Front Cover Theme
As illustrated by the front cover photo, we give together through our Days of Caring. Throughout the company, our
staff volunteer to support social and environmental agencies we’ve partnered with in the communities where we
operate.
Here, Vermilion has partnered with the Nature Conservancy of Canada (NCC), one of Canada's leading national
conservation organizations. In 2016 and 2019, a group of Vermilion volunteers from our Canada Business Unit
tackled projects like trail clearing and sign installation at the Coyote Lake Nature Sanctuary, which is a popular hiking
destination near our operations in Drayton Valley, Alberta. This work helped to ensure a safe and enjoyable
experience for visitors, and contributed to the safety of local wildlife.
NCC focuses on protecting the natural areas that sustain Canada's plants and wildlife by securing properties, and
managing them for the long term. To date, NCC and its partners have helped to conserve more than 35 million acres
of ecologically significant land from coast to coast.
Through programs like this, Vermilion is proud to have invested over $7.4 million and 10,800 hours of volunteer time
in strategic community partnerships over the past five years.
Table of Contents
Message to Shareholders
Management’s Discussion and Analysis
Consolidated Financial Statements
Notes to the Consolidated Financial Statements
Corporate Information
Annual General Meeting
6
10
56
64
87
April 28, 2021
3:00 PM MT
With continued limits on large gatherings due to the ongoing COVID-19 pandemic, our Meeting will be held as a virtual shareholder meeting with
electronic participation as explained in the 2021 Proxy Statement and Information Circular, which will be available in March 2021. Details of the
meeting will be included in the Information Circular and posted on our website at https://www.vermilionenergy.com/invest-with-us/annual-general-
meeting.cfm when available.
Vermilion Energy Inc. ■ Page 1 ■ 2020 Annual Report
Disclaimer
Certain statements included or incorporated by reference in this document may constitute forward-looking statements or financial outlooks under
applicable securities legislation. Such forward-looking statements or information typically contain statements with words such as "anticipate",
"believe", "expect", "plan", "intend", "estimate", "propose", or similar words suggesting future outcomes or statements regarding an outlook. Forward
looking statements or information in this document may include, but are not limited to: capital expenditures and Vermilion’s ability to fund such
expenditures; Vermilion’s additional debt capacity providing it with additional working capital; the flexibility of Vermilion’s capital program and
operations; business strategies and objectives; operational and financial performance; estimated volumes of reserves and resources; petroleum and
natural gas sales; future production levels and the timing thereof, including Vermilion’s 2021 guidance, and rates of average annual production
growth; the effect of changes in crude oil and natural gas prices, changes in exchange rates and significant declines in production or sales volumes
due to unforeseen circumstances; the effect of possible changes in critical accounting estimates; statements regarding the growth and size of
Vermilion’s future project inventory, and the wells expected to be drilled in 2021; exploration and development plans and the timing thereof;
Vermilion’s ability to reduce its debt, including its ability to redeem senior unsecured notes prior to maturity; statements regarding Vermilion’s
hedging program, its plans to add to its hedging positions, and the anticipated impact of Vermilion’s hedging program on project economics and free
cash flows; the potential financial impact of climate-related risks; acquisition and disposition plans and the timing thereof; operating and other
expenses, including the payment and amount of future dividends; royalty and income tax rates and Vermilion’s expectations regarding future taxes
and taxability; and the timing of regulatory proceedings and approvals.
Such forward-looking statements or information are based on a number of assumptions, all or any of which may prove to be incorrect. In addition to
any other assumptions identified in this document, assumptions have been made regarding, among other things: the ability of Vermilion to obtain
equipment, services and supplies in a timely manner to carry out its activities in Canada and internationally; the ability of Vermilion to market crude
oil, natural gas liquids, and natural gas successfully to current and new customers; the timing and costs of pipeline and storage facility construction
and expansion and the ability to secure adequate product transportation; the timely receipt of required regulatory approvals; the ability of Vermilion to
obtain financing on acceptable terms; foreign currency exchange rates and interest rates; future crude oil, natural gas liquids, and natural gas prices;
and management’s expectations relating to the timing and results of exploration and development activities.
Although Vermilion believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should
not be placed on forward-looking statements because Vermilion can give no assurance that such expectations will prove to be correct. Financial
outlooks are provided for the purpose of understanding Vermilion’s financial position and business objectives, and the information may not be
appropriate for other purposes. Forward-looking statements or information are based on current expectations, estimates, and projections that involve
a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Vermilion and described in the
forward-looking statements or information. These risks and uncertainties include, but are not limited to: the ability of management to execute its
business plan; the risks of the oil and gas industry, both domestically and internationally, such as operational risks in exploring for, developing and
producing crude oil, natural gas liquids, and natural gas; risks and uncertainties involving geology of crude oil, natural gas liquids, and natural gas
deposits; risks inherent in Vermilion's marketing operations, including credit risk; the uncertainty of reserves estimates and reserves life and
estimates of resources and associated expenditures; the uncertainty of estimates and projections relating to production and associated expenditures;
potential delays or changes in plans with respect to exploration or development projects; Vermilion's ability to enter into or renew leases on
acceptable terms; fluctuations in crude oil, natural gas liquids, and natural gas prices, foreign currency exchange rates and interest rates; health,
safety, and environmental risks; uncertainties as to the availability and cost of financing; the ability of Vermilion to add production and reserves
through exploration and development activities; the possibility that government policies or laws may change or governmental approvals may be
delayed or withheld; uncertainty in amounts and timing of royalty payments; risks associated with existing and potential future law suits and
regulatory actions against Vermilion; and other risks and uncertainties described elsewhere in this document or in Vermilion's other filings with
Canadian securities regulatory authorities.
The forward-looking statements or information contained in this document are made as of the date hereof and Vermilion undertakes no obligation to
update publicly or revise any forward-looking statements or information, whether as a result of new information, future events, or otherwise, unless
required by applicable securities laws.
All crude oil and natural gas reserve and resource information contained in this document has been prepared and presented in accordance with
National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities and the Canadian Oil and Gas Evaluation Handbook. Reserves
estimates have been made assuming that development of each property in respect of which the estimate is made will occur, without regard to the
likely availability of funding required for such development. The actual crude oil and natural gas reserves and future production will be greater than or
less than the estimates provided in this document.
Natural gas volumes have been converted on the basis of six thousand cubic feet of natural gas to one barrel of oil equivalent. Barrels of oil
equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet to one barrel of oil is based on
an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Financial data contained within this document are reported in Canadian dollars unless otherwise stated.
Vermilion Energy Inc. ■ Page 2 ■ 2020 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 3 ■ 2020 Annual Report
Highlights
•
•
•
•
•
•
•
•
•
•
.
(1)
(2)
(3)
In 2020, we generated $502 million of fund flows from operations ("FFO")(1) and $135 million of free cash flow (“FCF”)(1) after investing $367
million on exploration and development (“E&D”) capital expenditures. This resulted in a payout ratio of 92% including reclamation and
abandonment expenditures and dividends paid earlier in the year.
In Q4 2020, we generated $135 million of FFO and invested $60 million of E&D capital, resulting in FCF of $75 million which went toward debt
reduction. After funding reclamation and abandonment expenditures and minor acquisitions, we reduced the amount outstanding under our
revolving credit facility by approximately $175 million over the second half of 2020, leaving us with over $500 million of liquidity available at
year-end.
Achieved 2020 average production of 95,190 boe/d(2), slightly above the midpoint of our guidance range of 94,000 to 96,000 boe/d. Q4 2020
production averaged 87,848 boe/d(2), reflecting the impact from a capital program executed predominately during the first part of 2020 with
limited drilling activity over the second half of the year.
Production from our North American assets averaged 58,774 boe/d(2) in Q4 2020, a decrease of 10% from the prior quarter primarily due to
natural decline. The majority of our 2020 North American drilling program was executed during the first half of the year with limited new
production added during the second half of the year.
Production from our International assets averaged 29,073 boe/d(2) in Q4 2020, a decrease of 5% from the prior quarter primarily due to a
planned turnaround in Australia and natural decline.
Total proved plus probable reserves decreased 7% from the prior year to 467 mmboe, as evaluated by GLJ as at December 31, 2020(3). The
decrease is primarily due lower capital activity levels and economic impacts.
Proved plus probable reserve life index remains in excess of 13 years.
During Q4 2020, we announced several management changes including the appointments of Mr. Dion Hatcher and Mr. Darcy Kerwin to the
newly created roles of Vice President, North America and Vice President, International and HSE, respectively. In lieu of filling the role of COO,
Mr. Hatcher and Mr. Kerwin will jointly fulfill the duties and continue to emphasize our focus on cost-control and safe, efficient, profitable
operations.
Vermilion was ranked at the top of our peer group in 2020 in the SAM Corporate Sustainability Assessment (“CSA”). We were also selected for
The Sustainability Yearbook 2021, which reflects that our CSA sustainability performance is within the top 15% of our industry (SAM's Upstream
Oil & Gas and Integrated category). Vermilion's 2020 Sustainability Report can be found on our website using the following link:
http://sustainability.vermilionenergy.com/.
Subsequent to the end of the year we announced a disciplined and balanced E&D capital budget of $300 million for 2021, along with production
guidance of 83,000 to 85,000 boe/d. The budget is focused on maximizing returns and FCF in order to facilitate debt reduction and preserve
liquidity. Based on the mid-point of our 2021 production and capital expenditure guidance and assuming US$60/bbl WTI oil prices for the
balance of the year, we expect to generate over $350 million of FCF in 2021, which will be used to reduce our debt
Non-GAAP Financial Measure. Please see the “Non-GAAP Financial Measures” section of the accompanying Management’s Discussion and Analysis.
Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type.
Estimated gross proved, developed and producing, total proved, and total proved plus probable reserves as evaluated by GLJ Petroleum Consultants Ltd.
(“GLJ”) in a report dated February 12, 2021 with an effective date of December 31, 2020 (the “2020 GLJ Reserves Report”).
Vermilion Energy Inc. ■ Page 4 ■ 2020 Annual Report
($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 (loss) earnings
Net (loss) earnings ($/basic share)
Capital expenditures
Acquisitions
Asset retirement obligations settled
Cash dividends ($/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 (2)
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 and foreign exchange rates
WTI (US $/bbl)
Edmonton Sweet index (US $/bbl)
Saskatchewan LSB index (US $/bbl)
Dated Brent (US $/bbl)
AECO ($/mcf)
NBP ($/mcf)
TTF ($/mcf)
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 2020
Q3 2020
Q4 2019
2020
2019
316,198
135,212
0.85
0.85
(57,707)
(0.36)
59,894
4,821
7,271
—
—
— %
—
— %
67,165
50 %
282,020
114,776
0.73
0.73
(69,926)
(0.44)
31,330
6,720
2,305
—
—
— %
—
— %
33,635
29 %
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 %
1,119,545
502,065
3.18
3.18
(1,517,427)
(9.61)
367,202
25,810
14,278
0.575
90,067
18 %
81,790
16 %
463,270
92 %
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 %
2,105,983
4.19
2,136,219
3.67
1,993,194
2.20
2,105,983
4.19
1,993,194
2.20
40,555
8,627
232.00
87,848
55.31
19.20
4.13
40 %
17 %
27 %
16 %
19.67
16.50
13.00
2.27
42.66
38.59
38.96
44.23
2.64
6.99
6.63
1.30
1.55
158,724
165,396
158,561
158,561
43,240
9,509
256.34
95,471
52.77
15.04
2.34
40 %
17 %
28 %
15 %
16.29
12.95
10.21
1.35
40.93
37.42
37.57
43.00
2.24
3.67
3.51
1.33
1.56
158,308
163,800
158,307
158,307
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
156,290
159,912
155,950
156,180
43,421
8,937
256.99
95,190
50.53
13.06
2.77
40 %
16 %
28 %
16 %
17.58
14.32
11.89
1.73
39.40
34.08
34.14
41.67
2.23
4.30
4.18
1.34
1.53
158,724
165,396
157,908
157,908
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
156,290
159,912
154,736
156,094
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.
Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type.
(2)
Vermilion Energy Inc. ■ Page 5 ■ 2020 Annual Report
Message to Shareholders
Vermilion started 2020 on a strong footing in what appeared to be a constructive outlook for commodity prices. That all changed in mid-February as
the effects from the COVID-19 pandemic started to take hold. As we are all too aware now, the pandemic had devastating effects on the global
economy and commodity prices. As commodity prices collapsed, we took swift and decisive action, making drastic changes to our business in order
to protect the balance sheet and preserve financial liquidity. We reduced our 2020 capital program in March, suspended our dividend in April and,
with other cost saving initiatives, reduced over $550 million combined of annualized cash outflows. In the months following, we made several
changes to our executive leadership team and undertook a global organizational review to improve profitability and long-term sustainability. While
these collective decisions were difficult to make, we can look back now with confidence and know that they were in the best interests of the
Company. Not only did Vermilion successfully navigate this downturn, we have made several structural changes to our business that will improve our
long-term sustainability and add value for our shareholders over the coming years.
One of the themes emerging from the COVID-19 pandemic is an increased awareness and focus on environmental, social and governance (“ESG”)
matters and the energy transition. Vermilion has been focused on ESG for well over a decade and we take great pride in our ESG leadership within
the mid-cap energy space. Sustainability is fundamental to our business which is reflected in our consistently strong results and rankings from
external ESG agencies, including Vermilion's recent inclusion in The Sustainability Yearbook 2021 based on the SAM (now S&P Global) Corporate
Sustainability Assessment. We maintained our disciplined focus on ESG through 2020 despite the challenges caused by COVID-19, and we are
committed to progressing our ESG initiatives in the future as we see Vermilion being a key contributor to the energy transition. As such, we are
currently developing a comprehensive, long-term ESG strategy that will be fully integrated into our business with clear objectives, including further
targets for emissions reductions. This new ESG strategy and associated targets are expected to be in place by mid-2021.
Despite all the challenges in 2020, we still managed to execute a $367 million exploration and development ("E&D") capital program and deliver
annual average production of 95,190 boe/d(2) which is slightly above the midpoint of our guidance range of 94,000 to 96,000 boe/d. In 2020, we
executed a front-end weighted capital program whereby approximately 65% of our E&D capital was invested in Q1 2020, resulting in peak production
of over 100,000 boe/d in Q2 2020 and declining to 87,848 boe/d in Q4 2020. Through our profitability review, we have determined that this allocation
of capital is not the most efficient and increases the challenges of managing our production base over time. We have incorporated these learnings
into our 2021 budget and are targeting a much more level-loaded capital program in 2021, as was outlined in our budget announcement in January.
The volatile commodity environment in 2020 saw WTI oil prices peak above US$60/bbl at the beginning of the year and collapse to an
unprecedented negative price in April as global storage levels surged following the stay-at-home measures put in place around the world. The WTI
benchmark averaged US$39.40/bbl for 2020, compared to US$57.03/bbl in 2019. European natural gas prices experienced similar volatility as a
result of the pandemic-induced demand destruction. The TTF benchmark traded below C$2/mcf in May but recovered to over C$8/mcf by December,
averaging $4.30/mcf for the full year, compared to $5.90/mcf in 2019. Fortunately, we had the majority of our European conventional natural gas
production hedged through the summer months at much higher prices, which offset some of this price weakness.
We generated $502 million of fund flows from operations ("FFO")(1) in 2020 and $135 million of free cash flow ("FCF")(1), which more than covered
the dividends paid earlier in the year, along with reclamation and abandonment expenditures and minor acquisitions. In Q4 2020, we generated $135
million of FFO and invested $60 million of E&D capital, resulting in FCF of $75 million which went toward debt reduction. After accounting for
reclamation and abandonment expenditures and minor acquisitions, we reduced the amount outstanding under our revolving credit facility by
approximately $175 million during the second half of 2020, leaving us with over $500 million of liquidity available at year-end. Based on the mid-point
of our 2021 production and capital expenditure guidance and assuming US$60/bbl WTI oil prices for the balance of the year, we expect to generate
over $350 million of FCF in 2021, which will be used to further reduce our debt.
It has been a challenging year for the oil and gas industry and Vermilion; however, we are pleased with what our Company has accomplished under
the circumstances. While we still have lots of work to do, we believe our Company is on a much stronger footing today and is better positioned for
long-term value creation. Vermilion has a world class asset base comprised of highly efficient, low decline conventional oil and natural gas producing
assets that generate strong free cash flow. These assets provide risk reducing attributes owing to their global diversification and global commodity
exposure, and also provide significant leverage to recovering global commodity prices. In the near-term, all of our free cash flow will be allocated to
debt reduction, but as we begin to make more meaningful progress towards our debt targets, we will review our long-term shareholder return policy
to determine the appropriate time to reinstate a dividend and/or share buyback program. We would like to thank our shareholders for their ongoing
support and look forward to providing further updates on our 2021 program as the year progresses.
We would like to share with you the news that Larry MacDonald, our Lead Director, has recently been awarded the Order of Canada. This award is
made to individuals who have demonstrated “outstanding achievement and merit of the highest degree, especially in service to Canada or to
humanity at large”. This is absolutely a remarkable achievement for Larry and is a reflection of the significant personal contributions he has made for
the disadvantaged, not only in Canada but also globally, over his lifetime. Larry has been a member of our Board of Directors since 2002 and we are
proud to be associated with such an outstanding individual.
Vermilion Energy Inc. ■ Page 6 ■ 2020 Annual Report
Q4 2020 Operations Review
North America
Production from our North American assets averaged 58,774 boe/d in Q4 2020, a decrease of 10% from the prior quarter primarily due to natural
decline. The majority of our 2020 North American drilling program was executed during the first half of the year with limited new production added
during the second half of the year. We resumed drilling activity in Alberta in the fourth quarter, drilling seven (6.6 net) Mannville wells and completing
two (1.6 net) wells which were brought on production prior to year-end. The remaining five (5.0 net) wells were completed and brought on production
in early 2021. No drilling or completion activity occurred in southeast Saskatchewan or Wyoming during the fourth quarter, however we expect to
resume drilling in these areas in Q2 2021.
International
Production from our International assets averaged 29,073 in Q4 2020, a decrease of 5% from the prior quarter primarily due to a planned turnaround
in Australia and natural decline. In Australia, we successfully completed an 11-day planned maintenance turnaround, which included the tie in of a
new sediments management system which is expected to improve facility operating efficiency.
Activity in our European operating areas was primarily focused on maintenance, well work-over activities and planning for the 2021 drilling campaign
in the Netherlands, Hungary and Croatia. All drilling permits have been received for our 2021 European drilling campaign, along with the production
license for the Burgmoor Z5 well (46% working interest) in Germany which is scheduled to start-up in the second half of 2021. In France, we
obtained the necessary authorization for trucking our Paris Basin light crude oil in advance of the Grandpuits refinery closure in Q1 2021. The
refinery recently ceased all oil refining operations and we have begun trucking our light crude oil to other refineries in France without any disruption
to our field operations. We will continue to evaluate transportation options and remain optimistic we can find a cost effective long-term solution.
2020 Reserve Report
Our 2020 total proved plus probable reserves decreased 7% from the prior year to 467 mmboe(3). The decrease is primarily due to lower commodity
price assumptions and lower capital activity levels in 2020. Despite these revisions our total proved plus probable reserve life index remains greater
than 13 years while our total proved plus probable 3-year F&D operating recycle ratio remains over 2 times, owing to our high netback production
base. In an effort to reduce costs, the Company did not complete a resource evaluation this year.
The following table provides a summary of company interest reserves by reserve category and region on an oil equivalent basis. Please refer to
Vermilion's 2020 Annual Information Form for the year ending December 31, 2020 ("2020 Annual Information Form") for detailed information by
country and product type.
BOE (mboe)
North America
International
Vermilion
Proved Developed
Producing
124,376
60,977
185,353
Proved Developed
Non-Producing
5,652
7,112
12,764
Proved
Undeveloped
79,155
7,992
87,147
Proved
209,183
76,081
285,264
Probable
136,969
44,370
181,339
Proved Plus
Probable
346,152
120,451
466,603
The following table summarizes the finding and development costs and associated operating recycle ratios by reserve category for the three-year
period ending December 31, 2020:
Finding and Development Costs, including FDC (F&D) ($/boe) (4)
Finding, Development and Acquisition Costs, including FDC (FD&A) ($/boe) (4)
F&D Operating Recycle Ratio (x) (5)
FD&A Operating Recycle Ratio (x) (5)
PDP
$14.83
$20.35
1.7
1.2
3-Year Average
1P
$13.74
$19.82
1.8
1.3
2P
$11.79
$15.37
2.1
1.6
Vermilion Energy Inc. ■ Page 7 ■ 2020 Annual Report
The following table provides a reconciliation of changes in company interest reserves by reserve category and region. Please refer to Vermilion's
2020 Annual Information Form for detailed information by country and product type.
1P (mboe)
December 31, 2019
Discoveries
Extensions & improved recovery
Technical revisions
Acquisitions
Dispositions
Economic factors
Production
December 31, 2020
2P (mboe)
December 31, 2019
Discoveries
Extensions & improved recovery
Technical revisions
Acquisitions
Dispositions
Economic factors
Production
December 31, 2020
North America
International
221,979
—
18,612
1,701
2,159
(3,679)
(7,998)
(23,591)
209,183
87,961
—
2,265
4,381
—
—
(7,277)
(11,249)
76,081
North America
International
359,828
—
17,741
3,080
4,302
(4,955)
(10,254)
(23,591)
346,151
141,049
—
5,131
(1,558)
—
—
(12,923)
(11,249)
120,450
Vermilion
309,940
—
20,877
6,082
2,159
(3,679)
(15,275)
(34,840)
285,264
Vermilion
500,877
—
22,872
1,522
4,302
(4,955)
(23,177)
(34,840)
466,601
Additional information about our 2020 GLJ Reserves Report can be found in our 2020 Annual Information Form on our website at
www.vermilionenergy.com and on SEDAR at www.sedar.com.
Commodity Hedging
Vermilion hedges to manage commodity price exposures and increase the stability of our cash flows. In aggregate, as of March 1, 2021, we have
45% of our expected net-of-royalty production hedged for the first half of 2021. With respect to individual commodity products, we have hedged 64%
of our European natural gas production, 38% of our oil production, and 46% of our North American natural gas volumes for the first half of 2021,
respectively. Please refer to the Hedging section of our website under Invest With Us for further details using the following link:
https://www.vermilionenergy.com/invest-with-us/hedging.cfm.
Sustainability
Vermilion continued to build on our track record of industry-leading ESG performance based on rankings by third party ratings agencies in 2020.
Vermilion was ranked at the top of our peer group in 2020 in the SAM Corporate Sustainability Assessment (“CSA”). We were also selected for The
Sustainability Yearbook 2021, which recognizes that our CSA sustainability performance is within the top 15% of our industry (SAM's Upstream Oil &
Gas and Integrated category). During Q4 2020, we also released our 2020 Corporate Sustainability Report, marking our 7th year of ESG reporting.
The 2020 report highlights our ongoing focus on reducing emissions within our operations, along with a content index that includes recommendations
from the Task Force on Climate-related Financial Disclosures and the Sustainability Accounting Standards Board. The report can be found on our
Sustainability micro-site using the following link: https://sustainability.vermilionenergy.com/.
(Signed “Lorenzo Donadeo”)
Lorenzo Donadeo
Executive Chairman
March 5, 2021
(Signed “Curtis Hicks”)
Curtis Hicks
President
March 5, 2021
(1)
Non-GAAP Financial Measure. Please see the “Non-GAAP Financial Measures” section of the accompanying Management’s Discussion and Analysis.
Vermilion Energy Inc. ■ Page 8 ■ 2020 Annual Report
(2)
(3)
(4)
(5)
Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type.
Estimated gross proved, developed and producing, total proved, and total proved plus probable reserves as evaluated by GLJ Petroleum Consultants Ltd.
(“GLJ”) in a report dated February 12, 2021 with an effective date of December 31, 2020 (the “2020 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 9 ■ 2020 Annual Report
Management's Discussion and Analysis
The following is Management’s Discussion and Analysis (“MD&A”), dated March 5, 2021, 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, 2020 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, 2020 and 2019,
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, 2020 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, core region, 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”.
Product Type Disclosure
Under National Instrument 51-101 "Standards of Disclosure for Oil and Gas Activities", disclosure of production volumes should include
segmentation by product type as defined in the instrument. In this report, references to "crude oil" mean "light crude oil and medium crude oil" and
references to "natural gas" mean "conventional natural gas".
In addition, in Supplemental Table 4 "Production", Vermilion provides a reconciliation from total production volumes to product type and also a
reconciliation of "crude oil and condensate" and "NGLs" to the product types "light crude oil and medium crude oil" and "natural gas liquids".
Production volumes reported are based on quantities as measured at the first point of sale.
Vermilion Energy Inc. ■ Page 10 ■ 2020 Annual Report
Guidance
On October 31, 2019, we released our 2020 capital budget and associated production guidance. On March 16, 2020, we announced a reduction of
our 2020 capital budget and associated production guidance in response to a decrease in oil prices as a result of the coronavirus ("COVID-19")
pandemic and the ensuing oil price war between OPEC+ members. On November 9, 2020, we reduced the upper end of our annual production
guidance range to reflect revised production estimates, which take into account the deferred startup of new natural gas production in the Netherlands
to take advantage of higher European natural gas prices during the winter months. Actual 2020 capital spending of $367 million and 2020 average
production of 95,190 boe/d were both slightly above the midpoint of our guidance ranges.
On January 18, 2021, we released our 2021 capital budget and associated production guidance.
The following table summarizes our guidance:
Date
Capital Expenditures ($MM)
Production (boe/d)
2020 Guidance
2020 Guidance
2020 Guidance
2020 Guidance
2020 Actual Results
2021 Guidance
2021 Guidance
October 31, 2019
March 16, 2020
November 9, 2020
March 8, 2021
January 18, 2021
450
350 to 370
350 to 370
367
100,000 to 103,000
94,000 to 98,000
94,000 to 96,000
95,190
300
83,000 to 85,000
Vermilion Energy Inc. ■ Page 11 ■ 2020 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.
Vermilion Energy Inc. ■ Page 12 ■ 2020 Annual Report
2020 production of 95,190 boe/dNorth America: 68%International: 32%2020 capital expenditures of $367MMNorth America: 72%International: 28%2020 fund flows from operations of $502MMNorth America: 59%International: 41% Consolidated Results Overview
Production (1)
Crude oil and condensate (bbls/d)
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
(Draw) build in inventory (mbbls)
Financial metrics
Fund flows from operations ($M)
Per share ($/basic share)
Net (loss) earnings ($M)
Per share ($/basic share)
Net debt ($M)
Cash dividends ($/share)
Activity
Capital expenditures ($M)
Acquisitions ($M)
Q4 2020
Q3 2020
Q4 2019
Q4/20 vs.
Q3/20
Q4/20 vs.
Q4/19
2020
2019
2020 vs.
2019
40,555
8,627
232.00
87,848
43,240
9,509
256.34
95,471
(118)
(68)
46,261
8,160
260.72
97,875
169
135,212
114,776
215,592
0.85
0.73
(57,707)
(69,926)
(0.36)
(0.44)
1.38
1,477
0.01
2,105,983
2,136,219
1,993,194
—
—
0.690
(6)%
(9)%
(10)%
(8)%
18%
16%
(18)%
(18)%
(1)%
—%
(12)%
6%
(11)%
(10)%
(37)%
(38)%
N/A
N/A
6%
(100)%
43,421
8,937
256.99
95,190
47,902
7,984
266.82
100,357
(260)
(12)
502,065
908,055
3.18
5.87
(1,517,427)
32,799
(9.61)
0.21
2,105,983
1,993,194
(9)%
12%
(4)%
(5)%
(45)%
(46)%
N/A
N/A
6%
0.575
2.760
(79)%
59,894
4,821
31,330
6,720
100,625
91%
(41)%
9,165
367,202
25,810
523,164
(30)%
38,472
(1)
Please refer to Supplemental Table 4 "Production" for disclosure by product type.
Financial performance review
Q4 2020 vs. Q3 2020
• We recorded a net loss of $57.7 million ($0.36/basic share) in Q4 2020 compared to a net loss of $69.9 million ($0.44/basic share) in Q3 2020.
This quarter-over-quarter decrease in net loss was primarily driven by decreased impairment charges in Q4 2020, increased funds flow from
operations, and lower depletion and depreciation charges, partially offset by an increase in deferred taxes.
Vermilion Energy Inc. ■ Page 13 ■ 2020 Annual Report
"Other" contains equity based compensation and accretion expense$MMNet loss of $57.7MM in Q4 2020 compared to a net loss of $69.9MM in Q3 2020$(69.9)$47.8$20.4$19.5$7.4$(81.7)$(1.2)$(57.7)Q3 2020ImpairmentFund flowsfrom operationsDepletion and depreciationUnrealized derivatives,foreign exchangeDeferred taxOtherQ4 2020-100-50050
•
Fund flows from operations for Q4 2020 increased versus Q3 2020 from $114.8 million to $135.2 million primarily driven by realized commodity
pricing which increased 21% from $31.86/boe to $38.57/boe. This was partially offset by lower sales volumes mainly due to decreased
production in Q4 2020 driven by natural decline.
Q4 2020 vs. Q4 2019
• We recorded a net loss of $57.7 million ($0.36/basic share) for Q4 2020 compared to net earnings of $1.5 million ($0.01/basic share) in
Q4 2019. The decrease was primarily driven by lower fund flows from operations of $80.4 million due to lower commodity prices in 2020,
partially offset by lower impairment charges compared to Q4 2019.
Vermilion Energy Inc. ■ Page 14 ■ 2020 Annual Report
"Other" contains general and administration, interest, and realized foreign exchange$MMFund flows from operations of $135.2MM in Q4 2020 compared $114.8MM in Q3 2020$114.8$48.2$6.1$(17.4)$(13.5)$(3.0)$135.2Q3 2020Pricing netof derivativesTaxesSales volumeRoyalties,transportation,operating expenseOtherQ4 2020100200"Other" contains equity based compensation and accretion expense$MMNet loss of $57.7MM in Q4 2020 compared to net earnings of $1.5MM in Q4 2019$1.5$46.1$13.3$(80.4)$(28.8)$(8.3)$(1.1)$(57.7)Q4 2019ImpairmentDeferred taxFund flowsfrom operationsUnrealized derivatives,foreign exchangeDepletion anddepreciationOtherQ4 2020-200-1000100 • We generated fund flows from operations of $135.2 million in Q4 2020, a decrease from $215.6 million in Q4 2019 primarily as a result of lower
commodity prices and lower sales volumes primarily due to natural decline on our production. Our consolidated realized price per boe
decreased from $44.00/boe in Q4 2019 to $38.57/boe in Q4 2020.
2020 vs. 2019
•
For the year ended December 31, 2020, a net loss of $1,517.4 million was recorded compared to net earnings of $32.8 million for the
comparable period in 2019. The decrease in net earnings was primarily due to impairment charges we recorded of $1.2 billion in 2020 (net of
$0.4 billion income tax recovery) and lower fund flows from operations driven by decreases in realized prices due to the impacts of COVID-19
and the OPEC+ price war.
Vermilion Energy Inc. ■ Page 15 ■ 2020 Annual Report
"Other" contains general and administration, interest, and realized foreign exchange$MMFund flows from operations of $135.2MM in Q4 2020 compared to $215.6MM in Q4 2019$215.6$15.1$1.0$(77.0)$(17.6)$(1.9)$135.2Q4 2019Royalties, transportation,operating expenseOtherPricing netof derivativesSales volumeTaxesQ4 2020100200300"Other" contains equity based compensation, accretion, unrealized derivative instruments andunrealized foreign exchange$MMNet loss of $1,517.4MM in 2020 compared to net earnings of $32.8MM in 2019$32.8$430.4$94.7$(1,636.3)$(406.0)$(33.0)$(1,517.4)YTD 2019Deferred taxDepletion and depreciationImpairmentFund flows from operationsOtherYTD 2020-2,000-1,00001,000 •
Fund flows from operations decreased by 45% for the year ended December 31, 2020 versus the same period in 2019 primarily driven by a
31% decrease in our consolidated realized price from $46.12/boe to $31.90/boe due to lower commodity prices. Sales volumes decreased year-
over-year primarily due to decreases in France stemming from the confinement measures in 2020 and resulting refinery shut-down, in Ireland
as a result of natural decline, and in Australia due to timing of liftings.
Production review
Q4 2020 vs. Q3 2020
•
Consolidated average production of 87,848 boe/d during Q4 2020 represented a decrease of 8% from Q3 2020 production of 95,471 boe/d.
Production decreases in Canada of 5,416 boe/d and in the United States of 796 boe/d were primarily driven by natural declines, and in Australia
of 768 boe/d due to 11-day planned turnaround activities.
Q4 2020 vs. Q4 2019
•
Consolidated average production of 87,848 boe/d in Q4 2020 represented a decrease of 10% from Q4 2019 production of 97,875 boe/d.
Production decreases in Canada of 4,753 boe/d, in Ireland of 1,256 boe/d and in France of 1,009 boe/d were mainly due to natural declines.
2020 vs. 2019
•
Consolidated average production of 95,190 boe/d for the year ended December 31, 2020 represented a decrease of 5% from the comparable
period in 2019 of 100,357 boe/d. Production decreases were primarily in France due to the Grandpuits refinery temporary shutdown in Q2 2020,
in Ireland due to natural declines and planned turnarounds, in Australia due to downtime throughout 2020 and cyclone activity in Q1 2020 and in
Canada due to natural declines. These decreases were partially offset by production increases in the United States due to new wells brought
online in 2019 and 2020.
Vermilion Energy Inc. ■ Page 16 ■ 2020 Annual Report
"Other" contains general and administration, interest, and realized foreign exchange$MMFund flows from operations of $502.1MM in 2020 compared to $908.1MM in 2019$908.1$84.7$37.9$16.9$(440.0)$(105.5)$502.12019Royalties, transportation,operating expenseTaxesOtherPricing netof derivativesSales volume20205001,0001,500 Activity review
•
•
•
For the three months ended December 31, 2020, capital expenditures of $59.9 million were incurred.
In our North America core region, capital expenditures of $33.8 million were incurred during the fourth quarter. In Canada, $32.9 million was
incurred primarily related to increased drilling activity where we drilled seven (6.6 net) wells.
In our International core region, capital expenditures of $26.1 million were incurred during the quarter. $12.8 million of capital expenditures were
incurred in France primarily related to increased activity on well workovers and facilities, $4.4 million were incurred in Australia primarily related
to asset optimization projects, $3.4 million were in the Netherlands primarily related to workovers and facility projects, and $3.1 million in
Germany primarily related to various field optimization projects.
Sustainability review
Dividends
•
•
•
On March 6, 2020, in response to weakness in commodity prices and reduced global economic prospects following the outbreak of COVID-19,
Vermilion's board of directors approved a 50% reduction to the March dividend, payable April 15, 2020, to $0.115 per share. On April 15, due to
further deterioration of economic prospects and commodity prices resulting from the impact of COVID-19, the board of directors suspended the
monthly dividend as a further measure to strengthen the financial position of the Company.
Total dividends of $0.575 per common share were declared for the year ended December 31, 2020.
Long-term debt and net debt
•
•
Long-term debt remained consistent at $1.9 billion as at December 31, 2020 from December 31, 2019.
Net debt increased to $2.1 billion as at December 31, 2020 from $2.0 billion as at December 31, 2019, primarily due to a decrease in net
working capital driven by the change in the mark-to-market position of our European gas derivative instruments and our equity swap position
moving into current liabilities.
The ratio of net debt to four quarter trailing fund flows from operations increased to 4.19 as at December 31, 2020 (December 31, 2019 - 2.20)
mainly due to lower four quarter trailing fund flows from operations as a result of lower commodity prices, combined with an increase in net debt.
Vermilion Energy Inc. ■ Page 17 ■ 2020 Annual Report
Benchmark Commodity Prices
Crude oil
WTI ($/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 2020
Q3 2020
Q4 2019
Q4/20 vs.
Q3/20
Q4/20 vs.
Q4/19
2020
2019
2020 vs.
2019
55.58
42.66
50.28
38.59
50.76
38.96
55.43
42.54
57.63
44.23
2.64
6.99
4.50
6.63
4.27
3.47
2.66
1.30
1.55
54.54
40.93
49.86
37.42
50.06
37.57
50.02
37.54
57.29
43.00
2.24
3.67
2.36
3.51
2.25
2.63
1.97
1.33
1.56
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
55.31
19.20
4.13
38.57
52.77
15.04
2.34
31.86
71.25
14.63
3.61
44.00
2%
4%
1%
3%
1%
4%
11%
13%
1%
3%
18%
91%
91%
89%
90%
32%
35%
(2)%
(1)%
5%
28%
77%
21%
(26)%
(25)%
(26)%
(25)%
(26)%
(25)%
(21)%
(20)%
(31)%
(30)%
7%
30%
22%
24%
16%
5%
6%
(2)%
6%
52.86
39.40
45.72
34.08
45.80
34.14
49.85
37.16
55.90
41.67
2.23
4.30
2.81
4.18
2.74
2.78
2.07
1.34
1.53
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
(22)%
31%
14%
(12)%
50.53
13.06
2.77
31.90
74.42
13.61
3.58
46.12
(30)%
(31)%
(34)%
(35)%
(34)%
(35)%
(29)%
(30)%
(35)%
(35)%
27%
(27)%
(29)%
(29)%
(31)%
(20)%
(21)%
1%
3%
(32)%
(4)%
(23)%
(31)%
As an internationally diversified producer, we are exposed to a range of commodity prices. In our North America core region, our crude oil is sold at
benchmarks linked to WTI (including the Edmonton Sweet index, the Saskatchewan LSB index, and the Canadian C5+ index) and our natural gas is
sold at the AECO index (in Canada) or the Henry Hub index (in the United States). In our International core region, our crude oil is sold with
reference to Dated Brent and our natural gas is sold with reference to NBP, TTF, or indices highly correlated to TTF.
Vermilion Energy Inc. ■ Page 18 ■ 2020 Annual Report
$/bblQ4 2020 realized crude oil and condensate price was a 10% premium to Edmonton SweetIndexDated Brent (37% of Q4 2020sales volumes)WTI (6% of Q4 2020sales volumes)Canadian C5+ (10% of Q4 2020sales volumes)Crude oil and condensaterealized priceSaskatchewan LSB (40% of Q4 2020sales volumes)Edmonton Sweet index (7% of Q4 2020sales volumes)Q4 2019Q1 2020Q2 2020Q3 2020Q4 202020.0030.0040.0050.0060.0070.0080.0090.00
•
•
•
•
•
•
•
•
Crude oil prices increased in Q4 2020 relative to Q3 2020 due to continued global demand recovery, a coordinated supply cut from the
OPEC+ group, and lower US shale production, with WTI and Brent prices rising quarter-over-quarter by 4% and 3% respectively. For the
three months ended December 31, 2020, WTI and Brent prices decreased by 25% and 30%, respectively, versus the comparable period in
the prior year.
In Canadian dollar terms, quarter-over-quarter, the Edmonton Sweet differential increased by $0.62/bbl to a discount of $5.30/bbl against
WTI, and the Saskatchewan LSB differential increased by $0.34/bbl to a discount of $4.82/bbl against WTI.
Approximately 37% of Vermilion’s Q4 2020 crude oil and condensate production was priced at the Dated Brent index (which averaged a
premium to WTI of US$1.57/bbl), while the remainder of our crude oil and condensate production was priced at the Saskatchewan LSB,
Canadian C5+, Edmonton Sweet, and WTI indices.
In Canadian dollar terms, prices for European natural gas (TTF and NBP) rose by 89% and 91%, respectively, in Q4 2020 compared to Q3
2020. Seasonal demand and competition for LNG cargoes improved prices.
Natural gas prices at AECO in Q4 2020 increased by 18% compared to Q3 2020, with seasonal demand and export increases improving
prices.
For Q4 2020, average European natural gas prices represented a $4.17/mcf premium to AECO. Approximately 39% of our natural gas
production in Q4 2020 benefited from this premium European pricing.
For the three months ended December 31, 2020, the Canadian dollar strengthened 2% against the US dollar quarter-over-quarter. The
annual average in 2020 was 1% weaker versus 2019.
For the three months ended December 31, 2020, the Canadian dollar remained flat against the Euro quarter-over-quarter. The annual
average in 2020 was 3% weaker versus 2019.
Vermilion Energy Inc. ■ Page 19 ■ 2020 Annual Report
$/mcfQ4 2020 realized natural gas priceNBP (15% of Q4 2020sales volumes)TTF (24% of Q4 2020sales volumes)Natural gas realizedpriceHenry Hub (3% of Q4 2020sales volumes)AECO (58% of Q4 2020sales volumes)Q4 2019Q1 2020Q2 2020Q3 2020Q4 20201.002.003.004.005.006.007.008.00CDN $/FXQuarter-over-quarter, the Canadian dollar strengthened versus the USD and weakenedversus the EuroCDN $/EuroCDN $/US $Q4 2019Q1 2020Q2 2020Q3 2020Q4 20201.301.401.501.60 North America
Q4 2020
Q4 2019
2020
2019
Production (1)
Crude oil and condensate (bbls/d)
NGLs (bbls/d)
Natural gas (mmcf/d)
Total production volume (boe/d)
(1)
26,459
8,628
142.13
58,774
30,560
8,161
153.34
64,276
29,043
8,937
158.85
64,456
Please refer to Supplemental Table 4 "Production" for disclosure by product type.
Sales
Royalties
Transportation
Operating
General and administration (1)
Corporate income tax recovery (expense) (1)
Fund flows from operations
Capital expenditures
Free cash flow
(1)
Includes amounts from Corporate segment.
Q4 2020
$M
175,808
(19,670)
(10,358)
(59,162)
(10,484)
241
76,375
(33,781)
42,594
$/boe
32.51
(3.64)
(1.92)
(10.94)
(1.94)
0.04
14.12
Q4 2019
$M
229,782
(29,443)
(10,384)
(65,927)
(5,745)
(660)
117,623
(69,775)
47,848
$/boe
38.86
(4.98)
(1.76)
(11.15)
(0.97)
(0.11)
19.89
2020
$M
635,637
(72,407)
(42,843)
(236,704)
(29,784)
(202)
253,697
(265,261)
(11,564)
$/boe
26.94
(3.07)
(1.82)
(10.03)
(1.26)
(0.01)
10.75
30,798
7,984
155.24
64,654
2019
$M
903,434
(112,785)
(41,261)
(259,160)
(20,368)
(406)
469,454
(350,940)
118,514
$/boe
38.28
(4.78)
(1.75)
(10.98)
(0.86)
(0.02)
19.89
In North America, production averaged 58,774 boe/d in Q4 2020, a decrease of 9% year-over-year primarily due to natural decline and reduced
capital activity. For the year-ended 2020, annual average production remained relatively consistent compared to the prior year as decreases in
Canada due to natural declines were partially offset by production increases in the United States due to new wells brought online in 2019 and 2020.
We resumed drilling activity in Alberta in the fourth quarter, drilling seven (6.6 net) Mannville wells and completing two (1.6 net) wells that were
brought on production prior to year-end. The remaining five (5.0 net) wells were completed and brought on production in early 2021. No drilling or
completion activity occurred in southeast Saskatchewan or Wyoming during the fourth quarter.
Sales
Canada
United States
North America
Q4 2020
$M
160,719
15,089
175,808
$/boe
32.45
33.24
32.51
Q4 2019
$M
206,897
22,885
229,782
$/boe
38.38
43.77
38.86
2020
$M
569,191
66,446
635,637
$/boe
26.38
32.93
26.94
2019
$M
828,070
75,364
903,434
$/boe
37.82
44.17
38.28
Sales in North America decreased for the three months and year ended December 31, 2020 versus the comparable prior periods due to lower
benchmark prices across all products as a result of the ongoing COVID-19 pandemic and OPEC+ price war in the first quarter of 2020.
Royalties
Canada
United States
North America
Q4 2020
$M
(15,240)
(4,430)
(19,670)
$/boe
(3.08)
(9.76)
(3.64)
Q4 2019
$M
(24,127)
(5,316)
(29,443)
$/boe
(4.48)
(10.17)
(4.98)
2020
$M
(54,961)
(17,446)
(72,407)
$/boe
(2.55)
(8.65)
(3.07)
2019
$M
(94,079)
(18,706)
(112,785)
$/boe
(4.30)
(10.96)
(4.78)
Royalties in North America decreased for the three months and year ended December 31, 2020 versus the same periods in the prior year and were
primarily due to lower crude oil and condensate pricing within Canada.
Vermilion Energy Inc. ■ Page 20 ■ 2020 Annual Report
Transportation
Canada
United States
North America
Q4 2020
$M
(9,987)
(371)
(10,358)
$/boe
(2.02)
(0.82)
(1.92)
Q4 2019
$M
(10,384)
—
(10,384)
$/boe
(1.93)
—
(1.76)
2020
$M
(41,494)
(1,349)
(42,843)
$/boe
(1.92)
(0.67)
(1.82)
2019
$M
(41,261)
—
(41,261)
$/boe
(1.88)
—
(1.75)
Transportation expense in North America remained relatively consistent on a dollar and per boe basis for the three months and year ended
December 31, 2020 versus the comparable prior periods. During spring 2020, our United States business unit began transporting production on
select wells via pipeline resulting in transportation costs.
Operating expense
Canada
United States
North America
Q4 2020
$M
(54,725)
(4,437)
(59,162)
$/boe
(11.05)
(9.77)
(10.94)
Q4 2019
$M
(60,931)
(4,996)
(65,927)
$/boe
(11.30)
(9.56)
(11.15)
2020
$M
(218,596)
(18,108)
(236,704)
$/boe
(10.13)
(8.97)
(10.03)
2019
$M
(242,790)
(16,370)
(259,160)
$/boe
(11.09)
(9.59)
(10.98)
Operating expenses in North America for the three months and year ended December 31, 2020 decreased by 10.3% and 8.7%, respectively, versus
the comparable prior periods. This decrease in Q4 2020 versus Q4 2019 is primarily due to lower activity levels and a reduction in headcount costs in
Q4 2020 as we focus on cost reduction initiatives. Year-over-year, the decrease is primarily in Canada due to a deferral of facility costs, lower
headcount costs, lower utility costs, and other cost reductions initiatives. The focus on cost reduction initiatives in 2020 in response to global
commodity price pressures helped contribute to the 8.7% decrease on a per unit basis for the year ended December 31, 2020 compared to prior
year.
Vermilion Energy Inc. ■ Page 21 ■ 2020 Annual Report
International
Q4 2020
Q4 2019
2020
2019
Production (1)
Crude oil and condensate (bbls/d)
Natural gas (mmcf/d)
Total production volume (boe/d)
Total sales volume (boe/d)
(1)
14,096
89.86
29,073
30,336
15,702
107.38
33,598
31,760
14,376
98.15
30,734
31,444
Please refer to Supplemental Table 4 "Production" for disclosure by product type.
Sales
Royalties
Transportation
Operating
General and administration
Corporate income tax recovery (expense)
PRRT
Fund flows from operations
Capital expenditures
Free cash flow
Q4 2020
$M
140,390
(8,438)
(6,699)
(47,414)
(8,158)
6,291
(4,038)
71,934
(26,113)
45,821
$/boe
50.30
(3.02)
(2.40)
(16.99)
(2.92)
2.25
(1.45)
25.77
Q4 2019
$M
159,020
(11,236)
(5,186)
(44,656)
(10,824)
6,495
(1,453)
92,160
(30,850)
61,310
$/boe
54.42
(3.85)
(1.77)
(15.28)
(3.70)
2.22
(0.50)
31.54
2020
$M
483,908
(34,147)
(24,868)
(180,547)
(31,056)
6,012
(20,151)
199,151
(101,941)
97,210
$/boe
42.05
(2.97)
(2.16)
(15.69)
(2.70)
0.52
(1.75)
17.30
17,105
111.58
35,703
35,737
2019
$M
786,429
(50,881)
(31,185)
(180,918)
(38,608)
(25,877)
(25,947)
433,013
(172,224)
260,789
$/boe
60.29
(3.90)
(2.39)
(13.87)
(2.96)
(1.98)
(1.99)
33.20
Production from our International assets averaged 29,073 boe/d in Q4 2020, a decrease of 13% year-over-year primarily due to natural decline. For
the year-ended December 31, 2020, our production in Europe was impacted by lower crude oil production in France resulting from COVID-19
confinement measures impacting workover activities and the temporary shutdown of the Grandpuits refinery during Q2, in addition to production
declines in Netherlands, Germany, and Ireland. In Australia, we completed an 11-day planned maintenance turnaround during Q4 2020, which also
contributed to the production decrease.
The year-over-year production decrease from our International assets, along with significant decline in reference prices, resulted in decreases in
sales and correspondingly fund flows from operations. However, given our continued focus on cost reductions across the business, such as
operating costs, general and administration expenses, and capital expenditures, we continued to generate free cash flow from our international
assets.
Sales
Australia
France
Netherlands
Germany
Ireland
Central and Eastern Europe
International
Q4 2020
$M
30,148
53,198
22,967
10,681
23,118
278
140,390
$/boe
75.99
58.11
34.40
39.87
43.38
27.22
50.30
Q4 2019
$M
21,872
77,781
25,215
11,531
21,824
797
159,020
$/boe
68.63
53.55
33.88
39.14
33.65
31.39
54.42
2020
$M
141,452
182,292
65,575
34,210
58,446
1,933
483,908
$/boe
76.70
55.39
23.02
30.40
25.59
16.66
42.05
2019
$M
184,490
326,699
112,857
57,312
104,274
797
786,429
$/boe
93.33
83.01
37.37
45.75
36.81
31.19
60.29
As a result of changes in inventory levels, our sales volumes for crude oil in Australia, France, and Germany may differ from our production volumes
in those business units. The following table provides the crude oil sales volumes (consisting entirely of "light crude oil and medium crude oil") for
those jurisdictions.
Crude oil sales volumes (bbls/d)
Australia
France
Germany
Q4 2020
4,312
9,951
996
Q4 2019
2,691
10,454
629
2020
5,039
8,991
967
2019
5,416
10,752
881
Vermilion Energy Inc. ■ Page 22 ■ 2020 Annual Report
Sales decreased by $18.6 million for the three months ended December 31, 2020 versus the same period in the prior year primarily due to lower
sales volumes across our European business units driven by natural decline of our production and a decline in realized pricing on our crude oil.
These sales decreases were partially offset by an increase in realized pricing on our European gas sales and an increase in sales volumes in
Australia due to the timing of our liftings.
Sales decreased by $302.5 million for the year ended December 31, 2020 versus the same period in the prior year due to significant decreases in
realized prices driven by lower year-over-year commodity prices, including severely depressed commodity prices during second quarter of 2020. In
addition to pricing decreases, sales volumes were down primarily due to natural decline across all areas and production decreases in France
following downtime at the Grandpuits refinery and restricted field activity resulting from COVID-19 confinement measures put in place by the French
government.
Royalties
France
Netherlands
Germany
Central and Eastern Europe
International
Q4 2020
$M
(9,416)
(150)
1,190
(62)
(8,438)
$/boe
(10.28)
(0.22)
4.44
(6.07)
(3.02)
Q4 2019
$M
(10,265)
(130)
(587)
(254)
(11,236)
$/boe
(9.73)
(0.17)
(1.99)
(10.00)
(3.85)
2020
$M
(32,069)
(444)
(990)
(644)
(34,147)
$/boe
(9.75)
(0.16)
(0.88)
(5.55)
(2.97)
2019
$M
(43,895)
(1,469)
(5,264)
(253)
(50,881)
$/boe
(11.15)
(0.49)
(4.20)
(9.90)
(3.90)
Royalties in our International core region are primarily incurred in France, where royalties include charges based on a percentage of sales and fixed
per boe charges. Royalties decreased in our International core region in the three months and year ended December 31, 2020 versus the same
periods in the prior year due to lower sales prices in France and Netherlands combined with the full year impact of a ruling reducing 2020 Germany
gas royalties recorded in the fourth quarter.
Our production in Australia and Ireland is not subject to royalties.
Transportation
France
Germany
Ireland
International
Q4 2020
$M
(4,264)
(1,537)
(898)
(6,699)
$/boe
(4.66)
(5.74)
(1.68)
(2.40)
Q4 2019
$M
(3,215)
(963)
(1,008)
(5,186)
$/boe
(4.23)
(3.27)
(1.55)
(1.77)
2020
$M
(14,604)
(5,839)
(4,425)
(24,868)
$/boe
(4.44)
(5.19)
(1.94)
(2.16)
2019
$M
(21,609)
(5,117)
(4,459)
(31,185)
$/boe
(5.49)
(4.09)
(1.57)
(2.39)
Transportation expense for the three months ended December 31, 2020 increased versus the same period in 2019 due to increased costs related to
transportation system maintenance in France.
For the year ended December 31, 2020, transportation expense decreased versus the same period in 2019 due mainly to lower costs in France. In
France, the year-over-year decrease was due to additional costs incurred in 2019 relating to the Grandpuits refinery outage which resulted in the
need to arrange alternative delivery points and transportation methods at a higher incremental cost. In Germany, the changes related to the timing of
prior period adjustments.
Our production in Australia, Netherlands and Central and Eastern Europe is not subject to transportation expense.
Vermilion Energy Inc. ■ Page 23 ■ 2020 Annual Report
Operating expense
Australia
France
Netherlands
Germany
Ireland
Central and Eastern Europe
International
Q4 2020
$M
(14,438)
(16,230)
(7,772)
(5,643)
(3,232)
(99)
(47,414)
$/boe
(36.39)
(17.73)
(11.64)
(21.07)
(6.06)
(9.69)
(16.99)
Q4 2019
$M
(8,438)
(16,142)
(9,758)
(7,405)
(2,854)
(59)
(44,656)
$/boe
(34.09)
(16.38)
(13.11)
(25.14)
(4.40)
(2.32)
(15.28)
2020
$M
(54,581)
(57,128)
(32,410)
(20,732)
(15,232)
(464)
(180,547)
$/boe
(29.59)
(17.36)
(11.38)
(18.42)
(6.67)
(4.00)
(15.69)
2019
$M
(49,810)
(61,281)
(32,125)
(24,970)
(12,431)
(301)
(180,918)
$/boe
(25.20)
(15.57)
(10.64)
(19.93)
(4.39)
(11.78)
(13.87)
Operating expenses for Q4 2020 increased by $2.8 million compared to Q4 2019. This is mainly due to increased costs in Australia where operating
expenses are deferred on the balance sheet until oil is sold at which point the related expenses are recognized into income. Q4 2019 had a larger
build of inventory compared to the draws made in Q4 2020, therefore higher costs related to inventory were incurred in Q4 2020. This increase was
partially offset by lower activity levels in Germany and lower facility maintenance and repair costs in the Netherlands.
For the year ended December 31, 2020, operating expenses remained relatively consistent on a dollar basis and increased by 13.1% on a per boe
basis. Cost reductions were due to reduced activity in France during the COVID-19 confinement period earlier in 2020 and lower activity levels in
Germany. This was offset by increased costs in Australia resulting from a higher deferral of costs relating to inventory builds on the balance sheet in
2019 offset by lower major project expense work. Cost increases in Ireland were due to increased maintenance activity.
Vermilion Energy Inc. ■ Page 24 ■ 2020 Annual Report
Consolidated Financial Performance Review
($M except per share)
Total assets
Long-term debt
Petroleum and natural gas sales
Net (loss) earnings
Net (loss) earnings per share
Basic
Diluted
Cash dividends ($/share)
Fund flows from operations
Dec 31, 2020
Dec 31, 2019
4,109,139
1,933,848
1,119,545
(1,517,427)
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
(9.61)
(9.61)
0.58
0.21
0.21
2.76
1.93
1.91
2.72
Sales
Royalties
Transportation
Operating
General and administration
Corporate income tax recovery (expense)
PRRT
Interest expense
Realized gain on derivatives
Realized foreign exchange gain (loss)
Realized other income
Fund flows from operations
Q4 2020
$M
316,198
(28,108)
(17,057)
(106,576)
(18,642)
6,532
(4,038)
(19,808)
790
1,329
4,592
135,212
$/boe
38.57
(3.43)
(2.08)
(13.00)
(2.27)
0.80
(0.49)
(2.42)
0.10
0.16
0.56
16.50
Q4 2019
$M
388,802
(40,679)
(15,570)
(110,583)
(16,569)
5,835
(1,453)
(19,169)
22,712
2,013
253
215,592
2020
$M
$/boe
44.00 1,119,545
(106,554)
(4.60)
(67,711)
(1.76)
(417,251)
(12.52)
(60,840)
(1.88)
5,810
0.66
(20,151)
(0.16)
(75,077)
(2.17)
109,093
2.57
11,110
0.23
4,091
0.03
502,065
24.40
2019
$M
$/boe
31.90 1,689,863
(163,666)
(3.04)
(1.93)
(72,446)
(440,078)
(11.89)
(58,976)
(1.73)
(26,283)
0.17
(25,947)
(0.57)
(81,377)
(2.14)
84,219
3.11
(4,954)
0.32
7,700
0.12
908,055
14.32
$/boe
46.12
(4.47)
(1.98)
(12.01)
(1.61)
(0.72)
(0.71)
(2.22)
2.30
(0.14)
0.21
24.77
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.
General and administration
•
•
General and administration expense increased by 11.1% in Q4 2020 versus Q4 2019 due lower recoveries as a result of lower salary
allocations from reduced capital activity in Q4 2020 and costs associated with work-force reductions.
General and administration expense for the year ended December 31, 2020 were relatively consistent with 2019 as cost savings and
government subsidies recorded during the year were offset by higher employee costs incurred in 2020 and lower capitalized costs.
PRRT and corporate income taxes
•
•
PRRT increased in Q4 2020 versus Q4 2019 due to higher sales. For the year ended December 31, 2020, PRRT decreased versus the
prior year comparable period due to lower Australia sales.
Corporate income taxes in Q4 2020 and for the year ended December 31, 2020 versus the comparable periods decreased due to tax
recoveries resulting from the significant decreases in commodity prices during the year.
Interest expense
•
Interest expense remained relatively consistent between Q4 2020 and Q4 2019. For the year ended December 31, 2020, interest expense
decreased by 7.7% versus the prior year comparable period due to declining market interest rates as a function of the impact of COVID-19.
Vermilion Energy Inc. ■ Page 25 ■ 2020 Annual Report
Realized gain or loss on derivatives
•
•
Realized gains on derivatives relate to receipts for European natural gas and crude oil hedges. For the year ended December 31, 2020,
realized gains also included the receipt of $16.8 million (US $12.7 million) due to the reset the Euro principal amount of the CAD-to-EUR
cross currency interest rate swap in Q1 2020, and the receipt of $25.5 million (US $18.2 million) as a result of a number of transactions that
resulted in the termination of the USD-to-CAD and CAD-to-EUR cross currency interest swaps in Q2 2020.
A listing of derivative positions as at December 31, 2020 is included in “Supplemental Table 2” of this MD&A.
Realized other income
•
Realized other income for the year ended December 31, 2020 primarily relates to amounts in Q4 2020 for funding under the Saskatchewan
Accelerated Site Closure program to complete abandonment and reclamation on inactive oil and gas wells and facilities.
Net earnings
The following table shows a reconciliation from fund flows from operations to net (loss) earnings:
($M)
Fund flows from operations
Equity based compensation
Unrealized loss on derivative instruments
Unrealized foreign exchange gain (loss)
Unrealized other expense
Accretion
Depletion and depreciation
Deferred tax
Impairment
Net (loss) earnings
Q4 2020
135,212
(11,012)
(66,863)
50,519
(202)
(9,134)
(148,219)
(8,008)
—
(57,707)
Q4 2019
215,592
(11,233)
(30,362)
42,848
(204)
(7,833)
(139,940)
(21,335)
(46,056)
1,477
2020
502,065
(42,906)
(100,955)
49,012
(833)
(35,318)
(580,461)
374,313
(1,682,344)
(1,517,427)
2019
908,055
(64,233)
(57,427)
57,225
(825)
(32,667)
(675,177)
(56,096)
(46,056)
32,799
Fluctuations in net earnings 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. Equity based compensation expense remained consistent between the three months
ended December 31, 2020 and three months ended December 31, 2019. Equity based compensation expense for the year ended December 31,
2020 decreased versus the prior year comparable period due to the lower value of VIP awards outstanding in the current period.
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.
USD-to-CAD cross currency interest rate swaps may be entered into 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.
In Q3 2019, we entered into two equity swaps to hedge the exposure of our long-term incentive plans. The swaps are expected to settle in
September 2021 and October 2021. Included in current liabilities and net debt as at December 31, 2020, is a mark-to-market liability of $59.6 million
relating to the positions settling in September 2021 and October 2021.
For the three months ended December 31, 2020, we recognized a net unrealized loss on derivative instruments of $66.9 million. This consists of a
$47.0 million unrealized loss on our European natural gas commodity derivative instruments and a $40.2 million unrealized loss on our USD-to-CAD
foreign exchange swaps. This was partially offset by an unrealized gain of $9.6 million from our equity swaps and an unrealized gain of $8.6 million
on our North American natural gas commodity derivative instruments.
Vermilion Energy Inc. ■ Page 26 ■ 2020 Annual Report
For the year ended December 31, 2020, we recognized a net unrealized loss on derivative instruments of $101.0 million. This consists of unrealized
losses of $59.1 million on our equity swaps and $51.6 million from our European natural gas commodity derivative instruments. These are partially
offset by unrealized gains of $9.4 million on our crude oil commodity derivative instruments.
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 2020, 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
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 below).
The translation of our USD denominated senior unsecured notes prior to June 12, 2019 and from May 5, 2020 onward. During the period
between June 12, 2019 and May 5, 2020 the USD senior notes were hedged by a USD-to-CAD cross currency interest rate swap. Subsequent
to the termination of these instrument, amounts recognized in the hedge accounting reserve will be recognized into earnings through unrealized
foreign exchange loss over the period of the hedged cash flows.
•
•
For the three months ended December 31, 2020, we recognized a net unrealized foreign exchange gain of $50.5 million. The impact of the US dollar
weakening 5.0% against the Canadian dollar resulted in an unrealized gain of $42.0 million and $19.7 million on our USD borrowings from our
revolving credit facility and our senior unsecured notes, respectively. These were partially offset primarily due to the strengthening of the Euro
against the Canadian dollar resulting in net unrealized losses of $7.6 million on intercompany loans.
For the year ended December 31, 2020, we recognized a net unrealized foreign exchange gain of $49.0 million primarily due to unrealized gains on
our USD-to-CAD and CAD-to-EUR cross currency interest swaps of $36.4 million, and impacts of the US dollar weakening 2.0% against the
Canadian dollar resulting in unrealized gains on our USD borrowings from our revolving credit facility and our senior unsecured notes of $8.5 million
and 4.0 million, respectively.
As at December 31, 2020, a $0.01 appreciation of the Euro against the Canadian dollar would result in a $0.9 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 $2.7
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. For the year ended December 31, 2020
accretion expense increased versus all comparable period primarily due to a weakening Canadian dollar versus the Euro.
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, depletable base (net
book value of capital assets and future development costs), and relative production mix.
Depletion and depreciation on a per boe basis for Q4 2020 of $18.08 increased from $15.84 due to the impact of reflecting an increase in proved and
probable reserves in Q4 2019. For the year ended December 31, 2020, depletion and depreciation decreased on a per boe basis to $16.54
(December 31, 2019 -$18.43) primarily due to impairment charges taken in 2020.
Vermilion Energy Inc. ■ Page 27 ■ 2020 Annual Report
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 derecognition or recognition of deferred tax assets, and changes in enacted or substantively enacted tax rates.
For the three months and year ended December 31, 2020, a deferred tax recovery was recognized of $8.0 million and $374.3 million, respectively,
as a result of the impairment charges recorded in those periods.
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 the fourth quarter of 2020, indicators of impairment were present in our France CGUs due to a decrease in estimated reserves as a result of
economic revisions. As a result of the indicators of impairment, the Company performed impairment tests on its four France CGUs and the
recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable
reserves and an after-tax discount rate of 9.5%. Based on the results of the impairment tests completed, recoverable amounts were determined to
be greater than the carrying values of the CGUs tested and no impairment charges were recorded.
In the third quarter of 2020, indicators of impairment were present due to a decline in the Company’s market capitalization. As a result of the
indicators of impairment, the Company performed impairment tests across all CGUs. The recoverable amounts were determined using fair value less
costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 11.5%. Based on the
results of the impairment tests completed, the Company recognized non-cash impairment charges of $35.4 million (net of $12.4 million income tax
recovery) in the Neocomian CGU due to increased estimated transportation expenses as a result of an announcement during the quarter that the
third-party Grandpuits refinery plans on converting into a zero-crude platform in 2021. As a result of this change, the Company's estimates that
incremental transportation expenses will be incurred to transport the crude oil production in the Neocomian, Chaunoy, and Champotran CGUs to
alternative refineries in France.
In the second quarter of 2020, indicators of impairment were present due to a decline in the Company’s market capitalization. As a result of the
indicators of impairment, the Company performed impairment tests across all CGUs. The recoverable amounts were determined using fair value less
costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 11.5%. Based on the
results of the impairment tests completed, the Company recognized non-cash impairment charges of $53.1 million (net of $16.6 million income tax
recovery).
In the first quarter of 2020, indicators of impairment were present due to global commodity price forecasts deteriorating from decreases in demand
and an increase of supply around the world. As a result of the indicators of impairment, the Company performed impairment tests across all CGUs.
The recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable
reserves and an after-tax discount rate of 11.5%. Based on the results of the impairment tests completed, the Company recognized non-cash
impairment charges of $1.2 billion (net of $0.4 billion income tax recovery).
Vermilion Energy Inc. ■ Page 28 ■ 2020 Annual Report
Taxes
Current income tax rates
Vermilion typically pays corporate income taxes in France, Netherlands, and Australia. In addition, Vermilion pays PRRT in Australia which is a profit
based tax applied at a rate of 40% on sales less operating expenses, capital expenditures, and other eligible expenditures. PRRT is deductible in the
calculation of taxable income in Australia.
For 2020 and 2019, taxable income was subject to corporate income tax at the following statutory rates:
2020
25.3 %
21.0 %
28.9 %
50.0 %
31.6 %
25.0 %
30.0 %
2019
26.7 %
21.0 %
32.0 %
50.0 %
31.8 %
25.0 %
30.0 %
Jurisdiction
Canada
United States
France
Netherlands (1)
Germany
Ireland
Australia
(1)
($M)
Canada
United States
France
Netherlands
Germany
Ireland
Australia
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 July 1, 2020, the Alberta government reduced the provincial corporate tax rate from 10% to 8%, accelerating the previously enacted schedule of
rate reductions.
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 2021 to 27.4%.
Tax pools
As at December 31, 2020, we had the following tax pools:
Oil & Gas
Assets
Tax Losses
Other
Total
(1)
(2)
(2)
(3)
(3)
(1)
1,962,908
207,751
383,841
46,484
160,033
—
253,918
3,014,935
(4)
(7)
(6)
(4)
(5)
(4)
1,305,737
167,157
62,028
20,351
148,563
1,173,198
—
2,877,034
21,333
25,522
11,422
1,387
11,419
7,377
—
78,460
3,289,978
400,430
457,291
68,222
320,015
1,180,575
253,918
5,970,429
(2)
(3)
(4)
(5)
(6)
(7)
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 carried forward are available to offset the first €1 million of taxable income and 50% of taxable profits in excess each taxation year.
Tax losses of $47 million created prior to January 1, 2018 are carried forward and applied at 100% against taxable income, tax losses of $120 million created
after January 1, 2018 are carried forward and applied to 80% of taxable income in each taxation year.
Vermilion Energy Inc. ■ Page 29 ■ 2020 Annual Report
Financial Position Review
Balance sheet strategy
We regularly review whether our forecast of fund flows from operations is sufficient to finance planned capital expenditures, abandonment and
reclamation expenditures, and dividends. To the extent that fund flows from operations forecasts are not expected to be sufficient to fulfill such
expenditures, we will evaluate our ability to finance any shortfall by reducing some or all categories of expenditures, reducing or eliminating
dividends, with issuances of equity, or with debt (including borrowing using the unutilized capacity of our existing revolving credit facility). We have a
long-term goal of maintaining a ratio of net debt to fund flows from operations of less than 1.5.
Due to the significant decline in commodity prices following the outbreak of COVID-19 and the ensuing OPEC+ price war, our ratio of net debt to
fund flows from operations continues to remain beyond our target of less than 1.5 and was 4.19 at December 31, 2020. We responded to this rapid
change in market conditions by significantly reducing our cost structure, which included suspending our monthly dividend payment, reducing our
capital expenditures, and identified expense savings that were executed in 2020. Going forward, we will continue to monitor for changes in
forecasted fund flows from operations and, as appropriate, will adjust our exploration and development capital plans (and associated growth targets)
to minimize any further increase to debt. As commodity prices improve, we intend to strengthen our balance sheet through the reduction of debt and
will continue to target a ratio of net debt to fund flows from operations of less than 1.5.
Net debt
Net debt is reconciled to long-term debt, as follows:
($M)
Long-term debt
Current liabilities
Current assets
Net debt
As at
Dec 31, 2020
1,933,848
433,128
(260,993)
2,105,983
Dec 31, 2019
1,924,665
416,210
(347,681)
1,993,194
Ratio of net debt to four quarter trailing fund flows from operations
4.19
2.20
As at December 31, 2020, net debt increased to $2.1 billion (December 31, 2019 - $2.0 billion) primarily due to the impact of lower current assets
and also due to increased borrowings on long-term debt. The Company will draw on unutilized capacity of the revolving credit facility to working
capital deficiencies. The ratio of net debt to four quarter trailing fund flows from operations increased to 4.19 (December 31, 2019 - 2.20) due to
lower four quarter trailing fund flows from operations as a result of lower commodity prices, combined with an increase in net debt.
Long-term debt
The balances recognized on our balance sheet are as follows:
($M)
Revolving credit facility
Senior unsecured notes
Long-term debt
As at
Dec 31, 2020
1,555,215
378,633
1,933,848
Dec 31, 2019
1,539,225
385,440
1,924,665
Vermilion Energy Inc. ■ Page 30 ■ 2020 Annual Report
Revolving Credit Facility
In Q1 2020, we negotiated an extension to our $2.1 billion revolving credit facility to extend the maturity to May 31, 2024.
As at December 31, 2020, Vermilion had in place a bank revolving credit facility maturing May 31, 2024 with terms and outstanding positions as
follows:
($M)
Total facility amount
Amount drawn
Letters of credit outstanding
Unutilized capacity
As at
Dec 31, 2020
2,100,000
(1,555,215)
(23,210)
521,575
Dec 31, 2019
2,100,000
(1,539,225)
(10,230)
550,545
As at December 31, 2020, 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
Dec 31, 2020
As at
Less than 4.0
Less than 3.5
Greater than 2.5
3.48
2.82
8.12
Dec 31, 2019
1.94
1.56
13.46
total debt:
Includes all amounts classified as “Long-term debt”, “Current portion of
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:
•
long-term debt”, and “Lease
Consolidated
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 excludes interest on operating leases as defined under IAS 17.
•
•
•
In addition, our revolving credit facility has provisions relating to our liability management ratings in Alberta and Saskatchewan whereby 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, 2020, 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.
Due to the OPEC+ price war in the first quarter of 2020 and the ongoing COVID-19 pandemic, worldwide crude oil and natural gas prices have
significantly declined. The impacts of these decreases has had an adverse effect on the Company's financial position for the year ended
December 31, 2020 and is expected to result in continued pressure on our forecasted cash flows and earnings. The Company is currently in
compliance with all financial covenants related to its revolving credit facility, but is at risk of breaching one or more of the financial covenants if
worldwide oil and natural gas prices decline in the future. If we believe we are at risk of being in non-compliance with our financial covenants, we will
approach our lending syndicate and request temporary covenant relief or other measures to ensure the credit facility remains available. There is no
certainty that discussions surrounding covenant relief or other measures would be successful.
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 Energy Inc. ■ Page 31 ■ 2020 Annual Report
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, if redeemed during the twelve-month period beginning on March 15 of each of the years indicated below:
Year
2021
2022
2023 and thereafter
Redemption price
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 had an original maturity of March 15, 2025.
The USD-to-CAD cross currency interest swaps were designated as the hedging instrument in a cash flow hedge while the CAD-to-EUR cross
currency interest rate swaps were designated as the hedging instrument in a net investment hedge.
During the quarter ended June 30, 2020, Vermilion executed a number of transactions that resulted in a termination of the cross currency interest
rate swaps in exchange for $42.3 million ($16.8 million received in the three months ended March 30, 2020 and $25.5 million received in the three
months ended June 30, 2020). As a result of the termination, Vermilion has discontinued hedge accounting and amounts previously recognized for
the hedge reserve within accumulated other comprehensive income will be reclassified into net income over the remaining life of the senior
unsecured notes.
Shareholders' capital
Dividends declared for the year ended December 31, 2020 were $90.1 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
Monthly dividend per unit or share
$0.170
$0.190
$0.200
$0.215
$0.230
$0.115
In the current economic and commodity outlook following the outbreak of COVID-19, there was uncertainty regarding our ability to achieve a 100%
payout ratio at a reasonable level of capital expenditures. Therefore, in the first half of 2020, we reduced our 2020 capital budget and suspended our
monthly dividend to strengthen the financial position of the Company during this period of weak commodity prices. We will evaluate our ability to
finance any shortfall by reducing some or all categories of expenditures, with issuances of equity, or with debt (including borrowing using the
unutilized capacity of our existing revolving credit facility). Our ability to restore a dividend will be dependent upon stronger commodity prices
combined with a balance sheet that reflects the Company's ability to sustain such dividend over the long-term.
The following table reconciles the change in shareholders’ capital:
Shareholders’ Capital
Balance at December 31, 2019
Shares issued for the Dividend Reinvestment Plan
Vesting of equity based awards
Equity based compensation
Share-settled dividends on vested equity based awards
Balance at December 31, 2020
Number of Shares ('000s)
156,290
619
1,103
415
297
158,724
Amount ($M)
4,119,031
8,277
49,188
3,203
1,461
4,181,160
As at December 31, 2020, there were approximately 6.2 million equity based compensation awards outstanding. As at March 5, 2021, there were
approximately 158.9 million common shares issued and outstanding.
Vermilion had a normal course issuer bid approved by the Toronto Stock Exchange that allowed us to purchase up to 7,750,000 common shares
(representing approximately 5% of shares outstanding common shares) that commenced on August 9, 2019 and which expired on
August 8, 2020. Vermilion did not purchase any shares during the period.
Vermilion Energy Inc. ■ Page 32 ■ 2020 Annual Report
At Vermilion's Annual General and Special Meeting held on April 28, 2020 shareholders of the Company approved a $3.7 billion reduction in the
stated capital of Vermilion's common shares, with the $3.7 billion reduction deducted from the stated capital account maintained for the common
shares of Vermilion and an offsetting increase to the contributed surplus account of Vermilion. The transaction did not result in an adjustment to the
financial statements under IFRS.
Contractual Obligations and Commitments
As at December 31, 2020, we had the following contractual obligations and commitments:
1 - 3 years
Less than 1 year
($M)
Long-term debt (1)
Lease obligations
Processing and transportation agreements
Purchase obligations
Drilling and service agreements
Total contractual obligations and commitments
(1) Interest on revolving credit facility calculated assuming an annual interest rate of 2.63%.
(2) Commitments denominated in foreign currencies have been translated using the related spot rates on December 31, 2020.
3 - 5 years
1,986,421
36,437
19,839
885
38,061
2,081,643
62,328
43,131
32,122
25,390
15,881
178,852
124,656
41,002
38,643
12,265
57,827
274,393
—
32,408
22,519
—
—
54,927
After 5 years
Total
2,173,405
152,978
113,123
38,540
111,769
2,589,815
Asset Retirement Obligations
As at December 31, 2020, asset retirement obligations were $467.7 million compared to $618.2 million as at December 31, 2019. The decrease in
asset retirement obligations is primarily attributable to an increase in the credit-adjusted risk-free rate from December 31, 2019 to December 31,
2020. This decrease was partially offset by changes in the estimated costs, accretion expense and the Euro strengthening against the Canadian
dollar.
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. Vermilion's credit spread is determined as the yield to maturity on its senior unsecured notes as at the
reporting period.
The risk-free rates and credit spread used as inputs to discount the obligations were as follows:
Country specific risk-free rate
Canada
United States
France
Netherlands
Germany
Ireland
Australia
Credit spread added to above noted risk-free rates
Dec 31, 2020
Dec 31, 2019
Change
1.2 %
1.6 %
0.3 %
(0.6) %
(0.2) %
(0.1) %
1.3 %
10.0 %
1.7 %
2.4 %
0.9 %
(0.1) %
0.3 %
0.6 %
1.6 %
5.3 %
(0.5) %
(0.8) %
(0.6) %
(0.5) %
(0.5) %
(0.7) %
(0.3) %
4.7 %
Vermilion Energy Inc. ■ Page 33 ■ 2020 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.
COVID-19
The emergence of COVID-19 has resulted in emergency actions by governments worldwide, which has had an effect in all of our operating
jurisdictions. The actions taken by these governments have typically included, but is not limited to travel bans, mandatory and self-imposed
quarantines and isolations, social distancing, and the closing of non-essential businesses which has had significant negative effects on economies,
including a substantial decline in crude oil and natural gas demand.
The full extent of the risks surrounding the severity and timing of the COVID-19 pandemic is continually evolving; therefore, there is significant risk
and uncertainty which may have a material and adverse effect on our operations. The following risks disclosed in our Annual Information Form for
the year ended December 31, 2020 may be exacerbated as a result of the COVID-19 pandemic: market risks related to the volatility of oil and gas
prices, volatility of foreign exchange rates, volatility of the market price of common shares, and hedging arrangements; operational risks related to
increasing operating costs or declines in production levels, operator performance and payment delays, and government regulations; financing risks
related to the ability to obtain additional financing, ability to service debt, and variations in interest rates and foreign exchanges rates; and other risks
related to cyber-security as our workforce moves to remote connections, accounting adjustments, effectiveness of internal controls, and reliance on
key personnel, management, and labour.
Due to the COVID-19 pandemic, Vermilion has implemented social distancing measures which require deemed non-critical employees to work
remotely and has encouraged critical staff to do the same. These measures may, but are not expected to have an effect on the design and
performance of internal controls throughout the Company and will be continually monitored to mitigate any risks associated with changes in its
control environment.
Vermilion Energy Inc. ■ Page 34 ■ 2020 Annual Report
As part of our cyber security program, policies governing access, networks, and systems are reviewed at minimum on an annual basis. With
increased work from home requirements due to COVID-19, a further risk assessment was performed against these policies that considered the
changing cyber threat landscape. The result of this assessment was a series of recommendations that were implemented in the first half of 2020 to
further strengthen the organization’s cyber resiliency while balancing the need to enable our workforce to continue to be efficient when working from
home.
Other than Vermilion's response to COVID-19, there has been no change in Vermilion’s internal control over financial reporting during the period
covered by this MD&A that materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
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.
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 ($467.7 million as at December 31, 2020) 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 $37.7 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 $26.8 million.
Vermilion Energy Inc. ■ Page 35 ■ 2020 Annual Report
The recognition of deferred tax assets
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. As at December 31, 2020, the deferred tax asset balance of $484.5 million primarily related to Canada
as a deferred tax asset has not been recognized on our non-expiring tax loss pools in Ireland.
In Canada, we have $36.0 million of non-expiring oil and gas tax pools where $9.0 million of deferred tax assets has not been recognized as there is
uncertainty on our ability to fully use these pools based on estimated future taxable profits. Estimated future taxable profits are calculated using
proved and probable reserves and forecast pricing. A 5% increase or decrease in sales would increase or decrease the amount of deferred tax
assets recognized by approximately $5.0 million.
In Ireland, we have $1.2 billion of non-expiring tax loss pools where $248.2 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. A 5% increase or decrease in sales would not increase or decrease the amount of deferred tax
assets recognized.
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.
Key judgments that are made to reserve estimates such as revisions in reserves, changes in forecast commodity prices, foreign exchange rates,
capital or operating costs would impact the amount of depletion and depreciation recorded in a period.
The estimated recoverable amount of cash generating units
Each reporting period, we assess our CGUs for indicators of impairment or impairment reversal. If an indicator of impairment or impairment reversal
is identified, we estimate the recoverable amount of the CGU. Judgment is required when determining whether indicators of impairment or
impairment reversal exist, as well as judgments made when determining the recoverable amount of a CGU. 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.
In the fourth quarter of 2020, indicators of impairment were present in our France CGUs due to a decrease in estimated reserves as a result of
economic revisions. As a result of the indicators of impairment, the Company performed impairment tests on its four France CGUs and the
recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable
reserves and an after-tax discount rate of 9.5%. Based on the results of the impairment tests completed, recoverable amounts were determined to
be greater than the carrying values of the CGUs tested and no impairment charges were recorded. A 1% increase in the assumed after-tax discount
rate would reduce the estimated recoverable amount of assets tested and result in an impairment of $5.6 million while a 5% decrease in revenues
(due to a decrease in commodity price forecasts or reserve estimates) would reduce the estimated recoverable amount of assets tested and result in
an impairment of $24.8 million.
In the third quarter of 2020, indicators of impairment were present due to a decline in the Company’s market capitalization. As a result of the
indicators of impairment, the Company performed impairment tests across all CGUs. The recoverable amounts were determined using fair value less
costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 11.5%. Based on the
results of the impairment tests completed, the Company recognized non-cash impairment charges of $35.4 million (net of $12.4 million income tax
recovery) in the Neocomian CGU due to increased estimated transportation expenses as a result of an announcement during the quarter that the
third-party Grandpuits refinery plans on converting into a zero-crude platform in 2021. As a result of this change, the Company's estimates that
incremental transportation expenses will be incurred to transport the crude oil production in the Neocomian, Chaunoy, and Champotran CGUs to
alternative refineries in France. A 1% increase in the assumed after-tax discount rate would reduce the estimated recoverable amount of impaired
assets by $5.2 million (resulting in a $53.0 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 of impaired assets by $13.2 million (resulting in a $61.0 million impairment).
Vermilion Energy Inc. ■ Page 36 ■ 2020 Annual Report
In the second quarter of 2020, indicators of impairment were present due to a decline in the Company’s market capitalization. As a result of the
indicators of impairment, the Company performed impairment tests across all CGUs. The recoverable amounts were determined using fair value less
costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 11.5%. Based on the
results of the impairment tests completed, the Company recognized non-cash impairment charges of $53.1 million (net of $16.6 million income tax
recovery). A 1% increase in the assumed after-tax discount rate would reduce the estimated recoverable amount of impaired assets by $14.0 million
(resulting in a $83.7 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 of impaired assets by $37.5 million (resulting in a $107.2 million impairment).
In the first quarter of 2020, indicators of impairment were present due to global commodity price forecasts deteriorating from decreases in demand
and an increase of supply around the world. As a result of the indicators of impairment, the Company performed impairment tests across all CGUs.
The recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable
reserves and an after-tax discount rate of 11.5%. Based on the results of the impairment tests completed, the Company recognized non-cash
impairment charges of $1.2 billion (net of $0.4 billion income tax recovery). A 1% increase in the assumed after-tax discount rate would reduce the
estimated recoverable amount of impaired assets by $137.7 million (resulting in a $1.7 billion impairment) while a 5% decrease in revenues (due to a
decrease in commodity price forecasts or reserve estimates) would reduce the estimated recoverable amount of impaired assets by $272.3 million
(resulting in a $1.8 billion 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.
Recently Adopted Accounting Pronouncements
Vermilion did not adopt any new accounting pronouncements as at December 31, 2020.
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 2020 we:
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Maintained clear priorities around 5 key focus areas of HSE Culture, Communication and Knowledge Management, Management Systems,
Health, and Environment & Operational Stewardship;
Activated our Emergency Response and Business Continuity Plans to address COVID-19 with a primary focus on healthy and safe
operations;
Completed ongoing HSE Performance Monitoring through key performance indicator development, analysis and reporting;
Continued comprehensive investigations of our incidents and near misses to ensure root causes were identified and corrective actions
effectively implemented;
Implemented action plans to address the findings of our latest HSE Perception Survey, which we conduct every three years. Our results all
factored in the favorable range;
Implemented a new Event and Environmental Management Information System;
Implemented recently updated corporate standards 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;
Submitted our First CDP Water report. Continued submitting our CDP Climate report;
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;
Continued the development of a robust hazard identification and risk mitigation program specific to environmentally sensitive areas;
Vermilion Energy Inc. ■ Page 37 ■ 2020 Annual Report
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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.
Environmental, Social and Governance (ESG)
In 2020 we continued to support recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability
Accounting Standards Board (SASB) in our ESG strategy and reporting, focusing not only on climate but also on sustainability in a wider context. In
2020, our Board of Directors and senior management analyzed the results of their robust scenario analysis that was based on reporting from the
World Economic Forum, including a “Gradual, Business as Usual” scenario and a “Rapid, 2ºC or lower, Sustainable Development” scenario. This
included 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 2020 performance in sustainability rankings such as CDP
Climate, SAM, and Sustainalytics continued to be at the top 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:
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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 2020, this included
providing alignment with TCFD and SASB. 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
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The Company received the top ranking for our peer group in SAM's 2020 Corporate Sustainability Assessment ("CSA”) and was selected
for The Sustainability Yearbook 2021, indicating that our sustainability performance is within the top 15% of our industry (SAM's Upstream
Oil & Gas and Integrated category).
Vermilion was ranked top of our peer group in the Sustainalytics ESG Risk Rating.
Vermilion maintained its MSCI ESG rating of AA in 2020.
As of February 2021, our ISS decile ratings were 1 for both Environmental and Social QualityScores, which assess corporate disclosure
and transparency practices in these areas, where 1 indicates the lowest risk.
Vermilion Energy Inc. ■ Page 38 ■ 2020 Annual Report
Climate-related Disclosures: TCFD 2(a) and 2(b)
Vermilion has publicly communicated our identified climate-related risks and opportunities since our first annual CDP Climate Change response in
2014. We progressed this transparency by submitting our first CDP Water Security questionnaire in 2020. The following table summarizes climate-
related issues as per TCFD Strategy recommendations 2(a) and 2(b).
For more information on our sustainability- and climate-related governance, strategy, risk management, and metrics and targets, please see our
2021 Proxy Statement and Information Circular, our online sustainability reporting, particularly the Index and Performance Metrics sections, and our
2020 CDP Responses, which include additional details for the following summaries of risks and opportunities.
Category /
Issue
Policy and Legal:
Increased Pricing
of GHG Emissions
e.g. Carbon Tax
Policy and Legal:
Enhanced
Emissions
Reporting
Obligations
Policy and Legal
and Technology:
Mandates on and
Regulation of
Existing Products
and Services
Policy and Legal:
Changes in
Emissions
Regulations
Description of Impacts1
Potential Financial Impact
Management Approach
Short-term Transition Risks (0-3 Years)
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. In
Alberta, the TIER system will apply a tax rate of $30
per tonne of CO2e commencing January 2020.
Since carbon pricing mechanisms are vulnerable to
changes in government policy, regions with
upcoming elections, coalition governments or
minority governments may be subject to changes
that cannot yet be identified. We note the political
focus in the EU and Canada on a COVID-19
economic recovery that is both climate-focused and
responsive to social justice issues such as labour
practices.
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. Based on
the current output of Vermilion's facilities in Canada
and Europe and on the current regulated thresholds,
the cost associated with meeting emission reporting
obligations will likely increase in the 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.
Based on the probable cost scenarios identified in
our Carbon Liability Assessment Tool, our Canadian
carbon tax liability is not expected to exceed
$0.5MM/year in the medium term. The Ireland EU
ETS liability is forecasted to be approximately
$1.1MM/year between 2021 and 2025. The Ireland
Carbon Tax liability is forecasted to be an additional
approximately $0.3MM/year over this period.
Commencing in 2021, our Netherlands operations
will likely be subject to an indirect carbon tax applied
to the price of fossil fuels. The cost implication of the
tax is expected to be limited.
Vermilion continues to monitor and comply with
taxation requirements, engaging external subject
matter experts and in-house experts in engineering,
asset integrity, optimization, health safety &
environment, and sustainability that assess our
operations to determine where we are able to apply
the principles of Operational Excellence supporting
Integrated Sustainability. As a result, the potential
financial impact is significantly decreased and
anticipated to decrease further in the short term.
Vermilion's ongoing efforts to reduce the energy
intensity of our operations also contribute to
managing this risk.
The financial impact is anticipated to be realized as a
small increase in operational cost associated with
the management and quantification of emissions to
meet new reporting requirements. This is built into
Vermilion's operating expenses and is currently
estimated at $0.4MM annually.
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.
Operational changes to comply with methane
reduction regulations is expected at approx. $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 operating
costs and no significant expenditures are anticipated
in the short term.
Vermilion is allocating resources to complete these
works on a planned program basis, as opposed to a
reactive single replacement program, resulting in an
overall reduction in costs associated with the work.
Tying in vented equipment to flaring infrastructure in
Canada is an example of projects planned in the
near term to address this risk.
Medium-term Transition Risks (3-6 Years)
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.
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.
Medium-term Physical Risks (3-6 Years)
Acute:
Increased
Severity of
Extreme Weather
Events such as
Cyclones and
Floods
Vermilion owns and operates an offshore platform in
the Wandoo field off northwestern Australia, co-owns
and operates the Corrib project off the Irish coast,
and owns and operates oil fields in the coastal area
of SW France. 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.
Based on the value of the Wandoo Platform and a 1-
in-10,000 year cyclonic event, the financial
implications associated with damage due to a severe
weather event is estimated at $234.5MM (total
impact before insurance). The third-party costs
associated with potential damages from extreme
weather events are not tracked by Vermilion.
Vermilion Energy Inc. ■ Page 39 ■ 2020 Annual Report
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 regulatory
framework, both at a regional and corporate level.
This includes the Sustainability Committee at the
Board of Directors level, monthly Executive
Committee meetings on Sustainability strategy and
performance, and risk identification at the corporate
and business unit level.
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 a robust asset integrity
program that maintains our offshore facilities to their
original design specifications of CAT 5 hurricane
force. 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.
Description of Impacts1
Potential Financial Impact
Management Approach
Category /
Issue
Market and
Reputational:
Changing
Customer
Behaviour
Long-term Transition Risks (6-50 Years)
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.
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 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.
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. For example,
we have reduced the potential impact related to
access in remote assets by using multi-well pads
wherever possible. This reduces the aerial impact of
these activities on the environment, habitat
fragmentation and carbon emissions associated with
lease construction and equipment mobilization/
demobilization. This would significantly decrease
capital considerations in the event that limited frost
days occurred.
As these incidents are out of Vermilion's control, we
take all measures possible to ensure effective
emergency response to extreme weather events, to
ensure the protection of the health and safety of our
workers, contractors and the public, the protection of
the environment and limiting the financial impact of
the event. In the case of a longer term extreme
precipitation event or drought, in the past Vermilion
has implemented water management programs to
reduce our reliance on fresh water sources to limit
the potential impact on operations.
Other than conventional berm protection, there is no
measure available to protect Vermilion's assets in
the Netherlands in the event that water levels rise to
a level resulting in one of our main facilities being
temporarily invaded by sea water. Based on
Vermilion's assessment of the probability of these
events occurring over the next 5 years being less
than 0.05%, Vermilion has accepted this level of risk
exposure. Vermilion currently includes a review of
this risk in our annual risk management process.
We have technical experts who provide input into
renewable energy 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.
Chronic:
Changes in
Temperature
Extremes,
Including Rising
Mean
Temperatures
Long-term Physical Risks (6-50 Years)
A decrease or increase in the temperature extremes
experienced in winter/summer months (i.e. lower
seasonal lows, higher seasonal highs) could result in
an increase in fuel gas for a variety of equipment
essential for safe production, along with additional
equipment (e.g. building heaters, line heaters). This
would require additional resources (infrastructure) as
well as increase our carbon footprint. Temperature
extremes also have the potential to increase capital
costs associated with drilling, completion and
workover operations due to increased timelines,
decreased productivity, equipment breakdown, etc.
For example, an overall increase in seasonal lows
(warmer winters) would have a direct impact on
Vermilion's more northern onshore operations and
could result in a decrease in ability to access lands
and increase construction capital requirements. 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.
Chronic:
Changes In
Precipitation
Patterns and
Extreme
Variability in
Weather Patterns
Chronic:
Rising Sea Levels
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.
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.
The financial implications of a single time event (i.e.
wild fire) has been assessed on a case-specific
basis, and the financial implications of this event is
believed to be substantive (impact > $10.0MM).
Vermilion maintains insurance to mitigate the
potential impact of precipitation-related extreme
events (i.e. Wildfire, Flooding).
It has been estimated that a rise in sea level could
have a maximum foreseeable financial impact of
$91.3MM at our main gas processing facility Garijp
(GTC) in the Netherlands, caused by an extreme
tide/extreme wind event 1 in 10000 years. The cost
of insurance coverage associated with this risk is
estimated at $0.4MM per annum.
Short-term Opportunities (0-3 Years)
Products and
Services:
Development of
New Products and
Services through
R&D and
Innovation
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.
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 would be
repurposed to enable them to continue to generate
energy.
Vermilion Energy Inc. ■ Page 40 ■ 2020 Annual Report
Category /
Issue
Products and
Services:
Access to New
Markets
Energy Source:
Participation in
Carbon Market
Description of Impacts1
Potential Financial Impact
Management Approach
Short-term Opportunities (0-3 Years)
More stringent global measures to reduce emissions
from individual ships by 30 per cent by 2030,
established through amendments to MARPOL
Annex VI, came into force on Jan1 2020, limiting the
sulphur content of bunker fuel to a maximum of
0.5%. Vermilion’s Australian Wando facility produces
4500 bbl/d of low sulphur crude oil that will be sought
by refineries in the short term to meet IMO
regulations.
Vermilion conservatively foresees achieving a
premium of $10/bbl for its Wandoo production over
the next three years for cumulative incremental
revenue of $49.3MM.
Medium-term Opportunities (3-6 Years)
Under the revised EU ETS Directive in effect
2021-2030, it is anticipated that there will be an
active market and consumers for the offset credits
generated at some of Vermilion's sustainability
initiatives around the world. This upcoming shift in
the cap and trade scheme will likely provide
opportunities for Vermilion to generate certified
energy reduction/offset credits through our
geothermal cogeneration projects in France.
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 $0.5MM.
Vermilion continues to access local markets for our
low sulphur production, while exploring regions to
expand our operations. Our Marketing group
ensures that Vermilion meets its contractual
obligation with our buyers in terms of volumes,
delivery dates and crude quality, and maintain our
reputation of being a reliable source of low sulphur
feedstock to refineries.
We are currently evaluating the benefit that certified
offset credits from various emission reduction
projects across our operations
could provide. Examples of projects that have the
potential to generate credits is our Tomato
Greenhouse and eco-neighbourhood geothermal
coproduction projects in France. Vermilion's project
assessment framework is applied to each identified
opportunity, including considerations associated with
emissions offset.
Products and
Services:
Shift in Consumer
Preferences
Long-term Opportunities (6-50 Years)
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.
The short term impact of this regulatory change on
gas pricing is anticipated to be low and increase to
medium in the mid to long term. Once the
regulations have come into effect and the
implementation period has occurred, there is a
potential to see an impact on the marketable price
and demand for natural gas. As a natural gas and oil
producer, Vermilion would benefit from an increase
in marketable prices for natural gas in our Canadian
operations. Based on 2019 production, an increase
in gas price of $1 per MMBTU, the impact to sales
would be approximately $54.0MM.
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.
Products and
Services:
Ability to Diversify
Business
Activities
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.
Energy Source:
Shift Toward
Decentralized
Energy
Generation
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.
The financial impact of changing consumer
preferences in difficult to quantify. We foresee
opportunities in two distinct areas. We see
opportunity in consumers selecting premium energy
products, 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
or $36.6MM/yr (100,357 boe/d*365days*$1/
boe)based on $1 at 2019 production levels). The
second opportunity we have identified, and are
already receiving benefit from, is access to more
stringent markets, supported by our environmental
and sustainability performance. Vermilion has
entered into the German, Hungarian, Croatian, and
Slovak oil and gas operations in the last several
years. Our sustainability performance has supported
our entry into these markets.
On an operating netback (sales) basis, based on
current estimates, the financial premium of our non-
Canadian assets was $450.0MM.
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 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)
Risk summary is based on our fiscal year 2019 environmental reporting through CDP Climate. Fiscal year 2020 environmental reporting will be available in
mid-2021.
Vermilion Energy Inc. ■ Page 41 ■ 2020 Annual Report
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, 2020, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on this
evaluation, the President, for this specific purpose of acting in the capacity of Chief Executive Officer, and Chief Financial Officer have concluded
and certified that our disclosure controls and procedures are effective.
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 President, for this specific purpose of
acting in the capacity of 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, 2020. The effectiveness of Vermilion’s internal control over financial reporting as of
December 31, 2020 has been audited by Deloitte LLP, as reflected in their report included in the 2020 audited annual financial statements filed with
Vermilion Energy Inc. ■ Page 42 ■ 2020 Annual Report
the US Securities and Exchange Commission. No changes were made to Vermilion’s internal control over financial reporting during the year ended
December 31, 2020, that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.
Vermilion Energy Inc. ■ Page 43 ■ 2020 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
United States
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
43.65
(5.03)
(2.60)
(12.92)
23.10
39.70
(11.64)
(1.06)
(10.05)
16.95
58.11
(10.28)
(4.66)
(17.73)
25.44
49.63
—
—
49.63
51.53
(1.17)
(13.10)
(20.53)
16.73
—
—
—
—
Q4 2020
Natural Gas
$/mcf
2.82
(0.06)
(0.20)
(1.41)
1.15
1.97
(0.59)
—
(1.48)
(0.10)
—
—
—
—
—
5.70
(0.04)
(1.97)
3.69
5.64
1.23
(0.32)
(3.56)
2.99
7.23
(0.28)
(1.01)
5.94
Total
$/boe
32.45
(3.08)
(2.02)
(11.05)
16.30
(1.60)
14.70
33.24
(9.76)
(0.82)
(9.77)
12.89
(5.22)
7.67
58.11
(10.28)
(4.66)
(17.73)
25.44
(3.68)
(0.15)
21.61
34.40
(0.22)
(11.64)
22.54
—
4.74
27.28
39.87
4.44
(5.74)
(21.07)
17.50
(7.44)
10.06
43.38
(1.68)
(6.06)
35.64
(0.07)
35.57
Liquids
$/bbl
36.86
(4.25)
(2.51)
(12.05)
18.05
39.43
(10.30)
(0.86)
(9.16)
19.11
55.39
(9.74)
(4.44)
(17.36)
23.85
45.99
—
—
45.99
48.43
(2.18)
(11.73)
(21.08)
13.44
—
—
—
—
2020
Natural Gas
$/mcf
2.06
(0.05)
(0.19)
(1.26)
0.56
1.77
(0.50)
—
(1.39)
(0.12)
—
—
—
—
—
3.79
(0.03)
(1.92)
1.84
3.69
(0.05)
(0.36)
(2.87)
0.41
4.26
(0.32)
(1.11)
2.83
Total
$/boe
26.38
(2.55)
(1.92)
(10.13)
11.78
(1.18)
10.60
32.93
(8.65)
(0.67)
(8.97)
14.64
(3.68)
10.96
55.39
(9.75)
(4.44)
(17.36)
23.84
(3.98)
(0.04)
19.82
23.02
(0.16)
(11.38)
11.48
(0.43)
1.32
12.37
30.40
(0.88)
(5.19)
(18.42)
5.91
(5.80)
0.11
25.59
(1.94)
(6.67)
16.98
(0.26)
16.72
Q4 2019
Total
$/boe
2019
Total
$/boe
38.38
(4.48)
(1.93)
(11.30)
20.67
(1.38)
19.29
43.77
(10.17)
—
(9.56)
24.04
(4.01)
20.03
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
37.82
(4.30)
(1.88)
(11.09)
20.55
(1.07)
19.48
44.17
(10.96)
—
(9.59)
23.62
(4.43)
19.19
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
Vermilion Energy Inc. ■ Page 44 ■ 2020 Annual Report
Australia
Sales
Operating
PRRT (1)
Operating netback
General and administration
Current income taxes
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
75.99
(36.39)
(10.18)
29.42
49.14
(1.15)
(6.05)
(2.87)
(15.79)
(0.87)
22.41
Q4 2020
Natural Gas
$/mcf
—
—
—
—
4.13
0.29
—
(0.18)
(1.56)
—
2.68
Total
$/boe
75.99
(36.39)
(10.18)
29.42
(2.56)
7.55
34.41
38.57
0.10
(3.43)
(2.08)
(13.00)
(0.49)
19.67
(2.27)
(2.42)
0.16
0.56
0.80
16.50
Liquids
$/bbl
76.70
(29.59)
(10.93)
36.18
44.22
3.46
(5.22)
(2.63)
(14.53)
(1.04)
24.26
2020
Natural Gas
$/mcf
—
—
—
—
2.77
0.45
(0.06)
(0.18)
(1.44)
—
1.54
Total
$/boe
76.70
(29.59)
(10.93)
36.18
(2.08)
1.14
35.24
31.90
3.11
(3.04)
(1.93)
(11.89)
(0.57)
17.58
(1.73)
(2.14)
0.32
0.12
0.17
14.32
Q4 2019
Total
$/boe
2019
Total
$/boe
88.35
(34.09)
(5.87)
48.39
(5.97)
(2.00)
40.42
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
93.33
(25.20)
(13.13)
55.00
(2.50)
(4.25)
48.25
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
(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 45 ■ 2020 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, 2020:
Unit Currency
Bought Put
Volume
Weighted
Average
Bought Put
Price
Weighted
Average
Sold Call
Price
Weighted
Average
Sold Put
Price
Sold Swap
Volume
Weighted
Average
Sold Swap
Price
Bought
Swap
Volume
Weighted
Average
Bought
Swap Price
Sold Put
Volume
Sold Call
Volume
Dated Brent
Q1 2021
Q2 2021
WTI
Q1 2021
Q2 2021
AECO
Q2 2021
Q3 2021
Q4 2021
bbl
bbl
bbl
bbl
mcf
mcf
mcf
USD
USD
USD
USD
CAD
CAD
CAD
AECO Basis (AECO less NYMEX Henry Hub)
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
NYMEX Henry Hub
Q1 2021
Q2 2021
Q3 2021
Q4 2021
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
Ventura Basis (Ventura less NYMEX Henry Hub)
Q1 2021
Q2 2021
Q3 2021
Q4 2021
SoCal Border
Q1 2021
Conway Propane
Q1 2021
mcf
mcf
mcf
mcf
USD
USD
USD
USD
mcf
USD
bbl
USD
1,000
—
4,500
4,000
47.50
—
45.00
45.00
1,000
—
4,500
4,000
53.75
—
51.26
53.50
1,000
—
4,500
4,000
40.00
—
37.50
37.50
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,000
10,000
10,000
10,000
2.73
2.65
2.65
2.65
15,000
10,000
10,000
10,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.90
2.77
2.77
2.77
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,000
500
4,300
2,150
9,478
9,478
3,194
30,000
45,000
45,000
35,054
30,000
35,000
35,000
11,793
33,500
28,500
28,500
21,870
—
—
—
—
49.18
47.50
45.51
45.54
2.12
2.12
2.12
(1.11)
(1.08)
(1.08)
(1.09)
(1.10)
(1.09)
(1.09)
(1.09)
2.86
2.83
2.83
2.78
—
—
—
—
5,000
3.40
500
56% WTI
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,000
10,000
10,000
3,370
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.04
0.04
0.04
0.04
—
—
—
—
Vermilion Energy Inc. ■ Page 46 ■ 2020 Annual Report
Unit Currency
Bought Put
Volume
Weighted
Average
Bought Put
Price
Weighted
Average
Sold Call
Price
Weighted
Average
Sold Put
Price
Weighted
Average
Sold Swap
Price
Bought
Swap
Volume
Weighted
Average
Bought
Swap Price
Sold Swap
Volume
Sold Put
Volume
Sold Call
Volume
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
58,962
49,135
49,135
58,962
34,394
27,024
14,740
14,740
7,370
2,457
2,457
2,457
2,457
2,457
2,457
2,457
5.37
5.37
5.37
5.37
5.18
5.07
4.86
4.86
4.74
4.25
4.25
4.84
4.84
4.84
4.84
4.84
61,419
49,135
49,135
58,962
34,394
27,024
14,740
14,740
7,370
2,457
2,457
2,457
2,457
2,457
2,457
2,457
5.45
5.43
5.42
5.36
5.88
5.64
5.42
5.41
4.96
3.93
3.92
5.64
5.64
5.64
5.64
5.64
58,962
49,135
49,135
58,962
34,394
27,024
14,740
14,740
7,370
2,457
2,457
2,457
2,457
2,457
2,457
2,457
3.88
3.87
3.87
3.88
3.63
3.50
3.42
3.42
3.32
2.93
2.93
3.52
3.52
3.52
3.52
3.52
2,457
2,457
2,457
2,457
2,457
2,457
2,457
2,457
—
—
—
—
—
—
—
—
4.69
4.69
4.69
4.69
4.69
4.69
4.69
4.69
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
NBP
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
TTF
Q2 2021
Q3 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
VET Equity Swaps
Swap
Swap
Jan 2020 - Sep 2021
Jan 2020 - Oct 2021
Foreign Currency Swaps
Swap
Jan 2021
Notional Amount
1,200,342,790
USD
Initial Share Price
20.9788 CAD
22.4587 CAD
Notional Amount
1,570,298,550 CAD
Share Volume
2,250,000
1,500,000
Average Rate
1.3082
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
Unit
Currency
NYMEX
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
Weighted
Average
Sold Swap
Price
Sold Swap
Volume
Apr 2021 - Oct 2021
mcf
USD
24-Mar-21
NBP
Jan 2022 - Dec 2022
mcf
EUR
30-Jun-21
Dated Brent
Apr 2021 - Mar 2022
bbl
USD
31-Mar-21
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,000
2.90
2,457
5.13
500
52.00
Vermilion Energy Inc. ■ Page 47 ■ 2020 Annual Report
Supplemental Table 3: Capital Expenditures and Acquisitions
By classification ($M)
Drilling and development
Exploration and evaluation
Capital expenditures
Acquisitions
Acquisitions
By category ($M)
Drilling, completion, new well equip and tie-in, workovers
and recompletions
Production equipment and facilities
Seismic, studies, land and other
Capital expenditures
Acquisitions
Total capital expenditures and acquisitions
Capital expenditures by country ($M)
Canada
United States
France
Netherlands
Germany
Ireland
Australia
Corporate
Total capital expenditures
Acquisitions by country ($M)
Canada
United States
Netherlands
Germany
Corporate
Total acquisitions
Q4 2020
Q3 2020
52,903
6,991
59,894
4,821
4,821
29,762
1,568
31,330
6,720
6,720
Q4 2019
97,114
3,511
100,625
2020
352,481
14,721
367,202
9,165
9,165
25,810
25,810
Q4 2020
Q3 2020
Q4 2019
2020
72,515
285,401
42,063
21,866
(4,035)
59,894
4,821
64,715
13,220
15,800
2,310
31,330
6,720
38,050
Q4 2020
Q3 2020
32,942
839
12,830
3,417
3,127
211
4,392
2,136
59,894
3,837
5,738
12,638
1,553
1,558
928
3,926
1,152
31,330
29,221
(1,111)
100,625
9,165
109,790
Q4 2019
66,643
3,132
8,745
9,651
5,177
923
6,452
(98)
100,625
Q4 2020
Q3 2020
Q4 2019
791
946
—
828
2,256
4,821
6,621
90
—
9
—
6,720
5,003
575
—
1,456
2,131
9,165
70,483
11,318
367,202
25,810
393,012
2020
199,141
66,120
42,328
10,105
15,819
1,823
24,520
7,346
367,202
2020
13,111
7,643
—
1,420
3,636
25,810
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
57,196
74,641
23,605
21,684
1,372
30,550
20,372
523,164
2019
24,064
3,799
908
7,570
2,131
38,472
In 2020, included in cash expenditures on acquisitions of $25.8 million is: $14.4 million relating to the carry component of farm-in arrangements;
$11.7 million paid to acquire land; $0.5 million in asset improvements incurred subsequent to acquisitions for compliance with safety, environmental,
and Vermilion's operating standards; and $0.8 million net received from vendors in relation to the purchase of assets from other oil and gas
producers.
Vermilion Energy Inc. ■ Page 48 ■ 2020 Annual Report
Supplemental Table 4: Production
Q4/20
Q3/20
Q2/20
Q1/20
Q4/19
Q3/19
Q2/19
Q1/19
Q4/18
Q3/18
Q2/18
Q1/18
Canada
Light and medium crude oil (bbls/d)
Condensate (1) (bbls/d)
Other NGLs (1) (bbls/d)
NGLs (bbls/d)
19,301
19,847
22,545
22,767
23,259
23,610
23,973
25,067
25,640
24,602
13,103
5,960
4,662
5,200
5,047
4,634
4,140
4,072
4,872
4,096
3,918
3,875
3,905
3,312
7,334
8,350
8,248
6,943
7,005
6,632
7,352
6,968
6,816
6,126
5,589
5,106
11,996
13,550
13,295
11,577
11,145
10,704
12,224
11,064
10,734
10,001
9,494
8,418
Conventional natural gas (mmcf/d)
135.27
155.15
164.08
151.16
145.14
145.14
151.87
151.37
146.65
136.77
127.32
106.21
Total (boe/d)
United States
Light and medium crude oil (bbls/d)
Condensate (1) (bbls/d)
Other NGLs (1) (bbls/d)
NGLs (bbls/d)
53,840
59,256
63,187
59,537
58,593
58,504
61,507
61,360
60,814
57,397
43,817
32,078
2,495
3,243
3,971
2,481
3,149
2,717
2,421
1,750
1,582
1,455
652
573
1
6
6
6
12
4
1,294
1,158
1,340
1,079
1,156
1,140
1,295
1,164
1,346
1,085
1,168
1,144
63
754
817
7.06
(8)
929
921
5.89
23
998
1,021
5.65
6
714
720
4.82
3
62
65
0.40
784
1
20
21
0.15
618
Conventional natural gas (mmcf/d)
6.87
7.94
8.35
6.72
8.20
6.38
Total (boe/d)
France
4,934
5,730
6,708
4,685
5,683
4,925
4,414
3,653
3,545
2,979
Light and medium crude oil (bbls/d)
9,255
9,347
7,046
9,957
10,264
10,347
9,800
11,342
11,317
11,407
11,683
11,037
Conventional natural gas (mmcf/d)
—
—
—
—
—
—
—
0.77
0.82
—
—
—
Total (boe/d)
Netherlands
9,255
9,347
7,046
9,957
10,264
10,347
9,800
11,470
11,454
11,407
11,683
11,037
Light and medium crude oil (bbls/d)
Condensate (1) (bbls/d)
NGLs (bbls/d)
1
99
99
—
83
83
1
86
86
3
84
84
4
86
86
1
81
81
9
91
91
—
93
93
—
112
112
—
84
84
—
87
87
—
77
77
Conventional natural gas (mmcf/d)
42.95
46.09
47.31
48.33
47.99
44.08
52.90
51.51
51.82
44.37
43.49
44.79
Total (boe/d)
Germany
7,257
7,764
7,972
8,143
8,088
7,429
8,917
8,677
8,749
7,479
7,335
7,541
Light and medium crude oil (bbls/d)
960
964
1,039
909
800
845
1,047
978
913
1,019
1,008
1,078
Conventional natural gas (mmcf/d)
11.50
11.25
13.23
14.64
15.44
14.54
14.56
16.71
16.94
14.88
14.63
16.19
Total (boe/d)
Ireland
2,876
2,839
3,244
3,349
3,373
3,269
3,474
3,763
3,736
3,498
3,447
3,777
Conventional natural gas (mmcf/d)
34.76
35.12
38.57
41.38
42.30
43.21
49.21
51.71
52.03
51.38
56.56
60.87
Total (boe/d)
Australia
5,793
5,853
6,428
6,896
7,049
7,202
8,201
8,619
8,672
8,563
9,426
10,144
Light and medium crude oil (bbls/d)
3,781
4,549
5,299
4,041
4,548
5,564
6,689
5,862
4,174
4,704
4,132
4,971
Total (boe/d)
3,781
4,549
5,299
4,041
4,548
5,564
6,689
5,862
4,174
4,704
4,132
4,971
Central and Eastern Europe
Conventional natural gas (mmcf/d)
Total (boe/d)
Consolidated
Light and medium crude oil (bbls/d)
Condensate (1) (bbls/d)
Other NGLs (1) (bbls/d)
NGLs (bbls/d)
0.67
111
0.80
132
2.89
483
3.27
546
1.66
276
—
—
—
—
—
—
2.86
477
1.17
195
—
—
—
—
35,793
37,951
39,899
40,157
42,024
43,084
43,938
45,001
43,625
43,186
30,579
23,619
4,762
5,289
5,142
4,724
4,237
4,158
5,026
4,181
4,053
3,965
3,995
3,389
8,627
9,509
9,588
8,022
8,160
7,772
8,107
7,897
7,815
6,839
5,651
5,126
13,389
14,798
14,730
12,746
12,397
11,930
13,133
12,078
11,868
10,804
9,646
8,515
Conventional natural gas (mmcf/d)
232.00
256.34
274.42
265.51
260.72
253.36
275.60
277.96
276.77
253.38
242.40
228.20
Total (boe/d)
87,848
95,471
100,366
97,154
97,875
97,239
103,003
103,404
101,621
96,222
80,625
70,167
Vermilion Energy Inc. ■ Page 49 ■ 2020 Annual Report
Canada
Light and medium crude oil (bbls/d)
Condensate (1) (bbls/d)
Other NGLs (1) (bbls/d)
NGLs (bbls/d)
Conventional natural gas (mmcf/d)
Total (boe/d)
United States
Light and medium crude oil (bbls/d)
Condensate (1) (bbls/d)
Other NGLs (1) (bbls/d)
NGLs (bbls/d)
Conventional natural gas (mmcf/d)
Total (boe/d)
France
Light and medium crude oil (bbls/d)
Conventional natural gas (mmcf/d)
Total (boe/d)
Netherlands
Light and medium crude oil (bbls/d)
Condensate (1) (bbls/d)
NGLs (bbls/d)
Conventional natural gas (mmcf/d)
Total (boe/d)
Germany
Light and medium crude oil (bbls/d)
Conventional natural gas (mmcf/d)
Total (boe/d)
Ireland
Conventional natural gas (mmcf/d)
Total (boe/d)
Australia
Light and medium crude oil (bbls/d)
Total (boe/d)
Central and Eastern Europe
Conventional natural gas (mmcf/d)
Total (boe/d)
Consolidated
Light and medium crude oil (bbls/d)
Condensate (1) (bbls/d)
Other NGLs (1) (bbls/d)
NGLs (bbls/d)
Conventional natural gas (mmcf/d)
Total (boe/d)
2020
2019
2018
2017
2016
2015
21,106
23,971
17,400
6,015
6,657
9,549
4,886
4,295
3,754
3,036
2,514
1,807
7,719
6,988
5,914
4,144
2,552
2,301
12,605
11,283
9,668
7,180
5,066
4,108
151.38
148.35
129.37
97.89
84.29
71.64
58,942
59,979
48,630
29,510
25,771
25,598
3,046
2,514
1,069
662
393
5
1,218
18
996
1,223
1,014
7.47
6.89
8
452
460
2.78
5,514
4,675
1,992
4
50
54
0.39
781
—
29
29
0.21
457
231
—
7
7
0.05
247
8,903
10,435
11,362
11,084
11,896
12,267
—
0.19
0.21
—
0.44
0.97
8,903
10,467
11,396
11,085
11,970
12,429
1
88
88
3
88
88
—
90
90
—
90
90
—
88
88
—
99
99
46.16
49.10
46.13
40.54
47.82
44.76
7,782
8,274
7,779
6,847
8,058
7,559
968
917
1,004
1,060
—
—
12.65
15.31
15.66
19.39
14.90
15.78
3,076
3,468
3,614
4,291
2,483
2,630
37.44
46.57
55.17
58.43
50.89
6,240
7,762
9,195
9,737
8,482
0.03
5
4,416
5,662
4,494
5,770
6,304
6,454
4,416
5,662
4,494
5,770
6,304
6,454
1.90
317
0.42
70
1.02
169
—
—
—
—
—
—
38,441
43,502
35,329
24,591
25,250
28,502
4,980
4,400
3,853
3,130
2,602
1,906
8,937
7,984
6,366
4,194
2,582
2,308
13,917
12,384
10,219
7,324
5,184
4,214
256.99
266.82
250.33
216.64
198.55
133.24
95,190
100,357
87,270
68,021
63,526
54,922
(1)
Under National Instrument 51-101 "Standards of Disclosure for Oil and Gas Activities", disclosure of production volumes should include segmentation by
product type as defined in the instrument. This table provides a reconciliation from "crude oil and condensate", "NGLs" and "natural gas" to the product types.
Elsewhere in this report, references to "crude oil" mean "light crude oil and medium crude oil" and references to "natural gas" mean "conventional natural gas".
Production volumes reported are based on quantities as measured at the first point of sale.
Vermilion Energy Inc. ■ Page 50 ■ 2020 Annual Report
Supplemental Table 5: Segmented Financial Results
Three Months Ended December 31, 2020
France Netherlands
Germany
Ireland
Australia
Corporate
3,412
5
455
—
22,512
—
(150)
—
—
($M)
Drilling and development
Exploration and evaluation
Canada
32,942
—
USA
839
—
12,749
81
Crude oil and condensate sales
112,489
11,796
53,198
NGL sales
Natural gas sales
Sales of purchased commodities
Royalties
13,195
35,035
—
2,046
1,247
—
—
—
—
(15,240)
(4,430)
(9,416)
Revenue from external customers
145,479
10,659
43,782
22,817
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
(9,987)
(54,725)
(7,929)
—
—
—
—
—
—
(371)
(4,264)
(4,437)
(2,369)
—
—
—
—
—
—
(16,230)
(7,772)
(3,369)
—
1
—
(141)
3,164
—
—
—
—
—
—
—
—
3,221
(94)
4,720
—
5,961
—
1,190
11,871
—
(1,537)
(5,643)
(1,992)
—
—
—
—
—
—
211
—
1
—
23,117
—
—
4,392
—
30,148
—
—
—
—
(4,863)
6,999
—
—
278
31,902
Total
52,903
6,991
212,807
15,241
88,150
31,902
(62)
(28,108)
23,118
30,148
32,118
319,992
—
(898)
—
—
(31,902)
(31,902)
—
(17,057)
(3,232)
(14,438)
(99)
(106,576)
(38)
—
—
—
—
—
—
(1,015)
(4,038)
2,995
—
—
—
—
(1,931)
(18,642)
—
514
(4,038)
6,532
(19,808)
(19,808)
790
1,329
4,592
790
1,329
4,592
Fund flows from operations
72,838
3,482
19,778
18,210
2,699
18,950
13,652
(14,397)
135,212
($M)
Total assets
Drilling and development
Exploration and evaluation
Crude oil and condensate sales
NGL sales
Natural gas sales
Sales of purchased commodities
Royalties
USA
France Netherlands
Germany
Ireland
Australia
Corporate
Total
Year Ended December 31, 2020
Canada
1,805,464
199,141
—
418,610
36,204
114,377
—
328,902
66,120
—
703,567
42,145
183
130,063
10,331
(226)
55,099
182,292
6,513
4,834
—
—
—
—
1,502
—
64,073
—
(444)
(54,961)
(17,446)
(32,069)
198,357
257,990
13,005
2,814
17,143
—
1,823
—
13
—
17,067
58,433
—
(990)
—
—
105,898
24,520
578,898
4,109,139
(4,604)
352,481
—
11,950
14,721
141,452
—
—
—
—
8
—
1,925
127,853
816,119
42,717
260,709
127,853
(644)
(106,554)
Revenue from external customers
514,230
49,000
150,223
65,131
33,220
58,446
141,452
129,142
1,140,844
Purchased commodities
Transportation
Operating
—
—
—
(41,494)
(1,349)
(14,604)
—
—
—
—
(5,839)
(4,425)
—
—
(127,853)
(127,853)
—
(67,711)
(218,596)
(18,108)
(57,128)
(32,410)
(20,732)
(15,232)
(54,581)
(464)
(417,251)
General and administration
(25,462)
(7,420)
(13,108)
(1,220)
(6,532)
(594)
(3,841)
(2,663)
(60,840)
PRRT
Corporate income taxes
Interest expense
Realized gain on derivative instruments
Realized foreign exchange gain
Realized other income
—
—
—
—
—
—
—
—
—
—
—
—
—
(141)
—
3,774
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Fund flows from operations
228,678
22,123
65,242
35,275
117
38,195
64,985
Vermilion Energy Inc. ■ Page 51 ■ 2020 Annual Report
(20,151)
2,106
—
71
(20,151)
5,810
—
—
—
—
(75,077)
(75,077)
109,093
109,093
11,110
4,091
47,450
11,110
4,091
502,065
Supplemental Table 6: Operational and Financial Data by Core Region
Production volumes (1)
Q4/20
Q3/20
Q2/20
Q1/20
Q4/19
Q3/19
Q2/19
Q1/19
Q4/18
Q3/18
Q2/18
Q1/18
North America
Crude oil and condensate (bbls/d)
26,459
28,296
31,569
29,888
30,560
30,403
31,329
30,905
31,163
29,938
17,663
8,628
9,508
9,588
8,022
8,161
7,772
8,106
7,897
7,814
6,840
5,651
142.13
163.09
172.43
157.88
153.34
151.52
158.93
157.26
152.30
141.59
127.72
106.35
58,774
64,986
69,895
64,222
64,276
63,429
65,921
65,013
64,359
60,376
44,601
32,696
9,846
5,126
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
International
Crude oil and condensate (bbls/d)
14,096
14,943
13,471
14,994
15,702
16,838
17,636
18,275
16,516
17,214
16,910
17,163
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
Consolidated
—
—
—
—
—
—
—
—
—
—
—
—
89.86
93.25
101.99
107.63
107.38
101.83
116.67
120.70
124.48
111.79
114.68
121.85
29,073
30,484
30,472
32,932
33,598
33,811
37,081
38,391
37,262
35,846
36,023
37,470
Crude oil and condensate (bbls/d)
40,555
43,240
45,041
44,881
46,261
47,242
48,964
49,182
47,678
47,151
34,574
27,008
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
8,627
9,509
9,588
8,022
8,160
7,772
8,107
7,897
7,815
6,839
5,651
5,126
232.00
256.34
274.42
265.51
260.72
253.36
275.60
277.96
276.77
253.38
242.40
228.20
87,848
95,471
100,366
97,154
97,875
97,239
103,003
103,404
101,621
96,222
80,625
70,167
(1)
Please refer to Supplemental Table 4 "Production" for disclosure by product type.
Sales volumes
North America
Q4/20
Q3/20
Q2/20
Q1/20
Q4/19
Q3/19
Q2/19
Q1/19
Q4/18
Q3/18
Q2/18
Q1/18
Crude oil and condensate (bbls/d)
26,459
28,297
31,569
29,888
30,560
30,404
31,327
30,906
31,162
29,938
17,664
NGLs (bbls/d)
8,628
9,508
9,588
8,022
8,161
7,772
8,106
7,897
7,814
6,840
5,651
9,846
5,126
Natural gas (mmcf/d)
142.13
163.09
172.43
157.88
153.34
151.52
158.93
157.26
152.30
141.59
127.72
106.35
Total (boe/d)
58,774
64,986
69,895
64,222
64,276
63,429
65,921
65,013
64,359
60,376
44,601
32,696
International
Crude oil and condensate (bbls/d)
15,359
15,689
12,202
17,090
13,864
18,575
16,009
20,163
16,458
16,559
16,991
16,078
NGLs (bbls/d)
Natural gas (mmcf/d)
Total (boe/d)
Consolidated
—
—
—
—
—
—
—
—
—
—
—
77
89.86
93.25
101.99
107.63
107.38
101.83
116.67
120.70
124.48
111.02
114.68
121.85
30,336
31,229
29,201
35,028
31,760
35,547
35,454
40,279
37,204
35,062
36,104
36,462
Crude oil and condensate (bbls/d)
41,818
43,985
43,771
46,977
44,423
48,979
47,337
51,068
47,620
46,368
34,655
26,001
NGLs (bbls/d)
8,627
9,509
9,588
8,022
8,160
7,772
8,107
7,897
7,815
6,839
5,651
5,126
Natural gas (mmcf/d)
232.00
256.34
274.42
265.51
260.72
253.36
275.60
277.96
276.77
253.38
242.40
228.20
Total (boe/d)
89,111
96,217
99,096
99,250
96,037
98,976
101,377
105,291
101,563
95,437
80,706
69,159
Vermilion Energy Inc. ■ Page 52 ■ 2020 Annual Report
Financial results
North America
Crude oil and condensate sales ($/bbl)
NGL sales ($/bbl)
Natural gas sales ($/mcf)
Sales ($/boe)
Royalties ($/boe)
Transportation ($/boe)
Operating ($/boe)
General and administration ($/boe)
Corporate income taxes ($/boe)
PRRT ($/boe)
Q4/20
Q3/20
Q2/20
Q1/20
Q4/19
Q3/19
Q2/19
Q1/19
Q4/18
Q3/18
Q2/18
Q1/18
51.06
19.20
2.77
32.51
(3.64)
(1.92)
(10.94)
(1.94)
0.04
—
49.79
15.04
2.02
28.94
(3.58)
(1.74)
(7.82)
(0.78)
(0.02)
—
28.94
50.25
8.94
1.60
8.92
1.92
18.24
29.22
66.31
14.63
2.29
38.86
66.67
6.14
1.18
35.52
72.40
11.25
1.15
38.56
65.95
22.49
2.52
40.17
54.90
25.70
1.79
33.94
80.22
27.97
1.46
46.37
(1.67)
(1.72)
(3.54)
(1.91)
(4.98)
(1.76)
(4.93)
(1.78)
(4.22)
(1.63)
(5.00)
(1.83)
(5.01)
(1.88)
(6.71)
(1.63)
(9.60)
(11.93)
(11.15)
(10.67)
(10.66)
(11.46)
(10.96)
(10.48)
(0.84)
(0.04)
—
(0.97)
(0.11)
—
(0.60)
0.09
—
(1.04)
(0.02)
—
(0.83)
(0.03)
—
(0.28)
0.10
—
(0.36)
(0.16)
—
79.66
26.06
1.09
37.98
(4.17)
(1.28)
(8.90)
(1.43)
(0.23)
—
75.13
25.37
1.95
32.96
(3.73)
(1.54)
(8.38)
(0.85)
0.22
—
(1.52)
(0.02)
—
3.72
Fund flows netback ($/boe)
14.12
14.99
10.96
19.89
17.63
20.99
21.03
15.91
27.04
21.97
18.68
Fund flows from operations
76,375
89,635
23,639
64,048
117,623
102,867
125,893
123,071
94,200
150,202
89,177
54,961
Capital expenditures
Free cash flow
International
(33,781)
(9,575)
(23,979) (197,926)
(69,775)
(91,027)
(42,047) (148,091)
(93,092) (101,223)
(39,396)
(84,983)
42,594
80,060
(340) (133,878) 47,848
11,840
83,846
(25,020)
1,108
48,979
49,781
(30,022)
Crude oil and condensate sales ($/bbl)
62.65
58.19
50.27
73.35
82.14
84.55
93.28
84.95
87.56
95.32
95.65
83.41
NGL sales ($/bbl)
Natural gas sales ($/mcf)
Sales ($/boe)
Royalties ($/boe)
Transportation ($/boe)
Operating ($/boe)
—
6.27
50.30
—
2.91
37.94
—
2.28
28.98
—
4.44
49.42
—
5.49
54.42
—
4.29
56.46
—
5.73
60.98
—
8.46
67.87
—
10.78
74.80
—
10.34
77.76
—
8.86
73.16
(3.02)
(2.40)
(3.32)
(2.28)
(2.16)
(2.04)
(3.27)
(1.94)
(3.85)
(1.77)
(3.89)
(2.76)
(3.97)
(3.40)
(3.89)
(1.66)
(4.16)
(1.70)
(5.13)
(1.45)
(4.44)
(1.78)
—
9.17
67.43
(3.66)
(1.72)
(16.99)
(15.18)
(14.35)
(16.13)
(15.28)
(13.13)
(11.76)
(15.28)
(13.89)
(12.26)
(13.03)
(13.16)
General and administration ($/boe)
Corporate income taxes ($/boe)
PRRT ($/boe)
(2.92)
(2.53)
2.25
0.04
(1.45)
(1.27)
(2.72)
(0.02)
(1.21)
(2.63)
(0.11)
(2.90)
(3.70)
2.22
(0.50)
(3.10)
(1.55)
(1.78)
(2.93)
(3.63)
(2.56)
(2.27)
(4.30)
(2.87)
Fund flows netback ($/boe)
25.77
13.40
6.47
22.44
31.54
30.26
32.73
37.60
(3.27)
(2.49)
0.71
49.99
(3.49)
(2.65)
0.08
52.88
(2.55)
(3.57)
(0.81)
(2.81)
(2.85)
(1.48)
46.97
41.75
Fund flows from operations
71,934
38,498
17,193
71,526
92,160
98,955
105,600
136,298
171,119
170,563
154,319
137,002
Capital expenditures
Free cash flow
(26,113)
(21,755)
(18,295)
(35,778)
(30,850)
(36,852)
(50,560)
(53,962)
(70,488)
(44,962)
(40,588)
(43,482)
45,821
16,743
(1,102) 35,748
61,310
62,103
55,040
82,336
100,631
125,601
113,731
93,520
Consolidated
Crude oil and condensate sales ($/bbl)
NGL sales ($/bbl)
Natural gas sales ($/mcf)
Sales ($/boe)
Royalties ($/boe)
Transportation ($/boe)
Operating ($/boe)
Q4/20
Q3/20
Q2/20
Q1/20
Q4/19
Q3/19
Q2/19
Q1/19
Q4/18
Q3/18
Q2/18
Q1/18
55.31
19.20
4.13
38.57
52.79
15.04
2.34
31.86
34.89
58.66
8.94
1.85
8.92
2.94
21.40
36.35
71.25
14.63
3.61
44.01
73.45
6.14
2.43
43.04
79.46
11.25
3.09
46.40
73.45
22.49
5.10
50.77
66.19
25.69
5.83
48.90
85.84
27.97
5.35
57.90
87.50
26.06
4.77
53.72
(3.43)
(2.08)
(3.50)
(1.92)
(1.81)
(1.81)
(3.45)
(1.92)
(4.60)
(1.76)
(4.56)
(2.13)
(4.13)
(2.25)
(4.58)
(1.76)
(4.70)
(1.81)
(6.13)
(1.56)
(4.29)
(1.50)
80.02
25.37
5.81
51.13
(3.69)
(1.64)
(13.00)
(10.21)
(11.00)
(13.41)
(12.52)
(11.55)
(11.04)
(12.92)
(12.04)
(11.13)
(10.75)
(10.90)
General and administration ($/boe)
(2.27)
(1.35)
Corporate income taxes ($/boe)
PRRT ($/boe)
Interest ($/boe)
Realized derivatives ($/boe)
Realized foreign exchange ($/boe)
Realized other ($/boe)
Fund flows netback ($/boe)
0.80
(0.49)
(2.42)
0.10
0.16
0.56
16.49
—
(0.41)
(1.97)
0.47
(0.31)
0.29
12.97
(1.88)
(0.02)
(0.36)
(1.98)
6.07
0.44
0.03
9.08
(1.47)
(0.06)
(1.02)
(2.21)
5.47
0.94
(0.37)
(1.88)
0.66
(0.16)
(2.17)
2.57
0.23
0.03
18.85
24.40
(1.50)
(0.50)
(0.64)
(2.16)
4.06
(1.70)
(1.28)
(0.90)
(2.34)
1.54
(1.38)
(1.66)
(1.10)
(2.21)
1.09
(0.37)
(0.17)
(0.22)
0.04
23.74
0.02
24.14
0.73
26.76
(1.37)
(0.85)
0.26
(2.23)
(3.03)
0.63
0.03
23.80
(1.51)
(1.07)
0.03
(2.25)
(4.26)
(0.35)
0.02
29.69
(1.93)
(1.73)
(0.36)
(2.26)
(3.79)
(0.56)
0.03
26.58
(1.88)
(1.40)
(0.78)
(2.50)
(2.85)
0.25
0.03
25.77
Fund flows from operations
135,212
114,776
81,852
170,225
215,592
216,153
222,738
253,572
222,342
260,705
195,190
160,415
Capital expenditures
Free cash flow
(59,894)
(31,330)
(42,274) (233,704) (100,625) (127,879)
(92,607) (202,053) (163,580) (146,185)
(79,984) (128,465)
75,318
83,446
39,578
(63,479) 114,967
88,274
130,131
51,519
58,762
114,520
115,206
31,950
Vermilion Energy Inc. ■ Page 53 ■ 2020 Annual Report
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 54 ■ 2020 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:
($M)
Dividends declared
Shares issued for the Dividend Reinvestment Plan
Net dividends
Drilling and development
Exploration and evaluation
Asset retirement obligations settled
Payout
% of fund flows from operations
('000s of shares)
Shares outstanding
Potential shares issuable pursuant to the VIP
Diluted shares outstanding
Q4 2020
—
—
—
52,903
6,991
7,271
67,165
50 %
Q3 2020
—
—
—
29,762
1,568
2,305
33,635
29 %
The following tables reconciles the calculation of return on capital employed:
($M)
Net (loss) earnings
Taxes
Interest expense
EBIT
Average capital employed
Return on capital employed
2020
2019
Q4 2019
107,702
(10,200)
97,502
97,114
3,511
7,352
205,479
90,067
(8,277)
81,790
352,481
14,721
14,278
463,270
95 %
92 %
Q4 2020
158,724
6,672
165,396
Q3 2020
158,308
5,492
163,800
427,311
(34,937)
392,374
486,677
36,487
19,442
934,980
103 %
Q4 2019
156,290
3,622
159,912
Twelve Months Ended
Dec 31, 2020
(1,517,427)
(359,972)
75,077
(1,802,322)
4,562,960
Dec 31, 2019
32,799
108,326
81,377
222,502
5,578,691
(40) %
4 %
Vermilion Energy Inc. ■ Page 55 ■ 2020 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, 2020.
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, 2020 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, 2020.
(“Curtis Hicks”)
Curtis Hicks
President
March 5, 2021
(“Lars Glemser”)
Lars Glemser
Vice President & Chief Financial Officer
Vermilion Energy Inc. ■ Page 56 ■ 2020 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, 2020,
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, 2020, 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, 2020, of the Company and our report dated March 5, 2021, 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, 2021
Vermilion Energy Inc. ■ Page 57 ■ 2020 Annual Report
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Vermilion Energy Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Vermilion Energy Inc. (the "Company") as of December 31, 2020 and 2019, the
related consolidated statements of net (loss) earnings and comprehensive loss, consolidated statements of cash flows and consolidated statements
of changes in shareholders' equity, for each of the two years in the period ended December 31, 2020, 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, 2020 and 2019, and its financial performance and its cash flows for each of the two years in the period ended December 31, 2020,
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, 2020, 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, 2021,
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 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 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 Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were 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 matters below, providing a separate
opinion on the critical audit matters or on the accounts or disclosures to which they relates.
Impairment of Capital Assets - Refer to Notes 2 and 4 to the Financial Statements
Critical Audit Matter Description
The Company reviews all Cash Generating Units (“CGUs”) for indicators of potential impairment at each reporting date. As a result of declining
commodity price forecasts and a market capitalization deficiency during the year, indicators of impairment were identified for all CGUs. An
impairment loss is recognized if the carrying amount of the CGU exceeds its recoverable amount. The recoverable amount of a CGU is estimated
based on the higher of its fair value less cost of disposal and its value-in-use, using future after-tax cash flows of the underlying proved and probable
oil and natural gas reserves. The Company engages an independent reservoir engineer to estimate oil and natural gas reserves using estimates,
assumptions and engineering data. The development of the Company’s reserves and the related future after-tax cash flows used to evaluate the
impairment requires management to make significant estimates and assumptions related to future oil and natural gas prices, discount rates,
reserves, and future operating and development costs. Impairment charges totaling $1.68 billion were recorded for the year ended December 31,
2020.
Given the significant judgments made by management related to future oil and natural gas prices, discount rates, reserves, and future operating and
development costs, these estimates and assumptions are subject to a high degree of estimation uncertainty. Auditing these estimates and
assumptions are subject to a high degree of auditor judgment in applying audit procedures and in evaluation of the results of those procedures. This
resulted in an increased extent of audit effort, including the involvement of fair value specialists.
Vermilion Energy Inc. ■ Page 58 ■ 2020 Annual Report
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to future oil and natural gas prices, discount rates, reserves, and future operating and development costs used to
determine the recoverable amount of all CGUs included the following, among others:
•
•
•
•
•
Evaluated the effectiveness of the relevant controls, including those over the determination of the future oil and natural gas prices, discount
rates, reserves, and future operating and development costs.
Evaluated the Company’s independent reservoir engineer by:
◦
◦
Examining reports and assessing their scope of work and findings.
Assessing the competence, capability and objectivity by evaluating their relevant professional qualifications and experience.
Evaluated the reasonableness of reserves by testing the source financial information underlying the reserves and comparing the reserve
volumes to historical production volumes.
Evaluated the reasonableness of future operating and development costs by testing the source financial information underlying the estimate,
comparing future operating and development costs to historical results, and evaluating whether they are consistent with evidence obtained in
other areas of the audit.
Evaluated the reasonableness of forecast oil and natural gas prices used by comparing the assumptions to historical data and available market
trends.
• With the assistance of fair value specialists,
◦
◦
Evaluated the future oil and natural gas prices by independently developing a reasonable range of forecasts based on reputable
third-party forecasts and market data and comparing those to the future prices selected by management.
Evaluated the reasonableness of the discount rates by testing the source information underlying the determination of the discount
rates and developing a range of independent estimates and comparing those to the discount rates selected by management.
Deferred Taxes - Refer to Notes 2 and 9 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
substantively enacted statutory tax rates in effect for the years in which the differences are expected to reverse.
Deferred income tax assets are reduced to the amounts expected to be realized based on forecasts of future tax profits, specifically forecasts of
future revenue (commodity price forecasts and forecasted reserves). The Company recorded a deferred income tax asset for Canada primarily
arising from past taxable losses in this jurisdiction.
To determine whether it is probable that the deferred income tax assets in Canada will be realized, management makes assumptions related to the
forecasts of future taxable income, specifically forecasts of future revenue (commodity price forecasts and forecasted reserves). As such, auditing
the probability of the deferred income tax assets being realized and management’s commodity price forecasts and forecasted 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 an income tax specialist.
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
income, specifically forecasts of future revenue (commodity price forecasts and forecasted reserves) to evaluate the deferred income tax assets in
Canada included the following, among others:
•
Evaluated the effectiveness of relevant controls, including those over the determination of the forecasts of future revenue, specifically
commodity price forecasts and forecasted reserves in Canada.
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:
•
•
◦
◦
Comparing the forecasts prepared by management’s expert to third party forecasts and,
Evaluating whether management’s estimates of commodity price forecasts and estimated reserves were consistent with the
requirements of IAS 12 relating to the probability of forecasted future revenue and the length of the forecast period.
/s/ Deloitte LLP
Chartered Professional Accountants
Calgary, Canada
March 5, 2021
We have served as the Company's auditor since 2000.
Vermilion Energy Inc. ■ Page 59 ■ 2020 Annual Report
Consolidated Financial Statements
Consolidated Balance Sheet
thousands of Canadian dollars
Note
December 31, 2020
December 31, 2019
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 "Robert Michaleski”)
Robert Michaleski, Director
17
17
17
7
17
7
4, 9
5
4
17
11
7
17
7
10
8
6
9
11
6,904
196,077
13,402
16,924
27,686
260,993
2,451
484,497
254,094
3,107,104
4,109,139
297,670
—
130,919
4,539
433,128
8,228
1,933,848
76,524
467,737
264,272
3,183,737
4,181,160
66,250
77,986
(3,399,994)
925,402
4,109,139
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
(Signed “Lorenzo Donadeo”)
Lorenzo Donadeo, Director
Vermilion Energy Inc. ■ Page 60 ■ 2020 Annual Report
Consolidated Statements of Net (Loss) Earnings and Comprehensive Loss
thousands of Canadian dollars, except share and per share amounts
Note
Dec 31, 2020
Dec 31, 2019
Year Ended
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 on derivative instruments
Interest expense
General and administration
Foreign exchange gain
Other income
Accretion
Depletion and depreciation
Impairment
(Loss) earnings before income taxes
Income tax (recovery) expense
Deferred
Current
Net (loss) earnings
Other comprehensive loss
Currency translation adjustments
Unrealized (loss) gain on hedges
Other comprehensive loss
Net (loss) earnings per share
Basic
Diluted
Weighted average shares outstanding ('000s)
Basic
Diluted
1,119,545
(106,554)
127,853
1,140,844
127,853
417,251
67,711
42,906
(8,138)
75,077
60,840
(60,122)
(3,258)
35,318
580,461
1,682,344
3,018,243
(1,877,399)
(374,313)
14,341
(359,972)
(1,517,427)
65,160
(36,752)
(1,489,019)
(9.61)
(9.61)
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)
12,438
(35,805)
0.21
0.21
157,908
157,908
154,736
156,095
17
13
7
17
6
4, 5
4
4, 9
7, 10
14
14
Vermilion Energy Inc. ■ Page 61 ■ 2020 Annual Report
Consolidated Statements of Cash Flows
thousands of Canadian dollars
Operating
Net (loss) earnings
Adjustments:
Accretion
Depletion and depreciation
Impairment
Unrealized loss on derivative instruments
Equity based compensation
Unrealized foreign exchange gain
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 (loss) 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
Note
Dec 31, 2020
Dec 31, 2019
Year Ended
(1,517,427)
32,799
6
4, 5
4
7
13
9
6
17
4
5
4, 5
17
10
8
11
17
35,318
580,461
1,682,344
100,955
42,906
(49,012)
833
(374,313)
(14,278)
12,365
500,152
(352,481)
(14,721)
(25,810)
(8,422)
(401,434)
22,183
(25,048)
(117,737)
(120,602)
(240)
(22,124)
29,028
6,904
74,125
15,218
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
Vermilion Energy Inc. ■ Page 62 ■ 2020 Annual Report
Consolidated Statements of Changes in Shareholders' Equity
thousands of Canadian dollars
Shareholders' capital
Balance, beginning of year
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
Hedge accounting reserve
Balance, end of year
Deficit
Balance, beginning of year
Net (loss) earnings
Dividends declared
Share-settled dividends on vested equity based awards
Balance, end of year
Note
11
11
11
Year Ended
Dec 31, 2020
Dec 31, 2019
4,119,031
8,277
49,188
3,203
1,461
4,181,160
75,735
39,703
(49,188)
66,250
49,578
65,160
(36,752)
77,986
(1,791,039)
(1,517,427)
(90,067)
(1,461)
(3,399,994)
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)
12,438
49,578
(1,388,237)
32,799
(427,311)
(8,290)
(1,791,039)
Total shareholders' equity
925,402
2,453,305
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 hedge accounting reserve.
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 hedge accounting reserve represents the effective portion of the change in fair value related to cash flow and net investment hedges 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. For the year ended December 31, 2020, accumulated losses of $29.8 million and $6.9 million were
recognized on the cash flow hedges and net investment hedges, respectively, and will be recognized in net earnings through 2025 when the senior
unsecured notes mature.
Deficit
Represents the cumulative net earnings less distributed earnings of Vermilion Energy Inc.
Vermilion Energy Inc. ■ Page 63 ■ 2020 Annual Report
Notes to the Consolidated Financial Statements for the year ended December 31, 2020
and 2019
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, 2021.
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 3 (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 64 ■ 2020 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 65 ■ 2020 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. Transaction costs under this classification are expensed as incurred.
Fair value through other comprehensive income ("FVTOCI"): Financial instruments under this classification include derivative assets and
liabilities where hedge accounting is applied. Transaction costs under this classification are expensed as incurred.
Amortized cost: Financial instruments under this classification include accounts receivable, accounts payable and accrued liabilities,
dividends payable, lease obligations, and long-term debt. Transaction costs under this classification are included in the measurement of
the financial instrument.
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 66 ■ 2020 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”) and the Deferred Share Unit Plan ("DSU").
Equity-settled awards issued under the VIP vest over a period of one to three years and awards issued under the DSU vest immediately upon
granting.
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 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 in the statement of comprehensive earnings. 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.
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.
Vermilion Energy Inc. ■ Page 67 ■ 2020 Annual Report
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 values. 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.
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 determination of whether indicators of impairment or impairment reversals:
•
Determining whether there are indicators of impairment or impairment reversals are based on management's assessments of the changes
in estimates for future commodity prices, costs, discount rates, or reserves. Changes in these estimates and assumptions can directly
impact the calculated fair value of capital assets and therefore could be indicators of impairment or impairment reversals. In addition,
change in the Vermilion's market capitalization relative to its book value could be an indicator of impairment.
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 ("CGU"):
•
•
Calculating the fair value of capital assets acquired in a business combination and the recoverable amount of CGUs (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. Reserve 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).
Vermilion Energy Inc. ■ Page 68 ■ 2020 Annual Report
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.
Vermilion Energy Inc. ■ Page 69 ■ 2020 Annual Report
3. Segmented information
Substantially all sales in the France, Netherlands, and Ireland operating segments for the years ended December 31, 2020 and 2019 were to one
customer in each respective segment. In 2020 and 2019, France contributed more than 10% of Vermilion's consolidated revenues.
($M)
Total assets
Drilling and development
Exploration and evaluation
Crude oil and condensate sales
NGL sales
Natural gas sales
Sales of purchased commodities
Canada
1,805,464
199,141
—
418,610
36,204
114,377
—
USA
France Netherlands
Germany
Ireland
Australia
Corporate
Total
Year Ended December 31, 2020
328,902
66,120
—
703,567
42,145
183
130,063
10,331
(226)
55,099
182,292
6,513
4,834
—
—
—
—
1,502
—
64,073
—
(444)
198,357
257,990
13,005
2,814
17,143
—
1,823
—
13
—
17,067
58,433
—
(990)
—
—
105,898
24,520
578,898
4,109,139
(4,604)
352,481
—
11,950
14,721
141,452
—
—
—
—
8
—
1,925
127,853
816,119
42,717
260,709
127,853
(644)
(106,554)
Royalties
(54,961)
(17,446)
(32,069)
Revenue from external customers
514,230
49,000
150,223
65,131
33,220
58,446
141,452
129,142
1,140,844
Purchased commodities
—
—
—
(41,494)
(1,349)
(14,604)
—
—
—
—
(5,839)
(4,425)
—
—
(127,853)
(127,853)
—
(67,711)
(218,596)
(18,108)
(57,128)
(32,410)
(20,732)
(15,232)
(54,581)
(464)
(417,251)
Transportation
Operating
General and administration
(25,462)
(7,420)
(13,108)
(1,220)
(6,532)
(594)
(3,841)
(2,663)
PRRT
Corporate income taxes
Interest expense
Realized gain on derivative instruments
Realized foreign exchange gain
Realized other income
—
—
—
—
—
—
—
—
—
—
—
—
—
(141)
—
3,774
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Fund flows from operations
228,678
22,123
65,242
35,275
117
38,195
64,985
(20,151)
2,106
—
71
(60,840)
(20,151)
5,810
—
—
—
—
(75,077)
(75,077)
109,093
109,093
11,110
4,091
47,450
11,110
4,091
502,065
USA
France Netherlands
Germany
Ireland
Australia
Corporate
Total
Year Ended December 31, 2019
($M)
Total assets
Drilling and development
Exploration and evaluation
Canada
3,088,947
293,744
—
421,609
57,196
—
841,875
74,579
62
Crude oil and condensate sales
699,290
63,449
326,578
NGL sales
Natural gas sales
Sales of purchased commodities
33,159
95,621
—
6,499
5,416
—
—
121
—
226,834
261,712
470,316
19,866
3,739
2,411
—
10,806
10,878
25,783
—
1,372
—
27
—
110,446
31,529
104,247
—
—
—
—
233,581
30,550
321,246
5,866,120
(1,436)
486,677
—
21,808
36,487
184,490
—
—
—
—
—
—
797
221,274
1,302,028
39,658
348,177
221,274
(253)
(163,666)
Royalties
(94,079)
(18,706)
(43,895)
(1,469)
(5,264)
Revenue from external customers
733,991
56,658
282,804
111,388
52,048
104,274
184,490
221,818
1,747,471
Purchased commodities
Transportation
Operating
—
(41,261)
—
—
—
(21,609)
—
—
—
—
(5,117)
(4,459)
—
—
(221,274)
(221,274)
—
(72,446)
(242,790)
(16,370)
(61,281)
(32,125)
(24,970)
(12,431)
(49,810)
(301)
(440,078)
General and administration
(23,341)
(7,566)
(15,406)
(2,659)
(8,452)
(2,491)
(4,940)
PRRT
Corporate income taxes
Interest expense
Realized gain on derivative instruments
Realized foreign exchange loss
Realized other income
—
—
—
—
—
—
—
—
—
—
—
—
—
(21,431)
—
3,961
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(25,947)
(8,407)
—
—
—
—
Fund flows from operations
426,599
32,722
163,077
80,565
13,509
84,893
95,386
5,879
—
(406)
(81,377)
84,219
(4,954)
7,700
11,304
(58,976)
(25,947)
(26,283)
(81,377)
84,219
(4,954)
7,700
908,055
Vermilion Energy Inc. ■ Page 70 ■ 2020 Annual Report
Reconciliation of fund flows from operations to net (loss) earnings:
Fund flows from operations
Accretion
Depletion and depreciation
Impairment
Unrealized loss on derivative instruments
Equity based compensation
Unrealized foreign exchange gain
Unrealized other expense
Deferred tax
Net (loss) earnings
4. 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
Year Ended
Dec 31, 2020
502,065
(35,318)
(580,461)
(1,682,344)
(100,955)
(42,906)
49,012
(833)
374,313
(1,517,427)
2020
5,015,620
24,430
352,481
5,245
—
(1,682,344)
(517,734)
(200,454)
109,860
3,107,104
9,863,537
(6,756,433)
3,107,104
Dec 31, 2019
908,055
(32,667)
(675,177)
(46,056)
(57,427)
(64,233)
57,225
(825)
(56,096)
32,799
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
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, 2020:
($M)
Office space
Gas processing facilities
Oil storage facilities
Vehicles and equipment
Total
As at Dec 31, 2020
As at Dec 31, 2019
Depreciation
Balance
Depreciation
9,835
7,109
2,738
3,608
23,290
49,134
27,593
15,231
8,035
99,993
9,745
7,089
2,633
3,209
22,676
Balance
53,777
34,701
16,803
10,327
115,608
Q4 2020 impairment
In the fourth quarter of 2020, indicators of impairment were present in our France CGUs due to a decrease in estimated reserves as a result of
economic revisions. As a result of the indicators of impairment, the Company performed impairment tests on its four France CGUs and the
recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable
reserves and an after-tax discount rate of 9.5%. Based on the results of the impairment tests completed, recoverable amounts were determined to
be greater than the carrying values of the CGUs tested and no impairment charges were recorded.
Vermilion Energy Inc. ■ Page 71 ■ 2020 Annual Report
The following benchmark price forecasts were used to calculate the recoverable amounts:
Brent Crude ($ US/bbl) (1)
0.78
Exchange rate (CAD/USD)
(1) The forecast benchmark commodity prices listed are adjusted for quality differentials, heat content, transportation and marketing costs and other factors specific to the Company’s operations.
2029 2030 (2)
50.75 55.00 58.50 61.79 62.95 64.13 65.33 66.56 67.81 69.17
0.76
0.76
0.76
0.76
0.76
0.76
0.77
0.76
0.76
2026
2027
2025
2024
2022
2023
2028
2021
(2) In 2031 and beyond, commodity price forecasts are inflated at a rate of 2.0% per annum. In 2030 and beyond there is no escalation of exchange rates.
The following are the results of impairment tests completed and sensitivity impacts which would increase impairment charges taken:
Operating Segment
France
France
Total
CGU
Aquitaine Basin
Neocomian
Impairment
—
—
—
1% increase in discount
rate
—
5,582
5,582
5% decrease in pricing
12,556
12,241
24,797
In the fourth quarter of 2020, no indicators of impairment reversal were identified.
Q3 2020 impairment
In the third quarter of 2020, indicators of impairment were present due to a decline in the Company’s market capitalization. As a result of the
indicators of impairment, the Company performed impairment tests across all CGUs. The recoverable amounts were determined using fair value less
costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 11.5%. Based on the
results of the impairment tests completed, the Company recognized non-cash impairment charges of $35.4 million (net of $12.4 million income tax
recovery) in the Neocomian CGU due to increased estimated transportation expenses as a result of an announcement during the quarter that the
third-party Grandpuits refinery plans on converting into a zero-crude platform in 2021. As a result of this change, the Company estimates that
incremental transportation expenses will be incurred to transport the crude oil production in the Neocomian, Chaunoy, and Champotran CGUs to
alternative refineries in France.
The following benchmark price forecasts were used to calculate the recoverable amounts:
2020
Brent Crude ($ US/bbl) (1)
WTI Crude ($ US/bbl) (1)
NBP (€/mmbtu) (1)
3.87
AECO Spot Gas ($/mmbtu) (1)
3.00
0.75
Exchange rate (CAD/USD)
(1) The forecast benchmark commodity prices listed are adjusted for quality differentials, heat content, transportation and marketing costs and other factors specific to the Company’s operations.
2028 2029 (2)
44.00 46.75 51.00 56.50 60.00 62.95 64.13 65.33 66.56 67.81
42.00 44.00 47.50 52.50 56.00 58.95 60.13 61.33 62.56 63.81
5.83
2.87
0.75
4.58
2.60
0.75
5.42
2.76
0.75
5.21
2.70
0.75
4.41
2.70
0.75
4.79
2.60
0.75
5.00
2.65
0.75
4.03
2.90
0.75
5.63
2.81
0.75
2022
2023
2026
2024
2025
2027
2021
(2) In 2030 and beyond, commodity price forecasts are inflated at a rate of 2.0% per annum. In 2030 and beyond there is no escalation of exchange rates.
The following are the results of impairment tests completed and sensitivity impacts which would increase impairment charges taken:
Operating Segment
France
CGU
Neocomian
Impairment
47,777
1% increase in discount
rate
5,184
5% decrease in pricing
13,235
Q2 2020 impairment
In the second quarter of 2020, indicators of impairment were present due to a decline in the Company’s market capitalization. As a result of the
indicators of impairment, the Company performed impairment tests across all CGUs. The recoverable amounts were determined using fair value less
costs to sell, which considered future after-tax cash flows from proved plus probable reserves and an after-tax discount rate of 11.5%. Based on the
results of the impairment tests completed, the Company recognized non-cash impairment charges of $53.1 million (net of $16.6 million income tax
recovery).
Vermilion Energy Inc. ■ Page 72 ■ 2020 Annual Report
The following benchmark price forecasts were used to calculate the recoverable amounts:
2020
Brent Crude ($ US/bbl) (1)
WTI Crude ($ US/bbl) (1)
NBP (€/mmbtu) (1)
2.75
AECO Spot Gas ($/mmbtu) (1)
2.10
0.74
Exchange rate (CAD/USD)
(1) The forecast benchmark commodity prices listed are adjusted for quality differentials, heat content, transportation and marketing costs and other factors specific to the Company’s operations.
2028 2029 (2)
43.50 48.00 51.50 56.50 60.00 62.95 64.13 65.33 66.56 67.81
41.00 44.00 47.50 52.50 56.00 58.95 60.13 61.33 62.56 63.81
7.00
2.87
0.75
5.25
2.45
0.75
6.00
2.65
0.75
4.25
2.35
0.74
4.75
2.40
0.75
5.75
2.55
0.75
6.50
2.76
0.75
6.25
2.70
0.75
6.75
2.81
0.75
2026
2022
2023
2024
2027
2025
2021
(2) In 2030 and beyond, commodity price forecasts are inflated at a rate of 2.0% per annum. In 2030 and beyond there is no escalation of exchange rates.
The following are the results of impairment tests completed and sensitivity impacts which would increase impairment charges taken:
Operating Segment
Australia
Germany
Ireland
Total
CGU
Australia
Germany Gas
Ireland
Impairment
33,475
10,177
26,061
69,713
1% increase in discount
rate
3,435
1,370
9,198
14,003
5% decrease in pricing
15,470
2,818
19,208
37,496
Q1 2020 impairment
In the first quarter of 2020, indicators of impairment were present due to global commodity price forecasts deteriorating from decreases in demand
and an increase of supply around the world. As a result of the indicators of impairment, the Company performed impairment tests across all CGUs.
The recoverable amounts were determined using fair value less costs to sell, which considered future after-tax cash flows from proved plus probable
reserves and an after-tax discount rate of 11.5%. Based on the results of the impairment tests completed, the Company recognized non-cash
impairment charges of $1.2 billion (net of $0.4 billion income tax recovery).
The following benchmark price forecasts were used to calculate the recoverable amounts:
2020
Brent Crude ($ US/bbl) (1)
WTI Crude ($ US/bbl) (1)
NBP (€/mmbtu) (1)
3.33
AECO Spot Gas ($/mmbtu) (1)
1.95
0.72
Exchange rate (CAD/USD)
(1) The forecast benchmark commodity prices listed are adjusted for quality differentials, heat content, transportation and marketing costs and other factors specific to the Company’s operations.
2028 2029 (2)
34.00 45.50 52.50 57.50 62.50 62.95 64.13 65.33 66.56 67.81
30.00 41.00 47.50 52.50 57.50 58.95 60.13 61.33 62.56 63.81
7.25
2.87
0.75
5.00
2.35
0.74
4.25
2.25
0.73
6.00
2.55
0.75
6.75
2.76
0.75
6.50
2.70
0.75
6.25
2.65
0.75
5.50
2.45
0.74
7.00
2.81
0.75
2025
2024
2023
2026
2022
2027
2021
(2) In 2030 and beyond, commodity price forecasts are inflated at a rate of 2.0% per annum. In 2030 and beyond there is no escalation of exchange rates.
The following are the results of impairment tests completed and sensitivity impacts which would increase impairment charges taken:
Operating Segment
Australia
Canada
Canada
France
Germany
Ireland
United States
Total
CGU
Australia
Saskatchewan
Drayton Valley Oil
Neocomian
Germany Gas
Ireland
United States
Impairment
55,583
815,909
364,879
22,758
39,738
119,634
146,353
1,564,854
1% increase in discount
rate
3,227
70,737
13,204
8,576
3,545
10,333
28,051
137,673
5% decrease in pricing
13,582
141,015
23,582
13,609
7,084
20,793
52,613
272,278
Q4 2019 impairment
In the fourth quarter of 2019, an indicator of impairment was present in the Ireland CGU due to declining natural gas price forecasts. As a result of
the indicator of impairment, the Company performed an impairment test on its Ireland CGU whereby the recoverable amount was compared against
its carrying amount. The recoverable amount was determined using fair value less costs to sell, which considered future after-tax cash flows from
proved plus probable reserves and an after-tax discount rate of 9.0%. Based on the results of the impairment test completed, the Company
recognized a non-cash impairment charge of $34.6 million (net of $11.5 million income tax recovery).
Vermilion Energy Inc. ■ Page 73 ■ 2020 Annual Report
The following benchmark price forecast was used to calculate the recoverable amount:
2020
NBP (€/mmbtu) (1)
5.58
(1) The forecast benchmark commodity prices listed are adjusted for quality differentials, heat content, transportation and marketing costs and other factors specific to the Company’s operations.
2025
5.88
2023
5.65
2021
5.51
2024
5.77
2022
5.54
2026
6.00
2027
6.12
2028 2029 (2)
6.37
6.24
(2) In 2030 and beyond, commodity price forecasts are inflated at a rate of 2.0% per annum.
The following is the result of the impairment test completed and sensitivity impacts of a 1% increase in after-tax discount rate and a 5% decrease in
pricing on the impairment test completed:
CGU
Ireland
Operating Segment
Ireland
Impairment
46,055
1% increase in discount
rate
14,749
5% decrease in pricing
28,598
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.
Q4 2020 CGU Realignment
Previously, Vermilion's assets in Alberta were managed and organized based primarily on geological characteristics and were grouped into the
Drayton Valley Gas and Drayton Valley Oil CGUs. In the fourth quarter of 2020, the Company finalized an evaluation of the management and
organization of Vermilion's assets in Alberta resulting in a re-organization based primarily on geographical characteristics. This process resulted in
the combination of its Drayton Valley Gas and Drayton Valley Oil CGU's into a combined Alberta CGU.
5. 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
6. 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
Vermilion Energy Inc. ■ Page 74 ■ 2020 Annual Report
2020
286,149
1,380
14,721
(500)
—
(54,838)
7,182
254,094
395,615
(141,521)
254,094
2020
618,201
1,484
74,235
(14,278)
35,318
(276,673)
29,450
467,737
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
Vermilion calculated the present value of the obligations using a credit-adjusted risk-free rate, calculated using a credit spread of 9.5% (as at
December 31, 2019 - 5.3%) added to risk-free rates based on long-term, risk-free government bonds. Vermilion's credit spread is determined as the
yield to maturity on its senior unsecured notes as at the reporting period.
The country specific risk-free rates used as inputs to discount the obligations were as follows:
Canada
United States
France
Netherlands
Germany
Ireland
Australia
Dec 31, 2020
1.2 %
1.6 %
0.3 %
(0.6) %
(0.2) %
(0.1) %
1.3 %
Dec 31, 2019
1.7 %
2.4 %
0.9 %
(0.1) %
0.3 %
0.6 %
1.6 %
Vermilion has estimated the asset retirement obligations based on current cost estimates of $2.0 billion (2019 - $1.8 billion). Current cost estimates
are inflated to the estimated time of abandonment using inflation rates of between 0.2% and 2.9% (2019 - between 0.4% and 2.7%), resulting in
inflated cost estimates of $2.5 billion (2019 - $2.6 billion). These payments are expected to be made between 2021 and 2080, with the majority of
costs occurring between 2030 and 2040 ($0.8 billion) and 2049 to 2056 ($0.8 billion).
A 0.5% increase/decrease in the discount rate applied to asset retirement obligations would decrease/increase asset retirement obligations by
approximately $26.8 million. A one-year increase/decrease in the expected timing of abandonment spend would decrease/increase asset retirement
obligations by approximately $37.7 million.
7. Derivative instruments
The following table reconciles the change in the fair value of Vermilion’s derivative instruments:
Fair value of contracts, beginning of year
Reversal of opening contracts settled during the year
Realized gain on contracts settled during the year
Unrealized (loss) gain during the year on contracts outstanding at the end of the year
Net receipt from counterparties on contract settlements during the year
Unrealized loss on derivatives designated as cash flow hedges
Unrealized gain on derivatives designated as net investment hedges
Fair value of contracts, end of year
Comprised of:
Current derivative asset
Current derivative liability
Non-current derivative asset
Non-current derivative liability
Fair value of contracts, end of year
The gain on derivative instruments for 2020 and 2019 were comprised of the following:
Realized gain on contracts settled during the year
Reversal of opening contracts settled during the year
Unrealized loss (gain) on contracts outstanding at the end of the year
Gain on derivative instruments
Year Ended
Dec 31, 2020
(10,991)
12,811
109,093
(113,766)
(109,093)
(7,826)
—
(119,772)
16,924
(130,919)
2,451
(8,228)
(119,772)
Dec 31, 2019
38,339
(62,735)
84,219
5,308
(84,219)
(1,071)
9,168
(10,991)
55,645
(62,405)
20,127
(24,358)
(10,991)
Year Ended
Dec 31, 2020
(109,093)
(12,811)
113,766
(8,138)
Dec 31, 2019
(84,219)
62,735
(5,308)
(26,792)
Please refer to Note 17 (Supplemental information) for a listing of Vermilion's outstanding derivative instruments as at December 31, 2020.
Vermilion Energy Inc. ■ Page 75 ■ 2020 Annual Report
8. Leases
Vermilion had the following future commitments associated with its lease obligations:
($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
9. Taxes
The following table reconciles Vermilion’s deferred tax asset and liability:
Deferred tax assets:
Non-capital losses
Derivative contracts
Other
Stock based compensation
Asset retirement obligations
Capital assets
Unrealized foreign exchange
Deferred tax assets
Deferred tax liabilities:
Asset retirement obligations
Capital assets
Other
Non-capital losses
Deferred tax liabilities
As at
Dec 31, 2020
27,927
41,270
31,412
14,178
114,787
(15,381)
99,406
(22,882)
76,524
31,240
6,192
Dec 31, 2019
29,217
46,501
38,177
26,168
140,063
(23,309)
116,754
(23,682)
93,072
33,276
6,984
As at
Dec 31, 2020
Dec 31, 2019
420,060
33,064
14,766
12,218
7,581
443
(3,635)
484,497
184,144
112,818
1,682
(34,372)
264,272
454,339
2,712
3,149
—
36,170
(296,793)
(3,034)
196,543
123,257
262,669
(1,610)
(48,007)
336,309
Vermilion Energy Inc. ■ Page 76 ■ 2020 Annual Report
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:
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 on temporary differences (4)
Derecognition (recognition) of deferred tax assets
Adjustment for uncertain tax positions
Other non-deductible items
Provision for income taxes
(1)
Year Ended
Dec 31, 2020
(1,877,399)
25.31 %
(475,170)
Dec 31, 2019
141,125
26.72 %
37,709
(15,157)
(14,907)
2,445
(2,598)
33,770
141,315
—
(29,670)
(359,972)
17,455
5,543
3,733
(24,387)
9,543
65,522
3,659
(10,451)
108,326
(2)
(3)
In Canada, the lower tax rate is a result of reductions to the Alberta corporate tax rate from 10% to 8%.
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 2020 were: 28.9% in France, 50.0% in the Netherlands, 31.6% in Germany, 25.0% in Ireland, and 21.0% in the
United States (2019: 32.0% in France, 50.0% in the Netherlands, 31.8% in Germany, 25.0% in Ireland, and 21.0% in the United States).
(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. On July 1, 2020,
the Alberta government reduced the provincial corporate tax rate from 10% to 8%, accelerating the previously enacted schedule of rate
reductions.
At December 31, 2020, Vermilion had $2.9 billion (2019 - $2.5 billion) of unused tax losses of which $1.3 billion (2019 - $1.2 billion) relates to
Vermilion's Canada segment and expire between 2028 and 2040. The majority of the remaining unused tax losses relates to Vermilion's Ireland
segment and do not expire.
At December 31, 2020, Vermilion derecognized $141.3 million (2019 - derecognized $65.5 million) of deferred income tax assets primarily 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, 2020.
The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been
recognized as at December 31, 2020 is approximately $0.5 billion (2019 – approximately $0.5 billion).
10. 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, 2020
1,555,215
378,633
1,933,848
Dec 31, 2019
1,539,225
385,440
1,924,665
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, 2020 was $329.1 million.
Vermilion Energy Inc. ■ Page 77 ■ 2020 Annual Report
The following table reconciles the change in Vermilion’s long-term debt:
Balance at January 1
Borrowings on the revolving credit facility
Amortization of transaction costs
Foreign exchange
Balance at December 31
2020
1,924,665
22,183
833
(13,833)
1,933,848
2019
1,796,207
207,787
4,379
(83,708)
1,924,665
Revolving credit facility
In Q1 2020, we negotiated an extension to our $2.1 billion revolving credit facility to extend the maturity to May 31, 2024.
As at December 31, 2020, Vermilion had in place a bank revolving credit facility maturing May 31, 2024 with the following terms:
As at
Total facility amount
Amount drawn
Letters of credit outstanding
Unutilized capacity
Dec 31, 2020
2,100,000
(1,555,215)
(23,210)
521,575
Dec 31, 2019
2,100,000
(1,539,225)
(10,230)
550,545
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, 2020, 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
Dec 31, 2020
As at
Less than 4.0
Less than 3.5
Greater than 2.5
3.48
2.82
8.12
Dec 31, 2019
1.94
1.56
13.46
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 excludes interest on operating leases as defined
under IAS 17.
In addition, our revolving credit facility has provisions relating to our liability management ratings in Alberta and Saskatchewan whereby 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, 2020, 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.
As at December 31, 2020 and 2019, Vermilion was in compliance with the above covenants.
Vermilion Energy Inc. ■ Page 78 ■ 2020 Annual Report
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 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, if redeemed during the twelve-month period beginning on March 15 of each of the years indicated below:
Year
2021
2022
2023 and thereafter
Redemption price
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 had an original maturity of March 15, 2025.
The USD-to-CAD cross currency interest swaps were designated as the hedging instrument in a cash flow hedge while the CAD-to-EUR cross
currency interest rate swaps were designated as the hedging instrument in a net investment hedge.
In 2020, Vermilion executed a number of transactions that resulted in a termination of the cross currency interest rate swaps in exchange for $42.3
million ($16.8 million received in the three months ended March 30, 2020 and $25.5 million received in the three months ended June 30, 2020). As a
result of the termination, Vermilion has discontinued hedge accounting and amounts previously recognized for the hedge reserve within accumulated
other comprehensive income will be reclassified into net income over the remaining life of the senior unsecured notes.
11. Shareholders' capital
The following table reconciles the change in Vermilion’s shareholders’ capital:
Shareholders' capital
Balance at January 1
Shares issued for the Dividend Reinvestment Plan
Vesting of equity based awards
Shares issued for equity based compensation
Share-settled dividends on vested equity based awards
Balance at December 31
2020
2019
Shares ('000s)
Amount ($M)
Shares ('000s)
156,290
619
1,103
415
297
158,724
4,119,031
8,277
49,188
3,203
1,461
4,181,160
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
Vermilion is authorized to issue an unlimited number of common shares with no par value.
Dividends declared to shareholders for the year ended December 31, 2020 were $90.1 million or $0.58 per common share (2019 - $427.3 million or
$2.76 per common share).
At Vermilion's Annual General and Special Meeting held on April 28, 2020 shareholders of the Company approved a $3.7 billion reduction in the
stated capital of Vermilion's common shares, with the $3.7 billion reduction deducted from the stated capital account maintained for the common
shares of Vermilion and an offsetting increase to the contributed surplus account of Vermilion. The transaction did not result in an adjustment to the
financial statements under IFRS.
12. 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, 2020, our ratio of net debt to trailing fund flows from
operations is 4.19 (2019 - 2.20). Vermilion manages the ratio of net debt to fund flows from operations (refer to Note 3 - Segmented information) by
Vermilion Energy Inc. ■ Page 79 ■ 2020 Annual Report
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, 2020
1,933,848
433,128
(260,993)
2,105,983
Dec 31, 2019
1,924,665
416,210
(347,681)
1,993,194
Ratio of net debt to four quarter trailing fund flows from operations
4.19
2.20
13. Equity based compensation
The following table summarizes the number of awards outstanding under the VIP:
Number of VIP and Five Year Compensation Awards ('000s)
Opening balance
Granted
Vested
Forfeited
Closing balance
2020
2,268
5,120
(650)
(494)
6,244
2019
1,931
1,193
(688)
(168)
2,268
For the year ended December 31, 2020, the awards had a weighted average grant date fair value of $5.92 (2019 - $30.92). 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 (2020 - 1.2; 2019 - 1.7) adjusted by an estimated annual forfeiture rate (2020 - 5.8%; 2019 - 5.2%). Equity based
compensation expense of $38.9 million was recorded during the year ended December 31, 2020 (2019 - $46.6 million) relating to the awards.
For the year ended December 31, 2020, there were 252,910 DSUs granted and outstanding with a weighted average grant date fair value of $4.48.
Equity based compensation expense of $0.8 million was recorded during the year ended December 31, 2020 relating to the DSUs.
14. Per share amounts
Basic and diluted net (loss) earnings per share have been determined based on the following:
Net (loss) earnings
Basic weighted average shares outstanding ('000s)
Dilutive impact of equity based compensation ('000s)
Diluted weighted average shares outstanding ('000s)
Basic loss per share
Diluted loss per share
Year Ended
Dec 31, 2020
(1,517,427)
Dec 31, 2019
32,799
157,908
—
157,908
(9.61)
(9.61)
154,736
1,359
156,095
0.21
0.21
Vermilion Energy Inc. ■ Page 80 ■ 2020 Annual Report
15. Financial instruments
Classification of financial instruments
The following table summarizes the carrying value relating to Vermilion’s financial instruments:
($M)
As at Dec 31, 2020
FVTPL
FVTOCI
Amortized
Cost
As at Dec 31, 2019
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)
6,904
19,375
(139,147)
—
—
—
—
—
—
—
—
196,077
(297,670)
—
(76,524)
6,904
—
19,375
—
(139,147)
—
196,077
—
(297,670)
—
—
—
—
(76,524)
— (1,933,848) (1,933,848)
29,028
64,135
(83,223)
—
—
—
—
—
29,028
—
75,772
11,637
(86,763)
(3,540)
211,409
—
(312,442)
—
(35,947)
—
—
(93,072)
— (1,924,665) (1,924,665)
—
—
—
211,409
(312,442)
(35,947)
(93,072)
(1)
The carrying value of the above equals fair value except for long-term debt. The fair value of long-term debt was $1,884,296 (2019 - $1,905,588).
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, 2020 and 2019.
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.
Vermilion Energy Inc. ■ Page 81 ■ 2020 Annual Report
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
Share price risk - Equity swaps
$1.00 increase from initial share price of the equity swap
$1.00 decrease from initial share price of the equity swap
Dec 31, 2020
Dec 31, 2019
(873)
873
2,711
(2,711)
(11,783)
7,207
(23,904)
24,088
3,750
(3,750)
(1,599)
1,599
(5,594)
5,594
(44,106)
47,777
(28,192)
22,670
3,750
(3,750)
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, 2020, Vermilion’s maximum exposure to receivable credit risk was
$215.5 million (December 31, 2019 - $287.2 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, 2020 and 2019 is not material. As at the balance sheet
date, approximately 1.4% (2019 - 3.6%) 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.
Vermilion Energy Inc. ■ Page 82 ■ 2020 Annual Report
The following table summarizes Vermilion’s undiscounted non-derivative financial liabilities and their contractual maturities:
3 months to
1 year
23,204
5,136
($M)
December 31, 2020
December 31, 2019
1 month to
3 months
181,475
208,752
92,991
134,502
1 month
1 year to
5 years
2,006,530
1,608,435
16. Related party disclosures
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, 2020 and 2019:
Short-term benefits
Equity based compensation
Number of individuals included in the above amounts
Year Ended
Dec 31, 2020
4,800
13,169
17,969
18
Dec 31, 2019
8,084
16,296
24,380
19
During the year ended December 31, 2020, Vermilion recorded $0.2 million of office rent recoveries (2019 - $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.
17. 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
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
Year Ended
Dec 31, 2020
Dec 31, 2019
15,332
15,987
(5,476)
(14,772)
(877)
(6,251)
3,943
12,365
(8,422)
3,943
48,913
(1,638)
(2,882)
(137,209)
(31,994)
2,590
(122,220)
(65,148)
(57,072)
(122,220)
Vermilion Energy Inc. ■ Page 83 ■ 2020 Annual Report
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
As at
Dec 31, 2020
6,777
127
6,904
Dec 31, 2019
28,898
130
29,028
Year Ended
Dec 31, 2020
70,414
60,551
130,965
Dec 31, 2019
77,868
47,310
125,178
Vermilion Energy Inc. ■ Page 84 ■ 2020 Annual Report
The following tables summarize Vermilion's outstanding risk management positions as at December 31, 2020:
Unit Currency
Bought Put
Volume
Weighted
Average
Bought Put
Price
Weighted
Average
Sold Call
Price
Weighted
Average
Sold Put
Price
Sold Swap
Volume
Weighted
Average
Sold Swap
Price
Bought
Swap
Volume
Weighted
Average
Bought
Swap Price
Sold Put
Volume
Sold Call
Volume
Dated Brent
Q1 2021
Q2 2021
WTI
Q1 2021
Q2 2021
AECO
Q2 2021
Q3 2021
Q4 2021
bbl
bbl
bbl
bbl
mcf
mcf
mcf
USD
USD
USD
USD
CAD
CAD
CAD
AECO Basis (AECO less NYMEX Henry Hub)
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
NYMEX Henry Hub
Q1 2021
Q2 2021
Q3 2021
Q4 2021
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
Ventura Basis (Ventura less NYMEX Henry Hub)
Q1 2021
Q2 2021
Q3 2021
Q4 2021
SoCal Border
Q1 2021
Conway Propane
Q1 2021
mcf
mcf
mcf
mcf
USD
USD
USD
USD
mcf
USD
bbl
USD
1,000
—
4,500
4,000
47.50
—
45.00
45.00
1,000
—
4,500
4,000
53.75
—
51.26
53.50
1,000
—
4,500
4,000
40.00
—
37.50
37.50
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
15,000
10,000
10,000
10,000
2.73
2.65
2.65
2.65
15,000
10,000
10,000
10,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2.90
2.77
2.77
2.77
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,000
500
4,300
2,150
9,478
9,478
3,194
30,000
45,000
45,000
35,054
30,000
35,000
35,000
11,793
33,500
28,500
28,500
21,870
—
—
—
—
49.18
47.50
45.51
45.54
2.12
2.12
2.12
(1.11)
(1.08)
(1.08)
(1.09)
(1.10)
(1.09)
(1.09)
(1.09)
2.86
2.83
2.83
2.78
—
—
—
—
5,000
3.40
500
56% WTI
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,000
10,000
10,000
3,370
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.04
0.04
0.04
0.04
—
—
—
—
Vermilion Energy Inc. ■ Page 85 ■ 2020 Annual Report
Unit Currency
Bought Put
Volume
Weighted
Average
Bought Put
Price
Weighted
Average
Sold Call
Price
Weighted
Average
Sold Put
Price
Sold Swap
Volume
Weighted
Average
Sold Swap
Price
Bought
Swap
Volume
Weighted
Average
Bought
Swap Price
Sold Put
Volume
Sold Call
Volume
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
mcf
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
58,962
49,135
49,135
58,962
34,394
27,024
14,740
14,740
7,370
2,457
2,457
2,457
2,457
2,457
2,457
2,457
5.37
5.37
5.37
5.37
5.18
5.07
4.86
4.86
4.74
4.25
4.25
4.84
4.84
4.84
4.84
4.84
61,419
49,135
49,135
58,962
34,394
27,024
14,740
14,740
7,370
2,457
2,457
2,457
2,457
2,457
2,457
2,457
5.45
5.43
5.42
5.36
5.88
5.64
5.42
5.41
4.96
3.93
3.92
5.64
5.64
5.64
5.64
5.64
58,962
49,135
49,135
58,962
34,394
27,024
14,740
14,740
7,370
2,457
2,457
2,457
2,457
2,457
2,457
2,457
3.88
3.87
3.87
3.88
3.63
3.50
3.42
3.42
3.32
2.93
2.93
3.52
3.52
3.52
3.52
3.52
2,457
2,457
2,457
2,457
2,457
2,457
2,457
2,457
—
—
—
—
—
—
—
—
4.69
4.69
4.69
4.69
4.69
4.69
4.69
4.69
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
NBP
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
TTF
Q2 2021
Q3 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
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
Foreign Currency Swaps
Swap
Jan 2021
Notional Amount
1,200,342,790
USD
Notional Amount
1,570,298,550 CAD
Average Rate
1.3082
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
Unit
Currency
NYMEX
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
Weighted
Average
Sold Swap
Price
Sold Swap
Volume
Apr 2021 - Oct 2021
mcf
USD
24-Mar-21
NBP
Jan 2022 - Dec 2022
mcf
EUR
30-Jun-21
Dated Brent
Apr 2021 - Mar 2022
bbl
USD
31-Mar-21
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,000
2.90
2,457
5.13
500
52.00
Vermilion Energy Inc. ■ Page 86 ■ 2020 Annual Report
DIRECTORS
Lorenzo Donadeo 1
Calgary, Alberta
Larry J. Macdonald 2, 4, 6, 8
Calgary, Alberta
Carin Knickel 5, 8, 12
Golden, Colorado
Stephen P. Larke 4, 6, 12
Calgary, Alberta
Loren M. Leiker 10, 13
McKinney, Texas
Timothy R. Marchant 7, 10, 11
Calgary, Alberta
Robert Michaleski 3, 6
Calgary, Alberta
William Roby 8, 9, 12
Katy, Texas
Catherine L. Williams 4, 6
Calgary, Alberta
1 Executive Chairman
2 Lead Director (Independent)
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
13 New Venture Working Team Chair (Independent)
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
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
Alberta Treasury Branches
Canadian Western Bank
Goldman Sachs Lending Partners LLC
EVALUATION ENGINEERS
GLJ Petroleum Consultants Ltd.
Calgary, Alberta
LEGAL COUNSEL
Norton Rose Fulbright Canada LLP
Calgary, Alberta
TRANSFER AGENT
Odyssey Trust Company
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
OFFICERS AND KEY PERSONNEL
CANADA
Lorenzo Donadeo *
Executive Chairman
Curtis Hicks *
President
Lars Glemser *
Vice President & Chief Financial Officer
Dion Hatcher *
Vice President North America
Terry Hergott
Vice President Marketing
Darcy Kerwin *
Vice President International & HSE
Kyle Preston
Vice President Investor Relations
Jenson Tan *
Vice President Business Development
Adam Iwanicki
Director Marketing
Yvonne Jeffery
Director Sustainability
Jeremy Kalanuk
Director Operations Accounting
Bryce Kremnica
Director Field Operations - Canada Business Unit
Tom Rafter
Director Land - Canada Business Unit
Steve Reece
Director Information Technology & Information Systems
Averyl Schraven
Director, People & Culture
Robert (Bob) J. Engbloom
Corporate Secretary
UNITED STATES
Scott Seatter
Managing Director - 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
Ryan Carty
Managing Director - Ireland Business Unit
AUSTRALIA
Bruce D. Lake
Managing Director - Australia Business Unit
* Executive Committee
Vermilion Energy Inc. ■ Page 87 ■ 2020 Annual Report