Vermilion Energy Inc. T.VET

How did they lose all their money?

[geemonet]

Seems like they made money from selling oil but then lost it all on derivatives... can some one explain this? Who takes all the profits outta the company?

[Tommy123]

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[Quintessential1]

Hedging aka the banks. Hedging will cause some losses when commodity prices are rising but but allow for gains when the commidity prices are falling,  In the end it will avergae out. In the meantime that was quite an EPS beat.  If they can increase production like they say they can and there are no more mechanical failures it should be a better Q3. 

[geemonet]

I understand how hedging will diminish profits when prices go up... but they blew ALL the FCF on derivatives.... like... did someone hit the wrong button on a keyboard when executing a trade or something? Makes no sense thay they can have almost 100 million in fcf and the debt goes up... like... what the hell? 

[Oldnagger]

Most of the hedging provisions are probably against Euro Nat Gas. The price is now about 8 USD per Mmbtu over the stike price and volumes are heavy till 2022 when they lighten up a bit. The hedges were put on when European gas prices were very weak due to Covid and were probably necessary in order to maintain credit lines. This is the reason why all Oil companies want to tell creditors where to go

[mnztr]

With European NG there is probably some fear of the impact of Nord Stream 2. This is a legit fear, but I don't think the Russians are dumb enough to flood the market with cheap gas, they know they can undercut LNG if needed and make very good money, and they also know very will how much domestic production is available. They will price to make money and not cause any economic damage to EU

[Oldnagger]

They did not lose all the money they made in Q2 outside of what has been reported , In fact cash flows were as projected and profits were very high (probably due to a reversal of previous write downs. The increase in debt levels is probably solely due to accounting provisions for future losses on their hedge book (mark tp market) These provisions are very misleading. They will disappear if the