CALGARY, May 1, 2013 /PRNewswire/ - Vermilion Energy Inc. ("Vermilion" or the
"Company") (TSX, NYSE: VET) is pleased to report interim operating and
unaudited financial results for the three months ended March 31, 2013.
HIGHLIGHTS
-
Recorded average production of 38,707 boe/d during the first quarter of
2013, compared to 36,265 boe/d in the fourth quarter of 2012.
Quarter-over-quarter growth was primarily attributable to strong
Canadian and European production volumes, partially offset by decreased
Australia production due to drilling activities and cyclone downtime.
-
Generated fund flows from operations of $163.6 million ($1.65 per share)
in the first quarter of 2013, as compared to $141.7 million ($1.43 per
share) in the fourth quarter of 2012 and $151.1 million ($1.56 per
share) in the first quarter of 2012. Fund flows from operations for
the first quarter of 2013 were 15% higher quarter-over-quarter and 8%
higher year-over-year. Due to the timing of shipments, first quarter
fund flows from operations were positively impacted by inventory draws
in France and Australia of approximately 141,000 and 103,000 barrels,
respectively, accounting for part of the increase in fund flows from
operations.
-
Vermilion continues to benefit from strong pricing driven by significant
exposure to Brent crude and high-netback European gas. Brent crude,
representing 40% of the Company's production, averaged a US $18.18 per
bbl premium to West Texas Intermediate and a US $25.13 per bbl premium
to Edmonton Sweet index during the first quarter. Vermilion's natural
gas production in the Netherlands, representing approximately 16% of
production, received an average price of $10.09 per mcf during the
first quarter of 2013.
-
Continued to grow production in the Company's Cardium light oil play in
Western Canada as the Company continues with the long-term development
of its position. Vermilion has increased Cardium related production
from approximately 1,000 boe/d in 2010 to over 8,400 boe/d during the
first quarter of 2013. Vermilion participated in the drilling of 20.1
net Cardium wells and the completion of 24.0 net Cardium wells during
the first quarter of 2013.
-
Began horizontal development with the drilling of two gross wells in the
Mannville liquids-rich gas play in the Drayton Valley area in west
central Alberta. The first well (50% Vermilion working interest) was
put on production during the first quarter at a rate of 3.6 mmcf/d of
natural gas and 515 bbls/d of condensate1. Subsequent to the end of the first quarter, the second well (82%
working interest) was put on production at a rate of 2.6 mmcf/d of
natural gas and 100 bbls/d of condensate2.
-
Increased the Company's position in the Duvernay liquids-rich natural
gas resource play with the acquisition of an additional 21.75 net
sections in the first quarter, bringing Vermilion's total land position
to 272 net sections. Vermilion's land position spans the breadth of the
liquids-rich natural gas fairway, and was assembled for approximately
$74 million dollars (approximately $425 per acre). In the first
quarter, Vermilion completed its third Duvernay vertical appraisal well
and is currently evaluating the results.
-
Awarded an exploration license for the Akkrum concession in the
Netherlands. The Akkrum concession consists of over 54,000 acres
situated directly between the Company's existing Gorredijk and
Leeuwarden concessions. Along with the Hemelum and Opmeer concessions
awarded in 2012 and with over 70 prospects identified, Vermilion
intends to increase its Netherlands activity and has begun planning and
hiring to scale up operations and technical staff in the region.
-
Drilled two sidetracked laterals from existing wells in Australia,
including the longest horizontal section drilled at Wandoo to date at
3,400 metres. The first well produced at an initial rate of
approximately 3,000 bbls/d of oil3 prior to the end of the first quarter. Subsequent to the end of the
first quarter, the second well produced at an initial rate of
approximately 6,000 bbls/d of oil4. With a focus on maximizing oil recovery from the new wells, the
Company intends to produce these wells at significantly restricted
rates beginning in the second quarter of 2013. Vermilion expects to
maintain production levels at Wandoo between 6,000 and 8,000 boe/d for
the foreseeable future.
-
In Ireland, Corrib tunneling activities related to the completion of the
nine kilometer onshore pipeline continued. Tunneling, construction and
installation activities, commissioning and start-up are anticipated to
take approximately two years to complete. First gas is anticipated in
late 2014 or early 2015 and the project is expected to reach peak
production levels in mid-2015.
-
In view of production results and well test data received to date,
Vermilion is tightening its production guidance range for 2013 from the
previously disclosed range of 39,000-40,500 boe/d to 39,500-40,500
boe/d.
-
Increased the monthly dividend 5.3% to $0.20 per share, which became
effective for the January 2013 dividend paid on February 15, 2013.
-
Vermilion began trading on the New York Stock Exchange on March 12, 2013
under the ticker symbol "VET". As an international oil and gas
producer, Vermilion believes the secondary listing may assist in
broadening its shareholder base and improving share trading liquidity.
-
Recognized for the fourth consecutive year by the Great Place to Work®
Institute in both Canada and France. Vermilion ranked as the 22nd Best
Workplace in Canada amongst 318 corporations that participated in the
study, and is the only oil and gas company of its size to be included
in this year's Top 25. Vermilion's French subsidiary ranked as the 27th
Best Workplace in France.
Annual General and Special Meeting Webcast
As Vermilion's Annual General and Special Meeting is being held today,
May 1, 2013 at 1:30 PM MST at the Metropolitan Centre, Calgary,
Alberta, there will not be a first quarter conference call, however, a
presentation will be given by Mr. Lorenzo Donadeo, President & CEO
after the conclusion of the formal part of this meeting. Please visit http://www.vermilionenergy.com/ir/eventspresentations.cfm and click on webcast under upcoming events to view the presentation
which will commence at approximately 1:45 PM MST.
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1
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Three-week average production rate, at 1,050 psi flowing tubing
pressure, at restricted rates due to separator capacity constraints.
|
2
|
One-week average production rate, at 1,420 psi flowing tubing pressure,
at restricted rates due to compressor capacity constraints.
|
3
|
Production from sidetrack only, without motherbore contribution.
Two-week average production rate under gas lift conditions. Final water
cut was 20%.
|
4
|
Production from sidetrack lateral. Motherbore was abandoned. Five-day
average production rate. No water production.
|
|
|
|
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
|
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.
Initial production and short-term rates are not necessarily indicative
of long-term performance or of ultimate recovery.
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
|
($M except as indicated)
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
Financial
|
2013
|
2012
|
2012
|
Petroleum and natural gas sales
|
309,576
|
241,233
|
310,488
|
Fund flows from operations 1
|
163,629
|
141,737
|
151,122
|
|
Fund flows from operations ($/basic share)
|
1.65
|
1.43
|
1.56
|
|
Fund flows from operations ($/diluted share)
|
1.61
|
1.41
|
1.54
|
Net earnings
|
52,137
|
56,914
|
65,094
|
|
Net earnings per share ($/basic share)
|
0.53
|
0.58
|
0.67
|
Capital expenditures
|
180,469
|
157,035
|
94,360
|
Acquisitions
|
-
|
209,254
|
106,184
|
Asset retirement obligations settled
|
1,388
|
8,424
|
766
|
Cash dividends ($/share)
|
0.60
|
0.57
|
0.57
|
Dividends declared
|
59,612
|
56,435
|
55,124
|
Net dividends 1
|
44,080
|
37,967
|
37,566
|
|
% of fund flows from operations, gross
|
36%
|
40%
|
36%
|
|
% of fund flows from operations, net
|
27%
|
27%
|
25%
|
Total net dividends, capital expenditures and asset retirement
obligations settled 1
|
225,937
|
203,426
|
132,692
|
|
% of fund flows from operations
|
138%
|
144%
|
88%
|
|
% of fund flows from operations (excluding the Corrib project)
|
127%
|
129%
|
80%
|
Net debt 1
|
744,762
|
677,231
|
530,031
|
Operational
|
Production
|
|
|
|
|
Crude oil (bbls/d)
|
23,583
|
23,699
|
24,492
|
|
NGLs (bbls/d)
|
1,431
|
1,176
|
1,374
|
|
Natural gas (mmcf/d)
|
82.16
|
68.34
|
80.39
|
|
Total (boe/d)
|
38,707
|
36,265
|
39,265
|
Average realized prices
|
|
|
|
|
Crude oil and NGLs ($/bbl)
|
103.98
|
96.74
|
113.99
|
|
Natural gas ($/mcf)
|
6.77
|
7.15
|
5.77
|
Production mix (% of production)
|
|
|
|
|
% priced with reference to WTI
|
24%
|
25%
|
23%
|
|
% priced with reference to AECO
|
18%
|
14%
|
18%
|
|
% priced with reference to European gas
|
18%
|
17%
|
16%
|
|
% priced with reference to Dated Brent
|
40%
|
44%
|
43%
|
Netbacks ($/boe) 1
|
|
|
|
|
Operating netback
|
59.18
|
57.54
|
58.45
|
|
Fund flows netback
|
43.89
|
46.07
|
42.30
|
|
Operating expenses
|
14.10
|
14.18
|
13.31
|
Average reference prices
|
|
|
|
|
WTI (US $/bbl)
|
94.37
|
88.18
|
102.93
|
|
Dated Brent (US $/bbl)
|
112.55
|
110.02
|
118.49
|
|
AECO ($/GJ)
|
3.03
|
3.05
|
2.04
|
Average foreign currency exchange rates
|
|
|
|
|
CDN $/US $
|
1.01
|
0.99
|
1.00
|
|
CDN $/Euro
|
1.33
|
1.29
|
1.31
|
Share information ('000s)
|
Shares outstanding - basic
|
99,462
|
99,135
|
96,838
|
Shares outstanding - diluted 1
|
102,380
|
101,913
|
99,557
|
Weighted average shares outstanding - basic
|
99,301
|
98,944
|
96,644
|
Weighted average shares outstanding - diluted
|
101,349
|
100,425
|
98,191
|
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
Performance during the first quarter of 2013 highlights Vermilion's
strong operations and the benefits of global commodity exposure.
Vermilion achieved consolidated production volumes of 38,707 boe/d and
record quarterly fund flows from operations of $163.6 million.
Vermilion was active in the first quarter drilling in Canada, Australia
and France, positioning the Company for growth for the remainder of
2013.
Vermilion's global commodity exposure continues to afford the Company a
significant competitive advantage with 40% of first quarter production
volumes comprised of Brent-based crude and 18% comprised of
high-netback European gas. Vermilion's Brent-based crude realized an
average price of $113.34 per bbl, generating a nearly 30% premium over
the Edmonton Sweet index which reflects pricing for Canadian light
crude. The Company's Netherlands natural gas production received an
average price $10.09 per mcf, a premium of $6.76 per mcf or over 200%
compared to an average first quarter price of $3.33 per mcf for AECO
natural gas in Canada. Vermilion's significant exposure to
international pricing for the Company's high-netback liquids and
European gas, enabled fund flows from operations growth of 15%
quarter-over-quarter and outpaced production growth of 7%.
Canadian development activities continue to be focused on the full scale
development of the Cardium light oil play. The Company's well
performance to date remains consistent and continues to outpace that of
most peers in the area, demonstrating the quality of Vermilion's land
position in the West Pembina region. Since entering the play in 2009,
the Company has drilled 201 gross wells (140 net) in the Cardium and
increased production to over 8,400 boe/d. Vermilion continues to
advance on a drilling and completions learning curve, including the
implementation of water-based fracturing systems and multi-well pad
drilling, and is currently the only Company in the region employing
long reach wells (greater than one mile in length). Having generated a
significant reduction in costs by drilling longer reach 1.5 mile
horizontal wells, Vermilion is planning on drilling a higher percentage
of 1.5 mile wells and potentially several 2.0 mile pilot wells over the
remainder of 2013. Drilling longer horizontal wells has allowed the
company to reduce well costs from more than $5 million per section to
approximately $3 million per section in the first quarter of 2013. With
a significant drilling inventory identified in its full Cardium
development plan, Vermilion anticipates inventory to last five to six
years at a drilling rate of 40 to 60 wells per year.
In the Mannville formation, positioned below the Cardium in the
stratigraphic column, the Company has a significant inventory of
liquids-rich natural gas horizontal drilling prospects. Vermilion plans
to drill six gross (3.2 net) horizontal Mannville wells in 2013.
Initial production results are now available from the first two wells
in the Mannville program. The first well (50% Vermilion working
interest) was put on production during the first quarter at a rate of
3.6 mmcf/d of natural gas and 515 bbls/d of condensate1. Subsequent to the end of the first quarter, the second well (82%
working interest) was put on production at a rate of 2.6 mmcf/d of
natural gas and 100 bbls/d of condensate2.
In the first quarter, Vermilion drilled and cored a third vertical
stratigraphic test well in the Duvernay liquids-rich natural gas
resource play. The Company has amassed 272 net sections in the Edson
area capturing the full breadth of the liquids-rich natural gas fairway
for approximately $74 million ($425 per acre). Vermilion's Duvernay
rights largely underlie the Company's Cardium and Mannville positions,
allowing for potential infrastructure, operational and timing
advantages should full-field development of the Duvernay commence. The
Duvernay has the potential to provide Vermilion with very significant
development opportunities in its core Canadian operating region, and
may deliver production growth into the latter half of the decade and
beyond.
Australian activity in the first quarter of 2013 focused on the drilling
program at Wandoo. Two sidetrack horizontal laterals from existing
wells were drilled, including the longest horizontal section drilled at
Wandoo to date at 3,400 metres. The first well was spud in early
February, completed in mid-March, and put on production at an initial
rate of approximately 3,000 bbls/d of oil3 prior to the end of the first quarter. The second well was spud in
mid-March, and put on production at an initial rate of approximately
6,000 bbls/d of oil4 subsequent to the end of the first quarter. The jack-up drilling rig
was demobilized and released in early April. The new sidetracks tested
several drilling and geological concepts at Wandoo, including extreme
long-reach horizontal drilling and further exploitation of the
less-developed southern part of the field. The results will be
incorporated into the geologic and numerical reservoir simulation
models of Wandoo, with the objective of expanding and improving the
Company's long-term drilling inventory. While the initial production
rates are indicative of the high productivity that can be generated
through extreme long reach horizontal drilling in this very permeable
reservoir, the Company intends to significantly restrict production
from these wells after an initial production period to maximize
long-term resource recovery. Vermilion anticipates maintaining
production levels between 6,000 and 8,000 boe/d in Australia for the
foreseeable future with drilling programs approximately every 18 to 24
months. Australia continues to generate strong netbacks and garners
pricing at a premium to the Dated Brent index and incurs no
transportation cost as production is sold directly from the platform.
During the first quarter of 2013, Vermilion began a five well drilling
program in the Champotran field including four infill wells as a part
of a waterflood expansion and one field extension test well. The
Company had two wells drilled and a further two spud at the end of the
first quarter. Additional activities in France included workovers,
recompletions and facilities upgrades in the Paris and Aquitaine
basins. Vermilion's 2012 acquisitions were a natural addition to the
Company's asset base in France and further secured the Company's
position as the leading oil producer in France. Vermilion continues to
work toward integration of these assets and the identification of
further opportunities to decrease the current cost structure and
increase production through optimized operations, water flood
management and development drilling. Vermilion's French assets are
consistent with the Company's sustainable growth-and-income model, with
low base decline rates, high quality Brent-based production, strong
cash flow generation and numerous long-term investment opportunities.
Vermilion continues permitting and drilling preparations in the
Netherlands with respect to a three well drilling campaign planned for
2013. The Company's Garijp debottlenecking project was completed in the
first quarter of 2013, enabling incremental production from the
existing Vinkega-1 well and first gas from Vinkega-2 in the second
quarter. Facility construction for Langezwaag-1 is ongoing with
production additions anticipated in the second quarter of 2013. The
Company is looking to increase activity in the Netherlands to maintain
a rolling inventory of production-adding projects with the intent to
ultimately establish a reliable long-term growth profile. In March, the
Company was awarded an exploration license for the Akkrum concession,
located directly between Vermilion's existing Gorredijk and Leeuwarden
concessions. Covering more than 54,000 acres, the Akkrum concession
adds to the Company's already significant land position and future
projects in the Netherlands.
In Ireland, the tunnel boring machine was installed on December 16, 2012
and has begun tunneling activities related to the completion of the
nine kilometer onshore pipeline for Corrib. Tunneling, construction
and installation, commissioning and start-up are anticipated to take
approximately two years to complete with first gas anticipated in late
2014 or early 2015. Peak production is expected to be reached in
mid-2015 with production levels of approximately 55 mmcf/d (9,000
boe/d) net to Vermilion.
Vermilion remains positioned to deliver strong operational and financial
performance over the next several years. The Company continues to
target growth of approximately 30% to 50,000 boe/d in 2015 and fund
flows from operations growth of approximately 40% over the same period
(assuming current commodity pricing indications are realized).
Near-to-medium term growth is expected to be driven by continued
Cardium and Mannville development in Canada, high-netback natural gas
in the Netherlands, and first gas from Corrib in late 2014 or early
2015. France and Australia production are anticipated to provide
reliable production as well as significant cash flow during this time
from Brent-based pricing, with the potential to provide production
growth as Vermilion expands its technical work to mature investment
projects in these areas.
Additional medium and long-term growth is expected to be generated by
the Company's New Growth Initiative which is focused on the
identification and development of emerging resource plays in Canada and
the greater European region, including the Duvernay liquids-rich
natural gas resource. As an example of the Company's greater European
effort, Vermilion has acquired an exploration permit for 2.34 million
acres in Morocco. This opportunity is consistent with the Company's
low-cost, early-entry strategy to secure large positions in
unconventional shale oil and natural gas plays, providing significant
optionality and potential for growth into the latter half of the
decade.
Vermilion increased its monthly dividend 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. Based on increasing
certainty for Corrib development timing and the strength of anticipated
future cash flows from a variety of sources, the Company is committed
to providing a reliable and growing dividend stream to investors.
On March 12, 2013, Vermilion shares began trading on the New York Stock
Exchange under the ticker symbol "VET". As an international oil and
gas producer, the Company believes the secondary listing may assist in
broadening its investor base and increasing trading liquidity.
Vermilion's conservative fiscal management and capital discipline leaves
the Company well positioned to execute its 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
its business practices, Vermilion was recognized for the fourth
consecutive year by the Great Place to Work® Institute in both Canada
and France. Vermilion ranked as the 22nd Best Workplace in Canada among
more than 315 companies. Vermilion's France subsidiary ranked as the
27th Best Workplace in the country.
|
|
1
|
Three-week average production rate, at 1,050 psi flowing tubing
pressure, at restricted rates due to separator capacity constraints.
|
2
|
One-week average production rate, at 1,420 psi flowing tubing pressure,
at restricted rates due to compressor capacity constraints.
|
3
|
Production from sidetrack only, without motherbore contribution.
Two-week average production rate under gas lift conditions. Final water
cut was 20%.
|
4
|
Production from sidetrack lateral. Motherbore was abandoned. Five-day
average production rate. No water production.
|
|
|
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is Management's Discussion and Analysis ("MD&A"), dated
April 30, 2013, of Vermilion Energy Inc.'s ("Vermilion" or the
"Company") operating and financial results as at and for the three
months ended March 31, 2013 as compared with the corresponding period
in the prior year.
This discussion should be read in conjunction with the unaudited
condensed consolidated interim financial statements for the three
months ended March 31, 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 months ended March 31, 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
|
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
($M)
|
2013
|
2012
|
2012
|
Cash flows from operating activities
|
190,712
|
99,907
|
124,887
|
Changes in non-cash operating working capital
|
(28,471)
|
33,406
|
25,469
|
Asset retirement obligations settled
|
1,388
|
8,424
|
766
|
Fund flows from operations
|
163,629
|
141,737
|
151,122
|
Expenses related to the Corrib project
|
1,855
|
2,023
|
2,364
|
Fund flows from operations (excluding the Corrib project)
|
165,484
|
143,760
|
153,486
|
"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
|
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
($M)
|
2013
|
2012
|
2012
|
Dividends declared
|
59,612
|
56,435
|
55,124
|
Issuance of shares pursuant to the dividend reinvestment plan
|
(15,532)
|
(18,468)
|
(17,558)
|
Net dividends
|
44,080
|
37,967
|
37,566
|
Drilling and development
|
179,520
|
151,157
|
87,896
|
Dispositions
|
(8,627)
|
-
|
-
|
Exploration and evaluation
|
9,576
|
5,878
|
6,464
|
Asset retirement obligations settled
|
1,388
|
8,424
|
766
|
Total net dividends, capital expenditures and asset retirement
obligations settled
|
225,937
|
203,426
|
132,692
|
Capital expenditures and asset retirement obligations settled related to
the Corrib project
|
(16,520)
|
(18,092)
|
(9,482)
|
Total net dividends, capital expenditures and asset retirement
obligations settled (excluding the Corrib project)
|
209,417
|
185,334
|
123,210
|
"Net debt" is the sum of long-term debt and working capital as presented in
Vermilion's consolidated balance sheets. Net debt is used by
management to analyze the financial position and leverage of
Vermilion. The most directly comparable GAAP measure is long-term
debt.
Long-term debt as presented in Vermilion's consolidated balance sheets
is reconciled to net debt as follows:
|
As At
|
|
Mar 31,
|
Dec 31,
|
($M)
|
2013
|
2012
|
Long-term debt
|
712,763
|
642,022
|
Current liabilities
|
391,708
|
355,711
|
Current assets
|
(359,709)
|
(320,502)
|
Net debt
|
744,762
|
677,231
|
"Netbacks" are per boe and per mcf measures used in operational and capital
allocation decisions.
"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
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
('000s of shares)
|
2013
|
2012
|
2012
|
Shares outstanding
|
99,462
|
99,135
|
96,838
|
Potential shares issuable pursuant to the equity based compensation plan
|
2,918
|
2,778
|
2,719
|
Diluted shares outstanding
|
102,380
|
101,913
|
99,557
|
OPERATIONAL ACTIVITIES
Canada
Vermilion drilled 24 (22.5 net) wells during the first quarter of 2013,
including 20 (20 net) operated Cardium horizontal wells and one (0.1
net) non-operated Cardium horizontal well. Since entering the play in
2009, the Company has drilled a total of 201 (140 net) wells in the
Cardium. In the first quarter of 2013, Vermilion completed its third
vertical test well in the Duvernay and drilled two (1.3 net) Mannville
liquids-rich natural gas wells.
France
Vermilion commenced its Champotran drilling program with two wells
drilled and two wells spud at the end of the first quarter. The Company
completed a number of workovers in both the Paris and Aquitaine basins.
Vermilion continues to work towards the full integration of the assets
acquired through two separate transactions in 2012 and the
identification of further optimization and infill drilling
opportunities.
Netherlands
Operating activities in the first quarter focused on facility
maintenance and site construction. Surface facilities for Vinkega-2 and
Langezwaag-1 are under construction, with first gas for both wells
anticipated in the second quarter of 2013. The Company's
debottlenecking project at Garijp was completed in the first quarter,
ahead of schedule, and will enable incremental production additions
from Vinkega-2 and other wells to be brought on-stream. In March,
Vermilion was awarded the exploration license for the Akkrum
concession, covering more than 54,000 acres and located between the
Company's existing Gorredijk and Leeuwarden concessions.
Australia
Vermilion conducted a two well drilling program at Wandoo during the
first quarter of 2013. These wells were horizontal sidetracks from
existing well bores. The first well was spud early February and
completed mid-March, the second was then spud and completed late March.
The rig was demobilized and released subsequent to quarter end.
PRODUCTION
|
|
Three Months Ended
|
|
% change
|
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
|
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Canada
|
|
|
|
|
|
|
|
Crude oil & NGLs (bbls/d)
|
9,301
|
9,089
|
8,876
|
|
2%
|
5%
|
|
Natural gas (mmcf/d)
|
41.04
|
31.41
|
41.83
|
|
31%
|
(2%)
|
|
Total (boe/d)
|
16,140
|
14,323
|
15,848
|
|
13%
|
2%
|
|
% of consolidated
|
41%
|
40%
|
40%
|
|
|
|
France
|
|
|
|
|
|
|
|
Crude oil (bbls/d)
|
10,330
|
9,843
|
10,270
|
|
5%
|
1%
|
|
Natural gas (mmcf/d)
|
4.21
|
3.91
|
3.48
|
|
8%
|
21%
|
|
Total (boe/d)
|
11,032
|
10,495
|
10,850
|
|
5%
|
2%
|
|
% of consolidated
|
29%
|
29%
|
28%
|
|
|
|
Netherlands
|
|
|
|
|
|
|
|
NGLs (bbls/d)
|
96
|
70
|
72
|
|
37%
|
33%
|
|
Natural gas (mmcf/d)
|
36.91
|
33.03
|
35.08
|
|
12%
|
5%
|
|
Total (boe/d)
|
6,248
|
5,574
|
5,919
|
|
12%
|
6%
|
|
% of consolidated
|
16%
|
15%
|
15%
|
|
|
|
Australia
|
|
|
|
|
|
|
|
Crude oil (bbls/d)
|
5,287
|
5,873
|
6,648
|
|
(10%)
|
(20%)
|
|
% of consolidated
|
14%
|
16%
|
17%
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
Crude oil & NGLs (bbls/d)
|
25,014
|
24,875
|
25,866
|
|
1%
|
(3%)
|
|
% of consolidated
|
65%
|
69%
|
66%
|
|
|
|
|
Natural gas (mmcf/d)
|
82.16
|
68.34
|
80.39
|
|
20%
|
2%
|
|
% of consolidated
|
35%
|
31%
|
34%
|
|
|
|
|
Total (boe/d)
|
38,707
|
36,265
|
39,265
|
|
7%
|
(1%)
|
Average total production in Canada of 16,140 boe/d during the first
quarter of 2013 represented an increase of 13% compared to 14,323 boe/d
in the fourth quarter of 2012 and 2% as compared to 15,848 boe/d in the
first quarter of the prior year. The increased volumes were largely
attributable to continued development in the Cardium and initiation of
a horizontal drilling program in the Mannville, as well as previously
shut-in dry natural gas being brought back on-stream. Vermilion's
exposure to oil and liquids represented approximately 58% of Canadian
production in the first quarter of 2013 compared to 56% in the first
quarter of 2012.
France production averaged 11,032 boe/d in the first quarter of 2013,
representing a 5% increase compared to fourth quarter 2012. This
increase is largely attributable to volumes associated with Vermilion's
acquisition completed in December 2012 and continued workover and
recompletion activities largely offsetting natural declines.
Netherlands average production of 6,248 boe/d in the first quarter of
2013 represented an increase of 12% quarter-over-quarter and 6%
year-over-year. Following shutdown for facility upgrades, the
Slootdorp-4 well was reactivated in the first quarter contributing to
the increased production.
Australia production averaged 5,287 boe/d during the first quarter of
2013, compared to 5,873 boe/d in the fourth quarter of 2012 and 6,648
boe/d in the first quarter of 2012. The decrease in production
represents downtime associated with the two-well drilling program and
seasonal cyclone activity. Production additions from the two wells are
anticipated for the second quarter of 2013. Vermilion expects to
sustain annual average production between 6,000 and 8,000 boe/d over
the next few years with two to three well drilling programs every other
year.
FINANCIAL REVIEW
|
Three Months Ended
|
|
% change
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Net earnings
|
52,137
|
56,914
|
65,094
|
|
(8%)
|
(20%)
|
Fund flows from operations
|
163,629
|
141,737
|
151,122
|
|
15%
|
8%
|
Cash flow from operating activities
|
190,712
|
99,907
|
124,887
|
|
91%
|
53%
|
Net debt
|
744,762
|
677,231
|
530,031
|
|
10%
|
41%
|
Long-term debt
|
712,763
|
642,022
|
373,798
|
|
11%
|
91%
|
Ratio of net debt to annualized fund flows from operations
|
1.1
|
1.2
|
0.9
|
|
(8%)
|
22%
|
Total net dividends, capital expenditures and asset retirement
obligations settled
|
|
|
|
|
|
|
|
% of fund flows from operations
|
138%
|
144%
|
88%
|
|
|
|
|
% of fund flows from operations (excluding the Corrib project)
|
127%
|
129%
|
80%
|
|
|
|
Fund flows from operations for the first quarter of 2013 increased
compared to both the first and fourth quarters of 2012. On a
quarter-over-quarter basis, the increase was a result of significantly
higher petroleum and natural gas sales, driven by an increase in crude
oil sales volumes and favorable crude oil and natural gas pricing. The
increase in crude oil sales volumes was due in part to a draw of crude
oil inventory in France and Australia totalling approximately 244,000
bbls during the first quarter of 2013. On a year-over-year basis, the
increase in fund flows from operations occurred despite relatively
consistent petroleum and natural gas sales due to a decrease in PRRT,
which resulted from increased capital expenditures for the 2013
Australian drilling campaign, and the absence of the $8.5 million of
transfer taxes paid in the first quarter of 2012 for the first of two
acquisitions in France.
Cash flow from operating activities increased for the first quarter of
2013 compared to both the first and fourth quarter of 2012. This
increase was a result of the aforementioned changes to fund flows from
operations, coupled with favorable timing differences pertaining to
working capital.
Net earnings for the first quarter of 2013 decreased when compared to
the fourth quarter of 2012. This decrease occurred despite
significantly higher petroleum and natural gas sales due to an
unrealized foreign exchange loss in the current quarter versus an
unrealized foreign exchange gain in the previous quarter. Unrealized
foreign exchange gains and losses are non-cash charges that result from
the translation of Euro denominated loans made by Vermilion to its
subsidiaries. On a year-over-year basis, the decrease in net earnings
was primarily the result of an increase in deferred tax expense in
2013, resulting from the timing of the deductibility of capital
expenditures for tax purposes, and an increase in depletion expense.
Vermilion's net debt and long-term debt increased from December 31, 2012
as a result of draws on the revolving credit facility to fund current
year development capital expenditures. The increase in net debt and
long-term debt from March 31, 2012 was the result of the second of two
acquisitions in France during 2012 and current year development capital
expenditures. In addition, December 31, 2012 and March 31, 2013
long-term debt included the impact of payment of the US$135 million
deferred payment, which pertained to the 2009 acquisition of
Vermilion's 18.5% non-operated interest in the Corrib field.
The ratio of total net dividends, capital expenditures and asset
retirement obligations settled (excluding capital expenditures and
asset retirement obligations settled on the Corrib project) expressed
as a percentage of fund flows from operations was relatively consistent
quarter-over-quarter. On a year-over-year basis, the increase in this
ratio is primarily the result of increased capital expenditures during
the current period relating to drilling activity in Australia, Canada
and France.
COMMODITY PRICES
|
Three Months Ended
|
|
% change
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Average reference prices
|
|
|
|
|
|
|
WTI (US $/bbl)
|
94.37
|
88.18
|
102.93
|
|
7%
|
(8%)
|
Edmonton Sweet index (US $/bbl)
|
87.42
|
84.86
|
92.44
|
|
3%
|
(5%)
|
Dated Brent (US $/bbl)
|
112.55
|
110.02
|
118.49
|
|
2%
|
(5%)
|
AECO ($/GJ)
|
3.03
|
3.05
|
2.04
|
|
(1%)
|
49%
|
Netherlands gas price ($/GJ)
|
10.40
|
9.78
|
9.63
|
|
6%
|
8%
|
Netherlands gas price (€/GJ)
|
7.81
|
7.58
|
7.35
|
|
3%
|
6%
|
Average realized prices ($/boe)
|
|
|
|
|
|
|
Canada
|
57.61
|
58.80
|
55.84
|
|
(2%)
|
3%
|
France
|
107.17
|
102.26
|
104.84
|
|
5%
|
2%
|
Netherlands
|
61.21
|
60.96
|
59.08
|
|
-
|
4%
|
Australia
|
120.76
|
115.22
|
156.43
|
|
5%
|
(23%)
|
Consolidated
|
83.04
|
78.40
|
86.90
|
|
6%
|
(4%)
|
Production mix (% of production)
|
|
|
|
|
|
|
% priced with reference to WTI
|
24%
|
25%
|
23%
|
|
|
|
% priced with reference to AECO
|
18%
|
14%
|
18%
|
|
|
|
% priced with reference to European gas
|
18%
|
17%
|
16%
|
|
|
|
% priced with reference to Dated Brent
|
40%
|
44%
|
43%
|
|
|
|
Reference prices
Overall, crude oil prices increased during the first quarter of 2013 as
compared to the fourth quarter of 2012. WTI increased by 7%
quarter-over-quarter as a result of the U.S. economy showing signs of
improving growth and improved transportation capacity for crude oil
from the U.S. Midwest to the Gulf Coast. The increase in WTI coupled
with a modest 2% increase in Dated Brent resulted in a narrowing
differential between the two reference prices; however both WTI and the
Edmonton Sweet index continued to trade at a significant discount
($18.18 and $25.13 per barrel, respectively) to Dated Brent.
The AECO reference price was relatively unchanged from the fourth
quarter of 2012, however AECO pricing was significantly higher when
compared to the first quarter of 2012 as a result of relatively flat
North American production coupled with downward trending 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.
Average realized prices in Vermilion's jurisdictions 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.
On a consolidated basis, for the three months ended March 31, 2013,
crude oil and NGL production represented approximately 65% of total
production (three months ended March 31, 2012 - 66%).
CAPITAL EXPENDITURES AND ACQUISITIONS
|
Three Months Ended
|
By classification
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
($M)
|
2013
|
2012
|
2012
|
Drilling and development
|
179,520
|
151,157
|
87,896
|
Dispositions
|
(8,627)
|
-
|
-
|
Exploration and evaluation
|
9,576
|
5,878
|
6,464
|
Capital expenditures
|
180,469
|
157,035
|
94,360
|
|
|
|
|
Property acquisition
|
-
|
-
|
106,184
|
Corporate acquisition
|
-
|
74,947
|
-
|
Payment of amount due pursuant to acquisition
|
-
|
134,307
|
-
|
Acquisitions
|
-
|
209,254
|
106,184
|
|
|
|
|
|
Three Months Ended
|
By category
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
($M)
|
2013
|
2012
|
2012
|
Land
|
3,129
|
462
|
6,667
|
Seismic
|
3,813
|
3,963
|
799
|
Drilling and completion
|
126,185
|
76,774
|
54,858
|
Production equipment and facilities
|
49,942
|
64,232
|
24,755
|
Recompletions
|
4,131
|
5,040
|
2,645
|
Other
|
1,896
|
6,564
|
4,636
|
Dispositions
|
(8,627)
|
-
|
-
|
Capital expenditures
|
180,469
|
157,035
|
94,360
|
Acquisitions
|
-
|
209,254
|
106,184
|
Total capital expenditures and acquisitions
|
180,469
|
366,289
|
200,544
|
|
|
|
|
|
Three Months Ended
|
By country
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
($M)
|
2013
|
2012
|
2012
|
Canada
|
86,636
|
84,609
|
71,982
|
France
|
21,592
|
95,905
|
111,842
|
Netherlands
|
372
|
8,118
|
2,570
|
Australia
|
55,349
|
25,257
|
4,544
|
Ireland
|
16,520
|
152,400
|
9,606
|
Capital expenditures:
Capital expenditures for the first quarter of 2013 were higher than both
the first and fourth quarters of 2012. On a quarter-over-quarter
basis, capital expenditures were higher primarily as a result of
increased capital expenditures in Australia related to the 2013
drilling campaign. On a year-over-year basis, capital expenditures
were higher as a result of the aforementioned Australia drilling
campaign in addition to increased drilling activity in both Canada and
France.
PETROLEUM AND NATURAL GAS SALES
|
Three Months Ended
|
|
% change
|
By product
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe and per mcf)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Crude oil & NGLs
|
259,498
|
196,286
|
268,291
|
|
32%
|
(3%)
|
Per boe
|
103.98
|
96.74
|
113.99
|
|
7%
|
(9%)
|
Natural gas
|
50,078
|
44,947
|
42,197
|
|
11%
|
19%
|
Per mcf
|
6.77
|
7.15
|
5.77
|
|
(5%)
|
17%
|
Petroleum and natural gas sales
|
309,576
|
241,233
|
310,488
|
|
28%
|
-
|
Per boe
|
83.04
|
78.40
|
86.90
|
|
6%
|
(4%)
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
% change
|
By country
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Canada
|
83,688
|
77,476
|
80,526
|
|
8%
|
4%
|
Per boe
|
57.61
|
58.80
|
55.84
|
|
(2%)
|
3%
|
France
|
121,566
|
87,702
|
103,511
|
|
39%
|
17%
|
Per boe
|
107.17
|
102.26
|
104.84
|
|
5%
|
2%
|
Netherlands
|
34,421
|
31,260
|
31,820
|
|
10%
|
8%
|
Per boe
|
61.21
|
60.96
|
59.08
|
|
-
|
4%
|
Australia
|
69,901
|
44,795
|
94,631
|
|
56%
|
(26%)
|
Per boe
|
120.76
|
115.22
|
156.43
|
|
5%
|
(23%)
|
Vermilion's consolidated petroleum and natural gas sales for the first
quarter of 2013 were higher than the fourth quarter of 2012 as a result
of increased sales volumes, including an inventory draw in both
Australia and France, in addition to an increase in the realized price
of crude oil.
Vermilion's consolidated petroleum and natural gas sales for the first
quarter of 2013 remained relatively unchanged as compared to the same
period in the prior year as the impact of the decrease in crude oil
volumes sold and prices was offset by a significant increase in North
American natural gas prices.
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
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
(mbbls)
|
2013
|
2012
|
2012
|
France
|
|
|
|
|
Opening crude oil inventory
|
354
|
246
|
187
|
|
Adjustments
|
5
|
-
|
-
|
|
Crude oil production
|
930
|
906
|
935
|
|
Crude oil sales
|
(1,071)
|
(798)
|
(899)
|
|
Closing crude oil inventory
|
218
|
354
|
223
|
Australia
|
|
|
|
|
Opening crude oil inventory
|
268
|
117
|
222
|
|
Crude oil production
|
476
|
540
|
605
|
|
Crude oil sales
|
(579)
|
(389)
|
(827)
|
|
Closing crude oil inventory
|
165
|
268
|
-
|
Inventory as at March 31, 2013 was comprised of the following
components:
|
|
|
|
|
|
|
|
($M)
|
France
|
|
|
Australia
|
|
|
Total
|
Operating expense
|
3,284
|
|
|
3,701
|
|
|
6,985
|
Royalties
|
1,106
|
|
|
-
|
|
|
1,106
|
Depletion
|
4,206
|
|
|
3,229
|
|
|
7,435
|
|
8,596
|
|
|
6,930
|
|
|
15,526
|
DERIVATIVE INSTRUMENTS
The following tables summarize Vermilion's outstanding risk management
positions as at March 31, 2013:
|
|
|
|
|
Risk Management - Oil
|
Funded Cost (US $/bbl)
|
|
bbls/d
|
Strike Price(s) US $/bbl
|
Swap - WTI
|
|
|
|
|
January 2013 - June 2013 1
|
-
|
|
1,000
|
101.18
|
January 2013 - December 2013
|
-
|
|
2,000
|
93.04
|
Collar - WTI
|
|
|
|
|
April 2013 - June 2013
|
-
|
|
1,000
|
91.75 - 101.91
|
Fixed Price Differential - MSW
|
|
|
|
|
April 2013 - June 2013
|
-
|
|
2,000
|
WTI less $4.25
|
Collar - Dated Brent
|
|
|
|
|
January 2013 - June 2013
|
-
|
|
2,000
|
90.00 - 105.28
|
January 2013 - December 2013
|
-
|
|
3,500
|
96.14 - 107.34
|
April 2013 - June 2013
|
-
|
|
2,700
|
106.85 - 113.77
|
July 2013 - December 2013
|
-
|
|
500
|
95.00 - 109.10
|
Swap - Dated Brent
|
|
|
|
|
April 2013 - June 2013
|
-
|
|
250
|
115.41
|
|
|
|
|
|
Risk Management - European natural gas
|
Funded Cost (€/GJ)
|
|
GJ/d
|
Strike Price €/GJ
|
Swap - TTF
|
|
|
|
|
April 2013 - September 2013 2
|
-
|
|
1,800
|
7.12
|
|
|
|
|
|
Risk Management - Canadian natural gas
|
Funded Cost ($/GJ)
|
|
GJ/d
|
Strike Price(s) $/GJ
|
Collar - AECO
|
|
|
|
|
April 2013 - September 2013
|
-
|
|
2,500
|
2.90 - 3.47
|
April 2013 - October 2013
|
-
|
|
3,500
|
3.05 - 3.66
|
April 2013 - December 2013
|
-
|
|
5,000
|
2.93 - 3.52
|
October 2013 - December 2013
|
-
|
|
2,500
|
2.85 - 3.56
|
Collar - AECO (Physical)
|
|
|
|
|
April 2012 - March 2014
|
0.10
|
|
5,500
|
2.60 - 3.78
|
June 2012 - March 2014
|
0.10
|
|
3,000
|
2.30 - 3.75
|
1
|
The counterparties to the swaps have the option on June 28, 2013 to
extend the swap to December 31, 2013 at the contracted volume and
price.
|
2
|
TTF collars are priced based on the TTF "day-ahead" bid and offer
quotations, which are quoted in MWh of natural gas per hour per day.
MWh of natural gas per hour per day measures are converted at a ratio
of 1 MWh to 3.6 GJ.
|
From time to time Vermilion enters into new risk management positions.
Information regarding outstanding risk management positions is
available on Vermilion's website at www.vermilionenergy.com/ir/hedging.cfm.
The following table summarizes the impact of derivative instruments on
cash flows from operating activities:
|
Three Months Ended
|
|
% change
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Realized loss on derivative instruments
|
2,787
|
1,559
|
5,718
|
|
79%
|
(51%)
|
Per boe
|
0.75
|
0.51
|
1.60
|
|
47%
|
(53%)
|
The realized loss on derivative instruments for the first quarter of
2013 is comprised primarily of amounts paid to settle Dated Brent
costless collars, as reference prices exceeded the ceiling price on
those instruments, partially offset by amounts received on WTI
extendable swaps. This realized loss was higher than the previous
quarter (where the loss related primarily to premiums paid on funded
collars and put options) and was lower than the same quarter in the
previous year (where the loss related both to premiums and amounts paid
for settlement).
ROYALTIES
|
Three Months Ended
|
|
% change
|
By product
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe and per mcf)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Crude oil & NGLs
|
14,810
|
11,429
|
14,241
|
|
30%
|
4%
|
Per boe
|
5.93
|
5.63
|
6.05
|
|
5%
|
(2%)
|
Natural gas
|
980
|
509
|
211
|
|
93%
|
364%
|
Per mcf
|
0.13
|
0.08
|
0.03
|
|
63%
|
333%
|
Royalties
|
15,790
|
11,938
|
14,452
|
|
32%
|
9%
|
Per boe
|
4.24
|
3.88
|
4.04
|
|
9%
|
5%
|
% of petroleum and natural gas sales
|
5.1%
|
4.9%
|
4.7%
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
% change
|
By country
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Canada
|
8,989
|
7,401
|
8,969
|
|
21%
|
-
|
Per boe
|
6.19
|
5.62
|
6.22
|
|
10%
|
-
|
% of petroleum and natural gas sales
|
10.7%
|
9.6%
|
11.1%
|
|
|
|
France
|
6,801
|
4,537
|
5,483
|
|
50%
|
24%
|
Per boe
|
6.00
|
5.29
|
5.55
|
|
13%
|
8%
|
% of petroleum and natural gas sales
|
5.6%
|
5.2%
|
5.3%
|
|
|
|
In Canada, royalties as a percentage of sales for the three months ended
March 31, 2013 was 10.7% as compared to 9.6% for the prior quarter and
11.1% for the comparative period of the prior year. Crude oil and NGL
royalties as a percentage of sales for the current quarter of 11.4%
increased slightly from 10.4% for the prior quarter but decreased from
12.2% for the first quarter of 2012. The timing of putting additional
horizontal Cardium wells on production results in slight changes to
realized royalty rates arising from a royalty incentive applied to
initial production volumes from these wells.
In France, the primary portion of the royalties is levied in Euros and
is based on units of production and that component, therefore, is not
subject to changes in commodity prices. Royalties as a percentage of
sales for the three months ended March 31, 2013 increased to 5.6% from
5.2% and 5.3% for the three months ended December 31, 2012 and March
31, 2012, respectively, due to the impact of a stronger Euro
year-over-year.
Production in the Netherlands and Australia is not subject to royalties.
OPERATING EXPENSE
|
Three Months Ended
|
|
% change
|
By product
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe and per mcf)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Crude oil & NGLs
|
41,855
|
31,212
|
36,866
|
|
34%
|
14%
|
Per boe
|
16.77
|
15.38
|
15.66
|
|
9%
|
7%
|
Natural gas
|
10,720
|
12,422
|
10,687
|
|
(14%)
|
-
|
Per mcf
|
1.45
|
1.98
|
1.46
|
|
(27%)
|
(1%)
|
Operating
|
52,575
|
43,634
|
47,553
|
|
20%
|
11%
|
Per boe
|
14.10
|
14.18
|
13.31
|
|
(1%)
|
6%
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
% change
|
By country
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Canada
|
13,841
|
14,514
|
14,267
|
|
(5%)
|
(3%)
|
Per boe
|
9.53
|
11.01
|
9.89
|
|
(13%)
|
(4%)
|
France
|
19,939
|
13,699
|
15,102
|
|
46%
|
32%
|
Per boe
|
17.58
|
15.97
|
15.30
|
|
10%
|
15%
|
Netherlands
|
3,969
|
5,713
|
4,109
|
|
(31%)
|
(3%)
|
Per boe
|
7.06
|
11.14
|
7.63
|
|
(37%)
|
(7%)
|
Australia
|
14,826
|
9,708
|
14,075
|
|
53%
|
5%
|
Per boe
|
25.61
|
24.97
|
23.27
|
|
3%
|
10%
|
In Canada, first quarter operating expense of $13.8 million was lower
than the $14.5 million for the fourth quarter of 2012 as a result of
costs incurred in the prior quarter associated with two facility
turnarounds partially offset by higher costs in the first quarter of
this year related to salaries and benefits, fuel and electricity and
chemical usage. Operating expense for the first quarter of 2013 was
also lower as compared to the $14.3 million for the first quarter of
the prior year as a result of some non-operated equalizations received
in that period. Operating costs per boe for the three months ended
March 31, 2013, decreased as compared to the previous quarter and the
first quarter of 2012 as a result of lower expense and higher volumes.
In France, first quarter operating expense of $19.9 million was higher
than both the fourth quarter 2012 expense of $13.7 million and the
expense of $15.1 million for the first quarter of 2012 largely as a
result of the inventory draw that occurred in the current quarter.
When inventoried product is sold, the related costs are expensed in the
period of sale. Despite higher production volumes in the first quarter
of 2013 as compared to the fourth quarter of 2012, the timing of
downhole work and increased electricity costs resulted in an increase
in operating expense per boe to $17.58 for the current quarter from
$15.97 for the prior quarter.
In the Netherlands, operating expense for the three months ended March
31, 2013 of $4.0 million decreased from $5.7 million in the prior
quarter and was consistent with the $4.1 million for the first quarter
of 2012. The quarter-over-quarter decrease is attributable to the
timing of project work. Operating expense per boe for the three months
ended March 31, 2013 similarly decreased versus the previous quarter
and the first quarter of 2012 as a result of lower expenses coupled
with higher volumes.
In Australia, first quarter operating expense increased to $14.8 million
from the previous quarter's expense of $9.7 million due to a draw in
crude oil inventory associated with shipment timing. A decrease in
crude oil inventory results in the related production costs being
expensed when the product is sold. On a per boe basis, operating
expense for the first quarter of 2013 was higher than the previous
quarter and the first quarter of 2012 as a result of lower production
volumes in the current quarter due to two cyclones and drilling
activities that resulted in unplanned downtime.
TRANSPORTATION EXPENSE
|
Three Months Ended
|
|
% change
|
By country
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Canada
|
2,269
|
1,922
|
2,044
|
|
18%
|
11%
|
Per boe
|
1.56
|
1.46
|
1.42
|
|
7%
|
10%
|
France
|
2,754
|
1,854
|
2,648
|
|
49%
|
4%
|
Per boe
|
2.43
|
2.16
|
2.68
|
|
13%
|
(9%)
|
Ireland
|
1,618
|
1,682
|
2,001
|
|
(4%)
|
(19%)
|
Transportation
|
6,641
|
5,458
|
6,693
|
|
22%
|
(1%)
|
Per boe
|
1.78
|
1.77
|
1.87
|
|
1%
|
(5%)
|
Consolidated transportation expense was higher for the first quarter of
2013 as compared to the fourth quarter of 2012. This increase was
primarily the result of higher sales volumes in Canada and an increased
number of shipments in France from the Aquitaine basin.
Consolidated transportation expense for the first quarter of 2013 was
consistent with the expense for the same period in 2012 as a result of
lower payments under the ship or pay agreement related to the Corrib
project, mostly offset by higher volumes in both Canada and France.
OTHER (INCOME) EXPENSE
|
Three Months Ended
|
|
% change
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Other (income) expense
|
(67)
|
460
|
7,983
|
|
(115%)
|
(101%)
|
Per boe
|
(0.02)
|
0.15
|
2.24
|
|
(113%)
|
(101%)
|
Other expense for the three months ended March 31, 2012 was comprised
primarily of $8.5 million relating to transfer taxes paid to regulatory
authorities in France pursuant to the first quarter of 2012 acquisition
of certain working interests in six producing fields located in the
Paris and Aquitaine basins in France.
GENERAL AND ADMINISTRATION EXPENSE
|
Three Months Ended
|
|
% change
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
General and administration
|
12,610
|
8,888
|
10,148
|
|
42%
|
24%
|
Per boe
|
3.38
|
2.89
|
2.84
|
|
17%
|
19%
|
General and administration expense for the first quarter of 2013 was
higher than the expense for both the previous quarter and the first
quarter of 2012 due to increased staffing levels to support Vermilion's
operational activities coupled with expenditure timing.
EQUITY BASED COMPENSATION EXPENSE
|
Three Months Ended
|
|
% change
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Equity based compensation
|
16,136
|
18,484
|
10,055
|
|
(13%)
|
60%
|
Per boe
|
4.33
|
6.01
|
2.81
|
|
(28%)
|
54%
|
Equity based compensation expense relates to non-cash compensation
expense attributable to long-term incentives granted to directors,
officers and employees under the Vermilion Incentive Plan (VIP). The
expense is recognized over the vesting period based on the grant date
fair value of awards, adjusted for the ultimate number of awards that
actually vest as determined by the Company's achievement of performance
conditions.
Equity based compensation expense for the first quarter of 2013 was
lower than the preceeding quarter as the fourth quarter of 2012
included additional expense resulting from a change in performance
condition assumptions. As the first quarter of 2013 also reflected
this change in performance condition assumptions, equity based
compensation expense for the current quarter was higher than the
expense for the same quarter in 2012.
INTEREST EXPENSE
|
Three Months Ended
|
|
% change
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Interest expense
|
8,689
|
7,656
|
6,101
|
|
13%
|
42%
|
Per boe
|
2.33
|
2.49
|
1.71
|
|
(6%)
|
36%
|
Interest expense increased during the current quarter as compared to
both the prior quarter and same quarter in the previous year primarily
due to increased borrowings under Vermilion's revolving credit
facility.
DEPLETION AND DEPRECIATION, ACCRETION, IMPAIRMENTS AND GAIN ON
ACQUISITION
|
Three Months Ended
|
|
% change
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Depletion and depreciation
|
81,448
|
66,642
|
75,848
|
|
22%
|
7%
|
Per boe
|
21.85
|
21.66
|
21.23
|
|
1%
|
3%
|
Accretion
|
5,824
|
6,119
|
5,238
|
|
(5%)
|
11%
|
Per boe
|
1.56
|
1.99
|
1.47
|
|
(22%)
|
6%
|
Impairments
|
-
|
-
|
65,800
|
|
-
|
(100%)
|
Per boe
|
-
|
-
|
18.42
|
|
-
|
(100%)
|
Gain on acquisition
|
-
|
-
|
(45,309)
|
|
-
|
(100%)
|
Per boe
|
-
|
-
|
(12.68)
|
|
-
|
(100%)
|
Depletion and depreciation expense on a per boe basis was relatively
consistent for the first quarter of 2013 as compared to both the first
and fourth quarters of 2012. The slight increase in the current
quarter was higher primarily due to the result of higher finding,
development and acquisition costs incurred from additional liquids
development in Canada and the acquisitions in France in 2012.
Accretion expense decreased for the first quarter of 2013 as compared to
the fourth quarter of 2012 as a result of a decrease in asset
retirement obligations. This decrease occurred in Canada, due to a
change in estimate recorded in the fourth quarter of 2012, and was
partially offset by asset retirement obligations recorded on the fourth
quarter of 2012 acquisition in France. On a year-over-year basis,
accretion expense increased as the aforementioned decrease in Canada's
asset retirement obligations were offset by asset retirement
obligations assumed on the France acquisition in the fourth quarter of
2012.
The impairment losses for the first quarter of 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 first quarter of 2012 relates to
Vermilion's acquisition of certain working interests in the Paris and
Aquitaine basins in France. 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
|
By classification
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Current taxes before PRRT
|
35,557
|
21,470
|
32,364
|
|
66%
|
10%
|
Per boe
|
9.54
|
6.98
|
9.06
|
|
37%
|
5%
|
PRRT
|
11,153
|
1,598
|
27,269
|
|
598%
|
(59%)
|
Per boe
|
2.99
|
0.52
|
7.63
|
|
475%
|
(61%)
|
Current taxes
|
46,710
|
23,068
|
59,633
|
|
102%
|
(22%)
|
Per boe
|
12.53
|
7.50
|
16.69
|
|
67%
|
(25%)
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
% change
|
By country
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
|
Q1/13 vs.
|
Q1/13 vs.
|
($M except per boe)
|
2013
|
2012
|
2012
|
|
Q4/12
|
Q1/12
|
Canada
|
251
|
259
|
442
|
|
(3%)
|
(43%)
|
Per boe
|
0.17
|
0.20
|
0.31
|
|
(15%)
|
(45%)
|
France
|
18,659
|
13,335
|
12,895
|
|
40%
|
45%
|
Per boe
|
16.45
|
15.55
|
13.06
|
|
6%
|
26%
|
Netherlands
|
9,434
|
1,102
|
9,057
|
|
756%
|
4%
|
Per boe
|
16.78
|
2.15
|
16.82
|
|
680%
|
-
|
Australia
|
18,366
|
8,372
|
37,239
|
|
119%
|
(51%)
|
Per boe
|
31.73
|
21.53
|
61.56
|
|
47%
|
(48%)
|
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 profit tax of 1.7%
levied until 2014 if annual gross revenues exceed 250 million Euros.
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.
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.
Total current taxes before PRRT was higher in the first quarter of 2013
as compared to the fourth quarter of 2012 as a result of increased
sales in France and Australia, in addition to the absence of certain
deductions for asset retirement obligations and depletion recorded in
the Netherlands for the fourth quarter of 2012. Total current taxes
before PRRT was relatively consistent for the first quarter of 2013 as
compared to the same period in the prior year.
PRRT increased for the first quarter of 2013 compared to fourth quarter
of 2012 as a result of an inventory draw in the current quarter. On a
year-over-year basis, the decrease in PRRT is a result of higher
capital expenditures in Australia.
FOREIGN EXCHANGE
|
Three Months Ended
|
|
Mar 31,
|
Dec 31,
|
Mar 31,
|
($M except per boe)
|
2013
|
2012
|
2012
|
Unrealized foreign exchange loss (gain)
|
2,519
|
(13,873)
|
(5,247)
|
Per boe
|
0.68
|
(4.50)
|
(1.47)
|
Realized foreign exchange loss (gain)
|
617
|
(2,459)
|
820
|
Per boe
|
0.17
|
(0.81)
|
0.23
|
Foreign exchange loss (gain)
|
3,136
|
(16,332)
|
(4,427)
|
Per boe
|
0.85
|
(5.31)
|
(1.24)
|
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 first quarter of 2013, the unrealized foreign exchange loss
primarily resulted from the impact of the appreciation of the Canadian
dollar against the Euro and the resultant impact on Euro denominated
loans made by Vermilion to its subsidiaries.
SUMMARY OF RESULTS
|
|
Three Months Ended
|
|
|
Mar 31,
|
Dec 31,
|
Sept 30,
|
Jun 30,
|
Mar 31,
|
Dec 31,
|
Sept 30,
|
Jun 30,
|
($M except per share)
|
2013
|
2012
|
2012
|
2012
|
2012
|
2011
|
2011
|
2011
|
Petroleum and natural gas sales
|
309,576
|
241,233
|
284,838
|
246,544
|
310,488
|
275,172
|
248,361
|
278,297
|
Net earnings (loss)
|
52,137
|
56,914
|
30,798
|
37,816
|
65,094
|
(30,243)
|
64,442
|
81,429
|
Net earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
Basic
|
0.53
|
0.58
|
0.31
|
0.39
|
0.67
|
(0.32)
|
0.71
|
0.90
|
|
Diluted
|
0.51
|
0.57
|
0.31
|
0.38
|
0.66
|
(0.32)
|
0.70
|
0.89
|
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, 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 March 31, 2013 was $744.8 million compared to
$677.2 million as at December 31, 2012.
Long-term debt was comprised of the following:
|
As At
|
|
Mar 31,
|
|
Dec 31,
|
($M)
|
2013
|
|
2012
|
Revolving credit facility
|
490,303
|
|
419,784
|
Senior unsecured notes
|
222,460
|
|
222,238
|
Long-term debt
|
712,763
|
|
642,022
|
Revolving Credit Facility
At March 31, 2013, Vermilion had in place a bank revolving credit
facility totalling $950 million, of which approximately $490.3 million
was drawn. The facility, which matures in May of 2015, 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
outstanding letters of credit associated with Vermilion's operations
totalling $49.1 million as at March 31, 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
of not greater than 4.0. In addition, Vermilion must maintain a ratio
of consolidated total senior debt (consolidated total debt excluding
unsecured and subordinated debt) to consolidated net earnings before
interest, income taxes, depreciation, accretion and other certain
non-cash items of not greater than 3.0.
As at March 31, 2013, Vermilion was in compliance with its financial
covenants.
Senior Unsecured Notes
On February 10, 2011, Vermilion issued $225.0 million of senior
unsecured notes at par. The notes bear interest at a rate of 6.5% per
annum and will mature on February 10, 2016. As direct senior unsecured
obligations of Vermilion, the notes rank pari passu with all other
present and future unsecured and unsubordinated indebtedness of the
Company.
Vermilion may, at its option, prior to February 10, 2014, redeem up to
35% of the notes with net proceeds of equity offerings by the Company
at a redemption price equal to 106.5% of the principal amount of the
notes to be redeemed, plus accrued and unpaid interest, if any, to the
applicable redemption date. Subsequently, Vermilion may, on or after
February 10, 2014, redeem all or part of the notes at fixed redemption
prices, plus, in each case, accrued and unpaid interest, if any, to the
applicable redemption date. The notes were initially recognized at
fair value net of transaction costs and are subsequently measured at
amortized cost using an effective interest rate of 7.1%.
ASSET RETIREMENT OBLIGATIONS
|
As At
|
|
Mar 31,
|
|
Dec 31,
|
($M)
|
2013
|
|
2012
|
Asset retirement obligations
|
362,113
|
|
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 accretion and additions from new
wells drilled during the quarter.
DIVIDENDS
|
Three Months Ended
|
|
|
Year Ended
|
|
Mar 31,
|
|
|
Dec 31,
|
($M)
|
2013
|
|
|
2012
|
Cash flows from operating activities
|
190,712
|
|
|
496,580
|
Net earnings
|
52,137
|
|
|
190,622
|
Dividends declared
|
59,612
|
|
|
223,717
|
Excess of cash flows from operating activities over dividends declared
|
131,100
|
|
|
272,863
|
(Shortfall) of net earnings over dividends declared
|
(7,475)
|
|
|
(33,095)
|
During the three months ended March 31, 2013, Vermilion maintained
monthly dividends at $0.20 per share and declared dividends totalling
$59.6 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 three months ended March 31, 2013, Vermilion issued 0.3
million shares pursuant to the dividend reinvestment plan and
Vermilion's equity based compensation programs. Shareholders' capital
increased by $16.2 million as a result of the issuance of those shares.
As at March 31, 2013, there were 99.5 million shares outstanding. As at
April 30, 2013, there were 101.2 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 55
mmcf/d (9,000 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 five 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 March 31, 2013 of $319.1 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 late 2014 or early 2015, and to reach peak production
levels 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 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, certain of
these estimates 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 March 31, 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 standards and
amendments 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 on 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.
ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
The adoption of the following standards 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 statement 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 Mar 31, 2013
|
|
|
Three Months Ended Mar 31, 2012
|
|
|
Oil & NGLs
|
Natural Gas
|
Total
|
|
|
Total
|
|
|
$/bbl
|
$/mcf
|
$/boe
|
|
|
$/boe
|
Canada
|
|
|
|
|
|
|
|
Price
|
|
85.26
|
3.33
|
57.61
|
|
|
55.84
|
Realized hedging gain (loss)
|
|
0.28
|
-
|
0.16
|
|
|
(0.44)
|
Royalties
|
|
(9.71)
|
(0.23)
|
(6.19)
|
|
|
(6.22)
|
Transportation
|
|
(1.99)
|
(0.16)
|
(1.56)
|
|
|
(1.42)
|
Operating
|
|
(9.23)
|
(1.66)
|
(9.53)
|
|
|
(9.89)
|
Operating netback
|
|
64.61
|
1.28
|
40.49
|
|
|
37.87
|
France
|
|
|
|
|
|
|
|
Price
|
|
109.54
|
11.17
|
107.17
|
|
|
104.84
|
Realized hedging loss
|
|
(1.89)
|
-
|
(1.78)
|
|
|
(4.98)
|
Royalties
|
|
(6.24)
|
(0.30)
|
(6.00)
|
|
|
(5.55)
|
Transportation
|
|
(2.57)
|
-
|
(2.43)
|
|
|
(2.68)
|
Operating
|
|
(18.02)
|
(1.68)
|
(17.58)
|
|
|
(15.30)
|
Operating netback
|
|
80.82
|
9.19
|
79.38
|
|
|
76.33
|
Netherlands
|
|
|
|
|
|
|
|
Price
|
|
102.96
|
10.09
|
61.21
|
|
|
59.08
|
Operating
|
|
-
|
(1.19)
|
(7.06)
|
|
|
(7.63)
|
Operating netback
|
|
102.96
|
8.90
|
54.15
|
|
|
51.45
|
Australia
|
|
|
|
|
|
|
|
Price
|
|
120.76
|
-
|
120.76
|
|
|
156.43
|
Realized hedging loss
|
|
(1.74)
|
-
|
(1.74)
|
|
|
(0.27)
|
Operating
|
|
(25.61)
|
-
|
(25.61)
|
|
|
(23.27)
|
PRRT 1
|
|
(19.27)
|
-
|
(19.27)
|
|
|
(45.08)
|
Operating netback
|
|
74.14
|
-
|
74.14
|
|
|
87.81
|
Total Company
|
|
|
|
|
|
|
|
Price
|
|
103.98
|
6.77
|
83.04
|
|
|
86.90
|
Realized hedging loss
|
|
(1.12)
|
-
|
(0.75)
|
|
|
(1.60)
|
Royalties
|
|
(5.93)
|
(0.13)
|
(4.24)
|
|
|
(4.04)
|
Transportation
|
|
(1.77)
|
(0.30)
|
(1.78)
|
|
|
(1.87)
|
Operating
|
|
(16.77)
|
(1.45)
|
(14.10)
|
|
|
(13.31)
|
PRRT 1
|
|
(4.47)
|
-
|
(2.99)
|
|
|
(7.63)
|
Operating netback
|
|
73.92
|
4.89
|
59.18
|
|
|
58.45
|
General and administration
|
|
|
|
(3.38)
|
|
|
(2.84)
|
Interest expense
|
|
|
|
(2.33)
|
|
|
(1.71)
|
Realized foreign exchange loss
|
|
|
|
(0.17)
|
|
|
(0.23)
|
Other income (expense)
|
|
|
|
0.13
|
|
|
(2.31)
|
Current income taxes 1
|
|
|
|
(9.54)
|
|
|
(9.06)
|
Fund flows netback
|
|
|
|
43.89
|
|
|
42.30
|
Accretion
|
|
|
|
(1.56)
|
|
|
(1.47)
|
Depletion and depreciation
|
|
|
|
(21.85)
|
|
|
(21.23)
|
Impairments
|
|
|
|
-
|
|
|
(18.42)
|
Gain on acquisition
|
|
|
|
-
|
|
|
12.68
|
Deferred taxes
|
|
|
|
(1.09)
|
|
|
7.96
|
Unrealized other (expense) income
|
|
|
|
(0.11)
|
|
|
0.07
|
Unrealized foreign exchange (loss) gain
|
|
|
|
(0.68)
|
|
|
1.47
|
Unrealized loss on derivative instruments
|
|
|
|
(0.30)
|
|
|
(2.33)
|
Equity based compensation
|
|
|
|
(4.33)
|
|
|
(2.81)
|
Earnings netback
|
|
|
|
13.97
|
|
|
18.22
|
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)
|
|
March 31,
|
|
December 31,
|
|
Note
|
|
2013
|
|
2012
|
ASSETS
|
|
|
|
|
|
Current
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
176,513
|
|
102,125
|
Accounts receivable
|
|
|
156,966
|
|
180,064
|
Crude oil inventory
|
|
|
15,526
|
|
25,719
|
Derivative instruments
|
|
|
746
|
|
2,086
|
Prepaid expenses
|
|
|
9,958
|
|
10,508
|
|
|
|
359,709
|
|
320,502
|
|
|
|
|
|
|
Deferred taxes
|
|
|
194,354
|
|
193,354
|
Exploration and evaluation assets
|
4
|
|
125,775
|
|
117,161
|
Capital assets
|
3
|
|
2,523,959
|
|
2,445,240
|
|
|
|
3,203,797
|
|
3,076,257
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
Current
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
321,775
|
|
300,682
|
Dividends payable
|
7
|
|
19,892
|
|
18,836
|
Derivative instruments
|
|
|
8,257
|
|
8,484
|
Income taxes payable
|
|
|
41,784
|
|
27,709
|
|
|
|
391,708
|
|
355,711
|
|
|
|
|
|
|
Long-term debt
|
6
|
|
712,763
|
|
642,022
|
Asset retirement obligations
|
5
|
|
362,113
|
|
371,063
|
Deferred taxes
|
|
|
295,706
|
|
288,815
|
|
|
|
1,762,290
|
|
1,657,611
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
Shareholders' capital
|
7
|
|
1,497,506
|
|
1,481,345
|
Contributed surplus
|
|
|
85,088
|
|
69,581
|
Accumulated other comprehensive loss
|
|
|
(33,741)
|
|
(32,409)
|
Deficit
|
|
|
(107,346)
|
|
(99,871)
|
|
|
|
1,441,507
|
|
1,418,646
|
|
|
|
3,203,797
|
|
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
|
|
|
|
March 31,
|
|
March 31,
|
|
Note
|
|
2013
|
|
2012
|
REVENUE
|
|
|
|
|
|
Petroleum and natural gas sales
|
|
|
309,576
|
|
310,488
|
Royalties
|
|
|
(15,790)
|
|
(14,452)
|
Petroleum and natural gas revenue
|
|
|
293,786
|
|
296,036
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
Operating
|
|
|
52,575
|
|
47,553
|
Transportation
|
|
|
6,641
|
|
6,693
|
Equity based compensation
|
8
|
|
16,136
|
|
10,055
|
Loss on derivative instruments
|
|
|
3,900
|
|
14,057
|
Interest expense
|
|
|
8,689
|
|
6,101
|
General and administration
|
|
|
12,610
|
|
10,148
|
Foreign exchange loss (gain)
|
|
|
3,136
|
|
(4,427)
|
Other (income) expense
|
|
|
(67)
|
|
7,983
|
Accretion
|
5
|
|
5,824
|
|
5,238
|
Depletion and depreciation
|
3, 4
|
|
81,448
|
|
75,848
|
Impairments
|
3
|
|
-
|
|
65,800
|
Gain on acquisition
|
|
|
-
|
|
(45,309)
|
|
|
|
190,892
|
|
199,740
|
EARNINGS BEFORE INCOME TAXES
|
|
|
102,894
|
|
96,296
|
|
|
|
|
|
|
INCOME TAXES
|
|
|
|
|
|
Deferred
|
|
|
4,047
|
|
(28,431)
|
Current
|
|
|
46,710
|
|
59,633
|
|
|
|
50,757
|
|
31,202
|
|
|
|
|
|
|
NET EARNINGS
|
|
|
52,137
|
|
65,094
|
|
|
|
|
|
|
OTHER COMPREHENSIVE (LOSS) INCOME
|
|
|
|
|
|
Currency translation adjustments
|
|
|
(1,332)
|
|
7,381
|
COMPREHENSIVE INCOME
|
|
|
50,805
|
|
72,475
|
|
|
|
|
|
|
NET EARNINGS PER SHARE
|
|
|
|
|
|
Basic
|
|
|
0.53
|
|
0.67
|
Diluted
|
|
|
0.51
|
|
0.66
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING ('000s)
|
|
|
|
|
|
Basic
|
|
|
99,301
|
|
96,644
|
Diluted
|
|
|
101,349
|
|
98,191
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
(THOUSANDS OF CANADIAN DOLLARS, UNAUDITED)
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
March 31,
|
|
Note
|
|
2013
|
|
2012
|
OPERATING
|
|
|
|
|
|
Net earnings
|
|
|
52,137
|
|
65,094
|
Adjustments:
|
|
|
|
|
|
|
Accretion
|
5
|
|
5,824
|
|
5,238
|
|
Depletion and depreciation
|
3, 4
|
|
81,448
|
|
75,848
|
|
Impairments
|
3
|
|
-
|
|
65,800
|
|
Gain on acquisition
|
|
|
-
|
|
(45,309)
|
|
Unrealized loss on derivative instruments
|
|
|
1,113
|
|
8,339
|
|
Equity based compensation
|
8
|
|
16,136
|
|
10,055
|
|
Unrealized foreign exchange loss (gain)
|
|
|
2,519
|
|
(5,247)
|
|
Unrealized other expense (income)
|
|
|
405
|
|
(265)
|
|
Deferred taxes
|
|
|
4,047
|
|
(28,431)
|
Asset retirement obligations settled
|
5
|
|
(1,388)
|
|
(766)
|
Changes in non-cash operating working capital
|
|
|
28,471
|
|
(25,469)
|
Cash flows from operating activities
|
|
|
190,712
|
|
124,887
|
|
|
|
|
|
|
INVESTING
|
|
|
|
|
|
Drilling and development
|
3
|
|
(179,520)
|
|
(87,896)
|
Exploration and evaluation
|
4
|
|
(9,576)
|
|
(6,464)
|
Property acquisitions
|
3
|
|
-
|
|
(106,184)
|
Dispositions
|
3
|
|
8,627
|
|
-
|
Changes in non-cash investing working capital
|
|
|
38,210
|
|
(6,754)
|
Cash flows used in investing activities
|
|
|
(142,259)
|
|
(207,298)
|
|
|
|
|
|
|
FINANCING
|
|
|
|
|
|
Increase in long-term debt
|
|
|
69,429
|
|
-
|
Issuance of shares pursuant to the dividend reinvestment plan
|
|
|
-
|
|
17,558
|
Cash dividends
|
|
|
(43,024)
|
|
(55,047)
|
Cash flows from (used in) financing activities
|
|
|
26,405
|
|
(37,489)
|
Foreign exchange (loss) gain on cash held in foreign currencies
|
|
|
(470)
|
|
30
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
74,388
|
|
(119,870)
|
Cash and cash equivalents, beginning of period
|
|
|
102,125
|
|
234,507
|
Cash and cash equivalents, end of period
|
|
|
176,513
|
|
114,637
|
|
|
|
|
|
|
Supplementary information for operating activities - cash payments
|
|
|
|
|
|
|
Interest paid
|
|
|
12,092
|
|
9,507
|
|
Income taxes paid
|
|
|
32,635
|
|
19,699
|
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
|
|
|
-
|
|
-
|
|
-
|
|
65,094
|
|
65,094
|
Currency translation adjustments
|
|
|
-
|
|
-
|
|
7,381
|
|
-
|
|
7,381
|
Equity based compensation expense
|
|
|
-
|
|
9,419
|
|
-
|
|
-
|
|
9,419
|
Dividends declared
|
7
|
|
-
|
|
-
|
|
-
|
|
(55,124)
|
|
(55,124)
|
Issuance of shares pursuant to the
|
|
|
|
|
|
|
|
|
|
|
|
dividend reinvestment plan
|
7
|
|
17,558
|
|
-
|
|
-
|
|
-
|
|
17,558
|
Shares issued pursuant to the bonus plan
|
7
|
|
636
|
|
-
|
|
-
|
|
-
|
|
636
|
Balances as at March 31, 2012
|
|
|
1,386,339
|
|
65,887
|
|
(26,006)
|
|
(49,655)
|
|
1,376,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
-
|
|
-
|
|
-
|
|
52,137
|
|
52,137
|
Currency translation adjustments
|
|
|
-
|
|
-
|
|
(1,332)
|
|
-
|
|
(1,332)
|
Equity based compensation expense
|
|
|
-
|
|
15,507
|
|
-
|
|
-
|
|
15,507
|
Dividends declared
|
7
|
|
-
|
|
-
|
|
-
|
|
(59,612)
|
|
(59,612)
|
Issuance of shares pursuant to the
|
|
|
|
|
|
|
|
|
|
|
|
dividend reinvestment plan
|
7
|
|
15,532
|
|
-
|
|
-
|
|
-
|
|
15,532
|
Shares issued pursuant to the bonus plan
|
7
|
|
629
|
|
-
|
|
-
|
|
-
|
|
629
|
Balances as at March 31, 2013
|
|
|
1,497,506
|
|
85,088
|
|
(33,741)
|
|
(107,346)
|
|
1,441,507
|
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 MONTHS ENDED MARCH 31, 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
April 30, 2013.
2. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
As of January 1, 2013, Vermilion adopted the following standards and
amendments 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 on 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 1
|
|
(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
|
|
178,013
|
|
1,507
|
|
179,520
|
Dispositions
|
|
(8,627)
|
|
-
|
|
(8,627)
|
Changes in estimate for asset retirement obligations
|
|
(13,657)
|
|
-
|
|
(13,657)
|
Depletion and depreciation 1
|
|
(75,395)
|
|
(2,150)
|
|
(77,545)
|
Effect of movements in foreign exchange rates
|
|
(961)
|
|
(11)
|
|
(972)
|
Balance at March 31, 2013
|
|
2,509,494
|
|
14,465
|
|
2,523,959
|
1
|
Depletion and depreciation above excludes depletion recorded as a
component of crude oil inventory.
|
4. EXPLORATION AND EVALUATION ASSETS
The following table reconciles the change in Vermilion's exploration and
evaluation assets:
($M)
|
Exploration and Evaluation Assets
|
Balance at January 1, 2012
|
|
92,301
|
Additions
|
|
39,317
|
Transfers to petroleum and natural gas assets
|
|
(10,528)
|
Depreciation
|
|
(3,485)
|
Effect of movements in foreign exchange rates
|
|
(444)
|
Balance at December 31, 2012
|
|
117,161
|
Additions
|
|
9,576
|
Depreciation
|
|
(903)
|
Effect of movements in foreign exchange rates
|
|
(59)
|
Balance at March 31, 2013
|
|
125,775
|
5. ASSET RETIREMENT OBLIGATIONS
The following table reconciles the change in Vermilion's asset
retirement obligations:
($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
|
|
|
1,023
|
Obligations settled
|
|
|
(1,388)
|
Accretion
|
|
|
5,824
|
Changes in discount rates
|
|
|
(14,680)
|
Effect of movements in foreign exchange rates
|
|
|
271
|
Balance at March 31, 2013
|
|
|
362,113
|
6. LONG-TERM DEBT
The following table summarizes Vermilion's outstanding long-term debt:
|
As At
|
($M)
|
Mar 31, 2013
|
Dec 31, 2012
|
Revolving credit facility
|
|
490,303
|
|
419,784
|
Senior unsecured notes
|
|
222,460
|
|
222,238
|
Long-term debt
|
|
712,763
|
|
642,022
|
Revolving Credit Facility
At March 31, 2013, Vermilion had in place a bank revolving credit
facility totalling $950 million, of which approximately $490.3 million
was drawn. The facility, which matures in May of 2015, 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
outstanding letters of credit associated with Vermilion's operations
totalling $49.1 million as at March 31, 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
of not greater than 4.0. In addition, Vermilion must maintain a ratio
of consolidated total senior debt (consolidated total debt excluding
unsecured and subordinated debt) to consolidated net earnings before
interest, income taxes, depreciation, accretion and other certain
non-cash items of not greater than 3.0.
As at March 31, 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
|
|
315
|
|
15,532
|
Shares issued pursuant to the bonus plan
|
|
12
|
|
629
|
Balance as at March 31, 2013
|
|
99,462
|
|
1,497,506
|
Dividends declared to shareholders for the three months ended March 31,
2013 were $59.6 million.
Subsequent to the end of the period and prior to the condensed
consolidated interim financial statements being authorized for issue on
April 30, 2013, Vermilion declared dividends totalling $20.2 million or
$0.20 per share.
8. EQUITY BASED COMPENSATION
The following table summarizes the number of awards outstanding under
the Vermilion Incentive Plan ("VIP"):
Number of Awards ('000s)
|
2013
|
|
2012
|
Opening balance
|
1,690
|
|
1,750
|
Granted
|
57
|
|
681
|
Vested
|
-
|
|
(596)
|
Forfeited
|
(3)
|
|
(145)
|
Closing balance
|
1,744
|
|
1,690
|
The fair value of a VIP award is determined on the grant date at the
closing price of Vermilion's common shares on the Toronto Stock
Exchange, adjusted by the estimated performance factor that will
ultimately be achieved. Dividends, which notionally accrue to the
awards during the vesting period, are not included in the determination
of grant date fair values.
9. SEGMENTED INFORMATION
The following segment information has been prepared by segregating the
results into the geographic areas in which Vermilion operates. The
following amounts include transactions between segments, which are
recorded at fair value at the date of recognition.
|
|
Three Months Ended March 31, 2013
|
($M)
|
Canada
|
France
|
Netherlands
|
Australia
|
Ireland
|
Total
|
Total assets
|
1,289,888
|
|
842,756
|
|
140,269
|
|
342,107
|
|
588,777
|
|
3,203,797
|
Drilling and development
|
84,060
|
|
21,592
|
|
1,999
|
|
55,349
|
|
16,520
|
|
179,520
|
Exploration and evaluation
|
9,576
|
|
-
|
|
-
|
|
-
|
|
-
|
|
9,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales to external customers
|
83,688
|
|
121,566
|
|
34,421
|
|
69,901
|
|
-
|
|
309,576
|
Royalties
|
(8,989)
|
|
(6,801)
|
|
-
|
|
-
|
|
-
|
|
(15,790)
|
Revenue from external customers
|
74,699
|
|
114,765
|
|
34,421
|
|
69,901
|
|
-
|
|
293,786
|
Realized gain (loss) on derivative instruments
|
237
|
|
(2,019)
|
|
-
|
|
(1,005)
|
|
-
|
|
(2,787)
|
Transportation expense
|
(2,269)
|
|
(2,754)
|
|
-
|
|
-
|
|
(1,618)
|
|
(6,641)
|
Operating expense
|
(13,841)
|
|
(19,939)
|
|
(3,969)
|
|
(14,826)
|
|
-
|
|
(52,575)
|
Operating income (loss)
|
58,826
|
|
90,053
|
|
30,452
|
|
54,070
|
|
(1,618)
|
|
231,783
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate income taxes
|
251
|
|
18,659
|
|
9,434
|
|
7,213
|
|
-
|
|
35,557
|
PRRT
|
-
|
|
-
|
|
-
|
|
11,153
|
|
-
|
|
11,153
|
Current income taxes
|
251
|
|
18,659
|
|
9,434
|
|
18,366
|
|
-
|
|
46,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2012
|
($M)
|
Canada
|
France
|
Netherlands
|
Australia
|
Ireland
|
Total
|
Total assets
|
1,181,389
|
|
727,854
|
|
145,102
|
|
260,736
|
|
511,918
|
|
2,826,999
|
Drilling and development
|
65,546
|
|
5,727
|
|
2,473
|
|
4,544
|
|
9,606
|
|
87,896
|
Exploration and evaluation
|
6,367
|
|
-
|
|
97
|
|
-
|
|
-
|
|
6,464
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas sales to external customers
|
80,526
|
|
103,511
|
|
31,820
|
|
94,631
|
|
-
|
|
310,488
|
Royalties
|
(8,969)
|
|
(5,483)
|
|
-
|
|
-
|
|
-
|
|
(14,452)
|
Revenue from external customers
|
71,557
|
|
98,028
|
|
31,820
|
|
94,631
|
|
-
|
|
296,036
|
Realized loss on derivative instruments
|
(638)
|
|
(4,914)
|
|
-
|
|
(166)
|
|
-
|
|
(5,718)
|
Transportation expense
|
(2,044)
|
|
(2,648)
|
|
-
|
|
-
|
|
(2,001)
|
|
(6,693)
|
Operating expense
|
(14,267)
|
|
(15,102)
|
|
(4,109)
|
|
(14,075)
|
|
-
|
|
(47,553)
|
Operating income (loss)
|
54,608
|
|
75,364
|
|
27,711
|
|
80,390
|
|
(2,001)
|
|
236,072
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate income taxes
|
442
|
|
12,895
|
|
9,057
|
|
9,970
|
|
-
|
|
32,364
|
PRRT
|
-
|
|
-
|
|
-
|
|
27,269
|
|
-
|
|
27,269
|
Current income taxes
|
442
|
|
12,895
|
|
9,057
|
|
37,239
|
|
-
|
|
59,633
|
Reconciliation of operating income to net earnings
|
|
Three Months Ended
|
($M)
|
|
Mar 31, 2013
|
|
Mar 31, 2012
|
Operating income
|
|
231,783
|
|
236,072
|
Equity based compensation
|
|
(16,136)
|
|
(10,055)
|
Unrealized loss on derivative instruments
|
|
(1,113)
|
|
(8,339)
|
Interest expense
|
|
(8,689)
|
|
(6,101)
|
General and administration
|
|
(12,610)
|
|
(10,148)
|
Foreign exchange (loss) gain
|
|
(3,136)
|
|
4,427
|
Other income (expense)
|
|
67
|
|
(7,983)
|
Accretion
|
|
(5,824)
|
|
(5,238)
|
Depletion and depreciation
|
|
(81,448)
|
|
(75,848)
|
Impairments
|
|
-
|
|
(65,800)
|
Gain on acquisition
|
|
-
|
|
45,309
|
Earnings before income taxes
|
|
102,894
|
|
96,296
|
Income taxes
|
|
(50,757)
|
|
(31,202)
|
Net earnings
|
|
52,137
|
|
65,094
|
10. CAPITAL DISCLOSURES
|
|
Three Months Ended
|
($M except as indicated)
|
|
Mar 31, 2013
|
Mar 31, 2012
|
Long-term debt
|
|
712,763
|
373,798
|
Current liabilities
|
|
391,708
|
493,465
|
Current assets
|
|
(359,709)
|
(337,232)
|
Net debt [1]
|
|
744,762
|
530,031
|
|
|
|
|
Cash flows from operating activities
|
|
190,712
|
124,887
|
Changes in non-cash operating working capital
|
|
(28,471)
|
25,469
|
Asset retirement obligations settled
|
|
1,388
|
766
|
Fund flows from operations
|
|
163,629
|
151,122
|
Annualized fund flows from operations [2]
|
|
654,516
|
604,488
|
|
|
|
|
Ratio of net debt to annualized fund flows from operations ([1] ÷ [2])
|
|
1.1
|
0.9
|
The ratio of net debt to annualized fund flows from operations was
higher in the current year as compared to the prior year primarily as a
result of an increase in net debt. The increase in net debt was the
result of the two acquisitions that occurred in France during the first
and fourth quarter of 2012 and capital expenditures pertaining to the
Ireland assets, which are currently under development.
Vermilion is subject to certain externally imposed capital requirements
under its revolving credit facility. During the periods covered by
these consolidated financial statements, Vermilion continued to comply
with these requirements.
11. FINANCIAL INSTRUMENTS
Classification of Financial Instruments
The following table summarizes information relating to Vermilion's
financial instruments as at March 31, 2013 and December 31, 2012:
|
|
|
|
|
|
|
As at March 31, 2013
|
|
|
As at December 31, 2012
|
|
|
|
Class of financial instrument
|
Consolidated balance sheet caption
|
Accounting designation
|
Related caption on Statement of Net Earnings
|
|
|
Carrying value
($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
loss (gain)
|
|
|
176,513
|
|
176,513
|
|
|
102,125
|
|
102,125
|
|
|
Level 1
|
Receivables
|
Accounts receivable
|
LAR
|
Gains and losses on foreign exchange are included in foreign exchange
loss (gain) and impairments are recognized as general and
administration expense
|
|
|
156,966
|
|
156,966
|
|
|
180,064
|
|
180,064
|
|
|
Not applicable
|
Derivative assets
|
Derivative instruments
|
HFT
|
Loss on derivative instruments
|
|
|
746
|
|
746
|
|
|
2,086
|
|
2,086
|
|
|
Level 2
|
Derivative liabilities
|
Derivative instruments
|
HFT
|
Loss on derivative instruments
|
|
|
(8,257)
|
|
(8,257)
|
|
|
(8,484)
|
|
(8,484)
|
|
|
Level 2
|
Payables
|
Accounts payable and accrued liabilities
|
OTH
|
Gains and losses on foreign exchange are included in foreign exchange
loss (gain)
|
|
|
(341,667)
|
|
(341,667)
|
|
|
(319,518)
|
|
(319,518)
|
|
|
Not applicable
|
|
|
Dividends payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
Long-term debt
|
OTH
|
Interest expense
|
|
|
(712,763)
|
|
(728,101)
|
|
|
(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 three months ended March 31, 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.
|
March 31, 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
|
|
(6,953)
|
|
Euro by 5% over the relevant closing rates on March 31, 2013
|
|
|
|
Decrease in strength of the Canadian dollar against the
|
|
6,953
|
|
Euro by 5% over the relevant closing rates on March 31, 2013
|
|
|
Currency risk - US $ to Canadian
|
Increase in strength of the Canadian dollar against the
|
|
(1,440)
|
|
US$ by 5% over the relevant closing rates on March 31, 2013
|
|
|
|
Decrease in strength of the Canadian dollar against the
|
|
1,440
|
|
US$ by 5% over the relevant closing rates on March 31, 2013
|
|
|
Currency risk - AUD $ to Canadian
|
Increase in strength of the Canadian dollar against the
|
|
(1,898)
|
|
AUD$ by 5% over the relevant closing rates on March 31, 2013
|
|
|
|
Decrease in strength of the Canadian dollar against the
|
|
1,898
|
|
AUD$ by 5% over the relevant closing rates on March 31, 2013
|
|
|
Commodity price risk
|
Increase in relevant oil reference price within option pricing models used to
|
|
(13,178)
|
|
determine the fair value of financial derivative positions by
US$5.00/bbl at March 31, 2013
|
|
|
|
Decrease in relevant oil reference price within option pricing models used to
|
|
6,014
|
|
determine the fair value of financial derivative positions by
US$5.00/bbl at March 31, 2013
|
|
|
Interest rate risk
|
Increase in average Canadian prime interest rate
|
|
(1,021)
|
|
by 100 basis points during the three months ended March 31, 2013
|
|
|
|
|
Decrease in average Canadian prime interest rate
|
|
1,021
|
|
by 100 basis points during the three months ended March 31, 2013
|
|
|
|
SOURCE Vermilion Energy Inc.