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