Vermilion Energy Inc. T.VET

Debt Explanation from IR

[shakka]

Hi Shak,
 
The definition of “Net Debt” is Total Debt + Current Liabilities – Current Assets, so it includes your financial obligation over the next 12 months.
 
Current liabilities includes current derivative liabilities which is the marked-to-market value of our hedging contracts over the next 12 months. Our current derivatives liabilities increase by over $100 million from the previous quarter mainly due to European gas prices which have increased significantly over the past few months (currently over C$20/mcf).  This is an accounting rule where you are required to record the implied gain or loss on your future hedging contracts based on the futures price on the last day of the quarter (similar to how a company will sometimes write-down or write-up the value of their assets if the commodity prices moves up or down significantly). This tends to create a lot of volatility in the net debt figure from quarter to quarter, so the total debt figure is a better representation of our true debt levels.
 
When your derivative liabilities increase that means that the future commodity price is moving higher (which is a good thing!), so although it is a financial obligation we will have to pay if prices remain high it also means that our revenue will be much higher as well which will more than offset this obligation, but this does not get captured on the balance sheet.
 
Hope that explanation helps. Below is a price chart for European gas which may put this into better perspective.


Regards,
 
Kyle Preston
Vice President, Investor Relations
Vermilion Energy Inc.
Phone: [phone]
Cell: 403-689-5714

[halitosis8]

there is another line item like that.  the reversed impairment chargers (a good thing) increased tax liability (a negative entry on the balance sheet). good news appears to be bad news in accounting sometimes

[Ebankbank]

Great explanation, but to us layman out here what is the total debt we owe ?