivative instruments when future commodity price forecasts decline and vice-versa. As derivative instruments are settled, the unrealized gain or
loss previously recognized is reversed, and the settlement results in a realized gain or loss on derivative instruments.
For the three months and year ended December 31, 2019, we recognized an unrealized loss on derivative instruments of $30.4 million and $57.4 million
respectively. Of those amounts, $39.0 million and $82.6 million relates to our crude oil commodity derivative instruments, offset by an unrealized gain
of $51.3 million and $102.5 million on our European natural gas derivative instruments.
For the three months and year ended December 31, 2019 the unrealized loss also consists of an unrealized loss of $42.5 million and $74.2 million
respectively from our USD-to-CAD cross currency interest rate swaps. These USD-to-CAD cross currency interest rate swaps are entered into on a
monthly basis to hedge the foreign exchange movements on USD borrowings on our revolving credit facility. As such, unrealized gains and losses on
our cross currency interest swaps are offset by unrealized losses and gains on foreign exchange relating to the underlying USD borrowings from our
revolving credit facility.
Unrealized foreign exchange gains or losses
As a result of Vermilion’s international operations, Vermilion has monetary assets and liabilities denominated in currencies other than the Canadian
dollar. These monetary assets and liabilities include cash, receivables, payables, long-term debt, derivative instruments and intercompany loans.
Unrealized foreign exchange gains and losses result from translating these monetary assets and liabilities from their underlying currency to the Canadian
dollar.
In 2019, unrealized foreign exchange gains and losses primarily resulted from:
•
The translation of Euro denominated intercompany loans from Vermilion Energy Inc. to our international subsidiaries. An appreciation in the
Euro against the Canadian dollar will result in an unrealized foreign exchange gain (and vice-versa). Under IFRS, the offsetting foreign
exchange loss or gain is recorded as a currency translation adjustment within other comprehensive income. As a result, consolidated
Vermilion Energy Inc. ■ Page 38 ■ 2019 Annual Report
comprehensive income reflects the offsetting of these translation adjustments while net earnings reflects only the parent company's side of
the translation.
The translation of USD borrowings on our revolving credit facility. The unrealized foreign exchange gains or losses on these borrowings are
offset by unrealized derivative gains or losses on associated USD-to-CAD cross currency interest rate swaps (discussed further above).
The translation of our USD denominated senior unsecured notes for the period from December 31, 2018 to June 12, 2019. Effective June
12, 2019, the USD senior notes were hedged by a USD-to-CAD cross currency interest rate swap.
•
•
For the three months ended December 31, 2019, the impact of the Euro strengthening against the Canadian dollar resulted in a $5.5 million unrealized
gain on our intercompany loans. This was coupled with an unrealized gain of $37.3 million on our USD borrowings from our revolving credit facility.
For the year ended December 31, 2019, the impact of the Euro weakening against the Canadian dollar resulted in a $29.4 million unrealized loss on
our intercompany loans. This was offset by a $19.8 million unrealized gain on our USD denominated senior unsecured notes for the period from
December 31, 2018 to June 12, 2019 (when the USD senior notes were hedged by a USD-to-EUR cross currency interest rate swap) and a $66.8
million unrealized gain on our USD borrowings from our revolving credit facility.
As at December 31, 2019, a $0.01 appreciation of the Euro against the Canadian dollar would result in a $1.6 million increase to net earnings as a
result of an unrealized gain on foreign exchange. In contrast, a $0.01 appreciation of the US dollar against the Canadian dollar would result in a $(5.6)
million decrease to net earnings as a result of an unrealized loss on foreign exchange.
Accretion
Accretion expense is recognized to update the present value of the asset retirement obligation balance. Accretion expense in Q4 2019 was relatively
consistent with Q3 2019 and Q4 2018. For the year ended December 31, 2019, accretion expense increased versus the comparable period in 2018,
primarily attributable to new obligations recognized following acquisition activity in 2018.
Depletion and depreciation
Depletion and depreciation expense is recognized to allocate the cost of capital assets over the useful life of the respective assets. Depletion and
depreciation expense per unit of production is determined for each depletion unit (which are groups of assets within a specific production area that have
similar economic lives) by dividing the sum of the net book value of capital assets and future development costs by total proved plus probable reserves.
Fluctuations in depletion and depreciation expense are primarily the result of changes in produced crude oil and natural gas volumes and changes in
depletion and depreciation per unit. Fluctuations in depletion and depreciation per unit are the result of changes in reserves, future development costs,
and relative production mix.
Depletion and depreciation on a per boe basis for Q4 2019 of $15.84 decreased from $19.12 in Q3 2019 due to an increase in proved plus probable
reserves. For the three months and year ended December 31, 2019, depletion and depreciation on a per boe basis of $15.84 and $18.43 respectively,
decreased from $18.67 and $19.22 in the respective comparable periods in 2018 due to the increase in proved plus probable reserves in Q4 2019.
Deferred tax
Deferred tax assets arise when the tax basis of an asset exceeds its accounting basis (known as a deductible temporary difference). Conversely,
deferred tax liabilities arise when the tax basis of an asset is less than its accounting basis (known as a taxable temporary difference). Deferred tax
assets are recognized only to the extent that it is probable that there are future taxable profits against which the deductible temporary difference can
be utilized. Deferred tax assets and liabilities are measured at the enacted or substantively enacted tax rate that is expected to apply when the asset
is realized or the liability is settled.
As such, fluctuations in deferred tax expenses and recoveries primarily arise as a result of: changes in the accounting basis of an asset or liability without
a corresponding tax basis change (e.g. when derivative assets and liabilities are marked-to-market or when accounting depletion differs from tax
depletion), changes in available tax losses (e.g. if they are utilized to offset taxable income), changes in estimated future taxable profits resulting in a
de-recognition or re-recognition of deferred tax assets, and changes in enacted or substantively enacted tax rates.
For the three months and year ended December 31, 2019, deferred tax expense of $21.3 million and $56.1 million, respectively, was recognized primarily
related to the de-recognition of a portion of non-expiring tax loss pools in Ireland as there is uncertainty as to Vermilion's ability to fully utilize such losses
based on commodity price forecasts as at December 31, 2019.
Vermilion Energy Inc. ■ Page 39 ■ 2019 Annual Report
Impairment
Impairment losses are recognized when indicators of impairment arise and the carrying amount of a cash generating unit ("CGU") exceeds its recoverable
amount, determined as the higher of fair value less costs of disposal or value-in-use. In 2019, as a result of declining European natural gas price
forecasts a non-cash impairment charge of $46.1 million was recorded in the Ireland CGU. The recoverable amount was determined using fair value
less costs to sell, which considered future after-tax cash flows from proved plus probable reserves using forecast price and cost estimates and an after-
tax discount rate of 9.0%.
Gain on business combinations
A gain on business combination is recognized when the total consideration paid in a business combination is less than the fair value of the net assets
acquired. For the year ended December 31, 2018, gains of $68.8 million and $59.4 million were recognized on our purchases of Assets in Wyoming
and Shell E&P Ireland Limited, respectively.
Vermilion Energy Inc. ■ Page 40 ■ 2019 Annual Report
Taxes
Current income tax rates
Vermilion pays corporate income taxes in France, Netherlands, and Australia. In addition, Vermilion pays PRRT in Australia which is a profit based tax
applied at a rate of 40% on sales less operating expenses, capital expenditures, and other eligible expenditures. PRRT is deductible in the calculation
of taxable income in Australia.
For 2019 and 2018, taxable income was subject to corporate income tax at the following statutory rates:
2019
26.7%
32.0%
50.0%
31.8%
25.0%
30.0%
21.0%
2018
27.0%
34.4%
50.0%
30.2%
25.0%
30.0%
21.0%
Jurisdiction
Canada
France
Netherlands (1)
Germany
Ireland
Australia
United States
(1)
($M)
Canada
France
Netherlands
Germany
Ireland
Australia
United States
Total
(1)
In the Netherlands, an additional 10% uplift deduction is allowed against taxable income that is applied to operating expenses, eligible general and
administration expenses, and tax deductions for depletion and abandonment retirement obligations.
Tax legislation changes
On June 28, 2019, the Alberta government enacted a Bill to gradually reduce the provincial corporate tax rate from 12% to 8% by 2022, with the first
reduction to 11% effective July 1, 2019.
On December 28, 2019, the French Parliament approved the Finance Bill for 2020. The Finance Bill for 2020 provides for a progressive decrease of
the French corporate income tax rate for companies with sales below €250 million from 32.0% to 25.8% by 2022, with a reduction in 2020 to 28.9%.
On December 17, 2019, the Dutch government approved the 2020 Tax Plan. The Bill provides for reduced corporate tax rates from 25.0% in 2020 to
21.7% by 2021. Due to the tax regime applicable to natural gas producers in the Netherlands, the reduction to the corporate tax rate is not expected
to have a material impact to Vermilion taxes in the Netherlands.
Tax pools
As at December 31, 2019, we had the following tax pools:
Oil & Gas Assets
Tax Losses
Other
Total
2,096,939 (1)
389,115 (2)
52,452 (3)
161,888 (3)
—
252,581 (1)
278,849 (2)
3,231,824
1,221,855 (4)
—
1,239 (4)
112,090 (5)
1,128,178 (4)
—
62,295 (6)
2,525,657
28,558
—
—
9,828
—
—
—
38,386
3,347,352
389,115
53,691
283,806
1,128,178
252,581
341,144
5,795,867
(2)
(3)
(4)
(5)
(6)
Deduction calculated using various declining balance rates.
Deduction calculated using a combination of straight-line over the assets life and unit of production method.
Deduction calculated using a unit of production method.
Tax losses can be carried forward and applied at 100% against taxable income.
Tax losses carried forward are available to offset the first €1 million of taxable income and 60% of taxable profits in excess each taxation year.
Tax losses created prior to January 1, 2018 are carried forward and applied at 100% against taxable income, tax losses created after January 1, 2018 are
carried forward and applied to 80% of taxable income in each taxation year.
Vermilion Energy Inc. ■ Page 41 ■ 2019 Annual Report
Financial Position Review
Balance sheet strategy
We believe that our balance sheet supports our defined growth initiatives and our focus is on managing and maintaining a conservative balance sheet.
To ensure that our balance sheet continues to support our defined growth initiatives, we regularly review whether our forecast of fund flows from
operations is sufficient to finance planned capital expenditures, dividends, and abandonment and reclamation expenditures. To the extent that fund
flows from operations forecasts are not expected to be sufficient to fulfill such expenditures, we will evaluate our ability to finance any shortfall with debt
(including borrowing using the unutilized capacity of our existing revolving credit facility), issue equity, or by reducing some or all categories of expenditures
to ensure that total expenditures do not exceed available funds. To ensure that we maintain a conservative balance sheet, we monitor the ratio of net
debt to fund flows from operations.
We remain focused on maintaining and strengthening our balance sheet by aligning our exploration and development capital budget with forecasted
fund flows from operations to target a payout ratio (a non-GAAP financial measure) of approximately 100%. We continually monitor for changes in
forecasted fund flows from operations as a result of changes to forward commodity prices and as appropriate, we will adjust our dividend policy and
exploration and development capital plans. In the current economic and commodity outlook following the outbreak of novel coronavirus (COVID-19),
there is uncertainty regarding our ability to achieve a 100% payout ratio at a reasonable level of capital expenditures. Therefore, effective for the March
2020 dividend (payable April 15, 2020), we reduced our monthly dividend by 50%.
As a result of our focus on this payout ratio target, we intend for the ratio of net debt to fund flows from operations to trend towards 1.5 over time.
Net debt
Net debt is reconciled to long-term debt, as follows:
($M)
Long-term debt
Current liabilities
Current assets
Net debt
As at
Dec 31, 2019
1,924,665
416,210
(347,681)
1,993,194
Dec 31, 2018
1,796,207
563,199
(429,877)
1,929,529
Ratio of net debt to four quarter trailing fund flows from operations
2.20
2.30
As at December 31, 2019, net debt increased to $2.0 billion (December 31, 2018 - $1.9 billion) primarily due to the impact of increased borrowings on
the revolving credit facility to fund our capital program. The ratio of net debt to four quarter trailing fund flows from operations decreased to 2.20
(December 31, 2018 - 2.30) as the increase to net debt was offset by higher four quarter trailing fund flows from operations.
Long-term debt
The balances recognized on our balance sheet are as follows:
($M)
Revolving credit facility
Senior unsecured notes
Long-term debt
As at
Dec 31, 2019
1,539,225
385,440
1,924,665
Dec 31, 2018
1,392,206
404,001
1,796,207
Vermilion Energy Inc. ■ Page 42 ■ 2019 Annual Report
Revolving Credit Facility
In Q2 2019, we negotiated an amendment to our $2.1 billion revolving credit facility to extend the maturity to May 31, 2023. The amendment included
changes to the financial covenants, as described below.
As at December 31, 2019, Vermilion had in place a bank revolving credit facility maturing May 31, 2023 with terms and outstanding positions as follows:
($M)
Total facility amount
Amount drawn
Letters of credit outstanding
Unutilized capacity
As at
Dec 31, 2019
2,100,000
(1,539,225)
(10,230)
550,545
Dec 31, 2018
1,800,000
(1,392,206)
(15,400)
392,394
As at December 31, 2019, the revolving credit facility was subject to the following financial covenants:
Financial covenant
Consolidated total debt to consolidated EBITDA
Consolidated total senior debt to consolidated EBITDA
Consolidated EBITDA to consolidated interest expense
Limit
Less than 4.0
Less than 3.5
Greater than 2.5
As at
Dec 31, 2019
1.94
1.56
13.46
Dec 31, 2018
1.72
1.34
14.57
In Q2 2019, our financial covenants were updated to replace the consolidated total senior debt to total capitalization covenant with an interest coverage
covenant (calculated as consolidated EBITDA to consolidated interest expense) and to add provisions relating to our liability management ratings in
Alberta and Saskatchewan. If our security adjusted liability management ratings fall below specified limits in a province, a portion of the asset retirement
obligations are included in the definitions of consolidated total debt and consolidated total senior debt. An event of default occurs if our security adjusted
liability management ratings breach additional lower limits for a period greater than 90 days. As of December 31, 2019, Vermilion's liability management
ratings were higher than the specified levels and as such no amounts relating to asset retirement obligations were included in the calculation of
consolidated total debt and consolidated total senior debt.
Our financial covenants include financial measures defined within our revolving credit facility agreement that are not defined under IFRS. These financial
measures are defined by our revolving credit facility agreement as follows:
•
Consolidated total debt: Includes all amounts classified as “Long-term debt”, “Current portion of long-term debt”, and “Lease obligations” (including
the current portion included within "Accounts payable and accrued liabilities" but excluding operating leases as defined under IAS 17) on our
balance sheet.
Consolidated total senior debt: Defined as consolidated total debt excluding unsecured and subordinated debt.
Consolidated EBITDA: Defined as consolidated net earnings before interest, income taxes, depreciation, accretion and certain other non-cash
items, adjusted for the impact of the acquisition of a material subsidiary.
Total interest expense: Includes all amounts classified as "Interest expense", but excluding interest on operating leases as defined under IAS 17.
•
•
•
Senior Unsecured Notes
On March 13, 2017, Vermilion issued US$300.0 million of senior unsecured notes at par. The notes bear interest at a rate of 5.625% per annum, paid
semi-annually on March 15 and September 15, and mature on March 15, 2025. As direct senior unsecured obligations of Vermilion, the notes rank
equally in right of payment with existing and future senior indebtedness of the Company.
The senior unsecured notes were recognized at amortized cost and include the transaction costs directly related to the issuance.
Vermilion may, at its option, redeem the senior unsecured notes prior to maturity as follows:
•
Prior to March 15, 2020, Vermilion may redeem up to 35% of the original principal amount of the senior unsecured notes with the proceeds of
certain equity offerings by the Company at a redemption price of 105.625% of the principal amount, plus any accrued and unpaid interest to but
excluding the applicable redemption date.
Prior to March 15, 2020, Vermilion may redeem some or all of the senior unsecured notes at a price equal to 100% of the principal amount of the
senior unsecured notes, plus a “make-whole” premium and any accrued and unpaid interest.
On or after March 15, 2020, Vermilion may redeem some or all of the senior unsecured notes at the redemption prices set forth in the following
table, plus any accrued and unpaid interest.
•
•
Vermilion Energy Inc. ■ Page 43 ■ 2019 Annual Report
Year
2020
2021
2022
2023 and thereafter
Redemption price
104.219%
102.813%
101.406%
100.000%
Cross currency interest rate swaps
On June 12, 2019, Vermilion entered into a series of cross currency interest rate swaps with a syndicate of banks. The cross currency interest rate
swaps mature March 15, 2025 and include regular cash receipts and payments on March 15 and September 15 of each year. On a net basis, the cross
currency interest swaps result in Vermilion receiving US dollar interest and principal amounts equal to the interest and principal payments under the
US $300.0 million of senior unsecured notes. In exchange, Vermilion will make interest and principal payments equal to €265.0 million at a rate of
3.275%.
The cross currency interest rate swaps were executed as two separate sets of instruments, wherein Vermilion:
•
Receives US dollar interest and principal amounts equal to US$300.0 million of debt at 5.625% interest and pays Canadian dollar interest and
principal amounts equal to $398.5 million of debt at 5.40% interest.
Receives Canadian dollar interest and principal amounts equal to $398.5 million of debt at 5.40% interest and pays Euro interest and principal
amounts equal to €265.0 million at a rate of 3.275%.
•
Shareholders' capital
In total, dividends declared for the year ended December 31, 2019 were $427.3 million.
The following table outlines our dividend payment history:
Date
January 2003 to December 2007
January 2008 to December 2012
January 2013 to December 2013
January 2014 to March 2018
April 2018 to February 2020
March 2020 onwards
Monthly dividend per unit or share
$0.170
$0.190
$0.200
$0.215
$0.230
$0.115
Our policy with respect to dividends is to be conservative and maintain a low ratio of dividends to fund flows from operations. During low commodity
price cycles, we will initially maintain dividends and allow the ratio to rise. Should low commodity price cycles remain for an extended period of time,
we will evaluate the necessity of changing the level of dividends, taking into consideration capital development requirements, debt levels, and acquisition
opportunities.
In the current economic and commodity outlook following the outbreak of novel coronavirus (COVID-19), there is uncertainty regarding our ability to
achieve a 100% payout ratio at a reasonable level of capital expenditures. Therefore, effective for the March 2020 dividend (payable April 15, 2020),
we reduced our monthly dividend by 50%. Although we expect to be able to maintain our dividend, fund flows from operations may not be sufficient to
fund cash dividends, capital expenditures, and asset retirement obligations. We will evaluate our ability to finance any shortfall with debt, issuances of
equity, or by reducing some or all categories of expenditures to ensure that total expenditures do not exceed available funds.
The following table reconciles the change in shareholders’ capital:
Shareholders’ Capital
Balance at December 31, 2018
Shares issued for the Dividend Reinvestment Plan
Vesting of equity based awards
Equity based compensation
Share-settled dividends on vested equity based awards
Balance as at December 31, 2019
Number of Shares ('000s)
152,704
1,417
1,359
552
258
156,290
Amount ($M)
4,008,828
34,937
51,108
15,868
8,290
4,119,031
As at December 31, 2019, there were approximately 2.3 million equity based compensation awards outstanding. As at March 5, 2020, there were
approximately 156.6 million common shares issued and outstanding.
Vermilion Energy Inc. ■ Page 44 ■ 2019 Annual Report
We have a normal course issuer bid ("NCIB") approved by the Toronto Stock Exchange ("TSX") that allows us to purchase up to 7,750,000 common
shares (representing approximately 5% of shares outstanding common shares) beginning August 9, 2019 and ending August 8, 2020. Any common
shares that are purchased under the NCIB will be canceled upon their purchase. As at December 31, 2019, no shares have been purchased pursuant
to the NCIB.
Contractual Obligations and Commitments
As at December 31, 2019, we had the following contractual obligations and commitments:
1 - 3 years
($M)
127,896
Long-term debt (1)
49,129
Lease obligations
47,688
Processing and transportation agreements
9,856
Purchase obligations
58,398
Drilling and service agreements
Total contractual obligations and commitments
292,967
(1) Interest on revolving credit facility calculated assuming an annual interest rate of 3.35%.
(2) Commitments denominated in foreign currencies have been translated using the related spot rates on December 31, 2019.
Less than 1 year
63,948
44,077
30,529
27,220
16,071
181,845
3 - 5 years
1,577,713
38,846
12,774
557
21,207
1,651,097
After 5 years
399,179
28,110
3,004
—
—
430,293
Total
2,168,736
160,162
93,995
37,633
95,676
2,556,202
Asset Retirement Obligations
As at December 31, 2019, asset retirement obligations were $618.2 million compared to $650.2 million as at December 31, 2018.
The present value of the obligation is calculated using a credit-adjusted risk-free rate, calculated using a credit spread added to risk-free rates based
on long-term, risk-free government bonds. The decrease in asset retirement obligations is largely attributable to an increase in the credit spread from
December 31, 2018 to December 31, 2019.
The Euro weakening against the Canadian dollar also contributed to the decrease in the asset retirement obligations. This decrease was partially offset
by changes in the estimated costs and accretion expense.
The risk-free rates used as inputs to discount the obligations were as follows:
Canada
France
Netherlands
Germany
Ireland
Australia
United States
Credit spread
Dec 31, 2019
1.7 %
0.9 %
(0.1)%
0.3 %
0.6 %
1.6 %
2.4 %
Dec 31, 2018
2.2%
1.6%
0.4%
0.9%
1.6%
2.6%
2.7%
Change
(0.5)%
(0.7)%
(0.5)%
(0.6)%
(1.0)%
(1.0)%
(0.3)%
5.3 %
4.0%
1.3 %
Vermilion Energy Inc. ■ Page 45 ■ 2019 Annual Report
Risks and Uncertainties
Crude oil and natural gas exploration, production, acquisition and marketing operations involve a number of risks and uncertainties that have affected
the financial statements and are reasonably likely to affect them in the future. These risks and uncertainties are discussed further below.
Commodity prices
Crude oil and natural gas prices have fluctuated significantly in recent years due to supply and demand factors. Changes in crude oil and natural gas
prices affect the level of revenue we generate, the amount of proceeds we receive and payments we make on our commodity derivative instruments,
and the level of taxes that we pay. In addition, lower crude oil and natural gas prices would reduce the recoverable amount of our capital assets and
could result in impairments or impairment reversals.
Exchange rates
Exchange rate changes impact the Canadian dollar equivalent revenue and costs that we recognize. The majority of our crude oil and condensate
revenue stream is priced in US dollars and as such an increase in the strength of the Canadian dollar relative to the US dollar would result in the receipt
of fewer Canadian dollars for our revenue. We also incur expenses and capital costs in US dollars, Euros and Australian dollars and thus a decrease
in strength of the Canadian dollar relative to those currencies may result in the payment of more Canadian dollars for our expenditures.
In addition, exchange rate changes impact the Canadian equivalent carrying balances for our assets and liabilities. For foreign currency denominated
monetary assets (such as cash and cash equivalents, long-term debt, and intercompany loans), the impact of changes in exchange rates is recorded
in net earnings as a foreign exchange gain or loss.
Production and sales volumes
Our production and sales volumes affect the level of revenue we generate and correspondingly the royalties and taxes that we pay. In addition, significant
declines in production or sales volumes due to unforeseen circumstances may also result in an indicator of impairment and potential impairment charges.
Interest rates
Changes in interest rates impact the amount of interest expense we pay on our variable rate debt and also our ability to obtain fixed rate financing in
the future.
Tax and royalty rates
Changes in tax and royalty rates in the jurisdictions that we operate in would impact the amount of current taxes and royalties that we pay. In addition,
changes to substantively enacted tax rates would impact the carrying balance of deferred tax assets and liabilities, potentially resulting in a deferred
tax recovery or incremental deferred tax expense.
In addition to the above, we are exposed to risk factors that impact our company and business. For further information on these risk factors, please
refer to our Annual Information Form, available on SEDAR at www.sedar.com or on our website at www.vermilionenergy.com.
Financial Risk Management
To mitigate the risks affecting our business whenever possible, we seek to hire personnel with experience in specific areas. In addition, we provide
continued training and development to staff to further develop their skills. When appropriate, we use third party consultants with relevant experience
to augment our internal capabilities with respect to certain risks.
We consider our commodity price risk management program as a form of insurance that protects our cash flow and rate of return. The primary objective
of the risk management program is to support our dividends and our internal capital development program. The level of commodity price risk management
that occurs is dependent on the amount of debt that is carried. When debt levels are higher, we will be more active in protecting our cash flow stream
through our commodity price risk management strategy.
When executing our commodity price risk management programs, we use derivative financial instruments encompassing over-the-counter financial
structures as well as fixed and collar structures to economically hedge a part of our physical crude oil and natural gas production. We have strict controls
and guidelines in relation to these activities and contract principally with counterparties that have investment grade credit ratings.
Vermilion Energy Inc. ■ Page 46 ■ 2019 Annual Report
Critical Accounting Estimates
The preparation of financial statements in accordance with IFRS requires us to make estimates. Critical accounting estimates are those accounting
estimates that require us to make assumptions about matters that are highly uncertain at the time the estimate is made and a different estimate could
have been made in the current period or the estimate could change period-to-period.
The carrying amount of asset retirement obligations
The carrying amount of asset retirement obligations ($618.2 million as at December 31, 2019) is the present value of estimated future costs, discounted
from the estimated abandonment date using a credit-adjusted risk-free rate. Estimated future costs are based on our assessment of regulatory
requirements and the present condition of our assets. The estimated abandonment date is based on the reserve life of the associated assets. The
credit-adjusted risk-free rate is based on prevailing interest rates for the appropriate term, risk-free government bonds adjusted for our estimated credit
spread (determined by reference to the trading prices for debt issued by similarly rated independent oil and gas producers, including our own senior
unsecured notes). Changes in these estimates would result in a change in the carrying amount of asset retirement obligations and capital assets and,
to a significantly lesser degree, future accretion and depletion expense.
The estimated abandonment date may change from period to period as the estimated abandonment date changes in response to new information, such
as changes in reserve life assumptions or regulations. A one year increase or decrease in the estimated abandonment date would decrease or increase
asset retirement obligations (with an offsetting increase to capital assets) by approximately $27.5 million.
The estimated credit-adjusted risk-free rate may change from period to period in response to market conditions in Canada and the international jurisdictions
that we operate in. A 0.5% increase or decrease in the credit-adjusted risk-free rate would decrease or increase asset retirement obligations by
approximately $52.7 million.
The recognition of deferred tax assets in Ireland
In Ireland, we have $0.6 billion of non-expiring tax loss pools where $152.9 million of deferred tax assets has not been recognized as there is uncertainty
on our ability to fully use these losses based on estimated future taxable profits. Estimated future taxable profits are calculated using proved and
probable reserves and forecast pricing for European natural gas.
As a result, the carrying value of deferred tax assets may change from period-to-period due to changes in forecast pricing for European natural gas. A
5% increase or decrease in proved and probable reserves in our Ireland segment would increase or decrease deferred tax assets (with a corresponding
deferred tax recovery or expense) by approximately $12.8 million. A €0.50/GJ increase or decrease in forecast European natural gas prices would
increase or decrease deferred tax assets (with a corresponding deferred tax recovery or expense) by approximately $22.1 million.
The estimated recoverable amount of cash generating units
Each reporting period, we assess our cash generating units for indicators of impairment or impairment reversal. If an indicator of impairment or impairment
reversal is identified, we estimate the recoverable amount of the cash generating unit. As a result of declining European natural gas price forecasts
during the year ended December 31, 2019 an indicator of impairment was identified in the Ireland cash generating unit. The recoverable amount was
determined using fair value less costs to sell which considered future after-tax cash flows from proved plus probable reserves using forecast price and
cost estimates and an after-tax discount rate of 9.0%. A non-cash impairment charge of $46.1 million was recorded in the consolidated statement of
net earnings.
Changes in any of the key judgments, such as a revision in reserves, changes in forecast commodity prices, foreign exchange rates, capital or operating
costs would impact the estimated recoverable amount. As at December 31, 2019, a 1% increase in the assumed after-tax discount rate would reduce
the estimated recoverable amount by $14.7 million (resulting in a $60.8 million impairment) while a 5% decrease in revenues (due to a decrease in
commodity price forecasts or reserve estimates) would reduce the estimated recoverable amount by $28.6 million (resulting in a $74.7 million impairment).
Off Balance Sheet Arrangements
We have not entered into any guarantee or off balance sheet arrangements that would materially impact our financial position or results of operations.
Vermilion Energy Inc. ■ Page 47 ■ 2019 Annual Report
Recently Adopted Accounting Pronouncements
Definition of a Business - Amendments to IFRS 3 "Business Combinations"
Vermilion elected to early adopt the amendments to IFRS 3 "Business Combinations" effective January 1, 2019, which will be applied prospectively to
acquisitions that occur on or after January 1, 2019. The amendments introduce an optional concentration test, narrow the definitions of a business and
outputs, and clarify that an acquired set of activities and assets must include an input and a substantive process that together significantly contribute
to the ability to create outputs. These amendments did not result in changes to Vermilion's accounting policies for applying the acquisition method.
Health, Safety and Environment
We are committed to ensuring our activities are conducted in a manner that will protect the health and safety of our employees, contractors, and the
public. Our health, safety, and environment (“HSE”) vision is “Best in Class HSE”, our mission is to fully integrate health, safety, and environment into
our business, where our culture is recognized as a model by industry and stakeholders, resulting in a safe and healthy workplace. Our mantra is HSE:
Everywhere. Everyday. Everyone.
We maintain health, safety and environmental practices and procedures in compliance with or exceeding regulatory requirements and industry standards.
All of our personnel are expected to work safely and in accordance with established regulations and procedures, and we seek to reduce impacts to
land, water and air. During 2019 we:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Maintained clear priorities around 5 key focus areas of HSE Culture, Communication and Knowledge Management, Technical Safety
Management, Incident Prevention and Operational Stewardship & Sustainability;
Initiated a strategic review of current HSE program and long-term plan;
Continued comprehensive investigations of our incidents and near misses to ensure root causes were identified and corrective actions
effectively implemented;
Completed our HSE Perception Survey, which we conduct every three years. Our results all factored in the favorable range. A plan was
developed to address areas for further improvement;
Expanded our Emergency Response Plan capabilities to align with our Central and Eastern European drilling and completions activity;
Completed a comprehensive assessment of our Event Management Information System to prepare for an upgrade in 2020 that will add
environmental data management;
Completed numerous corporate standard/practice updates related to operational risk management, contractor management, marine
transportation, and environmental management;
Continued reinforcement of the “Vermilion High 5”, an individual safety awareness initiative aimed at keeping front-line workers safe;
Further developed and validated critical procedures and initiated competency assessments as part of fit-for-purpose training and
competency programs;
Continued comprehensive HSE integration plan for Vermilion’s new and emerging operations (includes Central and Eastern Europe,
Germany, United States, Ireland and Canada expansion);
Initiated data gathering and quantification to meet the CDP Water reporting requirements for the 2019 data set;
Managed our waste products by reducing, recycling and recovering;
Reduced long-term environmental liabilities through decommissioning, abandoning and reclaiming well leases and facilities;
Further refined and expanded our enterprise wide corporate risk register;
Expanded our company-wide HSE leadership training program to improve hazard identification and risk reduction;
Continued the development of a robust hazard identification and risk mitigation program specific to environmentally sensitive areas;
Continued the development of our Corporate Process Safety Management System with emphasis on Process Hazards Analysis and risk
reduction measures;
Performed auditing, management inspections and workforce observations to measure compliance and identify potential hazards and apply
risk reduction measures; and
Developed, communicated and measured against leading and lagging HSE key performance indicators.
We are a member of several organizations concerned with environment, health and safety, including numerous regional co-operatives and synergy
groups. In the area of stakeholder relations, we work to build long-term relationships with environmental stakeholders and communities.
Vermilion Energy Inc. ■ Page 48 ■ 2019 Annual Report
Environmental, Social and Governance (ESG)
Furthering our focus on sustainability (ESG) strategy, in 2019 we continued to support the recommendations from the Task Force on Climate-related
Financial Disclosures (TCFD), including in our reporting, focusing on climate but also on sustainability issues and opportunities in a wider context. In
2019, our Board of Directors and senior management participated in a robust scenario analysis process based on reporting from the World Economic
Forum. This included analyzing factors such as the influence of new technologies, technology growth, government policy, and emerging markets that
will impact the speed of the energy transition, and the resulting risks and opportunities for Vermilion. Our 2019 performance in sustainability rankings
such as CDP, SAM, and Sustainalytics continued to be in the top quartile of our peer group.
Sustainability
As a responsible oil and gas producer, we consistently seek to deliver long-term shareholder value by operating in an economically,
environmentally and socially sustainable manner that is recognized as a model in our industry.
Vermilion understands our stakeholders’ expectations that we deliver strong financial results in a responsible and ethical way. As a result, we align our
strategic priorities in the following order:
•
•
•
the safety and health of our staff and those involved directly or indirectly in our operations;
our responsibility to protect the environment. We follow the Precautionary Principle introduced in 1992 by the United Nations "Rio Declaration
on Environment and Development" by using environmental risk as part of our development decision criteria, and by continually seeking
improved environmental performance in our operations; and
economic success through a focus on operational excellence across our business, which includes technical and process excellence, efficiency,
expertise, stakeholder relations, and respectful and fair treatment of staff, contractors, partners and suppliers.
Reflecting these priorities, we have positioned Vermilion purposefully within the energy transition. Predictions differ about the manner and speed of the
transition, but our own scenario analyses are clear that Vermilion can best contribute by focusing on producing energy responsibly: reliably, cost-
effectively and safely. We also believe those stakeholders who are concerned about sustainability, including investors, governments, regulators,
communities and citizens, should turn to best-in-class operators such as Vermilion. Our crude oil and natural gas assets are strategic resources that
can, and should, be deployed in the service of the transition and, indeed, of the framework for the planet’s health and wellbeing represented by the
United Nations Sustainable Development Goals (SDGs).
To support our strategy, we regularly communicate with our stakeholders, including through our sustainability reporting. In 2018, reflecting our review
of TCFD recommendations, we updated our engagement to include a broader inclusion of sustainability in regulatory reporting; we have continued this
approach in 2019.
For more information, please see references to sustainability throughout this document, including the Climate Risk discussion. For additional context,
our Sustainability Report is available online at www.vermilionenergy.com (under the heading “Our Responsibility”).
Vermilion’s sustainability performance and reporting have earned consistently strong recognition from external stakeholders:
Accomplishments
•
The Company received a top quartile ranking for our industry sector in SAM's 2019 Corporate Sustainability Assessment ("CSA"). The CSA
analyzes sustainability performance across economic, environmental, governance, and social criteria, and is the basis of the Dow Jones
Sustainability Indices.
Vermilion was ranked second in our peer group in the Sustainalytics ESG (environment, social, governance) rankings.
Vermilion's MSCI ESG rating increased to AA in 2019, and our Governance Metrics score ranked in the top decile globally.
•
•
• We received ISS QualityScore decile ratings of 1 for both Environmental and Social, which assess corporate disclosure and transparency
practices in these areas, where 1 indicates the lowest risk.
Climate-related Disclosures
Vermilion has publicly released our identified climate risks and opportunities since our first annual CDP Climate Response in 2014. In alignment with
recommendations from the TCFD and under the TCFD’s Strategy category, we are also including a summary of them in this document. For more
information on our sustainability-related governance, strategy, risk management, and metrics and targets, including those related to climate, please see
our 2020 Proxy Statement and Information Circular, and our online sustainability reporting, particularly the Performance Metrics section and our 2019
CDP Response, which includes detailed information on the following risk and opportunity summaries.
Vermilion Energy Inc. ■ Page 49 ■ 2019 Annual Report
Risk /
Opportunity
Increased Pricing
of GHG Emissions
e.g. Carbon Tax
Enhanced
Emissions
Reporting
Obligations
Mandates on and
Regulation of
Existing Products
and Services
Changes in
Emissions
Regulations
Changes in
Temperature
Extremes
Changes In
Precipitation
Patterns and
Extreme Variability
in Weather
Patterns
Description of Impacts1,2
- Risk Category
- Risk Timeframe
- Policy and Legal
- Medium-term
In April 2019, our Saskatchewan operations became
subject to the federal Greenhouse Gas Pollution
Pricing Act, with carbon tax rates set at $20 per
tonne of CO2e in 2019, rising to $50 by 2022. Our
Alberta operations are subject to the fuel charge
element of the Act beginning in January 2020.
- Policy and Legal
- Short-term
Emissions reporting obligations are an ongoing risk
and can change due to political and regulatory
evolution. The impact to Vermilion would be a
decreased netback on a per BOE basis, due to
increased expenditures for personnel time and
system development and implementation, to allow
for more robust emissions quantification.
- Policy and Legal; Technology
- Short-term
Vermilion's operations are subject to regional
regulatory changes that result in changes to
equipment requirements such as engineering and
equipment modifications to reduce carbon emissions
and / or emissions of criteria air contaminants.
- Policy and Legal
- Medium-term
The risk associated with a change in emission
regulations in one or more of our business units is
accounted for by Vermilion's Enterprise Risk Matrix,
with mitigation measures being reviewed, updated,
and implemented on an annual basis. A shift in
international regulations may also result in an impact
to Vermilion's supply chain, resulting in a limitation of
market access or direct impact to the price of our
products. As Vermilion maintains a diversified asset
base, we believe the risk to the marketability of our
products is low.
- Physical
- Long-term
A decrease in temperature extremes experienced in
the winter months (i.e. lower seasonal lows) could
increase the amount of fuel gas used by a variety of
equipment essential for safe production. Additional
equipment could also be required (e.g. building
heaters, line heaters) to ensure safe and efficient
operation, thus increasing our carbon footprint and
costs. Temperature extremes could also increase
capital costs associated with drilling, completion and
workover operations due to increased timelines,
decreased productivity, equipment breakdown, etc.
For example, warmer winters would have a direct
impact on Vermilion's more northern operations,
through a decreased ability to access lands and
increased construction capital requirements.
- Physical
- Long-term
Vermilion holds assets inland, in coastal regions,
and offshore. A change in precipitation in any of
these locations could have a negative impact on
operations due to drought or flooding. Flooding
could result in limited access to locations / facilities,
and poses a risk to our corporate headquarters.
Alternatively, drought conditions could impact the
availability of surface and / or groundwater, which
Vermilion, in part, relies on for drilling and
completion activities. This could negatively impact
forecasted growth by increasing the timelines and
capital costs to bring new infrastructure onto
production.
Rising Sea Levels
- Physical
- Long-term
Vermilion owns and operates assets in the
Netherlands. We have identified and assessed the
potential risk associated with rising sea levels here,
as it has the potential to physically impact our
operations due to issues such as flooding,
transportation difficulties and supply chain
interruptions. Rising sea levels also pose a threat
related to the salinization of groundwater.
Potential Financial Impact
Management Context
Beginning in 2019, the direct and indirect impact of
carbon taxes on the Canada Business Unit is
estimated at approximately $2.3MM. For European
operations, our Carbon Liability Assessment Tool
indicates carbon tax is not forecasted to exceed
$0.5MM per annum.
Based on our current output in Canada and Europe,
current regulated thresholds, and growth, we
anticipate that cost associated with meeting
emission reporting obligations will increase in the
short-term, likely as a small increase in operational
costs.
The potential financial impact is based on proposed
changes to carbon pricing in our operating regions
out to 2023, resulting in expansion of emission
sources covered, and does not account for
Vermilion’s proactive programs to manage
emissions. This estimate is based on the probable
cost scenario identified in our Carbon Liability
Assessment Tool.
Regulations in all of our business units are
monitored on an ongoing basis, and assumptions/
scenario planning is used annually to assess risk.
Vermilion also engages stakeholders relating to
emissions reporting obligations. Management of
this risk is built into Vermilion's operations and our
Enterprise Risk Matrix.
The operational changes to comply with methane
reduction regulations is expected at approximately
$1.5MM in the short term, with those associated with
eliminating routine flaring in France not expected to
exceed $0.5MM. Costs associated with the
Netherlands MJA3 program are built into our
operating costs and no significant expenditures are
anticipated in the short term.
Following the COP21 conference, the importance of
sustainable development and reduction of emission
levels was confirmed by the commitments made by
national governments. Based on the anticipated
changes in the various regulatory regimes under
which Vermilion operates, the financial impact due to
a regulatory change over the next 3 years is
anticipated to be less than $2.0MM. This does not
include the cost associated with emission reduction
projects completed on an annual basis, or previous
projects that have annual emissions reductions.
The financial implications on an annual basis are
difficult to quantify; however, based on Vermilion's
experience, the most significant financial
implications would result from shutdowns in drilling
or completions locations. The estimated cost of this
would be $0.5MM per day of delay.
The financial implications of a single time event (e.g.
wildfire) and continued strain event (e.g. drought)
have been assessed on a case-specific basis, and
the financial implications of these events is believed
to be manageable (impact under $10.0MM).
Vermilion
maintains insurance to mitigate the potential impact
of precipitation extreme events (e.g. flooding).
Insurance for locations that have been identified as
potentially being impacted by drought-induced
events (e.g. wildfire) is estimated at $0.5MM per
annum.
Vermilion reviews the potential impact of rising sea
levels annually as part of our Enterprise Risk Matrix.
We estimate the potential total financial implication
to be $153.0MM, before mitigation measures, in our
Netherland operations.
Vermilion’s participation in the MJA3 program in the
Netherlands since 2005, for example, has resulted
in projects that have reduced our operations energy
intensity by 76%. We have allocated resources to
complete methane reduction on a planned program
basis, as opposed to a single reactive replacement
program, resulting in an overall reduction in
associated costs.
The formalization of Integrated Sustainability as a
strategic objective in Vermilion’s long-term strategic
plan allows us to better understand, identify,
proactively respond, and manage the potential risk
and uncertainty inherent in an evolving sustainability
framework, both at a regional and corporate level.
As an example, beginning in 2017, Vermilion added
requirements to assess capital expenditures for
potential sustainability-related impacts; in 2018, we
established a Sustainability Committee at the Board
of Directors level, and a Sustainability Steering
Committee at the senior management level.
As extreme weather cannot be controlled, Vermilion
uses our various Management Systems and
processes to protect the health and safety of our
workers, contractors and the public, and to protect
the environment from adverse effect. As an
example of how we have reduced the potential
impact related to access in remote assets, we use
multi-well pads wherever possible, with multiple
horizontal wells drilled from a single location. This
reduces the aerial impact of these activities on the
environment, habitat fragmentation and carbon
emissions associated with lease construction and
equipment mobilization/demobilization. Using multi-
well locations would significantly decrease capital
considerations in the event that limited frost days
were realized in the coming years.
As these incidents are beyond Vermilion's control,
we take measures to ensure effective emergency
response to extreme weather events, to protect the
health and safety of our workers, contractors and
the public, to protect the environment, and to limit
the financial impact of the event. In the case of a
longer term extreme precipitation event or drought,
Vermilion has implemented water management
programs to reduce our reliance on fresh water
sources.
There is no measure available to protect Vermilion's
Netherlands assets in the event that water levels
rise to a level that would impact facilities below sea
level. Salinization of the groundwater regime would
impact the entire region; similarly, no measures are
currently available to protect against this. Based on
Vermilion's assessment of the probability of these
events occurring over the next 5 years being less
than 0.5%, we have accepted this level of risk
exposure.
Vermilion Energy Inc. ■ Page 50 ■ 2019 Annual Report
Risk /
Opportunity
Increased Severity
of Extreme
Weather Events
such as Cyclones
and Floods
Changing
Customer
Behaviour
Description of Impacts1,2
- Risk Category
- Risk Timeframe
- Physical
- Medium-term
Vermilion owns and operates an offshore platform in
the Wandoo field off northwestern Australia, and co-
owns and operates the Corrib project off the Irish
coast. Extreme weather events have the potential to
directly impact our offshore operations resulting in
down time or damage to infrastructure, and can
impact the downstream handling capacity of our
partners, resulting in a limitation to the distribution
and sale of our products.
- Market; Reputational
- Long-term
As consumers and governments become more
socially aware of the sources of their energy,
negative perceptions of organizations
or production methods have the potential to impact
energy sector companies through company
valuations, restricted licensing and permitting, and
stakeholder opposition.
Opportunity:
Participation in
Carbon Market
Opportunity:
Development of
New Products and
Services through
R&D and
Innovation
Opportunity: Shift
in Consumer
Preferences
Opportunity: Ability
to Diversify
Business Activities
- Financial
- Medium-term
The European Union Emissions Trading Scheme
(ETS) allows for the generation and movement of
certified carbon credits from emissions-saving
projects around the world. With the revisions
pending in Phase 4, it is anticipated that there will be
an active market and consumers for the offset
credits generated at some of our sustainability
initiatives around the world, likely providing
opportunities for Vermilion to generate certified
energy reduction and offset credits.
- Products
- Short-term
As Vermilion has developed our emissions
quantification programs across the globe, we have
developed more robust methods for sharing of
technologies and techniques from across our
operations, both internally and externally. Our
increased focus on tracking emissions has
supported the assessment of opportunities across
business units and sharing of technical expertise.
- Products, Reputational
- Long-term
Under the Canadian Environmental Protection Act
and based on commitments made by the Canadian
and Alberta governments relating to COP21, there is
a commitment to reduce emissions for coal-fired
power generation. Based on this and with a number
of power generating facilities in Alberta nearing the
end of their service life, the demand for natural gas
is likely to increase due to increased use of
combined cycle gas turbine (CCGT) power
generation. Alberta has also committed to
significantly reducing its demand for coal for power
generation by 2050.
- Products
- Long-term
Vermilion maintains a diverse, stable global portfolio
of oil and gas assets. Our strong record of safe and
socially conscious development of energy resources
has provided opportunities to access and develop
these resources. We see our commitment to
sustainability as core to our business, which has
provided important organizational focus on
emissions quantification and management. As
consumers become more aware of and involved in
the selection of their energy sources and associated
carbon intensity, we believe that Vermilion will
continue to be a top quartile choice, providing us
with opportunities not available to peer
organizations.
Potential Financial Impact
Management Context
Based on the value of the Wandoo Platform and a 1-
in-2000 year cyclonic event, the financial
implications associated with damage due to a
severe weather event is estimated at $179.0MM
(total impact before insurance). The third-party
costs associated with potential damages from
extreme weather events are not tracked by
Vermilion.
The impact of decreased consumer confidence and
perception is not calculable. On a per share basis,
the market impact of the loss of $1 per share would
be approximately $156.0MM. The direct cost of
Vermilion's operating excellence and risk
management cannot be quantified on a single risk
basis.
Vermilion is not accounting for any short term
financial impact. It is estimated that following the
change to the EU ETS in Phase 4, the carbon price
will stabilize at between approximately €15 and €30
per tCO2e. The financial impact to Vermilion
annually is estimated to be up to $1.0MM.
As this opportunity is in the early stage of
assessment, it is difficult to quantify the financial
impact, but it is estimated at up to $2.0MM per year.
Potential also exists for significant cost adjustments,
as assets slated for abandonment could be
repurposed to generate geothermal energy.
The short term impact on gas pricing is anticipated
to be low, increasing to medium in the mid to long
term. Once the regulations are implemented, there
is a potential for an increase in the demand and
pricing for natural gas, from which Vermilion would
benefit. Based on current estimates, an increase in
gas price of $1 per mcf would result in a positive
impact to sales of approximately $35.0MM.
The financial impact of changing consumer
preferences is difficult to quantify. We foresee
opportunities in two distinct areas: first, in
consumers selecting premium energy products (top
quartile, low carbon intensity), with these products
demanding a higher price than other energy sources
on the market. Currently we estimate the potential
impact of premium pricing in the long term to be
$1-5 per boe ($24.8MM based on $1 per boe). The
second opportunity, which we are already receiving
benefit from, is access to more stringent markets,
supported by our environmental and sustainability
performance, such as our entry into German,
Hungarian and Croatian oil and gas operations in
the last several years.
Vermilion maintains insurance as a mitigative
measure to reduce the financial impact associated
with damage to our assets due to
severe weather events. We also have protocols for
monitoring and preparing for cyclones, and have
invested in our emergency response capabilities in
the event of damage to our assets as a result of a
severe weather event. Operational changes are
made as required to ensure (in order of priority)
worker health and safety, protection of the
environment, and protection of Vermilion’s assets.
Vermilion is positioned within the evolving energy
transition, with an unwavering commitment to our
priorities of health and safety, environmental
protection, and economic prosperity. We believe
that those commitments, and our contributions to the
UN SDGs constitute qualitative advantages that set
us apart from our competitors. Sustainable
practices are ingrained into the way we operate, and
we will continue to focus on our Integrated
Sustainability strategic objective. We believe this
advantage attracts investors to Vermilion and will
continue to give Vermilion a competitive advantage
in the future.
We are currently evaluating the benefit that certified
offset credits from various emission reduction
projects across our operations
could provide. Examples of projects with this
potential include our Tomato Greenhouse
Cogeneration project in France, our partnerships for
geothermal applications in residential
neighborhoods in France, and our developing
geothermal projects in the Netherlands. Vermilion's
project assessment framework is applied to each
identified opportunity, including considerations
associated with emissions offset.
We have technical experts who provide input into
potential geothermal projects as they are identified.
These teams are supported by corporate
sustainability staff in connecting internal and
external stakeholders. These teams have
responsibilities specific to geothermal opportunities
as these projects move through their preliminary
stages. To further support identification of
opportunities, and engagement with stakeholders,
Vermilion has appointed sustainability leads in all
our business units.
As we move further into the energy transition, we
foresee natural gas playing an impactful role as a
less carbon intense fuel than other options (i.e.
coal). Vermilion continues to focus on the
identification of resources and assets where we
have the opportunity to apply our industry leading
expertise to optimize production while reducing
emissions. An example of our strategy to realize
this opportunity is our asset base in Alberta, which
currently includes a large liquids rich gas play.
Vermilion's marketing team is also actively pursuing
options for our natural gas production that will
enable Vermilion to achieve the best netbacks on
production.
Vermilion made the organizational change to
established Integrated Sustainability as one of our
strategic objectives in 2015. This provided
important organizational focus on matters such as
environmental performance, including climate
change. Our strategy is to continue to support
Integrated Sustainability, with personnel who are
experts in their field, as well as financially supporting
programs and projects that reduce emissions while
optimizing production. An example of this is the
addition of personnel who have specific
responsibilities associated with sustainability in our
business units, including study and feasibility
assessment of green energy generation.
Vermilion Energy Inc. ■ Page 51 ■ 2019 Annual Report
Risk /
Opportunity
Opportunity: Shift
Toward
Decentralized
Energy Generation
Description of Impacts1,2
- Risk Category
- Risk Timeframe
- Products, Reputational
- Long-term
The carbon intensity of energy used around the
world has a direct relationship to where the energy
product was generated. Vermilion’s business unit
structure supports production and distribution of
energy products into local markets. This strategy
results in the significant reduction of the carbon
footprint of our energy when compared to non-local
sources.
Potential Financial Impact
Management Context
On an operating netback (sales) basis, based on
current estimates, the financial premium of our non-
Canadian assets was $340.8MM. The potential
future advantage is anticipated to increase as we
expand production in markets outside North America
and provide sources of energy to local markets. The
costs associated with adjustment of our
organizational structure are built into our costs
across the company.
Vermilion continues to assess where we can access
local markets for our production, while exploring
regions to expand our operations. The actions
taken in the past several years to realize this
opportunity include alterations to our structure, our
strategic objectives and our operational
development plans to support Vermilion as a
distributed energy provider, and exploration and
development programs in regions with relatively low
energy production as compared to consumption (i.e.
Hungary).
Notes:
(1)
(2)
Short-term (0 to 3 years); Medium-term (3 to 6 years); Long-term (6 to 50 years).
Risk summary is based on our fiscal year 2018 environmental reporting through CDP. Fiscal year 2019 environmental reporting will be available in mid-2020.
Corporate Governance
We are committed to a high standard of corporate governance practices, a dedication that begins at the Board level and extends throughout the Company.
We believe good corporate governance is in the best interest of our shareholders, and that successful companies are those that deliver growth and a
competitive return along with a commitment to the environment, to the communities where they operate, and to their employees.
We comply with the objectives and guidelines relating to corporate governance adopted by the Canadian Securities Administrators and the Toronto
Stock Exchange ("TSX"). In addition, the Board monitors and considers the implementation of corporate governance standards proposed by various
regulatory and non-regulatory authorities in Canada. A discussion of corporate governance policies is included each year in our proxy materials for our
annual general meeting of shareholders, copies of which are available on SEDAR (www.sedar.com).
As a Canadian reporting issuer with securities listed on the TSX and the New York Stock Exchange (“NYSE”), Vermilion is required to comply with all
applicable Canadian requirements adopted by the Canadian Securities Administrators and the TSX, and applicable rules for foreign private issuers
adopted by the U.S. Securities and Exchange Commission that give effect to the provisions of the Sarbanes-Oxley Act of 2002.
Our corporate governance practices also incorporate many “best practices” derived from those required to be followed by US domestic companies
under the NYSE listing standards. We are required by Section 303A.11 of the NYSE Listed Company Manual to identify any significant ways in which
our corporate governance practices differ from those required to be followed by US domestic companies under NYSE listing standards. We believe
that there are no such significant differences in our corporate governance practices, except as follows:
•
Shareholder Approval of Equity Compensation Plans. Section 303A.8 of the NYSE Listed Company Manual requires shareholder approval of all
“equity compensation plans” and material revisions to those plans. The definition of “equity compensation plans” covers plans that provide for the
delivery of newly issued securities, and also plans which rely on securities reacquired on the market by the issuing company for the purpose of
redistribution to employees and directors. The TSX rules provide that equity compensation plans and material amendments thereto require
shareholder approval only if they involve newly issued securities and the amendments are not otherwise addressed in the plan’s amendment
procedures. In addition, the TSX rules require that every three years after institution, all unallocated options, rights or other entitlements under
equity compensation plans which do not have a fixed maximum aggregate of securities issuable must be approved by shareholders. Vermilion
follows the TSX rules with respect to shareholder approval of equity compensation plans and material revisions to those plans.
Disclosure Controls and Procedures
Our officers have established and maintained disclosure controls and procedures and evaluated the effectiveness of these controls in conjunction with
our filings.
As of December 31, 2019, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer have concluded and certified that our disclosure controls and procedures are effective.
Vermilion Energy Inc. ■ Page 52 ■ 2019 Annual Report
Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
The Chief Executive Officer and the Chief Financial Officer of Vermilion have assessed the effectiveness of Vermilion’s internal control over financial
reporting as defined in Rule 13a-15 under the US Securities Exchange Act of 1934 and as defined in Canada by National Instrument 52-109, Certification
of Disclosure in Issuers’ Annual and Interim Filings. The assessment was based on the framework in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Chief Executive Officer and the Chief Financial Officer
of Vermilion have concluded that Vermilion’s internal control over financial reporting was effective as of December 31, 2019. The effectiveness of
Vermilion’s internal control over financial reporting as of December 31, 2019 has been audited by Deloitte LLP, as reflected in their report included in
the 2019 audited annual financial statements filed with the US Securities and Exchange Commission. No changes were made to Vermilion’s internal
control over financial reporting during the year ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, the
internal controls over financial reporting.
Vermilion Energy Inc. ■ Page 53 ■ 2019 Annual Report
Supplemental Table 1: Netbacks
The following table includes financial statement information on a per unit basis by business unit. Liquids includes crude oil, condensate, and NGLs.
Natural gas sales volumes have been converted on a basis of six thousand cubic feet of natural gas to one barrel of oil equivalent.
Canada
Sales
Royalties
Transportation
Operating
Operating netback
General and administration
Fund flows from operations netback
France
Sales
Royalties
Transportation
Operating
Operating netback
General and administration
Current income taxes
Fund flows from operations netback
Netherlands
Sales
Royalties
Operating
Operating netback
General and administration
Current income taxes
Fund flows from operations netback
Germany
Sales
Royalties
Transportation
Operating
Operating netback
General and administration
Fund flows from operations netback
Ireland
Sales
Transportation
Operating
Operating netback
General and administration
Fund flows from operations netback
Liquids
$/bbl
55.55
(7.41)
(2.35)
(13.28)
32.51
80.87
(10.68)
(3.34)
(16.78)
50.07
73.51
—
—
73.51
77.58
(2.21)
(14.56)
(30.08)
30.73
—
—
—
—
Q4 2019
Natural Gas
$/mcf
2.33
(0.05)
(0.22)
(1.41)
0.65
—
—
—
—
—
5.57
(0.03)
(2.21)
3.33
4.96
(0.32)
(0.08)
(3.99)
0.57
5.61
(0.26)
(0.73)
4.62
Total
$/boe
38.38
(4.48)
(1.93)
(11.30)
20.67
(1.38)
19.29
80.87
(10.67)
(3.34)
(16.78)
50.08
(5.01)
(5.16)
39.91
33.88
(0.17)
(13.11)
20.60
(1.03)
15.05
34.62
39.14
(1.99)
(3.27)
(25.14)
8.74
(6.64)
2.10
33.65
(1.55)
(4.40)
27.70
(0.75)
26.95
Liquids
$/bbl
56.92
(7.40)
(2.40)
(13.02)
34.10
83.22
(11.17)
(5.51)
(15.62)
50.92
72.44
—
—
72.44
80.22
(3.75)
(12.43)
(25.64)
38.40
—
—
—
—
2019
Natural Gas
$/mcf
1.77
0.02
(0.19)
(1.39)
0.21
1.76
(0.73)
—
—
1.03
6.16
(0.08)
(1.79)
4.29
5.64
(0.73)
(0.20)
(2.99)
1.72
6.13
(0.26)
(0.73)
5.14
Total
$/boe
37.82
(4.30)
(1.88)
(11.09)
20.55
(1.07)
19.48
83.01
(11.15)
(5.49)
(15.57)
50.80
(3.91)
(5.45)
41.44
37.37
(0.49)
(10.64)
26.24
(0.88)
1.31
26.67
45.75
(4.20)
(4.09)
(19.93)
17.53
(6.75)
10.78
36.81
(1.57)
(4.39)
30.85
(0.88)
29.97
Q4 2018
Total
$/boe
2018
Total
$/boe
33.30
(4.57)
(1.99)
(11.09)
15.65
(0.38)
15.27
84.02
(11.72)
(3.17)
(13.71)
55.42
(3.71)
(0.86)
50.85
65.77
(0.67)
(8.40)
56.70
(0.88)
(9.31)
46.51
62.74
(3.41)
(4.16)
(18.95)
36.22
(6.61)
29.61
66.91
(1.40)
(5.64)
59.87
(2.55)
57.32
37.81
(4.77)
(1.69)
(10.00)
21.35
(0.34)
21.01
89.44
(11.60)
(2.59)
(13.56)
61.69
(3.51)
(3.74)
54.44
58.44
(1.12)
(9.40)
47.92
(0.69)
(5.83)
41.40
61.47
(4.94)
(4.79)
(17.18)
34.56
(5.52)
29.04
61.12
(1.53)
(4.58)
55.01
(2.50)
52.51
Vermilion Energy Inc. ■ Page 54 ■ 2019 Annual Report
Australia
Sales
Operating
PRRT (1)
Operating netback
General and administration
Current income taxes
Fund flows from operations netback
United States
Sales
Royalties
Operating
Operating netback
General and administration
Fund flows from operations netback
Total Company
Sales
Realized hedging gain (loss)
Royalties
Transportation
Operating
PRRT (1)
Operating netback
General and administration
Interest expense
Realized foreign exchange loss
Other income
Corporate income taxes
Fund flows from operations netback
Liquids
$/bbl
88.35
(34.09)
(5.87)
48.39
54.34
(12.55)
(9.81)
31.98
62.46
2.60
(8.03)
(2.38)
(14.94)
(0.30)
39.41
Q4 2019
Natural Gas
$/mcf
—
—
—
—
1.73
(0.44)
(1.46)
(0.17)
3.61
0.42
(0.08)
(0.17)
(1.60)
—
2.18
Total
$/boe
88.35
(34.09)
(5.87)
48.39
(5.97)
(2.00)
40.42
43.77
(10.17)
(9.56)
24.04
(4.01)
20.03
44.00
2.57
(4.60)
(1.76)
(12.52)
(0.16)
27.53
(1.88)
(2.17)
0.23
0.03
0.66
24.40
Liquids
$/bbl
93.33
(25.20)
(13.13)
55.00
54.33
(13.43)
(9.92)
30.98
65.73
1.78
(7.72)
(2.77)
(14.68)
(1.27)
41.07
2019
Natural Gas
$/mcf
—
—
—
—
2.15
(0.56)
(1.43)
0.16
3.58
0.49
(0.06)
(0.16)
(1.44)
—
2.41
Total
$/boe
93.33
(25.20)
(13.13)
55.00
(2.50)
(4.25)
48.25
44.17
(10.96)
(9.59)
23.62
(4.43)
19.19
46.12
2.30
(4.47)
(1.98)
(12.01)
(0.71)
29.25
(1.61)
(2.22)
(0.14)
0.21
(0.72)
24.77
Q4 2018
Total
$/boe
2018
Total
$/boe
97.19
(38.92)
5.98
64.25
(3.44)
(0.53)
60.28
44.85
(12.43)
(8.73)
23.69
(4.28)
19.41
48.90
(3.03)
(4.70)
(1.81)
(12.04)
0.26
27.58
(1.37)
(2.23)
0.63
0.03
(0.85)
23.79
95.11
(33.57)
(3.04)
58.50
(3.10)
(4.16)
51.24
52.90
(13.85)
(8.83)
30.22
(8.67)
21.55
52.95
(3.51)
(4.80)
(1.64)
(11.26)
(0.15)
31.59
(1.64)
(2.30)
0.01
0.03
(1.22)
26.47
(1)
Vermilion considers Australian PRRT to be an operating item and, accordingly, has included PRRT in the calculation of operating netbacks. Current income
taxes presented above excludes PRRT.
Vermilion Energy Inc. ■ Page 55 ■ 2019 Annual Report
Supplemental Table 2: Hedges
The prices in these tables may represent the weighted averages for several contracts with foreign currency amounts translated to the disclosure currency
using forward rates as at the month-end date. The weighted average price for the portfolio of options listed below may not have the same payoff profile
as the individual contracts. As such, the presentation of the weighted average prices is purely for indicative purposes.
The following tables outline Vermilion’s outstanding risk management positions as at December 31, 2019:
Unit
Currency
Dated Brent
Q1 2020
Q2 2020
WTI
Q1 2020
Q2 2020
Q3 2020
Q4 2020
AECO
Q1 2020
Q2 2020
Q3 2020
Q4 2020
bbl
bbl
bbl
bbl
bbl
bbl
mcf
mcf
mcf
mcf
USD
USD
USD
USD
USD
USD
CAD
CAD
CAD
CAD
AECO Basis (AECO less NYMEX Henry Hub)
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
NYMEX Henry Hub
Q1 2020
mcf
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
Bought Put
Volume
Weighted
Average
Bought Put
Price
Sold Call
Volume
Weighted
Average Sold
Call Price
Sold Put
Volume
Weighted
Average Sold
Put Price Swap Volume
Weighted
Average
Swap Price
3,000
3,000
9,750
7,250
500
500
62.25
62.25
54.18
53.07
57.00
57.00
3,000
3,000
6,000
4,000
500
500
67.39
67.39
60.95
60.23
61.25
61.25
10,426
1.58
10,426
2.56
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,000
3,000
9,750
7,250
500
500
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
55.58
55.58
46.23
44.86
52.00
52.00
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,500
59.17
—
—
—
—
10,426
10,426
3,513
32,500
52,500
50,000
36,739
30,000
45,000
45,000
35,054
30,000
35,000
35,000
11,793
—
—
—
—
1.39
1.39
1.39
(0.94)
(1.12)
(1.12)
(1.11)
(1.11)
(1.08)
(1.08)
(1.09)
(1.10)
(1.09)
(1.09)
(1.09)
10,000
2.75
10,000
3.10
10,000
2.25
—
—
Vermilion Energy Inc. ■ Page 56 ■ 2019 Annual Report
Unit
Currency
Bought Put
Volume
Weighted
Average
Bought Put
Price
Sold Call
Volume
Weighted
Average Sold
Call Price
Sold Put
Volume
Weighted
Average Sold
Put Price Swap Volume
Weighted
Average
Swap Price
NBP
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
NBP Basis (NBP less NYMEX Henry Hub)
Q1 2020
Q2 2020
Q3 2020
Q4 2020
TTF
Q1 2020
Q2 2020
Q3 2020
Q4 2020
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
USD
USD
USD
USD
EUR
EUR
EUR
EUR
TTF Basis (TTF less NYMEX Henry Hub)
Q2 2020
Q3 2020
mcf
mcf
USD
USD
49,135
41,765
41,765
61,419
54,048
46,678
46,678
54,048
19,654
12,284
17,500
15,000
15,000
10,000
7,370
13,512
13,512
7,370
2,500
2,500
5.27
5.21
5.21
5.28
5.44
5.42
5.42
5.44
5.42
5.33
2.74
2.61
2.61
3.24
5.37
5.36
5.36
5.37
3.50
3.50
49,135
41,765
41,765
63,875
56,505
46,678
46,678
54,048
19,654
12,284
17,500
15,000
15,000
10,000
7,370
9,827
9,827
7,370
2,500
2,500
5.83
5.53
5.52
5.77
5.85
5.80
5.77
5.72
6.30
6.03
3.99
3.98
3.98
3.98
6.25
6.15
6.15
6.25
4.00
4.00
49,135
41,765
41,765
61,419
54,048
46,678
46,678
54,048
19,654
12,284
—
—
—
—
7,370
13,512
13,512
7,370
—
—
3.98
3.83
3.83
3.90
3.94
3.92
3.92
3.94
3.79
3.60
—
—
—
—
3.81
3.73
3.73
3.81
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,913
3,258
—
5,000
5,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5.54
5.45
—
3.21
3.21
Cross Currency Interest Rate
Receive Notional Amount
Receive Rate
Pay Notional Amount
Swap
Swap
Jan 2020 - Mar 2025
Q1 2020
300,000,000
1,735,895,470
USD
USD
5.625%
LIBOR + 1.70%
265,048,910
2,304,900,000
EUR
CAD
Pay Rate
3.275%
CDOR + 1.25%
VET Equity Swaps
Swap
Swap
Jan 2020 - Sep 2021
Jan 2020 - Oct 2021
Initial Share Price
Share Volume
20.9788
22.4587
CAD
CAD
2,250,000
1,500,000
Vermilion Energy Inc. ■ Page 57 ■ 2019 Annual Report
The following sold option instruments allow the counterparties, at the specified date, to enter into a derivative instrument contract with Vermilion at the
detailed terms:
Period if Option
Exercised
Dated Brent
Feb 2020 - Jan 2021
Feb 2020 - Jan 2021
Mar 2020 - Feb 2021
Apr 2020 - Mar 2021
Apr 2020 - Mar 2021
May 2020 - Apr 2021
NBP
Oct 2020 - Jun 2022
Jan 2021 - Sep 2022
Jan 2021 - Sep 2022
Jan 2022 - Dec 2022
Oct 2020 - Jun 2022
Unit
Currency
Option
Expiration
Date
Bought Put
Volume
Weighted
Average
Bought Put
Price
Sold Call
Volume
Weighted
Average
Sold Call
Price
Sold Put
Volume
Weighted
Average
Sold Put
Price
Swap
Volume
Weighted
Average
Swap Price
bbl
bbl
bbl
bbl
bbl
bbl
mcf
mcf
mcf
mcf
mcf
USD
USD
USD
USD
USD
USD
EUR
EUR
USD
USD
EUR
28-Jan-20
31-Jan-20
28-Feb-20
31-Mar-20
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
31-Mar-20
1,000
64.00
1,000
69.00
1,000
59.00
30-Apr-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Sep-20
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
500
3,000
4,500
3,500
—
4,000
2,457
2,457
2,457
9,827
2,457
63.00
62.00
62.71
63.32
—
62.63
5.86
5.86
6.45
6.45
6.15
Vermilion Energy Inc. ■ Page 58 ■ 2019 Annual Report
Supplemental Table 3: Capital Expenditures and Acquisitions
By classification ($M)
Drilling and development
Exploration and evaluation
Capital expenditures
Acquisitions
Shares issued for acquisition
Contingent consideration
Long-term debt net of working capital assumed
Acquisitions
By category ($M)
Drilling, completion, new well equip and tie-in, workovers
Production equipment and facilities
Seismic, studies, land and other
Capital expenditures
Acquisitions
Total capital expenditures and acquisitions
Capital expenditures by country ($M)
Canada
France
Netherlands
Germany
Ireland
Australia
United States
Corporate
Total capital expenditures
Acquisitions by country ($M)
Canada
Netherlands
Germany
Ireland
United States
Corporate
Total acquisitions
Q4 2019
97,114
3,511
100,625
9,165
—
—
—
9,165
Q4 2019
72,515
29,221
(1,111)
100,625
9,165
109,790
Q4 2019
66,643
8,745
9,651
5,177
923
6,452
3,132
(98)
100,625
Q4 2019
5,003
—
1,456
—
575
2,131
9,165
Q3 2019
117,123
10,756
127,879
4,657
—
—
—
4,657
Q3 2019
93,681
28,722
5,476
127,879
4,657
132,536
Q3 2019
69,963
18,139
3,028
4,229
354
2,995
21,064
8,107
127,879
Q3 2019
1,746
—
947
—
1,964
—
4,657
Q4 2018
160,359
3,221
163,580
(31,314)
—
2
34,005
2,689
Q4 2018
151,511
9,166
2,903
163,580
2,689
166,269
Q4 2018
90,211
17,008
2,454
4,580
140
43,760
2,881
2,546
163,580
Q4 2018
12,233
(7,860)
706
(5,572)
3,674
(492)
2,689
2019
486,677
36,487
523,164
38,472
—
—
—
38,472
2019
411,390
87,711
24,063
523,164
38,472
561,636
2019
293,744
74,641
23,605
21,684
1,372
30,550
57,196
20,372
523,164
2019
24,064
908
7,570
—
3,799
2,131
38,472
2018
503,842
14,372
518,214
276,308
1,235,221
2
247,898
1,759,425
2018
434,875
62,496
20,843
518,214
1,759,425
2,277,639
2018
277,857
79,758
17,483
15,806
224
75,638
40,837
10,611
518,214
2018
1,573,964
(2,087)
1,665
(5,572)
191,740
(285)
1,759,425
In 2019, included in cash expenditures on acquisitions of $38.5 million is: $16.0 million net paid to vendors in relation to the purchase of assets from
other oil and gas producers; $4.7 million in asset improvements incurred subsequent to acquisitions for compliance with safety, environmental, and
Vermilion's operating standards; $6.2 million paid to acquire land; $0.9 million paid to acquire royalty interests, and $10.6 million relating to the carry
component of farm-in arrangements.
Vermilion Energy Inc. ■ Page 59 ■ 2019 Annual Report
Supplemental Table 4: Production
Q4/19
Q3/19
Q2/19
Q1/19
Q4/18
Q3/18
Q2/18
Q1/18
Q4/17
Q3/17
Q2/17
Q1/17
Canada
Crude oil & condensate (bbls/d)
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
27,399
7,005
145.14
58,593
27,682
6,632
145.14
58,504
28,844
7,352
151.87
61,507
29,164
6,968
151.37
61,360
29,557
6,816
146.65
60,814
28,477
6,126
136.77
57,397
17,009
5,589
127.32
43,817
9,272
5,106
106.21
32,078
9,703
5,235
107.91
32,923
9,288
4,891
103.92
31,499
9,205
3,745
93.68
28,563
7,987
2,670
85.74
24,947
61%
60%
60%
59%
60%
59%
55%
46%
45%
46%
43%
38%
France
Crude oil (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
Netherlands
Condensate (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
Germany
Crude oil (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
Ireland
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
Australia
Crude oil (bbls/d)
% of consolidated
United States
Crude oil (bbls/d)
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
Corporate
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
Consolidated
Liquids (bbls/d)
% of consolidated
Natural gas (mmcf/d)
% of consolidated
Total (boe/d)
10,264
—
10,264
10,347
—
10,347
9,800
—
9,800
11,342
0.77
11,470
11,317
0.82
11,454
11,407
—
11,407
11,683
—
11,683
11,037
—
11,037
11,215
—
11,215
10,918
—
10,918
11,368
—
11,368
10,834
0.01
10,836
10%
11%
10%
11%
11%
12%
14%
16%
15%
16%
17%
17%
90
47.99
8,088
82
44.08
7,429
100
52.90
8,917
93
51.51
8,677
112
51.82
8,749
84
44.37
7,479
87
43.49
7,335
77
44.79
7,541
105
55.66
9,381
74
34.90
5,890
104
31.58
5,368
76
39.92
6,729
8%
8%
9%
8%
9%
8%
9%
11%
13%
9%
8%
10%
800
15.44
3,373
845
14.54
3,269
1,047
14.56
3,474
978
16.71
3,763
913
16.94
3,736
1,019
14.88
3,498
1,008
14.63
3,447
1,078
16.19
3,777
1,148
18.19
4,180
1,054
20.12
4,407
1,047
19.86
4,357
989
19.39
4,220
3%
3%
3%
4%
4%
4%
4%
5%
6%
7%
6%
7%
42.30
7,049
43.21
7,202
49.21
8,201
51.71
8,619
52.03
8,672
51.38
8,563
56.56
9,426
60.87
10,144
56.23
9,372
49.04
8,173
63.81
10,634
64.82
10,803
7%
7%
8%
8%
9%
9%
12%
14%
13%
12%
16%
17%
4,548
5,564
6,689
5,862
4,174
4,704
4,132
4,971
4,993
5,473
6,054
5%
6%
6%
6%
4%
5%
5%
7%
7%
8%
9%
3,161
1,156
8.20
5,683
2,722
1,140
6.38
4,925
2,483
754
7.06
4,414
1,742
929
5.89
3,653
1,605
998
5.65
3,545
1,461
714
4.82
2,979
655
62
0.40
784
574
20
0.15
618
667
43
0.29
758
880
56
0.64
1,043
747
76
0.44
896
6,581
10%
365
24
0.20
422
6%
5%
4%
4%
3%
3%
1%
1%
1%
2%
1%
1%
1.66
276
—
—
—
—
—
—
—
—
—
—
2.86
477
—
1.17
195
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
54,421
55,014
57,071
57,078
55,493
53,991
40,225
32,134
33,109
32,634
32,346
29,526
56%
57%
55%
55%
55%
56%
50%
46%
45%
48%
48%
46%
260.72
253.36
275.60
277.96
276.77
253.38
242.40
228.20
238.28
208.62
209.36
210.07
44%
43%
45%
45%
45%
44%
50%
54%
55%
52%
52%
54%
97,875
97,239
103,003
103,404
101,621
96,222
80,625
70,167
72,821
67,403
67,240
64,537
Vermilion Energy Inc. ■ Page 60 ■ 2019 Annual Report
Canada
Crude oil & condensate (bbls/d)
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
France
Crude oil (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
Netherlands
Condensate (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
Germany
Crude oil (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
Ireland
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
Australia
Crude oil (bbls/d)
% of consolidated
United States
Crude oil (bbls/d)
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
Corporate
Natural gas (mmcf/d)
Total (boe/d)
% of consolidated
Consolidated
Liquids (bbls/d)
% of consolidated
Natural gas (mmcf/d)
% of consolidated
Total (boe/d)
2019
2018
2017
2016
2015
2014
28,266
6,988
148.35
59,979
21,154
5,914
129.37
48,630
9,051
4,144
97.89
29,510
9,171
2,552
84.29
25,771
11,357
2,301
71.65
25,598
12,491
1,233
55.67
23,001
60%
56%
45%
40%
46%
47%
10,435
0.19
10,467
11,362
0.21
11,396
11,084
—
11,085
11,896
0.44
11,970
12,267
0.97
12,429
11,011
—
11,011
10%
13%
16%
19%
23%
22%
91
49.10
8,274
90
46.13
7,779
90
40.54
6,847
88
47.82
8,058
99
44.76
7,559
77
38.20
6,443
8%
9%
10%
13%
14%
13%
917
15.31
3,468
1,004
15.66
3,614
1,060
19.39
4,291
—
14.90
2,483
—
15.78
2,630
—
14.99
2,498
3%
4%
6%
4%
5%
5%
46.57
7,762
55.17
9,195
58.43
9,737
50.89
8,482
8%
11%
14%
13%
0.03
5
—
—
—
—
5,662
4,494
5,770
6%
5%
8%
6,304
10%
6,454
12%
6,571
13%
2,531
996
6.89
4,675
1,078
452
2.78
1,992
666
50
0.39
781
393
29
0.21
457
5%
2%
1%
1%
0.42
70
—
1.02
169
—
—
—
—
—
—
—
231
7
0.05
247
—
—
—
—
49
—
—
49
—
—
—
—
55,886
45,548
31,915
30,433
32,716
31,432
56%
52%
47%
48%
60%
63%
266.82
250.33
216.64
198.55
133.24
108.85
44%
48%
53%
52%
40%
37%
100,357
87,270
68,021
63,526
54,922
49,573
Vermilion Energy Inc. ■ Page 61 ■ 2019 Annual Report
Fund flows from operations
104,031
38,372
25,762
619
17,478
10,009
10,474
Year Ended December 31, 2019
France Netherlands
Germany
USA
Corporate
Total
Supplemental Table 5: Segmented Financial Results
($M)
Drilling and development
Exploration and evaluation
Crude oil and condensate sales
NGL sales
Natural gas sales
Sales of purchased commodities
Royalties
Revenue from external customers
Purchased commodities
Transportation
Operating
General and administration
PRRT
Corporate income taxes
Interest expense
Realized gain on derivative instruments
Realized foreign exchange gain
Realized other income
Canada
66,643
—
167,045
8,784
31,068
—
(24,127)
182,770
—
(10,384)
(60,931)
(7,424)
—
—
—
—
—
—
France Netherlands
Germany
Ireland
Australia
Three Months Ended December 31, 2019
8,807
(62)
77,781
—
—
—
(10,265)
67,516
—
(3,215)
(16,142)
(4,821)
—
(4,966)
—
—
—
—
6,571
3,080
608
—
24,607
—
(130)
25,085
—
—
(9,758)
(763)
—
11,198
—
—
—
—
6,355
(1,178)
4,491
—
7,040
—
(587)
10,944
—
(963)
(7,405)
(1,957)
—
—
—
—
—
—
923
—
11
—
21,813
—
—
21,824
—
(1,008)
(2,854)
(484)
—
—
—
—
—
—
6,452
—
21,872
—
—
—
—
21,872
—
—
(8,438)
(1,477)
(1,453)
(495)
—
—
—
—
($M)
Total assets
Drilling and development
Exploration and evaluation
Crude oil and condensate sales
NGL sales
Natural gas sales
Sales of purchased commodities
Royalties
Revenue from external customers
Purchased commodities
Transportation
Operating
General and administration
PRRT
Corporate income taxes
Interest expense
Realized gain on derivative instruments
Realized foreign exchange loss
Realized other income
Canada
3,088,947
293,744
—
699,290
33,159
95,621
—
(94,079)
733,991
—
(41,261)
(242,790)
(23,341)
—
—
—
—
—
—
110,446
31,529
104,247
841,875
74,579
62
326,578
—
121
—
(43,895)
282,804
—
(21,609)
(61,281)
(15,406)
—
(21,431)
—
—
—
—
226,834
19,866
3,739
2,411
—
261,712
10,806
10,878
25,783
—
—
(1,469)
111,388
—
—
(32,125)
(2,659)
—
3,961
—
—
—
—
—
(5,264)
52,048
—
(5,117)
(24,970)
(8,452)
—
—
—
—
—
—
Ireland
470,316
1,372
—
27
—
—
—
Australia
233,581
30,550
—
184,490
—
—
—
—
104,274
184,490
—
(4,459)
(12,431)
(2,491)
—
—
—
—
—
—
—
—
(49,810)
(4,940)
(25,947)
(8,407)
—
—
—
—
Fund flows from operations
426,599
163,077
80,565
13,509
84,893
95,386
32,722
Vermilion Energy Inc. ■ Page 62 ■ 2019 Annual Report
USA
3,132
—
Corporate
(1,769)
1,671
Total
97,114
3,511
291,189
10,984
86,629
74,951
(40,679)
423,074
(74,951)
(15,570)
(110,583)
(16,569)
(1,453)
5,835
(19,169)
22,712
2,013
253
215,592
—
—
797
74,951
(254)
75,494
(74,951)
—
(59)
2,456
—
98
(19,169)
22,712
2,013
253
8,847
321,246
5,866,120
(1,436)
21,808
486,677
36,487
—
—
797
221,274
1,302,028
39,658
348,177
221,274
(253)
(163,666)
221,818
1,747,471
(221,274)
—
(301)
5,879
—
(406)
(81,377)
84,219
(4,954)
7,700
11,304
(221,274)
(72,446)
(440,078)
(58,976)
(25,947)
(26,283)
(81,377)
84,219
(4,954)
7,700
908,055
19,381
2,200
1,304
—
(5,316)
17,569
—
—
(4,996)
(2,099)
—
—
—
—
—
—
421,609
57,196
—
63,449
6,499
5,416
—
(18,706)
56,658
—
—
(16,370)
(7,566)
—
—
—
—
—
—
Non-GAAP Financial Measures
This MD&A includes references to certain financial measures which do not have standardized meanings and may not be comparable to similar measures
presented by other issuers. These financial measures include fund flows from operations, a measure of profit or loss in accordance with IFRS 8
“Operating Segments” (please see Segmented Information in the Notes to the Consolidated Financial Statements) and net debt, a measure of capital
in accordance with IAS 1 “Presentation of Financial Statements” (please see Capital Disclosures in the Notes to the Consolidated Financial Statements).
In addition, this MD&A includes financial measures which are not specified, defined, or determined under IFRS and are therefore considered non-GAAP
financial measures and may not be comparable to similar measures presented by other issuers. These non-GAAP financial measures include:
Acquisitions: The sum of acquisitions from the Consolidated Statements of Cash Flows, Vermilion common shares issued as consideration, the
estimated value of contingent consideration, the amount of acquiree's outstanding long-term debt assumed plus or net of acquired working capital deficit
or surplus. We believe that including these components provides a useful measure of the economic investment associated with our acquisition activity.
Capital expenditures: 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.
Cash dividends per share: Represents cash dividends declared per share and is a useful measure of the dividends a common shareholder was
entitled to during the period.
Covenants: The financial covenants on our revolving credit facility contain non-GAAP measures. The definitions for these financial covenants are
included in Financial Position Review.
Diluted shares outstanding: The sum of shares outstanding at the period end plus outstanding awards under the VIP, based on current estimates of
future performance factors and forfeiture rates.
Free cash flow: Represents fund flows from operations in excess of capital expenditures. We use free cash flow to determine the funding available
for investing and financing activities, including payment of dividends, repayment of long-term debt, reallocation to existing business units, and deployment
into new ventures. We also assess free cash flow as a percentage of fund flows from operations, which is a measure of the percentage of fund flows
from operations that is retained for incremental investing and financing activities.
Fund flows from operations per basic and diluted share: Management assesses fund flows from operations on a per share basis as we believe
this provides a measure of our operating performance after taking into account the issuance and potential future issuance of Vermilion common shares.
Fund flows from operations per basic share is calculated by dividing fund flows from operations by the basic weighted average shares outstanding as
defined under IFRS. Fund flows from operations per diluted share is calculated by dividing fund flows from operations by the sum of basic weighted
average shares outstanding and incremental shares issuable under the equity based compensation plans as determined using the treasury stock
method.
Net 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.
Operating netback: 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. In contrast, fund flows from
operations netback also includes general and administration expense, corporate income taxes, and interest. Fund flows from operations netback is
used by management to assess the profitability of our business units and Vermilion as a whole.
Payout: We define payout as net dividends plus drilling and development costs, exploration and evaluation costs, and asset retirement obligations
settled. Management uses payout and payout as a percentage of fund flows from operations (also referred to as the payout or sustainability ratio)
to assess the amount of cash distributed back to shareholders and re-invested in the business for maintaining production and organic growth.
Return on capital employed (ROCE): ROCE is a measure that we use to analyze our profitability and the efficiency of our capital allocation process.
ROCE is calculated by dividing net earnings before interest and taxes ("EBIT") by average capital employed over the preceding twelve months. Capital
employed is calculated as total assets less current liabilities while average capital employed is calculated using the balance sheets at the beginning
and end of the twelve-month period.
Vermilion Energy Inc. ■ Page 63 ■ 2019 Annual Report
The following tables reconcile net dividends, payout, and diluted shares outstanding from their most directly comparable GAAP measures as presented
in our financial statements:
($M)
Dividends declared
Shares issued for the Dividend Reinvestment Plan
Net dividends
Drilling and development
Exploration and evaluation
Asset retirement obligations settled
Payout
% of fund flows from operations
('000s of shares)
Shares outstanding
Potential shares issuable pursuant to the VIP
Diluted shares outstanding
Q4 2019
107,702
(10,200)
97,502
97,114
3,511
7,352
205,479
Q3 2019
107,176
(8,860)
98,316
117,123
10,756
3,586
229,781
Q4 2018
105,310
(5,115)
100,195
160,359
3,221
6,562
270,337
2019
427,311
(34,937)
392,374
486,677
36,487
19,442
934,980
2018
388,111
(49,051)
339,060
503,842
14,372
15,765
873,039
95%
106%
122%
103%
104%
Q4 2019
156,290
3,622
159,912
Q3 2019
155,505
3,755
159,260
Q4 2018
152,704
3,469
156,173
The following tables reconciles the calculation of return on capital employed:
($M)
Net earnings
Taxes
Interest expense
EBIT
Average capital employed
Return on capital employed
Twelve Months Ended
Dec 31, 2019
32,799
108,326
81,377
222,502
5,578,691
Dec 31, 2018
271,650
83,048
72,759
427,457
4,659,566
4%
9%
Vermilion Energy Inc. ■ Page 64 ■ 2019 Annual Report
Management's Report to Shareholders
Management's Responsibility for Financial Statements
The accompanying consolidated financial statements of Vermilion Energy Inc. are the responsibility of management and have been approved by the
Board of Directors of Vermilion Energy Inc. The consolidated financial statements have been prepared in accordance with the accounting policies
detailed in the notes to the consolidated financial statements and are prepared in accordance with International Financial Reporting Standards as issued
by the International Accounting Standards Board. Where necessary, management has made informed judgments and estimates of transactions that
were not yet completed at the balance sheet date. Financial information throughout the Annual Report is consistent with the consolidated financial
statements.
Management ensures the integrity of the consolidated financial statements by maintaining high-quality systems of internal control. Procedures and
policies are designed to provide reasonable assurance that assets are safeguarded and transactions are properly recorded, and that the financial
records are reliable for preparation of the consolidated financial statements. Deloitte LLP, Vermilion’s Independent Registered Public Accounting Firm,
have conducted an audit of the consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States) and have provided their report.
The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and internal control. The Board carries
out this responsibility principally through the Audit Committee, which is appointed by the Board and is comprised entirely of independent Directors. The
Committee meets periodically with management and Deloitte LLP to satisfy itself that each party is properly discharging its responsibilities and to review
the consolidated financial statements, Management’s Discussion and Analysis and the Report of the Independent Registered Public Accounting Firm
before they are presented to the Board of Directors.
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining an adequate system of internal control over financial reporting. Management, under the
supervision and with the participation of the principal executive officer and principle financial officer, conducted an evaluation of the effectiveness of the
system of internal control over financial reporting based on the criteria established in “Internal Control - Integrated Framework (2013)” issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management has assessed the effectiveness of
Vermilion’s internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the US Securities Exchange Act of 1934 and as
defined in Canada by National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings. Management concluded that
Vermilion’s internal control over financial reporting was effective as of December 31, 2019.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even those systems determined
to be effective can provide only reasonable assurance with respect to the financial statement preparation and presentation.
The effectiveness of Vermilion’s internal control over financial reporting as of December 31, 2019 has been audited by Deloitte LLP, the Company’s
Independent Registered Public Accounting Firm, who also audited the Company’s consolidated financial statements for the year ended December 31,
2019.
(“Anthony Marino”)
(“Lars Glemser”)
Anthony Marino
President & Chief Executive Officer
March 5, 2020
Lars Glemser
Vice President & Chief Financial Officer
Vermilion Energy Inc. ■ Page 65 ■ 2019 Annual Report
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Vermilion Energy Inc.:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Vermilion Energy Inc. and subsidiaries (the “Company”) as of December 31, 2019, based
on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
financial statements as of and for the year ended December 31, 2019, of the Company and our report dated March 5, 2020, expressed an unqualified
opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the accompanying Management’s Report to Shareholders. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Deloitte LLP
Chartered Professional Accountants
Calgary, Canada
March 5, 2020
Vermilion Energy Inc. ■ Page 66 ■ 2019 Annual Report
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Vermilion Energy Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Vermilion Energy Inc. and subsidiaries (the "Company") as of December 31, 2019
and 2018, the related consolidated statements of net earnings and comprehensive (loss) income, consolidated statements of cash flows, and consolidated
statements of changes in shareholders’ equity for the years then ended and the related notes (collectively referred to as the "financial statements"). In
our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018,
and its financial performance and its cash flows for the years then ended, in conformity with International Financial Reporting Standards as issued by
the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 5, 2020, expressed an unqualified opinion on
the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the
critical audit matter or on the accounts or disclosures to which it relates.
Deferred Taxes - Refer to Notes 2 and 11 to the Financial Statements
Critical Audit Matter Description
The Company recognizes deferred income taxes for differences between the financial statement and tax basis of assets and liabilities at enacted or
substantively enacted statutory tax rates that are expected to be in effect when the temporary differences are expected to reverse. Deferred income
tax assets are reduced to the amounts expected to be realized based on forecasts of future taxable profits, specifically forecasts of future revenue
(future commodity price forecasts and estimates of reserves). The Company recorded a deferred income tax asset for the Canada and Ireland segments
primarily arising from past taxable losses in these jurisdictions.
In order to determine whether it is probable that the deferred income tax assets in the Canada and Ireland segments will be realized, management
makes assumptions related to the forecasts of future taxable income, specifically forecasts of future revenue (future commodity price forecasts and
estimates of reserves). The Company’s management engages an expert, an independent engineering firm (“management’s expert”), to determine
the estimates of reserves. As such, auditing the probability of the deferred income tax assets being realized and management’s future commodity
price forecasts and estimates of reserves involved a high degree of auditor judgement as the estimations made by management contain significant
measurement uncertainty. This resulted in an increased extent of audit effort, which included the need to involve specialists.
Vermilion Energy Inc. ■ Page 67 ■ 2019 Annual Report
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to assessing the probability of the deferred income tax assets being realized and management’s forecasts of taxable profit,
specifically forecasts of future revenue (future commodity price forecasts and estimates of reserves) to evaluate the deferred income tax assets in the
Canada and Ireland segments included the following, among others:
•
•
•
Evaluated the effectiveness of relevant controls, including those over the determination of the forecasts of future revenue.
Evaluated management’s ability to accurately forecast future revenue by comparing management’s assumptions to historical data and available
market trends.
Evaluated the reasonableness of management’s forecasts of future revenue by:
◦
◦
◦
Evaluating whether management’s estimates of future commodity price forecasts and estimates of reserves were consistent with the
requirements of IAS 12 relating to the probability of forecasted future revenue and the length of the forecast period.
Evaluating the experience, qualifications and objectivity of management’s expert.
Performing analytical procedures on the estimates of reserves developed by management’s expert.
• With the assistance of fair value specialists, evaluated the future commodity price forecasts used in the estimate of future cash flow by:
◦
◦
Comparing the forecasts prepared by management’s expert to third party forecasts.
Comparing the differential between the index commodity prices and the future commodity prices to actual historical results.
• With the assistance of an income tax specialist, evaluated the probability of the deferred tax asset being realized.
/s/ Deloitte LLP
Chartered Professional Accountants
Calgary, Canada
March 5, 2020
We have served as the Company's auditor since 2000.
Vermilion Energy Inc. ■ Page 68 ■ 2019 Annual Report
Consolidated Financial Statements
Consolidated Balance Sheet
thousands of Canadian dollars
Note
December 31, 2019
December 31, 2018
Assets
Current
Cash and cash equivalents
Accounts receivable
Crude oil inventory
Derivative instruments
Prepaid expenses
Total current assets
Derivative instruments
Deferred taxes
Exploration and evaluation assets
Capital assets
Total assets
Liabilities
Current
Accounts payable and accrued liabilities
Dividends payable
Derivative instruments
Income taxes payable
Total current liabilities
Derivative instruments
Long-term debt
Lease obligations
Asset retirement obligations
Deferred taxes
Total liabilities
Shareholders' Equity
Shareholders' capital
Contributed surplus
Accumulated other comprehensive income
Deficit
Total shareholders' equity
Total liabilities and shareholders' equity
Approved by the Board
(Signed “Catherine L. Williams”)
Catherine L. Williams, Director
19
9
9
11
7
6
13
9
9
12
10
8
11
13
29,028
211,409
29,389
55,645
22,210
347,681
20,127
196,543
286,149
5,015,620
5,866,120
312,442
35,947
62,405
5,416
416,210
24,358
1,924,665
93,072
618,201
336,309
3,412,815
4,119,031
75,735
49,578
(1,791,039)
2,453,305
5,866,120
26,809
260,322
27,751
95,667
19,328
429,877
1,215
219,411
303,295
5,316,873
6,270,671
449,651
35,122
41,016
37,410
563,199
17,527
1,796,207
108,189
650,164
318,134
3,453,420
4,008,828
78,478
118,182
(1,388,237)
2,817,251
6,270,671
(Signed “Anthony Marino”)
Anthony Marino, Director
Vermilion Energy Inc. ■ Page 69 ■ 2019 Annual Report
Consolidated Statements of Net Earnings and Comprehensive (Loss) Income
thousands of Canadian dollars, except share and per share amounts
Year Ended
Note
Dec 31, 2019
Dec 31, 2018
Revenue
Petroleum and natural gas sales
Royalties
Sales of purchased commodities
Petroleum and natural gas revenue
Expenses
Purchased commodities
Operating
Transportation
Equity based compensation
(Gain) loss on derivative instruments
Interest expense
General and administration
Foreign exchange (gain) loss
Other income
Accretion
Depletion and depreciation
Impairment
Gain on business combination
Earnings before income taxes
Taxes
Deferred
Current
Net earnings
Other comprehensive (loss) income
Currency translation adjustments
Unrealized gain on derivatives designated as cash flow hedges, net of tax
Unrealized gain on derivatives designated as net investment hedges, net of tax
Comprehensive (loss) income
Net earnings per share
Basic
Diluted
Weighted average shares outstanding ('000s)
Basic
Diluted
1,689,863
(163,666)
221,274
1,747,471
221,274
440,078
72,446
64,233
(26,792)
81,377
58,976
(52,271)
(6,875)
32,667
675,177
46,056
—
1,606,346
141,125
56,096
52,230
108,326
32,799
(81,042)
11,295
1,143
(35,805)
0.21
0.21
154,736
156,095
1,678,117
(152,167)
—
1,525,950
—
357,014
51,887
60,746
1,932
72,759
51,929
63,000
(82)
31,219
609,056
—
(128,208)
1,171,252
354,698
39,471
43,577
83,048
271,650
46,353
—
—
318,003
1.93
1.91
140,619
142,335
19
15
9
19
8
6, 7
6
5
11
9, 12
9, 12
16
16
Vermilion Energy Inc. ■ Page 70 ■ 2019 Annual Report
Consolidated Statements of Cash Flows
thousands of Canadian dollars
Operating
Net earnings
Adjustments:
Accretion
Depletion and depreciation
Impairment
Gain on business combinations
Unrealized loss (gain) on derivative instruments
Equity based compensation
Unrealized foreign exchange (gain) loss
Unrealized other expense
Deferred taxes
Asset retirement obligations settled
Changes in non-cash operating working capital
Cash flows from operating activities
Investing
Drilling and development
Exploration and evaluation
Acquisitions
Changes in non-cash investing working capital
Cash flows used in investing activities
Financing
Borrowings on the revolving credit facility
Payments on lease obligations
Cash dividends
Cash flows used in financing activities
Foreign exchange gain on cash held in foreign currencies
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplementary information for cash flows from operating activities
Interest paid
Income taxes paid
Year Ended
Note
Dec 31, 2019
Dec 31, 2018
8
6, 7
6
5
9
15
11
8
19
6
7
5
19
12
10
13
19
32,799
32,667
675,177
46,056
—
57,427
64,233
(57,225)
825
56,096
(19,442)
(65,148)
823,465
(486,677)
(36,487)
(38,472)
(57,072)
(618,708)
214,895
(26,354)
(391,549)
(203,008)
470
2,219
26,809
29,028
73,783
84,224
271,650
31,219
609,056
—
(128,208)
(109,326)
60,746
63,243
801
39,471
(15,765)
(6,876)
816,011
(503,842)
(14,372)
(276,308)
55,491
(739,031)
251,155
(18,884)
(330,194)
(97,923)
1,191
(19,752)
46,561
26,809
70,049
45,228
Vermilion Energy Inc. ■ Page 71 ■ 2019 Annual Report
Consolidated Statements of Changes in Shareholders' Equity
thousands of Canadian dollars
Shareholders' capital
Balance, beginning of year
Shares issued for acquisition
Shares issued for the Dividend Reinvestment Plan
Vesting of equity based awards
Equity based compensation
Share-settled dividends on vested equity based awards
Balance, end of year
Contributed surplus
Balance, beginning of year
Equity based compensation
Vesting of equity based awards
Balance, end of year
Accumulated other comprehensive income
Balance, beginning of year
Currency translation adjustments
Gain on derivatives designated as cash flow hedges, net of tax
Amount reclassified from cash flow hedge reserve to net earnings, net of tax
Loss on derivatives designated as net investment hedges, net of tax
Amount reclassified from net investment hedge reserve to net earnings, net of tax
Balance, end of year
Deficit
Balance, beginning of year
Net earnings
Dividends declared
Share-settled dividends on vested equity based awards
Balance, end of year
Note
13
9, 12
9, 12
13
Year Ended
Dec 31, 2019
Dec 31, 2018
4,008,828
—
34,937
51,108
15,868
8,290
4,119,031
78,478
48,365
(51,108)
75,735
118,182
(81,042)
19,659
(8,364)
(3,513)
4,656
49,578
(1,388,237)
32,799
(427,311)
(8,290)
(1,791,039)
2,650,706
1,234,676
49,051
54,057
12,565
7,773
4,008,828
84,354
48,181
(54,057)
78,478
71,829
46,353
—
—
—
—
118,182
(1,264,003)
271,650
(388,111)
(7,773)
(1,388,237)
Total shareholders' equity
2,453,305
2,817,251
Description of equity reserves
Shareholders’ capital
Represents the recognized amount for common shares when issued, net of equity issuance costs and deferred taxes.
Contributed surplus
Represents the recognized value of unvested equity based awards that will be settled in shares. Once vested, the value of the awards are transferred
to shareholders’ capital.
Accumulated other comprehensive income
Represents currency translation adjustments and changes in the fair value of derivative financial instruments in designated hedging relationships.
Currency translation adjustments result from translating the balance sheets of subsidiaries with a foreign functional currency to Canadian dollars at
period-end rates. These amounts may be reclassified to net earnings if there is a disposal or partial disposal of a subsidiary.
The effective portion of the change in fair value related to cash flow and net investment hedges are recognized in other comprehensive income, net of
tax and reclassified to the consolidated statement of net earnings in the same period in which the transaction associated with the hedged item occurs.
Upon discontinuation of hedge accounting, the reserve amounts will be reclassified to net earnings.
Deficit
Represents the cumulative net earnings less distributed earnings of Vermilion Energy Inc.
Vermilion Energy Inc. ■ Page 72 ■ 2019 Annual Report
Notes to the Consolidated Financial Statements for the year ended December 31, 2019
and 2018
tabular amounts in thousands of Canadian dollars, except share and per share amounts
1. Basis of presentation
Vermilion Energy Inc. and its subsidiaries (the “Company” or “Vermilion”) are engaged in the business of petroleum and natural gas exploration,
development, acquisition, and production.
Vermilion was incorporated in Canada and the Company’s registered office and principal place of business is located at 3500, 520, 3rd Avenue SW,
Calgary, Alberta, Canada.
These consolidated financial statements were approved and authorized for issuance by Vermilion’s Board of Directors on March 5, 2020.
2. Significant accounting policies
Accounting framework
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”).
Principles of consolidation
The consolidated financial statements include the accounts of Vermilion Energy Inc. and its subsidiaries. Vermilion’s subsidiaries include entities in
each of the jurisdictions that Vermilion operates as described in Note 4 (Segmented information) including: Canada, France, Netherlands, Germany,
Ireland, Australia, the United States, and Central and Eastern Europe (Hungary, Slovakia, and Croatia). Vermilion Energy Inc. directly or indirectly
through holding companies owns all of the voting securities of each material subsidiary. Transactions between Vermilion Energy Inc. and its subsidiaries
have been eliminated.
Vermilion accounts for joint operations by recognizing the Company’s share of assets, liabilities, income, and expenses.
Exploration and evaluation assets
Vermilion classifies costs as exploration and evaluation (“E&E”) assets when they relate to exploring and evaluating an area for which the Company
has the license or right to explore and extract resources. E&E costs may include: geological and geophysical costs; land and license acquisition costs;
and costs for the drilling, completion, and testing of exploration wells.
E&E costs are reclassified to capital assets if the technical feasibility and commercial viability of the area can be determined. E&E assets are assessed
for impairment prior to any reclassification. The technical feasibility and commercial viability of extracting the reserves is considered to be determinable
when proved and probable reserves are identified.
Costs incurred prior to the acquisition of the legal rights to explore an area are expensed as incurred. If reserves are not found within the license area
or the area is abandoned, the related E&E costs are depreciated over a period not greater than five years. If an exploration license expires prior to the
commencement of exploration activities, the cost of the exploration license is written off through depreciation in the year of expiration.
Capital assets
Vermilion recognizes capital assets at cost less accumulated depletion, depreciation, and impairment losses. Costs include directly attributable costs
incurred for the drilling, completion, and tie-in of wells and the construction of production and processing facilities.
When components of capital assets are replaced, disposed of, or no longer in use, they are derecognized. Gains and losses on disposal of capital
assets are determined by comparing the proceeds of disposal compared to the carrying amount.
Vermilion Energy Inc. ■ Page 73 ■ 2019 Annual Report
Depletion and depreciation
Capital assets are grouped into depletion units, which are groups of assets within a specific production area that have similar economic lives. Depletion
units represent the lowest level of disaggregation for which costs are accumulated for the purposes of calculating depletion and depreciation.
The net carrying value of each depletion unit is depleted using the unit of production method by reference to the ratio of production in the period to the
total proved and probable reserves, taking into account the future development costs necessary to bring the applicable reserves into production.
For the purposes of the depletion calculations, oil and gas reserves are converted to a common unit of measure on the basis of their relative energy
content based on a conversion ratio of six thousand cubic feet of natural gas to one barrel of oil equivalent.
Impairment of capital assets and exploration and evaluation assets
Depletion units are aggregated into cash generating units (“CGUs”) for impairment testing. CGUs are the lowest level for which there are identifiable
cash inflows that are largely independent of cash inflows of other groups of assets. CGUs are reviewed for indicators of potential impairment at each
reporting date.
E&E assets are tested for impairment when reclassified to capital assets or when indicators of potential impairment are identified. E&E assets are
reviewed for indicators of potential impairment at each reporting date. If indicators of potential impairment are identified, E&E assets are tested for
impairment as part of the CGU attributable to the jurisdiction in which the exploration area resides.
If an indicator of potential impairment exists, the CGU’s carrying value is compared to its recoverable amount. A CGU’s recoverable amount is the
higher of its fair value less costs of disposal and its value-in-use. If the carrying amount of a CGU exceeds its recoverable amount, an impairment loss
is recognized to reduce the carrying value of the CGU to its recoverable amount.
If an impairment loss has been recognized in a prior period, an assessment is performed at each reporting date to determine if there are indicators that
the circumstances which led to the impairment loss have reversed. If the change in circumstances results in the recoverable amount being higher than
the carrying value after the impairment loss, then the impairment loss (net of depletion that would otherwise have been recorded) is reversed.
Lease obligations and right-of-use assets
A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
At the lease commencement date, a lease obligation is recognized at the present value of future lease payments, typically using the applicable incremental
borrowing rate. A corresponding right-of-use asset is recognized at the amount of the lease obligation, adjusted for lease incentives received and initial
direct costs. Vermilion does not recognize leases for short-term leases with a lease term of 12 months or less, or leases for low-value assets.
Payments are applied against the lease obligation and interest expense is recognized on the lease obligations using the effective interest rate method.
Depreciation is recognized on the right-of-use asset over the lease term.
Cash and cash equivalents
Cash and cash equivalents include cash on deposit with financial institutions and guaranteed investment certificates.
Crude oil inventory
Crude oil inventory is valued at the lower of cost or net realizable value. The cost of crude oil inventory produced includes related operating expense,
royalties, and depletion determined on a weighted-average basis.
Asset retirement obligations
Vermilion recognizes a provision for asset retirement obligations when an event occurs giving rise to an obligation of uncertain timing or amount. Asset
retirement obligations are recognized on the consolidated balance sheet as a long-term liability with a corresponding increase to E&E or capital assets.
Asset retirement obligations reflect the present value of estimated future settlement costs. The discount rate used to calculate the present value is
specific to the jurisdiction the obligation relates to and is reflective of current market assessment of the time value of money and risks specific to the
liabilities that have not been reflected in the cash flow estimates.
Asset retirement obligations are remeasured at each reporting period to reflect changes in market rates and estimated future settlement costs. Asset
retirement obligations are increased each reporting period to reflect the passage of time with a corresponding charge to accretion expense.
Vermilion Energy Inc. ■ Page 74 ■ 2019 Annual Report
Revenue recognition
Revenue associated with the sale of crude oil and condensate, natural gas, and natural gas liquids is measured based on the consideration specified
in contracts with customers.
Revenue from contracts with customers is recognized when or as Vermilion satisfies a performance obligation by transferring control of crude oil and
condensate, natural gas, or natural gas liquids to a customer at contractually specified transfer points. This transfer coincides with title passing to the
customer and the customer taking physical possession of the commodity. Vermilion principally satisfies its performance obligations at a point in time
and the amounts of revenue recognized relating to performance obligations satisfied over time are not significant.
Vermilion invoices customers for delivered products monthly and payment occurs shortly thereafter. Vermilion does not have any contracts where the
period between the transfer of control of the commodity to the customer and payment by the customer exceeds one year. As a result, Vermilion does
not adjust its revenue transactions to reflect significant financing components.
Financial instruments
On initial recognition, financial instruments are measured at fair value. Measurement in subsequent periods depends on the classification of the financial
instrument as described below:
•
•
•
Fair value through profit or loss ("FVTPL"): Financial instruments under this classification include cash and cash equivalents and derivative
assets and liabilities.
Fair value through other comprehensive income ("FVTOCI"): Financial instruments under this classification include derivative assets and
liabilities where hedge accounting is applied.
Amortized cost: Financial instruments under this classification include accounts receivable, accounts payable and accrued liabilities, dividends
payable, lease obligations, and long-term debt.
Accounts receivable are measured net of a loss allowance equal to the lifetime expected credit loss.
Hedge accounting
Hedge accounting is applied to financial instruments designated as hedging instruments in qualifying hedging relationships. Qualifying hedge
relationships may include cash flow hedges, fair value hedges, and hedges of net investments in foreign operations. The purpose of hedge accounting
is to represent the effect of Vermilion's risk management activities to manage exposures arising from specific risks that affect net earnings such as
foreign currency risk.
In order to apply hedge accounting, the eligible hedging instrument must be highly effective in offsetting the exposure to changes in the eligible hedged
item. This effectiveness is assessed at inception and at the end of each reporting period thereafter. At inception, formal designation and documentation
of the hedging relationship, risk management objective and strategy is required for undertaking the hedge.
For cash flow and net investment hedges, gains and losses on the hedging instrument are recognized in the consolidated statement of earnings in the
same period in which the transaction associated with the hedged item occurs. Where the hedging instrument is a derivative instrument, a derivative
asset or liability is recognized on the balance sheet at fair value (included in "Derivative instruments") with the effective portion of the gain or loss
recorded to other comprehensive income. Any gain or loss associated with the ineffective portion of the hedging relationship is recognized in the
consolidated statement of net earnings as other income or expense.
If a hedging relationship no longer qualifies for hedge accounting, any gain or loss resulting from the discontinuation of hedge accounting is deferred
in other comprehensive income until the forecasted transaction date. If the forecasted transaction is no longer expected to occur, any gain or loss
resulting from the discontinuation of hedge accounting is immediately recognized in the consolidated statement of net earnings.
Vermilion Energy Inc. ■ Page 75 ■ 2019 Annual Report
Equity based compensation
Equity based compensation expense results from equity-settled awards issued under Vermilion’s long-term share-based compensation plans as well
as the grant date fair value of Vermilion common shares issued under the Company’s bonus and employee share savings plans.
Vermilion's long-term share-based compensation plans consist of the Vermilion Incentive Plan (“VIP”), the "Five-Year Compensation Arrangement", and
the Deferred Share Unit Plan ("DSU"). Equity-settled awards issued under the VIP vest over a period of one to three years, awards issued under the
Five-Year Compensation Arrangement vest in the fifth year following the grant date, and awards issued under the DSU vest immediately upon granting.
Awards issued under the VIP and Five-Year Compensation Arrangement plans are adjusted upon vesting by a performance factor determined by the
Company’s Board of Directors.
Equity based compensation expense for equity-settled plans is recognized over the vesting period with a corresponding adjustment to contributed
surplus. The expense recognized is based on the grant date fair value of the awards, an estimate of the performance factor that will be achieved (if
applicable), and an estimate of forfeiture rates based on historical vesting data. Dividends notionally accrue to the VIP and Five-Year Compensation
Arrangement and are excluded in the determination of grant date fair values. When the awards are converted to Vermilion common shares, the amount
recognized in contributed surplus is reclassified to shareholders’ capital.
The grant date fair value of awards or Vermilion common shares issued is determined as the closing price of Vermilion’s common shares on the Toronto
Stock Exchange on the grant date.
Per share amounts
Basic net earnings per share is calculated by dividing net earnings by the weighted-average number of shares outstanding during the period.
Diluted net earnings per share is calculated by dividing net earnings by the diluted weighted-average number of shares outstanding during the period.
The diluted weighted-average number of shares outstanding is the sum of the basic weighted-average number of shares outstanding and (to the extent
inclusion reduces diluted net earnings per share) the number of shares issuable for equity-settled awards determined using the treasury stock method.
The treasury stock method assumes that the unrecognized equity based compensation expense are deemed proceeds used to repurchase Vermilion
common shares at the average market price during the period.
Foreign currency translation
Vermilion Energy Inc.’s functional and presentation currency is the Canadian dollar. Vermilion has subsidiaries that transact and operate in countries
other than Canada and have functional currencies other than the Canadian dollar.
Foreign currency translation includes the translation of foreign currency transactions and the translation of foreign operations.
Foreign currency transaction translation occurs when translating transactions and balances in foreign currencies to the applicable functional currency
of Vermilion Energy Inc. and its subsidiaries. Gains and losses from foreign currency transactions are recorded as foreign exchange gains or losses
in the statement of net earnings. Foreign currency transaction translation occurs as follows:
•
•
•
Income and expenses are translated at the prevailing rates on the date of the transaction.
Non-monetary assets or liabilities are carried at the prevailing rates on the date of the transaction.
Monetary items, including intercompany loans that are not deemed to represent net investments in a foreign subsidiary, are translated at the
prevailing rates at the balance sheet date.
Foreign operation translation occurs when translating the financial statements of non-Canadian functional currency subsidiaries to the Canadian dollar
and when translating intercompany loans that are deemed to represent net investments in a foreign subsidiary. Gains and losses from foreign operation
translations are recorded as currency translation adjustments. Foreign operation translation occurs as follows:
•
•
Income and expenses are translated at the average exchange rates for the period.
Assets and liabilities are translated at the prevailing rates on the balance sheet date.
Vermilion Energy Inc. ■ Page 76 ■ 2019 Annual Report
Income taxes
Deferred tax assets and liabilities are calculated using the balance sheet method. Deferred tax assets and liabilities are recognized for the estimated
effect of any temporary differences between the amounts recognized on Vermilion’s consolidated balance sheet and the respective tax basis. This
calculation uses enacted or substantively enacted tax rates that are expected to be in effect when the temporary differences are expected to reverse.
The effect of a change in tax rates on deferred taxes is recognized in the period the related legislation is substantively enacted.
Deferred tax assets are recognized to the extent that it is probable that future taxable profits will be available against which the deductible temporary
differences can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent it is no longer probable that the related
tax benefit will be realized.
Business combinations
Acquisitions of corporations or groups of assets are accounted for as business combinations using the acquisition method if the acquired assets constitute
a business. Under the acquisition method, assets acquired and liabilities assumed in a business combination (with the exception of deferred tax assets
and liabilities) are measured at their fair value. Deferred tax assets or liabilities arising from the assets acquired and liabilities assumed are measured
in accordance with the policies described in "Income taxes" above.
If applicable, the excess or deficiency of the fair value of net assets acquired compared to consideration paid is recognized as a gain on business
combination or as goodwill on the consolidated balance sheet. Acquisition-related costs incurred to effect a business combination are expensed in the
period incurred.
As part of the assessment to determine if the acquisition constitutes a business, Vermilion may elect to apply the concentration test on a transaction
by transaction basis. The test is met if substantially all of the fair value related to the gross assets acquired is concentrated in a single identifiable asset
(or group of similar assets) resulting in the acquisition not being deemed a business and recorded as an asset acquisition.
Segmented information
Vermilion has a decentralized business unit structure designed to manage assets in each country the Company operates. Each of Vermilion's operating
segments derives its revenues solely from the production and sale of petroleum and natural gas.
Vermilion’s Corporate segment aggregates costs incurred at the Company’s Corporate head office located in Calgary, Alberta, Canada as well as costs
incurred relating to Vermilion’s exploration and production activities in Hungary, Slovakia, and Croatia (Central and Eastern Europe). These operating
segments have similar economic characteristics as they do not currently generate material revenue.
Vermilion’s chief operating decision maker regularly reviews fund flows from operations generated by each of Vermilion’s operating segments. Fund
flows from operations is a measure of profit or loss that provides the chief operating decision maker with the ability to assess the profitability of each
operating segment and, correspondingly, the ability of each operating segment to fund its share of dividends, asset retirement obligations, and capital
investments.
Vermilion Energy Inc. ■ Page 77 ■ 2019 Annual Report
Management judgments and estimation uncertainty
The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates, and assumptions
that affect the reported amount of assets, liabilities, income, and expenses. Actual results could differ significantly from these estimates. Key areas
where management has made judgments, estimates, and assumptions are described below.
The measurement of the fair value of capital assets acquired in a business combination and the determination of the recoverable amount of cash
generating units:
•
•
Calculating the fair value of capital assets acquired in a business combination and the recoverable amount of cash generating units (in the
assessment of impairments or reversals of previous impairments if indicators of impairment or impairment reversal are identified) are based
on estimated future commodity prices, discount rates and estimated reserves and resources. Reserve and resource estimates are based on:
engineering data, estimated future commodity prices, expected future rates of production, and assumptions regarding the timing and amount
of future expenditures. Changes in these estimates and assumptions can directly impact the calculated fair value of capital assets acquired
(and thus the resulting goodwill or gain on business combination) and the recoverable amount of a CGU (and thus the resulting impairment
loss or recovery).
In addition, the recoverable amount of a CGU is impacted by the composition of CGUs, which are subject to management’s judgment of the
lowest level at which there are identifiable cash inflows that are largely independent of the cash inflows of other groups of assets. The factors
used by Vermilion to determine CGUs vary by jurisdiction due to their unique operating and geographic conditions. In general, Vermilion will
assess the following factors: geographic proximity of the assets within a group to one another, geographic proximity of the group of assets to
other groups of assets, homogeneity of the production from the group of assets and the sharing of infrastructure used to process and/or
transport production. Changes in these judgments can directly impact the calculated recoverable amount of a CGU (and thus the resulting
impairment loss or recovery).
The measurement of the carrying value of asset retirement obligations on the balance sheet, including the fair value and subsequent carrying value of
asset retirement obligations assumed in a business combination:
•
Asset retirement obligations are based on judgments regarding regulatory requirements, estimates of future costs, assumptions on the expected
timing of expenditures, and estimates of the underlying risk inherent to the obligation. The carrying balance of asset retirement obligations
and accretion expense may differ due to changes in: laws and regulations, technology, the expected timing of expenditures, and market
conditions affecting the discount rate applied.
The recognition and measurement of deferred tax assets and liabilities:
•
•
Tax interpretations, regulations, and legislation in the various jurisdictions in which Vermilion and its subsidiaries operate are subject to change
and interpretation. Changes in laws and interpretations can affect the timing of the reversal of temporary tax differences, the tax rates in effect
when such differences reverse and Vermilion’s ability to use tax losses and other tax pools in the future. The Company’s income tax filings
are subject to audit by taxation authorities in numerous jurisdictions and the results of such audits may increase or decrease the tax liability.
The determination of tax amounts recognized in the consolidated financial statements are based on management’s assessment of the tax
positions, which includes consideration of their technical merits, communications with tax authorities and management’s view of the most
likely outcome.
The extent to which deferred tax assets are recognized are based on estimates of future profitability. These estimates are based on estimated
future commodity prices and estimates of reserves. Judgments, estimates, and assumptions inherent in reserve estimates are described
above.
The measurement of lease obligations and corresponding right-of-use assets:
•
The measurement of lease obligations are subject to management's judgments of the applicable incremental borrowing rate and the expected
lease term. The carrying balance of the right-of-use assets, lease obligations, and the resulting interest and depletion and depreciation
expense, may differ due to changes in the market conditions and expected lease terms. Applicable incremental borrowing rates are based
on judgments of the economic environment, term, currency, and the underlying risk inherent to the asset. Lease terms are based on assumptions
regarding cancellation and extension terms that allow for operational flexibility based on future market conditions.
3. Changes in accounting pronouncements
Definition of a Business - Amendments to IFRS 3 "Business Combinations"
Vermilion elected to early adopt the amendments to IFRS 3 "Business Combinations" effective January 1, 2019, which will be applied prospectively to
acquisitions that occur on or after January 1, 2019. The amendments introduce an optional concentration test, narrow the definitions of a business and
outputs, and clarify that an acquired set of activities and assets must include an input and a substantive process that together significantly contribute
to the ability to create outputs. These amendments did not result in changes to Vermilion's accounting policies for applying the acquisition method.
Vermilion Energy Inc. ■ Page 78 ■ 2019 Annual Report
4. Segmented information
Substantially all sales in the France, Netherlands, and Ireland operating segments for the years ended December 31, 2019 and 2018 were to one
customer in each respective segment. In 2019, France contributed more than 10% of Vermilion's consolidated revenues. In 2018, France, Netherlands,
and Ireland each contributed more than 10% of Vermilion's consolidated revenues.
Year Ended December 31, 2019
France Netherlands
Germany
USA
Corporate
Total
($M)
Total assets
Drilling and development
Exploration and evaluation
Crude oil and condensate sales
NGL sales
Natural gas sales
Sales of purchased commodities
Royalties
Revenue from external customers
Purchased commodities
Transportation
Operating
General and administration
PRRT
Corporate income taxes
Interest expense
Realized gain on derivative instruments
Realized foreign exchange loss
Realized other income
Canada
3,088,947
293,744
—
699,290
33,159
95,621
—
(94,079)
733,991
—
(41,261)
(242,790)
(23,341)
—
—
—
—
—
—
110,446
31,529
104,247
841,875
74,579
62
326,578
—
121
—
(43,895)
282,804
—
(21,609)
(61,281)
(15,406)
—
(21,431)
—
—
—
—
226,834
19,866
3,739
2,411
—
261,712
10,806
10,878
25,783
—
—
(1,469)
111,388
—
—
(32,125)
(2,659)
—
3,961
—
—
—
—
—
(5,264)
52,048
—
(5,117)
(24,970)
(8,452)
—
—
—
—
—
—
Ireland
470,316
1,372
—
27
—
—
—
Australia
233,581
30,550
—
184,490
—
—
—
—
104,274
184,490
—
(4,459)
(12,431)
(2,491)
—
—
—
—
—
—
—
—
(49,810)
(4,940)
(25,947)
(8,407)
—
—
—
—
421,609
57,196
—
63,449
6,499
5,416
—
(18,706)
56,658
—
—
(16,370)
(7,566)
—
—
—
—
—
—
321,246
5,866,120
(1,436)
21,808
486,677
36,487
—
—
797
221,274
1,302,028
39,658
348,177
221,274
(253)
(163,666)
221,818
1,747,471
(221,274)
—
(301)
5,879
—
(406)
(81,377)
84,219
(4,954)
7,700
11,304
(221,274)
(72,446)
(440,078)
(58,976)
(25,947)
(26,283)
(81,377)
84,219
(4,954)
7,700
908,055
Fund flows from operations
426,599
163,077
80,565
13,509
84,893
95,386
32,722
($M)
Total assets
Drilling and development
Exploration and evaluation
Crude oil and condensate sales
NGL sales
Natural gas sales
Royalties
Revenue from external customers
Transportation
Operating
General and administration
PRRT
Corporate income taxes
Interest expense
Realized loss on derivative instruments
Realized foreign exchange gain
Realized other income
Year Ended December 31, 2018
Canada
3,060,291
277,857
—
541,844
56,554
72,774
(84,696)
586,476
(29,912)
(177,499)
(6,057)
—
—
—
—
—
—
France Netherlands
Germany
918,398
79,451
307
360,471
—
131
(46,781)
313,821
(10,426)
(54,690)
(14,170)
—
277,348
17,963
(480)
2,462
—
163,454
(3,181)
162,735
—
(26,681)
(1,947)
—
(15,084)
(16,561)
—
—
—
—
—
—
—
—
284,063
10,863
4,943
32,704
—
49,745
(6,626)
75,823
(6,420)
(23,048)
(7,401)
—
—
—
—
—
—
Ireland
709,585
224
—
—
—
205,150
—
205,150
(5,129)
(15,366)
(8,386)
—
—
—
—
—
—
Australia
263,739
75,638
—
150,733
—
—
—
150,733
—
(53,199)
(4,918)
(4,824)
(6,595)
—
—
—
—
USA
Corporate
Total
407,323
40,837
—
31,142
4,622
2,701
(10,070)
28,395
—
(6,421)
(6,306)
—
—
—
—
—
—
349,924
6,270,671
1,009
9,602
—
—
3,630
(813)
2,817
—
(110)
(2,744)
—
(513)
(72,759)
(111,258)
243
883
503,842
14,372
1,119,356
61,176
497,585
(152,167)
1,525,950
(51,887)
(357,014)
(51,929)
(4,824)
(38,753)
(72,759)
(111,258)
243
883
Fund flows from operations
373,008
219,451
117,546
38,954
176,269
81,197
15,668
(183,441)
838,652
Vermilion Energy Inc. ■ Page 79 ■ 2019 Annual Report
Reconciliation of fund flows from operations to net earnings:
Fund flows from operations
Accretion
Depletion and depreciation
Impairment
Gain on business combinations
Unrealized (loss) gain on derivative instruments
Equity based compensation
Unrealized foreign exchange gain (loss)
Unrealized other expense
Deferred tax
Net earnings
5. Business combinations
Year Ended
Dec 31, 2019
908,055
(32,667)
(675,177)
(46,056)
—
(57,427)
(64,233)
57,225
(825)
(56,096)
32,799
Dec 31, 2018
838,652
(31,219)
(609,056)
—
128,208
109,326
(60,746)
(63,243)
(801)
(39,471)
271,650
Private Producer in Southeast Saskatchewan and Southwest Manitoba
On February 15, 2018, Vermilion acquired all of the issued and outstanding common shares of a private producer with assets in southeast Saskatchewan
and southwest Manitoba. The acquisition comprised of light oil producing fields near Vermilion’s existing operations in southeast Saskatchewan. The
acquisition complements Vermilion’s existing southeast Saskatchewan operations and aligns with the Company's sustainable growth-and-income model.
The acquisition was funded through Vermilion’s revolving credit facility.
The total consideration paid and the fair value of the assets acquired and liabilities assumed at the date of acquisition are detailed in the table below:
Cash paid to vendor
Total consideration
Capital assets
Deferred tax assets
Acquired working capital
Long-term debt
Asset retirement obligations
Net assets acquired
Consideration
53,288
53,288
Allocation of consideration
67,549
26,914
1,577
(38,300)
(4,452)
53,288
For the year ended December 31, 2018, the acquisition contributed revenues of $18.7 million and net earnings of $6.7 million. Had the acquisition
occurred on January 1, 2018, revenues would have increased by $2.9 million and net earnings would have increased by $1.0 million for the year ended
December 31, 2018.
Spartan Energy Corp.
On May 28, 2018, Vermilion acquired all of the issued and outstanding common shares of Spartan Energy Corp., a publicly traded oil and gas producer
with light oil producing properties in southeast Saskatchewan as well as other areas in Saskatchewan, Alberta, and Manitoba. The acquisition increased
Vermilion’s position in southeast Saskatchewan and aligned with the Company's sustainable growth-and-income model.
Consideration consisted of the issuance of 27.9 million Vermilion common shares valued at approximately $1.2 billion (based on the closing price per
Vermilion common share of $44.30 on the Toronto Stock Exchange on May 28, 2018). Acquisition-related costs of $1.3 million were incurred in the
year ended December 31, 2018.
Vermilion Energy Inc. ■ Page 80 ■ 2019 Annual Report
The total consideration paid and the fair value of the assets acquired and liabilities assumed as at the date of the acquisition are detailed in the table
below:
Shares issued for acquisition
Total consideration
Capital assets
Deferred tax assets
Long-term debt
Asset retirement obligations
Lease obligations
Assumed working capital deficit
Net assets acquired
Consideration
1,235,221
1,235,221
Allocation of consideration
1,401,686
123,813
(150,196)
(92,149)
(25,455)
(22,478)
1,235,221
For the year ended December 31, 2018, the acquisition contributed revenues of $242.1 million and net earnings of $45.1 million. Had the acquisition
occurred on January 1, 2018, revenues would have increased by $182.4 million and net earnings would have increased by $35.0 million for the year
ended December 31, 2018.
Assets in Wyoming
In August 2018, Vermilion acquired oil and gas producing assets and mineral leasehold land from a private oil company for total cash consideration of
$189.0 million. The assets are located in Campbell County, Wyoming in the Powder River Basin, approximately 65 kilometres northwest of Vermilion’s
existing operations. The acquired assets complement Vermilion's existing Powder River operations and align with the Company's sustainable growth-
and-income model. The acquisition was funded through Vermilion’s revolving credit facility.
The total consideration paid and the fair value of the assets acquired and liabilities assumed at the date of acquisition are detailed in the table below:
Cash paid to vendor
Total consideration
Capital assets
Deferred tax liability
Asset retirement obligations
Assumed working capital deficit
Net assets acquired
Gain on business combination
Total net assets acquired, net of gain on business combination
Consideration
189,014
189,014
Allocation of consideration
284,333
(19,019)
(4,821)
(2,651)
257,842
(68,828)
189,014
The gain on the business combination primarily resulted from the recognition of additional reserve value when the acquisition closed compared to the
estimated value when Vermilion entered into the purchase and sale agreement and the acquisition price was determined.
For the year ended December 31, 2018, the acquisition contributed revenues of $11.6 million and net earnings of $0.3 million. Had the acquisition
occurred on January 1, 2018, revenues would have increased by $11.1 million and net earnings would have decreased by $0.1 million for the year
ended December 31, 2018.
Vermilion Energy Inc. ■ Page 81 ■ 2019 Annual Report
Shell E&P Ireland Limited
In December 2018, Vermilion acquired all of the issued and outstanding common shares of Shell E&P Ireland Limited, along with an incremental 1.5%
working interest in the Corrib Natural Gas Project ("Corrib") in Ireland from Nephin Energy Holdings Limited, a wholly owned subsidiary of Canada
Pension Plan Investment Board. The acquisition increased Vermilion's total ownership in Corrib to 20% and aligns with the Company's sustainable
growth-and-income model. In addition to this transaction, Vermilion assumed operatorship of Corrib.
The total consideration paid and the fair value of the assets acquired and liabilities assumed as at the date of the acquisition are detailed in the table
below:
($M)
Cash paid to vendor
Cash acquired
Contingent consideration
Total consideration
($M)
Capital assets
Deferred tax assets
Assumed working capital deficit
Lease obligations
Asset retirement obligations
Net assets acquired
Gain on business combination
Total net assets acquired, net of gain on business combination
Consideration
40,805
(82,116)
290
(41,021)
Allocation of consideration
53,368
4,239
(35,449)
(2,234)
(1,565)
18,359
(59,380)
(41,021)
The fair value of the contingent consideration obligation is estimated to be approximately $0.3 million based on estimated future commodity prices and
estimated reserves. Maximum contingent payments are €5.8 million (approximately $9.1 million) through 2025.
The gain on the business combination primarily resulted from increases in working capital and the fair value of capital assets from when the purchase
and sale agreement was entered into in July 2017 and when the acquisition closed in December 2018.
For the year ended December 31, 2018, the acquisition contributed revenues of $1.3 million and net earnings of $0.4 million. Had the acquisition
occurred on January 1, 2018, revenues would have increased by $15.2 million and net earnings would have increased by $4.3 million for the year ended
December 31, 2018.
Minor acquisitions
Vermilion completed a number of minor acquisitions during the year ended December 31, 2018 for total cash consideration of $56.0 million, in which
$147.4 million of capital assets, $28.6 million of exploration and evaluation assets, and $104.0 million of asset retirement obligations were recognized.
Vermilion Energy Inc. ■ Page 82 ■ 2019 Annual Report
6. Capital assets
The following table reconciles the change in Vermilion's capital assets:
Balance at January 1
Acquisitions
Additions
Increase in right-of-use assets
Transfers from exploration and evaluation assets
Impairment
Depletion and depreciation
Changes in asset retirement obligations
Foreign exchange
Balance at December 31
Cost
Accumulated depletion, depreciation, and impairment
Carrying amount at December 31
2019
5,316,873
38,472
486,677
12,348
27,918
(46,056)
(657,863)
(10,354)
(152,395)
5,015,620
9,604,933
(4,589,313)
5,015,620
2018
3,337,965
1,975,327
503,842
98,343
29,615
—
(605,994)
(100,876)
78,651
5,316,873
9,202,604
(3,885,731)
5,316,873
Right-of-use assets
The following table discloses the carrying balance and depreciation charge relating to right-of-use assets by class of underlying asset as at and for the
year ended December 31, 2019:
($M)
Office space
Gas processing facilities
Oil storage facilities
Vehicles and equipment
Total
As at Dec 31, 2019
As at Dec 31, 2018
Depreciation
9,745
7,089
2,633
3,209
22,676
Balance
53,777
34,701
16,803
10,327
115,608
Depreciation
9,119
5,491
2,728
2,020
19,358
Balance
62,279
41,788
20,758
9,121
133,946
2019 impairment
As a result of declining natural gas price forecasts in Ireland during the year ended December 31, 2019 an indication of impairment was identified in
the Ireland CGU. This resulted in the performance of an impairment test whereby the Company determined that the carrying amount exceeded its
recoverable amount. A non-cash impairment charge of $46.1 million was recorded in the consolidated statement of net earnings.
The recoverable amount was determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable
reserves using forecasted price and cost estimates and an after-tax discount rate of 9.0%.
The following price estimates as issued by Sproule and effective January 1, 2020 were applied:
NBP (€/mmbtu)
Sproule
2020
5.58
2021
5.51
2022
5.54
2023
5.65
2024
5.77
2025
5.88
2026
6.00
2027
6.12
2028
6.24
2029
6.37
Changes in any of the key judgments, such as a revision in reserves, changes in forecast commodity prices, foreign exchange rates, capital or operating
costs would impact the estimated recoverable amount. As at December 31, 2019, a 1% increase in the assumed after-tax discount rate would reduce
the estimated recoverable amount by $14.7 million (resulting in a $60.8 million impairment) while a 5% decrease in revenues (due to a decrease in
commodity price forecasts or reserve estimates) would reduce the estimated recoverable amount by $28.6 million (resulting in a $74.7 million impairment).
Vermilion Energy Inc. ■ Page 83 ■ 2019 Annual Report
7. Exploration and evaluation assets
The following table reconciles the change in Vermilion's exploration and evaluation assets:
Balance at January 1
Acquisitions
Additions
Changes in asset retirement obligations
Transfers to capital assets
Depreciation
Foreign exchange
Balance at December 31
Cost
Accumulated depreciation
Carrying amount at December 31
8. Asset retirement obligations
The following table reconciles the change in Vermilion’s asset retirement obligations:
Balance at January 1
Additional obligations recognized
Changes in estimated abandonment timing and costs
Obligations settled
Accretion
Changes in discount rates
Foreign exchange
Balance at December 31
2019
303,295
—
36,487
36
(27,918)
(18,689)
(7,062)
286,149
371,632
(85,483)
286,149
2019
650,164
7,595
39,722
(19,442)
32,667
(57,635)
(34,870)
618,201
2018
292,278
28,572
14,372
629
(29,615)
(5,942)
3,001
303,295
371,015
(67,720)
303,295
2018
517,180
211,580
(98,158)
(15,765)
31,219
(6,646)
10,754
650,164
Vermilion has estimated the asset retirement obligations based on current cost estimates of $1.8 billion (2018 - $1.8 billion).
Current cost estimates are inflated to the estimated time of abandonment using inflation rates of between 0.4% and 2.7% (2018 - between 0.5% and
2.9%), resulting in inflated cost estimates of $2.6 billion (2018 - $2.6 billion). These payments are expected to be made between 2020 and 2073, with
the majority of costs occurring between 2030 and 2040 ($0.7 billion), 2048 to 2055 ($0.9 billion), and 2060 and 2073 ($0.7 billion).
Vermilion calculated the present value of the obligations using a credit-adjusted risk-free rate, calculated using a credit spread of 5.3% (2018 - 4.0%)
added to risk-free rates based on long-term, risk-free government bonds.
The risk-free rates used as inputs to discount the obligations were as follows:
Canada
France
Netherlands
Germany
Ireland
Australia
United States
Dec 31, 2019
1.7 %
0.9 %
(0.1)%
0.3 %
0.6 %
1.6 %
2.4 %
Dec 31, 2018
2.2%
1.6%
0.4%
0.9%
1.6%
2.6%
2.7%
A 0.5% increase/decrease in the discount rate applied to asset retirement obligations would decrease/increase asset retirement obligations by
approximately $52.7 million. A one-year increase/decrease in the expected timing of abandonment spend would decrease/increase asset retirement
obligations by approximately $27.5 million.
Vermilion Energy Inc. ■ Page 84 ■ 2019 Annual Report
9. Derivative instruments
The following table reconciles the change in the fair value of Vermilion’s derivative instruments:
Fair value of contracts, beginning of year
Reversal of opening contracts settled during the year
Assumed in acquisitions
Realized gain (loss) on contracts settled during the year
Unrealized gain during the year on contracts outstanding at the end of the year
Net receipt from counterparties on contract settlements during the year
Unrealized loss on derivatives designated as cash flow hedges
Unrealized gain on derivatives designated as net investment hedges
Fair value of contracts, end of year
Comprised of:
Current derivative asset
Current derivative liability
Non-current derivative asset
Non-current derivative liability
Fair value of contracts, end of year
The (gain) loss on derivative instruments for 2019 and 2018 were comprised of the following:
Realized (gain) loss on contracts settled during the year
Reversal of opening contracts settled during the year
Unrealized gain on contracts outstanding at the end of the year
(Gain) loss on derivative instruments
Year Ended
Dec 31, 2019
38,339
(62,735)
—
84,219
5,308
(84,219)
(1,071)
9,168
(10,991)
55,645
(62,405)
20,127
(24,358)
(10,991)
Dec 31, 2018
(70,713)
57,719
(274)
(111,258)
51,607
111,258
—
—
38,339
95,667
(41,016)
1,215
(17,527)
38,339
Year Ended
Dec 31, 2019
(84,219)
62,735
(5,308)
(26,792)
Dec 31, 2018
111,258
(57,719)
(51,607)
1,932
Please refer to Note 19 (Supplemental information) for a listing of Vermilion's outstanding derivative instruments as at December 31, 2019.
10. Leases
Vermilion had the following future commitments associated with its lease obligations:
($M)
Less than 1 year
1 - 3 years
3 - 5 years
After 5 years
Total lease payments
Amounts representing interest
Present value of net lease payments
Current portion of lease obligations
Non-current portion of lease obligations
Total cash outflow
Interest on lease liabilities
As at
Dec 31, 2019
29,217
Dec 31, 2018
30,641
46,501
38,177
26,168
140,063
(23,309)
116,754
(23,682)
93,072
33,276
6,984
50,024
34,313
42,739
157,717
(24,583)
133,134
(24,945)
108,189
27,468
7,185
Vermilion Energy Inc. ■ Page 85 ■ 2019 Annual Report
11. Taxes
The following table reconciles Vermilion’s deferred tax asset and liability:
Deferred tax assets:
Capital assets
Non-capital losses
Asset retirement obligations
Derivative contracts
Unrealized foreign exchange
Other
Deferred tax assets
Deferred tax liabilities:
Capital assets
Non-capital losses
Asset retirement obligations
Unrealized foreign exchange
Other
Deferred tax liabilities
As at
Dec 31, 2019
Dec 31, 2018
(296,793)
454,339
36,170
2,712
(3,034)
3,149
196,543
262,669
(48,007)
123,257
—
(1,610)
336,309
(296,591)
487,398
38,429
(11,937)
(1,873)
3,985
219,411
319,553
(57,785)
51,031
10,715
(5,380)
318,134
Income tax expense differs from the amount that would have been expected if the reported earnings had been subject only to the statutory Canadian
income tax rate as follows:
Earnings before income taxes
Canadian corporate tax rate (1)
Expected tax expense
Increase (decrease) in taxes resulting from:
Year Ended
Dec 31, 2019
141,125
26.72%
37,709
Dec 31, 2018
354,698
27.00%
95,768
Petroleum resource rent tax rate (PRRT) differential (2)
Foreign tax rate differentials (2) (3)
Equity based compensation expense
Amended returns and changes to estimated tax pools and tax positions
Statutory rate changes and the estimated reversal rates associated with temporary differences (4)
Derecognition (recognition) of deferred tax assets
Adjustment for uncertain tax positions
Gain on business combinations
Other non-deductible items
Provision for income taxes
(1)
17,455
5,543
3,733
(24,387)
9,543
65,522
3,659
—
(10,451)
108,326
In Canada, the lower tax rate is a result of reductions to the Alberta corporate tax rate from 12% to 8% over four years.
In Australia, current taxes include both corporate income tax rates and PRRT. Corporate income tax rates were applied at a rate of 30% and PRRT
was applied at a rate of 40%.
The applicable tax rates for 2019 were: 32.0% in France, 50.0% in the Netherlands, 31.8% in Germany, 25.0% in Ireland, and 21.0% in the
United States (2018: 34.4% in France, 50.0% in the Netherlands, 30.2% in Germany, 25.0% in Ireland, and 21.0% in the United States).
5,349
3,086
13,883
(873)
—
(26,931)
8,080
(28,812)
13.498
83,048
(2)
(3)
(4) On December 28, 2019, the French Parliament approved the Finance Bill for 2020. The Finance Bill for 2020 provides for a progressive decrease
of the French corporate income tax rate for companies with sales below €250 million from 32.0% to 25.8% by 2022. Effective July 1, 2019, Alberta
decreased its corporate tax rate from 12% to 11% for 2019 with further 1% rate reductions every year on January 1 until the general corporate tax
rate is 8% on January 1, 2022.
At December 31, 2019, Vermilion had $2.5 billion (2018 - $2.6 billion) of unused tax losses of which $1.2 billion (2018 - $1.1 billion) relates to Vermilion's
Canada segment and expire between 2025 and 2040. The majority of the remaining unused tax losses relates to Vermilion's Ireland segment and do
not expire.
Vermilion Energy Inc. ■ Page 86 ■ 2019 Annual Report
At December 31, 2019, Vermilion derecognized $65.5 million (2018 - recognized $26.9 million) of deferred income assets relating to the aforementioned
non-expiring tax loss in Ireland as there is uncertainty as to the Company's ability to fully utilize such losses based on the forecasted commodity prices
in effect as at December 31, 2019.
The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognized
as at December 31, 2019 is approximately $0.5 billion (2018 – approximately $0.5 billion).
12. Long-term debt
The following table summarizes Vermilion’s outstanding long-term debt:
Revolving credit facility
Senior unsecured notes
Long-term debt
As at
Dec 31, 2019
1,539,225
385,440
1,924,665
Dec 31, 2018
1,392,206
404,001
1,796,207
The fair value of the revolving credit facility is equal to its carrying value due to the use of short-term borrowing instruments at market rates of interest.
The fair value of the senior unsecured notes as at December 31, 2019 was $366.4 million.
The following table reconciles the change in Vermilion’s long-term debt:
Balance at January 1
Borrowings on the revolving credit facility
Assumed on acquisitions (1)
Amortization of transaction costs and prepaid interest
Foreign exchange
Balance at December 31
(1)
2019
1,796,207
207,787
—
4,379
(83,708)
1,924,665
2018
1,270,330
251,155
188,496
2,286
83,940
1,796,207
Pursuant to the acquisitions described in Note 5 (Business combinations), Vermilion assumed the credit facilities of the acquired companies and immediately
extinguished them following the respective acquisitions using proceeds from Vermilion's revolving credit facility.
Revolving credit facility
At December 31, 2019, Vermilion had in place a bank revolving credit facility maturing May 31, 2023 with the following terms:
Total facility amount
Amount drawn
Letters of credit outstanding
Unutilized capacity
As at
Dec 31, 2019
2,100,000
(1,539,225)
(10,230)
550,545
Dec 31, 2018
1,800,000
(1,392,206)
(15,400)
392,394
The facility can be extended from time to time at the option of the lenders and upon notice from Vermilion. If no extension is granted by the lenders,
the amounts owing pursuant to the facility are due at the maturity date. The facility is secured by various fixed and floating charges against the subsidiaries
of Vermilion.
The facility bears interest at a rate applicable to demand loans plus applicable margins.
As at December 31, 2019, the revolving credit facility was subject to the following financial covenants:
Financial covenant
Consolidated total debt to consolidated EBITDA
Consolidated total senior debt to consolidated EBITDA
Consolidated EBITDA to consolidated interest expense
Limit
Less than 4.0
Less than 3.5
Greater than 2.5
As at
Dec 31, 2019
1.94
1.56
13.46
Dec 31, 2018
1.72
1.34
14.57
Vermilion Energy Inc. ■ Page 87 ■ 2019 Annual Report
The financial covenants include financial measures defined within the revolving credit facility agreement that are not defined under IFRS. These financial
measures are defined by the revolving credit facility agreement as follows:
•
•
•
•
Consolidated total debt: Includes all amounts classified as “Long-term debt” and “Lease obligations” (including the current portion included within
"Accounts payable and accrued liabilities" but excluding operating leases as defined under IAS 17) on the balance sheet.
Consolidated total senior debt: Defined as consolidated total debt excluding unsecured and subordinated debt.
Consolidated EBITDA: Defined as consolidated net earnings before interest, income taxes, depreciation, accretion and certain other non-cash
items, adjusted for the impact of the acquisition of a material subsidiary.
Consolidated total interest expense: Includes all amounts classified as "Interest expense", but excluding interest on operating leases as defined
under IAS 17.
As at December 31, 2019 and 2018, Vermilion was in compliance with the above covenants.
Senior unsecured notes
On March 13, 2017, Vermilion issued US $300.0 million of senior unsecured notes at par. The notes bear interest at a rate of 5.625% per annum, to
be paid semi-annually on March 15 and September 15. The notes mature on March 15, 2025. As direct senior unsecured obligations of Vermilion, the
notes rank equally with existing and future senior unsecured indebtedness of the Company.
The senior unsecured notes were recognized at amortized cost and include the transaction costs directly related to the issuance.
Vermilion may, at its option, redeem the notes prior to maturity as follows:
•
Prior to March 15, 2020, Vermilion may redeem up to 35% of the original principal amount of the senior unsecured notes with the proceeds of
certain equity offerings by the Company at a redemption price of 105.625% of the principal amount plus any accrued and unpaid interest to the
applicable redemption date.
Prior to March 15, 2020, Vermilion may redeem some or all of the senior unsecured notes at a price equal to 100% of the principal amount of the
senior unsecured notes, plus an applicable premium and any accrued and unpaid interest.
On or after March 15, 2020, Vermilion may redeem some or all of the senior unsecured notes at the redemption prices set forth in the following
table plus any accrued and unpaid interest.
•
•
Year
2020
2021
2022
2023 and thereafter
Redemption price
104.219%
102.813%
101.406%
100.000%
Cross currency interest rate swaps
On June 12, 2019, Vermilion entered into a series of cross currency interest rate swaps with a syndicate of banks. Vermilion applied hedge accounting
to these derivative instruments. The cross currency interest rate swaps mature March 15, 2025 and include regular cash receipts and payments on
March 15 and September 15 of each year. On a net basis, the cross currency interest swaps result in Vermilion receiving US dollar interest and principal
amounts equal to the interest and principal payments under the US $300.0 million of senior unsecured notes. In exchange, Vermilion will make interest
and principal payments equal to €265.0 million at a rate of 3.275%.
The cross currency interest rate swaps were executed as two separate sets of instruments:
•
US dollar to Canadian dollar ("USD-to-CAD") cross currency interest rate swaps: Vermilion receives US dollar interest and principal amounts equal
to US$300.0 million of debt at 5.625% interest and pays Canadian dollar interest and principal amounts equal to $398.5 million of debt at 5.40%
interest.
Canadian dollar to Euro ("CAD-to-EUR") cross currency interest rate swaps: Vermilion receives Canadian dollar interest and principal amounts
equal to $398.5 million of debt at 5.40% interest and pays Euro interest and principal amounts equal to €265.0 million at a rate of 3.275%.
•
The USD-to-CAD cross currency interest swaps have been designated as the hedging instrument in a cash flow hedge to mitigate the risk of the
fluctuation of interest and principal cash flows due to changes in foreign currency rates related to the Senior Unsecured Notes described above. The
forward element of the swap contract is treated as the excluded component and is initially recognized within other comprehensive income. The excluded
component is amortized to net earnings in interest expense on a systematic basis. As the timing and amount of the cash flows received on the USD-
to-CAD cross currency interest rate swaps offset the timing and amount of the cash flows paid on the senior unsecured notes, the economic relationship
is expected to be highly effective. The change in the value of the hedged item associated with a change in spot foreign exchange rates is initially
recognized in other comprehensive income. This change is reclassified from other comprehensive income to net earnings (and recorded as an foreign
exchange gain or loss) to offset the associated foreign exchange gain or loss recognized on the senior unsecured notes.
Vermilion Energy Inc. ■ Page 88 ■ 2019 Annual Report
The CAD-to-EUR cross currency interest rate swaps have been designated as the hedging instrument in a net investment hedge to mitigate the effective
change in exchange rates on our net investments in Euro denominated foreign subsidiaries. The change in the value of the hedged item associated
with a change in spot foreign exchange rates is initially recognized in other comprehensive income. This change is reclassified from other comprehensive
income to net earnings (and recorded as a foreign exchange gain or loss) only if the net investment is disposed of by sale. The forward element of the
swap contract is treated as the excluded component and is initially recognized within other comprehensive income. The excluded component is amortized
to net earnings in interest expense on a systematic basis.
13. Shareholders' capital
The following table reconciles the change in Vermilion’s shareholders’ capital:
Shareholders' capital
Balance at January 1
Shares issued for acquisition
Shares issued for the Dividend Reinvestment Plan
Vesting of equity based awards
Shares issued for equity based compensation
Share-settled dividends on vested equity based awards
Balance at December 31
2019
2018
Shares ('000s)
152,704
—
1,417
1,359
552
258
156,290
Amount ($M)
4,008,828
—
34,937
51,108
15,868
8,290
4,119,031
Shares ('000s)
122,119
27,883
1,179
1,025
314
184
152,704
Amount ($M)
2,650,706
1,234,676
49,051
54,057
12,565
7,773
4,008,828
Vermilion is authorized to issue an unlimited number of common shares with no par value.
Dividends are approved by the Board of Directors and are paid monthly. Dividends declared to shareholders for the year ended December 31, 2019
were $427.3 million or $2.76 per common share (2018 - $388.1 million or $2.72 per common share).
Subsequent to the end of year-end and prior to the consolidated financial statements being authorized for issue on March 5, 2020, Vermilion
declared dividends of $72.0 million or $0.23 per share for each of January and February of 2020.
14. Capital disclosures
Vermilion defines capital as net debt (long-term debt plus net working capital) and shareholders’ capital. Vermilion excludes from its definition of capital
any obligations secured by an offsetting asset, such as lease obligations.
Vermilion monitors the ratio of net debt to fund flows from operations. As at December 31, 2019, our ratio of net debt to trailing fund flows from operations
is 2.20 (2018 - 2.30). Vermilion manages the ratio of net debt to fund flows from operations (refer to Note 4 - Segmented information) by monitoring
capital expenditures, dividends, and asset retirement obligations with expected fund flows from operations. Vermilion intends for the ratio of net debt
to fund flows from operations to trend towards 1.5 over time.
The following table calculates Vermilion’s ratio of net debt to fund flows from operations:
Long-term debt
Current liabilities
Current assets
Net debt
Year Ended
Dec 31, 2019
1,924,665
416,210
(347,681)
1,993,194
Dec 31, 2018
1,796,207
563,199
(429,877)
1,929,529
Ratio of net debt to four quarter trailing fund flows from operations
2.20
2.30
Vermilion Energy Inc. ■ Page 89 ■ 2019 Annual Report
15. Equity based compensation
The following table summarizes the number of awards outstanding under the VIP and the Five-Year Compensation Arrangement:
Number of VIP and Five Year Compensation Awards ('000s)
Opening balance
Granted
Vested
Forfeited
Closing balance (1)
(1)
2019
1,931
1,193
(688)
(168)
2,268
2018
1,685
932
(520)
(166)
1,931
As at December 31, 2019, 51,860 awards (2018 - 36,845 awards) are included in the closing balance related to the Five-Year Compensation Arrangement.
For the year ended December 31, 2019, the awards had a weighted average grant date fair value of $30.92 (2018 - $40.57). Equity based compensation
expense for the awards is calculated based on the number of awards outstanding multiplied by the estimated performance factor that will be realized
upon vesting (2019 - 1.7; 2018 - 1.9) adjusted by an estimated annual forfeiture rate (2019 - 5.2%; 2018 - 4.6%). Equity based compensation expense
of $46.6 million was recorded during the year ended December 31, 2019 (2018 - $48.2 million) relating to the awards.
For the year ended December 31, 2019, there were 72,191 DSUs granted and outstanding with a weighted average grant date fair value of $25.25.
Equity based compensation expense of $1.8 million was recorded during the year ended December 31, 2019 relating to the DSUs.
16. Per share amounts
Basic and diluted net earnings per share have been determined based on the following:
Net earnings
Basic weighted average shares outstanding ('000s)
Dilutive impact of equity based compensation ('000s)
Diluted weighted average shares outstanding ('000s)
Basic earnings per share
Diluted earnings per share
17. Financial instruments
Classification of financial instruments
Year Ended
Dec 31, 2019
32,799
Dec 31, 2018
271,650
154,736
1,359
156,095
0.21
0.21
140,619
1,716
142,335
1.93
1.91
The following table summarizes the carrying value relating to Vermilion’s financial instruments:
($M)
As at Dec 31, 2019
FVTPL
FVTOCI
Amortized
Cost
As at Dec 31, 2018
Total
FVTPL
FVTOCI
Amortized
Cost
Total
Cash and cash equivalents
Derivative assets
Derivative liabilities
Accounts receivable
Accounts payable and accrued liabilities
Dividends payable
Lease obligations
Long-term debt (1)
(1)
29,028
64,135
(83,223)
—
—
—
—
—
29,028
—
—
75,772
11,637
—
(86,763)
(3,540)
—
211,409
211,409
—
(312,442)
— (312,442)
(35,947)
(35,947)
—
(93,072)
(93,072)
—
— (1,924,665) (1,924,665)
26,809
96,882
(58,543)
—
—
—
—
—
26,809
—
—
96,882
—
—
(58,543)
—
—
260,322
260,322
—
(449,651)
— (449,651)
(35,122)
—
(35,122)
(108,189)
— (108,189)
— (1,796,207) (1,796,207)
The carrying value of the above equals fair value except for long-term debt. The fair value of long-term debt was $1,905,588 (2018 - $1,781,809).
Vermilion Energy Inc. ■ Page 90 ■ 2019 Annual Report
The carrying value of accounts receivable, accounts payable and accrued liabilities, dividends payable and lease obligations are a reasonable
approximation of their fair value due to the short maturity of these financial instruments. The carrying value of long-term debt outstanding on the revolving
credit facility approximates its fair value due to the use of short-term borrowing instruments at market rates of interest.
•
Fair value measurements are categorized into a fair value hierarchy based on the lowest level input that is significant to the fair value measurement:
Level 1 inputs are determined by reference to unadjusted quoted prices in active markets for identical assets or liabilities. Inputs used in fair
value measurement of cash and cash equivalents, the revolving credit facility, and the senior unsecured notes are categorized as Level 1.
Level 2 inputs are determined based on inputs other than unadjusted quoted prices that are observable, either directly or indirectly. The fair
value of Vermilion’s derivative assets and liabilities are determined using pricing models that incorporate future price forecasts (supported by
prices from observable market transactions) and credit risk adjustments.
Level 3 inputs are not based on observable market data. Vermilion does not have any financial instruments classified as Level 3.
•
•
There were no transfers between levels in the hierarchy in the years ended December 31, 2019 and 2018.
Nature and Extent of Risks Associated with Financial Instruments
Vermilion is exposed to financial risks from its financial instruments. These financial risks include: market risk (includes commodity price risk, interest
rate risk, and currency risk), credit risk, and liquidity risk.
Commodity price risk
Vermilion is exposed to commodity price risk on its derivative assets and liabilities which are used as part of the Company’s risk management program
to mitigate the effects of changes in commodity prices on future cash flows. While transactions of this nature relate to future petroleum and natural gas
production, Vermilion does not designate these derivative assets and liabilities as accounting hedges. As such, changes in commodity prices impact
the fair value of derivative instruments and the corresponding gains or losses recognized on derivative instruments.
Currency risk
Vermilion is exposed to currency risk on its financial instruments denominated in foreign currencies. These financial instruments include cash and cash
equivalents, accounts receivables, accounts payables, lease obligations, long-term debt, derivative assets and derivative liabilities. These financial
instruments are primarily denominated in the US dollar and the Euro. Vermilion monitors its exposure to currency risk and reviews whether the use of
derivative financial instruments is appropriate to manage potential fluctuations in foreign exchange rates.
Interest rate risk
Vermilion is exposed to interest rate risk on its revolving credit facility, which consists of short-term borrowing instruments that bear interest at market
rates. Thus, changes in interest rates could result in an increase or decrease in the amount paid by Vermilion to service this debt.
The following table summarizes the increase (positive values) or decrease (negative values) to net earnings before tax due to a change in the value of
Vermilion’s financial instruments as a result of a change in the relevant market risk variable. This analysis does not attempt to reflect any interdependencies
between the relevant risk variables.
($M)
Currency risk - Euro to Canadian dollar
$0.01 increase in strength of the Canadian dollar against the Euro
$0.01 decrease in strength of the Canadian dollar against the Euro
Currency risk - US dollar to Canadian dollar
$0.01 increase in strength of the Canadian dollar against the US $
$0.01 decrease in strength of the Canadian dollar against the US $
Commodity price risk - Crude oil
US $5.00/bbl increase in crude oil price used to determine the fair value of derivatives
US $5.00/bbl decrease in crude oil price used to determine the fair value of derivatives
Commodity price risk - European natural gas
€ 0.5/GJ increase in European natural gas price used to determine the fair value of derivatives
€ 0.5/GJ decrease in European natural gas price used to determine the fair value of derivatives
Dec 31, 2019
Dec 31, 2018
(1,599)
1,599
(5,594)
5,594
(44,106)
47,777
(28,192)
22,670
(2,205)
2,205
2,981
(2,981)
(18,421)
17,351
(36,508)
33,005
Vermilion Energy Inc. ■ Page 91 ■ 2019 Annual Report
Credit risk:
Vermilion is exposed to credit risk on accounts receivable and derivative assets in the event that customers, joint operation partners, or counterparties
fail to discharge their contractual obligations. As at December 31, 2019, Vermilion’s maximum exposure to receivable credit risk was $287.2 million
(December 31, 2018 - $357.2 million) which is the value of accounts receivable and derivative assets on the balance sheet.
Vermilion’s accounts receivable primarily relates to customers and joint operations partners in the petroleum and natural gas industry. These amounts
are subject to normal industry payment terms and credit risks. Vermilion manages these risks by monitoring the creditworthiness of customers and joint
operations partners and, where appropriate, obtaining assurances such as parental guarantees and letters of credit. Vermilion determines the lifetime
expected credit losses recognized on accounts receivable using a provision matrix. In preparing the provision matrix, the Company takes into account
historical credit loss experience based on the aging of accounts receivable, adjusted as necessary for current and future petroleum and natural gas
prices to the extent that changes in pricing may negatively impact the Company's customers and joint operations partners. The lifetime expected credit
losses on accounts receivable as at December 31, 2019 and 2018 is not material. As at the balance sheet date, approximately 3.6% (2018 - 0.7%) of
the accounts receivable balance was outstanding for more than 90 days. Vermilion considers the balance of accounts receivable to be collectible.
Vermilion’s derivative assets primarily relates to the fair value of financial instruments used as part of the Company’s risk management program to
mitigate the effects of changes in commodity prices on future cash flows. Vermilion manages this risk by monitoring the creditworthiness of counterparties,
transacting primarily with counterparties that have investment grade third party credit ratings, and by limiting the concentration of financial exposure to
individual counterparties. As a result, Vermilion has not obtained collateral or other security to support its financial derivatives.
Vermilion’s cash deposited in financial institutions and guaranteed investment certificates are also subject to counterparty credit risk. Vermilion mitigates
this risk by transacting with financial institutions with high third party credit ratings.
Liquidity risk:
Liquidity risk is the risk that Vermilion will encounter difficulty in meeting obligations associated with its financial liabilities. Vermilion does not consider
this to be a significant risk as its financial position and available committed borrowing facility provide significant financial flexibility and allow Vermilion
to meet its obligations as they come due.
The following table summarizes Vermilion’s undiscounted non-derivative financial liabilities and their contractual maturities:
($M)
December 31, 2019
December 31, 2018
18. Related party disclosures
1 month
134,502
167,491
1 month to
3 months
208,752
306,927
3 months to
1 year
5,136
10,355
1 year to
5 years
1,608,435
1,472,087
The compensation of directors and management is reviewed annually by the independent Governance and Human Resources Committee against
industry practices for oil and gas companies of similar size and scope.
The following table summarizes the compensation of directors and other members of key management personnel during the years ended December 31,
2019 and 2018:
Short-term benefits
Equity based compensation
Number of individuals included in the above amounts
Year Ended
Dec 31, 2019
8,084
16,296
24,380
19
Dec 31, 2018
6,018
16,309
22,327
18
During the year ended December 31, 2019, Vermilion recorded $0.2 million of office rent recoveries (2018 - $0.2 million) relating to an office sub-lease
to a company whose Managing Director is also a member of Vermilion's Board of Directors. This related party transaction is provided in the normal
course of business under the same commercial terms and conditions as transactions with unrelated companies and is recorded at the exchange amount.
Vermilion Energy Inc. ■ Page 92 ■ 2019 Annual Report
19. Supplemental information
Changes in non-cash working capital was comprised of the following:
Changes in:
Accounts receivable
Crude oil inventory
Prepaid expenses
Accounts payable and accrued liabilities
Income taxes payable
Working capital assumed in acquisitions
Initial recognition of IFRS 16 liability
Foreign exchange
Changes in non-cash working capital
Changes in non-cash operating working capital
Changes in non-cash investing working capital
Changes in non-cash working capital
Cash and cash equivalents was comprised of the following:
Cash on deposit with financial institutions
Guaranteed investment certificates
Cash and cash equivalents
Wages and benefits included in operating expenses and general and administration expenses were:
Operating expense
General and administration expense
Wages and benefits
Year Ended
Dec 31, 2019
Dec 31, 2018
48,913
(1,638)
(2,882)
(137,209)
(31,994)
—
—
2,590
(122,220)
(65,148)
(57,072)
(122,220)
(94,562)
(10,646)
(4,896)
230,567
(1,651)
(58,841)
(10,483)
(873)
48,615
(6,876)
55,491
48,615
As at
Dec 31, 2019
28,898
130
29,028
Dec 31, 2018
26,604
205
26,809
Year Ended
Dec 31, 2019
77,868
47,310
125,178
Dec 31, 2018
66,095
42,496
108,591
Vermilion Energy Inc. ■ Page 93 ■ 2019 Annual Report
The following tables summarize Vermilion's outstanding risk management positions as at December 31, 2019:
Unit
Currency
Dated Brent
Q1 2020
Q2 2020
WTI
Q1 2020
Q2 2020
Q3 2020
Q4 2020
AECO
Q1 2020
Q2 2020
Q3 2020
Q4 2020
bbl
bbl
bbl
bbl
bbl
bbl
mcf
mcf
mcf
mcf
USD
USD
USD
USD
USD
USD
CAD
CAD
CAD
CAD
AECO Basis (AECO less NYMEX Henry Hub)
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
NYMEX Henry Hub
Q1 2020
mcf
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
Bought Put
Volume
Weighted
Average
Bought Put
Price
Sold Call
Volume
Weighted
Average Sold
Call Price
Sold Put
Volume
Weighted
Average Sold
Put Price Swap Volume
Weighted
Average
Swap Price
3,000
3,000
9,750
7,250
500
500
62.25
62.25
54.18
53.07
57.00
57.00
3,000
3,000
6,000
4,000
500
500
67.39
67.39
60.95
60.23
61.25
61.25
10,426
1.58
10,426
2.56
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3,000
3,000
9,750
7,250
500
500
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
55.58
55.58
46.23
44.86
52.00
52.00
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1,500
59.17
—
—
—
—
10,426
10,426
3,513
32,500
52,500
50,000
36,739
30,000
45,000
45,000
35,054
30,000
35,000
35,000
11,793
—
—
—
—
1.39
1.39
1.39
(0.94)
(1.12)
(1.12)
(1.11)
(1.11)
(1.08)
(1.08)
(1.09)
(1.10)
(1.09)
(1.09)
(1.09)
10,000
2.75
10,000
3.10
10,000
2.25
—
—
Vermilion Energy Inc. ■ Page 94 ■ 2019 Annual Report
Unit
Currency
Bought Put
Volume
Weighted
Average
Bought Put
Price
Sold Call
Volume
Weighted
Average Sold
Call Price
Sold Put
Volume
Weighted
Average Sold
Put Price Swap Volume
Weighted
Average
Swap Price
NBP
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
NBP Basis (NBP less NYMEX Henry Hub)
Q1 2020
Q2 2020
Q3 2020
Q4 2020
TTF
Q1 2020
Q2 2020
Q3 2020
Q4 2020
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
USD
USD
USD
USD
EUR
EUR
EUR
EUR
TTF Basis (TTF less NYMEX Henry Hub)
Q2 2020
Q3 2020
mcf
mcf
USD
USD
49,135
41,765
41,765
61,419
54,048
46,678
46,678
54,048
19,654
12,284
17,500
15,000
15,000
10,000
7,370
13,512
13,512
7,370
2,500
2,500
5.27
5.21
5.21
5.28
5.44
5.42
5.42
5.44
5.42
5.33
2.74
2.61
2.61
3.24
5.37
5.36
5.36
5.37
3.50
3.50
49,135
41,765
41,765
63,875
56,505
46,678
46,678
54,048
19,654
12,284
17,500
15,000
15,000
10,000
7,370
9,827
9,827
7,370
2,500
2,500
5.83
5.53
5.52
5.77
5.85
5.80
5.77
5.72
6.30
6.03
3.99
3.98
3.98
3.98
6.25
6.15
6.15
6.25
4.00
4.00
49,135
41,765
41,765
61,419
54,048
46,678
46,678
54,048
19,654
12,284
—
—
—
—
7,370
13,512
13,512
7,370
—
—
3.98
3.83
3.83
3.90
3.94
3.92
3.92
3.94
3.79
3.60
—
—
—
—
3.81
3.73
3.73
3.81
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4,913
3,258
—
5,000
5,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
5.54
5.45
—
3.21
3.21
Cross Currency Interest Rate
Receive Notional Amount
Receive Rate
Pay Notional Amount
Swap
Swap
Jan 2020 - Mar 2025
Q1 2020
300,000,000
1,735,895,470
USD
USD
5.625%
LIBOR + 1.70%
265,048,910
2,304,900,000
EUR
CAD
Pay Rate
3.275%
CDOR + 1.25%
VET Equity Swaps
Swap
Swap
Jan 2020 - Sep 2021
Jan 2020 - Oct 2021
Initial Share Price
Share Volume
20.9788
22.4587
CAD
CAD
2,250,000
1,500,000
Vermilion Energy Inc. ■ Page 95 ■ 2019 Annual Report
The following sold option instruments allow the counterparties, at the specified date, to enter into a derivative instrument contract with Vermilion at the
detailed terms:
Period if Option
Exercised
Dated Brent
Feb 2020 - Jan 2021
Feb 2020 - Jan 2021
Mar 2020 - Feb 2021
Apr 2020 - Mar 2021
Apr 2020 - Mar 2021
May 2020 - Apr 2021
NBP
Oct 2020 - Jun 2022
Jan 2021 - Sep 2022
Jan 2021 - Sep 2022
Jan 2022 - Dec 2022
Oct 2020 - Jun 2022
Unit
Currency
Option
Expiration
Date
Bought Put
Volume
Weighted
Average
Bought Put
Price
Sold Call
Volume
Weighted
Average
Sold Call
Price
Sold Put
Volume
Weighted
Average
Sold Put
Price
Swap
Volume
Weighted
Average
Swap Price
bbl
bbl
bbl
bbl
bbl
bbl
mcf
mcf
mcf
mcf
mcf
USD
USD
USD
USD
USD
USD
EUR
EUR
USD
USD
EUR
28-Jan-20
31-Jan-20
28-Feb-20
31-Mar-20
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
31-Mar-20
1,000
64.00
1,000
69.00
1,000
59.00
30-Apr-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Sep-20
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
500
3,000
4,500
3,500
—
4,000
2,457
2,457
2,457
9,827
2,457
63.00
62.00
62.71
63.32
—
62.63
5.86
5.86
6.45
6.45
6.15
Vermilion Energy Inc. ■ Page 96 ■ 2019 Annual Report
DIRECTORS
Lorenzo Donadeo 1
Calgary, Alberta
Larry J. Macdonald 2, 4, 6, 8
Chairman & CEO, Point Energy Ltd.
Calgary, Alberta
Carin Knickel 6, 8, 12
Golden, Colorado
Stephen P. Larke 4, 6, 12
Calgary, Alberta
Loren M. Leiker 10
McKinney, Texas
Timothy R. Marchant 7, 10, 11
Calgary, Alberta
Anthony Marino
Calgary, Alberta
Robert Michaleski 4, 5
Calgary, Alberta
William Roby 8, 9, 12
Katy, Texas
Catherine L. Williams 3, 6
Calgary, Alberta
1 Chairman of the Board
2 Lead Director
3 Audit Committee Chair (Independent)
4 Audit Committee Member
5 Governance and Human Resources Committee Chair
__(Independent)
6 Governance and Human Resources Committee Member
7 Health, Safety and Environment Committee Chair __
(Independent)
8 Health, Safety and Environment Committee Member
9 Independent Reserves Committee Chair (Independent)
10 Independent Reserves Committee Member
11 Sustainability Committee Chair (Independent)
12 Sustainability Committee Member
OFFICERS AND KEY PERSONNEL
CANADA
Anthony Marino
President & Chief Executive Officer
Lars Glemser
Vice President & Chief Financial Officer
Mona Jasinski
Executive Vice President, People and Culture
Michael Kaluza
Executive Vice President & Chief Operating Officer
Dion Hatcher
Vice President Canada Business Unit
Terry Hergott
Vice President Marketing
Kyle Preston
Vice President Investor Relations
Jenson Tan
Vice President Business Development
Daniel Goulet
Director Corporate HSE
Jeremy Kalanuk
Director Operations Accounting
AUDITORS
Deloitte LLP
Calgary, Alberta
BANKERS
The Toronto-Dominion Bank
Bank of Montreal
Canadian Imperial Bank of Commerce
Export Development Canada
National Bank of Canada
Royal Bank of Canada
The Bank of Nova Scotia
Wells Fargo Bank N.A., Canadian Branch
HSBC Bank Canada
Bank of America N.A., Canada Branch
Citibank N.A., Canadian Branch - Citibank Canada
JPMorgan Chase Bank, N.A., Toronto Branch
La Caisse Centrale Desjardins du Québec
Bryce Kremnica
Director Field Operations - Canada Business Unit
Alberta Treasury Branches
Canadian Western Bank
Steve Reece
Director Information Technology & Information Systems
Goldman Sachs Lending Partners LLC
Barclays Bank PLC
EVALUATION ENGINEERS
GLJ Petroleum Consultants Ltd.
Calgary, Alberta
LEGAL COUNSEL
Norton Rose Fulbright Canada LLP
Calgary, Alberta
TRANSFER AGENT
Computershare Trust Company of Canada
STOCK EXCHANGE LISTINGS
The Toronto Stock Exchange (“VET”)
The New York Stock Exchange (“VET”)
INVESTOR RELATIONS
Kyle Preston
Vice President Investor Relations
403-476-8431 TEL
403-476-8100 FAX
1-866-895-8101 IR TOLL FREE
investor_relations@vermilionenergy.com
Tom Rafter
Director Land - Canada Business Unit
Adam Iwanicki
Director Marketing
Robert (Bob) J. Engbloom
Corporate Secretary
UNITED STATES
Scott Seatter
Managing Director - U.S. Business Unit
Timothy R. Morris
Director U.S. Business Development - U.S.
Business Unit
EUROPE
Gerard Schut
Vice President European Operations
Sylvain Nothhelfer
Managing Director - France Business Unit
Sven Tummers
Managing Director - Netherlands Business Unit
Bill Liutkus
Managing Director - Germany Business Unit
Darcy Kerwin
Managing Director - Ireland Business Unit
Bryan Sralla
Managing Director - Central & Eastern Europe Business
Unit
AUSTRALIA
Bruce D. Lake
Managing Director - Australia Business Unit
Vermilion Energy Inc. ■ Page 97 ■ 2019 Annual Report
Vermilion Energy Inc. 3500, 520 3rd Avenue SWCalgary, Alberta T2P 0R3Telephone: 1.403.269.4884Facsimile: 1.403.476.8100IR Toll Free: 1.866.895.8101investor_relations@vermilionenergy.comvermilionenergy.comEXCELLENCEWe aim for exceptional results in everything we do.TRUSTAt Vermilion, we operate with honesty and fairness, and can be counted on to do what we say we will. RESPECTWe embrace diversity, value our people and believe every employee and business associate worldwide deserves to be treated with the utmost dignity and respect. RESPONSIBILITYVermilion continually shows its commitment to the care of our people and environment, and enrichment of the communities in which we live and work.