CALGARY, Nov. 7, 2013 /PRNewswire/ - Vermilion Energy Inc.
("Vermilion", "We", "Our", "Us" or the "Company") (TSX, NYSE: VET)
is pleased to report interim operating and unaudited financial
results for the three and nine months ended September 30, 2013.
HIGHLIGHTS
- Recorded average production of 41,510 boe/d during the third
quarter of 2013, compared to 42,813 boe/d in the prior quarter and
36,546 boe/d in the third quarter of 2012. The modest
decrease in quarter-over-quarter production was attributable to
seasonal changes in Canadian drilling and tie-in activity,
turnaround activity in the
Netherlands and management of available well deliverability
in Australia, Canada and the
Netherlands to achieve corporate production growth
targets. Year-over-year production growth of 14% was achieved
through continued development of the Cardium and Mannville in Canada, and strong production additions from
the 2013 drilling programs in France and Australia.
- Generated fund flows from operations of $165.6 million ($1.63/share) in the third quarter of 2013, as
compared to $174.6 million
($1.73/share) in the prior quarter
and $137.1 million ($1.39/share) in the third quarter of 2012.
Fund flows from operations decreased 5% as compared to the prior
quarter due to increased taxes in France and foreign exchange impacts, but
increased 21% on a year-over-year basis.
- We continue to benefit from our exposure to Brent-based crude
oil, WTI-based crude oil, and European natural gas pricing.
Our Brent-based crude production represents approximately 45% of
total production and 65% of total crude oil and liquids
production. Our Brent-based production continues to attract a
consolidated premium of more than $4.00/bbl to the quoted Dated Brent reference
price, which increased to US$110.37/bbl during the third quarter. Our
Canadian-based crude production also benefited as it is indirectly
priced off the WTI reference price, which increased by US$11.60/bbl to US$105.82/bbl during the quarter.
Vermilion's natural gas production
in the Netherlands received an
average price of $10.18/mcf during
the third quarter, compared to $2.43/mcf for AECO.
- Strong operational performance across all of our operating
regions continues to provide us with flexibility to manage the
composition of produced volumes while exceeding our annual
production targets. With the contribution of production
associated with our Netherlands
acquisition, which closed October 10,
2013, we now expect to achieve average annual production
volumes at the upper end of our current guidance range of 40,500 to
41,000 boe/d. Our original 2013 guidance of 39,000 to 40,500
boe/d was previously increased following both the first and second
quarters due to better-than-expected results from our capital
program. We expect to achieve organic production growth in
all four of our business units in 2013 as compared to 2012.
- Continued development of our extensive position in the
high-quality West Pembina region of the Cardium light oil
play. During the third quarter, we drilled 16 (14.1 net)
Cardium wells and brought 11 (10.6 net) Cardium wells on
production. The third quarter drilling program included five
1.5-mile and two 2-mile wells. Based on strong results
year-to-date, the remainder of the 2013 Cardium drilling program
will comprise a higher percentage of 1.5-mile, 1.75-mile and 2-mile
wells.
- Drilled and completed our fifth operated Mannville well in 2013 and brought one well on
production during the third quarter. Average rate from the
five operated wells to date is currently 2.3 mmcf/d sales gas and
340 bbls/d of condensate and NGLs (77% condensate), with the
average well in its third month of production.
- We continued to appraise our significant position in the
Duvernay liquids-rich natural gas
resource play where we have amassed a total land position of 321
net sections as of the end of the third quarter. Our land position,
which spans the liquids-rich gas fairway in three contiguous
blocks, has been assembled for approximately $76 million dollars ($375/acre). We currently anticipate spud of our
first horizontal Duvernay well
prior to year-end 2013, with completion planned for early 2014.
- In Ireland, tunneling
operations re-started on November 3,
2013. Tunneling operations had been suspended
following an industrial accident, which resulted in a fatality at
the project worksite on September 8,
2013. Onshore pipelining, offshore umbilical-laying,
seismic acquisition and workover activities for our Corrib project
were not impacted by the suspension. The effective impact of
the delay in tunneling operations is not fully determinable at this
time, as a portion of the tunneling delay may be recouped through
accelerated completion of other project activities. However,
based on an early review of our deterministic schedule for
remaining construction and commissioning activities, we believe it
is prudent to revise our expectations for timing of first gas to
mid-2015 from earlier expectations for start-up at the end of 2014
or early 2015. Following successful subsea well operations
conducted on one of the production wells during the third quarter
of 2013, we are increasing our peak production estimate at Corrib
from 54 mmcf/d (9,000 boe/d) to approximately 58 mmcf/d
(approximately 9,700 boe/d) net to Vermilion.
- Subsequent to the third quarter, we announced the acquisition
of interests in nine concessions in the
Netherlands from Northern Petroleum PLC. The
acquisition closed on October 10,
2013, and is expected to add average production of
approximately 400 boe/d in 2014 (taking into account working
interest adjustments expected to occur upon reaching anticipated
payout of certain license agreements). The acquisition also
adds 2.3 million boe of proved plus probable reserves(1)
and 298,500 net acres of land, of which approximately 98% is
currently undeveloped.
- On November 6, 2013, we announced
an agreement to acquire a 25% contractual participation interest in
a four partner consortium in Germany from GDF Suez S.A. ("GDF"). The
acquisition will enable us to participate in the exploration and
development, production and transportation of natural gas from the
assets which include four gas producing fields across eleven
production licenses. The assets are estimated to produce at a
company-interest average rate of approximately 18 mmcf/d (3,000
boe/d) in 2013 and have estimated proved plus probable reserves of
10.1 mmboe(2) net as of year-end 2013. The assets
are characterized by a low effective decline rate of approximately
16% annually and have an estimated reserve life index of
approximately 9.2 years. In addition to the production licenses, a
surrounding exploration license will also be acquired pursuant to
the acquisition. The exploration and production licenses
comprise 204,000 gross acres, of which 85% is in the exploration
license. The acquisition is well aligned with our European focus,
and will increase our exposure to the strong fundamentals and
pricing of European natural gas markets. We believe that our
experience with conventional and unconventional oil and gas
development, coupled with new access to proprietary technical data,
positions us for future development and expansion opportunities in
both Germany and the greater
European region.
(1) |
Estimated proved plus probable
reserves attributable to the assets as evaluated by GLJ Petroleum
Consultants Ltd ("GLJ") in a report dated September 16, 2013, with
an effective date of December 31, 2012. |
(2) |
Estimated proved plus probable
reserves attributable to the assets as evaluated by GLJ in a report
dated November 5, 2013, with an effective date of December 31,
2013, using the GLJ (2013-10) price forecast. |
Conference Call and Audio Webcast Details
Vermilion will discuss these
results in a conference call to be held on Thursday, November 7, 2013 at 9:00 AM MST (11:00 AM
EST). To participate, you may call 1-888-231-8191
(Canada and US Toll Free) or
1-647-427-7450 (International and Toronto
Area). The conference call will also be available on
replay by calling 1-855-859-2056 using conference ID number
68315493. The replay will be available until midnight eastern time on November 14, 2013.
You may also listen to the audio webcast by clicking
http://event.on24.com/r.htm?e=688125&s=1&k=E3FCF72FABA97FDA33D6CABBBE208AFF
or visit Vermilion's website at
www.vermilionenergy.com/ir/eventspresentations.cfm.
ABBREVIATIONS
bbl(s) |
barrel(s) |
mbbls |
thousand barrels |
bbls/d |
barrels per day |
mcf |
thousand cubic feet |
mmcf |
million cubic feet |
bcf |
billion cubic feet |
mcf/d |
thousand cubic feet per day |
mmcf/d |
million cubic feet per day |
GJ |
gigajoules |
MWh |
megawatt hour |
boe |
barrel of oil equivalent, including: crude oil,
natural gas liquids and natural gas (converted on the basis of one
boe for
six mcf of natural gas) |
mboe |
thousand barrel of oil equivalent |
mmboe |
million barrel of oil equivalent |
boe/d |
barrel of oil equivalent per day |
NGLs |
natural gas liquids |
WTI |
West Texas Intermediate, the reference price paid for crude oil
of standard grade in U.S. dollars at Cushing, Oklahoma |
AECO |
the daily average benchmark price for natural gas at the AECO
'C' hub in southeast Alberta |
TTF |
the price for natural gas in the Netherlands, quoted in MWh of
natural gas per hour per day, at the Title Transfer
Facility Virtual Trading Point operated by Dutch TSO Gas Transport
Services |
$M |
thousand dollars |
$MM |
million dollars |
PRRT |
Petroleum Resource Rent Tax, a profit based tax levied on
petroleum projects in Australia |
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;
- business strategies and objectives;
- reserve quantities and the discounted present value of future
net cash flows from such reserves;
- petroleum and natural gas sales;
- future production levels (including the timing thereof) and
rates of average annual production growth;
- exploration and development plans;
- acquisition and disposition plans and the timing thereof;
- operating and other expenses, including the payment of future
dividends;
- royalty and income tax rates;
- the timing of regulatory proceedings and approvals; and
- the timing of first commercial natural gas; and the estimate of
Vermilion's share of the expected
natural gas production from the Corrib field.
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 strength 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;
- 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.
In accordance with National Instruments 51-101,
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.
HIGHLIGHTS |
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
Nine
Months Ended |
($M except as indicated) |
Sept 30, |
June 30, |
Sept 30, |
|
|
Sept 30, |
Sept 30, |
Financial |
2013 |
2013 |
2012 |
|
|
2013 |
2012 |
Petroleum and natural gas sales |
327,185 |
311,966 |
284,838 |
|
|
948,727 |
841,870 |
Fund flows from operations
1 |
165,645 |
174,592 |
137,094 |
|
|
503,866 |
415,991 |
|
Fund flows from operations ($/basic share) |
1.63 |
1.73 |
1.39 |
|
|
5.01 |
4.26 |
|
Fund flows from operations ($/diluted share) |
1.61 |
1.71 |
1.37 |
|
|
4.94 |
4.21 |
Net earnings |
67,796 |
106,198 |
30,798 |
|
|
226,131 |
133,708 |
|
Net earnings per share ($/basic share) |
0.67 |
1.05 |
0.31 |
|
|
2.25 |
1.37 |
Capital expenditures |
135,661 |
78,118 |
106,255 |
|
|
394,248 |
295,503 |
Acquisitions |
7,586 |
- |
- |
|
|
7,586 |
106,184 |
Asset retirement obligations
settled |
2,738 |
2,370 |
1,968 |
|
|
6,496 |
5,315 |
Cash dividends ($/share) |
0.60 |
0.60 |
0.57 |
|
|
1.80 |
1.71 |
Dividends declared |
61,003 |
60,776 |
56,196 |
|
|
181,391 |
167,282 |
Net dividends 1 |
41,649 |
42,146 |
38,945 |
|
|
127,875 |
113,692 |
|
% of fund flows from operations, gross |
37% |
35% |
41% |
|
|
36% |
40% |
|
% of fund flows from operations, net |
25% |
24% |
28% |
|
|
25% |
27% |
Total net dividends, capital
expenditures and asset retirement obligations |
|
|
|
|
|
|
|
|
settled |
180,048 |
122,634 |
147,168 |
|
|
528,619 |
414,510 |
|
% of fund flows from operations |
109% |
70% |
107% |
|
|
105% |
100% |
|
% of fund flows from operations (excluding the
Corrib project) |
87% |
55% |
93% |
|
|
89% |
88% |
Net debt 1 |
700,286 |
674,368 |
549,491 |
|
|
700,286 |
549,491 |
Operational |
Production |
|
|
|
|
|
|
|
|
Crude oil (bbls/d) |
26,664 |
26,638 |
23,047 |
|
|
25,640 |
24,062 |
|
NGLs (bbls/d) |
1,945 |
1,775 |
1,245 |
|
|
1,719 |
1,341 |
|
Natural gas (mmcf/d) |
77.41 |
86.40 |
73.52 |
|
|
81.97 |
77.50 |
|
Total (boe/d) |
41,510 |
42,813 |
36,546 |
|
|
41,020 |
38,320 |
Average realized prices |
|
|
|
|
|
|
|
|
Crude oil and NGLs ($/bbl) |
108.87 |
98.95 |
100.70 |
|
|
103.95 |
102.32 |
|
Natural gas ($/mcf) |
6.00 |
7.22 |
6.12 |
|
|
6.68 |
5.89 |
Production mix (% of production) |
|
|
|
|
|
|
|
|
% priced with reference to WTI |
24% |
25% |
23% |
|
|
24% |
23% |
|
% priced with reference to AECO |
17% |
17% |
16% |
|
|
17% |
17% |
|
% priced with reference to European gas |
14% |
17% |
17% |
|
|
16% |
17% |
|
% priced with reference to Dated Brent |
45% |
41% |
44% |
|
|
43% |
43% |
Netbacks ($/boe) 1 |
|
|
|
|
|
|
|
|
Operating netback |
61.91 |
59.30 |
55.02 |
|
|
60.12 |
54.87 |
|
Fund flows netback |
43.60 |
44.90 |
38.66 |
|
|
44.13 |
39.44 |
|
Operating expenses |
12.17 |
12.36 |
13.27 |
|
|
12.87 |
12.78 |
Average reference prices |
|
|
|
|
|
|
|
|
WTI (US $/bbl) |
105.82 |
94.22 |
92.22 |
|
|
98.14 |
96.21 |
|
Edmonton Sweet index (US $/bbl) |
101.10 |
90.56 |
85.01 |
|
|
93.03 |
86.94 |
|
Dated Brent (US $/bbl) |
110.37 |
102.44 |
109.61 |
|
|
108.45 |
112.10 |
|
AECO ($/GJ) |
2.31 |
3.35 |
2.17 |
|
|
2.89 |
2.00 |
|
Netherlands gas price ($/GJ) |
9.94 |
10.14 |
9.06 |
|
|
10.17 |
9.38 |
Share information ('000s) |
Shares outstanding - basic |
101,787 |
101,418 |
98,729 |
|
|
101,787 |
98,729 |
Shares outstanding - diluted
1 |
104,195 |
103,735 |
101,149 |
|
|
104,195 |
101,149 |
Weighted average shares outstanding -
basic |
101,613 |
100,964 |
98,523 |
|
|
100,634 |
97,704 |
Weighted average shares outstanding -
diluted |
102,763 |
102,223 |
99,748 |
|
|
102,083 |
98,848 |
|
|
1 |
The above table includes non-GAAP measures which may not be
comparable to other companies. Please see the "Non-GAAP
Measures" section of Management's Discussion and Analysis. |
OPERATIONAL REVIEW AND OUTLOOK
Vermilion's
strong performance year-to-date illustrates our consistent
operational execution and the advantages of our global
diversification strategy. To the end of the third quarter of 2013,
we have achieved organic growth across all four of our operating
regions. In addition, subsequent to the third quarter of
2013, we announced two strategic acquisitions that further expand
our European presence.
On October 1,
2013, we announced our agreement to acquire additional
operating interests in nine operated onshore concessions (six in
production or development and three exploration) and a non-operated
interest in one offshore concession in the Netherlands for $27.5 million. Four of the onshore
concessions are located in the northeastern part of the Netherlands, in close proximity to our
existing concessions. The remaining onshore licenses provide
new opportunity for Vermilion in
the central region of the
Netherlands. We closed the acquisition on October 10, 2013. Production from the
acquired assets is expected to average approximately 400 boe/d in
2014 (after working interest adjustments expected to occur upon
reaching anticipated payout of certain license agreements).
The production is comprised of 99% natural gas that is expected to
produce an operating netback in-line with our current operating
netback for natural gas in the
Netherlands. The acquisition also adds 2.3 mmboe of
proved plus probable reserves(1) and 298,500 net acres
of land, of which approximately 98% is currently undeveloped.
The acquisition increases our undeveloped land base in the Netherlands to more than 780,000 net
acres. We have identified several development opportunities
on the assets that increase our already significant inventory of
investment projects on our existing Netherlands land base. The acquisition
enhances our position as the second largest onshore natural gas
producer in the Netherlands, and
offers a strong fit with our current operations.
On November 6,
2013, we announced an agreement to acquire a 25% contractual
participation interest in a four-partner consortium in Germany from GDF Suez S.A. ("GDF"), for a cash
cost of approximately $170
million. The consortium was formed in 1956 between
industry leaders ExxonMobil Corporation ("ExxonMobil"), Wintershall
Holding GmbH ("Wintershall"), BEB Erdgas und Erdöl GmbH ("BEB", a
joint venture between ExxonMobil and Deutsche Shell AG.) and
GDF. The acquisition, which is expected to be completed prior
to the end of January, 2014, will enable us to participate in the
exploration and development, production and transportation of
natural gas from the assets held by the consortium. The
assets are comprised of four gas producing fields across eleven
production licenses. Vermilion will also receive a 0.4% equity
interest in Ergas Munster GmbH ("EGM"), a joint venture created in
1959 to jointly transport, process, and market gas in northwest
Germany. EGM partners
include ExxonMobil, Wintershall, BEB, RWE Dea AG., and GDF.
The transportation interest will allow for our proportionate share
of produced volumes to be processed, blended, and transported to
designated gas consumers through the EGM network of approximately
2,000 kilometres of pipeline. The assets are estimated to
produce at a company-interest average rate of approximately 18
mmcf/d (3,000 boe/d) in 2013, and have net estimated year-end 2013
proved plus probable reserves of 10.1 mmboe(2).
The assets are further characterized by a low effective decline
rate of approximately 16% annually and an estimated reserve life
index of 9.2 years. In addition to the production licenses, a
surrounding exploration license will also be acquired pursuant to
the acquisition. The exploration and production licenses
comprise 204,000 gross acres, of which 85% is in the exploration
license. Realized pricing for production from the assets is
expected to be derived from the TTF price, less certain gas quality
adjustments and marketing fees. The Germany acquisition is also expected to be
highly accretive for all pertinent metrics. Assuming
estimated 2013 net average daily production of 18 mmcf/d (3,000
boe/d) and a cash cost of $170
million, the acquisition metrics reflect a cash cost of
approximately $57,000 per boe/d and
$18.70/boe of estimated year-end 2013
proved plus probable reserves, including future development
capital. The acquisition represents Vermilion's entry into the German exploration
and production business, a producing region with a long history of
oil and gas development activity, low political risk, and strong
marketing fundamentals. Germany currently produces approximately 165
thousand barrels per day of oil and natural gas
liquids(3) and 1.1 bcf per day of natural
gas(3). The acquisition represents a key entry
opportunity into this sizable market, in the form of free cash
flow(4) generating, low-decline assets with near-term
development inventory in addition to longer-term, low-permeability
gas prospectivity. The acquisition is well aligned with our
European focus, and will increase our exposure to the strong
fundamentals and pricing of European natural gas markets. The
assets are located 300 kilometres to the east of our Netherlands assets, and share similar
subsurface characteristics. We believe that our experience
with conventional and unconventional oil and gas development,
coupled with new access to proprietary technical data, positions us
for future development and expansion opportunities in both
Germany and the greater European
region.
We continue to benefit from our diversified product mix and
growing exposure to European gas markets. In the third
quarter, 2013, our natural gas production in the Netherlands received an average price of
$10.18/mcf. This compares to
$2.43/mcf for AECO, and US$3.56/mcf for NYMEX, affording us a significant
competitive pricing advantage compared to North American natural
gas producers. We also continue to benefit from our strong
exposure to Brent-based crude oil. Brent-based crude
production currently represents approximately 45% of our total
production and 65% of our total crude oil and liquids production
and continues to attract a consolidated premium of more than
$4.00/bbl to the quoted Dated Brent
reference price, which increased to US$110.37/bbl during the third quarter. Our
strong exposure to Brent-based crude production provides us a
further pricing advantage compared to North American-focused
producers. While our relative pricing advantage remains a
strong differentiator, the diversified nature of our production mix
means we were also able to participate in, and benefit from, the
strengthening of North American crude prices during the third
quarter. Our Canadian-based crude production, approximately
24% of our total production, receives pricing based on the Edmonton
Sweet Index ("ESI"). The ESI averaged US$101.10/bbl during the third quarter, an
increase of US$10.54/bbl versus the
prior quarter. Year-over-year, the ESI has increased more
than US$16.00/bbl. On balance,
our exposure to diversified commodity markets reduces the
volatility of our cash flows and lowers our risk profile.
The majority of our Canadian development
activities during the third quarter continued to focus on our
Cardium light oil play. Well performance remains consistently
strong, reflective of the high quality nature of the reservoir
underlying our land position in the West Pembina region.
Since entering the play in 2009, we have drilled or participated in
219 (155.3 net) wells in the Cardium and increased production to
over 9,000 boe/d. We continue to optimize completion technology and
well design, and remain a leader in the utilization of long reach
wells (greater than one mile in length) in development of the
Cardium in West Pembina. We have been able to demonstrate
consistent production improvement and a significant reduction in
per-section development costs through the use of long-reach
1.5-mile horizontal wells. During the third quarter, we
drilled five 1.5-mile, 1.75-mile and two 2-mile wells. The
remainder of the 2013 Cardium drilling program is expected to
comprise an even higher percentage of 1.5-mile and 2-mile pilot
wells. The optimization of frac design and fluids, multi-well
pads and drilling longer horizontal wells has enabled us to reduce
well costs from more than $5
million per section at the outset of development in 2009 to
approximately $3 million per section
today. Furthermore, in pursuit of ongoing well cost reduction
and enhanced environmental stewardship, we have been testing
several alternative processes for the recycling of frac flowback
water. During the third quarter we successfully treated frac
flowback water, using a chemical treatment process, at rates
equivalent to the highest frac flowback rate we typically
experience. Results to date indicate the potential for
significant savings while also decreasing the environmental impact
of our operations. We have also initiated a water injection
pilot to test applicability of water-flooding to this reservoir.
Our per unit operating costs remain less than $6/boe for our operated Cardium production,
resulting in strong operating netbacks of approximately
$65/boe during the third quarter.
In addition to the Cardium, we have also begun
development of our significant inventory of Mannville condensate-rich natural gas targets
in the Drayton Valley area.
Year-to-date, we have drilled or participated in a total of eight
(4.2 net) Mannville wells
targeting the Ellerslie formation,
with one (0.5 net) additional operated well and two (0.8 net)
non-operated wells planned during the fourth quarter of 2013.
The average per well rate from our five-well operated program
to-date in 2013 is currently 2.3 mmcf/d sales gas and 340 bbls/d of
condensate and NGLs (77% condensate), with the average well in its
third month of production. We have achieved 100% success on
the placement of the frac stages on all five wells.
We continue to appraise our position in the
Duvernay liquids-rich natural gas
resource play, where we have amassed 321 net sections at a cost of
approximately $76 million
($375/acre). Our position spans
the breadth of the liquids-rich natural gas fairway, and comprises
three largely contiguous blocks in the Edson, Drayton
Valley and Niton areas. To date, we have drilled three
vertical stratigraphic test wells, and plan to spud our first
horizontal well prior to the end of 2013, with completion
anticipated to occur in 2014. Our Duvernay rights generally
underlie our Cardium and Mannville
liquids-rich gas positions, allowing for potential infrastructure,
operational, and timing advantages in full field development of the
Duvernay. Combined, our
Cardium, Mannville, and
Duvernay positions provide us with
exploration and development opportunities in our core Canadian
operating region that have the potential to deliver strong
production and reserve growth into the latter half of the
decade.
Capital expenditures in Australia during the third quarter of 2013
were mainly for repairs and maintenance activity. During the
first half of 2013, we drilled two sidetracks off existing wells in
Australia. The program
included the drilling of a 3,400 metre horizontal leg, the longest
horizontal section drilled to-date at Wandoo. The 2013 drilling
program has been our most successful effort yet in Australia. Both sidetracks were brought
on production at restricted rates in April, demonstrating
productive capacities in excess of 6,000 bbls/d and 3,000 bbls/d,
respectively. To meet current marketing agreements and
provide long-term certainty to our customers, our current plan is
to maintain production levels within our prior guidance of between
6,000 bbls/d and 8,000 bbls/d. We anticipate maintaining
these production levels in Australia for the foreseeable future with
drilling programs approximately every two years. Wandoo's oil
garners a premium of approximately US$7.00 to the Dated Brent index and incurs no
transportation cost as production is sold directly at the platform,
leading to very high netbacks.
Also during the first half of 2013, we concluded
a five-well drilling program in the Champotran field in
France. All five of the
wells were successful, with on-stream production rates in excess of
300 bbls/d per well and low water cuts. In 2012, we completed
two acquisitions that were natural additions to our asset base in
France and further secured our
position as the leading oil producer in the country. We
continue to integrate these assets and to identify further
opportunities to increase production through seismic data
acquisition, workovers, optimized water-flood management and
development drilling. Our French business is now an organic
growth asset, featuring low base decline rates, high netbacks from
Brent-indexed production, strong cash flow generation and high
capital efficiencies on development projects. We are
increasing our France-based
technical staffing to identify and execute additional investment
opportunities in these large, complex, conventional light oil
fields in both the Paris and
Aquitaine Basins.
In the
Netherlands, in addition to activities related to our
acquisition of additional interests completed in October, 2013, we
continued drilling preparations for a three-well drilling campaign
to be initiated in December
2013. Our Garijp debottlenecking project was completed
in the first quarter of 2013, enabling incremental production from
two wells previously drilled at Vinkega. Surface facilities
for the multi-zone Langezwaag-1 well (42% working interest) were
completed and commissioned mid-way through the second
quarter. Netherlands
production during the third quarter was curtailed to facilitate a
turnaround at the Garijp Treatment Centre and the retrofitting of
our Middenmeer Treatment Centre. We intend to increase
activity in the Netherlands each
year to maintain a rolling inventory of projects so that each
year's capital program will involve a combination of drilling new
wells and the tie-in of previous successes. Like our French
Business Unit, we now consider our Netherlands Business Unit to be
an organic growth business, and we are increasing our technical
staffing in the Netherlands to
turn our substantial inventory of prospect leads into drillable
projects.
In Ireland,
tunneling operations re-started effective November 3, 2013. Tunneling operations had
been suspended following an industrial accident, which resulted in
a fatality at the project worksite, on September 8, 2013. Onshore pipelining,
offshore umbilical-laying, seismic acquisition and workover
activities for our Corrib project were not impacted by the
suspension. The effective impact of the delay in tunneling
operations is not fully determinable at this time, as a portion of
the tunneling delay may be recouped through accelerated completion
of other project activities. However, based on an early
review of our deterministic schedule for remaining construction and
commissioning activities, we believe it is prudent to revise our
expectations for timing of first gas to mid-2015 from earlier
expectations for start-up at the end of 2014 or early 2015.
Following successful subsea well operations conducted during the
third quarter of 2013, we are increasing our peak production
estimate at Corrib from 54 mmcf/d (9,000 boe/d) to approximately 58
mmcf/d (approximately 9,700 boe/d) net to Vermilion.
Strong operational performance across all of our
operating regions continues to provide us with flexibility to
manage the composition of produced volumes while exceeding our
initial annual production targets. With the contribution of
production associated with our Netherlands acquisition, completed in
October 2013, we now expect to
achieve average annual production volumes at the upper end of our
guidance range of 40,500 to 41,000 boe/d. Our original 2013
guidance of 39,000 to 40,500 boe/d was previously increased
following both the first and second quarters due to
better-than-expected results from our capital program.
Development capital for 2013 is currently
estimated at $530 million, an
increase of approximately $45 million
from our original guidance of $485
million. The increase is attributable primarily to the
impact of a weaker Canadian dollar as compared to foreign exchange
rates at the time of our original guidance, a delay in the timing
of rig arrival for our Australian drill program (originally
anticipated to occur in late 2012) which shifted expenditures into
2013, and minor additions to our capital work scope during 2013
(such as the addition of the Champotran southern extension well in
France). The Australian
drilling program occurred in the first half of 2013, a period
during which the Canadian dollar weakened significantly against the
Australian dollar, reaching near all-time lows in March and
April 2013. The Canadian dollar
has also experienced significant weakness versus the Euro,
particularly during the second half of 2013, translating into
higher Canadian dollar-denominated capital expenditures than
originally planned. Conversely, though the weaker Canadian
dollar has driven up capital spending, it has also resulted in
higher Canadian dollar-denominated fund flows from
operations(4) from our foreign jurisdictions, through
the translation of foreign currency-denominated revenues into
Canadian dollars. Our operations continue to perform
strongly, generating organic production growth across all four
operating regions in a capital-efficient manner. Assuming
commodity prices remain near current levels for the remainder of
this year, we anticipate that we will fully fund our net
dividends(4) and development capital expenditures
(excluding capital investment at Corrib) with fund flows from
operations(4) during 2013.
In the first quarter of 2013 Vermilion shares
began trading on the New York Stock Exchange under the ticker
symbol "VET". As an international oil and gas producer, we
believe the secondary listing will assist in broadening our
investor base and increasing trading liquidity.
We believe we remain positioned to deliver
strong operational and financial performance over the next several
years. We continue to target annual organic production growth
of approximately 5% along with providing reliable and growing
dividends. Near term growth and cash flow are expected to be
driven by continued Cardium and Mannville development in Canada, oil development activities in
France, and high-netback natural
gas drilling in the
Netherlands. A significant increment of production
growth and free cash flow growth is expected from Corrib beginning
mid- 2015 with the first full year of production from the project
in 2016. Our Australian Business Unit is expected to provide
steady production as well as significant free cash flow.
We increased our monthly dividend by 5.3% in the
first quarter of 2013, from $0.19 to
$0.20 per share. The increase
became effective for the January 2013
dividend paid February 15,
2013. With the anticipated growth of fund flows from
operations, the continued strength of our operations, and our
expansive opportunity base (including our recently announced
acquisition in the Netherlands and
our proposed acquisition in Germany), we are confident we can achieve our
future growth objectives and continue to provide a reliable and
growing dividend stream to investors. We believe our balance
sheet remains well positioned to execute its capital-efficient
growth-and-income model and fund Corrib development through to
first gas while remaining within an acceptable net debt-to-fund
flows from operations(4) ratio. Corrib is expected
to provide a further significant increase to our projected free
cash flow upon first gas production.
Our conservative fiscal management and capital
discipline leaves us well positioned to execute our
growth-and-income model and provide growth to investors on a per
share basis. The management and directors of Vermilion continue to hold approximately 8% of
the outstanding shares and remain committed to delivering superior
rewards to all stakeholders. Continuing to be acknowledged
for excellence in our business practices, Vermilion was recognized for the fourth
consecutive year by the Great Place to Work® Institute in both
Canada and France. We ranked as the 22nd Best
Workplace in Canada among more
than 315 companies. Our French unit ranked as the 27th Best
Workplace in the country.
(1) |
Estimated proved plus probable reserves attributable to the
assets as evaluated by GLJ Petroleum Consultants Ltd ("GLJ") in a
report dated September 16, 2013, with an effective date of December
31, 2012. |
(2) |
Estimated proved plus probable reserves attributable to the
assets as evaluated by GLJ in a report dated November 5, 2013, with
an effective date of December 31, 2013, using the GLJ (2013-10)
price forecast. |
(3) |
U.S. Energy Information Administration website (www.eia.gov);
quoted 2012 total oil supply and 2012 dry natural gas
production. |
(4) |
See non-GAAP measures disclosures in the Management's
Discussion and Analysis for the three and nine months ended
September 30, 2013. |
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is Management's Discussion and
Analysis ("MD&A"), dated November 6,
2013, of Vermilion Energy Inc.'s ("Vermilion", "We", "Our",
"Us" or the "Company") operating and financial results as at and
for the three and nine months ended September 30, 2013 as compared with the
corresponding periods in the prior year.
This discussion should be read in conjunction
with the unaudited condensed consolidated interim financial
statements for the three and nine months ended September 30, 2013 and the audited consolidated
financial statements for the year ended December 31, 2012 and 2011, together with
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 unaudited condensed consolidated interim
financial statements for the three and nine months ended
September 30, 2013 and comparative
information have been prepared in Canadian dollars, except where
another currency has been indicated, and in accordance with IAS 34,
"Interim financial reporting", as issued by the International
Accounting Standards Board.
NON-GAAP MEASURES
This report includes non-GAAP measures as
further described herein. These non-GAAP measures do not have
standardized meanings prescribed by International Financial
Reporting Standards ("IFRS" or, alternatively, "GAAP") and
therefore may not be comparable with the calculations of similar
measures for other entities.
"Fund flows from operations" represents
cash flows from operating activities before changes in non-cash
operating working capital and asset retirement obligations
settled. Management considers fund flows from operations and
fund flows from operations per share to be key measures as they
demonstrate Vermilion's ability to
generate the cash necessary to pay dividends, repay debt, fund
asset retirement obligations and make capital investments.
Management believes that by excluding the temporary impact of
changes in non-cash operating working capital, fund flows from
operations provides a useful measure of Vermilion's ability to generate cash that is
not subject to short-term movements in non-cash operating working
capital.
"Fund flows from operations (excluding the
Corrib project)" represents fund flows from operations
excluding expenses related to the Corrib project. Management
believes that by excluding expenses related to the Corrib project,
fund flows from operations (excluding the Corrib project) provides
a useful measure of Vermilion's
ability to generate cash from its current producing assets.
The most directly comparable GAAP measure to
fund flows from operations and fund flows from operations
(excluding the Corrib project) is cash flows from operating
activities.
Cash flows from operating activities as
presented in Vermilion's
consolidated statements of cash flows are reconciled to fund flows
from operations and fund flows from operations (excluding the
Corrib project) as follows:
|
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
|
Sept 30, |
June 30, |
Sept 30, |
|
|
Sept 30, |
Sept 30, |
($M) |
2013 |
2013 |
2012 |
|
|
2013 |
2012 |
Cash flows from operating
activities |
158,236 |
179,074 |
148,301 |
|
|
528,022 |
396,673 |
Changes in non-cash operating working
capital |
4,671 |
(6,852) |
(13,175) |
|
|
(30,652) |
14,003 |
Asset retirement obligations
settled |
2,738 |
2,370 |
1,968 |
|
|
6,496 |
5,315 |
Fund flows from operations |
165,645 |
174,592 |
137,094 |
|
|
503,866 |
415,991 |
Expenses related to the Corrib
project |
876 |
2,036 |
2,171 |
|
|
4,767 |
6,879 |
Fund flows from operations (excluding
the Corrib project) |
166,521 |
176,628 |
139,265 |
|
|
508,633 |
422,870 |
"Free cash flow" represents fund flows
from operations in excess of capital expenditures. Management
considers free cash flow to be a key measure as it is used to
determine the funding available for investing and financing
activities, including payment of dividends, repayment of long-term
debt, reallocation to existing business units, and deployment into
new ventures.
"Cash dividends per share" represents
cash dividends declared per share by Vermilion.
"Net dividends" are dividends declared less proceeds
received by Vermilion for the
issuance of shares pursuant to the dividend reinvestment plan, both
as presented in Vermilion's
consolidated statements of changes in shareholders' equity.
Dividends both before and after the dividend reinvestment plan are
reviewed by management and are assessed as a percentage of fund
flows from operations to analyze the amount of cash that is
generated by Vermilion which is
being used to fund dividends. Dividends declared is the most
directly comparable GAAP measure to net dividends.
"Total net dividends, capital expenditures
and asset retirement obligations settled" are net dividends
plus the following amounts from Vermilion's consolidated statements of cash
flows: drilling and development, exploration and evaluation,
dispositions and asset retirement obligations settled.
"Total net dividends, capital expenditures
and asset retirement obligations settled (excluding the Corrib
project)" are total net dividends, capital expenditures and
asset retirement obligations settled excluding drilling and
development and asset retirement obligations settled relating to
the Corrib project.
Total net dividends, capital expenditures and
asset retirement obligations settled and total net dividends,
capital expenditures and asset retirement obligations settled
(excluding the Corrib project) are reviewed by management and are
assessed as a percentage of fund flows from operations and fund
flows from operations (excluding the Corrib project) to analyze the
amount of cash that is generated by Vermilion that is available to repay debt and
fund potential future acquisitions and capital expenditures.
Dividends declared, total net dividends, capital
expenditures and asset retirement obligations settled and total net
dividends, capital expenditures and asset retirement obligations
settled (excluding the Corrib project) are reconciled to their most
directly comparable GAAP measures as follows:
|
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
|
Sept 30, |
June 30, |
Sept 30, |
|
|
Sept 30, |
Sept 30, |
($M) |
2013 |
2013 |
2012 |
|
|
2013 |
2012 |
Dividends declared |
61,003 |
60,776 |
56,196 |
|
|
181,391 |
167,282 |
Issuance of shares pursuant to the
dividend reinvestment plan |
(19,354) |
(18,630) |
(17,251) |
|
|
(53,516) |
(53,590) |
Net dividends |
41,649 |
42,146 |
38,945 |
|
|
127,875 |
113,692 |
Drilling and development |
135,110 |
75,005 |
96,212 |
|
|
389,635 |
262,064 |
Dispositions |
- |
- |
- |
|
|
(8,627) |
- |
Exploration and evaluation |
551 |
3,113 |
10,043 |
|
|
13,240 |
33,439 |
Asset retirement obligations
settled |
2,738 |
2,370 |
1,968 |
|
|
6,496 |
5,315 |
Total net dividends, capital
expenditures and asset retirement obligations settled |
180,048 |
122,634 |
147,168 |
|
|
528,619 |
414,510 |
Capital expenditures and asset
retirement obligations settled |
|
|
|
|
|
|
|
related to the Corrib
project |
(35,028) |
(24,878) |
(17,164) |
|
|
(76,426) |
(40,574) |
Total net dividends, capital
expenditures and asset retirement obligations settled |
|
|
|
|
|
|
|
(excluding the Corrib
project) |
145,020 |
97,756 |
130,004 |
|
|
452,193 |
373,936 |
"Net debt" is the sum of long-term debt
and working capital as presented in Vermilion's consolidated balance sheets.
Net debt is used by management to analyze the financial position
and leverage of Vermilion.
The most directly comparable GAAP measure is long-term debt.
Long-term debt as presented in Vermilion's consolidated balance sheets is
reconciled to net debt as follows:
|
|
|
|
|
As
At |
|
|
|
|
|
Sept 30, |
Dec 31, |
($M) |
|
|
|
|
2013 |
2012 |
Long-term debt |
|
|
|
|
781,074 |
642,022 |
Current liabilities |
|
|
|
|
389,757 |
355,711 |
Current assets |
|
|
|
|
(470,545) |
(320,502) |
Net debt |
|
|
|
|
700,286 |
677,231 |
"Netbacks" are per boe and per mcf
measures used in the analysis of operational activities and as a
basis for decisions on capital allocation.
"Diluted shares outstanding" is the sum
of shares outstanding at the period-end plus outstanding awards
under Vermilion's equity based
compensation plan, based on current estimates of future performance
factors and forfeitures. The most directly comparable GAAP measure
is shares outstanding.
Shares outstanding is reconciled to diluted
shares outstanding as follows:
|
As
At |
|
Sept 30, |
June 30, |
Sept 30, |
('000s of shares) |
2013 |
2013 |
2012 |
Shares outstanding |
101,787 |
101,418 |
98,729 |
Potential shares issuable pursuant to the equity
based compensation plan |
2,408 |
2,317 |
2,420 |
Diluted shares outstanding |
104,195 |
103,735 |
101,149 |
OPERATIONAL ACTIVITIES
Canada
Vermilion
drilled 21 (16.3 net) wells during the third quarter of 2013. In
the Cardium, the Company drilled 17 (14.3 net) wells and brought 11
gross operated wells on production. In the Mannville, Vermilion drilled four (2.0 net) wells and
brought one well on production. Of the wells drilled in the third
quarter, seven were long reach wells, including two 2-mile long
wells.
France
Vermilion
completed 3D seismic and subsurface studies in the Vic Bihl region
that were begun late in the second quarter. The Company also
completed a number of workovers in both the Paris and Aquitaine Basins, along with
preparations for the Company's 2014 capital program.
Netherlands
Operating activities in the third quarter
focused on facility maintenance and site construction, including
retrofitting the Middenmeer Treatment Centre. The upgrades to this
facility will ensure reliability and capacity to support upcoming
planned drilling programs in the Slootdorp and Opmeer concessions.
Vermilion is currently planning
and preparing for a three well drilling program in the Netherlands, beginning in late-2013.
Australia
In Australia,
efforts were focused on minor facilities repairs and engineering
studies. Wandoo A received a five-year platform recertification
during the third quarter of 2013.
PRODUCTION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
|
|
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
|
|
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil & NGLs (bbls/d) |
9,866 |
10,610 |
8,526 |
|
(7%) |
16% |
|
|
9,928 |
8,825 |
|
12% |
|
Natural gas (mmcf/d) |
43.40 |
43.69 |
35.54 |
|
(1%) |
22% |
|
|
42.72 |
39.55 |
|
8% |
|
Total (boe/d) |
17,099 |
17,892 |
14,449 |
|
(4%) |
18% |
|
|
17,047 |
15,417 |
|
11% |
|
% of consolidated |
41% |
42% |
40% |
|
|
|
|
|
42% |
40% |
|
|
France |
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (bbls/d) |
11,625 |
10,390 |
9,767 |
|
12% |
19% |
|
|
10,786 |
9,989 |
|
8% |
|
Natural gas (mmcf/d) |
5.23 |
4.19 |
3.39 |
|
25% |
54% |
|
|
4.54 |
3.48 |
|
30% |
|
Total (boe/d) |
12,496 |
11,088 |
10,333 |
|
13% |
21% |
|
|
11,544 |
10,569 |
|
9% |
|
% of consolidated |
30% |
26% |
28% |
|
|
|
|
|
28% |
28% |
|
|
Netherlands |
|
|
|
|
|
|
|
|
|
|
|
|
|
NGLs (bbls/d) |
48 |
50 |
41 |
|
(4%) |
17% |
|
|
65 |
66 |
|
(2%) |
|
Natural gas (mmcf/d) |
28.78 |
38.52 |
34.59 |
|
(25%) |
(17%) |
|
|
34.71 |
34.47 |
|
1% |
|
Total (boe/d) |
4,845 |
6,470 |
5,806 |
|
(25%) |
(17%) |
|
|
5,849 |
5,811 |
|
1% |
|
% of consolidated |
12% |
15% |
16% |
|
|
|
|
|
14% |
15% |
|
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil (bbls/d) |
7,070 |
7,363 |
5,958 |
|
(4%) |
19% |
|
|
6,580 |
6,523 |
|
1% |
|
% of consolidated |
17% |
17% |
16% |
|
|
|
|
|
16% |
17% |
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil & NGLs (bbls/d) |
28,609 |
28,413 |
24,292 |
|
1% |
18% |
|
|
27,359 |
25,403 |
|
8% |
|
% of consolidated |
69% |
66% |
66% |
|
|
|
|
|
67% |
66% |
|
|
|
Natural gas (mmcf/d) |
77.41 |
86.40 |
73.52 |
|
(10%) |
5% |
|
|
81.97 |
77.50 |
|
6% |
|
% of consolidated |
31% |
34% |
34% |
|
|
|
|
|
33% |
34% |
|
|
|
Total (boe/d) |
41,510 |
42,813 |
36,546 |
|
(3%) |
14% |
|
|
41,020 |
38,320 |
|
7% |
Canadian production of 17,099 boe/d during the
third quarter of 2013 represented a modest decrease compared to
17,892 boe/d in the second quarter, but an increase compared to
14,449 boe/d in the third quarter of the prior year. The slight
quarter-over-quarter decrease is mainly attributable to declines
given lack of activity during break-up. The 18%
year-over-year increase in production is largely attributable to
continued development in the Cardium, supplemented by Mannville wells brought on during the year.
Vermilion continues to focus on
high netback oil and liquids, representing approximately 58% of
Canadian production in the third quarter of 2013.
Production in France averaged 12,496 boe/d in the third
quarter of 2013, an increase of 13% compared to production of
11,088 boe/d in the second quarter of 2013. On a year-over-year
basis, production has grown by 21%. This increase in volume is
mainly attributable to production from the five-well drilling
program in Champotran which was brought on late in the second
quarter of 2013. In France,
Vermilion remains predominantly
weighted to Brent crude at approximately 93% of production in the
third quarter of 2013.
Production volumes averaged 4,845 boe/d in
the Netherlands during the third
quarter of 2013, a 25% decrease compared to 6,470 boe/d in the
prior quarter and a 17% decrease compared to 5,806 boe/d in the
third quarter of 2012. The decrease in production is mainly
attributable to downtime and retrofitting the Garijp and Middenmeer
Treatment Centre.
Production in Australia averaged 7,070 boe/d during the
third quarter of 2013, which represented a 4% decrease compared to
the second quarter of 2013, but a year-over-year increase of 19%
compared to 5,958 boe/d in the third quarter of 2012. Production
volumes continue to reflect the strong drilling results achieved
from the two-well program completed earlier in 2013 in which the
new wells were brought on production at restricted rates.
FINANCIAL REVIEW |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
% change |
|
|
Nine Months Ended |
|
%
change |
|
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Net earnings |
67,796 |
106,198 |
30,798 |
|
(36%) |
120% |
|
|
226,131 |
133,708 |
|
69% |
Fund flows from operations |
165,645 |
174,592 |
137,094 |
|
(5%) |
21% |
|
|
503,866 |
415,991 |
|
21% |
Cash flow from operating activities |
158,236 |
179,074 |
148,301 |
|
(12%) |
7% |
|
|
528,022 |
396,673 |
|
33% |
Net debt |
700,286 |
674,368 |
549,491 |
|
4% |
27% |
|
|
700,286 |
549,491 |
|
27% |
Long-term debt |
781,074 |
780,470 |
492,669 |
|
- |
59% |
|
|
781,074 |
492,669 |
|
59% |
Ratio of net debt to annualized
fund flows |
|
|
|
|
|
|
|
|
|
|
|
|
from operations |
1.1 |
1.0 |
1.0 |
|
10% |
10% |
|
|
1.0 |
1.0 |
|
- |
Total net dividends, capital
expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
and asset retirement
obligations settled |
|
|
|
|
|
|
|
|
|
|
|
|
% of fund flows from operations |
109% |
70% |
107% |
|
|
|
|
|
105% |
100% |
|
|
% of fund flows from
operations |
|
|
|
|
|
|
|
|
|
|
|
|
(excluding the Corrib project) |
87% |
55% |
93% |
|
|
|
|
|
89% |
88% |
|
|
Net earnings for the third quarter of 2013
decreased as compared to the second quarter of 2013 primarily as a
result of increases in unrealized losses on derivative instruments
and reduced unrealized foreign exchange gains. The unrealized
foreign exchange gain of $4.2 million
recorded in the third quarter of 2013 primarily resulted from the
impact of the appreciation of the Euro against the Canadian dollar
and the resultant impact on Vermilion's financial balances. The
decrease in net earnings quarter-over-quarter was partially offset
by stronger commodity pricing for crude oil.
Net earnings for the three and nine months ended
September 30, 2013 increased as
compared to the same periods in 2012 due to the increases in
operating income resulting from production growth in Canada, France and Australia coupled with increases in the AECO
and WTI reference prices for both periods and Dated Brent crude oil
price quarter-over-quarter. Additionally, net earnings
increased due to unrealized foreign exchange gains recorded in the
current periods and decreases in unrealized losses on derivative
instruments. The unrealized foreign exchange gain of
$29.7 million recorded in nine months
ended September 30, 2013 primarily
resulted from the appreciation of the Euro against the Canadian
dollar and the resultant impact on Vermilion's financial balances. The
increase in net earnings year-over-year was partially offset by
increases in operating expense in France as result of an inventory draw in the
current year versus a build in the nine months ended September 30, 2012.
Fund flows from operations for the third quarter
of 2013 was 5% lower ($8.9 million)
than the second quarter. This decrease was largely due to
increased current taxes in France
as well as consolidated realized foreign exchange and derivative
losses of $1.2 million and
$4.8 million, respectively, during
the quarter. In addition, stronger WTI and Dated Brent crude
pricing also contributed favourably to fund flows from operations,
more than offsetting the impact of weaker AECO prices for Canadian
natural gas quarter-over-quarter.
Fund flows from operations for the three and
nine months ended September 30, 2013
was 21% higher for both periods in 2013 as compared to the same
periods in 2012. The increases were largely the result of
quarter-over-quarter production growth in Canada, France and Australia coupled with the stronger commodity
pricing. On a year-to-date basis, ending inventory decreased
by 213,000 bbls in 2013 versus a decrease of 46,000 bbls in 2012,
which resulted in increased sold volumes. The increase in
sold volumes coupled with higher base production growth led to
higher fund flows from operations year-over-year. While the
Dated Brent reference price declined by 3% from 2012, the impact of
the decline was entirely offset by increased realized prices for
Vermilion's production in
Canada and the Netherlands.
Cash flow from operating activities for the
third quarter of 2013 decreased as compared to the second quarter
of 2013 due to the impact of timing differences pertaining to
working capital. Cash flow from operating activities for the
three and nine months ended September 30,
2013 increased as compared to the same periods in 2012 due
to the aforementioned increase in fund flows from operations.
In addition, timing differences pertaining to working capital for
the nine month period ended September 30,
2013 also contributed to the increase year-over-year.
Vermilion
continues to maintain a strong balance sheet, with a net debt to
annualized fund flows from operations of 1.0. Long-term debt
as at September 30, 2013 increased to
$781.1 million from $642.0 million as at December 31, 2012 as a result of increased
borrowings on the revolving credit facility to fund development
capital expenditures in Canada and
Ireland. Canadian
development activities continue to be focused on the development of
the Cardium light oil play. In Ireland, development activities related to
tunnelling, onshore pipelining, offshore umbilical-laying and
offshore seismic acquisition activities. 2013 capital
spending also included drilling programs in Australia and France. As capital expenditures and
dividends paid exceeded fund flows from operations, Vermilion ended the third quarter with net
debt of $700.3 million, an increase
from $674.4 million as at
June 30, 2013 and $677.2 million as at December 31, 2012.
COMMODITY PRICES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
|
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
|
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Average reference prices |
|
|
|
|
|
|
|
|
|
|
|
|
WTI (US $/bbl) |
105.82 |
94.22 |
92.22 |
|
12% |
15% |
|
|
98.14 |
96.21 |
|
2% |
Edmonton Sweet index (US $/bbl) |
101.10 |
90.56 |
85.01 |
|
12% |
19% |
|
|
93.03 |
86.94 |
|
7% |
Dated Brent (US $/bbl) |
110.37 |
102.44 |
109.61 |
|
8% |
1% |
|
|
108.45 |
112.10 |
|
(3%) |
AECO ($/GJ) |
2.31 |
3.35 |
2.17 |
|
(31%) |
6% |
|
|
2.89 |
2.00 |
|
45% |
Netherlands gas price ($/GJ) |
9.94 |
10.14 |
9.06 |
|
(2%) |
10% |
|
|
10.17 |
9.38 |
|
8% |
Netherlands gas price (€/GJ) |
7.20 |
7.57 |
7.28 |
|
(5%) |
(1%) |
|
|
7.53 |
7.30 |
|
3% |
Average realized prices ($/boe) |
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
63.56 |
62.00 |
53.61 |
|
3% |
19% |
|
|
61.16 |
53.67 |
|
14% |
France |
107.08 |
98.04 |
104.95 |
|
9% |
2% |
|
|
104.29 |
106.00 |
|
(2%) |
Netherlands |
61.44 |
65.08 |
56.88 |
|
(6%) |
8% |
|
|
62.70 |
57.95 |
|
8% |
Australia |
120.95 |
111.54 |
114.44 |
|
8% |
6% |
|
|
117.65 |
117.40 |
|
- |
Consolidated |
86.10 |
80.21 |
80.35 |
|
7% |
7% |
|
|
83.10 |
79.83 |
|
4% |
Production mix (% of production) |
|
|
|
|
|
|
|
|
|
|
|
|
% priced with reference to WTI |
24% |
25% |
23% |
|
|
|
|
|
24% |
23% |
|
|
% priced with reference to AECO |
17% |
17% |
16% |
|
|
|
|
|
17% |
17% |
|
|
% priced with reference to European gas |
14% |
17% |
17% |
|
|
|
|
|
16% |
17% |
|
|
% priced with reference to Dated Brent |
45% |
41% |
44% |
|
|
|
|
|
43% |
43% |
|
|
Reference prices
During the third quarter of 2013, Dated Brent
increased 8% while WTI increased by 12% as compared to the second
quarter. This increase in crude oil prices was a result of
supply disruptions in Libya and
intensified concerns over the conflict in Syria. Western Canadian supply issues
and increased rail capacity resulted in a further narrowing of the
differential for both WTI and the Edmonton Sweet index versus Dated
Brent (US$4.55 and US$9.27 per bbl, respectively, for the second
quarter of 2013 as compared to US$8.22 and US$11.88 per bbl, respectively, for the second
quarter of 2013).
The AECO reference price for the third quarter
of 2013 decreased 31% as compared to the second quarter of
2013. The significant quarter-over-quarter decline occurred
as a result of increased short-term toll prices, which led to
higher natural gas storage levels.
Realized pricing
The realized price of Vermilion's crude oil in Canada is directly linked to WTI but is
subject to market conditions in Western
Canada. These market conditions can result in
fluctuations in the pricing differential, as reflected by the
Edmonton Sweet index price. The realized price of
Vermilion's NGLs in Canada is based on product specific
differentials pertaining to trading hubs in the U.S. The
realized price of Vermilion's
natural gas in Canada is based on
the AECO spot price in Alberta.
Vermilion's
crude oil in France and
Australia is priced with reference
to Dated Brent.
As of January 1,
2013, the price of Vermilion's natural gas in the Netherlands is now based on the TTF
day-ahead index, as determined on the Title Transfer Facility
Virtual Trading Point operated by Dutch TSO Gas Transport Services,
plus various fees. GasTerra, a state owned entity, continues
to purchase all natural gas produced by Vermilion in the
Netherlands. Prior to 2013, the natural gas price
received by Vermilion in
the Netherlands was calculated
using a trailing average of Dated Brent and the natural gas prices
from European trading hubs.
Vermilion's
average realized prices will differ from their corresponding
average reference prices due to a number of factors, including the
timing of the sale of production, differences in the quality of
production and point of settlement. In Canada, average realized prices are also
impacted by the production mix of crude oil, NGLs and natural
gas.
CAPITAL EXPENDITURES AND ACQUISITIONS |
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
Nine
Months Ended |
By classification |
Sept 30, |
June 30, |
Sept 30, |
|
|
Sept 30, |
Sept 30, |
($M) |
2013 |
2013 |
2012 |
|
|
2013 |
2012 |
Drilling and development |
135,110 |
75,005 |
96,212 |
|
|
389,635 |
262,064 |
Dispositions |
- |
- |
- |
|
|
(8,627) |
- |
Exploration and evaluation |
551 |
3,113 |
10,043 |
|
|
13,240 |
33,439 |
Capital expenditures |
135,661 |
78,118 |
106,255 |
|
|
394,248 |
295,503 |
|
|
|
|
|
|
|
|
Property acquisition |
7,586 |
- |
- |
|
|
7,586 |
106,184 |
Acquisitions |
7,586 |
- |
- |
|
|
7,586 |
106,184 |
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
Nine
Months Ended |
By category |
Sept 30, |
June 30, |
Sept 30, |
|
|
Sept 30, |
Sept 30, |
($M) |
2013 |
2013 |
2012 |
|
|
2013 |
2012 |
Land (net of dispositions) |
(4,450) |
2,307 |
7,666 |
|
|
(7,641) |
46,046 |
Seismic |
5,284 |
5,569 |
2,653 |
|
|
14,666 |
4,779 |
Drilling and completion |
63,590 |
20,235 |
55,320 |
|
|
210,010 |
138,487 |
Production equipment and facilities |
47,665 |
40,819 |
34,691 |
|
|
138,426 |
86,164 |
Recompletions |
15,650 |
4,510 |
2,956 |
|
|
24,291 |
7,004 |
Other |
7,922 |
4,678 |
2,969 |
|
|
14,496 |
13,023 |
Capital expenditures |
135,661 |
78,118 |
106,255 |
|
|
394,248 |
295,503 |
Acquisitions |
7,586 |
- |
- |
|
|
7,586 |
106,184 |
Total capital expenditures and acquisitions |
143,247 |
78,118 |
106,255 |
|
|
401,834 |
401,687 |
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
Nine
Months Ended |
By country |
Sept 30, |
June 30, |
Sept 30, |
|
|
Sept 30, |
Sept 30, |
($M) |
2013 |
2013 |
2012 |
|
|
2013 |
2012 |
Canada |
70,359 |
17,578 |
63,701 |
|
|
174,573 |
191,139 |
France |
23,664 |
23,223 |
10,416 |
|
|
68,479 |
132,539 |
Netherlands |
8,316 |
4,157 |
5,257 |
|
|
12,845 |
13,206 |
Australia |
5,880 |
8,282 |
9,721 |
|
|
69,511 |
24,132 |
Ireland |
35,028 |
24,878 |
17,160 |
|
|
76,426 |
40,671 |
Capital expenditures for the third quarter of
2013 were higher than both the second quarter of 2013 and the third
quarter of 2012. The increase was the result of higher
drilling activity in Canada, and
increased activities related to tunnelling, onshore pipelining,
offshore umbilical-laying, offshore seismic acquisition and
workover activities in Ireland. These increases were partially
offset by reduced land purchases in Canada in the third quarter of 2013 compared
to the same period in 2012. In Canada, Vermilion participated in the drilling of 21
(16.3 net) wells during the third quarter of 2013 as compared to
three (1.9 net) wells during the second quarter and 16 (11.5 net)
wells during the third quarter of 2012.
Capital expenditures for the nine months ended
September 30, 2013 were higher than
the same period in 2012 largely due to the aforementioned increase
quarter-over-quarter coupled with 2013 drilling activity in
France and Australia. In France, Vermilion participated in the drilling of five
(5.0 net) wells for 2013, while in the same period in 2012,
France had focused on its annual
workover and recompletion activities as well as integrating its
2012 acquisitions. In Australia, Vermilion participated in the drilling of a
two-well (2.0 net) sidetrack program during the first half of
2013. During the same period in 2012 Australia had focused on
preparations and permitting activities pertaining to the sidetrack
program in 2013.
PETROLEUM AND NATURAL GAS SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
By product |
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe and per mcf) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Crude oil & NGLs |
284,484 |
255,183 |
243,471 |
|
11% |
17% |
|
|
799,165 |
716,888 |
|
11% |
Per boe |
108.87 |
98.95 |
100.70 |
|
10% |
8% |
|
|
103.95 |
102.32 |
|
2% |
Natural gas |
42,701 |
56,783 |
41,367 |
|
(25%) |
3% |
|
|
149,562 |
124,982 |
|
20% |
Per mcf |
6.00 |
7.22 |
6.12 |
|
(17%) |
(2%) |
|
|
6.68 |
5.89 |
|
13% |
Petroleum and natural gas sales |
327,185 |
311,966 |
284,838 |
|
5% |
15% |
|
|
948,727 |
841,870 |
|
13% |
Per boe |
86.10 |
80.21 |
80.35 |
|
7% |
7% |
|
|
83.10 |
79.83 |
|
4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
By country |
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Canada |
100,000 |
100,950 |
71,268 |
|
(1%) |
40% |
|
|
284,638 |
226,726 |
|
26% |
Per boe |
63.56 |
62.00 |
53.61 |
|
3% |
19% |
|
|
61.16 |
53.67 |
|
14% |
France |
120,574 |
100,418 |
102,369 |
|
20% |
18% |
|
|
342,558 |
300,708 |
|
14% |
Per boe |
107.08 |
98.04 |
104.95 |
|
9% |
2% |
|
|
104.29 |
106.00 |
|
(2%) |
Netherlands |
27,382 |
38,316 |
30,386 |
|
(29%) |
(10%) |
|
|
100,119 |
92,268 |
|
9% |
Per boe |
61.44 |
65.08 |
56.88 |
|
(6%) |
8% |
|
|
62.70 |
57.95 |
|
8% |
Australia |
79,229 |
72,282 |
80,815 |
|
10% |
(2%) |
|
|
221,412 |
222,168 |
|
- |
Per boe |
120.95 |
111.54 |
114.44 |
|
8% |
6% |
|
|
117.65 |
117.40 |
|
- |
Vermilion's
consolidated petroleum and natural gas sales for the third quarter
of 2013 were higher than second quarter of 2013 as a result of
increased crude oil sales volumes in France and higher realized pricing for crude
oil. Higher crude oil sales were offset by a decrease in
natural gas sales as a result of lower natural gas production and
lower AECO pricing. Petroleum and natural gas sales for the
third quarter of 2013 were higher than the same period in 2012 as a
result of increased sales volumes and favourable commodity
prices.
Vermilion's
consolidated petroleum and natural gas sales for the nine months
ended September 30, 2013 were higher
than the same period in 2012. This increase was the result of
increased sales volumes in all of Vermilion's jurisdictions, higher North
American commodity prices, partially offset by lower Dated Brent
pricing year-over-year.
CRUDE OIL INVENTORY
Vermilion
carries an inventory of crude oil in France and Australia, which is a result of timing
differences between production and sales.
The following table summarizes the changes in
Vermilion's crude oil inventory
positions:
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
Sept 30, |
June 30, |
Sept 30, |
|
|
Sept 30, |
Sept 30, |
(mbbls) |
2013 |
2013 |
2012 |
|
|
2013 |
2012 |
France |
|
|
|
|
|
|
|
|
Opening crude oil inventory |
202 |
218 |
271 |
|
|
354 |
187 |
|
Adjustments |
- |
- |
- |
|
|
5 |
- |
|
Crude oil production |
1,069 |
945 |
899 |
|
|
2,945 |
2,737 |
|
Crude oil sales |
(1,045) |
(961) |
(924) |
|
|
(3,078) |
(2,678) |
|
Closing crude oil inventory |
226 |
202 |
246 |
|
|
226 |
246 |
Australia |
|
|
|
|
|
|
|
|
Opening crude oil inventory |
187 |
165 |
275 |
|
|
268 |
222 |
|
Crude oil production |
650 |
670 |
548 |
|
|
1,796 |
1,787 |
|
Crude oil sales |
(654) |
(648) |
(706) |
|
|
(1,881) |
(1,892) |
|
Closing crude oil inventory |
183 |
187 |
117 |
|
|
183 |
117 |
Inventory held on the balance sheet as at
September 30, 2013 was comprised of
the following components:
($M) |
|
|
|
|
France |
Australia |
Total |
Operating expense |
|
|
|
|
3,813 |
4,482 |
8,295 |
Royalties |
|
|
|
|
1,332 |
- |
1,332 |
Depletion |
|
|
|
|
4,796 |
3,736 |
8,532 |
|
|
|
|
|
9,941 |
8,218 |
18,159 |
DERIVATIVE INSTRUMENTS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
|
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Realized loss (gain) on |
|
|
|
|
|
|
|
|
|
|
|
|
derivative instruments |
4,765 |
(1,770) |
1,869 |
|
(369%) |
155% |
|
|
5,782 |
11,178 |
|
(48%) |
Per boe |
1.25 |
(0.46) |
0.53 |
|
(372%) |
136% |
|
|
0.51 |
1.06 |
|
(52%) |
The realized loss on derivative instruments for
the third quarter of 2013 resulted from payments made on our crude
oil derivative instruments as the reference prices exceeded the
ceiling and swap prices on those instruments. This realized
loss was partially offset by a $1.0
million gain on our natural gas derivative instruments.
The realized loss for the nine months ended
September 30, 2013 was lower than the
realized loss for the same period in 2012 due to the gains realized
in the second quarter of 2013 and the absence of premiums paid in
2012 on funded derivatives.
The following tables summarize Vermilion's outstanding risk management
positions as at September 30,
2013:
|
Note |
Daily Volume |
Strike Price(s) |
Crude Oil |
|
|
|
WTI - Collar |
|
|
|
January 2014 - March 2014 |
|
1,000 bbl/d |
97.50 - 104.69 USD $ |
WTI - Swap |
|
|
|
January 2013 - December 2013 |
|
2,000 bbl/d |
93.04 USD $ |
July 2013 - December 2013 |
|
500 bbl/d |
94.98 USD $ |
October 2013 - December 2013 |
|
500 bbl/d |
101.00 CAD $ |
October 2013 - December 2013 |
|
1,300 bbl/d |
100.50 USD $ |
January 2014 - March 2014 |
|
500 bbl/d |
101.22 USD $ |
January 2014 - March 2014 |
1 |
250 bbl/d |
105.45 USD $ |
January 2014 - June 2014 |
|
250 bbl/d |
100.05 USD $ |
January 2014 - June 2014 |
2 |
250 bbl/d |
103.27 USD $ |
Dated Brent - Collar |
|
|
|
January 2013 - December 2013 |
|
3,500 bbl/d |
96.14 - 107.34 USD $ |
July 2013 - December 2013 |
|
1,000 bbl/d |
97.50 - 109.10 USD $ |
October 2013 - December 2013 |
|
3,750 bbl/d |
102.73 - 110.56 USD $ |
January 2014 - March 2014 |
|
1,500 bbl/d |
103.33 - 110.00 USD $ |
Dated Brent - Swap |
|
|
|
January 2014 - March 2014 |
|
1,250 bbl/d |
107.51 USD $ |
January 2014 - June 2014 |
|
500 bbl/d |
107.89 USD $ |
MSW - Fixed Price Differential
(Physical) |
|
|
|
January 2013 - December 2013 |
|
2,000 bbl/d |
WTI less 4.50 USD $ |
October 2013 - December 2013 |
|
500 bbl/d |
WTI less 8.50 USD $ |
MSW - Fixed Price Sale (Physical) |
|
|
|
January 2014 - March 2014 |
|
500 bbl/d |
92.03 CAD $ |
|
|
|
|
Canadian Natural Gas |
|
|
|
AECO - Collar |
|
|
|
April 2013 - October 2013 |
|
3,500 GJ/d |
3.05 - 3.66 CAD $ |
April 2013 - December 2013 |
|
5,000 GJ/d |
2.93 - 3.52 CAD $ |
October 2013 - December 2013 |
|
2,500 GJ/d |
2.85 - 3.56 CAD $ |
January 2014 - December 2014 |
|
2,500 GJ/d |
3.15 - 3.86 CAD $ |
AECO - Swap |
|
|
|
May 2013 - December 2013 |
|
2,500 GJ/d |
3.65 CAD $ |
AECO - Collar (Physical) |
3 |
|
|
April 2012 - March 2014 |
|
5,500 GJ/d |
2.60 - 3.78 CAD $ |
June 2012 - March 2014 |
|
3,000 GJ/d |
2.30 - 3.75 CAD $ |
|
|
|
|
European Natural Gas |
|
|
|
TTF - Swap |
|
|
|
May 2013 - December 2013 |
|
3,600 GJ/d |
7.41 EUR € |
June 2013 - December 2013 |
|
14,400 GJ/d |
7.44 EUR € |
October 2013 - December 2013 |
|
1,800 GJ/d |
7.53 EUR € |
1 |
Prior to the expiration of this swap, the counterparty has the
option to extend the swap to June 30, 2014 at the contracted volume
and price. |
2 |
Prior to the expiration of this swap, the counterparty has the
option to extend the swap to December 31, 2014 at the contracted
volume and price. |
3 |
Physical AECO collars have a funded cost of $0.10/GJ. |
From time to time Vermilion
enters into new risk management positions. Up-to-date
information regarding outstanding risk management positions is
available on Vermilion's website
at www.vermilionenergy.com/ir/hedging.cfm.
ROYALTIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
By product |
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe and per mcf) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Crude oil & NGLs |
17,919 |
15,353 |
12,087 |
|
17% |
48% |
|
|
48,082 |
39,570 |
|
22% |
Per boe |
6.86 |
5.95 |
5.00 |
|
15% |
37% |
|
|
6.25 |
5.65 |
|
11% |
Natural gas |
811 |
447 |
276 |
|
81% |
194% |
|
|
2,238 |
576 |
|
289% |
Per mcf |
0.11 |
0.06 |
0.04 |
|
83% |
175% |
|
|
0.10 |
0.03 |
|
233% |
Royalties |
18,730 |
15,800 |
12,363 |
|
19% |
52% |
|
|
50,320 |
40,146 |
|
25% |
Per boe |
4.93 |
4.06 |
3.49 |
|
21% |
41% |
|
|
4.41 |
3.81 |
|
16% |
% of petroleum and natural gas sales |
5.7% |
5.1% |
4.3% |
|
|
|
|
|
5.3% |
4.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
By country |
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Canada |
11,156 |
9,707 |
7,081 |
|
15% |
58% |
|
|
29,852 |
24,266 |
|
23% |
Per boe |
7.09 |
5.96 |
5.33 |
|
19% |
33% |
|
|
6.41 |
5.74 |
|
12% |
% of petroleum and natural gas sales |
11.2% |
9.6% |
9.9% |
|
|
|
|
|
10.5% |
10.7% |
|
|
France |
7,574 |
6,093 |
5,282 |
|
24% |
43% |
|
|
20,468 |
15,880 |
|
29% |
Per boe |
6.73 |
5.95 |
5.42 |
|
13% |
24% |
|
|
6.23 |
5.60 |
|
11% |
% of petroleum and natural gas sales |
6.3% |
6.1% |
5.2% |
|
|
|
|
|
6.0% |
5.3% |
|
|
In Canada,
royalties as a percentage of sales for the third quarter of 2013
increased to 11.2% as compared to 9.6% for the second quarter of
2013 and 9.9% for the third quarter of 2012. The slightly
higher percentage in the current quarter is associated with the
timing of placing Cardium wells on production due to the associated
royalty incentive on initial production volumes. On a
year-over-year basis, royalties as a percentage of sales remained
consistent.
In France,
royalties as a percentage of sales for the third quarter of 2013
remained relatively consistent with the prior quarter. As
compared to the same periods of the prior year, royalties as a
percentage of sales for the three and nine months ended
September 30, 2013 increased due to a
higher proportion of R31 royalty associated with incremental
production from a 2012 French acquisition as well as new wells that
have come on production in 2013. Although the RCDM component
of the royalties levied in France
is based on units of production and is not subject to changes in
commodity prices, certain wells are also subject to the R31 royalty
which is based on revenue.
Production in the
Netherlands and Australia
is not subject to royalties.
OPERATING EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
By product |
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe and per mcf) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
2012 |
Crude oil & NGLs |
34,275 |
35,682 |
36,889 |
|
(4%) |
(7%) |
|
|
111,812 |
102,400 |
|
9% |
Per boe |
13.12 |
13.84 |
15.26 |
|
(5%) |
(14%) |
|
|
14.54 |
14.62 |
|
(1%) |
Natural gas |
11,971 |
12,400 |
10,141 |
|
(3%) |
18% |
|
|
35,091 |
32,408 |
|
8% |
Per mcf |
1.68 |
1.58 |
1.50 |
|
6% |
12% |
|
|
1.57 |
1.53 |
|
3% |
Operating |
46,246 |
48,082 |
47,030 |
|
(4%) |
(2%) |
|
|
146,903 |
134,808 |
|
9% |
Per boe |
12.17 |
12.36 |
13.27 |
|
(2%) |
(8%) |
|
|
12.87 |
12.78 |
|
1% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
By country |
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
2012 |
Canada |
12,770 |
15,975 |
13,420 |
|
(20%) |
(5%) |
|
|
42,586 |
40,904 |
|
4% |
Per boe |
8.12 |
9.81 |
10.10 |
|
(17%) |
(20%) |
|
|
9.15 |
9.68 |
|
(5%) |
France |
14,599 |
16,935 |
12,351 |
|
(14%) |
18% |
|
|
51,473 |
41,208 |
|
25% |
Per boe |
12.97 |
16.53 |
12.66 |
|
(22%) |
2% |
|
|
15.67 |
14.53 |
|
8% |
Netherlands |
5,209 |
5,260 |
3,870 |
|
(1%) |
35% |
|
|
14,438 |
13,436 |
|
7% |
Per boe |
11.69 |
8.93 |
7.24 |
|
31% |
61% |
|
|
9.04 |
8.44 |
|
7% |
Australia |
13,668 |
9,912 |
17,389 |
|
38% |
(21%) |
|
|
38,406 |
39,260 |
|
(2%) |
Per boe |
20.86 |
15.30 |
24.62 |
|
36% |
(15%) |
|
|
20.41 |
20.75 |
|
(2%) |
In Canada,
third quarter operating expense of $12.8
million was lower than the previous quarter's $16.0 million due to lower electricity costs,
less emulsion trucking and reduced lease mat rentals. This
resulted in a decrease to $8.12 per
boe for the current quarter versus $9.81 per boe for the prior quarter.
Operating expense for the third quarter of 2013 was relatively
consistent with the $13.4 million for
the same quarter of the previous year. The year-over-year
increase in operating expense from $40.9
million to $42.6 million was
related to higher fuel and electricity costs and gas gathering fees
as well as increased preventative maintenance work. Operating
expense per boe decreased for the three and nine months ended
September 30, 2013 as compared to the
same periods of the prior year due to higher current year
volumes.
In the
Netherlands, operating expense for the three and nine months
ended September 30, 2013 increased
against the comparable prior year periods due to the timing of
maintenance activity. The higher level of expense resulted in
an increase in operating expense per boe for the current year as
compared to the same periods of 2012. Operating expense per
boe increased for the third quarter of 2013 as compared to the
second quarter despite a similar level of expense due to lower
quarter-over-quarter volumes.
As a result of shipment timing, Vermilion carries an inventory of crude oil in
France and Australia. When crude oil is
inventoried, the related costs of production are deferred and
carried on the balance sheet. When the inventory is
subsequently sold, those costs are expensed in the period of
sale. As a result, the timing of inventory builds and draws
results in fluctuations in the amount of operating expense
recognized for a given period.
In France, the
quarter-over-quarter decrease in operating expense was primarily
the result of reduced maintenance activity. The increase in
operating expense for the three and nine months ended September 30, 2013 as compared to the same
periods of the prior year is associated with incremental costs
related to a December 2012
acquisition as well as additional repair and maintenance activities
year-over-year. Higher operating expense resulted in an increase on
a per boe basis for the three and nine months ended September 30, 2013 despite significantly higher
volumes.
In Australia,
operating expense for the third quarter of 2013 increased as
compared to the previous quarter due primarily to increased repairs
and maintenance activity. Operating expense for the third
quarter of 2013 decreased as compared to the third quarter of 2012
due to a crude oil inventory draw in the prior year.
Operating expense for the nine months ended September 30, 2013 remained relatively consistent
with the same period of the prior year. The variance in
expense per boe for the third quarter of 2013 as compared to the
prior quarter and the third quarter of 2012 is largely due to the
timing of major project work. On a year-to-date basis,
operating expense per boe in 2013 remained relatively consistent
with the prior year.
TRANSPORTATION EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
By country |
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Canada |
3,272 |
2,611 |
2,005 |
|
25% |
63% |
|
|
8,152 |
6,399 |
|
27% |
Per boe |
2.08 |
1.60 |
1.51 |
|
30% |
38% |
|
|
1.75 |
1.51 |
|
16% |
France |
2,713 |
2,416 |
1,840 |
|
12% |
47% |
|
|
7,883 |
6,382 |
|
24% |
Per boe |
2.41 |
2.36 |
1.89 |
|
2% |
28% |
|
|
2.40 |
2.25 |
|
7% |
Ireland |
564 |
1,626 |
1,899 |
|
(65%) |
(70%) |
|
|
3,808 |
5,874 |
|
(35%) |
Transportation |
6,549 |
6,653 |
5,744 |
|
(2%) |
14% |
|
|
19,843 |
18,655 |
|
6% |
Per boe |
1.72 |
1.71 |
1.62 |
|
1% |
6% |
|
|
1.74 |
1.77 |
|
(2%) |
Transportation expense in Canada and France for the three and nine months ended
September 30, 2013 was higher
compared to the expense for the same periods in 2012 and the second
quarter of 2013. These increases resulted from higher sales
volumes in France and increased
crude oil production subject to transportation costs in
Canada.
On a consolidated basis, the increases in
transportation expense in Canada
and France were offset by lower
payments under the ship or pay agreement related to the Corrib
project.
GENERAL AND ADMINISTRATION EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
|
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
General and administration |
12,033 |
11,313 |
12,669 |
|
6% |
(5%) |
|
|
35,956 |
34,885 |
|
3% |
Per boe |
3.17 |
2.91 |
3.57 |
|
9% |
(11%) |
|
|
3.15 |
3.31 |
|
(5%) |
The minor variance in general administration
expense for the third quarter of 2013 versus the comparative
quarter and year-over-year is due to the timing of corporate
expenditures. For the nine months ended September 30, 2013, general and administration
expense was slightly higher than the corresponding period in 2012
as a result of increased staffing levels required to support
Vermilion's operational
activities.
EQUITY BASED COMPENSATION EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
|
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Equity based compensation |
12,779 |
10,724 |
8,704 |
|
19% |
47% |
|
|
39,639 |
28,620 |
|
39% |
Per boe |
3.36 |
2.76 |
2.46 |
|
22% |
37% |
|
|
3.47 |
2.71 |
|
28% |
Equity based compensation expense relates to
non-cash compensation expense attributable to long-term incentives
granted to directors, officers and employees under the Vermilion
Incentive Plan ("VIP"). The expense is recognized over the vesting
period based on the grant date fair value of awards, adjusted for
the ultimate number of awards that actually vest as determined by
the Company's achievement of performance conditions.
Equity based compensation expense for the three
and nine months ended September 30,
2013 was higher than the same periods in 2012. The
year-over-year increases resulted from the revision of future
performance condition assumptions starting in the fourth quarter of
2012 and higher staffing levels required to support Vermilion's operating activities.
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
|
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Interest expense |
10,109 |
9,336 |
7,229 |
|
8% |
40% |
|
|
28,134 |
19,930 |
|
41% |
Per boe |
2.66 |
2.40 |
2.04 |
|
11% |
30% |
|
|
2.46 |
1.89 |
|
30% |
Interest expense for the three and nine months
ended September 30, 2013 increased
versus the comparable periods due to increased borrowings under
Vermilion's revolving credit
facility.
DEPLETION AND DEPRECIATION, ACCRETION,
IMPAIRMENTS AND GAIN ON ACQUISITION |
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
|
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Depletion and depreciation |
78,826 |
78,418 |
76,941 |
|
1% |
2% |
|
|
238,692 |
229,301 |
|
4% |
Per boe |
20.74 |
20.16 |
21.70 |
|
3% |
(4%) |
|
|
20.91 |
21.74 |
|
(4%) |
Accretion |
6,214 |
6,000 |
5,891 |
|
4% |
5% |
|
|
18,038 |
16,921 |
|
7% |
Per boe |
1.64 |
1.54 |
1.66 |
|
6% |
(1%) |
|
|
1.58 |
1.60 |
|
(1%) |
Impairments |
- |
- |
- |
|
- |
- |
|
|
- |
65,800 |
|
(100%) |
Per boe |
- |
- |
- |
|
- |
- |
|
|
- |
6.24 |
|
(100%) |
Gain on acquisition |
- |
- |
- |
|
- |
- |
|
|
- |
(45,309) |
|
(100%) |
Per boe |
- |
- |
- |
|
- |
- |
|
|
- |
(4.30) |
|
(100%) |
Depletion and depreciation expense for the third
quarter of 2013 was relatively consistent with both the second
quarter of 2013 and the third quarter of 2012. Depletion and
depreciation expense for the nine months ended September 30, 2013 was 4% higher than the same
period in 2012 primarily due to increased production
year-over-year.
Accretion expense for the third quarter of 2013
was relatively consistent with both the second quarter of 2013 and
the third quarter of 2012. Accretion expense was higher for
the nine months ended September 30,
2013 as compared to the same period in 2012 as a result of
additional accretion expense pertaining to asset retirement
obligations recorded on new wells drilled during the year and an
acquisition in France late in
2012.
The impairment losses for the nine months ended
September 30, 2012 pertained to
impairment losses recorded on Vermilion's conventional deep gas and shallow
coal bed methane natural gas plays. These impairment charges
were the result of significant declines in the forward pricing
assumptions for natural gas in Canada.
The gain on acquisition for the nine months
ended September 30, 2012 related to
Vermilion's acquisition of certain
working interests in the Paris and
Aquitaine basins. The gain arose as a result of the increase
in the fair value of the acquired petroleum and natural gas
reserves from the time when the acquisition was negotiated to the
acquisition date. The increase resulted from a change in the
underlying commodity price forecasts used to determine the fair
value of the acquired reserves.
TAXES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
By classification |
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Current taxes before PRRT |
46,453 |
36,719 |
38,784 |
|
27% |
20% |
|
|
118,729 |
100,373 |
|
18% |
Per boe |
12.22 |
9.44 |
10.94 |
|
29% |
12% |
|
|
10.40 |
9.52 |
|
9% |
PRRT |
15,649 |
12,590 |
22,743 |
|
24% |
(31%) |
|
|
39,392 |
58,472 |
|
(33%) |
Per boe |
4.12 |
3.24 |
6.42 |
|
27% |
(36%) |
|
|
3.45 |
5.54 |
|
(38%) |
Current taxes |
62,102 |
49,309 |
61,527 |
|
26% |
1% |
|
|
158,121 |
158,845 |
|
0% |
Per boe |
16.34 |
12.68 |
17.36 |
|
29% |
(6%) |
|
|
13.85 |
15.06 |
|
(8%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
%
change |
|
|
Nine
Months Ended |
|
% change |
By country |
Sept 30, |
June 30, |
Sept 30, |
|
Q3/13 vs. |
Q3/13 vs. |
|
|
Sept 30, |
Sept 30, |
|
2013 vs. |
($M except per boe) |
2013 |
2013 |
2012 |
|
Q2/13 |
Q3/12 |
|
|
2013 |
2012 |
|
2012 |
Canada |
260 |
328 |
36 |
|
(21%) |
622% |
|
|
839 |
1,323 |
|
(37%) |
Per boe |
0.17 |
0.20 |
0.03 |
|
(15%) |
467% |
|
|
0.18 |
0.31 |
|
(42%) |
France |
31,717 |
16,124 |
21,051 |
|
97% |
51% |
|
|
66,500 |
49,671 |
|
34% |
Per boe |
28.17 |
15.74 |
21.58 |
|
79% |
31% |
|
|
20.25 |
17.51 |
|
16% |
Netherlands |
6,810 |
9,621 |
9,614 |
|
(29%) |
(29%) |
|
|
25,865 |
24,546 |
|
5% |
Per boe |
15.28 |
16.34 |
18.00 |
|
(6%) |
(15%) |
|
|
16.20 |
15.42 |
|
5% |
Australia |
23,315 |
23,236 |
30,826 |
|
- |
(24%) |
|
|
64,917 |
83,305 |
|
(22%) |
Per boe |
35.59 |
35.86 |
43.66 |
|
(1%) |
(18%) |
|
|
34.49 |
44.02 |
|
(22%) |
Vermilion pays
current taxes in France,
the Netherlands and Australia. Corporate income taxes in
France and the Netherlands apply to taxable income after
eligible deductions. In France, taxable income is taxed at a rate of
approximately 34.4%, plus an additional temporary surtax tax of 5%
levied until 2014 for companies which have annual revenue in excess
of €250 million. Vermilion
is therefore taxable in France at
a statutory rate of 36.1% until 2014. In the Netherlands, taxable income is taxed at a
rate of approximately 46%. As a function of the impact of
Vermilion's Canadian tax pools,
the Company does not presently pay current taxes in Canada. The Canadian segment includes holding
companies that pay current taxes in foreign jurisdictions.
During the second half of 2013, the France government proposed changes to
corporate tax legislation that could lead to increases in current
tax for companies operating in France. One of the proposals includes an
increase in the temporary surtax from 5% currently to 10.7% (with
the surtax levied as a percent of base corporate income tax
payable). The new surtax rate would be applicable for companies
which have annual revenue in excess of €250 million and would
effectively increase the statutory rate applicable to Vermilion's French operations from the 36.1%
to 38.0%, with retrospective application to January 1, 2013.
Another proposal adds a new test to the existing
rules governing interest deductions for related party
financing. Under the proposed rule, interest deductions would
be allowed only if the French borrower demonstrates that the lender
is subject to corporate tax on interest income that equals 25% or
more of the corporate tax that would otherwise be due under French
tax rules. This proposal, among other proposed changes, may
reduce the effectiveness of Vermilion's existing international corporate
financing structures and could result in a reduction of certain
eligible deductions in our French operating companies.
The Company has been in receipt of tax
assessments in France for certain
prior periods. A provision for the assessments has been
recorded and the Company has entered into discussions with the tax
authorities in France regarding
the assessments.
In Australia,
current taxes include both corporate income taxes and PRRT.
Corporate income taxes are applied at a rate of approximately 30%
on taxable income after eligible deductions, which include
PRRT. PRRT is a profit based tax applied at a rate of 40% on
sales less eligible expenditures, including operating expenses and
capital expenditures.
Current taxes for the third quarter of 2013 were
higher than the second quarter of 2013 and the same period in 2012
due in part to higher taxes in France as a result of prior periods
assessments from the French tax authority as well as higher
petroleum and natural gas sales. Partially offsetting the impact of
higher sales was the use of tax pools in Canada, which will remain non-taxable for a
number of years.
Current taxes for the three and nine months
ended September 30, 2013 was
consistent with the same period in 2012 despite higher petroleum
and natural gas sales and current taxes in France due to higher capital expenditures
during the first half of 2013 in Australia, which resulted in decreased
PRRT.
OTHER EXPENSE (INCOME) |
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
Sept 30, |
June 30, |
Sept 30, |
|
|
Sept 30, |
Sept 30, |
($M except per boe) |
2013 |
2013 |
2012 |
|
|
2013 |
2012 |
Other expense (income) |
55 |
271 |
(277) |
|
|
259 |
8,291 |
Per boe |
0.01 |
0.07 |
(0.08) |
|
|
0.02 |
0.79 |
Other expense for the nine months ended
September 30, 2012 was comprised
primarily of $8.5 million relating to
transfer taxes paid to regulatory authorities in France pursuant to the first quarter of 2012
acquisition of certain working interests in six producing fields
located in the Paris and Aquitaine
basins.
FOREIGN EXCHANGE |
|
|
|
|
|
|
|
|
|
|
Three
Months Ended |
|
|
Nine
Months Ended |
|
Sept 30, |
June 30, |
Sept 30, |
|
|
Sept 30, |
Sept 30, |
($M except per boe) |
2013 |
2013 |
2012 |
|
|
2013 |
2012 |
Unrealized foreign exchange (gain) loss |
(4,232) |
(28,025) |
6,740 |
|
|
(29,738) |
18,223 |
Per boe |
(1.11) |
(7.21) |
1.89 |
|
|
(2.60) |
1.73 |
Realized foreign exchange loss (gain) |
1,227 |
(1,272) |
(410) |
|
|
572 |
(345) |
Per boe |
0.32 |
(0.33) |
(0.11) |
|
|
0.05 |
(0.03) |
Foreign exchange (gain) loss |
(3,005) |
(29,297) |
6,330 |
|
|
(29,166) |
17,878 |
Per boe |
(0.79) |
(7.54) |
1.78 |
|
|
(2.55) |
1.70 |
As a result of Vermilion's international operations,
Vermilion conducts business in
currencies other than the Canadian dollar and has monetary assets
and liabilities (including cash, receivables, payables, derivative
assets and liabilities, and intercompany loans) denominated in such
currencies. Vermilion's
exposure to foreign currencies includes the U.S. Dollar, the Euro
and the Australian Dollar.
Foreign exchange gains and losses are comprised
of both unrealized and realized amounts. Unrealized foreign
exchange gains and losses are the result of translating monetary
assets and liabilities held in non-functional currencies to the
respective functional currencies of Vermilion and its subsidiaries. Realized
gains and losses are the result of foreign exchange fluctuations
and the timing of payments on transactions conducted in
non-functional currencies and as such are subject to
fluctuations.
For the three and nine months ended September 30, 2013, the unrealized foreign
exchange gain primarily resulted from the impact of the
appreciation of the Euro against the Canadian dollar and the
resultant impact on Vermilion's
financial balances.
SUMMARY OF RESULTS |
|
|
|
|
|
|
|
Three
Months Ended |
|
|
Sept 30, |
Jun 30, |
Mar 31, |
Dec 31, |
Sept 30, |
Jun 30, |
Mar 31, |
Dec 31, |
($M except per share) |
2013 |
2013 |
2013 |
2012 |
2012 |
2012 |
2012 |
2011 |
Petroleum and natural gas sales |
327,185 |
311,966 |
309,576 |
241,233 |
284,838 |
246,544 |
310,488 |
275,172 |
Net earnings (loss) |
67,796 |
106,198 |
52,137 |
56,914 |
30,798 |
37,816 |
65,094 |
(30,243) |
Net earnings (loss) per share |
|
|
|
|
|
|
|
|
|
Basic |
0.67 |
1.05 |
0.53 |
0.58 |
0.31 |
0.39 |
0.67 |
(0.32) |
|
Diluted |
0.66 |
1.04 |
0.51 |
0.57 |
0.31 |
0.38 |
0.66 |
(0.32) |
The fluctuations in Vermilion's petroleum and natural gas sales
and net earnings (loss) from quarter-to-quarter are primarily
caused by variations in sales volumes, crude oil and natural gas
prices and the impact of royalties and tax legislation in the
jurisdictions in which Vermilion
operates. In addition, changes in foreign exchange rates may
result in unrealized gains and losses on Vermilion's financial balances held in foreign
currencies while changes in petroleum and natural gas prices may
impact gains and losses on derivative instruments and may result in
impairment charges or the reversal of impairment charges incurred
in previous periods.
LIQUIDITY AND CAPITAL RESOURCES
Vermilion's net debt as at
September 30, 2013 was $700.3 million compared to $677.2 million as at December 31, 2012.
Long-term debt was comprised of the following:
|
Annualized Interest Rate |
|
|
As
At |
|
Sept 30, |
Dec 31, |
|
|
Sept 30, |
Dec 31, |
($M) |
2013 |
2012 |
|
|
2013 |
2012 |
Revolving credit facility |
3.3% |
3.3% |
|
|
558,171 |
419,784 |
Senior unsecured notes |
6.5% |
6.5% |
|
|
222,903 |
222,238 |
Long-term debt |
4.3% |
4.7% |
|
|
781,074 |
642,022 |
Revolving Credit Facility
At September 30,
2013, Vermilion had in
place a bank revolving credit facility totalling $1.2 billion, of which approximately $558.2 million was drawn. The facility,
which matures on May 31, 2016, is
fully revolving up to the date of maturity.
The facility is extendable from time to time,
but not more than once per year, for a period not longer than three
years, 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 repayable on the maturity date. This facility
bears interest at a rate applicable to demand loans plus applicable
margins.
The amount available to Vermilion under this facility is reduced by
certain outstanding letters of credit associated with Vermilion's operations totalling $11.5 million as at September 30, 2013 (December 31, 2012 - $49.2
million).
The facility is secured by various fixed and
floating charges against the subsidiaries of Vermilion. Under the terms of the
facility, Vermilion must maintain
a ratio of total bank borrowings (defined as consolidated total
debt), to consolidated net earnings before interest, income taxes,
depreciation, accretion and other certain non-cash items (defined
as consolidated EBITDA) of not greater than 4.0. In addition,
Vermilion must maintain a ratio of
consolidated total senior debt (defined as consolidated total debt
excluding unsecured and subordinated debt) to consolidated EBITDA
of not greater than 3.0.
As at September 30,
2013, Vermilion was in
compliance with its financial covenants.
Senior Unsecured Notes
On February 10,
2011, Vermilion issued
$225.0 million of senior unsecured
notes at par. The notes bear interest at a rate of 6.5% per
annum and will mature on February 10,
2016. As direct senior unsecured obligations of
Vermilion, the notes rank pari
passu with all other present and future unsecured and
unsubordinated indebtedness of the Company.
Vermilion may,
at its option, prior to February 10,
2014, redeem up to 35% of the notes with net proceeds of
equity offerings by the Company at a redemption price equal to
106.5% of the principal amount of the notes to be redeemed, plus
accrued and unpaid interest, if any, to the applicable redemption
date. Subsequently, Vermilion may, on or after February 10, 2014, redeem all or part of the
notes at fixed redemption prices, plus, in each case, accrued and
unpaid interest, if any, to the applicable redemption date.
The notes were initially recognized at fair value net of
transaction costs and are subsequently measured at amortized cost
using an effective interest rate of 7.1%.
ASSET RETIREMENT OBLIGATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
At |
|
|
|
|
|
Sept 30, |
Dec 31, |
($M) |
|
|
|
|
2013 |
2012 |
Asset retirement obligations |
|
|
|
|
362,537 |
371,063 |
The decrease in asset retirement obligations was
primarily the result of an overall increase in the discount rates
applied to the obligations. This decrease was partially
offset by the appreciation of the Euro against the Canadian dollar
and the resulting impact of translating the asset retirement
obligations that are denominated in Euros to Canadian dollars.
DIVIDENDS |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine
Months Ended |
Year Ended |
($M) |
Sept 30, 2013 |
|
|
Sept 30, 2013 |
Dec 31, 2012 |
Cash flows from operating activities |
158,236 |
|
|
528,022 |
496,580 |
Net earnings |
67,796 |
|
|
226,131 |
190,622 |
Dividends declared |
61,003 |
|
|
181,391 |
223,717 |
Excess of cash flows from operating activities
over dividends declared |
97,233 |
|
|
346,631 |
272,863 |
Excess (shortfall) of net earnings over dividends
declared |
6,793 |
|
|
44,740 |
(33,095) |
During the nine months ended September 30, 2013, Vermilion maintained monthly dividends at
$0.20 per share and declared
dividends totalling $181.4
million.
Excess cash flows from operating activities over
dividends declared are used to fund capital expenditures, asset
retirement obligations and debt repayments.
Following Vermilion's conversion to a trust in
January 2003, the distribution
remained at $0.17 per unit per month
until it was increased to $0.19 per
unit per month in December
2007. Effective September 1,
2010, Vermilion converted
to a dividend paying corporation and dividends remained at
$0.19 per share per month until
increased to $0.20 per share per
month in January 2013. The
January 2013 increase was announced
on November 14, 2012 and resulted in
an increase in the monthly cash dividends by 5.3% to $0.20 per share per month beginning with the
January 2013 dividend (paid on
February 15, 2013).
Vermilion's
policy with respect to dividends is to be conservative and maintain
a low ratio of dividends to fund flows from operations.
During low price commodity cycles, Vermilion will initially maintain dividends
and allow the ratio to rise. Should low commodity price
cycles remain for an extended period of time, Vermilion will evaluate the necessity of
changing the level of dividends, taking into consideration capital
development requirements, debt levels and acquisition
opportunities.
Over the next two years, Vermilion anticipates that Corrib, Cardium and
other exploration and development activities will require a
significant capital investment by Vermilion. Although Vermilion currently expects to be able to
maintain its current dividend, Vermilion's fund flows from operations may not
be sufficient during this period to fund cash dividends, capital
expenditures and asset retirement obligations. Vermilion will evaluate its ability to finance
any shortfalls with debt, issuances of equity or by reducing some
or all categories of expenditures to ensure that total expenditures
do not exceed available funds.
SHAREHOLDERS' EQUITY
During the nine months ended September 30, 2013, Vermilion issued 2.7 million common shares
pursuant to the dividend reinvestment plan and Vermilion's equity based compensation
programs. Shareholders' capital increased by $118.3 million as a result of the issuance of
those shares.
As at September 30,
2013, there were 101.8 million shares outstanding. As
at November 6, 2013, there were 101.9
million shares outstanding.
CORRIB PROJECT
Vermilion holds
an 18.5% non-operating interest in the offshore Corrib gas field
located off the northwest coast of Ireland. Production from Corrib is
expected to increase Vermilion's
volumes by approximately 58 mmcf/d (9,700 boe/d) once the field
reaches peak production. Vermilion acquired its 18.5% working interest
in the project on July 30,
2009. The project comprises six offshore wells, both
offshore and onshore pipeline segments as well as a natural gas
processing facility. At the time of the acquisition most of
the key components of the project, with the exception of the
onshore pipeline, were either complete or in the latter stages of
development. Vermilion's
interest was acquired for cash consideration of $136.8 million with subsequent capital
expenditures to September 30, 2013 of
$379.0 million, primarily related to
completion of the natural gas processing facility, sub-surface well
work, and permitting, preparations and construction of the onshore
pipeline. Furthermore, pursuant to the terms of the
acquisition agreement, Vermilion
made an additional payment to the vendor of $134.3 million (US$135
million) at the end of 2012. In 2011, approvals and
permissions were granted for the onshore gas pipeline and tunneling
activities commenced in December of 2012. Vermilion expects to continue significant
capital investment on this project over the next two years and
currently expects to achieve initial gas production from this field
in mid-2015.
RISK MANAGEMENT
Vermilion is
exposed to various market and operational risks. For a
detailed discussion of these risks, please see Vermilion's Annual Report and Annual
Information Form, each for the year ended December 31, 2012.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in
accordance with IFRS requires management to make estimates,
judgments and assumptions that affect reported assets, liabilities,
revenues and expenses, gains and losses, and disclosures of any
possible contingencies. These estimates and assumptions are
developed based on the best available information which management
believed to be reasonable at the time such estimates and
assumptions were made. As such, these assumptions are
uncertain at the time estimates are made and could change,
resulting in a material impact on Vermilion's consolidated financial
statements. Estimates are reviewed by management on an
ongoing basis and as a result may change from period to period due
to the availability of new information. Additionally, as a result
of the unique circumstances of each jurisdiction that Vermilion operates in, the critical accounting
estimates may affect one or more jurisdictions.
The following outlines what management believes
to be the most critical accounting policies involving the use of
estimates and assumptions:
i. |
Depletion and depreciation charges are based on estimates of
total proven and probable reserves that Vermilion expects to
recover in the future. |
ii. |
Asset retirement obligations are based on past experience and
current economic factors which management believes are
reasonable. |
iii. |
Impairment tests are performed at the cash generating unit
(CGU) level, which is determined based on management's
judgment. The calculation of the recoverable amount of a CGU
is based on market factors as well as estimates of PNG reserves and
future costs required to develop reserves. |
iv. |
Deferred tax amounts recognized in the consolidated financial
statements are based on management's assessment of the tax
positions at the end of each reporting period. |
OFF BALANCE SHEET ARRANGEMENTS
Vermilion has
certain lease agreements that are entered into in the normal course
of operations, all of which are operating leases and accordingly no
asset or liability value has been assigned to the consolidated
balance sheet as at September 30,
2013.
Vermilion has
not entered into any guarantee or off balance sheet arrangements
that would materially impact Vermilion's financial position or results of
operations.
INTERNAL CONTROL OVER FINANCIAL REPORTING
There was no change in Vermilion's internal control over financial
reporting that occurred during the period covered by this MD&A
that has materially affected, or is reasonably likely to materially
affect, its internal control over financial reporting.
RECENTLY ADOPTED ACCOUNTING
PRONOUNCEMENTS
As of January 1,
2013, Vermilion adopted the
following pronouncements as issued by the IASB. The adoption
of these standards did not have a material impact on Vermilion's consolidated financial
statements.
IFRS 10 "Consolidated Financial
Statements"
IFRS 10 replaced Standing Interpretations Committee 12,
"Consolidation - Special Purpose Entities" and the consolidation
requirements of IAS 27 "Consolidated and Separate Financial
Statements". The new standard replaces the existing risk and
rewards based approaches and establishes control as the determining
factor when determining whether an interest in another entity
should be included in the consolidated financial
statements.
IFRS 11 "Joint Arrangements"
IFRS 11 replaced IAS 31 "Interests in Joint Ventures". The
new standard focuses on the rights and obligations of an
arrangement, rather than its legal form. The standard
redefines joint operations and joint ventures and requires joint
operations to be proportionately consolidated and joint ventures to
be equity accounted.
IFRS 12 "Disclosure of Interests in Other
Entities"
IFRS 12 provides comprehensive disclosure requirements for
interests in other entities, including joint arrangements,
associates, and special purpose entities. The new disclosures
are intended to assist financial statement users in evaluating the
nature, risks and financial effects of an entity's interest in
subsidiaries and joint arrangements.
IFRS 13 "Fair Value Measurement"
IFRS 13 provides a common definition of fair value within
IFRS. The new standard provides measurement and disclosure
guidance and applies when another IFRS requires or permits an item
to be measured at fair value, with limited exceptions.
IAS 34 "Interim Financial Reporting"
Amendments to IAS 34 require specific disclosures on the fair value
of financial instruments for interim reporting.
ACCOUNTING PRONOUNCEMENTS NOT YET
ADOPTED
The adoption of the following pronouncements is
not expected to have a material impact on Vermilion's consolidated financial
statements:
IFRS 9 "Financial Instruments"
As of January 1, 2015, Vermilion will be required to adopt IFRS 9, as
part of the first phase of the IASB's project to replace IAS 39,
"Financial Instruments: Recognition and Measurement". The new
standard replaces the current multiple classification and
measurement models for financial assets and liabilities with a
single model that has only two classification categories: amortized
cost and fair value.
NETBACKS
The following table includes segmented financial information on
a per unit basis. Natural gas sales volumes have been
converted on a basis of six thousand cubic feet of natural gas to
one barrel of oil equivalent.
|
Three Months Ended Sept 30,
2013 |
|
Nine Months Ended Sept 30,
2013 |
|
|
Three Months
Ended Sept 30,
2012 |
|
Nine Months
Ended Sept 30,
2012 |
|
Oil & NGLs |
Natural Gas |
Total |
|
Oil & NGLs |
Natural Gas |
Total |
|
|
Total |
|
Total |
|
$/bbl |
$/mcf |
$/boe |
|
$/bbl |
$/mcf |
$/boe |
|
|
$/boe |
|
$/boe |
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
Price |
98.14 |
2.73 |
63.56 |
|
90.81 |
3.30 |
61.16 |
|
|
53.61 |
|
53.67 |
Realized hedging (loss) gain |
(4.10) |
0.14 |
(2.02) |
|
(1.16) |
0.05 |
(0.55) |
|
|
(0.21) |
|
(0.32) |
Royalties |
(11.56) |
(0.17) |
(7.09) |
|
(10.32) |
(0.16) |
(6.41) |
|
|
(5.33) |
|
(5.74) |
Transportation |
(2.92) |
(0.16) |
(2.08) |
|
(2.31) |
(0.16) |
(1.75) |
|
|
(1.51) |
|
(1.51) |
Operating |
(7.35) |
(1.53) |
(8.12) |
|
(8.79) |
(1.61) |
(9.15) |
|
|
(10.10) |
|
(9.68) |
Operating netback |
72.21 |
1.01 |
44.25 |
|
68.23 |
1.42 |
43.30 |
|
|
36.46 |
|
36.42 |
France |
|
|
|
|
|
|
|
|
|
|
|
|
Price |
110.65 |
10.08 |
107.08 |
|
107.19 |
10.20 |
104.29 |
|
|
104.95 |
|
106.00 |
Realized hedging loss |
(1.32) |
- |
(1.23) |
|
(0.65) |
- |
(0.61) |
|
|
(1.39) |
|
(3.27) |
Royalties |
(7.10) |
(0.30) |
(6.73) |
|
(6.53) |
(0.30) |
(6.23) |
|
|
(5.42) |
|
(5.60) |
Transportation |
(2.59) |
- |
(2.41) |
|
(2.56) |
- |
(2.40) |
|
|
(1.89) |
|
(2.25) |
Operating |
(13.33) |
(1.38) |
(12.97) |
|
(16.11) |
(1.52) |
(15.67) |
|
|
(12.66) |
|
(14.53) |
Operating netback |
86.31 |
8.40 |
83.74 |
|
81.34 |
8.38 |
79.38 |
|
|
83.59 |
|
80.35 |
Netherlands |
|
|
|
|
|
|
|
|
|
|
|
|
Price |
98.86 |
10.18 |
61.44 |
|
97.06 |
10.39 |
62.70 |
|
|
56.88 |
|
57.95 |
Realized hedging (loss) gain |
- |
0.19 |
1.15 |
|
- |
0.05 |
0.32 |
|
|
- |
|
- |
Operating |
- |
(1.97) |
(11.69) |
|
- |
(1.52) |
(9.04) |
|
|
(7.24) |
|
(8.44) |
Operating netback |
98.86 |
8.40 |
50.90 |
|
97.06 |
8.92 |
53.98 |
|
|
49.64 |
|
49.51 |
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
Price |
120.95 |
- |
120.95 |
|
117.65 |
- |
117.65 |
|
|
114.44 |
|
117.40 |
Realized hedging loss |
(1.11) |
- |
(1.11) |
|
(0.92) |
- |
(0.92) |
|
|
(0.33) |
|
(0.30) |
Operating |
(20.86) |
- |
(20.86) |
|
(20.41) |
- |
(20.41) |
|
|
(24.62) |
|
(20.75) |
PRRT 1 |
(23.89) |
- |
(23.89) |
|
(20.93) |
- |
(20.93) |
|
|
(32.21) |
|
(30.90) |
Operating netback |
75.09 |
- |
75.09 |
|
75.39 |
- |
75.39 |
|
|
57.28 |
|
65.45 |
Total Company |
|
|
|
|
|
|
|
|
|
|
|
|
Price |
108.87 |
6.00 |
86.10 |
|
103.95 |
6.68 |
83.10 |
|
|
80.35 |
|
79.83 |
Realized hedging (loss) gain |
(2.23) |
0.15 |
(1.25) |
|
(0.89) |
0.05 |
(0.51) |
|
|
(0.53) |
|
(1.06) |
Royalties |
(6.86) |
(0.11) |
(4.93) |
|
(6.25) |
(0.10) |
(4.41) |
|
|
(3.49) |
|
(3.81) |
Transportation |
(2.05) |
(0.17) |
(1.72) |
|
(1.84) |
(0.25) |
(1.74) |
|
|
(1.62) |
|
(1.77) |
Operating |
(13.12) |
(1.68) |
(12.17) |
|
(14.54) |
(1.57) |
(12.87) |
|
|
(13.27) |
|
(12.78) |
PRRT 1 |
(5.99) |
- |
(4.12) |
|
(5.12) |
- |
(3.45) |
|
|
(6.42) |
|
(5.54) |
Operating netback |
78.62 |
4.19 |
61.91 |
|
75.31 |
4.81 |
60.12 |
|
|
55.02 |
|
54.87 |
General and administration |
|
|
(3.17) |
|
|
|
(3.15) |
|
|
(3.57) |
|
(3.31) |
Interest expense |
|
|
(2.66) |
|
|
|
(2.46) |
|
|
(2.04) |
|
(1.89) |
Realized foreign exchange (loss)
gain |
(0.32) |
|
|
|
(0.05) |
|
|
0.11 |
|
0.03 |
Other income (expense) |
0.06 |
|
|
|
0.07 |
|
|
0.08 |
|
(0.74) |
Current income taxes 1 |
|
|
(12.22) |
|
|
|
(10.40) |
|
|
(10.94) |
|
(9.52) |
Fund flows netback |
|
|
43.60 |
|
|
|
44.13 |
|
|
38.66 |
|
39.44 |
Accretion |
|
|
(1.64) |
|
|
|
(1.58) |
|
|
(1.66) |
|
(1.60) |
Depletion and depreciation |
|
|
(20.74) |
|
|
|
(20.91) |
|
|
(21.70) |
|
(21.74) |
Impairments |
|
|
- |
|
|
|
- |
|
|
- |
|
(6.24) |
Gain on acquisition |
|
|
- |
|
|
|
- |
|
|
- |
|
4.30 |
Deferred taxes |
|
|
(0.08) |
|
|
|
(1.22) |
|
|
0.76 |
|
2.92 |
Unrealized other expense |
(0.07) |
|
|
|
(0.09) |
|
|
- |
|
(0.05) |
Unrealized foreign exchange gain
(loss) |
1.11 |
|
|
|
2.60 |
|
|
(1.89) |
|
(1.73) |
Unrealized (loss) gain on derivative
instruments |
(0.97) |
|
|
|
0.34 |
|
|
(3.02) |
|
0.09 |
Equity based compensation |
|
|
(3.36) |
|
|
|
(3.47) |
|
|
(2.46) |
|
(2.71) |
Earnings netback |
|
|
17.85 |
|
|
|
19.80 |
|
|
8.69 |
|
12.68 |
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. |
CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)
|
|
September 30, |
December 31, |
|
Note |
|
2013 |
|
2012 |
ASSETS |
|
|
|
|
|
Current |
|
|
|
|
|
Cash and cash equivalents |
|
|
256,135 |
|
102,125 |
Accounts receivable |
|
|
178,662 |
|
180,064 |
Crude oil inventory |
|
|
18,159 |
|
25,719 |
Derivative instruments |
|
|
2,372 |
|
2,086 |
Prepaid expenses |
|
|
15,217 |
|
10,508 |
|
|
|
470,545 |
|
320,502 |
|
|
|
|
|
|
Deferred taxes |
|
|
194,448 |
|
193,354 |
Exploration and evaluation assets |
4 |
|
135,982 |
|
117,161 |
Capital assets |
3 |
|
2,623,450 |
|
2,445,240 |
|
|
|
3,424,425 |
|
3,076,257 |
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
Current |
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
281,112 |
|
300,682 |
Dividends payable |
7 |
|
20,357 |
|
18,836 |
Derivative instruments |
|
|
4,931 |
|
8,484 |
Income taxes payable |
|
|
83,357 |
|
27,709 |
|
|
|
389,757 |
|
355,711 |
|
|
|
|
|
|
Long-term debt |
6 |
|
781,074 |
|
642,022 |
Asset retirement obligations |
5 |
|
362,537 |
|
371,063 |
Deferred taxes |
|
|
302,272 |
|
288,815 |
|
|
|
1,835,640 |
|
1,657,611 |
|
|
|
|
|
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
Shareholders' capital |
7 |
|
1,599,668 |
|
1,481,345 |
Contributed surplus |
|
|
54,221 |
|
69,581 |
Accumulated other comprehensive loss |
|
|
(165) |
|
(32,409) |
Deficit |
|
|
(64,939) |
|
(99,871) |
|
|
|
1,588,785 |
|
1,418,646 |
|
|
|
3,424,425 |
|
3,076,257 |
CONSOLIDATED STATEMENTS OF NET EARNINGS AND COMPREHENSIVE
INCOME
(THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND PER SHARE
AMOUNTS, UNAUDITED)
|
|
|
Three
Months Ended |
|
Nine
Months Ended |
|
|
|
Sept 30, |
|
Sept 30, |
|
Sept 30, |
|
Sept 30, |
|
Note |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
REVENUE |
|
|
|
|
|
|
|
|
|
Petroleum and natural gas sales |
|
|
327,185 |
|
284,838 |
|
948,727 |
|
841,870 |
Royalties |
|
|
(18,730) |
|
(12,363) |
|
(50,320) |
|
(40,146) |
Petroleum and natural gas revenue |
|
|
308,455 |
|
272,475 |
|
898,407 |
|
801,724 |
|
|
|
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
|
|
|
|
Operating |
|
|
46,246 |
|
47,030 |
|
146,903 |
|
134,808 |
Transportation |
|
|
6,549 |
|
5,744 |
|
19,843 |
|
18,655 |
Equity based compensation |
8 |
|
12,779 |
|
8,704 |
|
39,639 |
|
28,620 |
Loss on derivative instruments |
|
|
8,464 |
|
12,590 |
|
1,943 |
|
10,223 |
Interest expense |
|
|
10,109 |
|
7,229 |
|
28,134 |
|
19,930 |
General and administration |
|
|
12,033 |
|
12,669 |
|
35,956 |
|
34,885 |
Foreign exchange (gain) loss |
|
|
(3,005) |
|
6,330 |
|
(29,166) |
|
17,878 |
Other expense (income) |
|
|
55 |
|
(277) |
|
259 |
|
8,291 |
Accretion |
5 |
|
6,214 |
|
5,891 |
|
18,038 |
|
16,921 |
Depletion and depreciation |
3, 4 |
|
78,826 |
|
76,941 |
|
238,692 |
|
229,301 |
Impairments |
3 |
|
- |
|
- |
|
- |
|
65,800 |
Gain on acquisition |
|
|
- |
|
- |
|
- |
|
(45,309) |
|
|
|
178,270 |
|
182,851 |
|
500,241 |
|
540,003 |
EARNINGS BEFORE INCOME TAXES |
|
|
130,185 |
|
89,624 |
|
398,166 |
|
261,721 |
|
|
|
|
|
|
|
|
|
|
INCOME TAXES |
|
|
|
|
|
|
|
|
|
Deferred |
|
|
287 |
|
(2,701) |
|
13,914 |
|
(30,832) |
Current |
|
|
62,102 |
|
61,527 |
|
158,121 |
|
158,845 |
|
|
|
62,389 |
|
58,826 |
|
172,035 |
|
128,013 |
|
|
|
|
|
|
|
|
|
|
NET EARNINGS |
|
|
67,796 |
|
30,798 |
|
226,131 |
|
133,708 |
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
Currency translation adjustments |
|
|
14,621 |
|
(12,753) |
|
32,244 |
|
(21,783) |
COMPREHENSIVE INCOME |
|
|
82,417 |
|
18,045 |
|
258,375 |
|
111,925 |
|
|
|
|
|
|
|
|
|
|
NET EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
|
Basic |
|
|
0.67 |
|
0.31 |
|
2.25 |
|
1.37 |
Diluted |
|
|
0.66 |
|
0.31 |
|
2.22 |
|
1.35 |
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING
('000s) |
|
|
|
|
|
|
|
|
|
Basic |
|
|
101,613 |
|
98,523 |
|
100,634 |
|
97,704 |
Diluted |
|
|
102,763 |
|
99,748 |
|
102,083 |
|
98,848 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)
|
|
|
Three
Months Ended |
|
Nine
Months Ended |
|
|
|
Sept 30, |
|
Sept 30, |
|
Sept 30, |
|
Sept 30, |
|
Note |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
OPERATING |
|
|
|
|
|
|
|
|
|
Net earnings |
|
|
67,796 |
|
30,798 |
|
226,131 |
|
133,708 |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
Accretion |
5 |
|
6,214 |
|
5,891 |
|
18,038 |
|
16,921 |
|
Depletion and depreciation |
3, 4 |
|
78,826 |
|
76,941 |
|
238,692 |
|
229,301 |
|
Impairments |
3 |
|
- |
|
- |
|
- |
|
65,800 |
|
Gain on acquisition |
|
|
- |
|
- |
|
- |
|
(45,309) |
|
Unrealized loss (gain) on derivative
instruments |
|
|
3,699 |
|
10,721 |
|
(3,839) |
|
(955) |
|
Equity based compensation |
8 |
|
12,779 |
|
8,704 |
|
39,639 |
|
28,620 |
|
Unrealized foreign exchange (gain) loss |
|
|
(4,232) |
|
6,740 |
|
(29,738) |
|
18,223 |
|
Unrealized other expense |
|
|
276 |
|
- |
|
1,029 |
|
514 |
|
Deferred taxes |
|
|
287 |
|
(2,701) |
|
13,914 |
|
(30,832) |
Asset retirement obligations
settled |
5 |
|
(2,738) |
|
(1,968) |
|
(6,496) |
|
(5,315) |
Changes in non-cash operating working
capital |
|
|
(4,671) |
|
13,175 |
|
30,652 |
|
(14,003) |
Cash flows from operating
activities |
|
|
158,236 |
|
148,301 |
|
528,022 |
|
396,673 |
|
|
|
|
|
|
|
|
|
|
INVESTING |
|
|
|
|
|
|
|
|
|
Drilling and development |
3 |
|
(135,110) |
|
(96,212) |
|
(389,635) |
|
(262,064) |
Exploration and evaluation |
4 |
|
(551) |
|
(10,043) |
|
(13,240) |
|
(33,439) |
Property acquisitions |
3, 4 |
|
(7,586) |
|
- |
|
(7,586) |
|
(106,184) |
Dispositions |
3 |
|
- |
|
- |
|
8,627 |
|
- |
Changes in non-cash investing working
capital |
|
|
44,876 |
|
28,376 |
|
7,473 |
|
(1,408) |
Cash flows used in investing
activities |
|
|
(98,371) |
|
(77,879) |
|
(394,361) |
|
(403,095) |
|
|
|
|
|
|
|
|
|
|
FINANCING |
|
|
|
|
|
|
|
|
|
Increase in long-term debt |
|
|
- |
|
40,350 |
|
139,429 |
|
117,124 |
Issuance of shares pursuant to the
dividend reinvestment plan |
|
|
- |
|
- |
|
- |
|
36,339 |
Cash dividends |
|
|
(41,576) |
|
(38,869) |
|
(126,354) |
|
(149,594) |
Cash flows (used in) from financing
activities |
|
|
(41,576) |
|
1,481 |
|
13,075 |
|
3,869 |
Foreign exchange gain (loss) on cash
held in foreign currencies |
|
|
2,248 |
|
(5,931) |
|
7,274 |
|
(8,509) |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash
equivalents |
|
|
20,537 |
|
65,972 |
|
154,010 |
|
(11,062) |
Cash and cash equivalents, beginning
of period |
|
|
235,598 |
|
157,473 |
|
102,125 |
|
234,507 |
Cash and cash equivalents, end of
period |
|
|
256,135 |
|
223,445 |
|
256,135 |
|
223,445 |
|
|
|
|
|
|
|
|
|
|
Supplementary information for
operating activities - cash payments |
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
|
13,544 |
|
11,775 |
|
34,053 |
|
25,701 |
|
Income taxes paid |
|
|
50,203 |
|
38,871 |
|
101,507 |
|
142,582 |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Other |
|
Total |
|
|
Shareholders' |
Contributed |
Comprehensive |
|
Shareholders' |
|
Note |
Capital |
Surplus |
|
Loss |
Deficit |
Equity |
Balances as at January 1, 2012 |
|
|
1,368,145 |
|
56,468 |
|
(33,387) |
|
(59,625) |
|
1,331,601 |
Net earnings |
|
|
- |
|
- |
|
- |
|
133,708 |
|
133,708 |
Currency translation adjustments |
|
|
- |
|
- |
|
(21,783) |
|
- |
|
(21,783) |
Equity based compensation expense |
|
|
- |
|
27,984 |
|
- |
|
- |
|
27,984 |
Dividends declared |
7 |
|
- |
|
- |
|
- |
|
(167,282) |
|
(167,282) |
Issuance of shares pursuant to the |
|
|
|
|
|
|
|
|
|
|
|
dividend reinvestment plan |
7 |
|
53,590 |
|
- |
|
- |
|
- |
|
53,590 |
Vesting of equity based awards |
7, 8 |
|
33,356 |
|
(33,356) |
|
- |
|
- |
|
- |
Share-settled dividends |
|
|
|
|
|
|
|
|
|
|
|
on vested equity based awards |
7, 8 |
|
7,151 |
|
- |
|
- |
|
(7,151) |
|
- |
Shares issued pursuant to the bonus plan |
7 |
|
636 |
|
- |
|
- |
|
- |
|
636 |
Balances as at September 30, 2012 |
|
|
1,462,878 |
|
51,096 |
|
(55,170) |
|
(100,350) |
|
1,358,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
Other |
|
Total |
|
|
Shareholders' |
Contributed |
Comprehensive |
|
Shareholders' |
|
Note |
Capital |
Surplus |
|
Loss |
Deficit |
Equity |
Balances as at January 1, 2013 |
|
|
1,481,345 |
|
69,581 |
|
(32,409) |
|
(99,871) |
|
1,418,646 |
Net earnings |
|
|
- |
|
- |
|
- |
|
226,131 |
|
226,131 |
Currency translation adjustments |
|
|
- |
|
- |
|
32,244 |
|
- |
|
32,244 |
Equity based compensation expense |
|
|
- |
|
39,010 |
|
- |
|
- |
|
39,010 |
Dividends declared |
7 |
|
- |
|
- |
|
- |
|
(181,391) |
|
(181,391) |
Issuance of shares pursuant to the |
|
|
|
|
|
|
|
|
|
|
|
dividend reinvestment plan |
7 |
|
53,516 |
|
- |
|
- |
|
- |
|
53,516 |
Vesting of equity based awards |
7, 8 |
|
54,370 |
|
(54,370) |
|
- |
|
- |
|
- |
Share-settled dividends |
|
|
|
|
|
|
|
|
|
|
|
on vested equity based awards |
7, 8 |
|
9,808 |
|
- |
|
- |
|
(9,808) |
|
- |
Shares issued pursuant to the bonus plan |
7 |
|
629 |
|
- |
|
- |
|
- |
|
629 |
Balances as at September 30, 2013 |
|
|
1,599,668 |
|
54,221 |
|
(165) |
|
(64,939) |
|
1,588,785 |
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 employee awards which are
settled in shares. Once vested, the value of the awards is
transferred to shareholders' capital.
Accumulated other comprehensive
loss
Represents the cumulative income and expenses which are not
recorded immediately in net earnings and are accumulated until an
event triggers recognition in net earnings. The current balance
consists of currency translation adjustments resulting from
translating financial statements of subsidiaries with a foreign
functional currency to Canadian dollars at period-end rates.
Retained earnings (deficit)
Represents the cumulative net earnings less distributed earnings of
Vermilion Energy Inc.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM
FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
(TABULAR AMOUNTS IN THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE
AND PER SHARE AMOUNTS, UNAUDITED)
1. BASIS OF PRESENTATION
Vermilion Energy Inc. (the "Company" or
"Vermilion") is a corporation governed by the laws of the Province
of Alberta and is actively engaged
in the business of crude oil and natural gas exploration,
development, acquisition and production.
These condensed consolidated interim financial
statements are in compliance with IAS 34, "Interim financial
reporting" and have been prepared using the same accounting
policies and methods of computation as Vermilion's consolidated financial statements
for the year ended December 31, 2012,
except as discussed in Note 2.
These condensed consolidated interim financial
statements should be read in conjunction with Vermilion's consolidated financial statements
for the year ended December 31, 2012,
which are contained within Vermilion's Annual Report for the year ended
December 31, 2012 and are available
on SEDAR at www.sedar.com or on Vermilion's website at
www.vermilionenergy.com.
These condensed consolidated interim financial
statements were approved and authorized for issuance by the Board
of Directors of Vermilion on
November 6, 2013.
2. RECENTLY ADOPTED ACCOUNTING
PRONOUNCEMENTS
On January 1,
2013, Vermilion adopted the
following pronouncements as issued by the IASB. The adoption
of these standards did not have a material impact on Vermilion's consolidated financial
statements.
IFRS 10 "Consolidated Financial
Statements"
IFRS 10 replaced Standing Interpretations Committee 12,
"Consolidation - Special Purpose Entities" and the consolidation
requirements of IAS 27 "Consolidated and Separate Financial
Statements". The new standard replaces the existing risk and
rewards based approaches and establishes control as the determining
factor when determining whether an interest in another entity
should be included in the consolidated financial
statements.
IFRS 11 "Joint Arrangements"
IFRS 11 replaced IAS 31 "Interests in Joint Ventures". The
new standard focuses on the rights and obligations of an
arrangement, rather than its legal form. The standard
redefines joint operations and joint ventures and requires joint
operations to be proportionately consolidated and joint ventures to
be equity accounted.
IFRS 12 "Disclosure of Interests in Other
Entities"
IFRS 12 provides comprehensive disclosure requirements for
interests in other entities, including joint arrangements,
associates, and special purpose entities. The new disclosures
are intended to assist financial statement users in evaluating the
nature, risks and financial effects of an entity's interest in
subsidiaries and joint arrangements.
IFRS 13 "Fair Value Measurement"
IFRS 13 provides a common definition of fair value within
IFRS. The new standard provides measurement and disclosure
guidance and applies when another IFRS requires or permits an item
to be measured at fair value, with limited exceptions.
IAS 34 "Interim Financial Reporting"
Amendments to IAS 34 require specific disclosure on the fair value
of financial instruments for interim reporting. These
disclosures are included in Note 11.
3. CAPITAL ASSETS
The following table reconciles the change in Vermilion's capital assets:
|
Petroleum and |
Furniture and |
|
Total |
($M) |
Natural Gas Assets |
Office Equipment |
|
Capital Assets |
Balance at January 1, 2012 |
|
2,016,611 |
|
15,071 |
|
2,031,682 |
Additions |
|
407,973 |
|
5,248 |
|
413,221 |
Transfers from exploration and evaluation
assets |
|
10,528 |
|
- |
|
10,528 |
Property acquisitions |
|
206,260 |
|
- |
|
206,260 |
Corporate acquisitions |
|
136,297 |
|
- |
|
136,297 |
Borrowing costs capitalized |
|
9,994 |
|
- |
|
9,994 |
Changes in estimate for asset retirement
obligations |
|
1,334 |
|
- |
|
1,334 |
Depletion and depreciation |
|
(289,194) |
|
(5,165) |
|
(294,359) |
Impairments |
|
(65,800) |
|
- |
|
(65,800) |
Effect of movements in foreign exchange rates |
|
(3,882) |
|
(35) |
|
(3,917) |
Balance at December 31, 2012 |
|
2,430,121 |
|
15,119 |
|
2,445,240 |
Additions |
|
386,313 |
|
3,322 |
|
389,635 |
Dispositions |
|
(8,627) |
|
- |
|
(8,627) |
Changes in estimate for asset retirement
obligations |
|
(29,747) |
|
- |
|
(29,747) |
Depletion and depreciation |
|
(229,955) |
|
(4,365) |
|
(234,320) |
Effect of movements in foreign exchange rates |
|
61,114 |
|
155 |
|
61,269 |
Balance at September 30, 2013 |
|
2,609,219 |
|
14,231 |
|
2,623,450 |
4. EXPLORATION AND EVALUATION ASSETS
The following table reconciles the change in Vermilion's exploration and evaluation
assets:
($M) |
Exploration and
Evaluation Assets |
Balance at January 1, 2012 |
|
92,301 |
Additions |
|
39,317 |
Transfers to petroleum
and natural gas assets |
|
(10,528) |
Depreciation |
|
(3,485) |
Effect of movements in
foreign exchange rates |
|
(444) |
Balance at December 31,
2012 |
|
117,161 |
Additions |
|
13,240 |
Property acquisitions |
|
7,586 |
Depreciation |
|
(2,743) |
Effect of movements in
foreign exchange rates |
|
738 |
Balance at September 30,
2013 |
|
135,982 |
5. ASSET RETIREMENT OBLIGATIONS
The following table reconciles the change in
Vermilion's asset retirement
obligations:
($M) |
Asset Retirement
Obligations |
Balance at January 1, 2012 |
|
|
310,531 |
Additional obligations recognized |
|
|
55,228 |
Changes in estimates for existing obligations |
|
|
(26,560) |
Obligations settled |
|
|
(13,739) |
Accretion |
|
|
23,040 |
Changes in discount rates |
|
|
22,807 |
Effect of movements in foreign exchange rates |
|
|
(244) |
Balance at December 31, 2012 |
|
|
371,063 |
Additional obligations recognized |
|
|
2,114 |
Obligations settled |
|
|
(6,496) |
Accretion |
|
|
18,038 |
Changes in discount rates |
|
|
(31,861) |
Effect of movements in foreign exchange rates |
|
|
9,679 |
Balance at September 30, 2013 |
|
|
362,537 |
6. LONG-TERM DEBT
The following table summarizes Vermilion's outstanding long-term debt:
|
As
At |
($M) |
Sept 30, 2013 |
Dec 31, 2012 |
Revolving credit facility |
|
558,171 |
|
419,784 |
Senior unsecured notes |
|
222,903 |
|
222,238 |
Long-term debt |
|
781,074 |
|
642,022 |
Revolving Credit Facility
At September 30,
2013, Vermilion had in
place a bank revolving credit facility totalling $1.2 billion, of which approximately $558.2 million was drawn. The facility,
which matures on May 31, 2016, is
fully revolving up to the date of maturity.
The facility is extendable from time to time,
but not more than once per year, for a period not longer than three
years, 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 repayable on the maturity date. This facility
bears interest at a rate applicable to demand loans plus applicable
margins.
The amount available to Vermilion under this facility is reduced by
certain outstanding letters of credit associated with Vermilion's operations totalling $11.5 million as at September 30, 2013 (December 31, 2012 - $49.2
million).
The facility is secured by various fixed and
floating charges against the subsidiaries of Vermilion. Under the terms of the
facility, Vermilion must maintain
a ratio of total bank borrowings (defined as consolidated total
debt), to consolidated net earnings before interest, income taxes,
depreciation, accretion and other certain non-cash items (defined
as consolidated EBITDA) of not greater than 4.0. In addition,
Vermilion must maintain a ratio of
consolidated total senior debt (defined as consolidated total debt
excluding unsecured and subordinated debt) to consolidated EBITDA
of not greater than 3.0.
As at September 30,
2013, Vermilion was in
compliance with its financial covenants.
Senior Unsecured Notes
On February 10,
2011, Vermilion issued
$225.0 million of senior unsecured
notes at par. The notes bear interest at a rate of 6.5% per
annum and will mature on February 10,
2016. As direct senior unsecured obligations of
Vermilion, the notes rank pari
passu with all other present and future unsecured and
unsubordinated indebtedness of the Company.
Vermilion may,
at its option, prior to February 10,
2014, redeem up to 35% of the notes with net proceeds of
equity offerings by the Company at a redemption price equal to
106.5% of the principal amount of the notes to be redeemed, plus
accrued and unpaid interest, if any, to the applicable redemption
date. Subsequently, Vermilion may, on or after February 10, 2014, redeem all or part of the
notes at fixed redemption prices, plus, in each case, accrued and
unpaid interest, if any, to the applicable redemption date.
The notes were initially recognized at fair value net of
transaction costs and are subsequently measured at amortized cost
using an effective interest rate of 7.1%.
7. SHAREHOLDERS' CAPITAL
The following tables reconcile the change in
Vermilion's shareholders'
capital:
Shareholders' Capital |
Number of Shares
('000s) |
|
Amount ($M) |
Balance as at January 1, 2012 |
|
96,430 |
|
1,368,145 |
Issuance of shares pursuant to the dividend
reinvestment plan |
|
1,631 |
|
72,058 |
Vesting of equity based awards |
|
904 |
|
33,355 |
Share-settled dividends on vested equity based
awards |
|
157 |
|
7,151 |
Shares issued pursuant to the bonus plan |
|
13 |
|
636 |
Balance as at December 31, 2012 |
|
99,135 |
|
1,481,345 |
Issuance of shares pursuant to the dividend
reinvestment plan |
|
1,066 |
|
53,516 |
Vesting of equity based awards |
|
1,372 |
|
54,370 |
Share-settled dividends on vested equity based
awards |
|
202 |
|
9,808 |
Shares issued pursuant to the bonus plan |
|
12 |
|
629 |
Balance as at September 30, 2013 |
|
101,787 |
|
1,599,668 |
Dividends declared to shareholders for the nine
months ended September 30, 2013 were
$181.4 million.
Subsequent to the end of the period and prior to
the condensed consolidated interim financial statements being
authorized for issue on November 6,
2013, Vermilion declared
dividends totalling $20.4 million or
$0.20 per share.
8. EQUITY BASED COMPENSATION
The following table summarizes the number of
awards outstanding under the Vermilion Incentive Plan ("VIP"):
Number of Awards ('000s) |
|
|
|
|
2013 |
|
2012 |
Opening balance |
|
|
|
|
1,690 |
|
1,750 |
Granted |
|
|
|
|
774 |
|
681 |
Vested |
|
|
|
|
(749) |
|
(596) |
Forfeited |
|
|
|
|
(89) |
|
(145) |
Closing balance |
|
|
|
|
1,626 |
|
1,690 |
The fair value of a VIP award is determined on
the grant date at the closing price of Vermilion's common shares on the Toronto Stock
Exchange, adjusted by the estimated performance factor that will
ultimately be achieved. Dividends, which notionally accrue to
the awards during the vesting period, are not included in the
determination of grant date fair values.
9. SEGMENTED INFORMATION
The following segment information has been
prepared by segregating the results into the geographic areas in
which Vermilion operates.
The following amounts include transactions between segments, which
are recorded at fair value at the date of recognition.
|
Three
Months Ended September 30, 2013 |
($M) |
Canada |
|
France |
|
Netherlands |
|
Australia |
|
Ireland |
|
Total |
Drilling and development |
62,222 |
|
23,664 |
|
8,316 |
|
5,880 |
|
35,028 |
|
135,110 |
Exploration and evaluation |
551 |
|
- |
|
- |
|
- |
|
- |
|
551 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales to external customers |
100,000 |
|
120,574 |
|
27,382 |
|
79,229 |
|
- |
|
327,185 |
Royalties |
(11,156) |
|
(7,574) |
|
- |
|
- |
|
- |
|
(18,730) |
Revenue from external customers |
88,844 |
|
113,000 |
|
27,382 |
|
79,229 |
|
- |
|
308,455 |
Realized (loss) gain on derivative
instruments |
(3,169) |
|
(1,382) |
|
510 |
|
(724) |
|
- |
|
(4,765) |
Transportation expense |
(3,272) |
|
(2,713) |
|
- |
|
- |
|
(564) |
|
(6,549) |
Operating expense |
(12,770) |
|
(14,599) |
|
(5,209) |
|
(13,668) |
|
- |
|
(46,246) |
Operating income (loss) |
69,633 |
|
94,306 |
|
22,683 |
|
64,837 |
|
(564) |
|
250,895 |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate income taxes |
260 |
|
31,717 |
|
6,810 |
|
7,666 |
|
- |
|
46,453 |
PRRT |
- |
|
- |
|
- |
|
15,649 |
|
- |
|
15,649 |
Current income taxes |
260 |
|
31,717 |
|
6,810 |
|
23,315 |
|
- |
|
62,102 |
|
Three
Months Ended September 30, 2012 |
($M) |
Canada |
|
France |
|
Netherlands |
|
Australia |
|
Ireland |
|
Total |
Drilling and development |
53,658 |
|
10,416 |
|
5,257 |
|
9,721 |
|
17,160 |
|
96,212 |
Exploration and evaluation |
10,043 |
|
- |
|
- |
|
- |
|
- |
|
10,043 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales to external customers |
71,268 |
|
102,369 |
|
30,386 |
|
80,815 |
|
- |
|
284,838 |
Royalties |
(7,081) |
|
(5,282) |
|
- |
|
- |
|
- |
|
(12,363) |
Revenue from external customers |
64,187 |
|
97,087 |
|
30,386 |
|
80,815 |
|
- |
|
272,475 |
Realized loss on derivative instruments |
(274) |
|
(1,360) |
|
- |
|
(235) |
|
- |
|
(1,869) |
Transportation expense |
(2,005) |
|
(1,840) |
|
- |
|
- |
|
(1,899) |
|
(5,744) |
Operating expense |
(13,420) |
|
(12,351) |
|
(3,870) |
|
(17,389) |
|
- |
|
(47,030) |
Operating income (loss) |
48,488 |
|
81,536 |
|
26,516 |
|
63,191 |
|
(1,899) |
|
217,832 |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate income taxes |
36 |
|
21,051 |
|
9,614 |
|
8,083 |
|
- |
|
38,784 |
PRRT |
- |
|
- |
|
- |
|
22,743 |
|
- |
|
22,743 |
Current income taxes |
36 |
|
21,051 |
|
9,614 |
|
30,826 |
|
- |
|
61,527 |
|
|
Nine
Months Ended September 30, 2013 |
($M) |
Canada |
France |
Netherlands |
Australia |
Ireland |
Total |
Total assets |
1,350,574 |
|
930,568 |
|
144,813 |
|
301,350 |
|
697,120 |
|
3,424,425 |
Drilling and development |
160,747 |
|
68,479 |
|
14,472 |
|
69,511 |
|
76,426 |
|
389,635 |
Exploration and evaluation |
13,240 |
|
- |
|
- |
|
- |
|
- |
|
13,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales to external
customers |
284,638 |
|
342,558 |
|
100,119 |
|
221,412 |
|
- |
|
948,727 |
Royalties |
(29,852) |
|
(20,468) |
|
- |
|
- |
|
- |
|
(50,320) |
Revenue from external customers |
254,786 |
|
322,090 |
|
100,119 |
|
221,412 |
|
- |
|
898,407 |
Realized (loss) gain on derivative
instruments |
(2,572) |
|
(1,990) |
|
509 |
|
(1,729) |
|
- |
|
(5,782) |
Transportation expense |
(8,152) |
|
(7,883) |
|
- |
|
- |
|
(3,808) |
|
(19,843) |
Operating expense |
(42,586) |
|
(51,473) |
|
(14,438) |
|
(38,406) |
|
- |
|
(146,903) |
Operating income (loss) |
201,476 |
|
260,744 |
|
86,190 |
|
181,277 |
|
(3,808) |
|
725,879 |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate income taxes |
839 |
|
66,500 |
|
25,865 |
|
25,525 |
|
- |
|
118,729 |
PRRT |
- |
|
- |
|
- |
|
39,392 |
|
- |
|
39,392 |
Current income taxes |
839 |
|
66,500 |
|
25,865 |
|
64,917 |
|
- |
|
158,121 |
|
|
Nine
Months Ended September 30, 2012 |
($M) |
Canada |
France |
Netherlands |
Australia |
Ireland |
Total |
Total assets |
1,270,547 |
|
674,355 |
|
138,630 |
|
286,960 |
|
528,925 |
|
2,899,417 |
Drilling and development |
157,680 |
|
26,424 |
|
13,157 |
|
24,132 |
|
40,671 |
|
262,064 |
Exploration and evaluation |
33,390 |
|
- |
|
49 |
|
- |
|
- |
|
33,439 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales to external
customers |
226,726 |
|
300,708 |
|
92,268 |
|
222,168 |
|
- |
|
841,870 |
Royalties |
(24,266) |
|
(15,880) |
|
- |
|
- |
|
- |
|
(40,146) |
Revenue from external customers |
202,460 |
|
284,828 |
|
92,268 |
|
222,168 |
|
- |
|
801,724 |
Realized loss on derivative
instruments |
(1,335) |
|
(9,274) |
|
- |
|
(569) |
|
- |
|
(11,178) |
Transportation expense |
(6,399) |
|
(6,382) |
|
- |
|
- |
|
(5,874) |
|
(18,655) |
Operating expense |
(40,904) |
|
(41,208) |
|
(13,436) |
|
(39,260) |
|
- |
|
(134,808) |
Operating income (loss) |
153,822 |
|
227,964 |
|
78,832 |
|
182,339 |
|
(5,874) |
|
637,083 |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate income taxes |
1,323 |
|
49,671 |
|
24,546 |
|
24,833 |
|
- |
|
100,373 |
PRRT |
- |
|
- |
|
- |
|
58,472 |
|
- |
|
58,472 |
Current income taxes |
1,323 |
|
49,671 |
|
24,546 |
|
83,305 |
|
- |
|
158,845 |
Reconciliation of operating income to net earnings
|
Three
Months Ended |
|
Nine
Months Ended |
($M) |
Sept 30, 2013 |
Sept 30, 2012 |
|
Sept 30, 2013 |
Sept 30, 2012 |
Operating income |
250,895 |
217,832 |
|
725,879 |
637,083 |
Equity based compensation |
(12,779) |
(8,704) |
|
(39,639) |
(28,620) |
Unrealized (loss) gain on derivative
instruments |
(3,699) |
(10,721) |
|
3,839 |
955 |
Interest expense |
(10,109) |
(7,229) |
|
(28,134) |
(19,930) |
General and administration |
(12,033) |
(12,669) |
|
(35,956) |
(34,885) |
Foreign exchange gain (loss) |
3,005 |
(6,330) |
|
29,166 |
(17,878) |
Other (expense) income |
(55) |
277 |
|
(259) |
(8,291) |
Accretion |
(6,214) |
(5,891) |
|
(18,038) |
(16,921) |
Depletion and depreciation |
(78,826) |
(76,941) |
|
(238,692) |
(229,301) |
Impairments |
- |
- |
|
- |
(65,800) |
Gain on acquisition |
- |
- |
|
- |
45,309 |
Earnings before income taxes |
130,185 |
89,624 |
|
398,166 |
261,721 |
Income taxes |
(62,389) |
(58,826) |
|
(172,035) |
(128,013) |
Net earnings |
67,796 |
30,798 |
|
226,131 |
133,708 |
10. CAPITAL DISCLOSURES
|
Three
Months Ended |
|
Nine
Months Ended |
($M except as indicated) |
Sept 30, 2013 |
Sept 30, 2012 |
|
Sept 30, 2013 |
Sept 30, 2012 |
Long-term debt |
781,074 |
492,669 |
|
781,074 |
492,669 |
Current liabilities |
389,757 |
442,376 |
|
389,757 |
442,376 |
Current assets |
(470,545) |
(385,554) |
|
(470,545) |
(385,554) |
Net debt [1] |
700,286 |
549,491 |
|
700,286 |
549,491 |
|
|
|
|
|
|
Cash flows from operating activities |
158,236 |
148,301 |
|
528,022 |
396,673 |
Changes in non-cash operating working capital |
4,671 |
(13,175) |
|
(30,652) |
14,003 |
Asset retirement obligations settled |
2,738 |
1,968 |
|
6,496 |
5,315 |
Fund flows from operations |
165,645 |
137,094 |
|
503,866 |
415,991 |
Annualized fund flows from operations [2] |
662,580 |
548,376 |
|
671,821 |
554,655 |
|
|
|
|
|
|
Ratio of net debt to annualized
fund flows from operations ([1] ÷ [2]) |
1.1 |
1.0 |
|
1.0 |
1.0 |
The ratio of net debt to annualized fund flows
from operations for the three and nine months ended September 30, 2013 was relatively consistent with
same periods in 2012 as fund flows from operations increased
proportionately with net debt. The increase in net debt was
the result of the second of two acquisitions that occurred in
France during 2012 and capital
expenditures pertaining to the Ireland assets, which are currently under
development.
Vermilion is
subject to certain externally imposed capital requirements under
its revolving credit facility. During the periods covered by
these consolidated financial statements, Vermilion continued to comply with these
requirements.
11. FINANCIAL INSTRUMENTS
Classification of Financial Instruments
The following table summarizes information relating to
Vermilion's financial instruments
as at September 30, 2013 and
December 31, 2012:
|
|
|
|
|
|
|
As at
Sep 30, 2013 |
|
|
As at
Dec 31, 2012 |
|
|
|
Class of financial
instrument |
Consolidated
balance
sheet caption |
Accounting
designation |
Related caption
on Statement of Net
Earnings |
|
|
Carrying
value ($M) |
|
Fair
value
($M) |
|
|
Carrying
value ($M) |
|
Fair
value
($M) |
|
|
Fair
value
measurement
hierarchy |
Cash |
Cash and cash
equivalents |
HFT |
Gains and losses on foreign
exchange
are included in foreign exchange (gain)
loss |
|
|
256,135 |
|
256,135 |
|
|
102,125 |
|
102,125 |
|
|
Level 1 |
Receivables |
Accounts receivable |
LAR |
Gains and losses on foreign
exchange
are included in foreign exchange (gain)
loss and impairments are recognized as
general and administration expense |
|
|
178,662 |
|
178,662 |
|
|
180,064 |
|
180,064 |
|
|
Not applicable |
Derivative assets |
Derivative instruments |
HFT |
Gain on derivative instruments |
|
|
2,372 |
|
2,372 |
|
|
2,086 |
|
2,086 |
|
|
Level 2 |
Derivative liabilities |
Derivative instruments |
HFT |
Gain on derivative
instruments |
|
|
(4,931) |
|
(4,931) |
|
|
(8,484) |
|
(8,484) |
|
|
Level 2 |
Payables |
Accounts payable and
accrued liabilities |
OTH |
Gains and losses on foreign
exchange
are included in foreign exchange (gain)
loss |
|
|
(301,469) |
|
(301,469) |
|
|
(319,518) |
|
(319,518) |
|
|
Not applicable |
|
|
Dividends payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
Long-term debt |
OTH |
Interest expense |
|
|
(781,074) |
|
(791,653) |
|
|
(642,022) |
|
(656,315) |
|
|
Not applicable |
The accounting designations used in the above
table refer to the following:
HFT - Classified as "Held for trading" in
accordance with International Accounting Standard 39 "Financial
Instruments: Recognition and Measurement". These financial
assets and liabilities are carried at fair value on the
consolidated balance sheets with associated gains and losses
reflected in net earnings.
LAR - "Loans and receivables" are initially
recognized at fair value and are subsequently measured at amortized
cost. Impairments and foreign exchange gains and losses are
recognized in net earnings.
OTH - "Other financial liabilities" are
initially recognized at fair value net of transaction costs
directly attributable to the issuance of the instrument and
subsequently are measured at amortized cost. Interest is
recognized in net earnings using the effective interest
method. Foreign exchange gains and losses are recognized in
net earnings.
Level 1 - Fair value measurement is determined
by reference to unadjusted quoted prices in active markets for
identical assets or liabilities.
Level 2 - Fair value measurement is determined
based on inputs other than unadjusted quoted prices that are
observable, either directly or indirectly.
Level 3 - Fair value measurement is based on
inputs for the asset or liability that are not based on observable
market data.
Determination of Fair Values
The level in the fair value hierarchy into which
the fair value measurements are categorized is determined on the
basis of the lowest level input that is significant to the fair
value measurement. Transfers between levels on the fair value
hierarchy are deemed to have occurred at the end of the reporting
period.
Fair values for derivative assets and derivative
liabilities are determined using pricing models incorporating
future prices that are based on assumptions which are supported by
prices from observable market transactions and are adjusted for
credit risk.
The carrying value of receivables approximate
their fair value due to their short maturities.
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.
The fair value of the senior unsecured notes
changes in response to changes in the market rates of interest
payable on similar instruments and was determined with reference to
prevailing market rates for such instruments.
Nature and Extent of Risks Arising from Financial
Instruments
Market risk:
Vermilion's financial instruments
are exposed to currency risk related to changes in foreign currency
denominated financial instruments and commodity price risk related
to outstanding derivative positions. The following table
summarizes what the impact on comprehensive income before tax would
be for the nine months ended September 30,
2013 given changes in the relevant risk variables that
Vermilion considers were
reasonably possible at the balance sheet date. The impact on
comprehensive income before tax associated with changes in these
risk variables for assets and liabilities that are not considered
financial instruments are excluded from this analysis. This
analysis does not attempt to reflect any interdependencies between
the relevant risk variables.
|
September 30,
2013 |
|
Before tax effect on
comprehensive income |
Risk ($M) |
Description of change in risk
variable |
Increase (decrease) |
Currency risk - Euro to Canadian |
Increase in
strength of the Canadian dollar against the |
|
(5,671) |
|
Euro by 5% over the
relevant closing rates on September 30, 2013 |
|
|
|
Decrease in
strength of the Canadian dollar against the |
|
5,671 |
|
Euro by 5% over the
relevant closing rates on September 30, 2013 |
|
|
Currency risk - US $ to Canadian |
Increase in
strength of the Canadian dollar against the |
|
(5,954) |
|
US$ by 5% over the
relevant closing rates on September 30, 2013 |
|
|
|
Decrease in
strength of the Canadian dollar against the |
|
5,954 |
|
US$ by 5% over the
relevant closing rates on September 30, 2013 |
|
|
Commodity price risk |
Increase in
relevant oil reference price within option pricing models used
to |
|
(7,388) |
|
determine the fair value
of financial derivative positions by US$5.00/bbl at September 30,
2013 |
|
|
|
Decrease in
relevant oil reference price within option pricing models used
to |
|
6,886 |
|
determine the fair value
of financial derivative positions by US$5.00/bbl at September 30,
2013 |
|
|
Interest rate risk |
Increase in
average Canadian prime interest rate |
|
(3,655) |
|
by 100 basis points during the nine
months ended September 30, 2013 |
|
|
|
|
Decrease in
average Canadian prime interest rate |
|
3,655 |
|
by 100 basis points during the nine
months ended September 30, 2013 |
|
|
|
12. SUBSEQUENT EVENTS
Northern Petroleum Nederland B.V.
On October 10,
2013, Vermilion acquired,
through its wholly-owned subsidiary, 100% of the shares of Northern
Petroleum Nederland B.V., a subsidiary of UK-based Northern
Petroleum Plc. ("Northern"). The acquisition is a complementary
addition to the existing Netherlands asset base, including interests in
six onshore licences in production or development, three onshore
exploration licenses, and one offshore production license in
the Netherlands. Taking into
consideration an effective date of January
1, 2013 and customary closing adjustments, Vermilion paid approximately $27.5 million cash at closing. Vermilion funded this acquisition from cash on
hand. Vermilion also granted
Northern minority net profit participation rights on select license
interests included in the acquisition.
Given the recent timing of the acquisition, the
Company has not yet completed the accounting for the acquisition
and accordingly not all relevant disclosures are available for the
business combination. The Company will report the purchase price
allocation in the Company's consolidated financial statements for
the year ended December 31, 2013.
Purchase and Sale Agreement with GDF Suez
E&P Deutschland GmbH
On November 6,
2013, Vermilion announced
that it entered into a definitive purchase and sale agreement with
GDF Suez E&P Deutschland GmbH ("GDF") whereby Vermilion, through its wholly-owned
subsidiary, will acquire GDF's 25% interest in four producing
natural gas fields and a surrounding exploration license located in
northwest Germany. GDF is an
affiliate of GDF Suez S.A., a publicly traded, French multinational
utility. In addition, the acquisition also includes the
purchase of 0.4% of the equity of Ergas Munster GmbH ("EGM"), a
joint venture created in 1959 to jointly transport, process, and
market gas in northwest Germany. The acquisition represents
Vermilion's entry into the German
exploration and production business, a producing region with a long
history of oil and gas development activity, low political risk and
strong marketing fundamentals. The acquisition is well
aligned with Vermilion's European
focus, and will increase its exposure to the strong fundamentals
and pricing of the European natural gas markets. The
estimated cash cost to close is approximately $170 million, subject to final closing
adjustments. The acquisition will be funded with existing
credit facilities and is expected to close prior to the end of
January, 2014.
SOURCE Vermilion Energy Inc.