Vermilion Energy
Annual Report 2021

Plain-text annual report

2021 A N N UA L R E P O R T EXCELLENCE. TRUST. RESPECT. RESPONSIBILITY.INTERNATIONALLY DIVERSIFIED | FREE CASH FLOW FOCUSED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 7 14 65 73 94 May 11, 2022 3:00 PM MT With continued limits on large gatherings due to the ongoing COVID-19 pandemic, our annual general meeting will be held as a virtual shareholder meeting with electronic participation as explained in our 2022 Proxy Statement and Information Circular, which will be available in March 2022. 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 ■ 2021 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 2022 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 2022; exploration and development plans and the timing thereof; Vermilion’s ability to reduce its debt; statements regarding Vermilion’s hedging program, its plans to add to its hedging positions, and the anticipated impact of Vermilion’s hedging program on project economics and free cash flows; the potential financial impact of climate-related risks; acquisition and disposition plans and the timing thereof; operating and other expenses, including the payment and amount of future dividends; royalty and income tax rates and Vermilion’s expectations regarding future taxes and taxability; and the timing of regulatory proceedings and approvals. Such forward-looking statements or information are based on a number of assumptions, all or any of which may prove to be incorrect. In addition to any other assumptions identified in this document, assumptions have been made regarding, among other things: the ability of Vermilion to obtain equipment, services and supplies in a timely manner to carry out its activities in Canada and internationally; the ability of Vermilion to market crude oil, natural gas liquids, and natural gas successfully to current and new customers; the timing and costs of pipeline and storage facility construction and expansion and the ability to secure adequate product transportation; the timely receipt of required regulatory approvals; the ability of Vermilion to obtain financing on acceptable terms; foreign currency exchange rates and interest rates; future crude oil, natural gas liquids, and natural gas prices; and management’s expectations relating to the timing and results of exploration and development activities. Although Vermilion believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Vermilion can give no assurance that such expectations will prove to be correct. Financial outlooks are provided for the purpose of understanding Vermilion’s financial position and business objectives, and the information may not be appropriate for other purposes. Forward-looking statements or information are based on current expectations, estimates, and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by Vermilion and described in the forward-looking statements or information. These risks and uncertainties include, but are not limited to: the ability of management to execute its business plan; the risks of the oil and gas industry, both domestically and internationally, such as operational risks in exploring for, developing and producing crude oil, natural gas liquids, and natural gas; risks and uncertainties involving geology of crude oil, natural gas liquids, and natural gas deposits; risks inherent in Vermilion's marketing operations, including credit risk; the uncertainty of reserves estimates and reserves life and estimates of resources and associated expenditures; the uncertainty of estimates and projections relating to production and associated expenditures; potential delays or changes in plans with respect to exploration or development projects; Vermilion's ability to enter into or renew leases on acceptable terms; fluctuations in crude oil, natural gas liquids, and natural gas prices, foreign currency exchange rates 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 ■ 2021 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 ■ 2021 Annual Report Highlights Fourth Quarter 2021 Results • • • • • • • Q4 2021 fund flows from operations (“FFO”)(1) was $322 million, an increase of 23% from the prior quarter. The increase was primarily due to higher commodity prices, in particular European natural gas which increased approximately 88% compared to the previous quarter. Cash flow from operating activities was $250 million in Q4 2021, after accounting for asset retirement obligations settled and changes in non- cash operating working capital. Net earnings increased to $345 million in Q4 2021, compared to a net loss of $147 million in the prior quarter. The improvement in net earnings was primarily due to higher FFO and lower unrealized hedging losses which is accounted for on a mark-to-market basis. Production in Q4 2021 averaged 84,417 boe/d(2), which was relatively consistent with the previous quarter. Cash flow used in investing activities totaled $135 million and included exploration and development (“E&D”) capital expenditures of $146 million in the fourth quarter, resulting in $176 million of free cash flow (“FCF”)(3) which was used primarily for debt reduction. Production from our International assets averaged 29,123 boe/d(2) in Q4 2021, an increase of 5% from the prior quarter primarily due to higher production in the Netherlands and Ireland. On November 29, 2021 we announced an agreement to consolidate an additional 36.5% working interest in our operated Corrib project in Ireland for total consideration of approximately $600 million, including the anticipated contingent payment. The acquisition is highly accretive and is expected to significantly enhance our free cash flow profile and ability to return capital to shareholders. With an effective date of January 1, 2022, all of the estimated FCF of $500 million in 2022 will accrue to Vermilion and be netted off the purchase at the time the deal closes, which we continue to anticipate during the second half of 2022. Our board of directors have approved a quarterly dividend in the amount of $0.06 per share, payable on April 18, 2022. This quarterly dividend represents less than 2% of our forecasted 2022 pro forma FFO which we estimate at approximately $2.3 billion with pro forma FCF of approximately $1.9 billion and pro forma year-end 2022 net debt to FFO ratio of 0.2 times based on forward commodity prices(4). Year-end 2021 Results • • For the full year 2021, we generated $920 million of FFO and $545 million of FCF in 2021, representing a year-over-year increase of 83% and 304%, respectively. The increase was primarily due to stronger commodity prices. Cash flow from operating activities was $834 million in 2021, after accounting for asset retirement obligations settled and changes in non-cash operating working capital. • We reduced long-term debt by $282 million and net debt(5) by $365 million in 2021 and exited the year with a net debt to trailing funds flow ratio of 1.8 times(6), less than half of what it was at the start of the year. • We reported net earnings of $1.1 billion in 2021, compared to a $1.5 billion net loss in 2020. Our 2021 net earnings benefited from stronger commodity prices and the reversal of asset impairment charges from prior years due to the recovery in commodity prices. • We delivered average annual production of 85,408 boe/d(2) in 2021 which was at the top end of our upwardly revised guidance range of 84,500 to 85,500 boe/d. Cash flow used in investing activities totaled $470 million and included E&D capital expenditures of $375 million which was in line with our company guidance. • • • Total proved plus probable reserves increased 3% from the prior year to 481 mmboe(7). The increase is primarily due to strategic acquisitions and positive economic revisions resulting from stronger commodity prices. Including acquisitions, we replaced 146% of production on a proved plus probable basis and increased our total proved plus probable reserve life index to 15.4 years. Proved plus probable (“2P”) finding, development and acquisition (“FD&A”) costs, including changes in future development costs (“FDC”) were $10.91/boe. Our FD&A costs combined with our top decile operating netbacks drove strong recycle ratios, resulting in a 2021 2P FD&A Operating Recycle Ratio of 4.1 times. Vermilion maintained our industry-leading ESG performance based on rankings by third party ratings agencies in 2021, ranking at the top of our peer group in the S&P Global 2021 Corporate Sustainability Assessment (“CSA”). We were also selected for The Sustainability Yearbook 2022, which recognizes that our CSA sustainability performance is within the top 15% of our industry (S&P Global’s Upstream Oil & Gas and Integrated category). Vermilion Energy Inc. ■ Page 4 ■ 2021 Annual Report (1) (2) (3) (4) (5) (6) (7) (8) Historical Fund flows from operations (FFO) and proforma FFO are total of segments measures/forward looking measures comparable to cash flows from operating activities that is comprised of sales less royalties, transportation, operating, G&A, corporate income tax, PRRT, interest expense, and realized loss on derivatives, plus realized gain on foreign exchange and realized other income. More information and a reconciliation to primary financial statement measures can be found in the “Non-GAAP Financial Measures and Other Specified Financial Measures” section of this document. Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. Free cash flow (FCF) and proforma FCF are non-GAAP financial measures/forward looking non-GAAP financial measures comparable to cash flows from operating activities and is comprised of FFO(1) less drilling and development and evaluation and exploration expenditures. More information and a reconciliation to primary financial statement measures can be found in the “Non-GAAP Financial Measures and Other Specified Financial Measures” section of this document. 2022 full year average reference prices as at March 2, 2022: Brent US$99.68/bbl; WTI US$93.06/bbl; LSB = WTI less US$4.22/bbl; TTF $58.44/mmbtu; NBP $57.47/mmbtu; AECO $4.72/mmbtu; CAD/USD 1.27; CAD/EUR 1.42 and CAD/AUD 0.92. Net debt is a capital management measure comparable to long-term debt and is comprised of long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (see below). More information and a reconciliation to primary financial statement measures can be found in the “Non-GAAP Financial Measures and Other Specified Financial Measures” section of this document. Net debt to trailing FFO is a non-GAAP ratio and is not a standardized financial measure under IFRS. It may not be comparable to similar measures disclosed by other issuers and is calculated using net debt (capital management measure) and FFO (total of segment measure). The measure is used to assess the ability to repay debt. Information in this document is included by reference, refer to the "Non-GAAP Financial Measures and Other Specified Financial Measures" section of the 2021 fourth quarter Management's Discussion and Analysis available on SEDAR at www.sedar.com. Estimated gross proved, developed and producing, total proved, and total proved plus probable reserves as evaluated by GLJ Petroleum Consultants Ltd. (“GLJ”) in a report dated February 11, 2022 with an effective date of December 31, 2021 (the “2021 GLJ Reserves Report”). Adjusted working capital is a non-GAAP financial measure defined as current assets less current liabilities, excluding current derivatives and current lease liabilities. The measure is used to calculate net debt, capital measure disclosed above. More information and a reconciliation to primary financial statement measures can be found in the “Non-GAAP Financial Measures and Other Specified Financial Measures” section of this document. Vermilion Energy Inc. ■ Page 5 ■ 2021 Annual Report ($M except as indicated) Financial Petroleum and natural gas sales Cash flows from operating activities Fund flows from operations Fund flows from operations ($/basic share) (1) Fund flows from operations ($/diluted share) (1) Net earnings (loss) Net (loss) earnings ($/basic share) Cash flows used in investing activities Capital expenditures (2) Acquisitions Asset retirement obligations settled Cash dividends ($/share) Dividends declared % of fund flows from operations (3) Payout (4) % of fund flows from operations Free Cash Flow Long-term debt Net debt (7) Net debt to four quarter trailing fund flows from operations Operational Production (8) 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 (5) Fund flows from operations ($/boe) (6) Operating expenses General and administration expenses Average reference prices WTI (US $/bbl) Dated Brent (US $/bbl) AECO ($/mcf) TTF ($/mcf) Share information ('000s) Shares outstanding - basic Shares outstanding - diluted (1) Weighted average shares outstanding - basic Weighted average shares outstanding - diluted (1) (1) Q4 2021 Q3 2021 Q4 2020 2021 2020 765,915 250,352 322,173 1.99 1.93 344,588 2.12 134,873 145,807 23,633 13,039 — — — % 158,846 49 % 176,366 1,651,569 1,644,786 1.79 36,264 8,461 238.16 84,417 96.88 47.27 17.89 38 % 16 % 28 % 18 % 48.07 40.73 14.24 2.20 77.19 79.73 4.66 38.86 162,261 168,746 162,247 166,519 538,530 211,548 262,696 1.62 1.59 (147,130) (0.91) 162,930 66,450 94,420 5,142 — — — % 71,592 27 % 196,246 1,760,342 1,778,052 2.43 38,777 8,068 226.73 84,633 87.05 35.55 9.20 39 % 18 % 28 % 15 % 36.17 33.27 13.21 1.56 70.56 73.47 3.60 20.65 161,985 169,012 161,957 164,991 316,198 135,102 135,212 0.85 0.85 (57,707) (0.36) 50,618 59,894 4,821 7,271 — — — % 67,165 50 % 75,318 1,933,848 2,009,325 4.00 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 44.23 2.64 6.63 158,724 165,396 158,561 158,561 2,079,761 834,453 919,862 5.71 5.58 1,148,696 7.13 469,700 374,796 130,965 28,525 — — — % 403,321 44 % 545,066 1,651,569 1,644,786 1.79 38,143 8,325 233.64 85,408 83.78 34.44 9.53 38 % 17 % 29 % 16 % 34.06 29.54 13.27 1.70 67.92 70.73 3.62 19.86 162,261 168,746 161,172 164,765 1,119,545 500,152 502,065 3.18 3.18 (1,517,427) (9.61) 401,434 367,202 25,810 14,278 0.575 90,067 18 % 463,270 92 % 134,863 1,933,848 2,009,325 4.00 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 41.67 2.23 4.18 158,724 165,396 157,908 157,908 Fund flows from operations per share (basic and diluted) are non-GAAP ratios and are not a standardized financial measures under IFRS and may not be comparable to similar measures disclosed by other issuers, it is calculated using FFO (total of segments measure) and basic/diluted shares outstanding. The measure is used to assess the contribution per share of each business unit. Information in this document is included by reference, for more information refer to the "Non-GAAP Financial Measures and Other Specified Financial Measures" section of the 2021 fourth quarter Management's Discussion and Analysis available on SEDAR at www.sedar.com. Vermilion Energy Inc. ■ Page 6 ■ 2021 Annual Report (2) (3) (4) (5) (6) (7) (8) Capital expenditures is a non-GAAP financial measure that is the measure is the sum of drilling and development and exploration and evaluation from the Consolidated Statements of Cash Flows. More information and a reconciliation to primary financial statement measures can be found in the “Non-GAAP Financial Measures and Other Specified Financial Measures” section of this document. Dividends % of FFO is a non-GAAP ratio that is not standardized under IFRS and may not be comparable to similar measures disclosed by other issuers, calculated as dividends divided by FFO. The ratio is used by management as a metric to assess the cash distributed to shareholders. Reconciliation to primary financial statement measures can be found in the “Non-GAAP Financial Measures and Other Specified Financial Measures” section of this document. Payout and payout % of FFO are a non-GAAP financial measure and non-GAAP ratio respectively that are not standardized under IFRS and may not be comparable to similar measures disclosed by other issuers. Payout is comparable to Net Dividends and is comprised of net dividends plus drilling and development costs, exploration and evaluation costs, and asset retirement obligations settled, while the ratio is calculated as payout divided by FFO. More information and a reconciliation to primary financial statement measures can be found in the “Non-GAAP Financial Measures and Other Specified Financial Measures” section of this document. Operating netback is a non-GAAP financial measure comparable to net earnings and is comprised of sales less royalties, operating expense, transportation costs, PRRT, and realized hedging gains and losses. More information and a reconciliation to primary financial statement measures can be found in the “Non- GAAP Financial Measures and Other Specified Financial Measures” section of this document. Fund flows from operations per boe is a non-GAAP ratio that is not standardized under IFRS and may not be comparable to similar measures disclosed by other issuers, calculated as FFO by boe production. Fund flows from operations per boe is used by management to assess the profitability of our business units and Vermilion as a whole. Information in this document is included by reference, for further information refer to the "Non-GAAP Financial Measures and Other Specified Financial Measures" section of the 2021 fourth quarter Management's Discussion and Analysis available on SEDAR at www.sedar.com. Prior period comparatives have been revised. Net debt is defined as long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities). Please refer to Supplemental Table 4 "Production" of the accompanying Management's Discussion and Analysis for disclosure by product type. Message to Shareholders 2021 was transformational for Vermilion Energy. We entered 2021 with an over-leveraged balance sheet at four times net debt to trailing funds flow, and our number one financial priority of net debt reduction was reemphasized. With this goal in focus, we announced a modest capital budget aimed at preserving liquidity, maximizing free cash flow and reducing debt while positioning the Company for long-term success. With the help of a strong commodity pricing environment and our disciplined approach to allocating capital, we not only achieved our objectives but were able to do so at an accelerated pace. We reduced our net debt by $365 million in 2021 and exited the year with a net debt to trailing funds flow ratio of 1.8 times, less than half of what it was at the start of the year. In addition to accelerating debt reduction, in 2021 we also announced an inventory consolidation deal in the United States and a high return, low risk European gas acquisition to consolidate our operated natural gas asset in Ireland which will significantly enhance our free cash flow profile and ability to return capital to investors. Lastly, we completed our leadership transition in 2021 including the internal promotion of several key individuals and the appointment of Dion Hatcher as President, effective January 1, 2022. With this new leadership team in place, and a much stronger balance sheet, Vermilion is in a position to move forward with its long-term strategy of creating value for our shareholders. To this end, we are reinstating a quarterly dividend in Q1 2022 and expect to increase the return of capital to our shareholders over time as further debt targets are achieved. During the final quarter of the year, we delivered strong financial and operating results while continuing to reduce debt. All of the global commodity benchmarks that we have exposure to increased in the fourth quarter as supply and demand fundamentals strengthened. European natural gas prices were exceptionally strong, increasing approximately 88% compared to the previous quarter. The TTF benchmark averaged approximately $39/mmbtu during the fourth quarter and reached close to $80/mmbtu towards the end of December 2021 due to colder weather, supply constraints and geopolitical tension in the region. Our internationally diversified portfolio provides exposure to global commodity prices which continues to be a key strategic advantage for Vermilion. As a result of the strong commodity prices and strong operational results that delivered stable production of 84,417 boe/d(1), we generated record FFO of $322 million in Q4 2021, representing a 23% increase over the prior quarter and a 138% increase over Q4 2020. We invested $146 million in E&D capital expenditures during the fourth quarter 2021, resulting in $176 million of FCF, the majority of which was used to reduce debt. Cash flow from operating activities was $250 million in Q4 2021, after accounting for asset retirement obligations settled and changes in non-cash operating working capital. Our net earnings increased to $345 million in Q4 2021, representing a $492 million increase compared to the prior quarter net loss of $147 million. The increase was primarily due to higher FFO and lower unrealized hedging losses which is accounted for on a mark to market basis. For the full year 2021, we delivered average annual production of 85,408 boe/d(1) which was at the top end of our upwardly revised guidance range of 84,500 to 85,500 boe/d. We generated $920 million of FFO and $545 million of FCF in 2021, representing a year-over-year increase of 83% and 304%, respectively. Cash flow from operating activities was $834 million in 2021 and net earnings was $1.1 billion which benefited from the reversal of asset impairment charges from prior years due to the recovery in commodity prices. Vermilion Energy Inc. ■ Page 7 ■ 2021 Annual Report Following the announcement in November 2021 of our agreement to consolidate an incremental 36.5% interest in Corrib, the price for European gas has increased significantly. Including the deal contingent hedges put in place shortly after the deal was announced, we now forecast 2022 FCF from the acquired Corrib interest of approximately $500 million, which represents over 80% of the estimated purchase price, including the anticipated contingent payment. The increase in European natural gas prices combined with the deal contingent hedges, now implies an anticipated payback period of less than two years and an IRR in excess of 50%, compared to 41% at the time of announcement. This acquisition serves as another example of the unique high IRR acquisition opportunities we have access to in Europe, owing to our long and successful operating history in the region. We will continue to seek value adding acquisitions within our core areas in Europe and throughout our global portfolio. We have recently received competition clearance for the Corrib acquisition from the Competition and Consumer Protection Commission in Ireland while we continue to advance all other requisite approvals. With an effective date of January 1, 2022, all interim FCF generated from the acquired interest in Corrib is being accrued to Vermilion and will be netted off the purchase price at the time the deal closes, which we continue to anticipate during the second half of 2022. On March 4, 2022 our board of directors approved a quarterly dividend in the amount of $0.06 per share, payable on April 18, 2022. This quarterly dividend represents less than 2% of our forecasted 2022 pro forma FFO which we estimate at approximately $2.3 billion with pro forma FCF of approximately $1.9 billion and pro forma year-end 2022 net debt to FFO ratio of 0.2 times based on forward commodity prices. We are off to a strong start in 2022 and we will continue to prioritize debt reduction until we achieve our next target level of $1.2 billion of net debt. Based on recent strip forward commodity prices we expect to reach this targeted debt level in the second half of 2022. During 2022 we will continue to evaluate the return of capital to our shareholders which may include an increase to our quarterly dividend, share buybacks, a special dividend, or any combination thereof. We believe this is truly an exciting time for Vermilion and our shareholders, and we look forward to providing updates as the year progresses. Q4 2021 Operations Review North America Production from our North American operations averaged 55,295 boe/d(1) in Q4 2021, a decrease of 3% from the prior quarter primarily due to natural decline and unplanned downtime. This impact was partially offset by new production from our southeast Saskatchewan drilling program in Canada. During the fourth quarter 2021, we drilled seven (7.0 net) light oil wells in southeast Saskatchewan and brought on production seven (7.0 net) wells. In west-central Alberta, we commenced our condensate-rich Mannville natural gas drilling program where we drilled 14 (11.5 net) wells and completed nine (8.96 net) wells. By executing the majority of this program in Q4 2021, ahead of the busy winter drilling season, we were able to secure our preferred service providers and reduce overall costs, resulting in approximately $85,000 savings per well. The wells were brought on production in early 2022. No drilling or completion activity occurred in the United States during the fourth quarter 2021. Similar to our program in 2021, we plan to move an experienced drilling crew from our Alberta winter program down to Wyoming in Q2 2022 to complete the six (5.9 net) well Turner drilling program which will include three (2.9 net) two-mile lateral wells which are significantly more economic than one-mile laterals. In addition, one (0.3 net) two- mile non-operated Turner well is planned for Q4 2022. International Production from our International assets averaged 29,123 boe/d(1) in Q4 2021, an increase of 5% from the prior quarter primarily due to higher production in the Netherlands and Ireland. The Netherlands operations benefited from strong performance from the recently drilled Nijega well and successful optimization work on several other wells. Ireland operations benefited from the absence of planned maintenance activities. Elsewhere in Europe, we commenced drilling on our 2022 three-well program in Germany and completed a small European gas acquisition to further consolidate our interest in the region. No drilling or completion activity occurred in France during the quarter, however we have offset the majority of natural declines through our ongoing workover campaign. In Croatia we received approval for the spatial plan on the SA-10 gas plant where we continue to advance design work and regulatory work in preparation for the 2023 tie-in of the two standing gas wells that were drilled in 2019 and tested at 15 mmcf/d and 17 mmcf/d, respectively. The higher production from our European assets was partially offset by a planned turnaround in Australia which was successfully completed during the quarter. Detailed engineering work and planning for the two well Australia program continued, with drilling expected to commence in Q2 2022. Vermilion Energy Inc. ■ Page 8 ■ 2021 Annual Report 2021 Reserve Report Our 2021 total proved plus probable reserves increased 3% from the prior year to 481 mmboe(2). The increase is primarily due to strategic acquisitions and positive economic revisions resulting from stronger commodity prices. Including acquisitions, we replaced 146% of production on a proved plus probable basis and increased our total proved plus probable reserve life index to 15.4 years. Over the past twelve years we have consistently maintained proved and proved plus probable reserve life indexes at approximately eight and 13 years, respectively. This consistency shows how we effectively manage our inventory and acquisition strategy to optimize our reserve life to maximize shareholder value. Acquisitions are a key part of our business, and our internationally diversified asset base is a strategic advantage as it provides us with access to value adding acquisition opportunities around the world. Including acquisitions, we added total proved plus probable reserves in 2021 at an FD&A cost (including future development costs) of $10.91/boe, bringing our 3-year average total proved plus probable FD&A cost (including future development costs) down to $13.82/boe, compared to $15.37/boe from the prior three year average. Our low FD&A costs combined with our top decile operating netbacks drive strong recycle ratios, resulting in a 2021 total proved plus probable FD&A Operating Recycle Ratio of 4.1 times and a 3-year average total proved plus probable FD&A Operating Recycle Ratio of 2.1 times. The following table provides a summary of company interest reserves by reserve category and region on an oil equivalent basis. Please refer to Vermilion's 2021 Annual Information Form for the year ending December 31, 2021 ("2021 Annual Information Form") for detailed information by country and product type. BOE (mboe) North America International Vermilion Proved Developed Producing Proved Developed Non-Producing Proved Undeveloped Proved Probable 125,753 62,262 188,016 8,663 7,403 16,066 89,101 8,908 98,009 223,518 78,574 302,092 134,262 44,653 178,915 Proved Plus Probable 357,780 123,227 481,007 The following table summarizes the finding and development costs and associated operating recycle ratios by reserve category for the three-year period ending December 31, 2021: Finding and Development Costs, including FDC (F&D) ($/boe) (3) Finding, Development and Acquisition Costs, including FDC (FD&A) ($/boe) (3) F&D Operating Recycle Ratio (x) (4) FD&A Operating Recycle Ratio (x) (4) 2021 1P $12.41 $12.64 3-Year Average 2P $11.99 $10.91 PDP $12.97 $13.43 1P $13.47 $13.71 2P $14.95 $13.82 3.6 3.6 3.8 4.1 2.3 2.2 2.6 2.6 2.0 2.1 PDP $9.32 $10.66 4.8 4.2 The following table provides a reconciliation of changes in company interest reserves by reserve category and region. Please refer to Vermilion's 2021 Annual Information Form for detailed information by country and product type. 1P (mboe) December 31, 2020 Discoveries Extensions & improved recovery Technical revisions Acquisitions Dispositions Economic factors Production December 31, 2021 North America 209,182 - 7,679 4,322 11,168 (71) 11,951 (20,753) 223,478 International 76,081 - 36 1,675 7,236 - 3,968 (10,421) 78,574 Vermilion 285,263 - 7,716 5,996 18,404 (71) 15,919 (31,174) 302,052 Vermilion Energy Inc. ■ Page 9 ■ 2021 Annual Report 2P (mboe) December 31, 2020 Discoveries Extensions & improved recovery Technical revisions Acquisitions Dispositions Economic factors Production December 31, 2021 North America 346,152 - 13,844 (5,416) 14,188 (397) 10,162 (20,753) 357,780 International 120,450 - 141 (2,756) 10,510 - 5,303 (10,421) 123,227 Vermilion 466,601 - 13,985 (8,172) 24,699 (397) 15,465 (31,174) 481,007 Additional information about our 2021 GLJ Reserves Report can be found in our 2021 Annual Information Form on our website at www.vermilionenergy.com and on SEDAR at www.sedar.com. Commodity Hedging Vermilion hedges to manage commodity price exposures and increase the stability of our cash flows. In aggregate, as of March 1, 2022 we have 36% of our expected net-of-royalty production hedged for the full year of 2022. With respect to individual commodity products, we have hedged 56% of our European natural gas production, 30% of our oil production, and 30% of our North American natural gas volumes for the full year of 2022, respectively. Please refer to the Hedging section of our website under Invest With Us for further details using the following link: https://www.vermilionenergy.com/invest-with-us/hedging.cfm. Sustainability Vermilion maintained our industry-leading ESG performance based on rankings by third party ratings agencies in 2021, ranking at the top of our peer group in the S&P Global 2021 Corporate Sustainability Assessment (“CSA”). We were also selected for The Sustainability Yearbook 2022, which recognizes that our CSA sustainability performance is within the top 15% of our industry (S&P Global’s Upstream Oil & Gas and Integrated category). For more information about our sustainability strategy and performance see our Sustainability Report which can be found on our Sustainability micro-site using the following link: http://sustainability.vermilionenergy.com. Board of Directors Lorenzo Donadeo has confirmed his plan to retire from the role of Executive Chairman of Vermilion’s Board of Directors, effective September 1, 2022. Lorenzo was a co-founder of Vermilion in 1994 and has been a dedicated member of the senior leadership and board of directors for the last 28 years. He retired as Chief Executive Officer in 2016 and became Chairman of the Board at that time. In May, 2020 he returned as Executive Chairman to facilitate an orderly senior management transition and to strengthen the Company’s balance sheet. Stated Lorenzo Donadeo, “I am pleased with what we have accomplished in the last 2 years. We have developed a thoughtful and effective succession plan in naming Dion Hatcher as President and combined with our strong senior leadership team, positions Vermilion well for continued strong performance. In addition, we significantly strengthened the balance sheet and have entered into an agreement to strategically acquire additional premium priced European gas production at an attractive purchase price. Vermilion is currently generating record levels of free cash flow that will allow us to provide strong returns to our shareholders over the next several years”. Larry Macdonald will not be standing for re-election to Vermilion’s Board after over 20 years of dedicated service to Vermilion. He will continue as a board member until Vermilion’s 2022 Annual General Meeting. Mr. Macdonald has been instrumental in Vermilion’s long-term success with a focus on long term value creation and a strong commitment to providing a safe work environment for all of Vermilion’s employees and contractors. Most recently in his role of Lead Director, Mr. Macdonald provided independent thought and best practices to ensure decisions were made in consideration of the interests of all stakeholders. We would like to thank Mr. Macdonald for his strong leadership and valuable contributions to Vermilion’s long-term success and wish him the best in his retirement. As part of our planned board succession, Mr. Bob Michaleski will be appointed Lead Director effective May 12, 2022 and will assume the role of independent Chairman on Mr. Donadeo’s departure, effective September 1, 2022. Mr. Michaleski has 41 years of experience in various senior management and executive roles at Pembina Pipeline Corporation where he oversaw Pembina’s transformation from an Alberta-based oil pipeline company with an enterprise value of approximately $450 million into one of North America’s leading integrated energy transportation and midstream services company with an enterprise value of approximately $12.5 billion, when he retired in 2013. Mr. Michaleski was the Chief Executive Officer from 2000 to 2013 and President from 2000 to 2012. Previously, he was Vice President and Chief Financial Officer from 1997 to 2000, Vice President of Finance from 1992 to 1997, Controller from 1980 to 1992, and Manager of Internal Audit from 1978 to 1980. He was a director of Pembina from 2000 to 2020. He is currently a director of Coril Holdings Ltd. (since 2003) and also a director of Essential Energy Services Ltd. (since 2013). His focus on corporate philanthropy and community engagement programs includes service to the community in increasingly senior voluntary Vermilion Energy Inc. ■ Page 10 ■ 2021 Annual Report leadership roles with the United Way of Calgary and Area, including Co-Chair of the General Oil and Gas Division of the United Way of Calgary and Area; member of the Board of Directors; and Chair of the Board of Directors. Mr. Michaleski stated, “I look forward to serving as Lead Director and eventually Board Chair at Vermilion. Vermilion has delivered exceptional value to its shareholders over the last 28 years, providing $3.8 billion, or $40.20 per share of dividends since 2003. I have a great deal of confidence in the senior leadership team and board of directors, and I am fully aligned and committed to Vermilion’s corporate culture and strategic direction established under Lorenzo’s leadership.” Mr. Donadeo stated, “Bob knows Vermilion well and I am confident that he will provide high quality board leadership that will represent the interests of all stakeholders.” Vermilion’s Executive Committee structure will continue and will fill the role of Chief Executive Officer. It will be led by Dion Hatcher, Vermilion’s President. Additional members include, Lars Glemser, Vice President & Chief Financial Officer, Darcy Kerwin, Vice President, International & HSE, Bryce Kremnica, Vice President, North America, Gerard Schut, Vice President, European Operations and Jenson Tan, Vice President, Business Development. The Executive Committee structure has been successfully utilized by Vermilion to review and approve key organizational, financial, operational and strategic decisions for the Company. This leadership structure has proven to be a highly collaborative decision-making model that draws upon the collective knowledge, experience, business acumen and skills of the senior management team. (Signed “Lorenzo Donadeo”) (Signed “Dion Hatcher”) Lorenzo Donadeo Executive Chairman March 4, 2022 Dion Hatcher President March 4, 2022 (1) (2) (3) (4) 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 11, 2022 with an effective date of December 31, 2021 (the “2021 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 non-GAAP ratio that is calculated by dividing the Operating Netback (non-GAAP measure) by the cost of adding reserves (F&D cost). More information can be found in the “Non-GAAP Financial Measures and Other Specified Financial Measures” section of this document. Vermilion Energy Inc. ■ Page 11 ■ 2021 Annual Report Non-GAAP Financial Measures and Other Specified Financial Measures This earnings release and other materials release by Vermilion includes financial measures that are not standardized, specified, defined, or determined under IFRS and are therefore considered non-GAAP financial measures or other specified measures and may not be comparable to similar measures presented by other issuers. These financial measures include: Fund flows from operations: Fund flows from operations (FFO) is a total of segments measure most directly comparable to net earnings. FFO is comprised of sales excluding royalties, transportation, operating, G&A, corporate income tax, PRRT, interest expense, and realized loss on derivatives, plus realized gain on foreign exchange and realized other income. The measure is used to assess the contribution of each business unit to Vermilion's ability to generate income necessary to pay dividends, repay debt, fund asset retirement obligations and make capital investments. Free cash flow: Free cash flow (FCF) represents a non-GAAP financial measure most directly comparable to cash flows from operating activities. FCF is comprised of funds flows from operations less drilling and development and exploration and evaluation expenditures. The measure is used to determine the funding available for investing and financing activities including payment of dividends, repayment of long-term debt, reallocation into existing business units and deployment into new ventures. 2022+ FFO and FCF: Forward looking non-GAAP measures, the equivalent historical non-GAAP measure FFO and FCF has been disclosed above. ($M) Cash flows from operating activities Changes in non-cash operating working capital Asset retirement obligations settled Fund flows from operations Drilling and development Exploration and evaluation Free cash flow Q4 2021 250,352 58,782 13,039 322,173 (119,002) (26,805) 176,366 Q4 2020 135,102 (7,161) 7,271 135,212 (52,903) (6,991) 75,318 2021 834,453 56,884 28,525 919,862 (339,390) (35,406) 545,066 2020 500,152 (12,365) 14,278 502,065 (352,481) (14,721) 134,863 Capital expenditures: A non-GAAP financial measure that is calculated as the sum of drilling and development and exploration and evaluation from the Consolidated Statements of Cash Flows. We consider capital expenditures to be a useful measure of our investment in our existing asset base. Capital expenditures are also referred to as E&D capital. ($M) Drilling and development Exploration and evaluation Capital expenditures Q4 2021 (119,002) (26,805) (145,807) Q4 2020 (52,903) (6,991) (59,894) 2021 (339,390) (35,406) (374,796) 2020 (352,481) (14,721) (367,202) Net debt: Net debt is a capital management measure in accordance with IAS 1 "Presentation of Financial Statements" and is most directly comparable to long-term debt. Net debt is comprised of long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital and represents Vermilion's net financing obligations after adjusting for the timing of working capital fluctuations. ($M) Long-term debt Adjusted working capital deficiency Unrealized FX on swapped USD borrowings Net debt As at Dec 31, 2021 1,651,569 9,284 (16,067) 1,644,786 Dec 31, 2020 (revised) 1,933,848 35,258 40,219 2,009,325 Ratio of net debt to four quarter trailing fund flows from operations 1.79 4.00 Adjusted working capital: Represents a non-GAAP financial measure defined as current assets less current liabilities, excluding current derivatives and current lease liabilities. The measure is used to calculate net debt, a capital measure disclosed above. Vermilion Energy Inc. ■ Page 12 ■ 2021 Annual Report ($M) Current assets Current derivative asset Current liabilities Current lease liability Current derivative liability Adjusted working capital deficiency Twelve Months Ended Dec 31, 2021 (472,845) 19,321 746,813 (15,032) (268,973) 9,284 Dec 31, 2020 (260,993) 16,924 433,128 (22,882) (130,919) 35,258 Net dividends: A non-GAAP measure most directly comparable to declared dividends. We define net dividends as dividends declared less proceeds received for the issuance of shares pursuant to the Dividend Reinvestment Plan. Management monitors net dividends and net dividends as a percentage of fund flows from operations to assess our ability to pay dividends. Payout: A non-GAAP Financial Measure most directly comparable to net dividends and is comprised of net dividends plus drilling and development costs, exploration and evaluation costs, and asset retirement obligations settled, the measure is used to assess the amount of cash distributed back to shareholders and reinvested in the business for maintaining production and organic growth. The reconciliation of the measure to primary financial statement measure can be found below. Management uses payout and payout as a percentage of fund flows from operations (also referred to as the payout or sustainability ratio). Dividends % FFO: A non-GAAP ratio and is calculated as dividends divided by FFO. The ratio is used by management as a metric to assess the cash distributed to shareholders. ($M) Dividends declared Shares issued for the Dividend Reinvestment Plan Net dividends % of fund flows from operations Drilling and development Exploration and evaluation Asset retirement obligations settled Payout % of fund flows from operations Q4 2021 — — — Q4 2020 — — — — % — % 2021 — — — — % 119,002 26,805 13,039 158,846 52,903 6,991 7,271 67,165 339,390 35,406 28,525 403,321 2020 90,067 (8,277) 81,790 18 % 352,481 14,721 14,278 463,270 49 % 50 % 44 % 92 % Operating netback: Is a non-GAAP ratio most comparable to primary financial measure net earnings and is calculated as sales less royalties, operating expense, transportation costs, PRRT, and realized hedging gains and losses presented on a per unit basis. Management assesses operating netback as a measure of the profitability and efficiency of our field operations. Fund flows from operations per boe: A non-GAAP ratio and is calculated as FFO by boe production. Fund flows from operations per boe is used by management to assess the profitability of our business units and Vermilion as a whole. Operating Recycle Ratio: A non-GAAP ratio that is calculated by dividing the Operating Netback (non-GAAP measure) by the cost of adding reserves (F&D cost). Management assesses operating recycle ratio as a measure of the reinvestment of earnings. Vermilion Energy Inc. ■ Page 13 ■ 2021 Annual Report Management's Discussion and Analysis The following is Management’s Discussion and Analysis (“MD&A”), dated March 4, 2022, 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, 2021 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, 2021 and 2020, 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, 2021 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 (FFO) is a total of segments measure most directly comparable to net earnings and is comprised of sales excluding royalties, transportation, operating, G&A, corporate income tax, PRRT, interest expense, and realized loss on derivatives, plus realized gain on foreign exchange and realized other income. The measure is used to assess the contribution of each business unit to Vermilion's ability to generate income necessary to pay dividends, repay debt, fund asset retirement obligations and make capital investments. A reconciliation to Net Earnings can be found within the "Consolidated Financial Performance Review" section of this MD&A. Free cash flow: Free cash flow (FCF) is a non-GAAP financial measure most directly comparable to cash flows from operating activities and is comprised of FFO less drilling and development and exploration and evaluation expenditures. The measure is used to determine the funding available for investing and financing activities including payment of dividends, repayment of long-term debt, reallocation into existing business units and deployment into new ventures. A reconciliation to primary financial statement measures can be found within the "Non-GAAP Financial Measures" section of this MD&A. Net debt: Net debt is a capital management measure in accordance with IAS 1 "Presentation of Financial Statements" and is most directly comparable to long-term debt. Net debt is comprised of long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities), 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. A reconciliation to primary financial statement measures can be found within the "Financial Position Review" section of this MD&A. Operating Netbacks: Operating Netbacks is a non-GAAP financial measure most directly comparable to net earnings and is calculated as sales less royalties, operating expense, transportation costs, PRRT, and realized hedging gains and losses presented on a per unit basis. Management assesses operating netback as a measure of the profitability and efficiency of our field operations. A reconciliation to primary financial statement measures can be found within "Supplemental Table 1: Netbacks" of this MD&A. Fund flows from operations per boe: Fund flows from operations per boe also includes general and administration expense. Fund flows from operations netback is used by management to assess the profitability of our business units and Vermilion as a whole. A reconciliation to primary financial statement measures can be found within "Supplemental Table 1: Netbacks" of this MD&A. 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" and "light and medium 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 14 ■ 2021 Annual Report Guidance On January 18, 2021, we released our 2021 capital budget and associated production guidance. On November 9, 2021, we increased our 2021 capital expenditure guidance to $375 million and our 2021 annual production guidance to 84,500 to 85,500 boe/d. Actual 2021 capital spending of $375 million was in line with our revised guidance and 2021 average production of 85,408 boe/d was at the upper end of our revised guidance range. On November 29, 2021, we released our 2022 capital budget and associated production guidance. 2022 guidance does not include contribution from the Corrib Acquisition and will be updated upon close. The following table summarizes our guidance: Date Capital Expenditures ($MM) Production (boe/d) 2021 Guidance 2021 Guidance 2021 Guidance 2021 Actual Results 2022 Guidance 2022 Guidance January 18, 2021 November 9, 2021 March 7, 2022 November 29, 2021 300 375 375 425 83,000 to 85,000 84,500 to 85,500 85,408 83,000 to 85,000 Vermilion Energy Inc. ■ Page 15 ■ 2021 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 16 ■ 2021 Annual Report 2021 production of 85,408 boe/dNorth America: 67%International: 33%2021 capital expenditures of $374.8MMNorth America: 59%International: 41%2021 fund flows from operations of $919.9MMNorth America: 44%International: 56%Consolidated Results Overview Production (1) Crude oil and condensate (bbls/d) NGLs (bbls/d) Natural gas (mmcf/d) Total (boe/d) (Draw) build in inventory (mbbls) Financial metrics Fund flows from operations ($M) (2) Per share ($/basic share) Net earnings (loss) ($M) Per share ($/basic share) Cash flows from operating activities ($M) Free cash flow ($M) (3) Long-term debt ($M) Net debt ($M) (4) Activity Capital expenditures ($M)(5) Acquisitions ($M)(6) Q4 2021 Q4 2020 Q4/21 vs. Q4/20 2021 2020 2021 vs. 2020 36,264 8,461 238.16 84,417 (144) 40,555 8,627 232.00 87,848 (118) (11)% (2)% 3% (4)% 38,143 8,325 233.64 85,408 44 43,421 8,937 256.99 95,190 (260) 322,173 1.99 344,588 2.12 250,352 176,366 135,212 0.85 (57,707) (0.36) 135,102 75,318 1,651,569 1,933,848 1,644,786 2,009,325 919,862 5.71 502,065 138% 3.18 134% 1,148,696 (1,517,427) N/A (9.61) 7.13 N/A 500,152 834,453 85% 134% 134,863 545,066 (15)% 1,651,569 1,933,848 (18)% 1,644,786 2,009,325 145,807 23,633 59,894 4,821 143% 374,796 130,965 367,202 25,810 (12)% (7)% (9)% (10)% 83% 80% N/A N/A 67% 304% (15)% (18)% 2% (1) (2) (3) (4) (5) (6) Please refer to Supplemental Table 4 "Production" for disclosure by product type. Fund flows from operations (FFO) and FFO per share are a total of segments measure and non-GAAP ratio respectively most directly comparable to net earnings and net earnings per share, the measures do not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. FFO is comprised of sales excluding royalties, transportation, operating, G&A, corporate income tax, PRRT, interest expense, and realized loss on derivatives, plus realized gain on foreign exchange and realized other income. The measure is used to assess the contribution of each business unit to Vermilion's ability to generate income necessary to pay dividends, repay debt, fund asset retirement obligations and make capital investments. A reconciliation to primary financial statement measures can be found within the "Consolidated Financial Performance Review" section of this MD&A. Free cash flow is a non-GAAP financial measure most directly comparable to cash flows from operating activities and does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers and is comprised of funds flows from operations less drilling and development and exploration and evaluation expenditures. The measure is used to determine the funding available for investing and financing activities including payment of dividends, repayment of long-term debt, reallocation into existing business units and deployment into new ventures. A reconciliation to primary financial statement measures can be found within the "Non-GAAP Financial Measures and Other Specified Financial Measures" section of this MD&A. Net debt prior period comparatives have been revised to meet the current definition. Net debt is a capital management measure in accordance with IAS 1 "Presentation of Financial Statements" and is most directly comparable to long-term debt. Net debt is comprised of long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities), 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. A reconciliation to primary financial statement measures can be found within the "Financial Position Review" section of this MD&A. Capital expenditures is a non-GAAP financial measure that does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. The measure is calculated as the sum of drilling and development and exploration and evaluation from the Consolidated Statements of Cash Flows. We consider capital expenditures to be a useful measure of our investment in our existing asset base. Capital expenditures are also referred to as E&D capital. A reconciliation to primary financial statement measures can be found within the "Non-GAAP Financial Measures and Other Specified Financial Measures" section of this MD&A. Acquisitions is a non-GAAP financial measure that does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. The measure is calculated as 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. A reconciliation to the acquisitions line item in the Consolidated Statements of Cash Flows can be found in "Supplemental Table 3: Capital Expenditures and Acquisitions" section of this MD&A. Vermilion Energy Inc. ■ Page 17 ■ 2021 Annual Report Financial performance review Q4 2021 vs. Q4 2020 • We recorded net earnings of $344.6 million ($2.12/basic share) for Q4 2021 compared to a net loss of $57.7 million ($0.36/basic share) in Q4 2020. The increase in net earnings was primarily driven by unrealized gains on derivatives due to commodity price movement, combined with an increase in FFO predominantly driven by an increase in realized pricing. Vermilion Energy Inc. ■ Page 18 ■ 2021 Annual Report "Other" contains equity based compensation, accretion, depletion and depreciation, and unrealized other$MMNet earnings of $344.6MM in Q4 2021 compared to a net loss of $57.7MM in Q4 2020$(57.7)$195.7$187.0$23.9$2.5$(6.8)$344.6Q4 2020Unrealized derivatives,foreign exchangeFund flowsfrom operationsImpairmentOtherDeferred taxQ4 2021-1000100200300400500"Pricing net of derivatives" contains pricing variance on sales volumes (WTI, AECO, Dated Brent & TTF and NBP) andrealized derivatives. "Sales volume" is the sum of sales volume variance in all regions. "Other" contains general andadministration, interest, realized foreign exchange, and other realized income.$MMIncreased cash flows from operating activities and FFO driven by stronger commodityprices$135.2$274.9$6.8$(40.3)$(30.7)$(15.6)$(8.1)$322.2$135.1$250.4Cash flows from operating activitiesQ4 2020 - FFOPricing netof derivativesOtherTaxesRoyaltiesSales volumeTransportation and operating expenseQ4 2021 - FFO0100200300400500• We generated cash flows from operating activities of $250.4 million in Q4 2021 compared to $135.1 million in Q4 2020 and fund flows from operations of $322.2 million in Q4 2021 compared to $135.2 million in Q4 2020. The increases were primarily as a result of higher commodity prices which is reflected in our consolidated realized price per boe increasing from $38.57/boe in Q4 2020 to $96.82/boe in Q4 2021. This was partially offset by increased current taxes and royalties, driven by increased pricing, as well as a decrease in sales volume driven by natural decline. Variances between cash flows from operating activities and funds flow from operations are primarily driven by working capital timing differences. YTD 2021 vs. YTD 2020 • For the year ended December 31, 2021, we achieved net earnings of $1,148.7 million compared to a net loss of $1,517.4 million for the comparable period in 2020. The increase in net earnings was primarily due to impairment charges we recorded in 2020 of $1,272.1 million (net of $410.2 million income tax recovery), compared to impairment reversal charges we recorded in 2021 of $987.1 million (net of $315.5 million income tax expense) and higher fund flows from operations driven by increased consolidated realized pricing. These increases were partially offset by higher unrealized derivative losses driven by increased commodity prices. Vermilion Energy Inc. ■ Page 19 ■ 2021 Annual Report "Other" contains equity based compensation, accretion, depletion and depreciation, and unrealized other$MMNet earnings of $1,148.7MM in 2021 compared to net loss of $1,517.4MM in 2020$(1,517.4)$1,682.3$1,302.6$417.8$17.2$2.0$(561.7)$(194.1)$1,148.72020ImpairmentImpairment ReversalFund flows from operationsGain on business combinationsOtherDeferred taxUnrealized derivatives, foreign exchange2021-2,000-1,00001,0002,000• Cash flows from operating activities increased by $334.3 million to $834.5 million for the year ended December 31, 2021, and fund flows from operations increased by $417.8 million for the year ended December 31, 2021 versus the same period in 2020. These increases were primarily driven by a 109% increase in our consolidated realized price from $31.90/boe to $66.81/boe. Sales volumes decreased year-over-year primarily due to natural decline in North America, Ireland, and Netherlands, as well as timing of liftings in Australia, while royalties and taxes increased primarily due to increased commodity prices. Variances between cash flows from operating activities and funds flow from operations are primarily driven by working capital timing differences. Production review Q4 2021 vs. Q4 2020 • Consolidated average production of 84,417 boe/d in Q4 2021 represented a decrease of 4% from Q4 2020 production of 87,848 boe/d. Production decreases were primarily driven by natural decline in Canada of 4,120 boe/d due to reduced capital activity as we focused on maximizing free cash flow and reducing debt in 2021. 2021 vs. 2020 • Consolidated average production of 85,408 boe/d for the year ended December 31, 2021 represented a decrease of 10% from the prior year comparable period of 95,190 boe/d. Production decreases were mainly in Canada of 6,974 boe/d due to reduced capital activity and natural decline, and in Ireland of 1,365 boe/d due to natural decline. Activity review • • • For the three months ended December 31, 2021, capital expenditures of $145.8 million were incurred. In our North America core region, capital expenditures of $89.6 million were incurred during Q4 2021. In Canada, $86.1 million was incurred primarily related to drilling and facility activity. During the quarter we drilled seven (7.0 net) wells in south-east Saskatchewan and completed eight wells, seven of which were brought on production during the quarter. In addition, we drilled fourteen (11.5 net) and completed nine (8.96 net) Mannville natural gas wells in Alberta. In our International core region, capital expenditures of $56.2 million were incurred during Q4 2021. Our activities included $15.0 million of France investment primarily focused on increased subsurface maintenance, workovers and facilities activities, $10.9 million in Germany mainly related to tie-in, drilling and workover activity, $9.0 million in Central and Eastern Europe mainly related to seismic expenditures in Croatia on the SA-10 block, and $8.8 million incurred in Australia primarily related to a planned turnaround. Vermilion Energy Inc. ■ Page 20 ■ 2021 Annual Report "Pricing net of derivatives" contains pricing variance on sales volumes (WTI, AECO, Dated Brent & TTF and NBP) andrealized derivatives. "Sales volume" is the sum of sales volume variance in all regions. "Other" contains general andadministration, interest, realized foreign exchange, and other realized income.$MMCash flows from operating activities and funds flow from operations increased on stronger commodityprices$502.1$661.3$10.4$(137.6)$(84.8)$(31.5)$919.9$500.2$834.5Cash flows from operating activities2020 - FFOPricing netof derivativesOtherSales volumeRoyalties, transportation,operating expenseTaxes2021 - FFO05001,0001,500Financial sustainability review Cash flow from operations and free cash flow • Cash flows from operating activities of $834.5 million increased by $334.3 million for the year ended December 31, 2021 compared to the prior year period which was primarily driven by a 109% increase in consolidated realized prices. Free cash flow of $545.1 million increased by $410.2 million for the year ended December 31, 2021 compared to the prior year period due to increased funds flow from operations and conservative capital spending as we focused on reducing debt in 2021. Long-term debt and net debt • • Long-term debt decreased to $1.7 billion as at December 31, 2021 from $1.9 billion as at December 31, 2020. Net debt decreased to $1.6 billion as at December 31, 2021 from $2.0 billion as at December 31, 2020 (revised), mainly due to a decrease in long-term debt as a result of debt repayments of $341.3 million partially offset by foreign exchange effects on USD borrowings. In Q3 2021, we adjusted our net debt calculation in order to provide more meaningful and comparable information. The ratio of net debt to four quarter trailing fund flows from operations(1) decreased to 1.79 as at December 31, 2021 (December 31, 2020 - 4.00 (revised)) mainly due to lower net debt combined with higher four quarter trailing fund flows from operations. • • • (1) Net debt to four quarter trailing fund flows from operations is a non-GAAP ratio that does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. It is calculated as net debt (capital measure) over the FFO from the preceding 4 quarters (total of segments measure). The measure is used to assess our ability to repay debt. Vermilion Energy Inc. ■ Page 21 ■ 2021 Annual Report Benchmark Commodity Prices Crude oil WTI ($/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 2021 Q4 2020 Q4/21 vs. Q4/20 2021 2020 2021 vs. 2020 97.21 77.19 93.30 74.09 92.90 73.77 99.65 79.13 100.40 79.73 4.66 37.76 26.21 38.86 26.97 7.34 5.83 1.26 1.44 96.88 47.27 17.89 96.82 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 55.31 19.20 4.13 38.57 75% 81% 86% 92% 83% 89% 80% 86% 74% 80% 77% 440% 482% 486% 532% 112% 119% (3)% (7)% 75% 146% 333% 151% 85.14 67.92 80.27 64.03 80.12 63.91 85.50 68.20 88.67 70.73 3.62 19.62 13.22 19.86 13.39 4.82 3.85 1.25 1.48 83.78 34.44 9.53 66.81 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 50.53 13.06 2.77 31.90 61% 72% 76% 88% 75% 87% 72% 84% 59% 70% 62% 356% 371% 375% 389% 73% 86% (7)% (3)% 66% 164% 244% 109% 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 benchmarks linked to 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 22 ■ 2021 Annual Report $/bblQ4 2021 realized crude oil and condensate price was a 4% premium to Edmonton SweetIndexDated Brent (37% of Q4 2021sales volumes)WTI (7% of Q4 2021sales volumes)Canadian C5+ (13% of Q4 2021sales volumes)Crude oil and condensaterealized priceSaskatchewan LSB (38% of Q4 2021sales volumes)Edmonton Sweet index (5% of Q4 2021sales volumes)Q4 2020Q1 2021Q2 2021Q3 2021Q4 202140.0050.0060.0070.0080.0090.00100.00110.00 • • • • • • • • Crude oil prices increased in Q4 2021 relative to Q4 2020. Global crude oil demand has increased from recent lows faster than production and successive COVID-19 waves have had smaller impacts on demand. Year-over-year, Canadian dollar WTI and Brent prices rose 75% and 74% respectively. In Canadian dollar terms, year-over-year, the Edmonton Sweet differential narrowed by $1.39/bbl to a discount of $3.91/bbl against WTI, and the Saskatchewan LSB differential narrowed by $0.51/bbl to a discount of $4.31/bbl against WTI. Approximately 37% of Vermilion’s Q4 2021 crude oil and condensate production was priced at the Dated Brent index (which averaged a premium to WTI of US$2.54/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 linked to NBP and TTF rose by 440% and 486%, respectively, in Q4 2021 compared to Q4 2020 as a result of record low inventory levels leading into winter driven by declining supply and competition for LNG in the global market. Demand proved to be inelastic at high natural gas prices. High global coal and European carbon prices have also been supportive to natural gas prices. Natural gas prices at AECO increased by 77% in Q4 2021 compared to Q4 2020. NYMEX prices benefited from a strong winter premium and increased by a greater extent than AECO natural gas prices. Strong Alberta natural gas demand resulting from permanent additions in the power sector and from oil sands production growth, combined with historically low storage levels to start the winter, helped offset high WCSB production growth. For Q4 2021, average European natural gas prices represented a $33.65/mcf premium to AECO. Approximately 42% of our natural gas production in Q4 2021 benefited from this premium European pricing. For the three months ended December 31, 2021, the Canadian dollar strengthened 7% against the Euro compared to Q4 2020. The annual average in 2021 was 3% stronger versus 2020. For the three months ended December 31, 2021, the Canadian dollar strengthened 3% against the US Dollar compared to Q4 2020. The annual average in 2021 was 7% stronger versus 2020. Vermilion Energy Inc. ■ Page 23 ■ 2021 Annual Report $/mcfQ4 2021 realized natural gas price was a $13.23/mcf premium to AECONBP (13% of Q4 2021sales volumes)TTF (29% of Q4 2021sales volumes)Natural gas realizedpriceHenry Hub (4% of Q4 2021sales volumes)AECO (54% of Q4 2021sales volumes)Q4 2020Q1 2021Q2 2021Q3 2021Q4 20210.004.008.0012.0016.0020.0024.0028.0032.0036.0040.00CDN $/FXThe Canadian dollar strengthened versus the Euro and US Dollar in 2021 compared to 2020CDN $/EuroCDN $/US $Q4 2020Q1 2021Q2 2021Q3 2021Q4 20211.201.301.401.501.60North America Q4 2021 Q4 2020 2021 2020 Production (1) Crude oil and condensate (bbls/d) NGLs (bbls/d) Natural gas (mmcf/d) Total production volume (boe/d) (1) 23,846 8,461 137.93 55,295 26,459 8,628 142.13 58,774 24,390 8,325 144.87 56,858 Please refer to Supplemental Table 4 "Production" for disclosure by product type. Sales Royalties Transportation Operating General and administration (1) Corporate income tax (expense) (1) Fund flows from operations Drilling and development Free cash flow (1) Includes amounts from Corporate segment. Q4 2021 $M 305,054 (47,119) (9,447) (59,425) (10,224) 2,140 180,979 (89,643) 91,336 $/boe 59.97 (9.26) (1.86) (11.68) (2.01) 0.42 35.58 Q4 2020 $M 175,808 (19,670) (10,358) (59,162) (10,484) 241 76,375 (33,781) 42,594 2021 $M $/boe 32.51 1,014,190 (144,398) (3.64) (40,100) (1.92) (232,370) (10.94) (27,887) (1.94) 1,451 0.04 570,886 14.12 (222,782) 348,104 $/boe 48.87 (6.96) (1.93) (11.20) (1.34) 0.07 27.51 29,043 8,937 158.85 64,456 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 Production from our North American operations averaged 55,295 boe/d in Q4 2021, a decrease of 3% from the prior quarter primarily due to natural decline and unplanned downtime. This impact was partially offset by new production from our southeast Saskatchewan drilling program in Canada. During the fourth quarter 2021, we drilled seven (7.0 net) light oil wells in southeast Saskatchewan and brought on production seven (7.0 net) wells. In west-central Alberta, we commenced our condensate-rich Mannville natural gas drilling program where we drilled 14 (11.5 net) wells and completed nine (8.96 net) wells. By executing the majority of this program in Q4 2021, ahead of the busy winter drilling season, we were able to secure our preferred service providers and reduce overall costs, resulting in approximately $85,000 savings per well. The wells were brought on production in early 2022. No drilling or completion activity occurred in the United States during the fourth quarter 2021. Similar to our program in 2021, we plan to move an experienced drilling crew from our Alberta winter program down to Wyoming in Q2 2022 to complete the six (5.9 net) well Turner drilling program which will include three (2.9 net) two-mile lateral wells which are significantly more economic than one-mile laterals. In addition, one (0.3 net) two- mile non-operated Turner well is planned for Q4, 2022. Sales Canada United States North America Q4 2021 $M 270,600 34,454 305,054 $/boe 59.16 67.18 59.97 Q4 2020 $M 160,719 15,089 175,808 2021 $M $/boe 32.45 901,775 112,415 33.24 32.51 1,014,190 $/boe 47.54 62.98 48.87 2020 $M 569,191 66,446 635,637 $/boe 26.38 32.93 26.94 Sales in North America increased on a dollar and per unit basis for the three months and the year ended December 31, 2021 versus the comparable prior periods due to higher benchmark prices across all products, partially offset by lower production volumes. Vermilion Energy Inc. ■ Page 24 ■ 2021 Annual Report Royalties Canada United States North America Q4 2021 $M (37,064) (10,055) (47,119) $/boe (8.10) (19.60) (9.26) Q4 2020 $M (15,240) (4,430) (19,670) $/boe (3.08) (9.76) (3.64) 2021 $M (113,651) (30,747) (144,398) $/boe (5.99) (17.23) (6.96) 2020 $M (54,961) (17,446) (72,407) $/boe (2.55) (8.65) (3.07) Royalties in North America increased on a dollar and per unit basis for the three months and the year ended December 31, 2021 versus the comparable prior periods primarily due to higher benchmark prices. Royalties as a percentage of sales for the three months and the year ended December 31, 2021 of 15.4% and 14.2% increased versus comparable prior periods primarily due to the effect of higher commodity prices on sliding scale royalties. Transportation Canada United States North America Q4 2021 $M (9,134) (313) (9,447) $/boe (2.00) (0.61) (1.86) Q4 2020 $M (9,987) (371) (10,358) $/boe (2.02) (0.82) (1.92) 2021 $M (38,764) (1,336) (40,100) $/boe (2.04) (0.75) (1.93) 2020 $M (41,494) (1,349) (42,843) $/boe (1.92) (0.67) (1.82) Transportation expense in North America remained relatively consistent on a dollar basis for the three months and the year ended December 31, 2021 versus the comparable prior periods. On a per unit basis for the three months ended December 31, 2021 transportation expense remained relatively consistent, while for the year ended December 31, 2021 transportation expense increased versus the comparable period primarily due to an increase in rates and lower production. Operating expense Canada United States North America Q4 2021 $M (54,695) (4,730) (59,425) $/boe (11.96) (9.22) (11.68) Q4 2020 $M (54,725) (4,437) (59,162) $/boe (11.05) (9.77) (10.94) 2021 $M (215,378) (16,992) (232,370) $/boe (11.35) (9.52) (11.20) 2020 $M (218,596) (18,108) (236,704) $/boe (10.13) (8.97) (10.03) Operating expenses in North America on a dollar basis for the three months ended December 31, 2021 remained consistent, increasing by 0.4%, while on a per boe basis operating expenses increased by 6.8% due to lower production volumes and resulting impact in fixed costs per unit. For the year ended December 31, 2021 operating expenses decreased by 1.8% on a dollar basis primarily due to lower spend on maintenance projects, and increased 11.7% on a per boe basis versus the comparable prior period primarily due to lower production volumes and the resulting impact of fixed costs per unit. Vermilion Energy Inc. ■ Page 25 ■ 2021 Annual Report International Q4 2021 Q4 2020 2021 2020 Production (1) Crude oil and condensate (bbls/d) Natural gas (mmcf/d) Total production volume (boe/d) Total sales volume (boe/d) (1) 12,419 100.22 29,123 30,689 14,096 89.86 29,073 30,336 13,753 88.77 28,548 28,430 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 Drilling and development Exploration and evaluation Free cash flow $/boe 163.23 (4.13) (3.40) (18.86) (2.53) (12.17) (1.96) 120.17 Q4 2021 $M 460,861 (11,666) (9,586) (53,255) (7,150) (34,374) (5,544) 339,286 (29,359) (26,805) 283,122 Q4 2020 $M 140,390 (8,438) (6,699) (47,414) (8,158) 6,291 (4,038) 71,934 (19,122) (6,991) 45,821 2021 $M $/boe 50.30 1,065,571 (41,724) (3.02) (37,061) (2.40) (180,643) (16.99) (24,990) (2.92) (31,617) 2.25 (15,688) (1.45) 733,848 25.77 (116,608) (35,406) 581,834 $/boe 102.69 (4.02) (3.57) (17.41) (2.41) (3.05) (1.51) 70.72 14,376 98.15 30,734 31,444 2020 $M 483,908 (34,147) (24,868) (180,547) (31,056) 6,012 (20,151) 199,151 (87,220) (14,721) 97,210 $/boe 42.05 (2.97) (2.16) (15.69) (2.70) 0.52 (1.75) 17.30 Production from our International assets averaged 29,123 boe/d in Q4 2021, an increase of 5% from the prior quarter primarily due to higher production in the Netherlands and Ireland. The Netherlands operations benefited from stronger performance from the recently drilled Nijega well and successful optimization work on several other wells. Ireland operations benefited from the absence of planned maintenance activities. Elsewhere in Europe, we commenced drilling on our 2022 three-well program in Germany and completed a small European gas acquisition to further consolidate our interest in the region. No drilling or completion activity occurred in France during the quarter, however we have offset the majority of natural declines through our ongoing workover campaign. In Croatia we received approval for the spatial plan on the SA-10 gas plant where we continue to advance design work and regulatory work in preparation for the 2023 tie-in of the two standing gas wells. The higher production from our European assets was partially offset by a planned turnaround in Australia which was successfully completed during the quarter. Detailed engineering work and planning for the two well Australia program continued, with drilling expected to commence in Q2 2022. Sales Australia France Netherlands Germany Ireland Central and Eastern Europe International Q4 2021 $M 40,332 79,809 165,370 65,623 109,352 375 460,861 $/boe 112.26 100.18 205.17 164.96 236.78 203.80 163.23 Q4 2020 $M 30,148 53,198 22,967 10,681 23,118 278 140,390 2021 $M 143,014 279,263 295,723 131,935 214,425 1,211 1,065,571 $/boe 75.99 58.11 34.40 39.87 43.38 27.22 50.30 $/boe 103.01 88.15 110.47 98.06 120.51 65.06 102.69 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 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. Vermilion Energy Inc. ■ Page 26 ■ 2021 Annual Report Crude oil sales volumes (bbls/d) Australia France Germany International Q4 2021 3,905 8,659 1,324 13,888 Q4 2020 4,312 9,951 996 15,259 2021 3,804 8,680 1,051 13,535 2020 5,039 8,991 967 14,997 Sales increased on a dollar and per boe basis for the three months and year ended December 31, 2021 versus the prior year comparable periods due to higher realized prices across all business units. These increases were partially offset by lower sales volumes in Ireland, the Netherlands, and Central Eastern Europe driven by natural decline combined with the timing of liftings in France and Australia. Royalties France Netherlands Germany Central and Eastern Europe International Q4 2021 $M (10,174) (419) (909) (164) (11,666) $/boe (12.77) (0.52) (2.29) (89.13) (4.13) Q4 2020 $M (9,416) (150) 1,190 (62) (8,438) $/boe (10.28) (0.22) 4.44 (6.07) (3.02) 2021 $M (37,666) (873) (2,847) (338) (41,724) $/boe (11.89) (0.33) (2.12) (18.16) (4.02) 2020 $M (32,069) (444) (990) (644) (34,147) $/boe (9.75) (0.16) (0.88) (5.55) (2.97) 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. Our production in Australia and Ireland is not subject to royalties. For the three months ended December 31, 2021 versus the same period in the prior year, royalties increased due to higher sales prices in France, the Netherlands and Germany combined with a refund recorded in the fourth quarter of 2020 related to Germany gas royalties. Royalties increased in our International core region for the year ended December 31, 2021 versus the same period in the prior year due to higher sales prices in France, the Netherlands and Germany. Royalties as a percentage of sales for the three months and year ended December 31, 2021 of 2.5% and 3.9% decreased versus the prior year comparable periods of 6.0% and 7.1% primarily due to higher sales in business units that are not subject to royalties combined with the impact of RCDM royalties in France, which are levied on units of production and not subject to changes in commodity prices. Transportation France Germany Ireland International Q4 2021 $M (6,574) (2,076) (936) (9,586) $/boe (8.25) (5.22) (2.03) (3.40) Q4 2020 $M (4,264) (1,537) (898) (6,699) $/boe (4.66) (5.74) (1.68) (2.40) 2021 $M (26,497) (6,359) (4,205) (37,061) $/boe (8.36) (4.73) (2.36) (3.57) 2020 $M (14,604) (5,839) (4,425) (24,868) $/boe (4.44) (5.19) (1.94) (2.16) Transportation expense increased for the three months and year ended December 31, 2021 versus the comparable prior year periods. This increase was primarily in France relating to the use of incremental trucking in the Paris Basin following the conversion of the Grandpuits refinery combined with higher production in Germany due to an acquisition in the second quarter of 2021. Our production in Australia, Netherlands and Central and Eastern Europe is not subject to transportation expense. Vermilion Energy Inc. ■ Page 27 ■ 2021 Annual Report Operating expense Australia France Netherlands Germany Ireland Central and Eastern Europe International Q4 2021 $M (15,918) (14,242) (11,449) (7,323) (4,107) (216) (53,255) $/boe (44.31) (17.88) (14.20) (18.41) (8.89) (117.39) (18.86) 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) 2021 $M (50,748) (52,147) (35,269) (27,149) (14,889) (441) (180,643) $/boe (36.55) (16.46) (13.17) (20.18) (8.37) (23.69) (17.41) 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) Operating expenses on a dollar and per boe basis increased for Q4 2021 versus Q4 2020 by $5.9 million and $1.87/boe, respectively. This increase was primarily due to higher electricity prices in the Netherlands, higher facility maintenance costs in Germany and planned maintenance in Ireland. For the year ended December 31, 2021 versus the comparable prior year period, operating expenses remained relatively flat on a dollar basis as higher electricity prices in the Netherlands and higher facility maintenance costs in Germany were partially offset by decreased costs in Australia resulting from a higher deferral of costs relating to inventory builds on the balance sheet in 2019. Operating expenses on a per boe basis for the year ended December 31, 2021 increased by $1.72 versus the comparable prior year period primarily due to relatively flat operating expenses spread across lower volumes. Vermilion Energy Inc. ■ Page 28 ■ 2021 Annual Report Consolidated Financial Performance Review ($M except per share) Total assets Long-term debt Petroleum and natural gas sales Net earnings (loss) Net earnings (loss) per share Basic Diluted Cash dividends ($/share) Financial performance Dec 31, 2021 Dec 31, 2020 5,905,323 1,651,569 2,079,761 1,148,696 4,109,139 1,933,848 1,119,545 (1,517,427) Dec 31, 2019 5,866,120 1,924,665 1,689,863 32,799 7.13 6.97 — (9.61) (9.61) 0.58 0.21 0.21 2.76 Sales Royalties Transportation Operating General and administration Corporate income tax recovery (expense) PRRT Interest expense Realized (loss) gain on derivatives Realized foreign exchange (loss) gain Realized other income Fund flows from operations Equity based compensation Unrealized gain (loss) on derivative instruments (1) Unrealized foreign exchange loss (gain) (1) Accretion Depletion and depreciation Deferred tax (expense) recovery Gain on business combinations Impairment reversal (expense) Unrealized other expense (1) Net earnings (loss) (1) $/boe 96.82 (7.43) (2.41) (14.24) (2.20) (4.07) (0.70) (2.06) (23.97) (0.30) 1.29 40.73 Q4 2021 $M 765,915 (58,785) (19,033) (112,680) (17,374) (32,234) (5,544) (16,279) (189,598) (2,395) 10,180 322,173 (6,666) 172,265 7,122 (10,983) (148,216) (14,834) — 23,922 (195) 344,588 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 (11,012) (66,863) 50,519 (9,134) (148,219) (8,008) — — (202) (57,707) 2021 $M $/boe 38.57 2,079,761 (186,122) (3.43) (77,161) (2.08) (413,013) (13.00) (52,877) (2.27) (30,166) 0.80 (15,688) (0.49) (73,075) (2.42) (327,384) 0.10 (6,613) 0.16 22,200 0.56 919,862 16.50 (41,565) 2020 $M $/boe 66.81 1,119,545 (106,554) (5.98) (2.48) (67,711) (417,251) (13.27) (60,840) (1.70) 5,810 (0.97) (20,151) (0.50) (75,077) (2.35) 109,093 (10.52) 11,110 (0.21) 4,091 0.71 502,065 29.54 (42,906) $/boe 31.90 (3.04) (1.93) (11.89) (1.73) 0.17 (0.57) (2.14) 3.11 0.32 0.12 14.32 (181,094) (64,963) (43,552) (571,688) (187,343) 17,198 1,302,619 (778) 1,148,696 (100,955) 49,012 (35,318) (580,461) 374,313 — (1,682,344) (833) (1,517,427) Unrealized (loss) gain on derivative instruments, Unrealized foreign exchange loss, and Unrealized other expense are line items from the respective consolidated statements of cash flows. 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 within profit or loss. General and administration • General and administration expense decreased in Q4 2021 versus Q4 2020 primarily due to increased recoveries driven by increased capital spending in Q4 2021. General and administration expense decreased for the year ended December 31, 2021 versus the comparable prior year period primarily due to work-force reductions made in 2020. Vermilion Energy Inc. ■ Page 29 ■ 2021 Annual Report PRRT and corporate income taxes • • • PRRT increased for the three months ended December 31, 2021 versus the prior year comparable period primarily due to higher sales in Australia, partially offset by higher capital expenditures. PRRT decreased for the year ended December 31, 2021 versus the prior year comparable period due to higher capital expenditures in Australia. Corporate income taxes for the three months and year ended December 31, 2021 increased versus the prior year comparable periods primarily due to higher taxable income in the Netherlands partially offset with the application of tax losses in France and Australia. Interest expense • Interest expense decreased for the three months and year ended December 31, 2021 versus the prior year comparable periods primarily due to lower average drawn balances on the credit facility and a related change to the pricing grid level. Realized gain or loss on derivatives • • For the three months and year ended December 31, 2021, we recorded realized losses on our crude oil and natural gas hedges due to higher commodity pricing compared to the strike prices on our hedges. Realized gains on derivatives for the prior year comparable periods relate to receipts for European natural gas and crude oil hedges. A listing of derivative positions as at December 31, 2021 is included in “Supplemental Table 2” of this MD&A. Realized other income • Realized other income for the three months and year ended December 31, 2021 primarily relates to amounts for funding under the Saskatchewan Accelerated Site Closure program to complete abandonment and reclamation on inactive oil and gas wells and facilities. Net earnings 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 decreased for the three months ended December 31, 2021 compared to the three months ended December 31, 2020 due to a lower average performance factor applied to grants, while equity based compensation remained relatively flat for the year ended December 31, 2021 compared to the year ended December 31, 2020. 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 and foreign exchange 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. For the three months ended December 31, 2021, we recognized a net unrealized gain on derivative instruments of $172.3 million. This consists of unrealized gains of $150.8 million on our European natural gas commodity derivative instruments, $12.4 million on our North American natural gas commodity derivative instruments, $12.7 million on our equity swaps, and $3.8 million on our crude oil commodity derivative instruments, partially offset by unrealized losses of $7.4 million on our USD-to-CAD foreign exchange swaps. For the year ended December 31, 2021, we recognized a net unrealized loss on derivative instruments of $181.1 million. This consists of unrealized losses of $280.4 million on our European natural gas commodity derivative instruments and $5.4 million on our crude oil commodity derivative instruments, partially offset by unrealized gains of $56.3 million on our USD-to-CAD foreign exchange swaps, $38.3 million on our equity swaps, and $10.1 million on our North American natural gas commodity derivative instruments. Vermilion Energy Inc. ■ Page 30 ■ 2021 Annual Report 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 2021, 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 instruments, amounts previously 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, 2021, we recognized a net unrealized foreign exchange gain of $7.1 million, driven by unrealized gains of $7.0 million on our USD borrowings from our revolving credit facility, as well as an unrealized gain of $1.4 million on US dollar-denominated intercompany loans resulting from the US dollar strengthening 0.3% against the Canadian dollar in Q4 2021. This was partially offset by unrealized loss of $1.2 million on our senior unsecured notes due to the stronger US dollar. In addition, we recognized an unrealized loss of $2.4 million on Euro-denominated intercompany loans due to the Euro weakening 2.7% against the Canadian dollar in Q4 2021. For the year ended December 31, 2021, we recognized a net unrealized foreign exchange loss of $65.0 million. This was due to unrealized losses of $59.8 million on our USD borrowings from our revolving credit facility and $9.9 million on intercompany loans due primarily to the Euro weakening 7.8% against the Canadian dollar. These were partially offset by the impact of the US dollar weakening 0.4% against the Canadian dollar resulting in an unrealized gain of $1.7 million on our senior unsecured notes. As at December 31, 2021, a $0.01 appreciation of the Euro against the Canadian dollar would result in a $0.3 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 $2.1 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 three months and year ended December 31, 2021 accretion expense increased versus the comparable prior year periods, primarily due to additional obligations recognized at the end of 2020 through 2021, partially offset by the weakening of the Euro against the Canadian dollar. 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 the three months and year ended December 31, 2021 of $18.74 and $18.36, respectively, increased from $18.08 and $16.54 in respective the prior year comparable periods primarily due to impairment reversals and increases in ARO assets recorded in the first half of 2021. Vermilion Energy Inc. ■ Page 31 ■ 2021 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, 2021, the Company recorded a deferred tax expense of $14.8 million and $187.3 million, respectively compared to deferred tax expense of $8.0 million and recovery of $374.3 million for the respective prior year comparable periods. The deferred tax expense for the three months ended December 31, 2021 is primarily due to deferred taxes on unrealized derivative gains, and increased taxable income across all jurisdictions, partially offset by the recognition of a portion of non-expiring tax loss pools in Ireland that are expected to be utilized due to an increase in forecast commodity prices. The deferred tax expense for the year ended December 31, 2021 is primarily due to impairment reversals in the during 2021, partially offset by the recognition of a portion of non-expiring tax loss pools in Ireland, Australia, and Germany that are expected to be utilized due to an increase in forecast commodity prices. Impairment Impairment losses or reversals of losses are recognized when indicators of impairment or impairment reversal arise and the carrying amount of a cash generating unit ("CGU") greater than (impairment) or less than (impairment reversal) its recoverable amount, determined as the higher of fair value less costs of disposal or value-in-use. In the fourth quarter of 2021, indicators of impairment reversal were present in our France - Neocomian CGU due to increases and stabilization of commodity prices resulting in increased cash flow estimates. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified CGU 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 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGU tested and $17.7 million (net of $6.2 million deferred income tax expense) of impairment reversal was recorded. In the third quarter of 2021, indicators of impairment reversal were present in our Ireland CGU due to an increase and stabilization in forecast natural gas prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the Ireland CGU and 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 12.0%. Based on the results of the impairment reversal calculations completed, the recoverable amount was determined to be greater than the carrying value and $16.7 million (net of $5.5 million deferred income tax expense) of impairment reversal was recorded. In the second quarter of 2021, indicators of impairment reversal were present in our Alberta, Saskatchewan, Germany, Ireland and United States CGUs due to an increase and stabilization in forecast crude oil and natural gas prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified 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 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $460.4 million (net of $133.2 million deferred income tax expense) of impairment reversal was recorded. In the first quarter of 2021, indicators of impairment reversal were present in our Australia, Alberta, Saskatchewan, and United States CGUs due to an increase and stabilization in forecast crude oil prices versus 2020 when impairment charges were taken. As a result of the indicators of impairment reversal, the Company performed impairment reversal tests on the identified 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 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $492.2 million (net of $170.7 million deferred income tax expense) of impairment reversal was recorded. 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 32 ■ 2021 Annual Report 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 the Company’s market capitalization falling below the carrying value of its net assets as at June 30, 2020. As a result of the indicators of impairment, the Company performed an impairment test. 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 11.5%. Based on the results of the impairment calculations 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 calculations completed, the Company recognized non-cash impairment charges of $1.2 billion (net of $0.4 billion income tax recovery). Inputs used in the measurement of capital assets are not based on observable market data and fall within level 3 of the fair value hierarchy. Gain on business combinations A gain on business combination is recognized when the total consideration paid in a business combination is less than the fair value of the net assets acquired. For the year ended December 31, 2021, a gain of $17.2 million was recognized on our purchase of assets in Germany in the second quarter of 2021. Vermilion Energy Inc. ■ Page 33 ■ 2021 Annual Report Taxes Current income tax rates Vermilion typically pays corporate income taxes in France, Netherlands, and Australia. In addition, Vermilion pays PRRT in Australia which is a profit based tax applied at a rate of 40% on sales less operating expenses, capital expenditures, and other eligible expenditures. PRRT is deductible in the calculation of taxable income in Australia. For 2021 and 2020, taxable income was subject to corporate income tax at the following statutory rates: 2021 24.6 % 21.0 % 27.4 % 50.0 % 31.4 % 25.0 % 30.0 % 2020 25.3 % 21.0 % 28.9 % 50.0 % 31.6 % 25.0 % 30.0 % Jurisdiction Canada United States France Netherlands (1) Germany Ireland Australia (1) ($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 December 21, 2021, the Dutch Senate approved the 2022 Tax Plan that included an increase to the Dutch corporate tax rate from 25.0% in 2021 to 25.8% in 2022. Due to the tax regime applicable to natural gas producers in the Netherlands, the increase to the corporate tax rate is not expected to have a material impact to Vermilion taxes in the Netherlands. 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. Tax pools As at December 31, 2021, we had the following tax pools: Oil & Gas Assets 1,853,946 277,505 290,715 35,113 204,766 — 204,215 2,866,260 (1) (2) (2) (3) (3) (1) Tax Losses 1,415,731 180,694 — — 147,608 944,053 3,374 2,691,460 (4) (7) (6) (6) (5) (4) (4) Other 17,574 20,225 15,502 — 17,810 — — 71,111 Total 3,287,251 478,424 306,217 35,113 370,184 944,053 207,589 5,628,831 (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 $134 million created after January 1, 2018 are carried forward and applied to 80% of taxable income in each taxation year. Vermilion Energy Inc. ■ Page 34 ■ 2021 Annual Report Financial Position Review Balance sheet strategy We regularly review whether our forecast of fund flows from operations is sufficient to finance planned capital expenditures, dividends, and abandonment and reclamation expenditures. To the extent that fund flows from operations forecasts are not expected to be sufficient to fulfill such expenditures, we will evaluate our ability to finance any shortfall by reducing some or all categories of expenditures, with issuances of equity, or with debt (including borrowing using the unutilized capacity of our existing revolving credit facility). We have a long-term goal of achieving and maintaining a ratio of net debt to fund flows from operations of approximately 1.0. As at December 31, 2021, we have a ratio of net debt to fund flows from operations of 1.79. We will continue to monitor for changes in forecasted fund flows from operations and, as appropriate, will adjust our exploration and development capital plans (and associated production targets) to target optimal debt levels. We intend to continue to strengthen our balance sheet in 2022 through debt reduction and have announced a quarterly dividend in the first quarter of 2022. We will continue to assess our return of capital strategy as we strengthen our balance sheet and may further augment our return of capital to shareholders as debt targets are achieved. Net debt Net debt is reconciled to long-term debt, as follows: ($M) Long-term debt Adjusted working capital deficiency (1) Unrealized FX on swapped USD borrowings Net debt As at Dec 31, 2021 1,651,569 9,284 (16,067) 1,644,786 Dec 31, 2020 (revised) 1,933,848 35,258 40,219 2,009,325 1.79 4.00 Ratio of net debt to four quarter trailing fund flows from operations (1) Adjusted working capital is a non-GAAP financial measure that is not standardized under IFRS and may not be comparable to similar measures disclosed by other issuers, it is defined as current assets less current liabilities, excluding current derivatives and current lease liabilities. The measure is used to calculate net debt, capital measure disclosed above. Reconciliation to primary financial statement measures can be found in the “Non-GAAP Financial Measures and Other Specified Financial Measures” section of this document. In Q3 2021, the Company adjusted the calculation for net debt in order to provide more meaningful and comparable information to users. As at December 31, 2021, net debt decreased to $1.6 billion (December 31, 2020 - $2.0 billion (revised)) primarily as a result of debt repayments of $341.3 million funded by free cash flow generated for the year ended December 31, 2021 of $545.1 million. We will draw on unutilized capacity of the revolving credit facility to fund working capital deficiencies. The ratio of net debt to four quarter trailing fund flows from operations decreased to 1.79 (December 31, 2020 - 4.00 (revised)) mainly due to the decrease in net debt combined with higher four quarter trailing fund flows from operations. Long-term debt The balances recognized on our balance sheet are as follows: ($M) Revolving credit facility Senior unsecured notes Long-term debt As at Dec 31, 2021 1,273,755 377,814 1,651,569 Dec 31, 2020 1,555,215 378,633 1,933,848 Vermilion Energy Inc. ■ Page 35 ■ 2021 Annual Report Revolving Credit Facility As at December 31, 2021, 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, 2021 2,100,000 (1,273,755) (11,035) 815,210 Dec 31, 2020 2,100,000 (1,555,215) (23,210) 521,575 As at December 31, 2021, 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, 2021 As at Less than 4.0 Less than 3.5 Greater than 2.5 1.61 1.24 14.78 Dec 31, 2020 3.48 2.82 8.12 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: • Consolidated long-term debt”, and “Lease obligations” (including the current portion included within "Accounts payable and accrued liabilities" but excluding operating leases as defined under IAS 17) on our balance sheet. Consolidated total senior debt: Defined as consolidated total debt excluding unsecured and subordinated debt. Consolidated EBITDA: Defined as consolidated net earnings before interest, income taxes, depreciation, accretion and certain other non-cash items, adjusted for the impact of the acquisition of a material subsidiary. Total interest expense: Includes all amounts classified as "Interest expense", but 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, 2021, 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. Senior Unsecured Notes On March 13, 2017, Vermilion issued US $300.0 million of senior unsecured notes at par. The notes bear interest at a rate of 5.625% per annum, paid semi-annually on March 15 and September 15, and mature on March 15, 2025. As direct senior unsecured obligations of Vermilion, the notes rank equally in right of payment with existing and future senior indebtedness of the Company. The senior unsecured notes were recognized at amortized cost and include the transaction costs directly related to the issuance. Vermilion may 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 % Vermilion Energy Inc. ■ Page 36 ■ 2021 Annual Report Shareholders' capital 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 $0.115 In the first quarter of 2022 we announced our plan to distribute a fixed quarterly dividend due to stronger commodity prices and strengthened balance sheet. The following table reconciles the change in shareholders’ capital: Shareholders’ Capital Balance at December 31, 2020 Vesting of equity based awards Equity based compensation Share-settled dividends on vested equity based awards Balance at December 31, 2021 Number of Shares ('000s) 158,724 2,385 911 241 162,261 Amount ($M) 4,181,160 49,922 8,365 2,326 4,241,773 As at December 31, 2021, there were approximately 6.4 million equity based compensation awards outstanding. As at March 4, 2022, there were approximately 162.3 million common shares issued and outstanding. Contractual Obligations and Commitments As at December 31, 2021, we had the following contractual obligations and commitments: ($M) Long-term debt (1) Lease obligations Processing and transportation agreements Purchase obligations Drilling and service agreements Total contractual obligations and commitments (1) Less than 1 year 48,375 36,776 25,394 29,667 27,916 168,128 1 - 3 years 1,354,761 34,946 30,449 7,035 17,954 1,445,145 3 - 5 years After 5 years 391,037 29,908 13,014 21 27,986 461,966 — 9,011 27,620 — — 36,631 Total 1,794,173 110,641 96,477 36,723 73,856 2,111,870 (2) Interest on revolving credit facility calculated assuming an annual interest rate of 2.12%. Commitments denominated in foreign currencies have been translated using the related spot rates on December 31, 2021. Asset Retirement Obligations As at December 31, 2021, asset retirement obligations were $1,000.6 million compared to $467.7 million as at December 31, 2020. The increase in asset retirement obligations is primarily attributable to a decrease in the credit-adjusted risk-free rate from 10.0% at December 31, 2020 to 4.9% at December 31, 2021, as well as an increase in inflation rates in certain business units. This increase was partially offset by the Euro weakening against the Canadian dollar and obligations settled. 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 using the Company's expected cost of borrowing at the end of the reporting period. Vermilion Energy Inc. ■ Page 37 ■ 2021 Annual Report The risk-free rates and credit spread used as inputs to discount the obligations were as follows: Credit spread added to below noted risk-free rates Country specific risk-free rate Canada United States France Netherlands Germany Ireland Australia Dec 31, 2021 4.9 % Dec 31, 2020 10.0 % Change (5.1) % 1.8 % 1.9 % 0.8 % (0.3) % 0.1 % 0.5 % 1.9 % 1.2 % 1.6 % 0.3 % (0.6) % (0.2) % (0.1) % 1.3 % 0.6 % 0.3 % 0.5 % 0.3 % 0.3 % 0.6 % 0.6 % Vermilion Energy Inc. ■ Page 38 ■ 2021 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 COVID-19 has continued to result in varied 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 in the past has had, and in the future may have significant negative effects on economies, including a substantial decline in crude oil and natural gas demand. The 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, 2021 may be exacerbated as a result of the continued 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 parts of our workforce continue to work through 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 39 ■ 2021 Annual Report   As part of our cyber security program, policies governing access, networks, and systems are reviewed at minimum on an annual basis. In 2020, with increased work from home requirements due to COVID-19, a further risk assessment was performed against these policies and a series of recommendations were implemented 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. In, 2021, we continued efforts to raise staff awareness in order to reduce cyber security risks and safeguard assets. Other than Vermilion's response to COVID-19 in 2020, 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 ($1,000.6 million as at December 31, 2021) 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). 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 $37.3 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 $73.0 million. Vermilion Energy Inc. ■ Page 40 ■ 2021 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, 2021, the deferred tax asset balance of $375.0 million related to Canada ($310.5 million) and Ireland ($64.5 million). In Canada, we have $28.7 million of non-expiring oil and gas tax pools where $7.1 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 $0.3 million. In Ireland, we have $409.7 million of non-expiring tax loss pools where $102.4 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 increase or decrease the amount of deferred tax assets recognized by approximately $8.5 million. 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 2021, indicators of impairment reversal were present in our France - Neocomian CGU due to increases and stabilization of commodity prices resulting in increased cash flow estimates. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified CGU 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 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGU tested and $17.7 million (net of $6.2 million deferred income tax expense) of impairment reversal was recorded. A 1% increase in the assumed after-tax discount rate would reduce the estimated recoverable amount of assets tested and result in an lower impairment reversal of $6.4 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 lower impairment reversal of $12.9 million. In the third quarter of 2021, indicators of impairment reversal were present in our Ireland CGU due to an increase and stabilization in forecast gas prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the Ireland CGU and 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 12.0%. Based on the results of the impairment reversal calculations completed, the recoverable amount was determined to be greater than the carrying value and $16.7 million (net of $5.5 million deferred income tax expense) of impairment reversal was 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. A 1% increase in the assumed after-tax discount rate or a 5% decrease in revenues (due to a decrease in commodity price forecasts or reserve estimates) would not effect the amount of impairment reversal recorded. In the second quarter of 2021, indicators of impairment reversal were present in our Alberta, Saskatchewan, Germany, Ireland and United States CGUs due to an increase and stabilization in forecast oil and gas prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified 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 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and Vermilion Energy Inc. ■ Page 41 ■ 2021 Annual Report $460.4 million (net of $133.2 million deferred income tax expense) of impairment reversal was recorded. A 1% increase in the assumed after-tax discount rate would reduce the estimated recoverable amount of assets tested and result in an lower impairment reversal of $116.8 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 lower impairment reversal of $254.9 million. In the first quarter of 2021, indicators of impairment reversal were present in our Australia, Alberta, Saskatchewan, and United States CGUs due to an increase and stabilization in forecast crude oil prices versus 2020 when impairment charges were taken. As a result of the indicators of impairment reversal, the Company performed impairment reversal tests on the identified 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 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $492.2 million (net of $170.7 million deferred income tax expense) of impairment reversal was recorded. A 1% increase in the assumed after-tax discount rate would reduce the estimated recoverable amount of assets tested and result in an lower impairment reversal of $146.4 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 lower impairment reversal of $285.6 million. 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). 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. Vermilion Energy Inc. ■ Page 42 ■ 2021 Annual Report Recently Adopted Accounting Pronouncements Vermilion did not adopt any new accounting pronouncements as at December 31, 2021. Health, Safety and Environment We are committed to ensuring we conduct our activities in a manner that protects the health and safety of our employees, our contractors and the public. Our HSE Vision is to consistently apply our core values of Excellence, Trust, Respect and Responsibility. We strive to create a workplace free of incidents and ensures that our proactive culture and behaviours create a high-reliability organization where HSE is fully integrated into our business – it is our way of life. Our mantra is HSE: Everywhere. Everyday. Everyone. Vermilion seeks to maintain health, safety and environmental practices and procedures that comply with or exceed 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 2021 we: • • • • • • • • • • • • • • • Maintained clear priorities around 5 key focus areas of HSE Culture, Communication and Knowledge Management, Management Systems, Environmental & Operational Stewardship, and Health; Proactively adjusted our Emergency Response and Business Continuity Plans to address COVID-19 changes 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; Updated our HSE Strategy and further enhanced our Visible Active Leadership program; Developed enhancements of our recently implemented Event and Environmental Management Information System; Developed and initiated implementation of our new Process Safety Management System; Continued reinforcement of the “Vermilion High 5”, an individual safety awareness initiative aimed at keeping front-line workers safe; Updated our in-house fatal risk program to the Energy Safety Canada and International Oil and Gas Producers Life Saving Rules; Submitted our CDP Water and Climate reports; Managed our waste products by reducing, recycling and recovering; Reduced long-term environmental liabilities through decommissioning, abandoning and reclaiming well leases and facilities; Continued the development of a robust hazard identification and risk mitigation program specific to environmentally sensitive areas; Performed auditing, management inspections and workforce observations to measure compliance and identify potential hazards and apply risk reduction measures; and Assessed the effectiveness of our performance management standards across multiple business units. 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. Sustainability - Environmental, Social and Governance (ESG) As an international company, Vermilion responsibly produces essential energy while delivering long-term value to our stakeholders. We believe that integrating sustainability principles into our business increases shareholder returns, enhances development opportunities, reduces long-term risks, and supports the wellbeing of key stakeholders including the communities in which we operate. Vermilion has established a leadership position in sustainability performance and disclosure, launching our first CDP Climate submission and our first Sustainability Report in 2014, with data to 2012, aligned with the Global Reporting Initiative (GRI). We have since aligned our sustainability reporting with additional recommendations from the Task Force on Climate-related Financial Disclosure (TCFD), the Value Reporting Foundation (VRF) including the Sustainability Accounting Standards Board (SASB), and the International Sustainability Standards Board (ISSB). Of note this year, we have maintained our discussion of Governance in the Information Circular and provided detailed discussions of Strategy, Risk Management, and Metrics and Targets in this MD&A. This recognizes the importance of climate-specific disclosure while reflecting its intersectionality with other environment-related risks and opportunities, social factors such as safety and community engagement, and governance issues. Vermilion Energy Inc. ■ Page 43 ■ 2021 Annual Report Sustainability and Climate-Related Strategy Vermilion understands our stakeholders’ expectations that we deliver strong financial results in a responsible and ethical way. As a result, we align our strategic priorities in the following order: • • • the safety and health of our staff and those involved directly or indirectly in our operations; our responsibility to protect the environment. We follow the Precautionary Principle introduced in 1992 by the United Nations "Rio Declaration on Environment and Development" by using environmental risk as part of our development decision criteria, and by continually seeking improved environmental performance in our operations; and economic success through a focus on operational excellence across our business, which includes technical and process excellence, efficiency, expertise, stakeholder relations, and respectful and fair treatment of staff, contractors, partners and suppliers. Reflecting these priorities, we have positioned Vermilion purposefully within the energy transition. Our scenario analysis demonstrated that Vermilion can best contribute by focusing on producing energy responsibly: safely, reliably and cost-effectively. Our Sustainability Report provides further details at: sustainability.vermilionenergy.com. Description of Sustainability- and Climate-related Risks and Opportunities, and Impacts Given the intersectionality of environmental and social issues, and their impact over varying timeframes, we have identified climate-related risks and opportunities within short-term (0-3 years), medium-term (3-6 years) and long-term (6-50 years) horizons. We describe these below, along with their potential company and financial impact (assessed using processes such as scenario analysis, cost projections and our Carbon Liability Assessment Tool), and our resulting management approach, including operations such as equipment upgrade, and capital allocation. Our annual CDP Climate Change and Water Security submissions provide additional information, including where in the value chain these risks and opportunities occur: see “Download Report” at sustainability.vermilionenergy.com. 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 Description of Impacts1 Potential Financial Impact Management Approach Short-term Transition Risks (0-3 Years) Short-term impact is primarily in Canada and Ireland. Canadian Federal Greenhouse Gas Pollution Pricing Act has set carbon tax rates at $50 per tCO2e in 2022, rising to $170 by 2030. Our exposure is mitigated by provincial responses to the Act, including Alberta's Technology Innovation and Emissions Reduction (TIER) regulation and Saskatchewan’s Output-Based Pricing System (OBPS). Our Ireland operations are subject to the EU ETS and Ireland Carbon Tax systems. Longer-term impact rests on carbon pricing’s vulnerability to changes in government policy. We note the political focus in the EU, Canada and USA 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 staff 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. The most likely short-term impact is regulations in Canada to reduce methane emissions, in France to reduce flaring and in Netherlands to reduce NOx. Based on the probable cost scenarios identified in our Carbon Liability Assessment Tool, and our direct experience, our Canadian carbon tax liability is not expected to exceed $0.5MM/year in the medium term. The Ireland EU ETS liability was forecasted to be approximately $2.8MM in 2021, increasing to approximately $3.2MM in 2025 and $4.2MM in 2030. The Ireland Carbon Tax liability is forecasted to be an additional approximately $0.2MM/year over this period. We voluntarily opted into Alberta’s TIER regulation, which provides tax exemptions contingent on emissions reduction activities that Vermilion is in the process of implementing. Our ongoing efforts to reduce the energy and emissions intensity of our operations are integral to managing this risk, including our announcement of two emission reduction targets in 2021. 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. The financial impact is 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. 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 subject to a detailed review in 2022. Regulations in all of our business units are monitored on an ongoing basis, and assumptions/ scenario planning is used annually to assess risk. In Canada, we implemented an external emission data gathering software in 2021 to support the evolving regulatory landscape. Vermilion also engages stakeholders relating to emissions reporting obligations. Management of this risk is built into Vermilion's operations and our ERM. 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; in Netherlands we have used NOx scrubbers on recent drills and purchased NOx certificates for upcoming drills. Vermilion Energy Inc. ■ Page 44 ■ 2021 Annual Report Category / Issue Policy and Legal: Changes in Emissions Regulations Description of Impacts1 Potential Financial Impact Management Approach 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. Our ongoing efforts to proactively reduce the energy and emissions intensity of our operations are integral to managing this risk, including our announcement of two emission reduction targets in 2021. We are also working with external partners to further implement and develop emission reduction technologies that are economic to the Company, in part due to the potential generation of carbon credits. Medium-term Transition Risks (3-6 Years) Market and Reputational: Changing Customer Behaviour 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 concerns leading to opposition to our activities. 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. 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. Long-term Transition Risks (6-50 Years) Technology: Substitution of existing products and services with lower emissions options Although we see demand for oil and natural gas remaining robust in the short- to mid-term, it is likely that demand for oil and, to a lesser degree, natural gas will eventually fall as the energy transition evolves and various alternatives for renewable energy options become technologically and economically available. This could impact the need for our products in the longer term, post 2030 for oil and even further out for natural gas. As 2021 and early 2022 have demonstrated, it will be critical to maintain adequate supplies of both oil and natural gas during the energy transition, to provide both accessibility and affordability. Given the uncertain timeline and progression of the energy transition, and supply-demand dynamics, we are not using a financial forecast for impact. We are, however, using our scenario analysis to identify potential opportunities that would mitigate the risk to our products. Based on stakeholder engagement, Vermilion believes that independent assessments of our operations by third parties are an important tool to demonstrate our responsible approach to production of essential energy. As a result, we have sought and achieved Equitable Origin responsible gas producer certification for 3 of our Canadian sites, the AFNOR CSR Committed label in France, and the Business Working Responsibly mark in Ireland. 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 due to severe weather. Based on our scenario analysis, we identified the need to explore new and evolving technologies and processes to identify synergistic fits for our business in both traditional and renewable energy production. We are pursuing this via our established track record in geothermal energy from produced water, for which our internal expertise in engineering, geoscience and drilling is particularly well suited. We are also investing in early R&D in other areas, such as biogas and the conversion of traditional oil and gas assets to geothermal and hydrogen production, to better understand the long-term potential. Long-term Physical Risks (6-50 Years) Chronic: Changes in Temperature Extremes, Including Rising Mean Temperatures Chronic: Changes In Precipitation Patterns and Extreme Variability in Weather Patterns 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. Vermilion holds assets inland, in coastal regions, and offshore, where a change in precipitation could negatively 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. For example, an overall increase in seasonal lows (warmer winters) would have a direct impact on Vermilion's more northern onshore operations, via a decreased ability to access lands and an increase in 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. As weather extremes cannot be controlled, Vermilion uses our 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 would significantly decrease capital considerations in the event that limited frost days occurred. Each risk associated with weather is assessed on a case-by-case basis. The financial implications of a single time event (i.e. wildfire) have been assessed on a case-specific basis, and are believed to be substantive (impact > $10.0MM). Vermilion maintains insurance to mitigate the potential impact of precipitation-related extreme events (i.e. Wildfire, Flooding). 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, Vermilion would implement water management programs to reduce our reliance on fresh water sources to limit the potential impact on operations. Vermilion Energy Inc. ■ Page 45 ■ 2021 Annual Report Description of Impacts1 Potential Financial Impact Management Approach Category / Issue Chronic: Rising Sea Levels Vermilion owns and operates assets in the Netherlands, where we have assessed the potential risk associated with rising sea levels. This could 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. We have 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 1- in-10000-years tide/extreme wind event. 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, and Resilience: Development of New Products and Services through R&D and Innovation; participation in renewable energy programs Products and Services: Access to New Markets Products and Services: Ability to Diversify Business Activities; Shift in Consumer Preferences Directly related to the long-term transitional risk associated with the substitution of low-carbon products, we have the opportunity to participate in the development of those products. This has the potential to reuse our current infrastructure to provide alternative products, such as biogas or hydrogen, or to develop new products such as geothermal energy, creating new revenue streams. An example of this opportunity is the geothermal heat we are providing heat from the produced water in our oil operations to develop sustainable agriculture and residential projects near our operations. More stringent global measures to reduce emissions from individual ships by 30% by 2030, established through amendments to MARPOL Annex VI, came into force on Jan 1 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 meets the needs of refineries in the short term to meet IMO regulations. 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. 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 in revenue and returns on investment. Potential also exists for significant cost adjustments, as assets slated for abandonment would be repurposed to enable them to continue to generate energy. 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. The financial impact of changing consumer preferences in difficult to quantify. We foresee revenue opportunities in two distinct areas. (1) 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 $31.0MM/year based on $1 at 2021 production levels. (2) 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, which our sustainability performance has supported. Other than conventional berm protection, there is no measure available to protect Vermilion's assets in the Netherlands if 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 are leveraging our technical experts and partnerships to provide input into alternative and renewable energy projects as they are identified. An example of the development of low emission goods/ services is our France-based industry partnership with Avenia to expand the use of geothermal energy production in oil production, and a geothermal association in Germany. We have also developed criteria for approving the move of these ideas into our Vermilion Opportunity Development Process, which provides clear gates and criteria for considering and implementing such projects. 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 maintains our reputation of being a reliable source of low sulphur feedstock to refineries. Based on stakeholder engagement, Vermilion believes that independent assessments of our operations by third parties are an important tool to demonstrate our responsible approach to production of essential energy, and generate premium. As a result, we have sought and achieved Equitable Origin responsible gas producer certification for 3 of our Canadian sites, the AFNOR CSR Committed label in France, and the Business Working Responsibly mark in Ireland. We are currently assessing the potential to expand these certifications. Energy Source: Participation in Carbon Market 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 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 currently estimated that following the change to the EU ETS in Phase 4, the carbon price will stabilize at approximately €60per tCO2e; however, this is fluctuating due to the operations of the market. The financial impact to revenue annually is estimated to be up to $1.0MM. 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 include four geothermal co- production projects in France. Vermilion's project assessment framework is applied to each identified opportunity, including considerations associated with emissions offset. Vermilion Energy Inc. ■ Page 46 ■ 2021 Annual Report Description of Impacts1 Potential Financial Impact Management Approach Long-term Opportunities (6-50 Years) Category / Issue Products and Services: Shift in Consumer Preferences Under the Canadian Environmental Protection Act and based on commitments made by the Canadian and Alberta governments and energy utilities 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. 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 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 2021 production, an increase in gas price of $1 per MMBTU would impact sales by approximately $85MM. On an operating netback (sales) basis, based on current estimates, the financial premium of our non- Canadian assets was $450.0MM. 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. 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 2020 environmental reporting through CDP Climate. Fiscal year 2021 environmental reporting will be available in mid-2022. Resilience of the Company’s Strategy Countries in all of our operating regions are implementing policies to create a low-carbon future for the world’s economy, consistent with a 1.5-2C or lower scenario. As a global energy producer, we have an opportunity to be part of the solution: to help ensure the supply of safe, reliable and affordable energy during this transition. The Board of Directors and senior leadership therefore responded to our risk and opportunity identification using a robust scenario analysis. Vermilion examined two energy transitions scenarios from the World Economic Forum. These compared a Gradual versus Rapid low-carbon transition based on inputs that included the International Energy Agency’s New Policies Scenario (Gradual) and Sustainable Development Scenario (Rapid), which meets the Paris Agreement’s goal to limit global temperature increases to 1.5 to 2ºC. Vermilion examined key factors impacting the speed of the transition – including the influence of new energy technologies; potential speed of their adoption; anticipated changes in policy and regulation; and emerging market pathways such as India – and resulting factors that could impact the Company, including economics (demand, supply, consumer behaviour, and costs of energy); technological advancement; capital availability; government policy; and Company reputation. Among these, government policy was seen as most influential in the near to mid-term. We applied these findings to Vermilion’s strategy to 2050 and beyond, described below. In particular, the scenario analysis led us to develop two emission-related targets that were announced in 2021: an aspirational commitment to net zero emissions in our own operations, including Scope 1 and Scope 2 emissions, by 2050, and a near-term target to reduce Scope 1 emissions intensity from our operations by 15 to 20% by 2025, using a baseline year of 2019. See Metrics and Targets, below, for more information. Overall, our strategy to ensure our resilience under various scenarios rests on three strategic activities: • Focusing on efficient and responsible production of oil and natural gas, viewing emissions as potential energy sources: ◦ ◦ ◦ Lower carbon fuels. Since 2012, we have shifted our production mix towards natural gas as a cleaner burning fuel than other fossil fuels. We also sell our fuels within the country of production wherever possible, reducing the carbon footprint associated with transportation of the fuel to consumers while increasing national energy security. Socially responsible fuels. We are committed to ensuring that our products are produced in an environmentally and socially responsible manner, respecting worker rights and community engagement. We operate in regions noted for their stable, well- developed fiscal and regulatory policies related to oil and gas exploration and development, and for their robust health, safety, environmental and human rights legislation. Transparency and reporting. We have established a strong record of reporting on greenhouse gas emissions, energy usage and other key environmental metrics, which has supported our emission reduction targets. Vermilion Energy Inc. ■ Page 47 ■ 2021 Annual Report • • Implementing technically and economically feasible options for emission reduction, covering combustion, flaring, venting and fugitive emissions: ◦ ◦ Greater energy efficiency. Many energy and operational efficiency initiatives go hand-in-hand, which in turn helps us minimize our carbon footprint and reduce greenhouse gas emissions. Lower greenhouse gas emission intensity. We are committed to reducing the greenhouse gas emissions associated with our production, with particular focus on methane. Exploring new and evolving technologies and processes to identify synergistic fits for our business in both traditional and renewable energy production: ◦ Alternative energy. We are continuing to develop our knowledge and use of alternative energy sources, including geothermal energy, for which our internal expertise in engineering, geoscience and drilling is particularly well suited. This work has begun with the geothermal potential of our produced water, supporting a circular economy model that conserves, reuses and recycles resources to better protect our environment. It is also expanding into areas such as biogas and the conversion of traditional oil and gas assets to geothermal and hydrogen production. In addition, we identified two further pillars of our sustainability strategy that are integral to managing sustainability- and climate-related issues: Conservation We are committed to reducing the impact our operations have, beginning with regulatory compliance across all business units. Our conservation efforts are further focused in three areas: • Water: We recognize water as a basic human right, and as a vital resource that is shared among many stakeholders in our communities. We are therefore committed to protecting both the supply and the quality of water sources in our areas of operation by: ◦ ◦ ◦ Proactively preventing harm and supporting healthy surface and groundwater bodies Reducing potable and freshwater usage to the lowest level practical, and Taking a lifecycle and circular economy approach to water, exploring opportunities to reuse and recycle products such as produced water • • Asset Retirement Obligations: We are adapting our long-term Asset Retirement Obligation management to include revitalizing or reusing assets to benefit our environment and our communities. Biodiversity: We are focusing on protecting the species and habitats around us by proactively identifying biodiversity risks and opportunities, and implementing associated plans. Community Our communities comprise a wide diversity of people and organizations, but they have one key thing in common: they care deeply about the safety, environmental stewardship and corporate citizenship that we bring to our local operations. In addition, our people care deeply about their communities - whether we work there or live there, these are the places we call home. We therefore steward our operations and relationships to demonstrate our commitment to being a responsible producer and a valued and trusted neighbor and business partner, including: • • • Transparency with respect to safe and environmentally responsible operations, including our potential impacts on local communities Maintaining strong, genuine relationships with our communities, with engagement based on respect, listening and openness, and Creating a shared value focused on local economic and social development Sustainability and Climate-Related Risk Management Process for Identifying, Assessing and Managing Sustainability- and Climate-related Risks, and Integration into the Company’s Enterprise Risk Management (ERM) System Sustainability-related risks and opportunities, including those related to climate, are integrated into multi-disciplinary Company-wide risk identification, assessment, and management processes as part of our ERM system, based on the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework. This provides an integrated approach to managing risk as it impacts strategy and performance, and includes Operational, Market & Financial, Credit, Organizational, Political, Regulatory Compliance, Strategic and Reputational, and Sustainability categories. Vermilion Energy Inc. ■ Page 48 ■ 2021 Annual Report Our sustainability materiality analysis, which assesses issues with impact for both the Company and our key stakeholders, is integrated into our ERM system using the Corporate Risk Register through a collaboration between our Finance, HSE and Sustainability teams. Overall, risk management is the responsibility of the Board and the Executive Committee based on a Top-Down, Bottom-Up approach to engage all staff. Top-Down begins with our Board and its committees with clear terms of reference, including oversight for identification and management of specific allocations of risk type. This is translated into action by our Executive Committee, which reviews and manages the ERM process through implementation of associated policies and procedures. Our staff help develop systems, standards and procedures. Bottom-Up is how staff implement, maintain and improve risk management processes, applying the hazard-risk-mitigation process in every part of our business. Risks are identified by key staff across our Company, including our Operations, Finance, Health, Safety and Environment, Economics, Government and Public Relations, and Sustainability teams at corporate, business unit and asset levels. These employees have significant experience, and use a wide array of inputs, including operational and facility assessments, technical and research reports, external stakeholder organizations, government policy and regulation changes, industry initiatives, communities and landowners, and non-governmental entities. The results are incorporated into our Corporate Risk Register, which provides a consistent framework to ensure the effective tracking and communication of our material risks. Using our Risk Matrix as a prioritization tool, Teams assess severity, likelihood, speed of onset, and vulnerability using scales from 1 to 5 for each factor, described in terms of human, environment, financial, social license and cybersecurity impacts. Every risk case has also been assessed to determine where sustainability- or climate-related risk is a contributing factor. The results are provided annually at minimum to senior management, the Executive Committee and the Board and its Committees as appropriate, who further assess the risks including interdependencies. Our risk management approach focuses on reducing the risk to a level as low as reasonably practicable, accepting the risk, and/or controlling it (such as insuring it). For example, if direct mitigation is not possible (e.g. changes in temperature extremes), we would adapt our business processes to reduce the potential impact (e.g. changing work hours to avoid extreme mid-day heat). In other situations (e.g. increasing risk of flood), we may take measures to protect against the risk (e.g. flood controls) while also insuring our operations. To support climate risk identification and management, we have developed a Carbon Liability Assessment Tool, with Scope 1 emissions quantification and regulatory information for each business unit. We assessed the price of carbon on both a realized cost and shadow pricing basis, and have identified likely carbon pricing scenarios for all our operating areas. The Tool provides the basis for developing carbon liability risk cases for all business units, supports ongoing identification of carbon opportunities, and supports activities such as business development, taxation review and marginal abatement cost curve preparation. In 2021, we launched development of an Emissions Long-Range Planning Tool, to further support our planning of production, capital allocation, and mergers and acquisitions. Sustainability and Climate-Related Metrics and Targets Metrics Used to Assess Sustainability- and Climate-Related Risks and Opportunities Our sustainability reporting (sustainability.vermilionenergy.com) continues to describe significant economic, environmental, social and governance measures, which are reported with reference to CDP, SASB and GRI. These include but are not limited to: • • • • Climate: energy consumption and intensity; investment in and generation of renewable energy; greenhouse gas emission and intensity, including flaring and venting, and avoided emissions; and water withdrawal, including from areas of high baseline water stress, and discharge. Environment: Waste generation and management; Asset integrity and spills; and Environmental investment Social: Health and Safety; People; and Community investment Governance: Ethics These metrics contribute to our performance for CDP Climate, S&P Global Corporate Sustainability Assessment and Sustainalytics scores, which comprise 10% of the Corporate Performance Scorecard for our Long-term Incentive Plan. In addition, HSE metrics comprise 25% of the scorecard for our Short-Term Incentive Plan. These plans apply to all employees, including our executive team. Vermilion Energy Inc. ■ Page 49 ■ 2021 Annual Report We also track carbon pricing, and have identified actual and likely pricing scenarios for all of our operations based on current government policies and published research relating to the Paris Agreement. For example, in Canada, the 2021 carbon tax was $40 per tCO2e, and in Ireland, carbon pricing was 52 € per tCO2e. Further information is available in our CDP Climate submission, available at sustainability.vermilionenergy.com in the Download Reports section. In addition, we benchmark our performance via third-party ESG rating agencies, including: • • • • • CDP Climate Change and Water Security: CDP Climate and Water scores of “B” in 2021 have us tied for the top decile for our industry ISS ESG QualityScore: Recognized as a leader in managing risk in our industry with a decile rating of “1” for Environmental and “2’ for Social practices as of February 2022. A decile score of “1” indicates lower governance risk, while “10” indicates higher risk. MSCI ESG Rating: In 2021, Vermilion maintained an MSCI ESG rating of AA. S&P Global Corporate Sustainability Assessment: Vermilion was top of our peer group in S&P Global’s 2021 Corporate Sustainability Assessment, and was selected for inclusion in The Sustainability Yearbook 2022, reflecting sustainability performance within the top 15% of our industry. Sustainalytics ESG Risk Rating: As of February 2022, Vermilion was second in our peer group in the Sustainalytics ESG Risk Rating, and within the top 10 percent of our industry. Scope 1, 2 and 3 GHG Emissions Disclosure We report Scopes 1, 2 and 3 emissions, which are externally verified under ISO 14064-3. Historical, corporate and business unit data can be found in the Energy and Emissions Performance Metric document available at sustainability.vermilionenergy.com, summarized in the charts below. The 2018 increase in emissions was associated with the acquisition of southeast Saskatchewan assets. Our Scope 1 and 2 emissions intensity and methane emissions intensity decreased in 2019 and 2020, primarily related to our first full year of operatorship for the Corrib gas asset in Ireland, and our focus on reducing post-acquisition emissions over time through superior operations, as we did in 2014 to 2017 following the acquisition of previous Saskatchewan assets. This has been achieved through a variety of gas conservation and recovery initiatives including construction of new infrastructure, operational changes and increased infrastructure runtimes. Related Targets and Performance Vermilion announced two emission-related targets in 2021: • • A commitment to net zero emissions in our own operations, including Scope 1 and Scope 2 emissions, by 2050. We are transparent that this is an aspirational goal, and that we will build the plan to achieve this target over time. As a first step, we set a near-term target to reduce Scope 1 emissions intensity from our operations by 15 to 20% by 2025, using a baseline year of 2019. We intend to set new targets every five years at minimum, building on this foundation while exploring broader options, including the potential to reduce Scope 3 emissions. We will track our performance using Scope 1 and 2 absolute and intensity emission metrics. Fiscal year 2021 environmental reporting will be available in mid-2022 at http://sustainability.vermilionenergy.com, where additional targets to reduce emissions and methane in our southeast Saskatchewan assets, reduce Scope 2 emissions in our Netherlands Business Unit, and generate renewable energy in our France Business Unit can also be found. For more information on our sustainability- and climate-related performance, please see our 2021 Proxy Statement and Information Circular, online sustainability reporting, particularly the Index and Performance Metrics sections, and 2021 CDP Responses. Vermilion Energy Inc. ■ Page 50 ■ 2021 Annual Report tCO2e per BOEEmissions IntensityScope 1&2 tCO2e per BOE20142015201620172018201920200.0150.0200.0250.0300.035tCO2e per BOEMethane IntensitytCO2e per BOE20142015201620172018201920200.0000.0020.0040.0060.0080.0100.012 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, 2021, 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. Vermilion Energy Inc. ■ Page 51 ■ 2021 Annual Report Internal Control Over Financial Reporting A company's internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. The President, for this specific purpose of acting in the capacity of 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, 2021. The effectiveness of Vermilion’s internal control over financial reporting as of December 31, 2021 has been audited by Deloitte LLP, as reflected in their report included in the 2021 audited annual financial statements filed with the US Securities and Exchange Commission. No changes were made to Vermilion’s internal control over financial reporting during the year ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting. Vermilion Energy Inc. ■ Page 52 ■ 2021 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 ($/boe) United States Sales Royalties Transportation Operating Operating netback General and administration Fund flows from operations ($/boe) France Sales Royalties Transportation Operating Operating netback General and administration Current income taxes Fund flows from operations ($/boe) Netherlands Sales Royalties Operating Operating netback General and administration Current income taxes Fund flows from operations ($/boe) Germany Sales Royalties Transportation Operating Operating netback General and administration Fund flows from operations ($/boe) Ireland Sales Transportation Operating Operating netback General and administration Fund flows from operations ($/boe) Liquids $/bbl 80.89 (12.58) (2.52) (15.35) 50.44 81.90 (24.05) (0.84) (10.00) 47.01 100.18 (12.77) (8.25) (17.88) 61.28 101.75 — — 101.75 99.74 (2.29) (11.19) (28.16) 58.10 — — — — Q4 2021 Natural Gas $/mcf 5.10 (0.37) (0.22) (1.25) 3.26 4.62 (1.28) — (1.19) 2.15 — — — — — 34.39 (0.09) (2.39) 31.91 32.29 (0.38) (0.43) (2.35) 29.13 39.46 (0.34) (1.48) 37.64 Total $/boe 59.16 (8.10) (2.00) (11.96) 37.10 (0.71) 36.39 67.18 (19.60) (0.61) (9.22) 37.75 (3.10) 34.65 100.18 (12.77) (8.25) (17.88) 61.28 (3.02) (4.12) 54.14 205.17 (0.52) (14.20) 190.45 (0.88) (41.66) 147.91 164.96 (2.29) (5.22) (18.41) 139.04 (3.80) 135.24 236.78 (2.03) (8.89) 225.86 (0.81) 225.05 Liquids $/bbl 67.35 (9.71) (2.68) (14.26) 40.70 71.53 (19.48) (0.98) (9.80) 41.27 88.15 (11.88) (8.36) (16.46) 51.45 72.10 — — 72.10 85.02 (1.53) (10.90) (25.48) 47.11 — — — — 2021 Natural Gas $/mcf 3.77 (0.22) (0.21) (1.28) 2.06 5.81 (1.64) — (1.43) 2.74 — — — — — 18.50 (0.06) (2.23) 16.21 17.21 (0.39) (0.38) (3.01) 13.43 20.08 (0.39) (1.39) 18.30 Total $/boe 47.54 (5.99) (2.04) (11.35) 28.16 (0.97) 27.19 62.98 (17.23) (0.75) (9.52) 35.48 (2.56) 32.92 88.15 (11.89) (8.36) (16.46) 51.44 (3.46) 2.88 50.86 110.47 (0.33) (13.17) 96.97 (0.46) (17.40) 79.11 98.06 (2.12) (4.73) (20.18) 71.03 (3.91) 67.12 120.51 (2.36) (8.37) 109.78 0.01 109.79 Q4 2020 Total $/boe 2020 Total $/boe 32.45 (3.08) (2.02) 26.38 (2.55) (1.92) (11.05) (10.13) 16.30 (1.60) 14.70 33.24 (9.76) (0.82) (9.77) 12.89 (5.22) 7.67 58.11 (10.28) (4.66) (17.73) 25.44 (3.68) (0.15) 21.61 34.40 (0.22) (11.64) 22.54 — 4.74 27.28 39.87 4.44 (5.74) (21.07) 17.50 (7.44) 10.06 43.38 (1.68) (6.06) 35.64 (0.07) 35.57 11.78 (1.18) 10.60 32.93 (8.65) (0.67) (8.97) 14.64 (3.68) 10.96 55.39 (9.75) (4.44) (17.36) 23.84 (3.98) (0.04) 19.82 23.02 (0.16) (11.38) 11.48 (0.43) 1.32 12.37 30.40 (0.88) (5.19) (18.42) 5.91 (5.80) 0.11 25.59 (1.94) (6.67) 16.98 (0.26) 16.72 Vermilion Energy Inc. ■ Page 53 ■ 2021 Annual Report     Australia Sales Operating PRRT (1) Operating netback General and administration Current income taxes Fund flows from operations ($/boe) Total Company Sales Realized hedging (loss) gain 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 ($/boe) Liquids $/bbl 112.26 (44.31) (15.43) 52.52 87.81 (1.54) (12.24) (3.48) (18.13) (1.30) 51.12 Q4 2021 Natural Gas $/mcf — — — — 17.89 (8.35) (0.30) (0.19) (1.62) — 7.43 Total $/boe 112.26 (44.31) (15.43) 52.52 (3.07) 6.73 56.18 96.82 (23.97) (7.43) (2.41) (14.24) (0.70) 48.07 (2.20) (2.06) (0.30) 1.29 (4.07) 40.73 Liquids $/bbl 103.01 (36.55) (11.30) 55.16 74.92 (2.80) (9.90) (3.56) (16.37) (0.93) 41.36 2021 Natural Gas $/mcf — — — — 9.53 (3.28) (0.22) (0.20) (1.60) — 4.23 Total $/boe 103.01 (36.55) (11.30) 55.16 (2.49) 4.15 56.82 66.81 (10.52) (5.98) (2.48) (13.27) (0.50) 34.06 (1.70) (2.35) (0.21) 0.71 (0.97) 29.54 Q4 2020 Total $/boe 2020 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 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 (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 54 ■ 2021 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, 2021: 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 Dated Brent Q1 2022 Q2 2022 Q3 2022 Q4 2022 WTI Q1 2022 Q2 2022 Q3 2022 Q4 2022 bbl bbl bbl bbl bbl bbl bbl bbl USD USD USD USD USD USD USD USD AECO Basis (AECO less NYMEX Henry Hub) Q1 2022 Q2 2022 Q3 2022 Q4 2022 NYMEX Henry Hub Q2 2022 Q3 2022 Q4 2022 NBP Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 TTF Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf USD USD USD USD USD USD USD EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2,700 3,450 2,600 2,600 9,550 9,300 4,500 4,500 — — — — 30,000 30,000 10,109 36,851 27,024 19,654 19,654 12,284 4,913 2,457 2,457 2,457 2,457 2,457 62.50 63.59 63.94 63.94 60.52 60.93 60.82 60.82 — — — — 3.33 3.33 3.33 6.04 5.07 5.11 5.11 5.19 5.86 4.84 4.84 4.84 4.84 4.84 2,700 3,450 2,600 2,600 9,550 9,300 4,500 4,500 — — — — 30,000 30,000 10,109 36,851 27,024 19,654 19,654 12,284 4,913 2,457 2,457 2,457 2,457 2,457 81.01 83.34 84.35 84.35 75.89 78.39 82.92 82.92 — — — — 4.81 4.81 4.81 7.59 5.84 6.24 6.23 6.45 8.24 5.64 5.64 5.64 5.64 5.64 2,700 3,450 2,600 2,600 9,550 9,300 4,500 4,500 — — — — — — — 34,394 27,024 19,654 19,654 12,284 4,913 2,457 2,457 2,457 2,457 2,457 47.50 47.50 47.50 47.50 45.52 45.54 45.00 45.00 — — — — — — — 3.63 3.50 3.66 3.66 3.75 4.40 3.52 3.52 3.52 3.52 3.52 500 52.00 — — — — — — — 30,000 35,000 35,000 11,793 — — — 4,913 4,913 4,913 4,913 — — — — — — — — — — — — — — (1.10) (1.09) (1.09) (1.09) — — — 4.91 4.91 4.91 4.91 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — VET Equity Swaps Swap Swap Jan 2020 - Apr 2023 Jan 2020 - Apr 2023 Initial Share Price Share Volume 20.9788 22.4587 CAD CAD 2,250,000 1,500,000 Foreign Currency Swaps Notional Amount Notional Amount Average Rate Swap January 2022 562,166,987 USD 700,000,000 CAD 1.2452 Cross Currency Interest Rate Notional Amount Receive Rate Notional Amount Pay Rate Swap January 2022 398,373,887 USD LIBOR + 1.70% 500,000,000 CAD CDOR + 1.08% Vermilion Energy Inc. ■ Page 55 ■ 2021 Annual Report Supplemental Table 3: Capital Expenditures and Acquisitions By classification ($M) Drilling and development Exploration and evaluation Capital expenditures Acquisitions Contingent consideration Working capital assumed 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 Central and Eastern Europe Total capital expenditures Acquisitions by country ($M) Canada United States Germany Ireland Central and Eastern Europe Total acquisitions Q4 2021 119,002 26,805 145,807 26,848 — (3,215) 23,633 Q4 2020 52,903 6,991 59,894 4,821 — — 4,821 Q4 2021 Q4 2020 97,833 30,919 17,055 145,807 23,633 169,440 42,063 21,866 (4,035) 59,894 4,821 64,715 Q4 2021 Q4 2020 86,051 3,592 15,030 12,432 10,883 105 8,755 8,959 145,807 32,942 839 12,830 3,417 3,127 211 4,392 2,136 59,894 Q4 2021 Q4 2020 1,191 78 20,485 1,879 — 23,633 791 946 828 — 2,256 4,821 2021 339,390 35,406 374,796 131,628 330 (993) 130,965 2021 252,734 93,901 28,161 374,796 130,965 505,761 2021 190,242 32,540 39,708 27,037 20,307 1,261 34,785 28,916 374,796 2021 1,699 94,248 33,139 1,879 — 130,965 2020 352,481 14,721 367,202 25,810 — — 25,810 2020 285,401 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 Vermilion Energy Inc. ■ Page 56 ■ 2021 Annual Report Supplemental Table 4: Production 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 Q4/21 Q3/21 Q2/21 Q1/21 Q4/20 Q3/20 Q2/20 Q1/20 Q4/19 Q3/19 Q2/19 Q1/19 16,388 16,809 16,868 17,767 19,301 19,847 22,545 22,767 23,259 23,610 23,973 25,067 4,785 7,073 11,858 128.85 49,720 4,426 6,862 11,288 138.42 51,168 5,558 7,767 13,325 146.55 54,618 4,556 7,016 11,572 138.41 52,407 4,662 7,334 11,996 135.27 53,840 5,200 8,350 5,047 8,248 4,634 6,943 4,140 7,005 4,072 6,632 4,872 7,352 4,096 6,968 13,550 13,295 11,577 11,145 10,704 12,224 11,064 155.15 164.08 151.16 145.14 145.14 151.87 151.37 59,256 63,187 59,537 58,593 58,504 61,507 61,360 2,647 3,520 1,888 2,322 2,495 3,243 3,971 2,481 3,149 2,717 2,421 1,750 26 1,388 1,414 9.09 5,575 2 1,206 1,208 6.75 5,854 2 928 930 5.51 3,736 — 1,058 1,058 5.95 4,373 1 1,294 1,295 6.87 4,934 6 6 6 12 4 1,158 1,340 1,079 1,156 1,140 1,164 1,346 1,085 1,168 1,144 7.94 8.35 6.72 8.20 6.38 63 754 817 7.06 (8) 929 921 5.89 5,730 6,708 4,685 5,683 4,925 4,414 3,653 Light and medium crude oil (bbls/d) 8,453 8,677 9,013 9,062 9,255 9,347 7,046 9,957 10,264 10,347 9,800 11,342 Conventional natural gas (mmcf/d) — — — — — — — — — — — 0.77 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) 8,453 8,677 9,013 9,062 9,255 9,347 7,046 9,957 10,264 10,347 9,800 11,470 — 97 97 51.98 8,761 1,127 18.00 4,127 30.12 5,020 2,742 2,742 0.12 20 6 104 104 42.48 7,190 1,043 16.19 3,741 22.67 3,778 4,190 4,190 0.22 36 1 95 95 37.59 6,362 1,093 15.60 3,694 30.19 5,031 3,835 3,835 0.28 46 6 92 92 41.45 7,006 911 13.40 3,144 34.14 5,690 4,489 4,489 0.63 104 1 99 99 42.95 7,257 960 11.50 2,876 34.76 5,793 3,781 3,781 0.67 111 — 83 83 1 86 86 3 84 84 4 86 86 1 81 81 9 91 91 — 93 93 46.09 47.31 48.33 47.99 44.08 52.90 51.51 7,764 7,972 8,143 8,088 7,429 8,917 8,677 964 1,039 909 800 845 1,047 978 11.25 13.23 14.64 15.44 14.54 14.56 16.71 2,839 3,244 3,349 3,373 3,269 3,474 3,763 35.12 38.57 41.38 42.30 43.21 49.21 51.71 5,853 6,428 6,896 7,049 7,202 8,201 8,619 4,549 5,299 4,041 4,548 5,564 6,689 5,862 4,549 5,299 4,041 4,548 5,564 6,689 5,862 0.80 132 2.89 483 3.27 546 1.66 276 — — — — — — 31,356 34,245 32,698 34,556 35,793 37,951 39,899 40,157 42,024 43,084 43,938 45,001 4,908 8,461 13,369 238.16 84,417 4,532 8,068 12,600 226.73 84,633 5,656 8,695 14,351 235.72 86,335 4,648 8,074 12,722 233.98 86,276 4,762 8,627 13,389 232.00 87,848 5,289 5,142 4,724 4,237 4,158 5,026 4,181 9,509 9,588 8,022 8,160 7,772 8,107 7,897 14,798 14,730 12,746 12,397 11,930 13,133 12,078 256.34 274.42 265.51 260.72 253.36 275.60 277.96 95,471 100,366 97,154 97,875 97,239 103,003 103,404 Vermilion Energy Inc. ■ Page 57 ■ 2021 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) 2021 2020 2019 2018 2017 2016 16,954 21,106 23,971 17,400 4,831 7,179 12,010 138.03 51,968 4,886 7,719 12,605 151.38 58,942 4,295 6,988 11,283 148.35 59,979 3,754 5,914 9,668 129.37 48,630 6,015 3,036 4,144 7,180 97.89 6,657 2,514 2,552 5,066 84.29 29,510 25,771 2,597 3,046 2,514 1,069 662 393 8 1,146 1,154 6.84 4,890 5 1,218 1,223 7.47 5,514 18 996 1,014 6.89 4,675 8 452 460 2.78 1,992 4 50 54 0.39 781 — 29 29 0.21 457 8,799 8,903 10,435 11,362 11,084 11,896 — — 0.19 0.21 — 0.44 8,799 8,903 10,467 11,396 11,085 11,970 3 97 97 43.40 7,334 1,044 15.81 3,679 29.25 4,875 3,810 3,810 0.31 51 1 88 88 46.16 7,782 968 12.65 3,076 37.44 6,240 4,416 4,416 1.90 317 3 88 88 49.10 8,274 917 15.31 3,468 46.57 7,762 5,662 5,662 0.42 70 — 90 90 46.13 7,779 1,004 15.66 3,614 55.17 9,195 4,494 4,494 1.02 169 — 90 90 40.54 6,847 1,060 19.39 4,291 58.43 9,737 5,770 5,770 — — — 88 88 47.82 8,058 — 14.90 2,483 50.89 8,482 6,304 6,304 — — 33,208 38,441 43,502 35,329 24,591 25,250 4,936 8,325 13,261 233.64 85,408 4,980 8,937 13,917 256.99 4,400 7,984 12,384 266.82 95,190 100,357 3,853 6,366 10,219 250.33 87,270 3,130 4,194 7,324 216.64 68,021 2,602 2,582 5,184 198.55 63,526 (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. In this report, references to "crude oil" and "light and medium 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 58 ■ 2021 Annual Report Supplemental Table 5: Segmented Financial Results Three Months Ended December 31, 2021 France Netherlands Germany Ireland Australia Corporate Total ($M) Drilling and development Exploration and evaluation Canada 86,051 — USA 3,592 — 15,021 9 Crude oil and condensate sales 180,376 23,611 79,809 NGL sales Natural gas sales Sales of purchased commodities Royalties 29,812 60,412 — 6,979 3,864 — — — — (37,064) (10,055) (10,174) 5,663 6,769 911 — 10,626 257 12,146 — 105 — — — 164,459 53,477 109,352 — (419) — (909) — — 8,755 — (10,811) 119,002 19,770 26,805 40,332 — — — — — — 375 37,936 337,185 36,791 391,939 37,936 (164) (58,785) Revenue from external customers 233,536 24,399 69,635 164,951 64,714 109,352 40,332 38,147 745,066 Purchased commodities — — — Transportation Operating General and administration PRRT Corporate income taxes Interest expense Realized loss on derivative instruments Realized foreign exchange loss Realized other income (9,134) (54,695) (3,233) — — — — — — — — (313) (6,574) (4,730) (1,589) — — — — — — (14,242) (11,449) (2,407) — (711) — (3,282) (33,581) — — — — — — — — — (2,076) (7,323) (1,513) — — — — — — — (936) — — (37,936) (37,936) — (19,033) (4,107) (15,918) (216) (112,680) (372) — — — — — — (1,103) (5,544) 2,418 — — — — (6,446) (17,374) — 2,211 (5,544) (32,234) (16,279) (16,279) (189,598) (189,598) (2,395) 10,180 (2,395) 10,180 Fund flows from operations 166,474 17,767 43,130 119,210 53,802 103,937 20,185 (202,332) 322,173 USA France Netherlands Germany Ireland Australia Corporate Total Year Ended December 31, 2021 ($M) Total assets Drilling and development Exploration and evaluation Crude oil and condensate sales NGL sales Natural gas sales Sales of purchased commodities Canada 3,100,322 190,242 — 625,053 86,932 189,790 — 545,296 32,540 — 80,208 17,723 14,484 — 771,707 39,587 121 279,263 — — — 227,779 422,030 427,362 20,198 6,839 2,640 — 19,234 1,073 32,607 — 1,261 — 23 — 293,083 99,328 214,402 — — — — 217,852 34,785 — 143,014 — — — — 192,975 5,905,323 1,543 27,373 339,390 35,406 — — 1,211 147,091 1,162,808 104,655 812,298 147,091 (338) (186,122) Royalties (113,651) (30,747) (37,666) (873) (2,847) Revenue from external customers 788,124 81,668 241,597 294,850 129,088 214,425 143,014 147,964 2,040,730 Purchased commodities Transportation Operating — — — (38,764) (1,336) (26,497) — — — — (6,359) (4,205) — — (147,091) (147,091) — (77,161) (215,378) (16,992) (52,147) (35,269) (27,149) (14,889) (50,748) (441) (413,013) General and administration (18,380) (4,563) (10,954) (1,243) (5,257) PRRT Corporate income taxes Interest expense Realized loss on derivative instruments Realized foreign exchange loss Realized other income — — — — — — — — — — — — — 9,120 — (46,567) — — — — — — — — — — — — — — 9 — — — — — — (3,457) (9,032) (52,877) (15,688) 5,759 — 1,522 (15,688) (30,166) — — — — (73,075) (73,075) (327,384) (327,384) (6,613) 22,200 (6,613) 22,200 Fund flows from operations 515,602 58,777 161,119 211,771 90,323 195,340 78,880 (391,950) 919,862 Vermilion Energy Inc. ■ Page 59 ■ 2021 Annual Report Supplemental Table 6: Operational and Financial Data by Core Region Production volumes (1) North America Crude oil and condensate (bbls/d) 23,846 24,757 24,316 24,645 26,459 28,296 31,569 29,888 30,560 30,403 31,329 30,905 Q4/21 Q3/21 Q2/21 Q1/21 Q4/20 Q3/20 Q2/20 Q1/20 Q4/19 Q3/19 Q2/19 Q1/19 NGLs (bbls/d) Natural gas (mmcf/d) Total (boe/d) International 8,461 8,068 8,695 8,074 8,628 9,508 9,588 8,022 8,161 7,772 8,106 7,897 137.93 145.18 152.06 144.36 142.13 163.09 172.43 157.88 153.34 151.52 158.93 157.26 55,295 57,022 58,354 56,780 58,774 64,986 69,895 64,222 64,276 63,429 65,921 65,013 Crude oil and condensate (bbls/d) 12,419 14,020 14,037 14,560 14,096 14,943 13,471 14,994 15,702 16,838 17,636 18,275 Natural gas (mmcf/d) Total (boe/d) Consolidated 100.22 81.55 83.66 89.62 89.86 93.25 101.99 107.63 107.38 101.83 116.67 120.70 29,123 27,612 27,981 29,495 29,073 30,484 30,472 32,932 33,598 33,811 37,081 38,391 Crude oil and condensate (bbls/d) 36,264 38,777 38,354 39,204 40,555 43,240 45,041 44,881 46,261 47,242 48,964 49,182 NGLs (bbls/d) Natural gas (mmcf/d) Total (boe/d) 8,461 8,068 8,695 8,074 8,627 9,509 9,588 8,022 8,160 7,772 8,107 7,897 238.16 226.73 235.72 233.98 232.00 256.34 274.42 265.51 260.72 253.36 275.60 277.96 84,417 84,633 86,335 86,276 87,848 95,471 100,366 97,154 97,875 97,239 103,003 103,404 (1) Please refer to Supplemental Table 4 "Production" for disclosure by product type. Sales volumes North America Q4/21 Q3/21 Q2/21 Q1/21 Q4/20 Q3/20 Q2/20 Q1/20 Q4/19 Q3/19 Q2/19 Q1/19 Crude oil and condensate (bbls/d) 23,845 24,757 24,316 24,645 26,459 28,297 31,569 29,888 30,560 30,404 31,327 30,906 NGLs (bbls/d) Natural gas (mmcf/d) Total (boe/d) International 8,461 8,068 8,695 8,074 8,628 9,508 9,588 8,022 8,161 7,772 8,106 7,897 137.93 145.18 152.06 144.36 142.13 163.09 172.43 157.88 153.34 151.52 158.93 157.26 55,295 57,022 58,354 56,780 58,774 64,986 69,895 64,222 64,276 63,429 65,921 65,013 Crude oil and condensate (bbls/d) 13,985 15,227 13,859 11,421 15,359 15,689 12,202 17,090 13,864 18,575 16,009 20,163 Natural gas (mmcf/d) Total (boe/d) Consolidated 100.22 81.55 83.66 89.62 89.86 93.25 101.99 107.63 107.38 101.83 116.67 120.70 30,689 28,820 27,802 26,357 30,336 31,229 29,201 35,028 31,760 35,547 35,454 40,279 Crude oil and condensate (bbls/d) 37,830 39,985 38,174 36,066 41,818 43,985 43,771 46,977 44,423 48,979 47,337 51,068 NGLs (bbls/d) Natural gas (mmcf/d) Total (boe/d) 8,461 8,068 8,695 8,074 8,627 9,509 9,588 8,022 8,160 7,772 8,107 7,897 238.16 226.73 235.72 233.98 232.00 256.34 274.42 265.51 260.72 253.36 275.60 277.96 85,984 85,841 86,156 83,138 89,111 96,217 99,096 99,250 96,037 98,976 101,377 105,291 Vermilion Energy Inc. ■ Page 60 ■ 2021 Annual Report 84.95 8.46 67.87 (3.89) (1.66) Sales ($/boe) Royalties ($/boe) Transportation ($/boe) Operating ($/boe) Financial results North America Crude oil and condensate sales ($/bbl) NGL sales ($/bbl) Natural gas sales ($/mcf) Sales ($/boe) Royalties ($/boe) Transportation ($/boe) Operating ($/boe) General and administration ($/boe) Corporate income taxes ($/boe) Fund flows from operations ($/boe) Fund flows from operations Drilling and development Exploration and evaluation Free cash flow International Q4/21 Q3/21 Q2/21 Q1/21 Q4/20 Q3/20 Q2/20 Q1/20 Q4/19 Q3/19 Q2/19 Q1/19 92.99 47.26 5.07 59.97 82.23 35.55 3.80 50.40 75.43 25.43 2.72 42.30 66.31 29.39 3.98 43.08 51.06 19.20 2.77 32.51 (9.26) (1.86) (7.14) (1.92) (5.98) (1.90) (5.49) (2.05) (3.64) (1.92) (11.68) (11.02) (10.89) (11.21) (10.94) (2.01) 0.42 35.58 (1.14) (0.05) (0.91) (0.04) (1.34) (0.04) 29.12 22.58 22.94 (1.94) 0.04 14.12 49.79 15.04 2.02 28.94 (3.58) (1.74) (7.82) (0.78) (0.02) 28.94 50.25 8.94 1.60 8.92 1.92 18.24 29.22 66.31 14.63 2.29 38.86 66.67 6.14 1.18 35.52 72.40 11.25 1.15 38.56 (1.67) (1.72) (3.54) (1.91) (4.98) (1.76) (4.93) (1.78) (4.22) (1.63) 65.95 22.49 2.52 40.17 (5.00) (1.83) (9.60) (11.93) (11.15) (10.67) (10.66) (11.46) (1.52) (0.02) (0.84) (0.04) (0.97) (0.11) 14.99 3.72 10.96 19.89 (0.60) 0.09 17.63 (1.04) (0.02) 20.99 (0.83) (0.03) 21.03 180,979 152,764 119,916 117,227 76,375 89,635 23,639 64,048 117,623 102,867 125,893 123,071 (89,643) (35,179) (38,847) (59,113) (33,781) (9,575) (23,979) (197,926) (69,775) (91,027) (42,047) (148,091) — — — — — — — — — — — — 91,336 117,585 81,069 58,114 42,594 80,060 (340) (133,878) 47,848 11,840 83,846 (25,020) Crude oil and condensate sales ($/bbl) 103.53 Natural gas sales ($/mcf) 35.54 94.91 18.82 163.23 103.39 85.41 9.83 72.16 81.40 7.98 62.39 62.65 6.27 50.30 58.19 2.91 37.94 50.27 2.28 28.98 73.35 4.44 49.42 82.14 5.49 54.42 84.55 4.29 56.46 93.28 5.73 60.98 (4.13) (3.40) (4.52) (3.47) (3.83) (4.64) (3.53) (2.76) (3.02) (2.40) (3.32) (2.28) (2.16) (2.04) (3.27) (1.94) (3.85) (1.77) (3.89) (2.76) (3.97) (3.40) (18.86) (17.55) (16.56) (16.42) (16.99) (15.18) (14.35) (16.13) (15.28) (13.13) (11.76) (15.28) General and administration ($/boe) (2.53) (2.40) Corporate income taxes ($/boe) PRRT ($/boe) (12.17) 0.64 (1.96) (2.74) (2.61) (0.19) (0.58) (2.06) (2.92) (2.53) 0.66 2.25 0.04 (0.60) (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 from operations ($/boe) 120.17 73.36 43.74 37.69 25.77 13.40 6.47 22.44 31.54 30.26 32.73 37.60 Fund flows from operations Drilling and development Exploration and evaluation Free cash flow 339,286 194,505 110,654 89,403 71,934 38,498 17,193 71,526 92,160 98,955 105,600 136,298 (29,359) (27,994) (38,856) (20,399) (19,122) (20,187) (18,404) (29,507) (27,339) (26,096) (33,102) (49,200) (26,805) (3,277) (1,473) (3,851) (6,991) (1,568) 109 (6,271) (3,511) (10,756) (17,458) (4,762) 283,122 163,234 70,325 65,153 45,821 16,743 (1,102) 35,748 61,310 62,103 55,040 82,336 Consolidated Crude oil and condensate sales ($/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 ($/boe) Interest ($/boe) Realized derivatives ($/boe) Realized foreign exchange ($/boe) Realized other ($/boe) Fund flows from operations ($/boe) Q4/21 Q3/21 Q2/21 Q1/21 Q4/20 Q3/20 Q2/20 Q1/20 Q4/19 Q3/19 Q2/19 Q1/19 96.88 47.26 17.89 96.82 87.05 35.55 9.20 68.19 79.06 25.43 5.24 51.93 71.09 29.39 5.51 49.20 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 (7.43) (2.41) (6.26) (2.44) (5.29) (2.78) (4.87) (2.27) (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) 73.45 22.49 5.10 50.77 (4.58) (1.76) (14.24) (13.21) (12.72) (12.86) (13.00) (10.21) (11.00) (13.41) (12.52) (11.55) (11.04) (12.92) (2.20) (4.07) (0.70) (2.06) (23.97) (0.30) 1.29 40.73 (1.56) 0.18 (0.92) (2.37) (9.19) 0.37 0.48 33.26 (1.46) (0.09) (0.19) (2.41) (5.05) (0.25) 0.35 22.06 (1.57) (2.27) (1.35) 0.18 (0.19) (2.57) (3.43) (0.69) 0.73 21.66 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 Fund flows from operations Drilling and development Exploration and evaluation Free cash flow 322,173 262,696 172,942 162,051 135,212 114,776 81,852 170,225 215,592 216,153 222,738 253,572 (119,002) (63,173) (77,703) (79,512) (52,903) (29,762) (42,383) (227,433) (97,114) (117,123) (75,149) (197,291) (26,805) (3,277) (1,473) (3,851) (6,991) (1,568) 109 (6,271) (3,511) (10,756) (17,458) (4,762) 176,366 196,246 93,766 78,688 75,318 83,446 39,578 (63,479) 114,967 88,274 130,131 51,519 Vermilion Energy Inc. ■ Page 61 ■ 2021 Annual Report Non-GAAP Financial Measures and Other Specified 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 total of segments 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 capital management measure 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. A reconciliation to the acquisitions line item in the Consolidated Statements of Cash Flows can be found in Supplemental Table 3 of this MD&A. 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. Reconciliation to primary financial statement measures can be found below. ($M) Drilling and development Exploration and evaluation Capital expenditures Q4 2021 119,002 26,805 145,807 Q4 2020 52,903 6,991 59,894 2021 339,390 35,406 374,796 2020 352,481 14,721 367,202 Cash dividends per share: Is a non-GAAP ratio that represents cash dividends declared per share and is a useful measure of the dividends a common shareholder was entitled to during the period. Covenants: The financial covenants on our revolving credit facility contain non-GAAP measures. The definitions for these financial covenants are included in Financial Position Review. Diluted shares outstanding: The sum of shares outstanding at the period end plus outstanding awards under the VIP, based on current estimates of future performance factors and forfeiture rates. ('000s of shares) Shares outstanding Potential shares issuable pursuant to the VIP Diluted shares outstanding Q4 2021 162,261 6,485 168,746 Q4 2020 158,724 6,672 165,396 Free cash flow: Represents a non-GAAP financial Measure comparable to cash flows from operating activities and is comprised of funds flows from operations less drilling and development and exploration and evaluation expenditures. The measure is used to determine the funding available for investing and financing activities including payment of dividends, repayment of long-term debt, reallocation into existing business units and deployment into new ventures. Reconciliation to primary financial statement measures can be found below. ($M) Cash flows from operating activities Changes in non-cash operating working capital Asset retirement obligations settled Fund flows from operations Drilling and development Exploration and evaluation Free cash flow Q4 2021 250,352 58,782 13,039 322,173 (119,002) (26,805) 176,366 Q4 2020 135,102 (7,161) 7,271 135,212 (52,903) (6,991) 75,318 2021 834,453 56,884 28,525 919,862 (339,390) (35,406) 545,066 2020 500,152 (12,365) 14,278 502,065 (352,481) (14,721) 134,863 Vermilion Energy Inc. ■ Page 62 ■ 2021 Annual Report   Fund flows from operations per basic and diluted share: Represents a non-GAAP ratio, 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 (total of segments measure) 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 debt: Net debt is a capital management measure in accordance with IAS 1 "Presentation of Financial Statements" and is most directly comparable to long-term debt. Net debt is comprised of long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities), 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. Net debt to four quarter trailing fund flows from operations: Represents a non-GAAP ratio that does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers, it is calculated as net debt (capital measure) over the FFO from the preceding 4 quarters. The measure is used to assess the ability to repay debt. Adjusted working capital: Represents a non-GAAP financial measure that does not have a standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers, defined as current assets less current liabilities, excluding current derivatives and current lease liabilities. The measure is used to calculate net debt, a capital measure disclosed above. ($M) Current assets Current derivative asset Current liabilities Current lease liability Current derivative liability Adjusted working capital deficiency Twelve Months Ended Dec 31, 2021 (472,845) 19,321 746,813 (15,032) (268,973) 9,284 Dec 31, 2020 (260,993) 16,924 433,128 (22,882) (130,919) 35,258 Net dividends: Represents a non-GAAP measures most directly comparable to dividends declared. We define net dividends as dividends declared less proceeds received for the issuance of shares pursuant to the Dividend Reinvestment Plan. Management monitors net dividends and net dividends as a percentage of fund flows from operations to assess our ability to pay dividends. Operating netback: a non-GAAP ratio most directly comparable to GAAP measure net earnings and is calculated as sales less royalties, operating expense, transportation costs, PRRT, and realized hedging gains and losses presented on a per unit basis. Management assesses operating netback as a measure of the profitability and efficiency of our field operations. Fund flows from operations per boe: a Non-GAAP ratio calculated as FFO by boe production. Fund flows from operations netback is used by management to assess the profitability of our business units and Vermilion as a whole. Payout: a non-GAAP financial measure most directly comparable to net dividends and is comprised of net dividends plus drilling and development costs, exploration and evaluation costs, and asset retirement obligations settled, the measure is used to assess the amount of cash distributed back to shareholders and reinvested in the business for maintaining production and organic growth. The reconciliation of the measure to primary financial statement measure can be found below. Management uses payout and payout as a percentage of fund flows from operations (also referred to as the payout or sustainability ratio). ($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 Q4 2021 — — — 119,002 26,805 13,039 158,846 49 % Q4 2020 — — — 52,903 6,991 7,271 67,165 50 % 2021 — — — 339,390 35,406 28,525 403,321 2020 90,067 (8,277) 81,790 352,481 14,721 14,278 463,270 44 % 92 % Vermilion Energy Inc. ■ Page 63 ■ 2021 Annual Report Return on capital employed (ROCE): Represents a non-GAAP ratio, ROCE is a measure that we use to analyze our profitability and the efficiency of our capital allocation process, the comparable primary financial statement measure is NIBT. 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. The following tables reconcile net dividends, payout, diluted shares outstanding, and free cash flow from their most directly comparable GAAP measures as presented in our financial statements: The following table reconciles the calculation of return on capital employed: ($M) Net earnings (loss) Taxes Interest expense EBIT Average capital employed Return on capital employed Twelve Months Ended Dec 31, 2021 1,148,696 233,197 73,075 1,454,968 4,417,260 Dec 31, 2020 (1,517,427) (359,972) 75,077 (1,802,322) 4,562,960 33 % (39) % Vermilion Energy Inc. ■ Page 64 ■ 2021 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, 2021. 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, 2021 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, 2021. (“Dion Hatcher”) Dion Hatcher President March 4, 2022 (“Lars Glemser”) Lars Glemser Vice President & Chief Financial Officer Vermilion Energy Inc. ■ Page 65 ■ 2021 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, 2021, 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, 2021, 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, 2021, of the Company and our report dated March 4, 2022, 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 4, 2022 Vermilion Energy Inc. ■ Page 66 ■ 2021 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, 2021 and 2020, the related consolidated statements of net earnings (loss) and comprehensive income (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, 2021 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, 2021 and 2020, and its financial performance and its cash flows for each of the two years in the period ended December 31, 2021, 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, 2021, 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 4, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit 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) relate 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 separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Capital Asset impairment reversal – Refer to Note 2 and 4 to the financial statements Critical Audit Matter Description The Company reviews all Cash Generating Units (“CGUs”) for indicators of potential impairment or reversal of impairment at each reporting date. As a result of increasing commodity price forecasts and a market capitalization appreciation during the year, indicators of impairment reversal were identified for those CGUs where impairment loss was recognized in prior years. An impairment reversal is recognized if the carrying amount of the CGU is less than 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 reversal 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 reversal totaling $1.30 billion were recorded for the year ended December 31, 2021. 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 67 ■ 2021 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 the CGUs included the following, among others: • • • • • • Evaluate management’s assessment and independently assess petroleum natural gas assets for indicators of impairment or impairment reversal. 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 forecasted 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 determined 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 taxable income, 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 - Income Taxes relating to the probability of forecasted future revenue and the length of the forecast period. /s/ Deloitte LLP Chartered Professional Accountants Calgary, Canada March 4, 2022 We have served as the Company's auditor since 2000. Vermilion Energy Inc. ■ Page 68 ■ 2021 Annual Report Consolidated Financial Statements Consolidated Balance Sheet thousands of Canadian dollars Note December 31, 2021 December 31, 2020 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 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 9 5 4 17 7 17 7 10 8 6 9 11 6,028 328,584 20,070 19,321 98,842 472,845 — 374,993 233,290 4,824,195 5,905,323 440,658 268,973 37,182 746,813 51,213 1,651,569 60,190 1,000,554 328,839 3,839,178 4,241,773 49,529 28,467 (2,253,624) 2,066,145 5,905,323 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 (Signed “Lorenzo Donadeo”) Lorenzo Donadeo, Director Vermilion Energy Inc. ■ Page 69 ■ 2021 Annual Report Consolidated Statements of Net Earnings (Loss) and Comprehensive Income (Loss) thousands of Canadian dollars, except share and per share amounts Note Dec 31, 2021 Dec 31, 2020 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 Loss (gain) on derivative instruments Interest expense General and administration Foreign exchange loss (gain) Other income Accretion Depletion and depreciation Impairment (reversal) expense Gain on business combinations Earnings (loss) before income taxes Income tax expense (recovery) Deferred Current Net earnings (loss) Other comprehensive income (loss) Currency translation adjustments Unrealized gain (loss) on hedges Comprehensive income (loss) Net earnings (loss) per share Basic Diluted Weighted average shares outstanding ('000s) Basic Diluted 2,079,761 (186,122) 147,091 2,040,730 147,091 413,013 77,161 41,565 508,478 73,075 52,877 71,576 (21,422) 43,552 571,688 (1,302,619) (17,198) 658,837 1,381,893 187,343 45,854 233,197 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) 1,148,696 (1,517,427) (55,632) 6,113 1,099,177 65,160 (36,752) (1,489,019) 7.13 6.97 (9.61) (9.61) 161,172 164,765 157,908 157,908 17 13 7 17 6 4 4 3 9 14 14 Vermilion Energy Inc. ■ Page 70 ■ 2021 Annual Report Consolidated Statements of Cash Flows thousands of Canadian dollars Operating Net earnings (loss) Adjustments: Accretion Depletion and depreciation Impairment (reversal) expense Gain on business combinations Unrealized loss on derivative instruments Equity based compensation Unrealized foreign exchange loss (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 (Repayments) borrowings on the revolving credit facility Payments on lease obligations Cash dividends Cash flows used in financing activities Foreign exchange loss 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, 2021 Dec 31, 2020 Year Ended 1,148,696 (1,517,427) 6 4 4 4 7 13 9 6 17 4 5 4 17 10 8 17 43,552 571,688 (1,302,619) (17,198) 181,094 41,565 64,963 778 187,343 (28,525) (56,884) 834,453 (339,390) (35,406) (131,628) 36,724 (469,700) (341,259) (22,187) — (363,446) (2,183) (876) 6,904 6,028 71,369 13,212 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 Vermilion Energy Inc. ■ Page 71 ■ 2021 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 earnings (loss) Dividends declared Share-settled dividends on vested equity based awards Balance, end of year Note 11 11 Year Ended Dec 31, 2021 Dec 31, 2020 4,181,160 — 49,922 8,365 2,326 4,241,773 66,250 33,201 (49,922) 49,529 77,986 (55,632) 6,113 28,467 (3,399,994) 1,148,696 — (2,326) (2,253,624) 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) Total shareholders' equity 2,066,145 925,402 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, 2021, accumulated losses of $4.7 million and $1.4 million were recognized in the consolidated statement of net earnings 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 72 ■ 2021 Annual Report Notes to the Consolidated Financial Statements for the year ended December 31, 2021 and 2020 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 4, 2022. 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. 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. Vermilion Energy Inc. ■ Page 73 ■ 2021 Annual Report 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. 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 Energy Inc. ■ Page 74 ■ 2021 Annual Report 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. 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. Vermilion Energy Inc. ■ Page 75 ■ 2021 Annual Report 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. 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. Vermilion Energy Inc. ■ Page 76 ■ 2021 Annual Report 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). 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. Vermilion Energy Inc. ■ Page 77 ■ 2021 Annual Report 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 78 ■ 2021 Annual Report 3. Segmented information Substantially all sales in the France and Netherlands operating segments for the years ended December 31, 2021 (2020 - France, Netherlands, and Ireland) were to one customer in each respective segment. In 2021, France and the Netherlands contributed more than 10% of Vermilion's consolidated revenues (2020 - France). Total assets Drilling and development Exploration and evaluation Crude oil and condensate sales NGL sales Natural gas sales Sales of purchased commodities Canada 3,100,322 190,242 — 625,053 86,932 189,790 — USA France Netherlands Germany Ireland Australia Corporate Total Year Ended December 31, 2021 545,296 32,540 — 80,208 17,723 14,484 — 771,707 39,587 121 279,263 — — — 227,779 422,030 427,362 20,198 6,839 2,640 — 19,234 1,073 32,607 — 1,261 — 23 — 293,083 99,328 214,402 — — — — 217,852 34,785 — 143,014 — — — — 192,975 5,905,323 1,543 27,373 339,390 35,406 — — 1,211 147,091 1,162,808 104,655 812,298 147,091 (338) (186,122) Royalties (113,651) (30,747) (37,666) (873) (2,847) Revenue from external customers 788,124 81,668 241,597 294,850 129,088 214,425 143,014 147,964 2,040,730 Purchased commodities — — — (38,764) (1,336) (26,497) — — — — (6,359) (4,205) — — (147,091) (147,091) — (77,161) (215,378) (16,992) (52,147) (35,269) (27,149) (14,889) (50,748) (441) (413,013) Transportation Operating General and administration (18,380) (4,563) (10,954) (1,243) (5,257) PRRT Corporate income taxes Interest expense Realized loss on derivative instruments Realized foreign exchange loss Realized other income — — — — — — — — — — — — — 9,120 — (46,567) — — — — — — — — — — — — — — 9 — — — — — — (3,457) (9,032) (15,688) 5,759 — — — — — 1,522 (73,075) (52,877) (15,688) (30,166) (73,075) (327,384) (327,384) (6,613) 22,200 (6,613) 22,200 Fund flows from operations 515,602 58,777 161,119 211,771 90,323 195,340 78,880 (391,950) 919,862 Total assets Drilling and development Exploration and evaluation Crude oil and condensate sales NGL sales Natural gas sales Sales of purchased commodities Canada 2,276,787 199,141 — 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 24,520 107,575 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 Vermilion Energy Inc. ■ Page 79 ■ 2021 Annual Report (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 Reconciliation of fund flows from operations to net earnings (loss): Fund flows from operations Equity based compensation Unrealized loss on derivative instruments Unrealized foreign exchange (loss) gain Accretion Depletion and depreciation Deferred tax (expense) recovery Gain on business combinations Impairment reversal (expense) Unrealized other expense Net earnings (loss) 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 reversal 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, 2021 919,862 (41,565) (181,094) (64,963) (43,552) (571,688) (187,343) 17,198 1,302,619 (778) 1,148,696 2021 3,107,104 180,806 339,390 551 11,495 1,302,619 (538,704) 528,714 (107,780) 4,824,195 10,849,047 (6,024,852) 4,824,195 Dec 31, 2020 502,065 (42,906) (100,955) 49,012 (35,318) (580,461) 374,313 — (1,682,344) (833) (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 In the fourth quarter of 2021, indicators of impairment reversal were present in our France - Neocomian CGU due to increases and stabilization of commodity prices resulting in increased cash flow estimates. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified CGU 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 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGU tested and $17.7 million (net of $6.2 million deferred income tax expense) of impairment reversal was recorded. Inputs used in the measurement of capital assets are not based on observable market data and fall within level 3 of the fair value hierarchy. The following benchmark price forecasts were used to calculate the recoverable amounts: Brent Crude ($ US/bbl) (1) Exchange rate (CAD/USD) (1) 2023 2022 2026 76.00 72.51 71.24 72.66 74.12 75.59 77.11 78.66 80.22 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79 0.79 2024 2027 2025 2028 2029 2030 2031 (2) 81.83 0.79 The forecast benchmark prices listed are adjusted for quality differentials, heat content, transportation and marketing costs and other factors specific to the Company’s operations when determining recoverable amounts. In 2032 and beyond, commodity price forecasts are inflated at a rate of 2.0% per annum. In 2031 and beyond there is no escalation of exchange rates. (2) Vermilion Energy Inc. ■ Page 80 ■ 2021 Annual Report The following are the results of tests completed, recoverable amounts, and sensitivity impacts which would decrease impairment reversals taken: Operating Segment France Total (1) CGU Neocomian Impairment Reversal (1) Recoverable Amount 23,923 23,923 129,189 129,189 1% increase in discount rate 6,359 6,359 5% decrease in pricing 12,894 12,894 Impairment reversals are subject to the lower of the recoverable amount and the carrying value, which includes depletion and depreciation of the CGU had no impairment charges been previously taken. In the third quarter of 2021, indicators of impairment reversal were present in our Ireland CGU due to increased European forecast gas prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the Ireland CGU and 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 12.0%. Based on the results of the impairment reversal calculations completed, the recoverable amount was determined to be greater than the carrying value and $16.7 million (net of $5.5 million deferred income tax expense) of impairment reversal was recorded. Inputs used in the measurement of capital assets are not based on observable market data and fall within level 3 of the fair value hierarchy. In the second quarter of 2021, indicators of impairment reversal were present in our Alberta, Saskatchewan, Germany, Ireland and United States CGU due to an increase and stabilization in forecast oil and gas prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified 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 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $460.4 million (net of $133.2 million deferred income tax expense) of impairment reversal was recorded. Inputs used in the measurement of capital assets are not based on observable market data and fall within level 3 of the fair value hierarchy. The following benchmark price forecasts were used to calculate the recoverable amounts: Brent Crude ($ US/bbl) (1) WTI Crude ($ US/bbl) (1) NBP (€/mmbtu) (1) Exchange rate (CAD/USD) (1) 2022 2024 2023 2H2021 2025 73.25 69.55 66.42 67.75 69.11 70.49 71.90 73.34 74.80 71.00 66.30 62.42 63.67 64.95 66.25 67.57 68.92 70.30 6.23 0.80 7.19 0.81 5.65 0.80 5.99 0.80 9.17 0.81 5.75 0.80 5.87 0.80 6.11 0.80 5.53 0.80 2028 2027 2026 2029 2030 (2) 76.30 71.71 6.35 0.80 The forecast benchmark prices listed are adjusted for quality differentials, heat content, transportation and marketing costs and other factors specific to the Company’s operations when determining recoverable amounts. In 2031 and beyond, commodity price forecasts are inflated at a rate of 2.0% per annum. In 2031 and beyond there is no escalation of exchange rates. (2) The following are the results of tests completed, recoverable amounts, and sensitivity impacts which would decrease impairment reversals taken: Operating Segment Canada Canada Ireland Germany United States Total (1) CGU Alberta Saskatchewan Ireland Germany - Gas United States Impairment Reversal (1) Recoverable Amount 88,708 270,897 133,005 43,735 57,261 593,606 988,447 1,500,139 339,315 168,290 429,322 3,425,513 1% increase in discount rate — 80,724 9,136 — 26,903 116,763 5% decrease in pricing 29,716 156,875 23,975 — 44,317 254,883 Impairment reversals are subject to the lower of the recoverable amount and the carrying value, which includes depletion and depreciation of the CGU had no impairment charges been previously taken. In the first quarter of 2021, indicators of impairment reversal were present in our Australia, Alberta, Saskatchewan, and United States CGUs due to an increase and stabilization in forecast oil prices. As a result of the indicators of impairment reversal, the Company performed impairment reversal calculations on the identified 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 12.0%. Based on the results of the impairment reversal calculations completed, recoverable amounts were determined to be greater than the carrying values of the CGUs tested and $492.2 million (net of $170.7 million deferred income tax expense) of impairment reversal was recorded. Inputs used in the measurement of capital assets are not based on observable market data and fall within level 3 of the fair value hierarchy. Vermilion Energy Inc. ■ Page 81 ■ 2021 Annual Report The following benchmark price forecasts were used to calculate the recoverable amounts: Brent Crude ($ US/bbl) (1) WTI Crude ($ US/bbl) (1) Exchange rate (CAD/USD) (1) 2021 2022 2023 2029 2030 (2) 64.50 62.08 61.69 62.84 64.02 65.22 66.45 67.70 68.97 70.35 62.00 58.58 57.69 58.84 60.02 61.22 62.45 63.70 64.97 66.27 0.78 0.78 0.78 0.78 0.79 0.80 0.78 0.78 0.78 0.78 2026 2024 2025 2027 2028 The forecast benchmark prices listed are adjusted for quality differentials, heat content, transportation and marketing costs and other factors specific to the Company’s operations when determining recoverable amounts. In 2031 and beyond, commodity price forecasts are inflated at a rate of 2.0% per annum. In 2031 and beyond there is no escalation of exchange rates. (2) The following are the results of tests completed, recoverable amounts, and sensitivity impacts which would decrease impairment reversals taken: Operating Segment Australia Canada Canada United States Total (1) CGU Australia Alberta Saskatchewan United States Impairment Reversal (1) Recoverable Amount 82,016 232,724 290,241 57,885 662,866 189,749 859,706 1,206,343 364,242 2,620,040 1% increase in discount rate 6,921 46,223 69,104 24,180 146,428 5% decrease in pricing 19,756 81,212 143,281 41,345 285,594 Impairment reversals are subject to the lower of the recoverable amount and the carrying value, which includes depletion and depreciation of the CGU had no impairment charges been previously taken. Germany Acquisitions In April 2021, Vermilion completed an acquisition within its Germany Gas CGU for total consideration of $11.6 million, in which $49.2 million in capital assets, $12.4 million in asset retirement obligations, and $7.9 million in deferred tax liabilities were recognized. The acquisition resulted in a gain on acquisition of $17.2 million which was due to increases in commodity prices from the effective date to close and was accounted for as a business combination under IFRS 3. In December 2021, Vermilion completed an acquisition within its Germany Gas CGU for total consideration of $23.2 million. Included within total consideration are contingent payment provisions for production and revenue targets in which $8.4 million has been recognized in accordance with IAS 37. The acquisition increases Vermilion's non-operated working interest within the Dümmersee-Uchte region and was funded with cash flows from operating activities. Vermilion applied the optional concentration test under IFRS 3 Business Combinations which resulted in the purchase being accounted for as an asset acquisition. Assets in Wyoming In July 2021, Vermilion acquired mineral leasehold land and oil and gas producing assets from a private oil company for total cash consideration of $92.0 million. The assets are located in the Powder River Basin and are adjacent to Vermilion's Hilight assets within the USBU cash generating unit ("CGU"). The acquired assets complement Vermilion's existing Powder River operations and were funded with cash flows from operating activities. Vermilion applied the optional concentration test under IFRS 3 Business Combinations which resulted in the purchase being accounted for as an asset acquisition. Right-of-use assets The following table discloses the carrying balance and depreciation charge relating to right-of-use assets by class of underlying asset as at and for the year ended December 31, 2021: ($M) Office space Gas processing facilities Oil storage facilities Vehicles and equipment Total As at Dec 31, 2021 As at Dec 31, 2020 Depreciation Balance Depreciation 8,921 7,691 2,644 3,629 22,885 38,216 20,504 11,480 6,038 76,238 9,835 7,109 2,738 3,608 23,290 Balance 49,134 27,593 15,231 8,035 99,993 Vermilion Energy Inc. ■ Page 82 ■ 2021 Annual Report 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 2021 254,094 — 35,406 110 (11,495) (35,549) (9,276) 233,290 408,494 (175,204) 233,290 2021 467,737 28,655 85,022 (28,525) 43,552 439,849 (35,736) 1,000,554 2020 286,148 1,380 14,721 (500) — (54,838) 7,183 254,094 395,615 (141,521) 254,094 2020 618,200 1,484 74,235 (14,278) 35,318 (276,673) 29,451 467,737 Vermilion calculated the present value of the obligations using a credit-adjusted risk-free rate, calculated using a credit spread of 4.9% as at December 31, 2021 (December 31, 2020 - 10.0%) added to risk-free rates based on long-term, risk-free government bonds. Vermilion's credit spread is determined using the Company's expected cost of borrowing at the end of 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, 2021 1.8 % 1.9 % 0.8 % (0.3) % 0.1 % 0.5 % 1.9 % Dec 31, 2020 1.2 % 1.6 % 0.3 % (0.6) % (0.2) % (0.1) % 1.3 % Vermilion has estimated the asset retirement obligations based on current cost estimates of $2.0 billion (2020 - $2.0 billion). Current cost estimates are inflated to the estimated time of abandonment using inflation rates of between 1.1% and 3.1% (2020 - between 0.2% and 2.9%), resulting in inflated cost estimates of $3.1 billion (2020 - $2.5 billion). These payments are expected to be made between 2022 and 2081, with the majority of costs occurring between 2030 and 2037 ($0.9 billion) and 2043 to 2050 ($1.1 billion). A 0.5% increase/decrease in the discount rate applied to asset retirement obligations would decrease/increase asset retirement obligations by approximately $73.0 million. A one-year increase/decrease in the expected timing of abandonment spend would decrease/increase asset retirement obligations by approximately $37.3 million. Vermilion Energy Inc. ■ Page 83 ■ 2021 Annual Report 7. Derivative instruments The following table reconciles the change in the fair value of Vermilion’s derivative instruments: Fair value of contracts, beginning of year Reversal of opening contracts settled during the year Realized (loss) gain on contracts settled during the year Unrealized loss during the year on contracts outstanding at the end of the year Net receipt from counterparties on contract settlements during the year Unrealized loss on derivatives designated as cash flow hedges Fair value of contracts, end of year Comprised of: Current derivative asset Current derivative liability Non-current derivative asset Non-current derivative liability Fair value of contracts, end of year The loss (gain) on derivative instruments for 2021 and 2020 were comprised of the following: Realized loss (gain) on contracts settled during the year Reversal of opening contracts settled during the year Unrealized loss on contracts outstanding at the end of the year Loss (gain) on derivative instruments Year Ended Dec 31, 2021 (119,772) 112,679 (327,384) (293,773) 327,385 — (300,865) 19,321 (268,973) — (51,213) (300,865) Dec 31, 2020 (10,991) 12,811 109,093 (113,766) (109,093) (7,826) (119,772) 16,924 (130,919) 2,451 (8,228) (119,772) Year Ended Dec 31, 2021 327,384 (112,679) 293,773 508,478 Dec 31, 2020 (109,093) (12,811) 113,766 (8,138) Vermilion executes derivative instruments where there is an underlying exposure to offset the position. Consistent with our accounting policy we do not match unrealized gains / losses on these contracts with the underlying exposure. Please refer to Note 17 (Supplemental information) for a listing of Vermilion's outstanding derivative instruments as at December 31, 2021. 8. Leases Vermilion had the following future commitments associated with its lease obligations: ($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 As at Dec 31, 2021 19,045 38,136 25,226 3,686 86,093 (10,871) 75,222 (15,032) 60,190 27,368 5,181 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 Vermilion Energy Inc. ■ Page 84 ■ 2021 Annual Report 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, 2021 Dec 31, 2020 477,903 74,043 2,879 8,651 83,461 (268,615) (3,329) 374,993 104,258 322,641 (10,518) (87,542) 328,839 420,060 33,064 14,766 12,218 7,581 443 (3,635) 484,497 184,144 112,818 1,682 (34,372) 264,272 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, 2021 1,381,893 24.61 % 340,084 Dec 31, 2020 (1,877,399) 25.31 % (475,170) 27,281 43,301 6,794 (14,391) 5,862 (190,423) — 14,689 233,197 (15,157) (14,907) 2,445 (2,598) 33,770 141,315 — (29,670) (359,972) (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 2021 were: 27.4% in France, 50.0% in the Netherlands, 31.4% in Germany, 25.0% in Ireland, and 21.0% in the United States (2020: 28.9% in France, 50.0% in the Netherlands, 31.6% 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. On December 21, 2021, the Dutch Senate approved the 2022 Tax Plan that included an increase to the Dutch corporate tax rate from 25.0% in 2021 to 25.8% in 2022. Due to the tax regime applicable to natural gas producers in the Netherlands, the increase to the corporate tax rate is not expected to have a material impact to Vermilion taxes in the Netherlands. At December 31, 2021, Vermilion had $2.7 billion (2020 - $2.9 billion) of unused tax losses of which $1.4 billion (2020 - $1.3 billion) relates to Vermilion's Canada segment and expire between 2028 and 2041. The majority of the remaining unused tax losses relate to Vermilion's Ireland segment and do not expire. Vermilion Energy Inc. ■ Page 85 ■ 2021 Annual Report At December 31, 2021, Vermilion recognized $190.4 million (2020 - derecognized $141.3 million) of deferred income tax assets primarily relating to the aforementioned non-expiring tax loss in Ireland that are expected to be utilized due to an increase in forecast commodity prices. The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax liabilities have not been recognized as at December 31, 2021 is approximately $0.4 billion (2020 – 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, 2021 1,273,755 377,814 1,651,569 Dec 31, 2020 1,555,215 378,633 1,933,848 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, 2021 was $387.0 million (December 31, 2020 - $329.1 million). The following table reconciles the change in Vermilion’s long-term debt: Balance at January 1 (Repayments) borrowings on the revolving credit facility Amortization of transaction costs Foreign exchange Balance at December 31 2021 1,933,848 (341,259) 778 58,202 1,651,569 2020 1,924,665 22,183 833 (13,833) 1,933,848 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, 2021, 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, 2021 2,100,000 (1,273,755) (11,035) 815,210 Dec 31, 2020 2,100,000 (1,555,215) (23,210) 521,575 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, 2021, 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, 2021 As at Less than 4.0 Less than 3.5 Greater than 2.5 1.61 1.24 14.78 Dec 31, 2020 3.48 2.82 8.12 Vermilion Energy Inc. ■ Page 86 ■ 2021 Annual Report The financial covenants include financial measures defined within the revolving credit facility agreement that are not defined under IFRS. These financial measures are defined by the revolving credit facility agreement as follows: • • • • Consolidated total debt: Includes all amounts classified as “Long-term debt” and “Lease obligations” (including the current portion included within "Accounts payable and accrued liabilities" but excluding operating leases as defined under IAS 17) on the balance sheet. Consolidated total senior debt: Defined as consolidated total debt excluding unsecured and subordinated debt. Consolidated EBITDA: Defined as consolidated net earnings before interest, income taxes, depreciation, accretion and certain other non-cash items, adjusted for the impact of the acquisition of a material subsidiary. Consolidated total interest expense: Includes all amounts classified as "Interest expense", but 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, 2021, 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, 2021 and December 31, 2020, Vermilion was in compliance with the above covenants. Senior unsecured notes On March 13, 2017, Vermilion issued US $300.0 million of senior unsecured notes at par. The notes bear interest at a rate of 5.625% per annum, to be paid semi-annually on March 15 and September 15. The notes mature on March 15, 2025. As direct senior unsecured obligations of Vermilion, the notes rank equally with existing and future senior unsecured indebtedness of the Company. The senior unsecured notes were recognized at amortized cost and include the transaction costs directly related to the issuance. Vermilion may redeem some or all of the senior unsecured notes at the redemption prices set forth in the following table plus any accrued and unpaid interest, if redeemed during the twelve-month period beginning on March 15 of each of the years indicated below: Year 2021 2022 2023 and thereafter 11. Shareholders' capital Redemption price 102.813 % 101.406 % 100.000 % The following table reconciles the change in Vermilion’s shareholders’ capital: Shareholders' capital Balance at January 1 Shares issued for the Dividend Reinvestment Plan Vesting of equity based awards Shares issued for equity based compensation Share-settled dividends on vested equity based awards Balance at December 31 2021 2020 Shares ('000s) Amount ($M) Shares ('000s) 158,724 — 2,385 911 241 162,261 4,181,160 — 49,922 8,365 2,326 4,241,773 156,290 619 1,103 415 297 158,724 Amount ($M) 4,119,031 8,277 49,188 3,203 1,461 4,181,160 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, 2021 were $— million or $0.00 per common share (2020 - $90.1 million or $0.58 per common share). Subsequent to December 31, 2021 Vermilion declared a dividend of $0.06 per share to be paid April 18, 2022. Vermilion Energy Inc. ■ Page 87 ■ 2021 Annual Report 12. Capital disclosures Vermilion defines capital as net debt (long-term debt (excluding unrealized foreign exchange on swapped USD borrowings) plus adjusted working capital (defined as current assets less current liabilities, excluding current derivatives and current lease liabilities)) and shareholders’ capital. In managing capital, Vermilion reviews whether fund flows from operations is sufficient to fund capital expenditures, dividends, and asset retirement obligations. Vermilion monitors the ratio of net debt to fund flows from operations. As at December 31, 2021, our ratio of net debt to trailing fund flows from operations is 1.79 (2020 - 4.00 (revised)). Vermilion manages the ratio of net debt to fund flows from operations (refer to Note 3 - Segmented information) by monitoring capital expenditures, dividends, and asset retirement obligations with expected fund flows from operations. Vermilion intends for the ratio of net debt to fund flows from operations to trend towards 1.0 over time. The following table calculates Vermilion’s ratio of net debt to fund flows from operations: Year Ended Dec 31, 2021 1,651,569 9,284 (16,067) 1,644,786 Dec 31, 2020 (revised) 1,933,848 35,258 40,219 2,009,325 1.79 4.00 Long-term debt Adjusted working capital deficiency (1) Unrealized FX on swapped USD borrowings Net debt Ratio of net debt to four quarter trailing fund flows from operations (1) Adjusted working capital is defined as current assets (excluding current derivatives), less current liabilities (excluding current derivatives and current lease liabilities). 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 2021 6,244 2,745 (1,520) (1,064) 6,405 2020 2,268 5,120 (650) (494) 6,244 For the year ended December 31, 2021, the awards had a weighted average grant date fair value of $9.53 (2020 - $5.92). 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 (2021 - 1.1; 2020 - 1.2) adjusted by an estimated annual forfeiture rate (2021 - 4.2%; 2020 - 5.8%). Equity based compensation expense of $31.3 million was recorded during the year ended December 31, 2021 (2020 - $38.9 million) relating to the awards. For the year ended December 31, 2021, there were 388,896 DSUs granted and outstanding with a weighted average grant date fair value of $11.49. Equity based compensation expense of $1.9 million was recorded during the year ended December 31, 2021 (2020 - $0.8 million) relating to the DSUs. Vermilion Energy Inc. ■ Page 88 ■ 2021 Annual Report 14. Per share amounts Basic and diluted net earnings (loss) per share have been determined based on the following: Net earnings (loss) Basic weighted average shares outstanding ('000s) Dilutive impact of equity based compensation ('000s) Diluted weighted average shares outstanding ('000s) Basic earnings per share Diluted earnings per share 15. Financial instruments Classification of financial instruments Year Ended Dec 31, 2021 1,148,696 Dec 31, 2020 (1,517,427) 161,172 3,593 164,765 7.13 6.97 157,908 — 157,908 (9.61) (9.61) The following table summarizes the carrying value relating to Vermilion’s financial instruments: ($M) As at Dec 31, 2021 FVTPL FVTOCI Amortized Cost As at Dec 31, 2020 Total FVTPL FVTOCI Amortized Cost Total Cash and cash equivalents Derivative assets Derivative liabilities Accounts receivable Accounts payable and accrued liabilities Lease obligations Long-term debt (1) 6,028 19,321 (320,186) — — — — — — — 328,584 (440,658) (60,190) — 6,028 — 19,321 — (320,186) — 328,584 — (440,658) (60,190) — — (1,651,569) (1,651,569) 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) (1) The carrying value of the above equals fair value except for long-term debt. The fair value of long-term debt was $1,660,778 (2020 - $1,884,296). 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, 2021 and 2020. 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. Vermilion Energy Inc. ■ Page 89 ■ 2021 Annual Report Commodity price risk Vermilion is exposed to commodity price risk on its derivative assets and liabilities which are used as part of the Company’s risk management program to mitigate the effects of changes in commodity prices on future cash flows. While transactions of this nature relate to future petroleum and natural gas production, Vermilion does not designate these derivative assets and liabilities as accounting hedges. As such, changes in commodity prices impact the fair value of derivative instruments and the corresponding gains or losses recognized on derivative instruments. Currency risk Vermilion is exposed to currency risk on its financial instruments denominated in foreign currencies. These financial instruments include cash and cash equivalents, accounts receivables, accounts payables, lease obligations, long-term debt, derivative assets and derivative liabilities. These financial instruments are primarily denominated in the US dollar and the Euro. Vermilion monitors its exposure to currency risk and reviews whether the use of derivative financial instruments is appropriate to manage potential fluctuations in foreign exchange rates. Interest rate risk Vermilion is exposed to interest rate risk on its revolving credit facility, which consists of short-term borrowing instruments that bear interest at market rates. Thus, changes in interest rates could result in an increase or decrease in the amount paid by Vermilion to service this debt. The following table summarizes the increase (positive values) or decrease (negative values) to net earnings before tax due to a change in the value of Vermilion’s financial instruments as a result of a change in the relevant market risk variable. This analysis does not attempt to reflect any interdependencies between the relevant risk variables. ($M) Currency risk - Euro to Canadian dollar $0.01 increase in strength of the Canadian dollar against the Euro $0.01 decrease in strength of the Canadian dollar against the Euro Currency risk - US dollar to Canadian dollar $0.01 increase in strength of the Canadian dollar against the US $ $0.01 decrease in strength of the Canadian dollar against the US $ Commodity price risk - Crude oil US $5.00/bbl increase in crude oil price used to determine the fair value of derivatives US $5.00/bbl decrease in crude oil price used to determine the fair value of derivatives Commodity price risk - European natural gas € 0.5/GJ increase in European natural gas price used to determine the fair value of derivatives € 0.5/GJ decrease in European natural gas price used to determine the fair value of derivatives 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, 2021 Dec 31, 2020 (273) 273 2,086 (2,086) (9,324) 1,636 (10,554) 10,554 3,750 (3,750) (873) 873 2,711 (2,711) (11,783) 7,207 (23,904) 24,088 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, 2021, Vermilion’s maximum exposure to receivable credit risk was $347.9 million (December 31, 2020 - $215.5 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, 2021 and 2020 is not material. As at the balance sheet date, approximately 0.8% (2020 - 1.4%) of the accounts receivable balance was outstanding for more than 90 days. Vermilion considers the balance of accounts receivable to be collectible. Vermilion Energy Inc. ■ Page 90 ■ 2021 Annual Report Vermilion’s derivative assets primarily relates to the fair value of financial instruments used as part of the Company’s risk management program to mitigate the effects of changes in commodity prices on future cash flows. Vermilion manages this risk by monitoring the creditworthiness of counterparties, transacting primarily with counterparties that have investment grade third party credit ratings, and by limiting the concentration of financial exposure to individual counterparties. As a result, Vermilion has not obtained collateral or other security to support its financial derivatives. Vermilion’s cash deposited in financial institutions and guaranteed investment certificates are also subject to counterparty credit risk. Vermilion mitigates this risk by transacting with financial institutions with high third party credit ratings. Liquidity risk: Liquidity risk is the risk that Vermilion will encounter difficulty in meeting obligations associated with its financial liabilities. Vermilion does not consider this to be a significant risk as its financial position and available committed borrowing facility provide significant financial flexibility and allow Vermilion to meet its obligations as they come due. The following table summarizes Vermilion’s undiscounted non-derivative financial liabilities and their contractual maturities: 3 months to 1 year 25,475 23,204 ($M) December 31, 2021 December 31, 2020 1 month 191,298 92,991 1 month to 3 months 223,885 181,475 1 year to 5 years 1,718,475 2,006,530 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, 2021 and 2020: Short-term benefits Equity based compensation Number of individuals included in the above amounts Year Ended Dec 31, 2021 4,654 14,570 19,224 18 Dec 31, 2020 4,800 13,169 17,969 18 During the year ended December 31, 2021, Vermilion recorded $0.2 million of office rent recoveries (2020 - $0.2 million) relating to an office sub- lease to a company whose Managing Director is also a member of Vermilion's Board of Directors. This related party transaction is provided in the normal course of business under the same commercial terms and conditions as transactions with unrelated companies and is recorded at the exchange amount. Vermilion Energy Inc. ■ Page 91 ■ 2021 Annual Report 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, 2021 Dec 31, 2020 (132,507) (6,668) (71,156) 142,988 32,643 14,540 (20,160) (56,884) 36,724 (20,160) 15,332 15,987 (5,476) (14,772) (877) (6,251) 3,943 12,365 (8,422) 3,943 As at December 31, 2021, prepaid expenses includes a deposit of $68.5 million related to a previously announced transaction to acquire an additional working interest within the Corrib natural gas project. 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, 2021 5,901 127 6,028 Dec 31, 2020 6,777 127 6,904 Year Ended Dec 31, 2021 73,739 54,771 128,510 Dec 31, 2020 70,414 60,551 130,965 Vermilion Energy Inc. ■ Page 92 ■ 2021 Annual Report The following tables summarize Vermilion's outstanding risk management positions as at December 31, 2021: 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 2022 Q2 2022 Q3 2022 Q4 2022 WTI Q1 2022 Q2 2022 Q3 2022 Q4 2022 bbl bbl bbl bbl bbl bbl bbl bbl USD USD USD USD USD USD USD USD AECO Basis (AECO less NYMEX Henry Hub) Q1 2022 Q2 2022 Q3 2022 Q4 2022 NYMEX Henry Hub Q2 2022 Q3 2022 Q4 2022 NBP Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 Q2 2023 TTF Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2023 mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf mcf USD USD USD USD USD USD USD EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR 2,700 3,450 2,600 2,600 9,550 9,300 4,500 4,500 — — — — 30,000 30,000 10,109 36,851 27,024 19,654 19,654 12,284 4,913 2,457 2,457 2,457 2,457 2,457 62.50 63.59 63.94 63.94 60.52 60.93 60.82 60.82 — — — — 3.33 3.33 3.33 6.04 5.07 5.11 5.11 5.19 5.86 4.84 4.84 4.84 4.84 4.84 2,700 3,450 2,600 2,600 9,550 9,300 4,500 4,500 — — — — 30,000 30,000 10,109 36,851 27,024 19,654 19,654 12,284 4,913 2,457 2,457 2,457 2,457 2,457 81.01 83.34 84.35 84.35 75.89 78.39 82.92 82.92 — — — — 4.81 4.81 4.81 7.59 5.84 6.24 6.23 6.45 8.24 5.64 5.64 5.64 5.64 5.64 2,700 3,450 2,600 2,600 9,550 9,300 4,500 4,500 — — — — — — — 34,394 27,024 19,654 19,654 12,284 4,913 2,457 2,457 2,457 2,457 2,457 47.50 47.50 47.50 47.50 45.52 45.54 45.00 45.00 — — — — — — — 3.63 3.50 3.66 3.66 3.75 4.40 3.52 3.52 3.52 3.52 3.52 500 52.00 — — — — — — — 30,000 35,000 35,000 11,793 — — — 4,913 4,913 4,913 4,913 — — — — — — — — — — — — — — (1.10) (1.09) (1.09) (1.09) — — — 4.91 4.91 4.91 4.91 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — VET Equity Swaps Swap Swap Jan 2020 - Apr 2023 Jan 2020 - Apr 2023 Initial Share Price Share Volume 20.9788 22.4587 CAD CAD 2,250,000 1,500,000 Foreign Currency Swaps Notional Amount Notional Amount Average Rate Swap January 2022 562,166,987 USD 700,000,000 CAD 1.2452 Cross Currency Interest Rate Notional Amount Receive Rate Notional Amount Pay Rate Swap January 2022 398,373,887 USD LIBOR + 1.70% 500,000,000 CAD CDOR + 1.08% Vermilion Energy Inc. ■ Page 93 ■ 2021 Annual Report DIRECTORS Lorenzo Donadeo 1 Calgary, Alberta Larry J. Macdonald 2, 4, 8, 10 Calgary, Alberta James J. Kleckner Jr. 8, 10 Edwards, Colorado Carin Knickel 5, 8, 12 Golden, Colorado Stephen P. Larke 4, 6, 11 Calgary, Alberta Timothy R. Marchant 7, 10, 12 Calgary, Alberta Robert Michaleski 3, 6 Calgary, Alberta William Roby 8, 9, 12 Katy, Texas Manjit Sharma 4,8 Toronto, Ontario Judy Steele 6,12 Halifax, Nova Scotia 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 OFFICERS / CORPORATE SECRETARY Lorenzo Donadeo * Executive Chairman Dion Hatcher * President Lars Glemser * Vice President & Chief Financial Officer Terry Hergott Vice President Marketing Yvonne Jeffery Vice President Sustainability Darcy Kerwin * Vice President International & HSE Bryce Kremnica * Vice President North America Geoff MacDonald Vice President Geosciences Kyle Preston Vice President Investor Relations Averyl Schraven Vice President People and Culture Jenson Tan * Vice President Business Development Gerard Schut * Vice President European Operations Robert (Bob) J. Engbloom Corporate Secretary * Executive Committee 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 Vermilion Energy Inc. ■ Page 94 ■ 2021 Annual Report 

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